Oral Exam - Part 1

ORAL EXAM – 4TH YEAR – 2007 K43B – A6

PART 1: INTERNATIONAL BUZ CONTRACTS (EXPORTING & EXPORT CONTRACTS) 1. THE CONTRACT & THE LAW * Two forms of law: - Public law: + Regulate the relationship between the citizen and the state + Imposed by a government within a specific territory + Obligatory + Include Constitutional law, Administrative law and Criminal law - Private law: + Regulate the relationship between private citizens (or companies) + Include Civil law, Labour law, Commercial law, Corporations law, Completion law * A contract is an exchange of rights and duties within the framework of the private law * Dispersive rights: any right that we can legally waive or free to dispose * Freedom of contract is the idea that individuals should be free to bargain among themselves the terms of their own contracts, without government interference. * The 2 law systems: The law created by judges on a case by case basis - Common law (Anglo American law): Created by a civil authority to be applied to all cases (such as a statute or constitution) - Civil law (Continental law) * 6 Steps in negotiating the legal framework for the contract: - Choosing the applicable law - Settlement of disputes - Contract or no contract - The parties - Status of the contract - Entire agreement 2. THE BACKGROUND INFORMATION & THE ENTIRE AGREEMENT OF A CONTRACT a/ The conditions which make a contract become enforceable - The parties achieve “meeting of mind". Duress, fraud and mistake all create no contract situation. - A contract must come through a process of Offer and Acceptance. It comes into existence when one party (the offeror) makes an offer and another party (offeree) accepts it. - The parties must have power to make a contract. They can only sign the contract within their power. - The contract must have legal purpose. If the purpose of an agreement is illegal, then the agreement is unenforceable.

For the Anglo-American law: the contract must give both sides rights and duties. One sided contracts are no contract. b+c/ * Offer and acceptance: A contract comes into existence when:  One party makes an offer  Another party accepts it The rules of offer and accceptance: INQUIRY OR REQUEST FOR TENDER

OFFER

THE COUNTEROFFER become a New....

OFFER DIES

Is there REVOCATION ?

YES

NO

Original Offer Dies

Is there a COUTEROFFER?

YES

NO

OFFER DIES

CONTRACT

Is there an ACCEPTANCE ?

NO

YES

* Whereas Recital clause:  The Ango - Amarican contract is, traditonally, the entire agrreement.  To avoid confusion, most international contracts contain an "entire agreement" clause stating this position. Entire Agreement: This contract comstitutes the entire agreement and understanding between the parties. There are no agreements, understandings, conditions, reservations or representations, oral or written, that are not embodied in this contract or that have not been superseded by this contract.  The entire agreement clause means that all documents that predate the contract become invalid when the contract is signed.  Whereas recital clause is the background to the contract that are often needed by a court to interpret the contract - is provided in the form of a whereas recital.  It often contains the background information likes:  Background of collaboration  Expertises of the Parties  Previous agreements  Reference to a patent  Mutual interest  Goals of the parties  Economic support available WHEREAS the Supplier has wide experience in the supply of electronic products for use in tropical conditions; WHEREAS both parties are intererted in introducing this new technology into the East Asian region. The parties here by agreed ...... d/. + The aims of the “Definition" clause: Definition clause is the best way of clarifying what exactly the two sides have agreed. It aims to: - Make the parties have sound understanding of terms which are discussed during negotiation. - Avoid the disputes and misunderstanding. + The purpose of the “Entire Agreement" clause: The entire agreement clause means that all documents that predate the contract become invalid when the contract is signed. Its purpose is clarity. Both sides know where they stand whatever law applies to the contract.

