Risk Analysis and Dispute Resolution

1. Risk Analysis and Dispute Resolution Martin Bitter Exportant Consultants Ltd Expro 100 Engineering The Hague November 2013

2. What are possible export risks? Make difference in relationships – client and trade partner Offer: when is the offer no offer Contract Purchase conditions Product and product properties/characteristics, “what am I buying” Timing, delivery times Actual shipping, delivery conditions Payment Expro100 Engineering, The Hague, Martin Bitter

3. The Agent Not only Commission (fix and variable cost) No risk when Agency contract is detailed and has escape clauses No direct handling, but needs a lot of people skills on your end and “Trade Partner Management” Not involved in the contract between exporter & his client Might represent different companies Exporter keeps in control of prices, strategy, distribution … Expro100 Engineering, The Hague, Martin Bitter

4. Obligatorysubjects in a trade partner contract Agent contract: • Description of activities for the agent (rendered services ) • Description of the activities for the exporter • LAY DOWN OBJECTIVES/TARGETS FOR 1st. year and eventual years to follow • Duration of the contract • Commissioning • Evaluation moments • Escape clauses • Applicable legislation: EU protects agents by directives Expro100 Engineering, The Hague, Martin Bitter

5. EU & Agent Contracts The European directivegoverning the agent contracts is: 86/653/EEC Find the directive at: • http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L0653:EN:HTML • A true story  Expro100 Engineering, The Hague, Martin Bitter

6. Other Trade Partners Importer / Large Direct Account • Exclusivity • Market data (not even intelligence) • Marketing / local contact • Tendencyto have supplier cover/finance complete part of the chain Expro100 Engineering, The Hague, Martin Bitter

7. The client The offer that wasn’t When is an offer no offer??? Any offer (oral or written) followedbyanacceptanceconstituesan agreement Expro100 Engineering, The Hague, Martin Bitter

8. An offer is a legal instrument. Whether the exporter can revoke its offer will depend on its wording as well as the law applicable. Two examples: “This offer is open for acceptance until …” The party making the offer will be bound by any acceptance made within the set time frame “This offer will not become binding, even after it has been accepted until the order has been confirmed in writing by ……. ( the party making the offer) The party making the offer will not be bound unless he himself confirms Expro100 Engineering, The Hague, Martin Bitter

9. Three types of Offers Binding (firm) offer • Exporter will not offer these goods to another party and will not change its offer, until the other party has decided (hence the importance of an expiry date) Non-Binding Offer • The restrictions of the binding offer do not apply Offer by sample • Together with the offer, a representative • sample of the goods to be delivered is • provided for evaluation by the customer Expro100 Engineering, The Hague, Martin Bitter

10. The content Purchaseconditions Productsandproperties Deliveries/timing Actualshippingandconditions Payments Expro100 Engineering, The Hague, Martin Bitter

11. The content Checklist what goes in the Offer (proforma invoice) A pro forma invoice should provide: The fact that it is a proforma invoice Your company details Product specifications (number of units, sizes, country of origin, etc) Prices (per unit price, total price, currency) General conditions of sale Delivery terms ((Incoterms 2000) Payment terms (CAD, DLC, etc) Binding (valid for acceptance date) or Non-Binding … and should not specify: Date shipment Name carrier Before sending out, make sure: The offer has been signed by an authorized officer The offer does not contain any (spelling) mistakes Expro100 Engineering, The Hague, Martin Bitter

12. The proforma invoice

13. Seedimpex SA Seeds for the world • The 7 functions of an invoice: • Shows the amount the Seller owes to the Buyer • Specification of goods delivered • Customs document (import duties) • Basis for insurance coverage • Application certificate of origin CoC • Accounts document • Bank document Seedimpex SA Seedimpex SA

14. Purchase conditions General purchase/sales conditions Make sure to read AND UNDERSTAND then to negotiate. Battle of the forms(send along with Offer return with Order Confirmation) “Last Shot” (send along with invoice) The only “safe” way is to have them agreed to by both sides in writing Expro100 Engineering, The Hague, Martin Bitter

