Existing Norms of International Laws

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Requirement

As you are aware we sell bulky, highly perishable, products whose quality, especially during shipment, is very difficult to control. One of our major
customers is Buy Low/Sell High Inc. (“Buy Low”). Buy Low is a Los Angeles based company that is very conscious of its bottom line and squeezes its
suppliers, including us, as hard as it can. They have now advised me that they are putting a new ordering procedure in place. Under these procedures all
suppliers will be required to accept orders on the attached purchase confirmation form. Tuf Luck Inc., on its part, operates on a very small profit margin. That is why we ship Ex Works Montreal. I want to minimize, as much as we can, given our dependence on Buy Low’s business, our exposure to added costs and risk under Buy Low’s new products.
I know that you have followed an introductory course on international business law. Therefore, I thought the following challenge would be right up your alley: Would you please review the attached sales confirmation form, including and especially Schedule “A” and let me know what you think of it. As it will not be easy to get Buy Low to agree to changes, please draw to my attention the three (3) or four (4) most important clauses of Schedule “A” that you think we should try to delete or modify, or that you think we should try to add to Schedule “A”.
Please explain, on a clause-by-clause basis:
(a) Why such clause must be modified, deleted or added;
(b) Why you have given precedence to modifying, deleting or adding that clause; and
(c) In the case of a modification of a clause, how you would modify the clause and in the case of an addition of clause, what such new clause would say.
Keep in mind that I do not expect you to draft the modification or addition (we have lawyers for that), but I want a clear explanation of the intended
effect of such modification or addition.
In your analysis keep in mind that we do not want to loose Buy Low as a customer, but at the same, we do not want to be taken to the cleaners.
Therefore, your proposal must be commercially reasonable for both parties. Given your academic background, please respond in the form of a term paper of between 2000 and 3000 words. (If you must, you may exceed this limit, but please don’t go overboard). As you are new to the job, I should tell you that I value term papers that are well organized, easy to read and understand and that have appropriate footnotes and bibliography.

Solution

April 13th 2015 
Dear Mr. President, 
I understand that you would like me to review the Schedule “A” sales confirmation form. I have analyzed the form and evaluated the possibility of modifications, deletions or additions. Below you will find my entire findings on the matter.
I have referred to you as “Tuf Luck Inc.” or “the seller” interchangeably, and referred to Buy Low/Sell High Inc. as “Buy Low” or “the buyer”. Let me know what you decide. I would be happy to offer my services if you require them.
Sincerely,    
Loujaine AlMoallim

As within the existing norms of International Laws, some of the clauses always need to be altered or modified so that all the parties which are involved in the transaction will find it conducive to conduct their businesses. In view of the case at hand, the most important clauses of Schedule A that need to be looked into for modifications are explained one-by-one in the following section:

I. Clause 3

Clause 3 of “Schedule A” means that, if Tuf Luck Inc. adds certain terms to Schedule A, in order to safeguard its interests either by itself or based on any previous references, then all those terms will become null and void and terms of Schedule A will only take precedence. In that case, all of these changes will be inconsistent with Schedule A or the obligations on the part of Buy Low will be expanded and increased in line of the existing clauses of Schedule A.

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Why the clause be modified?

Clause 3 is putting extra pressure on Tuf Luck Inc. because Schedule A is itself an amended contract unilaterally made by Buy Low. It is one thing to plan, forecast and draft contracts in order to prepare for the adverse circumstances that might arise in the future, but to prepare it only to address one’s own concerns while underestimating others is quite opposite in terms of business ethics – so to speak. As, long lasting and stable relationship between the companies are very crucial, the companies need to plan not only for the short term but for the longer period as well. Which is why, in order to develop and maintain this relationship, it is important for Buy Low to fully understand the value expectation of its relationship partners (in this case Tuf Luck Inc.)

Why precedence to modification?

It is alright on the part of Buy Low to prepare the draft of the contract because after all, it is Buy Low’s obligation to safeguard its business interests and dictate certain terms on the supplier side. However, if the terms of reference are only benefitting one party while hampering the opportunities of the other, then it will not be fruitful for the long-term relationship between the two companies. Therefore, in the case of Tuf Luck Inc. and Buy Low, the proper approach would be to incorporate the point of views of both the parties. 

