Chapter 1.

Negotiating delivery
I. The five step in negotiating delivery

Negotiate /nɪˈɡəʊʃieɪt/: đàm phán

Timing -> Location -> Transport -> Risk, title, insurance -> Terms of trade

The problem: How can the exporter be sure that all the necessary delivery provisions are in
the contract?

The principle

The exporter and the buyer should negotiate delivery systematically, making all necessary
decisions and discussing how they will solve any problems that may arise.

- What is the date of delivery?

- Where must the goods be sent?
- Who pays for transportation?

Step 1: Timing: When must delivery take place?

What if: the Seller late in sending goods; delay in loading the goods onto the ship; the ship
arrives late, the delivery is late and there is no reasonable excuse,...

Step 2: Location

Step 3: Transport

Step 4: Risk, Insurance

- smash = broken
- forklift: xe nâng
- stevedore =
- downpour = heavy rain

The risk of loss or damage: if the good are smash by a fork-lift, stolen by stevedore of
damage by a downpour – one side must bear the loss. Similarly if the goods cause harm to a
third party – for example, a consignment of corrosives left in the sun explodes and severely
burns a passer-by – who pays? Negotiators often decide, these risks are transferred at the
point of delivery, and this is standard arrangement under the Incoterms.
 II. Timing

1. Naming the date

- The parties often plan for the contract to come into force in 2 steps:

Step 1 is on signature (The signature date)

Step 2 is when all the precondition (điều kiện tiên quyết) for the sale have been met
(The date of coming into force)

Signature date/ Date of execution: The contract is to be binding from this day

Date of coming into force/ Effective date: not usually a calendar date, but the date on which
the last precondition is met.

- Some common preconditions:

+ Receipt of import/export approval

+ Receipt of foreign exchange (ngoại tệ) approval from a central bank (ngân hàng
trung ương)
+ Insurance of an L/C or bank guarantee (duoc cap L/C hoac cam ket cua ngan hàng)
+ Insurance of an insurance company
+ Making of a down-payment (khoản tiền thanh toán ngay) by the buyer
+ Delivery by the buyer of plans, .. or other documents

- Cut-off date (ngày khóa sổ): the date by which the contract shall have come into force,
otherwise, the contract becomes null and void (vô hiệu). A cut-off date is common in fixed-
price contracts (hợp đồng giá cố định) because a long delay can make the price unrealistic.

- Delivery date (ngày giao hàng): normally fixed for a certain number of days after the date of
coming into force.

2. Timing and the clauses: “Time is of the essence”

For each week of late delivery, the seller shall pay the buyer 0,1% of the contract price.

If delivery is not effected within one month of the agreed delivery date, then the seller shall
pay the buyer 0.1% of the contract price.

The clause is used in a contract requiring absolute punctuality (đòi hỏi sự chuẩn xác về mặt
thời gian) (seasonal goods).

If the time is not kept, the buyer has the right to send back the goods and refuse payment.
However, in commercial life, despite the clear wording, a judge may decide that time is not of
the essence and the buyer cannot terminate (hủy bỏ) the contract. But late delivery still has
expensive results for the exporter.
Quy định trong hợp đồng: Time is and shall be of the essence of this contract.

2. 1 Excused delay (giao hàng chậm có thể châm chước ) bao gồm 2 loại: Grace period +
Force majeure

a. Grace period (Thời gian ân hạn)

- A grace period is a period after the delivery date during which a late fee, or other action
that would have been taken as a result of failing to meet the delivery date, is waived (bỏ)
provided that the obligation is satisfied within the period.

- Should be stated in the contract

Example: If delivery is not affected within one month of the agreed delivery date, then the
Seller shall pay the Buyer 0.1% of the contract price. (Nếu việc giao hàng không được thực
hiện trong vòng 1 tháng kể từ ngày giao hàng đã thỏa thuận…)

- The benefit/purpose/ effect:

+ The buyer gets the goods earlier for production; can exert (gây ra) considerable moral
pressure on the seller before the “penalty” period takes over

+ The seller receives payment earlier; has an early, good-faith target to meet.

b. Force majeure (Bất khả kháng):

- Force majeure prevents either party from or delay in performing any duty under the
contract and is beyond the reasonable control of the party.

Force majeure events include, but are not limited to: war (whether war is declared or not),
riots, insurrections, acts of sabotage, or similar occurrences; strikes, or other labor unrest;
newly introduced laws or Government regulations; delay due to Government action or
inaction; fire, explosion, or other unavoidable accident; flood, storm, earthquake, or other
abnormal natural event

- Possible outcomes:

+ If the FM ends soon, and it is regulated in the contract, then the delivery resumes without
any penalty for the seller

+ If the FM continues for too long, and it Is regulated in the contract, then when the agreed
period ends, the buyer can notify the seller that the contract is terminated.

+ If the FM continues for too long, and it is NOT regulated in the contract, then the situation
is unclear and risky for both sides.

2. 1 Unexcused delay

If one party to a contract causes harm or loss to the other, then the law will find the way to
redress this harm or loss. Common law prefers to award damages, while Civil law usually
enforce performance.

+ quasi - indemnity: tiền bồi thường

Liquidated damages Penalty Quasi-indemnity

 This is an agreed
clause to punish
party who delay, or
to achieve
acceptable
performance.

Amount Fair amount to the Higher than the Lower than the real
real loss real loss loss

Purpose (Motive) To compensate one To threaten the To maintain the

party for a real loss exporter with relationship/ To
(Mục đích: để bồi punctual delivery relieve the seller of
thường) (Để đe dọa người liability for the delay
bán giao hàng
đúng thời hạn)

Khả năng áp dụng Enforceable Not enforceable in Enforceable

everywhere but some law systems everywhere but can
subject to be considered as
increase/decrease in unconscionable (vô
some legal systems đạo đức)

III. Place of order

- Place of delivery is the point at which the exporter passes responsibility for the Goods to
the Buyer. Delivery can take place at a number of places between manufacturer’s factory
and the Buyer’s warehouse.
“If the vessel named by the Buyer fails to arrive on or before the agreed delivery date, then
the seller may at his discretion deliver the Goods to a bonded warehouse in the port of
Mombasa, and shall be deemed to have fulfilled his delivery obligations under this Contract.”

Note: The place of delivery should not be confused with the destination of the goods.

