The passing of risk is one of the most complex legal issues related to sales law. In fact, it can be said that the wording “risk” has become a cult concept in the contract law world.¹ Nonetheless, it is intrinsically versatile, and hence the main problem is that of determining what is the exact meaning of “passing of risk”.

When goods or digital content suffer any kind of loss or damage by accident (or due to no fault of either party) in the period in between the time of the conclusion of the contract and its performance, the seller is discharged from its obligation to deliver the goods that have been lost or destroyed. This is called “delivery risk” (Leistungsgefahr) or “risk of performance”.² However, when we talk about the passing of risk in sales contracts we refer to the “price risk” (Preisgefahr), the “risk of counter-performance” or the “risk of payment”. Therefore, the following question must be answered: does the buyer’s obligation to pay the price remain in the above-mentioned situation?³

If the answer to this question is affirmative, the buyer shall bear the risk of the loss or damage (periculum est emptoris). In this situation, the buyer does not receive the goods if they are accidentally lost or, in the event of partial damage, he will only take over damaged goods, because, as we have seen, the seller is normally excused from the obligation to deliver other conforming goods. In addition, he must fulfil the obligation of paying the full price under the contract, provided of course, that the risk has passed, as we will see below.

On the contrary, the seller shall bear the risk of loss or damage (periculum est venditoris) when he loses the right to obtain the agreed price of the goods that have perished or become completely or partially damaged. Given the extraordinary significance that both solutions have for the parties, determining the exact time when the risk passes is deemed to be the key element in this problem.⁴

The issue of passing of risk is a well-known subject in the national legal systems around the world and, in the course of its immemorial history,⁵ has raised uncountable doctrinal problems. In a nutshell, we can distinguish at least three different criterions normally invoked to solve the problem:

We have just seen how the national laws usually resort to abstract and general concepts (key concepts) to regulate the passing of risk . But these criteria, because of their limited flexibility, face highly important difficulties in adapting to the changing conditions of commercial life.

Mainly for this reason, the United Nations Convention on the International Sale of Goods (CISG) abandoned the legislative technique known as the “lump concept”,¹⁵ provided by civil law countries¹⁶ and, instead, adopted a new technique called the “typological approach”, whose origin is located in the common law system. This analytical technique tries to determine the passing of risk in each of the different situations that can be found in commercial reality. In other words, instead of establishing an all-encompassing legal standard (such as the transfer of ownership or the conclusion of the contract), the new rules describe in detail most of the situations that take place in the legal dealings, determining in each case the exact time in which the buyer begins to bear the risk.¹⁷ Thus, each of the situations that may appear in international sales will have a consistent and appropriate solution, adapted to commercial reality. This formula underlies the wording of the American Uniform Commercial Code¹⁸ and the Incoterms of the International Chamber of Commerce.¹⁹

Under this author’s opinion, this methodological approach meets in the main the objective requirements of legal dealings, i.e. it serves to “mirror commercial reality”.²⁰ However, although this technique has been well received by legal scholars and practitioners as an important legal improvement,²¹ its problems should not be forgotten:

First, it is virtually impossible for a set of legal rules, no matter how detailed and complete they are, to capture the richness of forms and situations in which the international sale unfolds.²² In fact, it has been argued that the absence of specific rules for the passing of risk in the case of multiple sales of goods during transit (“daisy chain sales”) is the “Achilles heel” of the Vienna Convention.²³

Furthermore, the emergence of new forms or variants of international sales contracts can lead to the obsolescence of any one law. As a consequence, the legislator has to review the rules continuously in order to guarantee their perfect suitability to reality, and, obviously, this situation is not to be recommended.²⁴

In any case, we can assert, without any doubt, that the rules governing the passing of risk in the CESL are clearly inspired by the CISG²⁵. Hence, it is essential to this study to take into consideration this important international Convention at every stage.

The CESL regulates the passing of risk in Chapter 14,²⁶ and distinguishes expressly between business to consumer (B2C) and business to business contracts (B2B). Since consumers deserve specific protection, the CESL opts, as does the DCFR, for setting two different regimes governing the problem of the passing of risk. However, the first section of Chapter 14 establishes two general rules governing any type of sale: effect of passing of risk (art. 140) and identification of goods or digital content to contract (art. 141).

Article 140 CESL lays down the legal effect of the transfer of risk as follows: “Loss of, or damage to, the goods or the digital content after the risk has passed to the buyer does not discharge the buyer from the obligation to pay the price, unless the loss or damage is due to an act or omission of the seller”. This rule is fully coherent with art. 105 CESL (Relevant time for establishing conformity), according to which the seller is liable for any lack of conformity existing at the time when the risk passes to the buyer under Chapter 14.

It should be noted, firstly, that the rule clearly regulates the “price risk” (or “the risk of counter-performance”), and, therefore, implies that the buyer has to pay the price of the goods once the risk has passed. The time of passing of risk depends on the kind of contract of sale concluded (B2B or B2C), but the legal effect is always the same: the buyer has to pay the price of the goods and the digital content even though they have been lost or damaged.

