Commercial and Physical Risks in CIF contracts

The ultimate risk in the current contract is damage and loss to goods, along with delivery problems at sea (Bridge, 2007). Under the CIF contract principles, this may constitute fundamental breach of contract and entitle a buyer to terminate the contract and thereby justify non-payment (Bridge, 2007). Alternatively, it is evident that on a strict interpretation of CIF contracts, the tendering of agreed shipping documents (if including the insurance documents) means that the risk in a shipment would have been with the buyer.

As such, this means that the buyer will most likely have to make payment and rely on the terms of its insurance to recover for any consignment lost in transit. Additionally, if the potentially damage and loss was is not caused by the Seller and was caused after shipment when the risk had passed and the loss was caused by the carrier vessel and not the Seller’s breach of contract, the buyer would be unlikely to avoid payment for the shipment and the more appropriate method of recourse will be against the carriers (Wilson, 2007).

Moreover, the carriage of the goods by sea is also regulated by the provisions of the Carriage of Goods by Sea Act 1971. Under this Act, every contract of carriage which is covered by a bill of lading is subject to the provisions of the Hague-Visby Rules (“the Rules”). The Rules set out the liabilities and responsibilities of parties under these contracts. Under the Rules, the carrier will be liable to a buyer for the loss to the goods. Under the Carriage of Goods by Sea Act 1971, if the carrier issues the bill of lading to the consignee of goods, the carrier is liable for any damage to the goods.

Additionally, in CIF contracts there is a separation of risk and the passing of property as in CIF contracts the risk passes on shipment and in the case of Biddel Brothers v E Clemens Horst ([1911] KB 934)it was asserted that “the goods are at the risk of the buyer at the time of shipment, against which he has protected himself by the stipulation in his CIF contract that the seller shall, at his own cost, provide him with a proper policy of marine insurance intended to protect the buyer’s interest and available for his use if the goods should be lost in transit”.

It is important to also mention that a buyer under a contract may also have rights regarding damaged goods under common law provisions and the Sale of Goods Act 1979. 4. Scheduled Arrival Date in Manzanillo As the estimated sailing date in the contract is the end of January 2009, the ship closest to this date is the Fedora, which leaves on the 31 January 2009 and arrives on 14 February 2009 (www. 2wglobal. com).


Michael Bridge (2007). The International Sale of Goods: Law and Practice. 2nd Edition Oxford University Press. Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. G H. Treitel. , (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. Ewan McKendrick, “Contract Law”, 5th Edition (2003), Palgrave Macmillan D’Arcy, L. Murray, C, and Cleave B (2000). Schmitthoff’s Export Trade “The Law and Practice of International Trade”, Sweet and Maxwell.