Elements of an IBT
·
Contract for
the goods
o
Between buyer
and seller
·
Financing
contract
o
Letter of
credit between buyer and buyer’s bank
§ Before issuance, buyer’s bank will send draft to seller for
approval
§ Independent from the underlying obligation; payment is conditioned
only upon the delivery of all required documents to the buyer’s bank.
§ The L/C is a safety net; if the L/C mechanism fails, buyer is still
liable to pay.
§ Applicable regulations
·
Bankers’
insider rules
o
UCP 600
§ Important rules
·
Art. 14
o
Doctrine of
strict compliance
·
Art. 16
·
When the
buyer’s credit expires, the L/C is worthless UNLESS
o
The expiration
date fell on a weekend; or
o
The seller gave
all of the necessary docs to his bank before the expiration date.
o
ISP 98
·
International law
o
UN law on
standing credit
·
Shipping
contract
o
Bill of lading
between the party responsible for shipping and the shipper
·
Insurance
contract
o
Between the
party responsible for insurance and the insurance company
11)
Marketing
22)
Request for pro-forma
invoice
33)
Delivery of invoice
44)
Request for L/C for
Seller’s benefit
55)
Offer to buy for the amount
stated in the L/C (i.e., purchase order)
66)
Acceptance / counter-offer,
eventually resulting in the sales contract
a.
Contract will stipulate:
i.
Buyer
ii.
Seller
iii.
Description of goods
iv.
Price
1.
Including whose currency,
exchange rates
v.
Delivery terms (incoterms)
vi.
Carrier
vii.
Time of delivery
viii.
Whether there will be an inspection
of the goods, who does the inspection, when and where
ix.
Payment terms
1.
Wire transfers
a.
Payment in advance
b.
Payment on open account
2.
Other
a.
Documentary collection
b.
Irrevocable documentary
credit
x.
Required documents (should
conform to Incoterm and L/C)
1.
Provided by Seller
2.
Provided by Buyer
xi.
6.1) Buyer finalizes L/C (purchase) amount with issuing bank
6.2) Issuing bank sends draft L/C to Seller to ensure Seller’s
approval
77)
Buyer’s bank issues the L/C
to Seller’s bank
88)
Seller’s bank forwards L/C
to Seller
a.
Seller should ensure that
the L/C is filled out to perfection; Seller’s bank will not accept an L/C with
any defects b/c Seller’s bank is not getting paid unless Buyer’s bank accepts
it
b.
Seller wants the L/C to say
irrevocable or not at all (i.e., does NOT want a revocable L/C)
99)
Shipping contract
a.
Depending on Incoterm,
either Buyer or Seller will execute the shipping contract with the shipper
110)
Insurance contract
a.
Depending on Incoterm,
either Buyer or Seller will execute the insurance contract
111)
Pre-shipping inspection
112)
Seller transfers goods to
shipper
113)
Shipper issues a Bill of
Lading
a.
Depending on the state of
the goods, packaging, etc., B/L is issued either clean or soiled.
114)
Seller takes all documents
to Seller’s bank
115)
If all documents are OK,
Seller’s bank takes the documents and pays Seller
116)
Seller’s bank transfers the
documents to Buyer’s banks
117)
If all the docs are
correct, Buyer’s bank pays Seller’s bank
118)
Buyer’s bank gives the
documents to buyer
119)
Buyer pays
Buyer’s bank
a.
Usually a financing
arrangement where the bank lends Buyer the money on credit; but maybe Buyer can
pay in a lump sum and they used this transaction as a safety net.
220)
Buyer presents B/L to
shipper
221)
Shipper transfers goods to
Buyer
a.
If the B/L was issued clean
and the goods are soiled, then we know that something happened during shipment.
