International Convention on the Sales of Goods - Term Paper Example

 «International Convention on the Sales of Goods» Q 1 (a) The case is describing a transaction that potentially took place between two parties at international level. A closer analysis of the case will suggest that the law which will be applicable to this contract will be Sales of Goods Act as it involves selling of goods and services between two parties. It is also to be noted that Sales of Goods Act also refers to the UN international Sale of Goods. There are various instances in this case which directly point towards the reasons as to why sales of goods act may be applied to this case. For international sales of goods it is important that buyer and seller must be residing in two different states which in this case are. First there are two parties to the contract who explicitly agree to provide goods and services against some consideration. Further, various sections of the act clearly indicate that this law may be the most appropriate law for this case. However, to some extent the general Contract Act will also be applicable to this dispute as there was an agreement between the two parties also. This is because of the fact some facts indicate that either of the party deliberately misrepresented the facts into the contract without explicitly or implicitly informing the other party. This may therefore be violation of contract act also. Sales of Goods Act generally cover important areas concerning the sales of goods and services between parties. What is relatively specific for this dispute is the fact that Sales of Goods Act specifically outlines that when two parties engage into any kind of exchange between each other regarding sales of goods or services, it is important that the goods shall correspond to the description given in the contract. b) A closer analysis of the case would indicate that there are multiple breaches of the contract between seller and the buyer and as such different sections of the International regime may be applied to various breaches. In order to determine the various remedies are available it is important to determine which law governs the performance of the contract. Under the law, a seller has to provide the goods which were contracted for therefore under article 31 to 34 of the international convention on the sales of goods provide good indication regarding the obligations of the seller and the buyer regarding the delivery of the promised goods. It is the responsibility of the seller under Article 32 to clearly inform the buyer regarding the fact as to whether the goods are clearly differentiated and distinguished. Further Article 35 further discusses the conformity of the goods according to the contract. This means that the goods must correspond in all respects i.e. quality and quality besides ensuring that they are delivered in accordance with the modes agreed upon. Section 35 therefore clearly indicates that the goods should correspond to the purpose for which they were bought and packaged as well as delivered in accordance with the contract. It is also important to note that under Trade Practices Act the importer of the good can also sue the exporter if the goods do not correspond to the contract or performance of the contract has been violated. SHG may be legally entitled to terminate the contract because the performance of the contract has not been in accordance with the contract therefore if last two installment deliveries are refused, SHG can do this as per law. Further, the seller can be subject to the law for damages to be paid to the affected party or even can be forced to perform the specific performance. (Burnett & Bath, 2009). It is also possible that SHG may ask the seller to cure the defective performance through the delivery of the goods and services which are in accordance with the contract agreed upon by all the partie to the contract. It is also possible that the grieved party can give notice to the seller and extend the timeline for performing the contract or even force the seller to reduce the contract price. (Burnett & Bath, 2009) Further, it is also important to ascertain whether the breaches are fundamental or not as the remedies available under each are different according to the international convention and Australian Law and its important that the fundamental nature of the breaches is ascertained in advance. As such the above discussion indicates that SHG can actually refuse the contract however, there are other alternatives available also under the law which SHG can take in order to avoid the embarracing situation. Q#2 (a) There are two laws which may be governing this transaction i.e. sales of goods as well as the carriage of goods. Since this transaction involve the sell and purchase between two parties therefore sales of goods will be applicable to this side of the transaction whereas goods were carried over from one destination to another therefore the carriage of goods act will also be applicable in this situation. It is also important to note that the Insurance laws may also be applicable on this transaction since the contract was primarily to deliver goods of certain nature which were not delivered and hence the buyer and seller must resort to the Insurance in order to assess whether the losses can be recovered or not. Thus the given situation can primarily be discussed under