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LAW335
International Business Law
FACULTY OF BUSINESS
Study Guide
*LAW335*
澳洲作业网International Business Law
LAW335 Study Guide
Faculty of Business
Written and compiled by
V Wijayaratnam
Revised by
John Bevacqua
Educational designer
Janelle Faust
Learning media processing officer
Sandra Wait
Produced by Learning Materials Centre, Charles Sturt University, Albury - Bathurst - Wagga Wagga, New South Wales, Australia.
First published December 2000
Revised December 2001
Reprinted December 2002, December 2003, December 2004
Revised December 2005, November 2006, November 2007
Reprinted November 2008
Printed at Charles Sturt University
© Charles Sturt University
Previously published material in this book is copied on behalf of Charles Sturt University pursuant to Part VB of the Commonwealth Copyright Act 1968.
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Contents
Page
Topic 1 International legal environment 1
Topic 2 Business relationships for entry into foreign markets 28
Topic 3 Intellectual Property and the impact of the internet on international business 46
Topic 4 International sale of goods 76
Topic 5 International trade in services 135
Topic 6 International payment of exports 146
Topic 7 International transportation of exports 161
Topic 8 Customs 192
Topic 9 International commercial dispute resolution 206
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Topic 1 International legal environment
Topic structure
The topic International legal environment includes the following content:
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international regulatory framework;
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concepts and terms in international business;
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sources of international law;
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national legal systems and socio-cultural diversity; and
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environmental constraints and cooperation.
Learning outcomes
At the completion of this topic you should be able to:
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explain the nature and operation of international commercial treaties and conventions;
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evaluate the impact of national legal systems and cultural diversity on international business; and
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outline the international regulatory framework and environmental constraints and aids.
Required reading
Reading 1: Richards EL 1994, Law for global business
Reading 2: Robock, S & Simmonds, K 1989, ‘The international legal environment’
Textbook: Mo, JS 2003, Regional trade organisations, Chapter 10
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Introduction
The legal system is one of the dimensions of the external environment that influences the operation of business. Managers must be aware of the legal system of their home country and the particular legal systems of the countries in which they operate, as well as the legal relationships between countries. A common approach is to employ a variety of local firms, or to work with an international law firm that has offices worldwide.#p#分页标题#e#
The first thing that you must understand in relation to this topic is that there really is no such thing as a single commercial legal system. What the international business person confronts is the laws and courts of individual nation states that are quite independent of one another and often based on considerably different philosophies and practices. There are certain treaties, codes and agreements among various nations that can apply to certain areas of international business activity. This is as close as we can get to an ‘international law.’
International regulatory framework assignment
There is no single body of laws or an international regulatory framework that applies to all areas of international business. Each country has its own system of laws, legal processes and system of courts which differ significantly from each other.
International business law consists of the collection of legal rules, conventions, treaties, domestic legislation, commercial customs and usages. These are basically the same as the sources of international law that regulate the relations between states.
The closest approximation to an international regulatory framework is the collection of bi-lateral and multi-lateral treaties, conventions and agreements that apply to selected areas of international business activity such as taxation, foreign investment and the protection of intellectual property.
Concepts and terms in international business
International business
According to O’Keefe and Tedeschi in the Law of international business in Australia, international business is a term which has no distinct legal meaning. It describes commercial transactions which involve the flow of goods, money, services, technology, information or know how across international borders. The most common forms are the sale of goods by a seller in one country to a buyer in another, and the investment of capital by an investor in one country in an enterprise or in property situated in another country.
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The term international business has a wider meaning than international trade. International trade literally involves only imports and exports of goods between traders in different countries. International business includes not only trade in goods but also services, and foreign investment, that do not fall directly under the traditional narrow definition of trade.
International business then consists of:
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foreign trade, or the import or export of goods;
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trade in services such as international, banking, insurance, transportation, accounting and legal services; and
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foreign investment.
Foreign investment
There are different forms of foreign investment. It can be either direct investment or indirect investment.
Direct investment
Subsidiary Company
An example of direct investment is to set up a subsidiary: a new constituent part of the home corporation is established. It is a form of expansion; if a subsidiary is not set up to give complete control, investment may be such as to give the overseas investor enough control through ownership.#p#分页标题#e#
Agency
If an overseas business trades through an agent located in the host country, it is regarded that the agent is merely standing in the shoes of the principal: that the principal is present in the host country. This is because in the agency/principal relationship the agent acts merely as an intermediary in order to bring about legal relations between the principal and the third person/s.
Indirect investment
Portfolio
Portfolio investment is a form of indirect investment. In portfolio investment the overseas investor acquires some interest in an enterprise with a view to deriving income, but not with a view to owning or controlling the enterprise.
Licensing
Another form of indirect investment available to the person wishing to invest overseas is through licensing agreements whereby a licensee in the overseas country is given the technological knowledge and the legal right to engage in a certain activity within specific limitations as to geographical areas and duration of the right.
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Commercial international treaties and conventions
It is true that the United Nations has the International Court of Justice at the Hague, but private individuals or corporations do not have access to this court. However, there are now an increasing number of international treaties and conventions that cover commercial and economic matters. Treaties are the more important international agreements. Conventions are of lesser importance. Either can only be enforced through the internal courts of participating countries. The spread of international commercial agreements has been much slower and less far reaching than the spread of international business.
The European Union has gone further than most other regions in developing formal commercial laws with their Court of Justice, established to apply the conditions of the Treaty of Rome.
What are some of the commercial international treaties and conventions concerned with?
The right of establishment: The idea is that a government seeks to enlarge opportunities available to its nationals to transact business in foreign countries on a non-discriminatory basis. The fundamental principle behind this is that it is a privilege rather than a right to transact business in another country and an agreement to do so has to be reached by the government of the two countries concerned.
The protection of intellectual property rights: Patents and trademarks are registered by national governments and are valid only within the territorial jurisdiction of the granting government. Some countries have developed flourishing businesses by not having, or not enforcing, laws to protect intellectual property. The Uruguay Round of trade negotiations was concerned with this issue and reached agreement on the protection of international property rights against international infringement.
Taxation treaties: Again, taxes are levied by individual countries, but MNCs or parts of them may fall under the jurisdiction of more than one taxing authority. The enterprise has the right to avoid being excessively taxed but the taxation authorities of individual countries have a right to tax the revenues of companies within their jurisdiction. There is, however, no widely accepted theory of international law. This can be to the advantage or disadvantage of the MNC. Sometimes the definition of the firm’s residence and the source of income to be taxed differs among the countries concerned. A large number of bilateral tax agreements have been negotiated to provide relief from the possible double taxation of companies.#p#分页标题#e#
Property protection in foreign jurisdictions: All nations assert the right to expropriate private property when the national welfare (‘the public purpose’) makes such a move desirable. The right of a sovereign government to expropriate is not in dispute but there are differences as to the adequacy and promptness in the payment of compensation, what compensation rules to follow, and how to settle disputes. Foreign investors often have the feeling that they will not get a fair
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hearing when matters are dealt with in foreign courts. For this reason several countries seek to establish bilateral agreements with others to give their investors a sense of security. An agreement between Australia and Hong Kong is of this type. It seeks to give added protection to Australian investments in Hong Kong.
International arbitration and dispute settlement
International business has been reluctant to rely on national courts for the settlement of disputes and the recent and growing trend is to use international arbitration. This involves the settlement of a dispute by an impartial referee selected and agreed upon by the parties concerned and according to a predetermined and/or agreed upon set of rules and procedures. It can, however, be a costly means of dispute settlement.
Mutually agreed upon arbitration clauses are often now included in investment guarantee treaties, economic development agreements, and other agreements between foreign investors and host governments. Such clauses may also be included in commercial agreements between firms from different countries.
Principal centres of international arbitration have developed in cities such as Geneva, London and New York, each with specialisation in particular areas of arbitration.
Where one of the parties to a dispute is a nation state, the International Centre for Settlement of Investment Disputes (ICSID), established in 1966 under the auspices of the World Bank, offers arbitration and conciliation services. All major industrialised and many developing countries are members, but many Latin American countries are noticeably absent.
Infrastructure treaties and conventions
The international legal environment includes many areas of inter-governmental cooperation as well as conflict. Cooperation in the area of infrastructure provisioning helps promote international business and this is especially so in the areas of communication and transportation.
Specialised UN agencies that promote inter-governmental cooperation include:
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the International Civil Aviation Organisation;
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the International Telecommunications Union;
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the Universal Postal Union;
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the International Labour Office; and
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the World Health Organisation.
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New infrastructure agreements are likely to develop in the increasingly important area of environmental control and the use of deep seabed resources. Also, an issue of recent concern to international business relates to transborder data flows made possible by enhanced computer communications technology. Data protection laws are needed to restrict international data flows and new treaties are likely to be called for and developed.#p#分页标题#e#
Doctrine of sovereign immunity
The doctrine of sovereign immunity means that the government in one state is not subject to the jurisdiction of the courts of another state against its will. This is a principle of international relations and is recognised by all legal systems. The absolute theory held that all government action was exempt from the jurisdiction of the courts of another country. The restrictive theory of sovereign immunity is more popular today and is followed in most countries. It holds that if a government department goes into the market place and buys goods as a commercial transaction it should be subject to the rules of the market place.
The business person when dealing with a foreign government should determine before entering the contract whether the defence of sovereign immunity will be raised. If a choice of forum clause is to be included in the contract, the law on sovereign immunity must be examined.
Sources of international law
Read
Reading 1: Law for global business
Reading 2: ‘The international legal environment’
Textbook: Mo, JS 2003, Regional trade organisations, Chapter 10
International law
The term international law usually refers to public international law, often called the law of nations. This is a system of laws which governs the relations between states. The relations between individuals (as opposed to states) internationally is referred to as private international law.
Is international law really law or mere morality? These questions arise because of the fact that there are no supranational bodies to make or enforce international law as there is in municipal (national) law. But international law is law, because it is accepted as such. It is in the interest of states which are interdependent to agree to rules of international law. It is argued that the absence of a legislature is a source
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of strength for international law: states create the law for themselves cooperatively; it is less likely that there will be a concentration of power in the hands of a few.
International law is largely based on custom. Whenever nations have come into contact with one another, they have felt the need for some sort of international order to govern their relations.
Modern international law began to develop at the same time as the modern system of states in the sixteenth and seventeenth centuries. It has expanded greatly and changed since the period of decolonisation and even more so since the fairly recent increase in international trade.
Article 38(1) of the Statute of the International Court of Justice provides:
The court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply:
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international conventions, whether general or particular, establishing rules expressly recognised by the contesting states;
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international custom, as evidence of a general practice accepted as law;#p#分页标题#e#
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the general principles of law recognised by civilised nations; and
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judicial decisions and the teachings of the most highly qualified publicists of the various nations, a subsidiary means for the determination of rules of law.
This provision is usually accepted as constituting a list of the sources of international law.
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‘International conventions’ Convention means treaty. Treaties are of growing importance in international law generally and in international trade and business. A treaty applies only between the parties to it.
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Custom The second source of international law listed in the Statute of the International Court of Justice is ‘international custom, as evidence of a general practice accepted as law’. Customary law is found in the actual practice of states. This can be seen in newspaper reports, and other writings, statements made by government spokespeople internally and internationally as well as in a nation’s laws and judicial decisions. Evidence of customary law may sometimes be found in the writings of international lawyers and in judgements of national and international tribunals.
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Codification of customary law
Customary law may be codified into international conventions, the work for which is done by international bodies representing numerous nation states.
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General principles of law The third source mentioned above is ‘the general principles of law recognised by civilised nations’. New areas of international law may be filled by using principles which are common to all or most national systems of law. Although specific rules of law may vary between countries the basic principles are often similar.
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Judicial decisions Articles 38(1)(d) of the Statute of the International Court of Justice directs the Court to apply ‘judicial decisions… as subsidiary means for the determination of rules of law’. This direction is made ‘subject to the provisions of Article 59’ which state that ‘the decision of the Court has no binding force except between the parties and in respect of that particular case’. International courts are not obliged to follow previous decisions, although they almost always take previous decisions into account. We have already said above that judicial and arbitral decisions can be evidence of customary law. (There is little difference between judicial settlement and arbitration in international law). The International Court of Justice is important in creating new law and has produced innovations into international law which have subsequently won general acceptance.
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Domestic law Another important source of international law is the domestic laws of each country that regulate certain areas of international business activity such as import and export control, foreign investment, repatriation of capital and taxation. In addition international treaties and conventions are required to be adopted and ratified by domestic legislation.#p#分页标题#e#
International treaties and organisations
International treaties and organisations play an important role in the development of international business. International treaties and organisations are closely linked. International organisations are based on international treaties and conversely international treaties require a mechanism such as an organisation to implement the treaty or convention.
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Managers involved in international business need to be aware of the existence and functions of a number of supranational organisations and institutions that can have a considerable impact on shaping and moulding the international business environment. These institutions affect the degree of risk that is associated with international commerce and the returns that a firm engaged in international commerce can earn from its efforts.
Some international organisations or treaties concerning trade and commerce are presented below. These extracts are from Mo, JS 1997, International commercial law, Butterworths, Sydney, pp. 34-55.
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Asian-Pacific Economic Cooperation (APEC) Australia initiated the idea of establishing regional economic cooperation in the Asia-Pacific region. Based on the governmental discussions between the interested countries, it appears that the cooperation, will be carried out at a low level under which the contracting parties will not undertake substantial obligations to coordinate their tariffs and customs policies. Given the diversity of the political, economic and cultural interests of the countries in the Asia-Pacific region, it is less likely that APEC will become a regional customs union. The idea is yet to be developed by the countries which are interested in a sort of forum to improve economic cooperation between them.
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Association of South East Asian Nations (ASEAN)
ASEAN was established in 1967. Its Secretariat is located in Jakarta. Its members are Indonesia, Malaysia, Singapore, the Philippines, Thailand, Brunei, Vietnam, Cambodia, Laos and Mayanmar. The ASEAN countries adopt low tariffs on the products sold between the members, and may move to a non-tariff arrangement in the future. The members also cooperate in a range of economic issues which are of interest to them. ASEAN has become a distinctive economic force in the Southeast Asian region.
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The European Union (EU) or European Community (EC) The European Union is a customs union and a regional organisation whose members cooperate not only in the field of economic matters, but also in the field of certain social and political matters too. It was formally established as the European Economic Community (EEC) under the so-called Merger Treaty signed by several European countries in 1965 for the purpose of amalgamating the High Authority of the European Coal and Steel Community. The Commission of the European Economic Community (the treaty establishing the EEC was signed in 1957 and came into force in 1958) and the Commission of the European Atomic Energy Community. It was later renamed the European Community (EC) and eventually became the European Union (EU) in 1993. EU is a continuation of the economic cooperation between the European countries under the previous three communities, although the common market policy of the EU has set a new record for international cooperation between countries in the history of international trade and of international commercial law.#p#分页标题#e#
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The EU, as an international (or supranational) body, has four functional organs. The European Council consists of the head of each member country. It meets three times a year and is the highest decision-making body of the EU. the European Commission consists of individuals appointed by each member country pursuant to the agreed quota. It is the executive organ of the EU. The European Assembly (Parliament) consists of individuals elected directly by people from each member country pursuant to the agreed quota. The first direct election took place in 1979. the EU parliament is a supervisory body. it can discuss the Commission’s reports and proposals. The members of the Commission are to some extent accountable to the parliament. But the parliament has no supervisory power over the European Council. the European Court of Justice (ECJ) was set up in 1958. Its functions are to interpret and implement the treaties on the Union and laws or regulations of the Union. The judges are appointed by the member states. The jurisdiction of the court is defined and limited by the treaties and laws or regulations (or directives) made by the Union. The present EU was established in 1993 under the Treaty of European Union (TEU or Maastricht Treaty) of 1992. The Maastricht Treaty was finally approved by all members of EC in 1993 and the Union came into existence in the same year. The Masstricht Treaty consolidates all the previous treaties and upgrades the cooperation among EU countries to a new level. For example, the power of the EU Parliament to regulate the EU market, education, consumer affairs, etc, is strengthened in the treaty; and the Court of Justice is given wider power to impose fines against a member country which fails to comply with the court’s judgements. Within the Union, a free movement of capital is guaranteed. The members agree to cooperate in a wide range of areas, such as education, culture, consumer protection, tourism and security matters. The EU has developed from a mere customs union a new form of regional cooperation, which can be compared with a loosely connected ‘federation’.
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The Food and Agriculture Organisation (FAO) The FAO was established in 1945 in Quebec as an independent and specialised agency of the UN. It is now situated in Rome. Its main function is to improve the production and distribution of agricultural products and food. As an international organisation, it provides assistance under the World Food Program to countries and regions which suffered from natural disasters.
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General Agreement on Tariffs and Trade (GATT) GATT was an international agreement on tariffs and trade, although it operated as if it were an international organisation on tariffs and trade before 1994. Following the conclusion of the GATT negotiations in the Uruguay Round in 1993, the World Trade Organisation (WTO) came into existence. Now GATT can be identified as GATT 1947 (referring to the original GATT) and GATT 1994 (referring to the GATT documents as amended in the Uruguay Round). But, it must be pointed out that as far as the fundamental principles of GATT are concerned, there is no substantial different between GATT 1947 and GATT 1994.#p#分页标题#e#
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GATT 1947 was initially negotiated among a number of countries after the Second World War as part of a package for international trade, which also included an agreement on the establishment of an International Trade Organisation (ITO). The agreement on ITO, the Havana Charter, eventually failed. In 1947, a number of countries agreed that GATT should begin to operate provisionally pending the entry into force of ITO, GATT came into effect in 1948. It soon replaced the functions of ITO as a result of ITO’s failure, operating as both an agreement on tariffs and trade and a forum for international trade negotiations.
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The International Maritime Organisation (IMO)
The IMO came into existence in 1958 pursuant to the Convention on the International Maritime Organisation, adopted on 6 March 1948 in Geneva, to establish a specialised agency of the UN for shipping matters. The IMO is also known as the Intergovernmental Maritime Consultative Organisation (IMCO). It is a consultative and advisory forum where the members can discuss various shipping matters of their concern. The IMO has been involved in drafting codified rules for navigation and shipping, such as signals and distress systems, measuring of tonnage of ships, standardisation of containers and environmental protection. It is also involved in the development of new technology to improve navigation systems; for example, satellite systems to aid maritime navigation. Its headquarters are in London.
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The International Air Transport Association (IATA) The IATA was founded in 1945 in Havana under the agreement of the 1944 International Civil Aviation Conference in Chicago. The IATA replaced the International Air Traffic Association set up in 1919 in The Hague. It is a
non-governmental organisation consisting of major international airlines. Its main purpose is to coordinate cooperation between the airlines. It deals with many practical and technical issues, such as air navigation facilities, airport charges, rules of navigation, air fares, and fair competition between the airlines. The IATA recommends uniform fares (minimum rates) to its members. In a sense, the IATA is a self-regulated body in the international civil aviation industry. Its headquarters are in Geneva.
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The International Bank for Reconstruction and Development (IBRD) or World Bank The IBRD was established pursuant to the Bretton Woods Agreement of 1944. Its headquarters are in Washington DC. As its name suggests, it is an intergovernmental (as opposed to a non-governmental or unofficial) financial institution for providing financial assistance for the reconstruction and development of the member countries. Its membership is open to the IMF countries only. The bank has a special interest in the development projects of less-developed countries. It makes loans to these countries and may, if necessary, act as guarantor for private investments in them. The bank also provides technical assistance or advice to less-developed countries in the field of investment projects. As a financial institution, the#p#分页标题#e#
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bank may with the consent of the country concerned sell or purchase the securities or bonds issues or guaranteed by it. The bank may also invest money in certain investment projects pursuant to its constitution. The IBRD is also known as the World Bank. It has two affiliates: the International Finance Corporation (IFC) and the International Development Association (IDA). The IRBD has a close connection with the International Centre for the Settlement of Investment Disputes (ICSID), which is an important international agency dealing with foreign investment disputes between a government member and a national of another member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The Convention was drafted by the bank and came into force in 1966. The ICSID is an autonomous body, but financed and supported by the bank.
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The International Centre for Settlement of Investment Disputes (ICSID) The ICSID came into existence in 1966 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965. It is an independent organisation for dealing with foreign investment disputes, although it is financed by the World Bank (or IBRD). The investment disputes dealt with by the ICSID must be between a national government, which is a contracting party to the Convention, and an individual (either legal or natural person) whose government is a contracting party to the Convention. The centre provides arbitration and conciliation services as the means of dispute settlement.
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The International Chamber of Commerce (ICC) The ICC was established in 1919 as a non-governmental organisation. Its main purposes are to facilitate international trade and commerce, serve the needs of the international business community (for example, in 1989 the ICC recommended the Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission for the purpose of establishing the minimum standard for the use of electronic data interchange, known as EDI, in international commerce and trade), and promote the idea of an open market for goods and services and the free flow of capital.
The ICC is well known for its publications of international commercial and trade customs and usages. For example, Incoterms 2000 are commonly adopted in contracts for international sale of goods, and the UCP 500 is accepted by banks throughout the world. In addition, a great number of other ICC publications, which reflect the common international usages and practices in the areas concerned (such as ICC Uniform Rules for Contract Guarantees, ICC Uniform rules for Contract Bonds, ICC International Code of Sales Promotion, ICC Code on Sponsorship, ICC International Code of Practice on Direct Marketing, and ICC Rules of Conciliation and
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Arbitration), are also frequently used by the international business community. The publications provide a basis or guidance for parties to commercial transactions, as they represent the common commercial practices which the parties are likely to follow.#p#分页标题#e#
The ICC has a number of sub-organisations, which play an active role in international trade and commerce. The most frequently used service provided by the sub-organisations is the ICC International Court of Arbitration. In addition, the ICC also has the International Bureau of Chamber of Commerce (IBCC), the Institute for International Business Law and Practice, World Industry Council for the Environment (WICE) and ICC Commercial Crime Services (consisting of Commercial Crime Bureau, International Maritime Bureau and Counterfeiting Intelligence Bureau). The ICC has contributed extensively to the development of international commercial law since 1919.
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The International Civil Aviation Organisation (ICAO) The ICAO came into existence in 1947 pursuant to an international agreement signed in 1944 in Chicago. The Chicago Convention sets out international standards and recommended practices for international civil aviation. The ICAO was founded to implement this convention and to coordinate international cooperation in the area of civil aviation. One of its functions is to set out safety standards to ensure the safety and efficiency of international airlines. The member states have an obligation to follow the safety standards set by the organisation. The ICAO has been involved in developing uniform rules for civil aviation. For example, it drafted and revised the Warsaw Convention. The ICAO’s headquarters are in Montreal.
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The International Labour Organisation (ILO) The ILO was established in 1919 in Washington. It became a specialised agency of the UN with independent status after the Second World War. the organisation has representation from both the governments and labour forces to discuss issues that concern them. Its main function is to study world-wide labour-related issues by proposing draft international conventions in this area. A convention recommended or passed by the ILO may bind a state pursuant to the normal treaty process, which means it does not apply to a state unless the state has ratified it. But the conventions passed by the ILO do set out international standards on various labour-related issues and may indirectly affect the domestic law of a country whose government has not ratified the conventions. Its headquarters are in Geneva.
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The International Monetary Fund (IMF)
The UN Monetary and Financial Conference met in Bretton Woods, New Hampshire, United States, from 1 to 20 July 1944. The Bretton Woods Agreement announced the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The IMF came into existence in 1945 and commenced its financial operation in 1947. The IMF makes temporary funds available to its
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members to enable them to maintain balance of payments and exchange rate stability. The IMF also promotes international cooperation between its members and encourages activities for conserving or increasing the resources of its members.#p#分页标题#e#
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The International Trade Centre (ITC) The ITC is a governmental body operating under the joint auspices of GATT and UNCTAD. It initially came into existence in 1964 as an organisation supported by GATT and came under the joint auspices of GATT and UNCTAD in 1968. Its main function is to promote trade developments in developing countries. The centre provides advice and training to its members. It also provides necessary assistance to members for the purpose of promoting international trade.
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Organisation of Arab Petroleum Exporting Countries (OAPEC) OAPEC was established in the Second Arab Oil (or petroleum) Congress of 1968 (the first was held in 1959). It consists exclusively of Arab oil-exporting countries. Its founding members are Libya, Kuwait and Saudi Arabia. Its membership was later extended to include Algeria, Qatar, Abu Dhabi, Bahrain, Dubai, the United Arab emirates, Iraq, Egypt and Syria. The members of OAPEC are also members of the Arab League and OPEC. OAPEC is not only a forum in which the members can coordinate their policies, but also an organisation which manages a number of investment projects or companies invested in by its members.
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The Organisation of Petroleum Exporting Countries (OPEC) OPEC was established in 1960 pursuant to an agreement of the Conference of the Representatives of the Government of Iran, Kuwait, Iraq, Saudi Arabia and Venezuela, made in Baghdad in 1959. It presently consists of about thirteen oil exporting countries, including Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Its main function is to coordinate the petroleum polices of its members. OPEC regulates quotas for production and coordinates the prices of the oil produced by its members.
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The United Nations (UN) The United Nations was established in 1945 under the Charter of the United Nations. It is the only forum where all the countries of the world can gather together to discuss matters that affect their interests. any independent country can be a member of the UN. But an ‘independent international entity’ can be excluded by the members of the UN for political or other legitimate reasons. For example, Northern Korea and Taiwan are not members of the UN, because it is arguable whether they are ‘independent countries’.
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The UN’s functions are performed through the General Assembly, the Security Council, the Economic and Social Council (ECOSOC) the Trusteeship Council, the International Court of Justice and the Secretariat. ECOSOC and the International Court of Justice have special significance to the development of international commercial law.
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United Nations Commission on International Trade Law (UNCITRAL) The United Nations Commission on International Trade Law was set up in 1966 by the General Assembly of the United Nations to deal with conflicts of national laws governing international trade. It was created as the core legal body within the UN system in the area of international trade law. The members of the commission are elected by the General Assembly periodically as representatives of various geographic regions and countries with the same interest. Much of the commission’s preparatory work is carried out by its Secretariat - the International Trade Law Branch of the United Nations Office of Legal Affairs - which consists of experienced ‘international lawyers’.#p#分页标题#e#
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The United Nations Conference on Trade and Development (UNCTAD) UNCTAD is an agency of the UN with its Secretariat situated in Geneva, and its members are UN members. UNCTAD has a general conference of the members every three or four years. the Trade and Development Board of UNCTAD, supervises the operation of the organisation. UNCTAD has four major committees carrying out the main functions of the organisation. These are: the Committee on Commodities; the Committee on Manufacturers; the Committee on Invisibles and Trade Financing; and the Committee on Shipping. Since UNCTAD is an organisation of the UN, its contribution to the development of international trade and commerce concentrates on policy matters. The so-called New International Economic Order (NIEO) was initiated by the so-called Group 77 (G77), with similar views on the NIEO, within the forum of UNCTAD. Although it is mainly a forum for political discussions, a number of international agreements initiated by UNCTAD, such as the International Commodity Agreements, are an important part of international commercial law. UNCTAD’s functional committees, for example, the Committee on Shipping, have been active in developing rules affecting international trade and commerce.
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The World Intellectual Property Organisation (WIPO) WIPO was established under a convention signed in Stockholm in 1967, which entered into force in 1970. It became a specialised agency of the UN in 1974. Its main function is to provide effective universal protection to intellectual property. WIPO co-exists with two relevant unions: the Paris Union, which was established under the 1883 Paris Convention for Protection of Industrial Property; and the Berne Union, which was set up under the 1886 Berne Convention for Protection of Literacy and Artistic Works. WIPO is open to all countries, in particular those which are members of the unions.
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The World Trade Organisation (WTO) The WTO was established under the Agreement Establishing the Multilateral Trade Organisation of 1993. It is the most recent development of GATT in the Uruguay Round. A number of documents were passed by the members of GATT in the Uruguay Round to establish a new world trade system based on the WTO. The essential difference between the present WTO system and the old GATT is that the present system is built on the trade organisation WTO, but the old GATT system was based on a framework for negotiation. The WTO consists of the Ministerial Conference, the General Council, the Council for Trade in Goods, the Council for Trade in Services, the Council for Trade-Related Aspects of Intellectual Property Rights, various functional bodies, and the Secretariat. The WTO agreements came into force in January 1995.
Read
Reading 1: Law for global business
National legal systems and socio-cultural diversity
National legal systems
The regulatory framework for international business, rests on a very wide variety of national legal systems. International managers realise that it is unwise to go it alone on legal matters in unfamiliar systems and will usually call on specialised legal help. However, the international manager needs at least a general understanding of national legal systems.#p#分页标题#e#
Legal systems throughout the world reflect the values of diverse cultures. Despite the diversity of laws and legal systems it is generally accepted that legal systems are grouped into families or models. There are three major legal systems in the world. They are the common law legal system, the civil law legal system and the theocratic system.
Common law
Based on tradition, precedent, and custom and usage. The courts have an important role in interpreting the law based on these characteristics. Decisions made by the court are based on preceding judgements rendered by earlier courts. Common law is practised in Great Britain and most of her former colonies, including Australia, New Zealand and the United States.
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Civil law
It refers to a system where the body of law, written in the form of statutes, is constructed and administered by judicial experts in government. A career civil servant replaces the role of judge to some extent. Such law is seldom modified or amended. Over 70 countries, including Germany, France and Japan, operate on a civil law basis.
The law in most Latin American counties is very similar due to the fact that those nations were colonised by the Spanish or the Portuguese. The legal systems of the European nations is based on civil law (or continental law), which has its origins in Roman law. The European imperial powers, which also include France, Holland, Germany and Belgium took the civil law system to those countries they colonised.
A basic difference between these two categories is that common law is based on the facts and how they are applied to the law. For example, in contract law a common law country tends to have very detailed contracts, but in a civil law country contracts tend to be shorter and less specific because many of the issues covered in a common law contract are included in the civil code.
Theocratic or religious law
This is based on religious precepts. An example is Muslim law which is followed to some extent in 27 countries. Islamic countries often have legal systems that are a blend of Islamic law or common or civil law systems.
Islamic doctrine holds that the legislator does not have the power to change the rules which form the core of Muslim law. However, in most Muslim countries the legal systems are based on a combination of religious law and civil law.
In many countries of the world it is the case that the legal system is composed of a number of different kinds/systems of laws, for example, in South Africa some areas are influenced by Dutch law, some by English and many by customary laws, for example, Zulu or Swazi. Religious laws may also play a part.
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It is also important to recognise that in some countries law plays a major role in the social fabric of the society and in upholding individual rights. This is the case in the United States where the legal system is referred to as a major provider of dispute resolution of personal, business and political differences. In western political systems in general there is a frequent appeal to the rule of law and rights of the individual. In other legal systems, law may not have such a major role or influence. In fact it may be downgraded and regarded as a last resort; something to be avoided as in China and Japan where good #p#分页标题#e#留学生法律硕士论文定制citizenship dictates that disputes should be settled by compromise and through methods of conciliation and mediation, not by the techniques of fighting through an adversarial system in court. In these countries lawyers and litigation are abhorred and they prefer a conciliatory approach or mediation. It is hardly surprising that the USA has approximately one hundred times more lawyers per head of population than Japan.
It is useful when trading internationally to identify the legal system of the person you are contracting with because once it is established that a principle exists, for example in English law, it is fairly safe to assume that it also exists in Australia, New Zealand, Canada, India, Hong Kong, Malaysia, the United States and so on. Case law will often be similar as will commercial legislation, for example, the law of partnership, companies, trusts, bankruptcy, property, bills of exchange and cheques.
Working within the legal system
Differences in the legal processes for solving legal problems are just as important as differences in the structures of legal systems. Sometimes the most advanced laws are inactive because an undeveloped judicial system cannot handle the litigation involved.
Domestic business must adapt to the legal system of the host country when doing business overseas.
Standard documentation used may need amending for use overseas. It is acceptable for the documentation to be in English, both because it is the language of international business and, in many cases, because it is easier to deal with the precise contractual issues in English than in some foreign languages.
It is important to find the middle path between producing a document that is so complex and obtuse that even a fluid English speaker would have difficulty in understanding and, for fear of insulting a potential partner, producing or accepting an extremely brief and imprecise document.
The traditional form of doing business in Asia on the basis of a handshake and oral agreement can be risky for a foreign partner. Lack of clarity in agreement can also produce disastrous results.
Experience shows that very few joint venture disputes end up before the courts or in arbitration. This is often partly an acceptance by the foreign investor that in many cases that the original arrangement was so vague that it is open to argument. There is usually a realisation that to fight a dispute in a foreign court is extremely expensive and uncertain.
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Socio-cultural diversity
Business entities operating in different host countries world-wide have to deal with a variety of political, business and technological situations. In addition they have to be aware of the socio-cultural differences that exist in the different countries in which they operate as each country has its own society and culture. Although society and culture do not appear to be part of a business situation, they are critical elements in influencing business activities, determining how business will be conducted, what goods will be produced and how and where they will be sold. For example, according to Ajami and Khambatta, the international firm selling contraceptives must be aware that it is dealing with family customs, religious beliefs, population policy and sexual restriction of different cultures.#p#分页标题#e#
Society and cultural diversity influence many aspects of international business. Entities operating in foreign countries have to consider the socio-cultural differences, attitudes, beliefs, customs, feelings and opinions of the people in the local environment. While some cultural differences are pronounced and can be identified, others are relatively subtle, though equally important.
Though socio-cultural differences do not form part of a business situations, they nevertheless play an important role in negotiations, and the establishment and operation of international business.
Some socio-cultural elements that influence business and the environment in which it operates are as follows:
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attitudes towards time;
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attitudes towards work and leisure;
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attitudes towards achievement;
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attitudes towards change;
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attitudes towards jobs;
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religion and commerce;
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aesthetics;
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material culture;
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literacy rate;
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education mix;
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groups - families and friends;
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gender;
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gift giving, bribery, and nepotism; and
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communication and language.
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The meaning of numbers, colours and other symbols in different cultures
White
Symbol of mourning or death in the Far East; happiness and purity in Australia, New Zealand and the United States.
Purple
Associated with death in many Latin American countries.
Blue
Connotation of femininity in Holland; masculinity in Sweden, United States.
Red
Unlucky or negative in Chad, Nigeria, Germany; positive in Denmark, Rumania, Argentina.
Yellow Flowers
Sign of death in Mexico, infidelity in France.
White Lillies
Suggestion of death in England.
Number 7
Unlucky in Ghana, Kenya, Singapore; lucky in Morocco, India, Czechoslovakia, Nicaragua, United States.
Triangle
Negative in Hong Kong, Korea, Taiwan; positive in Colombia.
Owl
Wisdom in United States; bad luck in India.
Deer
Speed, grace in United States; homosexuality in Brazil.
Examples of translations:
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Outside a Hong Kong tailor shop: ‘Ladies may have a fit upstairs’.
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In a Thailand dry cleaner’s store: ‘Drop your trousers here for best results’.
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Outside a French dress shop: ‘Dresses for street walking’.
