ibt043098

ANALYSIS

detailed diagram/map of the facts

cast of characters: title, location, type

contracts

chronology: what stage of the transaction are we at?

conflict of law issue: which bodies of law might apply?

ISSUES

conflicts of law problems

choice of forum clause: procedural rules, discovery, role of lawyers, law in books vs action, attorney fees, US one of the few jurisdictions where loser doesnt pay all legal fees

choice of law clause: treble damages

arbitration provision

language: docs, negotiations

exclusivity arrangements

non compete, antitrust issues

division of territory, products, only sell your brand, competing with current distributor product line

franchising

canadian province has a disclosure rule for franchisees

1) intellectual property protection

2) direct vs. master franchising agreements

direct: have deal with each franchisee independently, but may subject yourself to certain liabilities if you have control

master: have franchisor deal with a single master franchisee which deals with each individual franchisee; simpler, loss of control over individual franchisees, liability shield, but master franchisee may be untrustworthy, inefficient or not aggressive enough

3) how much corp culture and image to relinquish? hold onto?

menu + service hours at 741

advertising bad taste at 743

form k, at 741, see at 3/18/98

4) import, export and customs concerns

5) differences between legal systems

6) agency law concerns: is franchisee deemed franchisors agent?

7) foreign governmental regulation of franchising: disclosure, registration, etc.

8) foreign currency controls: remittal of franchise fees in dollars ok?

9) double taxation concerns

10) local regulation of advertising content

11) language concerns: mandatory use of a foreign language

termination of agreement

indefinite term: possible obligation to terminate only w/ cause

fixed term: local laws may make short terms illegal or construe as a k for indefinite term

just cause, at will

local laws

ownership limits, immigration

political risk

mandatory language use

advertising content regulations

counter trade

labor laws

intellectual property protection

trademarks: no central intl place to file, must register in each country, but someone may be using it or have already registered it

trade secrets and know-how: some countries have made it hard to protect; keep it secret, use k to limit disgruntled Ee, remedies?

patents: patent convention treaty, notification given

copyright: no central registration, some cross-border

confidentiality, brand name, transfer of technology, customer lists

performance requirements

sales quota vs best efforts (cultural problems with the latter)

excuses for non performance: force majeure clause, acts of god/war

oversight & approval

compensation: salary (strong presumption of Ee status labor laws) vs commissions

indemnity, insurance

advertising/marketing/brand image/brand name

distribution and sales channels to be used

installation, servicing, inspection, notification

representations made

background, expertise, reputation

shipment issues

customs: tariffs, quotas

payment: due date, confirmation mechanism

currencies: hard (convertible) vs. soft (no one wants it), counter trade, hedging, terms of trade

transportation: whose responsibility, insurance in transit

form: agent v. distributor v. broker

DOCUMENTS

commercial Invoice

proforma Invoice

FAS

FOB(Place of destination)

CIF

C&F

Letter of Credit

Bill of Lading

Shipper Export Declaration

Certificate of Origin

Dock receipt

Draft

Sight Draft

standby LoC, aka, suicide LoC, clean LoC; at 3/16/98; ways to make one better at 3/18/98

performance bond

seller is charged to issue an insurance company made bond with the buyer as beneficiary. buyer must bring a claim to get their $, with insurance company doing an evaluation to confirm the claim. US banks can issue standby LoC instead, which is less costly but is more susceptible to fraud since there is no independent 3rd party verification.

FORMATION of K

battle of forms

how does it get formed

bilateral choice of law?

yes: follow it

no: follow law where suit was filed

in formation, CISG may apply

conflict of laws analysis

COMMERCIAL TERMS

FAS

FOB(vessel)

FOB(city) in Britain is equivalent of FOB(vessel)

FOB(sellers place of business)

CIF(buyers place of business)

Applicability of INCOTERMS

Carrier Liability and Bill of Lading

Delivery Order

Insurance

EXCUSES for NON PERFORMANCE

French:

impossibility; similar concept to Art 79 impediment

substitute performance is probably required unless the good is unique, E.C.E. excuse clause, at 114; if substitute performance is a valid req, then impossibility cant be argued

