MODULE – 1

UNIFORM RULES ON CONTRACT OF SALE: A contract of sale is a legal contract. It is a

contract for the exchange of goods, services or property that are subject of exchange from seller to
buyer for an agreed upon value in money paid or the promise to pay the same. All the requirements
of a valid contract such as:
 Free consent
 Consideration
 Existence of minimum two parties
 Competency of parties
 Lawful object etc. must be fulfilled and if any of the essential elements of a valid contract
of sale is absent, then the contract of sale will not be valid.
The increase in international trade brought a tremendous potential for economic growth, but with
it came greater risks to the contracting parties, primarily due to new legal challenges that are unique
to international transactions.2 Parties to international contracts had to consider what law to apply
in the event of a dispute. However, choosing one party's national laws over another's gave one
party a clear advantage for linguistic reasons, availability of in-house counsel, and overall easier
access to counsel. For these reasons, the growth in international trade created a unique demand for
a legal framework that could transcend national boarders and provide security for international
players, irrespective of the nations they came from.

The advantages offered by a uniform system of international commercial law have created demand
for such a system and has led to the creation of a number of substantive law conventions, such as
the 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG), the Uniform
Commercial Code (UCC), and United Nations Commission on International Trade Law
(UNCITRAL). One organization at the forefront of this movement whose work is specialized in
the area of harmonizing international private law is the independent intergovernmental
organization that goes by the French acronym UNIDROIT-the International Institution for the
Unification of Private Law.
Following standards of international law are applied to the international sale of contract:-
1) U. N. Convention on Contracts for the International Sale of Goods (CISG) it is also known
as Vienna Convention.

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 2) UNIDROIT (International Institute for the Unification of Private Law) Principles of
International Commercial Contracts.
3) Uniform Law for the International Sale of Goods (ULIS)
CISG was developed by UNCITRAL (United Nations Commission on International Trade Law)
and it was signed in Vienna in 1980. It came into force as a multilateral treaty on 1st Jan, 1988. It
allows exporters to avoid choice of law issues, as the CISG offers accepted substantive rules on
which contracting parties, courts and the arbitrators may rely, unless excluded by the express terms
of a contract. CISG is deemed to be incorporated into applicable domestic laws with respect to
a transaction in goods between parties from different contracting states. CISG has been regarded
as success for the UNCITRAL, as the convention has been accepted by States from every
geographical region. Countries that have ratified the CISG are referred to within the treaty as
“Contracting States”. Of the uniform law conventions, the CISG has been described as having
greatest influence on the law within the worldwide trans-border commerce. It has been described
as a great legislative achievement and the most successful international document so far in unified
international sales law and also due to its flexibility in allowing contracting states the option of
taking exception to certain specified articles. This flexibility was instrumental in convincing states
to subscribe to uniform code. For international sales of goods, the body of law will often be the
UN Convention on Contracts for the International Sale of Goods (CISG) known as Vienna
Convention. Contracts for the international sale of goods should also indicate the terms of sale and
Incoterms. The purpose of the CISG is to provide a modern, uniform and fair regime for contracts
for the international sale of goods. Thus, the CISG contributes significantly to introducing certainty
in commercial exchanges and decreasing transaction costs. The contract of sale is the backbone
of international trade in all countries, irrespective of their legal tradition or level of economic
development. The CISG is therefore considered one of the core international trade law conventions
whose universal adoption is desirable.
The CISG is the result of a legislative effort that started at the beginning of the twentieth century.
The adoption of the CISG provides modern, uniform legislation for the international sale of goods
that would apply whenever contracts for the sale of goods are concluded between parties with a
place of business in Contracting States. In these cases, the CISG would apply directly, avoiding
recourse to rules of private international law to determine the law applicable to the contract, adding
significantly to the certainty and predictability of international sales contracts.
Moreover, the CISG may apply to a contract for international sale of goods when the rules of
private international law point at the law of a Contracting State as the applicable one, or by virtue

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of the choice of the contractual parties, regardless of whether their places of business are located
in a Contracting State. In this latter case, the CISG provides a neutral body of rules that can be
easily accepted in light of its transnational nature and of the wide availability of interpretative
materials.
Finally, small and medium-sized enterprises as well as traders located in developing countries
typically have reduced access to legal advice when negotiating a contract. Thus, they are more
vulnerable to problems caused by inadequate treatment in the contract of issues relating to
applicable law. The same enterprises and traders may also be the weaker contractual parties and
could have difficulties in ensuring that the contractual balance is kept. Those merchants would
therefore derive particular benefit from the default application of the fair and uniform regime of
the CISG to contracts falling under its scope.
The CISG applies only to international transactions and avoids the recourse to rules of private
international law for those contracts falling under its scope of application. International contracts
falling outside the scope of application of the CISG, as well as contracts subject to a valid choice
of other law, would not be affected by the CISG. Purely domestic sale contracts are not affected
by the CISG and remain regulated by domestic law.

UNIDROIT Principles set forth the general rules for international commercial contracts. They
may be applied when the parties have agreed that their contracts be governed by general principles
of law. In 1994 the International Institute for the Unification of Private Law ("UNIDROIT")
published a collection of "principles" intended to govern international commercial contracts. The
CISG aims to govern international contracts, but exclusively in the field of sales between
professionals, whereas the UNIDROIT Principles are designed to govern commercial contracts,
without limitation to contracts of sale.
UNIDROIT Principles are in harmony with CISG. The UNIDROIT Principles on International
Commercial Contracts provide a ‘gap-filling’ role to supplement CISG, so long as it supports a
principle deduced from the Convention. Its purpose is to study needs and methods for
modernizing, harmonizing and coordinating private and in particular commercial law as between
States and groups of States and to formulate uniform law instruments, principles and rules to
achieve those objectives. Its tasks are:
 To prepare draft laws and conventions that can be introduced in different countries (i.e.
countries that are a member of UNIDRIOT) based on comparative research.
 To compare laws.

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  To organize conferences

Besides this, UNIDROIT has created principles of (Commercial) Contract Law. They are the set
of soft law so they are not binding and they are created only to be used as a tool when negotiating
in International Contracts. Which means, the parties can choose whether these principles govern
their contract, instead of the law of a certain country. UNIDROIT Principles have a strong
comparative value. They create a bridge between the two main legal systems in the world:-
1) Civil Law Systems
2) Common Law Systems

UNIDROIT's purpose is to identify the needs and methods for harmonization and modernization
of commercial law as applied between parties of different states and to promote coordination of
commercial law between states by formulating uniform law instruments, principles, and guidelines
to achieve these objectives. The UNIDROIT Principles have arguably made the largest impact in
conflicts that have been resolved through means of Alternative Dispute Resolution. One common
way in which the Principles are applied during arbitration is when the parties choose to have the
Principles govern the contract after the contract has been concluded. For example, when parties
have agreed to resolve a dispute through arbitration and the contract at issue is silent as to the
choice of law, the parties may agree to have the contract interpreted in accordance with the
Principles. This option is viewed as neutral because it does not favor one party over the other. An
arbitration panel may also choose to apply the UNIDROIT Principles when hearing a dispute over
an international contract, regardless of whether the parties have included a choice of law provision
in the 66 contract. To cite an example, in an arbitration before the International Chamber of
Commerce which involved a contract that did not explicitly contain a choice of law clause, but
provided that the contract should be guided by "natural justice," the panel held that the parties
intended for the contract to be governed by "general legal rules and principles." In so holding, the
panel determined that the general legal rules and principles were largely reflected in the
UNIDROIT Principles and relied on them to resolve the dispute. A major achievement in the area
of international harmonization of private law has been the adoption of the UNIDROIT Principles.
The UNIDROIT Principles have made tremendous progress since their first publication in 1994.
Arbitral tribunals have applied the Principles as the law governing contracts, and national courts
have used the Principles to support interpretation of national laws. They have been selected by
parties as governing law or simply to fill the gaps of national laws or treaties, such as the CISG.
The Principles have been used as a reference when negotiating international contracts, and they
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have been used as a tool to create hard law in many countries around the world that used the
Principles as a model or simply as inspiration in making domestic reforms. UNIDROIT should be
recognized for their contribution to the legal system in the field of private international law, as the
Principles have provided an important solution for international traders looking for security and
neutrality when choosing to trade internationally and for countries who are looking to bring their
contract law up-to-date with the modern markets and international commercial law trends.

