Commercial practice - International Sale of Goods

Question 1

What issues demand particular consideration in terms of international sale of goods contracts? (4)

Answer 1

1. Jurisdiction - which country will decide a contractual dispute.
2. Governing law - which country’s laws will govern the contract.
3. Delivery - any more complex logistical issues concerning delivery.
4. Payment - how a party can be assured of receiving payment.

Question 2

What does the seller / buyer risk in terms of payment in international sale of goods contracts? (2)

Answer 2

Delivering the goods before the buyer pays or the buyer paying before receiving the goods. This risk is heightened due to the increase in distance / time delays between the parties.

Question 3

What payment mechanism may parties use to balance the risk of payment? (1)

Answer 3

Letter of credit.

Question 4

What is the purpose if a force majeure clause? (1)

Answer 4

To suspend or terminate the obligations of one party to a contract if an event occurs that it outside the party’s control and prevents it from performing one or more of its obligations.

Question 5

Who usually benefits from a force majeure clause? (1)

Answer 5

Seller.

Question 6

What will a well-drafted force majeure clause include? (3)

Answer 6

1. The force majeure events will be listed.
2. Provision that if one or more force majeure events occur the contractual performance will be suspended usually for a specified period.
3. Provision that if the event is still occurring at the end of the period then the contract will be terminated, which frees up the buyer to enter into a contract with another seller.

Question 7

What does a letter of credit act as? (1)

Answer 7

A guarantee from a bank that the seller will receive from the buyer the payment that is due for those goods.

Question 8

What does the bank guarantee in terms of a letter of credit? (1)

Answer 8

That it will pass on the payment to the seller as long as the seller can provide the agreed evidence that the goods have been sent off to the buyer.

Question 9

What are the steps for a letter of credit and payment? (6)

Answer 9

1. The parties agree commercial terms.
2. The buyer applies to the bank for a letter of credit and pays for fee to its bank for doing so.
3. The bank notifies the seller that the credit is open and gives an undertaking / promise to pay the seller for the purchase price once the seller can provide evidence that the correct goods have been sent off to the buyer.
4. The seller sends off the goods.
5. The seller asks the bank for payment, presenting the agreed documents.
6. The bank has no choice but to pay the seller as long as the seller has provided the agreed documents.

Question 10

What is the effect of a letter of credit? (2)

Answer 10

1. The seller is protected against non-payment. 2. The buyer is protected against non-delivery.

Question 11

How does the UCTA apply to international sale of goods contracts? (2)

Answer 11

Exclusion or limitation clauses need not pass the UCTA Reasonableness test subject to S26(2).

Question 12

What effect does the lack of reasonability have in international sale of goods contracts? (3)

Answer 12

1. Seller can enforce a term of a contract which excludes or limits liability under the contract.
2. The seller can restrict the rights of a buyer to reject non-conforming goods.
3. The seller can restrict the remedies available to the buyer for any breach of the contract by the seller.

Question 13

What are the S26(4) UCTA conditions in relation to international sale of goods contracts? (3)

Answer 13

1. The goods will be carried from the territory of one state to another.
2. The acts constituting the offer and acceptance have been done in the territories of different states.
3. The contract provides for the goods to be delivered to the territory of a state other than that within which those acts were done.