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COMMERCIAL DISPUTE RESOLUTION IN EXHIBITION
NOTICE ON PREVENTION OF LEGAL RISK OF INTERNATIONAL TRADE CONTRACTS
- (The following information is only for the parties’ reference to understand the information related to the signing of international trade contracts.)
- Q1: What should be paid attention to when confirming the contents of the contract after the exhibitor and the buyer have concluded the transaction?
- A1: Written contract should be signed by the exhibitor and the buyer after they reach a transaction through negotiation to clarify the specific rights and obligations of both parties in the performance of the transaction in order to avoid uncertainties in the performance of transactions and reduce disputes. Both parties should pay special attention to the contents of the contract. First, the contents should fully reflect the agreements reached between the two parties during the negotiation. The various commitments not written into the contract may not be recognized or cause disputes in the subsequent performance of the transaction. Second, the contents should be clear, specific and complete, so as to avoid conflicting and inconsistent agreements. Third, when the contract is in different languages, the order of effectiveness of the contracts in different languages should be clarified. Both parties should consult professional lawyers when determining the final contents of the contract.
- Q2: What are the main contents should be contained in the contract signed by the exhibitor and the buyer?
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A2: The contract signed by the exhibitor and the buyer should cover all aspects and the whole process of the transaction between the two parties. Generally speaking, the contract should include the following main clauses:
1. Clauses concerning parties of contract: including the names, addresses and related contact information of both parties.
2. Clauses concerning contract subjects: including the names, brands, specification, quantity, packaging requirements of contract subjects of both parties.
3. Price clauses: including unit price, total price, currency of price, etc.
4. Payment clauses: including means of payment, payment time, etc.
5. Quality and inspection clauses: including applicable quality standards, inspection time, inspection methods, inspection agencies, warranty period, etc.
6. Subject delivery clauses: including time and places subjects are delivered.
7. Transportation and insurance clauses: including the transportation and insurance liability of subjects.
8. Liability for breach of contract: including remedies and liability for delayed payment, quality defects, etc.
9. Clauses concerning dispute resolution and clauses of law application, including the law applicable to the contract, the dispute resolution method, location, etc. in the event of a dispute.
According to the specific needs of the transaction, the two parties may also agree on the clauses of installation, the force majeure and contract validation, and the specific contact details of the transacting parties. - Q3: What should be paid attention to as to the confirmation of relevant information of the contract parties when the exhibitor and the buyer sign a contract?
- A3: The exhibitor and the buyer should pay attention to the qualifications of the other party and the basic information of the actual contracted parties when signing the contract, especially if the counterparty is a group company or has multiple affiliates. Before signing the contract, both parties of the transaction should understand and analyze the relevant information of the place of registration, the actual place of operation, the actual management organization, etc. concerning the contracted parties, confirm that the names of the contract parties are consistent with the registration information, and heed the difference of the signatures or seals of the contract between the Chinese and foreign parties.
- Q4: What are the specific contents of consulting services for the prevention and settlement of commercial disputes the Service Center for IPR Protection and Commercial Dispute Resolution can provide?
- A4: In order to facilitate the performance of the contract and ensure the security of the transaction, both parties of the transaction should appoint a dedicated contact person in the contract respectively, clarify the specific addresses for contact documents delivery, telephone numbers and emails and other contact information, and make clear requirements on the notification of contact information changes.
- Q5: How do the exhibitor and the buyer agree on the quality of contract subjects when signing a contract?
- A5: In international trade, even for one particular subject, differences in the quality standards of importing and exporting countries often exist. Both parties should clearly stipulate in the contract the applicable quality standards of contract subjects, especially the special requirements of the importing country for contract subjects, including the inspection and quarantine requirements concerning animal and plant products, to avoid situations where the purpose of the contract cannot be achieved because it does not meet the mandatory quality requirements of the importing country. When China's quality standards are applied, attention must be also paid to the differences between national standards, departmental standards and corporate standards. For contracts that require a sample, care should also be taken to seal and properly store the samples as the final basis for the acceptance of goods.
- Q6: What is the purpose of agreeing upon the clauses of inspection or acceptance in the contract? What contents should be agreed upon?
- A6: Inspection or acceptance is the necessary procedure to confirm whether the quality of the contract subjects is in conformity with the contract. The conclusions may vary upon different inspection time and inspection agencies. Therefore, the exhibitor and the buyer should stipulate clear inspection or acceptance clauses in the contract, and the specific contents are differentiated according to the condition of the subject, which may include the inspection time, the inspection method, the inspection agency, the rights and obligations of both parties in the inspection process, and the notification of inspection results, etc.
- Q7: What materials should the complainant provide when filing commercial disputes and complaints to the Service Center for IPR Protection and Commercial Dispute Resolution?
- A7: The exhibitor and the buyer should inspect or accept contract subjects in time according to the inspection clauses of the contract to determine whether the quality is consistent. When quality problems occur and the contract does not make an agreement on the inspection, the two parties should negotiate and determine the inspection agency as soon as possible. If no agreement can be reached, the parties should promptly entrust an authoritative and professional third-party inspection agency in the relevant field to conduct the inspection.
- Q8: What should be paid attention to when the exhibitor and the buyer pay for goods in the contract by means of T/T remittance?
- A8: Due to its simple procedures and fast transfer, T/T mremittance is widely used in international trade. In order to effectively control the risks of both parties in the receipt and payment of goods, the two parties can determine the ratios of payments in different time nodes like contract signing, cargo shipment, goods receipt and goods acceptance based on the contract performance process as well as the nature of contract subjects, price clauses and quality and inspection clauses.
- Q9: When using the letter of credit as the means of payment, what are the legal consequences of not issuing a letter of credit in line with the agreement?
