International Trade and Contract Law - Essay Example

As the international trade and contract law scholars Yeon-Koo Che and Tai-Yeong Chung explain, a contract between two parties is the ultimate arbitrator in disputes, insofar as its primary function is not just the coordination of economic interests between parties but the explicit articulation of buyer and seller rights, responsibilities and duties. A contract, within the parameters of the stated definition, is a legal document which specifically articulates the nature of the commercial transaction, inclusive of item/good/service description, mode of delivery and receipt, further outlining the rights and duties of the contracting parties towards one another.1 The aforementioned definition of a sale of goods contract is further upheld by the law lecturer and scholar, Paul Todd. As noted by Todd, the sale of goods contract functions to articulate the conditions of a particular transaction and elucidate its particularities, from the description of the goods being sold to the place and time of delivery.2 In other words, the sale of goods contract details the conditions and circumstances which would govern a particular transaction. Given the supposedly comprehensive nature of the referenced document it thus functions as a reference point in instances of contract dispute. The nature of a sale of good contract is quite complex consequent to the fact that it may be written or verbal and can contain both implicit/implied terms as well as explicit ones. Contract law has determined that sales agreements can either be written or verbal and can embrace both implied and explicit terms. In other words, the law's position is that in the absence of a written contract, nonverbal contracts, as in precontractual statements, are taken into consideration. 3 In addition, the standard requirements pertaining to sales of goods and the rights of the buyer versus the obligation of the seller are taken into immediate consideration.4 Case law establishes the import of, and the circumstances under which precontractual statements may be interpreted as representative of the contractual agreement between the parties. In the matter of Routledge v McKay (1954), the court found that given the presence of a written contract, such oral statements as may have otherwise have been interpreted as precontractual terms but, were eventually excluded from writing, suggests that they were not intended as contractual terms.5 However, in the matter of Pena v Dale (2003), where the rights and obligations of parties to a commercial transaction were disputed and there was no written contract, the court found, in the absence of a written contract and if both parties had acted as if there was a contract in place, the implied terms of the verbal contract are enforceable.6 In cases of international trade/international sale of goods, contracts tend to be governed by the terms set forth by both the United Nations Convention on Contracts for the International Sale of Goods (CISG) and Incoterms, while the actual carriage of the goods from one port to another are governed by the Hague Visby Rules (HVR) as amended by the Brussels Protocol, 1968. These contrcats, as stated in the above and as established by case law, may be both written and verbal and may include both implicit and explicit terms and involve the sale of both ascertained and unascertained goods. Accordingly, the very nature of sales of good contracts is complex but, as shall be discussed in reference to the case at hand, all of CISG, Incoterms and HVR attempt the facilitation of these agreements. Even though neither Ghana nor Nigeria are parties to CISG, case law effectively maintains the applicability of CISG terms to spheres outside its influence for one simple purpose: courts have found the terms contained within CISG to be generally consistent with the legal framework outlining sales of goods terms in both civil and common law systems. In OLG Hamm 9 June, 1995, the court found that even if seller and buyer had agreed to apply civil law terms to international sales of good contract, the aforementioned agreement did not imply the exclusion of CISG terms.7 The buyer was consequently directed to fulfil his obligation to the seller under CISG terms.8 Moreover, an ICC tribunal found that the presence of parties which existed outside CISG's sphere of application did not mean that the parties to the contract were not obligated to fulfil their contractual obligations to the other in accordance with the terms set forth by CISG. Indeed in both ICC Case No. 5713/1989 and ICC Case No. 7153/1992, the ICC tribunal rules the applicability of CISG terms, despite the fact that one of the parties to the contract was not a citizen of a state which, itself, was a party to CISG. On the basis of the stated, therefore, it would appear that CISG terms are, indeed, applicable to the contract at hand. Proceeding from the above stated, it is evident that CISG can, indeed, govern the contract and that the parties to it can decide its regulation according to CISG terms. This assertion does not simply stem from case law which indicates the applicability of CISG to areas outside its sphere of application but because of the concept of party autonomy. The parties to an international sales contract have the right to determine which body of