Study Guide
Though each Australian State and Territory has adopted the Vienna Sales Convention through its own legislation, the aspects of international sale not covered by the Convention will be governed by the domestic sale of goods legislation in operation in each state and territory. For example, Article 4 of the Convention provides that it is not concerned with the ‘effect which the contract may have on the 澳洲dissertation網property in the goods sold’. That is that the Convention does not cover the transfer of ownership in the goods sold. Because the Convention does not cover this aspect of the contract, the Sale of Goods Act will apply, even in Sale to Convention countries, where the Australian law is the governing law. Likewise, though China is a member of the Convention the Code of Contract Law which came into operation on 1 October, 1999 supplements the Convention in international sales, providing rules for the matters not covered by the Convention.
Another aspect of the interconnection between domestic laws affecting international sales and an international convention is the principle that the relevant international convention takes priority over domestic laws, if the relevant country has ratified and incorporated the convention into its domestic law. This principle of international law is established in common law jurisdiction such as Australia, New Zealand, United Kingdom, Canada, the United States and Hong Kong. It is the same even in countries largely based on a civil law tradition such as China and Japan.#p#分頁標題#e#
In each Australian state and territory, contracts for the sale of goods are principally regulated by the largely uniform sale of goods legislation. The sale of goods legislation is based on the Sale of Goods Act 1893 (UK). The Sale of Goods Acts in Australia, New Zealand, United Kingdom, Canada and in some Asian countries such as Hong Kong, Malaysia, Singapore are relatively uniform, based on the English model. Consideration of the Sale of Goods legislation in Australia is beyond the scope of the discussion. Issues arising from the application of the Sale of Goods legislation to contracts of international sale are examined in detail in Mo, JS 2003, Chapter 1.
Rules of general contract law (common law)
In addition to the Sale of Goods legislation, and the Vienna Sales Convention, the legal framework in the Common Law world for the international sale of goods includes general contract law or the Common Law of Contract. General contract law is the basis of the Sale of Goods legislation in Common Law jurisdictions including Australia, New Zealand, United Kingdom, Canada, Hong Kong, Singapore, Malaysia and India. The Sale of Goods Act is not an exclusive code and expressly or by implication preserves the rules of the common law including the law merchant, save in so far as they are not inconsistent with the express provisions of this Act, and in particular the rules relating to the law of principal and agent, and the effect of fraud, misrepresentation, duress, or coercion, mistake, or other invalidating cause.#p#分頁標題#e#
106
Study Guide
Thus in Australia and in most common law countries, the rules of general contract law apply to any contract of international sale where no inconsistency arises between the rules and principles of general contact law and the Vienna Sales Convention or any other applicable convention. In fact general contract law is always relevant to any contract of sale whether domestic, interstate or international.
It is, therefore, necessary to examine in some detail the rules of general contract law.
General contract law
The source for the information on general contract law is Griggs et al. 2003, Chapter 3, pp. 74-95. As a general statement, a legally binding contract has seven features:
1.
intention;
2.
agreement;
3.
consideration and form;
4.
capacity;
5.
legality of object;
6.
possibility of performance; and
7.
genuine consent.
The court will look for these features if there is a dispute between the parties as to whether their agreement is legally enforceable.
107
Study Guide
The figure below provides a checklist of matters which should be addressed when making a business contract.
Source: Griggs, L, Clark, E, Streeter, J & Iredale, I 2003, Managers and the law, Law Book Co., Sydney.
Intention to create legal relations
The law of contract is at the centre of the economic and business life of the community: the goods which are bought and sold; the bank account which is operated; the car which has to be repaired; the restaurant, theatre or cinema which is attended; the employment undertaken; and the transport used are all situations governed by contract. Yet, there is no uniformly accepted definition to situations governed by contract.#p#分頁標題#e#
The law of contract is concerned with the rights and obligations which arise from the making of a promise which the law will enforce.
This definition is useful, for it emphasises that an agreement to a contract must give rise to legally enforceable obligations. Therefore, contract has nothing to do with purely social or domestic http://www.400190.com/dissertation_writing/Law/arrangements. Agreements to play football, or to go to the cinema or to have dinner together do not in law create legal obligations. So, in the case of Balfour v Balfour [1919] 2 KB 571, a husband promised to pay his wife a fixed sum each month while he was abroad, provided the wife did not ask for any further maintenance. The court held that this was not a legally bind agreement as it was a domestic arrangement between husband and wife without intention to create legal relations.
108
Study Guide
Accordingly, one of the requirements of a legal contract is that the parties intend to create legal relations. Unfortunately, business people sometimes write letters and make agreements without making it clear whether they intend to be legally bound or perhaps only morally, but not legally, obligated to honour their, commitments.#p#分頁標題#e#
Case in point
Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379. But see Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 511, where a different conclusion was reached.
Facts:
KBL, a bank, lent a subsidiary of Malaysia Mining Corp the sum of $10 million. The parent company, Malaysia Mining, refused to give a guarantee or indemnity to KBL, but did proffer a ‘comfort letter’ which stated that in recognition of the bank lending money to the company’s subsidiary ‘it is our policy to ensure that the business (of the subsidiary] is at all times in a position to meet its liabilities to you’. When the subsidiary could not repay the loan, the bank sued the parent corporation, relying on the comfort letter.
Issue:
Did the parties intend to enter legal relations? Summary: On appeal it was held that the comfort letter was not a legally binding contract because there was no intention to create legal relations. The statement quoted above was held to be one of present policy and no guarantee of what the future policy of the company might be. As such, the comfort letter of the parent company contained no words of promise and was morally binding perhaps, but not legally binding.
Management context:
Managers must mean what they say and say what they mean. Legal intentions must be clear and unambiguous.
Case in point
The Administration of the Territory of Papua and New Guinea v Leahy [1961] 105 CLR 6.
Facts:
Leahy’s cattle had become infested with ticks. The Department of Agriculture had provided him with a tick spray and the necessary equipment to apply it. The parties agreed that Leahy would supply the labour, but that the Department would supervise the spraying.
Issue:
Did the parties intend to be legally bound? 109#p#分頁標題#e#
Study Guide
Summary:
The High Court held that this ‘agreement’ was not an enforceable legal contract. Therefore, Leahy was not entitled to recover damages for losses caused when the work had not been carried out properly. As McTiernan J observed (ibid at I 1):
[T]he conduct of the parties constituted an administrative arrangement by which the Administration in pursuance of its agricultural policy, gave assistance to an owner of stock to prevent that stock contracting a disease which was prevalent in the Territory. The work done by the Administration was analogous to a social service which generally does not have as its basis a legal relationship of a contractual nature ...
Management context:
The manager must be able to distinguish ‘legal’ relationships from other relationships entered into and consider who can be held responsible should the matter not proceed smoothly.
Questions of intention to create legal relations can also arise when business organisations are dealing with government agencies. When a government makes a commitment, does it intend to be legally bound, or is the particular government agency merely executing policy with the result that its promises are not contractually binding?#p#分頁標題#e#
Agreement: Offer and acceptance
The essence of a contract is that the parties have reached an agreement. Traditionally, that agreement has been analysed and expressed in the form of an offer made to one party which is accepted by the other. Usually an offer is made to a particular person, or group of people. However, there is nothing to prevent an offer being made to the public at large. So, in the famous case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, the defendants in an advertisement said they would pay £100 to anyone who caught influenza after using their carbolic smoke ball. Mrs Carlill obeyed the instructions in the advertisement but still contracted influenza. Mrs Carlill successfully sued for the £100 on the basis that the terms were not vague and that the offer, although made to the public at large, was capable of being accepted by any member of the public. It was also held in this case that there was no need for Mrs Carlill to communicate her acceptance of the offer.
Offer and invitation to treat
An offer must be distinguished from an invitation to treat. An invitation to treat is merely an invitation to make offers. It is only one step towards agreement and is not capable of being interpreted as a definite offer. As an illustration, in Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd [1953] 1 All ER 482, the court held that the display of goods in a self-service shop was not an offer but an invitation to treat. The contract was completed only when the customer offered the goods at the cash register and when the shop-keeper
110
Study Guide
accepted or rejected the offer to purchase. Circulars, price lists, catalogues and advertisements are usually regarded as invitations to treat. The consumer, in responding to the invitation, makes an offer which is accepted by the trader when the sale is completed. Similarly, when goods are sold at a public auction, each bid forms an offer and the contract is completed at the fall of the auctioneer’s hammer.#p#分頁標題#e#
Acceptance
An acceptance of an offer must be unqualified and in accordance, with the terms of the offer. A counter-offer, for example, is not an acceptance for it causes the original offer to lapse. So, in the case of Hyde v Wrench [1840] 49 ER 132, the defendant offered to sell his farm to the plaintiff for £1000. The plaintiff said he would give £950. Wrench refused and Hyde sought to enforce the contract. It was held that there was no contract as the offer of £950 was a counter offer which rejected the original offer.
An acceptance must not be subject to any conditions. If a phrase such as, subject to contract, were used, this would indicate that the parties were negotiating only. Sometimes the court has to decide whether the parties intended the contract to be binding. For example, in the case of Niesmann v Collingridge, [1921] 29 CLR 177; 27 ALR 209, Niesmann had agreed to give the respondent a ‘firm offer’ with money to be paid on the signing of the contract, and the balance three years after the signing. The High Court of Australia held that the term ‘firm offer’ showed that a binding contract was intended and not any qualified acceptance.#p#分頁標題#e#
Acceptance is not usually effective until it is communicated to the party making the offer (offeror). However, where the offer is a promise to pay money as a reward for some act, then the doing of the act is usually sufficient indication of the acceptance. However, the acceptor must have knowledge of the offer. In R v Clark [1927] 40 CLR 227, Clark was not allowed to claim a reward for £1000 from the Western Australian government for information leading to the arrest and conviction of police murderers, for he had given the information only to save his own skin. Also, when he gave the information the question of the reward had been forgotten.
The offeror cannot impose silence as a condition amounting to acceptance from the person to whom the offer is directed (the offeree). In Felthouse v Bindley [1862] 142 ER 1037, the plaintiff offered to buy his nephew’s horse and at the end of a letter said, ‘if I hear no more about him, I shall consider the horse mine’. The nephew did not reply but told the defendant who was an auctioneer to keep the horse out of a forthcoming sale. The horse was, however, sold in error, but the uncle’s claim against the auctioneer failed. It was held that the silence of the nephew did not amount to an acceptance in law of the offer made by the uncle.
The method for acceptance of an offer depends upon the terms of making the offer. The offeror may lay down a prescribed method for accepting an offer. If the offer is made orally, then generally an oral acceptance will be sufficient.
111
Study Guide
Contracts by post, fax and telex
In the case of contracts made by post, special rules may apply. The general rule is that a contract is concluded when the acceptance is received by the offeror. However, if from the circumstances of the dealings of the parties it is reasonable to expect that both parties presumed acceptance to be made by post, then the contract is completed at the time of posting the letter of acceptance. In other words, acceptance dates from the posting. The acceptance is complete as soon as the letter is posted even though it never reaches its destination. So, in Household Fire Insurance Co v Grant [1879] 4 Ex D 216, Grant applied for shares in a company. A letter informing Grant that shares had been allotted to him was posted out never reached him. Nevertheless, it was held that the contract was complete when the letter was posted and therefore Grant was a shareholder in the company.#p#分頁標題#e#
Where the communication is by means of fax, telephone, telex, or sent electronically courts have held that postal acceptance rules do not apply because the communication is effectively an instantaneous mode of communication (see Brinkobon Ltd v Stahag Stahl und GM6H [1983] 2 AC 34).
Instantaneous contracts have also been discussed on page 79.
Revocation of an offer
As to the termination of an offer (revocation), it is useful for an offer to remain open for acceptance at any time, but the offeror may revoke the offer before it is accepted. In this case the revocation to be effected must be brought to the notice of the other party. An offer, may however, cease by lapse of time and, if no time limit is laid down, the offer lapses after what the court considers a reasonable period of time. So, in Ramsgate Victoria Hotel Co Ltd v Montfiore [1866] LR 1 Exch 109, the defendant applied for shares on 8 June, but the shares were not allotted to him until 23 November. It was held, in the circumstances, that the offer to take the shares had lapsed as the company had taken too long to send their acceptance. Similarly, in Ballas v Theophilos [No. 2] [1957] 98 CLR 193, an option to take up a partner’s share which was exercised some 16 months after the death of the partner was held to be an ineffectual acceptance.#p#分頁標題#e#
The general rule relating to death is that the death of the offeror will bring an offer to an end where some personal element is involved, for example, an offer to sing at a concert. However, where there is no personal element, the offer remains open until the offeree receives notice of the death.
Form, consideration and privity
Every contract must be supported by consideration unless it is made in the form of a deed. A deed is a document which is ‘signed, sealed and delivered’, although this old form of words really means nowadays that it is a formal written document which is signed to which a small red circular seal is adhered.
