The Interminable CIF Question.

The FOB (free on board) and CIF (cost insurance freight) are among some of the oldest and frequently used trade terms in international sales contracts and domestic trade. The underlining functions of these concepts is to establish the nuances of risk and ownership between the buyer and seller. Under the CIF a seller is responsible for the supply of goods that match the description in the contract, insuring and shipping same to the port of consignment. The buyer undertakes to pay against the tender of the necessary documents and not the delivery of goods at the port of delivery, as such the seller's duty is completed upon the tender of the requisite document to the buyer. Scrutton J in Arnold Karberg & Co v. Blythe, Green Jourdain & Co [1915] 2 K.B. 379 at 388 expounded on the CIF trade term saying "It is not a contract that goods shall arrive, but a contract to ship goods complying with the contract of sale, to obtain, unless the contract otherwise provides, the ordinary contract of carriage to the place of destination and the ordinary contract of insurance of the goods on that voyage, and to tender these documents against payment of the contract price". Inference may be drawn from this judicial description that a seller under a [CIF] contract has to first ship at the port of shipment goods of the description contained in the contract, second to procure a contract of affreightment, under which the goods will be delivered to the destination contemplated in the contract, third to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer, fourth to make out an invoice and finally to tender these documents to the buyer so that he may know, what freight he has to pay and obtain delivery of the goods if they arrive, or recover for their loss if they are lost on the voyage. It follows that against tender of these documents, the bill of lading , invoice and policy of insurance the buyer must be ready and willing to pay the price. Scrutton J in the above case said that a CIF sale is not a sale of goods but a sale of documents relating to goods. While in a business perspective it may be regarded as a contract for sale of goods but certain arguments avail that it is a sale of documents.

This view was rejected by Bankes and Warrington Ljj in the court of appeal as they declared that a CIF contract is contract for sale of goods to be performed by the delivery of documents. Kerr J. also posited that it is an anathema to oversimplify a CIF contract as merely a sale of documents. However, Scrutton J's statement cannot be totally disregarded as a bundle of rights and liabilities are attached to the document tendered. Though the importance of documents cannot not be denied it is imperative that their importance be emphasised on the strength contract of the sale of goods. The importance of the documents in CIF contracts is further illustrated by the rule that allows the seller to tender documents even after the goods they represent have been damages or lost. It seems incredulous that such a rule could exist and even if it did exist that the sale was for the goods and not the documents. If the goods were of utmost importance and were to all intents and purpose the subject matter of the contract then this rule would not exist. The documents run to the very core of the contract and the CIF contract depends on the transfer of the documents which give the buyer control, and a right of disposal of the goods, and rights to recover compensation if they are damaged due to the default of the carrier or due to some insured peril it is concluded that this is fact a sale of documents. It seems impossible to argue otherwise than that a CIF is a sale of documents when we consider that the documents are key to all elements of the contract and they are central to shaping the parties duties, defining when risk passes, and determining the condition of the goods. It is these documents on which the entire contract is based.