Law for International Trade

1 January 2017

Because no terms in the contract or surrounding documents explicitly stated which governing law would be used it will be decided by the objective test. The most real and substantial connection is based on factors including the country in which the majority of the obligations under the contract are performed, e. g. manufacture, packaging, delivery; where the contract was formed, and what the currency of payment is. In this case the manufacture and packing is conducted in Australia, and the payment is in dollars and not yen, which would indicate the governing law is that of Australia.

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Under Australian law the rights and obligations of the parties are based on the contract, the Convention on International Contracts for Sale of Goods (CISG), and because Punked Jeans is based in Melbourne, the Goods Act 1958 (Vic) also applies. The CISG is an international sales code which attempts to balance the interests of the buyers and sellers. Countries can choose to become a signatory to the convention, which then acts as a net to hold terms not expressly covered by the contract. Both Australia and Japan are signatories to the CISG and so under CISG Article 1(1)(a) the CISG will apply to the contract.

However there are exceptions where even if both parties have signed the CISG it still won’t apply. These exclusions are contained in CISG Article 2. In this case the exceptions aren’t applicable, and the parties haven’t explicitly excluded it (CISG Article 6), so the terms of the CISG will be enforced. Under CISG Articles 14-24 it can be shown that SurfLife and Punked Jeans entered into a legally binding contract. This contract contains the express terms, which is this case include the cost of the goods, the inclusion of CPT Incoterms 2010, the port of delivery (Osaka), the order amount and type, the due date, and the buyer and seller.

The implied terms of this contract include the CISG provisions and the Goods Act (Vic) provisions. The CPT Incoterms which were set out as express terms in the contract detail the obligations surrounding the delivery and transportation of the goods that the buyer and seller have. Issue 1 – Lateness of Delivery: The first issue to be discussed is that of the late delivery, with the goods ordered to be delivered no later than the 1st of April, and arriving in Osaka on the 17th of April. If the goods were found to be delivered late it would be considered a breach of CISG Article 33.

The time at which goods are considered to be delivered is determined by the CPT (Carriage Paid To) Incoterms. Under these Incoterms delivery is considered complete when the seller delivers the goods to the first carrier at the named place of shipment. As the goods were loaded onto the carrier on March 30th, delivery (which only required the goods to be unloaded at the place of shipment), was done before April 1st, therefore Punked jeans is not in breach of CISG Article 33. Issue 2 – Mouldy and Stained Jeans: The second issue in this case is that the delivered jeans were spoiled and mouldy.

Prima facie the relevant laws are CISG Article 35, which specifies the seller’s obligations in providing conforming goods, and CISG Article 36, which specifies the seller’s liability for non conformity and the time risk passes, or occurs later as a result of a breach of obligations. Earlier it was shown that Punked Jeans did deliver the jeans, and therefore transferred the risk to SurfLife, at the point of delivery to the carrier, Feilong Transportation Company (Feilong). This means Punked Jeans has not breached Article 35 and 36 because the damage was caused after the goods had been delivered.

Therefore Punked Jeans has no obligations to provide remedies for the mouldy and stained jeans and it would be up to SurfLife to make a claim against the carrier. Issue 3 – Incorrect Number of Jeans: The final issue between Punked Jeans and SurfLife is the incorrect number of jeans delivered. Punked jeans delivered only 14,000 pairs of jeans total, including 2,000 XXL size, which is double the amount that was ordered. Prima facie and incorrect number of jeans breaches CISG article 35, to provide conforming goods. As the goods were nonconforming when they were delivered to the carrier it would appear that Punked Jeans would be in breach.

Feilong did provide a clean Bill of Lading, which indicates that they received the items in the correct condition, but since the Bill of Lading condition report only has to indicate the outward appearance of the items (i. e. the outside of the container the jeans were carried in), Punked would not be able to use this as evidence that the correct amount of jeans had been delivered, merely it would represent the correct amount of containers had been delivered and loaded. This means that Punked Jeans has indeed breached CISG Article 35(1), by delivering the incorrect quantity of jeans.

This breach is likely to be considered a fundamental breach according to CISG Article 25 as SurfLife jeans has been substantially deprived of they were entitled to, receiving only 13,000 of the 15,000 pairs of jeans ordered. The extra 1,000 XXL jeans won’t be considered as making up some of the numbers as they are not useable by the company. Remedies: Under CISG Article 45 the buyer has a series of remedies available if the seller fails to perform any of his obligations. These include rights in Articles 46-52, and damages from 74-77.

Remedies for the incorrect number of jeans that may be sought by SurfLife against Punked Jeans, in accordance with Article 25 (Fundamental Breach) and Article 51, include: delivery of substitute goods (Article 46), additional time period for delivery (Article 47), providing a self-correction remedy at Punked Jeans’ own expense (Article 48), declare the contract avoided (Article 49), or reduce the price paid for the goods (Article 50). The best course of action in order to remedy matter is to reduce the price the Punked Jeans charges for the goods by the amount of the missing jeans.

