Reproduced with permission of Camilla B. Andersen & Ulrich G. Schroeter eds., Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, Wildy, Simmonds & Hill Publishing (2008) 77-105

Introduction
The Meaning of Risk
Deterioration and the Seller's Responsibilities
Ancillary Responsibilities of the Seller
The Incidence of Risk in the CISG
Sales Afloat and Retrospectivity
The Residual Risk Rule
Breach of Contract and Divesting Risk
Postscript

INTRODUCTION

Risk has long had an association with property (or ownership). The Roman law principle of res peril domino broadly matches the position in English law that risk passes presumptively with ownership to the buyer.[1] In international sales conducted on English law terms, however, risk only rarely passes with ownership. The pitfalls associated with a seller extending credit to the buyer over a long distance militate in favour of a cash against documents or similar system of payment, and therefore demand that the seller reserve ownership of the goods until payment is made, which will be at some point during the transit of the goods or even after the transit has been completed. Although perceived difficulties concerning the meaning of delivery have impeded the development of a uniform law of international sale, the trend, exemplified by the CISG, is to make the transfer of risk dependent upon delivery, an expression that should be understood for present purposes in a not unduly technical way. Indeed, when dealing with risk, delivery must be understood in an attenuated sense in those cases, which are the norm in international sales, involving a third party carrier.

Risk is often discussed without reference to the events that constitute risk. As a broad concept, risk underpins the entire structure of commercial law and commercial dealings. It has also a role to play in general contract [page 77] law. To take a simple illustration, if a buyer and seller enter into a forward contract for the delivery of soya beans in six months' time based on a price of US $500 per tonne, each party by the act of contractual commitment has taken steps to avoid future risk. The seller is protected against the risk of a future market fall after the contract date and the buyer against a rise in the market after the contract date. Suppose that the buyer is not an end-user of the goods, intends to resell but delays entering into a sub-sale transaction. This means that the buyer has taken a "long" position in the market, hoping to resell the soya beans at a later date on a rising market. The buyer thus takes the risk of the market going down rather than up. That is not the risk that is dealt with in this paper or in Articles 66-70 CISG. It is a type of contractual risk that passes immediately upon the conclusion of the contract and has nothing to do with the character of the goods that are the subject matter of the contract or with their delivery or handing over.

When we speak of risk in the narrower terms that are the subject of this paper, it is useful to have an understanding of the broader meaning so that we might more fully understand the nature of risk that is dealt with in Articles 66-70 CISG. We can start from the position that risk embraces the loss of and damage to the contract goods. But it does not extend to all loss or damage; loss or damage due to the default of the seller or buyer, as the case may be, is excluded. The loss or damage that is the subject of risk is therefore such casualty to the goods as is caused by acts of God or the default of third parties.[2] According to one Chinese tribunal: "Risk refers to the damages by accident, such as loss or damages by natural or fortuitous accidents in transit."[3] Beyond loss or damage caused by natural or human disaster lies governmental disaster in the form of requisition or expropriation. There is a case for treating this as embraced within the risk as understood in this narrower sense: it depends [page 78] upon the meaning of "loss" as used in Article 66 CISG. One writer takes the view that this type of "legal" risk is not dealt with by the risk provisions in the CISG.[4] He also criticises, quite rightly, a strange Dutch decision extending the risk provisions in the CISG to the faulty attribution of a work of art to a particular artist.[5] The correctness of attribution is a matter of contractual risk that can be allocated one way or other under the contract, but does not pertain to loss or damage as contemplated by the CISG. The identity of the artist as the creator of the painting was settled at the moment of the painting's creation, long before, maybe even centuries before, any delivery or handing over to the carrier.

THE MEANING OF RISK

Risk is often discussed as though it were a property notion linked to either ownership or possession. It must nevertheless be converted into contractual language for its impact on the rights and obligations of buyer and seller to be understood. This has been well expressed in English law by Sealy:

The meaning of this passage can best be explored by taking the, perhaps unusual, example of the buyer who is on risk despite not yet having received the goods from the seller. In this example, the seller can require the buyer to pay for the goods even though the seller cannot, because of the destruction of the goods, deliver them to the buyer, or even though the seller, because of damage suffered by the goods, cannot otherwise require the buyer to accept the damaged goods or avoid paying damages to the buyer. So, where the goods are destroyed prior to delivery, the buyer cannot decline to pay the [page 79] price on the ground that the seller has failed to deliver or that the seller has committed a breach of contract giving rise to a right to terminate or avoid the contract. If the goods are damaged so as to fall below the minimum quality or fitness standard laid down by the contract, the buyer cannot refuse to take delivery or pursue the seller with a claim for damages for non-performance of the contract. Again, it does not matter that the contractual deprivation suffered by the buyer would otherwise entitle the buyer to terminate or avoid the contract.

The above example concerns goods that suffer a casualty before delivery into the hands of the buyer. The example could be extended beyond that point, though the boundary of risk normally and tacitly stops where the goods are in the buyer's hands. This is because the seller is regarded as having performed the contract by that time so that the contract becomes fully executed.[7] Take the example of manufactured goods that perish four years after delivery and payment. It makes no practical sense to discuss the absence of any right in the buyer to recover the price on the ground that the buyer bears the risk of destruction. But if that destruction occurs shortly after delivery, especially if the goods are subject to a reservation of title because the buyer has not yet paid, the doctrine of risk may sufficiently remain in the eye of the observer for risk to be discussed, even though the conclusion will almost certainly be that the risk has been transferred to the buyer. Generally, risk as an issue is at its most lively when a third party carrier is involved and the goods are lost or damaged in transit. This is because the carrier's possession bridges the gap between the seller's actual possession and the buyer's actual possession.[8]

Placing the above examples within the legislative provisions of the CISG, a buyer to whom the risk has been transferred may not invoke Article 58(1) CISG to say that it does not have to pay until the seller places the goods at its disposal further to the seller's delivery obligation in Article 30 CISG. Nor will the buyer be able to invoke Article 25 CISG, claiming that it is substantially deprived of its contractual expectations, because of the loss of or severe damage done to the goods, and going on to invoke the [page 80] consequences of avoidance in Articles 81 and 84 CISG. The buyer may not also exercise rights under Article 50 CISG to reduce the price. Risk is not mentioned in these various provisions but it is a characteristic feature of the doctrine of risk that it overrides normal rules on contractual performance precisely because its function is to override those rules. In English law, for example, the normal duty of a CIF seller to tender clean documents is suspended if the bill of lading is annotated to show damage done to the goods on board the vessel, prior to the issue of the bill of lading but after risk has been transferred to the buyer.[9]

Article 66 CISG summarises the effect of risk being on the buyer:

This is a curiously worded provision in that it states the buyer's position in negative terms instead of positive terms. A positive expression of the same rule would be:

The meaning of Article 66 CISG is nevertheless plain enough. It is confined to cases of loss and damage and, unlike Article 96 of ULIS, does not extend to deterioration, a word capable of embracing "natural spoilage or evaporation".[10]

DETERIORATION AND THE SELLER'S RESPONSIBILITIES

The significance of Article 66 CISG stopping short of deterioration lies in the reconciliation of risk with the seller's fitness, quality and quantity obligations in Article 35 CISG. These take effect upon delivery of the goods, an event that broadly equates to the time that the risk is transferred to the buyer. Any remedies that the buyer may have for non-conforming delivery by the seller will then depend upon an examination conducted by the buyer which, in appropriate cases, will trigger a notice of defect. That examination must, according to Article 38 CISG, be carried out "within as short a time as is practicable in the circumstances". Article 38 CISG does not refer to where [page 81] the examination must take place; yet the time of examination is to a degree a function of the place, since a period dating from shipment is not the same as a period dating from the arrival of the goods at their destination. Since Article 38 CISG does not make reference to examination at the point of delivery, or of handing over to a carrier, no tribunal should compel the examination to be carried out in a particular place in the absence of a provision in the contract or a binding usage under Article 9 CISG. The significance of this is that examinations may often be conducted, after an extensive carriage, in the buyer's country or in some country other than the place of handing over to a carrier. The buyer may therefore, in conducting the examination, have to face the difficult question of determining whether any non-conformity in the goods was due to the seller's non-performance or was due instead to a risk event that occurred in the course of transit. All of this points to the practical wisdom of arranging for examination when the goods are handed over to the carrier, and even for such examination to be carried out by a disinterested third party whose certificate of examination is stated by the contract of sale to have a binding effect on both seller and buyer.[11] This proposal obviously works best for goods, like commodities, that can be adequately examined in a superficial manner than for complex manufactured goods.