Applicable Law
o
International
laws
o
CISG
o
Unidroit
o
CFR
o
Comparison of
main provisions with UCC
o
Battle of the
forms
§ UCC 2-207
§ CISG 19
·
Last shot wins
o
Non-conforming
goods
§ UCC 2-601
·
Perfect tender
rule
§ CISG 49, 25
·
Fundamental
breach
|
|
UCC
|
CISG
|
|
In general
|
Buyer-friendly
·
Common law
and UCC, more protection for buyer
·
Perfect
tender rule
|
Seller-friendly
·
CISG and
civil law more neutral.
|
|
Battle of the forms
|
2-207
|
19
·
Last shot
wins
|
|
Non-conforming goods
|
2-601
·
Perfect
tender rule
|
49, 25
·
Fundamental
breach
|
|
|
Incoterms 2010
·
Seller’s
country pre-customs
o
EXW (place) –
Ex Works
§ Seller bears all risk until the goods are transferred to Buyer at
Seller’s gate.
o
CPT (place) –
Carriage Paid To
§ Seller bears all risks until the goods are transferred to the first
carrier (the Seller is paying for the first carrier, but risk of loss is on the
Buyer). Seller pays for carriage to a named point of destination. After that,
cost of carriage passes to the Buyer.
o
CIP (place) –
Carriage and Insurance Paid
§ Same as CPT, but Seller bears the cost of insurance on Buyer’s
behalf.
o
FCA (place) –
Free Carrier
§ Seller bears all risks and costs until the goods are transferred to
a named carrier hired by Buyer.
·
Seller’s
country, post-customs
o
FAS (port of
export, dock number, ship name) – Free Alongside Ship
§ Seller bears all risks and costs until the goods are delivered to
the port and placed somewhere in a manner customary with the port’s practices.
·
Onboard ship
(overseas freight only)
o
FOB (port,
dock, ship) – Free On Board
§ Seller bears all risks and costs until the goods pass the railing
of the ship
o
CFR
(destination port) – Cost and Freight
§ Seller pays for and arranges shipping to Buyer’s port. Seller bears
all risks and costs until the goods pass the railing.
o
CIF
(destination port) – Cost Insurance and Freight
§ Seller pays for and arranges shipping to Buyer’s port. Seller bears
the cost of insurance on Buyer’s behalf (parties must specify extent and degree
of coverage). Risk transfers when the goods pass the railing.
·
Buyer’s country
(before or after customs)
o
DAP (place) –
Delivered at Place
§ Seller pays for and arranges shipping to a named place. Parties
must specify if the place is located before or after customs. Risk transfers
upon arrival, before unloading. Buyer is responsible for unloading and
reloading for inland shipment.
o
DAT (terminal)
– Delivered at Terminal
§ Seller pays for and arranges shipping to a named terminal. Parties
must specify if the terminal is located before or after customs. Risk transfers
when the goods are unloaded at the terminal. Buyer is responsible for reloading
and inland shipment.
·
Buyer’s country
(post-customs)
o
DDP (place) –
Delivered Duty Paid
§ Seller bears all risks and costs for shipping to a named
destination beyond customs clearance.
Dispute Resolution
·
Litigation vs.
Arbitration
|
|
Litigation
|
Arbitration
|
|
Evidence
|
Restrictive admissibility
·
U.S.: Liberal
discovery rules
·
Civil law:
Specific identification of the evidence required
|
Liberal admissibility
Arbitrators are weak, must take arbitrator’s order to a court and
get a court order to compel discovery, testifying, injunction.
|
|
Damages
|
Zero sum game
Both contract and tort claims allowed
|
Never zero sum
Only contract claims allowed
|
|
Court Fees
|
Low
·
U.S.: Small,
flat filing fee; but billable hours and high atty fees.
·
DE: Court
charges percentage of amount in controversy; no billable hours.
|
High
|
|
Predictability
|
High, precedent usu. available
|
Lower, no published caselaw b/c everything is confidential, no
way to understand the arbitrator
|
|
Competence
|
Low, judges are not experts in the subject matter and may be
elected
|
High
|
|
Language
|
MUST be in jurisdiction’s language
|
Free choice of the parties
|
|
Enforcement
|
May be easier (official state court)
|
May be harder (some no-name private party)
NY Convention; public policy exception
|
Choice of forum
1.
