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CHOICE OF LAW STRUCTURE The Rome Convention Law = the law which applies to the contract
P 118 TB
1. Are the parties domiciled in contracting state? - YES 2. Freedom of Choice?? YES Go with contract NB – Mandatory rules cannot be derogated Art.3(3) eg: Consumer regs FSMA S.12 SGA (title)
Article 3(1) = law chosen (expressly / impliedly) by the parties shall govern the contract. Article 3(2) allows the parties to change the governing law.
3. What is country of closest connection?? (Art.4(1))
Presumption is that the applicable law will be the law of the country with which the contract is most closely connected The country most closely connected is the country where the party who is to effect characteristic performance of the contract has his habitual residence (central administration for company/unincorporated body) Art.4(2). Characteristic performance = performance for which money is due. Normally sellers country. (seller transferring ownership)
Can disregard art 4(2) if it appears contract more closely connected with another country (Art 4(5)) Immovable property presumption = where immovable property situated (art. 4(3))
Does not apply to contract for carriage of goods Art 4(4)
Choice of Jurisdiction Regulation 44/2001 - ONLY MCQ IN THE EXAM
Jurisdiction = the courts which would hear the dispute. 1. Are either / both parties domiciled in a member state? Applies to contracting parties resident in member states and per article 1(1) to civil and commercial matters.
2. Freedom of choice clause in contract?? (Art.23) – is it in the contract??
3. Where is the Defendant domiciled??
a. Basic rule Art 2(1) – General jurisdiction
Defendant is sued in the courts of the member state in which he is domiciled. This is the court of general jurisdiction.
b. Article 5 contains exceptions to this. 5(1)(a) in action for breach of contract, the defendant may be sued in the courts for the place of performance of the obligation in question. 5(1)(b) where delivery took place for goods(or should have taken) where services were (or should have been) provided 5(2) in tort matter, can also sue defendant where the harmful event occurred or may occur 5(5) branches and agency, can also sue defendant in the state where the branch or agency is situated. 6(1) defendant may be sued in MS in which a co-defendant domiciled if the claims are so closely connected that it is expedient to hear and determine them together. 6(4) says that in matters relating to a contract re land, one can also be sued in the state in which the immovable property is situated. Other exceptions: Article 22 exceptions - certain courts have exclusive jurisdiction regardless of domicile.
If case concerns a right in immovable property then the country in which the property is shall hear the dispute per 22(1). If case concerns registration/validity of an IP right then the courts in the state where the application for registration is shall hear according to 22(4).
Article 23 - parties can chose jurisdiction/ court that will hear the dispute. The agreement conferring jurisdiction must be in writing or in a specified agreed form. The choice may not be upheld.
Article 16 allows consumer to sue other party in either the courts of the state in which either the other party or the consumer is domiciled. 16(2) says the consumer may only be sued in courts of the state in which he is domiciled. If the parties have not chosen jurisdiction, the regulation determines the available options.
INCOTERMS - In order as to what is best for seller
Aims to: Clarify position on responsibility between B and S while freight is in transit Sets out each sides obligation throughout the transit
Which term depends on the bargaining power of each party.. If the S is stronger than B then F terms more than likely used If the B is stronger than S then C terms more than likely used
NB – the choice also has a knock on effect on the price paid depending on who covers costs and insurance. Summary of each term: FCA FAS FOB named place – seller meets obligations when delivers goods to chosen place. (seller has to make goods available for loading on the quayside which is the cut off point) – most common, del and cut off comes as goods loaded across the ships rail in seller’s country. Seller is responsible for loading costs, everything after that is down to the buyer. Export clearance by Seller. Free Carrier – seller del to carrier’s depot in his own country goods cleared for export b4 reach depot so export clearance is part of seller’s responsibility. Buyer then responsible for everything after that. Carriage and Insurance paid by seller Carriage paid to – same as FCA except seller agrees to pay for containerised transport all the way to depot on buyer’s country Cost, Insurance and Freight – paid for by seller (most popular along with FOB)
FCA CIP CPT CIF
CFR Cost and freight – paid for by seller so less onerous on seller. Different stages of transport: Standard Three Steps: F TERMS
S takes goods to port (1) S shifts responsibility to B at (1) B arranges main carriage
S takes goods to port (2) S shifts responsibility to B at (2) S arranges main carriage B risks during shipping??
