Law of International Trade - Essay Example

? Introduction An international contract to supply high quality speakers was entered between Modern Sounds Corporation (MSC) and North Atlantic Sounds System (NASS). The former has a manufacturing plant at Mumbai, India. It produces the high quality speakers in large scale and exports them to different parts of the world. The NASS on the other hand is involved in the reselling of quality speakers after it has imported them. The ECOs of the companies had reached an agreement that MSC would supply NASS with about 10,000 units of high quality speakers in a period of 60 days, from 15, Feb 2012. The two agreed that payment would be done through a letter of credit, through a bank that the two parties would agree on. However, on Feb 17, 2012, NASS suggested to MSC that they could transfer the goods through the M/S Speedy Delivery, which was already at the port of Mumbai. The two CEOs agreed on how this would be done. The challenge During loading the goods to the ship, it is indicated that the crane snapped causing loss of 1,000 units instantly. However, upon leaving the port, the Master M/S Speedy Delivery recorded that all the materials, which had been requested by NASS, had been loaded on the ship. This is despite the fact that 1,000 units had already accidentally dropped in water and therefore, remaining only 9,000 units. On March 20, 2012, Somalia pirates attacked the ship where 3,000 units of speakers were stolen. In the process of struggle, further 1,000 units were destroyed. This was a loss that had not been anticipated by any of the parties in the contract. In addition to this loss, it is indicated that as the ship left for Southampton, it faced challenges at the Mediterranean Sea. Due to dangerous and unexpected waves, about 1,000 more units were lost. The remaining units (4,000) arrived at the Southampton Port on 10th, April 2012. According to the NASS representatives at the port, only 9,000 units had been loaded in the ship before it left from Mumbai. This was against had been indicated in the bill of lading. Of the 4,000 units delivered, only 3,000 were functional. The inspectors indicated that the 1,000 units, which were malfunctioned, could trace their defect from the manufacturing company in Mumbai. For that reason, NASS has the right to make claims for damages both from the owners of the ship and the manufacturing company. Question 1 you are a trainee solicitor in a Golden Circle law firm in London. You have been asked by the Chair of the International Sale Contracts Department of the law firm to explain what rights, if any, NASS may have against MSC in respect of the breach, if any, of the international sale of goods contract entered into between the CEOs of both corporations. The Chair does not want you to consider the breach, if any, of any carriage of goods contract by the owner(s) of the M/S Speedy Delivery, nor the Rome 1 Regulation of the European Union. In the above statement of the case, it is clear that NASS is guaranteed compensation by both the owners of the ship and the exporting company. The losses suffered could be attributed to the mistakes by both the owners of the ship and the exporters. From the terms and conditions of sale, the contract will only remain valid if all goods delivered to NASS were quality goods. However, upon inspection by NASS, 1,000 units of goods delivered were found to be defective. This is a good ground for the company to sue for damages. In international trade laws, the importing companies would receive compensation through two main ways. Firstly, the 1,000 units which were malfunctioned could be replaced with quality others. For that reason, MSC would be required to compensate NASS by providing 1,000 units. This owes to the fact that the company was to blame for the malfunctioned goods. Secondly, NASS has a right to ask for a refund of amount equivalent to that of the malfunctioned goods. As indicated in the agreement, each of the unit was to cost 400 pounds. With 1000 units destroyed, NASS has a right to 400,000 pounds compensations from the MSC. Normally, a company would be compensated if after it conducts its inspections and notices any defects, reports to the exporting company within 14 days. As indicated from the case, the CEO of NASS has just received the bad news, but has not reported to MSC about the case. If this remains so, the company does not have any rights to claim for compensation in future. Therefore, the CEO should need to address the CEO of MSC officially through a letter, or any other method of communication that the two parties deem right. As indicated, this communication should be done within the first 14 days. In the letter, the CEO should be able to explain the number of goods had defects and have them returned to the exporting company. Apart from the 1,000 malfunctioned speakers, no one knows whether the rest, which were stolen, and others lost in the sea had such defects. It is the responsibility of the exporting company to ensure that goods sent to the importer are of the agreed quality1. However, in the above case, it seems that the exporter broke the laws of the contract by supplying defective goods to the importers. Therefore, there