ULIS was a creation of UNIDROIT. It must be understood, first, that the need for such a
convention arises not primarily from the existence of major conceptual differences among legal
systems (for such major conceptual differences in this area of the law are few in number), but
rather from the existence of a great many minor differences; and second, that any resolution of the
minor differences must preserve and clarify the common practices and norms that have been
developed-and are continually being developed-by the international trading community, and that
are reflected (not always uniformly) in national legal systems. The framers of the ULIS have,
unfortunately, taken a different approach. They have sought to eliminate from the law of
international sales the application of national law, including the large body of international
commercial law and custom contained in national law, and to substitute, as a self-sufficient code,
a relatively few general rules. These rules are conceived as a subsidiary law, to be applied by
national courts and arbitral tribunals in the light of particular contracts and in the light of usage.
Codification of the law of international sales must, if it is to be successful, grow out of custom and
belief-and, in particular, out of the common experience and shared concepts of the international
trading community. This is recognized in the ULIS by the overriding effect given to what is there
called "usage." Usage supersedes the ULIS itself, and contract, which also supersedes the ULIS,
is to be interpreted in the light of usage.

TYPES OF SALE CONTRACT: In international trade transactions, a sale contract defines the
roles and responsibilities of the parties to each other. Without a sale contract one cannot define
exporters and importers rights and obligations. Under international business transactions exporters
and importers define their roles and responsibilities of each other with sales contracts. A sale
contract is a legally binding document for both parties.
(1) CIF (COST, INSURANCE & FREIGHT): It is a term of the contract of sale of goods
being shipped where the seller pays the cost of the insurance and transport of the goods to
the destination; legal delivery occurs when the goods cross the ship's rail in the port of

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 shipment. It is a type of contract which is more widely and more frequently in use than
any other contract used for the purposes of sea-borne commerce. Under a CIF contract,
the seller is responsible for supplying the goods, insuring them and shipping them: hence
"cost, insurance and freight". A CIF contract therefore involves the seller entering into not
only a sale contract but also, at a later date, insurance and carriage contract. The seller,
therefore, fixes a price to cover all these costs and it is he who carries the risk of fluctuations
in insurance and freight costs

Under a CIF contract, the seller undertakes to be responsible for transportation and insurance cover
to a named port of destination, while the buyer agrees to pay, not against delivery of the goods but
against the tender of the shipping documents. This is perhaps the first indication that such a
contract may in fact be a contract for the sale of documents. The seller fulfils his part of the bargain
by tendering the correct documents; he does not have to ensure the arrival of the goods, but is
under a negative duty not to prevent them being delivered. He can therefore demand payment on
tender of the documents. Documents play a central role in the CIF contract and it is this that gives
the contract its special characteristics or alternatively it is that that makes this a contract for the
sale of documents. The seller performs the contract by tendering to the buyer the bill of lading,
insurance policy and invoice (together with any other documents required by the contract, such as
a certificate of quality or origin). These documents represent the goods, and protect the buyer
against most risks of loss during transit. They enable him to deal with the goods before they arrive
at the port of destination. Transfer of the bill of lading operates as constructive delivery of the
goods and may pass to the buyer title to the goods, the right to obtain possession, and rights of
action against the carrier in the event of loss, delay etc.; the policy of insurance gives protection
against the perils of the sea. The importance of the documents is illustrated by the rule that allows
the seller to tender documents even after the goods they represent have been damages or lost.
Similarly, if the documents conform to the contract, the buyer must accept them; if he rejects them
he is in breach of contract even if the goods themselves do not comply with the contract when they
arrive, although if the documents have been accepted, the buyer may reject the goods themselves
if they prove defective. Seller can fulfil a CIF contract by tendering goods already afloat, which
he has either shipped himself, or brought from some other person. All that is required therefore is
that the seller should appropriate to the contract goods which:

(a) have been shipped

(b) comply with the terms of the contract; and
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 (c) are covered by a contract of carriage to the port of destination and by a policy of insurance

Some goods must have been shipped: the contract is not satisfied if the seller tenders documents
relating to goods to be shipped, or which have never been shipped ; but there is no need for the
shipper personally to have shipped the goods or to do so after making the contract. Equally, there
is no need for the seller to make the contracts of carriage or insurance personally: where goods are
carried under a bill of lading, the transfer of the bill operates to transfer the contract of carriage to
the transferee and a policy of marine insurance may be assigned.

Since the tender of documents is the seller's principle duty under a CIF contract, where the contract
stipulates a time for tender that stipulation is a condition and the buyer is entitled to terminate for
a late tender.

A buyer can reject documents which do not comply with the contract for instance, if the bill is
claused, showing that the goods were not in good condition when loaded, dated outside the
shipment period or discloses deficiencies in quantity; or if an insurance certificate is tendered
instead of a policy. It is difficult to think of other sales contracts of any description which are akin
to this procedure.

The right to reject the documents is lost if the buyer takes up the documents, even though
inaccurate and pays the price without objection. A good example of this principle in practice can
be seen in the case of Panchaud Freres SA. In this case the contract of sale was for a quantity of
Brazilian maize, CIF Antwerp, Shipment June /July 1965. The maize was actually loaded during
August but the seller tendered a bill of lading falsely dated 31 July and a certificate of quality from
loading supervisors stating that they had drawn samples on 10 and 12 August. This certificate
formed part of the shipping documents which were taken up and paid for by the buyer, so the fact
of late shipment was apparent. The buyer nevertheless accepted the documents. The buyer was
therefore precluded from complaining of the late shipment

Moreover, if a defect in the goods is apparent on the face of the documents, the buyer who accepts
the documents will also be unable to reject the goods themselves on arrival for that defect. It is
therefore vital that the buyer checks the documents carefully to ensure that they conform to the
contract before accepting them. This principle is much like the principle in property law of
exchange and completion. A buyer can not reject his property on completion if on exchange of
contracts the defect was obviously contained in the contract, so for example if the price was
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incorrect, this should have been raised at exchange of contracts as opposed to completion. There
is of course no argument for saying that a sale of a property is a sale of documents, and this would
support the notion that CIF's are contracts for the sale of goods.

If the documents do correspond to the contract the buyer cannot reject them on the grounds of
defects in the goods, and if the buyer does reject documents in such a case he will be in breach of
contract. In the case of Berger & Co. Inc v Gill & Dufus SA the buyers rejected a tender of
documents and tried to justify their rejection on the grounds that the goods, when delivered, did
not correspond to the contract description. The House of Lords held that they could not do so and
were in breach of contract; however, the fact that the goods would not have conformed to the
contract could be taken into account by the court when assessing damages.

Unsurprisingly the rights of the buyer to reject goods in a CIF are a lot less meaningful than those
relating to the documents. The right to reject in CIF really is a right to reject documents and not
goods. A buyer who has accepted documents may only reject the goods if, on arrival, they do not
comply with the terms of the contract. However, he may only do so for defects not apparent from
the documents, so if the buyer accepts documents which show that the goods were damage on
loading he cannot then reject the goods when they arrive on that ground .

The buyer will accept the documents if he deals with them before the goods arrive, for instance,
by using them to resell or pledge the goods. A buyer who deals with the documents in this way
therefore loses the right to reject the goods themselves for defects apparent from the documents.
Of course the buyer may still be entitled to damages if he has lost his right to reject the goods, for
instance where he accepted documents that indicated that the goods were defective.

In practice, the buyer will generally not reject the goods after acceptance of the documents. He
will have paid the price on presentation of the documents and rejection of the goods will therefore
leave him in the position of having to pursue the seller to recover the price.

Damages will be assessed in accordance with the general rules for buyer's claims for breach of
warranty so that the basic measure will be the difference between the value which goods
corresponding with the contract would have had, and the actual value of the goods delivered.
Where the market value of the contract goods falls between the date of tender of the documents
and the date of delivery of the goods, the buyer may find that a claim in damages leaves him worse
off than if he had rejected the documents.
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Advantages and Disadvantages of CIF Contract
CIF stands for cost, insurance & freight. The price of goods in CIF contracts is inclusive of freight
(consideration, reward payable in respect of carriage of cargo from loading point to point of
discharge) and insurance cost to the destination specified by the contract. A CIF contract, as
Scrutton J said in Arnhold Karberg v Blythe, Green, Jourdain and Co., is not a contract that goods
shall arrive, but a contract to supply goods that comply with the contract of sale, and to obtain a
contract for carriage and contract of insurance. CIF contracts are generally attractive to both seller
and buyer.

