International Aspects of Business Law - Obligations of Seller and Buyer - Coursework Example

? International Aspects of Business Law Contents Executive summary…………………………………………………………………………3 Findings from the statements of law………………………………………………………..4 Obligations of the seller…………………………………………………………………….4 Obligations of the buyer…………………………………………………………………….5 Obligations of both parties………………………………………………………………….9 Dispute resolution…………………………………………………………………………...12 References Executive Summary In this case a complicated situation arose between the buyer and seller due to occurrence of some unfortunate events. The events occurred in between loading of cargo and the shipment of cargo to the agreed destination. One of the event was several boxes were dropped by the crane during loading of the consignment. It occurred due to overloading of the net through which the boxes were lifted. Secondly, the carrier during the course of voyage also encountered rough weather conditions. Now the matter of concern for the buyer namely, Nee Soon Wat was the extent of damage of materials in the dropped boxes. But after inspection of the dropped boxes he found that the objects were intact. So he formally accepted the goods and paid Sefton Toys for the consignment. But at the time of unloading of the consignment it was discovered that rest of the uninspected shipment got affected largely due to shifting during the rough weather of the voyage. The improperly stowed cargo was the reason for shifting of the boxes. Furthermore, some serious mistake in the date of the paper works related to bill of lading is also present. Some information regarding the shipping terms are also provided in this case study to resolve this problem. Those are: firstly, during this transaction shipping terms were under Incoterms 2000. Secondly, the contract made by them expressed to be subject to the UN Convention on Sales 1980 (Vienna Convention). Findings from the statements of law The contract between Sefton Toy’s and Nee Soon Wat was based on two contractual laws; Incoterms 2000 and UN Convention on Contracts for the International Sale of Goods. According to, UN Convention on Contracts for the International Sale of Goods the obligations of buyers and sellers are given below which will help to resolve this case. Obligations of the seller According to this Convention generally the obligations from seller’s end is the delivery of goods along with documents in conformity with the contract. This Convention also made supplementary rules which can be used in absence of agreement of contract. These rules states how, when and where the obligations should be performed by the sellers. It also provides numerous rules about the seller’s obligations regarding quality of the commodities being sold. It suggests the seller must convey the commodities matching to the quality, quantity and description which are requisites of the buyer defined in the contract. The goods to be also packaged and marked according to the requisites of the buyer described in the contract. One significant rule which involve seller’s obligation is that the delivered merchandise should be free from third party rights or claims. There is another rule which is connected with the buyer’s obligation that is to inspect the goods. If any lack of conformity is discovered by the buyer in accord to the contract he must serve a notice within a rational period. It must be within 2 years from the delivery date of the consignment. (United Nations Convention on Contracts for the International, p.38) Obligations of the buyer According to this convention the obligations from the buyer’s end are making the payment for the goods and accepting the delivery in accordance to the contract. During making payment it also includes performance of duties complying with the legal formalities in accord with the contract. The buyer is not obliged “to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.” (United Nations Convention on Contracts for the International Sale of Goods, Section I, Article 58, p.18) Either loss of goods or any harm caused to them “after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.” (United Nations Convention on Contracts for the International Sale of Goods, Article 66, p.20) Generally, the risk of goods after conclusion of the contract passes from the seller to the buyer. According to Article 67 “(1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. (2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.” (United Nations Convention on Contracts for the International Sale of Goods, p.20) The threat posed for commodities “sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.” (United Nations Convention on Contracts for the International Sale of Goods, Article 68, p.21) In accordance with Article 69 (1) “In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery.” (United Nations Convention on Contracts for the International Sale of Goods, Article 69, p.21) According to the remedies of breach of contract “The remedies of the buyer for breach of contract by the seller are set forth in connection with the obligations of the seller and the remedies of the seller are set forth in connection with the obligations of the buyer. This makes it easier to use and understand the Convention.” (United Nations Convention on Contracts for the International Sale of Goods (27), p.39) “The general pattern of remedies is the same in both cases. If all the required conditions are fulfilled, the aggrieved party may require performance of the other party’s obligations, claim damages or avoid the contract. The buyer also has the right to reduce the price where the goods delivered do not conform with the contract.” (United Nations Convention on Contracts for the International Sale of Goods (28), p.39) “Among the more important limitations on the right of an aggrieved party to claim a remedy is the concept of fundamental breach. For a breach of contract