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Case Analysis on International Trade Law - Research essay comment

baski 1 / -  
Mar 30, 2012   #1
I wrote this project a couple of years ago for my university in New Zealand. Please comment.

Case Analysis on International Trade Law

I. Introduction - Facts

Earth Products Company of England sold 1000 tons of fertilizer to Gardenia Co in Helsinki Finland for the amount of £1000. The product is used for a research trial in Finland and due to incomplete development of the product, the range of product qualities is not known. The goods are to be sent CIF (Helsinki) Incoterms 2010 shipment in November and are to be paid for by letter of credit. Earth Products Co (EP) secured shipping space with carrier Freightliner (F) with seat in Hull/England. In the booking notes of EP the goods were described as "flammable and gaseous fertilizer research product and instructions were given to keep the product away from any source of heat.

The Freightliner (F) also provided the same description. The Freightliner vessels were fully booked and F chartered a vessel from the Owner (O) which was also Hull-England and then issues a ConGenBill 2007 to EP. The bill of laden was give to the shipper by carrier with documentation to transfer to consignee/endorsee to be exchanged for cargo. The master signed the bill of lading with shipment date of October 30 as agent for the charterer. EP insured the goods Safe & Sound Insurance Co - Sweden (on basis of Institute of London Underwriters Companies Marine Policy Form and 2009 Institute Cargo Clauses A - for 10,000 pounds. While goods in harbour storage minor explosion occurred and the product noted to have an unusually high and unknown motion sensitivity.

Product development team were informed however neither the carrier nor the insurer were informed. 20% of cargo contaminated at fault of Stevedores and additionally it is reported that the stevedores stowed part of the cargo near the engine room, where the temperatures were expected to rise to higher levels than in other holds. Soon after the start of the voyage, the master fell so seriously ill that it was evident that he would not be able to command the vessel during this journey. The First Mate, newly qualified and not yet trained for a vessel of this type, was forced to take over, since the Owners refused to fly out a replacement captain. During heavy sea weather the First Mate found the fertilizer combusted and the ship's hold damaged and discharged the fertilizer into the sea but missed the contaminate cargo. Simultaneously, the documents were presented to the issuing bank in Helsinki in according with the letter of credit (subject to UCP 600 and English law).

The bank queried the difference between the price of the goods in the invoice and the insured value as per policy, but was advised by Gardenia to accept the documents irrespectively. G presented the bill of lading at the port of discharge demanding delivery of the fertiliser only to find that most of its goods had been discharged into the sea and that the ones delivered were contaminated.

Its cargo claim is rejected by F, who asserts that the contamination is not its problem as EP and G were responsible for the loading and discharge processes under the bill of lading. In turn, F demands payment of compensation for the damage to the vessel due to the explosion and threatens to start arbitration proceedings against G. S does not want to pay anything, claiming that it lacked information about the goods' character, although it received the same description as the carrier on the booking note. G now wonders whether to sue the seller, its bank for accepting discrepant documents, the carrier and/or the insurer or whether to try to wash its hands of the transaction. It also wants to know whether it could be sued in arbitration by F, since, it argues, it had not signed any arbitration agreement.

II. Objective of the Study
The objective of this study is to advise G of the prospects of success if it were to sue EP, the issuing bank, the carrier and/or S in the English courts and to defend the carrier's claim. Also advise the other parties of their respective rights and duties and to explain and analyze the critical legal issues in details. In addition, this study will contrast the situation that would arise had the sale contract been subject to the CISG and the carriage contract to a mandatory application of the Rotterdam Rules.

III. Issues of Law
Gardenia filing suit against EP, the issuing bank, the carrier or the Shipper in English courts is examined in light of the defence of the carrier's claim and all parties to this scenario are to be given advice on their respective duties and rights in regards to the details of the critical legal issues. Next this study contrasts the present situation to that which might have occurred had the sale contract been subject to the CISG and the carriage contract to a mandatory application of the Rotterdam Rules.

