The Legal Implication of the Trade Between AFEC and Agro International Corporation - Research Paper Example

i This document contains an analysis of the legal implication of the trade between AFEC and Agro International Corporation under specified terms. The document examines in detail the facts and the issues arising appertaining in the trade, while discussing them in the backdrop of various source lawsii such as English Sale of Goods Act 1979, Contract – the international sale contract, INCOTERMS – lex mercatoria, Governing law – national law, United Nations Convention on Contracts for the International Sale of Goods 1980 (The Vienna Convention). It also considers the significance of the seven essential elements of a contract of sale such as the contract, goods, delivery of goods (physical or constructive), conveyance of title, transfer of risk, price (Consideration), and consequences of breach – contractual remedies in the light of the terms of contract between the two said parties. Contents Abstract 4 The Facts 6 The Issues 6 Opinion 6 About the Contract 6 Evidence of Violations 7 Violations appertaining ‘Duties of the seller’ 7 Frustration of contract 12 Conclusion 12 Bibliography 13 Notes 13 The Facts Whereas, a sale of contract was reached between two parties such as, AFEC Inc, the seller and Agro International Corporation, the buyer, wherein the seller has agreed to sell the buyer under the terms of cif (cost, insurance, freight) Antwerp 50,000 tons of grains of quality x-at, certificate of Grain Quality Control Inc. conclusive at U.S. $ 202.10 per ton. The goods were to be shipped directly between the month of February and March 2009 from the western African port; under English Law. The Issues Now that AFEC Inc shipped on the nominated vessel at Port of Lagos, Nigeria only 50.100 tons of grain. Further, though the shipment of the consignment was completed on Apr 2nd, 2009, AFEC Inc persuaded the master of the ship to issue a bill of lading 31st March 2009. They also successfully persuaded the master to include in the bill of lading both a deviation and a deletion clause; therein AFEC Inc deleted the Rotterdam as the port of discharge and substituted Antwerp in lieu. In addition, AFEC Inc insured the cargo on minimal terms, covering catastrophe losses only, although there were much wider insurances available in the insurance market. Besides, AFEC Inc tendered documents including the commercial invoice, bill of lading and insurance policy to the buyers Agro International Corporation. Thereby created the following violations to the elements of the contract of sale under Sales of Goods Act 1979 and arising the consequent issues: 1. Contract a. Changing the nature of the contract (incorporating and deleting clauses of the contract without consent of the buyer) b. Changing the name of the discharge port without consent of the buyer 2. Goods a. Failure to supply the correct quality certification 3. Delivery of goods a. Failure to supply the contracted quantity of goods b. Failure to load within the contractual period: Breach of condition 4. Transfer of risk a. Failure to undertake appropriate risk insurance Opinion The analysis of the issues and the opinion are appended in the subsequent paragraphs. About the Contract CIF (Named port of destination) Rule Position The seller charges an inclusive price covering the cost of the goods, freight and insurance. T. D. Bailey, Son & Co. v. Ross T. Smyth & Co., Ltd. (1940) 67 Ll. L. Rep. 147 (HL). The terms of the contract is explicit as C.I.F. and not any other variations of it, though there are several variants of C.I.F. contracts exists such as: c.i.f. & c.”: cost, freight and commission. “c.i.f. & e.”: cost, freight and exchange “c.i.f. outturn quantity” Produce Brokers New Co (1924) Ltd v Wray Sanderson & Co Ltd (1931) 39 Ll. L. Rep. 257 (KBD). Soon Hua Seng Co. Ltd. v Glencore Grain Ltd. [1996] 1 Lloyds Rep. 398 (QBD) Observation and opinion The absence of mention of them in the terms concludes that it is a simple C.I.F. contract implying that the seller’s charges include cost of goods, insurance and freight for shipment from port to port. Evidence of Violations Violations appertaining ‘Duties of the selleriii’ Rule position The duties of a seller is to a) to ship or acquire after that shipment goods that conform with the terms of the contract of sale  The seller may: i) actually ship goods, or ii) allocate such goods which he has already shipped T. D. Bailey, Son & Co. v. Ross T. Smyth & Co., Ltd. (1940) 67 Ll. L. Rep. 147 (HL). or iii) buy such goods afloat J. H. Vantol Ld. v. Fairclough Dodd & Jones Ld [1955] 1 W.L.R. 642 (QBD).  