International Commercial Law Notes 3n6e2o

MLL336 – International Commercial Law Topic 1: Introduction to ICL Introduction  A body of rules consisting of customs, international treaties and legal or moral principles which have been accepted by most countries of the world.  Unlike the domestic legal system, there is no international law making body (Parliament), no judiciary with compulsory jurisdiction, no international enforcement body, and is based on sovereignty, equality and consent.  There is no mandatory enforcement mechanism. o As a result it is often questioned whether it is indeed law.  The authority of international law can be seen in three dimensions: o Collective economic sanctions o Collective military sanctions o International courts  Despite the questioning of wether international law is in fact law, it is generally obeyed.  International organisations and treaties affecting trade are directly governed by the principles of international law. o E.g. World Trade Organisation and the General Agreement on Tariffs and Trade.  Public international law.  Body of international law concerned with relations between States.  Foreign investment, the settlement of international commercial disputes and the operation of the United Nations Convention on Contracts for the International Sale of Goods are generally regulated by domestic law but are also affected by the principles of international law. o Private international law.  Law between individuals where international dimensions exist.  Private international law and public international law are not mutually exclusive. Sovereignty, territory and national law  In the international context, sovereignty refers to the power and privilege which can be derived from the nationhood of a country.  In the domestic context, sovereignty refers to the power of a government under a constitution or force or tradition to govern within a nation’s own borders, free from external interference.  International treaties and conventions are based on the presumption that all sovereign States are equal. o Therefore no country, by itself, can enforce its domestic law in the territory of another sovereign State.  The rules of the conflict of laws will operate to determine which law will govern a transaction with international dimensions, whether or not a particular State has

jurisdiction to hear the disputes and, if they do, whether that State exercises such jurisdiction.  Sovereignty is relevant in three particular respects: o A State has treaty-making power and thus, an international treaty does not bind a country which is not a party to the treaty; o There may be special constitutional requirements for effecting an international treaty in some countries, so we must understand how an international convention on international trade or commerce operates in each internal state or territory; and o The doctrine of restrictive immunity affects decisions in international trade and commerce, because it may or may not be possible to effectively enforce a contract against a State.  The implications of territory to international commercial law are twofold: o International treaties or foreign laws do not operate within a State’s territory unless the law of the sovereign State allows this; and o National law is not enforceable outside the territory.  Despite this, many national laws have extraterritorial operation.  An act that constitutes an offence committed overseas will theoretically be punishable domestically.  As this does not involve enforcing law outside the territory, it does not infringe this principle.  Actual enforcement of legislation with extraterritorial operation is usually achieved either through physical control of the offender within the territory of the county whose law has been violated, or through cooperation between sovereign States.  An international convention on international commercial law – one that impacts on the citizens of a country – must be adopted by a State in order to be effective domestically and in some States legislation is required before a treaty will be effective in imposing obligations on individuals.  Customs and foreign law may be adopted either by a domestic court, pursuant to its domestic law, or by an international court pursuant to international law.  The domestic law of the court governing a dispute will usually govern aspects of the transaction not covered by international treaties or customs. Sources of international law  There is no formal law-making body in the international context that is comparable with those in the domestic setting such as the legislature and judiciary.  The types and sources of law that are recognised by the International Court is set out in Art. 38 of the Statute of the International Court of Justice.  This also provides: o The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply:  International conventions, whether general or particular, establishing rules expressly recognised by the contesting states.  International custom, as evidence of a general practice accepted as law;

 

The general principles of law recognised by civilised nations; Judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.  Based on this provision, it can be said that the key sources of international law are: o Treaties and conventions; o Customs; o General principles of law; and o Judicial decisions o Domestic law (specifically in relation to international law).  Domestic law is a relevant source of international law because much private international law is regulated by domestic legal systems.  Treaties are international agreements between States which are binding in international law. o They are the most important source of international law because they are deliberately created and agreed to by States and tend to engender more respect. o Treaties may be bilateral or multilateral and cover a broad range of subjects from economics to the environment and human rights. o Regardless of the subject matter or designation, an agreement is binding under international law if the parties intend it to be so. o Each State is accorded treaty-making power and they will only be bound by those that they voluntarily enter into. o Australia International Treaty Making Information Kit (2000) o Vienna Convention on the Law of Treaties Art, 2(1)(a)  In Australia, any treaty must be tabled in both Houses of the Commonwealth Parliament for at least 15 days before the Government takes action to bring the treaty into force. o Consideration of any treaty by the Government is accompanied by a National Interest Analysis which notes if and why Australia should become a party to a proposed or existing treaty.  Customary law refers to that body of law which has evolved from the practice or customs of States. o Commonly customs are used to fill gaps left by treaties and they have the benefit of being able to develop more quickly than treaty-law and therefore reflect modern developments that may not yet be recognised by treaties. o Customs are more difficult to define than treaties and are more susceptible to varied treatment and interpretation in different jurisdictions.  General principles of law and judicial decisions may be relevant in cases where treaties and customs do not cover the situation. Conflict of laws  Many international commercial disputes raise the issue of conflict of laws.  Resolving conflict of laws issues is often the first step to resolving a dispute.  Each nation state have their own conflict of law rules.

Governing law

Forum

‐What law applies  to the resolution of  the dispute?

‐What jurisdiction  should the dispute  be resolved in?

Dispute between  parties to an  international  trade agreement



When a case involving international elements is brought before a domestic court, that court will have to consider three questions: o Does it have jurisdiction to deal with the issues involved?  Courts will answer this question by reference to their own rules of civil procedure. o If it does, should it exercise that jurisdiction or should it stay the proceeding in favour of a foreign court?  In Australia, courts will apply the forum non conveniens test to decide this issue.  The test in the UK and the US is whether there is another more appropriate forum.  Voth v Manildra Flour Mills Pty Ltd and Anor (1990) 171 CLR 539 o If the court has jurisdiction and decides to exercise it, which law should be applied to the dispute? In other words, what is the governing or proper law of the dispute?  Amin Rasheed Shipping Corporation v Kuwait Insurance Co [1984] AC 50

Express Agreement

(1) Does the court have  jurisdiction?

Rules of procedure

No Express Agreement

(2) Should court exercise  jurisdiction or stay  proceedings in favour of a  foreign court?

Forum non conveniens

(3) What law should be  applied to the dispute?

Conflict of laws

International Trade  Dispute





What law should be applied to the dispute?: o Lex domicilii:  Apply the law of the place where the person concerned has their place of domicile.  Based on jurisdiction of a sovereign State over the persons who obtain a legal domicile under its law.  Polites v The Commonwealth (1945) 70 CLR 60 o Nationality:  Apply the law of the place of the nationality of the person concerned.  Also based on jurisdiction of a sovereign State over the persons who are its nationals. o Lex causae:  Apply the law of the place where the cause of action is accrued. o Lex fori:  Apply the law of the place where the Court is situated.  Green v Australian Industrial Investment (1989) 90 ALR 500 o Lex situs:  Apply the law of the place where the subject matter (usually property) is located.  The appropriate test to apply for all questions that arise with regard to real property. o Lex loci actus:  Apply the law of the place where the determining act is carried out. o Lex loci contractus:  Apply the law of the place where the contract in question was formed. o Lex loci celebrationis:  Apply the law of the place where the judicial act occurred (e.g. where a marriage was celebrated). o Lex loci delicti commissi:  Apply the law of the place where a wrong (usually a tortious act) was committed. o Lex loci solutionis:  Apply the law of the place where an obligation (often a contractual obligation) was to be performed. When considering how an Australian court will deal with the third conflict of laws question in the context if international commercial contracts, it is necessary to differentiate two types of cases. o Where the parties have made a choice of law in their contract. This may take the form of a clause to the effect of ‘this agreement will be governed by the laws of the State of Victoria’. o Where the parties have not made a choice of law in their contract. In this case, the law itself will select a proper law.  The test applied by the courts is to seek the system of law with which the parties’ contract has its closest and most real connection. This test involved weighing a number of connecting factors.







 Bonython v The Commonwealth [1951] AC 201 There are many acts which play a role in resolving international conflict of law disputes. o Rome I Regulation o United Nations Convention on Contracts for the International Sale of Goods International commercial arbitration is conducted within the framework of the lex arbitri in force in the arbitral seat. o Each State’s arbitral law will typically set out how conflict of laws questions are to be resolved in arbitrations with their seat in that State. o International Arbitration Act 1974 (Cth) o UNCITRAL Model Law on International Commercial Arbitration Art. 28 The arbitrators are given free choice in deciding which conflict of laws rules to apply – they may apply the domestic conflict of laws rules of the State where the arbitral tribunal has its seat, though they are not required to and are free to alternatively apply a wide variety of rules commonly adopted in international commercial arbitrations.

Renvoi  Renvoi occurs where one State’s conflict of laws rules direct the matter to be determined under the laws of another State, but the conflict of laws rules of that other State direct the matter to be determined under the laws of the original State or a third State. o If renvoi is applied, the matter is then transferred back to be determined under the law of that first country (or third country).  Renvoi reveals uncertainties arising from lack of a uniform system of conflicts rules.  Some efforts have been made to unify the application of conflict of laws principles. o The Hague Conference Single renvoi Ignore conflict  rules of  second State

Total renvoi

Methods for  resolving  the problem  of renvoi

First Country 2nd step: As a result of the application of the conflicts rules of the second country the matter is referred back to the law of the first country, or the law of the third country.

Third Country

1st step: as a result of the application of the conflicts rule of the first country the matter is transferred to the law of the second country.

Second Country

Topic 2: International Sale of Goods Laws affecting contracts for the international sale of goods  The first question to ask when faced with an international commercial law problem is what law applies here?  Generally, the law affecting contracts for the international sale of goods should be thought of as being arranged in a hierarchy. The hierarchy consists of: o Applicable conventions;  The main convention is the United Nations Convention on Contracts for the International Sale of Goods (CISG) commonly known as the Vienna Sales Convention.  There are currently 77 Contracting States – states which have adopted the CISG.  The UK is the sole major trading partner of Australia that has not yet adopted the CISG.  The CISG does not deal with the entirety of the sale of goods process. o Applicable customs;  International conventions are largely the codifications of customs which have been commonly accepted.  Customary law in the context of international commercial law is often referred to as the lex mercatoria.  Where a convention does not govern a whole or particular aspect of a transaction, customs may apply.  UNIDROIT and INCO o Domestic sale of goods regimes.  Where a contract specifically states that the laws of a particular State will govern that contract.  I.e. For Victoria, the CISG would apply as Victoria has enacted it but where the CISG does not cover certain legal aspects, the Goods Act 1958 (Vic) will apply.  Other pieces of legislation may also have potential application in the context of transactions for the international sale of goods. These include:  The Banking Act 1959 (Cth)  Bills of Exchange Act 1909 (Cth)  The Marine Insurance Act 1909 (Cth)  The Foreign Acquisitions and Takeovers Act 1975 (Cth)  The Carriage of Goods by Sea Act 1991 (Cth)  The Civil Aviation (Carriers’ Liability) Act 1959 (Cth)  The Competition and Consumer Act 2010 (Cth)  Subject to the provisions of these laws themselves, in general all of these regimes may be excluded (as between the parties) by party agreement. The United Nations Convention on Contracts for the International Sale of Goods (CISG)  The primary idea underlying the CISG is to provide a unified, international sales law.

