How to draft your own international sale · PDF fileHow to draft your own international sale...

How to draft your own international sale contract

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Zagreb, May 22, 2014

[email protected]

The ICC Model International Sale Contract and how to use it.

International Trade =

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Exporting ...� delivering goods and

services abroad

� … getting paid

� … and making a profit Importing is …• receiving goods and services

from abroad

• … and being able to use them

� Risk of misunderstanding

� Risk of non-performance

� Risk of inadequate quality

� Risk of non-payment

� Risk of dissolution

� Risk of damage or loss during transportation

� Confidentiality risk

� Financial risk

� Exchange, investment …

� Legal risk

� Administrative risk

� …

� Contract terms and conditions

� Political and commercial

� Financial and economic

� Technical requirements

� Cultural / language / behavioral differences

� …

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Risk in international trade

Documentary controls (import) 2010-2011

% fysical controls – import 2010-2011

� Additional costs (logistics - distance, customs, packaging, labelling, marketing, technical standards & certification, …)

� In order to have competitive prices

� the profit margin will usually be lower than in domestic trade

� To safeguard profitability

� The efficiency must increase

� consolidation � bigger shipments (FCL)

� more expensive goods

� Bigger distances + shipments leads to:

� Longer production delays � prefinancing

� Longer delivery delays

� Longer resale delays � rotation speed

� Higher invoices � higher risk

Going international =

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Risk management in international trade

Contract

10National law

International law

Customs Lex Mercatoria

order (confirmation)

framework contract

general conditions

parties

port, trade, …

Contract

Invoice

Order

Conformity

Insurance

Inspection

Legal title –

economic ownership

Payment (L/C, …)

Packaging and

labellingDispute

settlement

Applicable law

Documents

Customs

Transport

Warehousing

VAT &

accountin

gCustoms

agent

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The buyer doesn’t care about the price

� Regardless of the contractual choices regarding transfer of costs, risks, obligations etc. the buyer ALWAYS pays;

� a seller assuming costs, liabilities or obligations will include this in his selling price together with a premium for risk and administration;

� if the seller does not assume given costs, risks or obligations, someone else will have to assume them … and will charge the cost to the buyer;

� they will remain to be a cost factor for the buyer.

� The challenge is thus not to avoid costs, risks or obligations ‘at all cost’, but to allocate these factors of the ‘total cost of purchase’ at the place where they can be managed at the lowest premium.

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all he cares about is the ‘landed cost of purchase’

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Transport

Customsexport - import Insurance

Certification, labelling, …

Quality Inspection Financing

…

Distribution

OK for

� Important operations � projects, joint ventures,

OEM, licencing, …

� Long term relationships � agency,

distributorship, …

� ‘Easy’/standard obligations � non disclosure,

confidentiality, accession agreements, …

but what about simple, small, random contracts of sale and purchase ?

Do businessmen make contracts?

� « It is too expensive … for small deals »

� « If we put the deal on paper … there no longer is a deal »

� « Legal does not understand what business is about »

� « We never go to court »

� « We don’t even understand our own general conditions »

� « We solve things ‘commercially’ »

� …

Why businessmen nevertheless often work without a contract

� « for in case we have to go to court »

� credit – tax – accounting – customs –advance payment – payment transfer …

� « to deepen the relationship with the counterpart »

� « to instruct colleagues »

… even though in certain situations they might give in

The contract : main functions

� Inform/instruct colleagues

� Provide for swift solutions : allocate risks and responsibilities between the parties

� Proof

� Credit – tax – accounting – customs –advance payment – payment transfer …

� Relationship between buyers and sellers

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THE THE THE THE CONTRACTCONTRACTCONTRACTCONTRACT: HOW?: HOW?: HOW?: HOW?

How to draft a contract?

� Contract = manual• Define your objectives

• Make a checklist (of what always goes wrong)

• Logical order - coherence

• Writing

• Verification (lawyer)

• Language ?

Corporation

R&D

Production

Logistics

Finance

Accounting

Customer services

Legal

…

� make sure that sales/purchase knows what to ask/tell when booking the order?

� make sure that all the different departments obtain all the instruction they need to execute the transaction?

� establish some sort of routine for the sake of predictability?

� learn form our mistakes?

� avoid competition within our networks?

So the challenge is: How do we

What about model contracts ?