+ The specimen clause of "Entire Agreement and Contract Documents" in common sale and purchase contract: All contract documents and 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 provision and documents which constitute this agreement as follows: - Specifications - The Buyer's Special Condition of Purchase. - Statement of work ... 3. THE DISCHARGE OF A CONTRACT Define the terms used in a contract: I. Cancellation: 1. Definition: occurs when either party ends a contract for breach by the other. The canceling party retains any remedy for breach of the whole contract or any unperformed balance. When one party violates the terms and conditions of a contract, the other party has the right to cancel. The entire contract may be rolled back, payments previously made may be refunded, and any remaining obligations are immediately ended. 2. Types of cancellations: a. Canceling for cause/breach of contract An actual breach occurs because of the failure of one of the parties to perform at the time and in the manner required by the terms and conditions of the contract. b. Canceling for an anticipated breach A situation may arise where there has not as yet been a failure of performance. However, there is strong reason to believe that one of the parties to the contract will not be fulfilling their obligations. The burden of proof is upon the party potentially being harmed who must show convincing evidence of the anticipated breach and good reasons why they must go elsewhere to seek performance or take some other course of action. If any damages are involved, usually they are limited to the costs in excess of the contract price, when alternate procurement is necessary. 3. Examples of the type of violations that may cause a breach of contract include, but are not limited to: - Nondelivery or late delivery of a product or service. NOTE: Caution must be exercised because if the failure to deliver or late delivery was caused by factors beyond the contractor’s control (e.g., labor strike, fire, floods, act of God, etc.), the contractor usually is protected. Also, if there is a history of acceptance of late deliveries, the buyer’s right to cancel may be challenged. - Failure to supply a product or service meeting the agreed upon specification or in the quantities ordered. - Improper invoicing--charging prices or imposing terms different from those agreed upon. - Seller unable to maintain or to provide parts and repair services, or to honor warranty on equipment or products sold. - Unwillingness of seller to submit an acceptable affirmative action plan. - The disclosure of collusion or price-fixing involving the successful bidder, after the contract has been awarded.

- Failure of the contractor to comply with insurance and/or surety requirements. - Violation of state statutes (e.g., failure to supply information concerning hazardous materials or substances). - Federal debarment where federal funds are involved. II. Termination: 1. Definition: Termination occurs when either party ends a contract other than for a breach. Any parts of a contract that already have been completed will be left alone, but obligations for the future, not yet performed, will cease. 2. Types of terminations: a. Termination for convenience - Some contracts allow either party to terminate for any reason (or for no reason), under certain conditions or facts. Terms of the contract govern such terminations and usually specify that if either party suffers any hardship because of actions of the other, they will be reimbursed with a satisfactory, documented adjustment. If the amount of the compensation cannot be determined by mutual agreement, it may be necessary to submit to the courts for a final decision. - An example of a termination for the convenience of the state is found in a phrase usually inserted into contracts extending over more than one biennium period; "the state may terminate the contract without penalty if subsequent legislatures (or the funding agency) fail to appropriate the funds necessary to carry on the contract." b. Termination by mutual consent - Termination is not necessarily a cause for legal action. There may be a mutual agreement for termination with a satisfactory adjustment worked out between contracting parties. - Change orders which are common purchasing practice technically constitute a termination of a part of, or the whole original contract, and a substitution of a new contractual agreement. These generally are accepted by the buyers and sellers as a natural condition of doing business, and carry no implication of a breach of faith or contract. III. Rescission: Definition: Rescission is an equitable remedy that wipes out the existing contract and restores the parties to their situation prior to entering into the contract. In general terms, rescission refers to the cancellation of a contract. If money has been paid by one party to another, that money is returned as part of the rescission process. Rescission can occur as a result of innocent or fraudulent representation, mutual mistake, and lack of legal capacity, an impossibility to perform a contract not contemplated by the parties, or duress and undue influence. For example, assume you agreed to sell and the buyer agreed to buy two acres of land that you thought you owned. Later, it turns out that you did not have title to the property. Rescission would be the proper remedy. IV. Impossibility of performance: Performance means that each party to the contract has performed its obligations; the exchange of promises has been completed and each side has received what it has bargained for. Once the contract has been completed, neither party owes the other party any further obligation.

