Cite as Nicholas, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 496-501. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
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 the conclusion of the contract of sale 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.
1. History of the provision
1.1. - This provision, dealing with the situation in which the goods are already in transit at the time of the contract of sale, was the subject of much controversy at both the Commission and the Vienna Conference (see Yearbook, VIII (1977), 63; Official Records, II, 213-215; 403-406). The Working Groups draft reproduced the substance of Article 99 of ULIS, providing for the risk to pass retroactively from the time when the goods were handed over to the carrier (i.e., the provision which, in the present text, applies only «if the circumstances so indicate»). This draft was accepted, with some dissent, by the Commission, but opposed at the Vienna Conference, both in the First Committee and the plenary sessions.
The grounds of criticism were that it was both irrational and unjust to put the risk on the buyer before the moment when the contract was made, and also that the buyer could have no insurable interest until that moment. On the other hand, it was argued in favour of the rule that it represented the usual practice in international trade, that the matter was essentially one of trading and insurance techniques, that any additional risk borne by the buyer would be reflected in the price and, above all, that if the risk were to pass from the moment when the contract was [page 496] made (i.e., while the goods were in transit) it would be necessary to establish exactly when the damage occurred and this would often be difficult or impossible (see commentary on Article 67, supra).
1.2. - The final text was presented at one of the last plenary sessions as a compromise between the opposing views, though the objection was made that the meaning was unclear and that difficulties and inconsistencies of interpretation would result. Some delegations preferred that no provision at all be made, but the text was approved by a majority (Official Records, II, 217).
1.3. - The third sentence derives from Article 99(2) of ULIS. In its present form it was accepted as part of the compromise amendment of the whole article.
2. Meaning and purpose of the provision
2.1. - The article envisages the situation in which the goods are sold while already in transit and are found on arrival at the destination to have been damaged. The ordinary rule in Article 67(1) cannot apply, for when the goods were handed over to the carrier, they were not handed over «for transmission to the buyer».
The first sentence of the article lays down the primary rule that the buyer bears the risk from the moment the contract is made (i.e., while the goods are in transit). When the damage clearly results from an identifiable event, such as a storm or a collision, there may be no difficulty in applying the rule, but it may often not be possible to identify a particular event as the cause (or the exclusive cause) of the damage. Moreover, if the damage is attributable in part to an event occurring after the making of the contract and in part to an event occurring before then, both the buyer and the seller will have to pursue claims arising from the events.
2.2. - The second sentence, which applies «if the circumstances so indicate», provides for the risk to pass retroactively from the moment the goods are handed over to the carrier. This [page 497] obviates any difficulties of proof and has the advantage that only the buyer must pursue claims arising from damage occurring while the goods are in transit. On the other hand, it places on the buyer the consequences of any inadequacy in the insurance. The principal difficulty lies in the meaning of « if the circumstances so indicate». In the debate at the Vienna Conference (see Official Records, II, 215) it was suggested by a delegate who had taken part in the discussions leading up to the compromise amendment from which the present text delives (see § 1.2., supra) that one such circumstance would be the inclusion in the contract of sale of a provision requiring the seller to transfer an insurance policy to the buyer. Since contracts of the kind envisaged in this article do customarily make such provision, this interpretation would have the effect of making the rule in the second sentence widely applicable.
A further uncertainty derives from the use of the word «circumstances », rather than some reference to the intention of the parties. This could be understood as making the rule in the second sentence prevail over what the parties intended (see Official Records, II, 216), but the more probable explanation is that the word «circumstances» was intended to cover the situation in which the intention of the parties is not expressed, but is to be inferred from the circumstances. To take the example given above of the transfer of the insurance policy, there may well be no express provision relating to this, but there will, on this view, be a sufficient «circumstance» if the policy is in fact among the documents which the seller transfers to the buyer. The original draft of the compromise amendment did indeed have the more elaborate formulation: «if the circumstances indicate a contrary intention», but this was criticized as an unnecessary duplication and the principal sponsor of the amendment accepted the further amendment which yielded the present text. It can of course be objected that if the phrase «if the circumstances so indicate» means no more than this, the whole sentence is superfluous, since Articles 6 and 9(2) ensure that the express or implied intention of the parties shall prevail. This objection can only be answered by a reference to the pressure of time and circumstances under which the sentence was drafted and accepted.
The carrier is identified by his having «issued the documents embodying the contract of carriage». There is here no [page 498] reference to the category, referred to in Article 67(1), of «documents controlling the disposition of the goods» (see Official Records, II, 404).
2.3. - The third sentence introduces a proviso. If the seller knew or ought to have known of the loss or damage at the time of the conclusion of the contract and did not disclose the fact to the buyer, the risk remains with the seller. This presents two difficulties of interpretation.
