The Buyer`s Remedies For Late Delivery Of Commodity Cargoes In CFR And CIF Sale Contracts

The remedies for CFR and CIF buyers in claims involving late delivery of commodity cargoes depend on the contractual terms.
In a traditional CFR/CIF sale contract where the contract delivery period is a shipment period, the sellers must ship the whole cargo by the end of the contract delivery period. In such contracts, the vessel`s ETA or arrival date range at the discharge port is indicative only and is provided by the seller based on "a reasonable assessment of the customary loading and voyage time" and without guarantee<sup>1</sup>. The seller does not assume any responsibility for the delivery of the commodity at the discharge port within such arrival date range<sup>2</sup>. BP and Shell Terms and Conditions for CFR and CIF sales stipulate that the seller`s only obligation is "to use its reasonable endeavours to ensure that the contract of carriage is consistent with the meeting of such date"³.
However, when a CFR/CIF seller gives the buyer the vessel`s ETA at the discharge port, the vessel`s ETA must be based on reasonable grounds. In the English law case SHV Gas Supply & Trading SAS v. Naftomar Shipping & Trading Co. Ltd.⁴, the vessel`s laycan at loading port was 17-19 February 2003. On 17 February, SHV Gas Supply & Trading SAS sold a cargo of butane to Naftomar Shipping & Trading Co. Ltd. basis CIF Tunisia Port – La Goulette or Gabes with the vessel`s ETA on 19 February at La Goulette and 20 February at Gabes. The discharge port was to be declared at latest upon berthing at loading port.
The vessel arrived at loading port on 17 February but could not proceed to berth until 3 March due to bad weather and port closure. On 25 February, the buyer cancelled the purchase contract.
The English Commercial Court held that:
- The Seller`s obligation to give the vessel`s ETA at discharge port based on reasonable grounds was a condition of contract. When CIF sellers are the charterers of the vessel and appoint the vessel`s agents at loading port, the CIF buyers are entitled to expect that the vessel`s ETA had been given after due inquiry. The vessel`s ETA will not be considered to have been given on reasonable grounds if an inquiry which ought to have been made has not been made and the answer would have invalidated the ETA<sup>5</sup>. An inquiry would have revealed that there was no prospect of the vessel berthing at the time of the vessel`s arrival at the loading port.
- Since the vessel`s ETA at discharge port was not given on reasonable grounds, the CIF seller was in breach of condition and the buyer was entitled to terminate the contract. The consequences of the ETA invalidity entitled the CIF buyer to terminate the contract. The ETA given by the CIF seller constituted a misrepresentation which was relied on by the CIF buyer. Had the buyer known that bad weather was giving rise to berthing problems, he would not have purchased the cargo.
In a non-traditional CFR/CIF sale contract, where the contract delivery period is a period for arrival of the carrying vessel at the discharge port, the sellers do not have the obligation to load the goods within a specified shipment period, but they must ensure that the goods will be shipped in time for the carrying vessel to arrive at the port of discharge within the date range agreed in the sale contract<sup>6</sup>, taking into consideration the expected voyage time in normal weather conditions from the loading port to the port of discharge. The sellers` failure to nominate a vessel with an ETA at the port of discharge within the arrival date range agreed in the sale contract and/or a suitable vessel for the carriage and delivery of the goods at the port of discharge (i.e. a vessel that complies with the draft restrictions at the anchorages, approaches and berths of the port of discharge) and/or provide a shipment advice within the contractual time limit taking into consideration the latest date by which the goods should be shipped for the carrying vessel to reach at the port of discharge within the arrival date range agreed in the sale contract will be considered a breach of contract and will entitle the buyers to terminate the contract.
The sellers must also ensure that, in the ordinary course of events, that is, except where a force majeure event occurs and prevents delivery of the goods within the date range agreed in the sale contract⁷, the vessel carrying the goods will arrive and tender valid NOR at the port of discharge within the agreed date range⁸. Except where a force majeure event occurs and prevents delivery of the goods within the agreed date range, the vessel`s arrival after the agreed date range will entitle the buyer either to terminate the contract and reject the goods or to claim damages for late delivery, depending on the contract provisions<sup>9</sup>.
A claim for damages for the late delivery of an oil cargo will be based on the difference between the market price on the last contractual date for delivery (i.e. the last day of the contractual delivery period) and the market price on the actual date of delivery. Unlike to a traditional CFR/CIF sale contract, where the price of cargo is determined based on the relevant price quotation on the Bill of Lading date, in a non-traditional CFR/CIF sale contract, the price of cargo is determined based on the relevant price quotation on the vessel`s NOR date at the port of discharge like in a DAP sale contract because this is considered to be the delivery date and not the shipment date stated in the Bill of Lading.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Oil Trade Review Edition No. 1.

