The CIF (Cost, Insurance, Freight) sale is one of the most widely used formulas in international maritime trade. This type of contract, known in French as CAF (Coût, Assurance, Fret), has specific legal features that it is essential to master in order to secure commercial transactions. Its special structure, which includes the goods, transport and insurance in a single price, makes it a preferred tool for many economic operators.
The legal nature of the CIF sale
The CIF sale differs from other forms of maritime sales in its structure and legal implications, while retaining certain fundamental characteristics of sales from the outset.
A special initial sale
The CIF sale is first and foremost a sale on departure, meaning that the transfer of risk takes place at the port of shipment. As stated in article L. 5424-9 of the French Transport Code, "in the 'cost, insurance, freight' sale, the seller undertakes to conclude the contract of carriage and to place the goods on board and insure them against the risks of this carriage".
This legal definition highlights the three components of the CIF sale: supply of the goods, transport and insurance. Despite this apparent complexity, it is a sale and not a mixed contract comprising a sale and two mandates.
The three price components
In a CIF sale, the buyer pays an overall price which includes "the price of the goods, the insurance premium and the freight" (article L. 5424-10 of the French Transport Code). This is a major advantage for the buyer: from the moment the contract is signed, he knows the total cost of the transaction, including transport to the port of destination.
The indivisible nature of the price has been confirmed by case law, which considers that these three elements form a whole. Thus, contrary to popular belief, the seller does not act as the buyer's agent when he concludes the contract of carriage and takes out the insurance. He is doing so on his own behalf, in performance of the CIF contract of sale.
Distinction from FOB and FAS sales
While the CIF sale has similarities with FOB and FAS sales, particularly as regards the transfer of risks on departure, it differs fundamentally in terms of the seller's obligations.
In an FOB or FAS sale, as explained in our dedicated articleUnder the FAS system, the buyer is responsible for sea transport and insurance. The seller simply delivers the goods to the port of shipment, alongside the ship (FAS) or on board (FOB).
In a CIF sale, on the other hand, these obligations fall to the seller, which considerably simplifies the task of the buyer, who is often located far from the port of shipment. This characteristic explains the popularity of this formula in trade with distant or emerging countries.
Transfer of risk in the CIF sale
The time of transfer of risk is a major issue in any maritime sale, as it determines whether the buyer or the seller will bear the financial consequences of loss or damage to the goods.
Time of transfer
In the CIF sale, despite the seller's obligation to provide transport and insurance to destination, the risks are transferred to the buyer as soon as the goods are loaded. Article L. 5424-10 of the French Transport Code is unambiguous: "transport risks are borne by the buyer".
Case law has specified that this transfer takes place "on the day of actual shipment of the goods sold and their specialisation". This specialisation, which consists of precisely identifying the goods destined for a particular buyer, is generally evidenced by the bill of lading.
This solution may seem paradoxical: the seller organises and pays for the transport, but does not assume the risks. It can be explained by the very nature of international maritime sales, where the goods may change ownership several times during the voyage.
Nature of the risks borne by the buyer
The risks borne by the CIF buyer are varied:
- Material damage to goods
- Missing parts and road brakes
- Unforeseen transport and storage costs
- Demurrage due for unloading
On the other hand, the buyer does not bear the risks resulting from a fault on the part of the seller prior to shipment, such as an inherent defect in the goods or defective packaging. The Court of Cassation has ruled that damage resulting from an inherent defect in the goods remains the responsibility of the seller.
Special clauses: recognised weight, delivered weight
The parties may arrange the allocation of risks by means of special clauses. The most common are the "weight recognised on arrival" or "weight delivered" clauses, which stipulate that the price will be calculated on the basis of the weight recorded on arrival.
These clauses do not alter the nature of the CIF sale, as article L. 5424-11 of the Transport Code expressly confirms. They simply have the effect of reversing the burden of proof: in the event of shortages, the seller will have to establish that these occurred after embarkation in order not to have to bear the consequences.
This possibility of contractual arrangement illustrates the flexibility of the CIF sale, which can be adapted to the specific needs of the parties while retaining its essential characteristics, as is the case for all maritime sales.
The obligations of the CIF seller
The obligations of the CIF seller are particularly extensive, which explains why the sale price is generally higher than in a comparable FOB or FAS sale.
Freight obligations
The CIF seller must conclude the sea transport contract at its own expense. This obligation arises directly from the sales contract and not from a mandate given by the buyer. The seller acts on its own behalf and assumes the capacity of shipper, with the rights and obligations that this entails.
In practice, the seller is free to choose the carrier and negotiate the conditions of carriage. However, this freedom is not absolute: good faith requires the seller to choose a vessel suitable for the carriage of the goods in question and to obtain reasonable conditions. Case law has sanctioned sellers who have accepted conditions that were excessively unfavourable to the buyer, particularly in terms of demurrage.
