Chapter 1: negotiating delivery - 5 steps

Step 1 – timing - in more details

Naming the date of delivery:
• A calendar date – for example, 25th september 2019.
• When all preconditions for the sale have been met such as:
ü receipt of import and/or export approval;
ü receipt of foreign exchange approval from a central bank;
ü issuance of a Letter of Credit or bank guarantee;
ü making of a down- payment by the buyer;
ü issuance of an insurance policy;
ü issuance of a Certificate of Origin;
delivery by buyer of plans, drawings or other documentation.
 • Signature date (1)
• Date of coming into force (2)
• Cut-off date (3)
Example: delivery date is chosen in a relation with (1), (2) and (3).
Coming into force
This Agreement shall come into force after execution by both parties on the date of the last
necessary approval by the competent authorities in the country of the seller and the buyer.
If the Contract has not come into force within ninety days of execution, it shall become null and
void.
The date of delivery shall be twenty-eight days after the date of coming into force of the
Contract.
Delivery with and without grace period

Delivery without grace period:

Example:
‘For each week of late delivery the Seller shall pay the buyer 0.1% of the contract price.’
Delivery with grace period:
Example:
‘If delivery is not effected within one month of the agreed delivery date, then the Seller shall
pay the Buyer 0.1% of the contract price.’
Excused delay and force majeure
Force majeure (a french expression) means a superior power.
Other synonyms of force majeure:
• Act of god (law) – an event caused by natural forces beyond human control.
• Contingency/contingencies – a future event or circumstance that is possible but cannot
be predicted with certainty or an event that may or may not happen.
Example about a force majeure clause:
• If either party is prevented from, or delayed in, performing any duty under this Contract
by an event beyond his reasonable control, then this event shall be deemed force
majeure, and this party shall not be considered in default and no remedy, be it under
this contract or otherwise, shall be available to the other party.
• Force majeure events include, but are not limited to: war (whether war is declared or
not), riots, insurrections, acts of sabotage, or similar occurrences; strikes, or other labor
unrest; newly introduced laws or government regulations; delay due to government
 action or inaction; fire, explosion, or other unavoidable accident; flood, storm,
earthquake, or other abnormal natural event.
Should the parties wait for the force majeure event to last forever?
No, they shouldn’t. It would lead them to unclear and dangerous situation.
They should regulate the maximum time of suffering the force majeure event by both parties as
follows:
‘If either parties is prevented from, or delayed in, performing any duty under this Contract, then
this party shall immediately notify the other party of the event, of the duty affected, and of the
expected duration of the event.
If any force majeure event prevents or delays performance of any duty under this Contract for
more than sixty days, then either party may on due notification to the other party terminate this
Contract.’
Unexcused delay and buyer’s remedies

Is the following a liquidated damages clause?

‘If the Seller fails to supply any of the goods within the time period specified in the Contract, the
Buyer shall notify the Seller that a breach of contract has occurred and shall deduct from the
contract price per week of delay, as liquidated damages, a sum equivalent to one half percent of
the delivered price of the delayed goods until actual delivery up to a maximum deduction of 10%
of the delivered price of the delayed goods.’
=> The title ‘liquidated damages’ is not the decisive factor to consider whether it is a liquidate
damages clause or not.
=> The judge will consider the following things such as:
• The figure 0.5% per week, up to a maximum of 10% agreed as a fair and reasonable
estimate of the loss the buyer might suffer.
• How was the figure calculated?
 • Did two parties discuss or debate it?
It is enforceable if the figure is fair. If it is unfairly high, it is unenforceable by common law.
Unexcused delay and example about penalty

• Does the word ‘fine’ in the clause tell you for certain what kind of clause you are
looking at? (penalty or liquidated damages?
• After how long a delay in delivery does the exporter lose 100% of the contract price?

Step 2 – place of delivery - in more details

Ø Delivery is normally supposed to be the arrival of goods at destination but this is not
accepted in contract language.
Ø The parties have to clarify what they mean by place of delivery.
Ø Place of delivery is the point at which exporter passes responsibility for the goods to
buyer.
Ø Place of delivery may vary depending on the term of trade chosen by both parties.
Example:
+ FOB (free on board): delivery takes place when goods cross the rail of ship nominated by
buyer.
+ cif (cost+insurance+freight): the same delivery place as that of fob though exporter bears
costs of freight and insurance through the named destination.
Step 3: transport
2 aspects of transportation:
• Physical safety of the goods which means appropriate packaging and correct marking.
• Correct documentation.
Packaging – a typical clause:
 • ‘Goods are to be packed in new, strong, wooden cases suitable for long-distance ocean
transport and are to be well protected against dampness, shock, rust or rough handling.
The Seller shall be liable for any damage to or loss of the goods attributable to improper
or defective packaging.’
Shipping marks – an example:
• ‘On the surface of each package delivered under this Contract shall be marked: the
package number, the measurements of the package, gross weight, net weight, the lifting
position, the letter of credit number, the words right side up, handle with care, keep dry,
and the mark: DNP/36/Q.’
Shipping documents:
The most important shipping document is the Bill of Lading.
Depending on the mode of transport, we have different type of Bill of Lading as follows:
• A marine bill of lading
• An air waybill
• A rail consignment note
• A road consignment note
• A combined transport bill of lading.
Negotiable b/l vs. non-negotiable b/l
Clean shipping documents
Which notes of carrier make the bill of lading ‘unclean’?
Some examples of those notes:
o Contents leaking.
o Packaging soiled by contents.
o Packaging broken/holed/torn/damaged.
o Packaging contaminated.
o Goods damaged/scratched.
o Goods chafed/torn/deformed.
o Packaging badly dented
o Packaging damaged- contents exposed
o Insufficient packaging
Not all notes are considered to be ‘claused’.
Examples:
o Second-hand/reconditioned packaging materials used.
o Packaging repaired/mended/resewn/coopered.
o Unprotected.
o Unboxed.
Three main roles of bill of lading
Bill of lading acts as
ü Evidence of Contract of Carriage.
ü Receipt of Goods.
ü Document of Title to the Goods.
Marine bill of lading

