1. a) Outline and discuss each party’s likely legal rights and liabilities in relation to the first and second shipments by reference to Australian law and where applicable referring to the CISG.
b) Would Sino Steel be entitled to terminate the remainder of the contract – the April 2016 instalment – and if so what consequences would follow?
2. a) How might the parties best cooperate?
b) Assuming that only the false certificate issued and that alternatively only the incorrect letter of credit issued, what would be the respective innocent party’s legal rights?
3. Outline and appraise the applicable GATT/WTO, bilateral and regional free trade agreement (AANZFTA), and WTO sanitary and phytosanitary (SPS) Agreement sourced rules which govern the Australia-Philippine banana trade and consider whether Australia can rely on strict SPS quarantine rules to discourage imports.
The Convention places a duty on any seller to avail the goods, provide the stipulated documents in relation to these goods and finally to hand over property in the goods upon completion of the contract (CISG, Art. 31). Additionally, the seller is obliged to deliver the goods in the quality and quantity described in the contract of sale (CISG, Art.35). In order to ensure the provisions with regard to quality and quantity are met, the Seller it required to inspect the goods prior to packaging or sealing them in the container as provided by the Convention. With the regard to the buyer, the general obligations include the duty to pay for the goods and the duty to take delivery as provided by Article 53 of the CISG Convention. Payment of goods constitutes undertaking the required formalities to facilitate payment such as applying for a letter of credit. Consequently, failure to adhere or fulfil either of the above obligations would constitute a breach of contract (Clayton & Steven, 2016).
However, the law provides for certain circumstances under which a party would be exempted from liability (United Nations Commission on International Trade, 1980).
The first shipment, in February 2016, was characterised by a delay with the letter of credit at the seller’s bank and a delay in shipment of the goods from the seller to the buyer. The issues arising based on this delay are first, whether a delay with the letter of credit constituted a lack of performance on the buyer’s part and secondly whether the delay in shipment gave rise to any liabilities against the seller.
A letter of credit is, usually, an irrevocable committal of a banking institution expressed to the seller on the buyer’s behalf expressing a promise to pay a certain sum upon the receipt of goods or items for sale (Richard, et al., 2012). The buyer’s bank issues a letter of credit in the seller’s favour which is communicated through the seller’s bank (Justin & Bernard, 2014). Denning LJ illustrated the significance of letters of credit by stating that they assure the seller of payment upon delivery of goods and presentation of required documents and similarly ensure that payment is not made until the goods as described in the contract are delivered thus protecting the interests of both parties (Pavia & Co. SpA v Thurmann-Nielson, 1952). In most cases, the application for a letter of credit is treated as a pre-requisite to the conveyance of goods and as such without it, a seller is not obliged to perform his duties as per the contract (Indira & Stone, 2013). Letters of credit enjoy autonomy from the sales contract as illustrated in Maurice O’Meara Co v National Park Bank of NY (1925) but are subject to the doctrine of strict compliance in that any documents presented to request payment should be in line with the descriptions provided in the letter of credit (Richard, et al., 2012). Additionally, Art.27 of the CISG provides that where either of the parties requires communication to be made with regard to the sale of goods, any delay or error encountered in transmitting this communication, where the appropriate measures have been taken on the sender’s part, will not disentitle the sending party from relying on the information. This is to say, that where errors occur but a party has done their part to ensure communication has passed, failure in transmission will not render them to have failed in performance.
In the case study provided, there was a 14-day delay in receipt of the Letter of Credit at Queensland bank. The delay was however as a result of the errors at the sellers’ bank. The buyer had neither failed to apply nor send the letter of credit. From the discussion above, it can be adduced that where a letter of credit is a pre-requisite to performance and it is not applied for or issued, then the seller is not obligated to commence performance and the contract can even be avoided. However, the provision in Art.27 excludes the buyer, Sino Steel, from any liability because the delay in communicating the Letter of Credit was not as a result of their failure to perform their obligations but a failure in transmission by the seller’s bank. The CISG seeks to unify as well as promote international trade, and as such, it provides for the extension of time to allow for the application and subsequent receipt of letters of credit or any other documents required to facilitate trade.
