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Week 4: International Contracts for the Sale of Goods: - Coggle Diagram
Week 4: International Contracts for the Sale of Goods:
Incoterms: (international commercial terms)
Drafted by the international chamber of commerce
They are standard delivery terms for international sales
They divide the delivery obligations, responsibility and risk between a seller and a buyer
Each incoterm has a universal meaning for buyers and sellers around the world
An incoterm applies when the parties expressly include it: once included , the parties are bound by the obligation/rights as specified in that incoterm
How to incorporate into your contract?
CIF Shanghai (incoterms 2020); or DAP The White House (incoterms 2020)
If no year is stated: until 31 December 2019 the incoterms 2010 apply and from 1 January 2020 incoterms 2020 apply
The agreed incoterm becomes part of the contract dealing with delivery of the goods
Incoterms 2020
There are 11 incoterms 2020
Each has a unique abbreviation
8 can be used for transport mode
4 are specifically for sea transport
Each incoterm divides responsibility for delivery risks, costs & insurance between seller and buyer
The incoterms are as follow (ranking from most favourable to seller to most favourable to buyer)
EXW - Exworks
FCA - Free Carrier
FAS - Free alongside ship
FOB - Free on board *
CFR - Cost and Freight *
CIF - Cost, insurance and Freight *
CPT - Carriage paid to
CIP - Carriage and insurance paid to
DPU - Delivery at Place Unloaded
DAP - Delivery at place
DDP - Delivery duty paid
Each incoterm has a list of 10 obligations for the seller and 10 for the buyer
The two most important sub - parts of each incoterm deal with:
Delivery and taking delivery
(S4, B4). Subpart 4 of each incoterm specifies: - what S must do to discharge its obligation to deliver and what B must do to accept delivery and the point of delivery
Transfer risks
(S5, B5): When risk for loss of or damage to the goods shifts from seller to the buyer. So if the goods are lost or damaged in transit, the party that bears the risk bear the loss
Risk and Delivery
E term
Eg. EXW: Risk passes when the goods "made available" to B at the named place of delivery. When S informs B that the goods are ready for pickup. B must organise and pay for carriage from the country / place of departure
D Terms
Eg. DDP: Extends S' delivery obligations to country of destination. Risk does not pass until reach the specified point in the destination country (varies depending on D term). S must organise and pay for carriage until the country/place of destination
F terms:
Obligation in the buyer to arrange and pay for main carriage
Risk and delivery occurs somewhere prior to main carriage
FOB - delivery is complete / risk passes when the goods are placed on board the ship at the named port of departure
FAS - delivery is complete / risk passes when the goods are placed alongside the ship at the named port of departure
FCA - delivery is to a place nominated by B.
C terms:
Seller has the obligation to arrange transport but risk still bears on the buyer
CPT: Delivery is complete / risk passes when the goods are delivered to carrier in country of departure
CIP:
Ownership
Risk and cost are not the same as ownership
The parties also need to agree when does ownership pass
Each country has its own rules as to when does ownership pass
Governing Law
Refers to the domestic system of laws which acts as the framework for the contracts interpretation and application
All coutries have rules - part of their rules of private international law - to determine what the governing law of an international contract is
Rules to determine the governing law of an international contract have developed with stark similarities (Australia, EU, China, Malaysia use the same three step test)
Governing law refers to the rules that are used to determine the buyer and seller's substantive obligations / rights / remedies under the contract
Three part test
John Kaldor v Mitchell Cotts Australia (1989); Akai v The People's Insurance Cost (1996)
Look at the contract itself. Is there an express term specifying the governing law?
Look at the contract and sorrounding documents. Is there a clear mutual intention of the parties that the governing law is a particular country's law
If there is no express choice of law and no clear mutual intention then the court asks: Which national system of laws does the contract have the most real and substantial connection to?
Connecting factors can be: Place of negotiation or where the contract was entered into. Place of performance of the contract. Location of the subject matter of the contract. Place of business / nationality of the parties
CISG
Designed as a code that can be uniformly incorportated into countries around the world
Balances interests and expectations of buyers and sellers
A compromise between countries different legal systems / laws
Nations that sign up to the CISG agree to give domestic effect to its rules - ie. ensure its domestic courts apply the rules to international sales contracts