Day's notes: Transfer of Risk

TRANSFER OF RISK[1]
Risk involves the allocation of loss to goods due to an external event for which neither buyer or seller is responsible. These events may include acts of God, acts of third parties such as riots, insurrections etc.
The general rule under S. 20(1)[2] is risk passes with property. In the case of bulk shipments, a principle of proportionality could be applied where all parties divide risk amongst all those entitled to the bulk. This rule however, does not apply to overseas sale contracts conducted on FOB, CIF and other similar terms.

FOB CONTRACTS
Risk passes once the goods are put on board. Even though the seller may reserve the right of disposal, this does not affect the general rule that risk passes upon shipment.
In the case of dry commodities, the entire shipment must be loaded, for risk to pass. In Anderson v Maurice (1875) LR 10 CP 609 (Exch Ch.), Blackburn and Lush JJ; in an entire contract for sale of rice they declined to accept, in the absence of an agreement to the contract, that risk would pass incrementally to the buyer upon the loading of each bag.
On the contrary, oil contracts may provide for the passing of risk as the oil is loaded. Contracts may provide for transfer of property and risk when oil passes the permanent hose connection.
There are other rules which may affect the passing of risk. Where the seller is required to issue a notice to the buyer to procure insurance, failure to give such notice will result in the goods remaining at the seller’s risk.

Under S.32 (2)[3] the seller is under an obligation to procure a reasonable contract of carriage for the buyer having regard to the nature of goods and the circumstances. If he does so, then he will not be liable in the event that the carrier fails to perform the contract.
If the seller procures an unreasonable contract of carriage for example to the wrong destination, the buyer may refuse to treat delivery to the carrier as delivery to him, and may hold the seller responsible for damages. The buyer’s refusal to accept delivery permits the buyer to terminate the contract and sue for damages for non-delivery.

CIF CONTRACTS
In most cases, goods to be appropriated to a CIF contract are purchased afloat. The rule is that risk passes upon shipment. The event that triggers the retroactive transfer of risk to the buyer is the issuance of a binding notice of appropriation. Where seller issues a late notice, or a notice in the wrong form, and the buyer accepts without objection, then risk passes at this point.
With regard to oil contracts, where the seller has to nominate a vessel to arrive within a stated arrival range, risk passes as from the time that the buyer has a reasonable time to respond for this purpose, accepts the nomination.

CIF and FOB contracts are shipment contracts. That is unlike arrival contracts, they do not guarantee the delivery of the goods. Under FOB, seller delivers goods by shipping them and not discharging them at the destination port. Under CIF, the seller contracts for the carriage of the goods, without it being a term of the sale contract that the goods should be discharged in that port. However, in both instances the seller has to provide goods that conform to the quality and fitness standards set out in the contract.


[1] Reference made to Michael Bridge, The International Sale of Goods; Law and Practice (2nd Edn, 2007), Ch.8
[2] Sale of Goods Act Ch.54 1979
[3] Ibid