  







Conflict of laws would become much less important, given that no matter what State’s law was eventually applied, the result would be (in theory) the same. The drafters of CISG sought to take the best available rules and fashion them into one body of law. In determining whether the CISG applies, a number of key questions must be addressed: o Is the CISG’s geographic sphere of application satisfied?  I.e. Arts. 1(1)(a) and 1(1)(b) o Do we need to for one or both parties hacing their places of business in multiple States or are there agents involved?  Art. 10 o Is the CISG’s temporal sphere of application satisfied? o Is the CISG’s material sphere of application satisfied in the sense of there being a contract for the sale of goods between parties?  Art. 1(1) o Is the contract excluded from the scope of the CISG?  Arts. 2 & 3 o Are the issues in dispute within the scope of the CISG?  Arts. 4 & 5 o Have the parties derogated in whole or part from the CISG?  Art. 6 In interpreting the CISG, regard must be had to: o The CISG’s international character; o The need to promote uniformity in its application; and o The need to promote the observance of good faith in international trade.  The prevailing view is that it does not impose such a duty, rather it merely requires the CISG to be interpreted in good faith.  Art. 7(1) Contract formation under the CISG differs significantly from contract formation under Australia’s domestic law. These are: o Offers may be both withdrawn and also revoked; o There is no postal rule but there is a quasi-postal rule;  Arts. 18(2) and 16(1) o In limited circumstances, an acceptance need not exactly mirror an offer in order for a valid contract to be formed. The notion of modified acceptance is used. o In limited circumstances, a late acceptance may be effective to conclude a valid contract – it will not always constitute a counter-offer. o No consideration is required to form a contract, modify a contract or to an irrevocable offer. There are rules for interpreting the actions and statements of the parties in a contract. These are:  Art. 8

o When interpretation will be based on actual intent, and when it will be based on objective intent; o Whether the common law parol evidence rule is recognised under the CISG; o The effect of entire agreement (or merger) clauses; o The incorporation of standard and conditions.  There are also rules relating to when parties will be bound by usages and practices. o Art. 9 Obligations under the CISG  There are certain basic obligations of the seller. Among these are:  Art. 30 o To transfer property in the goods  Art. 4 o To deliver the goods  Arts. 31-33 o Hand over documents relating to the goods  Art. 34 o Ensure that the goods are in conformity with the requirements of the contract and the CISG  Arts. 35-40 o Ensure that goods are free from any relevant third party claims.  Arts. 41-44  There are certain basic obligations of the buyer. These are less extensive than those of the seller. Among these are:  Art. 53 o To pay the price for the goods  Arts. 54 – 59 o To take delivery of the goods  Art. 60 The age of risk under the CISG  The question of when risk es determines which part to a sales contract bears the loss when goods which are the subject of a sale contract are damaged or destroyed.  Under Victorian law, the general rule is that risk es when property in the goods es. o This is different under the CISG. Defences (exemptions) under the CISG  The CISG excises a failure to perform in two main circumstances: o In the case of unforeseen impediments; o In the case of a failure to perform caused by the other party.  A breaching party is able to escape liability in certain circumstances. o Art. 79  This does not abrogate the breach itself; rather it merely provides a shield against liability. Remedies  The CISG separates remedies of the buyer (for breach of contract by the seller) and remedies of the seller (for breach of contract by the buyer).

 





  







o The source of the buyer’s rights to remedies is Art. 45. o The source of the seller’s rights to remedies is Art. 61. One of the aims of the CISG is to keep contracts ‘on foot’, therefore the remedy of avoidance is strictly controlled. It is often referred to as a remedy of last resort. The focus is not on the character of the term, the focus is on the seriousness of the breach (irrespective of the importance of the actual term). o Art. 25 It is not correct to say that a contract has been avoided under or pursuant to Art. 25. o This merely defines what is meant by the term fundamental breach. o The actual right to avoid is found in:  Art. 49(1) (in the case of avoidance by the buyer);  Art. 64(1) (in the case of avoidance by the seller). A party is also able to terminate a contract without the need to demonstrate a fundamental breach. This is the notion of nachfrist. o This can occur if (for certain types of breaches) an additional period of reasonable time has been set for the party in breach to perform, and they do not perform within that additional time. The use of the nachfrist method of avoidance is usually considerably easier to prove than fundamental breach, and consequently wherever possible, it should be preferred. Specific remedies are provided by the CISG in the case of an anticipatory breach (i.e. where it is clear, ahead of time for performance, that a breach of contract will occur). Specific provision is also made in the remedial regime for instalment contracts. o An instalment contract is one where the goods are to be delivered in separate instalments and not where the price is to be paid in instalments. o There is a triple-layered remedial regime which sets out when a single instalment may be avoided, when future instalments may be avoided, and when the entire contract may be avoided.  Art. 73 A feature of both the buyer’s and seller’s remedial suites is the ability to claim damages.  Arts. 74 – 77 o The right to damages comes from Art. 45 (in the case of a claim by a buyer) or Art. 61 (in the case of a claim by a seller). o The calculation of the quantum of damages is outlined in Art. 74 Where a party fails to pay a sum owing, the other party is entitled to the payment of interest. o The rate of interest is not set by the CISG and the applicable interest rate falls to be determined under domestic law. Where a party is in breach of a contract, the other party is entitled to require performance of their obligations. o Whether or not specific performance will be granted depends on the domestic law of the State of the court hearing the dispute.

INCO 2000 and INCO 2010  INCO (international commercial ) refer to the set of rules developed by the International Chamber of Commerce that parties may adopt into their trade agreements.  The purpose of the INCO is to achieve (when parties adopt them) uniformity in the interpretation of common trade designed to allocate costs and risks.  The ICC revises the INCO publications approximately every 10 years.  It is not mandatory to use the INCO publication in a contract for the international sale of goods.  When using a trade term, if parties wish to adopt the INCO meaning of that trade term, the parties should expressly indicate that the trade term is intended to be interpreted in accordance with the INCO publication.  Some clauses in INCO deal with matters that are also governed by the CISG. o Where the CISG would otherwise apply and the parties have adopted an INCOTERM, to the extent of any overlap, the parties are effectively derogating from the CISG pursuant to the power granted to them in Art. 6.  INCO are only relevant to the contract of sale between the buyer and seller, not on the contract of carriage between the seller (or possibly buyer) and the carrier.

Topic 3: International Carriage of Goods Contracts for the carriage of goods by sea  A contract for the carriage of goods by sea is a contract entered into between: o A shipper, who could be the seller or the buyer, and o A carrier, who could be anyone with the legal capacity to command the ship required during the time agreed in the contract.  This topic is concerned with the separate but related contractual relationship between a shipper and a carrier, in relation to the carriage of the goods that have already been sold.  A contract of carriage stipulates matters relating to the safe and timely conveyance of goods from one place to another.  Whether or not a contract for the carriage of goods by sea has been validly formed will depend upon the contract’s governing law.  There are presently three main international conventions governing contracts for the carriage of goods by sea. These are: o The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (1924) – also known as the Hague Rules. o The Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (1968) – also known as the Hague-Visby Rules. o The United Nations Convention on the Carriage of Goods by Sea (1978) – also known as the Hamburg Rules.  These three regimes are separate and essentially stand alone.  Some States have adopted the Hague Rules, some have adopted the Hague-Visby Rules and others have adopted the Hamburg Rules.  There is also the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea – also known as the Rotterdam Rules.  The carriage of goods by sea is regulated under Australian law by the Carriage of Goods by Sea Act 1991 (Cth).  This Act adopts a modified version of the Hague-Visby Rules in Australia The Hague Rules, the Hague-Visby Rules and the Hamburg Rules  The Hague Rules were the precursor for the Hague-Visby Rules.  They entered into force internationally on 2 June 1931 with the purpose of unifying the rules governing the liability of carriers.  The original Hague Rules were amended by a Protocol in 1968 – now known as the Hague-Visby Rules.  The Hague-Visby Rules are also amended in their application in Australia.  The Carriage of Goods by Sea Act 1991 (Cth) identifies which ages have been added by using italic text and identifies which ages have been omitted by using strikethrough text.  The Hamburg Rules were concluded on 30 March 1978 due to the unfairness of the Hague-Visby Rules.  The Hamburg Rules impose wider liabilities upon carriers and are thus relatively even-handed in comparison with the Hague Rules or the Hague-Visby Rules.



The Rotterdam Rules represent an important contemporary legal development in the area of the international carriage of goods by sea.  The Rotterdam Rules envisage the regulation of contracts for the carriage wholly or partly by sea. o These rules are not yet in force.  When considering a contract for the carriage of goods by sea, it is important to correctly identify who is the carrier.  Generally the conventions governing the carriage of goods by sea impose relatively short limitation periods (i.e. the period within which an aggrieved shipper is entitled to sue the carrier for loss, damage or delay) therefore it is important to identify the carrier. Bills of lading  The bill of lading is the central document in respect of the carriage of goods by sea.  It is a document issued by a ship’s master to evidence the existence of a contract of carriage.  The bill of lading states the quantity, description and condition of the goods on board.  It can either be a clean bill of lading, which means that the goods accepted by the carrier are acknowledged by the carrier to be in good condition, or a claused bill of lading which means that the goods are not so acknowledged.  Typically, a bill of lading serves three main functions: o As evidence of the carriage contract;  It is not usually a contract of carriage.  SS Ardennes (Cargo Owners) v SS Ardennes (Owners) [1951] 1 KB 55 o As a receipt for the goods; and  The carrier or the master of the ship should examine the goods and take over the goods from the shipper and issue a bill of lading.  It should accurately reflect the condition of the goods.  Hunter Grain Pty Ltd v Hyundai Merchant Marine Co Ltd & Anor (1993) 117 ALR 507 o As a quasi document of title.  The person legally possessing the bill of lading is entitled to take possession of the goods from the carrier.  It is usual for the bill of lading to be negotiable.  In the event of default by the carrier under the contract of sale, without statutory intervention, a holder in due course had no contractual standing to sue the carrier because it was not a contracting party with the carrier.  This problem is addresses in Australia through the SeaCarriage Documents Acts o PS Chellaram v China Ocean Shipping Co [1989] 1 Lloyd’s Rep 413

