Bruno Linden Gertrud Roos Business Contracts in International Markets (f^studentlitteratur
Contents Preface 11 PART ONE Business Decisions in the International Market Place 13 1 Components of International Trade 15 1.1 The International Business Contract 15 1.2 Contractual Methods Used to Enter Foreign Markets 16 (i) Direct Export 19 (ii) Agency 21 (iii) Distributors 21 (iv) Licensing 22 (v) Joint Venture 23 (vi) Electronic Commerce System 23 1.3 The Legal Environment 24 (i) Regulation of Anti-competitive Business Practice 26 Further Reading 27 2 Principal Sources of International Business Contracts 29 2.1 Freedom to Contract 29 2.2 The Business Contract and Supplementary Sources 30 2.3 Agreements between States 30 (i) Treaties and Conventions 31 (ii) Customary Law 32 (iii) Agreements Passed by International Organisations 32 (iv) Soft Law 33 2.4 The European Community 33 (i) The Nature of Community Law 34 (ii) Supremacy 34 (iii) The Principle of Direct Effect 35 2.5 Lex Mercatoria 37 (i) Is There a Lawyer's Law? 38
2.6 Sources of International Procedural Law 39 (i) Business Disputes 39 (ii) Jurisdiction (forum) in the EC 40 (iii) Interpretation of the Brussels and Lugano Rules on Jurisdiction 42 (iv) Conflict of Laws; the Rome Convention 42 (v) Interpretation of the Rome Convention 43 (vi) Recognition and Enforcement of Foreign Judgments and Awards 44 2.7 Procedural Issues in the United States 45 Further Reading 47 3 Formation of Business Contracts 49 3.1 Agreement or Contract 49 (i) How to Define a Contract? 49 3.2 Pre-contractual Conditions 50 (i) Capacity to Contract 50 (ii) Statements Which May Induce a Party to Contract 51 (iii) Illegality and Public Policy 52 (iv) Other Restraints on the Contract 52 3.3 The Formation of the Business Contract 53 3.4 Intention to Create Legal Relations in Commercial Relations 54 (i) Good Faith and Fair Dealings and Best Endeavours 55 3.5 Offer, Acceptance and Consideration 55 (i) Offer 55 (ii) Acceptance 57 (iii) Differences between offer and acceptance 58 (iv) Battle of forms 59 (v) Modifications in the contract 60 (vi) Consideration 60 3.6 Communication of Acceptance 61 (i) Methods of Communication 61 (ii) Electronic signatures 62 3.7 Relief Clauses and Excuses for Non-performance 62 (i) Exemption from Liability and Unfair Contract Terms 62 (ii) Force Majeur and Frustration 64 3.8 Must a Contract be in Writing? 65 3.9 Interpretation of Contracts 66 (i) Standard Form Contracts 68
3.10 Skeleton Structure of a Business Contract 69 Further Reading 72 4 Performance and Breach of Contract: General Features 73 4.1 Breach of Contract 73 (i) Introduction 73 (ii) What is a Breach of Contract? 73 (iii) Fundamental (Major) or Minor Breaches 74 (iv) What is a Warranty? 74 4.2 Performance of the Contract 74 (i) Delivery 75 (ii) Passing of Risk 75 (iii) Passing of Title to the Goods 76 (iv) Pay the Price and Take Delivery 77 A A Remedies 77 (i) Damages 77 (ii) Specific Performance 78 (iii) Price Reduction 78 (iv) Avoidance of the Contract 78 Further Reading 79 PART TWO International Sale of Goods 81 5 The United Nations Convention on Contracts for the International Sale of Goods 83 5.1 Introduction 83 5.2 The Individual Sale of Goods Contracts and the CISG 84 5.3 The Structure of the CISG 84 (i) Sphere of Application 84 (ii) Sales of Goods 86 5.4 The Seller's Obligations 86 (i) Delivery and Handing Over the Goods 86 (ii) Conformity of the Goods and Third Party Claims 87 5.5 The Buyer's Obligations 88 (i) Payment and Taking Delivery 88 5.6 Passing of Risk 89 5.7 Remedies for Breach of Contract 89 (i) The Buyer 90 (ii) The Seller 90
5.8 Common Provisions for Buyers and Sellers 91 (i) Anticipatory Breaches 91 (ii) Damages and Interest 91 (iii) Exemptions (Force Majeur) 92 (iv) Effects of Avoidance and Preservation of the Goods 92 (v) Final Provisions 93 5.8 Issues Outside the CISG 93 Further Reading 94 PART THREE Long Term Industrial and Commercial Cross-Border Contracts 95 6 Agency 97 6.1 Introduction 97 (i) The Principal-Agent Relationship 98 (ii) The EC Agency Directive 98 (iii) Types of Agents 99 (iv) Authority 100 (v) Agency and Standard Form Contracts 103 6.2 The Agency Contract 103 (i) The Form 103 (ii) Binding Contract by a Party's Failure to Act 104 6.3 The Obligations of the Agent and Liability 105 (i) The Fundamental Obligations 105 (ii) Delcredere 109 (iii) Remedies 109 6.4 Obligations of the Principal 110 (i) The Obligations 110 (ii) Remedies 111 6.5 Remuneration 111 (i) The Nature of Remuneration/Commission 111 (ii) When is the Agent Entitled to a Commission? 112 (iii) When shall the Commission Due be paid to the Agent? 113 (iv) Is the Agent Entitled to Commission when the Transaction is not Completed? 113 (v) Calculating the Commission Correctly 114 (vi) Reimbursement for Expenses 115
