Basic guide to international business law

Statement Due a very high price of the book (€37,50) I’ve made this copy for my fellow students at the university This copy has been made under an “educational agreement” stating that any material (copyrighted or not) can be copied by students for educational purposes without violation of a trademark Although we still find common knowledge throughout this book (articles, laws, treaties and agreements between states) that has been bundled into one powerful summary we don’t find it an intellectual property of any kind For these two reasons I just put the book on mininova.org®! Enjoy… Greets from leading in technology, Ovadoze Contents List of abbreviations 11 Introduction to International Private Law and European Law 13 1.1 Introduction In1ernational Private Law 14 1.2 1.2.1 1.2.2 1.2.3 1.3 Introduction to European Law 17 The Institutions of the EC 19 Sources of EC law 21 European Court of Justice and preliminary ruling s under Art 234 22 Cases 26 Glossary C hapter 41 Exe rcises Chapter 42 2.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.4 Negotiations 45 Reaching an agreement 46 Legal aspects of negotiations 49 Breaking off negotiations: breach of contract or tort? 51 Breach of contract 52 Tort 52 Breaking off negotiations: what to claim? 54 Cases at the preliminary stage 55 Glossary Chapter 61 Exercises Chapter 63 3.1 3.2 3.3 3.3.1 3.3.2 EEX 67 What court'of law has jurisdiction? 68 EEX Regulation: what countries are involved? 68 Provisions on jurisdiction of th e EEX 69 Choice of parties (Art 23 EEX) 69 Jurisdiction on litigation over immovable property (Art 22 EEX) 69 3.3.3 Jurisdiction in case of litigation over individual employment contracts (Art 18 - 21 EEX) 70 3.3.4 Jurisdiction in case of litigation related to consumer contracts (Art 15 -1 7EEX) 71 3.3.5 Jurisdiction in case of litigation related to matters of insurance (Art - 14 EEX) 72 3.3.6 General provisions on jurisdiction (Art and EEX) 73 3.4 Execution of the verdict (Art 38 EEX) 75 3.5 Arbitration 75 G lossary Chapter 78 Exercises Chapter 79 4.1 4.2 ECO 81 Introduction ECO 82 Conditions on the use of ECO 82 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.4 4.5 Content of ECO 83 A choice of law made by the contracting parties (Art 3, ECO) 84 Law applicable to consumer contracts in Art ECO 86 Law applicable to individual employment contracts (Art ECO) 88 Law applicable under certain circumstances (Art ECO) 90 Formal validity of a contract (Art ECO) 91 Combination of EEX and ECO 92 Applicable law on international torts 93 Glossary Chapter 96 Exercises Chapter 97 5 5.2 5.3 5.3.1 5.3.2 5.4 5.5 CISG 99 Introduction of th e CISG 100 Application of the CISG 101 Content of the CISG 102 Formation of the contract of sale according to the CISG 102 Committing a breach of contract under the CISG 104 Answers to CISG Exercises of paragraph 5.3 108 Art 5, EEX, determining place of performance of obligation in question 11 Glossary Chapter 113 Exercises on EEX + ECO + CISG 114 6 6.2 6.3 6.3.1 6.4 The free movement of goods 117 Introduction of free movement of goods 118 Quantitative restrictions 118 Measures having an effect equivalent to quantitative restri ctions 119 Distinctly and indistinctly applicable measures having equivalent effect 120 Art 30 EC·Treaty: derogation from the Art 28 and 29 EC-Treaty 121 6.5 Case law to 6.6 7.1 7.2 7.2 7.2.2 7.3 7.3.1 7.3.2 7.4 7.5 JUStify for restrictions on the free movement of goods 122 Cases of the European Court of Justi ce on Free movement of Goods 124 Glossary Chapter 128 Exercises Chapter 129 Competition law 131 Introduction on competition and cartel law 132 The cartel law of Art 81 133 Effects at the prohi bition of Art 81 paragraph (1) 136 Exemptions under Art 81 paragraph (3) 136 Abuse of a dominant position under Art 82 137 What is a dominant position ? 138 The abuse of a dominant position 139 Mergers 140 Cases of the European Court of Justice on Cartel law 142 = 33Jlies (Art 3, ECO) 84 - Art ECO 86 contracts (Art ECO) 88 (Art ECO) 90 _ "'-0"; _I Ia:::r:::= to the CISG 102 - CISG 104 5_3 108 t~ ., ,c.arlce of obligation in -=-_ -8 =- antttalive restrictions Jt ''''''''''''''''' having equivalent _ Free movement of 132 Carriage, Incoterms & Payments 159 Carriage 160 Parties in a contract of carriage 160 1.1 1.2 Carrier and shipper 161 1.3 Carriage and documents 162 8.1.4 CM R-consignment 163 8.1.5 Jurisdiction in CM R Convention and under EEX Reg ulation 166 8.1 CMR Convention and applicable law according to ECO Treaty 166 Incoterms 166 8.2 8.2.1 Objects of Incoterms 167 8.2.2 General set up of Incoterms 168 8.2.3 Incoterms 2000 168 8.2.4 Liability of the seller and buyer in case of damage during carriage 171 International payments 17 8.3 Payments in open account or clean payments 172 8.3.1 8.3.2 Cheque 172 8.3.3 Bills of Exchange (Drafts) 172 8.3.4 Bank Guarantee 174 8.3.5 Documentary Collections 174 8.3.6 Letter of Credit 175 Glossary Chapter 180 Exercises Chapter 181 8 11 _ 28 and 29 EC-Treaty 121 e: =-ea movement of Glossary Chapter 155 Exe rc ises Chapter 156 Index 183 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.4 Content of ECO 83 A choice of law made by the contracting parties (Art 3, ECO) 84 Law applicable to consumer contracts in Art ECO 86 Law applicable to individual employment contracts (Art ECO) 88 Law applicable under c ertain circumstances (Art ECO) 90 Formal validity of a contract (Art ECO) 91 Combination of EEX and ECO 92 Applicable law on international torts 93 Glossary Chapter 96 Exercises Chapter 97 5.1 5.2 5.3 5.3.1 5.3.2 5.4 5.5 CISG 99 Introduction of the CISG 100 Application of the CISG 101 Content of the CISG 102 Formation of the contract of sale according to the CISG 102 Committing a breach of contract under the CISG 104 Answers to C ISG Exercises of paragraph 5.3 108 Art 5, E EX, determining place of periormance of obligation in question 110 Glossary Chapter 113 Exercises on EEX + ECO + CISG 114 6 6.2 6.3 6.3.1 The free movement of goods 117 Introduction of free movement of goods 118 6.4 6.5 6.6 7.1 7.2 7.2.1 7.2.2 7.3 7.3.1 7.3.2 7.4 7.5 Quantitative restrictions 11 B Measures having an effect equivalent to quantitative restrictions 119 Distinctly and indistinctly applicable measures having equivalent effect 120 Art 30 EC·Treaty : derogation from the Art 28 and 29 EC-Treaty 121 Case law to justify for restrictions on the free movement of goods 122 Cases of the European Court of Justice on Free movement of Goods 124 Glossary Chapter 128 Exercises Chapter 129 Competition law 131 Introduction on competition and cartel law 132 The cartel law of Art 133 Effects of the prohibition of Art 81 parag raph (1) 136 Exemptions under Art 81 parag raph (3) 136 Abuse of a dominant position under Art 82 137 What is a dominant position ? 