Professional Documents
Culture Documents
Lecture Notes
Lecture Notes
Lecture Notes
.Course Overview:
Course Classification:Required Course
Target Audience: Undergraduate Students Majoring in Economics
Credits: 3
Credit Hours: 54
Basic Text:
Schaffer, Richard; Earle, Beverly; Agusti Filiberto, International
Business Law & Its Environment, South-Western Thomson
Learning, 6th edition, 2005
Additional Readings:
1.Chatterjee, C., Legal Aspects of Transnational Marketing and
Sales, London,Cavendish, 1996
2.Goode, R., Commercial Law, London, Penguin, 1994
3.Schimitthoff, C., Schimmitthoffs Export Trade: The Law of
International Trade,London, Stevens, 1996
4.Various journals and internal legal materials
. Course Objectives and Requirements:
This course aims at providing a general understanding of the legal
problems
arising
fromtransnational
business
transactions.At
the
conclusion of this course, the student will be able to:
1.Understand the legal aspects of transnational business
2.Demonstrate a knowledge of the legal restrictions on
transnational
business,
such
asimport
control,
currency
regulations and protectionism
3.Identify different types of risks as they apply to transnational
business, such asforeign investment, creeping expropriation and
the UN resolutions 1803 and 3281
4.Competently discuss the meaning of sovereign immunity and
transnational business law
.Course Outline:
Chapter One
Emphases on
Through this chapter studying, we can understand some international
trade theories, grasp the knowledge about exporting, government controls
over trade and international licensing agreement.
Hard parts
Some international trade theories
T EACHING S UMMARY
The three basic forms of international businesstrade, licensing, and
investmentare methods of entering foreign markets, but they are not
mutually exclusive. The savvy manager of an international business will seek to
create joint ventures and business opportunities to invest, manufacture,
export and import as well as license its products.
However, international
business opportunities are fraught with risk, and methods of entering a foreign
market or country must be tailored to the culture, politics, and economics of
the host country. Through the study of international law, one can better
identify and manage potential legal risks.
2.
Why does the court decide that the sales representation contract can
be terminated by Pro Golf?
Why did the court decide Pro Golf should not get
royalties?
Answer: There was no agency relationship between Pro Golf and FFA,
but rather a written trademark agreement for FFA to use the First
Flight trademark on golf soft goods. Courts in the U.S. are reluctant
to impose restrictions on assigning of rights in real or personal
property; FFA here has a contractual right to use the trademark on
golf soft goods in Japan and can freely transfer, assign, or sublicense all or part of those contractual rights. To quote the court:
Nothing in FFAs trademark license contract with Pro Golf
prohibited FFA from granting sub-licenses to others or required FFA
to pass along to Pro Golf any royalties FFA might receive from such
sublicenses.
5.
2.
have
exercised
greater
control
over
its
3.
2.
4.
Why did Gaskin claim that he was not bound by the forum selection
clause included in the contract to which he agreed?
Answer: Gaskin asserted that since he did not understand what a
forum selection clause was, due to it being in German, he could not
have agreed to it.
2.
Would the outcome have been different had Gaskin been illiterate?
Answer: No. In fact, Gaskin was illiteratein German. One who signs a
contract is bound by that agreement, otherwise Gaskin could simply
nullify contractual provisions through his inattentiveness or purposeful
neglect in reading them.
3.
The municipal plans seek to encourage free competition. How does this
method differ from the U.S. ideal of free competition? How is it similar
to U.S. laws?
Answer: The U.S. permits local government to zone areas, thus
prohibiting certain types of businesses from operating in the area.
One popular example is Rudolph Guillianis re-zoning of the New York
City Times Square area to evict sex shops and other similar
businesses. Communities also commonly zone to prohibit certain types
of late-night clubs or businesses from residential areas in the name of
community planning.
Nevertheless, provided there is compliance with zoning laws, any
business can open in any business-zoned area (or any area that is not
zoned to exclude business). Therefore, the governments view of
whether the market is already adequately served (or flooded) is
irrelevant; if a business wishes to enter a flooded market, it may do
so.
2.
1.
Answer: There are many factors, including modern developments in
telecommunications, transportation, technology flows, international capital
flows, increased cross-border labor flows, the geographical distribution of
natural resources, an improved business climate in developing and non-market
countries, increased democratization and the opening of markets to trade and
investment, increased legal harmonization, the influence of international
intergovernmental organizations and their work in economic, cultural, social,
and political areas, increased travel and intercultural awareness, and more.
The answer develops throughout each chapter to the conclusion of the text.
2.
Answer: The risks of foreign direct investment result from the
social, economic and political environment facing the firm in the host country.
It might include political risk resulting from an uncertain or hostile political
environment (of which expropriation or nationalization would be the most
extreme result); public controls on trade, including trade restrictions, such as
minimum export performance requirements or import quotas that might limit
the firm's ability to source component parts or raw materials; restrictions on
financial transactions, such as currency restrictions, limits on the repatriation
of profits earned on investments; restrictions on corporate ownership and
local participation requirements; local labor and environmental laws, etc.
Union Carbide may have had little choice but to comply with the
demands of the Indian government. The obvious risk for Union Carbide was
loss of control over operations, but submitting to Indian government controls
probably insured against the kind of risks, e.g., expropriation or
nationalization, that many multinationals have faced in direct investment
ventures in developing nations. In effect, the operation is partly nationalized
from the start. Union Carbide appears to have few currency controls (limits
on repatriation of earnings), and few communications or cultural risks. The
usual risks of foreign laws and courts take a curious turn. Ordinarily, a
multinational takes a risk in being exposed to a foreign countrys laws and
courts. Here, however, Union Carbide takes refuge in the courts of India;
since it sought to operate in India, and the government imposed numerous
operating restrictions, it did not foresee being sued in the United States or
being held to U.S. legal standards of negligence and damages. In the case
extract, Union Carbide succeeds in persuading the court to adopt forum non
conveniens to the plaintiffs claims so that the case will be tried in India
rather than the U.S.
3.
Answer: Distance, time differences, language, cultural barriers,
religious and ethnic differences, differences in political and legal systems, and
those other factors that increase the risks of doing business internationally.
4.
Answer:
Information
is
available
from
variety
of
daily
9
11
M ANAGERIAL I MPLICATIONS
S UPPLEMENTAL A CTIVITY :
Instructors who want to hone the writing and analytical skills of students may
wish to require students to write a case brief on a supplemental case and
answer a series of questions. This first example is relatively simple, while
later examples become more complex. For briefing a case, you may suggest
a style of your own, borrowing one from a legal writing text, or hand out
the example here.
Briefing a Case
A case brief reduces a case to its essential components: what it is about
and what it means in terms of the law. Case briefs generally comply with the
following format:
Case Name and Citation: include the name of the case, the year decided,
the court that decided the case
Facts: a brief recitation of the relevant facts giving rise to the dispute
(this may also include a relevant statute or legal rule and a lower courts
decision)
12
Studying qustions
1. Briefly describe, giving two examples, how comparative advantage is
applied to promote international economics.
2. Explain the differences between comparative advantage and absolute
advantage, giving three examples.
3. Define 'opportunity cost' and identify its main features.
4. Outline three reasons why a state imposes tariffs.
5. List and explain three basic forms of international business.
13
6. What industries in your province are the leading exporters? Who are
the leading export firms? What do you think is the impact of exports on your
province s economy? What role does your provincial government play in
promoting exports?
Reading booklist
1. International Business Law, 1 e by Zuoli Jiang, English edition
Copyright 2004 by Law Press.
2. International Business Law , 3 e by Ray August, English reprint
edition Copyright 2002 by Pearson Education North Asia Limited and
Higher Education Press.
3.Chatterjee, C., Legal Aspects of Transnational Marketing and
Sales, London,Cavendish, 1996
Chapter Two
14
T EACHING S UMMARY
15
2.
3.
general
acceptance
of
this
principle
or
4. Why did the court review the history of the conduct of nations during
war?
