International trade: Case of Dave Inc - Essay Example

?International Trade Dave Inc. a New York company entered into a contract with a UK based company d Imperial UK Ltd for the purchase of an industrial generator for Dave’s US operations. Dave Inc. has never done business with Imperial UK and wants to ensure that the generators paid for are delivered. The delivery clause specified in the contract is “FOB The Kawasaki”. While the generators was being loaded on the ship, the doors of the container van flung open and the generator landed in water before it crossed the ship’s railings. Who then bears the risk of the loss of the generator? Would your answer be different if it was a CIF contract? Advice Dave Inc on the principles of cross border sales and how the “Trade Dilemma” can be avoided. FOB (Free on Board) and CIF (Cost, Insurance and Freight) including are variations of contract of conveyance of goods from one country to another. For FOB and CIF, both terms describe the time or the circumstances when the burden of ownership, control or loss of the goods that were purchased shifts from the seller to the buyer. This paper shall provide David Inc. the necessary advice in order to prevent Trade Dilemma in the way it transacts business internationally. The advice would include an explanation of the principles of cross border sales and its intricacies so as not to prejudice David Inc. Included in the advice are landmark cases that have been used to define international trade terminologies from the perspective of the United Kingdom Jurisprudence and the Uniform Commercial Code of the United States. FOB Contract FOB (Free on Board) Contracts mandates the seller to make the delivery of the goods on board a vessel elected by the buyer (N.V. Handel My. J. Smits Import-Export v. English Exporters (London), Ltd., 1957). In this instance the seller will only fulfil its contractual obligation to deliver when the items for delivery have already crossed the ship’s railings1. In FOB contracts it is clear that the seller in this case Imperial UK, ltd has the duty and obligations to deliver the items on board the vessel. From the facts of the case it is clear that the delivery on the vessel has not occurred yet since “the goods have not crossed the rails of the ship” (Cole, 2010) yet and therefore the obligation of the seller as per an FOB contract to fully deliver the items procured by Dave Inc. on the vessel has not happened yet. Duties of buyers In an FOB contract, the purchaser has the obligation to identify the port and the ship where the seller will load the items purchased (Sassoon, 1975). In David t. Boyd & Co. v. Louis Louca there are three ways of doing this “First, the seller can choose the port of shipment, second the buyer can choose, and third the contract is left for ambiguity”2 However, if in case the buyer fails to provide a ship the seller can provide a suitable ship as emphasized in Bunse Corporation v Tradax Export, In such situation the same case enunciated the duties of the seller further in this wise “He has to determine a shipping period, place and also must give notice to the buyer of the readiness to the vessel3. David Inc. has clearly provided the ship’s name (Kawasaki) in compliance to his obligation and duties under an FOB contract in the instant case. The duties of the seller under an FOB contract include the delivery of the items to the ship. Complete delivery as defined under the Hague Rule is when the items have already passed the ships rail. In the instant case the generator fell into the water before it has breached the rails of the ship, elucidated by the Hague Rule delivery was not completed by Imperial UK. Interpreted on another light no delivery has been made by Imperial UK, and therefore it is in default of its contract with David Inc. Imperial UK, therefore the loss of the industrial generator is entirely the fault and on account of Imperial UK. From the fact of the case Imperial UK still need to satisfy its obligation under its contract with David Inc. and that is to provide David Inc. with an industrial generator. Due to the delay in delivery as a result of the incident, Imperial UK may be held liable for accountable for any damages David Inc. could incur as a consequence of the incident. In Mitsui v Flota Mercante Grancolunbiana it was stressed that “under an FOB contract, when the goods are placed on board the vessel, the buyer has a title of the goods, because property in goods passes at the same time. Another reason of this, he becomes a shipper of the goods after shipment and he has a contractual relationship with the carrier.”4 CIF Contract In CIF (Cost, Insurance and Freight) contracts the seller arrange for the conveyance of the items by sea to a port of destination. The seller then provides the purchaser with all the documents required to release the goods from the conveyor or carrier (Folsom, et al., 2010). In Arnhold Karberg & Co v Blythe, Green, Jourdain & Co. Scrutton J commented that: “I am strongly of opinion that the key to many of the difficulties arising in CIF contracts is