A delay in shipment amounts to a delay in performance of the contract by the seller. The legal issue arising from the delay is the effect it will have on the contract and the legal rights available to the aggrieved party as a result of the delay. Art.33 of the CISG imposes an obligation on a seller to deliver goods within the time frame outlined by the contract. Failure to deliver subsequently constitutes a failure to perform. Where the seller fails or delays in performance, a buyer is open to a variety of remedies. Firstly, they may choose to allow additional time to facilitate performance, secondly they may file a claim for damages resulting from the losses suffered, they may also request a renegotiation in price by way of a discount or opt to avoid the contract where they find the losses suffered from the delay a fundamental breach of the contract (United Nations Commission on International Trade, 1980).
In the scenario provided Sino Steel is entitled to all these remedies with regard to the delay in shipment by Ferrum Co. in February 2016. However, as the shipment was received, should Ferrum Co. decide to avoid the contract, they would still be obligated to pay for the goods they accepted.
The issues arising from the second shipment are whether the delay in loading, caused by flooding, led to any breach of performance on the seller’s part. This will be decided by analysing force majeure and the rights and liabilities of parties to a contract with regard to frustrating events. The second shipment was also marred by error which led to the transportation of an inappropriate iron ore quality to the buyer. This error gives rise to the issue of conformity, inspection and certification which are obligations set out in law that a seller is to comply with while performing his end of a contract.
Under English Common Law, which is applied in Australia, frustration occurs where a contractual obligation cannot be executed, without either party’s interference, as performance under the available circumstances would technically constitute a breach (Davis Contractors Ltd v Fareham Urban District Council, 1956). According to Viscount Simon LC in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp. Ltd [1942], a frustrating even would normally terminate the contract, however, where a party continues to perform, they are entitled to remuneration (Robin & Bath, 2009). Not every event which renders performance challenging constitutes a frustrating event (British Movietone News Ltd v London and District Cinemas Ltd , 1952). This doctrine is embodied in Article 79 of the CISG which refers to ‘impediments without control’. Under the convention, the existence of an impediment will not terminate the contract, but merely suspend it until it can be resumed (Robin & Bath, 2009). Where a clause with regard to frustrating events is lacking, contracting parties can rely on Article 79 of the CISG which provides for exemption from liability for as long as the impediment exists (Justin & Bernard, 2014).
With regard to Ferrum Corp’s case, the flood can be said to constitute a frustrating event for which the exporter can rely on Article 79 to be exempted from liability as there is no express ‘force majeure’ clause mentioned in the agreement. The flood was an unforeseen impediment to the seller’s performance which neither he nor any reasonable person, could have predicted.
Inspection certificates are some of the documents received by the bank from a seller who wishes to claim payment by letter of credit (Robin & Bath, 2009). The certificate affirms to the buyer that the goods were inspected prior to loading and upon testing complied with the description required by the contract (Justin & Bernard, 2014). Sellers are expected to meet all the terms stipulated in the contract and outlined in the letter of credit in order to receive payment where certification is required (Richard, et al., 2009). The doctrine of strict compliance is applied in affirming whether the certificate provided adheres to the descriptions in the letter of credit (Richard, et al., 2009). Non-conformity, with regard to the quality of the product, imposes a liability on the seller according to the CISG Art. 36.
In the case study provided, the first agreement required self-certification from Ferrum Corp. as to the quality of the iron ore. A loading error on the March 2016 instalment led to the inappropriate quality of iron ore being shipped. The quality of the iron ore was a contradiction to the Certificate of Inspection issued as well as the requirements of the letter of credit. In the steel industry, poor quality raw materials would lead to poor quality products consequently resulting in loss of profits as what they produce would be sold at a lower price. These facts provide justification for a breach of contract on the part of the seller. The loss in profits creates a detriment so great as to constitute a fundamental breach. However if the seller can prove that the shipping of the poor quality iron ore was a failure on the part of a third party and that he had done all that was required to ensure the right quality of product was shipped out and was unaware of the non-conformity, then he can rely on Art.79 of the CISG to exempt himself from liability. The CISG provides alternative remedies such as a request for substitute conforming goods so as to ensure the contract is concluded and not terminated.
b) The CISG, under article 29, provides for termination of a contract at any time on the agreement of both parties (Clayton & Steven, 2016). Additionally, where an action or inaction of a party causes the other great detriment as to deprive them of his rights in the contract, the aggrieved party can opt to avoid the contract, discharging both parties of any future obligations (United Nations Commission on International Trade, 1980). Section V of the Convention outlines the expected consequences should a party opt to avoid a contract. However, where a party has performed their end of the bargain, to any given degree, they can claim restitution for the work done. If restitution cannot be made, then the contract cannot be avoided.
