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| Question | Answer |
| Commercial Law (Wirtschaftsrecht) 1) Business Law (Wirtschaftsprivatrecht) 2) Regulatory Law (Wirtschaftsverwaltungsrecht) | 1) Deals with contracts, companies 2) Deals with authorities, permits |
| Private Law=Civil Law | Private law / Civil law deals with legal relationships btw private persons (individuals and companies/orgs); Examples: Purchase contracts, lease contracts, construction contracts, labour contracts, insolvencies, damages for personal injury or for property injury, law-suits in such areas Basic German statute: BGB = Bürgerliches Gesetzbuch = German Civil Code |
| Contracts: Main Issues | Formation Cancellation Fulfilment Change Breach |
| Business Law: Main Areas | Company law (foundation, shareholders, managers) Commercial law (commercial contracts, brokers, agents) Competition law (cartels, advertising) Accounting Law (balance sheets) Intellectual property law (trademarks, patents, copyright) Labour law (hiring and dismissing employees) Transport law (responsibility for shipments) Insolvency law (bankruptcy: procedure, consequences) |
| Regulatory Law: Examples of Areas | General trade supervision law: Health protection, environmental protection, consumer protection, quality standards, public policy, etc (numerous special statutes) Import and export regulations Taxation of businesses |
| The Role of the Law in Business | Legal disputes of all types, e.g.: payment claim against defaulting customers, defence against payment claims raised by customers e.g. for defective delivery, claims of employees against unfair dismissal, disagreement with tax authorities |
| Solutions to Legal Disputes | 1) Negotiations resulting in a settlement 2) Law-suit resulting in a judgment 3) Law-suit resulting in a settlement -> In practice: Emphasis is on negotiations, because a law-suit has considerable uncertainties |
| Business Activities Examples | opening a business offering certain goods or services, negotiations, concluding a contract, hiring or firing an employee, posting an ad, taking a loan |
| Role of the Law in Business 1) Awareness 2) Compliance | 1) Business activities have legal aspects and possible legal requirements 2) ensures legal validity and enforceability of the business activity AND prevents disadvantages (injunctions, fines, compensation payments, liability risks) |
| Public International Law | Conventions, treaties and agreements among nations and rules of international orgs that govern international trade = Governmental regulation of international business EU treaties, NAFTA, WTO, OECD, UN agencies Keywords: Customs and tariff laws |
| International Business Law | The private law applicable to int business TA between private businesses (companies or individuals) Keyword: International sales contract International Business Law governs International Business Transactions („IBT“) |
| International Business Law - Main Areas | 1) International trade = international sales 2) International trademarks, patents 3) Foreign direct investment |
| Cross Border Transactions | 1) Involving parties in at least 2 different countries (“jurisdictions”) 2) - Transfer of ownership by physical delivery into another state (e.g. purchase and delivery of goods), OR - Transfer of ownership to party located in another state without physical delivery, e.g. acquisition of (i) real estate, (ii) goods already located in buyer’s state and to be picked up by buyer, (iii) finance products, (iv) shares in a company, (v) rights |
| "Business" in IBT: 1) Goods & Assets 2) Energy 3) Construction Work 4) Financial Products or Services 5) Intellectual Property Rights 6) Shares in a company | 1) e.g. machinery, vehicles, electronic appliances, medical drugs, agricultural products, waste 2) e.g. crude oil, natural gas, electricity 3) for infrastructure projects (e.g. construction of airports, rail networks, power stations, industrial facilities) 4) e.g. trademarks, patents 5) (“M&A”) = foreign investment |
| 1) b2b contracts 2) b2c contracts | 1) typical for IBL (no direct consumer sales) 2) in some areas: Luxury items, Media sales, Tourism, Purchases of consumer goods through internet sales platform |
| Choice of Law | Parties simply agree on the applicable law that applies to the sales contract for issues that are not addressed in the contract. Thus, the law governing the sales contract is in many cases mostly the law of a certain jurisdiction, e.g. English law, German law, Swiss law etc |
| Absence of Choice of Law in Business Contract | No high practical relevance in IBT, as choice of law clauses are business standard. But: every jurisdiction has rules governing this issue = the „private international law“ of a jurisdiction |
