Transfer of Risk in the Contract of Sale involving Carriage of Goods: A Comparative Study in English, Greek Law and the United Nations Convention on Contracts for the International Sale of Goods
We may first ask what is the effect in law of the transfer of risk. Risk of loss rules establish whether (a) the seller may still recover the price of the goods, and (b) whether the buyer must pay for the goods and take delivery, despite the fact the goods are partially damaged or totally destroyed. 5 Any harsh effects are mitigated by the fact that loss or damage to goods is normally covered by insurance. Nevertheless, it should be kept in mind that sometimes insurance coverage is absent or inadequate or starts operating only after the risk passes. Furthermore, the party bearing the risk has the burden of pressing a claim against the insurer, the burden of waiting for a settlement with its attendant strain on current assets, and the responsibility for salvaging and marketing damaged goods. 6
The word 'risk' in the sale involving carriage of goods seems in both Greek and English law and the Convention to cover casual physical loss, damage to or deterioration of the goods. A survey of the leading commentaries and cases suggests that the rules on risk would govern loss or damage caused by sinking or stranding of the ship or other vehicle used for transport, loss of goods in a warehouse fire, damage to the goods by a stranger 7 , adulteration of spirit by the admixture of inferior liquid 8 , mixing of the oil carried by a vessel with oil of inferior quality, deterioration of the goods due to delay in their arrival (without fault), confusion of the goods sold with other goods, loss of weight due to heat, deterioration of corn due to moisture 9 , loss of goods by theft 10 , emergency unloading, negligent act or omission by the carrier or his employees during loading 11 or transit, rough cargo handling or improper stowage 12 , or deterioration of the goods due to the fact that they had been left outside a cold store. 13 Although risk as a rule covers casual loss or damage during transit, it has also been suggested that it covers wrongful delivery of goods to another person. 14
From the foregoing analysis it can be concluded as a general rule common to the legal systems that every casual event operating on the goods which renders the buyer's position more disadvantageous should be considered as an event regulated by the rules related to risk. Nevertheless, the word risk has many other applications and is not necessarily related to the contract of sale. Reference can be made to commercial risk, that is failure of the foreign seller or buyer to perform his contractual obligations through insolvency, default or repudiation of the contract, and insurance risk. We may also refer to political risk, that is the danger that political decisions and upheavals will disrupt normal transactions. The most common political risks are blockage of funds, restrictions on the transfer of foreign currency earnings, cancellation of import licences, war and revolution. 15
A matter of a great importance which appears to be controversial, however, is whether or not the normal risk rules cover acts of state or international organizations. Anobvious example is the seller's inability to deliver the goods due to their confiscation, arrest of the ship or export or import bans. It seems that as a general rule these acts are not covered by the rules on risk. 16 As regards Greek law it is suggested by a minority opinion that the concept of risk in sale concerning carriage of goods (article 524) also includes political risks (considering them as legal defects) as far as there is causal connection between shipment and the facts. 17 Similarly, it has been decided by the Arbitration Court attached to the Hungarian Chamber of Commerce that loss caused by the UN embargo on the former Yugoslavia had to be borne by the buyer since the risk had passed to him. 18 In this case a Yugoslav company sold and delivered caviar to a Hungarian company. The contract provided that the buyer had to pick up the goods sold from the seller's place of business ('FOB Kladovo') two weeks after their delivery, by which time the UN embargo against Yugoslavia had taken effect in Hungary. As a result the goods had to go outside the bonded warehouse area and the buyer could not take delivery of them, nor clear them through the customs (thus not obtaining ownership or possession) nor return them to the sellers. The buyer declined to pay on the basis that the UN embargo was force majeure. The arbitration court held that the buyer was obliged to pay the price of the delivered goods with interest as the damage caused by force majeure had to be borne by the party to whom the risk had passed. The result of this award, if it is correct, is that an embargo resulting in import and export bans is to be included in the concept of risk as opposed to a cause of frustration of the contract.
It is however suggested that this award is wrong for two reasons: (1) the arbitrators classified the embargo as a force majeure event; however, an event that constitutes force majeure cannot by its own nature be governed by the rules related to risk; and (2) such an interpretation would cause unjust results, as acts of state or international organizations quite often cannot be insured against, with the result that the buyer will have no claim against an insurer. 19 Consequently, the buyer would suffer non-recoverable economic loss, whereas the seller's loss could be justified on the ground that, for example in the case of confiscation, he will be the owner of the goods. 20 Furthermore, at least acts of state can be contested in the courts by the party concerned (though this is not the case in the case of acts of international organizations as they cannot usually be contested in courts 21 ).