Contracts for the carriage of goods by air  A contract for the carriage of goods by air is a contract entered into between: o A consignor, who will typically be the seller; and o A carrier.  A contract for the carriage of goods by air is concerned with the carriage relationship between a consigner and a carrier, and not the sale relationship between a buyer and seller.  Whether or not a contract has been validly formed will depend upon the contract’s governing law, determined in accordance with the conflict of laws principles.  There are a multitude of international conventions regulating the carriage of goods by air. o These are divided into two systems:  The Chicago System; and  This sets out the uniform rules for the share, use and control of national airspace for the purpose of international civil aviation and largely deals with the relationships between governments for the purpose of opening and sharing the airspace for international commercial carriers.  The Warsaw System.  This largely regulates carriers liability in the carriage of cargoes and engers by air.  It is made up of a variety of conventions and protocols, which have each been adopted by the various States. Not all States have adopted all the conventions and protocols.  The main conventions for the Warsaw Systems are: o The Convention for the Unification of Certain Rules Relating to International Carriage by Air (1929) – the Warsaw Convention. o The Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air (1955) – the Hague Protocol. o The Additional Protocol No. 4 to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air as Amended by the Protocol Done at the Hague (1975) – the Montreal Protocol No. 4. o The Convention Supplementary to the Warsaw Convention for the Unification of Certain Rules Relating to the International Carriage by Air Performed by a Person other than the Contracting Carrier (1961) – Guadalajara Convention.  The Guadalajara Convention is a stand-alone instrument that supplements the Warsaw System, the other three instruments represent different layers of regulation.  Courts faced with a dispute involving the carriage of goods by air are required to apply what is known as the lowest common denominator approach. o A Court will look at which of the conventions and protocols are in force in each relevant State, and apply the lowest common combination adopted by each State.

o E.g. if one State has adopted the Warsaw Convention and the Hague Protocol and the other State has only adopted the original Warsaw Convention, it is the original Warsaw Convention (without the amending Hague Protocol) that will apply since that is the lowest common denominator. Carriage by air in Australia  Australia has incorporated both the principal Warsaw System conventions (the Warsaw Convention, the Hague Protocol, the Montreal Protocol No. 4 and the Guadalajara Convention) and also the Montreal Convention into the Civil Aviation (Carriers’ Liability) Act 1959 (Cth).  As at 26 September 2011, there are 152 States party to the original Warsaw Convention. The Warsaw Convention  Some general points to be aware of in relation to the original Warsaw Convention include that: o The Warsaw Convention governs both the international carriage of persons, baggage and cargo performed by aircraft for reward and also gratuitous carriage; o The Warsaw Convention applies where (according to the contract) the places of departure and destination of the carriage are situated in two different Contracting States, or alternatively where they are within the territory of a single Contracting State and there is an agreed stopping place within a third State (whether or not that third State is a Contracting State); o The Warsaw Convention regulates the air consignment note (the carriage of goods by air’s equivalent to the bill of lading) and that note is prima facie evidence of the conclusion of the contract, the receipt of the goods and of the conditions of carriage; o The carriage is liable for damage sustained in the event of destruction or loss of, or damage to, ed luggage or any goods as well as being liable for damage occasioned by delay in the carriage of engers, luggage or goods; o The carrier is afforded defences, may have any liability reduced or eliminated on the basis of contributory negligence, and in any event is entitled to rely on limitations on liability imposed by the Warsaw Convention except in the case of wilful misconduct; o The carrier may not rely on contractual provisions relieving them of liability or fixing a lower limit of liability than that otherwise provided in the Warsaw Convention (such provisions being null and void); o Limitation periods apply both in respect of the time in which a complaint must be notified to a carrier, and in respect of the time in which legal action must be commenced.  DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 The Hague Protocol  The Hague Protocol was concluded at The Hague in 1955 and came into force internationally on 1 August 1963.  As at 12 October 2009, there are 137 States party to the Hague Protocol.



It is not a stand-alone convention – rather it serves to amend the original Warsaw Convention.  Some general points to be aware of in relation to the Hague Protocol include that: o The definition of international carriage is clarified; o Changes are made in relation to the regulation of the air consignment note; o One of the grounds upon which a carrier may escape liability in the carriage of goods and luggage (i.e. that the damage was occasioned by negligent pilotage or handling of the aircraft or navigation and that in all other respects the carrier and their agents took all necessary measures to avoid the damage) was removed; o Provision is made for consideration of the effect of loss, damage or delay in relation to part of ed baggage or cargo on the value of other packages covered by the same baggage check or air waybill when applying the limitations on liability; o Specific provision is made in relation to awarding costs of litigation, above and beyond the limitations on liability for loss, damage or delay; o The rule that wilful misconduct prevents a carrier from relying on the limitations of liability is replaces with a rule that a carrier may not rely on the limitations of liability if the damage is resulted from an act done with intent to cause damage or recklessly and with knowledge that damage would probably result; o The servants and agents of the carrier are entitled to enjoy the same limitations on liability as the carrier; o The period within which legal proceedings must be commenced remains unchanged, however the number of days allowed for making an initial complaint are extended (such changes working in the cargo owners’ or engers’ favour). The Montreal Protocol No. 4  The Montreal Protocol No. 4 was concluded in Montreal 1975 and came into force internationally on 14 June 1998.  As at 26 September 2011, there are 57 States party to the Montreal Protocol.  It is not a stand-alone convention, similar to the Hague Protocol. It amends the Warsaw Convention.  Some general points to be aware of in relation to the Montreal Protocol No. 4 include that: o Arts. 5 – 16 Warsaw Convention (regulating air consignment notes) is deleted, and replaced with a new cargo documentation regime which facilitates the use of electronic transactions and documentation; o Art. 18 Warsaw Convention (dealing with the carriers’ liability for damage to baggage or goods) is deleted, and replaced with a new provision which includes a defence for the carrier if the destruction, loss or damage to cargo results solely from one or more of a specific list of circumstances (i.e. an inherent defect of the cargo, defective packaging of the cargo performed by a person other than the carrier or the carrier’s servants or agents, war or armed

conflict, or an act of a public authority carried out in connection with the entry, exist or transit of the cargo); o Art. 20 Warsaw Convention (dealing with the carriers’ defence of taking all necessary measures to avoid damage) is deleted, and replaced with a new provision that is substantially the same but also extends to the case of damage caused by delay. o The limitations on liability are re-cast in of Special Drawing Rights, a unit of defined by the International Monetary Fund; o Art. 25 Warsaw Convention (defining when a carrier is not entitled to rely on the limitations on liability) is deleted, and replaced with a new provision which does not refer to cargo. The Guadalajara Convention  The Guadalajara Convention was concluded in Guadalajara in 1961 and came into force internationally on 1 May 1964.  As at 26 September 2011, there are 86 States party to the Guadalajara Convention.  It does not amend the Warsaw Convention. o Instead, it is a supplement to it, and provides particular rules relating to the international carriage of goods by air where that carriage is performed by a person who is not a party to the carriage of contract.  The reason for the Guadalajara Convention being a supplement to the Warsaw Convention is well summarised by the Guadalajara Convention’s recitals, appearing before the operative provisions.  Some general points to be aware of include that: o The concepts of the contracting carrier and actual carrier are separated and each is defined; o The extent of the contracting carrier’s and actual carrier’s liability is established; o The situations in which the acts and omissions of the actual carrier will be treated as acts and omissions of the contracting carrier (and vice versa) are identified; o The situations in which the servants and agents of the actual carrier or contracting carrier are able to take advantage of the contracting carrier’s limits on liability are identified; o Limits are placed on the aggregate amount that can be recovered from the contracting carrier, actual carrier and their servants and agents; o The party (contracting carrier, actual carrier or both) whom an action for damages can be brought against, and the der of parties, is dealt with; o Contractual clauses which purport to relieve the contracting carrier or the actual carrier of liability under the Guadalajara Convention or to fix limits lower than those applicable under the Convention are null and void. The Montreal Convention  The Montreal Convention was concluded in 1999 and entered into force internationally on 4 November 2003.  As at 26 September 2011, there are 97 States party to the Montreal Convention.



It was concluded with a view to codifying and modernising the rules contained in the various conventions and protocols that compromise the Warsaw System.  It is anticipated that the Montreal Convention will eventually replace the Warsaw System.  Important features of the Montreal Convention are: o The Montreal Convention’s scope of application;  Art. 1 o Documentation requirements;  Art. 3 o The provisions governing liability of the carrier and the extent of compensation for damage;  Chapter III o The special provision made for the five yearly review of liability limits;  Art. 24 o The ability of the parties to contract up from the liability limits but not contract down or contract out;  Arts. 25 and 26 o The time limits for making a complaint and initiating legal proceedings;  Arts. 31 and 35 o The jurisdictions in which a claim may be brought;  Art. 33 o The specific provision for arbitration of disputes;  Art. 34 o The integration of provisions dealing with carriage performed by a person other than the contracting carrier;  Chapter V o The obligation on State parties to require their carriers to maintain adequate insurance to cover liability under the convention.  Art. 50 Insurance documents  Transit insurance is an important aspect of the international carriage of goods.  Insurance is important for international transport – particularly by sea – because the goods are out of the control of their owner for a long period of time.  An insurance document can be either a policy (which is usually stipulated in the contract of sale) or a certificate which indicates the risks covered.  The parties should agree in the contract of sales as to the type of insurance policy and documents needed.

Topic 4: Letters of Credit Why facilitate and finance international trade?  International sales of goods are not conductive to cash payments.  With the buyer and seller usually in different countries, the seller wants the price to be paid before parting with ownership of the goods, but the buyer wants to know the goods are the goods and in the condition contracted for before paying the price.  A bank is the best intermediary for overcoming this conflict and also has capacity to provide finance to the parties in connection with it. o A seller may instruct their bank to collect the payment for the goods in a buyer’s country upon the delivery of the documents of title in accordance with the contract. o The seller’s bank may then either instruct its subsidiary, or another bank which has established a business relationship with it, to present the documents to the buyer and collect the money due.  The seller’s bank is called the remitting bank and the bank in the buyer’s country the collecting bank.  Using this method, the seller would receive the payment provided that they have fulfilled their obligations for receiving payment under the contract of sale.  A banks’ involvement may well extend much further than the process of collection. o A buyer is able to borrow money from a bank to finance the purchase. E.g:  A seller may make arrangements with banks to collect payments for the goods from the buyer before the seller personally pays for the purchase, so that the buyer’s payment can be used to finance the seller’s purchase of the goods from another supplier; or  A buyer may be able to get a letter of credit from their bank whereby the bank guarantees the payment for the transaction.  There are numerous variations of the particular services which can be provided by banks to facilitate international trade and commerce.  The banks’ function is to provide security and convenience for both seller and buyer, for which banks receive service charges and interest payments. Commercial letters of credit  There are many ways in which international commerce might be financed. o One of these is commercial letters of credit.  A letter of credit is a written undertaking to a beneficiary by an issuing bank, to make a payment or payments up to a prescribed amount on certain conditions. o It is provided by a bank for the benefit of the person who is named as the beneficiary of the letter of credit.  It allows the beneficiary to claim the payment directly from the issuing bank.  A letter of credit is a means of payment and also a guarantee of payment by the issuing bank to the beneficiary (often the exporter). o The exporter or other beneficiary will be guaranteed the payment upon compliance with the of the credit. o The often involve requirements for the beneficiary to present specified documents to a specified bank.

