Services / Cross-border transactions and investment
Cross-border sale: when the risk moves
An international sale or distribution contract has one question worth settling at the drafting stage: when risk in the goods moves from seller to buyer. The Thai default may not be what the parties assume.
The default in section 370
Section 370 of the Civil and Commercial Code provides that where a bilateral contract has as its object the creation or transfer of a real right in a specific thing, and that thing is lost or damaged by a cause not attributable to the debtor, the loss falls on the creditor. In a sale, the creditor of the obligation to deliver is the buyer, so as a default the loss lands on the buyer.
Goods that are not yet specific
The second paragraph provides that where the thing is not specific, the same rule applies from the time it becomes specific under the second paragraph of section 195. In trade by description and quantity — raw materials, or goods produced in lots — the turning point is therefore the setting apart and identification of the goods, not payment or the issue of documents.
Why the clause matters more than expected
Because the default places risk on the buyer and ties the moment of change to a fact about identification, a clause fixing where risk passes genuinely changes the result. Parties using standard trade terms should check that the term chosen puts the passing of risk where they believe it to be, and that it lines up with whatever the contract says about carriage and insurance.
Distribution contracts add a layer
Under a distribution agreement goods move in successive consignments within one framework, so the risk question recurs with every order. Setting the point at which risk passes in the framework agreement, and making each order subject to it, avoids renegotiating each time and keeps the paperwork for each consignment consistent with what was agreed.
What to keep from the day of shipment
Because the moment of change under section 370 rests on facts about setting apart and identifying the goods, the evidence that answers it is made on the day of shipment rather than assembled afterwards when a dispute has arisen. Packing lists, photographs of condition, and transport documents identifying the lot or serial numbers are worth more than they appear on a day when nothing has gone wrong.
PREPARE
What to bring
- The sale or distribution framework agreement
- The order for the consignment in issue and its trade terms
- Transport documents and the packing list for that lot
- Evidence of the goods' condition on despatch and on receipt
- Any cargo policy, and who is insured under it
QUESTIONS
Questions this raises
Do the usual trade terms override section 370?
Section 370 is a default applying where the parties agreed nothing else, so an agreed risk-passing point takes effect as agreed. What needs care is that the trade term relied on is properly incorporated into the contract and that the version or year is identified, since a bare reference can itself become a question of construction later.
Cargo insurance is in place. Does this still matter?
It does. The policy answers who is indemnified; section 370 answers who bears the loss as between buyer and seller. The two can diverge, particularly where the party insured is not the party carrying risk under the contract, so aligning them belongs at the contracting stage.
LAW
The legislation
- Civil and Commercial Code, section 370
ENQUIRIES