| Private International Law: Germany 1) EGBGB 2) Rome I Regulation (EU) | 1) Contract validly concluded ? Form, representation; Ownership in an asset validly transferred to buyer ? 2) Contractual obligations = rights and duties arising from the contract, e.g. remedies in case of breach; „A contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence“, art. 4 no.1. lit a) of Rome I |
| Application of Domestic Law | Mandatory regulations of country of origin and country of destination apply as well (laws of a certain country / jurisdiction = domestic law), e.g. Domestic law of country of origin, e.g. export bans, transportation & storage regulations Domestic law of country of destination on e.g. tariffs, import restrictions, transportation & storage, marketing & sales (permits, safety, packaging, labelling) |
| Domestic Law and Choice of Law | Choice of Law does not allow circumvention of domestic law. choice of law and private int law only relate to the private law governing the rights and duties between the parties under the sales contract whereas mandatory regulations of domestic law of a country involved deal with public law duties of the parties to the public in general |
| Transfer of Ownership | Application of law where assets are located ("property law"). Distinguish law for sale of assets (= law of contracts, subject to choice of law) from law for transfer of ownership in sold assets (= property law, not subject to choice of law, as such law is regulary mandatory law) |
| Managing International Transactions 1) Advisors 2) Engagement Letter 3) "Beauty Contest" | 1) may be int law firms (e.g. Freshfields, Linklaters), or int accounting firms and tax advisors (e.g. PwC, Ernst & Young) 2) Service contract with advisers (for scope of activity, fees, maximum fees...) 3) Prior selection of advisers; Advisors present themselves in a „pitch“; Advisors usually have to provide „CapStats“ (= capability statements) showing their expertise in such transactions |
| Features of an International Sale | Increased transaction risks, cf. Schaffer/Agusti, at 145 Different business and negotiation mentalities, cf. Schaffer/Agusti, at 141-142 Unfamiliar legal environment |
| International Treaty: CISG (Convention on International Sale of Goods) | treaty for a uniform int sales law; Example of unified int law Developed by the United Nations Commission on International Trade Law (UNCITRAL): „UNCITRAL Rules“ Signed on 11 April 1980 in Vienna as an int treaty, also called „Vienna Convention“ CISG has 101 articles (~30 pages) CISG has 6 binding versions: Arabic, Chinese, English,French, Russian, Spanish Signed by more than 70 states |
| CISG: Transformation into National Law | Ratification required: Signatory states need to ratify CISG by transforming CISG into their national law = Lawmakers of signatory states have to pass a law saying that CISG is part of the law of that signatory state |
| Terminology on Contracts | Formation: conclude, enter into, sign, make Change: amend, modify Transfer: assign Performance: fulfill, perform, complete, carry out Nonperformance: breach, infringe, not comply with, be in default End: Rescind, withdraw from, repudiate, set aside, cancel, terminate |
| Essential Contens of CISG | Applicability of CISG Formation of contract Remedies for breaches of contract Excuses for non-performance of contract |
| Applicability of CISG to a Sales Contract | 1) Parties explicitly agree on CISG for their contract 2) Application without express agreement |
| Application without Express Agreement (1) | Places of business of the parties are located in two diff countries that have ratified CISG; it is a sales contract for „goods“; the parties have not excluded the application of CISG (no „opt out“) |
| Application without Express Agreement (2) | 2) Due to choice of law, or under the rules of private int law, the law of a certain state/jurisdiction applies to the contract (e.g. German law); it is a sales contract for „goods“; CISG is a part of the law of such state; the parties have not excluded the application of CISG |
| Applicability: Flexible and Not Exhaustive | 1) CISG is flexible law (and not mandatory), i.e. CISG may be amended by the parties in the sales contract 2) Several matters are not covered by CISG, thus national law(s) apply to govern such gaps, e.g.: Validity of contract (e.g. misrepresentation issues, form req) Time of limitation for claims Transfer of ownership in sold goods |
| Formation of Contract: General | 1) Offer and acceptance required 2) Written form not required, oral contract is okay 3) Integrated contract = After negotiations, complete agreement is recorded in written document(s) 4) Or parties fail to sign an integrated contract and are stuck with a bulk of previously exchanged documents, (cf. Schaffer/Agusti at 114), issues then are: Has a binding agreement been made ? If so, what is its binding content ? |
