International Business Law of Australia Essay

Right to refuse Delivery and Demand Return of Money of Purchaser

The right to refuse delivery and demand for the return of money by the buyer MAS is to be considered under a contract of sale and the revision of the law of contracts for the international sale of goods. The contract of sale, in this case, is covered by the ICC Incoterms 2000 and in addition by the law of Victoria and the Commonwealth of Australia.

As per the facts cited, it can be inferred that the obligations of the parties to the contract are covered by CIF (London) under Incoterms 2000. “Incoterms represent a set of international rules for the interpretation of commonly used trade terms, eliminating or reducing the uncertainties of different interpretations of these terms in different countries” (PBB Global Logistics, n.d).

According to the terms of the contract, the delivery obligations of the seller AMA become complete when the drums are loaded onboard the ship in Melbourne by end of May 2010, and the seller makes the freight and insurance prepaid to London. The fact that the contract price includes the cost of marine insurance implies that the buyer undertakes the risk of loss or damage to the goods during their transit from Melbourne to London.

Therefore, proof of safe shipment of the goods will be complete when the goods are made onboard in Melbourne and the issue of a clean bill of lading confirms this. A bill of lading is a transferable document, which has a significant role to play in passing proprietary and contractual rights within the framework of the applicable laws (Treitel & Reynolds, 2005).In this case, the seller is entitled to receive the payment under the contract.

The seller has breached its obligations concerning delivery under the contract of sale, since the goods were not shipped by the end of May 2010 as per the terms of the contract. The goods were delivered only on June 10, 2010. This breach entitles to claim a remedy for any loss caused by the breach. However, to exercise this claim, the buyer must give reasonable notice to the seller of its intention to exercise the claim (Article 39 (1) and 49 (2) (a).

MAS have not given any notice to AMA of its intention to make a claim for the lateness of AMA in delivering the goods. On the contrary, MAS knew or should have known about the delay in the delivery. This knowledge can be had from the time the buyer received and read the bills of lading, which clearly indicates the date of delivery as June 10, 2010, when the goods were loaded onboard. At the point when the buyer had knowledge of the delay in delivery, it could have exercised its option to refuse delivery and could have given notice of its intention to claim a remedy for the delay in delivery.

Instead, MAS chose to accept the documents as presented to the banker without making any complaint and accepted to pay under the contract. Since the buyer has chosen to accept the performance of the seller at the point of acceptance of the documents, the buyer does not have an option to change its mind later and decide to refuse delivery and claim return of money paid under the contract.

By accepting the documents presented through the bank with the shipment on June 10, 2010, the buyer is construed to have waived its right to claim its remedy as to a breach of contract by the seller. Since the buyer has waived his right under the contract, it has no basis for making any claim against the seller. The buyer is obligated to settle the payment for the full value of the goods as laid in the contract of sale.

A suit against the Carrier for Loss sustained

Once accepted and has become the legal endorsee of the bill of lading as issued by the carrier, MAS can rely on the bill of lading to provide conclusive evidence of the receipt of goods by the carrier described in the bill of lading (modified Hague-Visby Rules, Article 3(4)). The issue of a clean bill of lading by the carrier signifies the presumption that the carrier is obligated to deliver the goods as described in the bill of lading when the vessel arrives at the designated port o destination.

When the carrier is unable to deliver the goods as described in the bill of lading, the initial burden is on the shipper to establish that the loss or damage to the goods shipped was caused by the negligence of the carrier or by the action of its crew while stowing the goods. When the shipper is unable to establish his claim, the carrier is entitled to rely on one of the exceptions from liability as listed in Article 4 of the Hague-Visby Rules.

In the instant case, the carrier Lucky Ships may seek to take exception under Article 4(2) (c). According to Article 4(2) (c), the carrier is not held liable for loss or damage caused by “perils, dangers and accidents of the sea…”. However, based on the given facts, sea conditions alone could not have caused the loss to the goods.