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In a Greek tailor shop: ‘Order your suits here; because of a big rush we will execute customers in a strict rotation’.
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A Hong Kong advertisement: ‘Teeth extracted by the latest Methodists’.
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An Italian laundry: ‘Ladies, leave your clothes here and spend the afternoon having a good time’.#p#分页标题#e#
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A Czechoslovak tourist agency: ‘Take one of our horse-driven city tours - we guarantee no miscarriages’.
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Advertisement for donkey rides: ‘Would you like to ride on your own ass’.
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In a Romanian hotel lobby: ‘The lift is being fixed for the next day; during this time we regret that you will be unbearable’.
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In a French hotel: ‘Please leave your values at the front desk’.
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In a Greek hotel: ‘Visitors are expected to complain at the office between the hours of 9 and 11am daily’.
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In a Yugoslav hotel: ‘The flattening of underwear with pleasure is the job of the chambermaid’.
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In a Japanese hotel: ‘You are invited to take advantage of the chambermaid’.
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On the menu of a Swiss mountain inn restaurant: ‘Our wines leave you nothing to hope for’ and ‘Special today - no ice cream’.
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In the window of a Swedish furrier: ‘Fur coats made for ladies from their own skin’.
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A Danish airline: ‘We take your bags and send them in all directions’.
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A Norwegian cocktail lounge: ‘Ladies are requested not to have children in the bar’.
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At the office of an Italian physician: ‘Specialist in women and other diseases’.
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A Mexican hotel: ‘The manager has personally passed all the water served here’.
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A Japanese hotel air conditioner: ‘Cools and Heats: If you want just condition of warm in your room, please control yourself’.
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Detour sign in Japan: ‘Stop! Drive sideways’.
Source: Lederer, 1987, Miscellaneous newspapers.
Environmental and legal constraints and cooperation
Environmental legal constraints
Foreign trade and investment is more complex than conducting business in a domestic environment. There are many environmental constraints in international business. These will vary according to the laws and legal processes in the country of operation, the type of business activity undertaken, the host country’s political and economic stability and the socio-cultural diversity in business ethics and practices. In addition the business vehicle used for overseas trading, and the nationality of the entity is of importance as on this may depend the entitlement to tax and other benefits and also the limitations and restrictions placed on trading operations.
The environmental legal constraints include the following:
Taxation (both in the host and home countries)
Taxation is always a concern to persons doing business either domestically or internationally. In international trade, knowledge of whether there are double taxation agreements between the two countries is of paramount importance. Moreover there are taxation differences depending on whether the investor is doing business with or in a foreign jurisdiction. The incidence of taxation will also differ depending on the business vehicle used, i.e. company (and this may vary depending on whether the corporation is a branch, part of a company which is incorporated in the home country, or a subsidiary, partnership or otherwise.#p#分页标题#e#
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Exchange control
Approval will usually be necessary where the foreign investor transfers money out of his/her own country into a recipient country. Where the investor borrows in the recipient country, he/she may also be required to obtain approval in that country. There also may be restrictions on the repatriation of dividends, and capital on a winding up.
Restrictions on participation of foreigners in local enterprises
Is the foreigner precluded from investing in certain areas, is the size or form of investment restricted? There may be a maximum percentage of shares which a foreigner can hold in a company that operates in a strategic industry. Or the foreigner may be granted permission to invest only upon certain conditions being met, as to the nature or duration of the investment. The investor may only be permitted to invest in a venture in cooperation with a local enterprise.
Customs, tariff and anti-dumping regulations
In an international sale, the customs duties payable upon importation and any other tariff and anti-dumping regulations or restrictions are important to consider.
Non-tariff barriers
Non-tariff barriers impede the flow of goods into a country by increasing the administrative difficulties involved in supplying goods to a country. Non tariff barriers include discrimination against foreign suppliers, stipulation that goods are required to contain a certain percentage of domestic content, establishing minimum sale prices for imported goods, rigorous customs entry procedures and excessively severe inspection and quality standards.
Risks
International transactions operate in a relatively uncertain environment and face the risks of fluctuating prices and exchange rates, transport risks, political risks, changes in laws and regulations, and the risk of not being paid. These risks result in a greater possibility of conflict and dispute than trading in a domestic environment.
Protection of intellectual property
Different countries have different requirements and procedures for the proper registration and protection of intellectual property. To protect intellectual property rights, the international firm must register their property in every country in which it is to be used. Apart from the expenditure involved the international firm must take care to comply with the different requirements in each country.
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Local labour laws
Local labour laws stipulate minimum wages, types of fringe benefits, standards for working conditions and the timing and duration of holidays and vacations. In addition, in some countries, management is considered fully liable for worker safety, and criminal prosecution for worker injury or deaths suffered in the course of employment.
Diversity in national legal systems
The difference between the laws applying to international sales in different countries are a barrier to international trade due to the reluctance of traders to deal with a foreign or an unfamiliar legal system. Equally crucial can be national differences in the legal processes for resolving legal problems.#p#分页标题#e#
Diversity in socio-cultural business ethics and practices
Though society and culture do not form part of business situations, socio-cultural diversity affects many aspects of international business. The international trader must recognise and be conscious of the socio-cultural mores, attitudes, beliefs, religion, customs, feelings and opinions of the people in the foreign environment in which they operate.
Foreign corrupt business practices
Corrupt business practices such as bribes, gifts, payments to foreign officials, political parties or political candidates to facilitate international business are necessary in some foreign countries with different cultural practices and values. In some countries gifts are not expected or encouraged and when given must be appropriate.
Countries such as the UK, France, Germany and Japan consider bribes and gifts as a legitimate cost of doing business. But for instance the Foreign Corrupt Practices Act in the US make such payments illegal. Thus British, German, French and Japanese firms have a competitive advantage over countries where such payments are illegal.
Communication, language and translation problems
A source of legal difficulty in international business is the problem of communication and language translation. The problem arises in the course of business negotiations, drafting contracts, the preparation of corporate documents and the settlement of disputes. The translation of legal language involves a translation of concepts rather than a mere matching of words.
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Nationality of corporation
The nationality of a corporation is important as it has the potential of affecting business operations such as tax liabilities or government sponsored incentives or tax breaks, as well as the degree of liability of its directors and shareholders. It is thus necessary for multi-national companies to consider the form of organisation it wishes to adopt in a foreign country. In international business there is no such entity as an international corporation. The nationality of each corporation does not depend on its own choice or determination but upon the laws of the country of operation.
The business vehicle
If a decision is made to engage in international business, notwithstanding the aforesaid legal environmental constraints, consideration must be given to the form of business organisation the venture will take. There are many vehicles for carrying on trade and business, all of which have different legal ramifications. They include sole trader, partnership, company (either a branch office, a foreign company, or a subsidiary company) agency, distributorship, joint venture, licensing and franchising.
Each has advantages and disadvantages; registration or flotation requirements may differ. There may be no registration requirements for a trader who exports or for a licensee acting under a licence or for a joint venture. Taxation laws may differ depending on the vehicle used. Winding up will differ. For a company there will usually be complicated liquidation proceedings; where there are agency or licensing agreements there may be damages payable for loss of future profits.#p#分页标题#e#
The type of business structure may also be important depending upon what business activities are to be undertaken in the host country. For example, a wholly owned subsidiary will often be prohibited from extracting or refining raw materials. However a joint venture or partnership with a local business or a government enterprise may be permitted to engage in such activities.
According to O’Keefe & Tedeschi 1980, The law of international business in Australia, a distinction can be drawn between doing business in and with a foreign country. When a trader does business with a foreign country that person has no legal presence in the foreign country. He or she deals from afar with another trader in the country and is not subject to environmental legal constraints operating in a foreign jurisdiction. When a trader does business in a foreign country he or she has a presence in the country, which is recognised by the law of that country. Such a presence gives to the foreign country jurisdiction to attach legal obligations to that trader.
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Environmental legal cooperation
The international legal environment also has many areas of inter-governmental cooperation for promotion and liberalisation of international trade and commerce.
These include the following.
The harmonisation of laws
International conventions such as, the Vienna International Sales Convention relating to the international sale of goods, the Hague-Visby rules relating to bills of lading and the Warsaw Convention relating to air transport are aimed at promoting the development of international trade by contributing to the removal of legal barriers to trade. They provide uniform standards of conduct acceptable to traders with diverse social, economic and legal systems. By providing a uniform set of rules international conventions minimise the differences between the laws in different countries by removing the barriers to trade created by the unfamiliarity of traders with each others laws.
Standardised forms and practices
International trade is based chiefly on standardised forms and practices. Sales memoranda, broker’s notes, bills of lading, charterparties, marine insurance policies, letters of credit and incoterms contain standardised rules governing parties in international trade. For instance Incoterms 2000 published by the International Chamber of Commerce is a collection of a number of commonly used trade terms in international trade. By providing for a uniform interpretation of essential trade terms it removes uncertainties, misunderstanding and potential disputes that can result by different interpretations and meanings given to trade terms such as Free on board (FOB) or cost insurance freight (CIF) in different countries.
Infrastructure agreements and institutions
A number of UN specialised agencies such as the International Civil Aviation Organisation, the International Telecommunications Union, the International Labour Organisation and the World Health Organisation perform important services to facilitate international business transactions. For instance, the World Health Organisation performs various functions relating to the standardisation of drugs, and quarantine measures.#p#分页标题#e#
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Commercial trade agreements and treaties
Through bilateral and multilateral trade agreements and treaties relating to double taxation, investment guarantee agreements, agreements for the registration and protection of intellectual property and treaties of friendship, navigation and commerce, governments seek to enlarge opportunities for their nationals to trade, invest or establish and operate a business in a foreign country on a non-discriminatory basis.
Trade liberalisation agreements
International and Regional Trade Organisations and forums such as the GATT, WTO, EU, NAFTA, ASEAN and the APEC promote international trade in goods and services through trade liberalisation, and fostering and strengthening economic and commercial relationships among its members.
Judicial dispute resolution
International and regional dispute resolution mechanisms such as the Court of Justice established under the Treaty of Rome and the International Court of Justice in Hague established under the auspices of the UN play an important role in the judicial settlement of disputes among member states.
Conciliation and arbitration
There is a growing trend in international business to resort to arbitration as a means of dispute settlement in preference to judicial dispute settlement procedures. This among other reasons, is due to uncertainty about the applicable law, the country in which the dispute may be heard and the difficulties involved in the enforcement of foreign judgements by domestic courts.
An international institution that offers arbitration and conciliation services where one party is a state is the International Centre for the Settlement of Investment Disputes. Similarly, the dispute settlement body established under the WTO provides the means and procedures for the settlement of certain disputes between member states.
Institutional centres for the settlement of international trade disputes through arbitration are located in Geneva, London, New York and Paris. London for example is the world centre for international arbitration on maritime insurance and commodity matters. The Stockholm Arbitration Institute handles much of the arbitration dealing with east-west trade. In non-specialised cases the International Chamber of Commerce in Paris is one of the main institutions. The enforcement of arbitral awards in national courts is facilitated by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
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Self-assessment activities
1.
Is there a single body of international law that governs international business?
2.
Discuss the sources of international business law.
3.
Evaluate the impact of national legal systems on international business.
4.
a. How do international treaties and international organisations promote the conduct of international business?
b. How effective are international treaties?
5.
Discuss factors that facilitate international business.#p#分页标题#e#
6.
Discuss the following:
a. the factors that are constraints to international trade and commerce; and
b. the methods government use to protect their domestic business environment.
7.
What is the doctrine of sovereign immunity?
8.
Discuss the part bribery plays in generating international business. Is this practice regulated?
9.
Discuss the importance of recognising socio-cultural factors in conducting international business?
10.
Evaluate the impact of the internet on international business.
References
Ardagh, A & Brien, C 1977, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Griggs, L, Clarke, Streeter, J & Iredale, I 2003, Managers and the law, Law Book Co., Sydney.
Khambata, D & Kajami, R 1992, International business, theory and practice, Mcmillan Publishing Company, New York.
Mo, J 2003, International commercial law, 3rd edn, Butterworth, Sydney.
Robock, S & Simmonds, K 1989, ‘The international legal environment’, in International business and multinational enterprises, Irwin, Homwood.
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Topic 2 Business relationships for entry into foreign markets
Topic structure
The topic Business relationships for entry into foreign markets include the following content:
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sole trader;
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partnership;
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joint venture;
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company;
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agency;
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distributorship;
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tender; and
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franchising.
Learning outcomes
At the completion of this topic you should be able to:
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analyse the different kinds of business relationships, such as agency, distribution, joint ventures, franchising and licensing, that may be formed for transacting international business;
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recognise the essential features of a company, which distinguishes it from other forms of business organisations such as sole traders and partnerships;
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outline the importance of choosing the form of business organisation most appropriate to transacting international business; and
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compare the contractual provisions in agency, distribution, franchising and licensing agreements.
Required reading
There are no required additional required readings for this topic.
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Business relationships for entry into foreign markets
Introduction
A producer of goods and services wishing to market his or her goods in a foreign market has to choose the most appropriate form of business organisation to be established in his or her home country, and also in the foreign territory.
A trader may choose to export a product directly to customers in a foreign country. This can be done by appointing an agent to sell the product, or alternatively sell the product to a distributor. These methods involve transportation costs. To reduce or eliminate these costs a trader may decide to manufacture the product in a foreign country by setting up a business in a foreign country or by creating a foreign subsidiary or a joint venture. Although production costs may be cheaper in a foreign country there is a high initial cost of setting up a business and the risk of product failure. To avoid these costs and risks a producer may alternatively give permission to a foreign resident to manufacture and sell the product under a licence or franchise agreement.#p#分页标题#e#
The considerations for the choice of business relationships for entry into foreign markets may include the following:
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a business entity’s underlying strategic business objectives and financial resources;
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taxation laws and incentives in both the host and home country;
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exchange control restrictions for the transfer of money out of home country and the repatriation of dividends and capital from foreign investment;
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customs, tariffs, anti-dumping regulations and quarantine restrictions;
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local labour and industrial laws;
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restrictions on participation of foreigners in local enterprises, but permitted in joint ventures or partnerships with local participation;
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familiarity with marketing and business networks;
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availability of local technical support, personnel, raw materials and other resources;
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volume of anticipated business and competition;
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potential for the exploitation of licensing of intellectual property, and franchising;
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the authority of an agent to contract on the principal’s behalf;
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laws relating to the formation or flotation of a business entity and its dissolution; and
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the local political, legal, business, fiscal and socio-cultural environment.
The choice of business relationships will ultimately depend on a balancing of ‘costs, control and risk’.
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Forms of business organisation
Thus there are many business structures to choose from. Each of them have different legal ramifications, advantages and disadvantages. The forms of business organisations or relationships include:
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sole trader;
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partnership;
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company (either a branch office or a foreign company or a subsidiary company);
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agency;
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distributorship;
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joint venture;
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tender;
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franchising; and
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licensing.
Each has advantages and disadvantages; registration or flotation requirements may differ. There may be no registration requirements for a trader exporting or for a licensee acting under a licence or a joint venture. Taxation laws may differ depending on the vehicle used. Winding up will differ. For a company there will usually be complicated liquidation proceedings; where there are agency or licensing agreements there may be damages payable for loss of future profits.
The type of business structure may also be important depending upon what business activities are to be undertaken in the host country. For example, a wholly owned subsidiary will often be prohibited from extracting or refining raw materials. However a joint venture or partnership with a local business or a government enterprise may be permitted to engage in such activities.#p#分页标题#e#
Sole trader
Who is a sole trader?
A sole trader or a sole proprietor is an individual who carries on a business in his or her own name. The individual has to provide all capital and has total control of the business. The individual sole trader is entitled to all profits from the business, but must also bear all risks and liabilities arising from conduct of the business. As a sole trader is not a separate legal entity the income of the business and the personal income of the trader are also the same.
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Establishment
The establishment of the business is relatively simple and inexpensive. A sole trader may carry on a business under his or her own name. If a person wishes to carry on a business under a name other than his own, the name must be registered as a business name under the relevant Business Names Act.
Disadvantage
The sole trader is responsible for the provision of all capital and must bear unlimited liability for business losses. This structure is most appropriate for small domestic business operations. Its shortcomings restrict its value as a form of business organisation intending to operate on an international scale.
Partnership
What is a partnership?
If a business is beyond the capacity of a single person, some other form of business organisation must be considered. Partnership is a common form of business association combining the resources and experience of more than one person.
In Australia, partnerships are regulated by case law, and largely uniform, Partnership Acts in the various states and territories. A partnership is defined as an association which subsists between two or more persons carrying on a business in common with a view to profit.
Formation of partnership
There is no formal documentation required for the formation of a partnership, unlike in the case of a limited company. A partnership may be created by agreement which may be either written or verbal or may be inferred by the conduct adopted or agreed upon by all the partners. However, it is the general practice to have some form of written agreement between the parties setting out their rights, duties and responsibilities. The written agreement is referred to as the partnership deed, the partnership agreement or the articles of partnership. Some useful provisions to be covered in a partnership agreement include, the names of the partners and the firm name, the term, if any, of the partnership, the capital to be contributed by each partner, the authority of the partners and provision as to division of profits and losses.
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Maximum number
A shortcoming of partnership as a business vehicle for overseas operations is the limitation as to the maximum number of persons who may constitute a partnership and thus limit its ability to raise capital. The Australian Corporations Law limits the maximum number of persons allowed to form a partnership for the acquisition of gain to twenty persons, with the exception of partnerships formed to carry on certain professions such as accountants (1000 members) and legal practitioners (400 members) architects, chemists and veterinary surgeons (100 members) and stockbrokers (50 members).#p#分页标题#e#
Unincorporated association (not a separate legal entity)
Another significant disadvantage is that a partnership, like a sole trader, is not a legal entity separate from its members. The individual partners own the assets and incur personally the obligations and liabilities relating to the partnership business. This means that if, for example, a partner borrows money for the partnership business each partner would be personally liable for the full amount of the debt. The position of a partner may be even worse than a sole proprietor as each partner would be liable for the misconduct and incompetence of the others, as each partner is an agent of each other with respect to the conduct of the partnership business.
Transfer of assets
The absence of a separate legal identity, also complicates property ownership aspects of the enterprise. The individual partners must own the assets and when the identity of a partnership changes by the resignation of a partner and a new partner joining the firm, this may require transfer of assets and obligations from the retiring partner to the new partner. It is also sometimes difficult to determine whether the individual assets of a partner have become partnership property and becomes available for distribution on dissolution of the partnership.
Limited partnership
To overcome some of the disadvantages of partnerships all Australian states and territories have enacted legislation for the formation of limited partnerships.
Statutes allow the formation of limited partnerships in which there is at least one general partner with unlimited liability, and one or more limited partners whose liability for the debts and obligations of the firm is limited to an amount agreed to be contributed. A limited partner must not, however, take part in the day to day management of the business, and if he or she should do so would incur liability as a general partner.
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Limited partnerships are rarely used in Australia as they are taxed on the same basis as companies, and investors run the risk of losing the benefit of limited liability by involving themselves in the management of the partnership business.
Although partnerships are widely used in domestic business, their shortcomings restrict their value as a business structure intended to operate on an international scale.
Joint ventures
What is a joint venture
A joint venture is an association of two or more persons who agree by contract to conduct a particular venturers or project, with a view to profit, by combining their respective resources. It is an association of persons, natural or corporate in any number of business associations such as two sole traders, two companies or a sole trader and a company.
Joint venture distinguished from partnership
A joint venture should be distinguished from a partnership. The rights and obligations of joint ventures are not regulated by the Partnership Act. Assets of the co-venturers do not become liable for liabilities of the joint venture, and each joint venture is liable for its own debts, obligations and liabilities. Unlike in a partnership one venturer cannot pledge the credit of another, and there is no mutuality of rights and obligations, unless provided by agreement.#p#分页标题#e#
Joint ventures are used as a business structure in international and domestic business. In international business they are used as a form of business collaboration with enterprises particularly in developing and newly industrialised countries, while domestic export ventures are emerging as a popular structure for production of exportable commodities.
Rationale for choice of joint venture
While there are special considerations for choice of joint ventures in international business, which are discussed below, the general rationale for the formation of joint ventures are:
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to combine the complementary skills and resources of the venturers;
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to limit the risk of financial and project failure;
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to gain information and experience and market know-how and access;
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to obtain a preferred status as a supplier of goods and services; and
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as an alternative to borrowing money in times of high interests rates.
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Special considerations for the choice of overseas joint ventures are:
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to overcome the prohibition or restriction on the establishment of a subsidiary or branch office by an overseas country’s foreign investment laws;
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to overcome barriers caused by nationalistic prejudices and cultural differences and to more effectively deal with local approval processes and the local bureaucracy;
•
to take advantage of the local joint venturer’s contacts, market knowledge, access to its distribution and other networks, business skills and attributes, and a particular reputation or credibility in the market;
•
to secure financial facilities from banks for business operations; and
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to overcome the difficulty in finding suitable employees with the necessary market knowledge and contacts and reduce the cost of investment in a new market.
Disadvantages
Some of the disadvantages of a joint venture, leading to disagreement and even litigation and dissolution are:
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the loss of independence particularly when the stronger participant controls management of the enterprise;
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the conflicting and incompatible management styles, attitudes and values;
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the risk of loss of initial investment, by the financially weaker partner unable to make capital contributions in the expansionary stage of the project; and
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the loss or inadequate protection of intellectual property and computer software.
Forms of joint venture
There are various forms of joint ventures. A joint venture may operate as a partnership, an unincorporated contractual non-equity venture or may it be incorporated. Each form has its advantages and disadvantages such as the benefits associated with incorporation, or the disadvantages of unlimited liability in the case of a partnership, or the flexibility afforded in a contractual joint venture.#p#分页标题#e#
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Foreign joint ventures
The particular form of joint venture to be chosen will depend on the particular needs of the joint venturers, the nature of the business and the political, legislative foreign investment and taxation environments in the country of their operations. There is intense government regulation of joint ventures in Asia. For instance, in China incorporated joint ventures known as Joint Investment Enterprises are regulated by the Law of the People’s Republic of China on Joint Ventures. Contractual joint ventures are regulated by the Contractual Joint Venture Law. Aspects of particular regulation include capital contributions, profit sharing and remittance of profits. Many countries have also established ‘economic development or free trade zones’ which offer financial and fiscal incentives to investors. Thus careful consideration should be given to the most appropriate form of structure to be chosen.
Whatever the structure chosen, the agreements which set up a joint venture are usually very comprehensive. Items covered in the agreement include investor’s contribution, risk sharing, dividend policy, confidentiality, ownership of intellectual property, sale of interests, management and control, performance objectives, dispute resolution and choice of law and termination.
Company
Advantages
Separate legal entity
In contrast to a sole trader and a partnership, an incorporated company is a separate legal entity. This means that the ‘veil of incorporation’ separates the entity, from its members and controllers. A company can enter into contracts and own property in its own right and can sue and be sued in its own right. Unlike in the case of unincorporated bodies such as sole traders and partnerships the veil protects members from the liabilities incurred, unless there is an abuse of the corporate form such as in the case of fraud, tax evasion or insolvent trading. In such situations the courts will lift the corporate veil and hold the directors and members personally liable.
Limited liability
The most significant advantage of using the corporate form is that a corporation can be formed with limited liability. This means that the liability of members is limited to the amount they have contributed to the capital or have agreed to contribute. In addition the liability of the corporation is limited to the value of its assets. This means that if a corporation establishes a subsidiary in a foreign country and the subsidiary fails, the liability of the parent company is limited to the amount invested in the separate subsidiary.
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Perpetual succession
A significant advantage is that a company unlike a partnership or a sole trader has ‘perpetual succession’. This means that the corporate existence will continue indefinitely regardless of the death or changes in the membership of the company, until the company’s existence is brought to an end by deregistration.#p#分页标题#e#
Transferability on shares
Another important advantage is that use of the corporate form permits the free transferability of shares. This is particularly so in the companies listed on the stock exchange where shares can be bought and sold with a minimum of formality.
Public companies
The Corporations Law in Australia does not permit partnerships of more than twenty members. Thus where it is proposed to have more than twenty members the corporate form should be used. Public companies have a wide spread of shareholders with no restriction on the number of members, and in addition can raise funds from the investing public by issue of a prospectus. However, in the case of proprietary company, the number of members is limited to fifty and it is prohibited from inviting the public to subscribe to its capital.
Proprietary companies
A proprietary company is generally a smaller company with few members and is usually a family enterprise used for small business operations. A proprietary company may be either large or small. A small proprietary company is one which has two of the following characteristics:
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fewer than 50 employees;
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less than $10 million in gross revenue for the financial year; or
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less than $15 million in gross assets at the end of the financial year.
All other proprietary companies are regarded as large proprietary companies.
Apart from the size small proprietary companies have reduced reporting requirements and do not have to prepare, audit and lodge annual accounts.
In Australia a company can be formed with one member. This offers the advantages and protection of using the corporate form, and may be conveniently used for small business operations.
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Disadvantages
There are also some disadvantages of using the corporate form. These include:
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the costs of establishing and administering a company in comparison with other forms of business associations;
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the requirement of audit, and disclosure of financial information. Small proprietary companies have reduced reporting requirements;
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the ever increasing regulation, accountability and penalty provisions applying to defaulting directors and officers; and
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complicated liquidation proceedings.
Thus it is necessary to choose the appropriate type of company to be used even if the corporate form is considered the most desirable.
Nationality of corporation
It should also be noted that where enterprises use the corporate form for multi-national operations, careful consideration should be given to the laws that regulate companies in countries where they are intended to operate. This is because the legal test of nationality varies in different countries, and there is no agency with the authority to grant international incorporation. In some countries the nationality of a company is determined by the place of incorporation. In other countries, particularly in civil law countries, the nationality of a corporation is determined by the centre of management or control. The nationality of a corporation is crucial for determining the personal liability of members and the entitlement to government benefits such as tax benefits, subsidy programs and even the right to engage in certain types of business activities.#p#分页标题#e#
Wholly owned subsidiary
In international business a wholly owned subsidiary would mean the establishment of a business entity in a foreign territory by a holding company in the home country which retains total control over marketing, pricing, production, and greater security over its technological assets. In return the holding company is entitled to the total profits generated by the subsidiary, but has to bear the total costs and risks in operating the entity. In addition to the risks normally encountered in domestic business, additional risks associated with international operations include, expropriation without adequate compensation, restriction on repatriation of profits, and local labour laws.
In establishing a subsidiary, a firm may choose to either acquire an ongoing existing business, or establish a new business and build its own plant. Acquiring an existing business has the advantage of avoiding starting up costs of capital, is a faster process, improves goodwill with the local citizenry and enables use of the existing marketing and business networks. However, a company may have to build a new plant if no suitable facility exists for acquisition, or if it has special requirements for design or equipment or the existing plant and equipment are outmoded.
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International distribution and agency
Introduction
When an exporter does not have a presence in another country or territory into which he/she wishes to market his/her goods, one of the first options to consider is whether to appoint an intermediary or to establish his/her own operations in that country, by way of a wholly-owned subsidiary or a branch.
An exporter will often rely on an intermediary in an overseas country to sell his/her goods or services where the local knowledge, contacts and skills of the intermediary may be critical in achieving sales in the overseas country. This also allows the exporter to deal with only one person or company in the overseas country rather than a whole range of individual customers.
Intermediaries are often called by various names, such as a distribution agent, selling agent, sole distributor, exclusive distributor or national distributor. However, there are major differences between a distributor and an agent. Simply calling the intermediary an agent or distributor will not necessarily mean that the law will treat him or her as such.
The difference between a distributor and an agent
The main difference between a distributor and agent is that the distributor buys from the supplier and sells to local customers on his/her own account. The distributor takes his/her profit from the difference between the purchase price from the exporter and the selling price to the customer. An agent, on the other hand sells the goods on behalf of the exporter. Usually ownership in the goods is never held by the agent, but passes directly from the exporter to the customer. The agent has no legal rights over the customer and must account to the exporter for the proceeds of the sale. Whereas the distributor obtains his income from the difference between the price for which the goods were purchased from the exporter and the price for which they are onsold to the customer, the agent’s income is usually earned by way of a commission paid by the exporter and based on the sales made by the agent.#p#分页标题#e#
Agency
The distinguishing feature of agency as a form of international marketing is that the contract for sale of the product in question is made between the vendor in one country and the purchaser in another country through the medium of an agent, usually in the purchaser’s country. The agent does not buy and sell the product in her or his own name, as does a distributor, but merely acts as an intermediary between the vendor and the purchaser. If a prospective purchaser wishes to buy a product made by a foreign manufacturer, he/she may engage a purchasing agent to find foreign vendors from whom he/she can buy the product, or to buy the product from those vendors on his/her behalf. Alternatively, the vendor may engage a foreign agent to find customers in a foreign market, or to sell its product in that market. In practice, it is much more common for exporters to engage foreign agents as part of their marketing strategy than it is for importers to engage foreign purchasing agents.
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The role of the agent depends on the authority given to her or him by the principal. The agent may simply find customers in her or his country and introduce them to the foreign exporter: the exporter and the customer then contract directly with one another. Alternatively, the agent may have authority to enter contracts on behalf of the exporter: the contract is then made between the agent and the customer in their country, but it binds the foreign exporter. Because the exporter does not select the customers, the exporter must rely on the agent to assess the customer’s ability to pay the purchase price for the product. If the exporter does not want to take the risk that the agent will find customers who cannot or will not pay, the exporter may require the agent to take that risk, by guaranteeing the payment of the purchase price by the customers that he or she has found, An agent who guarantees payment of the purchase price by the customer in this way is called a del credere agent.
The agency relationship
The agency contract is the source of the agent’s authority to act on behalf of the foreign exporter. Some countries, such as Australia, allow the parties almost complete freedom to negotiate whatever terms of the agency contract they wish. Other countries regulate the form and content of agency contracts, in an attempt to protect local agents, and to control the manner in which goods and services are imported into the country. For example, in many countries, a self-employed sales agent is treated as if he or she were an employee of the principal, so that the principal is obliged to compensate the agent on termination of the agency agreement.
Sole and exclusive agency rights
If the agent is to have the sole and exclusive right to represent the principal within the contractual territory, the parties should agree to what extent the principal may nevertheless reserve for himself/herself or his/her employees the right to operate in the territory, with or without the assistance of the agent and with or without payment of a commission.#p#分页标题#e#
The parties ought always to define the sole agent’s rights in respect of orders placed directly with the principal. The principal may wish to reserve the right to supply certain named customers or certain categories of customers, or both (such as government departments, state-owned industries and so on) which approach him directly. It may happen that foreign buyers wish to place orders with the principal either during visits to the principal’s country or through their purchasing offices in the principal’s country, and it may then be inconvenient or commercially inexpedient to refer such orders back to the agent. Moreover, it will be found in some cases that states, government departments and the like will deal with the principal only. If it is wished to exclude or limit the agent’s right to receive commission on such transactions, that should be clearly stated.
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Types of agents relevant to international trade
Agents important in international sales include:
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Factors
A factor is a person in possession of goods belonging to his/her principal to be sold for the benefit of the latter. It is customary for factors to sell those goods in their own name without disclosing the identify of the principal. It was however held in Stevens v Biller [1883] 25 Ch. D.31 that where the factor does disclose the identity of his/her principal selling in the latter’s name, that fact alone does not mean that he/she would cease to be a factor.
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Brokers
A broker negotiates on behalf of buyers and sellers. He/she is, however, not in possession of the goods. His/her business is to introduce customers to sellers, and vice versa. He/she manages the signing of the contract between the two parties but does not actually sell or buy in his/her own name.
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Commission agents
A commission agent or merchant enters into contracts with third parties in his/her own name, although he/she does so as an agent. He/she therefore is privy to the contract with the third party and as far as the third party is concerned, recourse may be had to the commission agent.
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Confirming houses
A confirming house takes on the role of an agent for an overseas buyer who is interested in buying goods from a seller in the country. While in a sense the confirming house might be perceived as a buying agent, this is not altogether a correct observation. This is because instead of simply adopting the task of buying goods on behalf of the overseas buyer, the confirming house can in fact buy in its own name as a principal and then resell the goods to the buyer.
Frequently the confirming house takes on greater responsibility than that of a mere buying agent; in Sobbed Industries Ltd v. Cooroy Bros & Co [1955] 2 Lloyd’s Rep 82 for example, the confirming house had acted not only as an agent for the overseas buyer, but as guarantor of the buyer’s bona fides and solvency in the sale transaction. This act of confirming the sale is the main appeal of a confirming house as an agent.#p#分页标题#e#
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Del credere agent
The del credere agent takes on additional risks, like the confirming house. He/she is prepared upon the payment of a satisfactory commission to indemnify the principal if the transaction falls through and the principal suffers loss as a result. The terms of the del credere agency are such that the agent only agrees to indemnify the principal in the event of the buyer not taking delivery of the goods or becoming insolvent and unable to settle the purchase price. The del credere remains an agent throughout; he/she is therefore not to be held liable for non-performance of the contract by his principal.
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Agents in the carriage of goods
Forwarding agent
As far as the law is concerned, the duties of the freight forwarding agent are determined by contract. Everything is open to agreement. Certain general duties may be assumed of the freight forwarding agent as stated by Devlin J. in Hesket v Continental Express Ltd [1950] I All ER 1033:
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to ascertain the date and place of sailing;
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to obtain a space allocation if that is required;
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prepare the bill of lading by filling in the relevant standard form bills of lading issued by the shipping lines; and
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to send the draft bill of lading to the loading broker.
Loading broker
A loading broker is an agent employed:
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to arrange for the goods to be brought alongside the vessel;
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to make the customs entry for the cargo;
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to pay any dues on the cargo (these dues are not customs duties bearing in mind that duty is paid for goods entering the country not goods leaving); and
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after shipment, to collect the completed bill of lading and send it to the shipper.
Most regular shipping lines appear to entrust the business of arranging for cargo to a loading broker. The broker will then advertise the date of sailings in shipping papers and journals or elsewhere. He/she will also issue and circulate to his/her customers a sailing card either physically or electronically. The sailing card will usually state the name of the carrying ship, the place where the goods should be sent for loading and the time when the ship becomes ready to load. It will also stipulate the closing date for loading. This is the last date on which the goods can be loaded. If the shipper delivers the goods late, that is, after the closing date, the shipmaster is entitled to refuse to load even though the ship is still in port. The closing date is usually a few days before actual sailing so as to allow the ship to prepare for sea.
It is his/her business to supervise the arrangements for loading. Actual stowage though is decided on by the cargo superintendent who is in the direct service of the shipowner. The broker will also usually sign bills of lading and issue them to the shipper of his/her agent in exchange for freight. His/her remuneration is by way of commission on freight to be paid by the shipowner.#p#分页标题#e#
It should be noted that although the freight forwarder and loading broker perform two distinct functions, they are usually represented by a single company or firm.
