Legal Disputes Involving Nanning Ceramics Co Ltd and Critique of the United Nations Convention on In

Overview of the Legal Disputes Involving NCCL and its Customers

1. Nanning Ceramics Co Ltd (“NCCL”) is a company based in Nanning, China, which purchases ceramic tiles from manufacturers across China and sells them to companies around the world. NCCL is in dispute with four of its customers.

 

(a) In 2018, NCCL was approached by BAU AG, an Austrian construction company, which was looking for frost-resistant tiles to be used for its outdoor construction projects in the Austrian Alps. NCCL recommended FRO tiles. NCCL did so because the manufacturer of the tiles had specified them as being frost-resistant. BAU AG ordered 10 containers of FRO tiles for a price of EUR100,000, and received them from NCCL in January 2019. BAU AG checked the quality of the tiles. In particular, it placed a sample of them in a freezer for a week. The tiles showed no cracks or other damage afterwards. BAU AG used the tiles in its outdoor construction projects in the Austrian Alps. In February 2021, one of BAU AG’s customers complained that many tiles had developed cracks. It turned out that the tiles were only frost-resistant for about two years. BAU AG immediately notified NCCL of the circumstances, and demanded that NCCL compensate BAU AG for the cost of the repair work that BAU AG was required to undertake. NCCL refused to pay anything. BAU AG has brought an action for damages against NCCL in China.

(b) NCCL has also had dealings with Bahrain Construction Ltd (“BCL”), a construction company based in Bahrain. BCL was the main contractor on a building project in Bahrain and was looking for tiles for an outdoor area. BCL and NCCL entered into a written contract for the sale of one container of HUI tiles of a size of 600 x 600 mm and thickness of 20mm, for a price of US$10,000. The contract contains a clause stipulating that any variation to the contract must be set out in writing before it takes effect. Two weeks after the conclusion of the contract, NCCL’s sales manager made a telephone call to BCL’s managing director and asked whether HUI tiles with a thickness of 10mm could be delivered as there was a shortage of the thicker tiles. BCL’s managing director said that this was fine. NCCL shipped a container of HUI tiles of a size of 600 x 600 mm and thickness of 10mm to BCL, incurring a cost of US$1,000. The tiles turned out to be too thin for outdoor use, and BCL refused to pay for them. NCCL has brought an action for payment of US$10,000 against BCL in Bahrain.

Case Analysis of the Disputes with BAU AG, BCL, CML, and FSAS

(c) In 2019, NCCL entered into a contract with Canada Mart Ltd (“CML”), a Canadian company that operates a chain of hardware stores throughout Canada. The contract stipulated that NCCL would deliver 10 containers of various tiles to CML every three months, starting in January 2020 and ending in October 2022, and CML would pay CA$100,000 for every shipment of 10 containers. In the contract, NCCL also promised not to deliver tiles to any other hardware store in Canada in 2020, 2021 or 2022. NCCL has so far delivered the tiles to CML as agreed. However, in early 2021 NCCL also delivered 5 containers of tiles to another chain of hardware stores in Canada. The impact of the sale of those tiles in Canada on the sale of tiles by CML was minor. CML has declared the contract with NCCL avoided. CML and NCCL are litigating in Canada over the state of their contract.

 

(d) NCCL has also had dealings with Flise System A/S (“FSAS”), a Danish company. In May 2020, FSAS and NCCL entered into a contract for the sale of one container of KOK wall tiles for a price of US$10,000. During the negotiations, FSAS said nothing about what it intended to do with the tiles. NCCL assumed that FSAS was a wholesaler of tiles. In June 2020, NCCL became aware that FSAS was a construction company and had bought the tiles for renovation work in an old castle in Denmark. The tiles were delivered in July 2020. FASA placed all of the tiles on the walls of the castle. A few months later, cracks appeared in the tiles. It turned out that the tiles were defective (which could not have been discovered by examining the tiles before placing them on a wall). FSAS immediately notified NCCL of the circumstances. FSAS was required to remove the tiles from the castle walls and place new tiles on the walls, which cost US$8,000. NCCL has refused to reimburse FSAS for those costs, arguing that such huge loss had not been foreseeable. FSAS has brought an action for damages against NCCL in China.

Advise the parties in each scenario.

2. Critically evaluate the decision by the Supreme Court of the UK in Volcafe Ltd v Cia Sud Americana de Vapores SA [2018] UKSC 61; [2019] AC 358.

3. Critically review the key features of the United Nations Convention on Independent Guarantees and Stand-By Letters of Credit (New York 1995). Your discussion should include, but need not be confined to, the scope of application of the Convention, the exceptions to the payment obligation under the Convention and the provisional court measures provided by the Convention.