CIF contracts include cost, insurance and freight. A CIF
contract is a type of contract which is more widely and more
frequently in use than any other contract used for the purposes of
seaborne commerce. An enormous number of transactions, in value
amounting to untold sums, are carried out every year under CIF
contracts. Hence, due to the importance of the CIF contract with
regard to international sales contracts by sea, I will try to
briefly summarize the nature of CIF contracts.
Under CIF contracts, the seller charges an inclusive price
covering the cost of the goods, freight and insurance. Therefore,
the obligations of the vendor under CIF contracts can be summarized
as follows: Firstly to ship from the port of shipment the
contracted goods; secondly to procure a contract of affreightment,
under which the goods will be delivered at the agreed destination;
thirdly to arrange for insurance which will be available for the
benefit of the buyer; fourthly to make out commercial invoices; and
finally to tender these documents to the buyer. It follows that
against tender of these documents the buyer should be ready and
willing to pay the price. Moreover, if goods that are shipped in
order are lost or damaged in transit, the buyer's remedy might
also be against the carrier and insurer, by virtue of the contracts
of carriage and insurance taken out by the seller for the benefit
of the buyer.
One could state that the seller under a CIF contract is obliged
to prepare for the carriage of goods; and that insurance in transit
should be included in the contract price. Hence, the seller obtains
a bill of lading, an insurance policy and commercial invoice and
then transfers such documents to the buyer, who is obliged to pay
It has been argued however; that the CIF contract is not a sale
of goods but a sale of documents relating to goods. This argument
states that the performance of the contract is fulfilled by
delivery of the documents and not by the actual delivery of goods
by the vendor. If the ship and the goods have been lost after
shipment there is no reason for refusing to accept and pay for the
documents. Moreover, it has been argued that non- existence of an
insurance policy is a ground for rejection of the documents
notwithstanding the goods arrived safely at the port of
These arguments of course, can be rebutted, by saying that a CIF
contract is a sale of goods contract since the Sale of Goods Act
applies to it. Furthermore, even if the buyer under a CIF accepted
the documents before the actual arrival of the goods, it can reject
the goods when they arrive if the buyer finds that the goods are
not conforming to the requirements of the contract.
In conclusion, although documents are a crucial part of CIF
contracts, this does not constitute CIF contracts as money against
documents contracts rather than money against goods contracts.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The RES COGITANS decision is, strictly speaking, not binding on the Hong Kong Courts, but it is likely to have persuasive effect. The RES COGITANS decision is, strictly speaking, not binding on the Hong Kong Courts...
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