CIF Contract and International Trade Law

The assignment delves into the CIF (Cost, Insurance, and Freight) contract, emphasizing its significance in export transactions. It examines the contract's role in governing sea shipments, required documents, and knowledge essential for navigating international trade complexities. The document also highlights legal aspects and precedents related to CIF contracts, illustrating their importance in ensuring fairness and clarity within international commerce.

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LAW
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LAW
Introduction
A seller of goods here being Lim's Lorries Ltd is bound to the contract and is required to
perform certain requirements such as making out of invoice of the goods sold. The seller is also
supposed to ship the goods at the exact port of shipment and the goods shipped should be as
described in the contract.1 The seller is also responsible in procuring a Contract-of-Carriage
showing how the goods will be delivered to the agreed destination as shown in the contract. It is
also the responsibility of the seller to make insurance arrangements documents of the goods
being shipped on behalf of the buyer. The seller is also required to dispatch relevant documents
to the buyer such as the invoice, the insurance policy and the bill-of-lading for which in their
arrival will he claim payment.2 (Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers
Ltd. [1954] 1 AER 779). 3 The transfer of property and risk is seen in the Bill-of-lading whereby
the Bill-of-Lading is transferred to the Buyer to give issue the Property Rights in the goods as
well as all Rights in the Carriage Contract during the whole time of shipment and the goods will
be at the Buyer’s Risk (Hansson v Hamel & Horlev Ltd. [1922] 2 AC 36).4
1 Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers Ltd. [1954] 1 AER 779
2 The Thrunscoe [1897] p 301
3 Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers Ltd. [1954] 1 AER 779
4 Hansson v Hamel & Horlev Ltd. [1922] 2 AC 36

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In this case, Lim's lorries Ltd as the seller can hold the Carrier liable for the loss of the
250 lorries that were jettisoned during shipment and claim to be compensated because under s.4
CGSA 1992, it is clear the Carrier had a B/L and this is evident. The B/L that the carrier was
issued had specific information regarding the quantity of the goods that were being shipped and
that was 2000 lorries. This is evidence enough to show that the carrier was in receipt of the
2000 lorries as seen in the Bill of Lading (The Miramichi [1915] p 71). 5 The Bill of lading
holder is not subject to liabilities under the contract of carriage and therefore the seller Lim's
Lorries Ltd is not liable for the goods lost and hence can put forth a claim for compensation from
the Carrier. The Carrier lost the goods during shipment and that is the Carrier fault and thus
should be held liable. (Biddel Bros v E Clements Horst & Co [1911] 1 KB 934).6 The carrier
responsibilities under the Bill of lading governed by the Hague Visby Rules is that they should
ensure the ship and cargo space are sea worthy. In this case the Carrier ship had problems with
the engine and the space for the cargo was not enough hence made them to carry the 250 lorries
on the deck leading to their loss. The Carrier is held liable due to this fact and therefore
responsible for compensation and the seller can claim the lost 250 lorries from the Carrier (Law
& Bonar v British American Tobacco Co Ltd. [1916] 2 KB 605). 7 The Carrier is liable during
shipment to ensure that the cargo space is fit and safe for the receiving, carrying and preserving
of the goods to their destination. However, if that is not the case, the Carrier is then held liable
for any loss or damage resulting to the unseaworthiness. Because of this fact under the HVR
5 The Miramichi [1915] p 71
6 Biddel Bros v E Clements Horst & Co [1911] 1 KB 934
7 Law & Bonar v British American Tobacco Co Ltd. [1916] 2 KB 605

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which governs this contract, the seller can claim for the loss of the 250 lorries and hold the
Carrier liable. It is also the responsibility of the Carrier to care for the cargo as stated under the
HVR Art III 2, whereby the Carrier should ensure the cargo is carefully loaded, handled and
cared for throughout shipment. This was not the case as the Carrier jettisoned the 250 lorries that
were on the deck without previous indication that goods will be carried on deck. This fact gives
the seller the right to claim back the loss of those goods; 250 lorries from the Carrier.
Facts of this particular case whereby the Lim’s Lorries Limited in the United Kingdom is
a company that sells trucks to the Middle East. In this particular occasion the lorry company
made an agreement and was to send 2000 lorries to Jeddah in Saudi Arabia. They made
arrangements with XYZ Sea Carriers Limited for the lorries to be shipped to Jeddah. The two
parties entered into a carriage contract whereby XYZ would act as the carriage by sea. The Bill
of lading was issued to Lim’s Lorries Limited as was the contract requirement and the contract
was governed by the English Law. On transit via sea a few days later during shipment of the
2000 lorries to Jeddah, the Sea Carrier Limited “The King” passed a radio transmission on
August 1 2017 stating the engine problems it has been experiencing throughout the journey. On
2nd August 2017, another radio transmission was received from “The King” informing that it was
struck by lightning in the Red sea. This made 250 lorries out of the 2000 lorries which had been
secured on deck to be jettisoned so as to save the ship and the bulk of the cargo it was carrying.
However, there was no previous indication by the XYZ Sea Carriers Limited that there would be

