INTERNATIONAL TRADE LAW – Semester 2, 2013

SEMINAR BOOKLET
Your Weekly Reading/Seminar Guide, including Topic Recap Questions and Exam Style Problem
Questions

This Booklet provides a brief outline of the seminar programme and required reading, topic recap
questions and problem questions.

An explanation of the headings used in this booklet:

Essential Preparation: Topic-by-topic, this booklet makes clear what preparation you need to do
for each week. Most essential readings are included in the Essential Materials for the relevant
topic. You can find the Essential Materials for each topic on Moodle. You should download these
materials from Moodle and ensure you have a copy of the relevant materials for the appropriate
seminar.. You are strongly advised to print out the essential materials for Topics 2-7 in
preparation for the open book exam.

Problem Questions: Your lecturer/tutor will tell you which problem questions will be addressed in
class. You should prepare your responses to these questions in advance of the seminars. However,
you are advised to consider all questions in your own time to help you through the unit and
prepare yourself for the exam.

Topic Recap Questions: You can use these questions to test your understanding of fundamental
concepts in the topic.

Further Reading: These readings will deepen your understanding of the topic or supplement the
lectures and are especially recommended if you are having difficulty with a topic. References to
Mo are to the recommended text: John Mo, International Commercial Law (5th Ed) (2013)

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 Schedule of Seminars

Caulfield Teaching
Week Topic Page No.
Staff

1 Introduction Nicola Charwat 3

2-3 International Trading System Toan Le 4

4-5 International Contracts for the Sale of Goods Nicola Charwat 8

6-7 International Carriage of Goods by Sea Mathews Thomas 13

8 Marine Insurance Nicola Charwat 17

9 International Air Carriage Nicola Charwat 20

10 International Payments Nicola Charwat 22

11 International Dispute Settlement (Arbitration) Nicola Charwat 25

12 Revision Nicola Charwat 27

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 Week 1
An Introduction to International Trade Law

Essential Preparation
Download Unit Guide
Download/ print out Seminar Booklet (This Booklet!) to bring with you to weekly
seminars
Watch video ‘From GATT to the WTO’ (Moodle) [17mins]

In this seminar we will

 Overview the unit administration, teaching arrangements, materials and assessment

 Overview the substantive content of the unit
 Introduce the international trading system

Aims
 Understand the sources of law relevant to international trade
 Understand the differences and relationship between international law and domestic law
 Understand the difference between public international law and private international law
 Understand the WTO in the history of the international trading system and its role as an
institution of public international law.

Topic Recap Questions

1. What is public international law? How is it enforced?

2. What are some of the differences between international law and domestic law? Consider in
particular, how the laws are made, on whom they are legally binding and how they are enforced.
3. What is private international law? What are the aims of private international law in respect of
international trade? What are the rationales behind these aims?
4. Do corporations or natural persons have rights under the WTO Agreement? Explain.
5. Is a contract between General Motors Holden Ltd in Australia and Mitsubishi Corp in Japan for
Mitsubishi to supply engine parts generally governed by public or private international law?
Explain.

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 Weeks 2 and 3
Topic One: The International Trading System

Essential Preparation
 Download or print out Topic One Essential Materials from Moodle (Readings and page
numbers below refer to these materials, unless otherwise indicated)

Week Two
 Peruse The WTO Agreement and GATT 1994(pp 2-9)
 General Agreement on Tariffs and Trade 1947 (GATT),especially Arts I, II, III and XX (p 11)

Week Three
 Settling a Dispute, especially ‘Views on “Like Product”’ and Extracts from EC- Biotech
(p19)
 We will look at either the SPS OR TBT Agreement, your lecturer will advise you in week
two. The relevant agreement will be available from Moodle.

Further Reading/Resources
 Mo, 607-25, 659-70
 Andrew Field, ‘Catching the Tasmanian Salmon Laws. How a Decade of Changing World
Trade Law has Tackled Environmental Protections’, (2009) 19 University of Tasmania Law
Review, 237 (Library Reading List)
 Laurence Boisson De Chazournes and Makane Moise Mbengue, ‘GMOs and Trade: Issues at
Stake in the EC Biotech Dispute’, Review of European Community and International
Environmental Law (2004) 13(3) 289 (Library Reading List)
 Trebilcock and Howse, The Regulation of International Trade Law (2005) (Chapters 1, 2 &
3)

Aims
 Understand the main obligations under the GATT: In particular, the Most Favoured Nation (Art I)
and National Treatment Obligation (Art III).
 Understand WTO dispute settlement and its development from an informal system under the
GATT to a formal system under the WTO
 Understand the principal obligations of WTO Member States under the GATT Arts I, III and XI and
the
 General Exceptions in Art XX of the GATT
 Understand how the GATT obligations and exceptions have been applied in past cases
 Depending on the topic of the assignment you will also be introduced to either the SPS Agreement
OR TBT Agreement.

Topic Recap Questions

1. What are the aims of the WTO?

2. What is the significance of the Uruguay Round?
3. What happened to the GATT 1947 once the WTO came into existence in 1990?
4. Can private businesses enforce WTO obligations before the WTO Dispute Settlement Body?
5. What is the principle of ‘most favoured nation’ under the GATT? What sort of discrimination does
it seek to prevent?

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6. What is the principle of ‘national treatment’? What sort of discrimination does it seek to prevent?
7. Read Arts I, III(2) and III(4) carefully – what elements must be proven to establish a breach of
these articles?
8. How does dispute settlement under the WTO differ from the process under GATT prior to 1994?

Problem Questions

1. Read Articles I, III and XI GATT carefully and address the following questions.
a. Australian orange producers in Mildura (Vic) and Renmark (Sth Aust) complain to the
Australian Government that they cannot compete in the market with imported Brazilian
oranges which are being sold for half the price. They lobby the government to impose a
duty on the Brazilian oranges which will make them more expensive than the Australian
produced oranges. Is this consistent with member states’ obligations under the GATT?
b. Would your answer be different if the duty only raised the Brazilian oranges to the same
price as the Australian oranges?

2. Read Articles I, III and XI GATT carefully and address the following questions.

a. Japan imports rice from many countries, including Australia and the United States, to
supplement its own production. However, so that the inefficiently and expensively
produced Japanese rice will be able to compete in the market with the cheaply produced
imported rice, the Japanese Government only allows an amount of rice equal to 4 per cent
of total domestic consumption of rice to be imported. Is this in breach of any GATT
obligations?
b. On the same facts, suppose that under a program of “trade liberalisation”, the Japanese
Government announces that it will allow an unlimited amount of rice to be imported from
other countries, subject only to an “importation and customs levy” of 100 per cent. Would
this be legal under GATT? Would your answer be different if Japan had maintained an
import duty of more than 100 per cent since 1947?
c. If, in an effort to improve relations with the United States, Japan announced that it would
remove all tariffs and any other restrictions on the import of rice produced in the United
States, would this place Japan in breach of any of its GATT obligations?

3. Over half of the world’s chocolate is produced using cocoa from West Africa. However, much of this
cocoa is produced on plantations which utilise child slave labour, one report stating (for example)
that perhaps as many as 15,000 children often under the age of 12 are used as slave labourers on
plantations in the Ivory Coast producing cocoa. Around the world, many organisations and
individuals have lobbied governments to ban the sale of cocoa produced in such conditions.
Australia imports cocoa because it does not produce cocoa in commercial quantities. The
Australian Government is considering introducing legislation that bans the importation into
Australia of cocoa unless it is certified that the cocoa is produced on plantations which do not use
child slave labour.

