ICC Digital Library Forum

If a seller delivers his product to his freight forwarder for shipment of the product to his international customer, has he technically delivered the product to the "carrier". If the product is stolen from the freight forwarder's lot, who has the risk of loss, the seller or his buyer?

The freight forwarder could be acting as contractual carrier for the whole journey. If he has given a receipt for the goods e.g. a bill of lading, then that document is evidence of delivery and of the contract of carriage.
As regards who has the risk of loss, it depends on the sale/purchase contract. For instance, in an FCA transaction risk passes to the buyer upon delivery to nominated carrier.
ICC Guide to Incoterms will give you answers to your questions in greater detail.

It is common practice for the seller to present a "Delivery Note" or similar for endorsement by the receiving carrier. The carrier may also issue a receipt for the goods before release of the B/L. Either of these is evidence of the moment when responsibility for care of the goods passes to the carrier/forwarder.
However, the entity liable for losses etc is entirely dependent on the agreed Incoterms or contractual arrangements, as is the point at which such responsibility shifts from seller to buyer.
The same forwarder may act in more than one capacity - he may act as carrier on one service and as agent on another.

The freight forwarder collect goods received from the shipper and deliver them to the carrier. He does not undertake the responsibility for the goods during the transport. In case of loss or damage of goods, the shipper has to look for the carrier. Where the Fr.Fw. undertakes a responsibility, he should be indicated as carrier or Multimodal Transport Operator, or their agent.

As a consultant resolving LC and charter party disputes, we have to say that the data given in this query is not adequate to warrant a good and responsible answer.

Our experience is that the more you know, the more difficult it is to answer a simple question, as there are many variables. And each variable/option may take you to a different answer. That is why the more years we are in practice, the less we can answer simple questions like this one.

"It all depends" is our short answer.

(1) The role of the forwarder, agent of carrier, of shipper, or of both?

(2) Even if the forwarder signs as an agent for the carrier, is he really an agent duly authorised by the carrier, with written contract? The answer is again perhaps.

(3) Being an agent of both the carrier and the shipper, is the forwarder having conflict of interest?

(4) What Incoterm is used? This may rule on the risk to the seller or to the buyer.

(5) Even you got the Incoterm, the risk and rights & obligations of the parties, need not be interpreted according to the Incoterms Guide Book. The parties may have changed the rules to suit themselves.

(6) Has the seller clearly identified the goods and set them aside? Has the seller made the goods, shipping marks and the packing materials in seaworthy conditions?

All this information may chage our answer.

The enquirer from USA may approach our good friend, Mr. Frank Raynolds, who is the USA representative to ICC Commission on International Commercial Practice (that drafts the Incoterms 2000) and we are glad to work with him as the representative of Canada in the same Commission.

We are from www.tolee.com

[edited 6/20/01 6:10:34 PM]
[edited 10/28/01 12:08:28 AM]

Initial question was: "If the product is stolen from the freight forwarder's lot, who has the risk of loss, the seller or his buyer?".
Despite appreciating all opinions and comments above, I agree with Mr. PGauntlett focusing on the question when responding: "As regards who has the risk of loss, it depends on the sale/purchase contract." (and used Incoterm).

So it depends on used delivery term in particular with all possible modifications as also rightly mentioned above. Than the seller or the buyer will have to claim from the carrier or forwarder acc. to their contract if it is the case or to exercise the insurance cover if goods were assured.

Pavel Andrle

PROBLEMS ARE NEVER STRAIGHTFORWARD

Dear Mr. Andrle,

We cannot over-simplify an issue of stolen cargo by referring simply to the Incoterms for solution. From our experience, if we answer our clients like this, it is very risky. We have to find out whether the warehouse (where goods are stolen) belongs to the forwarder, the carrier or someone else and the warehouse keeper has exercised due diligence and what the terms of insurnace cover are and things like this. All these material facts may change the whole picture. We are not answering a CDCS exam question here. We have to deal with a real life situation which can be as complex as it can be.

By the way, a word of caution here, don't fall in love with the Incoterms, for it has its own limitations. For example, in FOB, which everydoby uses frequently, yet both the buyer and the seller may not be responsible for insurance cover! The more one knows, the more one does not know!

Our friend, Mr. Frank Raynolds, the USA delegate to the ICC Working Party for Incoterms 2000, has commented that DC practitioners should know the Incoterms in greater depths in order to use them properly.

