An Analysis of the Risk Transfer in the Sale of Foreign related Goods

The so-called risk bearing ① refers to the ownership of the loss liability in case of damage or loss caused by earthquake, fire, hurricane, etc., which cannot be attributed to both parties after the contract for the subject matter of sale takes effect. The most critical is the place and time limit of risk transfer from the seller to the buyer. If the risk of the goods has not been transferred to the Buyer, the risk of natural disasters or accidents shall be borne by the Seller. If the loss or destruction of the goods is not caused by force majeure, but by natural disasters or accidents, the Seller shall also be liable for breach of contract for failure to deliver the goods on time. On the contrary, once the risk of the goods has been transferred to the buyer, from this moment on, the buyer shall bear the consequences of the loss of the goods caused by the risk of natural disasters or accidents. The transfer of risk means that the consequences of the loss or destruction of goods are transferred from the seller to the buyer, and the right to claim against the party responsible for the risk is transferred from the seller to the buyer. Obviously, in the process of international sales of goods, risk transfer directly affects the rights and obligations of both parties.

The key to risk taking lies in the time of risk transfer. In this regard, legislation and legal theory in various countries have different provisions and propositions. One is the principle of "the owner bears the risk", that is, to link the risk bearing with the ownership, so that the law stipulates that the time of risk transfer is the time when the ownership of goods is transferred. English law and French law adopt this principle. The other is the principle of "delivery transfer", that is, taking the actual delivery of the subject matter as the sign of risk transfer. American law and German law adopt this principle, while the United Nations Convention on Contracts for the International Sale of Goods and the Civil Code of the People's Republic of China both adopt this principle ②. For such an issue that is of great importance to the rights and obligations of both parties, many legal documents related to the sale of goods have corresponding provisions. For example, the United Nations Convention on Contracts for the International Sale of Goods, which entered into force in 1988, specifically provides for various situations of risk transfer in Chapter IV. In addition, international trade practices also have corresponding provisions on risk transfer of goods. Although the Law of the People's Republic of China on Foreign related Economic Contracts, which came into force in 1985, does not provide relevant explanations on risk transfer, the Civil Code of the People's Republic of China, which was promulgated and implemented in October 1999, clearly stipulates this.

Since the United Nations Convention on Contracts for the International Sale of Goods came into force in 1988, it has become the most important unified substantive law convention regulating the relationship between contracts for the international sale of goods. China had already signed the Convention and submitted its instrument of approval in December 1986, becoming one of the earliest parties to the Convention. Developed countries that have trade relations with China, except Japan and the United Kingdom, are all members of the Convention. It can be expected that under the wave of economic globalization, the Convention will be more widely used in the future international civil and commercial activities. Therefore, this paper will focus on the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "Convention") and analyze the relevant risk transfer issues in combination with the relevant provisions and legal knowledge of the Civil Code of the People's Republic of China (hereinafter referred to as the "Contract Law").

1、 Consequences of risk transfer

Article 66 of the Convention stipulates that if the goods are lost or damaged after the risk has passed to the buyer, the buyer's obligation to pay the price is not relieved, unless such loss or damage is caused by the act or omission of the seller. Article 142 of the Contract Law provides that the risk of damage to or loss of the subject matter shall be borne by the seller before delivery and by the buyer after delivery, except as otherwise provided by law or agreed by the parties. From these two points of view, the legal consequence of risk transfer is that since the risk of the goods has been transferred to the buyer, even if the goods are damaged or lost due to natural disasters or accidents, the buyer is still obliged to perform the payment obligations under the contract, unless such damage or loss is caused by the act or omission of the seller, on the one hand. On the other hand, if the seller has fundamentally breached the contract, all the provisions on risk transfer shall not prejudice the remedies that the buyer can take for such breach ④. The Buyer shall not refuse to pay for the goods on the ground that it has undertaken the loss caused by the risk, nor shall it claim any defense against the Seller and adopt various specified relief measures.

