University Business Law and Ethics: Task 2 Problem Solving Assignment

This business law assignment analyzes two scenarios involving international sales contracts under the Convention on Contracts for the International Sale of Goods (CISG). The first scenario involves a contract between Black Diamond Limited (Australia) and Universe Gems Pty Ltd (Romania) for the purchase of diamonds, focusing on issues of breach of contract due to the delivery of cubic zirconias instead of diamonds and the application of Incoterms. The second scenario involves a contract between Black Diamond and Crystale (Belarus) concerning the sale of gemstones, focusing on the Incoterm CFR (Cost and Freight), and breach of contract due to damage and loss of goods during transit. The assignment provides legal advice to Garnet Martinez, representing Black Diamond, regarding their rights and remedies, including damages, specific performance, and contract rescission, considering the obligations and liabilities of each party under the CISG and the specified Incoterms.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Part One......................................................................................................................................2
Part Two.....................................................................................................................................5
References................................................................................................................................10

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Part One
Issue
The issue of the given case is to advise Garnet of his rights pertaining to the contract
with Greg Universe of the Universe Gems Pty Ltd under the Convention on Contracts for the
International Sale of Goods (CISG).
Rule
1. Signatories of the CISG and any contract between them to be governed by its
rules.
Article 1(a) and Article 1(b) of the CISG states that both parties to the contract must be
signatories of the CISG. While Article 3(2) of CISG directs that a contract between the two
parties who are signatories of the CISG shall be governed by the rules and regulations laid
down under the convention.
2. Elements of a contract under the CISG
Alike common law of contract, CISG also states that an effective offer and an effective
acceptance is the basis of a binding contract along with the intention of the offeror to be
bound when the offeree accepts the offer as stated under Article 14. A consideration is as
important as the other elements as well. In addition it is stated that the parties to the contract
must include their own terms to the contract. Article 35 (1) of CISG list down the
applications for a seller to maintain the quality, quantity, description and packaging of the
goods as agreed upon with the buyer.
3. Incoterm
Incoterms helps to write contract by way of internationally recognised shorthand,
providing clarity to the obligations of the parties to the contract. Incoterms specifically deals

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with the terms related to delivery, arrival, carrier, et cetera. It does not specify about the
elements of offer acceptance consideration and the intention of the parties as it is mainly
related to transportation of the goods agreed to be exchanged in a contract (Bridge 2017).
4. Remedies
In case of breach of contract under CISG, an aggrieved party may ask for certain
remedies under the convention that may involve a payment of damages, performance of the
obligation of the breaching party e for or to simply avoid the contract and get back to the
position when they had not formed the contract. Article 39 directs the buyer to notify the
seller pertaining to the defect or poor quality of the goods within a reasonable amount of time
(Bridge 2017).
Application
In this case, as both Australia and Romania are signatories to the CISG, therefore the
contract between them shall be governed by the terms and conditions let down under the
CISG provided that the parties have not expressly avoided it.
The elements of a valid contract have been satisfied in this case by way of an effective
offer and effective acceptance along with an exchange of consideration which speaks for the
intention of the parties to form a binding contract. Garnet from Black Diamond limited
approached Greg Universe of Universe gems Pty Ltd for purchasing 500 white Diamonds in
Princess cut of CL 1 standard as per the Australian classifications of gemstones. This offer
was accepted by Greg universe of Universe Gemstones Pty Ltd with a consideration amount
of 1 million US dollars, along with a confirmation email which mentioned that the Diamonds
would take two weeks to arrive Garnet's office and also that the shipment will follow the
Incoterm Rules 2010.

