International Contracts Checklist


Published on

Does your business know what an international contract is and how to identify one?
Knowing how to spot an international contract is important for two reasons:
1) It will shape your involvement as the in-house lawyer. Is this a contract you can advise on or do you need to seek external advice? If the latter, this may have an impact on the timescales the business is working to and you may need to manage their expectations in this respect.
2) There will be some areas which the business should be looking into from the outset to avoid delays at a later date. For example, in an international distribution agreement where you are manufacturing the goods, you will need to consider the ownership of intellectual property early. Does your business own the IP rights in your brand name and goods in the territory you are hoping to have your goods distributed in? If not, can you get registration for your brand name/goods in that territory? Has the business checked whether someone has already registered your brand name/products in that territory?
Wragge & Co commercial partner, David Lowe, has prepared a checklist to help you consider the key issues which arise in international contracts for the supply of goods.

Published in: Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

International Contracts Checklist

  1. 1. *need clarity?International supply of goods checklist
  2. 2. Does your business know what an international 2012 8 CHECKLIST INCOTERMScontract is and how to identify one? 4 GlossaryDoes it matter if they don’t?In a word: YES Knowing how to spot an international contract is important for two reasons: 1 It will shape your involvement as the in-house lawyer. Is this a contract you can advise on or do you need to seek external advice? If the latter, this may have an impact on the timescales the business is working to and you may need to manage their expectations in this respect. 2 There will be some areas which the business should be looking into from the outset to avoid delays at a later date. For example, in an international distribution agreement where you are manufacturing the goods, you will need to consider the ownership of intellectual property early. Does your business own the IP rights in your brand name and goods in the territory you are hoping to have your goods distributed in? If not, can you get registration for your brand name/goods in that territory? Has the business checked whether someone has already registered your brand name/products in that territory? Wragge & Co commercial partner, David Lowe, has prepared a checklist to help you consider the key issues which arise in international contracts for the 48 supply of goods. 2
  3. 3. Checklist: 8 CHECKLISTticking the boxes INCOTERMS 2012 4 Glossary Why do international contracts for the sale of goods create more difficulties than a TOP TIP! domestic contract? Get your commercial teams 1. t is harder/more costly to check the credit standing of an overseas company I than a domestic registered company. However, as with all contracts, this is an into the habit of thinking important step to complete at the outset. about whether a contract is an international contract 2. ou need to take into consideration the import/export requirements of two or Y more countries. from the outset. This will make your and their lives 3. ou need to take into consideration the mandatory laws of the country in which Y goods are being exported/imported. These may override the law stated as easier in the long run. applying to your contract. 4. ou may need to enforce a claim or judgment in a foreign country and therefore Y be aware of the processes for doing so in that country. In particular, will the courts of one country recognise a judgment from the courts of another? 5. ou may, if you are the seller, need to think about how you will deal with any Y adverse exchange rate fluctuations. 6. ou will need to take into consideration the processes for executing a contract Y in that other country (for example, do you need to get the contract translated, notarised, legalised etc?). 7. You will need to have a clear understanding of each stage of the delivery process (which modes of transport are being used, what documentation will be required and when risk and title will pass from the exporter to the importer of the goods). 8. ou need to be aware of any cultural or political issues which may influence the Y risk profile of the contract. 3
  4. 4. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossarywho is responsible for what?Q84uestions 48 Seller Buyer Are the parties based in different jurisdictions? Transport from seller’s premises Does the other party have significant assets in other jurisdictions in which you may want to enforce any award for breach of contract? Export container terminal and loading Are the obligations of either party to be performed in different jurisdictions? Export licence/duty Ocean freight Import licence/duty Import container terminal and unloading Transport from container terminal to warehouse 4