                                                   

The following diagram demonstrates a standard transaction involving the use of a letter of credit. Buyer (applicant) Open a letter

Present docs and receive reimbursement

Issuing bank

Advising bank may also be a confirming bank

Advise the availability of the letter and make payment

Deliver shipping docs when receiving the payment

Deliver the goods upon presentation of shipping docs

Carrier of the goods

Deliver the goods to carrier in accordance with the contract of sale

Seller (beneficiary) 

Actual payment may be deferred because of the of the letter of credit, for example sixty days from sight.  Over time case law concerning letters of credit has developed. o Uniform Customs and Practice for Documentary Credits (U)  The current version is U 600 which came into effect on 1 July 2009 and contains 39 articles governing letters of credit. Categories of letters of credit  A letter of credit can be categorised on a number of different bases. o E.g. it can be revocable or irrevocable, confirmed or unconfirmed.  In accordance with the mode of payment a letter of credit may be for payment at sight credit, deferred payment credit, accepted credit or negotiation credit.  Similarly, a letter of credit can be for standby credit, revolving credit, packing credit, red clause credit, back-to-back and overriding credit, or transferable credit.  Since the expressions and used to classify a letter of credit reflect only a particular feature of the letter of credit involved, they are neither mutually exclusive nor wholly exhaustive.  Parties may create any method of payment which suits their particular needs, so the categories are not closed. Revocable and irrevocable credits  A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary.



However, a revocable credit cannot be revoked after the advising bank has made a payment to a beneficiary, or has alternatively accepted the required documentation from the beneficiary (and undertaken an obligation to pay) in accordance with the letter of credit’s . o Revocable letters of credit are rarely used.  The issuing bank is not liable for any loss or damage incurred by the seller arising from the cancellation of a revocable credit, but does have an obligation to reimburse another bank which had (under previous instructions of the issuing bank) paid or negotiated the commercial documents with the seller before receiving the notice of the cancellation.  By way of contrast, under an irrevocable credit the issuing bank gives a promise not to withdraw the credit unless the seller doesn’t comply with its . Confirmed and unconfirmed credits  The expressions confirmed credit and unconfirmed credit indicate whether the credit has, or has not, been confirmed by an advising bank.  In the case of a confirmed credit, the advising bank (which becomes a confirming bank as the result of confirming the credit) undertakes a legal obligation to pay the seller provided that the seller presents the commercial documents in compliance with the and conditions of the credit.  A letter of credit is confirmed by an advising bank at the request, or with the authority, of the issuing bank. o The issuing bank gives such authority at the request of the applicant (buyer) who is obliged to do so under the contract of sale. o The beneficiary can also request the advising bank to confirm a letter of credit as a condition for presenting commercial documents.  In such a case, the advising bank will seek approval from the issuing bank, which in turn will seek authority from the applicant.  Confirmation of an irrevocable credit gives the seller the double security and convenience of recourse against either the advising (now confirming) bank or the issuing bank in an appropriate forum.  Even if a credit is revocable, the beneficiary can request the advising bank to confirm it. o If the issuing bank with the approval of the applicant allows the advising bank to confirm the credit, the beneficiary will be able to sue the confirming bank for non-payment provided that they have fulfilled all obligations under the letter of credit. o In that case, the confirming bank has to ask for reimbursement from the issuing bank if it has made the payment to the beneficiary. Payment at sight credits and deferred payment  Payment at sight credits and deferred payments reflect two different modes of making payment by the confirming bank; immediate payment or delayed payment, after sighting satisfactory documents. Acceptance credits  Acceptance credits is used in a situation when the beneficiary (seller) is required to present a bill of exchange for claiming payment under a letter of credit.



This mode of payment may be used where a credit is intended to cover several transactions during a period of time, or for a particular purpose.  The seller will present a bill of exchange to indicate the sum payable for each transaction completed, and the sum will be deducted from the total sum of the credit. Negotiation credits  A negotiation credit refers to a situation where the negotiating bank (or advising bank) is authorised to negotiate a bill of exchange drawn by the seller on the buyer or the issuing bank.  Negotiation of the bill means that if the seller wishes to obtain finance before delivery of commercial documents, they may ask the negotiating bank to advance the money available under the letter of credit by discounting or purchasing the bill.  The bill is discounted if the seller pays for the bank’s interest or commission (which is usually payable by the buyer – the applicant for the letter of credit), and the bill is purchased if the seller receives the nominal value of the bill and the buyer pays for the bank’s interest and commission.  The authority of the negotiating bank under a negotiation credit is simply to negotiate the bill, so the legal relationship between the issuing bank and the negotiating bank is based on, and confined to, the power to negotiate with the seller within the of the letter of credit.  Negotiation credit sometimes also means that the negotiating bank is allowed to advance money to the seller on the security of a bill of exchange. o This method of payment may be used by the seller as a means of financing the purchase of the goods which are unsold. Standby letters of credit  The difference between a standby letter of credit and a commercial letter of credit is as follows: o The commercial letter of credit is a payment instrument which normally obliges the beneficiary to tender, together with other specified documents, the transport documents. o The standby credit is intended to protect the beneficiary in case of default of the other party to the underlying contract.  Consequently, in a standby credit the required documents need not include the transport documents but this type of credit may be activated by a document of any description.  E.g. a demand by the beneficiary or a statement by them that the other party is in default.  The standby letter of credit is thus often functionally similar in effect to a bank guarantee.  This type of credit provides direct security to the seller when the buyer fails to perform the contract for some reason, because the seller can claim the payment under the credit without presenting commercial documents (e.g. shipping documents) which would normally be required for making a claim under an ordinary type of credit.

Revolving credits  The expressions revolving credit means that the credit can revolve continuously to maintain the credit at a fixed amount after each use of it.  This type of credit is suitable for parties who have established and regular business dealings, and reduces the amount of paperwork between the parties involved. Packing credits  The credit is payable at a time prior to the shipment of the goods, and against a document other than a transport document.  The bank is instructed to pay the purchase price, or part of it, on production of, for example, a warehouse receipt (evidencing that the goods are in existence) or a forwarder’s certificate of receipt (FCR) (affirming that the goods have been received for shipment or have been shipped), or an air dispatch ed post receipt.  This type of credit is another means of enabling the seller to receive money before delivering the goods to a carrier. Red clause credits  The expression red clause means the seller is in deficit in using the credit, because it allows the beneficiary (seller) to draw on the credit for the purpose of paying the seller’s supplier for goods purchased from the seller by the applicant (buyer) of the credit. Back-to-back credits  Back-to-back credits are also known as countervailing credits.  A bank agrees to issue a credit at the request of a seller, who is the beneficiary of a credit drawn by a buyer, by taking the credit opened in the seller’s favour as the security for issuing the new credit in which the seller is the applicant. o E.g. X (buyer) may provide a credit in favour of Y (seller), who in turn may provide a credit which is based on X’s credit to Z (seller’s supplier), who may in turn provide a credit identical to Y’s credit to W for the goods to be ultimately sold to X.  The credit of the overall buyer is known as the overriding credit. Transferable credits  A transferable credit is a variation on back-to-back credits (distinct, though serving the same commercial purpose).  A transferable credit allows the beneficiary to transfer the benefit under the credit to another person for the purpose of, for example, financing a purchase or repaying a debt.  Bank Negara Indonesia 1946 v Lariza (Singapore) Private Ltd [1998] 1 Lloyd’s Rep 407 Basic rules governing letters of credit  The privity of a letter of credit o A letter of credit is a contract separate to the sale of goods transaction, in a similar manner to how the contract of carriage is a separate contractual relationship to the sale of goods transaction. o The contractual relationships may be related. o A letter of credit can be a contract between a beneficiary and an issuing bank.

o Based on the basic notion of privity of contract, an important consequence of this is that a beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant for the credit and issuing bank.  Liabilities of the banks o Banks’ liabilities to the beneficiary: an issuing bank or a confirming bank undertake an obligation to pay the sum stipulated in an irrevocable credit under the condition that the beneficiary fulfils their obligations pursuant to the of the credit (not the contract of sale).  An advising bank which has not confirmed the credit does not have an obligation to pay unless it has accepted the conforming documents from the seller.  Neither the issuing bank nor the advising bank is liable to pay under a revocable credit, unless the letter of credit has been negotiated or that the requisite documents under the letter of credit have been accepted.  Michael Doyle & Associates Ltd v Bank of Montreal (1984) 11 DLR (4th) 496  Aotearoa International Ltd v Westpac Banking Corp [1984] 2 NZLR 34 o Banks’ liabilities to the applicant: the main issue is whether the banks are liable to the applicant when the commercial documents or bills of exchange which appear to be consistent with the and conditions of the credit are not genuine.  The general rule is that banks must examine the relevant documentation with reasonable care to determine whether or not they appear, on their face, to be in compliance with the and conditions of the credit.  Provided a bank acts in good faith and takes reasonable care, a bank will incur no liability even if a document turns out to be false or defective. o Liabilities between the banks: the rights and liabilities as between the issuing and advising banks are more relevant to a study of banking law and do not normally affect the position of the beneficiary or applicant.  Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep 443 Doctrine of strict compliance  The doctrine of strict compliance means that the documents presented by a beneficiary (seller) must on their face strictly comply with the of credit.  This doctrine only requires a bank to ensure that the relevant documents appear consistent with the of the credit.  There is no obligation to ascertain the conformity of the goods with the sale of goods contract.  There is also no obligation to investigate an alleged fraud.  Midland Bank v Seymour [1955] 2 Lloyd’s Rep 147