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As per the given situation Black Diamond and Universe Gems had incorporated
Incoterms in their contract as the confirmation mail send by universe gems expressly
mentioned that the transaction would be governed by Incoterms Rules 2010.
When Black Diamond informed about the fact that they had sent cubic Zirconias
instead of Diamonds, Greg universe replied that if Black Diamond would not tell their
customers they would not know and it will be fine. As this constitutes a fraud thereby
breaching the contract, Black Diamond can sue Universe gems for damages due to the losses
sustained by it for the delay to deliver their plan of running the sale period for 6 months.
Black Diamond could also sue Universe gems for specific performance of the contract where
the breaching party would be required to deliver 500 white Diamonds in Princess shape in CL
1 standard. However Black Diamond also has the option to us the court to rescind the
contract and put it back to the position where it was before the contract was formed, that is to
ask Universe gem to return the 1 million US dollar that the company had paid in advance.
Conclusion
Therefore Garnet Martinez, on behalf of Black Diamond is advised to sue Universe
Gems Pty Ltd for damages or specific performance.

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Part Two
Issue
The issue in this part of the scenario is to advise Garnet pertaining to the contract between
Black Diamond and Crystale.
Rule
1. Convention on contracts for the international sale of goods to govern the
agreement between Black Diamond and Crystale
In this case, as both Australia and Belarus are signatories to the CISG, therefore the
contract between them shall be governed by the terms and conditions let down under the
CISG provided that the parties have not expressly avoided it.
2. The Rules of CFR
Cost and Freight or CFR is an Incoterm used International Trade where goods transported
by an inland waterway or by sea. Incoterms are used in in contracts for establishing the rights
and obligations of the parties to the contract, related to the carriage of the goods, matters
related to export and import as well as the distribution of the cost and the risk pertaining to
the carriage of goods (Ramberg 2011).
Here, the seller has the direct access of loading the goods into the vessel of transport
while the seller is the one who arranges and pays for the transportation still the port of
journey. Once the goods have been loaded on the vessel of transportation, the risk of
transportation of the goods is transferred from the seller to the buyer. In case of CFR the
seller is not responsible for unloading the goods as well. The seller would not be held
responsible for any accident that happens to the goods when it reaches the destination port or

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even when it is with the port authority due to the buyer’s delay to collect it from the port
(Nomikos and Doctor 2013).
On the other hand, as per the rules of CFR it is the buyer would be held responsible for
the risk of transportation as soon as the goods are loaded on the vessel of transportation for
the journey. It is the duty of the buyer to receive the goods from the destination port within a
reasonable time.
3. Insurance for the merchandise
As per the rules, terms and conditions of CFR, the seller would not be held responsible to
insure the goods for the main carriage. The seller would not have to procure marine insurance
pertaining to any risk of loss or damage to the goods while it is in transit. The seller is only
responsible for paying the cost and freight that is needed for the goods to travel to the
destination port from the source.
4. Breach of contract by Crystale
There are two types of breach of contract under the Convention on Contracts for the
International Sale of Goods: a) Standard breach, and b) Fundamental breach
Standard breach only breaches certain terms of a contract while the fundamental breach
results to a contravention of an entire contract altogether which results to the detriment to the
aggrieved party who suffers substantially. Standard breach does not extinguish a contract and
thus the aggrieved party can claim damages for the loss sustained by such breach of contract.
While fundamental breach amounts to the termination of the contract and therefore the
aggrieved party is returned to the position where they wore before the contract was formed.
In case a term of the contract does not match, the aggrieved party may ask for damages or
can also ask for specific performance of the contract before the court. On the other hand, if
the goods sent by the seller gets damaged due to the seller’s negligence to provide a good

