Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Fabio Bortolotti
7.1 The ICC Model Contracts in General
For many years, ICC has been active in drawing up standard rules for international trade. The most important set of rules of this kind are the Incoterms®, which were published for the first time in 1935 and updated several times thereafter until Incoterms® 2010.
About 15 years ago, ICC engaged in a new direction, i.e. the drawing-up of model contracts for international trade, with the aim of offering companies engaged in cross-border trade a set of simple and well-balanced models that can help them negotiate and draft international contracts. While the first models related to simpler and more common types of agreement (sales, commercial agency, distribution, etc.), in more recent years more sophisticated types of agreements — such as contracts for the turnkey supply of a plant, contracts for the transfer of technology, and M&A agreements — have been created.
The preparation of these models has been entrusted to working parties, called “task forces”, established within the Commission on Commercial Law and Practice (CLP Commission), composed of experts proposed by ICC’s national committees. When drafting the models, the working parties try to devise “balanced” contractual rules that take into account the main issues to be considered in each type of contract.
7.1.1 The various model forms published by ICC
To date, ICC has published 15 model contracts:
7.1.2 General characteristics of the ICC models
The ICC model contracts have some common characteristics which distinguish them from other models and which will be examined in the following paragraphs.
7.1.2.1 The first characteristic: a fair and balanced agreement
Unlike the model forms proposed by associations representing specific categories (e.g. agents, distributors, sellers of certain goods, etc.), which, by their very nature, tend to favour the interests of one of the parties, the ICC standard forms are drafted with the intent of establishing a fair balance between the two parties.
This approach is primarily justified by the fact that the International Chamber of Commerce represents all categories involved: sellers and buyers, principals and agents or distributors, licensors and licensees, etc. Consequently, a model contract issued by ICC must consider the interests of all parties involved, without favouring any one of them.
However, there is a further reason for the “neutral” approach undertaken by the various working parties: the intent to provide an international standard to which the parties may refer as an alternative to national laws. In fact, to the extent that the ICC models are accepted by traders as international standards — and this is only possible if they are acceptable to both parties — some of the solutions contained in their provisions may gradually become a sort of trade usage.
Of course, it is not easy to decide which solutions can be considered to be fair for both parties. Parties tend to consider as fair those solutions which are more favourable for them and which they would like to incorporate into their contracts, and tend to forget the clauses they may have been forced to accept in cases where their position was weaker. This is why a really “balanced” contract will often be criticized by both parties as being too much in favour of the other party.
Moreover, there are cases in which a solution that in theory could be considered unfair, particularly if compared with the standard solution set out by the law, is actually the solution that both parties consider to be mutually acceptable. Take, for instance, the clauses which exclude or limit the seller’s responsibility for consequential damages. Such clauses certainly imply a deviation, in favour of the seller, from the legal rules governing contracts of sale1 but, at the same time, the principle that the seller’s liability for consequential damages should be excluded or limited to a foreseeable amount is normally incorporated in international sale contracts and thus tends to become a generally accepted international standard, which a really balanced model contract must respect.
When using ICC model forms, parties should be aware that a balanced contract is not necessarily better than a contract that favours one of the parties. There are situations in which a balanced contract is needed, as well as situations where, on the contrary, a party is expected to opt for a contract that is more favourable to it and less advantageous to the other party. In a free trade system, parties have the right to negotiate the clauses they prefer provided, of course, that they do not exceed the limits established by mandatory rules of law. It is normal that the outcome may be to the advantage of the party having a stronger bargaining position.
Consequently, parties may very well decide that the ICC model is too balanced for them and make the adjustments they deem necessary in order to achieve the result they consider appropriate. This being said, they should nevertheless avoid solutions that are too unbalanced in their favour, because this may compromise their relationship with the other party, particularly when a long-lasting cooperation is needed, and also because, in case of dispute, courts may have a less sympathetic attitude towards a party that has taken excessive advantage of its bargaining power. [Page153:]In any case, there are also situations in which a balanced contract is necessary. This is the case, for instance, when the parties wish to come to an agreement quickly without discussing the various “legal” issues, but want to be sure that they can trust the contract to be fair. Furthermore, when a party has a weak bargaining position, it may use a balanced model contract to justify alternative contractual solutions in the course of negotiation. Finally, a balanced and well-drafted model contract is an essential point of departure for working out an individual contract, which can be adapted to the specific needs of the drafting party.
7.1.2.2 The exclusion of national laws and the recourse to lex mercatoria
Another distinctive characteristic of the ICC models is that all of them (except for the model sale contract2 and the model turnkey for major projects3) provide as a standard solution with respect to the applicable law that the contract be ruled by general principles of law applicable in international trade, the so-called lex mercatoria, and not by the rules of domestic laws, unless the parties expressly choose them.
This approach needs some further explanation.
When negotiating “cross border” agreements, one of the main difficulties parties face is the lack of internationally uniform rules. If one considers, for instance, the topics covered by the ICC models, it is clear that uniform rules exist only with respect to the sale contract, while in all other cases parties must rely on national laws, which normally do not take into account the specific needs of international trade, since they have been enacted in primis for the purpose of governing domestic agreements and differ substantially from one country to another.
In such a context, the traditional approach, based on the application of a domestic law determined on the basis of the rules of private international law, is not the best possible solution. This is because it imposes a heavy burden on the parties, by forcing them to organize their contracts within a framework of conflicting, and often inappropriate, domestic rules, and by obliging them to check, on a case-by-case basis whether their contract conforms to the local rules. This will normally involve a disproportionate waste of energy, time and money, particularly with respect to dealings involving relatively small amounts of money, which will normally not justify the cost of a local lawyer’s advice.
There is, of course, a practical way to overcome the problem of conflicting domestic rules, which consists of imposing the choice of one’s own law on all foreign partners. Thus, a powerful principal can submit all of its contracts with a network of agents or distributors established in different countries to the same law, normally the law of its own country; or a strong buyer can insist on the application of its own law with sellers from different countries.4
This approach, which appears to be the most obvious solution to lawyers who simply try to extend their usual domestic contract forms and drafting techniques to an international environment, is not always appropriate. In fact, since it forces one of the parties to accept that the contract be governed by a legal system it does not know, while giving the other party the advantage of negotiating the contract clauses under a law it is familiar with, this solution can work only when the party drafting the agreement has substantial bargaining power. Even when this is the case, the fact of imposing something that is felt to be unfair by the other party may make it more difficult to establish a trusting and fair relationship between the parties. [Page154:]
In order to avoid this uneasy situation, and with the aim of putting at the disposal of parties engaged in international trade model contracts that may be used worldwide without having to be adapted to specific national legislation, ICC decided to base its model forms on neutral ground as far as possible, and make them detached from specific national legislation by having recourse to the so-called lex mercatoria.
Take, for instance, Article 24 of the ICC Commercial Agency Model Contract (2016 edition), which reads as follows:
Here, the recommended solution (Article 24A) consists in submitting the contract to the “principles of law generally recognized in international trade as applicable to international agency contracts”, with the exclusion of national laws.
The above clause leaves the parties free, if they so prefer, to submit the contract to national law by using the option provided in Article 24.2B. However, since the model was drafted on the assumption that it would not be governed by a domestic law, it is clearly stated in the introduction and footnotes that the option of submitting the contract to the “principles of law generally recognized in international trade” (lex mercatoria) should be preferred and that, if the parties wish the contract to be governed by a specific national law, they should first check if the contents of their contract conform to such law.
