Transit risks in CIF contracts —meaning and categories

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Risk of increase in the cost of carriage

Transit risks in CIF
contracts—meaning
and categories
Koji Takahashi

THE

INVOLVEDIN INTERNATIONAL

SALESInternational sales involve various risks, such as the foreign exchange risk,
the risk of failing to obtain export or import licences, the legal risks involvedin bringing and enforcing claims abroad and the risk of the contracting
partner's default (the credit risk). This chapter will focus on the transit risks,
i.e. the risks arising in the course of the carriage of goods, and will examine
them in the context of CIF (cost, insurance and freight) contracts.'
The CIF and C&F (cost and freight, also referred to as CFR) contracts,
along with FOB (free on board) contracts, are the most frequently used formof contract for international sale of goods. They are shipment contracts inthe sense that the transit risks pass at the port of shipment. They can becontrasted with the arrival contracts, such as DES (delivered ex ship) andDEQ (delivered ex quay), under which the transit risks pass at the port ofdischarge. The transit risks contemplated are the risk of loss of goods andthe risk of damage to goods. What traders and lawyers are less aware of
are that there are other categories of transit risks and the usefulness of
distinguishing them. The purpose of this chapter is to give a systematic
treatment to different categories of transit risks, articulate their meaning andillustrate the usefulness of distinguishing them.
Although the transit risks usually contemplated are the risk of loss ofgoods and the risk of damage to goods, there are in fact other transit risks.
This chapter will illustrate the usefulness of distinguishing different categor
ies of transit risks such as the risk of increased cost of carriage, the risk ofdeterioration, the risk of damage, the risk of loss inflicted by external causes,
the risk of loss caused by the inherent nature of goods and the risk of delay.
Too often the words 'loss', 'damage' and 'deterioration' are used without
defining them. In a majority of cases, no problem arises, but in some cases it
is useful to define and distinguish them. This volume, on the theme of 'risk
and the law', provides a fitting opportunity to give a systematic treatment to
the different categories of transit risks and to articulate their meaning.

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RISKS

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The transit risks pass as from shipment also in FOB contracts. CIF contracts
are distinguished from FOB contracts by the fact that the freight for themain sea carriage is paid by the seller, whereas in FOB contracts it is paid by
the buyer. In other words, in CIF the cost of carriage from the seller's prem
ises to the buyer's premises is divided at the port of discharge. CIF contracts
therefore contain two critical points: the port of shipment where the transit
risks pass and the port of discharge where the cost of carriage is divided.
Which matters concern the risk and which matters concern the cost of
carriage are usually obvious. Thus where an additional freight is charged
under the contract of carriage due to a market increase during transit, it is
the seller rather than the buyer who is to bear the additional freight since it isa matter concerning the cost of carriage. But what if a casualty affecting theship —such as strandings, collisions, strikes, government directions —shouldtake place and has caused additional cost to be charged under the contract ofcarriage? Who —as between the seller and the buyer —is to bear the add
itional cost? The question can be translated into the language of risk and bephrased: where does the risk of unexpected increase in the cost of carriage
pass from the seller to the buyer? Does it pass as from shipment, together
with the risk of loss or damage? Or is the increased cost, being part of thecost of carriage, to be divided at the place of discharge?
A detailed definition of the CIF contract is to be found in the Incoterms(International Commercial Terms, revised from time to time by the International Chamber of Commerce). The Incoterms are applicable where they
are incorporated into the contract. The Incoterms 2000 provides in thepertinent part:
B6 Division of costs
The buyer must . . . pay . . .
—all costs and charges relating to the goods whilst in transit until theirarrival at the port of destination, unless such costs and charges were forthe seller's account under the contract of carriage; . . .
The ICC Guide to Incoterms

2000 elaborates

the point:2

While the seller has to pay all costs required to bring the goods to theport of shipment and to deliverthe goods onboard the vessel(as well as
unloading charges at the port of discharge, provided they have been
included in the freight), the buyer has to pay any further costs which
may arise after the seller has delivered the goods onboard the vessel.
In this sense, the transfer of the risk also determinesthe division of costs.
If something occurs as a result of contingenciesafter shipment —suchas strandings, collisions, strikes, government directions, hindrances