law will govern the contract in question, be it CISG or national sales of goods law.9 The applicability of CISG also stems from another important fact. Two parties to the contract, France and the United States are parties to CISG. Within the context of international trade, the implications are clear. Unless otherwise agreed upon by the parties to the contract, CISG is applicable if the goods in question have been transported from a port located in a country which is party to CISG. Simply stated, if the goods are transported from either France or the United States, CISG terms are in force (unless parties agree otherwise), irrespective of whether the destination country/part is, itself, party to CISG. The applicability of CISG, however, does not negate the applicability of national laws pertaining to sales of goods contracts, however. The fact is that even though CISG has been popularly defined as a compromise between various national legal systems, there are instances of immediate conflict between CISG and civil and common law, and the latter two with one another. A classic area of conflict between the aforementioned legal systems and CISG pertains to the conditions governing the withdrawal of an offer consequent to acceptance not having reached the offeree by the agreed upon deadline for acceptance. As per common law systems, should one party make an offer to another, on the basis of his/her having been authorised to, and should the other party post an acceptance which is subsequently delayed, or lost in the mail, the offeror is bound by the terms of the offer, irrespective of whether or not he received it in a timely fashion. This is because the offer had been accepted by the other party. Civil law holds an altogether antithetical position, maintaining the risk of delay in the posting of acceptance falls upon the offeree, thereby allowing for the repudiation of the contract. Insofar as CISG is concerned, it settles the conflict between dispatch and receipt of offer as does common law. CISG Article 24 maintains that the offeree has the right to presume that acceptance has reached the offerror, in which case the former cannot repudiate the contract. As regards which of these laws will be applied to the contract at hand, it depends on where the case will be heard. If the case is heard in Ghana, civil law will apply and the offeror will not by bound by the terms of his/her offer; if heard in Nigeria, the position of CISG Article 24 will be applied simply because it concurs with Nigeria's common law position on the question. In other words, if one of the parties to the contract makes an offer which he/she agrees to keep open for thirty days, all of CISG, civil and common law hold that the offer cannot be withdrawn prior to the deadline for acceptance. However, civil law takes the position that the offeror may withdraw his/her offer should he not receive an acceptance by the deadline set. The reason for the above identified difference between civil law and CISG and common law lies in manner in which deadlines for acceptance are calculated. CISG and common law hold that if the offeree agreed to keep an offer open for a period of thirty days, thirty days means from the moment the offeree actually received the offer and not from the moment the offeror made it, with the offer remaining valid should the offeree have mailed acceptance prior to the expiration of the stipulated thirty day period and not if the offeror did not receive the acceptance prior to that time.10 Should we suppose that an offer was made and subsequently accepted, the question of whether or not the agreement becomes binding to the parties in question has a relatively straightforward answer. If the agreement in question is detailed enough to be defined as a contractual agreement, it is binding irrespective of whether the offer was made and accepted, verbally or in writing. CISG, Article 14(1) clearly states that an offer is "A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance." However, for the offer and subsequent acceptance to be binding, both common law and CISG maintain that it must be sufficiently detailed, in that price, commodity (good/service) and condition be specified.11 Should the offer fulfil these criteria and acceptance follows it, the acceptance is effective and becomes binding on the parties involved. However, should the acceptance be conditioned upon the offeror's making certain changes to the terms of his offer, the submitted acceptance is not effective until the offeror responds and an agreement regarding the terms of the offer is negotiated and agreed upon by the parties involved.12 It is imperative, however, to note that the above-stated is valid only if the contract in question is governed by CISG. As regards both common and civil law, there are differences in their definitions of what comprises an offer and its acceptance, although common law tends towards agreement with CISG. As may be deduced from the foregoing, there is a conflict between the legal systems relevant to this case, with the question being which legal system will be enforced should the parties to a contract enter into a disagreement. In the first place, CISG may govern the entirety of the contract should the parties stipulate that. Similarly, CISG terms may govern no part of the contract should the parties