US/UK:

impracticability means astronomical price might lead to excuse for nonperformance, but probably just suspends k

frustration of purpose

carrier can probably charge higher price for going around the cape (suez canal cases)German

excessively onerous, willing to adjust the k

Vienna Convention Art 79:

impediment, does not recognize frustration of purpose

duty to mitigate, if not protected by force majeure clause

does not apply to sale of servicessubstitute performance is probably required unless the good is unique, E.C.E. excuse clause, at 114; if substitute performance is a valid req, then impossibility cant be argued

[Planning]

with a series of k, use a contingency provision to make each contingent on the previous

hedge the risks, and build the premium into the purchase price

when forming any k, consider difficulty of proving facts later

BILL of LADING

Conflicts of Law: place of origination usually controls

South American, esp. Venezuela, at 148: carrier can hand goods over to a cosignee

US Law: described below

liability of carrier for giving right goods to the wrong person to

aggrieved B/L holder (not someone who had B/L stolen from them)

has a statutory right of recovery against a carrier

under the pomerene act, at 154

if the carrier delivers to someone who is not both

(1) a holder of original B/L

and (2) holder of B/L that is properly indorsed (great forgery doesnt protect the carrier)

entity that is not an aggrieved B/L holder (a shipper, or perhaps last genuine cosignee)

has a common law k right of recovery against a carrier

under adel, at 149

if the carrier delivers to someone who is not both

(1) a holder of the original B/L

and (2) the holder of a B/L that is properly indorsed (great forgery doesnt protect the carrier)

liability of carrier for giving wrong goods to the right person, mitsui at 157

with stamp shippers load, weight and count on B/L

B/L is prima facie evidence carrier received goods described

carrier becomes presumably liable to shipper for goods that were described, for

(1) load, weight, count

and (2) perhaps for quality

[maverick] depend whether they insured

[traditional] liable for quality to extent of the liability limit declared

[ansaldi] carrier liability for quality does not seem fair

without stamp on B/L

B/L does not create presumption that carrier received goods described

shipper would need to otherwise show they delivered described goods to carrier

carrier is not presumably liable for load, weight, count or quality unless there is a gross disparity in load/weight/count

who is liable for false B/L

carrier negligence?

carrier negligence for letting forms be taken depends on industry practice in how loosely forms are let out, at 168

[general rule] each party passing B/L on warrants it to the next party

under pomerene act and fort worth, at 165

unless contrary intention appears

[planning] use a stamp

perhaps practice of whole banking industry

banks are protected

UCC 7-507, 7-508, at 167

I.Cc.URC.Art.2, at 170

I.CC.UCP.Art 15, at 170

weak k of adhesion argument against bank being protected

OPERATIONS in FOREIGN COUNTRIES

Form

foreign laws: quite a few 3rd world countries do not recognize difference in forms

Distributor: actually purchases products, takes title, and assumes risk

pro: less likely to be Ee, risk of resale on shoulders of distributor, less likely to be bound by distributors actions

con: price controls may run afoul of antitrust laws, harder to micromanage

termination of, at 181

Independent Foreign Agent: does not take title, maybe on consignment

pro: much easier to micromanage A, controlling pricing does not run foul of antitrust laws as it may for distributorship

con: A can bind P if acting w/n scope of responsibility (siqueiros article at 178), mandatory local law may construe A as an Ee dragging in labor laws

Broker: merely a finder

Counter trade

types of counter trade:

counter purchase: in order to sell item A, asked to trade item B

disagio: how much trans costs are increased by doing counter trade

compensation: aka, buyback: selling a productive asset to a nation and agreeing to purchase a portion of the output produced using the productive asset

offsets: aka, local content requirement: need to buy parts from local suppliers to sell finished good

switching trade: find a 3rd party to purchase foreign companys counter trade obligation

issues to consider

what goods may/must I buy? how to find them?

who chooses the counter traded goods?

how to value the goods? equivalency formulas.

how to dispose/use goods bartered for? quality issues.

transaction costs? shipping, getting to mkt, lack of expertise, tariffs,

export/import problems? dumping accusations

how long does it take?