112
Study Guide
If the contract is not in the form of a deed, consideration is necessary. Consideration was defined in Currie v Nisa [1875] LR 10 Esch 153, as ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ Thus consideration is something valuable which is given or undertaken in return for the promise, for example, the price stated being offered and accepted, or the refusal by a party to sue when he or she has a legal right to do so. The consequence of this is that the person to whom the promise is made must have contributed to the bargain. Therefore, as a general rule, though subject to many exceptions nowadays, no third person can sue or be sued on a contract to which he or she is not a party. This is referred to as the doctrine of privity of contract. The only requirement of consideration is that it has some real value. It is not for the courts to investigate whether the consideration is adequate.#p#分頁標題#e#
There are some situations where the courts have said that there is no consideration. First, where a public duty is imposed upon a party and they do no more than they are obliged to do and, second, where the party is already bound by an existing contractual duty, there is no consideration. For example, a promise made by a creditor to accept a sum less than that already owed pursuant to a contract ordinarily would not be enforceable because the debtor has given no consideration for the promise; the debtor is only offering to do that which he or she is already obligated to do under the original contract which created the debt. Because the debtor has given no consideration, the promise by the creditor to accept the lesser sum is unenforceable.
The requirement that a contract be in writing
The common law rule is that contracts may be made orally or in any other way (although one Hollywood director is reported to have quipped that ‘oral contracts are not worth the paper they’re written on’). However, statutes have created exceptions to this rule. For example, bank cheques, bills of exchange, assignment of copyright, marine insurance contracts, agreements to submit assignments of life insurance policies, maintenance agreements, real estate contracts, transfers of company shares, consumer credit contracts, mortgages and guarantees, must be in writing. In addition, in some jurisdictions there are certain types of contracts which have to be supported by some writing. So, contracts of guarantee must be evidenced by some writing (S 4 of the Statute of Frauds 1677). Importantly, contracts for the sale of land in many jurisdictions must have some writing which includes the names of the parties, a sufficient description of the property and a statement of the price. The general effect of non-compliance with statutory requirements as to writing means that the contract is unenforceable. In equity the doctrine of part performance, for example, may overcome the lack of writing. For instance, in the case of Rawlinson v Ames [1925] 1 Chapter 96, the parties, under an oral contract for the lease of a flat, agreed that certain alterations would take place. Later, the defendant tried to ignore the contract but the plaintiff succeeded. The work had been carried out at the defendant’s request and this part-performance was sufficient to overcome the lack of writing which would have been required for the lease of the land. In short, the existence of a contract may be proven by full/part performance as well as by a written contractual document.#p#分頁標題#e#
113
Study Guide
Standard form contracts
The common law principles relating to offer and acceptance assume that both parties are relatively equal in bargaining strength. However, the reality is that there has been an immense growth in standard form contracts. These pre-printed contracts contain standardised terms which have been drafted by one party. which the other accepts on a take-it-or-leave-it basis, and are frequently encountered. This has inevitably led to a further inroad into the fiction of freedom of contract. Most contracts which are negotiated these days are simply signatures affixed to standard form contracts. Thus, insurance contracts, carriage of goods contracts, transport contracts and many others are standard form contracts where the parties will rarely even read out the terms. The only ‘freedom’ is for the party to sign or not to sign. This is not to suggest that these contracts are necessarily unfair. Indeed, sometimes consumer legislation requires that such form contracts contain terms which protect consumer interests. In other cases, a standard form contract reflects a compromise among a number of diverse interests. For example, one type of standard form contract is that used by the building industry in Australia. These contracts have been drafted by the professional building associations after negotiations with builders, engineers, lawyers, architects, and so on. As much as possible, these contracts try to reflect the best commercial and professional practices in the building industry. Nevertheless, many contracts are designed to protect the interests of the party drafting the contract and often confer benefits on that party only. A classic type of standard form contract is used by airlines. The traveller buys a ticket on which are printed clauses which exclude and limit the liability of the airline for loss or injury caused. The legal effect of such clauses is discussed below.#p#分頁標題#e#
Exclusion clauses
From the point of view of the consumer, by far the most important clauses in most standard form contracts are terms by which one party seeks to exempt or exclude himself or herself from liability. Exclusion clauses may also include clauses which fix a financial limit on any claim against the party seeking protection from the exclusion clause. Also, exclusion clauses may provide for time limits in which claims must be made. So, for example, standard airline tickets include in a clause that in the case of complaint about baggage, ‘complaint must be made in writing to carrier forthwith after discovery of damage and at the latest, within 7 days from receipt’. Exclusion clauses are widespread. They are included in hire purchase documents, travel tickets, insurance contracts, guarantees, and so forth. In the case of the consumer, these clauses may often result in an unfair avoidance of liability by a company. In this way, otherwise valid consumer claims may be defeated. Consumers must carefully read any document.
However, this is one area in which the courts have developed rules which protect the consumer from exclusion clauses by preventing them unfairly extending to situations which they were not intended to cover.#p#分頁標題#e#
114
Study Guide
First, courts have developed a principle of communication of exclusion clauses. So one parry must do everything that is reasonably necessary to bring the exclusion conditions to the notice of the other, and those exclusion conditions must be brought to the notice of the other party either before or contemporaneously with the making of the contract. Thus, in Olley v Marlborough Court Ltd [1949] 1 KB 532, the hotel guest, having paid in advance, went to his room and on one of the walls was posted a notice in the following terms. ‘The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.’ The guest closed the door of the bedroom and handed the key to the reception. Later, someone took the key and stole some furs. The guest sued the hotel. It was held that the guest could recover for the contract was completed at the reception desk and the printed notice, which came to the guest’s attention later, did not form part of the contract. Similarly, in Chapelton v Barry UDC [1940] 1 KB 531, the plaintiff hired a deckchair on a beach. Near to the stack of deckchairs was a notice with the price of the hire of the chairs. However, on the back of the ticket, which he did not read, were the words, ‘The Council will not be liable for any accident or damage arising from hire of chair.’ The plaintiff sat on the chair, fell through and was injured. The Council argued that it was protected from liability by the exclusion clause. However, it was held that the ticket was only a voucher and therefore the conditions printed on the back did not form part of the contract.
Second, the courts will not allow a party to rely on the protection of all exclusion clauses where the party does not carry out the expected performance under the contract. Thus, TNT (Melbourne) Pty Ltd v May and Baker (Aust) Pty Ltd [1966] 40 ALJR 189, a transport company employed a driver to pick up goods in a truck. On occasions, if the depot was closed, the driver was directed by the company to take the goods to his home. On one occasion, he did so and the goods in the truck were destroyed after a fire in the driver’s garage. The contract had provided:#p#分頁標題#e#
... the consignor must accept responsibility for and damage to or loss of any goods whilst in the carrier’s custody during storage or transit by road [and] the consignor to carry all goods ... by any method.
It was held by the High Court that this very wide exclusion clause did not apply as the driver ‘on instructions from the company, had not performed as expected’. The words ‘any method’ meant ‘any method of carriage’ and did not cover the storage in the driver’s garage, Thus, the court established a rule that:
... a condition absolving a party from liability for the loss of the goods in his (sic) care, is construed as referring only to the loss which occurs when the party, is dealing with the goods in a way that can be regarded as an intended performance of his (sic) contractual obligations. He (sic) is not relieved from liability if, having obtained possession of the goods, he (sic) deals with them in a way that is quite alien to his (sic) contract. (per Windever J, ibid at 377)#p#分頁標題#e#
Finally, exclusion clauses are strictly construed against the party seeking protection from the benefit of the clause. In other words, any ambiguity will be resolved in favour of the complaining party.
115
Study Guide
In real terms, however, these efforts by the courts have been very limited and the basic rule is that the parties may insert any clauses they choose. Once the court finds that the exclusion clause has been inserted and agreed to, only in very rare circumstances will it depart from the terms. As the courts have failed to develop any general technique to deal with exclusion clauses, legislators have seen fit to pass legislation to limit the effectiveness of exemption clauses. In the United Kingdom, the Unfair Contracts Terms Act 1977 made all such clauses subject to a test of reasonableness. Similarly, in New South Wales, the Contract Review Act 1980 has brought in a test that if the contract is unjust at the time it is made, the court can declare it void, delete terms or refuse to enforce it. Other statutory relief from harsh exclusion clauses can be found in the Trade Practices Act and the Fair Trading Act adopted in each Australian jurisdiction.
Capacity
Any person may enter into a valid contract. However, certain classes of people are subject to disabilities. The most important of these are young people, mental patients and intoxicated persons.
People under the influence of drink, drugs or suffering from mental disability are not bound by their contract if they can show that at the time of making the contract, by reason of their intoxication or mental condition, they were incapable of realising its importance and that the other contracting party knew of this condition.
Infant/minor’s contracts
Anyone under the age of 18 years has a restricted contractual capacity. In general, infancy or minority status is an advantage for there are only a limited number of contracts which are enforceable against an infant/minor. Infants/minors’ contracts are governed by the common law as statutorily modified in the different States. Unfortunately for managers, this is another area where there is no uniformity and managers should check out the particular laws in their jurisdiction.#p#分頁標題#e#
At common law there are two types of contract which are enforceable against the infant: contracts for necessaries and those which are for the benefit of the infant. Necessaries are goods suitable to the condition in life of the infant and to his/her actual requirements at the time and sale of delivery.
116
Study Guide
Case in Point
Nash v Inman UDC [1908] 2 KB 31.
An undergraduate university student refused to pay his tailor’s bill for 11 fancy waistcoats which had been supplied. It was held that, although the clothes were suitable for his condition in life, they were not necessaries as he was already adequately supplied. Therefore, the tailor could not recover.
Second, contracts which are a benefit to the infant are enforceable. These include contracts for training, education, apprenticeship and employment.#p#分頁標題#e#
Case in Point
Doyle v White City Stadium Ltd [1935] 1 KB 110.
The plaintiff was an infant boxer and a term of his licence provided for prize money to be withheld if he was disqualified in any contest. The plaintiff was disqualified and he failed to recover the amount due, on the ground that the agreement taken as a whole was for his benefit.
The area of infants’ contracts is in a very unsatisfactory state, and New South Wales has passed a Minors (Property and Contracts) Act 1970 which has tried to avoid some of the complexities of infant contracts by providing that contracts, if they are beneficial to the minor, are binding upon him or her. There is also provision in the Act for a minor to apply to the court to have his/her contract affirmed. Other states such as South Australia, New South Wales and Tasmania have amended the common law rules in relation to infancy by making it clear that an adult guarantor of a minor’s contract will not be relieved of his or her obligations as guarantor merely because of the minority status of the principal debtor.
While contracts, with the exceptions noted above, normally cannot be enforced against a minor, it is sometimes possible to recover on grounds other than contract. For example, under expanding equity doctrines such as restitution it may be possible to recover from a minor any ill-gotten gains.
117
Study Guide
Legality of the contract
As a general rule, an illegal contract cannot be enforced. There is a large class of contracts (which covers contracts to commit crimes or torts) which are contrary to public policy and are unenforceable. In this class are contracts in restraint of trade, that is, contracts which restrict a party from freely pursuing a trade which will be held unenforceable. However, if the restraint in the contract is reasonable, then the contract may be upheld. For instance, in the case of Plowman and Son Ltd v Ash [1964] 2 All ER 10, a salesman contracted with his employer not to canvass his employer’s customers for a period of two years after he left the employment. The court upheld this agreement, for the employer was reasonably protecting his interest in his customers from being pilfered by his ex-employee.#p#分頁標題#e#
Also within this illegal class are contracts which promote sexual immorality, contracts which encourage trading with an enemy country and contracts to pervert the administration of justice.
One large category of contracts is those which are illegal by statute. Parliament passes more and more statutes each year and some of these may affect private contracts. For example, Parliament may legislate that a licence is required by certain dealers, that a contract has to have particular terms, or that a contract must observe particular procedures. In these cases, the contract will only be illegal and therefore unenforceable if the illegal factor is fundamental to the contract. So, in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] 21 ALR 585, the High Court upheld a claim for $132,600 by the First Chicago Australia for a loan which they had made to the Yango company. The Yango company had tried to avoid paying the loan on the basis that the First Chicago Australia was not registered under the Commonwealth Banking Act 1959. Yango had to pay on the basis that the failure to register was not fundamental to the loan contract; therefore, the contract was not void for illegality.#p#分頁標題#e#
Impossibility of performance/completion
If it is impossible to perform or complete a contract for a variety of reasons, then the contract is invalid. If the impossibility occurs after the contract has been entered into and was unforeseen, this is generally a ground for discharging the contract.
Genuine consent
If the parties have entered into an agreement without genuine consent, then there is no agreement. There may be no genuine consent by reason of a mistake between the parties; or one party may have misrepresented some fact to the other party, either deliberately or innocently; or one of the parties may have unduly influenced the other party.
118
Study Guide
Mistake
The law of mistake is rapidly being overtaken by a broader, over-arching duty of parties to act in good faith and not unconscionably.
If there is a mistake on the part of one or both of the parties, then the contract may be devoid of legal effect. A mistake may be made by both parties misunderstanding each other. This is referred to as a mutual mistake. A common mistake is where both parties make the same mistake.
Case in point
Couturier v Hastie [1856] 155 ER 1250.
A contract for a sale of corn was held a nullity when, unknown to both parties, a cargo of corn had spoiled during the voyage and had already been sold before arrival in the United Kingdom. Accordingly, it was held that this mistake voided the contract.