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Agents in marine insurance
Marine insurance brokers
It is a matter beyond doubt that the insurance broker is the agent of the insured and no one else when the insurance is placed by the broker. The same applies to reinsurance. The broker is the agent of the re-assured and not the re-insurer, according to General Accident Fire and Life Assurance Corp. v. Tanter (The Zephyr), [l984] 1 Lloyd’s Rep. 58. As the insured’s agent, the broker may:
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undertake an obligation to secure cover for the principal’s cargo using all reasonable care and skill;
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undertake to investigate the risk and advise on the appropriate cover;
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ensure that the risk is adequately presented to the insurer, (this is crucial for failure to do so could result in the insurer’s repudiation of the contract of insurance on the grounds of non-disclosure or misrepresentation); and
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agree to assist in making the insurance claim.
The acts and representations made by the broker to the underwriter will naturally bind the insured.
Where an insurance is effected for the assured by an agent, the agent must disclose to the insurer every material circumstances which is known to himself/herself. An agent is deemed to know every circumstances which in the ordinary course of business ought to be known or to have been communicated to him/her. Disputes often revolve around what transpired between the broker and the underwriter when the former presents the risk.
Consequent to the duty of good faith being imposed not only on the insured but the broker, the latter could be held liable to the insured for any breach of that duty.
The broker discharges his/her duties by acting in accordance with his/her instructions and using reasonable care and skill in his/her actions. Where the insured has provided ambiguous information to the broker, the broker is entitled to act according to a reasonable interpretation of those instructions. The duty to act reasonably also entails the duty to place the cover within a reasonable time.
Agents in payment
The major agents here are the banks engaged by the traders to collect payment or documents, to remit payment or documents, to advise the traders of credits or any other rights or liabilities owed and so forth.
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Distributors
Unlike an agent, a distributor buys and sells goods in her or his own right. Under a distribution agreement, an exporter does not enter into many different sales contracts with customers in another country; it enters into one contract with a distributor in that country. The exporter agrees to provide the distributor with a product (goods or services) for sale to the customers by the distributor. The distribution agreement is not, in itself, a contract for the sale of the product. It is an agreement on the terms under which the product will be sold by the exporter to the distributor for the duration of the distribution agreement. The distributor buys the product from the exporter on those terms, then sells it to the customers in the domestic market.#p#分页标题#e#
Sole and exclusive distribution agreements
In international trade, distribution agreements are often exclusive. Under an exclusive distribution agreement the exporter grants the distributor exclusive rights to buy and sell the product in the distributor’s country (or other territory), and promises not appoint any other distributors in that country or territory. Indeed, the exporter commonly promises the distributor that he/she, too, will not sell the product in the distributor’s country or territory. In an exclusive distribution agreement, the supplier promises that he/she, too, will not sell in the stipulated territory, whereas in a sole distribution agreement, the supplier merely promises that he/she will appoint only one distributor in the stipulated territory. The exclusivity usually works both ways: the distributor usually agrees that he or she will only buy the product from the exporter, and will not buy from any other suppliers.
Selective distribution agreements
In many cases, an exporter of goods may wish to exercise some degree of control over the way in which goods are marketed in the target territory. This is particularly important in the distribution of goods such as computers, consumer electronics and other high technology products, where the supply to the consumer of information and after-sales service are an important ancillary aspect of the sale of the product itself. An exporter of such goods may be concerned to ensure that those who sell the product in the target territory have enough expertise to enable them to supply information and after-sales service of an appropriate quality. To achieve this, the exporter may exercise highly selective criteria in the appointment of distributors in the target territory. For example, the exporter may appoint an exclusive distributor in a particular country, imposing a requirement that the exclusive distributor will sell the goods only to wholesalers or retailers who can demonstrate that they have a specified level of technical expertise in relation to the product in question. Quality control of the selective distribution network is ensured by requiring each member of it to undertake that it will not sell the product to anyone outside the network, other than a consumer.
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Tender and quotations
Award of tender
A considerable amount of business is conducted locally and overseas through the tender process. Often government and state trading organisations award contracts for the supply or purchase of goods and services on the basis of tenders rather than by private negotiations. Tenders involve the buyer inviting bidders to submit tenders to provide for the supply of goods or services usually according to detailed contract conditions and technical specifications. Some quotations are intended merely to negotiate so that an award of tender does not necessarily create a binding offer to contract. Sometimes tenders are also awarded to supply goods and or services ‘if and when required’, the tender being regarded as a ‘standing offer’. In such situations the acceptance of the tender does not bind the person who invited the tender unless and until an order is placed with the tenderer for the supply of all or part of the materials or services. A separate contract is created for each separate order made with the bidder able to revoke the ‘standing offer’ in relation to the delivery of materials or services for which an order has not yet been placed.#p#分页标题#e#
Franchising
What is franchising
Franchising is a common method of marketing goods and services. Franchising is a way of organising a business operation, a business arrangement whereby the franchisor grants to a franchisee a right or freedom to sell its products or services, use of its unique business format or system of conducting business, or provide an essential ingredient or know-how.
These rights are granted to the franchisee, in consideration of royalty payments, management fees and an obligation to use the products and services supplied by the franchisor.
Kinds of franchises
There are three different types of franchise arrangements:
Product franchise
This is an arrangement whereby a franchisee acts as an outlet for the products of a franchisor. Motor vehicles and petrol are common examples.
A product franchise arrangement is similar to an exclusive distribution agreement as the franchisor often grants the franchisee exclusive rights to sell the products within a specified geographical area.
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System franchise
Commonly called ‘a business format franchise’. This is an arrangement whereby a franchisor permits a franchise to use in its independently owned business, the business format or unique or individual manner of doing business developed by the franchisor. The business format takes the form of a package of intellectual property rights, such as patents, trade marks, business names, logos and know how which the franchisee is permitted to use. Common examples of business format franchises include fast food restaurants, hotel and motel chains, and tax accounting agencies.
Processing or manufacturing franchise
This is an arrangement whereby the franchisor provides an essential ingredient or know-how to a processor or manufacturer. This is similar to licensing agreements. Common examples are found in the soft drink and fast food industries.
International franchises, may be direct or indirect. A direct franchise is where a franchisor in one country grants a franchise directly to a franchisee in another country. An indirect franchise is where a franchisor in one country grants a master franchise to a subsidiary in another country who then grants sub-franchises to enterprises in that country.
Franchising distinguished from licensing
Franchising is similar to licensing of intellectual property except that in addition to granting the franchisee permission to sell a product, use a method, a process or an ingredient, the franchisor assists the franchisee with the operations of the franchise and/or supplies raw materials. The franchisor also has a greater degree of control over the quality of the product than under licensing. Payment is similar to licensing in that the franchisor pays an initial fee, and a proportion of its sales or revenues to the franchising firm.
Advantages and disadvantages
The advantages accruing to the franchisor are increased revenues and expansion of its name, brand identification and market reach. The greatest disadvantage, as with licensing, is coping with the problems of assuring quality control and operating standards. Other difficulties with franchises come with their need to make slight adjustments or adaptations in the standardised product or service. For example, some ingredients in the restaurant franchises may need to be adapted to suit the tastes of the local clientele which may differ from one country to another.#p#分页标题#e#
The best examples of international franchises are in the service industries and restaurants, particularly fast food concerns like McDonalds, KFC, Holiday Inn, and the Hilton.
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Topic 3 Intellectual Property and the impact of the internet on international business
Topic structure
The topic Intellectual Property and the impact of the internet on international business includes the following content:
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an introduction to intellectual property;
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international protections of intellectual property rights;
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legal issues arising out of E-Commerce; and
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international endeavours to deal with legal issues arising out of the rise of the internet as a tool of international business.
Learning outcomes
At the completion of this topic you should be able to:
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distinguish between the different kinds of intellectual property, their registration procedures and their remedies for infringement;
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understand the relevance of protection of intellectual property rights in the international business context;
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describe and evaluate the international efforts aimed at protecting international property rights;
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evaluate the impact of the rise of E-Commerce and the Internet in the context of international business; and
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outline the international efforts aimed at dealing with some of the issues raised by E-Commerce and the use of the Internet in international business.
Required reading
Reading 3: Islam, M 1999, International electronic commerce
Textbook: Mo, JS 2003, Contracts relating to intellectual property, Chapter 3
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Intellectual property
Introduction
International trade is not a new commercial activity. From ancient times classical Athens, Rome, and Asian countries including China, Japan and India have conducted international trading activities extensively. Trade and commerce were however, limited to goods. Even when the GATT was concluded in 1947, the sale of goods was regarded as the most important means of international trade. But increasingly the world’s most valuable resources are not physical, but intangible, intellectual property rights. Licensing of intellectual property or industrial property has become an increasingly effective means of exploiting technology and associated know-how in international trade. Accordingly, in an increasingly competitive economy companies should vigilantly protect their intellectual property because they can be stolen, used, copied, and sold without proper authority or compensation.
The statutory regimes for the protection of intellectual property vary from country to country with differences in relation to the subject matter, the procedures for registration and the period of protection. International conventions and agreements exist to facilitate and unify registration requirements, among its members.#p#分页标题#e#
The meaning and subject matter of intellectual property also vary under different domestic laws and international conventions, but there appears to be some common understanding of its meaning throughout the world.
Intellectual property and its associated know-how include patents, designs, copyright, trade marks, and circuit layouts.
Patents
What is a patent?
A patent is a monopoly granted by the national government of a country to an inventor, giving the inventor the exclusive right to exploit the invention for a limited period or authorise another person to exploit the invention for a limited term, in return for the disclosure of the invention to the public in the form of a patent specification.
In Australia patents are regulated by the Commonwealth Patents Act 1900 amended by the Patents (World Trade Organisation) Amendments Act 1994.
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What can be patented?
In Australia for an invention to be patentable it must satisfy certain requirements. The basic requirements are that:
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it must be ‘a manner of manufacture’;
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be novel or new;
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involve an inventive step;
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be useful, and
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must not have been used secretly prior to the application for patent.
Kinds of patents
There are two forms of patents in Australia, the standard patent and the innovation patent. A standard patent is the traditional ordinary patent. The term of a standard patent is 20 years, with a possible 5 year extension for pharmaceutical substances for human use. Innovation patents are a quicker, cheaper and an easier way to register patents for simpler inventions with a limited commercial life such as household or office accessories or small appliances. The term of protection of an innovation is patent is 8 years. Once the term of the patent expires, the legal monopoly granted no longer exists, and anyone is free to exploit the patent. However, the expiration of the patent does not affect a trade mark, design, or other legal rights granted in respect of the particular patented product.
Obtaining a patent
In Australia, the grant of a patent, in particular a standard patent involves a long and tedious process and is commenced by filing a patent request together with all the prescribed documents and specifications to describe the invention. The next step is normally an examination of the patent application by a patent examiner. Upon examination, if the specifications are found to comply with the legal requirements the request is accepted. Then the applicant is notified, notice of the acceptance is published and the specifications are open to public for inspection. If there is no public objection, the patent is granted.
Patent rights
The grant of a patent gives the licensee exclusive rights in the patented invention and the right to license another person to exploit the invention. An exclusive license permits the licensee to exploit the patented invention throughout Australia to the exclusion of all other persons including the patentee. A licensee must register his or her entitlement on the Register of Patents.#p#分页标题#e#
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Infringements and remedies
If another person exercises any of the patentee’s or licensee’s exclusive rights without authorisation or consent the court can grant an injunction to restrain further infringement. The court can also award an accounting of profits made from the unauthorised use of the invention and/or damages sustained by the patentee or licensee.
Designs
What is a design?
In Australia designs are regulated by the Commonwealth Designs Act, 1966 as amended by the Industry, Technology and Commerce Amendments ACT 1992.
The Act defines a design as ‘a feature of shape, configuration, pattern or ornamentation applicable to an article, being features that in the finished article, can be judged by the eye, but does not include a method or principle of construction’. Thus while patents involve a process of construction, or invention, designs are concerned with the appearance of the finished article. The design of an article is the way it looks, rather than the way it is made. For example, while the engine of a car may be the subject-matter of a patent, the design and distinctive appearance of a car will be governed by the Designs Act.
The registration process
A design must be registered by the owner of the design in order to receive protection. Registration requires completion by the owner of the design of the appropriate application form and submission of drawings, sketches, photographs and specifications of the design. The design of the article must be ‘new and original’ and the registration authorities may require a statement of novelty, and a statement of monopoly indicating features of the design over which the owner seeks monopoly. If accepted, registration of the design is granted. In general, the designer is the owner of the design. But if another person is commissioned by the designer to create a design that other person is the owner. Similarly, if a design is made by a person in the course of his or her employment, the design is owned by the employer.
Protection of designs
Registration of a design gives protection for one year from the date of application, and protection may be extended by application for a total maximum period of sixteen years. After that period the design may be used freely by anyone. As with patents and other intellectual property rights, design must be registered in other countries to be protected.
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Infringements and remedies
The owner of the design has a legal monopoly of the design. There is an infringement of the owners rights of exclusive use, if anyone without permission of the owner uses it, imitates it or imports a fraudulent imitation of such articles for commercial purposes.
As in the case of patents, the owner of a registered design may protect his or her monopoly right by applying to the Court for an injunction to restrain further infringement and either seek damages and/or an accounting of the infringer’s profits.#p#分页标题#e#
Non-registrable designs
Design which are primarily literary artistic in nature such as book jackets, calendars, greeting cards and dressmaking patterns are excluded from the Designs Act. Such articles for protection must be registered under the Copyright Act. Likewise there is no copyright protection provided for articles registered under the Designs Act. This is to prevent double coverage under both Acts.
Copyright
What may be copyrighted
In Australia copyright is regulated by the Commonwealth Copyright Act 1968.
Copyright grants protection to two categories of the intellectual property, works i.e. original literary, dramatic, musical and artistic works, and subject matter other than works, i.e. sound recordings, films, television, sound broadcasts and published editions of works. This means that protection is also given to the way in which a particular edition of the work is set, as distinct from the copyright material that it contains.
In general, while copyright is granted only to original works, the degree of originality required is not high. Thus, maps, lectures, bingo cards, and a form of contract for the sale of land, have been held to be capable of copyright protection.
Unlike in the case of patents, designs and trade marks, copyright is not required to be registered for protection. Copyright is automatic with no requirements for registration. Once something protected by the Act comes into existence, a copyright arises, and copyright in it is protected. Keeping a record of the creation, and putting a date and name helps to establish when the work was created.
Copyright only applies to something that has been given a physical form. Copyright does not protect ideas. Therefore, if someone gives an author an idea for a book or a song writer an idea for a song, the person who gave the idea has no copyright in the book or the song when it is completed. Copyright subsists in the expression of an idea and not the idea itself.
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Ownership of copyright
The author of the work is the usual owner of the copyright. However, if a work is produced by an employee pursuant to a contract of employment, the copyright belongs to the employer.
Copyright may be licensed to others. A licence of copyright permits the licensee to do what would otherwise be an infringement of the copyright owner’s rights. An exclusive licensee may protect his or her exclusive rights in the same way as an owner, and institute infringement proceedings against any person who, without permission, infringes his or her exclusive rights.
Duration of copyright
The duration of copyright protection is seventy years after the death of the author, if the work is not published in the author’s lifetime, or seventy years after publication or first performance. Copyright protection in the case of sound recordings, films, television and sound broadcasts is seventy years after the expiry of the calendar year in which they were published.#p#分页标题#e#
Infringement and remedies
The Copyright Act provides statutory remedies for infringement. An injunction may be brought to restrain continued infringement. In addition, an action may be brought for an account of the infringer’s profits and or damages at any time within six years of the copyright infringement. In the case of flagrant infringements, such additional damages may be awarded by a court, as it considers appropriate in the circumstances. A copyright owner may also bring an action for conversion or detention to recover any infringing copies of the copyright material or devices used for making them.
In addition to the statutory remedies, a copyright owner may also be able to obtain an Anton Pillar Order. This order permits the copyright owner or his or her representative to enter the infringer’s premises to search for and take into custody offending copies of works as well as other documentary evidence relating to them to prevent destruction or disposal of the offending materials before copyright action can be taken.
Penal sanction
In addition, to the civil remedies, the Copyright Act also provides for a number of penal sanctions, punishable normally by a fine and in some cases by imprisonment. Examples of illegal infringing activity that attracts criminal sanctions include making articles for sale or hire or creating a literary, dramatic or musical work or a sound recording to be performed or heard in public.
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Trade marks and trade names
What can be registered as a trade mark?
In Australia trade marks are regulated by the new Commonwealth Trade Marks Act 1995, which was enacted in order to ensure conformity with the principles stated in the Agreement Establishing the World Trade Organisation.
The new Act associates a trade mark with a particular product or service rather than with a particular manufacturer or a provider of services. A trade mark such as a design, logo or name is used by manufacturers of goods or providers of services to identify their goods or services with customers by differentiating their goods or services with their competitors by a clear product recognition and brand identification. For instance, Coca-Cola and Pepsi-Cola have created a clear public distinction between their respective products Coke and Pepsi, so that people do not simply order a ‘Cola’ but a Coke or a Pepsi.
The new Act also provides for a single register for trade marks, collective trade marks, and defensive trade marks and sets out and protects the rights derived from registration.
Definition of trade mark
The new Trade Marks Act 1995 defines a trade mark as a ‘sign’, used or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person, from goods or services so provided or dealt with by any other person. A ‘sign’ includes the following or any combination of the following, namely any letter, word, name, signature, numeral, device, brand, heading, label, ticket, shape, colour, sound or aspect of packing.#p#分页标题#e#
Traditionally, trade marks comprised of such things as headings, names, signatures, words, letters or numerals. However, the new Act recognises the potential for other things to be associated with a product, such as the style and shape of a bottle (Coca-Cola bottle) or a smell or fragrance such as Chanel No. 5, colour and sound. For example in the United States, Harley Davidson has sought to register a trade mark in respect of the ‘sound’ of a Harley Motorcylce and another company has sought to register a mark which includes a distinctive ‘smell’ of its sewing thread.
Collective trade marks
A collective trade mark is a sign used or intended to be used to distinguish goods or services by members of an association from the goods and services of non-members. Trade marks and symbols used by the Motor Trades Industry Association (MTIA), by Certified and Practicing Accountants, chains of independent retailers, and by the associations of Real Estate Agents are good examples of collective trade marks.
There are prohibitions against assigning these marks, and a member cannot stop another member from using the mark. Damages for an infringement can include loss of profits of the individual members of the association.
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Certification trade marks
Certification trade marks are works used to distinguish goods or services which have been certified by a qualified person, that the goods or services are of a certain quality, accuracy, origin, material or mode of manufacture. The trade mark used by the Standards Association of Australia which denotes that particular goods have met its minimum standards or the symbol used by the Australian National Training Authority (ANTA) are good examples of certification trade marks.
The remedy for an infringement of a certification trade mark is limited to an injunction. It does not include damages or an accounting of profits. But other remedies are available, for instance under the Trade Practices Act which prohibits false representations in regard to ‘sponsorship’ or ‘approval’.
Defensive trade marks
Defensive trade marks are registered trade marks which have been so widely used in relation to goods or services that its use in relation to other goods or services are likely to be taken to indicate that there is a connection with the registered trade mark.
This allows the owner of a registered trade mark to prevent others from ‘pirating’ it for use on other goods or services. The Coca-Cola, Levi’s, Kellogs and the Holden trade marks have all been registered as defensive trade marks, so that they cannot be used in goods or services - not just drinks, jeans, breakfast cereals or motor vehicles.
Registration of trade marks
Registration of a trade mark is effected by application to the Registrar of Trademarks in the approved form. It must include a representation of the trade mark and specify the goods and/or services in respect of which it is sought to register the trade mark.#p#分页标题#e#
Once application for registration is lodged it will be examined to ensure that it conforms with the requirements of the Act. If there are any deficiencies, an applicant is given an opportunity to respond. If the response is unsatisfactory the application will be rejected. The registrar can reject the application on the grounds such as that the proposed mark is substantially identical or similar to another registered trade mark, is likely to deceive or cause confusion, if the mark is scandalous or its use would be illegal or shows a connection with the government or royalty.
Conversely, if the response of the applicant is accepted, notice of acceptance is sent to the applicant and details of the application are published to allow potential objectors to file a notice of opposition. The grounds for objections include the grounds for initially rejecting the application such as that the mark is not capable of distinguishing the applicant’s goods and services.
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Other grounds include:
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the applicant does not own, or does not intend to use, authorise or assign the trademark;
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the registration will prevent the opponent from continuing to use the unregistered trade mark which has been in continuous use;
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the mark is similar to a well known trade mark; and
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the trade mark contains a false indication that the goods or services come from a particular place or region.
If the objections are unsuccessful, registration is granted and the trade mark is entered in a register.
Effect of registration
The registration of a trade mark gives the owner the exclusive right to use the trade mark, assign it or authorise others to use it in relation to the goods or services for which it was registered for a period of ten years. Application may be made for registration for successive period of ten years. If application for renewal is not made, the registration lapses, and anyone else is free to use the trade mark without infringement.
Cancellation and removal of trade marks
Registration can be cancelled if there has been fraud or on the same grounds as available to opponents on application for initial registration, such as similarity to another trade mark.
The mark can also be removed from the register if the owner at the time of application has no intention to use, assign or authorise another to use the trade mark or the trade mark has not been used for a continuous period of three years.
Infringement and remedies
A registered trade mark is infringed if it is used by someone other than the registered proprietor or registered user, or if someone uses a mark which is ‘substantially identical with, or deceptively similar to, the trade mark, in relation to goods and services in respect of which trade mark is registered’. A registered user of a trademark has the same rights of the owner, and the owner or user may protect his or her rights in the trade mark by instituting infringement proceedings seeking an injunction restraining the infringement, damages or an account of the infringer’s profits.#p#分页标题#e#
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However, trade marks are generally not considered infringed upon when they are imitated (‘knocked off’) as long as they are not characterised as the original merchandise.
It is also possible for the same mark to be used by different persons or companies without risk of serious confusion of identity. Thus, for example, the name ‘Apple’ is used by Apple Records in regard to recorded music, especially of the Beatles; while at the same time, Apple Computers use the mark to refer to computers, software and information technology.
Remedies outside Trade Marks Act
But there are remedies to cover such situations outside the Trade Marks Act, for example, copyright and designs legislation. There is also the tort of passing off which applies where there is a representation that a persons goods or services are those of someone else or have a deceptively similar make or get up. The tort of passing off is often difficult to establish as it is necessary to establish by proof that the public associate a particular mark with a particular business or product. In addition, it is necessary to prove that the misrepresentation was intended to injure the registered proprietor’s business or goodwill and in fact caused actual damage. To overcome this difficulty Section 52 of the Trade Practices Act creates in effect a statutory tort which may be used in addition to, or in substitution for passing off. Section 52 prohibits conduct by a corporation which is misleading or deceptive or calculated to mislead and deceive. An intention to mislead or deceive is not necessary to be proved. As it is easier to prove a breach of Section 52 than to prove passing off, almost all actions for passing off, now also allege a breach of Section 52. Finally, producers and sellers of counterfeit products may also be prosecuted under the criminal laws of individual countries.
Circuit layouts
What are circuit layouts?
In Australia, circuit layouts of semi-conductor chips that comprise computer hardware are protected by the Commonwealth Circuit Layouts Act 1989.
Protection of circuit layouts
The Circuit Layouts Act confers monopoly rights, called ‘EL Rights’ in relation to circuit layouts (hardware made from the design) for a period of ten years. The protection includes the exclusive right to exploit the lay out, to copy the lay out and the right to make an integrated circuit in accordance with the layout and the right to authorise a licensee to do them.
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Infringement and remedies
EL rights are infringed by unlicensed copying of the layout in a material form, by the unlicensed making of an integrated circuit and by any other unlicensed commercial exploitation. Infringement proceedings for an injunction, damages and or an account of profits can be brought by the owner of the EL rights or an exclusive licensee.
It may be noted that computer software and programs, as distinct from the hardware, are protected under the Commonwealth Copyright Act 1968.#p#分页标题#e#
In general, the purpose of granting intellectual property rights are threefold:
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to stimulate the creation of new technology and inventions by research and development;
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to reward creators of inventions with assurances of gain from the potential benefit from their endeavours by granting a monopoly for a limited period so that it may be commercially exploited but not be a bar to the dissemination of information; and
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to protect customers and traders by preventing confusion between genuine products and cheap imitations.
International Protection of Intellectual Property Rights
International copyright protection
International copyright protection is covered by the Berne Convention for the Protection of Literary and Artistic Works 1866. In order to be covered by the Berne Convention material must be published or made available in a member country. A similar agreement that also provides copyright protection is the Universal Copyright Convention of 1952, administered by the United Nations Educational, Scientific, and Cultural Organisation. Citizens of member countries of the UCC holding copyrights are entitled to the same protection against copyright infringement as nationals. Several other international conventions and agreements have also an impact on copyright protection. For example, the International Covenant on Economic, Social and Cultural Rights 1966, and the Universal Declaration on Human Rights. The latter convention protects the moral and material interests in any copyright. The Uruguay Round of the GATT negotiations resulted in a new Agreement on Trade Related Aspects of Intellectual Property Rights (‘TRIPS’). The TRIPS agreement has widened and extended to coverage of the existing international conventions.
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International trade mark protection
Trade marks with a worldwide reputation are required to be registered in all potential international markets to prevent its use. This is a very expensive process, especially if the multi-national firm markets expensive product lines in many countries where registration requirements differ substantially.
To deal with these problems, attempts have been made to harmonise registration processes by international agreement. For example, the Madrid Agreement concerning the International Registration of Marks 1991 has set up an international system for trade mark registration and protection. The TRIPS agreement has widened and extended to coverage of the existing international conventions.
International patent protection
Different countries have different criteria for registration, and different periods of protection. The procedures for the resolution of disputes also vary from country to country.
These differences and complexities have led to the emergence of international agreements and conventions aimed at simplifying the procedure for obtaining a patent, in the other countries, and for the mutual recognition of patents by member states. The oldest of these is the International Convention for the Protection of Intellectual Property (Paris Convention) dating from 1883. The World Intellectual Property Organisation (WIPO) which is a specialised agency of the UN based in Geneva, administers the Paris Convention. Other international conventions relating simplification of procedures for the registration and protection of patents include the European Cooperation Treaty, which allows a patent holder to file a single international application which is effective in each of the signatories to the Convention. The TRIPS agreement has widened and extended to coverage of the existing international conventions.#p#分页标题#e#
The T.R.I.P.S. Agreement
The TRIPS Agreement, which came into effect on 1 January 1995, is to date the most comprehensive multilateral agreement on intellectual property. The following is derived from a summary of key features of the TRIPS Agreement as set out on the Website of the World Trade Organisation (http://www.wto.org/) The full text of the TRIPS Agreement is available from the WTO website:
The areas of intellectual property covered by TRIPS are:
• copyright and related rights (i.e. the rights of performers, producers of sound recordings and broadcasting organizations);
• trademarks including service marks;
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• geographical indications including appellations of origin;
• industrial designs;
• patents including the protection of new varieties of plants;
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the layout-designs of integrated circuits; and
• undisclosed information including trade secrets and test data.
The three main features of the Agreement are:
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Standards. In respect of each of the main areas of intellectual property covered by the TRIPS Agreement, the Agreement sets out the minimum standards of protection to be provided by each Member. Each of the main elements of protection is defined, namely the subject-matter to be protected, the rights to be conferred and permissible exceptions to those rights, and the minimum duration of protection. The Agreement sets these standards by requiring, first, that the substantive obligations of the main conventions of the WIPO, the Paris Convention for the Protection of Industrial Property (Paris Convention) and the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention) in their most recent versions, must be complied with. With the exception of the provisions of the Berne Convention on moral rights, all the main substantive provisions of these conventions are incorporated by reference and thus become obligations under the TRIPS Agreement between TRIPS Member countries. Secondly, the TRIPS Agreement adds a substantial number of additional obligations on matters where the pre-existing conventions are silent or were seen as being inadequate.
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Enforcement. The second main set of provisions deals with domestic procedures and remedies for the enforcement of intellectual property rights. The Agreement lays down certain general principles applicable to all IPR enforcement procedures. In addition, it contains provisions on civil and administrative procedures and remedies, provisional measures, special requirements related to border measures and criminal procedures, which specify, in a certain amount of detail, the procedures and remedies that must be available so that right holders can effectively enforce their rights.
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Dispute settlement. The Agreement makes disputes between WTO Members about any respect of the TRIPS obligations subject to the WTO's dispute settlement procedures.
In addition the Agreement provides for certain basic principles, such as national and most-favoured-nation treatment. The obligations under the Agreement will apply equally to all Member countries, but developing countries will have a longer period to phase them in. Special transition arrangements operate in the situation where a developing country does not presently provide product patent protection in the area of pharmaceuticals.#p#分页标题#e#
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The TRIPS Agreement is a minimum standards agreement, which allows Members to provide more extensive protection of intellectual property if they so wish. Members are left free to determine the appropriate method of implementing the provisions of the Agreement within their own legal system and practice.
General Provisions
Articles 3, 4 and 5 include the fundamental rules on national and most-favoured-nation treatment of foreign nationals, which are common to all categories of intellectual property covered by the Agreement. These obligations cover not only the substantive standards of protection but also matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed in the Agreement. While the national treatment clause forbids discrimination between a Member's own nationals and the nationals of other Members, the most-favoured-nation treatment clause forbids discrimination between the nationals of other Members.
The general goals of the TRIPS Agreement are contained in the Preamble of the Agreement, which reproduces the basic Uruguay Round negotiating objectives established in the TRIPS area by the 1986 Punta del Este Declaration and the 1988/89 Mid-Term Review. These objectives include the reduction of distortions and impediments to international trade, promotion of effective and adequate protection of intellectual property rights, and ensuring that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade. These objectives should be read in conjunction with Article 7, entitled “Objectives”, according to which the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. Article 8, entitled “Principles”, recognizes the rights of Members to adopt measures for public health and other public interest reasons and to prevent the abuse of intellectual property rights, provided that such measures are consistent with the provisions of the TRIPS Agreement.
Copyright
During the Uruguay Round negotiations, it was recognized that the Berne Convention already, for the most part, provided adequate basic standards of copyright protection. Thus it was agreed that the point of departure should be the existing level of protection under the latest Act, the Paris Act of 1971, of that Convention.
In addition to requiring compliance with the basic standards of the Berne Convention, the TRIPS Agreement clarifies and adds certain specific points.
Article 9.2 confirms that copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.#p#分页标题#e#
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Article 10.1 provides that computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention. This provision confirms that computer programs must be protected under copyright and that those provisions of the Berne Convention that apply to literary works shall be applied also to them. It confirms further, that the form in which a program is, whether in source or object code, does not affect the protection. The obligation to protect computer programs as literary works means e.g. that only those limitations that are applicable to literary works may be applied to computer programs. It also confirms that the general term of protection of 50 years applies to computer programs. Possible shorter terms applicable to photographic works and works of applied art may not be applied.
Article 10.2 clarifies that databases and other compilations of data or other material shall be protected as such under copyright even where the databases include data that as such are not protected under copyright. Databases are eligible for copyright protection provided that they by reason of the selection or arrangement of their contents constitute intellectual creations. The provision also confirms that databases have to be protected regardless of which form they are in, whether machine readable or other form. Furthermore, the provision clarifies that such protection shall not extend to the data or material itself, and that it shall be without prejudice to any copyright subsisting in the data or material itself.
Article 11 provides that authors shall have in respect of at least computer programs and, in certain circumstances, of cinematographic works the right to authorize or to prohibit the commercial rental to the public of originals or copies of their copyright works. With respect to cinematographic works, the exclusive rental right is subject to the so-called impairment test: a Member is excepted from the obligation unless such rental has led to widespread copying of such works which is materially impairing the exclusive right of reproduction conferred in that Member on authors and their successors in title. In respect of computer programs, the obligation does not apply to rentals where the program itself is not the essential object of the rental.
According to the general rule contained in Article 7(1) of the Berne Convention as incorporated into the TRIPS Agreement, the term of protection shall be the life of the author and 50 years after his death. Paragraphs 2 through 4 of that Article specifically allow shorter terms in certain cases. These provisions are supplemented by Article 12 of the TRIPS Agreement, which provides that whenever the term of protection of a work, other than a photographic work or a work of applied art, is calculated on a basis other than the life of a natural person, such term shall be no less than 50 years from the end of the calendar year of authorized publication, or, failing such authorized publication within 50 years from the making of the work, 50 years from the end of the calendar year of making.#p#分页标题#e#
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Trademarks
The basic rule contained in Article 15 is that any sign, or any combination of signs, capable of distinguishing the goods and services of one undertaking from those of other undertakings, must be eligible for registration as a trademark, provided that it is visually perceptible. Such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, must be eligible for registration as trademarks.
Where signs are not inherently capable of distinguishing the relevant goods or services, Member countries are allowed to require, as an additional condition for eligibility for registration as a trademark, that distinctiveness has been acquired through use. Members are free to determine whether to allow the registration of signs that are not visually perceptible (e.g. sound or smell marks).
Members may make registrability depend on use. However, actual use of a trademark shall not be permitted as a condition for filing an application for registration, and at least three years must have passed after that filing date before failure to realize an intent to use is allowed as the ground for refusing the application (Article 14.3).
The Agreement requires service marks to be protected in the same way as marks distinguishing goods (see e.g. Articles 15.1, 16.2 and 62.3).
The owner of a registered trademark must be granted the exclusive right to prevent all third parties not having the owner's consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion must be presumed (Article 16.1).
The TRIPS Agreement contains certain provisions on well-known marks, which supplement the protection required by the Paris Convention, as incorporated by reference into the TRIPS Agreement, which obliges Members to refuse or to cancel the registration, and to prohibit the use of a mark conflicting with a mark which is well known. First, the provisions of that Article must be applied also to services. Second, it is required that knowledge in the relevant sector of the public acquired not only as a result of the use of the mark but also by other means, including as a result of its promotion, be taken into account. Furthermore, the protection of registered well-known marks must extend to goods or services which are not similar to those in respect of which the trademark has been registered, provided that its use would indicate a connection between those goods or services and the owner of the registered trademark, and the interests of the owner are likely to be damaged by such use (Articles 16.2 and 3).
Initial registration, and each renewal of registration, of a trademark shall be for a term of no less than seven years. The registration of a trademark shall be renewable indefinitely (Article 18).#p#分页标题#e#
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Cancellation of a mark on the grounds of non-use cannot take place before three years of uninterrupted non-use has elapsed unless valid reasons based on the existence of obstacles to such use are shown by the trademark owner. Circumstances arising independently of the will of the owner of the trademark, such as import restrictions or other government restrictions, shall be recognized as valid reasons of non-use.
Geographical indications
Geographical indications are defined, for the purposes of the Agreement, as indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin (Article 22.1). Thus, this definition specifies that the quality, reputation or other characteristics of a good can each be a sufficient basis for eligibility as a geographical indication, where they are essentially attributable to the geographical origin of the good.
In respect of all geographical indications, interested parties must have legal means to prevent use of indications which mislead the public as to the geographical origin of the good.
The registration of a trademark which uses a geographical indication in a way that misleads the public as to the true place of origin must be refused or invalidated at the request of an interested party (Article 22.3).
