International Commercial Contract - Beta Ltd - Essay Example

?Case study related to International Commercial/Trade Contract Beta Limited Beta vs Alpha: An offer conveyed to one party to provide, do or perform acertain act commences the negotiation for the constitution of a contract or agreement between parties. The next stage towards the creation of a contract is the unconditional acceptance of the offer. The acceptance must be according to the proposal without any modification or conditions attached to it. And, if the offer is returned with a counter-proposal which the proponent rejects, is the proponent bound by the original terms and conditions should the other party accept the offer later based on the original offer? Or, is the proponent absolved from complying with the original terms and conditions considering that there was no meeting of the minds to speak of or in the alternative, is the offer deemed revoked and any obligation arising therefrom is deemed extinguished. It will be the task of this paper to determine which position is legally feasible—is the original offer subsisting or is there extinguishment of any culpability? Culled on the facts presented, Beta cannot validly claim that there was an existing contract between Alpha and Beta, written or otherwise. The most fundamental component of a contract is the meeting of the minds between the contracting parties. Meeting of the minds connotes that the parties have agreed in principle and in reality as to the nature and stipulations that should govern their relationship. However, the phase upon which Alpha and Beta terminated their telephone conversation neither party had accepted the conditions offered by the other. Hence, it is reasonable to conclude that no contract or agreement has been created. The case of Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216, supports this thesis as well. It was categorically ruled that in order for meeting of the minds to settle there has to be mutual agreement as to the terms and conditions1 of the contract even if it was not written. In the first conversation, it was clear that there was no meeting of the minds as there was no certainty on the consideration—it is a mandatory requirement that the parties had to agree unequivocally on the consideration as the determination of the consideration cannot be left to the sole will of the other party. In a reciprocal obligation, the mutual understanding of the parties of their respective obligations should be known with certainly. These conditions are absent in the instant case thus the Beta cannot compel Alpha to comply with an obligation as there is no existing contract between them. So also, it is important to determine whether the offer is a promise to sell or a mere quotation of the prevailing price. The determination of the nature of the offer is not relevant at this stage as there is no agreement yet. The second conversation is a bit complicated considering that the offer was accepted at the price earlier quoted by Alpha. What is the effect of the belated acceptance of Beta on the previous offer made by Alpha? In answer to the question, it must be determined whether the telephone conversation constitutes as an offer and promise to sell at a price certain. In the telephone conversation, the price quoted still needs to be accepted by Alpha as a confirmation and mutual acceptance of the terms and condition are required to manifest consent and mutual agreement. Instantaneous communication such as the telephone is not covered by the last post rule2 thus the offer is deemed ineffective. The telephone conversation between Alpha and Beta cannot be characterized as negotiation since the inquiry made by Beta is a mere solicitation of the price thus the same cannot be construed as a circumstance where specific performance can be demanded or give rise to a situation where contractual obligations can be invoked. Assuming the offer is indeed a promise, the same situation prevails—still no contract was created between Alpha and Beta. This is anchored on the fact that the counter-offer terminates the negotiation based on the original offer. The subsequent rejection of the counter-offer clearly extinguished any negotiation between Alpha and Beta thus Beta cannot claim that a contractual relationship was ever established. On the other hand, if the offer was transmitted to the buyer stipulating a specific period within which the buyer may respond but instead of a response, the buyer submits an inquiry, the seller cannot opt out of the original offer. The original offer still stands as a simple inquiry is not a rejection of the offer but as the term implies it is a mere clarification of the stipulations and not a counter-offer. However, this situation is not availing in the instant case—there was an offer, it was rejected thus the offer was revoked effective upon the conveyance of the counter-offer. The counter-offer of Beta is not a mere inquiry which may be characterized as a continuing offer which confers upon Alpha an obligation to maintain the original price. In this instance, the offer was deemed extinguished when the parties failed to mutually agree. The belated acceptance of the offer the following day would not