Import-Export Manual – Shipping and delivery of goods
4. THE DELIVERY AND THE QUALITY OF GOODS
In order for a commercial transaction to be successful, it is important for Italian businesses selling abroad to pay attention to their obligations concerning the delivery and the quality of the goods as described in the contract.
If he does not do so, the Italian seller may increase their risk of having to deal with complaints concerning the shipment. Such complaints may be more or less valid, sometimes even specious. However, they often jeopardise the payment of the agreed price and cause dangerous liabilities for damage.
Italian businesses purchasing from abroad must carefully draft the contractual aspects concerning the delivery and the quality of goods. If they do not do so, they run the risk of receiving nonconforming goods or goods that have been damaged during transport, and will not be able to bring a claim for sustained damage against the supplier, or obtain that the agreed sum is returned, or, if the payment has not been made yet, free themselves from the obligation to pay. Therefore, it is essential for both importers and exporters to be very careful when deciding the aspects concerning the delivery and the quality of goods. With respect to payment, this element is also related to the debt collection phase.
THE DELIVERY OF GOODS
International selling sometimes requires goods to be transported on long and sometimes complex routes with different means of transport involving several subjects. It is therefore a complex procedure which entails a high level of risk both for the goods and for the manufacturing/commercial divisions. Goods may be damaged or stolen, or may be delivered late thus causing problems to the buyer who needs the goods to use them their manufacturing process or as a product for sale.
Which of the parties bears transportation risk? Can Italian businesses ignore these issues and demand payment of the agreed price, when selling, or claim compensation from the foreign seller, when buying? In order to minimise the risks, it is important to define contractually the most important aspects concerning the transportation of goods, according to the two variables of space and time, i.e.:
• the place of delivery;
• the time of delivery.
It is useful to mention two parties, who do not enter into the contract of sale, but who establish contractual relations with either the seller or the buyer. These parties are the carrier and the shipper and they both play a very important role in the delivery. For the delivery of goods abroad, Italian businesses may conclude:
• a contract of carriage (carrier)
• a shipping contract (shipper).
Under the Italian law (Art. 1678 and the following of the Italian Civil Code), the contract of carriage establishes that the carrier agrees to carry the goods to the destination using their own or third parties’ means of transport, accepting liability for damage caused by breach of contractual obligations (late delivery in breach of the agreed delivery terms, loss or damage of goods), except when such breach of obligations are not attributable to the carrier (e.g. the goods are damaged due to unforeseeable circumstances or defective packaging).
Alternatively, under the Italian law (Art. 1737 and the following of the Italian Civil Code), in the case of the contract of shipping, the shipper has the only obligation to conclude with third parties (in his name and on behalf of the business that appointed them) the contract of carriage and carry out the ancillary operations (e.g. the payment of customs duties).
THE PLACE OF DELIVERY OF GOODS
In the case of an international supply, the place of delivery is often chosen based on transport costs which, in turn, affect the selling price. Given the complexity of the operations connected to the delivery of the goods, there are important aspects to be taken into account.
First of all the risk of losing the goods either due to theft or to circumstances that cause the goods to be destroyed or damaged. Which of the parties bears this risk connected with international sale?
Furthermore, with reference to the burdens connected with the delivery in an international sale: which of the parties, either the seller or the buyer, is responsible for all the necessary activities such as the negotiation, the signing of the contracts (contract of carriage or of shipping, contract of insurance) or the completion of customs formalities?
A viable solution to the issue of regulating the complex aspects of responsibility and risks in international trade is provided by the delivery terms which have been collected under a code by the International Chamber of Commerce based in Paris. These terms are known as INCOTERMS and are widely used all over the world. The latest version of the INCOTERMS was released in 2010.
INCOTERMS are therefore used to determine the place of delivery, to precisely split/share the most relevant aspects concerning the delivery of goods among the parties, by an international contract of sale. These aspects are:
• responsibilities (who must do what, who must enter into contracts, who must complete formalities);
• costs (who must pay the price of the contracts, and customs duties);
• risks (who bears the burden of responsibility for the consequences of loss or damage of goods);
In very complex contracts, it is possible to modify the clauses of the INCOTERM chosen by the parties, should some changes be necessary. It is important, however, not to introduce radical changes to the chosen INCOTERM in order not to lose the advantages of certainty and predictability that the INCOTERMS provide.
The obligations of the parties arising from the chosen INCOTERM have a significant impact on some aspects of the contract, notably on the methods of payment.
In the EU, the choice of the delivery term and of the place of delivery may affect another aspect of the international contract of sale: the choice of the court having jurisdiction for the resolution of disputes arising from the contract.
The EC Regulation No. 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters establishes that, unless otherwise agreed, the competent court for the resolution of disputes is that located where, under the contract, the goods were delivered or should have been delivered.
THE TIME OF DELIVERY
With respect to the time of delivery, depending on whether the Italian business is selling or buying abroad its goals may be completely different.
The Italian seller may agree with the foreign customer that the time of delivery is not binding and establish that, when delivery is delayed, its responsibility is limited to a predetermined and fixed sum of money, eliminating the risk that, due to the late delivery by the seller, the buyer may delay the payment and claim damage compensation or ask for the contract to be cancelled.
The objectives of Italian businesses purchasing abroad are different.
The Italian buyer may agree that the term of delivery is binding and set an immediate sanction in case of non-compliance by the foreign seller, as well as grant themselves the right to receive damage compensation or ask for the contract to be cancelled.
THE QUALITY OF GOODS
When are the goods defective?
The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or ¬packaged in the manner required by the contract. (Art. 35 of the United Nations Convention on Contracts for the International Sale of Goods, Vienna Convention, which Italy ratified with the Law 765/1985).
Except where the parties have agreed otherwise, the goods do not conform (Art. 35 of the Vienna Convention) with the contract if:
• they are not fit for the purposes for which goods of the same description would ordinarily be used;
• they are not fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract;
• they do not possess the qualities of goods which the seller has held out to the buyer as a sample or model;
• they are not contained or packaged in the manner usual for such goods or in a manner which is not adequate to preserve and protect the goods.
How long does the warranty last?
What are the rights of the buyer and, on the other hand, what are the obligations of the seller in the case of defective goods? What must the buyer and the seller do in the case of defective goods?
The conditions of the warranty may be freely agreed by the parties provided that such parties are professional buyers/sellers (businesses selling to consumers, instead, must comply with mandatory regulations).
In the case of defective goods, in the absence of any other contractual provisions, under Art. 46, the Vienna Convention establishes that the buyer may:
• require delivery of substitute goods provided that the lack of conformity constitutes a fundamental breach of contract (a breach of contract is fundamental if it results in such detriment to the buyer as substantially to deprive him of what he is entitled to expect under the contract, Art. 25);
• require the seller to remedy the lack of conformity by repair, unless this is ¬unreasonable having regard to all the circumstances;
• enforce his claim for damage compensation (Art. 47).
The request for replacement goods or for repair must be made in conjunction with the notice of defects within a reasonable time.
With respect to product safety within the EU and the related implications in terms of international contracts and in terms of the role of the various people involved (manufacturers, distributors, final customers), please see the EU legislation concerning product safety and CE marking.