Commercial Law for Regulation International Sale of Goods - Case Study Example

Commercial Law: International Sale of Goods 1 Introduction The problems at hand, involve sale of goods entered into by parties from different states, although both parties are Member States of the European Union. There are various international laws that govern international transactions of sales of goods like the United Nations Convention on International Sale of Goods 1980 (CISG), the United Nations Convention on the Carriage by of Goods by Sea Act 1978 (COGSA), the Uniform Law on International Sale (ULIS) of 1964, Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF) and Directive 1999/44/EC or the European Union Sale of Consumer Goods and Associated Guarantees 1999, since both parties are Member States of EU, the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading of 1924 as amended by the Brussels Protocol 1968 (or the Hague-Visby Rules), the UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea or the Rotterdam Rules, for short, which is said to take over COGSA very soon. There is also the Rome Regulation also known as Regulation (EC) No 593/2008 of the EU Parliament on the Law applicable to Contractual Obligations. Domestically, UK has the Sale of Goods Act 1979 (SGA). The UK, however, is not a signatory to the CISG, the COGSA although it has enacted into domestic jurisdiction the Carriage of Goods Act 1971 and 1992, or to the Rotterdam Rules. Italy, on the other hand, is not a signatory to the CISG or the COGSA. Both are members of the International Institute for the Unification of Private Law (UNIDROIT), under which both the ULIS and ULF were established. The Hague-Visby Rules, which was entered into by states including Italy and UK in Brussels, provides important definitions of basic terms. According to it, a “carrier” refers to the owner or charterer who enters into an agreement with a shipper for the purpose of transporting goods, “contract of carriage” refers to an agreement represented by a bill of lading or the like, the moment of issuance of which immediately begins the regulation of the relations between the carrier and the shipper, and “carriage of goods” refers to the period from the moment the goods are loaded into the ship until the same goods are unloaded off the ship.1 2 The Case of Hilda In the first problem, Hilda, the buyer, is confronted with a case of 5,000 cans of olives which became rusted, while being transported aboard the ship Maid of Hampshire, due to sea water seeping through the ship’s leak and 5,000 other cans of olives whose content are rendered useless because of holes in their seals. The significant facts of the case are: Franco, the seller, is either a resident of Neapolitan, Italy or has established his place of business there; Hilda lives, resides or has her place of business in Southampton, UK, and; the carrier Maid of Hampshire is presumably a UK ship from its name and place of destination. The issues here should be: whether or not Franco is liable for the damages of the olives; whether the Maid of Hampshire is likewise liable, and; whether the law of Italy or UK should prevail in this case. 2.1 The Liability of Franco Since both parties are either citizens or residents of Member States of the European Union, resort must be had to what EU law is on the matter of conflict of laws. The first law that comes to mind is the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the Law Applicable to Contractual Obligations (Rome I) or simply the Rome Convention of 1980, which is the EU law governing contracts and obligations with inherent conflict of laws written into them because parties are nationals of different states within the EU. In fine, the aforesaid EC Directive gives guidance on which law should govern a contract where the parties and the transactions take place in different jurisdictions within the EU. Generally, the directive provides that the applicable law, in a conflict of laws situation, is the law of the place that was agreed to by the parties at the time the contract was entered into. This should have been explicitly made by the parties either by including it in the terms of the contract or can be inferred by the circumstances of the case and the parties can even make a combination of choices by making certain terms governable by the law of a country and other terms by the law of another, 2 and may even eventually choose to change the original choice and replace it with another. 3 This is not however, the case here as the facts of the case do not refer to any choice of law which should govern the parties in the event of a contest. In such a case the same EC Regulation provides that the law of the place where the seller habitually resides shall govern the contract in the absence of an express choice of the parties, subject to two articles s. 5 on contracts of carriage and s. 8 on employment contracts. 