to keep firmly in mind the cardinal distinction that a CIF sale is not a sale of goods, but a sale of documents relating to goods” (Scrutton J. in (Arnhold Karberg & Co v Blythe, Green Jourdain & Co, 1915). Under the circumstances even if David Inc. and Imperial UK is under a CIF contract it is still the responsibility of the seller in this case Imperial UK to deliver the goods on board the vessel. In fact Imperial UK’s responsibility as the seller is to ensure that the documents representing the industrial generator actually represent an industrial generator being shipped to the destination stipulated in the documents. The unfortunate loss of the industrial generator is still on the account of the Imperial UK. CIF definition was stressed in Manbre S. Co. Ltd. v Corn p. Co. Ltd. The case emphasized that “the essential feature of an ordinary CIF contract is that, performance of the bargain is to be fulfilled by delivery of documents and not by the physical delivery of the goods.” (Manbre Sacchrie Co. Ltd. v Corn Products Co. Ltd. [1919] 1KB 19). Documents in the form of a “Bill of Lading” represent the actual goods in transit. It precludes that the items is already in transit and aboard the ship stipulated in the document and is expected to dock at a port likewise mentioned in the document. The document itself will be the papers that will be used in obtaining the ownership and possession of the items or goods from the carrier. Duties of Seller In Brandt & Co v Morris & Co, it was stipulated that in CIF contract it is the seller who need to procure the export license5. It is also the responsibility of the seller to provide enough information through the transmittal of the documents that represent the goods being transited all pertinent information and proof to enable the buyer to procure and secure the goods when it arrives at the identified port. It is also the responsibility of the seller to give notice to the buyer to enable him to insure the goods during the sea transit6 Under a CIF contract, possessions of the documents that represent the goods translate to ownership of the goods in transit. The general presumption of the condition of the goods as stipulated in the CIF contract is that it was seated and loaded on the ship in good condition. Through the documents under a CIF contract, the buyer can demand for the delivery, release of the goods at the port of arrival. In the event that there was some damage that the goods have suffered while in transit, the buyer can sue for relief for the damage. It is also a general presumption that when the documents were received by the buyer, payment have already been made to hold the right of possession to both the document and the goods7 Cross-Border Sales Cross border sales are purchases done by buyers from one country of items sold by sellers in another country. The complication of these kinds of sales is the taxation requirement from the originating country and the receiving country. Another item that needs to be considered is the processing of the necessary permits to export from the originating country and importation permit from the government of the receiving country. Cross-border sales are often times more expensive rather than outright sale of goods that are already within the country of the buyer (Elliot & Emmanuel, 2000). The exposure for the buyer is also greater depending on the stipulation in the contract of sale for cross-border sales. Cross border sales are also subject to customs duties and inspections that normally cause delays for the buyer if not more cost. One of the most cumbersome fall out of a cross border sale is the application of warranty. David Inc. should be reminded that “under the English Law, there is no general rule to obtain an export licence. It depends on the contract, which (of) the party, who has the best position to obtain it. Both seller and buyer were British traders albeit that the buyer was securing goods from an overseas merchant so he has to apply for the export licence, because he alone knows full facts regarding the destination of the goods.” (Brandt & Co. v Morris & Co Ltd., 1917). Cross border sales is different from borderless sales that is aptly exemplified by internet transactions. Borderless sales can be translated to cross border sales when goods are moved from one country to another. The movement will translate to the payment of duties and taxes for the goods being moved. Avoiding Trade Dilemmas “Trade Dilemma” can be avoided if the contract of sale contains provisions that would meet the requirements of international trade as well as the local laws of both buyers and sellers. “Trade Dilemma” can be avoided if all aspect of the sale, transport, delivery and acceptance of the items are stipulated in the contract. By detailing the consequence and the instance and condition that would define the transfer of responsibility “Trade Dilemma” can also be prevented. Proper protection in terms of insurance coverage that would cover specific performance, damage to goods, loss and on time delivery is assigned to either the buyer or the