Keys to Case Study Chapter 4

1. It was not right for the buyer not to take delivery of the goods. In this case, the contract concluded between the seller and the buyer was on CIF terms, according to which, the seller ’ s responsibilities ended when he loaded the goods on board the ship and paid the freight and insurance premium; the risk separation was the rail of the ship (incoterms 2000) or onboard the ship (incoterms 2010); that is to say, the risks were transferred to the buyer or the other parties concerned after the seller put the goods on board the ship. Since the documents presented by the seller were right and proper, the seller could directly get paid from the Issuing Bank of the L/C.

 However, part of the goods got lost because of rough sea. Does this mean that the buyer suffered loss? It is definitely not the case because there are other two sub-contracts existing on CIF terms-Insurance Policy and Bill of Lading. In this case the buyer could claim damages with the insurance company, but he had to take delivery of the goods. Obviously, the actual reason for the buyer ’ s refusal to accept the goods in this case was that the prices of the goods were going down. This is, certainly, unjustified.

2. In this case the contract was concluded between Company A and Company B on FOB term, according to which the seller (Company A) ended his responsibilities when he delivered the goods on board the ship at the port of shipment. He did not need to pay for transportation of the goods or the insurance premium. Therefore, it was not right for B to ask A to pay the freight and indicate “ Freight Repaid ” on the Bill of Lading. The reason why B asked A to do that might be that he wanted to transfer the freight charges to A.

 However, in practical dealings, foreign trade companies often come across such situations, especially when a contract is concluded with an agent, who wants to resells the goods. In this case, A might comply with B ’ s request, but he had to indicated that the freight should be borne by B.

3. The buyer's demands are unreasonable  If the transaction is made on FOB terms, usually the buyer is responsible for booking shipping space. The seller can accept the seller's commission on behalf of space booking, but the seller does not undertake the responsibility of not renting boats and risks. In this case, the export company failed in space booking on behalf of the buyer, and the buyer did not agree to replace the transaction conditions, therefore, the export company did not hold any responsibilities of failing space booking and the delay of the delivery. Buyer could not propose to withdraw the contract, either. So, the buyer's demands are unreasonable, responsibilities and risks should be borne by the buyer himself.

4. Our company can not refuse to make the payment for the sheets, nor make claims against the seller. Because:  1) If the transaction is made on CIF, it is symbolic delivery, under which the buyer ’ s responsibility is “ documentary delivery ” whereas the buyer pays when he gets the documents. The buyer should do so once the seller submits the documents agreed upon according to the contract. Even when the goods suffer damage or losses in transit, the buyer has to fulfill payment obligations. On the contrary, if the documents presented by the seller are not in compliance with the contract, even if the goods are in good order, the buyer has the right to refuse to accept the goods. In this case, the seller submits the whole set of documents as stipulated in the contract, therefore, our company has to make the payment.

 2) Under CIF term, after the goods have been passed the ship's rail (incoterms 2000) or onboard the ship (incoterms 2010), the burden of risk is borne by the buyer. In this case, before the goods have been passed the ship's rail or onboard the ship, the goods are in good condition. So the seller need not take risk responsibilities. Our company can not make any claim on the seller, but can make claim on the insurance company according to relevant conditions.

5. The seller is not responsible for the damage of lower prices. In this case, upon loading, the goods has been inspected to be in good order. The seller has sent shipping notice in time after loading the goods onboard.  According to stipulations of Incoterms 2000 and 2010, “ FOB ” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.

 The risks or damage to the goods are passing ship ’ s rail (Incoterms 2000) or on board the vessel (Incoterms 2010), and the buyer bears all costs from that moment onwards.  In this case, the damage was caused during transit. So the risk should be borne by the buyer according to the trade term.  The buyer can ask for compensation from the insurance company if he has covered insurance for his goods.  Anyway, the seller should not be responsible for the damage in transit.

6. The seller ’ s request is reasonable. Because under CIF contract, the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel (Incoterms 2010) or passing the ship ’ s rail (Incoterms 2000). In this case, the seller has paid the freight and the goods has been put on board the vessel. The incident happened after the risk had been transferred to the buyer. Therefore, the buyer should bear the damage.  As for the extra cost of freight paid by the buyer, he could contact insurance company to seek for compensation.

7. The buyer has no right to refuse to make payment.  Because under CIF contract, the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel (Incoterms 2010) or passing the ship ’ s rail (Incoterms 2000). Therefore, the damage was caused after the risk had been transferred to the buyer. The buyer should bear the damage. But the buyer can claim the damage against the insurance company according to relative insurance policy.

8. In this case, there are two possible conditions.  Under the CIF contract, the seller is responsible for both delivering the goods according to the contract and providing the clean and proper documents according to the contract. The buyer has the right to refuse any unclean documents.  So, (1) if the problem of documents caused no real trouble to the buyer, then the buyer should not refuse the documents and to make payments. (2) if the buyer himself is a middleman, he may fail to get payment because of the unclean document. Therefore, he has the right to refuse the unclean documents and refuse to make payments.

9. This damage should be borne by the buyer.  Under CPT, the seller fulfils his obligation to deliver when he hands the goods over to the carrier and not when the goods reach the place of destination. In this case, the goods have been handed over to the carrier. Therefore any damage caused after that has to be borne by the buyer. The seller can refuse the buyer ’ s claim.

10. The seller ’ s requests are not reasonable. According to CIP, the seller should be responsible for the main carriage and insurance fee. Since CIP is used in all kinds of transportation mode, the seller should pay the carriage to the named destination, which includes not only marine carriage but also train carriage.  Therefore, in this case, we should only pay the price for goods, not for train carriage.