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 Would such a measure by the Australian government be consistent with Australia’s trade treaty
obligations? In your response consider:
 What is the measure proposed by the Australian government that might be subject to a
complaint?
 Who will be the likely complainants?
 Does the measure breach Articles I, III or XI of the GATT?
 Can Australia use any of the general exceptions in Article XX of the GATT?
 Australia and a number of West African nations have ratified the Convention concerning
the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child
Labour 1999. Does this change your answers to the questions above?
 Is the SPS Agreement applicable to Australia’s cocoa measure?

4. South American countries are well-established markets for European and North American traders
in used re-treaded tyres. Large numbers of used tyres are re-treaded in factories around Europe
and North America, then shipped to South American countries. Re-treaded tyres provide the same
performance as new tyres, but are considerably cheaper. Unsurprisingly, the demand for re-
treaded tyres out-strips demand for new tyres across South America.

However, the Brazilian government is fed up with re-treaded tyres. These tyres have a shorter
lifespan than a new tyre. Once the tread on an imported re-treaded tyre is worn, the tyre cannot be
re-used again and are waste. Brazilian environmentalists have argued that the country is
effectively importing waste from Europe and North America. Further, the increasing number of
now defunct re-treaded tyres are a particularly problematic type of waste. As the tyres break down
they release toxins into the food and water chain. Environmental studies around the waste sites
prove that the toxins are already contributing to native species’ dwindling populations.
Furthermore, in the tropical climate of Brazil, stockpiled rubber tyres are ideal breeding grounds
for mosquitoes. Brazilian health officials have warned of imminent epidemics of mosquito borne
diseases, such as dengue fever and malaria, as a consequence of the increasing number of waste
tyres.

Consequently, the Brazilian government has decided to restrict the importation of re-treaded tyres.
However, pursuant to MERCOSUR, a regional free trade agreement between Argentina, Brazil,
Paraguay and Uruguay, Brazil will still permit imports of limited numbers of re-treaded tyres from
other MERCOSUR countries. These permitted imports are subject to an overall quota of not more
than 5000 tyres per country per year and the circumstances in which the imports will be permitted
are largely limited to where the tyres are already fixed to a used vehicle destined for sale in Brazil.
Are Brazil’s measures likely to be consistent with its treaty obligations under the WTO?

In your response be sure to consider the following

 Do the Brazilian measures breach Articles I, III or XI of the GATT?
 Can Brazil use any of the general exceptions in Article XX of the GATT?
 Is the SPS or TBT Agreement relevant to the Brazilian measures?

5. [SPS Question] Queensland banana growers pride themselves on the natural quality of their
product. However, they have recently had to compete on the domestic market with cheaper

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 bananas imported from the Caribbean island of Laraville. The imported bananas are cheaper to
produce because they are genetically modified, making each crop extremely disease resistant and
therefore the yield to the farmer much greater. Scientists have confirmed that the imported
bananas do have a different genetic structure, but say that although these modified bananas are
poisonous to locusts and other crop destroying parasites, there is no evidence that they are
harmful to humans, and in fact they look and taste delicious. However, the scientists have
confirmed that the genetic modifications to these bananas could also be passed onto unmodified
crops if they come in close contact with one another. Can the Queensland Government ban the sale
of these genetically modified bananas under WTO law?

 Would a ban on sale of GM bananas by the Qld government breach the GATT? Which
provisions of the GATT?
 Could the measure be defended using Art XX of the GATT?
 Would the complaining state argue that the SPS Agreement was relevant to the measure?
 Would the measure constitute a breach of a member state’s obligations under the SPS
Agreement?
 Could the measure be defended using Article 5.7 of the SPS Agreement? Or using the
precautionary principle?

NB: The International Trading System topic is NOT EXAMINABLE. Rather, it is the topic of your research in-
semester assignment.

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 Weeks 4 and 5
Topic Two: International Contracts for the Sale of Goods

Essential Preparation
 Print Out Topic Two Essential Materials (Readings and page numbers below refer to these
materials, unless otherwise indicated)

Week Four
 Determining the Governing Law of a Contract (p 2)
 Goods Act 1958 (Vic), Part IV (20)
 UN Convention on Contracts for the International Sale of Goods, Articles 1-24 (p 22)
 Class Exercise 1 ‘Identifying elements of a contract under the CISG’ (Moodle)
 Incoterms 2010, summary by John Mo (p 3)
 Class Exercise 2 ‘Getting to know Incoterms 2010’ (Moodle)

Week Five
 UN Convention on Contracts for the International Sale of Goods, Articles 25-90 (p 29)

Further Reading/Resources
 World Trade Press Illustrated Guide to Incoterms 2010 (Library or available for purchase
online)
 Leonardo Graffi, ‘Case Law on the Concept of Fundamental Breach in the Vienna Sales
Convention’, (2003) International Business Law Journal (3) 338 (Library Reading List)
 Mo’s Chapter Two provides comprehensive coverage of the laws applicable to international
sales in Ausstralia. Where necessary you can ‘dip into’ Mo in order to clarify/further your
understanding. On the CISG, see pp 83-99 (application of the CISG); 117-144 (buyers and
sellers performance/obligations); 152-89 (remedies); 189-92 (preservation of goods).
 PACE database: An article-by-article guide to the CISG with links to journal articles and case
law. See link on Moodle in additional materials for this topic or go to
http://www.cisg.law.pace.edu/cisg/text/cisg-toc.html

Aims
 Understand the specific risks and problems that arise in international contracts for the sale of
goods
 Understand what laws apply to an international contract for the sale of goods
 Understand the relationship of the Convention on Contracts for the International Sale of Goods
(CISG) to domestic legal systems, the Australian legal system in particular
 Understand how a contract of sale is formed under the CISG and under Australian law
 Understand what standard terms are/should be incorporated into a contract
 Understand the ICC Incoterms, the obligations they impose on parties and how they affect parties’
liability
 Understand the transfer of risk under the Incoterms
 Know which laws govern the passing of property in an international contract of sale
 Understand the CISG provisions on passing of risk and when they apply
 Understand buyers’ and sellers’ obligations under the CISG
 Understand the remedies available to buyers and sellers under the CISG

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 Topic Recap Questions

1. How would you define what is meant by the ‘governing law’ of a contract?
2. What does a choice of forum clause in a contract do?
3. What are Incoterms and how important are they in an international contract of sale?
4. How have the Incoterms 2010 amended the previous version?
5. Who pays for what under
a. an FOB contract?
b. a CIF contract?
6. When does the risk pass under a CFR contract? Is this the same for all C-terms?
7. How are terms incorporated into a contract?
8. What are the elements of a binding contract in Australian common law?
9. Chris, who lives in Melbourne, is an avid Graham Greene fan. After inheriting a substantial amount
of money he purchases at auction, via a US agent, first edition copies of Greene’s entire collection
of novels from a boutique book auction in the US. Will the CISG apply to this contract? Why or why
not?
10. If a contract of sale subject to the CISG does not specify any express delivery terms, when does the
risk pass from the seller to the buyer?
11. Where does the CISG define ‘fundamental breach’?
12. What is the significance of fundamental breach in the CISG regime?
13. What are the corrective remedies in the CISG?