This approach in favour of lex mercatoria has been subject to criticism, mainly on the assumption that the “principles of law generally recognized in international trade” do not exist or are so vague that they do not offer any guidance in case of dispute.
As to the absence of precise (and foreseeable) rules, it is true that there is no established set of generally recognized principles of the lex mercatoria, particularly as regards the rules governing specific contracts. However, where the contract itself contains detailed rules which cover the most important issues, there is no reason to believe that the absence of precise rules on the remaining matters may be more dangerous than the recourse to domestic rules of one of the parties, which will often not be in line with the expectations of the other party. Concerning more general [Page155:]contractual issues (formation, performance, liability, damages, etc.), the uncertainty can be substantially reduced by incorporating the UNIDROIT Principles, as in the above clause.
In other words, even admitting that the reference to the lex mercatoria may introduce uncertainty about the content of the rules applicable to the issues not solved in the contract itself, the fact remains that this is the only solution that can ensure that the provisions of the model form can be applied in a uniform way to parties from different countries, without the interference of conflicting national laws.
One important aspect that should be emphasized is that the choice of the lex mercatoria was made for the purpose of avoiding conflicting domestic rules, and not with the aim of avoiding rules that protect one of the parties. This was of substantial importance for the model agency contract, where the drafters wished to prevent the choice of lex mercatoria being understood as a means of avoiding the rules that protect the agent. This is the reason why it has been expressly stated in Article 23.1A of the model agency contract that, if the agent is established in the European Union, the principles contained in the European directive on self-employed agents (and thus the common core of rules protecting the agent implemented in the national legal systems) must be respected.
More generally, most of the choice of law clauses of the ICC models which make reference to the lex mercatoria5 expressly state that any mandatory rules that would be applicable, whatever the law governing the contract, the so called lois de police or internationally mandatory rules, must be taken into account (see Article 24.2 of the agency model). This clause makes it possible to take account of internationally mandatory rules belonging to the legal system of the country or countries that have a close connection with the contract, provided such rules are the expression of universally accepted principles. Therefore, it appears reasonable to apply them outside the domestic context in which they have been enacted.
An interesting aspect of the ICC clause in its latest version is that it provides a hierarchy of rules: first, the contract clauses, followed by general principles, then trade usages and finally the UNIDROIT Principles. The purpose of this provision is to make clear that trade usages apply only if they comply with the general principles and that the UNIDROIT Principles apply only to the extent that they conform to the general principles (lex mercatoria) and trade usages. Consequently, the provisions of the UNIDROIT Principles will apply only to the extent they are in accordance with the reasonable expectations of business people engaged in international trade, as they result from general principles and trade usages.
It must be said that a contradiction between the UNIDROIT Principles and trade usages is likely to arise only in very exceptional cases, since the main purpose of the UNIDROIT Principles is precisely to reflect the standards prevailing in international trade. Indeed, it was the belief that the Principles were the most appropriate tool for establishing a fair and secure legal framework that led to their inclusion in the ICC model contracts.
What may give rise to occasional problems are clauses that protect a party against unfairness of the other party to an extent that traders would normally consider excessive, as covered in more detail in the second chapter of this book (§ 2.8.2.3). In fact, the clause examined above is intended to provide those who have to apply the contract (especially the arbitrators, in case of dispute) with a means to enable them not to apply those rules of the UNIDROIT Principles that, in their opinion, do not truly reflect the usage of trade.
Only in one case, i.e. in article 36.1(A) of the model contract for the turnkey supply of an industrial plant, are some provisions of the Principles expressly excluded, namely clauses 6.2.1–6.2.3 on hardship, which were considered by task force members to be inappropriate in the context of that particular contract.
[Page156:]
7.1.2.3 The drafting techniques used in the various ICC models
Standard contracts that can be used as such, without the assistance of a lawyer, are called for by the business world, particularly for contracts having a limited economic value, which businessmen tend to draft by themselves using the materials they have at hand.
Although this attitude should be discouraged and traders should be made aware of the risks of drafting and concluding contracts without the advice of a lawyer, the fact remains that many businessmen continue to draft contracts on their own without expert assistance. Moreover, since this cannot be avoided, it is better to provide the business world with accurate model forms, so that the users can at least refer to high-quality clauses instead of copying clauses of dubious origin, as they often do.
In order to reduce the risk of inappropriate manipulation of the contract text by users, the ICC models try to separate, as far as possible, parts of the contract where the parties are asked to fill in certain details (e.g. price, goods, etc.) and choose between different alternatives.
In order to achieve this, there must first be an adequate balance between those questions that are defined in a uniform manner (i.e. through a standard solution which should, in principle, remain as it is),6 and those on which the parties are expressly invited to make a choice between several alternatives. In fact, if there are too many alternatives, the model becomes over-complicated and users will become confused; but if there are too few, the model becomes too rigid, and consequently unacceptable for those who have needs that do not correspond to the standard solutions.
In other words, if the model expressly provides alternatives for the most important options, the parties will be able to obtain the solution they wish by simply indicating the option chosen without having to modify the clauses, thus limiting the risk of incorrect manipulations.
A further point is that there must always be a “default” solution corresponding to prevailing practice, which will automatically apply when the parties have made no choice.7
These goals have been pursued in the ICC model forms through two different approaches: one based primarily on the use of detailed annexes, the other based on the division into special and general conditions.
(a) The first approach: use of annexes
In several ICC model forms, the issues for which the parties need to make further specifications have been put into annexes, which are to be filled in by the parties. This implies a clear separation between the contract as such (with only a very limited number of alternatives) and the annexes. This solution also makes it possible to put more sophisticated solutions into the annexes, without complicating the text of the contract provisions.
An interesting example of this drafting technique can be found in Annex V of the agency model (reproduced below), which presents a number of options regarding the calculation of commission.
[Page157:]
If the parties need the simplest solution — because there is only one level of commission for all types of business — they will simply have to fill in § 1.1. If, on the contrary, the situation is more complicated, they will find several other solutions in the following paragraphs of the same annex. And even if they do not find the appropriate solution in the annex, they will be induced to work out their individual solution within [Page158:]the annex without interfering with the clauses contained in the contract, thus limiting the risk that inexperienced businessmen may introduce contradictory issues in the contract.
Another interesting drafting technique consists in providing a solution that will automatically apply in case the parties forget to express their choice of the options proposed within the model. Therefore, when the model provides two alternatives — which are normally presented in two columns, according to current practice in standard contracts, in order to underline the need of a choice — the model contracts consider one of them as automatically applicable if no choice has been made. Normally, there will be a provision saying that in case no choice has been made, alternative A will apply.
A similar approach has also been taken in case the parties do not fill in an essential point of the contract. For instance, Annex 1 of the agency and distributorship contract states that if the parties do not determine the contractual territory or the contractual products, the contract will cover the country where the agent or distributor has his place of business and all the products manufactured and/or sold by the principal.
(b) The division in two parts: special and general conditions
This second type of approach has been used for the model sale contract, for the occasional intermediary (NCND) contract and for the short form agency and distributorship contracts.
The basic idea is to include in a first part, called “special conditions”, all issues that imply a choice between alternatives or that need to be filled in by the parties (e.g. names of the parties, contractual products, date of delivery) and to put all other clauses in a second part called general conditions.