IV. Analysis
Enforceability of A Contract Under English and Common Law Systems
Spurlin (2004) writes that It is a "peculiarity of English and related common law systems that an agreement will only enforceable as between the parties to a contract. Both parties must be privy to the contract. Agreements for the benefit of a third party are not enforceable by the third party beneficiary." (p.5) The actual parties to the contract are reported to have difficulty in enforcing the contract since the failure e to perform the contact does not lead to loss on their behalf so there is no loss to claim damages for and this is reported as demonstrated by the decision of the House of Lords in Dunlop Pneumatic Tyre Col Ltd v. Selfridge Co Ltd.

Another requirement of English Law is the Doctrine of Consideration which makes a requirement that parties to a contract that is enforceable "will have committed themselves sot reciprocal promises, to provide something of value to the other party, be it goods, services, or financial payment" as demonstrated in Tweedle v. Atkinson. (Spurlin, 2004)

Simple domestic contracts involve the seller and the buyer and a contract of sale this means that both parties are privy to the contract and provide consideration. The buyer and seller are the only parties involved in the contract with the seller providing the goods and the buyer paying the price of the goods. The contract terms serve to determine whether the buyer collects the goods or the seller delivers the goods to the buyer. (Spurlin, 2004, p. 11) It is reported that the buyer is reliant on the carrier to take care of and deliver his goods but there is no common law privy between the buyer and the carrier and no consideration provided by the buyer to the carrier. It is however reported that the Contracts act 1999 makes provision of some measure of protection for third party beneficiaries providing the requirements of the Act are met." (Spurlin, 2004)

Buyer Not Privy to the Contracts and Does Not Retain Right to Sue Carrier
Since the buyer is not privy to the contracts it is held that the buyer does not retain a right to sue the carrier in the contract under traditional common law rules, for any loss of damage to his cargo. Since the buyer does not pay the carrier for the service it is reported that since the seller does not pay the carrier for services rendered the lack of consideration on his part creates a problem in the event he wishes to state a claim for breach of contract" (Spurlin, 2004, p.12)

Neither Buyer Nor Seller Can Sue Stevedores for Breach of Contract
Additionally reported is that neither the buyer or the seller has the power to sue stevedores for breach of contract under basic common law principles for damages resulting to cargo and further "cannot avail themselves of exclusion clause in the absence of a collateral agency contract or by contracting rights inheritance under the Contracts (Rights of Third Parties ) According to Spurlin (2004) there are problems in terms of the traditional contractual relationship that exists under English law in that only the individual buying the products and services or the buyer "provides consideration and is privy to the contract of loan. The interest on the loan is aid by the buyer and the transaction is financed through the Issuing Bank, providing the seller with security." (Spurlin, 2004)

NOo0 Direct Contractual Relationship Between Banks and Carrier
The banks and the carrier have no direct contractual relationship and the goods are representative of collateral for the loan. There are times when the owners of the goods can become banks and when goods are lost or damaged in transit there is not course of action for the banks against the carrier provided for in the common law, whether it is charterer or ship-owners or against Stevedores. Many times Bank 1 will not issue a Documentary Credit unless the Buyers makes provision of an independent guarantor and in the event the Bank cannot repay the Bank, the Bank will turn toward the Guarantor for repayment and the guarantor will then seek the money back off the Buyer. Additionally reported are further problems in terms of the traditional contractual relationship that exists under English law in that only the buyer provides consideration for and is privy to the contract of insurance fob. The seller may well need to take out a separate policy of his own to protect his interests. In this particular scenario the seller has taken out their own insurance policy in the amount of 10,000 pounds covering the present and near-term value of the product.