CIF and CIP contracts are confusing because they name the point of destination, not the
place of delivery (on board at the loading port).

Ex: Price: USD500 CIF Hong Kong port Incoterms 2010. Hongkong port is the destination
only. The place of delivery is on board in Saigon port.

- Factors that determine the place of delivery in an export contract:

+ The incoterm used in the contract

Ex: Under the EXW term, the Seller’s warehouse is the place of delivery; under the FOB
term, the place of delivery is on board of the named vessel.

IV. Transport

“On the surface of each package delivered under this Contract shall be marked: the package
number, the measurements of the package, gross weight, net weight, the lifting position, the
letter of credit number, the words RIGHT SIDE UP, HANDLE WITH CARE, KEEP DRY, and
the mark: DNP/36/Q”

- Which factors determine mode of transport?: the distance, value of the goods, the
character/ type of goods, timing,...

- Purpose of packaging

+ Marketing: used by marketers to encourage potential buyers to purchase the product

+ Safety: Keep the products safe from external factors
+ To make the goods comply with the local regulations: each country has specific
regulations of packaging
+ To sell a right amount if goods are bundled together

- Purpose of shipping marks

+ Provide identity for the goods: we can tell where our goods are among many cases
inside the container.
+ Comply with local regulation. Example: according to VNese law, the goods require
the instruction to be written in local language and printed on a mark.
+ Give instructions for handling. Ex: Handle with care, keep frozen, etc.

- Transport documents

- 3 main functions of a Bill of Lading

+ Receipt of goods (biên lai gửi hàng) The carrier gives the B/L to the shipper upon receipt
of the goods

+ Evidence of a shipping contract (tương tự như hợp đồng vận chuyển). Terms and
conditions may be printed on the back of the B/L.

+ Document of title (Chứng từ sở hữu hàng hóa): This function only exists in this B/L -> The
B/L can become a negotiable document. Person who holds it owns the goods

- How can you tell a B/L is negotiable or not?

+ Typing the word “to order” in the consignee box makes the B/L negotiable. It means the
shipper must endorse the B/L.

+ Besides, named endorsed B/L (vận đơn đích danh) is not negotiable.

Clean B/L: free of notes about defects.

Clause/ Dirty/ Unclean B/L: there are some negative marks about the conditions of the
goods on the B/L.
Clauses which might make the B/L unclean: Contents leaking/ exposed, Packaging broken/
damaged/ contaminated, Insufficient packaging, Goods damaged/ scratched/ deformed

V. Risk, title, and Insurance

- Two risks are involved in the sale of goods:

+ the risk of the goods injuring a third party
+ the risk of loss or damage.
=> These risks are covered by insurance. In international trade, ownership (title) is of
doubtful value and passes from exporter to buyer.

- Under the CIF, CIP term, the Seller is only required to obtain insurance on MINIMUM
coverage (Clause C). A buyer who wants more than minimum coverage must negotiate with
the seller.

The insurance date must be on/before the date on B/L

Insured Value (IV): total value of the subject (cargo, ship, etc)

Insured amount (IA): actual amount of goods under the policy

Most of the time IV=IA. Sometimes, IV > IA

Phí bảo hiểm: premium

- Insurance policy, certificate of insurance, letter of insurance:

+ Insurance policy (hợp đồng bảo hiểm): a contract between the insurer (cong ty bao hiem)
and the insured (ben duoc bao hiem) -> can be used for indemnity

Insurance certificate (chứng nhận bảo hiểm): a document covers each individual shipment. It
states in outline the cover offered and gives the details of the individual shipment. Under
English law, its effect is virtually identical with that of a full policy. (theo luật Anh, có giá trị
tương đương hợp đồng bảo hiểm)

Letter of insurance: a letter from the exporter to the buyer stating that the goods are insured,
has NO legal force (không có giá trị pháp lý)

- Type of Insurance policy

1. Floating Policy (Bảo hiểm đơn chuyến) vs Open Cover (Bảo hiểm bao):

Giống:

- Both offer the exporter insurance cover on all shipments over a period of time. In both
cases, a ceiling is set on the overall figure.

- Use a certificate of insurance to cover each shipment.

Khác:
 Floating Policy Open cover

It is set up for a particular time and It is open-ended (does not expire),

automatically expires unless renewed although there are provisions for
cancellation on due notice

Each delivery is covered by a policy If the insured requires, an insurance policy

then be issued. (chỉ khi có yêu cầu của
bên được bảo hiểm thì công ty bảo hiểm
mới phát hành)

2. Valued vs Unvalued policy

- Valued policy is a coverage that places a specific value on the insured property prior to the
event of a loss. The insurer will pay the specified value if a loss occurs.

- Unvalued policy is an insurance policy that does not specify the value of the property. The
value of the property would need to be proven subsequent to a loss.

Cargo clause

All three Clauses contain the unseaworthiness and unfitness clause. Losses resulting from
war, strikes, terrorism needs being added in clause B,C and deleted from clause A if the
insured wants to cover them.

Clause A (exclusion clause: điều kiện loại trừ) covers all the risks EXCLUDING:

- Wilful actions of the insured (hành vi cố ý của bên dc bảo hiểm) (cái trang
này trong sách bị mất nên k biêt đúng ko)

- Ordinary wear and tear: hao mòn tự nhiên

- Improper packing

- Inherent vice in the goods

- Delay

- Insolvency of the owners of the vessel

- Use of nuclear weapons

Clause B, C are inclusion clauses (điều kiện bao gồm).

Clause C covers: Clause B = Clause C

+ Loss/Damage attributable to earthquake, volcanic eruption or lightning

+ Loss/Damage caused by washing overboard; entry if sea, lake-, or river-water into

vessel, craft, hold, conveyance, container, liftvan or place of storage
 + Total loss of any package lost overboard or dropped whilst loading on to, or
unloading from, a vessel or craft.

General Average is included in A,B,C

Minimum Coverage is the so called cargo C

VI. Incoterms

- The importance:

+ Prevent the inconsistency in understanding international trade

+ Set the rules for the place of delivery
+ Save a great deal of work in contract drafting

- Compare Incoterms 2010 vs 1990

____________

2. Why is location important?

- Risk and Responsibilities.

- Date of payment depends on place of delivery.

3. Why is transportation important?

- Costs
- Appropriate type

6. Where does transfer of ownership take place?

- At any point between the signature of the contract and the final payment for the goods.

