Assignment on Law of International Trade

International trade Law

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Memo stating the comparison between FOB and CIF contract of carriage.............................1
2. Case of Hamzeh Malas and Sons V. British Imex Industries Limited [1958].........................5
CONCLUSION................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
International trade laws are those set of provisions, rules and regulations that provide
guidelines to those business organisations that are performing their business activities at
international market. World trade organisation is a corporation that has been formed for the
purpose of formation of a range of laws to be followed by the companies in order to trade at
global lavel. These laws are being formulated in order to maintain competency and fair trade
among companies trading beyond their geographical boundaries. The international trade laws
contain a range of rules that a global company needs to comply with. Further, non compliance of
any provisions mentioned in the international law may lead in attracting penal provisions over
the defaulter company. In other words, it can be said that international laws are nothing but a set
of rules that are being made for the purpose of governing commerce between countries at
worldwide.
The present assignment contains a memo prepared by a legal advisor showing description
of difference between CIF contract and FOB contract made for the international trading purpose.
It also advise the best contract to be made by the company in order to enter into an agreement of
consignment. Further, the study provides information regarding arrangement of payment via
documentary letter on credit. The description about it is being provided on the basis of a pre
decided case i.e. a common law.
MAIN BODY
1. Memo stating the comparison between FOB and CIF contract of carriage.
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To, - The English Biscuit Manufacturers
Subject - A memo showing difference between two methods of shipping the goods i.e. FOB
and CIF.
his is to improve your understanding of the client regarding the two major methods of
the company. In order to make international transactions, it is required to ship the goods so that
the goods could be transported to international clients. As the English Biscuit Manufacturers
have entered into the contract with Marriott Hotel, Lagos, Nigeria, regarding consignment of
comprising 100 carton of biscuits, the company would be needed to ship its biscuits so that they
could be transported to Marriott Hotel safely. As per the provisions of international trade law,
there are two different methods for entering into contract namely FOB and CIF contract. Both
methods are different from each other. Further, contains different legal requirements to be
fulfilled while entering into contract 1. The difference between these types of contracts can be
analysed as under:
You must know that CIF contracts are cost insurance and freight contracts that makes
seller to be liable to bear the cost of goods, insurance charges and freight charges as well 2. On
the other hand, FOB contracts refers to free on board contracts. In this type of contracts, the
price of product or goods delivered to customer includes each and every expenses made by the
seller until they have been loaded to the board and delivered to customers. Thus it can be said
that the FOB contract makes the product inclusive of all the costs such as transportation
charges, packing, documentation charges, loading cost, etc. On the other hand, under CIF
contracts make the product inclusive of free on board charges and amount paid by the seller for
marine insurance.
Also, be aware that CIF contracts are more commonly and commonly used contract for
international trading purpose. Generally parties entered into CIF contracts when they enters into
a sea borne business contract. When parties to the contract enters into a CIF contract, the seller
is deemed to be responsible for making arrangement regarding carriage and insurance of the
goods transacted. In addition, as per the provisions of CIF contracts mentioned in the
1 Alavi, H., 2018. Delivery terms in transport process of export trade and their effect on the
risk of discrepancy in documentary letters of credit; evidence from Estonia.
2 FOB vs CIF | Difference between FOB and CIF. 2019. [Online]. Available through :
<https://accountlearning.com/fob-vs-cif-difference-between-fob-and-cif/>.
2