From a business point of view, the parties involved in a CIF transaction have a variety of benefits,
which are partially due to the role of the documents in the transaction. The advantages for the
seller are given below:

 he has the opportunity to increase his profits by making the carriage and insurance
arrangements;
 he retains the right of disposal of the goods until payment is made, thus keeping some level
of security; and
 he does not bear any risk during transit of the goods.

The buyer’s advantages are that he obtains:

 a means to take delivery of the goods;

 a means to trade the goods on or to pledge them as security for finance;
 rights against the carrier and insurer to recover at least the value of the goods if they are
damaged or lost in transit.

The main disadvantages of CIF contract is that risk passes to the buyer at the time of contract.S20
of the Sale of the Goods Act 1979 provides that, after delivery of the goods risk passes to the
buyer, but in the CIF contract risk passes to the buyer at the time he Pays and takes up the
document. On the other hand, risk passes to the buyer when the seller ships the goods. However,
if the contract is made after the shipment risk passes at the time of contract. This seems to be very
harsh on the buyer. Moreover, the risk passes to the buyer at the time of shipment, if the goods are
damaged while loading into the cargo or the goods are lost in the sea, though the seller knew that,
the goods might be lost when he tenders the shipping document. Where the goods are unascertained

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and shipped in bulk in that case the documents can not identified the goods sold. Hence the CIF
contract sometimes seems to be very vague.

The importance of the documents in CIF contracts is illustrated by the rule that allows the seller to
tender documents even after the goods damaged or lost. It seems unbelievable that such a rule
could exist and even if it did exist that the sale was for the goods and not the documents. If the
goods were utmost importance and were to all intents and purpose the subject matter of the contract
then this rule would not exist. It seems impossible to argue otherwise than that a CIF is a sale
documents when we consider that the documents are key to all elements of the contract and they
are central to shaping the parties duties, defining when risk passes, and determining the condition
of the goods.

The seller has the advantage of receiving the transacting money well in before the goods actually
reach the buyer. The advantage of the buyer is that he has a substantial right once he gets the
documents of sale and he may still reject the goods on their actual delivery if they turn out to be
not in conformity with the standards he had prescribed. The risk which he takes is that the loss or
damage of goods may not be covered by the bill of lading or insurance policy.

According to the general rule, the property and the risk passes at the same time but this is not the
usual case in a C.I.F. contract. Under a C.I.F. contract, the buyer is in effect the insurer, as of the
time of shipment. The transfer to him of the bill of lading and the policy of insurance giving him
the right of action in respect of loss or damage to the goods has the effect of placing the goods at
his risk on and after shipment [Tregelles v. Sewell(1862) 7 H&N. 574] . But the property in the
goods may not, and generally does not, pass on shipment. It very often will not pass until tender
and payment. The moment at which the property passes is entirely a matter of intention which can
be gathered from the terms of the contract, the parties’ conduct and according to the circumstances
of the case.

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FOB (FREE ON BOARD): It is a contractual term that refers to the requirement that the seller
deliver goods at the seller's cost via a specific route to a destination designated by the buyer. It is
a term in international commercial law specifying at what point respective obligations, costs, and
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risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms
2010 standard published by the International Chamber of Commerce. FOB is only used in non-
containerized sea freight or inland waterway transport. FOB terms do not define transfer of
ownership of the goods. The term FOB is also used in modern domestic shipping within the USA
to describe the point at which a seller is no longer responsible for shipping cost. Ownership of a
cargo is independent from Incoterms. In international trade, ownership of the cargo is defined by
the bill of lading or waybill. Indicating "FOB port" means that the seller pays for transportation
of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine
freight transport, insurance, unloading, and transportation from the arrival port to the final
destination. The passing of risks occurs when the goods are loaded on board at the port of shipment.
For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to
the port of Vancouver, and the cost of loading the goods on to the cargo ship (this includes inland
haulage, customs clearance, origin documentation charges, demurrage if any, origin port handling
charges, in this case Vancouver). The buyer pays for all costs beyond that point, including
unloading. Responsibility for the goods is with the seller until the goods are loaded on board the
ship. Once the cargo is on board, the buyer assumes the risk. The use of "FOB" originated in the
days of sailing ships. When the ICC first wrote their guidelines for the use of the term in 1936, the
ship's rail was still relevant, as goods were often passed over the rail by hand. In 1954, in the case
of Pyrene Co. Ltd. v. Scindia Steam Navigation Co. Ltd. Justice Devlin, ruling on a matter relating
to liability under an FOB contract, described the situation thus:

Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities
shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular
projecting from the ship's rail.

In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes,
as with a sealed shipping container there is no way of establishing when damage occurred after the
container has been sealed. The standards have noted this. Incoterms 1990 stated,

When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container
traffic, the FCA term is more appropriate to use.
For example, a person in Miami purchasing equipment from a manufacturer in Chicago could
receive a price quote of "$5000 FOB Chicago", which would indicate that the buyer would be
responsible for the shipping from Chicago to Miami. If the same seller issued a price quote of
"$5000 FOB Miami", then the seller would cover shipping to the buyer's location.

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“FOB” means Free On Board (named port of shipment), e.g. “FOB Newcastle NSW”. It is one of
the most commonly used term (INCOTERMS) in sales contracts involving sea transportation of
goods.

i) The seller must supply the goods and documents stated in the contract of sale. He must load the
goods on board the vessel named by the buyer at the named port of shipment on the date or within
the period stipulated. He must bear all costs and risks of the goods until they have passed the ship’s
rail at the named port of shipment, including export charges and taxes. He must also pay for
packing where necessary. Risk passes when the goods pass the ship’s rail. The seller must notify
the buyer when the goods have been loaded. The seller must give sufficient information to the
buyer for him to arrange insurance; if the seller fails to give enough information, the risk stays
with him.
ii) The buyer must charter a ship or reserve the necessary space on a ship and notify the seller of
the ship’s name, loading berth and loading dates. The buyer must bear all costs, including insurance
(which he must arrange) and freight, from the time the goods cross the ship’s rail at the loading
port, from when he is liable to pay the contract price. (Freight is normally collectable by the carrier
from the buyer at the discharge port.) The buyer must also pay the seller for providing the required
documents, e.g. bills of lading and certificate of origin.
iii) FOB is advantageous when the cargo is of a type (e.g. oil) and size that the buyer wishes to
charter a particular vessel, or where foreign currency restrictions compel an importer to use FOB
(e.g. where governments want importers to use national flag vessels). It is mainly used for bulk
sales contracts. With respect to the bill of lading, title in the goods does not pass to the buyer until
shipment. The FOB contract is based on the loading port, so the buyer is free after loading to re-
sell the goods, even while they are on the vessel. The FOB invoice price is lower than the CIF
price.

FOB means Freight On Board or Free On Board. If terms of delivery of a transaction is on FOB
means, the cost of movement of goods on board of Airlines or on board of ship is borne by the
seller. Rest of all expenses to arrive the goods at buyer's premise has to be met by the buyer.

E.g.: You are a Machinery seller situated near Mumbai, India. The buyer is situated in a place
near New York. You are the seller of goods and you have contracted with the buyer and agreed to
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sell the goods on FOB, Mumbai price of USD 5300. Here the selling cost of goods is USD 5300
FOB Mumbai. So the seller meets all the expenses to carry the goods to Mumbai port and meet all
expenses including customs clearance in Mumbai to get the goods on board to Airlines or On
Board to Ship. As I have explained, all further cost to reach the goods to the buyer's place has to
be met by the buyer. The buyer nominates the shipping company or airlines and seller ships goods
as per buyer's advice. The buyer pays the cost of freight to the shipping company or airlines. Buyer
arrange to insure the goods and pay the cost of insurance.