Advising Seller
a.
Seller v. Buyer
|
Buyer has
assets in Seller’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
- for away disadvantage (must travel, no connections);
+ for ease, speed, and fairness
- for the possibility of having to enforce
|
- for away disadvantage (must travel, no connections, may have to
hire court appointed translator);
+ for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
+ for home advantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
+ for easy/immediate enforcement.
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
- for the possibility of having to enforce
|
|
Buyer has no
assets in Seller’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
- for away disadvantage (must travel, no connections);
+ for ease, speed, and fairness
- for the possibility of having to enforce
|
- for away disadvantage (must travel, no connections, may need
court-appointed translator);
+ for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
+ for home advantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
- for the possibility of having to enforce.
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
- for the possibility of having to enforce
|
b.
Buyer v. Seller
|
Seller has
assets in Buyer’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
- for away disadvantage (must travel, no connections);
+ for ease, speed, and fairness
+ for the possibility of having to enforce
|
- for away disadvantage (must travel, no connections, may have to
hire court appointed translator);
- for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
+ for home advantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
- for easy/immediate enforcement.
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
+ for the possibility of having to enforce
|
|
Seller has no
assets in Buyer’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
- for away disadvantage (must travel, no connections);
+ for ease, speed, and fairness
+ for the possibility of having to enforce
|
- for away disadvantage (must travel, no connections, may need
court-appointed translator);
+ for the possibility of having to enforce
- for slowness and other problems with the court system
|
|
Seller’s
country
|
+ for home advantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
- for the easy/immediate enforcement.
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
+ for the possibility of having to enforce
|
2.
Advising Buyer
a.
Buyer v. Seller
|
Seller has
assets in Buyer’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
+ for homefield (easy travel, local connections);
+ for ease, speed, and fairness
- for the possibility of having to enforce
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
+ for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for local bias, travel, may have to hire court-appointed
translator, slowness and other problems with the court system;
+ for easy/immediate enforcement.
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator,
slowness and other problems
with the court system;
+ for neutrality?
+ for the possibility of having to enforce
|
|
Seller has no
assets in Buyer’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
+ for homefield (easy travel, local connections);
+ for ease, speed, and fairness
- for the possibility of having to enforce
|
+ for homefield (bias, easy travel, local connections, opponent
may have to hire a court-appointed translator);
- for the possibility of having to enforce;
- for slowness and other problems with the court system
|
|
Seller’s
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
+ for easy/immediate enforcement;
- for local bias travel, may have to hire court-appointed
translator, slowness and other problems with the court system;
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
- for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator,
slowness and other problems
with the court system;
+ for neutrality?
- for the possibility of having to enforce
|
b.
Seller v. Buyer
|
Buyer has
assets in Seller’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
+ for homefield (easy travel, local connections);
+ for ease, speed, and fairness
+ for the possibility of having to enforce
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
- for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for local bias, travel, may have to hire court-appointed
translator;
- for easy/immediate enforcement.
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
+ for the possibility of having to enforce
|
|
Buyer has no
assets in Seller’s country
|
||
|
|
Arbitration
|
Litigation
|
|
Buyer’s
country
|
+ for homefield (easy travel, local connections);
+ for ease, speed, and fairness
+ for the possibility of having to enforce
|
+ for homefield (bias, easy travel, local connections, Seller may
have to hire a court-appointed translator);
- for easy/immediate enforcement
- for slowness and other problems with the court system
|
|
Seller’s
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for local bias, travel, may have to hire court-appointed
translator;
+ for the possibility of having to enforce
- for slowness and other problems with the court system
|
|
3rd
country
|
- for away disadvantage (must travel, no connections);
+ for the possibility of having to enforce
+ for ease, speed, and fairness
|
- for travel, may have to hire court-appointed translator, slowness
and other problems with the court system;
+ for neutrality?
+ for the possibility of having to enforce
|
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