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Risk Analysis and Dispute Resolution Expro 100 Engineering The Hague November 2013 Martin Bitter Exportant Consultants Ltd.

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Presentation on theme: "Risk Analysis and Dispute Resolution Expro 100 Engineering The Hague November 2013 Martin Bitter Exportant Consultants Ltd."— Presentation transcript:

1 Risk Analysis and Dispute Resolution Expro 100 Engineering The Hague November 2013 Martin Bitter Exportant Consultants Ltd

2 Expro100 Engineering, The Hague, Martin Bitter 2 What are possible export risks? 1.Make difference in relationships – client and trade partner 2.Offer: when is the offer no offer 3.Contract a.Purchase conditions b.Product and product properties/characteristics, “what am I buying” c.Timing, delivery times d.Actual shipping, delivery conditions e.Payment

3 The Agent Not only Commission (fix and variable cost) No risk when Agency contract is detailed and has escape clauses No direct handling, but needs a lot of people skills on your end and “Trade Partner Management” Not involved in the contract between exporter & his client Might represent different companies Exporter keeps in control of prices, strategy, distribution … 3 Expro100 Engineering, The Hague, Martin Bitter

4 Obligatory subjects in a trade partner contract Agent contract: Description of activities for the agent (rendered services ) Description of the activities for the exporter LAY DOWN OBJECTIVES/TARGETS FOR 1st. year and eventual years to follow Duration of the contract Commissioning Evaluation moments Escape clauses Applicable legislation: EU protects agents by directives Expro100 Engineering, The Hague, Martin Bitter

5 EU & Agent Contracts The European directive governing the agent contracts is: 86/653/EEC Find the directive at: lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L065 3:EN:HTML lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L065 3:EN:HTML A true story Expro100 Engineering, The Hague, Martin Bitter

6 Other Trade Partners Importer / Large Direct Account Exclusivity Market data (not even intelligence) Marketing / local contact Tendency to have supplier cover/finance complete part of the chain 6 Expro100 Engineering, The Hague, Martin Bitter

7 The offer that wasn’t When is an offer no offer??? Any offer (oral or written) followed by an acceptance constitues an agreement 7 The client Expro100 Engineering, The Hague, Martin Bitter

8 “This offer is open for acceptance until …” The party making the offer will be bound by any acceptance made within the set time frame “This offer will not become binding, even after it has been accepted until the order has been confirmed in writing by ……. ( the party making the offer) The party making the offer will not be bound unless he himself confirms An offer is a legal instrument. Whether the exporter can revoke its offer will depend on its wording as well as the law applicable. Two examples: Expro100 Engineering, The Hague, Martin Bitter

9 Three types of Offers Binding (firm) offer Exporter will not offer these goods to another party and will not change its offer, until the other party has decided (hence the importance of an expiry date) Non-Binding Offer The restrictions of the binding offer do not apply Offer by sample Together with the offer, a representative sample of the goods to be delivered is provided for evaluation by the customer Expro100 Engineering, The Hague, Martin Bitter

10 Purchase conditions Products and properties Deliveries/timing Actual shipping and conditions Payments 10 The content Expro100 Engineering, The Hague, Martin Bitter

11 Checklist what goes in the Offer (proforma invoice) A pro forma invoice should provide: The fact that it is a proforma invoice Your company details Product specifications (number of units, sizes, country of origin, etc) Prices (per unit price, total price, currency) General conditions of sale Delivery terms ((Incoterms 2000) Payment terms (CAD, DLC, etc) Binding (valid for acceptance date) or Non-Binding … and should not specify: Date shipment Name carrier Before sending out, make sure: The offer has been signed by an authorized officer The offer does not contain any (spelling) mistakes The content Expro100 Engineering, The Hague, Martin Bitter

12 The proforma invoice

13 Seedimpex SA Seeds for the world Seedimpex SA The 7 functions of an invoice: 1.Shows the amount the Seller owes to the Buyer 2.Specificatio n of goods delivered 3.Customs document (import duties) 4.Basis for insurance coverage 5.Application certificate of origin CoC 6.Accounts document 7.Bank document Seedimpex SA

