Analysis of Consumer Law Undergraduate - Case Study Example

(A) Of the consignment of 10,000 books bought by Baxwell from Sweet, 5,100 had suffered irreparable damage and liability needs be determined. As thesale of goods contract was executed in accordance with Sale of Goods Act (1979) and as per CIF terms, liability shall be determined on the basis of the aforementioned and shall further be clarified through case law. CIF, FOB, and SoGA (1979) have attained relative consensus regarding the obligations of the seller within the sale of goods contract. CIF and FOB emphasise the more important of these obligations to be conformity.1 When the sales of goods contract covers ascertained goods, the buyer is obligated to provide the seller with goods which fulfil the description and characteristics of those contracted for. In instances of failure, CIF has determined that the buyer may reject tender of the documents, refuse acceptance of the goods and argue breach of contract.2 FOB terms are in concurrence with the stated, as is SoGA (1979). Sections 14, 2a and 14, 2b places equal emphasis on conformity. Insofar as the sale of goods contract references specified goods, the buyer is obligated to provide the seller with goods which confirmed to those referenced in the contract. 3Assuming that the goods are conforming, the seller is further responsible for making the necessary arrangements regarding the affreightment and insurance of the goods, the issuance of a commercial invoice and the tender of the relevant documents to the buyer within a reasonable timeframe, or as specified in the contract.4 Case law emphasises the liability of sellers in instances of proven non-conformity. In the matter of Slater v Finney (1996),5 the buyers claimed breach of implied condition of fitness, in accordance with SoGA(1979), Section 14, 3, maintaining that the shipping vessel which they purchased from the sellers did not satisfy the purpose for which they purchased it. The court found that since the vessel conformed to its contractual description and was delivered in the required condition, there was no breach. The buyers were ordered to make the full payments.6 Apparent from the facts of the case is that Sweet fulfilled his contractual obligations. In accordance with CIF, FOB and SoGA, Baxwell is thereby obligated to accept the tender of documents, pay for and accept delivery of the goods. In the matter of Soules Caf v PT Transap of Indonesia (1998) the court found that the buyer had the right to reject the documents since they were inconsistent with CIF terms pertaining to insurance and as a consequence of the seller's failure to perform his CIF obligations.7 The meaning of this is that the right to reject is immediately linked to the question of whether or not the seller fulfilled his obligations and not to whether the goods were damaged during the voyage or not. Therefore, even if the goods are damaged, Baxwell, must fulfil all of his obligations. The fact is that a significant percentage of the goods have been damaged, inhibiting Baxwell from exploiting them for the purpose for which he bought them. SoGA, Sections 15A and 15B, provides that the goods delivered should be in the type and condition which allow the buyer to satisfy the purpose of purchase.8 CIF terms additionally emphasise this right.9 Consequently, it is apparent that even though Sweet does not appear liable, as he had fulfilled his contractual obligations, Baxwell should not carry the financial burden potentially imposed upon him by the damage done to the goods. Assignment of liability for the damages, necessitates a review of the concepts of property and risk, as outlined by SoGA and CIF. The first consideration is the separation between passage of proprietorship and passage of risk. The CIF terms on which the sales of goods contract between Baxwell and Sweet is founded upon separates between the two. Property passes from the seller to the buyer upon the tender of the documents and the payment of the sums owed. Risk, however, and especially as delivery is at a distant port, does not pass from the seller to the buyer at the same time. Instead, it passes from the seller to the carrier upon delivery to it and then from the carrier to the buyer, as long as the goods are delivered in the condition specified in the contract.10 SoGA (1979) upholds the separation between passage of risk and property in cases of international trade.11 As per Section 16, goods pass from seller to buyer if they are ascertained but the risk passes from seller to carrier in relation to goods which are transported to a distant port.12 Useful for consideration is matter of Bayview Motors Ltd v Mitsui Marine and Fire Insurance Co.,13 