En 1993, une société suisse (le demandeur) consentit à vendre un produit chimique à une société établie à Singapour (le défendeur), dans le cadre d'un contrat régi par le droit singapourien et qui indiquait en matière de livraison : « CNF FO Ho Chi Minh City, Incoterm 1990 ».

'28. Meaning of "CNF, FO"

(a) In Procedural Direction No. 2 . . . counsel for each party was invited to submit written arguments to the arbitrator on, inter alia, the meaning to be attributed to the term "CNF, FO" in the Sale Contract. A Preliminary Determination was issued on September 23, 1995 without, however, giving full reasons. These reasons are now set forth below.

(b) It should be stated at the outset that the abbreviation "CNF" is not used in Incoterms 1990. However, an earlier version of the Incoterms does use the term "C&F", meaning "Cost and Freight". Given the similarity between "CNF" and "C&F", and in the absence of any assertion or evidence to the contrary, it is reasonable to conclude that the parties intended "CNF" to mean "Cost and Freight". Moreover, counsel for the Claimant and counsel for the Respondent agree that the term "CNF", as used in the Sale Contract, means:

(i) the seller must pay the cost and freight necessary to bring the goods to the named port of destination; and

(ii) the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the goods have been delivered on board the vessel, is transferred to the buyer when the goods pass the ship's rail at the port of shipment.

These are the classic "Cost and Freight" terms, and clearly indicate that when the term "CNF" was used in the Sale Contract, it was intended to mean "Cost and Freight". The term "C&F" is now no longer in use-the equivalent term in Incoterms 1990 is "CFR". For the sake of consistency, however, and to follow the usage adopted in the Sale Contract, the abbreviation "CNF" will continue to be used here in preference to "CFR".

(c) Both the seller and the buyer of goods under a "CNF" contract are required to fulfil certain obligations, which are set out in detail in Incoterms 1990, at page 44. The material obligations (with respect to the seller) are as follows:

(i) to provide goods in conformity with the contract of sale, together with any other evidence of conformity which may be required by the contract; and

(ii) to contract on usual terms for the carriage of the goods to the named port of destination by the usual route in a seagoing vessel of the type normally used for the transport of goods of the contract description.

(d) Counsel for the Respondent took the position that the customary obligations and liabilities under a "CNF" contract were qualified by the so-called "Inspection and Claim" clause in the Sale Contract. This clause permits [Respondent] to engage [inspection company] to inspect the [product] during its discharge at Ho Chi Minh City. It further provides that, if the quality of the [product] is found to be not in conformity with the Sale Contract, [Respondent] can lodge a claim against [Claimant]. Respondent's counsel, citing two decisions of the English courts, has argued that the "Inspection and Claim" clause indicates that [product] was sold by [Claimant] to [Respondent] on "landed weight/landed quality" terms, and that [Claimant] was under an obligation to deliver goods in conformity with the Sale Contract at the port of destination (Ho Chi Minh City), and the condition of the goods at the port of shipment (Kherson) was therefore not relevant.

(e) The first decision cited by counsel for the Respondent was that of the House of Lords in The Julia. In this case, the seller sold to the buyer, a Belgian company, 500 tons of rye "c.i.f. Antwerp". The contract of sale included the following provisions:

(i) payment for the rye was to be made upon presentation of either the bill of lading or delivery order and insurance policy; and

(ii) the condition of the rye upon arrival was to be ascertained by the survey at the port of discharge, and was also guaranteed by the seller.

The seller elected to be paid upon presentation of the delivery order and the sum of US$4,999.33 was paid by the buyer to the seller. The delivery order contained instructions that the rye could be released to the buyer only upon payment, by the buyer, of the freight and endorsement of the delivery order by the seller's agent. After the rye had been shipped on board the "Julia" (but before the "Julia" arrived at Antwerp) Germany invaded and occupied Belgium. The "Julia" was diverted to Lisbon and its cargo of rye was sold. The buyer claimed reimbursement of its US$4,999.33.