| Formation of Contract: Battle of Forms | Meaning of „battle of forms“ = conflicting general terms & conditions („terms“) are exchanged by the parties Example: Seller adds his terms to his offer, buyer accepts with his own terms, seller again „confirms“ with is own terms, buyer replies by „confirming“ with is own terms, and so on Nonetheless, at a certain point the parties start to perform under the agreement, e.g. buyer makes prepayment or seller makes delivery |
| Formation of Contract: Battle of Forms - Legal Options 1) No Contract Rule 2) Last Shot Rule 3) Knock Out Rule | 1) Contract was not validly concluded 2) Contract is valid, and the terms of the party apply that was the last to provide its terms 3) Contract is valid, and terms apply only to the extent they are not contradictory; if they are: Law (CISG) applies |
| Formation of Contract: Battle of Forms - The Law | 1) Some courts: Last shot rule 2) ! BGH: Knock out rule 3) Note: Non-German courts are not bound by the judgment of the BGH; = General problem of the application of CISG: No uniform jurisdiction – although there is a unified law (CISG), there is no unified court system which exclusively handles all CISG cases |
| Remedies: Overview 1) Remedies Definition 2) Breaches Examples 3) Negligence of seller | 1) Rights of a party against the other party if other party breaches the contract 2) Non-performance/Partial non-performance; Late performance; Defective performance 3) Negligence of the seller with respect to the breach is not a req for remedies of the buyer |
| Remedies: Types | 1) Cure of defect (new/additional delivery) 2) Price reduction (buyer keeps goods and reduces price) 3) Damages (= compensation, e.g. for buyer‘s lost profits) 4) Avoidance (cancellation of contract) |
| Remedies: Each of the above remedies applies, if (i)____ and (ii)____ and (iii)____. | (i) there is a valid sales contract (ii) that CISG applies to (iii) the buyer has informed the seller of defects as soon as reasonably possible |
| Remedies: Exclusion | Buyer must examine the delivered goods asap and notify seller of defects found - Perishable / durable goods; - Defects that can only be discovered upon use; - Hidden defects that appear only after a certain time -> Otherwise, buyer loses his remedies for such defects ! Not applicable, if seller knew and concealed the defect ! Parties often agree otherwise |
| Remedies vs. „Risk of Damage or Loss" 1) Definition 2) If buyer bears risk 3) If seller bears risk | 1) Risk of damage or loss = risk that goods are dmged or lost during transport 2) Buyer has to pay the full price although the goods are lost or damaged on transport 3) Seller receives no price for the goods lost or damaged on transport, but has to make a (new) full delivery of conforming goods to buyer |
| Remedies vs. „Risk of Damage or Loss" When does risk pass to buyer? | 1) Several possibilities: When buyer picks up goods from seller, or when goods have been loaded on vessel, or when vessel has been unloaded in port of destination, or other moment 2) In an individual case: Mostly as agreed in sales contract, frequently by „Incoterms“ (cf. next sub-chapter): Incoterms may apply to a sales contract that is (otherwise) subject to CISG Or artt. 66-70 CISG |
| Remedies vs. „Risk of Damage or Loss" 1) Remedies apply if... 2) Remedies apply even though... | 1) ...defect of goods existed before the risk passed to the buyer (breach before risk) 2) ...damage to or loss of goods is caused on transport and after risk had passed to buyer, if that damage or loss was caused by seller because goods were improperly packaged by seller or insufficiently prepared for shipment by seller |
| Excuses for Non-Performance 1) Basic Rule 2) Exception | 1) Negligence of the seller with respect to the breach is not a req for remedies of the buyer/It is not an excuse for bad or late performance of the seller that the bad or late performance was not the seller‘s fault 2) Exception: Performance obligation is suspended or excused (art. 79 CISG), (i.e. no liability of seller) if due to an impediment beyond control of the party („force majeure“), e.g. natural disaster, war, embargo |
| Incoterms | "International Commercial Terms" - provide standardized rules for certain responsibilities of seller and buyer in an international sales contract - not a part of CISG |
| Incoterms Contents 1) Shipment 2) Customs 3) Insurance 4) Risk | 1) How (by road, rail, sea, combination thereof)? Who is responsible for which parts of the transport? Who bears which parts of the costs? 2) Who handles the formalities? Who pays tariffs and duties? 3) Who is responsible for obtaining insurance?/Who has to pay the insurance premium? 4) Who bears the risk in case of loss or damage to the goods during shipment ? |
| Applicability of Incoterms | Incoterms are no law, but are published by the International Chamber of Commerce (ICC) in Paris as a “proposal” to the business community - only applicable to a sales contract when seller and buyer have agreed on it note: one Incoterm per contract - Parties may agree on a certain Incoterm and may also agree to modify it |
