Đề tài The closeness of a foreign sales contract in Binh Minh Household Joint Stock Company

d characteristics as follows: Objects of the contract: include Seller and Buyer from at least two different countries. Nevertheless, it is noted that the factor of nationality shall not make non-sense in case the Buyer and Seller have different nationalities but their trading is conducted in only one territory or country. Type of currency: can be a foreign currency to one or both Parties. Goods – under the contract: shall be delivered from the Seller’s country to the Buyer’s country or somewhere else required by the Buyer. 2.1.3. Contract Content In reality, a contract is a rather self-determined business document. In other words, the parties can make contract with provisions in their sole discretion; Of course, such provisions must be agreed by both Parties to become the binding ones. Despite this fact, it is possible to divide them into three separate categories as mentioned hereunder: 2.1.3.1. Key provisions: These provisions are deemed to form integral parts of a contract. They are constituted of six provisions as follows: - Commodity - Quantity - Quality and specifications - Term of price - Term of delivery - Term of payment 2.1.3.2. Common provisions: In addition to the aforementioned provisions, depending on real situations and requirements of both Seller and Buyer, a contract may cover some other terms such as: - Packing and Marking - Warranty - Inspection and Claim - Penalty - Force Majeure - Arbitration 2.1.3.3. Free provisions: These provisions, to some extent, are not compulsory ones. However, they can contribute to increase the closeness of the contract. To put in another way, such terms together with those aforesaid ones help minimize any dispute arising between the Buyer and Seller during their transactions. They may be provisions in relation to amendment, notice, contract termination, etc. Generally, owing to freedom of sales contracts, based on the real context and mutual agreement, involved Parties can draft provisions in the support themselves. By carefully drafting “reasonable” terms, Parties shall be relieved from potential risks and disputes that can act as a basis for a long-term business relationship. 2.2. How to draft precise contract provisions It can be said that you will not able to cover every gap and fill all loopholes in your contract provisions. Also, you can not make a perfect contract. However, it is reasonable to draft it as clearly as you possibly can. The illustrative clauses hereby are intended to give you some practice in finding ambiguities and tightening up phrases. 2.2.1 Effective date: The contract or agreement should have a date stated as the contract date or effective date. This date is not necessarily the date when the contract was signed but rather the date from which all the contractual rights and obligations begin and from which point any term of time, usually commences. To determine a sound effective date, it is strongly advised to consider when goods should be delivered and what warranty or maintenance period should apply to work or goods Poor provision: “This contract becomes binding on both parties when it is signed” It can be seen that this provision is aimed to provide a designated time and means of contract formation. In other words, it intends to stipulate when the contract will come into effect. However, in the event, the contract is somehow signed by only one party, does it become binding on both, or must both parties sign to determine a common effective date? If the parties sign on different dates, which shall be effective one? If the last party to sign the contract is deemed to change a provision in it before signing, has a contract formed? These hereby can lead to any potential dispute during contract performance. Better provision: “This contract will be binding on both parties as of the date on which it is signed by the Seller/Buyer, provided that the Seller/Buyer does not alter, delete, or add to the terms of the contract.” 2.2.2 Effective date: Poor provision: “This contract will become binding on the parties at the time the Seller accepts the order that is detailed in the attached specification.” This clause fails to define a particular date of acceptance – it is entirely opened-ended. To some extent, it can cause discrepancies in parties’ interpretation of this clause that may lead to the situation that the Buyer may make another same order with other supplier, whereas the Seller continues to fulfill order without notification/acceptance. Consequenly, both parties get no benefits only because of no contact, no information. The general rule is that acceptance must be within a “reasonable time” to ensure a smooth transaction. Better provision: “This contract will become binding on the parties as of the date the Seller signs it, provided that the Seller does not alter, delete, or add to the terms of the contract and provided