Determining the time of passing of risk in contracts for the international sale of goods according to CISG
In the context of expanding international trade, determining the time of passing of risk between sellers and buyers is one of the key issues in ensuring legal certainty for the parties to an international sale of goods contract. Accordingly, in order to establish a unified legal framework, the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) was adopted and has since served as a fundamental source of law governing international sales contracts. In this article, TNTP analyzes the time of passing of risk in contracts for the international sale of goods in accordance with the CISG.
1.Concept of when to passing of risk
Risks are unexpected incidents that cause damage or loss of goods, reduce the value of goods during the performance of the contract or may cause damage to one party or the parties to the contract.
The time of the passing of risk may be understood as the legal point in time at which responsibility for bearing the risk in respect of the goods is transferred from the seller to the buyer.
2.Provisions of the CISG on the principles governing the passing of risk in international sale of goods contracts
The principles for determining the passing of risk are specified in Article 66 of the CISG as follows:
a.Limitation of liability
The principle of limitation of liability under Article 66 concerns the determination of the types of risks that the buyer must bear after the risk has been transferred, including loss of goods and damage to goods. Loss of goods refers to situations in which the goods disappear from control, including cases where the goods are lost, stolen, or transferred to another party. Damage to goods refers to physical, qualitative, or quantitative deterioration of the goods, including destruction of the goods, reduction in quality due to external factors, or quantitative shortages occurring during transportation or storage. In addition, in dispute resolution practice, certain other types of risk may also be considered subject to the application of the CISG, depending on the interpretative approach of the dispute resolution authority, such as: the risk of delay by the carrier after the seller has handed over the goods to the carrier; the risk that governmental regulations will prohibit trading in the goods; or the risk that the attribution of a painting is incorrect.
b.Legal consequences
Article 66 of the CISG provides that once the risk has been validly transferred from the seller to the buyer, the buyer must make full payment to the seller as agreed in the contract. The buyer is exempt from the obligation to pay only where the loss of or damage to the goods is caused by an act or omission of the seller.
3.Determination of the time of transfer of risk in international sale of goods contracts under the CISG
a.Passing of risk in contracts involving carriage of goods
(i) Delivery to the first carrier
Clause 1 Article 67 of the CISG provides that where the contract involves carriage of the goods by another party and does not require the seller to deliver the goods at a particular place, the risk in respect of the goods passes from the seller to the buyer at the moment when the goods are handed over to the first carrier. Under the CISG, the carrier must be an independent third party and must not be subject to the control of either the seller or the buyer. If the carrier is a subsidiary of one of the contracting parties but constitutes an independent legal entity (such independence is generally determined on the basis of that company’s charter and internal regulations), Clause 1 Article 67 may still be relied upon to determine the time of passing of risk in such cases.
(ii) Delivery at a specified place
Where the contract requires the seller to deliver the goods to a carrier at a specified place, the passing of risk of loss of or damage to the goods occurs at the moment when delivery of the goods to the carrier has been completed at the designated place. The carrier in this case is considered in the same manner as in the case of delivery to the first carrier.
Clause 2 Article 67 of the CISG provides an exception whereby the risk does not pass to the buyer if the goods that are the subject of the contract have not been clearly identified. Such identification must be effected by appropriate means, such as the use of marks or numbers on the goods, transport documents, notice given to the buyer, or other suitable methods.
b.Passing of risk in the case of sale of goods in transit
Where the goods are already in transit, the risk is deemed to pass to the buyer at the time the contract is concluded, as provided in Article 68 of the CISG.
However, Article 68 also sets out two important exceptions. First, based on the objective circumstances of the transaction or established trade usages, there may be an implied agreement that the buyer bears the risk from the time the goods are handed over to the carrier (the party issuing the documents embodying the contract of carriage). Second, the seller remains liable for any loss of or damage to the goods if, at the time of the conclusion of the contract, the seller knew or ought to have known of such loss or damage and failed to inform the buyer.
c.Passing of risk in certain other cases
(i) Where the buyer takes delivery of the goods at the seller’s place of business
Clause 1 Article 69 of the CISG provides that where the goods are to be handed over at the seller’s place of business or premises, the risk passes to the buyer, or to the buyer’s authorized representative (such as a carrier), at the time when they actually take delivery of the goods. In addition, if the buyer commits a breach of contract by failing to take delivery of the goods at the agreed time, the risk passes to the buyer when the goods are placed at the buyer’s disposal.
(ii) Where the buyer takes delivery of the goods at another specified place
Clause 2 Article 69 of the CISG provides that the risk in respect of the goods passes to the buyer at the time of delivery where the buyer is obliged to take delivery of the goods at a specified place other than the seller’s place of business, and the case does not fall within Clause 1 Article 67 of the CISG, provided that the following conditions are satisfied: delivery is made at the time stipulated in the contract; the goods are placed at the buyer’s disposal; and the buyer is aware that the goods have been so placed.
Above is the article “Determining the time of passing of risk in contracts for the international sale of goods according to CISG” that TNTP sends to readers. We hope the article will bring a lot of help to readers on this issue.
Respectfully,
