Group 1, A13: Exporting and the export Contract Chapter 1: Negotiating Delivery

1.

The five steps in Negotiating Delivery.

To deal with problems arising if there is a delay or if delivery is not as planned the Buyer and the Seller should negotiate delivery systematically. That means making sure all foreseeable problems are discussed and approaches to solving such problems are agreed. An overview of the five negotiating steps is suggested to simplify discussion of the ideas and to avoid problems: Timing, Location, Transport, Risk Title and Insurance, Terms of Trade.
2.

Timing: When must Delivery take place ?

- Good negotiators should mention a delivery date in negotiating the timing of an export deal and then other issues relating to coming into force, delay and compensation for delay. Delay might be classified into two categories, excusable and non-excusable. Excusable one involves a grace period and is mostly subject to a force majeure provision. Any losses to the buyer caused by non-excusable delay must be compensated. The amount of compensation is usually set in advance and called liquidated damages - Use a straightforward calendar date to name the delivery date: 15th September 2010, for example. The parties often plan for the contract to come into existence in two steps: the signature date and the date of coming into force. The date of coming into force is not usually a calendar date, but the date on which the last precondition is met. Common preconditions are: + Receipt of import and/ or export approval + Receipt of foreign exchange approval from a central bank + Issuance of a letter of credit or bank guarantee. + Making of a down-payment by the buyer + Issuance of an insurance policy + Issuance of a certificate of origin

+ Delivery by the buyer of plans, drawings or other documentation. - Negotiators may agree on a cut-off date: if the contract has not come into force within a certain time, then it becomes null and void.

Coming Into Force This agreement shall come into force after execution by both parties on the date of the last necessary approval by the competent authorities in the country of the Seller and the Buyer. If the contract has not come into force within ninety days of execution, it shall become null and void. iu khon hiu lc Tha thun ny s c hiu lc sau khi c thc hin bi c hai bn vo ngy ph duyt cn thit cui cng ca c quan c thm quyn ti nc ngi bn v ngi mua. Nu hp ng khng c hiu lc trong vng chn mi ngy k t ngy thc hin, n s tr nn v hiu.

- The delivery date is normally fixed for a certain number of days after the contract has come into force. The date of delivery shall be twenty-eight days after the date of coming to force of the contract. Ngy giao hng s l 28 ngy sau ngy hp ng c hiu lc

- Time is of the essence of the contract. If the time is not kept, the buyer has the right to return the goods and refuse payment.

Time is and shall be of the essence of the contract Thi gian l v s l vn ct li ca hp ng.

- Excused Delay and Grace Period: For each week of late delivery the Seller shall pay the Buyer 0.1 % of the contract price. i vi mi tun giao hng chm ch ngi bn s phi tr ngi mua 0.1 % tr gi hp ng.

A grace period is the time exceeding the deadline for an obligation during which a late penalty that would have been imposed is waived. If delivery is not effected within one month of the agreed delivery date, then the Seller shall pay the Buyer 0.1 % of the contract price. Nu giao hng khng c thc hin trong vng 1 thng k t ngy giao hng c tha thun th ngi bn s phi tr cho ngi mua 0.1% tr gi hp ng.

Sometimes the exporter cant deliver the goods on time because of natural disasters called acts of God, which is unavoidable. It is the force majeure, which is negotiable. The parties can decide what excuses and what does not excuse the performance in the contract. If either party is prevented from, or delayed in, performing any duty under this Contract by an event beyond his reasonable control, then this event shall be deemed force majeure, and this party shall not be considered in default and no remedy, be it under this Contract or otherwise, shall be available to the other party. Force majeure events includes, but are not limited to: war (whether war is declared or not), riots, insurrections, acts of sabotage, or similar occurrences, or Government regulations, delay due to Government action or inaction, fire, explosion, or other unavoidable accident, flood, storm, earthquake, or other

abnormal natural event. Nu mt trong hai bn b ngn cn, hoc chm tr trong thc hin bt k ngha v theo Hp ng ny v mt s kin ngoi tm kim sot hp l ca mnh, th s kin ny c coi l bt kh khng, v mc nh l bn ny s khng c xem xt v khng c bin php khc phc, c th l theo Hp ng ny hoc cch khc, s c sn cho cc bn khc. S kin bt kh khng bao gm, nhng khng gii hn: chin tranh (cho d l tuyn b chin tranh hay khng), bo lon, ni dy, hnh vi ph hoi, hoc cc s c tng t, hoc quy nh ca Chnh ph, chm tr do hnh ng hay khng hnh ng ca Chnh ph, chy, n, hoc khc khng th trnh khi: tai nn, l lt, bo, ng t, hoc s kin t nhin bt thng khc..

Force majeure events do not include monsoon rains. S kin bt kh khng khng bao gm ma gi ma.

