Legal Env Ibe 2

8/12/2019 Legal Env Ibe 2

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In ternat ional Con trac tsPart One


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Contracts can be complicated


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Discrepancies

Uniform CommercialCode (UCC) of theUnited State

United NationsConvention onContracts for the

International Sale ofGoods (CISG)

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Concepts to know

Businesses in international trade areinvolved in contracts.

Contracts in a country are governed by thelaws of that country.

But how do companies in differentcountries make a contract?


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International

Contracts

Lex Mercatoria

International Sales Contracts and the CISG

Agency versus Distributorship Legal Issues

Elements of an Agency or Distributor Contract

Termination

Arbitration and Mediation

What is Lex Mercatoria?

Wasnt he an enemy of Batman?


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Lex Mercato r ia

Definition

Refers to all international trade laws andconventions

Is made up of a multitude of internationalagreements and international trade customs

Complements domestic laws

Is used when the contract is between two partiesin different countries


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International

Contracts

Lex Mercatoria

International Sales Contracts and the CISG

Agency versus Distributorship Legal Issues

Elements of an Agency or Distributor Contract

Termination

Arbitration and Mediation


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How do we define aninternational contract?

Two basic requirements:

Economic: Goods go from one country toanother and money is sent back from one

country to another. The transaction or sale is linked to the laws of

different countries.


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Uniform Commercial Codeof the United States


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Several organizations wrote a code oflaws for dealing with personal property.

They were not law in any state until the

state adopted them. All fifty states, the District of Columbia,

Guam, Puerto Rico, and the U.S. Virgin

Islands have adopted them. They provide a uniform legal system for

doing business in the United States.


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Convention for the InternationalSale of GoodsCISG

Created in 1980

Has become the Law of InternationalContracts

Adopted by most countries as part of theirCommercial Law

The United States has not adopted all ofthe CISG.


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Discrepancies




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Discrepancies




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Makingan offerYou can withdraw your

offer at any timebefore the expiration date

You cannot withdrawyour offer before theexpiration date


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Discrepancies




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Makingan offerI offer $200,000

Seller pays freightFive day deliverySix day delivery

$195,000


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Discrepancies




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Seller pays freightSix day delivery


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Discrepancies




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Seller pays freightSix day delivery I offer $200,000

Seller pays freightFive day delivery


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Discrepancies




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Makingan offer

Modificationof originaloffer

I offer $200,000Seller pays freightFive day delivery

$195,000

Six day delivery


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Discrepancies




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$195,000

Six day deliveryI offer $200,000



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Discrepancies




=

Makingan offer

Rejectionof original

offer


$195,000




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Discrepancies




=

Makingan offer

Changes area counter-

offer


$195,000




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International SalesContracts

Differences Between CISG and UCC

Making an offer

Acceptance The second step in the formation of a contract Under the CISG, the second party must completely agree with all

the terms presented in the offer; otherwise, it is a rejection of theoffer.


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Discrepancies




=

Makingan offer

I offer $200,000



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Making an offer

Acceptance The second step in the formation of a contract Under the CISG, the second party must completely agree with all

the terms presented in the offer; otherwise, it is a rejection of theoffer.

Under the UCC, the second party is considered to have acceptedthe offer if it generally agrees with its terms, even if it wantsamendments to the quantity of the goods purchased, the deliverydates, and other details.


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Discrepancies




=

Makingan offer

I offer $200,000




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Discrepancies




=

Makingan offer

I offer $200,000


I offer $200,000Seller pays freightFive day deliverySix day delivery

Buyer


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Written Agreements

The CISG does not dictate that contracts ofsale have to be written.

The UCC dictates that contracts have to be in

writing (for transactions above $ 500).


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Breach of Contract

In the event that one of the parties to acontract does not meet its obligation,that party can be found in breach of thecontract.


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Discrepancies




=

Makingan offer

I offer $200,000


I offer $200,000Seller pays freightFive day deliverySix day delivery

Buyer


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Discrepancies




=

Breach ofcontract

I offer $200,000


I offer $200,000Buyer pays freightSix day delivery


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Discrepancies




=

Breach ofcontract

I offer $200,000




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Discrepancies




=

Breach ofcontract

I offer $200,000



Actually takes fifteen days


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Discrepancies




=

Breach ofcontract

I offer $200,000



Actually takes fifteen days

Seller pays $187,000


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End of Part One.