138 The abuse of a dominant position 139 Mergers 140 Cases of the European Court of Justice on Cartel law 142 11 List of abbreviations CFR CIF CIP CISG CMR CPT DIA DIP OAF DDP DDU DEQ DES EC ECJ ECO EEC EP EEX "'" EXW FAS FCA FOB ICC Incoterms LlC m.h.e.e URC Cost and Freight Cost, Insurance and Freight Carriage and Insurance Paid Convention on the International Sales of Goods Convention on the contract for the International Carriage of Goods by Road Carriage Paid Documents against Acceptance Documents against Payment Delivered At Frontier Delivered Duty Paid Delivered Duty Unpaid Delivered Ex Quay Delivered Ex Ship European Community European Court of Justice European Communities Convention on the Applicable Law on Contractual Obligations European Economic Community European Parliament European Communities Regulation on Jurisdiction and Enforcement of Judgements in Commercial and Civil matters Ex Works Free Alongside Ship Free Carrier At Free on Board International Chamber of Commerce INternational COmmercial TERMS Letter of Credit measures having equivalent effect Uniform Rules for Collections 13 Introduction to International Private Law and European Law 1.1 Introduction International Private Law 1.2 Introduction to European Law 1.3 Cases International law is law set up by states and applicable to these states and in most cases their nationals It is laid down in rules referred to as Treaties, Conventions, Regulations and Declarations Most states around the world have signed up to seve ral thousand of these rules in which case that state is referred to as a Contracting State of th is Treaty or Convention The effect of signing a Treaty can vary from Treaty to Conve ntion The states that sign a Treaty or a Convention wish to be bound to this set of rules Sometimes states reserve the right to determine the effect of this Treaty or this Conven tion on their state or their nationals at a later point in time International Public Law International Private Law International law can be divided into International Publ ic Law and International Private Law International Public Law concerns itself with such issues as the set-up of international institutions (United Nations, European Community, and European Human Rights Court) , human rights (European Convention on Human Rights) and the extradiction of nationals from another country to their home country The aim of International Private Law is to solve legal problems arising out of different leg al systems that apply to internation al, legal relationships As every country has its ow n legal system, so a legal relationship f.e arising out ota contract of sale may have links with at least two national legal systems In the event the legal conflict only involves two parties living in the same country, no such choice for a legal system exists International Private Law provides a set of rules to either decide on the matter, or refer the litigating parties to a national legal system where the answer lies Basically every country has its own International Private Law, but over the years several Treaties and Regulations have been set up to deal with these legal problems internationally International Private Law deals with three main issues: jurisdiction in case of litigation between tw o parties coming from different states (including the possibilities of executing the verdict given by the court 14 INTRODUCTION TO INTERNATIONA L PRIVATE LAW AND EUROPEA N LAW of law that has jurisdiction, in the countries of the litigating parties) , the law to be applied in case of international litigation between two private parties, and solutions to legal problems arising out of an international legal relationship Apart from the developments in the field of International Private Law, the law applying to the Member States of the European Community (EC) has become more voluminous and more important over the years EC law stands for the EC Treaty and all legislation on which it is based , that binds all Member States of the EC The European Court of Justice of the EC, an institution based on the EC Treaty, has decided that EC law takes precedence over the laws of the Member States of the EC This is as a result of the transfer of sovereignty by the Member States to the EC in the fie lds of administration, legislation and jurisdiction For that reason the EC is referred to as a supranational organisation EC law deals with several aspects of International Private Law In these situations EC law sets aside any provision the law of a Member State might have in this field and other Treaties or Conventions to which the Member State is a contracting party International Private Law will be d iscussed in paragraph 1.1 EC law w ill be discussed in paragraph 1.2 The subject matter dealt with are the institutions of the EC, the sources of EC law, the European Court of Justice and Art 234 as an addition to the sources of law Paragraph 1.3 examines several cases given by the European Court of Justice, each of which deal with the essentials of European Law 1.1 Introduction International Private Law "- International Private Law International Business Law as a part of International Private Law is a specific field in itself Until recently every country had its own 'international private law' Various treaties to cover larger areas of Inte rnational Private Law were drawn up to offer some guidance as to the use and