Cargo Interests in Australia: Standing on the Edge - Imbalances that Permeate International Sale Contracts, Carriage Contracts and Recovery Rights

• Author: Michelle Taylor
• Position: Senior Associate, DLA Phillips Fox (Transport & Trade), Brisbane
• Pages: 56-75

CARGO INTERESTS IN AUSTRALIA: STANDING ON THE EDGE —

IMBALANCES THAT PERMEATE INTERNATIONAL SALE CONTRACTS,

CARRIAGE CONTRACTS AND RECOVERY RIGHTS

Michelle Taylor*

Introduction

This paper analyses the documentary and legal framework that underpins carriage of goods by sea in Australia,

with particular focus on the interaction between the contract of sale and the contract of carriage. It then

considers how adequately this framework supports cargo interests to exercise recovery rights in Australia.

Two important factors create the milieu for the analysis outlined above: namely, Australia is a nation of shippers

and Australian maritime law is distinguished by its inconsistency. History gives credence to the fact that

Australian interests are predominately cargo owning. In the second reading speech on the Carriage of Goods by

Sea Bill 1991 (Cth), Senator Tate noted that ‘Australia remains essentially a shipper nation …’.1 As regards our

maritime law, Sir Anthony Mason astutely concluded that a ‘[l]ack of uniformity is a significant aspect of

Australian maritime law’. The correlation between these factors and the analysis reveal a great irony for

Australian cargo interests.

Although it is universally recognised that inconsistency (or uncertainty) impedes international trade and

shipping,2 a quest for certainty in our law has arguably impeded the interests of cargo owners, from a

commercial viewpoint.

Lord Mansfield observed three centuries ago in Vallejo v Wheeler:3

In all mercantile transactions the great object should be certainty: and therefore, it is of more

consequence that a rule should be certain, than whether the rule is established one way or the other.

Because speculators in trade then know what ground to go on.

In this paper the quest for certainty and how it impacts upon cargo interests is considered from two perspectives.

First, international trade law and domestic commercial law relating to contracts of sale are reviewed; and

secondly, the development of our maritime law relevant to contracts of carriage is critically analysed.

The Contract of Sale

From an Australian perspective, international trade begins with a contract of sale and ends with a contract of

carriage, culminating in the transport and delivery of cargo to overseas destinations. It is characterised by the

variability of commodity transactions, the practical consequences of which may include:

• Contracts of sale that have been scantily drafted, are missing necessary terms, or contain

inappropriate terms;

• Contracts of carriage that have not been executed by all relevant parties;

• Contracts that are evidenced by any number of documents, including commercial invoices;

transport documents; correspondence; email exchanges; or a combination of any of these (the

effect of which may be unclear or inconsistent);

• Documents relied upon to interpret the intention of the parties when entering into contracts of sale

that are task-oriented, not evidence-oriented;

* Senior Associate, DLA Phillips Fox (Transport & Trade), Brisbane.

1 The Hon Senator M C Tate, ‘Carriage of Goods by Sea Bill 1991’ (Second Reading Speech, Commonwealth Parliament of Australia,

Canberra, 14 August 1991).

2 Mason, A, ‘Harmonisation of Maritime Laws and the Impact of International Law on Australasian Maritime Law’ (1999) 14 Maritime Law

Association of Australia and New Zealand Journal 1.

3 (1774) 1 Cowp 143, 153.

(2008) 22 A&NZ Mar LJ 56

• Uncertain outcomes when disputes arise.

An insight into the fluid contractual arrangements that typify the variable nature of international trade is given

by Bergin J in IBBCO Trading Pty Ltd v HIH Casualty & General Insurance Ltd:4

IBBCO carries on the business of exporting beef, seafood and dairy products to its customers worldwide

… the usual course of dealings between IBBCO and [its customers] … was the [customer] usually

placed its orders … by telephone … . At the time [the customer] placed an order, a price was agreed

upon as well as the terms and conditions of sale. [The customer] advised IBBCO of the port of

destination as well as the approximate date it required the goods to be shipped … IBBCO would send a

confirmation of sale. [The customer] was not expected to reply. After IBBCO received the original bill

of lading it raised a commercial invoice and issued a bill of exchange addressed to [the customer] in

respect of the consignment.

This variable commercial environment is complicated by a legal framework that pervades in respect of

international trade and carriage law. The contract of sale is the means of transferring physical possession and

legal title to goods from one party to another. It will be interlinked with a contract of carriage (bill of lading

and/or a charterparty) which shares some of those transference roles (particularly where third party interests are

concerned). These contracts may depend upon each other,5 but at times the terms may conflict. The interaction

between them can be illustrated by the example of damages being recoverable for losses suffered on a

charterparty, when a contract of sale is breached. 6

In so far as cargo interests are concerned, the proficiency of the contract of sale and its effective interaction with

the contract of carriage may be adversely affected by:

• The incorporation of inappropriate customary terms of trade.

• Australia’s inconsistent approach to the interpretation of the United Nations Convention on

Contracts for the International Sale of Goods (‘Vienna Sales Convention’).

• Conflicting judicial approaches to trade (or sale) contracts and carriage contracts.

Further, cargo interests principally focus on terms of payment and risk, rather than on the passing of title, when

entering into a contract of sale. In general terms, the concept of risk relates to parties’ obligations under a

contract of sale (for example, the delivery of goods or the payment of freight and insurance) and the concept of

title deals with proprietary rights to property, from which rights to sue may flow. This is an important distinction

when ascertaining cargo interests’ rights of recovery. In that context, title, not risk, may be paramount.

It is a commercial reality that many cargo owners are more concerned with closing the deal (‘front end’) than

problems associated with legal disputes arising from a breach of contract (‘back end’). However, the ultimate

outcome for cargo owners will be contingent upon which terms are incorporated into the contract of sale.

Customary Terms of Trade

Contracts of sale consistently include inappropriate terms of trade, resulting in the assumption of unnecessary

risk by cargo owners. Whether this is due to lack of knowledge on the part of traders, or lack of innovation on

the part of their legal advisors, is a matter of speculation.

More prudent cargo owners will carefully consider and negotiate (if possible) the terms of each contract that

relates to the sale and transport of international cargo. For this reason, it is important to consider what terms are

commonly included when forming an agreement for the international sale of goods.

4 [2001] NSWSC 490 (unreported), 2.

5 Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324: It was unsuccessfully alleged by the plaintiff seller,

in an attempt to avoid damages for breach of the charterparty, that the charterparty was conditional upon the contract of sale being

concluded.

6 Downs Investments Pty Ltd (in liq) v Perwaja Steel SDN BHD [2002] 2 Qd R 462.

(2008) 22 A&NZ Mar LJ 57