Summary of Judgment No. 17/2023/KDTM-PT: Application of Incoterms 2010 in International Fisheries Disputes

1. General Information

- Adjudicating Body: The High People's Court in Da Nang.

- Date of Judgment: October 26, 2023.

- Dispute Relationship: International goods sale contract dispute (Frozen yellowfin tuna).

- Trade Terms Applied: CFR (Incoterms 2010).

2. Case Content & Legal Proceedings

Company S2 (Plaintiff - USA) signed a contract to purchase tuna from Company D1 (Defendant - Vietnam). After the goods arrived at the warehouse in the USA, S2 conducted private sampling and claimed the goods were of substandard quality (contaminated with Salmonella, Histamine...), consequently filing a lawsuit to cancel 03 contracts and demanding compensation of USD 421,507.37.

3. First-instance Ruling

(i) Accepted the entire lawsuit petition of Company S2, Inc.; Declared the cancellation of the goods sale contracts signed between Company S2, Inc. and Company D1 Ltd., including: Sale Contract No. EXP-HP12/2019 dated August 19, 2019, Sale Contract No. EXP-HP16/2019 dated October 01, 2019, and Sale Contract No. EXPHP17/2019 dated October 02, 2019. Compelled Company D1 Ltd. to pay Company S2, Inc. the amount of USD 421,507.37.

(ii) Company S2, Inc. is obligated to return shipments No. 1, 3, and 4 under Commercial Invoice No. EXP-HP12/2019, Commercial Invoice No. EXP-SHP 17/2019, and Commercial Invoice No. EXP-HP20/2019 delivered by Company D1 Ltd.; Company D1 Ltd. shall bear all return costs.

Additionally, the first-instance judgment decided on court fees, the right to appeal, and judgment execution.

4. Findings of the Appellate Court: Applying Incoterms 2010, the Appellate Court modified the judgment based on a deep analysis of the CFR delivery terms

- Transfer of Risk: According to Incoterms 2010, under CFR terms, the seller (D1) fulfills their obligation and transfers the risk to the buyer (S2) as soon as the goods are loaded on board the vessel at the port of shipment (Vietnam).

- Seller's Responsibility: Company D1 proved that the goods met standards at the time of risk transfer through health certificates from NAFIQUAD and testing results from CASE in Vietnam.

- Buyer's Responsibility: After the goods were loaded on board, all risks of damage or quality degradation belonged to S2. The Court determined that S2 failed to prove the goods were defective prior to loading. S2's private sampling at their own warehouse after receiving the goods was inconsistent with FDA inspection procedures and lacked sufficient grounds to hold D1 liable under CFR rules.

- S2 had paid 100% of the payment, which means the goods actually passed FDA inspection (as the contract stipulated that the remaining 50% would only be paid after the goods cleared the US border). Additionally, Company D1 was not on the FDA Import Alert list during the dispute period.

- From the above analysis, there are grounds to assert that the First-instance Business and Commercial Judgment No. 07/2022/KDTM-ST dated November 02, 2022, of the People's Court of Khanh Hoa Province relied solely on the Kappa laboratory report dated January 30, 2020, to claim that "the quality of goods exported by Company D1 to Company S2 was substandard." Therefore, accepting the lawsuit petition of Company S4 [sic] was groundless and failed to comprehensively consider the commitments the parties agreed upon and implemented in the signed contracts. The Appellate Trial Panel accepted the appeal of Company D1 Ltd. and amended the First-instance Business and Commercial Judgment No. 07/2022/KDTM-ST dated November 02, 2022, of the People's Court of Khanh Hoa Province. Did not accept the lawsuit petitions of Company S2, Inc. regarding the request for the Court to declare the cancellation of the goods sale contracts signed with Company D1 Ltd.

5. Decision of the Appellate Court

- Accepted the appeal of the defendant (Company D1);

- Did not accept the entire lawsuit petition of Company S2, Inc. regarding: The request to declare the cancellation of the goods sale contracts signed between Company S2, Inc. and Company D1 Ltd., including: Sale Contract No. EXP-HP12/2019 dated August 19, 2019, Sale Contract No. EXP-HP16/2019 dated October 01, 2019, and Sale Contract No. EXP-HP17/2019 dated October 02, 2019; The request to compel Company D1 Ltd. to pay Company S2, Inc. the amount of USD 421,507.37.

6. Summaries

This judgment serves as a vital reminder for businesses regarding the correct application of Incoterms:

- Risk Transfer Point: Under CFR terms, the seller's liability ends once the goods are loaded on board. Any damage occurring during transit or at the buyer's warehouse cannot be blamed on the seller without prior evidence of defects.

- Inspection Evidence: Certificates from authorized agencies at the port of loading (such as NAFIQUAD or CASE) are the strongest legal shield for exporters.

- Complaint Procedures: Buyers must conduct inspections according to international standards (e.g., FDA) immediately upon receipt to ensure the objectivity of the evidence.

 

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