Go to Database Directory || Go to Database Bibliography || Go to Bianca-Bonell List of Abbreviations || Go to Bianca-Bonell Bibliography

Cite as Nicholas, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 487-495. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.

Article 67

Barry Nicholas

1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision

ARTICLE 67

(1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk.

(2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.

1. History of the provision

     1.1. - The passing of risk is one of the areas in which the approach of the Convention differs most markedly from that of ULIS, though the practical effect will often be the same. ULIS proceeds from the principle that risk should pass when the seller has discharged his main obligations and it gives effect to this principle by embodying those obligations in the single technical concept of «delivery», which is defined (Article 19(1) of ULIS) as «the handing over of goods which conform with the contract». Risk passes, in principle (Article 97(1) of ULIS), «when delivery of the goods is effected in accordance with the provisions of the contract and the present Law». This general proposition is then subjected to special provisions relating to non-conforming goods, unascertained goods and goods sold while already in transit by sea (Articles 97 to 99 of ULIS). The type of sale which is in fact the most common in international trade, i.e., which involves carriage of the goods, is provided for by a qualification of the definition of «delivery» (Article 19(2) of ULIS). [page 487]

This approach, though conceptually elegant, was criticized as excessive1y complicated and difficult to understand (and as leading to unsatisfactory solutions in some common commercial situations). Early in its deliberations the Working Group invited the Secretariat to submit a study of all aspects of «delivery» in ULIS (see Yearbook, III (1972), 31) and in the light of this study decided (see Yearbook, III (1972), 83-84) to deal with risk independently of any technical concept of delivery. (For the approach to delivery which was then adopted see commentary on Articles 30 to 34, supra).

     1.2. - The Working Group returned to the question of risk with the help of a report by the Secretariat (see Yearbook, V. (1974), 89; see also Yearbook, VI (1975), 108). The resulting draft differed in three broad ways from ULIS: (a) the treatment of risk was entirely independent of the treatment of the seller's obligation to delivery; (b) the passing of risk was determined by the fact that the goods had been handed over or by some similar fact appropriate to the particular situation envisaged, such as that the goods had been placed at the buyer's disposal; and (c) the rules were stated primarily in terms of contracts involving carriage (now Articles 67 and 68), with a residual provision for other contracts (now Article 69).

The Working Group accepted that (as was the case with ULIS) these rules would often be overridden, in accordance with the provisions of Articles 6 and 9, by express terms in the contract or by the adoption by reference of conventional trade terms, such as INCOTERMS (see Yearbook, V (1974), 48). Individual articles underwent considerable changes by the Commission at the Vienna Conference, but the approach adopted by the Working Group was not affected.

     1.3. - A proposal was made at the Vienna Conference (see Official Records, II, 402-403) to modify the foregoing policy by providing that the risk should not pass to the buyer until he had an opportunity to insure. This was rejected, the general view being that Article 32(3), coupled with Articles 49(1)(a) and 70, provided sufficient protection for the buyer.

     1.4. - Article 67 provides for the most common type of international contract (see § 1.1., supra). The first sentence of [page 488] paragraph (1) is in substance a combination of Articles 19(2) and 97(1) of ULIS in the light of the foregoing policy decisions. The addition of the final words «in accordance with the contract of sale» was made at the Vienna Conference (see Official Records, II, 212-213, 402) in order to make it clear that the handing over must be in accordance with the contract. There was some concern, however, that it might be understood more generally as making the passing of the risk dependent on compliance with the contract and as creating difficulties in regard to the relationship between this provision and Article 70. Under this view the addition was unnecessary in that its purpose was already achieved by the requirement that the contract should involve carriage.

The second sentence of paragraph (1), which has no counterpart in ULIS, was added by the Commission, as was the third sentence (see Yearbook, VIII (1977), 63 , 133, 162).

