The Rotterdam Rules and the United Nations Convention - Math Problem Example

Part A Rotterdam Rules The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, more popularly known as the Rotterdam Rules’ was signed in Rotterdam, the Netherlands on September 23, 2009 by sixteen nations. The convention covers the obligations and rights involving carrying goods through the sea route. This convention gives more clarity regarding the responsibility of all the stakeholders involved in maritime transport and also defines the extent of these responsibilities in detail. It is expected that the convention would help in saving money and resources. The convention comes into existence to replace some old and out-dated conventions such as the Hamburg Rules, Hague-Visby Rules and the Hague Rules1. In these old conventions, features such as carrying products in containers and transferring data electronically were not included, which resulted in various gap areas in law. As it is being found that around 90 per cent of the shipping is done in international waters, national laws might not be sufficient to govern any dispute arising from international shipping or transportation of goods. Therefore, the need for a new convention was felt that would be in line with the current environment of the international shipping industry.1 The Rotterdam Rules are considered to be the first rules that also includes regulations regarding carrying of goods through land, along with the sea route. Previously, the carriage of goods by land required creating separate contracts. Further, the rules also demarcate the responsibilities of each stakeholder in the entire process in a clear and detailed manner. Also, taking into consideration the growth in e-commerce, the convention has also included infrastructure needed to develop e-commerce in the maritime industry. This would further help in decreasing the time involved in doing paperwork as well as cut costs and reduce errors.2 The rules came into existence due to the negotiations between various governments of the world that took place during 2002-2009. The United Nations later adopted the convention on December 11, 2008. Experts believe that the Rotterdam Rules would provide a boost to the world trade as more than 80 per cent of the trade world over is done through the sea route. Therefore, if a uniform law is applied throughout the world, it will help in facilitating global trade by making the process of documentation and contracts easier and efficient. However, the convention received mixed reviews from the maritime industry and many countries have still not signed the treaty2. Some of the anticipated benefits that the treaty would help in deriving are as follows: Updating outdated regulations: The convention would help in updating the outdated regulations of the Hamburg Rules, Hague-Visby Rules and the Hague Rules. Single contract: As per the current regulation, companies need to draw out separate contracts for each mode of transport i.e. separate contracts are signed for air, sea and road routes. However, with the Rotterdam Rules, the companies may only sign a single contract which would cover everyone in the supply chain.1. Demarcated responsibilities and liabilities: The convention also creates clear demarcation of roles and responsibilities for each stakeholder in the entire transportation process. At every stage of the transportation process, the convention clearly defines the responsibilities assigned to each person at that time. This is an improvement from the current law, wherein such demarcation is not being done. Further, due to increase in trade due to globalisation, it has been found that various third party vendors are also involved in the process and supply chain, especially looking after the container services. Therefore, these third parties are also considered to be equally responsible in the entire process and are also liable for any theft, damage or delay. The roles and responsibilities of the shipping company as well as the carriers are also defined clearly in this convention.1 In case a ship is stranded or the goods are stolen or damaged, the convention states very clearly who would be responsible in such a situation. As per the old conventions, the third parties involved in the shipments, such as the stevedores, might not be responsible in such a situation. However, the Rotterdam Rules specifies that even the third party vendors would be responsible for the safe delivery of the goods. The convention also states that the goods should be loaded in a proper manner in the trailers and containers so that they can endure the sea journey without any damage to the goods. This would ensure that in case of any claims, the procedure is conducted in an easier manner. Further, the contact details of the carrier should be given clearly in the transport document as well1. Economic commerce: These rules also establish the legal infrastructure for the creation and implementation of e-commerce protocols. This includes the filing of documentation electronically, especially in maritime transportation. It is believed to organise the flow of products and goods as well as cut costs and reduce errors. Further, the communication system between the shipping company, regulator and consignees would also become more efficient and actions could be taken instantly in case of any issues. However, the rule might become ineffective, if is only restricted to converting various documents such as shipment manifest, invoices etc. into XML formats. Instead, the convention should look at using various other formats like the EDIFACT or ANSI or other such currently used networks which would help in minimising disrupting the process2. Interoperability: Although, the convention has been ratified by many big trading countries such as the US, Spain, Poland, Norway, the Netherlands, France, Denmark etc, still a lot of maritime nations like the UK, Australia, Singapore etc are not yet part of the treaty. This may result in