to be fundamental, it must result in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the result was neither foreseen by the party in breach nor foreseeable by a reasonable person of the same kind in the same circumstances. A buyer can require the delivery of substitute goods only if the goods delivered were not in conformity with the contract and the lack of conformity constituted a fundamental breach of contract. The existence of a fundamental breach is one of the two circumstances that justifies a declaration of avoidance of a contract by the aggrieved party; the other circumstance being that, in the case of non-delivery of the goods by the seller or non-payment of the price or failure to take delivery by the buyer, the party in breach fails to perform within a reasonable period of time fixed by the aggrieved party.” (United Nations Convention on Contracts for the International Sale of Goods (29), p.39) “Other remedies may be restricted by special circumstances. For example, if the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A party cannot recover damages that he could have mitigated by taking the proper measures. A party may be exempted from paying damages by virtue of an impediment beyond his control.” (United Nations Convention on Contracts for the International Sale of Goods (30), p.39) It is also very important to determine the exact moment of passing of the risk from the seller to buyer in context of loss or damages to the goods. It is a very important issue in context of international transaction of goods. This issue can be regulated by use of INCOTERM or by an expression of provision within their contract. According to the Suspension of performance and anticipatory breach “The Convention contains special rules for the situation in which, prior to the date on which performance is due, it becomes apparent that one of the parties will not perform a substantial part of his obligations or will commit a fundamental breach of contract. A distinction is drawn between those cases in which the other party may suspend his own performance of the contract but the contract remains in existence awaiting future events and those cases in which he may declare the contract avoided.” (United Nations Convention on Contracts for the International Sale of Goods (33), p.40) In accord to Exemption from liability to pay damages “When a party fails to perform any of his obligations due to an impediment beyond his control that he could not reasonably have been expected to take into account at the time of the conclusion of the contract and that he could not have avoided or overcome, he is exempted from the consequences of his failure to perform, including the payment of damages. This exemption may also apply if the failure is due to the failure of a third person whom he has engaged to perform the whole or a part of the contract. However, he is subject to any other remedy, including reduction of the price, if the goods were defective in some way.” (United Nations Convention on Contracts for the International Sale of Goods (34), p.40) There are also specific articles in this convention about the damages of the goods and the consequences of the breach of contract. There are also provisions of exemption for the failure of obligations of the party. Article 79 states “a party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.” (United Nations Convention on Contracts for the International Sale of Goods, p.24) According to ICC Incoterms 2000 for Cost, Insurance and Freight suggests the delivery of goods is made by the seller when the goods pass the rail of the ship at the shipment port. It also says, except the cost and freight charges all the liabilities for loss or damages to consignment shifts from seller to buyer. It also states that the additional costs acquired after the delivery of the goods will be transferred from the seller to the buyer. But the procurement of the marine insurance is to be done by the seller against the risk of loss of the goods from the buyers end at the time of carriage. Obligations from both the parties for CIF in this case are given below from the ICC INCOTERMS 2000. Obligations of the Seller’s Obligations of the Buyer’s X1 Provision of goods from seller should comply with the contract of sales. Y1 The buyer should pay the seller as mentioned in the contract. X2 Seller must obtain licenses, authorizations and custom formalities for exporting at his own risk. Y2 Buyer must obtain licenses, authorizations and custom formalities for exporting at his own risk. X3 The seller bears the expense of carriage to the agreed port of destination. The seller also bears the risk of the buyer during the carriage by insuring the goods. Y3 The buyers have no obligation towards these issues. X4 The seller should deliver the consignment on board of the vessel at the shipment area within the agreed time. Y4 The acceptance of the buyer is must if the goods were delivered in stipulated timeline on the board of the vessel and should receive it from the destination port. X5 The seller bears the risks of damage or loss to the goods until the commodities are loaded on board of the ship from the port of shipment. Y5 The buyer bears the risk of loss or damage to the goods from the time they have passed the ship’s rail at the port of shipment. X6 The seller in accord with Y6 must pay all cost until the goods are delivered in accord with X4. It also includes freight and other charges resulting from X3. Including the charges of unloading at the docks of destination if it includes within the contract of carriage. Y6 The buyer in accord with X3 must pay all the charges related to the goods after it had been delivered in accord with X4. All charges related to the goods while in transit till it reaches the destined port to be paid by buyer; unless it is to be borne by the seller in accord to the contract of carriage. The same is also implied for