International Commercial Law Notes

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Gervase Alexander
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1 International Commercial Law Notes

2 Contents Contents 1 International Commercial Transactions 7 Procedural steps 7 Transactions connected with a sale of goods 7 1. Contract of Sale 7 Potential issues: 7 2. Contract of Carriage 7 Potential issues: 7 3. Financing 7 Governing Bodies 8 United Nations Commission for Trade Law (UNCITRAL) 8 International Chamber of Commerce (ICC) 8 ICC INCOTERMS 2010 Transportation agreements Shorthand contracts 8 UCP 600 Documentary Credit agreements Shorthand credit contracts 8 Incoterms Four Incoterm groups 8 Clauses within terms - Obligations 8 A5, B5 - Point of delivery 8 A6, B6 - Division of costs 9 A7, B7 - Notice by parties 9 1. E Terms - No transportation 9 EXW - Ex works 9 2. F Terms - Main carriage not paid for 9 FCA - Free Carrier 9 FAS - Free Alongside Ship 9 FOB - Free On Board 9 Earlier passing of risk in FOB contract 9 3. C Terms - Main carriage paid for 9 CFR(Singapore) - Cost and Freight 10 CIF(Singapore) - Cost Insurance Freight 10 CPT(Singapore) - Carriage Paid To 10 CIP(Singapore) - Carriage Insurance Paid to D Terms - All the way to Arrival 10 DAT - Delivered At Terminal 10 DAP - Delivered At Place 10 DDP - Delivered Duty Paid 10 What happens in Insolvency? 10 Specific goods vs unascertained goods 11 1

3 Vienna Convention/CISG 12 Scope of CISG 12 What it includes: 12 Formation of Contract 12 Offer and Acceptance - art What is an offer? 12 Invitation to treat 13 When is offer effective? 13 Revocable vs Irrevocable offers 13 Receiving an offer 13 Acceptance 13 Time for acceptance 13 Accepting the offer 14 Concluding formation of contract 14 Late acceptance 14 Withdrawal of acceptance 14 Modified Acceptance 14 Counter-offer 14 Standard form contracts 15 Battle of Forms - Conflict of standard forms 15 Example of conflicting term in Standard Form Contract 15 Rights and Obligations of Parties 16 Seller s obligations 16 Place of delivery 16 Requirements where carriage involved 16 Time for delivery 16 Handover Documents 16 Title of Goods 16 Conformity of Goods: 17 Liability for non-conformity 17 Buyer s Examination 17 Notice of non-conformity 18 When Seller cannot rely on Art Seller s right of self-cure 19 Art 79 Exemption 19 Buyer s Obligations 20 Remedies of Buyers and Sellers 20 Seller s Breaches 20 Fundamental Breach 20 NO fundamental breach cases 21 Buyer s Remedies 21 2

4 Request performance 21 Request substitute 22 Giving of additional time (Nachfrist) 23 Buyer s objection to Seller s self-cure 23 Avoidance of contract 23 Reduction of the price 24 Early delivery or excess delivery 24 Seller s Remedies 25 Provisions common to the both parties 25 Suspend contract for anticipatory breach 25 Avoid contract for anticipatory breach 26 Avoidance in instalment contract 27 Claim for damages 27 Value of damage 27 Buyer has bought goods or seller has resold goods 28 If party has not made purchase or resale 28 Mitigation of losses 28 Claims may be made outside VC 28 Effect of avoidance 28 Preservation of goods 29 Exemption from performance 29 Where Third Party involved 30 Effect of Impediment 30 Risk 30 Rules on Passing of Risk 30 Conflict of Laws 30 Choice of forum and stay of proceedings 31 Plaintiff has to serve documents on defendant in forum (Australia) 31 When will the forum decline jurisdiction? 31 Choice of forum clause (Jurisdiction clause). 33 Garnett article 34 Proceedings pending elsewhere (Lis alibi pendens) 35 Governing Law of the Contract 35 Express and Implied Intention 36 When no express clause 36 When express clause is stupid 36 Other examples 36 The express or implied choice must be bona fide, legal and not contrary to public policy Bona Fide Legal Contrary to Public Policy 37 3