that the Seller signs the contract by [date], transmit a copy of the signed contract by facsimile to the buyer by [date], and sends the original signed contract by post.” 2.2.3 Insurance Poor provision: “The [Seller/Buyer] must insure the goods while in transit for [currency and amount]. A copy of the policy or other statement provided by the insurer must be provided to the [Seller/Buyer] before the goods are shipped. Failure to insure the goods is grounds for contract termination. Each party is responsible for obtaining on its own account any other insurance coverage for the goods that it may desire.” This clause may be reasonable in a domestic transaction where parties are familiar with available insurance policies, but it is too strict and necessary for an international transaction. Unless parties are assured that the coverage is available in the amount designated, the failure of a party to obtain insurance coverage should not be grounds for termination of the contract. Better provision: “The [Seller/Buyer] shall responsible for obtaining and maintaining insurance on the goods while in transit. The insurance coverage must be for the invoiced value of the goods, and the [Seller/Buyer] must be named as a loss payee. A copy of the policy or other statement provided by the insurer must be provided to the [Seller/Buyer] before the goods are shipped. If the [Seller/Buyer] fails to obtain such insurance, the [Seller/Buyer] has rights to purchase insurance coverage and to charge the cost of premiums to the [Seller/Buyer]. Each party shall responsible for obtaining on its own account any other insurance coverage for the goods that it may desire.” 2.2.4. Transfer of title time In every complete sales transaction, there is a certain moment of time wherein the ownership of the goods by the seller ceases and passes to the others and that of the buyer begins; that is called the transfer of title. In a certain aspect, it is synonymous with transfer of risk to goods during goods delivery. It therefore draws most attention of both the seller and the buyer during their transaction from the place of the Seller to the place of the Buyer. Poor provision: “Title to goods will pass to the Buyer when the Goods are shipped.” When title passes, it also means that the Buyer somwhat faces the risk of loss. Therefore, this critical provision should be clear and definite. However, the term “shipped” is deemed to carry various meanings. It could simply mean that the goods have left the seller’s warehouse but not the seller’s possession. Another alternative is that the seller has transferred the goods to a land carrier, such as railway or trucking company. Or it could imply that the goods are shipped when placed on board a vessel, even if first carted over land by another carrier designated by the Buyer or the Seller. Better provision: “Title to goods will pass to the Buyer at the time the Seller delivers the goods to the Buyer. The goods will be deemed delivered at the time they are stowed on board the vessel.” 2.2.5. Inspection rights If you have agreed to take the goods without warranties, you should insist on adequate inspection rights, meaning you have the time, labor, and facilities available to conduct a meaningful inspection. Even if warranties are provided, inspection rights are important. Exercising a warranty is likely less convenient than simply returning goods that are not in satisfactory conditions on arrival. Therefore, it is strongly advised to pay due attention to terms of inspection rights. Poor provision: “Before accepting the goods, the Buyer has right to inspect them at the time and place where they are delivered.” In the event the designated time and place are convenient to the Buyer, this clause may be deemed appropriate. However, the buyer’s inspection rights will make non-sense if the buyer is unable to carry out such inspection. Thus, in case the delivery is made Ex Works - Incoterms (meaning at the seller’s warehouse), a foreign buyer is unlikely to be able to inspect the goods before having to accept them. At a minimum, inspection rights should be granted to the buyer or an authorized representative and the buyer should have a reasonable time within which to complete the inspection and make any claim against the Seller in case of any discrepancies. Better provision: “Before accepting the goods, the Buyer has right to inspect them after they reach the Buyer’s [designated time and place]. Acceptance or rejection must be made within [a certain number] of working days from the date the goods reach that destination. The Buyer’s failure to inspect the goods will be deemed a waiver of the right of inspection.” CHAPTER 3: ANALYSIS & FINDINGS In the principle, Binh Minh’s sales contract somewhat meets requirements of a cross-border contract with rather sound provisions compared to those defined in the theory mentioned hereinbefore. Nevertheless, to avoid potential disputes arising out of parties’ expectation, it should be modify to tighten up the closeness at a minimum. For this paper, such findings just drew from personal viewpoints therefore they are intended for the Company’s consideration. 