International Trade Dispute - Research Paper Example

Running Head: International Trade Dispute International Trade Dispute Name Course Lecture Date Introduction International trade transactions that involve transportation of cargo over the high seas give rise to host of legal issues and liability questions. Disputes arise in the event of damage, loss, delay and non-delivery of shipment. The nature of an international trade transaction also means a dispute involves issues of what is the appropriate forum to adjudicate a dispute, and what is the relevant law to apply to the dispute. This paper deals with an international trade dispute involving a transaction where an Australian company bought steel from an Egyptian company. The Steel was delivered by sea to Australia but upon inspection by the buyer substantial damage due to rust was discovered. This paper begins with an analysis of the terms of the contract with the aim of discovering where transfer of risk between different parties in the transaction occurs. Secondly, it analyzes the possibility that the carrier of the steel shipment was accountable for the damage to the steel. Thirdly, the paper deals with the issue of choice of forum in case one of the international parties of the transaction is found liable for the damage. In addition, it discusses factors that may be considered in determining the appropriate law to be used to resolve the dispute. Legal issues A question of whether the ABC has any legal claims against BCC or the carrier over the damage to the steel arises. However, this question of liability is a complex one and includes an analysis of a number of relevant legal issues. These legal issues include: Who was responsible for the safekeeping of the steel at the time of damage? Was the seller, buyer or carrier responsible for the damage to the steel? Secondly, if any of the three parties was found liable which forum would adjudicate the dispute? Thirdly, which choice of international private law would be applied in settling the dispute? Responsibility for Damage BCC/ABC contract Determining responsibility for the damage involves an analysis of the terms of the various contracts made in the course of the transaction. First, there was the contract between BCC and ABC for the sale of the steel. Secondly, there was a carrier contract between the MV Colombo and the BCC for the shipping of the steel. The contract between BCC and ABC stipulated the good would be shipped FOB, Port Botany Sydney. Under the 2010 Incoterms standards ‘FOB” is an acronym for “Free on Board” and is used in sea freight1. This case FOB is used in conjunction with the delivery port, in this case Port Botany Sydney. FOB destination means that seller pays for all the cost of transporting the goods up to the port of destination. In contrast, FOB origin, means the seller pays only for transportation cost to the port of loading, plus the cost of loading. The buyer is responsible for the cost of marine freight, freight insurance and unloading2. FOB terms are important in determining where the passing for the risk for damage and loss of sea cargo passes on from the buyer to the seller. In the scenario, FOB Port Botany, meant that BCC would be responsible for all costs of transporting the cargo of steel to the port of Botany. In addition, BCC is responsible for the cost of marine freight, freight insurance and unloading. Similarly, responsibility for loss or damage to the steel was with BCC up to the port of deliver. ABC could have only assumed responsibility for the condition of the steel once the steel was delivered to the port of Botany. Therefore, it can be concluded that BCC had assumed the risk for the damage of the steel during the shipping period and up to the port of delivery3. However, this brings up the additional legal issues of the appropriate forum and law which can be used to resolve the legal issue. Furthermore, the question of who between the carrier and the seller was responsible for the damage to the steel also arises. Carriage Contract The BCC and MV Colombo entered into a Carriage of Goods by Sea contract. In the Contract the BCC as the seller of the steel was the shipper while MV Colombo was the carrier. A carriage of good by sea contract is defined as contract between a shipper and a carrier for the purpose of transporting goods to another place by sea. The best evidence of carriage of goods by sea contract is a bill of lading. A bill of lading is issued and signed by a carrier and it acknowledges that the good to be shipped have been received. The MV Colombo issued a clean bill of lading signalling that they had received the steel shipment in good order and had assumed the risk of carrying the shipment. However, the carriers’ assumption of risk is limited as seen in Westscoast Food Brokers and Ors v The ship “Hoyanger” and Westfallarsem & Co A?S (1979) 2 Lloyd’s Rep 794. In the case, the carrier’s liability is limited to in scenarios where damage occurs due to inherent defect, quality or vice of the Goods. In the case, it was ruled that the carrier is under no obligation to inspect the goods or hire experts to advice whether they have any inherent defects. Since, the Steel being shipped already had signs of rust pitting this can be taken as an inherent defect. The inherent defect in the steel was caused by the seller who had stored the steel unsheltered by the side of the forwarding agents warehouse. Similarly, in Ace Imports Ltd v Companhia De Navegacao Lloyd Brasileiro (1987) 10 NSWLR 32 “Esmeralda 1” the liabilities of the carrier were limited as some cargo had been stolen prior to shipment5. Under Article III r 3, the bill of lading can only act as Prima facie evidence of the contract of carriage. Therefore, the clean bill of lading was only Prima facie evidence of the quality and absence of defects in the steel that was being shipped. According to Esmeralda 1, the carrier can only be held liable for damage of goods with inherent defects if they made a representation regarding their condition. Notably, the bill of lading stipulated