If a force majeure condition continues for long time, contracts may regulate the force majeure period, in particular the right of one or both parties to terminate the contract. If either party is prevented from or delayed in, performing any duty under this Contract, then this party shall immediately notify the other party of the event, of the duty affected, and of the expected duration of the event. If any force majeure event prevents or delays performance of any duty under this Contract for more than sixty days, then either party may on due notification to the other party terminate this Contract. Nu mt trong hai bn b ngn cn hay chm tr trong thc hin bt k ngha v theo Hp ng ny, th bn ny s ngay lp tc thng bo cho bn kia v s kin, cc ngha v b nh hng, v thi gian ko di d kin ca s kin Nu bt k s kin bt kh khng no ngn cn hoc tr hon vic thc hin cc ngha v no theo Hp ng ny trong hn su mi ngy, th mt trong hai bn sau khi thng bo cho bn khc c th chm dt Hp ng ny.

Three outcomes of force majeure: resumption of delivery, termination of the Contract, unclear and dangerous situation. - Unexcused delay and Buyers Remedies: when delivery cannot take place as planned, this causes some loss or damage to the Buyer. There are two remedies: a decree of specific performance orders the exporter to deliver or an award of damages makes the exporter pay compensation to the Buyer. In addition, the court may allow the Buyer to cancel the Contract. - Liquidated Damages: is a lump sum to be paid per day, week or month of late delivery for compensation. Payment of liquidated damages avoids expensive discussion. Even if the Buyers losses are lower or higher than anticipated, nothing changes. The exporter pays the agreed sum, and the matter is settled. Liquidated damages are enforceable everywhere but subject to increase or decrease in some legal systems. - Penalties: is the amount to be paid for late delivery. It is used as a threat of punishment to achieve acceptable performance and is not enforceable in English law or other common law systems. - Quasi-indemnity: is to relieve the exporter of liability for delay in delivery. It is enforceable everywhere but open to challenge as unconsionable. Liquidated Damages If the Seller fails to supply any of the Goods within the time period specified in the Contract, the Buyer shall notify the Seller that a breach of contract has occurred and shall deduct from the Contract price per week of delay, as liquidated damages, a sum equivalent to one half percent of the delivered price of the delayed Goods until actual delivery up to a maximum deduction of 10% of the delivered price of the delayed Goods Thanh khon thit hi Nu ngi bn khng cung cp bt k hng ha trong khong thi gian quy nh trong hp ng, ngi mua phi thng bo cho ngi bn l mt s vi phm hp ng xy ra v s khu tr gi hp ng trn mi tun tr hon, lm thit hi

thanh khon, mt khon tin tng ng vi mt na mt phn trm gi c giao ca hng ha b chm ch cho n khi hng thc t ln n mt mc khu tr ti a l 10% gi c giao ca hng ha b chm ch.

3. Place of delivery: is the point at which the exporter passes responsibility for the Goods to the Buyer. Delivery can take place at a number of places between manufacturers factory and the Buyers warehouse. A contract for the sale of Goods abroad (transportation by ship) is normally considered as an FOB (Free on board) contract: delivery takes place when the Goods cross the rail of the ship nominated by the Buyer. Another is CIF, the exporter pays the full costs plus the freight charges plus insurance up to the named place of destination, usually a port. Delivery of the Goods shall be made FOB (Mombasa) Giao hng s c thc hin theo gi FOB Mombasa.

Delivery of the Goods shall be made CIF Durban. Giao hng s c thc hin theo gi CIF Durban

Delivery of the Goods shall be made (Incoterm). The schedule date of Delivery shall be (date of delivery). Risk and title to the Goods shall pass from the Seller to the Buyer on Delivery. The place of Delivery under this Contract is (port of shipment) Giao hng c thc hin (Incoterm). Ngy giao hng theo lch trnh s l (ngy giao hng). Ri ro v quyn s hu cc hng ha c chuyn t ngi bn n ngi mua khi giao hng. a im giao hng theo Hp ng ny c (cng giao hng) If the vessel named by the Buyer fails to arrive on or before the agreed delivery date, then the seller may at his discretion deliver the Goods to a bonded warehouse in the port of Mombasa, and shall be deemed to have fulfilled his delivery

obligations under this Contract. Nu tu c ch nh bi ngi mua khng n vo hoc trc ngy giao hng c tha thun, th bn bn theo s suy xt ca mnh c th giao hng hng ha n kho ngoi quan ti cng Mombasa, v c coi l hon thnh ngha v giao hng ca mnh theo hp ng. ny

4. Transport. - Negotiators should mention the type of packaging and the shipping marks in the Contract. Goods are to be packed in new, strong, wooden cases suitable for long-distance ocean transport and are to be well protected against dampness, shock, rust or rough handling. The Seller shall be liable for any damage to or loss of the Goods attributable to improper or defective packaging. Hng ha s c ng gi trong thng g chc v mi thch hp cho vn ti bin ng di v phi c bo v chng li m, va p, g hoc x l th. Ngi bn phi chu trch nhim cho bt k h hng, mt mt ca cc hng ha do bao b khng ng hoc b li.

