International Trade Contracts - Essay Example

In accordance with the UK Sales of Goods Act (1893), a sales contract constitutes a guarantee that the goods delivered are in compliance with thegoods contracted for. If not, the buyer has the right to sue the seller on the grounds of fundamental breach of contract.1 On the surface, therefore, it does seem that B, as the buyer, could sue S, as the seller, insofar as the wine/goods received were damaged and, accordingly, did not comply with the contract. However, the fact that B contracted directly with the carrier, C, and the damage occurred during transport, changes the situation and passage of risk, as implied by S, is applicable here. B contracted directly with C and while this does not necessarily establish passage of risk, in this particular case it does. As noted by Hannold, both English law and the CISG maintain that if a sales contract stipulates that the seller deliver the goods to the carrier or buyer at a specific location and time, and if the goods are delivered in the required condition, risk of damage passes from the seller to either the buyer or the carrier (depending on whom they were delivered to).2 In this case, and as is evident from the fact that B contracted directly with C, with S being responsible for the delivery of the wine to C at a specified place (quayside) the risk of damaged passed from S to C. In other words, as per both English law and the United Nations Convention for the International Sale of Goods, B cannot sue S who rightly claimed that his responsibility ended at the quayside. While B cannot sue S, he is entitled to sue C. The validation of the aforementioned assertion necessitates a brief review of relevant CIF terms, English law and case law. In accordance with the CIF contractual matrix, and as further supported by the laws governing marine transport and insurance, inclusive within the parameters of contracts for the maritime transport of goods is a guarantee that the goods will be delivered in the condition that they were originally delivered to the carrier in. In further guarantee of the stated, and as established by both English law and CIF terms, an insurance policy covering the economic value of the transported goods is included within such contracts.3 In direct reference to B's case, the implication here is that upon his entrance into contract with C for the delivery of the wine, and given that the assumption here is that S delivered them to C in the required condition, C is liable for the damages. The fact that B is entitled to hold C liable for the damages to the wine and is in a position to sue him according is further established by English case law. In Bayview Motors Ltd -v- Mitsui Marine and Fire Insurance Co., et al., [2002] the buyer contracted for a consignment of motor vehicles, whose specifications were clearly outlined in the contract. However, the goods he ultimately received were non-confirming consequent to the fact that they had been damaged during shipment. The seller successfully proved that the goods he had delivered to the carrier met the contractual requirements and therefore, established passage of risk. The buyer, thus, sued the carrier and the court found in favour of the claimant and held the carrier responsible for the damages.4 The aforementioned case is immediately relevant to the one at hand, insofar as it invaluably aids in the identification of the party responsible for the damaged consignment. Quite simply stated, passage of risk applied upon S's delivery of the goods to C in the required condition. The fact is that the goods were damaged during shipment and irrespective of whether C or his master of ship knew of the presence of the AFWA, the law is clear: C is responsible for the damages once he took possession of the goods at the quayside and, especially since S delivered them in the required condition. To this extent and given both the parameters of English law and CIF, B is entitled to sue C. (2) Even though, as previously stated, B is not responsible for the damages and that, in fact C is, the situation, as presented, indicates that E may sue B. This assertion shall now be established, despite the fact that E took possession of the documents from B. B may argue that E's acceptance of the bill of lading and sales invoice, concomitant with his subsequent collection of his consignment, implies passage of risk from himself to E. In other words, B may attempt to argue that E's claim is with C, as the carrier, and not with him, as the seller. This is untrue. As explained by Lobovsky and Bernstein, case law suggests that numerous sellers have attempted to argue precisely that, claiming that in accordance with Article 2-206 of the CISG, acceptance of the bill of lading and later receipt of the consignment actually implies acceptance of the goods or, at least, serves to establish that the seller (in this case B, not S) is not liable for damages.5 Bearing in mind that E accepted the bill of lading, B may attempt the aforementioned argument but the chances of his successfully doing so are minimal. This is because, in accordance with English commercial law, and as further fortified by international laws pertaining to trade, a buyer may sue the seller for avoidance of his contractual obligations of the goods he received do not conform with those specified in the contract and on which basis, payment was made. Damaged goods are, as per English law, defined as non conforming goods, with E's receipt of the bill of lading not implying acceptance of damaged goods but of the goods that were contracted for. 6 It is within the context of the stated that E is entitled to sue B. Again B may argue that in accordance with section 20-A of the Sales Good Act of 1979, both title