FOB (Free On Board), which is widely used even today, first found its place in the jurisprudence of the English Courts in 1812. In 1916, CIF (Delivery by leaving the ship’s railing at the port of arrival with the Costs, Insurance and Freight paid) found its place in the jurisprudence. However, the forms of delivery will be subject to codification with the establishment of the International Chamber of Commerce. Although, the International Law Association, founded in 1860, introduced a set of regulations in 1928 under the name of “Rules for CIF Contracts 1928” to regulate the passage of damage in international trade, this attempt would fail. A group of entrepreneurs calling themselves the “Merchants of Peace” founded the International Chamber of Commerce in 1919, in the immediate aftermath of World War I, to address the lawlessness of international trade, investment, finance and trade relations that had emerged and could not be managed by any government. The Chamber established the International Court of Arbitration in 1923, launched the Uniform Customs and Practice for Documentary Credit (UCP) in 1933 and published the first Incoterms® (International Commercial Terms) in 1936. The Chamber, which rapidly sought to uniformize international commercial rules, systematized and standardized the forms of delivery, which were regulated differently in each country, by each legislator, and therefore almost eliminated legal predictability by merchants. In the end, while the buyer and seller who establish a commercial relationship are expected to know the laws of their own country, the fact that they are not familiar with the laws of the other country and often think that the laws of another country are parallel to their own cause disputes between the parties. This situation was sought to be overcome by introducing new rules independent of local regulations to which each party would feel bound, and as a result, Incoterms® emerged.
It has been amended 8 times since its publication since 1933. These are: 1953, 1967, 1976, 1980, 1990, 2000, 2010, and finally the latest 2020 amendments, which entered into force on 01.01.2020. With the amendments made so far, many Incoterms® types have been removed and new ones have been added. Incoterms® 2020 provides for a total of 11 modes of delivery.
LEGAL NATURE AND BINDING NATURE OF CONTRACTS
Incoterms® are voluntary rules that can be used at will between the parties. These rules are not automatically binding.
In fact, their voluntary binding nature is manifested by the principle of “freedom of contract”, which is the general principle of the law of obligations. The principle of freedom of contract is regulated in Article 26 of the Turkish Code of Obligations No. 6098. The article is regulated as “The parties may freely determine the content of a contract within the limits prescribed by law.” The delivery method determined by Incoterms® is incorporated into the contract with the mutual overlapping statements of the parties and these rules become binding for the parties.
I believe that it is beneficial for the parties to specify which Incoterms® revision will be used during contract formation. As mentioned above, Incoterms® has been revised eight times by the International Chamber of Commerce. If the year of revision is not written in the contract, in case of disputes that may arise, the issue of which Incoterms® revision the judge will use as the basis for the resolution of the dispute may be problematic. Nevertheless, when such a situation occurs, Article 19 of the Turkish Code of Obligations No. 6098 authorizes the judge to reveal the common will of the parties, and with the application of this article, the date of the contract between the contracting parties will be decisive on which Incoterms® revision will be applied to the contract.
Although it is a regulation referring to international trade, Incoterms® provisions may also be applied to national sales contracts to the extent that they overlap and if they are added to the contracts by the parties. For example, in the trade within the European Union countries, Incoterms® delivery methods continue to be applied even though the borders have been removed and there is a customs union.
In 1990, Incoterms® was grouped and divided into four main categories. The first group regulates the delivery of the goods subject to export by the seller to the buyer at his own place of business. In the second group, the goods subject to export are delivered to a carrier appointed by the buyer. In the third group, the seller makes the contract for transportation but does not bear the cost of insurance, and finally, in the fourth group, the seller bears all costs and risks until the destination. According to Incoterms® 2020, we will examine the forms of delivery in four groups.
Delivery at Workplace (Ex Works/EXW)
Group E includes only the Incoterms® type “delivery at the place of business”. Delivery at the place of business imposes the least obligations on the seller. The price agreed by the parties does not include any costs other than inspection, marking and packaging. The seller is obliged to pack and make the goods available at his workplace, factory or warehouse at the time specified in the contract. The buyer is responsible for loading to the vehicle at the seller’s address. The seller has no obligation to make an insurance contract and transportation contract against the buyer. The buyer is obliged to obtain all administrative permits, complete the export procedure, and prepare export documents after receiving the product from the place where the seller has made it ready. Unloading at the destination and transportation to the address is also the responsibility of the buyer. The import procedure, including customs fees, is the responsibility of the buyer. The risk and responsibility for the goods passes to the buyer at the time of delivery of the export products to the buyer at the place of business.
