CONSEQUENCES OF INCORRECT APPLICATION AND INTERPRETATION OF THE INTERNATIONAL TRADE RULES OF INCOTERMS

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CONSEQUENCES OF INCORRECT APPLICATION AND

INTERPRETATION OF THE INTERNATIONAL TRADE RULES OF

INCOTERMS

Imamova Dilfuza Ismailovna

Candidate of Legal Sciences, Associate Professor,

Professor of the Department of Civil Law and

International Private Law disciplines

University of World Economy and Diplomacy

ORCID: 0009-0007-1191-6312

e-mail: imamova@uwed.uz

https://doi.org/10.5281/zenodo.14214304

Annotation.

The article reveals the main consequences associated with

the incorrect application and interpretation of international trade rules
INCOTERMS. On the part of the author to avoid disputes and misunderstandings
at the conclusion of foreign economic transactions, the parties have developed
recommendations related to the correct application of INCOTERMS.

Keywords:

INCOTERMS, foreign economic transactions, international sale

contract, interpretation, international trade rules, basis of delivery terms.

With the dynamic development of international trade relations, the

contract for the sale of goods is one of the key legal and economic instruments.
This type of contract regulates the terms of transfer of goods between the seller
and the buyer, acting as a basis for trade facilitation at both global and national
levels. In today's environment, such contracts not only promote economic
integration, but also protect the interests of the parties.

INCOTERMS rules are designed to settle legal issues that are not reflected

in the UN Convention on Contracts for the International Sale of Goods 1980 and
are not always equally understood in different countries.
At the same time, the correct use of INCOTERMS terms in foreign economic
transactions, which determine the basic principles of distribution of
responsibility, risks and costs between the parties, is of particular importance.
Reflection in international contracts for the sale and purchase of goods
INCOTERMS (indicating the wording of the Rules and the trade term) becomes a
necessary element of successful conclusion of transactions. This makes it
possible to avoid misunderstandings related to the interpretation of delivery
terms and minimize risks arising in the performance of contractual obligations.
However, incorrect application and interpretation of INCOTERMS may lead to
significant consequences for the parties to the contract, including legal disputes,
financial losses and disruption of business relations.

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With the development of foreign economic and foreign trade relations in the
Republic of Uzbekistan it is important to conclude foreign economic transactions
only in the form of a contract for the international sale of goods and apply
international trade rules INCOTERMS. In other types of foreign economic
transactions, INCOTERMS rules are not applied, and only on the basis of the
international contract of sale of goods, based on the trade term chosen by the
parties, contracts of carriage and insurance are concluded.
A reference to INCOTERMS in a contract does not mean that their provisions will
prevail over the express terms of the contract in interpreting the contract. In
order to avoid disputes, it is advisable to “expressly provide in the contract that
in interpreting the base terms, the provisions of INCOTERMS shall apply to the
extent not otherwise specified in the contract”.
The use of INCOTERMS occurs in two cases: firstly, when it is necessary to refer
to a specific trade term to determine the resolution of a dispute between the
parties to an international sale of goods contract; secondly, when such direct
reference is not required, but INCOTERMS is taken into account to assess the
fulfilment of a party's duty. The use of universal trade terms allows largely
preventing disputes and conflict situations at the stage of contract execution, the
resolution of which requires various costs, as well as introduces elements of
uncertainty into the relations of the parties.
Practice shows that the correct interpretation and precise application of
INCOTERMS rules, as well as the basic terms of supply stipulated by these rules,
play a key role in the development of foreign economic and trade relations
between countries. However, at the stage of contract conclusion the parties
often pay more attention to the financial side of the transaction than to a
detailed analysis of the contractual terms and conditions. This attitude often
leads to difficulties in the fulfilment of obligations, which, in turn, may cause
conflicts and disputes.
Often the parties concluding a foreign trade contract are unfamiliar with
different trade practices in the respective countries, which also leads to
disputes. Therefore, the parties should carefully study the terms of the contract
and the rules governing contractual relations, and especially pay attention to the
terms used in the contract, i.e. when concluding contracts it is necessary to
correctly use the basic terms of delivery, specifically refer to the version of the
Rules applied in the contract, correctly interpret the applicable terms of
INCOTERMS.