C & F/CFR (COST & FREIGHT): Cost refers to the cost of goods and freight refers to all other
costs relating to all the means of transportation of the goods. It means that the seller must pay the
costs and freight necessary to bring the goods to a named port of destination and must also procure
marine insurance against the buyer's risk or loss to the goods during the carriage. C&F/CFR stands
for cost and freight and is always stated as C&F port of importation. Thus, CFR or C&F is a legal
term used in international trade & in a contract specifying that a sale is made CFR, the seller is
required to arrange for the carriage of goods by sea to a port of destination & provide the buyer
with the documents necessary to obtain the goods from the carrier. The norm is to state the
geographic location of the port of importation. For example, C&F Mumbai, India. In the export
quotation, the party has to indicate the port of destination (discharge) after the acronym CIF, for
example CIF Mumbai and CIF Singapore. The term CIF is used for ocean freight only. However,
in practice, many importers and exporters still use the term CIF in the air freight.
For Eg: Indian cotton is being offered around 82 to 85 cents per lb on a cost and freight basis
(C&F) to buyers in Bangladesh and Vietnam, compared to over 90 cents from the United Sates
and Brazil.

Thus, C& F defines two distinct and separate responsibilities-one is dealing with the actual cost of
merchandise "C" and the other "F" refers to the freight charges to a predetermined destination
point. It is the shipper/seller's responsibility to get goods from their door to the port of destination.
"Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the
port of origin or port of shipment to buyer's door. Given that the shipper is responsible for
transportation, the shipper also chooses the forwarder. Cost and Freight (CFR) means that the
seller must pay the costs and freight in order to transport the goods to the port of destination in
question. The risk of the loss of or damage to the goods, as well as any additional costs as a result
of events after the goods are delivered onboard the vessel, transfers from the seller to the buyer

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when the goods pass the ship’s railing in the shipping port. The term CFR obliges the seller to
clear the goods. This term can only be used for transport by sea and inland shipping traffic.

INCOTERMS: Incoterms, or "international commercial terms," are trade terms published by

the International Chamber of Commerce (ICC). They are commonly used to ease domestic and
international trade by helping traders to understand one another. The Incoterms or International
Commercial Terms are a series of pre-defined commercial terms published by the International
Chamber of Commerce (ICC) relating to international commercial law. They are widely used in
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International commercial transactions or procurement processes as the use in international sales is
encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms
related to common contractual sales practices, the Incoterms rules are intended primarily to clearly
communicate the tasks, costs, and risks associated with the global or international transportation
and delivery of goods. Incoterms inform sales contracts defining respective obligations, costs, and
risks involved in the delivery of goods from the seller to the buyer, but they do not themselves
conclude a contract, determine the price payable, currency or credit terms, govern contract law or
define where title to goods transfers.

INCOTERMS cover a wide range of responsibilities and obligations for a seller and buyer in an
international sales contract, including:

• Which party is responsible for the different costs during the whole process
• Where the goods should be picked up from and transported to
• Who bears the ‘risk’ in the case of any loss or damage to goods at any specific point in an
international journey
• Which party is responsible for loading or unloading goods and for arranging and paying for
inspections to the freight
• Who is responsible for producing documentation, submitting export and import customs
entries, or arranging export and import licences, as well as a range of other contractual
obligations

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide
for the interpretation of most commonly used terms in international trade. They are intended to
reduce or remove altogether uncertainties arising from different interpretation of the rules in
different countries. As such they are regularly incorporated into sales contracts worldwide.

"Incoterms" is a registered trademark of the ICC.

The exporter’s selling terms will define the point at which responsibility for transport and ancillary
charges transfers to the buyer. These terms, which are detailed in INCOTERMS 2010, are accepted
the world over as a record of buyer’s and seller’s responsibilities under a sales contract and are
recognized by customs authorities and courts in the main trading nations, but they are not given
statutory force by individual nations.

Historically, export terms such as ''Ex-works'', FOB, CIF and ''DDP have become widely known,
and now, INCOTERMS 2010 is seventh revision of the terms and gives new clarity covering the
precise point of handover between buyer and seller. INCOTERMS 2010 also removes ambiguity
16
by defining who meets unloading and loading terminal handling charges of buyers and sellers and
places less emphasis on the point at which goods pass over the ship’s rail than in the past by
focusing on wider use of intermodal transport and the requirement to deliver at any point in the
transport chain.

Thus, INCOTERMS define the trade contract responsibilities and liabilities between a buyer and
a seller. They cover who is responsible for paying freight costs, insuring goods in transit and
covering any import/export duties, for example. They are invaluable as, once importer and exporter
have agreed on an INCOTERM, they can trade without discussing responsibilities for the costs
and risks covered by the term. The terms determine who pays the cost of each transportation
segment, who is responsible for loading and unloading of goods, and who bears the risk of loss at
any given point during an international shipment.

Managed by the International Chamber of Commerce (ICC), Incoterms are amended every 10
years. Recent changes saw the deletion of four existing terms and their replacement with two new
terms. This brought the total number of Incoterms from 13 to 11.

INCOTERMS 2010 has 11 different sales terms, each with a three- letter code, now in this latest
revision divided into two groups: Those that relate to any mode of transport and those that apply
to the sea freight mode only.

DELIVERIES BY ANY MODE OF TRANSPORT (SEA, ROAD, AIR, RAIL)

1. Ex Works (EXW): EXW means that the seller has delivered when they place or deliver
suitably packaged goods at the disposal of the buyer at an agreed-upon place (i.e. the works,
factory, warehouse, etc.). The goods are not cleared for export.

The seller is not required to load the goods onto a collecting vehicle and, if they do, it is at the
buyer’s expense. EXW is the only Incoterm where the goods are not required to be cleared for
export, although the seller has the duty to assist the buyer (at the buyer’s expense) with any needed
documentation and export approvals.

After collection, the buyer must provide the seller with proof that they collected the goods. From
collection, the buyer is responsible for all risks, costs and clearances.

2. Free Carrier (FCA): FCA means that the seller fulfils their obligation to deliver when the
goods are handed, suitably packaged and cleared for export, to the carrier, an approved

17
 person selected by the buyer, or the buyer at a place named by the buyer. Responsibility
for the goods passes from seller to buyer at this named place.

The named place may be the seller’s premises. While the seller is responsible for loading the goods,
they have no responsibility for unloading them if the goods are delivered to a named place that is
not the seller’s premises.

The seller may procure a freight contract at the buyer’s request or, if the buyer fails to procure one
by the date of a scheduled delivery, the seller may procure one on their own initiative. The costs
and risks of this freight contract fall on the buyer. The buyer must be informed of delivery
arrangements by the seller in time for the buyer to arrange insurance.

3. Carriage Paid To (CPT): CPT stands for when the seller delivers the goods to a carrier, or
a person nominated by the seller, at a destination jointly agreed upon by the seller and
buyer. The seller is responsible for paying the freight charges to transport the goods to the
named location. Responsibility for the goods being transported transfers from the seller to
the buyer the moment the goods are delivered to the carrier.

If multiple carriers are used, risk passes as soon as the goods are delivered to the first carrier. The
seller’s only responsibility is to arrange freight to the destination. They are not responsible for
insuring the goods shipment as it is being transported.

The seller should ensure that they make it clear on their quotation that their responsibility for the
goods ends at loading and, from this point forward, the buyer should arrange appropriate insurance.

4. Carriage and Insurance Paid to (CIP): CIP means that the seller delivers the goods to a
carrier or another approved person (selected by the seller) at an agreed location.

The seller is responsible for paying the freight and insurance charges, which are required to
transport the goods to the selected destination. CIP states that, even though the seller is responsible
for freight and insurance, the risk of damage or loss of the transported goods transfers from the
seller to the buyer the moment the carrier receives the goods.

The seller is only obliged to procure the minimum level of insurance coverage. Should the buyer
want additional insurance, they are responsible for arranging it themselves.

5. Delivered at Terminal (DAT): DAT is a term indicating that the seller delivers when the
goods are unloaded at the destination terminal.

‘Terminal’ can refer to a container yard, quayside, warehouse or another part of the cargo terminal.
The terminal should be agreed upon accurately in advance to ensure no confusion over the location.
18
While there is no requirement for insurance, the delivery is not complete until the goods are
unloaded at the agreed destination. Therefore, the seller should be wary of the risks that not
securing insurance could pose.

