In international sales under CIF (Cost, Insurance and Freight) or CFR (Cost and Freight) terms, it is clear that the Buyer bears all risks of damage once the goods are onboard the ship at the port of shipment. However, it is common that the Insurer of the goods compensates the CIF Seller while the goods are damaged during the voyage although, according to the agreed CIF terms, the Seller is not responsible for any risk in the moment of the damage.
This leads to a question whether this payment is based on the obligations that arise from the insurance contract or, on other circumstances, and, above all, whether this payment entitles the Insurer of the goods to take a recovery action against the carrier.
Our Supreme Court has taken position on this question in several occasions considering that: “if the things perish or are damaged while in transit, the buyer is the only person entitled to require compensation from the carrier, as the buyer is the rightful owner of the goods.“ (Judgments of October 3rd 1997 and of may 8th 2008, among others). This means that it is only the Buyer who is to be considered as assured, being the only who holds a title over the insured interest.
So the Seller, who fulfilled the obligations arising from the CIF/CFR sale contract and transferred the risk of damage to the Buyer once the goods are onboard of the vessel at the port of shipment, has no right to claim any compensation for damaged goods. Therefore, the payment that the Insurer makes to the Seller has to be considered mere act of benevolence out of the insurance contract, without the Insurer having a right to recover from the carrier or whoever responsible for the damage. Besides, since the consignment note is usually a bill of lading issued to the order of the CIF Buyer, it is the Buyer who is entitled to require the goods to be delivered in the same state as they were loaded.
Despite the clear wording of the Supreme Court, there is no consensus on this issue. This is the case of the section 15 of the Provincial Court of Barcelona, which entirely isolates the scope of the transport agreement from the scope of the sale contract by eliminating any kind of connection among each other, and states: “claims based on transport contract, being the carrier and the shipper the two parties, should be solved in compliance with obligations accepted in the contract and in accordance with the norms that regulate transport of goods. These cannot be affected by agreements of the trade contract” (Judgment of November 24th2016, reproduced in the Judgment of May 24th 2017). With this argument, the Provincial Court of Barcelona approves the payment made by the Insurer of the goods to the Seller (and at the same time shipper) in order to allow the Insurer to recover from the carrier.
Unfortunately, due to the legal uncertainty created by this situation, it will be necessary to ask the Supreme Court to clarify their criterion, in one way or the other, until a conclusive resolution is achieved. For the moment we can only take notice of the disparity of criteria and take appropriate precautions in each case. With regard to the Insurers, if they decide to compensate the Seller, instead of relying on an ope legis subrogation, they should at least obtain an expressed transfer of rights and actions from the Buyer before they initiate a claim against the carrier, since, as has been demonstrated, the action that the Seller might have against the carrier (granted to the Insurer) is questionable according to the Supreme Court.