International Trade Law - Coursework Example

International Trade Law Introduction: The Vienna Convention for the International Sale of Goods was signed in 1980 and came into force internationally on January 1, 1988. According to Professor Peter Schlechtriem, the Vienna Convention is the “uniform law convention with the greatest influence on the law of worldwide trans border commerce.”1 The Vienna Convention operates on the basis of standard international contractual forms. CIF contracts are the most commonly and widely used kinds of contracts for sea borne commerce.2 A CIF contract is one that includes the cost of freight and insurance cover for transport of the goods to the required destination.3 A CIF contract is not a contract “that goods shall arrive but a contract to supply goods that comply with the contract of sale and to obtain a contract for carriage and contract of insurance.” 4 Therefore, this arrangement provides advantages both for the seller and the buyer – for the seller because he is able to charge a higher price taking into account the extra services of insurance and freight costs and he also gets paid for the goods before they arrive at their destination. From the perspective of the buyer, it is an attractive arrangement because he does not have to encounter the difficulties associated with hunting for insurance cover in a foreign country. The Sale of Goods Act of 1979 (as amended ) in the UK is established on the basis of the principles of common law and sets out standards for international contracts on the basis of common law provisions of freedom of contract. The major objective in adjudication of the contracts is to ensure that the intention of the parties as set out in the agreement is adhered to and that remedies are provided for any violations of contractual terms. Remedies available under the Sale of Goods Act and the Vienna Convention: Remedies available to the Buyer under the Sale of Goods Act of 1979 (as amended)5: Remedies available to the buyer under the Sale of Goods Act are for non delivery of the goods by the Seller.6 In such a case, the buyer may sue for damages and the measure of damages will be the estimated loss resulting from seller’s breach of contract. When there is a market available for the goods, then the damages will be determined by the difference in the market price and the contract price of the goods at the time when they should have been delivered but where delivery was refused by the Seller7. The Buyer can also sue a Seller for damages in the event a warranty on the goods is not performed or where there occurs a breach of warranty that exists on the goods.8 There is also provision in the Act for the Buyer to recover interest amounts and/or special damages as the Courts may deem fit as applicable in each case.9 The Sale of Goods Act differs from the Vienna Convention because it is based upon common law principles, therefore it allows a buyer to determine the contract if any of the contractual provisions are not met or if the product fails to satisfy the warranties associated with it. With supply of defective goods, the Seller may even be required to compensate the buyer and take back the damaged or defective goods which do not meet the quality levels that were anticipated by the buyer and expressed in the agreement for sale of goods. Remedies for seller under the Sale of Goods Act: In the event the goods have passed to the buyer and the buyer refuses to pay for them or neglects to pay for the goods, the seller can sue the buyer for the price of the goods. Additionally, he can also retain a lien over the goods if they are still in his possession, and retain them until he is paid for the goods 10. However, even in the event the possession of the goods have passed into the hands of the buyer, there are still remedies that may be available to the Seller. Section 41 of the Sale of Goods Act 1979 stipulates certain conditions when the Seller can retain possession of the goods until he has received payment. These conditions are (a) where the goods have been sold without any stipulation that they have been provided on credit, where the goods may have been sold on credit but the credit term has expired and (c) where the seller has become insolvent.11 However, as opposed to this, it must be noted that within an international trading context, the right of lien to retain possession of the goods sold as provided for under the Sale of Goods Act of 1979 is likely to be of limited use to the Seller because in most international trading transactions, the Seller is likely to have handed over the possession of the goods to the Buyer and is therefore unlikely to be able to retain a lien on the goods12. Moreover, in some instances, even when damages are paid, the Seller may not be allowed to retain goods and specific performance of the contract may be enforced by the Courts.13 Section 39(1) (b) of the Sale of Goods Act of 1979 allows a further remedy to the Seller to stop the goods while they are in transit14 if the buyer has become insolvent. The Seller can take possession of the goods in transit or issue a notice15 to