International trade law - Essay Example

?Introduction           The analysis first will turn on the general provisions regarding the passing of risk and the doctrine of impossibility, whichwould be relevant here because the war is what prevented the ship from reaching its destination.  The risk of loss rules determines whether the seller may still recover for the price of the goods or whether the buyer must pay for the goods and take delivery, despite the fact that the goods are totally destroyed.1  There are three different ways that the transfer of risk may occur. The first is at the time of the conclusion of the contract for sale,2 the time of passing of the property in goods,3 and the time of the delivery of the goods.4 These rules may only come into effect when the parties did not contract for the transfer of risk, as is the case here. Furthermore, while the parties typically have insurance, which mitigates the risk of loss, it is still important to determine who bears the risk of loss, as the party who bears the risk of the loss is the party who is responsible for turning the loss into the insurance company, as well as await settlement from the insurance company and mitigate the damages.5 While risk may come from many different sources, the example in this case is political risk, which covers the risk regarding war.6 Assume that the contract is cif Calais The Vienna Convention Rules and the English Rules regarding cif are both relevant here, as France has ratified the United Nations Convention on Contracts for the International Sale Of Goods, also known as the Vienna Convention.7 The Vienna Convention states that, in cif contracts, the risk of loss passes from the seller to the buyer when the goods are loaded on the ship for transit, and this covers loss that occurred during the loading process.8 Thus, as soon as the carrier takes control of the goods, the shipper's obligation is satisfied. In this case, the buyer in Calais would have had the risk transferred, and the buyer in Calais would have to turn the claim into the insurance company, wait for settlement and mitigate his damages. The suggestion here is that this is more efficient in cif contracts, that buyers will assume the risk once the carrier has taken control of the goods, because the buyer will often be covered by insurance at this point.9 This is the case in Wuensche Handelsgesellschaft International GmbH v Tai Ping Insurance Co Ltd10 in which it was decided that, in a case where cans coming from China to Germany were dented before being put upon the ship, that the seller, and the seller's insurance, assumed the risk during the pre-shipment period of time. Other rules regarding cif contracts regard the transfer of the risk once the ship is afloat. The standard English rule regarding this is that, when the goods are specific or have been appropriated, the seller may tender the documents regarding the goods to the buyer, even when the seller knows that the goods have been totally lost- therefore, at the time that the documents are tendered, the risk would pass from the seller to the buyer.11 As long as the goods were in conformity with the contract at the time that the seller shipped them, then the buyer may not reject these documents.12 This is the English Rule, and is exemplified in the case of The Kronprinsessen Margareta.13 In that case, the court stated that if the seller would have taken the bills of lading to their own order, then the risk would have passed to the buyer for the loss, without question. However, they did not, and the bills of lading were retained by the seller, so the case was more complicated. The Convention Rule, while not specifically addressing cif contracts regarding goods which are lost at sea, nevertheless states that risk passes from the conclusion of the contract. In this case, the retrospective transfer, which means that the risk transfers upon shipment, may only be possible when the circumstances indicate (such as the parties bargained for this, or the insurance covers this specifically), and the seller did not know that the goods were lost in transit.14 In light of the rules regarding cif contracts for goods, the risk would have passed from the seller to the buyer when the documents regarding the merchandise are tendered from the seller to the buyer. The fact pattern says that the loss occurred after the conclusion of the contract and the shipping of the goods. It is unclear whether the documents were tendered from the seller to the buyer, but, if they were, then the buyer would be liable under normal cif contract rules. Moreover, under the convention rules, since the risk passes at the conclusion of the contract, the buyer would be liable, as the contract had concluded at the time of the loss. Furthermore, the provisions of the Sale of Goods Act 1995 may come into play as well.15 According to Section 32(1) of this Act, the placing of the goods on the carrier is prima facie evidence of delivery to the buyer, therefore, under this provision, the risk of loss would pass to the buyer when the goods are placed on the carrier.16 That said, Section 32(2) states that the seller must make a contract with the carrier that would protect the buyer, as may be reasonable regarding the nature of the goods. If the seller neglects to do this, then the buyer may refuse the shipment or may hold the seller responsible for the damage.17 Such was the case in T. Young & Sons v. Hobson & Partner.18 In that case, it was held that, if the seller could have put the goods on the rail at