Business Law hw w10

In Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd., the Court was asked to
decide on a challenge to an arbitration award.
At the centre of the dispute was an agreement dated 27 March 2017 between two
Australian companies for the supply by Dairy Park (Seller) to Full Joy (Buyer) of infant
milk products into China. The sale price was expressed to be “CIF USD” – ‘Cost
Insurance Freight’, which means that the sale price includes those three elements so
that the CIF Seller must also supply insurance and arrange carriage of the goods to
their destination.
A shipment of products (described as ‘Step 1’, ‘Step 2’ and ‘Step 3’ products) was
made. Before export, the Seller had the products tested and obtained the necessary
documents for export. The Buyer paid the purchase price. When the goods arrived at
Tianjin, the Chinese authorities also tested the goods and reported that one of the
products (‘Step 1 Product’) was contaminated with bacteria. They denied entry to all of
the products, which were eventually returned to Australia. The Seller produced a new
batch of Step 1 product which was shipped to China and cleared Customs without
incident. Nevertheless, the Buyer refused to accept any more product under the
contract based on the default under the first shipment.
In due course, the Buyer commenced arbitration under the contract claiming damages
and a refund of the purchase price in respect of the shipment of Step 2 and Step 3
product.
Among other things, the Buyer alleged that under the contract:
“(The respondent) will ensure that the goods supplied to the Purchaser will confirm to
import country standards and be fit for human consumption.”
The arbitrator published his Award finding in favour of the Seller. In summary, the
arbitrator concluded that the Seller had complied with its CIF obligations, and title and
risk in the product had passed on shipment or latest on the negotiation of shipping
documents.
In this case, the Buyer alleged that the arbitrator had relied on a matter not properly put
in issue (that is, the significance of CIF) and the Buyer had not been afforded an
opportunity to present its case which was accordingly not under the public policy of the
state, as a denial of natural justice.
In its closing submission, despite the arbitrator’s request, the Buyer did not refer to the
relevance of ‘CIF’ to the contract.

last updated May 2021

Extracted and modified from G. Farnsworth and N. Cecil on “Who Bears the Risk in a Trade Dispute.” Holding
Redlich. 15 December 2020
The Seller’s submissions, on the other hand, referred to CIF, but the Buyer’s
submissions, in reply again, did not.

In his Award, the arbitrator focused on whether the product had been delivered in
accordance with the contract. The arbitrator cited parts of the ICC definition, including
the transfer of risks. In considering the nature of obligations under a contract designated
CIF, the arbitrator assumed that the ICC definition was relevant.
In challenging the Award, the Buyer’s main grounds of complaint was that the arbitrator
assumed the Incoterms definition of CIF was relevant (even though Incoterms were not
referenced in the contract. They were expressed in the sale price.)
The judge found that “it could have come as no surprise to the applicant that the
arbitrator might treat the meaning of ‘CIF’ by reference to the Incoterms” and that
to do so was “by no means irrational or unlikely.”
Question: Do you agree with the Court’s judgement? Discuss.

[Suggestions: contract terms / sale price / CIF / liability / risk / fairness]