CIF Contracts and Liability in Shipping

This assignment explores CIF (Cost, Insurance, and Freight) contracts within the realm of shipping law. It examines the responsibilities and liabilities of sellers under these contracts when goods are transported by sea. The focus is on analyzing potential scenarios involving loss or damage to goods during transit and understanding the legal framework governing seller liability in such situations.

Running head: CONTRACT LAW
Contract Law
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Answer 1:...................................................................................................................................2
Issue:......................................................................................................................................2
Relevant Rule:........................................................................................................................2
Analysis:.................................................................................................................................5
Conclusion:............................................................................................................................7
Answer 2:...................................................................................................................................7
Issue........................................................................................................................................7
Relevant Rule:........................................................................................................................7
Analysis:.................................................................................................................................9
Conclusion:..........................................................................................................................11
Reference List:.........................................................................................................................12

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Answer 1:
Issue:
In the case law that is provided the issue is whether Kanga Pty Ltd which is a
company situated in Brisbane has committed breach of contract by being unable to deliver the
100 tonnes of beef meat properly to Sing Pty Ltd due to unforeseeable circumstances and
under the CIF contract?
Relevant Rule:
Offer and acceptance are the core elements of a contract1. The offer should have been
made for a consideration and then the obligations of both the parties are decided. The parties
should also be competent to contract and they should also have the capacity2. These are few
of the basic elements which need to be kept in mind while forming a valid contract. Another
important thing that should be kept in mind while forming a contract is that any goods which
a seller is willing to sell should match the description which is made in the contract. A buyer
has every right to get only that product and also to pay for that product which they have
specifically ordered3. Even under the CIF rule it is the basic duty of the seller to make sure
1 Deep, Shumank, Deepak Singh, and Syed Aqeel Ahmad. "A review of contract awards to lowest bidder in
Indian construction projects via case based approach." Open Journal of Business and Management 5.1 (2017):
159-68.
2 Hughes, Will, Ronan Champion, and John Murdoch. Construction contracts: law and management.
Routledge, 2015.
3 Barnett, Randy E., and Nathan B. Oman. Contracts: Cases and Doctrine. Wolters Kluwer Law & Business,
2016.

3CONTRACT LAW
that the goods which are being shipped match to the description in the contract. In case the
goods do not match then the buyer has the right to not accept the goods and also claim for
damages.
Goods description also includes the date in which the goods are meant to be shipped
also including the packaging details. This basic rule was put down in the case of Manbre
Saccharine Co. Ltd v. Corn Products Co. Ltd4. The case dealt with selling of starch in 280lb
bags. The contract had specified that the goods will be delivered to the buyer in the proper
packaging but the goods were unfortunately shipped partly in 280lb bags and the rest in 140lb
bags which was against the terms agreed between the buyer and seller. The seller was of the
view that packaging does not form an essential element when it comes to description of
goods and also that this condition was not vital for the agreement5. The court on the other
hand was of the view that the seller could not escape this liability by saying that packaging
was not an essential part of the agreement and that it did not form an important part when it
came to description of goods. The court was also of the view that the seller was in breach of
their duties by providing goods in packages which were contrary to the description of goods
mentioned in the contract6.
Thus from the case mentioned above it can be inferred that description of the goods
whether it be in the form of packaging or any other form should be maintained by the seller.
4Chirelstein, Marvin. Chirelstein's Concepts and Case Analysis in the Law of Contracts, 7th (Concepts and
Insights Series). West Academic, 2013.
5 Lorenzon, Filippo, et al. CIF and FOB contracts. Vol. 5. Sweet & Maxwell, 2012.
6Rules, Local. "For Sale." Trustee 28 (2013): 148.

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Any provision regarding how the contract needs to be performed should be followed7.
Another case which can be referred to in this matter is that of Benabu & Co. v. Produce
Brokers Co. Ltd. This case deals with the sale of beans in bags arriving by a steamship. The
dispute arose when the steamship arrived much earlier which was before the contractual date
and dropped off the goods which was not known either to the buyer or seller. The buyer after
getting the knowledge accepted the necessary document but refused to take the goods as they
had not arrived on the appropriate date as mentioned in the contract. The court was also of the
view that the buyer had acted within their rights by rejecting the goods and that they could
claim the price which had been paid.
CIF contracts are one of the major exceptions to general rule mentioned in section 20
of the Sale of Goods Act8. Under the CIF contract once the property has passed and the buyer
has paid after which documents have been taken up, the goods are from that moment
considered to be the liability or risk of the buyer. From the time the goods have been shipped
the buyer is at the risk or liability for the mentioned goods. In case the contract is made
between the buyer and seller after the goods have been shipped then in that case the buyer is
at risk or responsible for the goods after the formation of the contract. This is done
retrospectively which means it is assumed that the buyer was responsible from the time of
shipment of goods. The buyer on the other hand to minimize the risk does have the advantage
of contract of carriage and also insurance policy which helps them to minimize the risk by
7 Bridge, M. G. "Documents and cif contracts." Amicus Curiae 1998.3 (2012): 4-6.
8 Genereuse, M. U. K. E. S. H. I. M. A. N. A. Liability of the Seller under CIF Contract in the event of loss or
damage to goods carried by SEA. Diss. 2015.