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goods to be carried on deck.8 “The King” however, arrived in Jeddah on the due date and safely
delivered the 1750 lorries as stated in the contract.
Liability and Claim
The seller being Lim’s Lorries Limited made an arrangement with the buyer to sell 2000
lorries to them in Jeddah and the seller did that. The seller made an arrangement with a shipping
company here referred to as “The King” and entered into a carriage contract to ship the 2000
lorries to Jeddah. The carriage contract did not indicate that the shipping company would carry
any cargos on deck. However, “The King” put 250 lorries on deck during shipment. On the way,
there was an engine problem which the Engineers on board rectified and they carried on with the
shipment. This incident was reported via a radio transmission that was received on August 1
2017. On August 2nd 2017, there was another radio call from “The King” stating that they had
been struck by lightning in the Red sea. Due to this second incident, the jettisoned 250 lorries
that were on the deck to save the ship and the other bulk cargos it was carrying. This made the
shipping company to only deliver 1750 lorries to Jeddah out of the 2000 lorries initially
expected. The shipping company XYZ Sea Carriers Limited can therefore be held liable for the
loss of the 250 lorries because first, there was no indication of carrying of goods on deck in the
carriage contract between Lim’s Lorries Limited and XYZ Sea Carriers Limited.9 The 250 lorries
were forced to be jettisoned from the deck where they were secured because of the lightning
8 Steel v State Line SS Co [1877] 3 AC 72.
9 The Merchant Shipping Act 1995 s 185 & Schedule 7.

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incident a decision that the shipping company made so as to save the ship and other bulk cargos
it was carrying. The B/L holder here being the seller is not held liable under the carriage contract
for the loss of the 250 lorries during shipment. The seller will make a claim of the 250 lorries lost
at sea because they were not delivered and their payment was not made.
The carrier should ensure that the ship and cargo space is seaworthy HVR Art III r1 and
in this case the carrier had limited space and put 250 lorries on deck which they later jettisoned.
The ship was not seaworthy and had an engine defect on 1st August 2017. The owner would have
rectified the defect before sending the ship to sea (McFadden & Co. v Blue Star Line [1905] 1
KB 697 at 706).10 Due to the ship being unseaworthy, it will entitle the cargo owner to repudiate
the Contract or even sue for damages. It is the responsibility of the carrier to ensure that the ship
is seaworthy by being properly manned, equipped and spacious for the cargo carried to fit and be
safe for the carriage, preservation and delivery. Failure to this exercise of Due Diligence, then
the Carrier is liable for the loss or damage of the cargo carried due to lack of seaworthiness
(Maxine Footwear Co. v Canadian Government Merchant Marine [1959] 2 AER 740). 11The
carrier in this case would have been immune to liability if the damages were caused by perils of
the sea such as the lightning but in this case the Carrier will be held liable as the decision to
jettison the 250 lorries were theirs and the ship had some sea unworthiness due to the engine
problems encountered earlier. Art III HVR states that a Carrier may not by the contract, exclude
or limit his liability other than as allowed by the HVR. In this case, the Carrier is not allowed to
exclude or limit the liabilities because the liability incurred was faulted to them. The shipper is
10 McFadden & Co v Blue Star Line [1905] 1 KB 697 at 706
11 Maxine Footwear Co v Canadian Government Merchant Marine [1959] 2 AER 740.

