The author explains about the advantages of contracting on standard form contracts and using shipping terms, including Incoterms.
Standard Form Contracts for use in international sales facilitate international trade and save time and money in negotiating efforts and drafting individual contracts. A Standard Form Contract is a result of experience and legal expertise in the field, which include events that can happen, leading to reasonable solutions. It is the application of the principle of Freedom of Contract in international trade.
A Standard Form Contract provides almost all the relevant contingencies and details, making a difference with individual contracts in which not all the details would be determined. This happens also in relation to the definition of its terms, which may not have similar meaning in other countries. Even when in any written contract, the court will apply the “parol evidence rule”, which means that it will stand in what the parties have agreed to in the contract, but also the Court will have the resource of “background knowledge” in case of ambiguity or contradictions. This ambiguities and contradictions are less likely to appear in a standard form, which is the result of experience in the industry.
Therefore, a Standard Contract of Sale will include provisions regarding definitions, consideration, liabilities, warranties, conditions, choice of law and jurisdiction-arbitration, fource majure, extension for delivery, quality of the goods, price and methods of payment, and breach of contract.
Failure to include clear provisions may lead to a misunderstanding and substantial loss to one or more of the parties, i.e. a) when the FOB seller considers that placing the goods on the quayside is a valid transfer of the risk to the buyer, and damage takes place before the goods pass the ship’s rail; b) When the FOB buyer fails in his obligation of having the vessel on time ready to load, and has not previously agreed in a time extension clause, which generates the possibility of having the contract repudiated by the seller.
Standard Form Contracts are also known as Adhesion Contracts, most of them applied by Associations, in which a supplier of goods or services includes all relevant clauses according to the nature of the business. Adhesion Contracts can be considered as “take it or leave” contracts. Lord Diplock in Schroeder v Macauley[1] provided for two kinds of standard form contracts: a) Those regarding mercantile transactions of common occurrence, which are of very ancient origin, as bills of lading, charterparties, insurance policies, and contracts of sale in the commodity markets; b) those that are used in consumer transactions.
The first type of a standard contract is presumed to have fair and reasonable terms. They are used by parties with similar bargaining power. This is the judiciary application of the principle of “Freedom of Contract” adopted by English Law in International Sales Contracts. The Parliament has also respected this principle when enacting the Unfair Contract Terms Act 1977 which excluded “International Supply Contracts” (international sales contracts and shipping contracts) from the requirements of reasonableness generally imposed by the Act. “it appears that in these contracts, the parties are regarded as having virtually total freedom in negotiating the bargain that they require”[2] This principle may be the reason why the Vienna Convention has not been adopted by the English law[3], keeping the international supply contracts under the rule of common law, and the autonomy of the parties.
The Incoterms rules are key commercial tools developed and maintained by ICC[4] since 1936, recently updated on 2010, and used in certain contracts for the sale of goods all over the world. They define the responsibilities of buyers and sellers for the delivery of goods under sales contracts and determine how costs and risks are allocated.[5] These rules are customary in English law only by choice of the parties, and contribute to a standardized interpretation of the most commonly used trade terms.
Correct use of Incoterms or shipping terms, because not all international sales are agreed under the Incoterm rules will lead to an adequate distribution of responsibilities according to the intention of the parties in a sales contract. A seller could be uncomfortable with contracting in FOB terms, because he may hold the risk on the goods until they pass the ship’s rail, and then be liable for any damage prior to loading. If the seller would like to be released of said risk, he can choose Incoterms FCA (Free Carrier) or FAS (Free Alongside Ship).
Incoterms versions 2000 and 2010 for FCA, the duty of the seller is alternatively: 1) to load the goods on the means of transport provided by the buyer, if the place of delivery is the seller’s premises; or 2) to place the goods at the disposal of the buyer’s carrier from the seller’s means of transport, when the place of delivery is other than the seller’s premises. The buyer is responsible for unloading the goods. According to FAS versions 2000 and 2010 the seller has to deliver the goods by placing them alongside the vessel at the named port of shipment, and also for clearing the export formalities.
Reannon Hemmings stated: “The development of containerization has not only simplified the carriage of goods but has also changed the legal relationship between seller and buyer. As a consequence some of the INCOTERMS 2000 such as Free on Board (FOB) are now often used incorrectly. Traders instead should make use of the more suitable multimodal term, namely Free Carrier (FCA)”[6]
[1] Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308, 1316[2] International Sale of Goods and Remedies. Art. 2-043. Susan Hawker[3] ¦The parties to these contracts also, critically, expect far less legal regulation on their contracts than do consumers¦ which , to my mind, goes a long way to explaining why the Vienna Sales Convention has not been incorporated into English law. English Commercial Law and the Inter-Relationship of International Trade Contracts. Course Director’s Comments by Susan Hawker. Appendix 1, page 61.[4] International Chamber of Commerce[5] http://www.iccwbo.org/incoterms_faq/#3[6] Is the ship’s rail really significant? by Reannon Hemmings.
Nordic Journal of Commercial Law, issue 2005 #2
http://www.njcl.utu.fi/2_2005/article3.pdf
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