Incoterms_® and Commercial Contracts

‘Seller’s premises’ in FCA

What is included in ‘seller’s premises’ under FCA article A4(a)?

• ‘Seller’s premises’ may be any place under the seller’s control.
• In many cases, sellers consider a terminal contracted by the seller to be seller’s premises, in which case, the seller would be obliged to load the goods on the buyer’s transport (e.g. ship) and therefore the seller would be responsible for the terminal handling and loading costs.
• Therefore, if it is not obvious whether or not the place of delivery is the ‘seller’s premises’, then it should be made clear in the contract of sale to avoid a dispute.

‘Seller’s means of transport’ in FCA

What is included in ‘seller’s means of transport’ under FCA article A4(b)?

• It may be a carrier contracted for by the seller.
• It need not literally be the seller’s own vehicle.

‘First carrier’ in CPT and CIP

The Guidance Notes to CPT and CIP say that ‘the default position is that risk passes when the goods have been delivered to the first carrier’. Who is the ‘first carrier’?

The ‘first carrier’ is the very first carrier independent of the seller (i.e. not the seller’s own vehicle/vessel) with whom the seller has contracted for carriage.

Seller using own means of transportation under DAT, DAP and DDP

Under article A3 of DAT, DAP and DDP, the seller must contract for carriage. May the seller use its own means of transportation rather than an outside carrier?

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Yes. The rule assigns the responsibility to the seller to arrange for carriage, which may be carried out using the seller’s own means even though the text says ‘must contract’.

‘Terminal’ in DAT

What is a ‘terminal’ in the new Incoterms® 2010 rule ‘Delivered at Terminal’ (DAT)?

‘Terminal’ is intended to have a broad meaning, as the Guidance Note to DAT indicates, including any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. But a ‘terminal’ cannot be simply an open field; there must be some organization of the space for receiving goods.

Where to unload in DAT?

Under the Incoterms® 2010 rule ‘Delivered at Terminal’ (DAT), where does the seller unload the goods, at the terminal or in the terminal? For example, can the seller just leave commodities on a pallet on the street outside the terminal, or must the goods be brought inside?

• DAT in article A4 requires that the goods be delivered ‘at the named terminal’. Whether the goods must be brought inside the terminal will depend on the particular physical circumstances of the terminal, on the customs of the trade and, perhaps most importantly, on where the seller will be able to obtain a delivery document that will allow the buyer to take delivery of the goods, as required under article A8.
• Nevertheless, as advised by the Guidance Note of the DAT term in the Incoterms® 2010 rules, it would be convenient for the parties to agree as clearly as possible upon a specific delivery point within the terminal.

Buyer doesn’t arrive to collect goods under DAP

If a buyer doesn’t arrive to collect the goods once they have been delivered under the Incoterms® 2010 rule ‘Delivered at Place’ (DAP) by being placed at buyer’s disposal, what should seller do? And who pays for whatever is done?

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• As stated in the query, delivery takes place by placing the goods at the disposal of the buyer on the arriving means of transport ready for unloading. The seller must give notice to the buyer to enable the buyer to take any measures necessary for taking delivery. Assuming this has been done, delivery has taken place, and any costs relating to the goods thereafter are for the buyer according to article B6(a). Moreover, the buyer must pay any additional costs if the buyer has failed to inform the seller of the relevant details of delivery mentioned in article B7.
• The Incoterms® 2010 rules do not deal with the consequences of a breach of contract, so the question as to what the seller should do with the goods where the buyer fails to take delivery as required in article B1, and what other consequences the breach would have, would be governed by the applicable law such as the CISG unless addressed in the contract of sale.
• Despite the above, it can be generally stated that both the carrier and the seller have a duty of care vis-à-vis the buyer regarding the goods, even when the buyer fails to take delivery in time. Normally, the consignee (i.e. the buyer or buyer’s agent) is then contacted. The seller that has contracted with the carrier is in practice primarily responsible for compensating the carrier for any expenses, e.g. for storage of the goods on the consignee’s account, but as between the seller and the buyer, these costs are for the buyer in accordance with the division of costs under DAP Incoterms®2010.