and risk passed from him to E upon E's payment for the goods and the receipt of the documents.7 However, this argument is week since, in accordance with the clause 2 of section 19(1) of that same act, passage of risk does not necessarily occur simultaneous with passage of title, especially as pertains to non-conforming goods.8 Therefore, in the likelihood that B will attempt the aforementioned argument, the chances of success are, again, low. The fact that B, insofar as E is concerned, is liable for the damages, is further established by case law. In Carlos Federspiel & Co. SA v. Charles Twigg & Co. Ltd (1954), the court found in favour of the plaintiff, stating that to the extent that the goods ultimately received by the buyer were damaged during shipment, and irrespective of the earlier acceptance of documents, the seller was liable insofar as the buyer was concerned.9 Again, in Aluminium Industrie Vaassen BV v. Romalpa Aluminium Ltd.(1976), the English Court of Appeals held that the seller was liable for damages, irrespective of the carrier's responsibility therein, insofar as the goods received by the English company/buyer, were not in a commercially viable condition.10 As may be determined from the above, therefore, E may sue B for damages. Granted that C, rather than B, is responsible; the fact is that E's contract is with B and not with C. (3) Irrespective of S's assumption that b wants to withdraw from his contractual obligation to accept the consignment consequent to the sudden fall in demand for wine, and regardless of whether or not the wine is drinkable, the fact is that B may argue that S is in fundamental breach of contract. The situation, as presented, is that the wine which was contracted for differed from the wine which was delivered. According to Robert Koch, in instances of such disparity where it is reasonable to assume that the marketability of the good has been put into question by the condition that it was delivered in, the seller is in "fundamental breach of contract.."11 As articulated by the CICG, fundamental breach of contract occurs when the disparity between the contracted for goods and the delivered goods is not only obvious but has attained the degree whereby acceptance of the goods may culminate in the buyer's deprivation of his rights and commercial expectations as recorded in the contract.12 Carter concurs with the aforementioned definition of fundamental breach of contract, affirming that a buyer may sue a seller on the basis of the stated if there is a significant difference between the quality of goods contracted for and the quality delivered.13 This position is further affirmed by the Sales of Good Act (1979).14 UK case law further supports the above stated. As determined by ter Neuzen v. Korn (1996), the application of the Sale of Goods Act (1979) implies that the goods delivered must be of merchantable quality. In other words, the condition of the goods must be such that the buyer may be able to sell them.15 To the extent that the white wine, irrespectively of drinkability, has transformed into an ugly brown colour which customers will probably reject, B may refuse the goods and demand that S refund him the money paid. As may be determined from the above, whether evaluating the situation from the perspective of UK case law, Sales of Good Act (1979), or CISG, S is in breach of his contractual obligation to provide B with marketable goods which conform to the quality outlined in the contract. (4) P was not entitled to reject the documents as may be determined from a review of both Incoterms and the general matrix of rules and norms governing sales of goods contracts. This claim is further fortified by the fact that P's rejection was a reaction to a rumour, irrespective of whether or not that rumour was valid. As a means of establishing this argument, it is necessary to define the referenced documents and the implications of their acceptance or rejection within the parameters of Incoterms. Article 34 of the United Nations Convention on Contracts for the International Sales of Goods is devoted to an explication of the nature of the referenced documents and the rules governing their delivery. As the aforementioned article states, "if the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract."16 The implication here, therefore, is that the documents, generally defined as document of title, the bill of lading, and warehouse receipts and possibly, documents pertaining to quality, condition, warranty, and insurance17 need not be handed over by the seller and whether or not they actually are is determined by clauses contained in the sales of goods contract. Accordingly, CISG, in and by itself, does not define the delivery of documents as an imperative. While delivery is not an imperative, the fact remains that delivery and acceptance are determined by the nature of the contractual terms. This in itself demonstrates the supremacy of contracts and the extent to which buyers and sellers, or the principle parties, are obligated to abide by the terms contained therein. As noted by the Honourable Justice Michael Kirby through reference to L. Schuler AG v. Wickman Machine Tool Sales Ltd [1974], in case of disputes between parties to a sales contract, the Crown seeks the resolution of the dispute through a reasonable interpretation of the contract, with the purpose of reasonable interpretation being the determination of the intent of both buyer and seller and is subsequent implementation.18 In other words, both buyers and sellers are legally obligated to execute the contract. Given that S did attempt to hand over the documents to P, one may assume that the contract specified document delivery. In this instance, P's rejection of them is in violation of the