The shipper or the holder of the bill of lading can claim damages from the carrier on the ground that the loss or damage was the result of the failure on the part of the crew to secure the drums adequately to withstand the perils of a rough voyage, which were clearly foreseeable as well as the rough weather conditions. According to the High Court ruling in the case of Great China Metal Industries Co Limited v Malaysian International Shipping Corporation [1998] HCA 65, the Anglo-Australian interpretation of the “perils of the sea” differs from that pronounced under the Anglo-American interpretation of the term.

“According to the United-States-Canadian conception, ‘perils of the sea’ are limited to those losses to goods on board which are peculiar to the sea and ‘are of an extraordinary nature and cannot be guarded against by the ordinary exertions of human skill and prudence.’ In Britain and Australia, it is not necessary that the losses or the cause of the losses should be ‘extraordinary’” (Mo, 2009a).

Therefore, in the instant case, the carrier has the chance to rely on Article 4(2) (c), unless the shipper is can establish negligence on the part of the carrier to have caused the loss to the goods.

When the shipper is able to establish that the manner in which the drums were loaded and/or stowed onboard constitutes negligence on the part of the carrier, based on the voyage contracted, then the carrier may be held liable for the damage to the goods. The liability to the carrier, in this case, will arise irrespective of the fact that the perils of the sea have resulted in the loss of the goods.

This point was established in the case of Shipping Corporation of India v Gamlen Chemical Co (A/Asia) Pty Ltd, 1990, which ruled that the carrier is obligated to guard against the perils of the sea by taking due care of the goods at its possession.

The liability on the part of the carrier is established because of the fact the carrier is in charge of the goods until he delivers the goods or places the goods at the disposal of the consignee within the limits of the port of destination or in the wharf of the destination, where the goods were intended to be delivered.

In the cited case, the 50 drums, which were damaged during the process of unloading, were in the custody of the carrier. The duty to properly and discharge the cargo carefully delivered to him for transportation is cast on the carrier. Therefore, the career is prima-facie liable for the damage to 50 drums. However, the carrier may make an exception under Article 4 (2) (q).

This article provides for the exclusion of the liability of the carrier to the loss or damage occurring from any cause arising not due to the actual fault of the carrier. This exclusion of liability includes the loss arising due to causes without the fault or neglect of the agents or servants of the carrier.

The burden of proof would be on the Lucky Ships to establish that ECBNR, the stevedores were not their agents or servants. If the contract of carriage contains a clause that the carrier undertakes the responsibility for the safe unloading of the goods, then ECBNR may be held to be the agents of Lucky Ships for meeting the obligation of safe unloading of the goods.

However, the contract of carriage may contain a clause that makes the carrier an agent of the shipper to hire an independent contractor for carrying out the unloading of the goods. If this is the case then MAS may have to proceed against ECBNR directly instead of proceeding against the carrier Lucky Ships. However, it is to be noted that for bringing an action against an independent contractor, it is essential that the bill of lading contain a valid Himalaya Clause.

The Hague-Visby Rules do not provide for any action against the independent contractor. If the buyer is in a position to sue the independent contractor ECBNR, it would turn out to be advantageous to MAS, as there are no limits on liability available to the stevedores.

“If the carrier is found liable for the loss of any of the goods, its liability is limited by Article 4(5) of the Hague-Visby Rules to a maximum of 666.67 units of account per package or unit. The unit of account is the IMF’s Special Drawing Right (SDR), which is equal to approximately Australian $2” (Mo 2009a).

Reimbursement of Payment from the Seller

When there are issues concerning the international sale transactions carried out by sea transportation, it is essential to have an understanding of the rights to claim reimbursement of the shipper and the consignee per se as well as against the shipping company. “A significant difference between the concepts of title and risk is that historically in Common Law jurisdictions (such as Australia) it has been title in property (not risk) that has been decisive when recovering damages against a carrier for cargo loss” (Taylor, 2008).

The interface between the contract of transportation and the sales contract is vital where the reimbursement rights are in question. If loss or damage to the goods has arisen at sea, it would be problematic to decide on the precise time at which the title has passed to the consignee as to whether prior or subsequent to the occurrence of the loss.