Problem Questions

1. PHB Ltd is a Victorian producer of coal. B is a manufacturer located in Singapore which uses
Victorian coal. A PHB Ltd representative offers by phone to sell B 100 tonnes of coal at AUD$125
per tonne FOB delivery to be made in November 2009. B agrees and PHB fax confirmation of the
order and an invoice.
a. What is the governing law of this contract?
b. Will the CISG apply in the event that a dispute arises between the parties?
c. Will the provisions in the Goods Act 1958 that apply to domestic sales, apply to this
contract?
d. Assume that the parties agreed that Victorian law would govern their contract. Does this
mean that in the event of a dispute any dispute settlement proceedings must commence in
Victoria?

2. (a) In February 2011, Sterling Industries PLC, an English company, agreed to sell to True Blue Pty
Ltd, an Australian company, two airfield fire trucks each valued at $AUS 150,000 each, FOB
(London). However, when the trucks were being loaded onto the cargo ship something went
wrong. The trucks were loaded onto a barge in the Port of London for transport to the cargo ship,
but as the barge came alongside the cargo ship, a mighty wave tossed it, throwing the fire trucks
into the water. Sterling argues that it has performed its obligation and should be paid. Advise True
Blue.

(b) Would your advice be different if the ship had been berthed alongside the wharf and just as the
truck was driven onto the ship, the ship suddenly lurched away from the wharf on an angle tipping
the truck from the ship into the water?

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 (c) Would your answer to (b) be different if the contract was FAS (London)?

3. Li in China and Williams in Melbourne were exchanging faxes discussing Williams’ possible
purchase of goods of all kinds from Li. In his most recent fax to Williams, Li offered to sell him 300
vases (described as the “Ming Dynasty Special”) at $500 each, FOB (Shanghai) Incoterms 2010.
Williams replied by fax that he would accept the offer, but only subject to the contract being DDP
(William’s Imports, Warehouse, Melbourne) at $500 per vase. Williams’ reply included his
standard purchaser terms, which specify Australian law as the governing law of the contract. At the
same time as sending the fax, he also arranged for his bank to pay Li a 50 per cent deposit as a sign
of his good faith.

Williams heard nothing further until two months later when he received a telephone call from
Australian Customs saying that ‘his consignment of vases’ had arrived. However, the customs agent
informed Williams that $15,000 import tax was payable before the goods could be released. The
customs officer also said although the vases looked “quite nice, half of them seemed to have been
smashed in transit”. This news concerned Williams as he discovered that no insurance had been
arranged for the vases.

Advise Williams. In your response consider the following:

a. What is the governing law of the contract of sale between Williams and Li?
b. Does the CISG apply to their contract?
c. Under the terms of the contract, is Williams responsible for payment of the tax? Is this a
breach of contract by Li?
d. Does the arrival of ‘smashed vases’ constitute a breach of contract by Li? If so, what
remedies would you suggest?

4. In September 2010, Cathy Burgundy, a fine wine merchant in Melbourne, responded to a brochure
sent by a French champagne supplier, Jacques de Jacques, by ordering a large quantity of high
quality French champagne. Cathy requested that the champagne should be delivered not later than
the end of November and agreed to pay for the goods by telegraphic transfer of the funds on proof
of delivery. The contract of sale was made on CIF (Melbourne) Incoterms 2010. Cathy made the
order in anticipation of the high demand for high quality champagne from her customers for New
Years Eve celebrations on 31 December.

The French supplier shipped the champagne on the 1st December and sent the bill of lading to
Cathy. On receipt of the bill of lading Cathy paid for the goods. However, when she collected the
champagne from the Melbourne ports two weeks later on its arrival she discovered that the cargo
consisted of an inferior quality sparkling wine, which, not coming from the Champagne region and
not made by the approved ‘méthode champenoise’ did not bear the exclusive ‘appellation
contrôlée’ label. Cathy was very disappointed. She knew that she would not be able to sell this
wine to her existing client base and would be unlikely to secure another delivery of high quality
champagne from France to fulfil her New Year’s Eve orders. Like all wine-merchants, profits made
over the New Year Season make up a significant part of Cathy’s yearly profits.

Advise Cathy of her rights against the French supplier.

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5. Xuesheng Academic Gowns Pty Ltd is a small company operated by Sam Xuesheng, and located in
Victoria. The company manufactures black academic gowns. Sales have boomed over recent years
with an ever-increasing number of students. Sam's reputation is international and he regularly
receives orders from overseas. In May he takes an order from Academic Supplies Ltd (AS), a
wholesaler of academic supplies in Hong Kong. By telephone the parties eventually agreed that
Xuesheng would supply 60,000 academic gowns, comprising 20,000 small-size, 20,000 medium-
size and 20,000 large-size gowns. Delivery was to be CIF (Hong Kong) Incoterms 2010 in July, but
not before 10 July. The parties made no reference to what law would govern their contract.

After receiving the order, production started at Sam's gown factory in Caulfield. Due to the size of
the order and the delivery date Sam agreed, many workers were asked to work overtime, for which
they are paid only the usual hourly rate. The workers expressed their dissatisfaction with the
arrangement, but Sam was adamant. Finally, the workers called a strike. The ensuing negotiations
were lengthy and work did not resume until late July. During this time, Sam became increasingly
worried about his delivery to AS. Finally, he telephoned and asked to speak to the Manager. An AS
employee told him that the Manager was away, but when Sam told her about the likelihood of delay
in delivering the gowns on time, she assured him that delivery in August will be fine.

When the gowns were ready, Sam organised a truck to deliver the gowns to the Port. On 7 August a
truck collected the container into which the gowns had been packed by Xuesheng employees.
However, on the way to the port the driver was forced to brake suddenly on a wet, slippery road.
The truck swerved out of control, and overturned. The container burst open on one side, and most
of the gowns spilled out onto the road. The resulting mess took the whole afternoon to clean up.
The gowns were shoved hastily back into the container to clear the road as quickly as possible. The
container was transported from the scene of the accident directly to the port.

The container was loaded on board the SS Australis on 10 August. The master of ship issued a bill
of lading which Sam took, along with the draft and other necessary documents, to the bank for the
bank to remit to Hong Kong. The documents and draft were presented to the buyer for acceptance
on the 17th August.

The ship arrived in Hong Kong on 19th August and AS was advised that the gowns were ready to be
cleared through customs. The Manager of AS was relieved at this news - for the past week or more
he has been worried and annoyed about the delay in delivery. He was particularly annoyed
because his employee accepted the sight draft drawn by the seller on the 17th. The manager of AS
immediately sent a truck to the Port of Hong Kong to collect the gowns. However, when the
container was opened at AS' premises it was discovered, to everyone’s dismay, that most of the
gowns had become mouldy and stained during the voyage. It appears that this was the result of
being re-packed into a close environment while still wet and soiled from the road accident. The
Manager of AS was so angry that he ordered his warehouse staff to dump the entire load of gowns
into Hong Kong Harbour and he looked for a new supplier.

AS has now launched a legal action against Sam, claiming damages equivalent to the total contract
price, plus damages for loss of the profits it had expected to make by reselling the gowns. Advise
Sam.