6.6 Remuneration Securities 116 6.7 Termination of the Agency Agreement 117 (i) Notice of Termination and Adjoining Issues 117 (ii) Termination "at will" 119 (iii) Early Terminations 119 (iv) Early Termination Due to Breach of Contract and Exceptional Circumstances 119 6.8 Post-contract Remuneration 120 (i) Different Kinds of Post-contract Remuneration 120 6.9 Agency and Non-competition 122 Further Reading 124 7 The Distributor 125 7.1 Introduction 125 7.2 Background 125 7.3 The Distribution Contract 127 (i) Distribution Defined 127 (ii) The Territory 128 (iii) Sole or Exclusive Distributorship 130 7.4 The Legal Framework 131 (i) Distribution in Some Countries 131 (ii) Case Law 134 (iii) Standard Models etc 134 7.5 The Formation of the Distributor Agreement 135 7.6 Obligations of the Supplier 135 (i) The Loyalty Obligation 135 (ii) The Delivery Obligation 136 (iii) Non-competition 137 7.7 Obligations of thd distributor 138 7.9 Termination of the Distributor Contract 139 (i) Term of Notice 139 7.10 Indemnity and Compensation 143 7.11 Competition Law and Distributor Agreements 145 Further Reading: 149 8 Licensing and Franchising 151 8.1 Introduction 151 8.2 The Patent 151 (i) Governing Laws 152 8.3 Know-how 153
8.4 The Licence Agreement 154 (i) The TRIP Agreement 156 8.5 Licensing Strategies 157 (i) Competition Law 158 8.6 The Skeleton Structure of the Licence Agreement 159 8.7 The Franchise Agreement 169 8.8 The Franchise Agreement and Contract Law 170 (i) The Formation 170 (ii) The Definition 170 (iii) The Know-how 171 (iv) The Price 172 (v) The Products 172 8.9 Legislation 173 8.10 The Performance and the Execution of the Contractual Obligations 173 (i) The Obligations of the Franchiser 173 (ii) The Obligations of the Franchisee 175 8.11 The Franchise Agreement and Competition Law 178 Further Reading 179 9 The Joint Venture Agreement 181 9.1 Introduction 181 (i) Advantages and Disadvantages 181 9.2 The Agreement 182 9.3 Other Agreements Related to the JV 183 9.4 Governing Civil Law and Competition Law 183 (i) Civil Law 183 (ii) Competition Law 183 9.5 The Term and Termination of the JV Co-operation 185 Further Reading 185 PART FOUR Common Features in International Business Contracts 187 10 Special Trade Terms in Sales of Goods Contracts 189 Introduction 189 PART A 10.1 The Contract of Sale and Supplementary Terms 189 10.2 Delivery - the Point of No Return? 190 10.3 Incoterms (20004) and Distribution of Risk 191
10.4 Common Features of Export Sales 192 (i) Uni- and Multimodal Transports 192 (ii) Licence 193 (iii) Packing 193 (iv) Commercial Invoice 194 (v) Insurance 194 10.5 Documents Used in Export Sale 195 (i) Must the Documents be in Writing? 195 (ii) The Bill of Lading 196 (iii) Sea Way Bills 196 10.6 Incoterms - The Four Categories 197 (i) E-terms 197 (ii) F-terms 198 (iii) C-terms 199 (iv) D-terms 199 10.7 The Hague (Hamburg) Rules 200 10.8 Conclusions 202 PARTB 10.9 Documentary Credits and Payment Methods in International Trade 202 (i) What is Documentary Credit? 203 (ii) The Rules Applicable to a Documentary Credit 204 10.10 The Role of Banks 204 (i) The Legal Relationship between the Parties Involved in a Documentary Credit 205 (ii) The SWIFT-system 206 10.11 Securing of Payment 206 (i) Payment in Advance 206 (ii) The Sellers' Retention of the Title to the Goods 207 (iii) Documentary Credit 207 (iv) Instructions to Carriers 207 (v) The Right of Stoppage in Transit 208 10.12 Bankruptcy (Insolvency) Across Borders 208 Further Reading 210 11 Resolution of International Business Disputes 211 11.1 When to Bring a Lawsuit? 211 11.2 Dispute Resolution Methods 211 (i) Alternative Dispute Resolution 212 (ii) Litigation 212
11.3 Arbitration 213 (i) The Arbitration Clause 213 (ii) Arbitrators 214 (iii) Certain Aspects of the Arbitration Clause 214 11.4 Enforcement of the Award 215 11.5 Conclusions 216 Further Reading 217 12 Competition Legislation in the European Community 219 12.1 Introduction 219 12.2 Illegal Restraints on Trade 219 (i) The Market Structure 220 12.3 The Community's Competition Law Reform 221 (i) Business Contracts and Competition Law in the EC 222 12.4 Article 81: General Features 223 (i) Agreements 224 (ii) Consten and Grundig v Commission 225 (iii) Concerted Practices 225 (iv) Undertakings 226 (v) Agreements Affecting Intrastate Trade 227 (vi) Article 81(2): Effect of Restrictive Contracts 228 (vii) Article 81(3): Agreements Outside the Prohibition 228 12.5 Article 82: Abuse of Monopoly Situations 230 (i) Dominant Position 230 (ii) Abuse 232 (iii) Undertakings 232 12.6 Enforcement under Regulation 1/2003 233 (i) Enforcement at Community Level 233 (ii) Enforcement at National Level 234 (iii) Allocation of Cases and Complaints 235 12.7 Conclusion 235 Further reading 236 Appendices 237 CISG 239 Annex I - Products and Territory (Article 1.1) 269 Useful Web Addresses 305 Case List 307 Index 309