5 Closest and most real connection 37 Foreign Judgements 39 How to enforce judgement 39 Common Law rules 39 Common Law requirements for enforceable foreign judgment Foreign court must have jurisdiction Judgment must be final and conclusive 41 Judgment debtor may apply for refusal to enforce foreign judgment 41 Fraud 42 Party denied natural justice 43 Contrary to public policy of local court 43 Foreign Justement Acts 1991(Cth) 44 Application to set aside enforcement 44 International Jurisdiction under Federal Judgement Act 45 International Commercial Arbitration 46 Quick Summary: 46 Advantages of Arbitration 47 International Arbitration Act 1974(Cth) 47 Terminology 47 Arbitration agreement 47 Application for stay of judicial proceedings 48 Model Law = International Commercial Arbitration 49 Ambit of arbitration agreement 49 Pre-contractual statements 49 Enforcement of Foreign Arbitral Award 50 Grounds for refusal of enforcement of award under s8 50 Grounds for refusing enforcement under Model Law 51 Adjournment (stay of enforcement) 51 Summary of Conflict of Laws Section 51 Arbitration Procedure and Mediation 51 Court Procedure in Civil Litigation 51 Procedure in Arbitration 52 Differences vs court trials. 52 ICC Arbitration Rules 52 Procedure for ICC arbitration 52 Advantages of ICC Arbitration 53 Criticisms of arbitration 53 Mediation / Conciliation 54 Steps taken: 54 Documents used in carriage of goods by sea 55 4

6 Bill of lading 55 Receipt for goods 55 Types of Bills 56 Shipped/Ocean(Marine) Bill 56 Received for shipment/house Bill 56 Clean Bill 56 Claused Bill 56 Non-negotiable Bill 56 Negotiable Bill 56 As Evidence 57 Of condition 57 Of Contract of Carriage 57 Of Document of title 57 Issues concerning Bill of Lading 57 Indemnity 57 Mate s receipt 58 Delivery Order 59 Seller s delivery order 59 Ship s delivery order 59 Non-negotiable sea waybill 59 Applicable Law 59 Cargo to Australia from overseas 60 Difference between Hague and Hague-Visby Rules 60 Carrier s Liabilities and Protections 61 Duty of properly and carefully dealing with goods 62 Evidence of damage of the goods 63 Art 4(2) Defences available to carrier 63 Carriage of dangerous goods 65 How shipper/consignee makes the claim 65 Consignee can sue 65 Effect of express term in document on liability 66 Protection of servants and agents 66 Protection of Independent Contractor 66 Liability for delay 67 Issues relating 67 Carriage of goods by air 67 Applicable law 67 Lowest Denominator Rule 68 Warsaw Convention 68 Consignor 68 3 Rights to dispose of cargo: art

7 Rights of consignee: art Liability of carrier 69 Basis of liability 69 Exemptions 69 Carriage by more than one carrier. 69 Amount of liability 70 Amended Warsaw Schedule 2 70 Guadalajara Convention Schedule 3 71 Payment methods 71 Cheque 71 Bill of Exchange 72 Who can enforce payment? 73 Negotiation of bill 73 Negotiation of time bill 73 Indorsement of order bill (refer to back of bill) 73 Documentary collection 74 Documents 74 Liability of banks 74 Variations to documentary collection 75 Documentary Credit 75 Differences with Collection : 76 Definitions 76 Transferable Credit 78 Rights of parties under Documentary credit 79 Doctrine of Strict Compliance 79 Ambiguous instructions 79 Non-conforming documents and liability between Issuing Bank and Confirming/Paying Bank 80 Tender of non-conforming documents 80 Autonomy of the Credit 81 Fraud exception 81 Injunction 82 6