development of International Private Law First, here are some examples of topics w ith which International Private Law is concerned Every act or conflict in national private law also has an international component Examples An automobilist living in Germany, causes a traffic accident with an automobilist living in France at a parking lot in Amsterdam (Holland) , resulting in causing unbearable psychological damage to the Irish setter owned by the German driver, in crushing a very valuable box of Cuban cigars and smashing a bottle of Scotch whisky The questions are: • Does a Dutch court of law have jurisdiction in this case, or should parties turn to an English, German, Irish, Cuban , UK or French court of law? • What law must be applied to this case? 1 IN TRODUCTION INTERNATIONAL PRIVATE LAW 15 A Dutch national, living in Enschede (Holland) and who works for a German employer established in Gronau (Germany) At the end of his first year there his employer decides to fire him, for no apparent reason The relevant questions in this situation are : • Can a Dutch court of law decide on this conflict between a German employer and a Dutch employee? • Does Dutch law apply to this individual employment contract? A seller, established in the UK, delivers 1,500 pair of ladies' shoes to a buyer who is established in Italy However, the buyer, despite several reminders, does not pay the price they agreed on The English seller starts litigation against the Italian buyer, in an attempt to cancel the sales contract and to get back the shoes he delivered The questions in this case are: • What court of law has jurisdiction in this case? • Is English law applicable to the sales contract? • Is there an international Treaty that might deal with matters such as these? • In case there is a Treaty, does this supersede English law or not? • Is it possible for the seller - in one way or another - to declare the sales contract null and void , and if so , what are the effects of this act? Will the shoes be returned by the buyer? The rules of International Private Law provide answers to such cases by focussing on aspects such as the place of residence of the defendant, the place where the employee usually works, or the place of business of the seller and (sometimes) the nationality of one party Most of the questions mentioned in the examples given in this paragraph will be dealt with in Ch~pter up to and including Chapter that examine the contents of three relevant international Treaties and Regulations Three pillars Three main issues of International Private Law can be derived from the examples mentioned These main issues are also referred to as the three 'pillars' of international private law Hereafter, the three questions raised will have to be linked with the words 'main issues' Ouestion 1: What court of law has jurisdiction in case of litigation? How is the verdict of the court of law that has jurisdiction executed? Example A seller established in Holland, supplies 1,500 kilos of cheese to a buyer, established in Germany The buyer however, despite several reminders, does not pay the price they agreed on What court of law has jurisdiction in this case? A Dutch or a German court of law? In case a Dutch court of law has jurisdiction and gives a verdict, how is the verdict going to be effected i.e executed in (both Holland and) Germany? 8.3 INTER NATIONA L PAYMENTS 171 8.2.4 Liability of the seller and buyer in case of damage during carriage Liability When it comes to the carriage of goods, there is always the risk the goods could be stolen or damaged; the liability for the seller to pay for this damage can be excluded by choosing the right Incoterm With Incoterms such as EXW, FCA, FAS, FOB, CFR and CPT the liability during the carriage of the goods lies with the buyer The seller does not have the obligation to close a contract of insurance In case there is an insurance contract and the insurance policy holds the provision 'warehouse to warehouse ', carriage of the goods from the place of business of the seller and the place of delivery to the buyer is insured In case of CIF or CIP the sel ler has an obligation to insure himself against the risks of carriage of the goods ; there is no such obligation in case of OAF, DES, DEO, DDU and DDP In these cases damage to or loss of the goods is at the seller's expense For that reason an insurance contract is recommended to the seller 8.3 Method of payment International payments Customs vary from country to country, the same goes for the way payments are made It is wise to use that method of payment which is most suitable for the country where the payment has to be made The choice for this most suitable method of payment is determined by several factors: the market, the amount of money to be paid , the country, the level of understanding and trust between the two parties, the commercial usages in the line of business, restrictions and regulations of the country where the payment has to be made, the necessity to finance the sale of the goods and costs involved Depending on the level of security the seller or buyer desires, parties can opt for a regular wiring of the money, issuing a cheque, or a Letter of Credit (LlC) There are several methods of payment: a payment into an open account (paragraph 8.3.1); b cheque (paragraph 8.3.2); c draft (paragraph 8.3.3); d guarantee of payment issued by a bank (paragraph 8.3.4); e Documentary Collections (paragraph 8.3.5); Letter of credit (LlC) (paragraph 8.3.6) The Letter of Credit (LlC) is the safest method of payment when making an international payment 172 CARRIAGE, INCOTERMS & PA YM EN T 8.3.1 Open account Payment in open account is an order given by the buyer to his bank to make a payment to the seller Payment in open account is the most basic method of obtaining payment for an export and is used in the majority of export transactions Goods are despatched in the normal fashion and the export documentation is despatched directly to the buyer As there is no third party involvement, this method is relatively cheap and can be quick As relationships build with a