ASSESSMENT ITEM 2
Length: Approximately 3000 words
Question 1 20 Marks
In early January 2015, Smith Mining Ltd (“Smith”), a Queensland based-company entered into a contract, subject to Australian law, with China Aluminium, a Chinese aluminium processing firm for three 60,000 tonne shipments of high grade aluminium at US $200 per tonne from Queensland in the 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 shipment. 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 to the hopeful expectations of either party.
Regarding the first shipment:
• Due to internal 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 Aluminium 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 Aluminium.
Regarding the second shipment:
• • 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.
• • 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 $250,000 in port handling and transport fees and a further $200,000 in rescheduling.
(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)
(b) Would China Aluminium be entitled to terminate the remainder of the contract – the August 2015 instalment – and if so what consequences would follow? (5 marks)
Question 2 20 Marks
As a variation of the facts outlined in Question 1 above, assume that Smith and China Aluminium entered into a contract, subject to Australian law, for a single February 2015 aluminium shipment of 40,000 tonnes for US $3 million, on the same advance payment terms. A certificate of quality was to be separately issued by a highly reputable independent company, Rockhampton Aluminium Testing. China Aluminium’s bank, Hong Kong Bank, was similarly 10 days late in delivering the requisite irrevocable letter of credit. Due to fraud involving a Rockhampton Aluminium Testing employee and a Smith employee, a false certificate issued for the single shipment. Further, due to fraud by a Hong Kong bank officer and a China Aluminium employee, a false letter of credit and related documents were delivered to Smith’s Brisbane bank.
(a) How might the parties best cooperate, given the two separate but concurrent fraudulent actions? (5 marks)
(b) What would be the innocent party’s legal rights, if any, if there was issuance only of the false certificate or issuance only of the false letter of credit and related documents? (15 marks)
Question 3 (10 Marks )
There is a mango industry in both Australia and the Philippines. As mangoes are grown in differing, complementary seasons in these countries, they would benefit from supporting mutual free trade in mangoes. Outline and appraise the applicable GATT/WTO, bilateral and regional free trade agreement (AANZFTA), and WTO sanitary and phyto-sanitary (SPS) Agreement sourced rules which govern the Australia-Philippine mango trade and consider whether Australia can and should rely on strict SPS-quarantine rules to discourage imports.