  5. 5. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 GlossaryHave you considered the key issues?If you or anyone in your business is dealing with an international contract, use the following checklist to ensure the key issueshave been considered and are reflected in your contract. 48 Issue Credit rating I have checked and I am happy with the credit standing of the other party to the contract. The credit standing of a company can be assessed through a company credit report obtained through providers such as Dun Bradstreet. Shipping I have considered how the goods are going to be moved from one territory to another and know: (a) what modes of transport (road, rail, inland waterway and barges, ocean and ships, aeroplane) will be used from the point the goods are collected to the point that they are delivered, and understand what documentation will be required for: (i) using the mode(s) of transport; and (ii) crossing the appropriate frontiers; (b) hat and how many documents will be required at each stage of the delivery; and whether originals w must be provided or whether copies will suffice. I have set out the agreed list of documents (including their content) in the contract to limit the risk of disputes, delays in transit and disruption to payment. The documents required may include: (i) commercial invoice (to evidence the start of the transportation) (ii) origin certificate (from the exporter certifying the place of manufacture or growth of the goods) (iii) test/quality certificates (from the exporter certifying that the goods are of a certain standard, quality, grade or quantity) (iv) inspection certificate (v) health certificate (if the goods are agricultural or animal products) (vi) packing lists (stating the consignee, vessel, port of departure, terms of delivery, content and weight of the goods being delivered) (vii) insurance policy or certificate (viii) export licence or certificate, import licence, GSP certificate (dealing with EU taxes) (ix) transport documents such as: (A) air waybill if the goods are being air freighted; (B) arine bill of lading if the goods are being transported by sea or a non-negotiable sea waybill m (if a marine bill of lading is not used); (C) truck waybill or railway consignment note if the goods are being transported by road or rail; (D) courier receipt; (E) forwarding agent’s certificate of receipt for shipment; or (F) bill of exchange; 5
  6. 6. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue (c) if there is going to be a freight forwarding agent or shipping agent involved. If there is, I have: (i) v erified that they are a reputable agent (for example, they are a member of the freight forwarder’s international association or other such association); (ii) obtained their contact details from the business so that I can keep them informed of contractual negotiations (the freight forwarding agent or shipping agent will then be in a position to advise you on documents and other points that need to be considered); and (iii) checked whether they are required to take out certain insurances to cover certain risks and/or use certain terms and conditions. (This is particularly important if the freight forwarding agent will issue carriage receipts or multi-modal bills of lading.) Incoterms or other international trade terms I have considered whether my contract should incorporate any international trade terms, such as Incoterms (published by the International Chamber of Commerce). The benefit of incorporating such terms is that they are internationally recognised and deal with key provisions in an international supply arrangement such as the allocation of certain costs, risk, delivery, insurance and other arrangements (they do not deal with title). It is a common mistake to think that Incoterms only deal with shipping. They can be, and are, used for multi-modal transportation of goods. I have decided to use Incoterms and have: (a) ead and understood the term I want to use. This is important because often a business will say that the r goods are to be delivered, for example “FOB”, but understand this to mean something different from Incoterms FOB (FOB is used as the example here as it means something very different in the United States); (b) either (i) used the current version of Incoterms (the one current at the date of this checklist being Incoterms 2010) or (ii) understand why I am using an older edition (this is important because Incoterms 2010 abolished four terms from Incoterms 2000, introduced two new terms and made changes to the other terms); (c) roperly incorporated the term into my contract (for example [term], [address], Incoterms 2010). p Failure to properly incorporate Incoterms will mean that they do not apply to your contract. Payment The usual method of payment is by bank transfer. I have included full details of the bank and account number required to make payment. 6
  7. 7. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue Trade finance I have considered whether trading will be undertaken on the basis of: (a) dvance payments (supplier friendly); a (b) documentary Letters of Credit and documentary Bills for Collection; (c) pen account (customer friendly); or o (d) a different method of trade finance. Advance Payment In an international contract for the supply of goods, the supplier (exporter) will want the customer (importer) to make an advance payment for the goods as this will reduce the risk of non-payment. Documentary Letters of Credit and Bills for Collection Documentary Letters of Credit and documentary Bills for Collection are standard trade finance products which have trade documents that are sent through and verified by financial institutions. There are nine key steps in these forms of finance (although the exact steps will vary