14 General purchase/sales conditions Make sure to read AND UNDERSTAND then to negotiate. Battle of the forms (send along with Offer return with Order Confirmation) “Last Shot ” (send along with invoice) The only “safe” way is to have them agreed to by both sides in writing Purchase conditions Expro100 Engineering, The Hague, Martin Bitter

15 General purchase conditions 1. Order and Confirmation 1.1 The Customer may cancel the order if the Supplier has not confirmed acceptance of the order (confirmation) in writing within two weeks of receipt. 1.2 If the confirmation varies from the order the Customer is only bound thereby if it agrees to such variation in writing. In particular the Customer is subject to the general terms and conditions of the Supplier only insofar as such conform with the conditions of the Customer or if the Customer has agreed to such in writing. The acceptance of deliveries or services as well as payments do not constitute approval. 1.3 Any amendments or additions to the order shall only be effective if the Customer confirms such in writing.

16 General purchase conditions 17. Place of Jurisdiction, Applicable Law 17.1 The court of jurisdiction shall be, in the event that the Supplier is a merchant, at the place of ordering German substantive law shall apply excluding the Provisions of the United Nations Law on the Sale of Goods dated

17 Choice of Law and jurisdiction Remember, two choices to make: Choice of Law Parties are free to choose which law applies Failing choice usually law of “characteristic performance” applies Trade terms (Incoterms 2010) Jurisdiction Forum shopping – “choice of forum clause” Subject to test of reasonableness Tip: Better to choose than not to choose at all Expro100 Engineering, The Hague, Martin Bitter

18 Products & Properties  Performance conditions,  products of nature,  variances.  certification, who pays for certification, 18 Expro100 Engineering, The Hague, Martin Bitter

19 Timing and delivery  When does client need delivery and what is your planning?  What are regulated contact moments?  Client expectations? 19 Expro100 Engineering, The Hague, Martin Bitter

20 20

21 Actual shipping  What is most used set of agreements?  Law?  What version today?  What are differences with newest version?  Case 1  Case 2 21 Expro100 Engineering, The Hague, Martin Bitter

22 INCOTERMS principles The delivery of goods is agreed upon between seller and buyer. Though it could be done individually, it is usual to refer to standardized terms. This speeds up the process and increases the transparency and mutual understanding. The most commonly used trade terms are the INCOTERMS (= International Commercial Terms), which are a set of standard conditions for delivery which can be imported into the contract by the parties. The INCOTERMS have been prepared by the International Chamber of Commerce but do not apply unless they are expressly incorporated into the contract. They have no binding force of law. Relationship between seller and buyer (not buyer / seller and carrier) 22 Expro100 Engineering, The Hague, Martin Bitter

23 GROUPTERMCOMPLETE NAME TRANSPORT MODE E EXW Ex WorksAny DEPARTURE FFCAFree CarrierAny MAIN CARRIAGE FASFree Alongside ShipSea UNPAIDFOBFree on BoardSea CCFRCost and FreightSea MAIN CARRIAGE CIFCost, Insurance and FreightSea PAIDCPTCarriage paid to…Any CIPCarriage and Insurance paid to…Any DDAF Delivered at frontierAny ARRIVAL DESDelivered ex shipSea DEQ Delivered ex QuaySea DDUDelivered Duty unpaidAny DDPDelivered Duty paid Any Incoterms Overview 2000 Expro100 Engineering, The Hague, Martin Bitter

24 Departure contracts Any mode of transport, inclu- ding multimodal * EXW Ex Works FCA Free Carrier FAS Free Alongside Ship Arrival contracts * * * Departure contracts CFR Cost and Freight CIF Cost, Insurance and Freight CPT Carriage Paid To CIP Carriage & Insurance Paid to... DAF Delivered At Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid IncotermsApplication Expro100 Engineering, The Hague, Martin Bitter

