The risk management in the international trade through the contracts

The Risk Management In The International Trade

Through The Contracts15.11.2012

Aalto UniversitySchool of Business

Jukka-Pekka NiemeläAttorney at Law

Law Firm Lindblad Ltd

Risks

• No business contract exists without risks

• Minimization of risks is utmost important

• Risks may be managed to a certain extent through a risk control

– Careful choice of a good business party

– Good and careful drafting of a business contract

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CAREFUL CHOICE OF A BUSINESS PARTY

• Careful choice of a business party

– Reliability of a business party

– Obtaining the relevant information of a business party• E.g. Credit Agencies, Trade Registrar, Creditors, Bankruptcy and Restructering Agencies,

bankruptcy information from the Courts of Law, Trade Associations, Commercial Embassies, Competitors

• Protection of Good Faith and Fair Dealing• Protection recognised all over in the world

– Principle of Loyalty • Principle of loyalty recognised all over in the world

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GENERAL COMMENTS

• Trade customs– Vary from country to country– Vary from business to business– Established trade customs

• between parties• in business field concerned

• Culture– Traditions

• Language– Communication– Choosing the negotiation and contract language

• Other Customs – Manners and habits

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GENERAL COMMENTS

• Legislation of a foreign country

• Right and same understanding of issues between the parties

– Terms and provisions of a business contract

– Linguistic understanding

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FREEDOM OF CONTRACT

• Freedom of Contract– Freedom to conclude or not to conclude business contracts– Freedom to choose the form of a business contract

• Verbal contracts• Written contracts• Standard contracts (ICC, Orgalime, IT etc. )

– Freedom of contents• Freedom to choose the terms and provisions of the business contract e.g.

– buyer´s rights and obligations– seller´s rights and obligations– contract price– payment terms and currency– payment delay– inspection of goods and reclamation– Warranties– delivery terms (Incoterms, NL, Finnterms, ECE etc) – applicable law– dispute settlement – etc.

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FREEDOM OF CONTRACT

• Non-disclosure agreements

– Business and trade secrets

– Validity period

• before negotiations

• after negotiations

– Insertion of a secrecy clause in the business contract

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COMMERCIAL RISKS AND RISK CONTROL

• Payment of the Contract Price– before delivery

• Down payment• Advance payment• Installments

• Open account– e.g. open account 30 days

• Documentary Credit i.e. Letter of Credit (ICC, International Chamber of Commerce)– Indication of the buyer´s solvency

• The buyer´s creditworthiness in the buyer´s bank

• Debt Collection• The seller´s bank collects the contract price from the buyer

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COMMERCIAL RISKS AND RISK CONTROL

• Payment currency– currency clause against currency fluctuation

• Delay intrest for the late payment– e.g. 8 % per annum

• Delivery terms and payment terms- Incoterms (ICC, International Chamber of Commerce)

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GUARANTEES

• Retention of title– Transfer of the title to the goods against the full payment of the contract

price

• Payment bond or Bank guarantee– to ensure the payment of the contract price

• Performance bond– to ensure the performance of the obligations of the business contract

• Advance payment bond

• Escrow account

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INSURANCES

• Property

• Delivery and Transportation

• Product liability

• Credit risks

• Political risks

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DISTRIBUTORSHIP AGREEMENTS

• Object of the Agreement

• Agreement between the Supplier and the Distributor– the Distributor is an independent trader

• Supplier´s rights and obligations e.g.– to demand the payment of the delivered goods– reports from the distributor– production changes– training– information duty– sales targets– trademarks

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DISTRIBUTORSHIP AGREEMENT

• Territory• Products• Exclusivity/ non-exclusivity• Validity period• Termination• Rescission• Applicable law• Dispute settlement• Etc.

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AGENCY AGREEMENT

• Object of the Agreement• The Agreement is between the Principal and the Agent• The Principal´s rights and obligations e.g.

– commission payment to the Agent– commission calculations– marketing information to the Agent– the Principal´s information duty of production changes etc.– sales targets– immaterial property rights

• The Agent´s rights and obligations e.g.– sales promotion– attainment of sales targets– reports

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AGENCY AGREEMENTS

• Non-competition• Secrecy• Territory• Products• Exclusivity/non-exclusivity• Validity period• Termination• Rescission• Applicble law• Dispute settlement• Etc.

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Thank you! [email protected]

p. 0400 992 462