International Business Law Assignment Help
Rights of the Buyer in Case of Breach of Contract
- Advise the chinese buyer, Yongsu shebang, on their rights under each of the sales and carriage contracts:
- a) Against AUS STEEL, the Seller, in relation to the shipment, which arrived on the lron Monarch? Discuss their contractual rights in relation to the goods and appropriate remedies, if any.
- b) Against the carrier lron Monorch.
According to the United Nations’ Convention on Contracts for the International Sale of Good (CISG), the buyer has the right to receive the shipment of goods which are of the same quality, quantity and description as stipulated in the contract with the buyer. Accordingly the buyer must deliver the goods of the same quality, quantity and description and which are packaged or boxed in the same manner as required by the contract for the sale of goods (Article 35, CISG). Likewise a breach of contract is said to have occurred due to fault on the part of the buyer under the following circumstances:
- Goods delivered are not fit for the purpose or usage for which the goods of the same nature are ordinarily used,
- Goods delivered are not fit to be used for the purpose for which they are shipped and which was expressly made known to the seller at the time of agreeing to the terms of the contract,
- The quality of goods deliver is inferior to the quality of sample or model presented by the seller,
- The goods are not adequately packaged for presentation or protection (United Nations).
The goods received by the Chinese buyer clearly do not meet the quality and description of goods contracted for, which has resulted in breach of contract by the seller. In case of breach of contract for the sale of goods, the buyer has the right to sue either the seller or the carrier. In addition to seek damages in legal proceedings, the buyer, Yongsu Shebang, has the following remedies available against the seller AUS STEEL Limited in this case.
- The right to demand specific performance from the buyer;
- The right to demand delivery of the substitute goods, if the non-compliance on the part of seller constitutes a fundamental breach of contract;
- The right to obtain reparation from the buyer, unless the damage is beyond repair with regard to all the circumstances of the situation;
- The buyer may choose to avoid the contract and fulfill his part of the bargain in case of non-delivery of goods or late shipment of goods, or any other fundamental breach of contract;
- The buyer may seek the reduction in price in proportionate to the value of goods delivered (United Nations).
In this case, the seller has failed to deliver the full quantity of goods resulting in partial non-performance and delayed performance. In such cases the buyer can avoid the contract only when the partial non-performance has resulted in a fundamental breach of contract. Fundamental breach is defined by Article 25 of CISG as,
“A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.” (United Nations).
AUS STEEL Limited has failed to deliver the full quantity of goods and the contamination resulting from fire has also rendered the coal useless and unable to burn with full efficiency, as a result of which the delivered goods are of little or no value to the buyer and does not fulfill the fundamental purpose for which they were shipped, i.e., usage as fuel in a power station. Therefore the Chinese buyer is correct in its stance regarding the rejection of consignment at port. It may seek any of the above mentioned remedies against AUS STEEL Limited. The buyer is also entitled to damages suffered due to non-performance of contract on the part of the seller; however, the extent of damages would be decided by the court having regard to all circumstances. Hence the liability for the breach of CISG rests with the seller AUS STEEL Limited.
The carrier, Iron Monarch, may be liable to make good the loss suffered by Chinese Buyer due to breach of contract under the Carriage Of Goods by Sea Act (COGSA). COGSA provides substantial protection to carriers. Carriers are only liable for their inability to use due diligence in providing a seaworthy ship before the beginning of the voyage. Likewise, carriers or the ship-owners are not liable for any damage caused to the goods resulting from errors in navigation of mismanagement of the ship, perils of the sea including storms and high tides, an act of God which includes disasters, act of public enemies like terrorists, labour strikes, defects that are inherent in the goods. In short, the carrier just have to ensure that it has exercised due diligence in providing a seaworthy ship, and all the goods were loaded on ship in proper condition. Thereafter, carrier is not liable for any or all the damage to goods during the voyage (Schaffer et al, 2008).
Therefore, the carrier has to ensure that all the components and parts of the ship that are necessary for seaworthiness of the ship are functioning properly and that the crew contains adequately skilled individuals for its effective management. If the crew doesn’t have sufficient skillful persons for the voyage, the ship-owner cannot later plead protection from the damages on grounds of errors in navigation of mismanagement of the ship. This is because a ship without competent manpower is not seaworthy to face the perils in the first place (Schaffer et al, 2008).
