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See generally Sassoon [1967] J.B.L. 32 (also repeated in his book on c.i.f. and f.o.b. contracts at the beginning of the f.o.b. section). The f.o.b. contract is the earlier form, from which the c.i.f. contract developed as international communications improved. The c.i.f. form is usually more convenient today than the f.o.b., and a far greater tonnage is carried c.i.f., but f.o.b. still survives because it is more appropriate in some circumstances.
Although there are a few early cases, such as Lickbarrow v. Mason, where sellers of goods appear to have consigned them for distant buyers, Delivery free on board the buyer's vessel, or free alongside ship, would probably have been the most usual way of conducting international trade prior to the development of modern communications (e.g., up to the early part of the nineteenth century), where the buyer would have chartered, or perhaps taken personally, a vessel to the exporting port and there purchased the goods. Among the notable features of this early type of f.o.b. contract were that:
1. The buyer was either carrier himself, or at least was responsible for making all the arrangements regarding carriage. This is similar (at least in this respect) therefore to the Pyrene v. Scindia type 3 contract.
2. Delivery was to the ship, possibly at the ship's rail, where property (and consequently risk) passed from seller to buyer. The ship was regarded as the buyer's floating warehouse. See, e.g., Cowas-Jee v. Thompson.
As communications improved, it became more convenient (for buyers at least) if sellers could take on some of the shipment arrangements. So f.o.b. contracts developed whereby sellers would pay the freight or other expenses, and maybe also nominate the vessel. All these variations remain to this day. Ideally, buyers would have liked to pay a fixed price, including freight and insurance, but this had to await the later development of the c.i.f. contract. Moreover, although sellers gradually took on a greater range of duties (whether because the contract obliged them to do so or otherwise), there were two reasons why, at least in the early part of the nineteenth century, they did not contract with the carrier as principals. First, if they had sued the carrier they may have been met with the defence that they had suffered no loss if property and risk had passed to the buyer on shipment - this argument was widely thought to have been laid by the House of Lords in Dunlop v. Lambert, although it is by no means clear that the case truly established any general right of shippers to recover substantial damages. Secondly, it was more likely that the buyer would wish to sue for loss of or damage to the goods after shipment, but Thompson v. Dominy established that the contract was not transferred with the bill of lading - therefore the buyer really had to be party to the carriage contract, at least until the Bills of Lading Act 1855, s. 1 reversed Thompson v. Dominy.
After the 1855 Act the classic f.o.b. contract could develop, where the seller contracted with the carrier as principal, but so also c.i.f. contract could develop. F.o.b contracts survive for the following reasons:
(a) Where there are foreign currency restrictions, especially where the carrier is of the same nationality as the buyer, since f.o.b. prices are lower than c.i.f.;
(b) Where freight is payable on delivery, as is common with oil cargoes (since it is more convenient for the receiver to pay it);
(c) Where the buyer requires a particular type of vessel, perhaps because of the type of goods being shipped.
(d) Where the buyer has chartered the vessel, as in President of India v. Metcalfe, and the first contract in The Albazero.
In the original f.o.b. contract property and risk both passed on shipment, but sellers began, by retaining bills of lading in their own name, to reserve title, and this became of greater importance with the development of modern methods of finance, such as the bankers' documentary credit. Originally it was thought that this may also have the effect of delaying the transfer of risk, but it was finally established in Inglis v. Stock that risk passed on shipment, even if property passed later.
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It was not possible for the c.i.f. contract to develop until after the Bills of Lading Act 1855 had reversed Thompson v. Dominy. After 1855, it was possible for the seller to contract with the carrier as principal, as in the classic f.o.b. contract, but also to include the freight and insurance in the price, which is really the distinguishing feature of the c.i.f. contract. Because the c.i.f. contract developed from the f.o.b., it retains a number of its features: in particular, delivery remains to the vessel, which continues to be regarded as the buyer's floating warehouse, so that risk (if not property) continues to pass on (or in chain sales as from) shipment. This was established as early as the Tregelles v. Sewell, the first reported c.i.f. case, and distinguishes the c.i.f. contract from the ex-ship, where delivery is at the port of discharge, and risk does not pass until then.
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Mail Paul Todd : toddpn2@cf.ac.uk
This page was last updated on 30 Dec 97.