Analysis of International Trade - Case Study Example

Topic: Law of International trade Instructions: Discuss and analyse in-depth the decision of Mr. Justice Aikens in Primetrade AG v Ythan Ltd (The"Ythan") [2005] EWHC 2399 (Comm) and its impact on the law as it stands. Introduction: This analysis is on the case - Primetrade AG v Ythan Limited (The "Ythan") English Commercial Court: Justice Aikens: [2005] EWHC 2399 (Comm): 1 November 2005 The respondents and claimants were - Simon Bryant (instructed by Mills & Co) for the Defendant/Claimant in the Arbitration, Graham Dunning QC (instructed by Stephenson Harwood) for the Shipowner Claimant/Respondent in the Arbitration. The case deals with, the Shipowners' claims against bills of lading holder after loss of vessel. The issues taken into consideration are - 1. Carriage of Goods by Sea Act 1992, Sections 2(1), 2(2), 3(1), 5(2) and 5(4): 2. Meanings of "Holder", "Transaction", "Making a Claim". 3. Arbitration clauses in bills of lading and Arbitration Act of 1996, Sections 67 and 73. 4. The differences in certain legal terms such as dealing with 'objection'. 5. Adducing additional evidence in support of objection on appeal. In short this case could be described as having the features of existence of contract, liabilities of holder, bill of lading and damage to vessel due to shipment of dangerous cargo. Decision was given by Justice Aikens. Background The background of the case is as follows: Ythan limited or 'Ythan' as called here are ship owners who claimed damages through this case against bills of holder Primetrade after the ship/vessel was lost. The loss of the vessel has been allegedly due to shipping of dangerous cargo that is a breach or violation of contract signed by the lading holders Primetrade against a dangerous cargo warranty. The vessel was chartered under contract of affreightment by Primetrade to charterers Phoenix Bulk Carriers Ltd referred as Phoenix and thus two sets of bills were issued via contractual incorporation. The cargo was shipped by Orinoco Iron CA also known as Orinoco and they agreed to sell the cargo to Primetrade. Primetrade sold the cargo to Orient Prosperity or Orient in Jingtang China. The cargo was insured through insurance brokers Marsh and McLennan group (Marsh) and was financed through bankers UBS with a credit agreement governed by Swiss law. Orinoco then presented shipping documents to bank for payment and the bank forwarded the documents to UBS. The vessel however was lost at this point and Primetrade and Orient agreed to cancel the on-sale contract and letters of credit and Primetrade sought to make a claim on insurance policy for loss of cargo. The loss of vessel occurred as on February 28, 2004 a disastrous explosion occurred on board the bulk carrier or vessel the Ythan which resulted in death of crew and the cargo of 33, 760 MT was also completely lost. It was shipped from Venezuela for discharge at Jingtang Port, China. The shippers were Orinoco and they were to sell to Primetrade, a Swiss company and they wanted to sell the same quantity of the commodity to Orient Prosperity to China, so the contract showed end user in China. There was a settlement that Primetrade would be paid with release of the bills despite discrepancies in the documents. Primetrade complied with duty of contracts, and secured rights against time limitations and placed shipowners on notice for losses and consequences of casualty. The dispute on payment of bills and claim for losses were referred before arbitrators in London judiciary. The arbitration held that Primetrade were holders of the bills for a short time until the insurance claim was paid. Primetrade made a claim due to threat of arrest and also appealed to the decision of arbitrators bringing forth new evidence and objections for appeals. The new objection and evidence as also the question whether Primetrade was the holder of bills were as important as Primetrade's claim under contract of carriage against carrier. The explosion and loss of cargo on board made it possible for the owners to appeal under section 67 of the Arbitration Act 1996. The owners pursued a claim against Primetrade for losses that they suffered due to dangerous shipment of cargo that was a clear flouting of rules and against contractual obligations. Considering the Carriage of Goods by Sea Act 1992 ("COGSA") the owners considered Primetrade as the lawful holder of the bills of lading and as a lawful holder, Primetrade made a claim against contract of carriage against the owners. The owners thus claimed that they were entitled to sue Primetrade for losses they have suffered as Primetrade violated contractual obligations to ship dangerous cargo. The claim by owners to Primetrade was at 15million USD. The questions that were being considered were whether Primetrade was the holder of bills of lading and also whether it or the agents made a claim under contract of carriage against the carrier. Considering a summary of the case, the new objection point seem to be based on the interpretation of the Arbitration Act 1996 as any point within existing grounds of objection raised before arbitrators will have to be examined broadly. The holder point shows that if a vessel and cargo are totally lost, the question of a party becoming holder of bills of lading after losses should be dealt with according to section 5(2c) of the Carriage of Goods by Sea Act 1992 ("COGSA 1992") The three points here on holder point, objection point and making a claim point brings to the last bit of making a claim point. The making a claim point would deal with request for security using the letter of undertaking or LOU and a lawful holder of bills would be formal to make a claim upon contract of carriage according to what given in section 3(1b) of COGSA 1992. Judgment: The judgment according to the