that any disputes arising in the contract of shipment would be decided by use of German law. Since Germany has adopted the Hague Visby rules, the shipper would have assumed a number of obligation as set by Article III r 1 of the Visby rules6. The Hague Visby rules obligate the Carrier to: Ensure his ship is seaworthy. To properly equip, man and supply the ship. To make hold, cooling and refrigeration chambers to ensure the ship is fit and safe to receive, carry and preserve the cargo. Under Article IV, if damage or loss of cargo occurs as result on unseaworthiness the burden of proof falls on the shipper to show he exercised due diligence. Under Article III r 2, the carriers has a number of specific obligations including properly and carefully loading the cargo, handling, stowing, carrying, taking care and discharging it in good order7. These are the responsibilities assumed by the MV Colombo. Therefore, BCC may claim the MV Colombo was responsible for the damage that occurred on the steel after it was delayed for an additional five days at sea. However, the MV Colombo may rely on the “peril of sea” defence to avoid liability that occurred during transportation in the high seas. Under Article IV r(2) of the Hague Visby asserts that bad management or negligence after an accident or some other peril of the sea does not attract liability if the cargo is consequently damaged8. In Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 “David Barclay” it was ruled that the carrier is not under obligation to ensure that cargo stays safe after an accident has occurred at sea9. According to the plaintiff in the David Barclay case the carrier should have been liable to the damage that occurred on the shipment due to the crew’s negligence following a collision. In contrast, the crew’s first concern should be the safety of the ship and not the safety of the cargo. In David Barclay, the vessel had collided with the banks of Soulanges Canal, not unlike the MV Colombo’s collision. However, a carrier may be denied reliance on the Peril of sea defence, if the negligent act or omission were the cause of the damage to the cargo. Article IV r 5(e) asserts that the carrier is not entitled to the limitations of liability under Articles 5, if the carrier’s act or omission are the main cause of damage10. In most cases courts are willing to waive the liability of carriers over damaged goods as a consequence of the perils of the sea. But, In Shipping Corp of India Ltd V Gamlen Chemical Co A/Asia Pty Ltd (1980) 147 CLR 142 the court denied the carrier reliance on the exceptions on Article 4, (c)11. The court argued that the carrier had failed to secure the tanks adequately leading to their loss after the ship run into perilous weather. Most likely a court would not find the MV Colombo liable for the damage that occurred on the steel because it was delayed at sea for an additional five days. First, the MV Colombo can rightly rely on the exception in Article IV r(2) which exempt carriers of liability arising from accidents caused by Perils of the sea12. The MV Colombo’s collision with another Cargo Ship was a clear case of peril of the sea. It is clear the MV Colombo sustained a dent that prevented it from continuing with its journey. As seen in Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 the safety of the vessel should be the main concern of the crew rather than the Cargo13. Secondly, the Colombo’s delay in delivering the steel at agreed time causing unavoidable, as it was caused by a peril of the sea. Furthermore, the bill of lading issued by the MV Colombo failed to take into account the condition of the steel at the time of loading. Under Article III r 3, the MV Colombo cannot be found liable as the steel that was loaded onto the ship had some inherent defect14. In fact the rusting had started due to poor storage of the steel by the seller, who had left the steel exposed. Therefore, the MV Colombo is not liable for the damage that affected the steel during transportation. Neither, the seller nor the buyer can succeed in bringing action against the carrier as the above exceptions protect him from liability for the damage of the steel during the sea journey. Consequently, any action by ABC over the damage to the steel can only be brought against the BCC. The FOB destination term in the contract make the steel cargo the inventory of the seller until it is delivered to the buyer at the destination port. However, bringing such a case against BCC would give rise to the issues of choice of forum and choice of law that are common in international trade disputes. Choice of Forum In international trade disputes the issue of choice of forum to adjudicate dispute resolution occurs frequently. If ABC is to sue BCC for the damage to the steel that reached Sydney, a dispute over choice of forum is likely to occur. ABC and BCC are incorporated and domiciled in different countries. While ABC is incorporated and is resident in Australia, BCC is incorporated in Egypt and is a resident in Egypt. In most cases, a suing party is most likely to file suit in local courts where they have a greater understanding of the law. Suing entities in international trade are known to sue in forums that are more advantageous to them and maybe detrimental on the plaintiff15. This practice in international trade dispute resolution is referred to as forum shopping. If ABC sues BCC in Sydney, ABC may argue that an Egyptian court is more appropriate forum to determine the dispute. This doctrine is referred to as Forum non-conveniens forces plaintiff to sue in a forum where justice is more likely to be served. If ABC first sues in Australia, a number of case laws can help in the analysis to determine which forum is the most appropriate. In Maharanee of Baroda v Wildenstein [1972] 2 All ER 689, the defendant was sued in an English court for selling a fake copy of a painting16. However, Wildestein was a resident of Paris but operated an Art gallery in London. On the other hand, the plaintiff lived in both France and England. On a visit