revive the original offer as the negotiations were terminated upon the conveyance of the counter-offer. The offer died a natural death thus Beta would not have a legal claim for breach of contract against Alpha. Beta vs Diego Obligations or culpability arising from an act or omission which causes damage or injury to persons or property by his fault or negligence, the injured party may thus seek indemnity. In this section of the paper, it will determine the culpability, if any, of each of the players and the same shall be discussed in seriatim to avoid confusion. Before any of the issues can be tackled, the authority of Max should first be settled. Max was designated to man the gates of Beta and considering his station at the gates, was he allowed to accept deliveries? The answer is in the negative. Max was not authorized to accept any kind deliveries at any given time. So also, it is a policy of not to accept deliveries at nightfall and from its actuations, on the night in question, Beta did not expect delivery coming in that night. This is manifest in the following—firstly, Beta did not commission any expert employee to stay and wait for the fuel to arrive who would have the skills and expertise to determine the correctness of the delivery. Secondly, Beta did not leave its facility accessible to Max, or to anyone else. From the actuation of Max, it is clear that he was not acting within his regular duties or in furtherance of the interest of Beta by accepting the deliveries. Max was only serving his own interest as indicated by his actions. Initially, he intercepted Diego Oil’s (Diego) delivery and then commissioned Nigel not only to store the fuel elsewhere but worse, to hide Diego’s delivery in Nigel’s company’s storage facility. Subsequently, despite the best communication devices such as telephones or mobile phones available, Max did not seek any guidance from his superiors3. Base on the foregoing, it is clear that Max acted beyond the scope of his functions and responsibilities. Nonetheless, Diego cannot escape liability as well. When Diego left the goods in the custody of Max, it did not exercise prudence and caution in unloading the fuel in a place not otherwise indicated in the delivery receipt. Diego equally did not deliver to the right party or its authorized agents to receive the fuel delivery. Diego therefore did not comply with its contractual obligation not only due to the delayed deliveries but more importantly, non-delivery of the goods. Beta therefore has a cause for action against Diego for non-delivery or breach of contract. Diego vs. Max – Max knowingly received the goods from Diego notwithstanding that he was not authorized to receive any deliveries and Diego, for its part, was not only aware of situation but allowed itself to be a party to the dubious acts. When Max induced Nigel to accept the fuel at Elshore’s property, it may be argued that he had the best intentions. However, best intentions cannot be defence to escape liability—Max acted on his own thus he is solely responsible for his actions. Diego may not likewise have a cause of action against Max as it is aware that Max is not authorized to accept deliveries. It has chosen expediency over caution which cannot be characterized as a prudent and reasonable actuation considering the volatility of the goods being handled by it. It should have exercised extraordinary diligence in the handling and delivery processes of its goods as properties, lives and limbs are put to risk by its negligent conduct. And, this is aggravated by the fact that Diego has available resources to get instructions directly from Beta but Diego failed to do so. This decidedly points to Diego’s culpability however Max may held criminally responsible under the Theft Act of 1968 as he took his employer’s property without its consent4. Elshore vs Beta: With regards to the demand of Elshore for damages amounting to ?5M, Elshore does not have any cause of action against Beta since it was Diego and Max in collusion with Nigel who unilaterally made the decision to dump the flammable fluid in its property albeit without its knowledge and consent. Elshore has cause of action against Diego and Max for the damage. Max is aware of the dangers of dumping the fuel in Elshore, yet he continued to make arrangements with Nigel. Diego, on the other hand, is not supposed to deliver to anybody except to Beta. Nigel did not intend to report the transaction to Elshore thus, there is clear violation of the trust reposed by Elshore. Nigel is guilty of dishonesty since he did not remit any revenue to Elshore5 according to Sir Henry Herman Sleezer acting as King Counsel in 1934. Beta vs Elshore: Beta can demand restitution from Max, Nigel, Diego and Elshore. The fire occurred due to the negligence of Elshore to ensure that their employees have the competence to enforce its own rules to guarantee that safety standards are enforced within its premises. The difference between the case of Max and Nigel is that—Max acted beyond the scope of his responsibility therefore Beta cannot be held liable for Max’s action. The allegation of theft will prosper as Max although had no intention of keeping the fuel for himself, he took custody of the goods