international trade laws, the contract price would be set inclusive of cost of arrangements made
by the seller.
It is informed to you that FOB can be termed as one of the traditional method of
contract used for international trading purpose. As per the provisions mentioned in the
international trade laws rgarding FOB contract, it can be said that the liability of bearing cost of
placing goods on board and shipping the goods to the clients along with the cost of insurance is
needed to be beared by the seller. Further, the provisions of FOB also states the seller is
responsible for the goods untill the goods have been shipped to the customer safely 3.
Talking about the risk factor included in the of these contracts which you may enter for
international transaction, in the CIF contracts, seller is liable to bear all the expenses of the
transaction 4. Further, the seller is also deemed to be liable to bear the risk of goods until the
products are being shipped on the board. On the other hand, under FOB contracts,buyers are
held liable for bearing all the expenses and risk of transported goods as well. Further, all the
risks of loss or theft are being transferred to the buyer in case of FOB contract. Whereas, the
risks of loss of goods is being kept with the seller until the goods have been reached in the
hands of buyer.
Along with the t is informed to you that contract of sale, the seller also enters into the
contract for carriage and contract of affreightment with the owner of ship. Another contract in
which the seller needs to entered under CIF contract is contract of insurance. These contracts
3 FOB vs CIF: What's the difference? Which is better?.2019. [Online]. Available through :
<https://transferwise.com/us/blog/fob-vs-cif-difference>.
4 McKenzie, A.M., Isbell, B.J. and Brorsen, B.W., 2019. The cost of forward contracting in
the CIF NOLA export bid market. Journal of Agricultural and Applied Economics, 51(1),
pp.164-181.
3

are termed as secondary contracts. On the other hand, in case of FOB contract, no other contract
other than the contract for sale of goods are being formulated by the parties to the contract.
Looking towards the your right of lien, it can be said that in case of FOB contract, as all
the risks are being transferred to the buyer, the seller does not contain any right to lien the goods
on transit. On the other hand, in case of CIF contracts, the buyer have right to lien the goods in
transit in case the buyer fails to pay the price of product or make any another mistake while
performing his part of performance, the seller have right to lien the products on transit.
Further, these contracts also differs from each other on the basis of shipping space.
Under, FOB contracts, the buyer of the product are liable to book all the charges and expenses
that are necessary to be made in order to keep the goods on board such as boarding charges,
insurance charges, freight charges, warehouse expenses, etc. On the other hand, seller does all
the tasks relating to keeping the goods on board and bear all the expenses as well 5.
Thus, it can be said that in case of FOB contracts the seller makes all the arrangements
for you for the goods regarding their shipping and transportation 6. On the other hand, under
CIF contracts all the arrangement for products including their boarding, insurance,
transportation, warehousing, etc. are being done by the buyer himself. In addition, the seller
does not have any liability towards the goods after transportation of goods from his warehouse
for selling purpose. Therefore, it can be said that under FOB contracts, all the responsibilities
are transferred from the hands of seller to buyer 7. Where as, in CIF contracts, the seller keeps
liable for the products until they being transported to buyer, as the risks are not transferred to
the buyer under this contract.
With presenting the clear definitions and understanding of FOB and CIF contract to you
under the international trading the management of the British Biscuit manufacturing limited it
can be stated that for international trade both CIF and Fob contract selection depends on the
longevity of the trade relation among partiers and the risk related with the consignment 8. For
5
Ramiah, V. and et.al., 2019. The effects of recent terrorist attacks on risk and return in
commodity markets. Energy Economics, 77, pp.13-22.
6 Sangaiah, A.K. and et.al., 2019. Robust optimization and mixed-integer linear
programming model for LNG supply chain planning problem. Soft Computing, pp.1-21.
7 Linsi, L. and Mügge, D.K., 2019. Globalization and the growing defects of international
economic statistics. Review of international political economy, 26(3), pp.361-383.
8 Bossley, L., 2018. Futures are looking up. The Journal of World Energy Law &
Business, 11(5), pp.375-386.
4

