CHAPTER 4: CISG – PASSAGE OF RISK AND ICC INCOTERMS

A. Sale of goods
This chapter deals with two important features of contracts for the sale of goods at a
commercial level:
 the question of which party should bear the burden of risk for damage to goods before
they are delivered (risk of loss); and
 the question of which party shall be responsible for arranging their transport
(carriage) to from seller to buyer.
The transport contracts themselves are dealt with later in Chapter 6.
B. Risk of loss
1. Principles
- If the seller bears the risk( nếu người bán hàng chịu rủi ro) and the goods
become damaged or lost before delivery, the seller will have to make good or face
liabilities to the buyer.
- If the buyer bears the risk and the goods become damaged or lost before
delivery, the buyer will still be liable to pay for them.
2. CISG Provisions
CISG identifies three possible scenarios, by reference to which it determines when risk
passes:
- If the contract involves carriage of the goods, the risk passes to the buyer
when the goods are handed over to the first carrier for transmission to the
buyer, in accordance with the contract of sale (e.g. the contract may specify that
they are to be given to the carrier at a particular place).
The goods must be clearly identified to the contract, for example, by markings
( dấu hiệu) on the goods, by shipping documents or by notice given to the buyer. (Article
67)
- If the goods are sold in transit, risk passes to the buyer at the time the
contract is made (Article 68). However, this does not apply if the seller is on
notice at the time of the contract that the goods have already been damaged
or lost. (In those circumstances the risk does not pass at all. The seller remains
responsible.)
In cases not involving carriage, the risk passes when the buyer takes over the
goods or from the time when the goods are placed at the buyer’s disposal:
+ at the seller’s place of business; or
+ at any other place specified in the contract;
+ when delivery is due and the buyer has been notified that they are there.
The goods are considered not to be “placed at the buyer’s disposal” until they are clearly
identified to the contract (i.e. they have been set aside and marked or otherwise
identified as being the goods to which the contract relates). (Article 69)
C. Carriage
1. Definitions
Carriage (shipping) – the process of transporting people or goods by land, sea or air.
Carrier – a business that transports people or goods usually according to defined and
published routes, schedules and price rates, and usually under recognised regulation.
Shipper (consignor) – a person who prepares goods for shipping, including arranging or
coordinating( điều phối) the transport of goods.
Consignee – the person to whom the goods are to be delivered and usually named in the
carriage documents.
Freight (vận chuyển hàng hóa bằng tàu thủy) – (1) goods consigned for transport, (2)
the fee charged for transport, and (3) the process of loading a cargo (hàng hóa trên tàu)
onto a transport vehicle or ship
2. CISG Provisions
 Article 32 of CISG provides that if the contract requires the seller to arrange for
carriage of the goods, the seller must make such contracts as are necessary for
carriage to the place fixed, by means of transportation appropriate in the
circumstances and according to the usual terms for such transportation.
 Article 58 provides that if the contract involves carriage of the goods, the seller may
dispatch the goods on terms whereby the carrier will only hand over the goods to the
buyer against payment (a “COD” – “collect on delivery” – contract). This type of
arrangement is increasingly rare.
D. ICC Incoterms
1. Standard Trade Definitions
The ICC Incoterms address the matters of carriage and risk which have been discussed
above, establishing the extent of the seller’s responsibility for the carriage of the
goods, and the point at which risk passes from the seller and the buyer. The Incoterms
are devised and published by the International Chamber of Commerce (ICC). The
first version was issued in 1936. The most recent version was issued in 2020, and is
effective from January 2020. UNCITRAL endorses the use of Incoterms.
The Incoterms typically specify when the seller is deemed to “deliver” to the buyer,
and the seller’s responsibilities for the arrangements, cost and risk of carriage.
Each term is known by an acronym (e.g. “FOB” or “CIF” – their meanings are given
below). There are four groups of terms:
 E Group: Used where the seller does not want to arrange transport.
 F Group: Used where the seller can arrange some transport within their own country.
 C Group: Used where the seller can arrange and pay for most of the freight charges up
to the foreign country.
 D Group: Used where the seller can pay for most of the delivery charges to the
destination country.
