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| Abstract | ||||||||||||||||||
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| An Australian seller and a Malaysian buyer concluded a contract for the sale of approximately 30,000 metric tonnes plus/minus 10 % of scrap steel at the price of $164 per metric tonne C.N. F.F.O. Kemaman Malaysia. According to the written contract between the parties, shipment was to be made from any Australian port during July 1996 and payment was to be made by irrevocable letter of credit. Furthermore, the vessel's details and descriptions had to be submitted to the buyer for their approval prior to charter party acceptance.
As the parties had previously concluded contracts for the sale of scrap steel, it was orally agreed that the seller did not need to submit any vessel details prior to chartering an appropriate vessel to deliver the scrap steel. It was later agreed that the shipment of scrap steel was to be made in August and September 1996, and that a letter of credit for 60 days was to be issued on the 1st August 1996. As of July 1996, the buyer changed its management. The new management introduced new procedures concerning the issuing of letters of credits, and therefore would not issue the letter of credit, until an executive committee had accepted it. At this time, the seller had already agreed to charge a vessel. At the same time, the contract price for the scrap steel was US $705,000.00 in excess of its current market value. On the 31st July 1996 the seller submitted the vessel's details and descriptions to the buyer, together with details of shipment and expected time of arrival. As the buyer would not issue the letter of credit at the agreed time, the seller wrote to the buyer saying it would commence to load the scrap under the contract on 8th August 1996, and that the letter of credit had to be established at the latest by 7th August 1996. Furthermore, if the buyer should fail to do so, it would treat buyer as having repudiated the contract and would then take steps to dispose of the scrap steel, cancel the vessel charter if possible and then seek to recover damages from the buyer. At the same time, seller commenced to make inquiries about other possible purchasers of the scrap steel that it was holding to fulfil its contract with the buyer. On the 7th August the buyer replied that the new management was still studying this matter. On the 8th August the seller asked the buyer to confirm by noon on the 9th August as to whether it was prepared to honor the contract in question. As the buyer was not able to give its answer before the executive committee meeting, the seller terminated the contract on that same day. The buyer objected to the seller's avoidance, alleging that the seller had breached the contract prior to its avoidance, since it had not submitted the vessel's details and descriptions to the buyer's approval prior to charter acceptance. As a consequence, the buyer's refusal to issue the letter of credit was not a breach of contract. The Court held that the written terms of the contract having regard to the nature of the contract and the long business relationship between the parties had to be supplemented with the oral agreements, and therefore that the letter of credit should be established upon the seller providing details of the vessel chartered to ship the material to Kemaman Malaysia. The Court, referring to international scholarly writing and case law on CISG (Helen Kaminski Pty Ltd v Marting Products Inc see U.S. District Court, S.D., New York of 23-07-97, in UNILEX) held that the refusal to establish a timely letter of credit was clearly a fundamental breach within the meaning of Art. 25 and Art. 64(1)(a) CISG, since the failure to establish a letter of credit in the cirumstances of the case was a failure by the buyer to meet its "obligation to pay the price" (Art. 54 CISG). The seller which the Court found was ready, willing and able to perform its obligation at a material time prior to its avoiding the contract, had the right to avoid the contract (Art. 72 CISG). As the seller, as a foreseeable consequence of buyer's breach, had to sub-charter the vessel and charter a new one, and as it had found necessary to sell both within Australia and outside Australia the scrap steel which it was holding to meet its contractual obligation to the buyer, the buyer had to pay damages (Art. 74, Art. 75 and Art. 78 CISG). The seller had furthermore promptly taken all reasonable steps necessary to mitigate the damages it suffered as a consequence of yhe buyer's non performance. The damages had to be paid in US Dollars, because this was the currency in which the parties expressed their contractual obligations. |