[nation] save foreign currency reserves, create mkt for national goods, job creation, help local industry

[foreign company] get foothold, no other choice, make a profit

scholar arguments for & against and documents used in counter trade, at 3/4/98

LETTER of CREDIT

[planning]

send a follow up letter to any transmissions

choice of law clause saying that to extent UCP is silent, transaction governed by law of the place where LoC is issued

get a waiver of discrepancies from the customer

applicant can get an indemnity agreement for fraud, etc.

independence principle

LoC transaction is independent of underlying sales transaction, except where fraud like behavior is involved (near total failure of consideration accdg to Ansaldi)

corollary: banks deal only in paper

[rationale] decrease costs banks incur in LoC transaction

if a bank gets docs that may have problems:

DEFENSE #1: docs met substantive standard for conformity w/ LoC

choice of law

possible sources of law, at 3/9/98

UK: power, appropriate law to apply to a LoC is the law of the paying bank since they have the time pressure, in absence of a choice of law provision

[ACTUAL TEST] the two ostensible standards are functionally equivalent: minor and typographical errors are okay; is the mistake so great that the bank could be mislead into paying? what is intl banking practice?

[Art. 37] if its a conflict btw/ commercial invoice description and LoC then court will scrutinize very closely, but even then it needs to be a real conflict; see grainers groundnuts case

the two ostensible standards, at 3/9/98, are 1) strict compliance [rainer, UCC 5-108, UCP 14] and 2) substantial compliance [CA1, UCP 13]

DEFENSE #2: timingbank can take a reasonable time to pay against documents not greater than 7 business days; may be enough time to get instructions or waiver; 7 days rule is under [Rev. UCC 5-108(b), at 220] except, in NY where UCP was opted for, under [UCP 13(b), at 217]

bankers trust, where bank consults with customer to see if they will waive discrepancies that time is not tacked on to the 7 day limit

DEFENSE #3: holder in due course1) X, the holder of B/L

X is holder of B/L iff:

(1) B/L is negotiable and made out to X

and (2) X is in fact in possession of B/L

2) acted in good faith (honestly, reasonably)

3) acquired documents for value

4) took possession of goods w/o notice of problems in underlying documents

Transmission Errors

[general k rule] risk of loss falls on the one who chooses or requires the transmission medium, at least as far as the risk is in the nature of the medium

negligent maintenance? negligent failure to send a follow up letter?

UCP Art. 16, at 218: exculpatory clause for banks

if mistake is so large recipient could not believe no error occurred, recipient cant take the erroneous offer

Forgery, Material Fraud, Fraud in the Transaction , at 3/16/98

[new draft UCC 5-109, at 244] and American Accord (UK applies US fraud law)

if no injunction was sought in court, applicant can request bank to not make payment:

if a required document is (1) forged (2) materially fraudulent or (3) honoring would facilitate a material fraud (not a minor dispute about quality or mere breach of warranty), a bank then

(1) shall honor a holder in due course

or (2) may honor in any other case (bank can choose to investigate the underlying transaction or can choose to pay)

if injunction was sought in court to get bank to not make payment, by applicant:

American Accord (UK applies US common law of fraud)

(1) representation of a (2) present fact (3) that is false and (4) material (would have changed other partys behavior to know the truth) and was (5) made with scienter (known false or reckless) and (6) induced action or forebearance (7) relied upon by representee (8) reasonably (9) to their detriment

UCC 5-109 standard: forged, material fraud, or fraud in the transaction

unclear whether fraud in the transaction is either material fraud, or Ansaldis serious breach of contract cum near total failure of consideration idea, or both, from stein boars head bristle case.

where mere presentation of a draft is sufficient to draw (standby LoC) UCC 5-109 is unlikely to be successfully invoked (comment 3)

united bank case, at 3/11/98FRANCHISING

Antitrust Issues

tying + tied products: item A (the tying product) is sold only to those willing to buy item B (the tied product)

supplier list

US: [general rule, at 752] as long as there is more than a few suppliers listed (not abused) such a supplier list requirement is okay.

[Ansaldi] if there are other reasonable suppliers should have them on the list. designated list of suppliers is ok in contrast w/ an even more restrictive regime.

pronuptia, at 753, [European ct of justice] franchisors dividing region into sectors and then allowing franchisee to sell from only one store in the sector was bad.

[US] personal jurisdiction

asahi need both (1) fair play and substantial justice, and (2) minimum contacts

ALTERNATIVE DISPUTE RESOLUTION

[planning]

if you can get the issue into a US court, probably easier to get other party to agree to ADR since theyll want to avoid US cts better discovery

CHOICE of LAW and FORUM