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 Weeks 6 and 7
Topic Three: Contracts for the International Carriage of Goods by Sea

Essential Preparation
 Print out Topic Three Essential Materials (Page numbers below refer to these essential
materials unless otherwise indicated)

Week Six
 Carriage of Goods by Sea Act 1991 (Cth) (‘COGSA’), Sections 3, 7, 10, 11 (pp 3, 5-7)
 Modified Hague Visby Rules (Schedule 1A COGSA), especially Articles 10, 1-3, 6A (p 14)
 Amended Hague Visby Rules (Schedule 1 COGSA), Articles 10, 1-3, 6A (p 8)
 Great China Metal Industries v Malaysian International Shipping Corporation (p 28)

Week Seven
 Modified Hague Visby Rules (Schedule 1A COGSA), especially Articles 4-6A, 7-9 (p 14)
 Part IVA Goods Act 1958 (VIC) (57)
 Minesota Mining & Manufacturing (Australia) Pty Ltd v The Ship ‘Novoaltisk’ (p 45)
 Chubu Asahi cotton spinning Co Ltd v The Ship ‘Tenos’ (p 48)
 El Greco (Australia) Pty Ltd v Mediterranean Shipping co SA (p 50)

Further Reading
 Mo 209-12, 223-249, 293-302, 219-25, 249-61, 261-75, 275-82
 Actis Co Ltd v The Sanko Steamship Co Ltd (The Aquacharm) [1982] 1 Lloyd’s Rep. 7 (Topic
Three Essential Materials, p 40)
 Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd (The Muncaster Castle) [1961] 1 ALL
ER 495 (Topic Three Essential Materials, p 41)
 Industries Perlite Inc v Marina Di Alimuri (The Marina Di Alimuri) [1996] 2 FC 426 (Topic Three
Essential Materials, p 52)
 Effort Shipping Co Ltd v Linden Management SA (The Giannis NK) [1998] 1 ALL ER 495 (Topic
Three Essential Materials, p 53)
 Sarah Derrington and Michael White, Australian Maritime Law Update 1998 (1999) Journal of
Maritime Law and Commerce 30 (3) 419 (Library Reading List)
 Jan Ramberg, ‘Global Unification of Transport Law: A Hopeless Task?
(2009) 27 Pennsylvania State International Law Review 27(3) 851 (Library Reading List)

Aims
 Understand how goods are shipped by sea
 Understand how international rules for liability in the carriage of goods by sea were developed
 Understand how to determine which carriers’ liability regime applies to a carriage of goods by sea
 Understand what a bill of lading is and why it is ‘negotiable’
 Understand an importer in Australia can sue for breach of a contract of carriage to which he s not a
party
 Understand the duties of a sea carrier
 Understand the duties of a shipper
 Understand the special defences for carriers
 Understand damages are assessed
 Be able to read a Bill of Lading

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 Reading Questions (Topic Three)

1. In arrangements for carriage of goods, what is

a. a consignor?
b. a consignee?
c. a carrier?
d. a shipper?
2. Who draws a bill of lading? What does it contain? Who signs it?
3. What are the functions of a bill of lading or other negotiable sea carriage document?
4. What is the difference between a clean bill and a claused bill?
5. What is the reason for having a negotiable sea carriage document?
6. What is the Carriage of Goods by Sea Act 1991 (Cth) (COGSA)?
7. What Articles in the Modified Hague Visby Rules (MHVR) enunciate the carrier’s principal
obligations? Do these obligations differ under the Amended Hague Visby Rules?
8. Do the MHVR apply to contracts for the carriage of goods by sea where the goods are carried on
deck? Is the position the same under the Amended Hague Visby Rules?
What is a “unit of account” in Article 4(5) of the Hague-Visby rules and the MHVR?
9. With reference to the provisions of the Hague-Visby rules and the MHVR:
10. In Article 4(5), what is meant by a “package or unit”?
11. If the Bill of Lading notes receipt of “1 container”, and a weight of 1014mt, what quantum of
damages would the shipper be entitled to?
12. If the Bill of Lading noted that receipt of “1 container containing 200 cartons”, and a weight of
1014 mt, what quantum of damages would the shipper be entitled to?
13. In what circumstances will a consignee be entitled to the full value of a lost or damaged cargo?
14. What is the purpose of the Sea Carriage Documents Act 1998 (Vic)?
15. What is a charterparty? In what circumstances will the Amended Hague-Visby and MHVR apply
to carriage of goods by sea where the ship is sailing pursuant to a charterparty?

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 Problem Questions

1. (a) Drake Imports purchases a tonne of mixed herbs and spices from Dukkah Spices, based in Jordan.
Dukkah spices organises a contract of carriage on ‘The Empress’ from Al Aqabah to Melbourne. What
sea carriage regime will apply to the contract of carriage?

(b) Mallard Exports (ME), is a Melbourne based company specialising in the sale and distribution of
gourmet organic and free-range game and poultry. The company regularly exports high-quality duck
and quail to Hong Kong. ME arrange transportation of 1000 pieces of duck and quail to leave on ‘The
Good Ship’ from the port of Melbourne to the port of Hong Kong for delivery to a Hong Kong buyer in
accordance with a CFR term included in the contract of sale. What sea carriage regime will apply to
the contract of carriage?

(c) Thirsty Imports purchase twenty live Reindeer from Santa Klaus Farm, in Tampere, Finland. Santa
Klaus Farm organises a contract of carriage on ‘The Transporter’ from the Port of Helsinki to
Melbourne. What sea carriage regime will apply to the contract of carriage?

2. Sisco Systems is a security equipment developer and manufacture based in Melbourne. In January,
Babko, a Japanese company ordered 2000 Sisco Complete Security Systems. The total purchase price
for the systems was AUD $1 million CIF Tokyo. Sisco employees packed the systems into two
containers for carriage to Tokyo on board ‘The Lively’, a ship owned and operated by Teppi Shipping
Inc. The master of The Lively issued Sisco a clean bill of lading on behalf of Teppi Shipping, which
Sisco forwarded to Babko, along with other necessary documents, for payment.

The Lively departed Melbourne on the 1st March. However, only two days into the journey the ship’s
navigation systems failed. As a consequence, the ship struck submerged rocks and the force of impact
dislodged a number of containers, which fell overboard. On arrival it was discovered that one of the
containers lost overboard was destined for delivery to Babco.

Is Teppi Shipping liable for the loss of Sisco’s container?

3. In which of the following circumstances would the carrier be able to rely on the ‘nautical fault
defence’?
a. Heavy storms damaged the ship’s navigation systems. The crew member making the
necessary repairs to the systems damaged the electricity systems for the entire ship and
leaving the refrigeration systems in one of the cargo holds inoperable. The cargo in the hold
perished.
b. A crew member who was maintaining the temperature controls in the cargo holds accidentally
shorted out the refrigeration systems while performing regular maintenance. The cargo in the
holds perished.
c. The pilot of the ship accidentally crashed the ship into the dock when coming alongside. The
force of impact caused a number of containers to break free from their holdings and slip into
the water and on the dock. The cargo in the containers was all damaged.

4 The Australian Farm Collective Pty Ltd (“AFC”) had purchased 40 farm tractors from Kendo Industries
in Japan CIF which were to be shipped to Melbourne on the Australian ship EMBS Kelly, owned by
Battenberg Shipping, and to arrive by 12 January 2002. On 30 October 2001 the tractors were loaded and
noted on a clean Bill of Lading as “40 units”. However, that was the last some of them saw of dry land. Two
days into the voyage, the tractors were battered against each other when a storm hit. Apparently, they had
been badly secured when loading. Although it is likely that all 40 tractors were damaged, the damage to
approximately half of them could never be properly ascertained as they were no longer on board when

14
the ship arrived in Melbourne. When approaching the Australian coast the ship ran aground, even though
seas were calm and wind was light. The captain decided that the only way to refloat the ship and avoid
damage to ship and the rest of the cargo would be to jettison some of the cargo. Half of the tractors were
among the cargo jettisoned overboard. When the Kelly arrived in Melbourne, half of the tractors were not
aboard.