the carrier, bailee or custodier who is in actual physical possession of the goods16. Even in instances where the buyer may have sold the goods to third parties, the Seller can still effect a lien or stoppage on the goods, unless the Seller has agreed to the sale in question.17 Stoppage cannot be effected also in instances where the document of title as evidenced in the bill of lading has been lawfully transferred to a third party.18 A Seller will also have the right to re-sell his goods to another party19 if the buyer defaults on payment for the goods, and Seller can also recover damages for Buyer’s breach of contract. The Seller must however give notice to the buyer of his intention to resell the goods. A Seller can also sue the buyer for damages if he wrongfully neglects to or refuses to accept and pay for the goods20. In arriving at a measure for the amount of damages, the difference between the market price of the goods and the contract price of the goods at the time the cargo should have been accepted is used. Where the time of acceptance by the buyer is not fixed, the contract price that existed at the time the buyer refused to accept the goods will be the basis upon which damages are calculated21. As opposed to this in CIF contracts, the time of acceptance by buyer will be deemed to be the time when the documents ought to have been accepted by the buyer. The provisions under the Convention: The provisions contained under the Convention are such that it is designed to operate in accordance with the intentions of the parties who are signatories to the contract.22 Moreover, it also geared towards enhancing cooperation between buyer and seller; one example of such a provision that may be cited is the requirement of reasonable notice in so far as lack of conformity of goods is concerned.23 The Convention does not deal with issues arising from the validity of the contract between the parties or the effect of the contract upon the property in the goods sold under it24. Moreover, it is not so easy to sue for breach of contract where the Convention is applied, since there must be a fundamental breach of contractual provisions before action can be taken to avoid a contract, as laid out under articles 49, 64 and 72. According to Van Reesch, the concept of a fundamental breach as contained under common law provisions are different from those in the Convention: “The concept of fundamental breach was developed by the common law as a method of allowing an aggrieved buyer to escape contractual limitations denying it rights, whereas the concept developed in the Convention is crucial to the right of a party to declare a contract avoided.”25 Hence, it is easier for a buyer to declare a contract void under the provisions of the Sale of Goods Act as opposed to the Vienna Convention, which seeks to foster cooperation between the parties and allows a voiding of a contract only in the extreme case of a fundamental breach. Experts have argued that the nature of the term fundamental breach has itself been made an open textured issue under the Convention, thereby causing difficulties in ascertaining exactly when a breach will be considered to be a fundamental one – according to Van reesch, the common law allows the buyer an automatic rejection of goods that are in breach of contractual provisions, however the terms available to the Buyer under the Vienna Convention are much less favorable to his interests.26 Where the Sale of Goods Act in the UK is concerned, it is much easier for a buyer to determine the contract, and terminate it if any contractual provision is breached. Moreover, the remedies provided to the buyer under UK law are also much more exhaustive, since the primary objective behind the UK law is the protection of consumers, especially where the sale of commodities are concerned. There are also provisions for damage that exist under articles 74 to 77, however unlike the Sale of Goods Act, these provisions are meant laid out in such a manner that they are geared towards compensating the party that has suffered the breach rather than punishing the party that caused the reach of contract. Article 79 in particular, provides for remedy that is wider than the provisions laid out under the common doctrine of frustration of contract. The Vienna Convention, unlike the UK Act on the Sale of Goods operates on the basis that the contract which exists is between parties in two different countries.27 The second underlying assumption of the Act is that where the rules of private international law arise, then the law of the contracting state will prevail. Therefore, it enjoys precedence over national laws, since in a instance where there is a conflict of laws generated, it will be the international Vienna Convention that will prevail. The Vienna Convention differs from the UK Sale of Goods Act in that it applies no consumer remedies and does not apply to consumer sales. There is also no provision in the Vienna Convention for product liability, therefore no liability rests upon a seller for death or injuries caused by goods sold to any person.28 Moreover, one of the problems