stipulate its exclusion. Likewise, the parties to the contract may agree to its governance by either common or civil law. In such instances where none of this is stipulated, CISG terms will predominate, most especially if the goods where dispatched from a country which is a party to CISG. As for instances of conflict and in the absence of stipulations pertaining to the law which will govern the country, the dominant law will depend on where the case is heard. Accordingly, there is no general answer to this particular question as it depends on the circumstances of particular cases. In instances of misinterpretation of contractual meanings and supposing that CISG terms govern the contract, Incoterms will be applied to the settlement of the dispute over meaning. Incoterms may basically be defined as a set of abbreviations for trade terms particular to international sales of goods and is primarily dependant upon the United Nations Convention on Contracts for the International Sale of Goods. It is not intended to replace sales of goods contracts or indeed, to be treated as a contract. Nevertheless and given that its purpose was the facilitation of international sales of goods, it has a fundamental bearing on sales contracts.13 Case law suggests that one of the more important challenges confronting the international sales of goods is misinterpretation of the contract and the obligations of both buyers and sellers therein.14 Disputes often arise because both buyers and sellers tend towards the misunderstanding or misinterpretation of the terms governing international sales of goods, in which instance either side fails to fulfil his/her contractual obligation leading to dispute. The situation is further complicated when a contract for the international sale of goods is further governed by national laws. This is problematic insofar as common law stipulates the exigencies of interpreting and applying the implied contractual terms and not just the explicit ones.15 Consequently, disputes arise, not just over the meaning of specific terms but over the implied intent of the contract. Incoterms has constructively contributed to the resolution of the aforementioned problem and, to this extent, has facilitated international trade. It has done so through the provision of a set of international guidelines and rules by which to interpret trade terms and, therefore, more accurately determine the contractual obligations of both buyer and seller as recorded in any specified international sales of goods contract.16 Quite simply stated, Incoterms are fundamentally concerned with the rights and obligations of both buyers and sellers with the specified purpose being the clarification of the laws governing the international sales of goods and the concomitant protection of all parties to a contract.17 In other words, they provide an interpretive framework for the often complicated legalities surrounding contractual obligations. To the degree that Incoterms serve to clarify contractual obligations through the simplified, but nevertheless comprehensive, clarification of the rules governing international sales of goods contracts, as articulated by the relevant UN Convention, one may affirm that it has facilitated international sales of goods. More specifically, it has done so through the provision of an interpretive framework for the comprehension of the relevant rules and laws, and the extension of the definitional parameters of international trade of goods' terms. Consequently, on the basis of the stated, one may affirm that disputes over the meaning of certain terms in an international sales of good contract will be settled through the application of Incoterms. As regards contractual obligations and the conditions under which a buyer/seller may repudiate the contract in accordance with CISG, CIF terms clearly explicate the rights and obligations of both parties to an international sales contract. One of the more fundamental obligations owed to the seller by the buyer is the shipment of goods which conform to those contracted for. 18 This is further emphasised by Article 35 of the Uniform Law for International Sales under the 1980 United Nation Convention, wherein it is clearly stated that the seller must provide the buyer with goods which conform to contractual descriptions. In instances where goods are deemed to be non-conforming, whether in terms of type or condition, the buyer has the right to sue and, on that basis, reject the goods.19 This is also emphasised within the context of both civil and common law, where the buyer is required to supply goods which meet the contractual description and which are in a condition which allows the buyer to use them for the purpose for which he purchased them. In such cases, the delivery of defective goods is a breach of contract which entitles the buyer to repudiate the contract.20 Indeed, as noted by international contract law scholar, John O. Honnold, Article 35 of the Uniform Law for International Sales under the 1980 United Nation Convention, clearly emphasises the requirement of conformity of goods'21 with the implication here being that the goods received must conform to their description in the sales contract. Such descriptions include quantity, price, nature and type of good, and condition.22 In other words, the seller is obliged to supply