For example, if you make a contract to perform at a concert, and you appear, perform, and get paid, ordinarily the obligations of the parties to the contract are over. Impossibility of performance can terminate a contract if an unforeseen contingency prevents the performance of the contract. For example, you contract with a famous painter to do your portrait and the famous painter dies. The obligation to paint your portrait cannot be completed. The contract to paint your portrait is terminated by impossibility of performance. V. Frustration: Frustration of a contract occurs only where after the conclusion of the contract a fundamentally different situation has unexpectedly emerged. The emergence of some new set of circumstances may make the performance of the contract more difficult, onerous or costly than was envisaged by the parties when entering into the contract, for example, a sudden, even abnormal, rise or fall in prices or the failure of a particular source of supply requiring the seller to obtain supplies from another more expensive source. However, these events will not normally operate to frustrate a contract. 4. SETTLEMENT OF DISPUTES Ways of settlement of disputes parties often incorporate in to their contract are: negotiation, conciliation (mediation), arbitration and litigation. •

AMICABLE SETTLEMENT (NEGOTIATION):

Negotiation is an interaction of influences. Such interactions include the process of resolving disputes, agreeing upon courses of action, bargaining for individual or collective advantage, or crafting outcomes to satisfy various interests. Negotiation is thus a form of alternative dispute resolution. Negotiation is typically evidenced by trained negotiator acting on behalf of a particular organization or position. Compare this to mediation (conciliation) where a disinterested third party listens to each side’s arguments and attempts to help craft an agreement between the parties. The parties can formalize the memorandum of agreement by inserting a condition that will be binding. The parties generally share equally in the cost. On any matters unresolved, the parties are free to pursue other options. •

CONCILIATION:

Conciliation is an alternative dispute resolution (ADR) process whereby the parties to a dispute agree to utilize the services of a conciliator, who then meets with the parties separately in an attempt to resolve their differences. A conciliator assists each of the parties to independently develop a list of all of their objectives (the outcomes which they desire to obtain from the conciliation). The conciliator then has each of the parties separately prioritize their own list from most to least important. Thus the conciliator can quickly build a string of concessions and help the parties create an atmosphere of trust which the conciliator can continue to develop.

Conciliation differs from arbitration in that the conciliation process, in and of itself, has no legal standing, and the conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision, and makes no award. If the conciliator is successful in negotiating an understanding between the parties, said understanding is almost always committed to writing (usually with the assistance of legal counsel) and signed by the parties, at which time it becomes a legally binding contract and falls under contract law. •

ARBITRATION:

Arbitration is similar to a legal proceeding, whereby both sides make an argument of their "case" and then the arbitrator decides the outcome both parties should follow (non-binding arbitration) or must follow (binding arbitration). Arbitration is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision they agree to be bound. Arbitration is a form of binding dispute resolution, equivalent to litigation in the courts, and entirely distinct from the various forms of non-binding dispute resolution, such as negotiation, conciliation, or non-binding determinations by experts. •

LITIGATION:

A controversy before a court or a "lawsuit" is commonly referred to as “litigation”. If the dispute is not settled by agreement between the parties, it would eventually be heard and decided by a judge or jury in a court. The term "litigation" is sometimes to distinguish lawsuits from “alternate dispute resolution” methods such as "arbitration" in which a private arbitrator would make the decision, or “conciliation” which is a type of structured meeting with the parties and an independent third party who works to help them fashion an agreement among themselves * ADVANTAGES CONCILIATION:

AND

DISADVANTAGES

OF

ARBITRATION

AND

+ Arbitration: The arbitration is regarded as speedier, more informal and cheaper than conventional judicial procedure and provides a forum more convenient to the parties who can choose the time and place for conducting arbitration and the procedure. Further, where the dispute concerns a technical matter, the parties can select an arbitrator who possesses appropriate special qualifications or skills in the trade". However, it must be said that the result of any arbitration depends upon the personality of the arbitrator. In some legal systems, arbitral awards have fewer enforcement remedies than judgments.

