INTERNATIONAL
PURCHASE
TRANSACTIONS
ACC, Iowa Chapter
2nd Annual Corporate Counsel Forum
October 30, 2015
CHRISTOPHER J. CURRAN
LANE & WATERMAN LLP
SCENARIOS







Purchase goods from non-US seller
Sell goods to non-US buyer
Purchase services from non-US seller
Sell services to non-US buyer
Foreign subsidiary set up in US
US company set up in non-US country
In this presentation, focus will be on purchase of goods to be
exported to the United States.
CONSIDER ISSUES THAT ARISE
TO PROVIDE FRAMEWORK

Efficiency closing these deals

Understanding and mitigating risk

Getting best deal

Provide a roadmap for the numerous issues that arise
and how they work together
QUESTIONS WHEN PRESENTED WITH
INTERNATIONAL PURCHASE
TRANSACTION

What are you buying? Goods? Services? Both?

How will the goods get here? How will services be
provided? (where, by whom?)

Who handles import/export? Is freight forwarder or
customs broker involved?

Is software being provided?

Is data hosted by supplier?
INTERNATIONAL PURCHASE
TRANSACTIONS CHECKLIST
I.
What are you buying?




Goods
Services
Both
Software
III. What is the applicable Incoterm?




EXW
F term
C term
D term
II.
What is the agreement for purchase?




UCC
CISG
Seller’s governing law
Dispute resolution
INTERNATIONAL PURCHASE
TRANSACTIONS CHECKLIST
IV. What are the terms for transportation of
the goods?






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
Check Incoterm
Ocean – COGSA
Truck – Carmack
Rail – Carmack
Broker involvement
Customs broker – import
Freight forwarder – export
Himalaya clause
V.
Supply chain risks


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
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FCPA/anti-bribery
Export controls
Human trafficking regulations
Conflict minerals
Cloud issues
Data exchange
Indemnification
Audit provisions
SECTION 1
PURCHASE/SALE
TRANSACTION
INCOTERMS






International Commercial Terms
Not sales law (see CISG, UCC)
Default applicability in international trade deals; can
agree to apply to U.S. transactions
International sales terms which are often incorporated into
contracts for purchase and sale of goods
Created and maintained by ICC
Updated every 10 years – currently Incoterms 2010
INCOTERMS

Functions:
1)
Allocate shipping responsibilities and costs

Export packaging and clearance

Pre-carriage (inland transportation on seller’s side)

Main carriage

On carriage (inland transportation on buyer’s side


Drayage from port to buyer’s factory
Import clearance
INCOTERMS
2)
Clarify when delivery takes place
3)
Clarify when risk of loss transfers

Only two Incoterms deal with insurance

Focus here on delivery and risk of loss issues
INCOTERMS
(Delivery and Risk of Loss)

Risk of loss transfers when delivery occurs

Title transfer is not affected directly by Incoterms

However, contract often refers to risk of loss in relation to title transfer

Seller – recognition of revenue

Buyer – when do assets go on books?

Which party is in the better position to get lowest price on freight charges?

Do you have insurance for ocean transportation? If no, then if you are buyer
get a D term. See limitations of liability with ocean transportation.
INCOTERMS
EXW
FCA
CFR
DAT
FAS
CIF
DAD
FOB
CPT
DDP
CIP
INCOTERMS
Group E – Departure terms
Group F – Main carriage unpaid (buyer pays)
Group C – Main carriage paid (seller pays)
Group D – Arrival terms
FAS, FOB, CFR, CIF – Marine restricted
EXW, FCA, CPT, CIP, DAT, DAP, DDP – Omni-modal
INCOTERMS
Delivery

EXW, C Terms, and F Terms – seller’s side of the ocean

D Terms – buyer’s side of the ocean
INCOTERMS
EXW – Ex Works

Minimum obligation for seller

“Delivery” occurs when seller places goods at buyer’s
disposal at seller’s premises for buyer to load

Risk of loss transfers from seller to buyer when seller
“delivers” goods to buyer
INCOTERMS
FCA/FAS/FOB

More obligations for seller than EXW

“Delivery” occurs:


FCA - when seller delivers goods to carrier or named place

FAS – when seller places goods alongside vessel at shipment
port

FOB – when goods pass ship’s rail at shipment port
FCA/FAS/FOB = Shipment Contracts
INCOTERMS
CFR/CIF/CPT/CIP

Shipment terms

“Delivery” occurs:

CFR – when goods pass ship’s rail at shipment port

CIF – same as CFR

CPT – when seller delivers goods to first carrier

CIP – same as CPT
INCOTERMS
DAT/DAP/DDP

More obligations for seller than EXW, F terms, and C terms

“Delivery” and Risk of Loss Transfer:

DAT – when seller delivers goods to named destination
terminal on buyer’s side, packaged appropriately and
unloaded

DAP – when seller delivers goods to buyer at named place on
buyer’s side, appropriately packaged but not unloaded
INCOTERMS
DAT/DAP/DDP

“Delivery” and Risk of Loss Transfer (cont’d):

DDP – when seller places goods at buyer’s disposal on
transport arrival at destination place
 Seller
is not required to unload goods but must clear goods for
import
 DDP
puts most obligations on seller (compare to EXW), but is
expensive for buyer.
INCOTERMS

Only DDP puts import clearance obligation on the
seller. If buyer, who is your customs broker?
CISG
Basic Elements

UN Convention on the International Sale of Goods

UNCITRAL developed in 1980; first in effect in 1988

U.S. adopted in 1989
CISG
Basic Elements

CISG applies between parties in different countries
where those countries have ratified the CISG

83 countries have ratified CISG

Notable absentees: United Kingdom, South Africa, India

Treaty of the United States

Trumps state law of sales (UCC) via Supremacy Clause
CISG
Basic Elements
Parties can opt out, but must be explicit. Standard
governing law provision is not enough to opt out.
 Sample opt out clause:

“The United Nations Convention on the International Sale of
Goods, and any local implementing legislation shall not apply
to the Agreement.”

Generally reviewed as pro-seller → important
differences exist relating to breach and remedies
UCC vs CISG
UCC
CISG
•
•
Pro-buyer
Willingness to find that a
contract is formed
•
•
Pro-seller
No contract by conduct
•
•
No oral contracts
Generally accept provisions
not objected to
•
•
Allows oral contracts
Generally ignore provisions
not agreed to
•
First shot rule
•
Last shot rule
UCC vs CISG
UCC Battle of the Forms

2-207 eliminated “mirror image” rule

This transfers bargaining power to buyer

Similar to first shot rule, the party who sends first form
(PO) is “master of the offer” and binds subsequent
transaction.
UCC vs CISG
UCC Battle of the Forms

554.2207 Additional terms in acceptance or confirmation
(1) A definite and seasonable expression of acceptance or a
written confirmation which is sent within a reasonable time
operates as an acceptance even though it states terms
additional to or different from those offered or agreed
upon, unless acceptance is expressly made conditional on
assent to the additional or different terms.
UCC vs CISG
UCC Battle of the Forms

554.2207 Additional terms in acceptance or confirmation
(cont’d)
(2) The additional terms are to be construed as proposals for
addition to the contract. Between merchants such terms
become part of the contract unless:
a. the offer expressly limits acceptance to the terms of the offer;
b. they materially alter it; or
c. notification of objection to them has already been given or is
given within a reasonable time after notice of them is received.
UCC vs CISG
UCC Battle of the Forms

554.2207 Additional terms in acceptance or confirmation
(cont’d)
(3) Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although
the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties
agree, together with any supplementary terms incorporated
under any other provisions of this chapter.
UCC vs CISG
UCC Battle of the Forms

Key language for buyer:
“This Purchase Order is expressly limited to, and expressly made
conditional on, Seller’s acceptance of the terms and conditions
of the Order and the attached Purchase Order Terms and
Conditions. Buyer objects to any different or additional terms.”



Is there a contract on the writings?
Is there a contract by conduct?
Best case scenario → parties execute negotiated
document
UCC vs CISG
UCC Battle of the Forms

Under 2-207(2) between merchants, the additional
terms in the acceptance become part of contract
unless:




Offer limits acceptance;
Terms materially alter contract; or
Buyer has objected
See above language
UCC vs CISG
UCC Battle of the Forms

Possible outcomes
1)
Seller’s form is acceptance and have written contract
2)
No contract on documents – seller acknowledgement
conditions acceptance on buyer accepting seller’s
terms and conditions
3)
Contract on writings per 2-207(2)
UCC vs CISG
UCC Battle of the Forms
If Contract on the Documents


Terms are:
1)
Provisions between forms that are agreed to/the same
2)
Additional terms if not material/material additions not accepted
3)
Different terms are knocked out
Seller’s protective terms out and buyer wins the battle
UCC vs CISG
UCC Battle of the Forms
If no contract on the documents, then look at 2-207(3) –
contract by conduct
 Terms that are negotiated (“terms on which the writings of the
parties agree”) and supplementary terms under the Act
 The UCC gap fillers are pro-buyer

Implied warranties
 No limits of liability
 Consequential damages


Under 2-207(3), buyer wins the battle
UCC vs CISG
CISG Battle of the Forms



CISG considered pro-seller
Adopts limited form of mirror image rule – a reply to an
offer that contains material additions, limitations or other
modifications is a rejection of the offer and constitutes a
counter-offer
Additional or different terms relating to price, payment,
quality, quantity, delivery, liability are considered material
→ alter terms of offer → counter-offer
UCC vs CISG
Battle of the Forms



Buyer likely to reject seller’s additional or different terms, so
likely no contract on the writings → unless parties work
diligently to come to terms
In this scenario, there is no contract and either party can
walk away.
But, if seller ships, then upon acceptance (if not rejected by
buyer), the contract is based on the last document
exchanged. This is typically seller.
UCC vs CISG
Battle of the Forms

In practice, both parties try to get the “last
shot” under CISG, but this typically favors seller.