et al., (2002). The consignment of motor vehicles which the buyer had contracted for had been damaged during shipment. The seller was able to established that he had delivered the goods to the carrier in the required condition and that they had, accordingly, been damaged during shipment. As the seller was able to establish passage of risk, the carrier was held liable.14 In accordance with both SoGA and CIF, the risk passed from Baxwell to the carrier upon his delivery of Sweet's cargo to them in the required condition and his subsequent receipt of a clean bill of lading. Consequently, Baxwell need be advised that the risk lies with the carrier and that Cargolines is liable for the damages that occurred to his shipment. (B) As per the above advice, offered Baxwell, liability lies with the carrier. In advising Cargolines, it is necessary to refer to the Hague-Visby Rules (hereinafter referred to as HVR) and case law in order to investigate the claim regarding Cargolines' liability. The HVR function to clarify the duties owed to, and responsibilities owed by, cargo liners. Further, and as established by CoGSA (1971) and by national courts, HVR is applicable when either party to the dispute is a member of a Contracting State.15 With this in mind, the issues to be investigated are, firstly, whether HVR is applicable in this instance and, secondly, whether Cargolines is liable for the damages to Baxwell's cargo. As determined by English law and CoGSA, HVR is enforceable upon carriers travelling from any port in Great Britain and Northern Ireland to any port within it.16 Further, it is enforceable upon carriers that are travelling from a port within Great Britain and Northern Ireland to any foreign port, irrespective of whether or not it is a party to HVR.17 Enforceability arises from the fact that the United Kingdom of Great Britain and Northern Ireland is a Contracting State. As the Banger loaded Baxwell's cargo from a British port, therefore, HVR is enforceable. To offset the enforceability of HVR, or to limit the extent of their liability for damage to cargo, carriers have attempted to include exclusion clauses in their contracts. As per these exclusion contracts, carriers have either placed a ceiling on the damages they are liable to, as in a fixed limit,18 Despite the fact that carriage of goods contracts, including such exclusion clauses, has been signed, when damage to cargo occurs, English courts have invariably ruled against these clauses.19 Again, in the matter of Owners of Cargo on Board the Morviken v Owners of the Hollandia (1982), the court found the carrier's attempt to limit liability, and applicability of HVR, through a clause in the bill of lading was null.20 As per English law and even accounting for the possible presence of an exemption clause in Cargolines' carriage of goods contract, HVR are incontrovertibly applicable.21 Having established this, it is now necessary to investigate the liability of Cargolines under HVR. HVR distinguishes between cargo which may be stored on deck and cargo which may not be. While there exists a difference between the extent of a carrier's liability for damages to goods stored on deck and those which are stored in the cargo's hold, HVR emphasises that nothing exempts the cargo liner from exercising the due care required for the protection of the cargo. Certainly, under HVR the carrier cannot be held liable for damages done to deck cargo consequent to seawater as long as the carrier has exercised the requisite level of care. However, it can be held liable for damage done through the exposure of cargo to seawater if the carriage for goods contract does not define the goods as deck cargo and does not allow the carrier the liberty to make this selection.22 In the matter of Daewoo Heavy Industries Ltd (2) Sanko Otomotive Sanayi Ve Ticaret As V (1) Klipriver Shipping Ltd (2) Navigation Maritime Bulgare Ltd Sub Nom Kapitan Petko Voivoda (2002), the owners of the cargo, comprised of 34 excavators, brought a claim against the carrier for damages.23 Without the requisite authorization from the cargo owners, the cargo was stored on deck. Eight of the excavators were lost as a result and a significant percentage of the cargo surfed extensive damage. The cargo owners argued the loss an immediate outcome of insufficient packaging and perils of the sea, which would have been avoided if the cargo had been stored below deck. The carrier owners maintained that HVR limited liability for perils of the sea.24 The court, however, fund that the carrier was in breach of contract and the stated exemption did not apply in this case as there was no indication that the cargo, had it been stored under deck would have suffered