World Trade Law, Passage of Liability to Carrier - Essay Example

Name Course Lecturer Date World Trade Law Introduction Cargo being transported in the high seas is exposed to a number of risks and liabilities. The contract of sale of goods and contract of carriage stipulate the terms that transfer the risk for the goods to various parties. Depending on the contract, the risk for the loss or damage of the goods rest with either the seller, buyer of carrier of the shipment across the high seas. Note that resolving an international trade disputes is more complex than resolving a domestic trade dispute. The plaintiff faces the issue of deciding the forum to file suit, but still this may be challenged by the defendant. In this paper a case study that explores the legal issues faced in resolving an international trade dispute are analyzed. The paper begins by summarizing the legal issues that are present in the case. Secondly, it introduces the legal issues in the case, which are also common in international trade disputes involving goods shipped by sea. Thirdly, it analyzes the contract between the seller and the carrier with the aim of discovering where liability for damage to the goods rests during the sea voyage. Fourthly, the paper analyzes the contract between BCC and ABC and discovers that ABC can rightfully claim damage for the delivery of damaged steel. In the closing section, the paper analyzes the question of the choice of forum to file the dispute. Relevant Facts The Building Corporation Company a company based and incorporated in Egypt sold 150 tonnes of steel to Australian Building Company. The steel was sold at $3,000 per tonne FOB, Port Botany Sydney The contract of sale stipulated that: Good would be shipped not later than 30 September 2014 under FOB terms at the instructions of the buyer Buyer would also inform seller of the port and vessel for delivery before 15 September 2014. On 15th August 2014, ABC informed BCC that is had chosen MV Colombo Express that would sail on 29 September 2014. However, the BCC delivered the steel to the port of Alexandria earlier, unfortunately the steel stored unsheltered for before the ship arrived. When the BCC arrived on 28th October there were some signs of rust on the steel. However, the carrier issued a clean bill of Lading “150 tonnes of steel carried on deck”. The contract also stipulated that any dispute arising would be resolved in the courts of Germany. The MV Colombo Express is German-flagged and on 29th September 2014 it collided with the Singapore-flagged MV Maersk Tanjong. The MV Colombo sustained a 20 Metre dent in the port side, while the Mv Maersk Tanjaong lost 3 containers. Unfortunately, the Colombo express could not continue with its journey and had to put for repairs at the Port of Berenice. Consequently, a delay of a further 5 days occurred. The MV Colombo Express arrived in Sydney on 15th October 2014, on delivery the ABC discovered the steel was substantially affected by rust. Expert indicated that steel would not have been substantially affected if the vessel had not undergone repairs. Legal issues One of the three parties in the transaction is responsible for the damaged steel that was delivered to ABC. ABC can be able to claim compensation from the party that bore responsibility for the damage to the steel. Therefore, the following questions regarding the condition of the imported Steel should come into mind; When did liability for the damage to the steel pass from the seller to the carrier, and when did liability for damage to the steel pass to the buyer. Secondly, a question of the appropriate legal forum to resolve the dispute also comes into mind since the transactional involves parties from different countries. Lastly, there is also a question of the choice of law to be used to resolve the dispute in the chosen forum. Passage of Liability to Carrier The MV Colombo was selected to ship the steel from the Port of Alexandria in Egypt to Port Botany in Sydney, Australia. Ideally, responsibility and liability for loss or damage passes to the Carrier when the Goods are loaded on deck1. However, depending on the contract between the seller and the buyer, the carrier’s responsibility may be either to the buyer or the seller2. The contract for shipping of goods by sea is referred to as the carriage of Goods by Sea contract. In this case, MV Colombo and BCC entered into a carriage of Goods by Sea Contract. The contract also stipulated that any dispute arising would be resolved in the courts of Germany. Therefore, the Hague Visby rules would apply to the contract as both Germany and Egypt use the rules to resolve international trade disputes involving shipping of goods3. Under, the Hague visby rules, a carrier is obligated to issue documents as evidence for the carriage of Goods by Sea Contract4. One of these documents is the bill of lading which contains information about the condition of the goods, their weight and destination5. The Bill of lading is considered the most important evidence of a Carriage of Goods by Sea contract. Once a carrier issues and signs a bill of lading he acknowledges he has received the goods to be shipped in good condition. The bill of lading signifies the passage of risk and liability for the shipment from the seller to the carrier. In this Case, the MV Colombo issued a clean bill of lading showing that it received the steel in good condition. This means the MV Colombo assumed any future liability for damage to the steel during the journey to the destination. However, according to Article III r 3 of the Hague Visby rules, the Bill Of lading only acts as Prima Facie evidence and does not mean that the carrier assumes all liability for damage to the goods he is transporting6. As seen in Westscoast Food Brokers and Ors v The ship “Hoyanger” and Westfallarsem & Co A?S (1979) 2 Lloyd’s Rep 79, a carrier’s liability is limited if the goods had inherent weaknesses or defects before they were loaded on deck7. Since the steel had already started rusting due to exposure, the carrier cannot be judged to have