This type of delivery at the place of business should be preferred, especially to the extent that the customs legislation of the exporting country allows the buyer to carry out the transactions. Since the legislation of the Republic of Turkey is not suitable for delivery at the place of business for the seller, this method should not be used as a form of delivery. However, in practice, it is seen that the responsibilities are transferred to the buyer by making a contract in order to transfer the above-mentioned responsibilities to the buyer, but the work follow-up is still carried out by the sellers.
Free Carrier (FCA)
It is the second way of delivery with the least risk and the least obligations for the exporter after delivery at the place of work. This control, packaging and marking is done, the export procedure belongs to the carrier again. The seller is relieved of his responsibility by leaving the products subject to export in front of the loading vehicle shown by the seller. The vehicle where the seller leaves the products subject to export is not the export vehicle, but the vehicle that will provide internal transfer. If the place of delivery is the destination of the vehicle that will provide internal transfer, the importer is responsible for loading the goods subject to export. The products are delivered by the exporter in accordance with the export customs legislation, having obtained all kinds of permits and completed the administrative procedures. The seller bears the entire cost of fulfilling the permits and administrative requirements related to the export customs legislation. The seller bears the contractual obligation and transportation costs. The parties may determine the condition of delivery to the carrier as the place of business of the buyer, in which case the responsibility for loading the products is accepted by the seller. The seller is not obliged to insure the goods. Once the seller makes the goods available to the carrier, all responsibility passes to the buyer. The buyer is responsible for preparing all documents and obtaining permits for import. The buyer is obliged to pay customs payment and all other costs.
Free Alongside Ship (FAS)
It is only applicable for sea and river transportation. In the form of cost-free payment delivery in line with the ship, the seller is responsible for the control, marking and packaging responsibility of the products subject to export. The seller delivers the export goods to the pier or barge of the port where the export ship is located. The exporter is obliged to bring the export goods alongside the ship on the docking date. While export customs clearance procedures were the responsibility of the buyer during Incoterms® 2010, export customs clearance procedures have now been transferred to the seller with Incoterms® 2020. The seller will be responsible for the damages arising from the failure of the products subject to the contract to be ready in line with the ship in due time. However, the seller is not responsible for insuring the products. In this case, everyone assumes their own risk until the moment of delivery. The risk and responsibility passes to the buyer when the goods are left next to the ship. The importer is responsible for loading the export products onto the export vessel. The freight is paid by the importer, and all documents and customs formalities related to the import are prepared by the buyer. The importer is also responsible for paying the customs fee.
Free On Board (FOB)
It is also referred to as delivery on the handrail (deck). It is the delivery of the products subject to export by the exporter on the deck of the ship designated by the buyer. It is only applied in sea and river transportation. The seller is responsible for the inspection, marking and packaging of the exported products. The seller fulfills the export procedure as well as the export customs procedures. The cost and responsibility of loading the products to the export ship is on the seller. When the export goods are placed on the ship’s railing, delivery is deemed to have taken place and all risks and responsibilities pass to the importer. The seller is not obliged to insure the products. The risk distribution of uninsured products will be determined according to the moment of delivery. The buyer is responsible for unloading the goods from the railing at the port of import. All documents and customs formalities related to import are prepared by the buyer. Import customs duty and other administrative costs are paid by the buyer.
3. GROUP C
Delivery including Cost and Freight (CFR)
Only used for sea and river transportation. The seller is responsible for the control, marking and packaging of the products subject to export. The seller fulfills the export procedure as well as the export customs procedures. The exporter is also obliged to pay the freight cost by making an agreement with the transportation agency. The seller realizes the delivery by loading on the transport ship of the agreed agency. The seller is responsible for all costs and risks until he unloads his goods on the railing. Although the freight is paid by the exporter, delivery is deemed to have been made when the goods are unloaded on the railing. In other words, the exporter is not responsible for the transportation of the products subject to export. The export procedure and customs affairs at the port of export are carried out by the seller. The seller is not obliged to provide insurance. All documents and customs affairs related to import are prepared by the buyer, and the customs fee of the import country is paid by the buyer.