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packaging to it, in that case the seller would be held responsible for such damage. However if
a goods is lost in transit, then that case the seller cannot be held liable for such loss as his
liability over the goods is finished as soon as he loads the goods on the vessel of
transportation.
5. Remedies available to the specific breaches
Remedies to a breathing contract would be applied as per the particular provisions of the
contract that has been breached. There are mostly 3 remedies that are available to a breach of
an international contract; claim for damages, claim for specific performance and a claim to
rescind the contract (Arbel 2015.). In case of breach of contract under CISG, an aggrieved
party may ask for certain remedies under the convention that may involve a payment of
damages, performance of the obligation of the breaching party e for or to simply avoid the
contract and get back to the position when they had not formed the contract. Article 39
directs the buyer to notify the seller pertaining to the defect or poor quality of the goods
within a reasonable amount of time (Bridge 2017).
Application
1. In this case Australia and Bella as being signatories to the convention on contracts for the
international sale of goods, it shall be governed by the rules of CISG unless the parties have
expressly avoided it.
2. From the given scenario, it could be stated that CFR applies to this agreement as the gems
were being transported by the sea. The liability of Crystale ended as soon as it loaded the
goods on the ship. CISG applies to the traders who are located on two different countries who
are the signatories of the convention. Such a rule is immaterial for CFR, as it is applied to
traders who are even situated in the same country. Therefore, it is a material to consider

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whether Crystales main office was in Belarus while a warehouse was situated in Melbourne.
Therefore CFR is applied successfully to this agreement.
As per the rules of the CFR a seller cannot be held liable for the robbery for damage
of the goods as soon as it is loaded on the vessel of transportation. Therefore Crystale cannot
be held liable for the robbery of the hundred percent at the port of Brisbane as they had hand
over the gems to the transporter at the source port.
3. As per the CFR terms, Crystale was not required to provide insurance for the merchandise.
4. a) Crystale would be held liable for breaching the term of the contract with Black Diamond
for they had specified the Diamonds to match certain shape, colour and cut as per their
preference and necessity. However Crystale had sent the samples that matched the criteria of
Black Diamond and dost it convinced Black Diamonds to place the bulk order. Therefore, for
not meeting the pre-agreed terms of Black Diamond results in breach of contract from
Crystale's end that calls for penalty for Crystale and a remedy to Black Diamond.
b) The breach of the overall contract due to the damage sustained by the amethysts, 30 out of
the remaining 90, is a substantial loss for Black Diamond and it may amount to a
fundamental breach as the damage was contracted due to poor packaging done by Crystale,
an instance of negligence on the sellers part. This this would also bring penalties for Crystale
and certain remedies for Black Diamond again.
c) However the amethyst that was lost at the sea does not attract the fault of Crystale, for as
for the rules of the CFR, the seller has no obligation after he has loaded the goods on the
vehicle of transportation for the buyer to receive it. Therefore in this section Crystale has not
reached its obligation against Black Diamond.
5. a) as per the rules of CISG, standard breach of contract do not extinguish a contract
completely but calls for a claim of damages by the aggrieved party. Therefore Black

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Diamond can sue Crystale for breaching a term of the contract and ask for damages as the
Diamonds do not match with their specification that they had provide for procuring, before
entering into the contract. Also ask the court to pass an order of specific performance so that
Crystale is bound to provide the Diamonds that match the agreed criteria.
b) 30 out of the remaining 90 is a substantial loss and can be considered as fundamental
breach of a particular section of the contract. It would be the discretion of Black Diamond
whether to claim for damages, specific performance or avoidance of the contract before the
courts for this section.
c) However Black Diamond cannot ask for any remedy against Crystale for the lost Amit is at
the sea for as per the rules of CISG and CFR the seller cannot be held responsible for any loss
that happens during the transit.
Conclusion
Therefore, it is advised to Garnet to sue Crystale for sending diamonds that do not
match their criteria which was previously agreed before entering into the contract and also to
Crystale either to pay damages or make a specific performance pertaining to the supply of
wrong Diamonds as well as damaged amethyst.

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References
Arbel, Y.A., 2015. Contract remedies in action: Specific performance. W. Va. L. Rev., 118,
p.369.
Bridge, M.G., 2017. The international sale of goods. Oxford University Press.
Nomikos, N.K. and Doctor, K., 2013. Economic significance of market timing rules in the
Forward Freight Agreement markets. Transportation Research Part E: Logistics and
Transportation Review, 52, pp.77-93.
Ramberg, J., 2011. INCOTERMS 2010. Eur. JL Reform, 13, p.380.
The United Nations Convention on Contracts for the International Sale of Goods