Advise Battenberg Shipping of its potential liabilities regarding the tractors.

5 Consider the Bill of Lading on the following page and answer the following question.

You have been asked to assess the liability of Freight Services Australia for certain losses to cargo being
shipped by Health Australia which occurred during the voyage of the FSS Lion. The entire container No
ASDU1234567 was washed overboard. You have been instructed that fault is not at issue; the evidence
makes it clear that the carrier is liable on account of the negligence of its crew in the handling of the cargo.
The consignee says it is worth AUS$1.75 million and claims that sum.
a. What is the carrier’s monetary liability in this instance?
b. How might the consignor have guaranteed complete recovery of the loss from the carrier

15
 HEALTH AUSTRALIA W03147
ST JOAN OF ARC HOSPITAL
GPO BOX 24
SYDNEY NSW 2001

NV PEKALONGAN HEALTH SERVICES,

VASCO DE GAMA RAYA NO 247
PEKALONGAN 60123 INDONESIA
FREIGHT SERVICES
AS ABOVE
CTC JO CHEN
AUSTRALIA
TEL: 5394 1249
FAX: 5392 9988.

SYDNEY
FSS LION SYDNEY
SINGAPORE PEKALONGAN SYDNEY
2
LION

N/M 1 x 40’ CONTAINER STC 9215KG

38.0M3
MEDICAL FURNITURE & INSTRUMENTS
ACCECESSORIES & SPARE PARTS

FREIGHT PREPAID

CONT NO: ASDU1234567

SEAL NO: 982314
ECN NO: IS84758394837

AS ABOVE

SYDNEY 18 JAN 2003

FREIGHT SERVICES AUSTRALIA

DETAILS OF THIS BILL OF LADING ARE FICTIONAL AND CREATED FOR TEACHING PURPOSES ONLY
16
 Week 8
Topic Four: Marine Insurance

Essential Preparation
 Print out Topic Four Essential Materials (Readings and page numbers below refer to these
materials, unless otherwise indicated)

 Marine Insurance Act 1909 (Extracts) (p 2)

 Sharp v Sphere Drake Insurance (The Moonacre),(p 9)
 Akedian Co Ltd v Royal Insurance Australia, (p 14)
 Institute Cargo Clauses A Policy (p 18)

Further Reading/Resources
 Mo 525-530, 541-547
 The Australian Law Reform Commission, Review of the Marine Insurance Act 1909, Report No
91 (Extracts) (Moodle)
 Mowie Fisheries v Switzerland Insurance (p 11)
 Bank of Nova Scotia v Hellenic Mutual War Risks Association (The Good Luck) (p 12)
 Yorkshire Shipping v Nisbit Shipping Ltd (p 15)

Aims
 Understand what a contract of marine insurance is, in particular the concepts of ‘marine
adventure’ and ‘insurable interest’
 Understand the obligations of the marine insurer and insured
 Understand the nature of warranties and a breach of warranty in marine insurance
 Understand what is meant by ‘proximate loss’
 Understand the concept of subrogation

Topic Recap Questions

1. Where is the concept of insurable interest defined in the Marine Insurance Act 1909?
2. If an insured does not have an insurable interest what effect does this have on the marine
insurance?
3. What warranties are implied into a marine insurance contract by virtue of the Marine
Insurance Act?
4. What is the effect of a breach of warranty in a marine insurance policy? How is this different
from the consequences of breach of warranty in ordinary rules of contract?
5. What effect will a change in destination or a deviation in the prescribed route of a ship during a
voyage have on the insurance cover of the goods on the vessel? Does it make any difference if
this deviation was unavoidable?
6. Typically, which party would take out insurance in an FOB sales contract?
7. What is the duty of disclosure in MI law? What is the duty of good faith? How are they
different?
8. If a cargo owner mistakenly failed to disclose a prior conviction for handling stolen goods
would this be a breach of duties of disclosure and good faith? Would it make a difference if the
failure to disclose was intentional?

17
 Problem Questions

1. Does the insured have an insurable interest under the Marine Insurance Act in the flowing
scenarios?
a. An Australian buyer insured a consignment of dried dates sold on FOB terms, which
was lost overboard en route from Syria.
b. An Australian buyer insured a consignment of dried dates sold on FOB terms, which
was stolen from the warehouse at the port of departure.
c. An Australian shipping company insured ‘The Lively’, a container ship. While the
company does not own the ship, it is using the ship under a 12 month charter from the
ship owners.
d. Derek owns $10,000 worth of shares in Great Southern Shipping Company. He takes
out an insurance policy on the company’s new ship, The Elixir.

2. March Imports has taken out an insurance policy over a consignment of packed dried pineapples
imported from Thailand. Unfortunately, the entire consignment of pineapples was lost overboard
en route from Thailand. When March Imports made a claim under its insurance policy for the loss,
the insurance company refused payment. It transpires that March Imports’ employee omitted to
describe the pineapples as ‘dried’ or ‘packed’ on the insurance proposal. Furthermore, the
employee mistakenly declared the purchase price as AUD $18,500, where the price paid was
actually $18,000. Has March Imports breached its duties under sections 24 and 26 of the MIA
entitling the insurance company to refuse payment?

3. A ship carrying a cargo of fresh fruit from Brazil to Australia was stopped by Brazilian authorities
because it was identified as the ship which had illegally discharged oil into Brazil’s coastal waters
during the voyage to Brazil. When the ship finally arrived in Australia, the cargo had perished and
was completely ruined owing to the delay.
a. Australian Insurance company has denied a claim by a cargo policy holder, on the
grounds that the policy is void for legality. Has the owner of the cargo breached the
warranty of legality?
b. The same insurance company is denying a claim by the owners of the ship who were
also covered by an insurance policy. The owners had made a claim for the loss of
freight charges and additional expenses they incurred through this incident. Have the
owners of the cargo breached the warranty of legality?

4. Drake Imports Ltd is a Melbourne importer of food and spices from the Middle East. Recently,
difficulties arose with a cargo from Jordan comprising 9000 kilos of dried dates. The cargo was
loaded aboard the carrier’s ship at the port of Aqaba, but one week into the voyage the ship
collided with a sea mine, which exploded. Although the ship was damaged, it remained afloat and
after putting into dock for repairs continued its journey.

However, when the ship arrived and Drake’s stock officer inquired about the cargo he was told
that the Quarantine Service had impounded it, and that it would be against the law for Drake to
remove it. He was told that the illegality arose because another cargo of foodstuffs (dried figs) in
the same container as Drake’s dates was found to be carrying a particularly virulent parasite to
which the dates were known to be particularly susceptible. The packaging around the figs had
ruptured at some time after loading aboard the ship, causing some of them to spread around the
container. Because the risk of introducing the parasite into Australia was so great, it was
determined that all foodstuffs in the container had to be destroyed – although all non-edible items
in the container were released.

(a) Drake Imports had taken out a contract of marine insurance with IGH Insurance Ltd, an
Australian insurance company. Drake’s policy, a voyage policy, incorporated the “Institute Cargo
Clauses (A)”. However, when Drake made a claim on the policy for the lost dates, IGH refused to
compensate, saying that damage through acts of war or inherent vice was not covered in the
policy. IGH also said that Drake was seeking to promote an illegal activity in trying to bring the

18
dates into Australia and that this allowed IGH the right to terminate the contract. Advise Drake of
the strengths or weaknesses of its claim under the policy.

