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Example Law Essay

International Trade Law

1. The selection of an alternative dispute resolution mechanism is particularly pertinent in international trade cases because the parties are, by definition, domiciled in different nation states (Chuah, 2009). Since an agreement must therefore be reached on choice of law issues, it is common for parties to consider stepping outside standard litigation processes altogether and instead stipulating for arbitration to take place (Neipert, 2002).

Arbitration offers several advantages over litigation. Typically, it is less expensive than litigation, since fewer legal professionals are required. It is also perceived to lead to a speedier resolution of disputes due to decreased formality, the removal of the need to schedule around the timetable of the formal court system, and, typically, the absence of a right of appeal (Schmitthoff, 2007). Arbitration allows the parties to control a number of variables in the dispute resolution process through prior agreement (Mustill & Boyd, 2008). These include the choice of an arbitrator with specialist knowledge of the relevant area, the scope of the arbitration, the location of arbitration and the choice of law. In addition, arbitration is a private rather than public procedure and therefore will not be subject to public record: this is likely to be advantageous if the subject matter is particularly damaging to public image of company. By contrast, many of these same factors may prove disadvantageous to the parties in a different factual scenario. The lack of a right to appeal may become a disadvantage if the arbitrator makes an error of fact, or the arbitrator appointed is not as impartial as the parties would wish. In addition, arbitration is disadvantageous because it lacks formal mechanisms for the enforcement of arbitral awards or attendance at the arbitration, and cannot compel third parties to attend.

Litigation offers potential advantages over arbitration. It is, in principle, totally impartial as to the outcome of the case. It determines cases according to a fixed substantive law without reference to the general principles of fairness that an arbitrator might refer to (Moses, 2008). It also provides for an appeal procedure, should that be perceived as an advantage. In addition, there are fewer variables for the parties to control or anticipate in advance of the dispute arising, and litigation is supported by formal enforcement mechanisms, including contempt of court and proprietary remedies. By contrast, judges may not be specialists in the given dispute area, which my be deemed more important than their appearance of impartiality to the litigation process. Formal litigation is associated with delays, inflexible timetabling and higher costs, although it should be noted that the costs of any given dispute resolution mechanism are dependent on the facts of the case (particularly its complexity, length and the number of legal professionals employed).

It is also important to discuss the possible limitations that domestic laws may place on the nature of the arbitration, and the effect, therefore, that they may have to tip the balance in favour of one method over the other in any given situation. There are significant theoretical difficulties in determining the source and content of the arbitrator’s power: the form and nature of arbitration may be limited by the way in which law governing the contractual relationship between the relevant parties conceives of arbitration (Lew, 1978). Most legal systems adopt the position either that the arbitration agreement constitutes an “autonomous source of authority wholly independent of any national legal system” (Goode, 2004: 1178) or, alternatively, that the arbitration agreement “brings into play an autonomous arbitral order derived from the institutional character of arbitration and based on principles common to civilized states” (Mustill and Boyd, 2008: 66). There is, therefore, a conflict between the autonomous nature of the arbitration and its reliance on the law of the forum in order to confer this autonomy. This conflict may place a practical limitation on the form that the arbitration takes if the lex fori arbitrae does not permit the parties to consent out of particular legal mechanisms (Goode, 2006). Despite the intentions of the parties to contract out of it, litigation may be the only available mechanism.

2. To what extent has harmonization of legal rules in international trade taken place?

International trade is a legally complex field due to the disparate bodies of national commercial law that may apply to any given transaction (Sealy & Hooley, 2008). There is widespread recognition that international commercial codes are necessary to avoid the difficulties inherent in conducting international commercial transactions using the laws of individual nation states (Goode, 1991) and, as a result, significant efforts have been made to generate substantive legal codes that parties can incorporate by reference to govern their international trade transactions. Several specific codes should be referenced to outline the near-comprehensive scope of the fields in which harmonization has taken place: the Vienna Convention on Sale of Goods and standard form terms such as the Cartegen Incoterms govern international sale of goods, the UNCITRAL Model Law on International Commercial Arbitration governs alternative dispute resolution mechanisms in the international context, the Uniform Customs and Practice for Documentary Credits governs the payment mechanisms typically used in international trade. Further to these attempts at harmonization, Bonell (2003) has proposed that a global commercial code is developed that has an application to all members of the international trade community.

