Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions.
Since 1939, Incoterms, developed by the International Chamber of Commerce (“ICC”), have been accepted by traders and governments worldwide to explain important terms such as insurance, carriage or risk of loss. The CISG has been interpreted to incorporate the International Chamber of Commerce’s Incoterms provisions. Hence, in a case in which an EU business sold to an American buyer medical equipment that became damaged during transport, an American Court found that the seller was responsible under the Incoterms for paying the cost of freight and insurance coverage necessary to bring the goods to the port designated. However, the court also found that the risk of loss (or damage) passed to the American buyer, even if the title to the equipment did not change until full payment by the buyer. Thus, the buyer was obligated to pay both the full agreed upon sale price and to pursue restitution from the buyer’s insurance company for the damaged equipment.
When the parties intend to incorporate Incoterms into a contract for sale, it is important to make an express reference and, if possible, to the specific version of the Incoterms.
Practice Tip: Specify who is responsible for 1) Transportation to the port; 2) Who has the risk of loss between the port and final destination; and 3) Indicate specifically who is responsible for clearing a medical device through customs, as the obligation under Incoterms is usually that the party domiciled in the country where such clearance is to take place has the responsibility.