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In ternat ional Con trac ts

Part Two


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Agency vs. DistributorshipLegal Issues

Whats the difference between an agency and a distributor?


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Agency

http://www.worldofmaps.net/europe/maps_europe.htm


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Agency

http://www.weltkarte.com/europa/deutschland/Deutschland_Staedte.gif


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Agency



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Agency



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Distributor


Agency vs Distributorship


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Agency vs. DistributorshipLegal Issues

There is no international agreement regardingrelationships between exporters and their agents ordistributors.

Applicable law generally is that of the country where the

agent or distributorship is located. Basically, agreements between an exporter and an

agent/distributor are called distribution contracts.


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Distributor Agent


A Di t ib t hi


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Agency vs. DistributorshipLegal IssuesHome Government

Restrictions Home governments sometimes regulate agents/distributors to

protect them from more powerful exporters.

Home governments also may want to regulate the activities of

agents and distributors within their borders. They may have to register with the government.

They may have to be nationals of the country.

Government may inspect contracts.

Commissions may be regulated.

Agents/distributors may be limited to geographic area.


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Important Elements of Agency orDistributor Contracts

Language in which contract is written.

One language is considered primary contractlanguage.

Other languages are considered translations.

Good faithparticipants agree to act in good faith, notattempting to take advantage of one another.

Force majeure(overwhelming power) contract notbinding in event of catastrophe (ship sinking, hurricane,strike).


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Agency or Distributor Contracts

Scope of appointment

Is contract with an agent or distributor?

What products are involved?

What is the territory involved? Is the agent/distributor an exclusive representative?

What is the status of corporate accounts?


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Term of appointment:

Must always be a definite time period.

Termination of contract is usually a bad

solution. May be problem to find a new representative.

Fired representative may cause problems.

Customers may think exporter is not committed to market.

Better to not renew contract, but identify termsthat were not met.

Failure to say this may mean a court may consider the contract anevergreen, meaning it is of unlimited duration and nonperformancecannot be used to terminate it.


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Choice of legal jurisdiction:

International contracts always say whichcountrys laws will govern disputes over the

contract. Exporter usually makes this choice.

International Chamber of Commerce (ICC)Model Contracts for Agency and for

Distributorship provide two choices: Traditional choice of specific countrys laws.

Generally recognized international trade laws.


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Choice of forum and arbitration

Both parties agree on court to rule and laws toapply in dispute.

Increasing number of contracts call for anarbitration panelto settle disputes.

Profitability or commission

Determines price/margin of productsdistributor sells.

Determines commission of agents.


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Miscellaneous clauses

Facilities and activities: size of retail site andinventory, extent of employee training, complainthandling.

Advertisingresponsibilities of both parties.

Competing linesagent/distributor can carry, if any.

Use of trademarks, patents, and copyrights.

Confidentialityof trade secrets, strategic information. Ownership of customers list.

Press Page Down to continue.


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More on Termination

Just cause termination. Exporter not fulfilling contract (rare).

Agent/distributor not fulfilling contract.

Even if there is failure to perform, the guilty party

may be legally entitled to a minimum notice andcompensation even though it is not so stated in thecontract.

Convenience termination.

Exporter may think agent/distributor is earning toomuch.

Exporter may be changing strategy.

Best to include lengthy notice period and generous

goodwill compensation package. Press Page Down to continue.


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Arbitration

Increasingly preferred way of resolving disputesbetween international partners instead of goingto court.

Venues for arbitration: International Chamber of Commerce Rules of Conciliation and

Arbitration.

United Nations Conference on International Trade Law Rules ofConciliation and Arbitration.

London Court of International Arbitration.

Stockholm Chamber of Commerce. World Intellectual Property Organization.

American Arbitration Association.

Individual law firms (many in Switzerland).

End of program.


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End of Program

Documents

Legal Env Ibe 2