Case Studies of International Trade Law

From the case study, it is apparent that it is Japan Airlines (JA) that issued an Air Waybill with clear information that the goods will be carried from Osaka to Taiwan on a JA flight and then to Melbourne on a Qantas flight. However, according to the Montreal Convention, the mere fact that an air carrier issues an Air Waybill containing certain information does not cushion it from taking liability for its actions. Therefore, Japan Airlines does lose protection if the goods it was contracted to transport are damaged or stolen as a result of willful misconduct. It was upon the airline to ensure that the goods entrusted to it are duly protected from theft. Therefore, Qantas is right to argue that it is not liable for the damages, as the goods were not stolen on its flight.

Indeed, they were right to assert that the goods were in the care of the JA when the theft occurred. This is anchored in Article 1(3) of the Montreal Convention, which argues that a “Carriage performed by successive carriers is deemed to be ‘one undivided carriage’ if it is ‘regarded by the parties to the contract as a single operation.” This implies that irrespective of the number of contracts that the JA could have signed with different carriers, it will still be held liable since the different carriers are considered as one undivided carrier. The Montreal Convention regards this carriage involving the JA and the Qantas as a single operation.

From the information provided by the AKEI management to Qantas upon the receipt of the goods, it is evident that some parts of the goods were missing. The boxes in which the goods were packed arrived empty. This is a clear indication that the goods were stolen, and not damaged. Furthermore, CCTY footage at Taiwan Airport captured unauthorized people gaining access to the loading and warehousing areas and transferring items from the boxes during the transfer process of the goods (Abeyratne, 2018). This can only be defined as theft, another glaring evidence that the goods were stolen.

This distinction is significant as it exonerates both the Japanese Airlines and the Qantas flight of damaging the goods during the flight. It also exonerates the manufacturer, the Gijutsu Shisutemu Ltd (GS) of any possibility of shipping damaged goods. The fact that empty boxes arrived in Australia and the existence of CCTV footage detailing the theft serves to affirm that GS played its part in the agreement. Nonetheless, the notice provided by AKEI to Qantas was not sufficient. It was too general, making it difficult to pinpoint which items were exactly missing. The AKEI did not specify the nature and number of the missing. This could prove challenging if the flight was to investigate the theft to recover the stolen items.

According to Article 18 of the Montreal Convention, Japan Airlines, which is the carrier in this case, is liable for the loss of the cargo. The airline could only be exempted if the cargo was defectively packed or if there was an act of armed conflict along its flight path. Neither of these took place, rendering the airline culpable for the loss of the cargo. Although the JA can argue that the theft occurred on land, and not on air it must be noted that an airport is within the precincts of an airline’s operations. The carrier informed both the consignor and the consignee that it will transfer the cargo to Qantas flight but the liability remains JA’s according to the Montreal Convention.

It will be incumbent upon the Bank of Japan to ensure that it strictly applies to the terms of credit presented by both parties. The letter of credit issued by the Fed Bank in Australia had specific terms. Accordingly, it specified that the UCP600 rules must be incorporated and that the presentation must be made within 15 calendar days of the shipment (Bose, 2020). Significantly, the bank will check if the documents presented by GS if they comply with the UCP600 rules. Part of the documents will be a description of whether the goods supplied correspond with those appearing in the credit. Since AKEI has reported that parts of the ordered goods are missing, this last rule will not have been complied with.

Therefore, is justified to ask the bank to hold off on payment until these negotiations are completed. To protect its reputation and avoid any financial risks related to non-compliance, it must grant AKEI’s request and hold the payments till the dispute is resolved. The rules stipulate that a bank can refuse to honor a credit if the presentation fails to comply with the terms of credit as outlined in Article 16. Although it is not the mistake of the seller that the goods did not reach the buyer as anticipated, the seller has agreed to solve the arising dispute with the Buyer amicably.

A relevant case about this was that of Hamzeh Miles v British Imex Industries of 1958. In this case, the contract of sale stipulated that goods were to be delivered in installments. However, the buyer discovered that the final installments contained defective goods contrary to what was ordered. As a result, he sought an injunction to stop the payment of the letter of credit. However, the court declined to grant the buyer his wish, arguing that the contractual obligations and the contract of sales under the letter of credit were independent of each other. This implied that the letter of credit imposes on the bank an absolute obligation to honor a complying presentation. If juxtaposed against the AKEI v GS case, the letter of credit requires the compliance of all the documents involved.

The most likely reason why the bank rejected GS’ presentation was that such a payment would have contravened the objectives of the UCP 600 rules. The rules were designed to ensure that all parties involved in trade finance transactions benefit. As it stood, only the GS would have benefited while the AKEI suffered serious losses. Since the letters of credit were subjected to the UCP 600, it implies that the bank was bound to respect the concerns raised by the AKEI as well. In addition, since some of the goods ordered were not delivered to the buyer, the documents produced must have had significant discrepancies. It would, therefore, be incumbent upon the bank to reject the presentation by the GS. I agree with the bank to reject the presentation based on the grounds highlighted above.

There are other grounds for rejection as well that the bank could still rely on. While the loss of the goods is not the mistake of the GS, there are ethical and moral angles, which should be considered as well. Doing business is no longer a cut-throat competition where one partner should profit at the expense of others. Thus, other than the rules set aside to control international trade like the UCP 600, businesses must self-regulate themselves and ensure that their practices are not detrimental to the survival of other companies. Therefore, the bank had also the option of exploring the ethical inclinations of GS’ practices.

