If the Seller fails to deliver the goods by the date due, he is penalized. The rate of penalty is fixed in the Clause of Agreed and Liquidated Damages.
If the delay is longer than 2 months, the Buyer has the option of canceling the Contract altogether but the Seller is to compensate for the loss incurred.
The Seller in his turn is entitled to make a claim on his counterpart if the Buyer fails to meet his contractual obligations.
The Seller may inflict penalties on the Buyer if there is a default in payment.
In an FOB transaction the Seller is entitled to compensate for extra storage expenses if the Buyer's vessel bound to pick up the goods fails to call at the port in time.
In a CIF transaction the Seller may claim the demurrage if his own vessel stays idle at the port awaiting unloading.
The demurrage claims may emerge from the Buyer as well if a Contract is signed on FOB terms of delivery. If it is a CIF contract, the Buyer is liable to extra storage expenses when through the Seller's fault he cannot clear the goods from the customs within the certain period.
Financially, legitimate claims are in large part settled by debit or credit notes.
Settling commercial disputes by arbitration is practiced if the parties cannot reach mutual understanding. In this case in accordance with the corresponding clause of the Contract the claim is submitted for arbitration, in Russia to the Arbitration Commission at the Russian Chamber of Commerce and Industry. Its Statute says that it is a standing arbitration tribunal, which shall settle disputes resulting from contractual and other civil-law relations in foreign trade, and other international economic and scientific-technological contacts.
If the parties do not agree upon a single arbitration, each of them appoints (or chooses from the list of Arbitrators) their own. In this case the latter should elect the chairman from the same List.
The three of them form the arbitration tribunal, which considers the case and makes an award by a majority of votes. The awards ofthe Arbitration Commission are final and binding upon both parties and are not subject to appeal.
Arbitration expenses, which are sometimes very high, are usually borne by the loser unless otherwise agreed upon.
THE ARBITRATION CLAUSE
The Arbitration Clause is an obligatory clause of every contract in international business transactions. It includes the terms ofsettling commercial disputes, which may arise out of making the Contract. This clause also contains indications about the proper law of the Contract applied.
The Arbitration Clause is drawn up most frequently in the following way: "Should the Sellers or the Buyers fail to settle in an amicable way any dispute or difference, which may arise out of or in connection with the present Contract the same shall be referred, without recourse to law courts, to arbitration in Stockholm” (for example). That may be the Seller or the Buyer's country; the parties may also apply to arbitration in third countries. The choice depends on the amount of the arbitration expenses. Then the clause usually stipulates that the arbitration tribunal shall consist of two arbitrators and an umpire. The party, which wishes to refer the dispute for arbitration, shall notify the other party of it by a registered letter stating the name and the seat of the appointed arbitrator who may be the citizen of any country, as well as the subject of the dispute, date and number of the Contract. The other party within 30 days of the date of the said letter shall appoint the second arbitrator who may also be the citizen of any country and shall notify the first party by a registered letter of the name and the seat of the arbitrator appointed by it.
Should the party, which has received the notification of the dispute being submitted for arbitration, fail to appoint the second arbitrator, within the period indicated, the latter at the request of either party shall be appointed by the President of the Chamber of Commerce. The arbitrators shall appoint an umpire.
If the arbitrators within 30 days after their appointment fail to come to an agreement in respect of the umpire, the President of the Chamber of Commerce shall appoint the latter at the request of either party.
If the arbitrator or the umpire appointed are not able or refuse to fulfil their duties, a new arbitrator or an umpire should be appointed instead within 30 days in the same way as the other replaced.
The arbitration award shall be adopted in accordance with the conditions of the present contract by a majority of votes within 3 months of the date of the appointment of the umpire. The award should be made out in written form, state its reasons, the distribution of arbitration costs and be signed by all the members of the arbitration tribunal.
The arbitration award shall be final and binding upon both parties and without appeal. The parties undertake to fulfill the award in time and without enforcement.
FORCE MAJEURE
Force majeure is a force against which you cannot act.
Every contract has a force majeure clause. It usually includes natural disasters such as an earthquake, flood, fire, etc. It can also list such contingencies as war, embargo, and sanctions. Along with this there are some other circumstances beyond the Seller's control. The Seller may find himself in a situation when he can't fulfill his obligations under the Contract. It may happen if there is a general strike in the country, a strike of coal-miners, transport workers, etc. Production may be suspended, if there is a shortage of the energy supply. When negotiating aContract a list of contingencies must be agreed on and put into the Contract.
When a manager makes up a contract he must not think only of his one-sided interest. He must think in terms of common interest with his counterpart. Only then will he prove loyal to his partner.
In case of a contingency the Seller must notify the Buyers of a force majeure. The Clause of the Contract to this effect may run:
"Should the Seller fail to notify the Buyers of a contingency the Seller is denied a right to refer to these circumstances". The Seller is to notify the Buyer of a contingency right away. If it's done in due time, the Buyer may take immediate action to protect his interest. He may sign a contract with another supplier on similar terms or if it's impossible, he will secure the best possible terms he can have at the moment. If prices are rising, he will be quick to act and will do everything possible to negotiate the best price obtainable at the moment.
