Export/Import Contracts

Generating Trade Enquiry

Web sites to identify export/import firms Participation in trade fairs Business promotion visits Contact with marketing agents/brokers in India and abroad Trade enquiries through ITPO, EPCs, Commodity Boards, Chambers of Commerce

The Sequence
Trade Enquiry
Dispatch of company profile, product range and other details

Indicative quotation and samples, photo on demand

Buyer credibility check & situation analysis

Proforma invoice on receipt of firm enquiry / interest

Before Finalizing the Contract

Assess: Credit Worthiness of the Customer Availability of the Steamer/Airlines and its frequency to the place of projected destination Documentation requirement for the customer and government of the importing country While these are indicative, the requirements will vary from country to country, product to product and buyer to buyer.

The Export Order

The export order can be procured based on written communication, verbal discussions & negotiations when offer/bid acceptance is finalized between exporter and importer In many cases the exporter sends the proforma invoice to buyer giving terms & conditions of proposed export sale
contd.

The Export Order

contd

After negotiations, buyer may accept the offer. The buyer confirms the acceptance of offer mentioned in the proforma invoice by signing the proforma invoice as token of acceptance of the sellers offer A contract is then drawn giving details of the terms agreed

Export Contract

Is a sale and purchase agreement between the exporter and the importer In most cases the terms are standardized and contain specified heads in which the conditions are detailed The ambiguity is avoided and all parties have uniform understanding of all terms & conditions It is essential to scrutinize the terms carefully and in detail to avoid any problems later

General Standard Conditions

When the export contract is made quickly and informally, some of the conditions are either assumed or clarified later This situation may lead to dispute or misunderstanding. This can be avoided by using the General Standard Conditions These are standardized contract terms that permit the parties to refer to a pre established set of rules that can be incorporated into their contract Once such General Standard Conditions have been adopted, they are legally binding whether or not both parties are aware of and understand every provision

Written vs. Construed Contract

All large export/import orders are usually written and signed between the buyer & the seller to avoid ambiguity There are sometimes situations when the agreement takes place in piece meal by e-mail, fax, etc but it is not developed into an agreement putting all terms & conditions in a single document
contd.

Contd

In such a case, the exporter/importer can establish existence of a contract by stitching together various pieces of documents The Indian Evidence Act recognizes commercial & regulatory documents, provided exporter can prove through various communications he has exchanged with the importer Such unwritten contract is referred to as construed contract

Broad Terms & Conditions in an Export Contract

The name & address of buyer & seller Description of the product/s Quality & specifications Quantity Price per unit with Specified incoterm & total value

Packing, marking & labeling Payment terms Shipment Insurance Inspection Documentation Jurisdiction
contd.

Contd.

Some other issues, terms & conditions may be included in the international sales contract, like:

Requirement of import/export license in cases of restricted items Any amendments and supplements should become an integral part of the contract from the date these have been finalized The export order should fully comply with RBI norms related to permitted currencies and methods of payment

The Conflict of Laws

In export transactions two nations are involved. Important to define which countrys law will apply Usually buyer/seller should agree on this at the time of finalization of the contract A set of rules are developed by each countrys law. The courts consider this while deciding the issue. This commonly known as conflict of laws situation Conflicts can be taken care of in advance by incorporating some specific provisions with respect to jurisdiction & applicability of law in the sales contract

Frustration of Contracts/Force Majeure

Situations can develop beyond the control of buyer or seller & insurer Examples are Acts of God, such as floods, tsunami, fire at factory, etc. Such a situation is called Frustration of contracts or Force Majeure contd.

Frustration of Contracts/Force Majeure

contd.

Incorporation of this clause in the contract allows the party concerned to terminate the contract or take other remedial measures provided for in the contract, without any penalty Notice for invoking the Force Majeure clause has to be given by the affected party as per prescribed terms agreed between buyer/seller

Methods of Dispute Settlement

Many causes of dispute

Most common clause relates to quality Other causes could be late shipment, failure to ship, Refusal to ship because of change in market conditions, Government regulations restricting exports after the finalization of contract, etc.

Two well recognized methods to settle disputes

Litigation Arbitration

Arbitration

Arbitration is particularly popular as a means of dispute resolution in the commercial sphere. It is generally speedier, less formal and a greater degree of privacy and confidentiality can be observed and enjoyed by the parties. Unlike litigation in open court, arbitrators are, as a rule, forbidden to disclose any information whatsoever about arbitral proceedings and/or results to a third party. contd

The Arbitration Clause

An arbitral award is a determination on the merits by an arbitration tribunal in an arbitration, and is analogous to a judgment in a court of law. Need to be a very non contravorsial and acceptable by all parties The international arbitration can take place in the exporter or importers country or at any third neutral country Contd.

The Arbitration Clause

contd.

Parties should stipulate in the arbitration clause itself the law governing the contract, the number of arbitrators and the place and language of the arbitration. For example, The ICC recommends that all parties wishing to make reference to ICC arbitration in their contracts use the following standard clause "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."

Enforcement of Arbitral Award

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, was adopted by a United Nations diplomatic conference on 10 June 1958 and entered into force on 7 June 1959. The Convention requires courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states.
contd.

Enforcement of Arbitral Award contd.

Though other international conventions apply to the cross-border enforcement of arbitration awards, the New York Convention is by far the most important. As of October 1, 2009, there are 144 signatories which have adopted the New York Convention