SEMINAR DISCUSSION CASE: AIR FILTERS TO SWEDEN

Mining Equipment AB (ME), a Swedish wholesaler in heavy duty earth moving and construction
equipment, purchases from a Chinese company (ChinaFilter) 50 units of a newly developed long-
life air filter especially designed for use in heavy mining equipment. The air filter has an extremely
high durability and ChinaFilter is currently one of two manufacturers in the world of this type of
special filters.

The agreement essentially consists of a very short and laconic e-mail correspondence between ME
and ChinaFilter, in which they agree that payment is to be effected against irrevocable letter of
credit (ILOC). The price is set to USD 3.000,00 for all 50 pcs of air filters. The terms of delivery
are stated as “CIP Stockholm Arlanda Airport (Incoterms 2020)”. This is essentially all that is
agreed upon in the correspondence, apart from time of delivery and the e-mail correspondence
further indicates that the goods shall be transported by airfreight. The purchasing manager at ME
didn’t think that it was necessary to ‘complicate things’ further, after all – what could possibly go
wrong here?

Alas, during the flight from Beijing Capital International Airport to Stockholm Arlanda the air-
craft flies into a tremendous hurricane somewhere over Novosibirsk, tossing the airplane around
considerably. The experienced pilot manages, however, to land the jet safely at Arlanda airport.

Upon unloading the cargo, the ground handling agent can only conclude that some damage was
done to the contents of the cargo compartment. The box containing the 50 filters is apparently
damaged by the looks of it. As it turns out, the staff in Beijing responsible for loading had been
negligent in securing some other cargo items in that section of the plane. This was the direct cause
of a container of a yet unknown non-corrosive liquid to break and spill into the cargo area, thereby
damaging the box and some filters from ChinaFilter. As a result, Chinese aviation authorities
later launched an investigation against the airline for breach of safety standards.

In Stockholm, the air filters are cleared through the local customs office at Arlanda and the local
forwarder brings the damaged box to ME’s warehouse in Märsta, north of Stockholm. The local
transport documents, as well as the Air Waybill (AWB), contain a written comment that the box
was damaged upon pick-up at Arlanda airport.

An employee of ME, Rune, takes delivery at ME’s warehouse in Märsta. Rune sees that the box
is indeed suspicious looking and clearly damaged. This triggers his curiosity. Unable to resist the
temptation, he opens (!) the box and discovers that about half of the filters have indeed been
severely damaged by an unknown liquid and are beyond repair. Miraculously, the remainders of
the contents (25 pcs) of the box are still operational and fully o.k. Immediately after having dis-
covered this, Rune reports this to his boss Sven, who is a notorious bad-tempered tormenter and
gives Rune a stern dressing-down for sticking his nose into things that was none of his concern.
Rune then finds himself on the receiving end of a loud and prolonged yelling and complete in-
ventory of ancient Swedish profanities. What did he do wrong? He wonders over this as he walks
home from a bad day at work whilst seriously considering reviewing his CV and to apply for a
new job.

Notwithstanding that high quality is usually the hallmark of the Chinese seller, a contributing
factor to the massive damaged is deemed to be the lack of customary heavy-duty plastic lining
inside the box (usually to protect the filters from humidity, dust and rain). ME is now unable to
deliver some filters to a major copper ore mining company located in Aitik in the north of Sweden.
Hence, ME receives a claim from the mine amounting to nearly €400 000 as compensation for
production interruptions at the mine (the special mining equipment can only operate using these
air filters).

Figure 1. Air filter for heaving mining equipment.

Now, ME turns to you for legal advice and seeks to have answers to the following questions:

a) What immediate actions must ME take after receiving the goods? Against whom? Disre-
garding management and labour law implications, did Sven act (legally) correctly against
Rune?

b) After a preliminary contact with the seller, the Chinese company maintains that the mishap
with the airline is ME’s problem. Is this a correct opinion (in principle)?

c) Taking all facts into consideration; does ME have a legitimate claim against ChinaFilter
for the 25 damaged filters? If so – on what legal grounds? If not – why?

d) Later, it is shown that ChinaFilter has previously had a general transport insurance policy.
For cost reasons, ChinaFilter decided one year ago to change their insurance company.
During that transition period, the old policy was terminated and expired a week before
shipment and the new policy entered into force only three days after the shipment of these
filters. Consequently, there was no policy in place for this flight. As a result, ME wants to
sue ChinaFilter for damages for

a. immediate and direct costs (primarily freight cost and the purchase price); and
b. loss of profit associated with the 25 damaged filters; and
c. the claim from the mining company (ME’s customer).

Is that legally possible? Explain why/why not!

e) Could this situation have been avoided by better contracting? If not – why? If so – how?