#10191 - International Sale Of Goods - International Commercial Law

Intro

International sale contract has all the familiar elements of normal sale contract, however, international aspect may mean:

There is a difference in the governing law & jurisdiction.
Increased distance between parties (more risk of damage, higher cost of transport);
Payment problems (because of increased distance).

Sellers like payment in advance to help cash flow;
Buyer will want a credit period delaying payment.
Issue of trust (S won’t want to part with goods until it knows it has been paid etc).

Domestic solution retention of title.
International sales not practical, ownership of goods governed by the law of country where they are situated.
UCTA 1977: s26 Act doesn’t apply to international contracts (thus, makes it easier for seller to exclude liability).

Jurisdiction & choice of law

P.157

Choice of law (what is the law that will apply to the contract) (Subject to Rome I)
Choice of jurisdiction. (the courts that will hear the dispute) (Subject to Brussels I)
Not uncommon for courts to have to apply foreign law in such a situation, expert evidence will be obtained on the foreign law from foreign lawyers.

Choice of jurisdiction: (Brussels I)

Apply when EU Member States fail to make express Choice of Jurisdiction

Advantages & disadvantages of suing party in their own jurisdiction (may be easier to enforce the judgement there);
Brussels Regulations: generally allows parties to choose jurisdiction.

Choice of law: (Rome I)

Apply when EU Member States fail to make express Choice of Law

Rome 1 regulation: allow parties to choose their own law.

Best to choose same jurisdiction & law as it avoids situations where the court will have to apply foreign law.
Done by including a clause in contract (making it clear what law & jurisdiction will govern the contract).

Transport arrangements

Goods have to be transported further (thus, more expensive & greater risk of damage).
Parties will have to think about who bear the cost of transport & the risk of damage.
Parties need to agree who is obliged to insure the goods.
Always a chance that they will get these terms wrong, therefore, very common to use STANDARD TERMS & CONDITIONS.
Most common INCOTERMS (all parties will have to say in contract is that a particular set of incoterms apply- latest terms 2010).

INCOTERMS:

Not a complete contract.
Determine:

Who will arrange and pay for main legs of journey. There are three main stages to transport of goods>

From S’s premises to port.
Loaded on ship, then transported to port in B’s country (FRATE contract).
Transported from port to Buyer.

Which party bears the risk of damages for each leg of journey.
Which party arranges and pays for insurance for each leg.
Which party must obtain import and export clearance (Non-EU sales).
What documents the seller must provide to buyer (such as doc to take delivery from shipping company, insurance policy etc).
But NOT passing of ownership (parties are to agree this expressly)

MULTIMODAL transport:

Containerised transport dealt with in a single carriage contract covering all stages of the journey.
Most common form of transport arrangement.

How do INCOTERMS work?

P.167

INCOTERMS are Categorised into two groups:

INCOTERMS group 1:

Rules for any mode of transport (Such as Multimodal transport):

Ex works (EXW);
Free Carrier (FCA);
Carriage paid to (CPT)
Carriage and insurance paid to (CIP);
Delivery at terminal (DAT);
Delivery at place (DAP);
Delivery duty paid (DDP).

INCOTERMS group 2:

Rules for maritime transport only (Only for goods carried by sea or inland waterway):

Cost, insurance & freight (CIF).
Cost & freight (CFR);
Free on board (FOB);
Free alongside ship (FAS);

Need to work out ‘cut-off’ point for liability in each case (normally the point at which legal delivery takes place).

INCOTERMS E & D

Group E: EXW or “Ex works”.

Arrangement which imposes greatest burden on the buyer & the least on the seller.

Sellers basically almost the same as a domestic sale (as far as transport arrangements are concerned).
Buyer takes delivery of goods at seller’s premises. Therefore, this is the cut off point (risk passes to B who is also responsible for all transport arrangements).

Group D: Arrival.

Places greatest burden on seller and the least on the buyer.

S has to deliver the goods to a point in the B’s country (delivery point depends on set of terms chosen and represents the cut-off point).
Three arrangements:

DAP= delivered at place (cut off point at place agreed) (B responsible for any import clearance).
DAT= delivered at terminal (similar to DAP except seller has to unload goods).
DDP= delivered duty paid:

Maximum burden on seller;
Responsible for export and import clearance.

