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COMMERCE DEPARTMENT
INTERNATIONAL TRADE
Nghiemmarket.blogspot
(AVTMQT 3-4)
Chapter 1: Exporting and the Management of Risk.
Chapter 2: Negotiating Delivery
Chapter 3: Negotiating Price & Payment
Translate Import & Export Contracts
Listening: Business English CD 8
(AVTMQT 5-6)
1.
Negotiating Inspection & Defects liability.
2.
Legal framework
3.
Export Contract
Business English CD 9
EXPORTING AND THE EXPORT CONTRACT
Dr. Dr. James R. Pinnells
Compiled by Mr. Nguyen Thanh Nghiem
(For Internal Use Only)
September 2011
Syllabus
CD 8, 9
-Lessons:
1. Exporting Management of Risk
2. Negotiating Delivery
3. Negotiating Price & Payment
TABLE OF CONTENTS
4.
Exporting and the Management of Risk
5.
Negotiating Delivery
6.
Negotiating Price & payment
7.
Negotiating Inspection & Defects liability.
8.
Legal framework
9.
Export Contract
THIS PART IS USED FOR CD 8
8.1 ORIENTATION TO A NEW JOB
8.1.1 COMPREHENSION QUESTIONS
1) What does Anthony have to do if he wants some coffee?
a. He has to pay 50 cents for each cup.
b. He has to help himself to it in the kitchen.
c. He has to ask Kara to make some coffee for him.
2) If you run out of pencils and paper at work, where can you get more?
a. from the kitchen
b. from the CEOs office.
c. from the storeroom.
3) When Ellen says, We have flex-time here, what does it mean?
a. Workers are not all on the same schedule.
b. There are no clocks at this company.
c. There is time for exercise at the office every day.
4) Using Tiffany as an example, what should you when introduced to a new co-worker?
a. Extend your hand for a handshake.
b. Ask the new employee to make some coffee.
c. Smile and look at your feet.
Workspace
My workspace is usually pretty messy.
Its a small workspace, but you should find everything you need here.
His workspace used to be a small cube, but now he has a big office with a wooden desk.
In
Is the doctor in?
Mr. Burns is out right now, but Ill let you know when he gets in.
I guess nobodys in yet. The office is completely empty.
Straggling
When the game ended in defeat, the fans went straggling home.
On Monday mornings, the workers come straggling in to the office.
Stop straggling, boys! Stay together and move a little faster!
Flex-time
Im looking for a job with flex-time opportunities.
Do you have flex-time here?
She needs a job with flex-time because her children often need her at home.
In advance
She didnt schedule an appointment in advance, so she couldnt see the dentist.
Youll need to cancel your reservation 24 hours in advance in order to get a refund.
If you had explained the problem in advance, then I would have been prepared to solve it.
Flexible
Oh, come on! Be flexible!
You can come anytime. Were flexible.
Shes not flexible enough for this job. Things are always changing here, and she hates change.
Fluency
She has total fluency not only in Spanish, but also in Portuguese and Italian.
His fluency in Japanese often surprises our clients.
Susan studied German for years, but never achieved fluency until she went to live in Germany.
Useful
This knowledge will be very useful to our company.
Does anybody have any useful ideas?
Yor umbrella is beautiful, but it cant be very useful here in the desert.
International
Will the job involve international travel?
The International Food Court at the mall has ethnic food from many different countries.
Our international accounts are much more profitable
ELLEN
The kitchen is down there. Youll find coffee there and a refrigerator, if you
want to bring your lunch.
ANTHONY Do you have to pay for the coffee?
ELLEN
No, it's free, but you might have to make it yourself sometimes.
ANTHONY That's OK. It's a nice perk.
ELLEN
Yes, it is. And down past the kitchen is the storeroom. If you need supplies
like pads or pens, you can get them from here. 2
ANTHONY What if I cant find what I need?
ELLEN
You can ask Kara. She knows where everything is.
ANTHONY Have I met her?
ELLEN
She's the woman who sits in the first cubicle on the left as you come in.
ANTHONY Oh, yes. Im having trouble keeping all the names straight.
ELLEN
And this is where you'll be working. You'll be sharing a workspace with
Tiffany McGuire until we can get you one of your own.
ANTHONY That's fine. It's quiet down here. Isnt anybody in yet?
ELLEN
Oh, they'll come straggling in.
ANTHONY So everyone isn't required to work the same hours?
ELLEN
Oh, no, we have flex-time here. So everyone puts in at least 40 hours, but
when they do is pretty much up to them.
ANTHONY How does that work for meetings?
ELLEN
We try to schedule them well enough in advance so that everyone can plan
to be there.
ANTHONY Things are certainly more flexible here than at my last job.
ELLEN That was in France?
ANTHONY Yes, it was.
ELLEN
Your fluency in French will be very useful when dealing with some of
our international accounts.
TIFFANY
Good morning, Ellen. Hello.
ELLEN
Tiffany, this is Anthony Brown, our new writer. Today's his first day.
TIFFANY
Nice to meet you, Anthony. Welcome.
ANTHONY Thank you. It's nice to meet you, too.
ELLEN
Tiffany just started working here a few months ago, so she'll be a good one to
ask for help.
TIFFANY
Sure. I know what it's like to be new and not know anyone or where things are.
ANTHONY Thank you. I'm sure I'll have lots of questions.
ELLEN
Well, I've got to get Anthony over to see Mr. Scott in Human Resources so we can
take care of his paperwork.
ANTHONY Nice to meet you. Tiffany.
TIFFANY See you later, Anthony.
8.1.1 COMPREHENSION QUESTIONS
1) What does Anthony have to do if he wants some coffee?
a. He has to pay 50 cents for each cup.
b. He has to help himself to it in the kitchen.
c. He has to ask Kara to make some coffee for him.
2) If you run out of pencils and paper at work, where can you get more?
a. from the kitchen
b. from the CEOs office.
c. from the storeroom.
3) When Ellen says, We have flex-time here, what does it mean?
a. Workers are not all on the same schedule.
b. There are no clocks at this company.
c. There is time for exercise at the office every day.
4) Using Tiffany as an example, what should you do when introduced to a new co-worker?
a. Extend your hand for a handshake.
b. Ask the new employee to make some coffee.
c. Smile and look at your feet.
5) Does Anthony speak a second language?
a. Yes, he speaks French very well.
b. Yes, he speaks a little French.
c. No, he only speaks English.
6) Where is Karas cubicle?
a. Its to the left of the entrance door.
b. Her cubicle is on the shelf in the storeroom.
c. Its free.
7) If something is difficult for you at work, which phrase could you use to express this?
a. Its quiet down here.
b. Im having trouble.
c. Things are certainly flexible here.
8) What is Anthony having trouble with today?
a. Hes having trouble remembering peoples names.
b. He doesnt remember how to speak French.
Hey, Anthony, do you have a minute to talk about this new project?
Sure. You're Rick, right?
Righto, pal. Now, I've got an idea for this project that I think will really blow them away.
Would you guys mind discussing this somewhere else? I've got a deadline.
Sorry, Tiff.
Why don't I meet you in your office? Ill be there in five minutes.
Perfect. I'll see you there.
Look, Anthony, I'm sorry to blow up like that.
Don't worry about it. It's understandable.
It's just that I have a lot of work to do, and having to share the workspace and the computer makes
it harder.
Is there anything I can do to make it easier?
You could pick stuff up when you're done with it.
I guess I have been bad about leaving papers all over the desk.
It isn't that you've been bad. It's just that with two of us in this small space, we have to think about
the other person all the time.
Ill get these out of your way now.
This must be even harder for you, being new and all.
Well, it isn't ideal, that's for sure. But I suppose it'll make me appreciate it more when I have my
own space.
That's for sure.
Id better go see what Rick wants. See you later.
TIFFANY Bye.
1) Who interrupts Tiffany while she's working?
a. Anthony interrupts her.
b. Rick interrupts Tiffany by asking her a question. c. Ellen does.
2) In this scene, how does Tiffany feel about being interrupted while she's working?
a. She feels that Anthony and Rick need her help, and she's going to help them right away.
b. She's annoyed.
c. She's happy to have someone to talk to.
3) Anthony says that he's supposed to review some documents. What does he mean?
a. He's volunteering to review the documents.
b. It's part of his job to review the
documents.
c. He doesn't want to review the documents.
4) What problem does Tiffany help Anthony with?
a. Tiffany shows him how to review documents.
b. She tells him where to find highlighters and floppies.
c. She helps Anthony locate folder in his computer.
5) Rick says that his idea "will blow them away." What does informal expression mean?
a. that nobody will understand his idea
b. that everybody will leave him alone in the
future
c. that people will be very impressed with his idea
6) What is the main topic of conversation between Anthony and Tiffany in this scene?
a. They're discussing a new project.
b. Their conversation is about computers and how difficult they can be to work with.
c. They talk about how hard it is to share a small workspace.
7) Why is Tiffany in a hurry?
a. She has a deadline b. She always goes home at 5:00 o'clock, and it's already 4:50 .
c. She has a lunch appointment and she's running late.
8) When Tiffany says that she is sorry to "blowup like that," how else could she express her feelings?
a. "I'm sorry to hear you had flat tire."
b. I'm sorry to interrupt you.
c. "I'm sorry that I
got angry."
9) Suppose that a co-worker is eating lunch in your cube, and this bothers you. What phrase could
you use to politely ask your co-worker to leave?
a. "Do you think you could crunch those chips a little louder?"
b. "Would you mind eating in the kitchen?'
c. "Are you going to leave mustard stains on my chair again?"
10) Where do Rick and Anthony decide to meet?
a. They're going to meet in the kitchen.
b. Rick has reserved a conference room for their meeting.
c. Anthony's going to go to Rick's office.
11) Why does Rick come to Tiffany's cube, and why does he go away?
a. He comes to the cube to help Anthony with the computer and he leaves when he's done.
b. Tiffany invited Rick to the cube to help her, and he goes out to get coffee.
c. Rick comes to talk to Anthony and he leaves because he's bothering Tiffany.
12) How do Tiffany and Anthony deal with the difficulty of sharing her workspace?
a. They discuss the situation. b. They decide not to talk so they won't bother each other.
c. Tiffany tells Anthony that he can't use her cube anymore.
13) If your colleague says that she has meetings all over town today, what is she telling you?
a. Your colleague will hold several meetings at different times in her office.
b. She has meetings in many different places today.
c. She must attend several meetings downtown today.
14) Which phrase best follows or goes with the expression, "Don't worry"?
a. "You made a huge mistake."
b. "You'll get chewed out for this." c. "It's not a
problem.
15) What does Anthony offer to do to make it easier to share the cube?
a. He offers to do most of his work in the storeroom.
b. He's going to ask Rick to help them discuss the situation.
c. He's going to pick up his papers and other stuff.
8.4 REQUEST CLARIFICATION
ANTHONY & RICK.
Rick, before we talk about the project, can I ask you a question?
Sure thing. I can't guarantee an answer though.
I've met a lot of people in the past couple of days, and most of them are pretty friendly. But I
can't figure Miles out.
Welcome to the club, buddy. Nobody can.
No, I'm serious. He's very cold to me. I must have offended him somehow, but I have no idea how.
Dont worry about it. He's that way with everybody. The only person he ever lightens up with is
Ellen.
So you don't think I did something to annoy him?
Life annoys Miles, Anthony. He's basically a good guy, but he's just too serious and can't stand it
when everybody isn't equally as grim.
Ellen doesn't seem so serious. Why does he lighten up with her and nobody else?
RICK Those two have been friends since the Stone Age. Once you've known Miles for a few
millennia, he'll relax with you, too.
ANTHONY When I was introduced to him, he seemed polite enough, but when I ran into him in the
lunchroom yesterday he barely said "Hi" to me.
RICK Well, he's got a lot on his mind these days.
ANTHONY What do you mean?
RICK
Off the record, rumor has it that he's looking for another job.
ANTHONY Why in the world would he do that?
RICK
Let's just say there are some people here with whom our Miles can't quite get along.
ANTHONY But everybody here is so friendly. Why can't he talk to them about it?
RICK
Mostly because they won't take it as seriously as he will and then he'll get even madder.
ANTHONY That's hard to believe.
RICK Well, you know us creative types. We're unpredictable.
ANTHONY You mean it's you that Miles cant get along with?
To be fair, it isn't all his fault. We just dont see eye-to-eye on many things.
ANTHONY That's too bad.
RICK
It is too bad. But if we dont get back to work here, we might be the ones looking for jobs.
OK. Now, what was your idea?
Questions
1 Where are Anthony and Rick meeting?
a. in Ellen's office
b. in Ricks cubicle c. in the storeroom
7 If you think someone is being too serious in an informal setting, what can you say?
a. Nobody can.
b. "Lighten up."
c. Sure thing.
7 What does Rick say about Miles's personality?
a. He says that Miles likes to lighten up with most of his co-workers during meetings
b. Rick says that Miles is cold with everybody except Ellen.
c. Rick thinks that Miles is very friendly.
7 Which phrase can you use to ask someone to keep your information secret or confidential?
a. "these days" b. "rumor has it"
c. off the record
7 Why does Rick say, "We just don't see eye to eye"?
a. He's implying that his eyesight is better than Miles's.
b. This is his way of saying that he's much taller than Miles.
c. He means that he and Miles disagree.
1) What does Anthony want to talk about?
A)He wants to talk about the weather.
B)He asks Rick to tell him something about
Ellen.
C)Anthony wants to ask question about Miles.
2) Suppose that you are having trouble understanding your boss's personality. Which phrase would
express this idea?
A) "I just can't figure him out."
B) "I'm serious."
C) "I can't guarantee an answer."
7 Rick says, "Welcome to the club." What does this mean?
He means that Anthony is now a member of a special organization of writers and artists.
Rick is inviting Anthony to play golf with him.
It means that many people have had a similar experience.
7 What is Anthony's opinion of his co-workers?
He says that they all take things too seriously, except for Miles.
He thinks everyone seems cold.
Anthony thinks they are friendly, except for Miles
7Which statement best summarizes this scene?
Rick tries to talk about Miles, but Anthony doesn't want to.
After Rick and Anthony discuss Miles, they decide to get to work.
Anthony and Rick work on project, and then they start talking about Miles.
8.5 OBTAIN HELP Anthony & Tiffany
ANT: Oh, hello Tiffany. Would you mind helping me with something?
Sure. What can I do for you?
Im working on a new slogan for a travel agency, and Im having some problems.
a. He's going to drink some juice and try to think some more.
b. He's going to talk to Rick.
c. He decides to drop in on Ellen.
8.6 DISCUSS SENSITIVE ISSUES
TIFF. Rick, do you have a second?
RICK. Sure, Tiff, what's on your mind?
TIFF. There's something important I need to talk to you about.
ANTHONY I can go somewhere else if you two want to talk.
RICK.
No, stay right where you are. We've got no secrets.
TIFF. Rick, you probably don't even realize it, but Im uncomfortable with the way you sometimes
treat me in meetings.
RICK. You're uncomfortable? Talk to Miles. He's in agony.
TIFF. I'm serious, Rick. At first I let it pass, but it's becoming a problem.
RICK. Im sorry. Tiff. I had no idea I was doing anything to make you uncomfortable.
ANT. Maybe Ill get a cup of coffee.
TIFF. You may not realize it, but when you interrupt me, or answer for me in a meeting, it makes it
seem as though what I have to say isn't important.
RICK. Gee, Tiff, I think maybe you're making too big a deal out of nothing. I don't mean to make it
look that way.
TIFF What you mean to do is beside the point. The fact is, you do it, and I think it hurts my
credibility.
RICK You know how I am in the give-and-take of a meeting, I get into the middle of it.
TIFF And that's fine, up to a point. But when you start monopolizing the meeting, I feel like I might
as well not even be there. "
RICK All you have to do is jump in and Ill shut up, honest.
TIFF I can't do that. I hate to interrupt people.
RICK Even if they've interrupted you?
TIFF That's right. Rick. I don't want to work this way anymore.
RICK You don't mean that you're thinking of resigning?
TIFF Let's not get melodramatic. What Im saying is I feel like it's damaging our working
relationship.
RICK OK, how about if we meet each other half way?
TIFF
How do you propose we do that?
RICK
Ill do my best to not interrupt you, but if I do, you interrupt me back.
TIFF
No, that's just shifting the responsibility to me, and the way I see it, it's your problem, not
mine.
RICK.
You've got a point. OK, I promise I won't cut you off anymore, no matter how excited I
get.
TIFF.
That sounds pretty good. And if you do interrupt me again, what then?
RICK.
Ill buy you lunch at The Hungry Lizard.
TIFF.
I'll settle for a coffee at Cool Beans.
RICK.
It's a deal.
TIFF.
Thanks, Rick.
RICK.
No problem, Tiff. I'll see you later.
TIFF.
OK, Rick.
QUESTIONS
1. Who opens the discussion in this scene and how?
a. Tiffany does, by asking Rick if he has a second. b. Rick does, by saying, "Whats on your mind?'
c. Anthony does, by getting up to go for coffee.
9. What polite action does Anthony take during the discussion?
a. He offers to get coffee for everyone.
b. He offers to leave the cube so that Rick and Tiffany can talk more privately.
c. He offers suggestions to help Tiffany and Rick understand each other.
3 What is the subject of this discussion?
a. Tiffany doesn't like Rick to interrupt her during meetings.
b. Rick thinks that Tiffany is hurting his credibility.
c. Rick thinks that Tiffany is monopolizing the meetings.
9. What is a good phrase to use if you want to compromise with someone?
a. "Let's meet each other halfway." b. That's beside the point." c. "Don't be melodramatic."
10. Which of the following is an example of cutting someone off?
a. You interrupt a colleague who hasn't finished speaking.
b. You call the office to reschedule your meeting.
c. You resign from your job because you can't get along with a colleague.
6. Why does Anthony go out for a cup of coffee?
a. He wants to let Tiffany and Rick talk privately.
b. Tiffany asked him to get her a cup
c. He's feeling very sleepy and wants a caffeine boost.
7. Suppose your client makes a rude comment, and your boss tells you to let it pass. What does your
boss want you to do?
a. Ask the client to apologize.
b. Ignore the comment or pretend you didn't hear it.
c. Make a rude comment back to the client.
8. Why does Rick interrupt Tiffany during meetings?
a. He gets excited and has a lot to say.
b. He wants her to resign from her job.
c. He wants to further credibility and embarrass her.
9. What does Rick suggest that Tiffany do about the problem?
a. He says that Tiffany should tell him to shut up.
b. He suggests that Tiffany jump up and down every time he interrupts her.
c. He says that Tiffany should interrupt him in the same manner.
10. Tiffany and Rick make a deal. What are the terms of their deal?
a. If Rick interrupts her again, he has to buy her a coffee at Cool Beans.
b. If Tiffany takes Rick to lunch at The Hungry Lizard, Rick will stop interrupting her.
c. Rick won't interrupt anymore if she promises to stop yelling at him.
8.7 ASSERT AUTHORITY
RICK: Hi, Ellen. What's up?
ELLEN Come on in, Rick. Would you mind closing the door?
RICK Sure. Why all the secrecy?
ELLEN No secrecy. I just don't want to be interrupted.
RICK Uhuh. Sounds like I'm going to get chewed out.
ELLEN Rick, can you be serious for five minutes?
RICK Ill try, but you know me, Boss.
ELLEN You know that Miles has given notice? He's going to work for Cool Beans.
RICK Cool.
ELLEN Not cool at all. That's going to leave us scrambling to fill his position. RICK Just stuff a shirt
and prop it up in the meeting room. That'll be fine. ELLEN Listen, Rick, I don't have time for fooling
around.
RICK: OK, Ellen, Im at your service. What do you need done?
ELLEN: I need you to wrap up your work on the Food Forum project.
RICK: No problem. I'll have it done in plenty of time.
ELLEN: Rick, we're already a week past deadline. I have to nail down a final date now. RICK: How
about a week from today?
ELLEN: Not good enough. I have a meeting with Terrence Landis Monday morning.
RICK: Then when do you need it?
ELLEN: I'll need it by Friday noon in order to have time to get ready for the meeting.
RICK: Gee, Ellen, I don't know. That's kind of tight.
ELLEN: I know it is Rick, and I'd like to give you more time, but Im up against the wall.
RICK: OK, Chief, you'll have it by noon on Friday.
ELLEN: Thanks, Rick.
RICK: As the wharf boss said in On the Waterfront, Lets go to work!
Answer the following questions
10) What does Rick think this meeting is about?
a. Rick thinks that perhaps Ellen is going to reprimand him.
b. He thinks maybe Ellen will offer him Miles's old job.
TIFFANY Really. A lot of the teachers are tied into local businesses. It's great for networking.
ANTHONY It wouldn't hurt me to meet some people.
TIFFANY And most of the students are professionals working to advance their skills.
I've made lots of contacts in the advertising business through my classes.
ANTHONY Is the program hard to get into?
TIFFANY Yes, but I think if you've come this far in your career, you've probably got the credentials
to be accepted.
ANTHONY Do you know who I should talk to about applying?
TIFFANY Why don't you come to class with me tomorrow night? I can introduce you to Professor
Cassandra and show you around.
ANTHONY That would be great. Are you sure you dont mind?
TIFFANY Not at all. Class starts at seven. We can leave from here and grab something to eat first.
ANTHONY Thanks, Tiffany. I'll see you tomorrow.
TIFFANY Good night.
QUESTIONS:
1 Tiffany and Anthony are talking in Tiffany's cube. What time is it?
a. It's probably about 5:00 p.m. because they're talking about going home.
b. It must be about noon since they're planning to get some lunch.
c. It seems to be early in the morning as they've just arrived at the office.
2) Why is Tiffany planning to stay at the office?
a. Tiffany needs to use the computer for some college work.
b. She wants to work late so that she can earn some extra money.
c. Tiffany is finishing Anthony's work for him.
12) Why is Tiffany taking courses?
a. She wants to get an MBA degree and start her own business.
b. She takes courses for fun.
c. Ellen told Tiffany she has to take the courses.
12) Where can you find information about the benefits your company offers?
a. in any newspaper b. in the employee manual c. in a college class
12) If you want to meet and talk with people who can help you advance your career, how can you
express this?
a. "That's impressive."b. "I take courses just for fun."
c. "I need to do some
networking."
6) What do you know about Tiffany's work habits?
a. She always works late, including today. b. She never works late
c. She sometimes works
late
7) Why does Tiffany write her college papers at the office?
a. She doesn't want to buy paper for her printer at home.
b. Tiffany writes her papers when she's bored by the work at the office.
c. Tiffany doesn't have computer at home.
8) If a colleague asks you to skim through a report before a meeting, what do you need to do?
a. Count the pages in the report and sign it at the bottom.
b. Read every word and be prepared to discuss every detail.
c. Read the report quickly, looking for the main points.
9) How do you know that Tiffany has used networking as a way to help her career?
a. She says that she heard about her present job from college professor.
b. She says that she got this job through an employment agency.
c. She says that the only way to get a good job is by reading the newspaper ads.
10) Tiffany invites Anthony to go to class with hex tomorrow night. What are they going to do first?
a. They're going to order dinner from the comer restaurant to eat at the office.
b. Tiffany and Anthony are going to have a quick dinner.
c. They're going to go to a restaurant for a relaxed, seven-course meal.
1-6
CHAPTER 1: INTRODUCTION
Exporting and the Management of Risk
Nguyn tc:
Mt khi hng ho c chuyn giao v gi s
phi thanh ton c cc bn tha thun, th cc
quy nh trong hp ng s tr nn c hiu lc
cung ch. Trc khi k kt hp ng, nh xut
khu phi m bo rng hng ho c giao
theo ng nh tha thun v gi c phi tnh n
tt c cc chi ph lin quan n xut khu.
rehearsal
IN MORE DEPTH
Let us start with a company and a product. Office Enterprises makes office furniture: its main lines
are desks and filing cabinets. The company is located in a country we can call Verbena, a small
island republic, somewhere in the tropics. Office Enterprises was founded ten years ago by Alec
Patel. So far, Patel has sold products only on the domestic market.
At a seminar in 1995, Patel meets Juliana Gomez, owner of Esperanza Trading. Esperanza Trading
is an import-export company located in Esperanza, a developing country, also in the tropics.
Gomez sees a potential market for Patel's office furniture in Esperanza. A negotiation begins. The
two negotiators quickly reach an agreement, a ''meeting of minds" as lawyers call it: Office
Enterprises will supply 30 leather-covered executive chairs for which Esperanza Trading will pay
$9.000.1 "Everything else," they say, "we can agree when the time comes.
This agreement, although nothing is in writing and no details have been worked out, is a contract:
each side has commitments to the otherboth have rights, and both have duties. What are these
rights and duties? Office Enterprises has the duty to deliver the chairs and the right to collect
payment. Esperanza Trading's situation is exactly complementary: it has the right to receive the
chairs and the duty to pay for them. In contract language, the scope of the contract is 30 chairs, and
the price is $9.000.
Scope against pricethat is the essence of the export contract. Let's look more closely at scope,
price, and the associated risks.
SCOPE
PRICE
$22
Export price low enough
to beat competition in
Esperanza
$25
When payment is
made later than
expected, the cost of
capital drives up the
wholesale price still
further.
$26
After warranty claims
are met, the true
wholesale price
emerges.
The Outcome
An expected profit of up to $2 per fan turns into a actual loss of $4
$4
Loss per fan
The arithmetic of exporting is often sobering: the manufacturers export price is likely to be
appreciably higher than the price he charges locally- and it may well be more than any buyer is
prepared to pay. But why? What are the extra costs that drive export prices uneconomically high?
These costs fall into three categories:
Direct additional costs;
Intangible management costs;
The cost of capital.
Direct Additional Costs
Some additional costs are easily identified. Some examples: international telephone calls are clearly
more expensive than local ones; costly foreign travel is neces'sary for face-to-face negotiation; packaging must often be upgraded to withstand a sea journey or rough handling. Extremely important are
the extra costs of meeting warranty claims: a warranty repair that costs a few dollars to make in
Verbena will cost far more when the full international costs are added in.2
Will he make a profit? It seems likely. Now he must consider the risks of doing export business and
find a means of coping with them.
CASE STUDY: A Good Deal?
Study the scenario below, and then answer the questions. If your answer is "No give your reasons.
In July 1992, Joe Anderson started a company in Verbena to manufacture foot balls. His workshop has the
capacity to make 500 footballs a week working one eight-hour shift five days a week. At present (May 2010) he
is selling 1,200 footballs a week on the Verbenan market. Because of the overtime shifts necessary and
because of problems with the supply of leather quality is unreliable about 100 balls a week are returned to the
factory. Anderson replaces these returned balls, immediately and without question. Andersons price structure
(in Verbena dollars) is:
Cost of labor and materials per ball
$3
Cost of running the business per week $1,200.00
Selling price per ball (no discounts)
$4.25
Anderson is now approached by Juliana Gomez of Esperanza Trading. She wants to buy 500 footballs a
week for 6 months: she orders a price per ball of $4.20- take it or leave it.
Assume that the government of Verbena offers no export incentives and there are no foreign exchange
problems.
1.
How much is the cost of a foot ball?
2.
Is Anderson making a profit at present? Yes, but a small profit.
3.
Does he have the manufacturing capacity to handle this order? No.
4.
Is his product mature?
No, because of too many returns.
5.
If he accepts the deal will he make money on it?
Probably not. He will have problems all round.
6. Why is this a good contract for Anderson?
A. The product is normally be immature
B. The manufacturer should have experience in making the product
C. The manufacturer should have enough production capacity in coping with the size of the order.
D. The quality assurance problems should already be solved.
PRACTICE: Translate into Vietnamese
Contract for fertilizer
No: 01-93/ XYZ- ABC
Date: Sep. 07 1999
Between: ..............
Address:.............
Tel:
Telex:................Fax:................
Represented by Mr................. Hereinafter called
The Buyer
And: ................
Address:.............
Tel:......................
Telex:...................Fax:................... Represented by
Mr........... Hereinafter called The Seller
It is mutually agreed between both sides to sign
this contract with terms and specifications
specified hereunder:
It is mutually agreed between both sides to sign
this contract with terms and specifications
specified hereunder:
ARTICLE 1: COMMODITY &
SPECIFICATION
1.1 Commodity: UREA FERTILIZER
1.2 Origin: INDONESIA
1.3 Specification: - Nitrogen: 46% min.
Hp ng phn bn
S: 01-93/XYZ- ABC
Ngy 07/08/1999
Gia:..........
a ch:.....
in thoi:.........
Telex:...........Fax:.........
Do ng ................ lm i din
Di y gi l Bn Mua
V:.................................
a ch:.................
in thoi:...............
Telex:.................. Fax:................
Do ng ..................... lm i din
Di y gi l : Bn Bn
+ Port of loading
+ Date of shipment
+ Expected date of arrival at discharging port
3.5 Shipping mark:
UREA
46% NITROGEN MINIMUM
1% BIURET MAXIMUM
0.5% MOISTURE MAXIMUM
50 KGS NET
USE NO HOOKS
MADE IN INDONESIA
One side printed in green color
3.6 Discharging terms:
When Notice of Readiness tendered before
noon, laytime shall be commenced from 13:00 on
the same date,
- When Notice of Readiness tendered afternoon,
laytime shall be commenced from 8:00 on next
date
3.7 Discharging term: 900MT/ day WWDSHEX
EIU
Dem/ Des: USD 2,000/ half
+ Cng bc hng
+ Ngy gi hng
+ Ngy d kin tu n cng d hng
3.5 K m hiu vn ti: k m hiu ca bn Bn
UREA
46% NITROGEN MINIMUM
1% BIURET MAXIMUM
0.5% MOISTURE MAXIMUM
50 KGS NET
USE NO HOOKS
MADE IN INDONESIA
Mt bn phi sn mu xanh l cy.
3.6 Nhng iu kin d hng:
khi thng bo sn sng c gi ti trc 12:00
gi tra, thi gian d hng bt u t 13:00 gi
cng ngy.
Khi thng bo sn sng d hng c gi ti vo
bui chiu, thi gian d hng s bt u t 8:00
gi sng ca ngy hm sau
ARTICLE 4: PAYMENT
4.1 By irrevocable Letter of Credit at sight forn
B/L date for the full amount of the conntract
value
4.2 L/C Beneficiary: KOLON
INTERNATIONAL CORP.
45 Mugyo- Dong, Chung Gu, Seoul - Korea
4.3 L/C advising Bank: KOREA FIRST BANK
Seoul - Korea
4.4 Bank of Opening L/C: VIETCOMBANK/
EXIMBANK
4.5 Time of opening L/C: within Sep. 15 1999
4.6 Payment documents:
Payment shall be made upon receipt of the
following documents:
- 2/3 of clean on board Bill of Lading marked
FREIGHT PREPAID
- Commercial invoice in triplicate
- Packing list in triplicate
- Certificate of origin issued by manufaturer
- SUCOFINDO's Certificate on quality/ weight
- One copy of sailing telex/ shipping advice
- Remark: the shipping document acceptable
- 1/3 B/L ( the top copy ) and transport
documents sent by DHL
iu 4: Thanh ton
4.1 Bng L/C khng hu ngang, tr tin ngay t
ngy cp vn n ng bin cho tng tr gi
hp ng
4.2 Ngi th hng L/C: KOLON
INTERNATIONAL CORP. 45 Mugyo Dong,
Chung Gu, Seuol - Korea
4.3 Ngn hng thng bo L/C : KOREA FIRST
BANK
Seoul - Korea
4.4 Ngn hng m L/C : VIETCOMBANK/
EXIMBANK
4.5 Tthi hn m L/C: trong ngy 15/09/1999
iu 5: Bt kh khng
nh cng, ph hoi c th xy ra bt c nc
xut x hng ho s c xem nh trng hp
bt kh khng
ARTICLE 6: ARBITRATION
6.1 In the execution course of this contract, all
disputes not reaching at amicable agreement shall
be settled by the Economic Arbitration board of
Hochiminh City under the rules of the
International Chamber of Commerce whose
awards shall be final and binding both parties
6.2 Arbitration fee and other related charges shall
be borne by the losing party, unless otherwise
agreed.
iu 6: Trng ti
6.1 Trong qu trnh thc hin hp ng ny, mi
tranh chp khng c tho thun ho gii s
phi c gii quyt bng mt hi ng Trng
ti kinh t ca Tp H Ch Minh theo nhng lut
l ca Phng Thng mi quc t. Quyt nh
ca Hi ng trng ti kinh t s phi l chung
thm v rng buc c hai bn
6.2 L ph trng ti v nhng chi ph lin h
khc do bn thua kin chu, tr khi c nhng
tho thun khc
ARTICLE 7: PENALTY
7.1 To delay shipment/ delay payment
In case delay shipment/ delay payment happens,
the penalty for delay interest will be based on
annual rate 15 percent
7.2 To delay opening L/C:
In case delay opening L/C happens, the Seller has
the right to delay shipment
7.3 To cancellation of contract
If Seller or Buyer want to cancelled the contract,
5% of the total contract value would be charged
as penalty to that party.
ARTICLE 8: GENERAL CONDITION
8.1 By signing this contract, previous
correspondence and negotiations connected
herewith shall be null and void
8.2 This contract comes into effect from signing
date, any amendment and additional clause to
these conditions shall be valid only if made in
written form and duty confirmed by both sides.
8.3 This contract is made in 6 Ennglish originals,
each side keeps 3.
iu 7: X pht
7.1 i vi vic gi hng chm tr/ vic thanh
ton chm tr : trong trng hp vic gi hng
hoc thanh ton chm tr xy ra, tin pht do s
chm tr phi chu li s da trn li sut hng
nm 15%
7.2 i vi vic chm tr m L/C: trong trng
hp vic chm tr m L/C xy ra, bn bn c
quyn gi hng chm tr
7.3 Hu b hp ng:
Nu bn mua hoc bn bn hu b hp ng, 5%
tng gi tr hp ng s phi c tnh l tin
pht cho bn
iu 8: iu kin chung
8.1 Bng vic k hp ng ny, nhng vn bn
giao dch v nhng m phn trc y theo
s khng c gi tr v v hiu
8.2 Hp ng ny c gi tr k t ngy k, mi
iu khon sa i b sung cho nhng iu kin
ny s ch c gi tr khi c thc hin bng vn
bn v ngha v c 2 bn xc nhn
8.3 Hp ng ny c lp thnh 06 bn gc
bng ting Anh, mi bn gi 03 bn
It is mutually agreed between both sides to sign this contract with terms and specifications
specified hereunder:
ARTICLE 1: COMMODITY & SPECIFICATION
1.1 Commodity: UREA FERTILIZER
1.2 Origin: INDONESIA
1.3 Specification: - Nitrogen: 46% min.
- Moisture: 0.5% max.
- Biuret: 1.0% max.
- Color: White
- Free flowing: treated with Anti- Caking
1.4 Packing: - 50 kg net in Polypropylen Woven bag with polythylene inner liner - 2% of total
bag as empty spare bags to be supplied free of charge
ARTICLE 2: UNIT PRICE - QUANTITY & TOTAL AMOUNT
2.1 Unit price: USD 178/ MT C&F Hochiminh City Port
2.2 Quantity: 10,000 MT ( plus or minus 10% at seller's option)
2.3 Total amount: USD 1,780,000 (+/- 10% at seller's option)
Say: US Dollars one million seven hundred eighty thousand.
ARTICLE 3: SHIPMENT - DELIVERY
3.1 Time of shipment: not later than September 1993
3.2 Port of loading: Indonesia main ports
3.3 Destination port: Hochiminh City Port
3.4 Notice of shipment:
Within 2 days after the sailing date of carrying vessel to S.R Vietnam, the Seller shall notify by
cable to the Buyer the following information:
+ L/C number
+ Amount
+ Name and nationality of the vessel
+ Bill of Lading number/ date
+ Port of loading
+ Date of shipment
+ Expected date of arrival at discharging port
3.5 Shipping mark:
UREA
46% NITROGEN MINIMUM
1% BIURET MAXIMUM
0.5% MOISTURE MAXIMUM
50 KGS NET
USE NO HOOKS
MADE IN INDONESIA
One side printed in green color
3.6 Discharging terms:
When Notice of Readiness tendered before noon, laytime shall be commenced from 13:00 on
the same date,
- When Notice of Readiness tendered afternoon, laytime shall be commenced from 8:00 on
next date
3.7 Discharging term: 900MT/ day WWDSHEX EIU
Dem/ Des: USD 2,000/ half
ARTICLE 4: PAYMENT
4.1 By irrevocable Letter of Credit at sight forn B/L date for the full amount of the conntract
value
4.2 L/C Beneficiary: KOLON INTERNATIONAL CORP.
45 Mugyo- Dong, Chung Gu, Seoul - Korea
4.3 L/C advising Bank: KOREA FIRST BANK
Seoul - Korea
4.4 Bank of Opening L/C: VIETCOMBANK/ EXIMBANK
4.5 Time of opening L/C: within Sep. 15 1999
4.6 Payment documents:
Payment shall be made upon receipt of the following documents:
- Mu sc: trng
- Ht ri: c x l bng Anti- Caking
1.4 ng gi: 50 kg khng k bao PP c lp trong bng PE 2% tng s bao dng lm bao d
phng ( bao khng) c cung cp min ph
iu 2: n gi- S lng - Tng gi tr
2.1 n gi: 178,00 USD/ MT C&F cng H Ch Minh
2.2 S lng: 10.000 MT (+/- 10% tu theo la chn ca bn Bn)
2.3 Tng tr gi: 1.780.000 USD ( +/- 10% tu theo la chn ca Bn Bn)
Ghi bng ch: Mt triu by trm tm mi ngn USD
iu 3: Gi v giao hng
3.1 Thi gian gi hng: khng tr hn thng 9 nm 1999
3.2 Cng bc hng: nhng cng chnh Indonesia
3.3 Cng n: Cng tp H Ch Minh
3.4 Thng bo gi hng:
Trong vng 02 ngy sau ngy khi hnh ca tu vn ti n nc CHXHCN Vit Nam, bn
Bn s phi thng bo cho bn Mua bng in tn nhng thng tin sau y:
+ L/C s...
+ Gi tr
+ Tn v quc tch tu
+ Cng bc hng
+ Ngy gi hng
+ Ngy d kin tu n cng d hng
3.5 K m hiu vn ti: k m hiu ca bn Bn
3.6 Nhng iu kin d hng: khi thng bo sn sng c gi ti trc 21:00 gi tra, thi
gian d hng bt u t 13:00 gi cng ngy. Khi thng bo sn sng d hng c gi ti vo bui
chiu, thi gian d hng s bt u t 8:00 gi sng ca ngy hm sau
3.7 iu kin d hng: 900 MT/ ngy ( EEDSHESEIU) ngy lm vic tt tri khng k ch
nht v ngy l khng c tnh k c khi s dng
Tin pht/ tin thng: 2 000 USD/1000 USD
iu 4: Thanh ton
4.1 Bng L/C khng hu ngang, tr tin ngay t ngy cp vn n ng bin cho tng tr gi
hp ng
4.2 Ngi th hng L/C: KOLON INTERNATIONAL CORP.
45 Mugyo Dong, Chung Gu, Seuol - Korea
4.3
Ngn
hng
thng
bo
L/C
:
KOREA
FIRST
BANK
Seoul - Korea
4.4 Ngn hng m L/C : VIETCOMBANK/ EXIMBANK
4.5 Tthi hn m L/C: trong ngy 15/09/1999
4.6 Chng t thanh ton: Vic thanh ton s phi thc hin khi nhn c nhng chng t sau
y:
- 3/3 vn n ng bin xp hng hon ho c ghi cc tr trc
- Ho n thng mi 03 bn
- Phiu ng gi hng ho 03 bn
- Giy chng nhn xut x do ngi sn xut cp
- Giy chng nhn s lng/ cht lng cu SUVOVINDO
- Mt bn telex ca tu v thi gian khi hnh / phiu thng bo gi hng
- 1/3 b vn n ng bin ( bn gc) v nhng chng t vn ti c gi n bn mua bng
DHL ( th trc tip trao tay)
Ghi ch: Chng t vn ti ca bn th ba c chp nhn
iu 5: Bt kh khng
nh cng, ph hoi c th xy ra bt c nc xut x hng ho s c xem nh trng hp
bt kh khng
iu 6: Trng ti
6.1 Trong qu trnh thc hin hp ng ny, mi tranh chp khng c tho thun ho gii s
phi c gii quyt bng mt hi ng Trng ti kinh t ca Tp H Ch Minh theo nhng lut l ca
Phng Thng mi quc t. Quyt nh ca Hi ng trng ti kinh t s phi l chung thm v rng
buc c hai bn
6.2 L ph trng ti v nhng chi ph lin h khc do bn thua kin chu, tr khi c nhng tho
thun khc
iu 7: X pht
7.1 i vi vic gi hng chm tr/ vic thanh ton chm tr : trong trng hp vic gi hng
hoc thanh ton chm tr xy ra, tin pht do s chm tr phi chu li s da trn li sut hng nm
15%
7.2 i vi vic chm tr m L/C: trong trng hp vic chm tr m L/C xy ra, bn bn c
quyn gi hng chm tr
7.3 Hu b hp ng: Nu bn mua hoc bn bn hu b hp ng, 5% tng gi tr hp ng
s phi c tnh l tin pht cho bn
iu 8: iu kin chung
8.1 Bng vic k hp ng ny, nhng vn bn giao dch v nhng m phn trc y theo
s khng c gi tr v v hiu
8.2 Hp ng ny c gi tr k t ngy k, mi iu khon sa i b sung cho nhng iu
kin ny s ch c gi tr khi c thc hin bng vn bn v ngha v c 2 bn xc nhn
8.3 Hp ng ny c lp thnh 06 bn gc bng ting Anh, mi bn gi 03 bn
i din bn mua
i din bn bn
7-10
THE PROBLEM
What risks face the exporter beyond the risks of doing normal local business? And what safeguards
exist - to protect the exporter's interests?
THE PRINCIPLE
Exporting creates risks for everyone involved: governments, exporters and buyers alike. For the
exporter, non-payment is the major risk: insurance. a bank guarantee or, most beneficially, a letter of
credit offer proteciion. Problems in making delivery are best tackled by agreements tailored to the
exporter's needs.
IN MORE DEPTH
In every export deal, there are four principal parties: the exporter, the importer, and the governments
of the two countries involved. Each party faces a series of risks and should take protective measures.
Government: The government represents the interests of its people. These interests do not always
coincide with the interests of an exporter who wants to maximize profit. All countries take measures
to protect what they see as their best interests. One obvious example is the trade in weapons:
countries such as Germany strictly control the export of weapons to areas of potential conflicts,
international arms embargoes against countries perceived as aggressive are common. 4 In such a case,
the threat to the national interest is obvious. Similariy, in time of famine, a government normally
prohibits the export of foodregardless of the potential profits of an exporter.
Foreign exchange is another area where shortages often occur and where governments act to
protect the interests of the country at large. Where a government sees a risk, it has little choice
but take action to protect the country. The export license, phytosanirary certificate, certificate of
origin, and many similar documents are the direct result. And governments not only restrict; they
also promote with direct incentive, tax credits, retention schemes, and so on. In practice, the
individual exporter can do little to influence government policy or to alter public law, the
instrument that the government uses to express its will. In regulating the relations between
themselves, however, the exporter and the importer have a great deal of freedom; profitable use
of this freedom is, in effect, the subject of this book.
The Exporter
For the exporter, every deal poses risks. The most obvious risk is the risk of non-paymentwhat
happens if the goods are delivered but the buyer fails to pay? This is a risk in every kind of
business, but it is particularly acute in exporting: the buyer is a long way off; he can make excuses
that are difficult to check.
------------------------------------------------------
Until early 1994, the countries in the western alliance used the COCOM (Coordinating
Committee on Multilateral Export Controls) rules to control the export of weapons or strategic
equipment such as computers to the Warsaw Pact countries.
Some typical examples:
- The goods never arrived;
- The goods arrived damaged;
- The central bank has no foreign exchange to make payment;
- A government regulation makes payment impossible.
Or he can simply disappear. Almost as damaging as non-payment is late payment: if, as sometimes
happens, the exporter hopes for payment within thirty days but is not paid for eighteen months, then
money must be borrowed from the bank: an expected profit can vanish in a matter of weeks.
And there are other problems too. The crucial moment for the exporter in any deal is the moment
of delivery: as soon as delivery has successfully taken place, the exporter's main duties are
discharged and the right to collect payment takes effect. But many things can delay delivery. For
an example, let's go back to the Office Enterprises deal: Alec Patel is selling chairs made in
Verbena to a company in Esperanza. Verbena is an island, so the chairs must go by sea. Who is
responsible for organizing transport? If we assume that Patel and Gomez agreed FOB delivery 5,
then the buyer, Gomez, must nominate a ship and Patel must load the goods on board. But what
if the expected ship fails to arrive? The chairs will stand at the docks, rotting and rusting, earning
nothing, even though Patel must pay to his suppliers the money he spent in manufacturing the
chairs. A long delay will hurt him financially.
How can the exporter protect himself? The most obvious course is to deal only with trading
partner's who are known to be trustworthyand solvent. Unfortunately this strategy is not
always practicable, in particular, the first business with a new partner is always risky. Two
valuable mechanisms, however, protect the exporter against the risk of non-payment: thirdpany security and the letter of credit.
Third-Party Security
The exporter can often secure a promise from a third party that if the buyer fails to pay, the invoice
will be paid anyway. Such a promise may be given by an insurance companyin this case the
exporter takes out an export credit insurance policy to cover the greater part of the risk.
Unfortunately, however, this kind of insurance is not available in all countries. Alternatively, the
promise is given by a bank in the form of a bank guaranteethe buyer's bank guarantees that if the
buyer fails to pay, the bank will pay instead. The disadvantages here are that such guarantees are
expensive and that buyers are reluctant to establish them.
Letter of Credit
A letter of credit, if the terms are properly negotiated, ensures payment on delivery of the
goods. As soon as the goods are shipped, the exporter takes the shipping documents to an
agreed bank, often in his neighborhood. If the shipping documents are in order, the bank pays
the agreed sum immediately. The letter of credit is obviously an ideal arrangement for the
exporter, and it is the basis of most export trade around the world.
But what about the other risks, the failure of the ship to arrive which we mentioned earlier, or
unreasonable complaints made by the buyer when he finally receives the goods? Before asking how
exporters protect themselves in such cases, let us look at the risks faced by the buyerthe importer.
The Importer
Caveat emptor is an old principle of law: buyer beware. This is easy enough in a vegetable market or
when one is buying a used car, but internationally it is difficult for the buyer to be sufficiently wary.
The dangers are obvious: late delivery of the goods, delivery of goods that are inadequate in quantity
or in quality, failure by the exporter to make necessary repairs or to supply spare parts when things
go wrong. How is the buyer to limit such risks when his best weapon refusal to payis taken out of
his hands, in most cases, by the mechanism of the letter of credit.
---------------------------------------------------------------------------5
FOB Free on board delivery means delivery takes place when the goods cross the ships rail.
For full details of FOB and other terms of trade, see Chapter 1, section 6 below.
In some cases, in particular when purchasing capital equipment, the buyer asks for a
performance guarantee. Like the payment guarantee, this is a promise made by a bankin this
case though, it is a promise to compensate the buyer if equipment fails to function as specified.
Another safeguard is the retention. If goods are delivered subject to a warranty period of, say.
six months, many buyers ask for a retention: they retain perhaps 5% of the contract price until
the goods are no longer under warranty: they finally pay this 5% but only if no warranty
claims are in the pipeline. However, neither the guarantee nor the retention is common in
simple agreements for the export of goods. There has to be something more. The answer lies,
as we shall see in the next section, in the contract and in the law the private law that
supplements the agreement between the parties.
CASE STUDY
A RISKY BUSINESS
Verbena Knits export sweaters and other traditional knitwear made of synthetic fibers. An importer
from Esperanza contracts with Verbena Knits for a consignment of pullovers. The order is large:
about 12% of Verbena Knits annual turnover. Terms:
- Payment by confirmed, irrevocable, at-sight letter of credit;
- Letter of credit to be opened four weeks before delivery due
- Delivery: FOB Port Verbena
- Delivery date: 8 weeks after signing contract (Manufacture takes 4 weeks.)
- Defects liability period (warranty): 6 months from acceptance by buyer.
Below is a schedule of events during contract performance. At each stage there is some risk to
Verbena Knits. State the risk and then evaluate its seriousness in each case.
Step 1: Ordering Raw Materials
A local supplier has been ordered to provide Verbena with necessary materials.
The risk: ................................................................................................
SERIOUS
MODERATE
NEGLIGIBLE
Step 2: Manufacture and delivery
Verbena Knits manufactures the goods and delivers them to the ship.
The risk: ................................................................................................
SERIOUS
MODERATE
NEGLIGIBLE
Step 3: Collection of the letter of credit
Verbena Knits presents the shipping documents to the bank and asksmanufactures the goods and
delivers them to the ship.
The risk: ................................................................................................
SERIOUS
MODERATE
NEGLIGIBLE
Step 4: Open Package Inspection and Warranty Period
Verbena Knits inspects the goods on their arrival in Esperanza. Then the defects liability period
begins.
The risk: ................................................................................................
SERIOUS
MODERATE
NEGLIGIBLE
Step 1: Verbena knits has ordered materials before the letter of credit is open. If the letter of
credit is not opened or if opening is delayed, Verbena Knits will have unnecessary raw
materials on its hands. This could be expensive. Risk serious.
Step 2: Until he has collected payment, the seller always runs the risk of non-payment.
However, with the letter of credit mechanism, this risk is small. Risk- neglibible.
Step 3: Everything now depends on the correctness of shipping documents. If the seller has
correct documents, he will almost certainly paid. But many sellers present incorrect
documents to the bank. Risk-Moderate
Step 4: Again everything depends on how well the seller has done his job. Correct goods will
be accepted. Even so, open package inspection is a difficult time for the seller if the buyer has
changed his mind about the order, this is when he tries to make trouble. Risk Moderate.
Translate into Vietnamese
Contract for Newsprinting paper
Contract ( No 205 TL)
Between:
Vietnam Scientific- Production Union
Geodesy and Cartograhpy
Lang Trung - Dong Da - Ha Noi - Vietnam
Tel: 42.846829 Telex: 294887 Vietco VT
Hereinafter called the Buyer
And:
BOO SON Co., LTD
RM. 306, DONGHWA BLDG
19-2, NONHYUN - DIONG, KANGNAM - KU
SEOUL, KOREA
Cable address: TWOHANDCO, SEOUL,
KOREA
Hereinafter called Seller
It has been agreed that Buyer buys and Seller
sells on the terms and conditions as follows:
in thoi: 42.846829
Telex: 294887 Vietco VT
Fax: 84-4-56446
Di y gi l ngi Mua
V:
Cng ty BOO SON, LTD
a ch: RM. 306, DONGHWA BLDG
19-2, NONHYUN - DIONG, KANGNAM - KU
SEOUL, KOREA
a ch in tn: TWOHANDCO, SEOUL,
KOREA
Di y gi l Ngi Bn
Hai bn tho thun: Ngi Mua mua v ngi
Bn bn cc mt hng vi cc iu khon sau:
ARTICLE
1:
DESCRIPTION
SPECIFICATION- QUALITY- QUANTITY
1. Description: NEWSPRINTING PAPER
2. Country of origin: CHINA
3. Maker's name:
4. Quality/ Specification: Substance: 49 +/2 g/m2
Ro IL 787 mm width
5. Quantity: 200 MT +/- 5%
6. Packing: EXPORT STANDARD
7. Marking:
Substance: 49 g/m2 +/-2
Destination: Haiphong Port
8. Destination:
HAIPHONG PORT
ARTICLE II: PRICE
Price to be understood CIF Hai Phong port
including Seaworthy packing
Unit price: USD 535/MT
Total amount: USD 107,000.00
Say: United States Dollar one hundred and
seven thousand only
ARTICLE III: DELIVERY TIME
40 days after L/C received
ARTICLE IV: PAYMENT
By irrevocable Letter of Credit in U.S
Dollar within 180 days with 0.8% of dividend
( in favour of ) each the Seller and payable and
payable on presentation to the Bank for Foreign
Trade of Vietnam of the following documents,
each in three copies:
- Clean on board Bill of Lading
- Commercial Invoice
- Certificate of weight and/or quantity
- Certificate of Quantity issued by the
Seller and/or the Maker
- Certificate of Origin issued by Chamber
of Commerce and/or the Seller
- Insurance Policy
- Receipt of Shipmaster acknowledging it
duly having received 3 sets of non- negotiation
shipping documents as above mentioned
Di y gi l Ngi Bn
Hai bn tho thun: Ngi Mua mua v ngi Bn bn cc mt hng vi cc iu khon sau:
iu 1: Mt hng, quy cch, cht lng v s lng
1. Mt hng: Giy in bo
2. Nc xut x: Trung Quc
3. Tn ngi sn xut:
4: Cht lng v qui cch: nh lng 49 +/- 2 gam/m2
Cun kh rng 787 mm
5. S lng: 200 MT ( tn mt) +/- 5%
6. ng gi: t tiu chun xut khu
7. K m hiu: Substance: 49 g/m2 +/-2
Destination: Haiphong Port
8. Cng n: Cng Hi Phng
iu 2: Gi c
Gi CIF cng Hi Phng bao gm c tin bao b ng gi c th i bin c
n gi: USD 535/MT
Tng tr gi: 107.000,00USD
Bng ch: Mt trm linh by nghn la M chn
iu 3: Thi gian giao hng
40 ngy sau khi nhn c th tn dng (L/C)
iu 4: Thanh ton
Bng th tn dng khng hu ngang tr bng la M trong vng 180 ngy vi 0,8% tin li
cho ngi Bn khi xut trnh vi Ngn hng Ngoi thng Vit Nam b chng t sau, mi loi ba
bn:
- Vn n sch xp hng
- Ho n thng mi
- Giy chng nhn trng lng v/hoc s lng
- Giy chng nhn do ngi Bn v/hoc ngi sn xut cp
- Giy chng nhn xut x do Phng Thng mi hoc do ngi Bn cp
- Giy chng nhn bo him
- Bin lai ca thuyn trng thng bo nhn c 3 b chng t gi hng khng chuyn
nhng c nh nu trn L/C c m c gi tr trong vng 15 ngy sau khi xp hng. Ngi
Bn v ngi Mua s chu chi ph ngn hng tng ng nc mnh, chi ph sa i hoc gia hn
L/C theo yu cu ca bn no th bn y chu
iu 5: Bo him v giao hng
1. Bo him: bo him ca hng ho do Ngi bn chu vi iu kin Mi Ri Ro
2. Thng bo giao hng:
- Thng bo trc khi giao hng: Trc khi gi hng, ngi bn s thng bo cho ngi Mua
bng in hoc telex v thi gian giao hng d tnh v tn tu vn chuyn.
