chapter 2 and 3 contracts and incoterms

April 13, 2023 Dinh Khuong Duy 1

INCOTERMS &

CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

Lecturer: Dinh Khuong DuyFaculty of Economics and International [email protected]


CHAPTER 2 MATERIALS

Textbook (Vietnamese and English); Incoterms 2010 (ICC); UN Convention on Contracts for the

International Sale of Goods; UNIDROIT Principles of International

Commercial Contracts; Civil Code (2005); Commercial Law (2005); Sample Contracts;


OVERVIEW ON CONTRACTS FOR THE INTERNATIONAL SALE OF

GOODS

1. Concept1.1. Contracts for purchase and sale of goods1.1.1. Contracts for purchase and sale of property

Civil Code 2005, Article 428:A contract for purchase and sale of property is an agreement between the parties whereby the seller has the obligation to hand over the property to the purchaser and receive payment, while the purchaser has the obligation to accept the property and make payment to the seller.



GOODS

1.1.2. Contracts for purchase and sale of goods Commercial Law 2005, Article 3:Purchase and sale of goods mean commercial activities whereby the seller is obliged to deliver goods, transfer ownership of goods to the purchaser and receive payment; the purchaser is obliged to pay the seller, receive the goods and the ownership thereof as agreed.

Goods include: All types of movables, including those to be formed in

the future; Things attached to land.



GOODS Contracts for purchase and sale of goods:

Contracts for purchase and sale of goods is an agreement between the parties, according to which the seller has the obligation to deliver goods, transfer the ownership of the goods to the buyer and receive payment, the buyer has the obligation to arrange payment, receive the goods and the ownership thereof.Note:Commercial Law 2005 does not provide any concept for contracts for either domestic or international purchase and sale of goods.



GOODS1.2. Contracts for the international sale of goods

Contracts for the international sale of goods = Contracts for purchase & sale of goods + international elements.

1.2.1. International Law1.2.1.1. Convention relating to a Uniform Law on the

International Sale of Goods (Hague Convention 1964)Article 1, Chapter I, Annex (Uniform Law on the International Sale of Goods):The present Law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different States, in each of the following cases:



GOODS

(a) where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another;

(b) where the acts constituting the offer and the acceptance have been effected in the territories of different States;

(c) where delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance are effected.

The application of the present Law shall not depend on the nationality of the parties.



GOODS1.2.1.2. United Nation Convention on Contracts for the International Sales of Goods (CISG 1980)CISG, Article 1, Chapter I, Part I : This Convention applies to contracts of sale of goods between parties whose places of business are in different States;Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.

CISG does not define exactly the concept of contracts for the international sale of goods.



GOODS1.2.2. Vietnam Law1.2.2.1. Temporary Regulation on concluding foreign

trade contracts (Regulation 4794/TN-XNK, issued by the Ministry of Trade on 31/7/1991)

- Foreign trade contracts are those with international elements;

- International elements: Traders are of different nationalities; Goods are transported across borders; Payment currency is foreign to at least one party.

Nationality is one of the most important elements.



GOODS

1.2.2.2. Commercial Law 1997

Contracts for purchase and sale of goods with foreign traders are contracts entered into between a Vietnamese trader and a foreign trader

What is the crucial element? A contract entered into between a Chinese trader

and a Vietnamese one, both based in Vietnam? A contract entered between two Vietnamese

traders based in different countries?



GOODS

1.2.2.3. Commercial Law 2005

Chapter II, Article 27.1.:

International purchase and sale of goods shall be conducted in form of export, import, temporary import for re-export, temporary export for re-import and transfer through border-gates.

Legal definitions of forms of international sale of goods: Article 28-30, Commercial Law 2005;

Commercial Law 2005 and nationality?



GOODS

- The movement of goods across national and/or customs borders.

- Contracts without the movement of goods across national and/or customs borders will not be considered “contracts for the international sale of goods”;

- Commercial Law 2005 may not govern all cases. Traders may refer to Civil Code 2005 (civil relations involving foreign elements) or other Laws;

Real estate sold to foreigners? What is on-spot import/export? Your opinion on the listing of forms of international

purchase and sale of goods?



GOODS

Contracts for the international sale of goods is the agreement between parties whose places of business are in different countries or separate customs areas, according to which the Seller (the Exporter) is obliged to deliver goods, and transfer the ownership thereof to the Buyer (the Importer); the Buyer is obliged to receive of the goods and the ownership thereof, and arrange payment.



GOODS2. Formation of the contract2.1. Offer2.1.1. Concept

Art. 14, CISG:(1) A proposal for concluding a contract addressed to one or more

specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.



GOODS2.1.1. ConceptNote:- Vietnam’s Law: No concept of “offer”Art. 390, Civil Code 2005: A proposal for concluding a

contract itself is binding the offeror- Order?- Free offer vs. firm offer:+ Not legal terms either in CISG or Vietnam Civil Code+ Offer in CISG: similar to “firm offer”+ Invitation to make offer in CISG: similar to “free offer”=> Example of “invitation to make offer”/“free offer”?



GOODS2.1.2. Effect of an offerArt. 15, CISG:(1) An offer becomes effective when it reaches the

offeree.(2) An offer, even if it is irrevocable, may be withdrawn if

the withdrawal reaches the offeree before or at the same time as the offer.

E.g.:An offer sent from VN on Jan 1st and reached Japan on Jan 2nd; the offeree dispatched a rejection letter on Jan 5th and it reached Vietnam on Jan 6th.



GOODS2.1.3. Withdraw and revoke an offerCISG, Article 15.2:

An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

CISG, Article 16.1:Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance

All offers can be withdrawn but they can only be revoked under certain conditions.



