Outturn clauses in the oil and gas industry

AFTER much debate and many meetings, the 2000 edition of the International Chamber of Commerce's International Commercial Terms (Incoterms) has been published. Apart from improvements in content, the new edition also stresses the recommendation to parties not to modify or add words to the terms therein codified. Unfortunately, parties to a business transaction often disregard such advice, with obvious juridical consequences.

The misuse of Incoterms is particularly frequent in the oil and gas industry, with parties to a transaction frequently having to explain what they mean by selling and buying oil CIF outturn and DES outturn. Apparently, they don't intend to modify the passing of risk, as in the usual CIF and DES terms. Rather they mean to signify the price to be paid for the quantity outturned at the shore tanks at the place of discharge. If that is theoretically correct, one is left to wonder whether they did indeed modify the passing of risk, at least as far as quantity is concerned. In my view, the answer is 'yes'.

In fact, if the buyer lawfully pays only for the quantity outturned, the differences in quantities in a previous moment are at the risk of the seller, contrary to what a CIF sale (but also a DES sale) provides for, and to what the parties intended.

The problem of outturn clause construction might have relevant practical effects, especially considering the fact that shortage in oil is now a major problem for the industry, both in terms of difficulties in measurements and the increasing price of oil barrels. Should the ship sink, would the risk of loss in quantity stay with the buyer, as in an ordinary CIF sale or, conversely, could the buyer refuse payment to the seller because of failure to outturn at final destination?

Would it not be worthwhile codifying the interpretation of outturn either by way of an ad hoc Incoterm or by writing it into contracts? So far as invoices are concerned, clearer expressions might be used as well. This might prevent the risk of sales leading to consequences the parties are not aware of.