COMMERCIAL LAW

BBB 2313

LECTURE 5: INTERNATIONAL SALES

 TOPIC OUTLINE
• Introduction

• Types of Export Transaction

• Contract for the International Sale of Goods

• Payment in International Sale Transaction

 INTRODUCTION
• Contracting parties from different countries come with different legal
traditions
• Would have different approaches and expectations in international trade
transactions
• Need to be harmonized to set out parties rights and duties, terms and
conditions, quantity and price, choice of law and forum
• Body of law which governs contracts for present or future sale of
goods
• Through unification of law
• The United Nations Convention on Contracts for the International Sale of Goods (CISG; the Vienna Convention)
is a treaty that is a uniform international sales law
• Negotiated in 1980 and became effective in 1988
• Governs commercial sale of goods
• Set of rules governing certain aspects of the making and performance of commercial contracts, involving sale
of goods, between sellers and buyers who have their places of business in different country
• To make it easier and more economical to buy and sell goods in international commerce
• Between parties whose place of business are in different countries
• The places of business are in countries that have ratified the CISG
• Over 70 countries have ratified CISG (https://www.cisg.law.pace.edu/cisg/countries/cntries.html)
• CISG were prepared by United Nations Commission on International Trade Law (UNCITRAL)
• Establish by United Nations General Assembly 1966
• Core legal body of the UN system in the field of private international trade / commercial law
• Promoting unification and harmonization of the law of international trade
• ASEAN treaty in 1992 they formed an ASEAN Free Trade
Area (AFTA)
• Disputes concerning economic agreements are settled
according to an ASEAN Protocol on Enhanced Dispute
Settlement Mechanism
• Non binding
• ASEAN Free Trade Area (AFTA) is a trade bloc
agreement
by the Association of Southeast Asian Nations supporting
local manufacturing in all ASEAN countries
The primary goals of AFTA seek to:
• Increase ASEAN's competitive edge as a production base
in the world market through the elimination, within
ASEAN, of tariffs and non-tariff barriers; and
• Attract more foreign direct investment to ASEAN
 EXPORT
• Once the goods are ready, the exporter has to prepare and execute various documents of different tags of
sending the shipment of goods to the importer
• Various documents are vital to the exporter and bank as form of payment
• Comply with the rules and regulation with the Malaysia government as well as the importing countries
for different type of products
• Malaysia follows the Harmonized Tariff System (HTS) for the classification of goods where all imported
and exported goods into the country must be categorized based on the Malaysian Customs tariff
numbers
• Malaysia Strategic Trade Act 2010 is an act to provide for control over the export, transhipment, transit
and brokering of strategic items, including arms and related material, and other activities that will or may
facilitate the design, development and production of weapons of mass destruction and their delivery
systems and to provide for other matters connected therewith, consistent with Malaysia’s national
security and international obligations
The purpose of the Strategic Trade Act 2010 is as follows:
• Controlling on exports, transfers, transit and brokerage of strategic items, including weapons and related
materials, and other activities that will or may facilitate the design, development and production of
weapons of mass destruction and proliferation of weapons of mass destruction.
• Protecting Malaysian exporters from being mooted and used as illegal channels in the supply of strategic
items for the proliferation of massive weapons of mass destruction
• Implementing other international obligations to safeguard the interests and security of the country
• The exporter shall ensure the permit has been obtained from the agency issuing the permit for goods
listed in Part 1 and Schedule 2 to the Strategic Trading (Strategic Goods) Order 2010 before export is made
• Shipping product overseas involves a number of different parties
• Freight forwarders, shipping companies, customs, etc as well as specific requirements for packing,
labeling, documentation, and licensing
• Documentation is an important element of the import/export process and is primarily driven by the
requirements of exporter's and importer's governments
• Following documents are commonly used in exporting, although which are actually used in each case
depends on the requirements of both the governments involved
 TYPES OF EXPORT TRANSACTION
1) Commercial Invoice
• As in a domestic transaction, the commercial invoice is a bill for the goods from the seller to the buyer