Answer: To demonstrate that the principle on which they relied was a
generally accepted principle or established rule of law.
Supplemental Exercise: Have students locate and read the dissent
(either in the official reporter or by using Westlaw):
a)
Why would the dissenters have affirmed the seizure under the U.S. Law
of Prize?
b) Why were they not persuaded by customary practices under
international law?
c) Do you find their assertion regarding the power of the president
persuasive?
16
2.
3.
4.
How would you evaluate the majoritys argument against AlvarezMachain that the treaty should not be interpreted so as to allow one
country to violate general principles of international law?
Answer: The majority opinion assumes the treaty provisions should be
interpreted free from any context of customary international law. It
seems doubtful that either the U.S. or Mexico negotiated these treaty
17
On what basis did Liechtenstein file this action if only states are to be
parties before the I.C.J.?
Answer: Liechtenstein filed this action on behalf of Nottebohm because
it alleged Guatemalas disregard of Nottebohm's Liechtenstein
citizenship was an affront to it as a sovereign state.
2.
3.
4.
Did the court find this general principle of international law in a treaty?
Answer: No. Again, legal writings and customary international law were
analyzed.
In light of the courts decision, could Nottebohm claim to be a
Liechtenstein citizen under that countrys domestic law?
Answer: Yes. Liechtenstein
citizen under their domestic
citizenship on Nottebohm for
to treat him as if he were a
1.
Despite the shared common law heritage of the U.S. and the U.K., from
what does the difference in their libel laws emanate?
Answer: The critical distinction, and the greater protection, comes
from the U.S. First Amendment of the Federal Constitution. From a
comparative perspective, the First Amendment is among the most
protective free speech provisions internationally. Thus, it permits
speech that in many other countries, even countries with similar legal
systems and cultures, could be forbidden (such as hate speech). Even
within the U.S. conditional free speech protections, the common law
cause for defamation may be maintained, but it is subject to the
protections of the First Amendment.
2.
3.
What is the effect of this decision on the judgment of the U.K. court?
Answer: Although the U.K. judgment cannot be enforced in the U.S., it
still stands in the U.K.
4.
19
and The Law of Nations, that, while not codified, are accepted and enforced
globally.
5. Answer: The Halliburton Ethical Business Practices statement is
short and to the point. The code stresses adherence to the law. The code
exhorts employees to observe high standards of personal ethics honesty
and integrity in dealing with all parties. The code expressly addresses that
employees should not confuse loyalty or profitability as a reason to break
the law or company policy. The question is whether the company
operationalizes the policy. Recently, Halliburton uncovered through an audit
that several employees of a subsidiary may have accepted improper
payments from a Kuwaiti subcontractor in a contract dealing with
reconstruction in Iraq. Halliburton referred the matter to the Pentagon for
investigation and fired the employees. It also offered to compensate the
government $6.3 million dollars. Some would argue that this shows that the
Ethical Business Practices commitment has worked. Others would argue
that this incident is only the tip of the iceberg, and many more irregularities
will be discovered proving that the statement is merely window dressing.
The Johnson and Johnson Company have a Credo that according
to
their
Web
site
is
over
sixty
years
old.
See
http://www.jnj.com/ourcompany/ourcredo. The focus of the credo is on high
quality for the many different customers. There is also reference to the
commitment to reasonable prices and fair treatment of employees, community,
and stockholders. It may be easier to operationalize the credo because of
the clarity of values. It also appears that the credo is more than just words
because the company has implemented costly recalls in the past, putting a
priority on customer safety.
6. Answer: Yes. A corporation is a legal entity subject to suit and
prosecution. Students have likely heard about the recent actions of
universities against corporations such as Nike for alleged human rights abuses
of foreign workers.
7. Answer: Although President George W. Bush does not favor the
treaty, the White House has not given specific objections to it. The Clintonappointed delegation (and some members of the U.S. Senate) feared certain
procedural aspects of the treaty. For instance, the United States wants a
check to power, believing that the ICC should act only with the approval of
the UN Security Council.
Under this procedure, the U.S. (as one of the
permanent members) could prevent a prosecution through its veto power.
Additionally, the U.S. believed that peacekeeping forces, which are often
comprised of U.S. forces, could be subject to prosecution. Others favor ad
hoc tribunals, such as those used in Nuremberg, Tokyo, Rwanda, and the
former Yugoslavia, that allow the flexibility to respond to unique
circumstances. Some prefer to alter the Statute of the existing International
21
after this, so the U.S., U.K., and others argued that based on the previous
resolutions, including 678 (1990) (which stated that nations could use all
necessary means ... to uphold and implement Security Council Resolutions to
restore peace and security to the area), there was no need for another
resolution. They argued that under Article 51 of the UN Charter, they had
the right to exercise self defense in the event of an armed attack and
that terrorism and its threat was an armed attack. They argued that this
justified a preemptive strike to prevent subsequent armed attacks and to
remove Saddam Hussein from power.
Germany, France, and Russia argued that before the U.S. could act,
there needed to be another resolution. They argued that without another
resolution, any action was in violation of international law. They did not agree
that preemption was a form of self-defense permitted under the UN
Charter.
13. Answer: No, but it may try to weigh in and begin a dialogue about
some of the contentious jurisdictional issues.
14. Answer: While the U.S. believes that it has a right under its national
law to deal with persons who violate the law and are tried and convicted and
sentenced to death (could be sentenced by either state court or federal
court), the U.S and subsequently the state may now be more sensitive to
public opinion and choose to delay these executions. As of this date,
February 2004, fifty-two Mexican citizens have been sentenced to death in
eight U.S. states. Mexico argues that they were deprived of their rights
under the U.S. Constitution of consultation with a representative of the
Mexican government. A final ruling from the ICJ is expected in Spring of
2004. While states have delayed execution as one attorney general
commented out of courtesy to the International Court, it is unclear
whether states will agree to vacate the death sentences or to postpone
indefinitely its imposition.
23
M ANAGERIAL I MPLICATIONS
In light of the U.S.s belief that there should exist some international legal
mechanism for addressing international crimes (such as crimes against
humanity) but its disagreement with the present ICC draft, have students
draft a new statute.
This may be done through two complimentary
mechanisms. In one group, students will use the existing statute as a guide
and correct it, so to speak. In another group, students will work without the
language of the statute, drafting clauses to address jurisdiction, specific
procedures, parties, checks and balances, and appeal.
Trans-Orient Marine Corp. v. Star Trading & Marine, Inc., 731 F.Supp. 619
(S.D.N.Y. 1990).
Have students find, read, and brief Trans-Orient.
This case is in the
context of a change of Sudanese government via military coup.
Questions:
24
1.
2.
3.
4.
What was the critical international legal issue addressed by the court?
What is the difference between a succession of state and a
succession of government?
How does this effect contracts to which the state is a party?
How is this political situation the same or different than that in the
Fiji case (Supplemental case in Chapter 1)?
What specific constitutional rights were the wives allegedly deprived of?
Answer: The right to a jury trial and a public trial by ones peers,
pursuant to the Fifth and Sixth Amendments.
3.
To which portion of the Constitution did the court point in laying out
the hierarchy of the SOF and the Fifth and Sixth Amendments?
25
Chapter Three
26
27
T EACHING S UMMARY
28
How did the Court distinguish this case from the previous precedent in
Wilko?
Answer: In Wilko, both parties were American, and it was clear that
U.S. federal security law applied. Hence, no international conflict of
law problems existed.
3.
What would the ramifications have been had the court not enforced
the arbitration agreement?
Answer: As noted by the court, it might "imperil the willingness and
ability of businesses to enter into commercial agreements," particularly
international ones.
Why was the court sympathetic to Asahi's complaints about the burden
of defending in California?
Answer: Asahi was located in Japan. It had no offices or agents
property in California.
The court also noted that submitting to a
foreign court's jurisdiction was burdensome.
2.
Name several factors that persuaded the court to reverse and remand
the case.
Answer: The injured California resident had already been compensated
by Cheng Shin.