the new traders in the field of international trade it is advised to go for CIF contract as the
buyers is unknown of the conditions is delivery of the trade and transitions as well. So it is
better to go for CIF contract as it includes the cost of insurance and fright in the bill but this
secures the goods and products and ensures its delivery to the buyer safety. Also, the buyer of
the goods do not require to bear the risk and loss in any in the transit as the responsibility is
upon the seller and if any ,loss is incurred the buyer is secures towards the insurance cost, this
directly reduces the work and complexity of a the global business transaction of the purchaser.
Hence, for the new traders in the international business transaction it is suggested to go for CIF
contracts of buying and selling.
You may understand that under the CIF contract the seller is responsible for the cost of
the whole goods which are being transported and seller gets the goods insured and pay the fright
as well which are charged for the delivery of the goods to chosen destination of the buyers.
However, under the FOB contract the control of the goods and cost is with the buyer, where
buyer is responsible for the cost and all the risk associated with the goods which are being
transported to the destination of their delivery. Under this contract buyer have a duty to get
insured the shipment and handle the importation processing along with paying of the import
duties. So all the responsibilities of good after leaving the destination seller falls on buyers from
the transportation of goods, in transit risk, importation formalities and paying of cost of
insurance and freight. Rather, under the CIF contract the responsibility of buyers is nil and
seller is responsible for the whole process of sending goods and delivering it to the buyer safely.
One of the crucial matter for selection of FOB and CIF contract directly depends on the
taxability and duty imposition of the value of good so imported in a nation. The custom
department of a nation use the FOB or CIF vale of the contract as a valuation method for
determination of the taxable value of the goods imported from a foreign nation. Generally the
cost under the CIF value s higher in the bill as cost of insurance and freight is inclusive in total
cost, therefore tax amount that is import duty will automatically will be higher in CIF contract
and valuation method.
The recommendation are presented to you that as the mangers of English Biscuit
Manufacturers, that as they are entering in this much large contract in global trade for the first
time they must go for CIF contract 9. Though this will increase their import duty and taxation
vale but for the first time it is essentially enter into CIF contract as it the business is not aware
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of the risk associated with goods and also the conditions that prevails while transporting goods
from seller. Hence, it is advisable to The English Biscuit Manufacturers that they must go for an
CIF contract rather than entering into a FOB contract with the seller, in order to secure the risk
and getting familiar with the international business before going into FOB contracts.
2. Case of Hamzeh Malas and Sons V. British Imex Industries Limited [1958]
Hamzeh Malas and Sons V. British Imex Industries Limited [1958]
Parties to case:
Hamzeh Malas and Sons [Plantiff]
British Imex Industries Limited [Defendant]
Facts related to case:
The Jordanian firm, who is plaintiffs, contracted with defendants for purchasing, a large
quantity from British firm of reinforced steel rods, which was to be delivered in two installments
The payment was to made by after confirmed letter of credit was presented to the Midland bank
in favor of defendant, one regarding each installment. The bank accepted the both letter of credit
and the defendant realized the first installment after delivery of goods. For the first installment
plaintiffs complained that goods were defective and sought remedy to bar the defendants from
realizing the second letter of credit through an injunction. Donovan J. who heard the case for first
time refused the application by stating that he has no jurisdiction. The plaintiffs appealed to the
court of appeals and it was held, that although the court under a jurisdiction had a power to grant
injunctions, this case not related to on in which discretion can be exercised. It is required to do
so; an detailed commercial group had been set up on the stating that a confirmed letter of credit
established a deal between the banker and the seller of the commodities, which is obligatory
upon banker and put an absolute responsibility to pay, regardless of whatsoever dispute might be
emerges between the parties whether the goods were up to contract or not.
Issues raised in the case and the reasons provided by judges for giving there judgment:
Application of Injunction in court:
9 Mulangu, F., 2018. The Poverty Impact of Modernising Dar es Salaam Port1. TRADE
AND POVERTY REDUCTION, p.84.
6