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liable to pay Freight which are normally paid in advance and are non-refundable even if the ship
and cargo are lost at sea.12 The cargo owner will have a claim against the Carrier for loss of
goods but cannot deduct the amount of his claim from any freight due. The cargo owner can
instead first pay freight charges then brings action for the loss of goods and claim against the
Carrier (Darkin v Oxley [1864] 15 CBNS 646). However, the Carrier cannot claim freight if the
goods are lost on the shipment process unless the Carrier delivers the good in full to the desired
destination.
It is an established rule that the Carrier is not allowed to stow the goods being shipped on
deck unless it is authorized in the agreement contract. In this case, the seller did not agree on that
and the carrier never indicated or said that some goods will be stowed on deck. Due to lack of
agreement to keep the 250 lorries on deck, the carrier is held liable for the loss of those lorries
and is not entitled to the exception or limitations of liability in the B/L (Royal Exchange
Shipping Co. v Dixon. [1886] 12 AC 11).13 There are some ships that are specifically constructed
for on-deck container shipment but this particular case the ship was unseaworthy and there was
less space on deck to fit the 250 lorries despite the lightning. It is the responsibility of the carrier
to ensure that there is safe navigation and the cargo carried are not exposed to risks at sea. From
the time the Carrier has taken the goods into his charge up to the time of safe delivery of the
goods, all liabilities are upon the Carrier.
12 Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 AER 158.
13 Royal Exchange Shipping Co v Dixon [1886] 12 AC 11.

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Remedies and how damages may be calculated
Damages in this case are the 250 lorries that were lost during shipment due to them being
jettisoned. The buyer of the goods is normally bound to pay CIF price when a valid tender of the
shipping documents is made to the buyer. All charges due after the safe arrival of the goods at
the port of discharge in accordance to the contract is for the buyer’s account.14 However, in this
case, the buyer had ordered for 2000 lorries to be delivered to Jeddah and the seller had
dispatched the 2000 lorries are agreed. The Carrier lost 250 lorries on the way and is hence liable
for the loss. This therefore, shows that the contract is void and the payment and damages of the
250 lorries are the responsibility of the Carrier. The seller is not therefore bound to tender the
documents and the missing 250 lorries and the buyer is also not entitled to pay against the tender
of the document or the 250 lost lorries. All damages and liabilities of the 250 lost lorries should
go to the Carrier. 15The remedy would be for the Carrier to pay for the damages in terms of
losing the 250 lorries to the seller and the seller should contact the buyer and deduct the amount
of the 250 lorries that were missing. The seller should only charge the buyer for the 1750 lorries
that were delivered to them.16 The seller should come to an agreement with the Carrier on how to
pay for the 250 lorries that were lost on shipment.
14 Supply of Goods (implied Terms) Act 1973.
15 Bowes v Shand [1877] 2 App Cas 455.
16 The Erin Schulte [2015] 1 Ll L R 97.

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Effects of clause 6 of the bill of lading as regards to limitation of liability
The bill of lading is a necessity in shipment and is a requirement in its validity and
effectiveness devoid of forgeries or untrue statements. In the clause 6 of the bill of lading in
regards to limitation of liability, it states that the bill of lading holder will not be subject to
liabilities under the carriage contract until he demands delivery of the cargo from the carrier.
Limitation of liability is entitled on special cases for example if a loss has happened and the
cause is not as stipulated in the clause 6 of bill of lading.17 In this particular case, limitation of
liability to the Carrier for the loss of the 250 lorries can be attributed to the fact that the loss
happened as a result of the Act of God and that is the lightning that struck the ship.18 There was a
peril in the sea and this resulted to the ship to be struck by lightning causing it to shake and be
unstable. The Carrier in this case has immunity and there is limitation of liability as it is shown
that the loss of the 250 lorries were caused by something unforeseeable such as a lightning. In
such a case the Carrier could not be held liable for the loss of the goods (The Thrunscoe [1897] p
301).19 Another limitation to liability in our case here is the saving or attempt to save property at
sea, this is covered by the Art IV 4 HVR. The Carrier “The King” attempted to save other bulk
cargo that it was carrying by jettisoning the 250 lorries that were on deck. If that was not done
the ship would probably have lost even more cargo than the 250 lorries. Another circumstance
that would lead to limitation of liability is the fact that the Carrier did not deviate from the route
17 Darkin v Oxley [1864] 15 CBNS 646.
18 Soproma Spa v Marine Animal By-Products Corporation [1966] 1 Ll R 367.
19 The Thrunscoe [1897] p 301.