GOODSCISG, Article 16.2:

However, an offer cannot be revoked:(a) if it indicates, whether by stating a fixed time for

acceptance or otherwise, that it is irrevocable; or(b) if it was reasonable for the offeree to rely on the

offer as being irrevocable and the offeree has acted in reliance on the offer.

2.1.4. Termination of an offerArt. 17, CISG:

An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.



GOODS2.2. Acceptance

Acceptance is a statement indicating the offeree’s agreement to the content of the offer and his intention to conclude a contract;

Vietnam Civil Code, Article 396:The acceptance of an offer to enter into a contract is the offeree’s reply to the offeror on the acceptance of the whole content of the offer.

CISG, Article 18.1:A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance.



GOODS

2.2.1. Forms of acceptance- Acceptance can be made in writing, orally or by

specific acts;- Silence and inactivity does not in itself amount to

acceptance (CISG, Article 18.1);2.2.2. Types of acceptance- Unconditional acceptance;- Acceptance with reservation; Vietnam’s law: full (unconditional) acceptance



GOODS+ Reservation of material terms of the offer will

constitute a counter-offer;+ Reservation of non-material terms of the offer will

constitute an acceptance unless without delay the offeror rejects such discrepancies.

CISG, Article 19.3:Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.



GOODSNote:

Counter-offer is the bargaining transaction terms and conditions. Counter-offer terminates the original offer and constitutes a new one;

Vietnam Civil Code, Article 395:When the offeree accepts to enter into a contract but states the conditions therefor or modifies the offer, he/she/it shall be considered to make a new offer.

The offeree made a counter-offer and then changed his mind, accepted the offer?

Vietnam Civil Code and CISG?



GOODS2.2.3. Effect of an acceptanceCISG, Article 18.2: - An acceptance of an offer becomes effective at the

moment the indication of assent reaches the offeror […]within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror.

- An oral offer must be accepted immediately unless the circumstances indicate otherwise.



GOODS- If the offeree indicate assent by performing an act,

such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph;

- A late acceptance is nevertheless effective if the offeror without delay orally informs the offeree or dispatches a notice to that effect. (CISG, Art. 21)

- A contract is concluded when an acceptance of an offer becomes effective. (CISG, Art. 23)



GOODS2.2.4. Withdraw an acceptanceCISG, Article 23:

An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.

Note:Any indication of intention “reaches” the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.



GOODS2.3. Confirmation- After negotiating transaction terms and conditions,

the seller/buyer should write down a confirmation note and send to each other;

Sale confirmation/Purchase confirmation.- Two ways of making confirmation:+ Confirmation is made into 2 copies; one party

signs, keeps one and sends to the other;+ Confirmation is made into 1 copy with 2 signatures; Without a confirmation, is there a contract?



GOODS3. Features of contracts for the international sale of goods3.1. General features:- Principles: freedom and voluntariness (Art. 389 Civil Code 2005);- Subjects: traders;- Content: rights and obligations;- Bilateral, consensual contracts, with consideration.3.2. Particular features:



GOODS- Subjects: places of business in territories of

different States/separate customs areas;- Objectives: move across State/customs border;- Payment: foreign currency to at least 1 Party;- Various sources of governing law:

+ National law

+ International will

+ Commercial practice

+ Legal precedent



GOODS

4. Legal validity of contracts for the international sale of goods

- Subjects: legal;

- Objects: legal;

- Form: legal

+ CISG: no need to be in writing (Art. 11, Art. 12);

+ Vietnam Law: in writing or equal forms;

- Content: Legal (includes legally compulsory articles):

Dependent on sources of law:



GOODS

+ Vietnamese Law:• Commercial Law 1997: 6 compulsory articles;• Civil Code 2005: 8 commonly used articles;• Commercial Law 2005: no requirement;

+ International Law:• CISG, Article 14: 3 articles;• CISG, Article 19: 6 articles;• English Law: commodity, quality, price;• French Law: commodity, price.



GOODS

5. Content of Contracts for the international sale of goods:

5.1. Preamble:- Contract date and number;- Date and place of signing contract;- Parties’ information;- Legal basis of the contract (if necessary);- Definition of terms (if necessary).



GOODS

4.2. Terms and conditions4.2.1. Core terms and conditions:- Object-related terms;- Finance-related terms;- Transport-related terms;- Legal-related terms;4.2.2. Additional terms and conditions:- Confidential information; maintenance; warranty…- Validity of contract; number of copies; languages…



GOODS

6. Notes on drafting contracts- Content: detailed, consistent;- Word choice: clear, precise;- Language: official, popular Seller and buyer are free to choose language; VN customs regulations: Vietnamese or English;

or certified translation from other languages; Copies of different languages?


INTERNATIONAL COMMERCIAL TERMS

1. Overview on International Commercial Terms

1.1. Concept

Incoterms are rules for interpretation of trade terms which clarify the distribution of functions, costs and risks relating to the transfer of goods from the seller to the buyer.

1.2. Evolution of Incoterms rules

1936, 1953, 1967, 1976, 1980, 1990, 2000, 2010 To reflect trade practice more precisely



1.3. Content of Incoterms rules

Seller’s obligations Buyer’s obligations

A1: General obligations B1: General obligations

B2: Formalities B2: Formalities

A3: Carriage & insurance B3: Carriage & insurance

A4: Delivery B4: Taking delivery

…………………………… ……………………………

A10: Assistance B10: Assistance



1.4. Notes on using Incoterms- Applied in purchase and sale of tangible goods;- Non-compulsory trade practice;- Need to be referred to in sale contracts;- Revision (year of publication) must be stated;- Selection of appropriate terms dependent upon

certain circumstances;- Modification of terms is not encouraged;



- Incoterms rules do not deal with:+ Transfer of property rights in the goods;+ Relief from obligations and exemption from

liability in case of unexpected events;+ Consequences if various breaches of

contracts;- Transport terms (FI, FO, FIO, FIOST,…)

should not be incorporated; Incoterms rules only interpret of terms of

delivery, not other terms of the sales contract.