Tender of non-conforming documents  It is possible for an advising bank to accept non-conforming documents, on the condition that the beneficiary undertakes to indemnify the advising bank if the issuing bank or the applicant (buyer) refuses to accept the documents for nonconformity.  This is a rule that is intended to facilitate international trade.  Banque de L’Indochine ET de Suez SA v J H Rayne (Mincing Lane) Ltd [1983] QB 711 Fraud and the bank’s obligation under an irrevocable credit  Fraud in relation to the goods: o Where there is no evidence that the seller committed or knew of a fraud the bank is not exempt from an obligation to pay under an irrevocable or confirmed letter of credit, provided that the documents presented by the seller (beneficiary) on their face conform with the of credit. o Where the seller (beneficiary) has committed or knows of fraud, the bank is entitled to stop payment.  Fraud in relation to the commercial documents: o Banks must act in a reasonable manner to prevent and detect possible fraud in respect of the documents themselves, but are not liable if the fraud is not revealed by the exercise of due diligence. o Their obligation is to make the promised payment against documents which on their face conform with the of the credit. o If a bank knows or ought to know that the beneficiary has committed a fraud, it is not allowed to make a payment to the beneficiary even under an irrevocable or confirmed letter of credit.  Sztein v J Henry Schroder Banking Corp  Discount Records Ltd v Barclays Bank Ltd [1975] 1 WLR 315  Bank of Taiwan v Union Syndicate Corp [1981] HKC 205 Fraud and the applicant’s right under a documentary credit  The buyer or the applicant to the documentary credit does not have direct remedies within the documentary credit mechanism.  However, when fraud has been clearly established, a court may be willing to issue an injunction to restrain payment under a letter of credit.  When for some reason an injunction is not available, the court may order the payment to be paid into a trust held by the bank concerned.  Trisbul (UK) Ltd v Winnie Tong t/as Winda Product [1987] HKLR 161

Topic 5: Multilateral, Regional and Bilateral Trade Agreements Trade barriers  Countries erect trade barriers for three reasons: o Revenue; o Protect local industry; o Protect employment.  There are two impacts on economic welfare due to a trade barrier. They are: o Consumers pay more for foreign goods; o Protected firms are less likely to innovate or seek new markets. The World Trade Organisation  The WTO is: o An international organisation for liberalising trade; o Forum to negotiate trade agreements; o Forum to settle trade disputes; o Operates a system of trade rules.  The World Trade Organisation was established on 1 January 1995, replacing the General Agreement on Tariffs and Trade that had been in place as a provisional agreement since 1948.  The initiative for the GATT came from the US as a means of trying to prevent the same economic mistakes that were to blame for World War II.  The eighth round, arguably the most important, of GATT negotiations is known as the Uruguay Round. o This round began in 1986 and ended in 1994. o The Uruguay Round had the following agreements:  Agreement to establish the WTO;  Agreement on Trade in Goods;  General Agreement on Trade in Services;  Agreement on Trade Related Aspects of Intellectual Property;  Understanding on Rules and Procedures Governing the Settlement of Disputes.  The WTO and its associated Agreements now regulate approximately 97% of the world’s trade and have been adopted by 153 governments with an additional 30 observer governments.  The aim of the WTO is to strengthen international economic cooperation and global economic welfare through bringing greater stability and predictability to the international trading system. Structure of the WTO  The key bodies within the WTO are: o The Ministerial Conference;  This is at the top of the organisational hierarchy. It meets at leasr every 2 years. o The General Council;



Comprised of the same people as the Dispute Settlement Body and Trade Policy Review Body are comprised of the same people. These people conduct the day to day operations of the WTO.  The General Council endeavours to meet monthly and has authority to act on behalf of the Ministerial Conference when it is not meeting. o Dispute Settlement Body; o Trade Policy Review Body; o Various other councils and committees.  The WTO Secretariat conducts the istrative aspects of the WTO daily operations and is based in Geneva with a staff of approximately 600 and a budget of approximately 160 million Swiss Francs.  There are councils within the WTO for each broad area of trade: o Council for Trade in Goods (the Goods Council) o Council for Trade in Services (the Services Council) o Council for Trade-Related Aspects of Intellectual Property (the TRIPs Council)  Below the Councils in the WTO organisational hierarchy are numerous committees and working parties covering various areas of international trade. The WTO system  The WTO Agreement provides a forum for negotiation and dispute settlement and establishes a Ministerial Conference to meet at least once every two years.  The WTO Agreement provides for decision-making to be by consensus, consent being deemed when a decision is taken formally if no member present objects.  Where issues cannot be resolved by consensus, they are to be decided by vote (unless not permitted in relation to that issue). o A vote requires 2/3 majority to agree to the change.  Parties to the WTO Agreement are bound by it (and its associated multilateral agreements) unless and until they withdraw. o Six months’ notice must be given before their withdrawal is effective.  If countries wish to accede to the WTO Agreements they may do so on to be negotiated by it and the WTO.  Before entry is permitted it must be agreed by a 2/3 majority of . Basic principles of the WTO  There are five basic principles that permeate through the key WTO Agreements: o Non-discrimination;  There are two concepts:  The Most Favoured Nation (MFN) o Applied at the border and requires WTO to treat imports from all other WTO countries equally at the time of importation.  National Treatment o Applied once imports have ed the border and requires to treat all like goods in an origin neutral manner.



o

o

o

o

Both concepts serve the same non-discriminatory purpose, but they do so at different stages of the trading process. Liberalisation of Trade;  The WTO agreements are not free trade agreements but rather establish a system designed to promote free trade through a gradual process of liberalisation. No Unfair Trade;  The WTO agreements seek to inhibit actions that are unfair and create distortions in international trade.  Antidumping is permitted but is intended only as a means of protecting national economies against unfair competition and not as a vehicle for trade protectionism. o Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority (1995) 129 ALR 401  Subsidies can affect trade and there were traditionally three categories of subsidies: o Prohibited o Actionable o Non-actionable  State trading occurs when the government of a state is actively involved in the trade process. Transparency;  Article X GATT, Article III GATTS and Article 63 TRIPS  The publication of any laws or regulations before their application;  The uniform, impartial and reasonable istration of those laws and regulations; and  Judicial review of any istrative decisions. Exceptions (including special and differential treatment)  There are three broad exceptions to the core of the WTO principles.  GATT Article XX;  The Enabling Clause; o Notwithstanding the provisions of Article 1 of the GATT, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.  Free Trade Areas; o Article XXIV: Territorial Application  Other.  These were included to ensure the system develops in a controlled manner and that its ultimate objectives are achieved.  These exceptions fall into two categories:  Horizontal exceptions; o Article XX GATT

o Article XIV GATS o Article 8 TRIPS  The differential treatment for developing countries. o There are about 146 provisions that deal with this.  The security exceptions can be found in:  Article XXI GATT  Article XIV GATS  Article 73 TRIPS Dispute settlement under the WTO  Features of WTO Dispute Settlement: o Automatic jurisdiction; o Only States can sue; o ;  Ad hoc o Appellate body;  Permanent o Remedies.  Compensation  Conform  The Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding or DSU) governs the Dispute Resolution process in relation to WTO Agreements.  Member States may bring their disputes before the Dispute Settlement Body. o This consists of all WTO and imposes strict time frames and an appeals mechanism.  The process can be summarised as follows: o Consultation (up to 60 days) o Hearing (45 days to be appointed and up to 6 months for conclusion)  The period for conclusion may be reduced to three months if urgent. o Report becomes ruling within 60 days unless rejected  Reports may only be rejected by a consensus of the Dispute Settlement Body o Appeal (by either side) on points of law  An appeal decision is to be made within 60 days (may be extended to a maximum of 90 days). The Dispute Settlement Body may accept or reject an appeal within 30 days.  The report also includes suggestions on how a nation may bring itself into compliance with its WTO obligations. o If they fail to do so within a reasonable time, the complainant may seek compensation. o If appropriate compensation is not agreed within 20 days the complaining party may request authorisation from the DSB to suspend the application to the member concerned or concessions or other obligations under the covered Agreements.



Only Member States, and not individuals or corporations affected by protectionist measures, can bring an action. o Governments of Member States will often have an economic – or at least political – motivation for ensuring its industries are not adversely affected by the illegal measures of other States.  In Australia, a WTO Disputes Investigation and Enforcement Mechanism has been established to facilitate equity of access for all Australian exporters to Government and assistance in circumstances where other WTO Member governments may not be honouring their obligations under the WTO Agreements. o In Australia, government action on behalf of exporters was seen by the Government’s action against the US in relation to their restrictions on lamb meat exports. Regional and bilateral free trade agreements  Australia is party to a growing number of regional and bilateral free trade agreements (FTAs).  Australia has entered into a free trade agreement with: o New Zealand (ANZCERTA); o ASEAN; o Thailand; o Singapore; o Chile; and o The United States.  Australia is also currently negotiating free trade agreements with various countries including China, Japan, Korea and Malaysia.  The Australian New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) (CER) came into force on 1 January 1983. o Its purpose was to establish a free trade area for Australia and New Zealand. o It now covers most trading activities and extensively liberalises trade and commercial activities. o In total, the CER consists of 26 articles, providing for a general phasing-out of tariffs on goods originating and sold within the Free Trade Area.  Parties are still allowed to impose countervailing duties on subsidised goods, but only as a measure of necessity and consistently with the GATT and CER objectives.  There are 12 exceptions to the CER objectives, where inconsistent measures are necessary to:  Protect essential security interests;  Protect public morals and prevent crime;  Protect human, animal or plant life or health;  Protect national treasures; and  Conserve limited resources.  The Asia-Pacific Economic Cooperation (APEC) was established in 1989 with 12 . o Its purpose was to respond to the growing interdependence among AsiaPacific economies.









o There are currently 21 of APEC, including Australia. The EU is the largest trade partner in the world, ing for one fifth of the world trade. o It is also the biggest single market in the world. o The creation of a single market and elimination of trade barrier within the EU has led to the free movement of goods, services and workers within the EU. o The introduction of the Euro has stimulated further economic growth within Europe. o The Euro was introduced as a legal currency on 1 January 1999. The North American Free Trade Agreement (NAFTA) is a regional free trade agreement between Canada, the United States and Mexico, establishing a free trade area between the three countries. o Part II NAFTA The positives to Free Trade Agreements are that they are a: o Step towards global free trade; o Lever to global reductions; o Create trade; o Reduce global tensions; and o WTO is a global government. The negatives to Free Trade Agreements are that they: o Undermine the WTO multilateral trade process; o Divert trade; o Too many institutions; o Spaghetti bowl phenomenon; o New regional protectionism; o Include WTO plus obligations; and o Undermine the collective bargaining possibilities of developing countries at WTO.

