1.0 INTRODUCTION
Industrial revolution that took place in the global north in the 19th century and the upsurge of globalization indices from the 20th century brought about increase in international commercial transactions. Despite the development that came with it, international trade poses a range of risks conditioned by the parties’ remoteness and differences found in different jurisdictions. It is the reduction of such risks that led to many legal frameworks to regulate the process. These regulations include but are not limited to United Nations Convention on Contracts for the International Sale of Goods (CISG) 1980 and Sale of Goods Act 1893 (used in England and became a statute of general application in Nigeria save for states that have theirs). The task here is to explore the rights, duties and remedies of buyers/sellers in Cost, Insurance and Freight (CIF) and Free on Board (FOB) contracts.
2.0 UNDERSTANDING CIF AND FOB
Ordinarily, CIF and FOB contracts are quite different from other contracts. CIF means cost, insurance, freight. In Arnhold Karberg v Blythe, Green, Jourdain and Co., Scruttun J. defines it as a contract to supply goods that comply with the contract of sale, and to obtain a contract for carriage and contract of insurance. For him, the main thing that distinguishes CIF contract from others is the fact that it is contract for sale of document and not for sale of goods. But for Kerr J., it is contract for the sale of goods to be performed by the delivery of documents. In Johnson v Taylor Bros, Lord Atkinson sees it is a contract of sale involving the vendor to make out an invoice, ship described goods, procure contract of affreightment, arrange for insurance, ship the goods at reasonable time as well as deliver the needed documents to that effect. The implication of this definition is that the seller is required to ship goods at the port of shipment in a CIF contract. But this is not always the case as goods can be sold when already afloat as seen in the case of Hindley and Co Ltd v East Indian Produce Co Ltd. This can actually happen where:
- The seller had already shipped the goods with the view of getting a buyer as mostly seen in the oil and grain businesses.
- The seller purchased from a third party
On the other hand, FOB means Free on Board. In Wimble and Sons v Rosenberg and Sons, court defines it as a contract for the sale of goods where the seller agrees to deliver the goods over ship’s rail, and the buyer agrees to convey it overseas.
3.0 DIFFERENCES BETWEEN CIF AND FOB CONTRACTS
There are subtle differences that can be decoded even from the definitions of CIF and FOB above. For instance, the price usually paid by the buyer in CIF include insurance, cost of shipment and delivery, while in FOB the buyer bears all the risks and expenses once the goods cross ship rail.
With regard to passing of property in CIF contract, it takes place upon transfer of documents from the seller to the buyer, shipment, ascertainment of goods, tendering of BOL. In contrast, property passes in FOB contract when it gets to the buyer. This is in contrast to S. 17(1) of SOGA that places utmost concern on the intention of the parties for property to pass. According to S. 18, Rule 5 (1), the assent of the parties is generally inferred from the terms of the contract or the practices of the trade, unlike in land carriage where in most cases property passes either at carriage or delivery, pending whether or not they are specific goods. CISG did not specifically state anything as to the passing of property.
Passing of risks, that is, burden of loss under CIF contract takes place at the moment of shipment. In Biddel Bros v E. Clemens Horst Co shipment, it was taken to imply the seller doing all that needs to be done for the buyer to get his goods. But this is not the case under SOGA where S.20 states that risk passes with property. Art. 67(2) of CISG is to the effect that risk does not pass to the buyer until the goods are clearly identified in the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.
4.0 RELEVANT PROVISIONS IN SOGA AND CISG ON THE RIGHTS AND DUTIES OF BUYER/SELLER IN CIF AND FOB CONTRACTS
The provisions of SOGA and CISG may be considered here through the lens of contract in general, duties and remedies of seller/buyer, passing of property and passing of risk.
CIF and FOB contracts usually have tripartite dimensions involving about four parties, namely: the shipper, the insurer, the carrier and the buyer. This is an exception to the privity of contract noted in Dunlop Pneumatic Tyre v Selfridge & Co. Ltd. Art.14 of CISG provides that contract ordinarily involves one or two persons, especially in different states as stated in Art. 1. But according to S.1 of SOGA, it is an agreement between a seller and a buyer in exchange of goods for consideration
With regard to the duties and remedies of the seller/buyer under CIF and FOB contracts, the following are to be noted. Duties of the seller include but not limited to:
a) The duty to ship goods that are in tandem with the description specified in the contract. S. 13 of SOGA provides for implied condition in the sale of goods. In Bowes v Shand, the court held that breach depends on the facts of the case and the degree of non-conformity. Even terms relating to packaging are generally regarded as part of the description of goods. In Manbre Saccharine Co v Corn Products, the contact was for the sale of starch in 280 1b bags. The cargo was shipped partly in 280 1b bags and partly in 140 1b bags. The sellers argued that the packing of the goods was not a material part of the bargain, but court held that packing is part of the description of goods and the seller was in breach of shipping goods that did not correspond with description. Art. 35 of CISG makes similar provision while Art. 36 states the liability of the seller if otherwise becomes the case. Art. 41 went further to assert that the goods must be free of any encumbrance or third party rights.
