Downs Investments Pty.Ltd. Vs Perwaja Steel SDN BHD

1. Downs Investments Pty.Ltd. Vs Perwaja Steel SDN BHD Presented by Frank T. Herrera August 21, 2003 CSA 6470 – International Legal Framework

2. Parties

3. Facts Wanless agreed to supply to Perwaja approximately 30,000 metric tons plus/minus ten percent (3,000 metric tons) of scrap steel. The price was set at US $1.64 per metric ton C.N. F.F.O. Kermaman, Malaysia. The contract also called for the discharge of the scrap at Kemaman, Malaysia. The contract called for Perwaja to make payment for the material delivered in the following terms: By irrevocable Letter of Credit from A1 Bank in our favor payable, at sight, for 100% of the invoice value.

4. Sequence of events Wanless and Perwaja had conducted business with each other in the past with no problems using standard contracts that had previously been exercised. Previous LOC’s were obtained prior to loading to avoid any attempt by Perwaja to “renegotiate”, which Wanless would find itself in an impossible negotiating position. Again, Wanless and Perwaja entered in a contract on May 7, 1996. With the Letter of Credit to be established by August 9, 1996. Wanless, at the time, was ready, willing, and able to ship the scrap metal to Perwaja pursuant to the contract. However, Perwaja, also at the same time, had an excess supply of scrap metal. Further, a drop in the market value (it dropped by U.S. $20.50 per ton) for scrap steel which meant that Perwaja would have had to pay an additional U.S. $705,000 in excess of the then current market price.

5. Further details At the time the contract with Wanless was executed Perwaja’s officers were authorized to act on the behalf of Perwaja. However, towards the end of July and early August the structure and management of Perwaja was changed. New management stated that they did not know of the contract between Wanless and Perwaja. The new management also stated that a letter of credit could not be provided without the permission of an executive committee, which had been established as part of the change of management structure of Perwaja. Members of Perwaja’s executive committee then refused the issue of the letter of credit because the contract had not been made during the tenure of office of the present management. Wanless suffered a significant loss on the resale of the scrap metal and a further sum of $343,163.47

6. Decision Wanless’s loss was clearly incurred as a consequence of Perwaja’s breach of contract of its obligation to establish the appropriate letter of credit. Further, once Wanless accepted Perwaja’s repudiation of its obligations under the contract and terminated that contract it promptly took all steps reasonably necessary to mitigate the damages it suffered as a consequence. Plaintiff was awarded damages totaling U.S. $1,280,347.80 which consisted of: Loss of profit on one sale U.S. $498,450.00 Loss of profit on second sale U.S. $ 89,955.13 Loss resulting from recharting U.S. $343,163.47 Interest at 9% fr 9/30/96-11/17/2000 U.S. $348,779.28 TOTAL JUDGEMENT U.S. $1,280,347.88

7. Relevance The judicial legislation that was used to determine the dispute between Wanless and Perwaja was the Queensland Sale of Goods (Vienna Convention) Act 1986, which was stipulated in the contract. This required the application of the United Nations Convention on Contracts for the International Sale of Goods 1980. Provisions that were applicable were: Article 64 of the Convention, which provides (1) (a) if the failure by the buyer to perform any of is obligations under the contract or this Convention amounts to a fundamental breach of contract . Or If the buyer does not within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63 perform his obligations to pay the price of take delivery of the goods or if he declares that he will not do so within the period so fixed. He ssHe ss

8. Relevance (cont.)

9. Relevance (cont.) The refusal to establish a timely letter of credit was clearly a fundamental breach within the meaning of Article 25 and Article 64 (1) (a) of the Convention. The method for payment and calculating Wanless losses for having to sell the scrap metal to other buyers is stipulated in articles 74 and 75 of the Vienna Convention.

10. Summation It is clear that the new management for Perwaja was not going to accept shipment and therefore not honor the contract with Wanless. If fact, the committee for Perwaja issued a resolution dated August 2, 1996 that the management be authorized to “renegotiate and recommend appropriate action in relation to the supply of scrap” by Wanless. That Perwaja had an excess supply of scrap metal that it had agreed to purchase from Wanless at the time of purchase. That the drop in market value of the scrap metal also had a negative influence on Perwaja’s decision not to honor the contract. The repudiation of its contractual obligation by Perwaja caused very significant loss to Wanless. Therefore, Wanless was entitled to the specified damages as indicated.