As the court said, "considering the international
context, the heavy burden on the alien defendant and the slight
interests of the plaintiff and the forum state, the exercise of
personal jurisdiction by a California court over Asahi in this instance
would be unreasonable and unfair."
3.
Which precedent did the court rely on to assert jurisdiction over the
defendant, Raju, located in India?
Answer: The court used the Zippo sliding scale case to determine
whether the defendant purposefully availed himself of the privilege of
conducting business in the U.S. In the Zippo case, the court noted, on
the one hand, passive websites in which courts typically do not
exercise jurisdiction and, on the other hand, active websites in which
business is conducted. Given the defendants interactive website
that sold GMAC materials over the Web and the ample evidence that
the defendant targeted customers in the U.S., the court found
personal and specific jurisdiction over Raju.
2.
2.
What arguments did the defendants make to have the original case
dismissed?
Answer: Defendants argued that the U.S. was forum non conveniens in
30
that plaintiffs were residents of Columbia and were only trying to gain
tactical advantage or increased sympathy by filing in a U.S. court.
3.
2.
Why did the lower U.S. courts deny the motion to stay despite the
forum selection clause?
Answer: There was a history of judicial hostility to forum selection
clauses because it was perceived that they usurped judicial power.
Moreover, due process and public policy concerns over the likely
enforcement of the exculpatory clause inclined the Court of Appeals
to leave the case in Tampa.
3.
Why did the court find it relevant that this was an international
31
contract?
Answer: The Supreme Court noted that "we cannot have trade and
commerce in world markets and international waters exclusively on our
terms governed by our laws and resolved in our courts."
As a
practical matter, if U.S. companies were to do business internationally,
foreign businesses must
know that U.S. courts will make U.S.
businesses stick to their bargains, however unwise. Zapata was here
characterized as a "sophisticated" company that should have been
aware of the risks it was taking.
Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc., p.94.
1.
2.
dollar value of the judgment in pounds for any of those days; the
breach day would be first, followed by the judgment, followed by
payment on the judgment (there is often considerable time between
the docketing of a judgment and its payment or satisfaction).
2.
3.
4.
Does the English court have jurisdiction over Gilby just because the
contract for legal services stipulates that English law shall govern?
33
Answer: No. Choice of law clauses do not determine the forum for
resolving disputes (those are called forum selection clauses). Here,
the choice of law also reflects a substantial relationship with England
itself, since the services were provided there. But parties to a
contract may (by contract) choose any
nation-state's law that
bears a reasonable relation to the transaction.
34
the text.
Noonan would look to federal law (and, hence, litigate in U.S.
federal court) to dispute the use of his likeness for profit in France, by the
French company, as well as by the British company. Noonan would argue that
the use of his likeness is an injury against him wherever he is, and also that
he is a U.S. citizen protected by the laws of his nation.
4. Answer: The Panalpina court held that there was neither personal
jurisdiction nor a convenient forum in the U.S. (hence, dismissed the action).
Most of the repairs occurred in Africa and Switzerland, and the parties
contemplated only minimal contact with the U.S.
Indeed, none of the
performance occurred in the U.S.
5. Answer: Often, consenting to arbitration divests parties of the ability
to appeal the decision, even if that decision is inconsistent with wellestablished legal principles. Conversely, arbitration carries the risk that a
losing party will refuse to accept or ignore an arbitral decision.
In
instances where arbitration has not previously been chosen pursuant to a
contractual arbitration clause, a party may even go through arbitration only
later to bring the dispute to court, thus bringing uncertainty to the process.
Nevertheless, arbitration also possesses several benefits. Parties will
know in advance how and where their differences will be settled. It is also
considered to be speedier, less costly for the parties involved, more private,
and more flexible with regard to potential remedies than litigation. Some
literature even suggests that arbitration awards are lower than those after
trial, thus favoring defendants. Consequently, a plaintiff with a strong case
seeking traditional remedies, such as monetary damages might prefer
litigation, whereas a defendant business seeking to stave off future copy-at
litigation or to reduce a likely award might prefer arbitration.
6. Answer: A choice of law clause would clarify and limit the precise
legal rules to be applied by an arbitrator. A clause delineating the powers of
the arbitrator would constrain the arbitrator to act only as contemplated by
the parties, thus giving effect to their wishes.
7. Answer: Companies assert many reasons to monitor an employees
e-mail.
Often, productivity is cited, but an employee who communicates
through customers or other individuals through company e-mail will be
representing the company and, perhaps unknowingly, create a presence of the
company on a foreign jurisdiction.
8. Answer: The favorability of a suit in U.S. courts depends on the
interests of the litigants. Often times, litigants may favor the use of juries,
the possibilities of jury awards, punitive damages, and procedural rules, which
are part of the U.S. system. Other times, it represents a single forum to
which business partners can agree. European consumers, however, would not
35
likely favor suit in U.S. courts (although U.S. businesses would) due to
decreased consumer protections.
9. Answer: Yes. In Southwest Livestock & Trucking Co. v. Ramon, the
Fifth Circuit Court of Appeals reversed the U.S. District Courts decision
for Southwest Livestock.
Ramon, a Mexican national, and Southwest, a
Texas company, had signed promissory notes that did not expressly state the
amount of interest to be charged, although Ramon charged Southwest 52%
interest per annum. Southwest defaulted and Ramon sued in Mexico, winning
a verdict with money damages.
Ramon then attempted to enforce the
judgment against Southwest under the Texas Uniform Country Money
Judgment Recognition Act. Southwest filed a motion for summary judgment,
claiming that the 52% interest rate violated Texas public policy and the
Texas constitution.
The District Court granted Southwests Motion for
Summary Judgment and Ramon appealed. The Fifth Circuit reversed, holding
that the collection of a debt on a promissory note is not against public
policy, even when there is an arguably usurious interest rate. The Court
noted that usury statutes are designed to protect unsophisticated
borrowers from unscrupulous lenders. In the instant case, the court found
Southwest was managed by sophisticated borrowers with significant business
experience who negotiated the contract in good faith and at arms length.
10. Answer: Typically, the party who inserts a mandatory arbitration
clause has done so to further their own interest. In other words, the clause
or likely arbitral outcomes favor them. Consequently, a mandatory arbitration
clause may favor a business at the expense of the consumer.
In some
instances, due to the disparity of bargaining power between consumer and
business, such contractual clauses are found to be adhesive and, if
profoundly unfair, unenforceable. Indeed, in several European countries, such
clauses, though enforceable in B-to-B contracts, are not enforceable in
consumer-to-business transactions.
11. Answer: Foreign parties may face several obstacles to collecting
evidence against foreign adversaries. Rules of discovery are unique to the
various legal systems.
For example, the United States Federal Rules of
Evidence are far more liberal than the state-controlled discovery rules in
Japan. Additionally, the 1970 Hague Convention on the Taking of Evidence
Abroad and the Hague Convention on the Service Abroad of Judicial and
Extra-Judicial Documents may assist a party to collect evidence through
letters of request or rogatory, diplomatic channels, and an appointed
commissioner.
12. Answer: The Alfadda v. Fenn & SEIC case involves issue
preclusion. The plaintiffs, who were all Saudi nationals, chose France as the
original forum to file the original lawsuit against SEIC (Saudi European
36
Investment Corporation) and French banks who were doing business in France.
The French courts held for the defendants. Plaintiffs appealed to the U.S.
District Court for the Southern District of New York alleging the defendant
French banks that were registered to do business in New York were engaged
in RICO activities. The defendants filed a motion to dismiss based on: (i) lack
of recognition and (ii) issue preclusion. In Alfadda, the court first analyzed
whether the French judgment should be recognized in New York and held that,
yes, the French judgment was a valid judgment. Second, the court analyzed
whether issue preclusion should apply.
Relying on Central Hudson Gas v.