• A commercial invoice should include basic information about the transaction, including a description of the goods, the address of
the shipper and seller and the delivery and payment terms
• The buyer requires the invoice to prove ownership and to arrange payment. Some governments use the commercial invoice to
assess customs duties.
• A commercial invoice used in international shipping gives information about the product being sent, including:
 What the item is
 Who is the seller and buyer
 The date and terms of the sale
 The quantity and weight
 The value of each individual item
 The total value of the package
 Any insurance and shipping costs
• Customs officials use commercial invoices to work out the value of the goods being traded
• So they can determine the true value of goods for duty purposes
2) Bill of Lading
• A receipt for the cargo being shipped which contains the shipment details and parties involve
• Act as a legal transportation contract
• Supplied to the exporter by the shipping company that transport the goods to their foreign destination
• To acknowledge receipt by the carrier of the exporter’s goods
• To indicate the carrier’s contractual obligation to transport the goods to their destination in exchange of
payment
• To recorded transfer or tittle from the seller to buyer when payment for the goods takes place
• Sale of Goods Act 1957 - Seller may reserve the right of disposal of the goods until certain conditions are
fulfilled. In such case, notwithstanding the delivery of the goods to the buyer or to a carrier or other
bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer
until the conditions imposed by the seller are fulfilled
• Section 25 (2) - Where goods are shipped and by the bill of lading the goods are deliverable to the
order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal
3)Inspection Certification — Some purchasers and countries may require a certificate of inspection
attesting to the specifications of the goods shipped, usually performed by a third party.
4) Dock Receipt and Warehouse Receipt — These receipts are used to transfer accountability when
the
export item is moved by the domestic carrier to the port of embarkation and left with the international
carrier for export.
5) Insurance Certificate — If the seller provides insurance, the insurance certificate states the type and
amount of coverage.
6) Shipper's Export Declaration — The Shipper's Export Declaration is used to control exports and
compile trade statistics.
7)Export License — U.S. export shipments are required by the U.S. government to have an export
license, either a general license or an individual validated license (IVL).
8)Export Packing List — Considerably more detailed and informative than a standard domestic packing
list, an export packing list itemizes the material in each individual package and indicates the type of
package, and is used by customs and transportation companies
• Goods can be exported by sea, air, post, land or river
 CONTRACT FOR THE INTERNATIONAL
SALE OF GOODS
• A contractual exchange between parties in 2 countries that may have different system
• Execution of agreement which includes delivery, supplying of the goods to customer, receiving of the
goods and payment for goods
• The purpose of the CISG is to provide a modern, uniform and fair regime for contracts for the
international
sale of goods
• CISG does not require the contract to be in writing
• Governs contracts for the international sales of goods
• It applies to contracts for sale of goods between parties whose places of business are in different
Contracting States
• Deals with the formation of the contract, which is concluded by the exchange of offer and
acceptance
 • Article 1 of CISG states that unless there is an express choice of law, CISG will be the law of
dispute in two situations
• If the two parties have there place of business in countries that have ratified CISG
• If parties have more than two places of business, the place of business which has the closest
relationship to the transaction
• The contract must concern “predominantly” the sale of goods rather than services
• CISG does not apply to sales of stocks, shares, investment securities, negotiable
instruments or money
• If the parties to a contract do not want the CISG to apply, the contract must
contain an
express exclusion as example below:
A specific reference such as the following is recommended:
• The parties hereby agree that the United Nations Convention on Contracts for the
International Sale of Goods will not apply to this contract
 Société Cámara Agraria Provincial de Guipuzcoa v. André Margaron (1995)
• A French seller and a Spanish buyer concluded a number of contracts for the sale of maize. All the deliveries were made, but the buyer did not pay the full