- Thng bo cui cng v giao hng : Trong vng 24 gi sau khi gi hng, Ngi bn s thng
bo bng in hoc telex v: s hp ng, s lng, trng lng c b, trng lng tnh, kch thc
(dung tch), s kin, gi tr ho n, tn tu vn chuyn, s vn n, ngy tu ri cng...
iu 6. Kim tra ti cng d hng
Ngi Mua c quyn nh VINACONTROL kim tra hng cng n, nu c s khng khp
nhau v s lng v cht lng th trc tin Ngi Mua s gi in khiu ni cho ngi Bn, sau
trong vng 90 ngy k t ngy d hng ngi Mua phi lm khiu ni chnh thc i bi thng
cng cc ti liu km theo, ngi Bn phi gii quyt cho ngi Mua trong vng 30 ngy nhn c
yu cu chnh thc i bi thng ca ngi Mua
iu 7: Trng hp bt kh khng
Khng bn no phi chu trch nhim v s tr hon hoc s khng thc hin c nhng
ngha v vi iu kin l s tr hon hoc s khng thc hin c nhng ngha v xy ra do nh
cng, ho hon, l lt, tc ng ca thin nhin, ng t, hoc nhng lut l qui tc, qui nh ca
cc nh chc trch, hoc nhng iu kin khc khng th d on hoc lng trc c
Bn yu cu khiu ni v thit hi do bt k trng hp no nu s thng bo cho bn bng
vn bn v theo gi mt giy chng nhn do Phng Thng mi ti ni xy ra s vic cp, nh l
chng c ca vic . Khi s tr hon do trng hp bt kh khng nu trn m vt qu 60 ngy,
mi bn ca hp ng c quyn hu b hp ng ny, trong trng hp khng bn no c quyn
khiu ni cui cng v nhng thit hi
iu 8: Trng ti
Hp ng ny chu s chi phi ca Incoterms 1990. Nhng tranh chp pht sinh t hp ng
ny m hai bn khng gii quyt bng thng lng s c gii quyt bi Trng ti Thng mi
Quc t ti Paris, theo cc qui ch xt x ca n
iu 9: Cc iu kin khc
Ngi Mua s phi lm th tc bo lnh ti ngn hng Ngoi thng Vit Nam
Ngi Bn
Ngi Mua
11-17
3. Risk, the Contract, and the Law
THE PROBLEM
The law offers protection to both exporter and importer. What is this law? And how can
the two parties ensure that they achieve the best possible protection?
THE PRINCIPLE
Law exists in two forms, public and private. Public law regulates the relationship between
the citizen and the state. Private law regulates relationship between private citizens (or
companies). Most provisions of the private law are disposivethe parties to a contract are
free to change or ignore them. A well written contract clarifies exactly what the parties have
agreed and, supplementary to their agreement, which law they have chosen to fill in any
gaps. Contract law belongs to the private law.
A negotiated, written contract is a key safeguard against the risks of exporting.
IN MORE DEPTH
Successful trade depends on peaceful and orderly movement of goods and money
between communities. In the modem world, the main safeguard of peace and order is
probably the law. Within most societies, law exists in two forms, public and private. The
public law is imposed by a government within a specific territory: the citizen or foreigner
within this territory is obliged to obey; private law regulates the rights of individual
citizens among themselves. (Not all legal systems make this absolute distinction, but it
helps our present purpose. The public law of a country controls, for example, taxation,
immigration, crime, use of foreign exchange, and such matters. Private law controls,
typically, contracts of sale, employment contracts, contracts to lend money, and so on.
One branch of private law particularly concerns us here, contract law. which looks at the
agreements citizens or companies make with each other.
When Patel agreed 10 sell Gomez chairs for $9,000, the two of them entered a contract. A
contract is an agreement enforceable of law: both sides can ask a court to enforce their rights,
and it will do so. (Not all agreements are contracts: if a teenager agrees with his parents to
come home before midnight and is late; he is not in breach of contract: his agreement is not a
contract, because it is not. for various reasons, legally enforceable.) The essence of an
enforceable agreement is that the parties, when they made it, intended to be legally bound by
their promises. Since Patel and Gomez clearly intended tins, they have a contract.
A contract is an exchange of rights and duties within the framework of the private law. These
rights and duties are specially created by the two sides and apply only to them. This is clear if
we look at the $9.000 Gomez agrees to pay: until she reached her agreement with Patel, he
had no claim against her for any sum of moneyand. of course, she had no right to claim
delivery of thirty chairs. So we can say that, in reaching a deal, each side surrenders to the
other certain clearly specified rightsfor example, the right of Gomez to keep her $9,000.
Each party retains, of course, all rights not expressly given up. Any right that we can legally
waive is called a disposive rightwe are free to dispose of it. Most of the rights of an
exporter under the private law are disposive although we shall come to some exceptions,
rights that cannot be given away. In principle, though, the parties are free to agree anything as
long as it affects only the two of them. This principle is known freedom of contract and it is
well established in most legal systems.
We have already said that the minimum contract (scope in exchange for price) is enforceable
but contains too many uncertainties. In practice, how do businesspeople regulate things more
effectively? There are three basic approaches: reliance on trade practices; use of general
conditions; and the conclusion of a negotiated, written contract.
Trade Practices
Some tradesfor example, the diamond trade in Antwerphave well established rules
familiar to everyone in the business; two dealers need agree nothing more than scope and
price. Similarly, rice merchants in Southeast Asia seldom enter elaborate agreementsthe
rules are too well known to both sides.
General Conditions
More common is the second approach: the use of general conditions of sale or of purchase.
General conditions work in this way: a buyer sends an order to an exporter. Somewhere on
the order are the words: 'This order is subject to our General Conditions of Purchase as
printed on the back of this Order Form." When the exporter sends the order confirmation for
the invoice) it, in turn, bears the words: "All goods are supplied subject to our General
Conditions of Sale as printed on the back of this Order Confirmation." You have probably
seen such general conditions; they are usually in very small print and regulate every
foreseeable problem in favor of the party who drafted them.7 The problem here is obvious:
each side says, "My conditions apply." But neither side has agreed to the other's conditions.
In such a situation, the two sides have very different expectations, and disputes are inevitable.
If a dispute goes before a court, the judge must give one set of conditions preference. But
which? The answer is unpredictable: and unpredictability is another name for risk. Exporting
on the basis of general conditionsespecially if the buyer does not agree to them in
advance--is unnecessarily risky for the exporter.
The Negotiated, Written Contract
The third approach to export agreements is the most professional and the safest: negotiating
the terms of the agreement and putting them in writingthe negotiated written contract. The
advantages are obvious. First, clarity: all the crucial issues are resolved during negotiation,
making disputes unlikely. Then workability: both sides know what they have to do and are
confident that they can do it: this creates a good working relationship. And finally
enforceability: if a dispute arises, both sides can reread the contract and find a clear statement
of their mutual rights and duties. Usually the dispute can be resolved without the help (and
expense) of the courtspeople seldom go to law when the case is clear.
The mention of lawyers brings us to the main problem with contracts: because they are normally
drafted by a lawyer, they are expensive and sometimes difficult to understand. These problems are
not insoluble: in the following chapters you will find advice on many common provisions found in
export contracts. That will help you with most of the "jargon." You will also find a "model sales
contract." Using a model contract for your own export business has a number of advantages: by
completing the various clauses, you ensure that you have negotiated all the essentials; by using the
options in the model contract, you gain flexibility during negotiations; and by establishing a sound
legal relationship, you help things runs smoothly in future. (If you are in doubt, you should ask a
lawyer to check the final version of your contract.)
The best safeguard against the risks of exporting is a contract that is clear, workable and enforceable.
What You Should Know
1. Law has two branches, public and private.
2. A contract operates within the sphere of private law.
3. Most rights and duties under the private law are disposive; the parties can agree to set them aside.
4. The parties to a contract create new, legally enforceable rights and duties that exist only between
the two of them.
5. The parties cannot set aside rights or duties under the public law.
6. In principle, the parties are free to choose which national private law applies to their contract.
7. If a particular trade has strong, well understood conventions, the parties often agree only the
minimum contract: scope and price.
8. Trade is often conducted on the basis of general conditions of sale or purchase; this often leads to
conflict between sets of conditions.
9. The safest and most satisfactory basis for concluding an export agreement is the negotiated written
contract. A model contract can offer useful guidance.
--------------------------------------7
The problem of conflicting sets of general conditions, the so-called "Battle of the Forms." is
discussed in more detail in Chapter 4, Section 3.
Gia:
A) Thng tin v Cp Php:
B) Tng cng ty Lm nghip Vit Nam
(VINAFOR), mt cng ty t chc v tn ti theo
php lut ca nc Cng ho x hi ch ngha
Vit Nam (sau y gi l "cp php" (thng tin
chi tit v bn B)
bt k vn no .
iu 7: Ngha v ca ngi c cp php 7,1
Cc cp php phi m bo rng cht lng ca
sn phm c lp rp bng cch cp php
khng c thp hn so vi nhng sn xut bi
Cp Php. Cc phng php xc nh cht
lng sn phm s c hai bn tho thun Cp
Php v c cp php. 7,2 cp php c quyn
s dng nhn hiu hng ho ch trong cc nc
cng ha x hi ch ngha Vit Nam. 7,3 c
cp php l khng c php chuyn nhng
thng hiu cho bt k bn th ba. 7.4 Vic cp
php c ngha v xc nh Cp Php sn phm
hoc ... 7,5 cp php s c trch nhim trnh Hip
nh ny Cc S hu tr tu ng k v thanh
ton ht cc khon ph c lin quan trong thi
hn mi lm (15) ngy, k t ngy k kt Hip
nh ny.
Mu ting Anh:
TRADEMARK LICENSE AGREEMENT
Between:
A) Information about Licensor
And:
B) Vietnam Forest Corporation (VINAFOR), a company organized and existing under the laws of the
Socialist Republic of Vietnam (hereinafter called the Licensee.
(Detailed information about party B)
Whereas the licensor is the owner of Trademark Registration Certificate which is issued by the
National Office of Industrial Property of Vietnam (NOIP) for the Trademark UNION.
(the Trademark) for motor cycles: and
Whereas the Lisensor agrees to license the right to use in Vietnam to the Licensee.
Now, therefor both parties agree as follows:
Article 1: Grant of the license
1.1 The Licensor hereby grants to the Licensee, and the Licensee hereby accepts the license (the
License) to use the Trademark under Certificate in the Territory.
1.2 The Licensor shall have the right to grant the license to any third party in the territory of Vietnam
other than the Licensee herein.
Article 2: Object of the license
The Licensee is entitled to apply the Trademark to motor cycles which are imported in CKD and/or
IKD form from the Licensor then assembled and sold in Vietnam.
Article 3: Territory
The License is effective in the entire territory of the Socialist Republic of Vietnam (the Territory).
Article 4: Term
This agreement shall be invalid until termination of the contract for supplying spare parts of Union
motor cycle.
Article 5: Amendment, suspension and cancellation
5.1 Upon the request of either party, the Agreement may be amended or supplemented in writing.
Any amendment or supplement must be signed by the legal representatives of the both parties.
5.2 The Agreement shall be terminated in the following cases:
a - Expiry of contract for supplying parts for Union motor cycles.
b - The industrial property rights of the Licensor are suspended or cancelled.
c - The performance of the Agreement is prevented by a force majeure events. Force majeure events
include events beyond the control of the parties including, but not limited to, acts of God, strikes,
riots, war and similar events.
Article 6: Obligations of the Licensor
6.1 The Licensor hereby represents that it is true and legal owner of the Trademark and the grant of
the License of the Trademark shall not infringe the industrial property rights of any third party. The
Licensor shall be responsible, at his own expenses, to resolve any dispute with any third party arising
from the grant of the License under this Agreement.
6.2 The Licensee shall be responsible to take all necessary and appropriate measures, at his own
expenses, to prosecute infringements of the Trademark by any third party.
The Licensor shall have the obligation to fully cooperate with and assist the Licensee in any such
matter.
Article 7: Obligations of the Licensee
7.1 The Licensee shall ensure that the quality of the Product assembled by the Licensee shall not be
lower than those manufactured by the Licensor. The method to determine the quality of the Product
shall be mutually agreed by the Licensor and the Licensee.
7.2 The Licensee is entitled to use the Trademark only in the Socialist republic of Vietnam.
7.3 The Licensee is not permitted to transfer the Trademark to any third party.
7.4 The Licensee shall have the obligation to identify the Licensor on the Product or...
7.5 The Licensee shall be responsible for submitting this Agreement to the NOIP for registration and
paying all relevant fee within fifteen (15) days from the date of signing this Agreement.
Article 8: Dispute Resolution
Any dispute, breach, controversy or claim arising out of or in connection with this Agreement shall
be firstly settled amicably between two parties. If the dispute cant be settled amicably, either party
has the right to submit the dispute to international Organization foe settlement.
Article 9: Implementing Provisions
9.1 This Agreement is made on the basis of equality and voluntarism. The two parties pledge to
comply strictly with the terms and conditions of the Agreement.
9.2 The Agreement shall be made in six (6) sets in English which shall be equal force. Each party
shall keep three (3) sets in English.
Mu ting Vit:
iu 7: Phm vi, mc gi b mt ca cc
bn
iu 8: Ngha v bo h cng ngh ca bn
giao v bn nhnchuyn giao
iu 9: Nghim thu kt qu chuyn giao cng
ngh
iu 10: Ci tin cng ngh chuyn giao ca
bn nhn chuyn giao
Mi ci tin ca bn nhn chuyn giao i vi
cng ngh chuyn giao thuc quyn s hu ca
bn nhn chuyn giao.
iu 11: Cam kt ca bn chuyn gao v o
to nhn lc cho thc hin cng ngh chuyn
giao
- S lung:
- Thi gian:
- Chi ph o to:
iu 12: Quyn v ngha v ca cc bn
1. Bn chuyn giao
- Cam kt l ch s hu hp php ca cng ngh
chuyn giao v vic chuyn giao cng ngh s
khng xm phm quyn s hu cng nghip ca
bt k bn th 3 no khc. Bn chuyn giao c
trch nhim, vi chi ph ca mnh, gii quyt mi
tranh chp pht sinh t vic chuyn giao cng
ngh theo hp ng ny.
- C ngha v hp tc cht ch v gip bn
nhn chuyn giao chng li mi s xm phm
quyn s hu t bt k bn th 3 no khc.
- ng k hp ng chuyn giao cng ngh.
- Np thu chuyn giao cng ngh.
- C quyn/khng c chuyn giao cng ngh
trn cho bn th 3 trong phm vi lnh th quy
nh trong hp ng ny.
2. Bn nhn chuyn giao
- Cam kt cht lng sn phm sn xut theo
cng ngh nhn chuyn nhng khng thp hn
cht lng sn phm do bn chuyn giao sn
xut. Phng php nh gi cht lng do hai
bn tho thun.
- Tr tin chuyn giao theo hp ng.
- Khng c php/c php chuyn giao li
cho bn th 3 cng ngh trn.
- Ghi ch xut x cng ngh chuyn giao trn
sn phm.
- ng k hp ng (nu c tho thun).
iu 13: Sa i, nh ch hoc hu b hp
ng
Hp ng c th b sa i, b sung theo yu cu
bng vn bn ca mt trong cc bn v c i
din hp php ca cc bn k kt bng vn bn.
Cc iu khon sa i, b sung c hiu lc t
thi im c sa i.
Hp ng b chm dt trong cc trng hp sau
y:
- Ht thi hn ghi trong hp ng.
- Quyn s hu cng nghip b nh ch hoc hu
b.
- Hp ng khng thc hin c do nguyn
nhn bt kh khng nh: thin tai, bi cng, biu
tnh, ni lon, chin tranh v cc s kin tng
t.
iu 14: Trch nhim do vi phm hp ng
Bn no vi phm hp ng phi chu pht hp
ng v bi thng cho bn kia ton b thit hi
theo quy nh ca...
iu 15: Lut iu chnh hp ng
Hp ng ny c iu chnh bi lut ca
nc...
iu 16: Trng ti
Mi tranh chp pht sinh t hp ng ny phi
c gii quyt trc ht thng qua thng
lng, ho gii. Trong trng hp khng gii
quyt c th cc bn c quyn kin n trng
ti quc t ti...
Bn B
HP NG MUA BN GO
S 018/NVF-GL 1999
Gia GALLUCK LIMITED
Phng A.3/F, Causeway Tower,
16 -22 ng Causeway
Vnh Causeway HONGKONG
Tel: 8479900, 8976422: Fax: 4839200
Telex: 57889 WSGTC HK ( sau y gi l
ngi Mua)
V
Cng ty xut nhp khu lng thc H Ni
40 ng Hai Ba Trung , H Ni
VIETNAM
Tel: 328999, Telex: 328492 - VNF VT
a ch in tn : VINAFOOD HANOI
( sau y gi l ngi Bn)
Hai bn cng ng i vi hp ng mua
v bn go trn c s iu kin nh sau:
1. Hng ho: Go trng Vit Nam
2. Quy cch phm cht:
- Tm: ti a 35%
- Thu phn: ti a 14,5%
- Tp cht: ti a 0,4%
- Go v ma 1998-1999
3. S lng: 100.000 MT trn di 5%
theo s la chn ca ngi bn
4. Gi c: 2USD mt MT( tnh) giao hng
thng 6 n thng 9- 1999
a- Lt hng, phn ci tnh vo ti khon
ca ch tu/ ngi mua
b- Chi ph kim kin trn cu cng i
c tnh vo ti khon ca ngi bn (do ngi
bn chu)
c- Chi ph kim kin trn tu c tnh vo
ti khon ca ngi mua/ ch tu
d- Tt c cc khon thu xut khu nc
xut x do ngi bn chu
e- Tt c cc khon thu nhp, thu khc
nc n ... v cc nc bn ngoi Vit Nam s
c tnh vo ti khon ca ngi mua
10. Payment:
a- After signing the contract, the Buyer or
the Buyer's nominee ( SHYE LIAN( HK)
MANUFACTURING CO.LTD OR OTHER
NOMINEE) will telex asking the Seller to open
P.B. of 1% of total L/C amoount at Vietcombank
Hanoi within two days thereof the Seller open
P.B. and in form the Buyer, then, four days after
receiving Vietcombank 's confirmation, the
Buyer will open a telegraphic, irrevocable and
confirmed L/C which is in conformity with this
contract by an international first class bank at
sight with T.T.R. acceptable for 40,000 MT in
favour of Vinafood Hanoi through the Bank for
Foreign Trade of Vietnam
For 60,000 MT the Buyer or Buyer's
nominee will open a telegraphic, irrevocable and
transferable at sight L/C which is in conformity
with this contract with T.T.R. accepable. In case,
the Seller requests the confirmation of L/C, the
L/C will be confirmed for Seller's account
In the event that the Buyer fails to open
L/C four days after receiving confirmation from
Vietcombank then the Seller shall collect P.B.
from the Vietcombank and then the contract is
automatically cancelled
The Seller will collect the P.B. against
presentation of shipping documents at
Vietcombank
b- Presentation of the following documents
to the Bank for Foreign Trade of Vietnam,
payable within 3-5 banking days after reciept of
the telex from Vietcombank cetifying that
documents have been checked in conformity
with the L/C terms:
- Full set of Clean on board B/L in three
( 3) originals marked Freight to collect
- Commercial invoice in three (3) folds
- Certificates of quality, weight and
packing issued by Vinaconntrol to be final at
loading port in six ( 6) folds
- Certificate of fumigation issued by
VIetnam Chamber of Commerce in six (6) folds
- Phytosanitary certificate issued by the
Competent authority of Vietnam in six (6) folds
- Cable/ Telex/ Fax advising shipment
Particulars within 24 hours after completion of
loading
11. Force Majeure:
The Force Majeure( exemptions) clause of
the international Chamber of Commerce (ICC
publication No. 421) is hereby incorporated on
this contract
12. Arbitration:
Any discrepancies and/or disputes arising
out or in connection with this contract not settled
amicably shall be referred to Arbitration
accordance with the Rules and Practices of the
International Chamber of Commerce in Paris or
such other place agreed by both sides
13. Other terms:
Any amendment of the terms and
conditions of this contract must be agreed to by
both sides in writting
This contract is made in 06 originals in the
English language, three for each party
This is subject to the Buyer's final
confirmation by telex (June 18th, 1999 latest)
Made in Hanoi, on 9th June, 1999
6. Packing: Rice to be packed in single jute new bags of 50 kgs net each, about 50.6 kgs gross
each, hand-sewn at mouth with jute twine thread suitable for rough handling and sea transportation.
The Seller will supply 0.2% of new jute bags free of charge out of quantity of bags shipped
7. Insurance: To be arranged by the Buyer
8. Inspection and fumigation
a- The certificate of quality, weight and packing issued by Vinacontrol at loading port to be
final and for Seller's account
b- Fumigation to be effected on board the vessel after completion of loading with expenses to
be at Seller's account. But expenses for crew on shore during the fumigation period including
transportation, accommodation and meals at hotel for Ship owner's account
c- Time for fumigation not to count as laytime
9. Loading terms:
a- Buyer shall advise vessel's ETA and its particulars 15 days and Captain shall inform vessel's
ETA, quantity to be loaded and other necessary imformation 72/48/24 hours before the vessel's
arrival at loading port
b- Laytime to commence at 1.pm if N.O.R given before noon and at 8. AM next working day if
NOR given in the afternoon during office hours. In case, vessel waiting for berth due to congestion,
time commence to count 72 hours after N.O.R submitted
c- Loading rate: 800 MT per weather working day of 24 consecutive hours Sundays, holidays
excepted even if used, based on the use of at least four to five normal working hatches/holds and all
cranes /derricks and winches available in good order, if less than prorata
d- Seller shall arrange one safe berth of one safe port for the vessel of 10,000 - 20,000 MT
capacity to load the cargo
e- Time between 17.00 PM on Saturday and the day preceeding a holiday until 8.AM next
working day not to count as laytime even if used
f- Before submitting N.O.R., the vessel must be in free pratique. Immediately after vessel at
berth, captain shall request Vinacontrol to inspect the hatches/holds and issue a cetificate certifying
the hatches/ holds are clean, dry, free from harmful factions and suitable for goods loading with such
expensses to be at ship owner's account and time not to count as laytime
g- Demurrage/Despatch of any, to be as per C/P rate
But maximum 4,000/ 2,000 USD per day or prorata and to be settled directedly between Seller
and Buyer within 90 days after B/L date
h- For the purpose of obtaining shipping Documents such as:
- Commercial Invoices
- Cetificate of quality, weight and packing
- Certificate of origin
The responsible party shall Cable/ Telex/ Fax advising shipment particulars within 24 hours
after completion of loading
In order for the Buyer to obtain insurance, a Bill of Lading shall be issued immediately after
completion of loading and before fumigatiooon and provided immediately to the Buyer
i- In case, cargo is ready for shipment as scheduled in this contract, but the Buyer fails to
nominate the vesel to load, then all risks, damages, and associated expenses for cargo to be borne by
the Buyer based on the Seller's actual claim. In the event no cargo is available to be loaded on the
nominated vessel at the loading port, then dead freight to be paid by Seller based on Buyer's actual
claim and the Buyer will submit the following documents to Vietcombank for receiving P.B:
( time counted : 20 -25 days from L/C opening date):
- N.O.R. with seller's signature
- Report signed by the Captain and the Seller confirming that the vessel has already arrived at
the port to receive the
cargo but the Seller has no cargo to load
- Vietcombank's confirmation
10. Payment:
a- After signing the contract, the Buyer or the Buyer's nominee ( SHYE LIAN( HK)
MANUFACTURING CO.LTD OR OTHER NOMINEE) will telex asking the Seller to open P.B. of
1% of total L/C amoount at Vietcombank Hanoi within two days thereof the Seller open P.B. and in
form the Buyer, then, four days after receiving Vietcombank 's confirmation, the Buyer will open a
telegraphic, irrevocable and confirmed L/C which is in conformity with this contract by an
international first class bank at sight with T.T.R. acceptable for 40,000 MT in favour of Vinafood
Hanoi through the Bank for Foreign Trade of Vietnam
For 60,000 MT the Buyer or Buyer's nominee will open a telegraphic, irrevocable and
transferable at sight L/C which is in conformity with this contract with T.T.R. accepable. In case, the
Seller requests the confirmation of L/C, the L/C will be confirmed for Seller's account
In the event that the Buyer fails to open L/C four days after receiving confirmation from
Vietcombank then the Seller shall collect P.B. from the Vietcombank and then the contract is
automatically cancelled
The Seller will collect the P.B. against presentation of shipping documents at Vietcombank
b- Presentation of the following documents to the Bank for Foreign Trade of Vietnam, payable
within 3-5 banking days after reciept of the telex from Vietcombank cetifying that documents have
been checked in conformity with the L/C terms:
- Full set of Clean on board B/L in three ( 3) originals marked Freight to collect
- Commercial invoice in three (3) folds
- Certificates of quality, weight and packing issued by Vinaconntrol to be final at loading port
in six ( 6) folds
- Certificate of fumigation issued by VIetnam Chamber of Commerce in six (6) folds
- Phytosanitary certificate issued by the Competent authority of Vietnam in six (6) folds
- Cable/ Telex/ Fax advising shipment Particulars within 24 hours after completion of loading
11. Force Majeure:
The Force Majeure( exemptions) clause of the international Chamber of Commerce (ICC
publication No. 421) is hereby incorporated on this contract
12. Arbitration:
Any discrepancies and/or disputes arising out or in connection with this contract not settled
amicably shall be referred to Arbitration accordance with the Rules and Practices of the International
Chamber of Commerce in Paris or such other place agreed by both sides
13. Other terms:
Any amendment of the terms and conditions of this contract must be agreed to by both sides in
writting
This contract is made in 06 originals in the English language, three for each party
This is subject to the Buyer's final confirmation by telex (June 18th, 1999 latest)
Made in Hanoi, on 9th June, 1999
For the Seller
For the Buyer
Director
Managing Director
(signed/sealed)
(signed)
Nguyen Duc
S.Y.Chan
Hp ng mua bn go (bn ting Vit)
HP NG MUA BN GO
S 018/NVF-GL 1999
Gia GALLUCK LIMITED
Phng A.3/F, Causeway Tower,
16 -22 ng Causeway
Vnh Causeway HONGKONG
Tel: 8479900, 8976422: Fax: 4839200
Telex: 57889 WSGTC HK ( sau y gi l ngi Mua)
V
Cng ty xut nhp khu lng thc H Ni
40 ng Hai Ba Trung , H Ni VIETNAM
Tel: 328999, Telex: 328492 - VNF VT
a ch in tn : VINAFOOD HANOI ( sau y gi l ngi Bn)
Hai bn cng ng i vi hp ng mua v bn go trn c s iu kin nh sau:
1. Hng ho: Go trng Vit Nam
2. Quy cch phm cht:
- Tm: ti a 35%
- Thu phn: ti a 14,5%
- Tp cht: ti a 0,4%
- Go v ma 1998-1999
3. S lng: 100.000 MT trn di 5% theo s la chn ca ngi bn
4. Gi c: 2USD mt MT( tnh) giao hng thng 6 n thng 9- 1999
a- Lt hng, ci tnh vo ti khon ca ch tu/ ngi mua
b- Chi ph kim kin trn cu cng i c tnh vo ti khon ca ngi bn (do ngi bn
chu)
c- Chi ph kim kin trn tu c tnh vo ti khon ca ngi mua/ ch tu
d- Tt c cc khon thu xut khu nc xut x do ngi bn chu
e- Tt c cc khon thu nhp, thu khc nc n ... v cc nc bn ngoi Vit Nam s
c tnh vo ti khon ca ngi mua
5. Thi hn giao hng: 20-25 ngy sau ngy m L/C
6. Bao b: Go phi c ng trong bao ay mi trng lng tnh mi bao 50kg, khong 50,6
kg c b, khu tay ming bng ch ay xe i thch hp cho vic bc vc v vn ti ng bin;
ngi bn s cung cp 0,2% bao ay mi min ph ngoi tng s bao c xp trn tu.
7. Bo him: Ngi mua s chu
8. Kim tra v xng khi:
a- Giy chng nhn cht lng, trng lng v bao b do Vinacontrol cp cng xp hng ha
tnh cht chung thm v chi ph do ngi bn chu
c- Thi gian xng khi khng tnh l thi gian xp hng
9. Cc iu khon v xp hng:
a. Ngi mua s thng bo ETA ca con tu v cc ni dung chi tit ca n 15 ngy ( sau khi
tu nh neo) v thuyn trng s thng bo ETA ca tu, khi lng s c xp ln tu v nhng
thng tin cn thit khc 72/48/24 gi trc khi tu n cng xp hng
b- Thi gian xp hng bt u tnh t 1h tra nu NOR c trao trc bui tra v t 8h sng
ca ngy lm vic tip theo nu nh NOR c trao vo bui chiu trong gi lm vic, trong trng
hp tu i th neo v cng tc nghn th thi gian xp hng c tnh sau 72 gi k t khi trao
NOR
c- Tc xp hng: 800 MT mi ngy lm vic lin tc 24h thi tit cho php lm vic , ch
nht, ngy ngh c tr ra thm ch nu c s dng, trn c s c t nht t 4 n 5 hm tu/hm
hng lm vic bnh thng v tt c cc cn cu/cn trc v cun dy ti sn sng trong trng thi
tt, nu t hn th tnh theo t l
d- Ngi bn s thu xp mt a im b neo an ton ti mt cng an ton cho con tu c sc
cha t 10.000 MT - 20.000 MT bc hng
e- Khong thi gian t 17h chiu th by v ngy trc mt ngy ngh cho n 8 sng ca
ngy lm vic tip theo khng tnh l thi gian xp hng thm ch c s dng
f- Trc khi trao NOR, con tu phi c giy qu cng, ngay sau khi tu cp cng ( b neo) ,
thuyn trng s yu cu Vinacontrol kim tra cc hm tu/hm hng v cp giy chng nhn cc
hm tu/hm hng sch kh, khng c tc nhn gy hi v thch hp ch lng thc v nhng chi
ph nh vy s c tnh vo ti khon ca ch tu v thi gian khng tnh l thi gian xp hng
g- Pht xp hng chm/ thng xp hng nhanh nu c, s theo nh mc quy nh trong hp
ng thu tu chuyn; nhng ti a l 4.000/2.000 USD mt ngy hoc tnh theo t l v phi c
gii quyt ( thanh ton ) trc tip gia ngi mua v ngi bn trong vng 90 ngy k t ngy k B/L
h- c c nhng chng t giao hng nh:
-Cc ho n thng mi
- Giy chng nhn cht lng, trng lng v bao b
- Giy chng nhn xut x
Bn c trch nhim phi thng bo cc chi tit v giao hng bng in tn /telex/fax trong vng
24h sau khi hon thnh giao hng
Vn n s c cp ngy sau khi hon thnh vic giao hng v trc khi xng khi v c
giao ngay cho ngi mua mua bo him
i- Trong trng hp hng ho sn sng xp ln tu nh c d nh trong hp ng
ny nhng ngi mua khng ch nh tu bc hng th tt c ri ro, thit hi, nhng chi ph c lin
quan n hng ho do ngi mua chu trn c s i bi thng thc t ca ngi bn ;ngc li,
nu khng hng ho bc ln tu c ch nh cng bc hng, th cc khng s do ngi
bn tr trn c s bn i bi thng thc t ca ngi mua v ngi mua s xut trnh nhng chng
t sau cho Vietcombank nhn P.B. ( thi gian c tnh t 20-25 ngy k t ngy m L/C)
- NOR c ch k ca ngi bn
19-24
CHAPTER 1
Negotiating Delivery
Problem in negotiating delivery
In many export negotiations, the two sides fail to discuss important aspects of delivery. This
creates a risky, and uncertain situation if there is a delay or if delivery does not go according
to plan. How can the exporter be sure that all the necessary delivery provisions are in the
contract?
The Principle.
The exporter and the buyer should negotiate delivery systematically, making all necessary
decisions and discussing how they will solve any problems that might arise. A step-by-step
overview of the delivery procedure is an important aid to planning.
In more depth
When an exporter and a buyer negotiate delivery, certain questions always arise. What is the
date of delivery? Where must the goods be sent? Who pays for transportation? But other
questions are often overlooked. One example: the transfer of risk. When exactly does the risk
of owning the goods- the risk of losing them, the risk of injury to an innocent passer-by when do such risks pass from the exporter to the buyer?
To make things clear, well use a case based on the following scenario:
Ayshe Aziz owns Double-A Limited., a company in Verbena that manufactures hair treatment
products. A buyer from Esperanza, Tony Mino, visits Aziz to discuss the export of a trial
consignment: 100 cartons of standard shampoo and 100 cartons of shampoo for dry hair. If
the shampoo sells well, more orders will follow.
The idea of working in steps looks simple, but it seldom works out in practice: decisionmaking processes are nearly always recursive.(Recursive means that a process constantly
loops back, comparing and connecting, and then recomparing and reconnecting various
stages.) A logical, step-by-step sequence is suggested here to simplify discussion of the idea.
After an overview of the five negotiating steps in this section, the following sections look at
the issues in detail.
Step 1
TIMING
Date of
delivery,
&results
of delay
Step 2
LOCATION
Place of
delivery
&alternatives
Step 3
TRANSPORT
Mode(s) of
transport
to be used
Step 4
RISK, TITLE
AND
INSURANCE
Transfer
of
ownership.
and
insurance
Step 5
TERMS OF
TRADE
Incoterm to
be used.
The answer in our case (FOB delivery) is B. But the parties are free to arrange anything that suits
them. The place of delivery is doubly important to the exporter because the date of payment normally
depends on the place and time delivery. At this point, too, risk and ownership often pass.10
----------------------------------------------------------------------------------------------8
See Chapter 1. Section 2 below for detailed information.
9
See Chapter 1. Section 6 below for delivery under Incoterms
10
For detailed information on risk and ownership, sec Section 3 below.
Step 3: Transport
The first question about transport is howl What mode of transport is most appropriate? From an
island like Verbena, two modes of transport are available: ships and aircraft. It is unlikely that Mino
will ask Aziz to ship the shampoo by air: air transport is too expensive. Sea transport is, then, the
more appropriate. When goods travel by sea, they are often shipped by container. The advantages of
containers are well known (lower risk of pilferage, easy traceability, smoother handling), but the
economics of containerization depend largely on the size of the consignment. In practice, each
consignment should be roughly one container load: a little more, and two containers will be needed
at double the cost; somewhat less and the carrier is paid to transport thin air. 200 cartons of shampoo
are not a large enough order to justify a container; if Aziz is a good negotiator, she will suggest that
Mino increase the size of the order to create a container-load, or that he order different products to
fill up the container.
Inland transport is made by road, by rail, by barge, by mail, or by a mixture: the choices are familiar.
For the goods to arrive safely, correct packaging and shipping marks are essential. Such matters are
often made the subject of a separate clause in the export contract because claims arising from delay
or damage can be settled only if it is clear who is responsible for packing and marking.
Transportation poses a third, altogether different kind of problem: documentation. Whatever means
of transport is chosen, correct documentation is essential. If payment is made by letter of creditas
is often the case then the bank must refuse to pay if the shipping documents are in any way
incorrect.11
Step 4: Transfer of Risk, Transfer of Ownership, Insurance
At the point of delivery, risk generally passes from the exporter to the buyer. What is the "risk" that
passes? First, the risk of loss or damage. If the goods are smashed by a fork-lift, stolen by a stevedore
or damaged by a downpourone side must bear the loss. Similarly if the goods cause harm to a third
partyfor example, a consignment of corrosives left in the sun explodes and severely burns a
passer-bywho pays? Negotiators often decide, for the sake of simplicity, that these risks are
transferred at the point of delivery, and this, as we shall see, is the standard arrangement under the
so-called Incoterms.
Obviously the issues of risk and insurance go hand in hand. A prudent businessman who faces a risk,
arranges insurance.
Transfer of ownership (or title as it is often called) can take place at any point between the signature
of the contract and final payment for the goods. In international trade, these two points are often
widely separate; the parties must decide what they want.12
Step 5: Terms of Trade
All the decisions that Aziz and Mino make about the delivery of their shampoo have been made
millions of times before. For this reason, the business community has developed a kind a shorthand
for standard delivery situations. Some of these shorthand expressions, FOB (free on board), for
example, or CIF (cost, insurance and freight) are familiar to most businesspeople. Others, such as
DDU or FCA are less well known. The advantages of using such terms are obvious: if Aziz offers the
shampoo for $20 a canon FOB (Port Verbena), then Mino knows that she will transport the goods to
the ship's rail at her own risk and cost. When the goods cross the ship's rail, risk as well as the cost of
freight and insurance pass to him. He also knows that he is responsible for nominating the ship that
will be used. And so on. One term covers a great deal of decision-making.
With patterns of trade, means of transportation, and communications changing so rapidly, usage of
terms of trade naturally develops differently in different parts of the world; international trade,
however, needs agreed, standardized terminology. These standards are provided by the International
Chamber of Commerce in Paris in its set of 13 Incoterms (International Commercial Terms) issued
most recently in 1990.13
------------------------------------------------------------------------------------------------------------------------------------11
For more information on these problems, see Section 4 of this chapter and Chapter 2 on payment
12
For detailed information, sec Section 5 below.
13
For detailed information, see Section 6 below
CASE STUDY
Agreed on Paper
Study the scenario, and then answer the questions.
Verbena Paper makes disposable paper plates, cups and napkins for hot-dog and hamburger stands.
John Merrit, the factory manager, is negotiating for raw paper to be delivered to his factory for
manufacture into paper products. The supplier is Wendell Paper Industries of Esperanza. Wendell
and Verbena Paper have agreed in principle a trial delivery of 40 tons of raw paper.
Which of the following decisions should the two parties make in negotiating the delivery clause? (If
the issue raised is not an aspect of delivery as outlined above, the answer is No.)
1.
The quality of the paper. No.
2.
The place of delivery.
Yes
3.
The transfer of risk.
Yes
4.
What to do if the ship named by buyer does not arrive. Yes
5.
Whether or not to ship goods in a container. Yes
6.
What delays in delivery will be excusable. Yes
7.
When payment is due.
No
8.
Who must insure the goods up to what point. Yes
9.
How disputes will be settled.
No
10.
An Incoterm.
Yes
11.
What means of transport will be used.
Yes
12.
Yes
(I) 2 . TIMING
25-36
THE PROBLEM
Naming a delivery date is the first step in negotiating the timing of an export deal. Complex
issues concerning coming into force, delay and compensation for delay must also be
negotiated. What are the main considerations in drafting provisions about timing and delay?
THE PRINCIPLE
Because exports are often subject to official approvals, the delivery date in many contracts
depends on the receipt of the last approval. If delivery is late, the delay is classified into one
of two categories, excusable and non-excusable. Excusable delay often involves a grace
period and is nearly always subject to a force majeure provision 14 . Any losses to the buyer
caused by non-excusable delay must be compensated. The amount of compensation is usually
set in advance in a so-called liquidated damages provision.
IN MORE DEPTH
Getting the delivery date right is a matter of managerial know-how: the exporter must know
how long it takes to obtain supplies, manufacture the goods, package them, arrange preshipment inspection and transport them to the agreed point of delivery. First time exporters
often set delivery dates that are hopelessly optimistic and pay a heavy penalty for their
mistake. The buyer, for his part, must know exactly whenthe goods are needed: too early a
date ties up money in unused goods, while delivery too late may mean big losses, especially
if the goods are to be resold.
As far as the contract is concerned, the delivery date triggers many contract events: at this
time, the exporter fulfills his primary duties under the contract; payment normally becomes
due: risk, and often title, pass to the buyer: delayas well as any compensation to be paid by
the exporteris reckoned from the planned date of delivery. What should the exporter know
about this key date?
Naming the Date
The simplest way to fix delivery is to use a straightforward calendar date: 13th August 1995,
for example. Export contracts are not always so simple, however. For example, let's say Aziz
and Mino meet in Verbena in December and agree that Aziz will sell shampoo to Mino.
Already it is clear to them both that a certain amount of government red-tape is unavoidable:
an export license, a foreign exchange permit, and a certificate of origin are necessary.
Because shampoo is a health-care product, special certification is necessary in the buyer's
country. How long will it take to obtain the necessary documentation? Because nobody is
sure, the parties often plan for the contract to come into existence in two steps: step one is on
signature (the signature date): step two is when all the preconditions for the sale have been
met (the date of coming into force).
The date of coming into force is not usually a calendar date, but the date on which the last
precondition is met. Common preconditions are:
Receipt of import and/or export approval;
Receipt of foreign exchange approval from a central bank;
Issuance of a letter of credit or bank guarantee;
Making of a down-payment by the buyer;
Issuance of an insurance policy:
Issuance of a certificate of origin;
Delivery by the buyer of plans, drawings or other documentation.
Negotiators often agree a cut-off date: if the contract has not come into force within a certain
time, for example three months from signature, then it becomes null and void.
---------------------------------------------------------------------------------------------------------------14
The terms "grace period" and "force majeure" are explained in the following pages
A cut-off date is common in fixed-price contracts: a long delay can make the price unrealistic. A
typical wording:
Coming Into Force
This agreement shall come into force after execution by both parties on the date of the last
necessary approval by the competent authorities in the country of the Seller and the Buyer.
If the contract has not come into force within ninety days of execution, it shall become null and
void.
How does the date of coming into force affect the delivery date? The delivery date is normally fixed
for a certain number of days after the contract has come into force. Let's return to our example: the
central bank in Mino's country, Esperanza, often takes months to allocate foreign exchange for
imports. Let's say it takes Aziz four weeks to schedule production, manufacture and ship an order.
(Let's also assume that Aziz cannot supply Mino's shampoo from stock because he wants a special
color.) Naturally Aziz is reluctant to begin manufacturing Mino's shampoo until his order is definite.
Accordingly she fixes the date of delivery four weeks (her manufacturing period) after the date of
coming into force. That way. she knows exactly where she stands. So Aziz' contract reads:
The date of delivery shall be twenty eight days after the date of coming force of the contract.
Timing and "Time is of the Essence" Clauses
How important is strict adherence to the agreed deliver) date.' Sometimes, punctuality is essential. If
you order a birthday cake to be delivered on your birthda;. 28th Juneand the cake arrives on the
29th. it is too late. You no longer want the cake, and you can legitimately refuse to accept it. In a
contract requiring absolute punctuality, lawyers sa\ that "time is of the essence of the contract"if
the time is not kept, the buyer has the right to send back the goods and refuse payment.
Is time normally "of the essence" in commercial life? Most legal systems say "No." Late delivery is a
nuisance, but it is rarely fatal to the buyer's purposes. This is so, even if the contract contains a clause
such as:
Time is and shall be of the essence of this contract.
Despite this clear wording, a judge may decide that time is not of the essence and that the buyer
cannot terminate the contract. But late delivery still has expensive results for the exporter, as we shall
see in a moment.
One other point is worth making on the precise meaning of delivery dates. Let's say a contract comes
into force on 25th November: delivery is fixed thirty days after coming into forceChristmas Day in
many places! Must the exporter deliver on a public holiday? Normally not. Delivery takes place,
under most legal systems, on the next working day after the agreed time. The parties can change this
if they wish, but few contracts do so.
In some contracts the exporter has the further duty to notify the buyer that delivery has taken place.
The exact form of this notification varies from contract to contract, depending in part on the place of
delivery, on the method of payment, and on the needs of the buyer.
Excused Delay and the Grace Period
Aziz and Graham, a customer in Nonamia, have done business together for some years. In their
regular contracts is this clause15 on late delivery:
For each week of late delivery the Seller shall pay the Buyer 0.1% cf the contract price.
At present, Aziz and Graham are negotiating delivery of 400 cartons of hair conditioner. Graham
wants delivery on 20th May. Aziz doubts that she can achieve this date and offers 20th June. Aziz
won't give an earlier date because she risks paying the agreed "penalty" if she is late. Graham is
reluctant to accept the later date; he wants the earliest delivery possible. As skillful negotiators, Aziz
and Graham decide to fix the earlier date as the delivery date, but to waive the payment of a penalty
for a month creating a one-month grace period.
15
Any problems the two sides foresee can be mentioned in the contract as excusing, or not excusing,
performance.
If a force majeure condition continues for months, life becomes difficult for both sides, so contracts
often regulate the force majeure period, in particular the right of one (or both) parties to terminate
the contract.
If either party is prevented from, or delayed in, performing any duty under this Contract, then this
party shall immediately notify the other party of the event, of the duty affected,and of the expected
duration of the event.
If any force majeure event prevents or delays performance of any duty under this Contract for more
than sixty days, then either party may on due notification to the other party terminate this
Contract.
The diagram below shows three possible outcomes of force majeure:
Two outcomes here are satisfactory: resumption of delivery, and orderly termination of the
contract. But the situation is unclear and risky for both sides if they failed to regulate their
rights in the event of force majeure.
UNEXCUSED DELAY AND BUYERS REMEDIES
We must now make some difficult, but important, legal distinctions and see how different
legal systems cope with the problem of giving the buyer some remedy for any unexcused
delay he suffers.
First, the generally accepted principle: if one party to a contract causes harm or loss to the
other, then the law will find a way to redress this harm or loss. When an exporter delivers
late, this normally causes some loss or damage to the buyer; maybe the buyer cannot use a
piece of equipment as soon as expected or must keep one of his own customers waiting. The
law provides two remedies for such damage.
-
The court may order the exporter to fulfill his obligayions: this means issuing a decree of
specific performance requiring the exporter to make a delivery as agreed or
The court may require the exporter to pay the buyer compensatory damages- a sum of money
that will fully and adequately compensate the buyer for any measurable loss.
In addition, the court may allow the buyer to cancel the contract- though this does nothing to
enforce his rights.
Which choice is the court likely to make? In the Introduction we saw that no contract is complete in
itselfevery contract is subject to some national law. National laws fall into two main families 16:
those that derive from the English common law and those that derive from the Roman civil law. One
difference between these families is their choice of remedy: common-law countries (England, the
United States, most of the British Commonwealth and ex-Commonwealth) prefer to award damages,
while civil-law countries (most other countries) usually enforce performance.
The concept of enforced performance presents no problems: the judge simply orders the party in
default to perform as promised. Damages are a more complex issue. Damages are sums of money
paid to compensate an injured party for some kind of "damage." In setting a figure for compensatory
damages for late delivery, the courts usually ask three questions, looking for the answer "Yes" in
each case:
Did the loss provably follow from the breach?
Was the loss reasonably close to the breach in the chain of events?
Was the loss "mitigated"in other words, did the buyer take reasonable steps to keep the loss as
small as possible?
Let's look at a scenario to see the practical effect of these questions::
Scenario: Aziz has agreed to deliver a consignment of shampoo to Mino on 30th May. By 30th July,
she has still not delivered. This delay causes problems for Mino: he has a contract to deliver the
shampoo to a chain store in Esperanza in early June. The chain store writes angrily to Mino
demanding some explanation. Mino does not reply. In mid-July the chain store writes to Mino again
saying that his failure to deliver the shampoo is the latest in a long chain of failures, and that they
want no more dealings with him. The loss of this customer costs Mino $300,000 a year. Mino
consults a lawyer about claiming damages from Aziz. The lawyer explains that to claim damages
from Aziz, Mino will have to show that the loss of the $300,000 was due to Aziz' failure to deliver
(which it was in small part), that the loss of the customer was closely and immediately connected
with Aziz' failure to deliver (which is arguable), and that he did everything in his power to mitigate
the loss (which he did not). It is not likely that a court would order Aziz to pay a large sum in
compensatory damages.
Court proceedings to claim compensatory damages, especially internationally, are expensive, the
results are uncertain, and law suits destroy the working relationship between the parties. Accordingly
most international contracts specify the consequences of typical breaches such as late delivery. The
two sides simply negotiate a "lump-sum" that the exporter will pay if delivery is late. This sum is
sometimes called liquidated damages and sometimes penalty. What is the difference between these
terms?
(For further information on the families of law, see Chapter 4, Section 2.)
Liquidated Damages
Normally the exporter and the buyer agree a fair figure, a lump sum to be paid per day (week
or month) of late delivery. This "best guess" is called liquidated damages. If delivery is sixty
days late, the exporter pays sixty-days damagesno questions asked. That is the principle
behind such clauses: payment of liquidated damages avoids expensive discussion. Two whatif questions arise about lump sums, however: first, what if the buyer's losses are much lower
than anticipated? Nothing changes: the exporter must still pay. And what if the buyer's losses
are much higher? Again, in principle, nothing changes: the exporter pays the agreed sum, and
the matter is settled.
Sometimes courts raise or lower obviously unjust figures. For example, the Chinese Foreign
Economic Contract Law empowers a court or arbitral agency to reduce or increase in an
appropriate amount the amount of liquidated damages...if it is substantially more or less than
the resulting loss; French law allows a change if the figure is "manifestly excessive or
ridiculously low."
Penalties
Damages are paid to compensate one pany for a lossa real loss in the case of compensatory
damages, a pre-esgmated loss in the case of liquidated damages. There is. in practiced, a third
possibility: sometimes a buyer tries to force the exporter to deliver punctually by imposing an
agreed penalty. A penalty clause simply says: "Deliver on time, or you will be punished."
Sometimes the figure fixed for the penalty is very high. The distinction is clear: the purpose
of a penalty is not to compensate but to punish, or, more correctly, to use the threat of
punishment to achieve acceptable performance.
This distinction between a penalty and a provision for payment of liquidated damages is
important in common-law thinking; Most common-law countries classify lump-sum clauses
include of three types according to the motive behind them. How does this work? In
reviewing a late delivery clause, the judge asks if it is (a) a fair pre-estimate (liquidated
damages); (b) an attempt to terrorize (a penalty); or (c) an attempt by the exporter to fix a
compensation figure so low that, in effect, it relieves him of responsibility for late delivery
(the quasi-indemnity). If it is a penalty,
the common-law judge simply refuses to enforce it. If it is a liquidated damages provision,
the common-law judge (like his civil-law counterpart) enforces the clause. If it is a quasiindemnicy, the common-law judge uses some discretion: a seller who uses his power over the
buyer (perhaps he is a monopoly supplier) to fix an outrageously low figure is behaving
immorallyor "unconscionably" as lawyers express it. The courts will not enforce a clause
they consider to be "unconscionable." The three motives in summary form:
LIQUIDATED DAMAGES PENALTY
QUASI -INDEMNITY
MOTIVE: To
compensate the
buyer fairly for any
delay in delivery
Enforceable
everywhere but subject
to increase or decrease
in some legal systems
MOTIVE: To relieve
the exporter of
liability for deiay in
delivery
Enforceable
everywhere but open
to challenge as
"unconscionable
MOTIVE: To
terrorize the exporter
into punctual
delivery
Not enforceable in
English law or other
common law systems
To be practical: how do you know, as an exporter, if a clause in your contract with your
customer is an enforceable liquidated damages provision or an unenforceable penalty? Let's
see how an English (or common-law) judge might proceed in a specific case. First the clause:
Liquidated Damages
If the Seller fails to supply any of the Goods within the time period specified in the Contract,
the Buyer shall notify the Seller that a breach of contract has occurred and shall deduct from
the Contract Price per week of delay, as liquidated damages, a sum equivalent to one half
percent of the delivered price of the delayed Goods until actual delivery up to a maximum
deduction of 10% of the delivered price of the delayed Goods.
To decide if this provision is a penalty or a liquidated damages clause, the common-law judge
first studies the wording. The heading is "Liquidated Damages" and "liquidated damages" is
mentioned in the text, but this is not decisive. The judge then asks some questions: Was the
figure0.5% per week up to a maximum of 10%agreed as a fair and reasonable estimate
of the loss the buyer might suffer? How was the figure calculated? Did the two sides discuss
or debate it? If the figure is fair, the judge enforces the clause; if it is unfairly high, the judge
will decide that its real purpose is to "terrorize" the exporter and refuse to enforce the clause.
CONCEPT REVIEW
MAIN FORCE
Read this Coming Into Force provision; then answer the question.
This contract shall come into force after approval by the governments of the Seller and the
Buyer, however at the latest by 31st December 2007.
Does this provision mean:
A. That the contract will come into force on 31st December 2007 even if the two governments have
not approved it? Or
B. That the contract will become null/ nil/ nought and void if it has not come into force by 31st
December 2007?
A B
The answer is B. A contract cannot come into force without government approval if such approval
is required by public law.
CASE STUDY
A Fine Contract
Study the conract clause below, and then answer the questions.
Fine Payable
If the Seller fails to deliver the Goods at the fixed date, a fine shall be imposed upon him for
the period of delay, until delivery is completed. The fine shall be as follows:
2% for the first week, or any part of it.
4% for the second week, or any part of it.
6% for the third week, or any part of it.
8% per week for the fourth week, or part of it, and for all succeeding weeks.
The fine shall be calculated'on the total contract value.
1. The clause uses the word "fine." Does that tell you for certain what kind of clause you are looking
at? (Penalty clause or liquidated damages clause?) YES NO
2. After how long a delay does the exporter lose 100% of the contract price?
.......WEEKS
3. Do you think this clause is a penalty clause or a liquidated damages clause?
PENALTY LIQUIDATED DAMAGES
4. If an English judge applying English law looks at this clause, will it be enforceable?
YES NO
1.
2.
3.
4.
The word fine suggests, but does not prove, that the clause seeks to impose a penalty.
14 weeks.
Penalty clause. The sum bears no relation to any anticipated loss.
No. English judges do not- in principle- enforce penalty clauses. (But some caution is needed:
the judge will decide according to all the merits of the cause.)
CASE STUDY
Force Majeure
Verbena Jute makes sacks, sackcloth, and other jute products. Its standard contract includes this
definition of an event:
If either party is prevented from, or delayed in, performing any duty under this Contract by an
event beyond his reasonable control, then this event shall be deemed force majeure...
The word control needs some thought. An event is beyond the control of the exporter (a) if he
could not have foreseen it; (b) if he could not have influenced it, and (c) if he could not have
taken reasonable steps to avoid the problems that were likely to arise.
1. A volcanic eruption buries the factory in ash. (Yes)
2. The annual flooding of the River Vero ruins some of the jute intended for use in making
sacks. (No)
3. A ban is issued on the export of jute products by a newly elected government. (Yes)
4. A ban is issued on the export of jute products by a government that has been preparing
legislation on this subject for five years. (Questionable)
5. The workforce at the factory go on strike. (Questionable)
6. The dock workers in Port Verbena go on strike. (Yes)
7. A lockout (Background: The workers have been striking for one day or a week. The
management locks the workers out of the factory until they agree to end the strikes. (Probably
no)
8. Shortage of supplies (Background: The exporter cannot get the raw jute he needs from the
supplier because of a shipping delay.) (No)
9. Shortage of supplies (Background: The exporter cannot get the raw jute he needs from the
supplier because the Central Bank will not give him foreign exchange to pay the supplier. (Yes)
10.
A fire burns down the factory. (Yes)
3. Place of Delivery
THE PROBLEM
In normal speech, the word "delivery" means the arrival of goods at their destination, but this is not
the accepted meaning in contract language. Considerable confusion can arise if the parties fail to
clarify what they mean by the place of delivery.
THE PRINCIPLE
The place of delivery is the point at which the exporter passes responsibility for the goods to the
buyer. This is usually in the country of the exporter; if sea transport is used, delivery normally takes
place at the docks; in the case of land or container transport, delivery normally takes place when the
goods are handed over to the carrier. Delivery also takes place in the country of the exporter in the
case of CIF and CIP contracts,19 even though the exporter must bear the costs of freight and
insurance through to the named destination.