In this way, from the very beginning the parties are induced to discuss the main issues that require a specific choice in each individual contract. This means that the model form will guide them through the various alternatives and help them remember issues they might otherwise leave out, as well as limiting the risk that inexperienced parties might change the text of the contract clauses.
For instance, consider Box A7 of the special conditions of the model sale contract. Several alternatives are proposed: payment on open account (i.e. deferred payment after delivery), payment in advance, payment against documents, payment through irrevocable documentary credit. Of course, the solutions proposed cannot cover the complete range of situations that exist in international trade, and this is why space is left at the bottom of the box under “Other” for further possibilities
Art. 5 – Payment conditions (Model sale contract)
5.1 Unless otherwise agreed in writing, or implied from a prior course of dealing between the parties, payment of the price and of any other sums due by the Buyer to the Seller shall be on open account and time of payment shall be 30 days from the date of invoice. The amounts due shall be transferred, unless otherwise agreed, by telegraphic transfer of remittance to the Seller’s bank in the Seller’s country for the account of the Seller and the Buyer shall be deemed to have performed its payment obligations when the respective sums due have been received by the Seller’s bank in immediately available funds.
Furthermore, when a specific option has been chosen, the general conditions will determine several other issues. See, for instance, Article 5.3 of the general conditions of the model sale contract, which sets out a number of additional details in case the parties have chosen the payment by documentary credit:
5.3 If the parties have agreed on payment by documentary credit, then, unless otherwise agreed, the Buyer must arrange for a documentary credit in favour of the Seller to be issued by a reputable bank, subject to the Uniform Customs and Practice for Documentary Credits (UCP 600) published by the International Chamber of Commerce, and to be notified at least 30 days before the agreed date of shipment or at least 30 days before the earliest date within the agreed shipment period. Unless otherwise agreed, the documentary credit shall be payable at sight and allow transhipments but no partial deliveries.
This technique, consisting of establishing a number of options in the special part and then providing “default rules” in the general part, has the advantage of guiding the parties through the different options, but at the same time providing a solution where the parties have not made their choice.
7.2 An Overview of the Model Forms Not Included in this
In the context of a practical guide like this book, it was felt appropriate to specifically deal only with some basic model contracts most commonly used in international trade: the contract of sale and the agency and distributorship agreements. These model forms will be examined and commented on in detail in this chapter: infra, § 7.3.3 for the model contract of sale, § 7.4.3 for the agency model and 7.4.6 for the model distributorship contract.
As regards the remaining ICC model contracts, the next paragraphs contain a short summary of their scope and general characteristics.
[Page161:]
7.2.1 The ICC Model Contract Occasional Intermediary, 2015 Edition (ICC Publication No. 769)
Occasional intermediaries — also called brokers, indicateurs − are intermediaries who promote business without being bound by an obligation to perform such activity on a continuing basis for a principal, as are commercial agents.
For several years, a growing number of documents called “Non-circumvention & Non-disclosure Agreements”, “NC&ND Agreements”, “Commission Protection Guarantee”, or similar names, have been circulating among business firms engaged in international trade. Such agreements mainly cover situations where an occasional intermediary, who undertakes to provide certain services (e.g. communication of potential customers’ names, promotion of business), desires to be protected against the risk of being “circumvented” by the other party (and, consequently, not being paid for his services).
Since it appeared that there is need for a model contract covering this situation, the International Chamber of Commerce (ICC) decided in the year 2000 to draft a “Model occasional intermediary contract – Non-circumvention & Non-disclosure Agreement” (Publication 619) to which parties engaged in international trade could make reference for contracts of this type.
This initiative intended at the same time to react against an abusive practice consisting in presenting certain NCND agreements ICC products, like, for instance, “ICC Covenant for Non-circumvention & Non-disclosure”, “ICC Non-circumvention & Non-disclosure Agreement” or “ICC NCND”). In certain cases, reference has been made to non-existent ICC rules said to govern such an agreement (e.g. “ICC non-circumvention and non-disclosure rules”, “ICC 400 rules”, “International Chamber of Commerce Convention”). Most of these model agreements which can be found on the Internet are poorly drafted and do not adequately protect the respective interests of the parties.
By publishing, in the year 2000, the ICC Model Occasional Intermediary Contract (Non-circumvention & Non-disclosure agreement) which contains in part B a set of rules named “ICC General Conditions for Non-circumvention & Non-disclosure Agreements”, the ICC has officially established its own NCND Rules which automatically replace those of any document NCND agreement which refers to the ICC. This should give parties which inadvertently sign one of the above “fake” agreements the possibility of invoking the application of to the ICC rules, which warrant a fair and balanced contractual framework.
The same approach has been maintained in the updated version of this contract by putting the term NCND agreement in the second part of the title.
One of the main problems arising in the context of contracts with occasional intermediaries is the difficulty of defining what an occasional intermediary is. In fact, the notion of occasional intermediary can cover rather different situations. Sometimes the intermediary’s task is limited to the supply of information about possible customers; in other cases, he undertakes to put his principal in contact with a customer and, in some cases, to assist him in negotiating a deal.
This is why the model form has to consider these several options as shown in the initial boxes of the special conditions, where the parties are asked to fill in one of the possible alternatives, as shown below:
[Page162:]
Article 4.2 of the General Conditions provides that the type of services to be supplied by the intermediary must be clearly stated and that, if they are not sufficiently identified in the agreement, no obligation will arise on the side of the counterpart. The reason for this choice is that if it appears impossible to clearly establish, on the basis of the contract or other written documents, what the intermediary is actually expected to do,8 it would be unfair to request the counterpart to undertake the corresponding obligations (not to circumvent the intermediary, not to disclose the information received, to pay for the service, etc.).9
Articles 4.3 and 4.4 provide, furthermore, for the integration of incomplete clauses, e.g. by stating that the simple indication that the intermediary is to supply information means that he is not to provide further services, such as assistance during negotiation (Article 4.3), and that the obligation to put the counterpart into contact with a third party means that the intermediary must actually establish direct contact between the counterpart and the third party (Article 4.4).
Other important issues dealt with in detail in the model are:
[Page163:]
7.2.2 The ICC Model International Franchising Contract, 2011 Edition (ICC Publication No. 712)
The model published in the year 2000 has been revised and updated in 2011.
Franchising is usually defined as an agreement whereby the franchisor grants the franchisee, in exchange for direct or indirect financial compensation, the right to exploit a package of industrial or intellectual property rights relating mainly to know-how and commercial symbols, and to receive continuing commercial or technical assistance for the duration of the contract.10
The ICC model deals exclusively with international distribution franchise agreements, i.e. franchising regarding the marketing of products manufactured or or supplied by the franchisor; it does not cover service franchise agreements.
The main components of the franchise relationship, as set out in the model contract, are:
For the franchisor:
For the franchisee:
The franchising model includes commentaries under various clauses that explain the provisions and give advice to the users.
7.2.3 The ICC Model Selective Distribution Contract (ICC Publication No. 657)
Selective distribution contracts are mainly used in international trade when an exporter wishes to establish a direct link with the retailers who sell his products to the end user, in order to be able to control the way his products are marketed until the final consumer.