Sino Steel can rely on these two provisions to terminate the contract relating to the third shipment expected in April. That is, should they wish to terminate the contract, a simple agreement with Ferrum Steel will suffice. If they opt to avoid the contract, they should ensure that they can completely compensate Ferrum Co. for the shipments made in February and March as well as any other claims due to them.
2. a) The challenges experienced in this scenario were caused by third parties and not as a result of the action or omission of the original parties to the contract. Art.79 excludes the parties from any liabilities caused by second parties. Cooperation would be best applied if they decide to liaise together to rectify the mistakes as well as institute action against the liable third parties. Termination of the contract based on third party errors would not be in the best interests of either party. The CISG provides guidelines to ensure continuity of the contract where such challenges arise.
A fraudulent employee at Gladstone Iron Testing led to the issuance of a false certificate whose assertions did not match the actual quality of the iron ore transported and therefore were in contradiction to the description in the Letter of Credit. The legal issue arising in this scenario is the effect of fraud by a third party on the contract as a whole. This will be decided by analysing how courts have dealt with fraudulent documents presented to claim payment on letters of credit.
International trade law applies a strict doctrine of autonomy where letters of credit are considered independent of any sales contract and as such, any issuing bank is only concerned with the accuracy of the seller’s documents and not the quality, quantity or legitimacy of the goods (Richard, et al., 2009). However, the strict nature of this doctrine is eased by the ‘fraud exception’ which, according to Lord Diplock, applies where a beneficiary consciously presents documents containing fraudulent material to the confirming bank (United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord), 1983). A confirming bank can however not decline to make a payment where it is convinced that the presented documents are congruent with the letter of credit (Richard, et al., 2009). Where a party is convinced of fraud, the onus is on them to prove it, which is usually difficult to establish as was the case in Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSW 545. According to English Law, fraud emanating from the actions of a third party will not be considered as fraud in the contract so as to have the effect of allowing a bank to deny payment (Richard, et al., 2009).
In the case study provided, the fraudulent party was a third party to the contract whose services were sought to certify the quality of the ore. There is no evidence as to whether either of the contracting parties was involved or aware of any fraudulent activities, therefore neither can be held liable or denied performance as a result of the third parties actions. The innocent parties can file a suit to claim damages against Gladstone Iron Testing for providing a false certificate which led to a shipment containing an inappropriate quality of goods. Additionally, if the seller can provide proof that the buyer had colluded with the Gladstone employee for a false certificate of inspection, they will then be entitled to request the bank not to pay the seller on the ground of fraud.
An error by a Shanghai Bank Officer led to the issuing of a letter of credit where none was required. This means that Queensland bank would receive a letter of credit entitling the seller to payment where no performance was required. The legal issue arising from this error is on of mistake. As has been repeatedly mentioned in the discussion above, CISG’s main objective revolves around unifying and facilitating international trade and as such most of its remedies revolve around ensuring the continuance of the contract. Therefore, the mistake of issuing a letter of credit where none was required would not constitute a breach of contract so serious as to be considered fundamental and as such can be corrected through the cooperation of the parties to rectify it.
3. A Free Trade Agreement (FTA) is an international agreement that eradicates restrictions to trade and enables well-founded trade and commercial ties, thus increasing economic unity among member states ( Australian Government Department of Foreign Affairs and Trade, n.d.). It is created when two or more countries agree to do away with customs duties and other barriers to trade carried out among them (Richard, et al., 2009). Arête, extensive FTAs are significant in ensuring liberalisation of international trade and are expressly provided for under the World Trade Organisation (WTO) rules ( Australian Government Department of Foreign Affairs and Trade, n.d.). These rules require the removal of charges and other limitations in almost all trade in goods as well as the elimination of almost all discrimination with regard to services supplied with and by member states ( Australian Government Department of Foreign Affairs and Trade, n.d.). In this question, the paper aims to identify the various rules and agreements that would govern a mutual free trade agreement with regard to the banana industry between Australia and the Philippines. It will also seek to identify the possible Sanitary and Phytosanitary (SPS) Measures applicable by Australia and the effect they will have on trade. In doing this, the paper will rely on policies outlined in the General Agreement on Tariffs and Trade (GATT), the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) and the WTO’s SPS Agreement.