To return to the buyer's decision stated above, it is not immediately obvious how difficult can be the task of identifying the cause of non-conformity of the goods. We should now return to the question of deterioration, which is not explicitly referred to in the CISG. I shall draw the facts from a leading English case [12] to illustrate the problem. The case concerned a cargo of Cyprus spring potatoes consigned on C&F [13] Liverpool terms. At the end of the journey, the potatoes were found to be inedible, suffering from a condition known as soft rot. It was the seller's contention that the potatoes were perfectly edible when loaded and that was as far as the seller's responsibilities went.[14] In a C&F contract, risk passes as from shipment in the Cypriot port. That said, the consumers of the potatoes were not travelling on board [page 82] the ship, so the only sensible interpretation of the seller's responsibilities for the merchantable quality and fitness for purpose of the potatoes was that they should be fresh enough to withstand a normal voyage and fulfil their commercial function in the English consumer market. Without an inspection at the loading port in Cyprus, it will often be a difficult issue to determine whether the potatoes were rotten because of what happened to them in transit or because they were not sufficiently fresh at the start of the voyage. It seems impossible to devise a satisfactory mode and burden of proof for such cases that will provide the certainty needed to abbreviate trials and encourage the settlement of disputes before trial. In this case, as it happened, the trial judge was reversed because of the finding of the Court of Appeal that the potatoes suffered damage in an intermediate Cypriot port when lying unventilated in the hold for five days.

The problem in the above case is just as much a problem arising under the CISG and the best practical advice that can be given is for the examination to be conducted when the goods are handed over to the marine carrier at the loading port.[15] This was a case were the goods were damaged in transit. If the goods had deteriorated because they were not fit to withstand a normal voyage, then that would not have been a matter of the seller's responsibilities and not one of risk at all. Those who drafted the CISG were wise to exclude all reference to deterioration from the provisions on risk.

ANCILLARY RESPONSIBILITIES OF THE SELLER

After stating the general effect of the transfer of risk, Article 66 CISG then goes on to state that the risk-bearing buyer's duty to pay does not apply in those cases where "loss or damage is due to an act or omission of the seller". The seller's capacity to cause damage or loss is at its most extensive where the seller remains in possession of the goods, but cases where the seller remains in possession and the buyer is on risk will be relatively rare. In my view, the causation test laid down in these words in Article 66 CISG should embrace cases where damage or loss is caused by the conditions on which [page 83] the goods are carried.[16] For example, the CIF seller may engage a carrier to transport oil to Rotterdam in the winter months. There is a risk in such cases of the oil solidifying in the tanker if there are no active heating coils. Or fresh agricultural produce may be carried in the summer months in the Mediterranean and not in a refrigerated vessel. In these cases, there may be no breach of the contract of carriage by the carrier. Consequently, the CIF buyer who has to deal with defective goods at the discharge port will not have a claim against the carrier. The only remedy the buyer might have, apart from an insurance claim, will be under the contract of sale to resist the payment of the price or to claim damages for breach of contract. The particular remedy will depend upon whether the non-conformity of the goods is sufficiently serious to amount to a fundamental breach of contract. The buyer's position stated above is indirectly supported by Article 66 CISG, which does not as such deny that the risk of loss is transferred to the buyer in such cases. Indeed, the better view is that the risk is transferred. If, for example, goods are not shipped on a refrigerated vessel when they ought to have been, but the vessel sinks before the goods can suffer any heating damage, then the buyer may not point to the seller's contract with the carrier as a justification for not paying the price.[17] In this example, there is no claim of the buyer than can be offset against the seller's claim for the price. A different view to the one advanced above would be that risk has generally been transferred to the buyer but that the effect of the transfer can be reversed, in some cases at least, by the claim for non-performance of the contract that the buyer has against the seller. [page 84]

Although debate concerning the doctrine of risk usually centres on which person, seller or buyer, bears the risk of loss or damage, this is a misleading way in which to approach risk in the law of sale. Consider the following two propositions: (1) the risk remains with the seller; (2) the risk has been transferred to the buyer. These two statements are not mirror image statements. The consequence of the second is that the buyer has to pay in full and, moreover may not invoke the law of impossibility of performance or frustration (the common law expression) or, under the CISG, exemption. So far as the buyer could claim exemption under Article 79 CISG in respect of its obligation to pay, which is inherently unlikely, it would be because its inability to pay was due to an impediment beyond its control that it could not reasonably have taken into account at the date the contract was concluded. Where the risk is on the buyer, the buyer may not want to pay but the performance of the buyer's payment obligation is not impeded. And even if Article 79 CISG were not so restricted, it would have to give way if it found itself in conflict with the risk rules, or else the risk rules would serve no purpose.

As for the first proposition stated above, the consequence of this is that the seller is not unburdened of its delivery and quality and fitness obligations when laying a claim against the buyer for the price. Nevertheless, just because the risk is on the seller does not mean that the seller is prevented from invoking defences based on impossibility, frustration or exemption, as the case may be. That would depend upon the operation of those doctrines, which in this case function quite apart from risk. What really matters is not as such the incidence of risk but whether risk has been transferred to the buyer. A buyer on risk has to pay; a seller on risk may not insist on payment. That is the proper domain of the doctrine of risk in the law of sale.

THE INCIDENCE OF RISK IN THE CISG

Article 66 CISG, as we have seen, deals with the contractual consequences of risk. The effects of avoidance for fundamental breach on the transfer of risk are dealt with by Article 70 CISG. Articles 67-69 CISG are the provisions that lay down all the rules applicable to the moment when risk is transferred to the buyer. In brief, Article 67 CISG concerns goods that involve carriage, which is the most likely case in international sales. Article 68 CISG concerns [page 85] goods that are sold in transit. Though a frequently discussed case, this is not at all a common one since it concerns contracts that are concluded after the goods have been shipped. Finally, Article 69 CISG lays down the residual rule that applies when a case is not caught by Articles 67-68 CISG.

Of these three risk transfer provisions, Article 67 CISG is the most significant. It consists of a rule in paragraph (1) and an exception to the rule in the same paragraph. The transfer of the risk that should take place under paragraph (1), whether under the main rule or the exception, is then in paragraph (2) made subject to a requirement that the goods be first identified to the contract. The main rule in paragraph (1) calls for the risk to be transferred when the goods are "handed over to the first carrier for transmission to the buyer".[18] This rule is based on the sensible policy, especially where the buyer and seller are resident in different countries and where the goods have arrived in the buyer's country, that it is better to give the buyer as the person on the spot the task of determining what has happened to the goods in transit.[19] A number of points flow from this rule.