| Definitions 1) Terminal 2) Pier | 1) Place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal 2) Place alongside the vessel (e.g., on a quay or a barge) |
| Structure of Incoterms E-F-C-D | E: Seller not responsible, buyer picks up goods at seller F: Seller only responsible for transportation to a carrier or to the named port of export C: Seller responsible for transportation to the named place of destination or port of destination, risk and costs may lie with buyer earlier D: Seller responsible for transportation beyond the named port of destination to terminal or agreed point of delivery, risk lies with seller |
| Most frequently used Incoterms (1) EXW = Ex Works | Seller delivers: When seller places the goods at the disposal of buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.) Seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export Example: EXW Duisburg |
| Most frequently used Incoterms (2) FOB = Free On Board | Seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards Example: FOB Shanghai |
| Most frequently used Incoterms (3) DDP = Delivered Duty Paid | Seller delivers: When the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination Seller bears all the costs and risks involved in bringing the goods to the place of destination, to pay any duty for both export and import and to carry out all customs formalities Example: DDP Los Angeles |
| CISG International Jurisdiction of Courts | No uniform (international) court system for disputes under CISG or for international business matters National courts have jurisdiction according to applicable provisions of domestic law EU member states: „Brussels I“-Regulation = the rules to determine which courts of European Union Member States have jurisdiction in cases with links to more than one country Basic principle = court in the member state of the party that gets sued (= defendant) has jurisdiction |
| Liability of Carriers for Losses of or Damage to Cargo | Carrier‘s liability is often limited by applicable laws. So, shipper/seller or the consignee/buyer require insurance coverage for full protection against such risks: (Additional) insurance contract is required Scope of insurance coverage may differ from contract to contract, depending on the terms of the individual insurance contract Insurance is of paramount importance |
| Maritime Transport: Bill of Lading | Upon receipt of cargo, ocean freight carrier hands over to shipper the ocean bill of lading, which is: Receipt for goods by ocean freight carrier Transportation contract with ocean freight carrier Document of title to goods described in it |
| Customary Types of Payment in Business Transactions 1) Standard 2) Exception 3) Combination 4) Reason 5) Method | 1) Payment after delivery = open account transaction (most risky method for seller) 2) Prepayment = cash in advance = cash before delivery (most risky method for buyer) 3) Downpayment = partly prepayment 4) Purchase contract provides when payment becomes due (= after or before seller has performed) 5) Mostly by bank transfer |
| Letter of Credit (LoC) (1) =Akkreditiv | The issuing bank promises to make payment to beneficiary (= seller) !upon presentation of documents by beneficiary, as agreed, which are in particular: Bill of lading (= proof of shipment) Seller‘s invoice Agreed insurance policy Certificate of inspection of shipped goods by neutral expert |
| Letter of Credit (LoC) (2) 1) Time of Payment 2) Reimbursement 3) Risk | 1) Issuing bank pays to seller upon presentation of documents, even before the goods have reached the buyer 2) Buyer must reimburse issuing bank 3) Bank refuses payment, if presented documents do not strictly comply with requirements in letter of credit |
| Letter of Credit (LoC) - Untrustworthy Bank | Confirmed letter of credit: If seller does not trust the issuing bank -> seller’s bank will confirm the issuing bank’s LoC if agreed with seller Money flow: buyer->buyer's bank->seller's bank->seller |
| UCP 600 (2007) Uniform Customs and Practice for Documentary Credits | - not a law, but published by the International Chamber of Commerce (ICC) in Paris as a “proposal” to the business community - rules only applicable to an LoC when agreed: LoC is provided by the respective bank and, as a rule, contains a reference to the application of UCP 600 - consists of 39 articles (~22 pages) |
| Arbitration | Resolution of legal disputes outside courts Parties to a dispute appoint one or three persons as "arbitrators“ who perform the function of a court („private law-suit“) Arbitrators are usually lawyers of international law-firms Arbitration usually agreed in sales contract itself Arbitration award has the force of a court judgment Appeal against arbitration award not possible |