     1.5. - The remote antecedent of paragraph (2) is Article 19(3) of ULIS. The Working Group decided (see Yearbook, V (1974), 49) not to include such a provision on the ground that it might result in risk passing while the goods were in transit, with consequent difficulties of proof. The paragraph was, however, inserted by the Commission (see Yearbook, VIII (1977), 63-64, 163), and amended at the Vienna Conference (see Official Records, II, 402) to make it more flexible and to remove what was seen as an undue emphasis on identification by marking with an address.

2. Meaning and purpose of the provision

     2.1. - The practical importance of the passing of risk (see commentary on Article 66, supra, § 1.2.) is such that it will usually be regulated by the contract, either expressly or by the use of trade terms. It must therefore be emphasized that the rules in Articles 67 to 69 apply only in the absence of such regulation.

     2.2. - Article 67(1) presents some difficulties of interpretation. It must be read in conjunction with Article 69, since the two articles taken together provide comprehensive rules for the passing of risk in all cases (apart from the special situation covered [page 489] by Article 68). Article 67 lays down rules for two situations in which «the contract of sale involves carriage of the goods» (see also Article 31). These words cannot simply mean that as a consequence of the sale the goods will be moved from one place to another, since this is true of virtually every international sale (and there would in consequence be no scope for the application of Article 31(b)). The word «carriage» (and the associated word «carrier») presumably exclude those cases in which the movement of the goods is effected wholly by the parties' own means of transport. For there to be «carriage» there must be a third party (the «carrier») who undertakes to move the goods. (For another view see SCHLECHTRIEM, UN-Kaufrecht, 80). Similarly, the word «involves» cannot mean simply that a consequence of the sale will be carriage of the goods, but must refer to a provision in the contract, express or implied, requiring or authorizing carriage to be arranged. This will nearly always (but see § 3.3., infra) mean that the seller is required or authorized to arrange for carriage, since in those cases in which the buyer is to arrange for collection of the goods, the contract will not in practice specify the means of collection (see commentary on Article 69, infra). This interpretation (for which see also Secretariat's Commentary, Official Records, I, 64) accords both with commercial practice (see HONNOLD, Uniform Law, 236, 374) and with the requirements of policy. For in the two cases covered by Article 67 risk passes on the handing over of the goods to a carrier and it is obviously preferable that the risk should remain with the seller so long as the movement of the goods is being effected by the seller's own transport, for which the seller is himself responsible. If the risk were to pass earlier, there would be a much greater likelihood of litigation (with attendant difficulties of proof) arising from the proviso to Article 66 («unless the loss or damage is due to an act or omission of the seller»).

     2.3. - The first sentence of the first paragraph states the basic rule for contracts involving carriage. Where the seller is not bound to «hand [the goods] over at a particular place», the risk passes when they are «handed over to the first carrier for transmission to the buyer» (as to the words «in accordance with the contract of sale», see § 1.4., supra). The second sentence provides for one case in which the seller is bound to hand over the [page 490] goods at a particular place, i.e., where he is bound to hand them over to a carrier at that place. Any other cases involving carriage fall within Article 69 (see § 2.5., infra, situation (c)).

It is at this point that difficulties of interpretation emerge. They center on the meaning of «hand over», which occurs throughout the Convention (see Articles 31(a), 34, 58(2), 68, 71 (2)). It is clear that, in accordance with the early decision to abandon the technical concept of «delivery» (see § 1.1., supra), it denotes the fact of a transfer of control; but there is uncertainty as to what constitutes such a handing over by the seller. The case in the first sentence, in which risk passes when the seller «hands over» to the «first carrier», presents no problem. The contract requires the seller to arrange carriage, but does not specify at what point the carriage is to begin. The rule in the first sentence provides that the risk shall pass when the goods are transferred from the control of the seller to that of the first carrier. Any previous movement of the goods must therefore have been in the seller's own transport and the handing over is therefore clearly by the seller.