First, the expression "handed over" is preferred in the text to the expression "delivered".[20] Nevertheless, this expression is tantamount to performance by the seller under Article 31 CISG of its duty to deliver to the buyer. That provision states that a seller delivers to the buyer when handing over the goods to the first carrier, in those cases where the goods have to be transmitted to the buyer.[21] Article 31 CISG, therefore, contemplates complex carriage [page 86] as the norm, when in fact there might in many cases be only one carrier involved in transporting the goods.

Secondly, the rule does not make it explicit who is a carrier for present purposes. The argument has been advanced that the carrier should be the seller itself,[22] so far as the seller uses its own resources and employees to transmit the goods to the buyer. This argument contains at root a confusion of the carrier and the vessel used by the carrier: a lorry, train or ship is not a carrier, but rather the instrument of the carrier. There is little doubt, however, but that a carrier for present purposes is an independent third party.[23] A seller does not hand the goods over to anyone when it places those goods in one of its own vehicles. The possibility of the risk passing to the buyer when the seller is still in control of the goods is also undesirable, since it would encourage litigation to determine whether the seller was at fault for the casualty suffered by the goods.[24]

A third aspect of the rule is that, even when tempered by the exception contained in paragraph (1) itself and concerning handing over in a particular place, it is wholly unsuitable for certain long-established shipping terms used in international sale transactions. I am referring particularly to FOB and CIF contracts. The possibility that Article 67(1) CISG would be widely departed from in practice was well understood by the Working Group,[25] but there is something unsettling about a rule that is as detached from commercial practice as this one. The argument has been advanced that a reference to CIF, FOB or other shipping terms in the contract of sale evinces an intention not to be bound by the CISG rules on the transfer of risk.[26] If this is so, however, [page 87] it diminishes the significance of the CISG rules to a remarkable degree, given the great frequency with which such shipping terms are employed in international sales. Furthermore, it is not at all clear that parties using such shipping terms demonstrate with sufficient clarity an intention to oust the CISG that would satisfy Article 6 of the Convention. Indeed, some tribunals have applied the CISG rules when dealing with contracts containing shipping terms.[27] The safer course, therefore, would be to assume that the CISG rules apply where shipping terms are used and to interpret them so that they do least damage to established commercial expectations.

The exception to the rule in paragraph (1) is that, if a contract of sale calls for goods to be handed over to a carrier at a "particular place", the risk will not pass until the goods are handed over to the carrier at that place. Consequently, the risk may not pass until the goods are handed over to a second or even subsequent carrier.[28] Take the example of soya beans transported down the Mississippi by river barge, to be loaded on board a vessel in Baton Rouge further to the terms of an FOB [29] Baton Rouge contract. In a case of [page 88] this kind, for reasons that will soon be discussed, the main rule in paragraph (1) might never come into play at all. Assuming however that the main rule otherwise would, the use of the expression FOB Baton Rouge signifies the buyer's and seller's agreement that the risk will not pass to the buyer on the handing over of the goods by the seller to the barge operator. But that same intention goes further still and is inconsistent with risk being transferred when the goods are handed over to the second carrier at Baton Rouge for marine transportation. The FOB shipping term means that delivery takes place when the goods cross the ship's rail, not when they are taken in hand by the carrier. Coordinately with that position, the risk passes according to commercial expectations when the goods cross the ship's rail. The apparent position in Article 67(1) CISG for FOB is that risk passes to the buyer in the same way as it would under an FAS (free alongside) contract. This is the position under Article 2 of the American Uniform Commercial Code [30] but it is certainly not the position in English law [31] or in Incoterms. Incoterms make it very plain indeed that risk passes as the goods cross the ship's rail.[32]

The ship's rail rule may not be without its critics but it has the great merit of visibility. It is, moreover, hard to avoid in the case of loose goods, like wheat and oil, where an incremental transfer of risk would be appropriate as the goods are being loaded on board the vessel.[33] Where goods are loaded on board a ship at the behest of the FOB seller, it may not be clear whether it is the port authority that is in charge of the loading process or an independent stevedoring company. And if it is the latter, it may not be clear whether [page 89] that company is acting for the seller or for the carrier. The transfer of risk on handing over to the carrier is therefore not as clearly defined an event as might be supposed.

One Chinese court has dealt with Article 67 CISG in an FOB case,[34] and has done so without analysing Article 67 CISG or even inquiring into Incoterms. The vexed question whether Incoterms amount to binding usage under Article 9 CISG, even in the absence of incorporation by the parties, remains to be settled. I am of the opinion that Incoterms generally need to be incorporated if they are to be applicable, a view that stems from the private character of the promulgating body (the International Chamber of Commerce) and from the ease with which Incoterms can be expressly incorporated in the contract. That view does not rule out the possibility that the parties might have impliedly intended to contract subject to Incoterms, and thus have impliedly modified Article 67(1) CISG further to Article 6 CISG, in so far as Article 67(1) CISG is inconsistent with Incoterms. Putting aside arguments that the CISG can be modified only by express means, even an implied modification of the CISG must be clear and it will not be a straightforward task to bring in Incoterms by implied intention so as to modify Article 67(1) CISG. One way in which such an implied intention might be shown is if the shipping term used was created by the Incoterms process [35] or if the abbreviation of the shipping term is rendered in the Incoterms style.[36]

The application of Article 67 CISG to CIF contracts is even less straightforward, given the delay surrounding the identification of goods to a CIF contract. In an FOB contract, the buyer is usually responsible for selecting the carrier, whether this is accomplished by booking liner space or chartering a ship. But the CIF seller or, more likely still, an earlier shipper in a string of CIF sales, will be responsible for the shipping arrangements, which will be accomplished before the goods are identified to the contract.

A further complication is that a CIF contract need not necessarily identify the loading port, which opens up the possibility that the risk might in [page 90] principle pass under Article 67(1) CISG when the goods are handed over to an inland carrier preparatory to their delivery to the ship.[37] A related point is that, since the CIF seller is responsible for carriage, the delivery to the carrier is not a delivery to the buyer at a "particular place". Nor is the discharge of the goods at the port of destination to be regarded as a delivery at a particular place. The carrier, when surrendering the goods to a cargo receiver, is not acting as the CIF seller's agent. Such delivery as takes place at that point is not delivery for the purpose of the contract of sale but delivery for the purpose of the contract of carriage. The only delivery that a CIF seller makes to the buyer is the delivery of the shipping documents and it is hard to see why this event should trigger the transfer of any risk relating to the goods themselves. The only available conclusion is that Article 67(1) CISG is wholly inappropriate for CIF contracts and that the parties to such contracts should exclude the provision, either in specific terms or by expressly incorporating Incoterms. As with FOB contracts, Incoterms make it plain that risk passes as the goods cross the ship's rail.[38]

A fourth aspect of the risk rule in Article 67 CISG is that it is made subject by paragraph (2) to the requirement that the goods first "are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise". Since identification may be, but need not be, accomplished by notice to the buyer, this suggest there might be a problem in the transfer of risk to a buyer who does not know that the carriage has commenced and might not have sufficient information to effect insurance. There is a duty on sellers to provide buyers with all the available information "necessary" to effect insurance, but only on the buyer's [page 91] request.[39] Moreover, the relevant provision does not state consequences in tends of risk allocation. The difficulties of sufficiency of information should not be overstated among sophisticated operators in the export trade.[40] It is common enough for repeat buyers to have a floating policy that covers all shipments of a stated type and within a designated period, so that no particular notice is required of the seller.