(f) It was held that the buyer's money should be reimbursed. The contract of sale was not on c.i.f. terms at all, but was in fact a contract to deliver goods at Antwerp with a provision for advance payment. Since the goods were never delivered, there was a total failure of consideration, and any money paid pursuant to the contract should be returned. In arriving at this conclusion, the court noted that although payment for the rye was effected against presentation of the delivery order, the delivery order was not a document of title. Possession of the delivery order did not entitle the buyer to possession of the rye upon arrival at Antwerp. Instead, the buyer had to take certain additional actions (such as payment of freight and endorsement of the delivery order by the seller's agent) before the rye could be released into its possession. This method of carrying out the contract of sale was inconsistent with a fundamental feature of c.i.f. transactions, namely, that property in and possession of goods is transferred by way of documents representing the goods. In fact, the buyer obtained neither property nor possession until actual delivery of the goods. To quote from the judgement of Lord Normand (at 318):

The delivery order presented to the buyers by the sellers . . . was not a document of title and was ineffectual to pass the property. Without physical delivery on arrival there could be no transfer of the property . . . There is also a finding that if the ship had arrived at Antwerp the buyers would never have had in their possession any document of title enabling them to demand delivery of the goods.

(g) However, the present case is not one where the parties have varied the normal CNF terms. It was never argued that property in the [product] did not pass from [Claimant] to [Respondent] upon negotiation of the shipping documents. Indeed, [Respondent] itself effected a re-sale of the [product] on the basis of those same documents prior to delivery of the [product] at Ho Chi Minh city. The Sale Contract was therefore a "true" CNF contract, as opposed to a contract for delivery of goods at Ho Chi Minh City.

(h) This makes it unnecessary to discuss the second decision cited by the Respondent's counsel, Congimex v. Gill & Duffus S.A., as it also involved a situation where a contract of sale purporting to be a "c.i.f." contract was, in fact, not a "true" c.i.f. contract at all.

(i) A case which is more helpful, but which was not cited by counsel for either party, is Berger & Co. , Inc. v. Gill & Duffus S.A. In this case, a c.i.f. contract for the sale of bolita beans contained a certification clause to the effect that a certificate given by Société Générale de Surveillance, S.A. at the port of delivery should be final as to the quality of the beans so delivered. While the issues to be decided in the Berger case were different from those now in controversy, the House of Lords did analyze the parties' rights and obligations where goods are sold on c.i.f. terms subject to a quality survey at the port of discharge.

(j) The House of Lords took the view that a c.i.f. contract is one in which the buyer agrees to pay for goods upon the tender of the appropriate documents (i.e. invoice, bill of lading and insurance policy) by the seller. The seller's primary obligation is to ship goods which conform to the contact. Concurrently with the documentary transaction, however, is a transaction for the sale of the goods themselves, in which the seller is obligated to also deliver goods which conform to the contract. If the buyer ascertains upon delivery that the goods do not conform to their description in the contract of sale, then the buyer can seek a diminution in the price of the goods. In the words of Lord Diplock (at 104):

. . . if the seller sued the buyer for damages for his failure to pay the price of goods against the tender of conforming shipping documents, the buyer, if he could prove that the seller would not have been able to deliver goods under those shipping documents that conformed with the contract of sale, would be able to displace the prima facie measure of damages by an amount by which the value of the goods was reduced below the contract price by that disconformity; but this goes to quantum of damages alone.

Based on the foregoing, the correct interpretation of the "Inspection and Claim" clause in the Sale Contract is that [Respondent] has the right to have the [product] surveyed at Ho Chi Minh City by [the inspection company] to determine whether it conforms to the Sale Contract. If (as was the case) such survey discloses that the [product] did not conform to the Sale Contract upon delivery, [Respondent] would have a right to seek damages or a diminution in price from [Claimant].

(k) The "Inspection and Claim" clause is, however, subject to an important exception: claims for which the shipping company and/or the insurance company are to be held responsible must be brought against those companies and not [Claimant]. Counsel for the Respondent submitted that this exception would only apply if there was a total loss of the cargo during transit, in which case [Claimant] would be excused from liability and [Respondent] would have to proceed against its insurers or the shipping company. However, the plain words of this clause do not support such an interpretation.