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claiming under the contract or policy any of the loss occurred or damages when the goods are
being shipped.
The Vienna Convention also has its applicability when it comes to the risks involved
in CIF contracts9. According to Article 67(1) of the Vienna Convention, if the seller shrugs
off the responsibility of delivering product despite the contract of sale that states carriage
facility, the risk completely falls on the buyer. In the other case where the seller has the
responsibility to deliver the product by carrier at a particular place then the risk only passes to
the buyer once the goods have been delivered by carrier to that certain place.
Article 67(2) of the Vienna Convention states that the buyer is free from risk until
unless the goods or products are clearly recognizable in the contract which means that the
goods can be identified either through any mark on the goods or can be identified by the
documents related to shipping or by giving some sort of notice or intimation to the buyer.
These are some of the Articles of the Vienna Convention which need to be kept in mind
while dealing with CIF contracts. Once these rules or Articles are kept in mind the risks
involved especially to the buyer minimizes.
Analysis:
In the present case Kanga Pty Ltd who were the sellers had to sell 100 tonnes of beef
meat to Sing Pty Ltd who were the buyers. The contract was made between the parties for
100 tonnes of beef meat. The goods were being dispatched by shipment under CIF rule. The
issue arose when the goods were on transit and a lightning struck the ship while it was
travelling to Singapore. The goods which were refrigerated got damaged due to the lightning.
9 Goldberger, Jeffrey. "Contract law in the cases: 2013 in review." Commercial Law Quarterly: The Journal of
the Commercial Law Association of Australia 28.2 (2014): 12.

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The goods once arrived at Singapore had 50 tonnes of beef meat which were damaged. There
were 50 tonnes of cheap kangaroo meat which were still in good condition. The question that
arose was whether Kanga Pty Ltd were in breach of contract with Sing as followed under CIF
rules.
The answer to the question is in the positive which means that Kanga Pty Ltd had
breached the contract. The discussion made above regarding the description of goods being
an essential element of any contract comes into play. The case of Manbre Saccharine Co. Ltd
v. Corn Products Co. Ltd illustrates clearly that if the goods mentioned in the contract and
agreed between the parties does not match the goods which arrive then the seller will be
considered in breach of their duties and the buyer can sue for breach of contract10. In the
present case Kanga Pty Ltd had failed to honor the terms of the contract as they had shipped
only 50 tonnes of beef meat. The agreement was for 100 tonnes of beef meat but Kanga Pty
Ltd had not done so. There were 50 tonnes of kangaroo meat which were in good condition
but that did not match the description of goods. The contract was for specifically beef meat
and not kangaroo meat. Thus the terms of contract were not met and the buyers Sing Pty Ltd
could sue for damages11.
10Rowan, Solène. Remedies for breach of contract: a comparative analysis of the protection of performance.
Oxford University Press on Demand, 2012.
11Johnson, Jeff S., and Ravipreet S. Sohi. "Understanding and resolving major contractual breaches in buyer–
seller relationships: a grounded theory approach." Journal of the Academy of Marketing Science 44.2 (2016):
185-205.

7CONTRACT LAW
Conclusion:
Thus it can be concluded from the analysis made above that as long as the basic
elements of contract are not met, in this case being description of goods not matching the
buyer has every right to sue for damages and claim their money back. Thus Kanga Pty Ltd
was responsible for the breach.
Answer 2:
Issue
In the case that is provided the issue is whether the carrier is liable to the shippers for
the damages caused and what are their liabilities?
Relevant Rule:
The present context draws attention toward Hague Visby Rules. The Hague Visby
Rules is the amended version of the original Hague Rule, known as International Convention
for the Unification of Certain Rules of Law Relating to Bill of Lading’12. It was drafted in
Brussels in the year192413. Officially the Hague Rules was known as ‘. These rules are part of
admiralty law governing the international carriage of goods by sea routes.. In 1968, the
original Hague Rules was slightly amended to make the laws applicable on the shipper and
carrier clearer and this amended version was termed as Hague Visby Rules. Most of the
countries follow these rules while dealing in maritime activities, especially while transporting
12 Clarke, Malcolm Alistair. Aspects of the Hague rules: a comparative study in English and French law.
Springer Science & Business Media, 2013.
13 Baatz, Yvonne, et al. The Rotterdam Rules: a practical annotation. CRC Press, 2013.