The meaning of identification calls for further examination. The CISG itself gives no guidance on the meaning of the word. Moreover, since the CISG does not contain rules dealing with the transfer of ownership, it lacks the most common case where the word needs to be clarified. Identification in normal parlance suggests some action by the seller pointing to an intention to use the identified goods in fulfilment of the contract with the buyer. In the case of packaged goods, the packaging itself with labels and addresses will suffice for an identification. The seller's action need not physically be irrevocable, but yet it must display a clear intention to use the identified goods under the contract. In an FOB contract where the buyer selects the carrier, there should be no difficulty with identification. It lies in the seller causing goods to be loaded in response to the buyer's notice that the ship is ready to load. And if it is the unusual case where the seller takes all the practical steps to arrange for carriage, the issue by the carrier at the seller's request of a bill of lading naming the buyer as consignee will achieve the same effect.

If the goods are loose and fungible, like a stated quantity of soya beans, then it should not matter if they are mixed with like goods when loaded on board the ship. On one view, goods once identified should not be regarded as losing their identity when mixed with other goods on or after loading. Similarly, it might be arguable that goods are sufficiently identified if their location is precisely known, as it would be if they were on board a named vessel, even if the individual soya beans destined for a particular buyer cannot be known until the goods have been unloaded at the discharge port.

The mixing of goods destined for different buyers raises however an interesting point. Suppose that the cargo of a vessel is damaged in part but it is not possible to allocate the damaged goods to a particular buyer but it is possible to share the loss among all the interested buyers. If the mixing of [page 92] goods does not prevent the various interested parties from having a property interest in common with each other, in the nature of co-ownership, as is the case in at least some legal systems, then it should follow that risk might be shared in the same way. If a number of buyers in gross have marine insurance covering all of the goods on board the vessel, it would make very little commercial sense to keep the risk of loss on a seller who is not insured, just because a strict test of identification has not been met.[41]

Identification is also a problem for CIF contracts. In a typical commodities case, a seller will have entered into a number of similar forward delivery contracts and will, more or less, have balanced its books by entering into a number of matching contracts to buy those same goods. The typical seller is an intermediate trader who will not have shipped the goods and will have no interest in consuming them when they are discharged from the vessel. Even if the seller were the shipper, it would not be possible to identify the goods as from shipment as identified to a particular contract of sale. This is because the goods might be used for anyone of a number of such contracts and because the seller, in line with trade expectations, will have reserved the right to enter into a new contract to sell the goods afloat.

At some stage after shipment, CIF sellers serve notices on their buyers; these notices are often called notices of appropriation. They identify the vessel, the date of the bill of lading and the quantity shipped, though the notice will often not be precise enough to identify the particular buyer's goods out of a larger mixture. The difficulty to which this process of appropriation gives rise is that the allocation of risk will have to be retrospective to the point where the goods pass the ship's rail if the commercial expectations of the parties are to be realised. A CIF contract is a documentary sale and the seller's delivery duty relates to documents, which include an insurance policy or similar document. It would make no sense therefore to have risk pass at some point during the voyage, for insurance policies are there to be transferred and not divided. It would moreover be difficult in many cases where goods are incrementally damaged, as in the case of seawater and an [page 93] unseaworthy ship, to determine whether the damage occurred before or after the notice of appropriation was received by the buyer. Retrospectivity raises difficulties that are similar to those that arise where the contract of sale is made when the goods are already afloat. It will therefore be considered when Article 68 CISG on sales afloat is discussed.

A fifth and final point about Article 67 CISG is that any reservation of title by the seller has no effect upon the incidence of risk. This is entirely in accordance with the abandonment of any reference to the transfer of ownership in these risk rules [42] and accords with international sales practice. It may seem odd that Article 67 CISG refers to the seller being "authorised" to retain documents controlling the disposition of the goods, but nothing turns upon this infelicity of expression.

SALES AFLOAT AND RETROSPECTIVITY

Article 68 CISG states the general rule that, in the case of goods sold afloat, the risk passes from the time of conclusion of the contract. There is however an exception for the risk to pass retrospectively from the time the goods were handed over to the carrier "if the circumstances so indicate". Nevertheless, Article 68 CISG then goes on to provide that the risk remains on the seller if at the time the contract was concluded the seller knew that loss or damage had already been caused to the goods and did not disclose this fact to the buyer. Article 68 CISG is also silent on those cases where the choice of delivery term indicates that the risk will not pass before the goods arrive at their destination.[43]

The first point concerns what is meant by "goods sold in transit". The word "sold" cannot have the technical meaning it has in some legal systems, connoting goods the ownership of which has passed to the buyer. The CISG, after all, contains no rules dealing with the passing of property. The expression can therefore only refer to goods made the subject of a contract of sale [page 94] after they have been shipped and are part way to their destination. Nothing in the text of Article 68 CISG would justify interpreting these words so as to cover the case of goods that are appropriated or identified after the start of the transit to a contract concluded before the start of that transit. This conclusion draws attention to the absence of anything in Article 68 CISG corresponding to the requirement of clear identification in Article 67(2) CISG.[44] It has been asserted that Article 68 CISG is directed at a sale of specific goods and should be interpreted so as to require the identification requirement in Article 67 CISG to be imported. The same author concedes, nevertheless, that there is an exception in the case of consignments of bulk goods.[45] As stated above, however, the requirement of identification can be met in any case where goods are shipped in bulk. In addition, and despite the above author's views, the application in limited cases of a retrospective allocation of risk [46] presupposes that the goods need not have been identified before the risk was transferred to the buyer.

The basic rule in Article 68 CISG is subject to the criticism that it divides transit risk between seller and buyer and, depending on the event producing the casualty, which may not be clear-cut, it may be difficult to calculate that division. To offset an awkward inquiry of this nature, provision is made for the retrospective allocation of risk. It is undoubtedly curious that Article 68 CISG should make explicit provision for this possibility when Articles 6 and 9 CISG could achieve the same goal by means of contrary agreement and usage. The additional wording in Article 68 CISG ("if the circumstances so indicate") does little to help in determining when the retrospective allocation of risk would be appropriate. It would certainly be appropriate in CIF contracts,[47] where the extent and type of insurance provision is a matter for the contract and, if not explicitly mentioned therein, can be determined according to long-standing industry standards. It is for this reason that English lawyers accept retrospectivity so that risk passes "as from shipment", a [page 95] formula that is deliberately different from the "on shipment" language used for FOB contracts. Retrospective risk allocation would certainly not be appropriate in cases, like FOB contracts, where the seller is not providing transferable insurance to the buyer, with the possible exception of trades where to the seller's knowledge the buyer already has in place a suitable floating policy of insurance. The retrospective transfer of risk to the buyer "if the circumstances so indicate" amounts therefore to an unhelpful formula adding nothing to Articles 6 and 9 CISG.