buyer they may be willing to settle prior to receipt of the goods The disadvantage of payments in open account is that the seller loses control of the goods and the documentation and is totally reliant on the buyer to effect payment as agreed In the event of non-payment the seller may find that he has to mount costly legal action , in the buyer's country, to obtain his funds or return of the goods Payment in open account would, therefore, be recommended for transactions with an established and trusted buyer or, for exports of low value where more costly methods of payment are unfeasible SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the network for international information on payments issued between banks This means that local banks through this network keep in contact with all important banks in the world, in such a way that payments are carried out 'swiftly', efficiently and with a maxim um level of safety Since July 2003 in most countries every bank account is internationally standardised according to the so called IBAN (International Bank Account Number) and BIC (Bank Identification Code = Swift address) of the bank 8.3.2 Cheque Bank cheque Drawee Cheque A cheque is a docu ~e nt with which the holder or the person designated in the cheque is able to draw money from the account of the person involved The type of cheque most often used is the bank cheque This bank cheque is a written unconditional entrustment of the person issuing a cheque to the bank to transfer the payment mentioned in the cheque to the holder of the cheque This cheque is a common method of payment in countries as France, the United States and the United Kingdom 8.3.3 Drawer Payments in open account or clean payments Bills of Exchange (Drafts) The Bill of Exchange, commonly referred to as the draft or the bill, is an unconditional order in writing , signed and addressed by the drawer (the exporter usually) to the drawee (the confirming bank or the issuing bank usually) , requiring the drawee to pay the drawer a certain sum of money at sight or at a fixed or determinable future time The drawer is the party who issues the draft and to whom the payment is made The drawer is the seller (the exporter) and the payee of the draft The payee could be another party other than the exporter, or could be the bona fide holder (the bearer) of the draft The drawee is the party who owes the money or agrees to make the payment and to whom the draft is addressed 8.3 IN TERNATIONAL PAYMENTS 173 r-IL- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Remitting bank Collecting bank (made out) The drawee is the buyer (the importer), the acceptor and the payer of the draft in a documentary collection In a letter of credit the drawee is most often the confirming bank or the issuing bank, which is the acceptor and the payer of the draft The remitting bank is the exporter's bank to whom the exporter sends the draft, the documents and documentary collection instructions, and who subsequently relays them to the collecting bank in a documentary collection The term remitting bank as used under a letter of credit may refer to a nominated bank from w hom the issu ing bank or the confirming bank, if any, receives the shipping documents The collecting bank (presenting bank) is the bank in the importer's country (the importer's bank usually) involved in processing the co llection, presents the draft to the importer for payment or acceptance, and thereafter releases the documents to the importer in accordance with the instructions of the exporter Drafts are a very popular and common method of payment Drafts represent security for the exporter as the documents related to drafts are drawn up by banks The draft is widely used in international trade , most frequently in the payment against a letter of cred it (LIe) It is also used in the open account without any Li e involved Drafts can be: • arranged for in the legal systems of most countries ; • transferred to another person; • avalised by a third party; • used in case performances under the contract of sale are payable 'after sight' or 'after date'; in the case of 'after date ' the bill of exchange is used as an instrument to finance the payment, • protested The sight draft is most commonly used in international trade In a sight draft, the payment is on demand or on presentation of the negotiation documents to the paying ban k or the importer In practice, the bank may pay w ithin three working days (not instantly) after the receipt and review of the negotiation documents and if they are in order, that is, the doc uments comply exactly with the letter of credit (LIe) stipulations Sight drafts Sight drafts are the ones used most often and can be distinguished into two types: • DIP-documents against payment; DI P-drafts are sent by the exporter to the bank that hands over the documents involved to the importer (buyer) after the bills of exchange have been paid • D/A-documents against acceptance; D/A-drafts mean that the bank hands over the documents involved to the importers (b uyer) after the importer has accepted the bill of exchange and has stated to make payment with the period of time fi xed by the parties The term draft (or usance draft) is used in a deferred payment arrangement The payment is on the maturity date determinable in accordance with the 174 CARRIAGE, INCOTERMS & PAYMENT stipulations of the letter of credit (LlC) In a term draft the exporter extends the credit to the importer The maturity date can be at a stated period after sight or after date: • After sight; the after sight draft is presented to the drawee for acceptance, for example, 'at 90 days sight' and 'at 20 days after sight' • After date; the after date draft, for example , 'at 120 days B/L date' (i.e., the maturity date is 120 days after the date of the bill of lading) and 'at 180 days after date' (i.e., the maturity date is 180 days after the date of the draft) Unless the maturity date is tied to a specific date, the importer may refuse to accept the draft until the goods have arrived; such deferred acceptance can extend the maturity date 