The GATT was first established in 1947 and later revised in 1994 during the Uruguay Round as a framework to facilitate world trade (Matthias, 2016). It serves as the most important multilateral trade agreement and aims to liberalise international trade through the step by step elimination of restrictive trade practices and other defensive intrusions with regard to global as well as national market competition (Matthias, 2016). The basic principles of the GATT are non-discrimination and liberalisation (WTO, n.d.). Non-discrimination emanates in form of the ‘Most-Favoured-Nation’ principle where a member is required to treat all members as equal, in that, if a favour is granted to one member, it should be granted to all others in the same situation (Kenneth, 2011). Another principle of non-discrimination is the ‘National Treatment’ principle which required equal treatment of foreign and local traders. These principles are embodied in Articles 2 and 3 of the GATT respectively (WTO, n.d.).
The WTO rules apply a balancing test with regard to the protection of the public versus the restriction of cross-border trade however, they tend to favour the eradication of restrictions over individual state protective measures as seen in Thailand Restrictions on Importation of Cigarettes Case (1991), where restriction to cigarette imports were seen as contravening the GATT. In the restriction of imports, a country can rely on the ‘Escape Clause’ provided under Article XIX, which allows a country to depart from performing or upholding previous promises (Richard, et al., 2012). However, the ‘escaping party’ must prove that their departure is due to injury caused by increased imports on its domestic producers as held in Argentina Safeguard Measures on Imports of Footwear (WTO 1999).
In the case study provided, a free trade agreement between Australia and the Philippines will be a great step towards the liberation of international trade. It is expected, however, that both parties ensure non-discrimination in the trade of bananas both internationally and within their respective borders. Where a party is convinced, and can provide evidence to the same effect, that this agreement is detrimental to their local banana traders, and then a suspension can be granted by way of the Escape Clause so as to allow revision of the terms of trade. It is important to note however that, as the objective of GATT is the reduction of trade restrictions, any restrictions are likely to only apply until an alternative solution is obtained.
The Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area, enforced in January 2010, remains to be the most purposeful and inclusive trade agreement negotiated by the region’s members to date (Christopher, 2015). With regard to the sale of goods, the agreement upholds the provisions of the WTO while including more specific commitments as well as enhancing transparency.
The SPS Measures provide that a country has every right to embark in protecting its human, animal and plant life or health, however, it cannot use this right to discriminate on trading activities with other countries (Richard, et al., 2012). Any SPS measure should conform to the international standards and guidelines provided by the WTO-SPS Agreements as well as those outlined in the GATT 1994 (World Trade Organization, 1995). The measures should be transparent and based on proper scientific evidence (Department of Agriculture, Fisheries and Forestry, n.d.). They measures should balance the level of protection required, against the extent of restriction on trade (Department of Agriculture, Fisheries and Forestry, n.d.).
In the case study provided, either of the parties has the right to employ SPS measures to protect its people, animals and plants. However, the restrictions employed are subject to various qualifications. Firstly, they should be consistent with the SPS Agreement as well as the rules on SPS measures outlined in the GATT 1994. Additionally, any proposed SPS measure should be accompanied by adequate scientific evidence to show threats to life and health that will emanate if the measure is not put in place. Most importantly, in as much as a party would like to apply protective measures, these measures should not be so restrictive as to curtail or discriminate on trade.
With this in mind, it is evident that Australia can apply SPS measures, but the purpose of these measures should not be to restrict trade and neither should the measures be so strict as to constitute discrimination.
Australian Government Department of Foreign Affairs and Trade, n.d. Free Trade Agreements. [Online]
Available at: https://dfat.gov.au/trade/agreements/Pages/about-ftas.aspx
[Accessed 23 September 2016].
ASEAN, Australia and New Zealand, 2012. ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). s.l.:s.n.
Bonython v Commonwealth of Australia (1951) AC 201.