b) Duty to get ready as well as send the required documents. According to the court in Diamond Alkali v Bourgeois, these documents must be clean, transferable and should cover the entire voyage. The documents to be sent include- invoice, bill of laden, insurance, licences where necessary, certificate of quality, certificate of origin, and documents required by the custom. Art. 34 of CISG states that if the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place required by the contract…. In like manner, S. 19(2) of SOGA is to the effect that where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.
c) Duty to comply with the date and time of contract. S. 27 of SOGA provides for delivery of goods by the seller at a reasonable time. Art. 33 of CISG lays credence to this.
Seller’s remedies include:
a) He can file action before the court for price. S. 49 (1) of SOGA encourages and empowers the seller to maintain an action against the buyer for his price of goods if he wrongfully neglects or refuses to pay. Articles 62-65 of CISG centre on action for price and avoidance of contract.
b) He can also sue for damages for non-acceptance. S. 50 (1) of SOGA provides for this while subsection (2) maintains that the measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
c) Right to retain goods if there is no payment from the buyer. Unpaid seller is defined in S. 38 of SOGA while S. 41(1) provides his right to exercise lien over the goods till payment is made.
d) The seller even has the right to resale the unpaid goods while still on transit. S. 48(2) of SOGA provides that buyer of such goods acquires good title thereto as against the original buyer. But CISG did not deem it fit to include such remedy.
On the part of the buyer, he is bound-
a) To pay for the goods (in the agreed currency) upon tendering of documents. S. 27 of SOGA notes the corresponding duty of the buyer to accept and pay for the goods, and according to S. 29 (4) of the same SOGA, what is a reasonable time is a question of fact. Articles 54-59 of CISG are pari materia
b) To nominate the port of embarkation. Art. 60(a) of CISG makes indirect allusion to this when it talked about taking delivery after doing reasonably expected things. There is no specific mention of such in SOGA with reference to CIF and FOB contract, although S. 29 (1) of SOGA maintains that the place of delivery, perhaps for other contracts, is the seller’s business place or his residence.
c) To take delivery of the goods at the port of embarkation. Art. 60(b) of CISG
d) To obtain import license save the contract provides otherwise
The buyer also has the following rights and remedies:
a) He retains the right to reject non-conforming goods. S.13-15 of SOGA are to the effect that the goods must conform to description, implied conditions and sample. Art. 46(2) and (3) of CISG makes similar provision
b) He can maintain action for damages owing to failure to tender valid documents, late shipment or non delivery. Art. 45 makes allusion to the claim of damages provided in Art. 74-77 of CISG.
5.0 CONCLUSION
From the above exposé, it is obvious that both buyer and seller have rights and duties in CIF and FOB contracts. It is, however, regrettable that there is conspicuous absence of specific legal frameworks on CIF and FOB contracts in Nigeria; the only statute regulating the field is the Carriage of Goods by Sea Act, which has incorporated into our legal system what is generally referred to as the Hague Rules. Worst still, Nigeria is not yet a signatory to CISG and has not domesticated it. A specific legislation on CIF and FOB contracts, factoring in modern ways of international trade, will be a welcomed development.
REFERENCES
- Arnhold Karberg v Blythe, Green, Jourdain and Co (1915) 1 K.B. 495.
- Johnson v Taylor Bros (1920) AC 144 at 145.
- Hindley and Co Ltd v East Indian Produce Co Ltd (1973) 2 Lloyd’s Rep 515.
- Wimble and Sons v Rosenberg and Sons (1913) 3 K.B. 743.
- Dunlop Pneumatic Tyre v Selfridge & Co. Ltd (1915) AC 847.
- Bowes v Shand (1877) 2 App Cas 455.
- Manbre Saccharine Co v Corn Products (1919) 1 K.B. 198.
- Diamond Alkali v Bourgeois (1921) 3 K.B. 443.
- Biddel Bros v E. Clemens Horst Co shipment (1911) 1 K.B. 934.
- United Nations Convention on Contracts for the International Sale of Goods (CISG), 1980.
- Sale of Goods Act, 1893