Court was based on the three points of making a claim, objection point and holder point. The Arbitration Act of 1996 was considered in accordance with the Arbitration law and there were no clear definition as to whether the word objection meant objection to jurisdiction or simply grounds for objection. A party objecting to jurisdiction can bring forth the objections in front of the arbitrators. Grounds of objection could be raised before arbitrators and highlighted the role of new evidence in support of arguments. New evidence could be brought in but it did not stop the court from exercising control. For fair dealing however it is required that a party must forward all evidence to the arbitrators. For new evidence the party has to seek permission and Ythan's new evidence was admitted considering that the new evidence was not thought to prejudice the position of the case and of Ythan. Two questions were raised with regard to holder points - (1) were Primetrade the "holder" of the bills, and (2) had Primetrade "made a claim" upon the contract of carriage Primetrade could become a holder if the facts were in accordance with Cogsa, as given by the ruling. This would depend on whether section 5(2) c and loss of cargo could make Primetrade the holder. The issues here were meaning of the word 'transaction', and 'possession of bills and right to possession of goods' and the process by which bills are transferred from one person to another. The situations where goods are destroyed or vessel sinks or is lost are similar to the case here. The transactions to consider here are in this particular case would be UBS bills transferred on payment to Orinoco and UBS bills transferred to Marsh. The judge ruled that under the letter of credit, UBS was the holder of bills. Although Primetrade had under Swiss law become the holder of the bills following payment to Orinoco. The Judgment ruled that: "Primetrade was not an original party to either Bill of Lading, so it was not originally a party to the arbitration clauses in the Bill of Lading contracts. However, it is common ground that if Primetrade did become the "lawful holder" of the two bills of lading so as to transfer to it rights of suit under the bills of lading and if Primetrade had also "made a claim" under the two bills of lading against the Owners, then it, as well as the Owners, would be bound by the arbitration clause in the two bills of lading". However Primetrade did not become holder as transaction of UBS and Marsh did not allow Primetrade to become a holder if the transaction took place before the goods were lost and the ship sank. The judge held that Primetrade would not have been a holder of bills due to UBS Marsh transaction if it had occurred when bill possession gave a right to possession of related goods. Primetrade did not become holder of the bills as transactions were made in pursuance of contractual arrangement made after the time when possession of cargo ceased to be associated with possession of bills and the judge pursued why there was a transfer of bills from UBS to Marsh suggesting that transaction must be the reason or cause for transfer. The decision was that the cause of the transfer could be dealing with loss of cargo and thus the transfer was a compromise between Primetrade and others and contractual arrangement made after the vessel and cargo were lost. The judge indicated that rights of suit could not be transferred to Primetrade and that even Primetrade could not transfer rights of suit as well. The making the claim point was not decided whether Primetrade had made a claim against the carrier. It was judged that arresting a ship would mean that the bill holder can enforce contractual rights against the carrier and the reasoning would fall in place . However it was held that request for security in the form of an LOU was not equivalent to making claim for the purposes. The request for security is different in character and the arrest of a vessel is a formal and final action of a claimant and the LOU is for that matter more of a contractual agreement and no one could be making a claim against shipowners and also the fact that Primetrade was making a claim was not too clear at any stage. The Judge's decision was thus based on these three holder point, objection point and making a claim point. Analysis: The first point of the analysis is how Cogsa could be applied or become relevant for this case - The shipping documents to which the Act applies would be any bill of lading and the rights under the shipping documents would be related to the lawful holder of a bill of lading and he would also be vested with rights of suit under contract of carriage if he had been party to the contract. A person who becomes the lawful holder of a bill of lading possession of bill may not give him rights to possession of related goods. According to Cogsa1 - Where, in the case of any document to which this Act applies - (a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but (b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person, The other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised. Thus it is seen that the person can sustain loss or damage if he breaches contractual obligations although the rights of suit for breach could be vested in another person. This is particularly relevant here in this case as Primetrade has been accused for breaching regulation and of violating contractual obligations suggesting that would have to sustain or pay up for the loss or damage to vessel and cargo. The UBS Marsh transactions show that they were exercising rights on bills after Primetrade suffered losses on the cargo although this would bring us to the discussion of liabilities as mentioned in the next section. Liabilities under shipping documents as given by Cogsa2 (1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection - (a) takes or demands delivery from the carrier of any of the goods to which the document relates; (b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or (c) is a person who, at the time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods, that person shall (by virtue of taking or demanding delivery or making the claim, or in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract. The Cogsa or Carriage of Goods Act gives the following explanation or interpretation of the legal terms used3 - Interpretation (1) In this Act - "the contract of carriage" - (a) in relation to a bill of lading or sea way bill means the contract contained in or evidenced by that bill or waybill. "holder", in relation to a bill of lading Thus contract of carriage is in relation to the bill of lading as also the holder, so the relative ness of the legal terms is highlighted. Considering the Arbitration Act 1996, the following directives have been given "Subject to the possibility of adducing new evidence under the "new objection" point, the parties were content to rely on the evidence put before the arbitrators for the purposes of the appeal. Neither party has challenged the principal findings of fact made by the arbitrators".4 Evidence forms an important aspect of decision making and arbitration and the arbitrator's findings in this case are given below - The Arbitration is divided into the different stages of the case from the purchase and contract to the loss of the vessel. The purchase from Orinoco was in accordance to the contract, dated 24 November 2003, which stated that Orinoco would sell 35,000 MT +/- 10% of "Metallic HBI Fines Orinoco Iron "Remet" Material Unsifted to Primetrade". The price given according to the contract was US$15.00 per MT. Accordingly payment was to be made by letter of credit payable in favour of the seller (Orinoco) against presentation of documents, including three original bills of lading. The contract also stated that "in case of total or partial loss in transit to port of destination, final settlement shall be made on the basis of the B/L weights". Thus payment terms included bills of lading (from the case Primetrade AG v Ythan Ltd[2005]) The sale contract between Primetrade and Orient Prosperity as buyers dated 19 November 2003, provided for a price of US$ 84.00 per dry MT as sold by Primetrade to Orient prosperity to be available at "CIF FO Jingtang, China". The method of payment stated was by 100% irrevocable letter of credit at sight. Documents with originals were to be presented with clean charterparty bills of lading, "issued to order and blank endorsed, marked "freight payable as per Charter Party".(as in the contract, given in case Primetrade AG v Ythan Ltd[2005])5 Primetrade opened a letter of credit, in favour of Orinoco which sold cargo to Primetrade and the credit letter was opened with UBS, Geneva and for Orient prosperity, two letters of credit were opened in favour of Primetrade. Since there were two leters of credit opened in favour of Primetrade, the arbitrators naturally inferred two sets of bills of lading. One of these bills of lading has been described as follows - "Bill of Lading No 1 named Orinoco in the box headed "Shipper", stated "To Order" in the box headed "Consignee" and under the heading "Notify Address", gave the name of the end - user named in the sale contract between Primetrade as seller and Orient Prosperity as buyer..Under the rubric "Shipper's description of goods" the bill acknowledged the receipt of 26,760 mt of Metallic HBI Fines.The bill was signed for and on behalf of the Master of the "Ythan" by one Jose J. Machado of Silva Shipping Agency CA". The bills of lading were issued in February 2004 to shipper of the cargo, Orinoco. Under the Cogsa or Carriage of Goods by Sea Act (1992) the ship-owners are liable to provide all safety measures for carriage of goods specified and the charterers or company hiring the vessel are responsible for payment and cannot use dangerous cargo if that is not mentioned in contractual agreement. However in the judgment for the case, the judge cites a section from the Cogsa claiming that 6- "From the context in the Act and the purpose underlying section 3(1), it is clear that section 3 must be understood in a way which reflects the potentially important consequences of the choice or election which the bill of lading holder is making. The liabilities, particularly when alleged dangerous goods are involved, may be disproportionate to the value of the goods, the liabilities may not be covered by insurance, the endorsee may not be fully aware of what the liabilities are. I would therefore read the phrase "demands delivery" as referring to a formal demand made to the carrier or his agent asserting the contractual right as the endorsee of the bill of lading to have the carrier deliver the goods to him. And I would read the phrase "makes a claim under the contract of carriage" as referring to a formal claim against the carrier asserting a legal liability of the carrier under the contract of carriage to the holder of the bill of lading". This sort of position gives a clear advantage to Primetrade and its rights as Primetrade could be considered as not aware of liabilities and there are several other issues that were raised - the following conlusive statements have been give by the judge in the case7 - 1. Since the vessel and cargo have sunk and have been lost, the question of whether a party has become a "holder" of the bills of lading remained open 2. Primetrade did not become the "holder" of the bills of lading on 22 March 2004 when the bills were sent from UBS to Marsh. 3. If t 2. 3. 4. 5. 6. 7. 8. 