depending on whether it is a letter of credit or a bill of collection): (1) he contract for the sale of the goods is made between the customer and the supplier; t (2) an application for a Letter of Credit is issued by the customer to the customer’s bank; (3) he Letter of Credit is issued by the customer’s bank to a bank in the supplier’s country t (the advising bank); (4) he advising bank issues a Letter of Credit Advised/Confirmed to the supplier; t (5) the supplier delivers the goods to the customer; (6) the supplier issues the documents required under the documentary credit to the advising bank; (7) the advising bank checks these documents and issues payment to the supplier; (8) he advising bank issues the documents to the customer’s bank, checks the documents and reimburses the t advising bank; and (9) the customer’s bank releases the documents to the customer in return for payment. Open Account Under the open account system, the customer and supplier agree the terms of delivery and payment so that essentially the supplier delivers the goods and the customer makes payment through the banking system. The banks have no involvement other than to process payment instructions. 7
  8. 8. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue Currency I have considered what currency payment will be in and, if Euro, I have considered whether I need to include specific wording in my contract to cover the risk of a member state leaving the European Economic Union (i.e. to make it clear that the currency will remain as Euro (even if a party withdraws from the EMU) for so long as the Euro remains a valid currency). Exchange controls If an exchange rate is relevant, I have made it clear in my contract: (a) hich bank’s exchange rate is to be used; w (b) whether it is the buy, sell or spot rate which will be used; (c) on which date the exchange rate will be applied (usually it is the day preceding payment). As the seller of goods, you need to be clear what will happen to the price of the goods if there is an unfavourable change in an exchange rate. Are you happy to take the good with the bad (benefit from positive changes and take the hit on negative changes) or should there be some mechanism to stabilise the price of the goods in the event of exchange rate fluctuations? Import/export restrictions I have: (a) ade it clear in my contract which party is responsible for export licences, import licences and duties m (this can either be stated explicitly or by reference to Incoterms); and (b) hecked with the freight forwarding agent or shipping agent whether it will be responsible for ensuring c that the goods get through customs and will make sure all documents and requirements are dealt with. If goods are imported from outside the EU, they are likely to be subject to import duties and VAT, and an import licence may be required. Some duties are payable according to where the goods have come from (usually applying to the country in which the last substantial process was applied) and therefore a certificate of origin will be required. The certificate of origin is usually signed by the local chamber of commerce or local government department. Intellectual property If the contract is a distribution agreement, I have: (a) hecked which trade marks of the business relate to the goods being distributed in another territory to c ensure: (i) the trade marks have been registered in favour of the business in that territory; and (ii) will not infringe the trade marks of others in the territory; and (b) hecked that the business’s name has been: (i) registered as a trade mark in favour of the business in c that territory; and (ii) will not infringe the trade marks of others in the territory. 8
  9. 9. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue It is important that this is checked with the trade mark registry in the relevant territory at the start of the project. If certain names or logos have not already been registered, the business should be made aware that registration can be time consuming and costly. Force majeure I have: (a) iscussed with the business what potential force majeure events could occur and considered whether a d long-form definition of force majeure is appropriate (a long-form clause will be more appropriate for the party most likely to be affected by the force majeure event); and (b) n particular, discussed whether strikes, industrial disputes and inability to obtain materials should i be force majeure events (it is more likely that these events will affect the manufacturer/supplier of the goods). Force majeure is more important in international contracts for the simple reason that there is more risk and therefore more to go wrong. Insurance I have considered insurance and know: (a) ho is responsible for insuring the goods; w (b) hat risks the goods should be insured against; w (c) he amount of the insurance; t (d) hich insurer will be used; and w (e) hether evidence of the policy and receipts for premiums paid or certificates of insurance will w be required. Insurance in international contracts is important because there is greater risk that the goods will be lost or damaged in transit. It is important for the business to recognise that insurance, and in particular marine insurance, is a specialist area and it may be appropriate to consult your insurance broker. If you have incorporated Incoterms into your contract, you should be wary about relying on the Incoterm chosen to stipulate the precise amounts of insurance. For example, CIF Incoterms 2010 requires the supplier to obtain cargo insurance complying at least with the minimum cover provided by Clause (C) of the Institute Cargo Clauses and be for a minimum of the price provided in the contract plus 10%. Clause (C) is a very limited level of cover. Therefore, if you require higher or broader levels of cover, this must be expressly stated in the contract. 9