Industrial designs
Article 25.1 of the TRIPS Agreement obliges Members to provide for the protection of independently created industrial designs that are new or original. Members may provide that designs are not new or original if they do not significantly differ from known designs or combinations of known design features. Members may provide that such protection shall not extend to designs dictated essentially by technical or functional considerations.
Article 26.1 requires Members to grant the owner of a protected industrial design the right to prevent third parties not having the owner's consent from making, selling or importing articles bearing or embodying a design which is a copy, or substantially a copy, of the protected design, when such acts are undertaken for commercial purposes.
Article 26.2 allows Members to provide limited exceptions to the protection of industrial designs, provided that such exceptions do not unreasonably conflict with the normal exploitation of protected industrial designs and do not unreasonably prejudice the legitimate interests of the owner of the protected design, taking account of the legitimate interests of third parties.
The duration of protection available shall amount to at least 10 years (Article 26.3).
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Patents
The TRIPS Agreement requires Member countries to make patents available for any inventions, whether products or processes, in all fields of technology without discrimination, subject to the normal tests of novelty, inventiveness and industrial applicability. It is also required that patents be available and patent rights enjoyable without discrimination as to the place of invention and whether products are imported or locally produced (Article 27.1).#p#分页标题#e#
There are three permissible exceptions to the basic rule on patentability. One is for inventions contrary to public order or morality; this explicitly includes inventions dangerous to human, animal or plant life or health or seriously prejudicial to the environment. The use of this exception is subject to the condition that the commercial exploitation of the invention must also be prevented and this prevention must be necessary for the protection of public order or morality (Article 27.2).
The second exception is that Members may exclude from patentability diagnostic, therapeutic and surgical methods for the treatment of humans or animals (Article 27.3(a)).
The third is that Members may exclude plants and animals other than micro-organisms and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes.
The exclusive rights that must be conferred by a product patent are the ones of making, using, offering for sale, selling, and importing for these purposes. Process patent protection must give rights not only over use of the process but also over products obtained directly by the process. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts (Article 28).
Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties (Article 30).
The term of protection available shall not end before the expiration of a period of 20 years counted from the filing date (Article 33).
Layout-designs of integrated circuits
Article 35 of the TRIPS Agreement requires Member countries to protect the layout-designs of integrated circuits in accordance with the provisions of the IPIC Treaty (the Treaty on Intellectual Property in Respect of Integrated Circuits), negotiated under the auspices of WIPO in 1989. These provisions deal with the definitions of “integrated circuit” and “layout-design (topography)”, requirements for protection, exclusive rights, and limitations, as well as exploitation, registration and disclosure. An “integrated circuit” means a product, in its final
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form or an intermediate form, in which the elements, at least one of which is an active element, and some or all of the interconnections are integrally formed in and/or on a piece of material and which is intended to perform an electronic function. A “layout-design (topography)” is defined as the three-dimensional disposition, however expressed, of the elements, at least one of which is an active element, and of some or all of the interconnections of an integrated circuit, or such a three-dimensional disposition prepared for an integrated circuit intended for manufacture. The obligation to protect layout-designs applies to such layout-designs that are original in the sense that they are the result of their creators' own intellectual effort and are not commonplace among creators of layout-designs and manufacturers of integrated circuits at the time of their creation. The exclusive rights include the right of reproduction and the right of importation, sale and other distribution for commercial purposes. Certain limitations to these rights are provided for.#p#分页标题#e#
In addition to requiring Member countries to protect the layout-designs of integrated circuits in accordance with the provisions of the IPIC Treaty, the TRIPS Agreement clarifies and/or builds on four points. These points relate to the term of protection (ten years instead of eight, Article 38), the applicability of the protection to articles containing infringing integrated circuits (last sub clause of Article 36) and the treatment of innocent infringers (Article 37.1).
Protection of undisclosed information
The TRIPS Agreement requires undisclosed information - trade secrets or know-how - to benefit from protection. According to Article 39.2, the protection must apply to information that is secret, that has commercial value because it is secret and that has been subject to reasonable steps to keep it secret. The Agreement does not require undisclosed information to be treated as a form of property, but it does require that a person lawfully in control of such information must have the possibility of preventing it from being disclosed to, acquired by, or used by others without his or her consent in a manner contrary to honest commercial practices. “Manner contrary to honest commercial practices” includes breach of contract, breach of confidence and inducement to breach, as well as the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.
The Agreement also contains provisions on undisclosed test data and other data whose submission is required by governments as a condition of approving the marketing of pharmaceutical or agricultural chemical products which use new chemical entities. In such a situation the Member government concerned must protect the data against unfair commercial use. In addition, Members must protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.
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Control of anti-competitive practices in contractual licences
Article 40 of the TRIPS Agreement recognizes that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. Member countries may adopt, consistently with the other provisions of the Agreement, appropriate measures to prevent or control practices in the licensing of intellectual property rights which are abusive and anti-competitive.
Enforcement of intellectual property rights
The provisions on enforcement are contained in Part III of the Agreement, which is divided into five Sections. The first Section lays down general obligations that all enforcement procedures must meet. These are notably aimed at ensuring their effectiveness and that certain basic principles of due process are met. The following Sections deal with civil and administrative procedures and remedies, provisional measures, special requirements related to border measures and criminal procedures. These provisions have two basic objectives: one is to ensure that effective means of enforcement are available to right holders; the second is to ensure that enforcement procedures are applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.#p#分页标题#e#
The Agreement makes a distinction between infringing activity in general, in respect of which civil judicial procedures and remedies must be available, and counterfeiting and piracy - the more blatant and egregious forms of infringing activity - in respect of which additional procedures and remedies must also be provided, namely border measures and criminal procedures. For this purpose, counterfeit goods are in essence defined as goods involving slavish copying of trademarks, and pirated goods as goods which violate a reproduction right under copyright or a related right.
The general obligations relating to enforcement are contained in Article 41. Paragraph 1 requires that enforcement procedures must be such as to permit effective action against any act of infringement of intellectual property rights, and that the remedies available must be expeditious in order to prevent infringements and they must constitute a deterrent to further infringements. On the other hand, these procedures must be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.
The following three paragraphs contain certain general principles, the aim of which is to guarantee due process. Paragraph 2 deals with enforcement procedures. Such procedures must be fair and equitable, and they may not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. Paragraph 3 concerns decisions on the merits of a case. Such decisions shall preferably be in writing and reasoned, and they shall be made available at least to the parties to the proceeding without undue delay. Decisions on the merits of a case shall be based only on evidence in respect of which parties were offered the opportunity to be heard. Paragraph 4 requires that parties to a
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proceeding shall have an opportunity for review by a judicial authority of final administrative decisions and, subject to jurisdictional provisions in a Member’s law concerning the importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case. However, there is no obligation to provide an opportunity for review of acquittals in criminal cases.
According to paragraph 5, it is understood that the provisions on enforcement do not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. In addition, it is stated that nothing in these provisions creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general. However, a number of countries have found it helpful to establish special enforcement units that pool together required experience needed to effectively fight against counterfeiting and piracy. Moreover, some countries have centralized certain types of intellectual property issues in one or a limited number of courts in order to ensure the availability of necessary expertise.#p#分页标题#e#
The second Section requires that civil judicial procedures must be available in respect of any activity infringing intellectual property rights covered by the Agreement. The provisions of the Section elaborate in more detail basic features that such procedures must provide for.
Article 42 contains certain principles aiming at ensuring due process. Defendants are entitled to written notice which is timely and contains sufficient details of the claims. Parties must be allowed to be represented by independent legal counsel, and procedures may not impose overly burdensome requirements concerning mandatory personal appearances. All parties are entitled to substantiate their claims and to present all relevant evidence, while confidential information must be identified and protected.
Article 43 deals with how the rules on evidence should be applied in certain situations. In a situation where evidence that is likely to be important for one party is in the possession of the opposing party, the court must be empowered, provided that certain conditions are met, to order the latter party to produce that evidence. In addition, courts may be authorized to make their decisions on the basis of information presented to them, if a party refuses without good reason access to evidence that is in his or her possession, subject to providing the parties an opportunity to be heard.
The Section contains provisions on injunctions, damages and other remedies. Article 44 requires that the courts be empowered to order injunctions, i.e. to order a party to desist from infringements, including the possibility to prevent imported infringing goods from entering into domestic distribution channels. Article 45 provides that the courts must be empowered to order an infringer, at least if he or she acted in bad faith, to pay the right holder adequate damages. They must also be authorized to order the infringer to pay the right holder’s expenses. These expenses may include appropriate attorney’s fees. In appropriate cases, the courts may be authorized to order recovery of profits and/or payment of pre-established damages even where the infringer acted in good faith.
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In order to create an effective deterrent to infringement, Article 46 requires that the judicial authorities must have the authority to order infringing goods to be disposed of outside the channels of commerce, or, where constitutionally possible, destroyed. Similarly, it must be possible to dispose of materials and instruments predominantly used in the production of the infringing goods. In considering such requests, the courts must take into account proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties.
As these judicial procedures may take a fair amount of time, it is necessary for the judicial authorities to be empowered to provide provisional relief for the right holder in order to stop an alleged infringement immediately. Accordingly, provisions on provisional measures are contained in Article 50. Provisional measures have to be available in two situations. One is where they are needed to prevent an infringement from occurring, and to prevent infringing goods from entering into the channels of commerce. This includes preventing imported infringing goods from being dispersed into domestic distribution channels immediately after customs clearance. The other situation is where such measures are needed to preserve relevant evidence in regard to the alleged infringement.#p#分页标题#e#
Effective use of provisional measures may require that action be taken without giving prior notice to the other side. Therefore, the judicial authorities must have the authority to adopt provisional measures without prior hearing of the other side, where appropriate, in particular where any delay is likely to cause irreparable harm to the right holder, or where there is a demonstrable risk of evidence being destroyed.
Provision must be made for criminal procedures to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. The Agreement leaves it to Members to decide whether to provide for criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed wilfully and on a commercial scale.
Sanctions must include imprisonment and/or monetary fines sufficient to provide a deterrent, consistent with the level of penalties applied for crimes of a corresponding gravity. Criminal remedies in appropriate cases must also include seizure, forfeiture and destruction of the infringing goods and of materials and instruments used to produce them.
The impact of the internet
International business is described as any business activity that crosses national boundaries. It involves the flow of money, goods, services and know-how across international borders. International business is not new. Merchants have engaged in international trading activities from ancient times, but the importance, volume, forms and methods of conducting business world-wide have constantly evolved. Unlike in ancient times when traders travelled from one country to another via land and maritime routes, business entities are now able to access markets globally via the internet.
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The internet is having a significant impact on both the volume and method of conducting international business. The internet has potential for the expansion of business activities world-wide and bring enormous benefits to business and consumers, while also having adverse effects due to internet commerce being in an embryonic stage of development.
The benefits accruing to business and consumers include the following:
•
the internet provides a critical access point to the super highway providing for the enormous flow of information worldwide, expeditiously and inexpensively, replacing the traditional forms of communication such as mail and telephone;
•
the internet provides a new means of accessing unexplored markets and potential consumers globally, without the constraints of time, distance and expense;
•
trading via the internet has made considerations of time and distance inconsequential enabling international business 24 hours a day, 365 days of the year;
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the internet overcomes the language barriers to trade with business websites offering various language options. For example, a French company Floritel offers flower deliveries to 140 countries with seven language options on its website;#p#分页标题#e#
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business efficiency is improved by more easily finding information about new markets, new suppliers, comparison of prices with its competitors and the formation of strategic alliances for buying or selling goods and or services;
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goods and services can be advertised, bought, sold and paid for over the internet, regardless of the location of the seller and the consumer;
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increased trade via the internet has created business opportunities for the development of new services unique to electronic trading such as the recent boom in dot com companies;
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the internet provides a more efficient communication network between the internal organisational structures and industry networks of large trading organisations; and
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consumers are able to benefit by being able to access a wide range of advertised goods and services worldwide and compare quality, price and exchange rates.
The problems and concerns inherent in internet commerce that adversely impact on international business include the following:
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problems associated with security of payments, the legal identification and physical location of businesses, unauthorised access, sabotage, fraud, and misleading and deceptive advertising;
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consumer privacy concerns associated with the collection, use, trans-border data flows, sale and security of personal information;
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•
inadequacy of legal infrastructure to ensure compliance with special laws offering protection to consumers that apply to existing forms of commerce;
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implication to erode the tax system, customs regulations and intellectual property rights such as copyright and trade marks;
•
difficulty in proving the existence of an international contract, the terms and the form of the contract, given the varying requirements in different jurisdictions;
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uncertainty about the legal jurisdiction over internet transactions, and determining the applicable law, when the law governing the contract is not specified;
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the need for effective machinery for refunds, consumer complaints and dispute resolution;
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the inadequacy and disparity in legislation, and international cooperation to support the regulation of internet commerce transactions given that cyberspace is international, immediate and interactive; and
•
the inadequacy of an administrative framework to regulate and monitor electronic/internet commerce.
General contract issues
Read
Textbook: Mo, JS 2003, Chapter 3, pp. 215-222.
•
Does a contract exist? One of the problems inherent in electronic contracting is proving the existence of the contract. Server logs and other electronic records must be kept, for this might be the only way to prove that a contract existed.
•
What law applies? Another problem is determining what law should apply. If there is no written contract specifying the law which governs the contract, then a court has to go to other rules. The law which will be deemed to apply is the place where the last act necessary to complete the contract was performed. So, in an on-line sale, there might be no contract until the seller receives notice of acceptance by the purchaser’s click on a box or hyperlink. In other circumstances acceptance may not be made in real time and the postal acceptance rule may apply, which means that the contract is deemed accepted where posted and the laws in that jurisdiction will apply. If all contracting parties are from countries which are signatories to the Vienna Convention on the International Sale of Goods, then its rules will apply.#p#分页标题#e#
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•
What are the terms of the contract? The terms of the contract must be clearly expressed and communicated to the purchaser before accepting the offer. Note that the Vienna Convention imposes certain standard terms that are implied into the international sale of goods.
•
Is the contract in the proper form? Some jurisdictions require that a contract be in writing or some particular form. In Australia, contracts for the sale of land and certain finance transactions are among the types of contracts which are required to be evidenced in writing. Other jurisdictions have their own requirements; for example, contracts in Canada must be in both French and English.
•
Has consumer law been complied with? Most jurisdictions have special laws governing consumer contracts. Typically, these involve specific warranties and conditions that are implied into every contract with a consumer. In the area of electronic commerce, Australia is presently examining the implication for consumers.
•
How can managers keep track of changes? It is important for managers to keep track with this rapidly changing area of the law. Currently, legislators around the world and industries are grappling with the problem of how best to regulate electronic commerce generally and Web commerce specifically. Several directives and codes have been introduced and we are likely to see emerging international agreement in the future.
Consumer issues
The source of the following information on electronic commerce is Griggs et al. 1999, Chapter 1, pp. 52-61.
In April of 1998, the Commonwealth Government held its E-Commerce Enabling Australia Summit. In preparation for that important meeting, the National Advisory Council on Consumer Affairs prepared a report entitled, Consumer Protection in Electronic Commerce: Principles and Key Issues (National Advisory Council on Consumer Affairs 1998). This document stresses that, while electronic commerce offers the potential of enabling Australian marketers to tap into new markets, this will not occur without an adequate legal infrastructure of consumer protection that will engender consumer confidence in this new medium for the delivery of goods and services. No doubt an international standard will rapidly emerge with Australia playing a key role in its development. This is exemplified by the 1998 OECD Draft Guidelines for Consumer Protection in Electronic Commerce which were strongly influenced by Australian developments in this area as well as those such as the European Union’s Distance Selling Directive.
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Consumer Protection in Electronic Commerce: Principles and Key Issues does not proffer a set of enforceable laws, but seeks to have the outlined principles govern the development of industry rules or codes of practice regarding electronic commerce (National Advisory Council on Consumer Affairs 1998, p. 1). The twelve principles are provided below.
1.
Protection#p#分页标题#e#
Consumers using electronic commerce are entitled to at least the same levels of protection provided by the laws and practices that apply to existing forms of commerce.
This is one of the major difficulties of electronic commerce in situations where the laws of another country may not coincide with the protection offered by Australian law.
2.
Identification
Consumers should be able to establish the identity and location of businesses with whom they deal.
These include Australian Company Number and registered office, location, telephone number and industry affiliations.
3.
Information
Consumers should have readily available clear and comprehensive information before and after any purchase of goods and or services.
This information should include:
•
the seller’s legal identity and physical location;
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the total price of the goods, including any delivery charge for which the consumer would be liable under the contract;
•
where known, supplementary charges such as handling, postage, taxes;
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credit offered should be in accordance with the National Uniform Consumer Credit Code;
•
the monetary exchange rate and conditions being used;
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any restrictions, limitations or conditions on purchase including warranties or guarantees;
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details of any cooling-off period;
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delivery arrangements;
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refund arrangements and costs for return of goods;
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length of the validity of the offer;
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length of the validity and costs for return of goods;
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how and where complaints are handled; and
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parental/guardian approval of requirements for minors (National Advisory Council on Consumer Affairs 1998, section 3.1).
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4.
Clarity
Sellers must state the contract terms in clear, simple language.
This means avoiding the use of jargon and the adoption of well-accepted retail terminology. Important terms should be defined.
5.
Confirmation
Sellers should ensure they received confirmed meaningful consent from consumers for a purchase of goods and services.
It is recommended that this entail a three-step process confirming:
•
an interest in buying;
•
full price, terms and conditions of payment; and
•
agreement to purchase.
Sellers should make reasonable efforts to confirm the buyer’s identity, for example, in the case of minors.
6.
Payment
Consumers are entitled to receive clear information about the types of payment which are accepted by the merchant or the payment provider.
This should include any fees associated with payment and details regarding the security of payment methods. This principle should be read in conjunction with other developments regarding encryption.#p#分页标题#e#
7.
Complaints procedure
Consumers are entitled to have their complaints and inquiries dealt with fairly and effectively.
In regard to complaints, consumers should provide as much detail as possible and keep an electronic record. Sellers should demonstrate a commitment to handling complaints promptly and fairly.
8.
Dispute resolution
Sellers should provide information to consumers about affordable and effective dispute resolution arrangements, where they are available.
The dispute resolution schemes should meet the standards of:
•
accessibility;
•
independence;
•
fairness;
•
accountability;
•
efficiency; and
•
effectiveness.
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9.
Privacy
Sellers must respect customer privacy.
In doing so they should adhere to the National Principles for the Fair Handling of Personal Information (Federal Privacy Commission 1998). Based on the OECD’s Guidelines Governing the Protection of Privacy and Transborder Flow’s of Personal Data (1980), these principles establish a benchmark for the handling of personal information and provide guidelines about the collection, use, disclosure, quality, security, access and correction of personal information. Businesses should adopt specific guidelines regarding issues like the use of ‘cookies’ (small pieces of information sent to a consumer’s computer to identify repeat customers, tracking the way people navigate through a Website, and so on). The Principles suggests that sellers clearly offer consumers the alternative of rejecting cookies and where possible provide and opt-in arrangement by which the consumer explicitly consents to their use.
10.
Code compliance
Industry code administration bodies must closely monitor the application and effectiveness of their codes and be able to correct any deficiencies which are identified.
11.
Confidence
Each code operating body should strive to maintain and promote consumer confidence in the global market place.
This means ensuring that consumers have ready access to effective information about their rights and entitlements; that such bodies have a Website containing the full text of the industry’s code and details of current members subscribing to the code, as well as links to other information and an e-mail facility allowing consumers to contact code administrators in relation to further information, complaints and assistance.
12.
Regulation
Governments should actively develop their consumer protection responsibilities.
This can be done by actively pursing disreputable businesses that breach the laws in relation to electronic trading, seeking harmonisation of the laws governing electronic commerce and encouraging self-regulatory schemes.
Note: The OECD formally adopted the Draft Guidelines for Consumer Protection in Electronic Commerce referred to in the Griggs extract above on 9 December 1999.#p#分页标题#e#
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Read
Reading 3: ‘International electronic commerce’
Textbook: Mo, JS 2003, Chapter 3, pp. 215-222
Self-assessment questions
1. What are:
a.
patents;
b.
copyrights;
c.
trade marks;
d.
registered designs; and
e.
circuit layouts?
2. You are legal manager of a multinational company based in the USA. The Company’s logo is a stylised spider with eight outstretched legs. The logo is used on all the company’s products and is well known world-wide. One of the company employees has discovered a small clothing company who is putting a label with the same logo on clothes it makes and sells in Australia. There is no local subsidiary of your company in Australia and although your company registered a trade mark over the logo in Australia six years ago, has never traded there. Can your company, nonetheless, obtain an Australian injunction to stop the local company from using its logo? Would it make any difference to your advice if your company does not manufacture any articles of clothing? Advise.
3. Discuss the key aspects of the T.R.I.P.S. Agreement. Do you think it effectively deals with intellectual property concerns of persons engaged in international business?
4. Discuss the impact of the internet on international business.
5. Read the Uncitral Model Law on Electronic Commerce. Do you think it adequately deals with the international business challenges raised by the emergence of e-commerce? Why/Why not?
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References
Adagh, A & Brien, C 1997, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Caravan, JC, Gooley, JU & McRae, EL 1999, A guide to business law, 13th edn, Law Book Co., Sydney.
Chuah, JCT 1998, Law of international trade, Sweet & Maxwell, London.
Griggs, L, Clark, E, Streeter, J & Iredale, I 2003, Managers and the law, 2nd edn, Law Book Co., Sydney.
Islam, M 1999, International trade law, Law Book Co., Sydney.
Khambata, D 1992, Understanding business law, 2nd edn, Butterworths, Sydney.
Khoury, D & Yamouni, YS 1998, Understanding contract law, 5th edn, Butterworths, Sydney.
Pryles, M, Waincymer, J & Davies, M 2004, International trade law, commentary and materials, 2nd edn, Law Book Co., Sydney.
Sacks, P & Malbon, J 1992, Australian export manual, Longman Professional, Melbourne.
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Topic 4 International sale of goods
Topic structure
The topic International sale of goods includes the following content:
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negotiating and entering international business contracts;
•
types of international business contracts;
•
general and special provisions in international contracts;
•
trade terms;
•
invoicing and packing;
•
Vienna Sales Convention;#p#分页标题#e#
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relevance of domestic law;
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rules of general contract law (common law); and
•
Vienna Sales Convention and general contract law (common law): some differences.
Learning outcomes
At the completion of this topic you should be able to:
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comprehend the importance of recognising legal and cultural differences when negotiating and entering international contracts;
•
recognise the different types of contracts created in a typical international sales transaction;
•
appreciate the importance of contractual provisions in international sales contracts;
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recognise the importance of trade terms (Incoterms 2000) in defining the rights and obligations of buyers and sellers;
•
Realise the importance of invoicing and packing in international trade;
•
analyse the important provisions in the Vienna Sales Convention;
•
know the requirements for a valid contract under common law; and
•
compare the requirements for a valid contract under common law and the Vienna Sales Convention.
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Required reading
Reading 4: Folsom, RH, Gordon, MW & Spanogle, JA 1991, ‘Negotiating international business transactions’
Reading 5: Sale of Goods (Vienna Convention) Act 1986 (NSW)
Textbook: Mo, JS 2003, International sale of goods under domestic law, Chapter 1
Contract of Sale under the Vienna Sales Convention, Chapter 2
Negotiating and entering international business contracts
Introduction
As international trade and business involves contracts, it is important that attention be paid to several aspects of contract law.
A contract may be defined as an agreement which the law will enforce. Because of the presumption in the common law that the parties to a business agreement intend to be contractually bound it is vital that the parties to the contract are very clear about the content and terms of their agreement because under normal conditions a court in construing the terms of the court will not supply terms. The parties are bound by what they have said or not said. Therefore it is essential that all contingencies be considered and provided for. This is particularly the case for international business contracts.
It must be realised that once an agreement has been reached, the law of contract in common law countries is that losses must be borne by the contracting parties. For example, if one party contracts to supply a commodity to another at a fixed price and the price fluctuates this does not affect the contract price, unless the contract so provides. It remains the price that the parties agreed to initially, and the parties to the contract must bear the consequences. Changes in exchange rates may also affect what the seller gets or the buyer has to pay for goods in the international market, but each will be held to the price they agreed to in the contract. This is the position under the common law.#p#分页标题#e#
Cultural differences
The common law view of contract is not shared by other cultures or legal systems. The Japanese, whose legal system is a civil law one, do not view long term contracts as immutable and unchanging. In fact their approach is quite different. If something unforeseen occurs which makes the contract unprofitable it is perfectly ethical and proper in their view for the parties to alter the terms of the contract; to create a new agreement in light of the changed circumstances. A business person in Australia would certainly not feel legally obliged to set aside a contract because it worked a hardship to the other party to the contact. However as a matter of business prudence it may be wise for an Australian entity to do so if goodwill and future trading relationships are to be maintained. Cultural differences have been discussed in Topic 1.
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Read
Reading 4: Negotiating international business transactions
Negotiating and entering a contract
Offer
In common law jurisdictions contracts are entered through a method that is called ‘offer and acceptance’. It is the order of the overseas buyer which normally represents an offer to conclude a contract of sale, unless of course that order is made as an unconditional acceptance of the seller’s offer. An offer must be distinguished from an invitation to treat or an invitation to make an offer (for example, a quotation). The issue in Granger and Sons v Gough [1896] AC325 was whether a circular listing prices of wine was on offer or an invitation to make an offer.
The transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself (sic) involved in any number of contractual obligations to supply wine of a particular description which he (sic) would be quite unable to carry out, his (sic) stock of wine of that description being necessarily limited - per Lord Herschell at 334.
The relevance of being aware of this distinction in international business dealings is that the preliminary negotiations leading up to the formulation and finalisation of an agreement tend to be long and detailed involving a great deal of discussion and exchange of letters and documents. In the course of this there may come a point at which one party or the other may be of the impression that a sufficiently firm understanding has been reached upon which to base substantial expenditure. This may result from some careless statement, either oral or in writing, made by one party upon which the other can rely in bringing an action for breach of contract.
In order to avoid any such problems it is of paramount importance from the start of negotiations that the party making an invitation to treat (or offer to make an offer) makes it clear in a preliminary letter that that is all it is, and that none of the terms and conditions referred to in any conversation or letter, or set out in any draft agreement, shall be deemed to be binding at law on either party unless and until a formal document containing all of the agreed terms has been drawn up and signed by each of them.#p#分页标题#e#
To make even more sure as to the intention of the parties it is important that all correspondence and documentation exchanged with the other party during the course of the negotiations be marked prominently with the words: ‘subject to formal contract’. Unless these precautions are taken it may be impossible for an offer to be withdrawn before an acceptance has been posted (the postal acceptance rule, see Adams v Lindsell) and the agreement thus prematurely brought into force.
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Case in point
Adams v Lindsell [1919] 106 ER 250.
•
An offer posted 2 September which asked for a reply ‘in course of post’ was misdirected because of the wrong address and did not reach the offeree until 5 September.
•
A letter of acceptance posted 5 September reached the offeror 9 September.
•
If the offer had not been misdirected, the offeror could have expected a reply on 7 September, and believing no reply was sent, sold the goods to a third party on 8 September.
•
The offeree was successful in an action for breach of contract on the basis that the contract was concluded when the letter of acceptance was posted, that is 5 September.
Acceptance
Acceptance of the offer must be unconditional, that is, the party accepting cannot change any of the terms of the offer. If this occurs, the result is that the acceptance will be regarded as a counter-offer which the offeror can either accept or reject.
Case in point
In Northland Airliners Ltd v Dennis Ferranti Meters Ltd, the sellers, a company in Wales, negotiated with buyers, a Canadian company, for the sale of amphibian aircraft. The sellers sent the following telegram:
‘Confirming sale to you Grammond Mallard aircraft. Please remit £5,000.’
The buyers replied: ‘This is to confirm your cable and my purchase Grummond Mallard aircraft, terms set out in your cable ... 5,000 sterling forwarded your bank to be held in trust for your account pending delivery. Please confirm delivery to be made thirty day within this date.’
The sellers did not reply. They sold the aircraft to a third person at a higher price.
Was there a contract which had been breached?
The Court of Appeal said no. The buyer’s reply introduced two -new terms, one as to payment and one as to delivery. The sellers were not bound to reply to this counter offer.
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What would be the position under the Vienna Convention?
Refer to Article 19 (2). This convention, the UN Convention on Contracts for the International Sale of Goods, (‘CISG’) will be discussed later in this Study Guide.
Instantaneous contracts
When contracts are made verbally, by telephone, telex, electronically or by fax the general rule is that acceptance in order to be valid must be received by the offeror.
Case in point
Entores Ltd v Myles Far East Corporation [1955] 2 QB 327.#p#分页标题#e#
E was an English company carrying on business in London and elsewhere, and M was an American company carrying on business in Amsterdam and elsewhere. Each company had a teleprinter machine in its office and when one company wanted to send a message to the other, it gave the appropriate Telex number to the Post Office and instructed it to connect the machines. The machines were operated by typing the message into the machine at one place and the message was received instantaneously by a machine at the other. The English company offered by Telex in London to buy 100 tons of cathodes at £230.10s. per ton and the American company accepted by Telex from Holland.
Was the contract made in England or Holland? If the contract was made in England the contract was within the jurisdiction of the English courts. The courts sometimes also claim jurisdiction over international contracts where the contract is wholly or mostly performed within their jurisdiction. However, this avenue was apparently not open to the court in this case since the contract seemed mostly to have been performed in Holland.
Nevertheless, the Court of Appeal held that it had jurisdiction over the contract upon the grounds that the acceptance was effective only when it had been received in London, and therefore, that the contract was made in that place and at that point of time.
Denning LJ When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter of acceptance is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing.
My conclusion is that the rule about instantaneous communications between parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.
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Today the same principle will apply to instantaneous contracts made electronically. For acceptance to be valid it must be actually received by the offeror.
Revocation
http://www.ukassignment.org/daixieEssay/falvessaydaixie/In the common law once an offer has been accepted it cannot be revoked. Revocation of the offer must be received by the other party (the offeree) before that party has accepted. Otherwise the contract will be concluded. It is also important to note that acceptance is deemed to be effective once it is communicated to the offeror. The ‘postal rule’ provides that acceptance is effective once it is mailed, although revocation is effective only when it is received. If the contracting parties wish to vary these common law rules they must so specify. It is also important to bear in mind that civil law countries (countries of continental Europe and those countries of the world which they colonised) do not have the same rules of contract law.#p#分页标题#e#
Consideration
The requirement of consideration is unique to the common law. Consideration is the concept that a bare promise is not enforceable but that there must be quid pro quo.
Consideration is not necessary for the validity of contracts in other legal systems.
Legal advice
O’Keefe and Tedeschi 1991, explain that the knowledge concerning the use made of legal advisers by the opposite contracting party may play a part in the tactics of negotiation and the method of presentation of a contract. If one knows of the other’s legal system, business methods and of the thought processes underlying manoeuvres, this may help in predicting the responses of the other party. The more one knows about the other the better one’s position will be. This is the same in business as in law.
Practices vary widely. The practice in Australia of using legal advisers in run of the mill cases was not widespread until relatively recently. Australia has moved more to the US model in recent years as business regulation has become more widespread, for example, in the field of restrictive trade practices, company regulation and consumer protection.
In the US the use of ‘house counsel’ or ‘general counsel’ is common in big business. An alternative is to hire a firm on a retainer basis. The involvement of lawyers in negotiations can be expected.
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On the opposite extreme is the Chinese attitude whose state trading corporations resent the presence of lawyers in negotiations. They expect to deal with representatives who have the authority to make decisions and attempt to exclude others whom they regard as superfluous and a hindrance to negotiations. They regard lawyers as troublemakers.
In Europe the relationship between lawyers and business is similar to Australia. However because legal studies in Europe is regarded more as a general training, it is important to understand that there are many legally trained people in administration, business and finance. Because of the many jurisdictions in Europe, legal training was often necessary for the business person’s understanding of the market and its mechanisms. With the unification of Europe and the development of EC law it is possible that the European view may in the future approach the American with the use of in house counsel.
Form of the contract
Writing
In some, but not all, legal systems contracts do not have to be in writing. Obviously to avoid problems, they should be.
Language
It is preferable that the contract be written in a single language and that the parties be fluent in the language chosen as well as be familiar with the legal institutions and concepts referred to in the contract.
Standard form contracts
Problems concerning negotiating and drafting a contract may not apply in all international business transactions, because in some areas of international business contracts there exists the practice of using standard form contracts.#p#分页标题#e#
Standard form contracts are also widely used in the international commodity trade and trade in capital goods. They have been drafted by relevant international trade associations. Many of these associations are UK associations. Some are drafted by the United Nations Economic Commission for Europe. Others are used in construction contracts for works and installations abroad.
Of course standard form contracts apply only if the parties adopt them and even if they do adopt them they can vary them. If they vary them care must be taken that any new added clauses or terms do not contradict the standard ones already printed on the form. Furthermore, parties must be careful to use the standard form that is appropriate to their transaction.
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Purpose
The major purpose of standard form contracts is to eliminate the necessity to prepare a contract for each transaction and also to standardise the terms on which particular trade is conducted.
General conditions
On the other hand some business may prefer their own set of well-drafted general conditions which embody terms such as price escalation clause, choice of law clauses, choice of jurisdiction clauses, an arbitration clause and so on. However the problem with general conditions is that the buyer may have one set and the seller may have another, so the question becomes, which one applies? This is the so called ‘battle of forms’ problem.
In GTM Ltd v Hydranautics [1981] 2 Lloyd’s Rep 211 a case involving Californian sellers and English buyers the judge avoided the conflict by finding that the contract was made by the exchange of telexes prior to the exchange of formal documents so that the small print in the sellers’ formal acknowledgment of the order was regarded as ‘meaningless’.
Trade terms in export sales
Trade terms are examples of general conditions. These are terms which are peculiar to a particular trade, custom or profession.
In international trade the most common terms in the contract are FOB (free on board) and CIF (cost, insurance, freight) clauses. These are delivery terms but also indicate the calculation of the price. When the seller quotes a FOB price this will be lower than if the seller quotes CIF because in the latter case the seller would include insurance and freight in the purchase price. Another variation is C & F.
These terms, and many others like them, have been developed by international mercantile custom. They are in universal use in international trade transactions, both in countries where there is a state planned economy and in capitalist economies. There are however, variations and therefore it is advisable to use terms specified in printed forms of a particular trade association, or to adopt one of the standard sets of export trade terms, for example, the International Chamber of Commerce’s Incoterms which were first published in 1936. They have been added to and amended several times. In some countries they have been given statutory force. The edition that is presently in use is Incotern 2000. Although Incoterms retain the traditional CIF and FOB terms which are used when goods are delivered on board a vessel, it supplements these to take account of the fact that goods are often delivered to a carrier first, that there may be multimodal forms of transport, or that now container transport may be used. Where Incoterms are used the reference will so specify, for example, CIF Tokyo (Incoterms).#p#分页标题#e#
It is most important that you understand the rights and duties of buyer and seller under, CIF and FOB contracts. Incoterms are discussed later in this topic.