The first issue raised in this case was related to granting of injunction order for which
application was made by plaintiff Hamzeh to stop the payment due to the defendant over the fact
that first instalment of the steel rod was found defective by plaintiff.
Donovan J to who injunction application was made rejected on the basis that he does not
have a jurisdiction to give an order over such transaction, upon this a plaintiff made an appeal to
the Court of Appeal against the refusal by Donovan J over not granting injunction order.
The judge Donovan J, presented the importance of letter of credit for the seller to realise
the amount of classes proceed under internationals sales contract. The plaintiff in this case made
an appeal to the court over the fact that the goods under received under first instalment were
defective and an injunction order must be granted to retrains the defendant from realising the
amount 10. The cost stated that it has a wide power to grant an injunction order to stop defendant
from releasing the amount of second instalment out of the whole amount. It was also stated that
plaintiff was given a right under the trade contract that he can repudiate and he did repudiated.
Here the plaintiff was not seeking to withdraw amount form Mid Land bank rather restrain the
defendant form realization of the amount of second instalment, the court was to decide the case
subject to any terms which the court seem fit to be imposed on defendant or to the case. The
liability of the bank will not change in any circumstance to pay of the defendant sooner or latter.
to stop the payment for second consignment to the defendant on the fact that goods in first
consignment were found to be defective. The decision of this case was not a case which was
exercised on discretion rather it was required to do so under an expanses commercial system
which was built upon the facts the documentary credit contains a bargain power among the
banker and the seller of the goods which imposes an absolute obligation upon banker to pay off
the vendor, irrespective of any dispute which might arise between parties whether the goods
were up doe sales in contract or not. In t this case it was seen that a vendor of selling goods and
commodities against a confirmed documentary credit is selling under the assurance that nothing
can stop him for receiving the payment for the goods sold by him and get the prices of his
products.
Appeal to the Court of Appeal for getting injunction order:
Dispute among parties and validity of letter of credit:
10 Mulangu, F., 2018. The Poverty Impact of Modernising Dar es Salaam Port1. TRADE
AND POVERTY REDUCTION, p.84.
7

In the court of appeal the decision was as not given as injunctions for resisting payment
of second instalment form the Mid land Bank where the letter of credit was drawn. Upon this a
argument was presented on behalf of the defendant that the whole concept of the letter of credit
for securing the payment under international trade contracts will be ruined and get wrecked.
Jenkins L.S, stated that defended have entered into a sales contract with plaintiff and the bank
that if proper documents are presented to bank, it has no right to refuse the payment on
presentation of the documents. Moreover, it was stated by the Jenkins L.S. members under court
of appeal that when first consignment of steel roads was received by plaintiff they were in
accordance to plaintiff and by no means up to the contract quality and other criticism were made
by plaintiff. The judges here stated that this is a matters of an issue of between the parties and
bank do not have a concern with the dispute among parties to international trade contract 11. For
such things the plaintiff is required to secure themselves regarding any damages which can found
to be entitled to when there is dispute among the parties. The point here raised by the court is that
the dispute is mere between parties to contract and bank is their party who is only involved for
making payment on presentation of proper documents. Judges present the reasons as, in this case,
if there is a dispute the bank is not involved the parties must resolve them by some other manner
but restraining payment is not one of them and seeking an injunction order against bank is not a
remedy against defendant12. The bank here is responsible to make payments upon presentation of
proper documents as per the contract terms of letter of credit.
Justice Lord Seller presented the facts related to the documentary credit which is part of
international trade transactions. One of the necessary characteristic of the international trading
system is letter of credit by the banker to realize payment for international sales. When there is a
clear fraud, then it is the only exception and the bank has had notice of the same 13. In the
international trade, letters of credit plays an essential role. Various factors made its function
necessary. Nowadays trade, because of international component, the transportation of goods
take many months or days. A hand by hand payment cannot be exercised, Particularly when
11 Huuhka, H., 2019. EFFECTIVE USE OF INCOTERMS IN THE CASE COMPANY.
12 Clean bill of lading. 2019 [Online]. Available through : <
https://www.jstor.org/stable/1091360?seq=1#page_scan_tab_contents>.
13
HAMZEH MALAS & SONS v. BRITISH IMEX INDUSTRIES LTD. 2019.
[Online]. Available through : < http://www.uniset.ca/other/cs3/19582QB127.html>.
8