without the consent of his employer. There decidedly is unlawfully taking thus it falls under the category of theft. While Nigel took advantage of his position, Elshore by hiring him is responsible for his actions as it should have exercised due diligence in hiring its employees. It could be argued that Elshore was able to provide necessary precaution by posting numerous reminders within the premises which Nigel choose to ignore, this solely concerns Elshore and Nigel. However, it will not erase Elshore’s contributory negligence which caused damage to property. As earlier indicated, Beta’s demand for compensation will prosper. This premise is predicated on the plethora of cases that has been decided with regards to torts6. Beta vs Max: Max overstepped his bounds when he received the goods for Beta thus he should be charged for the damage which he has perpetrated with Nigel. The fire that resulted from his unauthorized action is a wanton disregard for authority resulting in serious accidents should be severely punished. Elshore vs Nigel: Elshore may sue Nigel as he used his position to enrich himself. The unfortunate situation finds its roots in the negligent action of Nigel and Max. Both acting in concert with one another has facilitated the commission of an act that brought untold damage to parties. Nigel may be held criminally and administratively liable for negligence for his complicity in Max action. Simply put, Nigel should know better than to allow the storage of fuel within its premises owing to the reminders posted all over Elshore’s warehouse. And yet, Nigel by himself has elected to ignore it for profit as he pocketed the proceeds of his transaction with Max. None remittance of the proceeds of the transaction however does not extinguish the culpability of Elshore owing to its responsibility to hire and remind their employees of the safety standards of their jobs. Failure by Nigel to understand these safety procedures is evidence of Elshore’s negligence. Thus, Elshore’s liability may be supported by this as well. What role does lex mercatoria play in international commercial contracts? Introduction Merchant Law or Lex Mercatoria is a set of laws that acts as a standardized guideline among the European Nations as early as the middle ages. Lex Mercatoria was conceptualized to govern commercial, trade or mercantile transactions between parties hailing not only from the different places but is equally applied to parties who came from the same place. This is a set of laws that started out as a system of common law which put forward the best practices to regulate commercial transactions and settle disputes expediently through a mechanism that was deemed universal, progressive, fair, just and equitable for the parties involved. However, there is no standard followed in the settlement of disputes but concerns are disposed of based on the circumstance availing at the time of hearing or investigation. As a result of which, merchants allowed themselves to be governed by an universally recognized system albeit it is an unwritten code which relied mainly on good faith and prudence to regulate their trading or mercantile relationship. Although lex mercatoria was effective in promoting trade transactions as well as in settling disputes, this law became unpopular by the end of the medieval period when different nations started to develop their own national laws to protect the rights of local merchants and domestic businesses. Despite nations having enacted its own national laws that govern commercial contracts, lex mercatoria principle remained relevant as basis of international commercial contracts that are constituted and probably the most important contribution to Europe’s development is the promotion of a single economy. The set of rules are still directed by the same common law practices and international codes of contracts and trade notwithstanding that these practices and code have been updated and made contemporary by virtue of the newer version of this set of rules known as the TransLex Principles.7 Conventions such as the 1958 New York Convention, 1965 Washington Convention (ICSID), 1980 Vienna Convention (CISG), 1980 Rome Convention and 1985 UNCITRAL Model Law, 1994 UNIDROIT Principles, 1994 Mexican Convention, 1998 ICC Arbitration Rules and 2001 Cape Town Convention are founded on lex mercatoria which pave the way for its emergence in the 20th century mercantile transactions which now include all sales and other transactions involving transportation of goods and persons either by land, air or sea. The 1980 Vienna Convention, otherwise known as the Vienna Convention on International Sale of Goods was adopted to replace the 1964 Hague Sales Convention where its primordial objective is to "...provide a single set of rules for international sale transactions in order to provide a degree of certainty... and to reconcile divergent common law and civil law concepts and to mediate differences..." Evidence in the use of the Lex mercatoria principle in the Vienna Convention is in Article 7(2)8 wherein it was explicitly stated that "generally acceptable principles" will be the basis of unsettled disputes that would remain unanswered by the end of the convention. The 