8.3.4 Bank Guarantee This guarantee makes sure that the bank issuing the guarantee will pay a fixed amount of money to a beneficiary, in case the latter states in writing that his counterpart (who assigned the bank to issue the guarantee) has fulfilled certain obligations under the contract 8.3.5 Documentary Collections Every export transaction is accompanied by documents: he who possesses these documents has the possession of the goods After the goods have been shipped the transport documents are presented to either the exporter's own bank or directly to the buyer's bank, along with signed instructions as to the circumstances under which the documents are to be released and payment made The collecting bank holds the documents until the exporter's (or more usually, the remitting bank's) instructions have been met and then proceeds to effect payment (Schedule 8.2 points out how Documentary Collections are effected) Payments against documents is a method of payment regulated by the International Chamber of Commerce and published in its Uniform Rules for Collections URC 522 '" Payments against documents In the Uniform Rules for Collections URC 522 there are two forms of documentary collections: Documents against Acceptance (D/A); Documents against Payment (Cash against Documents) Documents against Acceptance (D/A) In this case the documents are only released to the importer, by the collecting Bank, against the importer's (drawee) acceptance of a Bill of Exchange for payment at a future date The advantage of this for the importer is that he does not have to pay for the goods until the 'due date' The exporter, meanwhile, could, should it so wish, have the accepted Bill of Exchange discounted IN TERNATIONAL PAYMENTS 175 The disadvantage for the exporter is that the acceptance of the Bill of Exchange does not ensure payment at maturity It is only as good as the company that accepted the Bill of Exchange Extra comfort can be obtained by having the Bill of Exchange avalised by the Importer's Bank No guarantee of payment Documents against Payment (DIP) Document against Payment is exactly what it says: payment is made in return for the documents This term is used in both Open Account transactions and Documentary Collections The advantage for the exporter is that they can receive payment immediately the moment the documents arrive in the importer's country Nevertheless, it is usual for payment to be made after arrival of the goods There is, however, no guarantee of payment but use of a Sight Bill of Exchange does give the option of having the transaction protested for non-payment Schedule 8.2 Documentary Collections I 1I Buyer Goods Payment I I Seller I Remitting bank I Payment Documents I 8.3.6 Letter of Credit Collecting bank l J Payment Letter of Credit A Letter of Credit (LlC) is an agreement between a bank and its cl ient, in which the bank has the obligation to pay an amount of money from the account of that client to a third party provided that the beneficiary (the exporter) proves that it has effected its obligation under the contract to make the delivery In short, these obligations boil down to the swift offerin g the documents required by the L/C In general, the issuing bank makes use of the services of a bank in the exporter's country (the advising bank) to inform the exporter of the fact that a LlC has been opened on its behalf The letter of credit (LlC) is suitable for undertakings that want to limit the financia l risks of doing business internationally and maximise the security with international payments Exporters are assured they shall receive full payment rapidly; importers are assured they shall receive all relevant documents as agreed on in the contract of sale By means of a letter of credit (L/ C) the buyer of the goods or services puts up an amount of money with his bank or the bank of the seller The seller can only collect the money, provided it hands over certain documents required by the LlC and furthermore has lived up to the other obligations imposed on it by the LlC 176 CARRIAGE, INCOTERMS & PAYMEN T In case of a LlC the transfer of the goods is disconnected from the transfer of the documents: all parties involved in a LlC solely exchange documents (that represent goods or services) and not exchange goods So, the banks involved will effect payments in case the correct documents are handed over, even if the importer informs them that the goods delivered are not of the quality required under the contract Schedule 8.3 points out how a LlC is effected) International Regulations The LIC is regulated by the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (ICC) The Un iform Customs and Practice for Documentary Credits are international Regulations that the parties involved (banks and their clients) in a LlC have to live up to to prevent confusion with the terms used in the LlC and differences in interpretation of these terms Most banks in the world work according to these rules ; for that reason , the mandatory application of the Uniform Customs and Practice for Documentary C re dits is agreed on in the L/C Parties involved in a Lie In most cases, four parties are involved in a LlC The applicant (buyer, importer) is the party that orders its bank to open a LlC The issuing bank (opening bank) is the bank that opens the credit and sends it to the advising bank The advising bank (the notifyi ng bank) is the bank, that receives the Letter of Credit from the issuing bank and hands it to the beneficiary under the conditions laid down in the LlC The beneficiary (seller, expo rter) is the party that hands over the required documents and as a result of that receives payment ~ Sched ule 8.3 Opening a letter of credit Applicant (buyer) I Contract Beneficiary (sel ler) Text letter of credit ([JC) Request letter of credit ([JC) Advising bank (buyer's bank) Letter of credit ([JC) Iss uing bank (confirm ing bank, usually the seller's bank) I The applicant (the importer) Applicant The applicant is the party who requests and instructs the issuing ban k to open a letter of credit (LlC) in favour of the beneficiary