The third variety of mistake is a unilateral mistake where one party only contracts under a mistaken impression. Most cases of unilateral mistake involve one party mistaking the other party’s identity.
Case in point
Ingram v Little [1960] 3 All ER 322.
A swindler falsely represented that he was a Mr Hutchinson from a well-to-do residential area. On this basis, the plaintiff agreed to accept a cheque from the swindler for a motor car, having checked the address in the telephone directory. The cheque was dishonoured and it was discovered that the car had been sold to the defendant by the swindler. The Court of Appeal held that the plaintiff’s offer had been made only to the respectable Mr Hutchinson and not to the swindler pretending to be Mr Hutchinson. There was therefore a mistake as to identity which was material to the contract, and therefore no contract had been made and the plaintiff was entitled to recover the car.#p#分頁標題#e#
119
Study Guide
The effect of a mistake is to render the contract void provided that the mistake is operative. However, mistakes that are the result of mere errors of judgement are not sufficient justification to set the contract aside. The mistake must indicate there is no real agreement between the parties. Similarly, if the mistake is merely as to the quality of goods or something which is not fundamental to the contract, then the contract remains valid. Thus, in a contract for the sale of a painting, it is not enough to set aside the contract on the ground of mistake - that a mistake was made as to the value of the painting. As long as the party knew that he or she had bargained for a painting, the fact that the party made a mistake as to its value or the identity of the artist would not be enough to set the contract aside.#p#分頁標題#e#
Documents mistakenly signed
Where a party actually signs a contract under a mistaken belief that the document is something else, then the contract may be avoided. Generally, once a document is signed the party is bound by his or her signature. The party may only plead non est factum (this is not my act) where it can be shown that the document signed was radically different from that which the party thought was signed.
Case in point
Gallie v Lee [1971] AC 1004.
Mrs Gallie, a 78-year-old woman who owned a long lease on a house, was tricked into signing a document transferring her house when, in fact, she thought she was giving the house as security to Parkin, her nephew, to raise money. However, the House of Lords held that the transfer was not void, for the document Mrs Gallie had signed was not radically different from that which she believed she was signing.
Misrepresentation
A representation in law is a statement of some existing fact which is made for the purpose of inducing the other party to enter into a contract. If the representations are false, they are referred to as misrepresentations. These may be made innocently or fraudulently, and different consequences arise from each. The misrepresentation must, in fact, induce the other party to enter into the contract. A representation is fraudulent where the person making the statement knows that it is false or makes it recklessly by not caring whether it is true or not; otherwise, the misrepresentation is innocent.
The distinction between the two lies in the remedies which are open to the party to whom the misrepresentation has been made. Where the misrepresentation is innocent, the party may refuse to perform his or her part of the contract or may ask
120
Study Guide
the court for rescission. Rescission is a remedy of equity. Common law courts originally granted only damages, whereas the Court of Chancery in its equitable jurisdiction would allow the party rescission, that is, setting the contract aside so that the parties would be put back in the position they were in before the contract had been entered into. Misrepresentation legislation in some jurisdictions have modified the common law rules about misrepresentation (Misrepresentation Act 1972 (SA); Law Reform (Misrepresentation) Act 1977 (ACT)). In short, these Acts expand the relief available to parties who are victimised by innocent misrepresentations.#p#分頁標題#e#
A person who has fraudulently misrepresented some fact and induced the other to enter into the contract may, in addition, be liable for damages for fraud to the other party.
A representation is a misrepresentation only if it relates to fact. If the statement is one of opinion only, it is not generally a representation.
Case in point
Bisset v Wilkinson [1927] AC 177.
Bisset, when selling his sheep farm in New Zealand to Wilkinson, said that the land would support 2000 sheep. This was held by the Privy Council to be a statement of opinion only and not a statement of fact.#p#分頁標題#e#
As a general rule, silence does not constitute misrepresentation, but there are two cases where silence may amount to misrepresentation.
The first case is when there has been a change of circumstances which renders a representation that has been made, untrue.
Case in point
With v O’Flanagan [1936] Ch 575.
There, the defendant, who wished to sell his medical practice, had said the practice was worth £2000 per year. However, the defendant became ill and by the time the contract was signed, the practice was virtually worthless. In this case it was held that the defendant’s silence amounted to a misrepresentation and he ought to have informed the buyer of the change in circumstances.
121
Study Guide
The second situation is where the party is entering into a contract of the ‘utmost good faith’. The most usual example of this type of contract is a contract is a contract of insurance, where there is a duty on the party to disclose all material facts which could possibly influence the insurance company in fixing the premium or determining the risk.
Today S52 of the Commonwealth Trade Practices Act 1974 is increasingly used by those who have been induced to enter into a contract with a corporation as a result of misrepresentations made during negotiations that constitute misleading and or deceptive conduct.
Duress and undue influence
Duress is compulsion on a contracting party by another. A threat of violence or restraint of liberty on the party or his or her family may coerce that party into making a contract. Duress makes the contract entered into voidable, that is, the party under duress has an option of treating the contract as at an end. Undue influence arises in cases of relationships between parties where one has an influence over the other. It is presumed in relationships of parent and child, and in relationships of, for example, doctor and patient, and solicitor and client. In any of these cases, the burden of disproving undue influence is on the party taking the benefit from the contract.
Unconscionability
The common law has not yet developed a general principle of protection against harsh or unfair bargains on the ground of inequality of bargaining power, although such an inequality might be one circumstance or factor which a court will consider in deciding whether to strike down a contract or part of a contract on the grounds that it is unconscionable.#p#分頁標題#e#
Case in point
Commercial Bank of Australia Ltd v Amadio [1983] 46 ALR 402.
Facts:
This case concerned an elderly Italian couple whose son ran a building business which was in financial difficulties. The son asked the parents to mortgage their property for six months, as a security, with a limit of $50,000. At a later stage a bank manager came to their kitchen and they signed a mortgage document. Nothing was said to explain the document, as the bank manager thought the couple understood it. The couple did mention to the manager that the document was only for a six-month period; however, the bank manager said that it was not for a limited period. Later the son’s company went deeper into financial trouble and the bank demanded payment on the mortgage. It came to light that the mortgage was not limited to $50,000, but was for all the indebtedness of the company (some $250,000). The couple, who had not read the document, were obviously not happy to pay up.#p#分頁標題#e#
122
Study Guide
Issue:
Should the contract be set aside on the ground that the defendant bank’s conduct in obtaining the guarantee was unconscionable?
Summary:
On appeal to the High Court, it was held that the mortgage transaction should be set aside on the grounds of the unconscionable dealing between the bank and the elderly couple. The court held that there are various considerations applying to setting aside a transaction and the court must:
•
look to the party wishing to enforce the contract (here, the bank) to decide whether when dealing with the person under special disability, their dealing is inconsistent with good conscience;
•
decide whether there is a special disability in the party in the contract (here, the elderly couple); and
•
decide whether there are any facts which would make the party enforcing the contract (here, the bank) question whether the other person can make a judgement as to what is in their best interests.
The High Court held that in the circumstances (meeting in the kitchen, the elderly couple asking no questions, and the bank manager not explaining the document), the bank ought to have made an inquiry, and it was unfair and unconscionable for the bank to obtain the signatures to the mortgage without making inquiries as to whether the couple understood the nature of the arrangement.
It may be noted that S51AA of the Trade Practices Act contains provisions prohibiting a corporation from engaging in ‘unconscionable conduct’.
Management context:
The importance of this case cannot be underestimated. The High Court has now clearly stated that, in some cases, there is a duty on the dominant party to make inquiries as to whether the other party understands what is in his or her best interests (see also Part IVA of the Trade Practices Act). Managers should be aware of placing undue pressure on the other contracting party, especially when that other party is suffering from a disability (old age, infirmity, language difficulties, etc.) of which the manager is aware or should be aware. If the manager acts in such circumstances to take advantage of the weakness, the contract may be set aside on the ground of unconscionable conduct.#p#分頁標題#e#
123
Study Guide
Discharge of the contract
A contract is discharged when the relationships under the contract are brought to an end.
By performance
Most contracts are discharged by the performance of the obligations of each party. Performance is the completion of all the terms of the contract in the time and method of performance prescribed. The law requires that performance must, in general, be precise and exact. Therefore, if someone performs work partially or defectively, the other party is entitled to refuse payment. Exceptions to this general doctrine include where the contract is considered as divisible (for example, a contract of employment for weekly wages would be assumed to be divisible). Importantly, however, where minor omissions or defects exist, the law will normally allow recovery under the doctrine of substantial performance.#p#分頁標題#e#
In other words, where there has not been exact performance the party is led to payment, less such sum as will remedy the defects.
Case in point
Hoenig v Isaacs [1952] 2 All ER 176.
There was a contract to furnish and decorate a flat for £750. There were defects to a wardrobe, bookshelf and bookcase amounting to nearly £56. The court held that there had been substantial performance on the particular facts of the case. Therefore, the builder was entitled to recover the cost less an allowance for the defects.
On the other hand, in Bolton v Mahadeva [1972] 1 WLR 1009, the builders were not entitled to recover, as the work which they had performed with respect to installing a combined heating and hot water system in the defendant’s house was not in any way a substantial performance. The defects to be remedied represented between one-quarter and one-third of the contract price; in any case, the house was not even adequately heated and fumes leaked into the living room. The court held that there had been no substantial performance.
A tender of performance of goods or services, which may be described as an attempt at performance, amounts to a discharge. Where goods are tendered by the seller and refused by the buyer, then the seller is discharged from liability.
124
Study Guide
Case in point
Startup v Macdonald [1843] 134 ER 1029.
Where the plaintiffs agreed to deliver some oil during the last fortnight in March, they tendered delivery at 8.30 p.m. on 31 March and the defendant refused to accept it or pay on account of the lateness. It was held, however, that the plaintiffs were entitled to damages as they had fulfilled their side of the bargain by the tender of the oil which was equivalent to performance.
By agreement
Any contract may be discharged by agreement between the parties. However, discharge by mutual agreement can only take place where both parties have still to perform under the contract. If, on the other hand, one party had completely performed his or her side of the contract, then it is not possible to discharge by agreement, otherwise the party who has performed would in effect be giving a gift with the result that there would be no consideration to support the contract.#p#分頁標題#e#
By frustration
A contract may be discharged by reason of a frustrating event which prevents the parties from completing their obligations. Frustration occurs when, upon construction of a contract with regard to the surrounding circumstances, some supervening event makes the obligations of the parties radically different from those originally contemplated in the contract. It should be borne in mind that simply because a contract becomes more onerous or burdensome, it does not discharge a party. A discharge only occurs when performance is no longer possible.
Case in point
Davis Contractors Ltd v Fareham UDC [1956] AC 696.
A building contractor agreed to erect 78 council houses for a fixed price over a period of eight months. Due to entirely unexpected shortages of labour, materials and continuous bad weather, the contract was delayed by 22 months. The contractor alleged that this brought the original contract to an end and that therefore he was entitled to recover a sum of £17,000 over and above the fixed price for his losses. The House of Lords rejected the claim on the basis that the various delays did not frustrate the contract and make it impossible to perform; it was only more burdensome on the contractor.#p#分頁標題#e#
125
Study Guide
Frustration may occur, for example, where something vital to the performance of the contract is destroyed without fault by either party.
Case in point
Taylor v Caldwell [1863] 122 ER 309.
A music hall was to be leased but after the agreement was entered into, and before the dates of the proposed concerts, the music hall was burnt down. As the existence of the hall was at the root of the contract, the contract was discharged by frustration. Also, a contract may be perfectly legal at the date of formation but later become impossible by reason of changes in legislation, the outbreak of war, etc. The leading Australian case is Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] 149 CLR 337, in which Codelfa had agreed to do construction work for the Rail Authority on the assumption that it would be able to work seven days a week, 24 hours per day. This proved impossible when the local council and residents obtained restrictions on late-night and weekend construction. The court held that the contract was frustrated; the new situation was radically different from that contemplated by the parties at the time of the contract.
In many standard form contracts, specific clauses are provided to deal with the possibilities, contingencies and unforeseen circumstances which can arise during a contract. Several jurisdictions have also enacted legislation to modify the consequences of frustration so as to ensure a more equitable result than would otherwise occur under traditional common law rules (see, for example, the Frustrated Contracts Act 1978 (NSW) and the Frustrated Contracts Act 1988 (SA)).
Breach of contract
Breach of contract is not strictly a method of discharging a contract. While a breach of contract always entitles the injured party to sue for damages (money compensation), a breach does not automatically discharge the contract. It is discharged in cases where the innocent party elects to accept the breach by creating the contract as at an end.#p#分頁標題#e#
A breach may occur by a party failing to perform on the due date or by a party disabling himself or herself from performing. It is also possible for the party in breach to repudiate (unequivocally refuse to proceed) the contract before performance is due. In this case, the breach is described as anticipatory and the innocent party is given the option of electing to keep his or her side of the bargain. For example, in the case of hotel bookings where a room is booked and then cancelled, it may be that the hotelier can refuse to elect to treat the contract as at an end by the anticipatory breach, keep the hotel room reserved and wait until the date of the booking to charge for the reservation. (In practice, nowadays, it is common for hotels and airlines and such like to include a cancellation service charge.)
