Expanding the company beyond borders.

Introductory paragraph:
Mr. Ian Askew is a prominent fashion designer. After his great deal of prominence in European
Union he now wants to expand his business beyond European Union. After assessing all the
relevant details, I can advise Mr. Askew in the capacity of a legal advisor.
The first question that comes into mind before expansion is the mode and mechanism that
should be followed for the purposes of expansion. After finding out what is feasible method to
expand then comes the question of legality, if the company finds itself in a position that is
unpredictable and the third party comes up with a lawsuit due to the issue of manufacturing
default. What if the contracting parties collide on the issue of the nature of contract that should
be carried out in the process of business? Which nature of contract whether Cost, Insurance
and Freight (CIF) or Free on Board (FOB) contracts is feasible and beneficial for Mr. Ian Askew?
Which mode of contract is cost friendly and which is not? What should be the mode of payment
that will benefit Mr. Ian Askew? As Mr. Ian wants to accrue some sort of benefits based on win-
win situation from the consumers, which mode of payment will serve the purpose? Lastly, if
there are certain broad commercial considerations attached to the specific set of business that
Mr. Ian should consider while expansion.
Analysis and Recommendations:
During the course of conducting business the seller has to deal with a lot of problems. The
problem that arises is of the legal risk involved in the process of manufacturing the goods and
then selling them to the consumers. The manufacturing default in common law is understood
as a Product Liability Actions.1 In the cases related to the international sale of goods the
governing laws are the international conventions and treaties that include Vienna Convention
on Contracts for the Sale of Goods and Hague conventions under the umbrella of United
Nations Commission on International Trade. 2 Mr. Ian can overlook the whole process to
minimize the threat of manufacturing default. Mr. Ian can remain at the safe side by complying
with the General Product Safety Directives issued by European Union in 2001 and 2005. That
includes the business responsibilities as to avoid sending harmful products to the market, in
case of any harm it’s the responsibility of a business to make aware all the stakeholders, and
the business should be capable enough to trace out the harmful product and remove it from
the market. Continuously making sure that there is no risk involved related to manufacture. At
the same time continuous safety check over the manufacturing mechanism is mandatory for
the avoidance of risk associated with the product liability. During the supply of goods, the
1
‘Defenses to Product Liability Actions- Module 5 of 5’ (Law Shelf, n.d)

<https://lawshelf.com/videocoursesmoduleview/defenses-to-product-liability-actions--module-5-of-5/>
accessed 28 June 2021

2
Roy Goode, Herbert Kronke and Ewan McKendrick, Transnational Commercial Law: Text, Cases and
Materials (OUP 2007).
governing contracts are of two types that are CIF contracts and FOB contracts. CIF contracts in
the case of Johnson v Taylor Bros Lord Atkinson is defined as “when a vendor and purchaser of
goods enter into a CIF contract the vendor in the absence of any special provision to the
contrary is bound by his contract to do [the following]. First, to make out an invoice of the
goods sold. Secondly, to ship at the port of shipment goods of the description contained in the
contract. Thirdly, to procure a contract of affreightment under which the goods will be
delivered at the destination contemplated by the contract. Fourthly, to arrange for an insurance
upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly,
with all reasonable dispatch to send forward and tender to the buyer these shipping
documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the
buyer is symbolic delivery of the goods purchased, placing the same at the buyer’s risk and
entitling the seller to payment of their price, if no place be named in the CIF contract for the
tender of the shipping documents they must prima facie be tendered at the residence or the
place of business of the buyer [at p 155] 3. In the CIF contracts there are certain essentials that
should be met before titling it as a CIF contract. There should be a contract of sale between the
seller and buyer. The contract of carrier between the seller and the buyer. The contract of
insurance should also be included in the contract of carriage of goods. The obligations of Mr.
Ian would include the following ingredients:

It is the duty of seller to ship the goods as described by the buyer and deliver them within the
stipulated time as mentioned under section 13 of the Sale of Goods Act,1979. The said law has
also authorized the buyer to reject any goods if that goods does not match the description
provided without any exception that the buyer is a consumer or a non-consumer. Arrangement
for the insurance also comes under the obligations of CIF contracts. The bill of lading should
also be procured for the purposes of proving the payment and at the same time it also serves
the purpose of surety and trust between the seller and buyer. Procurement of the contract of
carriage is an absolute and mandatory factor to be organized in the process of sale of goods.
Production of the commercial invoice is also mandatory as it is recognized under the
international conventions, it also serves the purpose of establishment of a relationship between
the bank of seller and buyer. The documents involved in the process of the sale of goods and
that are for the purposes of export so that it may take effect as a payment. 4

Under the CIF contracts, seller sales the good on the amount that includes all the costs and
profit that a reasonable person should accrue from the goods. The seller pays all the costs
related to the goods till the port of destination where the buyer is duty bound to get the goods
agreed. It has become the customary practice to insure the buyer’s goods for the sake of safe
and sound dispatch. It also enables a seller to boost the reputation as it takes the responsibility
that is actually statutory. This leads to a long-term benefit in the commercial environment,
because the business can capitalize the repute where needed. In addition to that, the CIF

3
Indira Carr and Peter Stone, International Trade Law (Routledge 2018)
4
'The FOB and CIF Contracts' (Lawteacher.net, June 2021) <https://www.lawteacher.net/free-law-
essays/commercial-law/the-fob-and-cif-contracts-commercial-law-essay.php?vref=1> accessed 28 June
2021
contract makes lessens the workload for the buyer, because he may make it challenging in a
different country, to arrange for insurance and cargo. It supports the basic win-win situation
where both the parties i.e. seller and buyer can get the profits.

