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INTERNATIONAL SALES LAW - seminar 2004 ISL Contractual Risk Management in Transnational Sales Transactions ISL: objectives, functions and structure Management.

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Presentation on theme: "INTERNATIONAL SALES LAW - seminar 2004 ISL Contractual Risk Management in Transnational Sales Transactions ISL: objectives, functions and structure Management."— Presentation transcript:

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2 INTERNATIONAL SALES LAW - seminar 2004 ISL Contractual Risk Management in Transnational Sales Transactions ISL: objectives, functions and structure Management of information on ISL Management of risk of contractual disputes Management of risk of contract breach Management of risk of loss of or damage to the goods Management of risk of changed circumstances Case study Case studies I II V VI VII IX IV VIII III

3 Contract lawContracting (risk of non-performance, delay or non-conformity) Management of risk of contract breach ISC Default distribution of risks in sales law ISL -CISG art , 28, 45-52, 61-65, 71-88CISG I II V VI VII IX IV VIII III -duty to co-operate (art. 60) -right/obligation to specific performance (art and 62) -right to suspend performance (art.71) -substitute performance (art. 46.2) -repairment (art. 46.3) -price reduction (art. 50) -avoidance (art. 49, 64, 72, 73) -damages (art , 79) CISG art. 74: Damages for breach of contract by one party consists of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the other party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract. CISG art. 77: A party who relies on a breach of contract must take measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. CISG art. 71: … (2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller...

4 ISC PECL ARTICLE 8:105: Assurance of Performance (1) A party who reasonably believes that there will be a fundamental non- performance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of his own performance so long as such reasonable belief continues. (2) Where this assurance is not provided within a reasonable time, the party demanding it may terminate the contract if he still reasonably believes that there will be a fundamental non-performance by the other party and gives notices of termination without delay. Management of risk of contract breach Default distribution of risks in contract law -PECL art. 6:111 and chapters 7 to 9PECL - UPICC chapters 6 and 7UPICC - CENTRAL TLDB chapters VI-IXCENTRAL TLDB UPICC ARTICLE (Agreed payment for non-performance) (1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm. (2) However, notwithstanding any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances. UPICC ARTICLE (Exemption clauses) A clause which limits or excludes one partys liability for non-performance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it could be grossly unfair to do so, having regard to the purpose of the contract. PECL ARTICLE 8:107: Performance Entrusted to Another) A party who entrusts performance of the contract to another person remains responsible for performance. ISL Contracting -CISG art , 28, 45-52, 61-65, I II V VI VII IX IV VIII III

5 (- bid bonds) - performance bonds - payment conditions and securities - liquidated damages and other hostages - exemption clauses -CISG art , 28, 45-52, 61-65, Management of risk of contract breach ISC Contractual allocation of risks in contracting practice -PECL art. 6:111 and chapters 7 to 9 - UPICC chapters 6 and 7 - CENTRAL TLDB chapters VI-IX ISL I II V VI VII IX IV VIII III

6 ICC Uniform Rules for Contract Guarantees (URCG) ICC Publication No 325 Management of risk of contract breach -CISG art , 28, 45-52, 61-65, (- bid bonds) - performance bonds - payment conditions and securities - liquidated damages and other hostages - exemption clauses ISC Contractual allocation of risks in contracting practice -PECL art. 6:111 and chapters 7 to 9 - UPICC chapters 6 and 7 - CENTRAL TLDB chapters VI-IX ISL I II V VI VII IX IV VIII III ICC Uniform Rules for Demand Guarantees (URDG) ICC Publication No 458 Rules on International Standby Practices (ISP 98) ICC Publication No 458

7 Management of risk of contract breach -CISG art , 28, 45-52, 61-65, ISC Contractual allocation of risks in contracting practice -PECL art. 6:111 and chapters 7 to 9 - UPICC chapters 6 and 7 - CENTRAL TLDB chapters VI-IX (- bid bonds) - performance bonds - payment conditions and securities - liquidated damages and other hostages - exemption clauses ISL I II V VI VII IX IV VIII III

8 PAYMENT Management of risk of contract breach Contractual allocation of risks in contracting practice ISL I II V VI VII IX IV VIII III

9 forms of PAYMENT Management of risk of contract breach Contractual allocation of risks in contracting practice ISL I II V VI VII IX IV VIII III clean payment documentary payment check/ draft payment order (SWIFT)