Empresa Naviera Santa, 56 F.3d 359, 368 (2d Cir. 1995) the court found
four elements were necessary for issue preclusion (collateral estoppel) to
apply: (1) the issues of both proceedings must be identical, (2) the relevant
issues were actually litigated and decided in the prior proceeding, (3) there
must have been "full and fair opportunity" for the litigation of the issues in
the prior proceeding, and (4) the issues were necessary to support a valid
and final judgment on the merits. Plus, since this was a foreign judgment,
there were additional factors to be considered, including whether the venue
was barred by the forum non conveniens doctrine.
The district court
granted the defendants motion and dismissed the plaintiffs lawsuit. The
Alesayi v. Canada Dry case was also tried in the U.S. District Court for the
Southern District of New York. Alesayi was a bottler in Saudi Arabia and
contracted with Canada Dry to use its trademarked logos. The contract
between the parties stipulated that New York law applied to the transaction.
Alesayi initiated a breach of contract action against Canada Dry in Saudi
Arabia and New York.
Canada Dry defended on the grounds of issue
preclusion. In contrast to the Alfadda case, the court held that the case
was not precluded by the decision in Saudi Arabia because of the choice of
New York law provision in the contract.
13. Answer: Presumably, given the large investment of $20 million, the
parties signed an investment contract. Whether Wyser-Pratter can bring
suit in New York depends on the choice of law and forum provisions of that
contract.
M ANAGERIAL I MPLICATIONS
37
1.
Internet Jurisdiction
An interesting issue of late is whether a company that maintains an
Internet presence is, by virtue of that presence, subject to the jurisdiction
of various fora. While the law is still evolving, courts have begun to follow a
spectrum analysis.
The spectrum analysis considers the extent of
interactivity and affirmative commercial aspects of sites
Provide students with the names of two-four Web sites, or make up
your own, that fall on this spectrum of activity (i.e., an informational site
that does not allow on-line orders, a site that provides an e-mail address
and answers questions, an on-line store, such as http://www.amazon.com).
a)
Ask students to assess whether a customer in Germany could sue
the respective businesses in Germany.
b)
38
clauses?
Internet Exercises
Studying qustions
1. Define jurisdiction and-venue, giving at least two examples.
2. Explain minimum contacts. What applications do they have in
international disputes?
3. State A sues State B in the International Court of Justice. The ICJ
hands down a judgment that is adverse to State B. State B refuses to
comply with the judgment, what can State A do to get State B to comply?
4. How is a foreign court judgment usually enforced? Give two examples.
5. Compare and contrast 'negotiation', 'mediation' and 'mini-trial' and
list their advantages respectively.
39
Chapter Four
40
Hard parts
1 . Validity and Formation of International Sale of Contracts.
2. Misrepresentation , Fraud and Duress.
3. Remedies for Breach of Contract.
4. Anticipatory Breach of Contract and Exceptio non Adimpleti.
5. Obligations of the Seller and the Buyer.
Contents
I . Definition and Form of Contract
A. Definition of Contract
B. Form of Contract
II . Validity and Formation of International Sale of Contracts
A. Invitation Offer
B. The Offer
C. The Acceptance
D. Battle of the Forms
Case 41
41
IV. Mistakes
A. Common Law
B. Civil Law
C. The UNIDROIT PICC
D. China Contract Law
V. Fraud
A. Common Law
Case 44 Stambovsky v. Ackley
B. Civil Law
C. The UNIDROIT PICC
D. China Contract Law
VI. Duress
A. Common Law
B. Civil Law
C. The UNIDROIT PICC
D. China Contract Law
VII. Undue Influence and Unconscionable (unjust) Conduct
A. Common Law
Case 45 Commercial Bank of Australia Ltd. , v. Amadio
B. Civil Law
C. The UNIDROIT PICC
D. China Contract Law
VIII. Remedies for Breach of Contract
42
43
T EACHING S UMMARY
Indeed, businessmen
44
are credited with developing one of the first bodies of law, via Lex
Mercatoria, a necessary creation to manage trade with far-off individuals.
Nevertheless, the domestic laws of various countries often continued to
develop along different lines. Thus, legal rules pertaining to the creation and
completion of contracts differ from country to country. In the more recent
past, as international merchants have sought to take advantage of global
sales opportunities, the differences have sometimes created problems.
Consequently, countries came together to create the CISG to standardize
certain international contract principles. Countries may choose to be parties
to this convention, although private merchants continue to have the choice of
opting out or opting into the agreement.
Today, many businesses are in such a rush to go on-line that they overlook
potentially serious legal ramifications. For example, businesses often erect
Web sites without being aware that these may subject them to the jurisdiction
of a foreign court. For example, if an Akron, Ohio company maintains a Web
site advertising its product and that site is accessed by an Argentinean who
points, clicks, and buys, the Akron company may suddenly be selling in
Argentina. Conversely, the Argentinean who has never left her office, may, in
fact, be creating a contract in Akron. Because the Internet eliminates physical
barriers and permits domestic sellers and foreign buyers to consummate
commercial transactions, it concomitantly dissolves the traditional methods for
determining jurisdiction and which countrys law applies.
A body of law has developed that speaks to the issue of whether a Web site
operated in the U.S. by a U.S. company is sufficient to establish jurisdiction in
a foreign land.
Generally, courts have constructed a spectrum analysis.
Under the spectrum analysis, the extent of jurisdiction that can be exercised
is directly proportional to the nature and quality of the commercial activity
that a business conducts over the Internet. The greater the connectivity or
interactivity between the site and the customer, the more the seller injects
or places itself (via its on-line presence) into the land of the buyer, thereby
subjecting itself to jurisdiction. The lowest level of Internet presence
describes instances where a business merely advertises over the World Wide
Web or maintains a basic, passive Web site.
Jurisdiction will not be
bound under these circumstances. Therefore, a business can post banner ads
or maintain an informational Web site describing products and company
contact information without ever entering (hence, establishing), the foreign
jurisdiction. At the opposite end of the spectrum are instances where a
company affirmatively conducts its business over the Internet and/or utilizes
a highly interactive Web site.
This includes companies that use econtracts (such as those decried in the EU Directive or contemplated under
the UCC Article 2C), utilize contracts involving the knowing and repeated
transmission of computer files over the Internet, or take and respond to
45
2.
46
2.
3.
2.
Did the oral agreement for the order of corks create a valid
enforceable contract under the CISG?
Answer: Yes. The CISG recognizes that contract of sale need not
be...evidenced by writing, and so the oral agreement between the
parties as to the kind of cork, the quantity, and the price were
sufficient to create a binding contract.
3.
Why wasnt this case a battle of the forms case since there was
a conflicting term involved?
47
Answer: The conflicting term before the court was the forum selection
clause. Defendant-Seller Sabat claimed that France was the proper
forum for the breach of warranty claim. The court held that the oral
contract did not include any agreement as to forum selection.
Defendants attempt to add the forum selection clause on the invoices
for the corks was a new and material term to the agreement that the
Plaintiff-Buyer Chateau did not agree to. The defendant claimed that
by receiving the shipments of corks the buyer agreed to the new term.
The court rejected that argument and held for Plaintiff-BuyerChateau.
2.
What was the Defendants argument before the U.S. District Court?
Answer: Defendant-Seller IMS, relying on the CISG and a German CISG
case, set forth the rule that the sellers products are not required to
comply with public laws and regulations at the buyers place of
business.
As a result, Defendant argued that there was no
fundamental breach. The rule, however, set forth three exceptions,
and the arbitrator rested his decision on the third exception to the
rule, viz., special circumstances in which the seller knew or should
have known about the regulations. The court affirmed the arbitration
panels decision for the Plaintiff-Buyer.
3.
4.
49
2.
50
pieces of track.
6. Answer: Under common law, the offer is valid on June 2, when
received. Under the mailbox rule, the acceptance is valid upon dispatch when
placed in the mail on June 12. With a valid offer and acceptance, the contract
comes into being on June 12. The June 8 revocation has no effect, as it is
not received (or communicated) prior to acceptance.
Under the CISG, the offer is also valid on June 2, the date received,
but while a contract will result, the timing of its creation is different. The
CISG does not follow the mailbox rule but requires the acceptance to be
received to be valid. Consequently, the acceptance is not valid until June 17.