interoperability and the aim of the treaty to provide a unified law regarding transportation of goods worldwide may not be possible to achieve. The convention is still not being ratified in a uniform manner. It is still not being implemented or adopted by every nation. In fact, many of the associations and industry groups have also raised their concerns about the convention. The International Road Transport Union for instance is worried that the convention would pose severe threat to the existing harmony in the laws that govern the transportation industry. Similarly, the European Shippers’ Council also stated that the convention might put the shipping companies in a far worse condition then they were put during the implementation of the Hague Rules. Thus, although, the Rotterdam Rules are looking at overhauling and simplifying international trade process at a long term basis, it could be said that in the short term, it might pose certain risks to the supply chain2. Part B BTC vs. FBN case study In this case study, Bad Taste Clothing Pty Ltd (BTC), a trading company based in Melbourne, entered into a contract of sale with Fly-By-Night Ltd (FBN), an Indian company, for the importation of 10,000 T-shirts in January 2010. FBN was supposed to export the T-shirts by March 31, 2010 at the cost of US$ 1 per unit. BTC effected the payment through an irrevocable letter of credit from Don’t Borrow Bank (DBB) and applied for the issue of an irrevocable letter of credit to the value of USD $10,000 in favour of FBN. DBB agreed and issued an irrevocable letter of credit obliging it, upon the receipt of certain documents indicating shipment of the goods pursuant to the contract, to accept and pay bills of exchange drawn upon DBB for the purchase price of the T-shirts. However, after receiving a confirmation through the letter of credit, FBN instead told BTC that it would not be able to manufacture the goods on time and wanted extension till May 10, 2010. BTC refused to give extension as it had prior contractual commitments. Following this, DBB received the documents from FBN which were in order and therefore, DBB agreed to issue the letter of credit. However, BTC received only 5,000 T-shirts, which were also of poor quality. This has been clearly a case of misrepresentation and the BTC has been taken for a ride by FBN. FBN has not only sent wrong documentation with forged figures, it has also cheated BTC by giving it only half the consignment and that too of a bad quality. In this case, BTC has a number of options to look at. It can either look at claiming insurance for its goods or undertake a dispute resolution with FBN. Insurance claim: Even before claiming for insurance, the company needs to understand a few nuances of insurance claim. First of all, it is important to find out who exactly is responsible for the damage of the product. The party who is claiming for insurance is called Claimant and this party should be first Assured i.e. the Claimant should be able to establish insurable interest for being Assured. In order to establish who exactly has insurable interest it is important to study the terms of purchase that is being agreed upon between the buyer and seller3. In this case as, BTC is the claimant as it has suffered the loss. BTC has already processed the payment of US$ 10,000 through a letter of credit from DBB to FBN. However, the goods received by BTC are of inferior quality and would not sell in the market. This means the company would have to bear the loss of US$ 10,000. Thus, BTC can file for insurance claim stating that the goods received from FBN were of inferior quality and would not sell in the market. However, it should also be noted that as a letter of credit has been issued by the bank in this case, therefore, DBB would also have insurable interest in this case. This insurable interest of DBB can be established from the fact that the delivery of cargo was not in order as per the documents given by the supplier. Dispute settlement: In this case, it is more likely that BTC would opt for dispute settlement as it also concerns the reputation of the company at stake due to its other business agreements which would be impacted due to this faulty consignment. The company first of all needs to understand the dispute resolution system. It is a system that defines the individual obligations and rights of the concerned parties that are conducting international trade. This kind of a system provides credible and secure trading system between two or more nations. There are many ways to resolve a dispute, which can be either formal or informal process. The aim of such a system is to solve a dispute in an amicable manner4. It has been seen that in most cases dispute takes place as the terms of the business transaction is not fulfilled by either of the parties and one of the parties might have failed in fulfilling its obligations. For instance, in this case, FBN has not been able to fulfill its commitment to supply good quality T-shirts of 10,000 units. Instead, it only provided 5,000 T-shirts and that too of inferior quality. BTC may choose from an array of dispute settlement system in order to resolve this issue. It can either go through the process of negotiation, arbitration or litigation. Types of dispute resolution Negotiation: It can be conducted either through mediation or appraisal. In the mediation process, the two parties would either sit-across the table or over other means of communication would talk about the terms and conditions of the entire consignment and try to negotiate a deal. In most cases, a third party or a neutral candidate is also employed to ensure that a fair deal is chalked out. This third party assists the companies to settle the dispute and come out with a solution that would be agreeable to both the candidates.5 Another process in negotiation is through appraisal, wherein, an expert is employed to study the situation and provide his opinion on the matter. The expert analyses the situation in