The reasons for this are mainly the need to guarantee a certain level and uniformity of the sales service given to the consumer. For instance, for technically sophisticated products sold on the consumer market, the producer may wish to have them sold only by retailers able to give competent technical advice to the prospective purchaser. Therefore, for products with an exclusive and upmarket image, it is the interest of the producer and of the existing network that such products be only obtainable in shops with certain exclusive characteristics (regarding their location, furniture, etc.).11
Selective distribution contracts are one possible means12 of achieving this result, by selecting a number of distributors willing to respect certain minimum requirements and to follow certain marketing directives when selling the products. By choosing to organize the sale of its products through a selective distribution network, the producer can be certain that his products will be offered to the consumer only by the resellers he has chosen, who are bound to respect the quality level he has fixed.
[Page164:]
All this implies, of course, that selective distribution is appropriate only in certain cases where the products require particular care in their retail distribution, and provided the producer thinks it is worthwhile organizing such a network.
It should also be emphasized that a selective distribution network can work effectively only to the extent that it is actually managed as a closed network, i.e. to the extent the products are not sold by retailers not part of the network. This is why it is appropriate to have recourse to selective distribution only if it appears possible to obtain from resellers the respect of the obligation not to sell outside the network.
The establishment of a network of retailers bound to the producer, such as a selective distribution or a franchising network, is traditionally made at national level. Companies that wish to operate a selective distribution network in several countries will often establish a subsidiary in each country that will directly manage the network and the contracts with its members. However, it has become more frequent in recent years to organize selective distribution across borders, i.e. between two parties in different countries.13 The ICC model selective distribution contract is designed for the second situation, i.e. one where the supplier is established in a country other than that of the distributor.
7.2.4 The ICC Model Contract for the Turnkey Supply of an Industrial Plant, 2003 Edition (ICC Publication No. 653)
This model contract intends to cover a particular category of turnkey contracts, i.e. contracts for the supply of a complete plant or production line to be erected within facilities that already exist, or which are to be constructed by the purchaser or by a third party for the purchaser’s account. In other words, the model refers to a contract which is called “turnkey” because it comprises in principle whatever is necessary for a certain purpose (a complete production unit), but such “turnkey approach” is limited to the plant or production line, i.e. to the equipment necessary for manufacturing certain products and does not extend to the items which “surround” the plant, such as buildings, supply of energy, etc., which remain outside the scope of the contract.
From this point of view, this turnkey contract must be clearly distinguished from more comprehensive turnkey contracts, which cover all other items, such as civil works, etc., like the turnkey contract for a major project which will be examined hereafter.
The difference between the two types of turnkey contracts is substantial. While in a “full turnkey” the contractor undertakes to perform a task (i.e. to build a factory, a bridge, etc.), in the contract for the turnkey supply of a plant, the supplier’s main obligation is to supply the equipment and to assist the purchaser during erection and start up, together with an overall warranty that the plant as a whole, and not only each single part of the equipment, will meet certain performance parameters.
A first consequence of this different approach is that the turnkey contract for a plant is mainly a contract for the sale of equipment, governed by the rules on sale contracts, and particularly the United Nations Convention on the International Sale of Goods (CISG), although with peculiar characteristics closer to a construction (works) contract, such as the involvement of the supplier in the erection, start up, etc., and the overall warranty of performance of the plant.
Another important difference is that, while in the full turnkey contract the contractor will generally have complete control and responsibility over the site until it is taken over, in the turnkey contract for the supply of a plant or production line, the supplier will perform its obligations regarding assistance during erection, start up, etc., within facilities that are under the purchaser’s control. This is particularly the case when a line is to be installed within an existing factory. Moreover, it is normal that the purchaser will take delivery of the equipment before erection and that consequently during the erection stage, start up, etc., the purchaser controls the equipment and bears the respective risk.
The turnkey supply of a plant is a complex operation involving a number of stages.
[Page165:]
The supply of a plant obviously implies the need for a plant project. Normally, the supplier will prepare a very general project when submitting the offer and, if the contract is concluded, he will proceed to a more detailed design (layout) thereafter. Such layout will take into account the indications given by the supplier and will, at the same time, determine the environment that is to be provided by the purchaser: civil works, water and energy connections, etc.
Thereafter, the supplier will produce the equipment, and/or purchase certain parts of it, that is to be shipped to the purchaser.
When the equipment at the site is ready for erection, the purchaser will proceed to erect it under the supplier’s supervision. The model contract has considered the most common option, namely that the various activities, such as erection, start up, etc., will be carried out by the purchaser and that the supplier’s task in this respect consists only in supervising such activity.
After the erection stage, erection testing is to be carried out under the supplier’s supervision. When erection testing has been completed, the plant will be gradually put into operation and the purchaser’s personnel will be trained to use it.
As soon as the plant has attained a sufficient production capacity, the parties will proceed to performance testing in order to verify its capacity to reach the guaranteed performance. If the performance testing is successful, the plant will be taken over by the purchaser.
A crucial issue in this contract is to decide what the consequences of not reaching the agreed performance should be.
As a general principle of law, non-performance of the contract by a party gives the other party the possibility of suspending performance and requesting damages and, if non-performance implies a material breach, of terminating the contract. However, in the context of this particular contract, termination by the purchaser may cause disproportionate damages to the supplier — especially if it takes place when the equipment has already been manufactured, delivered and erected. In fact, the extreme consequence of contract termination, i.e. that the supplier should dismantle and take back the plant and give back the money, would, in most cases, imply for the latter a loss much greater than the contract price. Considering that the equipment is frequently tailor-made and cannot be resold to others and that the dismantlement and transport costs can be very high, a termination at this stage could imply unreasonably high losses for the supplier.
On the other hand, the purchaser must be protected against the risk of being forced to keep a plant that does not fulfil its reasonable expectations. If the plant does not correspond to what the purchaser was entitled to expect, he must retain the right to terminate the contract and get his money back.
The model contract attempts to reach a workable compromise between the positions of the parties by admitting the possibility of a contract termination in special circumstances and by limiting the effects of termination to obligations still to be performed.
Only in the extreme case, where the plant does not reach the minimum guaranteed performance, will the purchaser be entitled to terminate the contract with retroactive effect, i.e. to require the supplier to dismantle and take back the equipment and to return the price to the purchaser.
Of course, in all other cases, the party terminating the contract in case of default by the other party will retain the right to recover damages within the maximum limits fixed in the contract — and even over these limits, if the default by the other party amounts to fraud or wilful misconduct.
7.2.5 The ICC Model M&A Contract 1: Share Purchase Agreement, 2004 Edition (ICC Publication No. 656)
The ICC working party entrusted with the drawing up of an ICC M&A model contract decided to proceed by successive steps and to begin with a share purchase agreement in its simplest form, i.e. the acquisition of the totality of the shares of one company.[Page166:]
This ICC model does not aim to “compete” with the more sophisticated forms used for complex and large M&A deals. Its purpose is mainly to help parties and lawyers who are not specialized in the field of M&A contracts, for instance lawyers from developing countries, to draft a simple contract covering the most important issues involved.
As regards the drafting technique used, the following should be noted.
The structure and content of M&A agreements are strongly influenced by models and forms developed within common law jurisdictions. This has brought the contracting parties to use, independently from the law governing the contract, clauses and concepts that belong to common law legal systems.
A striking example of this attitude is the reference to “representations & warranties”. It is difficult to imagine a share purchase agreement without “reps and warranties”, which represent one of the main features of such a contract. However, these two terms have no precise meaning outside common law jurisdictions and may be misleading even within these legal systems. For example, while the two terms, representations and warranties, have almost an equivalent meaning in the United States, under English law there is a substantial difference between a representation and a warranty, which results in English lawyers tending to prefer using only the term “warranties”. Parties expect these terms to be in their M&A agreement, but it should be clear that these two “magic words” have actually acquired within this type of contract an almost autonomous meaning, independent of the legal notions of “representations” and “warranties” within a specific national legal system.