goods/services which are in reasonable conformity with the goods/services identified and described in the contract. The above articulated Article is further fortified by national laws pertaining to sales contracts in both civil and common law systems, as well as U.S. and French national laws. As Honnold notes, US law provides for implicit warranties and guarantee of quality and conformity within the contract itself. In other words, beyond its function as statement outlining the parameters of a commercial arrangement between parties, US law defines sale of goods contracts as warranties of quality and guarantee that the transferred goods would comply with their contracted descriptions.23 Similarly, all of French, common, and civil law hold the contract, whether verbal or written, to be a guarantee of conformity.24 As based upon the above, two observations may be made. The first is that under the national laws pertaining to international trade and sale of goods contracts, a seller is held to be in direct and immediate violation of his/her contractual obligation should the goods delivered to the buyer not conform with the nature and description of the goods outlined in the contract. Secondly, when assessed from the perspective of international trade laws, and as specified by Article 35, a seller is in breach of contract should he/she fail to deliver conforming goods, or goods which subscribe to the specifications outlined in the contract of sale. The violation referenced in the above comprises, according to the international law researcher and lecturer, Robert Koch, a "fundamental breach of contract."25 According to the United Nations Convention on Contracts for the International Sale of Goods (CISG), fundamental breach of contract arises when there is an obvious and immediate disparity between the goods received and the goods contracted for, with that disparity culminating in the seller's substantially depriving the buyer from his right and expectations as outlined in the sales of good contract.26 This definition of fundamental breach of contract is further supported by the contract law scholar, J.W. Carter, who maintains that failure to supply goods which conform to those specified in the contract implies a fundamental breach on the part of the seller.27 Case law on fundamental breach have proceeded from the premise that the sales of good contract, even if it does not stipulate strict compliance with all conditions, such as time of delivery for example, holds certain conditions to be obligatory. Among the obligatory conditions are the condition and nature of the contracted for good.28 Consequently, should the goods be non-conforming, the buyer has the right to repudiation and can reject the goods. Although the above stated appears quite clear-cut, there are a number of other factors to consider before concluding whether a party is in fundamental breach of contract. Within the context of international sales contracts, the parties have the liberty to determine the implementation of CIF and FOB terms. CIF and FOB terms impose a set of obligations upon the seller, stating that apart from the provision of compliant goods, the seller has to insure the goods, arrange for their delivery to the agreed upon port, provide the buyer with a reasonable time of delivery, arrange for custom clearance and supply the buyer with the requisite documents. Just as CIF and FOB terms impose certain obligations upon the seller, they are equally articulate in their definition of the buyer's obligations. Assuming that the seller has fulfilled his obligations, both CIF and FOB terms further stipulate that even if the goods are damaged, or lost, the buyer is obligated to pay for them and to accept delivery of goods at the port of destination.29 Therefore, supposing that the goods were damaged during transport, the buyer is still required to fulfil his obligations towards the seller. As established in Kwei Tek Chao (t/a Zung Fu Co) v British Traders Shippers Ltd (1954)30 the buyer can only repudiate the sale of goods contract and reject delivery of goods if the goods which the seller supplied were non-conforming, in type, condition or quality and not if they had been damaged during shipment, and following passage of risk from the seller to the shipper.31 Should the goods delivered to the buyer be damaged, the liability of the carrier has to be determined. According to common law should the contract of sales specify ascertained goods, risk passes from seller to shipper upon their delivery to the shipper or passes when the parties to the contract intended it to. However, if goods are unascertained, risk of passage does not apply until such a time as when they have been ascertained. CIF maintains that risk passes from the seller to the carrier and then from the carrier to the buyer.32 Assuming that the contract is regulated by CISG terms, accounting for CIF terms, risk and property and separately passed. In other word, even though property passes from seller to buyer upon the tender of the documents, the risk does not pass from seller to buyer but from seller to carrier and from carrier to buyer.33 Therefore, assuming that property had been damaged during shipment, liability lies with the carrier, whereby the buyer's claim is against the carrier, not the seller.34 Case law establishes the liability of a