To summarize, properly conducted arbitrations give acceptable results with speed and thoroughness at relatively lesser costs. As there is no right of appeal in Courts, the decision gains finality saving further time and costs. + Conciliation: - Advantages: the parties control the resolution of their dispute–not a hearing officer/court (and thereby ownerships in it); it presents an opportunity for a "win-win" result and to maintain a cooperative partnership relationship; all negotiable issues can be discussed not just "legal" matters; its confidential; and, it avoids a complaint which may be costly in terms of both money and relationship. In short, the advantages of conciliation are time and expense-saving, confidentiality, flexibility. - Some of the disadvantages are: There is not guarantee of an end to the dispute (although a process might be identified which would lead to a resolution); there is no way to force the other party to conciliate; time and money may be lost if the effort of conciliation is unsuccessful. Advantages Amicable Settlement

• •

Conciliati on Arbitratio n

Disadvantages • •

• • •

Create friendly atmosphere. Help develop long-term relationships. Cheap, time-saving. Flexible. Confidential.

•

Time-saving.

• •

•

Time-consuming Can’t satisfy both sides. Conciliators can’t enforce his solutions. Expensive Depend on arbitrator’s character

5. DELIVERY & COMPENSATION a/ Steps in negotiating delivery????? b/ Common preconditions for a contract to come into force - Receipt of import/export approval - Receipt of foreign exchange approval from a central bank - Issuance of bank guarantee - Making down-payment by the buyer - Issuance of insurance policy - Issuance of a certificate of origin - Delivery goods and documents.  Signature date (Date of Execution): Signature date is the date when two parties agree to do business with each other and are legally bound in a contract by their signature.

 Date of coming into force (Effective Date): The date of coming into force is the date when the preconditions for the sale have been met.  Cut-off date: Cut-off date is the date when the contract becomes null and void, if the con tract has not come into force within a certain time. Signature Date

Date of coming into force

The contract is binding

The contract is binding and effective

Cut-off Date

Delivery Date

 Typical clause of “coming into force” “This agreement shall come into force after execution by both parties on the date for 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“ c/ Differences between Penalties & Liquidated damages Liquidated Penalties Damages To compensate the To terrorize the exporter into punctual delivery Motive buyer fairly for any delay in delivery Everywhere but Not enforceable in English law or other common law subject to increase or systems Enforceabili decrease in some legal ty systems  Example of a specimen clause of “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.

6. INCOTERMS: The natures of E, F group E group: Departure - The seller’s obligation is at its minimum - The goods available at the seller’s own premises The buyer is responsible for export formalities (not mentioned) F group: Main carriage unpaid - The goods are delivered to a carrier named by the buyer - The buyer must pay the main carriage - The named place is domestic to the seller - The seller is responsible for export formalities Notice: FCA 7. INCOTERMS: The natures of C, D group

C group: Main carriage paid - The seller pays for the main carriage - Risks of, loss of or damage to the goods are transferred to the buyer in the export country - The seller is responsible for export formalities D group: Arrival - The seller must bear all risks and costs needed in bringing the goods to the place of destination - DDP represents the maximum obligation for the seller 8. TRANSPORTATION DOCUMENTS

 Types of Transport documents • Marine Bill of Lading (B/L) • Seaway Bill • Airway Bill • Rail Consignment Note • Road Consignment Note • Combined Transport Bill of Lading  What makes a Bill of Lading different from other transport documents? A Bill of Lading can be negotiable or non-negotiable. - “To order of…” means negotiable - “To order” (To order of Shipper): must be endorsed by shipper  Functions of a clean Bill of Lading - The proof of carriage contract - The goods in good condition - The legal title to the goods - A compulsory document for receipt of payment in Documentary Credit Bad comments or not?

