国贸第十二章

Chapter 12 Inspection, Claim, Force Majeure andArbitration12.1 Commodity Inspection12.1.1 Importance of Commodity InspectionIn international trade, the quality, quantity and packing of the goods delivered by the seller should be in conformity with the terms and conditions of the sales contract. In this sense, inspection of commodity and the issuance of certificate of inspection are one of the necessary steps in a transaction.Inspection may be made by the seller and the buyer themselves. However, probably, neither party is willing to have the goods inspected by the other party to judge whether the goods are in conformity with the stipulations in the sales contract.Therefore, for the purpose of identifying liabilities and ascertaining facts, inspection by authoritative and impartial inspection institutions and the certificates of inspection issued by them are usually required in the sales contract. The certificate of inspection is regarded as the basis of the delivery of the goods.12.1.2 Time and Places of InspectionThere are three ways of stipulating the time and place of inspection in sales contract1. Inspection in exporting countryThis means that the goods are to be inspected by the inspection institution specified in the contract at the seller's factory or at the port/place of shipment in exporting country. The inspection certificate issued thereunder is the final basis of the delivery of the goods.In case the goods are found by the buyer to be not in conformity with the contract after arrival at the port/place of destination, the buyer can not claim against the seller unless he can prove that the unconformity is blamed to the seller. Thus this is favorable to the seller.2. Inspection in importing countryThis means that the goods are to be inspected by the inspection institution specified in the contract at the port/place of destination in importing country. The inspection certificate issued thereunder is the final basis of the goods delivered and the buyer could claim against the seller supported by it. Thus, in fact, the seller has to guarantee that the goods are in conformity with thecontract after arrival at the port/place of destination, which is unfavorable to him.3. Inspection in exporting country and re-inspection in importing countryThis means that the goods are to be inspected first at the port/place of shipment in exporting country and then re-inspected at the port/place of destination in importing country. The inspection certificate issued by the inspection institution at the port/place of shipment will be a part of the documents to be presented by the seller, immediately after shipment, for payment under relevant letter of credit. The inspection certificate issued at the port/place of destination in importing country will support the buyer to lodge a claim with the seller if the goods are found unconformity with the contract by re-inspection after arrival at the above destination. Therefore, this method is favorable to both sides and widely used in international trade.12.1.3 Inspection Institutions and Inspection Certificates1. Inspection institutionsThere are two major types of inspection institutions: governmental and non-governmental. The governmental inspection institutions such as the Food and Drugs Administration (FDA) in the USA specialize in inspection of particular commodities. The general commodities transacted in international trade are mainly inspected by non-governmental institutions such as the famous SGS in Swiss.Chinese governmental inspection agency of imported and exported commodities is the Administration of Quality Supervision, Inspection and Quarantine of the PRC. The provincial Entry-Exit Inspection and Quarantine Bureaus directly under it are particularly responsible for local inspections of imported and exported commodities.2. Inspection certificates1) Types of inspection certificatesThe inspection certificate most commonly used in international trade is inspection certificate of quality or quantity. They are almost necessary for every transaction.There are also some other types of inspection certificates such as inspection certificate of value, sanitary inspection certificate, disinfection inspection certificate, etc.2) Functions of inspection certificatesThe inspection certificate functions as the basis of the delivery of the goods, the document to be examined by the customs, the grounds for a claim and the criterion for identifying liabilities.12.1.4 Inspection StandardsInspection on import and export commodities shall cover quality, specification, quantity, weight, packing and the requirements for safety and hygiene. The following are the variousinspection standards.~ If the compulsory standards or other inspection standards which must be complied with are specified by laws or administrative regulations, the inspection shall be performed according to the standards as specified by laws and administrative regulations.~ In the absence of the compulsory standards or other inspection standards which must, be complied with as specified by laws or administrative regulations, the inspection shall be performed according to the standards agreed upon in the international trade contracts. If the trade is conducted against the sample, the inspection shall be performed simultaneously according to the sample provided.~ In cases the compulsory standards or other inspection standards which must be complied with as specified by laws or administrative regulations are lower than the standards agreed upon in the international trade contract, the inspection shall be conducted according to the standards agreed upon in the international trade contract. If the trade is conducted against the sample, the inspection shall be performed simultaneously according to the sample provided.