Topic 6: Foreign Investment Law What is foreign investment?  Foreign investment in international commercial law refers to foreign direct investment (FDI) and foreign portfolio investment (FPI) as well as any other form, such as transfer of technology or countertrade, which has not amounted to the control of any lasting interest in the local enterprise, made by a foreign person, either natural or legal, within the territory of a host country.  The positives of foreign investment are that it: o Injects capital; o Transfer of technology; o Improves competiveness; and o Creates jobs.  The negatives of foreign investment are that it: o Destroys local competition; o The profits are remitted overseas; and o It’s controlled by foreign enterprises.  There are two essential features of a foreign investment: o The investor is not a citizen of the country of the country where the investment is made. o The investment activity is not a mere act of sale of goods, or supply of services, between parties from different countries, although an international sale may be part of a foreign investment activity.  A foreign investment must involve ongoing operations, in the form of wither FDI or FPI, in a foreign country. Foreign investment and the host country  There is an inherent tension in the relationship between foreign investment and the host country.  Foreign investment involves conflict of interests between host states and local industries on the one hand, and the foreign investors and foreign governments on the other, because of the disparity between the economic powers of the foreign party and the local party as well as inevitable struggles between them to gain the power to control local economics in order to increase security for their own future.  A foreign investor seeks legal protection and guarantee in local law when investing in a particular country.  A host government seeks control of the foreign investment to the extent it regards appropriate. Forms of foreign investment  There are various forms that foreign investment may take.  Some of the most common forms include: o Multinational corporations (also known as multinational enterprises or transnational corporations);  The corporations which control assets in more than one country. o t ventures;  Investment projects owned by both foreign and local partners.

o Sole foreign ventures (also known as wholly foreign-owned enterprises);  These arise in the context where a host government waives a requirement for local participation when approving establishment of a venture. o Foreign takeovers or acquisitions;  Where foreign parties invest in a business (either to the extent of a given share, or to the extent of the whole company) already existing in a particular country.  Foreign direct investment: o Long term o Management  Foreign Portfolio Investment: o Short term o Tradeable Foreign investment law in Australia  Australia has traditionally been a capital-importing country.  The regulation of foreign investment in Australia falls within the scope of federal legislative power. o It is therefore primarily regulated by federal law.  Legal framework: o Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA) o Foreign Investment Review Board  The Board examines proposals by foreign interests to undertake direct investment in Australia and makes recommendations to the Government on whether those proposals are suitable for approval under the Government's policy.  The main functions of the Board are to:  Examine proposals by foreign interests for investment in Australia and, against the background of the Government's foreign investment policy, to make recommendations to the Government on those proposals;  Advise the Government on foreign investment matters generally;  Foster an awareness and understanding, both in Australia and abroad, of the Government's foreign investment policy;  Provide guidance, where necessary, to foreign investors so that their proposals may be in conformity with the policy; and  Monitor and ensure compliance with foreign investment policy.  The Board’s functions are advisory only. The responsibility for foreign investment policy and proposals rests with the Treasurer. o The Federal Treasurer o Foreign Investment Policy  Australia’s five most important foreign direct investment partners are:

o European Union (excluding UK):  $73 billion direct investment in Australia.  $20 billion Australian direct investment in the EU. o New Zealand:  $5 billion direct investment in Australia.  $34 billion Australian direct investment in NZ. o Japan:  $36 billion direct investment in Australia.  Low Australian direct investment in Japan. o United Kingdom:  $60 billion direct investment in Australia.  $23 billion Australian direct investment in UK. o United States:  25% direct investment in Australia.  43% Australian direct investment in US.  Proposed Investment by Shell in Woodside Petroleum  Proposed Investment by Chinalco in Rio Tinto The Foreign Acquisitions and Takeovers Act 1975 (Cth)  There have been recent changes to the FATA and Regulations.  The FATA was the first extensive piece of legislation in Australia aimed at regulating the flow of foreign investment into Australia.  All natural persons (whether resident in Australia or not and whether Australian citizens or not) and all corporations (whether incorporated or carrying on business in Australia or not) are obliged to comply with the FATA.  The FATA regulates a number of situations under the rubric of acquisitions and takeovers, including: o Acquisitions of shares; o Acquisitions of assets; o Arrangements relating to the directorate of corporations; o Arrangements relating to the control of Australian businesses; and o Acquisitions of interests in Australian urban land.  FATA section 18 o Section 5(1) (the definition of foreign person) o Section 6 (the definition of associates) o Section 5(3) (relating to proposing to acquire shares) o Sections 18(7) and 9 (relating to control, substantial interest and aggregate substantial interest)  Under section 18, the Treasurer has the power to block an investment only if it would be contrary to the national interest. The international legal framework of foreign investment  Foreign investment has increasingly attracted world attention particularly when involving multinational corporations, with two major legal issues arising out of the use of this vehicle for foreign investment purposes: o Host countries may feel the need to regulate the conduct of multinational corporations; while

o Capital exporting countries may desire to protect the interests of their nationals (with the purpose being to promote its own overseas investment and trade).  Foreign investment has traditionally been (and continues to be) primarily regulated by the domestic laws of host countries.  There are an increasing number of international treaties on a bilateral level and attempts have also been made to formulate an international agreement to regulate this aspect of international commerce.  The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States was concluded in 1965. o It established the International Centre for Settlement of Foreign Investment Disputes. o It is an example of an international agreement in the realm of investment that has enjoyed wide application. o The Convention has been adopted by 157 States, including Australia. o It only has jurisdiction to hear disputes about settlement if both parties consent (in writing) to submit to its jurisdiction.  Bilateral and regional agreements have proved the most popular and successful means for States to protect their interests in foreign investment – either as a host or exporting nation. o As of 15 October 2009, Australia has signed 17 bilateral agreements in the area of foreign investment. o Regional agreements are less numerous but have also proved successful in regulating investment amongst those countries that are parties to them.  The NAFTA  It was the first multilateral treaty to deal extensively with investment.  Agreement on Treatment of Foreign Capital of the Cartegena (1991)  Principles and Guidelines on Foreign Investment (1982)  Free Trade Agreement between CARICOM and the Dominican Republic (1999)  ASEAN Agreement for the Promotion and Protection of Investments (1987)  APEC Non Binding Investment Protocols  There have been endeavours to formulate and adopt a truly multilateral agreement on investment.  The most significant effort to regulate foreign investment at an international level has been the OECD’s Declaration on International Investment and Multinational Enterprises. o The declaration does not constitute a treaty, although it is often referred to as such. o It was adopted in 1976. TRIMS  Trade-Related Investment Measures



 







It is a concept which was created for the purposes of raising issues of concern or identifying issues of crucial significance with respect to investment, within a framework of trade negotiations. A TRIM is any requirement which affects trade applied by a government as a condition to the making or operation of an investment. Import restrictions o Local Content Requirements require the investor to purchase or to use inputs from local sources (including itself) in some absolute amount or percentage of production value or quantity. o Domestic Manufacturing Requirements oblige an investor to manufacture some percentage or fixed amount of production or inputs in the host country. o Trade Balancing Requirements restrict an investor from importing or from using imported products to an amount corresponding in some way to the amount of its exports. o Exchange Restrictions limit an investor’s access to foreign exchange generally or to that earned from exports. Export restrictions o Domestic Sales Requirements require the sale of a certain percentage of output or a minimum quantity or value of production on the host country market. Export requirements o Export Performance Requirements oblige an investor to export a specified percentage or amount of production quantity or value. o Product Mandating requires an investor to grant the investment exclusive rights to specified export markets, or requires the investor to export to certain foreign markets or regions. Non-trade specific TRIMS o Technology Transfer Requirements require an investor to include specified technology in its production process or to conduct some minimum level of research and development in the host country. o Local Equity Requirements require that local investors hold or control a certain minimum percentage of the equity in an investment. o Licensing Requirements oblige an investor to license the production, use, or sale of some product or technology to domestic companies. o Manufacturing Restrictions prevent an investor from manufacturing certain products. o Remittance Restrictions limit an investor’s transfer of profits, earnings, or capital to the home country. o Incentives induce investment or acceptance of other TRIMs by the offer of some benefit or advantage to the investor

Topic 7: International Dispute Resolution What are international commercial disputes?  International commercial disputes are disputes that relate to international commerce.  Most disputes in practice arise from contracts for the international sale of goods, contracts for the international carriage of goods, international banking and finance, international licensing agreements, international construction work and foreign investment.  There are three principal means used for the resolution of international commercial disputes: o Litigation;  The traditional means of dispute settlement.  It involves initiating proceedings against another party in a domestic court and having the relevant dispute settled by a judicial authority.  The advantage of using litigation to resolve international commercial disputes is that it does not require the consent of the other party, the court has the power to enforce its decisions, and there are formal rules and procedure under which the court conducts its business.  However, there may be a conflict of laws and the most significant disadvantage is the enforceability of judgements. o Arbitration; and  Arbitration involves the use of an impartial and independent arbitral tribunal (usually constituted by one or three people) to arbitrate a dispute.  The disputing parties must consent to arbitrate, have the ability to choose where the arbitration takes place, may choose the rules by which the arbitration is governed and may even choose the arbitrators that will determine their dispute. o Negotiation/mediation  Processes initiated and controlled by the parties themselves, and are both based on the disputing parties’ continuing cooperation.  The main advantages of these methods of dispute resolution are their informality, and the likelihood of saving cost and time.  If either party is not willing to participate in these processes, they cannot be forced upon them.  Despite the three above means of dispute resolution, domestic courts are never completely out of the picture. o The existence of a sovereign national court system to which the parties can resort if necessary lies at the back of all dispute-resolution methods.  Until recently, it was often suggested that arbitration was the most popular means of international dispute resolution. Domestic courts and transnational litigation  Transnational litigation has its roots in domestic legal systems.  Courts faced with an international commercial dispute will first have to decide whether:

o They have jurisdiction under their ordinary rules of civil procedure, o Whether or not to exercise that jurisdiction o Then apply conflict of laws rules in order to determine the substantive law that will govern the parties’ rights and obligations.  Once an international commercial dispute is settled by a domestic court, a dispute is not really solved and the interests of the innocent party are not effectively protected until the decision of the judicial body is enforced. o The enforceability of foreign judgements is a key concern in transnational litigation.  Domestic courts will only recognise and enforce foreign judgements unless there is an obligation to do so arising under the relevant State’s domestic law, or under a international treaty to which the relevant State is party.  The matter of enforcing foreign judgements in Australia is regulated by legislation at both the state and federal level. o Foreign Judgements Act 1991 (Cth)  Sections 5 – 10 Arbitration  Arbitration is characterised by its consensual nature – the parties must consent to arbitrate if an arbitral tribunal is to have jurisdiction over a dispute, and further many aspects of arbitration are regulated by party choice.  The parties are free to decide the aspects of arbitration, including the location where the arbitration will have its judicial seat, the identity of the arbitrators and even the procedural rules that will govern the conduct of the arbitration.  A valid arbitration agreement is said to have both a positive and negative effect. o The negative effect is that it precludes recourse to the courts.  i.e. both parties to a valid arbitration agreement effectively forfeit their right to sue each other in a domestic court with respect to matters falling within the scope of the arbitration agreement. o The positive effect of the arbitration agreement is that parties gain the right to have their dispute settled by arbitration.  At the basis of international commercial arbitration is the lex arbitri – law of arbitration. o It is a national law that regulates international commercial arbitrations having their juridical seat in that particular State. o The seat of an arbitration is the place where the arbitration is legally constituted. o Lex arbitri varies depending on which State is being considered.  Model Law on International Commercial Arbitration (the Model Law) 1985. o This is a model piece of legislation that States may adopt as their lex arbitri if they choose, with or without amendments peculiar to their local legal system.  Arts. 1(2), 7, 35(2) and 2A  Chapter IVA  A key feature of international commercial arbitration is the freedom of parties to tailor the process to their needs.