The seller must also ensure that the journey takes the "usual route", i.e. the safest and fastest route. This requirement is easy to understand: as the risks of transport are borne by the buyer, it is in his or her interest to ensure that the journey is made in the best possible conditions.
Insurance obligations
The CIF seller must take out, at his own expense, insurance covering the risks of maritime transport. As with freight, he acts on his own behalf and not as the buyer's agent.
Insurance cover must generally comply with clauses C of the Institute Cargo Clauses, which cover the main maritime risks: shipwreck, grounding, collision, fire, etc. This minimum cover may be supplemented at the buyer's request, in particular to cover the risk of war or strike. This minimum cover may be supplemented at the buyer's request, in particular to cover the risk of war or strike.
The insurance must be taken out with a "reputable" insurer and cover at least the contract price plus 10%. This rule enables the buyer to recover not only the value of the goods, but also part of his loss of earnings in the event of a claim.
Obligations relating to goods and documents
The seller must deliver goods that comply with the contractual stipulations, both in terms of quantity and quality. These goods must be conditioned and packaged in such a way as to withstand the sea voyage.
Shipment must take place within the agreed timeframe, and the seller must ensure that the goods are specialised, i.e. identified as being intended for the buyer. This is usually done by mentioning the buyer on the bill of lading.
The seller also has an obligation to provide the buyer with a number of essential documents:
- The bill of lading, which evidences the taking over of the goods by the carrier and enables delivery at destination.
- The insurance policy, which will enable the buyer to be compensated in the event of a claim.
- The commercial invoice, detailing the goods and their price
- If necessary, a certificate attesting to the conformity of the goods
According to article L. 5424-9 of the French Transport Code, these documents must be handed over "immediately" after embarkation. This promptness is essential to enable the buyer to resell the goods during the voyage.
The obligations of the CIF buyer
While the obligations of the CIF seller are extensive, those of the buyer are relatively limited, which is one of the main advantages of this formula.
Acceptance of documents
The CIF buyer must check the documents presented to him by the seller and accept them if they comply with the stipulations of the contract. This verification must be carried out within a very short period of time, generally three days according to custom.
Acceptance of the documents constitutes recognition by the buyer of the proper performance of the contract by the seller, at least as far as can be ascertained from the documents. It does not cover irregularities that cannot be detected by reading the documents, such as a hidden defect in the goods.
If the documents contain irregularities (absence of a required document, incomplete information on the bill of lading, etc.), the buyer is entitled to refuse them. He must then promptly inform the seller of the reasons for his refusal.
Payment of the price
The buyer's main obligation is obviously to pay the agreed price. As we have seen, this price includes the cost of the goods, freight and insurance.
In the absence of a clause to the contrary, payment is made against presentation of the documents. The buyer must therefore pay the price as soon as the correct documents are presented, without waiting for the goods to actually arrive at their destination.
This rule may seem strict, but it is mitigated by the possibility of recourse to the documentary creditwhich offers guarantees to both the seller and the buyer. Under this mechanism, a bank undertakes to pay the seller in return for the delivery of compliant documents, thereby guaranteeing payment to the seller and the compliance of the documents to the buyer.
Receipt and approval of goods
When the ship arrives at the port of destination, the buyer must take delivery of the goods. This is usually done by presenting the bill of lading to the carrier.
The buyer then checks the goods to ensure that they correspond to the contract. This check focuses on aspects that could not be verified on the basis of the documents: intrinsic quality, functioning, etc.
If the goods are found to be in conformity, the buyer approves them. This approval is generally tacit and results from the buyer's silence in the days following receipt. On the other hand, if the goods show defects that are not apparent from the documents, the buyer may express reservations and exercise the remedies available under sales law.
The CIF sale, with its balanced structure, offers advantages to both seller and buyer. For the seller, it frees him from risk from the moment of shipment, while retaining control of the logistics operation. For the buyer, it considerably simplifies the acquisition of goods from distant countries, by entrusting the seller with the transport and insurance procedures.
However, implementing a CIF sale requires careful attention to many legal and practical details. An in-depth knowledge of the mechanisms involved is essential to avoid pitfalls and secure your international commercial transactions.
If you are planning to conclude a CIF sale or are encountering difficulties in the performance of such a contract, our firm specialises in commercial maritime law can support you at every stage of your project.
Sources
- Transport Code, articles L. 5424-9 to L. 5424-11
- International Chamber of Commerce, Incoterms 2020
- United Nations Convention on Contracts for the International Sale of Goods (CISG)
EN 
FR