Where retrospectivity is allowed, Article 68 CISG would even permit it to be imposed on the buyer in respect of events that have occurred before the contract date. This is without a doubt a major concession to the retrospectivity principle,[48] but it depends upon the seller not knowing at the contract date that the goods had been lost or damaged. This qualifying feature of Article 68 CISG raises a minor and a major point. The minor point is that the seller may know of some damage but not of other damage or that the damage is so serious that the goods have become a total loss. This is difficult to resolve, but the compelling need for clarity and forensic simplicity supports those writers who would altogether deny a retrospective allocation of risk in such cases.[49]

The major point concerns those sellers who become aware of loss or damage after the contract has been concluded but before the goods are appropriated to the contract. The failure of Article 68 CISG to mention this case points to its having no effect on the operation of the retrospectivity principle, unless with some little violence to the text of Article 68 CISG it is allowed to negative the operation of the formula "if the circumstances so indicate". This issue lies at the heart of a major controversy in English sale of goods law, concerning contracts where cargoes had been destroyed by submarine activity in the First World War before the seller issued a notice of appropriation connecting those cargoes to particular contracts of sale. The somewhat imperfect case law supports the seller's right to appropriate in such instances,[50] [page 96] even if the seller knows of the loss at the time of the appropriation, though the case law is subjected to a restricted interpretation in the leading practitioner text.[51] My own view is that even the knowing seller should be allowed in CIF contracts to appropriate the goods after the loss has occurred. Although a CIF sale is not a sale of documents as such, it is a sale to be performed through the medium of documents under a contract that defines the documents that have to be tendered, often calling for an oversinsurance (for example, 110 per cent) of the goods. If the seller were not allowed to appropriate and thus transfer the risk to a particular buyer, that seller, depending upon the relevant law, might be exposed to a damages action for non-delivery by the buyer. This takes us back to the significance of risk being transferred to the buyer and to the proposition that the buyer on risk is not the mirror image of the seller on risk. An intermediate trader that has balanced its books, so that its purchase and resale commitments match, ought not to be placed at risk in such a case of a damages action by the buyer. It may be that the exemption provision in the CISG, Article 79 CISG, would be more generous in affording relief to the seller than the provisions of English law dealing with contractual frustration. But, apart from that point, the essential character of a CIF contract should allow for a retrospective transfer of risk even in those cases where the seller knows of loss or damage occurring after the contract date. Intermediate traders dealing with cargoes of goods are not so much buying and selling goods as entering into financial differences contracts.

THE RESIDUAL RISK RULE

The residual risk is found in Article 69 CISG and is expressed to apply where Articles 67-68 CISG do not apply.[52] The basic rule in paragraph (1) is that the buyer is on risk from the moment he takes over the goods or when he commits a breach of contract in not taking delivery of goods that have been placed at his disposal. For the goods to be considered as placed at the buyer's disposal, they must at least have been identified to the contract, as required by paragraph (3). A special rule applies under paragraph (2) where the buyer [page 97] is bound to take over the goods at a place other than the seller's place of business. For risk to be transferred in such a case, delivery must be due and the buyer must be aware of the fact that the goods are at his disposal at that place.

Article 69 CISG therefore breaks down into cases where the goods are to be handed over at the seller's premises [53] and cases where they are to be handed over in some other place. Taking the former case, the delivery will be on ex works or similar terms. This former case highlights the point that a sale of goods can be an international one under the CISG even if the goods never cross national boundaries.[54] The transfer of risk upon a handing over will normally be clear enough, though difficulties might arise where seller and buyer, between them, damage the goods during the handing over process. For the sake of clarity, it might be appropriate to interpret Article 69(1) CISG as providing for the handing over to be complete only upon the buyer quitting the seller's factory or other establishment. A more difficult question concerns the timing of a buyer's default when responding, or more accurately not responding, to a seller's notice that the goods are at the buyer's disposal. [page 98]

Article 69 CISG does not state what amounts to the placing of goods at the buyer's disposal and does not as such require a notice from the seller in order for the goods to be at the buyer's disposal. Yet the buyer must be at least aware that the goods are ready for collection: this requirement is stated, confusingly, not in Article 69(1) CISG but in Article 69(2)CISG, where the buyer is required to take over the goods at a place other than the seller's place of business. If the buyer is not aware, it is difficult to contemplate a case where the buyer is in breach of contract for not taking over the goods. Assuming that the buyer has notice or is otherwise aware that the goods are ready, the next question is how much time the buyer has before the buyer is in breach of contract. The difficult cases are where the contract does not state a precise time for delivery.

The CISG assumes that the initiative for triggering performance lies with the seller. In the absence of any time provision in the contract, the seller is required to deliver the goods within a reasonable time.[55] There is much less guidance on the buyer's correlative duty to take delivery. Delivery and taking delivery are two sides of the same coin. A seller cannot deliver if the buyer is not ready to take delivery. Hence, the requirement of a reasonable time must define the two matching obligations of seller and buyer, though the computation of that period in the two cases may be different. So far as the buyer delays in taking delivery ex works, then the seller cannot be in breach of contract for failing to deliver within a reasonable time.[56] If the buyer does not respond within a reasonable time to the seller's statement of availability, then the buyer commits a breach of contract. The time needed by the buyer to respond may depend upon whether the sale is a cash on delivery transaction, for in such a case the buyer is entitled to examine the goods before making payment.[57] The critical importance of examination in the CISG, coupled with the severe consequences facing a buyer who does not give a sufficient and expeditious notice of defect,[58] suggest that the examination at the seller's establishment might in complex cases take some time.

However quickly the buyer must act to take delivery, the calculation of the time that must elapse before the buyer is in breach will be a variable [page 99] matter. Any variable time period defining breach is bound to cause some difficulty when connected to a rule concerned with the transfer of risk. The transfer of risk, more than most features of the law of sale, works best when the rule is crisp and transparent, which in the case of the buyer who fails to take delivery within a reasonable time it is not. It might also be objected to the rule in Article 69 CISG that the transfer of risk in a case where the seller is still in possession benefits only the seller's insurer and that a better rule might have been to require that the buyer's delay amount to a fundamental breach of contract, or that the buyer have failed to respond to a notice from the seller under Article 63 CISG making time of the essence of the contract, before risk were transferred.

The length of the period that will elapse before the buyer commits a breach of contract may depend upon whether a buyer is facing difficulties in taking delivery that permit the buyer to invoke the exemption from liability in Article 79 CISG. Consider the following difficult case where the buyer is in breach of contract and is then disabled from taking delivery in circumstances that pass the test required for an exemption in Article 79 CISG. Suppose that the goods are damaged or destroyed in this later period. It is submitted that in this case the risk is on the buyer, for the buyer would not have found itself in difficulties in taking delivery had it not been in breach of contract in the first place.

Where delivery does not involve a carrier, and is not to be effected at the seller's premises, Article 69(2) CISG states that risk is transferred to the buyer when delivery is due [59] and the buyer is made aware that the goods are at his disposal in a place other than the seller's place of business.[60] Where the goods are held by a third party, such as a warehouse keeper, the placing of the goods at the buyer's disposal must mean more than informing the buyer that the goods are in the warehouse. It must also mean that the warehouse keeper is committed to releasing the goods to the buyer, though opinions may differ as to whether the commitment must be enforceable, not just by the seller, but [page 100] also by the buyer. This commitment will often take a documentary form as a transferable warehouse receipt or warrant.

As for the buyer's awareness, the burden of proof will be on he seller to how that the buyer is aware, just as the seller will bear the burden of proving any facts needed to effect a transfer of the risk.[61] The most likely case caught by this provision is where the buyer is required by the contract to collect the goods from a warehouse maintained by a third party, but it can equally apply to delivery at the buyer's premises.[62] It is a striking feature of this provision that, unlike paragraph (1), the buyer can be on risk without being in breach of contract. Indeed, Article 69(2) CISG allows the buyer no time to order his affairs before bearing the burden of risk. There is no provision corresponding to Article 32(3) CISG, which applies to carriage, requiring the seller to give the buyer sufficient information to effect insurance. There is a case for regarding this as a gap in the Convention to be filled, through Article 7(2) CISG, by means of an implied provision that requires the seller to give the buyer sufficient advance information to insure where the goods are to be collected from a third party's premises. Such a solution might establish a fair balance between the needs of a seller, whose own insurance might not extend to goods held on a third party's premises, and a buyer, who has not yet had the opportunity to insure.