o One aspect of this feature is the freedom of parties to choose the rules of procedure that will govern the arbitration.  Art. 19(1) Model Law Institutional arbitrations are arbitrations conducted under the auspices of an arbitral institution. o Institutions generally publish their own sets of arbitral rules, which may confer specific roles on the institution itself.  E.g. appointing arbitrators where the parties cannot agree. o There are a wide range of arbitral institutions around the world:  The American Arbitration Association (AAA)  The Chinese International Economic and Trade Arbitration Commission (CIETAC)  The Hong Kong International Arbitration Centre (HKIAC)  The International Chamber of Commerce’s International Court of Arbitration  The London Court of International Arbitration (LCIA)  Singapore International Arbitration Centre (SIAC)  Australian Centre for International Commercial Arbitration (ACICA)  ACICA rules Ad hoc arbitrations are not conducted under the supervision of any particular arbitral institution. o The supervisory role is likely to be carried out by an appointed court in the seat of arbitration. o UNCITRAL has published a set of arbitral rules that may be used for ad hoc arbitrations. Obtaining an arbitral award is not the end of the story – equally as important for the successful party will be the task of obtaining recognition and enforcement of that award in a jurisdiction in which the unsuccessful party has assets. o Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)  It has 146 signatory States.  It sets out both the conditions for the recognition and enforcement of a foreign arbitral award in a signatory State, as well as the situations in which a foreign arbitral award may be denied recognition and enforcement. In Australia, international commercial arbitration is governed by the International Arbitration Act 1974 (Cth). o This gives the Model Law the force of law in Australia and will thus generally be the lex arbitri for any international commercial arbitration having its seat in Australia. o The International Arbitration Act 1974 gives effect to the New York Convention. The International Arbitration Act was reviewed in November 2008.

Other methods of settling international commercial disputes  Negotiation and mediation both essentially rely on the cooperation of the parties themselves to reach a decision that is to the mutual satisfaction of both parties.  Cooperation for negotiation may involve the parties directly communicating, or negotiating through legal representatives.  In the case of mediation, the process is facilitated by a mediator.  A crucial distinction between mediation and arbitration is that a mediator is not empowered to make a decision. o Instead, a mediator may endeavour to assists the parties interactively to reach a settlement or make a recommendation at the end of mediation process.  Negotiation and mediation are useful means of settling disputes in cases where the parties have long term commercial relationships that stand to be damaged by the more formal processes of arbitration and litigation. o They are also useful mechanisms if the amounts in dispute are small.  When an international commercial contract is being negotiated and drafted, it may be worthwhile to include a mediation clause, on its own or in addition to an arbitration clause, to at least remind the parties of considering and exploring the possibility of settlement. o Such a clause should also include provision for terminating the process to prevent it being used as a potential delaying tactic by a party who is not negotiating in good faith.

MLL336 – International Commercial Law Aotearoa International Ltd v Westpac Banking Corp [1984] 2 NZLR 34 pg 478 Facts  Aotearoa International was the seller in a contract for the sale of waste paper to Harayana Paper Mills of India.  Harayana asked the United Commercial Bank of New Delhi to issue an irrevocable letter of credit in favour of Aotearoa.  The credit was issued in the form of a telex and addressed to the ANZ Bank in Auckland, which was instructed to advice Aotearoa of the availability of the credit.  The ANZ Bank did this by sending a letter of advice which omitted certain of the credit issued by the United Commercial Bank.  The letter was taken to Aotearoa’s own bank by two of their officers to negotiate the credit.  One of the officers signed a blank bill of exchange on the bank, which was meant to be filled in by the bank for the purpose of negotiating the credit.  An officer of the bank made a typing mistake when filling in the blank bill of exchange.  He then filled in another one and had the bill signed by another officer of the bank.  The bank subsequently negotiated the credit on the basis of the ANZ’s letter of advice and sent the bill of exchange and documents directly to the issuing bank for reimbursement.  The request for reimbursement was refused by the issuing bank on the grounds that the freight was not paid and supply of the quality certificate was late.  The negotiating bank subsequently debited a sum of money from Aotearoa’s kept by it. Legal Issues  Letters of credit (topic 4) Judgement  The bank had no recourse against Aotearoa for two reasons.  First, the bill of exchange was neither signed nor authorised to be signed by Aotearoa and thus was invalid.  Second, the bank, as a negotiating bank, was not entitled to seek indemnity from Aotearoa because it had neither a valid draft nor any undertaking of indemnity from Aotearoa.

Bank of Taiwan v Union Syndicate Corp [1981] HKC 205 pg 487 Facts  The Taiwanese buyer, Taiwan Freeway Construction Bureau, and the Honk Kong seller, the Union Syndicate Corp, entered into a contract, through their respective agents, for the sale of 10,000 metric tonnes of scrap metal located in Vietnam.  The Bank of Taiwan issued a letter of credit at the request of the Taiwanese buyer in favour of the seller.  The First National City Bank of New York was authorised by the Bank of Taiwan to make a payment under the letter of credit.  The Kwong On Bank of Shanghai was authorised as the advising bank to the seller.  Kwong On Bank transferred part of the credit to Capricorn Seafords which was supposed to be the supplier for 3000 metric tonnes of the scrap metal, at the request of the seller.  Capricorn negotiated the payment under the transferred credit at Ka Wah Bank which subsequently claimed payment from the First National City Bank and sent the relevant documents to the Bank of Taiwan.  It turned out that Capricorn committed a fraud against the buyer because it did not have scrap metal to sell.  The Bank of Taiwan, the buyer and its agent initiated legal proceedings against the seller and the relevant banks. Legal Issues  Letters of credit (topic 4) Judgement  The action was dismissed.  The buyer and the buyer’s agent had no contractual basis to sue the banks.  The buyer’s agent could not rely on negligence to sue the banks because it failed to establish the damage it had suffered.  The buyer could not rely on negligence against the Ka Wah Bank because the bank did not owe a duty of care to the buyer for a lack of foreseeability.  The Bank of Taiwan and Ka Wah Bank were bound by the of the credit.  The Ka Wah Bank accepted a received for shipment bill in contravention of the of the credit, but the Bank of Taiwan had given consent to this breach by acquiescence. Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep 443 pg 479 Facts  Bankers Trust (plaintiff) was the issuing bank of an irrevocable credit, which was confirmed by the State Bank of India (defendant).  The credit was issued for the sale of steel plates from India to England and was subject to U 400.  U 400 required the issuing bank to reject non-confirming documents within a reasonable time and give notice to the negotiating bank accordingly.  The State Bank of India forwarded the documents to Bankers Trust after the shipment of the goods.  Trust received the documents and discovered a number of discrepancies between the documents and the of the credit.



It then sent the documents to the buyer for comment and ultimately informed the State Bank of India of its rejection of the non-conforming documents.  The State Bank of India rejected Bankers Trust claim and refused to reimburse them which subsequently commenced legal proceedings against the State Bank of India.  The trial court held that Bankers Trust did not comply with the requirements of U 400.  Bankers Trust appealed. Legal Issues  Letters of credit (topic 4) Judgement  U 400 required the issuing bank to examine the documents as they were and did not allow the issuing bank to send them to the buyer for the purpose of identifying the discrepancies.  Bankers Trust failed to comply with the requirement to give timely notice to the negotiating bank of the alleged discrepancies and was therefore not entitled to claim reimbursement from the State Bank of India. Banque de L’Indochine ET de Suez SA v J H Rayne (Mincing Lane) Ltd [1983] QB 711 pg 485 Facts  The beneficiary (Rayne) tendered documents under an irrevocable letter of credit.  The advising bank (Banque de L’Indochine) discovered discrepancies between the documents and the of the credit.  The beneficiary disagreed with the bank on the alleged discrepancies.  The parties then agreed that the bank would make a payment under reserve to the beneficiary.  The documents were ultimately rejected by the issuing bank.  The advising bank sought reimbursement from the beneficiary who refused to reimburse the bank. Legal Issues  Letters of credit (topic 4) Judgement  The bank reserved the right to have the money back when making the payment under reserve.  The acceptance of the documents was conditional, depending on whether the issuing bank or the buyer would ultimately accept the disputed documents.

DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 pg 315 Facts  DHL International operated an international courier service.  Richmond sold skins and hides to an Italian buyer, Conceria Bini Gastone.  Under the contract of sale, Richmond was to deliver the bill of lading and drafts to an Italian bank.  The bank would the documents to Bini upon payment of the contract price by Bini.  Richmond shipped the goods as agreed.  It then contracted with DHL under an airbill to deliver the documents to the Italian bank.  DHL’s agent misdelivered the documents to Bini, which then took delivery of the goods by presenting the bill of lading received by misdelivery without making any payment to the seller.  Bini went bankrupt soon after taking over the goods.  The Italian bank claimed that it had never received the bill of lading.  Richmond sued DHL for damages on the ground of breach of contract evidenced by the airbill.  The High Court of NZ gave judgment in favour of Richmond on the ground of the existence of a fiduciary duty.  DHL appealed. Legal Issues  International carriage of goods (topic 3) Judgement  The of the airbill excluded and limited the liability of DHL.  Consequential losses were also excluded under the airbill.  The relationship of the parties was based on the contract rather than the fiduciary duty.  There was no evidence that DHL was dishonest or fraudulent in misdelivery nor was it proven that DHL knew or ought to have known the commercial significance of the documents misdelivered.  The claim of Richmond was limited, excluded or time barred by the of the airbill. Discount Records Ltd v Barclays Bank Ltd [1975] 1 WLR 315 pg 487 Facts  Discount records opened a confirmed irrevocable credit through Barclays Bank in favour of a French seller.  The credit was made available to the beneficiary through several intermediary banks.  The draft and documents were accepted by the negotiating bank in Paris.  Barclays Banks debited Discount records for the amount of the credit and put the money into an under the t name of Barclays Bank and Discount records.  Discount records alleged that the cartons which were supposed to contain the goods were in fact empty or filled with rubbish and goods not ordered.

 Discount records asked the court to grant an interlocutory injunction. Legal Issues  Letters of credit (topic 4) Judgement  The injunction to restrain payment under an irrevocable credit is available only when a grave cause was established.  Discount records had not proved the existence of the alleged fraud and of the irretrievable damages from making payment by the bank under the credit.  In addition, after the acceptance of the draft, the documents might have been ed to an innocent holder in due course,  The use of injunction should be restricted because of the possibility of damaging the interest of an innocent holder of the draft.

