Risk Analysis and Dispute Resolution

Expro 100 Engineering

The Hague November 2013

Martin BitterExportant Consultants Ltd

2 Expro100 Engineering, The Hague, Martin Bitter

What are possible export risks?

1. Make difference in relationships – client and trade partner

2. Offer: when is the offer no offer3. Contract

a. Purchase conditionsb. Product and product properties/characteristics, “what

am I buying”c. Timing, delivery timesd. Actual shipping, delivery conditionse. Payment

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The Agent

• Not only Commission (fix and variable cost)• No risk when Agency contract is detailed and has escape

clauses• No direct handling, but needs a lot of people skills on your end

and “Trade Partner Management”• Not involved in the contract between exporter & his client• Might represent different companies• Exporter keeps in control of prices, strategy, distribution …

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Obligatory subjects in a trade partner contractAgent contract:• Description of activities for the agent (rendered services )• Description of the activities for the exporter• LAY DOWN OBJECTIVES/TARGETS FOR 1st. year and eventual

years to follow• Duration of the contract• Commissioning• Evaluation moments• Escape clauses• Applicable legislation: EU protects agents by directives

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EU & Agent ContractsThe European directive governing the agent contracts is: 86/653/EEC

Find the directive at:• http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L0653:EN:HTML

• A true story

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Other Trade Partners

Importer / Large Direct Account

• Exclusivity• Market data (not even intelligence)• Marketing / local contact• Tendency to have supplier cover/finance complete part of

the chain

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The offer that wasn’t

When is an offer no offer???

• Any offer (oral or written) followed by an acceptance constitues an agreement

The client

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“This offer is open for acceptance until …”

The party making the offer will be bound by any acceptance made within the set time frame

“This offer will not become binding, even after it has been accepted until the order has been confirmed in writing by ……. ( the party making the offer)

The party making the offer will not be bound unless he himself confirms

An offer is a legal instrument. Whether the exporter can revoke its offer will depend on its wording as well as the law applicable. Two examples:

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Three types of Offers

Binding (firm) offer• Exporter will not offer these goods to another party and will not change its offer, until the other party has decided (hence the importance of an expiry date)

Non-Binding Offer• The restrictions of the binding offer do not apply

Offer by sample• Together with the offer, a representative • sample of the goods to be delivered is • provided for evaluation by the customer

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• Purchase conditions• Products and properties• Deliveries/timing• Actual shipping and conditions• Payments

The content

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Checklist what goes in the Offer (proforma invoice)A pro forma invoice should provide:The fact that it is a proforma invoiceYour company details Product specifications (number of units, sizes, country of origin, etc)Prices (per unit price, total price, currency)General conditions of saleDelivery terms ((Incoterms 2000)Payment terms (CAD, DLC, etc)Binding (valid for acceptance date) or Non-Binding

… and should not specify:Date shipmentName carrier

Before sending out, make sure:The offer has been signed by an authorized officerThe offer does not contain any (spelling) mistakes

The content

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The proforma invoice

Seedimpex SASeeds for the world

Seedimpex SA

The 7 functions of an invoice:

1. Shows the amount the Seller owes to the Buyer

2. Specification of goods delivered

3. Customs document (import duties)

4. Basis for insurance coverage

5. Application certificate of origin CoC

6. Accounts document

7. Bank document

Seedimpex SA

General purchase/sales conditionsMake sure to read AND UNDERSTAND then to negotiate.

Battle of the forms (send along with Offer return with Order Confirmation)

“Last Shot” (send along with invoice)

The only “safe” way is to have them agreed to by both sides in writing

Purchase conditions

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General purchase conditions1. Order and Confirmation1.1 The Customer may cancel the order if the Supplier hasnot confirmed acceptance of the order (confirmation) inwriting within two weeks of receipt.

1.2 If the confirmation varies from the order the Customer isonly bound thereby if it agrees to such variation in writing.In particular the Customer is subject to the generalterms and conditions of the Supplier only insofar assuch conform with the conditions of the Customer or ifthe Customer has agreed to such in writing. The acceptanceof deliveries or services as well as payments donot constitute approval.

1.3 Any amendments or additions to the order shall only beeffective if the Customer confirms such in writing.

General purchase conditions

17. Place of Jurisdiction, Applicable Law17.1 The court of jurisdiction shall be, in the event that the Supplier is a merchant, at the place of ordering.

17.2 German substantive law shall apply excluding the Provisions of the United Nations Law on the Sale of Goods dated 11.4.1980.

Choice of Law and jurisdictionRemember, two choices to make:

• Choice of LawParties are free to choose which law appliesFailing choice usually law of “characteristic performance” applies Trade terms (Incoterms 2010)

• JurisdictionForum shopping – “choice of forum clause”Subject to test of reasonableness

Tip: Better to choose than not to choose at all

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Products & Properties

Performance conditions, products of nature, variances. certification, who pays for certification,

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Timing and delivery

When does client need delivery and what is your planning? What are regulated contact moments? Client expectations?

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Actual shipping

What is most used set of agreements? Law? What version today? What are differences with newest version? Case 1 Case 2

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INCOTERMS principlesThe delivery of goods is agreed upon between seller and buyer. Though it could be done individually, it is usual to refer to standardized terms. This speeds up the process and increases the transparency and mutual understanding.