From the above discussion it can be said that the foremost responsibility of the carrier Iron monarch is to make sure that its vessels that are specifically adapted to carry coal by sea are functioning properly. The sprinkler system of the vessel plays a great role in this regard. Since the failure of sprinkler system may result in spontaneous combustion of the coal, the state-of-the-art equipment should be properly and thoroughly checked and cleaned before beginning the voyage.
In this case, the damage to goods has resulted from these three events following in sequence: (1) severe sea typhoons, (2) failure of the sprinkler system, (3) fire damage. The liability of the carrier would now depend on the controls employed by the carrier over ensuring the seaworthiness, the reasons for the failure of sprinkler system as determined by specialist technicians, and the reasons for inability to extinguish fire within due course.
Although perils of the sea is an accepted exception to the liability of carrier, the court shall take into account the severity of the storms and cyclones, force of the winds, predictability of the weather and whether the route could be avoided, in order to evaluate whether the typhoons in the South China Sea could cause damage to a reasonably seaworthy ship. If there is any negligence on the part of the crew before beginning or during the voyage it will void the perils of the sea defense. If there was an actual negligence on the part of the master of the Iron Monarch and the pumps were not cleaned prior the voyage, the carrier shall be held liable (Schaffer et al, 2008). It is advisable to obtain specialist reports to support the opinion of the Chinese buyer in this regard. Perhaps an inspection of the sprinkler system by an independent technician would likely reveal the reasons for its failure.
The loss to the coal continued and reduced its quantity by half, which shows that the fire caught by the coal continued to burn for several hours until it was finally extinguished. Although carrier is not liable for any damage caused to the cargo from fire, the question that needs to be answer is whether the ship was adequately equipped with the necessary firefighting equipment and skillful personnel to prevent or extinguish the fire in due course? If yes, then the burden of liability shifts to the seller AUS STEEL Limited (Schaffer et al, 2008). However, the shipper of the inherently dangerous goods, like coking coal in this case, cannot be held liable for the loss caused to those goods during the voyage unless he failed to inform the carrier of such dangerous nature of the goods. Hence, the actual liability for any or all damage to the inherently dangerous coal cargo rests with the carrier Iron Monarch and the shipper, AUS STEEL, may recover such damages from the carrier as the court deems fit.
Refund of payment for the shipment from the Confirming Bank
- Can the Chinese buyer demand a refund of payment for the shipment from the Australian bank under the L/C? Explain the reasons for your answer.
The Chinese buyer has agreed to pay the purchase price to the seller AUS STEEL Limited by an irrevocable documentary letter of credit issued by the buyer’s bank in China and confirmed by the Australian Bank. The documentary letter of credit is issued by the issuing bank (operating in China) to the confirming bank (in Australia), in accordance with the instructions of the Chinese buyer. Such letter of credit is addressed in the favour of beneficiary AUS STEEL Limited who shall be paid by the Australian bank in USD in their NYC bank account once the contract performance has been fulfilled and all rules are complied with, within the time limit prescribed in the letter of credit instrument. In the event of failure to comply with the performance and present the documents within the stipulated time period, the documentary letter of credit.
In practical scenario presented in the case study, the right to ask for refund will depend on the terms stipulate by the letter of credit. If the letter of credit is drawn and accepted by the buyer to pay the seller on sight, the nominated bank will honor the payment on sight. If the credit calls for some other time for the payment of draft or upon fulfillment of certain conditions, the nominated bank shall pay by accepting the draft. Nevertheless, if the documents presented by the seller contains irregularities or discrepancies (e.g., with regard to the fulfillment of obligations, or late shipment) i.e., do not comply with the terms of letter of credit, the documents will be withheld pending approval of the buyer or it may even be rejected by the nominating bank. UCP 600 gives banks up to five banking days to inspect the documents provided by the seller for any discrepancies (Schaffer et al, 2008). Therefore, the Chinese buyer, who is the account party in this case, may instruct the confirming bank to not release the payment to supplier and refund it back to the issuing bank because of the incorrect performance or non-performance of the contract for the sale of goods.
Still Need Help with your
Assignment?
WhatsApp
Get Assignment Help