8. What events does delivery date trigger?

- Exporter fulfills duties under the contract.

- Payment may become due.

- Risk and title pass to the buyer.

9. How to fix delivery date?

- To use a straightforward calendar date.

14. What are the 3 outcomes of FM?

Resumption of delivery
Termination of contract

Unclear and dangerous situation.

19. Name types of Insurance policy?

Floating policy

Open cover

Valued policy

Unvalued policy

Time policy

Voyage policy

Chapter 2: Negotiating price and payment

I. Export pricing strategies

● Factors that affect the price in a contract:

- Order size: the fixed-cost can be reduced in large quantity

- Specifications: the more complicated the product is, the higher the price would be
 - Packaging: in international trade, it requires many layers of packaging -> costly

- Incoterms: the prices under each term are different

- Terms of payment: Cash in advance (tra truoc); Collection (D/A; D/P) (nhờ thu); L/C;
Open account (ghi sổ)

- Date of delivery: if you want the delivery to be made early, the price would be higher

- Warranty period: if you want to extend the warranty period, the price would be higher

II. The 5 steps in negotiating payment

1. Step 1: Mode of payment

● 4 common modes of payment:

- Payment on open account with no security

- Export credit insurance: dịch vụ bảo vệ và bồi thường cho người xuất khẩu khi họ
cấp tín dụng thương mại

- A payment guarantee

- A sight letter of credit

- Open account

If payment is made on delivery => at sight letter of credit L/C

Open account: nhà xuất khẩu sau khi hoàn thành giao hàng thì ghi Nợ tài khoản cho bên
nhập khẩu vào một cuốn sổ theo dõi và việc thanh toán các khoản nợ này được thực hiện
thông thường theo định kỳ như đã thỏa thuận.

Như vậy, về thực chất đây là phương thức thanh toán nợ còn khất lại, ngược với phương
thức thanh toán ứng trước.

Cash against invoice: Phương thức giao chứng từ trả tiền: ng nhập khẩu yêu cầu ngân
hàng mở tài khoản tín thác (Trust Account) để thanh toán tiền cho nhà xuất khẩu, khi nhà
xuất khẩu xuất trình đầy đủ những chứng từ theo yêu cầu. Nhà xuất khẩu sau khi hoàn
thành nghĩa vụ giao hàng sẽ xuất trình bộ chứng từ cho ngân hàng để nhập tiền thanh toán.

Cash on delivery: nhận hàng rồi mới thanh toán

Cash with order: Trả Tiền Khi Đặt Hàng.

● Export credit insurance va Bank guarantee: Both are payment against invoice and
the payment is secured

Export credit insurance Bank guarantee (BG)

There are many types of BG,

The seller pays for himself With the Payment Guarantee, the Seller
risks the non-payment -> the Buyer
pays for the G, and in favour of the
Seller

With the Prepayment G, the Buyer risks

losing his prepayment -> the Seller pays
for the G and in favour of the Buyer

Assessment continues for a long Quickly

time (định giá rủi ro)

Long wait for the insurance Competitive rates

company’s compensation)

The compensation is lower than

the invoice price.

2. Step 2: Timing

Payment against an invoice is rarely made immediately. Most buyers wait a while
before paying. The exporter suffers from delay

-> Solution: to speed up payment, most exporters offer a discount for early payment,
for example a 1% discount if payment is made within 30 days of the date of invoice.

-> The buyer saves on the invoice price, while the exporter, substantially improves his
cash flow.

Payment against letter of credit (L/C): requires the buyer to establish an L/C before
shipment is effected.

An open account transaction: is a sale where the goods are shipped and delivered
before payment is due.

? The importance of timing in making payment

Really important, because delay in delivery can be charged for fees while delay in
payment is really hard to charge. The goods are no longer under the Seller’s control so
he has no way to put pressure on the Buyer.

3. Step 3: Place of payment

 Payment shall be deemed to have been made only when the contract sum is paid into
the Seller's bank account and is at the Seller's full disposal.

4. Step 4: Delay

Under a commercial contract, any payment made after the agreed payout date is
considered late. In most contracts, there is no case that could justify late payment, even
in the event of a force majeure.

5. Step 5: Results of delay

If payment of any sum payable is delayed, the Seller shall be entitled to (có quyền)

receive interest on the amount unpaid during the period of delay. Normally, according to
the law of the exporting country, exporter is entitled to compensation for losses due to
late payment. However, the specific content will be based on the terms of payment in the
agreement between the parties. In the worst case scenario, when the payment is based
on open accounts, does not guarantee, does not agree on late payments, the exporter
can only increase the pressure on the buyer by writing letters, calling, law monk, ...

The best way for the exporter is to negotiate an irrevocable, confirmed, at sight L/C to
minimize the risk of late payment.

III. The 5 steps in negotiating payment

A third party security is security given by an individual or entity which secures the liability
of a third party. Benefits of Third-party security for payment:

- Efficiency in Business performance

- Promote Business relationship and boost cooperation

- Competitiveness in Business

- Profitability in trading

1. Export Credit Insurance (ECI)

ECI allows exporters to offer competitive open account terms to foreign buyers while
minimizing the risk of non-payment. ECI does not cover physical loss or damage to the
goods shipped to the buyer.

(Chỉ bảo hiểm khả năng không thanh toán, ko bảo hiểm hàng hóa)

To buy such insurance, the exporter must explain the details of the business to an
insurance company and receive a quotation. If the insurer refuses to pay, it may mean
that there are some problems with the exporter or importer.

Nhược điểm, hạn chế (Bảng ở phần trên)

2. Guarantee Conditional Guarantee

Guarantees are commonly used in 4 business situations:

Risk 1: Non-payment -> Payment guarantee

 There is one risk for the Seller: not being paid. A payment guarantee simply commits the
bank to pay if the buyer defaults. The payment guarantee is usually for 100% of the
contract price.

Risk 2: Revocation –> Tender Guarantee/ Bid bond (Bảo lãnh dự thầu)

The tender guarantee reduces the risk of the revocation of an offer. A normal figure for a
tender guarantee is between 1.5% and 5% of the contract price.