BREACH OF CONTRACT AND DIVESTING RISK

Once the risk has been transferred to the buyer, may it be transferred back to a seller who is in breach of contract? This is the subject of Article 70 CISG, on which no cases have been reported to UNCITRAL or to the Pace database.[63] Article 70 CISG provides that the risk transfer rules in Articles 67-69 CISG do not impair the remedies available to a buyer against a seller who has committed a fundamental breach of contract. It is noteworthy that the language of reversal of risk is not expressly used in the text of this article. The ULIS provision, Article 97, stated that, where a buyer avoided the contract or required replacement goods, both instances presupposing a fundamental [page 101] breach of contract, the risk of loss was never transferred to the buyer. Since it could not be known at the time when risk would normally pass under ULIS how a buyer might respond in the future after receiving a non-conforming delivery of goods, there was always something fictitious about Article 97. A rule expressly stating that the transfer of risk is reversed, as opposed to never transferred, would at least bear some semblance to what actually happened between buyer and seller.

That said, the formulation in Article 70 CISG is different and calls for some detailed consideration of those cases where the casualty suffered by goods is not related to any fundamental breach of contract by the seller. Suppose that under an FOB contract the seller undertakes the additional duty of contracting with the carrier on behalf of the buyer. This may happen in the case of small packages where the buyer does not have a representative at the loading port and either does not wish to or cannot engage the services of a freight forwarding agent. Consequently, the buyer is not in a position to examine the goods before they are loaded on board the ship. The seller enters into a reasonable or usual contract of carriage, but the goods are lost when, as a result of negligent navigation, the ship founders when leaving the loading port. The buyer subsequently discovers that the seller shipped the wrong product model, which would have been useless for the buyer's needs. Assume for the present that this was a fundamental breach under Article 25 CISG, committed at the point of delivery, notwithstanding that the definition of a fundamental breach might depend in part at least upon a seller's willingness and ability to carry out a cure under Article 48 CISG. The risk of loss was transferred to the buyer under Article 67(1) CISG when the goods were delivered to the first carrier, or when they crossed the ship's rail, if Incoterms are applicable. What therefore does Article 70 CISG mean?

Turn now to Article 82 CISG, which limits the power of a buyer to avoid a contract for fundamental breach. It provides that a buyer loses the right of avoidance if unable to make restitution of the goods in substantially the condition in which the buyer received them, and then goes on to lay down a series of exceptions. One of these exceptions arises when restitution is impossible and this is not due to the buyer's act or omission.[64] This exception should include the case of goods that are at the bottom of the sea. The [page 102] result is that the buyer can avoid the contract and, if the price has been paid, recover it under Article 81(2) CISG. In practical terms, the risk of loss is on the seller and it does not matter whether it always was or whether it was transferred back to the seller when the buyer avoided the contract.[65] As stated at the beginning of this paper, risk can be translated into "the language of contractual rights and duties. Articles 70, 81(2) and 82(2)(a) CISG, taken together, express this by arriving at a risk-based solution without even mentioning risk. As a result of these provisions, there may be many difficulties of proof surrounding the extent of a seller's non-conforming delivery. Our example concerned a single item, but suppose the contract concerns a large number of items, some of which but not all, were defective. Apart from the great difficulty of proving the existence and extent of the defects, there is the further quantitative question of whether the defects taken in gross amount to a fundamental breach.

The carrier in our example was engaged by the seller, but a more orthodox case would be that of the carrier engaged by the buyer and acting as the buyer's agent. Does the act or omission of the buyer that precludes avoidance in Article 82(2)(a) CISG include the act or omission of the buyer's agent? If it does, then there is a difficulty. Article 70 CISG states that the transfer of risk to the buyer, which here takes place under Article 67(1) CISG, does not impair the buyer's remedies for fundamental breach. But if the buyer's inability to avoid the contract lies in Article 82 CISG, it is not the transfer of risk that impairs the buyer's avoidance of the contract; rather, it is the fact the goods are lying at the bottom of the sea and the buyer cannot restore them to the seller. If this is thought to be an undesirable result, then it must be asked what action the seller would have against the carrier if the risk were put back on the seller when the buyer avoids the contract. The goods in our example were not worthless; they happened not to be the type of goods required by the contract, so the seller's claim might be a substantial one. But then the question arises, what action does the seller have against the carrier? Unless a national court were prepared to reason creatively so as to make the seller also a party to the contract of carriage, or provide the seller with a delictual remedy against the carrier, then there may not be a remedy. If so, one result might be to leave the risk with the buyer. On the other hand, the better result [page 103] would be to follow the logic of the CISG and leave it to national legal systems to correct whatever deficiencies might exist in the network of liabilities surrounding carriage and sale contracts.[66]

One striking feature of Article 70 CISG is that it is confined to fundamental breach and does not apply to cases where the buyer sets an additional period of time for the seller to perform under Article 47(1) CISG. If the seller does not perform within that additional time, the buyer may avoid the contract under Article 49(1) CISG. The CISG, however, treats avoidance in such circumstances as a separate case from fundamental breach, though it may be that in some circumstances the seller's lateness will also amount to a fundamental breach.

Consider the following case. The seller is bound to deliver the goods under the contract so that they arrive at the buyer's premises no later than 30 November. The seller and buyer agree that the seller will arrange for carriage by lorry from the seller's factory and charge carriage to the buyer as a separate item. When the goods do not arrive on 30 November, the buyer gives the seller an additional 14 days to perform. The goods arrive on 21 December in a damaged state because of an accident involving the lorry in transit. In this example, it cannot matter whether the buyer declares avoidance before or after the arrival of the goods, as long as the declaration is made within a reasonable time after the buyer becomes aware that a delivery has been made. If the CISG is applied according to its own terms, it appears impossible to avoid the conclusion that the buyer may not avoid the contract and is left to remedy for damages for late delivery.[67] This is not a satisfactory result and is best avoided by treating the matter as a gap in the Convention to be filled under Article 7(2) CISG in a way similar to the fundamental breach solution. [page 104] It is often said that the CISG does not link the transfer of risk to delivery.[68] This is true so far as delivery, in some legal systems as least, has acquired esoteric meanings. Nevertheless, if a simple view of delivery is taken, equating it to the transfer of possession from seller to buyer, either immediately or constructively through a third party agent or in warehousing cases through a delivery document representing the goods, it has been demonstrated above that this is the very event that serves to transfer risk under the CISG. Indeed, the transfer of risk is best achieved by reference to a visible event that, above all, serves to inform the buyer when it is prudent to take out insurance against loss or damage to the goods. To that extent, the transfer of possession or delivery is greatly preferable to the transfer of ownership.

The CISG provisions, however, are far from exemplary. Their single greatest failing is that they do not accommodate well-understood delivery terms, like FOB and CIF, and do not mesh well with Incoterms. They fail therefore to capture the central ground of sales practice when, in this as well as in other areas, the CISG should be doing precisely that by laying down presumptive rules from which the parties depart in only a minority of cases. An optimist would say, nevertheless, that courts and tribunals are able over time to repair this deficiency, particularly by means of Articles 6 and 9 CISG on exclusion and usage. [page 105]

FOOTNOTES

* Professor of Law, London School of Economics. This paper was originally presented at a conference held in Bilgi University, Istanbul, on 18 November 2006.