the Sales of Goods Act and Carriage of Goods Act and the general contract act. B) The arbitration clause can be binding on LeMond if it can be ascertained that this clause in the contract was inserted with the full consent of all the parties. However, the arbitration is relatively later stage because parties are given the option to negotiate with each other in order to settle the dispute and once the process of negotiation fails, parties can resort to the process of arbitration. The decisions of the mutually agreed arbitrators can be therefore be binding on all the parties and as such if arbitration clause is inserted with the full consent of LeMond than it is binding for him. However, it is critical to note that as per international practices, the international arbitration with the Chinese parties can only take place through Hong Kong. c) In order to address this issue, it is critical to take into consideration different aspects of the overall transaction. Since this transaction involve the theft of the goods during the transit process therefore it is critical that the actual liability of each party is determined. Since contract also carried the clause of FSA Port of Hobart, Tasmania, Incoterms 2000 therefore apparently it seems that the liability of seller will be none. FSA (Free Alongside Ship) term therefore means that the seller is only responsible for the goods to the point of ship and once goods are delivered to the shipper, the overall liability of seller may be negligible as for as the quantity and quality of goods is concerned. Since it was subsequently established that the goods were damaged or stolen while they landed on China therefore the overall responsibility and risk for bearing the loss rests with the buyer and the amount is exactly the worth of the goods as well as any charges paid for shipping etc. d) If buyer has insured the cargo and seller offered the Incoterms of FSA than as per this contractual arrangement none of the party is actually liable for the damage done to the cargo. It is important to note that in this case, Insurance Company will have to determine whether the damage to the goods was intentional on the part of the shipper or it was accidental. As such none of the party to the contract is liable. What is also significant to understand and ascertain at this point in time is the liability of the carrier in handling the cargo during the voyage. If the shipper is a common carrier, the nature of the liability of the carrier may be relatively different as compared to the carrier who may take specific cargo to its destination. Further, under the Common Law the overall liabilities of even a private carrier are relatively uncertain however, it has to be ascertained that the goods which were handed over to the shipper were in good condition and shipper has to ascertain that the damage to the goods did not took place during the voyage. (Dockray & Thomas, 2004) However, carriers are also not liable under certain conditions and in case if damage is done under these conditions, the overall liability on the carrier cannot be fixed. Some of the conditions which may absolve the carrier from liability caused due to damage include damage caused due to errors in navigation of the ships, fire, act of God and act of War etc. however, the onus of conducting due diligence still rests with that of the carrier to ensure that the goods received correspond to the description provided in bill of lading and packing list. (Schaffer, Agusti, & Earle, 2008) As such there is no liability of the main parties to the contract i.e LeMond and AIC under the conditions described in the case. However, the liabilities of shipper as well as insurance agent can be ascertained. Q#3 a) It is important to note that the sales contract takes place with the mutual agreement of two parties against certain consideration. As such all the parties who agree to the contract must oblige it and perform it. If any error occurs in drafting of the sales contract and it’s then mutually agreed by both the parties, than the contract is binding on both the parties. The innocent misrepresentation of facts will not render the contract as null and void and the parties to the contract will have to abide by the contract and ensure its performance and compliance. The question of errors in the letter of credit is however, significant and need to be further probed in order t ascertain the correction position. Under article 4 of UCP 600, “A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary” (ICC, 2010). The above quote indicates that the essential nature of credit is relatively different from that of the sales contract itself therefore bank has the absolute liability once it opens the letter of credit. Thus once a letter of credit is issued by the Bank on behalf of its customer, Bank will have to pay the value of the letter of credit until there is a material misrepresentation or errors in the letter of credit itself. If there are errors in the letter of credit and the amendments are not made or advised under article 9 of UCP 600, then the buyer is liable to pay once documents with discrepancies are accepted by the buyer for payment. If documents are accepted, since LC is of sight, the payment will be affected by the Bank. b) There are two important considerations here which need to be ascertained before determining the liability of any party. First