On 1 January Kane Hound food Gmbh  contracts to sell to Ericksen Pets Ltd “1000 kilos of organic dog food” packed in 10 kg bags, and with a certificate of organic purity from the London Bow Wow Association of  Organic Dog Food. The contract specified delivery from Hamburg cif Southampton.

The contract stated that English Law was to apply to both choice of law and jurisdiction and all terms of the contract. The contract period was January.

The goods were taken to the docks on the 6th of January but were not loaded until the 8th of January. Unbeknownst to Kane 75 of the bags were damaged by rainwater due to the goods being improperly stored on the docks.

Payment was contracted to be made by “banker’s letter of credit against documents”. The contract also stipulates that the documentary credit is to be opened immediately. On 10th January Ericksen instructs Son Bank in London to provide for the opening of the letter of credit in Kane’s favour.

On 16th January, Kane is informed by Dier Bank in Germany that a letter of credit has been opened in his favour for “£20,000 payable by draft 5 days after sight against the documents.”

On 24 January Kane presents Son Bank the following;

    • a commercial invoice,
    • a certificate of insurance
    • a bill of lading stating “goods shipped in apparent good order and condition apart from some evidence of water damage.
    • The documents also include a certificate of purity from the Welsh Woof Woof organic dog food association.

The bank refuses to take up the documents and authorise the payment to Kane.

The goods duly arrive in Southampton on the 30th January. Ericksen wish to reject the goods based on the fact that 750 kg have sustained water damage.

Task

Discuss the rights and obligations of Kane and Ericksen in relation to a cif contract and the documentary credit arrangement.