� Contract = manual = specific for every undertaking

� … but nevertheless, draft your own model contract� Negotiating power

� Advantages of scale

� Competition within the company network

� Uniformity �� Choice of law

� Dispute settlement

� …….. LAW – ………. COURTS

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PROS AND CONS OF PROS AND CONS OF PROS AND CONS OF PROS AND CONS OF

(THE ICC) MODEL (THE ICC) MODEL (THE ICC) MODEL (THE ICC) MODEL

CONTRACTSCONTRACTSCONTRACTSCONTRACTS

International model contracts

� Models for specific parties

� Agents, sellers, buyers, …

� Sectorial models contracts� Orgalime (http://www.orgalime.org/), FIDIC

(http://www.fidic.org/); GAFTA; NOFOTA; …

� National model contracts� ACLA (All China Lawyers Association); Standard

Business Contracts (Larcier 2013); …

� International ‘standard’ contracts;� http://www.intracen.org/; http://www.intracen.org/model-

contracts-for-small-firms/;

� ICC (http://www.iccwbo.org)

Purpose of (good) Model Contracts:

1. harmonization of industry/sector standards �

contribution to ‘lex mercatoria’;

2. ‘weaker’ contracting parties looking for a ‘model of reference’ to counter contractual obligations presented by the stronger partner;

3. SME occasionally engaging in international operations and/or changing foreign partners;

4. contracting parties looking for a neutral/standard/compromise position to overcome different positions while negotiating;

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Different types of model structures

1. Single models � full text with fill in

clauses

2. Dual models �

� Short part ‘specific clauses’ (fill in boxes)

� Lengthy part ‘general clauses’

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HOW WAS THE HOW WAS THE HOW WAS THE HOW WAS THE

MODEL DRAFTED?MODEL DRAFTED?MODEL DRAFTED?MODEL DRAFTED?

� E-mail - Common platform

� Kick off Istanbul CLP 12/11/2010

� Paris 16/02/2011

� Gütersloh 3-4/05/2011 (partial)

� Amsterdam 15/06/2011

� Brussels 10/10/2011

� Paris 18/11/2011

� London 19/04/2012 (informal)

� Venice 17/05/2012

� Lisbon 14/09/2012

� Executive Board 27-28/09/2012

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Working process

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HOW DOES THE HOW DOES THE HOW DOES THE HOW DOES THE

MODEL WORK?MODEL WORK?MODEL WORK?MODEL WORK?

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file:///C:/Users/Koen/Documents/ICC/FR%20EN%20Juin%202013/ICC%20

Model%20International%20Sales%20Contract/index.html

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EXW

+

invoice

packing list

-

transport document Buyer = shipper

certificate of origin

insurance certificate

EXW

+

open account with back up guarantee, stand by L/C or credit insurance

advance payment

-

documentary collectiondelivery when 'ready for collection' is

incompatible with payment upon collection of documents at destination

letter of creditas no shipping documents are to be presented, it is difficult to organize payment upon presentation of a

'delivery document'

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DRAFT YOUR DRAFT YOUR DRAFT YOUR DRAFT YOUR OOOOWN WN WN WN

CONTRACT OF SALECONTRACT OF SALECONTRACT OF SALECONTRACT OF SALE

2. Purchase of drilling equipment with a Japanese supplier

1. Sale of design garden furniture to a German retail chain

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WHERE DID IT WHERE DID IT WHERE DID IT WHERE DID IT

(ALMOST) GO WRONG?(ALMOST) GO WRONG?(ALMOST) GO WRONG?(ALMOST) GO WRONG?

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THE RIGHTS AND THE RIGHTS AND THE RIGHTS AND THE RIGHTS AND

OBIGATIONSOBIGATIONSOBIGATIONSOBIGATIONS

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Rights and obligations

� Communication

� E-agreement; confirmation; conditions; form …

� Description of the goods and/or services

� Conformity (detailed – general, …)

� Inspection – technical standards

� Licenses and certificates (who – cost)

� Warranties

� Product liability – consumer liability

� Price

� When (revision) – currency (conversion) - …

� Payment – cost – payment technique - …

� Securities (Retention of title - consignment)

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Rights and obligations

� Delivery � Delay

� Place

� Insurance

� Packaging and marking

� Taking reception - installation

� Documents

� Taxes

� Confidentiality

� …

Contracting parties

� Contract reference� Identity� Authority – presumed authority� L/C – customer databases

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Evaluation of the client risk

� Client risk� ! the only due diligence is payment in full in

advance� http://www.kvk.nl/over-de-kvk/over-het-

handelsregister/buitenlandse-handelsregisters/handelsregisters-in-europa/

� Country risk� http://www.delcredereducroire.be/en/;

http://www.cofacerating.com ; http://www.doingbusiness.org; http://www.transparency.org/; …

Description of goods or services

� Detailed – general ?

