Advice for the Barkers Bank - Essay Example

Commercial Law Assignment Commercial Law Assignment Introduction The presented case study highlights a number of principles of English and International commercial laws related to the Bills of Lading and Cost, Insurance and Freight (CIF) contracts in international trade. A bill of lading(also known as a contract of carriage), is an important document in international sea trade that is normally issued by carriers to shippers of goods for purposes of serving as an evidence of the contact of the carriage, as a receipt of the shipped goods as well as an evidence of ownership. According to the commercial laws, payments for commodities under the Bills of lading should be done at the time of entering into the contract and not at the time of the delivery of the goods. On the other hand, a Cost, Insurance and Freight (CIF) contract refers to an agreement of selling shipped goods at a price inclusive of the total cost of the goods, freight to the port destination and the maritime insurance coverage. One of the major essential features of CIF contracts is that it requires the vendor to ship the agreed goods in the contract, procure a bill of lading (contract of carriage), arrange for the insurance of the goods, and make a commercial invoice before finally tendering the documents to the buyer1. For example, in the case Biddle Brothers v Clemens Horst Co.2, it was ruled that the buyer was obliged to make the payments before the shipment of goods. This paper offers advice to the parties involved in the case namely, Bernadette, David and Barkers Bank with particular focus to their obligations, limitations and potential remedies in the event that a breach of the contract occurs. Advice for Bernadette Based on the circumstances facing Bernadette in the presented case, the major challenge that arises is whether under the English commercial laws, Bernadette would be able to recover the money she paid for the documents from Arthur, claim the insurance policy or take legal action against the carrier in tort compensation for the damaged goods since she had already made the contract payments. Bernadette is obliged by the law to pay Mr. Arthur (the seller) even if the rice was destroyed during shipment. This can particularly be seen in the case Manbre Saccharine Co Ltd v Corn Products Co Ltd[3] in which the court ruled that that the seller may still claim payment even if the goods are lost or destroyed after shipment. In my opinion, the only available remedy subject the English commercial laws is to sue Claude’s vessel Jeanne d’Arc carrier for compensation of the loss incurred due to the damage of rice during the shipping. This is particularly because, under the CIF contract laws, the risk normally passes on shipments and the buyer can effectively claim against the carrier for any loss incurred attributed to the damage of goods under shipment. Hague/Visby rules Article III (1)(a)[4] particularly provides that during the shipment of goods, the carrier is bound before and at the beginning of the voyage to exercise utmost diligence to make the ship seaworthy in order to avoid any damage to the goods being shipped during the moment of sailing. For example, in the Actis Co. ltd (The Aquacharm[5] the seaworthiness of a vessel was questioned by the court when the Ship’s draught proved too much for passage through the Panama Canal. Generally, the presented problem is one of the common legal challenges in international trade attributed to the standard requirements of the administration of the Bills of Lading and Cost, Insurance and Freight (CIF) contracts in international trade. In numerous previous cases, judges have always ruled that it is the responsibility of the career to deliver shipped goods in good condition, and therefore the buyers can sue them for any damage that occurs during the shipment. However, the carrier is only considered liable if it can be established that the damage occurred because they failed to exercise due diligence during the shipment. For example, in the case Maxine Footwear v. Canadian Government Merchant Marine6, the supreme court of Canada ruled that the defendant was not liable for the destruction of cargo because there was no proof of negligence on the part of the carrier. Additionally, under article III rule 2 of Hague/Visby rules7, the carrier has a duty to look after the goods by using proper systems and exercising care in the handling of the goods. Consequently, in the event that Bernadette sues carrier Claude, he will have to prove that the damage to the rice and the resultant loss was occasioned by the unseaworthiness of the vessel. On the other hand, Claude’s vessel Jeanne d’Arc carrier will have to prove that they practiced due diligence during the sailing. In conclusion, although Bernadette should sue Claude’s vessel Jeanne d’Arc carrier for breach of the article, the carrier is not strictly liable. Bernadette will have to prove that the damage to the rice and the resultant loss was occasioned by the unseaworthiness of the ship or lack of care/improper handling of goods during the shipment. If the court establishes that the carrier did not practice due diligence, then carrier Claude will be liable for the loss and will therefore be required to compensate Bernadette. Advice for David From an economic perspective, it is understandable that David (a buyer) would wish to cancel the contract because he knows he can still get the same sugar at a cheaper price that the price used in the contract since the sugar price has already fallen. However, under the commerce laws, David can only be able to cancel the contract if he is able to prove that the seller (Arthur) did not comply with all the requirements prescribed by the international trade laws. I would advice David to reject the delivery of the goods and instead sue Arthur for breach of the contract condition. This is because the failure to ship the brown sugar within the period stipulate din the agreement may have constituted a breach of the contract. According to Hague/Visby rules, sellers