International Trade – An Overview (Part 1 of 3)

Jurisdiction of contract for sale

The Rome Convention (RC) applies to member states of the EU and deals with, which law applies to a contract. Article 3(1) RC allows parties to a contract to decide which law is applicable.

Article 4(1) RC states that, where it has not been specified in a contract, the contract will be governed by the law of the country where it is most closely connected or relevant. This is the country of residence of the party who is performing the main part of the contract for which money is due, or in the case of a company, where the head office is located.

International trade – Delivery/Insurance

There are numerous issues to take into consideration in international trade. The delivery of the goods is of great importance as the possession of the goods will change hands at this point, it is also at this point that the risk of damage to the goods usually passes. S.29 Sale of the Goods Act 1979 allows the parties to the contract decide the place of delivery.

Legal ownership in international sales also usually passes at the same time as delivery of the goods. It is wise for a contract for the international sale of goods to incorporate some form of insurance policy into the contract even where the risk has passed to the buyer.

Shipping documents involved in international trade

The main documents used in a shipping transaction are the shipping documents themselves (onboard receipt for the goods, title documents etc), insurance documentation, commercial invoices, licences, certificates of origin etc.

Types of shipping documents are Bills of Lading and Waybills.

A bill of lading is handed to the shipper by the carrier and has three functions. Firstly the bill will act as evidence that the goods have been received by the seller/shipper. Secondly it will provide the contractual terms under which the goods are to be transported agreed by both the seller and the buyer. And finally, it acts as a document of title to the goods.

The bill of lading is then forwarded by air where the buyer can sell or charge the goods or present it at the docks to collect the goods.

Waybills are an alternative to bills of lading. A Waybill will specify the person to whom delivery should be made and act as evidence that the goods have been received by the carrier from the shipper/seller, but it will not prove title to the goods. Only the person stated in the waybill for delivery can collect the goods and cannot be changed. Waybills can be sent electrically and are usually used for air freight.

Incoterms

Incoterms are standard types of contract for multi modal transport. They decide which party pays for each leg of the journey and which party is responsible for organising each leg of the journey.

The obligation for each party under different contracts are laid out in the Incoterms 2000 booklet.

In order for an incoterm to form part of a sale of goods contract it must be expressly referred to in the contract.

Depending on the incoterm used the responsibility on the seller and the buyer changes significantly.

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