A Japanese buyer and a Chinese seller entered into a contract for the sale of white corundum. A dispute arose between the parties concerning the payment of the price. As a result, the buyer delayed many times the loading of the goods, and this caused a long storage at the port. To solve the question the parties entered into a second contract which modified the loading period, during which period the goods suffered damage.
The first instance Court, making reference to the FOB clause contained in Incoterms 2000 and referred to in the contracts, held that the risk had already passed to the buyer, and according to Arts. 25, 73(1) and 74 CISG the buyer was liable for fundamental breach of contract. The buyer appealed, arguing that the seller had caused the quality of the goods to deteriorate by negligently packaging and transporting it.
The Court of Appeal reversed the first instance decision. According to the Court the parties had validly modified the first contract as to the time of loading before the goods were loaded through the second agreement. As neither party could provide evidence to prove when the lack of conformity arose, according to CISG (Art. 67) and Incoterms 2000 the risks would have passed to the buyer had they crossed the ship’s rail because FOB was the price term used in the contract. The Court in conclusion held that the risk had not yet passed to the buyer and rejected the seller's claim.
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