Under these circumstances, however, the June 13 receipt of the revocation
will have no effect. The CISG limits the offerors right to revoke -- once
the acceptance is put into the mail, the offerors right to revoke is
extinguished. Therefore, the end result is the same under both laws (there is
a contract) but the reasoning and the dispositive dates are different.
7. Answer: Neither the 250% increase in the price of raw materials nor
the delay in shipping caused by a longshoreman's strike will act to release
Acme Widgets from its promised performance. The risk of a price increase
should be contemplated by a business. Further, it is very possible that a
strike was certainly foreseeable, although it is possible that one could make
an argument that under particular facts, one could not and should not have
foreseen a strike. Instructors might want to ask students how a force
majeure clause might have altered the outcome of this case.
8. Answer: No.
The contract between the parties included an
exhaustive list of force majeure circumstances that would discharge the
parties from the contract (and rescue them from liability).
That the
buyers lack of foreign currency, however, was among those exculpatory
forces, therefore, does not apply here. Furthermore, it is the buyer who is
obligated to send instructions to the bank to pay the seller. The buyer here
did not do so and thus its failure to pay is not discharged. The Tribunal
ordered the buyer to pay the seller.
9. Answer: No. The chaptalized wine did not conform to the contract.
The wine ordered by the French merchant was obviously intended for sale as
drinking wine, and, thus, the goods delivered were non-conforming.
10. Answer: Yes. While the CISG allows the price of the goods to be
determined by the parties later, here the parties agreed that they needed to
reach agreement on the future price of the goods and they did not do so.
The failure to include a price term in the contract or later to agree on a
price term, as they agreed they would do, meant the parties did not have a
52
valid contract.
M ANAGERIAL I MPLICATIONS
53
would pass by fax, e-mail, or mail, and all negotiations through these means
or phone) and implicate the trust issues that such businesses commonly face.
pleads with the police to rescue her and offers $ 5,000 to the policeman who
brings her uninjured to safety. A police officer, Peter, eventually talks the
captor into releasing the woman hostage and he leads the woman to safety.
When Peter goes to collect his $ 5,000, Stan says, 'Thank you very much
but I have no intention of paying. ' Would Peter succeed in a court action
against Stan?
12. You read that modern contract law has expanded the circumstances
under which a contracting party has the duty to disclose facts material to
the contract. Keep in mind that the facts that he is required to disclose
would almost always harm his bargaining position-otherwise, he would have
been only too happy to have volunteered the information. What are some
ethical and public policy justifications for requiring an individual to volunteer
information that is contrary to his interests.
13. List and explain, giving examples where possible, the general
principles of remedies.
14. Briefly outline the remedies of the buyer and the seller
respectively.
15. Under what circumstances will a court be reluctant to award
specific performance? Why?
16. What criteria will be used to determine if a party has
breached?
17. If nothing is said in the contract, where must the seller deliver
the goods? When must delivery be made? Where and when must
documents of title be turned over?
18. How does a court determine the amount of damages to be
awarded in accordance with the CISG?
19. Outline and discuss the differences and similarities between '
anticipatory breach of contract' and ' Exceptio non Adimpleti
Contractus '.
20. How is ' fundamental breach of contract' defined in the CISG?
Give two examples.
21. Define the term 'liquidated damages' and identify its main
features.
55
22. What are the obligations of the buyer and the seller under the
CISG?
23. Explain the rules of 'passing f risk' under the CISG, giving
examples.
24. Compare and contrast the 'excuses for non-performance'
systems of the common law and civil law.
25. A (an American company) entered into a contract with B (a
Japanese company). The contract provided that A delivers 1, 000
personal computer housings by December 1 to B in Tokyo, for a total
price of $ 50,000. On July 1, A faxed B that due to a rise in prices
they could not deliver for less than $ 60,000. B replied that it would
insist that A deliver at the $ 50,000 price. From July 1 through
September, B could have bought the housings from other suppliers for
$ 55,000 for December 1 delivery. On December 1, B covered and
purchased the housings for $ 64,000 for delivery on February 1.
Because of the delay until February 1 B suffered additional damages
$2,000. What is the measure of B's damages? Was B under any duty to
mitigate damages? Why or why not? (the answers must be done under
the CISG)
26. X (a Chinese company) concluded, acting as an agent of Z (a
Chinese factory), a contract with Y (an American company) to
purchase ten machines. Upon the arrival of the machines in Qingdao, the
carrier handed over the machine to Z who showed a certificate by a
municipal organ, failing to make the delivery to X who held the bill of
lading but (the relevant businessman) was away in Guangzhou at a
meeting. X sued Z for damages. Who should X sue for damages? Has
the Property of the goods passed to Z? Was the carrier liable for the
damages? What liabilities of X?
Reading booklist
1.Schimitthoff, C., Schimmitthoffs Export Trade: The Law of
International Trade,London, Stevens, 1996
2. International Business Law, 1 e by Zuoli Jiang, English edition
Copyright 2004 by Law Press.
56
57
International contracts must also address the exchange of goods for money,
transportation of these goods, title, and risk of loss. Documentary sales are
a common method for transmitting title to goods and, through a negotiable
instrument, creating an obligation to pay. The essential document for crossborder trade is the bill of lading. Described as the key that permits the
holder to unlock the door to where the goods are held, the bill of lading is a
receipt for the goods shipped, the contract of carriage, and title to the
goods. Although these documents are also used in domestic sales, their use is
much less common, as domestic trading partners are in a superior position to
ascertain the credit standing, integrity, and reputation of one another.
Foreign trading partners must also contemplate responsibility for delivery and
58
the passing of risk of loss for goods. Often, abbreviations are used to
describe the time and place of delivery, financial responsibility for delivery,
and the passing of risk. Although similar terms, such as FOB and CIF, are
used in the United States, INCOTERMS, an international convention, defines
these terms globally. Consequently, international and domestic shipping terms
may look identical but have different meanings.
Over the last decade, however, documentary sales have declined in
popularity. B2B exchanges via the Internet have remodeled international
trade.
Traditionally, international trade was burdened by divergent
country rules and the limited number of credit institutions able to
intermediate these dealings. Letters of credit are now being customized
for the Internet, increasing the efficiency and security of crossborder trade. Intermediary companies are providing on-line letters of
credit for B2B transactions. These permit buyers and sellers to apply
for, negotiate, and obtain letters of credit on-line in real time. A
bank continues its traditional role as a financier/ collection agent.
Would Article 2 of the UCC have been relevant had this dispute been
in another state?
Answer: Yes.
The UCC covers negotiable instruments and bills of
lading. The UCC, in whole or in significant part, has been adopted by all
other states of the union. Historically, however, Louisiana law did not
develop along the lines of English common law but, rather, the French
Civil Law. Consequently, it did not adopt much of the UCC and, thus,
had to look to its state law.
2.
Had Bozel been the holder of the bill of lading or had the bank sought
to seize the bill of lading prior to transfer, how would the result have
been different?
Answer: A holder of a bill of lading possesses title to the goods, thus
had Bozel presently been the holder or had not transferred it to the
purchasers, the bank could have seized the cargo or enjoined further
transfer of the bill.
59
3.
4.
Why did the court reject the buyers argument that it was entitled
to inspect the good prior to payment?
Answer: The contract at issue was a CIF contract, which implies a
documentary sale. A CIF sales contract implies a documentary sale. The
seller's responsibility is to obtain a bill of lading from a carrier and
tender it to the buyer for payment. The buyer has a corresponding
responsibility to pay for it.
2.
Here, the buyer wished to ensure a right to inspect the goods prior to
payment. Was there any way that he could have arranged to have
done so?
Answer: Yes. As the court noted, inspection prior to payment is not
the type of term that can be inferred from a silent contract.
Furthermore, here, the CIF term said quite a lot to the contrary:
under a CIF contract, the buyer is obligated to pay upon tender of
the appropriate documents. Had the buyer wished to ensure that they
60
Had the cargo been lost at sea, would the buyer of the bill of lading
have had any protection?