How to modify the clause and its intended effect(s)

In the event of business being conducted between any two parties, there are numerous possibilities in between when one party or the other has to suffer setbacks or inconveniencies. The reasons could be manifold such as botched-up communication channels, transportation difficulties and third party inefficiencies. Therefore, the clause can take the form as whenever any difficult situations arise that were not be controlled by either of the parties, then Schedule A can make certain provisions for Tuf Luck Inc. that would allow it some time to make necessary arrangements so that it can carry the business forward. The intended impact of this modification will be seen clearly on reliability, stability as well as in the form of long lasting relationship between the two. Also, in the long run, value is important to maintain good, stable relationships and it is defined as benefits divided by sacrifices.

II. Clause 7

This clause effectively lays down the guidelines as to how the transportation is to be ensured on the part of Tuf Luck Inc., in case goods are not clearly identified. In this clause, there are directions with regards to two further options – firstly, Tuf Luck Inc. is obligated to effect insurance in respect of the carriage of the goods and secondly, and it must provide Buy Low with all available information necessary to enable Buy Low to effect such insurance if in case Tuf Luck Inc. is not bound by the “Order” (mentioned in Clause 1). 

Why the clause be modified?

As per the UN Convention on Contracts for the International Sale of Goods (CISG), both the parties should agree on time and place of delivery of the goods. These are the terms that have significant essence which are not only important for business purpose but the place of delivery is relevant for risk free passage of goods. However, because of certain jurisdictional issues in some states and as per the Article 31 of CISG, the seller’s duty is defined as the delivery that “applies only if the parties did not agree on a specific place of the delivery”. This clause places provisions of extra burden on the part of Tuf Luck Inc. because the proper delivery of goods is always dependent upon means and mechanisms of Transportation Company or the party responsible for that. It is very difficult for the Tuf Luck Inc. to continuously monitor the well-being of the goods once they are under transportation. In addition, to the time and place, the method of transportation should be specified due to different bills giving different rights to sellers and buyers.

Why precedence to modification?

Buy Low always has an obligation of taking the delivery and enable the business to take place as per the terms of Schedule A. The proper and safe delivery as well as assurance of quality of the goods is the onus that always lies on the part of Tuf Luck Inc. However, sometimes due to the adverse circumstances there is an inevitability for delay or any other difficulties associated with that. It can be argued that to what extent should this clause be applicable for fixing the responsibility on Tuf Luck Inc., but to fix the onus unilaterally on the seller does not make complete sense as it is not possible for any seller to control the operations of a third party. Therefore, slight modifications are necessary as far the conformity and execution of Schedule A is concerned.  

How to modify the clause and its intended effect(s)

By using the clause of Article 35 (1) of CISG, in which it is clearly written that the seller is fully liable to deliver the goods that conforms the quality, quantity and description required by the contract and which are packaged and enclosed in the manner necessary as per the contract or schedule. So, as long as these conditions are fully met, the clause should, according to my understanding of the law, make “Distinctions” as to what are the goods that are needed to be insured or if insurance is needed in each and every product, then there should be a provision of “Evidence of Non-Conformity” before the insurance is being given to. However, the law clearly states that the decisive factor for determining whether the goods conform to the terms of engagement is the contractual description of the goods . So, this modification should be a subject or expression of agreement between the parties.
The modifications will allow the preparatory measures such as provisions of plans or data as a part of cooperation required on the part of Buy Low as they ultimately serve for enabling Tuf Luck Inc. for making the delivery. So, if the buyer fails to possess the goods when delivered, then the seller will require to take care of the goods until finally the delivery is made to the buyer. So, after the modifications, Buy Low will be thereafter liable to reimburse the Tuf Luck Inc. for all the reasonable expenses relating to the upkeep of the goods. Also, in case of failure to adhere to the procedural requirements on the part of Buy Low, it is likely that the courts will dismiss its claims of nonconformity. 

III. Clause 8

This clause underlines the conformity of goods on the basis of their quality, quantity and description. It also lays the rules with regards to the rejection and replacement of the rejected goods within a stipulated time frame as described in the order of the Schedule A. The contract further states that on account of rejected goods and the time wasted thereof, Tuf Luck Inc. shall pay interest to the Buy Low on the purchase price from the date on which the purchase price was paid at a rate equal to the prime rate of buyer’ principal American banker plus 2%.