Cases where the goods are confiscated or destroyed during wartime (e.g. sinking, capture, seizure, arrest, restraint or detainment of a vessel or confiscation of the goods by any hostile act by belligerent power) may however be considered as within the risk rules. The basic policy justifying this result is the fact that the buyer may insure the goods against war risks (i.e. Institute War Clauses, All Risks Clauses). 22 If the goods are lost, his economic loss may be recovered as he will have rights against the insurer. There is, however, a problematic marginal situation where the buyer, due to the sudden and unexpected outbreak of war, had not the goods insured for war risks. This problem was faced in some English cases during the First World war where ships were lost with their cargo by action of enemy forces and the buyer could not recover the loss as the insurance policy did not provide for war risks. 23
This problem has considerable contemporary importance. There are still dangers that vessels, aircraft or land vehicles may be lost due to hostile acts (e.g. recently in the Persian Gulf or in Yugoslavia, and in the case of pirate attacks in the High Seas 24 ). It is more reasonable for the traders who bear the transit risk to insure the goods against such risks.
5. D E Goodfriend, 'After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods' (1984) 22 Col. J Trans'l Law 575, 577.
6. Secretariat Commentary (art. 66) in J Honnold, Documentary History of the Uniform Law for International Sales,(1989) 453.
7. L S Sealy, 'Risk in the Law of Sale' B CLJ 225, 229.
8. Sterns Ltd v Vickers Ltd 1 KB 78.
9. Areopagites 524/1995 MLR 24, 26 = CLR 1995 561.
10. Athens Court of Appeal 4041/1987 CLR 1988 246. P Zepos, GLG 1955 1301.
11. Underwood Ltd v Burgh Castle Brick and Cement Syndicate 1 KB 123.
12. Peter Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG),(2nd edn, 1998) ('Commentary') 500; J Ramberg, International Commercial Transactions(1998) 59.
13. Wardar's (Import and Export) Co Ltd v Norwood and Sons Ltd 2 QB 663.
14. Ch. Verveniotis, in Georgiadis Stathopoulos, Civil Code Commentary (1980), volume II, article 524, no 34 ('Verveniotis in Commentary')
15. Philip Raworth, Legal Guide to International Business Transactions(1991) 121. As regards war and revolution, it seems that they are governed by risk rules as the parties may provide for insurance against them (Institute War Clauses (Cargo), Clause 1.1).
16. Kafkas, Contract Law, Special Part(5th edn 1974 - 1975) Article 524(6). Gazis, Civil Law Commentary, Article 524 para. 28 ('Commentary'); Schlechtriem, Commentary 501(4).
17. Papanikolaou, Sale and Exchange of Goods(1950) Article 524 para. 59.
18. Hungary 10 Dec. 1996 Budapest Arbitration proceeding Vb 96074 in Case Law on UNICITRAL texts (CLOUT) Abstract no. 163. There is also academic support that an embargo may be included in the concept of risk: see B Audit, Convention des Nations-Unies du 11 avril 1980(LGDJ 1990) 86.
19. Save for some exceptional circumstances, e.g. export guarantees.
20. Schlechtriem, 501(4); Staundinger/Magnus Kommentar zum BGB mit Einfuehrungsgesetz und Nebengesetzen,(13th edn, 1994) Art. 66(6). Also in The Parchim  AC 157 it was held that the enemy character of goods seized as prize is to be determined by property and not by risk. For arguments supporting this criticism see also D. Flambouras in Flambouras/Petrochilos, 'The Vienna Convention on the International Sale of Goods as interpreted by the Arbitrators', 2000 Commercial Law Review at p. 47
21. Nevertheless, these risks can be insured, as the Institute War Clauses mention that the insurance will cover loss or damage to the subject-matter insured caused by (1.1) war, civil war, revolution, insurrection, or civil strife arising therefrom, or any hostile act by or against belligerent power.
22. Schlechtriem, 501(4).
23. See Chapter III. 2(3). In Groom Ltd v Barber1 KB 316 it was found that if it was not usual at the time of the policy was taken out to insure against war risks, a policy not provided for such insurance could be validly tendered although the goods had been lost by war risk and although such risks were expressly excepted from the policy.
24. According to recent reports (Vantage Systems, Inc. in ‹http://www.vantage-security.com/artpirac.htm)› piracy -including boardings, attempted boardings, hijackings, detentions and robberies at port or anchorage- remains a very real problem in many areas of the world (Southeast Asian waters, off the Atlantic coast of South America and the Caribbean). The cost of piracy and maritime fraud has been estimated as high as $ 16 billion a year, and pirate attacks on ships rose by five in 1996, soaring to a record reported 175 incidents worldwide. It seems, however that the actual count is even higher as ship masters have discouraged seamen from reporting pirate attacks, apparently because of the delays that the vessel may encounter as reporting formalities are completed.