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World Trade Law

1.1. Issue:

The issue in the instant case is whether Big Buck Chemical Pty Ltd. have any rights and obligations against Shenghua Co. Ltd.

Rule:

Articles 1, 25, 33, 35 (1), 38 (1), 39 (1), 39 (2), 46 (2), 49 (1), 51 (1), 74 of CISG

Application:

The fact that both the parties belonged to different States, make the provisions of United Nations Convention on Contracts for International Sale of Goods applicable (Article 1, CISG) in the instant case. The facts of the case in hand suggest that Big Buck Chemical Pty Ltd. ordered 7000 tons of sodium bromide at $5000 per ton and the last date of delivery was 20th March, 2020. The delivery of the goods by Shenghua Co. Ltd. was to be made on 20th March, 2020 as decided by the parties (Article 33, CISG) but the goods were dispatched on this day to the Merchagent who then carried to the goods to Adelaide. The goods were delivered to the buyer on 15th April, 2020.

There is a clear breach of contract by the seller in the instant case as the conditions of the contract are not fulfilled by him as a result of which the buyer is deprived of the goods he ordered (Article 25, CISG). Apart from the delay in delivery of the chemical, the quality delivered is of a lower grade than, what was ordered by Big Bucks. It must be observed that on examination done by Boxhill Trading Pty Ltd. of the chemical delivered (Article 38(1), CISG), it was found that 2000 tons of the chemical was of lower grade which cannot be accepted as the seller has an obligation to deliver the described quality and quantity as specified by the contract and the contract clearly specified “export quality” chemicals (Article 35(1), CISG). The seller would be liable under Article 36 of CISG as the goods are not in conformity as decided under the contract.

As there has been breach of contract by Shenghua Co Ltd. the buyer i.e. Big Buck Chemical has various remedies in relation to such breach. Big Buck can exercise his rights provided under CISG against Shenghua and also claim damages for the harm caused. The quality of 2000 tons of chemical does not conform to the contract, as order for “export quality” chemicals was given to Shenghua under the terms of contract but on examination, it was found by Boxhill Trading that 2000 tons were of a lower grade. As most of the obligations provided under CISG has already been fulfilled, Big Bucks just has an obligation to send a notice to the buyer (Article 39 (1), CISG) specifying that the quality of the chemical is different from the quality agreed under the contract. This notice shall be sent with such specification at the latest or within a period of 2 years when the chemical was handed to Big Buck (Article 39 (2), CISG). Big Buck also as a part of his obligation attach with such notice a request for substitute goods which have to be fulfilled by Shenghua within a reasonable time frame (Article 46 (2), CISG). It is clear that Big Buck has already paid the price of the goods. In such a situation, the seller has the decrease the price of the goods as per instructions from the buyer to the tune of the loss incurred by the buyer. All of this can be done in case Big Buck wants to keep the goods for future sale.

Big Buck can avoid the contract as there is failure on the part of Shenghua to deliver the required quality of product and fulfill his obligation under the contract (Article 49 (1)). This leads to fundamental breach of contract as Big Buck is deprived of the export quality chemical (Article 25, CISG). The lower grade chemical cannot be used to make disinfectants. In the instant case all the above available remedies are available in proportion to the goods not in conformity with the contract (Article 51 (1), CISG).

Talking about the damages in relation to the contract, if at all Big Buck agrees not to avoid the contract, Shenghua will have to indemnify the loss incurred by Big Buck for 2000 tons of lower quality chemical delivered plus the loss of profit suffered by it (Article 74, CISG). Shenghua should have mitigated the losses due to breach of contract and should have taken reasonable measures to mitigate the losses.

Conclusion:

Shenghua will be liable to pay damages under the above mentioned sections in proportion to the loss incurred by Big Buck. The obligation on Big Buck is to send a notice to Shenghua specifying the issue within a reasonable period of time.

1.2. Issue:

The issue in the instant case is whether Big Buck Chemical Pty Ltd. can sue Merchagent (M) or the Stevedores for the loss incurred due to the fault of theirs?

Rule:

Article III (1)(a)(c), Article III (2), Article III (6) of The Hague-Visby Rules.