3.1. Unclear unit price In delivery term, the Company has failed to clearly define applicable price. In fact, it merely defined “CIF Hai Phong” (See Appendix for reference) that does not feature any Incoterms. Such vagueness may result in inconsistent price term between the Buyer and Seller, and a dispute then is inevitable. This becomes so problematic if the Company enters transaction with its counterparts who tend to conduct their unique business practices that are not in line with INCOTERMS. In this case, the Company will certainly become the lossing party if the event is brought to the court for arbitration. For instance, as for FOB shipment term, the US counterparts are entitled to adopt one out of two separate conditions, namely INCOTERMS (in accordance with ICC) and FOB-US – a local business custom. Despite of arbitrariness of INCOTERMS, in international transactions, any contract should be subject to a certain INCOTERMS to equate discrepancies, misinterpretation in cost calculation amongst parties. 3.2. Unsupported shipment term In fact, Binh Minh determines to adopt CIF shipment term (See Appendix for reference) (relatively same as CFR shipment term) that allows concession of rights of charter-party to the Seller. Such concession of rights shall be problematic in case of unqualified Seller. It is possible that the Seller at his own discretion can charter a ship with poor shipping conditions or ambiguous origin at a rather low cost and cause loss of damage to the Company when the goods is arrived. Especially when the Company allows transshipment condition, the risk is likely much more potential. It is widely admitted that almost all of Vietnamese import-export enterprises are interested to CIF shipment term despite their awareness of potential risks. For instance, in the late 2006, an enterprise in Hanoi imported a cargo worth more than USD 1 billion from Singapore in accordance with CFR-Incoterms 2000 Hai Phong/Ho Chi Minh City Port. The Seller chartered PLJ ship – a low conditional vessel from Hong Kong BJS Shipping Agency, and quickly presented all relevant documents to collect payment from the authorized bank. Unfortunately, later, the Buyer noticed that this vessel was captured by Malaysian police because it was defined to be involved in a piracy. The Buyer then made a claim against the Seller but he refused to bear such obligation that was not stipulated in the signed contract. The event was brought to the Insurer; However, they claimed that they were spare from insurance obligation in this case under ICC 1982 (Institute Cargo Clauses 1982, Item 6.2, Exclusion). Worse still, the involved shipping agency was relieved from any indemnity due to ship capture in line with Maritime Code of Vietnam and Hague-Visby Rules. Consequently, all costs arising were for the Buyer’s account. As such, it can be clearly seen that various Vietnamese enterprises had to pay a heavy price for their undue attention to vessel’s legal status in particular, practice of CIF shipment term in general. By the way, with regard to Binh Minh sales contract, its requirements for documents presentation remains inappropriate. In fact, such required documents are not enough to reveal almost all aspect of goods delivery, especially goods insurance. Normally, it is advised to include insurance certificate/policy that can act as clear evidence the Seller’s performance of insurance obligation and the Buyer’s entitlement to such insurance under CIF shipment term as well. 3.3. Lack of “bulletproof” terms It is widely admitted that sales contract is an effective tools for both domestic and international transactions. Nevertheless, it also potentiates unforeseeable risks beyond the control of involved parties. Therefore, it is strongly advised to include additional terms and conditions besides mainly required ones to cover anticipated risks arising during the contract. To be frank, except for some key provisions like payment, delivery, inspection, arbitration terms, Binh Minh’s sales contract has failed to include such terms to minimize lootholes that may be exposed during transaction. To some extent, this inconsideration is more likely to lead to potential disputes hindering contract performance and causing adverse effects to the parties involved. In general, such shortcomings so far have caused no adverse effects to normal operation of the Company because of the fact that up to now its contract-based transactions have mainly relied on long-term relationship and trust. Yet, it is unreasonble to ignore the closeness of any contracts. Indeed, currently the Company can run its business inspite of various lootholes in contracts, but there is nothing to make sure that the Company will continue to smoothly go into partnership with different counterparts while inappropriate contract provisions. CHAPTER 4: RECOMMENDATIONS 4.1. To the Company In order to best make use of international contract’s effectiveness, it is advisable that before deciding on contractual terms, the Company take into account all factors involved during transaction mentioned hereunder and which can provide more security and benefits. 