Lloyd's Maritime and Commercial Law Quarterly
OUT-TURN CLAUSES IN C.I.F. CONTRACTS IN THE OIL TRADE
James J. Lightburn* and Gawie M. Nienaber**
This article considers out-turn clauses in contracts which are otherwise c.i.f., and will refer to the law in England, France and the United States.
A. The position in principle
The parties to an international contract of sale may provide for the allocation of risks arising from the possibility that goods may be lost or damaged or deteriorate during transit by choosing from a range of standard-form contracts. These contract types differ from one another as to the moment of the passing of risk. “Incoterms”, the model trade terms published by the International Chamber of Commerce, distinguish the one extreme as “Delivered Duty Paid”. Under such a term, the seller must contract for and pay freight, clear goods through customs, and deliver at the place of destination. The risk of loss only passes after delivery at the place of destination.1 The Incoterms standard c.i.f. contract is less onerous on the seller. The goods must conform with the contract. The seller has to contract for and pay freight, obtain export licences and load the goods, and produce at his own cost a policy of insurance on behalf of the buyer.2 Under a c.i.f. transaction, the seller satisfies his obligations by the delivery of documents, not by actual physical delivery of the goods, as is the case with Delivered Duty Paid contracts.3 The essential logic of the c.i.f. contract is that the moment of passing the risk lies at the time of shipment.
But this rule may not be suitable for every situation and merchants have tried to tailor the standard-form c.i.f. terms to fit specific commercial conditions. This tinkering may involve the use of contract terms which appear to be c.i.f. on their face but which, on closer inspection, contain terms which are inconsistent or even irreconcilable with the basic premise of a c.i.f. sale. The simple use of the phrase “c.i.f.” will not, in such cases, be sufficient to determine the parties’ basic contractual intent. This article examines the extent to which the c.i.f. concept may be disrupted by one common commercial modification to the standard-form c.i.f. contract, the out-turn or landed weight clause. The analysis will give particular attention to the practices in the international oil trade. These practices highlight certain ambiguities in the application of c.i.f. contracts with out-turn clauses.
* Partner, Jones, Day, Reavis & Pogue, Paris.
** Attorney, Hunton & Williams, New York, N.Y.
1. ICC Incoterms, 1980 edn., 82.
2. Ibid. 48.
3. Sassoon, C.i.f. and F.o.b. Contracts (3rd edn.), s. 2.
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