Buyer could reject goods, but typically need for
speed makes this an unattractive option.
SECTION 2
INTERNATIONAL
TRANSPORTATION ISSUES
HOW ARE GOODS TRANSPORTED?

Ocean – COGSA

Road – Carmack Amendment (in U.S.)

Rail – Carmack Amendment (in U.S.)

Himalaya Clause

Is broker involved?
COGSA

Carriage of Goods by Sea Act

Ocean carriers move over 90% of U.S. trade

Typical container ships carry from 1,000 – 3,000
containers that are interchanged with truckers for
surface movement or with railroads

COGSA is the U.S. version of the Hague Rules
COGSA

Only applies to international shipments, not purely
interstate shipments

Imposes duties on carrier – seaworthy vessels, properly
equip and man, make holds safe, secure, etc.

If carrier follows the duties of due care, then protected
by Section 4(1) of COGSA
COGSA

Carrier’s liability is limited to:

$500 per package, or

$500 per customary freight unit if not shipped in
packages

No definition of “package” → bill of lading is critical in
determining what parties intend “package” to mean
COGSA




“Package” limitation originated before containerization –
courts generally apply $500 package limitation to
smallest unit of packaging declared on bill of lading.
Shippers have to be vigilant in confirming bill of lading.
Get cargo insurance as contingent policy.
If shipper provides pro-forma bill of lading to carrier, be
sure to check actual bill of lading issue by carrier,
because they may change and shipper will be bound.
COGSA

Watch Himalaya clauses

Rotterdam Rules have been developed by UNCITRAL
to address the outdated “package” limitation and to
synthesize the various liability schemes throughout the
world. Like CISG, this is a treaty.

The ABA has approved resolution supporting
ratification, but not ratified at this point.
CARMACK AMENDMENT

In U.S., the “Carmack Amendment” governs motor
carriers, freight forwarders (surface), and railroads.

Carmack divided into two sections

Motor carriers – 49 USC § 14706

Rail – 49 USC § 11706
CARMACK AMENDMENT

Purpose to provide a uniform system of carrier liability to
give certainty to both carrier and shipper by enabling
the carrier to assess risk and predict potential liability for
damages.

Preempts shipper’s state and common law claims for
cargo loss or damage.
CARMACK AMENDMENT
Motor Carriers

Shipper entitled to “actual loss or injury to the property
caused by the carrier.” 49 USC § 14706(a)(i)

Market value is prevailing measure of damage

Any salvage value?

Consequential damages possible, but difficult
CARMACK AMENDMENT
Motor Carriers

For carrier to set limit of liability, the carrier must:

Maintain a tariff with ICC

Give shipper reasonable opportunity to choose between
two or more levels of liability

Obtain shipper’s agreement as to choice of carrier
liability limit

Issue a bill of lading prior to moving shipment
CARMACK AMENDMENT
Motor Carriers

9-month notice from shipper to carrier setting
forth claim

2 years to sue from date of denial.
CARMACK AMENDMENT
Broker Liability

Carmack does not apply to brokers

Is broker really a broker? If truly a broker, then
Carmack does not apply

“Broker” is “a person other than a motor carrier… that
as a principal or agent sells… or holds itself out… as
selling, providing, or arranging for transportation by
motor carrier.” 49 U.S.C. § 13102(2)
CARMACK AMENDMENT
Broker Liability

This can be a gray area. If you have a cargo claim
and get the “mere broker” defense, do some more
digging to make sure the entity is actually acting as a
carrier. Check www.safersys.org to see how the
company is described.
HIMALAYA CLAUSES



$500 per package limitation of liability only applies to a
“carrier” of goods by sea.
But beware of “Himalaya clause”
E.g., “All defenses of the Carrier shall inure also to the benefit
of Carrier’s agents, servants, and employees and any
independent contractor performing any of the Carrier’s
obligations under the contract of carriage or acting as
bailee of the goods, whether sued in contract or in tort.”
HIMALAYA CLAUSES

If door to door bill of lading, this may apply to surface
carriers (i.e., drayage carriers) and rail carriers.