In another case, however, the meaning is less clear. The seller undertakes to place the goods on board a ship at port X in the seller's country (i.e., there is in substance an F.O.B. contract but throughout this discussion it is assumed that Articles 6 and 9 are not applicable). He arranges for the goods to be transported to port X by a carrier and for this carrier to place them on board the ship. If this placing on board by the first carrier on the instructions of the seller is construed as constituting a handing over by the seller, the passing of the risk is governed by the second sentence. If it is not so construed, the case falls presumably under the first sentence, on the ground that, though the seller is bound to ensure that the goods are handed over at a particular place (port X), he is not bound to hand them over there himself. The second sentence will then cover only the case in which the seller, in the example just given, arranges for the goods to be moved to port X by his own transport. This matter is considered further in § 2.4., infra. Under the first construction there is a handing over by the seller when, under an agreement such as that envisaged here, control of the goods is transferred either by him or by a third party acting on his instructions. Under the second construction there is such a handing over only when it is made by the seller himself. [page 491]

     2.4. - The second construction may appear to have the weighty support of a recent commentator (see HONNOLD, Uniform Law, 376-377; but see further, infra). It is indeed the simpler construction, since it does not require «hand over» to mean «hand over or cause to be handed over», but it does have to face the following difficulties.

(a) As has already been said; if the case in which an independent carrier transports the goods to port X is not within the second sentence, it must presumably fall within the first sentence. This involves, however, not only an unexpected and artificial construction of the words used in that sentence, but it also seems to make the whole distinction between the first and second sentences superfluous. The same result would, it seems, follow from a single sentence to the effect that if the contract of sale involves carriage of the goods, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer.

(b) The construction is not that intended by the proponents of the amendment which added the second sentence to the text. The argument for the addition was summarized as follows. Paragraph (1) (without the new sentence) did not give a reasonable solution in cases where the seller undertook to ship the goods from a particular place at an inland point. In such a situation the risk should pass to the buyer only when the goods are handed over to a carrier at a seaport and not when they are handed over to a domestic carrier for transport to the seaport (Yearbook, VIII (1977), 63; see also Yearbook, VIII (1977), 118).

The construction is likewise not that adopted by the Secretariat (see Secretariat's Commentary, Official Records, I, 64). The subsequent amendments to the text on which the Secretariat's Commentary was based were of a purely drafting character (see Official Records, II, 402).

The first construction is therefore to be preferred. Professor Honnold has, moreover, indicated in correspondence that his commentary was not intended to support the second construction. He regards the situation under consideration here as being one in which the transit risks are split by agreement (see HONNOLD, Uniform Law, 377 last sentence of paragraph (3); see 375, last sentence of paragraph (1)). For further discussion and a different view see GOODFRIEND, United Nations Convention, 597). [page 492]

     2.5. - It will now be useful to summarize the rules which emerge from this analysis. Provision is made for four main situations (in addition to that covered by Article 68).

(a) The contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place. This is the situation envisaged by the first sentence of Article 67. It should be noted that this does not speak, as the second sentence does, of handing over to a carrier. It therefore excludes not only cases in which the seller is bound to hand over (in the wider sense explained in § 2.3., supra) to a carrier at a particular place, but also cases in which he is bound to hand over to the buyer at a particular place (see situation (c)). In all cases not so excluded the risk passes when the goods are handed over to the first carrier.

(b) The contract again involves carriage, but does require the seller to hand the goods over to a carrier at a particular place (Article 67(1), second sentence). Under the interpretation adopted here, this covers any case in which the seller is bound to hand over the goods to a carrier at a particular place, whether they were brought to that place by another carrier or by the seller's own transport.

(c) The contract again involves carriage, but requires the seller to hand the goods over to the buyer at a particular place. A typical instance of such a contract is one made on Ex SHIP terms (i.e., in which the seller is required to cause the goods to be handed over to the buyer from a ship in a specified port). Such a contract is not covered by Article 67, for the reason already given (see situation (a)). Article 69 therefore applies (see Secretariat's Commentary, Official Records, I, 64) and the risk passes in principle when the buyer takes over the goods (see commentary on Article 69, infra).

