International Business Transaction—Prof. Paul Heald, 2014 Fall
DOING BUSINESS OVERSEAS
ISSUES
Direct sales of goods
l Choice of K law;
l import duties/Tariffs;
l sales taxes
l Non-tariff regulations;
Product safety standard
Local product liability law
Other technical standards
l export controls;
l Rules regulating gray market goods.
Agency & Distributorship model
l Labor and employment rug
l Law regarding termination and compensation
l Completion law
l In the EU, the rules regulating the agency relationship tend to be local, while the reg. of completion is at the EU level.
l Anti-trust/competition law
(1) US relies more on private suits with treble damages; EU relies more on government enforcement
(2) General approach and exemptions
(3) De minimis principle
(a) Horizontal agreements: 10%
(b) Vertical: 15%
Licensing/Franchising
Patent, copyright, trademark, trade secret, owner of human capital transfers knowledge and expertise for a fee.
FDI
EU, CHINA
I. INTERNATIONAL SALES OF GOODS
A. THE SALES CONTRACT
1. Choice of Law
a. Restatement Conflict of Laws 2nd: In the absence of an effective choice of law by the parties [consider] . . .
(a) The place of contracting,
(b) The place of negotiation of the contract,
(c) The place of performance,
(d) The location of the subject matter of the contract, and
(e) The domicile, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied . . .
b. Relevant factors to determining which state has the more significant relationship with the parties and the contracts.
(a) The needs of the interstate and international system;
(b) The relevant policies of the forum;
(c) The relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;
(d) The protection of justified expectations;
(e) The basic polices underlying the particular field of law;
(f) Certainty, predictability and uniformity of result, and
(g) Ease in the determination and application of the law to be applied. Rest. 2nd COL §6(2).
c. Concerns: (1) the perception that nation-states may sometimes assert nationalistic interest in choosing their own law instead of foreign law; (2) the lack of predictability in results in applying the rules of private international law; (3) the intrusion of the states in an area that may implicate federal interests.
2. ICC Incoterms
a. Scope:
i. Only applies to duties of buyers and sellers in the contract of sale for tangible goods
ii. Only Contract of Sale.
iii. Not Applicable to Ancillary Provisions in Contract of Sale—i.e. inapplicable to warranties, breach provisions, remedy provisions, etc.
iv. Once adopted, the terms acquire legal force by contract and displace any inconsistent terms.
b. Incorporated into contracts by CISG Art. 9(2): “The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.”
c. Important Incoterms: see PDF.
i. FOB—“free on board”
ii. CIF—“cost, insurance and freight”
(1) Implies payment against documents. Under the term CIF or C&F, unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender not the buyer demand delivery of the goods in substitution for the document.
(2) The buyer must be given a document containing the right to the goods. Delivery of the BOL when the goods are at sea can be treated as delivery of the goods themselves.
3. CISG
a. General
i. CISG is a self-executing treaty that applies directly within its contracting states without the need for domestic implementing legislation. When CISG applies, it displaces domestic law.
ii. CISG is not a mandatory public law but a supplementary private one. The parties can exclude the application of the CISG, vary the effect of its provisions, and the terms of the contract will override any conflicting terms in the convention. à Supporting role. Contracting parties can exclude either part by a specific declaration under Art. 92.
iii. Differences with US K Law:
(1) No SoL issues
(2) No restrictions on contract modification
(3) No consideration required
(4) Different doctrines of offer and acceptance
(5) Different warranty rules
iv. UNIDROIT Principles—not a biding legal instrument, has legal effects in following circumstances:
(1) When the parties expressly agree that the contract shall be governed by them;
(2) When the parties agree that the contract shall be governed by general principles of international commercial law such as the lex mercatoria
(3) When domestic law is unable to provide a solution, and
(4) When international instrument need supplementation or interpretation.
b. Applicability and Scope—CISG only applies to sales contracts. Art 1-6.
i. Art. 1(1)(a): Sale of goods + parties’ places of business are in different states + [(a) parties states are “contracting states” or (b) rules of private international law point to the application of CISG] + parties didn’t expressly exlude the application of the CISG.
Internationality: whether a contract is international is whether the parties have their places of business in different contracting states.
Art. 1(1)(b): If Art. 1(1)(a) doesn’t apply, then (1)(b) applies: if COL analysis leads to the application of the Contracting State’s law à CISG applies.
— US made a reservation against (b) because it would replace U.S. law (UCC) more often than it would a non-contracting state. CISG applies in the U.S. only when both parties are from contracting states. Prime Start v. Maher Forest Products.
Hypos:
— Russian seller (y) sue Nigerian (n) buyer subsidiary in Nigeria: under N’s Nigerian choice of law principles, focusing on the place of performance, N substance K law applies. There is no express clause in the K. Most jurisdictions honor parties’ choice of law. The courts may nonetheless adopt CISG since parties have implicitly had chosen the CISG.