IN MORE DEPTH
We saw in the introduction to this chapter that delivery can take place at a number of places between
the manufacturer's factory and the buyer's warehouse. If the buyer sends a truck to collect the goods
from the factory, delivery takes place at the factory. If the manufacturer puts the goods on his own
truck and drives them to the buyer's warehouse, delivery takes place at the warehouse. Both of these
arrangements are, however, rare in international trade. Normally delivery takes place at some
intermediate place along the line of transportation. It is useful, in this context, to ask what the law
says if the parties agree nothing between themselves. Under most national laws, a contract for the
sale of goods abroadassuming transportation by shipis normally considered as an FOB (Free on
Board) contract: delivery takes place when the goods cross the rail of the ship nominated by the
buyer. This is perfectly reasonable: from the buyer's point of view it is often cheaper to arrange sea
transportation with a carrier and an insurer in his own country; from the exporter's viewpoint, he has
no control over the goods once they are on board the ship chosen by the buyer, so he should have no
responsibility. It is also fair that the exporter, who has money tied up in the goods, should be paid
when the goods leave his country. But the matter is disposive: the parties can make any arrangement
they wish. If an FOB contract is agreed, then the contract contains wording such as:
The terms FOB, CIF and so onthe thirteen Incotermsare the subject of Section 6 below.
Delivery of the Goods shall be made FOB (Mombasa).
The term FOB is always followed, as in this example, by the name of the port where delivery will
take place. (The name of the port is sometimes generalized into, for example, "Kenyan port" or
"English east-coat port.")
One common arrangement causes considerable confusion internationallythe so-called CIF
contract. CIF stands for Cost, Insurance and Freight. In a CIF contract, the exporter must pay the full
costs plus the freight charges plus insurance up to the named place of destination, usually a port. For
example:
Delivery of the Goods shall be made CIF (Durban).
The exporter pays all the costs up to the port of arrival, Durban. But where does delivery take place?
Delivery takes place when the goods cross the ship's rail in the port of shipment, exactly as in an
FOB contract. The point is forcefully made in the ICC handbook dealing with Incoterms:
Since the point for the division of costs refers to the country of destination, the "C"-lerms are
frequently mistakenly believed to be arrival contracts, whereby the seller is not relieved from any
risks or costs until the goods have actually arrived at the agreed point. However, it must be stressed
over and over again dial the 'C'-terms are of the same nature as the "F"-terms in that the seller fulfills
the contract in the country of shipment or dispatch. Thus, the contracts of sale under the "C"-tcrms,
like the contracts under the "F"-terms, fall under the category of shipment contracts -:1
The issue is crucialon delivery, risk (as well as ownership in main cases) passes and payment
usually falls due. The point is so often misunderstood, that many contracts include additional
wording on the place of delivery. For example, the Model Contract suggested in this book uses the
following wording for CIF contracts:
Delivery of the Goods shall be made [INCOTERM]. The scheduled date of delivery shall be [DATE
OF DELIVERY]. Risk and title to the Goods shall pass from the seller to the buyer on delivery.
The place of delivery under this Contract is [PORT OF SHIPMENT].
One final consideration on the subject of place. What happens if the ship named by the buyer is late?
The goods are ready, but the exporter, through no fault of his own, cannot deliver. The careful
exporter makes a special provision to cover this problem.21 For example:
------------------------------------------------------------------------------------------------------20
Incoterms 1990. p. 1 1. There is a full discussion of the Incoterms in .Section 6 below,
21
If payment in such a case is made by Letter of Credit, il is very important for die exporter thai
ihe let the Letter of Credit allow subslitution of the warehouse receipt for the bill of lading
If the vessel named by the Buyer fails to arrive on or before the agreed delivery date, then the Seller
may at his discretion deliver the goods to a bonded warehouse in the port of Mombasa, and shall be
deemed to have fulfilled his delivery obligations under this contract.
CASE STUDY
Dead on Time
In preliminary talks, Bangladesh Steel Exporting agrees with All Africa Metal to deliver goods to
Lagos on or before 13th August 1995. When the contract is drafted, it mentions the date as agreed
13th August 1995. Because the Nigerian company has no shipping agent in Bangladesh, it asks for a
CIF contract under Incoterms 1990. The delivery terms are accordingly agreed in the contract as
follows:
Delivery CIF (Lagos) on or before 13th August 1995.
Trouble is now almost certain. Why?
Trouble is likely because under this contract delivery will take place on or before August 13 th
in Bangladesh not, as the buyer evidently intended, in Lagos. The expression CIF (Lagos)
means that, in addition to making delivery in Bangladesh, the exporter must pay the cost of
insurance and freight on to Lagos.
What You Should Know
1. The place (and time) of delivery must be unambiguously agreed because many contract events
(including payment and transfer of risk and title) are tied to delivery.
2. The place of delivery should not be confused with the destination of the goods.
3. Delivery of goods under most export contracts takes place in the country of the exporter, at the
docks in the case of sea transport, and when the goods are handed over to the carrier in most other
cases.
4. CIF and CIP contracts are especially confusing since they name the point of destination, e.g., CIF
(Lagos). Lagos, in this example, is the point up to which the exporter is responsible for costs, not the
place of delivery.
5. TRANSPORTATION: Vn chuyn
MC: Good morning, ladies and gentlemen.
First of all may I say thank you for coming.
Our group takes great pleasure to talk about transportation, especially about the
transportation in foreign trade.
First, Mr Thang and Miss Thoa will discuss the problem in transportation. Next Mr
Hao and Miss Tam will explain some solutions to the problem. And finally, Miss
Mai and Mr Hoang will discuss some case studies involved.
Now, to begin, Mr Thang and Miss Thoa please.
THE PROBLEM
For the exporter, transportation has two aspects: the physical
safety of goods which means appropriate packaging and
correct marking and correct documentation.
Unless the shipping documents are in perfect order, prompt
payment under a letter of credit is difficult or impossible. What
are the dangers?
Vn
Nh xut khu trc vn vn chuyn
cn ch n hai kha cnh: an ton hng
ha c th l ng gi v ghi k m hiu
cng nh bo m b chng t phi
khp vi nhau. Nu cc chng t vn
chuyn khng trng khp v xp theo th
THE PRINCIPLE
The parties should state in their contract what packaging
should bear.
The exporter must follow the agreement scrupulously or
payment may be delayed.
The exporter should ensure that the shipping documents
correspond exactly with the conditions of the letter of credit
and that the bill of lading is clean, otherwise, again, payment
can be seriously delayed.
Once the mode of transport (road, rail, air or ship) has been
negotiated, three aspects of transportation feature in the
contract: packaging, shipping marks, and shipping
documents.
First, packaging. One primary duty of the exporter is to ship
the goods in suitable packaging.
Most national laws don't say clear rules for this.
Rather than rely on the law, the exporter and the buyer
usually specify the contract what packaging they consider
adequate. A typical clause:
"Goods are to be packed in new, strong, wooden cases suitable for long-distance ocean
transport and are to be well protected against dampness, shock, rust, or rough handling.
The SELLER shall be liable for any damage to or loss of the Goods attributable to
improper or defective packaging."
Hng ha phi c ng gi trong thng g mi, chc chn v ph hp cho vn chuyn hng hi
ng di v phi c bc, lt chng m. sc, hoen r hay bc d khng cn thn. Ngi bn phi
chu trch nhim trc mi tn tht hng ha do ng gi khng ph hp hay thiu st.
This wording makes the requirements clear, and
it puts the blame firmly on the shoulders of the
exporter if packaging is inadequate.
Three packaging problems are worth mentioning
here even though they are matters of public law
and outside the direct scope of the contract:
Packaging of dangerous goods is subject to
special regulations in all countries.
The exporter should ask for instructions from the
buyer if dangerous goods are in question.
Some national laws require fumigation of all
containers entering the country.
Agriculture-based, developed economies (such
as that of Australia) tend to place severe
restrictions on packaging materials. Hay, straw
and rice husks are often forbidden; wooden
packaging must often be fumigated.
If in doubt, the exporter should consult the buyer
or the consulate of the importing country.
Shipping Marks
On the surface of each package delivered under this Contract shall be marked: the
package number, the measurements of the package, gross weight, net weight, the
lifting position, the letter of credit number, the words THE RIGHT SIDE UP,
HANDLE WITH CARE, KEEP DRY, and the marks DNP/ 36/Q.
Trn mi kin hng c giao theo hp ng ny phi ghi k m hiu bao gm s th t,
kch thc, trng lng th, trng lng tnh, v tr nng ca kin hng, s L/C, thm nhng
t ph bin khc nh XIN NG CHIU, Cn THN KHI BC D, CN NI KH
RO, v nhng m s nh DNP/ 36/Q.
Some of these marks are concerned with
Mt s cc nhn hiu c lin quan vi xc nh
identifying the goods, some with handling (e.g ,
cc hng ho, x l (v d, trng lng v "Right
weight and "Right Side l'p"). and some with
Side l'p"). v mt s quy nh ca chnh ph (v
government regulations (e.g., Indonesian practice d nh Indonesia thc hnh yu cu hng ho
requires that goods sold under a letter of credit
bn ra theo th tn dng phi c s lng tn
must bear the number of the credit on the
dng trn bao b, thanh ton theo th tn dng c
packaging; payment under the letter of credit
th kh khn nu iu ny khng c thc
may be difficult if this is not done.) Once
hin.) Sau khi tha thun c t, xut khu
agreement has been reached, the exporter should phi c nghim ngt cn thn v vic in tt c
be scrupulously careful about printing all the
cc du hiu cn thit: nu khng, chng ta s
necessary marks: otherwise, as we shall see in
thy trong phn tip theo, ngn hng c th t
the next section, the bank may refuse to pay
chi tr tin theo th tn dng.
under the letter of credit.
Shipping Documents
We must now glance ahead and discuss briefly
payment by letter of credit. The exporter has
fulfilled his major duties under most export
contracts when he passes to the carrier correct
contract goods. At this point, he is entitled to
payment. The problem is, of course, that goods
are usually passed to a carrier in the exporter's
own country weeks, or months, before the
importer has the chance to examine them. To
allow payment at this early stage, international
commerce has developed the letter of credit.
How does the letter of credit work?24 In brief, the
buyer arranges with a bank in the exporter's
country to pay a certain sum of money (usually
the total invoice price) as soon as the goods are
shipped. Obviously the exporter must prove to
the bank that shipment has taken place as agreed
with the buyer. As proof the bank accepts the
shipping documents. The text of the letter of
credit contains a list of shipping documents,
sometimes a very detailed list. After the bank is
satisfied that the shipping documents tendered by
the exporter are exactly in order, it pays the
agreed sum. What, then, are these shipping
documents?
--------------------------------------------------------------------------------------24
Chapter 2, Section 4 deals with the letter of credit in detail
The most important shipping document is issued by the carrier when the exporter hands over
the goods ior transportationit goes under many names, but in general we can call it the
waybill. Waybills fall into two groups with slightly different rules attached to them. The first
type is the traditional marine bill of lading which is used for transport by ship. The second
type includes shipping documents issued by airlines (the air waybill), by railways (the rail
consignment note), and by road hauliers (the road consignment note). Since many goods
today are containerized, and since containers move by road, rail, ship and air, a combined
transport bill of lading is used to cover multi-mode transport. On the next pages you will see
a blank example of each type of document mentioned above.
A Marine Bill of Lading (p. 45)
Most marine bills of lading today use the dual purpose form (marine/combined transport)
shown below rather than the traditional form reserved purely for ships. (For a completed
marine bill of lading, see the Concept Review: Barnacle Bill below.)
An Air Waybill (p.46)
The air waybill is issued by an airline when it takes over the goods from the exporter.
A Rail Consignment Note (p. 47)
If goods are shipped by rail, the railroad company issues a rail consignment note. Although
there is a standard international form (the so-called CIM form), most rail consignment notes
in developing countries look more like the example shown.
A Road Consignment Note (p. 48)
A trucking company issues a road consignment note on taking over the goods. Of all the
shipping documents, the road consignment note is the least standardized. The example below
shows the typical entries.
A Combined Transport Bill of Lading (p. 49)
"Combined transport" is the most common term for shipment in a container since trucks,
trains, ships and planes can all handle containers.
An Airway Bill
The marine bill of lading is special: if the parties so wish, it can be made a negotiable document (in
other words, it can be sold or bought). Why would anyone buy a bill of lading? Simply because the
person who holds a bill of lading owns (or has title to) the goods described. This is an important aspect
of commodity trading: a cargo for example, the cargo of an oil tanker loaded in the Gulf may be sold
several times during its voyage. If such a sale is foreseen, the parties make the bill of lading negotiable;
if, however, the consignee (i.e., in most cases the buyer) intends to receive the goods personally, there
is no reason for a negotiable bill of lading.
In practice, how do you make a bill of lading negotiable? And how can you tell if a bill is negotiable or
not? The answer lies in the first few lines of document. First an example of a negotiable bill of lading
(Typing the word Order or blank in the Consignee box makes the bill of lading negotiable.
Incidentally, the use of the word Order means that the shipper must endorse the bill (sign it on the
back). But when you write the name of a person or an organization in the Consignee box, the bill is not
negotiable. )
The difference lies simply in the use of the word "Order" in the Consignee box. Typing the
word "Order" makes the bill of lading negotiable. Incidentally, the use of the word "Order"
means that the shipper must endorse the bill (sign it on the back).
Clean Shipping document.
Export goods are examined frequently on their journey from buyer to seller. There is often a
pre-shipment inspections; customs officers examine the goods at every border. A carrier, of
course, examines not the goods themselves, but their packaging and general appearance. If
anything is wrong, the carrier notes the deficiency on the face of the bill of lading or other
shipping document. The carrier might note, for example
Contents leaking
Packaging soiled by contents
Packaging broken/ holed / torn/ damaged
Packaging contaminated
Goods damaged/ scratched
Goods chafed/ torn/ deformed
Packaging badly dented
Packaging damaged contents exposed
Insufficient packaging
What effect does such a note have? In 1989 the International Chamber of Commerce issued a
pamphlet entitled Clean Transport Documents (Publication No. 473). This pamphlet
distinguishes between cleun documents and claused (or unclean) documents. The remarks in
a claused document make it unacceptable to a bank; a letter of credit will not be paid against
a claused shipping document.
Sec Chapter 3, Sections 1 and 2 for detailed information on inspection
Not all notes, however, are considered to be "clauses." For example:
Second-hand/reconditioned packaging materials used Packaging
repaired/mended/resewn/coopered Unprotected Unboxed
Such remarks are not enough make the bill of lading "unclean." To avoid disputes, the two
sides to the contract often agree that the letter of credit will specify "clauses" that, in their
particular line of business, would be unacceptable. For example, in shipping iron products,
the parties might agree that no rust at all is allowed; thus the clause "Some rust spots" would
result in an unclean transport document.
One situation that sometimes arises is dangerous for the exporter. The carrier is taking over
goods at the exporter's factory. The carrier examines the packaging critically and decides to
write the clause "Insufficient packaging." An argument breaks out. To resolve the argument,
the exporter offers the carrier an "indemnity"a sum of money (or a promise of such a sum)
to cover any losses the carrier might incur if the buyer complains about the condition of the
goods when they arrive. This is very close to a bribe. Clean Transport Documents comments:
Courts in several countries have ruled that the carrier who accepts such an indemnity...is an
accomplice in deceit or fraud on the buyer and the indemnity itself is illegal and void (p. 7).
The payment of an "indemnity" could result in prosecution for fraud.
CASE STUDY
Barnacle Bill
Study the Bill of Lading below and then answer the questions below.
1. If a letter of credit required a "Marine Bill of Lading," would this document be acceptable?
YES
NO
2. If YES, how do you know? .................................................................
It is stamped with a shipped on board stamp, and a vessel is named.
3. A marine bill of lading is sometimes negotiable. If this is a marine bill of lading, is it
negotiable? '
YES
NO IT IS NOT A MARINE BILL OF LADING
4. If YES or NO, how do you know? .........................................................
The consignee box in a negotiable B/L is made out To Order.
What You Should Know
1. The contract should specify the type of packaging and the shipping marks agreed by the
parties.
2. On delivery, the exporter receives from the carrier the most importan all the shipping
documents, the bill of lading (or consignment note).
3. Each mode of transport has a characteristic shipping document: the marine bill of lading,
the air waybill, the rail consignment note, and tl road consignment note are the most
common. Combined transport (container transport) uses a combined transport bill of lading.
4. Under certain circumstances, a marine bill of lading can be made intc negotiable
document.
5. The marine bill of lading, to be acceptable as a shipping document under a letter of credit,
must bear the notation that the goods have been shipped on board a named vessel.
6. Payment under a letter of credit depends largely on the correctness i the shipping
documents.
7. Payment under a letter of credit may be delayed if the letter of credit repeats exactly the
contractual packaging requirements but the exporter has failed to meet them.
8. The carrier will note any defects in the packaging, weight or general appearance of the
goods on accepting them from the exporter. (The carrier does not inspect the goods
themselves, only the packaging.) be acceptable under a letter of credit, all shipping
documents must b "clean," i.e., free of notes about defects.
55-64
5. RISK, TITLE AND INSURANCE
THE PROBLEM
Risks to ones property must be insured, but insurance of exported goods is a difficult field
for the layman. The exporter must be able to decide what kind of policy or insurance cover is
necessary, and what risks must be covered.
THE PRINCIPLE
Most exporters prefer an open cover arrangement, with the goods valued and insured from
point-to-point. The exporter should consult a broker to ensure that all expected risks are
covered.
MORE DEPTH
We have already said that risks usually pass on delivery. Two risks are involved in the sale of
goods: the risks of goods injuring a third party and the more significant risk of loss or
damage. These risks are normally covered by insurance.
Transfer of Title
Ownership (title) is a complicated problem. National laws do not agree on a point when
ownership of goods passes from exporter to buyer. The range is wide: from signature of
contract to final payment. The matter is, however, disposive Many exporters like to keep
legal ownership of goods until full payment is made, seeing ownership as security for payment. Many "hire purchase" agreements work like that: the buyer pays in installments, but
owns the goods only when the last installment is paid. In international trade, however,
ownership is of doubtful value. If Aziz sends shampoo to Elsperanza and the invoice is not
paid, ownership is of little practical value: she is unlikely to recover the goods since they
must pass through two sets of customs on their trip home: if she sells the goods in Esperanza,
she will get little for them. In any case, her costs will probably exceed the money she
recovers. Accordingly, since ownership is of little practical value, many contracts specify
that:
The preparation of a policy of insurance lakes some little (= considerable, Ed.) time,
particularly if there arc a number of underwriters or several insurance companies, and
when documents require to be tendered with promptness on the arrival of a steamer in
order thai expense may not be incurred through delay in unloading..., it is not always
practicable to obtain actual policies of insurance. In order to facilitate business in
circumstances such as these, buyers arc accordingly in ihe habit of accepting brokers'
cover notes and certificates of in insurance instead of insisting on policies.28
What is a "certificate of insurance"? Many exporters have an agreement with an insurance
company covering all their shipments over a period of time. Hach individual shipment is
covered by a certificate of insurance, not by a full policy. (A full policy can normally be
issued for an individual consignment if the buyer wants this.) A certificate of insurance:
States in outline the cover offered;
Gives the details of the individual shipment.
Under English law at least, the effect of a certificate of insurance is virtually identical with
that of a full policy. In addition to the certificate of insurance, there is also the so-called letter
of insurance. This is simply a 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.
Types of Insurance policy: Floating Policy and Open Cover.
Sometimes an exporter deal is unique special equipment is built and shipped in an unusual
way to an unfamiliar destination. In such a situation, the exporter (usually with the help of a
broker) negotiates a special insurance policy. Normally, however, an exporter with many
similar contracts finds it time-consuming and expensive to arrange a new insurance policy for
each consignment. One answer to this problem is the floating policy, another is the open
cover.
Lets look first at what the floating policy and open cover have in common. Both offer the
exporter insurance cover on all shipments over a period of time. In both cases a ceiling is set
on the overall figure for example $1 million. As each individual shipment is made, the
exporter declares the value of the shipment, and the ceiling is automatically reduced by that
amount. Thus 10 shipments worth $100,000 each would reduce a $1 million cover to zero.
As each shipment is made, it is covered by a Certificate of Insurance. Often the exporter has a
pad of these certificates and simply fills out a new one for each shipment.
------------------------------------------------------------------------27
In some countries, the policy bought by the exporter names the buyer as the insured party.
28
Judgment in Wilton, Holqaie & Co. v. Belgian Grain and Produce Co (1920) 2 KB l.8
Insurers have various ways of limiting claims under such cumulative agreements. Generally
claims are kept down by:
- A limit per bottom ( A bottom is a ship);
- Limit per locality. (the expoters warehouse is a locality. A warehouse may contain
several consignments awaiting shipment. If they are all destroyed, the locality limit
will probably bite).
Insurance companies also generally add the Institute Maintenance of Class Clauses: this
requires that all ships used by the exporter are in a certain class in the shipping register.
In terms of the insurance cover offered, the floating policy and the open cover are, in effect,
identical. The logistical differences between the two kinds of cover, however, have led the
business community today to prefer the open cover. The first advantage of the floating policy
is that it is set up for a particular time and automatically expires unless renewed; the open
cover is open-ended: it does not expire, although there are provisions for cancellation on due
notice. Thus the open cover is marginally more convenient. The second difference is more
fundamental: an open cover is not an insurance policy at all it is an agreement by an
insurance company to issue an insurance policy if the insured asks for one. Normally the
insured does not ask for a full policy; he simply creates a Certificate of Insurance with the
knowledge that if he wants a policy he can get one at any time including, and this is very
important, after a loss. This arrangement is less formal and less time-consuming but
extremely reliable: that is its attraction for the exporter.
Types of Insurance Policy: Valued and Unvalued
When the exporter insures goods, does he declare their value to the insurer or not? In
practice, he may or he may not: both alternatives are possible. If the value is not stated (the
unvalued policy), then the value can be established after a loss; naturally, the exporter must
prove his figures precisely. As long as the figure does not exceed the total cover under the
policy, the insurer will pay. The alternative is the valued policy: the exporter states the value
of the goods on the insurance document. This has a decisive advantage: the pre-stated figure
can include not only the cost of the goods but also the profit the exporter hoped to make on
them. For this reason, valued policies are most in favor today.
There is a problem here though: what happens if the exporter seriously overvalues the goodsmust the insurance company pay the declared value? The answer is "No." The exporter
must behave with the utmost good faith or the policy is void. A classic case from 1874: an
English company sent goods to Russia and valued them at three times their cost, knowing that
the goods would sell at a huge profit in Russia. The company said nothing to the insurer
about the wide margin between cost and stated value. The goods were lost at sea. Was the
insurance company obliged to pay? The court ruled that the exporter should have disclosed
the wide margin to the insurerthe exporter had not acted with the utmost good faith and did
not recover under the policy.29 The lesson for the exporter is clear: the insurer must be told
everything of special significance about each shipment. The penalty for not disclosing
important information is no coverage at all.
Types of Insurance Policy: Time and Voyage
Goods can be insured between two dates <a time policy) or between two places (a voyage
policy). Most exporters prefer the voyage approach. Insurers, however, dislike insuring goods
for an unlimited time period: a shipment intended to start in January and finish in February
might drag on until December. For this reason, most policies are "mixed"the goods are
insured between two places but only within a given time frame. The time frame can usually
be extended, but only against a higher premium.
------------------------------------------------------29
Ionides v. Pender (1874) LR 9QB 531
A Marine Insurance Policy: What Does It Cover?
Most modern insurance policies are based on the Lloyd's Marine Policy. This document is
simply a schedule that lists: the policy number; the names of the assured (insured) and the
ship; the voyage and/or period of insurance; the goods insured (and possibly their value); the
sum insured; the premium; special conditions and warranties; and a list of clauses to be
attached. It is this attached list of clauses that specifies the cover provided. Of greatest
importance among the "clauses attached" is the Cargo Clause. It has three versions: A, B, and
C.
Cargo Clause A works reductively. It starts with a 100% cover"all risks"but steadily
reduces this cover by means of various exclusions. Cargo Clauses B and C, on the other hand,
work cumulatively. They start with little or no cover and specifically add risks that are
covered.
Whichever version is chosen, the so-called General Exclusion Clause excludes a number of
risks, in particular:
Willful misconduct of the assured. The results of any wrong act deliberately carried out by the
assured are not covered.
Ordinary leakage, loss of weight or normal wear and tear. If a volatile oil normally loses
10% of its volume in a month, this lossand any similar, normally anticipated lossis not
covered.
Improper packaging. Damage resulting from improper packing or preparation is not covered.
To discover what is improper, the courts usually refer to what is customary in a particular
trade.
Inherent vice in the goods. Some goods are inherently dangerous. A cargo of hay, for
example, may catch fire because of spontaneous combustion. That is an "inherent vice" and
the loss of the hay is not covered.
Delay. In general, losses caused by delay are not covered.
Insolvency of the owners (etc.) of the vessel. If a journey ends prematurely because the
shipping line goes bankrupt, extra costs (further shipment for example) are not covered.
Use of Nuclear Weapons. If cargo is damaged through the use of nuclear weapons, the
insured will probably be worrying about more than his cargo. Even so, this risk to the goods
is not covered.
In addition, all three Cargo Clauses contain the Unseaworthiness and Unfitness Exclusion
Clause. This clause says that goods shipped in an unseaworthy vessel are not insured. Since
few laymen can know if a ship is seaworthy or not, the clause is softened: cover is withdrawn
only if the insured knew about the unseaworthiness.
Losses resulting from war, from strikes or from terrorism are also excluded, but here the
difference between a reductive and a cumulative approach is important. If the War Exclusion
Clause (or the Strike Exclusion) clause is deleted from Cargo Clause A, then these risks are
covered. For Cargo Clauses B or C it is necessary to add the so-called Institute War Clauses
or Institute Strikes Clauses to the policy if these risks are to be covered. We should now look
at Cargo Clauses B and C to see what exactly they cover:
Cargo Clause B covers:
1.1 Loss of or damage to the subject-matter insured attributable to:
1.1.1 fire or explosion,
1.1.2 vessel or craft being stranded, ground, sunk or capsized,
1.1.3 overturning or derailment of land conveyance,
1.1.4 collision or contact of vessel craft or conveyance with any external object other than
water,
1.1.5 discharge of cargo at a port of distress,
1.1.6 earthquake, volcanic eruption or lightning.
1.2 Loss of or damage to the subject-matter insured caused by:
1.2.1 general average sacrifice,30
1.2.2 jettison or washing overboard.
----------------------------------------------------------------------------------------------------30
General average sacrifice refers to a situation in which a ship must make a "sacrifice" (e.g.,
throwing part of the cargo in the sea) in order to preserve the ship and the rest of the cargo.
The cost of such a sacrifice is shared by all the parties involved. (See Schmillhoff, p. 520+.)
1.2.3 entry of sea-, lake-, or river-water into vessel, craft, hold, conveyance,
container, liftvan or place of storage.
1.3 Total loss of any package lost overboard or dropped whilst loading on to, or
unloading from, a vessel or craft.
Cargo Clause C covers:
1.1 Loss of or damage to the subject-matter insured attributable to:
1.1.1 fire or explosion,
1.1.2 vessel or craft being stranded, grounded, sunk or capsized,
1.1.3 overturning or derailment of land conveyance,
1.1.4 collision or contact of vessel craft or conveyance with any external object other
than water,
1.1.5 discharge of cargo at a port of distress,
1.2 Loss of or damage to the subject-matter insured caused by:
1.2.1 general average sacrifice,
1.2.2 jettison.
Below paying a claim for loss, insurers study the circumstances fully.
They examine the insurance document to check that the lost or damaged goods were correctly
described. If the description and the goods are materially different, the insurer may refuse to
pay. In one famous case, an exporter bought leather flying jackets from the British
government. The jackets were twenty years old, but they had never been used. The exporter
described the goods as "new men's clothing in bales." When the goods were stolen, the
insurer refused to pay because of material misdescription. The court agreed: the description
was inaccurate.31 In general, the insured must disclose any fact "which would influence the
judgment of a prudent insurer in fixing the premium or accepting the risk."32
Some policies allow for innocent misdescription with a "held covered" clause: under given
conditions, the goods are held (= considered) to be covered. An example: an exporter bought
second-hand machinery in order to export it. On the insurance document the goods were
described simply as "machinery." When the goods were lost, the insurer refused to pay,
pleading material misdescription. The policy contained, however, a "held covered" clause:
"held covered at premium to be arranged. The court ordered the insurance company to pay,
but allowed it an extra premium.33
In summary, always remember the cardinal 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
the other party.34
------------------------------------------------------------------------------------31
Anglo-African Merchants v. Bay ley (1970) 1 QB 311, 319-320.
32
Schmiuhoff, p. 503.
33
Greenock SS. Co. v. Maritime Insurance Co. (1903) 1 KB. 367.
34
Marine Insurance Act. (UK) 1907, 17.
CASE STUDY
TAKE OVER
Pacific Exports is a new company founded in Verbena to export textiles. The company anticipates
sales of about $500,000 during its first year of operations, with most orders between $1,000 and
$30,000. Since Verbena is an island, consignments of goods always travel by ship. The company
wants advice on the best kind of insurance for its CIF contracts. What would you recommend among
the choices below? In each case be ready to give your reasons.
1. Tailor-made policies
Floating policy
Open cover
...Because there is no need for a full insurance policy to be negotiated for each order.
2. Valued policy
Unvalued policy
...Because this allows claims for the loss of expected profit if the goods are destroyed or damaged.
3. Voyage policy
Time policy Time and voyage policy
...Because this policy maintains insurance cover on the goods even if there is a delay.
4. Cargo Clause A (All risks) Cargo Clause B Cargo Clause C
Debatable. Because for the exporter, Cargo Clause C is cheapest. Furthermore, nothing more is
required under CIF contracts. However, the buyer may be very unhappy if the texttiles are lost and
the insurance arranged by the exporter fails to offer the expected compensation. The exporter and the
buyer should discuss this issue.
5. Institute War Clauses YES NO depends on __
Depends on route and political situation.
6. Institute Strikes Clauses YES NO depends on __
Depends on social and political situation. Normally cover against strikes is recommended.
CC VN Mc d mc ch ca ICC
Incoterms l tiu chun ha cc iu khon
thng mi trn ton th gii, nhiu doanh nhn
khng bit nhng iu khon ny c ngha l tnh
cht ca cc quyn v ngha v ca mnh theo
mt hp ng Incoterm.
THE PRINCIPLE
The ICC publication, Incoterms 1990, gives
full and clear information about the rights
and duties of buyer and exporter in Incoterm
contracts. Ignorance of these terms can be
expensive.
IN MORE DEPTH
World trade depends to an increasing extent of
standardization: international weights and
measures are metric: many contracts are priced in
U.S. dollars; letter of credit follow standard
rules. Misunderstandings can be expensive:
anything that makes them likely less likely is
welcome.
Su hn v
Thng mi th gii ph thuc vo mt mc
ngy cng tng ca tiu chun: trng lng quc
t v cc bin php c s liu: nhiu hp ng
c gi bng la M, th tn dng theo quy tc
tiu chun. S hiu lm c th tn km: bt c
iu g m lm cho h c th t c kh nng c
cho n. Incoterms Mi ba Mt ngun tin gy
nhm ln quc t l iu kin giao hng. Chng
THE PRINCIPLE
The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties
of buyer and exporter in Incoterm contracts. Ignorance of these terms can be expensive.
IN MORE DEPTH
World trade depends to an increasing extent of standardization: international weights and
measures are metric: many contracts are priced in U.S. dollars; letter of credit follow standard
rules. Misunderstandings can be expensive: anything that makes them likely less likely is
welcome.
The Thirteen Incoterms
One source of international confusion are delivery conditions. We have already looked at a
number of problems and seen how national laws vary in their preferred solutions. To clarify the
situation, the International Chamber of Commerce (ICC) issued as early as 1936 standardized
terms- the so-called International Commercial Terms or Incoterms. Over the years, the ICC has
updated the Incoterms as the nature of commerce has changed- increased use of aircraft, the
introduction of containers, electronic document transfer and so on.- all have required new or
revised terms. The latest issue of Incpterms is the 2010 revision.
In establishing the 13 Incoterms, the ICC has looked at the most common variations in an
arrangement for delivery and established for each variation the exact duties of the exporter and
the buyer. In setting up the 13 terms, the ICC has taken into account three variables:
- Where along the transportation route delivery takes place;
- What means of transport is used; and
- What costs the exporter might pay after the point of delivery.
The 13 terms are grouped in four categories: E-terms, F-terms, C-terms and D-terms. The E-term
deals with deliveries at the exporters factory. The F-terms all concern delivery within the
exporters country. The C-terms involve delivery in the exporters country, with extra costs for
the exporter after delivery. D-terms take care of delivery outside the exporters country. A table
gives us an overview:
QUESTION: Explain EXW, CFR, DDU
EXW is one of the E-terms in the Incoterms. It stands for Ex-work, a method of delivery, where
the exporter is free from charge when exporter notifies buyer of availability of goods at
exporters premises (factory or warehouse). Then the exporter is not responsible for transport or
any other costs.
CFR is one of the C-terms in the Incoterms. It stands for Cost and Freight, a method of delivery,
where the exporter is free from charge when the goods pass the ships rail. Then the exporter is
responsible for ship transport and freight.
TERM
TYPE
SHORT
FORM
FULL
FORM
ETERMS
EXW
Ex-work
F-TERMS FCA
FAS
FOB
CTERMS
CFR
CIF
CPT
CIP
POINT OF DELIVERY
TRANSPO COST
RT
AFTER
DELIVERY
None
None
Any
None
Ship
None
Ship
None
Ship
Freight to
destination
Freight and
Insurance to
destination
Freight to
destination
Freight and
Ship
Any
Any
DTERMS
DAF
DES
and
Insurance
Paid
Delivered
At Frontier
Delivered
Ex-Ship
DEQ
Delivered
Ex-Quay
DDU
Delivered
Duty
Unpaid
Delivered
Duty Paid
DDP
to the carrier
insurance to
destination
Any
None
Ship
None
Ship
None
Any
None
Any
None
Incoterms obviously save a great deal of work in contract drafting. Compare the two versions of the
delivery clause below:
The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990).
For the equipment listed in Annex 1 the price is for delivery free on board the carrying vessel
designated by the Buyer at the port of Beira including the cost of packing, as well as expenses
incurred before loading the equipment on board the carrying vessel.
The first wordingusing an Incoterrrtis more than simple shorthand: it incorporates six pages of
the ICC booklet Incoterms 1990 specifying numerous duties of both buyer and exporter. The
exporter, for example, must "Deliver the goods on board the vessel named by the buyer..." and 'pay
all costs relating to the goods until such time as they have passed the ship's rail."36
A word of caution on Incoterms: the 1990 Incoterms are radically new. Some old terms have
disappeared: FOT and FOR (Free On Truck and Free on Rail) have been replaced by FCA; C&F has
been renamed CFR. Further, some traditional terms now have very restricted meanings: FOB, for
example, applies only to transport by ship; for other means of transport, the correct "FOB
equivalent" is now FCA. Also remember that Incoterms apply only to international trade; for trade
within a country, Incoterms are not appropriate.
Two questions often arise about Incoterms: first, is it necessary to state in the contract that FOB, CIF,
and so on are Incoterms? And secondly, what happens if the "small print" of Incoterms 1990 conflicts
with a provision of the contract? Let's look at these issues.
Specifying Incoterms
Is the specification, "Incoterms 1990," really needed? In fact, it is necessary because FOB and CIF
are also common terms in many countries with different commercial traditions, for example in the
United States.37 Unfortunately, American and ICC usage of the terms do not agree: for example in the
U.S.:
The term FOB or "free on board," may be used with reference to the seller's city, the buyer's city, or
an intermediate city. It may also be used with reference to a named carrier, vessel, car or other
vehicle.38
------------------------------------------------------------------------------------36
Incoterms pp. 138-140.
37
See UCC 2-320 to 322. The UCC is the Uniform Commercial Code of the United Slates. It will be
referred to many times in the following pages. For more information on the Code, see Chapter 4.
Section 2.
38
Anderson, p. 349.
FURTHER READING
INCOTERMS 2010
The new INCOTERMS 2010 became effective
January 1, 2011.
Incoterms--which is an abbreviation for
International Commercial terms--are a series of
sales terms.
They are published by the International Chamber
of Commerce (ICC) and are widely used in
commercial transactions.
In addition to providing a set of rules for the
interpretation of commonly used trade terms,
INCOTERMS 2010 accomplish the following:
(a) significantly revises Group D listed in
INCOTERMS 2000;
(b) reduce Incoterms from four groups to two
groups, allowing trade experts to choose the most
INCOTERMS 2010
INCOTERMS 2010 c hiu lc t ngy 1 -12011.
Incoterms - l mt t vit tt vi cc iu
kin thng mi quc t - l mt lot cc iu
khon bn hng.
Incoterms c cng b bi Phng Thng mi
quc t (ICC) v c s dng rng ri trong
cc giao dch thng mi.
Ngoi vic cung cp mt b quy tc gii thch
cc iu kin giao hng thng c s dng,
INCOTERMS 2010 hon thnh sau y:
(a) iu chnh li bng D hp l hn so vi
INCOTERMS 2000,
(b) gim Incoterms t bn nhm cn hai nhm,
cho php thng mi cc cc nh xut nhp khu
la chn cc quy tc thch hp nht lin quan
n phng thc vn ti; v
Case Study
TERMS OF TRADE
Which of the following terms are correctly used according to Incocerms 19907 If your answer is
"No," give your reasons. (Note: .There may be more than one correct answer in each section.
1. A contract requiring the exporter to send the conntact goods by road from Kenva to Zambia with
freight paid by the exporter.
a. C&F Lusaka
YES
NO
b. CFR Lusaka
YES
NO
c. CPTLusaka YES
NO
d. CFR Nairobi
YES
NO
e. FOT Nairobi
YES
NO
2. A contract requiring an exporter in Mozambique to deliver the contract goods in Beira.
Mozambique, for shipment by sea to Dares Salaam, Tanzania.
a. FAS Beira
YES
NO
b. FOB Beira
YES
NO
c. FCA Beira
YES
NO
d. FOB Dares Salaam
YES
NO
3. A contract requiring an exporter in Ethiopia to send the contract goods by air for delivery in
Windhoek, Namibia
a. CIF Windhoek
YES
NO
b. CIP Windhoek
YES
NO
c. DDU Windhoek
YES
NO
d. DES Windhoek
YES
NO
1. a. No. Not a 1990 Incoterm b. No. Ship term only
c. Yes
d. No. CFR is not to Nairobi e. No. Not an Incoterm
2. a. Yes
b. Yes
c. Yes
d. No. Shipment is in Beira
3. a. No. Shipment only term b. Yes
c. Yes
d. No. Ship only term
Delivery where?
Lubricants
GRMU3
02
CRMU3
Quantity
858 DRUMS x
180 KG
(154.44 MT)
858 DRUMS x
180 KG
(154.44 MT)
CFR HCM
850
USD/MT
CFR HP
870USD/MT
The above prices are expressed in US dollars per metric ton net CFR port of Vietnam, deliveries as
per Art. 6 below, and remain fixed during the term of this contract and provided that an Irrevocable
L/C in respect thereof has been notified to Seller by Singapore Indosuez Bank prior to 31/10/19 ..
2. Specification of Lubricants
The specification of lubricants in drums supplied under this Contract shall conform to the
specifications set out in Appendix 1 attached to hereto, which is an integral part of this Contract;
Origin of products will be Italy, Holland or Singapore at SELLER'S option.
3. Packaging
Packaged products will be delivered in AGIP standard new steel drums, of about 1.2/1.0 mm
thickness. The drums will be filled at 180 kg not weight.
4. Payment
4.1. SELLER will be paid by .Irrevocable L/C opened by Vietcombank'Hanoi and advised to Seller
through Indosuez Bank in Singapore payable at sight against first presentation of full set of shipping
documents
4.2 SELLER shall effect first shipment within 30 days from date SELLER receives notification of
irrevocable L/C
4.3. All costs of L/C in Singapore shall be for SELLER'S account
4.4. All L/C amendment's cost (if any) caused by the failure of the Buyer to follow the terms and
conditions of payment will be for BUYER'S account
4.5. The under mentioned documents will be forwarded to BUYER'S Bank immediately after loading
date
a) Signed commercial invoice in 3 originals
b) Clean "Shipped on Board" Ocean Bill of Lading in complete set of at least 3 original 3 nonnegotiable copies signed made out to order of "Vietcombank" Hanoi
c) Quality/Quantity certificate issued by the Chamber of Commerce in triplicate
d) Packing List in triplicate
e) Confirmation of cable advise for shipment in triplicate
f) Receipt of shipmaster acknowledging due receipt of all documents in triplicate non - negotiable
copies of each document, for handing same over to PETROLIMEX Haiphong or PETROLIMEX
Hochiminh City
5. Penalties
In case of delay in payment (if any), BUYER shall remit to SELLER interest calculated from the
date of presentation of documents to the bank in Singapore to the date of effective receipt of due
amount. The interest will be calculated at LIBOR RATE (6 months) plus 1.5 per cent
6. Deliveries
Products will be delivered in partial shipments to be agreed upon.
In case of, transshipment SELLER shall give to BUYER all necessary detail and information
7. Insurance
Insurance shall be effected by BUYER.
8. Delivery Terms
CFR Vietnamese ports as per Art. 1. Goods to be delivered in partial shipments accordance with Art.
6
9. Claims
In case of non - conformity of the quality of the products actually delivered by SELLER with the
Contract specifications, any claim concerning the quality of the goods must be presented to SELLER
within three months from the date of delivery.
No claims shall be accepted by SELLER party after expiry of the above period
20. Contingencies
Should any circumstances arise which prevent the complete or partial fulfillment by any of the
parties of their respective obligations under this contract, namely: fire, ice conditions or any other
acts of the elements, war, military operations of any character, blockade, prohibition of export or
import or any other circumstances beyond the control of the parties, the time stipulated for the
fulfillment of the obligations shall be extended for a period equal to that during which such
circumstances last.
If the such circumstances last for more than 20 days, any delivery or deliveries which are to be
performed under this contract within that period may be cancelled on the declaration of either
party, and if the above circumstances last for more than. 40 days, neither party shall have the
right to make a demand upon the other Party for compensation for any possible damage.
A party unable to meet its obligations under this Contract shall immediately advise the other party
the time of commencement and the termination of the circumstances preventing the fulfillment of its
obligations.
Certificates issued by the respective Chamber of Commerce of SELLER'S or BUYER'S country shall be
sufficient proof of such circumstances and their duration.
11. Arbitration
All disputes and differences which may arise out of the present contract or in connection with it shall
be settled, if possible, in an amicable way.
In the event that it is not possible to settle them in an amicable way, the parties shall refer the matter
to Arbitration in the International Chamber of Commerce in Paris
12. Other Conditions
12.1 Neither Party is entitled to transfer is right and obligations under the present Contract to a third
party without the other Party's previous written consent
12.2 After the signing of the present Contract, all previous negotiations and correspondence between
the Parties in connection with it shall be considered null and void
12.3 All amendments and additions to the present Contract are valid only if they are made out in
writing and signed by both Parties
12.4 All taxes, customs and other duties levied in Vietnam on the contracted Products shall be for
BUYER'S account.
SELLER:
BUYER:
AGIP PETROLI S.p.A
PETROLIMEX
(Signed)
(Signed)
Patrick FOK
Nguyen Manh
Lubricants Manager
Vice General Director
APPENDIX 1
Product:
Agip Gr Mu3
NLGI consistency:
3
Worked penetration: 230 dmm
ASTM dropping point:
195 C degrees.
CHAPTER 2: NEGOTIATING PRICE & PAYMENT
2.1. Export Pricing Strategies
THE PROBLEM
In many negotiations, as soon as the exporter
states a price, the buyer begins to demand
concessions about delivery time, method of
payment, and so on. Concessions that can
quickly make the deal unprofitable. How can the
exporter avoid the "price trap"?
Trong
THE PRINCIPLE
The exporter must perceive and preserve the Nh
interdependence of every aspect of an export
negotiation. A price quotation is based on a set of
assumptions about delivery, payment and
warranty terms. The contract price must reflect
any change in. or renegotiation of, these
assumptions.
IN MORE DEPTH
Exporting is not difficult; the problem is making money at it. Sometimes first-time
exporters fail to understand how the many terms of a contract relate to each other: a longer
warranty period, fur example, creates higher coststhe contract price should reflect these
costs. An extension of the payment period creates higher costs again the contract price
should reflect the extension. In fact. virtually every problem that the two sides normally
negotiate has a bearing on price. Mostly the buyer's suggestions tend to raise the price, but
a lowering of the price is possible too. Let's use an example to study this relationship
between price and other contract terms in more detail.
Scenario: Verbena Electric hopes to export its best-selling product: small domestic electric fans,
from Verbena to Esperanza. A market study in Esperanza shows that fifteen brands of fan are
available in Esperanza, none of them made in Esperanza itself. Models range from expensive,
electronically controlled fans imported from Europe to cheap plastic products imported from
Nonamia. In every case, the price strikes the export manager of Verbena Electric, John
Royalstone as high: his own fans will be competitive. Royalstone begins discussions with the
purchasing manager or Esperanza Electrical Importing, Alice Smart. Smart is particularly
interested in one of Royalstone's products, a three-speed, 180 o revolving tan with a graceful,
modem design. Negotiation begins.
Early on, Smart introduces the question of price: Whats the price of a fan like that? Royalstone
is an old hand at negotiation: he knows that when he states a price, it must be for precisely denned
goods delivered under precisely defined circumstances. He offers a unit price of $22 and makes it
clear that this price is based on the following assumptions:
The size of the order is 3.000 items:
The specification of the fan is identicalexcept for color: 1.000 will be delivered in sold. 1.000 in
black. 1.000 in red. ..
No additional packaging or safely warnings are required beyond what is normal in Verbena;
Delivery is FOB (Port Verbena):
Payment is by irrevocable, confirmed, at-sight letter of credit;
Delivery takes place three weeks from the dale that Royalstone receives advice that the letter of
credit has been opened;
The warranty period on the fans is three months from the date of delivery.
Smart sees that she is dealing with an experienced exporter. She begins to discuss the items on
Royalstone's list.
Order Size
Smart is not sure she can handle 3,000 fans: she would prefer to order fewer, test the market, and
order more later if things go well. Royalstone makes two points: first Smart's transport costs will
increase on a smaller.order, because 3,000 units is one container load; second, the unit price will
increase on a smaller order. An order of 1.000 fans for example would cost $25 eachnot $22.
Specifications
Smart likes the color range, but she wonders if the price would be lower if she ordered only one
color. Royalstone is ready to cut his price by 50c per fan if the whole order is the same color.
Packaging
Unfortunately, Esperanza has strict rules about packaging and safety: labeling of electrical
products. Smart shows Royalstone the regulations. After a few phone calls, Royalstone calculates
that meeting Esperanzan standards will add at least 40c to the cost of each fan.
Incoterm
Smart says that she would prefer CIF delivery, Esperanza City. Royalstone tells her that the cost of
insurance and freight between Pon Verbena and Esperanza City is $520 on an order of 3,000 items:
somewhat less on an order of 1,000. Smart also wonders what the effect would be of collecting the
fans ex works; The EXW price, loaded in a coniainer is $21.75a small saving,
Terms of Payment
Smart says that she dislikes letters of credit and prefers to trade on open account30 days
net, with a 2% discount for payment within ten days. Royalsione explains to her how trading
on open account will increase his costs: he will need export credit insurance, and he will have
to wait for Smart's check to clear. Based on experience, clearance will lake 45 days. His price
will rise to $26 per fan on an order for 3,000, FOB Port Verbena.
Smart is unhappy both about the cost of the letter of credit and about Royalstone's additional
price if she refuses to open one. She suggests that she pays 25% of the price with order, and the
remaining 75% on open account. Royalstone has no ready answer to that proposal. He quickly
recalculates his price: it would be below $26, probably by $1.10.
Date of Delivery
When Smart questions delivery three weeks after the opening of the letter of creditRoyalstone
again replies with figures: if she wants the goods sooner, he can arrange itbut only by working an
exrra shift with extra costs involved. His price would have to be somewhat higher.
Warranty Period
Royalstone is not worried about the quality of his fans, but he knows from experience thai a threemonth warranty on an FOB delivery produces very few claims for defectsabout two claims per
thousand fans. A six-month warranty, however, is more costlyabout ten claims per thousand fans.
His normal policy is to mail a replacement fan in the event of a claimwhich costs him about $40
for the fan, the packing and the postage. If Smart asks for a six-month warranty, it will add 30c per
fan to Royalstones costs.
In this lengthy example, all negotiating decisions bear directly on the price of the product. Naturally
other points are open to negotiation; this is just a sampling. But the general point is clear: a manager
like Royalstone who knows his product and who has thoroughly analyzed his costs is unlikely to lose
money on an export dealunless, of course, he decides to do so. If Royalstone is eager to win Smart
as a regular customer, he may be ready to sell to her at a loss first time around. Or his factory may be
so short of work that he is prepared to accept any jobeven a loss-maker. Or the Verbenan
government may make exporting so attractive with export incentives that Royalstone can trade at a
loss but still show a profit at the end of the day.
The general point is this: a good manager knows that almost every decision made during a
negotiation influences pricean excellent manager can put a dollars--and-cents figure on this
influence.
CASE STUDY
In a Jam
Gorm Trading exports canned foods from Verbena. Gorm is negotiating of 600 cases of apricot jam
by road to a neighboring country. Gorms price per case is $20. The price is based on delivery FCA
with no special packaging or labeling. The jam has a six-month expiry date stamped on the label.
Payment will be by irrevocable, confirmed, at-sight letter of credit. Delivery date is two days after
the opening of the credit. Decide what influence each change listed below will have on the price per
case.
(A) NO CHANGE
(E) MINIMAL DECREASE
(B) MINIMAL INCREASE
(F) APPRECIABLE DECREASE
(C) APPRECIABLE INCREASE
(G) LARGE DECREASE
(D) LARGE INCREASE
1. Reduction of the order from 600 cases to 300 cases.
2. Delivery EXW (Exporter must have the goods ready for collection in his warehouse.)
3. Replacement of single flavor (apricot jam( by a range of 10 flavors, some of which are exotic.
4. Change of labeling to show exact nutritional values and ingredients (not normally specified by
Gorm).
5. Change of payment from letter of credit to open account payment due 45 days from date of
invoice.
6. Replacement of a single delivery with delivery in ten installments of 60 cases over a period of one
year.
7. Increase of the expiry period from six months from date of manufacture to two years.
1. C.
2. E
3. B-C
4. C
5. C
6. C
7. C
BY:
.............................................(BUYER)...;.......................(SELLER)
Please sign and return one copy.
SEE TERMS AND CONDITIONS ON REVERSE SIDE
1.October
ABC'S CONTRACT
GENERAL TERMS AND CONDITIONS
1) Shipment or delivery Giao hng
The obligations of Seller to ship or deliver the goods specified on the face of this Contract ("Goods")
by the time or within the period specified on the face of this Contract shall be subject to the
availability of the vessel or the vessel's space. Trch nhim ca bn Bn chuyn giao hng c ghi
trong Hp ng (gi l hng ha) ng hay trong thi hn quy nh trong hp ng ty thuc vo
tnh hnh thu tu hay din tch ch hng trn tu.
If, under the terms of this Contract, Buyer is to secure or arrange for the vessel or vessel's space,
Buyer shall secure or arrange for the necessary vessel or vessel's space on berth terms basis and give
Seller shipping instructions within a reasonable time prior to shipment, including but not limited to
the name and detailed schedule of the vessel. Theo iu kin hp ng, nu bn Mua lo vic thu tu
hay mua ch trng trn tu, th phi bo m gi ch hng st thnh tu v khng chen vi hng
ha ca ngi khc, ng thi phi bo cho bn bn bit cc chi tit vn chuyn trong khong thi
gian hp l trc khi chuyn hng, trong bao gm tn, lch chi tit ca tu bin, vv If Buyer
fails to give such instructions within a reasonable time prior to shipment, Seller may, at its sole
discretion and at Buyer's risk and account, arrange for the vessel or the vessel's space and make
shipment of the Goods, without prejudice and in addition to any other rights and remedies Seller may
have under this Contract or at law or in equity or otherwise. Nu bn mua khng thng bo cc thng
tin va ni trong thi hn hp l, bn bn c th ty nghi, v Bn mua s chu mi ri ro, chi ph,
thu tu hay t ch trn tu v vn chuyn hng, m bn kia khng c khiu ni v i thm
quyn hn khc b p m theo hp ng ny hay theo lut nh hay theo tp qun, vv. bn bn
c th c.
Trong trng hp chuyn giao hng tng phn, bt c trng hp tr ni hay khng giao mt phn
th s khng b xem l vi phm hp ng ny v khng c suy ra l bn mua c quyn hy hp
ng hay t chi chp nhn ton b nhng ln giao hng khc.
In case of shipment or delivery installments, any delay or failure in shipment of one installment shall
not be deemed a breach of this Contract giving rise to a right of Buyer to cancel this Contract or
refuse to accept performance with respect to other installments.
2) Payment
If payment for the Goods shall be made by a letter of credit, Buyer shall establish, in favor of Seller,
an irrevocable letter of credit through a prime bank of good international repute immediately after
the conclusion of this Contract in a form and upon terms satisfactory to Seller. If Buyer fails to make
any due payment, to establish a letter of credit or otherwise to perform its obligations hereunder,
Seller may demand that Buyer provide, within a reasonable time, adequate assurance satisfactory to
Seller of the due performance of this Contract and may delay delivery until such assurance is given.
Nu thanh ton c thc hin bng L/C, bn mua phi m L/C khng th hy ngang m bn bn l
ngi th hng ti 1 ngn hng hng nht c ting trn quc t ngay sau khi k kt hp ng ny
theo hnh thc v iu kin ng theo yu cu ca bn bn.
Nu bn mua khng chu thanh ton ng hn, m tn dng th, hay ni cch khc, thc hin nhng
ngha v di y, bn bn c th yu cu bn mua, trong thi hn hp l, cung cp s bo m y
theo yu cu ca bn bn v bn bn c th hon giao hng cho n khi no bn mua thc hin
bo m thanh ton nh ni.
Buyer shall pay the price specified on the face of this Contract without set-off counterclaim,
recoupment or other similar rights which Buyer may have against Seller and which shall be exercised
in separate proceedings between Buyer and Seller. Bn mua phi thanh ton gi ghi c th trn hp
ng ny khng c tr gi thoi thc, hay nhng trng hp tng t m bn mua c th thc
hin gy kh khn cho bn bn, v nhng quyn ny bn bn v bn mua ch c s dng trc
khi k kt hp ng m thi.
Any new, additional or increased freight rates, surcharges (bunker, currency, congestion or other
surcharges), taxes, customs duties, export or import surcharges or other governmental charges, or
insurance premiums, which may be incurred by Seller with respect to the Goods after the
conclusion of this Contract shall be for the account of Buyer and shall be reimbursed to Seller by
Buyer on demand. Nu c thm khong tng gi cc vn chuyn, ph thu ( hng, i ngoi
t, tc ng hay nhng ph ph khc), thu, thu quan, ph thu XNK hay cc loi l ph ng cho
chnh ph, hay mua bo him lin quan n hng ha, m bn bn phi tr sau khi c hp ng
ny, m l ra bn mua phi chu v phi c bn mua hon li cho bn bn theo yu cu.
If Buyer fails to pay for the Goods in accordance with this Contract, Buyer shall pay to Seller as
liquidated damages and not as a penalty overdue interest at the rate of the lower of eighteen percent
(18%) per annum or the maximum interest rate permitted by the laws of Buyer's country, calculated
from the date for such payment until the actual date of payment calculated on the 360 day-a-year
basis for the actual number of days elapsed. Nu bn mua khng thanh ton theo ng hp ng ny,
bn mua phi chu bi thng trn c s hp l v khng c pht c tnh cht rn e hay pht
chiu l theo kiu n nh mc pht thp hn li sut 18% nm tnh trn li sut thanh ton n qu
hn hay mc li sut ti a m lut php ca nc ngi mua cho php, tnh k t ngy phi thanh
ton cho n ngy thc s thanh ton theo nm lch 360 ngy bit s ngy thc t qu hn thanh
ton.