carrier. In Bayview Motors Ltd v Mitsui Marine and Fire Insurance Co.,35 et al., (2002) the buyer contracted for a consignment of motor vehicles, whose specifications were clearly outlined in the contract. However, the goods he ultimately received were non-confirming consequent to the fact that they had been damaged during shipment. The seller successfully proved that the goods he had delivered to the carrier met the contractual requirements and therefore, established passage of risk. The buyer, thus, sued the carrier and the court found in favour of the claimant and held the carrier responsible for the damages.36 Furthermore, in Leigh & Sillivan Ltd v. Aliakmon Shipping Co. Ltd. (1986)37, the court ruled that consequent to the passage of risk upon the delivery of the goods by the seller to the carrier and, the passage of ownership from the seller to the buyer upon the tender of documents, and the occurrence of loss to the cargo during shipping, the buyer was entitled to seek damages from the carrier and, not from the seller.38 The implication here is that if, given the circumstances surrounding the case in question, the buyer delivered the carrier conforming goods but the seller received non-confirming goods in that they were damaged and, therefore, unfit for the purpose for which they were intended, the buyer cannot reject the goods and must fulfil his obligations to the seller. The standards governing the carriage of goods by sea have been specifically articulated by the Hague-Visby Rules (HVR). HVR define responsibilities and outline the standards requisite for the shipment of goods, with the ultimate aim being the encouragement of international trade through the provision of assurances against damage through mishandling and carrier negligence.39 Both civil and common law make similar provisions in that they acknowledge the applicability of HVR if the goods are shipped from any port which is party to the Hague-Visby rules. This, however, does not mean to imply that the liability of the carrier is immediately established upon the delivery of damaged goods, since the causes of damage need to be investigated as a prerequisite for the establishment of liability. Within the context of the contract under discussion, it is apparent that HVR, as amended by the Brussels Protocol, 1968, are applicable. In making this determination, three factors must be considered. The first is whether or not the goods constituted deck cargo; the second is whether or not the goods were shipped from the port of a Contracting State; and the third is whether or not the carrier exercised due care to ensure that the goods would be safely stored and, thereby, protected from damage.40 According to Article 1(c) of the HVR, the term goods references "goods, wares, merchandise and articles of every kind whatsoever except live animals and cargo which by the contract is stated as being carried on deck."41 Should the transported goods be material articles, not contractually stipulated as deck cargo, the rules apply. Case law supports this particular conclusion. In Parsons Corp v CV Scheepvaartonderneming Happy Ranger (2006)42, the defendants (carrier) were found liable for the loss and damage done to goods during transport insofar as the evidence showed that the loos and damages were a direct outcome of crew inefficiency, negligence and lack of experience.43 The defendants attempted to argue the presence of a general liberty clause which gave them the right to stow the goods on deck, if they so chose, in which instance, the HVR were not applicable. The Court found otherwise, stating that a general liberty clause neither explicitly defines the goods in question as deck cargo nor does it exempt the carrier from their obligations under Article III, 1(c) and Article III, 2.44 The carrier is, in accordance with the referenced articles, obliged to ensure that the ship's holds and chambers are suitable for the reception and safe storage of goods and that the carrier shall exercise all due caution to safely store the goods.45 As one investigates the applicability of the HVR from the perspective of the second outlined consideration, one finds that if the goods contracted for are shipped from a port of one of the HVR Contracting States, the Rules are legally enforceable.46 Not only that but should the bill of lading, or any clause or agreement therein, seek to negate the applicability of HVR and, as such, immediately reduce the carrier's liability, the clause/agreement, not the HVR, would be rendered null.47 This is established by case law. In the matter of Mitsubishi Corp v Eastwind Transport Ltd. (2004)48, the court found that the defendant was liable to the damage caused to the perishable goods owned by Mitsubishi since the carrier had not taken the necessary precautions to safeguard the goods. This ruling further found that the attempt of Eastwind Ltd. to relieve itself of the obligations imposed upon it by HVR, through exemption clauses to the effect, "did not operate to relieve the carrier."49 Again, in Owners of Cargo on Board the Morviken v Owners of the Hollandia (1982)50, the court found that "the HVR, which are enacted into law by the Carriage of Goods by Sea Act 1971 (COGSA) render null and void any clause in the bill of lading which purports to contract out of the Rules."51 The owners of the Hollandia