goods are transported by sea, the insecurity regarding reaching of the goods is high and the
payment for goods sold is also doubtful and the seller necessarily require securing payment
before taking such risk of international trade. One of the crucial method is through the letters of
credit. The cost of goods under international trade can be made through opening an account or
issuing bill of exchange or by documentary bill and through a letter of credit 14. The vendor, in
order to accept a particular way of payment, is required to consider certain factor which includes
risks involved in transaction, the time period of payment term, the currency strength of the
country involved, competition in merchandize or geographic market, goodwill and loyalty of
customer. There are various forms of payment to seller under international sales contract and
one of the most secured is considered to be letter of credit and this case have made the security
of the seller more prominent while entering to a sales contract with trader of another nation.
The decision of the court of appeal in this case it was made clear that the seller rights
against payment are protected and in no case the payment can be refrained until there is detection
of fraud in sales transaction or on behalf of the consumer. Justice Lord Seller, under court of
appeal in stated the reason behind rejecting the appeal of injunction by plaintiff to stop payment
to defendant, made it clear that seller can realise the payment for sales of goods under global
trade presenting proper documents to the bank and can realize its payment15. There is on concern
that party to contract are under any dispute for the bank its major concern is that complete and
required documents are presented to it as per the sales contract and bank will release the payment
contract. In this regard it has also been identified that a lag or omission in presenting the
document can restrain payment to seller so one of the essential requirement of international sales
contract is that the seller is required to file all the documents as per the terms stated in contract
by buyer as well the beneficiary bank.
However, Lord Justice Pearce agreed to both Seller and Jenkins be stated that as per the
decision given by the judges in the court of Appeal of this case the sellers of good and services
under global sales contracts are protected against disputes form the buyer and can get their
payment easily by meeting the requirement of contract where it is required to file the documents
to the bank to release the payment for the sales of goods or services. Apart form this the fact is
14 Mulangu, F., 2018. The Poverty Impact of Modernising Dar es Salaam Port1. TRADE
AND POVERTY REDUCTION, p.84.
15 Oglend, A. and Straume, H.M., 2019. Pricing efficiency across destination markets for
Norwegian salmon exports. Aquaculture Economics & Management, 23(2), pp.188-203.
9

also established that s the internal sales transactions do not get effected by the dispute between
the parties regarding the payment to seller 16. This means that if a dispute arises among the party
regarding terms of contract or quality of the goods, the buyer in no case can stop the payment to
seller form the bank provided that the seller have submitted all complete and proper document to
the bank and the bank will immediately make payment to seller on behalf of buyer, for sales of
the goods to purchase 17.
In this case it was seen that the seller here is protected through the doctrine of strict
compliance where the under the international trade contracts. In this case of the court stated that
a for a dispute between seller and buyer the role of bank for making payment remained
unaffected and it will make payment irrespective of the appeal made by plaintiff to bring an
injunction order to refrain defendant to take payments 18. This case established a mile stone for
the international trading transaction that whether or not parties to dates contract are satisfied with
each other regarding trading terms if the bank is presented with proper documents the seller
becomes eligible to realise the payment of the good sold by it.
CONCLUSION
From the above report it can be concluded that FOB and CIF are two different methods
for entering into contracts under international trade agreements. These both can also be defined
as the method of determined the total cost of the bill for the goods exported to or imported under
global trade arrangements. On one hand CIF contracts means the contract prices of sales of
goods and commodities includes the responsibility of seller over the risk of goods which
includes the insurance and frights charges. Here in this type of contract the responsibility of
seller ends when goods are handed over to the buyer. On the other hand FOB (free on board)
contract follows the traditional method under international trading methods. Under this the cost
of goods ado not includes the cost of insurance and fright rather it is born by the buyer. The
responsibility of sellers when goods are shipped to the costumer safely for the in transit loss of
damages seller do not bear any responsibility. Fore this it is recommended to the buyer that is
The English Biscuit manufacturer that for the international trade arrangement it is better to enter
16 Integrity, G.F., 2018. A Scoping Study of Illicit Financial Flows Impacting Uganda.
17 de LT Oliveira, G., 2018. The battle of the beans: How direct Brazil-China soybean trade
was stillborn in 2004. Journal of Latin American Geography, 17(2), pp.113-139.
18 Konstantin, P. and Konstantin, M., 2018. Overview of Energy Markets and Prices.
In Power and Energy Systems Engineering Economics (pp. 109-131). Springer, Cham.
10