Delivery Including Cost, Insurance, Freight (CIF)
Used only for sea and river transportation. Except for the seller’s obligation to insure, it is identical to the CFR delivery method. The seller is responsible for the control, marking and packaging of the products subject to export. The seller fulfills the export procedure as well as the export customs procedures. The exporter is also obliged to pay the freight cost by making an agreement with the transportation agency. The seller realizes the delivery by loading on the transport ship of the agreed agency. The seller is responsible for all costs and risks until he unloads the goods on the railing. Although the freight is paid by the exporter, delivery is deemed to have been made when the goods are unloaded on the railing. In other words, the exporter is not responsible for the transportation of the products subject to export. The export procedure and customs affairs at the port of export are carried out by the seller. The seller has the obligation to insure. Even if the uninsured product is loaded on the transport ship and delivered, the seller will be responsible for the damage due to the contractual defect. All documents and customs affairs related to import are prepared by the buyer, the customs fee of the import country is paid by the buyer.
Carriage Paid To (CPT)
In this type of delivery, the seller’s goods are loaded on the export carrier selected by the seller and the freight is paid by the seller, and the goods are deemed to be delivered at the destination of the export carrier. The seller is responsible for the inspection, marking and packaging of the export goods at the seller’s expense. The seller is obliged to prepare the export documents required by his country and to fulfill the administrative requirements. The cost of these belongs to the seller. The seller is not obliged to insure the products subject to export. Delivery is deemed to have been made when the export carrier arrives at the destination determined in accordance with the agreement between the parties. From this moment, the risks and responsibilities pass to the buyer. The obligation to unload the carrier is on the buyer. The buyer is responsible for import customs clearance and preparation of import documents. Customs fee is paid by the buyer.
Carriage and Insurance Paid To (CIP)
It is the same as the delivery method with transportation paid (CPT), except that the seller is obliged to take out insurance. Incoterms® 2020 amended this form of delivery. For the CIP mode of delivery, the insurance obligation has been increased and the “Clauses (A) Of the Institute Cargo Clauses” insurance covering all risks has been made compulsory. In this delivery type, the goods of the seller are loaded on the export carrier selected by the seller and the freight cost is covered by the seller and the products are deemed to be delivered at the destination of the export transportation vehicle. The seller is responsible for the inspection, marking and packaging of the export goods at the seller’s expense. The seller is obliged to prepare the export documents required by his country and to fulfill the administrative requirements. These are at the expense of the seller. Delivery is deemed to have been made when the export carrier arrives at the destination determined in accordance with the agreement between the parties. From this moment, the risks and responsibilities pass to the buyer. The buyer is responsible for unloading the carrier, import customs clearance and preparation of import documents. Customs fees are paid by the buyer.
4. GROUP D
Delivered at Place Unloaded (DPU)
The term used as Delivered at Terminal (DAT) in Incoterms® 2010 has changed to DPU with the publication of Incoterms® 2020. DAT (Delivered at Terminal) has been renamed DPU (Delivered at Place Unloaded) as “Delivered at Place Unloaded” to emphasize that the destination, i.e., the address where the goods will be delivered, can be anywhere, not just a terminal. At this point, the seller should pay attention to the fact that the place where the goods will be delivered is not a terminal, i.e., a customs point, but a place suitable for unloading the goods. In the form of delivery at the unloading point, the exporter unloads the goods subject to sale from the carrier at the terminal of the destination or at the place to be indicated and delivers them to the buyer. The seller is responsible for the inspection, marking and packaging of the goods subject to export at the seller’s expense. The seller is obliged to prepare the export documents required by his country and fulfill the administrative requirements. These are at the expense of the seller. The seller is responsible for the agreement with the transportation agency, loading and sending the products to the export vehicle. The seller is not responsible for insuring the goods. The seller is obliged to unload the goods at the terminal (the last stop where all kinds of cargo vehicles dock) or other suitable place to be shown and to pay the unloading costs. The seller has no obligation to insure the goods. The importer is responsible for the fulfillment of all customs procedures and the payment of related costs, taxes, and duties. All risk responsibility is on the seller until the unloading is completed at the terminal.
Delivery at Place (DAP)
Delivery at a designated place means the delivery of the goods to the buyer at a specific point (warehouse, workplace, or similar place) indicated by the buyer. DAP replaces delivery at the border (DAF), delivery on board ship (DES) and delivery without payment of customs duty (DDU), which were abolished in 2011. Responsibility for inspection, marking and packaging of exported products is at the expense of the seller. Export customs and administrative affairs procedure is also the responsibility of the seller. The seller loads the export transportation vehicle and provides the shipment. The seller is not obliged to take out insurance. When the export transportation vehicle arrives at the destination, the buyer is responsible for unloading the vehicle. The seller is not obliged to insure the goods. It is the responsibility of the buyer to fulfill all import customs procedures and documents and to pay related costs, taxes, and duties.