an independent and objective manner and provide a reasonable solution. Just like mediation, the outcome of the appraisal process would also depend on the parties themselves and whether they consider this outcome to be binding or not.5 In this case, BTC may engage into initial dialogues with FBN and try to chalk out a deal with them. As BTC is already into other business deals based on this consignment, it might loose not just more money but reputation if this deal is not conducted well. Therefore, BTC might try to find a middle way through FBN. BTC may ask FBN to provide it with a fresh consignment. BTC can also employ a team of lawyers to help in mediating in the issue and preparing an appraisal. Arbitration: Arbitration is much more a complex process than negation. In this, the matter would be settled by a third party who is neutral in nature and has the authority to resolve such disputes. This third party could issue binding results that may assist the two parties to settle the disputes. This is considered to be a more formal process. It is very much like the adversarial system, although, it is much quicker to conduct. Further, it can be done in private and is less formal.6 In this process, the arbitrator would hear the appeal of both the parties and go through the evidences provided by each party to understand the situation and determine a solution for the dispute. The outcome from this process is binding. The jurisdiction of the arbitration is dependent on the original agreement signed by the parties, which states the place wherein arbitration could take place. Further, the original agreement would also state the language and the rules that would govern regarding the arbitration. However, arbitrators do not have any judicial authority. Arbitral tribunal can only be conveyed in case the parties agree for one6. In case the initial negotiation between BTC and FBN fails, BTC can opt for arbitration, as it is less expensive than litigation and more formal than negotiation. Arbitration also is binding which would provide some formal appeal to the entire case. However, BTC should first check its original agreement and find out the place that they had agreed upon to hear for an arbitration case. If the arbitration has been agreed upon to take place in Australia then only BTC should think of such a process, as taking arbitration to India would be a costly affair for the company. Litigation: Litigation is a formal court hearing, wherein the case is being heard in a formal court setting and binding outcomes are awarded at the end of the litigation. It is considered to be more adversarial than the arbitration or negotiation process. In this process, both the parties present their cases formally in front of judge. These parties are represented by a legal counsel. The legal counsels present the cases of their clients. Based on the evidences provided to the court by the counsels, the judge awards a judgment that is binding and both the parties have to abide by it (Mattli 2001). In case even the arbitration fails to succeed, BTC may want to go for a formal litigation case against FBN. BTC may register FBN for forgery as well, as FBN had provided incorrect documents to the bank to get the money sanctioned for its goods. However, BTC should also keep it in mind that litigation might take a long time to resolve and is a very expensive affair. Resolution of dispute in an international set-up An international dispute is much more complex and complicated to solve than a domestic one. In a domestic case, both the parties are from the same country and only one law of the country where the case is being held is applicable. Whereas, in case of an international dispute, it becomes tough to first of all determine the place where the case could be fought. Further, the character of a litigation that is being fought in an international arena is also difficult to define as the authority of a court in such cases is not clearly etched out. Moreover, as the case would involve companies from two different countries, there is a possibility that the defendant might not be from the jurisdiction, in which case the competence of the court can also be questioned. Also, it becomes difficult to carry out the judgment as well7. In an international dispute, various cultural and other such issues are also required to be looked at. Further, every country has a different system of dispute resolution. For instance, in the Western countries, adversarial system is used for dispute resolution, whereas, in non-Western countries such as Asia, the dispute might be resolved through informal methods. Often, litigation is avoided in many non-Western7. In this case as well, BTC should try to avoid going into litigation with FBN as it is an Indian company and is ruled by Indian law and regulation, which prefers to solve an issue outside the court through mutual settlement rather than going into the length and often expensive process of litigation. References: Thomas, D. Rhidian, “And then there were the Rotterdam Rules”, Journal of International Maritime Law, 14, 189-190, 2009. Van Der Ziel, Gertjan, “Chapter 10 of the Rotterdam Rules: Control of Goods in Transit”, Texas International Law Journal, 44, 2009. David, Rene, “Arbitration in International Trade”, Deventer, Netherlands and Boston, MA: Kluwer Law and Taxation Publishers,1985. Mattli, Walter, “Private justice in a global economy: From litigation to arbitration,” International Organizations, 55 (4), 919—947, Autumn 2001. Ramey, Garey and Joel Watson, “Contractual Intermediaries,” Journal of Law, Economics, and Organization, 18 (2), 362—384, October 2002. Fiorentino, R.V., Verdeja, L., and Toqueboeuf, C., “The Changing Landscape of Regional Trade Agreements: 2006 Update”, World Trade Organization Discussion Paper No. 12, 2006. Perroni, Carol and John Whalley, “The New Regionalism: Trade Liberalization or Insurance?” NBER Working Paper No. 4626, Cambridge, MA: National Bureau of Economic Research,1994. Read More