2. Incoterms 2000 and Incoterms 20102.1. Incoterms 2000- Number of terms: 13- Classification based on first letters of terms:+ Group E: 1 + Group F: 3+ Group C: 4 + Group D: 5- Classification based on modes of transport:+ Maritime transport: FAS, FOB, CFR, CIF, DES, DEQ;+ Any mode or modes of transport: EXW, FCA, CPT,

CIP, DAF, DDU, DDP.



GROUP TERM COMPLETE NAME

GROUP E EXW Ex WorksDEPARTURE

GROUP F FCA Free CarrierMAIN CARRIAGE FAS Free Alongside ShipUNPAID FOB Free on Board

GROUP C CFR Cost and FreightMAIN CARRIAGE CIF Cost, Insurance and FreightPAID CPT Carriage paid to…

CIP Carriage and Insurance paid to…

GROUP D DAF Delivered at frontierARRIVAL DES Delivered ex ship

DEQ Delivered ex QuayDDU Delivered Duty unpaidDDP Delivered Duty paid



INCREASED OBLIGATIONS OF THE SELLER

E F C D

DECREASED OBLIGATIONS OF THE BUYER



2.2. Incoterms ® 2010- Entered into force since Jan 1st, 2011- Number of rules: 11- Classification based on modes of transport

+ Any mode or modes of transport: EXW, FCA, CPT, CIP, DAT, DAP, DDP;

+ Maritime transport: FAS, FOB, CFR, CIF. Rules for maritime transport are placed behind?



Changes in Incoterms ® 2010:- Rules for domestic and international trade terms;- “Ship’s rail” replaced by “on board”;- Number of rules, new rules and classification;- Security-related obligations;- String sales- Contract of carriage in FOB, FAS - Transport documents in CIP, CPT- EDI



3. Incoterms ® 2010 rules

3.1. EXW – Ex Works

EXW + “named place of delivery” + Incoterms 2010

E.g.: EXW 10, Downing Street, London, United Kingdom, Incoterms 2010

- The seller fulfils his obligation by placing the goods unloaded at the disposal of the buyer at the seller’s premises or another named place.

- Seller’s minimum obligations.



Seller’s obligations:- Provide goods and commercial invoice in conformity

with the contract of sale;- Free from loading, carriage and insurance, customs

formalities; Buyer’s obligations:- Take delivery since the goods are placed at his

disposal at the seller’s premises;- Carry out necessary import & export formalities

(where applicable).



Note:- Applied for all modes of transport;- Appropriate for domestic transactions;- Buyer should use EXW rule if:

+ He is able to perform export customs formalities;

+ He has representatives in the seller’s country;- The seller is often not considered exporter;- Premature transfer of risk;- Seller and buyer are free from carriage obligation.



3.2. FCA – Free Carrier

FCA + “named place of delivery” + Incoterms 2010

E.g.: FCA Noibai Airport, Vietnam, Incoterms 2010- The seller fulfils his obligations by delivering the

goods to the carrier or another person nominated by the buyer at the seller promises or another named place;

- Who is the carrier? What if the seller nominates more than one carrier?

- When delivery is considered to be completed?



Seller’s obligations:- Clear the goods for export (where applicable) and

assumes any risk or expense involved;- Deliver the goods to the carrier/another person

nominated by the buyer;- Provides the buyer with usual proof of delivery;- No obligation to the buyer to make a contract of

carriage/insurance;- Contract for carriage at buyer’s risk and expense?



Buyer’s obligations:- Clear the goods for import (where applicable);- Contract at his own expense for the carriage of goods

from the named place of delivery;- Notify the seller of the carrier/selected time/mode of

transport/point of taking delivery;- Bear all risks of loss of or damage to the goods from

the time of delivery; The buyer fail to perform his obligations in B7?



Note:- Used irrespective of mode of transport;- Especially suitable for container transport;- FCA should be used instead of FAS or FOB

if the seller does not intend to deliver the goods alongside the ship or on board;

- Usual proof of delivery;- Deliver to the first carrier;- Premature transfer of risk;



3.3. FAS – Free Alongside ShipFAS + “named port of delivery” + Incoterms 2010E.g.: FAS Haiphong Port, Vietnam, Incoterms 2010- The seller fulfils his obligations by placing the

goods alongside the ship nominated by the buyer at the named port of shipment or by procuring the goods so delivered.

- Who has to contract for carriage?- How to place the goods alongside ship?



Seller’s obligations:- Carry out all customs formalities necessary for the export

of the goods (where applicable);- Deliver the goods by:+ Placing them alongside the named vessel in the port of

shipment either on the quay or in lighters;+ Procuring them delivered alongside ship by the 1st seller;- Provides the buyer with usual proof of delivery;- Carriage and insurance: no obligation;- Contract for carriage at the buyer’s risk and expense?



Buyer’s obligations:- Contract for carriage of the goods from the named

port of shipment at his own expense;- Take delivery and bear all risks from the time of

delivery;- Give the seller sufficient notice of vessel name,

loading point and delivery time (if necessary);- Carry out import formalities (where applicable); If the buyer fails to fulfill his obligations in B7?



