GENERAL OVERVIEW ON THE CISG 1980, INCOTERMS
General overview on the CISG 1980, Incoterms 2010 and Vietnamese
To understand the rules regarding the passing of risk in international sales of goods, it is essential to first examine the historical context and governing scope of the three legal regimes involved.
The CISG 1980, a significant treaty for international sales of goods, was established by the United Nations Commission on International Trade Law (UNCITRAL) and became effective on January 1, 1988 As of December 29, 2015, it has 84 member states and governs over two-thirds of global trade According to Article 1(1), the CISG applies to contracts for the sale of goods between parties in different contracting states, unless excluded under Articles 2, 6, and 95 Notably, it does not cover goods purchased for personal use, auction sales, or certain financial instruments Additionally, parties can opt out of the CISG's application or modify its provisions, and states may declare non-acceptance of specific articles upon ratification.
The Incoterms, published by the International Chamber of Commerce (ICC), aim to unify the interpretation and usage of key terms in international trade The latest version, Incoterms 2010, took effect on January 1, 2011, and categorizes rules into two groups: those for all transport modes (EXW, FCA, CPT, CIP, DAT, DAP, DDP) and those specific to sea and inland waterway transport (FAS, FOB, CFR, CIF) Notably, the term 'rule' replaces 'term' from previous versions, emphasizing the defined obligations of parties in tangible goods transactions To utilize Incoterms in a sales contract, parties must explicitly reference an Incoterm unless a customary practice has been established.
Vietnamese Commercial Law No 36/2005/QH11, enacted by the National Assembly of the Socialist Republic of Vietnam and effective from January 1, 2006, consists of 9 chapters and 324 articles that outline essential principles governing commercial activities This law addresses foreign traders operating in Vietnam, the buying and selling of goods, services, intermediary commerce, commercial promotion, remedies, and dispute resolution Article 1 defines the law's scope, which includes commercial activities within Vietnam, those conducted abroad if agreed upon by the parties, and non-profit activities involving traders in Vietnam when the parties opt to apply this law.
Passing of risk in international sale of goods
The CISG, Incoterms 2010 and Vietnamese Commercial Law regulate about the passing of risk without defining the term ‘risk’ According to some scholars,
Risk refers to the potential physical loss, damage, or deterioration of goods, typically arising from accidental events rather than the seller's actions or omissions Such losses can occur due to various circumstances, including the stranding or sinking of transportation vehicles, warehouse fires, emergency unloading, theft, moisture or heat damage, confusion with other goods, delays in arrival without fault, and misdelivery to incorrect recipients.
Determining whether the concept of risk encompasses the loss or damage of goods due to government actions is crucial Public authorities have the power to confiscate, prohibit possession, restrict intended use, or impose bans on the import or export of goods There are three main perspectives on this matter: one suggests that government actions are typically included within the definition of risk.
1 P.M Roth (1979), ‘The passing of Risk’, American Journal of Comparative Law, (27), p 291
In his 2012 master's thesis, E Alazemi conducts a comparative study on the passing of risk in international contracts for the sale of goods, focusing on the United Nations Convention on Contracts for Sale of Goods 1980 and the English Sale of Goods Act 1979 The research is accessible through Brunel University and can be found at www.cisg.law.pace.edu/cisg/biblio/alazemi.html.
The article discusses the interpretation of Article 66 of the Vienna Sales Convention (CISG) regarding the passing of legal risk It argues that acts of state are generally not included in the concept of risk unless they result in effects equivalent to loss or damage The preferred approach suggests that if government actions lead to goods being permanently blocked, confiscated, destroyed, or damaged, these actions fall under the concept of risk Conversely, if a government merely restricts or prohibits the sale of goods, such actions do not equate to physical loss or damage and are therefore not considered part of the risk.
There is currently no established definition of 'passing of risk' in the laws or international practices related to the sale and purchase of goods Romein interprets the rules on passing of risk as determining when the risk transfers and who is responsible for any loss or damage to the goods Additionally, these rules address whether the buyer is required to pay for the goods even if they have not been received.
‘accidentally’ lost or damaged or whether the seller is entitled to claim their price 6
Risk transfer involves shifting the responsibility for loss or damage of goods from the seller to the buyer During the sale contract's conclusion and execution, either party may be held accountable for any loss or damage that occurs.