damage "in any case." The carrier was in breach of contract and therefore, liable for the damage.25 As the contract in this case does not mention that Baxwell's cargo is deck cargo and additionally makes no mention of a liberty clause, one may proceed from the assumption that it is hold cargo. Articles III, 1c and III, 2 of HVR establish the carrier as responsible for ensuring that its holds and chambers are well-suited for the storage of cargo, including their preservation and protection.26 These articles further emphasise that the carrier, including its personnel, are obligated to exercise all due caution to safely store and protect the goods.27 Furthermore, as stipulated in Article II, not only is the carrier responsible for the safe storage of the cargo but it is further liable for any damages which may befall the goods through loading and stowing.28 The above mentioned articles are immediately relevant. One hundred of the ten-thousand books which comprised the cargo in question were damaged during loading. While Sweet delivered the entirety of the cargo in marketable condition, upon loading the books, 100 fell into the water, suffering irreparable damage. Cargolines is directly liable. Besides the 100 books mentioned above, during the voyage, an additional 5000 books suffered irreparable damage due to fire. HVR, Article IV, 2b states that the carrier is not liable for damages to cargo by "fire, unless caused by the actual fault or privity of the carrier." 29 This liability directly arises from Article IV, 1's assertion that the carrier and its personnel are obligated to exercise all "due diligence" to ensure that the ship is seaworthy and its crew fit.30 The circumstances of the case indicate the opposite. The crew was unfit and the fire which broke out and which subsequently led to the mentioned damage to 50% of Baxwell's cargo was a direct outcome of both the crew's unfitness and inexperience, on the one hand and the carrier's unseaworthiness on the other. The matter of Papera Traders Co Ltd & Ors V (1) Hyundai Merchant Marine Co Ltd (2) Keihin Co Ltd Sub Nom Eurasian Dream (2002)31 supports the argument regarding Cargolines' liability. In this case, the cargo owners sued the carrier following the occurrence of a fire which destroyed the cargo and rendered the vessel a total loss. As the owners of the cargo were able to prove that the fire was a consequence of the vessel's unseaworthiness and that it was unseaworthy prior to the commencement of the journey, the court found in favour of the cargo owners and the owners of Eurasia Dream were found liable for the loss under HVR Article III.1 and III.2.32 The matter of Parsons Corporation & Ors V (1) CV Scheepvaartonderneming Sub Nom "The Happy Ranger" (2002)33 is also relevant to this case. The cargo owners sued the carrier for damages to their cargo under HVR. The defendants argued that the carriage of goods contract signed had a limitation on HVR. They further argued that HVR did not apply. The court found that HVR were enforceable as goods had been shipped from a port of a Contracting State and that the attempt to impose limitations on HVR was void. The carrier was found liable under HVR, since the carrier was unseaworthy and the crew not fit.34 Further, in the matter of Svenska Traktor AB v Maritime Agencies Ltd (1953),35 the court found the carrier was found liable for the damages done to the cargo of tractors insofar as they had been stored on deck, contrary to the fact that they were underdeck cargo. The damages, according to the court, were an immediate outcome of carrier negligence, whereby Maritime Agencies was liable for the identified damages.36 Similarly, Cargolines is liable. (C) As per CIF terms Sweet insured Baxwell's cargo against damages during the voyage. The Institute Cargo Clause B, which he took out, provides cargo with "intermediate coverage" against damages and, explicitly defines both the types and sources of damage to cargo which it will cover. Among the types of damage that ICC B covers is damage as a consequence of fire. This is relevant since, apart from the 100 books which were damaged during loading and as a direct consequence of negligence, 5000 books, amounting to 50% of the cargo, was irreparably damaged due to fire. This, however, does not necessarily mean that Floyd is liable for the damages under ICC B since liability can only be determined following an investigation of the circumstances which led to the fire, hence, damage. Institute Cargo Clause B clearly states that it will cover damages to cargo arising from fire or, "reasonably attributed to fire or explosion."37 The terms of this particular policy further state that the underwriters are not liable for any