1985 UNCITRAL Model Law, on the other hand, aims to provide a "...standardised and universal set of rules suitable for use in any tribunal seeking to resolve any dispute irrespective of the national origins or status of the participants..."9 Based on this statement made by the United Nations General Assembly it incorporated and accepted the principle of the Lex Mercatoria as one of the UNCITRAL Model Law's backbone and foundation. Other equally important international organizations such as UNIDROIT espoused the same principles as it specifically recognized in its declaratory statement in 1994 the direct role of the Lex Mercatoria as one of its guiding the principles. In the preamble, it is stated that "...may be applied when the parties have agreed that their contract be governed by "general principles of law" referring to "lex mercatoria"... that it may be applied in the creation of contracts made under the strict prohibitions and guidelines pursuant to UNIDROIT Principles of International Commercial Contracts. Another convention that is closely related to Lex Mercatoria is the Convention in Rome in the year 1980 on the Law Applicable to Contractual Obligations which was crafted to standardize the rules within the European Union. It was precisely created in order that the rules should be uniformly applied within the member states of the European Union. This is explicitly provided under Article 18 of the Convention10, to wit: “…in the interpretation and application of the preceding uniform rules, regard shall be to their international character and to the desirability of achieving uniformity in their interpretation and application….”11 But it is likewise important to state that although it had adopted the principles of Lex Mercatoria, it is markedly different differs from the Lex Mercatoria principle as it clearly provided a stipulation with respect to the venue of arbitration should any issue developed from a transaction where one party is deemed to be doing business in several jurisdictions—it specifically stated that arbitration is to be held in the country to which the contract is closely connected to12, this is as stated in Article 4 paragraph 1 of the Rome Convention. And in case of different places of businesses, the place of business for purposes of defining the venue is found in Article 10 of the Convention on International Sale on Goods13 that provides that the place “which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract.” Having specified the venue which has the closest relationship to the contract and its performance, this would forestall the institution of several actions in various forums which may result in conflicting decisions. Lex Mercatoria is not solely applicable to the European Union but it also found its way in the United Nations. The Conventions such as the 1994 Mexican Convention, 1958 New York Convention and 1965 Washington Convention (ICSID) also followed the Lex Mercatoria principle. The participating nations and people in these conventions maintain and consider the use of internationally accepted principles of law governing contractual relations. Lex Mercatoria, according to Benson in his article entitled, “The Spontaneous Evolution of Commercial Law” in 1989, has a number of characteristics—it is universal in character, flexible and dynamic in its ability to grow, informal and speedy, and it relies on commercial customs and practices14. Despite these positive and sound characteristics however it was asserted that the law still lacks essential features of a law such as a) autonomous system; b) dispute settlement mechanism which would provide uniform rules to govern all issues emanating from mercantile transactions; and c) it must be a system of law15, this is as stated in Richard Howarth’s paper, Lex Mercatoria: Can general principles of law govern international commercial contracts? Venue for arbitration Lex Mercatoria is a principle wherein the parties involved have the autonomy to decide and place in their contract under which law and governing body will have jurisdiction of any dispute that may arise in the duration of the contract. The venue of the arbitration is decided upon the parties at the beginning of their negotiations and the making of the contract. Adapting this view, Lex Mercatoria is said to be not based on an international commercial contract or trans-national law rather it focuses on domestic and national laws16 based on the country that both parties have agreed upon. Today, it remains as a trans-national principle. Principles and applications of the law may differ depending upon the practices of the country the parties have chosen as its place of arbitration. However, positive changes have been introduced regarding the issue of venue or forum for the settlement of disputes. Parties to a transaction or contracts may now stipulate which forum or venue would have jurisdiction over the issue in case of disputes. The inclusion of this provision eliminates the institution of several actions which may result in conflicting disposition and it would obviate forum shopping when any party may invoke the jurisdiction of one court which is perceived to be more receptive to its cause. Howarth's work (2004) further