Shipping Finance Annual (2003/2004) 40-43. Reproduced with permission of the authors.
Douglas W Bateson and Dionysios Flambouras
Thomas Cooper & Stibbard Hellas
In this article we examine the interplay between the 1980 United Nations Convention on Contracts for the International Sale of Goods ('CISG', 'Convention') and the latest edition of the International Commercial Terms of the International Chamber of Commerce of Paris ('INCOTERMS 2000', 'Rules').
- Introduction: paradigm case
- Meaning of the 'first carrier': problem and solution
- Matters not covered by Incoterms 2000
- Matters not covered by Incoterms 2000 and the Convention
UN Convention on Contracts for the International Sale of Goods is a major development in the area of international trade law and is the uniform sales law for countries that account for two-thirds of all world trade. It came into force on January 1, 1988 and, until now, has been ratified by 62 states (including US, Canada, and Russia, but not the UK). Greece has recently ratified CISG (February 1, 1999), giving it the status of binding law and replacing the Greek Civil Code's provisions ('Astikos Kodikas') for the great majority of international sales.
The Convention applies to contracts for the sale of goods between parties whose places of business are in different states (a) when the states are Contracting States (e.g. Greek seller -- French buyer), or (b) when the rules of private international law lead to the application of the law of a Contracting State in the contract of sale (e.g. the parties have provided that Greek law will govern their contract) (art. 1 CISG), or (c) when the Convention is specifically incorporated.
In brief, the Convention's structure appears as follows:
However, the Convention leaves some important matters unregulated e.g. mistake, transfer of title, renegotiation of contract in cases of hardship, effect and validity of penalty clauses, rate of interest in outstanding monetary obligations etc. Also the Convention does not apply to sales of ships, vessels, hovercraft or aircraft, electricity, stocks, shares, investment securities, negotiable instruments or money (art. 2 CISG).
Finally the Convention is wholly or partly excludable in any contract which specifically so states and it permits contractual terms to override its provisions on any specific point.
INCOTERMS 2000 
ICC International Commercial Terms (INCOTERMS 2000) are used to provide interpretation of the most commonly used trade terms in foreign trade and shipping, and which normally appear in the mode of the following standardised abbreviations: Ex Works [EXW] [-E- Term]; Free Carrier (FCA); Free on Board (FOB); Free Alongside Ship (FAS) [-F- Terms]; Cost Insurance Freight (CIF); Cost & Freight (C&F); Carriage Paid To (CPT, Carriage and Insurance Paid To (CIP) [-C- Terms]; Delivered At Frontier (DAF); Delivered Ex Ship (DBS); Delivered Ex Quay (DEQ); Delivered Duty Unpaid (DDU); Delivered Duty Paid (DDP) [-D-Terms].
In connection with the above, INCOTERMS 2000 have been reviewed recently and amended (January 1, 2000) in order to cover the constantly changing needs of international trade. These do not have the force of law. They are traditionally considered as 'soft law' and a comparative survey of national jurisprudence and arbitral awards shows that they are usually binding as far as they are expressly or impliedly incorporated into the contract by the parties.
These rules deal with primary obligations imposed on a seller and buyer in the context of international contracts for the sale of goods and do not contain any detailed provisions on delivery times or on the buyer's obligation to pay the price. Also they do not regulate the conclusion of the contract of sale, the issue of title, the exemption from a party's obligation to perform, or the consequences of failure of performance. These aspects are dealt with by applying the national law referred to by the governing conflict rules. This means that in situations where Greek law is applicable, these matters will quite often, be governed by the Vienna Convention.
Introduction - Paradigm case
As one can see from the preceding paragraphs the application of the Convention will quite often coincide with the application of INCOTERMS 2000 in the area of shipping and more generally foreign trade. This parallel application may, however, create some problems for judges or practitioners.