In principle, the members of the task force would have preferred to avoid using these terms and to replace them with more neutral wording, but in this particular case it was felt that the terms were so closely connected to M&A contracts that replacing them would have been going against well-established usage. However, as a general rule, the drafters have tried not to use terms that are too specific to a particular jurisdiction, in order to make the model compatible, as far as possible, with any legal system.
One of the main issues of any share purchase agreement is the exact definition of the warranties given by the seller. By purchasing the shares, the buyer acquires the company that the shares represent, but the nominal value of the shares as such does not reflect the actual value of the company, which depends on a number of circumstances, such as the value of the assets, goodwill, etc. The purpose of the warranties is, therefore, to define the critical factors in relation to which the purchase price has been determined. Any breach of a warranty will be related to a reduction of the value of the target business and may result in a reduction of the purchase price.
The buyer will obtain information about all relevant attributes of the company, normally through due diligence investigations. However, the buyer has no certainty that the information he received is accurate, and this is why the seller will be asked to give a number of warranties as to the truth and completeness of certain information received by the buyer for the purpose of valuing the company.
In this context, a contractual technique has been developed over the years, whereby each warranty states a positive principle and then possible exceptions are disclosed by the seller to the buyer. These exceptions to the warranties can be contained in a separate document, the so-called “disclosure letter”, or in a document more strictly connected to the “reps and warranties”.
In order to facilitate a comprehensive view of these matters, the model contract sets out the exceptions to the warranties in a parallel document that follows the same order and numbering. Furthermore, for the convenience of the reader these two schedules have been placed in parallel on the same page, so that the warranties and their exceptions can be seen together.
7.2.6 The ICC Model Turnkey Contract for Major Projects, 2007 Edition (ICC Publication No. 659)
There is no uniformly accepted definition of the term “turnkey”. The basic concept is that the contractor shall provide the works ready for use at the agreed price. The reality is that the employer wants to be, and should be, actively involved in the project at all stages. When the contract is a turnkey contract, there are articles allowing changes to the contract’s scope, price and time for completion. [Page167:]The aim of ICC in producing this form of contract is to provide a balanced contract for the parties to turnkey construction projects, while recognizing the desire of all parties for certainty of price and scope, the need for swift and effective dispute resolution, and the need for complete and informed allocation of risks.
7.2.7 The ICC Model International Trademark Licence, 2008 Edition (ICC Publication No. 673)
This model is intended to cover the situation where the owner of a well-known trademark licenses such trademark to a company which will use it with respect to products other than those manufactured or sold by the licensor. In this case it is assumed that the licensed products will be designed and developed by the licensee and that the main preoccupation of the licensor is to ensure that the licensed products conform to the overall image of the licensor and its trademarks.
Considering the variety of situations falling within the scope of this model (trademark licenses of this type are by their very nature rather different from case to case) it is rather unlikely that it can be used as such, without modifications and adaptations.
The model contract is based on the assumption that the license would be exclusive, i.e. that only the licensee would have the right to manufacture and sell the licensed products in the contractual territory.
7.2.8 The ICC Model International Transfer of Technology Contract, 2009 Edition (ICC Publication No. 674)
The term “transfer of technology” may cover a variety of situations, ranging from patent and/or know-how licenses to more complex dealings involving the supply of technical assistance, equipment, etc.
The model covers the situation where a company (licensor), which itself manufactures certain products, licenses to another company (licensee) a global package of information and intellectual property rights in order to put the licensee in the condition to manufacture the products using the technology of the licensor.
A characteristic of this type of agreement is that the package of transferred information and rights is more important than an exclusive right to any of them individually. In other words, the licensee expects to obtain all the information, technical assistance, intellectual property rights, etc. necessary for enabling it to manufacture the contractual products to the quality standards of the licensor and with licensor’s technology: the individual elements put at its disposal are important only to the extent they are necessary for attaining this goal.
7.2.9 The ICC Model Subcontract, 2011 Edition (ICC Publication No. 706))
International turnkey construction projects are often complex transactions, requiring correspondingly complex legal documentation.
ICC has prepared this model international subcontract for use in major turnkey projects, in order to provide subcontractors and main contractors with a unique, balanced platform that is fair to all parties. At the same time, the model accommodates the desire of all parties for price and scope certainty, the need for swift and effective dispute resolution, and the need for complete and informed allocation of risks.
The Subcontract Drafting Group has chosen to draft this Model form as a “back-to-back” contract to the Main Contract between the Owner/Developer and the Main Contractor, such “back-to-back” or “flowdown” contractual technique being one of the common legal methods of subcontracting.
7.2.10 The ICC Model Contract “Consortium Agreement”, 2016 Edition (ICC Publication No. 779)
International and national cooperation between companies, be they small, medium or large, require solid and balanced terms and conditions for such cooperation and it is vital that the arrangements put in place be durable, clear and equitable, thereby enhancing business in general. ICC has prepared this Model Agreement for use in cooperation between said companies, in order to provide them with a unique, balanced platform that is fair to all parties to it.[Page168:]At the same time, the model accommodates the desire of all parties for a solid unanimous decision-making process, a clear allocation of participation and provision of resources, the need for swift and effective dispute resolution, and the need for complete and informed allocation of risks.
7.3 Contracts of Sale
Contracts of sale are the most commonly used contracts in international trade and consequently represent one of the main issues of international trade law.14
With respect to this particular contract, it has been possible, after many years of discussion,14 to establish a set of uniform rules through the Vienna Convention of 1980, the United Nations Convention on Contracts for the International Sale of Goods (CISG).
7.3.1 The UN Convention on the International Sale of Goods (CISG)
The Vienna Convention of 1980 establishes a uniform law on contracts for the international sale of goods incorporated in the legal system of the states that ratify the Convention.
In other words, when a country ratifies the CISG, it will have a special set of rules on international sale contracts in addition to its domestic rules, which continue to apply to domestic sales. Since the rules on international sales are the same in all countries that apply the Convention, contracts between parties of these countries will be governed, in principle, by the same rules and it will make no difference which law governs the contract, as in the following example:
Example 7-1 – Contract between a Belgian seller and a Chinese purchaser
A Belgian company sells chocolate to a Chinese buyer. The agreement is made through an exchange of faxes, without indicating anything about the applicable law.
Thereafter a dispute arises between the parties about alleged defects of the goods, and especially about the timely notification of such defects by the buyer.
Should the dispute be decided under Belgian or Chinese law?
Since both countries are parties to the Vienna Convention of 1980, the CISG applies, and the issue of timely notification of the defects must be decided according to Articles 38-40 of the CISG. Moreover, the CISG will be easy to apply, since it is available both in French and Chinese and since it is a well-known set of rules in both countries.
The above example shows the obvious advantages of the uniform rules.
Considering the large number of states that have ratified the Convention and the fact that they comprise the majority of the countries involved in international trade (unfortunately, however, the United Kingdom is still absent), the CISG has become one of the main instruments of facilitating international trade.
[Page169:]
This being said, even between countries that are part of the CISG, the situation is not as simple as shown above.
