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All international transactions are conducted according to the terms and
conditions negotiated between you and your buyer. By negotiating terms you
secure the deal, minimize risks and protect your company in case of possible
trade disputes, claims and/or legal actions. Usually terms of trade are
stipulated in the trade contract and clearly indicate your and the buyer’s
responsibilities.
There are no standards regulating trade contracts as such. You’ll find that
sometimes it may be just a one-page document and sometimes - a very complicated
10+ pages booklet including several appendices, additional conditions, etc.
In some cases a contract can even be formed based on words alone. It really
depends on the goods you are selling, your relationship with the buyer and
your personal preferences. Also, in different jurisdictions, there may be
different requirements that must be met for a contract to be effective according
to its terms.
In order to be effective and to promote certainty in your business relationship
with your buyer, it is a good idea to provide for the following details
of your deal in any trade contract:
- Date of Contract
- Seller’s and Buyer’s Names
- Product Name
- Product Description
- Packing
- Quantity
- Unit Price
- Terms of Delivery (Incoterms)
- Terms of Payment
- Delivery Date
- Validity
The contract should be signed by all parties directly involved in the
contract. For example, if some responsibilities under the contract fall
to a middleman, agent or other third party, this party should sign the
contract together with you and the buyer.
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I would like to bring your attention to the fact that your quote, which
is written on the company letterhead and encloses all the above terms would
generally become binding on you if it was accepted by the buyer in writing
or simply marked “Accepted”, signed and forwarded back to you.
You have to be very accurate when issuing a quotation and you should always
include a “Validity” condition. For example, “This quotation is valid for
a period of X days from the date above”.
Typos, errors and omissions of words may occur in the preparation of quotation.
In practice, most buyers will unconditionally accept a revision in the event
of an error and omission in the quotation. However, some buyers would take
the error as is, if it is to their advantage and would force you to negotiate
a more favourable price and/or conditions.
As a precautionary measure, it is worthwhile adding the acronym E.&O.E.
stated for “Errors and Omissions Excepted”to your quotations to disclaim
final responsibility for typographical errors and unintentional omissions.
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The trade terms, which I mentioned, are pretty straightforward and I will
just make a few brief comments in their regards.
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Always stipulate the full legal name of your company. For example: “Australian
Export Company Pty. Ltd.” or “Australian Export Company Pty. Ltd. trading
as Aussie Products” in the case where the negotiations were conducted under
the trading name. Also, you are required under the Corporations Act to quote
your ACN or ABN on all documents.
Check the name of your buyer’s company, especially when dealing with a foreign
company for the first time. Usually you would be able to do it online through
the country business register. Otherwise contact Austrade in the buyer’s
country or the buyer’s country embassy in Australia.
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Price stipulated in the contract must cover all expenses and risks as well
as allow for the profit. At the end of the day, you are trading to earn
some money.
For more information please refer to the “Setting Up The Export Price” tutorial.
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Terms of Delivery must indicate the point of destination and should refer
to the Incoterms. For example, “CIF Hamburg Incoterms 2000”. Terms of Delivery
are specifically explained in the “International Commercial Terms” tutorial.
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It is important to specify the terms of payment and payment procedure in
detail as well as to stipulate all documents necessary to be presented for
the payment to occur. Commonly, these details are specified in the appendix
or supplement to the contract. In this case, under Payment Terms you should
include, for example, “Irrevocable Confirmed Letter of Credit at sight in
accordance with Supplement No. 1 hereto which is an integral part of the
present contract”.
For more information please refer to the “International Payments and Export
Credit Insurance” tutorial.
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I always recommend to indicate the delivery time as a reference to a certain
date stipulated in the contract. It may be the date of the contract, but
more appropriate the date of the receipt of the confirmation of the letter
of credit. For example, “the goods must be delivered no later than X days
after the date of the receipt of the confirmation of the letter of credit
by the Seller.”
You should check the shipment frequency with the shipping company or with
your freight forwarder before negotiating the delivery date and allow for
possible delays. Usually major shipping lines would have shipments to most
destinations occurring weekly.
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The terms and conditions specified below are not necessary to enclose in
a contract, but I would strongly recommend you to do so to avoid uncertainties
and minimise your risks.
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Claims are common in International Trade. In fact, there are people who
make a living out of claims and you have to be aware of that. By including
a claim clause in the contract, you may be able to avoid costly litigation
in the event of a dispute.
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Example ”Claims” clause
“1. Any claim relating to either the quality or quantity of the goods delivered
by the Seller to the Buyer in accordance with the present contract must
be submitted by the Buyer to the Seller no later than X days from the date
of delivery of the goods indicated in the transport document. All claims
must be submitted in writing and include originals of any documentation
upon which the claim is based (including, but not limited to documentation
issued by independent inspectors, Chamber of Commerce, authorised Government
agencies, etc.)
2. If the Buyer does not submit a claim in accordance with paragraph 1 within
the time stipulated in paragraph 1, then the Buyer is deemed to have received
the correct quantity and quality of goods and the Buyer expressly waivers
any right to make a claim in relation to the quantity or quality of the
delivered goods.
3. The amount of any claim made pursuant to paragraph 1 must not exceed
the contract value of the claimed goods.” IIf the payment terms were agreed
as a deferred payment you may enclose the following paragraph to the Claims
clause.
“4. Any claim in respect of quality or quantity of the goods
being the subject of the present contract pursuant to paragraph 1 does not
entitle the Buyer to fully or partially reject payment of an Invoice rendered
by the Seller in accordance with the present contract in respect of the
claimed goods.
