Parties Likely Legal Rights and Liabilities - Essay Example

?Question a) Outline and discuss each party’s likely legal rights and liabilities in relation to the above detailed first and second shipment contract deviations as governed by Australian law, assuming CISG applies. First of all, the issue is Northwest – it incurred $10,000 in extra bank costs, which gave it an excuse for non-performance on the contract. It delayed the shipment by 14 days, which covered its own issues, which was that its plant had a failure which would have made the shipment 10 days late anyhow. There are several excuses for non-performance, none of which appear to apply in this situation. One excuse for non-performance is impossibility. This generally means, under Australian law, that it is objectively impossible, which means that it would be impossible for anybody to perform the contract under the given circumstances (Schaffer et al, 1993). In this case, impossibility would not apply – incurring extra costs that are due to the other party’s misfortune does not make performance impossible, and the breach was only partial, not a full breach, so this would not apply. Frustration of purpose is the other excuse for non-performance (Knell v. Henry, 2 K.B. 740). This is where there is no value in performing the contract. Moreover, even though the contract had become more expensive to Northwest because of the higher bank costs, this is not an excuse nor is a frustration of purpose – Tsakiroglou& Co. Ltd. V. Noblee Thorl GmbH (1962) AC 93 states that just because the cost of performing a contract increases, that is not an excuse for non-performance. This was echoed in the ruling of Transatlantic Financing Corp. v. United States, 363 F.2d 312 (D.C. Cir. 1966). One issue that Northwest might use, under the CISG Article 79, is that it was not under obligation to perform while an impediment to performance exists. This is if the impediment is beyond the party’s control – the delay and error of PhilOre’s bank was beyond Northwest’s control; the impediment wasn’t reasonably foreseeable at the time of the contract; the impediment was unavoidable; and notice was given to other party of the effect on the contract. As for PhilOre, Northwest breached the contract to it, not just because the shipment was so late, but also because the shipment was incomplete. The reason why the shipment was incomplete was Northwest’s fault, so PhilOre should have some recourse on performing its part of the contract. According to Schaffer et al. (1993), a partial shipment could be considered to be a fundamental breach if it presents a serious problem to the buyer and cannot be quickly remedied. If the breach is considered to be fundamental, then the buyer doesn’t have to accept delivery or pay for the goods. This is only if the buyer gives notice of avoidance. However, Northwest has to be given the chance to cure, even if the shipment is incomplete, as it is here (Schaffer et al., 1993). The seller has the chance to cure until the time for performance expires. This means that the seller has the chance to cure by substitution or replacement goods if it can be done by the date of performance called for (CISG Article 37). Northwest tried to cure the defect by supplying PhilOre with a Taiwanese supplier at no extra cost. That said, according to the second fact pattern, there were more delays, which were beyond both parties’ control. However, these events did not make performance of the contract impossible, only impracticable and might excuse the further delay. When the ore shipment did not conform to the seller’s warranty about purity, there was a cure, but the cure delayed the shipment further. Therefore, PhilOre should have been entitled to the damages that it incurred because the shipment was delayed. However, there was a mistake on the part of Northwest, in that it shipped ore that was more pure than what it had previously warranted, and more pure than what PhilOre had paid for. The English case of Bell v. Lever Brothers [1931] UKHL 2 states that a contract is only voidable in the event of a common mistake if the mistake fundamental to the identity of the contract. In this case, Northwest could argue that the mistake was fundamental to the identity of the contract, as the contract was based upon the ore being a certain grade – no more and no less. (b) Would PhilOre be entitled to terminate the remainder of the contract – the July 2012 instalment – and if so what consequences would follow? Perhaps. There were several breaches in the first instalment that might give PhilOre grounds to believe that the future instalments might be breached, which gives it a right to avoid the further instalments and declare the entire contract avoided if it gives notice to the other party within a reasonable period of time. Whether or not PhilOre has “good grounds” to