been responsible for the damage that occurred during the voyage. To establish the extent of liability the carrier assumed over the Steel shipment, his obligations under The Hague Visby Rules should be considered. In most cases where the carrier breaches these responsibilities he is then liable to consequent damage to the shipment8. Under Article III r 1 of the Visby rules the carrier has a number of obligations as regard goods being shipped9. The Hague Visby rules obligate the Carrier to: Ensure his vessel’s seaworthiness. To ensure his vessel is properly equipped, manned and Supplied. To ensure the ship is fit and safe for the reception, carriage and storage of the Cargo. It may be argued that the MV Colombo was fulfilling the responsibility of ensuring the vessel is seaworthy when they docked the ship for repairs at the port of Berenice. It must also be taken into consideration that, the MV Colombo is a huge ship and carried other Cargo which would have been put at risk if repairs were not done before resuming the journey10. Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 reinforces the view that the crew main priority is the seaworthiness of the vessel11. The Colombo was delayed for five day in an effort to preserve its seaworthiness. Therefore, the exposure that occurred to the steel can be excused as it occurred in the course of carrying out the duty to ensure the MV Colombo was seaworthy. Furthermore, carriers of sea cargo can use the “peril of the sea” argument to escape liability for damage to Cargo occurring during the journey12. This argument applies in cases where damage to the Cargo is a direct result of the perilous nature of sea voyages. At sea, ships and their crews face such hazards as bad weather, storms and collisions with other sea-going vessels. It would be unfair to hold carriers responsible for damage to Cargo occurring due to these unavoidable consequences. Peril of the sea is a strong defence as it can allow a ship’s crew to escape liability for damage to cargo even in cases where they breach their obligation under the Hague Visby rules13. Under Article IV r(2), even if a carrier acts negligently or manages the vessel imprudently after facing a peril of the sea, he cannot be held liable to damage to the Cargo14. As seen in Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198, the carrier’s first priority is the safety of the vessel and not the shipment. However, Articles 1V r 5(e) denies the carrier reliance on the peril of sea defence if there negligent act or omission are the main contributors to cargo damage15. Similarly, in Shipping Corp of India Ltd V Gamlen Chemical Co A/Asia Pty Ltd (1980) 147 CLR 142 the carrier was found liable for loss of some tanks after the Ship run into a storm16. The Carrier had failed to secure the tanks adequately despite knowledge that the ship would run into stormy weather. In comparison, the Colombo had acted diligently in ensuring the Steel would arrive at the destination port in the same condition it was loaded. Passage of Liability to the Buyer The contract between the BCC and ABC for supply of 1,500 tonnes of Steel is an international trade transaction. Incoterms are important terminologies that stipulate the terms of international transactions between two parties17. The contract for the supply of steel between ABC and BCC is under FOB destination terms. The contract says the steel will be shipped FOB port Botany Sydney. FOB is an incoterm which means “Free on Board” and signifies passage of responsibility, risk and costs for sea cargo18. There are two variations of FOB terms; FOB origin and FOB destination. FOB origin is more commonly used and means seller’s responsibility, risk and costs is limited to the port where the goods are loaded on the sea-going vessel19. In contrast, FOB destination means that the seller’s responsibility, liability and responsibility for cost of Cargo extends to the delivery of the goods to the buyer’s port20. Literary, the cargo is the property of the seller until the buyer takes delivery at the destination port. In this case, FOB destination was used as the contract stipulated FOB Port Botany, Sydney. This means that the steel shipment was still the property of BCC when it got damaged21. In addition BCC was also responsible for cost of insurance, freight and loading at the Port of Alexandria. ABC only assumed liability for damage when the MV Colombo delivered the steel shipment at Port Botany. Since ABC assumed the risk for the damage to the steel upon delivery, they have a rightful claim for compensation for damage from BCC. ABC can sue BCC for compensation for supply of substantially damaged steel. However, the ABC faces the challenge of choosing an appropriate forum to adjudicate the dispute22. Moreover, BCC may dispute the appropriateness of the forum and the laws chosen to resolve the dispute. Choice of Forum Since ABC is incorporated in Australia, they may feel an Australian forum is the best forum to file the dispute23. The ABC will obviously have a better understanding of Australian Law and will feel that they are able to get better damage awards in another court of law. BCC an Egyptian resident incorporation may not be comfortable with an Australian forum. BCC may also feel an Egyptian local forum is more advantageous in deciding the dispute. This case gives rise to a classic choice of forum dispute. On the other hand, the BCC may sue in a forum where they feel they have more advantages and are likely to be compensated beyond what their deserve24. ABC would be practicing forum shopping a disgraceful practice that is unjust and unfair to defendants. Any Australian court that is presented with the choice of forum dispute discussed above would have to apply common law precedents handling similar issues. The Australian court can rule for the defendant’s application for Forum non-conveniens meaning it is of the opinion the dispute may be resolved more justly in an alternative forum25. The Maharanee of Baroda v Wildenstein [1972] 2 All ER 689 provides good guidance to Australian courts in