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Trade disputes and claims may be settled in different manners. It is better
to settle a claim amicably by negotiations outside arbitration or a court.Dealing
with a buyer from some Asian, South American or former Soviet Union countries,
you may quite often be offered to settle a claim in the country where the
dispute has arisen. You should unconditionally decline such offers. In countries
with a high level of corruption your buyer may have connections, powerful
friends or relatives, who can affect the arbitration decision .The ICC International
Court of Arbitration recommends that all parties wishing to have recourse
to ICC arbitration include the following standard clause in their contracts:
"All disputes arising out of or in connection with the present contract
shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with
the said Rules in the International Court of Arbitration in Paris."When
dealing with non-English speaking buyers it is appropriate to specify the
language of the arbitration in the arbitration clause.
In addition to that I recommend including the following:
“The decision
made by the Court of Arbitration is final and binding upon all Parties.”
Be aware that the law in some countries may lay down certain requirements
in respect of arbitration clauses. Always consult a lawyer before finalising
the arbitration clause.
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Force Majeure literally means "greater force". “Force Majeure” clauses excuse
you or the buyer from performing the contract obligations if the failure
is caused by conditions beyond your or the buyer’s control. “Force Majeure”
clauses are usually applicable to performance failures caused by:
* natural disasters or other “Acts Of God” (earthquakes, hurricanes, floods)
* wars, riots or other major upheaval
* Government restrictions
* performance failures of parties outside the control of the contracting
party (subcontractors, suppliers and/or carriers)
* It is important to remember that “Force Majeure” clauses are intended
to excuse a party only if the failure to perform could not be avoided by
the exercise of due care by that party.
Example “Force Majeure” Clause
Neither Party shall be liable or responsible for any failure or delay in
performance under the present Contract if such failure or delay is caused
by Act of God, Government restrictions (including the denial or cancellation
of any export or other necessary license), riots, civil commotions, wars,
insurrections and/or any other cause beyond the reasonable control of the
Party whose performance is affected.
The Party experiencing the difficulty to meet the obligations under the
present contract due to the causes beyond its control shall give the other
Party prompt written notice, with full details following the occurrence
of the cause relied upon. Dates by which performance obligations are scheduled
to be met will be extended for a period of time equal to the time lost due
to any delay so caused.”
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Additional terms and conditions depend on the agreements reached between
you and the buyer. They may include, for example:
“1. The Import Licence,
if required, is the Buyer’s responsibility. If the Buyer fails to obtain
the Import Licence within reasonable time, the Seller has the right to terminate
the present contract. Under no circumstances will the Seller incur any losses
caused by the Buyer’s failure to obtain the Import Licence.
2. All amendments and supplements to the present contract are integral parts
of the present contract and become effective after signing by Parties.
3. After signing of the present contract all previous negotiations between
Parties are superseded.
4. Neither Party shall assign its rights and obligations under the present
contract to a third party without written consent of the other Party.
5. Melbourne (Australia) is considered to be the place of signing of the
present contract.”And so on.
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Plain English
Always use clear, simple and straightforward language in your trade contracts.
Avoid using poetic and artistic expressions, idioms, slang and too many
abbreviations. These will confuse the buyer and can create misunderstandings.
Different Date Formats
The date 2/3/02 is February 3, 2002, in some countries and it
is March 2, 2002, in others. This can create chaos for you and the buyer.
Always write the month in words, instead of numbers.
Units of Measurement
A unit of measurement like the ton may refer to the metric ton (2204.6 lbs
or 1000 kg), short ton (2000 lbs or 907 kg), or long ton (2240 lbs or 1016
kg). You must clearly differentiate units of measurement to avoid problems.
Currency
Most international transactions are conducted in U.S. currency.
If $US is the currency of your contract, you will lose money in the event
of $AU appreciation, and, on the contrary, will receive extra money in the
case of $AU devaluation. 1-2% should be added to the sum of contract to
cover the exchange rates risks. To avoid these risks you can also negotiate
with the buyer to deal in Australian currency, instead of U.S. funds.
Interpretation or Translation
Sometimes buyers may require signing a bi-lingual contract. In
this case, the accuracy of business translation is crucial. Varied use of
terminology in different countries can have an entirely different meaning
and cause costly disputes.
Signing of the Contract
If the contract contains more than one page, I recommend you sign each page
separately and require your buyer to do the same.
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You have to be sure that all terms and conditions to be included in the
contract are negotiated and agreed with your buyer before you start preparing
a contract. If you feel that there are any uncertainties and/or misunderstanding,
you should contact the buyer and clarify the terms, which are not undoubtedly
understood.
Trade contracts should be prepared or at least reviewed by a lawyer specialising
in International Trade. It will cost you some money; some times it may cost
a lot of money depending on the complicity of the contract. However, it
still would be a fraction of the amount of the goods you are selling and
can save you a fortune in the case of a dispute and legal action.
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Brett McGuire, Senior Associate
Coudert Brothers, Solicitors and International Attorneys, Gateway Building
1 Macquarie Place, SYDNEY NSW 2000
Phone: 61 2 9930 7500Fax: 61 2 9930 7600
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This tutorial has been developed for information purposes only and shall
not be construed, implicitly or explicitly, as containing any legal, commercial
or financial advice. Under no circumstances shall the author, Newsta Pty.
Ltd. or its directors, employees, shareholders or affiliates be liable for
any direct, indirect, incidental, special or consequential damages.
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