126
Study Guide
Remedies for breach of contract
Breach/remedies
As mentioned above, a well-drafted contract will provide for, and as far as possible protect, the business in circumstances involving a breach of contract. Nevertheless, it is important to stress that managers need to have in place a strategy to deal with problems of breach. This will mean keeping abreast of such developments as alternative dispute resolution mechanisms, small claims tribunals, ombudsmen, and other recent legal developments which increasingly involve businesses both as plaintiffs and defendants. It Is also important that, before signing a contract on behalf of their business, managers should understand what their possible remedies are should the other side breach. Failure to do this risks the possibility that choosing one course of action will negate the possibility of other remedies later on.#p#分頁標題#e#
Damages
A breach of contract which has not been excused by the innocent party gives rise to a claim for damages for the breach. Damages are by far the most usual remedy for contractual breach. Damages for the breach are generally awarded so that the innocent party will be put in the same position as if no breach had occurred. Where, however, there is no actual loss, nominal (trifling) damages only will be awarded, although the usual award is for the full actual loss, that is, substantial damages.
Remoteness of damage
The innocent party is not entitled to recover for every single loss but only for those losses which may be fairly and reasonably considered to arise naturally from the breach, or may reasonably be supposed to have been in the party’s contemplation at the time the contract was made. The innocent party cannot recover for remote losses. In the case of The Heron II [1969] 1 AC 350, the House of Lords used the expression ‘serious possibility’ to describe what losses the innocent party may recover.
Cases in point
Two cases will illustrate this point, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.
The defendant contracted to install a new boiler for the plaintiffs. They failed to do so. The plaintiffs were able to recover compensation for losses of profits during the delay to install. However, they could not recover the potential profits from an exceptionally lucrative contract which they would have received had the boiler been installed, for this was unknown to the defendants. Therefore, there#p#分頁標題#e#
127
Study Guide
was no serious possibility of loss when the contract was made. In The Heron 11, [1969] 1AC350 the failure to deliver a cargo of sugar on the due date resulted in the sale of the sugar at a lower price. The price difference was recoverable and was held as being a serious possibility at the time of the contract.
Measure of damages
With regard to the measure of damages, the fact that the damages are often difficult to assess with a high degree of accuracy does not prevent recovery. Irrespective of the difficulty in estimation, the court must try to assess the loss and award an appropriate sum of damages.
However, a party is not entitled to sit back and let damages mount up. It is assumed that reasonable parties will try to take steps to mitigate (lessen) losses. In fact, if a plaintiff could have taken steps to mitigate the loss, his or her damages will be reduced accordingly. As an extension of this, a party cannot recover for loss which he or she actually succeeds in avoiding.
Case in point
British Westinghouse Co v Underground Electric Railway Co of London [1912] AC 673.
The plaintiff replaced defective turbines supplied by the defendant with other turbines which turned out to be more efficient and more profitable than the defendant’s would have been. The plaintiff had taken steps to mitigate the loss, had completely avoided the loss, and therefore could not recover.#p#分頁標題#e#
Agreed damages - liquidated damages
What is of particular interest to consumers is that many standard form contracts include a clause which specifies a fixed sum of money which it is agreed in advance will represent any anticipated loss. If this sum is a genuine pre-estimate of the likely loss under the contract, then the sum is described as liquidated damages (ascertained damages) and is payable on the breach. However, if the sum is excessive and is not a genuine pre-estimate of any likely loss, it may not be enforceable as the court will treat the sum in the nature to a penalty. For example, if a hire purchase contract specified that upon default the owner company could recover the goods and sue for the entire rental plus interest, this would be a penalty. The owner is obviously getting more than anticipated as a loss (in any case, this situation is covered by hire purchase legislation).
128
Study Guide
Specific performance and injunction
Two other remedies are of importance in contract. First is specific performance, which is an order of the court requiring a party to carry out a legally binding contractual obligation. It is most commonly granted in cases of sale of land where damages would be inadequate, as what the injured party requires is the conveyance of the actual property. Second, an injunction which is also an equitable remedy lies to prevent a person from doing an act. It is a most common remedy in cases of torts, for example, where the owner of property wishes to prevent a party from trespassing on their property. In contract, it is most frequent in cases of contracts of personal services where a party can be prevented from offering work to another person while under an existing contract.#p#分頁標題#e#
Importance of preparation/prevention
It must be stressed that the best way to deal with breach is to prevent it from occurring in the first place. The best way to do this is to take more care in the contract formation/preparation stages of a business transaction. Unfortunately, preparation for a contract is often as deficient as it is for marriage and with much the same attrition rate. Parties rely upon past experiences and role models, and in general hope that everything goes all right. As in marriage, too, the contracting parties tend to regard the legal system, their lawyer and the contract document as a last resort. The ‘real’ agreement is often the verbal one made before and sometimes after signing, with all of its implied terms, variations and misunderstandings. Most of the time the parties muddle through; they compromise: sometimes they are just lucky. However, as with marriage, the relationship also often terminates. Embittered by the experience, the contracting parties say after the ‘final performance’ of the contract: ‘I won’t be doing that again!’
If managers are to enhance their trading relationships, they must first focus on formation of the contract. It is here that the ground rules are established and it is here that the deal is made workable or problematic. Unfortunately, many lawyers are trained with a focus on the failures in contract, on the litigation and dissolution of the agreement with almost no training on formation, other than those elements of the deal that may in the end be litigated. Little or no emphasis is given in legal training to the development of management structures which facilitate conflict-free relationships.#p#分頁標題#e#
The best way to avoid expensive litigation is to have in place a compliance policy which ensures a high level of awareness concerning the legal requirements which govern the provision of goods and services.
129
Study Guide
The Vienna Sales Convention and General Contract Law (Common Law): Some differences
Some of the provisions of the Vienna Sales Conventions that differ from the common law or general contract law rules relate to:
•
Offers and acceptances
Contracts for the sale of goods, like other contracts, come into existence by an offer being made and accepted. The general rules of offer and acceptance. The VISC contains some special rules about offer and acceptance in international sales. These rules are somewhat different to the normal common law rules with which Australian exporters may be familiar and on which they may have established practices.
An occasionally disputed issue is whether an acceptance sent by post but not received by the offeror amounts to acceptance in law. Different rules exist in some countries regarding this issue. In some common law countries, including Australia, acceptance by post occurs when the letter of acceptance is posted (the ‘postal rule’) whereas in some civil law countries acceptance occurs when the letter of acceptance is received by the offeror (the ‘reception rule’). Under the VISC an acceptance is effective when it reaches the offeror (Article 15(l)). This then displaces the common law postal rule.#p#分頁標題#e#
The common law rule has the potential to cause difficulties where the letter is not received. If a letter of acceptance is posted from a common law country adopting the postal rule to an offeror in a civil law country adopting the reception rule, and the letter is not received, under common law a contract exists but under civil law a contract does not exist. One way of resolving this dilemma is to decide which law governed the negotiations or which law would have governed the contract assuming it existed, in order to decide whether a contract came into existence. These problems have been largely overcome in a practical way by the almost invariable use of faxes, telexes, and emails for international communications. Although the question of when acceptance by facsimile takes place has not been specifically decided by an Australian court, the general principle in relation to instantaneous communications such as telephone and telex communications has been that acceptance takes place when the communication is received. This is consistent with Article 15(l) of the VISC.
•
Counter-offers
The VISC also contains rules about counter-offers which are significantly, different to the common law rules. As a consequence, exporters may need to revise any practices based on the common law rules.
Under the common law a purported acceptance of an offer which seeks to vary any of the terms of the original offer is considered a ‘counter-offer’. A counter-offer is treated in law as a rejection of the original offer and itself as a fresh offer.#p#分頁標題#e#
130
Study Guide
Under the VISC, however, a counter-offer does not always automatically amount to a rejection of the original offer. This represents a significant change to the common law position. Article l9(1) of the VISC restates generally the position of the common law: ‘A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer’.
However, Article 19(2) provides a most important exception.
However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he/she does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
The interpretation of Article 19(2) is assisted by Article 19(3).
Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.
Therefore, if the original offeror fails to reject an acceptance made with additional terms, he/she may be bound by those new terms. The offeror will have to make a judgment in each case as to whether the additional terms in the reply materially alter the offer. Prudence would dictate that an offeror who disagrees with any term of a reply should immediately respond in writing by rejecting that new term.#p#分頁標題#e#
The VISC allows countries to declare that the rule relating to formation of contracts will not apply in that country. So far the Scandinavian countries have made such declarations.
•
Oral contracts
Whereas in some countries, contracts of sale are required to be in writing, in other countries oral contracts of sale are acceptable. Of course there are inevitably problems in proving the terms of oral contracts. Relying on oral contracts is not prudent business practice in the normal course of events.
In an endeavour to harmonise the laws of the various countries in so far as they apply to international sales of goods, the VISC expressly provides that a contract of sale need not be concluded in or evidenced by writing (Article 11). Countries can however exclude the operation of Article 11 and make a formal declaration, when ratifying or acceding the VISC, that writing will still be required where a party has his place of business in that country.
131
Study Guide
•
Usages
The parties will be bound by any usage to which they have agreed and by any practices which they have established between themselves. Furthermore, the parties will be taken to have made their contract subject to widely known and regularly observed usages which they either knew or ought to have known would apply to their type of contract in international trade (Article 9). It is open to the parties to exclude the effect of this with appropriate wording in their contract.#p#分頁標題#e#
•
Options and irrevocable offers
The VISC also effects a significant change to the usual common law contract rules regarding ‘consideration’. (‘Consideration’ in this context means some monetary, or other benefit promised or given to a party in exchange for performance of the contract.)
Under the common law system consideration is required for every contract, unless it is technically a ‘deed’. Therefore, an offer to buy or sell can usually be withdrawn or revoked at any time before it is accepted unless consideration is given for a promise to keep the offer open. This is then an enforceable ‘option’. If there is no consideration the offeror can withdraw or revoke the offer, notwithstanding a ‘promise’ not to do so.
Under the VISC there is no need for consideration. There is also no requirement for consideration of this kind in civil law systems.
This elimination of consideration has important consequences when applied to offers that are expressed to be open for certain periods. The effect of the VISC is to make these offers irrevocable for that period, even though no consideration is given. However, an offer cannot be revoked if it indicates, whether by stating a fixed time or acceptance or otherwise, that it is irrevocable. The VISC goes one step further by saying that where the offeree reasonably relies on an offer as being irrevocable, then it will be irrevocable. Article 16(2)(b) provides that an offer cannot be revoked if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. This means that an offer will be irrevocable for a time not only where the offeror expressly states the offer is open for a fixed time, but also where surrounding circumstances would enable a reasonable offeree to assume that the offer is irrevocable and the offeree acted on that assumption.#p#分頁標題#e#
Misunderstandings can arise if an offeror indicates a time for acceptance but does not indicate that it is irrevocable. There are differing legal views as to whether this offer would be irrevocable under the Convention. The prudent exporter would therefore indicate clearly whether he intends his offer to be revocable or irrevocable (whether or not he sets a time for acceptance).
132
Study Guide
Self-assessment questions
1.
Explain the difference between passing of risk and passing of property (ownership) in a contract for the international sale of goods. Distinguish between the meanings given to these terms (a) in the Sale of Goods Act, and (b) The Vienna Sales Convention.
2.
Office Equipment Pty Ltd in Melbourne sent out price lists and descriptions of its new fax machine to distributors in several overseas countries. A brochure attached to the price list stated that the information constituted a ‘firm offer’.
Distributors in several of the overseas locations sent in large orders without delay. Sometime later a distributor in Bangkok accepted the ‘offer’ and placed an order for 100 fax machines.#p#分頁標題#e#
The company replied that they were out of stock and could not supply him/her with the machines. He/she said they were in breach of contract and threatened to sue them for damages. Advise the buyer of the success of this claim referring to the relevant legal principles.
3.
Butler Machine Tools Company sent to Buy-All Company a quotation for the sale of machine parts. Their general conditions which were printed on the reverse of the quotation form contained a price escalation clause.
Buy-all Company orders the machine parts on their own form containing general conditions which did not include a price escalation clause. On the end of the buyer’s order form was a tear-off slip of paper stating that the order was accepted by the sellers ‘on the terms and conditions stated therein.’
The seller signed the slip and returned it to the buyers. Later during the performance of the contract when the seller raised the price of the goods the buyer objected. Explain in detail on whose terms the contract was concluded.
4.
New South Wales Leather Goods Store is negotiating to export leather products to an importer in Thailand. The owner of the store knowing that you are in the export/import trade asks your advice as to how he can be sure that a binding and enforceable contract will be made.
The owner also wants to know what specific terms or clauses should be included in the contract in order to be protected against all eventualities.
Advise the owner as to these two matters.
5.
a. Lee operated a small business in Hong Kong which sold fast food items. A popular item for sale was ‘Sunburst’ fruit juice packed in small 250 ml containers. Several thousand of these were sold every week.
Lee’s supplier was an Australian juice company. A shipment arrived in Bangkok from Australia, but when Lee examined the goods Lee discovered that instead of containing 500,000 250ml juice packs the shipment contained 500,000 2 litre cartons of juice.#p#分頁標題#e#
Discuss Lee’s rights and the relevant legal principles in full.
