INB – International Finance and Law
Law – Group Assignment Questions 2014
Facts
Matthew Michaels (MM), an entrepreneur from Melbourne has been travelling through the USA looking for business opportunities. On 9 September he attends a friend’s party in New York and meets Justin Salisbury, CEO of Salisbury Steel (SS), an American steel manufacturer located in the north east of USA.
During their conversation Salisbury says that SS could sell MM 5,000 metric tons of #51 steel ingots, with a warranty for purity (no more than 1.6% carbon), for $5 million.
MM calls a business associate of his in Melbourne, Dilek Jericho, who he knows would be interested in purchasing steel. Dilek says that she will buy the steel from MM so long as it meets the exact description provided by Salisbury and is delivered to Melbourne by 20 December.
Salisbury agrees to meet these requirements and further states:
• he will load the steel onto a ship operated by Big Carriers in New York;
• the ship would leave port on 1 December 2011 and arrive in Melbourne on 20 December 2011; and
• he will only enter into the transaction if he receives full payment from MM no later than 2 December 2011 (because he needs the $5 million to fulfill payment of another business transaction he is involved in on 3 December).
On 10 September, MM sends his standard terms and conditions to SS. The terms include a clause which provides that the law of the transaction will be that of the Australia and both parties submit to the jurisdiction of Victorian courts.
On 12 September, SS send their standard terms and conditions to MM with a clause providing that the applicable law is that of the USA and jurisdiction rests with New York courts.
SS’s bank is the “New York Bank” and MM’s bank is the “Melbourne Bank”.
Group 2
On 1 September, after having delivered the steel to Big Carriers and receiving the Bill of Lading from the ship’s mate, Salisbury delivers the relevant documents including the Bill of Lading, needed for payment to New York Bank. The Bill of Lading describes the goods as “#51 ingots, with a warranty for purity (no more than 1.5% carbon)”.
You are the bank manager at the Melbourne Bank and have received a request from New York Bank (the advising bank) to pay on the terms of the Letter of Credit. However, you notice that there is a discrepancy between the Bill of Lading description of the goods and the description of the goods on the Letter of Credit which provides for:
“#51 steel ingots, with a warranty for purity (no more than 1.6% carbon)”.
The Sales contract describes the goods as “#51 ingots, with a warranty for purity (no more than 1.6% carbon).”
1 – Would you honour the Letter of Credit (please ensure that you provide reasons for your decision)?
2 – If you decide to not honour the Letter of Credit, please explain the process you would follow.
3 – Does the description of the goods in the sales contract have an impact on the matter?
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