law | Law Assessment
ASSESSMENT ITEM 2
Length: Approximately 3000 – 3500 words
This assessment item relates to learning outcomes 5-12 as stated in the course profile and addresses
material covered in modules 5-10 (weeks 6-12) of the course. Answer all questions.
Question 1 20 Marks
In January 2016, Ferrum Corp, a Queensland based-company entered into a contract – subject to
Australian law, with Sino Steel, a Chinese steel milling firm for four 40,000 tonne shipments of high
grade iron ore at US $40 per tonne from Queensland in the first weeks of February, March and April
2016 respectively. Under the contract, there was also a $2 million per instalment shipping charge. Each
instalment charge was payable a week in advance by Ferrum Corp setting up a letter of credit with
Queensland Bank. There was a minimum requirement of a week between payment and the earliest
possible date for shipment. Ferrum Corp was to self-certify, under the contract, the ore quality for each
shipment. Under the contract each instalment was to be delivered to the port of Guangzhou, China, by
a Ferrum chartered shipping carrier at Ferrum’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 Queensland Bank, the Bank was 14 days late with the letter of
credit. Ferrum relied on that bank delay as an excuse to delay shipment by 14 days to cover up its
own 10 day delay in shipment, caused by plant failure.
Regarding the second shipment:
Owing to a flood, loading in Queensland was delayed by six days.
Due to a ship loading error at the port, half of the shipment was not of the appropriate ore quality.
(a) Outline and discuss each party’s likely legal rights and liabilities in relation to the first and second
shipments by reference to Australian law and where applicable referring to the CISG.
(b) Would Sino Steel be entitled to terminate the remainder of the contract – the April 2016 instalment
– and if so what consequences would follow?
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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.