� E&OE

� Quality – quantity criteria� (CIF outturn weights – ca. …)

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Codes

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� Goods: HS (GS) – CN (GN) - Taric

� Harmonised Commodity Description Coding System (6 – HS) – Combined Nomenclature (8) – Taric (10) -user tariff (up to 22)

� PRODCOM (Industrial products – statistics)

� UN n° (dangerous goods)

� ECCN n° (double use) - AL

� IENECS N° (European Inventory of Existing Commercial Chemical Substances)

� CASRN (Chemical Abstracts Service Registry Number)

� Services: NACE

99 99 99 99 99

--------------------------------------------/

HS (WCO) definition of goods

------------------------------------------------------------------/

CN (EU)

import duties EC + statistical info

------------------------------------------------------------------------------------/

Taric (EC) community measures

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1 2 3 4 5 6 7 8 9 10 1 2 3 4 1 2 3 4 1 2 3 4

ChapterTariff post

HSCN

TARIC 1st

additional TARIC

2nd

additional TARIC

additional national code

HS

CN

TARIC

BLEU Tariff

WCO

EXAINTRASTAT

IMA

Conformity

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• Quantity, quality, description, packing (documents)

• Technical standards ?

• At delivery

= risk transfer

• Inspection: as soon as is practicable

• Notice (what – how – when)

• Reasonable delay after discovery (1 month)

• Within 2 years from date of delivery

Contract Price

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� Amount / When – Price revision clauses –conversion clauses

� Costs of international payments –exchange permits …

� Cash discounts

� Currency - which

� ISO 3-Letter Alphabetic Currency Code (ISO 4217-1995)

� http://www.unece.org/cefact/rec/rec09en.htm

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Price revision

Delivery

• Time of essence - indicative

• UN/LOCODE• http://www.unece.org/cefact/locode/service/mai

n.htm

• FOB/FCA-contracts � 5 days pre-advice

Time of essence

Time is of the essence of this Agreement, both with regard to times, dates

and periods specified in the Agreement and to any times, dates or periods

that may be substituted for any of them by Agreement in writing between

the parties.

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http://incoterms.abh-ace.be

file:///C:/Users/Koen/Documents/incoterms/App/2013/Incoterms_20131004/en/index.html

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Incoterms app.

Payment

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Exporter

Importer

2

GOODS

1

PAYMENT

Exporter

GOODS PAYMENT

1 2

Importer

Documentary Collections:

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Remitting

Bank

Presenting/

Collecting Bank

2

3

Exporter/

Drawer

Importer/

DraweeDocuments

5

4

GOODS

Documents1

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Letter of credit: issuance

1

Importer applies for a

letter of credit.

3 Request of notification &

possibly confirmation of the

letter of credit

Notification

/Confirmation of the

letter of creditAdvising /

confirming bank

Issuing bank2

4Exporter/

Beneficiary

Importer/ applicant

Contract

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Letter of credit

Issuing bank

2

4

Exporter/ Beneficiary

Importer/ Applicant

Documents

5

Docum

ents

3

Confirming bank

1 GOODS

Documents 7

6

Advising bank

3

4

5

Incoterms® rules and documents at expense/risk of

the seller (+ obligation to assist)

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Proof of delivery (CMR, …) + export license + export declaration +

EAD

+ FCR

+ receipt on quay

+ ISPM 15 + D/O + CMR + summary declaration

+ T1

+ import invoice+ import license+ CoO + import declaration + certificate of conformity +

VAT-nr

EXW FCA A4b FAS FOBCFRCIF

DAP DAT DAP DDP

Export invoice +

packing list

FCA A4a

+ B/L (+ insurancecertificate)

CPTCIP

+ B/L – CMR – AWB – CIM (+ insurance certificate)

Retention of Title

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• Scope

• Simple – extended – transferred

• Capital goods – Consumption goods

• Risk

• Consequences

• ROT vs. consignment sales?

Sanctions

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� Damages� + lost profit

� Lawyer’s fees …

� Dissolution

� Price reduction

� Supplementary delay

� Penal Clause

� Force Majeure

� Seller – Buyer

� Hardship

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ENFORCINGENFORCINGENFORCINGENFORCING THE THE THE THE

CONTRACTCONTRACTCONTRACTCONTRACT

Dispute Settlement

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Dealing with Disputes

�Negotiation

�Conciliation / Mediation

�Arbitration

�Litigation

ADR

Negotiations ADR -

Mediation

Binding third

party advice

Arbitration Courts

Third party

involvement

No Yes Yes Yes Yes

Parties Third party Decision

making

Parties

Dispute

review board

Dispute

adjucation

board

Third party Third party

Voluntary Voluntary Voluntary

Forced

execution

after

exequatur

Forced

execution

Enforceability

Abroad: New

York 1958

Abroad:

treaties

Brussels I

Debate Yes Yes and no Yes (and no) Yes Yes

Proof finding Ad hoc Ad hoc Ad hoc Flexible rules Strict rules

Guilt question Secundary Tertiary Secondary Primary Primary

Truth finding Secundary Tertiary Secondary Primary Primary

Contractual

basis

Yes Yes Yes Yes Not required

Dispute Settlement

Litigation - EU

� EU: � Defending party in the EU

� Regulation (EC) N°44/2001 (Brussels I); March

1, 2002

� � 10.01.2015: Regulation (EU) N°1215/2012

of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

� Defending party outside the EU

� National law (L. 16/07/2004)/ treaty

Litigation - EU

� principle:

� Freedom – writing

� Presumed exclusivity

� no choice made� Defending party + Place of execution

� Sale of goods: place of delivery� Incoterms (ECJ 25 February 2010, Case

C-381/08, Car Trim)

� Services: place service

Court competence - EU

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Agent Principal

(factory)

Seller BuyerCIP

In c a s e o f d is p u te th e c o u r t s o f (p la c e ) , (c o u n tr y ) s h a ll h a v e ju r is d ic t io n . N e v e r th e le s s th e S e l le r/ B u y e r m a y b r in g a n y d is p u te b e fo r e a n y o th e r c o u r t th a t h a s c o m p e te n c e a c c o rd in g to th e a p p lic a b le r u le s o f p ro c e d u re .

Arbitration

� What?

� Case heard by arbitrator / panel of arbitrators who have authority to decide the case

� Private court

� Writing – exclusive

� Arbitration clause – Arbitration agreement

� Ad hoc arbitration – Institutional

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Arbitration –Advantages / Disadvantages

� quick

� specialists

� secret, informal

� language, law

� independent, non-conflictual

� New York 1958 – Geneva 1961

� 137 countries

� no appeal?

� cost?

� provisional measures?

� Exequatur enforcement

� no jurisprudence

� exclusive competences

WHATWHATWHATWHAT ABOUTABOUTABOUTABOUT ISSUES ISSUES ISSUES ISSUES

THE THE THE THE PARTIESPARTIESPARTIESPARTIES

DIDN’TDIDN’TDIDN’TDIDN’T////COULDN’TCOULDN’TCOULDN’TCOULDN’T

AGREEAGREEAGREEAGREE ABOUTABOUTABOUTABOUT????

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CRITERIA FOR

CHOOSING THE

APPLICABLE LAW

Considerations

1. Maximum freedom of contract

2. Clearly defined and easily accessible content for the parties and for litigation purposes

(1) to make a trustworthy risk analysis

(2) to gather experience (advantages of scale)

3. Efficient application

4. Acceptable as ‘party-neutral’

� Not of ‘one of the parties’

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Convention on the Int’l Sale of Goods (CISG) (1980)

� Drafted by UNCITRAL and Adopted in 1980

� Vienna Sales Convention

� As of 2014, 80 members (U.S., China, Germany, Japan etc.)

� A Treaty� Eliminating the Conflicts of Law

� Chinese law of sale = Belgian law of sale

� Supremacy � Trumping national law

� Economies of scale

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Rome Icontract of sale of goods Law of the country where the seller has his habitual

residence

contract for the provision of services law of the country where the service provider has his habitual residence

contract relating to a right in rem in immovable property or to a tenancy of immovable property

law of the country where the property is situated (exception short time leases)

franchise contract law of the country where the franchisee has his habitual residence

distribution contract law of the country where the distributor has his habitual residence

contract for the sale of goods by auction

law of the country where the auction takes place

contract for the carriage of goods law of the country of habitual residence of the carrier, provided that the place of receipt or the place of delivery or the habitual residence of the consignor is also situated in that country. If those requirements are not met, the law of the country where the place of delivery as agreed by the parties is situated shall apply.

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SellerHR

BuyerDE

ProductionCN

ConsigneeUSA

Transport insuranceUK

BankCH

ContractFR

TransporterGR

Compliance clause (Anti-Bribery and Corruption)

1. Supplier must not violate any Applicable Anti-Bribery Law.

2. Supplier has and must at all times implement adequate procedures designed to prevent it or any Associated Person from engaging in any activity which would constitute an offence under the Bribery Act if it were carried out in the UK, or violate any Applicable Anti-Bribery Law.

3. Supplier represents that, in connection with this Agreement, no improper financial or other advantage has been, will be or is agreed to be given to any person (whether working for or engaged by the Barclays Group or any third party) by or on behalf of Supplier or its Associated Persons.

4. Breach of any of the provisions in this clause 10 or of any Applicable Anti-Bribery Law is a material breach of this Agreement for the purpose of clause 18 and, without prejudice to any other right, relief or remedy, entitles Barclays to terminate this Agreement immediately.

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How to draft your own international sale · PDF fileHow to draft your own international sale...

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