10 forms of PAYMENT Management of risk of contract breach Contractual allocation of risks in contracting practice ISL I II V VI VII IX IV VIII III clean payment documentary payment check/ draft payment order (SWIFT) collection documentary credit/ letter of credit/ L/C confirmed unconfirmed irrevocable revocable ICC Uniform Rules for Collections (URC) ICC Publication No 522 ICC Uniform Customs and Practice for Documentary Credits (UCP 500), ICC Publication No 500

11 transport documents: - bills of lading - electronic bills of lading - sea waybills - mates receipt - air waybill - consignment note (CIM/CMR) - multimodal transport document - warehouse warrant ICC Uniform Rules for Contract Guarantees, (URCG) ICC Publication No 325 PAYMENT terms in advance control over the goods repayment guarantee performance guarantee Management of risk of contract breach Contractual allocation of risks in contracting practice ICC Uniform Rules for Contract Guarantees, (URCG) ICC Publication No 325 The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 5.2 If the parties have agreed on payment in advance, without further indication, it will be assumed that such advance payment, unless otherwise agreed, refers to the full price, and that the advance payment must be received by the Sellers bank in immediately available funds at least 30 days before the agreed date of delivery or the earlist date within the agreed delivery period. If advance payment has been agreed only for a part of the contract price, the payment conditions for the remaining amount will be determined according to the rules set forth in this article. ISL I II V VI VII IX IV VIII III ICC Uniform Rules for Demand Guarantees (URDG) ICC Publication No 458 ICC Uniform Rules for Demand Guarantees (URDG) ICC Publication No 458 Rules on International Standby Practices (ISP 98) ICC Publication No 458 Rules on International Standby Practices (ISP 98) ICC Publication No 458

12 simultaneous exchange for goods/documents Management of risk of contract breach COD CAD through a third party PAYMENT terms in advance control over the goods repayment guarantee performance guarantee Contractual allocation of risks in contracting practice The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 5.4 If the parties have agreed on payment by documentary collection, then, unless otherwise agreed, documents will be tendered against payment (D/P) and the tender will in any case be subject to the Uniform Rules for Collections published by International Chamber of Commerce. ISL I II V VI VII IX IV VIII III ICC Uniform Rules for Collections (URC) ICC Publication No 522 by parties themselves or through representatives

13 Management of risk of contract breach COD CAD through a third party PAYMENT terms simultaneous exchange for goods/documents in advance control over the goods repayment guarantee by parties themselves or through representatives performance guarantee Contractual allocation of risks in contracting practice gradually ORGALIME S 2000 Clause 19. Whatever the means of payment used, payment shall not be deemed to have been effected before the Suppliers amount has been fully and irrevocably credited. ISL I II V VI VII IX IV VIII III ORGALIME S 2000 GENERAL CONDITIONS for the supply of mechanical, electrical and electronic products PAYMENT Clause 18. Unless otherwise agreed, the purchase price shall be paid with one third at the formation of the contract and one third when the Supplier notifies the Purchaser that the Product, or the essential part of it, is ready for delivery. Final payment shall be made when the Product is delievered. Payments shall be made within 30 days of the date of the invoice.

14 ICC Uniform Rules for Demand Guarantees (URDG) ICC Publication No 458 Management of risk of contract breach credit COD CAD open account documentary credit through a third party demand guarantee standby letter of credit PAYMENT terms simultaneous exchange for goods/documents in advance control over the goods repayment guarantee by parties themselves or through representatives performance guarantee ICC Uniform Customs and Practice for Documentary Credits (UCP 500), ICC Publication No 500 ICC Uniform Customs and Practice for Documentary Credits (UCP 500), ICC Publication No 500 Contractual allocation of risks in contracting practice gradually The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 5.3 If the parties have agreed on payment by documentary credit, then, unless otherwise agreed, the buyer must arrange for a documentary credit in favour of the Seller to be issued by reputable bank, subject to the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce, and to be notified at least 30 days before the agreed date of delivery or at least 30 days before the earliest date within the argeed delivery period. Unless otherwise agreed, the documentary credit shall be payable at sight and allow partial shipments and transhipments. ISL I II V VI VII IX IV VIII III Rules on International Standby Practices (ISP 98) ICC Publication No 458 The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 5.1 setting payment on open account as the default solution, To the extent that the parties have agreed that payment is to be backed by a bank guarantee, the Buyer is to provide, at least 30 days before the agreed date of delivery or at least 30 days before the earliest date within the argeed delivery Art. 5.5: period, a first demand bank guarantee subject to the Uniform Rules for Demand Guarantees published by International Chamber of Commerce, or a standby letter of credit subject either to such Rules or to the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce, in either case issued by a reputable bank.