Consequence: COGSA limitations of liability may flow
through to truck or rail transportation.
IMPORT/EXPORT RESPONSIBILITY

Customs Broker - Import

Freight Forwarder – Export

What is the Incoterm?

Only DDP puts import clearance obligation on the supplier

If supply agreement has goods purchased DDP, the supplier
is Importer of Record and the obligation to clear customs
and pay duty is on seller.
WHEN GOODS REACH
UNITED STATES

Importer of Record is responsible to clear goods
through customs.

Importer of Record responsible to obtain and maintain
customs bond and file entry documents at port of entry

Cleared when released by U.S. Customs and Border
Protection and estimated duties paid
WHEN GOODS REACH
UNITED STATES
Key is for importers to provide accurate and complete
information to Customs
 Civil penalties or seizure of goods
 Key areas: classification, valuation, country of origin,
payment of duties
 If Incoterm has buyer of goods as Importer of Record,
work with supplier to get key information.

CUSTOMS BROKERS

Files import entries on your behalf

Usually subject to their standard terms and conditions

Customs broker does not verify correctness of data
provided

Rely on vendor/supplier for origin and value
information
CUSTOMS BROKERS


Direct or indirect representation?

Direct – company liable for customs debt

Indirect – broker jointly and severally liable for customs
How to best check accuracy of declarations,
recordkeeping, etc? Audit?
SECTION 3
THIRD PARTY RISK ISSUES
EXPORT CONTROLS

Who is the “exporter”?

What is the product?

Who is responsible for getting license?

How is the product classified?
EXPORT CONTROLS

As buyer, key issues are:



Does supplier notify you of control status of their
products? Do they warrant it is correct?
Did supplier obtain necessary license(s)?
In supply agreement, re-export is critical issue. If
purchased product will be incorporated into your end
product, need to know how classified and ensure proper
license obtained.
FCPA; ANTI-BRIBERY ISSUES
15 U.S.C. § 78dd-1
 The FCPA prohibits issuers and domestic concerns (and
their officers, directors, employees, agents, etc.) from
corruptly offering, authorizing, or giving “anything of
value” to foreign officials, foreign political parties or
their officials, or candidates for public office for the
purpose of obtaining or retaining business for or with,
or directing business to, any company.

FCPA; ANTI-BRIBERY ISSUES

Include provision that supplier is aware of, and agrees to,
comply with all applicable anti-bribery laws

Analysis of what supplier is providing; be particularly aware for:

High risk countries

Dependence on third parties to work through government
bureaucracy (licenses, building permits, customs clearance)

Doing business with state-owned entities
HUMAN TRAFFICKING

California Law – California Supply Chains Act of 2010

Retailers and manufacturers who do business in
California with annual gross receipts that exceed
$100,000,000 to disclose their efforts to eradicate slavery
and human trafficking from their direct supply chains
HUMAN TRAFFICKING

Federal Acquisition Regulation (“FAR”) and Defense Federal
Acquisition


Applicable to government contractors and subcontractors.
Requires compliance program, due diligence on supply
chains and certification that neither it, nor its agents or
subcontractors have engaged in any prohibited activities.
Consider applicability and adding clause to your standard
supply agreements, PO terms and conditions, and supplier
code of conduct.
CONFLICT MINERALS



Ensure supply agreements address supplier’s obligations
and use of conflict minerals – tantalum, tin, tungsten, and
gold
Applies to publicly traded companies pursuant to DoddFrank Act.
Requires those companies whose products contain conflict
minerals to conduct due diligence and report on source
and chain of custody
CONFLICT MINERALS

Sample provision:
“Supplier hereby represents and warrants to Buyer that no Conflict
Minerals will be contained in or necessary to the functionality or
production of any of the products, parts, or materials delivered to
Buyer under this Agreement. Supplier shall provide Buyer with such
documents, information, and other evidence of the accuracy of the
foregoing representation and warranty as Buyer shall from time to time
request. Supplier agrees to immediately inform Buyer in writing if it
learns or has reason to believe that the foregoing representation and
warranty is untrue with respect to any products, parts, or materials that
have been delivered to Buyer hereunder.”
CONFLICT MINERALS

Sample provision (cont’d):
“As used in this section and in the Conflict Minerals Law, the term
“Conflict Minerals” means (1) columbite-tantalite (coltan), cassiterite,
gold, wolframite, and their derivatives (which derivatives are
currently limited to tantalum, tin, and tungsten); and (2) any other
mineral or its derivatives, the exploitation and trade of which is
determined by the U.S. Secretary of State to be financing conflict in
the DRC or an adjoining country.”
QUESTIONS
Feel free to contact me with any questions.
Christopher J. Curran
Lane & Waterman LLP
220 N. Main Street, Suite 600
Davenport, IA 52801
Email: ccurran@l-wlaw.com
Phone: (563)333-6649