If B/L is involved, we may have to deal with title, which is beyond the scope of Incoterms, although we have heard certain speakers say in their seminars that the Incoterms deal with title and property.

This is a good example to show that a consultant's approach to the same problem may be in different depth and breadth.

We are from http://www.tolee.com

[edited 8/30/01 4:48:03 PM]
[edited 10/28/01 12:02:59 AM]

INCOTERMS V. OWNERSHIP

Let us share with members how ownership would have affected Incoterms in a thought provoking story. This is NOT "an exceptional case". There are too many such cases. We will tell more when these issues are brought up in the future queries. Now better stick to the present issue here for the time being.

Our client, a buyer, purchased goods on CIF Hong Kong China Incoterms and the goods sustained damages during the sea voyage. According to Incoterms, the risk should have shifted from the seller to the buyer once the goods had crossed the ship's side. The buyer had to bear the risk of the damages.

If life (or deciding everything by Incoterms) were so simple, we trade disputes consultants would have no business.

However, when we looked at the invoice, we found a protective clause, probably suggested by the seller's lawyer to protect his client from non-payment: "The title of the goods will be retained by the seller unless and until the goods have been fully paid for". And Bingo! This clause would overturn everything, making our client, a buyer, from a loser in "Incoterms" to a winner in "title" or "ownership" if that matters (as certian scholars think that there is a difference between "title" and "ownership" and both are abstract terms anyway). This is a contractual term, a specific term to override a generalized term in the Incoterms. Also the law of contract would override the Incoterms, which, like the UCP, is not law. In fact the Incoterms, like the UCP, allow parties to make their own rules.

We asked the seller's lawyer a simple question: "Who is the OWNER of the goods at the time of distress?' Of course it was the seller because the payment was by a deferred payment DC. At the time of distress, the issuing bank had not yet made any deferred payment undertaking, whether drafts or no drafts were used.

Normally, if there were no such a protective clause, according to the CISG Vienna Convention of the United Nations, or commercial legislations on sales of goods in most countries, title would normally pass (i) on signing contract, (ii) on delivery or (iii) according to the intention of the parties, a general situation(s) assumed by the Incoterms based on which the risk between the seller and the buyer is determined. But with this specific protection clause being incorporated in the contract and the invoice, the rules of the game had been changed.

So our buyer, should be a loser in Incoterms, was saved by a special condition, which overrode the Incoterms. So as the Chinese saying goes: "A knife has two edges. You may either kill your enemy or yourself if you don't know how to use it properly".

BANKERS NEED TO ARMOUR THEMSELVES WITH RELATED KNOWLEDGE

This story should be of good reference value for those bankers who

(1) rely too much on Incoterms.

(2) have a tendency to simplify the issues by thinking only from one angle

(3) refuse to armour themselves with additional knowledge and to update themselves with changing practices of related industries, such a shipping and insurance relying on an excuse that we are bankers and it is enough to know banking only.

(4) wish to leave the others to consultants "who want to sell us training workshops which we don't need". (as some of the bankers have already commented this in the Discussion Forum).

(5) would armoured themselves with additional knowledge whilst in the bank, so that they would be more competent consultants when they retire.

If those unarmoured bankers retire and change their profession to trade disputes consultants, may God bless them!

In this web world, everything is weaved in a net of different technologies. We are operating in an INTERACTIVE environment and it is wrong to stick oneself to one position or to confine oneself to one technology and one knowledge.

Open-minded bankers like Hatem would be able to survive better in a highly competitive e-commerce environment, which is already at our front door.

We are from http://www/tolee.com

[edited 9/23/01 11:12:33 PM]
[edited 10/27/01 11:51:49 PM]

The question was who will suffer the loss – seller or buyer, not who is finally responsible. Different questions have different answers. I agree that simple questions don’t necessarily get simple answers, but in my view it is waste of time to give answers to questions not asked.

I agree that if the question was who is finally responsible for the loss of cargo, then the answer would be very uneasy. I also agree that more you know the better. But you must also be able to apply the knowledge correctly to the particular case.

I refer to his comments above:

Quote: Our client, a buyer, purchased goods on CIF Hong Kong Incoterms and the goods sustained damages during the sea voyage. According to Incoterms, the risk should have shifted from the seller to the buyer once the goods had crossed the ships rails. The buyer had to bear the risk of the damages. unquote.