  10. 10. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue Language I have considered whether: (a) any documents need translating; (b) ssuming the contract is to be translated, which version (English or foreign) will be the definitive a version; (c) he translator used needs to be licensed or registered in order for the translation to be recognised in the t foreign court; (d) the translation needs to be notarised, apostolised or legalised for it to be enforceable; and (e) require additional budget from the business in order to cover the cost of a translation from another I language into English. Product liability The goods I am exporting or importing are consumer goods. I have therefore considered including the following provisions in my contract: (a) protective terms in contracts with other parties in the supply chain: (i) limiting and/or excluding liability; (ii) requiring: (A) arranties and indemnities as to matters such as quality control, compliance and risk w management; (B) adequate insurance cover; (C) greement as to notification procedures and maintaining control over publicity and notification a processes; and (D) providing audit rights; (b) insurance against product liability; (c) areful due diligence in selecting other contracting parties to ensure they have adequate levels of risk c management and compliance; (d) spreading the risk among several suppliers rather than sourcing from a single supplier; (e) eviewing internal procedures for compliance and risk management and ensuring procedures are in place r to maintain compliance; (f) post-marketing monitoring: (i) consumer instructions; (ii) consumer warnings; and (iii) document management; and 10
  11. 11. Checklist: 8 CHECKLIST INCOTERMS 2012ticking the boxes 4 Glossary48 Issue (g) reparation of a ‘notification plan or pack’ in case immediate notification needs to be made. p As the customer, consider whether you want to commission the testing of the goods on delivery and whether you have any labelling requirements you need to comply with. Product liability is an important issue to be considered by both the supplier and the customer to an international sale of goods contract. The main piece of legislation in the UK is the Consumer Protection Act 1987. Part 1 of the Act imposes strict liability for defective products. A “producer” (being the manufacturer, its local representative, the product importer in the EEA and others in the supply chain who can influence the safety of the product) will be liable to pay damages for death, personal injury and damage to personal property (with a value of £275 or more). Notices The notices provision in the contract: (a) rovides for notices to be in English or to be accompanied by an English translation. If the latter, your p contract should include a clause that English translations will take precedence; (b) rovides for addresses for notice to be within England or, where this is not possible, has taken this into p account in relation to the deemed delivery provisions and definition of “Business Days”; (c) ncludes a service of process clause, which if possible, includes an address for service of legal i proceedings in the UK to ensure you can serve a document if required. Governing law I have included a governing law clause in my contract and have either: (a) referred to the laws of England and Wales (it does not refer to the laws of the United Kingdom); or (b) eferred to a foreign law and taken foreign legal advice on the enforceability of my contract as a whole r under that jurisdiction. Including a governing law clause in favour of the laws of England and Wales will give you a degree of comfort (because you can easily point to what these are in the event of any dispute or breach or find someone who can). However, even if you are successful in agreeing an English governing law clause, you need to be aware that other laws may still be relevant. For example, the choice of law provisions in the contract may be modified if the overriding local mandatory laws render performance under the contract unlawful. Jurisdiction (1) I: (a) ant any disputes arising under my agreement to: (i) go through an internal dispute resolution process; w and then (ii) mediation; and then (iii) if that process is not successful, to be decided before the English 11