15. 1. Order and Confirmation 1.1 The Customer may cancel the order if the Supplier has not confirmed acceptance of the order (confirmation) in writing within two weeks of receipt. 1.2 If the confirmation varies from the order the Customer is only bound thereby if it agrees to such variation in writing. In particular the Customer is subject to the general terms and conditions of the Supplier only insofar as such conform with the conditions of the Customer or if the Customer has agreed to such in writing. The acceptance of deliveries or services as well as payments do not constitute approval. 1.3 Any amendments or additions to the order shall only be effective if the Customer confirms such in writing. General purchase conditions

16. 17. Place of Jurisdiction, Applicable Law 17.1 The court of jurisdiction shall be, in the event that the Supplier is a merchant, at the place of ordering. 17.2 German substantive law shall apply excluding the Provisions of the United Nations Law on the Sale of Goods dated 11.4.1980. General purchase conditions

17. Choice of Law and jurisdiction Remember, two choices to make: Choice of Law Parties are free to choose which law applies Failing choice usually law of “characteristic performance” applies Trade terms (Incoterms 2010) Jurisdiction Forum shopping – “choice of forum clause” Subject to test of reasonableness Tip: Better to choose than not to choose at all Expro100 Engineering, The Hague, Martin Bitter

18. Products & Properties Performance conditions, products of nature, variances. certification, whopaysforcertification, Expro100 Engineering, The Hague, Martin Bitter

19. Timing and delivery When does clientneed delivery andwhat is your planning? What are regulated contact moments? Client expectations? Expro100 Engineering, The Hague, Martin Bitter

21. Actualshipping What is most used set of agreements? Law? Whatversiontoday? What are differenceswithnewestversion? Case 1 Case 2 Expro100 Engineering, The Hague, Martin Bitter

22. INCOTERMS principles The delivery of goods is agreed upon between seller and buyer. Though it could be done individually, it is usual to refer to standardized terms. This speeds up the process and increases the transparency and mutual understanding. The most commonly used trade terms are the INCOTERMS (= International Commercial Terms), which are a set of standard conditions for delivery which can be imported into the contract by the parties. The INCOTERMS have been prepared by the International Chamber of Commerce but do not apply unless they are expressly incorporated into the contract. They have no binding force of law. • Relationshipbetweensellerandbuyer • (notbuyer / sellerand carrier) Expro100 Engineering, The Hague, Martin Bitter

23. Incoterms Overview 2000 GROUP TERM COMPLETE NAME TRANSPORT MODE E EXW Ex Works Any DEPARTURE F FCA Free Carrier Any MAIN CARRIAGE FAS Free AlongsideShip Sea UNPAID FOB Free on Board Sea C CFR CostandFreight Sea MAIN CARRIAGE CIF Cost, Insurance andFreight Sea PAID CPT Carriagepaidto… Any CIP Carriageand Insurance paidto… Any D DAF Delivered at frontier Any ARRIVAL DES Delivered ex ship Sea DEQ Delivered ex Quay Sea DDU DeliveredDutyunpaidAny DDP DeliveredDutypaidAny Expro100 Engineering, The Hague, Martin Bitter

24. * * * * Any mode of transport, inclu- ding multimodal Departure contracts Incoterms Application EXW Ex Works FCA Free Carrier FAS Free Alongside Ship F O B F r e e o n B o a r d CFR Cost and Freight CIF Cost, Insurance and Freight CPT Carriage Paid To CIP Carriage & Insurance Paid to ... DAF Delivered At Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid Departure contracts Arrival contracts Expro100 Engineering, The Hague, Martin Bitter

25. INCOTERMS 2010 Overview Modernisinginternational Trade Flow Electronic documentation Safety in the supply chain Clearerdefinitionsin 2010 Easierexplanationand display More logicalcategories Reduced from13 to11 conditions 2 new “rules” (??) Expro100 Engineering, The Hague, Martin Bitter