damages which occurred as a consequence of "unseaworthiness of vessel or craft, unfitness of vessel craft, conveyance container or liftvan for the safe carriage of the subject-matter insured."38 As pertains to the 100 books which were damaged during loading, Floyd is not liable for the damages. The facts of the case indicate that those books were "negligently" dropped by the crane driver. As per ICC B policy, the underwriter is not responsible for damages which occur to cargo during its loading if that damage is traceable to the unfitness of the crew. As this is a clear case of negligence, indicting unfitness of the crew, Floyd is not liable for the damage to the 100 books. In addition, despite the occurrence of damage to part of the cargo, a clean bill of lading was issued. This is indicative of intent to deceive. If that intent is proven, Floyd will be absolved from any liabilities pertaining to those 100 books. The matter of Naviera Mogor SA v Societe Metallurgique de Normandie (1988) suggests that even if there was no intent to deceive and that the carrier had taken receipt of goods that were damaged, the issuance of a clean bill of lading established the carrier's liability for the damage.39 The carrier had loaded defective cargo but the master of the ship failed to inspect and had issued a clean bill of lading, absolving the seller from responsibility and further absolving the insurance company from liability for subsequently revealed defects.40 Consequently, even if the damage to those 100 books were not the responsibility of the carrier, the clean bill of lading issued establishes the carrier's liability. In addition to the books that were damaged during loading, 5000 books, comprising 50% of the cargo in question, were damaged during the voyage. As earlier mentioned ICC B covers damages to cargo as a result of fire but, not if that fire is a consequence of the vessel's unseaworthiness or its crew's unfitness. The facts surrounding the accident indicate that both unseaworthiness and unfitness directly caused the fire. In the first place, the Banger has a history of engine troubles. As these engine troubles were not resolved prior to this voyage and were one of the fire's primary causes, it can be argued that the vessel was not seaworthy and that its unseaworthiness contributed to the damage caused to the cargo. In the second place, the fire was further instigated by the fact that an inexperienced crew member started the engines despite being told by the captain that doing so could lead to fire. It did lead to fire and to damage to 50% of the cargo, in which case it can be argued that the crew's unfitness incontrovertibly contributed to the fire. The matter of Guinomar of Conakry v Samsung Fire & Marine Insurance Co Ltd (2001) 41supports the argument that the insurance company is not liable for the damage to the cargo. In this case, the carrier brought charges against the cargo insurers for its refusal to pay the insurance. The underwriters, however, proved that the damage to the cargo was a consequence of unseaworthiness and that this absolved them from liability. The court found for the defendants.42 This case emphasizes the point made here; since Baxwell's cargo was damaged due to the unseaworthiness of the carrier, Floyd is not liable. The facts indicate that Floyd is not liable, but that Cargolines is. The fire can be directly traced to the Banger's unseaworthiness and the crew's unfitness. ICC B explicitly states that should damage be traced to either one of these, the underwriters are absolved from liability. In this particular case, the damage was a consequence of both. Therefore, under the terms of this particular insurance policy, Floyd will not be liable for the irreparable damages done to 51% of Baxwell's cargo. (D) In international trade/sales and as a means of protecting the financial interests and rights of both buyers and sellers, payment is made through letters of credit. International letters of credit are governed by UCP 500 and is immediately applicable in the Baxwell and Sweet case. According to UCP 500 terms, a letter of credit is issued upon contracted agreement with actual payment made by the issuing bank once the relevant documents have been tendered.43 Among these documents is the bill of lading. If the documents are not fraudulent and the bill of lading is clean, the bank makes the payment to the seller. If the documents are fraudulent and the bill of lading is not clean, the bank, acting on behalf of the buyer, should refuse payment.44 In determining Westland Banks' legal position, these facts must be taken into consideration. Even though, as established in the above, Sweet is not liable for the damage to Baxwell's