3) Force Majeure
If the performance by Seller of its obligations hereunder is directly or indirectly affected or
prevented by force majeure, including but not limited to Acts of God, flood, typhoon, earthquake,
tidal wave, landslide, fire, plague, epidemic, quarantine restriction, perils of the sea, war declared or
not or threat of the same civil commotion, blockade, arrest or restraint of government, rulers or other
labor dispute, explosion, accident or breakdown in whole or in part of machinery, plant,
transportation or loading facility, governmental request, guidance, order or regulation, unavailability
of transportation or loading facility, bankruptcy or insolvency of the manufacturer or supplier of the
Goods, or any other causes or circumstances whatsoever beyond the reasonable control of Seller or
manufacturer or supplier of the Goods, then Seller shall not be liable for loss or damage, or failure of
or delay in performing its obligations under this Contract and may, at its option, extend the time of
shipment or delivery of the Goods or terminate unconditionally and without liability the unfulfilled
portion of this Contract to the extent so affected or prevented.
4) Default
Because S + V
Because of Noun phrase
Because the consignment was delayed, the seller had to be liable for compensation.
Because of the delayed consignment, the seller had to be liable for compensation.
In case that the consignment was delayed, the seller would be liable for compensation.
In case of the delayed consignment, the seller had to be liable for compensation.
In case of (i) Buyer's failure to perform any provision of this Contract; (ii) Buyer's inability to pay its
debts generally as they become due; (iii) Buyer's bankruptcy or insolvency or (iv) appointment of a
trustee, receiver or liquidator of Buyer of any material part of Buyer's assets or properties ("Events of
Default"), Seller may, at its sole discretion, (i) terminate this Contract or any part thereof; (ii) declare
all obligations of Buyer immediately due and payable; (iii) resell the Goods; (iv) hold the Goods for
Buyer's account and risk; (v) pospone the shipment of Goods; or (vi) stop the Goods in transit, and
Buyer shall reimburse Seller for all losses, damages arising directly or indirectly from such Events of
Default.
The rights and remedies of Seller hereunder are cumulative and in addition to Seller's rights, powers
and remedies existing at law or in equity or otherwise.
5) Intellectual property rights
Nothing herein contained shall be construed as transferring any patent, trademark, utility model,
design, copyright, mask word or any other intellectual property rights in the Goods, as such rights
being expressly reserved to the true and lawful owners thereof.
Seller shall be neither responsible nor liable for any infringement or unauthorized use with regard to
any patent, trademark, utility model, design, copyright, mask work or any other intellectual property
rights.
6) Warranty, claim
Unless expressly stipulated on the face of this contract, seller makes no warranty or condition,
expressly or impliedly, 'as to the fitness or suitability of the goods for any particular purpose or use
or the merchantability thereof.
If any warranty exists. Seller's liability shall be limited to replacement or repair of the defective
Goods.
Any claim by Buyer of whatever nature arising under or in relation to this Contract shall be made by
registered airmail within thirty (30) days after the arrival of the Goods at the port of destination, or
solely in respect to a claim alleging the existence of a latent defect in the Goods, within six (6)
months after the arrival of the Goods at the port of destination, and any such claim shall contain full
particulars with evidence certified by an authorized surveyor.
7) Limitation
Seller shall not be responsible, whether in contract or warranty, tort or on any other basis, to Buyer
for any special, incidental, consequential, indirect or exemplary damages, and in no event shall
Seller's total liability on any or all claims from Buyer exceed the price of the Goods.
8) General
(1) All disputes, controversies or differences arising out of or in relation to this Contract or the
breach thereof which cannot be settled by mutual accord without undue delay shall be settled by
arbitration in Tokyo, Japan, in accordance with the rules of procedure of the Japan Commercial
Arbitration Association; the award of arbitration shall be final and binding upon both parties, and
judgment on sucli award may be entered in any court or tribunal having jurisdiction thereof; this
Contract shall be, in all respects, governed by and construed in accordance with the laws of Japan;
the trade terms herein used, such as FOB, CFR and CIF, shall be interpreted in accordance with
"INCOTERMS 2000".
(2) The failure of Seller at any time to require full performance by Buyer of the terms hereof -shall
not affect the right of Seller to enforce the same; the waiver by Seller of any breach of any provision
of this Contract shall not be construed as a waiver of any succeeding breach of such provision or
waiver of the provision itself.
(3) This Contract constitutes the entire agreement between the parties hereto and supersedes all prior
or contemporaneous communications, agreements or undertakings with regard to the subject matter
hereof; this Contract may not be modified or terminated except by a written agreement of Seller and
Buyer.
(4) Buyer shall not transfer or assign this Contract or any part thereof without Seller's prior written
consent.
2.2 THE FIVE STEPS IN NEGOTIATING PAYMENT
THE PROBLEM
For the exporter, the great fear is non-payment. Most developed countries offer export-insurance, to
cover this and other risks, but such insurance is rare in developing countries. How can the exporter
create payment terms that ensure payment?
THE PRINCIPLE
Payment is a more orderly process than delivery. Thanh ton cn phi tin hnh theo ng trnh t
Every successful payment provision stipulates hn giao hng.
the flow: When and Where of payment. In Tt c cc quy nh v thanh ton cn phi nu r
addition it specifies what delay in payment, if chi tit: Thi gian v im thanh ton. Ngoi ra
any, is excusable, and the consequences of cng cn phi ghi c th kh nng thanh ton tr,
unexcusabie delay.
nhng trng hp no c min tr trch
nhim, v khng min tr trch nhim.
IN MORE DEPTH
In negotiating payment, the sxporter should keep five Steps in mind, five issues that the export
agreement must adequately cover.
STEP 1
MODE OF PAYMENT
How will payment be
STEP 2
TIMING
What is the
date of
STEP 3
PLACE OF
PAYMENT
Where must the
money be before
STEP 4
DELAY
What delay
in payment
is
excusable?
STEP 5
RESULT OF
DELAY
What are the
results of nonexcusable delay
in payment
made
payment?
payment is
considered
complete?
Exporters who are paid on open account are seriously at risk. The problem is obvious: if
anything goes wrongif the check is not honored by the bank for example, or if the buyer
files for bankruptcy or simply disappearsthe exporter is in a poor position to claim
payment. One solution is to ask for 100% prepaymentas in the furniture store example
above. The buyer, however, is unlikely to agree to this arrangement.
There are two common approaches to providing the exporter with an acceptable level of
security: one approach is to persuade a third party to pay the epxorter if the buyer fails to do
so. A typical third party is a bank which may issue a bank guarantee, paid for by the buyer.
An alternative third party is an insurance that issues an export credit insurance policy
covering the risk of non-payment: in this case, the exporter pays the costs. The second
approach is to position the money the money with a bank in the country of the xporter by
means of letter of credit, and to allow the exporter collect the money when the goods are
delivered. The letter of guarantee, export credit insurance, and the letter of credit each of
these approaches is complex enough to require a section in its own right.
Step 2. Timing
In negotiating any cash-against-invoice payment- whether secured or not- it is important to
consider the time/payment structure. Payment against invoice is rarely made immediately.
Most buyers wait a while before paying: the delay gives them use of what is, in fact, the
exporters money. The exporter, of course, suffers from delay: he must borrow money,
perhaps at a high rate of interest, until he is paid. To speed up payment, most exporters offer a
discount for early payment, for example 1% discount if payment is made within 30 days of
the date of invoice. This discount is often attractive for both buyer and exporter: the buyer
saves on the invoice price, while the exporter substantially, improves his cash flow. If the
parties say nothing at all, then payment is due, in most jurisdictions on delivery.
The date of payment for a single sale is simply regualated. In an ongoing contract- delivery
involving partial shipments, periodic shipments, or a spare parts supply contract, for
example- the aprties must negotiate a chain of dates. These are calendar dates (for example,
30th June) or interval times (for example, within 30 days of the date of invoice).
Step 3. Place of Payment
When Tony Mino instructs his bank in F.speranza to pay Double-A Ltd. in Verbena, he begins
a chain of events that often takes months to complete. Perhaps the National Bank of
Esperanza has no funds to make foreign transfers; perhaps inefficiency delays payment. To
avoid the dangers of slow payment, exporters try to protect themselves with a clause like this:
Payment shall be deemed to have been made only when the contract is paid into the
sellers bank account and is at the sellers full disposal.
In fact, this is not unreasonable: under the Vienna Sales Convention, for example, payment is
normally deemed to be made onl\ when the cash is available at "the seller's place of business"
(Article 57) Negotiators must work this out carefully -the conflicts of interest are clear:
SELLER PREFERS
The decision is important because late payment is subject to payment of interest: the cost of
any delay along the payment route properly belongs to the buyer.
Step 4. Delay
As with delivery, delay in payment might be excused during a grace period, though this is
unusual. More commonly, a force majeure event excuses delay. In fact, the force majeure
excuse for delay seldom makes sense in the context of payment; most exporters try to resist
it. In principle, any payment made after the agreed date of payment is in delay.
Step 5. Results of Delay.
What happens when payment is late? It is generally agreed in most legal systems that the
exporter has a right to be compensated for losses due to late payment. What happens in
practice depends on the payment agreement negotiated by the parties. Let's start with the
worst case: payment on open account, with no security and with no agreement on late
payment. In this case, the exporter tries to exert pressure on the buyer but this is difficult.
The exporter writes letters, makes telephone calls, waits and hopes. Every day that payment
is late costs moneylosses that the exporter can, in practice, do little aboutwithout
beginning legal action. Considerably better is the situation of the exporter whose contract
with the buyer regulates late payment. A typical contract clause:
Delayed Payment
If payment of any sum payable is delayed, the Buyer shall be entitled to receive interest on
the amount unpaid during the period of delay. The interest shall be at an annual rate three
percentage points above the discount rate of the central bank in the Seller's count ry.
When the exporter is finally paid, the interest payable is simply added to the outstanding sum.
For force majeure, sec Chapter 1, Section 2. The force majeure clause suggested by the
International Chamber of Commerce, for example, states that payment of interest on overdue
sums payable to the seller is not excused by force majeure.
Even better for the exporter is an agreement with the buyer to strengthen the payment
provisions with a payment guarantee. This guarantee, as you will see in Section 3 below,
obliges a bank to pay if the buyer is more than a given time, say two months, in delay.
The best solution, of course, is to create a payment regulation which makes late payment
impossiblethe confirmed, irrevocable, at-sight letter of credit. Nothing is better for the
exporter.
What You Should Know
1. Payment should be negotiated so that the exporter secures prompt, correct payment.
2. Payment on open account is often timed so that early payment secures a discount for the buyer;
this benefits the exporter by improving cash flow.
3. The exporter prefers the place of payment to be his own bank account; payment is not deemed to
be made until the money is at his disposal.
4. In most contracts nothing, not even force majeure, excuses late payment.
5. Late payment causes harm to the exporterthe bank interest he must pay while waiting For his
money. This interest should be compensated to him by the buyer under the terms of the contract.
CASE STUDY
Missing Terms
Study the price and payment clause below. It is taken from an export contract that lost the exporter a
great deal of money. What is missing?
The price payable for the Contract Goods as specdified in Annex A is $400,000.
1. Does the clause specify how payment will be made?
YES NO
2. Does the clause specify when payment is due?
YES NO
3. Does the clause say where the money must be before the buyer is deemed to have paid?
YES NO
4. Does the clause define delay in payment?
YES NO
5. Does the clause mention the consequences of delay?
YES NO
6. What is payment due if the parties say nothing in their agreement?
The answer to questions 1-5 is No. A contract like this relies heavily on the applicable law
to fill in the gaps: the exporter often finds himself very unhappy with the decisions that the
law makes.
Question 6: If the parties say nothing, payment is usually due on delivery.
CONCEPT REVIEW
Below is the first part of a payment guarantee issued in standard bank form. Study it, and then
answer the questions.
Payment Guarantee No. 76542/92
Reference is made to the order No. WEX 344 K placed with you as suppliers by MultiImport for the supply of integrated circuits.
According to the conditions of this order, the Buyer has to furnish a payment guarantee in
the amount of USD 500,000.
By order of the Buyer, we, Big Bank of Euroland, hereby establish this guarantee and
undertake irrevocably to pay to you without request or inspection any outstanding amount
not exceeding USD 600,00.
We say United States Dollar six hundred thousand only upon your first written demand
stating that the Buyer has failed to effect the outstanding payment at maturity.
Our liability under this guarantee will expire as soon as this document is returned to us,
AND CONDITIONS
ON BASIS OF C.M.P.
No: 08/GEN-ELLEN/19 ..
Party A: VIETNAM NATIONAL GENERAL
EXPORTIMPORT CORPORATION
(GENERALEXIM)
46, Ngo Quyen Street
Hanoi, S.R of Vietnam
Hereinafter called
"Party A"
Party B: ELLEN CO. LTD
1508 - 1510 Star House,
Salisbury Road, Kowloon, Hongkong
Hereinafter called
"Party B"
A. The Contract
1. Party A undertakes to manufacture the
garments specified in the separate contract or
appendix of the contract (to be) signed by both
the parties in accordance with the present general
terms and conditions also for the delivery time
stated in the above mentioned contract or its
appendix.
A. Hp ng
1. Bn A chu trch nhim sn xut hng may
mc c ghi r trong 1 hp ng ring hay ph
lc ca hp ng do 2 bn k kt theo ng cc
iu khon v iu kin chung, trong c n
nh thi gian giao hng.
B. Material supply
1. Party B and Steilmann will be responsible for supplying all the fabric materials (shell / lining /
Acrylic Boa / pocketing lining) and accessories in due time for starting production together with the
following extra items:
- Fabric materials
2%
- Zipper, shoulder pad and special label
1.0%
- Fusing
2%
- Buttons, eyelet, stopper and padding
3.0%
- Size label, Hangtags, thread
5.0%
- Others items not mentioned above and the wastage will be confirmed later.
All the above-mentioned fabric material's and accessories' wastage are only for replacement of any
defective items. After the factory fulfils all the orders and quantity, these wastage percentages can be
retained by the factory.
2. Party B shall be responsible for sending the import documents 3 days before vessel carrying the
goods referred to in A3 hereof ETA; as soon as the materials/accessories have arrived in the port, part
A shall be responsible for applying for the import-license the tax-free permit, and take the goods out
of Customs to the factory within 10 days
3. After the arrival of the materials in Party A's factories, the factories should inform Party B and
then both parties shall jointly check the contents of each carton and bale within one week and shall
prepare the Checking Report - which should be signed by both parties and passed to Party B
immediately.
4. Party A shall be responsible for the fabrics and accessories from the date of receipt until the date of
shipment and shall compensate party B the full invoice value for any loss or damage (Force majeure
excepted)
C. Sewing instruction and inspection
1. Party B will supply the original samples, sketches, sewing instructions and paper patterns to party
A's factories from 5 to 7 days before Party A starts production of each style/order enabling the
factories to make a sample.
2. Party A's factories should make 3 counter samples based on supply instruction and paper pattern
and send for Party B's technician to evaluate.
3. Party A's factories should show Party B's technician the marker for each style and must have the
said technician's approval before cutting.
4. In case of more or less consumption of shell material or lining, accessories, the technician's
consent in writing is required before cutting is made; otherwise party B will charge back all the value
in the absence of the technician's consent aforesaid
5. Any problem against paper pattern and sewing should be advised to B's technician immediately
before production proceeds.
6. An authorized representative from party B will come to inspect the goods during production and
before shipment.
7. Party A's factories shall inform party B and their technician that they may make the final
inspection 2 days before Shipping; if after inspection is made garments have been rejected, factories
still have time to repair and maintain the delivery date.
8. After finished garments delivery, Party A's- factories should send 2 samples (small size) of each
style to Party B as shipment samples
9. In the event Party A produce an unacceptable quality standard, or damage the fabric which has
been delivered by Steilmann, it is herewith agreed that party A should pay for the fabric and
accessories cost against the full invoice value; the quality standards are based on the approved;
sample confirmed by Party B or the Steilmann technician (in this case technician shall give technical
guidance)
D. Shipment
1. Delivery time of each style shall be within 30- 45 days (depending on the quality of each
style/order to be processed) after Party A's factories receive fabric materials/accessories in complete
sets.
2. Party A shall inform Party B of the estimated time the finished products will be ready for loading 7
days prior to such estimated time.
3. For appointed Air Forwarder : Schenker
All the original shipping documents including original Air Way bill, original certificate of origin;
original invoice and packing-list should be sent to Schenker at the time when goods depart.
4. For appointed sea forwarder: Eac-Saigon Shipping Service Ltd.; All the shipping documents
included inspection certificate issued by Steilmann technicians.
E. Payment
All the payments shall be made by irrevocable Letter of Credit at sight. The Letter of Credit must be
established 30 days before shipment.
F. Arbitration
1. The two parties shall amicably settle all the disputes arising during the performance of the
contract. Should no settlement of disputes or such difference of opinion be made amicably, then the
disputes and difference of opinion shall be settled in accordance with the Arbitration Regulations of
the Foreign Trade Arbitration Organization of a third country mutually agreed by the parties.
2. The decision of the said arbitration shall be final and binding upon both parties.
This General terms and conditions of basis of C.M.P is made in English in six copies. Each party
keeps three copies of equal validity with effect from the signing date; party A should send one copy
to its factories for reference.
Made in Hanoi, on the 5th, August, 19 ..
FOR/AND ON BEHALF OF SIDE A
FOR/AND ON BEHALF OF SIDE B
Ellen Co. LTD
Generalexim
(Signed)
(Signed/sealed)
D. Ellen
Thanh Tung
General Manager
Dep-General Director
Annex no: 01
TO THE GENERAL TERMS
AND CONDITIONS ON BASIS OF C.M.P
No: 08/Gen-ELLEN/19 ..
Party A: VIETNAM NATIONAL. GENERAL EXPORT-IMPORT
CORPORATION (GENERALEXIM)
46, Ngo Quyen street.
Hanoi, S.R. of Vietnam (Hereinafter called "Party A")
Party B: ELLEN CO.LTD
1508-1510 Star House,
I DIN BN B
Chc v:
K tn
(ng du)
A classic strategy for reducing risk is to spread it by means of a third partyan insurance company,
for example. Export credit insurance is one route to security; the bank guarantee is another.
Export Credit Insurance
International trade is fiercely competitive. Exporters compete not only on quality, price and delivery
terms; they also compete in the area of credit: "If you buy from me, I will allow you 180 days to
pay." Such an offer can make or break a deal. However, extending credit in this way is risky. The
buyer may go bankrupt, or he may sell the goods he receives and disappear. Political difficulties too
can block payment: civil war, famine, lack of foreign exchange, and so onthe list is a long one.
To stimulate exports and protect the exporter against major risks, some countries set up a special type
of insurance: it does not insure goods, but it insures the exporter against the risk of non-payment.
Most traditional exporting nationsthe European countries, for exampleoffer such insurance.
Zimbabwe is an example of a developing country that helps its exporters in this way. (It is worth
stressing that export credit insurance is not a charity but a commercially viable proposition; export
credit insurance companies commonly report up to 15% profit on their business.)
To buy such insurance, the exporter explains the details of the business to an insurance company and
receives a quotation. Sometimes the insurer refuses to quote. This may mean that the insurer has used
its network to run some checks on the buyer and found the buyer uncreditworthy. This is a sign to the
exporter that the business is risky. (It might also mean that the insurer has checked on the exporter
and found some problems: a criminal record, perhaps, or a history of unpaid insurance premiums.)
Export insurance premiums vary according to the type of goods exported, the creditworthiness of the
buyer, the political stability of the buyer's country, and so on. Figures mentioned to the author by the
Zimbabwe Credit Insurance Corporation are attractive, howevera typical policy costs between
0.5% and 1% of the invoice price.
Attractive as it is, export credit insurance has certain clear limitations: there is always a long wait
between the time when the buyer fails to pay and the time when insurance company compensates the
exportersix months is typical. And when compensation is paid, it is unlikely to cover 100% of the
original invoice price. However, with export credit insurance, the exporter is covered against the
worst.
If your country offers export credit insurance, you should certainly consider using it for trade with
customers you know only slightly and for single transactions that represent a high proportion of your
turnover. Further, many buyers are reluctant to spend money on a payment guarantee or to tie up
money in a letter of creditin a buyer's market, export credit insurance may give the exporter a
competitive edge.
Payment Guarantee
What is a "guarantee"? Let's say I promise to pay you S 1,000. You are not sure that I have the
money, so you tell me to find a friend, a guarantor (in the export trade normally a bank), to make a
second promise: the guarantor will pay the beneficiary (you) if the principal (me) fails to keep the
original promise. If you do not get the SI,IKK) from me, you will get it from the hank. The
relationship is a triangle.
The terminology of guarantees is confused. A guarantee (in the present sense) is sometimes called a
bond or a surety. There are technical differences among the three terms, but you can normally ignore
them. Another problem is that the word guarantee is commonly used to mean warranty or defects
liabilitywhen you buy a watch it may come with a so-called "guarantee." In general, try to avoid
this confusion by using the word guarantee only within the triangular relationship shown above.
Guarantees are commonly used in four business situations; in each case one party is particularly at
riskhe has performed but the other side has not yet responded. Of particular interest here is the
payment guarantee, but you will often meet the other guarantees in export business.
Risk 1: Non-paymentPayment Guarantee
For the exporter there is one major risk: not being paid. A payment guarantee simply commits the
bank to pay if the buyer defaults. The payment guarantee is usually for 100% of the contract price.
Risk 2: RevocationTender Guarantee
Procurement contracts, especially at government level, are put up for tender or bid. An exporter may
well bid on a contract to supply goods or materials to a government department or agency. Invariably
this department asks for a tender guarantee (or bid bond). If the would-be exporter withdraws his
tender, then the tender guarantee is forfeit. This guards the department against the risk of a project
falling behind because a tender is withdrawn.44 A normal figure for a tender guarantee is between
1.5% and 5% of the contract price.
Risk 3: Non-PerformancePerformance Guarantee
If you are selling goods on an FOB basis, you are unlikely to meet the performance guarantee. If,
however, you offer services as well as goods, the performance guarantee can be important. It simply
says that if you work badly or not at all, then the guarantor will pay, within stated limits, the costs of
your failure to perform. A normal figure for a performance guarantee is between 5% and 10% of the
contract price.
Risk 4: Losing PrepaymentPrepayment Guarantee
Manufacturers often ask for an advance payment, especially if items are custom-made for the buyer.
Making this prepayment is a risk for the buyer until the items arrive in working order. The advance
payment guarantee promises the buyer that the bank will return advance payments if the exporter
fails to deliver. The guarantee is normally for 100% of the prepayment, decreasing as deliveries are
made.
In most guarantees, the bank agrees to pay "on first demand" and "without demur or objection" (or a
similar wording). This promise can be taken literally: the moment that the beneficiary demands
payment under the guarantee, the bank will pay. (Naturally the bank will immediately withdraw the
money it has paid from the account of the principal.) Such guarantees are called "demand
guarantees": there are no serious, objective conditions the beneficiary must meet before claiming
payment of the guarantee. This can quickly lead to abuse, and many court cases arise from demand
guarantees. Let's take a typical scenario.
44
Under the laws of many countries that derive their legal thinking from England, an offer can be
withdrawn at any time before acceptance. See Chapter 4, Section 3 for more information.
Scenario: Esperanza Trading, the buyer, asks Big Bank to issue a payment guarantee in favor of
Office Enterprises, the exporter. The bank complies. Two days after the agreed payment date,
Esperanza Trading has not yet paid. Office Enterprises accordingly asks the bank to pay the money.
The bank first notifies Esperanza Trading that it is about to pay. Esperanza says that the goods were
defective and tells the bank to withhold payment. The bank looks again at the text of the guarantee:
"We undertake to pay you on your first written demand without cavil or demur...." The bank says it
will pay, regardless of the quality of the goods. Angrily, Verbena Trading asks a judge for an
injunction (= an order forbidding something) to forbid the bank from , making payment. Judges
normally refuse to grant such injunctions. A I demand guarantee is exactly thata guarantee paid on
demand.
The problem of a beneficiary falsely or improperly demanding payment is also a serious one. If the
bank has agreed to pay, it will pay unless there is evidence of blatant fraud. If demand guarantees are
so risky, perhaps a conditional guarantee would be preferable.
A conditional guarantee contains serious, objective conditions that must be met before payment by
the bank is possible. These conditions cannot refer to the condition of delivered goodsthe bank has
no way of evaluating such things. The ICC tried in two pamphlets. Uniform Rules for Contract
Guarantees (1978) and Model Forms for Issuing Contract Guarantees (1982) to set up objective
conditions that a bank might find workable. It suggested three. The bank would pay if the claim were
supported by:
A decision of the court of first instance (a decision by a judge);
An arbitral award (a decision by a court of arbitration);
The approval of the Principal in writing to the claim.
It is not likely that any beneficiary would agree to objective conditions as harsh as thisand so most
bank guarantees are of the "demand" kind. In fact, because guarantees run into trouble so often, and
because they are expensive to set up, few exporters ask for them as security for payment: the letter of
credit is much preferred.45
The most recent thinking on demand guarantees suggests a "counter-guarantee" that works like this.
If I, as exporter, demand payment of a guarantee issued by the buyer's bank for, let's say SIOO.OOO,
I must at the same time post a countcrguarantee, also for SIOO.OOO in favor of the buyer. The buyer
can collect this money if it can be proved that I collected the original guarantee improperly. For
details, see ICC Publication No. 458, Uniform Rules for Demand Guarantees.
CASE STUDY
Stand and Deliver
Below is the first part of a payment guarantee issued in standard bank form. Study it, and then
answer the questions.
Payment Guarantee No. 76542/92
Reference is made to the order No. WEX 344 K placed with you as suppliers by Multi-Import for the
supply of integrated circuits.
According to the conditions of this order, the Buyer has to furnish a payment guarantee in the
amount of USD 600,000. By order of the Buyer, we, Big Bank of Euroland, hereby establish this
guarantee and undertake irrevocably to pay to you without demur or objection any outstanding
amount not exceeding USD 600,000
say United States Dollar six hundred thousand only
upon your first written demand stating that the Buyer has failed to effect the outstanding payment at
maturity. Our liability under this guarantee will expire as soon as this document is returned to us,
latest however, by 31st December 1996.
1. Who is the principal? SELLER BUYER BANK
2. Who is the guarantor? SELLER BUYER BANK
3. Who is the beneficiary?
SELLER BUYER 3BANK
4. Is this a "demand" guarantee? YES NO
5. If the buyer fails to pay, is payment secure?
YES NO
What You Should Know
1. Export credit insurance covers the risk of non-payment.
2. Guarantees are designed to reduce contractual risks.
3. The payment guarantee reduces the risk of non-payment. The tender guarantee reduces the risk of
the revocation of an offer; the performance guarantee reduces the risk of non-performance or
inadequate performance by the exporter; the advance payment guarantee reduces the risk of losing
prepayments.
4. If a bank issues a "demand guarantee," it must pay the guarantee sum on first demand without
question. Since most payment guarantees are of this type, they are dangerous for the principal (the
buyer) and are seldom used; the letter of credit is far more common.
cassettes, eight-track cartridges and other non-contractual goods. Discount Records tried to get an
injunction to stop Barclays from paying under the letter of credit. The court refused.
A Ietter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be
honored. No set off or counterclaim is allowed to detract from it. The exporter will be paid
although later action in the courts may oblige him to make good any damage he has caused the
buyer.
Strict Compliance
The buyer also has a safeguard: the bank will pay only if the shipping documents are exactly in line
with the buyer's instructions. For example, let's say an FOB sales contract agrees that the exporter
can deposit the goods in a warehouse if the ship arrives late and that this counts as delivery. This
agreement has no direct bearing on the letter of credit: if the letter of credit requires a bill of lading
and makes no mention of a warehouse receipt, then the bank simply cannot pay against a warehouse
receipt.
Banks must follow their instructions strictly, as is shown in another landmark case. Dawson bought
vanilla beans from Indonesia. Dawson instructed an American bank to open a letter of credit. One of
the required shipping documents was a certificate of quality issued by experts." The bank paid the
exporter. The beans, when they arrived, were rubbish. The certificate of quality was signed, however,
by only one "expert." Thus, because the bank had not strictly followed the instructions from Dawson,
it could not collect from Dawson the money it had paid to the exporteran expensive mistake for
the bank.
How often do banks refuse payment? According to Bradgate, "over 50% of documents presented to
banks under documentary credit transactions are rejected on first presentation". Figures quoted to the
author by banks in some African countries go much higher: some banks report rejecting 90% of first
applications for payment under letter of credit.
What happens when a bank refuses to pay under a letter of credit?
First the bank will cite a "discrepancy," some aspect of the documentation that is not in line with the
terms of the credit. A checklist of commonly cited discrepancies makes depressing reading.
Once the bank has indicated the discrepancies, the exporter can proceed in one of three ways:
- Provide the missing paperwork or correct errors;
- Ask the buyer to instruct the bank to change the terms of the Ietter of credit- i.e., to issue an
amendrnent;
- Ask the bank to process the letter of credit with the discrepancies but to pay only when (and if) the
issuing bank permits payment.
If, as often happens, the letter of credit is near its expiry date. There may be no time for the exporter
to provide the missing prices. In this case, the exporter (or the advising bank) must contact the buyer
asking the buyer to instruct the issuing bank to extend the date of the credit. Whenever an
amendment is necessary, the purpose of the letter of credit is largely defeated-the buyer is now
firmly in control of payment. Extra bank costs are a further burden on the exporter. In general, the
exporter is advised to exercise scrupulous care in providing the documentation called for by the
letter of credit.
Discrepancies Reported by Banks (p.92)
Problems with the Letter of Credit
* Documents required by the credit are missing.
* Documents required to be signed are not signed.
* The credit amount is exceeded.
* The credit has expired.
* Documents are not presented within the required time.
* Shipment was short.
* Shipment was late.
Problems with the Bill of Lading
* The bill of lading is "unclean"it has comments on it relating to damage to or other
deficiencies in the goods.
* A marine bill or lading is required, but the bill does not state that the goods were "shipped on
board" a named vessel.
* The bill of lading shows shipment between ports other than those specified in the credit.
* The bill of lading shows that the goods were shipped on deck. This is normally forbidden
unless the credit expressly allows ii.
* The bill of ladding offers no evidence that freight was paid by the exporter (if this was
required).
* There is no endorsement (if endorsement is necessary).
Problems with Insurance
* The insurance document is not of the type specified in the credit (e.g., a certificate of
insurance is produced while the credit calls for a policy).
* The insurance risks are not those specified in the credit. This is forbidden unless the credit
expressly allows it.
* The sum insured is below the figure required.
* Insurance cover does not begin on or before the date of the transport document.
Inconsistencies among the Documents
* Discription of the goods on the invoice and in the credit are differrent.
* Weights differ beetween two documents.
* Marks and numbers differ between two documents.
THE LETTER OF CREDIT: Confirmed and Unconfirmed
The mechanism of the simplest letter of credit is this:
- Buyer instructs an Issuing Bank to issue a Letter of Credit in favor of the SELLER.
Because the advising bank is normally in the buyers country, the exporter likes the issuing bank to
instruct the advising bank in the exporters own country to make actual payments under the letter of
credit.
- Buyer instructs an Issuing Bank to instruct an Advising Bank to pay under a Ltter of Credit in favor
of the SELLER.
If the advising bank knows the exporter well, it may pay all of the value of the credit over the
counter. But such payments are always made with recourse. With recourse? Lets say that the
issuing bank finds a problem with the documents and refuses to send funds to the advising bank to
cover payment; in that case, the advising bank has recourse to the exporter. In plain words: the
advising bank gets its money back from the exporter. A confirming bank is in a different position. It
is asked to confirm the credit.
- Buyer instructs an Issuing Bank to instruct a Confirming Bank to pay under a Letter of Credit
in favor of the SELLER.
Under this arrangement, the bank in the exporters country confirms the credit. A confirming bank
has an absolute obligation to pay the exporter according to the terms of the credit. If the credit is
payable at sight, the bank pays must pay at sight without recourse. What happens, though, if the bank
pays the exporter, and the issuing bank finds something wrong with the documents? Then the
confirming bank- not the exporter- has a problem: it has paid the money to the exporter and has no
way of recovering it. Exporters prefer this arrangement for obvious reasons; among the traditional
trading nations of the world, it is the norm.
Unfortunately, problems can arise when very small banks or banks in countries with severe foreign
currency shortages try to instruct a bank in the exporters country to confirm a letter of credit. Lets
say the Frudge and Gurgle Bank in Nonamia asks Superbank International in New York to confirm a
letter of credit in favor of an American exporter of computers. If Superbank advises the exporter that
the letter of credit has been opened, and confirms the credit, then Superbank must pay the exporter as
soon as the computers leave New York bound for Nonamia.
What happens when Superbank forwards the documents to Fudge and Gurgle and asks for funds to
cover the payment? Perhaps nothing at all. Or perhaps there is a delay of months or even years
before the funds arrive. For this reason, banks are sometimes reluctant to confirm letters of credit,
especially those from obscure banks. Or they may ask for reconfirmation: in our example, Fudge
and Gurgle must find a well-known bank to confirm to Superbank that funds will be transferred- if
not by Fudge and Gurgle, then by the reconfirming bank. The costs of such reconfirmation can be
high.
How can the exporter be sure that the letter of credit is confirmed by the bank in his own country?
When the text of the letter of credit arrives, it comes with a covering letter.
The stand-by letter of credit should also be mentioned at this stage. This originated in the U.S.
because banking law in some states forbids banks to issue payment guarantees. Under a payment
guarantee a bank agrees to pay if the buyer fails to do so. The stand-by letter of credit is set up in
exactly the same way: the buyer agrees to pay in the normal way- if the payment is not made, the
exporter can be apid under the stand-by letter of credit.
THE AT-SIGHT LETTER OF CREDIT AND THE ALTERNATIVES
When a letter of credit is issued, the terms under which it can be paid are stated. UCP offers four
choices, the first of which is clearly preferable for the exporter.
SETTLEMENT BY SIGHT PAYMENT
In this variation, the exporter presents the necessary documents to the paying bank (normally a
confirming bank); the bank checks the documents. If they are in order, the bank pays the full face
value of the letter of credit. This is usually what the exporter wants. Theo th loi ny, nh XK xut
trnh cc chng t cn thit cho ngn hng thanh ton (thng l ngn hng xc nhn); ngn hng
ny s kim tra chng t. Nu cc chng t sp xp ng th t v ng cc chi tit, ngn hng s
thanh ton ton b gi tr ghi trn tn dng th. y chnh l loi m nh XK mong i.
SETTLEMENT BY DEFERRED PAYMENT
In settlement by deferred payment, the letter of credit is not payable until a number of days (180 days
perhaps) after delivery. Payment is safe, but it delayed. The letter of credit cannot be paid, but it has
an obvious value: if the exporter needs ready money, he can realize some part of this value- probably
most of it. The exact figure he can discuss with any bank. On the face of it, this arrangement is less
advantageous for the exporter than settlement by payment, but circumstances may make such a deal
necessary. THANH TON TR CHM. Thanh ton bng phng thc tr chm l loi LC phi ch
n mt s ngy (180 ngy) sau khi giao hng chng hn. Thanh ton nh th an ton nhng thng
phi mt thi gian ch i. LC cha thanh ton nhng n vn c gi tr: nu nh XK cn tin ngay,
anh ta c th c c mt phn gi tr - c khi c c ton b. Con s chnh xc l bao nhiu cn
ty vo kh nng thuyt phc ca anh ta. Nhn thong qua, cch thu xp ny t c li cho nh XK
hn so vi thanh ton ngay, nhng c mt s hon cnh cn thit phi thanh ton chm.
SETTLEMENT BY ACCEPTANCE
The procedure takes place as follows:
- The seller presents to the accepting bank the documents and a bill of exchange (time draft) drawn
usually on the buyer.
- The accepting bank agrees to pay the bill when it matures.
- If the seller needs money immediately, he can exchange the letter of credit for cash (at a discount)
with any agreeable bank.
So far the bank has paid cash to the exporter against the documents. Another approach is to use a bill
of exchange. A bill of exchange is like a check (cheque); it allows the beneficiary (the exporter) to
make a draft for a given sum of money on me buyer. In international trade, this bill of exchange is
usually a time draft it can be collected only after a certain date. That is obviously a danger for the
exporter. Accordingly the accepting bank will accept the bill of exchange and agree to pay it at full
face value when it falls due. A bill of exchange that is accepted can be negotiated, i.e., sols at a
discount to any bank if the exporter needs ready money.
SETTLEMENT BY NEGOTIATION
The seller presents to the negotiating bank the documents and a bill of exchange drawn usually on
the buyer.
The negotiating bank negotiates the bill (i.e., pays it at a discount)
In this final method of settlement, the bank with whom the exporter deals is called the negotiating
bank. In settlement by negotiation a bill of exchange again allows the exporter to make a draft on the
buyer, but this bill must be negotiated- the advising (or other) bank has no authority to pay it at its
full face value. This kind of settlement is the least satisfactory for the exporter, and in practice it is
rarity.
The Letter of Credit and Its Associated Documentation
There are no rules as to what documents a letter of credit may or rnay not require. The bank must
simply check that the documents specified in the letter of credit are in perfect orderit does not
question the necessary or value of the documentsnor is it interested in the question of why the
buyer wanted a particular document presented in a particular form. The bank is scrupulous,
however, in checking that the documents are correct; this is the doctrine of strict compliance.'
The letter of credit contains a list of the documents that the exporter must present. Each
document should be carefully and correctly named "Marine Bill of Lading" not simply "BL"
or Bill of Lading."
The number of originals and the number of copies required should be stipulated. For example, "3/3
Marine Bill of Lading" means that the exponer must produce three originals and three copies of the
marine bill of lading. Unless the letter of credit expressly states otherwise, the bank expects all
documents to be originals. (It is "sometimes difficult with modern documentation to decide what is
an Original and what is a copy. Any document which is authenticated and which states that it is an
original is usually accepted.)
The ICC suggests that documents are listed in a certain order:
Commercial invoice
Transport document
Insurance document
Other documents such as: certificate of origin, certificate of analysis, packing list, weight list,
phytosanitary cerrificate. etc.
Let us now look at each of these documents, in a little more detail to see what the banks are looking
for.
Commercial Invoice
A commercial invoice must be made out to the applicant for the letter of credit (normally the buyer),
unless otherwise stated in the letter of credit.
The description of the goods on the invoice must conform with the description in the letter of
credit. To avoid conflicts in description, it is good practice to keep the description in the letter of
credit as short as reasonably possible. The amount shown on the invoice should not be more than
the amount permitted by the letter of credit: if it is, the bank may refuse to accept the invoice.
Sometimes the buyer requires that an invoice must be certified or notarized; if so, the lener of
credit should state exactly what is meant, for example, what. kind of certification made by whom.
The following is an example of a commercial invoice using the SITPRO (United Kingdom
Simplification of International Trade Procedures Board) standard form.
Transport Document
When the exporter passes over the goods to the carrier, the carrier issues a transport document
appropriate for the particular means of transport involved. The main types are:
Sea transport: Marine bill of lading (or sea waybill's)
Air transport: Air waybill
Rail transport:
Railway consignment note
Road transport:
Road consignment note
Combined transport: Combined transport bill of lading
The letter of credit should state the type of document required. If alternative means of transport or
partial shipments are allowed perhaps by different modes of transport, the letter of credit should have
the words "or" (or "and/or") between the names of the transport documents.
e.g.: "Marine Bill of Lading and/or Road Consignment Note."
Some special problems associated with particular transport documents can be briefly highlighted
here.
If shipment is made on CIF or CIP terms, the letter of credit will call for an insurance policy or
certificate. The exact risks to insured are also normally stated. (If shipment is under Incotcrms
other man CIF or CIP, the buyer may still ask the exporter to arrange some aspects of the insurance
for him. In such cases, the letter of credit calls for documents to prove that the exporter has taken
the agreed steps.)
Unless the letter of credit states otherwise, insurance coverase on a CIF or CIP shipment must be
for 110% of the CIF (or CIP) value of the goods; if it is not, banks often refuse the insurance
document.
Other Documents
Certificate of Origin: By-far the most common of the "Other documents" is the certificate of
origin. This is required for imports into the buyer's country under a preferential tariff or other
agreement. Procedures for obtaining certificates of origin vary from country to counntry.
A Chamber of Commerce or carrier can advise you.
Certificate of Inspection: Many countries, for example Indonesia, have found that the passage of
imported goods through their own customs is easier il" the soods are inspected and valued in the
country of the exporter. A number of international inspection companies, specialize in: such work."
The Societe Generate de Surveillance (SGS) is one example. If SGS inspection is required, the
parties should make a note of this effect in their conract and adjust in the delivery schedule to allow
time for inspeciion. Obviously the details on the inspection certificate must correspond exactly with
the details in the transport document and the commercial invoice. Discrepancies will almost certainly
delay in payment.
Special Requirements: Many countries require containers to be fumigated before shipment; others
have special requirements about packaging material: for certain kinds of products foodstuff in
particular a health inspection is necessary; some African countries place severe restrictions on the
import or export of wildlife or wildlife products. These are only examplesthe list is endless. In
each case the exporter and the buyer should issue it. The details must appear in the letter of credit:
vague requirements such as "appropriate wildlife certificates are likely to cause delay in paymentthe bank and the exporter may have different views on what is appropriate.
Summary
Prompt paymenr of the letter of credit depends on the exporter presenting correct documentation.
Remember- up to 90% of the applications for payment are rejected because of discrepancies.
Negotiating the Terms of a Letter of Credit
It is one of the buyer's main duties to provide the letter of credit. In fact, if an agreed letter of credit
is not issued on time, the exporter often has the right to cancel the contract because of a fundamental
breach by the buyer.
Unfortunately, many exporters pay little attention to the exact terms of the letter of credit until it is
too late. Usually exporters leave it to the buyer to apply to his house bank for a letter of credit: the
buyer provides the bank with outline information about the deal, and leaves the bank to draft the
letter of credit as it sees fit. This procedure meets the interests of the buyer and the bank, but it often
leaves the exporter with serious headaches. How can the exporter best protect his interests?
The first step is for exporter and buyer to agree exactly what documentation is required. Some
items are discretionary, for instance the nature of the transport document or the terms of insurance.
Other items are a matter of government regulation: the phytosanitary certificate or certificate of
origin, for example. The two parties may have to talk to their Chambers of Commerce, to their
banks or to the carrier to establish the complete list. The first step then is Agreement.
Once the list of documents has been agreed. Step 2 is incorporation of the list into the contract.
There are many ways of doing this, one of which is particularly effective. The ICC has published a
form that the buyer can use to apply for a letter of credit. In addition to the form, the ICC has
offered detailed notes on how to complete it. The exporter and the buyer can complete this
application form during their negotiations, and append a copy of the form to their contract. This
form can then be passed to the bank as Specification of the required letter of credit. Thus, the
credit, when issued, should be exactly as agreed by the parties with no nasty surprises for the
exporter. We will discuss the form in detail when we have mentioned the remaining two steps.
The verification step is an obvious precaution: as soon as the exporter receives advice that the
letter of credit has been opened, he should check that it complies with the agreernent he negotiated
with the buyer. The danger here is that when the bank drafts the letter of credit, it lists documents
or makes requirements that the exporter either does not understand or has not agreed to. Immediate
discussion with the advising/confirming bank is essential since amendments are always time
consuming. If the problem is spotted early enough, however, payment should not be delayed.
And finally Compliance. It cannot be said often enough that timely payment depends on exact
compliance by the exporter with the terms of the credit.
STEPS IN NEGOTIATING A LETTER OF CREDIT
AGREEMENT. The exporter and the buyer discuss and list all required documentation.
It is sometimes difficult to know exactly what the final invoice figure will be. Accordingly, many
credits use words such as "about" or aporoximately." In this case actual payment can be 10% more
or 10% less than the stated amount. (See UCP Article 39.) Another common phrase is "up to" or "not
exceeding." This is useful when partial shipment (and therefore partial payment) is not allowed, but
when the final invoice may be for considerably less than the stated amount of the credit.
It is sometimes the case that some part of the contract price is to be paid by letter of credit and the
rest by some other meansprepayment perhaps, or perhaps the buyer will retain a part of the price
until the warranty period is over. In this case, the application should state (in Segment 19) what
percentage of the invoice price is covered by the credit.
Segment 10: Partial Shipment
In principle, partiat shipments are allowed unless the not allowed box is crossed. You should
distinguish carefully between partial shipments and shipment in installments. Shipment in
installments means that an agreed schedule has been set up (e.g., three equai shipments in March.
August and October 2007.) This schedule should be noted in ''Additional Instructions" (Segment 19).
A partial shipment is simply an incomplete shipment with some part of the goods to follow later.
Unless the buyer has some clear reason for wishing all the goods to arrive together, partial shipment
should be "allowed."
Segment 11: Transshipment
Transshipment means moving the goods from one conveyance to another. Container transport
("combined transport) obviously presumes transshipment. It is only when goods travel by sea under
a sea. waybill or marine bill of lading that it makes sense to forbid transshipment- and even then
there would have to be special reasons for the prohibition: extreme fragility of the goods would be
one example. Normally transshipment is allowed.
Segment 12: Availability
Credit available wilh
by sight payment
by acceptance
by deferred payment
against the documents detailed herein
and beneficiary's draft at
on
by negotiation
"Credit available with..." this is sometimes followed by the name of the advising bank chosen by
the exporter. More often it is left blank. In this case, the issuing bank is free to decide which bank
will act for it in the exporter'scountry.
The various types of payment are discussed above. For the exporter, "by sight payment" is most
advantageous: as soon as the bank has "sight" of the documents, i.e.. as soon as the exporter presents
them, it pays.
Sometimes, though not often, the beneficiary (exporter) must make a draft on the bank to collect the
money. In this case the box "and beneficiarys draft is crossed, the word "at" is followed by "sight"
(or possibly some number of days); the word "on" is followed by "nominated bank."
Segment 13: Insurance Covered by the Buyer
insurance will be covered by us
This box is "for infonnation only"it simpiy clarifies that insurance is taken care of "by us," i.e., by
the buyer. The box is normally checked when the delivery terrn is FOB, CFR or some other term
where the exporter is not required to present an insurance document.
Segment 14: Transport Information
Loading on board/ dispatch, taking in charge at/ from
not later than
for transportation to:
This segment includes the "dispatch from...for transportation to..." information and the latest date of
shipment.
In stating where the goods will travel from and where they will travel to, the parties should agree
precise placesharbors, airports, and so on.
Generalized references such as "US East Coast Port" are sometimes used. After "no later than," the
parties should enter a final delivery date. If they do not , then the date of expiry of the credit is.
taken to be the final delivery date. Sometimes the formula "nor later than" does noc adequately
state the agreed delivery time. In that case, the words should be deleted and others substituted,
such as "during May 2007" or "not before 20th May 2007 and not after 28th June 2007."
This timing decision should be coordinated with the other timing decisions on the credit Segment
4; dare of expiry, and Segment 18, the period allowed after shipment for presentation of documents
to the bank.
Other terms: .
Three boxes here specify the most common terms or trade: FOB, CFR and CIF. In each case, the
name of a place must be added in parenrtheses. If any Incoterm is used, it should be given in full.
For details see Section 6 above.
Segment 17: Documents
The application form leaves the space where documents are to be listed without a heading of any
sort. (The reason tor this omission is not clear.)
Documents should be listed in the recommended order. If there is not enough space, additional pages
may be added.
Commercial Invoice
Transport Document
Insurance Document
Further documents
Segment 18: Presentation Period
After the transport document is issued (i.e.. after the goods are shipped, the exporter needs sometime
to collect the required documents, to prepare them and to present them to the bank. Most buyers fix a
maximum time between shipment and presentation. If this box is left empty, the UCP (Article 43)
automatically allows 21 days, and that may be taken a a normal figure.
This timing decision should be coordinated with other timing decisions: Segment 4, date of delivery,
and Segment 14, latest date for shipment.
Segment 19: Additional Instructions
Typical "additional instructions" include a statement of the percentage of
the invoice price covered by the credit if this is less than 100% (addinonal to Segment 9), or the
delivery schedule if delivery is in installments (additional to Segment 14).
Segment 20: Authorization to Debit
We authorize you to debit our account
This segment is the buyer's responsibility alone. Normally nothing is added here. If, however, the
buyer's account number is not mentioned under "applicant" in Segment 1, it may be stated after the
word "account."
Segment 21: Signature
Name, stamp and authorized signature(s) of the applicant
The buyer signs and stamps the form.
CASE STUDY:
GETTING PAID
In each situation below, decide the most appropriate method of payment.
(A) Confirmed L/C (B) No security open account
(C) Bank guarantee open account (D) Export insurance open account
1. Sale of a bale (roll) of cloth costing $200 to a nearby tailors shop with whom you have done
business for 20 years.
2. A new small customer in a Pacific island republic much given to political disturbances. The order
is for $10,000 worth of assorted textiles.
3. A contract for supply of cloth worth $5,000 per month to the government of Oceanea- a
prosperous country. Duration of the contract: two years, but renewable. Contract represents 25.5% of
turnover.
4. The same deal as (3) except that the contract represents only 0.5% of your turnover.
1. Open account, no security 2. Confirmed L/C
3. If possible a bank guarantee. Otherwise export credit insurance.
4. Export credit insurance is advisable. Selling on open account with no security at all is also
possible.
EXHIBIT 8.1. The export flow: decision chart (pp. 168-9)
FURTHER READING
INCOTERMS 2010
The new INCOTERMS 2010 became effective January 1, 2011. Incoterms--which is an abbreviation
for International Commercial terms--are a series of sales terms. They are published by the
International Chamber of Commerce (ICC) and are widely used in commercial transactions.
In addition to providing a set of rules for the interpretation of commonly used trade terms,
INCOTERMS 2010 accomplish the following: (a) significantly revises Group D listed in
INCOTERMS 2000; (b) reduce Incoterms from four groups to two groups, allowing trade experts to
choose the most suitable rule related to the mode of transport; and (c) reduce the absolute number of
Incoterms from 13 to 11.
Moreover, INCOTERMS 2010 offer additional guidance which assists users in selecting the most
appropriate Incoterm for each transaction. The revised terms also spell out rules regarding the use of
electronic procedures; detail information on security-related clearances for shipments; and offer
advice with respect to domestic trade.
What are Incoterms?
Incoterms or International Commercial terms are a series of sales terms. They are published by the
International Chamber of Commerce (ICC) and are widely used in international commercial
transactions. The purpose of Incoterms is to provide a set of international rules for the interpretation
of commonly used trade terms in international transactions. They closely correspond to the U.N.
Convention on Contracts for the International Sale of Goods. The first Incoterms were issued in
1936. The most recent Incoterms were updated in 2010 and became effective January 1, 2011.
Who needs to understand Incoterms?
Government trade officials as well as many private sector parties should understand Incoterms. Such
private sector parties include: exporters, importers, trade finance professionals, export compliance
specialists, customs brokers, freight forwarders, insurers, international credit professionals, and sales
and purchasing managers.
What are Incoterms used for?
Incoterms assist trade practitioners in interpreting the most commonly used international trade terms.
Using correct Incoterms in an international transaction reduces considerably uncertainties arising
from the different interpretation of such terms in different countries.
They apportion international trade transaction costs and responsibilities between buyers (importers)
and sellers (exporters) and reflect modern-day transportation practices.
Incoterms assist in significantly reducing misunderstandings among traders and thereby minimizing
trade disputes and litigation. However, their scope is limited to matters related to the international
rights and obligations of the parties involved in the contract of sale with respect to the delivery of the
goods sold. Thus, they apply to the contract of carriage, not the contract of sale.
Why were the INCOTERMS 2000 revised?
INCOTERMS 2010 are the updated version of INCOTERMS 2000. INCOTERMS 2010 have been
developed as a result of an extensive review of current shipping practices and trends in an effort to
keep up with the rapid expansion of world trade.
The key drivers for this update include: a need for improved cargo security, changes to the Uniform
Commercial Code in 2004 that resulted in a deletion of U.S. shipment and delivery terms, and new
trends in global transportation.
How do INCOTERMS 2010 differ from INCOTERMS 2000?
In addition to providing a set of rules for the interpretation of commonly used trade terms,
INCOTERMS 2010 significantly revise Group D listed in INCOTERMS 2000.
The five INCOTERMS 2000 listed in Group D included the following:
DAF Delivered At Frontier
DES Delivered Ex Ship
DEQ Delivered Ex Quay
DDU
Delivered Duty Unpaid
DDP
Delivered Duty Paid
INCOTERMS 2010 contain the following categories:
DAT
Delivered At Terminal
DAP
Delivered At Place
DDP
Delivered Duty Paid
Moreover, INCOTERMS 2010 reduce the number of Incoterm groupings from four to two,
allowing trade experts to choose the most suitable rule related to the mode of transport.
The 13 INCOTERMS 2000 contained four essential categories of Incoterms. They were:
Group E Departure
Group F Main carriage unpaid
Group C Main carriage paid
Group D Arrival.
The two main categories of INCOTERMS 2010 are now organized by modes of transport. Used in
international as well as in domestic contracts for the first time, the new groups aim to simplify the
drafting of contracts and help avoid misunderstandings by clearly stipulating certain obligations of
buyers and sellers.
pay for the pre-carriage, shipping, and insurance to a named port. In this case, the sale
price (invoice) includes not only the (C)ost of goods, but also (I)nsurance and (F)reight
costs that the importing buyer pays the exporting seller.
When designating the Incoterm on a commercial invoice or a quotation to the buyer, the
term should be followed by the city or port of load/discharge, such as EXW Factory,
Richmond, VA or CIF Rotterdam. Using the actual address is better to avoid any
confusion or misinterpretation. Communication throughout the entire process is crucial. For
example, under Ex Works, the shipper should notify the importer when the goods are ready
and after they have been picked up by the importers selected carrier. The exporters freight
forwarder often provides the vessel and sail date, or air cargo service used, and any ocean
bill of lading or airway bill number to keep the parties informed of the arrangements and
status of the shipment (even though technically under Ex Works the exporters
responsibility ends at their loading dock).
The most burdensome Incoterm for the exporter is Delivered Duty Paid (DDP), because all
arrangements and costs are borne by the exporter, usually with the assistance of agents
(freight forwarders and customs house brokers). With DDP, the exporter bears all risks and
costs of transportation, including duties and tariffs, until the goods are received by the
importer, usually at the importers factory or warehouse. Since DDP represents the
maximum obligation to the seller, it is not recommended for companies that are new-toexport.
DDP Example: Four palletized drums of chemicals at US$ 40,000, DDP 123 Main St.,
Santiago, Chile.
In the DDP example, for $40,000 total, the exporter arranges and pays for all transit costs,
including delivery to a designated facility at 123 Main Street, Santiago, including any
insurance coverage and duties/tariff charges. While these costs are added to the products
price and are sometimes itemized on the commercial invoice, the exporter takes full
responsibility for the added logistics costs and potential headaches, such as delays at
customs, demurrage or detention, or changes in inland or ocean transportation costs.
