Lloyd's Maritime and Commercial Law Quarterly
International sales of bulk liquids on modified cif terms: overcoming the pitfalls
Michael Marks Cohen *
The international sale of bulk liquids on CIF terms involves the seller in multiple contracts. In only one—the sales agreement—do the buyer and seller contract with each other. All of the agreements are loosely coordinated around the same events at the loading port, such as arrival there and completion of loading. If the parties modify the cif terms, for example to change where quantity is measured or to add an arrival window at the discharge port, serious difficulties can arise for the seller under the sales agreement; and its risks under the other contracts can be substantially increased unless their terms are also modified.
In every international sale of bulk liquids (petroleum, chemicals, vegetable oils) on cif terms, the transaction can expose the seller to a multitude of risks under seven or more contracts, in only one of which—the sales contract (1)—do the buyer and the seller contract with each other. If the seller is not the manufacturer of the goods, it will negotiate a supply contract (2) with a producer to furnish them, often on fob terms.1 The seller also enters into a charter (3) of a ship, thereby creating a contract of carriage between the seller and the shipowner for transportation of the goods to destination. In connection with the charter the seller receives an ocean bill of lading (4) frequently signed by the master on behalf of the shipowner. While the bill of lading is only a receipt in the hands of the seller (charterer),2 when the seller endorses and transfers it to the buyer it can become a second contract of carriage directly between the buyer and the shipowner.3 The seller arranges for cargo insurance (5), which, by transfer to the buyer, creates privity between the buyer and the underwriters. The seller engages a cargo inspector to issue an inspection certificate (6) describing the quantity of the goods.4 Finally, to pay for the goods the buyer may be required to open a letter of credit (7) with a bank, naming the seller as the beneficiary.
* Of Counsel, Nicoletti Hornig & Sweeney, New York.
1. To complicate matters further, the Sales and Supply Contracts are frequently each evidenced by three documents—a broker’s recap and separate sale/purchase forms drafted individually by the two parties—no one of which is signed by both principals, and terms of which may vary.
2. W. Tetley, Marine Cargo Claims, 4th edn (Sweet & Maxwell, 2008), 530–531 (collecting cases).
3. Ibid.
4. Quality of a bulk liquid cargo is generally fixed by analysis of shore tank samples which are agreed by the parties to be final. If samples drawn from the ship’s tanks after loading are off spec, the ship is almost always the source of contamination. Even in the rare case where it can be shown that the goods were contaminated in the terminal’s lines leading from the shore tank to the ship, since ship tank samples may well not be analysed until after the ship has already sailed, the condition of the goods does not become an issue until after the master has already issued clean bills of lading. It is well settled that such bills of lading do not constitute a representation about the quality of the liquid goods, but are merely an accurate representation that any impairment of their good order and condition was not visible to the naked eye. See Tetley, Marine Cargo Claims (supra, fn.2), 333–334
INTERNATIONAL SALES OF BULK LIQUIDS ON MODIFIED CIF TERMS
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