Answer: Yes. Here there was a CIF contract. Thus, the contract
included not only cost and freight, but insurance on the goods.
Insurance of this type is common in documentary sales.
4.
5.
Ocean bills of lading are usually issued in sets of several copies, each
signed as an original. What is the effect of this?
Answer: Only one signed copy is adequate to obtain possession of the
goods from the carrier.
Banks that accept these documents as
collateral for the goods usually wish to have all original copies in its
possession.
6.
Answer: The seller: if shipping costs go down, the seller will benefit.
Basse and Selve v. Bank of Australasia , p. 161.
1.
2.
Otherwise, they are confined to paying for the goods and then suing
the seller for breach (due to non-conformity).
3.
4.
St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support,
GmbH , p. 168.
1.
2.
What does the term CIF mean under INCOTERMS and CISG?
Answer: In its common usage, CIF literally means cost, insurance and
freight. As defined in INCOTERMS, which are incorporated in the
CISG, CIF means that seller is responsible to pay the cost, freight,
and insurance to the named port of destination, where the risk of loss
passes from the seller to the buyer.
3.
62
Can the words of the contract alter the meaning of the CIF term?
Answer: Generally, no.
Where the shipping terms and contractual
language are contradictory, they will not be interpreted as amending
one another, but, rather, a court will decide which was the intention
of the parties. Where contact language eviscerates the essence of a
CIF contract, that contract ceases to be a CIF contract.
2.
3.
63
M ANAGERIAL I MPLICATIONS
In preparing an invoice, students may need ocean freight and insurance costs,
ground transportation costs, port charges, customs fees, forwarder's
fees, and communications expenses.
These are available from local
sources, such as freight forwarders, inter-modal terminal operators,
steamship representatives, bankers, and export management consultants,
as well as on-line.
66
It is equivalent to cash.
2.
3.
Answer: Miller had obtained the note legitimately, and, since this was
a bearer instrument and Miller was the bearer, the bank was obligated to
pay.
Studying qustions
1. Outline three reasons that helped the international business law
develop, giving examples if possible.
2. Under what circumstances arise the conflicts between the
applicability of the CISC and national law of a CISG member state?
3. State three ways in which the UNIDROIT PICC was prepared.
4. Briefly describe the differences and similarities between the CISG and
the UNIDROIT PICC.
5. What are the main principles of the UNIDROIT PICC?
6.How is 'trade term' defined under the Incoterm 2000?
7. List and explain the roles of trade terms in international trade
practices.
8. Compare and contrast ' FOB' and ' GIF', and list the main differences
between them.
9. Seller agreed to ship 10,000 tons of potatoes FOB Tacoma,
Washington, to Buyer in Japan. Buyer designated the SS Russet to take
delivery at pier 7 in Tacoma. On the agreed date for delivery, Seller
delivered the potatoes to pier 7, but the ship was not at the pier. Because
another ship using the pier was slow in loading, the Russet had to anchor at
a mooring buoy in the harbor and Seller had to arrange for a lighter to
transport the potatoes in containers to the ship. The lighter tied up alongside
the Russet and a cable from the ship' s boom was attached to the first
container. As the container began to cross the ship' s rail the cable snapped.
67
The container then fell on the rail, teetered back and forth for awhile, and
finally crashed down the side of the ship and capsized the lighter. All of the
potatoes were dumped into the sea. Buyer now sues Seller for failure to
make delivery. Is Seller liable?
10. Buyer and seller entered into a contract for the sale of sugar from
the Philippines to New York on GIF terms. They added language to the
contract that delivery was to be " at a customary safe wharf or refinery at
New York, Philadelphia, or Baltimore to be designated by the buyer." Before
the sugar arrived, the United States placed a quota on sugar imports. The
sugar was not allowed to be imported and was placed in a customs
warehouse. The buyer refused the documents and the seller sued, claiming
that the import restriction was no excuse for the buyer' s nonpayment. The
buyer argued that the language calling for delivery to a U. S. port converted
a shipment contract into a destination contract. Was this a GIF contract or a
destination contract? What was the effect of the additional shipping language
used by the parties? Why should the parties not attempt to modify a trade
term or add other delivery language?
Reading booklist
1. International Business Law, 1 e by Zuoli Jiang, English edition
Copyright 2004 by Law Press.
2. International Business Law , 3 e by Ray August, English reprint
edition Copyright 2002 by Pearson Education North Asia Limited and
Higher Education Press.
Chapter Six
Sea Carriers.
B. Time Charterparties
C. Charterparties by Demise
II. Bills of Lading
A. Laws of Bills of Lading
B. Characteristics of the Bills of Lading
C. Transfer of Property under A Bill of Lading
D. Carrier's Duties under A Bill of Lading
E. Carrier's Immunities
F. Delayed Bills of Lading
G. Frauds on Bills of Lading
III. Marine Cargo Insurance
A. Marine Insurance Policies and Certificates
B. Perils and Losses
C. Insurance Cover
69
T EACHING S UMMARY
Once the buyer and seller have negotiated the contract for the sale of
goods, and even, perhaps, how those goods will get from point A to point B,
a carrier must actually transport those goods. This is also governed by a
private contractual relation, but, in many instances is also enhanced by the
regulations of international treaties concerning liability for loss, misdelivery,
and monetary damages.
Additional Background: Perils of Sea. The concept of a peril of sea is not
uniform among nations. In fact, the Anglo-Australian notion is different from
the U.S. and Canadian conception. In the U.S. and Canada, a peril of sea must
be of an extraordinary nature or arise from an irresistible force or
overwhelming power and cannot be guarded against through ordinary
prudence. This is described by the 2nd Circuit in The Guila, 218 Fed. 744 (2nd
Cir. 1914) and The Rosalia, 264 Fed. 285 (2nd Cir. 1920). The U.K. and
Australia, however, do not require that such a burden be met. Instead, they
require only that losses be extraordinary.
Therefore, sea and weather
conditions that could reasonably be foreseen and guarded against may
constitute a peril of sea. (Great China Metal Industries Co. Ltd. v. Malaysian
International Shipping Corp., High Court of Australia Reports, vol. 98, no. 65
(1998)). Nevertheless, because the Hague rules are intended to apply widely in
international trade, courts strive for a relatively uniform construction of them.
70
C ASE Q UESTIONS
Why is Lloyd being sued when Banylsa took the goods without paying
for them?
Answer: Lloyd is being sued because Lloyd gave Banylsa a carta
declaratoria, which stated the Brazilian import fees had been paid
when in fact they had not. Perhaps more importantly, Lloyd is being
sued because (a) Banylsa is bankrupt and (b) Lloyd is easier to find
anyway, since they do business out of Norfolk.
2.
2.
What was the holding of the United States Supreme Court (1999)?
Answer: The court held for El Al. Under the Warsaw Convention, an
international passenger may not bring a cause of action under local law
against an airline when there is no bodily injury that satisfies the
convention.
71
3.
2.
Why did the carrier argue that the damage to the steel resulted from a
peril of the sea?
Answer: Because perils of sea exempt a carrier from fault. Therefore,
as long as the carrier had used due diligence to provide a seaworthy
ship, and if the loss was caused by a peril of the sea, the carrier
would be exonerated.
3.
well found ship or the usual precautions of good seamanship Gilmore &
Black, The Law of Admiralty 3-32 at 140 (1957).
4.
5.
73
6.
Which party can rightfully bring an action under COGSA for damage to
cargo: the buyer or seller?
Answer: Generally, the party whose rights stem from ownership of the
bill of lading. If the shipper tenders the bill of lading for payment
subsequent to the destruction of the goods, the buyer and owner of
the bill (or his insurer) will be entitled to bring the action against the
carrier.
2.
3.
4.
74
5.
What additional facts would the carrier have had to show in order to
prove that it had exercised due care in shipping the goods?
Answer: The court suggested that the defendant could have
demonstrated the security measures it had in effect to prevent
pilferage.
75
2.
Why did the plaintiff argue that this should not apply to it?
