Date: 07.02.2006
Country: USA
Number: Civ. A. H-04-0912
Court: U.S. District Court, Southern District, Texas, Houston Division
Parties: China North Chemical Industries Corporation v. Beston Chemical Corporation
On March 1999, a Chinese seller and a US buyer concluded a contract for the sale of a certain number of explosive booster pallets to be delivered "CIF" to Berwick, Louisiana. Although the contract did not specify how the cargo would be stowed on board, by a series of faxes and e-mails the buyer had informed the seller about all the requirements it had to comply with to prevent the cargo from being damaged during voyage and to ensure permission for entry into USA. Due to the merchant ship’s small dimension, it was not possible to stowe the cargo as required by the buyer; however, the seller succeeded in obtaining from the shipping company both the guarantee that the goods would not be damaged and the issue of a clean line bill of landing covering the cargo. Upon arrival at the destination port, the cargo was found to be seriously damaged because of improper stowage; as a result, the buyer refused to pay the oustanding price. The seller then filed suit against the buyer to recover the full price, plus interest.

The Court held that CISG was applicable to the contract by virtue of its Art. 1(1)(a). Then, in order to assess whether the seller was liable for the damage to the cargo during the voyage, the Court took into account the CIF delivery term agreed upon by the parties. In the Court’s view, such clause had to be given the meaning provided by Incoterms 1990 (the version of Incoterms in effect at the time of contract conclusion), Incoterms being “the dominant source of definitions for the commercial delivery terms” and, as such, to be considered as incorporated into CISG through its Art. 9(2). It followed that the seller undertook only to procure and pay for costs of transportation and insurance of the goods up to the port of destination, while the risk of loss or damage was transferred to the buyer once the goods had passed the ship’s rail at the port of shipment. Consequently, the risk for damage to the cargo due to improper loading and/or stowing was solely on the buyer. Neither was it proven that the seller had expressly assumed the obligation to ensure that the shipping company would stowe the cargo in accordance with the buyer’s requirements nor that it would bear the risk for loss or damage to the cargo after it had passed the ship’s rail.