the carrier's risk, subject only to the reasonable stipulation that the carrier be allowed to inspect the goods, then the seller is liable for the loss of the shipment. That said, the doctrine of mistake also is applicable in both this question and the next. According to the Sale of Goods Act 1979 § 7, when there is an agreement to sell goods, and the goods subsequently perish, before the risk passes to the buyer, then the contract may be avoided by both parties.19 Therefore, even if the risk did not pass to the buyer, in that the seller did not reasonable accommodations with the carrier, the contract can be avoided by both parties due to the doctrine of mistake. Assume that the contract is fob Dover The rule regarding fob contracts in English law is governed by the case of Inglis v. Stock.20 In this case, there was a bulk of sugar that was sent f.o.b. from Hamburg to Bristol. En route, the sugar was lost. The buyer then paid for the goods. The insurer for the buyer brought a case against the seller, stating that the risk had not passed to the buyer at the time that the sugar was lost. The Inglis court disagreed with the insurer, stating that, in f.o.b. shipping contracts, the risk of loss is passed from the seller to the buyer passed from shipment. Similarly, in The Parchim,21 it was decided that the risk was assessed at shipment. The facts in The Parchim are similar to the case at bar, in that the shipment that was lost in this case was due to war – World War I. In this case, a shipment that was bound from Germany to a Dutch company was seized by the British as prize. As Holland was a neutral country in that war, the British would not be entitled to seize the merchandise on this ship if the merchandise belonged to the Dutch company. Moreover, the seizure was only lawful if the merchandise belonged to Germany at the time, as the prize law prohibited the transfer of goods from enemy to neutral. As the Dutch company had paid for the merchandise at that time, the burden was on the Dutch company company to show that they were entitled to the merchandise, therefore would bear the burden of the risk. The Parchim court found that the Dutch company was entitled to the merchandise, due the rule in f.o.b. contracts that the risk passes at shipping. There is another aspect to this question, and that is whether or not the parties had adopted International Chamber of Commerce Rules for the Interpretation of Trade Terms ("Incoterms"). If they explicitly adopted these terms, then this would supersede the Convention and English law, for the parties' agreement controls. Even if they did not explicitly adopt these terms, a court may still hold that they implicitly have adopted them, as these are the standard terms adopted in the industry.22 In Incoterms, when the goods pass the ship's rail, the risk is transferred.23 Does it matter whether or not the seller advised the buyer that a war might break out between the two states as soon as the seller became aware of this fact? It might. The reason for this is because Sale of Goods Act 1995 § 32(3) states that, when goods are shipped by sea in conditions where it would be customary to insure, then the seller must give notice to the buyer so that the buyer may buy insurance for the sea transfer. If the seller fails to do so, then the seller may be liable for the goods perishing.24 In this case, the argument can be made that, if the seller was aware that a war would break out, and the buyer was not aware of this fact, then the seller is aware that insurance should be purchased for the eventuality of the war. This is especially crucial if the insurance policy that the buyer had on the goods excluded acts of war – the seller must tell the buyer that such an insurance policy is necessary. If the seller neglects to tell the buyer this, and the buyer either does not purchase insurance, or the buyer's insurance policy excludes war, then the seller might be liable under the Sale of Goods Act 1995 § 32(3). It may also matter with regards to the Principles of European Contract Law (PECL).25 According to Backhaus (2004), under the PECL, the buyer may have an excuse due to an impediment. The elements of this is 1) there must be a impediment. One such impediment noted by Backhaus is the sinking of a ship. Since this is what occurred in the case at bar, this would be considered to be an impediment. The second element is that the impediment must beyond the control of the party. As war is certainly beyond the control of the party, this element is satisfied as well. The third element, however, is where foreseeability has applicability, and foreseeability is the basis for this particular question. Because, if the seller realized that war was to break out, and the seller informs the buyer of this, then the war becomes foreseeable to the buyer. The third element in the doctrine of excuse due to impediment is that the buyer could not reasonably foresee the particular impediment occurring at the time of the conclusion of the contract. Therefore, if the seller advises the buyer that war was to break out, and this advice was given before the contract was concluded, then the buyer may not rely upon the doctrine of excuse due to impediment under the PECL. Otherwise, he might be able to rely upon this doctrine. Moreover, the case of Ocean Tramp Tankers Corp v V/O Sovfracht26 demonstrates another reason why it would be important for the seller to warn the buyer of impending war. In that case, as described below, the parties to the contract both knew that war was