Documents under DAP and DDP

While article A8 in the Incoterms® 2010 rules DAP and DDP are identical, article B8 is different: in DAP, buyer must accept the ‘delivery document’ provided by seller, while in DDP, buyer must accept the ‘proof of delivery’ provided by seller. Why the difference?

The real obligation is on the seller and B8 only mirrors it. The buyer shall accept a document that meets the requirements of A8 in each case (not in EXW). For each rule, the drafting group chose suitable wording to reflect the circumstances. However, the buyer is not deemed to have accepted any goods as delivered because of accepting a mere proof of delivery.

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VAT and DDP

The Guidance Note to the Incoterms® 2010 rule DDP, states that ‘any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the sale contract.’

Where an American exporter wants to deliver in Belgium, for example, using DDP Brussels, must that American seller pay the 21% VAT upon import of the goods? This is hard to believe, since European VAT is deductible on the importer’s VAT declaration. Where a Belgian seller sells to an American, using, for example, DDP Chicago, would the Belgian company have to pay the American equivalent of VAT upon import?

• Article A6(c) of DDP Incoterms® 2010 states that the seller must pay (where applicable) the costs of customs formalities necessary for the export and import of the goods as well as all duties, taxes and other charges payable upon…import of the goods as well the costs of transit formalities. VAT payable upon importation is one of such taxes payable by the seller. The Guidance Note to DDP states that any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the contract.
• An American selling DDP Brussels takes responsibility for import and is therefore responsible for the taxes arising on import.
• The practicability of using DDP must be assessed by the parties. Some customers expect ‘full service’ from the seller, which means that goods must cleared through customs with all taxes paid. As the seller may not be able to deduct VAT, parties frequently agree that VAT is excluded. The problem does not arise when the seller has an establishment in the buyer’s country or tax territory.

Does the need for an on board transport document rule out FCA for containers?

Users in South Africa have frequently underlined the importance of using on board bills of lading because otherwise the buyer is at risk for goods stranded at the port, for example because of strikes and the goods thereby never actually getting on board for transit. Depending on the circumstances and the Incoterms® 2010 rule concerned, the seller either obtains and hands over an on board document to the buyer or assists the
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buyer in obtaining one. The enquirers find that the recommendation that FCA be used for containers is untenable because of the need for an on board transport document. Please provide thoughts.

• There are certainly advantages of using on board negotiable transport documents as referred to by the South African users. However, on board transport documents reflect the reality of delivery only when goods are delivered on board the vessel by the seller, usually acting as the actual shipper as is done under FOB, CFR and CIF Incoterms® 2010, where the seller has to deliver the goods on board the vessel, which is only evidenced by an on board bill of lading (see Ramberg, Guide to Incoterms® 2010, ICC Publication No. 720, p. 74).
• On the other hand, containers are practically invariably delivered to the carrier prior to being loaded on board, and FCA is therefore more appropriate as it reflects the realities of the delivery. Containers are most often delivered to the carrier by placing them on a container stack in a container yard. The parties should agree on this at least implicitly. The problems referred to by the South African users may occur even when the carrier would exceptionally be prepared to issue an on board bill of lading under such circumstances since a strike might prevent the actual loading operation. The parties should consult with the carrier for measures to verify in the transport document that goods are actually on board e.g. by amending a received bill of lading by an on board notation. ICC does not have an ‘off-the shelf’ answer to solve the discrepancies between modern transport technology and the requirements of transport documentation based on old transport technology.
• Containerized goods can be sold on an FOB basis. However, the seller needs to be aware that it takes a risk as seller will have lost control of the goods (as usually delivered into custody of the carrier prior to loading) but will still retain legal risk for loss of or damage to the goods.