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Contracts of adhesion
There are certain contracts which allow no room for bargaining. These are contracts which are prepared by one contracting party and offered to the other on a ‘take it or leave it’ basis. In international business these contracts are commonly encountered in transport and insurance industries; the bill of lading being a typical example. The advantage for the party offering it is that all business is done on the same terms and on one’s own terms.
Courts in both common law and civil law jurisdictions do not favour contracts of adhesion as often it means that one of the parties has no choice at all with whom to contract. A contracting party is in the position of having to deal with the one offering the clause. The law of contract is after all based on the notion of ‘freedom of contract’; a so called meeting of the minds. The other reason why they are not favoured is that these contracts contain terms that are highly favourable to the party who drafted them. Exclusion (or exemption) clauses are an example of this. These are clauses which limit or exempt altogether the liability of one of the parties to the contract. For this reason the courts construe these kinds of clauses narrowly, that is, against the party who drafted them and is trying to rely upon them. The doctrine of contra proferentum applies. Sometimes they will be found to be invalid as contrary to public policy and will not be enforced. A more detailed discussion of the rule of general contract law is provided later in this topic.
Different types of international business contracts
The law of contract is an essential part of every international transaction. In a typical transaction the following contracts may be created:
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principal contract of sale/service between buyer and seller;
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various other contracts between buyer and seller including licence agreements, consultancy agreements and confidentiality agreements;
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contract of carriage between consignor and carrier of freight forwarder;
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contracts of insurance between insurer and insuree;
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contracts between the buyer and the bank (‘the issuing Bank’, which issues a documentary credit or its equivalent);
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contracts between various banks in relation to payment including between the issuing bank and the bank confirming the letter of credit and between the confirming bank and advising bank;
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contracts between the seller and its bank for transfer of part or all of the proceeds of the documentary credit to another party such as a sub-contractor or agent or for discounting, of the documentary credit;
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various contracts of retainer between service providers such as lawyers, accountants, export consultants and commissioning consultants;#p#分页标题#e#
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•
contracts between the buyer or seller and various Government agencies providing export/import assistance. For example, in relation to finance provided by the Export Finance and Insurance Corporation (EFIC) or in relation to various grants or assistance available through the Australian Trade Commission (AUSTRADE), such as Export Market Development Grants or the International Trade Enhancement Scheme;
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contracts between buyer or seller and parties, such as Societe Generale de Surveillance (SGS), that provides pre-shipment and possibly post-shipment (commissioning) inspection certificates;
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contracts for the appointment or remuneration of agents or distributors;
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forward exchange contracts, whereby a bank agrees to buy from the customer at some agreed time in the future a fixed amount of foreign currency at a fixed rate of exchange;
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various sub-contracts for the provision by other parties of part or all of the goods or services to be supplied under the main contract; and
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if the exporter is also investing in the importing country, a multitude of possible agreements such as joint venture agreements, partnership agreements, share sale agreements or shareholders’ agreements.
It should be noted that many of the above contracts may be created between the parties concerned without the parties being aware they are entering into a contract.
There are many terms in international contracts which, in the absence of an express term to the contrary, will be implied automatically into the contract without the parties even needing to consider the issue covered by the term. Many of those implied terms have been developed through custom over the many years of international trade. For example, if the parties agree that the goods will be delivered to the buyer ‘FOB’ or ‘free on board’ at a certain port, in the absence of an express term to the contrary it is normally implied that the FOB rules stated in Incoterms, published by the International Chamber of Commerce (2000) will automatically apply to those delivery terms.
General provisions in international contracts
The International Contract of Sale is the most important document in an export sale. It is the principal legal document and as such, Contracts of Carriage and Insurance, Contracts with Banks, Licensing Agreements and so forth are supportive of, and incidental to it.
The following describes some of the provisions which are common in many export sales contracts.
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Descriptions of parties
In any contract it is important to state clearly all the parties to the contract and the correct description of those parties. This sounds basic enough, but it is surprising how often the parties to a ‘contract’ get this aspect wrong. For example, if you are aiming to contract with a party known to you as ‘Coca Cola Philippines’, this may be impressive to you but who is that entity? Does the entity actually exist, or is it just a trading name for some other legal entity or even for an unincorporated joint venture? If it does exist, do you have the name accurately stated on the contract? Should the name be written, for example, ‘Coca Cola Philippines Inc’? Is that entity incorporated under the laws of the Philippines and does it have any financial substance? For example, it could be just a $2.00 company with no financial substance. Is it merely acting as agent for some other party? Do you have the correct address for the other party?#p#分页标题#e#
Most countries have the equivalence of our Australian Securities and Investments Commission where it is possible to obtain most of this type of information about incorporated entities. If these aspects are not properly addressed, later you may have difficulty enforcing the contract.
Conditions precedent
A condition precedent is a condition inserted into a contract whereby that condition must be satisfied before the contract has legal effect. An example is where, in a contract for the sale of goods, the contract is said to be subject to the buyer obtaining all necessary Government and statutory approvals for the importation of the goods into the country.
Such conditions are often necessary when the contract needs to be entered into quickly but the parties have not had the opportunity to or are unable to satisfy themselves about certain important aspects of the transaction.
Specifications
An accurate description of the goods being sold or services being provided is an essential term of every international contract for the sale of goods or provision of services. For trade within Australia you may get away with having a loose specification for the goods or services, due to trade usage or familiarity. But your chances of doing so in international transactions are much reduced.
Specifications should if possible avoid terminologies or methods of measure which are unfamiliar in the other country involved.
In some transaction, the buyer may require that prior to a particular time (usually immediately prior to a payment under the contract) the goods must be inspected by an ‘independent third party who must certify that they conform with an agreed specification. This may occur, for example, prior to shipment of the goods or, in those instances where machinery or equipment is being sold, prior to
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commissioning of that machinery or equipment. If such a requirement exists it is important that prior to execution of contracts, the seller confirms with the independent third party that the specification is written in a manner that the party is able to understand and can certify.
Price and price variations
As with any contract for the sale of goods or the provision of services, the terms in an international contract which determine price are fundamental.
The contract should clearly state the currency in which the price is to be calculated. Note: That a price of ‘$1 million’ or even ‘A$1 million’ does not accurately identify that the price is expressed in the currency of Australia. The more commonly recognised designation for the Australian dollar is prefixing the letters ‘AUD’ before the amount, such as ‘AUD 1 million’. There should be inserted into the contract a provision which states that all references to a currency means, unless expressly provided to the contrary, the lawful currency of (for example) Australia.
In many contracts it is relevant to include a term whereby the price will vary in accordance with variations in currency values. This is particularly useful where you will be paid in another currency (for example, United States dollars) or where you have a need to pay another party (for example, a foreign sub-contractor) in another currency.#p#分页标题#e#
Duration of contract
Although this is an important provision, the issues involved are generally no different to your standard domestic sales agreement.
Payment terms, security and documentary credits
Merely stating in a contract that the price is expressed in a certain currency (for example, United States dollars) does not of itself require the buyer to pay the price in that currency. The normal presumption however is that if there is no provision in the contract stating in which currency the price is to be paid, the price must be paid in the currency in which the price is expressed.
However many contracts provide that the price may be, or must be, paid in a different currency. If that is the case there must be a provision in the contract which enables the parties to accurately convert the price into the currency of payment, for example, by agreeing on a method of determining which exchange rate to use.
As letters of credit are legally enforceable independently of the contract of sale, it is important that the letter of credit contract contain all important payment provisions contained within the sales contract. Also letters of credit are by their nature a contract between banks. They cannot incorporate all terms which are
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contained in the sales contract, because the relevant banks involved are not in a position to determine whether all those terms are complied with. However, they can contain a provision to the effect that payment can only be made under them if amongst other things, an ‘independent’ entity certifies certain things to be correct, such as that the goods comply with the specifications under the contract or debt commissioning of equipment has occurred.
Delivery terms
A common mistake when drafting contracts for the sale of goods is that although they may state a delivery term (for example, FOB Newcastle) they do not state what that actually means. The International Chamber of Commerce publishes a guide called ‘Incoterms’ which sets out the rules which apply to each internationally recognised delivery term. If you want the Incoterm rules to apply to the delivery terms, you should say so. If not, you should state in your contract with precision all those aspects of delivery which would normally be covered by the Incoterm rules, such as at what precise point does delivery to the buyer take place or risk in the goods pass to the buyer (those points may be different from each other), who must arrange and/or pay for transport of the goods, transit insurance and all export or import approvals and so forth.
Insurance
One interesting aspect about insurance is that even if goods are sold on a CIF basis (whereby the seller must insure the goods against risk of loss of or damage to the goods during the voyage) the actual risk of loss or damage passes to the buyer not at the arrival port but at the port of departure. So it is in the interest of the buyer to ensure the seller has properly insured the goods prior to shipment.#p#分页标题#e#
Force majeure
A force majeure clause (which is discussed further under protection clauses) excuses a party for not performing an obligation under a contract (for example, an obligation to deliver the goods by a certain date) when a cause beyond the control of that party prevents or delays the party from performing that obligation. For example, a force majeure clause (if it is worded correctly) would excuse the seller for not delivering the goods to the buyer by a certain agreed date when the seller is prevented from doing so due to a storm.
Such clauses normally excuse performance only whilst and to the extent that the force majeure event prevents performance. Therefore in the above example, after the storm has ended if the goods may still be delivered to the buyer, they must be delivered as promptly as is reasonable in the circumstances.
Exporters should ensure that force majeure clauses are worded carefully so that they provide reasonable cover for any events outside the exporter’s control.
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Dispute resolution and choice of law
It is normally desirable to insert in each contract for the sale of goods or provision of services, some mechanism for resolving disputes or questions of interpretation under the contract. Depending on the circumstances, this could involve one or more of the following:
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requiring the parties to apply their best endeavours to meet and resolve the dispute in the spirit of co-operation and so forth;
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mediation;
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arbitration; and
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providing that the Courts of one particular country has exclusive jurisdiction to determine the issue.
It is also normal that the contract state what country’s laws are to apply to the contract. For example, it is possible for an Australian seller to agree with a Japanese buyer that the laws of Hong Kong are to apply to the contract. The same contract could even state that the Courts of New Zealand are to have exclusive jurisdiction to resolve any disputes. In such an instance the New Zealand Court would (if it accepts that it has jurisdiction) apply Hong Kong law to the facts in reaching its decision.
It is usually desirable for an Australian seller to have the laws of Australia apply to the contract, and to provide that the Australian Courts have exclusive jurisdiction. It should be noted however that obtaining a Court Order from an Australian Court against a foreign buyer may not be of much assistance if the buyer does not have assets in Australia, depending on whether the order may be enforced in the country of residence of the importer.
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Execution clauses
The methods by which the parties to the contract execute or sign the contract tends to vary from country to country. Set out below are examples of execution clauses commonly used in the United States of America and the Philippines.
Sample Execution Clause - USA
Witnessed by: ABC INC
_____________________________#p#分页标题#e#
by
______________________________
_____________________________
Its
______________________________
PROVINCE OF _ _ _ _ _ _ _ _ _ _ _ _ _ _)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _) ss.
COUNTY OF _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ )
On _______________________, 1994, before me, a Notary Public, in and for said County, personally appeared ___________________________________, of ABC Inc., to me known to be the same person described in and who executed the within instrument, who has acknowledged the same to be his/her free act and deed.
____________________________________
NOTARY PUBLIC
______________________________ County,
My comm. expires: _____________________
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Special provisions in international contracts
International contracts often contain particular terms which do not appear in domestic contracts, such as choice of forum and choice of law clauses, or which may appear in domestic contracts but may have a greater impact in international contracts, such as a force majeure clause. These clauses are included in international contracts due to the uncertainties that exist in international transactions or to the greater risk which such a transaction entails. There is a greater potential for disputes, and disruption of even long term business relationships.
Some of the more important clauses, which it is prudent to include in international contracts are discussed below.
Arbitration, conciliation and mediation clause
Arbitration, Conciliation and Mediation are commonly used forms of Alternate Dispute Resolution (ADR) and facilitate commercial resolution of disputes between parties, and avoid the uncertainty and expense of litigation which also has a tendency to destroy commercial relationships.
Most commercial contracts include a reference to Arbitration, Conciliation or Mediation. There are many choices of types of Arbitration, including:
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International Chamber of Commerce;
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Commercial Arbitration Act 1984 (NSW):
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each state in Australia has a similar Act, and they are commonly referred to as the ‘Commercial Arbitration Code’, and are used in contracts where all parties are within Australia;
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the International Arbitration Act which adopts the Uncitral Model Law where the contract involves international trade; and
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the Sydney Maritime Arbitration Rules and Terms (SMART) where the contract is made between the shipper and a transport operator (air, rail, road or sea).
A suitable standard clause for inclusion in a contract is as follows:
All disputes arising out of or in connection with this contract shall be referred for Mediation or Arbitration at (insert name of place) under the rules of the (insert name of procedure).
The International Chamber of Commerce recommends the following standard clause should be inserted in the contract if it is intended that the ICC should act as arbitrators:#p#分页标题#e#
All disputes arising in connection with the present contract shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules.
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Protective clauses
This is the name given to a group of clauses that may be inserted in a contract to protect a party in the event that something goes wrong in the performance of the contract, for example, natural disasters, wars, changes of government policy and so forth. There are a number of clauses that operate in different circumstances with differing results. One that is used extensively is force majeure.
Force Majeure clauses protect a party when there is an unforeseeable and unavoidable event which totally prevents the performance of the contract, either temporarily or finally. The clause can bring about a suspension of the contract or a termination of it depending on its wording. Events covered could include acts of God, floods, earthquakes and other natural disasters, disruption by strikes, violence, riots and civil disorder, government regulations and so forth. Basically anything a party wants to put in.
Hardship clauses are similar in that the events covered are basically the same, but the effect is different in that performance of the contract is not impossible as in force majeure. Rather it has become economically difficult or unfeasible for one of the parties. Courts tend to view these kinds of contracts with reluctance and restrictively as they take away the certainty of contracts.
However in international business contracts the use of hardship clauses has increased dramatically particularly in long term contracts for commodities or construction projects. The clauses attempt to provide a procedure for dealing with the changed circumstances, for example, renegotiation; submission to a third party for advice and so forth. They are becoming sophisticated and more complex as parties attempt to deal with eventualities.
The doctrine of frustration of contract may be employed in common law jurisdictions where there is no clause providing protection in unforeseeable circumstances. A contract can be said to be frustrated if the performance of the contract would be fundamentally different from what the parties envisioned when they entered the contract, due to some unforeseeable event, which is not the fault of either of the parties. This is normally regarded as a fairly restrictive doctrine due to the fact that the common law favours keeping people to their bargains no matter what. A contract does not become frustrated because it becomes more expensive for one of the parties to perform or because it becomes more difficult.
Because of this limiting effect it is most wise for parties in international contracts to have protective clauses, particularly force majeure clauses that are extremely wide in scope.
Review clauses make provision for resolving situations which are foreseen as possibly arising during the duration of the contract.#p#分页标题#e#
Most favoured client or customer (mfc) clauses allow negotiation or renegotiation of a contract on the basis of deals made with third parties.
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Exculpatory clauses (exclusion or exemption clauses; limitation of liability) in general restrict or limit or exclude altogether the liability of one of the parties to the contract; sometimes they limit the time in which an action may be brought. The clauses are not favoured by the courts because they are often inserted by the party who has superior bargaining power against those who are unfamiliar with the clauses and who have no real choice about accepting the term.
In order to be effective the common law courts will require that the party being bound by it must have agreed to it. It must have been brought to the attention of that other party before the contract was entered into.
Secondly the courts adopt the contra proferentum rule. This means that the clause will be construed narrowly, against the party who inserted it, and in favour of the innocent party. Recent case law provides that it will not protect a party who has fundamentally divided from the contract.
Case in point
Sydney City Council v West [1965] 114 CLR 481.
Early in the morning W drove his MG sports car into the Domain Parking Station, a business owned and operated by the City of Sydney Council. At the check-in point he received from the attendant a ticket stamped with the time of arrival. During the day, a man who gave his name as ‘Paul Robinson’ informed another of the attendants at the parking station that he had lost the ticket for his car. He gave the number of a car which had no connection with that owned by W, and on the strength of this was issued a duplicate ticket. Using this ticket, ‘Robinson’ was allowed to drive W’s car from the parking station. When recovered, the car was badly damaged and W sued the council for his loss.
The High Court of Australia held that West was entitled to recover and that the council was not protected by an exemption clause in the ticket which read:
The council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle.
In the words of Barwick CJ and Taylor J:
To our minds the clause clearly appears as one which contemplates that, in the performance of the council’s obligations under the contract of bailment some loss or damage may be caused by reason of its servants’ negligence but it does not contemplate or provide an excuse for negligence on the part of the council’s servants in doing something which it is neither authorised nor permitted to do by the terms of the contract.
(pp. 488-489)
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Thus, the act of handing over the vehicle to a stranger and allowing him to drive the car out of the car park was treated as an unauthorised act which was neither contemplated nor intended by the agreement and was consequently outside the protective umbrella of the exclusion clause.#p#分页标题#e#
In some jurisdictions (for example, Quebec) exemption clauses are not effective against gross negligence.
In some jurisdictions a third party can claim the benefit of an exemption clause that has been included in a contract between two other persons if the contract clearly specifies that it will cover a third person, for example, in contracts between consignor and shipper to cover the stevedore. These are valid in England and Australia but not in Japan.
Monetary clauses are used as there is a distinction between money of account and money of payment. The money of account is the currency in which the price is measured (how much has to be paid). The money of payment is the currency in which the debt has to be paid. If the money of account is different to the money of payment, it can have disastrous consequences if the currencies do not maintain their relative value. If in an Australian/Japanese transaction there is specified as payment A$900,000 money of account, payable in Japanese currency. If the Australian $ is devalued by 10% the Australian seller still gets $900,000 although the Japanese buyer will be paying less (in Yen). If the money of payment had been Japanese yen the Australian seller would have received substantially less than $900,000. The different ways in which payment may be arranged should be considered carefully and attention given to possible future moves in the relative values of the different currencies involved. Provision must be made for it in the contract.
What if no provision is made in the contract for the money of account or currency of payment? It will be determined by the proper law of the contract. All relevant factors must then be considered including the place of payment of the debt, and the place of residence and of business of the parties involved, the nature of their businesses, the purpose of the transactions, the history of their relationship before and after the date of their contract, and anything else that could conceivably be relevant.
The rate of exchange can be fixed between the parties. If it is not, the commercial rate of exchange is applicable and this is usually the ‘spot rate’ (TT or telegraphic transfer). No account is taken of inflation, so that if parties make a contract in 1999 and provide for performance of the contract over a 5 year period at a particular fixed price that will be the nominal price all the way through. Price escalation clauses should be considered. An example:
Price escalation clause. Unless firm prices and charges are agreed upon, the seller shall be entitled to increase the agreed prices and charges in the same proportion in which the prices or charges of the goods or their components including costs of labour to be paid or borne by the seller have been increased between the date of the quotation and the date of the delivery.
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Provision should also be made for interest:
Interest. All moneys due under or in connection with this contract, including moneys due by way of damages, shall bear interest until the date of payment at a [specified] rate above a [specified) United Kingdom clearing bank’s base lending rate.#p#分页标题#e#
Reservation of Title (‘Romalpa’) clauses postpone the transfer of ownership to the buyer until the price is paid for the goods. The early transfer of title (that is, ownership) to the buyer could be financially disadvantageous to an exporter especially where the buyer fails to pay for the goods. Exporters are able to do something to protect themselves in their contracts of sale.
The serious risk of non-payment led some years ago to the development of what is known as the ‘Romalpa clause’ for inclusion in contracts of sale. This is intended to give the seller far better financial protection, especially in cases where the buyer becomes insolvent and the seller’s rights of stoppage in transit are not available for one reason or another.
Case in point
Aluminium lndustrie Vaussen B.V. v Romalpa Aluminium Ltd ([1976] 2 All ER 552).
This was a very important English case which upheld the effect of a clause that reserved title in goods to the seller until the seller was paid. In this case Aluminium Industrie Vassen (AIV), a Dutch company, had sold aluminium foil to Romalpa Aluminium Ltd (Romalpa), an English company. The contract for sale between them reserved title to the seller. The relevant clause in the contract read:
The ownership of the material to be delivered by AIV will only be transferred to purchaser when he has met all that is owing to AIV, no matter on what grounds.
Romalpa experienced financial difficulties and a receiver was appointed. When the matter came to court, Romalpa did not even contest that AIV was the owner of remaining unsold aluminium foil in the possession of Romalpa when the receiver was appointed, and Romalpa conceded that AIV was entitled to an order for delivery of that foil back to AIV.
The classic use for the Romalpa clause is where the goods, in the same condition in which they are sold, are still in the possession of the buyer at some critical date. Other common law cases that exist (most of them are English) have given effect to a properly drafted clause to enable the seller to reclaim those goods. The cases have also held that no formal mortgage or charge document needs to be executed.
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Choice of language clause minimises disputes. The problem of language, translation and interpretation of contracts is a source of legal difficulty in International trade. The problem is present in the drafting of contracts, translation of contracts, negotiation and settlement of disputes. The translation of legal language involves a transfer of concepts, rather than a mechanical matching of words. A choice of language clause minimises difficulties and disputes by parties agreeing on the ‘official’ language of the contract.
Waiver of immunity clause can be used if the other party could claim sovereignty. Care must be taken when dealing with foreign governments and state trading entities, in the sense that it is the government that controls the law, the economic infrastructure, the political and monetary system and the labour market. Because of the doctrine of sovereignty, nation states protect zealously their independence and superiority. In dealings with foreign governments a private party will probably not have the option of specifying a law, a forum, or language different from that of the state that the party is dealing with.#p#分页标题#e#
If it appears that the other party could claim sovereign immunity, one possible alternative would be to change the forum, another would be to seek to have a waiver of immunity clause inserted in the contract. Alternatively, provision could be made in the contract for the resolution of disputes outside the court system, for example, by some sort of alternative dispute resolution method using international rules and in a neutral setting, for example, third country. Information on the choice of Forum (Jurisdiction) clause and the Choice of Law clause is provided in Topic 8.
Warning
International contracts are a complex area, and professional advice on the types of clauses to be included in a contract should be obtained.
Trade terms
Incoterms 2000 in international business
Incoterms 2000 are a collection of trade terms commonly used in the international carriage and delivery of goods. They set out the obligations of the buyer and the seller. More particularly the seller, regarding the responsibilities for obtaining licences, authorisations, customs, formalities, contracts of carriage and insurance, the passing of risk, packaging, marking, the inspection of goods and other obligations.
They are compiled by the International Chamber of Commerce and provide a uniform interpretation of the terms. Parties to an international contract of sale could incorporate by reference any incoterms into their contract. The uniform meanings given to these terms reduces uncertainties, misunderstandings and potential disputes that would otherwise arise due to the different interpretations given to these terms in different countries.
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Incoterms are classified into four groups according to the seller’s responsibilities and the passing of the risk in the goods from the seller to the buyer.
These four groups are as follows:
1. Group C: Main Carriage Paid CFR or Cost and Freight CID or Cost, Insurance and Freight The seller is responsible for obtaining export license or other necessary export approval. The seller is responsible for costs, insurance and freight and delivery of the goods to the named port of destination. Risk passes when goods are delivered over the ships rail to a carrier contracted by the seller at the named port of shipment.
2.
Group D: Arrival DAF or Delivered at Frontier DES or Delivered Ex-Quay DDU or Delivered Duty Unpaid DDP or Delivered Duty Paid The seller is responsible for obtaining any export or import license or other necessary approval as well as any necessary approval for transit through a third country. The seller must arrange for the delivery of goods with all duties and other charges paid and cleared for importation to the named place of destination. Risk passes when goods are delivered in the country of the goods destination.
3.
Group E: Departure EXW or Ex Works The seller must make the goods available to the buyer at the sellers premises. Risk passes at the seller’s premises.#p#分页标题#e#
4.
Group F: Main Carriage Unpaid FCA or Free Carrier FAS or Free Alongside Ship FOB or Free on Board
The seller must deliver the goods at the port of shipment named by the buyer. The seller is responsible for obtaining export licenses and other necessary approvals. The buyer is responsible for making contract of insurance, contract of carriage and must give notice to the seller of the vessel, place and time of delivery. The risk passes to the buyer when the goods are delivered by the seller over the ship’s rail at the port of shipment named by the buyer.
According to Schmitthoff 2000, Export trade, Chapter 2, the most favourable arrangement on the part of a seller is to be able to conduct an international sale as similarly as possible to a domestic sale of goods and that is what is called ex works; ex warehouse or ex store. These expressions mean where the goods are
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situated. Ex works includes the purchase price only and price becomes due on delivery of the goods unless other arrangements have been made. Ex store may refer to a particular kind of storage e.g., refrigerator. For the buyers the best terms would be ‘delivered free duty paid’ although this would not be common.
Read
Textbook: Mo, JS 2003, Chapter 1
Invoicing and packing
Invoicing
Correct invoicing is a matter of great importance in the export trade and the smooth performance of the contract of sale will often depend on it. The buyer may require a lot of details on the invoice and these are to comply with regulations in force in that country, for example, those concerning import licences, customs duties and exchange restrictions.
The invoice must be true and correct
The exporter should make it a firm principle of business policy in international sales and other international supply contracts only to issue invoices which are correct in all respects.
A buyer may ask that the price of goods be reduced in the invoice and the charges for insurance and freight be increased correspondingly because the import duty in the buyer’s country is based on the value of the goods and does not include charges for insurance.
Illegality
If a change to an invoice amounts to an illegality in the seller’s country or in the buyer’s country, the contract may be unenforceable in both countries. In the common law legal system there is a provision that sometimes a contract can be enforceable in part if the illegal part can be severed from the legal part.
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The commercial invoice
The invoice should contain a good deal of details including the following:
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names and addresses of the seller and buyer;
•
date and reference of the buyer’s order;
•
a description of the goods sold;
•
details of package (including weight);
•
exact marks and numbers appearing on the package terms of sale;#p#分页标题#e#
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terms of shipping; and
•
invoice price, for example, ex works price, or FOB price, or CIF price. Detailed elements should be shown on the invoice, for example, net price and the other charges separately, so it is easy to calculate how much import duty will be payable.
Governmental requirements for invoices
Sometimes countries require that commercial invoices be in a particular form and satisfy certain requirements, for example, that it be combined with a certificate of value and/or origin. Additionally a signed declaration may be required verifying that the invoice is true and correct.
An exporter must know of the official requirements of the country to which he/she is exporting. Alternatively an exporter can employ the services of a freight forwarder. The contract should specify who is to obtain the export licence. This is normally on the seller. However to be aware of problems that might arise see AV Pound and Co. v MW Hardy and Co [1956] AC 588.
Packing
It is the seller’s obligation to provide adequate and suitable packing so that the goods will arrive safely. This is very important because if the goods are damaged as a result of inadequate packing the overseas customer may either reject the shipment or claim damages. The manner of packing can of course be specified by the buyer in the contract.
Packing may be part of the description of the goods. If goods bought contain a description of the way they are to be packed, it is essential that they conform to that description; otherwise the buyer may be able to refuse to accept them.
The Sale of Goods Act provide that where goods are sold by description, the goods shall correspond with that description (s 13(l)). Therefore, if the deficiency in the packing affects what is called the ‘substantial identity’ of the goods, it will be treated as a breach of a condition which will entitle the buyer to reject the goods.
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Refer to Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd to review the difference between breach of condition and breach of warranty. For example, in a contract for the purchase of peaches if it is stipulated that they be packed 30 cans per case and the consignment is shipped 24 cans per case; would this amount to a breach of warranty or a breach of condition? The umpire said the latter. If of course it is a breach of a warranty (a lesser term of the contract or one which does not affect the substantial identity of the contract) the buyer may be not entitled to reject the goods, but still may sue for damages for breach, albeit a lesser breach. There are many examples of this: rice in 500 gram bags or I kilogram bags, cigarettes in packs of 20 or 25? Alcohol ordered in 750 ml bottles, sent in 250 ml bottles.
Where goods are sold CIF or FOB the price quotation includes packing charges, unless it is expressly stated that an extra charge will be made for package.
Import regulations relating to packing#p#分页标题#e#
Exporters must remember to check on the governmental requirements of those countries that they are exporting to, as certain countries prohibit certain kinds of packing material.
Vienna Sales Convention
There are a wide array of problems that govern the sale of goods where the sale traverses national boundaries with differing laws, all possibly governing the contract. To lessen these problems there have been various attempts to standardise the law which applies to international contracts.
Read
Reading 5: Sale of Goods (Vienna Convention) Act 1986 (NSW)
Textbook: Mo, JS 2003, Chapter 2
The Hague Conventions of 1 July 1964 relating to a Uniform Law on the International Sale of Goods and to a Uniform Law on the Formation of Contracts for the International Sale of Goods attempted to lay down uniform substantive rules defining the mutual obligations of the seller and the buyer under an international contract of sale and as to the formation of such contracts. But the 1964 Conventions, although they gained the adherence of a few continental European countries of the civil law tradition, made little impact in the common law world, since they were not adopted by the USA and were adopted to a very limited manner by the UK.
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A more recent and successful attempt to harmonise the law of international sales is the United Nations Convention on Contracts for the International Sale of Goods UNCITRAL (Vienna Sales Convention) which was signed on April 1980 in Vienna, and entered into force on 1 January 1988. It is made up of elected members of the UN drawn from different geographical areas of the world and different legal systems, economic systems and levels of development.
Australia is a signatory to the Vienna Sales Convention and since 1 April 1989, the Convention became part of the law of each Australian State and Territory. The Convention’s provisions apply to sale of goods contracts entered into where the place of business of one of the parties is in Australia and the sale is either to or from another contracting State. This is the effect of the various uniform Sale of Goods (Vienna Convention) Acts passed by the various Australian State and Territory legislatures to adopt the Convention. (The Convention itself appears, in each case, as a Schedule to the adopting legislation.) So, the Vienna Sales Convention applies when the countries of both of the contracting parties have adopted the Vienna Convention, or when the law of the contract is the law of a state that is a signatory to the Convention.
The Convention is aimed at promoting the development of international trade by contributing to the removal of legal barriers. It provides a uniform set of substantive rules as to the formation of and obligations under, an international contract of sale, taking into account the various social, economic and legal systems of the signatory states. These rules then govern the formation and performance of the contract and operate in priority to the national laws of the home countries of the contracting parties. Since the Vienna Convention has a greater influence of the common law tradition, it is achieving wider acceptance than the 1964 Hague Conventions. It entered into force on 1 January 1988.#p#分页标题#e#
The number of countries who are signatories to the Conventions shows the popularity of the convention, and the reason why persons involved in international trade should become aware of its provisions.
The Vienna Sales Convention does not lay down exactly how each contract is to be formed or what it is to contain. Rather, its rules apply unless the parties agree otherwise.
Clearly, the parties may make express provision for many of the things for which the Convention provides standardised rules. If their agreement is inconsistent with the Convention, the Convention will not apply to the extent of the inconsistency. Article 6 provides that, if the parties wish, they may exclude the provisions of the Convention in whole or in part.
However, if the parties do not make specific or adequate provision for matters such as passing of risk, time and place of payment, delivery, responsibility for the organisation of carriage and insurance, conformity of goods with their description and so on, the Convention will provide a solution which will be applied by the national courts of both countries.
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The convention is divided into four parts:
i. sphere of application and general provision;
ii. formation of contract;
iii sale of goods; and
iv.
final provisions.
Application of the convention (Part I)
Article 1 says that the Convention only applies to contracts of sale of goods between parties whose places of business are in different states where those states are contracting states or it applies where the rules of private international law lead to the law of one of them, a contracting state, being applied to the contract. We know that this of course refers to the ‘proper law of the contract’. The convention will apply to a contract if it indicates on its face that the law of one of the home countries of the parties is to govern the contract and if that home country is a signatory to the convention. The convention then becomes the proper law of the contract. The location of the places of business is therefore critical in determining whether the convention applies. The rules only apply when both parties are or should be aware that the contract is, in fact, international in character.
We have said that Article 1 makes the convention applicable to contracts of sale of goods. The English Sale of Goods Act and the Australian Sale of Goods Acts defines ‘goods’ as including all chattels personal, other than things in action and money and so does the Vienna Convention. The Convention does not apply to a contract under which the main obligation of the party who supplies the goods is in fact for the supply of labour or other services. Therefore, a contract for the supply of services which happens also to involve the supply of goods would not be covered by the Convention.
Article 2 excludes consumer sales, auction sales, sales of stocks, shares and other securities, sales of ships, vessels, hovercraft or aircraft and sales of electricity from the Convention’s ambit. Also excluded are those contracts where the preponderant part of the supplier’s obligations consists in the supply of labour or other services.#p#分页标题#e#
We have already said that Article 6 further limits its application by providing that the parties may exclude its application or derogate from or vary the effect of any of its provisions by agreement. The Convention, therefore, is not of universal application and what application it does have can be further limited by agreement.
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Formation of contract (Part II)
The Convention recognises that a contract for the sale of goods needs very little formality.
Articles 11 provides that the contract need not be concluded in or evidenced by writing to be enforceable. However Article 12 expressly allows a local legislation to override this and to impose a writing requirement. However, unless this is expressly done by declaration under Article 96, it will not be effective.
Part II provides a simple and commercially realistic set of requirements for formation of the contract. Article 14, rule 1 states that a proposal for concluding a contract will be an offer if it is ‘sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.’
Proposals other than those addressed to one or more specific persons are considered merely as invitations to make offers and not as offers unless the contrary intention is fairly indicated.
Article 15 provides that offers become effective once they reach the offeree and that they may be withdrawn, even if they are stated to be irrevocable, provided the withdrawal reaches the offeree before or at the same time as the offer.
Acceptance, merely a statement or other conduct by the offeree indicating assent to the terms of the offer, becomes effective at the moment that the indication of assent reaches the offeror. It must reach the offeror within the time fixed for acceptance, otherwise it is of no effect. Late acceptances can be effective if the offeror is prepared to take them and if he or she orally informs the offeree or despatches a notice to the effect without delay. The common law rules governing counter-offers have been incorporated via Article 19, rule 1.
Acceptances may be withdrawn under Article 22 provided the withdrawal reaches the offeror before the acceptance. Article 24 makes clear that ‘reaches’ means that the communication must actually reach the person to whom it is directed or, alternatively that it must be delivered to the place of business or mailing address or, if there is no such place of business or mailing address, to that person’s habitual residence.
The postal rule, therefore, has no application to international contracts for the sale of goods unless the parties expressly agree that it is to operate.