price. The seller brought an action against the buyer before a French court, demanding payment of the full price and interest accruing.

• In the first instance, the Regional Court of Grenoble, without invoking CISG, ordered the buyer to pay the full price, but found that the seller was not entitled

to claim interest.

• The buyer lodged an appeal, objecting that the French court did not have jurisdiction and demanding a price reduction on the basis of an agreement

emerging from a meeting of the parties after conclusion of the contract.

• The Court of Appeal found that CISG was applicable since the contract in question was a contract for the international sale of goods concluded
between two

parties established in different States Parties to CISG.

• In order to determine where the price was payable, the Court of Appeal cited article 57(1) and article 31(a) and (c) in their entirety, and accordingly found

that the obligation to pay the price should be performed within the jurisdiction of the Regional Court of Grenoble, whether or not the payment had been

made subject to delivery of the goods.

• Regarding the price reduction requested by the buyer, the court found that, on the basis of article 29 CISG, a contract could be modified purely by agreement

of the parties. However, it also found that the modification of the purchase price could not, as in the case in point, result from the general mood of a

meeting.

• The seller's entitlement to payment of the price and interest on arrears was recognized. The Court of Appeal made reference for this purpose to article 78

CISG and noted that, unlike under French law, the serving of notice was not necessary.
 Ginza Pte Ltd v Vista Corp Pty Ltd (2003)
• Vista imported contact lens solutions from Ginza, which is incorporated and conducts business in Singapore.
• Two express clauses in the contract are of importance (1) that goods supplied would be manufactured according to the
requirements of the Australian Therapeutic Goods Administration (TGA); and (2) that the goods would be sterile.
• In brief, the goods upon examination by the TGA were found to be contaminated with bacteria. An audit of the
Singapore plant by the TGA resulted in a recommendation that all the goods manufactured by Ginza were to be
recalled.
• Ginza sued for payment for outstanding invoices whereas Vista sued for damages pursuant to articles 50 and
51(1) of
the CISG.
• Defendant attempted to rely upon the provisions of "the Sale of Goods Act 1895 (WA) or the CISG". It is patently clear
that pursuant to article 1(1) the CISG is the only applicable law in this case. However Barker J in a rather tentative
approach commented that "on the face of it, the terms of the Convention would appear to govern all relevant issues."
Furthermore Barker J in several instances made comments such as that fitness for purpose and merchantable quality
"find expression both in the Sales of Goods Act and the CISG." Such observations are irrelevant as only the CISG is
applicable.
• Article 35 was correctly isolated but logically there should have been an inquiry whether articles 38 and 39 as well as
article 40 are applicable. This question was never addressed by either party. The facts are not clear enough to
determine whether the seller could have relied on article 38 and 39.
• The court found that the buyer could rely on articles 50, 51(1) and 74. Again one can only assume that in this particular
case article 50(2) does not apply, as the whole factory was declared unsafe.
• In essence the buyer should have avoided the contract under article 25 as the seller has committed a fundamental
 ROLE OF CISG
• To governs commercial sale of goods and to provide a modern, uniform and fair regime
for contracts for the international sale of goods
• To promote unification and harmonization of the law of international trade
• The execution of agreement which includes delivery, supplying of the goods to
customer, receiving of the goods and payment for goods
• Set of rules governing certain aspects of the making and performance of commercial
contracts, involving sale of goods, between sellers and buyers who have their places of
business in different country
• To make it easier and more economical to buy and sell goods in international
commerce between parties whose place of business are in different countries
 PAYMENT IN INTERNATIONAL SALE TRANSATION
Letter of Credit
• Letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the
correct amount
• A bank’s promise to another bank that you they know you and (hold the overdraft facility) will act as a
guarantor for the transaction
• Need both banks’ party to the transaction to agree to act in this way
• A letter issued by a bank to another bank (typically in a different country) to serve as a guarantee for
payments made to a specified person under specified conditions
• Issued by a bank on behalf of the importer promising to pay the exporter upon presentation of the
shipping documents
• Issued by a buyer/ importer bank to the seller / exporter bank
• Importer pays the issuing bank the amount of the LC
• The document is usually irrevocable
• Protects the buyer because no payment obligation arises until the goods have been shipped or
delivered as promised
Process:
• 1. Buyer and seller communicate and confirm the sales

contract
• 2. The buyer apply for LC at their issuing bank
• 3. Issuing bank will issue the LC through the advising bank

(seller/exporter bank)
• 4. Advising bank (seller/exporter bank) will forward it to the

seller
• 5. Seller/ exporter will send shipment to the buyer/importer
• 6. Seller submit to the bank on the export document to the

advising bank
• 7. Presentation of document from advising bank to the issuing

bank
• 8. Document received by the issuing bank and buyer advice to

release payment to seller

• 9. Documents release to buyer
Bill of exchange
• Negotiable instruments which contain an order to pay a certain amount to a particular person within a
stipulated period of time
• It’s a written order by exporter instructing an importer or its agent to pay a specified amount at a specified
time
• Document guaranteeing the payment of a specific amount of money, either on demand, or at a set time,
with
the payer named on the document
• Issued by the drawer (the seller of goods/services) and addressed to the drawee (the buyer) to pay a certain
sum, either immediately or on a fixed date (a term bill) to a specified person (usually the drawer himself) or to
the bearer of the bill
• The drawee accepts the bill by signing it, thus converting it into
a post-dated check and a binding contract
Advance Payment
• Is a payment done by an importer to the exporter before shipment
• Beneficial from exporter perspective as he receives funds in advance
• Payment may be received either as soon as the order is confirmed or any time before
shipment
• Advance payments may be also used to negotiate a reduced price or to cover initial
supply costs
• From buyer’s point of view, advance payment carries little risk, as he advances
payment
before dispatch of goods
• Risk on buyer which includes non delivery , delayed or defective goods
• Advance payment of term in exports and imports is picked by a purchaser only when he
Open account trading
• An open account transaction is a sale where the goods are shipped and
delivered before payment is due
• Exporter sends goods first to buyer and buyer will sends money afterwards
normally with a credit period attached of 30-90days
• The goods, along with all the necessary documents, are shipped directly to
the
importer who has agreed to pay the exporter’s invoice at a specified date
• This option would be advantageous option to the importer but bring
risk to the exporter
• Risk: Buyer could default on payment obligation after shipment of the
 EXERCISES
1) The Contract For The International Sale of Goods or known as CIGS is to

provide a modern, uniform and fair regime for contracts for the international sale of

goods or in short, to govern contracts for the international sales of goods.

Analyze the roles of CIGS.

2)Ali imported about 800,000 of bio degradable plastic containers and as his business

partner, you persuaded Ali to use letter of credit as form of payment to

the exporter. Ali however, have no idea on the concept of letter of credit. As his partner

who has knowledge regarding this method payment, you are required to
inform him about letter of credit method of payment.
3) Ahmad agreed to export about 1 million empty box to a buyer in
Brunei. However, because he didn’t know much about the importer company
background well, he is asking for the importer for an advance payment. The
importer however, a bit reluctant to give advance payment as well. Evaluate the
concept of advance payment from both perspectives.
4)Commercial Invoice is one of the document used in an export
transaction. Elaborate the notion of commercial invoice.
5) Describe the essence of Ginza Pte Ltd v Vista Corp Pty Ltd (2003).
END