Note:- Sea and inland waterway transport;- FAS seller may charter a vessel;- Three important shipment notices;- Distribution of lighterage cost;- Not suitable for containerized goods (should use

FCA instead of FAS);- Usual proof of delivery;- Premature transfer of risk;



3.4. FOB – Free On BoardFOB + “named port of delivery” + Incoterms 2010E.g.: FOB Haiphong Port, Vietnam, Incoterms 2010- The seller delivers the goods by placing the goods

on board the vessel nominated by the buyer at the named port of shipment or procured the goods already so delivered;

- Obligations of the seller and the buyer are similar to those in FAS;

- FOB Incoterms 2000 vs. Incoterms 2010?



Difference between FOB and FAS:- Delivery point;- Allocation of cost and risks related to delivery:

+ Risks of loading: Seller;

+ Costs of loading: liner charter/voyage charter; custom of the loading port;

- Proof of delivery: received for shipment/on board;- Popularity of FOB.



“Ship’s rail” is removed from FOB, Incoterms 2010:- For centuries considered as an imaginary border

between the seller and the buyer ; - Impracticable division of parties’ functions, costs and

risks while the goods are swinging across ship’s rail;- Development of transport infrastructure;- Compatibility with proof of delivery;- Requirements of a more clearly defined FOB price. Replaced by “on board” to reflect trade practice.



Note:- Diversity of FOB terms;- Three important times of delivery notice;- Usage of transport terms: FI, FO, FIO…;- Parties’ extension of liabilities by adding “FOB

stowed”, “FOB trimmed”…;- Custom of loading port;- Proof of delivery;- Not suitable for containerized goods (FOB => FCA);- Premature transfer of risks.



FOB 2000 vs. FOB 2010:- Ship’s rail is replaced by “on board”- Charter a vessel at the buyer’s risk and expense; FCA should be used instead of FAS and FOB

when goods are not carried by sea:- FCA is designed for all modes of transport;- Seller delivers the goods earlier, at lower risks &

costs;- Seller may receive payment earlier;- Avoid bank’s rejection of delivery documents.



3.5. CPT (Carriage paid to…)- CPT + “named place of destination” + ICT 2010;

E.g.: CPT Noibai Airport, Vietnam, Incoterms 2010;- The seller fulfils his obligations by delivering the

goods to the carrier or another person nominated by the seller at a place agreed between the parties;

- Noibai Airport is the point of delivery?- Who is responsible for carriage of goods?- Two critical points?



Seller’s obligations:- Clear the goods for export;- Contract for carriage of the goods from the

agreed point of delivery; - Pay the freight and unloading charges at the

place of destination for the seller’ account under the carriage contract;

- Provide the buyer with usual transport documents;

- Deliver the goods the carrier nominated by the seller and notice the buyer of such delivery.



Buyer’s obligations:- Take delivery, bear all risks of loss of or damage to

the goods from the time they have been delivered;- Notice the seller of time of dispatching/place of

destination and bear all arising costs and risks if fail to perform B7;

- Pay all additional charges relating to the goods in transit or unloading costs, unless such costs are for the seller’s account under contract of carriage;

- Clear the goods for import;



Note:- All modes of transport;- Single delivery notice;- Costs arising before and after point of delivery;- If the two parties do not intend to deliver the goods

on board, CPT should be used instead of CFR;- The buyer should contract for insurance;- Contract for carriage and transport documents;- Premature transfer of risks.



3.6. CIP (Carriage and Insurance paid to…)- CIP + “named place of destination” + ICT 2010;E.g.: CIP Chua Ve CFS, Haiphong port, Vietnam,

Incoterms 2010;- The seller fulfils his obligations by delivering the

insured goods to the carrier or another person nominated by the seller at a place agreed between the parties;

- Parties’ obligations are similar to those in CPT;- Contract for insurance vs. bear risks?



3.7. CFR (Cost and Freight)- CFR + “named port of destination” + ICT 2010;

E.g.: CFR Danang Port, Vietnam, Incoterms 2010;- The seller fulfils his obligations by placing the goods

on board the vessel nominated by the seller at the agreed port of loading or by procuring the goods already so delivered;

- Parties’ main obligations are similar to CPT;- CFR and CPT;- CFR Incoterms 2000 and CFR Incoterms 2010;



Note:- Unloading port custom;- Single delivery notice;- Cost arising before and after delivery;- CPT used instead of CFR;- The buyer should contract for insurance;- CNF, C&F, C + F: not recommended;- Premature transfer of risks;- Ocean Bill of lading.



3.8. CIF (Cost, Insurance and Freight)- CIF + “named port of destination” + ICT 2010;

E.g.: CIF Haiphong port, Vietnam, Incoterms 2010;- The seller fulfils his obligations by placing the

insured goods on board the vessel nominated by the seller at the agreed port of loading or by procuring the goods already so delivered;

- Parties’ main obligations are similar to those in CIP;- CIF vs. CFR; CIF vs. CIP;- CIF Incoterms 2000 vs. CIF Incoterms 2010;- Contract for insurance vs. bear risks?



Contract for carriage:- Made on usual terms;- Usual route;- Customary manner;- Vessel of type normally used for the transport of the

type of goods sold. Transport documents:- Dated within the period agreed for shipment;- Enable the to claim the goods from the carrier;- Enable the buyer to sell the goods in transit.



Contract for insurance:- Minimum cover as provided by the Institute Cargo

Clauses (Clause C);- Insurance company of good repute;- Insurance value: 110% CIP or CIF;- Insurance cover the goods from the point of delivery

to at least the named place/port of destination;- Provide the buyer with negotiable insurance policy

or other evidence;- Additional insurance at buyer’s request, risk, and

expense.