Step 4: Risk, title anStep 4: Risk, title and insurance – in more detailsd insurance – in more
details

A marine bill of lading must indicate that the good

board a named vessel to be paid.
Step 4: Risk, title and insurance – in more details
Two risks are involved in the sale of goods:
• Risk of the goods injuring a third party.
• Risk of loss or damage (more significant).
These risks are normally covered by insurance.
Who is responsible for arranging insurance cover? Exporter or buyer?
It is up to the two sides to reach agreement on the terms that best meets their needs.
+ FOB: Buyer buys insurance for the goods.
+ CIF: Exporter buys insurance for the goods. However, he is only required to obtain insurance
on minimum coverage (Cargo Clause C). By endorsing the certificate of insurance, exporter
can assign/transfer the full rights to the Buyer. This can be done even after the goods are lost.
Insurance Policy, certificate of insurance, Letter of insurance
Insurance policy
It is a contract, a standard form contract, between the insurer and the insured, known as the
policyholder, which determines the claims which the insurer is legally required to pay.
It is not always practicable to obtain actual policies of insurance. Buyers are accordingly in the
habit of accepting broker’s cover notes and certificates of insurance instead of insisting on
policies.
Certificate of insurance
Many exporters have an agreement with an insurance company covering all their shipments
over a period of time.
Each individual shipment is covered by a certificate of insurance, not by a full policy.
A certificate of insurance:
• States in outline the cover offered;
• Gives the details of the individual shipment.
Letter of insurance
• This is simply a letter from exporter to buyer stating that the goods are insured.
• It has no legal force except as evidence in a law suit against the exporter.
Choosing an insurance policy
Different insurance policies
Floating policy vs. open cover
• What do they have in common?
• How are they different?
What they have in common as follows:
• they are identical in the insurance cover.
• Both offer exporter insurance cover on all shipments over time period.
• A ceiling is set on the overall figure – for example, $1 million.
• As each individual shipment is made, exporter declares the value of the shipment and
the ceiling is automatically reduced by that amount and that shipment is covered by a
Certificate of Insurance. Exporter has a pad of these certificates and simply fills out a
new one for each shipment.
They are different from each other as follows:
• They are different in terms of logistics.
• Floating policy is set up for a particular time and automatically expires unless being
renewed. Open cover is open-ended. It does not expire although there are provisions
for cancellation on due notice => Open cover is more convenient.
• Open cover is not an insurance policy at all. It is an agreement by an insurance
company to issue an insurance policy if the insured asks for one. Normally he only
 creates a Certificate of insurance with the knowledge that if he wants a policy, he can
get one at any time, even after a loss. => Open cover is less formal, less time-
consuming but extremely reliable.
Valued policy vs. unvalued policy
• Valued policy is the policy in which the exporter states the value of the goods on the
insurance document.
• Unvalued policy is the case where the exporter did not state the value of the goods
being insured with the insurer. Then the value of the goods can be established after a
loss. The exporter must prove his figures precisely. As long as the figure is less than
the total cover under the policy, the insurer shall pay.
Valued policy is preferred today because the pre-stated figure can include not only the cost of
the goods but also the profit the exporter hoped to make on them.
Cargo clause a, b or C
• Cargo clause a
• Cargo clause b
• Cargo clause c
How are they different?
Compare them according to their content in textbook – pages 61 and 62

Step 5: terms of trade – incoterms 1990

The ICC publication, INCOTERMS 1990, gives full and clear information about the rights and
duties of buyer and exporter in Incoterms contract.
Incoterms 1990 of ICC includes 13 terms on the basis of 3 variables:
v Where along the transportation route delivery takes place;
v What means of transport is used;
v What costs the exporter might pay after the point of delivery.
13 terms are grouped in 4 categories:
Ø E- term
Ø F-term
Ø C-term
Ø D-term

Incoterms 2010
Conflict between incoterms and the contract
An example of a careful contract:
“Incoterms 2010” as used in this Contract means the publication “Incoterms 2010,” being the
international rules for the interpretation of their terms published by the International
Chamber of Commerce. When a term from “Incoterms 2010” is used in this Contract, the rules
and definitions applicable to that term in “Incoterms 2010” shall be deemed to have been
incorporated in the Contract except insofar as they may conflict with any other provision of
the Contract, in which case the Contract provisions shall prevail.