Such goods must be of the contract description with respect to the: i) quantity terms such as “approximately”, “more or less” or “about” are acceptable. Payne & Routh v William Lillico & Son (London) (1920) 3 Ll. L. Rep. 110 (KBD)(4000 tons of South African maize meal two per cent. more or less with the option to the seller of shipping a further three per cent) Shipton Anderson & Co v Weil Bros & Co [1912] 1 K.B. 574 (KBD) (weight as per bill or bills of lading … say 4500 tons, 2 per cent. more or less; seller has the option of shipping a further 8 per cent. more or less on contract quantity.”) ii) quality: In includes an implied undertaking that the goods are at the time of shipment in such a condition that they can survive normal transit. Mash & Murrell Ltd. v. Joseph I. Emanuel Ltd. [1961] 1 W.L.R. 862 (QBD). iii) time of shipment. Bowes v. Shand (1876-77) L.R. 2 App.Cas. 455 (HL).  If the contract of sale is for the sale of generic goods, the seller is bound to appropriate goods of the contract description to the contract.  A CIF seller has to give notice of appropriation only if the contract of sale provides so. T. D. Bailey, Son & Co. v. Ross T. Smyth & Co., Ltd. (1940) 67 Ll. L. Rep. 147 (HL). Observation and opinion It is observed that the seller has violated the conditions of the contract on three accounts: (a) Quantity of shipment – 50.100 tons in place of agreed 50,000 tons. (b) Quality of shipment – It fact that the seller has failed to supply the agreed upon certification from M/s Grain Quality Control Inc. implies that the grain supplied are not of the correct quality. (c) Time of shipment – Shipment time was limited to February /March 2009, however, loading was actually completed on April 2nd 2009. Besides, as per the established practice if 70 percent of the loading is completed within the stipulated time, it would be construed to have been intended to be completed within the stipulated time. However, the fact that against a consignment of 50,000 tons, only 50.100 tons were embarked on board the ship. Besides, to load a consignment of 50,000 tons the ship would require at least 7 to 10 days in the Nigerian Port of Lagos given the condition of infrastructure available in the port, the ship must have been available in the port well in advance. The loading of grains was delayed by more than two days and only 0.1 percent of the actual loading could be completed during the entire two months of allocated time. b) to make or procure a contract of carriage, under which the goods will be delivered to the destination contemplated in the contract and procure a proper bill of lading Rule position  The bill of lading must: Be valid and effective as a contract of carriage and as a document of title at the time of tender. Arnhold Karberg & Co v Blythe Green Jourdain & Co [1916] 1 K.B. 495 (CA). State that the goods have actually been shipped and not merely that they have been received for shipment. Diamond Alkali Export Corp. v. Fl. Bourgeois [1921] 3 K.B. 443. Be issued “on shipment” without undue delay and in accordance with the usual course of business. Hansson v. Hamel & Horley [1922] A.C. 36 (HL) Be genuine: Examples of bad tender: i) Bills of lading issued in respect of goods which have never been shipped. Hindley & Co. Ltd. v. East Indian Produce Co. Ltd. [1973] 2 Lloyd’s Rep. 515 (QBD) ii) False date of shipment James Finlay & Co Ltd v NV Kwik Hoo Tung [1929] 1 K.B. 400 (CA). Be unaltered SIAT di del Ferro v Tradax Overseas SA. [1980] 1 Lloyd’s Rep. 53 (CA). Provide for the carriage of the goods to the destination specified in the contract of sale S.I.A.T. did al Ferro v. Tradax Overseas S.A. [1980] 1 Lloyd’s Rep. 53 (CA). Route of shipment: Absent an agreement in the contract of sale, i) “usual and customary” route at the time not of the contract of sale but of the shipment. ii) In the absence of such a “usual and customary route,” the seller must ship the goods by any route that is “reasonable and practicable” Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] A.C. 93 (HL). Observation and opinion The following observations are made with respect to the bill of lading: (a) The seller colluded with the master of the ship and issued a bill of lading two days prior to completion of shipment i.e., April 2nd 2009. As per the contract the loading should have been actually completed by March 31st 2009. (b) The seller also successfully persuaded the master to alter it to include in the bill of lading both a deviation and a deletion clause; therein AFEC Inc deleted the Rotterdam as the port of discharge and substituted Antwerp in lieu. Figure 1: the seller deviated The port of discharge from antwerp to rotterdam without consent of the buyer c) obtain a policy of insurance against all the usual risks upon the terms current in the trade which will be available for the benefit of the buyer. Rule position  The insurance policy must: Be Effective (valid contract): It may satisfy this requirement even though it does not cover the actual loss which has occurred. Groom v. Barber [1915] 1 K.B. 316. It is NOT effective if it is voidable by the insurer on the grounds of misrepresentation or non-disclosure, or for breach of warranty, unless it has been affirmed by the underwriter. Cantiere Meccanico Brindisino v. Janson [1912] 3 K.B. 452 (CA). Cover all the usual risks upon the terms current in the trade (No need to cover every risk) Law & Bonar, Ltd. v. British American Tobacco