  12. 12. CHECKLISTChecklist: 8 INCOTERMS 2012ticking the boxes 4 Glossary48 Issue courts. I have included such provisions in my contract; or (b) ant: (i) some specific disputes to be decided by an expert for final determination; and (ii) all other w disputes to be dealt with as outlined in (a) above. I have included such provisions in my contract; or (c) ant any disputes arising under my agreement to: (i) be determined by arbitration; and (ii) have w included such provisions in my contract. If you have chosen (a) or (b) above: go to Jurisdiction (2) below. If you have chosen (c): go to Governing law. Arbitration vs Courts In deciding which route to take with regard to your jurisdiction clause you need to consider: (a) here any judgment will be most easily enforceable. Are there any specific conventions which mean w that an English court judgment will be recognised in the other jurisdiction and, if not, are there any conventions which will recognise the decision of an arbitrator in the other jurisdiction?; (b) hat the reality is of trying to bring a claim or enforce a judgment in the other jurisdiction (for example w is there risk of political or judicial bias or is litigation particularly time-consuming or expensive?). Arbitration Arbitration is often an attractive choice in international contracts as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York” Convention) has been ratified by most countries and that should, in theory, make it easier to enforce than an English court judgment. Jurisdiction (2) I have considered whether my jurisdiction clause should refer to “exclusive” or “non-exclusive” jurisdiction. My jurisdiction clause clearly states whether the named court exclusively or otherwise. Local law / foreign legal advice I have either: (a) obtained foreign law advice from a law firm based in the other jurisdiction that is involved; or (b) considered the risk of not taking foreign law advice and I accept those risks. 12
  13. 13. CHECKLISTIncoterms 2012: 8let’s break INCOTERMS 2012 4 Glossaryit down Incoterms establish 11 different standard contracts for sale of goods and deal with theWhat are Incoterms? practical aspects of the sale of goods, such as:Incoterms were • elivery point Destablished in 1936 • RISK • esponsibility for and allocation of costs relating to: Rby the International – loading/unloading – export/import duties/licencesChamber of Commerce – carriage arrangements – insuranceto define common – acking and checking costs p – notices/documentsshipping terms such as Incoterms do not deal with title, price, intellectual property, law/jurisdiction. Incoterms allow a contract to be shortened, but not eliminated.Ex Works, CIF and FOB. Which Incoterm? Incoterms are split into Ex Works, the “F” terms, the “C” terms and the “D” terms. e Group Ex-Works EXW f Group Free Carrier FCA Free Alongside Ship FAS Maritime only Free on Board FOB Maritime only C Group Cost and Freight CFR Maritime only Cost Insurance and Freight CIF Maritime only Carriage Paid to CPT Carriage Insurance Paid to CIP D Group Delivered at terminal DAT Delivered at Place DAP Delivered Duty Paid DDP Ex Works, FCA/FOB, CIF/CIP, DAP and DDP are the most popular. 13
  14. 14. CHECKLISTIncoterms 2012: 8let’s break it down INCOTERMS 2012 4 Glossary Maritime terms Maritime Terms Multi/any modal equivalent term • FAS • FOB • CFR • CIF • FCA • FCA • CPT • CIP ‘C’ terms Under these terms the seller’s risk passes to the buyer, usually on loading. However, the seller is still obliged to procure the carriage contract and insurance contractDavid Lowe, partner which is then transferred to the buyer. Therefore, if the ship sinks after it has beenEssential for anyone selling, loaded, it is at the buyer’s risk. NB: Insurance is only at the Institute Cargo Clauses’buying, or involved in the minimum cover.transport, financing or insurance Relationship with carriage contractsof goods internationally, Incoterms do not deal in detail with the carriage contracts. If you want a particularIncoterms are reviewed around carrier or a particular vessel to carry the goods, then that will need to be specified.every ten years. Incoterms is atrademark of the International Relationship with documentary creditsChamber of Commerce. ICC is Incoterms will indicate that certain documents will need to be provided to thethe largest, most representative buyer. Ensure that this relates to the documents that need to be provided under abusiness organisation in the documentary, with members in more US contractsthan 120 countries worldwide. FOB is commonly used in US international and domestic contracts. FOB was definedVisit for in the US Commercial Code in a way out of odds with Incoterms. The Uniformmore information. Commercial Code has now been changed to delete references to FOB but it will take some time for that to work its way through to State level. Also US companies/Commercial partner David Lowe lawyers are not generally familiar with Incoterms. Therefore, look out if you have awas one of only eight experts US party to the contract as they may have a different understanding.leading the 2010 redrafting; putting Wragge Co at the How should Incoterms be used?centre of these new rules • ead the relevant Incoterm thoroughly before using it. Make sure that it does what Rgoverning international trading. you want it to.A contributor in the development • se the Incoterms properly by referring to the relevant premises and incorporating Uof Incoterms 2000, David is the Incoterms 2010. Incoterms will not automatically apply - you need to incorporateChair of ICC United Kingdom’s them into the contract.Committee on Commercial Lawand Practice. For example: • Ex Works (Wragge Limited’s Birmingham factory) (Incoterms 2010).To find out more, contact David, • FCA (Hong Kong Container port) (Incoterms 2010) Key changes The key changes introduced by Incoterms 2010: • Consolidation of D terms. • pdate references to the Institute U Cargo Clauses. • New Incoterms DAT and DAP. • hange to support use in string sales. C • AF, DES, DEQ and DDU – abolished. D • hanges to allow use in free trade/ C • hanges to allocation of terminal C domestic markets. handling charges. • hanges to layout and guidance note to C • ncourage electronic communication. E encourage better use. • hanges to A2/B2 and A10/B10 to deal C with cargo security. 14