the contract of sales of goods will be applicable in this situation and secondly since a letter of credit has been issued therefore the rules under UCP 600 will also be applicable under this situation. Considering the first situation wherein after the shipment but before the receipt of goods, once goods are shipped and documents have reached to the importer’s bank, letter of credit cannot be revoked until specifically mentioned. Thus a bank is liable to exercise the payment against an irrevocable letter of credit as the payment is on sight. However, if importer advises its bank and the exporter regarding the non-acceptability of the goods and both the parties mutually agree to make amendments into the LC than Bank may not be effectively liable. Kit Set therefore will be liable to its bank for ensuring the payment as the bank has established an irrevocable letter of credit on its behalf. Since in this transaction, refusal has came before the receipt therefore Bank may not release the documents to Kit Set and can recover its dues by selling the merchandise in open market. Alternatively it can also recover its dues through the court of Law however, this will be separate from that of the sales contract itself and Kit Set and its Chinese exporter will have to settle the transaction differently. Thus there will be three parties to this transaction – each having different rights and obligations towards each other. c) As per the Sales of Goods law, the goods must correspond to the description made in the contract and other documents. If the goods do not correspond with the description than importer have the right to take different legal steps in order to ensure that he does not pay for the goods which are not in accordance with the contract. In case goods do not correspond with that of the description provided by the seller, buyer can either revoke the contract or ask the seller to perform the contract as per the mutually agreed terms and conditions. Further, in order to settle the dispute, buyer can also refer to the international arbitration for the settlement of the dispute in Hong Kong. d) Under UCP 600, article 5 indicates that the banks deals in documents and not in the goods therefore it is the responsibility of the bank to ensure that the documents are free from any material errors. However, the confirmation of genuineness of to documents rests with the importers and exporters. If the Bill of lading and other documents are forged and actually delivery never took place, buyer will not be responsible for affecting the payment. Rather the banks involved in the transaction must ensure that the payment is not affected against fake documents. Though under article 34 of UCP 600, Banks assume no liability for the form, sufficiency and genuineness of the documents but still as per the banking practices, Banks must ensure that the documents are genuine and without any material fabrication. The responsibilities of shipper shall also be taken into consideration in terms of issuing a fabricated bill of lading. Payment for goods against forged documents therefore may not affect and Kit Set will not be liable to pay for the goods which are not shipped. As such both the law of sales as well as the UCP 600 will be applicable in this situation. Q#4 Though China is a growing market and presents lucrative opportunities for the international firms to relocate there due to cheap labor and other sources. However, doing business in China is not without its risks also as Chinese manufacturers are considered as the known violators of intellectual property rights by manufacturing exact clones of international products and flood the mass produced goods in international market. (Gechlik, 2007) One of the most important merits of working in China is the access to the local as well as international markets. Due to low costs, goods manufactured in China are readily sold across the globe and the producers relatively tend to earn higher margins. However, there are also other important considerations which need to be taken into details before any organization actually decides to make an entry into the Chinese market. Thus the possible modes of entry into the Chinese market are mostly limited to the formation of joint ventures or owning a subsidiary in China which can than manufacture the product on behalf of their parent companies. It is also important to note that entry into Chinese market is heavily regulated and international firms have to fulfill certain requirements before they can actually make an entry into the market for manufacturing a particular good or service for export purposes. For making a successful entry into Chinese market it is important that the international firms must collaborate with the local firms to manufacture a particular product in the country. As per legal requirements in China, international firms are not allowed to directly own a company therefore it is critical that Satchi must find a local partner in order to set manufacturing facility in China to commence the production of his patented product. There are important issues which Satchi must first sort out in terms of Intellectual property rights. First, the overall mechanism for implementation of IPR is relatively different in China as compared to other countries. Firms have two routes to enforce their intellectual property rights in China. First is to file