In order to better understand these problems let us assume the following scenario: S of New York contracts to sell of Athens 500 tonnes corn CIF 'Piraeus' without any further indication as to applicable law. If an action on that contract is validly brought in a Greek court or panel sitting in Greece, a 'strict' judge/arbitrator would consider INCOTERMS 2000 inapplicable since the contract has failed to specifically incorporate them. He/she would further determine the meaning of the phrase CIF 'Piraeus' under the Greek private international law (Rome Convention 1990), i.e. the proper law of the contract. Whether Greek or US law would be applicable the Convention provisions would apply since it has been ratified by both countries and the CIF contract is of international character (art. 1 CISG).
Meaning of the 'first carrier' - problem - solution
If the interpretation explained in the preceding paragraph is adopted, then art. 31(a) CISG applies which provides the rule in the case of a contract of sale involving carriage of goods: if the seller is not bound to deliver the goods at any particular place, his [her] obligation to deliver consists in handing the goods over to the first carrier. In our scenario this means that, since the parties have not expressly or impliedly otherwise agreed, delivery occurs and risk (under art. 67(1) CISG) passes to the buyer when the seller delivers the goods to the possession of the first carrier which will normally be an inland carrier (independent or related to the seller) or a container terminal operator, thus transferring to the buyer all risk and expense of the pre-shipment land journey.
However, such an interpretation conflicts with the unanimously accepted (by Greek, English, US  law and the INCOTERMS 2000 ) rule that in a CIF contract delivery occurs and risk passes on shipment at the port of loading. Therefore, there is a chance that a Greek court will either (a) consider that the contracting parties have impliedly incorporated INCOTERMS 2000 into their contract especially if there is prior practice between them to that effect, e.g. previous contracts of CIF sale subjected to INCOTERMS 2000 (art. 8(2) CISG) or (b) refer to INCOTERMS 2000 as prevailing trade usage or interpretative criterion (art. 9 CISG).
Although this appears a sensible solution, one cannot preclude that the judge or the arbitrator will place expense and risk on the buyer for the period of the land carriage prior to shipment following the rule in art. 31(a) CISG above.
Therefore, in order to avoid such risk, it is strongly advisable that the legal advisors of the parties make clear provision for the application of INCOTERMS e.g. by incorporating a phrase into their contract such as 'CIF Piraeus - INCOTERMS 2000', thus making sure that the obligations of buyer and seller are determined by the rules of interpretation of the CIF clause provided for by the ICC.
Matters not covered by INCOTERMS 2000
Parties should bear in mind that reference to INCOTERMS 2000 is not a panacea. As stated above a number of matters are left out of the scope of the rules (e.g. delivery times, conclusion of the contract, failure of performance etc) or, although the matters are within the scope of the rules, they are regulated without any detail. For example in B.I the rules simply underline every buyer's self-evident principal obligation to pay the price without any further provisions concerning the specific obligation.
It is apparent that, unless otherwise expressly (specific term) or impliedly (usages/past practices) agreed, the judge or arbitrator applying Greek law or applying the domestic law of a Convention country will apply the Convention's provisions that govern payment of the price (CISG arts 54-59). Therefore, the parties should be careful and think in advance when drafting their contract in order to make sure that the Convention's provisions regulating payment of price correspond to their wishes.
Matters not covered by INCOTERMS 2000 and the Convention
In addition, quite surprisingly some important matters are covered neither by INCOTERMS 2000 nor the Convention (e.g. mistake, ownership, renegotiation of contract due to hardship), and in the absence of specific provisions one is thrown back to the relevant provisions of the applicable law concerning domestic sale of goods. We can, therefore, understand that if the parties do not want to be caught by having to apply national rules possibly unknown to them, they should provide mutually acceptable drafted terms (e.g. transfer of title, hardship or effect of mistake clauses) covering these matters
CHECKLIST IN SUMMARY
From the foregoing we can see that the separate or the joint application of the INCOTERMS 2000 and/or the Convention can create problems. The situations dealt with in this article are not the only problem areas and the judge or arbitrator may face situations where in the absence of specific provisions he may adopt a solution not intended by the parties at the time they contracted.
