What is required if a British company desires to do business with a foreign company?

International Contracts       

How are most goods transported between different counties?

The majority of international contracts for the sale of goods are conducted by the use of shipping contracts. Many people may assume that most of the goods transferred between different countries in international sale contracts are carried by planes but this is in fact not the case.

What problems can be associated with International sales?

There are a number of potential difficulties and problems which can arise from international sale contracts. More prior investigation is required before completing an international sale contract than a contract which is conducted in one single jurisdiction.

Multiple contracts

In one international transaction there are normally multiple contracts involved. For example a sale and import of grain from one country to another could involve a sale contract, a carriage contract (for the shipping of the goods), an insurance contract and even an international payment mechanism such as a letter of credit. Using a number of contracts will mean that more legal work may be needed and more expense is necessary.

Physical separation of the parties

The buyer and seller in an international contract can often be separated not only by a long distance but also by language barriers. It is a wise decision to use the services of an agent who is perhaps based in the other country and familiar with the other country’s methods. Employing an agent means that there is someone in the other country who is able to investigate further into the prospective company and also investigate the goods themselves. A buyer in an international sale of goods may wish to request that the agent is present when the goods are loaded onto the ship for added protection.

Commercial risk

It can often be very difficult to initially investigate the credit rating of any potential new foreign company. It is obviously not desirable to work with a company which is insolvent. The other country involved may not have a very accessible system to investigate its companies. English companies are easy to investigate through the use of the Companies House organisation, which is a government register of all the limited companies in the United Kingdom and can be accessed online.

Political problems

The political stability of the prospective country with whom you wish to work is very important to address early on. There may be restrictions on import and export licenses because of a particular political regime currently in power in a certain country. This area needs to be investigated fully before any contracts are made.

International sale contracts

An international contract may be very complex because of the greater level of detail which is required. The contracts may contain specific terms that may be unfamiliar and confusing. The International Chamber Of Commerce has devised a set of contract rules which are widely accepted as the standard rules and definitions of international sale contracts. These rules can also be known as the ICOTERMS and are very useful when considering what to include in an international sale contract.

Types of international sales contracts

Fee on board contracts

These contracts can be known as FOB contracts. Under this contract the seller must put the goods on board the ship. The seller will bear the cost of any loading and as a consequence the seller will usually reflect this added cost in the price of the goods.

Cost, Insurance, Freight contracts

These contracts can be known as CIF contracts. The rules governing this contract state that the seller must pay for the cost and shipping which is needed to deliver the goods as well as to provide for adequate insurance protection.

When does the risk pass to the buyer?

According to international sales law the risk concerning the sale of goods will pass from the seller to the buyer once the goods have gone over the ships rail. It is advisable when involved in an international sale to include express provisions in the contract about when and how the risk in the property will pass. The buyer in an international sale contract could attempt to reduce the risk involved by requesting the type of insurance policy which should be used or even what type of ship would be best for the goods concerned. The type of goods concerned will obviously effect how strict the provisions are in the contract and a buyer should be aware of other risks associated with perishable and fragile goods.

Bill of Lading

A Bill of Lading is a very important document in a sale of goods transaction conducted overseas. The Bill of Lading is a transport document which acts as evidence of the contract of carriage. It also acts as a receipt for the goods and as a document of title. In the event of a breach of the contract the buyer may be able to use the document to understand who has the liability for any losses. The shipper of the goods can be held liable if the Bill of Lading indicates that the goods corresponded with the contract when put on the ship but then get damaged during shipment. The Bill of Lading will be issued by the seller to the shipper of the goods. The document will acknowledge what has been put on the ship and it will name the place of delivery and usually who is entitled to receive the goods.

Article written by...
Nicola Laver LLB
Nicola Laver LLB

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A non-practising solicitor, Nicola is also a fully qualified journalist. For the past 20 years, she has worked as a legal journalist, editor and author.