seller. Avoiding trade dilemmas can also be achieved by stating a provision in the contract that would define the court that will assume jurisdiction in case of legal arbitration. Instead of engaging a number of courts from several countries that would assume jurisdiction on the cases where violations happened within its territory, defining the the court who can assume jurisdiction over specific aspects of the transaction will simplify the arbitration process. It is also prudent that even simple arbitration jurisdiction should also be defined in the contract (Moon , 2000). Another aspect of Trade Dilemma is when a particular transaction covers several territories and one or more territories do not have any provisions in the law that is considered a violation in another country. In this instance conflict may arise since the finding of one court in one jurisdiction may contradict if not be in conflict with the findings of another court. It is noteworthy to mention that in the absence of a law covering the transaction the contract shall bind the parties concerned and its provision will be considered as the applicable law between the two parties in so much as the contract that covers the transaction is concerned (Yi, 2009). Recommendation It is recommended that David Inc. purchase locally or from local distributors to avoid trade dilemmas if not cross border sales complications. Buying local would shift the burden of shipping, insuring, and delivery of the items being bought right at the doorstep of the buyer will be on the account and responsibility of the seller. The satisfaction of David’s requirement in the use and availability of the items needed to be purchased will be more controllable. Variables such as the arrival of ship, release of items from the customs office and the satisfaction and compliance to government mandated reportorial requirement will be negated. However in the event that special items need to be procured from abroad due to its availability thereat, it is recommended therefore that David Inc. in the future provide a contract that would specifically provide for the protection of its interest while limiting its liability and exposure. David Inc. as the buyer should dictate the terms and condition of its purchase and acceptance of the goods. The condition and the time of how and when an item will be delivered will be at the control of David Inc. The contract should stipulate and define the parameters and condition that would qualify the transfer of responsibility as applying to one party onto another. It is ideal that David Inc. mandate that the seller shoulder the cost of delivery, insurance and conveyance of the goods including its successful installation of the items. The successful installation of the items should be predicated by an acceptance criteria list that have been prepared and agreed on by the seller and David Inc. The recommendations stated here will ensure that David Inc. avoid any financial exposure and also any affect caused by delays that could be incurred due to damage during shipment and installation as manifested in the acceptance criteria. It would also serve in the best interest of David Inc. if it pre-qualify any supplier or vendor with regards to their capacity to deliver the goods being procured in the United States. It is also prudent for David Inc. to obtain knowledge and awareness of the partners of Imperial UK to ensure that none of their partners have violated or is banned to transact business within the United States most especially partners that would include the shipping freight carrier that normally handles their transhipment abroad. Due diligence in this regard would be in the best interest of David Inc. so as to avoid complication with regards to culpable violations of the law of the partner of Imperial UK in this case. Although, the United Kingdom is considered a friendly trading partner of the United States the changes recommended above should apply and should be stipulated in its standard contract. This is to prevent charges of discrimination and other complications. Bibliography Arnhold Karberg & Co v Blythe, Green Jourdain & Co (1915) Scrutton J.. Brandt & Co. v Morris & Co Ltd. 2 K.B. 78 (1917). Cole, S., 2010. The Hague rules, 1921, explained. 1st edition ed. London: Gale, Making of Modern Law . Elliot, M. J. & Emmanuel, C., 2000. International Transfer Pricing: A survey of Cross-Border Transactions. London: CIMA. Folsom, R. H., Gordon, M. W. & Spanogle Jr., J. A., 2010. Principles of International Business Transactions. 2nd ed. London: Concise Horn Book. Moon , B. E., 2000. Dilemmas of International Trade: Second Edition (Dilemmas in World Politics). 2nd ed. New York: Westview Press. N.V. Handel My. J. Smits Import-Export v. English Exporters (London), Ltd. (1957) McNair J. Sassoon, D., 1975. CIF and FOB Contracts (British Shipping Law Library). London: British Shipping Law Library. Yi, S. T., 2009. International Trade Policy for Technology Transfers: Legal and Economic Dillemas on Multilateralism versus Biletarlism. London: Kluwer Law International. Read More