4.1.1. Improving closeness of some existing provisions in Binh Minh’s Contract 4.1.1. 1. Delivery term: The delivery term should be clearly defined unit price. It means that it should not only include mode of shipment (CIF Hai Phong) but also define which kind of Incoterms it is deemed to subject to. In detail, as far as I know, the Company is mostly interested in application of Incoterms 2000, therefore, their contract is recommended to include brief statement “CIF Hai Phong, Incoterms 2000” or detailed statement “These prices are understood CIF Hai Phong as per Incoterms 2000” to avoid discrepancies in contract interpretation in case of any disputes arising. In short, abbreviated delivery terms, including the Incoterms shown here, should never be used alone unless the parties are willing to accept implied terms from their course of dealing or the practice of the industry. The abbreviated terms fail to define all requirements for shipping and delivery. Moreover, the meaning of such terms often varies from a country to the next, creating a potential for ambiguity in your contract. It is wise to add a few brief but explicit details to your delivery and shipping term to cover your precise circumstances 4.1.1.2. Documentation required To some extent, sets of documentation can act as written evidence that indicate details of transaction ranging from shipment, insurance to payment, etc. In some cases, irreducibility of required documentation facilitates transaction between the seller and the buyer. However, it can not assure avoidance of unexpected disputes, especially, parties do not well know each other. The Company should pay due attention to require full set of documentation instead of several existing required documents, namely Clean on Board, Bill of Lading, Invoice, Packing List, and Certificate of Origin (See Appendix for reference). Especially, because the fact that the Company tends to adopt CIF Incoterms 2000, amongst the others, it should request presentation of Insurance Policy/Certificate for 110% consignment value covering clause “All Risks”. In addition, such attention should be also paid to other documents like Certificate of Quality and Quantity issued by Manufacturer. 4.1.1.3. Term of payment. Normally, unlike domestic transaction, almost cross-border ones are often characterized by payments via one or more intermediates – banks. Both parties are exposed to banking services for their transaction, especially stage of payment. For this reason, it is reasonable to include banking charges in payment term. Naturally, it is stipulated that: “All banking charges outside Vietnam are for the Seller’s account; and all banking charges inside Vietnam are for the Buyer’s account; Furthermore, amendment charge (if any) will be borne by faulty party” Another point to consider, presentation of documentation by the Seller is require, however, it is wise of the Buyer to clearly define presentation date or certain period instead of a general stipulation like “After shipment finishes”. For example, the Company, in the capacity of a Buyer, can fix the time for presentation of documentation based on a definite date like B/L date/shipment date as mentioned hereunder: “The Seller must fax full set of documents (invoice, packing list, certificate of origin, B/L) to the Buyer within 5 days after the B/L date. Additionally, all relevant documents shall be presented within 14 days after the B/L date” for example. 4.1.2. Increasing contract’s closeness with additional provisions It can be said that including certain terms in contract can help mitigate risks to your Company from lawsuits and misinterpretation and provide legal rights that your Company might not otherwise have. With reference to Binh Minh’s sales contract, it has so far lacked presence of such “bullet-proof” provisions in general. These provisions listed hereunder can be deemed as additional terms to the Company’s contract to further improve its closeness. 