6. Delivered at Place (DAP): DAP means that the seller delivers the goods when they arrive
at the pre-agreed destination, ready for unloading.

It is the buyer’s responsibility to effect any customs clearance and pay any import duties or
taxes. Additionally, while there is no requirement for insurance, the delivery is not complete
until the goods are unloaded at the agreed destination. Therefore, the seller should be wary of the
risks of not securing insurance.

7. Delivered Duty Paid (DDP): DDP means that the seller delivers the goods to the buyer,
cleared for import and ready for unloading, at the agreed location or destination. The seller
maintains responsibility for all the costs and risks involved in delivering the goods to the
location. Where applicable, this includes pre-shipment inspection costs and import ‘duty’
for the country of destination. Import duty may involve customs formalities, the payment
of these formalities, customs duties and taxes.

DDP holds the maximum obligation for the seller. While there is no requirement for insurance, the
delivery is not complete until the goods have been unloaded at the destination. Therefore, the seller
should be wary of the risks that not securing insurance could pose.

DELIVERIES BY SEA AND INLAND WATERWAYS TRANSPORT

8. Free Alongside Ship (FAS): FAS stands for when the seller delivers the goods, packaged
suitably and cleared for export, by placing them beside the vessel at the agreed upon port
of shipment. At this point, responsibility for the goods passes from the seller to the buyer.
The buyer maintains responsibility for loading the goods and any further costs.

The seller may procure a freight contract at the buyer’s request or, if the buyer fails to procure one
by the date of a scheduled delivery, the seller may procure one on their own initiative. The buyer
is responsible for the cost and risk associated with the freight contract.

9. Free on Board (FOB): FOB means that the seller delivers the goods, suitably packaged
and cleared for export, once they are safely loaded on the ship at the agreed upon shipping
port. At this point, responsibility for the goods transfers to the buyer. The seller may
procure a freight contract at the buyer’s request or, if the buyer has failed to procure one
by the date of a scheduled delivery, the seller may procure one on their own initiative. The
buyer is responsible for the cost and risk of this freight contract.

19
The seller must inform the buyer of delivery arrangements in good time to sort out insurance for
the shipment.

FOB is a frequently misused term. If a supplier insists FOB needs to be used for containerised
goods, the buyer should make certain that the selected insurance covers the goods ‘warehouse to
warehouse’.

10. Cost and Freight (CFR): CFR means that the seller delivers when the suitably packaged
goods, cleared for export, are safely loaded on the ship at the agreed upon shipping port.

The seller is responsible for pre-paying the freight contract. Once the goods are safely stowed on
board, responsibility for them transfers to the buyer, despite the seller paying for the freight
contract to the selected destination port. The buyer must be informed of the delivery arrangements
with enough time to organize insurance.

11. Cost, Insurance and Freight (CIF): CIF means that the seller delivers when the suitably
packaged goods, cleared for export, are safely stowed on board the ship at the selected port
of shipment. The seller must prepay the freight contract and insurance.

Despite the seller paying for the freight contract to the selected destination port, once the goods
are safely stowed on board, responsibility for them transfers to the buyer.

The seller is only obliged to procure the minimum level of insurance coverage. This minimum
level of coverage is not usually adequate for manufactured goods. In this event, the buyer and
seller are at liberty to negotiate a higher level of coverage.

OR

The Incoterms are classified in 4 different classes:

 Ex (ExW);
 Free (FOB, FAS, FCA);
 Cost (CPT, CIP, CFR, CIF);
 Delivery (DAP, DAT, DDP).
The 11 terms can also be classified into two different categories depending on its contents:

 Rules for any modes of transport: ExW, FCA, CPT, CIP, DAT, DAP, DDP;
 Rules for sea and inland waterway transport: FAS, FOB, CFR, CIF.

20
INDIAN BILL OF LADING ACT 1856

State Central Government

Year 1856

PREAMBLE

An Act to amend the law relating to Bills of Lading.

WHEREAS by the custom of merchants a bill of lading of goods being transferable by

endorsement, the property in the goods may thereby pass to the endorsee, but nevertheless all rights
in respect of the contract contained in the bill of lading continue in the original shipper or owner,
and it is expedient that such rights should pass with the property;

AND WHEREAS it frequently happens that the goods in respect of which bills of lading purport
to be signed have not been laden on board, and it is proper that such bills of lading in the hands of
a bona fide holder for value should not be questioned by the master or other person signing the
same, on the ground of the goods not having been laden as aforesaid,

21
It is enacted as follows: -

Section1 - Rights under bills of lading to vest in consignee or endorsee

Every consignee of goods named in a bill of lading and every endorsee of a bill of lading to whom
the property in the goods therein mentioned shall pass, upon or by reason of such consignment or
endorsement shall have transferred to and vested in him all rights of suit, and be subject to the
same liabilities in respect of such goods as if the contract contained in the bill of lading had been
made with himself.

Section2 - Not to affect right of stoppage in transit or claims for freight

Nothing herein contained shall prejudice or affect any right of stoppage in transit, or any right to
claim freight against the original shipper or owner, or any liability of the consignee or endorsee by
reason or inconsequence of his being such consignee or end or see, or of his receipt of the goods
by reason or inconsequence of such consignment or endorsement.

Section3 - Bill of lading in hands of consignee, etc. conclusive evidence of the shipment as
against master etc. Every bill of lading in the hands of a consignee or endorsee for valuable
consideration representing goods to have been shipped on board a vessel, shall be conclusive
evidence of such shipment as against the master or other person signing the same, notwithstanding
that such goods or some part thereof may not have been so shipped, unless such holder of the bill
of lading shall have had actual notice at the time of receiving the same that the goods had not in
fact been laden on board: PROVIDED that the master or other person so signing may exonerate
himself, in respect of such misrepresentation, by showing that it was caused without any default
on his part, and wholly by the fraud of the shipper or of the holder, or some person under whom
the holder claims.
EXPLANATION:
A bill of lading serves as evidence for a contract of affreightment. This usually arises when a ship
owner, or other person authorized to act on his behalf employs his vessel as a general ship by
advertising that he is willing to accept cargo from people for a particular voyage.

However, it must be observed that all countries do not follow the same form of legislation globally.
The broad categories may be stated as follows:

i. The Hague Rules.

22
ii. The Hague/Visby amendments.

iii. The Hamburg Code.

iv. Hybrid systems based on the Hague/Visby and Hamburg regimes.

Functions of the Bill of Lading

The importance of the bill of lading can be understood by considering the following chain of events
of a transaction. An individual wishing to ship a consignment of goods overseas approaches a
shipping line by reserving space on the vessel. This may be done directly or through an agent. The
carrier then instructs the place and time of delivery of the goods and the individual is then issued
with a receipt indicating the type and quantity of the goods and the condition in which the carrier’s
agent received them. Then, the carrier is responsible for the goods.

The shipper, meanwhile, gets a copy of the carrier’s bill of lading form. He will enter details
regarding the type, quantity of goods shipped together with any relevant marks, the port of
destination and the name of the consignee. The carrier’s agent will check the cargo details against
the tallies at eh time of loading and will acknowledge them. The freight will be calculated and then
the bill will be signed and will be given to the shipper. The shipper may then directly dispatch the
bill to the consignee or through a bank in the case of international sales contract by documentary
credit. The consignee may decide to sell the goods while in transit then he may indorse the bill in
favour of the purchaser. Eventually the consignee or endorsee will surrender the bill at the port of
discharge in return for delivery of the goods.

1. Bill of lading as a receipt

When the bill of lading in the hands of the shipper, it becomes a receipt for the quantity of goods
received, the condition of goods received and leading marks. However, the evidentiary value of
the bills in all these cases is not the same in all case and it depends upon the circumstances of the
case such as whether the bill falls within the Carriage of Goods by Sea Act 1971 or not.