Obligations of buyer and seller (Part III)
This part deals with the specific rights, duties and obligations of the buyer and seller and includes such things as the delivery of the goods, (for example, Article 30 says that ‘the seller must deliver the goods, hand over any documents relating to them and transfer the property in them as required by the contract and this Convention’). Also included are the obligations of the seller regarding the conformity of the goods, and remedies for breach of the contract by the buyer.#p#分页标题#e#
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Other provisions include payment of the price and taking delivery, (for example, Article 53 says the ‘the buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention’). Remedies for breach of contract by the seller, passing of risk, anticipatory breach, damages are also covered. In general many of the provisions are similar to those found in the various State and Territory Sale of Goods Acts, with some differences to take account of the differing laws that had to be reconciled to arrive at an acceptable compromise Convention.
Breach
Where there is a breach of contract, and the parties have made no specific provision as to how it should be dealt with, the parties’ rights will depend on whether it is ‘fundamental’ or not. Article 25 defines a fundamental breach as one which results in such detriment to the other party as substantially to deprive him/her of what he/she is entitled to expect under the contract unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. It therefore has a meaning roughly equivalent to either breach of condition or serious breach of innominate term.
Whether the breach is fundamental or not is important because some of the remedies provided for in the Convention are only exercisable if the breach is fundamental. These remedies include the right to avoid the contract for non- performance, and the buyer’s right to require substitute goods as replacements for nonconforming goods.
In the absence of fundamental breach the parties are restricted to requiring performance in accordance with the contract or claiming damages for failure to perform. Compare the position under the common law.
Passing of risk
Unlike the position under the Sale of Goods Act, passage of risk under the Vienna Convention is not linked to passage of property. Under Chapter IV of the Convention, passage of risk is linked to passage of control. The risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale or, if the goods have been sold in transit, from the time of conclusion of that contract of sale.
If neither situation applies, the risk passes to the buyer when he or she takes over the goods or, if that does not occur in due time, risk passes from the time when the goods are placed at his or her disposal and a breach of contract is committed by failure to take delivery. In all cases then, the risk passes to the buyer at the point at which the seller loses the right to control what happens to the goods.
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Final provisions (Part IV)
Article 90 allows exclusion of part or whole of the provisions of the Convention by member states. For example, in an endeavour to harmonise the laws of the various countries Article 11 of the Convention provides that a contract need not be concluded or evidenced in writing. This provision may be excluded by a member state when ratifying the Convention. Argentina, Belarus, Chile, China, Hungary, Ukraine and the USSR have made declaration to exclude the operation of Article 11. The effect of this exclusion is to require international sales contracts involving traders in those countries to be in writing.#p#分页标题#e#
Likewise, Article 92 allows contracting states to make reservations in relation to Parts II and III making these parts inapplicable to the parties who have made reservations to these provisions.
Article 94 allows contracting states to vary or modify the effect of the Convention after they have become members.
Finally, this part deals with ratification and accession, and the procedure for a contracting member state to withdraw from the convention.
Relevance of domestic laws to international sale of goods
Read
Textbook: Mo, JS 2003, Chapter 1, pp. 38-57
Despite the application of the Vienna Sales Convention to international sales contracts, domestic laws of a country also affect contracts for the international sale of goods.
Firstly, domestic laws govern an international sale in the absence of any international agreement or convention. It is not unusual for an international sale to take place between traders of two countries that are not parties to the same convention.
Second, even in situations when an international contract for the sale of goods takes place between traders of two countries who are parties to the same international agreement or convention, such as the Vienna Sales Convention, the domestic laws will continue to apply in international sales contracts to areas not covered by the Convention. For example, the Vienna Sales Convention does not cover certain aspects of sale such as the passing of property (transfer of ownership in goods) the validity of a contract, the sale of goods for personal, family or household use, as the sale of ships, vessels and aircrafts (Articles 2, 4 and 5).
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Though each Australian State and Territory has adopted the Vienna Sales Convention through its own legislation, the aspects of international sale not covered by the Convention will be governed by the domestic sale of goods legislation in operation in each state and territory. For example, Article 4 of the Convention provides that it is not concerned with the ‘effect which the contract may have on the property in the goods sold’. That is that the Convention does not cover the transfer of ownership in the goods sold. Because the Convention does not cover this aspect of the contract, the Sale of Goods Act will apply, even in Sale to Convention countries, where the Australian law is the governing law. Likewise, though China is a member of the Convention the Code of Contract Law which came into operation on 1 October, 1999 supplements the Convention in international sales, providing rules for the matters not covered by the Convention.
Another aspect of the interconnection between domestic laws affecting international sales and an international convention is the principle that the relevant international convention takes priority over domestic laws, if the relevant country has ratified and incorporated the convention into its domestic law. This principle of international law is established in common law jurisdiction such as Australia, New Zealand, United Kingdom, Canada, the United States and Hong Kong. It is the same even in countries largely based on a civil law tradition such as China and Japan.#p#分页标题#e#
In each Australian state and territory, contracts for the sale of goods are principally regulated by the largely uniform sale of goods legislation. The sale of goods legislation is based on the Sale of Goods Act 1893 (UK). The Sale of Goods Acts in Australia, New Zealand, United Kingdom, Canada and in some Asian countries such as Hong Kong, Malaysia, Singapore are relatively uniform, based on the English model. Consideration of the Sale of Goods legislation in Australia is beyond the scope of the discussion. Issues arising from the application of the Sale of Goods legislation to contracts of international sale are examined in detail in Mo, JS 2003, Chapter 1.
Rules of general contract law (common law)
In addition to the Sale of Goods legislation, and the Vienna Sales Convention, the legal framework in the Common Law world for the international sale of goods includes general contract law or the Common Law of Contract. General contract law is the basis of the Sale of Goods legislation in Common Law jurisdictions including Australia, New Zealand, United Kingdom, Canada, Hong Kong, Singapore, Malaysia and India. The Sale of Goods Act is not an exclusive code and expressly or by implication preserves the rules of the common law including the law merchant, save in so far as they are not inconsistent with the express provisions of this Act, and in particular the rules relating to the law of principal and agent, and the effect of fraud, misrepresentation, duress, or coercion, mistake, or other invalidating cause.
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Thus in Australia and in most common law countries, the rules of general contract law apply to any contract of international sale where no inconsistency arises between the rules and principles of general contact law and the Vienna Sales Convention or any other applicable convention. In fact general contract law is always relevant to any contract of sale whether domestic, interstate or international.
It is, therefore, necessary to examine in some detail the rules of general contract law.
General contract law
The source for the information on general contract law is Griggs et al. 2003, Chapter 3, pp. 74-95. As a general statement, a legally binding contract has seven features:
1.
intention;
2.
agreement;
3.
consideration and form;
4.
capacity;
5.
legality of object;
6.
possibility of performance; and
7.
genuine consent.
The court will look for these features if there is a dispute between the parties as to whether their agreement is legally enforceable.
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The figure below provides a checklist of matters which should be addressed when making a business contract.
Source: Griggs, L, Clark, E, Streeter, J & Iredale, I 2003, Managers and the law, Law Book Co., Sydney.
Intention to create legal relations
The law of contract is at the centre of the economic and business life of the community: the goods which are bought and sold; the bank account which is operated; the car which has to be repaired; the restaurant, theatre or cinema which is attended; the employment undertaken; and the transport used are all situations governed by contract. Yet, there is no uniformly accepted definition to situations governed by contract.#p#分页标题#e#
The law of contract is concerned with the rights and obligations which arise from the making of a promise which the law will enforce.
This definition is useful, for it emphasises that an agreement to a contract must give rise to legally enforceable obligations. Therefore, contract has nothing to do with purely social or domestic arrangements. Agreements to play football, or to go to the cinema or to have dinner together do not in law create legal obligations. So, in the case of Balfour v Balfour [1919] 2 KB 571, a husband promised to pay his wife a fixed sum each month while he was abroad, provided the wife did not ask for any further maintenance. The court held that this was not a legally bind agreement as it was a domestic arrangement between husband and wife without intention to create legal relations.
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Accordingly, one of the requirements of a legal contract is that the parties intend to create legal relations. Unfortunately, business people sometimes write letters and make agreements without making it clear whether they intend to be legally bound or perhaps only morally, but not legally, obligated to honour their, commitments.
Case in point
Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379. But see Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 511, where a different conclusion was reached.
Facts:
KBL, a bank, lent a subsidiary of Malaysia Mining Corp the sum of $10 million. The parent company, Malaysia Mining, refused to give a guarantee or indemnity to KBL, but did proffer a ‘comfort letter’ which stated that in recognition of the bank lending money to the company’s subsidiary ‘it is our policy to ensure that the business (of the subsidiary] is at all times in a position to meet its liabilities to you’. When the subsidiary could not repay the loan, the bank sued the parent corporation, relying on the comfort letter.
Issue:
Did the parties intend to enter legal relations? Summary: On appeal it was held that the comfort letter was not a legally binding contract because there was no intention to create legal relations. The statement quoted above was held to be one of present policy and no guarantee of what the future policy of the company might be. As such, the comfort letter of the parent company contained no words of promise and was morally binding perhaps, but not legally binding.
Management context:
Managers must mean what they say and say what they mean. Legal intentions must be clear and unambiguous.
Case in point
The Administration of the Territory of Papua and New Guinea v Leahy [1961] 105 CLR 6.
Facts:
Leahy’s cattle had become infested with ticks. The Department of Agriculture had provided him with a tick spray and the necessary equipment to apply it. The parties agreed that Leahy would supply the labour, but that the Department would supervise the spraying.
Issue:
Did the parties intend to be legally bound? 109#p#分页标题#e#
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Summary:
The High Court held that this ‘agreement’ was not an enforceable legal contract. Therefore, Leahy was not entitled to recover damages for losses caused when the work had not been carried out properly. As McTiernan J observed (ibid at I 1):
[T]he conduct of the parties constituted an administrative arrangement by which the Administration in pursuance of its agricultural policy, gave assistance to an owner of stock to prevent that stock contracting a disease which was prevalent in the Territory. The work done by the Administration was analogous to a social service which generally does not have as its basis a legal relationship of a contractual nature ...
Management context:
The manager must be able to distinguish ‘legal’ relationships from other relationships entered into and consider who can be held responsible should the matter not proceed smoothly.
Questions of intention to create legal relations can also arise when business organisations are dealing with government agencies. When a government makes a commitment, does it intend to be legally bound, or is the particular government agency merely executing policy with the result that its promises are not contractually binding?
Agreement: Offer and acceptance
The essence of a contract is that the parties have reached an agreement. Traditionally, that agreement has been analysed and expressed in the form of an offer made to one party which is accepted by the other. Usually an offer is made to a particular person, or group of people. However, there is nothing to prevent an offer being made to the public at large. So, in the famous case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, the defendants in an advertisement said they would pay £100 to anyone who caught influenza after using their carbolic smoke ball. Mrs Carlill obeyed the instructions in the advertisement but still contracted influenza. Mrs Carlill successfully sued for the £100 on the basis that the terms were not vague and that the offer, although made to the public at large, was capable of being accepted by any member of the public. It was also held in this case that there was no need for Mrs Carlill to communicate her acceptance of the offer.
Offer and invitation to treat
An offer must be distinguished from an invitation to treat. An invitation to treat is merely an invitation to make offers. It is only one step towards agreement and is not capable of being interpreted as a definite offer. As an illustration, in Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd [1953] 1 All ER 482, the court held that the display of goods in a self-service shop was not an offer but an invitation to treat. The contract was completed only when the customer offered the goods at the cash register and when the shop-keeper
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accepted or rejected the offer to purchase. Circulars, price lists, catalogues and advertisements are usually regarded as invitations to treat. The consumer, in responding to the invitation, makes an offer which is accepted by the trader when the sale is completed. Similarly, when goods are sold at a public auction, each bid forms an offer and the contract is completed at the fall of the auctioneer’s hammer.#p#分页标题#e#
Acceptance
An acceptance of an offer must be unqualified and in accordance, with the terms of the offer. A counter-offer, for example, is not an acceptance for it causes the original offer to lapse. So, in the case of Hyde v Wrench [1840] 49 ER 132, the defendant offered to sell his farm to the plaintiff for £1000. The plaintiff said he would give £950. Wrench refused and Hyde sought to enforce the contract. It was held that there was no contract as the offer of £950 was a counter offer which rejected the original offer.
An acceptance must not be subject to any conditions. If a phrase such as, subject to contract, were used, this would indicate that the parties were negotiating only. Sometimes the court has to decide whether the parties intended the contract to be binding. For example, in the case of Niesmann v Collingridge, [1921] 29 CLR 177; 27 ALR 209, Niesmann had agreed to give the respondent a ‘firm offer’ with money to be paid on the signing of the contract, and the balance three years after the signing. The High Court of Australia held that the term ‘firm offer’ showed that a binding contract was intended and not any qualified acceptance.
Acceptance is not usually effective until it is communicated to the party making the offer (offeror). However, where the offer is a promise to pay money as a reward for some act, then the doing of the act is usually sufficient indication of the acceptance. However, the acceptor must have knowledge of the offer. In R v Clark [1927] 40 CLR 227, Clark was not allowed to claim a reward for £1000 from the Western Australian government for information leading to the arrest and conviction of police murderers, for he had given the information only to save his own skin. Also, when he gave the information the question of the reward had been forgotten.
The offeror cannot impose silence as a condition amounting to acceptance from the person to whom the offer is directed (the offeree). In Felthouse v Bindley [1862] 142 ER 1037, the plaintiff offered to buy his nephew’s horse and at the end of a letter said, ‘if I hear no more about him, I shall consider the horse mine’. The nephew did not reply but told the defendant who was an auctioneer to keep the horse out of a forthcoming sale. The horse was, however, sold in error, but the uncle’s claim against the auctioneer failed. It was held that the silence of the nephew did not amount to an acceptance in law of the offer made by the uncle.
The method for acceptance of an offer depends upon the terms of making the offer. The offeror may lay down a prescribed method for accepting an offer. If the offer is made orally, then generally an oral acceptance will be sufficient.
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Contracts by post, fax and telex
In the case of contracts made by post, special rules may apply. The general rule is that a contract is concluded when the acceptance is received by the offeror. However, if from the circumstances of the dealings of the parties it is reasonable to expect that both parties presumed acceptance to be made by post, then the contract is completed at the time of posting the letter of acceptance. In other words, acceptance dates from the posting. The acceptance is complete as soon as the letter is posted even though it never reaches its destination. So, in Household Fire Insurance Co v Grant [1879] 4 Ex D 216, Grant applied for shares in a company. A letter informing Grant that shares had been allotted to him was posted out never reached him. Nevertheless, it was held that the contract was complete when the letter was posted and therefore Grant was a shareholder in the company.#p#分页标题#e#
Where the communication is by means of fax, telephone, telex, or sent electronically courts have held that postal acceptance rules do not apply because the communication is effectively an instantaneous mode of communication (see Brinkobon Ltd v Stahag Stahl und GM6H [1983] 2 AC 34).
Instantaneous contracts have also been discussed on page 79.
Revocation of an offer
As to the termination of an offer (revocation), it is useful for an offer to remain open for acceptance at any time, but the offeror may revoke the offer before it is accepted. In this case the revocation to be effected must be brought to the notice of the other party. An offer, may however, cease by lapse of time and, if no time limit is laid down, the offer lapses after what the court considers a reasonable period of time. So, in Ramsgate Victoria Hotel Co Ltd v Montfiore [1866] LR 1 Exch 109, the defendant applied for shares on 8 June, but the shares were not allotted to him until 23 November. It was held, in the circumstances, that the offer to take the shares had lapsed as the company had taken too long to send their acceptance. Similarly, in Ballas v Theophilos [No. 2] [1957] 98 CLR 193, an option to take up a partner’s share which was exercised some 16 months after the death of the partner was held to be an ineffectual acceptance.
The general rule relating to death is that the death of the offeror will bring an offer to an end where some personal element is involved, for example, an offer to sing at a concert. However, where there is no personal element, the offer remains open until the offeree receives notice of the death.
Form, consideration and privity
Every contract must be supported by consideration unless it is made in the form of a deed. A deed is a document which is ‘signed, sealed and delivered’, although this old form of words really means nowadays that it is a formal written document which is signed to which a small red circular seal is adhered.
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If the contract is not in the form of a deed, consideration is necessary. Consideration was defined in Currie v Nisa [1875] LR 10 Esch 153, as ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ Thus consideration is something valuable which is given or undertaken in return for the promise, for example, the price stated being offered and accepted, or the refusal by a party to sue when he or she has a legal right to do so. The consequence of this is that the person to whom the promise is made must have contributed to the bargain. Therefore, as a general rule, though subject to many exceptions nowadays, no third person can sue or be sued on a contract to which he or she is not a party. This is referred to as the doctrine of privity of contract. The only requirement of consideration is that it has some real value. It is not for the courts to investigate whether the consideration is adequate.#p#分页标题#e#
There are some situations where the courts have said that there is no consideration. First, where a public duty is imposed upon a party and they do no more than they are obliged to do and, second, where the party is already bound by an existing contractual duty, there is no consideration. For example, a promise made by a creditor to accept a sum less than that already owed pursuant to a contract ordinarily would not be enforceable because the debtor has given no consideration for the promise; the debtor is only offering to do that which he or she is already obligated to do under the original contract which created the debt. Because the debtor has given no consideration, the promise by the creditor to accept the lesser sum is unenforceable.
The requirement that a contract be in writing
The common law rule is that contracts may be made orally or in any other way (although one Hollywood director is reported to have quipped that ‘oral contracts are not worth the paper they’re written on’). However, statutes have created exceptions to this rule. For example, bank cheques, bills of exchange, assignment of copyright, marine insurance contracts, agreements to submit assignments of life insurance policies, maintenance agreements, real estate contracts, transfers of company shares, consumer credit contracts, mortgages and guarantees, must be in writing. In addition, in some jurisdictions there are certain types of contracts which have to be supported by some writing. So, contracts of guarantee must be evidenced by some writing (S 4 of the Statute of Frauds 1677). Importantly, contracts for the sale of land in many jurisdictions must have some writing which includes the names of the parties, a sufficient description of the property and a statement of the price. The general effect of non-compliance with statutory requirements as to writing means that the contract is unenforceable. In equity the doctrine of part performance, for example, may overcome the lack of writing. For instance, in the case of Rawlinson v Ames [1925] 1 Chapter 96, the parties, under an oral contract for the lease of a flat, agreed that certain alterations would take place. Later, the defendant tried to ignore the contract but the plaintiff succeeded. The work had been carried out at the defendant’s request and this part-performance was sufficient to overcome the lack of writing which would have been required for the lease of the land. In short, the existence of a contract may be proven by full/part performance as well as by a written contractual document.
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Standard form contracts
The common law principles relating to offer and acceptance assume that both parties are relatively equal in bargaining strength. However, the reality is that there has been an immense growth in standard form contracts. These pre-printed contracts contain standardised terms which have been drafted by one party. which the other accepts on a take-it-or-leave-it basis, and are frequently encountered. This has inevitably led to a further inroad into the fiction of freedom of contract. Most contracts which are negotiated these days are simply signatures affixed to standard form contracts. Thus, insurance contracts, carriage of goods contracts, transport contracts and many others are standard form contracts where the parties will rarely even read out the terms. The only ‘freedom’ is for the party to sign or not to sign. This is not to suggest that these contracts are necessarily unfair. Indeed, sometimes consumer legislation requires that such form contracts contain terms which protect consumer interests. In other cases, a standard form contract reflects a compromise among a number of diverse interests. For example, one type of standard form contract is that used by the building industry in Australia. These contracts have been drafted by the professional building associations after negotiations with builders, engineers, lawyers, architects, and so on. As much as possible, these contracts try to reflect the best commercial and professional practices in the building industry. Nevertheless, many contracts are designed to protect the interests of the party drafting the contract and often confer benefits on that party only. A classic type of standard form contract is used by airlines. The traveller buys a ticket on which are printed clauses which exclude and limit the liability of the airline for loss or injury caused. The legal effect of such clauses is discussed below.#p#分页标题#e#
Exclusion clauses
From the point of view of the consumer, by far the most important clauses in most standard form contracts are terms by which one party seeks to exempt or exclude himself or herself from liability. Exclusion clauses may also include clauses which fix a financial limit on any claim against the party seeking protection from the exclusion clause. Also, exclusion clauses may provide for time limits in which claims must be made. So, for example, standard airline tickets include in a clause that in the case of complaint about baggage, ‘complaint must be made in writing to carrier forthwith after discovery of damage and at the latest, within 7 days from receipt’. Exclusion clauses are widespread. They are included in hire purchase documents, travel tickets, insurance contracts, guarantees, and so forth. In the case of the consumer, these clauses may often result in an unfair avoidance of liability by a company. In this way, otherwise valid consumer claims may be defeated. Consumers must carefully read any document.
However, this is one area in which the courts have developed rules which protect the consumer from exclusion clauses by preventing them unfairly extending to situations which they were not intended to cover.
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First, courts have developed a principle of communication of exclusion clauses. So one parry must do everything that is reasonably necessary to bring the exclusion conditions to the notice of the other, and those exclusion conditions must be brought to the notice of the other party either before or contemporaneously with the making of the contract. Thus, in Olley v Marlborough Court Ltd [1949] 1 KB 532, the hotel guest, having paid in advance, went to his room and on one of the walls was posted a notice in the following terms. ‘The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.’ The guest closed the door of the bedroom and handed the key to the reception. Later, someone took the key and stole some furs. The guest sued the hotel. It was held that the guest could recover for the contract was completed at the reception desk and the printed notice, which came to the guest’s attention later, did not form part of the contract. Similarly, in Chapelton v Barry UDC [1940] 1 KB 531, the plaintiff hired a deckchair on a beach. Near to the stack of deckchairs was a notice with the price of the hire of the chairs. However, on the back of the ticket, which he did not read, were the words, ‘The Council will not be liable for any accident or damage arising from hire of chair.’ The plaintiff sat on the chair, fell through and was injured. The Council argued that it was protected from liability by the exclusion clause. However, it was held that the ticket was only a voucher and therefore the conditions printed on the back did not form part of the contract.
Second, the courts will not allow a party to rely on the protection of all exclusion clauses where the party does not carry out the expected performance under the contract. Thus, TNT (Melbourne) Pty Ltd v May and Baker (Aust) Pty Ltd [1966] 40 ALJR 189, a transport company employed a driver to pick up goods in a truck. On occasions, if the depot was closed, the driver was directed by the company to take the goods to his home. On one occasion, he did so and the goods in the truck were destroyed after a fire in the driver’s garage. The contract had provided:#p#分页标题#e#
... the consignor must accept responsibility for and damage to or loss of any goods whilst in the carrier’s custody during storage or transit by road [and] the consignor to carry all goods ... by any method.
It was held by the High Court that this very wide exclusion clause did not apply as the driver ‘on instructions from the company, had not performed as expected’. The words ‘any method’ meant ‘any method of carriage’ and did not cover the storage in the driver’s garage, Thus, the court established a rule that:
... a condition absolving a party from liability for the loss of the goods in his (sic) care, is construed as referring only to the loss which occurs when the party, is dealing with the goods in a way that can be regarded as an intended performance of his (sic) contractual obligations. He (sic) is not relieved from liability if, having obtained possession of the goods, he (sic) deals with them in a way that is quite alien to his (sic) contract. (per Windever J, ibid at 377)
Finally, exclusion clauses are strictly construed against the party seeking protection from the benefit of the clause. In other words, any ambiguity will be resolved in favour of the complaining party.
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In real terms, however, these efforts by the courts have been very limited and the basic rule is that the parties may insert any clauses they choose. Once the court finds that the exclusion clause has been inserted and agreed to, only in very rare circumstances will it depart from the terms. As the courts have failed to develop any general technique to deal with exclusion clauses, legislators have seen fit to pass legislation to limit the effectiveness of exemption clauses. In the United Kingdom, the Unfair Contracts Terms Act 1977 made all such clauses subject to a test of reasonableness. Similarly, in New South Wales, the Contract Review Act 1980 has brought in a test that if the contract is unjust at the time it is made, the court can declare it void, delete terms or refuse to enforce it. Other statutory relief from harsh exclusion clauses can be found in the Trade Practices Act and the Fair Trading Act adopted in each Australian jurisdiction.
Capacity
Any person may enter into a valid contract. However, certain classes of people are subject to disabilities. The most important of these are young people, mental patients and intoxicated persons.
People under the influence of drink, drugs or suffering from mental disability are not bound by their contract if they can show that at the time of making the contract, by reason of their intoxication or mental condition, they were incapable of realising its importance and that the other contracting party knew of this condition.
Infant/minor’s contracts
Anyone under the age of 18 years has a restricted contractual capacity. In general, infancy or minority status is an advantage for there are only a limited number of contracts which are enforceable against an infant/minor. Infants/minors’ contracts are governed by the common law as statutorily modified in the different States. Unfortunately for managers, this is another area where there is no uniformity and managers should check out the particular laws in their jurisdiction.#p#分页标题#e#
At common law there are two types of contract which are enforceable against the infant: contracts for necessaries and those which are for the benefit of the infant. Necessaries are goods suitable to the condition in life of the infant and to his/her actual requirements at the time and sale of delivery.
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Case in Point
Nash v Inman UDC [1908] 2 KB 31.
An undergraduate university student refused to pay his tailor’s bill for 11 fancy waistcoats which had been supplied. It was held that, although the clothes were suitable for his condition in life, they were not necessaries as he was already adequately supplied. Therefore, the tailor could not recover.
Second, contracts which are a benefit to the infant are enforceable. These include contracts for training, education, apprenticeship and employment.
Case in Point
Doyle v White City Stadium Ltd [1935] 1 KB 110.
The plaintiff was an infant boxer and a term of his licence provided for prize money to be withheld if he was disqualified in any contest. The plaintiff was disqualified and he failed to recover the amount due, on the ground that the agreement taken as a whole was for his benefit.
The area of infants’ contracts is in a very unsatisfactory state, and New South Wales has passed a Minors (Property and Contracts) Act 1970 which has tried to avoid some of the complexities of infant contracts by providing that contracts, if they are beneficial to the minor, are binding upon him or her. There is also provision in the Act for a minor to apply to the court to have his/her contract affirmed. Other states such as South Australia, New South Wales and Tasmania have amended the common law rules in relation to infancy by making it clear that an adult guarantor of a minor’s contract will not be relieved of his or her obligations as guarantor merely because of the minority status of the principal debtor.
While contracts, with the exceptions noted above, normally cannot be enforced against a minor, it is sometimes possible to recover on grounds other than contract. For example, under expanding equity doctrines such as restitution it may be possible to recover from a minor any ill-gotten gains.
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Legality of the contract
As a general rule, an illegal contract cannot be enforced. There is a large class of contracts (which covers contracts to commit crimes or torts) which are contrary to public policy and are unenforceable. In this class are contracts in restraint of trade, that is, contracts which restrict a party from freely pursuing a trade which will be held unenforceable. However, if the restraint in the contract is reasonable, then the contract may be upheld. For instance, in the case of Plowman and Son Ltd v Ash [1964] 2 All ER 10, a salesman contracted with his employer not to canvass his employer’s customers for a period of two years after he left the employment. The court upheld this agreement, for the employer was reasonably protecting his interest in his customers from being pilfered by his ex-employee.#p#分页标题#e#
Also within this illegal class are contracts which promote sexual immorality, contracts which encourage trading with an enemy country and contracts to pervert the administration of justice.
One large category of contracts is those which are illegal by statute. Parliament passes more and more statutes each year and some of these may affect private contracts. For example, Parliament may legislate that a licence is required by certain dealers, that a contract has to have particular terms, or that a contract must observe particular procedures. In these cases, the contract will only be illegal and therefore unenforceable if the illegal factor is fundamental to the contract. So, in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] 21 ALR 585, the High Court upheld a claim for $132,600 by the First Chicago Australia for a loan which they had made to the Yango company. The Yango company had tried to avoid paying the loan on the basis that the First Chicago Australia was not registered under the Commonwealth Banking Act 1959. Yango had to pay on the basis that the failure to register was not fundamental to the loan contract; therefore, the contract was not void for illegality.
Impossibility of performance/completion
If it is impossible to perform or complete a contract for a variety of reasons, then the contract is invalid. If the impossibility occurs after the contract has been entered into and was unforeseen, this is generally a ground for discharging the contract.
Genuine consent
If the parties have entered into an agreement without genuine consent, then there is no agreement. There may be no genuine consent by reason of a mistake between the parties; or one party may have misrepresented some fact to the other party, either deliberately or innocently; or one of the parties may have unduly influenced the other party.
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Mistake
The law of mistake is rapidly being overtaken by a broader, over-arching duty of parties to act in good faith and not unconscionably.
If there is a mistake on the part of one or both of the parties, then the contract may be devoid of legal effect. A mistake may be made by both parties misunderstanding each other. This is referred to as a mutual mistake. A common mistake is where both parties make the same mistake.
Case in point
Couturier v Hastie [1856] 155 ER 1250.
A contract for a sale of corn was held a nullity when, unknown to both parties, a cargo of corn had spoiled during the voyage and had already been sold before arrival in the United Kingdom. Accordingly, it was held that this mistake voided the contract.
The third variety of mistake is a unilateral mistake where one party only contracts under a mistaken impression. Most cases of unilateral mistake involve one party mistaking the other party’s identity.
Case in point
Ingram v Little [1960] 3 All ER 322.
A swindler falsely represented that he was a Mr Hutchinson from a well-to-do residential area. On this basis, the plaintiff agreed to accept a cheque from the swindler for a motor car, having checked the address in the telephone directory. The cheque was dishonoured and it was discovered that the car had been sold to the defendant by the swindler. The Court of Appeal held that the plaintiff’s offer had been made only to the respectable Mr Hutchinson and not to the swindler pretending to be Mr Hutchinson. There was therefore a mistake as to identity which was material to the contract, and therefore no contract had been made and the plaintiff was entitled to recover the car.#p#分页标题#e#
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The effect of a mistake is to render the contract void provided that the mistake is operative. However, mistakes that are the result of mere errors of judgement are not sufficient justification to set the contract aside. The mistake must indicate there is no real agreement between the parties. Similarly, if the mistake is merely as to the quality of goods or something which is not fundamental to the contract, then the contract remains valid. Thus, in a contract for the sale of a painting, it is not enough to set aside the contract on the ground of mistake - that a mistake was made as to the value of the painting. As long as the party knew that he or she had bargained for a painting, the fact that the party made a mistake as to its value or the identity of the artist would not be enough to set the contract aside.
Documents mistakenly signed
Where a party actually signs a contract under a mistaken belief that the document is something else, then the contract may be avoided. Generally, once a document is signed the party is bound by his or her signature. The party may only plead non est factum (this is not my act) where it can be shown that the document signed was radically different from that which the party thought was signed.
Case in point
Gallie v Lee [1971] AC 1004.
Mrs Gallie, a 78-year-old woman who owned a long lease on a house, was tricked into signing a document transferring her house when, in fact, she thought she was giving the house as security to Parkin, her nephew, to raise money. However, the House of Lords held that the transfer was not void, for the document Mrs Gallie had signed was not radically different from that which she believed she was signing.
Misrepresentation
A representation in law is a statement of some existing fact which is made for the purpose of inducing the other party to enter into a contract. If the representations are false, they are referred to as misrepresentations. These may be made innocently or fraudulently, and different consequences arise from each. The misrepresentation must, in fact, induce the other party to enter into the contract. A representation is fraudulent where the person making the statement knows that it is false or makes it recklessly by not caring whether it is true or not; otherwise, the misrepresentation is innocent.
The distinction between the two lies in the remedies which are open to the party to whom the misrepresentation has been made. Where the misrepresentation is innocent, the party may refuse to perform his or her part of the contract or may ask
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the court for rescission. Rescission is a remedy of equity. Common law courts originally granted only damages, whereas the Court of Chancery in its equitable jurisdiction would allow the party rescission, that is, setting the contract aside so that the parties would be put back in the position they were in before the contract had been entered into. Misrepresentation legislation in some jurisdictions have modified the common law rules about misrepresentation (Misrepresentation Act 1972 (SA); Law Reform (Misrepresentation) Act 1977 (ACT)). In short, these Acts expand the relief available to parties who are victimised by innocent misrepresentations.#p#分页标题#e#
A person who has fraudulently misrepresented some fact and induced the other to enter into the contract may, in addition, be liable for damages for fraud to the other party.
A representation is a misrepresentation only if it relates to fact. If the statement is one of opinion only, it is not generally a representation.
Case in point
Bisset v Wilkinson [1927] AC 177.
Bisset, when selling his sheep farm in New Zealand to Wilkinson, said that the land would support 2000 sheep. This was held by the Privy Council to be a statement of opinion only and not a statement of fact.
As a general rule, silence does not constitute misrepresentation, but there are two cases where silence may amount to misrepresentation.
The first case is when there has been a change of circumstances which renders a representation that has been made, untrue.
Case in point
With v O’Flanagan [1936] Ch 575.
There, the defendant, who wished to sell his medical practice, had said the practice was worth £2000 per year. However, the defendant became ill and by the time the contract was signed, the practice was virtually worthless. In this case it was held that the defendant’s silence amounted to a misrepresentation and he ought to have informed the buyer of the change in circumstances.
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The second situation is where the party is entering into a contract of the ‘utmost good faith’. The most usual example of this type of contract is a contract is a contract of insurance, where there is a duty on the party to disclose all material facts which could possibly influence the insurance company in fixing the premium or determining the risk.
Today S52 of the Commonwealth Trade Practices Act 1974 is increasingly used by those who have been induced to enter into a contract with a corporation as a result of misrepresentations made during negotiations that constitute misleading and or deceptive conduct.
Duress and undue influence
Duress is compulsion on a contracting party by another. A threat of violence or restraint of liberty on the party or his or her family may coerce that party into making a contract. Duress makes the contract entered into voidable, that is, the party under duress has an option of treating the contract as at an end. Undue influence arises in cases of relationships between parties where one has an influence over the other. It is presumed in relationships of parent and child, and in relationships of, for example, doctor and patient, and solicitor and client. In any of these cases, the burden of disproving undue influence is on the party taking the benefit from the contract.
Unconscionability
The common law has not yet developed a general principle of protection against harsh or unfair bargains on the ground of inequality of bargaining power, although such an inequality might be one circumstance or factor which a court will consider in deciding whether to strike down a contract or part of a contract on the grounds that it is unconscionable.#p#分页标题#e#
Case in point
Commercial Bank of Australia Ltd v Amadio [1983] 46 ALR 402.
Facts:
This case concerned an elderly Italian couple whose son ran a building business which was in financial difficulties. The son asked the parents to mortgage their property for six months, as a security, with a limit of $50,000. At a later stage a bank manager came to their kitchen and they signed a mortgage document. Nothing was said to explain the document, as the bank manager thought the couple understood it. The couple did mention to the manager that the document was only for a six-month period; however, the bank manager said that it was not for a limited period. Later the son’s company went deeper into financial trouble and the bank demanded payment on the mortgage. It came to light that the mortgage was not limited to $50,000, but was for all the indebtedness of the company (some $250,000). The couple, who had not read the document, were obviously not happy to pay up.
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Issue:
Should the contract be set aside on the ground that the defendant bank’s conduct in obtaining the guarantee was unconscionable?