Shipping DDP should only be used by the most experienced exporters. Many details must
be considered, such as trade barriers, duties, currency exchange, reputability of service
providers, and delivery to the final destination. For example, if your product is a large,
custom-made piece of machinery for a factory:
Are there local out-of-gauge, heavy lift service providers?
Does the road to the factory allow access by an oversized truck?
What are the dimensions and capability of the buyers receiving dock?
How will you repair any damage that may occur during transit?
INCOTERM DEFINITIONS/CHANGES
The 11 Incoterms consist of two groups and are listed below in order of increasing
risk/liability to the exporter. Under the revised terms, buyers and sellers are being urged to
contract precisely where delivery is made and what charges are covered. This should avoid
double-billing of terminal handling charges at the port of discharge. References to ships
rail were taken out to clarify that delivery means on-board the vessel. Insurance,
electronic documentation, and supply chain security are addressed in more detail, and
gender-neutral language is now used.
Rules for Sea and Inland Waterway Transport:
FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation
and insurance costs, once delivered alongside the ship (realistically at named port terminal)
by the seller. The export clearance obligation rests with the seller.
FOB - Free On Board: Risk passes to buyer, including payment of all transportation and
insurance costs, once delivered on board the ship by the seller. A step further than FAS.
CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the
vessel. Seller arranges and pays cost and freight to the named destination port. A step
further than FOB.
CIF - Cost, Insurance and Freight: Risk passes to buyer when delivered on board the ship.
Seller arranges and pays cost, freight and insurance to destination port. Adds insurance
costs to CFR.
Rules for Any Mode or Modes of Transportation:
EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at sellers
premises. Long held as the most preferable term for those new-to-export because it
represents the minimum liability to the seller. On these routed transactions, the buyer has
limited obligation to provide export information to the seller.
FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for
clearing the goods for export (filing the EEI). More realistic than EXW because it includes
loading at pick-up, which is commonly expected, and sellers are more concerned about
export violations.
CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk
to the buyer, but seller must pay cost of carriage to the named place of destination.
CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed
place, shifting risk to the buyer, but seller pays carriage and insurance to the named place
of destination.
DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are
unloaded (delivered) at named quay, warehouse, yard, or terminal at destination.
Demurrage or detention charges may apply to seller. Seller clears goods for export, not
import. DAT replaces DEQ, DES.
DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made
available to buyer at named place of destination. Seller clears goods for export, not import.
DAP replaces DAF, DDU.
DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at
named place of destination at buyers disposal. Buyer is responsible for unloading. Seller is
responsible for import clearance, duties and taxes so buyer is not importer of record.
INCOTERMS DO NOT
Determine ownership or transfer title to the goods, nor evoke payment terms.
Apply to service contracts, nor define contractual rights or obligations (except for delivery)
or breach of contract remedies.
Protect parties from their own risk or loss, nor cover the goods before or after delivery.
Specify details of the transfer, transport, and delivery of the goods. Container loading is
NOT considered packaging, and must be addressed in the sales contract.
Remember, Incoterms are not law and there is NO default Incoterm!
3
VEDP International Trade www.exportvirginia.org
clientservices@yesvirginia.org (804) 545-5764
Translate into Vietnamese
SALES AGENCY AND SERVICES AGREEMENT
BY AND BETWEEN
SIEMENS MEDICAL SOLUTIONS USA, INC.,
CTI MOLECULAR IMAGING, INC.,
AND
CTI PET SYSTEMS, INC.
May 1, 2004
SALES AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT (this "AGREEMENT") is entered into and effective as of the 1st day of
May, 2004 (the "EFFECTIVE DATE") by and between SIEMENS MEDICAL SOLUTIONS USA,
INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter
"SIEMENS"), CTI MOLECULAR IMAGING, INC., a corporation duly organized and existing
under the laws of the State of Delaware (hereinafter "CTI"), and CTI PET SYSTEMS, INC., a
corporation organized and existing under the laws of the State of Tennessee (hereinafter "CPS").
Hp ng ny (gi l Hp ng) c k kt v c hiu lc k t ngy 1/5/2004 (gi l "Ngy c
hiu lc") gia mt bn l SIEMENS MEDICAL SOLUTIONS USA, INC., Tng cng ty c ng
k hp php v hot ng theo lut php ca Tiu bang Delaware (gi l "SIEMENS"), tp on
CTI MOLECULAR IMAGING, INC., c ng k hp php v hot ng theo lut php ca Tiu
bang Delaware (gi l "CTI"), v bn kia l CTI PET SYSTEMS, INC., c ng k hp php v
hot ng theo lut php ca Tiu bang Tennessee (gi l "CPS").
PREAMBLE Phn m u
WHEREAS, CTI Group, Inc., CPS, Dr. Terry D. Douglass, Dr. Ronald Nutt, Michael C.
Crabtree and J. Kelly Milam and Siemens entered into a stock purchase, reorganization and
joint venture agreement (the "JOINT VENTURE AGREEMENT") dated as of December 9, 1987;
Xt v CTI Group, Inc., CPS, Ts. Terry D. Douglass, Ts. Ronald Nutt, Michael C. Crabtree v
J. Kelly Milam cng Siemens k kt cc hp ng mua c phn, ti t chc cc cng ty v lin
doanh (gi l "H Lin doanh") k t ngy 9 / 12 / 1987;
WHEREAS, Siemens entered into an Amended Distribution Agreement with CPS effective
March 1, 2002 pursuant to which Siemens has the right to distribute certain of the products
manufactured by CPS (the "DISTRIBUTION AGREEMENT");
WHEREAS, CTI entered into a Distribution Agreement with CPS effective March 1, 2002 pursuant
to which CTI has the right to distribute certain of the products manufactured by CPS (the "CTI
DISTRIBUTION AGREEMENT" and together with the Distribution Agreement, the
"DISTRIBUTION AGREEMENTS");
WHEREAS, CPS is engaged in the development, manufacture, assembly, selling and
licensing of hardware, software, systems and equipment, and parts and components thereof, used
in the position emission tomography ("PET") business for human imaging;
WHEREAS, CTI possesses the necessary expertise and marketing organization to
promote sales of, and to solicit and obtain purchase orders for, such products and to provide other
related services to Siemens in connection therewith;
WHEREAS, Siemens is willing to appoint CTI, and CTI is willing to accept its
appointment, as the non-exclusive sales representative of Siemens for the sale of those products
manufactured by CPS in the United States upon the terms and conditions set out in this Agreement;
and
WHEREAS, the service and maintenance contracts with customers for CPS Products sold
under this Agreement shall be assigned between CTI and Siemens in accordance with the principles
set out in this Agreement;
Xt v cc hp ng dch v v bo tr cho khch hng i vi cc sn phm ca CPS c bn theo
hp ng ny phi c giao cho CTI v Siemens thc hin tun theo nhng nguyn tc nu trong
hp ng ny;
Nay cn c vo nhng tha c c km theo y, cc bn ng k kt hp ng ny theo
nhng iu kin v iu khon sau y:
ARTICLE 1
APPOINTMENT
1.1 Appointment. During the term of this Agreement and upon the terms and conditions set
forth herein, Siemens appoints CTI as its non-exclusive sales representative to solicit purchase orders
("PURCHASE ORDERS") to be entered into by Siemens with customers for the sale of CPS
Products (as defined in Section 1.3) throughout the United States (the "TERRITORY"), and CTI
accepts such appointment and agrees to conduct such activities in accordance with the terms and
provisions of this Agreement.
Have you ever written diaries in English?
How many contracts have you collected?
How many terms have you got in your list of glossaries?
Do you have any evidence for them?
1.2 Authority. Hereunder: this/ these under; under this contract given that .
(a) CTI's authority hereunder shall be to solicit Purchase Orders within the Territory, provided that
all such Purchase Orders shall be subject to acceptance by Siemens as provided in Section 3.3 hereof.
(b) Except as set forth in Section 3.1 and Section 7.1 hereof, CTI and its employees, agents or
contractors shall have no authority, and each shall not represent that it has the authority to make,
execute or enter into any agreement or to incur any indebtedness on behalf of Siemens.
(c) Except as set forth herein, CTI and its employees, agents or contractors shall make
no payment, rebate, offer of rebate, or other remuneration, directly or indirectly, to any
customer or third party, including, without limitation, any buyers, brokers, or employees or agents
thereof from any compensation or other consideration paid to or provided to CTI by or on behalf of
Siemens.
1.3 CPS Products. Subject to the terms of this Agreement, CTI shall have the right to sell
throughout the Territory the products manufactured by or offered for sale by CPS from time to time
(the "CPS PRODUCTS"), including but not limited to any software embedded therein or otherwise
described therewith, and spare and replacement parts and accessories for those CPS Products.
The parties agree that at all times CTI shall have the right to sell, on behalf of Siemens, all products
that Siemens is permitted to distribute on behalf of CPS pursuant to the terms of the Distribution
Agreement. Subject to Section 5.1 of this Agreement, all CPS Products shall be marketed under the
Siemens brand.
1.4 Sales Force. As soon as reasonably practicable after the Effective Date, Siemens
and CTI jointly shall appoint a Sales Management Committee (the "SALES MANAGEMENT
COMMITTEE") which shall be composed of six members, with three representatives each from
Siemens and CTI. The presence of two Siemens representatives and two CTI representatives shall
constitute a quorum for meetings of the Sales Management Committee. Through the Sales
Management Committee, the parties shall determine the appropriate composition, reporting
structure and the assignment of regions into which their respective sales forces shall be combined.
ARTICLE 2
GENERAL OBLIGATIONS OF CTI, SIEMENS AND CPS
2.1 CTI Sales Activities. At all times during the term of this Agreement CTI, as Siemens's
non-exclusive sales representative, shall:
(a) diligently promote sales of the CPS Products in the Territory;
(b) maintain in the Territory an adequately trained sales force knowledgeable of the CPS
Products as is reasonably necessary to perform its obligations hereunder, and manage its sales
force personnel as "product sales engineers" (as that term is understood by Siemens on the
Effective Date) in support of Siemens's account executives;
(c) participate, as is appropriate and in compliance with applicable legal requirements,
in appropriate sales, promotion, marketing or merchandising programs in the Territory prepared or
undertaken by or on behalf of Siemens;
(d) participate in, and consult with Siemens and its designated agents, regarding trade
shows and exhibitions in the Territory where such participation will promote the CPS Products;
(e) as applicable, refer prospective customers to the designated Siemens representative to
obtain financing for the purchase of CPS Products, subject to the provisions of Section 2.6 below.
2.2 Documentation and Reports. CTI shall prepare or cause to be prepared, keep,
maintain and provide Siemens with the following documentation and reports in a form and format
reasonably acceptable to Siemens:
(a) periodic (though no less often than quarterly) reports of sales activities of CTI within the
Territory identifying, among other things, actual purchasers of the CPS Products and active
prospective purchasers, actual or pending orders, contact and other relevant lead information for
each customer and active prospect, and any other information or data as mutually agreed upon from
time to time by Siemens and CTI;
(b) non-confidential business records customarily maintained by CTI with respect to CTI's
solicitation of Purchase Orders;
(c) information, in such reasonable detail as requested by Siemens, regarding market
conditions and product performance;
(d) a forecast for the number and type of units that will be sold the following fiscal year, by
no later than May 15 of each year; and
(e) such other matters as reasonably requested by Siemens.
2.3 License to Product Technology. Subject to the terms and conditions of this Agreement, CPS
grants to CTI a non-exclusive license in the Territory to use the Product Technology (as defined
below) to the extent reasonably necessary for CTI to promote and solicit Purchase Orders for the
Products and to service and support the Products in order to allow CTI to fulfill its obligations under
this Agreement.
This license is royalty-free and non-transferable except as permitted by Section 14.3. "PRODUCT
TECHNOLOGY" shall mean all computer software code (in object code format and including all
associated tool sets) and other technology and know-how comprised within the Products as well
as any service manuals and user documentation that is generally provided by CPS to its
customers and similarly situated distributors. All rights in and to the Product Technology not
expressly granted in this license shall be retained by CPS.
2.4 Obligations of Siemens. At all times during the term of this Agreement, Siemens shall
support marketing of the CPS Products by:
(a) Providing product managers to support the combined CTI-Siemens sales force (created
pursuant to Section 1.4 of this Agreement) with regard to technical matters within their expertise;
(b) Providing product demonstrators to demonstrate CPS Products, including both software
and hardware aspects of them;
(c) Developing sales tools and sales aids, including, among other things, case studies, cost
analyses, and competitive analyses;
(d) Promoting the unique capabilities of CPS Products using LSO HI-REZ technologies
and other pertinent technologies that may be developed (and, if necessary, approved by the FDA)
for use in CPS Products during the term of this Agreement;
(e) Promoting the use of CPS Products in relevant medical disciplines including, but
not necessarily limited to, oncology, cardiology, and neurology (the "KEY DISCIPLINES"), and
further development of each Key Discipline as a market for CPS Products and other CTI and
Siemens products and services;
(f) Placing advertisements in applicable journals and publications, emphasizing those
journals and publications pertaining to the Key Disciplines;
(g) Attending and participating in appropriate trade shows pertaining to the PET
industry or any of the Key Disciplines;
(h) Ensuring equal representation of CTI and Siemens personnel and shared presentation
space at all trade shows attended, unless otherwise agreed by the parties;
(i) Together with CPS, developing medical advisory boards for each of the three Key
Disciplines;
(j) Together with CPS, developing luminary and reference-site accounts for PET and
PET/CT;
(k) Participating in research projects with luminaries, including commitments to make
research contributions to luminaries from time to time in connection with such research projects,
subject to applicable legal requirements and Siemens internal policies governing the funding of
research grants; and
(l) Supporting and promoting to Siemens customers and Siemens corporate accounts, in
accordance with Article 9 of this Agreement, the products and services manufactured, distributed,
and/or provided by CTI and its subsidiaries (including P.E.T.Net Pharmaceuticals, Inc., a
Tennessee corporation ("PETNET")), including radiopharmaceuticals (as defined in Section 9.1
below), cyclotrons, sources, and REVEAL(TM) Marketing and Network Solutions worldwide.
2.5 Obligations of CPS. During the term of this Agreement, CPS shall use commercially
reasonable efforts to support Siemens marketing of the CPS Products by:
(a) Providing product managers to support Siemens' product managers or, in lieu of
providing product managers, providing adequate access for Siemens product managers to CPS'
engineering and research personnel;
(b) Providing product demonstrators to demonstrate CPS Products, including both
software and hardware aspects of them, to Siemens product managers and training personnel;
(c) Providing sufficient technical information, operational details and technical analyses for
Siemens to develop competitive arguments, sales tools and promotional materials for sales of CPS
Products;
(d) Continuing to develop competitive products or features to further advance the
technology or address competitive pressures created by the technology or features developed by
competitors;
(e) Maintaining adequate product planning processes, soliciting comments or feedback
on development needs from Siemens and, if determined appropriate by CPS after consultation
with Siemens, responding to or implementing such comments or feedback;
(f) Maintaining good quality standards and order completeness, including review of
quality records with Siemens periodically;
(g) Providing adequate training, tools and methods to facilitate deployment and installation
of and applications training for the CPS Products by Siemens personnel;
(h) Providing support for research projects with luminary and reference site accounts
designated by CPS, including financial support in an amount and to the extent deemed necessary
or appropriate to further the interests of CPS; and
(i) Evaluating requests from Siemens from time to time to provide support to facilitate
development of e.soft(TM) applications and integration and connectivity of scanner data with other
e.soft(TM) and e.soft@LEONARDO(TM) workstations or other Siemens products or applications;
provided, that any such support will be provided by CPS to Siemens only upon their mutual
agreement (and in each party's respective exercise of its sole discretion) and subject to
availability of resources and other matters relating to the feasibility of providing such support.
2.6 Product Financing. Siemens shall have the right of first refusal to provide financing
arrangements to purchasers of the CPS Products from CTI pursuant to this Agreement;
provided, that the financing terms and productoffering shall be no less favorable to the CTI sales
team than Siemens provides to its own sales team. If Siemens is unwilling or unable to provide
financing on a timely basis for a prospective purchaser, CTI will be permitted to refer such customer
to alternative financing sources.
2.7 Initial Transfer Price Reductions. For all orders for CPS Products received by CPS after
the Effective Date, the parties agree that (i) the component prices for which CTI supplies LSO
and Siemens supplies CTs to CPS shall be reduced by the amounts set forth on Schedule 2.7
attached hereto, and (ii) such component price reductions shall be passed to Siemens in their
entirety by reducing the Transfer Prices (as that term is defined in the Distribution Agreement)
by the sum of such amounts, as also set forth on Schedule 2.7. The parties agree that Exhibit D
to the Distribution Agreement shall be substituted with a revised Exhibit D in substantially the
form of Schedule 2.7.1 reflecting the initial transfer price reductions.
2.8 Additional Transfer Price Reductions. Following the initial transfer price reductions
contemplated in Section 2.7 above, CPS agrees to further reduce the transfer prices for the
Siemens/CPS PET/CT products in its product line in the amount of $* per system as reflected on
Schedule 2.8 attached hereto (the "ADDITIONAL TRANSFER PRICE REDUCTIONS"), subject
to the receipt by CPS of an additional transfer price reduction of $* per unit from the Siemens CT
division (i.e. $* from CPS and $* from Siemens CT). The Additional Transfer Price Reductions
will become effective with the order of the * unit from Siemens to CPS after October 1, 2003
which shall include CPS Products ordered from CPS to fill Purchase Orders generated by CTI
after May 1, 2004 pursuant to this Agreement.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission.
2.9 Scope. The initial transfer price reductions and the Additional Transfer Price Reductions
contemplated in Sections 2.7 and 2.8 above shall apply to Siemens global sales of CPS Products.
2.10 Periodic Transfer Price Review. Upon Siemens's written request given not more
frequently than *, CPS and Siemens shall review CPS's Transfer Prices (as that term is defined in
the Distribution Agreement). Following such review, Siemens shall have the right to provide its
recommendations as to appropriate adjustments to such Transfer Prices. All determinations
regarding the setting or the changing of Transfer Prices shall be made by CPS as provided in the
Joint Venture Agreement, and no provision of this Section 2.10 shall restrict CPS's discretion in
making such determinations.
ARTICLE 3
ORDERS FOR CPS PRODUCTS
3.1 Purchase Orders. CTI shall solicit Purchase Orders solely on the basis of the terms and
conditions of sale (the "TERMS OF SALE") by utilizing the established standard sales processes of
Siemens. In order to determine the price to customers, CTI's sales agents shall use the list prices as
published in the Siebel quote system utilizing the same prizing authorities and escalation
processes as the Siemens personnel. Siemens shall implement its pricing policies fairly between the
Siemens and CTI sales organization so that neither party is disadvantaged in pursuing opportunities
in the marketplace. Where appropriate, CTI shall inform each prospective customer that
consummation of the sale is subject to Siemens' acceptance of the Purchase Order.
3.2 Submission of Purchase Orders to Siemens. Within one (1) business days after CTI has
obtained a signed Purchase Order from a prospective customer, CTI shall submit the Purchase
Order to Siemens for review and approval. CTI shall include any additional information regarding
the prospective customer or the order that Siemens reasonably may request.
3.3 Acceptance of Purchase Orders. All Purchase Orders submitted by CTI are subject to
acceptance in writing by Siemens in accordance with its corporate policy. Siemens shall determine
whether or not it will accept a Purchase Order within two (2) business days of receiving the Purchase
Order and any additional information from CTI. Siemens promptly thereafter shall deliver notice of
its decision in writing to CTI. Siemens shall be obligated to accept all Purchase Orders submitted
by CTI that have been approved through the Siemens standard order acceptance process, which
applies for all business conducted by Siemens in the Territory. If the Purchase Order requires
financing, then the Purchase Order will be conditionally accepted based on financing approval.
* Omitted information is the subject of a request for confi ential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission.
3.4 Sales Revenue. Sales revenue under this Agreement shall accrue to Siemens in full, in
accordance with generally accepted accounting principles.
3.5 Installation and Training. Siemens shall be responsible for installation and initial
applications training through formal customer acceptance of the sold CPS Products. CTI agrees
to provide installation support and initial applications training during the first six (6) months of the
term of this Agreement, at a price to be mutually agreed by CTI and Siemens. Pricing shall be
comparable to current pricing presently offered by CTI and/or Siemens. Wherever possible during
the first six (6) months of the term of this Agreement, the party awarded the Service Contract for a
CPS Product under the provisions of Article 7 will perform installation and training; and, if such
party is CTI, then Siemens will pay to CTI $* per CPS Product, equal to the first-year warranty
labor credit extended to Siemens under the provisions of the Distribution Agreement.
3.6 Backlog. The completion of firm Purchase Orders which have been executed by the
customer prior to the Effective Date but for which delivery has not yet taken place (the
"BACKLOG ORDERS") shall be carried out by Siemens or hCTI, whichever originally entered
into the Purchase Order.
3.7 Sales Funnel. On or before June 1, 2004, representatives of CTI and Siemens shall review
all unexpired quotes that are in the course of being negotiated by CTI that were outstanding as of
the Effective Date (the "FUNNEL ORDERS"). CTI shall enter into all Funnel Orders, from time
to time after the Effective Date, in the ordinary course of business. Based on its review of the
Funnel Orders with CTI, Siemens shall select such of the Funnel Orders as meet Siemens' standards
for acceptance, whereupon CTI and Siemens shall work together to effect a transition of the
relationship from CTI to Siemens in a manner that meets the individual needs of the customer.
CTI shall carry out all Funnel Orders (a) not selected by Siemens in accordance with the
foregoing, or (b) selected by Siemens, but as to which a transition approach acceptable to the
customer is not achieved.
ARTICLE 4
EXPENSES
4.1 Expenses.
(a) Not later than one hundred fifty (150) days prior to the end of each CTI fiscal year, CTI
shall prepare and present to Siemens a proposed annual operating and capital budget (the
"BUDGET") for the expenses to be reimbursed by Siemens pursuant to Section 4.1(b) hereof
("REIMBURSABLE EXPENSES") during the following CTI fiscal year. Siemens shall have
thirty (30) days in which to review the Budget and communicate any material objections or
requested changes to the Budget in writing to CTI in reasonable detail. CTI and Siemens shall work
together to promptly respond to any objections and requested changes submitted by Siemens.
Siemens and CTI shall mutually agree upon a Budget by no later than June 20 of each year;
provided, that if Siemens and CTI are unable to approve a Budget by the beginning of CTI's fiscal
year, then until an agreement is reached the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year, with each line item, as applicable, in the Budget increased
by the percentage increase in the Consumer Price Index - All Urban Consumers (CPI-U) U.S.
City Average All Items 1982-84=100 from August of the prior year to August of the current year.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission
(b) Siemens shall reimburse CTI for all direct expenses incurred by CTI with respect to the
Account Managers employed by CTI who assist in the sales, marketing and account
management for the CPS Products and related administrative support personnel (the "ACCOUNT
MANAGERS"), including without limitation (i) payroll, wages, salaries and benefits; and (ii)
travel, lodging and related expenses; except employment taxes, which will be paid as provided in
Section 6.2.
(c) On the tenth (10th) day following the end of each month during the term of this
Agreement, CTI shall submit to Siemens an invoice identifying the amount of Reimbursable
Expenses incurred in the previous month. Within thirty (30) business days following the date of
such invoice, Siemens shall pay to CTI in cash via wire transfer to an account designated by CTI
the amount set forth on such invoice.
(d) The expenses to be incurred by Siemens pursuant to this Section 4.1 shall not exceed $*
for the period from the Effective Date to September 30, 2004.
(e) Contemporaneously with the execution of this Agreement, CTI has provided to Siemens,
and Siemens has approved, a budget for the fiscal year from October 1, 2004 to September 30, 2005
reflecting annual expenses of not more than $*.
4.2 Evaluation of CRPs.
(a) The Parties agree that the average customer realized prices for the CPS Product
configuration set forth on Schedule 4.2 hereof (the "CRPS") will be reviewed no later than October
31, 2004 for the five months ending September 30, 2004 (the "REVIEW PERIOD") in order to
determine whether, over the Review
Period, the CRPs on sales of CPS Products in the United States exceed the following target
CRPs for substantially similar product configurations:
2-slice PET/CT . . $*
6-slice PET/CT . . $*
16-slice PET/CT . . $*
The Parties agree that the analysis of sales during the Review Period will include only those
transactions that were entered into after the transfer price reductions became effective, regardless
of shipment date. In the event the average CRPs exceed the target CRPs set forth above for CPS
Products installed in the United States, Siemens and CTI shall each receive 50% of such excess with
such payment, if any, to be made within thirty (30) days of the turnover and acceptance by
customer. A similar review will be conducted each fiscal quarter during the term of this Agreement
commencing October 1, 2004. The parties agree that the target CRPs will be reduced dollar-fordollar with any transfer price reductions implemented after the initial transfer price reduction
referred to in Sections 2.7 and 2.8 hereof.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission
(b) Transfer Price Relief to Luminaries. Siemens and CPS acknowledge that certain
sales to key accounts and other key market opportunities ("luminaries") may from time to
time necessitate a further reduction in CRPs for commercial reasons. The parties agree that CPS
shall be free to reduce its transfer prices within the limited scope of making sales to such
luminaries, such decision to be based upon reasonable business factors. Accordingly, the parties
agree that CRPs arising from such transactions shall be excluded from the calculation contemplated
in Section 4.2(a) above. The CRPs for all sales of PET and PET/CT products in multi-modality
deals where the CPS volume is less than *% of the total order volume also will be excluded from
the calculation contemplated in Section 4.2(a) above. The Parties shall designate one
representative from each of their finance organizations to evaluate and agree on those
transactions that should be excluded from the foregoing calculation. In the event the finance
teams fail to agree, the disputed transactions shall be escalated to the President of each Party for a
decision, prior to submission to arbitration in accordance with Section 12.1 of this Agreement. In
order to facilitate proactive decision making, once per fiscal quarter the combined Siemens and
CTI sales forces will develop a list of the luminary accounts to be targeted, as a 12-month rolling
forecast.
4.3 Inspection. CTI shall have the right, exercisable twice per fiscal year upon five (5)
business days notice to Siemens, to inspect at Siemens' headquarters for a period of no longer
than three (3) business days the customer account information, financial records, service contracts,
books, reports, and other documents prepared, maintained or retained by Siemens that support the
calculation of CRPs contemplated in Section 4.2 hereof and the additional payments, if any, to
be made, as well as the allocation of service contracts contemplated in Section 7.1 below. If
Siemens reasonably determines that the dates initially chosen by CTI to perform the inspection
would unreasonably interfere with Siemens's business, then Siemens and CTI shall select new
dates for the inspection by mutual agreement. CTI agrees that it shall hold in confidence and
treat as confidential all confidential information received from Siemens pursuant to this Section
4.3 and shall only use and disclose such information on a need-to-know basis in connection with
the business relations between CTI and Siemens, for financial and planning purposes, to
resolve disputes between the parties regarding the allocation of Service Contracts or the amount
owed to CTI pursuant to Section 4.2 of this Agreement.
ARTICLE 5
TRADEMARKS
5.1 Siemens Brand. The CPS Products sold by CTI pursuant to the terms of this Agreement
shall be marketed and sold under Siemens trademarks, service marks, logos, trade names, labels
and/or other materials; provided, however,
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission. that those CPS Products sold by CTI in fulfillment of Backlog Orders
pursuant to Section 3.6 of this Agreement or in fulfillment of Funnel Orders not entered into and
completed by Siemens pursuant to Section 3.7 of this Agreement shall be sold under CTI
trademarks, service marks, logos, trade names, labels and/or other materials. Nothing herein
contained shall give or be deemed to give CTI or its employees, agents or contractors any right,
title or interest in any trademark, service mark, copyright or other intellectual property right held or
used by Siemens. CTI shall not knowingly take any action, or knowingly fail to take any action
where such action or failure would, directly or indirectly, have an adverse effect upon the
trademarks, service marks, copyrights or other intellectual property rights of Siemens.
5.2 CTI Products. All CTI Products shall be marketed and sold under CTI trademarks, service
marks, logos, trade names, labels and/or other materials. Nothing herein contained shall give or
be deemed to give Siemens or its employees, agents or contractors any right, title or interest in
any trademark, service mark, copyright or other intellectual property right held or used by CTI.
Siemens shall not knowingly take any action, or knowingly fail to take any action where such
action or failure would, directly or indirectly, have an adverse effect upon the trademarks,
service marks, copyrights or other intellectual property rights of CTI.
5.3 CPS. The parties hereto agree that nothing contained in this Agreement is intended (i)
to limit or restrict CPS' right to label or use its trademarks, service marks, logos and trade names
in any manner necessary to maximize the growth of its business, or (ii) to amend or modify any
term or provision of the Joint Venture Agreement or the rights of the parties thereunder. With
respect to the CPS Products shipped with the Siemens logo or under the Siemens brand, CPS
agrees that it will not also place a CPS logo on the equipment, other than the CPS manufacturer
label on the lower right rear corner, without the prior approval of Siemens. For purposes of this
Agreement, the parties agree that CPS shall not be considered an "affiliate" of either CTI or
Siemens, but shall be deemed an independent business enterprise subject to the oversight and
control of its Board of Directors and the terms of the Joint Venture Agreement.
ARTICLE 6
TAXES, IMPORT, EXPORT
6.1 Sales and Related Taxes. In the event any governmental entity imposes any tax on the
sale of CPS Products, Siemens shall either pay the amount of such tax directly, or cause the
customers to pay the amount of such taxes directly, to such governmental entity. CTI shall have no
obligation to pay any taxes on the sale of the CPS Products and Siemens agrees to indemnify and
reimburse CTI for any such taxes imposed on CTI by any governmental entity, except that
Siemens shall not be obligated to pay sales or related taxes on sales of any CPS Products for which
Siemens does not get sales credit under the terms of this Agreement.
6.2 Employment Taxes. The parties acknowledge and agree that the Account Managers
will be employed by CTI and will under no circumstances be considered employees of Siemens.
CTI shall be responsible for all withholding, payroll and similar taxes related to its employment of
the Account Managers none of the Account Managers shall be entitled to any benefits afforded to
the employees of Siemens. CTI agrees that: (i) Siemens will not withhold on behalf of the Account
Managers any sums for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of angovernmental body; and (ii) all of such taxes,
payments and withholdings, if any, are the sole responsibility of CTI. CTI agrees to indemnify and
reimburse Siemens for any income tax, unemployment withholding or other employment taxes with
respect to the Account Managers that are imposed on Siemens by any governmental entity.
ARTICLE 7
SERVICE AND WARRANTY
7.1 Service Contracts.
(a) For purposes of this Article 7, the term "SERVICE CONTRACT" means a service
contract covering a CPS Product for which formal customer acceptance is received (i) at the time
of sale of the CPS Product, regardless of whether the CPS Product is sold as a new unit or as a used
unit, or (ii) at any time after such sale until the date which is eleven (11) months after formal
customer acceptance of installation of the CPS Product.
(b) As soon as reasonably practicable after the Effective Date, the parties shall form a
committee (the "SERVICE MANAGEMENT COMMITTEE") which shall be composed of six
representatives as follows: three representatives each from Siemens and CTI with two
representatives from each party from the service organization and one from the finance group.
The presence of two Siemens representatives and two CTI representatives shall constitute a
quorum for
meetings of the Service Management Committee. The Service Management Committee
shall meet on a monthly basis, and may meet by telephone conference. At each
meeting, Siemens shall submit to the Service Management Committee a list of all
Service Contracts received by Siemens since the previous meeting. The list of Service Contracts
shall include a summary of all information the Service Management Committee deems
necessary for the selection of such contracts by the Parties. The selection of such contracts by CTI
and Siemens shall take into consideration certain parameters, including, but not limited to,
predominant geographic coverage in the customer's region, pre-existing business
relationships, and contract value. At the initial meeting of the Service Management Committee,
Siemens shall have the right to select the first Service Contract it desires to maintain, then CTI
shall have the right to select one Service Contract, and thereafter the parties shall alternate
selections until all Service Contracts have been divided between them as closely as possible to the
revenue split contemplated in Section 7.2 below. The selection sequence will continue to alternate at
subsequent Service Management Committee meetings, such that the party that did not have the last
selection at the prior meeting shall have the right to select first at the next meeting. Within thirty
(30) days of the end of each fiscal quarter, the chief financial officer of Siemens or the chief
financial officer of its Nuclear Medicine Group shall certify that all Service Contracts required to
be submitted to the Service Management Committee under this Agreement have been submitted
as required hereunder and that the summaries of such service contracts as provided by Siemens are
true and correct in all material respects.
7.2 Service Contract Transfers. As a result of the selections made by the representatives of
the Service Management Committee under Section 7.1 hereof, Siemens and CTI shall each enter
into or otherwise effect the transfer or assignment of such initial Service Contracts to ensure that
the aggregate revenues to be derived respectively by Siemens and CTI thereunder shall be
substantially equal. Siemens shall ensure that the agreements executed by the customer authorize
the transfer or assignment of such Service Contracts to CTI as contemplated in Section 7.1 above.
7.3 Service Contract Disputes. In the event the Service Management Committee is unable to
resolve any dispute or controversy, the matter shall be promptly submitted to the President of each
organization for resolution prior to submission of the dispute to arbitration in accordance with
Section 12.1 of this Agreement. The parties agree to work in good faith to resolve any such dispute
expeditiously in a manner consistent with the spirit of this Article 7.
7.4 First Year Warranty. First year warranty service shall be provided by the party that receives
the Service Contract, with such party also receiving the first-year parts credit from CPS. If CTI
provides first-year warranty labor, Siemens shall pay CTI the applicable lump-sum labor
reimbursement amount set by Schedule 7.4 attached hereto. For all CPS Products, whether sold as
new units or used units, not covered by a Service Contract at the time of formal customer
acceptance of installation, the responsibility for providing first-year warranty labor on such CPS
Products shall be allocated equally between CTI and Siemens by the Service Management
Committee at the last monthly meeting before formal customer acceptance of installation. Any
Service Contract later executed with respect to any such CPS Product shall be allocated in
accordance with Section 7.1 above.
Section 10.1 below in order to allow CTI to prepare to re-enter the markets at or after the effective
date of termination.
ARTICLE 9
SALE OF CTI PRODUCTS
9.1 Siemens as Representative. CTI hereby appoints Siemens, and Siemens hereby accepts
appointment, as CTI's non-exclusive representative to offer for sale to Siemens' customers products
manufactured and/or distributed by CTI and
its subsidiaries (collectively, the "CTI PRODUCTS"), including but not limited to:
(a) positron-emitting molecular probes used in PET procedures, whether for diagnosis
of disease or for research purposes ("RADIOPHARMACEUTICALS"), distributed by
PETNET;
(b) cyclotrons;
(c) REVEAL(TM) Marketing and Network Solutions; and
(d) sources; provided, with respect to Section 9.1(d) above, that regulatory requirements for
CPS sources are met and that offers are made by Siemens in a good faith basis.
9.2 Exclusivity.
(a) Subject to the expiration or termination of any existing agreements to which
Siemens is a party regarding the provision to Siemens customers of cyclotrons or
radiopharmaceuticals, Siemens hereby agrees that during the term of this Agreement it shall offer
exclusively CTI cyclotrons, PETNET radiopharmaceuticals, and CPS sources for sale to
Siemens customers interested in purchasing cyclotrons, radiopharmaceuticals, or sources. It is a
condition to Siemens' obligations under this Section 9.2 that the cyclotrons, radiopharmaceuticals,
or sources be competitively priced, and that (with respect to radiopharmaceuticals), PETNET be
able to timely deliver the radiopharmaceuticals to the customer site. Siemens agrees to review
and pursue the early termination of any such conflicting agreement or relationship if Siemens can
do so without cost to itself and such termination will not adversely affect Siemens's existing business
operations.
(b) Siemens and CTI agree that the provisions of this Article 9 do not impose any restriction
on (i) CTI's right to distribute the CTI Products itself or through others, (ii) Siemens's rights to
distribute its products itself or through others, or (iii) CPS's right to distribute any CPS Products
itself or through others.
9.3 Procedures. CTI and Siemens shall cooperate to develop procedures for the sale of CTI
Products pursuant to this Article 9; provided, that all sales of CTI Products shall be made in
accordance with CTI's standard terms and conditions of sale and pursuant to orders accepted by CTI.
9.4 Packaging of CTI Products with Siemens Products. CTI Products offered by Siemens
under this Article 9 may be included as an option to the customer as part of a package with the CPS
Products and Siemens' own products. In no event shall Siemens be obligated to package CTI
Products with any other Siemens products, nor shall any customer be forced to purchase any such
package. Any such packaged offering shall comply with all Federal, state and local laws.
9.5 Commission. The commission that the Siemens sales representatives will receive for the
sale of the CTI Products shall be consistent with the commission paid by CTI to its PET
tomography sales representatives for the same
products.
9.6 Mirada License. As additional consideration for CTI's execution of this Agreement,
Siemens shall execute and enter into that certain Fusion7D(R) Software License Agreement dated as
of the Effective Date (the "MIRADA LICENSE") between Siemens and Mirada Solutions Limited,
a wholly owned subsidiary of CTI incorporated under the laws of England and Wales.
9.7 Further Cooperation. The parties will work together to identify other potential areas in
which they may collaborate in furtherance of their respective businesses. Siemens also
acknowledges its desire to enter into a separate agreement with Concorde Microsystems, Inc.
("CONCORDE") for the distribution of its microPET(TM) product line, on terms to be mutually
agreed upon between Siemens and Concorde.
ARTICLE 10
TERMINATION
10.1 Term. The initial term of this Agreement shall be two (2) years from the Effective Date
and shall automatically be extended for additional one (1) year periods unless either party
provides not less than 180 days prior written notice of its election not to renew for such additional
term or this Agreement is earlier terminated pursuant to Sections 10.2, 10.3, 10.4, or 10.5 hereof.
10.2 Termination for Cause. At any time during this Agreement, this Agreement may be
terminated for cause:
(a) By any party, upon thirty (30) days' written notice to the other parties, upon the
occurrence of any one or more of the following events:
(i) a material breach by any other party of this Agreement if such other party shall have
failed to cure such breach within ninety (90) days' of receipt of written notice thereof from the
terminating party describing with specificity the factual basis constituting the material breach;
(ii) an adjudication of bankruptcy of any party under any bankruptcy or insolvency
law; or
(iii) the commission by any party of a receiver for business or property, or the making
of any general assignment for the benefit of Creditors
(b) By CTI, in the event that total unit sales of CPS Products represent less than *% of
total unit sales of new PET and PET/CT scanners in the United States for two consecutive fiscal
quarters as reported by the National Electronics Manufacturers Association (in either dollar
volume or number of orders), if such reduction is not directly attributable to a decline in the
quality of the CPS Products, non-competitive pricing or transfer pricing issues not attributable to
the Transfer Prices paid for CTs to Siemens by CPS, adverse action by the U.S. Food and Drug
Administration (the "FDA") related to CPS or the CPS Products, work stoppage or labor unrest at
CPS that results in missed shipments, or similar events adversely affecting CPS's business
operations in a manner that erodes total market share.
(c) By CTI, if Siemens terminates the Mirada License for any reason.
(d) By CTI, if Siemens is in breach or default of any of its payment obligations set
forth in this Agreement and such breach or default continues for thirty (30) days or more after
receipt of written notice thereof, upon written notice to Siemens, with such termination to be
effective on the date of receipt by Siemens of such termination notice.
10.3 Termination Upon a Force Majeure Event. If a Force Majeure Event (as defined in
Section 14.2) continues for a period of six (6) months or longer, then the entirety of this Agreement
may be terminated by any party whose own performance is not delayed or prevented by the
Force Majeure Event (the "UNAFFECTED PARTY") immediately thereafter by providing
notice to the other parties.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934 and has been filed separately with the Securities and
Exchange Commission.
10.4 Termination by Mutual Agreement . This Agreement may be terminated at any time during
the term hereof the mutual written agreement of the parties hereto.
10.5 Termination Upon Exercise of Option. Either party shall have the right to terminate this
Agreement at such time as Siemens attains an 80% or greater interest in CPS pursuant to the
closing of the additional purchase and sale rights set forth in Section 14 of the Joint Venture
Agreement (the "OPTION").
10.6 Obligations Upon Termination.
(a) Except as provided, CTI agrees that upon the termination of this Agreement for any
reason whatsoever CTI shall:
(i) cease all marketing and promotion of CPS Products and the solicitation of Purchase
Orders on behalf of Siemens; and
(ii) on or before the effective date of termination, assist Siemens in preventing any
disruption of service or supply to customers of CPS Products located within the Territory, by
providing Siemens with a complete and accurate list and description of all unfulfilled Purchase
Orders from customers for the CPS Products submitted to CTI on or before the effective date of
the termination.
(b) Upon termination of this Agreement, Siemens shall reimburse CTI for all expenses for
which Siemens is obligated to reimburse CTI and which were incurred on or before the effective
date of termination.
10.7 Distribution of CPS Products.
(a) Upon the termination or non-renewal of this Agreement by Siemens for any reason,
CTI shall have the right to distribute CPS Products on substantially the terms set forth in the CTI
Distribution Agreement, as such
exercise control of any other party, or to conduct any other party's business, except as expressly set
forth in this Agreement.
14.2 Force Majeure Provision. No party hereto shall be liable for any delay arising from
unanticipated catastrophic circumstances beyond its reasonable control including, but not
limited to, acts of God, war, riot or civil commotion, fire, flood, terrorism, drought or act of
government ("FORCE MAJEURE EVENTS"); provided, that the party seeking to be excused
shall make every reasonable effort to minimize the delay resulting therefrom. Each party shall keep
the other parties fully informed of any such circumstances. During the period that the performance
by one of the parties of its obligations under this Agreement is been suspended by reason of a Force
Majeure Event, all parties to this Agreement shall cooperate and use their commercially reasonable
best efforts to continue the business contemplated by this Agreement; provided, that any Unaffected
Party may (but shall not be required to) suspend performance of all or part of its obligations
hereunder to the extent that such suspension is commercially reasonable. The parties agree to
resume their performance under this Agreement as soon as possible upon the passing of the Force
Majeure Event.
14.3 Assignment. No party shall have the right to assign or otherwise transfer its rights and
obligations under this Agreement except with the prior written consent of the other parties;
provided, however, Siemens and CTI shall each be entitled to assign any or all of its rights and
obligations hereunder to any of its controlled subsidiaries, provided that both Siemens and CTI,
as applicable, shall remain fully liable for the performance of all its obligations hereunder; and
further provided that a successor in interest by merger, by operation of law, assignment, purchase
or otherwise of the entire business of either party shall acquire all rights and obligations of such
party hereunder. Any prohibited assignment shall be null and void.
14.4 Notices. All notices or other communication which are required or permitted hereunder
shall be in writing and sufficient if delivered by hand, by facsimile or telecopier transmission (and
a transmission confirmation is received by the sender), or by a recognized international or
overnight courier, to the persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date so delivered.
Siemens:
Siemens Nuclear Medicine Group
3501 North Barrington Road
Hoffman Estates, Illinois 60195
Facsimile: (847) 304-7080
Attention: President, Siemens Nuclear Medicine
With copies to:
Siemens Medical Solutions USA, Inc.
51 Valley Stream Parkway
Malvern, PA 19355
Facsimile:
Attention: President & CEO
and
Associate General Counsel
Siemens Legal Department J-16
51 Valley Stream Parkway
Malvern, PA 19355
CTI:
CTI Molecular Imaging, Inc.
810 Innovation Drive
Knoxville, TN 37932
Fax No.: 865/218-3016
Attention: President
With a copy to:
CTI Molecular Imaging, Inc.
810 Innovation Drive
Knoxville, TN 37932
Fax No.: 865/218-2760
Attention: General Counsel
CPS:
CPS Innovations
810 Innovation Drive
Knoxville, TN 37932
Fax No.: 865/218-2878
Attention: President
With a copy to:
Kilpatrick Stockton LLP
Suite 900
607 14th Street
Washington, DC 20005-2018
Fax No.: 202 585 0002
Attention: David A. Stockton
14.5 Entire Agreement. This Agreement, including the schedules attached hereto and
incorporated as an integral part of this agreement, constitutes the entire Agreement of the parties
with respect to the subject matter hereof, and supersedes any and all previous Agreements by and
between CPS, Siemens and CTI with respect to the subject matter hereof, if any, as well as any
and all proposals, oral or written, and all negotiations, conversations or discussions heretofore had
between the parties related to this agreement.
14.6 Amendment. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, canceled or waived, in whole or in part, except by written amendment signed by the
parties hereto.
14.7 Publicity. This Agreement is confidential and no party shall issue press releases or engage
in other types of publicity of any nature dealing with the commercial and legal details of this
Agreement without the other parties' prior written approval, which approval shall not be
unreasonably withheld. However, approval of such disclosure shall be deemed to be given to the
extent such disclosure is required to comply with governmental rules, regulations or other
governmental requirements. In such event, the publishing party shall promptly furnish a copy of
such disclosure to the other parties. Notwithstanding the foregoing, CPS, Siemens and CTI shall be
permitted to file this Agreement and to disclose the terms of this Agreement in their respective filings
with the U.S. Securities and Exchange Commission or any similar state agency.
14.8 Severability. In the event that any of the terms of this Agreement are in conflict with any
rule of law or statutory provision or are otherwise unenforceable under the laws or regulations of
any government or subdivision thereof, such terms shall be deemed stricken from this
Agreement, but such invalidity or unenforceability shall not invalidate any of the other terms of
this Agreement and this Agreement shall continue in force, unless the invalidity or unenforceability
of any such provisions hereof does substantial violence to, or where the invalid or unenforceable
provisions comprise an integral part of, or are otherwise inseparable from, the remainder of this
Agreement.
14.9 Counterparts. This Agreement shall be executed in three or more counterparts, and each
such counterpart shall be deemed an original hereof.
14.10 Waiver. No failure or delay by any party to take any action or assert or exercise any
right or remedy hereunder shall operate or be deemed to be a waiver of such right or remedy in
the event of the continuation or repetition of the circumstances giving rise to such right; nor shall
any single or partial exercise of such right or remedy preclude any other or further exercise
thereof or of any other right or remedy. No provision of this Agreement may be waived except in a
writing signed by the party granting such waiver. Quyn t b thc hin. Khng c iu khon no
trong hp ng ny cho php t b nu khng c bn kia chp thun bng vn bn.
14.11 Authorization and Execution. By executing this Agreement each party represents and
warrants to the other parties (i) that the entry into and execution and performance of this Agreement
has been fully and duly authorized by all required corporate action, and (ii) that the person
signing this Agreement on behalf of a party has been fully authorized by all required corporate
action to execute this Agreement on behalf of the party for which such person is signing.
14.12 Confidentiality. Each party hereto agrees not to disclose to others the technical and
business information of the other parties hereto ("CONFIDENTIAL INFORMATION"), and
agrees to use the other parties' Confidential Information only for the implementation of this
Agreement and to hold the other parties' Confidential Information confidential using at a minimum
the same care it would exercise to protect its own Confidential Information but in no event less
than a reasonable degree of care. The receiving party further agrees to disclose the Confidential
Information of the disclosing party only to the receiving party's employees and agents who have a
need to know and only to those employees and agents who have agreed in writing to confidentiality
obligations substantially similar to those in this Section 14.12. The receiving party shall not permit
any of its personnel to remove any proprietary or other legend or restrictive notice contained or
included in any Confidential Information provided by the disclosing party, and the receiving
party shall not permit any of its personnel to reproduce or copy any such Confidential Information
except as expressly authorized under this Agreement. Provided, however, that such
confidentiality obligation shall not apply to any information which (a) is now or hereafter becomes
a part of the public domain, other than by act or omission of the receiving party, (b) was
independently developed by the receiving party or its affiliates; (c) information that was in such
party's possession prior to disclosure by the other party, (d) is hereafter furnished to the receiving
party by a third party, as a matter of right and without restriction on use or disclosure, who
lawfully possesses such information and did not acquire it directly or indirectly from the other
party, (e) is disclosed in any U.S. or foreign patent, or published patent application, whether
owned by the other party or any third party, or (f) is required to be disclosed to a government
agency or pursuant to a judicial proceeding, but only to the extent so required and provided that the
receiving party gives the disclosing party advance notice of such disclosure and reasonably
cooperates with the disclosing party (at the disclosing party's expense) to contest such disclosure.
The duration of this confidentiality obligation shall be for the term of this Agreement and for two
(2) years thereafter with respect to any Confidential Information that does not constitute a "trade
secret" under applicable law, and for Confidential Information that does constitute a trade
secret under applicable law, these confidentiality obligations shall last in perpetuity. Nothing in this
Section is intended by the parties to abrogate any rights or obligations of the parties under
common law or statutory law with respect to the use and disclosure of confidential information or
trade secrets.
14.13 Survival. The provisions in Section 14.12 shall survive the expiration or termination
of this Agreement indefinitely.
14.14 Governing Law. This Agreement shall be governed by, construed under, and
interpreted in accordance with the laws of the State of Delaware, U.S.A, applicable to contracts
made and performed entirely within that state.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Effective Date.
CTI MOLECULAR IMAGING, INC.
By: /s/ Ronald Nutt
----------------------------------Ronald Nutt, Ph.D.
President
SIEMENS MEDICAL SOLUTIONS USA, INC.
By: /s/ Thomas N. McCausland
----------------------------------Thomas N. McCausland
President
CTI PET SYSTEMS, INC.
By: /s/ R. Gregory Brophy
----------------------------------R. Gregory Brophy
President
Th
claims?
THE PRINCIPLE
The first steps an exporter should take are to
ensure that all exported goods meet or
exceed the quality specified, that marking
and packaging are correct, and that delivery
is on time. Secondly, the agreement between
the parties should contain specific quality
specifications; detailed specification reduces
the chance of a dispute because it provides a
clear and objective standard that the goods
must meet.
IN MORE DEPTH
No manufacturer produces perfect products every
time. Even so, quality is a key issue, and customer
satisfaction is essential to successful business.
Many companies have quality assurance programs
to ensure that customers get what they pay for.
Until things are going well in the local market, it
makes little sense to export, because quality
assurance and customer satisfaction are much
rougher issues when the customer is in another
country, and when distance makes
communication, transport, inspection, payment,
and verification of claims expensive and time
consuming. Before looking in detail at inspection,
defects liability and the other issues, let's trace the
course of an exported product from manufacture
through to the end of the defects liability period
and see where the exporter is at risk.
Scenario: Verbena Electric is selling lightweight headphones with a built-in AM/FM radio. The
equipment runs on a single AAA battery. The customer is Euroeast Impex, a purchasing house in an
East European country with a huge market for modern, high quality equipment- provided the price is
right. The two sides have agreed an FOB (Port Verbena) price of $2.78 per unit, excluding battery.
Quality is an issue from the start of negotiations. Euroeast wants a product it can sell in tens of
thousands. But, despite the low price, this is not a throw-away product- the end user wants
headphones that will last at least six months. How does Euroeast get the quality it wants.
CONCEPT REVIEW: Close Knit
Verbena Knils is selling 5,000 sweaters to an importer in Nonamia, a country 4,000 miles away. The
Monamian buyer agrees to pay by letter of credit, but not by confirmed letter of credit. Delivery is to
be made DDP (Port Nemo). As to specifications, the buyers general conditions of purchase state:
"The quality of all deliveries shall be in accordance with the customs of the trade as practiced in the
Republic of Nonamia." And further, Clearly defective goods may'be rejected on arrival-and returned
to exporter at the exporter's risk and cost." The buyer wants to buy from Verbena Knits on these
loose and somewhat informal terms.
Where do you see danger for the exporter? If there is "Some Danger" or "Great
Danger, what is the danger you foresee ?
1. In the terms of the letter of credit? ..........................................................
NO DANCER
SOME DANGER GREAT DANGER
2. In the DDP delivery?..........................................................................
NO DANCER
a) Subject to the terms and conditions in this Agreement AGIP hereby grants to the Distributor the
sole right during the continuance in force of this Agreement to purchase for distribution and resale in
the Territory those of its Products exclusively for Automotive and Industrial Application (excluding
international marine application) specified in the First Schedule
b) This appointment shall take effect on ../../19 .. and shall subsist for a period of .. years from that
date unless otherwise terminated in accordance with the provisions of this Agreement and shall
continue thereafter until terminated by either party giving to
the other at any time six (6) months' notice in writing
c) Provided always that the Distributor is not in breach of any of its obligations and terms
whatsoever hereunder AGIP will not appoint any other distributor for the Products in the Territory
during the term of this Agreement; however AGIP may during the period of six (6) months prior to
the termination hereof appoint the Distributor's successor (if any) and allow AGIP and such
successor to make itself known as AGIP's future distributor appointed to do business after the
termination of this Agreement
3. Distributor's undertakings
a) The Distributor shall during the continuance of this Agreement purchase all its requirement of the
Products from AGIP and shall diligently and faithfully serve AGIP as its distributor in the Territory
and shall improve and promote the sale of the Products for Automotive and Industrial application
(excluding international marine application) to customers through the Territory and to ensure the
best possible display of the Products in
all marketing and sales outlets
b) The Distributor shall ensure in all events that the minimum order for the Products for delivery to
the Distributor shall be that set out in clause 6 (0 hereinafter set out in the Second Schedule hereto
c) The Distributor shall ensure that to conform with all legislation rules, regulations and statutory
requirements relating to the importation storage distribution and sale of the Products in the Territory
from time to time.
d) The Distributor shall not alter or treat in any way whatsoever the content and Consumer Packages
of the Products and will supply Products only in Consumer Packages form and get up in which they
are supplied to the Distributor by AGIP; the Distributor shall procure similar undertaking from all its
marketing and sales outlets accordingly and shall be responsible for and stand liable for the
compliance thereof
e) The Distributor shall maintain sales records in .respect of in its outlets and supply each month a
sales and stocks return and such other further records and reports all in the English Language as may
be specified by AGIP from time to time
f) The Distributor shall ensure that its salesmen visit regularly the business premises of present and
potential marketing and sales outlets/customers for the Products in the Territory and in addition to
visit attempt to obtain orders for the Products from any persons to whom they may be directed by
GIP
g) The Distributor shall be responsible for ensuring that the Products reach the consumer in the best
possible condition and shall take all positive precautions to avoid contamination or alteration of the
Products and the Consumer packages and shall educate and procure similar undertaking from all its
salesmen and marketing and sales outlets accordingly and shall be responsible for and stand liable
for the compliance thereof
h) The Distributor shall promptly resolve satisfactorily any complaints relating to the promotion sale
or provision of technical information and all other matters whatsoever in respect of the Products
arising within the Territory; the Distributor shall promptly notify AGIP of any complaints or unusual
comments whether favorable or unfavourable or by way of requests for information) it may receive
pertaining to the Products or of any defective Products; it is understood that AGIP shall not be in
anyway responsible for or liable to any complaints whatsoever and the Distributor hereby agrees to
fully indemnify AGIP accordingly. The Distributor shall keep AGIP regularly and continuously
informed of the progress and development of the market in the Territory for the Products and for all
goods similar thereto or competitive therewith and of all laws 'and regulations affecting the
import distribution labelling packaging advertising and sale of the Products and of such goods in the
Territory and of all matters whatsoever affecting or relevant to AGlP's business in the Territory.
j The Distributor shall not distribute similar product in the Territory or enter into any business
transaction in competition with AGIP
k The Distributor will keep full proper and up-to-date records in the English Language showing
clearly all enquiries, transactions and proceedings relating to the distributorship and shall at all times
permit AGIP or its representatives full access thereto
l) The Distributor hereby acknowledges that the Agreement is personal and shall not assign or
purport to assign the benefit of this Agreement without the prior consent in writing of AGIP, of which
consent shall not be unreasonably withheld without prejudice to the foregoing; it is understood that
an amalgation or reconstruction or change in control and change in ownership of up 25% equity and
above are deemed an assignment for which AGIP prior written consent must be procured
m) The Distributor shall in selling the Products be bound by AGIP's conditions of sale as from time
in force and any modification thereto made by AGIP either generally or in respect of any
particular purchase and in selling shall contract on like terms to those conditions as from time to time
in force together with any general or particular modifications as respects any particular sale and shall
not make any promises representations warranties or guarantees with reference to the Products
except such as are consistent with those conditions or as one expressly authorised by AGIP in writing
n) The Distributor shall not directly or through any agent sell any of the Products outside the
Territory or knowingly or having reason to believe that they would be so resold sell the Products to
any person or body corporate or incorporate within the Territory with a view to their resale outside
the Territory
o) The Distributor shall not directly or through any agent sell any of the Products for marine
application or knowingly or having reason to believe that they would be resold, sell the Products to
any person or bod}' corporate or incorporate
p) The Distributor acknowledges that it is not competent to and will not incur any liability on behalf
of AGIP or in any way pledge or purport to pledge AGIP's credit or accept any order or make any
contract binding upon AGIP
q) The Distributor shall present a draft annual marketing advertising and promotion plan to AGIP for
comment and approval prior to its implementation. It is understood that approval by AGIP does not
amount to an acceptance of liability whatsoever or howsoever thereunder and the Distributor
undertakes to fully indemnify AGIP at all times accordingly
r) The Distributor undertakes that its marketing advertising and promotional activities in respect of
the Products shall at all times comply with the applicable law and the industry standards
s) Distributor shall conduct its business in a manner that will reflect favorably on AGIP and AGIP
Affiliates, the Products and the good name and reputation of the foregoing and shall foster consumer
confidence in the Products. Distributor shall not engage in any deceptive or. misleading promotion or
advertising or indulge or partake in or condone any unethical trade practices
t) The Distributor shall fully indemnify and keep AGIP fully indemnified and harmless at all times
and from time to time and against any and all loss damage claim penalties whatsoever and
howsoever or liability or expense (and if solicitor's fees on a solicitor and client's basis to be taxed)
suffered or incurred by AGIP resulting from a breach of any of the terms herein by the Distributor or
otherwise whatsoever and howsoever in relation to or arising out of this Agreement.