A force majeure must be a proven fact. The Seller is to submit to the Buyer a written confirmation issued by the Chamber of Commerce to this effect. The certificate testifies that a contingency really took place. It describes its nature and confirms its duration.
In a dispute between the Buyer and the Seller not only the fact of a contingency is to be ascertained. The Seller must have evidence that non-execution of a Contract or its partial fulfillment is a direct result of a contingency. If it is proved, the Seller is not liable and the execution of a Contract is postponed until all the after-effects causing damage are eliminated. A natural disaster may last only a few minutes but it'll take a lot of time to recover the loss.
The duration of a force majeure is, as a rule, 4 or 6 months. After that the Buyer has the right to cancel the Contract. The Seller in this case has no right to claim any compensation for his losses.
amendments to the contract
It is common for Buyer's representatives to visit Seller's premises for technical or commercial discussions, either before or after a Contract has been made. Pretty often the engineering department of the Seller finds it necessary to improve the model, which the Buyer ordered under the Contract, by making a few modifications (usually shown in the attached drawings). The modifications can be very slight or considerable, but, as a rule, they are very effective and improve performance.
Any alterations to the Contract become valid if they are made in writing and signed by authorized representatives of both parties as per appropriate Clause of the Contract.
Therefore in order to finalize the matter the Seller invites the Buyer to visit his premises. And if the Customer approves of the modifications, the Seller makes an appropriate amendment to the Contract.
If the Buyer has to go abroad, the Seller usually assures him that there will be no difficulties in issuing a visa through providing an official invitation in support of the Customer's application for a visa.
The Seller reequips his workshops from time to time. As a matter of fact they may be the latest word in technology. The level of automation is usually increased and the output becomes considerably higher. As a rule the Buyer's representatives find the modifications reasonable and the Buyer doesn't object to them. After the visit the Seller sends the Buyer a draft amendment for signature.
The following Clauses of the Contract are usually more liable to changes: terms of payment, price, inspection and tests, time of delivery.
So judging from the above information you can get the procedure of making amendments to the Contract which contains 5 points:
1. Amendments to the Contract are necessary if any modifications were made after signing the Contract.
2. The Seller invites the Buyer or his authorized representatives to his premises to make sure these modifications are necessary, effective and improve performance or design.
3. If the Buyer gives his approval for these modification and finds them reasonable, both parties draw up a draft amendment
4. This draft should be coordinated and agreed on.
5. Appendices, addenda and amendments to the Contract are only valid and shall make an integral part of the Contract if issued in a written form and signed by authorized representatives of both parties.
Enquiries and offers
A lot of business transactions are opened with an enquiry. A general item of information, a price-list, a catalogue may be asked for. Detailed enquiries may express requests for the prices of specified goods, terms of delivery, etc. They are mostly short and to the point. The size of the future order may be pointed out because large-scale sales tend to reduce prices. In such cases the seller usually grants the buyer a discount or quantity discount on the list-prices. If made by telex, telephone or in a personal interview, enquiries should be confirmed by a letter.
It's impolite to leave the letter unanswered even if at the moment you are not ready to give a definite reply. A reply to an enquiry (if the seller cannot send an offer immediately) states reasons why the seller cannot send an offer at once and what is being done at the moment. It also points out alterations, if any, as to the quantity of the goods, their model, delivery dates.
If the seller can meet the Buyer's requirements, he sends an offer. The price, the terms and conditions under which a company is willing to sell goods is called an offer. It usually includes the description, the quantity, quality, and the prices of the goods, as well as the delivery or shipment period, and the delivery and payment terms (who pays the cost of delivery, of shipment and insurance and how payment will be made), marking and packing.
An offer may be firm (for a specified period) or may be free (in this case it is usually called a quotation).
A tender is a special kind of offer. It is sent in response to an invitation to submit such an offer in competition with other companies. It is usually public bodies or governments that invite tenders (in form of advertisements) for large-scale business deals, for example, construction work. Tenders are to be submitted by a fixed date, and the advertiser will select the best offer.
When an offer is not an answer to an enquiry, it is sometimes called a sales letter or circular. These are means of advertising a product or service. A sales letter is sent to prospective buyers who you may never have done business with.
Since the aim of a sales letter is to convince the reader that he should do business with you, it is essential that the letter should attract his attention. Remember how many circulars or sales letters find their way into a waste paper basket without being read.
It is also possible to attach an order form to the offer.
Competition is keen nowadays, and businessmen cannot afford to wait for people to come to them. The circulars in the letter-boxes, the commercials on TV, advertisements in the newspapers, company's letters to their counterparts (letters of introduction), etc. are instances of offers made by the business world to the public.
QUESTIONS FOR DISCUSSION
BOOK 1
Lesson 1
Lesson 2
Lesson 6
Lesson 7
BOOK 2
Lesson 4
Lesson 7
Lesson 9
BOOK 3
Lesson 2
Lesson 4
Lesson 5
Lesson 8