1.2.2 Consequence of the passing of risk
Article 66 of the CISG sets out the principle that ‘loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his
5 A Romein (1999), The Passing of Risk A comparison between the passing of risk under the CISG and German law, Heidelberg thesis, www.cisg.law.pace.edu/cisg/biblio/romein.html
In international sale contracts, the obligation to pay the price remains with the buyer, even if loss or damage occurs during transit, unless it is due to the seller's actions Once the risk transfers to the buyer, they are responsible for taking delivery and paying for the goods, regardless of any damage incurred This highlights the importance of understanding risk allocation in accordance with the United Nations Convention on Contracts for the International Sale of Goods and INCOTERMS.
The article discusses the concept of 'price risk' associated with the transfer of risk, while also highlighting the potential for 'non-performance risk' to be returned to the seller if losses arise from the seller's actions or omissions This establishes the seller's responsibility to redeliver the goods, granting the buyer the right to request a replacement It is reasonable to conclude that the implications of risk transfer are closely tied to the seller's duty to deliver the goods as agreed and the buyer's obligation to pay for them.
1.2.3 The significance of the rules on passing of risk to international sale contract
Every day, numerous international sale contracts are executed between parties in different countries, leading to significant delays in the delivery of goods due to geographic distances This prolonged process increases the risk of loss or damage to the goods at any stage, resulting in substantial financial losses for the involved parties Given the high value of these contracts, the impact of such losses can be severe, making it challenging to recover from them quickly Loss or damage can arise from both subjective and objective factors, often placing liability on one party for the goods' condition.
The legislation regarding the passing of risk is crucial in international sales, as it clarifies which party is responsible for any loss or damage to goods This determination of liability provides a legal framework for resolving disputes related to the responsibility for goods in a sales contract.
1.2.4 Theories on the passing of risk
Three key theories connect the risk of loss or damage to goods in international sale contracts: the risk associated with the conclusion of the sale contract, the risk linked to the transfer of property rights, and the risk related to the delivery of the goods.
The first theory posits that risk transfer occurs at the moment a contract is concluded, meaning the buyer assumes responsibility for any loss or damage to the goods, even if they are not yet in their possession This raises concerns, as buyers may be reluctant to accept immediate risk, especially since goods could be damaged prior to contract finalization, and sellers might not disclose such issues Michiel Buydaert argues that allocating risk at the time of contract conclusion is "not very practical."
In the second theory, the time of risk transfer is associated with the time of transferring the property (or ownership) right, 11 which means that the buyer will
8 M Buydaert (2013), The Passing of Risk in the International Sale of Goods – A comparison between the CISG and the Incoterms 2010, Master Thesis, Ghent University, p 18 Z Valioti, supra note 6
The theory that the buyer bears the risk upon property transfer is impractical and misaligned with current international sales practices Despite the buyer's possession, the seller retains ownership rights, thus bearing the risk associated with the goods Additionally, the relationship between property ownership and risk is not always straightforward For instance, Article 62 of Vietnamese Commercial Law states that ownership transfers from seller to purchaser at the time of goods handover, unless otherwise stipulated by law or agreed by the parties.
The transfer of ownership from seller to buyer typically occurs when the goods are delivered However, this transfer may vary based on legal provisions or mutual agreements between the parties involved For commodities that require ownership registration, the ownership transfer takes place at the time of registration In other instances, the timing of ownership transfer is determined by the agreement between the parties.
PASSING OF RISK UNDER THE CISG 1980, INCOTERMS
Passing of risk associated with the conclusion of sale contract
The relationship between risk transfer and the sale contract is governed by both national and international legal systems, including the CISG and Vietnamese Commercial Law However, the Incoterms 2010 does not address this issue due to its limited scope.
Article 68 of the CISG deals with the situation where the goods are sold while they are already in transit and they are found damaged or lost upon arrival In these cases, the goods are not handed over to the carrier for the purpose of the transmission to the buyer, which means that Article 67(1) cannot be applied 14
14 B Nicholas (1987), Comments on Article 68 in C M Bianca and M J Bonell (eds),
Commentary on the International Sales Law: the 1980 Vienna Sales Convention, Milan, Giuffre, www.cisg.law.pace.edu/cisg/biblio/nicholas-bb68.html
Article 68 provides that: ‘The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage Nevertheless, if at the time of conclusion of the contract the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller’
Article 68 establishes that the risk associated with goods in transit transfers from the seller to the buyer upon the conclusion of the sales contract This division of risk can lead to disputes regarding the timing of damage to the goods, particularly when it is unclear whether damage occurred before or during transit Identifiable events, such as storms or collisions, make it easier to determine when damage occurred However, situations involving less obvious causes, like seepage or overheating, complicate this assessment The party bearing the risk must prove the goods' conformity, which can be challenging Generally, buyers are reluctant to accept risk at the contract's conclusion due to the potential for damage or loss during transit, making it a significant concern for them.