Bill Of Lading Falling Within The Carriage Of Goods By Sea Act 1971

Under Article III (3) of this Act, the carrier has to include the leading marks, the number of
packages or pieces or the quantity or weight of the goods and the apparent order and condition of
the goods on the bill of lading. The statements made on the bill of lading are regarded as prima
facie evidence of the receipt of the goods as described under III(4).
Bill Of Lading not falling Within the Carriage of Goods by Sea Act 1971
23
Statements as to quantity: According to Common Law, a statement specifying quantity received
is a prima facie evidence of the quantity shipped. The burden of proof lies on the carrier to prove
that the cargo as specified has not been shipped. This burden is an absolute one.

In the case of Smith v/s. Bedouin Steam Navigation Co [1896], the bill of lading stated that 1,000
bales of jute had been shipped, whereas only 988 bales were delivered. It was held that the carrier
could successfully discharge the burden of proof only if he could show that the goods were not
shipped, not merely that the goods may not possibly have been shipped.

There may be endorsements on the bill of lading with statements such as weight and quantity
unknown and the courts recognize these, since information on quantity entered on a bill of lading
is based on statements made by the shipper and which does the carrier not normally verify.
However, when the statements is contained as ‘ quantity unknown’ alongside the gross weight
entered by the shippers for the purposes of Section 4 the weight entered is not a representation that
the quantity was shipped.
Example: A bill of lading which states that 11,000 tons of cargo were shipped ‘ quantity unknown’
means that the quantity is unknown and not that that amount of cargo was actually shipped, this
would be the meaning construed by the Courts.

According to the Hague/Visby Rules, the shipper can demand the carrier issue a bill of lading
showing ‘either the number of packages or pieces, or the quantity, weight etc. as furnished in
writing by the shipper’. Accordingly, the carrier may use any of these three methods of quantifying
cargo. However, he cannot acknowledge one kind and disclaim knowledge of others.

In the case of Oricon v/s Integraan (1967), the bills of lading acknowledged the receipt of 2,000
packages of copra cake said to weigh gross 1,05,000 Kgs for the purposes of calculating freight
only. It was held that while each of the bills of lading being Hague Rules of bills of lading,
acknowledged the number of packages shipped as a prima facie evidence.

Regarding the evidentiary bill of lading is concerned; the Hague/Visby Rules serve as prima facie
evidence of the amount of cargo shipped.

Statements as to condition: This is the second type of statement, in which the bill of lading is a

24
representation by the ship owner as to the condition in which the goods were shipped.
In Common Law, the statements as to the condition of the goods shipped are regarded as prima
facie evidence in the hands of the shipper, but conclusive evidence in the hands of a bona fide
purchaser.

In the case of Compania Naviera Vascongada v/s Churchill (1906), the timber became badly
stained with petroleum while awaiting shipment; the master nevertheless issued a bill of
acknowledging that the timber had been shipped in good order and condition. It was held that the
ship owners were estopped from denying the truth of the statement against the assignee of the bill.
In order to make the statement in the bill of lading binding as an estoppel it is necessary that the
person so acting upon it would have done so upon a prejudice, wherein in this case the defendants
were prejudiced since they accepted the bills of lading as a good tender on the belief that the
timber was in good condition.

The estoppel will be effective only in respect of defects, which would be apparent on a reasonable
inspection by the carrier or his agents. In the case of Silver v/s Ocean Steamship Co (1930), the
ship owners had issued clean bill of lading covering cargo of Chinese eggs shipped in 42 - lbs
square tins which were not covered with any cloth or packing. When the goods arrived at their
destination in a damaged condition, the Court of Appeal held that while the ship owners were
estopped from contending either the cargo was insufficiently packed or that the tins were gashed
on shipment, they were not estopped from alleging that pin - hole perforations in the tins were
present on shipment, since the latter would not necessarily be apparent on reasonable inspection.
Statements as to leading marks: Where the carrier records leading marks on the bill of lading,
he will not be estopped at common law from denying the goods were shipped under the marks as
described in the bill. However, where the marks are essential to the identification of description of
the cargo, the prima facie evidence rule is applied. The distinction between a public and a private
mark is an important factor in establishing whether a mark is or is not material to the identity of
the goods. Indemnity agreements: Indemnity agreements may be agreed to be entered into by the
shipper and the carrier to produce a clean bill of lading, that is, a bill of lading with no reservations
on it. It affects its commercial value in number of ways:

i. The consignee normally relies on the bill of lading to establish whether the
goods as agreed in the contract of sale have been shipped and where the bill of
lading is claused he may refuse payment.
25
 ii. Should the consignee or the shipper want to sell the cargo during transit, it is
unlikely to be sold on the basis of a claused bill of lading.
iii. As a document of title the bill of lading is often used to raise money from
banks and finance houses. These institutions normally prefer to lend money
against a clean of lading.

2. Bill of lading as evidence of contract of carriage

In the hands of the shipper a bill of lading serves as evidence of the contract of carriage though it
contains the terms of carriage. The contract with the shipper is likely to have been concluded orally
long before the issue of the bill of lading. The document may vary some of the agreed terms or
contains terms that have not been agreed to by the parties.

In the case of Crooks v/s Allan (1879) according to Lush J, a bill of lading is not a contract, only
evidence of the contract. If a shipper of goods is not aware when he ships them or is not informed
in the course of the shipment, that the bill of lading which will be tendered to him which will
contain such a clause, he has a right to suppose that his goods are received on the usual terms.

In the case of The Ardennes (1951) the ship’s agent assured the shipper that the vessel of a
consignment of oranges would sail directly to London and arrive there before 1 December. The
ship however, stopped at Antwerp on her way to London and arrived at London on 4th December.
When sued for breach of contract by the shipper, the ship owner relied on the bill of lading, which
contained a clause giving the ship liberty to deviate during the course of her voyage. It was held
that the oral evidence put forward by the shipper was admissible.

3. Bill of lading as contract of carriage

Upon endorsement to a third party, the bill of lading is a contract of carriage, but so far as the
holder of the bill is the shipper, the bill of lading can be evidenced only as a carriage of contract.
Any oral or written agreement between the shipper and the ship owner not expressed on the bill of
lading will not affect the third party on the grounds of lack of notice. In the case of Leduc v/s Ward
(1888), the endorsee of a bill of lading sued the ship owner for loss to cargo due to deviation in
the course. The ship owner contended that they were not liable, since the shipper was aware at the

26
time of shipment that the ship would deviate. The court held that anything that took place between
the shipper and the ship owner not embodied in the bill of lading could not affect the endorsee.

4. Bill of lading as document of title

Until goods are physically delivered, the possession of the bill of lading is deemed to be
constructive possession of the goods. Transfer of the bill of lading is deemed to be constructive
possession of the goods. Transfer of the bill of lading by the seller to the buyer is deemed to be
symbolic delivery of the goods to the buyer and the buyer, on the ship’s arrival could demand
delivery of the goods. In the case of Sanders v/s MacLean (1883), the bill of lading by the law
merchant is universally recognized as its symbol and the endorsement and delivery of the bill of
lading operates as a symbolic delivery of the cargo.

The buyer can sell the goods on while they are at sea to the third party by simply endorsing the bill
of lading and delivering it to the third party. The third party, by becoming the holder, can demand
delivery of the goods on arrival.

Not all bills of lading, however, are transferable. To impart transferability to a bill of lading, it
must be drafted as order bills. Upon endorsement, the endorsee takes the place of the original party
to the bill of lading, and will be sue and be sued on all the terms, express and implied in the bill of
lading despite privity of contract. This is due to operation of Section 2 and 3 of the Carriage of
Goods by Sea Act, 1992.

A bill of lading need not be equated with a bill of exchange, which is a negotiable instrument in
the strict legal sense. In the case of Gurney v/s Behrend (1854) it was observed that a bill of lading
is not like a bill of exchange or a promissory note, a negotiable instrument that passes by mere
delivery to a bona fide transferee for valuable consideration, without regard to the title of the
parties who make the transfer.

Therefore, bill of lading is a transferable document although in some jurisdictions it is considered

as a negotiable instrument.
Delivery of documents: The carrier is under an obligation to deliver the cargo only against the
original bill of lading if not, then he will be liable in contract as well as in tort to the bill of lading
holder. In the absence of bill of lading, if a person wishes to take delivery of the goods, then he
27
has to prove that he is entitled to the possession of the goods and there is a reasonable explanation
for such absence. There are ‘notify party’ clauses, which are used in which case, the carrier has to
notify a customs broker, banker, and warehouseman of the arrival of the goods. In some cases,
though not in all, the law of country or custom itself may provide requires the production of a bill
of lading. Therefore, in this case, the carrier will not be liable in non - production of the bill of
lading.
According to Clarke J, there is a difference between the law and custom and such differentiation
is as follows:

Law: If it were a requirement of the law of the place of performance that the cargo must be
delivered to the agent of plaintiffs without the presentation of an original bill of lading, the
defendants would have performed their obligations under the contract of carriage.