Why the clause be modified?

If Buy Low deposits the rejected goods in the warehouses of a third party and the risk is transferred to Tuf Luck Inc., then it is quite unlikely that Buy Low will incur any loss on account of the rejection of goods or any portion thereof. It is understood on the basis of the terms of the contract that Tuf Luck Inc. will be responsible in taking care of the defective goods. At the same time, it will be quite difficult for Tuf Luck Inc. to pay the interest as specified in the Schedule A, that is, the prime rate of the principal amount plus 2%. The terms of the engagements between the two parties should take a balancing act on either side of them. The rationale is one party cannot afford incurring all of the losses at the expense of engaging in the business, while the party is getting no profit at all . Therefore, it is quite but natural for the two parties to negotiate some of the points in the clause so that their interests are safeguarded. Moreover, there is always an element of trust between two parties that paves a precondition for the future engagements between the two. Lacking this minimum level of trust between the two will not be fruitful for either of the two. Which is why, there is a palpable need of the modification in the Clause 8 of Schedule A provided by Buy Low.

Why precedence to modification?

The two sub-clauses, (a) and (b) of Clause 8 of Schedule A are laid down fully and properly as per the norms of CISG standards that effectively address the inconsistencies arising out of the untimely delivery or perceived defects in the goods. These sub-clauses provide a meeting ground for both the parties in that if one party is incurring the loss, the other party has to maintain the transaction because it is liable to pay the expenses for the upkeep. The catch, however, is the inclusion of the interest at prime rate plus 2%. Therefore it is clear that Tuff Luck Inc. will be going to face extra burden in monetary terms. Now, Buy Low has to receive the goods at its end. After completing the required inspections, it needs to spot the inconsistencies and provide the required evidence of the non-conformity with regards to the products received by it. Also, these non-conformities should have been there before it passed to Buy Low. In an another scenario, where Buy Low fails to provide the required evidence and the proper notice of non-conforming goods, then possibly it will lose the right on the grounds of lack of conformity. Therefore, it can be concluded that the onus of the inconsistency cannot be completely enforced on the Tuf Luck Inc.’s part . So, in view of the validity and veracity of sub-clauses of this section of the law, the modification on the subsequent passage of the Clause 8 of Schedule A clearly asks for the modification in the contract so that the burden that naturally comes after rejection followed by reimbursement (partially or fully) on the seller could be mitigated for the future business transaction.

How to modify the clause and its intended effect(s)

According to the clause 8 of Schedule A, Tuff Luck Inc. will have to pay an additional 2% interest along with calculated interest on the purchased amount (being paid by Buy Low) as per the prime rate of the Principal American Banker. So, it will only make it even more difficult for Tuff Luck to make good profits because of the inclusion of prime rates. Moreover, in the business parlance, a seemingly modest rate of 2% interest, where the consignment may include a business transaction of whopping amount, will transpire to even heftier amount at the end. Therefore, in the line of CISG as well as International Business Laws, my recommendations would be to renegotiate the interest amount on the part of both the parties in order to provide a level playing field for the two . As per my understanding, the rate of interest that Tuf Luck Inc. has to pay should be 0.5% to 1% in terms of the prime rates.
The impact of this modification will be relatively advantageous for Tuf Luck as against the given slot of the 2% interest that is mentioned in the contract of Buy Low. As I mentioned in the passage that whenever the business transactions take place between the two parties who have their respective infrastructure in the field of selling and buying large amount of goods, the amount in terms of only interests paid in these situations are also huge as compared to the normal interest payments. Therefore, the Tuf Luck Inc. will be able to safeguard its interests and can carry the usual business of profit or loss sharing and maintenance in terms of taking care of problems of the buyer at the same time.

IV. Clause 9

The basic communique of this clause is putting the emphasis on the importance of the delivery time. It essentially says that Buy Low is fully entitled to avoid the contract in the situations of inconveniences and shall be absolved from all the obligations under this contract and Tuf Luck Inc. agrees to compensate Buy Low for any loss or damage sustained by Buy Low through the failure of Tuf Luck Inc. to deliver the goods.