4 Applying the above provisions to the problem at hand, the applicable law of country applicable to the case of Hilda and Franco, so far as their contract of sale of goods is concerned is that of Italy. Since both the UK and Italy are also Members of the International Institute for the Unification of Private Law (UNIDROIT), which had prepared the Uniform Law on International Sale of Goods (ULIS) in 1964, the provisions of the said must also be examined. The relevant provisions are: Article 33 (1)(e) and (f), which provides that there is lack of conformity on the part of the seller if the goods handed to the buyer lack the quality important to their commercial or ordinary use, and that suck lack of conformity is also true if the goods delivered, in general, do not have the quality or characteristics that were contemplated or implied by the contract. Hilda must give notice to Franco of the fact of the lack of conformity of the goods by reason of the flawed seals of the cans rendering the contents thereof useless for the original use for which they are intended. This is axiomatic on the part of Hilda, that a prompt notice be given to Franco from the time she discovered the defects in the goods, otherwise she will lose her right to dispute the delivery of the goods, in accordance with Article 39 of the ULIS. The same law allows Hilda a range of remedies under Art 41 from specific performance, avoidance of the contract with reimbursement and reduction of price. Claim for damages may also be resorted to under the same provision. 2.2 The Liability of the Carrier The contract of carriage between Franco and the Maid of Hampshire is governed by Article 5 of the Rome Convention. The said provision states that in the absence of an express choice by the parties, the applicable law is the law of the country of the carrier subject to the condition that such country is also the place of residence or habitual residence of the consignor or sender. Absent those requirements, the applicable law is the law of the place where the goods are to be received or delivered. 5 Applying this provision to the problem at hand, the applicable law to the contract of carriage between Franco and the Maid of Hampshire is the UK law. The UK law on the matter is the Carriage of Goods by Sea Act 1971, which adopted the Hague-Visby Rules to its jurisdiction in the carriage of goods by sea. The aforesaid law specifically states in s. 8, Article 3 thereof that “Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from any liability for loss or damage to, or in connection with, goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability other than as provided in this Convention, shall be null and void.” The implication of this provision is that the term in the bill of lading referring to the non-liability of Gordon in case of damage to the goods caused by the master and the crew is null and void, since the same article obliges the carrier to ensure, among others, the sea worthiness of the ship and all its parts fit to hold the goods safely and in good condition. 6 The bottom line is that Gordon can be held liable for half of the numbers of the cans containing olives which sustained damage due to the rust caused by seawater seeping into the ship through the leak. The sale of goods, according to the problem, was a c.i.f. which means that the price of the contract includes the cost, insurance and freight. A c.i.f. seller, therefore, has five obligations to the buyer: shipping the goods; arranging the transportation of the goods to the buyer; taking an insurance covering the goods while in transit; drawing an invoice to the buyer, and; tendering the same to the buyer. 7 In addition, The Carriage of Goods by Sea Act 1992 (COGSA UK 1992) provides any person holding the bill of lading lawfully shall be deemed to be the transferee of the rights under that document as if he were the original party contracting. 8 The implication of the aforesaid is that Hilda is subrogated to the rights originally held by Franco considering that she has lawfully possessed the bill of lading covering the shipment of olives. She can therefore claim under the insurance taken by Franco on the goods or go after the carrier for the damage sustained by the 5,000 cans of olives on the ground of the negligence of the carrier on the ground that the bill of lading proved that the cans of olives were in good condition at the time they were loaded for shipment but did not arrive at the port of destination in the same condition. The subrogation of the rights of the original shipper to the indorsee with respect to the terms and conditions reflected in the bill of lading is illustrated in the case of Leduc & Co. v. Ward [1888] 20 QBD 475. In that case, the ship made a deviation to Glasgow in what was originally a Fiume-Dunkirk route voyage and in the process sank her cargo. The deviation precluded the carrier to make use of the exemption available to him under the excepted perils clause and instead relied on the defence of prior knowledge of the original shipper although the same was not reduced into writing. The Court of Appeals sided with the indorsee on the ground that the bill of lading negotiated to the latter by the original shipper constituted the contract of the transaction between them. Since the pre-contractual agreement between the original shipper and the carrier was not reduced into writing and noted in the bill