  15. 15. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryAEO Authorised Economic Operator. An EC concept relating to security arrangements. There is no need for an exporter/importer from/to the EC to be an AEO but if they are an AEO then they can expect a more relaxed regime and therefore hopefully faster movement of goods. To become an AEO is a relatively lengthy process to create the systems and demonstrate that they are appropriate to the relevant authority. Although the security requirements for goods in transit are still evolving and vary considerably around the globe, it is anticipated that effectively two tracks will develop – AEO (a trusted party through which goods can move quickly) and non- AEO - slower movements.Airway Bill Document issued by an airline accepting custody of goods for air freight. The airway bill will set out the standard terms of conditions for carriage of those goods.Apostilling Often known as legalisation – this is a further level of certification above Notarisation (see below) whereby the Foreign and Commonwealth Office (in the UK) or the embassy of a country provides confirmation that the notary public who has notarised a particular document is in fact who he/she says he/she is.Arbitration Arbitration is a form of ultimate dispute resolution. It is an alternative to the courts (it should not normally be used as well as courts). Arbitration is popular in international trade because it is private and also because its enforcement internationally is supported by the New York Convention on Arbitral Awards. Generally it is more likely that an arbitration award will be able to be enforced in a country than a court award as there is currently no treaty for the enforcement of court awards internationally. Arbitration can be “ad hoc” – that means the parties create the rules for the arbitration and identify the arbitrator. Alternatively (and more commonly) arbitration may use an arbitration institute such as the ICC, LCIA and so on.BIFA The British International Freight Association – the UK trade association for international freight forwarding etc. Website – BIFA has standard trading conditions which are commonly used by freight forwarders.Bill of Lading (or B/L or BOL) A document issued on receipt of the products for movement by sea. The Bill of Lading sets out the terms and conditions of carriage. Bills of Lading are unusual in that they are “negotiable”. This means that possession of a Bill of Lading entitles the holder to delivery of the goods to them. Therefore a Bill of Lading is not merely proof of delivery but also a document demonstrating title. This feature is less relevant to manufactured goods being carried by container but is frequently used for commodity goods which are frequently traded several times during the course of an ocean voyage. Trade finance arrangements may demand use of a Bill of Lading to allow the lender security. 15
  16. 16. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryBill of Lading (or B/L or BOL) A clean Bill of Lading is one which has been issued with no exceptions noted concerning the packaging or condition of the goods. If the goods are obviously damaged then the carrier will not issue a clean Bill of Lading and instead will issue a “foul Bill of Lading”. “onboard Bill of Lading” confirms the goods are onboard. A “received for An shipment Bill of Lading” means the carrier has received the goods but may not have loaded them.Breakbulk Cargo Cargo which is not containerised or in bulk which is loaded and stored as traditional cargo.Bonded Goods Goods which are subject to duty (especially cigarettes, alcohol, petrol/diesel). The “Bond” is the commitment by the owner to the customs authority to pay duty if and when the goods are released. The customs authority will require certain safeguards - e.g. keep in approved bonded warehouse.Carrier The company/person who actually moves/carries the goods – e.g. the shipping line, or the trucking company.Certificate of Origin certificate that demonstrates where the goods originate. Often required for tax A purposes - e.g. to access a beneficial import duty, or avoid a penal import duty.CIF Carriage Insurance Freight – an Incoterm. Can only be used for marine traffic. Often misused. A complex term as risk passes on loading onto the vessel but the seller is still required to pay for the carriage and insurance on behalf of the buyer.CMR International convention dealing with cross-border movement of freight by road. Liabilities are heavily controlled and capped. Changes need to be made quickly.Confirmed Letter of Credit letter of credit which has been “confirmed” by the beneficiary’s banks. The A effect of this is to reduce the risk for the beneficiary of the bank refusing to pay.Container Typically a standardised intermodal reusable steel box meeting international standards. Capacity often expressed in twenty foot equivalent units (“TEU”). Many variants – e.g. refrigerated, insulated, open top, tank container, ventilated etc. 16