Summary:
On appeal to the High Court, it was held that the mortgage transaction should be set aside on the grounds of the unconscionable dealing between the bank and the elderly couple. The court held that there are various considerations applying to setting aside a transaction and the court must:
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look to the party wishing to enforce the contract (here, the bank) to decide whether when dealing with the person under special disability, their dealing is inconsistent with good conscience;
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decide whether there is a special disability in the party in the contract (here, the elderly couple); and
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decide whether there are any facts which would make the party enforcing the contract (here, the bank) question whether the other person can make a judgement as to what is in their best interests.
The High Court held that in the circumstances (meeting in the kitchen, the elderly couple asking no questions, and the bank manager not explaining the document), the bank ought to have made an inquiry, and it was unfair and unconscionable for the bank to obtain the signatures to the mortgage without making inquiries as to whether the couple understood the nature of the arrangement.
It may be noted that S51AA of the Trade Practices Act contains provisions prohibiting a corporation from engaging in ‘unconscionable conduct’.
Management context:
The importance of this case cannot be underestimated. The High Court has now clearly stated that, in some cases, there is a duty on the dominant party to make inquiries as to whether the other party understands what is in his or her best interests (see also Part IVA of the Trade Practices Act). Managers should be aware of placing undue pressure on the other contracting party, especially when that other party is suffering from a disability (old age, infirmity, language difficulties, etc.) of which the manager is aware or should be aware. If the manager acts in such circumstances to take advantage of the weakness, the contract may be set aside on the ground of unconscionable conduct.#p#分页标题#e#
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Discharge of the contract
A contract is discharged when the relationships under the contract are brought to an end.
By performance
Most contracts are discharged by the performance of the obligations of each party. Performance is the completion of all the terms of the contract in the time and method of performance prescribed. The law requires that performance must, in general, be precise and exact. Therefore, if someone performs work partially or defectively, the other party is entitled to refuse payment. Exceptions to this general doctrine include where the contract is considered as divisible (for example, a contract of employment for weekly wages would be assumed to be divisible). Importantly, however, where minor omissions or defects exist, the law will normally allow recovery under the doctrine of substantial performance.
In other words, where there has not been exact performance the party is led to payment, less such sum as will remedy the defects.
Case in point
Hoenig v Isaacs [1952] 2 All ER 176.
There was a contract to furnish and decorate a flat for £750. There were defects to a wardrobe, bookshelf and bookcase amounting to nearly £56. The court held that there had been substantial performance on the particular facts of the case. Therefore, the builder was entitled to recover the cost less an allowance for the defects.
On the other hand, in Bolton v Mahadeva [1972] 1 WLR 1009, the builders were not entitled to recover, as the work which they had performed with respect to installing a combined heating and hot water system in the defendant’s house was not in any way a substantial performance. The defects to be remedied represented between one-quarter and one-third of the contract price; in any case, the house was not even adequately heated and fumes leaked into the living room. The court held that there had been no substantial performance.
A tender of performance of goods or services, which may be described as an attempt at performance, amounts to a discharge. Where goods are tendered by the seller and refused by the buyer, then the seller is discharged from liability.
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Case in point
Startup v Macdonald [1843] 134 ER 1029.
Where the plaintiffs agreed to deliver some oil during the last fortnight in March, they tendered delivery at 8.30 p.m. on 31 March and the defendant refused to accept it or pay on account of the lateness. It was held, however, that the plaintiffs were entitled to damages as they had fulfilled their side of the bargain by the tender of the oil which was equivalent to performance.
By agreement
Any contract may be discharged by agreement between the parties. However, discharge by mutual agreement can only take place where both parties have still to perform under the contract. If, on the other hand, one party had completely performed his or her side of the contract, then it is not possible to discharge by agreement, otherwise the party who has performed would in effect be giving a gift with the result that there would be no consideration to support the contract.#p#分页标题#e#
By frustration
A contract may be discharged by reason of a frustrating event which prevents the parties from completing their obligations. Frustration occurs when, upon construction of a contract with regard to the surrounding circumstances, some supervening event makes the obligations of the parties radically different from those originally contemplated in the contract. It should be borne in mind that simply because a contract becomes more onerous or burdensome, it does not discharge a party. A discharge only occurs when performance is no longer possible.
Case in point
Davis Contractors Ltd v Fareham UDC [1956] AC 696.
A building contractor agreed to erect 78 council houses for a fixed price over a period of eight months. Due to entirely unexpected shortages of labour, materials and continuous bad weather, the contract was delayed by 22 months. The contractor alleged that this brought the original contract to an end and that therefore he was entitled to recover a sum of £17,000 over and above the fixed price for his losses. The House of Lords rejected the claim on the basis that the various delays did not frustrate the contract and make it impossible to perform; it was only more burdensome on the contractor.
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Frustration may occur, for example, where something vital to the performance of the contract is destroyed without fault by either party.
Case in point
Taylor v Caldwell [1863] 122 ER 309.
A music hall was to be leased but after the agreement was entered into, and before the dates of the proposed concerts, the music hall was burnt down. As the existence of the hall was at the root of the contract, the contract was discharged by frustration. Also, a contract may be perfectly legal at the date of formation but later become impossible by reason of changes in legislation, the outbreak of war, etc. The leading Australian case is Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] 149 CLR 337, in which Codelfa had agreed to do construction work for the Rail Authority on the assumption that it would be able to work seven days a week, 24 hours per day. This proved impossible when the local council and residents obtained restrictions on late-night and weekend construction. The court held that the contract was frustrated; the new situation was radically different from that contemplated by the parties at the time of the contract.
In many standard form contracts, specific clauses are provided to deal with the possibilities, contingencies and unforeseen circumstances which can arise during a contract. Several jurisdictions have also enacted legislation to modify the consequences of frustration so as to ensure a more equitable result than would otherwise occur under traditional common law rules (see, for example, the Frustrated Contracts Act 1978 (NSW) and the Frustrated Contracts Act 1988 (SA)).
Breach of contract
Breach of contract is not strictly a method of discharging a contract. While a breach of contract always entitles the injured party to sue for damages (money compensation), a breach does not automatically discharge the contract. It is discharged in cases where the innocent party elects to accept the breach by creating the contract as at an end.#p#分页标题#e#
A breach may occur by a party failing to perform on the due date or by a party disabling himself or herself from performing. It is also possible for the party in breach to repudiate (unequivocally refuse to proceed) the contract before performance is due. In this case, the breach is described as anticipatory and the innocent party is given the option of electing to keep his or her side of the bargain. For example, in the case of hotel bookings where a room is booked and then cancelled, it may be that the hotelier can refuse to elect to treat the contract as at an end by the anticipatory breach, keep the hotel room reserved and wait until the date of the booking to charge for the reservation. (In practice, nowadays, it is common for hotels and airlines and such like to include a cancellation service charge.)
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Remedies for breach of contract
Breach/remedies
As mentioned above, a well-drafted contract will provide for, and as far as possible protect, the business in circumstances involving a breach of contract. Nevertheless, it is important to stress that managers need to have in place a strategy to deal with problems of breach. This will mean keeping abreast of such developments as alternative dispute resolution mechanisms, small claims tribunals, ombudsmen, and other recent legal developments which increasingly involve businesses both as plaintiffs and defendants. It Is also important that, before signing a contract on behalf of their business, managers should understand what their possible remedies are should the other side breach. Failure to do this risks the possibility that choosing one course of action will negate the possibility of other remedies later on.
Damages
A breach of contract which has not been excused by the innocent party gives rise to a claim for damages for the breach. Damages are by far the most usual remedy for contractual breach. Damages for the breach are generally awarded so that the innocent party will be put in the same position as if no breach had occurred. Where, however, there is no actual loss, nominal (trifling) damages only will be awarded, although the usual award is for the full actual loss, that is, substantial damages.
Remoteness of damage
The innocent party is not entitled to recover for every single loss but only for those losses which may be fairly and reasonably considered to arise naturally from the breach, or may reasonably be supposed to have been in the party’s contemplation at the time the contract was made. The innocent party cannot recover for remote losses. In the case of The Heron II [1969] 1 AC 350, the House of Lords used the expression ‘serious possibility’ to describe what losses the innocent party may recover.
Cases in point
Two cases will illustrate this point, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.
The defendant contracted to install a new boiler for the plaintiffs. They failed to do so. The plaintiffs were able to recover compensation for losses of profits during the delay to install. However, they could not recover the potential profits from an exceptionally lucrative contract which they would have received had the boiler been installed, for this was unknown to the defendants. Therefore, there#p#分页标题#e#
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was no serious possibility of loss when the contract was made. In The Heron 11, [1969] 1AC350 the failure to deliver a cargo of sugar on the due date resulted in the sale of the sugar at a lower price. The price difference was recoverable and was held as being a serious possibility at the time of the contract.
Measure of damages
With regard to the measure of damages, the fact that the damages are often difficult to assess with a high degree of accuracy does not prevent recovery. Irrespective of the difficulty in estimation, the court must try to assess the loss and award an appropriate sum of damages.
However, a party is not entitled to sit back and let damages mount up. It is assumed that reasonable parties will try to take steps to mitigate (lessen) losses. In fact, if a plaintiff could have taken steps to mitigate the loss, his or her damages will be reduced accordingly. As an extension of this, a party cannot recover for loss which he or she actually succeeds in avoiding.
Case in point
British Westinghouse Co v Underground Electric Railway Co of London [1912] AC 673.
The plaintiff replaced defective turbines supplied by the defendant with other turbines which turned out to be more efficient and more profitable than the defendant’s would have been. The plaintiff had taken steps to mitigate the loss, had completely avoided the loss, and therefore could not recover.
Agreed damages - liquidated damages
What is of particular interest to consumers is that many standard form contracts include a clause which specifies a fixed sum of money which it is agreed in advance will represent any anticipated loss. If this sum is a genuine pre-estimate of the likely loss under the contract, then the sum is described as liquidated damages (ascertained damages) and is payable on the breach. However, if the sum is excessive and is not a genuine pre-estimate of any likely loss, it may not be enforceable as the court will treat the sum in the nature to a penalty. For example, if a hire purchase contract specified that upon default the owner company could recover the goods and sue for the entire rental plus interest, this would be a penalty. The owner is obviously getting more than anticipated as a loss (in any case, this situation is covered by hire purchase legislation).
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Specific performance and injunction
Two other remedies are of importance in contract. First is specific performance, which is an order of the court requiring a party to carry out a legally binding contractual obligation. It is most commonly granted in cases of sale of land where damages would be inadequate, as what the injured party requires is the conveyance of the actual property. Second, an injunction which is also an equitable remedy lies to prevent a person from doing an act. It is a most common remedy in cases of torts, for example, where the owner of property wishes to prevent a party from trespassing on their property. In contract, it is most frequent in cases of contracts of personal services where a party can be prevented from offering work to another person while under an existing contract.#p#分页标题#e#
Importance of preparation/prevention
It must be stressed that the best way to deal with breach is to prevent it from occurring in the first place. The best way to do this is to take more care in the contract formation/preparation stages of a business transaction. Unfortunately, preparation for a contract is often as deficient as it is for marriage and with much the same attrition rate. Parties rely upon past experiences and role models, and in general hope that everything goes all right. As in marriage, too, the contracting parties tend to regard the legal system, their lawyer and the contract document as a last resort. The ‘real’ agreement is often the verbal one made before and sometimes after signing, with all of its implied terms, variations and misunderstandings. Most of the time the parties muddle through; they compromise: sometimes they are just lucky. However, as with marriage, the relationship also often terminates. Embittered by the experience, the contracting parties say after the ‘final performance’ of the contract: ‘I won’t be doing that again!’
If managers are to enhance their trading relationships, they must first focus on formation of the contract. It is here that the ground rules are established and it is here that the deal is made workable or problematic. Unfortunately, many lawyers are trained with a focus on the failures in contract, on the litigation and dissolution of the agreement with almost no training on formation, other than those elements of the deal that may in the end be litigated. Little or no emphasis is given in legal training to the development of management structures which facilitate conflict-free relationships.
The best way to avoid expensive litigation is to have in place a compliance policy which ensures a high level of awareness concerning the legal requirements which govern the provision of goods and services.
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The Vienna Sales Convention and General Contract Law (Common Law): Some differences
Some of the provisions of the Vienna Sales Conventions that differ from the common law or general contract law rules relate to:
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Offers and acceptances
Contracts for the sale of goods, like other contracts, come into existence by an offer being made and accepted. The general rules of offer and acceptance. The VISC contains some special rules about offer and acceptance in international sales. These rules are somewhat different to the normal common law rules with which Australian exporters may be familiar and on which they may have established practices.
An occasionally disputed issue is whether an acceptance sent by post but not received by the offeror amounts to acceptance in law. Different rules exist in some countries regarding this issue. In some common law countries, including Australia, acceptance by post occurs when the letter of acceptance is posted (the ‘postal rule’) whereas in some civil law countries acceptance occurs when the letter of acceptance is received by the offeror (the ‘reception rule’). Under the VISC an acceptance is effective when it reaches the offeror (Article 15(l)). This then displaces the common law postal rule.#p#分页标题#e#
The common law rule has the potential to cause difficulties where the letter is not received. If a letter of acceptance is posted from a common law country adopting the postal rule to an offeror in a civil law country adopting the reception rule, and the letter is not received, under common law a contract exists but under civil law a contract does not exist. One way of resolving this dilemma is to decide which law governed the negotiations or which law would have governed the contract assuming it existed, in order to decide whether a contract came into existence. These problems have been largely overcome in a practical way by the almost invariable use of faxes, telexes, and emails for international communications. Although the question of when acceptance by facsimile takes place has not been specifically decided by an Australian court, the general principle in relation to instantaneous communications such as telephone and telex communications has been that acceptance takes place when the communication is received. This is consistent with Article 15(l) of the VISC.
•
Counter-offers
The VISC also contains rules about counter-offers which are significantly, different to the common law rules. As a consequence, exporters may need to revise any practices based on the common law rules.
Under the common law a purported acceptance of an offer which seeks to vary any of the terms of the original offer is considered a ‘counter-offer’. A counter-offer is treated in law as a rejection of the original offer and itself as a fresh offer.
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Under the VISC, however, a counter-offer does not always automatically amount to a rejection of the original offer. This represents a significant change to the common law position. Article l9(1) of the VISC restates generally the position of the common law: ‘A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer’.
However, Article 19(2) provides a most important exception.
However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he/she does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
The interpretation of Article 19(2) is assisted by Article 19(3).
Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.
Therefore, if the original offeror fails to reject an acceptance made with additional terms, he/she may be bound by those new terms. The offeror will have to make a judgment in each case as to whether the additional terms in the reply materially alter the offer. Prudence would dictate that an offeror who disagrees with any term of a reply should immediately respond in writing by rejecting that new term.#p#分页标题#e#
The VISC allows countries to declare that the rule relating to formation of contracts will not apply in that country. So far the Scandinavian countries have made such declarations.
•
Oral contracts
Whereas in some countries, contracts of sale are required to be in writing, in other countries oral contracts of sale are acceptable. Of course there are inevitably problems in proving the terms of oral contracts. Relying on oral contracts is not prudent business practice in the normal course of events.
In an endeavour to harmonise the laws of the various countries in so far as they apply to international sales of goods, the VISC expressly provides that a contract of sale need not be concluded in or evidenced by writing (Article 11). Countries can however exclude the operation of Article 11 and make a formal declaration, when ratifying or acceding the VISC, that writing will still be required where a party has his place of business in that country.
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•
Usages
The parties will be bound by any usage to which they have agreed and by any practices which they have established between themselves. Furthermore, the parties will be taken to have made their contract subject to widely known and regularly observed usages which they either knew or ought to have known would apply to their type of contract in international trade (Article 9). It is open to the parties to exclude the effect of this with appropriate wording in their contract.
•
Options and irrevocable offers
The VISC also effects a significant change to the usual common law contract rules regarding ‘consideration’. (‘Consideration’ in this context means some monetary, or other benefit promised or given to a party in exchange for performance of the contract.)
Under the common law system consideration is required for every contract, unless it is technically a ‘deed’. Therefore, an offer to buy or sell can usually be withdrawn or revoked at any time before it is accepted unless consideration is given for a promise to keep the offer open. This is then an enforceable ‘option’. If there is no consideration the offeror can withdraw or revoke the offer, notwithstanding a ‘promise’ not to do so.
Under the VISC there is no need for consideration. There is also no requirement for consideration of this kind in civil law systems.
This elimination of consideration has important consequences when applied to offers that are expressed to be open for certain periods. The effect of the VISC is to make these offers irrevocable for that period, even though no consideration is given. However, an offer cannot be revoked if it indicates, whether by stating a fixed time or acceptance or otherwise, that it is irrevocable. The VISC goes one step further by saying that where the offeree reasonably relies on an offer as being irrevocable, then it will be irrevocable. Article 16(2)(b) provides that an offer cannot be revoked if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. This means that an offer will be irrevocable for a time not only where the offeror expressly states the offer is open for a fixed time, but also where surrounding circumstances would enable a reasonable offeree to assume that the offer is irrevocable and the offeree acted on that assumption.#p#分页标题#e#
Misunderstandings can arise if an offeror indicates a time for acceptance but does not indicate that it is irrevocable. There are differing legal views as to whether this offer would be irrevocable under the Convention. The prudent exporter would therefore indicate clearly whether he intends his offer to be revocable or irrevocable (whether or not he sets a time for acceptance).
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Self-assessment questions
1.
Explain the difference between passing of risk and passing of property (ownership) in a contract for the international sale of goods. Distinguish between the meanings given to these terms (a) in the Sale of Goods Act, and (b) The Vienna Sales Convention.
2.
Office Equipment Pty Ltd in Melbourne sent out price lists and descriptions of its new fax machine to distributors in several overseas countries. A brochure attached to the price list stated that the information constituted a ‘firm offer’.
Distributors in several of the overseas locations sent in large orders without delay. Sometime later a distributor in Bangkok accepted the ‘offer’ and placed an order for 100 fax machines.
The company replied that they were out of stock and could not supply him/her with the machines. He/she said they were in breach of contract and threatened to sue them for damages. Advise the buyer of the success of this claim referring to the relevant legal principles.
3.
Butler Machine Tools Company sent to Buy-All Company a quotation for the sale of machine parts. Their general conditions which were printed on the reverse of the quotation form contained a price escalation clause.
Buy-all Company orders the machine parts on their own form containing general conditions which did not include a price escalation clause. On the end of the buyer’s order form was a tear-off slip of paper stating that the order was accepted by the sellers ‘on the terms and conditions stated therein.’
The seller signed the slip and returned it to the buyers. Later during the performance of the contract when the seller raised the price of the goods the buyer objected. Explain in detail on whose terms the contract was concluded.
4.
New South Wales Leather Goods Store is negotiating to export leather products to an importer in Thailand. The owner of the store knowing that you are in the export/import trade asks your advice as to how he can be sure that a binding and enforceable contract will be made.
The owner also wants to know what specific terms or clauses should be included in the contract in order to be protected against all eventualities.
Advise the owner as to these two matters.
5.
a. Lee operated a small business in Hong Kong which sold fast food items. A popular item for sale was ‘Sunburst’ fruit juice packed in small 250 ml containers. Several thousand of these were sold every week.
Lee’s supplier was an Australian juice company. A shipment arrived in Bangkok from Australia, but when Lee examined the goods Lee discovered that instead of containing 500,000 250ml juice packs the shipment contained 500,000 2 litre cartons of juice.#p#分页标题#e#
Discuss Lee’s rights and the relevant legal principles in full.
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b.
Presume that in (a) above, the shipment that Lee received contained the correct size of juice packs but instead of being the ‘Sunburst’ brand, the juice sent was the ‘Everfresh’ brand. Would your advice to Lee change?
6.
a. Wine Distributors Inc. in California, USA, agreed to buy several hundred cases of selected wines from the Wine Growers Cooperative in Australia. Before shipment of the goods Wine Distributors requested the Growers Cooperative to understate the price of goods in the invoice because they wanted to reduce the import duties in the USA. Give your advice to the sellers.
As part of your answer set out what might happen if the seller agreed to the buyer’s request and the buyer subsequently failed to perform its obligations under the agreement.
b.
Presume that in a. above the transaction proceeded with the seller shipping CIF Los Angeles (Incoterms). The buyer later received a separate statement for packing expenses. Advise the buyer.
7.
Chinese sellers of military equipment sold goods under CIF contracts to buyers in Australia. At the time the contract was entered the export of military equipment from China was prohibited except under licence and a quota system was in force. The sellers found that they were unable to supply the whole quantity of goods because the quota allotted to them was too small. Buyers sued in Australia for breach of contract. Discuss the likely outcome. Consider in your answer how the sellers could have provided in their contract to cover such a situation.
8.
Tradax, an Australian business agreed to sell oil to Petro Sales in Japan. Tradax had expected to purchase the oil in Iraq but due to an Australian embargo on trading with Iraq, Tradax was prevented from buying oil there. Explain the rights and liabilities of the parties.
References
Ardagh, A & Brien, C 1997, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Griggs, L, Clark, E, Streeter, J & Iredale, I 2003, Managers and the law, 2nd edn, Law Book Co., Sydney.
Hunt & Hunt solicitors, Sydney.
Mo, JS 2003, International commercial law, 2nd edn, Butterworths, Sydney.
Sacks, P & Malbon, J 1992, Australian export manual, Longman Professional, Melbourne.
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Topic 5 International trade in services
Topic structure
The topic International trade in services includes the following content:
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description of services;
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GATT/WTO Agreement on Trade in Services;
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general commitments (GATT Part II);
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specific commitments (GATS Part III); and
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schedules.
Learning outcomes
At the completion of this topic you should be able to:
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appreciate the role of services in the development of international trade;#p#分页标题#e#
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evaluate the significance of the General Agreement on Trade in Services (GATS) in the liberalisation of international trade;
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recognise the different modes of supply of services;
•
distinguish general commitments from specific commitments; and
•
analyse the general principles of most favoured nation treatment, national treatment, market access and transparency.
Required reading
Textbook: Mo, JS 2003, The World Trade Organisation, Chapter 10
Reading 6: Islam M, ‘WTO General Agreement on Trade in Services’
Read
Textbook: Mo, JS 2003, Chapter 10, pp. 607-617
Reading 6: ‘WTO General Agreement on Trade in Services’
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Introduction
Trade in services has become a focus of international interest in recent years, because of the attention given to the topic during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) multilateral trade negotiations.
Economic analyses have shown the impressive growth in the services sector in a number of countries since the end of World War II and particularly in the last twenty years, when trade in services has become an important area of international trade and commercial law. For example in 2003 services accounted for over 60 percent of global production and employment, representing about 20 percent of world trade.
The GATT has been most useful in establishing ground rules for international trade in most goods, usually by providing what importing countries can and cannot do. The trade in import of services has developed separately and without any co-ordination in most countries. The import barriers to imported services vary from country to country and the barriers to the provision of services within each country often vary from service sector to service sector.
Before discussing the nature of the various barriers, it would be useful to briefly identify and describe what are understood to be ‘services’.
Description of services
The term ‘services’ in international trade law refers to more than 600 different types of professions or sectors of the economy. The major service sectors or professions are advertising, banking, insurance, communications, construction, franchising, civil aviation, maritime transportation services, architecture, accounting, education, engineering, health, medical and legal services. The definition of services in the General Agreement on Trade in Services (GATS), which will be examined later, is narrower than the general concept of services.
Barriers to the importation of services
Different countries have vastly different laws, regulations and administrative practices when it comes to dealing with services and, in particular, imported services. One important barrier is at the border: immigration. This is an especially important barrier where the service provider needs to have access to the country in which the service is to be provided, either frequently or for lengthy periods of time. Special visas may be required and restrictions may be placed on the service provider through this mechanism.#p#分页标题#e#
Within a country, there are different types of barriers. They can perhaps be distinguished into three classes. The first involves government monopolies and other cases where the number of entrants are restricted. Good examples include air transport, television and radio services and retail banking.
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The second class is where there is a government regulation but no fixed number of entrants. This will occur where the regulations determine the qualifications for entrants. This usually involves the issue of some licence, permit or permission to provide the service. The regulations will determine the criteria for the initial grant of the licence, the ongoing requirements, grounds for losing the licence and the person or persons who have the authority to decide on these matters if the criteria are not set out in the regulations. Good examples of these include many regulated professions such as solicitors, physiotherapists and medical practitioners. This category also includes certain financial services such as building societies and credit unions.
The third class is where there is no government regulation but there is industry regulation. It often occurs that industry groups establish standards and qualifications and decide who may and may not be part of the industry group and accordingly advertise themselves as part of that group. There is no legislative backing in this category. Good examples of this class in Australia include professional engineers and accountants.
The types of restrictions placed on regulated industry groups will naturally vary from group to group and from country to country. The sorts of requirements that would apply include meeting certain objective criteria as regards financial backing (as in the case of certain financial services), insurance (as in the case of health service providers and lawyers), educational requirements (as in the case of many professions), and in many cases certain standards of ethics and behaviour (as in the case of television licencees and many professions). The qualifications for professions often involve passing examinations to demonstrate a knowledge of local rules, laws or conditions. It frequently happens that the requirements also involve local residence of individual service providers and particularly professionals. Frequently this requirement is in addition to knowledge of local laws and conditions or the like.
Then there are the unregulated service providers. Included in this are computer services, financial services, forestry and many others in Australia.
Identifying sources of applicable laws
The laws relating to the sale of services have developed much later than the laws applying to the sale of goods. As a result the domestic laws of different countries, laws concerning the sale of services differ to a greater extent than the laws relating to the sale of goods. In addition, because of the diversity of services there are laws that apply to specific service sectors as well as rules that apply to the export of services generally. Furthermore, the laws may arise from statute, civil codes, decided cases or from an international agreement or convention. Because of the diversity of services and diversity of laws, it is difficult for an exporter of services to determine the laws that will apply to a particular transaction.#p#分页标题#e#
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The various sources that may help to identify the applicable laws will depend on the following factors:
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the place where the exporter usually conducts business;
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the place or places where the service buyer resides or conducts business;
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the place or places where the service is provided; or
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the law chosen, or which applies as the governing law of the contract.
A significant development in the international trade in services, has been the new General Agreement on Trade in Services (GATS) successfully negotiated in the Uruguay Round. This agreement and its impact on the world trade in services is discussed below.
The GATT/WTO Agreement on Trade in Services
Overview
The GATT/WTO Agreement on Trade in Services (GATS) reached in the Uruguay Round is perhaps the most important single development in the multi-lateral trading system since the GATT came into existence in 1948. The GATS Agreement is particularly important as there is no agreement in the services area that corresponds to the Vienna Convention on the International Sale of Goods. In addition, though the international trade in services was a growing component of world trade there was previously no widely accepted multi-lateral regulation of trade in services.
The new GATS Agreement extends internationally agreed rules and commitments to all forms of trade in services. An important element in the GATS package is the promise by member states that successive further rounds of negotiations will be undertaken to continue liberalising world trade in services.
In broad outline the Uruguay Round services package consists of:
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general rules, set out in the articles to the GATS agreement;
•
supplementary agreements in the form of annexes to the GATS; and
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national schedules, one for each WTO member, which sets out the specific commitments which each member has specifically undertaken to do.
Whereas the general obligations or commitments of members are set out in the general rules set out in the Articles to the GATS Agreement, the specific obligations of each member depends significantly on what has been specifically undertaken in its own national schedule.
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The GATS Agreement
The GATS Agreement has six parts.
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Part 1 covers the scope and definition of the agreement.
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Part 2 deals with the general obligations or commitments of members.
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Part 3 sets out the rules governing the specific commitments of members.
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Part 4 concerns the future negotiation for opening up world trade in services and the schedules.
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Part 5 covers institutional provisions.
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Part 6 covers final provisions.
Scope and definition of the GATS - Part I
Part 1 covers the scope and definition of GATS. The Agreement covers all internationally traded services and the different ways in providing an international service.#p#分页标题#e#
Article 1 states that services include any service in any sector except services supplied in the exercise of governmental authority. These being defined as services such as central banking and social security which are not supplied on a commercial basis nor in competition with other service suppliers. However, this broad definition of service allows a country to exclude any specific or particular sector of services on the basis that the service is supplied in the exercise of governmental authority. This provision also enables a member to define the meaning of services in its own national laws.
Article 1 also sets out the four different modes of providing an international service:
•
mode 1 - cross border supply of services, that is services supplied from one country to another (such as international telephone calls) corresponding with the normal form of trade in goods;
•
mode 2 - consumption abroad. This includes the supply of services in the territory of one member to the consumer of another, for example, tourism;
•
mode 3 - commercial presence. This is the supply of services through the commercial presence of the foreign supplier in the territory of another member. For example, a foreign company setting up branches or subsidiaries in the territory of another member such as foreign banks setting up operations in a country; and
•
mode 4 - presence of a natural person. This is the supply of services by foreign nationals travelling from their own country to another country to provide services, for example, fashion models or consultants.
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General commitments - Part II
Part II sets out the general commitment of members.
These are the basic rules that set out the general commitments or obligations that apply to all members, and for the most part to all services.
Most favoured nation treatment
Article II of the GATS requires all members to provide most favoured nation (MFN) treatment to services and service providers of other member countries. This means that an importing country should grant every other member country the same treatment as the most favoured nation receives. In other words there should be no discrimination between foreign countries as regards to import of services.
Two exceptions to this requirement are allowed, releasing a member from MFN obligations:
•
a member may apply to the Council of Trade in Services for an exemption. Under this provision more than seventy WTO members have obtained exemptions; and
•
the second applies to certain regional economic arrangements such as the ASEAN and the CER. As a number of WTO members already had preferential agreements, an exception to the MFN principle of non-discrimination was allowed, to continue these preferential arrangements.
Transparency
Article III of the GATS covers the basic principle of transparency.
This article requires members to make their laws, regulations and measures for the implementation of the GATS transparent, by publishing these laws and notifying the WTO of any changes. This enables foreign companies and governments to know the laws, rules, regulations and administrative practices that apply in any service sector.#p#分页标题#e#
Economic integration
Article V covers economic integration.
This provision allows for regional agreements liberalising trade in services, provided they have ‘substantial sectoral coverage’ and eliminates ‘substantially any discrimination in the sectors covered’.
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Domestic regulation
Article VI is intended to ensure that the benefits of liberalised trade are not blocked by domestic regulations, which are the most significant means of exercising control over the services trade.
This provision requires that governments should regulate services reasonably and objectively. When governments make decisions that affect a service, it should provide an impartial means of reviewing that decision by the establishment of judicial, arbitral or administrative tribunals.
Recognition of foreign qualifications
Article VII urges members to recognise the educational qualifications, work experience, licences and or certificates granted to service suppliers of other countries.
This provision provides that recognition of another country’s qualifications and experience must be based on internationally agreed standards, and should not be discriminatory to amount to restrictions on trade in services or protectionism in disguise.
Monopolies
Article VIII deals with monopolies.
It requires that members should ensure that monopoly suppliers of services do not act inconsistently with a member’s MFN obligations, nor abuse its monopoly position.
Unfair trading practices
Articles IX, X and XV deal with unfair trading practices that restrict or distort trade in services.
Article IX contains a pioneering general obligation of the GATS that has no GATT counterpart. It recognises that certain business practices of service suppliers may restrain competition and thereby restrict trade in services. Members agree to enter into consultations and exchange information with a view to eliminating them.
Article X provides for multi-national negotiations on the question of emergency safeguard measures based on the principle of non-discrimination.
Article XV provides for negotiations to take place on subsidies affecting services and the possible need for counteracting duties. This article recognises that subsidies can distort trade in services but considers the role of subsidies in developing countries.
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International payments and transfers
Article XII allows for restrictions to safeguard balance of payments.
This article provides that once a government has made a commitment to open a sector to foreign competition it must not normally restrict international transfer and payments out of the country, as payment for services supplied. The only restriction or exception allowed is when there is balance of payments difficulties. Even then the restriction must not be discriminatory among members, shall be temporary, and not relate to specific commitments undertaken.#p#分页标题#e#
Security exemptions
Article XIV covers security exceptions. This article allows a country to ignore specific international obligations and adopt or enforce security measures, subject to the condition that they are not applied as a means of arbitrary or unjustifiable discrimination between countries or as a disguised restriction on trade in services.
The security exceptions permitted are to protect public morals or maintain public order, protect human, animal or plant life or health, protect individual privacy and safety, and certain tax measures, that allows foreigners to be treated differently from its own nationals.
Specific commitments - Part III
Part III sets out the specific commitments of individual members set out in national schedules.
Specific commitments are an individual country’s binding commitment or obligations undertaken by members to open markets in specific areas. Specific commitments can be modified or withdrawn only after negotiations with affected countries. But ‘unbinding’ is difficult and specific commitments are virtually guaranteed conditions for foreign exporters and importers of services and investors to do business.
The specific commitments of individual countries are set out in ‘schedules’ that list the sectors being opened, the extent of market access being given in those sectors, and any limitations on national treatment and whether some rights granted to local companies will not be granted to foreign companies.
The two main Articles in Part III deal with market access and national treatment, discussed below.
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Market access
Article XVI deals with market access allowed to services and service providers of other countries.
This article embodies the principle of market access and requires that countries should make market access to their markets available to services and service providers of other countries. But the same provision allows for restrictions specified in each country’s national schedule. Six elements cover all aspects of limitation of market access, and are prescribed unless specified in each country’s schedule. These six restrictions relate to:
•
limitations on the number of service suppliers;
•
limitations on the total value of service transactions or assets;
•
limitations on the total number of employees (natural persons) in a particular sector, for example the insurance sector;
•
limitations on the specific types of legal entities to carry on a particular service;
•
limitations on the number of service operations or quantity of service output; and
•
limitations on the quantity of foreign investment or foreign control in a particular service.
These restrictions should accord with MFN treatment and should apply equally to all members, unless an exemption is allowed under the GATS. The list of market access commitments along with limitations and exemptions are negotiated as multi-lateral packages. As such, they are guaranteed conditions for conducting trade in service.#p#分页标题#e#
National treatment
Article XVII contains national treatment obligations.
This provision requires that each member is to give no less favourable treatment to services and service suppliers of other members than is provided in a country’s schedule of commitments. National treatment means treating one’s own nationals and foreigners equally. For example, if a foreign company has been allowed to supply a service in one country, there should be no discrimination between foreign and local companies. While the principle of MFN (general commitment) emphasises equality between two foreign partners within the territory of a member, the principle of national treatment emphasises equality between a foreign party and a local party.
Article XVII (3) indicates that different treatment will be considered to be less favourable if a country modifies the condition of competition in favour of local services. A member is allowed to treat nationals of another country differently from its own nationals only within the scope of the restrictions approved under
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GATS. This may be difficult as national treatment is a specific commitment, which is virtually undertaken by individual members. But a country does not have to apply this principle of national treatment, if it has made no specific commitment to provide foreign access to its services market.
Future negotiations and schedules - Part IV
Part IV covers future negotiations for liberalisation and the schedules.
