The Problem With Liability for Non-Conforming Goods - Research Proposal Example

Doctoral Dissertation Proposal. The Problem with Liability for Non-Conforming Goods Under an International Contract for the Sale of Goods. Department of Law University Abstract: A contract for the sale of goods under International law raises a number of issues with respect to risks, liabilities and obligations. This is so because invariably the goods require dispatch to a port for delivery from one nation to another. In the process the goods pass through a chain of possession quite often compromising the integrity of the goods. Many questions arise as to who is liable for the risks of damages and at what particular time. In order to reduce the range of possibilities International treaties and conventions have devised a number of regulations by which to measure obligations and liabilities. The most important and most widely used treaties are the Hague-Visby Rules and the Hamburg Rules. The purpose of this dissertation is to examine these treaties and to determine whether or not they have effectively contemplated every conceivable circumstance in which liability can arise. Liability will therefore be examined in respect of non-conforming goods. The issue of liability and risk associated with non-conforming goods arises in CIF contracts, seaworthiness and the contract between the buyer and the seller. This dissertation will examine the dynamics of these elements of liability and obligations under the Hague-Visby Rules and the Hamburg Rules. The underlying goal is to determine whether these laws are sufficient for the regulation of liability and obligations under an international contract for the sale of goods and what changes can be made for improvement. Statement of the Problem: When a contract for the sale of goods involves parties resident in different countries the goods usually escape the application of domestic law while in transit. While in transit the goods can be exposed to risk of damages. Since contract law generally requires that the risk of damages to the goods pass to the buyer once the seller delivers the same to the courier for dispatch, it appears to be entirely unfair for the buyer to accept the risk of damages when the goods are out of his control. At the same time it is entirely unfair for the courier to accept the risk of damages in circumstances where he has exercised due care in the storage and shipment of the goods. International law tries to strike a fair balance by defining the respective parties’ obligations with respect to the goods and by doing so sets forth a means by which liability can be ascertained. The law does not always accomplish this goal since in most cases the buyer relies on documents, particularly the bill of lading prior to taking possession of the goods. Aims and Objectives: This paper will examine the chain of possession with respect to the goods and the supporting documents. This will necessarily involve exploring the applicable law with respect to the buyer and seller’s obligations and liability as well as the liability and obligations of the courier. The aim is to identify the weaknesses of these laws and to highlight their respective strengths. By taking this approach recommendations can be made for strengthening the current laws so that the obligations and liabilities are fairer and more balanced. Research Questions: The primary research question is: Are the international treaties and conventions sufficient to fairly regulate liability for non-conforming goods in an international contract for the sale of goods? This question will be approached by a series of sub-questions, namely: What are the seller’s and the buyer’s obligations and liabilities with respect to non-conforming goods? What is the courier’s obligations and liabilities with respect to non-conforming goods? Is the law with respect to seaworthiness fair to the courier? Is the law with respect to non-conforming documents under a CIF contract adequate for assigning liability and obligations with respect to the transhipment of goods? What changes if any, can be made to existing laws to ensure that liability and obligations under the international contracts for the sale of goods can be fairer and more balanced. Literature Review: CIF Contracts and Non-conforming Goods An international contract for the sale of goods is usually conducted by virtue of a CIF contract. The CIF contract is characterised by terms providing for the cost, insurance and freight involved in the delivery of goods.1 Tied to this agreement is the seller’s undertaking to provide the buyer with the relevant documents, such as the bill of lading and in each case the documents are provided in the manner agreed between them.2 When the bill of lading under a CIF contract is consistent with the seller’s specification the goods will pass at the moment the documents are tendered. The seller remains under a duty to deliver goods title and to assume liability for defective goods until such time as the goods have been delivered to a courier. Once the goods have been delivered to the courier, the seller’s responsibility for defective goods ceases provided the goods are consistent with the bill of lading. 