No obligation on seller to insure.
However, in practice, seller will inevitably insure the goods for all eventualities up to the cut-off point.

INCOTERMS F & C

Group F= Main carriage unpaid:

Group F has greater burden on the seller than the Ex works.

Cut-off point- in seller’s country (often a port);
Cost of main carriage is free to seller.
Most of F terms suitable only for maritime transport.

FAS= Free alongside:

Cut-off point quayside.
Seller has to make goods available for loading on quayside.
Anything that happens after this cut off point is B’s responsibility.

FOB= Free on board:

Most common group F arrangement.
Cut-off point= on board ship;
Seller responsible for loading costs.

FCA= free carrier:

Suitable for all modes of transport;
Cut-off point: agreed place of delivery.
Export clearance part of seller’s responsibility.

Group C= main carriage paid:

Group C has greater burden on the seller than the Group F.

CIF & CFR suitable for maritime transport only.
Cut off point on board ship in seller’s country.

CIF= Cost, Insurance & Freight:

Seller agrees to pay for the freight contract and insurance.
Most popular along with FOB.

CFR= Cost & Freight:

Seller only agrees to pay for freight contract.
Less onerous on seller;

CPT= Carriage paid to:

Suitable for all modes of transport;
Seller agrees to arrange & pay for containerised transport to depot in B’s country.
Cut-off point an agreed place in S’s country; usually carrier’s depot.

CIP= Carriage & Insurance paid:

Suitable for all modes of transport.

Seller pays for insurance and transport.

Using documents to trigger payment

Payment against documents.
Seller sends documents to prove that goods have been shipped, then B is in a position to pay as he knows that the goods are somewhere en route (and that all things are in place for B to collect the goods).
Exchange of goods & money usually takes place through international banking system.

Depends of INCOTERMS arrangement will usually specify which docs are required.
Invoice
Evidence of title.
Documents to take delivery;
Insurance policy, import & export clearances.
Parties can also agree for seller to produce extra documents.
Possible inspection document
Often use BILL OF LADING. This acts as:

Contract between shipping co & whoever arranges freight;
Title docs to the goods;
Proof of delivery of shipping company.
Gives title to goods and transfer ownership

This makes Bill of lading too valuable to be transmitted electronically so too slow for modern business convention.

Thus, may companies use a waybill:

Do everything a bill of lading does except give title to goods.
Parties will have to agree expressly in contract that title to goods isn’t going to pass.

Bills of exchange

s.3(1) UK Bills of Exchange Act 1882

P.175

There are three main methods of payment available in international transactions:

1. Cash in advance (S has never dealt with B or S lacks confidence on B’s creditworthiness)

2. Payment on “open account” (S & B trust each other, cheap, fast, effective, common in EU)

3. Bill of exchange. (S unsure of B’s creditworthiness, outside EU, use a banking system i.e. pricy)

A Bill of exchange is:

Document produced by ‘drawer’ instructing another person, the ‘drawee’ to make payment to a 3^rd person, the ‘payee’ (e.g. a cheque). It will specify the place of payment (e.g. Seoul)
Simple arrangement:

Drawer Buyer;
Drawee Bank (probably in seller’s country);
Payee Seller.

Bill of exchange: works in same way as a cheque. Drawee honours the bill because the drawer and drawee have already made some arrangement that it will do so.
Drawee is often buyer’s bank. Thus, there is a guarantee that the drawee will be reimbursed.
Drawee only becomes liable on a bill of exchange when it indicates acceptance by counter signing it. They are then known as the acceptor.
Once accepted, as good as cash, can be sold to 3^rd parties or used as payment for goods.
Two main types of Bill or Exchange:

‘Sight’ Bill: (e.g. a cheque)

Payable immediately (i.e. on demand);
Straightforward & convenient way to pay bill in foreign country.

‘Term Bill’:

Payable 30-90 days after acceptance (i.e. payment is deferred).
Allows holder (seller) to raise cash immediately by selling it to someone else (often a bank);
Party selling the bill will receive its full value less a small discount (discount- roughly equivalent to the interest which will accrue during the period until bill becomes due).
Drawer won’t have to reimburse drawee until it becomes due, thus B gets a credit period.
Usually drawn by seller.

When it becomes due, person in...

#10191 - International Sale Of Goods - International Commercial Law

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