Export contract must contain arbitration clause: US Counsel
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In a presentation on "Acquisition of US Companies," at Mumbai on 22nd February, US Counsel, Mr. David Laverty gave valuable legal tips on export to US. Excerpts from his speech: While exporting to US, use of intermediaries like agents and distributors is less profitable, but can be considered as starting point. Compared with EU and other countries, it is easier to terminate representatives in US. Letters of Credit may be too expensive or not customary. Export insurance should cover commercial credit risks, though a default still requires time, effort, and cost of the |
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Mr. David Laverty, Attorney, International Counsel making a presentation. Sitting on the dais, are from right Mr. S N Verma, Singhania & Associates; Mr. S Jamati, DDG, FIEO(WR); Mr. K G Singhania, Partner, Singhania & Associates; and Mr. Sharad Kumar Saraf, Chairman, FIEO(WR). |
exporter to collect payment. Exporter must exercise normal business prudence in exporting and exhaust all reasonable means of obtaining payment before an insurance claim is honoured. There is often a significant delay before the insurance payment is made. Good payment terms should be created to limit disputes and contract should specify what to do if the US buyer defaults or cancels payment. Arbitration should be considered to resolve disputes and so mention the place of arbitration. It is necessary to comply with US Customs and import laws including country of origin marking, otherwise there is risk of refusal or later penalties.
If payment is not made by buyer, each US State recognizes right to stop delivery of goods not yet delivered as provided under Uniform Commercial Code (UCC), even if buyer has declared bankruptcy. Bankruptcy protects a buyer’s property from repossession (called an automatic stay). If the buyer does not have possession, the automatic stay does not yet apply. A stop-delivery order from the carrier or warehouse should be obtained. Seller should present a notice that identifies the goods in transit including invoice number and container number alongwith Bill of Lading. If the seller does not know of a pending bankruptcy and learns of this when it is too late to stop delivery, the seller has the option of retrieving the goods before they are caught in the US bankruptcy process. Within ten days from date on which a buyer receives the goods, the seller can seek to reclaim the goods by submitting a written reclamation demand, which must identify goods in transit by invoice number, date, amount and container number. However, once the buyer is insolvent and sells goods to customers, reclaiming rights end and a seller can no longer claim the proceeds of the goods sold.
Another option extends the UCCs ten days reclamation to 20 days if seller sold goods on credit within 45 days after the buyer’s bankruptcy filing. The Bankruptcy Abuse Prevention & Consumer Protection Act (BAPCPA) was enacted in 2005 to prevent US Companies from acquiring goods when they know that bankruptcy is imminent. It also allows sellers to make administrative expense claims for unpaid goods received by buyers in the 20 days preceding the bankruptcy filing. Administrative expense claims (AECs) have priority over unsecured claims. AECs must be paid in full on effective date of company’s confirmed plan of reorganization. Secured lenders must reserve funds to pay AECs if they want to help debtors reorganize their business after bankruptcy.
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Problems that involve litigation often relate to matters such as disputes with intermediaries, late payments, breach of contract, intellectual property issues etc. A reputed US Lawyer should be contacted to negotiate a solution and follow with a demand letter sent by a US Lawyer, which will increase pressure. Do everything possible to stay out of US courts. However, a good export contract should contain an arbitration clause. Mr David Laverty can accesed at:info@internationalcounsel.com. |
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The meeting in Progress. |