Green v Australian Industrial Investment (1989) 90 ALR 500 pg 746 Facts  G, a representative of BE, entered into an agreement with L and B, representatives of All, in London to sell BE’s shares to All.  The shares were to be paid partly in cash and partly by the issue of preference shares in All.  G later claimed that L and B made fraudulent misrepresentations as to All’s financial position and sought rescission of the agreement to sell in the English court.  All filed a petition and was granted an interim injunctive relief against BE.  G then took action in the Australian Federal Court, alleging a breach of the TPA, seeking either to rescind the agreement or to declare the agreement void ab initio.  All applied for a stay of the proceedings. Legal Issues  Introduction to international commercial law (topic 1) Judgement  The oppressive and vexatious test was applied and the court dismissed a stay of the proceedings.  The TPA has extra-territorial effect and the alleged breach of the Act in London invoked the statutory jurisdiction of the Act, which cannot be excluded by any choice of law clause in the contract.

Hunter Grain Pty Ltd v Hyundai Merchant Marine Co Ltd & Anor (1993) 117 ALR 507 pg 255 Facts  The plaintiff, Hunter Grain, purchased soybean meal from PS International, a US company.  The cargo was shipped from Portland, Oregon to Brisbane in a ship called that Bunga Kenanga, hired under a time charter by Hyundai.  During loading, agents of Hyundai noticed that the meal was being contaminated by soda ash in the loading equipment used by the stevedores, who were agents of PS International.  The master requested that the loading cease, but the stevedores continued, claiming that the contamination was very minimal.  A mate’s receipt was issued after loading, nothing the contamination.  The agent of PS International pointed out that they could not get paid under the letter of credit provided by Hunter Grain unless a clean bill of lading was issued.  Thus, after receiving an indemnity from PS International, Hyundai issued a clean bill of lading.  Hunter Grain’s bank received the clean bill of lading and, as instructed by the plaintiff, debited payment in favour of PS International four days later.  After learning of the contamination, the plaintiff commenced proceedings against Hyundai alleging breach of contract, fraud, negligence and breaches of both the Trade Practices Act and the Fair Trading Act. Legal Issues  International carriage of goods (topic 3) Judgement  The plaintiff succeeded against Hyundai in its causes of action for the breach of contract and fraud.  The soda ash truly contaminated the cargo, and this was the fault of the stevedores.  The procuration of the letter of indemnity did nothing to relieve Hyundai of its liabilities. Honesty and integrity in g receipts for goods the subject of bills of lading is essential if persons engaged in international trade are to have confidence in documents with such a vital role in relation to the authorisation of the payment of money.  Hyundai was estopped by its representation in the bill of lading from denying that the goods were received in good order and condition and, in the absence of an explanation of their damaged condition, was liable for breach of the contract of carriage.  Hyundai was also liable in fraud to the plaintiff, as a person who had relied on the representation, for the master g the bill of lading containing a statement as to the condition of the goods which he knew to be untrue.  The claim for negligence was not successful, because this was a case of deliberately embarking on a course of conduct that was deceitful and dishonest.  The claims under both Acts were not successful, as no actionable conduct occurred within the jurisdiction.



The fact that the relevant events occurred outside Australia was irrelevant to the estoppel, fraud and negligence questions, since the defendant had submitted unconditionally to the jurisdiction of the court.

Michael Doyle & Associates Ltd v Bank of Montreal (1984) 11 DLR (4th) 496 pg 478 Facts  The Bank of Montreal acted as the advising bank on behalf of a Dutch Bank.  Michael Doyle, which sold frozen herring fillets to a Dutch buyer, was the beneficiary under a letter of credit.  The fillets were shipped in four instalments.  After the acceptance of the draft and commercial documents for the third delivery, the buyer became dissatisfied with the quality of the fillets and asked the issuing bank to seek a ground to stop the payment under the credit.  The Dutch bank discovered that the health certificate for the third delivery did not comply with the requirement,  The seller resubmitted a health certificate, but the certificate was ultimately rejected by the Dutch bank for late submission.  The Dutch bank refused to pay for the third instalment.  The Bank of Montreal refused to make payment to Michael Doyle, despite the draft and documents having been accepted by it. Legal Issues  Letters of credit (topic 4) Judgement  The Court of Appeal held that the bank undertook a liability to pay the draft after the acceptance. Midland Bank v Seymour [1955] 2 Lloyd’s Rep 147 pg 482 Facts  The buyer did not give clear instructions as to the requirements for the documents to be presented.  The seller presented a set of documents which as a whole provided sufficient information about the goods, but the bill of lading did not have sufficient detail. Legal Issues  Letters of credit (topic 4) Judgement  The buyer’s instructions were ambiguous and the bank had complied with the doctrine because the documents as a whole were consistent with each other and the bill of lading contained the description of the goods.

Polites v The Commonwealth (1945) 70 CLR 60 pg 744 Facts  The National Security Act gave the Governor-General a power to require persons to place themselves, their services and property at the disposal of the Commonwealth.  The National Security regulations provided compulsory enrolment of aliens in the armed forces.  A number of Greek citizens resident in Australia were required to serve in the armed forces.  There was a rule of international law which said that aliens could not be compelled to serve in the military force of a foreign country.  The regulations were challenged in the Australian High Court. Legal Issues  Introduction to international commercial law (topic 1) Judgement  The High Court held that the regulations were valid because the relevant Act allowed the Governor-General to make such regulations in spite of the existence of the international law. Proposed Investment by Shell in Woodside Petroleum pg 65 Facts  Woodside operated the North West Shelf energy project of the Western Australian coast.  In 2000 Shell made a $10 billion bid to acquire a shareholding in Woodside which would have increased its holding from 34% to 56% and would have resulted in a change of control of Woodside.  Consequently, it required the Treasurer’s approval pursuant to the Foreign Acquisition and Takeovers Act.  After much debate and speculation, the then Treasurer refused the proposed takeover on the grounds it would be contrary to the national interest.  ‘Woodside is the operator of the project and it is in the national interest of Australia that the project be developed to its full capacity and that Australia’s export sales from the NSW [.e. the North West Shelf] are maximised.’ Legal Issues  Foreign investment law (topic 6) PS Chellaram v China Ocean Shipping Co [1989] 1 Lloyd’s Rep 413 pg 1131 Facts  The plaintiff, Chellaram, sold 900 cartons of blank cassette tapes to Gemsons.  The goods were to be shipped from Honk Kong to Sydney on the vessel owned by the first defendant, COSCO.  COSCO issued a bill of lading through its Honk Kong agent (Costran).  The vessel arrived in Sydney and Gemsons requested COSCO’s Sydney agents, Five Star (the second defendant) to release the goods without the bill of lading being produced.



Five Star telexed Costran and wrongly assumed Costran had obtained Chellaram’s consent to the goods being released without the bill of lading being produced.  The goods were released to Gemson.  The plaintiff sues the first and second defendant in contract and tort.  The defendants argued that any action was time barred under the Hague Rules or the Hague-Visby Rules and that the claim was time barred under a clause in the bill of lading that required the suit to be brought within 9 months of the delivery of the goods. Legal Issues  International carriage of goods (topic 3) Judgement  As to the contract claim, a breach of contract had been established.  ‘Unable to conclude that there was either implied or express approval by Chellaram to the release of the goods without production of the bill of lading. A breach of the contract of carriage had accordingly been established.’

Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority (1995) 129 ALR 401 pg 632 Facts  Rocklea was an Australian company and manufacturer of cotton products.  It alleged that cotton yarn imported to Australia from Pakistan had been subsidised or given financial assistance by the Pakistan Government, and applied to the Comptroller-General of Customs for the issue of a countervailing duty notice under the Customs Act.  Rocklea appealed to the Full Court of the Federal Court. Legal Issues  Multilateral, Regional and Bilateral Trade Agreements (topic 5)

SS Ardennes (Cargo Owners) v SS Ardennes (Owners) [1951] 1 KB 55 pg 662 Facts  The plaintiff (the shipper) shipped a cargo of mandarin oranges in the defendant’s (the carrier’s) ship.  The oranges were loaded in the port of Cartagena and which were bound for London.  The defendant had orally stated to the plaintiff that the vessel carrying the cargo would travel straight to London.  The bill of lading issued by the plaintiff in fact stated that the vessel carrying the cargo could proceed by any route.  Instead of travelling straight to London, the vessel was first taken to Antwerp to unload other cargo.  Some of the plaintiff’s cargo was accidently unloaded at Antwerp and left behind.  By the time the vessel arrived at London, the market price for mandarin oranges had fallen and the duty on mandarin oranges had been increased.  Some of the cargo that had been left behind at Antwerp eventually reached London on a later vessel and the rest of the cargo that had been left behind at Antwerp was lost.  This later vessel also attracted the lower cost and higher duty.  The plaintiff sued the defendant to recover their losses in respect of the lower market price and higher duty, alleging a breach of contract. Legal Issues  International carriage of goods (topic 3) Judgement  Held.  The bill of lading was evidence of the contract but not the contract itself.  The plaintiff’s, in reliance on the of the actual oral agreement, were successful in their claim for breach of contract.  ‘The bill of lading is not in itself the contract’.  

Voth v Manildra Flour Mills Pty Ltd and Anor (1990) 171 CLR 539 pg 715 Facts  Manildra Flour Mills (Manildra Group) was a resident of NSW and a company incorporated under NSW law.  Voth was a resident of the US and a practising ant in Missouri.  Manildra sold starches and starch products to Manildra Milling Corporation (MMC), a subsidiary of the Manildra Group but incorporated under the law of the State of Kansas.  Voth provided advisory services to MMC.  MMC became indebted to the Manildra Group and was liable to pay interest to them.  Under the laws of the United States, the Manildra Group was liable to pay tax on the interest received and MMC was liable to deduct the withholding tax from the payment of the interest to the Manildra Group.  MMC did not deduct the tax, allegedly as the result of Voth’s advice nor did they pay tax to the US Government.  Upon discovery, the Manildra Group realised that they would not have had to pay tax to the Australian Government.  The Manildra Group sued Voth in NSW for professional negligence.  The Supreme Court of NSW refused to set aside the writ or service of the writ or to stay its hearing of the matter pending resolution of the dispute by a Missouri court.  The NSW Court of Appeal upheld that decision.  Voth appealed to the High Court on the ground that the NSW Court was not the appropriate forum for determining this dispute. Legal Issues  Introduction to international commercial law (topic 1) Judgement  Held.  The alleged tort was committed in Missouri and thus the liability should be determined by the law of Missouri.  The action in the Australian court should be stayed as it was clearly an inappropriate forum.