Custom: Equally, if there were a custom of the port that cargo was always delivered to the agent
of the person entitled to possession without the production of the original bill of lading, delivery
to the agent would probably amount to performance of the defendant’s obligations under the
contract of carriage.

Practice: Practice must be distinguished from custom. A vessel may be discharged by any
methods, which is consistent with the practice in the port. However, it would not be a good
performance of the defendant’s obligations under the contract if it were merely the practice for
vessels to deliver the goods without presentation of a bill of lading.

Forgery: Forgery is a common phenomenon is in international trade. There was an issue regarding
the position of the innocent carrier delivering goods against the bill of lading.
In the case of Motis Exports Ltd v/s Dampskibsselskabet AF 1912 Aktieselskab Akteiselskabet
Dampskibsselskabet Svendborg (2000) the cargo was under the Maersk Line Bills of lading which
included clause 5(3)(b) which stated the carrier shall have no liability whatsoever for any loss or
damage howsoever caused to the goods while in its actual or constructive possession before
loading or after discharge over ship’s rail, or if applicable, on the ship’s ramp. The carriers
released the goods against forged bills of lading. It was held that the delivery against an original
bill of lading is obligatory and hence, delivery against a forged bill of lading will not be construed
in favour of the carrier.

28
Hence, bills of lading play a very important part in international trade. Depending upon the rules,
which are followed, there are different implications for different parties, which are involved. This
article gives a very brief description of the nature and functions of the bill of lading.

INTERNATIONAL CONVENTIONS GOVERNING BILL OF LADING:

 The Hague Rules
 The Hague – Visby Rules
 Hamburg Rules
 Rotterdam Rules

The Hague Rules Hague rules brought a balance between shipper-carrier agreements. Before
these rules the contract of carriage used to be in favour of the party that had the edge in the shipping
market. But there were few weaknesses in the Hague rules. To address these weaknesses, more
modernized version of Hague rules were introduced. These rules were called “Hague Visby rule“.
The Hague Rules of 1924 (formally the "International Convention for the Unification of Certain
Rules of Law relating to Bills of Lading, and Protocol of Signature") is an international convention
to impose minimum standards upon commercial carriers of goods by sea. Previously, only the
common law provided protection to cargo-owners; but the Hague Rules should not be seen as a
"consumers' charter" for shippers because the 1924 Convention actually favoured carriers and
reduced their obligations to shippers.

The Hague Rules represented the first attempt by the international community to find a workable
and uniform way to address the problem of ship-owners regularly excluding themselves from all
liability for loss or damage to cargo. The objective of the Hague Rules was to establish a minimum
mandatory liability of carriers.

Under the Hague Rules the shipper bears the cost of lost/damaged goods if they cannot prove that
the vessel was unseaworthy, improperly manned or unable to safely transport and preserve the
cargo, i.e. the carrier can avoid liability for risks resulting from human errors provided they
exercise due diligence and their vessel is properly manned and seaworthy. These provisions have
frequently been the subject of discussion between ship-owners and cargo interests on whether they
provide an appropriate balance in liability.

The Hague Rules form the basis of national legislation in almost all of the world's major trading
nations, and cover nearly all the present international shipping. The Hague Rules have been

29
updated by two protocols, but neither addressed the basic liability provisions, which remain
unchanged.

The Hague Rules were slightly amended (beginning in 1931, and further in 1977 and 1982) to
become the Hague-Visby Rules. In addition, the U.N. established a fairer and more modern set of
rules, the Hamburg Rules (effective 1992). Also a more radical and extensive set of rules is
the Rotterdam Rules, but as of November 2015, only 3 states have ratified these rules, so they are
not yet in force.

The Hague–Visby Rules is a set of international rules for the international carriage of goods by
sea. They are a slightly updated version of the original Hague Rules which were drafted in Brussels
in 1924. The premise of the Hague–Visby Rules (and of the earlier English common law from
which the Rules are drawn) was that a carrier typically has far greater bargaining power than the
shipper, and that to protect the interests of the shipper/cargo-owner, the law should impose some
minimum affreightment obligations upon the carrier. However, The Hague and Hague–Visby
Rules were hardly a charter of new protections for cargo-owners; the English common law prior
to 1924 provided more protection for cargo-owners, and imposed more liabilities upon "common
carriers". The official title of The Hague Rules the "International Convention for the Unification
of Certain Rules of Law relating to Bills of Lading". After being amended by the Brussels
Amendments (officially the "Protocol to Amend the International Convention for the Unification
of Certain Rules of Law Relating to Bills of Lading") in 1968, the Rules became known
colloquially as the Hague–Visby Rules. The Hague–Visby Rules were incorporated into English
law by the Carriage of Goods by Sea Act 1971; and English lawyers should note the provisions of
the statute as well as the text of the rules. For instance, although Article I(c) of the Rules exempts
live animals and deck cargo, section 1(7) restores those items into the category of "goods". Also,
although Article II (4) declares a bill of lading to be a mere "prima facie evidence of the receipt by
the carrier of the goods", the Carriage of Goods by Sea Act 1992 section 4 upgrades a bill of lading
to be "conclusive evidence of receipt".

Under Article X, the Rules apply if ("a) the bill of lading is issued in a contracting State, or (b) the
carriage is from a port in a contracting State, or (c) the contract (of carriage) provides that(the)
Rules ... are to govern the contract". If the Rules apply, the entire text of Rules is incorporated into
the contract of carriage, and any attempt to exclude the Rules is void under Article III (8).

Carriers duties:- Under the Rules, the carrier's main duties are to "properly and carefully load,
handle, stow, carry, keep, care for, and discharge the goods carried" and to "exercise due

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diligence to ... make the ship seaworthy" and to "... properly man, equip and supply the ship". It is
implicit (from the common law) that the carrier must not deviate from the agreed route nor from
the usual route; but Article IV (4) provides that "any deviation in saving or attempting to save life
or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach
of these Rules".

The carrier's duties are not "strict", but require only a reasonable standard of professionalism and
care; and Article IV allows the carrier a wide range of situations exempting them from liability on
a cargo claim. These exemptions include destruction or damage to the cargo caused by: fire, perils
of the sea, Act of God, and act of war. A controversial provision exempts the carrier from liability
for "neglect or default of the master ... in the navigation or in the management of the ship". This
provision is considered unfair to the shipper; and both the later Hamburg Rules (which require
contracting states to denounce the Hague–Visby Rules) and Rotterdam Rules (which are not yet
in force) refuse exemption for negligent navigation and management.

Also, whereas the Hague–Visby Rules require a ship to be seaworthy only "before and at the
beginning" of the voyage, under the Rotterdam Rules the carrier will have to keep the ship
seaworthy throughout the voyage (although this new duty will be to a reasonable standard that is
subject to the circumstances of being at sea).

Shippers duties: By contrast, the shipper has fewer obligations (mostly implicit), namely: (i) to
pay freight; (ii) to pack the goods sufficiently for the journey; (iii) to describe the goods honestly
and accurately; (iv) not to ship dangerous cargoes (unless agreed by both parties); and (v) to have
the goods ready for shipment as agreed; (i.e. "notice of readiness to load”). None of these shippers'
obligations are enforceable under the Rules; instead they would give rise to a normal action in
contract.