3.9. DAT (Delivered At Terminal)- DAT + “named terminal at port/place of destination”

+ Incoterms 2010;E.g.: DAT Chua Ve CFS, Haiphong Port, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods unloaded from the arriving means of transport at the disposal of the buyer at a named terminal at the named port/place of destination;

- What is a “terminal”?



Seller’s obligations:- Clear the goods for export;- Contract for the carriage of goods to the named

terminal at place/port of destination;- Unload the goods from arriving means of transport;- Notice the buyer to enable the buyer to take

necessary measures to take delivery of goods;- Provide the buyer with documents enabling the

buyer to take delivery of goods. Contract for insurance?



Buyer’s obligations:- Clear the goods for import. What if the buyer fails

to perform customs clearance?- Take delivery, bear all risks of loss of or damage to

the goods from the point of delivery. What if the goods continue to be transported after the point of delivery?

- Notice of time/place of delivery (if entitled). What if the buyer fail to perform his obligations in B7?



3.10. DAP (Delivered At Place)- DAP + “named place of destination” + Incoterms 2010;

E.g.: DAP 91 Chua Lang Street, Hanoi, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods on the arriving means of transport ready for unloading at the disposal of the buyer at the named place of destination;

- Parties’ main obligations are similar to DAT;- Place vs. terminal.



DAT vs. DAP:- Place of delivery;- Unloading obligation;- DAP suitable for on-carriage of goods after a

named place of delivery;- DAP suitable for a delivery within the import

country’s territory;- DAP: DES, DAF, DDU (Incoterms 2010);- DAT: DEQ (Incoterms 2010); CIP price vs. DAP/DAT price?



3.11. DDP (Delivered Duty Paid)- DDP + “named place of destination” + ICT 2010;

E.g.: DDP 91 Chua Lang street, Hanoi, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods cleared for import on the arriving means of transport ready for unloading at the buyer’s disposal at the named place of destination.

- Parties’ main obligations are similar to DAP;- Unloading costs and risks?



Note:- Buyer’s minimum obligations;- DDP not recommended if the seller cannot obtain

import clearance ;- Buyer’s responsible for unloading (different from

EXW – seller not responsible for loading);- Seller has to pay VAT or other import taxes unless

expressly agreed otherwise in the sales contract;- Seller pay the costs of PSI mandated by the

authority of the country export/import.- Customs valuation for goods sold under DDP price.



Select the appropriate Incoterms rules:- Mode of transport;- Place of delivery;- Allocation of costs and risks;- Competition rate;- Ability to contract for carriage and insurance and

perform customs clearance;- Political and social situation;- Import/export country’s regulations.


DRAFTING CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

1. Name of goods- One of the most important terms in a contract- Clearly define the goods to be exchanged- Also known as: Commodity / Object of Contract- Methods to draft:a. Name of goods + trade name / scientific nameE.g.: . Arabica/Robusta coffee. Pitaya (Hylocereus undatus): red dragon fruit. Pitaya (Hylocereus megalanthus): yellow dragon fruit



b. Name of goods + place of originc. Name of goods + manufacture’s named. Name of goods + brand namee. Name of goods + major specificationsE.g.: 14-inch TV; 29-seat busf. Name of goods + main useE.g.: Cotton for medical useg. Name of goods + HS codeE.g: Automobile air conditioner 8415.20 To specify the goods, a-g are often combined.



2. Quality- One of the most important terms;- Clearly define main characteristics of the goods;- Require wide knowledge on machandizing2.1. Methods to denote quality:a. As per sampleb. As it is (tale quale)c. As inspected and approvedd. As per standard or category



e. As per technical documentsf. As per specifications of goodsg. As per volumetric weight of goodsh. As per general customary criteriaE.g.: FAQ, GAQ, GMQi. As per content of essential componentsj. As per ratio of products formk. As per brand of goodsl. As per description of goods



2.2. Content of a quality article- Define quality of goods (use one of / a combination

of the above methods)- Inspection of quality+ Place of inspection: place of manufacture; place of

delivery; place of destination; place of use+ Inspector: Manufacturer; representatives of parties;

intermediary organization+ Inspection cost+ Certificate of quality: preliminary/final



E.g.: Quality of Vietnam export rice- Broken: 35% max; - Moisture: 14,5% max;- Foreign matter: 0,4% max; - Crop: Summer Autumn crop 2011- Quality of goods is to be determined at the loading port

by Vinacontrol Haiphong. Inspection charges shall be borne by the Seller.

- C/Q issued by Vinacontrol shall be final and binding both parties.



3. Quantity/Volume3.1. Measurement Unit- Countable: + Single: 100 bales; 200 parcels; 1000 barrels+ Collective: 5 dozens of eggs; 7 tens of oranges- Uncountable: + Metric system: mm, cm, dm, m, g, kg, MT+ English system: inch, foot, yard, mile, pound, LT, SL

Note: 1MT = 1000 kg; 1 LT = 2240 pounds (1016 kg); 1 ST = 2000 pounds (907 kg).



3.2. Methods to denote quantity- Precise stipulation- Flexible stipulationE.g.: Fridges: 1000 pieces

Rice:1000 MT +/- 5% Tolerance: about ...; approximately…; +/-…%; more or

less…%; from…to…MT.+ Range of tolerance+ Tolerance at seller’s/ buyer’s/ vessel charterer’s option+ Tolerance’s price- Exemption rate (franchise): With/without deduction



3.3. Methods to determine quantity3.3.1. Gross weightGross weight = net weight + tare3.3.2. Net weight- Net net weight: without any package;- Semi net weight: with direct package;- Gross weight for net: negligible package cost;- Legal net weight: Gross weight – tare determined

by Customs officers.