S PORT (1) Multimodal Transport: S Depot Depot PORT (2)
Best for seller as it Imposes greatest obligation on the buyer and the least
also known as the Exworks (EXW)
on the seller From sellers point of view and EXW is almost the same as domestic sale so far as transport is concerned Buyer takes delivery of the goods so the cut off point is the seller’s premises Risk passes to the buyer who is also responsible for all the transport arrangements
Not examined in problem question MCQ??
Group D terms
Known as The Arrival Group and places the highest burden on seller and least on buyer Seller has to deliver goods to a point in the buyer’s country (exact point depends on terms) None of them imposes duty to insure goods but in practice the seller would insure for all eventualities up to cut off point
APPROACH TO QUESTION: - Find out the maximum that the S / B is willing to pay for (think in terms of which port) - Choose most appropriate based on facts given - For the chosen term outline what the responsibilities are of the S and B (in terms of legs 1st / 2nd 3rd ) Run down the grid and outline each topic.
FCA Better than FAS Better than FOB
XXX = Containerised transport (5 stages) - If mentioned in exam only deal with this term
EXTRAS FAS Free alongside ship FOB Free on board FCA Free carrier MULTIMODAL TRANSPORT XXX Point of delivery Passing of risk CUT OFF POINT Where responsibility shifts from S to B When goods placed alongside On delivery Transport to ship S When goods pass over ship’s rail On delivery S Carrier’s depot in S’s country
On delivery B (from point of delivery) B At B’s option
Sea carriage Insurance for sea crossing Loading costs Unloading costs Export clearance Import clearance Documents which S must provide to B ONLY if outside the EU
B At B’s option
B At B’s option
B B S B
S B S B
B B S B
Invoice Shipping Document Export clearance if needed B option of insurance
Invoice Shipping Document Export clearance if needed
Invoice Shipping Document Export clearance if needed
CFR Better than CIF
XXX = Containerised transport (5 stages - If mentioned in exam only deal with this term
EXTRAS CFR CIF CPT MULTIMODAL TRANSPORT XXX Point of delivery CUT OFF POINT Where responsibility shifts from S to B When goods pass over ship’s rail On delivery Transport to ship Sea carriage Insurance for sea crossing Loading costs Unloading costs S S At B’s option When goods pass over ship’s rail Carrier’s depot in S’s country CIP MULTIMODAL TRANSPORT XXX Carrier’s depot in S’s country
Better than CPT Better than CIP
Passing of risk
On delivery S S S
On delivery S S At B’s option
On delivery S S S
S B (unless included in freight) ONLY if outside the EU S B Invoice Shipping Document Export clearance if needed -
S B (unless included in freight) S B Invoice Shipping Document Export clearance if needed Insurance policy -
Export clearance Import clearance Documents which S must provide to B
S B Invoice Shipping Document Export clearance if needed -
S B Invoice Shipping Document Export clearance if needed Insurance policy
Issues that could come up in problem qu.
S may want payment before sending goods / B may want to pay when receives goods?!?!