133
Study Guide
b.
Presume that in (a) above, the shipment that Lee received contained the correct size of juice packs but instead of being the ‘Sunburst’ brand, the juice sent was the ‘Everfresh’ brand. Would your advice to Lee change?
6.
a. Wine Distributors Inc. in California, USA, agreed to buy several hundred cases of selected wines from the Wine Growers Cooperative in Australia. Before shipment of the goods Wine Distributors requested the Growers Cooperative to understate the price of goods in the invoice because they wanted to reduce the import duties in the USA. Give your advice to the sellers.
As part of your answer set out what might happen if the seller agreed to the buyer’s request and the buyer subsequently failed to perform its obligations under the agreement.
b.
Presume that in a. above the transaction proceeded with the seller shipping CIF Los Angeles (Incoterms). The buyer later received a separate statement for packing expenses. Advise the buyer.#p#分頁標題#e#
7.
Chinese sellers of military equipment sold goods under CIF contracts to buyers in Australia. At the time the contract was entered the export of military equipment from China was prohibited except under licence and a quota system was in force. The sellers found that they were unable to supply the whole quantity of goods because the quota allotted to them was too small. Buyers sued in Australia for breach of contract. Discuss the likely outcome. Consider in your answer how the sellers could have provided in their contract to cover such a situation.
8.
Tradax, an Australian business agreed to sell oil to Petro Sales in Japan. Tradax had expected to purchase the oil in Iraq but due to an Australian embargo on trading with Iraq, Tradax was prevented from buying oil there. Explain the rights and liabilities of the parties.
References
Ardagh, A & Brien, C 1997, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Griggs, L, Clark, E, Streeter, J & Iredale, I 2003, Managers and the law, 2nd edn, Law Book Co., Sydney.
Hunt & Hunt solicitors, Sydney.
Mo, JS 2003, International commercial law, 2nd edn, Butterworths, Sydney.
Sacks, P & Malbon, J 1992, Australian export manual, Longman Professional, Melbourne.
134
Study Guide
Topic 5 International trade in services
Topic structure
The topic International trade in services includes the following content:
•
description of services;
•
GATT/WTO Agreement on Trade in Services;
•
general commitments (GATT Part II);
•
specific commitments (GATS Part III); and
•
schedules.
Learning outcomes
At the completion of this topic you should be able to:
•
appreciate the role of services in the development of international trade;#p#分頁標題#e#
•
evaluate the significance of the General Agreement on Trade in Services (GATS) in the liberalisation of international trade;
•
recognise the different modes of supply of services;
•
distinguish general commitments from specific commitments; and
•
analyse the general principles of most favoured nation treatment, national treatment, market access and transparency.
Required reading
Textbook: Mo, JS 2003, The World Trade Organisation, Chapter 10
Reading 6: Islam M, ‘WTO General Agreement on Trade in Services’
Read
Textbook: Mo, JS 2003, Chapter 10, pp. 607-617
Reading 6: ‘WTO General Agreement on Trade in Services’
135
Study Guide
Introduction
Trade in services has become a focus of international interest in recent years, because of the attention given to the topic during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) multilateral trade negotiations.
Economic analyses have shown the impressive growth in the services sector in a number of countries since the end of World War II and particularly in the last twenty years, when trade in services has become an important area of international trade and commercial law. For example in 2003 services accounted for over 60 percent of global production and employment, representing about 20 percent of world trade.#p#分頁標題#e#
The GATT has been most useful in establishing ground rules for international trade in most goods, usually by providing what importing countries can and cannot do. The trade in import of services has developed separately and without any co-ordination in most countries. The import barriers to imported services vary from country to country and the barriers to the provision of services within each country often vary from service sector to service sector.
Before discussing the nature of the various barriers, it would be useful to briefly identify and describe what are understood to be ‘services’.
Description of services
The term ‘services’ in international trade law refers to more than 600 different types of professions or sectors of the economy. The major service sectors or professions are advertising, banking, insurance, communications, construction, franchising, civil aviation, maritime transportation services, architecture, accounting, education, engineering, health, medical and legal services. The definition of services in the General Agreement on Trade in Services (GATS), which will be examined later, is narrower than the general concept of services.
Barriers to the importation of services
Different countries have vastly different laws, regulations and administrative practices when it comes to dealing with services and, in particular, imported services. One important barrier is at the border: immigration. This is an especially important barrier where the service provider needs to have access to the country in which the service is to be provided, either frequently or for lengthy periods of time. Special visas may be required and restrictions may be placed on the service provider through this mechanism.#p#分頁標題#e#
Within a country, there are different types of barriers. They can perhaps be distinguished into three classes. The first involves government monopolies and other cases where the number of entrants are restricted. Good examples include air transport, television and radio services and retail banking.
136
Study Guide
The second class is where there is a government regulation but no fixed number of entrants. This will occur where the regulations determine the qualifications for entrants. This usually involves the issue of some licence, permit or permission to provide the service. The regulations will determine the criteria for the initial grant of the licence, the ongoing requirements, grounds for losing the licence and the person or persons who have the authority to decide on these matters if the criteria are not set out in the regulations. Good examples of these include many regulated professions such as solicitors, physiotherapists and medical practitioners. This category also includes certain financial services such as building societies and credit unions.
The third class is where there is no government regulation but there is industry regulation. It often occurs that industry groups establish standards and qualifications and decide who may and may not be part of the industry group and accordingly advertise themselves as part of that group. There is no legislative backing in this category. Good examples of this class in Australia include professional engineers and accountants.#p#分頁標題#e#
The types of restrictions placed on regulated industry groups will naturally vary from group to group and from country to country. The sorts of requirements that would apply include meeting certain objective criteria as regards financial backing (as in the case of certain financial services), insurance (as in the case of health service providers and lawyers), educational requirements (as in the case of many professions), and in many cases certain standards of ethics and behaviour (as in the case of television licencees and many professions). The qualifications for professions often involve passing examinations to demonstrate a knowledge of local rules, laws or conditions. It frequently happens that the requirements also involve local residence of individual service providers and particularly professionals. Frequently this requirement is in addition to knowledge of local laws and conditions or the like.
Then there are the unregulated service providers. Included in this are computer services, financial services, forestry and many others in Australia.
Identifying sources of applicable laws
The laws relating to the sale of services have developed much later than the laws applying to the sale of goods. As a result the domestic laws of different countries, laws concerning the sale of services differ to a greater extent than the laws relating to the sale of goods. In addition, because of the diversity of services there are laws that apply to specific service sectors as well as rules that apply to the export of services generally. Furthermore, the laws may arise from statute, civil codes, decided cases or from an international agreement or convention. Because of the diversity of services and diversity of laws, it is difficult for an exporter of services to determine the laws that will apply to a particular transaction.#p#分頁標題#e#
137
Study Guide
The various sources that may help to identify the applicable laws will depend on the following factors:
•
the place where the exporter usually conducts business;
•
the place or places where the service buyer resides or conducts business;
•
the place or places where the service is provided; or
•
the law chosen, or which applies as the governing law of the contract.
A significant development in the international trade in services, has been the new General Agreement on Trade in Services (GATS) successfully negotiated in the Uruguay Round. This agreement and its impact on the world trade in services is discussed below.
The GATT/WTO Agreement on Trade in Services
Overview
The GATT/WTO Agreement on Trade in Services (GATS) reached in the Uruguay Round is perhaps the most important single development in the multi-lateral trading system since the GATT came into existence in 1948. The GATS Agreement is particularly important as there is no agreement in the services area that corresponds to the Vienna Convention on the International Sale of Goods. In addition, though the international trade in services was a growing component of world trade there was previously no widely accepted multi-lateral regulation of trade in services.#p#分頁標題#e#
The new GATS Agreement extends internationally agreed rules and commitments to all forms of trade in services. An important element in the GATS package is the promise by member states that successive further rounds of negotiations will be undertaken to continue liberalising world trade in services.
In broad outline the Uruguay Round services package consists of:
•
general rules, set out in the articles to the GATS agreement;
•
supplementary agreements in the form of annexes to the GATS; and
•
national schedules, one for each WTO member, which sets out the specific commitments which each member has specifically undertaken to do.
Whereas the general obligations or commitments of members are set out in the general rules set out in the Articles to the GATS Agreement, the specific obligations of each member depends significantly on what has been specifically undertaken in its own national schedule.
138
Study Guide
The GATS Agreement
The GATS Agreement has six parts.
•
Part 1 covers the scope and definition of the agreement.
•
Part 2 deals with the general obligations or commitments of members.
•
Part 3 sets out the rules governing the specific commitments of members.
•
Part 4 concerns the future negotiation for opening up world trade in services and the schedules.
•
Part 5 covers institutional provisions.
•
Part 6 covers final provisions.
Scope and definition of the GATS - Part I
Part 1 covers the scope and definition of GATS. The Agreement covers all internationally traded services and the different ways in providing an international service.#p#分頁標題#e#
Article 1 states that services include any service in any sector except services supplied in the exercise of governmental authority. These being defined as services such as central banking and social security which are not supplied on a commercial basis nor in competition with other service suppliers. However, this broad definition of service allows a country to exclude any specific or particular sector of services on the basis that the service is supplied in the exercise of governmental authority. This provision also enables a member to define the meaning of services in its own national laws.
Article 1 also sets out the four different modes of providing an international service:
•
mode 1 - cross border supply of services, that is services supplied from one country to another (such as international telephone calls) corresponding with the normal form of trade in goods;
•
mode 2 - consumption abroad. This includes the supply of services in the territory of one member to the consumer of another, for example, tourism;
•
mode 3 - commercial presence. This is the supply of services through the commercial presence of the foreign supplier in the territory of another member. For example, a foreign company setting up branches or subsidiaries in the territory of another member such as foreign banks setting up operations in a country; and#p#分頁標題#e#
•
mode 4 - presence of a natural person. This is the supply of services by foreign nationals travelling from their own country to another country to provide services, for example, fashion models or consultants.
139
Study Guide
General commitments - Part II
Part II sets out the general commitment of members.
These are the basic rules that set out the general commitments or obligations that apply to all members, and for the most part to all services.
Most favoured nation treatment
Article II of the GATS requires all members to provide most favoured nation (MFN) treatment to services and service providers of other member countries. This means that an importing country should grant every other member country the same treatment as the most favoured nation receives. In other words there should be no discrimination between foreign countries as regards to import of services.
Two exceptions to this requirement are allowed, releasing a member from MFN obligations:
•
a member may apply to the Council of Trade in Services for an exemption. Under this provision more than seventy WTO members have obtained exemptions; and
•
the second applies to certain regional economic arrangements such as the ASEAN and the CER. As a number of WTO members already had preferential agreements, an exception to the MFN principle of non-discrimination was allowed, to continue these preferential arrangements.
Transparency
Article III of the GATS covers the basic principle of transparency.
This article requires members to make their laws, regulations and measures for the implementation of the GATS transparent, by publishing these laws and notifying the WTO of any changes. This enables foreign companies and governments to know the laws, rules, regulations and administrative practices that apply in any service sector.#p#分頁標題#e#
Economic integration
Article V covers economic integration.
This provision allows for regional agreements liberalising trade in services, provided they have ‘substantial sectoral coverage’ and eliminates ‘substantially any discrimination in the sectors covered’.
140
Study Guide
Domestic regulation
Article VI is intended to ensure that the benefits of liberalised trade are not blocked by domestic regulations, which are the most significant means of exercising control over the services trade.
This provision requires that governments should regulate services reasonably and objectively. When governments make decisions that affect a service, it should provide an impartial means of reviewing that decision by the establishment of judicial, arbitral or administrative tribunals.
Recognition of foreign qualifications
Article VII urges members to recognise the educational qualifications, work experience, licences and or certificates granted to service suppliers of other countries.
This provision provides that recognition of another country’s qualifications and experience must be based on internationally agreed standards, and should not be discriminatory to amount to restrictions on trade in services or protectionism in disguise.#p#分頁標題#e#
Monopolies
Article VIII deals with monopolies.
It requires that members should ensure that monopoly suppliers of services do not act inconsistently with a member’s MFN obligations, nor abuse its monopoly position.
Unfair trading practices
Articles IX, X and XV deal with unfair trading practices that restrict or distort trade in services.
Article IX contains a pioneering general obligation of the GATS that has no GATT counterpart. It recognises that certain business practices of service suppliers may restrain competition and thereby restrict trade in services. Members agree to enter into consultations and exchange information with a view to eliminating them.
Article X provides for multi-national negotiations on the question of emergency safeguard measures based on the principle of non-discrimination.
Article XV provides for negotiations to take place on subsidies affecting services and the possible need for counteracting duties. This article recognises that subsidies can distort trade in services but considers the role of subsidies in developing countries.
141
Study Guide
International payments and transfers
Article XII allows for restrictions to safeguard balance of payments.
This article provides that once a government has made a commitment to open a sector to foreign competition it must not normally restrict international transfer and payments out of the country, as payment for services supplied. The only restriction or exception allowed is when there is balance of payments difficulties. Even then the restriction must not be discriminatory among members, shall be temporary, and not relate to specific commitments undertaken.#p#分頁標題#e#
Security exemptions
Article XIV covers security exceptions. This article allows a country to ignore specific international obligations and adopt or enforce security measures, subject to the condition that they are not applied as a means of arbitrary or unjustifiable discrimination between countries or as a disguised restriction on trade in services.