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Risk and the Law
because of ice or other weather conditions — any additional costs
charged by the carrier as a result of these contingencies, or otherwise
occurring, will be for the account of the buyer. [Emphasis added]I,

It follows that where the Incoterms 2000 version of CIF is applicable, therisk of increase in the cost of carriage passes as from shipment. That risk
should be recognised as a category of transit risk since it is, by definition, notcovered by the risk of loss of or damage to goods and also because it would
underscore the point that an unexpectedly increased cost of carriage is to be
divided in CIF at the port of shipment, in contrast to the cost of carriage
included in the freight, which is to be divided at the port of discharge.
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Risk of deterioration

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Deterioration is distinguishable from damage. Though they both affect thequality of goods, damage is inflicted by external causes such as contamination, whereas deterioration is caused by the inherent nature of the goods,
such as discoloration of bananas.' The risk of deterioration so understoodremains with the seller until the port of discharge in English law. The leading
authority is Mash & Murrell v Joseph I. Emanuel.' In this case a quantity ofCyprus potatoes was sold on C&F terms. When they arrived at Liverpool,
they were found to be rotten. The buyer claimed that the seller was in breachof implied warranty. Diplock J allowed the buyer's claim, holding that whengoods were sold under a C8cF, CIF or FOB contract, the goods must be
shipped in such a state that they could endure the normal journey and be in amerchantable condition on arrival. The emphasis is on the condition at thetime of shipment, in compliance with the nature of CIF as a shipment con
tract. This requirement now finds an express statutory basis. Section 14(2)of the Sale of Goods Act 1979 requires the goods sold in the course of abusiness to be of satisfactory quality and subsection (2B), which wasinserted after the Mash & Murrell case, though not because of it, specificallymentions 'durability' as one of the aspects of quality to which regard is tobe had.
The requirement that the goods must be durable at the time of shipment is
consistent with the nature of the CIF contract as a shipment contract, sinceregard is had to the condition of the goods at the time of shipment rather
than at the time of discharge. Translated into the language of risk, thisrequirement means that the risk of deterioration happening during a normal
course of voyage remains with the seller until discharge. This is in contrast to
the risk of damage, which passes as from shipment. The risk of deterioration
should, therefore, be recognised as an anomalous type of transit risk.'
Then, what if the voyage is not normal? In Mash & Murrell, an appeal
was made to the Court of Appeal.' The court did not overrule Diplock J's
ratio but ascertained the facts differently and reached a different conclusion.
The court found that the voyage to Liverpool was not a normal voyage sinceTransit risks in CIF contracts—meaning and categories

135

the potatoes were not properly ventilated during the voyage and accordingly
held that there was no sufficient ground for inferring that potatoes were not
fit to travel at the time of shipment. Translated into the language of risk, thisdecision simply confirms the rule that in CIF contracts the risk of damage
inflicted by external causes passes as from shipment, because the incidents
such as the lack of ventilation which make the voyage unusual should be
regarded as external causes which inflict damage to goods.

OUT-TURN

CLAUSEWe have now examined the usefulness of recognising the risk of increase in
the cost of carriage and the risk of deterioration as categories of transit risks,and of distinguishing them from the risk of loss or damage. We will now
consider the usefulness of distinguishing the risk of loss from damage and of
splitting the risk of loss by examining the interpretation of out-turn clauses
in CIF contracts.
In the typical CIF contract the price is calculated on the basis of the quantity agreed in the contract. The seller must ship the goods in the contractual
quantity, which is supposed to be recorded in the bill of lading. But the seller
does not promise that the goods will arrive at the port of discharge since the
CIF contract is a shipment contract. Some CIF contracts, however, contain aclause, sometimes called an `out-turn' clause or a 'net landed weight' clause,
which calls for the price to be calculated on the basis of the quantity actuallydischarged. There are several possible interpretations
where an out-turnclause is contained in a CIF contract, which will be examined in turn.
Denying

