Cargo Disputes: Lesson 1-Overview
When a party ships goods by sea, there are two main contracts that will be involved: (1) the underlying sale contract; and (2) the contract of carriage to transport the goods from A to B. Either the buyer or the seller will organise the contract of carriage, but the carrier might end up in a dispute with either of those parties, so both buyer and seller want to be able to have privity of contract with the carrier. The following diagram shows how that happens.
The diagram also shows what happens at the financial level. A buyer thousands of miles away from a seller doesn't want to run the risk of non-delivery of the goods (or documents representing title to the goods), so they frequently use banks as intermediaries who give cross-undertaking to each other, which makes the process more secure (although not always!).
Because this diagram has lots of moving parts, we recommend you download the dynamic PowerPoint presentation below as well as look at this static diagram. It talks you through each stage.
overview powerpoint (dynamic)
lesson 4 - Risk and property normally transfer at different times
When you buy a car, you gain the keys at the same time as you assume the risk of it being damaged. In other words, you get title to the car at the same time as you assume the risk of damage to it. So if you drive off the forecourt and crash, it is your problem not the car dealership's problem.
For various sensible reasons this is rarely the case when goods are shipped across the oceans. Instead, risk between buyer and seller normally passes when the goods are loaded onboard a vessel (at least with CIF and FOB shipments), but title can often pass much later, when the goods have been paid for and the buyer has obtained the bills of lading, or even later.
You can download the animated PowerPoint just below this slide. It helps visualise what we're talking about.
The logic behind this is to recognise that once the seller has complied with their physical duties and shipped the goods if they get damaged while in transit, the seller shouldn't be held responsible: the seller has performed by delivering the goods. The seller may still own the goods at that point, but the buyer, once they have the bills of lading, will then have title and can sue the carrier.
Accordingly, this "limbo" period where the buyer may have risk but not property in the goods is rarely a problem. It merely means that (a) the seller can't be sued when they have delivered and therefore aren't at fault; but (b) the buyer can sue the carrier, once they have the bills of lading.