(b) Following on from the above scenario, it becomes clear that the owners of the figs negligently
exposed their goods to the parasite and failed to take due care in packing the figs. There is a clear
action in negligence against the owners for the loss of Drake’s dates. Assume IGH have paid out
Drake’s claim for the total loss of the goods. What is the right of subrogation? Explain how it
operates in these circumstances.

19
 Week 9
Topic Five: International Carriage of Goods By Air

Essential Preparation
 Print out Topic Five Essential Materials (all page numbers below refer to these materials,
unless otherwise indicated)

 Schedule 1A ‘The Montreal Convention 1999’ Civil Aviation (Carriers’ Liability) Act 1959
(Cth), especially Articles 1, 4-16, 18-52 (p 7)
 In Re Air Crash Disaster at Warsaw, Poland (p 21)
 Royal Insurance v Amerford Air Cargo (p 22)
 Fothergill v Monarch Airlines Ltd (p 25)
 Maro Leather Co v Aerolineas Argentinas (p 26)
 SS Pharmaceutical Co v Qantas Airways (p 28)

Further Reading
 Extracts from the Department of Transport and Regional Services, Consideration of the
Ratification by Australia of the Convention for the Unification of Certain Rules for International
Carriage by Air done at Montreal on 28 May 1999 (the Montreal Convention), Discussion Paper
(2001) (Moodle)
 Mo 212-17, 370-76 (discussing the Montreal Convention) and 309-70 (discussing the Warsaw
System)

Aims

 Understand how the Montreal Convention 1999 and the Warsaw System regulate air carriers’
liability for the international carriage of goods
 Understand what the limits are on liability for loss or damage of goods
 Understand what a special declaration is
 Understand when notice is required to be served on the carrier to make a claim

Topic Reading Questions

1. Under the international air carriage liability regimes, the conventions apply to instances of
‘international carriage.’
a. What is international carriage?
b. Where is it defined in the Montreal Convention 1999?
c. Does the definition of international carriage in the various versions of the Warsaw
Convention differ from that in the Montreal Convention 1999?
2. What liability regime applies?
3. A flight departs Los Angeles, USA for Alaska, USA, with a stopover in Vancouver, Canada,
4. A flight departs Melbourne, Australia for Vancouver, Canada.
A flight departs Perth, Australia for Accra, Ghana.
5. Where is successive carriage defined in the air carrier liability regimes?
6. Where are the concepts of contracting carrier/actual carrier defined in the Montreal Convention
1999?
a. For what portion of the carriage is the contracting carrier liable?
b. For what portion of the carriage is the actual carrier liable?
7. Under the Montreal Convention 1999 what are the notice requirements on a cargo holder for cargo
that is damaged? If the cargo is lost or delayed are the notice requirements the same?

20
 Problem Questions

1. To improve business, the New World Restaurant Ltd in Clayton decided that Saturday nights
would be its “Mexico Night” and it would serve the finest Mexican beef flown in from Mexico. To
accomplish this, it purchased from a ranch in Mexico a substantial amount of beef. The restaurant
contacted Kanga Air at Tullamarine Airport to organise the beef’s transportation to Melbourne.
The owner of the ranch was directed to pack the beef in cool-packing and transport it in a
refrigerated van to Mexico City Airport where it would be flown under refrigerated conditions to
Los Angles on Lone Star Airlines, and from there to Melbourne on a Kanga Air flight.

The beef was delivered to Lone Star at Mexico City and an air waybill for transportation to
Australia was issued by Lone Star which was correct in all particulars. However, the cargo was not
immediately loaded onto the LSA plane due to engine difficulties at Mexico City. Indeed, the LSA
flight to Los Angeles did not take off until 19 hours after the planned time. In the interim, the cargo
of beef sat in a container on the tarmac under the hot Mexican sun. When eventually loaded onto
the refrigerated aircraft the remainder of the journey proved uneventful. The cargo was
transferred at Los Angeles to Kanga Air and flown to Melbourne Airport. From Melbourne Airport
it was delivered to the Restaurant the day before the Restaurant’s inaugural Mexican Night, as
scheduled.

Unfortunately, when the beef was served at the Restaurant the following night, it caused a great
deal of illness in the customers. Further investigation quickly determined that the beef was unfit
for human consumption, because the bacteria levels were well above the safe limit. The tests
confirmed that the bacteria levels were consistent with the beef being left in the sun at Mexico
Airport for a long period of time. The New World Restaurant immediately telephoned Kanga Air to
complain about the state of the beef demanding compensation, and also reimbursement for any
claims which might be made against it by ill customers. They confirmed this is in a letter sent two
weeks later.

Advise Kanga Air of its rights and liabilities.

2. Accra Electronics Ltd in South Africa made a contract with Icarus Airlines for the delivery of a
shipment of 30 computers worth $600,000 for sale at the International Trade Fair in Melbourne
Australia at the end of June 2001. The computers were delivered to OR Tambo Airport by Accra
Electronics, and an air waybill was issued by Icarus noting the number of computers, their total
weight (400 kilograms) and their value (although no special premium was paid). Unfortunately,
shortly after take-off hijackers wielding firearms seized control of the aircraft diverted the plane to
the airport at Casablanca, Morocco. With the hijackers onboard, the aeroplane sat on the tarmac in
Casablanca for three weeks, with its passengers and cargo of computers also onboard. After the
three weeks, the hijackers were overpowered and the passengers and cargo released. The
computers were flown on to their destination. A subsequent enquiry revealed that the hijackers
had been able to smuggle their weapons on the aircraft through the negligence of Safetycorp Ltd, a
wholly owned subsidiary of Icarus which was responsible for security, baggage and cargo checks
on all Icarus flights.

Unfortunately for Accra Electronics, half the computers arrived badly damaged as a consequence
of the carrier’s poor stowage and the violent aerial manoeuvres which occurred during the
hijacking. In addition, the computers arrived in Australia a week after the Trade Fair, and, having
no retail outlets in Australia, the company was forced to sell the remaining working computers at
half of their value.

Accra Electronics is concerned about whether it can claim back its losses against either Icarus or
Safetycorp and seeks your advice.

21
 Week 10
Topic Six: International Payments

Essential Preparation
 Print out Topic Six Essential Materials (page numbers below refer to these materials,
unless otherwise indicated)

 Uniform Customs and Practice for Documentary Credits (UCP600), especially Articles 1-16
(p 5)
 Sample Credit Documents (p 22 – 27)
 Glencore International v Bank of China (p 28)
 Urquhart Lindsay and Co v Eastern Bank (p 39)
 Inflatable Toy Company v State Bank of NSW (p 44)
 R D Harbottle v National Westminster Bank (p 49)
 Bill of Exchange Act 1909 (Cth) (Extracts)(p 2)

Further Reading
 Alan L Tyree, Chapter 12 ‘Documentary Credits’, Banking Law in Australia (Butterworths,
Lexis Nexis 2011) (Library Reading List)
 Southland Rubber v Bank of China (p 28)
 Hamzeh Miles v British Imex Industries (p 42)

Aims

 Understand the most common methods of making payments in international trade

 Understand what a ‘draft’ is
 Understand how a documentary credit is used in international trade
 Understand the rights and obligations of the parties to a letter of credit under the UCP Rules

Topic Recap Questions

1. Assume you are an Issuing Bank which has received documents presented by a beneficiary under a
letter of credit. How long do you have to examine the documents and decide whether to accept the
documents or refuse to accept them, and give notice accordingly to the bank from which you
received the documents? What is the rationale behind the time limits on the examination of
documents?
2. Assume an Issuing Bank wishes to refuse documents presented under a letter of credit. What are
the consequences for that bank if it fails to provide notice to the presenter of the documents of its
reasons for refusal which complies with Article 16 and within the time limits established by the
UCP600?
3. What is the concept of “strict compliance”?
4. If a seller is being paid under a Letter of Credit, is it important that the description of the goods on
the seller's invoice comply with, and be exactly the same as, the description of the goods in the
letter of credit?

