The basic principles of international contract (Vienna Convention)

МІНІСТЕРСТВО ОСВІТІ НАУКИ УКРАЇНИ

Донецький національний університет економіки і торгівлі

Імені Михайла Туган-Барановского

Кафедра міжнародної економіки

 

Іваненко І.А.

 

 

Міжнародні контракти

Конспект лекцій

для студентів спеціальності 7.050103 „Міжнародна економіка”

денної та заочної форм навчання

(англійською мовою)

 

 

2010-2011 н.р.

CONTENTS

 

CONTENT MODULE 1. THEORETICAL ASPECTS OF INTERNATIONAL CONTRACT ACTIVITY	3
THEME 1. THE CONCEPT OF ‘INTERNATIONAL CONTRACT’ AND ITS PLACE IN RUNNING INTERNATIONAL BUSINESS	3
THEME 2. CLASSIFYING OF INTERNATIONAL CONTRACTS	7
THEME 3. STRUCTURE AND CONTENTS OF INTERNATIONAL CONTRACT	12
THEME 4. INTERNATIONAL COMMERCIAL TERMS (INCOTERMS) IN INTERNATIONAL CONTRACTS	19
CONTENT MODULE 2. ALGORYTHM OF CONCLUDING AND EXECUTION OF INTERNATIONAL CONTRACTS	25
THEME 5. CONCLUDING INTERNATIONAL CONTRACT	25
THEME 6. EXECUTION OF INTERNATIONAL CONTRACTS	28
THEME 7. REGULATION OF INTERNATIONAL COMMERCIAL DISPUTES	34
LITERATURE	47

                           

CONTENT MODULE 1. THEORETICAL ASPECTS OF INTERNATIONAL CONTRACT ACTIVITY

THEME 1. THE CONCEPT OF ‘INTERNATIONAL CONTRACT’ AND ITS PLACE IN RUNNING INTERNATIONAL BUSINESS

International commercial deal and its steps

Contract and international contract

The basic principles of international contract

 

The international commercial operation and its stages

Foreign trade comprises three main activities: importing (i.e. buying goods from foreign sellers), exporting (i.e. selling goods to foreign buyers) and re-exporting (i.e. buying goods from foreign sellers and selling them to foreign buyers without processing in one’s own country).

All commercial activities in foreign trade may be divided into basic ones associated with the conclusion of foreign trade contracts and auxiliary ones ensuring their successful performance i.e. associated with carriage of goods, their insurance, banking operations (financing the deals, settlement of payments between the Sellers and the Buyers, guaranteeing the strict observance of their mutual liabilities), as well as Customs and other activities.

In accordance with commercial usage existing in the Western countries contracts of sale and other agreements may be concluded either verbally or in writing.

According to the Ukrainian law contracts must always be made in the form of duly signed documents containing the terms of an agreement between two firms or associations called counterparts (or parties) to supply goods or services as a rule at a fixed price.

Agreements and contracts concluded by the Ukrainian Trade Representations are to be signed by the Trade Representative or his Deputy (first signature) and by an official of the Trade Representation specially authorized to sign agreements or contracts (second signature). The names of persons entitled to sign documents and contracts on behalf of the export or import associations abroad are published in the official journal of the Ministry of Foreign Economic Relations called “Foreign Trade”.

Agreements and contracts made in our country are to be signed by Director General of the foreign trade association or his deputies (first signature) and by directors of firms or their deputies (second signature).

Sales contract

The sales contract is the legally binding agreement reached by the seller and the buyer (the parties to the contract). It can be made orally or in writing, although it is usual for the contract to be drawn up in writing to prevent disputes.

After a sales contract has been concluded, the seller and buyer have to fulfil certain liabilities (that means there are certain things they have to do).

The seller’s liabilities are:

· to deliver the goods on time and in perfect condition;

· to ensure that the title to the goods is transferred to the buyer – in other words, the seller has to make sure that the buyer becomes the owner of the goods. This is normally done by passing a special document of title, to the buyer.

The buyer’s liabilities are:

· to accept delivery of the goods (this prevents him changing his mind after the goods have been sent);

· to pay for the goods within the time agreed.

· If one party doesn’t fulfil its liabilities, the contract is broken (this is called breach of contract). In this case the other party (the injured party) can claim compensation.

 

Contract and international contract

In international trade contracts of sale, contracts for construction work (often for the delivery, erection and commissioning of the equipment for industrial enterprises) and lease are most frequent among a variety of basic deals. Contracts of sale include turnkey contracts and large-scale contracts on a compensation basis. There may also be barter deals and compensatory deals.

