Chapter 14: International sales

In all contracts for the sale of goods the buyer and seller need to know what each party is required to do in relation to the delivery and payment obligations concerning the goods. Such issues are usually governed by either the terms of the contract or, should there be no relevant term, by the operation of the provisions of the Sale of Goods Act 1979. When we are faced with an international sale of goods contract the same issues are present but they are complicated by the fact that the buyer and seller are probably located in different countries. In such a situation it is arguably even more important to precisely specify what the buyer and seller are to do and when they are to do it. Without this information it is very difficult to know what to expect of and from the buyer and seller in an international sale of goods contract. One way to address these potential difficulties is to make detailed contracts which precisely set out, inter alia, the delivery obligations of the seller, the time at which the property and risk in the goods passes from the seller to the buyer, and, the manner in which the buyer and seller are to interact with any carrier of the goods to allow the contract to proceed smoothly, As may be imagined such contracts can be complicated to draft and are expensive for the buyer and seller. The expense can escalate if buyer and seller each should have a contract which, though basically similar, is different in language and in fine detail. To try and minimise the delays, expenses and potential for confusion which may arise from such international sale of goods contracts a practice has grown up for the buyer and seller to make use of shorthand abbreviations such as ‘FOB’ or ‘CIF’ with which to specify their respective obligations and expectations in relation to a specific contract by referring to a generally understood type of international sale of goods contract.

Thus assume the seller is based in Devizes in the UK and the buyer is based in New York in the USA. The buyer does not want to pick the goods up from the seller’s factory in Devizes but wants the goods to be delivered by the seller to a ship, which the buyer will arrange, name and pay for, at the Portsmouth docks on the 2nd day of December. All of these requirements, and the wider legal issues such as the point at which the property and risk concerning the goods are to pass, could be set out as express individual terms contained in the international sale contract, or the contract could simply say, ‘Seller to supply 1,000 widgets to Portsmouth Dock FOB on 2nd of December 2011’.

The point is that the abbreviation ‘FOB’ essentially expresses in a shorthand form the intention of the parties set out above. If your business is heavily involved in international sale of goods transactions it may be much simpler and cheaper to use such abbreviations rather than to consult your lawyers every time you make a contract.

1. It is important to notice that the shorthand abbreviation does not necessarily override an express contractual term – even if the shorthand is itself included as an express term in the written contract it will not necessarily prevail if the court should decide that other express terms indicate that the parties had a different intention to that which the abbreviation would usually suggest.

1. The shorthand abbreviations are commonly used by international commerce but may be understood slightly differently by the courts of different legal systems. A further variable is that as well as the judicially developed and explained characteristics of the various shorthand trading abbreviations there are also abbreviations which have been drawn up by the International Chamber of Commerce (ICC) called INCOTERMS. The ICC periodically updates and modifies its INCOTERMS and the latest version is INCOTERMS 2010 which came into operation on the 1st of January 2010. If the parties indicate that they mean to use the INCOTERMS 2010 the courts will proceed under the meanings applicable to these terms rather than under either earlier versions of the INCOTERMS (eg INCOTERMS 2000) or under that which the English common law understands to be included within the relevant shorthand abbreviation.

Different contracts may contain different provisions. However, the Free On Board (FOB) contract is one which has come traditionally to have certain features and, if these are not expressly spelt out and are not contradicted in the written contract, they will normally be assumed to be present in a contract which is termed FOB.

The classic features of an FOB contract under English common law are as follows:

• The buyer arranges carriage of the goods in whatever ship the buyer chooses. Thus, the buyer incurs the cost of freight on the ship and insurance of the goods...