First, does the phrase «the loss or damage is at the risk of the seller» refer only to the loss or damage of which the seller knew at the time of the contract, or does it include also damage which had then occurred, but of which the seller was ignorant? And does it include damage which occurs after the time of the contract, but which is connected with the original damage (see ROTH, Passing of Risk, 298)? Assume, for example, that Seller ships a cargo of sugar on February 1 and sells the entire cargo to Buyer on February 5. On that date he has reason to believe that one-tenth of the cargo has been damaged by sea-water, but does not disclose this to Buyer. In fact one fifth had then been damaged, does «the loss or damage» for which Seller bears the risk extend to one-tenth or one-fifth? And if in the course of the voyage the sea-water affects all the rest of the cargo, on whom is the risk of this further loss?
The matter is confused by the history of the text. The UNCITRAL Draft Convention spoke of «such loss or damage» (see Official Records, I, 14), a formulation which seems to restrict the loss borne by Seller in the example given above to one-fifth of the cargo. In the course of the proceedings at the Vienna Conference, however, the words became «the loss or damage». This change was not the result of any formal amendment and was therefore presumably introduced by the Drafting Committee. In this connection it should be noted that the French text adhered throughout, even in the UNCITRAL text, to the equivalent of «the loss or damage». This formulation seems to place on Seller the risk in respect of the whole cargo. This interpretation is to a limited extent borne out by the debate on the compromise amendment (see Official Records, II, 220), during which a proposal to substitute «that loss or damage» was resisted on the ground that it would have the effect of limiting the risk to the loss which had [page 499] occurred before the conclusion of the contract (though this view was itself contested). The conclusion to be drawn, particularly in the light of the different formulations in different languages, is that the seller is liable for all the damage which had occurred when the contract was made and for all subsequent damage which is causally connected with the original damage. In terms of policy this has the advantage of avoiding a splitting of the transit risks, with the attendant difficulties of proof (see commentary on Article 67, supra, § 3.1.).
2.4. - The second difficulty presented by the third sentence concerns its relationship to the two preceding sentences. Does the exception which it creates apply to the second sentence only or to both? The normal interpretation would seem to favour its application to both sentences, but this is borne out neither by the history of the provision nor by a consideration of the relationship between risk and liability for non-conformity.
The history itself is confusing. The compromise amendment consisted in its original formulation of only two sentences, the present third sentence being attached to the second sentence as a subordinate clause by «except that ...». At the first discussion in the Plenary (see Official Records, II, 216) it was pointed out that in this formulation the exception applied only to the second sentence (and on the view taken here this was, as a matter of interpretation, correct). The Drafting Committee then amended the text to create the present three sentences, but explained (see Official Records, II, 220) that the purpose of this change was to make it clear that the exception in the third sentence applied only to the second sentence, an interpretation which was adopted by others who took part in the debate. The intended meaning seems therefore clearly to be this.
This meaning is also consistent with the relationship between risk and liability for non-conformity, for the two are mutually exclusive (see commentary on Article 66, supra, § 2.3.). Article 36 provides that the seller's liability for non-conformity ends (with the exceptions there indicated) when the risk passes. Under the first sentence of Article 68 the risk passes when the contract is made. Damage to the goods occurring before that time raises a question of non-conformity; damage occurring after that time raises a question of risk. If the third sentence were allowed [page 500] to qualify the first, this fundamental distinction would be lost.
The third sentence is necessary only because the second sentence has introduced the anomaly of the risk passing before the contract was made. It is for this reason that there is nothing to correspond to the third sentence in any other provision concerning risk.
3. Problems concerning the provision
3.1. - The question was raised at the Vienna Conference (Official Records, II, 406) of the relationship between the article and any provision of domestic law which declared void a sale of goods which at the time of the contract had, without the knowledge of the parties, ceased to exist. (Questions of validity are of course not regulated by the Convention: see Article 4). An amendment expressly providing that Article 68 should have no application in such circumstances was not accepted. It seems to be implicit in the present text of the article that such a sale would be valid (and would amount in substance to a sale of insurance and other rights). The possibility of such validity is allowed by the second sentence and clearly envisaged by the third (see SCHLECHTRIEM, UN-Kaufrecht, 82, Uniform Sales Law, 190 note 368).
3.2. - Another question raised at the Vienna Conference in connection with this article (but which has a wider relevance) was that of whether reference to «documents» was now sufficient in the light of the growing use of computers to dispense with documents in the ordinary sense (see Official Records, II, 405). No proposal emerged and it would indeed by then have been too late to embark on a subject the ramifications of which go much wider than the area of sales. [page 501]