going to break out, and apparently knew that this war might cause the Suez Canal to close, which would make the contract considerably more burdensome on the seller. But, because neither party made a provision for this in the contract, neither party would claim frustration. In this case, if the seller knows that war would break out and does not warn the buyer, then the court may very well find the seller liable on the contract. This is because the seller might have the obligation to tell the buyer about the eventuality of war in order for the contract to make some provisions about what would happen if war did break out and the shipment was lost. Perhaps the contract could stipulate a different route that would be taken, or might stipulate other procedures that the parties should take if war breaks out. Because the dicta in Sovfracht illustrates the importance of making provisions about foreseeable events, it is important that, if the war was foreseeable, that the seller warns the buyer of this so that these provisions might be secured. Would it matter whether or not the goods and the ship have been destroyed AND whether the ship had to take refuge in Spain? This answer assumes that these are two different scenarios – in scenario one, the goods and the ship are completely destroyed. In scenario two, the goods and ship are not destroyed, but, rather, the ship had to take refuge in Spain. The answer to these two very different scenarios would likewise be very different. In the second scenario, where the ship had to take refuge in Spain, this would require a different analysis from the scenario where the ship and goods are completely destroyed. In this case, the contract becomes more burdensome for the buyer, who is located in France. If the ship arrives safely in Spain, then the buyer must incur extra costs if he wants to retain the goods. For instance, he will have to transport the goods by train to Calais, as well as get an agent to procure the goods in Spain and bring them to the train. While this would certainly be more burdensome, it would not entitle the buyer to claim frustration. This fact pattern is similar to that of Tsakiroglou & Co. Ltd v. Noblee Thorl G.m.b.H.27 In the Tsakiroglou case, the parties made a shipping contract that originally was supposed to go through the Suez Canal, as per the terms of the contract. However, the Suez Canal was closed after the contract was concluded, so the parties had to go through the Cape of Good Hope, adding thousands of miles to their trip. The parties attempted to claim frustration in an effort to rescind the contract, but the court found that, even though they were inconvenienced and expenses were much greater than anticipated, it did not rise to the level of frustration. The facts of this case is similar to that of Ocean Tramp Tankers Corp v V/O Sovfracht.28 As in the facts of the Tsakiroglou case, the original contract between the parties assumed that the Suez Canal would be open, and this important to the parties because the shipment was going from Genoa, Italy to India. Just as the ship arrived into the area of the Suez Canal, war broke out, but the ship attempted to pass through the Canal anyhow. The ship did not make it, being impounded in the Canal. The seller party abandoned the ship and the contents, then tried to claim frustration in order to rescind the contract. As with the Tsakiroglou, case, however, the court found that there was no frustration. Part of the reason for this was because the foreseeability of what was going to happen, and this part of the dicta answers the question above about whether the seller warns the buyer about the possibility of war. The Sovfracht court found that both parties were aware that the Canal might close because of an impending war, so both parties should have made provisions for this in the contract – such as putting a clause in the contract that, if the Canal is closed, the contract would cost the buyer X amount of dollars, or that the seller has the right to rescind the contract. On the other hand, if the ship was destroyed, along with all the contents of the ship, the doctrine of impossibility is invoked. At the very least, the prospect of frustration becomes more possible, due to dicta in the Tsakiroglou case – the judge in that case stated explicitly that if the ship had sunk in that case before loading, then the frustration doctrine may be invoked. Alternatively, the judge stated that if the performance became impossible, in that the only available route was blocked.29 Therefore, the judge was willing in this case to entertain invoking the doctrine of frustration if the performance was not just inconvenienced but actually made impossible. Therefore, if the ship was destroyed, along with the contents of the ship in the instant case, then, under the dicta of the Tsakiroglou case, the doctrine of frustration may be invoked, and the contract would be considered rescinded. In that case, both parties would be relieved of obligation, which would benefit the buyer in this case, as the buyer is apparently the party who is going to bear the risk under most other analyses. As yet another illustration of the limits of the frustration doctrine, Davis Contractors Ltd v Fareham Urban District Council 30demonstrates that events that simply make a contract more onerous is not enough to invoke the doctrine of frustration. In that case, a builder attempted to invoke the doctrine of frustation because the price of building materials substantially increased after the contract was