Incidentally, the bank did not supply sufficient notice for rejection. By only basing its rejection decision on non-complying documentation, the bank was not open enough to the GS regarding the nature of the documents. This kind of notice from the bank hid important information from GS regarding the rejection decision. The bank could have been more detailed in stipulating the exact reasons for its rejection

From the happenings, in this case, it is apparent that AKEI is the aggrieved party. Shockingly, it is still being slapped with a fine for its ‘unprofessional behavior’ during the arbitration proceedings. There are enough reasons for AKEI to refuse to pay GS the award. First, under Japanese law, there is no such law in existence. Therefore, AKEI will argue that by paying the award, it will be in breach of the existing laws. Second, AKEI has suffered a lot of damages as a result of the contract it entered with GS. Even though it only received part of the goods ordered from GS, it still went ahead and requested for replacement of the parts at its own cost. Hence, it has already spent money where it should not have (Lazić & Stuij, 2018).

Furthermore, the installation of the systems did not amount to a 15% increase in job efficiency as had been promised by the GS before. Instead, the systems created a decline in staff productivity contrary to what had been promised. This implies that AKEI paid for the products that ended up not solving the problems it needed them to solve. AKEI is, thus, a victim of fraudulent business practices committed by the GS. When the matter was taken to an arbitrator, all the fundamental principles of arbitration were shelved. It is a common law practice to hear both sides of the story and give each party a chance to demonstrate its arguments the best way it deems fit.

If possible, the arbitration proceedings should be conducted in a neutral country. However, this did not happen in this AKEI v GS case since the system seemed to be set in favor of the latter. The arbitrator concluded without listening to AKEI’s expert opinion despite granting the same to GS. This is an open favor extended to GS and an act of illegality. Since these arbitration proceedings did not follow the due processes set in law, AKEI is not bound by the conclusions arrived at. The judgment is not fair and openly designed to punish the Australian-based firm for seeking a fair trial process. Based, on these deliberations, therefore, AKEI should not accept to pay the GS the stated award.

The bill of lading issued by Queen International Shipping remains the most appropriate piece of evidence itself (the carrier) and Yunqi and Vihaan (the shipper). It is in this document that terms of carriage of the beer evidence are contained. According to the Modified Hague-Visby Rules (MHVR), Queen International Shipping assumes the rights and responsibilities of the shipper. Since it resumes these rights and responsibilities over the goods on the voyage, the carrier is liable for prosecution should the goods be damaged as it is in this case. The MHVR laws require carriers to be liable for any damage or even theft of goods in their possessions (Kasi, 2021). There is only an exception if Queen International Shipping will prove that the damage was attributable to factors beyond its control.

While storms on high seas are indeed not in the control of carriers, it is not lost to observers that the damage was caused due to the failure of the ship crew to diligently check and do a manual inspection for any fault of the equipment. A storm in the sea is an act of God that could not have been foreseen by humans. While this is a natural calamity that is not attributable to the actions of any human beings, its impacts can be avoided. The carrier is well aware that every time a ship set sail into the high waters, there are bound to be such cases. Therefore, appropriate measures must be taken beforehand to ensure that the impacts of such calamities do not spill into the goods in transit. In this case, the damages reported on the beer bottles were a result of negligence on the part of the carrier.

The MHVR laws bound Queen International Shipping as the warrantor for the damage caused to the goods carried across the sea. Although the carrier will put up a strong case in arguing that the damage occurred as a result of irresistible forces, due diligence on the safety of the containers was not carried out. The MHVR terms this phenomenon as an “obligation of result” since the carrier is required by law to declare full restitution. Effectively, the liability of Queen International Shipping under the MHVR law depends on the type of contract that it signed with the shipper (Yunqi and Vihaan). In this contract, the goods were not carried at the owners’ risk, implying that the carrier was liable for their damages (Cheng & Cheng, 2017). Notably, not all the beer bottles were destroyed. This means that the carrier is only liable for the section of the goods that were damaged. Incidentally, this should have been specified in the contract between the shipper and the carrier.

According to the MHVR law, the liability of the carrier begins from the time it accepts goods from the shipper and runs till the time the goods are delivered to the receiver. The entity that holds the liability for lost or damaged goods in transit depends on the agreement between the shipper and the carrier within a specified jurisdiction. This explains why it is significant to spell out the terms of engagement before the ship sets off. Otherwise, to avoid incurring such liabilities in the future, Queen International Shipping should put appropriate measures in place to ensure that all its equipment is without any fault before it allows its ships to set forth.

References

Abeyratne, R. I. (2018). Law and regulation of air cargo. Springer.

Bose, R. (2020). Letters of credit theory and practice: Incoterms 2020 and marine insurance. Chennai Notion Press.

Cheng, B., & Cheng, J. (2017). Studies in international air law: Selected works of Bin Cheng. Brill Nijhoff.

Kasi, A. (2021). The law of carriage of goods by sea. Springer.

Lazić, V., & Stuij, S. (2018). International dispute resolution: Selected Issues in International Litigation and Arbitration. Springer Science and Business Media.