effect to the out-turnFirst, an out-turnclauseclause in a CIF contract

may not be given effect on the

ground that it is repugnant to the nature of the CIF contract as a shipment
contract. Thus in Law & Bonar Ltd v British American Tobacco Company
Ltd," a CIF contract contained a printed clause stating that the goods were at
the seller's risk until discharge. That clause was held inapplicable in theparticular transaction entered into in that case on the ground that it was
repugnant to the nature of the CIF contract.
It is submitted that great caution should be exercised in adopting thisinterpretation
since the CIF buyers may have legitimate interests in insertingan out-turn clause. If the seller ships goods in less than the contractuallyagreed quantity, bills of lading are supposed to provide the buyer with evi
dence of the quantity actually shipped. But in practice, printed forms of billsof lading commonly contain the so-called 'weight and quantity unknown'clause which destroys their evidential value.' The CIF buyers therefore often
have good reason to wish to pay for only so much of the goods as haveactually arrived.

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Risk and the Law

Transit risks in CIF contracts

The decision in Law & Bonar was in fact narrowly interpreted in later
cases.' Similarly, an out-turn clause should be denied effect only where it is•part of a printed form added to other negotiated terms and where no alter
native interpretations,
examined below, can reasonably be adopted.

Denying effect to the CIF/C&F

label

Where a contract expressed to be a CIF or C&F contract contains an out
turn clause and other strong elements proper to the arrival contracts, the
CIF/C&F label may be ignored. Then, the contract may be interpreted as
being in fact an arrival contract and no difficulty in giving effect to the out
turn clause will arise. As the traders are not always legally well informed,
they may not choose the most appropriate trade term. Thus in the House ofLords case, The Julia," a quantity of rye was sold on CIF terms but con
tained an out-turn clause, which stipulated as follows:
The grain to be weighed . . . Seller and buyer to have the right of super
vision both as to weighing and delivery. Any deficiency on bill of lading
weight to be paid for by seller and any excess over bill of lading weight
to be paid for by buyer at contract price.
The ship never reached the port of discharge. The court allowed the buyers• to recover the price they had paid, holding that the contract was in fact not a
CIF contract but a contract to deliver at the port of discharge. The contract
exhibited a strong character of an arrival contract.11 In particular, there wasa clause indicating that the risk of damage remained with the seller until theport of discharge,

1;1which read as follows:

Condition guaranteed on arrival . . . Samples to be taken and sealed at
port of discharge jointly by the agents of the shippers and of the holdersof the bill of lading or shippers' delivery order.

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Giving effect to both the out-turn
CIF/C&F label

clause and theWe have now seen cases in which effect is denied either to the out-turn clauseor the CIF/C&F label. But there is a third way. The contract may be
regarded as possessing a mixed character and effect may be given to both theout-turn clause and the CIF/C&F label. The trade terms such as CIF, C&F,
FOB, DES and DEQ are merely convenient shorthand in order to save thetrouble of negotiation on detailed terms. In the absence of contrary agree
ment, the meaning of those trade terms is supplied by the governing nationallaw or, where applicable, Incoterms. But their meaning may be modified by
special terms agreed to in order to cater for particular parties' needs. An
attempt should therefore be made to give effect to both the special terms and—meaning and categories

137

the usual meaning of the parties' chosen trade term. To this end, we will
examine below a few ways of giving effect to both an out-turn clause and the
CIF/C&F label.