Endnotes:

1. See the Sub-Clauses 11.2 and 11.3 of BP Oil International Limited General Terms & Conditions for Sales and Purchases of Crude Oil and Petroleum Products – 2015 Edition and Sub-Clause 11.2 of Shell`s General Terms and Conditions for Sales and Purchases of Crude Oil, 2010 Edition.
2. See the Sub-Clause 11.2 of Shell`s General Terms and Conditions for Sales and Purchases of Crude Oil, 2010 Edition.
3. See the Sub-Section 57.1.26 of BP Oil International Limited General Terms & Conditions for Sales and Purchases of Crude Oil and Petroleum Products – 2015 Edition and Sub-Section 27.1.17 of Shell`s General Terms and Conditions for Sales and Purchases of Crude Oil, 2010 Edition.
4. [2006] 1 Lloyd`s Rep. 163; [2005] EWHC 2528 (Comm).
5. In Pagnan v. Schouten, [1973] 1 Lloyd`s Rep. 349, the English Commercial Court held that: "If it would have been reasonable to have made such inquiries and unreasonable to have omitted to do so, and if such inquiries, if made, would have lead any reasonable person to hold a different expectation, then it seems to me that the statement cannot be said to have been made on reasonable grounds."
6. The delivery period in non-traditional CFR/CIF sale contracts is also referred to as "arrival period". In GAFTA Arrival Contracts – GAFTA Contracts Nos. 94, 94A and 95 – the contract delivery period is referred to as the "contract period for fulfilment" or as "period of fulfilment". The sellers` vessel must enter into Customs or register with the port authority/pilot station at the discharge port during the period of fulfilment, not sooner and not later.
7. In Vitol S.A. v. Esso Australia Ltd. (The "Wise"), [1989] 1 Lloyd`s Rep. 96, a contract for the sale of an oil cargo on CFR Melbourne terms had the following provisions: "Delivery: Vessel TBN. Arrival March 15-30, 1986." The cargo was loaded on board the vessel on 6 March 1986. The vessel`s ETA at Melbourne was 27 March 1986. However, after the departure from the loading port, the vessel carrying the cargo was hit by a missile. Due to the damages caused by the missile, the vessel could not continue the voyage. The vessel was towed to the nearest port where the cargo was transhipped into another vessel. Due to the time lost for towing the damaged vessel and transhipment of cargo, the second vessel could not reach the port of Melbourne within the date range specified in the sale contract. The buyer rejected the cargo on the ground that it had arrived after the contractual delivery period. The English Commercial Court held that the seller`s obligation was to nominate a vessel that would "in the ordinary course of events" arrive at the port of discharge within the arrival date range stipulated in the sale contract. Had the first vessel not been hit by the missile, it would have arrived at the port of discharge by 30 March 1986.
8. For an example of such provisions see Sub-Clause 46.1.4 of Saudi Aramco Products Trading Company General Terms And Conditions For Sales And Purchases Of Petroleum Products, 2011 Edition which stipulates that: "If the Seller and the Buyer expressly provide in the Trade Confirmation that the nominated Vessel shall be guaranteed to arrive at the Discharge Port within a date or range of dates ("Guaranteed Discharge Dates") Seller must ensure that the nominated Vessel tenders Valid NOR at the Discharge Port within the Guaranteed Discharge Dates." See also Rule 7 of the Rules Relating to Contracts of The Refined Sugar Association.
9. See Sub-Clause 51.2.4 of Saudi Aramco Products Trading Company General Terms And Conditions For Sales And Purchases Of Petroleum Products, 2011 Edition.