In various court rulings, a notable case involved two Chinese companies that entered into a contract for the sale and purchase of Peruvian fishmeal, which was to be shipped from Chicama, Peru, to Qingdao, China However, the shipment faced complications when the US Coast Guard deemed the vessel unseaworthy, resulting in the ship being blocked in Los Angeles.
16 J O Honnold (1999), Uniform Law for International Sales under the 1980 United Nations
Convention (third edition), Wolters Kluwer, www.cisg.law.pace.edu/cisg/biblio/ho68.html
The buyer refused to accept the goods due to delays at Qingdao port, declaring the contract invalid The court referenced Article 68 of the CISG, which states that the risk of goods sold in transit transfers to the buyer upon contract conclusion Consequently, the risk was transferred to the buyer on February 12, 1996 However, the court noted that the risks associated with the ship's unseaworthiness and unreasonable delays do not fall under Article 68, as they do not pertain to accidental damages.
The second sentence of Article 68 addresses the retroactive assumption and will be examined in section 2.3, as it pertains to the transfer of risk linked to the delivery of goods.
According to Article 68, if a seller is aware or should be aware of damage or loss to goods at the time of contract formation and fails to inform the buyer, they will be held responsible for the loss or damage due to bad faith However, there are interpretative challenges regarding the term 'the loss or damage' and its connection to the preceding sentences Scholars have differing views on this matter; Hager argues that the seller is only liable for losses they knew or should have known at the contract's conclusion, while Nicholas contends that the seller is responsible for all known losses, regardless of when they occurred, as long as they are causally linked to the original damage The latter perspective appears to be more widely accepted, emphasizing the seller's obligation to disclose information to the buyer Additionally, the relevance of the third sentence to the preceding ones is under consideration.
17 Fishmeal case, China International Economic and Trade Arbitration Commission (People’s Republic of China), 1 April 1997, cisgw3.law.pace.edu/cases/970401c1.html
An exception is established for the second sentence, as the risk does not transfer at the moment the contract is concluded if the loss or damage has already occurred, especially if the seller was aware of it.
The Incoterms 2010 does not include any trade term that addresses the transfer of risk upon contract conclusion Instead, the concept of risk transfer in Incoterms is solely related to the transportation of goods, specifically focusing on the transfer of possession.
Article 60 of Vietnamese Commercial Law, similar to the CISG, addresses the transfer of risk in the sale of goods in transit, establishing that unless otherwise agreed, the risk of loss or damage to the goods passes to the purchaser at the moment the sales contract is concluded.
Vietnamese legislators have drawn insights from international legislative practices, establishing that the risk transfers to the buyer upon the conclusion of the contract for goods in transit However, Article 60 complicates matters by dividing transit risk between the buyer and seller, making it challenging to determine the precise moment when goods sustain damage.
The CISG rule is particularly effective in situations where the buyer assumes risk once the goods are handed over to the carrier, as indicated by the circumstances Additionally, the CISG highlights the seller's responsibility to inform the buyer of any loss or damage to the goods if the seller is aware or should have been aware of such issues.
Under the CISG, sellers are responsible for losses or damages during transit unless they can prove otherwise In contrast, the Vietnamese legal system lacks similar provisions, leading to different implications for sellers For a clearer understanding, consider an example that illustrates the varying consequences of applying either the CISG or Vietnamese Commercial Law.
A Vietnamese enterprise and an American enterprise entered into a contract for the sale of 600 tons of agricultural products, which were already in transit Upon arrival in America, the goods were found to be damaged, and the seller was unaware of this damage According to Article 60 of Vietnamese Commercial Law, the buyer is liable for the damage since the risk transfers to them upon contract conclusion, regardless of when the damage occurs Conversely, under Article 68 of the CISG, liability depends on when the damage occurred; if it happened before the contract was concluded and the seller should have known, the seller is liable for failing to disclose this If the damage occurred after the contract was signed, the buyer bears the risk This comparison indicates that the CISG provides a more practical approach to risk transfer than Vietnamese Commercial Law, as it prevents sellers from benefiting from non-disclosure.
Passing of risk associated with the transfer of property right
The transfer of property rights involves complex and risky considerations regarding the associated risks Currently, international legal frameworks offer limited regulation on the transfer of risk related to property ownership.