(Một nhà XK trả giá để được cung cấp nguyên liệu cho một dự án, bên dự án sẽ yêu cầu
bên ng XK mở một bảo lãnh dự thầu. Trường hợp bên nhà XK này rút đơn thầu thì sẽ ko
được nhận lại tiền bảo lãnh -> ngăn chặn rủi ro làm chậm trễ tiến trình của dự án)

Risk 3: Non-Performance -> Performance Guarantee (bảo lãnh thực hiện hợp đồng)

The performance guarantee reduces the risk of non-performance or inadequate performance

by the exporter. A normal figure for a performance guarantee is between 5% and 10% of the
contract price.

(If you work badly or not at all, the guarantor shall pay the costs of your failure to perform,
within the stated limits)

Risk 4: Losing prepayment -> Prepayment Guarantee

The advance payment guarantee reduces the risk of losing prepayment. (The Buyer asks
the Seller for a Prepayment G. The bank will return the prepayment if the exporter fails to
deliver the goods. The guarantee is normally for 100% of the prepayment, decreasing as
deliveries are made.

3. Demand Guarantee (bao lanh vo dieu kien)

If a bank issues a “demand guarantee”, it must pay the guarantee sum on first
demand without question. -> So risky (beneficiary falsely or improperly demanding
payment) (ng thụ hưởng yêu cầu thanh toán bất hợp lý).

* A conditional guarantee would be preferable?

According to the guarantee, (bao lanh co dieu kien) the bank would pay if the claims were
supported by:

- A decision of the court of first instance ( a decision by a judge)

- An arbitral award ( a decision by a court of arbitration)

- The approval of the principal in writing to the claim

II. Letter of credit

Letter of credit (L/C) also known as Documentary credit is a widely used term to make
payment secure in domestic and international trade. The document is issued by a financial
organization at the buyer’s request.

* Why are L/Cs formerly called Document credits?

Normally, we exchange goods for money. However, in the situation of an L/C, documents
are exchanged for money.

* Benefits of L/C

To the exporter To the importer To the bank

- Payment protection - Documentary - Source of income

(reliance on the bank’s
creditworthiness rather
than the buyer’s)
- Payable rapidly
evidence that the ordered
good have been shipped - New relations
on time
- Better reputation
- Payment deferred until
goods are shipped and - The government can
documents presented be aware of the
transaction
- The documents are
carefully checked by the
bank

? Risks of L/C

Exporter Importer

- Has to wait for 3-5 days for the bank - The quality of the goods is not
to check the documents ensured

- The money has to travel for a long - The deposit sum is too high (đóng
time and journey băng lượng tiền cọc)

- The Beneficiary’s documents MUST

comply with the terms and conditions of
the L/C for issuing bank to make the
payment

- The commercial condition of the

issuing bank

- Costly

- Complicated

- A lot of paperwork

* Issuing/Opening/Establishing an L/C

- The buyer presents the documents of the real transaction with the Seller to the issuing
bank

- The issuing bank opens an L/C on a basis of the deposit (~100% of the invoice)
- The Issuing bank sends the L/C to the Advising bank (Advising bank is a bank in the
Seller’s country)

- The Advising bank check the authenticity (tính hợp lệ) of the L/C and of the issuing bank

- The Advising bank advise the L/C to the Beneficiary that there is an L/C opened in his
favour

- The Beneficiary check the L/C against the contract to assure that the information of the
L/C is the same as in the contract

- Provided there is no discrepancy, the Beneficiary delivers the goods and prepare the
shipping documents. If there is discrepancy, the Beneficiary asks the Applicant to amend the
L/C

* Presenting an L/C

- The beneficiary delivers the goods and make the document compliance with the L/C

- Negotiating Bank checks the compliance of documents with the L/C then pays the
exporter if appropriate or forwards the documents to the Issuing Bank

- The issuing bank checks the documents then honours (thuc hien thanh toan) the
payment through the Negotiating bank?????????????

* Common discrepancies? (Page 92)

- Problems with the L/C (missing documents, unsigned, credit exceeding, …)

- ………………………….. B/L (unclean; does not state shipped on board; …)

- ………………………….. Insurance (wrong type: Certificate of Insurance instead of

Policy; the insurance covers…)

- Inconsistencies among the Documents (description of the goods; weights, marks and
numbers….)

* What can be done in case of discrepancy?

- Correct then represent the documents

- Ask for L/C amendment

- Accept payment (the issuing bank then notifies the Applicant of the discrepancy, then
pay if the Applicant agrees)

* Some standard forms of documents?

- Commercial Invoice: The billing for the goods and services

- Bill of Lading: A document evidencing the receipt of goods for shipment and issued by
a freight carrier engaged in the business

- The insurance document

- Other documents (Certificate of Origin; Certificate of Inspection;…..)

* 2 principles of the L/C

- Autonomy: The L/C is a separate agreement from the sales contract. The issuing bank is
obliged to pay whatever the disputes between the Seller and the Buyer

- Strict compliance: The documents presented by the seller/beneficiary to the bank in

order to obtain the payment MUST conform strictly on their face with the terms of the credit.

? Revocable & Irrevocable L/C

(Source: Slide)

* Confirm & Unconfirmed L/C

UNCONFIRMED L/C: When the issuing bank of the L/C has trustworthy creditworthiness
and the seller does not seek the second guarantee.

CONFIRMED L/C: If the sellers have doubts about the buyer and/or the strength and
reputation of the issuing bank, and not comfortable with the creditworthiness of the issuing
bank, they should request a confirmation to reduce the payment risk. In that case, the
confirmed L/C is made.

* Back to back & Transferable L/C

Back to back LC: A letter of credit which is commonly used in a transaction including an
intermediary. There are two letters of credit, the first issued by the bank of the buyer to the
intermediary and the second issued by the bank of an intermediary to the seller. Used in a
transaction involving an intermediary between the buyer and the seller (Giao dich qua trung
gian)

Transferable LC: L/C that has been made available by the transferring bank to a second
beneficiary at the request of the first beneficiary. Also used when intermediary (giao dich qu
trung gian) is involved

* At sight & Deferred L/C

At sight LC: A letter of credit that demands payment on the submission of the required
documents. The bank reviews the documents and pays the beneficiary if the documents
meet the conditions of the letter.

Deferred LC ( LC trả chậm ): A letter of credit that ensures payment after a certain period of
time. The bank may review the documents early but the payment to the beneficiary is made
after the agreed-to time passes. It is also known as usance LC.

? Standby LC: (alike Guarantee) A letter of credit that is designed to assure the payment if
the buyer does not pay. The seller proves that the promised payment was not made and he
has fulfilled all the terms mentioned under SBLC. In this situation, the bank will pay to the
seller.