8 International Commercial Transactions Parties have their place of business in different states(countries). Procedural steps 1. Brochure (Advertising) Seller gives invitation to treat 2. Purchase Order Buyer gives offer 3. Commercial Invoice Seller accepts offer 4. Export License (if required) 5. Transport (carriage by sea, air) (seller usually arranges for benefit of buyer) Carrier Buyer (consignee) 6. Insurance (benefit of the buyer) 7. Payment (when to pay?) 8. Customs clearance in Buyer s country Transactions connected with a sale of goods 1. Contract of Sale Includes terms of shipment and responsibility of parties. Potential issues: 1. Who has made an offer? 2. When was contract concluded? 3. Whose terms apply? 2. Contract of Carriage Contract between Shipper (buyer/seller) and carrier. Buyer is the consignee of the contract. Because the buyer wants to be able to recover(to sue carrier) EG Bill of lading, airwaybill It doesn t matter who starts the contract Potential issues: 3. Financing 1. When did the damage occur? 2. Who is liable for damage? 3. Defences and exemptions available to carrier? Facilitated by Banks EG Bill of exchange, documentary letter of credit 7

9 Governing Bodies United Nations Commission for Trade Law (UNCITRAL) Convention on contracts for the International Sale of Goods 1980 (Vienna Convention) Each state in Australia adopted as State Law The Sale of Goods (Vienna Convention) Act 1986 (WA) International Chamber of Commerce (ICC) Private body/not government ICC INCOTERMS 2010 Transportation agreements Shorthand contracts Covers contract of carriage (obligations of seller and buyers) Company chooses to be bound by it Covers where the risks goes Establishes points of delivery Costs lower when delivery point is shorter UCP 600 Documentary Credit agreements Shorthand credit contracts States all the terms between seller and buyer for banking relationships Most banks use it Incoterms 2010 There are 13 Incoterms 4 Main areas covered: 1. Carriage from seller to buyer 2. Export and Import clearance 3. Division of costs 4. Risks Four Incoterm groups Clauses within terms - Obligations A terms = Seller B terms = Buyer A5, B5 - Point of delivery Risk always passes to buyer when seller has fulfilled obligation to deliver 8

10 A6, B6 - Division of costs Buyer bears all costs after delivery If buyer delays or fails to take delivery - buyer bears additional risks and costs A7, B7 - Notice by parties Failure to give notice can cause legal consequences 1. E Terms - No transportation Only one E term No carriers involved EXW - Ex works Collection at the seller s premises 2. F Terms - Main carriage not paid for Delivery from factory to Port FCA - Free Carrier Delivery just to the port of seller s country Airport, Ship port, railway etc. We should be using this one due to shipping containers FAS - Free Alongside Ship Delivery to docks where the ship is, of seller s country Alongside the ship FOB - Free On Board Delivery to onboard the buyer s ship(carrier) We still use this one because of old tradition - should be FCA instead Earlier passing of risk in FOB contract Majority covered by clauses A5,B5 Failure to give notice as per B7 or if nominated vessel fails to arrive on time, or s unable to take goods, or closes for cargo earlier than notified time B6: Additional costs payable by buyer for storage, refrigeration, transport B7: Buyer must name: Vessel, loading point, and delivery time 3. C Terms - Main carriage paid for Seller responsible for cost of carriage 9

11 Risk passes onto buyer at delivery point in seller s country CFR(Singapore) - Cost and Freight Delivery to buyer s country CIF(Singapore) - Cost Insurance Freight Same as CFR but includes insurance CIF: Seller organises the ship vs FOB: Buyer organises the ship But delivery point is still to the ship Buyer listed as beneficiary CPT(Singapore) - Carriage Paid To Most clear term Indicates there is transportation to the carrier May not be the ship, may be to the warehouse of carrier Most modern term CIP(Singapore) - Carriage Insurance Paid to Same as CPT but includes insurance 4. D Terms - All the way to Arrival Seller delivers all the way to buyer - most expensive Risk passes at destination Seller delivers to ship, but also carries risk until it reaches buyer s country Risks go to buyer at the border DAT - Delivered At Terminal Buyer must clear customs Delivered at the terminal at the border DAP - Delivered At Place Seller obtains import approval but does not pay duty Delivered inside the country, further than terminal DDP - Delivered Duty Paid Seller obtains import approval and pays duty Delivered to place inside the country, AND also pays the duty. This is the highest price that can be charged as seller pays for everything What happens in Insolvency? Who loses money with the other party goes bust? 1. Unsecured creditor receives only pro-rata (proportionate) return 10