3.3.3. Theoretical weight

M (mass) = D (density) x V (volume)

3.3.4. Commercial weight

100 + W0

G0 = G1 x

100 + W1

- Goods whose mass is sensitive to moisture change.- G0 : Commercial weight W0: Standard moisture

- G1 : Actual weight W1: Actual moisture



3.4. Content of a quantity article:- Specify content: precise/flexible (if it is flexible

weight, there must be stipulation on tolerance).- Select the method to determine quantity (gross/net/

theoretical/commercial weight)- Inspection of goods:+ Place of inspection: shipped weight/landed weight; + Inspector: Parties’ representatives or intermediary;+ Inspection cost distribution+ Certificate of quantity: preliminary or final



E.g.: Quantity of Vietnam export coffee:- 5000 MT +/- 5% at the seller option;- Tolerance’s price is determined at time of delivery;- The mentioned above quantity is understood as

gross weight for net;- Quantity is to be determined at the unloading port

by Continent Inspection Service Co.; Ltd.- Inspection cost shall be at Buyer’s account.- C/Q issued at the unloading port shall be final and

binding both parties.



4. Tare (Packaging)4.1. Basis for term of tare- Type of goods;- Means of transport;- Route of transport;- Legal regulations.4.2. Provision of tare- Tare provided by the seller without return- Tare provided by the seller with return- Tare provided by the buyer



4.3. Methods to determine tare’s weight- Actual tare- Average tare- Customary tare- Estimated tare- Invoiced tare4.4. Methods to determine tare’s charge- Packing charge included- Separate packing charge to be paid by the buyer- Gross weight for net



4.5. Methods to denote tare quality- Unspecific stipulation: Packaging must be suitable for

a certain means of transport;+ By sea: Durable, endure pressure;+ By railway: Durable, suitable size;+ By air: Light, fireproof, suitable size.- Specific stipulation:+ Material: Polyethylene, cardboard, fiber;+ Type: Case, Bale, Drum, Roll, Gunny bag;+ Size: 50-kg gunny bag; 50 x 50 x 50 cm drum;+ Number of layers…



E.g.: Term of tare for export corn: The Seller is obliged to packing corns in 50-kg bags

suitable for sea transport with transshipment. Corn to be packed in single jute new bags of 50 kg

net each, about 50.3 kg gross each, sewn at mouth with jute twine thread suitable for rough handling and sea transportation. The Seller shall supply 0.2% of new jute bags free of charge out of quantity of bags shipped.

In which article of an international sales contract shall packaging charge be often stipulated?



5. Delivery5.1. Time of delivery- Specific time of delivery:+ On a specific date: On May 5th, 2012.+ No later than/Before a specific date: Before May 5th; + In a specific period of time: Within 2 months since the

contract date/ From 1st to 20th of August;- Unspecific time of delivery:+ Prompt delivery: Immediate delivery;+ Conditional delivery: Subject to the opening of L/C.



5.2. Place of delivery- Basis to determine place of delivery:+ International commercial terms+ Means of transport;+ Intentions of parties in the contract- Content of place of delivery+ Place/port of loading+ Place/port of discharge- Methods to denote: + Single port/Multiple ports+ Specified port(s)/Optional port(s).



5.3. Notice of delivery- Number, time and content of notice;- Parties’ liability subject to failure of notice;- Customary: single notice (C, D); triple notices (F);5.4. Shipment advice- Transshipment (not) allowed;- Partial shipment (not) allowed;- Stale B/L (not) accepted;- Loading/Unloading advice (if necessary).



E.g.: Delivery as per FOB, Incoterms 2010- Time of delivery: No later than June 30th 2012;- Port of delivery: Haiphong, Vietnam- Port of discharge: Main ports in Europe- Seller should without delay inform Buyer by fax when

the goods are ready for delivery. Within 48 hours prior to vessel’s arrival, Buyer should inform Seller of details of ship number, ETA and loading conditions. Within 24 hours after the loading of goods on board, Seller should inform Buyer of B/L date and number.

- Partial shipment and stale B/L are not accepted.



6. Price

6.1. Price currency - Parties’ agreement: Export/Import countries’ currency

or a third country’s currency;- Customary:

E.g.: USD (Crude oil ); GBP (Metals)- Often determined by the stronger party;- Often of stable value;- May differ from payment currency.



6.2. Methods to define price- Fixed price: Price shall not be reconsidered despite

unexpected fluctuation;- Future price: The contract does not indicate a

certain price but mentions time, method to define it in the future.

E.g.: Price shall be determined at the time of delivery by mutual agreement between both parties.

- Flexible price: Basic price + method to review basic price in case of unexpected rise/fall.



E.g.: The basic price of this Contract is set at USD 5000 per item. However, by the time of delivery, if there is a downward or upward change of more than 10% the above price shall be mutually redefined. If the fluctuation is of less than 10%, the basic price shall still be taken as final.

- Sliding price:+ Often applied in sales of factories, ships, and other

technical products with long manufacture duration;+ The formula must be quoted in the sales contract if

sliding price method is adopted.



P0, P1 : Basic and reviewed total price

M0, M1 : Basic and reviewed material cost

W0, W1 : Basic and reviewed labor cost f, m, w : Proportion of fixed cost, material, and wageE.g.: Basic price: USD 70000, f = 50%, m = 35%. At

the time of reviewing, M and W increase by 10%?

P1 = P0 (f + m x M1/M0 + w x W1/W0)



6.3. Content of a fixed price article- Price currency- Unit price: Include the Incoterms rule applied and

charges (not) included;- Total price: in number and in words;- Discount (if any)6.4. Discount- Trade discount: consumer/retailer/wholesaler;- Cash discount: early payment;- Quantity discount: (Accumulating) value of contract.