4.1.2.1 Governing Law: “This agreement shall be governed by and construed in accordance with the laws of XXX, without reference to any conflicts of law provisions” It is obvious that the parties to an international contract are from different countries; their intentions can not be so easily implied each of them is subject to a common legal system that results in inconsistent business practices. For this reason, it is essential for your international contract to put forward definite terms in relation to the rights and obligations of each party. To be legally effective, the law the Company designates must have some relationship to the parties to the contract or a relationship to the agreement to easily reach mutual agreement on practices. In fact, most companies designate the country where their home office is located. This designation generally benefits the company because it is operating under these laws already, is familiar with them, and has attorneys who are familiar with them. Generally, if possible, it is wise to adopt the internal law as governing law to the contract. On the other hand, the parties can agree to adopt a certain world law regarding international trade that can listed here as CISG (Convention on Contracts for the International Sale of Goods). It is possible that such application can be limited at some provisions to facilitate transactions provided that they concurrently satisfy both parties. 4.1.2.2. Cumulative rights “Any specific right or remedy provided in this contract will not be exclusive but will be cumulative of all other rights and remedies.” The Company should include such term in the sales contract to clearly define rights and remedies to each party. Conspicuously, without this provision, the contract could be interpreted to mean that the exercise of one remedy in a contract prevents the exercise of other remedies. For example, a court might find that contract termination prevents the Company from suing to recover past due payments. 4.1.2.3. Insurance “Each party agrees to maintain insurance in commercially reasonable amounts calculated to protect itself and the other party to this agreement from any and all claims of any kind or nature for damage to property or personal injury, including death, made by anyone, that may arise from activities performed or facilitated by this contract, whether these activities are performed by that company, its employees, agents, or anyone directly or indirectly engaged or employed by that party or its agents.” Such term together with implied phrase “CIF Hai Phong Incoterms 2000” demonstrates that the Company is totally entitled to insurance to any damage claims. Whether or not the Seller obtains an insurance policy, the Company – a Buyer under CIF Incoterms 2000 will be protected from loss of damage at any cost. 4.1.2.4. Successors and Assigns “Neither party shall have the right to assign or subcontract any of its obligations or duties under this agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed.” A party’s authority to the contract only makes sense if you need to enforce the contract or if you want to dispute the contract. If a party has no authority to contract but does so anyway, the contract may be fully performed, all parties may be satisfied and authority to contract never constitute a problem of contract breach. That is an ideal world, however, and therefore, it is wise of you to obtain written evidence of the other party’s authority to contract. Such written evidence means that your contract should include a clause that covers authority to contract. In other words, without such provision, a contract may fail to imply whether the participation of any representatives or heirs is legal or not. Even, it might not be binding on the new owners or successors that possibly results in transactional disputes. 4.1.2.5. Termination “If either party breaches any provision of this agreement and if such breach is not cured within [number] days after receiving written notice from the other party specifying such breach in reasonable detail, the non-breaching party shall have the right to terminate this agreement by giving written notice thereof to the party in breach, which termination shall go into effect immediately on receipt.” Generally, contract cancellation is not an expected outcome for parties to a transaction. Nevertheless, under some certain circumstances, termination may be deemed as an effective measure for both parties to the contract to avoid any loss arising from breach caused by the other party. In fact, Binh Minh’s sales contract merely mentions termination covenant in the event of delayed shipment that can not cover some other risks caused by the Seller’s breach at their own discretion. This provision therefore not only spares a certain period in which the fault party can repair his/her breach, but also makes the Company entitled to contract termination in case this party fails to cure its material breach. 4.1.2.6. Waiver “Failure of either party to insist on strict compliance with any of the terms, covenants, and conditions of this agreement shall not be deemed a waiver of such terms, covenants, and conditions, or of any similar right or power hereunder at any subsequent time.” This provision retains the rights of the Company to ignore or forgive on contract breach caused by its counterpart and still enforce a breach of the same term at a later time. Without this provision, the Company may run risks of having a court find that waiving a term in the contract results in that