26. Incoterms Overview 2010 GROUP TERM COMPLETE NAME TRANSPORT MODE E EXW Ex Works Any DEPARTURE F FCA Free Carrier Any MAIN CARRIAGE FAS Free AlongsideShip Sea UNPAID FOB Free on Board Sea C CFR CostandFreight Sea MAIN CARRIAGE CIF Cost, Insurance andFreight Sea PAID CPT Carriagepaidto… Any CIP Carriageand Insurance paidto… Any D DATDelivered at terminalAny ARRIVAL DAPDeliveredat placeAny DDP DeliveredDutypaidAny Expro100 Engineering, The Hague, Martin Bitter

27. .  CIF/CAD A Dutch importer buys from an exporter in the Philippines a 20 ft container with machine parts on basis of CIF Rotterdam. Trans shipment is allowed. Payment conditions CAD. The goods are transhipped in Singapore and get lost in the harbour. The Dutch importer delays payment until the goods arrive in Rotterdam. He bought CIF Rotterdam and wants to know for certain that the goods will arrive as ordered. Expro100 Engineering, The Hague, Martin Bitter Digital-2-6-Riskman

28. DDP/Open Account An exporter from India sells to Germany a container with machine parts. The contract basis is DDP Frankfurt. Payment: Open account, within 7 working days after arrival of goods. The contract does not mention anything about insurance. The container arrives in Rotterdam where an accident happens. The total contents of the container is total loss. The heavily damaged container is transported to Frankfurt and delivered, according to the contract DDP Frankfurt. The German importer refuses to accept the consignment and does not pay the invoice. The exporter takes the matter to court. You are the judge... Digital-2-6-Riskman

29. Payment The Risk Triangle Utopia, negotiations / cultural / relationships / checking in network/ checkingthrough credit reports Expro100 Engineering, The Hague, Martin Bitter

30. The Conflict: nowwhat……. The resolutionshouldalreadybe pre-engineered in the contract. • Go to court…. • Or….. Expro100 Engineering, The Hague, Martin Bitter

31. Pro’s andcons Courts Pro: independence legal skills relativelycheap possibility of lodgingan appeal Cons: No expert view exceptforlegalknowhow lengthyproceedings Decision is public Expro100 Engineering, The Hague, Martin Bitter

32. Arbitration: Administration of justiceby expert laymen Decision is as binding as in normal court proceedings Ordinaryarbitrationandemergencyarbitration Parties must agree on arbitrationexplicitly Special proceduralrulesapply Varyfrom country to country and contract to contract Expro100 Engineering, The Hague, Martin Bitter

33. Disadvantages Speed Impossibility of Appeal Non publication of the decision Validity of decision Cost and delay Procedural safeguards Advantages and disadvantages of arbitration Advantages Neutrality Confidentiality Expense, timing and finality Language Arbitors expertise Enforcement (International Conventions Expro100 Engineering, The Hague, Martin Bitter

34. Arbitration International Chamber of Commerce (ICC) Court of ArbitrationICC Court of Arbitration38 Cours Albert 1er75008 ParisFranceTel: (011-331) 4953-2878Fax: (011-331) 4953-2933www: http://www.iccwbo.org Info on cost of Arbitration http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Cost-and-payment/Cost-calculator-3/ Expro100 Engineering, The Hague, Martin Bitter

35. Conclusion?? Expro100 Engineering, The Hague, Martin Bitter

36. Checklist key clauses in international sales contracts Identification of the parties (buyer and seller) Description of the goods Price and payment conditions Delivery periods and conditions Inspection of the goods Quantity and quality variations allowed Reservation of title and passing of property rights Transfer of risk – how accomplished Warranties Force majeure clause Requirement amendments only in writing General sales/purchase conditions applicable Choice of law (language) Choice of dispute resolution mechanism Expro100 Engineering, The Hague, Martin Bitter