that has been identified with the Vienna Convention is the fact that most legal practitioners understand Convention provisions in accordance with their own domestic laws29. Another problem identified with the applicability of the Vienna Convention on an international basis is the difficulty in determining the exact parameters of good faith in international trade, since the notion of good faith in contracts may be understood differently in different countries. Therefore the provisions of Article 8 of the Convention that states, “statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was” becomes difficult to apply in real life situations and disputes between parties, where the question of intent and good faith are difficult to establish with certainty. Effective support to traders: In the context of the foregoing, it must be noted that the sphere of international trade is one that generates considerable risks, especially through potential non delivery of goods, delayed or damaged delivery of goods, etc. It is also difficult to derive a common universal standard that can be applied uniformly to all countries across the globe. However, the UK Act is founded upon the principles of common law which have been the guiding principle in law for the modern world and therefore form a good foundation for administration of the law in this area. There is remedy provided for both buyers and sellers under this Act. Moreover, since it is buyers who may sometimes be subjected to higher levels of risk in international transactions, the Sale of Goods Act makes provision for enhanced protection of the rights of buyers and their rights to determine the contract. While the Vienna Convention has one factor in its support, in that it is an international law that may hold good across several countries, there are several problems associated with its use as identified above. The most notable of these is the inadequate protection provided to the buyer and the difficulties inherent in establishing a fundamental breach of contract before it can be determined. This may compromise buyer rights. In some instances it may also compromise seller rights because the objective of the Vienna Convention is to allow compensation, but not to enforce punitive measures, which could result in repeat defaults and violations of the law. On the basis of all these factors, it must be concluded that the Sale of Goods Act of 1979 provides the most effective support to international traders, because it allows for sufficient provision for the interests of buyers and sellers. The Vienna Convention on the other hand is not as effective from the point of view of providing remedies to benefit both buyer and seller. Moreover, the absence of punitive measures allows scope for repeat defaults and violations of contracts and it appears that there must be stricter provisions included within the scope of the Act before it can be really effective in resolving disputes among international traders. Opposition to the Convention in the U.K.: There has been considerable opposition to the ratification of the Vienna Convention in the U.K., primarily because of what is perceived as the inadequate nature of remedy available to buyers under the Convention. Several experts in the UK have openly expressed their opposition to its ratification within the U.K with one of their grounds of opposition being the fact that there would be a reduction in the international arbitration cases coming to England.30 These are the two major grounds that have existed for the opposition of the Convention within the U.K. Since the protection afforded by the UK Sale of Goods Act is so exhaustive and also protects the interests of the buyers, it has been deemed to be a more effective tool for legal implementation where international law is concerned. There is apprehension among legal scholars and experts that extending the provisions of the Vienna Convention within the UK could compromise the interests of UK traders, who would not have recourse to the facility of determining the contract or the punitive measures included in the sale of Goods Act against all forms of breach of contract. It would be much more difficult overall for traders to exercise their rights under the provisions of the Vienna Convention. References Arnhold Karberg v Blythe, Green, Jourdain and Co (1915) 2 KB 379 Benjamin, 2002. “Sale of Goods” (6th edn) Sweet and Maxwell Carr, Indira, 2005. “International Trade Law” (3rd edition) Cavendish Publishing Sales of Goods Act of 1979 [online] available at: http://www.johnantell.co.uk/SOGA1979.htm Schlechtriem, Peter, 2005. “Requirements of Application and Sphere of applicability of the CISG” 36, VUW Law Review at 781 to 794 T Smyth and Co Ltd v T D Bailey, Son and Co (1940) 3 All ER 60 United Nations Convention on Contracts for the International sale of Goods [online] available at: http://www.jus.uio.no/lm/un.contracts.international.sale.of.goods.convention.1980/doc.html Van Reesch, Paul, 2003. “Judicial Consistency and Article 25 of the Convention on the International sale of Goods, 77 Australian law Journal, 436 :442 Read More