Distinguishing the risk of loss from the risk of damage
The contract may contain a clause which expresslytreats the risk of damage
differentlyfrom the risk of loss, although it may not necessarily say that it
passes as from shipment. So in Produce Brokers New Company (1924) Ltdv Wray,Sanderson & Co Ltd,' the contract was for sale of oil at a price CIF
Hull and contained the following out-turn clause:
DELIVERY: . . . Buyers to ascertain the weight within seven days after dis
charge under sellers' superintendence.
PAYMENT: Buyers to pay 98 per cent of provisional
invoice amount inexchange for shipping documents . . . Balance to be paid or refunded . . .
after delivered weight is ascertained.
Part of the oil was spilled during discharge at Hull. It was held that thecontract was of a mixed character and that the oil remained at the sellers'risk. The seller was therefore held to have no right to receive or retain
payment in respect of the spilled oil. As regards the risk of damage, there
was a clause which purported to allocate it by agreement or arbitration. It
read as follows:
Should the quality and/or condition of the oil on arrival not prove equal
to the above guarantees, or should the oil contain seawater or otheradmixture, this contract is not to be void, but the oil is to be taken withan allowance to be agreed upon or fixed by arbitration, provided always
that the oil shipped shall be of the description contracted for.
The contract may be silent on the risk of damage. If a CIF contract is foundto be of mixed character due to an out-turn clause, the risk of damage will
presumably pass as from shipment while the risk of loss will remain with theseller in accordance with the out-turn clause. Thus in The Gabbiano,13 thecontract was expressed to be a CIF contract but contained an out-turn clause
which provided:If, after loading, any steamer stemmed under this contract is lost, oris, for any reason unable to deliver the cargo or any part thereof, thequantity of ore so undelivered
contract quantity . . .

by such steamer

shall be written

off the

The court upheld the validity of this clause while recognizing it as being
inappropriate to a CIF contract proper. But it held that the contract remained,

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Risk and the Law

as expressed to be, a CIF contract with variations . The report mentions nc
provision on the risk of damage but the court held that if the circumstanceEconcerning the risk of loss never arose , the contract would be performec
according to its tenor as an ordinary CIF contract . This would mean that ii
the contract contained no clause on the risk of damage, that risk passed aE f
rom shipment.

tiSplitting the risk of loss
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Where a CIF or C&F contract contains an out-turn clause but the rest of theclauses exhibit a strong character proper to the CIF and C&F contracts, thea clausemay be given a restrictiveinterpretation by limiting its effectto only
certain type of risk of loss. That would enable a certain risk of loss to remain
with the seller until discharge in accordance with the out-turn clause while
the rest of the risk of loss to pass as from shipment in accordancewith thestrong CIF and C&F character.

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Limiting the effect of the out-turn clause to partial loss
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In Soon Hua Seng Co Ltd v Glencore Grain Ltd,' the entire cargo of ricesold was lost when the ship ran aground. The contract was headed `C&F full
outturn weight' and contained a clause saying 'Price: cost and freight liner
terms Rotterdam in bulk . full outturn weight at port of destination'. But
the court found that the contract had the hallmarks of a true C&F contract
in contrast to the contract in Produce Brokers, examined above. The court
observed that the contract in the latter case was full of reference to delivery at the port of discharge, containing obligations regarding discharging,pumping, strikes and quality and condition. By contrast, the contract in the
instant case provided inter alia:
4. The Rice to be at Buyers'risk from warehouse to warehouse. . .
5.
6 Sellersto deliverthe Rice overside and Buyersto take the Rice. . . .
. . . . Remarks: Quality, condition fumigationfinalat time of shipment
as per certificateindependent surveyors. .
In view of the strong elements proper to the CIF contracts , the court, excludi
ng the operation of the out-turn clause in the case of the total loss
, held that if
the goods were lost and did not arrive at all, the risk of loss was on thebuyers and no question of any adjustment to the payment could arise .
An exclusion of an out-turn clause in the case of total loss may be
expressly provided in CIF and C&F contracts. Thus clause 117 of the CIFFO(CIF Free Out) contract of the Sugar Association of London reads:
In case of total loss of a consignment where the contract provides forsettlement on landed weight . . ., the Buyer shall be invoiced at the.

Transit risks in CIF contracts—meaning and categories

contract price for the shipped weight of that consignment
cent plus the premium for bags when applicable.

