INTERNATIONAL BUSINESS TRANSACTIONS
I. Introduction
Timeline of International Commercial Law
Turn of 12th cent.
Maritime laws recorded in tablets in Mediterranean
late 1600s
King’s courts in UK claim jurisdiction over commercial law
1874
Unsuccessful attempt at codified private intl law in the Netherlands
1892
South American Conference on Private International Law
1893
First Hague Conference on Private International Law
1926
UNIDROIT established by League of Nations
· Uniform laws on sale of goods and commercial contracts in 1964, 1994
1966
UNCITRAL established by UN General Assembly
· Created CISG in 1980, effective 1988
1975
Inter-American Conference on Private International Law (CIDIP)
· Transaction lawyer must identify, eliminate or reduce risks that occur due to:
o Communication
o Transportation
o Regulation
o fluctuation
· Types of protection from risk:
o Institutional (national and international laws)
· US has 43 Friendship, Commerce & Navigation (FCN) Treaties; bilateral investment treaties
· in TOPCO case, recourse to international law in contract provided protection
o Purchased (OPIC or Export-Import Bank insurance; Letter of credit)
· Revere Copper case
o Negotiated (e.g. choice of law clause in contract)
II. Export-Import Transaction
A. Export-Import Contract
· Typical stages:
1. Seller delivers goods to carrier
2. Carrier gives seller bill of lading
3. S delivers bill of lading to Buyer
4. B pays S
5. B gives Carrier bill of lading
6. C delivers goods to B
· Documents in sales transaction:
o Sales contract – lists goods, price, estimated freight, insurance and customs clearance charges
o Letter of credit – lists documents seller must present to draw on account
o Commercial invoice – lists price-delivery term, goods (description & quantity) destination, price, all fees
o Bill of lading
o Insurance Policy or certificate
o Draft – prepared by seller, check written to seller which draws on letter of credit indicating amount to be paid to seller
Incoterms 2000
Shipment Contracts:
1. ExWorks – S places goods at B’s disposal at the factory/S’s premises
o Buyer is both exporter and importer, responsible for freight, insurance, etc.
2. Free Alongside Ship (FAS) – S delivers goods to quay; provides export license
o this does create export-import contract
o Risk passes when goods are placed alongside vessel
o so if war breaks out and delivery costs rise, B assumes extra cost
3. Free on Board (FOB) – S delivers goods on board vessel and obtains export docs
o Risk passes when goods pass over ship’s rail
o ONLY applies to sea-going vessels
4. Free Carrier (FCA) – exactly like FOB term, but for non-sea transport
5. CIF – S delivers goods on board vessel, pays freight & insurance
o Risk passes when goods pass over ship’s rail; ONLY sea-going vessels
o So if war breaks out and delivery costs rise, S absorbs extra cost
6. Carriage & Insurance Paid (CIP) – exactly like CIF, but for non-sea transport
o Risk passes when goods are placed in custody of carrier
7. Cost & Freight (CFR) – S delivers goods on board and pays freight; B pays insurance
o Risk passes when goods pass over ship’s rail
8. Carriage Paid To (CPT) – exactly like CFR, but for non-sea transport
Destination Contracts:
9. Delivered at Frontier (DAF) – S places goods at B’s disposal at frontier
o S responsible for discharging goods from vessel; B handles import docs
o Designed for rail transport, but appropriate for ships and other forms
10. Delivered Ex Ship (DES) – S delivers goods on board and pays freight & insurance
o Risk passes when goods are on board ship when ship reaches “usual unloading point”
o Only for sea transport
11. Delivered Ex Quay (DEQ) – S delivers goods on board, pays freight & insurance
o Risk passes when goods are placed at B’s disposal on quay; B is importer
12. Delivered Duty Paid (DDP) – S does everything; risk passes when goods are placed at B’s disposal
B. Documentary Sales Transaction
Biddell Brothers v. E. Clemens Horst Co. (UK 1911)
· In a CIF contract, payment is due on delivery – delivery of documents rather than goods
· B’s obligation to pay arises when S has fully performed – in CIF contract, S has fully performed after delivering goods to carrier, paying for freight, buying insurance, and sending bill of lading to B
o Property in goods passes when B has bill of lading
o If goods are non-conforming, B can sue for breach of contract
· Majority in lower court cited common law ability to inspect goods before paying, holding B could pay on actual or constructive delivery
o House of Lords relied on Kennedy dissent, which looked to English Sale of Goods Act
· Under UCC, payment is also required on delivery of documents
o § 2-320 for CIF; § 2-319 for FOB and FAS
· Under CISG, most likely the same outcome (although UK isn’t a party)
o § 58 says if B isn’t bound to pay at a set time, he must pay for either goods or docs
o Subsection (3) says B can inspect before paying, UNLESS procedures indicate otherwise
§ CIF contract arguably indicates otherwise
o Article 7 (2) allows principles of private international law to fill gaps
o Article 9 deals with usage of trade
· How could B protect himself against non-conforming goods?
o Require 3rd party inspector to provide certificate of quality
o Write other provisions into contract (payment upon inspection)
o Require sample sent in advance
Importance of
open eyes and don’t need the protection of a liberal excuse policy
when parties are from different legal systems, it’s better to rely on the contract
Schlegel liberal excuse: parties often use form contracts that don’t allocate risk, and they expect judges to be reasonable in dealing with terms they omitted
Narrow excuse policy keeps people out of international business
Most arbitrators prefer this approach
2. Damages for Breach
Civil law looks to equity first, then to damages – Volkswagen case
UCC § 2-708: seller’s damages – market price at time and place for tender
UCC § 2-713: buyer’s damages – market price at time buyer learned of breach, at “place of tender” – market in which buyer would have obtained cover
ESGA Art. 50: seller’s damages – when goods should have been accepted
ESGA Art. 51: buyer’s damages – when goods should have been delivered
CISG Art. 76: market price at time of avoidance, at place where delivery of goods should have been made
Seaver v. Lindsay Light Co. (NY 1922) – in CIF London contract (from Chicago), damages determined by price of goods in the location where seller’s performance was due – here it was Chicago, where goods should have been given to carrier
Buyer argued it should have been at the same time but London price
3. Remedy for Breach
· Sharpe & Co. v. Nosawa & Co. (1917 KB) – breach occurred when bill of lading/documents should have arrived, because it’s on that date that Ps would have learned of breach and purchased substitute goods
o This case was under ESGA – under CISG, it might have been determined by when goods would have arrived
· Seller should have required a letter of credit to determine where and when delivery occurred and performance was completed
· Cargill (10th Cir. 1977) – damages measured at time performance is due, not when B learns of anticipatory repudiation
UNCISG
· When does it apply?
o Art 1: parties whose places of business are in 2 different states and (a) they are contracting states, OR (b) rules of private intl law lead to application of law of a contracting state
§ Although UK isn’t a party to CISG, CISG might govern contract between it and another state
§ US has made an Art. 95 declaration not to be bound to Art. 1(b), preferring UCC