However, an equally significant movement has been underway which intends to secure harmonization of procedure in international trade (Goode, 2006). It is often overlooked that the substantive regulation of international trade takes place in a framework outside that of the national courts, and the harmonization of the procedures of dispute resolution is arguably as important as that of the substantive rules of international trade (Stephan, 1999). In this respect, the efforts of the European Union in harmonizing the conflicts of laws rules under the Brussels I Regulation and the Rome II Convention are particularly notable (Briggs, 2008).

What reforms are necessary to improve the legal position of international traders?

Stephan (1999) takes this observation to its logical conclusion, and argues that the legal profession should stop trying to unify substantive rules of trade law until a comprehensive framework has been developed for the dispute resolution mechanisms in which those rules will apply. Parry argues that inherent limitations arise when uniform international trade rules are implemented in different national legal systems. He assesses the benefits of further harmonization under three headings: the reduction of legal risks in international commerce, legal reform, and enhanced roles of international legal advisers. His argument is that harmonization operates in favour of one of those interests at any given time, but is likely to work against the other. Personally, I would seek to make the broader argument that further reform in the field of substantive harmonization is likely to suppress discussion of procedural harmonization. To my eyes, the most important reforms for the harmonization of the international trade system at present include a more uniform approach to dispute resolution, and an extension of a conflict of laws system such as the rules in place within the EU Member States, to members of the international trade community more broadly.

3. Produits SA v Products PLC

The question of which courts have jurisdiction to hear the dispute will be determined by the Brussels I Regulation. The Regulation applies to all civil and commercial matters (Art 1(1)) and this dispute is likely to fall squarely within that definition as a contractual dispute between two incorporated bodies. Art 5(1) states that in relation to contractual disputes, the court of the Member State in which the characteristic performance of the contract takes place shall have jurisdiction. The characteristic performance is “the performance for which payment is made by the counterparty” (Briggs, 2008: 171), and will therefore be the place where the goods are due to be delivered by the seller. Since the contract stipulates that the goods are to be provided FOB Southampton, then the place of performance is England. The English courts therefore have jurisdiction to hear the claim.

The applicable law will be determined by the provisions of Rome I. In the absence of a choice of law by the parties, Art 4(2) states that in contractual disputes where the contract is entered into in the course of a trade or profession, then the country in which the principal place of business is situated shall be the company or performance is to be made is the country whose law governs the contract. On the facts, it would appear that English law therefore governs: Products PLC is an English registered company, and the place of performance of the characteristic performance was England. For the avoidance of doubt, the contract between Products PLC and Produits SA was a contract for sale rather than carriage of goods, and therefore Art 4(4) does not apply.

Products PLC v Nee Soon Wat Pty

The question of jurisdiction in this case will depend on whether the claimants can argue that the office held by the defendant company in Rotterdam constitutes residence within a Member State of the European Union for the purposes of the Brussels Regulation. Art 59 states that in order to determine whether a party is domiciled in the Member States whose courts are seized of a matter, the court shall apply its internal law. Following Fawcett & Carruthers (2008), in order for a company to be resident in a particular country it must be demonstrated that the company has a fixed place of business from which it has carried out business for more than a minimal time and that the company’s business is transacted from that place. It is a matter of factual interpretation whether the defendant company carries out business in The Netherlands and has done for a significant period of time, but prima facie the existence of an office is likely to suffice. We may therefore apply the Brussels Regulation as above, although the characteristic performance here is effected by shipment CIF to Bangkok. Since this is not within a Member State, Art 5(1)(b) cannot apply, and Art 5(1)(c) directs us back to the general rules in Art 5(1)(a) that the courts of the place of performance will have jurisdiction. The claimants here would be able to make a strong argument on the basis of payment in sterling to a London bank account, combined with delivery CIF from a London port, that the relevant performance in this contract was due to be effected in England.

The applicable law will then be determined by Rome I, under Art 4(2) as above. Since the claimants are selling the tyres in the course of their trade or profession, then the choice of law is the country in which they have their principal place of business. Here, there is little doubt that since Products PLC are an English registered company, their principal place of business will be found to be England. English law is therefore likely to apply.

4. Distribution

Distribution is a highly simplistic method of overseas marketing. The legal structure of the distribution agreement is an international sale agreement: the international seller purchases the relevant goods from the domestic seller, and then sells the goods to third party buyers overseas for his own account (Goode, 2006). Within the distribution contract, no further legal obligations need necessarily be entered into between the parties except those contained in the contract of sale. The sale will typically be governed by standard commercial terms such as Vienna Convention on Sale of Goods 1980 (August et al, 2008).