3 In a typical case the buyer is obliged to receive and accept the goods and all risks associated with the transhipment of the goods the moment the documents relating to the goods under the CIF contract have been tendered. This immediately creates a problem since the: “...the CIF buyer is generally bound to pay on tender of documents, before he has had an opportunity to examine the goods.”4 The law presumes that the goods comply with their description as contained in the documents under the CIF contract. The buyer will not know of any defects until he has received the goods and had an opportunity to examine them and this would have been after he has already paid for the goods and their transhipment. This hardly seems fair since the buyer is required to bear all the costs for the freight, insurance and transhipment of the goods and at the time assume all the risks associated with dispatch, unless the ship is unseaworthy.5 There are two relevant presumptions of law with respect to the international sale of goods under a CIF contract. The first presumption is that the goods will pass according to the contracting parties’ intentions.6 The law also presumes that the contracting parties’ intend that the goods will be consistent with their description as contained in the CIF contract. If at the time of shipment, the goods are not consistent with the description the buyer may reject the goods.7 The buyer’s right to reject the goods will continue: “if there was a quantitative defect in the goods amounting to a breach of a fundamental term or to a breach of condition, or to a breach of an intermediate term which cause him serious prejudice.”8 A fundamental breach would occur in a situation where the goods “were not equal to sample,” or where the goods have “deteriorated in breach of the seller’s implied undertaking” that that would survive a normal journey.9 By taking possession of the relevant documents “all the rights of suit against the carrier” are vested in the buyer.10 Unquestionably the buyer may reject goods if they do not comport with the terms and conditions of the contract for the sale of those goods. This right is not prejudiced by the fact that the goods have not been damaged or are not defective. The goods may be rejected once they are non-conforming.11 Recognizing the futility of this law, the courts have limited the “concept of the description of the goods.”12 In Christopher Hill Ltd. v Ashington Piggeries Ltd [1972] AC 441it was held that if a statement in a contract identifies the goods by referring to “one or more of their essential qualities” that statement is capable of forming a part of the description of the goods.13 Be that as it may: “...an identifying statement will not be part of the description, so that its falsity will not entitle the buyer to reject, where it is a mere substitute for a name.”14 This statement is important for establishing the principle that is a misstatement does alter “the value of the goods” and has no “commercial significance” the buyer is not permitted to reject the goods.15 In Parsons v New Zealand Shipping Co. [1901] 1 QB 548 a bill of lading described lamb carcasses by marks 488X and 622 X although the actual lamb carcasses were marked 388X and 522X instead. The Court of Appeal held that such a discrepancy did not impact the actual value of the goods delivered and that they were ultimately no different from the lamb carcasses described in the bill of lading. The buyer could not in such circumstances reject the goods.16 Guest maintains that this limitation on the buyer’s right to reject goods is an unfair position and can potentially place the buyer in a difficult position if he were to sell the goods prior to taking possession of same.17 Guest goes on to say that ‘a buyer should not be required to accept documents, the marks on which did not correspond with those in the contract for sale, however immaterial the discrepancy might turn out to be.’18 A.G. Guest however, does not agree with the limitation placed on the court with respect to insignificant discrepancies in the description of goods. Guest relies on the doctrine of CIF contracts that documents are required to be either accepted or rejected “promptly” leaving a wide margin of error.19 It therefore follows that: “...such promptness could not be achieved if, in the situation here under consideration, the buyer had to investigate the ‘materiality’ of the discrepancy before exercising his right to reject the documents.”20 In essence under CIF contracts for the sale of goods in International Trade Law buyers and sellers are under a dual duty to comply with both documentary and physical requirements. When a buyer accepts defective documents he does not automatically abandon a right to repudiate the contract in the events the goods do not conform to the contract for the sale of goods.21 Seaworthiness International conventions such as the Hague Visby Rules and Convention on Contracts for the International Sale of Goods function to ensure that the carrier of goods by sea implicitly guarantees that the vessel transporting the goods are seaworthy. Once again the buyer is placed in a difficult position because the burden is on the owner of the goods damaged in transit to prove that the ship was not seaworthy. Only if the owner meets the burden on proof will the burden shift to carrier to prove that he used due diligence to ensure the vessel’s seaworthiness.22 The law with respect to seaworthiness is necessary since as previously discussed the seller’s liability ceases