E.g.: Vietnam export rice price- Price currency: USD- Unit price: USD 410/MT as per FOB Haiphong Port,

SRV, Incoterms 2010, packing charges included.- Loading, unloading costs and any other surcharges

arising from the contract, whether at the loading or unloading charges shall be at Buyer’s account.

- Total price: Approximately USD 410,000.(In words : About four hundred and ten thousand United States Dollars only).



7. Payment7.1. Payment currency- Payment currency is price currency- Payment currency is not price currency7.2. Classification- Payment before delivery/ at the same time as

delivery / after delivery (or combined);- One-off payment / payment by installments;- Payment made by Telegraphic transfer / Collection /

Letter of Credit… (or combined).



7.3. Methods of payment7.3.1. Telegraphic transfer

PAYING BANK

REMITTER

REMITTING BANK

BENEFICIARY

(2)

(1)

(3)

(4)

(5)



7.3.2. Collection- A payment method in which the exporter shall handle

documents to the buyer's bank and also gives the banks necessary instructions indicating when and on what conditions these documents can be released to the importer.

- Classification:+ Clean Collection+ Documentary Collection: D/P; D/A; D/OT. (Collection

document often includes drafts and other commercial documents).



CLEAN COLLECTION PROCEDURE

SELLER

REMITTING BANK

COLLECTINGBANK

BUYER

(3)

(5)

(1)

(4)(2) (7)

(6)



(1): Seller delivers goods and documents to Buyer;(2);(3): Seller authorizes banks to collect payment; (4): Collecting bank presents B/E to claim payment from Buyer;(5): Buyer makes payment;(6);(7): Payment transferred to the Seller. What is the similarity and difference between T/T and

clean collection? What is seller’s risk when payment is made under

clean collection?



DOCUMENTARY COLLECTION PROCEDURE

SELLER

REMITTING BANK

COLLECTINGBANK

BUYER

(3)

(4)

(1)

(5)(2) (7)

(6)



(1): Seller delivers goods to Buyer;(2);(3): Seller handles documents to authorize banks to

collect payment; (4): Buyer makes payment/accepts to pay;(5): Collecting banks releases documents to Buyer;(6);(7): Payment transferred to the Seller. What is the difference between documentary & clean

collection? What is seller’s risk when payment is made under

documentary collection?



7.3.3. Letter of Credit- This is a payment method in which, under Buyer’s

request, Banks shall agree to make payment to the Seller or anyone nominated by the Seller against Seller’s presentation of documents and completion of requirements stipulated in the Letter of Credit.

- Classification:+ Revocable/Irrevocable+ At sight/Deferred payment+ Other: Standby, Back to back, Transferable…



BENEFICIARY

ISSUING BANKADVISING BANK

APPLICANT

LETTER OF CREDIT PROCEDURE

(1)

(4)

(3)

(2)

(6) (7)

(5)



(1): Buyer’s applies to open L/C;(2): Sellers delivers goods to Buyer;(4): Seller send documents to Issuing Bank through Advising Bank;(5): Issuing Bank makes payment (at sight or

deferred);(6): Payment transferred to Seller;(7): Issuing Bank releases documents to Buyer; Why is L/C a secure payment method to sellers? What is the risk that buyers take?



7.4. Content of a payment by L/C article- Type of L/C- Beneficiary / Applicant- Payment currency and value of L/C- Issuing bank / Advising bank- Time of opening / Effective Period- Honor by: sight payment, deferred payment,

acceptance or negotiation- Set of documentsNote: L/C is based on sales Contract but independent of

Contract. Banks only deal with documents.



E.g.: L/C payment article

Payment shall be made in USD by irrevocable L/C for 100% of Commercial Invoice value.

The L/C is to be issued by a reputable Korea bank, advised by Vietcombank, indicating the Seller as the beneficiary. The L/C must be opened no later than 20 days after the Contract date and shall not expire until 30 days after the B/L date.

The Seller shall be fully paid at sight against the presentation of the following documents:



• At sight draft drawn on the issuing bank• Full set (3/3) of original, clean B/L, clearly m marked

“On Board”, issued to order of the issuing bank with the Buyer as the Notify Party.

• 03 original, signed Commercial Invoices;• 02 original Certificate of Quantity and Quality issued by

a reputable inspection company in Vietnam;• 02 original C/O form AK issued by competent authority

of Vietnam;• Negotiable insurance certificate for 110% Invoice Value,

blank endorsed.



8. Warranty8.1. Concept

An assurance by the seller that attests quality or durability of the product in certain period, which is considered as the “warranty period”.

8.2. Area of warranty- Stable performance;- Technical criteria compliance;- Requirements: product’ quality, fuel consumption… Dependent on characters of product.



8.3. Warranty period- Dependent on character of product and parties’

relationship;- Period may be defined:+ As a duration of time: 6 months, 12 months+ According to some operational criteria: 1000 km.- Note: Parties must clearly state the ideas on:+ When the period starts?+ If product needs repairing, is the period lengthened?



8.4. Parties’ rights and obligations- Seller: + Repair the product if flaws are made by seller/manufacturer; + Replace the product or refund payment;- Buyer:+ Follow usage instructions;+ Keep the product in primitive state;+ Notify the seller timely;- Exemption:+ The buyer does not follow instructions;+ Natural deterioration of certain parts.



9. ClaimClaim is a request in which one party asks the other party to compensate for the damage caused by his contract violation;

9.1. Objects to be claimed- Seller is often claimed for late delivery, wrong

quality or quantity of good;- Buyer is often claimed for late payment, failure to

charter ship;- Other: insurer, carrier.