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As DiMatteo correctly pointed out, when choosing trade terms, the parties
should be aware of the possibility of conflicts between the chosen term and
other terms of the contract. For example, the CIF term shifts the risk for the
goods to the buyer at the port of shipment. If the contract provides that the
seller guarantees a certain quantity and quality of the goods upon their arrival at
the place of destination, there is an obvious conflict between this term and the
trade term, since the risk for the goods is again transferred to the buyer. The
question arises - which term will determine the liability for the goods in transit
in this case? The tendency of the American courts is inclined to favour the CIF
term. One may agree with its contention that a deviation from the trade term
should not destroy the essence or the whole meaning of the term, which is a
contract of dispatch but not of delivery.
When concluding a foreign economic contract, it is necessary to clearly define
the details of the basic delivery term. As practice shows, a mere reference to the
relevant INCOTERMS term is not enough, since the INCOTERMS provisions are
general in many matters, offering only a principled solution.
Despite the complete clarity and transparency of the provisions of INCOTERMS
terms, in practice it is not uncommon for legal conflicts to arise regarding the
correct interpretation and application of a particular term. It happens that the
parties to a foreign economic contract do not pay attention to the fact that the
Rules regulate relations only between the seller and the buyer and do not
concern the relations of counterparties with carriers, forwarders and other
persons who may take part in a foreign economic transaction. Therefore, in
some contracts, in addition to referring to the Rules, the parties try to include in
a specific term provisions concerning the carriage of goods and responsibility
for its proper performance. Such provisions in relation to the Rules are incorrect
and should be stated, although in accordance with them, but not as established
by them. It is also quite common that the parties to a contract ‘forget’ to specify
which version of the Rules they have in mind. This shortcoming is of significant
importance in court proceedings because of the difference between the 2010
and 2020 editions of the Rules.
When considering disputes over the application of INCOTERMS, courts are often
faced with the question of which version of the rules should be used. One
approach involves analyzing the parties' previous practice in using these rules
and considering the content of a particular term in the context of the entire
contract. Courts avoid automatically applying the latest version of INCOTERMS,
thereby preserving the parties' freedom to set terms within their ordinary legal

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relationship. This approach also helps the court to gain a deeper understanding
of the agreements.
The Decision of the Plenum of the Supreme Court of the Republic of Uzbekistan
‘On Certain Issues of Application of Legislative Acts in the Consideration by
Economic Courts of Cases Involving Foreign Persons’, which provides that an
economic court in resolving a dispute may apply international business
practices, including the International Rules for the Interpretation of Trade
Terms (Incoterms) and the Principles of International Commercial Contracts
(Unidroit), in cases where they do not contradict the laws of the Republic of
Uzbekistan and the parties expressly stated so in the contract.
The correct application and interpretation of INCOTERMS simplifies the
structure of a contract for the international sale of goods by eliminating
excessive detail of obligations. This is achieved through standardized provisions
on the rights and obligations of the parties, which are already embedded in
specific trade terms.
In order to avoid disputes and misunderstandings when concluding foreign
economic transaction, the parties are advised to take into account the following
aspects related to the application of INCOTERMS:
1.

Precise indication of the terms of delivery: When selecting the basis of

delivery, INCOTERMS terminology should be used, preferably in English. It is
also important to indicate the specific place (geographical location) where the
seller is deemed to have fulfilled his obligations.
2.

Specifying the INCOTERMS version: The contract should clearly state

which version applies (e.g. INCOTERMS 2020). This eliminates the risk of
confusion and facilitates the application of the terms.
3.

Conformity with the terms of delivery: The use of inappropriate terms or

their application in inappropriate situations can lead to disputes. Terms should
be transaction-specific and clearly reflect the allocation of risks and costs.
4.

Specification of the basis of delivery: The terms of delivery in the contract

should be supplemented by specific provisions specifying the allocation of
responsibilities and risks between the parties to avoid uncertainties.
5.

Optimizing the choice of term: The choice of the appropriate term should

take into account the actual delivery mechanism in order to minimize risks and
costs. For example, in containerized transport, FCA, CPT or CIP are most often
preferred over CFR or CIF.
6.

Explicit reference to INCOTERMS: INCOTERMS delivery bases are only

valid when explicitly referenced in the contract. If the legislation of the

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counterparty's country makes INCOTERMS binding, this must be taken into
account.
7.

Contradictions in the terms of the contract: If the terms of the contract

contradict the INCOTERMS provisions, the contractual provisions shall prevail.
8.

Comprehensive approach to price: The indication of the price of the goods,

taking into account the basis of delivery, must be carefully considered to be in
the interests of the parties and market realities.
The consequences of non-compliance with these requirements include inability
to fulfil obligations, conflicts, and additional costs and time lost in resolving
disputes. Correct application of INCOTERMS reduces risks and facilitates the
realization of foreign economic transactions.

References:

1.

Resolution of the Plenum of the Supreme Court of the Republic of

Uzbekistan “On some issues of application of legislative acts in consideration by
economic courts of cases with participation of foreign persons” from 20.11.2023
№ 27 [Electronic resource]: // URL: http://lex.uz/ru/docs/6686276.
2.

DiMatteo L.A. The Law of International Contracting. – The Hague: Kluwer

Law International, 2000. – P. 164.
3.

Имамова Д.И. Роль и сущность ИНКОТЕРМС в регулирование

внешнеэкономических отношений. Дисс. ... канд. юрид. наук. – Ташкент,
2012. – С. 119.
4.

Правовое регулирование внешнеэкономической деятельности в

Республике Узбекистан. Коллективная монография./ Ответственный
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Внешнеэкономические сделки. – Т.: УМЭД, 2019. – С. 93.
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Розенберг

М.Г.

Международная

купля-продажа

товаров:

комментарий к правовому регулированию и практике разрешения споров.
– М.: Статут, 2006. – С. 138.
6.

Толочко О.Н. Введение в теорию правового регулирования

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