? Red Clause LC: A letter of credit that partially pays the beneficiary before the goods are
shipped or the services are performed. The advance is paid against the written confirmation
from the seller and the receipt. (ng bán cấp tín dụng cho ng mua)
? Revolving LC: is one which provides for restoring the credit to the original amount after it
has been utilized. How many times it will be taking place must be specifically mentioned in
the credit. How to use: Individuals or businesses that do business previously, habitually and
understandably or If the buyer places a large order and requests partial delivery of the
ordered goods at specific intervals. (mở LC cho 1 lô hang, sau khi LC đó được thanh toán
thì LC đó tự động dc mở lại. Sử dụng khi có các giao dịch giống hệt nhau trong 1 khoảng
tgian cố định, hoặc khi lô hang được giao làm nhiều lần)

Chapter 3 – Negotiating Inspection and Defects

Liability
Defect liability period (DLP): ( = Warranty period) Thời hạn trách nhiệm về khuyết tật của
hàng hóa

? Quality checks on goods (Forms of inspection)

1. Inspection by buyer during manufacture: Visual inspection and dimensions of the

goods; production status,etc

2. Inspection by buyer/ buyer’s agent before delivery: to ensure that the price charged
by the exporter re>lects the true value of the goods. Requirements for pre-shipment
inspection are normally spelled out in contract or other documents.

3. Inspection by inspection service : inspection to be done by a third party such as

vinacontrol, SGS,etc

4. Inspection by carrier: defective packaging or discrepancies in weight and size are

noted on the shipping documents

5. Open package inspection on arrival at destination: means inspection after delivery.

The Buyer opens SOME packages at random
 6. Seller’s liability for defects after sale

? Why you need inspection?

- The buyer must be protected against inferior goods

- The seller must be protected against cancellation of the contract for

insufficient reasons.

? 5 steps in negotiating the Defects Liability Period (DLP)

Inspection -> Terms -> Definition -> Timing -> Corrective action

Step 1: Inspection, Acceptance and Rejection

? Acceptance/ Rejection of inspection’s result / of the goods

- If the goods are up to standard, the Buyer shall accept the goods.

- Rejection can be done in whole or in part (Partial rejection). Rejection in

whole means if a proportion of the goods are defective, the Buyer has the
right to reject all the shipment. Partial rejection means the Buyer only reject
the defective part of the goods and shall have to accept the up-to-standard
part.

? Implied Warranty (Bảo hành ngụ ý) and Express/Explicit Warranty (Bảo hành rõ ràng)

- Implied W: The contract states nothing about this. It is the common

understanding between the Seller and the Buyer and buyer can make claims
even if it isn’t expressed in the contract.

- Explicit W: There is a clause In the contract which clearly states the warranty
condition. If an item fails, the producer would replace or fix the product at no
extra charge.

? 3 types of Implied Warranty

- Implied Warranty of Conformity with Contract (Hang hoa phai phu hop voi
noi dung cua Hop dong): Goods must be conform with their description in the
contract

- Implied Warranty of Merchantable Quality (chất lượng thương phẩm/ chất

lượng hàng hóa có thể bán được): Goods might conform with the contract but
be of seriously inferior quality, the buyer has right to reject them and cancel
the contract.

- Implied Warranties of Fitness for Intended Purpose (Phù hợp với mục
đích sử dụng dự kiến): Goods might conform with the contract and be
merchantable but still be useless to the buyer.

? The exporter’s right to cure (to make good the defect) (khắc phục lỗi)

If the Seller wants the right to cure, there must be a clause in the contract clearly
states that it is the Seller’s right
Step 2: Terms: Warranty and Guarantee

A warranty is a contract/ agreement between the Seller and the Buyer that requires
the Seller to replace defective products sold to the Buyer.

A guarantee is issued by the guarantor to provide the beneficiary with financial

security if the principal/applicant fail to perform his duties.

Warranty Guarantee

Number of 2 (Seller/Manufacturer and 3 (Principal; Beneficiary;

parties involved Buyer/User) Guarantor)

Purpose Assurance of your own Assurance of someone else’s

performance (the seller). Make performance. G is a type of
sure the goods are up to standard trade services

Subject Product and/or services Performance

Timing Standard W and Extended W Depend on type of G

Cost Included in the price Separated from the contract

Step 3: The Defect Liability Period (DLP): A chance to put things right

? What is the DLP?

Defects liability period is the period during which the exporter is liable for - and must
make good defects that are apparent on delivery or that come to light later

? Purpose of the DLP?

- For the Buyer: Ensure that the Buyer can have peace of mind about
quality of goods without in fear of defective goods or cost of repairing
them.

- For the Seller: More economical and efficient to carry out the cure
himself than to pay for another contractor hired by the Buyer. It is
deemed to be the Exporter’s right to cure.

? 3 types of Defect:
Patent (Lỗi hiện tỳ): broken, scratched, deformed, etc

Inherent (Lỗi nội tỳ)

Latent (Lỗi ẩn tỳ);

- Defective workmanship: A product with defective workmanship is incorrectly

built.

- Defective materials: Materials or parts of a product that are inferior or

somehow incorrect

- Defective design: a product does not meet specifications

Patent Defect Latent defect

Probability of being discoverable upon a cannot be discovered by

discovered reasonable inspection a reasonable inspection.

Feature open and obvious hidden

Danger to users far less potential far more potential

danger to users danger to users

? Exclusions: What is not a defect ( Cac truong hop khong phai lỗi và sẽ không được
bảo hành)

- Fair wear and tear (hao mòn) the result of normal use; ordinary
operation of natural forces (sunlight, rain,etc)

- Misuse (lỗi lắp đặt): seriously incorrect handling by the buyer;

Sometimes misuse is expressly defined in the contract

- Faults not present on delivery: The buyer must prove that the defect was
present in the goods at the date of delivery.

? Disclaimer of warranty:

The parties decide on a totally different kinds of obligation, thus warranty

provisions are dispositiveLiquidated damages
 . The related party may add the clause called Disclaimer of Warranty. (Page
131)

Many states permit implied warranties to be disclaimed by simply indicating

that the product or service in question is provided “AS IS”. Usually seen in
Software contracts.

Step 4: Timing of the DLP

Timeframe 1: The DLP

Typical defects liability period lasts for 6 to 12 months.