4. Principal's undertakings
a) AGIP shall use its best endeavour to supply the Distributor with the Products ordered by the
Distributor
b) AGIP warrants to Distributor that the Products will comply with the given characteristics as
amended from time to time as contemplated herein provided always any claim for breach of the
foregoing warranty must be submitted in writing by Distributor to AGIP within 5 (five) days after the
date in which such claim is made, failing which such claims shall not be considered or allowed; it is
further provided that AGIP's liability in respect of any breach of the foregoing warranty shall be
limited in all events to the Distributor's purchase price of the Products involved plus the cost of
transportation of such Products approved in writing by AGIP prior to the time that such cost is
incurred
c) Subject to AGIP prior written approval of the marketing advertising and promotional plan and the
budget thereof and subject always to the strict compliance thereof AGIP agrees to
reimburse the Distributor half the aforesaid budget spent or actual spending whichever is the lesser.
The approval by AGIP does not amount to an acceptance of liability whatsoever or however
thereunder and the Distributor- undertake to fully indemnify AGlP at all times accordingly
d) No warranty or warranties expressed or implied including but not limited to any implied warranty
of merchantability or fitness for any purpose! whatsoever are given by AGIP in respect of the
Products excepting only that warranty given to Distributor pursuant above which is subject to the
terms conditions and limitations therein set forth
n) AGIP warrants that information furnished by AGIP to Distributor for advertising or other
promotional purposes in respect of the products will be as far as practicable accurate at the time of
publication
5. Agip's reservations
AGIP reserves to itself notwithstanding anything to the contrary herein contained the following
rights:
a) To decline or to accept any order form the Distributor and by so declining shall not incur any
liability whatsoever to the Distributor if the Distributor is in breach of any one of the terms
whatsoever of this Agreement
b) Without prejudice to the generality of this Agreement and without assigning any reason there to
and without prior notice vary the First Schedule hereto defining the Products either by withdrawing
therefrom a class or classes of Products named therein or by the addition thereto after notice to the
Distributor of a further class or further classes of products of AGIP and as set to in Clause 1(a) above
c) If the Distributor is not at any time producing adequate sales coverage throughout the whole of the
Territory and the region thereof and without prejudice to any of its right under this Agreement AGIP
may either exclude from this Agreement such part or parts of the Territory and/or exclude from this
Agreement such one or more of the Products herein defined or to take both these courses of action
save that neither such course of action shall be taken under this clause without prior notice to the
Distributor
d) To take such step itself as may seem necessary or expedient (including and without prejudice to
the generality of the reserved right to appoint a representative in the Territory) to promote the Sale of
the Products in the Territory and to notify the Distributor of any persons, firms or bodies corporate
carrying on business in the Territory who appear to it to be in a position to enhance the sale of the
Products
e) To enter upon manufacture or market research or distribution of any products whatsoever without
consulting the Distributor or remunerating the Distributor in any way for any of such products may
be sold in the Territory
f) AGIP may sell and supply directly without prior consent or approval of the Distributor the
Products to AGIP Affiliate and such person or companies in which EN1 or companies belonging to
ENI own a share of not less than 30% and to take part in in government's tenders from time to time
for the supply and sale of the Products without remunerating the Distributor in any way
6. Prices, delivery and conditions of sale
a) Prices quoted to the Distributor for any of the Products are set out against the Products in the First
Schedule hereto and are subject to change by AGIP at any time prior to Distributor's firm order
b) AGIP shall have no liability whatsoever for any delay in delivery or performance caused by war,
industrial disputes, fire, force majeure or any other circumstances whatsoever beyond its control
c) Without prejudice to any other rights under this Agreement AGIP shall be entitled to withhold
further supplies without liability whatsoever while payment of any sums due from the Distributor
remains outstanding
d) Distributor shall submit its estimated requirements for the Products during successive four
months periods to AGIP at least two months prior to the commencement of each such period
e) For shipments of the Products to Distributor under this Agreement Distributor shall submit its firm
orders with irrevocable confirmed Letters of Credit established and received and further acceptance
by AGIP as follows
- not later than the 10th (tenth) day of the month preceding the month in which order is to be shipped
for Products to be supplied ex-Singapore plant
- not less than 60 (sixty) days prior to the desired delivery dale for Products to be supplied ex-Italy
The terms of the irrevocable confirmed Letters of Credit shall be prescribed and approved by AGIP
from time to time
f) The first Contract Year of this Agreement shall commence' on the effective date hereof and
subsequent Contract Years shall commence on anniversaries of said effective date; during successive
Contract Years Distributor shall purchase from AGIP no less than the quantity of the Products set out
in the Second Schedule
Minimum quantities for subsequent renewal terms shall be agreed upon between the Parties hereto
no less than 6 (six) months prior to the commencement of the renewal term in question or if not so
agreed shall be the minimum quantity for the immediately preceding Contract Year or the actual
quantity sold during such year whichever is the higher to be increased by 10% every subsequent
renewal year up to 19 ..
g) Distributor orders for the products may specify delivery at one time but no requested delivery
shall be for less than 1 (One) Container of Products
h) AGIP reserves for itself and the AGIP Affiliates the right to discontinue the manufacture or sale of
any Products or to make changes in its composition at any time without any liability to Distributor
apart from that of notifying Distributor
i) Delivery of the Products shall be made within 60 days from the date of the receipt and acceptance
by AGIP of the irrevocable confirmed Letter of Credit for Products to be supplied ex-Italy and within
30 days for Products to be supplied ex-Singapore
j) If for any reasons whatsoever the Distributor shall fail to neglect to take delivery of the Products
within 1 day of schedule date (inclusive) the AGIF shall be entitled to treat the order as cancelled and
invoice the Distributor for all costs and expenses incurred or dispose of the Products within 14 days
thereafter and invoice the Distributor for all costs and expenses incurred by AGIP and any
diminution in the sale price
7. Passing of Risk/Title
a) Unless otherwise agreed the risk to the Products shall pass to the Distributor as soon as or when
the Products or part thereof are deemed delivered or ready for delivery to the Distributor and/or the
Products or part thereof are deemed to be in the Distributor's
possession
b) Notwithstanding the aforesaid and without prejudice thereto the Title to the Products only pass to
the Distributor upon full payment of the price of the Products to AGIP
c) Until full payment and prior to the Distributor's sale of the Products the Distributor shall keep
and/or store the Products in such manner consistent with AGIP's ownership and manifested to all
third parties
8. Payment terms
a) The Distributor agrees to pay for all Products of AGIP ordered by way of irrevocable confirmed
Letters of Credit through a bank payable at sight to AGIP in United States Dollars payable in
Singapore or elsewhere as AGIP may determine from time to time
b) All amounts required to be paid by the Distributor shall be paid without deduction or abatement
whatsoever
9. Stocks
The Distributor shall at all times during the continuance of this Agreement carry stocks of no less
than one month's supply of the Products and ensure that all orders received by the Distributor's
marketing and sales outlets are supplied without due delay; the Distributor shall take all reasonable
steps to ensure that the stocks are properly stored at all times and that a continuous stock rotation
policy is maintained for all stocks in all warehouses to ensure the quality of the Products is preserved
10. Trademarks and patents
a) It is agreed that all rights in the trade marks appearing upon or used in relation to the Products and
of the goodwill attaching thereto are and shall remain the exclusive property of AGIP or its
associated companies; the Distributor shall only use the said trade marks in conjunction with the
Products and in accordance with the provisions of this Agreement; the said trademarks shall not be
used in any manner liable to invalidate the registration or lessen the value thereof; the right to use the
said trade marks in connection with the Products is only granted to the extent that.
AGIP is able to do so without endangering the validity of the registration or lessening the value. The
Distributor shall immediately inform AGIP of any and every improper or wrongful use or any actual
or potential infringement in the Territory of AGIP's patents trademarks, designs, models, or similar
industrial or commercial monopoly rights which come to the Distributor's notice and shall provide
full co-operation to AGIP at all times
b) The Distributor shall not do or omit to do anything by which the goodwill and reputation
associated with the trade marks might or diminished or jeopardised and shall include in, all printed
matter on which any of the trade marks of AGIP (or one of its associated companies as the case may
be) the form thereof to be determined by AGIP
c) Distributor is authorised to use AGIP's registered names logos and trademarks related to the
Products during the existence of and in the course of operating under this Agreement; but nothing
contained herein shall be construed as granting or shall grant to Distributor any rights, title or interest
in the above said names and trademarks or other industrial property right owned or being used by
AGIP or any AGIP Affiliate. Distributor shall take no steps to register any AGIP or AGIP Affiliate
trademark, trade name brand or logo or any other word(s) or symbol(s) deemed deceptively similar
thereto by AGIP. Distributor shall have no right to use any such word(s) or symbol(s) as or as part of
its corporate or trade name
d) Upon expiration of this Agreement Distributor shall forwith cease all use of AGIP's or any AGIP
Affiliate's industrial property rights and shall not thereafter use any such right or any trademark name
brand or logo deemed deceptively similar thereto by AGIP except in connection with the sale of such
quantities of the Products as Distributor may have in stock at the time of expiration or termination
11. Confidentiality
a) The Distributor shall not at any time during or after the term divulge or allow to divulge to any
persons any confidential information relating to this distributorship or to AGIP
b) Any technical commercial and confidential information given in order to assist the Distributor to
carry out its obligations in this Agreement is only to be used for the said purposes only
c) The Distributor shall ensure that its employees and dealers and marketing and sales outlets are
aware of and observe the provisions of this clause both during the subsistence of this Agreement and
thereafter
d) All written material embodying information designated by AGIP as confidential and all copies
thereof are to be returned to AGIP on the termination of this Agreement
e) The Distributor acknowledges that all information concerning the Products identified by AGIP or
any AGIP Affiliate as trade secret which Distributor has obtained or shall obtain in consequence of
this Agreement whether from AGIP and AGIP Affiliate or otherwise are solely for the purposes of
tills Agreement; distributor undertakes to use the same degree of care as in preserving the secrecy of
its own secret business information and shall procure similar undertaking from its own employees
and dealers and marketing and sales outlets accordingly and Distributor shall be responsible for and
stand liable for the compliance thereof. The obligations of this Section shall not apply however to
information which:
vi) If the Distributor commits or allows to be committed a breach, of any of its obligations herein
stated and does not remedy such breach within fourteen (14) days after written notice has been given
to it by AGIP; or
vii) If the Distributor commits or is charged with the commission of a criminal or unlawful act or by
commission has committed or charged with a criminal or unlawful act; or
viii) If the Distributor engages in any conduct prejudicial to AGIP or AGIP's Affiliates generally or
the marketing of the Product generally.
Then in any such event AGIP may be written a notice forthwith terminate this Agreement but without
prejudice to any other rights of the parties hereto.
15. Effects of termination
If this Agreement terminates for any reason whatsoever and without prejudice to any other rights:
a) Without demand all money due to AGIP shall be paid immediately without deduction
b) The Distributor shall cease to distribute the Products of AGIP immediately
c) AGIP shall have the discretion and option to regard any unexecuted orders placed by the
Distributor and accepted by AGIP before such termination as cancelled excepted those in respect of
which the Distributor shall have furnished documentary evidence to the satisfaction of AGIP within
thirty (30) days from the notice of the Products ordered to third parties prior to the termination of this
Agreement
d) The Distributor shall if requested by AGIP forthwith return to AGIP or elsewhere as AGIP may
direct at the expense of AGIP all goods or Products belonging to AGIP in its possession or under its
control and all advertising and promotional matters relating to the Products in its control. In case of
default AGIP shall be entitled without notice to enter at any time upon the premises where the said
goods or Products may be for the time being and to remove the same
c) All Products remaining unsold which in the mutual opinion of AGIP and Distributor are not in
good condition shall be forthwith disposed of by the Distributor as directed by AGIP
f) The Distributor shall return to AGIP all samples and publicity promotional and advertising
material and technical material and copy thereof used in the distributorship
g) The Distributor shall return to AGIP all originals and copies of all documents and information in
any form containing or covering in any way part of the Intellectual Property and technical
specifications and literature
h) In the event of termination of this Agreement AGIP shall have the option to repurchase from
Distributor any or all of the Products purchased from AGIP and owned by Distributor on the date
Distributor receives written notice of AGIP's intention to exercise the repurchase shall be the invoice
price thereof actually paid by Distributor plus verified transport cost paid by Distributor; in the event
of the exercise of this repurchase option by AGIP Distributor shall promptly deliver the Products to
AGIP in conformity with all laws and requirements which may be necessary or proper to transfer
good title to such Products to AGIP free and
clear of any charge lien or encumbrance; AGIP shall pay Distributor for such product promptly after
Distributor has complied with all of its obligations hereunder
i) Distributor recognizes and agrees that it is fully compensated for its activities in developing the
market for. the Products in promoting the name and reputation of the Products and in building
goodwill in respect of the Products by way of revenues derived from re-sales of the Products during
the currency of this Agreement; consequently in no event shall termination of tins Agreement for any
reasons whatsoever and howsoever. Give rise to any right of
action by Distributor to recover additional compensation of loss or damage from AGIP
16. Non-Competition
During the term of this Agreement the Distributor shall not distribute manufacture develop or occupy
itself in any other way directly or indirectly with goods of a nature competitive with the Products inor outside the Territory without prior written consent from AGIP
e) The Clause headings in this Agreement are for ease of reference only and will not affect the
interpretation hereof
24. Notices
Any notices required to be served hereunder shall be sufficiently given if forwarded by registered
post recorded delivery cable telex or telegraph to the address set out at the head of this Agreement or
such other address as may have been notified in writing to the other party for such purposes
25. Execution
This Agreement may be executed in any number of counterparts, any single counterpart or a set of
counterparts executed in either case by all the parties hereto shall constitute full and original
agreement for all purposes
IN WRITNESS WHEREOF the parties hereto have caused this Agreement to be executed in
counterpart original by their duly authorised representatives on the day and year first set forth above
SIGNED by
On behalf of
AGIP FETROLI SPA
SIGNED by
On behalf of
DISTRIBUTOR
There are two parties to a warranty: buyer and seller. A guarantee, on the other hand, involves
three parties, as the diagram shows. The guarantor makes a promise to one party at the request of
another. There is a major confusion of terminology. Blacks Law Dictionary comments:
Internationally, the distinction between warranty and guarantee is often blurred. First,
businessmen loosely use the words as though they mean the same thing. Another common belief
is that a warranty covers materials and workmanship, while guarantee covers specifications. This
is not true. Does it matter? In fact, yes. Confusion between warranty and guarantee can be
dangerous. When?
Lets say a contract is written in English, but German law applies. German law makes a clear
distinction between a sellers warranty and a sellers guarantee the sellers obligations are
more extensive under a guarantee. So loose English will get the exporter into trouble if
German law, or any closely related law applies to the contract.
As a general rule, incorrect use of guarantee causes trouble; use the word only if you mean a
third party guarantee.
p.127-148
When businessmen speak of the sellers guarantee or warranty they mean the exporters
liability for defects; to avoid confusion, many drafters today use the term Defects Liability
Provision.
A defects liability provision (or warranty) covers defects that are present at the moment of
delivery. Normally quality control prevents products with obvious defects from leaving the
factory; in the next step, products with obvious or patent defects are identified during open
package inspection and rejected. The defects that give rise to the most serious problems between
exporter and buyer are hidden or latent defects.
Defects may be (a) in workmanship, (b) in materials, or (c) in design. However, fair wear and
tear and misuse by the buyer are not covered by the provision.
The defects liability period is the period during which the exporter is liable for- and must make
good- defects that are apparent on delivery or that come to light later. The buyer, of course, must
prove that the defect was present in the goods at the date of delivery- often a difficult task. It is
important for both sides in a contract negotiation to understand that a defect is a fault provably
present in the goods on delivery- nothing more. In principle, under most laws, the exporter is
liable only for problems that arise from defects.
CONCEPT REVIEW: GET WEAVING
Verbena Textile is replacing twenty of its looms. The looms are thirty years old, and spare parts
are hard to find. The factory engineer chooses the best of the old looms and cannibalizes the
others to make twelve looms in good working order. Verbena Textile negotiates to sell these
looms to Esperanza Cotton Mills. Esperanza Cotton wants twelve-month warranty with the
looms; Verbena Textile is prepared to sell them on as is.
1. What arguments are the two sides likely to put forward in negotiating the warranty (defects
liability)?
.
2. Which side do you think is in the right?
.
1. Second-hand machinery is usually sold internationally "as is. From the buyer's point of view
this has an obvious disadvantageif the machine goes wrong, repair may be expensive or
impossible. However, it makes little sense for the seller to offer a warranty. Firstly he is not in
the business of selling or repairing machines. Secondly, assuming he is prepared to offer a
warranty, the cost would be prohibitivein some cases the total cost might be more than the
cost of a brand-new machine using the latest technology.
2. Both sides have a point. The most common solution is for the buyer to check the machines
carefully for full functionality before buying them- and then to accept the sale without
warranty.
Translate into Vietnamese
ABC'S CONTRACT
GENERAL TERMS AND CONDITIONS
1) Shipment or delivery
The obligations of Seller to ship or deliver the goods specified on the face of this Contract ("Goods")
by the time or within the period specified on the face of this Contract shall be subject to the
availability of the vessel or the vessel's space
If, under the terms of this Contract, Buyer is to secure or arrange for the vessel or vessel's space,
Buyer shall secure or arrange for the necessary vessel or vessel's space on berth terms basis and give
Seller shipping instructions within a reasonable time prior to shipment, including but not limited to
the name and detailed schedule of the vessel. If Buyer fails to give such instructions within a
reasonable time prior to shipment, Seller may, at its sole discretion and at Buyer's risk and account,
arrange for the vessel or the vessel's space and make shipment of the Goods, without prejudice and in
addition to any other rights and remedies Seller may have under this Contract or at law or in equity
or otherwise.
In case of shipment or delivery installments, any delay or failure in shipment of one installment shall
not be deemed a breach of this Contract giving rise to a right of Buyer to cancel this Contract or
refuse to accept performance with respect to other installments.
2) Payment
If payment for the Goods shall be made by a letter of credit, Buyer shall establish in favor of Seller an irrevocable letter of credit through a prime bank of good international repute immediately after
the conclusion of this Contract in a form and upon terms satisfactory to Seller.
If Buyer fails to make any due payment, to establish a letter of credit or otherwise to perform its
obligations hereunder, Seller may demand that Buyer provide, within a reasonable time, adequate
assurance satisfactory to Seller of the due performance of this Contract and may with old shipment or
delivery of any all of the undelivered Goods until such assurance is given.
Buyer shall pay the price specified on the face of this Contract without set-off counterclaim,
recoupment or other similar rights which Buyer may have against Seller, which rights shall be
exercised in separate proceedings between Buyer and Seller.
Any new, additional or increased freight rates, surcharges (bunker, currency, congestion or other
surcharges), taxes, customs duties, export or import surcharges or other governmental charges, or
insurance premiums, which may be incurred by Seller with respect to the Goods after the
conclusion of this Contract shall be for the account of Buyer and shall be reimbursed to Seller by
Buyer on demand.
If Buyer fails to pay for the Goods in accordance with this Contract, Buyer shall pay to Seller as
liquidated damages and not as a penalty overdue interest at the rate of the lower of eighteen percent
(18%) per annum or the maximum interest rate permitted by the laws of Buyer's country, calculated
from the date for such payment until the actual date of payment calculated on the 360 day-a-year
basis for the actual number of days elapsed.
3) Force Majeure
If the performance by Seller of its obligations hereunder is directly or indirectly affected or prevented
by force majeure, including but not limited to Acts of God, flood, typhoon, earthquake, tidal wave,
landslide, fire, plague, epidemic, quarantine restriction, perils of the sea, war declared or not or threat
of the same civil commotion, blockade, arrest or restraint of government, rulers or other labor
dispute, explosion, accident or breakdown in whole or in part of machinery, plant, transportation or
loading facility, governmental request, guidance, order or regulation, unavailability of transportation
or loading facility, bankruptcy or insolvency of the manufacturer or supplier of the Goods, or any
other causes or circumstances whatsoever beyond the reasonable control of Seller or manufacturer or
supplier of the Goods, then Seller shall not be liable for loss or damage, or failure of or delay in
performing its obligations under this Contract and may, at its option, extend the time of shipment or
delivery of the Goods or terminate unconditionally and without liability the unfulfilled portion of this
Contract to the extent so affected or prevented
4) Default
In case of (i) Buyer's failure to perform any provision of this Contract; (ii) Buyer's inability to pay its
debts generally as they become due; (iii) Buyer's bankruptcy or insolvency or (iv) appointment of a
trustee, receiver or liquidator of Buyer of any material part of Buyer's assets or properties ("Events of
Default"), Seller may, at its sole discretion, (i) terminate this Contract or any part thereof; (ii) declare
all obligations of Buyer immediately due and payable; (iii) resell the Goods; (iv) hold the Goods for
Buyer's account and risk; (v) pospone the shipment of Goods; or (vi) stop the Goods in transit, and
Buyer shall reimburse Seller for all losses damages arising directly or indirectly from such Events of
Default.
The rights and remedies of Seller hereunder are cumulative and in addition to Seller's rights, powers
and remedies existing at law or in equity or otherwise.
5) Intellectual property rights
Nothing herein contained shall be construed as transferring any patent, trademark, utility model,
design, copyright, mask word or any other intellectual property rights in the Goods, as such rights
being expressly reserved to the true and lawful owners thereof.
Seller shall be neither responsible nor liable for any infringement or unauthorized use with regard to
any patent, trademark, utility model, design, copyright, mask work or any other intellectual property
rights.
6) Warranty, claim
Unless expressly stipulated on the face of this contract, seller makes no warranty or condition,
expressly or impliedly, 'as to the fitness or suitability of the goods for any particular purpose or use
or the merchantability thereof.
If any warranty exists. Seller's liability shall be limited to replacement or repair of the defective
Goods.
Any claim by Buyer of whatever nature arising under or in relation to this Contract shall be made by
registered airmail within thirty (30) days after the arrival of the Goods at the port of destination, or
solely in respect to a claim alleging the existence of a latent defect in the Goods, within six (6)
months after the arrival of the Goods at the port of destination, and any such claim shall contain full
particulars with evidence certified by an authorized surveyor.
7) Limitation
Seller shall not be responsible, whether in contract or warranty, tort or on any other basis, to Buyer
for any special, incidental, consequential, indirect or exemplary damages, and in no event shall
Seller's total liability on any or all claims from Buyer exceed the price of the Goods.
8) General
(1) All disputes, controversies or differences arising out of or in relation to this Contract or the
breach thereof which cannot be settled by mutual accord without undue delay shall be settled by
arbitration in Tokyo, Japan, in accordance with the rules of procedure of the Japan Commercial
Arbitration Association; the award of arbitration shall be final and binding upon both parties, and
judgment on sucli award may be entered in any court or tribunal having jurisdiction thereof; this
Contract shall be, in all respects, governed by and construed in accordance with the laws of Japan;
the trade terms herein used, such as FOB, CFR and CIF, shall be interpreted in accordance with
"INCOTERMS 2000".
(2) The failure of Seller at any time to require full performance by Buyer of the terms hereof -shall
not affect the right of Seller to enforce the same; the waiver by Seller of any breach of any provision
of this Contract shall not be construed as a waiver of any succeeding breach of such provision or
waiver of the provision itself.
(3) This Contract constitutes the entire agreement between the parties hereto and supersedes all prior
or contemporaneous communications, agreements or undertakings with regard to the subject matter
hereof; this Contract may not be modified or terminated except by a written agreement of Seller and
Buyer.
(4) Buyer shall not transfer or assign this Contract or any part thereof without Seller's prior written
consent.
Like the other phases of an export negotiation, the legal framework can be negotiated in
clear steps- in this case six.
IN MORE DEPTH
A contract is not merely a list of ideas agreed by the exporter and the buyer during
negotiation: it is an enforceable, legal instrument. The two sides ignore the legal
dimensions of the contract at their peril.
STEP 1. THE APPLICABLE LAW: choice of law
STEP 2. CONTRACT OR NO CONTRACT? Meeting of minds, capacity, legality,
consideration.
STEP 3. ENTIRE AGREEMENT. Whereas recital, contract documents, definitions.
STEP 4. THE PARTIES. Identity, naming, notices, assignment.
STEP 5. STATUS OF THE CONTRACT. Termination, cancellation, recission, language.
STEP 6. SETTLEMENT OF DISPUTES. Amicable settlement, arbitration, litigation.
The first question about the legal framework of the contract is always: what law have the
two sides chosen to fill the gaps in their agreement (Step 1). Then the question arises is the
document the parties are signing really a contract, or is just a piece of paper (Step 2)? If it is
a contract, is it the entire agreement? And if it is the entire agreement, how do the two sides
ensure that it includes everything they want it to include (Step 3)?
Once the full legal nature of the contract is established, it is time to turn to the parties
signing it. Are the parties all they seem to be? And will they remain the same during the
lifetime of the contract (Step 4)?
Good relations usually prevail during the negotiation of a contract. Later, however, things
can go wrong. A good contract allows for this by foreseeing circumstances under which the
parties might wish to end their agreement (Step 5). If a dispute arises, some means of
settling things should be agreed beforehand: that way at least some goodwill might be
preserved and the cost of the dispute minimized (Step 6).
CHOOSING AN APPLICABLE LAW
What considerations should an exporter bear in mind when negotiating an applicable law?
Although national laws differ greatly in detail, most laws belong to one of two families:
Anglo-American or Continental. The Anglo-American family is based on case-law (the law
develops over centuries through court decisions); the Continental family is based on a legal
code (the law is expressed in a code). The two systems work in different ways and produce
different kinds of contract.
Anglo-American contract law is case law: judges decide cases on their merits (the rights
and wrongs of the cases; decisions create precedents. A precedent is binding: future judges
(subject to complex rules( are obliged to follow it. After a while, so many precedents exist
that even the best judges become confused. The case-law principle has a remarkable
result: nobody knows the law in a given case until the judge reaches a decision. The AngloAmerican lawyer can suggest the outcome of a case- but certainly is impossible. Under
Continental systems, outcomes are more predictable: judges simply apply the code- they
are not required to use their sense of justice to seek the fairest solution to the case.
Scenario: Nonamia was until recently, a socialist country with-no developed commercial
lawin fact, the necessary law is still not published. Abet Johnson runs a factory in
Nonamia that makes quality jogging shoes. He receives several inquiries from European
countries. One customer, Frankimport. is interested enough to suggest some broad
contract terms: price, delivery dale, length of defects liability period. Johnson now asks a
lawyer in Nonamia to draft a contract.
Early in the discussion, the lawyer asks Johnson: "What law applies to the contract?"
Johnson has no idea. The lawyer explains the principle: a contract covers many issues;
anything left undecided is regulated by the applicable law. The lawyer lists three
possibilities:
- The exponer's law (the law of Nonamia):
- The buyer's law (the law of Germany);
- A third-party law (e.g.. the law of Sweden or of England).
Each option is radically different:
.!
Option 1: Nonamia has no contract lawthere is no water round the fish. If there is a
dispute, the Nonamian judge must make a decision, " but this decision is unpredictable: To
gain some degree of certainty, the parties must write a contract detailed enough to cover
most eventualities. This is difficult and expensive; even when it is completed, the Nonamian
judge may not enforce it as the parties intended.
Option 2: German contract law is codified. The code (the BGB) has been clarified by a
hundred years of interpretation in the courts. The contract can be short and to the pointon
the other hand using the law, of the buyer's country gives the buyer a perhaps unfair
advantage in the event of a dispute.
Option. 3: Choosing a third-party lawEnglish law perhaps or Swedish lawgives neither
side an advantage. But the law must be chosen carefully. Swedish law is a member of the
Continental family. The contract can be short and to the pointSwedish law (we can
suppose) will fill gaps in the contract fairly and reasonably. English law, on the other hand,
is a member of the Anglo-American family.
The advantage of English law is that its principles have been refined over many centuries to
deal with international trade: it is internationally familiar and extremely flexible; if the parties
draft the contract carefully, they can achieve almost any result they wish. On the other
hand, a contract under English law is usually lengthy and
derailed: English law is case law, so the parties normally decide many issues ahead of time
rather than leaving the judge to make decisions on the basis of precedents.
The choice of an applicable law is not easybut it is wiser to choose a law than to leave
the issue open. A summary of the factors involved:
GOAL
PREDICTABILITY
AND
CONSISTENCY
OF COURT
DECISIONS
ANGLO-AMERICAN
SYSTEMS
Justice in the individual case
CONTINENTAL SYSTEMS
Consistency and uniformity of
enforcement
Decisions in all but the most
difficult cases are precictable
with some accuracy. Decisions
are generally consistent from
court to court.
invoice sent by Plough Shares is also stamped with the familiar stamp. Wide Horizon pays
for the goods.
Then there is a serious warranty claim: the handles of both the mattocks and the shovels
break easily. On 14th March Wide Horizon notifies Plough Shares of the problem. Plough
Shares says "Too bad the defects liability period has expired." Wide Horizon replies:
"Not at ailthe period runs for another two weeks." The disagreement arises, as you
have probably guessed, because the Seller's general conditions allow a six-month
warranty from the date of delivery, and the Buyer's Conditions a six-month warranty from
the date of acceptance.
1. Is the original letter from Wide Horizon an "offer to buy"?
YES
NO
2. Is the quotation from Plough Shares an offer to sell?
YES
NO
3. Is the order placed by Wide Horizon an offer to buy or is it an acceptance?
OFFER TO BUY ACCEPTANCE
4. Is there a clear and full acceptance of an offer at any stage of the negotiation ?
YES
NO
5. Do the two sides have a contract?
YES
NO LEGAL POSITION NOT CERTAIN
6. If yes. who is right on the warranty case?
PLOUGH SHARES WIDE HORIZON LEGAL POSITION NOT CERTAIN
1. No. It is a request for quotation. 2. Yes
3. Offer 10 buy. There is a major discrepancy between the terms of the oner and
the "acceptance. 4. No
5. The legal position is unccertain.
6. Again uncertain. If there is a contract, the terms are unclear.
CONCEPT REVIEW 2 Out Of The Window
Verbena Farm Power is taking delivery; of 300 gasoline powered mini-generators (5 kW) for
farm use. The supplier is a German company, Supergrid. After signing the concract,
Verbena Farm realizes that Supergrid's price is too high: the same equipment is available in
the United States at half the price. So Verbena Farm is delighted when a new Government
Order prohibits all machines louder than 90 decibels. Verbena Farm argues that since the
German machine produces 95 decibels, it is illegal and the contract is null and void.
Supergrid offers to thicken the sound insulation on the machine; Verbena Farm refuses this
offer. Imagine now three versions of the contract. Version 1 contains this clause:
Severability
In the event that any provision of the Agreement is held to be illegal or otherwise
unenforceable, such provision shall be deemed to have been deleted from this
Agreement, while the remaining provisions shall be and shall continue in full force
and effect.
Version 2 contains this wording
Partial Invalidity
If any provision or provisions of this contract are invalid, or become invalid, this
has no effect on the validity of the remaining provisions.
If any provision of this contract is invalid, or becomes invalid, tne parties have the
duty to replace the invalid provision with a new valid provision that fulfills the
original intent of the invalid provision
Version 3 says nothing ai all on this subject.
Which version of the contract is most favorable to Verbena Farm's argument? Which
version is least favorable?
Least favorable: VERSION 1
VERSION 2 VERSION 3
Most favorable: VERSION 1
VERSION 2 VERSION 3
Least favorable for Verbena Farm is Version 2: this wording clearly obliges the parties
to redraft the disputed clause.
The most favorable version is possibly version 3but everything then depends on the
applicable law. Is a partly illegal contract wholly illegal under the law that applies to this
contract? If German law applies, for example, the answer in case of doubt is "Yes."
CONCEPT REVIEW 3 Taken into Consideration
General Supplies, a Verbenan company, trades in food, clothing, household goods, and so
on. It has an export contract with Frankimport, a German company, to sell 400 cartons of
pineapple rings in 500 gram cans. Two weeks before delivery is due, Frankimport sends the
following fax to General Supplies:
Will you please change our order to 131 cartons of pineapple juice, 110 cartons of
pineapple chunks, and 200 cartons of pineapple rings. According to the price list
you sent us, the total invoice price is now exactly the same as the original price.
Please confirm the new arrangement immediately.
General Supplies confirms the new order with the following fax:
We hereby confirm your change of order. We shall now send 131 cartons of
pineapple juice, 110 cartons of pineapple chunks, and 200 cartons of pineapple
rings. There is no change in the price.
The goods are delivered FOB (Port Verbena) and paid for under a letter of credit. When the
goods arrive in Bremen, however, Frankimport finds 400 cartons of pineapple rings. It
informs General Supplies immediately that it is rejecting half the consignment, as deviating
from the agreement as modified. General Supplies replies that the original contract was
never modified according to the law of Verbena, and that Frankimport must accept the
whole consignment.
1. What is the source of this dispute? .
2. The law of Verbena (which is a member of the common-law family) applies to the
contract. Who is right about the validity of the modification?
GENERAL SUPPLIES
FRANKIMPORT
3. Section 2-209.1 of the Uniform Commercial Code states:
An agreement modifying a contract..needs no consideration to be binding.
If there were a similar regulation in Verbena, how would it affect this dispute?
..
1. The dispute arises because ah agreenk'ni to modify a contract requires, under some
laws, consideration: both sides must have new risks and duties under the new
agreement. In this case. only General Supplies has a new duly and only
Frankimport has a new right.
2. General Supplies
3. Consideration would not be required, and Frankimport would be justified in relying
on the modification and rejecting the goods.
Translate into Vietnamese
JOINT VENTURE CONTRACT.
Based on:
'
- The Law on Foreign Investment in Vietnam approved by the National
"Assembly of the Socialist Republic of Vietnam" on December 29th, 1987
- The Decree 29/HDBT on February 6th, 1991 of the Council of Ministers
regulating in detail tliQ implementation of the Law on Foreign Investment in
Vietnam
Today, 1st December, 19 ... the Parties have agreed to sign this contract to
establish a Joint Venture Company ("JVC") on the terms and conditions as
follows:
Article 1: NAMES OF THE PARTIES TO THE JOINT VENTURE'
VIETNAMESE PARTNER (PARTY A):
DEPARTMENT OF HOME TRADE HANOI
Head office at 10 Le Lai Street, Hanoi
Socialist Republic of Vietnam
Tel: 252578 Fax: (84) 2 -54592
Represented by: MR. DUONG DINH - Director
FOREIGN PARTNER (PARTY B):
IMEX PAN - PACIFIC INC
A Company registered and incorporated in the Republic of the
Philippines with head office: Ground floor, Corinthian Plaza, Pasea
de Roxas, Legaspi Village, Makati, Manila, Philippines
Tel: 8104391-94, Tlx: 65714 PHLMPXPN, Fax: 632-810-10-10'
Represented by: Mr. JOHNATHAN H. NGUYEN - President
Article 2: NAME, HEAD OFFICE, OBJECTIVE OF JVC .
The JOINT VENTURE COMPANY shall be named as:
- International Name: Hanoi General Commercial Centre
- The first Board of Directors for the initial period lasting 5 years of the Joint
Venture shall be appointed as follows:
- General Director and Vice General
Director of Finance:
By Party B
- Managing Director and Chief Accountant:
By Party A Article 7: FISCAL YEAR
The fiscal year of the Joint Venture shall commence on January 1 st and terminate
on December 31st of the same year
The first fiscal year shall commence from the official date of establishment to
the December 31st of the same year
Article 8: PRINCIPLES OF ACCOUNTING
The Joint Venture Company shall implement' its accounting system on the basis
of Vietnamese Accounting principles and standards and be checked by
Vietnamese Financial Organization (as stated in Article 18 of Law on Foreign
Investment in Vietnam as aforesaid)
Article 9: YEARLY ACCOUNTING REVIEW '
Every year, the Joint Venture shall be responsible for its accounting review in
conformity with regulations of the Vietnam Government; documents of the
yearly accounting review 'must be submitted to the relevant authorized
organization after approval by the Board of Management
Article 10: INSURANCE
Both parties agree to choose a Vietnamese insurance company to insure the
assets of the Joint Venture
Article 11: PROFIT-PROFIT SHARING- ESTABLISHMENT FUNDS
The Joint Venture and its foreign partner shall be liable to fulfill their financial
obligations to the Vietnam Government as stipulated in the Investment License
issued by the State Committee for Cooperation and Investment
After fulfilling all its financial obligations to the Vietnamese Government, the
Joint Venture shall use 5% of its profit to set up a reserve fund; Other funds shall
be established in conformity with Vietnamese Laws
The reserve fund shall be limited to not more than 25% of the legal capital in
accordance with Article 30 of the Law on Foreign Investment; the Board of
Directors shall decide the profit share of both parties as follows:
Profit sharing for the initial xx years of the Joint - Venture
- Party A: 30%
- Party B: 70%
The profit sharing of both parties shall be as follows:
After xx years
after xx years after xx years
Party A:
35%
40%
50%
Party B:
65%
60%
50%
Party B can remit the following abroad:
- Profit from the business
. .
,
- Receipts from supplying services and technology transfers
. - Money from loans and interest of the said loans
- Money and other assets officially belonging to Party B
Foreign personnel working for the Joint Venture can remit their legal income
after returning their income tax in conformity with regulations on foreign
exchange control of Vietnam; During operation of the Joint Venture losses of
the Joint Venture in any fiscal year shall be compensated by profits in following
years but this shall no longer, be valid after five years as stipulated in Article 27
of the law on Foreign, Investment
Article 12: EXPENSE FOR ESTABLISHMENT OF THE JOINT VENTURE
All expense concerned with the establishment of each partner shall be included
in the investment cost of the Joint Venture Company
Article 13: OFFICIAL OPERATING DATE :
The Joint Venture shall be officially established when the State Committee for
Cooperation and Investment approves and issues the Investment license
Article 14: DISSOLUTION - BANKRUPCY - FORCE MAJEURE
The Joint Venture can be dissolved before the termination of the contract in the
following cases:
- Both parties agree and suggest the dissolution to be passed by the Board of
Management
- The Joint Venture is juridically appraised as a bankrupt company
- One of the two parties does not want to continue as a Party in the Joint Venture
and wants to transfer its contributed capital without agreement of the other
party but the State Committee for Co-operation and Investment permits the
dissolution
Formalities of bankruptcy declaration shall be carried out in conformity with
appropriate international regulations agreed to by the two parties
In case of observance of Vietnamese- laws and regulations on bankruptcy
declaration, both parties agree to refer this to Vietnam Economic Arbitration or
other juridical organization in accordance with the Law on Foreign Investment
In case of Force Majeure such as earthquake, storm, flood, fire, war, or any other
unforeseen disaster which has occurred beyond the control of any party, that
party shall be discharged of its related commitments in this contract provided:
- The Force Majeure is the proximate cause which obstructs or delays the
execution of the contract
- That each party has tried all possible measures to overcome such occurrences
- That each party shall immediately, after such occurrence, inform the other
party of the same and within 20 days, send the other party a written notice
indicating the measures undertaken and the cause which prevents the
execution of the Contract duly confirmed by the relevant authorities at the place
where the disaster occurs
Article 15: LIQUIDATION
In case of liquidation as stated in Article 14 of this contract, the Board of
Management shall appoint a committee to execute the liquidation
During liquidation, the assets of the company shall first be used to pay for
worker's salaries, unpaid taxes, due debts, and liquidation expenses, the other.
assets . shall be shared by the two parties according to their rate of capital
contribution (both for profits and losses)
The Name of activities of the Liquidation Commission shall be stated in details in
the Charter of the Joint Venture Company
In case of bankruptcy as stated in Article 14 of this contract, the liquidation shall
be executed in conformity with Article 19 of Law on Foreign Investment
Article 16: DISPUTE
Upon the approval of. the State Committee for Cooperation and Investment, the
Joint Venture Contract shall become a juridical document which shall bn
respected by both parties
Any one-sided contractual termination is not valid.
Any dispute between the two parties arising from the execution of this Joint
Venture Contract shall first be resolved through mutual consultations and
amicable settlement proceedings; if, however, the two parties fail to reach an
agreement, 'the dispute shall be referred to the Singapore Economic Arbitration
All matters that are not provided for in this Contract but are necessary for the
carrying out of the objectives of the Joint Venture ,
Company will be carried out by each party in accordance with the Charter of the
Joint-Venture Company or-the applicable-Investment
Law and Implementing Decree
This contract is made in 10 copies in English and Vietnamese and comes into
effects on the date of issuance of the Investment License, Signed
on ...... ...... ...... ......19 ......
FOR THE VIETNAMESE PARTY:
FOR FOREIGN PARTY
DEPARTMENT OF HOME TRADE HANOI
IMEXPAN-PACIFIC INCORPORATED
DUONG DINH
DIRECTOR
JOHNATHAN H. NGUYEN
PRESIDENT
.
2. Arguments likely to be used by Verbena Paintshop:
.
3. Points requiring better regulation in this defects liability provision:
.
1. Espcranza Respray will argue that the compressor is obviously a poorly made
item since it failed twicethere is probably a defect in design. Further it will say
that the exporter's liability for defects extends to all replaced items. The second
failure occurredand was notifiedwithin the maximum agreed defects liability
period, i.e., twelve months from the commencement of the period.
2. Verbena Paintshop has two arguments: firstly there was a delay of four weeks
between the second failure and the required notification: this is not notification
"forthwith:" the failure to offer timely notification cancels the seller's duty to cure the
defect; Secondly, the defects liability period began with delivery (3 rd August 2004);
the failure of the compressor thus occurred when it was no longer under warranty.
3. The clause would be clearer if it stated when the defects liability period began.
Under most applicable laws the period begins with delivery. More exact specification
of the notification period is not common or necessary.
CONCEPT REVIEW: WHO CHOOSES?
The defects liability provision below is taken from a set of general conditions in common
use by Chinese companies. Read the answer the questions
The Seller warrants that goods are made of the best materials, with first class
workmanship, and comply in all respects with the specifications given in Annex
B. The Seller warrants that the goods when correctly mounted and properly
operated and maintained, shall give appropriate performance for a period of
twelve months.
If a defect in materials, workmanship or design, or any discrepancy with
specifications comes to light during the warranty period, the Seller shall at his
own cost satisfy the claim, subject to the agreement of the Buyer in one of the
following ways:
a. Agree to the rejection of the goods and refund to the Buyer the value of the goods thus
rejected;
b. Reduce the price of the goods according to the degree of inferiority, extent of damage, or
amount of loss suffered by the buyer;
c. Replace the defective goods with new goods which conform to the quality and
performance given in Annex B;
d. Repair the defective goods to bring them in conformity with the quality and performance
specifications given in Annex B;
e. Allow the Buyer or a third party appointed by the Buyer to repair the defective goods and
to bring them in conformity with the quality and performance specifications given in Annex B
at Sellers risk and cost.
1. Are these general conditions Conditions of Sale or Conditions of Purchase?
SALEPURCHASE
2. If there is a defect, who chooses the method of cure?
BUYER
EXPORTER
3. Is this a warranty of freedom from defects on delivery or a warranty of durability?
FREEDOM FROM DEFECTS DURABILITY
1. Conditions of Purchase. (See answer to question 2)
2. The exporter proposes a method, but the buyer must agree to it. Thus the
buyer is in control,
3. Durability. Another sign that we are dealing with conditions of purchase.
CONCEPT REVIEW: WHO PAYS?
Verbena Medical makes hospital beds and other hospital furniture. It exports 40 beds to
South Central Hospital in Espcranza City. The defects liability provision in the contract
includes this wording:
The Seller shall indemnify and hold harmless the Buyer against any loss or damage
whether direct or indirect suffered by the Buyer as the result of defective or faulty
goods delivered by the Seller.
Assume that the coniract is subject to the law of Espcranza which is modelled on U.S. law.
During the defects liability period, one of the beds collapses with unfortunate results:
1. The bed itself is unusable and must be replaced;
2. The patient who was in the bed is injured, with extra medical costs of $5,000;
3. The injured patient, a rich politician, threatens the hospital with a lawsuit for his
"pain and suffering"the. hospital pays the patient $9,000 to avoid the lawsuit;
4. Hospital equipment around the bed is damagedthe equipment cost $4,000;
5. The ward where the bed was situated is a private wardit cannot be used for 3
days with a loss to the hospital of $3.000:
6. Two orderlies at the hospital start a fight over who broke the bedone of them is
hospitalized at a cost of $5,000;
7. During the fight, equipment is smashed at a cost of $8,000.
Which costs must Verbena Medical most probably pay?
1.
3.
5.
7.
:
2.
4.
6.
1. Yes
2. Yes
3 Possibly
4 Yes
5. Yes
6. No
7. No
spraying unit has failed, and that the machine cannot be used. Verbena Paintshop sends a
replacement compressor by air; it arrives on 5th February, 2005. On 16th September 2005,
Esperanra Respray notifies the exporter that the compressor failed for a second tirne on
20th August and asks for a further replacement. Verbena Paintshop refuses.
Study the Defects Liability provision below. What arguments are the two two sides likely to
put forward in making their cases?
Defects Liability Period
The Defects Liability Period shall be a period of six months.
If any defect occurs during the Defects Liability Period, the Buyer shall forthwith inform the
Seller in writing the details of the defect.
The Seller shall be responsible for making good with all possible speed any defect as
notified which arises from defective materials, workmanship or design.
The provision of this clause shall apply to any goods repaired, replaced or otherwise
made good by the Seller, but not so as to extend the Defects Liability Period for more
than twelve months from the commencement date of original defects liability period.
1. .Arguments likely to be used by Espsranza Respray:
.
2. Arguments likely to be used by Verbena Paintshop:
.
3. Points requiring better regulation in this defects liability provision:
.
1. Espcranza Respray will argue that the compressor is obviously a poorly made
item since it failed twicethere is probably a defect in design. Further it will say
that the exporter's liability for defects extends to all replaced items. The second
failure occurredand was notifiedwithin the maximum agreed defects liability
period, i.e., twelve months from the commencement of the period.
2. Verbena Paintshop has two arguments: firstly there was a delay of four weeks
between the second failure and the required notification: this is not notification
"forthwith:" the failure to offer timely notification cancels the seller's duty to cure the
defect; Secondly, the defects liability period began with delivery (3 rd August 2004);
the failure of the compressor thus occurred when it was no longer under warranty.
3. The clause would be clearer if it stated when the defects liability period began.
Under most applicable laws the period begins with delivery. More exact specification
of the notification period is not common or necessary.
CONCEPT REVIEW: WHO CHOOSES?
The defects liability provision below is taken from a set of general conditions in common
use by Chinese companies. Read the answer the questions
The Seller warrants that goods are made of the best materials, with first class
workmanship, and comply in all respects with the specifications given in Annex
B. The Seller warrants that the goods when correctly mounted and properly
operated and maintained, shall give appropriate performance for a period of
twelve months.
If a defect in materials, workmanship or design, or any discrepancy with
specifications comes to light during the warranty period, the Seller shall at his
own cost satisfy the claim, subject to the agreement of the Buyer in one of the
following ways:
a. Agree to the rejection of the goods and refund to the Buyer the value of the goods thus
rejected;
b. Reduce the price of the goods according to the degree of inferiority, extent of damage, or
amount of loss suffered by the buyer;
c. Replace the defective goods with new goods which conform to the quality and
performance given in Annex B;
d. Repair the defective goods to bring them in conformity with the quality and performance
specifications given in Annex B;
e. Allow the Buyer or a third party appointed by the Buyer to repair the defective goods and
to bring them in conformity with the quality and performance specifications given in Annex B
at Sellers risk and cost.
1. Are these general conditions Conditions of Sale or Conditions of Purchase?
SALEPURCHASE
2. If there is a defect, who chooses the method of cure?
BUYER
EXPORTER
3. Is this a warranty of freedom from defects on delivery or a warranty of durability?
FREEDOM FROM DEFECTS DURABILITY
1. Conditions of Purchase. (See answer to question 2)
2. The exporter proposes a method, but the buyer must agree to it. Thus the
buyer is in control,
3. Durability. Another sign that we are dealing with conditions of purchase.
CONCEPT REVIEW: WHO PAYS?
Verbena Medical makes hospital beds and other hospital furniture. It exports 40 beds to
South Central Hospital in Espcranza City. The defects liability provision in the contract
includes this wording:
The Seller shall indemnify and hold harmless the Buyer against any loss or damage
whether direct or indirect suffered by the Buyer as the result of defective or faulty
goods delivered by the Seller.
Assume that the coniract is subject to the law of Espcranza which is modelled on U.S. law.
During the defects liability period, one of the beds collapses with unfortunate results:
1. The bed itself is unusable and must be replaced;
2. The patient who was in the bed is injured, with extra medical costs of $5,000;
3. The injured patient, a rich politician, threatens the hospital with a lawsuit for his
"pain and suffering"the. hospital pays the patient $9,000 to avoid the lawsuit;
4. Hospital equipment around the bed is damagedthe equipment cost $4,000;
5. The ward where the bed was situated is a private wardit cannot be used for 3
days with a loss to the hospital of $3.000:
6. Two orderlies at the hospital start a fight over who broke the bedone of them is
hospitalized at a cost of $5,000;
7. During the fight, equipment is smashed at a cost of $8,000.
Which costs must Verbena Medical most probably pay?
1.
3.
5.
7.
:
2.
4.
6.
1. Yes
3 Possibly
5. Yes
7. No
2. Yes
4 Yes
6. No
(Page 42) TRANSPORT
THE PROBLEM
For the exporter, transportation has two aspects: the physical safety of goods which
means appropriate packaging and correct marking and correct documentation. Unless the
shipping documents are in perfect order, prompt payment under a letter of credit is difficult
or impossible. What are the dangers?
THE PRINCIPLE
The parties should state in their contract what packaging should bear. The exporter must
follow the agreement scrupulously or payment may be delayed. The exporter should ensure
that the shipping documents correspond exactly with the conditions of the letter of credit
and that the bill of ladding is clean, otherwise, again, payment can be seriously delayed.
When an exporter and a buyer sign a contract, are they simply adding the final link to a
chain of agreements? Or are they putting into words a final and definitive version of
everything agreed so far? The Continental and Anglo-American systems differ widely in
their answer to these questions.
THE WHEREAS RECITAL: THE BACKGROUND OF THE CONTRACT
In most exporter deals, the contract is the entire agreement. Unfortunately, however, the
text of a contract seldom answers important background questions: Why did the parties
sign the contract in the first place? What made the deal attractive? How long had the
parties known each other? What future business did they hope for? And so on. If a
dispute arises, the judge must ask such questions in order to understand the contract
fully; often the parties give different answers. How can the court establish the truth? If the
contract is the entire agreement, then earlier letters and documents cannot be used as
evidence. To overcome this uncertainty, lawyers write the answers to background
questions into the contract. Through the whereas-recital. Contracts often begin:
Witnesseth that
WHEREAS the parties have for many years successfully traded together
AND WHEREAS Styropak has recently developed biodegradable styrofoam
packaging
The parties hereby agree ..
The word whereas means because or considering that; in other words whereas-clauses
are not provisions, promises or conditionsthey are explanations. A typical whereas-recital
contains many types of background information. An example from a technology acquisition
contract:
- WHEREAS the parties have successfully cooperated in a number of projects in the
Republic of Verbena during the last. ten years; (Background of Collaboration)
- WHEREAS the Supplier has wide experience in the supply of electronic products
for use in tropical conditions; (Expertise of the parties)
- WHEREAS the parties concluded on 28 May 2007 a Memorandum of
Understanding and intend to develop products for Verbena; (Previous Agreements)
- WHEREAS the Supplier has developed and patented an electronic relay under the
registered trade-name "Hair Trigger"; (Reference to a Patent)
- WHEREAS both parties are interested in introducing this new technology into the
East Asian region; (Mutual Interest)
- WHEREAS the purchaser wishes to incorporate the latest relay-manufacturing
technology in its own products; (Goals of the Parties)
- AND WHEREAS the government of the Republic of Verbena actively supports the
introduction of pioneer technology (Economic Support Available)
It is hereby agreed that
Contracts for the sale of goods seldom contain so much information, but the purpose of any
recital is the same: if a dispute arises, the recital allow the court to discover the real
meaning of the contract through an understanding of the expectations of the parties when
they signed it.
Sometimes the exporter is tempted to treat the recital as a chance to promote his skills
and the excellence of his products. This is a mistake. If the contract gets into trouble, the
buyer will have a "big stick" with which to beat the exporter "You told me you were the
best and I acted on that belief." If big claims are in the recital in black-and-wnite the
exporter is trapped.
In a contract written under a Continental Law, a recital (or "preamble") is usefulit
prevents misunderstandingbut it is not essential. Continental lawyers often avoid the
complicated grammar of the whereas-clause; they prefer simple sentences under the
heading Preamble. The legal result is, of course, exactly the same.
DEFINITIONS
Another result of the entire agreement provision is the need for a definitions section.