Trong luận văn thạc sĩ của Phan Văn Mạnh (2012) tại Trường Đại học Luật TP.HCM, tác giả đã xác định thời điểm chuyển quyền sở hữu và chuyển rủi ro đối với hàng hóa trong hợp đồng mua bán hàng hóa.
57 that connected with the transfer of property right, including such widely known international treaties and international commercial practices like the CISG and Incoterms Despite the ignorance in universal legal systems that are commonly accepted, some national legal systems govern this issue on their own, namely English and French legal systems 21 Vietnamese Commercial Law, like English and French laws, also stipulates the passing of risk in the connection with the transfer of property right
The CISG does not address the transfer of property rights, focusing instead on the passing of risk related to the delivery of goods Article 4(b) explicitly states that the Convention does not concern itself with the effects of contracts on property rights Goode argues that including regulations on property rights would have overly complicated the CISG and highlighted the significant disparities in legal policies across different jurisdictions For example, the determination of ownership rights based on possession varies widely, with some legal systems transferring property at the contract's conclusion, regardless of delivery.
21 In England, under Section 20(1) of The Sales of Goods Act 1979, the risk and the property right pass at the same time for F.O.B contracts
Article 1138 of the French Civil Code states that an obligation to deliver a thing is fulfilled solely through the consent of the parties involved This transfer of ownership to the creditor occurs at the moment delivery is due, placing the risk on the creditor, even if the actual handover has not taken place, unless the debtor has been notified to deliver, in which case the risk remains with the debtor.
The transfer of property occurs when goods are delivered to the buyer, highlighting significant differences in legal approaches to unauthorized dispositions by parties in possession without ownership Common law systems adhere to the principle of "nemo dat quod non habet," while civil law systems favor "en fait de meubles la possession vaut titre." UNCITRAL acknowledges the challenges and lack of necessity in unifying rules regarding property transfer due to the diverse national legal systems and existing regulations governing the consequences of such transfers.
Under the Incoterms 2010, the responsibilities of the seller and buyer regarding the delivery of goods are clearly defined; however, these terms do not address the transfer of property rights or the associated risks This limitation is similar to the circumstances surrounding the CISG While Incoterms play a crucial role in interpreting international sales contracts, they do not cover issues such as property rights transfer or breach of contract consequences Additionally, the varying regulations across different legal systems make it challenging for Incoterms 2010 to standardize international laws concerning property rights allocation.
The legal principle "23 Nemo dat quod non habet" asserts that a buyer cannot acquire ownership of a possession from someone who lacks the rightful ownership This means that purchasing an item from a non-owner results in the buyer receiving no legal title to that item.
The legal principle "in case of movables, possession means title" asserts that an individual physically possessing movable property can assert ownership without needing written proof.
25 Secretariat Commentary on the 1978 Draft of the CISG, www.cisg.law.pace.edu/ cisg/text/secomm/secomm-04.html
In the article by A C Yildirim (2012), titled "Lack of Uniform Application Regarding Transfer of Property in International Sales Contracts with Particular Regard to Retention of Title Clauses," the author discusses the inconsistencies in the application of property transfer in international sales agreements, particularly focusing on retention of title clauses This analysis is situated within the context of the New Turkish Code of Obligations and the CISG, highlighting the need for clearer guidelines in international trade practices For further details, the article can be accessed at Iki Levha Publishing and is available online at www.cisg.law.pace.edu/cisg/biblio/yildirim.html.
According to the Textbook on International Commercial Contract Law, Vietnamese regulations lack a connection between the passing of risk and the transfer of ownership rights However, the author believes that Article 59 of Vietnamese Commercial Law does establish a link between these two concepts It states that unless otherwise agreed, if goods are held by a bailee who is not a carrier, the risk of loss or damage to the goods transfers to the purchaser under specific conditions.
1 Upon receipt by the purchaser of documents of title to the goods;
2 Upon the confirmation by the bailee of the purchaser's right to possession of the goods’
When the property right of goods is transferred to the buyer, the buyer assumes the risk of loss or damage to those goods This transfer occurs either when the buyer receives the title documents or when the bailee confirms the buyer's right to possess the goods Notably, Article 59 introduces a new rule in the Vietnamese legal system, aligning with the theory that risk transfer is linked to ownership transfer Many scholars argue that the provisions regarding property right transfer should fall under the CISG, indicating that the associated risk transfer should also be regulated Thus, it is evident that Vietnam has proactively addressed these legal considerations.
