Chapter 8 

                  Inspection and Claims

  Objectives

After studying this chapter，you should be able to

1. explain what inspection and claim are.

2. describe four types of time and place of inspection.

3. understand the reasons of lodging a claim in international business.

4. describe functions and types of inspection certificates.

5. describe the procedures of seller's settlement to claim.

6. describe the main duties of China inspection institution.

Key terms

InspectionInspection certificates

Landed qualityLanded weight

Shipping qualityShipping weight

Discrepancy andclaim clausePenalty clause

8.1Inspection

In international trade，the buyer always wants to purchase satisfying goods from a foreign supplier. Therefore，careful and proper inspection of goods is indispensable and an inspection clause in a contract should be included.

Commodity inspection means that in international trade，inspection institutions usually examine the quality，quantity，weight，packing，etc. of the goods delivered by the seller to make sure whether the goods are in conformity with the stipulations of the contract and L/C，or inspect safety and sanitations.

8.1.1 Time and place of inspection

In practice the time and place of commodity inspection can be fixed on by four modes in the contract.

（1）Inspection at the export country.

•Inspection at the factory.  

•Inspection at the port of the shipment.   

（2）Inspection at the import country.

（3）Inspection at the export country and reinspection at the import country.

（4）Weight inspection at the port of shipment and quality inspection at the port of destination.

8.1.2 Inspection authority 

Commodity inspections in international trade are done by a third party generally known as surveyor. Some of surveyors are government organizations；others are set by individuals or trade associations.

（1）Governmental inspection organization，which is established by the state according to the laws or regulations，such as FDA（Food and Drug Administration，USA），APHIS（the United States Department of Agricultures  Animal and Plant Health Inspection Service，USA），AQSIQ（State General Administration of the People's Republic of China for Quality Supervision and Inspection and Quarantine，China）.

（2）Sem⁃governmental inspection organizations，which are entitled by the state to make inspections for some commodities，such as UL（Underwriter's Laboratory，USA）.

（3）Non⁃governmental inspection organizations，which are professional competent surveyors or inspection corporations，set by private institutions，such as Lloyd's Surveyor（British），Societe Generale De Surveillance S.A.，SGS（Swiss）.

According to the Commodity Inspection Law，the main duties of China inspection institutions can be generalized as follows： 

（1）Making legal inspection. Legal inspection is conducted to make mandatory inspection of the important import and export goods according to the laws and regulations of the country. It is an important way to control the quality of the goods. The legal inspection on import and export includes the following items.

•Inspection of import and export commodities included in the list of commodities； 

•Hygiene inspection on the foods for export； 

•Testing and inspection on the performance and employment of the packages and containers for dangerous export goods； 

•Cargo worthiness inspection on such means of transportation as vessels  hold and containers for carrying perishable foods and frozen goods for export； 

•Inspection of imports and exports to be carried out by the commodity inspection authorities according to relevant international treaties； 

•Inspection of imports and exports to be conducted by the commodity inspection authorities as stipulated in other laws and administrative regulations

（2）Supervision and administration. The scope of supervision and administration includes production，management and sales of the commodity so as to raise the level of quality of the goods；expand export sales and safeguard the reputation of our country. The major contents of supervision and administration include： 

•System of import safety license and export quality license；

•Hygiene registration system；   

•Quality certification marks； 

•Commodity inspection marks.

（3）Authentic attesting business. The inspection institution accepts attesting business being related with foreign trade according to the application of parties involved in foreign trade transactions，and issues various attesting certificates as effective evidence in handling delivery，settlement，valuation，customs declaration，taxation，disputes，claim，etc.

8.1.3 Inspection certificate

Functions of certificate 

• （1）Inspection certificate is the proof for the quality，weight（quantity）or packing etc. of the goods delivered by the seller that they are in accordance with the contract. It makes it imperative for the exporter to abide by the contract.

• （2）Inspection certificate is one of the documents to be presented to the bank for negotiation by the seller.

• （3）Inspection certificate can be the evidence for lodging a claim

• （4）Inspection certificate can be used by the importer for Customs declaration and clearance.

• Types of certificate 

• •Inspection Certificate of Quality；

• •Inspection Certificate of Weight；

• •Inspection Certificate of Quantity；

• •Inspection Certificate of Value；

• •Veterinary Certificate；

• •Sanitary Inspection Certificate；

• •Inspection Certificate of Disinfection；

• •Inspection Certificate on Damaged Cargo；

• •Certificate of Origin；

• •Inspection Certificate of Measurement and/or Weight；

• •Inspection Certificate of Temperature.

• 8.1.4Inspection standards in China

• （1）If the compulsory standards or other inspection standards which must be complied with are specified by laws or administrative regulations，the inspection shall be performed according to the standards as specified by laws and administrative regulations.