to the Ascot races, a writ was served to Wildenstein. However, Wildestein evoked Forum non-conveniens arguing that it was“oppressive and vexatious” to sue him in England17. The court ruled that England was a convenient and appropriate forum based on the fact that Wildenstein was a regular visitor in England and was in fact served with a writ on a visit to England. The plaintiff argued that an English forum would: Make it easier for the English expert testimony to be heard. Would avoid the great delay in the French court system. The cases of Spiliada Maritime Corporation V Cansulex Ltd (1987) AC 460 and Voth v Manildra Flour Mills (1990) 171 CLR 538 provide guidance on how Forum non-conveniens should be determined18. As seen in Spiliada the burden of proof that there is more appropriate forum rests with the defendant as he/she is burdened to prove his/her assertion. According to Mo, spiliada looked at the following connecting factors19: 1. “Convenience and Expense “. 2. “Law Governing transaction”. 3. Where the parties reside or carry on business. If BCC is able to show there is more appropriate forum that can hear the case at less inconvenience and cost, then the court may grant stay on the matter. However ABC can insist on the case being tried in Australia by proving20: It is in the interest of justice to try the case in the prevailing court Alternative or appropriate forum will be unable to not provide adequate justice. The appropriate forum will result in greater disadvantage to the plaintiff which can be avoided by resolving the dispute in the present forum. Factors that suggest disadvantage to the plaintiff at appropriate forum include: 1. Better damages at prevailing forum. 2. A more generous period of limitation before proceedings are time barred. 3. Ability for greater discovery of fact. 4. Presence of assets in forum. 5. Misgivings about the justice process in natural forum. ABC arguments may not succeed as an analysis of most of the connecting factors suggests that an Egyptian court is a more appropriate forum. It would be more convenient and less expensive to sue BCC in Egypt where the company carries business and is incorporated. Furthermore, the transaction commenced in Egypt, which is an important factor in determining appropriate forum as seen in Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CRL 19721. Furthermore, the damage resulted due to poor handling of the steel during storage in Alexandria. An Egyptian forum therefore enhances the ability to discover facts. Moreover, the assets of BCC are located in Egyptian jurisdiction. These considerations may override such factors as availability of better damage for ABC in Australia and any misgivings about the ability of an Egyptian court to deliver justice in a timely and fair manner. Choice of Law A dispute over the choice of law to be used in resolving the dispute between the two parties may also arise. According to Mo, a number of considerations are made in deciding the most appropriate law to govern an international trade dispute. These factors are22: Lex Causae: the law system connecting to a course of action Lex Domicili: The law of ABC and BCC home country/domicile Lex Fori: the law used in the place where the court preceding over the dispute is located. Lex Situs: the location of property. Lex loci: the law governing location where cause of action occurs. This is determined by: 1. Place where act or omission was committed, 2. Place where contract was made. 3. Place where transaction was made. 4. Place where contract was to be performed. An analysis of these factors in the ABC/BCC disputes would also see Egyptian law used in resolving the dispute. First, in most jurisdictions similar courses of action came under the Hague Visby rules which have also been adopted in Egypt. Secondly, BCC is an Egyptian domiciled and incorporated company. Thirdly, BCC property is located in Egypt. As seen earlier, Egyptian courts are the most natural and appropriate forum for resolving the dispute. Furthermore, most of the Lex Loci factors are found in Egypt rather than in Australia. Conclusion The question of who is liable for the damage of the steel is a straight forward one. Under the FOB Destination terms, the Cargo was part of the seller’s inventory until delivery at the Sydney Port. Furthermore, the information regarding the condition of the steel at the time of loading is inaccurate and fails to mention the rust that was already pitting on the steel. The clean bill of lading is inconsequential as it is only prima facie evidence of the quality of the goods. The carrier cannot be held liable for the damage as it occurred due to perils of the sea. The issues of choice of forum and law in the scenario can be solved by analyzing a number of factors pertaining to the specific transaction. In most cases determination of choice of forum is subjective while choice of law is a much more objective process. Bibliography Article/Books/Reports Mavroidis, Petros C, Trade in good (Oxford University Press, 2nd edition, 2012). Mo. J, International Commerical Law (Lexis Nexis, 5th Edition, 2013). Ramberg, Jan. ICC Guide to Incoterms 2010. ICC International Chamber of Commerce, 2011. B. Cases Ace Imports Ltd v Companhia De Navegacao Lloyd Brasileiro (1987) 10 NSWLR 32 “Esmeralda 1” Brussels Protocol Amending the Hague Rules Relating to Bills of Lading 1968 (the Hague Visby Rules), Article IV r2. Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 “David Barclay Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 Maharanee of Baroda v Wildenstein [1972] 2 All ER 689, Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CRL 197 Shipping Corp of India Ltd V Gamlen Chemical Co A/Asia Pty Ltd (1980) 147 CLR 142 Spiliada Maritime Corporation V Cansulex Ltd (1987) AC 460 Voth v Manildra Flour Mills (1990) 171 CLR 538 Westscoast Food Brokers and Ors v The ship “Hoyanger” and Westfallarsem & Co A?S (1979) 2 Lloyd’s Rep 79 c. Conventions Brussels Protocol Amending the Hague Rules Relating to Bills of Lading 1968 (the Hague Visby Rules) Read More