Company, Ltd. [1916] 2 K.B. 605. Cover the contract goods and no others Manbre Saccharine v. Corn Products [1919] 1 K.B. 198. Provide for continuous cover from shipment to the c.i.f. destination specified in the contract. Belgian Grain & Produce Company, Ltd. v. Cox & Co. (France), Ltd. (1919) 1 Ll. L. Rep. 546 (CA) Lindon Tricotagefabrik v White & Meacham Be available for the benefit of the buyer Be Assignable by indorsement under S. 50(3) of the Marine Insurance Act 1906, so that the buyer can take benefit and transfer the benefit when he sells the goods. Diamond Alkali Export Corp. v. Fl. Bourgeois [1921] 3 K.B. 443. Observation and opinion The following observations are made with respect to the insurance cover: (a) The seller provided insurance cover for catastrophic losses only and failed to cover the usual risks under the terms of the trade, which could have fire, spoilage and so on. The fact that there are better insurance covers available in the market, yet the seller chose to provide only the minimal cover. d) to tender the commercial invoice, the bill of lading and the insurance policy (usual documents) to the buyer – Conforming documents Rule position In accordance with the terms of the contract (express or implied) Toepfer v. Lenersan-Poortman NV [1980] 1 Lloyd’s Rep. 143 (implied-payment against documents) or within reasonable time after the goods have been shipped or (in case of goods sold afloat) after the seller has “destined the cargo to the particular vendee or consignee” Sanders Bros v. Maclean & Co. (1882-3) L.R. 11 QBD 327. Biddell Bros v E Clemens Horst Co. [1911] 1 K.B. 214.  The seller must tender the insurance policy even though the goods have actually arrived unharmed. Orient Company, Ltd v. Brekke & Howlid [1913] 1 K.B. 531.  Unless otherwise agreed, the seller does not perform his obligations by tendering i) a certificate of insurance Diamond Alkali Export Corp. v. Fl. Bourgeois [1921] 3 K.B. 443. ii) a broker’s cover note Wilson, Holgate & Company, Ltd v. Belgian Grain and Produce Company, Ltd. [1920] 2 K.B. 1. The commercial invoice shows the price and usually contains a deduction of the freight which the buyer pays before delivery at the port of discharge.  The seller is NOT obliged actually to deliver the goods at the agreed destination. Bowen Bros v. Little (1907) 4 C.L.R. 1364. Manbre Saccharine v. Corn Products [1919] 1 K.B. 198. He is only under a negative duty not to prevent delivery of the goods to the buyer by for example diverting them elsewhere or by ordering the carrier not to deliver them to the buyer. The Rio Sun [1985] 1 Lloyd’s Rep. 350 (QBD). → A seller who tenders defective documents is entitled to make a second tender of documents and goods meeting the contractual description before the end of the time allowed for tender provided that the second tender is not inconsistent with the contract of sale. Borrowman Phillips & Co. v. Free & Hollis (1878) 4 Q.B.D. 500 (CA). Obtain export licence, if required (general rule) See for instance GAFTA CIF contract para. 12 Observation and opinion The following observations are made with respect to the conforming documents: (a) As per the terms of the contract the buyer demanded a certificate of quality from M/s Grain Quality Control Inc. has not been supplied to them. The seller however has supplied other usual documents such as the commercial invoice and the insurance policy and the bill of lading, two of them albeit with serious deficiencies. Frustration of contract The C.I.F contract is not frustrated since it does not meet any of the conditions required for frustration of the contract such as: (a) destruction of goods before shipment, (b) operations becomes impossible (c) breakdown of diplomatic and commercial relations. Conclusion The seller had a clear intention of doing a fraudulent transaction with the buyer since the seller must have very well known about their inability to supply the large quantity of grains with the specified quality specifications within the stipulated time at the agreed upon cost, but failed to intimate the buyer sufficiently and well in advance. The seller has to be sued for breach of contract and consequently heavy penalty should be imposed on him. Bibliography Jason Chuah, Law of International Trade Cross Border Commercial Transactions (Sweet and Maxwell, 4th Ed), paras 2.04-2.06. Roy Goode, Commercial Law, (3d ed) Chapter 11 Wikipedia. FOB (shipping). wikipedia. [Online] [Cited: 05 January 2010.] http://en.wikipedia.org/wiki/FOB_(shipping). Export 911. International Commercial Terms (INCOTERMS) . www.EXPORT911.com. [Online] [Cited: 05 January 2010.] http://www.export911.com/e911/export/comTerm.htm. Liberty-tree.ca. Famous Quotes and Quotations about Trade. Liberty-tree.ca. [Online] [Cited: 05 January 2010.] http://quotes.liberty-tree.ca/quotes_about/trade. 1998-2008 Liberty-Tree.ca. UB Libraries. Internatioal Trade. UB Libraries. [Online] [Cited: 05 January 2010.] http://library.buffalo.edu/asl/guides/busdoc/intl_trade.html. Sale of Goods Act 1979 Notes Read More