British Movietone News Ltd v London and District Cinemas Ltd (1952) AC 166.
Clayton Utz, 2015. Australian Contract Law. [Online]
Available at: https://www.acc.com/legalresources/quickcounsel/australian-contract-law.cfm
[Accessed 23 September 2016].
Clayton, P. G. & Steven, D. W., 2016. The UN Convention on Contracts for the International Sale of Goods. s.l.:Cambridge University Press.
Davis Contractors Ltd v Fareham Urban District Council (1956) AC 696.
Department of Agriculture, Fisheries and Forestry, n.d. The WTO Sanitary and Phytosanitary (SPS) Agreement: Why You Need to Know, s.l.: Australian Government.
Ewan, M. & Qiao, L., 2015. Contract Law: Australian Edition. s.l.:Palgrave Macmillan.
Finnish Fur Sales Co. Ltd v Juliette Shulof Furs Inc. (1991) 770 F. Supp.139 SNDY.
Ghele, B., 2008. Dealing With the Unknown-Which Law Really Applies to your International Contract?. [Online]
Available at: https://www.claytonutz.com/knowledge/2008/june/dealing-with-the-unknown-which-law-really-applies-to-your-international-contract
[Accessed 23 September 2016].
Hayward, B. & Pullen, P., 2011. The CISG in Australia: the jigsaw puzzle that doesn’t quite fit. Vindobona Journal of International Commercial law and Arbitration, 15(1), pp. 119-156.
Hortico (Australia) Pty Ltd v Energy Equipment Co. (Australia) Pty Ltd (1985) 1 New South Wales Law Reports 545.
Indira, C. & Stone, P., 2013. International Trade Law. s.l.:Routledge.
Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp. Ltd (1942) AC 154.
Justin, M. & Bernard, B., 2014. Australian Export. s.l.:Cambridge University Press.
Kenneth, A. R., 2011. An Introduction to International Economics: New Perspectives on the World Economy. s.l.:Cambridge University Press.
Kim Mellor Imports Pty Ltd v Eurolevant SpA (1986) 7 NSWLR 269.
Larry, A. D., 2014. International Sales Law: A Global Challenge. s.l.:Cambridge University Press.
Levingston, J., 2008. Choice of Law, Jurisdiction and ADR Clauses. s.l., s.n.
Matthias, H., 2016. Principles of International Economic Law. s.l.:Oxford University Press.
Pavia & Co. SpA v Thurmann-Nielson (1952) 2 QB 84.
Re Missouri Steamship Co. (1889) 42 Ch D 321 (CA).
Richard, S., Filiberto, A. & Beverley, E., 2009. International Business Law and its Environment. 7th ed. s.l.:Cengage Learning.
Richard, S., Filiberto, A., Lucien, J. D. & Beverley, E., 2012. International Business Law and Its Environment. 8th ed. s.l.:Cengage Learning.
Robin, B. & Bath, V., 2009. Law of International Business in Australasia. s.l.:Federation Press.
Saxvy v Fulton (1909) 2 KB 208.
Sid, W. & Danielle, B., 2012. Does Your Choice of Law for the Contract Extend to the International Arbitration Agreement?. [Online]
Available at: https://www.claytonutz.com/knowledge/2012/august/does-your-choice-of-law-for-the-contract-extend-to-the-international-arbitration-agreement
[Accessed 23 September 2016].
Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA (2012) EWCA Civ 638.
The ‘August’ (1891) P 328.
UNICTRAL Secretariat, 1980. Explanatory note on the United Nations Convention on Contracts for the International Sale of Goods, s.l.: United Nations.
United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord) (1983) 1 Appeal Cases 168.
United Nations Commission on International Trade, 1980. United Nations Convention on Contracts for the Sale of Goods, s.l.: United Nations.
United Nations, 1947. General Agreement on Tariffs and Trade, s.l.: s.n.
United Nations, 1994. General Agreement on Tariffs and Trade (GATT), s.l. World Trade Organization.
Vita Food Products Inc v Unus Shipping Co. Ltd (1939) AC 277.
World Trade Organization, 1995. Sanitary and Phytosanitary Measures Agreement, s.l.: WTO.
WTO, n.d. Principles of the Trading System. [Online]
Available at: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
[Accessed 23 September 2016].
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download