Learning from disaster… 6 instructive cases TALES OF HORROR IN INTERNATIONAL TRADE
The Chicken that Ate Switzerland The issue: what is “chicken”? Young, broilers or fryers Old, stewing chicken What did the chicken experts say? Old birds are “fowl” “Chicken is everything except a goose, a duck and a turkey” Why didn’t the judge apply “trade usage”? Defendants were newcomers Experts disagreed
T h e Q u e s t i o n What advice would you give to traders buying from newcomers to a particular trade?
The answer (s) Draft the contract very precisely Avoid dealing with newcomers Make sure the newcomers are aware of industry practices
NOT Human! Dolls paid higher duties than toys Dolls are “human”; “monsters” are toys The judge took the toys clothes off! The judge noted that humans generally lack robotic claws or the ability to generate flames Conclusion: Wolverine isn’t human! Result: Toy Biz gets a lot of money back from the U.S. X-men case:
Mr. Spock European Union case EU agreed to quota on toys representing “non-human” creatures Intense international negotiations: an exception was made for teddy bears Toy companies complained this caused job losses and cost them $200 million UK Customs conclusions: Batman and Robin: OK Captain Kirk: OK Mr. Spock: you’re not human!
Question Assuming such a customs decision affected a transaction that had already been signed by exporter and importer: 1)Under which Incoterms is the exporter at risk? 2)Under which Incoterms is the importer at risk?
Answers Exporter at risk: DDP (also DES/DEQ) Importer at risk: EXW, FAS, FCA, FOB, CFR, CIF, CPT, CIP, DAF, DDU
Attack of the Weevils Contract for the sale of flour to Bolivia Terms: FAS Mobile, product of “merchantable quality” Yecch: flour beetles discovered Yecch again: flour is fumigated, sold to Bolivian consumers at a discount Seller: pay us for our buggy flour! Buyer: you *#&!%$# Americans!
Question The Bolivians won the case. What does this case teach us about how to receive shipments that contain defects?
Answer Object promptly Object in writing Be consistent
Mommy, I dropped my Coke! Texas Exporter contracts to ship 1755 cases of soft drinks to Kuwaiti importer While loading: crash…fizz…pop! Maximum recovery from carrier: –$500 per “package” – But….what’s a package?
Questions How many silly references does the judge make to soft drinks? Had he been mixing a little bourbon with his Sprite? What did we learn about the need for cargo insurance?
Answers Silly soft drink references: –TEN : “Things go better with Coke”, “Apparently Kuwaitis would like to be Peppers, too”, “a real Teem effort”, “Pepsi Cola hits the Spot – on the Pavement”, “During the Refreshing Pause between arrival of the container and…”, “In the Crush, the cans were damaged”, “The stevedore was in no mood to have a Coke and a smile”, “Things Go Better on appeal”, “The winds of judicial change Schwepped away the $500 shelter”, “Dr Pepper at 10,2 and 1304” Was judge mixing bourbon and Sprite? –Seems likely
Need for Cargo Insurance? Lesson – if your cargo insurance coverage is not sufficient, you could find yourself having to pursue the carrier. Be precise about: - where the coverage begins and ends - time when it begins and ends - coverage of war risks, strikes, etc.
Indian sellers contract to ship 1400 tons of “Coromandel Groundnuts” to Danish buyers, payment by L/C The Danish banks refused to pay the L/C because the Indians got their nuts mixed up (I mean, they were not consistent in using the term “Coromandel groundnuts”) The Case that drove me Nuts
Why did the Danish buyers refuse to authorize payment under the credit? Who loses in this case? What does the judge think of the folks in Mincing Lane? Questions
Why did the Danish refuse to accept the nuts? I think the Germans had something to do with it… Answer
Who loses? -- The Indians: twice – they shipped the nuts, never got paid Mincing Lane (nut experts)? -- Bankers can’t be expected to know everything about nuts! Answer