sought to limit the extent of the carrier's liability for damages or loss to cargo through the inclusion of a fixed limit in the bill of lading. Upon damage to the cargo, the owners argued limit to liability but the court found any clause which purported to limit liability was, within the context of HVR, null and void.52 In addition to the above, in cases where the plaintiffs are able to prove that the goods suffered damage as a direct consequence of the actions of the shippers or the crew on board the cargo ship, the plaintiffs can argue breach of contract.53 The carrier, under HVR, is not liable for damages which result from "fire,"54 unless the fire the "actual fault or privity of the carrier."55 If it is, breach of contract applies insofar as it is implicit that the carrier would undertake all due diligence to ensure that the goods are safely delivered and, at the least, would hire an experienced crew.56 Hence, liability may arise from a carrier's failure to undertake its contractual obligations through negligence. That negligence makes carrier responsible for the monetary value of the damages done to goods was established by Svenska Traktor AB v Maritime Agencies Ltd (1953)57. Proceeding from the articles of law and cases discussed in the above, a number of conclusions can be made regarding the case under discussion. In the first place, it is evident that, irrespective of the fact that two of the parties to the contract are citizens of countries which have not ratified CISG, the Convention on the International Sale of Goods is applicable, unless the parties explicitly decide upon its exclusion. Applicability of CISG, however, does not negate the authority of national sales of good laws. Secondly, given that contracts can be both written and verbal and that offers made may be interpreted as binding contractual statements, no party to the contract can withdraw an offer prior to the agreed upon deadline for acceptance. Thirdly, should the seller be in breach of contract, the buyer has the right to repudiate the contract. At the same time, if the goods delivered to the buyer were damaged following passage of risk to the carrier, the buyer is bound to fulfil the remainder of his contractual obligations to the seller, subsequent to which he may sue the carrier and hold it liable for the damages suffered. Fourthly, under CISG, common and civil law, there are no available excuses for fundamental breach of contract and should one party seek to avoid the contract, he/she may not do so unless the other party is in breach or has released him/her from his contractual obligations. In other words, contract law upholds performance according to the terms stipulated in the contract and CISG seeks to ensure the uniform application of the stated upon international contracts for sale as a means of clarifying the obligations of all parties to the contract and protecting their rights, irrespective of their country of citizenship. Bibliography Carter, J.W. (1993) Party autonomy and statutory regulation - sale of goods,' Journal of Contract Law, 6 (1993). Che, Y. and Chung, T. (1999) Contract damages and cooperative investments,' The Rand Journal of Economics, 30(1). Enderlein, F. (1996) Rights and obligations of the seller Under the UN Convention on the International Sale of Goods,' Eds., Petar Sarcavic and Paul Volken, International Sale of Goods. Oceana: Oceana Publishing. The Hague-Visby Rules: The Hague Rules as Amended by the Brussels Protocol, 1968, Lexmerctoria. Honnold, J. O. (1999) Uniform Law for International Sales under the 1980 United Nations Conventions. Hague: Kluwer. Howells, G.G. and Weatherill, S (2005) Consumer Protection Law: Markets and the Law. London: Ashgate. Koch, R. (1999) Review of the Convention on Contracts for the International Sale of Goods (CISG). Hague: Kluwer. Millington, A. I and Bayliss, B.T. (1991) Non-tariff barriers and U.K. investment in the European Community,' Journal of International Business Studies, 22(4). Ramberg J. et al. (2000) Guide to Incoterms 2000. London: ICC Publishing. Richardson, J. (1999) Hague and Hague Visby Rules. London, Inform Publishing. Riley C.A. (2000) "Designing Default Rules in Contract Law," Oxford Journal of Legal Studies, 20, 3. Todd, P. (2002) Cases and Materials on International Trade Law. Sydney: Maxwell and Sweet. Case Law Bayview Motors Ltd. v. Mitsui Marine & Fire Insurance Co Ltd. and Others. [2002] EWHC 21 (Comm): 23 January 2002 El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] 2 Lloyd's Rep. 537 2004 WL 1790112 (10 August 2004), Kwei Tek Chao (t/a Zung Fu Co) v British Traders Shippers Ltd [1954] 2 QB 459: 1 February 1954. Leigh & Sillivan Ltd v. Aliakmon Shipping Co. Ltd., The Aliakmon [1986] AC 785: 24 April, 1986. Mitsubishi Corp v Eastwind Transport Ltd. [2004] 1 All ER 328 (QBD (Comm)): 15 December 2004. OLG Hamm 9 June 1995, 11 U 191/94. Owners of Cargo on Board the Morviken v Owners of the Hollandia. (25 November, 1982). House of Lords Parsons Corp v CV Scheepvaartonderneming Happy Ranger (9 February, 2006). Queen's Bench Division Pena v Dale [2003] EWHC 1065 [2004] 2 B.C.L.C. 508 2003 WL 1822940 2003 WL 1822940 Routledge v. McKay, [1954] 1 All E.R. 855; [1954] 1 W.L.R. 615 (Eng. C.A.). Svenska Traktor AB v Maritime Agencies (Southampton), (11 June, 1953) Queens Bench Division Read More