1. The five steps in negotiating delivery
The principle
The exporter and the buyer should negotiate delivery
systematically, making all necessary decisions and
discussing how they will solve any problems that may
arise.
In more depth
Negotiating terms of delivery means working
systematically, making sure that all foreseeable
problems are discussed and approaches to solving such
problems are agreed.
Step 1: Timing: When
-The date of delivery: the key to many contract events,
(marker to consider payment time, risk and title passing,
delay compensating, etc. )
- Triggers contract events: Exporter fulfill his primary duties
under the contract, pmt normally becomes due,; risk, often
the title,pass to the buyer; delay- any compensation to be
paid by the exporter
Although most negotiators fix this date, they often forget
the “What-if?”
-Excused delay: in the Grace period, due to force majeure.
-Unexcused delay: If the contract provides no answers,
then the answers are found in the applicable law.
Accordingly, good negotiators regulate such matters in
their agreement.
b. Timing and “Time is of the Essence” clauses
Sometimes, punctuality is essential
c. Grace period brings benefit to both parties: early delivery
is possible, the buyer gets the goods and the seller receives
the payment
3 Outcomes of Force Majeure: Resumption of delivery,
orderly termination of the contract, unclear and dangerous
situation
d. Unexcused delay and the Buyer’s Remedies
If one party to a contract causes harm or loss to the other,
then the law will find the way to redress this harm or loss.
Common law prefers to award damages, while Civil law
usually enforce performance.
a. Naming the date
-The simplest way to name the delivery date is to use a
clear calendar date.
-But in complicated cases, common precondition of
timing are usually:
Receipt of import and/or export approval
Receipt of foreign exchange approval from the central
bank
Insurance of a letter of credit or bank guarantee
Making a down-payment be the buyer
Insurance of insurance-policy
Insurance of a certificate of origin
Delivery of the buyer of plans, drawing or other
documentation.
-Signature date (Date of execution) -> Date of coming
into Force: the contract is binding
Date of coming into Force=> Delivery date: The contract
is binding and effective
Liquidated damages
Penalties (> lump sum)
Quasi-indemnity (<lump
Normally the seller and the buyer agree a fair figure, Damages are paid to
sum)
a lump sum to be paid per day (or week or month)
compensate one party for a loss. MOTIVATE: To relieve the
of late delivery. The Compensation fixed in advance -MOTIVATE: To terrorize the
exporter of liability for delay
-MOTIVATE: To compensate the buyer fairly for any
exporter into punctual delivery
in delivery
delay delivery
-Not enforceable in English law
-Enforceable everywhere
-Enforceable everywhere but subject to increase or
or oth
but open to challenge as “
decrease in some legal systems
er common law system
unconscionable”
Step 2: Location:
Step 3: Transport
Place of delivery: is the point at which the exporter
For the goods to arrive safely, correct packaging and
passes responsibility for the Goods to the Buyer.
shipping marks are essential.
Delivery can take place at a number of places between
(claims arising from delay or damage can be settled only if
manufacturer’s factory and the Buyer’s warehouse.
it is clear who is responsible for packing or marking.)
Fair principle: Control and responsibility go together”.
Whatever means of transport is chosen, correct
IMPORTANT:chuyen giao right + ownership, date of
documentation is essential
payment ( depend of date and time of delivery)
Transport is important depends on:Appropriate type, Cost
MODE: Sea, Air, Inland (road, rail, barge, mail, mixture)
Step 4: Transfer of risk, transfer of ownership, insurance Name types of Insurance policy?
(Risk of loss/damage, goods cause harm to 3rd party
- Floating policy
- Open cover
Risks are transferred at the point of delivery, and this is
standard arrangement under the Incoterms.
In international trade, the signature of the contract and
final payment are often widely separate. And transfer of
ownership can take place at any point between them.
- Valued policy
- Unvalued policy
- Time policy
- Voyage policy
Claused document >< clean doc: The remarks in Claused
doc make it unacceptable to a bank
Under CIF term, the seller is only required to obtain
insurance on minimum coverage (cargo clause C:
designed for insuring bulk cargo, textiles, paper or other
high risk cargoes). Insurance cover normally: value+ 10%
Certificate of insurance: cover all the exporter’s
shipments over a period of time (>< full policy: issued for
an individual consignment if the buyer want this)
Letter of insurance: Letter from the exporter to the
buyer stating that the goods are insured. It has no legal
force except as evidence in a law suit against the
exporter.