Spurlin states that such a policy may not protect the banks. A fob policy may not afford the banks any protection either. By contrast, the cif policy is assignable to the buyer and

could equally be assigned to the bank if the bank should become the owner of the goods. However, where an underwriter pays out on a policy claim for damage to cargo during transit the bank will have the right to sue the tort feasor in subrogation of the assured and recover some, if not all, of the monies paid out to the assured, from the tort feasor. Where the assured had a claim in contract the underwriter can assert those rights as well. Will the underwriter also be subject to the assured's duties under the contract as well? That would appear to be the case under common law but statute now provides differently." (Spurlin, 2004, p.15) Spurlin reports that import and export practice may relate to simple transactions however in the case of insured freight the seller is the shipper and is therefore involved in the formation of a contract of carriage In C.I.F. the seller is always a part to the contract of carriage.

The Bill of Lading is a "multi-faceted legal/contractual document. A Receipt is given when the goods are handed over to the carrier and the shipper received a shipment of lading which acts as a receipt from he carrier to the seller/supplier." (Spurin, 2004) At the time the goods are loaded onto the ship the carrier issues a 'shipped' bill of lading to the seller which is dated and which records the vessels name, the shipment port and the delivery port. The carrier states in the bill of lading setting out the quality and quantity of goods.

Caused Bill of Lading
A claused bill of lading states that something is wrong with the goods and generally will not be accepted by the bank although the bank may notify a buyer of the clause and the buyer can ask the bank to accept it. According to Spurin (2004)". Sometimes the seller may offer a discount to encourage acceptance by the buyer. If a bill of lading is claused it will not accord with the description in the sales contract, thus indication that there has been a breach of the sales contract. The bank has a duty to reject such bills of lading and the buyer has a right to reject documents which do not conform to the requirements of the sales contract." (2004)

The Bill of Lading also contains the Terms of bailment and carriage. The bill contains terms and conditions about the carriage of and care of cargo. The bill may be the contract of carriage as between shipper and carrier but frequently comes some time after that contract is made. It forms the basis of the COGSA 1992 implied contract of carriage between consignee / endorsee / buyer and the issuer of the bill of lading.

A Bill of Lading is an "A quasi-negotiable instrument and as such can be transferred from the seller to the buyer, and even from one buyer to another, quicker than a cargo. At least until recently, the bill of lading could invariably be transferred to the buyer long before the ship and its cargo arrived in port. The delays involved in the postal system, and especially where documentary credits are involved and the fact that the documents have to pass through the hands of two banks mean that frequently the ship arrives before the bill of lading today. Once secure systems of electronic mailing are sorted out the electronic bill of lading will solve this problem which is the result of changing technology. A bill of lading may name the buyer but most commonly the bill of lading will require delivery to the holder of the bill. This is expressed by the words "deliver to order". Only the holder of a bill of lading can demand the goods from the carrier when they arrive at their destination. The ship-owner should not hand the goods over to anyone who cannot produce a bill of lading. Within the context of English maritime law the Hague Rules (1924) as amended by the Protocol of 1968 (Hague Visby Rules) as held as the primary code that defines the basic rights and obligations of the parties to a contract for the carriage of goods by sea. The Hague rules in combination with the Visby amendments have been adopted by most of the major maritime nations." (Spurin, 2004)

Within the context of English maritime law the Hague Rules (1924) as amended by the Protocol of 1968 (Hague Visby Rules) as held as the primary code that defines the basic rights and obligations of the parties to a contract for the carriage of goods by sea. The Hague rules in combination with the Visby amendments have been adopted by most of the major maritime nations." (SITPRO, 2012) The Rotterdam Rules are applicable between the carrier and the consignee, controlling party of holder to international contracts of carriage, which include an international sea leg.