This is because the demand for the jeans has passed, which makes Articles 46 and 47 ineffective; only part of the package hadn’t been delivered, making Article 49 ineffective; and a self-correcting remedy adds additional expense to Punked Jeans, as opposed (Article 48), as opposed to Article 50 which simply results in a lower income to Punked Jeans. However, SurfLife can still claim damages under CISG Articles 74-76. SurfLife can claim damages including loss of profits (Article 74), and the costs of purchasing replacement goods (Article 75).

Unfortunately for Punked Jeans, SurfLife were smart enough to preserve the goods rejected for non-conformity (the extra XXL jeans), as under Article 86 if they hadn’t have kept them then they would not have a claim for the extra jeans. Conclusion: The result for Punked Jeans is that they are likely to have to reduce the price paid for the goods by 2,000 pairs of jeans, as well as providing damages for the loss of profit the SurfLife would have received from selling those jeans. In regards to the late delivery and mouldy and stained jeans SurfLife will have no claim against Punked Jeans.

Part B: The main issues in the case are the late delivery, the incorrect number of jeans, and the mouldy and stained jeans. In order to determine the rights and obligations of Feilong Transportation Company (Feilong), and any resolutions available, there are a number of steps to be taken. What are the governing laws of the case? The governing laws in this case are the Carriage of Goods by Sea Act (COGSA) Section 11(a) which states that all carriage of goods from an Australian port to an overseas port select Australian law as the governing law.

Section 10(1)(b)(i) states that the Modified Hague-Visby Rules (MHVR) apply in accordance with Article 10 of the MHVR. Under Article 10(1) of the MHVR the rules of the MHVR apply to outbound carriage of goods from Australia. The other laws applicable in this case are the CPT Incoterms, which were expressly defined in the contract. Can the buyer sue the carrier? In Australia law there is a general principle called the privity of contract. This means that the contract is enforceable as between parties in a contract only.

This impacts the rights and obligations of Feilong to SurfLife and the carriage of the goods to Osaka was organised by a contract between Punked Jeans and Feilong (based on the CPT Incoterms) not between SurfLife and Feilong. Under the privity of contract principle it would then not be possible for SurfLife to sue Feilong. As seen in Part A the only claim SurfLife can have against Punked Jeans is for the incorrect number of jeans delivered. Section 8 of the Sea-Carriage Documents Act 1998 (Vic) allows for the transfer of rights under a contract of carriage to the successive holders of the Bill of Lading.

Under section 10 the liabilities are also transferred in the process. This allows for SurfLife to sue Feilong as the holder of the Bill of Lading whilst the carriage was being made. A second important factor in the ability for SurfLife to sue Feilong is based on the MHVR. Under the Hague or Hague-Visby regulations a carrier would only be responsible under the rules from tackle to tackle, meaning from the loading to the unloading of the goods and no further. As the damage in the case occurred when loading the container on a truck to be delivered to the ship this damage would not have come under the carrier’s responsibility.

Since the goods had been delivered it would not have come under the seller’s responsibility either and so SurfLife would have to cover the damages themselves. Under the MHVR Article 1(3) the responsibilities of the carrier extend port to port, meaning from delivery to the port until they are picked up from the port. This means the SurfLife is able to sue Feilong for any breaches that occurred after the goods had been delivered. A third important factor in who SurfLife sues is that they correctly identify he carrier, else the case will not succeed and they may lose the right to sue under MHVR Article 3(6) (discussed later). To find this out SurfLife should consult the Bill of Lading. Issue 1 – Late Delivery: In Part A it was established that delivery, according to the contract between SurfLife and Punked Jeans, was within the legal time period. However, MHVR Article 4A(2)(b) states that if the carriage contract (the contract between Punked Jeans and Feilong) does not specify a delivery date to the port of destination then a reasonable time period based what a diligent carrier would perform.

This would result in Feilong being liable for the loss caused by the delay, which could include SurfLife’s costs of hiring trucks and getting employees to work overtime, as well as lost profits. Feilong’s defence would to argue MHVR Article 4A(3)(e) in which the carrier is excused from liability if it is for the purposes of saving human life or aiding a ship in distress. As well as this MHVR Article 4(4) states that any deviation as a result of saving or attempting to save life at sea will not be considered a breach of the rules, and the carrier will not be liable for any damages as a result therefrom.