7.3.1.1 Scope of application of the uniform rules
In fact, it is not 100% correct to say that, in sale contracts where both parties belong to states that have adhered to the Vienna Convention, it is irrelevant to decide which law governs the contract, because the rules are, in any case, the same. In practice, as provided by its Article 4, the CISG only covers the basic provisions of the contract of sale as such.
Article 4 - CISG
This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:
[Page170:]
Issues which remain outside the scope of the Convention are, in addition to those expressly mentioned, the validity and scope of a penalty clause, the validity of a settlement agreement, assignment of a contract, etc. Where these issues must be decided, one must go back to the domestic law, as in the following example.
Example 2-7 – Sale of goods and penalty15
A French company sold prêt-à-porter clothes from the “Kenzo” collection to a Belgian purchaser.
The general conditions of the seller provided that in case of annulment of the order by the buyer, the latter would pay a sum equal to:
Since the buyer actually annulled the orders later than 45 days from order confirmation, the seller brought a claim before the Belgian court for payment of 100% of the price. The Belgian buyer objected, however, that this amounted to a penalty clause, which should be considered null and void under Belgian law.
The Court of Appeal of Antwerp decided that the above remuneration, although worded as a termination clause (permitting contract termination against payment of a lump sum), should actually be considered as a penalty clause.
The contract of sale was governed by the CISG. However, the validity of a penalty clause is an issue not covered by the CISG and was consequently to be decided according to the domestic law governing the contract.
In this specific case, the court decided that the contract was governed by French law, which admits the validity of penalty clauses, but authorizes the courts to reduce the amount, if excessive. Consequently, the court awarded a penalty of only 50%.
The above case shows that the incorporation of the uniform rules on international sale into the legal systems of the countries of the parties is not sufficient to overcome potential problems. Whenever problems arise outside the scope of the uniform rules, it once again becomes important to know which law governs the contract.
In other words, it is still important to know which national law governs the contract, even when the CISG applies, because several crucial issues not covered by the CISG will need to be decided under the applicable domestic law.
A further point that should be considered when evaluating the effectiveness of the CISG as a means of unification of international trade law is the following.
The CISG is incorporated in the legal systems of the ratifying countries. Since the uniform rules become part of their legal systems, there is a risk the same rules may be interpreted differently by the courts of different countries. In fact, the Convention itself says in Article 7(1) that, in the interpretation of the Convention:
… regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
This means that courts should take into account the development of case law in all countries where the CISG is in force in order to favour a uniform interpretation of its rules. It must be said that, quite surprisingly, national courts, which traditionally refused to look outside the borders of their own country, have been rather open-minded and tend to accept a truly international approach when applying the CISG.
[Page171:]
This type of approach has certainly been favoured by the existence of several databases where one can easily access all existing case law and compare the points of view of courts belonging to different countries.
Some databases on CISG case law
7.3.1.2 When does the CISG apply?
This issue is dealt with in Article 1(1) of the CISG, which reads as follows:
Article 1(1) - CISG
This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
This means that the uniform rules of the Convention only apply to international contracts of sale, i.e. to contracts entered into between parties having their place of business in different states. Contracts of sale between parties of the same country continue to be governed by the respective domestic laws.
When the states of both parties are contracting parties (i.e. when both of them have adopted the Convention), the CISG applies directly, without the need to resort to the rules of private international law. When only one of the states is a contracting party, the uniform law will apply if the rules of private international law lead to the application of the law of a contracting state.
An example can be useful for clarifying this point.
Example 3-7 – Sale of wine in the UK
A French wine producer sells its wine to a UK importer having its place of business in London. The contract does not say anything about the applicable law.
When a dispute is brought before the court of the French producer, the question arises as to which rules govern the contract of sale.
Since the UK is not a contracting state, the CISG cannot apply directly, and the French court must decide which law governs the contract.
Under the rules of private international law in force in France (Article 4 of the Rome I Regulation: supra, § 2.5.2), the court will almost certainly decide to apply the law of the seller’s country16 (France). Therefore, the contract will be governed by the CISG, since this is the law which governs international contracts of sale in France.
However, if we imagine a slightly different situation, e.g. that an English company is selling whisky to a French importer, then the law of the seller (which should be applied by a French court) will be English law and consequently, since England has not adhered to the CISG, the domestic rules of the English legal system will govern the contract of sale.
It is important to underline that the CISG will also apply whenever the parties choose the law of a country which is a contracting party of the Vienna Convention, unless it appears that the parties wanted the domestic rules on sales to apply instead of the CISG.17
[Page172:]
Example 3-8 – Sale of soy sauce to Portugal
A Vietnamese producer of soy sauce agrees to sell its products to a Portuguese importer.
The contract expressly provides for arbitration before the International Arbitral Centre of the Federal Economic Chamber in Vienna and that it will be governed by Austrian law.
Since Austria has ratified the Vienna Convention, the arbitrators will apply the CISG (as part of Austrian law), even though the countries of the seller and the buyer are not contracting parties of the CISG.
The parties may also expressly choose the CISG as the applicable law. This is the solution proposed in Article 1.2 of the General Conditions of the ICC Model International Sale Contract:
ICC International Sale Contract – General Conditions - Article 1.2
Any questions relating to this contract which are not settled by the provisions contained in the contract itself (i.e. these General Conditions and any specific conditions agreed upon by the parties) shall be governed:
This solution has the advantage of making sure that the contract will, in any case, be governed by the CISG instead of a national law, even where the CISG would otherwise not be applicable. However, in this case it is also recommended to agree which law will govern the issues not covered by the CISG.
7.3.1.3 Should parties exclude the application of CISG?
Article 6 of the CISG recognizes the right of the parties to exclude the application of the Convention and its uniform rules. This means that the parties are in any case free to agree that their contract should be governed by the domestic law of one of their countries (or of a third country) instead of the CISG.
Especially during the first years after the entry into force of the Vienna Convention, parties frequently had recourse to this option by stating that the application of the CISG was excluded and that the domestic rules of their country were to apply. This attitude was mainly due to the fact that many lawyers felt unfamiliar with the new rules introduced by the Vienna Convention and preferred to continue applying their domestic rules.
The main argument brought forward in defence of this choice, which is still rather frequently used, is that domestic rules are better that those of the CISG. In most cases this is a weak argument. Of course, it is understandable that a lawyer prefers the domestic rules he is familiar with, but this does not mean that these rules are a better choice than a recourse to the CISG. In fact, the uniform rules of the CISG are a set of fair and balanced rules that have the added advantage of taking into account a number of specific issues that arise in the context of cross-border transactions.
However, the most important factor is that the CISG is neutral legislation that makes it possible to overcome conflict between the national laws of the parties. If none of the parties is willing to accept that the contract be governed by the laws of the other party, the application of the CISG will be the right solution. Moreover, the more lawyers become acquainted with this set of rules, the easier it will be for them to accept it as the governing law of their contracts.
This is why companies engaged in cross-border trade should not be wary of the CISG and should organize themselves for submitting their contracts to this uniform law, one that will make negotiation with foreign parties easier.
Of course, if a party has a strong bargaining position which facilitates the choice of its own domestic rules being accepted by its counterparts, and provided that it has good reasons to prefer that its contracts are governed by its own domestic rules (e.g. THE ICC MODEL FORMS [Page173:]because there are some specific provisions in its national law which it considers of major importance, or because its lawyers have worked out general conditions based on such law), the decision to exclude the CISG may be justified. However, where the main reason for such decision is an unwillingness to become acquainted with a new set of rules, such a negative choice should not be encouraged. It is far more preferable that companies engaged in cross-border trade should specialize in using the CISG, since these rules are the most appropriate in such a context, not just with respect to their content, but also because of their broad acceptance worldwide.