Delivered Duty Paid (DDP)
Delivery with customs duties paid is when the seller delivers the goods customs cleared and ready to be unloaded from the transportation vehicle at the designated destination. It is the most obligatory form of delivery for the seller. The seller prepares both export and import documents. The seller makes a transportation contract for the goods to be sent to the destination and the seller is responsible for the freight charge. Although the seller is not obliged to ensure the products subject to export, he retains the risk of loss until delivery. Delivery is made at the place specified by the buyer in the buyer’s country. The seller is responsible for all taxes and expenses related to importation, including customs duty. When the vehicle subject to export arrives at the destination shown, the buyer is only responsible for unloading.
GROUPING ACCORDING TO MODE OF TRANSPORTATION
In doctrine and practice, classification according to the mode of transportation is also mentioned. FAS, FOB, CFR, and CIF modes of delivery can only be performed by using sea vehicles and therefore can be distinguished from the modes of delivery made by all means of transportation by using land, sea, air, and rail systems.
THE MATTER OF APPLICABLE LAW
The parties’ acceptance of Incoterms® delivery methods does not eliminate the obligation to choose the applicable law. The contractual acceptance of Incoterms® is not a choice of law, but merely a determination of the ancillary performance obligations and some procedural rules applicable to the relationship between them. The question of which state law will govern the resolution of problems that may arise will be subject to the provisions of private international law to be determined by the national laws of the exporter and importer.
Article 24 of the Law No. 5817 on Private International Law and Procedural Law will be used to determine the applicable law in the case of debt relations arising from a contract with a foreign element from the perspective of Turkey. According to paragraph 24/1 of the Law, contractual debt relations are subject to the law expressly chosen by the parties. The choice of law that can be understood without any doubt from the provisions of the contract or the circumstances of the case is also valid. Therefore, the parties may, if they wish, determine the applicable law through the contract they have previously concluded. This is called the principle of “freedom of will” in international law. The difference between freedom of will and freedom of contract is that the chosen law is applied to the dispute with all its mandatory and supplementary provisions.
If the parties have not determined the applicable law, then the applicable law will be determined by paragraph 24/4. Accordingly, “If the parties have not made a choice of law, the law most closely related to the contract shall apply to the contractual relationship. This law shall be the law of the habitual residence of the characteristic performance obligor at the time of the conclusion of the contract, the law of the place of business of the characteristic performance obligor in contracts established as a result of commercial or professional activities, or if the characteristic performance obligor has more than one place of business, the law of the place of business that is most closely related to the contract in question.”
Therefore, if the parties have not made a choice of law, it is necessary to determine which law is most closely related to that contract. Characteristic performance is the predominant performance of the contract. The performance of every sale contract is a money obligation. Therefore, it is understood that the money obligation is not the predominant performance. Considering that the type of the goods sold is constantly changing, and in this respect, the predominant performance obligation is the goods sold, it becomes clear that the debtor of the characteristic performance points to the “seller”. Within the scope of Incoterms®, if the parties do not determine the applicable law to the sales contract, the binding rules in Article 24 shall be applied to the sales contract by the judge and the relevant law shall be deemed to be the seller’s place of business.
Since the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention), which entered into force in Turkey on 01.08.2011 with the Law of Ratification, has become a domestic law regulation pursuant to Article 90 of the Constitution of the Republic of Turkey and is not directly related to the subject of this article, we do not go into the subject in detail here. However, 92 countries, including the Republic of Turkey, are parties to this convention and the provisions of this convention shall also apply to disputes between the merchants of the parties if the conditions are met. Determining whether the disputes with a foreign element are within the scope of the Vienna Sales Convention is important in terms of the provisions to be applied to the dispute. The reason why the Vienna Sales Convention is mentioned in the section of our article on the determination of the applicable law to the contract is to underline this Convention, which will be applied with priority over the local legislation in the hierarchy of norms while trying to determine the applicable law.
INTERNATIONAL JURISDICTION RULE
After determining the applicable law as Turkish Law, the determination of the court in which country, and even in which city after determining the country, will hear the case arising from a legal relationship containing a foreign element, provided that it has jurisdiction, can be explained as the international jurisdiction rule.