Floating policy & Open cover are identical in terms of the
insurance cover offered. Open cover is more preferred by
logistic.
Floating policy : is set up for a particular time,
automatically expires unless renewed.
Open cover: open-ended, does not expire, although there
are provisions for cancellation on due notice => more
convenient. Open cover is not an insurance policy at all.
Normally the insured simple create a Cer of Insurance with
the knowledge that if he wants a policy he can get one at
any time => this arrangement less formal, less timeconsuming but extremely reliable=> attraction for the
exporter.
Principal of insurance : a contract of marine insurance is a
contract based upon the utmost good faith, and, if the
utmost good faith be not observed by either party, the
contract may be avoided by other party
E,R Term: Loading port
C,D Term: Destination port
CHAP 2
Step 1: Mode of Payment
Step 2: Timing
Step 3: Place of payment
Step 4: Delay - what delay in payment is excusable?
Step 5: Results of delay
Step 2: Timing
This step determines the date of payment.
The date of payment may be regulated date or a chain of
dates (calendar dates or interval times)
Step 4: Delay - what delay in payment is excusable?
Delay in payment may be excused during a grace period
(not common) or a force majeure event (more common).
But most exporters do not want to excuse these delays
and any payment made after the agreed date of payment
is in delay.
Step 1: Mode of Payment
There are four common modes of payment:
1. Payment on open account with no security:
2. Payment on open account secured by export
credit insurance:
3. Payment on open account secured by a payment
guarantee: the buyer pays money to a bank to
receive a bank guarantee.
4. Payment by letter of credit
Step 3: Place of payment
This step determines where the money must be before
payment is to be completed
Step 5: Results of delay
When delay in payment happens the exporter is usually
compensated for losses due to late payment.
-The exporter may ask for a payment guarantee which
makes sure payment is made on time.
-The best solution to get rid of delay is to create a
payment article in the sale contract which makes late
payment is impossible.
In the international trade, the exporter may face a lot of
risks and one of the significant ones is non-payment.
There are two main ways that the exporter can use to
reduce this risk. One is export credit insurance and the
other is bank guarantee. (Payment insurance)
Calculate export price: Production cost, Overhead cost ,
extra cost, Profit margin
Extra cost: Direct additional cost, intangible
management cost, cost of capital
Payment guarantee
In this method, the buyer may ask for a bank guarantee
which means that the bank will pay the contract price if
the buyer fails to do so.
Guarantees are commonly used in four business
situations, as the following:
Risk 1: Non-payment =>Payment guarantee
(usually for 100% of the contract price)
Risk 2: Revocation => Tender guarantee
in case that the exporter who bids on a contract to supply
goods or materials to a government department or
agency is withdrawn, usually from 1.5% to 5%
Risk 3: Non-performance=>Performance guarantee
5% to 10%
Risk 4: Losing Prepayment=>Prepayment guarantee
This guarantee promises the buyer that the bank will
return advance payments if the exporter fails to deliver.
The guarantee is often for 100% of the prepayment.
15. What may reduce risk for exporters?
Exporter may reduce risk by spreading risk with the third
party.
16. In order to take out non- payment risk insurance,
what does the exporter have to do?
- Contact an insurance company and explain the details of
the business, applies for a quotation from the insurance.
17. What can we imply when the insurance company
refuses to offer an insurance quotation?
- The insurance company knows the buyer’
uncreditworthiness
- The business is risky.
1.Export credit insurance
Export credit insurance allows exporter to recover the
major part of the contract price if the buyer fails to pay
after six months. To buy such insurance, the exporter
must explain the detail of the business to an insurance
company and receive a quotation.
- If the insurer refuses to pay, it may mean that
there are some problems in the exporter or
importer. The exporter has to pay an export
insurance premium which depends on many
factors, such as the type of goods exported, the
creditworthiness of the buyer, the political
stability of the importer’s country.
- some limitations: the exporter has to wait for a
long time to be compensated and the
compensation is unlikely to cover 100% of the
invoice price.
1. Why payment in international trade tightly
controlled?
- Trust is rare
- Court is far away and unpredictable
3. What are methods of payment in small purchases?
- Cash on delivery
- Cash against invoice
- Cash with order
8. What are the two main elements in payment?
- Time
- Structure
9. What does the exporter have to suffer from late
payment?
- Bank interest
10. What is an incentive for early payment?
- A discount
14. What kind of method of payment makes late
payment impossible?