The security exceptions permitted are to protect public morals or maintain public order, protect human, animal or plant life or health, protect individual privacy and safety, and certain tax measures, that International Business Law碩士dissertation定制allows foreigners to be treated differently from its own nationals.
Specific commitments - Part III
Part III sets out the specific commitments of individual members set out in national schedules.
Specific commitments are an individual country’s binding commitment or obligations undertaken by members to open markets in specific areas. Specific commitments can be modified or withdrawn only after negotiations with affected countries. But ‘unbinding’ is difficult and specific commitments are virtually guaranteed conditions for foreign exporters and importers of services and investors to do business.#p#分頁標題#e#
The specific commitments of individual countries are set out in ‘schedules’ that list the sectors being opened, the extent of market access being given in those sectors, and any limitations on national treatment and whether some rights granted to local companies will not be granted to foreign companies.
The two main Articles in Part III deal with market access and national treatment, discussed below.
142
Study Guide
Market access
Article XVI deals with market access allowed to services and service providers of other countries.
This article embodies the principle of market access and requires that countries should make market access to their markets available to services and service providers of other countries. But the same provision allows for restrictions specified in each country’s national schedule. Six elements cover all aspects of limitation of market access, and are prescribed unless specified in each country’s schedule. These six restrictions relate to:
•
limitations on the number of service suppliers;
•
limitations on the total value of service transactions or assets;
•
limitations on the total number of employees (natural persons) in a particular sector, for example the insurance sector;
•
limitations on the specific types of legal entities to carry on a particular service;
•
limitations on the number of service operations or quantity of service output; and
•
limitations on the quantity of foreign investment or foreign control in a particular service.
These restrictions should accord with MFN treatment and should apply equally to all members, unless an exemption is allowed under the GATS. The list of market access commitments along with limitations and exemptions are negotiated as multi-lateral packages. As such, they are guaranteed conditions for conducting trade in service.#p#分頁標題#e#
National treatment
Article XVII contains national treatment obligations.
This provision requires that each member is to give no less favourable treatment to services and service suppliers of other members than is provided in a country’s schedule of commitments. National treatment means treating one’s own nationals and foreigners equally. For example, if a foreign company has been allowed to supply a service in one country, there should be no discrimination between foreign and local companies. While the principle of MFN (general commitment) emphasises equality between two foreign partners within the territory of a member, the principle of national treatment emphasises equality between a foreign party and a local party.
Article XVII (3) indicates that different treatment will be considered to be less favourable if a country modifies the condition of competition in favour of local services. A member is allowed to treat nationals of another country differently from its own nationals only within the scope of the restrictions approved under#p#分頁標題#e#
143
Study Guide
GATS. This may be difficult as national treatment is a specific commitment, which is virtually undertaken by individual members. But a country does not have to apply this principle of national treatment, if it has made no specific commitment to provide foreign access to its services market.
Future negotiations and schedules - Part IV
Part IV covers future negotiations for liberalisation and the schedules.
Article XXIX is the most important element in Part IV providing for further liberalisation. Recognising that the GATS is a framework for future development Article XXIX provides that WTO members shall enter into successive rounds of negotiations with a view to achieving a progressively higher level of liberalisation.
Part IV also provides for members increasing their level of specific commitments in the schedules, and the rules for modifying or withdrawing commitments in the schedules made on a MFN basis.
Institutional and final provisions - Parts V and VI
Articles XXII and XXIII provide for consultation, dispute settlement and enforcement respectively. Dispute settlement is to take place under WTO rules and mechanisms. Another institutional provision provides for the establishment of the Council for Trade in Services.
Article XXVII in Part VI allows a member to deny benefits under the GATS Agreement to services originating in the country of a non-member.
Article XXVIII defines some key terms used in the GATS which helps determine whether the GATS rules are applicable in a particular case. For example, ‘supply of a service’ is defined to include ‘production, distribution, marketing, sale and delivery of a service’.
The schedules
The service obligations of each member depends largely on the specific commitments each country has undertaken and set out in its national schedule.
Article XX requires members to set out their specific commitments in terms of market access, national treatment, time frames, entry into force and additional undertakings. Members are required to state how each of the various commitments will apply. There is also provision for the modification of schedules.#p#分頁標題#e#
The General Agreement on Trade in Services (GATS) was an important achievement, but there is a long way to go before the booming services sector is truly open to free trade. One reason is that unlike the GATT, which covers all industries in a particular sector, GATS only covers those service industries
144
Study Guide
nominated by each of the countries. Countries including Australia, have either omitted or given only limited commitment in regard to their most significant service industries. In the case of APEC, a Pacific Economic Co-operation Council Report suggest that up to 80 percent of the region’s service industries are closed to international transactions, with the computer and tourism sectors being the most open service industry sectors (Dwyer 1995).#p#分頁標題#e#
Other multi-lateral and bi-lateral services agreements
While the GATS Agreement is an important development in the services sector, there are also other regional multi-lateral and bi-lateral agreements that are of significance to exporters and consumers of services. These include the Treaty of Rome, establishing the European Community (EU), the North American Free Trade Agreement (NAFTA), the Australia New Zealand Closer Economic Relations Trade Agreement (CER), the Asia Pacific Economic Cooperation (APEC), and the South East Asian Nations Free Trade Area (AFTA). In some situations the establishment of services in one country, allows automatic market access in the rest of the regional arrangement.
Self-assessment questions
1.
Discuss the role of services in the development of international trade.
2.
Critically evaluate the effectiveness of the General Agreement on Trade in Services (GATS) in the promotion and liberalisation of international trade.
3.
Discuss the definition of services under the GATS, and the basic categorisation of services under the different modes of supply.
4.
Discuss the principles of ‘most favoured nation’ and ‘national treatment’.
5.
a. Distinguish the general commitments from other specific commitments undertaken by countries.
b.
Evaluate the effectiveness of these commitments in liberalising trade.
6.
Discuss the reasons covered by the GATS to ensure ‘transparency’ by governments, to international service providers.
References
Mo, JS 2003, International commercial law, 3rd edn, Butterworths, Sydney.
Pryles, M, Waincymer, J & Davies, M 2004, International trade law, commentary and materials, 2nd edn, Law Book Co, Sydney.
Sacks, P & Mallbon, J 1992, Australian export manual, Longman Professional, Melbourne.
145
Study Guide
Topic 6 International payment of exports
Topic structure
The topic International payment of exports includes the following content:
•
payment by cash;
•
electronic payment systems;
•
open account;
•
Bills of Exchange;#p#分頁標題#e#
•
documentary collections;
•
documentary credits; and
•
forfaiting, factoring, counter trade and bartering.
Learning outcomes
•
evaluate the different forms of payment in international trade;
•
appreciate the importance of a Bill of Exchange as an instrument of payment in international trade;
•
understand the risks involved in the different international payment methods; and
•
outline the advantages of the different payment systems in international trade.
Required reading
Textbook: Mo, JS 2003, Means of payment in international trade, Chapter 5
Read
Textbook: Mo, JS 2003, Chapter 5
146#p#分頁標題#e#
Study Guide
Introduction
Every contract for the sale of goods abroad has a monetary clause dealing with the payment of the purchase price. This involves 4 elements: ‘time, mode, place and currency. The various methods of paying for exports represent variations of these 4 elements.
Merchants have developed methods of payment in an attempt to reconcile the conflicting economic interests involved in the export transaction.
The exporter’s interest is to obtain the purchase price as soon as possible. But if the transport documents are documents of title to the goods, the exporter does not wish to part with these documents before having received payment or at least being certain that for example, a bill of exchange, has been accepted.
The buyer wishes to postpone payment of the price until the documents, notably the bills of lading, are no longer at the disposition of the seller.
To achieve a reconciliation of these conflicting interests, the interposition of a bank, or banks, may be used. The most frequent payment methods in which banks are involved are a documentary collection arrangement or payment under a letter of credit.
Collection arrangement
The bank receives its instructions from the seller; the exchange of the documents of title representing the goods and the payment of the price is normally effected at the place at which the buyer carries on business.
Letter of credit
The instructions to the bank come from the buyer; the exchange of the documents and the price is normally effected at the seller’s place. A considerable amount of business is transacted under letters of credit under which the banker, on the instructions of the buyer, promises to accept, honour or negotiate bills of exchange drawn by the seller.
Both of these methods, the collection arrangement and the letter of credit, enable the interposed bank or banks to use the documents of title as a collateral security. More will be written about these methods later.
Payments do not however always require the interposition of banks. The seller may send the buyer a documentary bill of exchange, that is a bill of exchange to which the bill of lading is attached, or the buyer may transfer the price to the seller in cash.#p#分頁標題#e#
147
Study Guide
Cash payments
A seller may of course demand that the buyer pay for the goods direct and by cash. There are a number of variations as to the amount, time and mode of payment, which are:
•
wholly in advance;
•
partly in advance;
•
against notification of shipment;
•
against delivery of the shipping documents;
•
against actual delivery of the goods; and
•
at a specified time after receipt (and possibly even after on-sale of the goods) by the buyer.
The first is the best option for the seller. By getting payment before shipment and perhaps even before acquisition or manufacture of the goods the seller removes virtually all risk from the transaction.#p#分頁標題#e#
The only real risk is that of a possible adverse movement in the exchange rate, if the price is quoted in the buyer’s currency. Even this can be eliminated by the seller quoting in his/her own currency, or by inserting an appropriate rise and fall clause into the contract, or by entering into a forward exchange contract with his/her own bank after negotiating the sale. (A forward exchange contract consists of an agreement with a bank under which the bank agrees to buy foreign exchange from or sell foreign exchange to the customer at a fixed rate at some future date. The date can be fixed or it can be over an optional term.)
From the buyer’s point of view payment wholly in advance is the least preferable of the options because the buyer assumes all the risks and the option may not be practical if the buyer needs to finance the purchase by either borrowing against the security of the goods or preferably by selling the goods and paying for them out of the proceeds of sale.
For these reasons payment in advance is not a usual means of paying and it is really restricted to those situations where the consignment and the amount involved are small (for example, mail orders).
The second option: Partial prepayment. This is less favourable for the seller. Why might the seller have to accept this?
Payment against notification of shipment
This might be appropriate in cases where the sale is made under FOR, FOT or FAS or FOE (buyer contracting with carrier) contracts. In this last case the buyer obtains property in the goods from the moment that they pass over the ship’s rail. The buyer is guaranteed that goods have been shipped and, in normal circumstances will receive the bill of lading, and the right to deal with the goods within a very short time of shipment and without the seller being able to intervene
148
Study Guide
and exercise any further rights over the goods after shipment. The buyer’s interests are protected. There is nothing more for the seller to do and, if the parties are agreeable, payment can take place at that point.
Payment against delivery of shipping documents
This is appropriate if the sale is made under either a CIF contract or a strict FOB contract where the seller obtains the bill of lading and only transfers it (and therefore the right to possession of the goods) to the buyer upon payment of the price. The shipping documents are of course normally only delivered in exchange for the price and so contracts providing for ‘cash against documents’ (or ‘sight payment’) are still relatively common.#p#分頁標題#e#
Payment against actual delivery of the goods
This is not appropriate with either normal FOB or CIF contracts because the seller’s right to payment normally arises on tender of the shipping documents, not on delivery of the goods which might be several months in the future.
Where it might be appropriate is with those contracts that are ‘arrival’, ‘ex ship’, ‘ex quay’ or ‘delivered free, duty paid’. The buyer’s obligation to pay will be stipulated in the contract and the buyer can demand inspection as a prerequisite to payment.#p#分頁標題#e#
Similar problems may arise with CIF and FOB contracts (that is, wondering whether the goods conform with the requirements of the contract) but this can be overcome by inserting into the contract that the seller provides a certificate of quality or a certificate of inspection as one of the documents that have to be tendered before the seller becomes entitled to payment. The contract usually stipulates that such certificates have to be issued by some independent third party whose judgement and integrity the buyer is prepared to trust.
Payment at a specified time after receipt
This is the worst option for the seller who must not only release the shipping documents to the buyer but, even then, has no guarantee of payment and may even lose title to the goods if the buyer used the documents to on-sell the goods to a bona fide third party purchaser who has no notice of any reservation of the seller’s rights.
In fact the reason that this option may have been adopted in the first place might have been to permit the buyer to on-sell the goods to obtain the cash to pay the seller anyway. Cash contracts on this basis are not very attractive to sellers and, if the buyer does need to on-sell the goods in order to raise the money to pay for them, one of the other two payment options (documentary bills or documentary credits) may be preferable.
149
Study Guide
Releasing the documents on an undertaking of some future payment submits the seller to the risk of the buyer becoming insolvent. It also means delay in the date of payment and subjects the seller to a forced extension of credit to the buyer. It will usually only be an attractive proposition if the buyer’s creditworthiness and integrity are beyond question, if there is an on-going business relationship between the parties, or if there is some closer relationship such as parent company
and foreign subsidiary or branch.