~ In the absence of compulsory standards or other inspection standards which must be complied with as specified by laws and administrative regulations, and in case inspection standards are either not agreed upon or agreed upon unclearly in the contract, the inspection shall be conducted according to the standards of the manufacturing country, or relevant international standards or the standards designed by the state inspection agency.12.1.5 Inspection Clause in Sales ContractThe following is an example of inspection clause in the international sales contract."The certificate of quality and quantity issued by Shanghai Entry-Exit Inspection and Quarantine Bureau shall be a part of the documents to be presented for negotiation under the relevant letter of credit. "12.2 Claim12.2.1 Breach of Contrac tBreach of contract means the refusal or failure by a party to a contract to fulfill an obligation as stipulated in the contract. In international trade transaction, either the seller or the buyer may break the sales contract.1. Breach of contract committed by the sellerBreach of contract committed by the seller mainly covers non-delivery, late delivery andunconformity of the goods, etc.2. Breach of contract committed by the buyerBreach of contract committed by the buyer mainly covers non-payment, late payment and failure to take delivery of the goods, etc.12.2.2 Claim Clause in Sales ContractBreach of contract by either party may cause some loss to the other party, and then the party suffering loss will generally lodge a claim with the breaching party for compensation. So a claim clause is usually contained in the sales contract. The following are the examples of some different types of claim clauses.1. Discrepancy & claim clauseThis is the commonly adopted claim clause in an international sales contract. Here is an example:"Any discrepancy and claim by the buyers regarding the goods shipped shall be filed with 30 days after arrival of the goods at the port of destination and supported by a survey report issued bya surveyor approved by the seller."2. Penalty clauseSometimes a penalty clause may be included in the contract in case the seller fails to deliver the goods on time, or the buyer fails to make payment on time. Under this clause, the other party has the right to claim a penalty against the breaching party.The following is an example of penalty clause:"Should the seller fall to make delivery on time as stipulated in the contract, the buyer shall agree to postpone the delivery on condition that the seller agree to pay a penalty which shall be deducted from the payment for the goods by the buyer. The rate of penalty is charged at 1% of the total value of the goods whose delivery has been delayed for every seven days. "3. Inspection & claim clauseThe inspection clause and the claim clause are usually combined in a contract. For example: "It is mutually agreed that the inspection certificate of quality and quantity issued by Shanghai Entry-Exit Inspection and Quarantine Bureau shall be a part of the documents to be presented for negotiation under the relevant letter of credit. The buyer shall have the right to re-inspect the goods. The re-inspection fee shall be borne by the buyer. Should the quality and/or quantity be found not in conformity with that of the contract, the buyer is entitled to lodge with the seller a claim which should be supported by survey reports issued by a recognized surveyor approved by the seller. The claim, if any, shall be lodged within 15 days after arrival of the cargo at the port of destination. "12.3 Force Majeure12.3.1 What Is Force Majeure1. Definition of force majeureForce majeure is an event or effect that can not be reasonably anticipated nor controlled. A party is not liable for any loss or damage resulting from his failure to perform the contract caused by force majeure. However, at first, he must prove that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.Force majeure is not only narrowly defined, but also limited in its application. It applies to occasional and accidental situations, such as natural disasters, war, embargoes, strikes, the bankruptcy of the supplier and etc, which frustrate both one party's attempting to perform and his expecting performance. Because neither party is really at fault, the breaching party is exempt from liability and the other party can not lodge a claim against him. However, the other party could exercise any proper right other than to claim damages, such as asking for delivery later.2. Consequences of force majeureThere are usually two consequences of force majeure: termination of the contract and postponement of the contract. Whether terminating the contract or postponing the performance of the contract depends on what degree the force majeure event has affected the performance of the contract, or on the detailed stipulations in the contract.Generally speaking, the contract can be avoided only if the occurrence of the force majeure event makes it impossible to perform the contract, such as the loss of or damage to specifically designated goods, or the event is so serous that it is impossible to recover within a short period of time. Otherwise, the suffering party can only postpone the performance of the contract to reduce the possible losses to the other party.12.3.2 Force Majeure Clause in Sales ContractThe clause of force majeure usually contains the following items.1. The scope of force majeure eventsSince there is no recognized and definite explanation as to which events should be regarded as force majeure, the seller and the buyer usually stipulate in their contract the scope of force majeure events.Generally, the natural disasters such as flood, storm, heavy snow, earthquake, etc, and thecertain social disturbances like war, strikes and etc are considered as force majeure events.2. Time limit of notifying the other partyIn case of a force majeure event, the suffering party who fails to perform the contact must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the suffering party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.3. The issuer of the certificateA force majeure event should be verified by a certificate or survey report that attests such an event. The issuer of the certificate or report may be specified in the clause.4. An example of a force majeure clauseHere is an example of a force majeure clause in the international sales contract:"If the shipment of the contracted goods is prevented or delayed in whole or in part by reason of war, earthquake, flood, fire, storm, heavy snow or other causes of force majeure, the seller Shall not be held responsibility for late delivery or non-delivery of the goods but shall notify the buyer by cable and furnish the latter by registered airmail with a