The applicant is usually the importer or the buyer of goods andlor services 8.3 IN TERNATIONAL PAYMENTS 177 r J' _ _ _ ' Issuing bank Advising bank /I The issuing bank (the importer's bank) The LIe holds inter alia which documents the importer would like to receive, a description of the goods that are to be delivered and when the very last delivery must take place The LIe is a document on its own, to be seen separately from the contract of sale, and for that reason the issuing bank will want to make certain that the information laid down in the LIe is correct Therefore, the importer in the request to open a LIe has to give detailed information as to the date and del ivery of the goods Preferably, the importer will add to the request to open a LIe, a copy (of a part) of the contract of sale and a copy of the confirmation of the sale of the goods 11/ The advising bank (the exporter's bank) After having received the LIe, the advising bank will advise the exporter, in most cases the advising bank is the exporter's usual banker However, the issuing bank can also address a different bank to act as the advising bank, f.e a subsidiary of their bank in the exporter's country After receiving the LIe, the advising bank will determine the authenticity of the LIe f.e by means of a signature Apart from that, the advising bank voluntarily will effect a superficial check on irregularities in the LIe Having done so, the advising bank sends a copy of the LIe to the exporter as soon as possible The issuing bank will request the advising bank to attach its confirmation to the LIe IV The beneficiary (the exporter) After receiving the LIe, the exporter has to check the text of the LIe and compare it with the contract of sale In case the exporter discovers discrepancies between the two, it is required to contact the importer immediately in order to amend these discrepancies After the exporter agrees to the terms of the LIe, it is required to effect the shipment and the delivery of the goods Subsequently, the exporter offers its documents to the advising bank in order to receive payment or an affirmation to that extent A short overview of all parties is displayed in Table 8.3 Table 8.3 Parties involved in a letter of Credit (UC) The applicant (the importer, the buyer) The beneficiary (the exporter, the seller) The issuing bank The advising bank Requests and orders a letter of credit (UG) Beneficiary of the letter of credit (UG) Opens the letter of credit (UG) by sending it to a bank in the exporter's country Advises (i.e gives word to the exporter of the opening of a documentary credit) and confirms (i.e establishing the UG is in order) the documentary credit 178 CARRIAGE, INCOTERMS & PA YMEN T Confirmation Confirmation of the LIC Through the LlC, the issuing bank has legal ties to both the buyer (the importer) and the seller (exporter) The issuing bank has an irrevocable obligation to effect payment to the seller In order to acquire more certainty with regard to receiving payment, the seller has the option of having the LlC confirmed by the advising bank The effect of this is that the advising bank also has an irrevocable obligation to execute payment to the seller (the exporter): in that case this bank has to pay the seller, in case the seller offers the required documents to the advising bank This payment is final i.e satisfies the obligation under the contract of payment Confirmation by the advising bank is not a regularity: this bank will only confirm the LlC in case it finds that both the risk of non-payment and the buyer's country (the importer) are acceptable In this case, the LlC must be in order: there must be no irregularities in the text, the designation of which banks are the issuing and advising banks and the execution of the payment has to be clear and acceptable in the LlC General practice of the LIC In general practice a L/C is carried out in 11 steps: Seller and buyer close a contract of sale and agree to effect payment by means of an LlC Buyer requests his bank to open a LlC; this bank will become the issuing bank The issuing bank opens the LlC and informs the seller's bank of this; this is the advising bank and also the designated bank in case the documents have to be handed to that bank The advising bank will advise the credit to the seller; this bank has the option also to confirm the LlC -\ The seller sends the goods according to the conditions in the terms of the LlC The seller hands the required documents to the advising bank i.e the designated bank The advising bank checks the documents and pays the seller according to the terms of the LlC The advising bank sends the documents to the issuing bank In case the seller is paid by the advising bank, the issuing bank will have to make a payment to the advising bank i.e the designated bank The issuing bank then checks the documents once again and then internally effects the payment into the buyer's account 11 The buyer, with the documents, is able to gain possession of the goods 8.3 IN TER NATIONAL PAYMENTS 179 Schedule 8.4 Issuing of a letter of credit Applicant (buyerl Goods Documents Advis ing bank (buye r's bankl Beneficiary (se llerl Documents Documents Payment Payment Issuing bank (confi rming bank, usually the seller's bankl Payment In case of a LlC a payment to the seller may be issued by the advising bank: either at the moment the documents required by the LlC are handed to this bank in time , or at a date agreed on by seller and buyer after th is moment; in that case the seller supplies extra credit i.e an additional period of time in order to make payment 180 CARRIAGE, INCOTERMS & PA YM EN T ";. ~ Glossary Chapter Carriage Contract of carriage sets out the rules for the (international) transport of the goods from the seller to the buyer Carrier The person who carries out the transport of the goods Consignee The person receiving the goods, in most cases the buyer himself or, sometimes, a person acting on behalf of the buyer Incoterms INternational COmmercial TERMS: general terms of delivery in case of international sales contracts concerning the