cargo, the bank faces a problem, nonetheless. This problem is that 1% of the cargo was irreparably damaged during loading but a clean bill of lading was, however, issued. In accordance with UCP 500, in instances where discrepancies are detected in the bill of lading or there is a suspicion of fraud, the bank should investigate prior to making payment.45 In the matter of Credit Industriel et Commercial v China Merchants Bank (2002), CIC refused payment on he basis of discrepancy in documents. The court found that even though the bank had the right to refuse payment if the documents are fraudulent, the documents in question were not.46 Should it find that, indeed, there are discrepancies and the bill of lading is fraudulent, it need argue the exception cause and, on that basis, refuse payment. Case law illustrates that a bank, in accordance with UCP 500 is, indeed, obligated to refuse payment and should it not, will, itself be held liable for the payments made.47 In this particular case, the bill of lading is questionable in light of the damage to the 100 books. At the same time, CIF terms explicitly state that if the seller has fulfilled his contractual obligations, the buyer is obligated to fulfil his and, this includes making full payment for the goods. This places the bank in a controversial legal position. Articles 3 and 4 clearly state that compliance with the terms of the letter of credit and with UCP500 is non-negotiable and Articles 3, 4 and 13 emphasise the bank's obligation to inspect the tendered documents and ensure that they are not fraudulent and are in strict compliance with the saes agreement. If compliance is established and the documents are proven to be legitimate, UCP500, Article 9a states that the bank is obligated to make the payments required.48 As earlier stated, however, the bill of lading is questionable. Should one take all the above facts into account, one would conclude that if the bank makes the payment, despite the questionability of the bill of lading, it could be liable for that payment. Hence, prior to making the payment, it is imperative that the bank establish that the seller, Sweet had, indeed, fulfilled his contractual obligations and the damage was occurred following the passage of risk from Sweet to Cargolines. Words: 3541. Bibliography Bridge, M.G. (1999) The International Sale of Goods. London, Oxford University Press. Collyer, G. (1998) More Queries and Responses on UCP 500. Brussels, ICC Publishing. Girvi, S. n (2006) Bills of Lading and Straight Bills of Lading: Principles and practice.' Journal of Business Law. Retrieved 25 April 2006 from Westlaw. Guinomar of Conakry v Samsung Fire and Marine Insurance Co Ltd (2001). 2 Lloyd's Rep. 57 2001 WL 1844525. 10 August 2001. Hague-Visby Rules, Admiralty Law. Retrieved 25 April 2006 from http://www.admiraltylaw.com/statutes/hague.html International Chamber of Commerce. (2002) Uniform Customs and Practice: UCP500 and eUCP. Brussels: ICC Publishing. Institute Cargo Clauses B, I Steel Asia. Retrieved 25 April, 2006 from https://www.isteelasia.com/insurance/engB.pdf Karan, H. (2005) The Carrier's Liability Under International Maritime Conventions: The Hague, the Hague-Visby and Hamburg Rules. London, Edwin Mellen Press. Sale of Goods Act, 1979. Retrieved 25 April from http://www.netlawman.co.uk/acts/sale-of-goods-act-1979.php Case Law Bayview Motors Ltd. v. Mitsui Marine & Fire Insurance Co Ltd. and Others. [2002] EWHC 21 (Comm): 23 January 2002 Clegg v Andersson (t/a Nordic Marine) [2003] EWCA Civ 320 [2003] 1 All E.R. (Comm) 721, 11 March 2003. Credit Industriel et Commercial v China Merchants Bank (2002). 2 All E.R. (Comm) 427. 16 May 2002. Daewoo Heavy Industries Ltd (2) Sanko Otomotive Sanayi Ve Ticaret As V (1) Klipriver Shipping Ltd (2) Navigation Maritime Bulgare Ltd Sub Nom Kapitan Petko Voivoda (2002). EWHC 1306 (Comm). AC0702114. 7 November 2002. Naviera Mogor SA v Societe Metallurgique de Normandie (1988). 1 Lloyd's Rep. 412. WL 622501: 15 January 1988. Owners of Cargo on Board the Morviken v Owners of the Hollandia [1982] 3 W.L.R. 1111 3 All E.R. 1141 (Com. L.R.): 25 November, 1982. Papera Traders Co Ltd & Ors V (1) Hyundai Merchant Marine Co Ltd (2) Keihin Co Ltd Sub Nom Eurasian Dream (2002) EWHC 118 (Comm). AC0102672. 2 July, 2002. Parsons Corporation & Ors V (1) CV Scheepvaartonderneming Sub Nom "The Happy Ranger" (2002) EWCA Civ 694. 2 All ER (Comm) 24. AC0101682. 17 May 2002. Slater v Finning Ltd [1997] A.C. 473 [1996] 3 W.L.R. 191 [1996] 3 All E.R. 398: 4 July, 1996. Soules Caf v PT Transap of Indonesia (1998) QBD (Comm) AC8001773: 30 July, 1998. Svenska Traktor AB v Maritime Agencies (Southampton), [1953] 2 QB 295: 11 June, 1953. Read More