negotiating purchasing & sales contracts
TRANSCRIPT
Negotiating
purchasing & sales
contracts
Grading
• Role playing game
PESTIEL/CD• Macro environment analysis:
external environment of the firm
The firm
Political
Economic
Social
Technological
international
Environmental
Legal
Cultural
Demographic
Law is important even in strategic
analysis
.1 INTRODUCTION TO INTERNATIONAL LAW
Section 1: International law
SUB-SECTION 1: WHAT IS LAW?
Rules
State authority
Penalties
Binding on all members of society
Provides solutions to problems created by human activity
(Boring and difficult are not accepted answers)
Who makes international law ?The world parliament of the United nations
6
Public international Law
• relations between different sovereign States
Public international Law: seeks primarily to regulate the relations between different sovereign States and is merely
the same everywhere.
Can be binding: only between signing States, sometimes between a signing State and its residents
Business requires trust
Weak legal system
Trust in the other party
required
Time consuming
Reliable legal system
Trust generated by the legal
system
Transaction time is faster
All the previous was about public lawWhat about private law?
SUB-SECTION 2: WHAT IS INTERNATIONAL LAW?
NAYLER P, (2005), Business Law in the Global Market Place: The effects on international business, Taylor & Francis, page 16
Private international Law
• Between individuals and companies
Which law applies to this contract ?
Private international Law: is also called the conflict of Laws. Looking globally, each State or economic or trade zone
has its own rules regarding private relations, including business.
Positioning of the problem
Conflict of laws • Body of law of each country or State that is designed to solve problems
arising from the differences between legal systems
Conflict of laws
• No supranational contract law
• Example: the International Criminal Court in the Hague
Conflict of laws • Rules that apply to determine the law applicable to an international
case
Example:
French conflict of laws rule for international sale of goods:
The law of the country where the seller has its habitual residence
Conflict of laws • Rules that apply to determine the law applicable to an international
case
Example:
Delaware (USA) conflict of laws rule for international sale of goods:
The law that has the most significant relationship to the contract
Conflict of laws • International contracts: finding the law applicable to the contract
• - No foreign element - Foreign element
• No conflict of laws Conflict of laws
Conflict of laws
• The part of the law that creates, defines and regulates rights
Conflict of laws rules
Substantive law
Law of a Country or of
a State
Conflict of laws: example of a sale of goods contract
Conflict of laws rules
Law of a Country or of
a State
Most significant relationship
Habitual residence of the seller
Substantive law of the State of California
The same
Conflict of laws: example of a sale of goods contract
Conflict of laws • Choice of law
Legal Illegal
https://www.facebook.com/legal/terms
What does this clause imply? Does it really work?
Previous Facebook terms (you may check the new ones)
SUB-SECTION 3: WHICH ARE THE DIFFERENT LEGAL SYSTEMS?
Map of the legal systems in the world
Common lawCivil law
Islamic law
Based on CIA factbook
• Common law vs. Civil law
Common law:
- Unwritten law
- Case law
- Acts of Parliament interpreted strictly
Civil law:
- Written law
- Codes
- Acts of Parliament interpreted broadly
Perceived
as
Pragmatic Abstract
.1 INTRODUCTION TO INTERNATIONAL LAW
Section 2: Conflicts of law examples and solutions (private international law)
Conflict of laws in the EU• Rome convention of 1980 (Rome 1 regulation)
Harmonized conflict of laws rules for all EU member States
- Choice of law
- Default conflict of laws rules
Conflict of laws in the EU• Choice of law:
“a contract shall be governed by the law chosen by the parties”
Parties are free to choose the law applicable
Parties may choose several laws applicable to different parts
No need to have a connection to the contract
Conflict of laws in the EU
• Choice of law clause:
“This contract is governed by the domestic laws of…”
Conflict of laws in the EU
• Limitations to choice of law:
The law chosen must have jurisdiction
Conflict of laws in the EU
• Limitations to choice of law:
Internationally mandatory rules cannot be set aside
Conflict of laws in the EU• No choice of law:
- Intentionally
- Wrongfully
• Law applicable:
Governed by the law of the country with which it is most closely connected
• Presumption:
Country of residence of the party that effects the most characteristic performance
= the non-monetary obligation
Conflict of laws in the EU• Sale of goods:
The law of the country where the seller has his habitual residence
Seller
Buyer
Conflict of laws in the EU• Contract for the provision of services:
The law of the country where the service provider has his habitual residence
Purchaser
Service provider
Conflict of laws in the EU• Franchise contract:
• The law of the country where the franchisee has his habitual residence
Franchisee
Franchisor
Conflict of laws in the EU• Distribution contracts:
The law of the country where the distributor has his habitual residence
Distributor
Supplier
Conflict of laws in the EU• Consumer contracts:
The law of the country where the consumer has his habitual residence
Professional
Consumer
Conflict of laws in the EU• Scope of the law applicable:
- the way the contract is interpreted
- performance of the parties' obligations
- the consequences of a total or partial breach of obligations, including the assessment of damages
- the various ways of extinguishing obligations, prescription and limitation of actions
- and the consequences of nullity of the contract
.1 INTRODUCTION TO INTERNATIONAL LAW
Section 3: Conflicts of jurisdiction
Conflicts of jurisdiction
• Determining which Court in which country has jurisdiction
Conflicts of jurisdiction
• EU 2012 Recast Regulation
• Persons domiciliated in a Member State shall be sued in the courts of that Member State
• Choice of ordinary courts of another country
.2 INTERNATIONAL CONTRACT LAW
Section 1: The contract’s lifecycle
SUB-SECTION 1: THE LEGAL ASPECTS OF THE CONTRACT’S LIFECYCLE
Negotiation
OfferOr
Counter offer
Acceptance
Performance
termination
Validity conditions
Violation of an obligationa Breach of contract
SUB-SECTION 2: THE CONTRACT’S LIFECYCLE FOR BUSINESS
WHAT IS CONTRACT MANAGEMENT ?