On the surface of each package delivered under this Contract shall be marked: the package number, the measurements of the package, gross weight, net weight, the lifting position, the letter of credit number, the words RIGHT SIDE UP, HANDLE WITH CARE, KEEP DRY, and the mark: DNP/36/Q Trn b mt ca mi kin hang c giao theo Hp ng ny s c nh du: s gi, cc kch thc ca gi, trng lng, trng lng tnh, v tr mc cu, s th tn dng, cc t xp theo chiu ny, xp d nh tay, gi hang kh, v nh du: DNP/36/Q - On delivery, the exporter receives from the carrier the most important of all the shipping documents, the bill of lading (consignment note). Each mode of

transport has a characteristic shipping of document: the marine bill of lading, the airway bill, the rail consignment note, the road consignment note. Combined transport uses a combined transport bill of lading - The Marine bill of lading is the special document used for shipment by sea. It can be made negotiable, which means it can be bought or sold. The word Order makes the bill of lading negotiable. That means the shipper must endorse the bill by signing it on the back. To be acceptable as a shipping document under a letter of credit, it must bear the notation that the goods have been shipped on board a named vessel. - Payment under a letter of credit depends largely on the correctness of the shipping documents. To be acceptable under a letter of credit, all shipping documents must be clean, free notes about defects. It is the carrier who notes any defects in packaging, weight, or general appearance of the goods on accepting them from the Exporter. 5. Risk, Title and Insurance Risk passes on delivery. Two risks are involved in the sale of goods: the risk of the goods injuring a third party and the risk of loss or damage. These risks are covered by insurance. In international trade, ownership (title) is of doubtful value and passes from exporter to buyer. Title to the goods passes with risk. Quyn s hu hng ha gn lin vi ri ro.

- Since merchandise is at risk at all times during its journey, it is advisable to insure the goods. It is easier for the exporter to arrange insurance. Minimum coverage is Cargo clause C. In CIF and CIP contracts, the exporter normally assigns the insurance agreement to the buyer. Exporters have an agreement with an insurance company covering the shipments over a period of time. Each is covered by a certificate of insurance, which states in outline the cover offered and gives the details of the individual shipment. There is a so-called letter of insurance. This is a letter from the exporter to the buyer stating that the goods are insured and it has no legal force but as evidence in a law suit against the exporter.

- In some situation the exporter negotiates special insurance policies: floating policy and open policy. Both offer the exporter insurance cover on all shipment over a period of time. Open cover is not a policy, the insurer will write a policy if required. The normal insurance document under an open cover is the Certificate of Insurance, which is, in principle, the equivalent of a policy. - If the exporter insures the Goods and states on the insurance document (valued policy), he has some decisive advantages: the prestated figure can include not only the cost of the goods but also the profit the exporter hoped to make on them. If the value is not stated (unvalued policy), then the value can be established after a loss, the exporter must prove his figures precisely. - A marine insurance policy has three variant clauses: Cargo Clause A, B and C. Clause A covers anything not excluded, Clause B and C exclude anything not expressly covered. Even an all risks policy (Clause A) excludes many risks. - Goods must be correctly and fully describe on the insurance document or cover may be withdrawn and a held cover clause offers some protection against innocent misdescription: under given conditions the goods are held to be covered. The main principle of insurance is utmost good faith 6. Terms of Trade - The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties of buyer and exporter in Incoterm contract. The 13 terms are classified in 4 groups: E-terms, F-terms, C-terms, and D-terms. The E-terms deals with deliveries at the exporters factory. The F-terms all concern delivery within the exporters country. The C-terms involve delivery in the exporters country, with extra costs for exporter after delivery. D-terms take care of delivery outside the exporters country. The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990) Cc thit b lit k trong Ph lc 1 c giao theo iu kin FOB (Beira) (Incoterms 1990)

For the equipment listed in Annex 1 the price is for delivery free on board carrying

vessel designated by the Buyer at the port of Beira including the cost of packing, as well as expenses incurred before loading the equipment on board the carrying vessel. i vi cc thit b c lit k trong Ph lc 1 gi l gi giao hng min ph trn boong tu ch theo ch nh ca ngi mua ti cng Beira bao gm chi ph ng gi, cng nh cc chi ph pht sinh trc khi ti cc trang thit b ln boong tu ch.

The contract should always specify that terms such as FOB, CIF and so on are Incoterms under the rules set out in Incoterms 1990. The contract should regulate what happens if Incoterms 1990 and the terms of the contract conflict. Normally, the contract prevails. Incoterms apply only to international trade, for trade within a country, Incoterms are not appropriate. Incoterms 1990 as used in this contract means the publication Incoterms 1990, being the international rules for the interpretation of their terms published by the International Chamber of Commerce. When a term from Incoterms 1990 is used in this Contract, the rules and definitions applicable to that term in Incoterms 1990 shall be deemed to have been incorporated in the Contract except insofar as they may conflict with any other provision of the Contract, in which case the Contract provisions shall prevail. Incoterms 1990 nh c s dng trong hp ng ny l n bn Incoterms nm 1990, l cc quy tc quc t cho vic din gii cc iu khon ca chng do Phng Thng mi quc t xut bn. Khi mt iu khon t "Incoterms 1990" c s dng trong Hp ng ny, cc quy tc v nh ngha p dng cho thut ng trong Incoterms 1990 s c coi l c kt hp trong hp ng ngoi tr trng hp chng c th xung t vi bt k iu khon khc ca Hp ng, trong trng hp quy nh ca hp ng s c p dng.