have a number of shipment obligations that they are required to meet under the C.I.F contract laws. Generally, some of the major obligations under the contract include shipping the goods contained in the contract, procuring a contract of affreightment through which the goods would be delivered to the buyer, arranging for the insurance of the goods for the benefit of the buyer, making out an invoice and finally, tendering all the documents to the buyer as was ruled by Judge Hamilton in the case Biddle Bros. v. Clemens Horst Co8. In this regard, the law prescribes that the seller is obligated to ship the goods within the time specified in the contract as the shipment period is considered to be part of the description of the goods. Any failure on the part of the sellers can amount to a breach of condition. For instance, Arthur agreed to sell to David who resides in Paris five thousand tones of unrefined sugar imported from Jamaica. However, in this case, David is one the receiving end because he was the receiver who received sugar outside the agreed time to a level that the market price is now half the officially estimated one. It can therefore be argued that the Mr. Arthur, who is the seller, is liable for the possible loss incurred by David due to the breach of shipment time. The consequent delay is a proof that Arthur did not comply with the C.I.F contract requirements as prescribed by the international commercial law. The case of Bowes v Shand[9] particularly established that under the C.I.F contract laws, the shipment period is part of the description of the goods. Consequently any failure by the seller to ship the goods within the period is considered to be breach of condition. On the other hand, in the case KweiTek Chao v. British Traders10, it was ruled that buyers who may have lost their right to reject the documents have a right to reject the goods. In summary, in order to be given the right to reject the goods and get out of the contract, David will should file a suit against Arthur and prove before a court of law that the seller (Arthur) did not comply with the requirements of the C.I.F contract as stipulated by law. Advice for the Barkers Bank In the presented scenario, the Bank should be advised that they should ensure that all the documents tendered by Arthur are in compliant with the letter of agreement and the applicable rules before they make any payments to him. This will particularly help Barkers Bank to avoid the risk of not getting their money from Frank in the event that it is proved otherwise. The law regulating letters of credit particularly requires strict compliance by the Banks when it comes to documents. In international trade, banks such as Barkers Bank are normally used as intermediaries to help solve the conflict of interest that often arises when the seller is reluctant to deliver goods before being paid while the buyer also wants to be sure of the delivery of the contract goods before making the payments. In the case study, Barkers Bank posses’ legal title in the ownership of the sugar that gives him powers to the remit money in and out of the accounts and surrender the same to the receiving authority. Under the commercial laws applicable in the United Kingdom, Barkers bank can incur heavy losses without any possibility of legal redress if proper verification of the documents is not undertaken. Furthermore, the trust allows the first and second party to sue the trustee if he interferes with the trust, and following up the trust sugar one it appears away from the trustee in breach of the terms of the trust. According to Hague/Visby rules Article 20 (a)(6)[11] , a bill of lading must not have any indication that is subject to a charter party as this may make it a bad tender thereby allowing the buyer to reject the documents. This is critically important for the banks used as intermediaries such as Barkers Bank because it protects them from the potential losses that may arise in the event that the documents are rejected by the buyer. However, subject to common law, when a bill of lading is issued subject to a charter party, it is considered to be a good tender if the charter-party is known to the buyer by virtue of previous dealings as was ruled on the case of Finska v Westfield UCP 60012. In summary, my advice to Barkers bank is that in order to avoid the risk of not being paid by Frank, Barkers Bank must verify all the documents tendered by Arthur to ensure that they comply with both the applicable rules as well as the letter of agreement. Conclusion In conclusion, both the Bills of Lading and Cost, Insurance and Freight (CIF) contracts are important elements of the international commercial law. When conducting international sea trade, BOL and CIF contracts are normally used to regulate the conduct of business parties by prescribing obligations, limitations of the parties involved as well as the potential remedies for each party in the event that a breach of the contract has taken place. Bank should be advised that they should ensure that all the documents tendered by Arthur are in compliant with the letter of agreement and the applicable rules before they make any payments to him. This will particularly help Barkers Bank to avoid the risk of not getting their money from Frank in the event that it is proved otherwise. The law regulating letters of credit particularly requires strict compliance by the Banks when it comes to documents. Bibliography Cases Actis Co. ltd (The Aquacharm [1982] 1 WLR 119 Biddle Brothers v Clemens Horst Co. [1911]1K.B. 214 at 220. Bowes v Shand. (1877)  2 App. Cas 455. Hague/Visby rules Article 20 (a)(6) U.CP 600 (2007). Finska v Westfield UCP 600. [1940] 4 All E.R. 473. KweiTek Chao v. British Traders. [1954] 2 Q.B 459. Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 K.B. 198 Maxine Footwear v. Canadian Government Merchant Marine [1959] A.C. 589 Books R Bradgate, Commercial Law (3rd edition Butterworths, Chippenham 2000) Secondary Sources Hague/Visby rules Article III (1)(a). Hague- Visby Rules. Article III rule 2 Read More