is a high possibility that amongst the lost goods, others could also be spoilt. In suing for damages, this company would therefore indicate that the lost goods could also have defects2. The other case would be that the company could decide to terminate the contract entirely3. It may state that it does not trust the quality of goods, which has been supplied to the company. After the large number of defective goods was detected, it appears that the exporting company did not take necessary care to ensure that the NASS received quality goods. It appears that the company was in a hurry to supply the goods, to the extent that it did not consider the damage that would occur if the goods were to be transported to the importer. However, one of the main causes of this anomaly would be explained by the fact that NASS changed the earlier contract agreement between the two parties. According to an earlier agreement, the MSC was expected to decide the means of transportation that would have been used to ensure that the goods reached their destination. However, two days after this agreement was arrived at, NASS had decided to take advantage of a ship that was already leaving the dock of Mumbai. Though there was an agreement by the two parties, the goods exchanged ownership immediately they were loaded in the ship. Therefore, it would be difficult for the NASS to expect to be compensated by MSC. In conclusion, the case presented indicates that NASS should be compensated by both the MSC and the owners of the Ship. The MSC however, would only be liable for the 1,000 units of high quality speakers that were found to be faulty. This is because once the goods had entered the ship; they ceased to be under the control of the exporting company4. In addition to that, it is the importing party who had requested that such goods be transported using such means of transportation. The exporter owes the importer in the sense that he failed to ensure inspection of all goods before they reached they were transported to the intended party. It is the responsibility of the exporter to ensure that the quality of goods is in accordance with the stipulation signed in the agreement. The importer ought to respond to the exporter in a letter stating that a specified amount of goods had defaults. In the letter, the importer is also expected to state how he expects the issue to be solved. In the above case, two main ways though which the importer would be compensated would be through replacement of the defective goods or receive money, equivalent to the malfunctioned goods. In certain instances though, the importer may decide to terminate the contract in its entirety. With the exporter proving to be untrustworthy, the importer would use such a ground to terminate the contract. Question 2 You are a trainee solicitor in a Golden Circle law firm in London. You have been asked by the Chair of the Carriage of Goods Department of the law firm to explain what rights, if any, NASS may have against the owner(s) of the M/S Speedy Delivery in respect of the breach, if any, of the carriage of goods contract entered into between NASS and the M/S Speedy Delivery. The Chair does not want you to consider the breach, if any, of any international sale of goods contract entered into between the CEOs of NASS and MSC. From the above case, it is imperative to note that NASS has a right to be compensated by the owners of M/S Speedy Delivery. The first mistake happened when the goods were being loaded in the ship. Though 1,000 units were lost accidentally when they were snapped by the crane, the Master M/S indicated on the bill of landing that 10,000 units were present. This is a mistake that should not have occurred in the first place the importing company has a right to sue the owners of this ship for this gross misconduct. The NASS can for instance rely on the information recorded on the bill of lading, to push for compensation. For instance, it would state that instead of the 4,000 units that were finally received, 5000 units would have been present. This would force the owners of the ship to compensate the NASS all the 1,000 units of high quality speakers that were missing. This discrepancy was made at the port of Mumbai deliberately owing to the fact that all the members of the crew knew what had happened. It is therefore imperative that they explain their motive in recording that all the requested goods had been loaded to the ship. However, the owners of M/S Speedy Delivery may explain that it there was a mistake in the recording made in the bill of lading. However, this still does not exonerate the owners from the loss of the first 1000 units of high quality goods5. It is upon the owners of the ship to ensure that all the goods are loaded in the ship without any defects. Any loss that is incurred in the process is the responsibility of the shipping company. For that reason, it is upon the CEO to take the appropriate legal actions against the company to receive compensation for the goods that had been lost. This would happen immediately a letter of complaint is sent to the owners notifying them of the losses that had occurred as a result of the mistake by the members of the crew. Such members owe the clients