Legal Rights and Liabilities - Assignment Example

International Business Law Name of Student: Student No: Date: Name of Supervisor: Question 1 Legal Rights and Liabilities ‘A contract for the sale of goods’ can be defined through articles 30 and 53 of the CISG. The former states that: ‘The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.’ While article 53 states that: ‘The buyer must pay the price for the goods and take delivery of them as required by The contract and this Convention.’ The bilateral nature of the legal transaction is what defines a contract of sale and it implies that both contracting parties are obligated and commit themselves to a performance. This performance is pursuant to the other party also fulfilling their obligations as illustrated in the Bricks Case (Viscasillas, 2005). Sales law outlines the obligations of each party, but the rights are implied by the obligations of the opposite party. Therefore articles 30-44 which outline the obligations of the seller would inversely imply the rights of the buyer. The obligations of the buyer as outlined in articles 53- 60 outline the rights of the seller (Enderlein, 1996). Failure of a contracting party to fulfil its obligations as outlined in the contract can result in the non-breaching party to seek remedy under CISG. The main remedies outlined as provided by CISG are that: The right to require performance. Article 25B outlines when a fundamental breach has occurred which involves significant failure to meet expectations, etc. Conformity of goods as outlined in article 35A and 35B which covers the quality, quantity and description of goods as outlined in the contract. Article 47A which provides for fixing additional time to meet the requirements for performance. This is the buyer’s right. Article 49A covers the buyer’s right to avoid contract and what the grounds for avoidance are. Section 84A covers the seller’s obligation to refund price and what interest must then be paid. The first breach of contract was the ten day delay engendered by PhilOre’s bank being late with payment of the letter of credit. Article 59 provides for the right of the seller to demand performance of the contract from the buyer. Should the buyer, in this case PhilOre, delay performing the contract through the ten day delay occasioned by the bank, resorting to legal redress would perhaps have been unfeasible due to value of time. This is especially so where the buyer failed to provide a letter of credit in time. It is not really a clear cut case of fundamental breach of contract and therefore does not justify avoidance of contract as stated in article 60 (1) (a). Avoidance of contract can only take place if the seller, i.e. Northwest Mining can prove that substantial detriment resulted from the failure to perform and the buyer, that is, PhilOre could have anticipated this result. A banking delay is a situation which could have been anticipated by PhilOre and that probably makes them liable to pay for the damages incurred by Northwest Mining in form of bank charges. However, Northwest also delayed shipment by 14 days, under the guise of the letter of credit delay but really due to plant failure that caused a delay of ten days. According to article 45 (1) (b) and 61 (1) (b) of the CISG, the injured buyer and seller are able to claim damages stated in articles 74-77 under the proviso that the opposing party fails to honor their part of their agreement. These articles are made up of Section II of Chapter V of Part III, that provide for what damages are liable to the aggrieved parties. These provisions are exhaustive and eliminate the need for recourse to the domestic law (CLOUT Case No. 345). Article 74 outlines the general formula that can be used in all cases where the injured party is permitted to receive some compensation. It encompasses damages resulting form breach of contract including loss of profit as a result of the breach in the cases where these losses were predictable by the breaching party at the conclusion of the contract. The third breach of contract involves Northwest Mining shipping on 20,000 tonnes of the 25,000 agreed upon due to factory failure. This caused PhilOre to make a subsequent order for 5000 tonnes of iron ore at an additional cost of $1.5m in spite of Northwest’s offer to supply the balance through their subsidiaries in Taiwan. The type of contract signed between the parties would determine whether or not this constitutes a fundamental breach of contract. If the contracting parties had agreed that in case one party breaches the contract then the other is free to terminate the contract, then strict adherence to the contract is critical and any contractual deviation as seen above, would fall under the aegis of fundamental breach. This is outlined in Article six of the CISG. In the absence of explicit profession of this proviso, the duty of strict compliance is implied in the language of the contract, the prevailing conditions, tradition, usage or a way to resolve the issue (Welser, 1985). Only 20,000 tonnes were shipped against an agreed upon 25, 000 tonnes. Northwest did give offer to cure (Schneider, 1989) but PhilOre opted to avoid contract by getting the deficit through another source, at extra cost. The issue then becomes, since Northwest did offer to cure at no extra cost or convenience to PhilOre, this implies that they are not liable for the extra costs incurred. The second shipment was delayed for one week due to unforeseen circumstances. This means that the sellers are not liable or in breach of contract. However, where there has been specific mention of quality of goods such as the 63.5% iron ore specification, providing a lower grade such as the half load that was 58% iron ore grade can be considered fundamental breach. However, in order to determine the gravity of the breach, the consequences must be taken into account (Kappus, 1994). In this case, the buyer ended up with a profit from the improved grade delivered. Would PhilOre be entitled