(l) Instead, the phrase "claims for which the shipping company and/or the insurance company are to be held responsible" can only be construed as a reference to the following claims:

(i) claims arising from damage suffered by the [product] for which the carrier would be liable; and

(ii) claims arising from damage suffered by the [product] attributable to events or occurrences against which the [product] has been insured.

(m) Based on this interpretation, the effect of the CNF term in the Sale Contract, combined with the "Inspection and Claim" clause, is as follows. Title to the cargo passed from [Claimant] to [Respondent] upon negotiation of the shipping documents. Risk of loss or damage to the [product] was transferred as the [product] passed the rails of the [ship] at Kherson and, for all practical purposes, rested with the ultimate buyer of the [product] during transit. The "Inspection and Claim" clause gave [Respondent] and/or its buyer . . . the right to have the [product] surveyed by [Respondent] at the port of discharge. If the results of this survey indicated that the [product] did not conform to the Sale Contract, then the buyer would be entitled to damages for breach of warranty. However, pursuant to the exception contained in the "Inspection and Claim" clause, no claim could be lodged against [Claimant] where such non-conformity was caused by events taking place in transit or in respect of which the buyer had insurance.

(n) This is also the most practical result. It must be remembered that the sale transaction between [Claimant] and [Respondent] was only one in a string of transactions. The parties in such transactions dealt purely on the basis of documents and relied, in particular, on surveys carried out at the port of loading to ascertain the condition of goods bought and sold. This is because no other party was in a position to ascertain the condition of the goods at any time following shipment and prior to delivery. It is true to say, as the Respondent said, that the ultimate buyer of the goods could have protected itself by dealing on "landed weight/landed quality" terms, requiring the goods to be surveyed at the port of discharge and for the discharge port survey (not the loading port survey) to be determinative of the condition of the goods. However, the exception to the "Inspection and Claim" clause in the Sale Contract operated to keep part of the risk with the buyer, namely the risk of loss, damage or non-conformity arising from events for which the ship or the insurers should be liable. This was reasonable, since by the time the goods were delivered, property therein had long since passed to the buyer. Thus, only the buyer had the right to sue the shipowner (or its P & I club) for damage to the goods or to claim under an insurance policy. This view is supported by the requirement, contained in the Sale Contract, that the buyer was to insure the [product].

(o) It was suggested by counsel for the Respondent that the Claimant could not, in any case, disclaim liability for non-conformity of the [product]. [Counsel] referred to Benjamin's Sale of Goods, which cites a statement of Mr Justice Diplock (as he then was) in Mash & Murrell Ltd v. Joseph I. Emmanuel Ltd:

When the goods are sold under a contract . . . which involves transit before use, there is an implied warranty not merely that they shall be merchantable at the time they are put on the vessel, but that they shall be in such a state that they can endure the normal journey and be in a merchantable condition on arrival . . .

Benjamin, however, interprets this as an implied warranty that goods can endure normal transit, and not as an absolute warranty that they will arrive in the same condition in which they were shipped. Indeed, it is pointed out that the seller does not, under this principle, give any implied undertaking as to the condition of the goods on arrival. The implied undertaking only relates to the condition of the goods upon shipment, and to their capacity to survive normal shipment. Furthermore, Benjamin states that:

If some deterioration is necessarily incident to the normal transit of all goods of the kind in question the implied undertaking does not apply and the position is the same where, although goods of the kind contracted for will not necessarily deteriorate in transit, there is a high risk known to both parties that they will do so.

(p) In other words, [Claimant] would be liable for non-conformity of the [product] with the Sale Contract only if the [product] when shipped, was of such a nature that it was unable to survive normal transit. No evidence was provided by the Respondent to this effect (and the trading survey is evidence to the contrary) and this line of argument by Respondents is therefore not persuasive as to the question of the [Claimant]'s liability.

29. Liability for non-conforming cargo

. . . . . . . . .