The 11 Incoterms that comprise these four groups can be divided into two categories:
 Terms suitable for any mode of transport (e.g. where the goods are to be carried by
a combination of land and water, or by land and air);
 Terms suitable for sea and inland waterway transport. These apply where the
main carriage is by water, and the point of delivery and the place to which the goods
are carried to the buyer are both ports
2. Incoterms for Any Mode of Transport
EXW – Ex Works: If goods are sold “ex works”, the seller makes the goods available
at the seller’s own premises or another named place (e.g. a warehouse). The buyer or
the buyer’s carriers are responsible for loading the goods on a transport vehicle, and the
buyer assumes the risk and the responsibility for their carriage and export from there on.
This rule places minimum responsibility on the seller.
FCA – Free Carrier (named place): This very flexible rule applies where the buyer or
the buyer’s agent is responsible for arranging the main transport. The buyer specifies the
name of the agent or carrier and stipulates a place at which the seller is to deliver the
goods to the carrier or agent. The seller clears the goods for export and hands them over
at the place named in the contract. The buyer becomes responsible thereafter. If the
specified place is the seller’s place of business, the seller is responsible for loading. FCA
is the rule of choice for containerised goods where the buyer arranges for the main
carriage.
CPT – Carriage Paid To (named place of destination): The seller pays the carriage to
the named point of destination, but risk passes to the buyer when the goods are handed
over to the first carrier.
CIP – Carriage and Insurance Paid (to a named place of destination): The seller pays
the carriage and insurance to the named destination point, but risk passes to the buyer
when the goods are handed over to the first carrier.
DAP – Delivered at Place: The risk remains with the Seller until delivery of the goods to
the Buyer by putting them at the buyer’s disposal at a place specified in the contract.
Seller is responsible for getting them transported to that place, and bears all the
associated costs (other than any import duty payable by the buyer)
DPU – Delivered at Place Unloaded: The seller delivers when the goods, once unloaded
are placed at the disposal of the buyer at a named place of destination. The seller bears all
risks involved in bringing the goods to, and unloading them at the named place of
destination.
DDP – Delivered Duty Paid (named destination place): The seller is responsible for
the transport of the goods, duty paid to the named destination. The seller bears all the
transport costs to that point and all fees, duties and taxes, and all the risk until the goods
are unloaded. The seller is not obliged to insure the goods; however, the buyer must
supply all necessary information (including on risks and costs) to obtain insurance if the
seller requests. The DDP rule places maximum obligation on the seller and is the only
rule that makes the seller responsible for import clearance and payment of taxes and/or
import duty.
3. Incoterms for Main Carriage by Water (Ocean or Inland)
CFR – Cost and Freight (named destination port): The seller is responsible for the
costs to bring the goods to the buyer’s nominated destination port (e.g. the buyer’s home
port) and clears the goods for export. However, the insurable risk is transferred to the
buyer once the goods have been loaded on board the ship at the outbound port.
CIF – Cost, Insurance and Freight (named destination port): The seller is responsible
for the costs to bring the goods to the port of destination and the seller must also take out
and pay for basic insurance to cover the buyer’s risk of loss or damage during the
carriage. However, the seller delivers the goods, cleared for export, when loaded on
board ship at the outbound port, and risk passes at that point.
FAS – Free Alongside Ship (named loading port): The seller must get the goods to the
outbound port specified in the contract. The seller must also clear the goods for export if
the contract specifies. The buyer is responsible for the shipping costs and risk of loss
thereafter.
FOB – Free On Board (named loading port): The seller must clear the goods for
export and have them loaded on board the ship nominated by the buyer at the port named
in the contract. Cost and risk pass from seller to buyer at ship's rail. In practice it should
be used for situations where the seller has direct access to the vessel for loading (e.g. bulk
cargos or non-containerised goods). For containerised goods, consider FCA instead.
E. Application of CISG
CISG applies to contracts between buyers and sellers in different
contracting states if they do not make their own arrangements by using an Incoterm or
some other provision in the contract. UNCITRAL endorses the use of Incoterms.
If the parties do not make their own explicit arrangements, CISG provisions apply. The
two regimes complement one another. Looking again at Example 1, in the context of the
passage of risk under CISG, it can be seen that in two out of three of these cases, the
outcome would be same if the Incoterms applied