to terminate the remainder of the contract the July 2012 instalment and if so what consequences would follow? Article 81 in Section V of Part III, Chapter V outlines the effects of avoidance and article 84 outlines the consequences of avoidance of contract. This involves the seller being liable for any interest accrued on payments that it has received, in this case, eight million as well as a the buyer being liable for any benefits derived from the goods. However article 82 outlines some quid pro quos that set limits to the right to avoid by the buyer. These limits include the proviso that in order to avoid contract the buyer must return the goods already delivered more or less in the same condition as they were in when received unless they invoke an exception to this rule as laid out in article 82 (2) a, which provides for the above not to apply if it is impossible for the goods to be returned in the condition that they were received. Article 84 gives guidelines as to the liability of both parties. The seller must pay interest on money received and the buyer must account for any benefits accrued from the goods or part of them. This means that Northwest must pay interest should PhilOre have deposited the $4million payable for the July shipment. They are also liable for the April 2012 shipment due to incomplete delivery. However, they are not liable to pay for the extra costs incurred by PhilOre in acquiring the extra 5000 tonnes due to their offer for cure. They however will need to refund $600000 plus interest. PhilOre on the other hand, benefited from the higher grade ore that was sent in replacement of the lower quality grade ore. As a result they incurred costs of $350,000 but made a saving of $500000 in processing costs and an extra $1 million on the London Metals Exchange. This benefit must be accounted for to the seller. Consequently, should PhilOre choose to terminate the contract in July, they may have to end up paying Northwest the difference in benefits accrued. Question 2: In the factual matrix outlined of two separate but concurrent fraudulent transactions, how might Northwest and PhilOre best cooperate for their mutual benefit? The CISG provides that if a fraud is committed prior to the conclusion of a contract or in the course of its performance, then the claims would accrue on the date on which the fraud was discovered. Therefore, in this case where the Mercantile Bank of Australia employees in conjunction with the police discovered both frauds simultaneously and informed the respective parties, then the claims accrued at that time. Article 39 states that the buyer, i.e. PhilOre loses the right to rely on lack of conformity of the goods if notice is not given to the seller which specifies the character of the non-conformity within a reasonable time after he has discovered it. Therefore, since both Northwest and PhilOre are liable for one type of fraud committed under the Incoterms that allocate risk; According to the Shipment contract the risk of loss is transferred from seller to buyer at or before point of shipment. This means as soon as Northwest put the ore on the ship, risk is transferred from them to PhilOre. In the destination contract, the risk of loss passes from seller to buyer when the goods reach their destination or after the fact. However Incoterms are only applicable where the contracts specifically incorporate them. As an alternative the Uniform Commercial Code 1-201 (3) would apply. It would therefore be to the mutual benefit of both parties to notify each other of the discovered fraudulent transactions in order that article 39 does not take effect. Both parties would then deal respectively with the specifics of the fraudulent transaction for which they are liable for risk. Northwest would deal with the collusion between HOT and the Port Hedland Stevedoring firm by handing them over to due process while offering to cure by supplying the correct grade ore, authenticated by a reputable firm. PhilOre would deal with the supply of a genuine letter of credit from the Bank while handing over the colluding officers to face due process. Conveniently further assuming in sequence (i) issuance only of the false purity certificate, and (ii) issuance only of the false letter of credit and related documents, what would be the respective innocent party’s legal rights? Issuance only of the false purity certificate The CISG does not give specific provision for dealing with fraudulent claims such as the issuance of a false certificate of purity. This must be dealt with under the proper law of the contract, that is Australian Law or lex situs, the law of the place of performance of the contract. The certificate was falsely issued on Australian soil so Australian law applies in either case. Where there is a gap in the CISG the recourse will be determined by the proper law of the contract according to article (7) (2). In a decision made by a court, it was determined that article 40 in general provided that even an extremely negligent buyer is more deserving of protection than a fraudulent seller and therefore should not escape liability even under the aegis of article 35. Australian Consumer Law states that it is against the law for traders to engage in conduct which is designed to mislead or deceive. This encompasses creating an erroneous impression of the price, value or quality of goods or services. Therefore should Northwest not disclose the fraud perpetrated by HOT in conjunction with the stevedoring firm, they will be in breach of contract and risk contract avoidance by PhilOre as well as being criminally liable under law together with the two aforementioned. Issuance only of the false letter of credit and related documents, what would be the respective innocent party’s legal rights? The contract between PhilOre and Northwest was done under Australian Law and therefore Australian law would still be applicable in this case. However, it is the buyer who is liable in this case and should they not remedy the