The available means of cash payment
Regardless of when the cash payment is to be made, it can be made in basically one of four ways:
• by telegraphic transfer;
•
by mail transfer;
•
by bankers’ draft; or
•
by personal cheque.
Telegraphic transfers are used when, the buyer instructs his/her bank to transfer funds to either the seller’s bank or to a correspondent bank (that is, a bank which acts for the buyer’s bank) in the seller’s locale with instructions that those funds are to be paid to the seller’s account. The buyer pays his/her own bank the home currency equivalent of the amount in foreign exchange that the seller will receive and the buyer’s bank, then telegraphs the seller’s bank (or the correspondent bank) with instructions to pay the nominated amount to the seller. The seller’s bank (or the correspondent bank) is then reimbursed with funds from the buyer’s bank. The bank’s charges for providing the service are usually borne by the buyer, though they can be deducted from the amount received by the seller depending upon the specific provisions of the sales contract. Telegraphic transfers are the speediest means of arranging cash payment.#p#分頁標題#e##p#分頁標題#e#
A telegraphic transfer is similar to a mail transfer except that the instructions to effect payment are forwarded by telex, computer or the SWIFT interbank system. SWIFT is an ‘acronym for ‘the Society for Worldwide Interbank Financial Telecommunications which provides a highly secure method of interbank funds transfer between countries.
Mail transfers are similar to telegraphic transfers, the main difference being the speed with which they are processed. With mail transfers the advice that the buyers bank sends to either the seller’s bank or to its own correspondent bank is sent by mail and payment will not be available to the seller until that advice arrives. Mail transfers, if used, are now normally sent by airmail.
Bankers’ draft is simply an order to pay (a cheque) drawn by the buyer’s bank either on itself (usually only if it has branches in the seller’s country) or on a correspondent bank in the seller’s country. The buyer buys the draft from his/her own bank and then forwards it or arranges for it to be forwarded to the seller. If the draft is drawn on a correspondent bank in the seller’s country, it operates as an instruction to the correspondent bank to debit an account maintained by the
150
Study Guide
buyer’s bank with that correspondent bank with the amount of the draft and to pay that amount to the seller. If the draft is drawn on the buyer’s bank itself, the seller can normally obtain cash for it, without waiting for collection, by selling it to its own bank. The seller’s own bank will normally be prepared to purchase such drafts because, as they are drawn on a bank rather than on an individual, there is virtually no risk of being dishonoured.
Personal cheque can be drawn against a bank in the buyer’s home country, provided the seller is willing to accept such payment and provided the payment does not infringe the exchange control regulations of the buyer’s home country. When the seller receives such a cheque, it will normally be forwarded to the seller’s own bank for collection and that bank will make the necessary arrangements for the cheque to be presented for payment. This may involve some considerable delay and, inevitably, the seller will not be able to access the funds until they have been received by his/her own bank. Payments by personal cheque are not popular with sellers and are not common. Buyers with frequent dealings in a particular foreign country may find it convenient, if their settlements are to be in cash, to maintain a current account with a local bank for the purpose of making such payments.
Electronic payment systems
Electronic funds transfer (EFT) and international trade financing
As modern trade becomes firmly established in the information age, globalised computer networks and databanks have become integral features of international trade financing. Trade liberalisation, technological development and the internationalisation of the banking industry have collectively precipitated a move away from the paper documented transaction to the more time and cost efficient method of electronic funds transfer (EFT). EFT has greatly expanded the customer base and liberalised modern banking with new products and services. It involves almost no paper-processing work, little transaction time, and allows for a substantial reduction in administrative and service costs. It fosters international trade by transacting enormous volumes of funds across national boundaries with speed and accuracy.#p#分頁標題#e##p#分頁標題#e#
Open account
Generally, an open account arrangement is used where there is an implicit trust and integrity among all the parties concerned. It is most often used between the parent of an international group of companies and the individual subsidiaries operating in overseas centres, but may also be used between companies, firms or individuals which have sound international trading relations with overseas parties.
The open account provides for payments for exports and imports between two international trading organisations to be accumulated in an account in the books of one of the parties, with payment of outstanding balances being effected at mutually agreed periods by international funds transfers. Outstanding balances will accumulate to an exporter as shipments proceed and may be increased or reduced by such, payments as commissions, fees, dividends, royalties and the like.
151
Study Guide
The credit risk to an exporter of an open account is that the buyer will not pay outstanding balances. Accordingly, unless an exporter is trading on an international basis within his/her own or an affiliated business organisation, the exporter should treat open account operations with caution unless he/she is completely satisfied with the undoubted integrity of the respective overseas buyers.
Bills of exchange
Normally the buyer does not remit the purchase price on open account but allows the exporter to draw a bill of-exchange (‘draft’) on the buyer. This has advantages for both parties as the exporter obtains a negotiable instrument which can be turned into cash by negotiation at once, and the buyer is allowed a definite time of credit for settlement unless the bill is payable at sight. If the parties fail to make express arrangements, the custom prevailing, in the particular trade determines whether the price is to be paid on open account or by bill, and on which terms the latter has to be drawn.
Definition
A bill is exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order a specified person, or to bearer.
There are three original parties to a bill of exchange:
• the drawer;
• the drawee; and
•
the payee.
T
he drawer and the payee, or the drawee and the payee may be the same person, but where the drawer and the drawee are the same person the bill may be treated, at the option of the holder of the bill, as a promissory note or a bill or exchange.
The bill in the export trade is not normally in the simple form as described above, but contains a number of additional clauses, for example, clauses providing for payment at a specific rate of exchange or adding, to the sum payable, interest or specified charges. Such clauses are common particularly when the bill is made payable in foreign currency because various rates of exchange normally exist for the currencies in force at the buyer’s and seller’s residence, and it is unavoidable, when the bill is negotiated, that incidental expenses, such as bankers’ charges or foreign stamp duties, are incurred.#p#分頁標題#e##p#分頁標題#e#
152
Study Guide
Payment under a documentary bill (as opposed to a ‘clean’ bill which is not accompanied by other documents)
The seller often attaches to a bill of exchange which the seller has drawn on the buyer, the bill of lading to the goods sold. This is known as a ‘documentary bill’.
The purpose of issuing a documentary bill is mainly to ensure that the buyer will not receive the bill of lading and, so the right of disposal of the goods, unless the buyer has first accepted or paid the attached bill of exchange according to the arrangement made between the parties. This is usually the case with CIF or FOB contracts.
‘Sight’ and ‘term’ bills
Whether the bill of exchange which the seller forwards to the buyer has to be paid or accepted in exchange for the shipping documents depends upon whether it is a sight bill or a term bill. A sight bill is one which the buyer is obliged to pay upon sight or demand.
A term bill is a bill which does not require immediate payment but does require immediate acceptance. If a bill is a term bill, it will stipulate how much time after sight the buyer has before payment has to be made. This time or term is referred to as the ‘usance’ of the bill.
Acceptance
When the buyer accepts a term bill, acceptance constitutes an unequivocal undertaking that the bill will be paid, upon maturity, in the terms of the buyer’s acceptance. If payment is not made the buyer may be sued for the face value of the bill by either the drawer or any ‘holder in due course’ to whom the bill has been negotiated.
Dishonour
If the buyer fails to honour the bill of exchange (by either payment or acceptance) he/she has to return the bill of lading, and if he/she wrongfully retains the latter, the law presumes that the property in the goods has not passed to him/her.
Documentary collection
Where the parties have not arranged for payment of the purchase price to take place in the seller’s country the following problems arise:
• who is to present the bill of exchange drawn by the seller on the buyer; and
• if it is a documentary bill who is to deliver the transport documents to the buyer when the buyer accepts or pays the draft? 153
Study Guide
T
he seller can entrust these duties to a representative or subsidiary company if the seller is so represented at the buyer’s place of business.
Normally the exporter asks his/her bank to arrange for the collection of the price, that is, the acceptance or payment of the bill and the bank will carry out this task through its own branch office abroad or a correspondent bank in the buyer’s country. This method of collection also avoids the problems that can arise if the buyer fails to honour the bill of exchange. The process is what is called a ‘documentary collection’, and is as follows. The seller hands the shipping documents together with the bill of exchange to his/her own bank (called the remitting bank) with instructions for collection of the debt (unpaid purchase price.)#p#分頁標題#e##p#分頁標題#e#
The seller’s bank then despatches these documents usually by air mail, to his/her correspondent bank (called the ‘collecting bank’) in the buyer’s country. The collecting bank advises the buyer when the documents arrive and the buyer then has to either pay or accept the bill. The collecting bank is responsible to ensure that the buyer actually meets the conditions before the documents are released. (A third bank can be involved to actually present the bill for payment or acceptance and if it is, it is called the ‘presenting bank’).
Documents against payment (D/P)
If it is a sight bill the buyer must pay before the shipping documents are released by the collecting bank and that bank remits the funds to the seller’s bank. From the buyer’s point of view the receipt of the shipping documents allows the goods to be dealt with prior to their physical arrival and this means that the buyer can use those documents either to sell those goods in advance of their arrival or, alternatively use them as collateral to obtain finance to pay the bill.
Where the buyer wishes to use the goods rather than on-sell them, this method of payment may not be entirely satisfactory especially as the documentary bill, if forwarded by air mail as is the norm, can arrive well in advance of the goods. Sometimes the seller will be willing to advance credit till the goods arrive, in which case the seller can instruct the collecting bank, through the remitting bank to delay presentation of the bill until arrival of the goods. The effect of this, is the same as cash against actual delivery.
154
Study Guide
Documents against acceptance (D/A)
Where the bill is a term bill, the seller will instruct the bank to release the shipping documents only when the buyer has accepted the bill. The collecting bank will also have to obtain payment of the bill on the date upon which it becomes due.
A disadvantage from the seller’s point of view is that a term bill involves an enforced period of credit between seller and buyer. This may be unavoidable if the seller wants to make the sale. However the seller receives an accepted bill which imposes upon the buyer an irrevocable and quite independent obligation to meet the bill upon maturity even if there is a dispute about the goods. Consequently the seller can immediately sell (or discount) the bill after it has ban accepted, usually to a bank and therefore obtain immediate cash against the goods.
So the buyer gets a credit period and the seller can either wait out the full usance of the bill and receive full payment upon maturity or it can obtain an immediate, if somewhat discounted, payment by negotiating the bill.
Risks involved with documentary bills
• There are three main risks involved with the documentary bills, these are: that the goods will have been shipped before the bill is sent to the collecting bank in the buyer’s country. This means that the seller will have lost control of the goods without any guarantee that the bill will be accepted or paid for. Although the seller will retain property in the goods it could still be a big problem if the seller is left with the goods at sea or in a foreign port without a buyer. The seller may have to renegotiate with the original buyer or find an alternative buyer or have the goods shipped back or shipped to another buyer in a third country. The seller can of course sue the original buyer for breach of contract but that may involve protracted litigation in a foreign country. The appointment of an agent in the buyer’s country to deal with the goods in the event that the buyer fails to honour the bill of exchange should also be considered. This is referred to as ‘case of need’ representative, but the instructions to the collecting bank must be very clear about what the powers of that person are or else the collecting bank will not release the shipping documents so that the ‘case of need’ can deal with the goods; and#p#分頁標題#e##p#分頁標題#e#
•
With a term bill if the buyer does accept it and if the buyer then receives delivery of the documents, there is the possibility that those documents and the goods that they represent may be disposed of without the buyer paying the bill when it falls due. In such cases the seller loses the property in the goods and will be left only with an action against the defaulting buyer on the unpaid bill.
•
There is the further complication that if the seller has discounted the bill to his/her own bank after acceptance, that bank will have recourse against the seller if the bill is not ultimately paid by the buyer/drawee. (s60 Bills of Exchange Act)
155
Study Guide
Reducing risk: Insurance
The risk that the bill will not be paid or accepted upon presentation or if accepted, will not be paid at maturity can be insured against through governmental export credit agencies.
The insurance provided in Australia is against non-payment by buyers for goods or services exported where the non-payment results from commercial, economic or political factors affecting the transaction. This includes the buyer’s insolvency, the buyer’s failure to pay the purchase price, the buyer’s refusal to accept goods, the imposition of import restrictions or the cancellation of valid import licences, war between the buyer’s country and Australia, war, revolution or other disturbance, in the buyer’s country, additional handling, transport or insurance arising from interruption or diversion of the voyage.
Types of cover
A seller can be insured against risks from the date of shipment (shipments policy) or from the date of contract (contracts policy): appropriate where the contract entered into is for the supply of goods to be manufactured to particular specifications where those goods do not have a ready market otherwise.
Benefits of a documentary bill
The seller obtains payment, at least on a discount basis, and the buyer gets the necessary credit if the bill is a term bill which the buyer accepts and returns to the seller in exchange for the shipping documents. The buyer obtains possession of the goods and a period of credit (the usance). The seller by negotiating the bill with his/her own bank, obtains cash which means that the seller does not have to, bear the cost of extending the credit.
Documentary credits
Letter of credit was referred to at the beginning of this topic. A letter of credit is an undertaking by a bank to meet cheques or bills of exchange drawn by a beneficiary/seller in accordance with the strict terms of the letter of credit.