- The confirmed, irrevocable, at- sight L/C
18. What does the insurance premium depend on?
- The type of the goods
- The creditworthiness of the buyer
- The stability of the buyer’ country and so on.
19. What is the guarantee triangle?
- That is the relationship of the principal, guarantor and
beneficiary in terms guarantee.
. Name types of L/C you know?
- Revocable – Irrevocable
- Confirmed- Unconfirmed
- At- sight L/C
- Back to back L/C
- Revolving L/C
CHAP 3
The quality of the product is a key issue, and customer
satisfaction is essential to successful business.
Step 1. Inspection: When are the goods inspected? And
when can the buyer to reject them?
Step 2. Terms: Warranty or guarantee?
Step 3. Definitions: What is, and what is not, a defect?
Step 4. Timing: How long is the defects liability period?
When does it begin? What about other timings?
Step 5. Corrective action: What must the seller do to cure
defects?
Defects Liability Period
Once the goods are accepted by the buyers as apparently
correct, they must jump to the final hurdle – the defect
liability period. The manufacturer accepts liability for
defects that come to light after acceptance: if anything is
wrong with any item, they will repair or replace it. Such
defects are called “latent defects”.
Inspection and Acceptance
The principle is clear- the buyer has the right to inspect
the goods when they arrive and to reject them if they are
incorrect. At this point, exact specification is of great
value to exporter if the goods conform to specifications,
the buyer is obligated to accept them.
I.
INSPECTION, ACCEPTANCE AND REJECTION
1.Implied Warranties
Implied warranty of conformity with contract
Goods must conform with their description in the
contract. but what is “ conformity with contract? There
are law to deal with problem. Most laws have a way of
“grading” non-conformity.
Implied warranty of merchantable quality
Goods might well conform with the contract but be of
seriously inferior quality.
Implied warranty of fitness for intended purpose
Goods might conform with the contract and be
merchantable but still be useless to the buyer. If exporter
knew the buyer’s intended purpose, and if the buyer
trusted the exporter to supply correct goods, then most
laws allow the buyer to reject unusable items.
2.Rejection: Total or partial
English law requires rejection of all the contract goods
unless contract expressly allows part rejection. German
law and the Vienna Sales Convention both allow rejection
of only defective or non-conforming goods.
The buyer must notify the exporter that the goods have
been rejected “within a reasonable period”.
III. THE DEFECTS LIABILITY PERIOD: A CHANCE TO PUT
THINGS RIGHT
Three Types of Defect:
-Defective workmanship: a product with defective
workmanship is incorrectly built.
-Defective Material: Defective materials are materials or
parts of a product that are inferior or somehow incorrect.
-Defective design: defective design means that a product
does not meet specifications
II. WARRANTY AND GUARANTEE: TERMINOLOGY
The principle
A guarantee is a promise about somebody else’s
performance; a warranty is a promise about your own.
In more depth
A warranty is a promise you make about your own
performance. A product warranty is a promise by the
exporter to cure defects in his products.
Guarantee and warranty are often used colloquially and
in commercial transactions as having the same
signification. Therefore, internationally, the distinction
between warranty and guarantee is often blurred.
A warranty is an absolute undertaking on the part of the
warrantor.
A guarantee is a promise of the guarantor.
The defects liability period is negotiable, this is likely to
be several months from the date of delivery or the date of
arrival.
Protection against dishonest claims or excessive demands
should be written into the contract.
VI. TIMING OF THE DEFECTS LIABILITY PERIOD
1. The Defect Liability Period
2. The Notification Period
3. The Rectification Period
4. The Legal Action Period
CHAP 4: LEGAL FRAME WORK
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Step 1: The Applicable Law
Step 2: Contract or No Contract?
Step 3: Entire Agreement
Step 4: The parties
Step 5: Status of the Contract
Step 6: Settlement of Dispute
 Step 1: The Applicable Law
Sometimes, the parties cannot agree an applicable law,
so they leave the matter open. If the contract does not
specify an applicable law, then a special branch of law
known as “International private law” comes into play
and decides the law of the contract.
1. Anglo – American systems :
2,Continental systems :
-Goals: Justice in the individual case
Goals: Consistency and uniformity of enforcement
-Unless matters are carefully regulated in the contract,
-Decisions in all but the most difficult cases are
the decision of the judge is not fully predictable.
predictable with some accuracy. Decisions are generally
Different judges may give widely different judgment.
consistent from court to court
-Contract tend to be long and detail
-The law regulates most problems, contracts can be short
-English and American law have been relined over the
and lacking in detail.
centuries to cope with issues of international trade. The -Continental laws do not have the prestige of Anglo –
principles are widely understood and respected
American laws in international practice. They tend to
focus on national rather than international issues.