once the goods are dispatched at a port for shipment to the buyer.23 Moreover, should the goods arrive in a nonconforming state the buyer is at liberty to reject them.24 The difficulty with respect to liability obviously arises if the goods were damaged in transit. Since the vendor is discharged of liability upon delivery of the goods at the dispatching port provided they conform to the terms of the contract and are subsequently damaged in transit, the question of seaworthiness arises to determine whether or not the carrier should be held responsible for those damages. Seaworthiness has come to encapsulate a rather broad concept and has been incorporated into Article III rule I of he Hague Visby Rules. Article III(1) imposes upon the carrier of goods a duty voyage to “exercise due diligence” before and at the beginning of a journey to ensure that the vessel is not only seaworthy but also properly manned .25 The Hamburg Rules do not specifically refer to seaworthiness, but the duty to proved a seaworthy vessel is implied by the imposition of liability for all negligence on the part of the carrier.26 William Tetley defines the current broad concept of as follows: “...the state of a vessel in such a condition, with such equipment and manned by such a master and crew that normally the cargo would be loaded, carried, cared for and discharged properly and safely on the contemplated voyage.”27 The duty to provide a seaworthy vessel can be either expressed or implied.28 The implied duty can only be waived by an express clause.29 In a typical case a voyage charter of a bill of lading will not refer to the duty to provide a seaworthy vessel in which case either the Hague Visby Rules or Hamburg Rules which govern the transport of goods from the port of one State to another will automatically apply.30 .31 Article III Rule 1 of the Hague-Visby Rules requires that the ship be seaworthy and the carrier exercises due diligence ensuring that the vessel is seaworthy.32 For the purposes of determining whether or not the ship was not seaworthy it is necessary to determine what is meant by the commencement of the journey since the duty commences from the time of the journey and ends with the commencement of the journey. This raises the question of the lack of protection for the buyer since the duty to provide a seaworthy vessel ends once the journey commences. What then of the main journey? Is the ship owner’s duty to provide a seaworthy vessel at an end once the ship leaves it moorings? This would appear to be the case, but it isn’t. The Hamburg rules and the common law have provided safeguards against such an unjust provision. It is however, evidence of the weaknesses of the law when one convention stops short of extending liability and leaves the question of continuing liability open to interpretation. These are the kind of questions this dissertation intends to investigate. Methodology: This dissertation is legal research paper and much of the material is qualitative and quantitative. It will rely on the findings of the courts in their interpretation of the Hague-Visby Rules and the Hamburg Rules with respect to the transhipment of goods in an international contract for the sale of goods. Established principles of law regulating liability and obligations in the context of international sales’ contract will be drawn from legal texts, cases and academic journals. Research Design: The first chapter of this dissertation will discuss the law with respect to liability under CIF contracts and international contracts for the sale of goods in general. This chapter will offer a critical evaluation of the current laws and expose its weaknesses, strengths and rationale. The second chapter will discuss the issue of seaworthiness and how it is used to divide responsibility for the risk of damages to goods in transit. This chapter will also offer a critical evaluation of the applicable principles of law. Chapter three will examine the relevant provisions of the Hague Visby Rules and the Hamburg Rules. Chapter four will outline the weaknesses of liability with respect to goods under an international contract for the sale of goods. Chapter five will likewise outline the weaknesses of liability under the principle seaworthiness. Chapter six will offer recommendations for changes to both heads of liability. Chapter seven will provide and overview and a conclusion. Bibliography Carr, Indiria. International Trade Law. (Cavendish, 2005). Chauh, J.C.T. Law of International Trade. (London: Sweet and Maxwell, 2005). Christopher Hill Ltd. v Ashington Piggeries Ltd [1972] AC 441. D’Arcy, Murray. Murray, Carole and Cleave, Barbara. Schmitthoff’s Export Trade the Law and Practice of International Trade. (London: Sweet & Maxwell, 2000). Goode, Roy. Commercial Law. (Penguin Books, 2004). Hague Visby Rules. Hamburg Rules. Miles, Richard. Blackstones Sale and Supply of Goods and Services. (Blackstone Press Ltd., 2001). Minister v Materials v World Steamship Company, Ltd. [1952] 1 Lloyd’s Rep. 485. Nova Petroleum International Establishment v Tricon Trading Ltd[1989] 1 Lloyds Rep. 312. Parsons v New Zealand Shipping Co. [1901] 1 QB 548. Phillips Petroleum Co. v. Reardo Smith Line Ltd. [1952] 12 Lloyd’s Rep. 39. Reardon Smith Line Ltd v Hanwn Tangen [1976] 1 WLR 989. Tetley, William. Marine Cargo Claims. (London: Wiley and Sons, 4th Edn, 2008). Read More