situation, they are within their rights to avoid contract. Under Chapter V of Part III there are provisions for the avoidance of contract including situations where there is a breach of an instalment contract as laid out in article 73 (2). The aggrieved party, i.e. Northwest may suspend its obligations under article 71 or avoid the contract altogether as laid out in article 72. Advise for Northwest on extent to which its proposed scheme would have the desired effect of minimising the Australian law’s application to its new contractual and shipping arrangements and restructure and modify its (potential) legal duties and liabilities to SamarOre Re-registration of the MV Rustie under Liberian Flag of Convenience means that the ship is under Liberian jurisdiction. This means that Liberia is responsible under customary international law for the actions and conditions of vessels registered to them according to the United Nations Convention on the Law of the Sea, Article 94. They are obligated to act if a ship flying their flag does not live up to international obligations. They are also responsible for the safety and environmental regulations of their ship but many countries such as Liberia are not strict enforcers of this. Singapore and Australia have the same view as regards to who constitutes the owner of a ship (The Ohm Mariana (ex Peony) [1993] 2 S.L.R. 698 (Sing. C.A.; Davies, 1996). The differences in admiralty actions involving ships that are foreign owned, controlled and registered may result in an intricate conflict of laws. These involve issues governed by lex fori or lex causae. Domestic Philippine law tends to adhere to common international law and therefore some aspects of CISG may be implied depending on the issues that arise. Question 4: Merits and Liabilities of setting up a Manufacturing Presence in the Philippines. The Philippines lend competitive advantage in terms of low cost and outward looking export orientation. Australia is by and large an open market and the majority of the dynamic markets that are in proximity to it, and as such are current and future FTA partners; include countries whose border measures are intact in sectors in which Australia is commercially interested such as the sugar industry. This obstructs Australia’s desire to compete in these markets. Being trading partners in countries such as the Philippines invites several bottlenecks to trade. These are several non-tariff measures, regulatory limitations including restrictions on foreign equity, the need for joint ventures, geographic limitations on where a foreign plant can be located, restrictions on entry and stay of foreign staff, a lacuna in legislation and regulation, non existent competition policy and restricted access to government procurement markets. However, being the first foreign firm in the industry confers a competitive advantage to Cutty Sark. Question 5: GATT/WTO, bilateral and regional free trade agreement (AANZFTA), and WTO sanitary and phyto-sanitary (SPS) Agreement sourced rules which govern the Australia-Philippine mango trade and consider whether Australia can rely on strict SPS-quarantine rules to discourage imports. Australia’s first plurilateral agreement is AANZFTA which is the most comprehensive FTA ever done by the Australia, New Zealand Free Trade Agreement. Its aim is free market access benefits toward export of goods to ASEAN. The agreement is between twelve signatories; Australia, Brunei, Burma, Malaysia, New Zealand, the Philippines, Singapore and Vietnam. The SPS agreement adhered to by all WTO members recognises the right of countries to protect the health of humans, animals and plant life. This encompasses food safety regulation and other processes to protect crops, livestock and poultry at suitable levels of protection for perceived risk. The scope of the agreement includes: Protection of animal or plant life or health within the member territory in order to mitigate against risks stemming from entrance, establishment, and proliferation of diseases, pests, pathogens or vectors. To save human and animal life and health in the member’s territory from hazards caused by additives, contaminants, toxins and vectors in food, drinks and feeds. To protect human life and health in the member’s territory from such risks as are borne by animals, plants or their products or from the entrance, establishment or proliferation of pests. To check or restrict other harm in the member’s territory that could be caused by proliferation of pests. These measures, while important for the protection of life and health can also be exploited to restrict imports through the use of unscientific or discriminatory methods. These do not help in the legitimate safeguarding of health or safety but rather are protectionist in policy and favour either domestic or foreign producers. This means that Australia can exploit this aspect to restrict imports. References CLOUT case No. 345 [Landgericht Heilbronn, Germany, 15 September 1997] (recourse to national law on damages excluded). Davies, M. ‘What is “Ownership” for the Purposes of Ship Arrest under the (1996) Admiralty Act 1988 (Cth)’ Enderlein, F. (1996) Rights and Obligations of the Seller under the UN Convention on Contracts for the International Sale of Goods. Sarcevic, P. & Volken, P. Ed. Dubrovnik Lectures, Oceana Kappus, A. (1994) Comparative legal aspects of the contract avoided because of defect after CISG. 985 NJW Schneider, E.C. (1989) The Seller's Right to Cure under the Uniform Commercial Code and the United Nations Convention on Contracts for the International Sale of Goods, 7 Arizona Journal International & Comp. L. 69, 102 The Ohm Mariana (ex Peony) [1993] 2 S.L.R. 698 (Sing. C.A.). Viscasillas, M.P. (ed.) Spain, 29th March 2005, Court of First Instance of Tudela. Viewed 13 September 2012 from: http://cisgw3.law.pace.edu/cases/050329s4.html Welser, R. (1985). The breach of the seller and their sanction (in the UNCITRAL sales law in comparison to the Austrian law 120. Read More