- CRCICA (Cairo)
C & F SALE - DEFECTS IN THE GOODS - BUYER'S FAILURE TO PROVE THEIR EXISTENCE AT TIME OF SHIPMENT - REFERENCE BY ARBITRAL TRIBUNAL TO ART. 36 CISG
A seller from an Asian country (claimant) and a buyer from an African country (Respondent) concluded a contract for the sale of a determined amount of grain. A dispute arose when the goods, arrived at their place of destination, were examined by a local agency and found infected with insects.
The contract contained a choice of law clause which expressly authorised the Arbitral Tribunal to settle the dispute [i]n accordance with the provisions and terms of international contracts in practice in foreign commercial transactions for the sale of such commodities.
As to the merits of the dispute, the Arbitral Tribunal held that the buyer had to sustain the expenses necessary for the disinfestation of the infected goods. In reaching this conclusion, it pointed out that the parties had concluded an international C & F contract of sale, where the risk is transferred to the buyer at the time of shipping and where it is the buyer who has to prove that the defects of the goods already existed at that moment. In doing so the Arbitral Tribunal referred, without any justification, to Art. 36 CISG.
The Respondent advertised a public tender for the supply of grains of thousand tons in accordance with a schedule of conditions. The Claimant had submitted it bid through its African agent and had been awarded the tender to supply _ thousand tons C&F at a price which had included commission of half percent of the FOB price for the agent. The Claimant had submitted a performance guarantee and the Respondent had arranged for four documentary credits in the amount of each plus or minus 10% to be opened by four public sector banks. Goods had been shipped on four vessels which arrived within a month at the destination. The agricultural quarantine department withheld the goods on grounds of being infected with insects and ordered for them to be dusted. The Claimant received compensation through the documentary credits, but the Respondent requested the bank to pay the value of the performance bond in part, in order to satisfy certain claims: dispatch money, difference of insurance for older vessels, dusting expenses, deficit of quay and other expenses.
The Claimant argued that the claims had amounted to only a quarter of the amount retained by the Respondent from the performance bond and filed a submission for arbitration under Article _ of the agreement: Any dispute arising out of the implementation of the previous condition and specifications which may be confirmed shall be settled in accordance with the provisions and terms of international contracts in practice in foreign commercial transactions for the sale of such commodities. Arbitration shall be conducted in Cairo according to the UNCITRAL Arbitration Rules.
The Claimant requested an award for expenses of storage of the goods, interest on credit facilities obtained for the sale of goods and the difference of freight concerning the goods.
The Claimant further argued that the Respondent had no right to the dusting expenses, because the certificates issued by the Revision Company, appointed by the Respondent had stated that the goods had been clean, at the time of shipping Both FOB and C&F contracts effect the final delivery of goods at the port of shipping by a clean bill of lading The goods had become infected because of the Respondent's refusal to allow the Claimant dusting of goods on board the vessels at the destination in order to clean goods of any insects on the docks.
The Claimant stated that the deficit of quay could not be claimed because discharge had been effected by a stevedore appointed by the Respondent The Claimant also argued that the Respondent had caused a delay in opening the documentary credits, which had resulted in the Claimant having to bear storage expenses, banking interest and freight differences.
The Respondent counter-claimed on grounds of loss of dispatch money, damages for weakness and breakdown of cranes of vessels, damages for delay in shipping, dusting expenses, deficit of the quay and other expenses [he Respondent also argued that the delay occurred not due to: its fault but due to the repeated requests by the Claimant to amend the documentary credits, even for technical specifications of goods previously agreed by the parties.
The Tribunal rejected the Claimant's contention that the contract had been a FOB contract it ruled that the contract had been a C&F sale, where the transfer of title of goods and its delivery had been effected once the goods had been boarded on the vessel at the port of loading. The seller guaranteed the safety of the goods till the time of shipping and the buyer thereafter bore all risks and obligations on the goods from the moment the goods passed the bars of the vessel. Accordingly, the seller could not be responsible for damage incurred subsequent to shipping as such responsibility fell to the buyer (footnote 7). This principle was valid irrespective of the fact that the buyer had the right to inspect goods at the destination for that was to ensure the goods were in conformity with the specifications of the contract.