Dealing with the contracts’ life cycle
➢ must be systematic and efficient
Negociation
Drafting
AwardingPerformance
Ending Setting up a team to carry out the project
• Understanding of the contract’s environment
• Determining what is possible regarding the numerous national and international rules
• Setting up adequate means of negotiation
• Manage the pre-contractual phase
Why manage contracts?
• Global context of increase of contracts volume and complexity
• New regulatory requirements
• More efficiency when focussing on pre-award activities
• Contract performance
• Cost reduction
Automation and software
.2 INTERNATIONAL CONTRACT LAW
Section 2: The pre award phase
Introduction
• General considerations on contract negotiation and drafting:
• good practice at the negotiation phase
• pre-contractual arrangements
• recommendations for the drafting phase
• considerations about the conclusion of the contract
Introduction
• legal considerations remain too often undiscussed during negotiations
• Not so much of a problem when the solution to the missing points will be found in the law governing the contract:
• - domestic contracts
• - 1980 Vienna Convention on international sale of goods
Introduction
• Consequences of the previous part on the negotiation and conclusion of an international contract
• Long-term effective business relationship
• Solid contracts
Negotiating an international contract
Good practice at the negotiation phase
Negotiation
OfferOr
Counter offer
Acceptance
Performance
termination
Validity conditions
Violation of a Breach of contract
Good practice at the negotiation phase
• The 11 principles to facilitate commercial negotiation
International Chamber of Commerce
Good practice at the negotiation phase• 1 Prepare carefully
• 2 Take cultural differences into account
• 3 Make early agreements with a negotiating partner about a process to guide the logistics of the negotiation
• 4 Allocate appropriate human and technical resources to a negotiation
• 5 Aim to develop an open and reliable working relationship
• 6 Behave with integrity
• 7 Manage your emotions
• 8 Be flexible
• 9 Make realistic commitments
• 10 Confirm the agreement to ensure a common understanding
• 11 Be ready for the case where negotiations fail
https://iccwbo.org/publication/icc-principles-to-facilitate-commercial-negotiation/
Pre-contractual arrangements
• Need to secure negotiations
• Drafting a written document expressing the intent of the parties
• Not the final contract
• Parties can:
- agree on the negotiation
- agree to agree later
Issue:
binding non-binding
Letter of intent (LOI) Memorandum of understanding (MOU)
Heads of agreement
fully enforceable contracts
gentlemen’s agreements only binding in honour
Pre-contractual arrangements
• How can you distinguish?
• Wording:- Express parties’ intent to be bound- Express parties’ lack of intent to be bound
• Law applicable:- No legal value- Enforceable contract
Pre-contractual arrangements
• Purposes:
- to confirm reciprocal interest
- to obtain a declaration of interest
- to sum up the current results
- to set an agreement on essential terms
- to set a framework for the negotiation
Pre-contractual arrangements
• Depending on the purpose → binding or non-binding
• Example:
• Interest in the negotiation
→ non binding
• Summary of the current results
→ binding
Pre-contractual arrangements
• Underlying negotiation strategies:
• try to bind the other party without being bound
• Intentionally or non-intentionally
Pre-contractual arrangements
• Dispute:
• Interpreted by a judge or an arbitrator
• Not the expected results
Pre-contractual arrangements
• Non-binding
• Both parties explicitly agree that it is not binding
• Declarations with no real specific or detailed content