In the cited case, the goods are damaged at sea and at the destination port because of the conduct of the carrier. If it can be proved that the title has passed on to, the buyer by payment of the purchase price before the occurrence of the loss or damage, the seller can be considered to have failed in executing the contract in accordance with the terms of sale. The carrier is also considered to have committed a breach.

The buyer may decide to pursue against the shipper for failure to meet the terms of the contract when the insurer denies indemnifying the buyer for the loss arising from the transaction. There is sufficient commercial reason for the buyer MAS to claim reimbursement from the seller AMA. In order to keep maintain cordial relations, the seller may decide to settle with the buyer.

The seller may decide to reimburse the cost of the goods or provide additional goods to replace the damaged goods. He may have to meet all aspects of the claim. In case the seller takes any of these courses, he can then claim indemnification by the carrier for the loss incurred by him in the transaction. This action is deemed as one for indemnity within the meaning of the Amended Hague Rules (Australian Rules) – article 3 Rule 6b.

Discrepancy in the Description of Goods contained in the Commercial Invoice

The letter of credit contains instructions given by the applicant authorizing the issuing bank to pay only against documents, which are presented in conformity with the terms of credit. Failure on the part of the issuing bank to collect proper documents and to commit itself for the settlement of the draft may entitle the importer to refuse to reimburse the issuing bank on the ground that the bank failed to follow the specific instructions of the importer.

According to Article 6 of the UCP 600 banks involved in letters of credit, transactions deal only in documents pertaining to the merchandise and not to the merchandise or performance of the contract to which the document relates (Mo, 2009). This leads to the point that even when the merchandise were delivered in accordance with the terms of the underlying contract of sale any apparent mis-description of the goods in the commercial invoice will have serious implications.

This is so because in that case the commercial invoice being an important document under documentary letter of credit has not complied with the express conditions of the credit.

Since the commercial invoice of an important document, difference in the descriptions of the goods is of serious concern. According to Article 18 (c) of the UCP 600, the goods must be described in the commercial invoice in the same way, as it is describe in the letter of credit. The question arises in the instant case is whether describing the goods as “ZOOM I” in the commercial invoice instead of “ZOOMING” corresponds to the same merchandise.

Under the normal circumstances, the bank is not under the obligation to have any knowledge of the terms used in the trade of the importer. Therefore, the bank should have rejected the documents, as the commercial invoice has not complied with the credit terms. Alternatively, the bank should have informed the applicant (MAS) about the discrepancy in the description contained in the invoice and asked for a possible waiver of the discrepancy.

If the bank has not advised MAS about the discrepancy and has proceeded with the payment of the draft sent under the letter of credit with the discrepancy in the description contained in the commercial invoice, MAS has the option to refuse to reimburse the payment under the letter of credit to the issuing bank.

On the other hand, if the issuing bank has advised MAS about the discrepancy in the description of goods in the commercial invoice and MAS has expressly waived the discrepancy and authorized the issuing bank to settle the draft, MAS does not stand any chance to refuse to reimburse the payment to the bank.

Jurisdictions for Legal Actions

It is important to choose the jurisdiction for pursuing its claims since the courts take conflicting approaches while dealing with disputes arising from sales contract as opposed to carriage contracts. Sale contracts are treated differently from carriage contracts, in that there is the need to observe the concept of good faith in selling transactions, which are governed by the Vienna Sales Convention.

In the contracts of sale, it is obligatory to eliminate claim for damages, as the primacy of the sales contract is the main consideration under international trade law (Honnold, 1991; Finn 2005). “In Australia, courts have imposed an obligation of good faith and reasonableness in the performance of contractual obligations, at least in respect of pre-contractual negotiations¹. There is also evidence that Australian courts are prepared to apply principles of equity in commercial disputes²,” (Taylor, 2008).

However, in Australia there is not clear approach in respect of the sea carriage cases. As ruled by Hunter J I the case of Pacific Carriers Ltd v Banque Nationale de Paris, maritime law is considered as a special category in Australia. The Courts in Australia are of the view that “it is of the utmost importance in commercial transactions that parties affected by specified events should know their respective rights immediately” (Taylor, 2008).