Clause 5.1 of London Institute Cargo Clauses (A)

Application:

According to the given facts of the case, Shenghua Co. ltd. arranged for the carriage of goods. Merchagent (M) was chosen to carry the chemicals to Adelaide against the payment of freight. In view of the same insurance of the goods was also done by engaging QFE Insurance Company which used London Institute Cargo Clauses (A). It should be noted that on 20th March, 2020 when the chemicals were loaded on the vessel, the carrier issued a “clean bill of landing” which means that till the time of loading of chemicals, there were no defects in it. In the light of this, Merchagent (M) was under some obligations before the voyage. These obligations include exercise of due diligence by Merchagent (M) to make the vessel shipworthy and make holds, cool chambers and places where the goods are kept and carried, fit and safe for their reception, carriage and preservation (Article III (1)(a)(c), The Hague-Visby Rules). Merchagent (M) is also under an obligation to load, handle and discharge the goods properly and carefully (Article III (2), The Hague-Visby Rules). Bill of Landing given by the Merchagent to the seller is a prima facie evidence that at the seller has given the goods free of any leakage or defect.

It should be observed that during the voyage, 1,000 tons of the chemicals were water damaged through leakage of water into the hold of the vessel. This leak occurred because one bolt on the hatch of the hold was not properly tightened. Such carelessness on the part of carrier calls for lack of due diligence to make the hatch and hold of the vessel fit and safe for the goods in it (Article III (1)(c), The Hague-Visby Rules). Due to this lack of due diligence, Big Buck Chemical suffered a loss of 1000 tons of chemicals. The question now arises whether the insurance company will be liable to pay this amount. This can be answered in negative as it is clear from the facts of the case that QFE Insurance Company has adopted London Institute Cargo Clauses (A). According to these rules, QFE will not be liable for any loss or damage arising out of unseaworthiness of the ship or its unfitness (Clause 5.1, London Institute Cargo Clauses (A)). So QFE is exempted to pay any loss in this situation. The damage suffered by the buyer will only claimed by the carrier i.e. Merchagent (M). To claim such damages from Merchagent (M), a suit has to be filed within a time period of one year. If Big Buck lapses this time period, Merchagent (M) will be free from every liability (Article III (6), London Institute Cargo Clauses (A))

The loss of 1000 tons of chemical again occurs when the vessel reaches Adelaide. This time it occurred due to carelessness of stevedores who dropped the chemicals into water while unloading it from the vessel. The workers on the vessel are under an obligation to load, handle and discharge the goods properly and carefully (Article III (2), The Hague-Visby Rules). Due to this fault of the stevedores, Merchagent (M) would become responsible to pay the damages. However, this loss can also be made good by QFE Insurance Company as the chemical is insured and this act does not fall into any of the exception clauses mentioned in Clauses 4, 5, 6 and 7 of the insurance policy. The loss suffered due to drop of 1000 tons of chemical into water can be made good if Big Buck claims the insurance money or he can also ask the Merchagent (M) to indemnify the loss suffered. Big Buck holds interest in the insured subject matter which is one of the important things to be considered which invoking insurance.

Conclusion:

The loss of goods due to leakage of water can be made good by suing Merchagent (M) within a period of 1 year and the loss of 1000 tons of chemical which was dropped by the stevedores can also be indemnified by either the Merchagent (M) or the insurance company i.e. QFE Insurance Company.

1.3. Issue:

The issue in the instant case is whether Big Buck Chemical Pty Ltd. can refuse to reimburse the bank for the amount paid by the bank through Letter of credit?

Rule:

Article 54, 58 (3) of CISG

Application:

The method arranged for payment of price of goods is through a Letter of Credit. It was agreed between the parties that the Letter of Credit will only be payable when the commercial invoice along with clean bill of landing and insurance policy are presented to the bank. The Letter of credit given to CMB Bank clearly expressed that the chemical would be of “export quality”. But according to the facts of the case, when all these documents were presented before the Bank, the invoice consisted of a description that the chemical is of “premium quality”. But then too the bank reimbursed Shenghua for all the expenses incurred and the cost of chemical. Now Big Buck owes the amount to the bank.

Big Buck is under an obligation to reimburse the bank for the price of chemicals delivered to it according to the terms of contract and the mode of payment agreed upon (Article 54, CISG). However, Big Buck is not bound to pay the price of the goods until he has examined the goods. After the examination if it is found that there is some inconsistency with the agreed terms and conditions of the contract, Big Buck cannot be bound to pay the price of the goods (Article 58 (3), CISG). In the instant case, the bank has paid the amount to Shenghua when he presented with other documents an invoice in which description of chemicals was “Premium Quality” but the quality expressed in the Letter of Credit given by Big Buck to the CMB bank was “Export Quality”. The bank had acted negligently and hence Big Buck is not liable or bound to reimburse the bank.

Conclusion:

Big Buck is not bound to reimburse the amount to the CMB bank which it paid to Shenghua Co for delivery of chemical.

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