(m) The evidence indicates that the deteriorated condition of the [product] at the port of discharge was the result of events occurring during its sea voyage. Consequently, the Respondent's claim to have received non-conforming goods falls within the exception contained in the "Inspection and Claim" clause, as a "claim for which the shipping company and/or the insurance company are to be held responsible". It is not a claim which [Respondent] can make against [Claimant]. . . .

(n) Given that the deterioration of the [product] likely resulted from the sea voyage, [the ultimate buyer]'s failure to obtain the appropriate insurance for the cargo emerges as a critical element of the allocation of risk.

The Contract's words ". . . the buyer will arrange for the necessary insurance cover . . ." are not merely declaratory in effect; they impose upon the buyer an affirmative obligation to take out the same type of insurance which the seller would be obliged to obtain if the Sale Contract was on c.i.f. terms. [The ultimate buyer] did take out insurance in respect of the [product] but, according to the testimony of [one of its officers], this insurance was "F.P.A. insurance" covering only the total loss of the cargo. The question is whether F.P.A. insurance would have sufficed had the Sale Contract been on c.i.f. terms with the seller being liable for the procurement of insurance.

(o) . . . the Respondent's Manager, testified that [product] cargo would normally be insured against shortfall or total loss, but not damage. He stated: ". . . damages of this kind [to [product]] are not subject to an insurance claim . . . quality is not subject to insurance claims. Insurance will not pay for these claims."

(p) [Respondent's Manager] later agreed that if the [product] was damaged in transit by a risk which had been insured against, it would be possible to recover against the insurance. He stated that it was possible to take out insurance against all risks (which would cover damage to goods) but this "all risks" insurance was very difficult to get, because ". . . the cargo is already afloat . . . before taking insurance cover, you don't know what risks are involved . . . the cargo may already have big problems. You do not know the history of the cargo. You don't know where the cargo is . . . it's already on the high seas."

(q) However, the Sale Contract requires the buyer to insure the [product] and the buyer cannot be heard to complain if he failed to obtain the same type of insurance as a seller would have been required to obtain if the Sales Contract was on "pure" c.i.f. terms.

(r) Notwithstanding any difficulties, it was not impossible to obtain "all risks" insurance for the [product]. As [Respondent's Managing Director] testified, [the ultimate buyer] insured the [product] against total loss but not damage in transit because it assumed that it had bought the [product] on a "landed weight/landed quality" basis with a right to elect between suing the insurer or the supplier if the [product] was damaged. As it turns out, this was not a prudent assumption. As a result of [the ultimate buyer]'s failure to obtain "all risks" insurance, it has no recourse against any insurance company, but only has a right to proceed against the owner of the [ship] or its P & I club, if it is established that the damage suffered by the [product] is attributable to the vessel or its crew.

30. Liability for transshipment and extra discharge costs

(a) The parties did not dispute that (i) in a CNF contract, risk of loss of or damage to the goods passes [to] the buyer when the goods pass the ship's rail at the port of shipment; (ii) that the seller is under an obligation to provide goods that are in conformity with the contract of sale; and (iii) that if the seller, in breach of this obligation, delivers goods which do not conform to contract description, and the buyer thereby suffers loss and damage, then the seller is liable to the buyer in damages for all losses which are not too remote.

(b) Here, the loss alleged to have been suffered by [Respondent] has two elements: firstly, the extra expense incurred in transshipping the [product] because the draft of the [ship] was too deep for the vessel to enter its berth (lighterage); and secondly, the additional cost and expense incurred in discharging caked and lumpy cargo.

(c) With respect to lighterage, the Sale Contract does not require the [product] to be carried on a vessel with a specific draft, nor does it require the vessel carrying [product] to be able to enter a specific berth. The delivery term under the Sale Contract simply states "CNF FO Ho Chi Minh City", which suggests that the only requirement was for the [ship] to be able to berth within Ho Chi Minh City port. At no time did [Claimant] represent to [Respondent] that the [ship] was capable of berthing alongside the [Respondent's buyer]'s warehouse. Neither the Sale Contract nor the parties' conduct can be construed as imposing such an obligation on [Claimant]. In the absence of such a contractual obligation, it is determined that liability for lighterage lies with the buyer on CNF terms, namely, [Respondent].'