Stevedores Mistakes
The receipt, loading, as well as delivery and discharge of goods has to be in the contracting state for the Convention to apply, as it is not applicable to charter parties, the liner trade or to contracts for the use of a ship or space on a ship. (Article 6) Therefore, in this scenario, it has to be considered if the chartered space on the ship falls under the Rotterdam Rules. In the event that the Rotterdam Rules are applicable, the rules will then apply to the entire period the goods are under control of the carrier which under Article 12 is the period from the time when the carrier or a performing party has received the goods for carriage until the time the goods are delivered to the consignee at the time and location agreed in the contract of carriage. The reason that this is so is to prevent the carrier from having the capacity to use the system of network liability enabling various bases of liability dependent upon what stage the loss or damage occurred during and which in turn crates a single liability regime.

The liability of the shipper lies within the unknown about its product barring the shipper from effectively informing the carrier about the potential hazards of the product however, the carrier was fully notified that the goods should not be stored near a source of heat and rather than follow these precautions the product was improperly stored by the charter company's stevedores. The stevedores stored the product near the engine room following having contaminated 20% of the product. The first Mate was not properly trained but was required nevertheless to take over the Captains duty since the Captain had fallen seriously ill and could not complete the trip.

Failure of Development Team/Shipper to Notify the Carrier
The product development team received notice following the explosion in the harbour however, no one informed the carrier or the insurer. Here there is a failure to inform the proper entities concerning the potential hazards of the product. Because the sensitivity of the product was related to motion sensitivity, it appears to be gross neglect of duties to inform on the part of the product development team of the hazards presented by this product while at sea. However, the carrier did not follow the instructions on hazards of the product while at sea. Examination of the obligations of the shipper are reported as regulated in much greater detail in the Rotterdam Rules than under previous regimes. Article 27 states that the shipper "shall deliver the goods in such condition that they will withstand the intended carriage, including their loading, handling, stowing, lashing and securing, and unloading, and that they will not cause harm to persons or property." (SITPRO, 2012) Under Article 28, it is stated that the shipper must make provision to the carrier "such information, instructions and documents relating to the goods that are not otherwise reasonably available to the carrier." (SITPRO, 2012) This enables the carrier to comply with applicable laws and regulations, compile the contract document and arrange for the proper handling and carriage of the goods.

Arbitration Provision in Rotterdam Rules
Arbitration between the parties is provided for by the Rotterdam Rules and it is stated that the Contracting States must specifically 'opt in' to this provision by way of a declaration. There are four types of transport documents recognised under the Rotterdam Rules including: sea waybill or straight bill, sea waybill or straight bill requiring surrender, negotiable bill of lading, and negotiable bill of lading dispensing with surrender. (SITPRO, 2012)

Under Article 17 of the Rotterdam Rules exceptions to the liability of the carrier are stated if the carrier proves absence of fault based on one of the following circumstances having caused or contributed to the loss, damage or delay:

(a) Act of God;
(b) Perils, dangers, and accidents of the sea or other navigable waters;
(c) War, hostilities, armed conflict, piracy, terrorism, riots, and civil commotions;
(d) Quarantine restrictions; interference by or impediments created by governments, public authorities, rulers, or people including detention, arrest, or seizure not attributable to the carrier or any person referred to in article 18;

(e) Strikes, lockouts, stoppages, or restraints of labour;
(f) Fire on the ship;
(g) Latent defects not discoverable by due diligence;
(h) Act or omission of the shipper, the documentary shipper, the controlling party, or any other person for whose acts the shipper or the documentary shipper is liable pursuant to article 33 or 34;

(i) Loading, handling, stowing, or unloading of the goods performed pursuant to an agreement in accordance with article 13, paragraph 2, unless the carrier or a performing party performs such activity on behalf of the shipper, the

documentary shipper or the consignee;
(j) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods;
(k) Insufficiency or defective condition of packing or marking not performed by or on behalf of the carrier;
(l) Saving or attempting to save life at sea;
(m) Reasonable measures to save or attempt to save property at sea;
(n) Reasonable measures to avoid or attempt to avoid damage to the environment; or
(o) Acts of the carrier in pursuance of the powers conferred by articles 15 and 16. (SITPRO, 2012)

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