Options: - Look under Incoterm – who is responsible for insurance? Eg CIF – S pays shipping and Ins - ROT clause – but very expensive to recover and impractical if in diff country - Action for non payment / sue for price – but jurisdiction issues (Basic rule – Juris = D’s state) and enforcement of any order given would be hard. - Documentary credit is a guarantee of payment. Gives S security that it will receive funds as it is guaranteed by a bank. Containers are used in multimodal transport because they come in a standard shape and therefore is easier for transportation Multimodal = where there is more than one trasnport vehicle (i.e. lorry and ship) Obligations on Seller don't necessarily end at the ship. NB. Look OTF for whether Supplier (or Buyer) has a depot (may indicate multimodal)
MULTIMODAL / CONTAINERISATION FCA Better than CPT Better than CIP
METHODS OF PAYMENT IN INTERNATIONAL CONTRACTS Financing and Security Arrangements
1. BILL OF EXCHANGE i.e. a cheque
an ‘unconditional order' to get someone to pay 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 in future sum of money to specified person.’ Only really used if S in particularly weak bargaining position Drawer orders B (S can draw up) drawee to pay to B’s bank payee. S
Term bill = payable some period after initially presented to bank : Matures at a later date B gets credit S can sell debt to third party Sight bill = payable on 1st occasion it is presented to drawee/bank – immediate payment
Advantages: may be sold (the bill) at a discount which may help Sellers cashflow Disadvantages: Cheques may bounce (e.g. insolvent buyer) B has claim against S (if S arranged carrier and insurance) on ship going down and B can get S to claim on the insurance on B's behalf (c.f. doc cred where S has g'tee)
2. DOCUMENTARY CREDIT
More popular than Bills of Exchange = g'tee by the 'Issuing Bank' (Buyer's bank) guaranteeing payment to another party (Seller or Advising Bank i.e. beneficiary) on presentation of specified documents Even if ship goes down (and bank has checked what docs their should be e.g. bill of lading; insurance docs; bill of exch) then bank pays out to S (or B in respect of damages if bank didn't check docs properly) A separate obligation between B, S and Bank - A form of guarantee
Advantages: Provide security, can sue banks (BIG adv) V practical Disadvantages: Cannot be sold at a discount and therefore may not help S's cashflow during period of credit for buyer. i 2 types: (irrevocable) confirmed documentary letter of credit ADVISING bank is primarily liable (contractually) Most secure form and what S will want (although most expensive) (depends on bargaining strength of S) Allows for S to get a summary judgement against advising bank (in the same country as S) before issuing bank (which is abroad) therefore quicker Unconfirmed letter of documentary credit ISSUING bank is primarily liable Issuing bank is heavily involved in process whereas advising bank is more of a 'post-box'
In both scenarios B pays all admin costs(therefore bargaining position impacts method) (Unconfirmed letter of) Documentary Credit STRUCTURE
1. B asks it bank in home country to setup a DC a. Home bank becomes ‘issuing bank’ buyers bank b. Issuing bank issues letter of credit 2. B’s issuing bank notifies S’s bank that the DC is setup a. S’s bank becomes the ‘advising/confirming bank’ 3. S’s advising bank tells S that the DC has been set up and payment has been guaranteed 4. Safe in the knowledge that payment is guaranteed, S takes the goods to the UK port e.g. CIF (S organises ship and loads; risk passes over ships rail). Master of Vessel gives S clean Bill of Lading (i.e. goods ok). 5. Goods are shipped from UK port (Check the incoterm to see who is responsible for what?) 6. S gives its bank the shipping documents and B of E for the contract price (payable to itself) a. Draws up BE and gives to bank for acceptance – everything can be done locally and quickly. b. Must be clean, if not, not authorised to accept. Docs sent by air to issuing bank. Now an active bill of exch. [Nb on confirmed letter of dc, this is the crucial stage for the advising bank as it is liable and issuing bank will not give money to advising bank.] 7. S’s bank checks the docs are in order and if so, accepts B of E and countersigns a. Now becomes active 8. S’s bank gives the now ‘active’ B of E back to S and sends the shipping docs to C’s bank a. For onward transmission to B itself 9. B’s bank sends the shipping docs to B who use the docs to collect the goods from Home port a. B will clear the goods unloaded through customs and arrange onward transmission 10. At the end of the 60 days, whoever has the B of E presents to S’s advising bank for payment 11. S’s bank pays out on the B of E and recoups payment from B’s bank 12. B’s bank debits B’s account Documents to produce to get paid – • • • bill of lading, commercial invoice, insurance documents (if S’s responsibility – CIF, is), export clearance (if outside EU and S’s responsibility – CIF, is), packing list.
THE DOCUMENTS INVOLVED
P 124 TB
Bill of lading • document given by carrier of goods to consignor of goods at time goods are loaded. • = receipt for the goods evidencing good condition at loading i.e. clean. • contains the terms of contract of carriage and evidence of title to the goods and a right to possess them. • Consignor then mails bill to Buyer who presents it to carrier at destination in return for the goods. • Problem if cargo reaches B before bill does Waybill • • • an alternative to a bill of lading. = receipt for the goods and evidence of carriage contract, but is NOT evidence of title. Does specify to whom delivery should be made. Adv: can be sent electronically or by fax. Transaction an thus be done electronically – quicker, less margin for error, cheaper.