believe that other breaches are imminent is open to interpretation, but Northwest doesn’t seem to have delivered its part of the contract in good faith – using PhilOre’s bank issue as an excuse for non-performance, when it wouldn’t have been able to perform on time anyways would give PhilOre reason to believe that Northwest is not dealing in good faith. So, if there is deemed to be good grounds for avoidance, then PhilOre would not have consequences for the anticipatory breach (Schaffer et al,, 1993). Question 2 (a) In the factual matrix outlined of two separate but concurrent fraudulent transactions, how might Northwest and PhilOre best cooperate for their mutual benefit? The two companies should pursue the contract on the terms that were at first negotiated, and agree to do this, and then PhilOre would be able to sue the colluders for the difference in the price. PhilOre’s reasoning would be that it would not be practical to rescind the contract, because it needs to ore right then, but it had contracted for a better quality of ore than what was delivered, and this was the fault of the colluders. This would benefit both parties – PhilOre would get the shipment it wanted, and Northwest would not have a rescission on its hands, which would mean that it potentially would be stuck with the ore. As for the letter of credit, the two parties should agree that the bank would dishonour the payment, and, if it doesn’t, the two parties can seek an injunction for it to do so. (b) Conveniently further assuming in sequence (i) issuance only of the false purity certificate, and (ii) issuance only of the false letter of credit and related documents, what would be the respective innocent party’s legal rights? In this case there was a clear case of documentary fraud. According to Schaffer et al. (1993), citing the United States case of Banco di Roma v. Fidelity Union Trust Co., 464 F.Supp. 817 (1979), the bank in question, Banco di Roma, properly dishonoured nonconforming shipping documents, but it should have held the documents at the remitting bank’s disposition so as not to impede the remitting bank’s efforts to mitigate damages. The remitting bank in this case, Fidelity, was entitled to reduce its liability by any amount that it could have avoided had the issuing bank made the documents properly available. However, Schaffer et al. (1993) states that if there is fraud, as there was here in this case, and the documents are forged or fraudulent, then most courts would issue an injunction against the bank and order it not to pay on the credit. This is what would happen in this instance, then, and the bank wouldn’t pay on the credit, which would mean that the contract would be voidable on both sides. However, under the UCC, the bank doesn’t have to dishonour the draft, even if it gets prior notice of the fraud. This would mean that the customer in this case would have to get an injunction against the bank to stop payment (Hotchkiss, 1994). As for the certificate of purity being tampered with, this would cause a mistake on both parties, neither of which was the fault of either of the parties in question. However, the parties found out about the mistake, which was caused by fraud, before the contract could be performed. Horn et al. (1985) states that, in this case, where there was a mutual mistake, there can be either a modification or abrogation of the contract. Therefore, it would seem that, in this case, there can be grounds for some kind of contract modification. This would mean that the parties can either agree to contract on the ore at the price that would be appropriate for ore that was only 58% pure, as opposed to 63.5% pure, or the parties can choose to rescind the contract. At any rate, the contract would have to be renegotiated, because the item that the two parties negotiated in the contract changed substantially – there was no longer a meeting of the minds, which is necessary for any contract negotiation, because, originally, the contract was for a certain percentage of purity, and this percentage wasn’t true, and it was not the fault of either parties that this was the case (Folsom, Gordon and Spanogle, 1992). Sources Used Bell v. Lever Brothers [1931] UKHL 2 CISG Article 37 Folsom, A., Gordon, B. & Spanogle, G. (1992) International Business Transactions in a Nutshell, New York: West Publishing Co. Horn, N. (1985) Adaptation and Renegotiation of Contracts in International Trade and Finance. Frankfurt: Kluwer Law and Taxation Publishers. Hotchkiss, C. (1994) International Law for Business. Sydney: McGraw-Hill. Knell v. Henry, 2 K.B. 740 Schaffer, R., Earle, B. & Agusti, F. (1993) International Business Law and its Environment. New York: West Publishing Co. Tsakiroglou& Co. Ltd. V. Noblee Thorl GmbH (1962) AC 93. Transatlantic Financing Corp. v. United States, 363 F.2d 312 (D.C. Cir. 1966). Read More