— Dean of UIUC music school signs a K with UP indicating that Bosendorfer (Austria) is the seller and UP is an agent entitled to a 10% commission. Is this a K for the international sale of goods? US buyer, K made in US, performance in US, CISG applies.
ii. Exclusions (Art 2-5)—CISG doesn’t apply to—
Art. 2: CISG does not cover: auction, sales on execution, sales of aircraft, electricity, goods bought for personal, family use; stock and financial instrument.
Art. 3: Where buyer substantially provides goods and “seller” mostly supplies labor to transform them.
Art 4: contract validity determinations, e.g. unconscionability or capacity, 3rd party’s right
— American Meter Held: although the CISG may have governed contracts for the sale of goods entered into by the parties pursuant to the joint venture agreement, it could not be applied to the joint venture agreement itself (the breach of which the distributors aimed at demonstrating), as such an agreement is not within the scope of CISG.
Art 5: product liability issues
c. Interpreting CISG (Art 7-13)
i. CISG should be interpreted so as “to promote the observance of good faith in international trade.”
ii. Statements, conduct, and the intent of parties are to be interpreted according to the understanding of a reasonable person. In interpreting the contract “due consideration is to be given to all relevant circumstances of the case.” Art 8.
iii. A general rule that international sales contracts should not be subject to writing requirements and other formal requirements.
iv. A general presumption that the parties have formed a binding contract.
v. Only if an appeal to general principles fails to find a basis for resolving the gap should the court then resort to private international law and domestic law.
vi. Matters outside the scope of the CISG, will be governed by a different substantive contract law to be determined by a private international choice of law analysis (absent a choice of law clause in the contract).
d. Formation of Contract
i. Offer
(1) For an effective offer, the key issue is whether the offeror intended to be bound by the offer—
(a) The number of people to whom the offer is addressed;
(b) The definiteness of the proposal
A proposal is definite if it shows intention to be bound.
A proposal is sufficiently definite if indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and price.”
(2) Oral offer can be firm.
(3) Withdraw: seller has the power to withdraw an
nt = seller’s place of business or where title documents are to be passed, Arts. 57 & 58. Seller can withhold docs until payment, but buyer must pay when docs are tendered, but gets to inspect first, Art 58(3). Not a CIF contract!
v. Excused performance
(1) Art 79(1): “A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an [1] impediment beyond his control and [2] that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or [3] to have avoided or overcome it or its consequences.”
§ If excused, then the contract can be avoided and parties return to status quo ante—no payment or delivery, and restitution of monies paid.
§ Must give notice within reasonable time. Art 79(4).
(2) Excuse when performance delegated to third party—Art 79(2): if the party’s failure is due to the failure of a third party whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if—
a) He is exempt under the preceding paragraph; and
b) The person whom he has to engaged would be so exempt if the provisions of that paragraph were applied to him.
§ In effect, it is a 2-step test: (1) whether the failure of the 3rd party is an impediment to performance by the seller of tis contract with the buyer within the meaning of art. 79(1); (2) whether the 3rd party would be exempt from liability to the seller under art. 79(1).
§ Unilex D. 1996-3.4: German buyer contracts with HK seller to purchase goods made by Chinese manufacturers. Chinese manufacturers encounter financial difficulties and HK seller wants buyer to pay up front and satisfy outstanding debts. Seller’s demands and repudiation constitute a breach which is not excused by Chinese manufacturer’s difficulties.
— If these are standard goods, it’s hard to imagine any effective excuse, because seller can always obtain them elsewhere and deliver to buyer.
f. Remedies
i. Remedies for sellers and buyers
Seller’s
Buyer’s
Compel performance
62
46
Extend time for performance
63
47
Avoid the K if fundamental breach or end of extended time under art 53
Partial delivery can constitute fundamental breach in some cases.
64
49
Lost profits if foreseeable
74
74
Substitute sale/K differential
75
75
Contract/market differential at the time of breach
76
76
ii. Anticipatory Breach—Art 71-73
(1) Option to suspend performance under Art. 71 (used when “fundamental” breach is unclear or seller is hopeful of future performance), but seller must continue to perform if it receives adequate assurance under Art 71(3).
B. THE BOL, CONTRACT OF AFFREIGHTMENT & INSURANCE
1. The Contract of Affreightment
a. 2 Types:
i. Common carriage: at common law, common carrier was chargeable as insurer of the goods accountable for any damages except: acts of God, acts of the public enemy, and inherent vices or faults of the shipper.
A ship hired for a specific voyage to carry a particular cargo for charterers was not a common carrier, but a bailee for hire who was required to exercise only ordinary skill and care.
ii. Private carriage (K known as charter party): at common law, only liable for loss or damage to the extent this was proximately caused by a breach of an obligation contained in a contract of carriage.
b. The role of (Non-Vessel Operating Common Carrier) NVOCC: (1) consolidation of container shipments; (2) negotiating of value discounts with steamship companies, passing some of the savings on to the actual shipper.
c. International Regimes for Carriage of Goods
