Slide thuyết trình TACN2 Topic: CORRECTIVE ACTION

CORRECTIVE ACTION CORRECTIVE ACTION Group members Duong Thu Hang Dinh Hoang Duc Vu Thu Le Ta Quoc Viet Le Van Linh CORRECTIVE ACTION Five options for Curing defects Liquidated Damages: A different kind of Cure Costs, Defects and the Results of Defects Practice What would the exporter if being informed about the defects in the delivered goods? Five options for Curing defects Option 1: Repair • • • If goods are locally delivered -> the cheapest option For complex items: repair is the obvious choice although it could be costly A mechanic must travel to the Buyer’s country to fix the defective items at the expenses of the Exporter Five options for Curing defects Option 2: Allow the Buyer to repair at Exporter’s cost • • To save the cost of sending a mechanic to the Buyer’s country, some contracts allow the Buyer to repair equipment at Exporter’s cost Disadvantage: – An expensive repair bill – Exporter is not sure whether the defects have been completely repaired or not, especially when the goods are under warranty Five options for Curing defects Option 3: Replace (part or whole item) • • Advantage: Keeping the goodwill of customer Disadvantage: Costly for the Exporter – – With the heavy equipment, it is usually that only the defective part is replaced Problem: • • sets of customs A competent technician must be at hand when installing the replacement part ->The costs are much higher for the Exporter than local trader Five options for Curing defects Option 4: Reduce the price “Will you accept the goods (ignoring the defects) if I reduce the price by…?” • • • If goods are paid for on delivery by an LC, reduction must take the form of a direct payment If payment is on open account and the invoice has not been settled, the payment due is simply reduced Retainer: a part of the payment due for the goods (normally 5%) kept back by the Buyer till the end of the defects liability period Five options for Curing defects Option 5: Return the Goods and Refund the Price • This is the least desirable option for the Exporter: Defective goods are often not worth the cost of return shipment to the Exporter’s country -> The deal is totally lost for the Exporter • If the Buyer insists on including this in the contract, the Exporter must self-protective by allowing this option only in exceptional cases and with his express agreement Because the Exporter bears the responsibility for corrective action about the defective goods, and to cure them in the most economical way, the Exporter must negotiate hard for absolute discretion over the choice of remedy: EXPORTER’S CHOICE Liquidated Damages: A different kind of Cure • From the Buyer’s point of view: It ensures either that the system works as specified or that the contract price is reduced reasonably • From the Exporter’s point of view: If any failure to meet the specification occurs, their loss is kept within reasonable limits For example: “ If the System falls to meet specifications on the final acceptance test, then the Seller shall use his best efforts to improve the performance of the System so that it complies with the specifications in all respects The Seller shall notify the Buyer within 30 days that the System is ready for a repeat of the final acceptance test If the output of the System is within 20% of specification, then for each 2,400 liters (1%) that the System falls below specified output, the Seller shall pay the Buyer as Liquidated Damages the sum of $20,000” The performance figures that are typically subject to a liquidated damages clause: • • Output: generator, pumping system • Efficiency: reduction of levels of pollution, emission of waste gas… Consumption: fuel consumption of an engine, raw materials consumption of an industrial process Costs, Defects and the Results of Defects Usually, in the contract: • “In the event of a defect coming to light and being notified to the Seller, the Seller shall, at his own discretion and without undue delay, repair or replace the defective item at his own risk and cost” Costs, Defects and the Results of Defects • In fact, the major risk for the Exporter is not the cost of repairing and replacing the defective goods, which is already covered in the contract price if the Exporter has done his work properly The big risk is that the Exporter is asked to compensate the Buyer for “consequential damages” or “consequential loss”, which are the Buyer’s costs/losses arising from the defective goods and the Exporter’s process of repairing those goods Direct losses and indirect losses Solution? • • National laws: allow a claim for all “direct costs” including uncovering, making good, etc -> Exporter would pay only the cost of the repair Anglo-American laws: allow recovery of all losses including “incidental and consequential damages” -> Exporter would pay for all the costs Like most aspects of their contractual relationship, two parties must negotiate the issue Practice What are the options for curing defects? Repair, allow the buyer to repair at exporter’s cost, replace (part or whole item), reduce the price, return the goods and refund the price Practice If there is a defect, who will choose the method of cure? a b c d Buyer Exporter Arbitration None of the above Practice Strong buyer often makes exporter suffer the costs of: a b c d Direct losses Consequential damages a or b a&b Practice Translate into Vietnamese The duty of the Seller to repair or replace defective items is the Seller’s only duty under this contract or otherwise, and the Seller shall not be liable to compensate the Buyer for any loss of use of any works belonging to the Buyer (whether complete or partial) or for any loss of any profit or for any indirect or consequential damage that may be suffered by the Buyer Practice Nghĩa vụ người bán sửa chữa thay hàng hóa khiếm khuyết nghĩa vụ theo hợp đồng này; người bán bồi thường cho người mua tổn thất phát sinh người mua tự sửa chữa (dù toàn hay phần), tổn thất lợi nhuận nào, thiệt hại gián tiếp hay thiệt hại sau người mua Practice Translate into English Sau nhận thông báo bên mua thiết bị có hư hỏng, vòng 72h bên bán có trách nhiệm cử cán kỹ thuật đến trường để tiếp nhận giải Trường hợp hư hỏng nhẹ thiết bị sửa chữa nơi trường vòng 20 ngày làm việc Trong trường hợp hư hỏng nặng bên bán định phương án xử lý hiệu Practice Upon receipt of notice about defects from the buyer, within 72 hours, the seller shall be responsible for sending technicians to the site to confirm and solve the problem In case of minor errors, the equipment shall be fixed at the site within 20 working days In case of major errors, the seller shall decide the best solution THANK YOU FOR LISTENING!