It could not be held that the Claimant had guaranteed the state of the goods free from damage, regardless of correspondence between the parties the Respondent had stated that safety of the goods at the port of destination had been ensured, following inspection of samples at destination. This had not been an obligation agreed between the parties. Even if the Claimant had not expressly objected to such an obligation, it could not have been held liable for that would have been contrary to the provisions of a C& F contract. Moreover it had appeared from the inspection certificate issued by the company of revision and the Ministry of Agriculture (of the exporting state) that the goods had been free of bacteria and insects and had been dusted before shipment, thereby providing evidence that the Claimant had fulfilled its contractual obligations.
To accept otherwise would have been contrary to the provisions of a C&F contract and general principles of international contracts of sale. It would have been tantamount to holding the seller liable even for an act of God and force majeure without committing any breach of its contractual obligations. Such obligations would be expected of an insurer, which clearly had not been the commercial relationship between the parties.
Article 36 of the United Nations Convention on the International Sale of Goods concluded in Vienna in 1980 provides:
As the risk is transferred in the C&F contract at the time of shipping, the seller is taken to have fulfilled his obligations as long as the goods are in conformity with the contract K The Tribunal held that the Respondent had failed to provide evidence of detects at the time of shipping.
As regards the issue of the dispatch money, the Claimant had requested a decrease whereas the Respondent had requested for an increase in the sum. The Tribunal sought to determine the definition of 'discharge' which, according to them was the main point of contention. The Claimant alleged that goods had been discharged from the vessel once readiness was indicated to begin discharging. The Respondent disagreed and argued that as the authorities at the port of destination had prevented discharge till the dusting of the goods, goods had not been ready to be discharged till the dusting operation had been completed. As the process had taken forth eight hours, dispatch money should he calculated till the end of that period.
The Tribunal upheld the argument of the Respondent stating that goods could not have been discharged till permission had been given by the authorities. Therefore the time for dusting should he taken into account in calculating the dispatch money.
As to the deficit of quay claimed by the Respondent, the Claimant argued that discharge had been effected by the Respondent and had been the Respondent's responsibility. While the Tribunal agreed with the Claimant, they held that the Claimant had waived a right to the defence because the Claimant's agent had agreed to bear the amount at the time of discharge by signing a process verbal at the port.
The difference of insurance concerning the age of the vessels as claimed by the Respondent had not been challenged by the Claimant and was awarded to the Respondent.
The Claimant's claim for damages for storage expenses, banking interest and freight differences was rejected by the Tribunal on grounds that the Claimant had been aware of the Respondent's requirements to obtain approvals for setting up documentary credits. The contract provided for such delay which Wits evidenced from correspondence Between the parties agreeing to extension of shipment periods in favour of' the Claimant. Moreover, there had been evidence as to delay on both sides of the parties. The Tribunal also rejected the Claimant's request for reimbursement of storage expenses stating that the Claimant had not sought them from the Respondent prior to their claim in the arbitration. Al so there was evidence to the effect that the Claimant had asked its agent to set the period of shipment to sixty days from the opening of the documentary credit.
The cost of dusting expenses was awarded to the Claimant with interest at the rate of 5 % per annum from the date of commencement of arbitral proceedings.
As to banking interest, the Tribunal determined it as a commercial risk which the Claimant was responsible to bear along with freight differences. Other expenses claimed by the Respondent were awarded to it as they had gone unchallenged by the Claimant.
The Tribunal apportioned the arbitration costs equally between the parties and ordered them to bear their own share of legal costs. All other claims and counterclaims were dismissed.
Published in English:
- Mohie Eldin i. Alam Eldin (ed.), Arbitral Awards of the Cairo Regional Centre for International Commercial Arbitration, Kluwer Law Int., 2000, 23-27.}}