the complaints within the local administrative bureau of country whereas second route available is that of adapting the legal measures to enforce the patents. (The UK China IPR Forum, 2004) Laws related with the patents in China are relatively new and were only enforced during 1984 and subsequently amended in order to make changes according to the international requirements. Thus Satchi may also have to register the patent in China also and than subsequently the laws related to Patents will be enforced as per the local rules and regulations. As per section 11 of the IPR law in China, infringement of the intellectual property rights is set with different conditions. As such this section makes it compulsory for everyone to take express permission from the patent holder for use and as such any violation of this will constitute the infringement of the patents as per local laws. The course of action which may be available to Satchi therefore is to also register his patent as per local laws in China because there will be more protection under the local rules. The same can be achieved by forming the joint venture or making any arrangement with the local party and subsequently patents can be filed locally. Q#5 a) The imposition of taxes on imports basically makes them more expensive as compared to the local goods and services. As such as Per WTO this may serve as trade restriction or barrier on the free movement of goods and services across the globe. The signatories to the WTO therefore are required to curtail the trade barriers to allow international firms to operate internationally. By imposing higher VAT and subsequently refunding the same to importers therefore will increase the cost of purchase from international markets and international firms will therefore find it difficult to sell the products in New Zealand markets because of higher prices i.e. this will create a difference between the local as well as international prices and firms will naturally chose to buy goods which are cheaper. b) The imposition of the trade barriers such quality compliance etc is also another step towards the imposition of pseudo trade barriers. Such type of barriers works as pseudo technical barriers however may not come explicitly under the WTO however, such technical trade barriers may make it difficult for the firms from developing comply with the requirements. Further the cost of compliance for developing countries will be relatively high which will invariably make their products more expensive to purchase in international market. Further the trading rules of WTO require non-discrimination and fair competition can only be restricted under certain conditions. c) Countries who have signed WTO are required to systematically reduce the trade barriers and allow the international firms to compete with each other. It is important to note that under the principles of trading system in WTO countries are not required to discriminate on any ground with international firms. Under the national treatment policy clause of WTO, nations are required not to discriminate between the imported goods and local goods and if any restrictions are placed on imported goods it will be violation of WTO principles. Thus in this case France is in complete violation of the fundamental principles under which nations are allowed to compete internationally with each other. d) In order to analyze this step, it is important to note that this step was taken to increase the demand for the cars. If US government does not put any restrictions on the import of new cars, this step will certainly be helpful for the international firms because it will allow them to find a more lucrative market in an environment which is relatively more challenging. However, if this step is taken under the assumption that the local car industry will be benefited from the stimulated demand for the cars then this step may result into the natural barriers to entry into the market. Statistics however, suggest that more than 85% of the cars will not qualify under this scheme because most of them are fuel efficient therefore as such this step may not result into the generation of more demand for the cars. This step however, shall also be viewed from the perspective of current economic conditions. Bibliography 1. Burnett, R., & Bath, V. (2009). Law of International Business in Australasia. Sydney: Federation Press. 2. Burnett, R., & Bath, V. (2009). Law of International Business in Australasia. Sydney: Federation Press. 3. Dockray, M., & Thomas, K. R. (2004). Cases & materials on the carriage of goods by sea. London: Routledge. 4. Gechlik, M. Y. (2007). Protecting Intellectual Property Rights in Chinese Courts: An Analysis of Recent Patent Judgments. Retrieved October 03, 2010, from Carnegie Endowment for World Peace: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=18984 5. ICC. (2010). UCP 600. Retrieved October 03, 2010, from http://www.sharaflogistics.com/wp-content/uploads/UCP_600_2007_208751_v1.pdf 6. Schaffer, R., Agusti, F., & Earle, B. (2008). International Business Law and Its Environment. London: Cengage Learning. 7. The UK China IPR Forum. (2004). Intellectual Property Rights in China: Risk Assessment, Avoidance Strategy and Problem Solving. Retrieved October 03, 2010, from China Business Solutions: http://www.chinabusinesssolutions.com/dbimg/china_ipr_guidelines1.01.pdf Read More