The most commonly used trade terms are the INCOTERMS (= International Commercial Terms), which are a set of standard conditions for delivery which can be imported into the contract by the parties. The INCOTERMS have been prepared by the International Chamber of Commerce but do not apply unless they are expressly incorporated into the contract. They have no binding force of law.

Relationship between seller and buyer(not buyer / seller and carrier)

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GROUP TERM COMPLETE NAME TRANSPORT MODE

E EXW Ex Works Any

DEPARTURE

F FCA Free Carrier Any MAIN CARRIAGE FAS Free Alongside Ship Sea UNPAID FOB Free on Board Sea

C CFR Cost and Freight Sea MAIN CARRIAGE CIF Cost, Insurance and Freight Sea PAID CPT Carriage paid to… Any

CIP Carriage and Insurance paid to… AnyD DAF Delivered at frontier Any ARRIVAL DES Delivered ex ship Sea

DEQ Delivered ex Quay SeaDDU Delivered Duty unpaid AnyDDP Delivered Duty paid

Any

IncotermsOverview 2000

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Departurecontracts

Any mode of transport, inclu-ding multimodal

*EXW Ex WorksFCA Free CarrierFAS Free Alongside Ship

Arrival contracts*

*

*

Departure contracts

CFR Cost and FreightCIF Cost, Insurance and FreightCPT Carriage Paid ToCIP Carriage & Insurance Paid to ...DAF Delivered At FrontierDES Delivered Ex ShipDEQ Delivered Ex QuayDDU Delivered Duty UnpaidDDP Delivered Duty Paid

IncotermsApplication

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INCOTERMS 2010 Overview

Modernising international Trade Flow Electronic documentation Safety in the supply chain Clearer definitions in 2010 Easier explanation and display More logical categories Reduced from13 to11 conditions 2 new “rules” (??)

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GROUP TERM COMPLETE NAME TRANSPORT MODE

E EXW Ex Works Any

DEPARTURE

F FCA Free Carrier Any MAIN CARRIAGE FAS Free Alongside Ship Sea UNPAID FOB Free on Board Sea

C CFR Cost and Freight Sea MAIN CARRIAGE CIF Cost, Insurance and Freight Sea PAID CPT Carriage paid to… Any

CIP Carriage and Insurance paid to… AnyD DAT Delivered at terminal Any ARRIVAL DAP Delivered at place Any

DDP Delivered Duty paid Any

IncotermsOverview 2010

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Digital-2-6-Riskman

. A Dutch importer buys from an exporter in the Philippines a 20 ft container with machine parts on basis of CIF Rotterdam.

The goods are transhipped in Singapore and get lost in the harbour.

Trans shipment is allowed. Payment conditions CAD.

He bought CIF Rotterdam and wants to know for certain that the goods will arrive as ordered.

The Dutch importer delays payment until the goods arrive in Rotterdam.

CIF/CAD

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An exporter from India sells to Germany a container with machine parts. The contract basis is DDP Frankfurt. Payment: Open account, within 7 working days after arrival of goods.

The heavily damaged container is transported to Frankfurt and delivered, according to the contract DDPFrankfurt.

The container arrives in Rotterdam where an accident happens. The total contents of the container is total loss.

The contract does not mention anything about insurance.

Digital-2-6-Riskman

The German importer refuses to accept the consignment and does not pay the invoice. The exporter takes the matter to court. You are the judge...

DDP/Open Account

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Payment

The Risk Triangle Utopia, negotiations / cultural / relationships / checking in network / checking through credit reports

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The Conflict: now what…….

The resolution should already be pre-engineered in the contract.

Go to court….Or…..

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Pro’s and cons CourtsPro: • independence • legal skills• relatively cheap• possibility of lodging an appeal

Cons:• No expert view except for legal know how• lengthy proceedings• Decision is public

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Arbitration:

Administration of justice by expert laymen Decision is as binding as in normal court proceedings Ordinary arbitration and emergency arbitration Parties must agree on arbitration explicitly Special procedural rules apply Vary from country to country and contract to contract

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Advantages and disadvantages of arbitrationAdvantages

Neutrality Confidentiality Expense, timing and finality Language Arbitors expertise Enforcement (International Conventions

Disadvantages Speed Impossibility of Appeal Non publication of the

decision Validity of decision Cost and delay Procedural safeguards

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Arbitration

International Chamber of Commerce (ICC) Court of ArbitrationICC Court of Arbitration38 Cours Albert 1er75008 ParisFranceTel: (011-331) 4953-2878Fax: (011-331) 4953-2933www: http://www.iccwbo.org

Info on cost of Arbitrationhttp://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Cost-and-payment/Cost-calculator-3/

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Conclusion??

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Checklist key clauses in international sales contractso Identification of the parties (buyer and seller)o Description of the goodso Price and payment conditionso Delivery periods and conditionso Inspection of the goodso Quantity and quality variations allowedo Reservation of title and passing of property rightso Transfer of risk – how accomplishedo Warrantieso Force majeure clauseo Requirement amendments only in writingo General sales/purchase conditions applicable o Choice of law (language)o Choice of dispute resolution mechanism

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