Law Assessment Item 2

Ouestion I

In early January 2015, Smith Mining Ltd (“Smith”), a Queensland based-company entered into a contract, subject to Australian law, with China Aluminum, a Chinese aluminum processing firm for three Shipments Of high grade at US per tonne from Queensland in first weeks Of February, May and August 2015 respectively. Under the contract, there was also a $1 million per instalment shipping charge. Each instalment charge was payable a week in advance by Smith setting up a letter of credit with Brisbane Bank There was a minimum requirement of a week between payment and the earliest possible date for shipment. Smith was to self-certify, under the Contract, the quality for each Under the Contract each instalment Was to be delivered to the port Of Dalian, China, by a Smith chartered shipping carrier at Smith’s expense. However, subsequent contract execution didn’t conform 10 the hopeful expectations of either party.

Regarding the first shipment:

Due to delays and errors by Brisbane bank, it Was 10 days late With the letter Of credit. This cost Smith $20,000 in extra bank costs. It relied on this as an excuse to delay shipment by 14 days to cover up its own 10 day delay in shipment, caused by plant failure. Due to that plant failure, Smith could only ship 30,000 tonnes. China Aluminum bought the deficit through the China Beijing Metal Exchange (CBMX) at $300 a tonne plus a $150 per tonne shipping Charge from a Korean company, although Happy Mining Ltd, an Australian competitor had offered and was able to arrange a substitute, equivalent delivery within a further fourteen days at no extra cost and little inconvenience to China Aluminum

Regarding the second shipment:

1. Owing to a tropical cyclone, loading in Queensland was delayed by six days and the ship’s departure was delayed a further four days due to industrial action by the port workers in Queensland
2. Because of a ship loading error at the port, half of the shipment was not of the appropriate quality. Smith identified this before the ship departed but it delayed the shipment by 4 days, which cost an extra In port handling and transport fees a further in rescheduling.

Required:
(a) Outline and discuss each party’s likely legal rights and liabilities in relation to the above detailed first and second shipments as governed by Australian law, assuming CISG applies. (15 marks)

Outline and discuss each party's likely legal rights and liabilities in relation to the above detailed first and second shipments as governed by Australian law, assuming CISG applies.

It is imperative to lay out a brief summary of facts before outlining the legal rights and liabilities of the parties related to the first and the second shipments which are governed by Australian law. Smith, the Queensland based company entered into a contract, subject to Australian law, with China Aluminum, a Chinese firm for shipment of high-grade aluminium at the US $200 per tonne from Queensland in three instalments. Now, due to issues created by the Bank, the first instalment got delayed. Moreover, as a result of a tropical cyclone, the second instalment also got delayed.  

It is important to note here that United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG) is applicable here since all the provisions regarding the sphere of application of CISG have been complied. With this quaint introduction to the facts, the legal rights and liabilities of each party are analysed as follows: 

Legal Rights and Liability of Smith Mining Ltd.

Legal Rights

Smith has a right to take defence available under CISG with regard to the delay in the second shipment due to the tropical cyclone. Clearly, an event like a tropical cyclone is an impediment beyond the control of Smith and could not have been expected. 

Liabilities

According to CISG, the seller i.e. Smith, in this case, is obligated to deliver the shipments as required by the contract and this convention. The contract specifically required that the instalment charge be payable a week in advance by Smith setting up a letter of credit. With regard to the first shipment, the reason for the delay of 14 days was attributed to the Bank. However, the major part of the delay was due to the plant failure which was not even communicated to China Aluminum. It is clear that Smith was avoiding its obligations as per CISG and Australian law and acting in a dishonest manner. Moreover, Smith also cannot escape the liability because its actions are not exempted under CISG with regard to the first shipment since it was purely its own fault. Smith also failed to fulfil the obligation of notifying the other party of the impediment and the likely effect of such impediment. The error by the bank and the plant failure could not be said to events beyond the control of Smith. 

Legal Rights and Liability of China Aluminum

China Aluminum has a right to seek remedies from Smith according to the CISG for the failure to perform obligations undertaken through the contract. With regard to the first shipment, the company may require the Smith to pay monetary damages including consequential damages owing to the loss of profits. It is important to mention here that China Aluminum had to buy the deficit of the quantity of high-grade aluminium from a different company at a higher price.