Why the clause be modified?

It is also an essential precondition under the guidelines of CISG that the time of the delivery is of great essence because of the stated obligation of the buyer in most of the cases arises only upon delivery. The existing guidelines of Schedule A are already sufficient to address all the issues that might arise because of the delay or other inconveniences. There is no need for Buy Low to avoid the contract. Also the guidelines already allow the provisions of reimbursements to Buy Low from Tuff Luck Inc. then it should allow the business to go on. So, when these issues already have provisions in the contract, then there is no need on the part of the Buy Low to take drastic steps of dissolving the contract . Moreover, if in most of the situations, the onus is on the supply side, then it is logical on the part of the Seller to take extra care of the proceedings because this will define the course of profit making. So, the clause has to be slightly modified to avoid further difficulty for the Tuf Luck Inc.

Why precedence to modification?

As the time of delivery in conducting businesses is of paramount importance and this fact cannot be contested whatsoever. But, in view of the extensive emphasis made in other clauses regarding the damages to be paid by Tuf Luck Inc. is enough for Buy Low to avoid any such situations because if unless and until the provision of the compensation with regards to the damages is there any such possibilities will only put Tuf Luck Inc. in a fix. Therefore, a slight modification in the form of time duration be made in this clause such as nature of delay of consignment, provision of time for the same. In this way, both the parties will be able to build strong trust between them for the future business relationships.  

How to modify the clause and its intended effect(s)

Article 33 of CISG states certain circumstances in this scenario regarding the time of the delivery. Tuf Luck Inc. is under duty to deliver the goods on the date “fixed or determinable from the contract”. The Article also makes clear that seller must deliver the goods at any date within the fixed period unless as per the circumstances allow Buy Low to choose the date in that time frame. So, in determining ‘reasonable time’, regard must be given to the “nature of goods, the distance covered, and the parties’ statements during negotiations”. The intended effect will be that the additional time given or provided will be reasonable on the part of both the parties . However, it will be the buyer’s tolerance with regards to the late delivery and which might be considered as additional period of time.

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VI. References 

  • Beck, L. (2015). International Business Law. Course Pack. Montreal: McGill. 

  • Eorsi, G. (1983). A Propos the 1980 Vienna Convention on Contracts for the International Sale of Goods. The American Journal Of Comparative Law, 31(2), 333. http://dx.doi.org/10.2307/839829

  • Guy, V., & Mattock, J. (1995). The international business book. Lincolnwood, Ill., USA: NTC Business Books.

  • Hansen, V. (1961). U.S. Antitrust Laws on Foreign Trade and Investment. The Int. Exec., 3(1), 21-22. http://dx.doi.org/10.1002/tie.5060030111

  • Hervey, T. (1981). West's business law: Text and cases. International Review Of Law And Economics,1(2), 238-239. http://dx.doi.org/10.1016/0144-8188(81)90022-3

  • Kro?ll, S., Mistelis, L., & Viscasillas, P. (2011). UN convention on contracts for the international sale of goods (CISG). Mu?nchen: C. H. Beck.

  • Nafziger, J., Weston, B., Falk, R., & D'Amato, A. (1983). International Law and World Order: A Problem-Oriented Coursebook. The American Journal Of International Law, 77(2), 350. http://dx.doi.org/10.2307/2200871

  • Peng, M., Wang, D., & Jiang, Y. (2008). An institution-based view of international business strategy: a focus on emerging economies. Journal Of International Business Studies, 39(5), 920-936. http://dx.doi.org/10.1057/palgrave.jibs.8400377

  • Schlechtriem, P., & Butler, P. (2008). UN Law On International Sales. Berlin: Springer.

  • Stanko, M., Bonner, J., & Calantone, R. (2007). Building commitment in buyer-seller relationships: A tie strength perspective. Industrial Marketing Management, 36(8), 1094-1103. http://dx.doi.org/10.1016/j.indmarman.2006.10.001

  • "United Nations Convention on Contracts for the International Sale of Goods (1980)." Pace Law School. Pace Law School Institute of International Commercial Law, 30 Mar. 2010. Web. 9 Apr. 2016. .

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