The seller benefits by using this type of agreement because he has a greater knowledge of
customary trade practices at the local level. In addition, that the seller conduct negotiations in
the capacity of a frequent shipper as the seller is quite familiar with the insurance and freight
practices at the local level, they can bargain on the lower prices. It also helps the seller to lower
the product rates so as to make the demand of product high and get the maximum benefits.
There comes the responsibility of a seller, not to include the higher costs with regard to bill of
lading or insurance as it will directly hit the business repute. In the FOB contracts the seller do
not share the responsibility of bearing costs incidental to insurance and freight and only serve
the concrete bill of lading and procure and serve the documents pertaining to the port of
shipment. Mr. Ian should opt for the CIF contracts as it reaches the reasonable expectation set
out in the outline of conducting the business. The reasons behind choosing CIF contracts over
FOB contracts are so many. As Mr. Ian is in search of a cost-effective mechanism, CIF contracts
provide with that. As stated earlier, the CIF contracts include the costs pertaining to insurance
and freights but at the same time the seller has a right to sell his or her product by including all
the expenses that he bears in the course of shipping the goods at the port of shipping. Another
reason is of the utmost legal validity as CIF contracts are more reliable with respect to legal risk
that is involved in the issuance of bill of lading. The cost-effective mechanism involved in the CIF
contracts are carried out in a way that the payment procedure that the seller is intending to
carrying out is of priority. CIF contracts brings the easiness for the buyer and that factor gives
birth to the priority list that the buyer will next time or at the time of contracting prioritize. If
Mr. Ian prioritizes FOB contracts then there are certain benefits but not that much of
importance as CIF contracts accrue preferably.

To make the payment procedure effective there are certain mechanism that can be kept in
mind before shipping the goods to the buyer. Mr. Ian have relative options with regard to
payment procedure. Following are the payment procedures or modes while conducting the
business;

 Cash-in-Advance

 Letters of Credit

 Documentary collections

 Open Account

 Consignment5

5
‘Methods of Payment’ (trade.gov n.d) <https://www.trade.gov/methods-payment> accessed 28 June
2021.
Cash-in Advance is the payment procedure that is widely accepted and used. It ensures the
safety with regard to seller’s interest. The seller gets the payment before transferring the
ownership of goods. Although it saves the seller from any unfavorable condition but
acquiring payment before selling anything is least attractive in the course of business, it also
creates the uncertain issues. At the same time Letters of Credit is the most attractive and
concrete mode of payment. It involves the banks from both the sides and avoids any kind of
uncertainty with respect of transferability and loss of interest. In this mechanism the buyer
contacts the bank for the purposes of establishing contact with the seller’s bank and buyer’s
bank gets a letter of credit after the shipment of goods at the port of shipment and buyers
pays on getting the goods at the port of destination. It is advisable to Mr. Ian to go for Letter
of credit mechanism as it involves the banks on both the sides and do not involve the risk
factor with regard to payment. It also enables the transparent mode of doing business. In
addition to that it builds the relationship of win-win situation as if the buyer couldn’t get
any shipped goods, he is not liable to pay for that. At the same time Mr. Ian should consider
that the consumers involved in the due process will impliedly ask for the transparency of
mechanism and this system of payment is in compatibility with that. The consumers
involved in the process should also be taken into consideration as they are the key
stakeholders in the process and they are the agents of change. The surety comes with ethe
process also as the involved process be based on the transparency and Letters of credit
provides with that, it also makes sure that the parties involved in the shipment gets paid on
time.

Wider commercial considerations include the security and guarantee with regard to the
payment delays. Recently the corporations and business involved in the import and export
badly hit by Covid-19. Due to Covid-19 pandemic the transnational traders faced the issue
of payment delays so it is advisable to Mr. Ian to consider the element of guarantee and
security in the payment process to avoid any unwanted and unexpected event. The notions
of Force Majeure and Frustration should be incorporated in the contracts of sale as it
provides the effective defense in the issues pertaining to non-delivery or inability to deliver
the goods to the buyer. Due to recent events that include the Brexit and Covid-19 pandemic
Mr. Ian should include those notions for the sake of precaution.
Bibliography
Books:
Carr I. and Stone P., International Trade Law (Routledge 2018)

Goode R. Kronke H. and McKendrick E., Transnational Commercial Law: Text, Cases and Materials (OUP
2007)

Webpages:
All Answers ltd, 'The FOB and CIF Contracts' (Lawteacher.net, June 2021)
<https://www.lawteacher.net/free-law-essays/commercial-law/the-fob-and-cif-contracts-commercial-
law-essay.php?vref=1> accessed 28 June 2021

‘Defenses to Product Liability Actions- Module 5 of 5’ (Law Shelf, n.d)

<https://lawshelf.com/videocoursesmoduleview/defenses-to-product-liability-actions--module-5-of-5/>
accessed 28 June 2021

‘Methods of Payment’ (trade.gov n.d) <https://www.trade.gov/methods-payment> accessed 28 June

2021