certificate issued by the China Council for the Promotion of International Trade attesting such event or events. "12.4 Arbitration12.4.1 The Ways of Settlement of DisputesIn international trade, disputes often arise between the two parties to a Sales contract when one party deems that the other fails to perform his obligations as stipulated in the contract, but the other party do not think so. The following four ways may be adopted to settle such disputes.1. Friendly consultationIt is best for the parties to settle disputes through friendly consultation. Thus the disputes could be resolved with the friendly business relation maintained between the two sides. However, in practice, it is so difficult for the two sides to reach an agreement through friendly consultation that this way is seldom successful in resolving disputes.2. MediationMediation could be considered as negotiation with a moderator. The mediator (a neutral third party) makes efforts to help the two parties work out their own solutions and then reach an agreement. However, the mediation has little chance of success unless the mediator is trusted by both two parties and it is not easy to find such a mediator.3. LitigationLitigation means lawsuit, a process in law instituted by one party to compel another to dohim justice. It is usually costly and time-consuming. It is likely to make the two'parties hostile to each other and damage the relation between them. Therefore, this way should be used as rarely as possible.4. ArbitrationArbitration means a method of settling disputes arising between the two sides of parties who voluntarily render their disputes to a panel of arbitrators agreed by themselves to deal with in accordance with certain arbitration rules and make a final decision binding both two parties based on the arbitration agreement the parties have reached.Compared with litigation, arbitration may save both the cost and the time. Moreover, it will not ruin the relation between the two sides and helps to preserve a long-term business relationship.Among the four ways mentioned above, arbitration is most commonly used in settlement of international trade disputes.12.4.2 Arbitration AgreementArbitration involves an written agreement between two or more individuals or entities to submit a dispute for resolution with a qualified arbitrator or panel of arbitrators.The arbitration agreement may be reached before or after the disputes arise. Before disputes arise, the two parties may previously conclude an arbitration clause in the sales contract. Alternatively, in the course of performance of the sales contract, they could reach an independent arbitration agreement after disputes arose. The two types of arbitration agreement are of the same enforcement and similar contents.An arbitration agreement usually contains the following elements.1 The intention of requesting for arbitrationThe intention of requesting for arbitration is the explicit written words of desire to submit the dispute for arbitration by the parties. The words of requesting for arbitration should be clear, exact, sure and in accordance with the essence of the finality of arbitration and possess the effect of excluding the jurisdiction of courts without any ambiguousness, indistinctness or speciousness.For example, the arbitration agreement should not be concluded this way : "Any dispute arising from or in connection with this contract shall be first settled by friendly consultation by the parties, if failed, it shall be submitted to the China International Economic and Trade Arbitration Commission for arbitration according to the Commission's arbitration rules in effect at the time of applying for arbitration. If there is a challenge against the arbitral award, it shall then be submitted to the court for settlement. " This arbitration agreement is not properly concluded because it has not excluded the effect of the jurisdiction of court. It breaches the basic principles of the finality and the non-appeal ability of arbitral awards.2. Arbitration mattersThe matters for arbitration should be stipulated in the arbitration agreement, and should be in a way as broad as possible.Any restrictive language or words can not be used in an arbitration agreement so that the arbitration agreement can be concluded in most broad sense. For example, the amount of dispute or the nature of dispute should not be limited in the arbitration agreement. Instead, no matter how large the amount of the dispute is or no matter what kind of the nature of dispute is , provided that the law permits, all can be submitted to arbitration so that it could be best for the parties to protect their interests.3. Arbitration organizationThe arbitration is to be conducted by an arbitration organization. Such an arbitration organization should be specified in the arbitration agreement. In China, the arbitration is usually conducted by the China International Economic and Trade Arbitration Commission. Particular panels of arbitrators of the Commission will be appointed to arbitrate particular cases.Sometimes, the parties may not specify an arbitration organization but several arbitrators directly. In these cases, how to select the arbitrators should be stated clearly and definitely in the arbitration agreement. It should be noted that the number of arbitrators should be odd or else it may be in a tie when settling the dispute.4. Arbitration placeThe arbitration place can be anywhere in the seller's country, the buyer's country or a third country. The arbitration place is very important for the arbitral award so it should be specified clearly in the arbitration agreement. The country where the arbitration takes place or an arbitral award is made is the country of the nationality of an arbitral award. Therefore, it is the arbitration place that is in the first place in recognition and enforcement of an arbitral award.According to the Convention on the Recognition and Enforcement of Foreign Arbitral Award concluded in New York in 1958, the arbitral awards that have been made out of the country where the recognition and enforcement are required are the foreign arbitral awards. On the other hand, to provided an arbitration place is usually equal to provide an arbitration procedure law which shall be applied to the