conditions of delivery, the passing of risk from seller to buyer, customs affairs and the splitting of costs in detail The terms are represented by abbreviations of letters Letter of Credit/ definition A Letter of Credit (LlC) is an agreement between a bank and its client, in which the bank has the obligation to pay an amount of money from the account of that client to a third party provided that the beneficiary (the exporter) proves that it has effected its obligation under the contract to make the del ivery Letter of Credit/ applicant The importer, the buyer: requests and orders a letter of credit (LlC) Letter of Credit/ beneficiary The exporter, the seller: beneficiary of the letter of credit (LlC) Letter of Credit/ issuing bank The bank that opens the letter of credit (LlC) by sending it to a bank in the exporter's country Letter of Credit/ advising bank The bank that advises (i.e gives word to the exporter of the opening of a documentary credit) and confirms (i.e establishing the L/C is in order) the documentary credit Sender The person, in most cases also the seller of the goods, responsible for sending the goods to the consignee The sender closes a contract of carriage with a carrier Shipper Shippers are go-betweens who close contracts of carriage on behalf of the seller i.e sender; they represent the sender of the goods EXERCISES CHAPTER ~L 181 r - Exercises Chapter Exercise Below are the terms and conditions of the sale of Siowakia Tobacco, a company established in Brno (S lowakia) This questions put in this Exercise are based on these terms and conditions Description Cigarette 84 mm Class 'A' Soft/Hard pack with 'For export only' label, Bar code and Health warning Cut Rag Cut Rag packed in plastic bag with 'For export only' printing on case Packaging and Loading Cigarette 20 cigarettes per pack 10 packs per carton 50 cartons per Master Case 480 Master Cases per 20 Ft container Cut Rag Kgs Cut Rag per Master Case 480 Master Cases per 20 Ft container Minimum Shipment Cigarette 00 cases per brand 50 cases per brand (Order of more than one brand) Cut Rag 200 Kilograms per brand Manufacturing Time Manufacturing will begin immediately upon receipt of payment and will be completed in 30 days or sooner Place of Loading Brno, Siowakia Terms INCOTERMS 2000: EXW Ex Works Brno FCA Free Carrier Brno Payments Payment prior to manufacture by: Telegraphic Transfer (TT) Demand Draft (DID) Irrevocable letter of credit in favour of the seller, available by draft at sight for 100% invoice value with a minimum 60 days period of val idity Note : All foreign bank charges including cost of postage will be borne by applicant Current of settlement US Dollar or Euro Seller's Bank Deutsche Bank Av Novodny 21-28, 2345 Brno, Siowakia AIC Name Siowakia Tobacco Monopoly AIC Number 009-1-10832-2 Documents Provided Commercial Invoice Packing List Others as requested 182 CARRIAGE, INCOTERMS & PAYMENT Looking at the Incoterms in these terms and conditions of sale, mention the differences between the three from the point of view of the seller Looking at 'Payments' in these terms and conditions of sale, what are the possibilities for the seller in case of a Demand Draft (DID)? In case an LlC is used, what is the position of the bank mentioned in the terms and conditions of sale? What is the relevance of the 'Documents Provided' mentioned in these terms and conditions of sale? Siowakia Tobacco Monopoly closes a contract of sale with Henderson Ltd., a company established in the UK on the sale and delivery of three 20 Ft containers of cigarettes, delivery FCA Brno Henderson closes a contract of carriage with Zorba Transport, a company established in Greece, which will take care of the shipping of the goods from Brno to Southampton (U K) Unfortunately, when loading the first container on a truck of Zorba Shipping, the container is catches fire and is burned completely before put on the truck The goods in the container are no longer fit to be sold On its way to Southampton the second truck carrying a container with cigarettes is stolen at a parking place near Holten (Holland) The third truck with container actually reaches the port in Rotterdam, but due to a fierce storm on the North Sea and the fact that the container was not secured well enough, this container falls overboard Who is liable, looking at the Incoterm involved, for the first container? Looking at the second container: is the CMR Convention applicable in this case? In case the CMR Convention is not applicable, is it possible for the contracting parties to opt in where the CM R Convention is concerned? In case you answered '4"es to this question, who is liable under the CMR Convention for the second container? Is the CM R Convention applicable to the carriage of the third container? Is the CISG applicable in this case? If so, what claims can Henderson put in against Siowakia Tobacco Monopoly? REGISTER 183 Index abuse of a dominant position 139 acceptance 46,47,48, 102 advising bank 176, 177 aeroplane industry (Regulation 1617/1993 and 3652/1993) 137 after date 174 after sight 174 agreement 46, 102, 134 agreement or category of agreements between undertakings 136 agreements between undertakings 132, 133 alternative jurisdiction 73, 74 applicant 176 arbitration 75 bank guarantee 174 beneficiary 177 BIC (Bank Identification Code) 172 bill 172 Bill of Exchange 172, 174 block exemptions 137, 140 breach of contract 52, 54, 102 breaking off negotiations 54 Brussels I 68 carriage 160 Cc5'fiage and Insurance Paid 168 Carriage Paid 168 carrier 86, 160 cartel law 132, 133 characteristic performance 84, 86 cheque 171,172 choice of law 84, 87, 88 CISG 100, 101, 110 CMR Convention: the Convention on the Contract for the International Carriage of Goods byRoad (1957) 159 Commission 136, 140 concerted practice or category of concerted practices 136 concerted practices 132, 133 confirming bank 173 consignee 160, 164 consignment note 163, 164 consumer 71 , 86 consumer contracts 71,86 containers 165 contract for the carriage of goods 86 contract of carriage 160 contract of sale 82, 100, 102 Convention