25 INCOTERMS 2010 Overview  Modernising international Trade Flow  Electronic documentation  Safety in the supply chain  Clearer definitions in 2010  Easier explanation and display  More logical categories  Reduced from13 to11 conditions  2 new “rules” (??) 25 Expro100 Engineering, The Hague, Martin Bitter

26 GROUPTERMCOMPLETE NAME TRANSPORT MODE E EXW Ex WorksAny DEPARTURE FFCAFree CarrierAny MAIN CARRIAGE FASFree Alongside ShipSea UNPAIDFOBFree on BoardSea CCFRCost and FreightSea MAIN CARRIAGE CIFCost, Insurance and FreightSea PAIDCPTCarriage paid to…Any CIPCarriage and Insurance paid to…Any DDATDelivered at terminalAny ARRIVAL DAPDelivered at placeAny DDPDelivered Duty paid Any Incoterms Overview 2010 Expro100 Engineering, The Hague, Martin Bitter

27 Digital-2-6-Riskman A Dutch importer buys from an exporter in the Philippines a 20 ft container with machine parts on basis of CIF Rotterdam. The goods are transhipped in Singapore and get lost in the harbour. Trans shipment is allowed. Payment conditions CAD. He bought CIF Rotterdam and wants to know for certain that the goods will arrive as ordered. The Dutch importer delays payment until the goods arrive in Rotterdam. CIF/CAD Expro100 Engineering, The Hague, Martin Bitter

28 An exporter from India sells to Germany a container with machine parts. The contract basis is DDP Frankfurt. Payment: Open account, within 7 working days after arrival of goods. The heavily damaged container is transported to Frankfurt and delivered, according to the contract DDP Frankfurt. The container arrives in Rotterdam where an accident happens. The total contents of the container is total loss. The contract does not mention anything about insurance. Digital-2-6-Riskman The German importer refuses to accept the consignment and does not pay the invoice. The exporter takes the matter to court. You are the judge... DDP/Open Account

29 Payment  The Risk Triangle  Utopia,  negotiations /  cultural /  relationships /  checking in network /  checking through credit reports 29 Expro100 Engineering, The Hague, Martin Bitter

30 The Conflict: now what……. The resolution should already be pre-engineered in the contract. Go to court…. Or….. 30 Expro100 Engineering, The Hague, Martin Bitter

31 Pro’s and cons Courts 31 Pro: independence legal skills relatively cheap possibility of lodging an appeal Cons: No expert view except for legal know how lengthy proceedings Decision is public Expro100 Engineering, The Hague, Martin Bitter

32 Arbitration:  Administration of justice by expert laymen  Decision is as binding as in normal court proceedings  Ordinary arbitration and emergency arbitration  Parties must agree on arbitration explicitly  Special procedural rules apply  Vary from country to country and contract to contract 32 Expro100 Engineering, The Hague, Martin Bitter

33 Advantages and disadvantages of arbitration Advantages  Neutrality  Confidentiality  Expense, timing and finality  Language  Arbitors expertise  Enforcement (International Conventions Disadvantages  Speed  Impossibility of Appeal  Non publication of the decision  Validity of decision  Cost and delay  Procedural safeguards Expro100 Engineering, The Hague, Martin Bitter

34 Arbitration International Chamber of Commerce (ICC) Court of Arbitration ICC Court of Arbitration 38 Cours Albert 1er Paris France Tel: ( ) Fax: ( ) www: Info on cost of Arbitration ADR/Arbitration/Cost-and-payment/Cost-calculator-3 / 34 Expro100 Engineering, The Hague, Martin Bitter

35 Conclusion?? 35 Expro100 Engineering, The Hague, Martin Bitter

36 Checklist key clauses in international sales contracts o Identification of the parties (buyer and seller) o Description of the goods o Price and payment conditions o Delivery periods and conditions o Inspection of the goods o Quantity and quality variations allowed o Reservation of title and passing of property rights o Transfer of risk – how accomplished o Warranties o Force majeure clause o Requirement amendments only in writing o General sales/purchase conditions applicable o Choice of law (language) o Choice of dispute resolution mechanism Expro100 Engineering, The Hague, Martin Bitter


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