  17. 17. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryCOTIF I nternational convention dealing with transport of freight by rail. Liability heavily controlled and capped. Changes need to be made quickly.CY Container Yard. Also indicates an FCL delivered to the carrier at the container yard i.e. the carrier does not stuff the container.DAF Old Incoterm “Delivered at Frontier”. Not included in Incoterms 2010.DES Old Incoterm “Delivered ExShip”. Not included in Incoterms 2010.DEQ Old Incoterm “Delivered ExQuay”. Not included in Incoterms 2010.Demurrage Charge incurred for delaying ship on loading/unloading beyond its “laytime”. Laytime means the time permitted for loading and unloading at no additional cost.DDP D elivered Duty Paid – an Incoterm. This is the Incoterm which is most onerous on the seller and this is beneficial to a buyer.DDU Delivered Duty Unpaid – an old Incoterm. Now superseded by DAP in Incoterms 2010. Seller is required to deliver the goods to the buyer’s premises not unloaded and not cleared for import.Dual Use G oods are “Dual Use” if they have the potential to be used for military purposes or weapons of mass destruction as well as an innocent civilian use. For example, civilian nuclear technology which can also be used for military purposes. The export and import of such items are heavily controlled.Dunnage I nexpensive or waste material used to protect and load cargo during transportation.Duty Payable on export or import. The main duty for import into the European Union is VAT which is imposed at the point of import. 17
  18. 18. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryEx Works Works - Incoterm. It is the least onerous on the seller. It simply requires the Ex seller to make the goods available at its premises. The seller does not even need to load the goods. The seller is not required to clear the goods for export. Difficult term to use for goods which are intended to be sold for export given the difficulties in clearing exports and security requirements without certain information provided by the seller and also can cause VAT issues.FEU Forty foot equivalent unit – used to describe containers.FCA Free Carrier – Incoterm. FCA can be used for any form of transport. It was introduced in the Incoterms in 1990 and has recently increased in popularity reflecting its flexible nature. The seller is required to clear the goods for export.FCL Full Container Load.FIATA International Federation of Freight Forwarder Associations. The international version of BIFA. See website – Free on Board – Incoterm. An ancient shipping term which is heavily misused for containerised traffic. It can only be used for where delivery is onboard. Therefore inappropriate for non-maritime forms of transport and also inappropriate for where delivery is not onboard. For example containers commonly not delivered over the ship’s rail but are delivered to the container terminal. Especially misused in the US and Far East.Force Majeure An event beyond the reasonable control of the parties. In international trade the risk of a force majeure event occurring which has substantial impact is high. There is a lot which can go wrong between, for example, moving goods from a factory in China to a European warehouse. If there is no force majeure clause in an English law contract then there is very little relief for those circumstances (only limited concept of “frustration”). Therefore it is essential to have a force majeure clause in any international trade arrangements.Freight Forwarder Person appointed by a party usually to manage the movement of goods. Usually acts as agent to source and contract with carriers.Full Service Vendor A seller who sources and manages export and possibly import of goods. 18
  19. 19. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryGeneral Average General Average is a concept in maritime law. If due to the perils of the sea etc. the carrier feels compelled to dump some of the cargo overboard, then all the other cargo owners agree under general average to contribute towards the loss of that cargo.Hague Visbey International convention establishing minimum levels of liability for carriers. Prior to the Hague Visbey rules being introduced many carriers sought to exclude almost all liability for the cargo they were carrying. Hague Visbey was introduced to ensure carriers had at least some liability. It is possible to increase liability above the Hague Visbey limits but that is very unusual.ICC International Chamber of Commerce. Most well known for sponsoring the leading international arbitration institute but also the driving force behind Incoterms and UCP.Incoterms Incoterms are codified shipping and trading terms initially introduced by the ICC in 1936 and reviewed approximately every 10 years. The current edition is Incoterms 2010.Institute Cargo Clauses Standard insurance clauses agreed within the marine insurance industry.Jurisdiction Jurisdiction means the body which is responsible for ultimately determining disputes. It will either be a court or an arbitration institute.LCIA LCIA is the London Court of International Arbitration. It is a leading UK arbitration institute.LCL Less than full container load.Legalisation See Apostilling.Letter of Credit document of trade finance. Letters of Credit are effectively bank guarantees A that the bank will pay on receipt of certain documents. Often badly drafted with inappropriate documents. Approximately 60% of all requests to be paid under Letters of Credit are refused on first presentation. Letters of Credit are often subject to UCP. 19