139

plus five per

Giving effect to an out-turn clause in the case of the total loss would resultin the total release of the buyer from his obligation to pay. This result might
be thought too blatantly contradictory
to the nature of the CIF and C&F
contracts, especially where the contract contains strong elements properto the shipment contracts. In such cases, the exclusion of the operation ofan out-turn clause in the case of the total loss may be defensible. Then,
partial loss cases are left to be covered by the out-turn clause. But should allof them be covered? If the application of an out-turn clause were to depend
upon the simple distinction between the total and partial loss, wholly arbi
trary results would be produced. Thus if 99 per cent of the goods were lost,the buyer would have to pay only for 1 per cent in accordance with the out
turn clause, whereas if 100 per cent of the goods were lost, the buyer would
have to pay for 100 per cent. It is submitted that a better distinction onwhich to rest the application of an out-turn clause is the one between the loss
inflicted by external causes and the loss caused by the inherent nature ofgoods.

Limiting the effect of the out-turn clause to the loss caused by theinherent nature of the goods
The loss of goods is sometimesinflicted by external causes such as leakage
and spillage.In other cases, loss is caused by the inherent nature of the goods
such as evaporation and shrinkage.'s If the effect of an out-turn clause islimited to the loss caused by the inherent nature of the goods, the total loss isalmost automatically excludedsince the inherent nature of goods is unlikely
to result in the total loss.
A closer readingof the decision of Sengv Glencore Grain suggeststhat the
court's intention was in fact to limitthe out-turn clauseto the loss caused by
the inherent nature of the goods. The court held that the contract dis
tinguished between the risk of accidents, to be covered by insurance, andout-turn weight differences arising in other ordinary circumstances. The
court also agreed with the view expressed in Schmitthoffs Export Trade,"which in turn refers to section 2-321 of the United States Uniform Com
mercial Code. That section reads:
Under a contract containing a term C.I.F. or C. & F.
(1) Where the price is based on or is to be adjusted according to 'net
landed weights', 'delivered weights', 'out turn' quantity or qualityor the like, unless otherwise agreed the seller must reasonably esti
mate the price. The payment due on tender of the documents called
for by the contract is the amount so estimated, but after final

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140 Risk and the Law

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Transit risks in CIF contracts

adjustment of the price a settlement must be made with commercial
promptness.
(2) An agreement described in subsection (1) or any warranty of quality
or condition of the goods on arrival places upon the seller the risk ofordinary deterioration, shrinkage and the like in transportation but
has no effect on the place or time of identificationto the contract forsale or delivery or on the passing of the risk of loss. (Emphasis
added)The official comment for this section says that those provisions provide for ashift to the seller of the risk of quality and weight deterioration
duringshipment without changing the legal consequences of the CIF or C&F termas to the passing of marine risks to the buyer at the point of shipment.
Although the terminology used is different from the one adopted in thischapter, those provisions seem to limit the effect of out-turn clauses todeteriorationand the loss caused by the inherent nature of the goods, In
English law, deterioration does not need to be covered by the out-turn clausesince the risk of deterioration
remains with the seller at any event in accord
ance with Mash & Murrell, examined above.
The buyers in Seng Co. v Glencore Grain pointed out the difficulty of•proving the cause of loss. But the court did not see this as a problem,
as follows:

holding

simple loss of weight appears unlikely to result from an accident at sea
affecting a rice cargo, unless one postulates examples of obvious acci
dents affecting the integrity of the vessel or requiring the jettisoning ofcargo. Increase in weight, due to additional moisture, is a more likely
result of an accident; but in that event the extra moisture would prob
ably be readily discernible.
The proper

allocationof the burden of proof seems to be for the buyer toprove the quantity actually discharged
any loss resulted from external causes.

ARRIVAL-TIME
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CLAUSEIn the typical CIF and C&F contracts,

the passage

of risk of loss at theport of shipment means that the sellers do not promise that the goods
will arrive at the port of discharge, let alone by a certain date. However,CIF and C&F contracts sometimes contain a clause referring to the arrival
time.