advocated that contracts may include other enforceable rights by the parties concerned but it does not necessarily mean that it creates a new law between the parties. It simply means that the parties are bound by the principles of law—they can supplement what the law confers in terms of rights but it cannot diminish what was statutorily provided. Not only are the parties permitted to choose the venue or forum for the settlement of disputes, they are likewise allowed to choose which law should be applicable—this is known as the choice of law principle. Should the parties make a choice, they shall be bound by their decision and the dispute shall be settled according to the laws of their choice. This is supported by the view of Dicey and Morris that the proper law that a contract should follow is the place where they choose to arbitrate. TransLex Principles The older and newer version of the law found in Section 1 entitled Good Faith and Fair dealing under No. I. 1.1., is united in one voice stating that the “…..Parties to international business transactions must act in accordance with good faith and fair dealing in international trade. This standard applies to the negotiation, formation, performance and interpretation of international contracts…”17 Good faith is a common law principle which was recognized even at the early phases of trading or mercantile transactions and remains to be the guiding principle of all transactions in this present time. Regardless of the era, good faith plays an important role in defining the obligations of the parties to any transaction. Under the No. IV. 3. 1 wherein it defines the scope of application of the TransLex principles it is stated that general rules on formation apply, subject to the principles laid down. Lex Mercatoria’s role in International Commercial Contracts International Commercial Contracts may be nigh understandable and hard to interpret, according to Principles of International Commercial Contracts in 1994, “…to reduce the uncertainty accompanying the use of such vague concepts for the determination of their content, it might be advisable to have recourse to a systematic and well-defined set of rules as the principles…”18 These systematic and well-defined set of rules as the principles that the contract would follow may be according to the general principles of the law and lex mercatoria. The role of Lex Mercatoria in international commercial contracts is that it supplements the guidelines and principles are not included in the international commercial contracts. Apart from being a supplement to the international commercial contracts, it also acts as the backbone of international conventions and treaties that aims to regulate transactions made between international business transactions. International Business relationship is becoming so complex that the parties’ rights and obligations are not confined to their own national laws but international treaties and accord are likewise incorporated in their contractual relationship or agreement. A court which acquires jurisdiction over the subject matter shall apply the choice of law of the parties however should the parties fail to express their choices, the applicable international laws shall be applied which shall be supplemented by the national laws of the parties. In case of conflict, the courts/tribunal shall be duty bound to harmonize the conflicting laws. In this instance, the dispute shall be decided taking into account the applicable laws, relevant trade customs, contract provisions and circumstances prevailing at the time the same is submitted for resolution. In coming up with the decision, the court/tribunal shall harmonize and converge the diabolically discordant position by applying the general principles of laws, treaties, national and international laws, including the relevant lex mercatoria. Any relationships between nations are normally governed by a single principle of law that will prevent both parties from taking advantage of the other. To see a middle ground the basics has to be determined or defined first. Lex Mercatoria is normally referred to define this relationship since, even at the beginning of time Lex Mercatoria has defined the relationship of men and nations. Bibliography Bazley v Curry 174 DLR 45 Benson, B L., 1989. 'The Spontaneous Evolution of Commercial Law', 5 Southern Economic Journal 644, 654 Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 European Union. 1980 Convention Rome on the Law Applicable to Contractual Obligations. European Union. 1980. Vienna Convention on International Sale of Goods. Honeywill and Stein Ltd v Larkin Brothers Ltd [1934] 1 KB 191 Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 Howarth, Richard’s Lex Mercatoria: Can general principles of law govern international commercial contracts? 2004 . J.H.C. Morris (Eds.). 1980. Dicey and Morris on the Conflict of Laws Joel v Morison [1834] EWHC KB J3 Pryles, Michael. Application of the Lex mercatoria international commercial arbitration. Theft Act of 1968 TransLex. TransLex Principles. UNIDROIT. 1994. UNIDROIT Principles of International Commercial Contracts. United Nations. 1976. United Nations Commission on International Trade Law. Read More