Unclean

Clean

Insufficient packaging

Unboxed

Goods deformed

Second-hand packing materials used

Said to be weighed

Unprotected

Contents leaking

Packaging repaired/ resewn / cooper

Packing soiled by contents 9. PAYMENT

 Methods of international payment: - Commonly used methods of int’l payment - Remittance - Open account - Letter of Guarantee - Counter-trade - Collection - Documentary credit

Telegraphic transfer remittance

Open account - Close relationship - The Seller sells the goods on credit (finances the Buyer)

Cash in advance - The Buyer finances the Seller - The Seller is in a strong position

Counter trade - A close relationship - Commonly used in transactions between two governments

Collection

Clean Collection

Documentary collection

10. PAYMENT BY L/C  Features: - L/C is a document issued by a bank stating its commitment to pay the Seller / Exporter a stated amount of money on behalf of the Buyer. In other way, L/C is a written undertaking on the part of the import bank (the issuing bank) to accept or make payments, on instructions from the importer (the applicant), to the exporter (the beneficiary) within a prescribed period and against the surrender of documents under the L/C. - L/C is a conditional payment commitment of the issuing bank. The issuing bank undertakes the first obligation of payment and is liable to pay so long as the presented document is in accordance with the conditions and requirements stipulated in the L/C. - It is formally called documentary letter of credit because the banks handle transaction deal in documents as apposed to the goods.

- L/C is opened based on the sales contract, while independent of it at the same time. What it deals with are documents and has nothing to do with the actual goods.  Procedure of payment by L/C (2) Issuing bank

Advising bank (6) (3)

(5)

(8) (4)

Seller

(7)

(1)

Buyer

(1) The Buyer request the Issuing bank to open L/C (2) L/C is sent from issuing bank to Advising bank (3) Advising bank gives advice to the seller, confirms that the Buyer opened L/C After that, the Seller checks the terms in L/C, and requires the Buyer change or modify some conditions if necessary. (4) After checking, the Seller sends the goods to the Buyer, and takes B/L from the shipping company (5) The Seller sends B/L and other document such as Invoice, Insurance, Policy, C/O, D/O to Advising bank (6) The Advising bank transfers shipping document to the Issuing bank (7) The Issuing bank sends the shipping document to the Buyer and the Buyer pays for the Issuing bank  There are 10 types of L/C 1) Revocable L/C: This credit can be changed or cancelled by the Buyer without prior notice to the Seller. 2) Irrevocable L/C: This credit cannot be changed or cancelled without the consent of the Buyer and the Seller. This L/C is one which the Issuing bank commits itself irrevocably to honor payment provided that the beneficiary complies with all stipulated conditions. 3) Confirmed Irrevocable L/C: open by an issuing bank whose authenticity has been confirmed by the advising bank and where the advising bank has added its confirmation to the credit. This L/C is assured of payment even if the importer or the issuing bank default 4) Unconfirmed irrevocable L/C: open by an issuing bank in which the advising bank doesn’t add its confirmation to the credit. This promise to pay comes from the issuing bank only 5) Back – to – back L/C: This is a new credit opened on the basis of already existing, non – transferable credit. A trade receives an L/C from the Buyer and then opens another L/C in favor of the supplier. The first credit is used as collateral for the second credit 6) Revolving L/C : This credit is a commitment on the part of the issuing bank to restore the credit to the original amount after it has been used or drawn down 7) Deferred payment L/C: in this credit, the Buyer takes delivery of the shipped goods by accepting the documents and agreeing to pay the bank after a fixed period of time for payment.