8CONTRACT LAW
of goods by sea routes. In context of Bill of Lading and other related documents which
determine the rights and duties of the contracting parties who are engaged in carriage of
goods by sea, the Hague Visby Rules will apply14. Rights and responsibilities that the shipper
and carrier generally have concern the present case. Before discussing about the rights and
responsibilities it is important to know who is carrier and how is it different from a shipper.
According to the rules, a carrier is a person or corporation who is the owner of the ship or is
charged with the carriage of goods by ship. Shipper, on the other hand, is a person or
company who is the owner or the supplier of the goods to be shipped. A shipper is the
consignor. The Rules contain articles which are followed by most of the countries to govern
their international carriage of goods by sea15. The Articles precisely mentions the rights and
responsibilities of the carrier and shipper. Firstly, the carrier is under obligation to make the
ship worthy of a journey. It is the duty of the carrier to check that the ship is capable to
complete a journey by sea. The carrier should ensure that all the parts of the ship are in best
condition and is prepared fully to undertake the journey on water. The hull of the ship should
be in proper condition, the crew should be well conversed with the charts and equipments of
the ship, the body of the ship should be mechanically safe and sound. The ship should be
loaded with trained crew who will be experienced enough to handle any kind of danger that
may arise in mid journey. Thus, the ship should be allowed to sail only when its
seaworthiness is proved before the beginning of the journey. Secondly, the carrier should
exercise proper diligence before starting the voyage. If a ship is not in a proper shape then it
possess several risks, especially damage to the goods that are being carried on the ship16. The
14Cooke, Julian, et al. Voyage charters. CRC Press, 2014.
15Aikens, Richard, Richard Lord, and Michael Bools. Bills of lading. CRC Press, 2015.
16 Mitchelhill, Alan. Bills of lading: law and practice. Springer, 2013.

9CONTRACT LAW
carrier is duty bound to take sufficient measures before starting a voyage. The carrier can
delegate his duty of due diligence to his subordinates but if the subordinates fail to complete
their tasks properly and the ship suffers damage because of this negligence, then the carrier
can be held liable by the cargo owner. This does not imply that the carrier will be held liable
every time a mishap occurs to the ship in mid journey. The Article states that before the
commencement of the journey, the carrier is under duty to take all the precautions and
measures required to make a ship seaworthy. Thirdly, the various parts of the ship which is
related to the receiving and carrying of goods should be in proper and good and condition.
The ship should be in fit shape to preserve the goods till the journey ends.
Analysis:
After a careful study of the rules, it is clear that the Hague Visby Rules have been
formed to govern the seafarers and to cover the rules and contract between the contracting
parties, that is, a carrier and a shipper17. In the present case, the carrier, ‘SS Pacific’ was hit
by the cyclone Debbie after it started its journey and the ship lost fourteen container carrying
abattoir equipments. The ship being hit by the cyclone resulted in all the damages in the first
place. A cyclone is an act of god and a carrier cannot know it from before. Therefore, the
carrier can claim exemption from his liability under Article IV of the Rules18. There is no
liability of the carrier if cyclone causes any damage but at the same time, the hull of the ship
developed cracks and water entered into the ship. The captain did not give enough time to the
ship to cure the defects that developed due to the natural calamity. This resulted in some of
17Damar, Duygu. "Breaking the Liability Limits in Multimodal Transport." (2013).
18 Baughen, Simon. Shipping law. Routledge, 2012.

10CONTRACT LAW
the defects going unnoticed19. The ship commenced its journey again without fixing the
defects. Thus, the captain is in fault of not taking proper measures before starting its journey
again. The carrier was not back in proper and fit condition for continuing the rest of the
journey. This resulted in large amount of water entering the ship during the trip. It further
caused damage by drowning 456 cattle. The fault and negligence of the captain of the carrier
in taking proper measures made the ship unworthy of continuing the journey further. Further,
the ship was also unable to protect itself from the attack of the sea pirates though the captain
tried to dodge and escape them. The evasive action of the carrier failed due to the large
amount of the water that entered into the ship and decreased its speed20. As the captain failed
to comply with his duties therefore he lost the livestock and cargo. The carrier is therefore
liable for the damages caused. According to Hague Visby Rules livestock and cargo which is
carried on the deck are exception to the definition of ‘goods’. The livestock is always
exempted from the definition of ‘goods’ under any circumstances. The same is not applicable
to the cargo. The words used in the definition specifically mentions that cargo which is
carried on deck is exception. The Bill of Lading and contracts mentioned the terms regarding
the livestock and cargo and excluded the carrier from any liability in relation to damage of
livestock and cargo. According to the Rules, any such terms of contract where the carrier is
discharged from its liability is null and void21. In this case, the carrier will not be discharged
19Reynolds, Barnabas WB, and Michael N. Tsimplis. Shipowner's limitation of liability. Kluwer Law
International, 2012.
20Zhao, Lijun. "Uniform seaborne cargo regimes-a historical review." J. Mar. L. & Com. 46 (2015): 133.
21Lempriere, Philip. "Developments in the Law of Common Carriage in Foreign Trade: Where Have All the
Cases Gone." USF Mar. LJ 27 (2014): 197.

