law | Law Assessment


Question 2. 20 Marks
As a variation of the facts outlined in Question 1 above, assume that Ferrum Corp and Sino Steel entered
into a contract, subject to Australian law, for a single February 2016 iron ore shipment of 60,000 tonnes
on the same advance payment terms. A certificate of quality was to be separately issued by a reputable
independent company, Gladstone Iron Testing. Sino Steel’s bank, Shanghai Bank, was also 10 days late
in delivering the requisite irrevocable letter of credit. Due to fraud by a Gladstone Iron Testing
employee, a false certificate was issued as to quality. There was also an error by a Shanghai Bank officer,
who issued a letter of credit, even though there was not any basis for the issuing of the same.


(a) How might the parties best cooperate?

(5 marks)

(b) Assuming that only the false certificate issued and that alternatively only the incorrect letter of
credit issued, what would be the respective innocent party’s legal rights?


In the first shipment, there was a delay that was occasioned by two factors, one the internal 14 days delay and errors and the Queensland Bank, and two, plant failure at Ferrum Corp for 10 days.  Therefore, in considering the rights and responsibilities of eachparty, it is important to consider that Ferrum Corp could not have shipped the cargo without the letter of credit, which means its 10 days delay is well covered within the 14 days delay by the bank. Furthermore, the contract provided for a one week (7 days) between payment and earliest possible shipment, which means the delay, was only for one week.