Answer: Because although the shipper cold declare a higher value, the
plaintiff merely purchased the bill of lading, thus, could not amend the
value.
3.
Why did the plaintiffs argue that the yacht slips were not packages,
and were they successful?
Answer: Reading COGSA literally, the plaintiffs asserted that the slip
was not really a package (something in which cargo is wrapped) as
contemplated by COGSA. Since it wasnt a package but rather a
cradle, the per package limitation did not apply. The court, however,
explained that package refers to a class of cargo, not necessarily a
package in which the goods are enclosed.
4.
The COGSA liability limitation does not apply to goods carried above
deck. How did the clause paramount affect this rule?
Answer: The clause paramount, a provision in the bill of lading, stated
that despite the yachts being carried above deck, COGSA would apply.
2.
(Additionally,
Which would you prefer to be and why: a freight forwarder or a nonvessel operating common carrier?
Answer: If my concern was exposure to liability, I would prefer to be
a freight forwarder. Whereas a NVOCC issues the bill of lading to the
shipper and is, therefore, liable should loss occur, a freight forwarder
simply secures a place on the ship for the cargo and arranges for its
76
movement.
3.
2.
3.
1. Answer:
The recent case Olympic Airways v. Husain, 2004 WL
329950 (2004) helped clarify what constitutes an accident under the
Warsaw Convention. In Husain, the United States Supreme Court held that a flight
attendant's unexpected and unusual conduct in three times refusing to move an
asthmatic passenger to another seat farther away from the smoking section of
airplane constituted an "accident" within meaning of Warsaw Convention. In
distinguishing Husain from Air France v. Saks and El Al Israel Airlines, Ltd. v.
77
2. Answer: Historically, the maritime laws of the U.K. and U.S. held
carriers of cargo strictly liable for loss or damage of cargo in their
possession. This rule was adopted since cargo was under the exclusive care
and control of carriers and, as a practical matter, the shipper of the cargo
would have method to prove the reason for the loss. Hence, in some ways,
this rule resembled the tort concept of res ipsa loquitur. As global trade
grew, however, carriers obtained greater power in the marketplace and
began including clauses that relieved them from all legal responsibility. The
COGSA rules seek to balance the competing interests of carrier and cargo
shipper.
3. Answer: In West India Industries v. Tradex Petroleum Services the
court ruled that the bill of lading prevailed and that the carrier could not
collect the higher sum. Relying on general principles of contract law, the
court stated that although the original letter was a contract, that contract
could be altered or rescinded by mutual agreement. The many additional terms
of the bill of lading, a contract of carriage, supply the consideration for the
new contract. The court found that by entering into the contract embodied
in the bill of lading, Tradex at least assumed even a slight additional duty' in
exchange for the lower shipping charge (citing J. Calamari & J. Perillo, The
Law of Contracts, 1977).
78
79
M ANAGERIAL I MPLICATIONS
The information needed will depend on the degree of risk assumed by the
importer. Whereas many risks can be insured against, some cannot. For
instance, if supplies of raw materials or component parts are interrupted,
this may disrupt the firms manufacturing or assembly process. Certainly the
importer would want to be aware of this potential and plan accordingly.
Moreover, some risks would not be covered under usual marine provisions.
Students should consider what additional coverage this firm might need,
whether war-risk insurance would be required, would the seller incur
additional or unexpected war-risk surcharges above the ordinary freight
rates, and what affect will this have on the importer's future shipments.
Studying qustions
1. Outline and discuss the main differences between Voyage
charterparties and time charterparties.
2. Define a bill of lading and state its main features.
3. Explain, giving examples where possible, the immunities of a carrier
under the Hague Rules.
4. Under what circumstances will there be delayed bills of lading? How to
resolve the problems caused by delayed bills of lading?
5. Explain briefly the causes of frauds in bills of lading and discuss
possible ways to resolve their relevant problems, giving three examples based
on arbitration and court practices.
6. Briefly describe the reforms on the nature of bills of lading.
7. What are the new developments of the Hamburg Rules? Give two
examples.
8. Briefly define particular average and general average.
9. Briefly describe the differences between 'free from particular
average insurance', with particular average insurance' and 'all risks insurance'
.
80
Chapter Seven
81
82
T EACHING S UMMARY
Just as international buyers and sellers must contract to move their goods
from country to country, they must also devise methods to pay for those
goods. This must take into account different currencies, ensuring that sellers
will actually be paid for their goods, and, practically, how money will move
from one country to another. The documents used in foreign sales are also
used in domestic sales but are less common. Yet, where buyers and sellers
are separate distance and different home regulations or customs pertaining
to financial practices, the formality of these documents can help assure the
parties that the sale will proceed as agreed.
Additional Background: On-Line Letters of Credit. The different rules
and regulations across the globe can make financing international trade
difficult. Although it is estimated that letters of credit are used on 45% of
all international trade, the form of a letter of credit is not standardized
internationally, and institutions use different methods to process them.
Obviously, this is inefficient. Consequently, intermediary companies are now
providing Internet-based trade financing products to facilitate international
B2B exchanges. Such on-line financing options permit buyers to apply for
letters of credit and allow either party to initiate discrepancy requests.
Bank payment partners can then conduct all collection and transfer of data
within the B2B site. This one-stop on-line format can be accessed in real
time by all relevant banking and trading partners and g-time role as a
trusted third party. For more information, see B.J. Handal, Are On-in
Letters of Credit in Your Future? World Trade 68 (January 2001).
83
C ASE Q UESTIONS
Had the bank been aware that the newsprint shipment did not conform
to the requirements of the underlying sales contract, would it have still
been required to pay under the letter of credit?
Answer: Yes. The bank is not a party to the underlying contract. The
banks pays on the presentation of documents, not on the underlying
contract. There are at least two contracts in every letter of credit
situation: the sales contract between buyer and seller, and the letter of
credit contract between the buyer (account party) and the issuing bank.
If the bank pays on conforming documents, the bank has no liability to
the buyer, even if goods turn out to be non-conforming.
This
illustrates the independence principle that is at the heart of letter of
credit law. As the court in OMeara says, the letter of credit was
in now way involved in . . . the contract for the purchase and sale of
the paper mentioned.
2.
If the bank pays on the documents (which are conforming) and the
shipment turns out to be non- conforming, can the buyer sue the bank
for paying the seller for non-conforming goods?
Answer: No. The independence principle holds that the banks concern
is documents, not goods. The only liability the bank would have to its
account party (the buyer) is where it pays on non-conforming
documents. Thus, the strict compliance principle is invoked by banks
(and backed by courts): if documents do not strictly conform to the
requirements set forth in the letter of credit, the bank can (and should,
ordinarily) refuse to pay (unless instructed otherwise by its account
party and held harmless from payment under non-conforming documents).
Why might a bank not want to withhold payment under their letters of
credit? Why in certain instances would a bank want its customer to
obtain an injunction against it?
Answer: A bank's international reputation for honoring its letters of
84
2.
How does the English court distinguish the Sztejn case and narrow the
application of fraud exception?
Answer: The court first confirms the independence of contract principle
and then states the fraud exception. The court distinguishes Sztejn as
a case in which the sellers knowingly replaced the hog bristles with
rubbish.
In this case, the court found no fraud.
The element of
knowledge is missing.
Fraud in the transaction only applies if
perpetrated by the beneficiary. Interestingly, the court points out that
there is no English case in which the fraud exception has been applied.
Why did the bank refuse to accept the draft upon presentation of the
documents?
Answer: While the LC is a definite undertaking of the issuing bank
(UCP), it is conditional upon presentation of the correct documents. It
may have been irrevocable, but it was not unconditional.
2.
Had the bank known that the yarns described in the invoice as
imported acrylic yarns were actually 100% acrylic, as was called
for in the LC, would the outcome have been affected?
Answer: No.
Their independent knowledge as to the nature of the
goods shipped is irrelevant to their responsibility under the LC.
According to the UCP, banks deal in documents and not in goods.