The distribution method has several advantages. Most important is the simplicity and familiarity of the international sale agreement between the seller and the distributor: the method involves only a straightforward contract of sale for goods, governed by standard international terms. Under a distribution method, the domestic seller is not exposed to liability in the international market because the profit is made at the point of initial sale. In addition, no additional costs associated with selling in the overseas market are incurred to the domestic seller, since the international seller assumes any overheads (Neipert, 2002). There are, however, several disadvantages. Within a distribution agreement, the domestic seller has no further legal relationship with the international seller once the sale has been completed, and must therefore surrender all control over the goods and the manner in which they are sold. This can render it much more difficult to maintain a brand presence in the overseas market, since the domestic seller (who is also likely to be the producer of the goods) cannot control the manner and form in which the goods are sold without entering into further agreement (Goode, 2006). In addition, any revenue from the overseas sale is limited to the amount made in the initial sale to the distributor, who then sells for his own account in the overseas market: the domestic seller will not, within a distribution agreement, have recourse to any additional profit made at the point of sale to overseas consumers.


The simplicity of the distribution method can be contrasted with the franchise. Franchising does not rely on a legal structure per se, but rather a specific business model in which the domestic seller grants a licence to the international seller which permits the latter to provide a good or service in the overseas market that is subject to a trade mark by the domestic seller (Benjamin, 2008). The franchisee will then sell the goods for his own account, and payment mechanisms between the overseas seller and the domestic seller will be referred to the units sold or the profit generated. By contrast to the distribution agreement, the franchise method allows the domestic seller to impose significant restrictions on the way in which the product is sold: these restrictions are intended to bolster sales by providing coherent to the franchise system, as well as implementing successful business practices (Goode, 2006). From the perspective of the domestic seller (‘the franchisor’), it has the advantages that it is a highly specialist marketing form that simultaneously allows the domestic seller to exercise a high degree of control over the franchisee without exposing himself to liability in the international market, since the domestic seller is not financially liable to the franchisee or creditors of the franchisee. From the perspective of the overseas seller (‘the franchisor’), the franchise method would present a significant disadvantage to a seller wishing to develop an independent sales method or brand presence in the overseas market, but would offer significant advantages in terms of business management support and branding.

The method that is preferred will depend on the likely balance that the parties seek between three factors: commercial convenience, ease of entering into specific legal relationship, and desire to enter into contractual relationship with overseas party (Schmittoff, 2007). One must also consider the international tax implications of the transaction (Goode, 2006) which although well outside scope of this analysis, may be determinative.

5. Structure

For the legal implications of the letter of credit to be explained, one must first have an understanding of its structure. A letter of credit consists of a number of contractual relationships between the parties that seek to provide an autonomous system of payment for a documentary sale (Wood, 2007). The credit is comprised of five contracts between the four relevant parties: the underlying contract between the buyer and the seller; the contract between the buyer and the issuing bank which instructs the latter to open the letter of credit, on terms that specify that payment is not to be made until the relevant documents are received; the issuing bank will enter into a contract with the advising bank notifying them of the existence of the credit and authorizing them to make payment to the seller when the relevant documents have been received; the issuing bank will also enter into a contract with the seller stipulating that payment will be made against documents; finally, the advising bank enters into a contract with the seller stating that payment will be made against documents when provided to the advising bank (Goode, 2006). Each of these contracts will typically be governed by the Uniform Customs and Practice for Documentary Credits (UCP), provided that it is expressly incorporated by reference into the contracts comprising the credit as required under both English law and Art 1 UCP itself.


The important result of the multiple contracts involved in the letter of credit is that it becomes a payment mechanism where payment is made autonomously from the underlying contract of sale (Sealy & Hooley, 2008). As a leading commentator has stated, one of the “primary functions of the letter of credit is to create an abstract payment obligation independent of an detached from the underlying contract of sale between the seller and the buyer and from the separate contract between the buyer and the issuing bank” (Goode, 2006: 971). The legal implication of the autonomy of each contract within the letter of credit is that the seller will receive payment against the documents regardless of the his performance of the contract of sale with respect to the goods. An exception to the autonomy principle is made in cases of proven fraud, and in that respect the letter of credit is analogous to a bill of exchange in terms of its security of payment (Benjamin, 2008).