| Arbitration - Applicable Law 1) Law for the arbitration procedure 2) Material law that is underlying the dispute | 1) (how do parties present their case, deadlines, etc): Arbitration rules agreed btw the parties, frequently arbitration rules of the International Chamber of Commerce (ICC), Paris 2) The law designated in the choice of law clause of the contract btw the disputing parties (e.g. English law), and/or CISG / Incoterms / UCP, and/or mandatory domestic laws |
| Rationale for Arbitration in International Business (I) | A court judgment does not mean that the defendant who is ordered by the court to make a payment to the plaintiff actually makes such payment If the defendant refuses to honour the judgment, the plaintiff must collect the judgment (= apply for enforcement of the judgment), i.e. the plaintiff must ask state authorities to confiscate the defendant‘s property, to sell it and to transfer the proceeds to the plaintiff to the extent necessary to satisfy the plaintiff‘s claim under the court judgment |
| Rationale for Arbitration in International Business (II) | Enforcement of a judgment abroad (state deciding court=/=authorities) is often difficult or impossible Without the option to enforce a judgment, a judgment is often worthless Under the New York Convention 1958, an arbitration award can generally be freely enforced in any state having signed and ratified the Convention New York Convention encompasses virtually every significant commercial country in the world |
| Distribution: International Sales - Obstacles | Manufacturer / seller often faces considerable impediments for marketing goods in a foreign country (= export country), in particular language barrier unknown economic environment unknown legal environment cultural differences |
| International Distribution - Intermediaries 1) Commercial agents 2) Distributors (dealers) | In order to overcome such obstacles a seller frequently cooperates with intermediaries from the designated export country 1) only brokers the sales contract between seller and buyer, is not a party to it, receives commission from principal (= other party of agency contract with agent) 2) Buys goods from seller and resells on its own behalf to third parties |
| Intellectual Property - Trademarks 1) Definition 2) Ownership I | 1) word/multitude of words/sign/design which identifies products or services 2) Trademarks can be registered as ownership of the holder in public trademark registers for certain categories of products/services Registration gives indefinite ownership right, if (minor) fees are paid regularly |
| Intellectual Property - Trademarks 3) Ownership II | 3) Registered owner of trademark is „protected“ = may prohibit third parties (through legal action) to use the trademark or similar words/signs for products/services belonging to the relevant classes (but: „notorious“ trademarks, e.g. Audi, are protected for all classes) Trademark may be sold and transferred to another person |
| Trademarks: Legal Issues 1) Regulatory restrictions 2) Priority Principle 3) Cancellation of trademark | 1) Generic words that generally describe the product/service, geographic designations („Oslo“) and state emblems (flags, coats of arms) are often no permissible trademarks 2) Owner of (similar) older trademark may object to new one, disputed cases may be brought to court for a decision 3) Upon request of any third party, if owner has not used trademark for several years |
| International Trademark Registration - General | No single worldwide trademark registration (individual country each) |
| International Trademark Registration - Madrid System | Madrid Agreement 1891 + Protocol 1989 One national application for a national trademark with the national trademark office together with the request for international registration under the Madrid System Registration in International Register by WIPO = World Intellectual Property Organization (UN agency, Geneva) Domestic trademark offices of those countries where applicant wants to protect his trademark make review of their own and may accept or decline the application |
| Trademarks: International registration - CTM | EU Community Trade Mark (CTM) system: Trademark system which applies in the European Union Application and registration with the „Office for Harmonization in the Internal Market“ in Alicante/Spain leads to a registration which is effective throughout the EU as a whole |
| Trademarks: License | Owner of trademark may allow third parties to use the trademark for products/services belonging to the relevant classes on the basis of a license agreement Terms of license agreement: - License may be for license fees (= royalties) or free of charge - License may be limited in scope and time, or exclusive, irrevocable and unlimited in time |
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