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Can seller refuse to load buyer’s arriving truck under FCA?

An FCA buyer has sent a truck to the seller’s factory to collect the goods. The FCA seller has serious doubts regarding the safety of transportation when using this truck (insufficient straps, curtain-side, slippery steel deck, etc.). Can the seller refuse to load the truck?

• The risk of loss of or damage to the goods under the FCA Incoterms® 2010 rule passes pursuant to article A5, when the goods are delivered according to article A4. Pursuant to article A4(a), delivery is completed if the named place is the seller’s premises, when the goods have been loaded on a means of transport provided by the buyer. This means that any loss of or damage to the goods caused by inadequate safety of transportation is in principle to be borne by the buyer.
• The F-family rules FCA, FAS and FOB do not contain any express requirement as to the means of transport sent to collect or receive the goods since it is the buyer’s responsibility to see to it that the means of transport are adequate. FCA Incoterms® 2010 does not therefore regulate this matter concretely. However, some general observations can still be made.
• Under transport law, such as the CMR Convention applicable in Europe, gross negligence on the side of the carrier could deprive the carrier of the right to limit its liability in circumstances where safety deficiencies would amount to gross negligence. A shipper that is aware of the deficiencies might not be able to plead gross negligence. This might hamper the buyer at risk from seeking an effective recovery from the carrier.
• In addition, seller and buyer will have health and safety responsibilities under local law. The seller will not be able to load if in doing so it breaches local health and safety law. Whether this constitutes a breach of contract will depend on the contract in which an Incoterms® 2010 rule is being used. Typically, there will be an obligation (expressed or implied) to comply with applicable laws.
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• In the most probable circumstances, it might become evident to the seller as the shipper that the buyer has contracted with a carrier without being aware of the vehicle’s condition and equipment. In such circumstances, most legal systems would place a duty on the seller to take care of the buyer’s interests to avoid an event leading to loss of or damage to the goods. A good piece of advice would be to contact the buyer for further instructions.

Who is the ‘shipper’ on transport document under FCA?

In a sale ‘FCA seller’s premises Incoterms® 2010’, who should be the ‘shipper’ on the transport document?

• This matter is typically not governed by any provision of the contract of sale (FCA Incoterms® 2010 being silent on the matter) but rather by the relevant transport law regime, which is generally either statutory law based on international conventions for the relevant mode of transport, or (usually) a contractual regime for multimodal transport.
• A shipper can be a contractual shipper, who has contracted with the carrier, or an actual shipper simply handing over the goods to the carrier, or both. More detailed definitions are found in transport conventions and laws, but inconsistency generally exists in this field. Under normal situations envisaged under FCA, an actual shipper is concerned. Moreover, there exists a special legal regime for the shipment of dangerous goods, which confers obligations and liabilities on the actual shipper marked on special documents.
• It is therefore not feasible to give any recommendation to cover all FCA shipments.

Destination contract with the seller unloading, but not at a terminal

We want to use a delivered Incoterms® 2010 rule, but don’t know whether to use DAP or DAT in the following situation: the seller and buyer agree that seller is to retain risk for the goods during transport, pay all transport costs to, and provide unloading at, the buyer’s premises, which is not a terminal.

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• This situation doesn’t fit any of the 11 Incoterms® 2010 rules exactly - DAP (and DDP) anticipate delivery to buyer’s premises but delivery not unloaded, and DAT is unloaded but anticipates delivery to a ‘terminal’. However, the guidance note to DAT makes it clear that ‘terminal’ is defined broadly as, ‘any place, whether covered or not’.
• We suggest then that either:
• DAT is used but making clear in the contract that the place of destination is the buyer’s premises; or
• DAP is used but making clear in the contract that the seller shall provide for unloading at the buyer’s premises and the seller shall pay all costs and bear all risks relating to unloading.

Domestic arrival contracts for pre-imported foreign goods – DAP or DDP?