? Starting point of DLP

- Delivery (seller preference)

- Arrival and inspection

- Completion of performance tests

- Final acceptance by the buyer (buyer preference)

The Defects Liability Period shall be extended by a period equivalent to the period
during which the goods cannot be used because of the defect. This extended
period must not be beyond 24 months from the date of first delivery of the
Goods repaired or replaced.

? What is External Warranty? Risk? Solution?

Eternal Warranty is an endless renewed liability for defects. The replaced parts
shall have a full further period of warranty.

Risk: The Seller is eternally responsible for the quality of the goods -> costly and
risky.

Solution: A Cut-off date should be included in the warranty clause such as “the
total warranty period shall in no case exceed 3 years”

Timeframe 2: Notification period (Thời gian thông báo; tính từ ngày phát hiện lỗi)

The buyer must notify the exporter if a defect occur. In practice, most of contract do
not put precise time limit on the Notification Period -> in case, a problem arises, the
judge sets a fair period for undue delay

Timeframe 3: The rectification period (thời gian khắc phục lỗi)

It is the period stated in the contract that provides for the making good of defects.
The Seller shall make good of defects or damage as soon as practicable and at his own
cost.
Timeframe 4: Legal action period (Thời gian khởi kiện; xảy ra nếu việc khắc phục lỗi nói trên
không được thực hiện giống như trong hợp đồng)

This “legal action period” differs under applicable laws. In Germany, for example, the
BGB defines a legal action period equal to and concurrent with the defects liability period. In
another common Continental law pattern, the legal action period begins when the buyer
notifies the exporter of the defect. The legal action period is then the same length as the
defects liability period.

In practice, contracts rarely regulate the legal action period, leaving the matter to the
applicable law.

Step 5: Corrective Action

5 options for curing defects

Advantages Disadvantages/Risks Solution

Option 1: If the If the manufacturers sells include these costs in

Repair manufacturer out of his country, exporting price.
sells within his travelling with tools is
country, this is costly -> Solution: include
the cheapest these costs in exporting
option and price.
suitable for
complex items

Some products cannot be

repaired.

- Expensive - Include
Option 2: Allow Save the cost of repair bill only in
the Buyer to sending a - The repair excepti
repair at mechanic abroad
process is onal
Exporter’s cost to repair
not carried cases
out - Only
properly with the
- Further exporte
problems r’s
express
approv
al

- The
Option 3: Maintaining the replaceme
Replace (Part goodwill of the nt part
or whole item) customers
must pass
2 sets of
 customs.
- Airmail is
normally
required.
- If the
replaceme
nt part are
to be
installed, a
technician
must be at
hand ->
costly and
inconvenie
nt

Option 4: If payment is Difficult if the foreign Include provision for a

Reduce the made by LC, the exchange is scare “retainer” kept back by
price exporter pays the buyer till the end
directly of DLP

If payment is
made by open
account,
payment due is
simply reduced

- Least
Option 5: desirable Solutions if the buyer
Return the for the insists on including the
goods and terms, the exporter
exporter
refund the must allow this option
price (=cancellati only in exceptional
on of the cases and with his
contract) -> express agreement
the
exporter’s
total loss
- Cost of
return
shipment
might be
higher than
the worth
of defective
goods

? Liquidated damages: a different kind of Cure

Works as a “contract guarantee” that warrants a certain performance and agree to
pay compensation for a shortfall

It benefits for both parties:

- To exporter: If any failure to meet the specification occurs, their loss is kept
within reasonable limits, protecting the seller from being penalized by total
loss of contract.

- To importer: It ensures that the products supplied by the Seller work as

specified in the contract, otherwise, the price is reduced in a fair and
reasonable way.

The performance figures that are typically subject to a liquidated damages clause
are

- output (for example: of a generator, a pumping system,etc);

- consumption ( fuel consumption of an engine, etc)

- efficiency

? Losses from defects ( 2 categories)

- Direct losses : arise naturally from the breach of contract.

- Indirect losses (consequential losses- tổn thất do hậu quả gây nên) :
probable result of the breach.

National laws differ in their approach to consequential loss. Most exporters try to limit
their responsibility to repair the defective goods only; while the buyers usually ask for
compensation for all consequential damages -> the 2 parties must negotiate and
state the issue clearly in the contract.

Chapter 4: The legal framework

6 steps in negotiating the legal framework:

1. Choosing an applicable law

2. Contract or no contract?

3. The contract as the entire agreement

4. Provisions concerning the parties

 5. Provisions concerning the status of the contract

6. Settlement of disputes

Step 1: Choosing an applicable law

? What is an applicable law?

Applicable law refers to what jurisdiction’s (quyền hạn) law is to be applied when
there is a dispute in a transaction

Continental law (Civil Law, Civilian Law, Roman Law)

- The most prevalent (~common) and oldest surviving legal system

- Derive from the Roman Empire

- Based on core principles or legal codes

- The judge’s role: build the facts surrounding the case, then apply the
appropriate provision in the legal code.

Anglo-american law (Common law, case law)

- Based on case law or rulings, judicial precedents

- The judge’s role: adhere to precedents where the facts and

circumstances are fundamentally similar or set a precedent

- England, US. English-speaking countries

? Comparison

A penalty is not enforceable in Anglo-American law

Anglo-American systems Continental Systems

Goal Justice in the individual Consistency and uniform of

case enforcement

Predictability & Consistency Unpredictable & Predictable & Consistent

of Court decisions Inconsistent
 Unless matters are carefully Decisions are predictable
regulated in the contract, and generally consistent
the judge's decision is not from court to court.
predictable and different
judges may give different
judgements.

Length & detail of contract Long and detailed because Brief because the law
contracts must regulate regulates most problems
many issues.

International acceptance Internationally accepted Nationally accepted

Sometimes, the parties cannot agree to an applicable law, so they leave the matter open,
then a special branch of law known as “International private law” comes into play and
decides the law of the contract.

Vienna Sales convention (Tên khác là CISG: The United Nations Convention on Contracts
for the International Sale of Goods - Công ước về hợp đồng mua bán hàng hóa quốc tế của
Liên hợp quốc)

? Pros & Cons of Vienna sales

Pros/ Purposes Cons

Increases the predictability of outcomes in Less known or lawyers have less

international trade experience with the CISG

Reducing the legal conflicts The principle of freedom of contract

Providing a modern, uniform and fair The language is general -> confusing
regime for contracts for the international
sale of goods

For parties who do not wish to have them governed by the CISG, the recommended
procedure is to state in their contracts: “The Vienna Convention of 1980 on International
Sales Contracts shall not apply to this Contract”

Step 2: Contract or no contract?