unloading costs. X7 It is must for the seller to notify the buyer that the goods had been delivered in accord to X4 and notify any other information which will enable the buyer to take steps necessary for the acquirement of the goods. Y7 The buyer is entitled with the right to decide the time about the shipment and destination of the shipment. X8 The seller should produce buyer the documents related to transport without delay. Y8 The transport document is very important and it should be accepted by him in accord with X8 if it is in compliance with the contract. X9 The seller has to bear the cost of checking, packaging and marking with accord to X4. Y9 The pre-shipment inspection costs are to be paid by the buyer. (INCOTERMS 2000: ICC OFFICIAL RULES FOR THE INTERPRETATION OF TRADE TERMS, n.d.; Incoterms 2000, n.d., p.2, 5; Carr, I. & P Stone, 2009, p.35-36) The usage of ICC INCOTERMS 2000 for the shipping agreements of the transaction enabled the buyer to be in a strong position in this complex situation. Incoterms mostly lays stress on the delivery obligations from the seller’s end. It also stresses on the passing of risk issues from seller to buyer, packaging of goods, inspection of goods and ICC arbitrations. Here in this case the buyer gets the advantage because any dispute in the present contract can be settled through ICC Arbitration. As there is a standard arbitration clause recommended by the body “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.” (ICC INCOTERMS 2000: Report of the Secretary-General, n.d.) Arbitration is a legislative technique to settle disagreements between two parties outside the courts. It is an alternative dispute resolution process. In this type of international disputes regarding the commercial transactions the dispute between two parties are resolved by mediation or awarding a decree. In arbitration proceedings the dispute resolution is done by neutral adjudicator or a panel whose awarded decision is accepted by both the parties’ and it remains as the final bindings. This type of arbitration proceedings are referred to a single person or more than a person. When a group of arbitrators resolves a case then the proceedings is known as arbitral tribunals. (ICC INCOTERMS 2000: Report of the Secretary-General, n.d.; Hinkelman, 2008, p.15) Dispute resolution In this case as mentioned earlier, the situation is very complex as the buyer after inspection of the damaged boxes of the consignment found that the goods within the boxes are in good condition. So, without inspecting the rest of the goods he accepts the goods and made the payment for the goods to Sefton Toys. But after unloading the goods he found out that major part of the uninspected cargo is badly damaged. Furthermore, as mentioned earlier there is discrepancy in the date of bill of lading. As, the contract of the sale of goods was under ICC INCOTERMS 2000, the convention suggests this kind of dispute resolutions are to be done by arbitration proceedings. As stated earlier, in arbitration proceedings the disputes of two parties are to be settled by awarding a decision by a neutral party. It may be decided by a single arbitrator or by an arbitral tribunal. As it is an alternative dispute resolution technique it also helps to mediate between the two parties to resolve the conflict. But in a lawsuit the plaintiff or the aggrieved party claims damages incurred due to the action of the defendant. If the defendant cannot respond well enough in his favor the court awards damages to the aggrieved party. If we observe ICC Incoterms 2000 for CIF, the selling side is in a very strong position; he also maintained all the obligations from his end; except the mistake in the date of lading bill. So, in this form of dispute resolution there will be a possibility for the buyer to minimize his loss. In this kind of situation in arbitration generally a panel of arbitrator leads the proceeding which enables them to produce more than one option to solve the problems. So this arbitration proceeding have a greater possibility to resolve the problem in favor of Nee Soon Wat. Here the neutral third party will be resolving the dispute and the outcomes of this proceeding be influenced by the accords of the buyer’s and seller’s obligations in the context of ICC Incoterms and United Nations Convention on Contracts for the International Sale of Goods. Now it will be better to cast some light on the technical aspects of this case. These technical aspects will help to resolve this case along with the two international conventions, mentioned earlier. As, the shipment was under the ICC Intercoms 2000 convention and the buyer had accepted the consignment it can be easily assumed that the seller provided the goods complying to the contract; seller borne the expense of carriage to the agreed destination port and the seller also delivered the consignment onboard of the vessel within the stipulated time in accordance with the contract. So after the consignment passed the rails of the board the risk of the goods were to be borne by the buyer. The seller also produced the bill of lading and borne the cost of packaging, checking and marking. The only mistake performed by the selling side was the wrongly dated bill of lading. Whereas, in this case the buyer under-performed his obligations of pre and post shipment inspection. The buyer also accepted the bill of lading with a wrongly stated date. This piece of evidence can be a very vital one; though it can act in favor of him or against him. (Leisinger, 2007, pp.104, 145-147) After discussing about the obligations performed or not performed from the buyer and seller in accord to ICC Intercoms 2000, it is necessary to discuss about the obligations regarding the accords of United Nations Convention on Contracts for the International Sale of Goods. Again, if we cast light on the technical aspects of the transaction it will be evident that the seller