15 gradually control over the goods credit COD CAD open account documentary credit through a third party demand guarantee standby letter of credit PAYMENT terms simultaneous exchange for goods/documents in advance control over the goods repayment guarantee by parties themselves or through representatives performance guarantee retention of title - warehouse warrant - bills of lading - electronic bills of lading - sea waybills - mates receipt - air waybill - consignment note (CIM/CMR) - multimodal transport document transport documents: security Management of risk of contract breach Contractual allocation of risks in contracting practice ORGALIME S 2000 GENERAL CONDITIONS for the supply of mechanical, electrical and electronic products RESERVATION OF TITLE Clause 21. The product shall remain the property of the Supplier until paid for in full to the extent that such retention of property is valid under the applicable law. The Purchaser shall at the request of the Supplier assist him in taking any measures necessary to protect the Suppliers title to the Product in the country concerned. The retention of title shall not affect the passing of risk under Clause 9. ISL I II V VI VII IX IV VIII III

16 gradually control over the goods credit COD CAD open account documentary credit through a third party demand guarantee standby letter of credit PAYMENT terms simultaneous exchange for goods/documents in advance control over the goods repayment guarantee by parties themselves or through representatives performance guarantee retention of title security Management of risk of contract breach Contractual allocation of risks in contracting practice ISL I II V VI VII IX IV VIII III factoring/ forfaiting financial leasing project financing

17 -PECL art. 6:111 and chapters 7 to 9 - UPICC chapters 6 and 7 - CENTRAL TLDB chapters VI-IX ISC -CISG art , 28, 45-52, 61-65, Management of risk of contract breach Contractual allocation of risks in contracting practice (- bid bonds) - performance bonds - payment conditions and securities - liquidated damages and other hostages - exemption clauses The ICC Model International Sale Contract ICC Publication No 556 B. GENERAL CONDITIONS Art. 10 Late delivery, non-delivery and remedies thereof 10.1 When there is delay in delivery of any goods, the Buyer is entitled to claim liquidated damages egual to 0,5% or such other percentage as may be agreed of the price of those goods for each complete week of delay. Where the Buyer so notifies the Seller within 15 days from the agreed date of delivery, damages will run from the agreed date of delivery or from the the last day within the agreed period of delivery. Where the Buyer so notifies the Seller after 15 days of the agreed date of delivery, damages will run from the date of the notice. Liquidated damages shall not exceed 5 % of the price of the delayed goods or such other maximum amount as may be agreed In case of termination of the Contract under article 10.2 or 10.3 then in addition to any amount paid or payable under article 10.1, the Buyer is entitled to claim damages for any additional loss not exceeding 10 % of the price of the non-delivered goods. ORGALIME S 2000 GENERAL CONDITIONS for the supply of mechanical, electrical and electronic products TIME FOR DELIVERY. DELAY Clause 13. If the Product is not delivered at the time for delivery (as defined in Clauses 10 and 12), the Purchaser is entitled to liquidated damages from the date on which delivery should have taken place. The liquidated damages shall be payable at a rate of 0.5 per cent of the purchase price for each completed week of delay. The liquidated damages shall not exceed 7.5 per cent of the purchace price. If only part of the Product is delayed, the liquidated damages shall be calculated on that part of purchase price which is attributable to such part of the Product as cannot in consequence of the delay be used as intended by the parties... Clause 14. The Purchaser shall forfeit his right to liquidated damages if he has not lodged a claim in writing for such damages within six months after the time when delivery should have taken place. ISL I II V VI VII IX IV VIII III

18 Management of risk of contract breach -PECL art. 6:111 and chapters 7 to 9 - UPICC chapters 6 and 7 - CENTRAL TLDB chapters VI-IX -CISG art , 28, 45-52, 61-65, ISC (- bid bonds) - performance bonds - payment conditions and securities - liquidated damages and other hostages - exemption clauses ORGALIME S 2000 GENERAL CONDITIONS for the supply of mechanical, electrical and electronic products Consequential Losses 43. Save as elsewhere stated in these conditions there shall be no liability for either party towards the other party for loss of production, loss of profit, loss of use, loss of contracts or for any consequential or indirect loss whatsoever. NL 01 E GENERAL CONDITIONS for the supply of machinery and other mechanical, electrical and electronic equipment. Liability for Defects 34. The Seller shall have no liability for defects save as stipulated in Clauses 21–33. This applies to any loss the defect may cause, such as loss of production, loss of profit and other consequential economic loss. This limitation of the Sellers liability shall not apply, however, if he has been guilty of gross negligence. ISL I II V VI VII IX IV VIII III Contractual allocation of risks in contracting practice

19 Go to section VI Management of risk of loss of or damage to the goods


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