This is correct.

quote:
We asked the seller`s lawyer a simple question: "Who is the OWNER of the goods at the time of distress?" Of course it was the seller because the payment was by a deferred payment DC. At the time of distress, the issuing bank had not yet made any deferred payment undertaking, via drafts or no drafts”. And also:” The title of the goods will be retained by the seller unless and until the goods have been fully paid for". And Bingo! This clause would overturn everything, making our client, a buyer, from a loser in "Incoterms" to a winner in "title"
unquote

To suggest that the fact that the seller was still owner of the goods at the moment of the damage would "override" the Incoterm in the respect of the transfer of the risks is incorrect. Incoterms deal with the transfer of the risks from seller to the buyer and that is the situation we are concern with.

In practice the standard delivery term determines the time of passing the risk from seller to the buyer. If they are properly incorporated by reference as in our case, they will be most likely allowed to take precedence over the rule of the governing law which might connect the transfer of the risk with transfer of the ownership. The usage of the delivery term is regarded as expressed intention of the parties to the matter.

I understand that the outcome might me different taking into account special circumstances of the matter. But I highly doubt that any court would ignore this standard rule given by the used Incoterm, unless there is, of course, another express indication of the matter (transfer of the risks) in the contract itself. Also I am aware that many laws make risk pass on delivery not on transfer of ownership which is more practical – as is rightly mentioned above. It is also very likely that in our case the governing law would not connect the transfer of the risk with the transfer of the ownership (Vienna Convention for example) so this protection clause would not very likely help in determining the time of the transfer of risks. The assumption of ” the rules of the game being changed” would lack logic here.

Just imagine this restrictive ownership clause in case of 180 days seller`s credit! Then the seller would keep the risk till the final payment! This would not protect him too much!

So the fact that the seller retains title to the goods until the goods are fully paid for (as a protective retention of title clause) does not necessarily mean that he should suffer from the damage to the goods in transit. In our case the buyer would suffer the damage because the sales contract incorporating the CIF term is clearly defined in A5 of Incoterms 2000 that “the seller must, … bear all risks of loss of or damage to the goods until such time as they have passed the ships rail at the port of shipment”. It should also be borne in mind that as under CIF the buyer would be insured under an insurance policy, he would most likely be able to recover his losses. Also remember that provided the documents were complying, the seller would be paid under the deferred payment L/C.

Of course we could have different scenario if the seller did not comply with the CIF contract terms, but I am assuming that this is not the case.

With respect to the comment "A knife has two edges. You may either kill your enemy or yourself if you don’t know how to use it properly", surely as professionals we should restrain ourselves from personalizing our comments, as this does nothing to advance the goal of this discussion forum.

Pavel Andrle

Dear Mr. Pavel Andrle,

YOUR OPINIONS ARE INCORRECT IF WE GO DEEPER INTO THE PREMISE THAT INCOTERMS ARE BASED

Your opinions appear to be correct on the surface level but are in fact incorrect if we go deeper into the premise under which the Incoterms, whether 1980, 1990 or 2000, determine passing of risk between a seller and a buyer.

As an experienced consultant dealing with international trade disputes for ten years, we understand the problems and the more complex issues unfolded by this query in more depth than your purely a banker's view. In fact we are a Canada's representative in drafting the Incoterms 2000 and we know what the Incoterms are at a deeper or an insider's level.

INCOTERMS ARE BASED ON THE PREMISE THAT GOODS ARE "CLEARLY SET ASIDE OR OTHERWISE IDENTIFIED" BY A SELLER

Now let us tell you what you have gone wrong. From your comments, quoting the CIF "A5" stipulation in Incoterms 2000 and the like, you appear to us that you do not understand the background reasons why Incoterms 2000 determine that the risk in EXW, FOB, or CIF that matters, passes from a seller to a buyer once the goods pass the ship's side. The premise of such determination is based on the CONDITION that goods are "CLEARLY SET ASIDE OR OTHERWISE IDENTIFIED AS THE CONTRACT GOODS" by a seller.

WHAT ARTICLE 67.2 OF THE VIENNA CONVENTION SAYS

Please refer to Vienna Convention Article 67.2 that stipulates:

"Nevertheless, the RISK DOES NOT PASS to the buyer until the goods (e.g. "unascertained goods" the meaning of which is to be explained later here) are clearly IDENTIFIED to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise".