22
 Problem Questions

1. On 3 January 2011, Solar Toys in Australia contracted to sell to Taipei Toys (“TT”), a children’s
toys store in the city of Taipei, Taiwan, 2500 solar-powered walking crocodile toys. The price was
AUD $10,000 for delivery FOB Sydney. Since TT was a first time customer, Solar Toys required
payment by letter of credit.

On 14 January, Solar Toys received advice from Austral Bank that China Bank in Taiwan had issued
a letter of credit in favour of Solar Toys as beneficiary. China Bank authorized Austral bank to act
as advising and negotiating bank. The letter of credit, which expressly mentioned the UCP600, was
payable on presentation of the beneficiary’s bill of exchange drawn on China Bank together with
the following documents:

• A commercial invoice for 2500 solar-powered walking crocodile toys;

• A full set of clean on board negotiable marine bills of lading, consigned to order ‘blank
endorsed’ and marked ‘freight pre-paid’;
• A certificate of origin signed by Australian Customs or its authorized agency;
• A packing list in duplicate.

In addition the instructions stated that presentation was to be made ‘within 15 days of shipment
and within the validity of the credit.’ On Wednesday 19 January 2009, the goods were loaded on
board the ship and a clean bill of lading was issued. The shipping documents together with a bill of
exchange drawn on China Bank were presented to Austral Bank on 4 February.

On 11 February Austral Bank indicated that it refused to pay because the documents presented did
not conform to the requirements of the letter of credit. It appears that the problem with the
documents is that the bill of lading presented by Solar Toys is marked “Freight Collect” instead of
“Freight Prepaid” as required under the terms of the letter of credit. In addition, the certificate of
origin presented by the beneficiary is signed by an officer of “Aussie Inspections” without any
indication that “Aussie Inspections” has any authority from Australian Customs. Finally, Austral
Bank also informed Solar Toys that the presentation was made outside the validity of the credit.

When Austral Bank contacted China Bank to request a waiver of the discrepancies, China Bank
refused. The reason for the refusal soon becomes clear – senior executives within TT have
absconded with nearly all of the firm’s liquid assets, and the firm has been placed in liquidation.

(a) Discuss Solar Toys rights, if any, in relation to Austral Bank and China Bank.
(b) If Solar Toys cannot compel the banks to make payment, does it have any rights against
anyone else related to this transaction? Discuss.

2. Two months ago Monash Computer Supplies entered into a contract to purchase 20 LPT 1000
printers from Fubai Pty Ltd, a newly established computer manufacturing company in Taiwan.
The contract of sale arranged for payment to be made under letter of credit, to be issued by CBA
Sydney, and advised by the Bank of Taiwan. The letter of credit, which was duly issued 6 days ago,
provides for acceptance by the issuing bank of drafts, which are to be drawn and signed by the
seller, naming CBA as drawee. The letter of credit is expressly stated to be subject to the UCP600
Rules.

The Bank of Taiwan advised Fubai of the credit the day after its issue. The following day, a senior
employee of Fubai presented a draft drawn on CBA Sydney, together with a number of shipping
documents to the Bank of Taiwan. All the documents presented appeared to be in order, as listed
and described in the letter of credit. Because the Credit does not expressly permit or provide for
negotiation, the Bank of Taiwan agreed to negotiate the draft only under reserve, with the funds to
be kept in a suspense account until their release is authorised by CBA Sydney.

23
Later that same day, a junior employee of Fubai telephoned Monash Computer Supplies to inform
the company that the documents presented to the Bank of Taiwan are forged and that Fubai has in
fact fraudulently shipped a container of scrap metal instead of printers. The young employee
states that she watched the scrap metal being packed into the container, and is prepared to give
evidence to that effect in court under oath.

Monash Computer Supplies now seeks to prevent CBA Sydney from realising the credit. CBA has
just received the documents, and so far has not issued instructions to Taiwan to authorise release
of the funds. The action launched by Monash Computer Supplies seeks a restraining order, to
restrain CBA Sydney from accepting the documents or honouring the draft as drawee under the
Letter of Credit. Advise Monash Computer Supplies. Has Fubai made a complying presentation or
can CBA refuse payment? Do you think MCS legal action will be successful?

24
 Week 11
Topic Seven: International Dispute Settlement

Essential Preparation
 Download Topic Seven Essential Materials (page numbers below refer to these materials,
unless otherwise indicated)

 UNCITRAL Model Law (p 16)

 Hi-Fert v Kiukian Maritime Carriers Inc (p 47)
 William Company v Chu Kong Agency (p 53)
 Paklito Investment v Klockner East Asia (p 58)
 Soleimany v Soleimany (p 60)
 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention) (p 10)
 International Arbitration Act 1974 (Cth), (Extracts) (2)

Further Reading/Resources
 UNCITRAL Model Law Expanatory Note (Part II of UNCITRAL Model Law publication on
Moodle)
 Mo Chapter 9 (709-26,736-61, 767-73, 802-8, 812-21)
 ‘The Angelic Grace’, (p 57)
 Andrew Field, ‘The Bias Principle and its Applicability to International Commercial
Arbitrations in Australia’ [1999] Australasian Dispute Resolution Journal 146 (Library
Reading List)

Aims

 Understand the options available for dispute settlement between parties in different countries
 Understand the difficulties associated with litigation
 Understand the advantages of arbitration
 Understand an arbitration agreement can be enforced
 Understand how a commercial arbitration proceeds
 Understand how arbitrators are appointed
 Understand how the concept of procedural fairness is applied in arbitrations
 Understand how arbitration awards are enforced or challenged

Topic Recap Questions

1. What are the options for dispute settlement for parties to a dispute from different countries?
2. What are the strengths and weakness of settling a dispute between parties from different states by
litigation?
3. What is the New York Convention?
4. What is the Model Law?
5. Why is arbitration a preferred method of dispute resolution between parties in commercial
disputes generally, and specifically between parties from different countries?
6. What is the statutory basis for enforcing an arbitration agreement in Australia?
7. What is meant by procedural fairness?
8. In the context of international commercial arbitration, what is the New York Convention?
9. How is an arbitration award made between two parties from different countries enforced in
Australia if:
a. if it is made outside of Australia;
b. if it is made in Australia.

25
 Problem Questions

1. TW a New Zealand importer of televisions, and Tele-Parts Co, a Malaysian manufacturer of

televisions, were parties to a contractual dispute which they intended to submit to arbitration in
Melbourne pursuant to an arbitration clause in the contract. However, in the absence of an
appointment clause in the contract, a three member tribunal was appointed, and the members of
that tribunal were Dipsy, Laa Laa and Po. However, two days before commencement of the
arbitration TW discovers that on three occasions over the past five years Mr Po has acted as an
arbitrator in two matters involving Tele-Parts which were resolved in Tele-Parts’ favour. These
matters were not disclosed to TW by Po. Advise TW.