Interpretingthe clauseas relating—meaning and categories

141

to shipment

One way to make sense of such a clause is to interpret it as requiring theseller to make or procure such shipment as would normally arrive at the portof discharge by the specified time. If the clause is interpreted as relating toshipment, it complies with the nature of the shipment contract. Thus in The
Wise,' a C&F sale of motor spirit provided inter alia:

9. Delivery: Vessel TBN [i.e. to be nominated]. Arrival March 15-30
1986.
12. Title and risk: Passes at vessel's manifold flange at loadport.
14. Vessel: vessel nominated to be subject to buyers' acceptance.
The sellers nominated the Wise and the buyers accepted it. But the vessel wasthen hit by a missile and the cargo never arrived. The court held that thecontract did not wear the air of a contract designed to procure the guaranteeof delivery within the period stipulated. On that basis, it was held that thesellers' obligation was to nominate such vessel as would in the ordinary
course of events arrive at the port of discharge within the stipulated period.
The Wise was found to fulfil that requirement because, but for the missile
attack, she would have arrived at the port of discharge by 30 March 1986.
Distinguishingor damage

the risk of delay from the risk of loss

A clause referring to the arrival time cannot be interpreted as relating toshipment if, unlike the contract in The Wise, the contract itself relates to thegoods already on board a particular vessel which has already sailed. Thus in
The jambur," a contract for the sale of gas oil contained a clause which read:
DELIVERY:Latest by 30th April 1990, CIF basis one safe berth/port Kaohsi
ung, Taiwan, as full cargo per mt IAMBUR', which sailed from
Constanza 10:00 am 28th March 1990.
A collision and arrest made it impossible for the Jambur to reach Kaohsiungby 30 April. The buyers pointed out that the delivery clause in the present
case could not, unlike the clause in The Wise, sensibly relate to the choice ofthe vessel since the contract itself had chosen the Jambur, which had loaded
the cargo and had sailed. It was common ground that, apart from the delivery clause, the contract had all the features of a classic CIF contract. It
provided inter alia:
PRICE: US Dollars 184.50 per metric ton CIF basis . . on B/L weights.
INSPECTION: If possible, mutually agreeable independent inspectors to beappointed by seller at loadport for quantity/quality
ascertainment.

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Notwithstanding
the strong CIF character, the court did not accept the sellers' submission that the delivery clause should be disregarded. By interpret
ing the delivery clause as expressing the seller's promise to deliver at the portof discharge by 30 April, the court held that the buyers were entitled to treat
the contract as repudiated on 10 April for the sellers' anticipatory breach.
It has been pointed out by some commentators"
that in the sale of oil, thetime of the arrival can be crucial to the buyer, who has to make advancearrangements for the provision of terminal facilities needed for the receptionof oil. It was also held in The Orient Prince that the dates of delivery of oil
products in Rotterdam were matters of great importance, because oil tradersbase their profit on the margin between buying and selling prices, andRotterdam had historically been the basis for reckoning prices since large
quantities of oil were delivered there for consumption or storage. In thatcase a CIF sale of naphtha contained a clause saying 'Delivery Feb 15/March
15 Basis Rotterdam'.
The court interpreted this as meaning that the seller
must deliver the cargo in Rotterdam by midnight on 15 March if Rotterdam
was nominated as the discharging port, or alternatively within a reasonable
time after 15 March if another port was nominated.
In the sale of other goods, too, the arrival time may be important. Thus in
Cargill International
SA v Bangladesh Sugar & Food Industries,'
a C&F saleof sugar contained a clause unequivocally promising arrival by a specified
date. It read:

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11;t,Special clause (i) The arrival period/time is the essence of the contract.
Therefore the seller shall strictly adhere to the arrival period/time stipu
lated in this contract. If the seller fails to do so, the buyer shall beentitled . . . to terminate the contract and . . . forfeit the performancebond.
As the vessel arrived late, the buyers rejected the shipment and made a callon the bond. It was held that the buyers were entitled to make the call for thesellers' breach of the arrival-time clause, though, on a point irrelevant to
the theme of the present chapter, they were held entitled to retain only anamount equal to the loss actually suffered.
These cases show a great tendency of the courts to give effect to arrival
time clauses in CIF and C&F contracts by interpreting them as meaning thatthe risk of delay remains with the seller until the port of discharge. In thearchetypal CIF and C&F contracts, the sellers do not promise that the goods
will arrive at the port of discharge by a certain date and, therefore, the riskof delay passes as from shipment together with the risk of loss or damage.
But in the cases where a CIF or C&F contract contains an arrival-timeclause, it may be useful to distinguish the risk of delay from the risk of loss
or damage as this enables the risk of delay to remain with the seller until
discharge in accordance with the arrival-time clause and the risk of loss ordamage to pass as from shipment in accordance with the CIF/C&F label.

Transit risks in CIF contracts —meaning and categories

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Thus the contract in The jambur, seen above, indicated that the risk of loss
and damage passed as from shipment by the clauses which provided thatthe payment of the price was to be on the bill of lading weights and thatan inspection of the goods was to be carried out at the port of shipmentfor quantity and quality ascertainment. The court seems to have endorsed(although not unequivocally) the effect of those clauses by holding that
jtjhe Buyers carried the risk of contamination of the cargo, the risk ofleakage between the point of discharge and the shoretank and, possibly, therisk of a degree of loss in transit'.
If the risk of delay remains with the seller until discharge and the risk ofloss passes as from shipment, the consequences are that, if the goods are lostin transit, the seller can still claim the price, but if the goods are only delayed
the seller cannot claim the price. The seller may then be motivated, when thevessel is likely to arrive late, to cause the goods to be lost. But if he does so,
he would be in breach of his obligation not to prevent the goods fromarriving. Although the CIF and C&F sellers do not have an obligation
to deliver the goods at the port of discharge, he is still under a negative
obligation not to interfere with the carriage so as to prevent the buyer fromreceiving the goods.'

SUMMARY

This chapter has examined different categories of transit risks and sought toillustrate the usefulness of recognising and distinguishing between them. The
main points made were as follows:1

2

3

The risk of increased cost of carriage caused by a casualty affecting theship —such as strandings, collisions, strikes, government directions —is adistinct category of transit risk since it is by definition not covered by therisk of loss of or damage to goods and also because this would underscore the point that an unexpectedly increased cost of carriage is to be
divided at the port of shipment. This is in contrast to the cost of carriage
included in the freight, which is to be divided at the port of discharge.
Deterioration is distinguishable from damage. Though they both affect
the quality of goods, damage is inflicted by external causes such as
contamination, whereas deterioration is caused by the inherent natureof the goods, such as discoloration of bananas. The risk of deterioration
so understood remains with the seller until the port of discharge under
CIF and C&F contracts. This is in contrast with the risk of damage,which passes as from shipment. The risk of deterioration should, there
fore, be recognised as an anomalous type of transit risk.
Loss is distinguishable from damage as it affects the quantity (weight orvolume), as opposed to quality, of goods. In the typical CIF and C&F
contracts there is little merit in distinguishing the risk of loss from the

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Risk and the Law
risk of damage since they both pass at the port of shipment. But where acontract expressed to be CIF or C&F contains an out-turn clause(a clause calling for the price to be calculated on the basis of the quantity
actually discharged), the distinction may be useful as it enables the riskof loss to remain with the seller until discharge in accordance with theout-turn clause while the risk of damage passes as from shipment inaccordance with the CIF/C&F label.
Where a contract expressed to be CIF or C&F contains an out-turnclause but the rest of the clauses exhibit a strong CIF or C&F character,it may be useful to split the risk of loss. The out-turn clause may then be
given a restrictive interpretation by limiting its effect to a certain type ofrisk of loss. That would enable the certain risk of loss to remain with theseller until discharge in accordance with the out-turn clause and the restof the risk of loss to pass as from shipment in accordance with the strong
CIF or C8cF character. For this purpose the distinction between the total
loss and partial loss is arbitrary. A better distinction is the one between
the loss inflicted by external causes such as leakage and spillage and theloss caused by the inherent nature of goods such as evaporation andshrinkage.
In the typical CIF and C&F contracts, the passage of risk of loss at theport of shipment means that the seller does not promise that the goods
will arrive at the port of discharge, let alone by a certain date. The riskof delay, therefore, passes as from shipment together with the risk ofloss or damage. But where a contract expressed to be CIF or C&F con
tains a clause calling for arrival of goods by a certain date (an arrival
time clause), it may be useful to distinguish the risk of delay from therisk of loss or damage as this enables the risk of delay to remain with theseller until discharge in accordance with the arrival-time clause while
the risk of loss or damage passes as from shipment in accordance with
the CIF or C&F label.