• （2）In the absence of the compulsory standards or other inspection standards which must be complied with as specified by laws or administrative regulations，the inspection shall be performed according to the standards agreed upon in the international trade contracts. If the trade is conducted against the sample，the inspection shall be performed simultaneously according to the sample provided.

• （3）In case the compulsory standards or other inspection standards which must be complied with as specified by laws or administrative regulations are lower than the standards agreed upon in the international trade contract，the inspection shall be conducted according to the standards agreed upon in the international trade contract. If the trade is conducted against the sample，the inspection shall be performed simultaneously according to the sample provided.

• （4）In the absence of the compulsory standards or other inspection standards which must be complied with as specified by laws or administrative regulations，and in case inspection standards are either not agreed upon or agreed upon unclearly in the contract，the inspection shall be conducted according to the standards of the manufacturing country，or relevant international standards or the standards designated by the state inspection agency.

• 8.1.5Inspection clause in the contract

Example：It is mutually agreed that the Inspection Certificate of Quality and Quantity（weight）issued by the China Import and Export Commodity Inspection Bureau at the port of shipment shall be part of the documents to be presented for negotiation under the relevant L/C.The buyers shall have the right to reinspect the quality and quantity （weight）of the cargo. The reinspection fee shall be borne by buyers. Should the quality and quantity （weight）be found not in conformity with that of the contract，the buyers are entitled to lodge with the sellers a claim which should be supported by survey reports issued by a recognized surveyor approved by the sellers. The claim，if any，shall be lodged within 15 days after arrival of the cargo at the port of destination.

Questions

（1）Which mode of inspection in respect of the time and place is advantageous for the seller？ Why？ 

（2）What's the functions of the inspection certificate

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Commodity inspectionShipping quality and shipping weightLanded quality and landed weightShipping weight and landed qualityLegal inspection

（1）The action that the exporter has the goods inspected before shipment by some surveyor and obtains the certificate of quality，quantity，or weight.

（2）The inspection will be done by the agreed inspection authority before the goods are placed on the vessel at the port of the shipment and the final quality or weight of the goods delivered shall be subject to the Quality and Weight Certificate.

（3）A mode of inspection that the Weight Certificate issued by the inspection authority at the port of shipment shall be used as the final evidence for the weight of the contracted goods，while Quality Certificate issued by the inspection authority at the port of destination shall be used as the final proof for the quality of the goods.

（4）The quality and weight（quantity）of the goods are to be inspected by a surveyor or other professional organizations at the port of destination after the goods arrive. The commodity inspection certificate issued by the authority of destination is looked upon as final.

（5）Mandatory inspection of the important import and export goods according to the laws and regulations of the country.

8.2Claims

Claim is a demand made upon a person or persons for payment on account of losses resulting from his or their neglect.

8.2.1 Breach of the contract and remedies 

Breach by the seller

The seller may breach a contract： 

（1）by failing to make delivery according to shipment date stated in the contract.

（2）by failing to deliver the goods.

（3）by delivering the goods that don't conform with the contract or the L/C in respect of the quality，specifications，quantity and packing etc.

（4）by presenting shipping documents that are incomplete and inadequate.

Buyer's remedies 

If the seller breaches the contract，the buyer is given the following remedies.

p （1）Buying other goods and recovering damages from the seller.

p （2）Recovering damages based on the difference between the contract price and current market price of the goods.

p （3）Recovering damages for any nonconforming goods accepted by the buyer based on the difference in value between what the buyer got and what the buyer should have got.

p （4）If the goods are unique and it is impossible for the buyer to obtain substitute goods，the buyer is entitled to specific performance of the contract.

p （5）The buyer may recover from the seller incidental damages which include expenses the buyer incurs in receiving.

p Breach by the buyer

p The buyer may breach a contract

p （1）by failing to open the relevant L/C within the stipulated period； 

p （2）by wrongly refusing to accept the goods； 

p （3）by failing to dispatch the vessel according to the stipulation of the contract under FOB； 

p （4）by failing to make the payment.

p Seller's remedies

p （1）Cancel the contract and withhold delivery of any undelivered goods.

p （2）Resell the goods.

p  （3）Recover from the buyer the profit the seller would have made on the sale or the damages the seller sustained

p （4）Require the buyer to return the goods.

p 8.2.2 The buyer's claim   

p （1）Firstly determine the responsible party.

p •The seller.

p •The shipping company.

p •The insurance company.

p (2)Distinguish the nature of breach of the contract.