8) Transferable L/C: This credit allows the supplier to transfer all or part of the proceeds of the L/C to a second beneficiary, usually the ultimate supplier of the goods. This is a common financing tactic for middle men 9) Stand – by L/C: This credit is primarily a payment or performance guarantee. It is often called non – performing L/C because it is only used as a back up payment method if the collection on a primary payment method is part due. 10) Reciprocal L/C: This credit is valid only when another L/C reciprocal with it is issued. It is used in goods exchange. The main feature of this L/C is the payment. In regulation, the acceptance and or payment under this L/C is valid only after our receipt of full proceeds under L/C No...dated issued by... ...) In simple, both of two L/Cs are written that payment is made only after an other L/C reciprocal with it is opened. It can be said that this L/C is only a half of L/C in conditional commitment of the bank. • • • • • • • • • •

Key features and benefits Secures payment, provided the terms and conditions are fulfilled Delivery and payment occur at the same time Offers the exporter and importer maximum security Various types of documentary credits are available It is time-consuming. Governed by the Uniform Customs and Practice for Documentary Credits Drawbacks. Credit risk Exchange risk Force majeure risk Other risks: law, language, culture… 11. TYPES OF L/C COMMON DISCREPANCIES BY WHICH PAYMENT BY L/C IS REFUSED (xem thêm trang 92 sách Hợp đồng) Discrepancies in the document presented according to L/C in which: - Quantity and content of the presented documents are under required as the stated in L/C. - There is conflict between the presented documents. - The documents are under required of UCP-DC. The common discrepancies in which payment by L/C is refused : -The date of presentation documents and shipment is late with the stated in the L/C. -The documents: commercial invoice and bill of lading are not set up exactly.

12. L/C DOCUMENTS THE COMMON DOCUMENTS REQUIRED BY AN L/C PAYMENT (xem thêm trang 99 sách Hợp đồng)  Commercial invoice • Transport document • Insurance document

•

Other documents: certificate of origin, certificate of analysis, packing list… 13. MAKING A CONTRACT SAFE Defect liability A defect is any shortcoming in materials, workmanship or design provably present at the date of delivery. Defects liability period It means that the seller must be responsible for the damages or the loss of the goods in the specific time. Defects liability period The Seller shall be liable for the defects which come to light during a period of three months from the date of delivery of the goods. 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 Notification of defect When we state that the buyer has to notify us when arising the damages. Commonly, the buyer must notify the damages to the seller in a specific period after he check the consignment at the port of discharge. Notification of Defects If within twenty – one days of receipt of any consignment from the seller, the Buyer does not notify the Seller that the consignment is defective and submit samples as evidence of defect, then the consignment shall be deemed to comply in all respects with the specifications and the Buyer shall forego all right to reject the consignment.

Total liability Total liability The Seller’s total liability for all claims for damage made against him by the buyer under this contract or otherwise shall not exceed 10% of the contract price.

Delivery Define what counts as delay and what does not. Like total liability, we should set a ceiling figure, commonly maximum is 10% of contract price. We should define the excusable delay, especially force majeure. Force majeure is an effective tool to protect the interest of the seller. The delay which belongs to the force majeure clause was not the responsibility of the seller.

***** 1. The ceiling Ceiling figure is the largest money that the exporter has to pay when he is late in delivery, or in curing the defects or whatever. For each week of delay, the Seller shall pay 1% of the contract price up to a maximum of 10% of the contract price. The ceiling figure may be a fixed percentage of the contract price or a cash ceiling 2. The roadblocks The most familiar roadblocks in the export contract are set up to cover force majeure and exporter’s liability for large damage incurred by the Buyer. The risks of an export contract are from: - nature of products - transportation - market situation - the economic or political situation 3. Iron curtain This will restrict the effect of unknown provisions of an unknown legal system. When the duties of the exporter involve unexpected cost or the right of the Buyer against the exporter, the “Iron curtain” can clarify the situation and protect the seller. Comprehensiveness The rights and duties provided for this Contract are the only rights and the duties existing between the parties, and all further rights and duties, be they expressly contract or otherwise, are hereby expressly excluded. 4. Changing the road signs This step will mention about the third liability, there are two sources of third party interference in the exporter’s contract affair: - Taxation - The outsider who sustain the loss from the goods under the contract.