On the other hand, if the loss or damage is due to an act or omission of the seller, the buyer does not remain bound to pay the price. The rule does not require the act or omission of the seller to amount to a breach of contract , but normally the seller shall be responsible for loss or damage due to the total or partial breach of its obligation to deliver, if he has packed the goods in an insufficient or incorrect manner. The seller will be also liable for acts and omissions by persons for whom the seller is responsible (e.g. employees). It is very important to point out that, in both these cases, there is a breach of contract (non-performance) and, therefore, the buyer may invoke all the remedies provided by the CESL (art. 106). In other words, the rules governing the passing of risk in the CESL are not applicable in these situations. However, it must be noted that if the loss or damage has occurred as a result of a legal act by the seller, such as the legitimate exercise of a legally granted right,²⁷ the rule would not come into play. In fact, in this case, the potential damage to the goods would have actually been caused by “a fait de l’acheteur”.²⁸

Article 2(c) CESL defines ‘loss’ as “economic loss and non-economic loss in the form of pain and suffering, excluding other forms of non-economic loss such as impairment of the quality of life and loss of enjoyment.”²⁹ Nevertheless, under art. 140 CESL, the concepts of “loss” (periculum interitus) and “deterioration” (periculum deteriorationis) must be interpreted according to their literal meaning, including both physical damage and any case in which the buyer is unable to receive the goods. Therefore, these situations could include theft, fire, shipwreck, shrinkage of the goods, emergency unloading or other transport risks.³⁰

However, it is unclear whether the concept of “loss” also covers “acts of State” (e.g. confiscation of the goods, export or import bans, embargo, etc.) because, strictly speaking, these acts do not involve an impairment or loss of the goods. In other words, the key question is whether the “legal risks” are included, or not, in the concept of passing of risk . Günter Hager maintains that the acts of State have nothing to do with risk, and hence are a matter governed by international trade law.³¹ However, this author is in complete agreement with Johan Erauw, who points out that if the parties have not adopted a trade term (Incoterms) to deal with these risks, they might be treated under the risk-of-loss rules (in our case, the CESL).³² In this sense, an arbitration court, attached to the Hungarian Chamber of Commerce and Industry, considered the United Nations embargo against Yugoslavia as an act of force majeure that had to be borne by the party to whom the risk had passed, according to art. 67 CISG.³³ On the contrary, the so-called “economic risk” (fluctuation of the value of goods on the market or, equally, exchange-rate fluctuation) is not covered by the rules governing passing of risk. Finally, however, it has to be remembered that it does not matter whether the goods have been lost or damaged completely or merely partially, because, in any case, the buyer has to pay the overall price of the goods.

It must also be borne in mind that the risk does not pass to the buyer until the goods or the digital content are clearly identified as the goods or digital content that are to be supplied under the contract (art. 141 CESL). Indeed, it must be remembered that if the goods are not properly identified, delivery still remains a possible option because “genus nunquam perit”. So, when the goods are generic in nature, there is not an issue regarding allocation of risk (“obligationis periculum”) .

In addition, it can be said that proper identification of the goods protects both parties. On one side, the buyer is protected against unjustified claims brought by an “unscrupulous” seller.³⁴ On the other side, the seller is also protected because “the identification of the goods sets limits for the potential liability in the case of failure on delivery of the good (or digital content) which has been specified in the contract only by its genus”.³⁵ In fact, the requirement of identification is of particular importance for the passing of risk in sales involving carriage, because if the carrier has not identified the goods sent to several clients, the seller has to bear the risk of loss or damage.

Therefore, art. 141 CESL links the passing of risk to the specification of the goods or the digital content.³⁶ Whether the goods had, or not, been duly identified in the contract before they were lost or damaged will often be a question of proof. In any case, the identification of the goods may be done in three different ways:

The passing of risk in B2B contracts is regulated separately in Section 3 of Chapter 15. This section consists of four articles (143–146 CESL)³⁹ that are not of a mandatory nature .⁴⁰ Hence, the parties may deviate from these rules in order to determine the exact moment in which the risk has passed to the buyer. However, in the opinion of Zoll and Watson, the essential deviation from the standards set out in these provisions may sometimes appear abusive within the meaning of Chapter 9 (Unfair contract terms).⁴¹

Article 143 CESL contains the general rule applicable to all B2B contracts: “In a contract between traders the risk passes when the buyer takes delivery of the goods or digital content or the documents representing the goods”. Thus, the criterion used to determine the passing of risk is linked to the concept of “taking delivery”, and, therefore, the interpretation of this rule must be made in coordination with the provisions of art. 94 CESL (Method of delivery)⁴² and art. 129 (Taking delivery).

As can be seen, the article distinguishes two different situations: on the one hand, where the buyer takes delivery of the goods or the digital content; and, on the other hand, where the buyer takes delivery of documents representing the goods. In the first case, the buyer bears the risk when he takes physical control of the goods; while in the second case, the risk passes at the moment in which the buyer takes delivery of certain documents, such as a bill of landing or a warehouse receipt.⁴³ In almost identical wording, the CESL considers that the buyer has fulfilled his obligation to take delivery when (a) he has done all the acts which could be expected in order to enable the seller to perform the obligation to deliver; and (b) he has taken over the goods, or the documents representing the goods or the digital content, as required by the contract (art. 129 CESL).

Surprisingly, the rule makes no reference to the passing of risk in a contract for the supply of digital content not supplied in a tangible medium. As we will see below, art. 142(2) links the passing of risk to the moment in which the consumer has obtained the control of the digital content. However, art. 142 CESL does not take into consideration the situation concerning intangible digital content. This is a gap in the proposed law that may provoke uncertainty among the traders involved in these contracts. Perhaps the best solution to overcome this interpretative problem is to deem both concepts (“taking delivery” and “obtained the control”) as one and the same.⁴⁴

Finally, it should be noted that the general rule linking the passing of risk to the time when the buyer “takes delivery” of the goods is subject to the specific rules provided by the CESL for three different types of sale: Goods placed at buyer’s disposal (art. 144 CESL), Carriage of the goods (art. 145 CESL) and Goods sold in transit (art. 146 CESL)⁴⁵.