p Case analysis：The seller and buyer signed one CIF contract about 100 metric tons of rice. Unit price USD500 per metric ton and total amount USD5 000. If the seller delivers 5 metric tons of rice，how will the buyer claim against the seller？ How about delivering 90 metric tons of rice？ 

p 8.2.3 The seller's responsibility for settlement

p If the buyer files a claim，then the seller should settle the claim according to the following procedures： 

p （1）Carefully check the documents presented by the buyer so as to ensure that the documents are authentic，inspection result is correct and the issuing party is competent.

p （2）Make a thorough investigation so as to find out the responsible party. The seller should reject unreasonable claim.

p （3）Correctly and reasonably decide the losses or damages incurred and work out a rational settlement to the claim.

p 8.2.4 Claim clause

p Clauses in respect of claim in an import and export contract can be fixed as follows： 

p Discrepancy and claim clause 

p  （1）Proofs.

p  （2）Period for claim.

p  （3）Claim amount. 

Example：•Claims should be filed by the buyer within 10 days after discharging of the goods at the port of destination.

•Claims should be lodged by the buyer within 10 days after the arrival of the goods at the port of destination.

•Claims should be made within l5 days after the arrival of the goods at the business place of the buyer.

•Claims should be made within 10 days after the inspection.

Penalty clause

Most of the contracts concerning the sale of general goods include only the discrepancy and claim clause，but contracts for bulk commodities or machines and equipments will include both discrepancy and claim clause and penalty clause.

Penalty is compensation that an injured party received from another party who breaches the contract.

Penalty clause in a contract should be stipulated“any party who fails to perform the contract shall pay an agreed amount as penalty for compensating the other party for the damages”.

8.2.5 Examples of claim clause in a contract

Discrepancy and claim clause

Example 1：Any claim by the buyer regarding the goods shipped shall be filed within 30 days after the arrival of the goods at the port of destination specified in the relative bill of lading，and supported by a survey report issued by a surveyor approved by the sellers.

Example 2：“In case discrepancy on the quality of the goods is found by the buyer after arrival of the goods at the named port of destination，claim may be lodged against the seller within 30 days after arrival of the goods at the port of destination being supported by inspection certificate issued by a reputable public surveyor. The sellers shall then consider the claim in light of actual circumstances. For the loss or losses due to natural causes within the responsibilities of the ship⁃owner or underwrite，the seller shall not consider any claim for compensation.”

Penalty clause 

Example 1：In case of delay in delivery，the seller shall pay to the buyers for every week of delay a penalty amounting to 0.5% of the total value of the goods of which delivery has been delayed. Any fractional part of a week is to be considered a full week. The total amount of penalty shall not，however，exceed 5% of the total value of the goods involved in late delivery and is to be deducted from the amount due to the seller by the paying bank at the time of payment. In case the period of delay exceeds 10 weeks after the stipulated delivery date the buyer has the right to terminate this contract but the seller shall not thereby be exempted from the payment of penalty.

Example 2：Should the buyer for his own sake fail to open the letter of credit on time stipulated in the contract，the buyer shall pay a penalty to the seller. The penalty shall be charged at the rate of 0.5% of the amount of L/C for every ten days of delay in opening the L/C，however，the penalty shall not exceed 5% of the total value of the credit which the buyer should have opened. Any fractional days less than 10 days shall be deemed to be 10 days for the calculation of penalty. The penalty shall be the sole compensation

Questions

（1）Why should the claim clauses be included in the contract？ 

（2）In what cases penalty clause is added to discrepancy and claim clause？ 

（3）How do the British law and United Nations Convention on Contracts for the International Sale of Goods interpret the “breach of contract”？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Penalty  Clause  Claim  Exempt  Breach  Terminate

（1）A demand action made upon a person or persons for payment on account of a loss result from his or their neglect.

（2）A clause included in the contract that stipulates that any party who fails to perform the contract should pay agreed amount money to compensate the other party for the damages.

（3）Breaking or neglect of a law，an agreement，a duty，etc.  

（4）Free from an obligation，duty，or payment.

（5）Come to an end or bring something to an end.

Key words，phrases and special terms

n Attestv.证明

n Breachn. v.违背

n Claimn. v. 索赔

n Compulsoryadj.被迫的，强制性的

n Coverv.补偿

n Conditionn.条件，要件

n Denotev.指示，表示

n Designatev.指定

n Fundamentaladj.基本的，根本的

n Hygienen.卫生

n Fundamental Breach 根本性违约

n Indivisibleadj.不可分割的

n Inspectionn.检验

n Inspection Certificate检验证书

n Inspection Authority检验机构

n Neglectn. v.忽视，疏忽

n Penalty Clause罚金条款

n Period for Claim索赔期限

n Proofs for Claim索赔依据

n Rationaladj.合理的

n Sanitaryadj.卫生的

n Shipping Quality and Shipping Weight离岸品质、离岸重量

n Shipping Weight and Landed Quality离岸重量、到岸品质