performed his obligations by maintaining the delivery date of the goods along with documents in conformity with the contract. The seller must have maintained the quality, quantity and description of the goods in accordance with the contract. Whereas, some obligations from the buyer’s end like the pre and post inspection shipment of the goods were not performed well enough. Though the buyer after discovering the major part of the consignment was damaged; served the notice to seller within a reasonable time about the lack of compliance of the commodities. (Kruisinga, 2004, pp. 28-29) As the transaction was international and it was unfortunate for both the parties to be in this complex situation. Now it is up to the panel to decide what will be the important accords which will enable them to resolve this problem. First of all there was an obligation which was not performed well by the seller; mistake in the bill of lading. Other than that, according to Article 67, after the conclusion of the contract the risk of goods passes from the seller to the buyer. So if the conclusion of contract here occurred at the port of shipment then the seller has no liabilities, otherwise the seller is liable for the risks of the goods during the voyage of the cargo. So, now lack of conformity in goods after reaching the destined port may be seller’s liability. Another thing is that the risk does not pass to the buyer until the goods are clearly identified with the conformity of the contract. Article 69(1) states risk passes to the buyer after acceptance of the goods. Article 28 also states that the buyer here can reduce the price where the goods are not delivered in conformity with the contract. In accord to Article 29, which suggests lack of conformity is a fundamental breach of contract, where the buyer can ask for substitute goods or he can also avoid the contract. But here the contract had concluded and the buyer had paid for the transaction. According to Article 30 the buyer can also ask for repairs from the seller if possible. But it also states a party is not enabled to recover damages that he could have avoided by taking proper measure. It also ensures safety for the seller by allowing an exemption from paying the losses which is beyond his control. The buyer may also fall in trap of the Suspension of performance and anticipatory breach. Here the convention states if a party was incapable of carrying out its obligations or part of its obligation it will be a fundamental breach of contract. After completion of the obligations by the first party the second party cannot avoid the contract in future. There is an exemption from liability to pay damages when a failure occurs due to a third person whom a party has assigned to carry out a part of the contract. But the party must provide alternate remedy by decrease of price for any defective goods. Article 79 also states that a party is exempted from its obligation if it can be proved the hindrance for failure was not within his control. (Schlechtriem, 1986, p.99) From the obligations at the ends of the seller and the buyer considering the two international conventions; the articles and regulations suggested specific actions for their non-performance of obligations. It’s clear there were some obligations which remained non-performed from both end, a fundamental breach was there from the seller’s end the evidence of the breach can be found in the bill of lading bearing wrong date. It may be assumed that the buyer had best intention of business in mind and so did not avoid the contract earlier before acceptance of goods and making the payment. So, the appeal of the buyer is credible. (Pace International, 2005-2006, p.8) But one cannot make seller the liable person for the damage of goods. So, for best interest of both the parties mediation should take place to resolve this problem. The seller should substitute the damaged goods and repair the defective goods for the buyer. On the other hand, the marine insurance procured by the seller would also help the seller to negotiate his losses. In this way both the parties will be able to achieve less losses and it will also enable to maintain a harmonious relation for future business activities. A middle path option decided by the arbitration is better by considering the welfare of both the party; it will enable them to find a way out from this complex situation without severe loss to both of them and help them to do business harmoniously in future. References 1. Carr, I. & P Stone, International trade law (2009), New York: Routledge-Cavendish. 2. Hinkelman, E., (2008), DICTIONARY OF INTERNATIONAL TRADE 8th Edition, World Trade Press 3. ICC INCOTERMS 2000: Report of the Secretary-General (n.d.), Available at: http://www.uncitral.org/pdf/english/texts_endorsed/INCOTERMS2000_e.pdf (accessed on July 4 2011) 4. INCOTERMS 2000: ICC OFFICIAL RULES FOR THE INTERPRETATION OF TRADE TERMS (n.d.), Available at: http://www.searates.com/reference/incoterms/cif/ (accessed on July 4 2011) 5. Incoterms 2000 (n.d.), Available at: http://www.if-insurance.com/web/industrial/SiteCollectionDocuments/insurance%20Solutions/Cargo/incoterms/English.pdf (accessed on July 4 2011) 6. Kruisinga, S. (2004), (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods (2010), New York: Intersentia 7. Leisinger, B. (2007), Fundamental breach considering non-conformity of the goods, Munchen: European Law Publisher 8. Pace International, (2005-2006),Review of the Convention on Contracts for the International Sale of Goods 9. Schlechtriem, P. (1986), Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, Available at: http://faculty.law.lsu.edu/toddbruno/Vis/Schlechtriem%20intro.pdf (accessed on July 4 2011) 10. United Nations Convention on Contracts for the International Sale of Goods (2010), Available at: http://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf (accessed on April 30 2011) Read More