the duty of care, by ensuring that all the goods remain in good shape while in transit. Apart from the 1,000 goods that were lost during loading, there was further 3,000 units of goods that were stolen by the pirates and 1,000 more destroyed. Prior to this attack by the pirates, other ships passing through the same route had been attacked, and suffered similar losses6. For that reason, many ships had taken the insurance cover against such losses. This kind of loss is not classified as an act of God7. For that reason, the owners of the Ship cannot be exempted from the blame. They should have known that this particular area did actually have pirates who posed threat to the shipping industry. It is indicated that the ship crew, tried their best to fight with the pirates and managed to rescue some goods. However, the fact still remains that quick a large number of goods were stolen, creating loss for the importer. It is imperative to note that the exporter cannot be blamed for what happened to goods at this particular stage8. This is bearing in mind that the exchange of ownership of goods took place immediately the goods were in the Ship9. Secondly, it is also important to know that it is actually the importer who preferred to make use of this particular ship. As indicated before, the exporter had different arrangements on how such goods would reach the client. For that reason, it would be impossible to blame the importer since his work was to ensure that all the goods, as stipulated in the agreement reached the port. On the other hand, though, once the goods reach the port, the responsibility of care shifts from the exporter to the ship owners10. All the goods including the ones that dropped into the ocean were therefore part of the ship owners’ responsibility11. Normally, it is imperative that the owners of the ship to realize the risks that are likely to occur when transporting the goods via the sea. Though some risks are acts of god, others are avoidable if proper measures are taken into consideration. In the above case for instance, the attack by the pirates should have been premeditated. This is owing to the fact that this kind of attack had already taken its toll. It was the responsibility of the owners to take proactive measures, which includes and not limited to availing the right kind of security measures. This would include hiring enough security men who would be ready to defend the ship once there is an attack like the one witnessed. This is what many other companies have decided to do to prevent further losses of goods. However, some shipping lines have not yet adhered to this practice for the need to avoid the high cost incurred. It is vital to note that the cost of maintaining security is low compared to the losses, which may be incurred when the materials are stolen. For the above reason, two scenarios present themselves. Firstly, that the owners of the ship had already insured the vessel against any in eventualities like the one witnessed. Secondly, that the owners of the ship had failed to ensure adequate security for the goods that was in the ship. In both scenarios, the importer had the right to be compensated. If the insurance company for instance finds out that the ship owner had taken the appropriate security measures but still succumbed to the pirates’ heinous acts, they will be assisted in compensating the importer. This would alleviate the liability and the big burden that the ship owners have against the importer. On the other hand, if it is established that the ship owners failed to provide adequate security, the importer still is compensated. However, the impact of the burden falls on the ship owners, since the insurance company may not assists them in recovering the losses. This is especially if the agreement read that the ship owner must provide adequate security at all times. It is therefore imperative to note that the ship owner would have to compensate the NASS not only the 3000 units of high quality speakers, but also the 1,000 that were destroyed in the process. The importer has a right to sue for such damages. He could indicate that the ship owner had the chance to prevent such losses but failed to do so due to poor security preparedness. On the other hand, he could argue that the ship owners have the responsibility of ensuring that the goods reach their final destination safely. That is, the goods should reach their final destination without any defect whatsoever. However, the M/S Speedy Delivery owners may deny the charges of having to compensate the importer for all the goods that had been destroyed. They could state that they had tried all they could to salvage the goods from being stolen but failed. The court on the other hand would focus on whether it was reasonable for the importer to sue the owners of the ship. Secondly, even if it were established that there was a substantial reason, it would also be important for the court to state whether the ship owners would be required to compensate for all the 4,000 units lost, or just the 3,000 stolen by the pirates. The next catastrophe occurred when the ship, travelling in the Mediterranean Sea, was hit by unprecedented and unexpected storm. According to the case, this