Article 47 of the Law No. 5817 on Private International Law and Procedural Law stipulates that in cases where territorial jurisdiction is not determined on the basis of exclusive jurisdiction, the parties may agree that the dispute between them arising out of debt relations with a foreign element shall be heard by the court of a foreign state. It is a condition of form that the authorization agreement must be in writing. In addition, pursuant to CCP 17, in order for the jurisdiction agreement to be valid, the parties to the agreement must be merchants or public institutions. Under these circumstances, it will be possible for the parties to authorize the court of the country of their choice to be competent in disputes arising in international sales contracts with a written agreement. However, if the foreign court deems itself to be without jurisdiction despite the jurisdiction agreement, then the jurisdiction of the Turkish courts will be in question again. The fact that the defendant does not object to the jurisdiction of the Turkish court despite filing a lawsuit in an unauthorized Turkish court will also mean the acceptance of the jurisdiction of the Turkish courts, and at this point, we would like to remind that the objection of jurisdiction is one of the first objections pursuant to Article 116 of the CCP No. 6100 and the judge cannot examine this issue ex officio.
If the competent court has not been determined by the contract between the parties, the references to Incoterms® in the contracts are very important in determining the competent court. Likewise, Article 40 of the Law No. 5817 on Private International Law and Procedural Law states that “The international jurisdiction of Turkish courts shall be determined by the jurisdictional rules of domestic law.” This provision refers to the jurisdictional rules of the Code of Civil Procedure No. 6100 in terms of determining the competent court. In terms of sales contracts, Article 6 of the Law No. 6100 regulating the general competent court regulates that the defendant real or legal person is the court of the place of residence of the defendant on the date of the lawsuit. Accordingly, the lawsuit arising from the sales contract with a foreign element can be filed in the court in the domicile of the debtor importer.
Again, Article 10 authorizes the court of the place of performance of the contract in cases arising from the contract. Since Incoterms® determines the destination and place of delivery of the product subject to export with delivery methods, it will be easy to determine the place of performance in disputes that may arise. If we accept that the “Incoterms® 2020 FOB” conditional contract between the parties will be delivered at the exporter’s port, the competent court will be the court of the port of export, which is the place of performance. However, it should be noted that the port of export court does not have to be located at the same address as the exporter. If a company established in Antalya makes a contract in the form of “Incoterms® 2020 FOB TR HAY”, it will be accepted that the competent court in case of dispute will be the Istanbul courts, which is the place of performance. It is undisputed that in a contract established in the form of “Incoterms® 2020 US GCT New York”, this time the New York courts will be competent.
If the dispute between the parties arises from the collection of the money debt, the competent court will be the court of the exporter’s place of business, since money debts are among the debts to be taken away pursuant to Article 89 of the Turkish Code of Obligations No. 6098. In this case, if you are an importer in Mersin in a contract prepared in the form of “Incoterms® 2020 HK HKC” and the exporter claims a money claim, the competent court will be the Hong Kong courts.
REMOVAL OF DELIVERY CLAUSES FROM THE TURKISH COMMERCIAL CODE
Article 1138 of the Turkish Commercial Code No. 6762 regulated FOB and Article 1139 regulated CIF delivery methods. However, both provisions were removed in line with the explanation of the legislator in the justification of Article 23 of the Law No. 6102.
“This article, which corresponds to Article 25 of the Law No. 6762, has been amended. Paragraph numbered (5), which reserves the provisions on “sale by sea and other overseas sales”, has not been included in the article. This is because, unlike the Law No. 6762, the Draft Law does not include overseas sales, particularly CIF and FOB. The said provisions were taken from the Incoterms provisions that were valid in the 1940s and today Incoterms 2000 is applied. Since Incoterms are constantly changing, there is no point in introducing new Incoterms into the law. Moreover, in such sales, the parties often refer to Incoterms or introduce special arrangements that depart from Incoterms.
The view that this provision should be removed, and the regulation should be left to the Code of Obligations has not found many supporters.”
Even the statement of the legislator in the justification of this article that “today Incoterms® is being applied” reveals how justified it is to exclude overseas sales from the systematic of the law. Indeed, two different Incoterms® revisions have been published since the enactment of Law No. 6102. In our opinion, it does not seem possible to regulate such a dynamic field and keep it up to date with the cumbersome structure of the codification process.
Although the need for codification in terms of contractual liability stems from the need to fill the gaps left by the parties, it should not be ignored that the actors of international trade are prudent merchants in accordance with Article 18/2 of the Law No. 6102. In particular, the cultural and technical equipment required by international trade has now exceeded the quality that requires the parties to be protected by law. Within the subject law that was formed throughout the legislator’s decision made on the forming formality.
Avukat Lider TANRIKULU / Antalya Barosu
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