Payment is made by the buyer’s bank which is called the issuing bank; instructions to that bank are from the buyer.
The exchange of shipping documents and payment are normally made in the seller’s country by the advising bank.
156
Study Guide
Forfaiting
Forfaiting operates on the basis that a bill of exchange or series of bills will be used as payment instruments in the trade transaction. It was first designed by Swiss bankers to meet the demand from sellers of capital goods on medium credit terms (between one and five years) for finance on a ‘without recourse’ basis. The seller draws a usance bill on the buyer ‘without recourse’ to himself/herself. The bill is then accepted by the buyer and ‘backed’ by the buyer’s bank. That backing may be given either by way of an aval or a guarantee, that is, the bank simply appends its signature on the bill. The seller could then endorse the bill again ‘without recourse’ and discount it to his/her bank. His/her bank acts as the forfaiter.#p#分頁標題#e##p#分頁標題#e#
Forfaiting can also be applied to promissory notes. The buyer issues a promissory note which is similarly purchased at a discount by the forfeiting bank ‘without recourse’. Whether bills of exchange or promissory notes are used, it is customary that they be drawn in a series over the duration of the contract, hence providing payment by instalments.
Example:
The agreement between S and B provides that S shall deliver capital goods to B over a period of five years. Payment is to be made over 10 equal instalments. The series of bills (promissory notes) drawn will mature every six months respectively. The last bill should then mature by the completion of the contract period. B then accepts the 10 bills ‘without recourse’ and these are avalised or guaranteed by a bank deemed acceptable to S’s bank (the forfaiting bank). The forfaiting bank’s only recourse is the avalising bank, therefore it must satisfy itself as to the creditworthiness of the buyer and the avalising bank before agreeing to forfait. The bills may be expressed in any currency acceptable to the forfaiting bank. These bills will then be purchased by the forfaiting bank at a price which will cover the interest over that credit period of five years, expenses and any margin of profit commensurate with the risk involved. The purchase, as stated before, is without recourse to S. Upon maturity of each bill, the forfaiting bank presents it for payment.
Forfaiting is popular in the continent where it has been in existence for a very long time. The three major advantages in forfaiting are:
• that the burden of collecting payment is passed on to the forfaiter;
• that any currency exchange risk is minimised; and
• that the seller need not worry about any recourse against a dishonoured bill since the forfaiting is always expressed as ‘without recourse’.
The forfaiter bears these risks but not without a price. Banks are not prepared to forfait unless at least a part of the purchase price has actually been paid. It is customary for merchant banks to stipulate that at least 15 percent of the purchase price has been paid before they are prepared to forfait.
157
Study Guide
Factoring, countertrade and bartering
F
actoring
F
actoring companies take on the book debts of a customer at a price, which they will then arrange to collect from the buyers. They also take on board the associated exchange, status and transaction risks. This naturally is an extremely convenient option for the sellers who should be able to save time and expense on debt collection and credit control. The factor charges a commission usually based on turnover, for taking over an agreed set of book debts or a sales ledger. In order to preserve the public profile of the sellers and to maintain the goodwill and relationship between buyer and seller, the factor will usually offer an invoice discount service. This means that the customer retains control over the sales ledger and the factor simply advances payment against invoices and underwrites any existing debt. The finance provided by the factor may be either with or without recourse.#p#分頁標題#e##p#分頁標題#e#
Recourse financing allows the customer to receive payment from the factor against invoices but if the buyer fails to pay, the seller must reimburse the factor. The factor does not underwrite the risk or debt involved.
Without recourse factoring affords the seller absolute protection from credit risk. That is to say, if the buyer fails to pay according to the contract, the seller is not compelled to reimburse the factor. The factor will have to pursue the debt against the buyer himself.
Countertrade
Countertrade refers to a system of non-monetised transaction of one product in exchange of another. Both seller and buyer mutually agree to sell their products to each other on a reciprocal basis with no or little monetary payments. Countertrade has been an integral part of international trade. The post-world war trade liberalisation on a stable exchange was designed, inter alia, to eliminate the need for balancing bilateral trade through countertrade. Yet the practice of countertrade received a tremendous upsurge of growth among trading nations, particularly the centrally planned economies (that is, all COMECON members) and third world countries. Developed industrialised countries have also been actively engaged in countertrade. France has a formal institution (L’Association Pour la Compensation des Echanges Commerciaux) to advise on how to manage countertrade, while the US, Germany and Japan use countertrade as a means of promoting exports. Countertrade has become a worldwide phenomenon and gained considerable popularity among trading nations in the 1990s, who conduct about 15 to 20 percent of world trade in countertrade conditions.
Countertrade is highly controversial despite its widespread use. Being managed and anticompetitive, countertrade distorts the free flow of trade and arm’s length price fixation, As such, it is counterproductive not only to the WTO multilateral trading system but also to the long-term economic interests of countertrading countries. On the other hand, many countries find countertrade as the only available route to gain access to modem technology and to export their products otherwise unsellable in competitive markets. These competing interests have so far defied the development of a multilaterally coordinated discipline on countertrade.
158
Study Guide
Definition
Due to its diverse orientation, countertrade has attracted a number of definitions. These range from ‘the trade practice whereby a country links the quantity and/or value of its imports to that of its exports’, to a ‘method of effectuating the transfer of goods, services and technology to nations experiencing hard currency shortages or low currency values’. UNCITRAL has defined countertrade as:
... a composite transaction in which one party supplies (or procures the supply of goods or other economic value to the second party, and in return, the first party agrees to purchase (or procures to be purchased) from the second party, goods or other economic value, so as to achieve an agreed ratio between reciprocal performances.#p#分頁標題#e##p#分頁標題#e#
Clearly there is no universally accepted technical definition. However, there are certain common grounds in these definitions, which may constitute the basic features of countertrade. Countertrade transactions usually:
• are partly or wholly non-monetised;
• link two corresponding export (or import) deals; and
• create reciprocal obligations of performance between the parties.
• Bartering is characterised by the exchange of goods or services. There is in theory no money settlement or consideration involved. The transaction is contained in a single contract, there is no distinct sale agreement.
Self-assessment questions
1
. A seller has several payment options available, though each may involve some measure of internal variation. These options include:
a
. the seller can demand that the buyer make cash payments for the goods;
b
. the seller can accept payment under a documentary bill; or
c. the seller can accept payment under a documentary letter of credit
C
ritically evaluate these options and others you think are important.
2. Discuss the significance of Bills of Exchange as an instrument for the payment of exports.
3. Discuss the detail the methods of payment that are available in a contract for the international sale of goods, giving an account of the risks as well as the advantages.
4. Compare documentary collections with documentary credits.
5.
Discuss the importance of electronic payment systems.
159
Study Guide
Re
ferences
Ar
dagh, A & Brien, C 1997, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Bu
rnett, R 2004, The law of international business transactions, Federation Press, Sydney.
Chuah, JCT 1998, Law of international trade, Sweet & Maxwell, London.
Pe
ntony, B, Srivastava, D & Graw, S 1991, Commercial transactions, cases and materials, Butterworth, Sydney.
Ra
fiqul Islam, M 1999, International trade law, Law Book Co, Sydney.
160
Study Guide
To
pic 7 International transportation of exports
Topic structure
The topic International transportation of exports includes the following content:
• sea transport;
• air transport;
• land transport;
• multi-modal transport; and
• insurance.
Learning outcomes
A
t the completion of this topic you should be able to:
•
compare the liability of a carrier in a contract for the carriage of goods by sea under the relevant international conventions;
•
recognise the importance of a bill of lading as an instrument for the carriage of goods by sea;
• distinguish the functions of a bill of a lading and an air waybill; and
• evaluate the liability of a carrier in the carriage of cargoes and passengers by air under the relevant international conventions.#p#分頁標題#e##p#分頁標題#e#
Required reading
R
eading 7: D’Arcy, L, Murray, C & Cleave, B 2000, ‘Container transport’, Chapter 16
R
eading 8: ‘The Hague –Visby Rules’
T
extbook: Mo, JS 2003, Contracts for carriage by sea, air and land, Chapter 4
Read
Textbook: Mo, JS 2003, Chapter 4
161
Study Guide
Introduction
Goods which are the subject matter of an export transaction have to be moved from the place of dispatch to their destination. This movement of goods (or carriage as it is normally called) can be by land, sea or air or a combination of these three modes of transportation. If it is done by one of them it is called unimodal; if it is done by a combination of them, it is multimodal, or combined transport. For example, if a merchant in Bradford, England sells knitwear to an importer in Canberra: the goods have to be loaded into a door to door container in Bradford, taken by truck to Liverpool, loaded onto a vessel which proceeds to Sydney where it is unloaded and taken by land to Canberra.
Unimodal international transport is governed by international conventions which have been adopted by many countries and have great practical effect. The most important of these are:
• sea transport: The Hague-Visby Rules relating to bills of lading; and
• air transport: The Warsaw Convention. There are also international conventions relating to land transport and rail transport.
For multimodal transport there is also an international convention. It is:
• The UN Convention on International Multimodal Transport of Goods, created in 1980. It has not come into force. Effort has been made to develop ICC rules in conjunction with UNCTAD although it appears unlikely that they will be agreed to.
S
ea transportation
M
ethods of transportation by sea The method of carriage is determined by the nature of the goods.
• Charterparty If they are goods in bulk, for example, grain, coal or oil, the shipper (the person who contracts with the carrier by sea, usually the seller, but may also be the buyer or the buyer’s agent) may hire the whole vessel by means of a charterparty. If individual packages of goods are carried on the ship’s deck or in the hold they are carried under bills of lading.
•
Bills of lading Other non-bulk cargoes are often shipped in containers. These are usually governed by what are called combined transport bills of lading.
The transportation of goods internationally is still conducted on the basis of paperwork, as it has been done for the past 300 years, although Schmitthoff says that one day the traditional written transport documentation will be superseded by electronic means.
162
Study Guide
The course of business in the carriage of goods by sea
An exporter arranging for the export of goods will undertake the following processes.
• contract of carriage with a shipowner has to be concluded. This is known as the contract of carriage by sea. The freight is the amount paid to the shipowner. The shipowner is the carrier, the exporter is the shipper.#p#分頁標題#e##p#分頁標題#e#
• The exporter has to decide whether to charter a whole ship in which case the terms of the contract of carriage are embodied in a document called a charterparty. Where the goods form only part of the intended cargo of the ship, the terms of contract of carriage are evidenced by a document called a bill of lading which in effect, is a receipt by the shipowner acknowledging that goods have been delivered to him/her for purpose of carriage and reiterating the terms of the contract.
• Usually the shipper instructs a forwarder to procure space for the cargo and prepare the bill of lading (different ship lines have their own forms of bill of lading) and send it to the loading broker. The shipowner likewise employs an agent, the loading broker, to obtain cargoes for his/her ships. The forwarder’s duties also include arranging for the goods to be brought alongside, making the customs entry and paying any dues on the cargo. After shipment the forwarder collects the completed bill of lading and sends it to the shipper.
The business of arranging for cargo is entrusted by a shipowner to a loading broker, who advertises the date of sailings in shipping papers. The broker supervises the arrangements for loading, though the actual stowage is decided on by the cargo superintendent who is in the direct service of the shipowner. The broker signs the bill of lading, issues it to the shipper or his agent in exchange for the freight. The loading broker is paid by way of commission on freight.
In practice the same firm is both the loading broker and the forwarding agent, though it usually keeps these two functions in two separate departments of the firm.
When the goods are delivered to the shipowner, the shipper usually receives a document known as the mate’s receipt. This is signed by the ship’s officer in charge of loading operations and is based on the notes of tally which is a record of their date of loading, identification marks, individual package numbers, weight, measurement and any defect or comment about the condition in which the goods were received (for example, damage to packages and so forth).
Any qualifications to the mate’s receipt are later embodied in the bill of lading and will protect the carrier against liability. The presence of qualifications also means that the bill of lading will not be regarded as ‘clean’, rather it is what is called ‘claused’.
163
Study Guide
T
he records of loading which the tally clerks take during the loading operation are handed to the shipowner’s clerks who compare them with the draft bills of lading sent by the shipper to the shipowner’s office. (The shipper or his agent completes a set of two or three original bills of lading in respect of the consignment.) When the bills agree with the tally notes taken during the loading, the bills are signed by the loading broker or another agent on behalf of the shipowner and the signed bills are handed over to the shipper.#p#分頁標題#e##p#分頁標題#e#
T
he particulars of all bills of lading are entered on the ship’s manifest. This is produced to naval, port, Customs or consular authorities and contains the details of the complete cargo of the ship.
Bills of lading are usually forwarded to the consignee, and usually more than one set is sent, registered and separately. A shipowner is not bound to hand over goods unless he/she is given a bill of lading. (Sometimes a copy is carried on board the ship.)
If the exporter sells under a letter of credit, he/she normally hands over all parts of the bill, together with the other required documents, to the advising or nominated bank, and that bank then forwards the 澳洲dissertation網documents by air mail to the issuing bank.
Normally the bill of lading contains detailed provisions about the methods of delivery and the cessation of the shipowner’s liability.
Transportation of goods by sea
The method is determined by the nature of the goods:
• if bulk