? 5 conditions to make a contract valid

1. Meeting of minds
? How can “No meeting of minds” happen?

- Duress (ép buộc): One party uses its excessively strong position to
dictate unfair terms. The agreement is ruled unconscionable ó No
Contract.

- Mistake and fraud (nhầm lẫn và gian lận): a mistake (understand

wrongly) about the goods or a deliberate fraud (an act of deception
carried out for the purpose of unfair gain) (sự gian lận cố tình).

- Failure to follow the rules of offer and acceptance

2. Offer and acceptance

The counteroffer is a rejection; it kills the original offer. The cycle of offer and
counteroffer continues until one side accepts or until negotiations are broken off.

? When the party making the offer withdraws or revokes it?

- Under continental law systems, there must be special wording in the offer
if the Seller wants to reserve the right to withdraw the offer.

- Under Anglo-american law systems, the exporter always has the right in
principle to withdraw an offer, even if the offer states clearly that it is open
for a certain day.

- This right of revocation is limited In the United States by the UCC.

3. The power to make a contract

? What does “ultra vires” mean ? (vượt quá thẩm quyền)

- It means “beyond its power”. Under the public law (company law) of
many countries, a company only signs a contract that is within its power.
A contract that is ultra vires is unenforceable.

- Its purpose is to protect the shareholder by limiting the power of

companies to enter contracts.

- It is the exporter's responsibility to find out the power of the companies

before contract signing. If they fail to do so, that is their problem.

4. Legality of purpose

The purpose of an agreement must be legal. If not, the agreement is unenforceable.

Example: trade in elephant ivory

Partial Invalidity Provision (hợp đồng vô hiệu một phần) says that the invalidity
of one part of the contract does not invalidate the rest. If one part of the contract is
invalid, the parties will try restore the original purpose of the contract by drafting a new
clause.

5. The exchange of consideration

There are 2 types of agreements:

- One-sided agreement:

+ Under Anglo- American systems, it is not a contract and it is not governed

by contract law.
+ Under Continental legal systems, it is enforceable (có hiệu lực) in just the
same way as a two - sided contract.

- Two-sided agreement: Naturally, most export contracts are two-sided –

they are typical exchange contracts.

Step 3: The contract as the entire agreement

? The entire agreement clause

In general, Final contracts can be divided into 2 types: comply with Anglo-American
Law (Common Law) or Continental law (Civil Law, Civilian Law, Roman Law).

In Anglo-American Law, The final contract replaces all previous agreements between
the parties. It means all terms or conditions that both parties have discussed before
are invalid.

In Continental Law, The final contract is simply the final link to a chain of
agreements.

The Entire Agreement clause means that the final written contract is the whole
agreement. With such a clause in place, both sides know where they stand
whatever law applies to the contract.

(Trong Luật Anh-Mỹ, Hợp đồng cuối cùng thay thế tất cả các thỏa thuận trước đó
giữa các bên. Nó có nghĩa là tất cả các điều khoản hoặc điều kiện mà hai bên đã
thảo luận trước đó đều không hợp lệ.

Trong Luật Lục địa, Hợp đồng cuối cùng chỉ đơn giản là liên kết cuối cùng cho một
chuỗi các thỏa thuận.)

? The Whereas Recital

The word whereas means because or considering that, in other words,

whereas-clauses are not provisions, promises or conditions – they are
explanations. In most contract, the whereas recital is underneath the title and
parties’ block but before the body text of the agreement

The preamble is usually given the heading Recitals, Whereas or

Background, probably written in all-caps or bold. They contains many types
 of background information: a few key characteristics of the agreement, the
related transaction or the parties’ businesses and help the reader understand
the background before digging into the definitions section.

Purpose: If a dispute arises, the Recital allows the court to discover the real
meaning of the contract through an understanding of the expectations of the
parties when they signed it.

Problem: The exporter sometimes tempted to use the recital as the chance to
promote his skills and the excellence of his product -> The buyer will have a
“big stick” (a policy of acting or negotiating from a position backed by a show
of strength – lợi thế khi đàm phán) with which to beat the exporter when the
contract gets into trouble If big claims are in the recital in black-and-white, the
exporter is trapped.

Contract Documents

Anglo-American law states that the final written version of the contract replaces all
previous agreements between the parties. That means any agreement, letter, or
any other documents that predate the contract become invalid once the
contract is signed.

In international practice, the parties often wish to “incorporate” outside

material into the contract, such as: Letters, General conditions, Specifications,
The Incoterms,Generally accepted industrial norms,etc. Clause consists of
specific documents that are part of the Contract, and these documents must
be listed in the order of precedence: A document which has greater
authority stands at a higher place on the list.

Definitions

Multiple meanings in a contract refers to instances where one word or term may have
more than one definition or interpretation. Terms that have multiple meanings can
therefore cause disputes and misunderstandings in a contract.

? How to avoid misunderstanding?

- Every word that the two sides discuss during their negotiations is likely
require a definition.

- Any exchange of notes has no validity when the contract is signed, a

formal definition is the best way of clarifying what exactly the two sides
have agreed.

- It is common pracice to group all definitions in a section of their own near

the beginning of the contract.

Step 4: Provisions concerning the parties

? The identity of the Buyer

 Before signing the contract, check the identity of the Buyer carefully. Some ways to
check: take a quick telephone call to this company; search the official information
from commercial chamber.

? The name in the contract?

2 key things to be aware of:

- Making sure the Right parties are named

- Making sure the parties are named correctly.

Using short form of a company helps

- Save space

- Reduce the risk of mistyping

? Notice

A notice provision is an agreement between parties on how to receive notices about

contractual matters, and this clause should be very clear on its requirements. Typically, it
will include the following information:

- How the notice should look?

- Acceptable methods for sending notices, such as by email, fax, or mail

- The information to be contained

- Who to send notices to?

- The time limit

? Assignment (sự chuyển nhượng) of Rights and Delegation (sự ủy thác) of Duties

An assignment is the process of transferring responsibility and

accountability.

Delegation is the process by which responsibility and authority for performing

a task or activity is transferred to another person.