9. he 'transaction' did make Primetrade a "lawful holder" of the bills of lading, then it did not transfer rights of suit to Primetrade because Primetrade would have become the lawful holder by virtue of a transaction of a contractual or other arrangement made after the time when a contractual right to possession of the goods to which the bills relate ceased to exist. 4. If Primetrade was the "holder" of the bills from 22 March 2004, then its actions do not amount to Primetrade "making a claim" Considering these the court /judgment concluded that - Accordingly the arbitrators do not have jurisdiction to consider the Owners' claims against Primetrade. The owners' claims and suits against Primetrade have thus been dismissed in this unusual case although the owners, Ythan limited have suffered losses due to Primetrade's negligence and flouting or violation of contractual agreement by selling and transporting dangerous goods and cargo. Considering bills of lading and holder issues, Primetrade may be in an advantageous position as seen from the case. The analysis brings out whether it would be possible for the owners to sue Primetrade for negligence and for violating of contractual agreements by selling and carrying dangerous cargo for which the ship sunk and vessel and cargo were lost leading to losses for the owners. 5. The holder issue ad its legal definitions have added to the confusion of the case although the making a claim point shows that any decision can be in carrier's favour but could be overturned and the claimants will not be exposed to liabilities for carrier's claims under contract of carriage. This is until formal claims are made against contractual carriers. Conclusion: In considering the fact that Primetrade initially bought goods from Orinoco and sold to Orient Prosperity with final stop of Jingtang China and that two sets of bills were issued, the shipowners bills had to be considered according to the Carriage of Goods by Sea Act 1992 and Arbitration Act of 1996. Primetrade on the other hand sought an insurance policy upon losing the vessel and the cargo and the underwriters and Primetrade agreed on a settlement that required all bills to be sent over to underwriters. They did this through UBS who then ordered the insurance company Marsh which also advised Primetrade to place shipowners on notice for costs, losses and all consequences of the casualty and loss of vessel. The arbitrators considered that Primetrade was holder of all bills for the short time period between the time that the bills were given to UBS and the insurance claim paid. The Owners Ythan began arbitration against Primetrade, claiming for damages caused by the shipment of an allegedly dangerous cargo not specified in the contract. Primetrade said that it was not bound by the arbitration clause, nor could it be sued for damages for shipment of a dangerous cargo, because it was not the "lawful holder" of the bills of lading, and also have not "made a claim". Primetrade appealed with new evidence. In fact it was found that there was no valid arbitration agreement between the Owners and Primetrade and that was the card that Primetrade seemed to be playing. Yet despite Primetrade's legally advantageous position of not being holder of bills of lading, the Cogsa Act 1992 could work in favour of the owners although the Arbitration Act 1996 would give more space to Primetrade. This is what has been seen in this case as the holder of bills of lading clause seemed advantageous for Primetrade. However the owners Ythan ship owners could still sue Primetrade on the basis of violation of contractual agreement as through the Carriage of Goods Act 1992. According to Cogsa, the rights of shipping documents and liabilities fall on the lawful holder of bills of lading and as Primetrade was holder only for a short period of time, they seem to escape the legal bindings of being a holder and having to pay up for damages. The Cogsa however also states that "nothing in this Act shall preclude its operation in relation to a case where the goods to which a document relates- (a) cease to exist after the issue of the document; or (b) cannot be identified (whether because they are mixed with other goods or for any other reason);"8 This suggests that even after goods cease to exist or are lost or damaged after issue of bill of lading or contractual shipping documents, or even if documents are not identified, there will be no preclusion of operation and the Act holds true. This would bring about the relevance in this case where the goods were lost and the contractual obligations could still remain valid for both the parties and considering this, the owners could still sue Primetrade. Bibliography - 1. Leo D'Arcy, C Murray, B Cleave, Schmitthoff's Export Trade: The Law and Practice of International Trade, 11th edition, Sweet & Maxwell, London, 2007 2. S Schnitzer, Understanding International Trade Law, LawMatters Publishing, Exeter, 2006 3. J Katalikawe, Law of International Trade, 5th edition, Old Bailey Press, London, 2005 4. I Carr, International Trade Law, 3rd edition, Cavendish, London, 2005 5. J C T Chuah, Law of International Trade, 3rd edition, Sweet & Maxwell, London, 2005 6. P Todd, Cases and Materials on International Trade Law, Sweet & Maxwell, London, 2003 7. R Goode, H Kronke, E McKendrick, J Wool, Transnational Commercial Law, Text, Cases, and Materials, OUP, Oxford, 2007 8. I Carr, R Kidner, Statutes; and Conventions on International Trade Law, 4th edition, Cavendish, London, 2003 9. R Goode, H Kronke, E McKendrick, J Wool, Transnational Commercial Law, Primary Materials, OUP, Oxford, 2007 Primetrade AG v Ythan Ltd [2005] EWHC 2399 (Comm) (01 November 2005) ([2005] EWHC 2399 (Comm), [2006] 1 All ER 367; From England and Wales High Court (Commercial Court) http://www.bailii.org/ew/cases/EWHC/Comm/2005/2399.html http://www.onlinedmc.co.uk/primetrade_v__ythan.htm Carriage of Goods by Sea Act, 1992 http://www.opsi.gov.uk/acts/acts1992/Ukpga_19920050_en_1 Read More