Therefore, it is important for the parties involved in an international sale involving carriage of goods by sea (sellers, buyers, carriers) to keep in mind the following bullet points when they deal with international sales:
1. If they wish INCOTERMS to apply they should make clear incorporation of the current edition into their contract: e.g. 'CIF Piraeus - INCOTERMS 2000'.
2. Since INCOTERMS 2000 leave important matters unregulated (e.g. conclusion of contract, mistake, payment of price, transfer of title, renegotiation due to hardship, exemption from liability, consequences of failure to perform) they should make sure that they deal with these matters with specific contractual terms. If the parties have not provided contractually for these matters, then there is a high degree of uncertainty since the applicable law may lead to the Convention's provisions or, where the Convention also leaves these matters unregulated (e.g. hardship, mistake, title, validity and effect of penalty clauses, rate of interest in outstanding monetary obligations), to national law provisions concerning domestic sales.
3. Although the strength of the Convention and the INCOTERMS 2000 as a combination of provisions suitable for international trade is undisputable, they do not cover totally every need confronted in international trade. Only detailed, well-negotiated and clear contractual terms can cover these needs and, at the same time, prevent a judge or an arbitrator from adopting unwanted solutions.
1. U Doc A/CONF97 18 reprinted in  XI UNCITRAL Yearbook 149.
2. For the current developments concerning Greek bibliography and case law relating to the CISC see <http://www.cisg.law.pace.edu/cisg/greek-cisg/index2.html> (version in English); <http://www.cisg.law.pace.edu/cisg/greek-cisg/index1.html> (version in Greek).
3. As for examples does GAFTA which totally excludes the application of the Convention See for example Contract no 100 'Contract for shipment of feedingstuffs in bulk' (term no. 33) Contract no 79 'Contract for UK and Republic of Ireland Grain - Rye terms - CIF terms' (term no 38).
4. For a detailed analysis of these rules see ICC Official Rules for the Interpretation of Trade Terms Incoterms 2000 J Ramberg Guide to Incoterms 2000 (ICC Public ) (in English). D Flambouras 'INCOTERMS 2000' Dikeo Epihiriseon ke Eterion (Enterprise and Company Law) 2000/3 260-270 (in Greek).
5. Rome Convention came also into force in England & Wales as "Contracts (Applicable Law) Act 1990".
6. Piraeus Court of First Instance 1530/1996 Epitheonssi Embonkou Dikeou (Commercial Law Review) 1997 304 305.
7. Bidden Bros Clemens Horst Co  1 KB 214 220.
8. Paragraph 2-320(a) & (b) Uniform Commercial Code.
9. Term A5.
10. It is worth mentioning that the German Supreme Court concluded that a clause FOB without specific reference to INCOTERMS was to be interpreted according to INCOTERMS simply because the INCOTERMS include a clause FOB (BGH Decision of the 18th June 1975, file No. VIII ZR 34/74 NW 1975 s 917) This approach found positive reaction in a USA decision that applied German law see St Paul Guardian Insurance Co and Travelers Insurance Co Neuromed Medical Systems & Support GmbH et al DC Southern District of New York 00 Civ 934 (SHS) of 26 March 2002 in <http://cisgw3.law.pace.edu/cases/020326u1.html>. Consequently there is a chance that some courts will interpret the Convention by referring to INCOTERMS 2000 even though the contracting parties have not expressly incorporated them into their contract of sale.
11. An Argentinian court followed mistakenly in our opinion this approach see Camara Nacional de Apelaciones en lo Comercial (Bed/a/ SA Paul Mueggenburg and Co GmbH) Case Law on UNCITRAL Texts abstract no 191.
Douglas Bateson, Resident Partner and Foreign Registered Lawyer with the Athens Bar, and Dionysios Flambouras, English Solicitor and Advocate of the Athens Bar, Thomas Cooper Stibbard Hellas & Co OE, 11 Kanari Street, Kolonaki, 106 71 Athens, Greece. Tel: +30 210 361 4840 Fax: +30 210 361 4842.