in CIF sales contract where seller is responsible to deliver goods to buyer safely though the cost
is bit higher but the goods delivery is ensured.
Furthermore, in the case of Hamzeh Malas and Sons V. British Imex Industries Limited it
has been evaluated that while entering into international trade agreement one of the important
document is letter of credit upon which whole of the payment related to trade agreement is
based. In this context the seller is required to determine the terms of documentary credit very
carefully to receive the payment as in this given case buyer to release the payment form bank
upon the equality of earlier consignment of steel roads. Moreover it is determined that the
doctrine of strict compliance in credit states that banks are bound to pay the beneficiary the
amount due under the credit on the presentation of documents which are mentioned in letter of
credit.
11

REFERENCES
Books and Journals
Alavi, H., 2018. Delivery terms in transport process of export trade and their effect on the risk of
discrepancy in documentary letters of credit; evidence from Estonia.
McKenzie, A.M., Isbell, B.J. and Brorsen, B.W., 2019. The cost of forward contracting in the
CIF NOLA export bid market. Journal of Agricultural and Applied Economics, 51(1),
pp.164-181.
Sangaiah, A.K. and et.al., 2019. Robust optimization and mixed-integer linear programming
model for LNG supply chain planning problem. Soft Computing, pp.1-21.
Linsi, L. and Mügge, D.K., 2019. Globalization and the growing defects of international
economic statistics. Review of international political economy, 26(3), pp.361-383.
Ramiah, V. and et.al., 2019. The effects of recent terrorist attacks on risk and return in
commodity markets. Energy Economics, 77, pp.13-22.
Bossley, L., 2018. Futures are looking up. The Journal of World Energy Law & Business, 11(5),
pp.375-386.
Mulangu, F., 2018. The Poverty Impact of Modernising Dar es Salaam Port1. TRADE AND
POVERTY REDUCTION, p.84.
Oglend, A. and Straume, H.M., 2019. Pricing efficiency across destination markets for
Norwegian salmon exports. Aquaculture Economics & Management, 23(2), pp.188-203.
Integrity, G.F., 2018. A Scoping Study of Illicit Financial Flows Impacting Uganda.
de LT Oliveira, G., 2018. The battle of the beans: How direct Brazil-China soybean trade was
stillborn in 2004. Journal of Latin American Geography, 17(2), pp.113-139.
Konstantin, P. and Konstantin, M., 2018. Overview of Energy Markets and Prices. In Power and
Energy Systems Engineering Economics (pp. 109-131). Springer, Cham.
Huuhka, H., 2019. EFFECTIVE USE OF INCOTERMS IN THE CASE COMPANY.
Online
FOB vs CIF | Difference between FOB and CIF. 2019. [Online]. Available through :
<https://accountlearning.com/fob-vs-cif-difference-between-fob-and-cif/>.
FOB vs CIF: What's the difference? Which is better?.2019. [Online]. Available through :
<https://transferwise.com/us/blog/fob-vs-cif-difference>.
HAMZEH MALAS & SONS v. BRITISH IMEX INDUSTRIES LTD. 2019.
[Online]. Available through : < http://www.uniset.ca/other/cs3/19582QB127.html>.
Clean bill of lading. 2019 [Online]. Available through : < https://www.jstor.org/stable/1091360?
seq=1#page_scan_tab_contents>.
12

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