7.3.1.4 Choice of law clauses and CISG
As noted previously, even where the CISG applies automatically, because the countries of both parties are contracting parties of the Vienna Convention, it is still important to choose the applicable law, since this law will govern a number of important issues remaining outside the CISG. Therefore, a party belonging to a country which is a contracting party of the Vienna Convention may nevertheless include in its contracts a choice of law clause in favour of its own law, in order to make it clear that the CISG will apply within the framework of such law and consequently, that potential matters not covered by the CISG will be dealt with by that law.
A possible way to make this solution easier to accept for the other party is to expressly state that the CISG will apply, and that the national law of the drafting party will only govern those issues that remain outside the uniform rules, as in the following clause:
Choice of law clause in favour of the CISG and a national legal system
This contract of sale is governed by the United Nations Convention on the International Sales of Goods and, with respect to questions not covered by such Convention, by the laws of Switzerland.
Of course, it would be exactly the same to simply state that the contract of sale is governed by the laws of Switzerland, since the CISG is part of Swiss law. However, the above wording has the advantage of making clear, also to a counterpart having no experience in international contracts, that the rules governing the contract will be, for the most part, those of the CISG, i.e. uniform rules generally accepted in international trade.
An even more “neutral” solution may be to submit the contract to the CISG together with the general principles of law and the UNIDROIT Principles, as in the following clause:
Choice of law clause: CISG, general principles and UNIDROIT Principles
This contract of sale is governed by the United Nations Convention on the International Sales of Goods and, with respect to questions not covered by such Convention, by the principles of law generally recognized in international trade as applicable to international contracts of sale together with the UNIDROIT Principles of International Commercial Contracts (except for Articles 2.1.20, 3.2.7 and 6.2.1-6.2.3).
However, the above solution — which is certainly appropriate in the context of international arbitration — is less recommended when potential disputes are to be decided by ordinary (state) courts, which tend not to recognize the choice of general principles.
7.3.2 Incoterms® 2010
Incoterms®, the official ICC rules for the interpretation of trade terms, were created by ICC with the aim of facilitating international trade. They constitute one of the most important tools developed and continuously updated by ICC.
Since their first edition in 1936, this undisputed worldwide contractual standard has been regularly updated (in 1953, 1967, 1976, 1980, 1990, 2000 and 2010) to keep pace with the development of international trade. Incoterms® 2010 take account of the recent changes in international trade. [Page174:]The number of Incoterms® rules has been reduced in the 2010 edition from 13 to 11. This has been achieved by substituting two new rules that may be used irrespective of the agreed mode of transport — DAT (Delivered at Terminal) and DAP (Delivered at Place) — for the Incoterms® 2000 rules DAF, DES, DEQ and DDU.
The purpose of the Incoterms® is to provide a set of international rules for the interpretation of the most commonly used terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree.
Incoterms® rules have traditionally been used in international sale contracts where goods pass across national borders. In various areas of the world, however, trade blocs, like the European Union, have made border formalities between different countries less significant. Consequently, the subtitle of the Incoterms® 2010 rules formally recognizes that they are available for application to both international and domestic sale contracts. As a result, the Incoterms® 2010 rules clearly state in a number of places that the obligation to comply with export/import formalities exists only where applicable.
Incoterms® deal only with the relation between sellers and buyers under the contract of sale. Moreover, they only do so in some very distinct respects, especially with respect to a number of identified obligations imposed on the parties — such as the seller’s obligation to place the goods at the disposal of the buyer or hand them over for carriage or deliver them at destination — and regarding the distribution of risk between the parties in these cases.
7.3.2.1 The various categories of Incoterms
In the 2010 Incoterms®, the 11 Incoterms® have been classified as follows:
However, in order to understand the differences between the various Incotems (apart from the sea transport issue) it remains important to consider at the same time the traditional classification, according to which the terms have been grouped into four basically different categories:
[Page175:]
In addition, under all terms the respective obligations of the parties have been grouped under ten headings in which each heading on the seller’s side “mirrors” the position of the buyer with respect to the same subject matter.
7.3.2.2 The main characteristics of the various Incoterms
This paragraph contains the summary description of the 11 Incoterms® 2010 given in the Guidance notes of each term. For a better understanding of each term, parties should read the full text of the respective Incoterm, where all of the relevant contents are defined in detail.
(1) EXW – EX WORKS (… named place)
This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It is suitable for domestic trade, while FCA is usually more appropriate for international trade.
“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e. works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the costs and risks to that point are for the account of the seller. The buyer bears all costs and risks involved in taking the goods from the agreed point, if any, at the named place of delivery.
EXW represents the minimum obligation for the seller. The rule should be used with care as:
(2) FCA – FREE CARRIER (… named place)
This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.
“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
If the parties intend to deliver the goods at the seller’s premises, they should identify the address of those premises as the named place of delivery. If, on the other hand, the parties intend the goods to be delivered at another place, they must identify a different specific place of delivery.
FCA requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(3) FAS – FREE ALONGSIDE SHIP (… named port of shipment)
This rule is to be used only for sea or inland waterway transport[Page176:] “Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g. on a quay or a barge) 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 alongside the ship, and the buyer bears all costs from that moment onwards.
The parties are well advised to specify as clearly as possible the loading point at the named port of shipment, as the costs and risks to that point are for the account of the seller and these costs and associated handling charges may vary according to the practice of the port.
The seller is required either to deliver the goods alongside the ship or to procure goods already so delivered for shipment. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.
Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal and not alongside the vessel. In such situations, the FAS rule would be inappropriate, and the FCA rule should be used.
FAS requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(4) FOB – FREE ON BOARD (… named port of shipment)
This rule is to be used only for sea or inland waterway transport.
“Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. 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.
The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.
FOB may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such situations, the FCA rule should be used.
FOB requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(5) CFR – COST AND FREIGHT (… named port of destination)
“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.
This rule has two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract.
The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties[Page177:]The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment to the destination. In addition, the seller is required either to make a contract of carriage or to procure such a contract. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.
CFR may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CPT rule should be used.
CFR requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(6) CIF – COST, INSURANCE AND FREIGHT (… named port of destination)
“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
When CPT, CIP, CFR, or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.
The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.
The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment to the destination. In addition, the seller is required either to make a contract of carriage or to procure such a contract. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.
CIF may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CIP rule should be used.
CIF requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(7) CPT – CARRIAGE PAID TO (… named place of destination)
This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.[Page178:] “Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.
This rule has two critical points, because risk passes and costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for the carriage. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, the default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the seller’s choosing and over which the buyer has no control. Should the parties wish the risk to pass at a later stage (e.g. at an ocean port or airport), they need to specify this in their contract of sale.
The parties are also well advised to identify as precisely as possible the point within the agreed place of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.
CPT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(8) CIP – CARRIAGE AND INSURANCE PAID TO (… named place of destination)
“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
This rule has two critical points, because risk passes and costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for carriage. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, the default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the seller’s choosing and over which the buyer has no control. Should the parties wish the risk to pass at a later stage (e.g. at an ocean port or an airport), they need to specify this in their contract of sale.