Notes
1 C&F contracts will be treated as identical to CIF contracts for the purpose ofthis chapter sincethe only difference betweenthem, i.e. the existenceor absenceof an obligation on the seller to conclude an insurance contract, is not material
for the purpose of the discussion here.
2 The comment to B6 of CFR, to which reference is made from the comment
for CIF.
3 Other commentators may prefer other expressions. For example, Guenther
Treitel, in A.G. Guest (gen. ed.), Benjamin's Sale of Goods, 6th edn, London:
Sweet & Maxwell, 2002, para 18-222, uses the words 'risk of necessary
deterioration' to refer to the deterioration which any goods of the contract
description necessarily suffer in the course of contemplated transit and thewords 'risk of extraordinary deterioration' to refer to deterioration due to some
accident or casualty.
4 [1961] 1 Lloyd's Rep 46.

Transit risks in CIF contracts —meaning and categories

145

5 Recognitionis givento the risk of deterioration by the Sale of Goods Act 1979
in the case where, unlike in CIF contracts, the seller agrees to deliver specificgoods at his own risk. In that situation, the buyer neverthelesstakes 'any risk ofdeterioration in the goods necessarilyincident to the course of transit' (sn 33)
unless otherwiseagreed.
6 [1961] 2 Lloyd's Rep 326 (CA).
7 [1916] 2 KB 605.
8 See The Atlas [1996] 1 Lloyd's Rep 642; The Mata K [1998] 2 Lloyd's
Rep 614.
9 The Julia [1949] AC 293; The Jarnbur, 14 November 1990, unreported (transcript available on Lexis).
10 [1949] AC 293.
11 It contained, for example,a clause allowing a delivery order to be substitutedfor
a bill of lading and a certificateof insurance for a policy and a clause stating
1411averageto be for seller's account'.
12 (1931) 39 LI L Rep 257.
13 [1940]P 166.
14 [199611 Lloyd's Rep 398.
15 In J.J. Lightburn and G.M. Nienaber, 'Out-turn clausesin c.i.f. contracts in theoil trade' Lloyd's Maritime and Commerce Law Quarterly, 1987, 177, theauthors state that the distinction between the transportation loss (due tounavoidable causes)and the marine loss (whichis fortuitous and extraordinary)is clearly recognised in the oil trade. It is interesting to note that they include
spillage as an example of transportation loss, while acknowledgingthat there
may be no spillageif perfectlynew equipment is used.
16 C.L. Schmitthoff, Schrnitthoff'sExport Trade: The Law and Practice of International Trade, 9th edn, London: Sweet & Maxwell, 1990, p. 54.
17 [1989] 1 Lloyd's Rep 96 (reversed by the Court of Appeal on other grounds[1989]2 Lloyd's Rep 451).
18 14 November 1990, unreported (transcript available on Lexis).
19 E.g. G. Treitel, Chapter 19 in A.G. Guest (gen. ed.), Benjamin's Sale of Goods,
6th edn, London: Sweet & Maxwell, 2002, para 19-071.
20 [1985] 1 Lloyd's Rep 389.
21 [1998] 1 WLR 461.
22 See e.g. Peter Cremer v Brinkers Grondstoffen NV [1980] 2 Lloyd's Rep 605;
The Playa Larga [1983] 2 Lloyd's Rep 171; The Rio Sun [1985] 1 Lloyd's
Rep 351.