The principle of autonomy of the contracts comprising the letter of credit is supplemented by the principle of enforceability: payment must be made against documents that have been correctly tendered to the advising bank under the terms of the contract between those two parties (Wood, 2007). There must be strict compliance with the terms of the letter of credit and small discrepancies between the documents and the terms of the letter of credit will prevent payment being made (J H Rayner v Hambros Bank, 1943).

The paramount advantage of the letter of credit is that it provides certainty and security in payments made in international trade transactions, where other mechanisms may fail to ensure that the seller is paid in a timely fashion once title to the goods has been received (typically in the form of a bill of lading or similar document of title) (Sealy & Hooley, 2008). The letter of credit has the potential to give rise to legal oddities into two situations, either where payment will be made against documents even in situation where parties know that goods have not been tendered under the contract, or in case where goods have been tendered but payment cannot be made against the documents because of an otherwise insignificant difference between the wording of the documents and the terms of the letter of credit.

6. This problem will seek to briefly advise Westminster PLC (‘Westminster’) in relation to each potential claim that they have against the Ron under the contract of sale.

The most significant claim that Westminster has is in respect of the boxes of rum that have fallen from the crane into hold and onto quayside during loading. Under the terms of the Cartogen Incoterms 2000, the seller in an FOB contract is under a duty to load the goods onto the ship. Despite the significant criticism of the rule in Pyrene v Scindia (1954), the goods are deemed to have been loaded at the point at which they cross the ship’s rail (Benjamin, 2008) and as a result, the party that bears the risk of the damage to the broken bottles of rum will depend on which side of the ship’s rail the goods were above in the moment before they fell from the crane. It is likely that Westminster will bear the risk of all the boxes that fell into the hold, as their location would imply that the goods had passed the ship’s rail before they fell. Westminster would, however, have a claim against Ron in respect of the boxes that fell into the quayside, since it is unlikely that they had passed the ship’s rail before falling. The claim would be governed by Arts 46-50 Vienna Convention on Sales.

A second claim can be made in respect of the failure of the master of the vessel to take more than half the shipment. Under the terms of the Cartegen Incoterms 2000, the seller in an FOB contract is under a duty to load the goods, and is therefore liable for breach of that obligation in nominating a ship that refuses to load the full cargo. Westminster’s remedies for breach are governed by the Vienna Convention on Sales1980, in particular Art 51(1) which states that the buyer may make use of the remedies listed in Arts 46 – 50 in the event that the seller delivers on a part of the goods or if only a part of the goods delivered is in conformity with the contract. Both of these criteria apply on these facts.

A third claim can be made in respect of the inadequate screw tops provided by Ron and the subsequent damage suffered to the bottles. Westminster will have a claim against Ron under the contract of sale for the provision of faulty goods. Art 35(1) Vienna Convention on Sales places Ron under an obligation to deliver goods which are “contained or packaged in the manner required by the contract” and further states in Art 35(2)(d) that goods will not be deemed in conformity with the contract unless they “are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods”. There is no indication that Westminster was aware of the inadequate packaging and Ron could not therefore raise a defence to the claim under Art 35(3), which states that the seller will not incur liability where the buyer was aware of the defect.

A fourth claim can be made in respect of the bottles that have broken due to inadequate packing for the voyage. Under the Cartogen Incoterms 2000, it is the duty of the seller in an FOB contract to provide export packing. Westminster therefore has a valid claim against Ron for the value of the damage that was suffered due to inadequate packaging.

As a final point, it is clear that Westminster does not have a claim against Ron in respect of the delay in loading. The delay is contractually insignificant because the goods were shipped on 18th September, which is still within contract terms (“September shipment”).

In respect of the claim that has been made against Westminster for storage fees payable to the Colombian authorities, my advice would be to resist payment and direct the Colombian authorities to Ron. Under the terms of the Cartogen Incoterms 2000, the seller in an FOB contract is under a duty to pay any storage fees incurred.


Vienna Convention on Sales

Uniform Customs and Practice for Documentary Credits

UNCITRAL Model Law on International Commercial Arbitration,

Cartegen Incoterms

Brussels I Regulation

Rome I Convention

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Goode, R., 1991. Reflections on the Harmonisation of Commercial Law. Uniform Law Review, 54

Neipert, D. M., 2001. Law of Global Commerce: A Tour. London: Prentice Hall

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Wood, P., 2007. Law and Practice of International Finance. London: Sweet & Maxweel

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