Avoiding Disputes in Seller and Buyer Contracts

Nowadays, most companies extend their business into other countries. It would help them to increase the sale rate, find out new resources and lower down the manufacturing cost by subcontracting or joint venture strategies. For the developed countries’ companies, they would like to design and develop the new products and then send the information to some manufacturers which in Asian countries. The manufacturer will help them to manufacturing the products then export the products to some destinations for sale. It would form the buyer and seller relationship between these companies.

It is good practice for design and development, manufacturing and selling framework. Each company inside this framework can earn much money. However, in the reality many disputes will be arisen between these international businesses, sellers and buyers will fight for their own benefit, lawsuit and the decision by courts seem to the only way to solve such problems.

Unfortunately, the disputes are between countries, which countries’ laws or international rules to be applied in such cases, it also a puzzle of the courts. For there has not an international government to rule all countries in the world. Therefore, to form the international business laws is very difficult work. Even the rules be formed the enforcement efficiency of each country will not be same. Under this circumstance, the seller and buyer should form the clear and no vague contracts, which to avoid the unnecessary dispute in future.

In this paper we will discuss the history of international business laws, analysis how the international laws to assist or govern the contracts such as CISG. Moreover, other then litigation, we can find other ways to handle the disputes. Finally, we will discuss some important points or clauses should be contained in the contract, which make sure no ambiguous conditions, even though the dispute really arise, according to the contract statements to find the way to resolve the problems.

International Business Dispute Handling

International Laws Govern the Buyer and Seller

There are many of international laws in the world, some of them focus on human rights, some of them focus on countries territory dispute and we will focus on the international business law of Buyer and Seller. Actually, the business dispute never stopped when people who make business with each other or person make business with other countries. Therefore, we need some laws to govern the business transactions whether they are legal and fair or not. The International business laws including the contract law, sales law, company law, negotiable instrument law, marine law, insurance law and so on. It came from the ancient Roman (around B.C. 600), but at that time business law was only a part of private law. Business law is born and develops with the development of commodity economy. In the Roman law, the most important status laws are “Twelve Tables” and “Justinian Code”. The modern international law refers chiefly to European business law which originated from the “Law Merchant” of Middle-Ages.

Common Law

Common Law legal system is used widely, particularly in the former colonies of British Empire such as USA, Canada and Hong Kong. Common Law is developed through decisions of courts and similar tribunals. In this law system, the laws are created by judges of previous cases. If there is no authoritative statement of the law, common law judges have the authority and duty to make law by creating precedent. The previous precedents will be used for future judgment. For similar dispute the court will quote from all previous cases as decision basis.

Contract Law

Under the Common Law (originate from British), a valid contract is an agreement that contains all of the essential elements of a contract. A contract contains a number of elements, it is including:

It is an agreement between the parties entered into by their mutual assent

The contract must be supported by legally sufficient consideration

The parties must have legal capacity

The contract must not be for illegal purposes or to carry on an activity that is illegal or contrary to public policy

If a contract is missing any one of these essential elements, it is a void contract. It will not be enforced by courts. The United Nations Convention on Contracts for the International Sale of Goods (CISG) is a treaty offering a uniform international sales law that on early 2008, it had been ratified by 70 countries that account for a significant proportion of world trade. The CISG allows exporters to avoid choice of law issues as the CISG offers “accepted substantive rules on which contracting parties, courts, and arbitrators may rely”

International Conventions have the Jurisdiction to Handle the Disputes

CISG

United Nations Commission on International Trade (UNCITRAL) developed the United Nations Convention on Contracts for the International Sale of Goods (CISG) since 1980. The CISG came into force as a multilateral treaty on 1 January 1988, countries that have ratified the CISG’s treaty are referred as “Contracting States”. CISG has greatest influence on the law of worldwide trans-border commerce. It also has been described as great legislative achievement and the most successful international document so far in unified international sales law. Number of countries have signed, the CISG have made declarations and reservations as to the treaty’s scope, though the vast majority has chosen to accede to the Convention without any reservations.

The CISG is written using simple and clear languages, which is for difference states to apply in their legal system easily and avoids the misunderstanding of meaning of wording. Moreover, it facilitated the translation into six languages so all texts are equally authentic. The CISG is divided into four parts:-

Part I: Articles 1 ~ 13; the sphere of application of the Convention and general provisions.

Part II: Articles 14 ~ 24; formation of contract.

Part III: Articles 25 ~ 88; sale of goods, obligations of the seller, obligations of the buyer, passing of risk, obligations common to both buyer and seller.

Part IV: Articles 89 ~ 101; final provisions including how and when the Convention comes into force, permitted reservations and declarations, and the application of the Convention to international sales where both States concerned have the same or similar law on the subject.

Limitation of CISG

For the CISG is Convention of the trade, it is apply by domestic courts of member countries. A major problem with CISG is the international law applied locally, the interpretation of the CISG should be inevitably puts a local tint on it. On the other hand, there is no international court that as administrant of CISG.

The CISG only governs the forming of a contract and the rights and obligations of the seller and buyer. The CISG does not provide rules for determining whether a contract is valid, for determining whether a party to a contract is legally competent, nor for determining whether a party is guilty of fraud or misrepresentation. These rules are left to individual state or national laws. Therefore, the choice of law would be very important, it will affect the court’s decision.