Of course, under normal circumstances where the buyer wants to pay
for and take possession of the goods, this may bear on his or her
willingness to waive the defect in the documents.
3.
What is the liability of a bank for paying or accepting a draft when the
documents contain a discrepancy?
Answer: The issuer will be liable to the account party.
What was the political mood in the United States during the time of this
litigation?
In lieu of this, do you find the result of the court
surprising?
Answer: Fewer and fewer of today's college students can remember
the 1979 Iranian crisis and the taking of American hostages. This is a
good time to recount the events and illustrate the impact of world
political events on international business including the methods by which
the U.S. government sought to protect U.S. geo-political and economic
interests there.
3.
87
88
M ANAGERIAL I MPLICATIONS
90
if there were sufficient trust, honesty, respect, and fairness that the seller
were willing to renegotiate a fair price and profit. Overall, the seller may
lose more in the near term by the drastic lowering of prices, but if
fluctuations continue, any seller will be better off with loyal customers. The
higher prices to be charged when supplies are tight may be far more credible
to customers who have benefited from excess supply and low prices.
Again using a core values analysis, the situation may be somewhat
different if we assume that the seller has just bought goods for resale to
the buyer, and the market price suddenly becomes drastically lower. The
seller may well be stuck with high-priced silk if the buyers bank rejects
the documents as non-conforming. Again, buyers behavior is not entirely
honest, breaches a promise, and is not entirely fair toward the seller. The
law may allow this, but long-term trade relationships may be damaged by
such short-term opportunism. If supplies ever become tight again (and the
Chinese certainly seem capable of trickling the market as well as flooding it),
the opportunistic buyer may find a rueful day of reckoning.
92
93
Chapter Nine
94
T EACHING S UMMARY
95
96
2.
What was the basis for the ECs argument in this case?
2.
3.
3.
How does a WTO Panel determine whether two products are like
products for purposes of the first sentence of Article III(2) or
directly competitive or substitutable products that fall within the
domain of the second sentence of Article III(2)?
98
2.
1.
Answer: This answer is a tutorial that requires the
student to visit the WTO Web site.
99
2.
3.
research.
research.
4.
Answer: While some believe that MFN status, due to its
value, should be used to influence the human rights, labor, and political polices
of other countries, others believe that trade is trade and business is
business, thus such ethical overlays are inappropriate. Moreover, attempting
to do so necessarily opens up a gray area of what is and is not correct.
Indeed, this was a hotly contested issue underlying Chinas attempt to gain
entry to the WTO. Some individuals, countries, and NGOs believed that China
should not be gifted with the reward of WTO membership in light of their
human rights abuses and political policies. Others saw the carrot of WTO
membership as a method to make China comply with certain policies.
5.
Answer:
Although
nations
may
enact
consumer
protection-motivated laws or those addressing the health, safety, or morals
of its population, the nature of the protection regarding beef is unclear,
other than that this law seeks to protect consumers from mistakenly
purchasing non-Korean beef.
For example, a labeling requirement for
irradiated foods or those from the U.K. (which has demonstrably diseased
cattle) might be justified, but this regulation is overly restrictive even for its
intended use, and, indeed, the intended use suspect.
Obviously, these
regulations will favor domestic beef as they reduced the likelihood that
stores will choose to comply with the multiple demands of imported beef
sales.
6.
Answer: This answer requires outside research, beginning
with a review of the noted Web site. Nevertheless, developed countries
represent the majority of disputing parties, but also account for the
greatest share (approximately 75%) of the worlds trade. Both developing
and developed countries are using the WTO because the new procedures
ensure that a complaint will be heard and that sanctions could be imposed
(though they rarely are). Both developed and developing countries have won
several disputes. This is an indication that the WTO panels and Appellate
body decide based on the particular facts and the interpretation of the
agreement. It is also an indication that under WTO, unlike GATT 1947, the
DSU virtually ensures the adoption of panel and appellate decisions. The 1994
agreement requires the Dispute Settlement Body (DSB), a special assembly of
the WTO General Counsel that includes all WTO members, to adopt a panel
report or appellate decision automatically and without amendment unless it is
rejected by a consensus. This inverted consensus requires all members of
100
the DSB including the member who prevailed in the dispute to reject the
dispute resolution decision. That is, the report or decision will be adopted
unless no member is formally in favor of the decisions. This is unlikely to
happen since at least one member would be in favor of the decision.
7.
Answer: If a member does not abide by its WTO
obligations, other affected member countries are not supposed to retaliate
unilaterally, but should file a complaint with the WTO. In the past, however,
nations have retaliated unilaterally. More effective and binding trade dispute
resolution procedures under the WTO may result in fewer unilateral retaliations.
8.
Answer: A U.S. quota on imported cars would be
problematic. GATT both seeks to eliminate all quotas and requires members to
use the least restrictive means possible for correcting trade imbalances.
Although under some circumstances, GAAT allows quotas ( to relieve food
shortages), this is not such an instance. Further, even a permissible quota
would have to be evenly applied. Therefore, it would have to apply to all
foreign imports. The most frequently used justification for the imposition of
quotas (other than with trade in textiles) is the balance-of-payments
exception to the GATT agreement that allows the temporary use of quotas to
correct a balance-of-payments emergency. In such an instance, justification
must be given to the Balance of Payments Committee of the WTO, which
subjects the restrictions to surveillance and periodic review. The means must
be transparent and must include a time schedule for removal of the
restrictions.
9.
Answer: Although it may appear that regional customs
unions or free trade zones violate the non-discrimination principles of GATT,
they are permitted under Article XXIV.
That provision states that the
agreement shall not prevent:
as between the territories of contracting parties, the formation
of a customs union or of a free-trade area or the adoption of
an interim agreement necessary for the formation of an interim
agreement necessary for the formation of a customs union or of
a free trade area; Provided that: (a) with respect to a customs
union. . . the duties and other regulations of commerce imposed
at the institution of any such union or interim agreement in
respect of trade with contracting parties or parties to such
union or agreement shall not on the whole be higher or more
restrictive than the general incidence of the duties and
regulations of commerce applicable in the constituent territories
prior to the formation of such union or the adoption of such
interim agreement, as the case may be.
101
This section of the GATT has been used to lower the rates of
the external tariff, thus achieving the goals of GATT for the benefit of GATT
members.
Thus, NAFTA nations, as a collective group, must meet GATT
obligations, but may economically integrate further than GATT requires.
Arguably, having examples of greater integration could - in the long run - help
GATT to overcome hurdles to further integration. Allowing closer customs
unions to develop may encourage trade arrangements regionally, thus
accelerating global integration.
M ANAGERIAL I MPLICATIONS
A trade war or loss of MFN will certainly affect the ability of the firm to
obtain its 35% from China or at the tariff rate that it now does. The goods
cold be forbidden or taxed at such a high rate as to make their import
obscenely expensive.
Students might consider whether the firm should
anticipate such problems and act now to find another country (such as Mexico,
under NAFTA) in which to produce these products.
In this way, it could
reduce its substantial reliance on the Chinese production facility/products.
Teaching Suggestions/ Additional Background: Customs Classification of
SUVs. Instructors interested in offering students a greater understanding of
customs classifications as well as the practical effect of such classifications
and how seemingly neutral classifications can in fact be discriminatory may
wish to introduce students to the following problem. Two decades ago, the
problem was the classification of vans -- the boxes on wheels design: were
they cars or trucks? This issue has reinvented itself in the form of the SUV
-- are they trucks or cars?
Instructors may present the following scenario and the two Customs
Classifications and ask students to advocate on behalf of either
classification. Alternatively, instructors may wish to share this episode with
students as additional background.
In 1989, Nissan began importing SUVs into the U.S. Its SUV, the Pathfinder,
however, used the Hardbody truck line as its basis for design,
incorporating the Hardbodys frame, side rails, cab, and front suspension.
There were two possible classifications for the vehicles:
Section 8704.31.00: Motor vehicle for the transport of goods.
Section 8703.23.00: Motor cars and other motor vehicles principally
102
103
104