1. Sale of Goods Act 1979, s 20. The position is the same in French law: Article 1138 Code civil; Huet, J (2001) Les principaux contrats spéciaux (2nd ed) LGDJ para 11215. The American Uniform Commercial Code, however, opts for a rule based on the receipt of the goods by the buyer, or by the carrier if there is one: Article 2-509. Article 2-509 is indeed the prime inspiration for the risk provisions in the CISG.

2. Third parties for present purposes exclude those acting as agents for either of the contracting parties. This could pose problems in the case of carriers for they may act as agents for one of the parties to a contract of sale (for English law, the carrier is regarded as agent for the FOB buyer: see Wait v Baker (1848) 2 Ex I, 154 ER 380), and the default of the carrier is perhaps the most frequent event that springs the doctrine of risk. It is possible, though unlikely, that the seller will be on risk for damage or loss caused to the goods by a carrier acting as agent for the buyer. See the incidence of risk in FOB, CIF and other cases discussed below.

3. China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Proceeding, 1 April 1997, available at: <http://cisgw3.law.pace.edu/cases/970401c1.html>.

4. Erauw, J (2004) 'Observations on Passing of Risk' in Ferrari, F, Flechtner, H and Brand, R (eds) The Draft UNCITRAL Digest And Beyond Sellier at p 296.

5. Arrondissementsrechtbank Arnhem (Netherlands), 17 July 1997 (Kunsthaus Math. Lempertz v. Wilhelmina van der Geld), available at: <http://cisgw3.law.pace.edu/cases/970717n1.html> (affirmed by a higher court on other grounds).

6. [1972B] Cambridge Law Journal 225 at 226-27.

7. It must however be recognised that certain contractual obligations of the seller, respecting the quality and fitness of the goods for example, have a continuing effect, so the notion of a fully executed contract is not quite accurate.

8. The third party may hold possession, however, as agent for the seller or buyer, depending upon the character of the particular sale contract.

9. M Golodetz & Co Inc v Czarnikow-Rionda Inc (The Galatia) [1980] 1 WLR 495.

10. Nicholas, B in Bianca, CM and Bonell, MJ (eds) (1987) Commentary on the International Sales Law Giuffrè.

11. Clauses of this kind are a standard feature of international commodity sale agreements (for example, GAFTA (Grain and Feed Trade Association) standard forms).

12. Mash and Murrell Ltd v Joseph I Emmanuel Ltd [1961] 1 WLR 862, reversed on other grounds [1962] 1 WLR 16.

13. The equivalent of Incoterms CFR.

14. The transfer of risk to the buyer does not of course mean that the buyer loses rights relating to a seller's earlier non-performance under Article 35 CISG: see a Mexican Compromex Arbitration Proceeding, 29 April 1996, available at: <http://cisgw3.law.pace.edu/cases/960429m1.html>.

15. The seller should insist upon this: see the result in Xiamen Intermediate People's Court (China), 5 September 1994 (UNILEX D. 1994-21.1).

16. In one case, the Oberlandesgericht Schleswig-Holstein (Germany), 22 August 2002, available at: <http://cisgw3.law.pace.edu/cases/020822g2.html> expressed the view that the German seller would remain liable for defects in sheep sold to a Danish buyer, when risk would otherwise have been transferred to that buyer when the sheep were handed over to the first carrier (see Art 67(1) CISG), if the seller had given that carrier a mandate to transport the sheep in an overloaded truck.

17. Cf the language of section 32(2) of the UK Sale of Goods Act 1979, which states the duty of the seller to enter into a "reasonable" contract of carriage (cf the Incoterms reference to a "usual" contract of carriage) and, where the seller does not do so, gives the buyer the option of either claiming damages or of treating the delivery of the goods by seller to carrier as not tantamount to a delivery to the buyer. This is statutory shorthand for relieving the buyer of the duty to pay the price, since the Act lays down the seller's and buyer's duties of delivery and payment as being mutual and concurrent (section 28).

18. See Amtsgericht Duisburg (Germany), 13 April 2000, available at: <http://cisgw3.law.pace.edu/cases/000413g1.html>.

19. Nicholas in Bianca & Bonell Commentary supra fn 10 at p 494.

20. For the complexities involved in delivery, and more particularly in translating the expression, see Report of the Secretary General on '"Delivery" in the Uniform Law on the International Sale of Goods (ULIS)' (NCN.9/WG.2/WP.8), in Honnold, J (1989) Documentary History of the Uniform Law for International Sales Kluwer p 73-92.

21. See Bundesgerichtshof (Germany), 2 March 2005, available at: <http://cisgw3.law.pace.edu/cases/050302g1.html> (goods delivered by seller directly to the sub-buyer, with risk passing when the first freight forwarder received the goods); Amtsgericht Duisburg (Germany), 13 April 2000, available at: <http://cisgw3.law.pace.edu/cases/000413g1.html>; China International Economic and Trade Arbitration Commission, 6 September 1996, available at: <http://cisgw3.law.pace.edu/cases/960906c1.html>.

22. See von Hoffmann, B (1986) 'Passing of Risk in International Sale of Goods' in Sarcevic, P and Volken, P (eds) International Sale of Goods: Dubrovnik Lectures Oceana p 286-87.

23. See Honnold, JO (1999) Uniform Law for International Sales (3rd ed) Kluwer p 403; Nicholas in Bianca & Bonell Commentary supra fn 10 at p 490.

24. Further to Article 66 CISG, see Nicholas in Bianca & Bonell Commentary supra fn 10 at p 490.

25. The Working Group on International Sales set up by UNCITRAL at its second session on 26 March 1969. See Progress Report of the Working Group on the International Sale of Goods (5th session Geneva) (A/CN.9/87), para 219 (rejecting an explicit cross-reference to the usage provision). See Honnold Documentary History supra fn 20 at p 194.

26. See Hager, G in Schlechtriem, P and Schwenzer, I (eds) (2005) Commentary on the UN Convention on the International Sale of Goods (CISG) (2nd ed) Oxford University Press at 681 (the position taken is justified by reference to both Article 6 and Article 9 CISG).

27. See, for example, Cámara Nacional de Apalaciones en Lo Commercial (Argentina), 31 October 1995 (C&F) (CLOUT No 191), partly available in English translation at: <http://cisgw3.law.pace.edu/cases/951031a1.html>; Higher People's Court of Ningxia Hui (China), 27 November 2002 (FOB), available at: <http://cisgw3.law.pace.edu/cases/021127c1.html>.

28. For the (surely correct) view that the handing over to the second carrier may be effected for present purposes by the first carrier, and need not be done personally by the seller, see Nicholas in Bianca & Bonell Commentary supra fn 10 at p 492. Any other conclusion would deprive the exception in Article 67(1) CISG of any scope, since it would be a rare case indeed where the seller intervened at the end of the first transport leg to take personal responsibility for handing the goods over to the second carrier.

29. Free on board. The word "free" in this trade term has a counter-intuitive meaning. It signifies that the seller bears no other delivery responsibilities or expense once the goods are placed on board the ship, and not that the process of placing the goods on board is without cost. For a case where a German court appears to have understood the word "free" in a very different sense, where the contract called for "free delivery, duty-paid, untaxed", the seller being French and the buyer German, see Oberlandesgericht Karlsruhe (Germany), 20 November 1992, CLOUT No 317, where the risk during transit was held still to be on the seller. Risk was to pass only when the goods were handed over to the buyer in Germany, a result that runs counter to Article 67(1) CISG.