Step 5: Provisions concerning the Status of the Contract

The lifetime of a contract

? Definition

The period of time from the time of the conclusion of the contract to the time the
contract comes to an end.

(Source: Slide)

1. Discharge by performance (chấm dứt hợp đồng đã hoàn thành)

Both parties perform their duties exactly according to the contract, the contractual
relationship ends when the last duty is fully performed.

2. Termination (chấm dứt)

Definition: Termination occurs then either party pursuant to a power created by

agreement or law puts an end to the contract otherwise than for its breach. (Trong
họp đồng có qui định)

2 types of termination:

Termination for Termination for default

convenience
(Chấm dứt do có vi
(chấm dứt vì quyền phạm)
lợi)

When When one party When the contract

occurs? (usually the Buyer) names certain defaults
simply decides to drop which allow one side)
the contract. No to terminate. For
reason required. whatever reason

Conseq The Buyer must pay The Seller shall be

uence for all work performed
or partly performed.
entitled to receive full
payment for all goods
and services delivered
at the date of
termination.

3. Cancellation (hủy bỏ)

Definition: Cancellation occurs when either party puts an end to the contract for
breach.

2 types of breach:

- Fundamental breach (vi phạm cơ bản): A breach that is one of the basic
terms of the contract.

- Not fundamental breach: A breach that is not expressly stated in the

contract.

4. Rescission

Definition: Rescission occurs when both parties agree to end a contract.

5. Impossibility and Frustration (I&F)

 Definition: I&F occur when a contract is discharged because it is impossible for one
party to perform its obligation or total pointless to continue with it. From the Seller’s
perspective, the discharged will be deemed as “Impossibility” while for the Buyer, it is
“Frustration”.

? Comparison

Termination Cancellation Rescission

One-sided procedures One-sided procedures Two-sided procedures

There is a provision in the The contract is cancelled Perform a contract not

Contract, the Contract is when one side has contemplated by the parties
terminated in accordance breached any terms in the
with this provision contract

The language of the contract

Whenever versions of a document exist in 2 languages, there are conflicts: no translation is

perfect. Ideally, both parties should agree on a contract language.

? What happens if both parties cannot agree?

2 possibilities:

- The parties say nothing at all, the judge decide which version to trust.

- The parties make 2 versions equally authoritative, again, the judge

decides which version to favor.

Step 6: Settlement of disputes : Giải quyết tranh chấp

Amicable (~friendly) settlement

Amicable settlement is a type of negotiation method that involves parties to the

conflict settle the conflict on their own. An expert negotiator or a third party as a
settler is not involved in this process. Only the exact parties to the conflict will be
involved. This is the most common form of dispute resolution.

The word “Amicable” means: exhibiting friendliness and goodwill in a peaceful

manner

Advantages?

- Speediness: The disputes are resolved within a short period of time

- Low Cost (in comparison with other settlement methods only): as it does
not requires the involvement of a Third party
 - Secrecy: The contract information and the disputes of the two parties are
not disclosed to third parties.

- Maintenance of the relationship between Contracting Authority and

Contractor

- Control over the procedure and examination of several potential

solutions

Conciliation (nhân nhượng)

Conciliation is a process where an independent third party, the conciliator trusted by

both sides, helps people in a dispute to identify the disputed issues and try to reach
an agreement.

Litigation (tố tụng)

Litigation before the courts is internationally the least attractive because of its
disadvantages: - It is public

- It is expensive (the cost is beyond control)

- Time-consuming

- Decision is normally law-oriented

However it has a special advantage: the enforcement of awards

If the contract does not specify that disputes go to arbitration, then, under the
applicable law, they go to litigation in the national courts

Arbitration Trọng tài

If the two sides cannot reach agreement between themselves, the resolution of their
dispute requires a forum that is a court of law unless the parties specify otherwise. In
practice, most contract do specify otherwise calling for arbitration.

Arbitration clause specifies:

- The rules of arbitration to be used

- The place

- The language of the court

- Number of arbitrators

- Who pays costs

- Commitment of arbitral decision acceptance

Disadvantages: Costs are extremely high, and many costs

However, it has many advantages:

- Privacy and the business experience of the arbitrators

 - Quicker than litigation

- The cost is under control

- The court is neutral

- Decision is business-oriented rather than law-oriented

The enforcement of awards hoãn thi hành phán quyết của trọng tài

In practice, an arbitral award can normally be enforced through the civil courts. Civil
courts take these steps because most trading countries have accepted the major
international convention on the enforcement of awards - the so - called New York
Convention . The Convention requires courts of contracting states to give effect to
private agreements to arbitrate and to recognize and enforce arbitration awards
made in other contracting states.

However, having the right to enforcement and achieving enforcement are two
different things.

Nonperformance under this Agreement shall be excused, and neither Party shall bear any
resulting liability to the other, to the extent that such performance is rendered commercially
impracticable or delayed by an act of God or any other cause beyond the reasonable control
of the non-performing Party. If any force majeure event affecting Buyer or Seller continues
for a period exceeding one (1) month without a prospect of a cure of such event, the other
Party shall have the option, at its sole discretion, to terminate this Agreement, upon 14 days’
notice. Such termination shall take effect immediately upon the written notice from the other
Party to the Party affected by the force majeure event.
Việc không thực hiện theo Thỏa thuận này sẽ được miễn trừ và không Bên nào sẽ chịu bất
kỳ trách nhiệm nào dẫn đến việc thực hiện đối với bên kia, trong phạm vi mà việc thực hiện
đó không thể thực hiện được về mặt thương mại hoặc bị trì hoãn bởi một hành động của
Bất khả kháng hoặc bất kỳ nguyên nhân nào khác ngoài tầm kiểm soát hợp lý của việc
không thực hiện Buổi tiệc. Nếu bất kỳ sự kiện bất khả kháng nào ảnh hưởng đến Người
mua hoặc Người bán tiếp tục trong thời gian vượt quá một (1) tháng mà không có khả năng
cứu chữa được sự kiện đó, thì Bên kia sẽ có toàn quyền lựa chọn chấm dứt Thỏa thuận
này, sau 14 ngày ' để ý. Việc chấm dứt đó sẽ có hiệu lực ngay sau khi Bên kia thông báo
bằng văn bản cho Bên bị ảnh hưởng bởi sự kiện bất khả kháng.