The Vienna Sales Convention
 Step 2: Contract or No Contract?
-This convention is one further issue complicates the
 The principle
choice of an applicable law.
Under most legal systems, a contract is enforceable only
-Its provisions are of some importance. The first point is
if the parties achieve a “meeting of minds” through a
that the rules spelled out in the Convention replace the
process of offer and acceptance, if both sides are capable
law of any country that ratifies its: if there is any
of entering a contract, and if the purpose of the contract
contradiction between the national law and the
is legal
Convention, then the Convention rules
 In more depth: Meeting of Minds
Duress: Unless two parties agree freely about the
contract’s terms without any authority and pressure, the
agreement is likely to be ruled “unconscionable.”, and it
obviously is no contract.
Mistake and Fraud: can mean that there was no meeting
of minds.
 Step 3: The Contract as the Entire Agreement
 Step 4: Provisions Concerning the Parties
The Entire Agreement Clause
-The principle
Anglo-American law states that the final written version
The exporter must know the exact name and address of
of the contract replaces all previous agreements between the buyer, the identity of the buyer does not change
the parties
during the course of contract performance.
The Whereas Recital: The Background of the Contract
- The Names in the contract
When the Contract is the “entire agreement”, the lawyers - Notices
write the background of the Contract into it through the
- Assignment of Rights and Delegation of Duties
whereas-recital.
Contract Documents
In international practice, the parties often wish to
“incorporate” outside material into the contract: letters,
general conditions, the Incoterms, etc. To achieve this,
the contract lists such items as Contract Documents
Step 5: Provisions Concerning the Status of the Contract
 Cancellation
 The Lifetime of the Contract
Cancellation occurs when either party puts an end to the
-The Contract reaches its end normally (Discharge by
contracts for breach. Not any breach allows cancellation
Performance)
by the other party.
Once a contract has come into force, its life normally
 Rescission
ends when the last duty under the contract is performed
-The Contract reaches its end prematurely
 Termination
Termination occurs when either party pursuant to a
power created by agreement or law puts an end to the
contract otherwise than for its breach.
-Termination for convenience: occurs when one party
(usually the buyer) simply decides to drop the contract.
No reason is required. The buyer must pay for all work
performed or partly performed
-Termination for default: occurs when the contract
names certain de-faults which allow one side (usually the
buyer) to terminate. The Seller shall be entitled to
receive full payment for all goods and services delivered
by the Seller at the date of termination.
 Step 6: Settlement of Disputes
To avoid lengthy and expensive proceedings, a well
drafted contract specifies an acceptable arbitration
procedure
 Litigation
-Of the three options available for settling disputes,
litigation before the court is internationally the least
attractive: it is public, expensive and time – consuming.
The results are often legalistic rather than business – like.
-Many contracts foresee a two - step process for dispute
resolution: Amicable Settlement; Arbitration.
 Arbitration
If the two sides cannot reach agreement between
themselves, the resolution of their dispute requires a
forum that is a court of law unless the parties specify
otherwise. In practice, most contract do specify
otherwise calling for arbitration.
 The two main advantages of arbitration are:
-Its tendency to be quicker than litigation.
-The foresee ability of the costs.
Rescission occurs when the two parties agree to end a
contract. In legal theory, they enter a new contract to
annul the old contract. The term “rescission” is used in
other contexts than a mutual agreement to end a
contract, international contract drafting would benefit if
it were not.
 Impossibility and Frustration
Impossibility and Frustration occur when a contract is
discharged because it is impossible or totally pointless to
continue with it.
 The parties agreed on the language of the
Contract: no translation is ever perfect.
 All contracts should apply measurement system.
 Amicable Settlement and Conciliation
Resolution of Disputes: The Buyer and the Seller shall
make every effort to resolve amicably by direct, informal,
negotiation any disagreement or dispute arising between
them under or in connection with the Contract.
 Procedure for amicable settlement shall be as
follow:
-The parties shall agree a date and place for an amicable
settlement meeting.
-Attending the meeting shall be one executive
representing each party and one lawyer representing
each party.
-The lawyer shall not be allowed to speak at the meeting.
-The meeting shall take place in three sessions