The Hamburg Rules are a set of rules governing the international shipment of goods, resulting
from the United Nations International Convention on the Carriage of Goods by Sea adopted
in Hamburg on 31 March 1978. The Convention was an attempt to form a uniform legal base for
the transportation of goods on oceangoing ships. A driving force behind the convention was the
attempt of developing countries' to level the playing field. It came into force on 1 November 1992.
The first of the international conventions on the carriage of goods by sea was the Hague Rules of
1924. In 1968, the Hague Rules were updated to become the Hague-Visby Rules, but the changes
were modest. The convention still covered only "tackle to tackle" carriage contracts, with no
provision for multimodal transport. The industry-changing phenomenon of containerization was

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barely acknowledged. The 1978 Hamburg Rules were introduced to provide a framework that was
both more modern, and less biased in favour of ship-operators. Although the Hamburg Rules were
readily adopted by developing countries, they were shunned by richer countries who stuck with
Hague and Hague-Visby. It had been expected that a Hague/Hamburg compromise might arise,
but instead the more extensive Rotterdam Rules appeared. Article 31 of the Hamburg
Convention covers its entry into force, coupled to denunciation of other Rules. Within five years
after entry into force of the Hamburg Rules, ratifying states must denounce earlier conventions,
specifically The Hague and Hague-Visby Rules.

A long-standing aim has been to have a uniform set of rules to govern carriage of goods, but there
are now five different sets: Hague, Hague-Visby, Hague-Visby/SDR, Hamburg and Rotterdam.
(The Rotterdam Rules are not yet in force). Only an optimist would expect such uniform adoption
within the foreseeable future.

The Rotterdam Rules establish a uniform and modern legal regime governing the rights and
obligations of shippers, carriers and consignees under a contract for door-to-door carriage that
includes an international sea leg. The "Rotterdam Rules" (formally, the United Nations
Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea) is a
treaty proposing new international rules to revise the legal framework for maritime
affreightment and carriage of goods by sea. The Rules primarily address the legal relationship
between carriers and cargo-owners. As of October 2015, the Rules are not yet in force as they have
been ratified by only three states.

The aim of the convention is to extend and modernize existing international rules and achieve
uniformity of The Hague Rules of 1924 were updated in 1968 to become the Hague-Visby Rules,
but the changes were modest. The modified convention still covered only "tackle to tackle"
carriage contracts, with no provision for multimodal transport. The industry-changing
phenomenon of containerization was barely acknowledged. The 1978 Hamburg Rules were
introduced to provide a framework that was both more modern, and less biased in favour of ship
operators. Although the Hamburg Rules were readily adopted by developing countries the new
convention was shunned by richer countries who stuck with Hague and Hague-Visby. It had been
expected that a Hague/Hamburg compromise might arise, but instead the vast (96 articles)
Rotterdam Rules appeared. The World Shipping Council is a prominent supporter of the
Rotterdam Rules. In 2010, the American Bar Association House of Delegates approved a

32
resolution supporting U.S. ratification of the Rotterdam Rules. The main provisions of these rules
are:-

 The Rules apply only if the carriage includes a sea leg; other multimodal carriage contracts
which have no sea leg are outside of the scope of the Rules.
 It extends the period that carriers are responsible for goods, to cover the time between the point
where the goods are received to the point where the goods are delivered.
 It allows for more e-commerce and approves more forms of electronic documentation.
 It increases the limit liability of carriers to 875 units of account per shipping unit or three units
of account per kilogram of gross weight.
 It eliminates the "nautical fault defence" which had protected carriers and crew from liability
for negligent ship management and navigation.
 It extends the time that legal claims can be filed to two years following the day the goods were
delivered or should have been delivered.
 It allows parties to so-called "Volume Contracts" to opt-out of some liability rules set in the
convention.
 It obliges carriers to keep ships seaworthy and properly crewed throughout the voyage. The
standard of care is not "strict", but "due diligence" (as with the Hague Rules).

DIFFERENCE BETWEEN GATT & WTO:

The General Agreement on Tariffs and Trade (GATT) covers international trade in goods. The
workings of the GATT agreement are the responsibility of the Council for Trade in Goods (Goods
Council) which is made up of representatives from all WTO member countries. The purpose of
GATT was to eliminate harmful trade protectionism. That had sent global trade down 65
percent during the Great Depression. By removing tariffs, GATT boosted international trade. The
agreement was designed to provide an international forum that encouraged free trade between
member states by regulating and reducing tariffs on traded goods and by providing a common
mechanism for resolving trade disputes. GATT membership now includes more than 110
countries.

GATT had three main provisions: The most important requirement was that each member must
confer most favored nation status to every other member. That means all members must be treated
equally when it comes to tariffs. It excluded the special tariffs among members of the British
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Commonwealth and customs unions. It permitted tariffs if their removal would cause serious
injury to domestic producers.

Second, GATT prohibited restriction on the number of imports and exports. The exceptions were:

 When a government had a surplus of agricultural products.

 If a country needed to protect its balance of payments because its foreign exchange
reserves were low.
 Developing countries that needed to protect fledgling industries.

In addition, countries could restrict trade for reasons of national security. These
included protecting patents, copyrights and public morals.

The third provision was added in 1965. That was because more developing countries joined GATT,
and it wished to promote them. Developed countries agreed to eliminate tariffs on imports of
developing countries to boost their economies. It was also in the stronger countries' best interests
in the long run.

That’s because it would increase the number of middle-class consumers throughout the world.

The World Trade Organization (WTO) is an intergovernmental organization that

regulates international trade. The WTO officially commenced on 1 January 1995 under
the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international
economic organization in the world. The WTO deals with regulation of trade in goods, services
and intellectual property between participating countries by providing a framework for
negotiating trade agreements and a dispute resolution process aimed at enforcing participants'
adherence to WTO agreements, which are signed by representatives of member governments and
ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous
trade negotiations, especially from the Uruguay Round (1986–1994). The WTO provides a
platform that allows member governments to negotiate and resolve trade issues with other
members. The WTO was created through negotiation, and its main focus is to provide open lines
of communication concerning trade between its members. For example, the WTO has lowered
trade barriers and increased trade among member countries. On the other hand, it has also

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maintained trade barriers when it makes sense to do so in the global context. Therefore, the WTO
attempts to provide negotiation mediation that benefits the international economy.

Once negotiations are complete and an agreement is in place, the WTO then offers to interpret that
agreement in the event of a future dispute. All WTO agreements include a settlement process
whereby the organization legally conducts neutral conflict resolution.

No negotiation, mediation or resolution would be possible without the foundational WTO

agreements. These agreements set the legal ground rules for international commerce that the WTO
oversees. When a member country signs an agreement, the government of that country is bound to
a set of constraints that it must observe when setting future trade policies. These
agreements protect producers, importers and exporters while encouraging world governments to
meet specific social and environmental standards.

How does the WTO differ from the GATT?

The WTO is not simply a continuation of the GATT; it has a completely different character. The
main differences are as follows:

• The GATT was a series of rules, a multilateral agreement without an institutional foundation and
with just an ad hoc secretariat, originating from the attempt to establish an International Trade
Organization in the 1940s. The WTO is a permanent institution with its own secretariat.

• The GATT was applied on a “provisional basis” even if, after more than 40 years of existence,
governments came to regard it as a permanent commitment. Commitments entered into under the
aegis of the WTO exist in their own right and are permanent.

• The GATT rules applied to trade in goods. The WTO covers not just goods, but also trade in
services and trade-related aspects of intellectual property rights.

• The GATT was originally a multilateral instrument but, towards the 1980s, several new
agreements of a plurilateral and hence optional nature were added to it. The agreements on which
the WTO is founded are almost all multilateral and therefore carry with them commitments to
which all Members have subscribed.

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• The WTO system for the settlement of disputes is faster and more automatic, and thus less
susceptible to blockages than the former GATT system. The implementation of the decisions
resulting from the WTO settlement of disputes will be better assured.

The WTO fulfils five essential tasks:

1. Administration of the new multilateral trade agreements.

2. Provision of a forum for fresh negotiations.
3. Settlement of disputes.
4. Surveillance of national trade policies.
5. Cooperation with other international bodies in drawing up of economic policies at the
global level.

GATT WTO

General Agreement on Tariffs

Full form World Trade Organization
and Trade

Year of creation 1948 1995

To strengthen international To govern GATT and

Purpose
trade. international trade practices.

No permanent structure or Has a permanent structure with

Framework
framework. a permanent framework.

Trade in goods; trade in

services and trade-related
Scope Trade in goods.
aspects of intellectual property
rights.

Has a permanent appellate Disputes are resolved faster as

Dispute resolution body to review findings and settlement system has a select
settle disputes. time frame.

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