deciding a Forum non-conveniens dispute26. In the case, Mr. Wildestein was accused of selling a fake painting to the Maharanee of Baroda. Mr. Wildstein was an art dealer with Art galleries in France and England, however he lived in France. Similarly, the Maharanee lived in France but had a residence in England. The Maharanee filed a suit in London and served a writ to Wildstein when he visited Ascot for the races. Wildestein contested the choice of forum and argued that the forum was inconvenient and oppressive. However, the English court overruled him and decided to continue the proceedings in England. The decision was based on the fact that Wildenstein had been served a writ while on a visit to England, he was also well versed in the English language. Furthermore, there was great delay in the French courts system which would be disadvantageous to the plaintiff. Similarly, an Australian court may rule for the case to continue if there are delays in the Egyptian court system. Better guidance in deciding whether a forum is convenient for adjudicating an international trade dispute can be found in Spiliada Maritime Corporation v Cansulex Ltd (1987) AC 46027. Spiliada asserts that a court should analyze the application for Forum non-conveniens on the basis of a number of connecting factors: Whether the forum is convenient and affordable to both parties. The Law to be applied to the dispute. The residence and location of the parties’ business. An analysis of these factors in this case would see the Australian court force the plaintiff to sue in an Egyptian forum as this is more convenient. An Australia forum would be inconvenient and expensive for BCC which is resident in Egypt and operates from Egypt. However, the laws applied in both jurisdictions to similar disputes are the Hague Visby rules and thus this factor would not have a significant impact on the outcome of the Forum non-conveniens dispute. Finally, BCC is a resident and operates a business in Egypt. Its assets would therefore be located in Egypt making it easier for ABC to recover damages in Egypt. At this point, the burden of Proof would pass to BCC who would have to prove that they would be put at a great disadvantage if they are forced to sue in an Egyptian court28. To reverse a possible forum non conviniens judgement the BCC would have to prove29: Justice would be better served in the Australia Court as the alternative forum does not provide adequate justice. A great disadvantage would result if the ABC is forced to sue in an Egyptian forum. The court would look at the following factors to decide if there is a resulting disadvantage to BCC: Availability of better compensation in the present forum Greater potential for fact discovery. More time before time barring proceedings. Present of ABC assets in Australia. Inadequate justice at the alternative forum. An analysis of the above factors in our case would favour the case being filed in an Egyptian rather than an Australian forum. It is important to note that as long as damages are adequate courts will not consider them in ruling for or against a forum non conviniens application. Therefore, ABC may only use the argument if damages are inadequate in Egypt30. A more important consideration would be the forum where there is a greater potential to discover facts. As seen in Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CRL 197 ability to discover facts is greater at the place where the transaction commenced31. Furthermore, the rust that caused the subsequent damage to the steel started at the Egyptian port of Alexandria. However, if the Egyptian courts ability to deliver justice as regard the dispute is in doubt, the Australian court may rule to continue the proceedings in Australia32. Conclusion From an analysis of the Carrier/Seller contract, the MV Colombo is not liable for the damage to the steel. Accusations that the steel was damaged during the additional five days delay are weak as they do not take into consideration that the steel was already damaged by the time it was loaded on deck. While the bill of lading is evidence that responsibility for the steel passed on to the carrier, the steel already had inherent defects at this point. Furthermore, the delay was caused by a “peril of the sea” therefore limiting the carriers liability for damage of the steel during the sea journey. Furthermore, the carrier may argue that the damage occurred while dispensing his responsibility to keep the vessel seaworthy. In contrast, the FOB destination terms of contract mean the condition of the steel was still the responsibility of the seller. The buyer failed to shelter the steel adequately at the Port of Alexandria and the rust that later caused the damage started due to his actions. ABC can therefore rightfully make a claim for compensation as the steel was damaged at a point where it was still considered part of the seller’s inventory. Any choice of forum dispute would be resolved by looking at connecting factors used in similar cases on the same issue. Since the transaction began in Egypt and it would be easier to discover facts in Egypt, a forum non conviniens application would rule that Egypt is the most appropriate forum. Bibliography A. Articles/Books/Reports Murray C, Holloway D and Timson-Hunt D, Schmitthoff's Export Trade, the Law and Practice of International Trade (Sweet & Maxwell, 11th edition, 2007). Pryles M, Waincyer J & Davies M, International Trade Law Commentary & Materials (LBC, 2nd edition, 2004). Ramberg, Jan. ICC Guide to Incoterms 2010 (ICC International Chamber of Commerce, 2011). B. Case Law Level & Co Inc v Colonial Steamship Ltd (1960) 2 Lloyd’s Rep. 198 Maharanee of Baroda v Wildenstein [1972] 2 All ER 689 Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CRL 197 Spiliada Maritime Corporation v Cansulex Ltd (1987) AC 460 Westscoast Food Brokers and Ors v The ship “Hoyanger” and Westfallarsem & Co A?S (1979) 2 Lloyd’s Rep 7 C. Treaties Brussels Protocol Amending the Hague Rules Relating to Bills of Lading 1968 (the Hague Visby Rules), Article IV r 2 Read More