11CONTRACT LAW
from any liability that may arise in respect of livestock and cargo because of the contract
signed between them which exclude the carrier from any liability in respect of livestock and
cargo. A carrier can be exempted from his liability only under the provisions of Article IV of
the Rules22. In the given case, only the abattoir equipments reached the port safely.
Conclusion:
Most of the countries are governed by the Hague Visby Rules when it comes to
international carriage of goods by sea routes. It also takes into account the terms and
conditions that are applicable on Bill of Lading and other related documents determining the
rights and responsibilities of the shipper and carrier. In the present case, therefore there is no
liability on part of the carrier for any damages caused to cargo or the livestock which is
carried on deck as they are not considered as ‘goods’ under the Rules. There lies no liability
of the carrier for the damages caused due to cyclone as it was an act of god and falls under
Article IV of the Rules dealing with circumstances under which the carrier can be exempted
from his liabilities. The carrier might be exempted under the above mentioned situations but
the carrier is responsible for the damages caused in the journey where the ship was not fit for
continuing the journey. The carrier instead of starting its journey with the defects should have
waited and devoted enough time to fix all the defects. Therefore, we can conclude that the
carrier is not responsible for the loss and damage to livestock but is responsible for the loss of
cargo caused by the increasing water in the ship and pirates.
22Patwari, Sumita. "Rotterdam and Hague-Visby Rules--A Comparative Analysis." Browser Download This
Paper (2014).

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Reference List:
Aikens, Richard, Richard Lord, and Michael Bools. Bills of lading. CRC Press, 2015.
Baatz, Yvonne, et al. The Rotterdam Rules: a practical annotation. CRC Press, 2013.
Barnett, Randy E., and Nathan B. Oman. Contracts: Cases and Doctrine. Wolters Kluwer
Law & Business, 2016.
Baughen, Simon. Shipping law. Routledge, 2012.
Bridge, M. G. "Documents and cif contracts." Amicus Curiae 1998.3 (2012): 4-6.
Chirelstein, Marvin. Chirelstein's Concepts and Case Analysis in the Law of Contracts, 7th
(Concepts and Insights Series). West Academic, 2013.
Clarke, Malcolm Alistair. Aspects of the Hague rules: a comparative study in English and
French law. Springer Science & Business Media, 2013.
Cooke, Julian, et al. Voyage charters. CRC Press, 2014.
Damar, Duygu. "Breaking the Liability Limits in Multimodal Transport." (2013).
Deep, Shumank, Deepak Singh, and Syed Aqeel Ahmad. "A review of contract awards to
lowest bidder in Indian construction projects via case based approach." Open Journal of
Business and Management 5.1 (2017): 159-68.
Genereuse, M. U. K. E. S. H. I. M. A. N. A. Liability of the Seller under CIF Contract in the
event of loss or damage to goods carried by SEA. Diss. 2015.
Goldberger, Jeffrey. "Contract law in the cases: 2013 in review." Commercial Law
Quarterly: The Journal of the Commercial Law Association of Australia 28.2 (2014): 12.

13CONTRACT LAW
Hughes, Will, Ronan Champion, and John Murdoch. Construction contracts: law and
management. Routledge, 2015.
Johnson, Jeff S., and Ravipreet S. Sohi. "Understanding and resolving major contractual
breaches in buyer–seller relationships: a grounded theory approach." Journal of the Academy
of Marketing Science 44.2 (2016): 185-205.
Lempriere, Philip. "Developments in the Law of Common Carriage in Foreign Trade: Where
Have All the Cases Gone." USF Mar. LJ 27 (2014): 197.
Lorenzon, Filippo, et al. CIF and FOB contracts. Vol. 5. Sweet & Maxwell, 2012.
Mitchelhill, Alan. Bills of lading: law and practice. Springer, 2013.
Patwari, Sumita. "Rotterdam and Hague-Visby Rules--A Comparative Analysis." Browser
Download This Paper (2014).
Reynolds, Barnabas WB, and Michael N. Tsimplis. Shipowner's limitation of liability.
Kluwer Law International, 2012.
Rowan, Solène. Remedies for breach of contract: a comparative analysis of the protection of
performance. Oxford University Press on Demand, 2012.
Rules, Local. "For Sale." Trustee 28 (2013): 148.
Zhao, Lijun. "Uniform seaborne cargo regimes-a historical review." J. Mar. L. & Com. 46
(2015): 133.