WHEN THE CUSTOMER ASKS FOR MORE THAN A FREE DELIVERY

(OVERVIEW INTO THE INTERNATIONAL CHAMBER OF COMMERCE INCOTERMS)

In the commercial practice and mostly in the import-export trade, we frequently can read terms such as CIF, FOB, EXW and so on, or many other terms concerning the delivery steps. We are talking about the ICC Incoterms, a set of rules codified by the International Chamber of Commerce, not really common in the domestic trade among the European Union traders. Rather, it is into foreign trade contracts, mostly involving elaborate shipments and specific customs practices, that the above tools prove to be essential to share the shipping costs and the related risks. Therefore, it is not by chance an item quotation be, often, followed by the term and location the parties agree (FOB Port of Genova, C&F Jebel Ali Port and so on). The considerations which will follow have the goal to analyse how and when the ICC Incoterms deploy their impact and what happens once something does not go the right way.

It is quite frequent the successful outcome of a commercial transaction – once agreed the price – is determined by additional elements also called trade conditions: packaging mode and cost, payment terms and freight costs are the most important because they immediately impact on the final price of the goods and also because appear in each commercial negotiation within the EU or outside. If, otherwise, we leave the UE context, things become more complicated since, often, come into play customs compliances, payment systems based on letters of credit or similar and, above all, the risk transfer question for the goods during the shipping time arises.

This latter aspect - the risk for theft, damages, deterioration, destruction of the goods - is often considered related to the freight costs. This is true, even if not necessarily is correct the equation by which who pays the transport also takes charge of the risk for the goods safety until they will be delivered. However, we may say that usually – at least in his intentions - the acquirer who asks the vendor to pay for the shipping costs up to a certain place, which can be his premises or any other location, would like to avoid to bear any risk for the goods safety, too. Nevertheless, things are different: in the Italian legal system the basic law, unless a specific agreement by the parties, is the art. 1510 Civil Code which assess “Unless agreed otherwise, if the item has to be moved from a site to another, the vendor set himself free from the delivery obligation remitting it into the carrier’s hands…”. In the domestic trade practice, the locution “unless agreed otherwise” is normally neutralized by the fact any transport company includes in its shipping service also an insurance coverage, which can be more or less comprehensive, according to the carrier’s category – express courier, groupage carrier, specialized transporters – and to the typology of the items. Hence, in case of damage, if the purchaser did not take out his specific insurance, will have to settle for such standard coverage, which often is partial, whilst in case of theft the coverage is full or nearly. In almost any Western-style legal systems, similar statements or jurisprudential guidelines (i.e. the British Common Law) are detectable, so that at least within the UE twenty-seven members the legal framework is quite defined and homologated.

When trade relations cross the EC borders, however, we could find legal frameworks which often differ between themselves in form and substance: therefore, in case of harmful events such as theft, damages, total or partial loss of the goods, a conflict between the parties regarding who will compensate the damage could arise. In such events, another matter will be determining which State the jurisdiction belongs and, consequently, which will be the applicable law and the relevant court. Since preventing possible conflict sources is much more convenient than trying to settle them through legal means, especially when we have to deal with deeply not well-known systems, with different safety degrees and reaction times, ICC Incoterms can be a powerful and flexible tool in order to define who’s the obligation to compensate the loss is. Such rules, actually, minutely follow each step the goods during their travel from the vendor’s domicile to their final destination.          

Concerning the ICC Incoterms legal status, in the past we have assisted to many debates about their juridical value. Nearly immediately rejected any theory to assign them legal force, some schools of thought submitted the hypothesis to equalize the Incoterms to uses and customs category. In spite of several opinions in this direction, nowadays the universal position is they are some private trade agreements to which the contractors expressly refer, as a derogation from the civil law or to empower it. Therefore, first of all such agreements are not applicable if not explicitly mentioned into the contract; in addition, even being a part of the contract, they usually overrule the existing law, when not incompatible with it. Thereby, according to the selected clause, it will be possible to define the way the freight costs will be shared, who will take charge about custom compliances and costs and – last but not the least – which part will bear the risk for the goods integrity, especially when the shipping is by intermodal solutions and until which stage of it. Thus, we can go from the extreme scenario of a EXW clause, by which the vendor is responsible to set the goods available in his premises, while the counterpart will be in charge of any loading operations, transport, customs duty, and insurance, if needed, until arrival at destination to the opposite case of a DDP clause, which ascribes to the purchaser the only obligation to wait for the goods arrival in his warehouse, being the vendor responsible for any other operations. Among such specular situations, there is a whole range of midway clauses by which the different obligations are more equally split between the parties. By the way, the ICC legal and trade advisors have foreseen the codification of terms that expressly conceived for deliveries whose main shipping is made by sea – CIF, C&F and FOB the most common ones – and more versatile Incoterms, adaptable to every combination among air, land and see freight. A complete panorama of the last edition of the ICC Incoterms can be found on the web page of the International Chamber of Commerce https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/

That being said, even with any precise and detailed agreement, it can happen something goes wrong and, by the way, a conflict arises. Determining the exact place and moment when he damaging event occurs, who is responsible for it and the how much is the involved amount are elements sometimes can escape even the more sophisticated and extensive contractual clause. In such circumstances, determining where is the relevant court and which is the applicable law can be the nullifying point for the final dispute outcome. It is not redundant premising that the ICC Incoterms governs the trade relationship only during the period when the delivery is ongoing and essentially take care of how to share the respective costs and risks: litigations generated by a failure to pay or a late delivery of the goods are outside of the Incoterm scope. In such cases the law in force prevails. Given this, the general rule dictates – unless specific agreement by the parties – the relevant court and the applicable law has to be identified in defendant’s State. In other terms, if an Italian firm must take legal action in order to claim the payment for a certain supply, he will have to apply for it in the foreign Country where the acquirer has his headquarter. The UE legislator, however, moved in the direction to determine alternative courts, too; such approach has been justified by the need the competent court cannot be totally extraneous to the dispute. There are different alternative courts, but the most relevant one is, by definition, the forum of the contract, to be found In the State where the obligation has to be executed. Hence, by that logic, in case of late delivery or total failure by the vendor, the relevant court to claim the obligation fulfilment or a possible compensation for the damage through a penalty payment will be the latter’s Country.

The ICC takes care of the Incoterms updates, in both form and substance, every ten years in order to keep the traditional formulations in tune with the mutable trade needs, with the new shipping solutions and according to new commercial practices. The last version has been released last March and is common view they still are the most complying tool to meet the international trade needs. By virtue of this, it would be appropriate, even when the business relationships are carried out among the EU and at least for those whose transport is made by intermodal means, to explicitly refer to the ICC rules. An Incoterms specific clause recall, indeed, allows to overcome formulations such as “free carriage” and “carriage forward”, which today sound to be archaic and pretty inadequate to assure the necessary protection for both parties.

CARLO PIETROPAOLO