contract. Had the documents referenced non-confirming goods or, indeed, goods which did not comply with those contracted for, P would have been entitled to reject them, in which instance S would have been allowed a specified period to correct the mistake.19 However, as may be inferred from this specific case, this was not the situation. S did deliver conforming goods and insofar as the contract specified delivery of documents, P was not entitled to reject the documents. Even supposing that P knew, beyond all shadow of doubt, that the goods had been contaminated, he still would not have been entitled to reject the documents because Incoterms apply here. As noted in the case study, P contracted for the carrier and, to this extent, one may assume that the applicable Incoterm terms, S is obliged to deliver the carrier conforming goods but is not responsible for damage that occurs to the goods after shipment.20 As may be determined from the above, therefore, S is not responsible for damage that occurred following delivery to the carrier. In such an instance, P did not have the right to reject the documents. (5) Incoterms may basically be defined as a set of abbreviations for trade terms particular to international sales of goods and is primarily dependant upon the United Nations Convention on Contracts for the International Sale of Goods. It is not intended to replace sales of goods contracts or indeed, to be treated as a contract. Nevertheless and given that its purpose was the facilitation of international sales of goods, it has a fundamental bearing on sales contracts.21 A brief review of the purpose and function of Incoterms shall illustrate that it has facilitated the international sales of goods. Case law suggests that one of the more important challenges confronting the international sales of goods is misinterpretation of the contract and the obligations of both buyers and sellers therein.22 Disputes often arise because both buyers and sellers tend towards the misunderstanding or misinterpretation of the terms governing international sales of goods, in which instance either side fails to fulfil his/her contractual obligation leading to dispute. The situation is further complicated when a contract for the international sale of goods is further governed by national laws such as English contract law. This is problematic insofar as English contract law stipulates the exigencies of interpreting and applying the implied contractual terms and not just the explicit ones. 23 Consequently, disputes arise, not just over the meaning of specific terms but over the implied intent of the contract. Incoterms has constructively contributed to the resolution of the aforementioned problem and, to this extent, has facilitated international trade. It has done so through the provision of a set of international guidelines and rules by which to interpret trade terms and, therefore, more accurately determine the contractual obligations of both buyer and seller as recorded in any specified international sales of goods contract.24 Quite simply stated, Incoterms are fundamentally concerned with the rights and obligations of both buyers and sellers with the specified purpose being the clarification of the laws governing the international sales of goods and the concomitant protection of all parties to a contract.25 In other words, they provide an interpretive framework for the often complicated legalities surrounding contractual obligations. To the degree that Incoterms serve to clarify contractual obligations through the simplified, but nevertheless comprehensive, clarification of the rules governing international sales of goods contracts, as articulated by the relevant UN Convention, one may affirm that it has facilitated international sales of goods. More specifically, it has done so through the provision of an interpretive framework for the comprehension of the relevant rules and laws, and the extension of the definitional parameters of international trade of goods' terms. Within the context of the stated, one may confirm that it has achieved the aforementioned facilitation through the minimisation of the possibilities of misinterpretation or miscomprehension. Bibliography Carter, J.W. "Party Autonomy and Statutory Regulation - Sale of Goods." Journal of Contract Law. 6. 1993. Enderlein, Fritz "Rights and Obligations of the Seller Under the UN Convention on Contracts for the International Sale of goods." Eds., Petar Sarcavic and Paul Volken, International Sale of Goods. Oceana: Oceana Publishing, 1996. Honnold, John O. "Risk of Loss," Ed., Mathew Bender, International Sales: The United Nations Convention on Contracts for the International Sale of Goods. Huntington: Juris Publishing, 1984. --------. Uniform Law for International Sales under the 1980 United Nations Conventions. Hague: Kluwer, 1999. Incoterms 2000: ICC Official Rules for the Interpretation of Trade Terms. London: ICC Publishing, 1999. Kirby, M. "Towards A Grand Theory of Interpretation: The Case of States and Contracts." Statute Law Review, 24, 2 (2003). Koch, Robert. Review of the Convention on Contracts for the International Sale of Goods (CISG). Hague: Kluwer, 1999. Lobovsky, Joseph and Herbert Bernstein. Understanding the CISG in Europe. Colorado: Aspen Publishers, 2001. Ramberg, J. et al. Guide to Incoterms 2000. London: ICC Publishing, 2000. Riley, C.A. "Designing Default Rules in Contract Law." Oxford Journal of Legal Studies, 20, 3 (2000). Todd, Paul. Cases and Materials on International Trade Law. Sydney: Sweet and Maxwell, 2002. "United Nations Convention on Contracts for the International Sales of Goods,1980 (CISG)," Lex Mercatoria, 1980. http://www.jus.uio.no/lm/un.contracts.international.sale.of.goods.convention.1980/ Read More