Generally, in cases involving non – conformity with the obligations of the sale contract or any breach of the obligations; the seller is liability even after the risk has been passed to the buyer. If the seller provides that the goods will remain fit for normal usage or specific usage, then he bears the liability. Similarly, if he guarantees that the goods will retain their specified qualities or characteristics, then also he will be held liable. Under the provisions of Article 38, the buyer can examine the goods in the shortest possible period for any damage caused to them under some specific conditions.
However, the CISG does not specify the period in which the buyer can examine the quality of the goods. This gives rise to jurisprudential controversy and ambiguity. In international business transactions, precision regarding time is imperative, because, it provides safety and stability to international trade. A time limit is very important for both the buyer and the seller. In its absence, there will be an opportunity for the buyer to retain the right to indefinitely claim against the seller, in respect of conformity of the goods .
In B. P. International Ltd. v. Empresa Estatal Petroleos De Ecuador , the buyer refused to accept delivery of goods on the pretext that the goods did not conform to the specifications mentioned in the contract. The contract requited the goods were to be delivered CFR after being subjected to a pre – shipment inspection for conformity. The US Fifth Court of Appeal held that the goods had to be inspected for compliance with the contractual obligations, much before the passing of risk to the buyer when the goods were shipped.
The Court of Appeal further held that in the event of damage or loss of goods the general principle applies which provides that the buyer can sue for compensation from the carrier or from the insurer of the goods . There is considerable difficulty in dealing with the legislation of the different countries, in determining the liability that leads to the exclusion of the passing of property. Moreover, the subject of liability extends to areas that fall outside of the contract law. The Convention regulates several related matters in this regard.
It covers the obligation of the sellers to deliver goods without any claims being preferred by third parties . It also covers the passing of risk principle . The contract usually regulates the passing of risk, by containing express conditions for the passing of risk or it can regulate the same by using trade related terms and conditions. The Convention provided certain rules in its Articles with regard to sale of goods. Article 67 provides a primary rule for cases that involve transportation in sale of the goods. Article 68 provides a special rule for goods in transit that have been already sold.
Article 69 provides for a residual rule for other types of cases. Under the provisions of these articles, passing of property cannot be correlated to the passing of risk. This is because the passing of property is an essential feature of the international sale of goods . Article 68 deals with the goods in transit or in the custody of the transporter. This provision raised substantial controversy at the Vienna Convention, and the UNCITRAL draft proposed that the risk should be passed at the time of handing over the goods to the carrier retroactively.
This draft was opposed by the developing countries on the grounds that it puts the risk on buyer before the buyer had entered into the contract of sale . The general trade policy requires the seller to bear the risk until the goods are handed over to the buyer. In other words, the seller bears the risk as long as he controls the goods. Moreover, the seller will not be in a better position; and he cannot provide protection to the goods in transit; he cannot insure the goods on the grounds that they are in transit and he cannot pursue any claims arising out of the transit of the goods.
This policy maintains that the buyer should bear the risk upon the receipt of the goods or from the time of his taking over the goods from the carrier . In Sterns v Vickers, a sale of undifferentiated part of bulk situated in a warehouse transpired between the parties. The seller provided a delivery order to the buyer, which entitled the latter to collect the relevant quantity. Some provisions of Article 69 did not apply to this sale contract, because the risk should pass wholly at once. However, paragraph (3) of Article 69, suggested that the risk would not pass until the identification of the goods .
This conflict arises because of the oversight in drafting the provisions of the Convention. Article 98(3) of the ULIS addresses this problem in a better way by holding that if the unascertained goods do not permit their partial segregation by the seller, until the buyer takes delivery, then what is required of the seller is to perform such acts as will enable the buyer to take delivery. ” The Vienna Convention does not thoroughly cover the risk of loss in its Articles 66 – 70. Passing of risk from seller to buyer is essential in the relationship between them and covers the distribution of tasks, costs and risk of loss of goods.
Moreover, it plays a fundamental role in international trade. The CISG does not provide a clear definition of the terms relating to the shipment of goods. According to Article 66 of the CISG, the buyer is under an obligation to pay the cost of the goods after the risk passes to him. He has to pay for the goods even if they have deteriorated or have been destroyed. However, if the damage or the loss of goods was due to an act or omission by the seller, then the buyer is not required to pay for the goods.
Under this Article, the obligation to pay for the goods remains intact, immediately after the passage of risk to the buyer; and the buyer has to make payment, even when the goods are lost or damaged . Under, Article 66, the buyer cannot compel the seller to rectify the defects or to provide alternatives for the lost goods. Prior to the passing of risk to the buyer, the seller does not have any right to claim payment of the price of goods if they have been lost or damaged. Prior to the passing of risk, if the unascertained goods are damaged or lost, then the seller is required to repeat the delivery or rectify the defects.
Very importantly, Article 6 permits the parties to the contract to derogate from the principles of the Vienna Convention. This general rule also applies to Articles 67 and 68. As such, Article 67 of the CISG deals with the passing of risk in contracts of sale of goods that entail the carriage of goods. Under this rule, the risk of loss immediately passes to the buyer when the seller hands over the goods to the transporter, unless the transporter happens to be someone within the seller’s business.
Under Article 67(2), if the goods are not specifically mentioned in the contract, then the risk does not pass to the buyer . In the international sale of goods, the goods are transported from one nation to the other. The sale contract may require the seller to provide transportation for these goods. Such transportation usually involves a third party, which may exclude both the buyer as well as the seller. In such contracts, if there is no obligation on part of the seller, which requires him to handover the goods at a pre – specified place, then the risk passes to the buyer.
The responsibility of the seller ends when he hands over the goods to the first carrier of the goods, under the terms of the sale contract. The risk does not pass to the buyer until the goods are handed over to a transporter at the place specified in the contract. Article 69 governs this process by applying the residual rule that the risk automatically passes to the buyer upon receipt of the goods. The Article proposes that risk should invariably pass at the time when the transit of the goods commences.
This is because the buyer will always be in a safer position than the seller and can assess any damage or deterioration during their transportation. The buyer can claim compensation on account of his superior position . According to Article 36 CISG, the seller is held liable if there are any damages or defects in the goods before the passing of risk to the buyer. There is ambiguity with regard to the proof of burden on the parties because the article does not clearly state which party to the contract bears the responsibility for the risk .
“It is relevant to know from what point there must be a judgement of conformity or lack of it, of the goods as to the seller’s liability . ” From the foregoing, it is evident that the passing of risk is not adequately addressed by the provisions of the CISG.
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