course material

1. Comparative international sales
Order DescriptionYou are acting as counsel for HIGH QUALITY CLOTHES (HQC), an English
chain of retail stores selling men’ s clothing in the high to miIDle level of price and quality.
Their market is aimed at the professional man who needs to portray a modern and
sophisticated image for both formal and casual wear. Their buyers are constantly watching
fashion trends and they are therefore sourcing suppliers that can meet their target market.
One supplier has been with them for a long time and has always been reliable insofar as the
execution of their transaction and the quality of their merchandise are concerned. This
supplier is a Chinese company called MEN’ S SUITS MANUFACTURING COMPANY (MSM).
HQC has been purchasing men’ s clothing from MSM on a regular basis for the last 10
years.The facts of the dispute are as follows:On 5 May 2013, HQC sent an order for 5000
woollen men’ s suits and 8000 cotton-blend shirts. The order specified model numbers and
sizes and said that the order was placed on the usual terms and conditions that had
prevailed in the previous contracts between them and MSM. The suits were ordered for the
2013/14 winter season.MSM replied on 10 May 2013 by letter which included a
conformation form. The conformation form verified the quantity, model numbers and
shipping date no later than 15 June 2013 (to ensure timely arrival in London for the winter
season), all of which conformed to the order placed by HQC. The price of £130 per unit CIF
Southampton (Incoterms 2010) for the suits and £20 per unit for the shirts conformed to
the price list issued by MSM on the 1st of May 2013. On all previous occasions the parties
have contracted on the basis of a choice-of-law clause indicating the United Nations
Convention on Contracts for the International Sale of Goods (CISG) as the governing law of
the contract.The container arrived in Southampton on 20 August 2013 and after some delay
at customs arrived at the warehouse of HQC on 31 August 2013. The goods were due to go
on display in all stores nationwide by 1 October 2013. When the container was opened in
Cape Town, on 2 September 2013, HQC’ s manager found 5000 suits manufactured from a
wool-blend fabric. He immediately faxed the manager of MSM to enquire about the situation
and was informed by return of fax that they were unable to deliver 5000 woollen suits for
the agreed unit price of £130 per unit due to a general shortage of wool internationally,
causing the price of such suits to raise remarkably. The total amount due for the suits still
amounts to £650 000, which is the same price that was agreed upon. HQC replied by
pointing out that MSM should have informed them sooner of the situation since they are
now without winter stock in respect of pure wool men’ s suits. They also informed MSM
that their clientele expect them to stock only the best and most natural materials and that

2. they will lose valuable customers if they cannot provide in the demand.On 7 September
2013, HQC’ s manager faxed MSM again informing them that, in order to supply them with
pure wool men’ s suits for the winter season which was fast approaching, they had to
contact an English supplier. HQC ordered men’ s suits for £140 per unit. Because of this,
they have now suffered a loss of £50 000, for which they hold MSM accountable.By the end
of October 2013, HQC received a number of complaints from customers from all over the
country. Their complaints all stated that the colour of the shirts supplied by MSM faded
after the first wash. On 2 December 2013, HQC informed MSM that they were forced to
withdraw this particular line of shirts from their stores due to customer complaints. They
demanded a new consignment of shirts made of colour fast dye to be shipped immediately.
HQC apologised and explained that the shirts were not supplied by their regular supplier,
due to a strike at their plant, but they were sourced from a Thai supplier whom they have
not used before. They also pointed out that the same model of shirts, received from the
same supplier, were distributed to buyers in other markets and no complaints were
received. They tested a couple of shirts for colour fastness before they were containerised
and the test was passed without exception. The only explanation, to their mind, could be
that the customers were not applying the washing instructions. They refused to replace the
consignment of shirts.After further exchange of correspondence, it became apparent that
MSM would not consider reversing their decision. They submitted that the goods were in
good condition on shipment and that the risk has passed to HQC when the container was
delivered to the shipping yard in Shanghai. Whatever happened to the goods during their
voyage to Southampton was none of their concern. On 24 February 2014 HQC’ s managing
director sent a fax to the managing director of MSM in which he expressed his
disappointment with the way in which MSM had handled the situation and indicated that he
was not prepared to continue their business relationship any longer. He indicated that he
was returning the consignment of suits and shirts to MSM and that they would be billing
them with the costs of the transport between Southampton and Shanghai as well as the
costs of transporting the merchandise from the different retail stores to the central
warehouse in Southampton, totalling the amount of £10 000. Furthermore they claimed the
amount of £50 000 in damages referred to above.MSM replied on 20 March 2014
demanding:(a) the outstanding amount on consignment received, calculated as
follows:5000 suits @ £130 per unit = £650 000 plus 8000 shirts @ £20 per unit = £160 000
= £810 000 in total failing which they would proceed with legal action.HQC refused to pay
any of these amounts and repeated its arguments as presented in correspondence
aIDressed to MSM. On 13 June 2014, HQC received a letter from a firm of solicitors
representing MSM in which they claim £970 000 from them. The letter furthermore pointed
out that their client’ s standard contract form provided that “ in case a particular line or
model is out of stock or unavailable at the time of consignment, MSM will be entitled to ship
an alternative of equal value and quality and will not be liable for any claims in respect to
non-conformity.” HSQ has tried to negotiate with MSM’ s attorneys, but to no avail. They
have now approached you for legal advice. They were not aware of the abovementioned
clause in MSM’ s standard contract form. They have done business with them for 10 years
and until now the relationship was without any problems. All merchandise was delivered

3. promptly and in accordance with their order. There was therefore, until now, no need to be
concerned about such a clause. They also cannot recall that any of the previous contracts
contained such a stipulation, but concede that they stopped reading the terms of the
contracts after the first few years of the business relationship. They managed to find a copy
of a contract between them and MSM concluded and performed during 2010. The standard
terms of both parties of this particular contract did not contain any exclusion of liability
clauses.You are required to study the facts and then advise your client as to their legal
position. Also advise them on any arguments or defences that MSM might come up with and
which could affect HQC’ s legal position. Your advice should refer to relevant provisions of
the CISG as well as to scholarly opinion and case law where applicable.