WHAT THE INCOTERMS SAY IN QUOTING THE VIENNA CONVENTION

For those who don't have a guidebook on Incoterms 2000, then they may find quotation of the Vienna Convention premise in "Guide to Incoterms 1990", ICC Publication No. 461/90. On page 48, related to a seller's obligations "B5" under EXW (Ex Works), it is stipulated:

"Appropriation and Passing of Risk

The risk, however, CANNOT PASS until the goods 'have been duly appropriated to the contract'. If the goods are UNASCERTAINED – i.e. goods of a certain kind which the seller will deliver to his VARIOUS BUYERS – appropriation occurs only when the goods are "CLEARLY SET ASIDE OR OTHERWISE IDENTIFIED AS THE CONTRACT GOODS".

This premise or principle in the Incoterms is in fact following the Vienna Convention doctrine, or the CISG (the United Nations Convention on Contract for International Sale of Goods). Otherwise the Incoterms just won't work out smoothly as an international rule to govern trades amongst the signatory countries of the CISG due to inconsistency or conflicts with the CISG.

DIFFERENT GOODS HAVE DIFFERENT WAYS OF PASSING OWNERSHIP

In general, ownership MAY pass (i) on signing contract, (ii) upon delivery, particularly for "specific goods" (to be explained later) or (iii) according to the intention of the parties. These are the most common ways goods pass ownership. There are other different ways and legal requirements in passing of ownership depending on the nature of the goods, being

"specific goods" (e.g. a watch of serial number 3388),

"unascertained goods" (e.g. a tank of oil owned by two owners. It is difficult, if not impossible, to say which part belongs to owner A and which part belongs to owner B as the oil may flow from one location to another within the tank when the temperature of one location changes), or

"future goods" (e.g. a small boat to be delivered in six months. Before the boat is made, we have only heaps of wood, metals, spare parts and engine but not the boat itself. The goods under the contract have not yet born! So ownership of an unborn boat does not exist in law although the parties wish to pass the ownership, they can't.

We have many landmark precedent cases for this in the law textbooks. To give a few classic examples which we have used in our Incoterms 2000 workshops held in Dubai and Malaysia last year, here you are:

Specific Goods

Kursell v. Timber Operators (1927) C.A.
Dennant v. Skinner (1948) K.B.
Nanka Bruce v. Commonwealth Trust Ltd. (1926) P.C.
Re Ferrier (1944) Ch.
Weiner v. Gill (1906) C. A.
Carlos Federspiel & Co. v. Charles Twigg & Co. (1957) Q. B.

Unascertained Goods

Re Wait (1927) C.A.

Future Goods

Sainsbury v. Street (1972) Assizes
Ashington Piggeries v. Hill (1971) H.L.
McDougall v. Aeromarine of Emsworth (1958) Q.B.
Varley v. Whipp (1900) Q. B.
Re Blyth Shipbuilding and Dry Dock Co. (1926) C. A.

HOW OWNERSHIP PASSES FOR UNASCERTAINED GOODS

Take "unascertained goods" as an example, the Sales of Goods Act of UK regards that the title would only pass if the goods can be identified or separated into distinct portions. For example iron ores are unpacked and unmarked since it is not worth to do so for an inexpensive product. The iron ores shipped to three buyers are stowed in the same hold (storage cabin) in a ship. The title would NOT pass unless the iron ores have been separated or identified into three distinct heaps, EVEN IF the seller states in the contract that ownership would pass over the ship's side, according to Incoterms.

If part of the iron ores is damaged by perils of the sea, then which of the three buyers has to bear such risk? There is no answer to this question. The Incoterms cannot determine which heap belongs to which buyer. This is the reason why the drafters of Incoterms are wise to set a premise that risk under Incoterms would pass IF AND ONLY IF the seller has "set aside or otherwise identified the goods as the contract goods" BUT NOT SOONER.

INCOTERMS REGARDED TOO GENERALISED AND TOO SIMPLE FOR CERTAIN COMMODITY TRADES

This is the reason why many commodity trades do not use the Incoterms. We have to understand that Incoterms, like the UCP, do have their limits. Incoterms are also criticised by the commodity brokers to be too generalised and too simple to rule on their more complicated trades.

Incoterms cannot help if more complicated situations are met, such as the story we told early on about liquid hydrocarbon being stowed in the same hold which may be shipped to more than one buyer.