9.2. Claim period- Character of goods;- Type of claim- Relationship between parties;- Geographical distance;- Law/custom;9.3. Claim documents- Letter of claim;- Commercial documents;- Inspection documents.



9.4. Parties’ rights and obligations- Claim party:+ Preserve the primitive state of goods;+ Notify the claimed party;+ Collect and dispatch claim documents in due time;+ Assist the claimed party in handling claim;- Claimed party:+ Review documents and give response in due time;+ Assist the claim party in handling claim.



10. Exemption (Force Majeure)- This clause essentially frees both parties from liability

when facing with an objective event or circumstance beyond the control of the parties, preventing one or both parties from fulfilling their obligations under the sales contract;

10.1. Features of a force majeure situation

+ Unforeseeable;

+ Irresistible;

+ Relevant to contract.



10.2. Rights and obligations of parties under force majeure situations

- Rights:+ Delay the implementation of the contract;+ Terminate the contract if the FM situation lasts too

long and/or takes too long to overcome- Obligations:+ Inform the other party in writing+ Confirm the FM situation in due time with evidence

certified by local authorities.



10.3. Stipulation of an exemption clause- Define and set criteria according to which a

situation is considered to be a FM one;- List FM situations, parties’ rights and obligations,

and procedure to handle such FM situations;- Refer to ICC Publication No. 421:

"The Force Majeure clause of the International Chamber of Commerce (ICC Publication No. 421) is hereby incorporated in this contract“

- Combined stipulation.



Sample 1:

Neither party shall be liable for any delay or failure to perform its obligations under this Contract or for any damage or loss due to any event or circumstance beyond its reasonable control ("Force Majeure").

The affected party shall within 07 days give notice in writing to the other party specifying the cause and extent of its inability to perform its obligations and the likely duration of such delay or non-performance and shall take all reasonable steps and with due diligence to remedy or abate the Force Majeure.



Sample 2:Neither party shall be held liable for any delay or failure to perform its obligations under this Agreement or for any damage or loss due to any event or circumstance beyond its reasonable control including, but without limitation to, any delay, failure, damage or loss due to fire, flood, storm, explosion, any act of God, industrial disturbance, failure of electrical supply or telecommunication network, vandalism, sabotage or civil disturbance. The affected party shall within 05 working days give notice in writing to the other party specifying the cause and extent of its inability to perform its obligations and the estimated duration of such delay or non-performance and shall take all reasonable steps and with due diligence to remedy or abate the Force Majeure.



11. Arbitration- Arbitration is a legal technique for the resolution

of dispute outside the court, wherein the parties to a dispute refer it to one or more persons (the "arbitrators"), by whose decision (the “award") they agree to be bound.

11.1. Classification of arbitration:- Institutional arbitration;- Ad-hoc arbitration.



11.2. Advantages of dispute settlement by arbitration- With highly technical subject matter, experts can be

appointed as arbitrators;- Arbitration is often faster than litigation in court;- Arbitration more flexible;- Arbitral proceedings and award are more confidential;- Arbitration awards are easier to enforce in other

nations than court judgments (New York Convention);- Arbitral awards are final.



11.3. Arbitration procedure- Self-conciliation;- Arbitration agreement;- Setting arbitration tribunal;- Mediation;- Selection of applicable law;- Presentation of evidences;- Judgment;- Award implementation.



11.2. Advantages of dispute settlement by arbitration- VIAC: All disputes arising out of or in relating to this

contract shall be finally settled by the Vietnam International Arbitration Centre at the Viet Nam Chamber of Commerce and Industry in accordance with its Arbitration Rules.

- UNCITRAL: All disputes controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof shall be settled by arbitration in accordance with the UNCITRAL Rules as at present in force.

Any dispute, controversy or claim not amicably settled through procedures set forth above shall be settled by SIAC according to its arbitration rules, regulations and procedures. The arbitration will be conducted in English.

Only one arbitrator shall be appointed whose award is considered to be final, binding upon both Parties.

This Contract and the rights and obligations of the parties shall remain in full force and effect pending passing of the award in any arbitration proceeding entered into under this Article.

Each party shall bear its own costs and expenses of the arbitration. However, the prevailing party shall be entitled to recover such cost and expenses, including reasonable legal fees from the other party.

Nothing in this Article will preclude a party’s recourse to a court of competent jurisdiction to (a) enforce the terms of, or an arbitration award under this Article, or (b) seek temporary equitable relief necessary to protect its interests.



12. Governing law- A governing law or choice of law clause specifies that the

laws of a mutually agreed upon jurisdiction will govern the interpretation of the terms of the contract.

- Stipulation:Narrow Clause:This Agreement shall be governed by and construed in accordance with the laws of [….], without regard to its conflict of laws rules.Broad Clause:This Agreement shall be governed by, construed, and enforced in accordance with the laws of [….], without regard to its conflict of laws rules.



13. Penalty- Penalty clause is a term of contract that seek to impose

upon a party to the contract the obligation to pay a sum of money in the event that the contract is breached;

- Parties can agree in advance on the amount of damage that must be paid if either breaches the contract. This can avoid the need to go to court to work out the amount due if a breach occurs.

- If the agreed amount represents a genuine estimate of the likely loss, the courts will enforce the clause. The agreed amount must be paid even if the real loss is more or less than that.



14. Other terms and conditions- Terms of transportation;- Terms of insurance;- Terms of validity and termination of contract;- Terms of confidential information;- Terms of copies and languages;- Terms of checking and acceptance;- Terms of maintenance… Number of terms and conditions depends on types of

goods and parties’ relationship. Why Commercial Law 2005 omit compulsory terms?


THE ENDTHANK YOU

& GOOD LUCK!

chapter 2 and 3 contracts and incoterms

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