Many terms are discussed during negotiations- faxes and letters andlikely to be
exchanged asking What exactly do you mean by?
It is common practice to group all definitions in a section of their own near the beginning
of the contract. Every word that the two sides discuss during their negotiations is likely to
require a definition.
CONCEPT REVIEW 3: MAKING CLAIMS
Verbena Leather makes leather carrying cases for cameras, lap-lop computers and other
hi-tech personal equipment. It has successfully exported one consignment of its products to
Japan, but it has otherwise sold mostly in the local market. A buyer in the United States is
interested in making a large purchase. During the negotiations, the American buyer
mentions the whereas-recital and offers the wording he wants to include in the contract.
Read it and then answer the questions.
Whereas Verbena Leather has a highly trained workforce and the most modern
leather-making machinery;
And whereas Verbena Leather has wide experience is supplying products to all parts
of the world;
. .
And whereas Verbena Leather is fully familiar with regulations regarding import
of leather goods into the United States;
The parties nereby agree...
1 Why does the American buyer want this wording in the recital?
..
2. Why might such high claims be dangerous for Verbena Leather?
..
3. Does this whereas-recital have any advantages for Verbena Leather?
YES NO
1. The wording will help the buyer if the products run into technical or regulatory
problems in the United States. The exporter cannot plead ignorance or inexperience.
2. An experienced exporter will always run into trouble in new market. If a dispute
arises, the judge might well take this fact into account in deciding the case- but not if
this wording is in the recital.
3. No.
CONCEPT REVIEW 2: Top Priority
The clause below is taken from a set of tender documents for the supply (and installation)
of a lighting system. It has three obvious weaknesses. What are they?
'"Contract Documents" means collectively the completed Tender Documents with
possible supplements, the Contract Agreement, Tender Drawings, the Notice of
Award, the Performance Bond, the Guarantee for Advance Payment, the Form of
Retention Guarantee, the Copy of Policy for Third Party Insurance, the Letter of
Power of Attorney and the Joint Venture Agreement (if any) with annexures and
appendices included therein and any additions, supplemental agreements, change
orders and extra work orders (if any).
1. .
..
2. .
..
3. .
..
1. The list has no order of precedence: if there is a conf.ict among the documents,
nobody will know which prevails.
2. The list is carelessly put togetherit includes anything that might be important; it
should be cut back to essentials.
3. By using the words "if any," the list includes documents which may not even exist.
CONCEPT REVIEW 3: Hide and Seek
Let us stay with the leather goods contract from Concept Review 1, Making Claims. During
negotiations the two sides spend a great deal of lime discussing the type of leather to be
used. One product, as it is agreed, is to be made of "antelope hide" and the specifications
in the contract include that phrase. But what is an antelope? There is a long exchange of
faxes on this subject; finally the two sides agree a list of breeds that are "antelopes as far
as the contract is concerned. The list is important, and it is signed by both sides. After this
the contract is signed.
Relying on this signed list, Verbena Leather uses gazelle skin (which is included in the list)
for some products. The American buyer objects and tries to reject the delivered goods. The
dispute goes before a judge in California.
What are the irnportant considerations in deciding who is right?
1. .
..
2. .
..
3. .
..
The essential question is this: is the list of breeds part of the contract or not? To
decide this, we must first ask if the list of breeds is mentioned in the contract as a
contract document. If it is, then it is pan of the contract and enforceable. If it is not
mentioned as a contract document, then we must ask if the contract contains an
entire agreement provision or, failing that, if the applicable law assumes that the
contract is the entire agreement. Iffor whatever reasonthe contract is the entire
agreement, then the list of breeds, which was agreed before the contract was
signed, has no validity.
SUMMARY: What you Should Know
1. The Anglo-American contract is, traditionally, the entire agreement. To avoid
confusion, most international contracts contain an "entire agreement" clause (re)stating
this position.
2. The entire agreement clause means that all documents that predate the concract
become invalid when the contract is signed.
3. One result is that the background to the contractoften needed by a court to
interpret the contractis provided in the form of a whereas-recital.
4. Any important documents (tellers, memo rand-urns, and so on) that predate the contract
are listed in the contract as "contract documents." Such documents must be given an order
of seniority in case of contradictions.
5. Definitions of terms agreed during negotiations are included in a definitions sections
in the concract.
TERMINATION
Termination occurs when either party pursuing power created by agreement or law puts
an end to the contract otherwise than for its breach. Thus runs Americas UCC. If the two
sides agree in the contract that one of the parties may, under certain circumstances, end
the contract, then this is an act to terminate. In practice, there are two kinds of
termination: termination for convenience and termination for default.
Termination for convenience occurs when one party (usually the buyer) simply decides to
drop the contract. No rule is required. This is unusual in a standard export contract, but is
common in time-frame contracts. (A time-frame contract is one which allows the buyer to
order items at his discretion over a long period of time- two years perhaps.)
Termination for default occurs when the contract sees certain defaults which allow one
side (usually the buyer to terminate, Contracts within an Anglo-American framework tend
to stipulate that on termination (for whatever reason), the party terminated has the right
to be paid for all supplies or services correctly delivered. Contracts within the Continental
framework tend to omit this provision, relying on the applicable law to resolve the issue.
To avoid any uncertainty, termination clauses should include such wording as:
In the event of termination for whatever reason, the Seller shall be entitled to
receive full payment for all goods and services delivered by the Seller at the date
of termination.
An example, then, from an American time-frame contract:
Termination for Default
The Buyer may by written notice of. default to the Seller, terminate the whole or
any part o this contract in any one of the following circumstances:
(i) If the Seller fails to make delivery of the Goods within the time specified
herein;
(ii) If the Seller fails to perform any of the other provisions of this contract, or so fails
to make progress as to endanger performance of this contract in accordance with its
terms, and in either of these two circumstances does not cure such failure within a
period of 10 days.
CANCELLATION
When one party breaches a contract, the other has the right to demand cancellation of the
contract.'" Cancellation' occurs when either party puts an end to the contract for
breach.Note the difference between termination and cancellation. The contract is
terminated under a provision of the contract: a contract is cancelled when one side has
breached and the other simply refuses to proceed.
Docs every breach allow cancellation by the other party? Clearly not. The law dues
everything it can to enforce contracts- cancellation on trivial grounds makes no legal
sense. Accordingly, most laws see a breach as either fundamental or noi fundamental. A
fundamental breach goes ''to the heart of the contract" and allows the other side " to say
"Enough. The contract is over." How can you decide what is and what is not
"fundamental breach"? Some cases are easy to decide, but there is a large gray area
under every well-established law, the courts are frequently .askcd to make decisions on
hard cases.
When a contract is cancelled, a payment problem arises: should the party in breach
receive compensation for duties performed so far? Courts worldwide find it difficult to
establish a principle on this, and judgment is usually on a case-by-case basis. Naturally
the party in breach has a weak case: even so, there is some chance of recovering what
has genuinely been earned.
RESCISSION
Termination and cancellation are both one-sided procedures. When the two parties agree to
end a contract, the generally used term is rescission. Lei's say, for example, that a supplier
of electric cable has difficulty supplying the quality his customer requires, and the customer
has meanwhile found a cheaper supplier elsewhere. Both sides now have an interest in
dissolving the contract. In legal theory, they enter a new contract to annul the old contract.
(The mutual surrender of rights is seen as providing the necessary consideration.)
Unfortunately 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
Occasionally a contract is discharged because it is impossible or totally pointless to
continue with it. The classic cases are a contract to rent a music hall which burns downno
music hall, no contractand a contract to rent scats along the route of a procession which
is cancelledonce again, no procession, no contract. Most legal
systems recognize that sometimes a contract has lost its point and give one of the parties
the right to end it. But the courts are reluctant to allow thiscontracts are signed to be kept,
not to be broken. The exporter is wise to assume that performance will be required.
THE LANGUAGE OF THE CONTRACT
Whenever versions of a single document exist in two languages, there are
Conflicts: no translation is ever perfect. Ideally, the parties should agree on a contract
language, making it clear that translations do not have the same authority as the original
version in the contract language.
What happens, though, if the parties cannot agree? There are two roads: (a) the parties say
nothing at allin a dispute, the judge decides which version to trust; (b) the parties make
two (or more) versions equally authoritative; again, the judge decides which version to
favor.
CONCEPT REVIEW 1
TONGUE TWISTER
Read this status-of-the-contract and assume the contract says nothing else about
language.
Copies of the Contract, one in English and one in Swahiti, have been signed by bothe
parties. Each party retains one copy in each language.
1. What are the dangers of a clause like this?
2. Why do you think the two sides accepted it?
1. Translations always produce conflicts; the danger here is that nobody knows
which version prevails.
2. The reason that two sides accept a loose clause like this is usually laziness and a
hope that problems will not arise. Not the best contract practice.
CONCEPT REVIEW 2
Fundamentals
It is seldom easy to decide if a failure to perform by the other side constitutes a
"fundamental breach." Remembering that difficult cases often finish up in the courts because the
lawyers for the two sides cannot agree, look at each of these situations and make your "best guess."
.
1. Delivery is two weeks late. The exporter is required under the contract to pay liquidated damages
of 0.5% of the contract price per week up to a maximum of 5%.
FUNDAMENTAL NOT FUNDAMENTAL NO BREACH
2. Same situation, except that delivery is sixty weeks late.
FUNDAMENTAL NOT FUNDAMENTAL NO BREACH
3. A machine that is of the greatest importance in the buyer's operations breaks down one week after
delivery. There is a six month defects liability provision in the
contract.
FUNDAMENTAL NOT FUNDAMENTAL NO BREACH
4. The buyer agrees to open a letter of credit, but. three months after the agreed date, the letter of
credit has still not been opened.
FUNDAMENTAL NOT FUNDAMENTAL NO BREACH
5. The buyer agrees to open a confirmed letter of credit with the First World Bank of Sheboygan.
When the confirmed letter of credit arrives, it is issued by the Moon
Bank of Verbena.
FUNDAMENTAL NOT FUNDAMENTAL NO BREACH
1. No breach. The contract allows late delivery.
2. Almost certainly fundamental breach. Sixty weeks delay is fifty weeks longer
than the contract foresaw in the liquidated damaged provision. Such a delay
would, in most cases, go "to the heart of the contract."
3. No breach. The contract foresees cure of defects.
4. Fundamental breach
5. Probably not fundamental breachthe issuing bank has asked for, and
received.confirmation by a bank in the exporter's country. The exporter' s interests are
fully covered.
Settlement of Disputes
THE PROBLEM
Many disputes are unnecessarily bitter because the parties did not specify a clear and
detailed procedure for settling their problems. What procedures are available? What works
best in the international context?
THE PRINCIPLE
Most negotiators prefer to take disputes to arbitration before a specialist court rather than
litigation before a local judge. To avoid lengthy and expensive proceedings, a well drafted
contract specifies an acceptable arbitration procedure.
IN MORE DEPTH'
Signing a contract is like a wedding in that few of the people involved foresee the
arguments, the disputeseven the quarrelsthat generally the ahead. Unlike marriage
partners, however, the panics to a contract regulate in advance, either expressly or
implicitly, a mechanism for settling their disputes. If the contract says nothing explicit, then
the applicable law provides the answer litigation before a judge.
Litigation
Of the three options available for settling disputes, litigation before the courts is
internationally the least attractive: it is public, it is expensive, it is time-consuming, and the
results are very legalistic rather than businesslike. For the exporter and the buyer,
litigation in a civil court creates special problems: if it sometimes appears difficult to get
justice in one's own country-in a foreign country it may seem impossible. Yet one side
must inevitably appear in a foreign court. Since most people are reluctant to accept this
serious disadvantage, what are the other choices?
Many contracts foresee a two-step process for dispute resolution:
* Amicable Settlement;
* Arbitration.
The first stepamicable settlementis not essential, but it is worth considering in any
export negotiation.
Amicable Settlement and Conciliation
The very word "dispute" suggests an angry confrontation between two sides each of
which believes it is in the rightan unhealthy business situation. An amicable settlement
clause calls for the friendly settlement of disagreements before they turn into disputes. A
typical wording:
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.
ARBITRATION
If the two sides cannot reach agreement between themselves, the resolution of their dispute
requires a forum. This is a court of law unless the parties specify otherwise. In practice,
most contracts do specify otherwise, calling arbitration.
Arbitration has a long history. It began with courts set up by medieval trade guilds to settle
disputes among guild members. Such members-only courts kept things private and cheap;
further the judges were senior practitioners of the craft who understood the business
perfectly.
The other advantages of arbitration are:
* Its tendency to be quicker than litigation (at least there is no lengthy appeals procedure);
* The foreseeability of the costs.
On the other hand, costs are extremely high, and many costs- executive time invested in
preparing the case, for example- can never be recovered. Even so, most contracts contain
a clause specifying arbitration; compared with litigation it is generally seen as the lesser of
two evils.
In drafting an arbitration clause, four practical questions must be resolved:
- How many arbitrators sit in the court?
-Where does the court sit?
-What is the language of the court?
-Who pays court costs?
Does the court of arbitration have the power to enforce its judgement and make others
comply? In a direct sense, no. In practice, however, an arbitral award can normally be
enforced through the civil courts. Civil courts take necessary steps to order to pay for fine or
compensation because most trading countries have accepted the major international
convention on the enforcement of awards- the so-called New York Convention. Others have
bilateral arrangements or have signed other accords. But a word of caution is in order here:
having a right to enforcement and achieving enforcement are two different things. If the
buyer comes from a. country which has a. poor reputation for enforcing awards-or if the
country is not a signatory to the Conventionthen the exporter should be especially careful
to ensure that payment is secure preferably with an al-sight, confirmed letter of credit.
Money in hand is always preferable to a right to be paid money in a far-off country.
In Conclusion
Overall, the main concern of the two sides should be dispute avoidance, rather than dispute
management. Formal dispute resolution is expensive and damaging to business
relationshipseven if you win.
CONCEPT REVIEW
Beyond Dispute
Blue King Beer is a brewery in Verbena that exports about 40% of it production. Blue King
is negotiating with a hotel chain in Esperanza to supply a range of "fancy" beers suited to
the taste of tourists. The minimum contract price over a period of three years is agreed as
$400,000about 5% of Blue King's turnover. During negotiations the subject of a
settlement of disputes clause comes up. How would you advise the two sides when they
ask you the following questions? In each case give your reasons in the space provided.
1. Is it reasonable to omit a settlement of disputes clause completely?
YES
NO ..................................................................................
2. If no, should we specify arbitration? Or litigation?
ARBITRATION LiTiGATiON .................................................
3. Should we add an amicable settlement provision?
YES
NO .................................................................................
4. If yes, should this provision contain a detailed procedure for amicable settlement?
YES
NO ..............................................................................
5. If a contract specifies arbitration, where is. the best place tor the tribunal to meet?
UNSPECIFIED
BUYER'S COUNTRY NEUTRAL COUNTRY
EXPORTER'S COUNTRY. COUNTRY OF THE DEFENDANT
6. Should we state that both sides accept any arbitral award as "final and binding"?
YES NO .
1. No. A sizable contract should contain a clause on settlement of disputes.
2. Arbitrationit is likely to be quicker, cheaper and more businesslike; it will not put one
side at a real (or imagined) disadvantage before the national courts of the other.
3. Yes. A serious (and successful) attempt at amicable settlement can save huge sums
of money.
4. Yes. A procedure ;in support of amicable settlement has been found to save
considerable legal costs and management lime.
5. Possibly the country of the defendant. This creates extra costs for the side
wishing to begin the dispute and thus makes amicable settlement more likely.
6. Yes. It is always worth stating this even though such clauses are not always
enforceable.
CHAPTER 5: THE EXPORT CONTRACT
1. Making the Contract Safe
THE PROBLEM
Once all the commercial and legal decisions have been made and put into contract form,
the exporter may still be at risk. How can the last contractual risks be eliminated?
THE PRINCIPLE
The contract must be systematically examined for weaknesses before it is signed. The four
step process that examines the contract ceilings, special risks that come from the particular
circumstances of the contract, risks that come from outside the contract and risks that might
be hidden in the applicable law.
IN MORE DEPTH
Lets think of the contract as an old-fashioned castle. How can the exporter make the castle
safe? Obviously by looking for weaknesses and by finding ways to strengthen the castle at
those points. We will have a tidy four-step approach to making our contracts safe.
STEP 1. CEILING: Are any liabilitites unlimited?
STEP 2. ROADBLOCK: What special risks should be limited?
STEP 3. IRON CURTAIN: How can the exporter limit the effect of the applicable law?
STEP 4. SIGNPOSTS: How can the exporter limit the effect of third party actions?
STEP 1: THE CEILING
The exporter will certainly notice several places where he has agreed to make payments: if
he is late, for example; if a machine fails to reach promised specifications; if he is late in
curing a defect; or whatever. Each of these liabilities must be capped in some way: a ceiling
figure must be set. A full examination of the contract discovers where the exporter has
unlimited time or money liabilities: a ceiling clause makes the situation safe.
STEP 2: THE ROADBLOCK
The most familiar roadblocks in export contracts are set up to cover force majeurre and the
exporters liability for consequential loss or damage incurred by the buyer.
Each individual contract encounters different risks arising perhaps from:
DEFECTS
LIABILITY
TOTAL
LIABILITY
OTHER
TERMINATION
Define what
counts as
delay and
what does not
Define what
counts as a
defect and
what does not
If possible,
pass the buck
with an
indemnificatio
n clause
Search for
other danger
areas
Limit
termination for
default to
closely defined
situations
Define
excusable
delay,
especially
force majeure
Limit duties to
repairing or
replacing
goods with
latent defects
Try to limit
your total
liability to your
insurance
coverage
Define the
danger and
write a clause
that limits or
excludes
liability
Ensure that
you will be paid
for work
performed up
to the date of
termination
Try to get a
grace period
Exclude
liability for
consequential
loss or
damage
Try to exclude
payment of
damages if
termination is
allowed
Asking a lawyer to draft a complete contract for each export deal does always make
economic sense: the time and money invested are out of proportion to the value of the
contract. In such cases, the exporter is tempted to proceed without any kind of contract. Is
this dangerous? Why or why not?
THE PRINCIPLE
A model contract is a half-way house between the dangerous practice of trading without a
contract and the expensive practice of asking a lawyer to tailor a contract for each deal. No
model contract can regulate every problem, but most important issues can be addressed
and reasonable alternatives suggested.
International trade between companies on different continents with different cultures and
different concepts of law cannot risk such informal proceedings. For an agreement to be
clear, workable and enforceable, it must normally be reduced to a written, signed contract.
IN MORE DEPTH
Unfortunately, asking a lawyer to draft a contract for each new agreement is costly and
time-consuming; many companies simply dont bother. This is where a model contract is
helpful. Unfortunately, however, using a model contract is not as easy as it sounds. Many
model contracts are too general; with over 150 nations in the world, each with its own law
no model contract can cover them all. Other models are too specialized: a model contract
designed for use in England offers offers little guidance to an Ethiopian exporter trying to
sell a machine to Vietnam. In every case, a model contract requires adaption before it
meets the needs of the two sides.
Translate the following Convention into Vietnamese. The translation given on the
right serves as example for you to continue.
ICC MODEL CONTRACT FOR THE SALE OF GOODS
Hp ng Mu Xut nhp khu Hng ha ca Phng TM Quc t
1. THE CONTRACT IN ENGLISH
CONTRACT FOR THE SALE OF GOODS
BETWEEN
...................................... hereinafter called "the SELLER"
AND
...................................... hereinafter called "the BUYER"
PREAMBLE
(NOTE: The Preamble is optional)
'
The agreement between the parties to this Contract is based on the following understandings:
(NOTE: The following clauses are examples only. Delete as
appropriate)
1. The BUYER is acting partly on its own behalf and partly as a purchasing agent for other companies
2. The BUYER is acting as purchasing agent for .....................'
3. Both parties understand that Goods made to the BUYER'S special specifications may have no value or very
limited value on the open market
4. The SELLER understands that the BUYER in specifying the Goods has relied to a large extent on the
expertise of the SELLER
5. The SELLER understands that the BUYER is under contract to resell the Goods and that if the Goods are
defective or non-conforming in quality or quantity, the BUYER may be liable for damages in an amount
exceeding .....................(Currency and amount)
6. The SELLER understands that the BUYER intends to install the Goods as a component part in equipment to
be resold, and that if the Goods are defective or non-conforming in quality or quantity, the BUYER may be liable
for substantial damages
7. ..(List of additional background understandings between the parties)
1. Applicable Law
This Contract and all questions relating to its formation, validity, interpretation or performance shall be governed
by the law of.............(Name of country)
(NOTE: The subclause below is optional)
This Contract shall not include, incorporate or be subject to the provisions of the "United Nations Convention on
Contracts for the International Sale of Goods"
2. Definitions
In this Contract the words below have the meanings ascribed to them unless the context otherwise clearly
dictates:
2.1. Unless expressly modified by the parties, "FOB", "CIF" and other trade terms have the meanings and
obligations ascribed to them in Incoterms 2000, Publication 460 of the International Chamber of Commerce,
Paris
2.2. "Contract" means this Contract, its preamble and appendices, as well as all documents expressly listed as
Contract documents or otherwise expressly mentioned in this Contract
2.3. "Goods" means the Goods specified in Clause 4 below
2.4. "Price" means the Price as specified in Clause 9 below payable to the SELLER for the Goods
2.5. "Delivery" means Delivery as specified in Incoterms 1990 under the Incoterm or Incorterms agreed in this
Contract
2.6. "Day" means a calendar Day. For the purposes of this Contract, Saturdays, Sundays and all holidays are
considered as Days
2.7. "Direct" costs and losses are costs and losses arising in immediate connection with any failure to deliver,
any delay in Delivery or any defect in Goods delivered under this Contract.
Such costs and losses must have an immediate, foreseeable and probably causal connection with the delay or
defect. All other costs and losses are deemed by this Contract to be "indirect"; In particular, loss of profit, loss of
use, and loss of contract are considered indirect losses
2.8. "Government" means national Government, local Government, local authorities, and their agencies.
In particular customs and/or excise departments are considered
as Government agencies
2.9. "Termination" means the discharge of the Contract by one of the parties under any right expressly granted
by this Contract; The discharge of the Contract by any other right arising from the applicable law or any oilier
source is deemed to be "cancellation" of the Contract
2.10. ........................(list of additional definitions agreed between the parties)
3. Entire Agreement and Contract Documents
This Contract constitutes the entire agreement and understanding between the parties. There are no
understandings, agreements, conditions, reservations, or representation, oral or written, that are not embodied
in this Contract or that have not been supersede by this Contract
(NOTE: The subclause and list below are optional)
In addition to the text of Contract itself, the documents listed below shall form part of the Contract; All listed
documents and the clauses of this Contract shall be read, if possible, so as to be consistent; In the event of
conflict, the order of precedence for the provisions and documents which constitute this agreement shall be as
follows:
(NOTE: The list below contains examples only. Delete as appropriate)
a. Any alterations made on the face of the printed Contract
b. The Contract itself
c. Specifications
d. Manufacturing drawings
e. The BUYER'S Special/ General Conditions of Purchase
f. The SELLER'S SpeciaVGeneral Conditions of Sale
g. .....................................................................( Further contract documents).
4. Scope of Supply
The Goods to be delivered under this Contract are specified .......(Use "below" or_the name of the annex where
the goods are specified)
5. Delivery
5.1. Date, Place and Terms of Delivery
Delivery of the Goods shall be made ...............(agreed Incoterms); the schedule date of Delivery shall
be ...............( Agreed date of delivery); Risk and title to the Goods shall pass from the SELLER to the BUYER
on Delivery
The place of Delivery under this Contract is ..............................(Agreed place of delivery. Note: In FOB, FCR,
CIF and CIP.(etc.) contract, this is part of shipment).
5.2. Naming and Arrival of Vessel
(NOTE: This clause is intended primarily for use in FOB and FAS contracts).
The BUYER shall advise the SELLER of the name of the vessel not later than ...........(Number of days). Days
before the agreed Delivery date
If the vessel named by the BUYER fails to arrive on or before ...................( Date of arrival of ship). then the
SELLER may at his discretion deliver the Goods to a bonded warehouse in the port of ................( Port of
shipment). and shall be deemed to have fulfilled his Delivery obligations under this
Contract; In this event, the SELLER must notify the BUYER of the full circumstances of the Delivery to the
warehouse. With Delivery to the warehouse, all costs, including but not limited to cost of storage and insurance
are to the BUYER'S account
5.3. Shipping Marks and Packaging
(NOTE: The following two subclauses are examples; reword as appropriate).
On the surface of each package delivered under this Contract shall be marked: the package number, the
measurements of the package, gross weight, net weight, the lifting positions the letter of credit number, the
words RIGHT SIDE UP, HANDLE WITH CARE,':
KEEP DRY, and the mark .....................................( Shipping mark)
Goods are to be packed in ...................( Description of required packing) and are to be well protected against
dampness, shock, rust or rough handling. The SELLER shall be liable for any damage to or loss of the Goods
attributable to improper or defective packaging
(NOTE: The following subclause is relevant only to deliveries in Germany).
5.4. Disposal of Packaging
Responsibility for the disposal of any packaging shall be the BUYER'S
6. Notification of Delivery
(NOTE: This clause applies largely to contracts under which delivery takes place in the country of the seller).
lmmediately on Delivery, the SELLER shall notify the BUYER of delivery by .................. (Means of notification,
e.g., FAX). This notification shall include ..(List of documents and information required)
7. Inspection before shipment
7.1. Inspection by the Buyer
The BUYER may, at the BUYER'S option, inspect the Goods prior to shipment. At least .............. (Number of
days). Days before the actual Delivery date, the SELLER shall give notice to the BUYER, or to any agent
nominated by the BUYER, that the Goods are available for inspection. The SELLER shall permit access to the
Goods for purposes of inspection at a reasonable time agreed by the parties
(NOTE: Customs requirements for importation of goods into Indonesia and the Philippines require inspection by
SGS prior to shipment from the Seller's country. The following clause is
recommended for sales to these countries).
agreed between the parties; Any discrepancy between the terms agreed by the parties and the letter of credit as
issued shall be notified by the SELLER to the BUYER immediately
11. Inspection of the Goods
11.1. Duty to Inspection and Notify Discrepancies
The BUYER shall inspect the Goods on their arrival at the place of destination. If the Goods fail to conform with
the Contract in either quality or quantity, then the BUYER shall notify the
SELLER of any discrepancy without delay
11.2. Failure to Notify Discrepancies
If the BUYER does not notify the SELLER of any such
discrepancy within ......... (Number of days). Days of the arrival of the Goods, then the Goods shall be deemed
to have been in conformity with the Contract on arrival.
11.3. Buyer's Rights in the Event of Discrepancy in Quantity
If a material discrepancy in quantity exists and is duly notified to the SELLER, the BUYER at his discretion and
subject to Clause
8.2 above may either:
a. Accept the delivered portion of the Goods and require the SELLER to deliver the remaining portion forthwith;
or
b. Accept the delivered portion of the Goods and terminate the remaining portion of the Contract upon due
notice given to the SELLER.
If any material discrepancy in quantity exists such that ...(Description of fundamental discrepancy) and
if such discrepancy is duly notified to the SELLER, the BUYER may at his discretion:
a. Adopt either of the remedies prescribed above in this clause;
or
b. Reject the delivered portion of the Goods and recover from the
SELLER all payments made to the SELLER as well as all costs, expenses and customs duties incurred by the
BUYER in association with the shipment, movement through customs, insurance or storage of the Goods
(NOTE: Clause 11.4 below may not be necessary if SGS inspection takes place before shipment).
11.4. Buyer's Rights in the Event of Discrepancy in Quality
Discrepancies in quality shall be considered as defects and shall give rise to claims under the defects liability
provision of this Contract in Clause 12 below
However, a fundamental discrepancy in quality shall give the BUYER the right to refuse Delivery of the Goods in
whole or in part and to recover from the SELLER all payments made for the unaccepted portion of the Goods as
well as all costs, expenses and customs duties incurred by the BUYER in association with the shipment,
movement through customs, insurance or storage of the unaccepted portion of the Goods
12. Defects Liability
12.1. Seller's Liability for Defects
The SELLER warrants that the Goods supplied under this Contract shall at the date of their Delivery:
a. Be free from defects in material
b. Be free from defects in workmanship
c. Be free from defects inherent in design, including but not limited to selection of materials, and be fit for the
purpose for which such Goods are normally used
If any defect provably present in any of the Goods on the date of Delivery comes to light during the defects
liability period, then the BUYER shall forthwith notify the SELLER; The SELLER, without undue delay, shall at
his own risk and cost and at his discretion repair or replace such item or otherwise make good the defect
The SELLER'S liability for defects is subject to the BUYER having adhered to all procedures and instructions
applicable to the .......... Condition of use (e.g., "storage, installation, use or operation") l of the item, and
expressly excludes damage to the Goods caused by fair wear and tear or by misuse occurring after Delivery
12.2. Defects Liability Period
The SELLER shall be liable for defects which come to light during a period of .......... days from ........... 2 ; After
the end of this period, the BUYER shall have no right to raise claims of any kind against the SELLER for any
defect in any Goods of the SELLER'S supply
The defects liability period shall be prolonged by the length of any period during which the Goods cannot be
used by the BUYER because of a defect. However, if new Goods are delivered to replace defective Goods, the
defects liability period shall not begin again on
the replacement Goods
12.3. Limitation of Defects Liability
(NOTE: The two clauses below are alternatives. Delete as necessary)
The duty to repair and replace or otherwise to make good defects is the only duty of the SELLER in the event of
the Delivery of defective Goods; In particular the BUYER shall not be entitled to compensation from the
SELLER for an}' indirect loss or damages as defined in Clause 2.7 above, arising from or in connection with
Delivery of defective Goods
The SELLER'shall indemnify and hold harmless the BUYER against any loss or damage however arising
whether direct or indirect which shall be suffered by the BUYER as the result of defective or faulty Goods
delivered by the SELLER.
13. Liability to Third Parties
(NOTE: The two clauses below are alternatives. Delete as necessary)
The ..........3 shall compensate and hold harmless the .......... ''from any award of damages, reasonable costs,
expenses or legal fees, in the event of any action or lawsuit by a third party resulting from any injury, loss or
damage to the third party caused by a defect in
the Goods delivered under this Contract
In the event of such Lawsuit, the ........' shall immediately notify the .......... : and shall fully cooperate with
the ..........' in taking any necessary legal action.
In the event of any action or lawsuit by a third party resulting from any injury, loss or damage to the third party
caused by a defect in the Goods delivered under this Contract, the party against whom the action or lawsuit is
brought shall bear all costs, expenses, awards of damages or legal fees arising therefrom
14. Taxation
All income taxes, value added taxes, customs duties, excise charges, stamp duties or other fees levied by any
Government, Government agency or similar authority shall be borne exclusively by the party against whom they
are levied.
15. Assignment of Rights and Delegation of Duties
The rights under this Contract may not be assigned nor the duties delegated by either party without the prior
written consent of the other party.
16. Coming Into Force
This Contract shall come into force after signature by both parties and after:
a. The issuance of a letter of credit in accordance with the terms of Clause 10 above;
b. ................................................................. 2
If the Contract has not come into force within .......... 3 Days of its signature by both parties, all its provisions shall
become null and void.
17. Force majeure
(NOTE: The word duty is marked' by an asterisk in this clause; for contracts under Philippines law, the word
duty should be replaced by the word obligation).
If either party is prevented from or delayed in, performing any duty under this Contract by an event beyond his
reasonable control, then this event shall be deemed force majeure, and this party shall not be considered in
default and no remedy., be it under this Contract or otherwise, shall be available to the other party.
(NOTE: The subclause below contains examples only. It should be modified as necessary).
Force majeure events include, but are not limited to: war (whether war is declared or not), 'riots, insurrections,
acts of sabotage, or similar occurrences, strikes, or other labour unrest;
newly introduced Laws or Government regulations; delay due to Government action or inaction, or inaction on
the part of any inspection agency; Fire, explosion, or other unavoidable accident; flood, storm, earthquake, or
other abnormal natural event.
(NOTE: The subclause below on non-force-majeure events is Optional)
Force majeure events do not include .......... .......... .......... ..........
If either party is prevented from or delayed in, performing any duty under this Contract, then this party shall
immediately notify the other party of the event, of the duty affected, and of the expected duration of the event.
If any force majeure event prevents or delays performance of any duty under this Contract for more than .......... 2
Days, then either parties may on due notification to the other party terminate this Contract.
18. Termination
Notice of Termination as defined in Clause 2.9 of this Contract shall be in writing and shall take effect .......... 3
Days from the receipt of such notice by the party notified.
In the event of Termination, the duties of the parties shall be as incurred up to the date of Termination; In
particular, the SELLER shall receive the full Price of any Goods delivered and accepted by the BUYER; The
provisions of this Agreement dealing with defects liability, arbitration, and such other provisions as are
necessary in order to resolve any post-Termination disputes shall survive Termination.
19. Partial Invalidity
If any provision or provisions of this Contract are invalid or become invalid, then this shall have no effect on the
remaining provisions. Further, the parties agree to replace any invalid provision with a new, valid provision
having, as far as possible, the same intent as the provision replaced.
20. Modification and Waiver
Modification of the terms and conditions of this Contract shall be binding on both parties even without
consideration if the modification is in writing, is signed, and is expressly stated to be a modification of this
contract.
Any waiver of any right under this Contract is binding on the party making the waiver even without consideration
provided the waiver is in writing, is signed and is expressly stated to be a waiver of the said right;
21. Language
The language of the Contract, of all Contract Documents, and of all correspondence and other communication
between the parties shall be English.
22. Notices
Notices served by one party to the other under this Contract shall be made, in the first instance by facsimile
transmission (hereinafter called "FAX"). A further copy of each notice shall be sent by registered mail and
signed.
The effective date of the notice shall be the date of FAX transmission. In the event of a dispute about the receipt
of a FAX, however, the effective date of the notice shall be the date of receipt of the registered letter or a date
seven days after the registered
mailing, whichever is earlier.
Notices shall be sent to the following addresses and FAX numbers:
SELLER: .......... .......... .......... .......... .......... .......... ..........
Address:.......... .......... .......... .......... ...'.....,. .......... ..........
FAX Number: .......... .......... .......... .......... .......... .......... ..........
BUYER: .......... .......... .......... .......... .......... .......... ..........
Address:.......... .................... .......... ..........'.......... ..........
FAX Number: .......... ...'....... .......... .......... .......... ..---- Any change in an address or FAX number shall be the subject of a required notice under this Contract.
23. Settlement of Disputes
All disputes arising in connection with this Contract shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by .......... Number (of arbitrators)' arbitrators
appointed in accordance with the said rules.
The place of arbitration shall be .......... Name of the place (city) of arbitration. The language of arbitration shall
be English.
(NOTE: The three sub-clauses below are alternatives. Delete as necessary).
In the event of arbitration, each party shall bear its own costs.
In the event of arbitration, the court shall assess the amount of the costs to be borne by each party
In the event of arbitration, the party against whom the award is made shall bear the entire costs of both parties
to the action.
The parties agree that any award made in accordance with the provisions 5f this clause is final and binding on
both parties.
Execution
The parties, intending to be legally bound, have signed this Contract on the dates and at the places stated
below:
For and on the behalf of:
For and on the behalf of:
SELLER
BUYER
Title:
Title:
Date:
Date:
Place:
Place:
(NOTE: The witnessing of signatures is not required by all national laws).
Witness of SELLER'S Signature Witness of BUYER'S Signature
3. MODEL CONTRACT FOR THE SALE OF GOODS AND THE CIVIL CODE OF VIETNAM '
The are three main types of contract, under CCVN (see appendix 2 for the, English and Vietnamese versions).
Sales/Procurement Contract (421-442)
Contract to Manufacture (550-561)
Contract for Services (521-529)
The model Contract is a pure Sales Contract - an exchange of "assets" for "money".
In -the following parts some principal clauses from the model Sales contract are compared with the stipulations
regarding civil contracts by the civil code of the Socialist Republic of Vietnam with a view to offering the reader
an insight into the subject - matter.
3.1. Structure of the Model contract
What you should know before reading the contract
Preamble
Clause 1 : Applicable Law
Clause 2 : Definitions
Clause 3 : Entire Agreement and Contract Documents
What the Buyer will get
Clause 4 : Scope of supply
How the good will be supplied
Clause 5 : Delivery
Clause 6: Notification of Delivery
Clause 7: Inspection before Shipment
Clause 8: Early Delivery, Partial Shipment, and Delay in
Delivery
What the Buyer will give
Clause 9; Price ;
How the Buyer will pay
Clause 10: Terms of Payment
What if the goods are not as ordered ?
Clause 11: Inspection of tlic Goods
Clause 12: Defects Liability
This contract, and all questions relating to its formation, validity, interpretation or performance shall be governed
by the law or....................
(Note: The subclause below is optional).
This contract" shall not include, incorporate or be subject to the provisions of the "United Nations Convention on
Contracts for the International Sale of Goods.
'
Remark
The Model Contract assumes freedom of contract in choosing an applicable law. It also allows-for
exclusion of the Vienna Sales Convention.
3.5. Scope of Contract: Technical Specifications
Notes for preparing the Technical Specification
A set of precise and clear specifications is-a prerequisite for bidders to respond realistically and competitively to
the requirements of the Purchaser without qualifying their bids. In the
context of International Competitive Bidding (ICB), the specifications must be drafted to permit the widest
possible competition and, at the same time, present a clear statement of the required standards of
workmanship, materials, and performance of the goods and services to be procured. Only if this is done will be
objectives of economy, efficiency, and fairness in procurement be realised, responsiveness of bids be ensured,
and the subsequent task of bid evaluation facilitated. The specifications should require that all goods and
materials to be incorporated in the goods be new, unused, and of the most recent or current models, and that
they incorporate all recent improvements in design and materials unless
provides for otherwise in the contract ...
Care must be taken in drafting specifications to ensure that they are not restrictive. In the specification of
standards for equipment, materials, and workmanship, recognised international standards should be used as
much as possible. Where other particular
standards are used, whether national standards of the Borrower's country or other standards, the specifications
should state that equipment materials, and workmanship that meet other authoritative standards, and which
ensure at least a substantially equal quality than the standards mentioned, will also be acceptable. '
Source: World Bank Standard . Bidding' Document: Procurement of Goods, p. 65.
Remark: Technical specifications must be prepared to allow absolute
certainty as to the scope of contract,
3.6. Legal Families and the Applicable Law
The total agreement between the parties is their written contract (the fish) plus the applicable private law (the
water)
In principle, the parties to a contract are free to decide the private law that will supplement their contract; i.e.,
the parties are free to choose the water their fish swims in.
Each country has its own national law. These laws belong to one of three families.
- The Civil Law Family: legal systems based on codified laws. The aim is consistency and predictability. The
judge applies the written law. Examples: France, Germany, Spain.
- The Common Law Family: legal systems aimed at achieving the most just result in the individual case. There
is no written law - only precedents to guide decisionmaking. Examples: England, United State, Malaysia.
- The Religious Law Family: legal systems based on Moslem principles. For contracts, there laws tend to adopt
international common law or civil law principles.
Examples: Saudi Arabia, Pakistan.
3.7. The Vienna Sales Convention ..
- The United Nations .Conventions, on Contracts for the International Sale of Goods (The Vienna Sales
Convention) is the law of any country that adopts it. Where the Convention
conflicts with existing national law, the Convention prevails.
The Convention applies to international sales only.
- The parties to a contract can "opt out" of the Convention with a clause such as:
This contract, and all questions concerning its validity, interpretation and performance shall be governed by the
law of the Republic of Verbena. This contract shall not include, incorporate or be subject to the provision of the
"United Nations Convention on
Contracts for the International Sales of Goods".
Many questions about the meaning of the Convention must be answered in the courts. So far the answers
have been slow in coming.
- Even so, the importer might wish to accept the Convention if the law applicable to the contract is weak or
underdeveloped, or if it favours the seller too strongly.
3.8. Requirement to provide a User's Guide.
Article 435: Obligations to provide information and User's Guide.
The seller is bound to provide the purchaser with necessary information on the assets sold, and guidelines for
using those assets. If the seller fails to perform this obligation, the purchaser shall have the right to request the
seller to perform the obligation; If the seller still does not perform it, the purchaser shall have the right to annul
the contract and claim for compensation of damages.
* Remark:
The buyer's right to annulment for failure to produce a user's guide would not normally be acceptable
in a seller.
169
3.9. Transfer of Risk, Transfer of Title.
'Article 432: Moment of Transfer of the Ownership
1) The ownership over purchased items shall pass to the purchaser from the moment when the purchaser
receives the object, except for cases where parties agree or law
stipulates otherwise.
Article 43: Moment of Passage of Risk.
1. The seller party shall bear risks regard of the sold assets until the moment when assets are delivered to
the purchaser, and the latter shall bear risks from the moment of receiving assets if parties have not agreed
otherwise.
Remark:
The concepts of "deliver^'" and "receipt" will require some definition by the courts. Under an Incoferm
contract, both terms could mean delivery.
3.10. Transfer of Risk and Title under the Model Contract.
5. Delivery
5.1. Date, Place and Terms of Delivery
Delivery of the Goods shall be made ............... The scheduled date of Delivery shall be ................ Risk and title
to the Goods
shall pass from the SELLER to the BUYER on Delivery.
Remark: Transfer of risk and title .together is often the simplest arrangement.
3.11. Place of Delivery under CCVN and under the Model Contract.
If either party is prevented from, or delayed in, performing any duty* under this Contract, then this party shall
immediately notify the other party of the event, of the duty* affected, and of the expected duration of the event.
If any force Majeure event prevents or delays performance of any duty* under this Contract for more than ... 2
days, then either party may on due notification to the . other party
terminate this Contract.
Remark:
Payment of liquidated damages by the SELLER shall not preclude the BUYER from seeking compensatory
damages from the SELLER for any loss, injury or damage arising from or in
connection with late Delivery of any Goods. In particular the BUYER shall be entitled to compensation from the
SELLER for any indirect or consequential loss or damage, including but not limited to loss of profit; loss of use
or loss of contract, arising from or in connection with late Delivery of any Goods. However, payments made as
liquidated damages shall be offset against any compensatory damages recovered from the SELLER for the late
Delivery of and Goods.
8.4. Termination for Delay
In the event that the SELLER becomes liable to pay the maximum sum payable as liquidated damages under
Clause 8.3 above, then the delay shall be deemed breach of contract and the
BUYER may, upon due notice, terminate the Contract and/or seek any other remedy available to him.
Remark:
In practice, few sellers will accept Alternative 2; it goes against the principle of liquidated damages.
3.16. Defective Delivery under CCVN
Article 428: Liability for delivery of assets in improper quantify
1. In cases where the seller delivers things in quantity exceeding that outnumbered the quantity which has been
agreed upon, the purchaser shall have the right to refuse the excess, or to receive it and pay for it at agreed
price.
2. In cases the seller party delivers things in quantity less than the quantity which has been agreed upon,
the purchaser shall have either of following rights.
a. To terminate the contract and request compensation for damages.
b. To receive the quantity which was delivered and request compensation for damages.
c. To receive what has been delivered and extend a period of time for the seller to deliver the rest.
Article 429: Liability due to Delivery of Incompleted Things.
1. In cases where things which have been delivered are not completed and thus causing the usefulness to be
failed, the purchaser shall have either of following rights:
a. To cancel the contract and request compensation for damages:
b. To receive what has been delivered and ask the seller party to deliver component or parts which have
not been delivered and to request compensations for damages and to
suspend the payment until the things becomes complete.
Article 430: Liability for delivery of things of the Wrong category.
In case where the things-have... been .delivered, in improper [assortment], the purchaser shall have
either of the following rights
1. To terminate the contract and request compensation for damages.
2. To receive what has been delivered any pay for it at the price as agreed upon by parties. '
3. To request the seller to deliver tbinp in proper assortment.
Remark:
,
The buyer's right to terminate is very hard on the seller. These clauses are (probably) disposive,
however. Some wording on fundamental breach is necessary in the contract.
3.17. Defective Delivery under the Model Contract.
11.3. Buyer's rig fits in the event of Discrepancy in quantity' .
If a material discrepancy in quantity exists and is duly noticed to the SELLER, the BUYER hi. his discretion and
subject to clause 8.2 above may either.
a. Accept the delivered portion of the Goods and required the SELLER to deliver the remaining portions
forthwith; or
b. Accept the delivered portion of the Goods and terminal of the remaining portion of the Contract upon the due
notice given to the SELLER.
If any material discrepancy in quantity exists such that <STATEMENT OF FUNDAMENTAL DISCREPANCY>
and if such discrepancy is duly notified to the SELLER, the BUYER
may at his discretion.
a. Adopt either of the remedies prescribed in tins clause above;
or
b. Reject the dclivored portion of the Goods and recover from the SELLER all payments made to the SELLER
as well as all costs, expenses and customs duties incurred by the BUYER in association with the shipment,
movement through customs, insurance or storage of the Goods.
11.4. Buyer's rights in the event Discrepancy in quality
Discrepancies in quality shall be considered as defects and shall give rise to claims under the Defects Liability
provision of this Contract in Clause 12 below.
However, a fundamental discrepancy in quality shall give the BUYER the right to refuse Delivery of the Goods
in whole or in part and to recover from the SELLER all payments made for the and customs duties incurred
by the BUYER in association with the shipment, movement through customs. Insurance coverage of the
unaccepted portion the Goods/Further a refusal to accept delivery in whole shall be considered termination
under Clause 18 of this Contract and refusal to accept delivery in part shall be considered termination of that
part of the Contract affected by such refusal.
Remark:
The wording on. fundamental breach is a necessary protection for the seller. It is essential for the buyer
to be fair to the seller or he will simply refuse to do business.
3.18. Defect liability under CCVN
Article 437: Guarantee of the Quality of Goods.
1. The. seller shall guarantee the fitness and characteristics of things sold; If the purchase discovers in the
purchased things the defects which devaluated it decreases its fitness of he/she must immediately notify the
seller thereof and shall have the right to request the seller to repair, or to replace the things with the defects, or
to reduce price and to compensate for damages, if parties have not agree otherwise.
2. The sale party shall guarantee that things sold are in accordance with description on covers Or appropriate
with the sample that has been chosen by the purchaser.
3. The sale party shall not be liable for defects in the following cases:
(a) Defect that the purchase party have already known and must have known when buying.
(b) Things at auction; things second hand trade;
(c) The purchase party at fault of causing defect to things.
Article 438: Warranty obligation
The sale party shall have warranty obligation to things sold for a period of time to be called warranty period, if
the warranty is agreed upon by parties or stipulated by Law. The
warranty period shall be calculated from the time the purchase party has to receive things.
Article 439. Right to request for [remedy of Defect under] warranty
During the warranty period, if the purchase party discovers any defects on things, it shall have the right to
request the sale party to repair things free of charge or to reduce the price
or to exchange the things with defects for the others or to return things and receive back the money.
Remark:
The correct word is "warranty"
The warranty period appears to run forever unless otherwise regulated by the contract.
The buyer has the right to choose the remedy which is grossly unfair to the seller.
3.19. Defect Liability under the Model Contract.
12. Defects liability
12.1. Seller's Liability for defects
The SELLER warrants that the Goods, supplied under this Contract shall at the date of their Delivery.
a. Be free defects in material.
b. Be free from defects in workmanship;
c. Be free from defect inherent in design, including but not limited to selection of materials and be fit for the
purpose for which such Goods are normally used.
If any defect provably present it any of the Goods, on the date of Delivery comes to light during the defects
liability period, then the BUYER shall forthwith notify the SELLER. The SELLER, without undue delay, shall at
his own risk and cost and at his discretion repair or replace such item or otherwise make goods the defect.
The SELLER'S liability for defects is subject to the BUYER having adhered to all procedures and instruction
applicable to the .... of the item, and expressly excludes damages to the Goods caused by fair wear and tear or
by misuse occurring after Delivery.
1.2.2. Defects Liability period
The SELLER shall be liable for defect which come to light during a period of ........... days from ..... After the end
of this period, the BUYER shall have no right to raise claims of any kind against the SELLER for any defect in
any Goods of the SELLER'S supply.
The defect liability period shall be prolonged by the length of any period during which the Goods cannot be
used by the Buyer because of a defect. However, it new Goods are delivered to replace defective Goods, the
defects liability period shall not begin again on
the replacement Goods.
1.2.3. Limitation of Defects Liability.
[NOTE: The two clauses below are alternatives. Delete as necessary]
The duty to repair and replace or otherwise to make good defects is the only duty of the SELLER in the event of
the Delivery, of defective Goods. In particular the BUYER shall not entitled to compensation from the SELLER
for any indirect loss or damage as defined in Clause 2.7 above, arising from or in connection with Delivery of
defective Goods.
The SELLER shall indemnify and hold harmless the BUYER against any loss or damage however arising
whether direct or indirect which shall be suffered by the BUYER as the result of defective or faulty Goods
delivery by the SELLER.
3.20. Payment under CCVN and the Model Contract
Article 295: Fulfilling the obligation of paying money.
1. The obligation to pay money shall be fulfilled in full, according to the time limit, at the appointed place and in
the agreed upon procedures.
2. The money that must be paid shall be the Vietnamese Dong, except in cases where the law stipulates
otherwise.
Article 424: Price and Modes of Payment
3. Modes of payments shall be agreed upon by parties or stipulated by law.
Remark:
The requirement to pay all monies in Dong needs interpretation
Article 1
1. This Convertion applies to contracts of sale of
goods between parties whose places of business
are strong different States:
(a) When the States are Contracting States; or
(b) When the rules of private international law
lead to the application of the law of a Contracting
State
2. The fact that the parties have their places of
business in different States is to be disregarded
whenever this fact does not appear either from
the contract or from any dealings between, or
from information disclosed by, the parties at any
time before or at the conclusion of the contract.
3. Neither the nationality of the parties nor the
civil or commercial character of the parties or of
the contract is to be taken into consideration in
determining the application of this Convention.
Article 2. This Convention does not apply to
sales
(a) Of goods bought for personal, family or
household use, unless the seller, at any time
before or at the conclusion of the contract,
neither knew nor ought to have known that the
goods were bought for any such use;
(b) By auction;
(c) On execution or otherwise by authority of law;
(d) Of stocks, shares, investments securities,
negotiable instruments or money;
(e) Of ships, vessels, hovercraft or aircraft;
(f) Of electricity.
b) Bn u gi;
c) thi hnh lut hoc vn kin y
thc theo lut;
d) C phiu, c phn, chng khon u
t, cc chng t c th chuyn nhng
hoc tin t;
e) Tu thy, my bay v tu chy trn
m khng kh;
f) in nng
Article 3
1. Contracts for the supply of goods to be
manufactured or produced are to be considered
sales unless the party who orders the goods
undertakes to supply a substantial part of the
materials necessary for such manufacture or
production.
2. This Convention does not apply to contracts in
which the preponderant part of the obligations of
the part who furnishes the goods consists in the
supply of labour or other services.
Article 4. This convention governs only the
formation of the contract of sale and the rights
and obligations of the seller and the buyer arising
from such a contract. In particular, except as
otherwise expressly provided in this Convention,
it is not concerned with:
(a) The validity of the contract or of any of its
provisions of any usage;
(b) The effect which the contract may have on the
property in the goods sold.
Article 5 This Convention does not apply to the
liability of the seller for death or personal injury
caused by the goods to any person.
Article 6
The parties may exclude the
application of this Convention or, subject to
Article 12, derrogate from or vary the effect of any
of its provisions.
PART III. SALE OF GOODS
PHN 3: MUA BN HNG HA
Chapter I. GENERAL PROVISION
Chng 1: Nhng quy inh chung
Article 25 A breach of contract committed by
iu 25. S vi phm hp ng do mt
one, of the parties is fundamental if it results in
bn gy ra l vi phm c bn nu vi
such detriment to the other party as substantially phm lm cho bn kia b thit hi m
to deprive him of what he is entitled to expect
ngi b thit hi trong mt chng mc
under the contract, unless the party in breach did ng k b mt nhng g m h c
not foresee and a reasonable person of the same php c theo hp ng, tr phi bn vi
circumstances would not have foreseen such a
phm khng tin liu c hu qu
result.
v mt ngi c l tr minh mn cng se
Article 26 A declaration of avoidance of the
khng tin liu c nu vo hon
contract is effective only if made by notice to the
cnh tng t.
other party.
iu 26. Mt li tuyn b v vic hy
Article 27 Unless otherwise expressly provided in this
hp ng ch c hiu lc nu c
Part of the Convention if any notice, request or otherthng bo cho bn kia bit.
communication is given or made by a party in accordance
iu 27. Tr phi Phn II ca Cng c
with this Part and by means appropriate in the
ny c quy nh khc, nu thng bo
circumstances, a delay or error in the transmission of
yu
thecu hay thng tin khc c
communication or its failure to arrive does not deprive
thc hin bi mt bn ca hp ng
that party of the right to rely on the communication theo Phn III ny v bng mt phng
Article 28 If, in accordance with the provisions of tin thch hp vi hon cnh, th s
this Convention, one party is entitled to require
chm tr hoc lm ln trong vic
performance of any obligation by the other party, chuyn giao thng tin hoc thng tin
a court is not bound to enter a judgement for
khng n ngi nhn, cng se lm
specific performance unless the court would do
bn mt quyn vin dn cc thng
so under its own law in respect of similar
tin ca mnh.
contracts of sale not governed by this
iu 28. Nu mt bn c quyn yu cu
Convention.
Article 29
1. A contract may be modified or terminated by
the mere agreement of the parties.
2. A contract in writing which contains a provision
requiring any modification or termination by
agreement to be in writing may not be otherwise
modified or terminated by agreement. However, a
party may be precluded by his conduct from
asserting such a provision to the extent that the
other party has relied on that contract.
(a) If a party has more than one place of business, the place of business is that
which has the closest relationship to the contract and its performance,
having regard to the circumstances known to or contemplated by the parties
at any time before or at the conclusion of the contract;
(b) If a party does not have a place of business, reference is to be made to his
habitual residence.
iu 10. Vi mc ch ca Cng c ny,
1. Nu mt bn c nhiu hn mt tr s thng mi th tr s thng mi ca
h se l tr s no c mi lin h cht che nht vi hp ng v vi vic thc
hin hp ng , c tnh ti nhng tnh hung m cc bn u bit hoc u
d on c bt ky lc no trc hoc vo thi im thi im hp ng.
b. Nu mt bn khng c tr s thng mi th se ly ni c tr thng xuyn
ca h.
Article 11. A contract of sale need not be concluded in or evidenced by writing
and is not subject to any other requirements as to form. It may be proved by
any means, including witnesses.
iu 11. Hp ng mua bn khng cn phi c k hoc xc nhn bng vn
bn hay phi tun theo mt yu cu no khc v hnh thc ca hp ng. Hp
ng c th c ch71ng minh bng mi cch, k c bng li khai ca nhn
chng.
Article 12. Any provision of Article 11, Article 29 or Part II of this Convension
that allows a contract of sale or its modification or termination by agreement or
any offer, acceptance or other indication of intension to be made in any form
other than in writing does not apply where any party has his place of business in
a Contracting State which has made a declaration under Article 96 of this
Convention. The parties may not derogate from or vary the effect of this Article.
iu 12. Bt ky quy nh no ca iu 11, iu 29 hoc Phn th hai ca Cng
c ny cho php hp ng mua bn thay i hoc nh chi hp ng theo s
thoa thun ca hp ng cc bn hoc n cho hng v chp nhn n cho
hng hay bt ky s th hin y1` ch ca bn c lp khng phi di hnh thc
vn bn m di bt ky hnh thc no khc se khng c p dng cho d chi
mt trong s cc bn c tr s thng mi t nc thnh vin ca Cng c
m nc tuyn b bo lu theo iu 96 ca Cng c ny. Cc bn khng
c quyn lm tri vi iu ny hoc sa i hiu lc ca n.