SO OUR STORY IS CORRECT IF ONE UNDERSTANDS WHAT UNASCERTAINED GOODS ARE

In our 'CIF HONG KONG China" story spoken here before, let us tell you more of the background details. The quantities of liquid hydrocarbon from two buyers in Hong Kong China to the same manufacturer were not big enough. A ship of such smaller tonnage was not available for hire immediately. The buyers could not wait. So, for speedy delivery, a bigger ship was chartered to take their goods together, with one hold (storage cabin) mixing the liquid goods of the two buyers together.

Hence the liquid hydrocarbon in that hold was NOT "set aside or otherwise identified as the contract goods". It followed from (i) the Vienna Convention Article 67.2 quoted above, (ii) Incoterms that was harmonized with the Vienna Convention and (iii) the Sales of Goods Act that RISK DID NOT PASS. If risk did not pass to the buyers, then who was the one that took the risk? Of course it was the seller.

This statement was further supported by the seller's terms in the contract that ownership did not pass until the goods were fully paid. Since the goods were not fully paid at the time of the perils (contamination during the sea voyage), the ownership and risk also belong to the seller.

This special condition ("goods NOT being set aside or otherwise identified as the contract goods) is outside the scope, premise or principle taken by the Incoterms. If Incoterms cannot determine due to "out of bounds" (to borrow a golf term here), then it is for the CISG or the applicable law to decide passing of risk in such a situation.

We do not wish and have no time to "lecture" on ownership here. If you wish to know more details, please consult your legal counsel.

PLEASE DON'T ALWAYS PICK US AS YOUR TARGET, MANY THANKS

So next time if one does not know the background upon which a certain rule is made, such as the Incoterms in this case, he should not use over confident and criticising tonality and play God (such as criticising which opinion is irrelevant or which answer is not the answer the enquirer wants and so on). It would only disclose one's ignorance of a deeper understanding of the premise of the rule or subject matter one is talking about, in this case the Incoterms.

We should not oversimplify the problems. The more we know, the more we would not use the "right or wrong", "correct or incorrect", "relevant and irrelevant" Newtonian approach or to quote and criticise other member's opinions with these terms.

After Mr. Pavel Andrle has shown hostility to us in his writings in the Discussion Forum for a couple of times previously in the Discussion Forum, and being pardoned, we have already told him to leave us alone as we have no interest to deal with him any more. A member also gave us an email to advise us not to treat it too serious with his comments about us. Yet we do not understand why he is still after us and gives us some surprises and keep on throwing incorrect, disrespectful and unfriendly criticism after a long silence. We do not know what his real intent is? This is not the first time that he does this. And this is not the first time that he is proven incorrect. Would other members speak up their opinions and feelings?

PLEASE VERIFY WITH YOUR LEGAL COUNSEL

Our dear Mr. Pavel Andrle, please consult your legal counsel to verify if we are saying the right thing or not about passing of risk in our "CIF HONG KONG China" story.

If one is not a lawyer, then one should not talk about law in such an assured and affirmative manner. This is dangerous. Otherwise one may get into troubles one day when some members consider that he has misled them.

For members' information, in our Incoterms 2000 workshops, lawyers present also agree to our analysis. In the "CIF Hong Kong China" case, our client's barrister also shared the same view with us concerning ownership and passing of risk not being able to be determined by the Incoterms (as well as the law or the CISG) for unascertained goods before they were identified as the contract goods.

DISCLAIMER:

As the issues of ownership, title or passing of risk are abstract and complex issues and the applicable law may be different from one jurisdiction to another, we strongly advise members here that our opinions expressed here are solely for discussion purposes. Members are advised to consult their legal counsel before they rely or act upon our opinions or comments in the Discussion Forum, for which we are not held responsible or liable whatsoever for any direct or indirect consequences, losses or damages arising out of or related to such reliance or actions.

WE WISH TO APOLOGISE IF OUR INTERPRETATIONS ARE WRONG

If we have misinterpreted the intention, opinions or comments of Mr. Pavel Andrle, which have caused him any harm or inconveniences, please accept our sincere apologies, as we are just expressing our feelings frankly and have no intention to harm him although we disagree with his opinions or comments on us or our opinions, we still respect him and hope he would do the same to us too.

To clear the mist, we sincerely urge Mr. Pavel Andrle to respond to us promptly in this regard.

http://www.tolee.com

[edited 9/23/01 11:39:25 PM]
[edited 10/27/01 11:35:06 PM]