Although this approach appears to be straight forward, there might be circumstances under which the liability for economic loss would be decided based on notion of certainty. In the Australian courts, certainty is most likely to be held as the guiding principle; however, it may not be considered in priority, when a commercial outcome in a specific case is considered more fitting. It is a fact that uncertainty impedes international trade and shipping and the urge for certainty affects the rights of cargo owners (Mason, 1999).

“When the two categories of contract arise from the same set of facts (and essentially the same transaction) the conflicting approaches of the court may have a counteractive or detrimental effect. The remedies available to cargo interests are an important consideration when negotiating terms.

If, for example, the Vienna Sales Convention is intended to apply to the sale contract and the principle of good faith is presumed, cargo interests might be surprised by a court’s unwillingness to apply such a principle when interpreting the carriage contract. This makes it difficult for cargo interests to predict outcomes when disputes arise” (Taylor, 2008: P 64)

The reasoning behind this inflexible approach of the Australian courts in respect of contract of carriage disputes is that the courts consider that the third party interests in such types of contracts need to be protected, as the carriage contracts are transferable or negotiable. On the contrary, the rights of third parties are not given importance in the contracts of sale (Wong, 1995).

In addition, it is essential that the concepts of “title to goods” and “risk of goods” are taken into account, as these are important considerations for the courts to rule on disputes concerning international sale transactions. In sales contracts, the person who undertakes the risk is likely to bear the damages (Tetley, 1998: p 163). Similarly, courts under different jurisdictions interpret the question of passing of “title” from one party to another differently.

Unlike being dealt with by Common Law, there is no importance attached to the intention of the parties by the Civil Law courts. Under Common Law jurisdictions like Australia, there is substantial variation between the concepts of title and risk. The courts in Australia consider the title of the property and not the risk to be the deciding factor in claiming the losses from the shipping company.

“However, it is important to note that the person to whom the contractual rights are transferred is only entitled to exercise those rights for the benefit of the person who sustained the loss or damage. Therefore, it is still critical to establish which party suffered the loss, and the answer to that question is dependent upon title to goods” (Taylor, 2008).

Therefore if MAS is thinking of proceeding against both Lucky Ships and AMA, the seller in Australia, it may run the risk of losing the claim for damages on the ground that the title to the goods. This is because the Australian courts have an inflexible approach in these cases and might consider the title as already passed to MAS in which case it cannot proceed against AMA. It is also likely that the courts may take a lenient approach towards third parties to the contract in which case the courts may decide against the claim of MAS on the carrier Lucky Ship.

References

Finn, P, 2005. ‘Good Faith and Fair Dealing: Australia’ (Paper presented at the Commercial Good Faith Conference, Auckland, New Zealand.

Honnold, J O, 1991. Uniform Law for International Sales under the 1980 United Nations Convention (2nd Ed) London: Kluwer Law International.

Mason, A, 1999. ‘Harmonisation of Maritime Laws and the Impact of International Law on Australasian Maritime Law’ 14 Maritime Law Association of Australia and New Zealand Journal 1.

Mo John, 2009. International Commercial Law Fourth Edition. Web.

Mo John, 2009a. International Commercial Law Fourth Edition. Web.

PBB Global Logistics, n.d. Incomterms 2000. Web.

Taylor, Michelle, 2008. Cargo Interests in Australia: Standing on the Edge – Imbalances that Permeate International Sales Contracts, Carriage Contracts and Recovery Rights A&NZ Maritime Law Journal Vol. 22 pp 56-75.

Tetley, W, 1998 Marine Cargo Claims 3rd Ed. Montreal: McGill.

Treitel, G., & Reynolds, F. M. 2005 Carver on Bills of Lading 2nd Edition. London: Sweet & Maxwell.

Wong, J, 1995 ‘Container Transportation and Anomalies in the Law’ Australian Business Law Review Vol. 23 340, 341-343.

Footnotes

1. Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 369; Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187, [159], [169].
2. Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15 (equitable compensation).