CIF Trade terms

The contract between parties is a CIF (cost, insurance and freight) contract and as such, the Seller is required to arrange the carriage of the goods, their insurance in transit and all costs of such arrangements are usually included in the contract price (Bridge, 2007). Furthermore, an essential element of a CIF seller’s duty is to obtain a bill of lading, an insurance policy, any other document required by the contract (Bridge, 2007) and to forward these to the buyer. The buyer then pays on the invoice only when they have received the correct shipping documents (Bridge, 2007).
The fundamental feature of a CIF contract is that once a seller has shipped the goods, they have “performed” the contract by tendering conforming documents to the buyer (Treitel, 2007). Indeed, it was described in the case of Hindley v E India Produce Co. Limited (1972] 2 Lloyd’s Rep 515) as “a contract for sale of the goods performed by delivery of documents” (Sealey & Hooley, 2003). As such, the CIF contract imposes duality of obligations on the seller to deliver the goods and deliver the documents.
The documentary obligations require the seller to procure and submit to the buyer the exact documents stipulated in the contract (Sealey & Hooley, 2003). Furthermore, in the case of The Julia ([1949] AC 293), Lord Porter asserted that in the absence of a provision in the contract to the contrary, the documents provided should include a bill of lading, an insurance policy and an invoice. Under English law, a CIF contract entitles buyers to reject a tender of shipping documents on grounds of the document being “defective” or alternatively, where they are tendered late (Kwei Tek Chao v British Traders and Shippers Limited [1954] 2 QB 459).

With regard to the definition of “defective”, various scenarios have addressed this, including a non-genuine bill of lading and a bill of lading failing to provide the buyer with “continuous documentary cover”. Moreover, in the case of Gill & Duffus SA v Berger & Co Inc ([1984] AC 382) it was asserted that if the documents conform to the contract stipulations, then the buyer is obliged to accept them otherwise they will be in breach of contract even if the goods themselves do not comply with the contract on arrival (which is subject to the separate right of rejection).
Furthermore, in the Hansa Nord case, Roskill L. J asserted that “the seller’s obligation regarding documentation has long been made sacrosanct by the highest authority and….. The express or implied provisions in a c. i. f. contract in those respects [are] of the class ….. Any breach of which justified rejection” (at p. 70). It was further held that a c. i. f. buyer could reject documents disclosing a defect even where the defects in the goods would not itself justify rejection of the goods.
The common law demonstrates that there is an exception to the requirement that the documents must be perfect in all respects, however the parameters of this exception are uncertain and ultimately appear to be a question of fact. For example, in the case of Tradax Internacional S. A. v Goldschmidt S. A. ([1977] 2 Lloyd’s Rep 604) , the contract provided that the goods should contain no more than 4% foreign matters and a certificate of quality was required to be submitted with the other standard shipping documents.
The buyers subsequently rejected the documents on the grounds that the certificate of quality showed 4. 1% of foreign matters. However Slynn L. J. presiding stated that the buyer could not validly reject the documents on this ground and that the certificate was what it was stated to be, in other words a “certificate of quality”. Slynn L. J further asserted that “here the certificate is a good certificate in that it does state what is the quality, what is the percentage of impurities. It shows that there was not a full compliance with the contractual term as to quality and it does what it was intended to. It is a valid document…. Capable of being transferred as part of a subsequent sale”.