Licence agreements stand apart from all the above contracts because they do not deal with selling and buying physical goods but with the sale and purchase of ideas, scientific-technical knowledge in the form of licences, patents and know-how. As a rule there are practically no standard licence agreements. Each licence agreement is more or less unique in itself i.e. has its own specific individual characteristics.

Contract isa mutually binding written or oral legal agreement between two parties (people or business) that says what each must do for the other or give to the other.

International contract isa mutually binding written or oral legal agreement between two parties from different countries (people or business) obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them.

To ensure the fulfilment of the above basic contracts successfully and profitably, a number of auxiliary agreements (contracts) are to be concluded: Marine Insurance Policies or Certificates, Charter Parties, Agency and Distributorship agreements and so on.

The basic principles of international contract (Vienna Convention)

The principle of contractual freedom enables the parties to freely choose the terms of their sales contract. However, by resorting to this path, the parties are exposed to the risk of forgetting a clause or to agree concessions on elements which it believes to be unimportant, such as choosing the applicable law. The Vienna Convention is a legal instrument which accords equal rights to the two parties and to which it can be useful to make reference to avoid stumbling blocks.

a) Contributions of the Vienna Convention

The Vienna Convention sets out practical standardised rules which concern the international sale of goods. Signed in April 1980, it was approved in 2000 by over 30 countries including the United States, China, Italy, Germany, France and others. The contribution of the Vienna Convention is undeniable. It enables commercial exchanges to ensure a modern regulation suited to the effective demands of commercial practice:

· it concerns the sales contract and directly applies itself to international commerce,

· it has a universal character, as it has been drafted under the aegis of the United Nations,

· it has adopted a specific method to unify the law relating to international business. Habitually, the parties choose or give elements allowing the contract to be linked to a legal system which the Vienna Convention determines by the uniform rules in the text itself. The arranged convention allows companies to have resort to a neutral law,

· it consists of rules drawn from different national legislation concerning compromise. In this way, it consists like the underlining of COFACE a "commencement of a short code of good conduct between purchaser and seller for better international business relations".

b) The field of application of the Vienna Convention

The Vienna Convention applies to the international sale of goods, that is to say "between two parties being established in different states" (article 1).
Article 2 excludes the final consumer from the field of application of the sales convention. The convention must therefore be applied to sales between professionals. In truth, for consumer sales, there is a whole series of protection rules which are mandatory in national legislation. The Vienna Convention cannot substitute these rules, it is therefore auxiliary.

Although the convention applies to international sales contracts it would be wrong to think that it governs all the questions of international sales. It only regulates problems concerned with forming the sales contract (articles 14 to 24) and the rights and obligations which the contract gives rise to between the seller and purchaser (articles 31 to 84). The other aspects such as the validity of the contract and the transfer of goods owner ship (article 4) and the responsibility of the seller (article 5) are regulated by the applicable national laws. On these points, in reality, the differences can be very important. There is no uniformity.

The Vienna Convention applies to sales with the following characteristics:

· automatically for contracts concluded between two parties bound by the convention, that is to say where the countries are members,

· if the parties come from states not bound by the convention and the parties have denoted the applicable law as being that of a state bound by the Vienna Convention,

· when the parties for the sale are not bound by the convention and its application can be deduced thanks to the rules of International Private Law (on this subject see the section dedicated to applicable law).

Article 6 is dedicated to the principle of contractual autonomy: the parties can leave out the application of the Vienna Convention:

· either totally,

· or partially: for example if the parties refer to incoterms. All the questions regulated in this way will not be more controlled by the Vienna Convention. Furthermore, professional associations propose general standard conditions and standard contracts ready for use. By referring to these standard contracts, it is also possible to depart from the Vienna Convention.

c) The characteristics of the Vienna Convention

· Flexibility: the actors can totally separate the application of the convention or leave out some of its measures to choose another legal system. The Vienna Convention is becoming the rule in international sales concluded by a company from a country which has ratified the convention as soon as its application has not been expressively separated.

· Pragmatism: in order to facilitate the comprehension of the text, the writers have avoided the use of legal terms and concepts used in certain countries, to use sufficiently neutral and comprehensible expressions for non specialists.

· Neutrality: applying the Vienna Convention enables the choice of a neutral law, that is to say a legal system which is neither that of the seller nor the purchaser. This advantage is essential.

The choice between resorting to the Vienna Convention or a national legal system must be made according to the comparative study of different, applicable legal systems, the Vienna Convention itself and taking into account the specifications of the business operation.