arbitration case. The procedure law of the country where the arbitration takes place is usually applicable to the arbitration case, if the parties have not explicitly specified the procedure law (rule) of a certain country in the arbitration agreement.5. Rules of arbitrationIt is of great importance to provide the rule of arbitration in an arbitration agreement, because the rule of arbitration governs the whole process of an arbitration case from the beginning of accepting the case to the end of making an award. Different rules of arbitration will more or less have some influence on the arbitration case and the arbitral award.6. Effect of arbitral awardAccording to international practice, an arbitration agreement should also stipulate that thearbitral award is final and binding on both parties. Either party should recognize and enforce the arbitral award and could not to appeal to the court to revise it.7. Arbitration fees (expenses)It is sure that to arbitrate a dispute costs some. An arbitration agreement shall provide that which party is to bear the arbitration fees. Usually, the losing party will be provided to bear it.The arbitral award may decide by which party the arbitration fee is to be borne and the decision of the award is usually considered prior to the stipulation about this provided in the arbitration agreement.12.4.3 Arbitration Procedures1. Application for arbitrationWhen applying for arbitration, the claimant should submit to the arbitration organization specified in the arbitration agreement an application for arbitration in writing, the arbitration agreement (or the contract including an arbitration clause), the statement of facts and the evidences on which his claim is based. The claimant shall pay an arbitration fee in advance to the arbitration organization.The application for arbitration and relevant documents should be submitted in the same copies to the defendant and all the arbitrators.2. Formation of arbitration tribunalArbitrators should be appointed by the two parties to form an arbitration tribunal to hear the arbitration case and make the award. If the dispute is submitted to an arbitration organization, the arbitrator may be selected from its panels of arbitrators.No matter whether the arbitrators are appointed by the two parties themselves or selected froro the panels, they should remain impartial and the number of them should be odd.3. HearingGenerally, oral hearings are conducted in the course of arbitration. However, the arbitration tribunal may, examine the case and make an award on the basis of documents only at the request of the parties or with their consent, and with the arbitration tribunal's confirmation that oral hearings are unnecessary.The date of oral hearing should be fixed by the arbitration tribunal and be informed to the parties some days before the date of hearing so that they may have sufficient time to make necessary preparations.4. AwardIn the ordinary arbitration procedures, the arbitration tribunal should render an arbitral award within reasonable time. According to the arbitration rules of the China International Economic and Trade Arbitration Commission, the arbitral award shall be rendered within 9 months (inforeign-related economic cases and maritime cases) as from the date on which the arbitration tribunal is formed. In some special cases, the time limit could be extended conditionally.The date on which the arbitral award is made is the date on which the arbitral award comes into effect. The arbitral award is final and binding upon both parties.5. Enforcement of an awardThe parties should automatically execute the arbitral award within the time limit specified in the arbitral award. In case .one party fails to execute the arbitral award, the other party has the right to apply to the competent court for enforcement~Whenever one party applies for enforcement to the competent foreign court, he shall submit to the court written application for enforcement together with the arbitration agreement and the original copy of arbitral award and its corresponding translation copy.6. Setting aside an awardIf one party deems that there are matters not in conformity with the statutory procedure in the award after receipt of the arbitral award, he may apply for setting aside the arbitral award to the competent court in the place where the arbitration takes place.When applying for setting aside a foreign-related arbitral award, the party which proves that the arbitral award involves one of the following circumstances.~ The parties have neither included an arbitration clause in their contract nor written arbitration agreement for submission. should present evidence subsequently concluded a ~ The party against whom the enforcement is sought was not notified to appoint an arbitrator or to take part in the arbitration proceedings, or was unable to state his opinions due to reasons for which he is not responsible.~ The formation of the arbitration tribunal or the arbitration procedure was not in accordance with th arbitration rules agreed upon by the parties.The court, which after examination and verification, is convinced that there exists one of the above circumstances, or considers that the award is in violation of public interest, shall rule to set aside the award.12.4.4 Arbitration Clause in Sales ContractIn order to settle the possible disputes smoothly and quickly, most parties previously conclude the arbitration clause in their contracts. Then any dispute related to the contract would submit to arbitration according to this clause. If no dispute arises through the transaction, the clause will not be used.The following is an example of the arbitration clause in international trade contract:"All disputes in connection with this contract or the execution thereof shall be settled by negotiation between the two parties. If no settlement can be reached, the case in dispute shall thenbe submitted for arbitration in the country of defendant in accordance with the arbitration rules of the arbitration organization of the defendant country. The award made by the arbitration organization shall be taken as final and binding upon both parties. The arbitration expenses shall be borne by the losing party unless otherwise awarded by the arbitration organization. "。