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    Primer for Exporters: International Sales Contracts

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2002

    The International Chamber of Commerce has developed a model contract for the sale of manufactured goods.

    by David Brown

    Any firm developing its business in the international arena faces challenges, not least of which is the contract itself. It would be easy to refer the contractual issues to a specialist lawyer, but this may not be realistic for many firms. Two ready-to-use model international sales contracts are now available from ICC and ITC.

    Until quite recently, international sales were hardly "international" at all in legal terms: the party with the greater bargaining power, often the buyer, would generally impose its standard terms and its own national law. If the parties came from different legal cultures - for example, from civil law and common law countries - then understanding and negotiating contract terms were even more difficult. These factors did nothing to foster trust, and therefore hindered international trade development.

    Fair terms

    In recent decades, however, much has been done to "level the playing field". This sporting metaphor is not entirely out of place, as it captures the effect of instruments that help contract-ing parties to obtain balanced and easily comprehensible contract terms.

    The key initiative was the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG). The convention has been adopted by more than 50 countries (most of them in the North). For countries that have not yet adopted the convention, parties wishing to conduct international trade can still base their contract on the principles in the convention.

    The CISG proposes a broadly worded standard set of rights and obligations for both buyer and seller, including the options open to them if there is a problem with the contract.

    Since 1994, the CISG has been accompanied by the UNIDROIT Principles of International Contracts. This wide-ranging set of principles seeks to cover a much broader range of contracts than just sales. As with the CISG, it provides valuable assistance to a party trying to find internationally accepted wording for any given contract term.

    Indeed, the CISG and UNIDROIT are increasingly seen as tools that can be turned to at the negotiation stage when trying to counter oppressive terms proposed by the other side. Both texts can be found on the Juris International web site: http://www.jurisint.org

    These instruments also help to harmonize international trade terms by reducing to a minimum the role to be played by a national system of law. In other words, if the parties use the CISG or UNIDROIT Principles as the basis for their contract terms, then relatively little remains under the authority of national "governing law".

    It would be wrong, however, to conclude that one can do away with "governing law". There are always matters that are a question of public policy at law and cannot be varied by the parties - thus, for example, the scope of a provision regulating the "liquidated" (i.e. fixed) damages payable in the event of delayed performance is not entirely at the discretion of the parties. There are also key questions that neither CISG nor UNIDROIT address - transfer of title in the goods sold, for example.

    Nevertheless, these instruments provide a very useful guide to firms when drafting an international sales contract.

    Two basic model sales contracts

    The reader might well retort that this is all very well, but that specialist assistance remains appropriate in order to produce the contract itself. So what should businessmen or women do if they do not have an international lawyer at hand? What they need are model contracts, and it is good to be able to report that balanced international models are available. This article refers to only two of them: the International Chamber of Commerce (ICC) Model International Sales Contract for Manufactured Goods; and the International Commercial Sale of Per-ishable Goods Model Contract proposed by ITC.

    Each model responds to concerns of contracting parties for the type of transaction in question. Thus, for example, since perishable goods are liable to deteriorate quickly, ITC's International Commercial Sale of Perishable Goods Model Contract proposes that the buyer should be entitled to terminate at a relatively early date in the event of late delivery. The contract also foresees a rapid expertise procedure to deal with disputes regarding the quality of the goods. In comparison, ICC's Model International Sales Contract for Manufactured Goods does not provide for an early fall-back cancellation date for late delivery because it would not be justified for manufactured goods.

    Both provide contract te rms ready for use; all the parties need to do is add the relevant details of their own commercial deal, such as name, address, description of goods, and price and payment terms. Both promote harmonization of international contracting practices through use of identical vocabulary and common reliance on the CISG and ICC Incoterms (International Commercial Terms - standard trade definitions). For more information, see http://www.iccwbo.org/index_incoterms.asp

    The ITC model contract has been prepared with the aim of limiting the clauses that must be completed by the parties. It has fall-back provisions for everything except key information as to the parties' identity and the description of the goods. The object here is to dispense with the need for a lawyer as far as possible. This is not to say, of course, that lawyers should be kept out of international contracts. They should certainly be used if a party foresees altering the equilibrium that these model contracts seek to propose, or to go further and "pick and choose" from the terms proposed in various instruments in order to assemble a contract.

    Obviously, there is nothing wrong with drafting a contract afresh. But international sales call for specialist experience. Every attempt has been made in the ICC and ITC model contracts to allow businesses to avoid having to turn to specialists. Keep in mind, however, that the usefulness of the model forms is liable to be considerably reduced if they are substantially modified without specialist advice.

    David Brown is an English solicitor and French avocat (lawyer). He is managing partner of the Paris office of international law firm Shadbolt and Co and can be reached at David_Brown@shadboltlaw.com


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