2、 General rules for risk transfer

Article 67 of the Convention stipulates that if the contract of sale involves the carriage of goods, but the seller is not obliged to deliver the goods at a particular place, the risk will be transferred to the buyer from the time when the goods are delivered to the first carrier for transfer to the buyer in accordance with the contract of sale. If the seller is obliged to deliver the goods to the carrier at a particular place, the risk does not pass to the buyer until the goods are delivered to the carrier at that place. The seller is authorized to retain the documents controlling the disposal of goods, which does not affect the transfer of risk. However, the risk does not pass to the buyer until the goods are clearly marked on the goods, or shipping documents, or notice is sent to the buyer or other means to clearly indicate the relevant contract. Article 143 of the Contract Law provides that if the subject matter cannot be delivered within the prescribed time limit due to the buyer's reasons, the buyer shall bear the risk of damage to or loss of the subject matter from the date of breach of the contract. Article 145 of the Contract Law also stipulates that if the parties have not agreed on the place of delivery or the agreement is not clear, and the subject matter needs to be transported in accordance with the provisions of Item (1) of Paragraph 2 of Article 141 of the Contract Law, the risk of damage to or loss of the subject matter shall be borne by the buyer after the seller delivers the subject matter to the first carrier. Article 146 Risk of Damage to or Loss of Subject Matter Where the seller placed the subject matter at the place of delivery in accordance with the contract or in accordance with Paragraph 2 (b) of Article 141 of the Contract Law, and the buyer failed to collect the subject matter in breach of the contract, the risk of damage to or loss of the subject matter shall be borne by the buyer as of the date of breach of the contract.

In international trade, when goods are involved in transportation, they may sometimes need to be transported continuously through multiple means of transport (such as international multimodal transport). When the goods are delivered to the first carrier, the seller loses control of the goods. Of course, it is impossible to know whether the goods are lost due to risks. Secondly, when the seller delivers the goods, he must usually negotiate the payment or collect the payment through the bank. Regardless of the method of payment, the seller must deliver the bill of lading and insurance policy (if insured by the seller) to the bank. Under such conditions, the seller can neither take delivery of the goods for inspection against the shipping documents nor have legal insurance to claim against the insurance company when the goods are subject to risks within the insurance coverage. Moreover, only when the goods arrive at the buyer or the port of destination, the buyer or the receiver is likely to inspect the goods, take necessary measures to prevent further expansion of the loss after finding that the goods are damaged, and claim against the responsible party. The position of the buyer enables it to deal with the aftermath after the occurrence of risks. Therefore, it is reasonable to stipulate that the risk is transferred from the seller to the buyer when the goods are delivered to the first carrier. The Seller still holds the shipping documents of disposable goods within a period of time from the time when the Seller delivers the goods to the first carrier to the time when the payment formalities are handled with the bank. At this time, according to the provisions of the Convention, the risk of the goods has been transferred to the buyer, but whether the ownership of the goods has also been transferred at the same time is not involved in the Convention. According to the provisions of the British law on the sale of goods, when the seller retains the right to dispose of the goods, the ownership of the goods will not be transferred to the buyer, and thus the risk will not be transferred to the buyer. In this way, the transfer of risk is linked to the transfer of ownership. However, neither the Convention nor contract law adopts this approach. Article 147 of the Contract Law provides that the failure of the seller to deliver the documents and materials relating to the subject matter in accordance with the contract does not affect the transfer of the risk of damage to or loss of the subject matter. It does not stipulate the time for the transfer of ownership, and separates the transfer of ownership from the transfer of risk. Therefore, the convention and contract law stipulate that the seller retains the documents controlling the disposal of goods, which does not affect the transfer of risk. However, since the goods are delivered to the first carrier, the risk is transferred from the seller to the buyer, which is a general rule. For example, if a batch of goods has been delivered to the carrier, but the seller does not associate the batch of goods with a specific contract (that is, with a specific buyer), it only indicates that the batch of goods is to perform a certain contract, and the risk has not been transferred to the buyer.