12 2. Secured creditors may look to their security to be paid 3. Sale of Goods Act 1895 (SGA) a. A person who has possession of goods may not have title or property b. Nemo dat rule prevents passing of title unless person selling has title himself. c. If owner finds third party buyer, he may be able to sue in torts of conversion and/or deceit d. However i. SGA provides 3 situations where non-owner may be able to give good title to innocent third party. There are the seller in possession, buyer in possession(but no ownership) and sale by mercantile agent: s25 Specific goods vs unascertained goods Defined in s60: goods identified and agreed upon at the time of contract S17: property in specific goods passes at the time that parties intend it to pass. Intention may be express or implied(s17(2)) Court determines implied intention by looking at the terms of contract, conduct of parties and circumstances: s17(2) Inclusion of FOB terms in contract: Implies that the parties intend that property should pass to the buyer, at the earliest, upon shipment Carlos Federspiel & Co. SA v Charles Twigg & Co Ltd [1957] 1 Lloyd s Rep 240 HELD: Property has not passed. Under FOB, seller will have to deliver goods onto a named ship. The parties intended the property to pass to the buyer upon shipment. In addition, there had been no indication of appropriation of the bicycles to the contract. In CIF contract: Bill of lading normally taken out in seller s name. When it is delivered to the buyer, the buyer has rights as cosignee against the carrier S19(2)SGA states that when the seller does this, seller reserves right of disposal in the goods. Inclusion of CIF term may imply that property passes when the bill of lading is delivered to the buyer or to advising bank not when goods are shipped. Property in unascertained goods passes when goods are ascertained: s16 S18 Rule 5(1) Property in unascertained goods passes when the goods in a deliverable state are unconditionally appropriated to the contract. Re Wait [1927] 1 Ch606 The seller sold 500 tonnes of wheat to the buyer out of 1000 tonnes of wheaat he was to receive. Seller insolvent. Buyer had paid in advance. HELD: Sale was for unascertained goods, property had not passed to the buyer. Buyer was an unsecured creditor. 11

13 Vienna Convention/CISG Note: Convention exists as a schedule in The Sale of Goods (Vienna Convention) Act 1986 (WA). Body of statue is sections, things inside the convention are articles. Convention has the force of law in WA.(s 5) Convention prevails over any other law in force in WA to the extent of any inconsistency. (s 6) Parties may exclude or vary the application of the Convention (art 6, 9) Scope of CISG MENTIONING THIS WILL GET YOU HALF A MARK! DON T MISS IT! art 1(1): VC applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (i) So when the two states have signed the VC (b) when the rules of private international law lead to the application of the law of a Contracting State (i) This will be covered later? Place of business explained in art 10. Do not look at the nationality or commercial nature of parties: art1(3). NB Do not look at where the goods are to be delivered. What it includes: 1. Formation of contract 2. Rights and Obligations of parties 3. Remedies, passing of risk It does not include: transfer of property: art 4(b). Formation of Contract Offer and Acceptance - art 23 What is an offer? Art 14 says it must: Be addressed to one/more specified person(s) Sufficiently definite, so include: Description Quantity price (see art 55) Have intention to be bound: art 8 12