2. In a commercial arbitration conducted in Australia, an arbitral tribunal makes an award, ruling in

favour of Atlas Corp (a Singaporean company) on a claim for breach of contract with Beta Ltd. (an
Australian company). Atlas is awarded compensatory damages of $500,000. However, in addition
the tribunal holds that Beta acted in bad faith during the arbitration by “deliberately delaying and
prolonging the proceedings”. Apparently, this was based on Beta’s representatives’ cross
examination of witnesses, described repeatedly by members of the tribunal as “wasting time”. For
this conduct the tribunal awards Atlas further “exemplary” damages of $500,000 as a punishment.
This ruling has no basis under the applicable law. Atlas has applied to the Supreme Court of
Victoria to enforce the award. Advise Beta on how it might respond.

Would your advice differ if the award had been made by a tribunal in Singapore?

26
 Week 12
Revision

Revision Questions (from past exams)

FACT SCENARIO ONE

In May 2010 Asian Delicacies in Australia (ADA), a Melbourne based importer and wholesaler of teas,
preserved and candied fruits and spices and other food specialties from Asia, agreed to purchase tea
and candied fruits from Quality Chinese Specialties (QCS), an exporter based in Hong Kong. ADA’s
order specified 1000kg of green plum (candied), 1000kg flowering crab apple (candied) and 1000kg
Junshan Yinzhen tea (Silver Needle Tea). The sale was made on FOB Melbourne (Incoterms 2010)
terms. Once the contract of sale had been formalized, ADA organized insurance for the goods under an
Institute Cargo Clauses ‘A’ policy of Marine Insurance with Australian Marine Insurance Company.
However, on its proposal ADA failed to mention that it had organised for the tea and fruits to be
packed in the same container.

A second importer, Australian Importers of Speciality Goods (AISG) also entered into a contract of sale
with QCS in the same month, on FOB Melbourne (Incoterms 2010). AISG agreed to purchase 1000kg
of preserved pork. Following the formalisation of the contract of carriage, AISG arranged a contract of
marine insurance, Cargo Clauses A, with the Australian Marine Insurance Company.

QCS organised contracts of carriage with Longfill Carriers, on board the Hobbit. QCS delivered two
containers, one containing the tea and fruit and one containing the pork to Longfill Carriers. Longfill
Carriers issued two separate clean on board bills of lading for the two consignments. Both noted the
receipt of 1 container and the weight of the goods.

The goods were loaded and carried on the deck of the Hobbit. The voyage from Hong Kong to
Melbourne was eventful. Only two days into the journey, the ship was attacked by pirates. During the
confusion, a crew member accidentally released the securing equipment for a number of containers on
the deck. This error was not noticed during routine maintenance. Three days after the attack 70
containers slipped overboard when the sea became a little choppy.

Upon arrival of the goods in Melbourne, the tea, which had been packed by the buyer’s agent in the
same container as the candied fruits, was found to be contaminated from the smell of the fruits and
consequently worthless. ADA was also unhappy with the shipment of candied fruits. The green plum
fruit was mouldy. An independent expert has verified that it not been properly dried out during the
candying process. Furthermore, rather than flowering crab-apple, QCS had sent candied mango. Since
2011 candied mango has been listed as a prohibited import on the grounds that it may carry a parasite
which could devastate Australian domestic mango production. Consequently, the mango was seized
and destroyed by Australian quarantine officials. In addition, the preserved pork, which was packed
separately in a refrigerated container, did not arrive. It was one of the containers lost overboard.

Question 1
Advise ADA on its rights against the seller under the contract of sale.
[20 marks]

Question 2
Advise Longfill Carriers of its potential liability to ADA and AISG.
[20 marks]

Question 3
ADA has made a claim under its insurance policy. However, the Australian Maritime Insurance
company has denied the claim on the grounds that the policy is void for illegality and misrepresentation
and in any event the cause of loss is not covered under the policy. Advise ADA.

27
 [10 marks]

FACT SCENARIO TWO

Aussie Weapons of Mass Destruction (AWMD) is a gun-seller based in Victoria Melbourne. The
company sells a range of pistols and rifles. In February 2010, AWMD ordered 40 M9 mm Berreta
pistols and 100 M4 Ramline rifles from American Guns (AG), a US based weapons manufacturer. After
formalizing the sale, AWMD contacted Australian Kangaroo Airlines (AKA) to organize shipment of the
consignment by air from Texas, US to Melbourne, Australia. AG delivered the goods, as agreed, to
Texas Airport and Lone Star Airlines (LSA) issued an Air Waybill for the consignment, which notes the
weight as 375kg. Under the Air Waybill, the goods are to be transported on a LSA flight to Los Angeles,
where they will be transferred to an AKA flight to Melbourne, Australia.

However, the consignment did not make it to Australia. The Army of God (a US domestic terrorist
group) took advantage of lax security in Lone Star Airlines warehouse and managed to remove the
goods and replace them with cartons filled with refuse before the goods were loaded on board the
flight from Texas to Los Angeles. The switch was not discovered for sometime after the cartons were
delivered to AWMD. Subsequent investigations revealed that not only were employees negligent in
their duties, Lone Star Airlines management has repeatedly failed to maintain security systems and
staff training to ensure security at the warehouse.

Question 4

 Provide a full explanation of which air carrier liability rules apply to this transportation of
goods?

[2 marks]

 In response to a complaint by AWMD, AKA has informed AWMD that the theft has nothing to
do with AKA. AKA suggests that AWMD pursue LSA. Is this correct? Please provide full
reasons and support for your answer.

[4 marks]

 Assuming that AKA can be pursued for the loss of the goods, is there liability under the
relevant air carrier liability rules?

[4 marks]

 AWMD seeks to claim $110,000 compensation for the value of the goods and a further
$100,000 for loss of profits. Assume compensation is payable: How much is AWMD entitled
to claim?
[4 marks]

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FACT SCENRIO THREE

In January 2010, Allbusters Inc in Texas, US enters into a contract for the supply of two tonnes of
common variety broken rice (FOB Galveston, US) to Victorian Rice Chip-Chippers (VRCC), which is a
Melbourne based manufacturer of rice snacks. The parties agree that payment will be by letter of
credit to be opened by 13 March 2010. The letter of credit is stated to be subject to the UCP600 Rules.

VRCC opened the letter of credit in favour of Allbusters Inc on the 10 March 2010 with Eureka Bank in
Melbourne. Eureka Bank appoints Texas First Bank as advising bank. The letter of credit provides
that payment of the $30,000AUD purchase price will be made upon a presentation by Allbusters which
includes

 A commercial invoice from Allbusters for “two tonnes of common variety broken rice
kernals” and a Certificate of Inspection of the goods bearing the same description.
 A clean bill of lading marked freight prepaid

Allbusters made a presentation of the documents including the commercial invoice and a bill of lading
on the 16th March. However, while the Certificate of Inspection describes the goods as ‘two tonnes,
common variety broken short grain rice kernals’, the commercial invoice describes the goods as “two
tonnes of common variety broken rice kernals”. In addition, the bill of lading is marked ‘freight collect’.

Question 5

A. Advise the Banks whether Allbusters has made a complying presentation and whether it can
refuse payment.
[6 marks]

B. Assume Allbusters has made a complying presentation and consider these additional facts:

On the 18th March an employee of Allbusters emails VRCC with information that Allbusters is involved
in deceptive trading practices. He asserts that Allbusters has been purchasing rice cheaply from farms
that have failed US Food Safety Authority Inspections, and exporting it with forged certificates of
health and quality. The employee forwards documentary evidence of the purchases from blacklisted
farms.

Advise VRCC on how it should proceed.

[4 marks]

29