For domestic arrival contracts covering pre-imported foreign-origin goods, should we use DAP or DDP?

DAP was developed to cater for this situation as it does not mention any duties or other charges in its name. However, either DAP or DDP can be used.

Seller doubts safety of buyer’s arriving truck under EXW

An EXW buyer has sent a truck to the seller’s factory to collect the goods. The EXW seller has serious doubts regarding the safety of transportation when using this truck (insufficient straps, curtain-side, slippery steel deck, etc.). Can the seller refuse to load the truck at the buyer’s request, risk and expense?

• Under EXW the seller is not obliged to load the goods. It is at the seller’s discretion whether to agree to load (and if the seller does agree to load the seller should make it clear in the contract that it does so at the buyer’s risk, request and expense).
• Seller and buyer are obliged to comply with local laws relating to health and safety. This obligation is not an Incoterms® 2010 rule obligation but an obligation arising from the local law. The seller should not assist the buyer to load if that causes the seller to be in breach of the law.

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Who pays ‘container cleaning charges’ under DAP?

Goods have been sold ‘DAP Durban – South Africa Incoterms® 2010’. Due to the nature of the goods, the container needs to be cleaned. Who has to pay the ‘container cleaning charges’?

• DAP does not deal with responsibilities for the container in which the goods are delivered.
• The legal responsibility for the container will be dealt with in the contract between the container owner (usually the carrier or a container lessor) and the seller. The seller will be responsible to the container owner for the container, including cleaning responsibilities. If the seller wants to pass these responsibilities to the buyer (and oblige the buyer to return the container) then the seller should specify so in the contract with the buyer.

Relation of risk passage and export formalities under FCA, CPT and CIP

According to article A5 of the Incoterms® 2010 rules FCA, CPT and CIP, risk of loss of or damage to the goods passes to the buyer when the goods have been delivered in accordance with article A4, that is, handed over to or placed at the disposal of the carrier. But the seller is also obliged to clear the goods for export under article A2, which may take place after the goods have been delivered.

What happens if the seller delivers the goods (and thus risk has passed to the buyer), but then the seller fails to satisfy the required export formalities? Does risk for the goods revert to the seller in that case? And if the goods are damaged or lost between the physical delivery and completion of export formalities, would the seller still go ahead and complete export formalities?

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• Delivery of goods and passage of risk for the goods under articles A4 and A5 occur independently of the obligation of the seller under article A2 to undertake export formalities. If the seller fails to complete its export obligations, and assuming the buyer has provided any related assistance as required under article B10, then the buyer’s recourse will be to seek remedies for contractual breach available under the applicable legal regime, outside the scope of the Incoterms® 2010 rules. For example, if as a result of the seller’s breach the goods are stranded at the port and perish, then subject to the relevant law, the seller will be liable for that loss to the buyer. Therefore although ‘risk’ has passed, the seller may still be liable.
• Where goods are destroyed after delivery but before the seller has completed export formalities, seller will still be obliged under the Incoterms® 2010 rules to clear the goods for export, but the parties may want to consider other options by mutual agreement.

Delivery date under CIP?

In a contract CIP (Antwerp) Incoterms® 2010, delivery date March 23, 2011, goods leave the Chinese seller’s factory on March 15, 2011, arrive at the forwarder’s terminal (COSCO) in Shanghai on March 22, 2011 (date of the freight cargo receipt) and are received by the ship on March 24, 2011 (date of bill of lading). When did the C-seller deliver?

In this question, the Incoterms® 2010 rule CIP is chosen by the parties. Therefore the delivery obligation is fulfilled by handing the goods over to the first carrier, unless agreed otherwise by the parties under the sale contract. In this case, the first carrier is the carrier taking goods from the seller’s factory in China (assuming that the seller has not carried the goods itself). If the seller has carried the goods itself, then delivery will be to the first carrier – i.e. freight forwarder terminal at Shanghai). Therefore, the goods would be delivered on March 15, 2011.

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