was not expected at this time of the year. In that incidence, about 1,000 units of high quality speakers were destroyed by water. This meant that all the units that had been destroyed in the sea through this company had risen to 5,000. However, this situation is different from the above and the ship owners should be prepared to take advantage of it. Normally, if an accident occurs due to an Act of God, the ship owners ought to be exempted from it12. However, there is a condition to this too. The ship owners should be able to predict when such catastrophes are likely to occur. It would be impossible for the ship owners to prevent that kind of loss since they cannot fight the sea waves. They would therefore be exempted from this kind of blame. On the other hand, though, the NASS would still demand compensation for such losses. It would rely on a number of facts on the ground. Firstly, they could argue that the owners of the ship failed to consult the weather experts’ prior passing through the Mediterranean Sea13. This is a good ground to indicate that the ship owners failed to take precautions even when they had a chance to do so. As indicated from the case, it seems that the ship owners were relying on the condition at the sea at this particular time of the year. This owes to the fact that it is stated that, ‘this is not expected at this time of the year.’ Dwelling on what was supposed to be expected as a way to deal with the situation in hand was not prudent. Though no one expected the situation to change, it was still necessary that proper measures be taken to prevent such a loss. Secondly, the importer would also assess to find out how the goods had been stored in the ship. The owners ought to have ensured that the goods are kept in a safe place, which would prevent any damage even if there were an incidence life the one witnessed. Therefore, even if the water entered the ship, of proper care had been ensured during storing, the goods might not have been spoilt. If the importer is able to show that the two are indeed correct, then the ship owner is liable for the losses that were witnessed at the sea. In conclusion, therefore, the ship owners were responsible for the losses that were incurred on goods. This is considering the fact, that once the goods exchanged hands; they remained under the owners of the Ship's care. Such goods were supposed to reach their final destination in good shape. Giving false information about the quality of goods that were on board was a gross misconduct, which needed to be punished. However, though there were about 1,000 goods that were destroyed through an Act of God, of the importer can still demonstrate that the loss would have been avoided, them there will still be compensation. Question 3 “Credit extended in a letter of credit transaction is based on the credit of the Buyer’s bank and not on the credit of the Buyer.” Critically analyse this statement. A letter of credit is imperative in any international trade. This is especially where the seller is expected to supply a large consignment of goods to the buyer. It is defined as the document that is issued by financial institution providing assurance that even if the buyer defaults in payment, the seller will still be compensated14. This definition indicated that the bank is responsible for ensuring that the seller receives his payment immediately the goods have reached their intended destination15. For that reason, the above statement is true that the bank bears the responsibility to ensure that the plight of the seller is addressed adequately. The bank acts as the actual buyer of the goods who ought to take the obligation to pay for such goods. As indicated before, both parties in the contract should agree on the bank that they would be willing to use in making their transactions. Bibliography Bagwell, Kyle and Robert W. 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Hoekman, Bernard and Michel Kostecki 1999, the Political Economy of the World Trading System, Oxford University Press, Oxford and New York. Horn, Henrik and Petros C. Mavroidis 2008, “The WTO Dispute Settlement System 1995- 2006: Some Descriptive Statistics,” IFN Working Paper No. 740, Research Institute of Industrial Economics. Howse, Robert and Robert W. Staiger 2005, “United States—Anti-Dumping Act of 1916 (Original Complaint by the European Communities) — Recourse to arbitration by the Jackson, John H. 1997, “The WTO Dispute Settlement Understanding—Misunderstandings on the Nature of Legal Obligation, “The American Journal of International Law, 91 (1), January, pp. 60-64. Kaplow, Louis and Steven Shavell 1996, “Property Rules versus Liability Rules: An Economic Analysis, “Harvard Law Review 109 (4), pp. 713-790 Maggi, Giovanni and Robert W. Staiger 2008, “The Role of Dispute Settlement Procedures in International Trade Agreements,” NBER Working Paper No. 14067, June. Martin, Alberto and Wouter Vergote 2008, “On the Role of Retaliation in Trade Agreements, “Journal of International Economics76 (1) Van den Bossche, Peter 2008. The Law and Policy of the World Trade Organization - Text, Cases and Materials. Maastricht University: Cambridge University Press. p. 917. ISBN 978-0-521-72759-4. Read More