Article 13. For the purposes of this Convention, "writing" includes telegram and
telex.
iu 13. Theo tinh thn ca Cng c ny, in bo v telex cung c coi l
hnh thc vn bn.
PART II. FORMATION OF THE CONTRACT
Article 14.
1. A proposal for concluding a contract addressed to one or more specific
persons constitutes an offer if it is sufficiently definite and indicates the
intention of the offer or to be bound in case of acceptance. A proposal is
sufficiently definite if it indicates the goods and expressly or implicitly fixes or
makes provision for determining the quantity and the price.
2. A proposal other than one addressed to one or more specific persons is to be
considered merely as an invitation to make others, unless the contrary is clearly
indicated by the person making the proposal.
PHN II. KY KT HP NG
iu 14
1. Mt ngh k kt hp ng gi cho mt hay nhiu ngi xc nh c coi l
mt li cho hng nu c xc nh chnh xc v nu n chi ro nh ca
ngi cho hng mun t rng buc mnh trong trng hp c s chp nhn
cho hng. Mt ngh c iu kin c coi l chnh xc khi n nu ro hng
ha v n nh s lng v gi c mt cch trc tip hoc gin tip hoc quy
nh th thc xc nh nhng yu t ny.
2. Mt li ngh cho mt hay nhiu ngi xc nh chi c coi l mt li mi
giao dch mua bn, tr phi ngi ni ro nh ca mnh trong li ngh.
Article 15.
1. An offer becomes effective when it reaches the offeree.
2. An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches
the offeree before or at the same time as the offer.
iu 15
1. Mt th cho hng c hiu lc khi n ti tay ngi c cho hng.
2. Th cho hng d l loi cho hng khng hy ngang vn c th b hy bo
nu thng bo v vic hy cho hng n vi ngi c cho trc hoc cng
mt lc vi cho hng
Article 16
1. Until a contract is concluded an offer may be revoked if the revocation
reaches the offeree before he has dispatched an acceptance.
2. However, an offer cannot be revoked:
(a) If it indicates, whether by stating a fixed time for acceptance or otherwise,
that it is irrevocable; or
(b) If it was reasonable for the offeree to rely on the offer as being irrevocable
and the offeree has acted in reliance on the offer.
iu 16
1. Cho ti khi hp ng c giao kt, ngi cho hng vn c th rt li cho
hng, nu thng bo v v vic rt li ti ni ngi c cho hng trc khi
ngi ny gi thng bo chp nhn cho hng
2. Tuy nhin cho hng khng th b hy bo.
a) Nu n chi ro, bng cch n nh mt thi hn chp nhn, hay bng cch
no khc rng n khng th hy ngang.
b) Nu ngi nhn coi cho hng khng th hy ngang l hp l v tin tng
hnh ng theo th cho .
Article 17 An offer, even if it is irrevocable, is terminated when a rejection
reaches the offeror.
iu 17. Cho hng, d l loi khng hy ngang se mt hiu lc khi ngi cho
hng nhn c thng bo v vic t chi cho hng.
Article 18
1. A statement made by or other conduct of the offeree indicating assent to an
offer is an acceptance. Silence or inactivity does not in itself amount to
acceptance.
2. An acceptance of an offer becomes effective at the moment the indication of
assent reaches the offeror. An acceptance is not effective if the indication of
assent does not reach the offeror within the time he has fixed or, if no time is
fixed, within a reasonable time, due account being taken of the circumstances of
the transaction, including the rapidity of the means of communication employed
by the offeror. An oral offer must be accepted immediately unless the
circumstances indicate otherwise.
3. However, if, by virtue of the offer or as a result of practices which the parties
have established between themselves or of usage, the offeree may indicate
assent by performing an act, such as one relating to the dispatch of the goods
or payment of the price, without notice to the offeror, thee acceptance is
effective at the moment the act is performed, provided that the act is performed
within the period of the time laid down in the preceding paragraph.
iu 18.
1.Mt li tuyn b hay mt hnh vi khc ca ngi c cho hng biu hin s
ng vi cho hng to thnh chp nhn cho hng. S im lng hoc khng
c hnh ng no khng c hiu l mc nhin c gi tr nh mt s chp
nhn.
2.Chp nhn cho hng c hiu lc t khi ngi cho hng nhn c chp
nhn. Chp thun cho hng khng c hiu lc nu nh th chp nhn y khng
c gi ti ngi cho hng ng thi hn quy nh trong th cho hng, hoc
nu thi hn khng c quy nh th trong mt thi gian hp l, xt theo cc
tnh tit ca giao dch k c tc ca cc phng tin lin lc m ngi cho
hng s dng. Mt cho hng bng ming phi c chp nhn ngay, tr khi
cc tnh th bt buc phi ngc li
3.Tuy nhin nu do hiu lc ca cho hng hoc do thc tin c gia hai bn
trong mi quan h tng h hoc tp qun th ngi c cho hng c th
chng to s chp thun ca mnh bng mt hnh ng no nh hnh ng
lin quan n vic gi hng hay tr tin d khng thng bo cho ngi cho
hng th chp nhn cho hng c hiu lc k t khi nhng vic lm c thc
hin vi iu kin l chng phi c thc hin vi iu kin l chng phi c
thc hin trong thi hn quy nh ni phn trn.
Article 19
Article 27 Unless otherwise expressly provided in this Part of the Convention if any
notice, request or other communication is given or made by a party in accordance with
this Part and by means appropriate in the circumstances, a delay or error in the
transmission of the communication or its failure to arrive does not deprive that party of
the right to rely on the communication
iu 27. Tr phi Phn II ca Cng c ny c qui nh khc, nu thng bo yu cu
hay thng tin khc c thc hin bi mt bn ca hp ng theo Phn III ny v
bng mt phng tin thch hp vi hon cnh, th s chm tr hoc lm ln trong vic
chuyn giao thng tin hoc thng tin khng n ngi nhn, cung se khng lm bn
mt quyn vin dn cc thng tin ca mnh.
Article 28 If, in accordance with the provisions of this Convention, one party is
entitled to require performance of any obligation by the other party, a court is
not bound to enter a judgement for specific performance unless the court would
do so under its own law in respect of similar contracts of sale not governed by
this Convention.
iu 28. Nu mt bn c quyn yu cu bn kia thc hin ngha v no th
chiu theo cc quy nh ca Cng c ny, toa n khng b bt buc phi ra
phn quyt buc bn kia thc hin hp ng, tr khi toa n ra phn quyt
trn c s lut nc mnh i vi cc hp ng mua bn tng t khng c
qun trit bi Cng c ny.
Article 29
1. A contract may be modified or terminated by the mere agreement of the
parties.
2. A contract in writing which contains a provision requiring any modification or
termination by agreement to be in writing may not be otherwise modified or
terminated by agreement. However, a party may be precluded by his conduct
from asserting such a provision to the extent that the other party has relied on
that contract.
iu 29.
1. Mt hp ng c th c iu chinh hay chm dt bng thoa thun n
thun
2. Mt hp ng bng vn bn cha ng mt iu khon qui nh rng mi s
sa i hoc chm dt hp ng phi c cc bn lm bng vn bn th khng
th b sa i hay chm dt theo thoa thun gia cc bn di mt hnh thc
khc. Tuy nhin hnh ng ca mt bn c th khng cho php h vin dn iu
khon y trong chng mc m bn kia cn c vo hnh ng .
Chapter II. OBLIGATIONS OF THE SELLER
Chng II. Ngia vu cua ngi ban
Article 30. The seller must deliver the goods, hand over any documents
relating to them and transfer the property in goods, as required by the contract
and this Convention.
iu 30. Ngi bn c ngha v giao hng, giao chng t lin quan n hng
ha v chuyn giao quyn s hu v hng ha ng theo quy nh ca hp
ng v ca Cng c ny.
Section I. Delivery of the goods and handing over of documents
Muc I. Giao hang va chuyn giao chng t
Article 31. If the seller is not bound to deliver the goods at any other particular
place, his obligation to deliver consists:
(a) If the contract of sale involves carriage of the goods in handing the goods
over to the first carrier for transmission to the buyer;
(b) If, in cases not within the preceding subparagraph, the contract relates to
specific goods, or unidentified goods to be drawn from a specific stock or to be
manufactured or produced, and at that time of the conclusion of the contract
the parties knew that the goods were at, or were to be manufactured or
produced at, a particular place - in placing the goods at the buyer's disposal at
that place.
(c) In other cases in placing the goods at the buyer's disposal at the place where
the seller had his place of business at the time of the conclusion of the contract.
iu 31. Nu ngi bn khng b buc phi giao hng ti mt ni nht nh no
, th ngha v giao hng ca ngi y gm
a) Nu hp ng mua bn quy nh c vic vn chuyn hng ha , th ngi bn
phi giao hng cho ngi vn chuyn u tin chuyn giao cho ngi mua.
b) Nu trong nhng trng hp khng nm trong trng hp cp ti im ni
trn, m i tng ca hp ng mua bn l hng c nh hoc hng ng loi
phi c tch ra t mt khi lng d tr xc nh hoc phi c ch to hay
sn xut ra v vo lc k kt hp ng, cc bn bit rng hng ha c
hay phi c ch to hoc c sn xut ti mt ni no , th ngi bn
phi c ngha v t hng di quyn nh ot ca ngi mua ti ni .
c) Trong trng hp khc, ngi bn c ngha v t hng di quyn nh ot
ca ngi mua ti ni m ngi bn c tr s thng mi vo thi im k kt
hp ng.
Article 32. If the seller, in accordance with the contract or this Convention,
hands the goods over to a carrier and if the goods are not clearly identified to
the contract by markings on the goods, by shipping documents or otherwise,
the seller must give the buyer notice of the consignment specifying the goods.
1. If the seller is bound to arrange for carriage of the goods, he must make such
contracts as are necessary for carriage to the place fixed by means of
transportation appropriate in the usual terms for such transportation.
2. If the seller is not bound to effect insurance in respect to the carriage of the
goods, he must, at the buyer's request, provide him with all available
information necessary to enable him to effect such insurance.
iu 32.
1. Nu ngi bn, chiu theo hp ng hay Cng c ny, giao hng cho mt
ngi chuyn ch, v nu hng khng c tch bit mt cch ro rng cho mc
ch ca hp ng bng cch ghi k m hiu trn hng ha, bng cc chng t
chuyn ch hay bng cch no khc, th ngi bn phi thng bo cho ngi
mua bit v vic h gi hng kem theo chi dn v hng ha.
2. Nu ngi bn c ngha v thu xp vic chuyn ch hng ha, th h phi k
kt cc hp ng cn thit vic chuyn ch c thc hin ti ch, bng cc
phng tin chuyn ch thch hp vi hon cnh c th v theo cc iu kin
thng thng i vi phng thc chuyn ch .
3. Nu ngi bn khng c ngha v bo him hng ha trong qu trnh chuyn
ch, th h phi cung cp cho ngi mua, nu ngi mua yu cu, mi thng tin
cn thit c th gip ngi mua k kt hp ng bo him.
Article 33. The seller must deliver the goods:
(a) If the date is fixed by or determinable from the contract, on that date;
(b) If a period of time is fixed by or determinable from the contract, at any time
within that period unless circumstances indicate that the buyer is to choose a
date; or
(c) In any other case, within a reasonable time after the conclusion of the
contract.
iu 33. Nu ngi bn phi giao hng
a) ng vo ngy giao hng m hp ng quy nh, hay c th xc nh
ngy bng cch tham chiu hp ng,
b) Vo bt ky thi im no trong khong thi gian c hp ng n nh hay
c th xc nh c bng cch tham chiu hp ng nu nh khng th cn c
vo cc tnh tit bit ngy giao hng m ngi mua n nh.
c) Trong mi trng hp khc, trong mt thi hn hp l sau khi hp ng c
k kt.
Article 34
If the seller is/bound to hand over documents relating to the goods, he must
hand them over at the time and place and in the form required by the contract.
If the seller has handed over documents before that time, he may, up to that
time, cure any lack of conformity in the documents, if the exercise of this right
does not
cause the buyer unreasonable inconvenience or unreasonable expense.
However, the buyer retains any right to claim damages as provided for in this
Convention.
iu 34. Nu ngi bn c ngha v giao cc chng t c lin quan n hng
ha th h phi thc hin ngha v ny ng thi hn, ng a im v ng
hnh thc nh quy nh ca hp ng. Trong trng hp ngi bn giao chng t
trc thi hn, th ngi bn c th, trc khi ht thi hn quy nh loi bo
nhng im khng ph hp trong chng t vi iu kin l vic lm ny khng
gy cho ngi mua mt tr ngi hay ph tn v l no. Tuy nhin ngi mua vn
c quyn oi ngi bn bi thng thit hi chiu theo cng c ny.
Section II. Conformity of the goods and third party claims
Article 35
1. The seller must deliver goods which are of the quantity, quality and
description required by the contract and which are contained or packaged in
the manner required by the contract.
2. Except where the parties have argeed otherwise, the goods do not conform
with the contract unless they
(a) Are fit for the purposes for which goods of th& same description would
ordinarily be used;
(b) Are fit for any particular purpose expressly or impliedly made known to the
seller at the time of the conclusion of the contract, except where the
circumstances show that the buyer did not rely, or that it was unreasonable
for him to rely, on the seller's skill and judgement;
(c) Possess the qualities of goods which the seller has held out to the buyer as a
sample or model;
(d) Are contained or packaged in the manner usual for such goods or, where
there is no such manner, in a manner adequate to preserve and protect the
goods.
3. The seller is not liable under subparagraphs (a) to (d) of the preceding
paragraph for any lack of conformity of the goods if at the time of the
conclusion of the contract the buyer knew or could not have been unaware
of such lack of conformity.
MUC II. Tinh phu hp cua hang hoa va quyn cua ngi th 3.
iu 35.
1. Ngi bn phi giao hng ng s lng, phm cht v m t quy nh trong
hp ng, v ng bao b hay ng gi nh trong hp ng yu cu.cc bn
thoa thun khc, hng
2. Ngoi tr trng hp cc bn c thoa thun khc, hng ha b coi l
khng ph hp vi hp ng nu
a) Chng khng thch hp cho cc mc ch s dng m hng ha cng loi
vn thng p dng;
b) Hng khng thch hp cho cc mc ch c th no m ngi bn trc
tip hoc gin tip bit c vo lc k kt hp ng, tr trng hp cc
hon cnh c th cho thy rng ngi mua khng da vo ky nng v
quyt nh ca ngi bn, hoc vic da vo nh vy l khng hp l;
c) Hng ha khng th hin cc phm cht ca hng mu hoc kiu dng m
ngi bn cung cp cho ngi mua;
d) Hng khng c ng bao b theo cch thng thng cho nhng hng cng
loi hoc, nu khng th hin cch thng thng, th bng cch thch hp
gi gn v bo v hng ha .
3. Ngi bn khng chu trch nhim v vic giao hng khng ng hp ng
nh nu trong cc im t (a) n (d) ca iu khon trn nu ngi mua
bit hoc khng th khng bit v vic hng khng ph hp vo lc k
kt hp ng.
Article 36
1. The seller is liable accordance with the contract and this Convension for any
lack of conformity which exists at the time when the risk passes to the
buyer; even though the lack of conformity becomes apparent only after that
time.
2. The seller is also liable for any lack of conformity which occurs after the time
indicated in the preceding paragraph and which is due to a breach of any of
his obligations, including a breach of any guarantee that for a period of time
the goods will remain fit for their ordinary purpose or for some particular
purpose or will retain specified qualities or characteristics.
iu 36.
1. Ngi bn chu trch nhim, theo ng hp ng v Cng c ny, v mi
s khng ph hp ca hng ha vo lc chuyn giao ri ro cho ngi mua,
ngay c khi s khng ph hp ca hng ha chi c pht hin sau .
2. Ngi bn cung chu trch nhim v mi s khng ph hp ca hng ha
xy ra sau thi im ni im trn v l hu qu ca s vi phm bt
ky ngha v no ca ngi bn, k c vic khng th m bo trong mt
thi hn no , hng ha vn thch hp cho mc ch s dng thng
thng hay mc ch c th hoc vn duy tr c nhng tnh cht hay
c im quy nh.
Article 37. If the seller has delivered goods before the date for delivery, he
may, up to that date, deliver any missing part or make up any deficiency in the
quantity of the goods delivered, or deliver goods in replacement of any nonconforming goods delivered or remedy any lake of conformity in the goods
delivered, provided that the exercise of this right does not cause the buyer
unreasonable inconvenience or
unreasonable expense. However, the buyer retains any right to claim damages
as provided for in this Convention.
iu 37. Trong trng hp giao hng trc thi hn, ngi bn c quyn, cho
ti thi hn , giao mt phn hay mt s lng thiu hoc giao hng mi thay
cho hng giao thng ph hp vi hp ng, hoc khc phc mi s khng
ph hp ca hng ha giao vi iu kin vic lm ca ngi bn khng
gy cho ngi mua mt tr ngi hay ph tn v l no. Tuy nhin ngi mua c
quyn oi bi thng thit hi chiu theo Cng c ny.
Article 38
1. The buyer must examine the goods, or cause them to be examined, within as
short a period as is practicable in the circumstances.
2. if the contract involves carriage of the goods, examination may be deferred
untill after the goods have arrived at their destination.
3. if the goods are redirected in transit or redispatched by the buyer without a
reasonable opportunity for examination by him and at the time of the
conclusion of the contract the seller knew or ought to have known of the
possibility of such redirection or redispatch, examination may be deferred
until after the goods have arrived at the new destination.
iu 38.
1. Ngi mua phi kim tra hng hoc bo m c s kim tra hng
trong mt thi gian ngn m thc t c th lm c ty tnh hung c
th.
2. Nu hp ng c quy nh v chuyn ch hng ha, th vic kim tra
hng c th c chm li n lc hng ti ni phi n.
3. Nu a im n ca hng b thay i trong thi gian hng ang trn
ng vn chuyn hoc hng c ngi mua gi i tip v khi
ngi mua kgo6ng c c hi hp l kim tra hng ha, con ngi
bn bit hay ng le phi bit khi k kt hp ng v kh nng i
l trnh hay gi tip , th vic kim tra c th c di li cho n khi
hng ti ni n mi.
Article 39
1. The buyer loses the right to rely on a lack of conformity of the goods if he
does not give notice to the seller specifying the nature of the lack of conformity
within a reasonable time after he has discovered it or ought to have discovered
it.
2. In any event, the buyer loses the right to rely on a lack of conformity of the
goods if he does not give the seller notice thereof at the latest within a period of
two years from the date on which the goods were actually handed over to the
buyer, unless this time-limit is inconsistent with a contractual period of
guarantee.
iu 39.
1. Ngi mua b mt quyn khiu ni v hng ha khng ph hp vi hp
ng nu ngi mua khng thng bo cho ngi bn nhng tin tc v s
bt ph hp trong mt thi hn hp l k t lc ngi mua pht
hin hay ng le phi pht hin ra khim khuyt .
2. Trong mi trng hp, ngi mua b mt quyn khiu ni hng khng ph
hp vi hp ng nu ngi mua khng thng bo cho ngi bn bit iu
chm nht trong thi hn 2 nm k t ngy hng ha thc s giao
cho ngi mua tr phi thi hn ny tri ngc vi thi hn bo hnh quy
nh trong hp ng.
Article 40. The seller is not entitled to rely on the provisions of Articles 38 and
39 if the lack of conformist relates to facts of which he knew or could not
have been unaware and which he did not disclose to the buyer.
iu 40. Ngi bn khng c quyn vin dn cc quy nh ca iu 38 v 39
nu s khim khuyt ca hng ha lin quan n cc yu t m ngi bn
bit hoc khng th khng bit v h khng thng bo cho ngi mua,
Article 41. The seller must deliver goods which are free from any right or claim
of a third party, unless the buyer agreed to take the goods subject to that right
or claim. However, if such right or claim is based on industrial property or other
intellectual property the seller's obligation is governed by Article 42.
iu 41. Ngi bn phi giao loi hng m chng khng b rng buc bi bt c
quyn hay khiu ni no ca ngi th 3 tr trng hp ngi mua ng nhn
loi hng b rng buc vo quyn v khiu ni . Tuy nhin, nu quyn v
khiu ni c hnh thnh trn c s s hu cng nghip hay s hu tr tu
th ngha v ca ngi bn se c iu chinh theo iu 42.
Article 42
1. the seller must deliver goods which are free from any right or claim of a third
party based on industrial property or other intellectual property, of which at
the time of the conclusion of the contract the seller knew or could not have
been unaware, provided that the right or claim is based on industrial property
or other intellectual property or other intellectual property:
(a) under the law of the State where the goods will be resold or otherwise used,
it was contemplated by the parties at the time of the conclusion of the
contract that the goods would be resold or otherwise used in that State; or
(b) in any other case, under the law of the State where the buyer has his place
of business.
2. The obligation of the seller under the preceding paragraph does not extend to
the cases, where
(a) at the time of the conclusion of the contract the buyer knew or could not
have been unaware of the right or claim ;or
(b) The right or claim results from the seller's compliance with technical
drawings, designs, formulae or other such specifications furnished by the buyer.
iu 42.
1. Ngi bn phi giao nhng hng ha m chng khng b rng buc bi bt
c quyn hay khiu ni no ca ngi th ba trn c s s hu cng
nghip hay s hu tr tu khc m ngi bn bit hoc khng th khng
bit vo thi im k kt hp ng, vi iu kin nu cc quyn v yu
sch ni trn c hnh thnh trn c s s hu cng nghip hay s hu tr
tu khc.
a) theo php lut ca quc gia ni hng ha se c bn hay s dng
bng cch khc, nu cc bn d on vo lc k kt hp ng rng
hng ha se c bn li hay s dng bng cch khc ti quc gia
; hoc
b) trong mi trng hp khc, theo lut php ca quc gia ni c tr s
thng mi ca ngi mua.
2. Trong cc trng hp sau y, ngi bn khng b rng buc bi nhng
ngha v nu trn
a) Vo lc k kt hp ng, ngi mua bit hoc khng th khng
bit v s hin hu ca hay khiu ni ni trn; hoc
b) quyn hay khiu ni bt ngun t vic ngi bn tun theo bn
ve ky thut thit k cng thc hay nhng s liu chi tit do ngi
mua cung cp.
Article 43
1. The buyer loses the right to rely on the provision of Article 41 or article 42 if
he does not give notice to the seller specifying the nature of the right or
claim of the third party within a reasonable time after he has become aware
of the right or claim.
2. The seller is not entitled to rely on the provision of the preceding paragraph if
he knew of the right or claim of the third party and the nature of it.
iu 43.
1. Ngi mua mt quyn khiu ni da vo cc quy nh ca iu 41 v 42,
nu ngi mua khng thng bo cho ngi bn tnh cht ca quyn hay
khiu ni ca ngi t 3, trong mt thi gian hp l k t khi ngi mua
bit hay ng le phi bit v quyn hay khiu ni .
2. Ngi bn khng c quyn vin dn nhng quy nh ti im (1) nu trn
nu ngi bn bit v quyn hay khiu ni ca ngi th 3 v tnh cht
ca quyn hay khiu ni .
Article 44. Notwithstanding the provisions of paragraph (1) of Article 39 and
paragraph (1) of Article 43, the .
buyer may reduce the price in accordance with Article 50 or claim damages,
except for loss of profit, if he
has a reasonable excuse for his failure to give the required notice.
iu 44. Bt k nhng quy nh ca im (1) iu 39 v im (1) iu 43, ngi
mua c th gim gi theo iu 50 hay oi bi thng thit hi, ngoi tr khon
li b bo l, nu ngi mua c l do hp l gii thch nguyn nhn khng
thng bo tin tc cn thit cho ngi bn.
Section III. Remedies for breach of contract by the seller
Muc III. Cac bin phap bao h phap ly trong nhng trng
hp ngi ban vi pham hp ng.
Article 45. If the seller fails to perform any of his obligations under the
contract or this Convention, the buyer may
(a) exercise the rights provided in Articles 46 to 52;
(b) claim damages as provided in Articles 74 to 77.
1. The buyer is not deprived of any right he may have to claim damages by
exercising his right to other remedies.
request. The buyer may not, during that period of time, resort to any remedy
which is inconsistent with performance by the seller.
3. A notice by the seller that he will perform within a specified period of time is
assumed to include a request, under the preceding paragraph 2, that the buyer
make known his decision.
4. A request or notice by the seller under paragraph (2) or (3) of this article is
not effective unless received by the buyer.
iu 48.
1. Theo ng quy nh ca iu 49, ngi bn c th, ngay c sau khi ht thi
hn giao hng, loi tr mi thiu st trong vic thc hin ngha v ca mnh,
vi iu kin l vic lm khng ko di s chm tr v l v khng gy ra
cho ngi mua nhng tr ngi hay tnh hnh bt nh v l trong vic hon
tr cc ph tn m ngi bn phi thc hin cho ngi mua. Tuy nhin ngi
mua vn gi nguyn quyn oi bi thng thit hi chiu theo Cng c ny.
2. Nu ngi bn yu cu ngi mua cho bit l ngi mua c chp nhn vic
loi tr thiu st ni trn ca ngi bn hay khng v nu ngi mua khng
p ng yu cu ny trong mt thi hn hp l th ngi bn c th thc
hin vic loi tr thiu st trong thi hn m ngi bn ghi trong yu
cu. ngi mua khng th, trong thi hn s dng bt c bin php bo
h php l no khng thch hp cho vic thc hin ngha v ca ngi bn.
3. Nu ngi bn thng bo rng ngi bn se thc hin vic loi tr thiu st
trong mt thi hn n nh th thng bo ni trn bao gm c yu cu ngi
mua cho bit h chp nhn vic loi tr thiu st hay khng, chiu theo quy
nh ca khon 2 ni trn.
4. Yu cu hay thng bo ca ngi bn theo khon 2 hay 3 ca iu khon
ny se khng c hiu lc nu ngi mua khng nhn c n.
Article 49
1. The buyer may declare the contract avoided
(a) If the failure by the seller to perform any of his obligations under the
contract or this Convention amounts to a fundamental breach of contract; or
(b) In case of non-delivery, if the seller does not deliver the goods within the
additional period of time fixed by the buyer in accordance with paragraph (1) of
article 47 or declares that he will not deliver within the period so fixed.
2. However, in cases where the seller has delivered the goods. The buyer loses
the right to declare the contract avoided unless he does so:
(a) In respect to late delivery, within a reasonable time after he has become
aware that delivery has been made;
(b) In respect of any breach other than late delivery, within a reasonable time:
(c) after he knew or ought to have known of breach;
(d) after the expiration of any additional period of time fixed by the buyer in
accordance with paragraph (1) of Article 47. or after the seller has declared that
he will not perform his obligations within such an additional period; or
(e) after the expiration of any additional period of time indicated by the seller in
accordance with paragraph (2) of Article 48, or after the buyer declared that he
will not accept performance.
iu 49.
1. Ngi mua c th tuyn b hy hp ng
a) nu vic ngi bn khng thc hin bt c ngha v no pht sinh t hp
ng hay t Cng c ny cu thnh mt vi phm c bn n hp ng; hoc
b) trong trng hp khng giao hng, nu ngi bn khng giao hng trong thi
gian c ngi mua gia hn thm cho h theo khon 1 iu 47 hoc nu
ngi bn tuyn b se khng giao hng trong thi hn b sung .
2. Tuy nhin trong trng hp ngi bn giao hng, ngi mua se mt quyn
hy hp ng tr khi ngi mua tuyn b hy hp ng;
a) khi hng giao chm, trong mt thi hn hp l k t lc ngi mua bit
rng vic giao hng c thc hin
b) i vi mi trng hp vi phm khng phi giao hng chm tr, trong mt
thi hn hp l
i) k t lc ngi mua bit hay ng le phi bit v s vi phm ;
ii) sau khi ht thi hn b sung cho ngi bn theo khon 1 iu 47 hoc sau
khi ngi bn tuyn b rng h se khng thc hin ngha v ca mnh trong
thi hn c gia hn ; hoc
11) sau khi ht thi hn b sung m ngi bn chi ro theo khon 2 iu
48 hoc sau khi ngi mua tuyn b rng h khng chp nhn thc hin
ngha v.
Article 50. If the goods do not conform with the contract and whether or not
the price has already been paid, the buyer may reduce the price in the same
proportion as the value that the goods actually delivered had at that time of the
delivery bears to the value that conforming goods would have had at the time.
However, if the seller remedies any failure to perform his obligations in
accordance with Article 37 or Article 48 or if the buyer refuses to accept
performance by the seller in accordance with those Articles, the buyer may not
reduce the price.
iu 50. Trong trng hp hng ha khng ph hp vi hp ng bt k tin
hng c tr hay cha, ngi mua c th gim gi hng theo ty l cn c
vo s sai bit gia gi tr thc ca hng ha vo lc giao hng v gi tr ca
hng ha nu hng ph hp vi hp ng vo lc giao hng. Tuy nhin, nu
ngi bn loi tr mi thiu st trong vic thc hin mi ngha v theo iu 37
hoc iu 48 hoc nu ngi mua t chi chp nhn vic thc hin ca ngi
bn theo cc iu khon ny th ngi mua khng c gim gi hng.
Article 51. If the seller delivers only a part of the goods or if only a part of the
goods delivered is in conformity with the contract, Article 46 to 50 apply in
respect of the part which is missing or which does not conform.
1. The buyer may declare the contract avoided in its entirety only if the failure
to make delivery completely or in conformity with the contract amounts to a
fundamental breach of the contract.
iu 51.
1. Nu ngi bn chi giao mt phn hng ha hoc nu chi mt phn hng ha
giao ph hp vi hp ng th cc iu 46 n 50 se c p dng i
vi phn hng ha thiu hoc phn hng ha khng ph hp vi hp ng.
2. Ngi mua chi c tuyn b hy bo ton b hp ng nu vic khng thc
hin hp ng hoc mt phn hng giao khng ph hp vi hp ng cu
thnh mt s vi phm c bn hp ng.
Article 52
1. If the seller delivers the goods before the date fixed, the buyer may take
delivery or refuse to take delivery.
2. If the seller delivers a quantity of goods greater than that provided for in the
contract, the buyer may take delivery or refuse to take delivery of the excess
quantity. II the buyer takes delivery of all or part of the excess quantity, he
must pay (or it at the contract rate.
iu 52.
1. Nu ngi bn giao hng trc thi hn quy nh th ngi mua c quyn
chp nhn hoc t chi vic giao hng .
2. Nu ngi bn giao mt s lng nhiu hn s lng quy nh trong hp
ng, ngi mua c th chp nhn hay t chi s lng vt tri ni trn.
Nu ngi mua chp nhn ton b hay mt phn s lng vt tri ni trn
th ngi mua phi tr tin hng vt tri theo gi hp ng quy nh.
Chapter III. OBLIGATIONS OF THE BUYER
Article 53. The buyer must pay the price for the goods and lake delivery of
them as required by the contract and this Convention.
Chng III. Nghia vu cua ngi mua
iu 53. Ngi mua c ngha v thanh ton tin hng v nhn hng theo quy
nh ca hp ng v ca Cng c ny.
.
Section I. Payment of the Price
Article 54. The buyer's obligation to pay the price includes taking such steps
and complying with such formalities as may be required under the contract or
ant laws and regulation to enable payment to be made.
Muc I. Thanh toan tin hang
iu 54. Ngha v thanh ton tin hng ca ngi mua bao gm vic p dng
cc bin php v hon chinh cc th tc theo yu cu ca hp ng hoc lut l
c th thc hin vic tr tin hng.
Article 55. Where a contract has been validly concluded but does not expressly
or implicitly fix or make provision for determining tlie price, the parlies are
considered, in the absence of any indication to the contrary, to have impliedly
make reference to the price generally charged at the lime of the conclusion the
contract tor such' goods sold under comparable circumstances in the trade
concerned.
iu 55. Khi hp ng c k kt mt cch hp php, nhng khng quy
nh gi c mt cch trc tip hoc gin tip, hoc khng quy nh cch xc
nh gi tr cc bn, tr phi c s quy nh ngc li c coi l c ng da
vo gi c n nh cho loi ha nh vy khi hng ha ny c em bn
trong nhng iu kin tng t ca ngnh bun bn hu quan.
Article 56. If the price is fixed according to the weight of the goods, in case of
doubt it is to be determined by the net weight.
iu 56. Nu gi c c n nh theo trng lng ca hng ha th trong
trng hp c nghi ng, gi se c xc nh theo trng lng tnh.
Article 57. If the buyer is not bound to pay the price at any other particular
place, he must pay It to the seller:
1. At the seller's place of business, or
2. If the payment is to be made against the handing over of the goods or of
documents, at the place where the handing over takes place.
3. The seller must bear any increase in the expenses incidental to payment
which is caused by a change in his place of business subsequent to the
conclusion of the contract.
iu 57.
1. Nu ngi mua khng c ngha v thanh ton tin hng ti mt a im no
th h phi tr tin cho ngi bn
a) ti tr s thng mi ca ngi bn; hay
b) ti ni giao hng hoc giao chng t nu vic tr tin c thc hin khi giao
hng hoc giao chng t.
2. Ngi bn phi chu s gia tng ph tn thc hin vic thanh ton do s
thay i a im tr s thng mi ca mnh sau khi hp ng c k kt.
Article 58
1. If the buyer Is not bound to pay the price at any other specific time, he must
pay it when the seller places either the goods or document controlling their
disposition at the buyer's disposal in accordance with the contract and this
Convention. The seller may make such payment a condition for handing over
the goods or documents.
2. If the contract Involves carriage of the goods, the seller may dispatch the
goods on terms whereby the goods, or documents controlling their
disposition, will not be handed over to the buyer except against payment of
the price.
3. The buyer Is not bound to pay the price until he has had an opportunity to
examine the goods, unless the procedures for delivery or payment agreed
upon by the parties are inconsistent with his having such an opportunity.
iu 58.
1. Nu ngi mua khng c ngha v tr tin vo mt thi hn nht nh, th
ngi mua phi tr khi, theo hp ng v Cng c ny, ngi bn t hoc
hng ha hoc cc chng t nhn hng di quyn nh ot ca ngi mua.
Ngi bn c th a ra iu kin phi thanh ton nh vy i li vic giao
hng hoc chng t.
2. Nu hp ng quy nh vic chuyn ch hng ha, ngi bn c th gi hng
vi iu kin l hng hay chng t nhn hng chi c giao cho ngi mua khi
ngi mua thanh ton tin hng.
Article 59. The buyer must pay the price on the dale fixed by or determinable
from the contract and this Convention without the need for any request or
compliance with any formality on the part of the seller.
iu 57. Ngi mua phi tr tin vo ngy quy nh hoc c th c xc nh
theo hp ng v Cng c ny m khng cn yu cu hay thc hin mt th
tc no khc v pha ngi bn.
Section II. Taking delivery
Muc II. Nhn hang
Article 60. The buyer's obligation to take delivery consists:
(a) In doing all the acts which could reasonably be expected of him In order to
enable the seller to make delivery; and
(b) In taking over the goods.
(d) after the expiration of any additional period of time fixed by the seller In
accordance with paragraph (1) of Article 63, or after the buyer has declared
that he will not perform his obligations within such an additional period.
iu 64.
1. Ngi bn c th tuyn b hy hp ng
a) nu vic khng thc hin ngha v ca ngi mua theo hp ng hay Cng
c cu thnh mt s vi phm c bn hp ng; hoc
b) nu ngi mua khng thc hin ngha v tr tin hoc khng nhn hng
trong thi hn b sung theo khon 1 iu 63 hoc nu ngi mua tuyn b se
khng lm vic trong thi hn y.
2. Tuy nhin trong nhng trng hp ngi mua tr tin, ngi bn mt mt
quyn tuyn b hy hp ng tr khi ngi bn lm nh vy,
a) trong trng hp ngi mua chm thc hin ngha v hoc khi ngi bn
bit rng ngha v c thc hin; hoc
b) trong trng hp ngi mua vi phm bt c ngha v khc ngoi vic chm
tr trong mt thi hn hp l,
i) k t lc ngi bn bit hay ng le phi bit s vi phm , hoc
ii) sau khi kt thc thi hn b sung theo khon 1 iu 63 hay sau khi ngi
mua tuyn b rng h se khng thc hin ngha v ca mnh trong thi hn
b sung .
Article 65
1. If under the contract the buyer is to specify the form, measurement or other
features of the goods and he fails to make such specification either on the
date agreed upon or within a reasonable time after receipt of a request from
the seller, the seller may, without prejudice to any other rights he may have,
make the specification himself in accordance with the requirements of the
buyer that may be known to him.
2. if the seller makes the specification himself, he must inform the buyer of the
details thereof and must fix a reasonable time within which the buyer may
make a different specification. If .after receipt of such a communication, the
buyer falls to do so within the time so fixed, the specification made by the
seller is binding.
iu 65.
1. Nu theo hp ng, ngi mua phi xc nh hnh dng, kch thc hay
nhng c im khc ca hng ha v nu ngi mua khng lm iu vo
thi gian thoa thun hay trong mt thi hn hp l k t khi nhn c yu cu
ca ngi bn, th ngi bn c th t mnh xc nh hng ha theo ng nhu
cu ca ngi mua m ngi bn c th bit m khng lm phng hi n cc
quyn li khc.
2. Nu ngi bn t mnh xc nh hng ha, h phi bo chi tit cho ngi mua
ni dung vic xc nh v n nh mt thi hn hp l ngi mua c th
a ra cc chi tit khc ca hng ha. Nu sau khi nhn c thng bo m
ngi mua khng xc nh chi tit hng ha trong thi hn ni trn th s xc
nh hng ha do ngi bn thc hin c tnh cht bt buc.
Chapter IV. PASSING OF THE RISK
Chng IV. Chuyn rui ro
Article 66. Loss of or damage to the goods after the risk has passed to the
buyer does not discharge him from his obligation to pay the price, unless the
loss or damage is due to an act or omission of the seller.
iu 66. Tht thot hay h hong hng ha xy ra sau khi ri ro chuyn sang
ngi mua khng min tr cho ngi mua ngha v tr tin, tr phi tht thot
hay h hong hng l do hnh ng hay s thiu trch nhim ca ngi bn
gy ra.
Article 67
1. If the contract of sale Involves carriage of the goods and the seller Is not
bound to hand them over at a particular place, the risk passes to the buyer
when the goods are handed over to the first carrier for transmission to the buyer
in accordance with the contract of sale. If the seller is bound to hand the goods
over to a carrier at a particular place, the risk does not pass to the buyer until to
the carrier at that place. The fact that the seller is authorized to retain
documents controlling the disposition of the goods does not affect the passage
of the risk.
2. Nevertheless, the risk does not pass to the buyer until the goods are clearly
identified to the contract, whether by markings on the goods, by shipping
documents, by notice given to the buyer or otherwise.
iu 67.
1. Nu hp ng mua bn quy nh vic vn chuyn hng ha v ngi bn
khng b buc phi giao hng ti ni quy nh, ri ro c chuyn sang ngi
mua k t lc hng c giao cho ngi chuyn ch th nht chuyn cho
ngi mua theo hp ng mua bn. Nu ngi bn buc phi giao hng cho
mt ngi chuyn ch ti mt ni quy nh, ri ro khng c chuyn cho
ngi mua cho n khi hng ha c giao cho ngi chuyn ch ti ni .
Vic ngi bn c php gi li cc chng t nhn hng khng nh hng
n vic chuyn giao ri ro.
2. Tuy nhin ri ro khng c chuyn sang cho ngi mua nu hng ha khng
c phn nh ro rng theo hp ng bng cch ghi k m hiu trn hng
ha, bng cc chng t vn ti, bng mt thng bo gi cho ngi mua hoc
bng nhng cch thc khc.
Article 68. The risk in respect of goods sold in transit passes to the buyer from
the conclusion of the contract. However, if the circumstances so indicate, the
risk is assumed by the buyer from the time the goods were handed over to the
carrier who issued the documents embodying the contract of carriage.
Nevertheless, if at the time of the conclusion of the contract of sale, the seller
knew or ought to have known that the goods had been lost or damaged and did
not disclose this to the buyer, the loss or damage is at the risk of the seller.
iu 68. Ri ro v hng ha bn trn ng vn chuyn c chuyn sang
cho ngi mua, k t khi k kt hp ng. Nhng trong cc trng hp cn thit
nh nu, ngi mua phi nhn ri ro v mnh k t khi hng c giao cho
ngi chuyn ch l ngi k pht cc chng t xc nhn vic thc hin hp
ng chuyn ch. Tuy nhin, nu vo lc k kt hp ng mua bn, ngi bn
bit hoc ng le phi bit v s kin hng ha b mt hay h hong v
khng thng bo cho ngi mua v iu th vic tht thot hay h hong hng
ha do ngi bn phi gnh chu.
There are some mistakes in the Vietnamese translation. How do you
corect the translated version according to the English original?
Article 69
1. In cases not within Article 67 and 68, the risk passes to the buyer when he
takes over the goods or, if he does not do so in due time, from the time when
the goods are placed at his disposal and he commits a breach of contract by
failing to take delivery.
2. However, if the buyer is bound to take over the goods at a place other than a
place of business of the seller, the risk passes when delivery is due and the
buyer is aware of the fact that the goods are placed at his disposal at that place.
3. If the contract relates to goods not then identified, the goods are considered
not to be placed at the disposal of the buyer until they are clearly identified to
the contract.
iu 69.
1) Trong cc trng hp khng c nu ti iu 67 v 68, ri ro c
chuyn sang ngi mua khi ngi ny nhn hng hoc nu ngi mua
khng lm vic ny ng thi hn quy nh k t lc hng c t di
quyn nh ot ca ngi mua v ngi mua vi phm hp ng v
khng chu nhn hng.
2) Tuy nhin, nu ngi mua b buc phi nhn hng ti mt ni khng phi
l tr s thng mi ca ngi bn, ri ro c chuyn khi vic giao hng
phi c thc hin v ngi mua bit rng hng c t di quyn
nh ot ca h ti ni .
3) Nu hp ng mua bn lin quan n hng ha cha c nh dng,
hng chi c coi l t di quyn nh ot ca ngi mua chng
no chng c tch bit ro rng cho mc ch ca hp ng.
Article 70. If the seller has committed a fundamental breach of contract, Article
67, 68 and 69 do not impair the remedies available to the buyer on account of
the breach.
iu 70. Nu ngi bn vi phm c bn i vi hp ng, cc quy nh ca
iu 67, 68, 69 khng nh hng n quyn ca ngi mua s dng cc bin
php bo h php l trong trng hp xy ra vi phm .
Chapter V. PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER
AND OF THE BUYER
mua.
not be used for the purpose contemplated by the parties at the time of the
conclusion of the contract.
iu 73.
1. Nu hp ng quy nh giao hng tng phn v nu vic mt bn khng thc
hin ngha v lin quan n mt l hng to nn mt s vi phm c bn hp
ng v l hng th bn kia c th tuyn b hy hp ng v l hng lin
quan.
2. Nu mt bn khng thc hin bt c mt ngha v c lin quan n l hng
no, cho php bn kia c l do xc ng kt lun rng s vi phm c bn hp
ng se xy ra i vi cc l hng c giao trong tng lai, bn c th tuyn
b hy hp ng i vi cc l hng giao trong tng lai vi iu kin phi lm
vic trong mt thi hn hp l.
3. Ngi mua khi tuyn b hy hp ng i vi bt ky l hng no, c th cng
mt lc tuyn b hp ng b hy i vi cc l hng se c giao trong tng
lai nu do tnh lin kt cc l hng ny khng th s dng c cho nhng mc
ch m cc bn d tnh vo lc k kt hp ng.
Section II. Damages
Article 74. Damages for breach of contract by one party consist of a sum equal
to the loss, including loss of profit suffered by the other party as a consequence
of the breach. Such damages may not exceed the loss which the party in breach
foresaw or ought to have foreseen at the time of the conclusion of the contract
in the light of the facts and matters of which he then knew or ought to have
known as a possible consequence of the breach of contract.
Muc 2.
iu 74.
Article 75. It the contract is avoided and if in a reasonable manner and within a
reasonable time after avoidance the buyer has bought goods in replacement or
the seller has resold the goods, the party claiming damages may recover the
difference between the contract price and the price in the substitute transaction
as well as any further damages recoverable under article 74.
iu 75.
Article 76
1. If the contract is avoided and there is a current price for the goods, the party
claiming damages may if he has not made a purchase or resale under Article
75, recover the difference between the price fixed by the contract and the
current price at the time of avoidance as well as any further damages
recoverable under Article 74. If, however the party claiming damages has
avoided the contract after
taking over the goods, the current price at the time of such taking over shall be
applied instead of the current price at the time of avoidance.
2. For the purposes of the preceding paragraph, the current price is the price
prevailing at the place where delivery of the goods should have been made or if
there is no current price at that place, the price at such other place as severs as
a reasonable substitute making due allowance for differences in the costs of
transporting the goods.
iu 76.
1. Khi hp ng b hy v hng c mt mc gi hin hnh, bn oi bi thng
thit hi c th, nu h khng mua hng thay th hay bn li theo iu 75,
nhn phn chnh lch gi nh ca hp ng v gi hin hnh vo lc hy hp
ng cng mi khon tin bi thng thit hi khc c th c nhn theo iu
74. Mc d vy, nu bn oi bi thng thit hi tuyn b hy hp ng sau
khi tip nhn th gi hin hnh vo lc tip nhn hng c p dng thay cho
gi hin hnh vo lc hy hp ng.
2. Vi mc ch ca khon ni trn, gi hin hnh l gi p dng ti ni m vic
giao hng ng le phi c thc hin hoc nu khng c gi hin hnh ti ni
, l gi p dng ti mt ni khc m ngi ta c th dng thay th mt
cch hp l c tnh n s chnh lch trong chi ph chuyn ch hng ha.
Article 77. A party who relies on a breach of contract must take such measures
as are reasonable in the circumstances to mitigate the loss including loss of
profit resulting from the breach. If he fails to take such measures the party in
breach may claim a reduction in the damages in the amount by which the loss
should
have been mitigated.
Article 81
1. Avoidance of the contract releases both parties from their obligations under it,
subject to any damages which may be due. Avoidance does not affect any
provisions of the contract for the settlement of disputes or any other provisions of
the contract governing the rights and obligations of the parties consequent upon
the avoidance of the contract.
2. A party who has performed the contract either wholly or in part may claim
restitution form the other party of whatever the first party has supplied or paid
under the contract if both parties are bound to make restitution they must do so
concurrently.
iu 81.
1. Vic hy hp ng gii phng hai bn khoi ngha v ca h, tr nhng khon
bi thng thit hi c th c. Vic hy hp ng khng c nh hng n quy
nh ca hp ng v gii quyt tranh chp hay quyn li v ngha v ca hai bn
trong trng hp hp ng b hy.
2. Bn no thc hin ton b hay mt phn hp ng c th oi bn kia hon
li nhng g m h cung cp hay thanh ton khi thc hin hp ng. Nu c hai
bn u b buc phi thc hin vic hon li, h phi cng mt lc thc hin vic
.
Article 82
1. The buyer loses the right to declare the contract avoided or to require the
seller to deliver substitute goods if it is impossible for him to make restitution of
the goods substantially in the condition in which he received them.
2. The preceding paragraph does not apply
(a) if the impossibillity of making restitution of the goods or of making
restitution of the goods substantially in the condition In which the buyer
received them is not due to his act or omission.
(b) if the goods or part of the goods have perished or deteriorated as a result of
the examination provided for in article 38; or
(c) if the goods or part of the goods have been sold in the normal course of
business or have been consumed or transformed by the buyer in the course of,
normal use before he discovered or ought to have discovered the lack of
conformity.
iu 82.
1. Ngi mua mt quyn tuyn b hy bo hp ng hay oi ngi bn phi giao
hng thay th nu h khng th hon li hng ha trong tnh trng thc cht
ng nh khi h nhn hng .
2. iu khon trn khng p dng.
a) Nu vic khng th hon li hng ha hoc khng th hon li trong tnh
trng v thc cht ng nh khi ngi nhn, khng phi do mt hnh ng hay
mt s s sut ca h.
b) Nu hng ha hay mt phn hng ha khng th s dng c hoc h hong
theo kt qu ca vic kim tra quy nh ti iu 38; hoc
c) Nu trc khi nhn thy hay ng le phi nhn thy hng ha khng ph hp
vi hp ng, ngi mua bn ton b hay mt phn hng ha trong qu trnh
kinh doanh thng thng, hay tiu dng hoc bin i ton b hay mt phn
hng ha theo hnh thc s dng thng thng.
Article 83. A buyer who has lost the right to declare the contract avoided or to
require the seller to deliver substitute goods in accordance with article 82
retains all other remedies under the contract and this Convention.
iu 83. Ngi mua, khi mt quyn tuyn b hy bo hp ng hay oi
ngi bn phi giao hng thay th theo iu 82, vn c php duy tr quyn
s dng bin php bo h php l khc theo hp ng v Cng c ny.
Article 84
1. If the seller is bound to refund the price he must also pay interest on it from
the date on which the price was paid
2. The buyer must account to the seller for, ail benefits which he has derived
from the goods or part of them
(a) If he must make restitution of the goods or part of them; or
(b) .If it is impossible for him to make restitution of all or part of the goods or to
make restitution of all or part of the goods substantially in the condition in which
he received them but he has nevertheless declared the contract avoided or
required the seller to deliver substitute goods.
iu 84.
1. Nu ngi bn b buc phi hon li gi tin h cung phi tr tin li trn tng
s tin k t ngy ngi mua thanh ton.
2. Ngi mua phi tr cho ngi bn s tin tng ng vi mi li nhun m
h c hng t hng ha hay mt phn hng ha.
a) khi h phi hon li ton b hay mt phn hng ha, hay
b) Khi h khng th hon li ton b hay mt phn hng ha hay khng th
hon li hng thc cht ng nh tnh trng h nhn, mc d h tuyn b
hp ng b hy hay oi ngi bn giao hng thay th.
Section VI. Preservation of the Goods
Article 85. If the buyer is in delay in taking delivery of the goods or where
payment of the price and delivery of the goods are to be made concurrently if
he (ails to pay the price and the seller is either in possession of the goods or
otherwise able to control their disposition the seller must take such steps as are
reasonable in
the circumstances to preserve them. He is entitled to retain them until he has
been reimbursed his reasonable expenses by the buyer.
Muc 6. Bao quan hang hoa
iu 85. Khi ngi mua chm tr nhn hng hay khng tr tin hoc khi vic
tr tin v v giao hng phi c tin hnh cng lc v hng ha con nm
di quyn nh ot hay kim sot ca ngi bn, ngi bn phi thc hin
nhng bin php hp l trong tng tnh hung bo qun hng ha. Ngi
bn c quyn gi li hng ha cho ti khi ngi mua hon tr cho h cc chi ph
hp l.
Article 86
1. If the buyer has received the goods and intends to exercise any right under
the contract or this Convention to reject them, he must take such steps to
preserve them as are reasonable in the circumstances. He is entitled to retain
them until he has been reimbursed his reasonable expenses by the seller.
2. If goods dispatched to the buyer have been placed at his disposal at their
destination and he exercises the right to reject them, he must take possession
of them on behalf of the seller provided that this can be done without payment
of the price and without unreasonable inconvenience or unreasonable expense.
This provision does not apply if the seller or a person authorized to. take charge
of the goods on his behalf is present at the destination. If the buyer takes
possession of the goods under this paragraph his rights and obligations are
governed by the preceding paragraph.
iu 86.
1. Nu ngi mua nhn hng v c nh s dng quyn t chi nhn hng
theo hp ng hay Cng c ny, th h phi thc hin cc bin php hp l
trong nhng tnh hung bo qun hng ha. Ngi mua c quyn gi li
hng ha cho ti khi ngi bn hon tr cho mnh cc chi ph hp l.
2. Nu hng ha gi cho ngi mua c t di quyn nh ot ca ngi
ny ti ni n v nu ngi mua s dng quyn t chi hng th h phi thay
mt ngi bn tip nhn hng ha vi iu kin ngi mua c th lm vic ny
m khng phi tr tin hng v khng gp tr ngi hay cc chi ph bt hp l.
Quy nh ny khng p dng nu ngi bn hay ngi c y quyn nhn hng
ha cho ngi c mt ti ni n. Nu ngi mua tip nhn hng theo quy nh
ca khon ny, nhng quyn li v ngha v ca ngi mua c iu chinh
bng quy nh ti khon trn.
Article 87. A party who Is bound to take steps to preserve the goods may
deposit them in a warehouse of a third person at the expense of the other party
provided that the expense incurred is not unreasonable.
iu 87. Bn no b buc phi c nhng bin php bo qun hng ha, c
th giao hng vo kho ca ngi th ba, chi ph do bn kia chu vi iu kin cc
chi ph ny phi hp l.
Article 88
1. A party who is bound to preserve the goods in accordance with article 85 or
86 may sell them by any appropriate means If there has been an unreasonable
delay by the other party in taking possession of the goods or in taking them
back or in paying the price or the cost of preservation, provided that reasonable
notice of intention to sell has been given to the other party.
2. If the goods are subject to rapid deterioration or their preservation would
Involve unreasonable expense, a party who is bound to preserve the goods in
declared under Article 92 that it will not be bound by Part III of this
Convention shall at the time of ratification, acceptance, approval or accession
denounce the 1964 Hague Formation Convention by notifying the
Government of the Netherlands to that effect.
6. For the purpose of this Article, ratification, acceptances, approvals and
accessions in respect of this Convention by States parties to the 1964 Hague
Formation Convention or to the 1964 Hague Sales Convention shall not be
effective until such denunciations as may be required on the part of those
States in respect of the latter two Conventions have themselves become
effective. The depositary of this Convention shall consult with the
Government of the Netherlands, as the depositary of the Conventions, so as
to ensure necessary co-ordination in this respect.
iu 99.
1.
2.
3.
Article 100
1. This Convention applies to the formation of a contract only when the proposal
for concluding the contract is made on or after date when the Convention enter
into force in respect of the Contracting States referred to in subparagrph (1) (a)
or the Contracting State referred to in subpsrsgraph (1) (b) of Article 1.
2. This Convention applies only to contract concluded on or after the date when
the Convention enters into force in respect of the Contracting States referred to
in subparagraph (1)(a) or the Contracting State relered to in subparagraph (1)
(b) of Article 1.
iu 100.
1.
2.
3.
Article 101
1. A Contracting State may denounce this Convention, or Part II or Part III of the
Convention, by a formal notification in writing addressed to the depositary.
2. The denunciation takes effect on the first day of the month following the
expiration of twelve months by the depositary. Where a longer period for the
denunciation to take effect is specified in the notification, the denunciation
takes effect upon the expiration of such longer period after the notification is
received by the depositary.
Done at Vienna, this day of eleventh day of April, one thousand nine hundred
and eighty, in a single original, of which the Arabic, Chinese, English, French.
Russian and Spanish texts are equally authentic.
IN WITNESS WHERE OF the undersigned plenipotentiaries being duly authorized
by their respective Governments have signed this Convention.