  20. 20. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryMontreal Convention See Warsaw Convention.Multi-Modal Where goods are carried by different modes of transport – for example a container moved first by truck and then by sea is multi-modal.New York Convention The New York Convention on Arbitral Awards has been ratified by most countries in the world. The convention allows for the enforcement of arbitration awards in a simple fashion in the applicable jurisdiction.Notarisation Notarisation is a process whereby a notary public witnesses the execution of a document and attests that the person who signs the document is indeed that person.Product Liability Product liability is the legal liability for the quality of the product from a safety perspective. In the European Union the manufacturer (or if the manufacturer is based outside of the EC the first importer into the European Union) takes product liability which means they have a responsibility directly to the end consumer who has been damaged by a product.RO/RO Roll On/Roll Off – direct drive on and drive off of road/rail trailers and other wheeled cargo onto the ship.Seal Individually numbered metal, plastic or wire strip used to seal the doors of a container for security or customers’ purposes.Standby Letter of Credit A letter of credit which is anticipated to not be tied to any particular shipment. It is in effect a guarantee.Stevedore People and firms which move, load and unload cargo.Stripping Removing cargo from container.Stowing Loading containers or goods in the hold of a ship, or loading goods into a container.Stuffing Loading cargo into a container. 20
  21. 21. INTERNATIONAL TRADE CHECKLIST 8 INCOTERMS 2012 4GLOSSARY GlossaryGlossaryTEU Twenty foot equivalent unit – used to describe containers.Trade Finance Trade Finance is finance specific to the trade of goods, especially common in international trades. A Letter of Credit is an example of trade finance.Trade Sanctions Trade Sanctions are embargoes by a country or group of countries against imports from or exports to a particular country. In the UK trade sanctions are complex as they can be those imposed by the UK government, the EC or the UN. Note US trade sanctions are usually territorial – i.e. apply to goods of US origin and US companies/ people.Transhipment Transhipment means the transit of goods, for example transfer of goods from one ship to another. Commonly forbidden under Letters of Credit.UCP 600 Uniform Commercial Practice 600 – document sponsored by the ICC. Commonly incorporated into Letters of Credit. Establishes the procedures and rules by which a Letter of Credit is issued and fulfilled.Vienna Convention Vienna Convention is the UN convention for the international sale of goods. It has been ratified by most countries around the world but not the UK. It therefore does not form part of English law. It is common to exclude its effect.Warsaw Convention Convention dealing with travel by passengers and goods by air. Amended by subsequent international and other protocols (which not all countries have ratified). Heavily excludes liability. 21
  22. 22. CHECKLIST 8 in-house lawyers *for INCOTERMS 2012 4 GlossaryAbout ThinkHouse About Wragge CoAre you an in-house lawyer or maybe a company secretary with • ragge Co is a UK- Wresponsibilities including legal affairs? Then you’re by far our largest headquartered international lawclient group and we want to make sure that we look after you. firm providing a full range of legal services to clients worldwide.Knowing the issues, challenges and pressures you face, we have createdThinkHouse, a range of services and resources tailored exclusively to • ith 125 partners operating from Win-house lawyers. offices in Birmingham, Guangzhou, London and Munich, plus affiliatedTake a look at our website - offices in Paris and the UnitedIt is home to video updates and podcasts on contracts, people issues, Arab Emirates, Wragge Co hasregulation and more. These bite-sized chunks of know-how are easily the resource and expertise todigested on the go. They also provide a taster of the sort of practical handle the largest instructions.pointers available at one of the firm’s various ThinkHouse events. • he firm provides a full service TThe news section keeps you updated with the latest legal developments to clients worldwide, includingand Wragge Co highlights. Useful resources offer links to interesting hundreds of public sectorand helpful websites and services like Companies House, European Union organisations and thousands ofLaw and Hansard. major companies.Each year, we run two main ThinkHouse events, focusing on thesubjects crossing your desk. You name it and we’ll offer the latestinformation on the law and some practical pointers to help you dealwith real-life situations.One of the main benefits of ThinkHouse is the opportunity to meetand exchange ideas with peers in other organisations. We’ll also beintroducing this online via a LinkedIn group. It will give you the chanceto swap views and comments with your fellow professionals.To keep you up to date with legal developments, we offer training toyou, your team and your business.We’ve also been known to provide a whole range of less obvious extras,from sorting out recruitment needs, holiday and emergency cover toadvice on panel management to maximise efficiency and reduce costs.Welcome to ThinkHouse. 22 T +44 (0) 870 903 1000 F +44 (0) 870 904 1099