of Rom e (1980) 82 Convention of the International Sale of Goods (CIS G) 82 Convention on the International Sale of Goods (CISG , Vienna, 1980) 99 COREPER 20 Cost and Freight 168 Cost, Insurance and Freight 168 Council of Ministers 20 Council of the European Union 20 court of law 69 EEX 69,110 EEX Regulation 68 employee 70 employer 70 European Commission 21 European Competition Network (ECN) 136 European Court of Justice 22, 23 European Court of Justice of the EC 21 European Law 17 European Parliament 20 Ex Works 168 D/A-documents 173 DIA-drafts 173 DIP-documents against payment 173 DIP-drafts 173 damages 51,52,54 decision 134 decision or category of decisions by associations of undertakings 136 decisions 22 decisions by associations of undertakings 132 decisions taken by associations of undertaking 132 defence of the co nsumer 123 defendant 73, 110 Delivered At Frontier 168 Delivered Duty Paid 168 Delivered Duty Unpaid 168 Delivered Ex Quay 168 Delivered Ex Ship 168 delivery 110 direct effect 19 directives 21 directly applicable 18 directly effective 18 distinctly applicable measures 120 Docu ment against Payment 175 Documentary Collections 171 Documents against Acceptance (D/A) 174 Documents against Payment (Cash again st Documents) 174 dominant position 132, 137, 138, 139 draft 171 , 172 fairness of commercial transactions 123 fixing purchase 132 formal validity of a contract 91 Free Alongside Ship 168 Free Carrier 168 free movement of goods 118, 119, 122,132,133 Free on Board 168 freedom of trade 134 gentlemen's agreement 51 geographical market 138 good faith 49, 53 guarantee of payment issued by a bank 171 horizontal agreement 134 horizontal agreements of cooperation (Reg ulation 2658 2659/2000) 137 + IBAN (International Bank Account Number) 172 immovable property 69, 85 Incoterms 167 indistinctly applicable measures 120 individual employment contract 88 individual employment contracts 70 insurance 72 insurance (Regulation 3932/1992) 137 International Business Law 14 International Chamber of Commerce 174 International Chamber of Commerce (ICC) 166 international contracts 93 International Private Law 13, 14 184 REGISTER International Public Law 13 international sales contracts 166 irrevocable 102 issuing bank 173, 176, 177 jurisdiction 68, 69 jurisprudence 49 justification 121 LlC 176, 177 Letter of credit (LlC) 171, 175 letter of intent 45, 49, 51 liab ility of carriers 161 liability of the carrier 164 li ability of the sender 164 litigation 68 market share 138 measures having equivalent 121 measures having equivalent effect 118, 119, 121, 123, 132 Merger Regulation (Regulation 139/2 004) 140 mergers 140 motor vehicle distribution (Regulation 1400/2002) 137 National Competition Authorities (NCAs) 136 negative clearance 140 negotiations 49, 50, 53, 54 object 51 object or effect 134 offer 46, 47, 102 parallel imports 131 patent licencing (Regulation 240/1996) 137 payment 110 paym ent into an open account 171 place of loading 86 plaintiff 73 practice 134 prel iminary ruling 21,22, 23, 25 preliminary stage 46, 49, 50 price 51 product market 138 protection of health and life of humans, animals or plants 122 protection of industrial and commercial property 122 protection of national treasures possessing artistic, historic or archaeological value 122 protection of public health 123 public morality 121 public policy or public security 121 quantitative restriction 118 quantitative restrictions 118, 121, 132 quot 118 reasonable certainty 84 Regulation 1/2003 136 Regulation number 44/2001 68 regulations 21 remitting bank 173 R~e II 94 rule of reason 123 rules of reference 82 sender 160 shipper 161 shipping industry (Regulation 870/ 199) 137 sovereignty 68 SWIFT (Society for Worldwide Interbank Financial Te lecommunication) 172 takeovers 140 terms of delivery 166 The Convention on the Contract for the International Carriage of the Goods by Road (CM R Convention) 163 tort 52, 93 undertaking 133 Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (ICC) 176 Uniform Rules for Collections URC 522 174 universal effect 83 vehicles 165 vertical agreement 134, 137 vertical agreements (Regulation 2790/ 1999) 137 A Basic Guide to International Business Law is intended to fill the gap present in today's literature available in English for Bachelor students in the fields of marketing, management, international business and law Looking at these fields, a graduate will come into contact with people or companies from a country other than his own and will be involved in making (international) contact and contracts He or she has to be able to make decisions with a sound knowledge of international law and EC law, of what making international contracts is about, of what the content is of these contracts, of how to prevent legal problems arising out of contracts and be able to know the effects of the contracts for which he or she is responsible The objective of the authors is to provide a practical approach to International Business Law apart from the choice of the topics for this book itself This book provides a sound basis to work with international contracts and its set up enables easy student access to various relevant topics in the field of International Business Law This is reflected in the book's structure Each chapter provides the use of numerous examples to explain the theory, the notes used in case law to enable better understanding, a set of exercises and a ~lossary of terms used in each chapter NUR 8 I SBN 90 - 01 - 70100-0 789001 701000 - ... point in time International Public Law International Private Law International law can be divided into International Publ ic Law and International Private Law International Public Law concerns... the essentials of European Law 1.1 Introduction International Private Law "- International Private Law International Business Law as a part of International Private Law is a specific field in... Private Law and European Law 1.1 Introduction International Private Law 1.2 Introduction to European Law 1.3 Cases International law is law set up by states and applicable to these states and in