14 Invitation to treat art 14(2): Invitation to the world unless contrary intention Eg: Pamphlets, brochures, catalogues, display of goods If online - it is an offer if it is interactive and can click buy. (ie ebay) When is offer effective? When it reaches the offeree: art 15(1) Reaches when it is made orally or delivered by any other means personally, to place of business or mailing address: art 24 Applies to . Reaches when enters mailbox and is ready to be read. Revocable vs Irrevocable offers Two situations for irrevocable offers: 1. art 16(2)(a): by time or otherwise a. eg valid till 1st May 2. art 16(2)(b): reasonable for offeree to rely on offer as being irrevocable and offeree has acted in reliance of offer a. Eg: if you do this, then offer will happen. You did it. Two ways to revoke an offer: 1. Withdrawal (all offers) a. Art 15(2) - before offer reaches offeree 2. Revocation (for revocable offers) a. Art 16(1) - after offer reaches offeree but before acceptance is dispatched Receiving an offer Once offer effective, 5 possible outcomes for offeree 1. Acceptance: art Modified acceptance: art 19 a. Must see if minor or major change 3. Counter offer: art 19 a. For material changes b. Offeree becomes offeror 4. Rejection: art Ignore Acceptance Time for acceptance If irrevocable offer with set time: Eg: Acceptance must be within 10 days Time for acceptance runs from moment telegram handed in or from date shown on letter or if no such date from date shown on envelope. If it is by instantaneous communication, time begins to run from moment offer reaches offeree: art 20(1) 13

15 Official holiday or non-business days are included. But if ACCEPTANCE cannot be delivered in offeror s country on the last day because of official holiday or non-business day, period is extended until first business day which follows: art 20(2) Accepting the offer Positive step required by words or other conduct Silence or inactivity does not in itself amount to acceptance: art 18(1) If by virtue of offer or as a result of established practices between parties, the offeree may indicate assent by performing an act such as dispatching goods or payment of price, without notice to offeror, acceptance is effective at moment act is performed : art 18(3) Concluding formation of contract Contract concluded when acceptance effective: art 23 Effective when it reaches offeror: art 18(2) and 24 Late acceptance Two situations where still effective 1. Offeror informs offeree or dispatches a notice to that effect: art 21(1) 2. If letter would have normally arrived on time, late acceptance is effective unless offeror orally informs offeree that he considers the offer as having lapsed or dispatches a note to that effect: art 21(2) Withdrawal of acceptance art 22: Prior to acceptance becoming effective ie reaching offeror. Eg Phone call prior to letter reaching offeror. Modified Acceptance Modified Acceptance: No material alteration and no objection by offeror. Contract concluded with additional non-material term. Counter-offer If alteration is material, then it is a counter-offer which is a rejection of original offer. Examples of additions that are material stated in art 19(3). Eg: Extent of liability (no refunds allowed, no warranties), settlement of dispute ( settled by arbitration, exclusive forum clause) An offer that has been rejected cannot be accepted later on. There needs to be a new offer made by either party. If there is no response to an offer, the offer lapses after fixed time or after the passing of a reasonable time: art 18(2) 14

16 Standard form contracts Battle of Forms - Conflict of standard forms We need to consider the response to the change. Was there an objection to the change? Two approaches: 1. Last shot approach the last, unobjected-to document is the document controlling the terms of the deal. The party who had the opportunity to object to unwanted terms but failed to do so is deemed to have accepted them. 2. In Knock-out approach only the matching terms are part of the deal. If the resulting contract lacks a term, the CISG will supply them. Last Shot is preferred. Example of conflicting term in Standard Form Contract Buyer: The parties agree to the jurisdiction of the Western Australian Court. Seller: The parties agree to the jurisdiction of the Singapore Court. Last Shot: equals Singapore Court Knock Out: equals ignoring both clauses but there is a contract on other terms. Parties are not limited to going to any one country s court. 15

Contracts, the UCC, and the Vienna Convention on International Sales of Goods. What every US commercial lawyer needs to know

Contracts, the UCC, and the Vienna Convention on International Sales of Goods What every US commercial lawyer needs to know Convention on the International Sale of Goods 1980 CISG Vienna Convention Uniform