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and also did not delay as the rest of the 1750 lorries arrived on time as was due to the cargo
owner. The condition of the rest of the goods was safe and in good order no damages or breakage
was reported. The carrier was found liable for the loss of goods but is only needed to pay 80% of
the amount required under the Hague Visby Rules which are the rules offering the limitation of
liability clause 6 and this particular contract is subject to the Hague Visby Rules. In the clause
there also the optional stowage and deck cargo rule that states that The Carrier is at liberty to
stow goods on deck (The Kapitan Petko Voivoda [2003] 1 AER (Comm) 801, thus overruling
The Chanda [1989] 2 Ll. R. 494).20 This clause will also enable the carrier to face limitation of
liability since the contract is written using this Hague Visby Rules and the clause is inclusive in
it. The bill of lading is governed by the English law and the contract is subject to the Hague
Visby Rules and therefore the limitation of liability rules shall apply where appropriate. The
Carrier was also updating on the incidences occurring at sea by use of radio transmission and
explained what was happening in details and was honest in reporting what had happened to the
250 lorries that were on deck. The bill of lading was issued together with the contract in good
time and all parties were aware of what was expected of them in ensuring the safe and complete
sea transit of the goods. The Carrier did not deviate from the plan and was also on time to deliver
the shipments despite the troubles encountered on transit short of the 250 lorries on deck
otherwise the rest of the lorries 1750 were delivered safely as required by the contract.
Conclusion
20 The Kapitan Petko Voivoda [2003] 1 AER (Comm) 801 thus overruling The Chanda [1989] 2
Ll R 494.

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The Hague Visby Rules is the one that governed this contract between the seller and the
Carrier and the Buyer. The HVR is also applicable to the bill of lading in this case and therefore
the bill of lading complies to the Hague Visby Rules. 21 The Carrier in this HVR is liable for any
damages or loss of goods where the loss of goods is known. However, the liability of the carrier
in relation to the loss or damage of good shall be determined under scrutiny of the rules and law.
Compensation and payment shall be calculated by reference to the value of the goods once they
are delivered to the merchant.22 The extent of the Carrier’s liability to the loss or damage of
goods will be determined by the value of the goods which is the invoice value plus the freight
value and the insurance if it has been paid. The Carrier shall at all times stick to the rules of the
contract and should not add or deduct any points whatsoever for example, in this case where the
Carrier failed to show any indication of putting some goods on the deck. If the Carrier had
indicated and communicated the fact that incase of lack of space then there was the option of
stowing some cargo on deck then maybe there would have been a limitation of liability.
23Following the Hague Visby Rules to the letter is important as it governs the bill of lading and
its clauses therein. The carriage contract is an important document and as a Carrier or the seller
or buyer, one should ensure they read and understand the contents in it so as to avoid
misrepresented cases and confusion. The CIF contract deals with export transaction and goods
that are taken overseas. This contract should be followed and understood because it contains all
the necessary information required in dealing with export and goods shipment overseas, the rules
21J & J Cunningham Ltd v R A Munro & Co Ltd (1922) 28 COM CAS 42.
22 Karinjee Jivanjee & Co v William Malcolm & Co [1926] 25 Ll L R 28
23 Leesh River Tae Co v British India Steam Navigation Co [1967] 2 QB 250.

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governing sea shipment and the required documents and knowledge on sea transportation.
24International trade is a complex field and anyone who wants to get involved should ensure to be
enlightened on the expectations and the rules and information necessary to venture into this kind
of trading. The law is tool used for fairness under any circumstances presented.
Bibliography
Biddel Bros v E Clements Horst & Co [1911] 1 KB 934
Bowes v Shand [1877] 2 App Cas 455.
24 Steel v State Line SS Co [1877] 3 AC 72.

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Darkin v Oxley [1864] 15 CBNS 646.
Hansson v Hamel & Horlev Ltd. [1922] 2 AC 36
J & J Cunningham Ltd v R A Munro & Co Ltd (1922) 28 COM CAS 42.
Karinjee Jivanjee & Co v William Malcolm & Co [1926] 25 Ll L R 28
Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers Ltd. [1954] 1 AER 779
Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers Ltd. [1954] 1 AER 779
Law & Bonar v British American Tobacco Co Ltd. [1916] 2 KB 605
Leesh River Tae Co v British India Steam Navigation Co [1967] 2 QB 250.
Maxine Footwear Co v Canadian Government Merchant Marine [1959] 2 AER 740.
McFadden & Co v Blue Star Line [1905] 1 KB 697 at 706
Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 AER 158.
Royal Exchange Shipping Co v Dixon [1886] 12 AC 11.
Soproma Spa v Marine Animal By-Products Corporation [1966] 1 Ll R 367.
Steel v State Line SS Co [1877] 3 AC 72
Steel v State Line SS Co [1877] 3 AC 72.
Supply of Goods (implied Terms) Act 1973.
The Erin Schulte [2015] 1 Ll L R 97.
The Kapitan Petko Voivoda [2003] 1 AER (Comm) 801 thus overruling The Chanda [1989] 2 Ll
R 494.

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The Merchant Shipping Act 1995 s 185 & Schedule 7.
The Miramichi [1915] p 71
The Thrunscoe [1897] p 301
The Thrunscoe [1897] p 301.