30. Article 67(1) CISG accords with the risk rule in UCC 2-509(1)(b), which is applicable to cases where the seller engaging a carrier is required to deliver the goods at a "particular destination" ("when the goods are duly delivered to the carrier"). When quantifying the seller's duties, the UCC in Art 2-319 distinguishes between an FOB contract nominating a place of shipment and one that goes further and stipulates FOB vessel. This distinction, however, is not recognized in the rules dealing with the transfer of risk.

31. But note the sceptical comments of a distinguished commercial judge (Devlin J) about risk passing backwards and forwards as goods in a sling hover over the ship's rail: Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, 419.

32. "The seller must ... bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail at the named port of shipment. (A.5)"

33. For oil, it is common for contracts to make express provision for the incremental transfer of risk at the point where the oil passes the vessel's first permanent hose connection.

34. Higher People's Court of Ningxia Hui (China), 27 November 2002, available at: <http://cisgw3.law.pace.edu/cases/021127c1.html>.

35. For example, delivery CPT a stated destination.

36. For example, CFR is the Incoterms abbreviation for the C&F abbreviation used in England. If the parties use the CFR abbreviation, it could be taken to signify an intention to use Incoterms that ousts an inconsistent allocation of risk under the CISG.

37. This assumes they have been identified to the contract further to Article 67(2) CISG.

38. "The seller must ... bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail at the port of shipment. (A5)" This same conclusion was however reached, in the case of a Chinese court dealing with a C&F free out contract, on the basis of the CISG itself, international usage and the Foreign Economic Law of China, as the parties had agreed the matter should be decided: Xiamen Intermediate People's Court, 5 September 1994, UNILEX D.1994-2 1.1. See however the Cámara Nacional de Apelaciones en 10 Commercial (Argentina), 31 October 1995, CLOUT No 191; partly available in English translation at: <http://cisgw3.law.pace.edu/cases/951031a1.html> ruling that the risk in a C&F contract passed when the goods were handed over to the first carrier and that a C&F delivery term did not have a part to play in allocating risk (which is surely wrong).

39. Article 32(3) CISG.

40. See Wimble v Rosenberg [1913] 3 KB 743.

41. Contrast Honnold Uniform Law for International Sales supra fn 23 at 408, who relies upon "clearly identified" to state that a division of risk between buyers in this way can be achieved only by a contract between them (why?), which is achievable if they both contract with the seller on the basis of the same standard form contract but not otherwise.

42. This is mentioned in a number of cases, eg Oberlandesgericht Schleswig-Holstein (Germany), 29 October 2002, available at: <http://cisgw3.law.pace.edu/cases/021029g1.html>. See also Torsello, M (2000) "Transfer of Ownership and the 1980 Vienna Sales Convention" International Business Law Journal 939.

43. See for example the DES (or ex ship) Incoterm (A5).

44. A requirement that appears in a slightly different role in Article 69(3) CISG.

45. Hager in Schlechtriem & Schwenzer Commentary supra fn 26 at p 689.

46. See next paragraph.

47. But note that a Chinese tribunal did not backdate the risk in a case involving a CIF sale of fishmeal, where the contract was concluded some 12 days after the goods were loaded on board the ship: China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Proceeding, 1 April 1997, available at: <http://cisgw3.law.pace.edu/cases/970401c1.html>.

48. Not even English law has sanctioned this -yet. See Couturier v Hastie (1856) 5 HLC 673. Much might depend, however, upon the exact words used by the parties and thus the construction of the contract.

49. Nicholas in Bianca & Bonell Commentary supra fn 10 at p 499-500; Honnold Uniform Law for International Sales supra fn 23 at p 411.

50. See Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198; Karberg (Arnhold) & Co v Blythe, Green, Jourdain & Co [1916] 1 KB 495; Groom (C) Ltd v Barber [1915] 1 KB 316; Re Olympia Oil and Cake Co Ltd [1915] 1 KB 293.

51. Guest, AG (ed) (2006) Benjamin's Sale of Goods (7th ed) Sweet & Maxwell at p 1521-25. Contrast Bridge, Ma (2007) The International Sale of Goods: Law and Practice (2nd ed) Oxford University Press at p 374-78.

52. Article 69 CISG matches the presumptive delivery rule in Article 31 CISG.

53. Article 69 CISG has been applied where goods have been handed over at the seller's premises to a carrier engaged by the buyer, but the case could equally have been dealt with under Article 67(1) CISG, with no difference in the outcome on the facts of the case: see Oberlandesgericht Schleswig-Holstein (Germany), 29 October 2002, available at: <http://cisgw3.law.pace.edu/cases/021029g1.html>. A difference in outcome could however arise where the buyer in breach of contract never sends the carrier to collect the goods, for Article 67(1) CISG would have the risk pass only when the goods are handed over to the first carrier, whereas Article 69(1) CISG would have it pass when the buyer is in breach of contract. The inconsistency between these two provisions should be settled in favour of Article 69(1) CISG, on the ground that the seller is prevented from placing the goods in the hands of the carrier because of the buyer's default in sending the carrier. See however Oberlandesgericht Köln (Germany), 9 July 1997, available at: <http://cisgw3.law.pace.edu/cases/970709g3.html>, where the court appears to have applied Article 67(1) CISG when Article 69(1) CISG would have been more appropriate, but the seller was not able to prove that delivery to the carrier had been made. It has also been applied (apparently) where delivery at the Serbian seller's premises in Kladovo was expressed as FOB Kladovo: Arbitration Court of the Chamber of Commerce and Industry of Budapest, 10 December 1996, available at: <http://cisgw3.law.pace.edu/cases/961210h1.html>.

54. See Article 1 CISG.

55. Article 33(c) CISG.

56. This is confirmed by Article 80 CISG.

57. Article 58(3) CISG.

58. Articles 38-39 CISG

59. See Oberlandesgericht Hamm (Germany), 23 June 1998, available at: <http://cisgw3.law.pace.edu/cases/980623g1.html>.

60. Applied in a DDP (Delivered Duty Paid in the country of importation) case by the Oberlandesgericht Oldenburg (Germany), 22 September 1998, available at: <http://cisgw3.law.pace.edu/cases/980922g1.html>.

61. See Oberlandesgericht Hamm (Germany), 23 June 1998 available at: <http://cisgw3.law.pace.edu/cases/980623g1.html>.

62. Hager in Schlechtriem & Schwenzer Commentary supra fn 26 at p 691-92.

63. At <http://cisgw3.law.pace.edu/>.

64. Article 82(2)(a) CISG.

65. Nicholas speaks of a retransfer of risk to the seller: Bianca & Bonell Commentary supra fn 10 at p 510.

66. But if the negligence of the carrier is not to be attributed to the buyer, what is the position for other agents of the buyer? The agency of the carrier is an unusual and limited one, designed by metaphorical means to bring seller and buyer into each other's presence at the point of delivery. An agent with true representative capacity would be a different matter.

67. See Nicholas in Bianca & Bonell Commentary supra fn 10 at p 511, drawing attention to an early proposal to deal with this issue in favour of the buyer, which was never carried out.

68. For example, Hager in Schlechtriem & Schwenzer Commentary supra fn 26 at p 680.

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Pace Law School Institute of International Commercial Law - Last updated February 17, 2009

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