The end result would be that Feilong would not be responsible for any losses caused by the delay. Issue 2 – The Incorrect Number of Jeans: The second issue for Feilong is the incorrect number of jeans delivered. In Part A it was found that a clean Bill of Lading is indicative of the goods being received in correct condition, but as was pointed out this only applies to the external appearance of the goods, i. e. the outside of the container. As this was indeed in good condition Feilong has fulfilled its duty to receive and deliver the correct amount of packages, and therefore in his case would not be found liable for the missing pairs of jeans. Issue 3 – The Mouldy and Stained Jeans: The final issue is that of 5,000 pairs of jeans (100 boxes each containing 50 pairs of jeans) were delivered mouldy and stained. Prima facie Feilong is in breach of MHVR Article 3(2), which requires the carrier to take proper care of the cargo. As discussed earlier under the MHVR Article 1(3) the goods were considered to be in Feilong’s possession at the time they fell on the ground in the rain. Under MHVR Article 4 carriers aren’t liable when damage results from a list of exemptions.

In this case it is possible that Feilong could argue MHVR Article 4(2)(n), insufficiency of packing. Feilong could argue that Punked Jeans hadn’t packed the product properly and that the plastic packaging burst when it shouldn’t have. There is evidence in the case that the goods were properly packaged and so this exemption would not be applicable. Feilong may be able to make the claim that the jeans would have been in a reasonable condition had they not had to deviate, due to there being less time for them to go mouldy.

This would come under MHVR Article 4(4) or MHVR Article 4(2)(l) as the extra time was the result of saving life at sea. However, the damages are unlikely to be considered ‘arising’ or ‘resulting’ from this action, as the rules require, and so would not apply. Even if one of these exemptions were to be found applicable Feilong can still be found liable if the underlying cause of the damage is Feilong’s failure to exercise proper care in carrying out its fundamental duties in MHVR Article 3(2). It is therefore likely the Feilong will be found in breach of MHVR Article 3(2) for failing to take proper care of the goods.

Damages: In the Bill of Lading there is a clause for the carrier not to be liable for any loss or damage arising from delay, and limiting liability to US$100 to a single shipper, however caused. Under MHVR Article 3(8) any clause or agreement in the contract of carriage that limits the liability of the carrier for failure in the duties and obligations in the MHVR is considered null and void. This means that these clauses aren’t applicable, even though they are expressly stated in the contract. The maximum damages Feilong will be responsible for is declared in MHVR Article 4(5)(a).

If the value of the jeans was declared on the Bill of Lading then that value could be used, else the maximum amount the carrier would be liable for is 666. 67 units of account per package, or 2 units of account per kilogram. A unit of account is defined by MHVR Article 4(5)(d) as a Special Drawing Right as defined by the IMF. The rate as of 21/09/11 is US$1. 57. The definition of a package was determined in El Greco (Australia) Pty Ltd v Mediterranean Shipping co SA [2004] FCAFC 202 (PM3. 84) as being the amount stated on the Bill of Lading.

In this case the Bill of Lading stated 1 container of jeans, which would means that the maximum damages, based on the number of packages, is 666. 67 * 1. 57 * 1 which is US$1,046. 67. The weight of the jeans is not mentioned, so unless this was contained on the Bill of Lading it couldn’t be used. Feilong may have a claim under MHVR Article 3(6) which requires notice to be given to the carrier of any damage within 3 days of removal of goods. If SurfLife did not provide notice then they would not be able to make a claim against Feilong.

In conclusion Feilong is unlikely to be found liable for the delay in shipping, and the inadequate number of jeans. They are likely to be found liable under the MHVR to be in breach of Article 3(2) to take proper care of the goods. The exemptions listed in Article 4(2) will not be applicable, and so they will have to pay damages according to Article 4(5). The result is that Feilong will have to pay US$1,046. 67 in damages to SurfLife. Part C: The relevant laws would be much different if the goods were shipped from a manufacturing complex in Singapore.

Although the cases would not be the same as determining the governing law in Australia, Singapore is based on the English common law system, and so would have a similar method. This would likely result in the governing law of Singapore being used. Singapore is a signatory to the CISG, however they did opt out of Article 1(1)(b), whereby the use of international private law could not lead to the application of the CISG. As both Japan and Singapore are signatories than Article 1(1)(a) applies, which still results in the CISG being applied. Punked Jeans would therefore still be liable for the missing jeans.

Under FCA Incoterms the seller is responsible for the carriage, risk, and costs of the goods up until the goods are unloaded at the port where they are to be shipped from. This means the carriage would have been organised by SurfLife, and so SurfLife would have the contract with Feilong. SurfLife would not have to get around the privity of contract laws to sue Feilong for the damaged goods. The final difference is that Singapore has ratified the Hague-Visby Rules (HVR), not the MHVR that Australia has. The HVR states that the carrier is only responsible from tackle to tackle, from the loading to the unloading of the goods.

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