Choice of Law

In some countries, the courts will apply the laws which chosen by themselves to dispute when the parties have not made a choice is found in local law or international treaties. Choice of law is procedures when the litigation of a case has the conflict of laws or which laws are applied suitable for the current case. The courts (or the plaintiff) necessary to reconcile differences between the laws of different legal jurisdictions such US or European countries. The result of this process is potentially to require the courts of one jurisdiction to apply the law of a different jurisdiction in lawsuits arising from.

The choice of law has the most significant relationship doctrine. The doctrine is that courts should apply the law of the state that has the closest and most real connection with the dispute. For the contract case, it would be consider the place of contracting, the place of negotiation, the place of performance, the location of the subject matter and the nationality as well as the place of incorporation of the parties.

On the other hand, the choice of law clauses are important when formation of contract. It is one in which the parties specify which law will be applied to resolve any disputes arising under the contract. If parties fail to do so, the court will need to undergo the choice of law procedures when disputes arise in that contract.

Other ways to Deal with the Disputes

For the court to judge a lawsuit might require much time. It will be the serious burden for both plaintiff and defendant; the time and money will be lost during the lawsuit. If the lawsuit is related to international business, it would be taken more time to investigate and then decision by the court. There are other ways to reconcile the disputes, it would save much time and money for parties as well as the parties may keep the better relationship after resolve the disputes. Diplomacy is process to reconcile the dispute between parties, it may through the mediation, negotiation or inquiry. The diplomacy is widely used between states, companies and individuals

The mediation will be one of the choices for diplomacy. It involves the third party to transmits and interprets the proposal of principal parties and sometimes the mediator require to provide its independent proposal. The mediation process will be started when one or more parties request outsider offers to serve as a mediator. Moreover the mediation can occur only all parties agree to do so and the mediation should be accepted by all parties. Otherwise, no conciliation can be done.

The second method to deal with the disputes is the negotiation, it seems to common and simple way to resolve the dispute, and actually the negotiation is useful, it can applied between states and/or individuals. Two companies can also through the negotiation discussion to conciliate their disputes. It is the better and effective way to solve the problem, it better than appeal to court.

For the international business disputes, we can appeal to the International Court of Justice for tribunal or ask the World Trade Organization (WTO) help to settle the disputes. WTO has the subsection named Dispute Settlement Body (DSB), its function is to settle the disputes between countries’ business. When country or company appeals the dispute to WTO, they will assign the DSB to set up the panel to handle the dispute. According to Annex 2 Articles 5 ~ 8 the Panel will use 60 days for consultation and/or mediation, 45 days for Panel set up and Panelists appointed, 6 month for Final panel report to parties, 3 weeks for Final panel report to WTO members, and 60 days for Dispute Settlement Body adopts report (if no appeal). Totally, it require around 1 year for finish the settlement if there is no appeal. If the State has appeal, it will take extra 3 month to settle the dispute.

Application of Contract for avoid disputes

The clear contract statements can avoid many disputes in after day. In Seller and Buyer contracts terms statements that help to indicate how a contract is to be performed.

Conditions and warranties:

Under common law, conditions refer to terms, which are crucial to the operation of the contract. Those terms of lesser importance, side issues to the main thrust of the contract are known as warranties. If one of the parties does fulfill a condition, the other parties can rescind the contract and sue for damages. This means that the innocent parties have the option of either being bound or not being bound by the contract once a condition has been breach. Moreover, the innocent parties can recover any damages caused by the breach of the condition.

Exclusion clauses

In order to avoid liability under a contract, terms are often inserted that exclude or limit liability in certain situations. These terms or clauses go by a variety of names, including exemption clauses, exception clauses, disclaimers, limitation clauses and exclusion clauses. Since exclusion clauses attempt to exclude certain obligations that might naturally flow from a contract, the courts are very reluctant to recognize their validity and have shown a readiness to restrict their meaning where the party whose liability was excluded was placed in an unfair bargaining position.

The parol evidence rule

Once an agreement has been put into writing, statements that have made orally will not normally be taken into account in a dispute if they add to, delete, vary or contradict the contents of the written agreement. The assumption is made that intention of the contracting parties are contained within the text of the document. There are exceptions to the rule, the oral evidence will be allowed in the following circumstances:

Where custom or trade usage indicates a clause should apply

Where the written document records only part of the agreement between the parties.

Remedies

The remedies available to a buyer or seller under the CISG are drawn from both common law and civil law system. They are intended to give the parties the benefit of their bargain and to put the parties into the economic position they would have been in had the breach not occurred. The remedies outlined in the CISG including avoidance of the contract, sellers right to remedy or cure, seller’s additional time to perform, price reduction, money damages and specific performance.

Choice of law clause

Within the international business contract the choice of law clause must be included in it. Normally, it would specify the local country’s laws are applied to contract. In some cases, the contracting parties will agree to use either one of countries’ law for handle the disputes. For example, a US company forming a contract with an Australian company. In their contract could select to use US’s laws or Australian’s laws for disputes resolving.

Conclusion:

Globalization is the trends of companies, they are including selling, manufacturing, design and development and service providing. For trans-nation operation with other business partners, the trust and the protection of each company should be enough. Ideally, the good faith would help to build up good business partnership. However, in the reality benefit will destroy the trust and relationship. Therefore, making contract without vague is first and important step when starts globalize business.

As discuss above some important clauses (or statements) should be contained in a contract, it should save much time to argue the point of view of law. Clear definition of right and wrong, nobody can be muddle the discussion focus, let all contracting parties can go toward the goal of cooperation.

The world is progressing, the international business laws also trends to mature. In our vision the world trade can be undergoes with fair and equity. Sellers and Buyers can take advantage for involving in such business activities.