concluded. The Davis court found that this was not enough to frustrate the contract. Once again, the court stated that the increase in materials was foreseeable by the parties, and also said that the fundamental nature of the contract was not changed by the additional frustrating circumstances. The doctrine of impossibility is the other doctrine which may be invoked, and this doctrine is governed by the English case of Taylor v. Caldwell.31 In this seminal case, a concert hall was rented out to the plaintiff, which burned down before the plaintiff could use the hall. The plaintiff sued the owner of the concert hall on the contract, and the defendant stated that performance on the contract was impossible because the concert hall no longer existed. The Caldwell court agreed, and the doctrine of impossibility was borne. In that case, the reasoning was that the continued existence of the music hall was an implied condition of the contract, and, when the music hall ceased to exist, the condition also ceased to exist. Furthermore, the judge in this case cited French and Roman law in its proposition that when the implied condition of the contract ceases to exist, the contract upon which it was based ceased to exist as well, especially if the condition was essential to the contract itself. In that case, both parties are excused from obligations under the contract. In the case at bar, the continued existence of the ship and the contents are essential components of the contract. Once the ship and the contents cease to exist, as in the fact pattern that states that the ship and the contents are destroyed, then the contract itself might also cease to exist, if the parties did not make a provision in the contract for such an event. Once again, the foreseeability issue comes into play – the parties should make provisions for what will occur if war breaks out and the ship is destroyed. If they do not, then the court may very well excuse both parties their obligations under the contract. Krell v. Henry32 is another seminal case which demonstrates the concept of frustration and impossibility. Here, one of the parties, Henry, rented a flat from another party, Krell, with the express purpose of watching the coronation of King Edward VII. When the coronation did not happen, due to Edward's illness, the Krell sued Henry for the remainder due on the contract, while Henry countersued to get his ?25 back, which he paid as a deposit. The court found that, because the express condition of why Henry rented the room ceased to exist, the contract was frustrated, and both parties were relieved of their obligations under the contract. Foreseeability was also an issue here, and the court found that neither party could foresee that Edward would get sick, so the frustration doctrine was appropriate in this case. Conclusion The most important part of the fact pattern, it seems, is the foreseeability factor. How foreseeable was the war? And, if the war was foreseeable, did the parties make provisions for what would happen in the event that war occurred and the contents of the ship became endangered? It seems that, according to frustration and impossibility doctrines, if the parties knew that war would make things more difficult or would make performance on the contract impossible, then the courts would be less likely to take actions which would let either party rescind the contract. That said, under most analyses regarding f.o.b. contracts and c.i.f contracts, the buyer would bear the risk of the loss, although this analysis, too, may change if the buyer could show that the seller knew that the war might break out and did not warn the buyer of this, or if the seller knew that the war would break out, therefore was under an obligation to make the carriage more secure. Bibliography Goodfriend, D. 'After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods' (1984) 22 Col. J Trans'l Law 575 Roman Law (Inst. III, 23, 3). Res perit domino, Art. 1138, 1583 Code Civil (France). Honnold, H. Documentary History of the Uniform Law for International Sales (Harper & Row,1989) Philip Raworth, Legal Guide to International Business Transactions(Penguin Books, 1991) United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980, S.Treaty Document Number 98-9 (1984), UN Document Number A/CONF 97/19, 1489 UNTS 3 (Vienna Convention). Wuensche Handelsgesellschaft International GmbH v Tai Ping Insurance Co Ltd[1998] 2 Lloyd's Rep. 8. Smyth (Ross T.) & Co. v. T.D. Bailey & Co. [1940] 3 All ER 60 (HL). Law and Bonar Ltd v British American Tobacco Co, Ltd.[1916] 2 KB 605, 608. The Kronprinsessen Margareta. 1921 1 [A.C.] 486. Karberg (Arnold) and Co v Blythe, Green, Jourdain and Co. [1916] 1 KB 495. Manbre Saccharine Co. Ltd v Corn Products Co Ltd. [1919] 1 KB 198. Smyth (Ross T.) and Co Ltd v Bailey (T.D.), Sons and Co[1940] 3 All ER 60, 69-70. Vienna Convention, Sec. 68. Sale of Goods Act 1995 §32(1) T. Young & Sons v. Hobson & Partner (1949) 65 T.L.R. 365 Sale of Goods Act 1979 § 7 Inglis v. Stock (1885) 10 App. Cas. 263 The Parchim (1918) A.C. 157 (P.C.) Sale of Goods Act 1995 § 32(3). Richard Backhaus. “The Limits of the Duty to Perform in the Principles of European Contract Law.” (2004) 8 EJCL 1, 260, 266. Ocean Tramp Tankers Corp v V/O Sovfracht [1964] 2 QB 226 Tsakiroglou & Co. Ltd v. Noblee Thorl G.m.b.H [1962] A.C. 93 (HL) Ocean Tramp Tankers Corp v V/O Sovfracht [1964] 2 QB 226 Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3 Taylor v. Caldwell (1863) 3 B & S 826. Krell v. Henry[1903] 2 KB 740   Read More