of lading, the indorsee had no knowledge of the same and therefore was not bound by it. The important point asserted in this case is that a bill of lading is the contract between the parties specifically referring to the earlier contract of carriage entered into by the shipper with the carrier and that it is therefore presumed to contain all the terms and conditions of the goods and attendant clauses of the transshipment at the time they were loaded into the ship. 3 The Case of Ian In the second problem, Ian was sold a transshipment of 400 sacks of Arborio rice by Franco who had earlier shipped 400 25 kg. sacks of Arborio rice aboard the Maid of Hampshire. The said carrier issued to Franco a set of three bills of lading for the shipment, made specifically deliverable to him in a place yet to be assigned by Franco but within the South of England and for the freight to be payable on discharge. The bill of lading also made reservations as to the right of the carrier to transship the sacks to another carrier if so warranted and in such an event, will not shoulder any liability for them. The issue here is that Ian, who bought the transshipment from Franco and is holding one of the three bills of lading, is confronted with a falling market price of the rice. The issues here are: whether Ian might have the option to refuse delivery of the rice and be reimbursed of the money he paid or accept delivery but be reimbursed of the money he paid to the extent that they exceeded the present market price of the rice. 3.1 The Nature of the Document Issued by the Maid of Hampshire A bill of lading may be negotiable or not negotiable. This is important to distinguish at this juncture to understand if Ian has still options to save himself from his present predicament. A negotiable bill of lading must, like most negotiable instruments, have the words in them that signify negotiability like “bearer” or a specific person or to “his order.” In the earlier case of Hilda, the bill of lading contain the words “to be delivered to Franco or his order” but in Ian‘s case, the bill of lading states that the goods are deliverable to Franco without any qualification. The bills of lading issued to Franco with respect to the sacks of rice is called a straight bill of lading or a sea waybill and is defined as a document that is issued by a carrier to acknowledge the receipt of goods for transshipment from one port to another but which document is non-transferable and non-negotiable. 9 Likewise, the COGSA (UK) 1992, refers to a sea waybill as a document, which is not a bill of lading but merely a receipt for goods evidencing a carriage of goods where the identity of the person to whom the goods are to be delivered is named. 10 As a matter of fact, the sea waybill document need not be presented at the time of claiming the goods because the consignee has only to present his or her identification since the consignee’s name is already noted in the records of the carrier and since it is not a document title it does not come within the ambit of Hague Rules, the Hague-Visby Rules, or the COGSA (Burnett & Bath 116). Applying it to the case at bar, the bill of lading held by Franco is non-negotiable and therefore cannot be negotiated by themselves. The sacks of rice cannot be negotiated while in transit and can only be redeemed by Franco himself since he is the one named in the bill of lading. Ian can cause the rescission or avoidance of the sale because Franco failed to perform his obligations under the contract, which is to deliver to Ian the goods. At the rate, Franco handled the transaction between the two of them, Ian will never get to take possession of the sacks of rice because he is not the named consignee under the sea waybill. In addition, the document likewise declared that the freight will be paid upon the discharge of the goods, implying that the freight has not yet been paid as of the time Franco entered into a contract with Ian. Yet, the sale was a c.i.f. one which means that the price that Franco quoted and which Ian paid was supposed to have already included the cost, insurance and freight. The implication is that Franco deceived Ian. This supports that Ian can rescind or avoid the contract since there was already breach by Franco himself. References: Baughen, S. (2004). Shipping Law 3rd Edition, Routledge. Burnett, R. & Bath, V. (2009). Law of International Business in Australasia 4th Edition, Federation Press. Carriage of Goods by Sea Act 1971. Opsi. http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1971/cukpga_19710019_en_1. International Convention for the Unification of Certain Rules of Law relating to Bills of Lading. Klotz, J. (2008). Power Tools for Negotiating International Business Deals 2nd Edition, Kluwer Law International. Leduc & Co. v. Ward [1888] 20 QBD 475. Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the Law Applicable to Contractual Obligations (Rome I). The Carriage of Goods by Sea Act 1992. Opsi. http://www.opsi.gov.uk/acts/acts1992/Ukpga_19920050_en_1. Uniform Law on International Sale (ULIS) of 1964. Uniform Law on the Formation of Contracts for the International Sale of Goods. Read More