Article XXIX is the most important element in Part IV providing for further liberalisation. Recognising that the GATS is a framework for future development Article XXIX provides that WTO members shall enter into successive rounds of negotiations with a view to achieving a progressively higher level of liberalisation.
Part IV also provides for members increasing their level of specific commitments in the schedules, and the rules for modifying or withdrawing commitments in the schedules made on a MFN basis.
Institutional and final provisions - Parts V and VI
Articles XXII and XXIII provide for consultation, dispute settlement and enforcement respectively. Dispute settlement is to take place under WTO rules and mechanisms. Another institutional provision provides for the establishment of the Council for Trade in Services.
Article XXVII in Part VI allows a member to deny benefits under the GATS Agreement to services originating in the country of a non-member.
Article XXVIII defines some key terms used in the GATS which helps determine whether the GATS rules are applicable in a particular case. For example, ‘supply of a service’ is defined to include ‘production, distribution, marketing, sale and delivery of a service’.
The schedules
The service obligations of each member depends largely on the specific commitments each country has undertaken and set out in its national schedule.
Article XX requires members to set out their specific commitments in terms of market access, national treatment, time frames, entry into force and additional undertakings. Members are required to state how each of the various commitments will apply. There is also provision for the modification of schedules.#p#分页标题#e#
The General Agreement on Trade in Services (GATS) was an important achievement, but there is a long way to go before the booming services sector is truly open to free trade. One reason is that unlike the GATT, which covers all industries in a particular sector, GATS only covers those service industries
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nominated by each of the countries. Countries including Australia, have either omitted or given only limited commitment in regard to their most significant service industries. In the case of APEC, a Pacific Economic Co-operation Council Report suggest that up to 80 percent of the region’s service industries are closed to international transactions, with the computer and tourism sectors being the most open service industry sectors (Dwyer 1995).
Other multi-lateral and bi-lateral services agreements
While the GATS Agreement is an important development in the services sector, there are also other regional multi-lateral and bi-lateral agreements that are of significance to exporters and consumers of services. These include the Treaty of Rome, establishing the European Community (EU), the North American Free Trade Agreement (NAFTA), the Australia New Zealand Closer Economic Relations Trade Agreement (CER), the Asia Pacific Economic Cooperation (APEC), and the South East Asian Nations Free Trade Area (AFTA). In some situations the establishment of services in one country, allows automatic market access in the rest of the regional arrangement.
Self-assessment questions
1.
Discuss the role of services in the development of international trade.
2.
Critically evaluate the effectiveness of the General Agreement on Trade in Services (GATS) in the promotion and liberalisation of international trade.
3.
Discuss the definition of services under the GATS, and the basic categorisation of services under the different modes of supply.
4.
Discuss the principles of ‘most favoured nation’ and ‘national treatment’.
5.
a. Distinguish the general commitments from other specific commitments undertaken by countries.
b.
Evaluate the effectiveness of these commitments in liberalising trade.
6.
Discuss the reasons covered by the GATS to ensure ‘transparency’ by governments, to international service providers.
References
Mo, JS 2003, International commercial law, 3rd edn, Butterworths, Sydney.
Pryles, M, Waincymer, J & Davies, M 2004, International trade law, commentary and materials, 2nd edn, Law Book Co, Sydney.
Sacks, P & Mallbon, J 1992, Australian export manual, Longman Professional, Melbourne.
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Topic 6 International payment of exports
Topic structure
The topic International payment of exports includes the following content:
•
payment by cash;
•
electronic payment systems;
•
open account;
•
Bills of Exchange;#p#分页标题#e#
•
documentary collections;
•
documentary credits; and
•
forfaiting, factoring, counter trade and bartering.
Learning outcomes
•
evaluate the different forms of payment in international trade;
•
appreciate the importance of a Bill of Exchange as an instrument of payment in international trade;
•
understand the risks involved in the different international payment methods; and
•
outline the advantages of the different payment systems in international trade.
Required reading
Textbook: Mo, JS 2003, Means of payment in international trade, Chapter 5
Read
Textbook: Mo, JS 2003, Chapter 5
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Introduction
Every contract for the sale of goods abroad has a monetary clause dealing with the payment of the purchase price. This involves 4 elements: ‘time, mode, place and currency. The various methods of paying for exports represent variations of these 4 elements.
Merchants have developed methods of payment in an attempt to reconcile the conflicting economic interests involved in the export transaction.
The exporter’s interest is to obtain the purchase price as soon as possible. But if the transport documents are documents of title to the goods, the exporter does not wish to part with these documents before having received payment or at least being certain that for example, a bill of exchange, has been accepted.
The buyer wishes to postpone payment of the price until the documents, notably the bills of lading, are no longer at the disposition of the seller.
To achieve a reconciliation of these conflicting interests, the interposition of a bank, or banks, may be used. The most frequent payment methods in which banks are involved are a documentary collection arrangement or payment under a letter of credit.
Collection arrangement
The bank receives its instructions from the seller; the exchange of the documents of title representing the goods and the payment of the price is normally effected at the place at which the buyer carries on business.
Letter of credit
The instructions to the bank come from the buyer; the exchange of the documents and the price is normally effected at the seller’s place. A considerable amount of business is transacted under letters of credit under which the banker, on the instructions of the buyer, promises to accept, honour or negotiate bills of exchange drawn by the seller.
Both of these methods, the collection arrangement and the letter of credit, enable the interposed bank or banks to use the documents of title as a collateral security. More will be written about these methods later.
Payments do not however always require the interposition of banks. The seller may send the buyer a documentary bill of exchange, that is a bill of exchange to which the bill of lading is attached, or the buyer may transfer the price to the seller in cash.#p#分页标题#e#
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Cash payments
A seller may of course demand that the buyer pay for the goods direct and by cash. There are a number of variations as to the amount, time and mode of payment, which are:
•
wholly in advance;
•
partly in advance;
•
against notification of shipment;
•
against delivery of the shipping documents;
•
against actual delivery of the goods; and
•
at a specified time after receipt (and possibly even after on-sale of the goods) by the buyer.
The first is the best option for the seller. By getting payment before shipment and perhaps even before acquisition or manufacture of the goods the seller removes virtually all risk from the transaction.
The only real risk is that of a possible adverse movement in the exchange rate, if the price is quoted in the buyer’s currency. Even this can be eliminated by the seller quoting in his/her own currency, or by inserting an appropriate rise and fall clause into the contract, or by entering into a forward exchange contract with his/her own bank after negotiating the sale. (A forward exchange contract consists of an agreement with a bank under which the bank agrees to buy foreign exchange from or sell foreign exchange to the customer at a fixed rate at some future date. The date can be fixed or it can be over an optional term.)
From the buyer’s point of view payment wholly in advance is the least preferable of the options because the buyer assumes all the risks and the option may not be practical if the buyer needs to finance the purchase by either borrowing against the security of the goods or preferably by selling the goods and paying for them out of the proceeds of sale.
For these reasons payment in advance is not a usual means of paying and it is really restricted to those situations where the consignment and the amount involved are small (for example, mail orders).
The second option: Partial prepayment. This is less favourable for the seller. Why might the seller have to accept this?
Payment against notification of shipment
This might be appropriate in cases where the sale is made under FOR, FOT or FAS or FOE (buyer contracting with carrier) contracts. In this last case the buyer obtains property in the goods from the moment that they pass over the ship’s rail. The buyer is guaranteed that goods have been shipped and, in normal circumstances will receive the bill of lading, and the right to deal with the goods within a very short time of shipment and without the seller being able to intervene
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and exercise any further rights over the goods after shipment. The buyer’s interests are protected. There is nothing more for the seller to do and, if the parties are agreeable, payment can take place at that point.
Payment against delivery of shipping documents
This is appropriate if the sale is made under either a CIF contract or a strict FOB contract where the seller obtains the bill of lading and only transfers it (and therefore the right to possession of the goods) to the buyer upon payment of the price. The shipping documents are of course normally only delivered in exchange for the price and so contracts providing for ‘cash against documents’ (or ‘sight payment’) are still relatively common.#p#分页标题#e#
Payment against actual delivery of the goods
This is not appropriate with either normal FOB or CIF contracts because the seller’s right to payment normally arises on tender of the shipping documents, not on delivery of the goods which might be several months in the future.
Where it might be appropriate is with those contracts that are ‘arrival’, ‘ex ship’, ‘ex quay’ or ‘delivered free, duty paid’. The buyer’s obligation to pay will be stipulated in the contract and the buyer can demand inspection as a prerequisite to payment.
Similar problems may arise with CIF and FOB contracts (that is, wondering whether the goods conform with the requirements of the contract) but this can be overcome by inserting into the contract that the seller provides a certificate of quality or a certificate of inspection as one of the documents that have to be tendered before the seller becomes entitled to payment. The contract usually stipulates that such certificates have to be issued by some independent third party whose judgement and integrity the buyer is prepared to trust.
Payment at a specified time after receipt
This is the worst option for the seller who must not only release the shipping documents to the buyer but, even then, has no guarantee of payment and may even lose title to the goods if the buyer used the documents to on-sell the goods to a bona fide third party purchaser who has no notice of any reservation of the seller’s rights.
In fact the reason that this option may have been adopted in the first place might have been to permit the buyer to on-sell the goods to obtain the cash to pay the seller anyway. Cash contracts on this basis are not very attractive to sellers and, if the buyer does need to on-sell the goods in order to raise the money to pay for them, one of the other two payment options (documentary bills or documentary credits) may be preferable.
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Releasing the documents on an undertaking of some future payment submits the seller to the risk of the buyer becoming insolvent. It also means delay in the date of payment and subjects the seller to a forced extension of credit to the buyer. It will usually only be an attractive proposition if the buyer’s creditworthiness and integrity are beyond question, if there is an on-going business relationship between the parties, or if there is some closer relationship such as parent company
and foreign subsidiary or branch.
The available means of cash payment
Regardless of when the cash payment is to be made, it can be made in basically one of four ways:
• by telegraphic transfer;
•
by mail transfer;
•
by bankers’ draft; or
•
by personal cheque.
Telegraphic transfers are used when, the buyer instructs his/her bank to transfer funds to either the seller’s bank or to a correspondent bank (that is, a bank which acts for the buyer’s bank) in the seller’s locale with instructions that those funds are to be paid to the seller’s account. The buyer pays his/her own bank the home currency equivalent of the amount in foreign exchange that the seller will receive and the buyer’s bank, then telegraphs the seller’s bank (or the correspondent bank) with instructions to pay the nominated amount to the seller. The seller’s bank (or the correspondent bank) is then reimbursed with funds from the buyer’s bank. The bank’s charges for providing the service are usually borne by the buyer, though they can be deducted from the amount received by the seller depending upon the specific provisions of the sales contract. Telegraphic transfers are the speediest means of arranging cash payment.#p#分页标题#e#
A telegraphic transfer is similar to a mail transfer except that the instructions to effect payment are forwarded by telex, computer or the SWIFT interbank system. SWIFT is an ‘acronym for ‘the Society for Worldwide Interbank Financial Telecommunications which provides a highly secure method of interbank funds transfer between countries.
Mail transfers are similar to telegraphic transfers, the main difference being the speed with which they are processed. With mail transfers the advice that the buyers bank sends to either the seller’s bank or to its own correspondent bank is sent by mail and payment will not be available to the seller until that advice arrives. Mail transfers, if used, are now normally sent by airmail.
Bankers’ draft is simply an order to pay (a cheque) drawn by the buyer’s bank either on itself (usually only if it has branches in the seller’s country) or on a correspondent bank in the seller’s country. The buyer buys the draft from his/her own bank and then forwards it or arranges for it to be forwarded to the seller. If the draft is drawn on a correspondent bank in the seller’s country, it operates as an instruction to the correspondent bank to debit an account maintained by the
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buyer’s bank with that correspondent bank with the amount of the draft and to pay that amount to the seller. If the draft is drawn on the buyer’s bank itself, the seller can normally obtain cash for it, without waiting for collection, by selling it to its own bank. The seller’s own bank will normally be prepared to purchase such drafts because, as they are drawn on a bank rather than on an individual, there is virtually no risk of being dishonoured.
Personal cheque can be drawn against a bank in the buyer’s home country, provided the seller is willing to accept such payment and provided the payment does not infringe the exchange control regulations of the buyer’s home country. When the seller receives such a cheque, it will normally be forwarded to the seller’s own bank for collection and that bank will make the necessary arrangements for the cheque to be presented for payment. This may involve some considerable delay and, inevitably, the seller will not be able to access the funds until they have been received by his/her own bank. Payments by personal cheque are not popular with sellers and are not common. Buyers with frequent dealings in a particular foreign country may find it convenient, if their settlements are to be in cash, to maintain a current account with a local bank for the purpose of making such payments.
Electronic payment systems
Electronic funds transfer (EFT) and international trade financing
As modern trade becomes firmly established in the information age, globalised computer networks and databanks have become integral features of international trade financing. Trade liberalisation, technological development and the internationalisation of the banking industry have collectively precipitated a move away from the paper documented transaction to the more time and cost efficient method of electronic funds transfer (EFT). EFT has greatly expanded the customer base and liberalised modern banking with new products and services. It involves almost no paper-processing work, little transaction time, and allows for a substantial reduction in administrative and service costs. It fosters international trade by transacting enormous volumes of funds across national boundaries with speed and accuracy.#p#分页标题#e#
Open account
Generally, an open account arrangement is used where there is an implicit trust and integrity among all the parties concerned. It is most often used between the parent of an international group of companies and the individual subsidiaries operating in overseas centres, but may also be used between companies, firms or individuals which have sound international trading relations with overseas parties.
The open account provides for payments for exports and imports between two international trading organisations to be accumulated in an account in the books of one of the parties, with payment of outstanding balances being effected at mutually agreed periods by international funds transfers. Outstanding balances will accumulate to an exporter as shipments proceed and may be increased or reduced by such, payments as commissions, fees, dividends, royalties and the like.
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The credit risk to an exporter of an open account is that the buyer will not pay outstanding balances. Accordingly, unless an exporter is trading on an international basis within his/her own or an affiliated business organisation, the exporter should treat open account operations with caution unless he/she is completely satisfied with the undoubted integrity of the respective overseas buyers.
Bills of exchange
Normally the buyer does not remit the purchase price on open account but allows the exporter to draw a bill of-exchange (‘draft’) on the buyer. This has advantages for both parties as the exporter obtains a negotiable instrument which can be turned into cash by negotiation at once, and the buyer is allowed a definite time of credit for settlement unless the bill is payable at sight. If the parties fail to make express arrangements, the custom prevailing, in the particular trade determines whether the price is to be paid on open account or by bill, and on which terms the latter has to be drawn.
Definition
A bill is exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order a specified person, or to bearer.
There are three original parties to a bill of exchange:
• the drawer;
• the drawee; and
•
the payee.
T
he drawer and the payee, or the drawee and the payee may be the same person, but where the drawer and the drawee are the same person the bill may be treated, at the option of the holder of the bill, as a promissory note or a bill or exchange.
The bill in the export trade is not normally in the simple form as described above, but contains a number of additional clauses, for example, clauses providing for payment at a specific rate of exchange or adding, to the sum payable, interest or specified charges. Such clauses are common particularly when the bill is made payable in foreign currency because various rates of exchange normally exist for the currencies in force at the buyer’s and seller’s residence, and it is unavoidable, when the bill is negotiated, that incidental expenses, such as bankers’ charges or foreign stamp duties, are incurred.#p#分页标题#e#
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Payment under a documentary bill (as opposed to a ‘clean’ bill which is not accompanied by other documents)
The seller often attaches to a bill of exchange which the seller has drawn on the buyer, the bill of lading to the goods sold. This is known as a ‘documentary bill’.
The purpose of issuing a documentary bill is mainly to ensure that the buyer will not receive the bill of lading and, so the right of disposal of the goods, unless the buyer has first accepted or paid the attached bill of exchange according to the arrangement made between the parties. This is usually the case with CIF or FOB contracts.
‘Sight’ and ‘term’ bills
Whether the bill of exchange which the seller forwards to the buyer has to be paid or accepted in exchange for the shipping documents depends upon whether it is a sight bill or a term bill. A sight bill is one which the buyer is obliged to pay upon sight or demand.
A term bill is a bill which does not require immediate payment but does require immediate acceptance. If a bill is a term bill, it will stipulate how much time after sight the buyer has before payment has to be made. This time or term is referred to as the ‘usance’ of the bill.
Acceptance
When the buyer accepts a term bill, acceptance constitutes an unequivocal undertaking that the bill will be paid, upon maturity, in the terms of the buyer’s acceptance. If payment is not made the buyer may be sued for the face value of the bill by either the drawer or any ‘holder in due course’ to whom the bill has been negotiated.
Dishonour
If the buyer fails to honour the bill of exchange (by either payment or acceptance) he/she has to return the bill of lading, and if he/she wrongfully retains the latter, the law presumes that the property in the goods has not passed to him/her.
Documentary collection
Where the parties have not arranged for payment of the purchase price to take place in the seller’s country the following problems arise:
• who is to present the bill of exchange drawn by the seller on the buyer; and
• if it is a documentary bill who is to deliver the transport documents to the buyer when the buyer accepts or pays the draft? 153
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T
he seller can entrust these duties to a representative or subsidiary company if the seller is so represented at the buyer’s place of business.
Normally the exporter asks his/her bank to arrange for the collection of the price, that is, the acceptance or payment of the bill and the bank will carry out this task through its own branch office abroad or a correspondent bank in the buyer’s country. This method of collection also avoids the problems that can arise if the buyer fails to honour the bill of exchange. The process is what is called a ‘documentary collection’, and is as follows. The seller hands the shipping documents together with the bill of exchange to his/her own bank (called the remitting bank) with instructions for collection of the debt (unpaid purchase price.)#p#分页标题#e#
The seller’s bank then despatches these documents usually by air mail, to his/her correspondent bank (called the ‘collecting bank’) in the buyer’s country. The collecting bank advises the buyer when the documents arrive and the buyer then has to either pay or accept the bill. The collecting bank is responsible to ensure that the buyer actually meets the conditions before the documents are released. (A third bank can be involved to actually present the bill for payment or acceptance and if it is, it is called the ‘presenting bank’).
Documents against payment (D/P)
If it is a sight bill the buyer must pay before the shipping documents are released by the collecting bank and that bank remits the funds to the seller’s bank. From the buyer’s point of view the receipt of the shipping documents allows the goods to be dealt with prior to their physical arrival and this means that the buyer can use those documents either to sell those goods in advance of their arrival or, alternatively use them as collateral to obtain finance to pay the bill.
Where the buyer wishes to use the goods rather than on-sell them, this method of payment may not be entirely satisfactory especially as the documentary bill, if forwarded by air mail as is the norm, can arrive well in advance of the goods. Sometimes the seller will be willing to advance credit till the goods arrive, in which case the seller can instruct the collecting bank, through the remitting bank to delay presentation of the bill until arrival of the goods. The effect of this, is the same as cash against actual delivery.
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Documents against acceptance (D/A)
Where the bill is a term bill, the seller will instruct the bank to release the shipping documents only when the buyer has accepted the bill. The collecting bank will also have to obtain payment of the bill on the date upon which it becomes due.
A disadvantage from the seller’s point of view is that a term bill involves an enforced period of credit between seller and buyer. This may be unavoidable if the seller wants to make the sale. However the seller receives an accepted bill which imposes upon the buyer an irrevocable and quite independent obligation to meet the bill upon maturity even if there is a dispute about the goods. Consequently the seller can immediately sell (or discount) the bill after it has ban accepted, usually to a bank and therefore obtain immediate cash against the goods.
So the buyer gets a credit period and the seller can either wait out the full usance of the bill and receive full payment upon maturity or it can obtain an immediate, if somewhat discounted, payment by negotiating the bill.
Risks involved with documentary bills
• There are three main risks involved with the documentary bills, these are: that the goods will have been shipped before the bill is sent to the collecting bank in the buyer’s country. This means that the seller will have lost control of the goods without any guarantee that the bill will be accepted or paid for. Although the seller will retain property in the goods it could still be a big problem if the seller is left with the goods at sea or in a foreign port without a buyer. The seller may have to renegotiate with the original buyer or find an alternative buyer or have the goods shipped back or shipped to another buyer in a third country. The seller can of course sue the original buyer for breach of contract but that may involve protracted litigation in a foreign country. The appointment of an agent in the buyer’s country to deal with the goods in the event that the buyer fails to honour the bill of exchange should also be considered. This is referred to as ‘case of need’ representative, but the instructions to the collecting bank must be very clear about what the powers of that person are or else the collecting bank will not release the shipping documents so that the ‘case of need’ can deal with the goods; and#p#分页标题#e#
•
With a term bill if the buyer does accept it and if the buyer then receives delivery of the documents, there is the possibility that those documents and the goods that they represent may be disposed of without the buyer paying the bill when it falls due. In such cases the seller loses the property in the goods and will be left only with an action against the defaulting buyer on the unpaid bill.
•
There is the further complication that if the seller has discounted the bill to his/her own bank after acceptance, that bank will have recourse against the seller if the bill is not ultimately paid by the buyer/drawee. (s60 Bills of Exchange Act)
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Reducing risk: Insurance
The risk that the bill will not be paid or accepted upon presentation or if accepted, will not be paid at maturity can be insured against through governmental export credit agencies.
The insurance provided in Australia is against non-payment by buyers for goods or services exported where the non-payment results from commercial, economic or political factors affecting the transaction. This includes the buyer’s insolvency, the buyer’s failure to pay the purchase price, the buyer’s refusal to accept goods, the imposition of import restrictions or the cancellation of valid import licences, war between the buyer’s country and Australia, war, revolution or other disturbance, in the buyer’s country, additional handling, transport or insurance arising from interruption or diversion of the voyage.
Types of cover
A seller can be insured against risks from the date of shipment (shipments policy) or from the date of contract (contracts policy): appropriate where the contract entered into is for the supply of goods to be manufactured to particular specifications where those goods do not have a ready market otherwise.
Benefits of a documentary bill
The seller obtains payment, at least on a discount basis, and the buyer gets the necessary credit if the bill is a term bill which the buyer accepts and returns to the seller in exchange for the shipping documents. The buyer obtains possession of the goods and a period of credit (the usance). The seller by negotiating the bill with his/her own bank, obtains cash which means that the seller does not have to, bear the cost of extending the credit.
Documentary credits
Letter of credit was referred to at the beginning of this topic. A letter of credit is an undertaking by a bank to meet cheques or bills of exchange drawn by a beneficiary/seller in accordance with the strict terms of the letter of credit.
Payment is made by the buyer’s bank which is called the issuing bank; instructions to that bank are from the buyer.
The exchange of shipping documents and payment are normally made in the seller’s country by the advising bank.
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Forfaiting
Forfaiting operates on the basis that a bill of exchange or series of bills will be used as payment instruments in the trade transaction. It was first designed by Swiss bankers to meet the demand from sellers of capital goods on medium credit terms (between one and five years) for finance on a ‘without recourse’ basis. The seller draws a usance bill on the buyer ‘without recourse’ to himself/herself. The bill is then accepted by the buyer and ‘backed’ by the buyer’s bank. That backing may be given either by way of an aval or a guarantee, that is, the bank simply appends its signature on the bill. The seller could then endorse the bill again ‘without recourse’ and discount it to his/her bank. His/her bank acts as the forfaiter.#p#分页标题#e#
Forfaiting can also be applied to promissory notes. The buyer issues a promissory note which is similarly purchased at a discount by the forfeiting bank ‘without recourse’. Whether bills of exchange or promissory notes are used, it is customary that they be drawn in a series over the duration of the contract, hence providing payment by instalments.
Example:
The agreement between S and B provides that S shall deliver capital goods to B over a period of five years. Payment is to be made over 10 equal instalments. The series of bills (promissory notes) drawn will mature every six months respectively. The last bill should then mature by the completion of the contract period. B then accepts the 10 bills ‘without recourse’ and these are avalised or guaranteed by a bank deemed acceptable to S’s bank (the forfaiting bank). The forfaiting bank’s only recourse is the avalising bank, therefore it must satisfy itself as to the creditworthiness of the buyer and the avalising bank before agreeing to forfait. The bills may be expressed in any currency acceptable to the forfaiting bank. These bills will then be purchased by the forfaiting bank at a price which will cover the interest over that credit period of five years, expenses and any margin of profit commensurate with the risk involved. The purchase, as stated before, is without recourse to S. Upon maturity of each bill, the forfaiting bank presents it for payment.
Forfaiting is popular in the continent where it has been in existence for a very long time. The three major advantages in forfaiting are:
• that the burden of collecting payment is passed on to the forfaiter;
• that any currency exchange risk is minimised; and
• that the seller need not worry about any recourse against a dishonoured bill since the forfaiting is always expressed as ‘without recourse’.
The forfaiter bears these risks but not without a price. Banks are not prepared to forfait unless at least a part of the purchase price has actually been paid. It is customary for merchant banks to stipulate that at least 15 percent of the purchase price has been paid before they are prepared to forfait.
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Factoring, countertrade and bartering
F
actoring
F
actoring companies take on the book debts of a customer at a price, which they will then arrange to collect from the buyers. They also take on board the associated exchange, status and transaction risks. This naturally is an extremely convenient option for the sellers who should be able to save time and expense on debt collection and credit control. The factor charges a commission usually based on turnover, for taking over an agreed set of book debts or a sales ledger. In order to preserve the public profile of the sellers and to maintain the goodwill and relationship between buyer and seller, the factor will usually offer an invoice discount service. This means that the customer retains control over the sales ledger and the factor simply advances payment against invoices and underwrites any existing debt. The finance provided by the factor may be either with or without recourse.#p#分页标题#e#
Recourse financing allows the customer to receive payment from the factor against invoices but if the buyer fails to pay, the seller must reimburse the factor. The factor does not underwrite the risk or debt involved.
Without recourse factoring affords the seller absolute protection from credit risk. That is to say, if the buyer fails to pay according to the contract, the seller is not compelled to reimburse the factor. The factor will have to pursue the debt against the buyer himself.
Countertrade
Countertrade refers to a system of non-monetised transaction of one product in exchange of another. Both seller and buyer mutually agree to sell their products to each other on a reciprocal basis with no or little monetary payments. Countertrade has been an integral part of international trade. The post-world war trade liberalisation on a stable exchange was designed, inter alia, to eliminate the need for balancing bilateral trade through countertrade. Yet the practice of countertrade received a tremendous upsurge of growth among trading nations, particularly the centrally planned economies (that is, all COMECON members) and third world countries. Developed industrialised countries have also been actively engaged in countertrade. France has a formal institution (L’Association Pour la Compensation des Echanges Commerciaux) to advise on how to manage countertrade, while the US, Germany and Japan use countertrade as a means of promoting exports. Countertrade has become a worldwide phenomenon and gained considerable popularity among trading nations in the 1990s, who conduct about 15 to 20 percent of world trade in countertrade conditions.
Countertrade is highly controversial despite its widespread use. Being managed and anticompetitive, countertrade distorts the free flow of trade and arm’s length price fixation, As such, it is counterproductive not only to the WTO multilateral trading system but also to the long-term economic interests of countertrading countries. On the other hand, many countries find countertrade as the only available route to gain access to modem technology and to export their products otherwise unsellable in competitive markets. These competing interests have so far defied the development of a multilaterally coordinated discipline on countertrade.
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Definition
Due to its diverse orientation, countertrade has attracted a number of definitions. These range from ‘the trade practice whereby a country links the quantity and/or value of its imports to that of its exports’, to a ‘method of effectuating the transfer of goods, services and technology to nations experiencing hard currency shortages or low currency values’. UNCITRAL has defined countertrade as:
... a composite transaction in which one party supplies (or procures the supply of goods or other economic value to the second party, and in return, the first party agrees to purchase (or procures to be purchased) from the second party, goods or other economic value, so as to achieve an agreed ratio between reciprocal performances.#p#分页标题#e#
Clearly there is no universally accepted technical definition. However, there are certain common grounds in these definitions, which may constitute the basic features of countertrade. Countertrade transactions usually:
• are partly or wholly non-monetised;
• link two corresponding export (or import) deals; and
• create reciprocal obligations of performance between the parties.
• Bartering is characterised by the exchange of goods or services. There is in theory no money settlement or consideration involved. The transaction is contained in a single contract, there is no distinct sale agreement.
Self-assessment questions
1
. A seller has several payment options available, though each may involve some measure of internal variation. These options include:
a
. the seller can demand that the buyer make cash payments for the goods;
b
. the seller can accept payment under a documentary bill; or
c. the seller can accept payment under a documentary letter of credit
C
ritically evaluate these options and others you think are important.
2. Discuss the significance of Bills of Exchange as an instrument for the payment of exports.
3. Discuss the detail the methods of payment that are available in a contract for the international sale of goods, giving an account of the risks as well as the advantages.
4. Compare documentary collections with documentary credits.
5.
Discuss the importance of electronic payment systems.
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Re
ferences
Ar
dagh, A & Brien, C 1997, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Bu
rnett, R 2004, The law of international business transactions, Federation Press, Sydney.
Chuah, JCT 1998, Law of international trade, Sweet & Maxwell, London.
Pe
ntony, B, Srivastava, D & Graw, S 1991, Commercial transactions, cases and materials, Butterworth, Sydney.
Ra
fiqul Islam, M 1999, International trade law, Law Book Co, Sydney.
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To
pic 7 International transportation of exports
Topic structure
The topic International transportation of exports includes the following content:
• sea transport;
• air transport;
• land transport;
• multi-modal transport; and
• insurance.
Learning outcomes
A
t the completion of this topic you should be able to:
•
compare the liability of a carrier in a contract for the carriage of goods by sea under the relevant international conventions;
•
recognise the importance of a bill of lading as an instrument for the carriage of goods by sea;
• distinguish the functions of a bill of a lading and an air waybill; and
• evaluate the liability of a carrier in the carriage of cargoes and passengers by air under the relevant international conventions.#p#分页标题#e#
Required reading
R
eading 7: D’Arcy, L, Murray, C & Cleave, B 2000, ‘Container transport’, Chapter 16
R
eading 8: ‘The Hague –Visby Rules’
T
extbook: Mo, JS 2003, Contracts for carriage by sea, air and land, Chapter 4
Read
Textbook: Mo, JS 2003, Chapter 4
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Introduction
Goods which are the subject matter of an export transaction have to be moved from the place of dispatch to their destination. This movement of goods (or carriage as it is normally called) can be by land, sea or air or a combination of these three modes of transportation. If it is done by one of them it is called unimodal; if it is done by a combination of them, it is multimodal, or combined transport. For example, if a merchant in Bradford, England sells knitwear to an importer in Canberra: the goods have to be loaded into a door to door container in Bradford, taken by truck to Liverpool, loaded onto a vessel which proceeds to Sydney where it is unloaded and taken by land to Canberra.
Unimodal international transport is governed by international conventions which have been adopted by many countries and have great practical effect. The most important of these are:
• sea transport: The Hague-Visby Rules relating to bills of lading; and
• air transport: The Warsaw Convention. There are also international conventions relating to land transport and rail transport.
For multimodal transport there is also an international convention. It is:
• The UN Convention on International Multimodal Transport of Goods, created in 1980. It has not come into force. Effort has been made to develop ICC rules in conjunction with UNCTAD although it appears unlikely that they will be agreed to.
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ethods of transportation by sea The method of carriage is determined by the nature of the goods.
• Charterparty If they are goods in bulk, for example, grain, coal or oil, the shipper (the person who contracts with the carrier by sea, usually the seller, but may also be the buyer or the buyer’s agent) may hire the whole vessel by means of a charterparty. If individual packages of goods are carried on the ship’s deck or in the hold they are carried under bills of lading.
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Bills of lading Other non-bulk cargoes are often shipped in containers. These are usually governed by what are called combined transport bills of lading.
The transportation of goods internationally is still conducted on the basis of paperwork, as it has been done for the past 300 years, although Schmitthoff says that one day the traditional written transport documentation will be superseded by electronic means.
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The course of business in the carriage of goods by sea
An exporter arranging for the export of goods will undertake the following processes.
• contract of carriage with a shipowner has to be concluded. This is known as the contract of carriage by sea. The freight is the amount paid to the shipowner. The shipowner is the carrier, the exporter is the shipper.#p#分页标题#e#
• The exporter has to decide whether to charter a whole ship in which case the terms of the contract of carriage are embodied in a document called a charterparty. Where the goods form only part of the intended cargo of the ship, the terms of contract of carriage are evidenced by a document called a bill of lading which in effect, is a receipt by the shipowner acknowledging that goods have been delivered to him/her for purpose of carriage and reiterating the terms of the contract.
• Usually the shipper instructs a forwarder to procure space for the cargo and prepare the bill of lading (different ship lines have their own forms of bill of lading) and send it to the loading broker. The shipowner likewise employs an agent, the loading broker, to obtain cargoes for his/her ships. The forwarder’s duties also include arranging for the goods to be brought alongside, making the customs entry and paying any dues on the cargo. After shipment the forwarder collects the completed bill of lading and sends it to the shipper.
The business of arranging for cargo is entrusted by a shipowner to a loading broker, who advertises the date of sailings in shipping papers. The broker supervises the arrangements for loading, though the actual stowage is decided on by the cargo superintendent who is in the direct service of the shipowner. The broker signs the bill of lading, issues it to the shipper or his agent in exchange for the freight. The loading broker is paid by way of commission on freight.
In practice the same firm is both the loading broker and the forwarding agent, though it usually keeps these two functions in two separate departments of the firm.
When the goods are delivered to the shipowner, the shipper usually receives a document known as the mate’s receipt. This is signed by the ship’s officer in charge of loading operations and is based on the notes of tally which is a record of their date of loading, identification marks, individual package numbers, weight, measurement and any defect or comment about the condition in which the goods were received (for example, damage to packages and so forth).
Any qualifications to the mate’s receipt are later embodied in the bill of lading and will protect the carrier against liability. The presence of qualifications also means that the bill of lading will not be regarded as ‘clean’, rather it is what is called ‘claused’.
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he records of loading which the tally clerks take during the loading operation are handed to the shipowner’s clerks who compare them with the draft bills of lading sent by the shipper to the shipowner’s office. (The shipper or his agent completes a set of two or three original bills of lading in respect of the consignment.) When the bills agree with the tally notes taken during the loading, the bills are signed by the loading broker or another agent on behalf of the shipowner and the signed bills are handed over to the shipper.#p#分页标题#e#
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he particulars of all bills of lading are entered on the ship’s manifest. This is produced to naval, port, Customs or consular authorities and contains the details of the complete cargo of the ship.
Bills of lading are usually forwarded to the consignee, and usually more than one set is sent, registered and separately. A shipowner is not bound to hand over goods unless he/she is given a bill of lading. (Sometimes a copy is carried on board the ship.)
If the exporter sells under a letter of credit, he/she normally hands over all parts of the bill, together with the other required documents, to the advising or nominated bank, and that bank then forwards the documents by air mail to the issuing bank.
Normally the bill of lading contains detailed provisions about the methods of delivery and the cessation of the shipowner’s liability.
Transportation of goods by sea
The method is determined by the nature of the goods:
• if bulk
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