Vietnamese law, specifically Articles 57 to 61 of the 2005 Commercial Law, provides detailed regulations regarding the transfer of risk from seller to buyer The timing of this risk transfer varies based on specific conditions Notably, these articles share a common aspect: they do not link the transfer of ownership rights to the timing of risk transfer.
Nguyen Van Luyen, Le Thi Bich Tho, Duong Anh Son (2007), Textbook on International Commercial Contract Law, National University Publishing, Ho Chi Minh City, p 201
28 Phan Van Manh, supra note 19
In his 2004 Master Thesis at Durham University, Tran Quoc Thang explores whether the United Nations Convention on Contracts for the International Sale of Goods (CISG) should govern the transfer of property The thesis is available online at www.cisg.law.pace.edu/cisg/biblio/thang.html.
M Wesiack (2004), Is the CISG too much influenced by civil law principles of contract law rather than common law principles of contract law? Should the CISG contain a rule on the passing of property?, Master Thesis, University of Sydney, www.cisg.law.pace.edu/cisg/biblio/wesiack.html possible circumstances and tried to avoid disputes by governing many aspects in a sales contract, which might be a positive point However, the provision is still ambiguous to some extent Firstly, Vietnamese Commercial Law does not have a clear definition about the ‘bailee that is not a carrier’ Particularly, who is the bailee? Does this person have the relationship with the seller or the buyer? If the bailee has the relationship with the seller, the seller’s delivery of goods to the bailee does not mean that he has fulfilled his obligation to deliver the goods to the buyer
Passing of risk associated with the delivery of the goods
According to the third theory, the individual responsible for the goods bears all risks of loss or damage, which is deemed practical and justified This is particularly relevant in international sale contracts, where the delivery of goods is a crucial element, as most contracts involve the carriage of goods Typically, the seller must deliver the goods to the buyer, who is obligated to accept them; failure to deliver means the contract cannot be fulfilled, preventing the transfer of risk Consequently, the theory of risk transfer related to goods delivery is widely recognized in both international and national legal systems and is supported by numerous scholars.
The core principle of the CISG's regulations is the connection between the transfer of risk and the delivery of goods This article will explore the application of the third theory within the legal framework of the CISG.
Passing of risk in case involving carriage of goods – Article 67(1)
Many international sale contracts involve the transportation of specific goods using various modes of transport According to Article 67(1) of the CISG, if the sale contract includes the carriage of goods and the seller is not required to deliver them at a specific location, the risk transfers to the buyer once the goods are handed over to the first carrier for delivery in line with the contract.
The term 'contract of sale involves carriage of the goods' encompasses more than just the transportation of goods by road, sea, air, or multimodal means It also includes the seller's responsibility to arrange the carriage of goods for delivery to the buyer.
If the parties do not agree on a specific delivery location, the risk transfers to the buyer when the goods are handed over to the first carrier as per the sale contract The term 'first carrier' is not defined by the Convention, raising questions about whether it must be an independent carrier or if the seller can use their own means Hoffman argues that transportation by the seller's staff does not equate to that of an independent carrier, a view echoed by Nicholas, who asserts that carriage by the parties themselves falls outside the scope of Article 67(1) This distinction is crucial, as allowing the seller to transport the goods could lead to disputes over due care in the event of loss or damage For example, in a case involving a German seller and a Danish buyer, the parties agreed on the sale of 400 sheep at DM 75 each, highlighting the complexities of risk transfer in such transactions.
Denmark at the exact place of delivery and the seller then invoiced the buyer for
32 F Enderlein and D Maskow (1992), International Sales Law, Oceana Publications, p 264
33 B Hoffman (1986), ‘Passing of Risk in International Sales of Goods’ in P Sarcevis and P Volken (eds), International Sale of Goods: Dubrovnik Lectures, www.cisg.law.pace.edu/cisg/biblio/vonhoffmann.html
34 B Nicholas (1987), Comments on Article 67 in C M Bianca and M J Bonell (eds),
Commentary on the International Sales Law: the 1980 Vienna Sales Convention, Milan, Giuffre, www.cisg.law.pace.edu/cisg/biblio/nicholas-bb67.html
The buyer purchased sheep for DM 30,000 but claimed they were in poor condition due to inadequate transport, seeking a price reduction to DM 15,000 and compensation of DM 21,288.80 for the goods' nonconformity and related expenses The Court ruled that the seller was not liable for the goods' depreciation, as the risk transferred to the buyer upon delivery to the carrier The seller would only be responsible for defects if they had directed the carrier to overload the sheep, but no evidence was presented to establish the seller's joint responsibility for the overloading, leaving the buyer accountable for the damages.