- A9: If the exhibitor and the buyer choose the letter of credit as the means of payment, the buyer should issue the letter of credit as scheduled according to the time and requirements stipulated in the contract. Otherwise, the other party has the right to delay the delivery and the buyer should bear the corresponding liability for breach of contract or the loss incurred by the delayed delivery. If there is any difficulty in issuing the letter of credit and the issuing time needs to be changed, the buyer shall negotiate with the other party for settlement in time.
- Q10: Why special attention should be paid to the compliance between documents and letter of credit terms when the exhibitor and the buyer adopt the letter of credit as the means of payment?
- A10: The compliance between documents and letter of credit terms is the precondition for the selling party (the exhibitor) to be approved to pay in the letter of credit. The selling party should provide the documents such as the bill of lading in strict accordance with the requirements of the letter of credit, and avoid the anti-dated bill of lading or the documents forgery. If due to delay in loading time or other reasons, the bill of lading in compliance with the requirements of the letter of credit cannot be provided, the selling party should promptly contact the other party to modify the requirements of the letter of credit. At the same time, the compliance between documents and letter of credit terms is also the only condition for bank negotiation. The purchasing party (the buyer) should notify the bank or take necessary measures to suspend the payment if it finds that there is an anti-dated bill of lading or documents forgery, etc., so as to avoid the loss due to incompliance.
- Q11: What should be paid attention to when using international trade terms (Incoterms)?
- A11: International trade terms are widely used in international trade contracts. Different terms refer not only to the rights and obligations of buyers and sellers in terms of transportation, insurance, and price, but may also affect the quality and acceptance of contract subjects. The exhibitor and the buyer can choose the appropriate terms based on the International Rules for the Interpretation of Trade Terms (Incoterms 2010) published by the International Chamber of Commerce and the nature of contract subjects. If the both parties do not want the terms used affecting the quality or acceptance of contract subjects, a clear and special agreement should be made on the quality or acceptance.
- Q12: How should the exhibitor and the buyer stipulate liability for breach of contract in the contract, and what should be paid special attention to?
- A12: The two parties may stipulate in the contract the specific amount of liquidated damages the defaulting party should pay when the default occurs, and may also stipulate the specific calculation method of the compensation for breach of contract. If there is no agreement on the liability for breach of contract, the observant party should prove the existence of the relevant loss in accordance with the requirements of the applicable laws. Since the liability term for breach of contract is of vital interest to both parties, the exhibitor and the buyer should negotiate the clauses of liability for breach of contract in accordance with the principle of fairness and reasonableness to avoid the incompleteness of the agreement, say, only stipulating one party’s liability for breach of contract and ignoring the situation of the other party, and to heed the reasonableness of liability for breach of contract and avoid exorbitant liquidated damages or breach of contract.
- Q13: Can the exhibitor and the buyer freely agree on the laws applicable to the contract when signing the contract?
- A13: The exhibitor and the buyer are free to choose the laws applicable to the contract when signing the contract without prejudice to the mandatory requirements of Chinese laws, but the issues concerning the qualification of the contract signing subjects should still be subject to the laws of the place of registration of the exhibitor or the buyer. Both parties may choose laws that they are familiar with or conform to international practices, avoiding the choice of unfamiliar third country laws and increasing the cost of subsequent contract performance and dispute resolution.
- Q14: Is United Nations Convention on Contracts for the International Sale of Goods (CISG) automatically applicable to contracts signed by the exhibitor and the buyer?
- A14: China is a CISG member country. If the exhibitor's place of business is also in the CISG contracting country, CISG automatically applies to the international goods sales contract signed by the exhibitor and the buyer, unless the parties expressly stipulate in the contract to exclude the application of CISG. In the case that the parties choose to apply the Chinese laws, CISG will be still applied with priority according to the relevant laws of China. The Chinese laws shall apply only if the CISG does not make provisions, such as the determination of the validity of the contract.
- Q15: How should the exhibitor and the buyer choose the favorable dispute resolution method when signing a contract?
- A15: It is conducive to the control of trading risk and the realization of the future expectations of both parties by defining the dispute resolution method in the contract. The exhibitor and the buyer can comprehensively consider the time cost, the cost of dispute resolution, the enforceability of the referee results, and the differences between different jurisdictions in different countries, on the basis of which a clear agreement on the settlement of disputes should be made in the contract. A more common convention is that disputes should be settled through friendly negotiation. If failed, one of the lawsuit or arbitration with strong enforcement can be chose.
- Q16: What advantages can the exhibitor and the buyer enjoy when they choose arbitration to resolve disputes?
- A16: Generally speaking, if the parties choose arbitration to resolve their disputes, they may no longer submit the dispute to litigation. Arbitration is a more common way of resolving international trade disputes than litigation. The main advantages of arbitration lie in: first, fully respect the autonomy of the parties. The parties have the freedom to choose the arbitrator, the place of arbitration, the language of the arbitration and the applicable laws. Second, arbitration award shall be final and binding. Once the arbitral award is made, it will have legal effect on both parties. If one party fails to perform, the other party may apply to the court with jurisdiction for enforcement. Third, it can be enforced overseas. Arbitral awards can be recognized and implemented in 159 countries and regions around the world through the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards. China joined the Convention in 1987. Fourth, confidentiality. Arbitration is not conducted in public, which is conducive to protecting the business secrets and business reputation of the parties.
- Q17: How should the exhibitor and the buyer prevent contract disputes and reduce the losses caused by disputes?
- A17: In order to reduce the occurrence of contract disputes and promote the rapid resolution, the exhibitor and the buyer should retain various written evidence materials during the performance of the contract, including correspondence between the two parties, minutes of meetings, faxes or e-mails.