(d) The contract does not involve carriage. The buyer must then fetch the goods from the seller's place of business or other place indicated by the circumstances, as provided in Article 31(b), (c), or possibly, if the contract so provides, the seller must deliver them.

     2.6. - The purpose of the third sentence of Article 67 (1) is to ensure that the rules as to risk in the first two sentences are not subverted by the common practice of sellers of retaining the [page 493] shipping documents as a form of security for the payment of the price. The sentence is simply declaratory of what would in any case follow from the other provisions of the Convention. It guards against a misunderstanding which might arise, particularly in the minds of those accustomed to legal systems in which risk and property are linked. In the system of the Convention (which in any case is not concerned with the passing of property: see Article 4) neither the retention of documents nor the payment of the price has any relevance to the passing of risk.

     2.7. - Article 67(2) provides that the risk cannot pass until the goods are clearly identified, but does not define, except by illustration, what suffices to constitute such identification. It is common for goods to be shipped for the fulfillment of more than one contract of sale, or for a larger quantity of goods to be shipped than is needed to satisfy the contracts which the seller has so far made. The policy underlying the rule is to ensure that the seller, in the event of partial loss or damage to his consignment, cannot claim falsely that the lost goods were those which the buyer had bought.

In the case of identification by notice it is the dispatch of the notice that constitutes the identification. This follows from Article 27 and also from the example of markings on the goods for such markings are not intended for immediate communication to the buyer.

3. Problems concerning the provision

     3.1. - The general policy of the article is that risk should pass at the beginning of transit, though the detailed application of this policy gives rise to considerable difficulties of interpretation (see §§ 2.2. to 2.4., supra). This policy is justified by the fact that the buyer will normally be in a better position than the seller to assess any damage which has occurred in transit and to pursue claims in respect of it. It is also in accord with commercial practice and the provisions of some domestic systems (see HONNOLD, Uniform Law, 372-374). A more important policy consideration, however, particularly in view of the widespread use of containers, is that the risk should not pass during transit because [page 494] of the difficulties of proof to which this will give rise. Apart from the difficulties noted in §§ 2.3., 2.4., supra, this policy is endangered by paragraph (2) of the article, which delays the passing of risk until the goods have been identified. Where the paragraph applies, therefore, the risk is likely to pass while the goods are in transit. There is no provision for the risk to pass retrospectively as in the second sentence of Article 68 (see commentary on Article 68, infra).

     3.2. - The policy of the article is also justified by the fact that the goods will normally be covered by insurance. If the seller is not obliged by the contract to insure the goods, he is obliged by Article 32(3) of the Convention «at the buyer's request, to provide him with all available information necessary to enable him to effect such insurance». If, however, the seller fails in either of these obligations, the passage of risk is in principle unaffected, but if the seller's failure amounts to a fundamental breach of contract, the buyer is protected by Article 70 (see § 1.3., supra).

     3.3. - The article does not provide for cases in which the seller is unable to hand the goods over owing to a default of the buyer. If, for example, the seller is bound to ship the goods and the buyer is bound to name the vessel in which they shall be shipped, the contract seems, both as a matter of interpretation and as a matter of drafting history, to fall within this article (see ROTH, Passing of Risk, 308). The consequence is that if the buyer fails to name the ship and the seller cannot therefore dispatch the goods, the risk (including the risk of deterioration) remains on the seller, whose only recourse (since Article 70 is inapplicable) will be to claim damages. (Domestic laws provide otherwise: see § 334 of the Federal Republic of Germany Civil Code; Section 20 of the 1979 United Kingdom Sale of Goods Act; § 2-510 of the United States Uniform Commercial Code). If the case can be brought within Article 69(2), the seller can shift the risk to the buyer by informing him that the goods are ready for shipment (see further, commentary on Article 69, infra, § 3.3.). [page 495]


Pace Law School Institute of International Commercial Law - Last updated February 7, 2005
Go to Database Directory || Go to Bibliography
Comments/Contributions