Article 67(1) states that when goods are delivered at a specified location, the risk transfers to the buyer only once the seller hands the goods over to a carrier at that location The seller's right to retain documents related to the goods does not influence this risk transfer Thus, the risk is assumed by the buyer upon the goods being handed to the carrier, irrespective of whether the seller or an independent transport company delivers them The term 'handing over to the carrier' implies that the goods are placed in the carrier's custody, although the CISG does not define the precise moment of this handover Court interpretations vary, with some requiring only that the seller places the goods next to the vessel for the transfer to be considered complete.
36 Live sheep case, Schleswig (Germany), 22 August 2002, cisgw3.law.pace.edu/cases/020822g2.html
The 1978 Draft of the CISG highlights that "handing over" can refer to either completing the carriage or simply placing the goods on board the vessel This topic will be explored in more detail in subsection 2.3.2.
Article 67(1) clarifies that the risk of loss passes to the buyer even if the seller retains documents controlling the goods, indicating that risk transfer is separate from the transfer of property rights In a case involving a sale contract between a German seller and a U.S buyer for an MRI machine shipped under 'CIF New York Seaport', the risk transferred to the buyer at the port of shipment, while the seller was responsible for costs, freight, and insurance When the MRI arrived damaged at the destination, the buyer sought damages, arguing that the property right had not yet passed, thus the risk remained with the seller However, the court ruled that, per Article 67(1) of the CISG, the timing of risk transfer is independent of property right transfer, leading to the dismissal of the buyer's claim.
Identification of the goods – Article 67(2)
Article 67(2) introduces a crucial condition for the transfer of risk outlined in Article 67(1), stating that risk does not transfer to the buyer until the goods are distinctly identified to the contract This identification can occur through various means, such as markings on the goods, shipping documents, or notifications to the buyer This provision is particularly relevant in cases involving fungible bulk cargo or collective consignments, where determining the exact moment of risk transfer can be challenging due to the sale of goods to multiple buyers.
In the case of 38 St Paul Guardian Insurance Co v Neuromed Medical Systems, the U.S District Court for the Southern District of New York highlighted the importance of risk passing in sales transactions The buyer is responsible for any loss or damage to goods if the seller has properly identified them through markings or shipping documents This regulation under the CISG aims to prevent sellers from claiming that damaged goods were intended for sale if they fail to identify them If a seller ships goods in bulk without proper identification and those goods are damaged in transit, the seller assumes full liability Thus, it is inferred that the seller has an obligation to identify goods in a sale contract, even if not explicitly stated in the CISG Proper identification during preparation and delivery minimizes risk and enhances the seller's reputation with buyers.
Passing of risk for goods sold in transit – Article 68
Article 68 of the CISG primarily addresses the relationship between the passing of risk and the conclusion of a sales contract Notably, the second sentence of this article introduces an exception regarding risk transfer for goods sold in transit, stating that "if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage." This provision allows for the risk to transfer to the buyer retroactively, even before the contract is finalized, specifically at the moment the goods are handed over to the carrier.
The application of the rule regarding the contract of carriage is contingent upon the ambiguous precondition of 'indicative circumstances.' According to Nicholas, 'circumstances' typically denote situations where the parties' intentions are inferred rather than explicitly stated For instance, in a contract between a Vietnamese and an American enterprise for the sale of agricultural products, if the goods arrive in America damaged by seawater, the risk has transferred to the buyer upon contract conclusion, as per Article 68 CISG However, determining the exact moment of damage—whether it occurred before or after the contract was finalized—can be challenging If the contract includes an insurance policy that has been transferred to the buyer, the provisions of the second sentence of Article 68 would then apply.
In the event of an indicative circumstance, the buyer is entitled to request compensation from the insurer for damages to the goods This right serves as evidence of the risk transfer from the seller to the buyer, occurring when the goods are delivered to the carrier, who then issues the relevant transportation documents.
Passing of risk in other cases – Article 69
Article 67 and Article 68 of the CISG regulate sale contracts involving the carriage of goods, which is essential in global trade In contrast, Article 69 addresses non-carriage situations, stating that the buyer is responsible for possessing the goods and arranging transport, whether through personal vehicles or public carriers, without the seller's obligation to deliver However, this provision is rarely utilized, as parties in international sale contracts typically engage third-party carriers for delivery.
42 Secretariat Commentary on the 1978 Draft of the CISG, www.cisg.law.pace.edu/cisg/text/secomm/secomm-69.html