The parties are also well advised to identify as precisely as possible the point within the agreed place of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties. [Page179:]CIP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(9) DAT – DELIVERED AT TERMINAL (… named terminal at port or place of destination)
“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
The parties are well advised to specify as clearly as possible the terminal and, if possible, a specific point within the terminal at the agreed port or place of destination, as the risks to that point are for the account of the seller. The seller is advised to procure a contract of carriage that matches this choice precisely.
Moreover, if the parties intend the seller to bear the risks and costs involved in transporting and handling the goods from the terminal to another place, then the DAP or DDP rules should be used.
DAT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
(10) DAP – DELIVERED AT PLACE (named place of destination)
“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
The parties are well advised to specify as clearly as possible the point within the agreed place of destination, as the risks to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.
DAP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.
If the parties wish the seller to clear the goods for import, pay any import duty and carry out any import customs formalities, the DDP term should be used.
(11) DDP – DELIVERED DUTY PAID (… named place of destination)
“Delivered Duty Paid” means that the seller delivers the goods 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. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
DDP represents the maximum obligation for the seller
[Page180:]
The parties are well advised to specify as clearly as possible the point within the agreed place of destination, as the costs and risks to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.
The parties are well advised not to use DDP if the seller is unable directly or indirectly to obtain import clearance.
If the parties wish the buyer to bear all risks and costs of import clearance, the DAP rule should be used.
Any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the sales contract
7.3.3 The ICC Model International Sale Contract
The ICC Model International Sale Contract was published for the first time in 1997. It was probably the first example of a model contract which dealt with a number of specific points, such as payment conditions, that are normally left open in most model forms and general conditions of sale. The model has been reviewed and updated in 2012.
The following description of the ICC model is based for the most part on the introduction to the model form, the full text of which can be found in ICC publication No. 738. The text of the ICC Model International Sale Contract can be found in § 7.3.4.
7.3.3.1 The division into two parts: specific conditions and general conditions
The ICC Model International Sale Contract is divided into two parts:
This approach is similar to the usual practice involving individual contracts of sale, where the issues which vary from case to case (such as goods sold, price, time of delivery) are set out in a special part, while the general conditions, mainly covering the strictly “legal” aspects of the contract, are attached thereto, normally on the back of the document.
While most standard forms only deal with the general conditions and leave it to the parties to the individual contract to set out the special conditions, the ICC model also deals with these issues in a first part (Specific Conditions) and guides the parties through the various alternatives. For example, the model form does not simply leave it to the parties to fix the payment conditions but, on the contrary, proposes a series of alternative solutions (payment on open account, documentary credit, etc.) between which the parties must choose in part A, as well as “default solutions” in the General Conditions which will apply if no choice has been made.
For example, where the parties have made no choice as to the payment conditions, the default solution of Article 5.1 of the General Conditions, payment on open account within 30 days from the date of invoice, will apply. Or, in case payment by documentary credit is chosen without further specifications, Article 5.3 provides that:
… the Buyer must arrange for a documentary credit in favour of the Seller to be issued by a reputable bank, subject to the Uniform Customs and Practice for Documentary Credits (UCP 600) published by the International Chamber of Commerce, and to be notified at least 30 days before the agreed date of shipment or at least 30 days before the earliest date within the agreed shipment period. Unless otherwise agreed, the documentary credit shall be payable at sight and allow transhipments but no partial deliveries. [Page191:]This approach should help the user remember the various issues he has to deal with and, at the same time, induce him to make possible adaptations within the alternative solutions provided in Part A, without touching the General Conditions where the risk of inappropriate modifications is higher.
Of course, the parties may also use the General Conditions together with their own special conditions by incorporating only part B into their contract. Where the parties wish to use only part B of the model contract, they should include terms such as the following in their special contract:
“This contract shall be governed by the ICC General Conditions of Sale (Manufactured Goods).”
Of course, in this case, part A would not be used, and any reference in part B to the clauses in part A would be deemed to refer instead to any relevant specific term, if any, agreed by the parties in their special contract: see Article 1.1 of part B.
7.3.3.2 Scope of application: manufactured goods intended for resale
The model contract is primarily directed at contracts for the sale of manufactured goods, where the purchaser is not a consumer and where the contract is an independent transaction rather than part of a long-term supply arrangement. Each of these features of the contracts for which this model is intended is discussed below.
7.3.3.3 The governing law: the reference to the CISG
Failing contrary agreement between the parties, the model contract subjects the transaction to the United Nations Convention for the International Sale of Goods (CISG), also known as the Vienna Convention of 1980. By means of this incorporation of the Vienna Convention into the model contract in Article 1.2(A) of Part B, the Convention will apply, whether the countries of the seller and buyer have ratified the Vienna Convention or not, provided that the applicable conflict of law rules permit such a choice.
The Task Force chose not to offer the possibility to exclude application of the Vienna Convention (notwithstanding the fact that application of CISG in practice is often excluded) because it was felt necessary to draft the contract within the specific context of a uniform law, such as CISG, expressly made for international transactions. The model contract has therefore been drafted on the assumption that the parties’ rights and obligations will be governed by the Vienna Convention. As to questions not governed by this Convention, and unless otherwise agreed by the Parties, the law of the country where the seller has its place of business will apply (Article 1.2.B of Part B). If parties wish another law than that of the seller to govern questions not covered by CISG, they should fill in box A-15 of Part A. In any case, parties should make sure that the applicable law (chosen or not) will not render the model contract unenforceable. In this respect, the Task Force suggests the choice of Swiss law as the validity of the contract (e.g. regarding limitation of liabilities) has been checked against this law.
[Page182:]
7.3.3.4 Shipment and delivery conditions
The parties are invited to choose the appropriate trade term19 under the Incoterms® 2010 rules and to specify the relevant place or port, and point within that place or port as precisely as possible. Although Part A of the model contract lists all current Incoterms® rules in A-3, the Task Force recommends that the parties should seriously consider avoiding the use of Incoterms® rules providing for delivery to or on a vessel, such as FAS, FOB, CFR and CIF. Manufactured goods are often shipped ‘door-to-door’ or handed over for carriage at terminals, whether within the port precincts or at an inland depot and the use of Incoterms® rules that provide for delivery ‘on the ship’ might consequently be inappropriate to the type of goods for which the model contract is intended. Moreover, manufactured goods are rarely sold or pledged in transit and consequently rarely require the use of a transferable transport document. Likewise, parties ought to think carefully before using, in conjunction with this model contract, the EXW and DDP Incoterms® 2010 rules as EXW is usually only suitable for domestic transactions and DDP may pose complications for a seller who, for example, may not be in a position to arrange import clearance in a foreign country.
Consequently, the Task Force recommends that the Incoterms® 2010 rules most appropriate for use with the model contract would normally be FCA, CPT, CIP, DAT or DAP. It is for this reason that these rules are listed first rather than in the order set out in the Incoterms® 2010 rules. Contracting parties are also reminded that while the Incoterms® rules spell out the main duties of and the allocation of risk and costs as between sellers and buyers, they do not provide comprehensive answers to all the possible issues which may arise between the parties.
7.3.3.5 Documents to be provided by the seller
It is common practice in international sales that the seller provides the buyer with certain documents: invoice, transport document, certificates, etc.
A-8 of Part A of the model contract gives the parties an opportunity to expressly indicate their intentions as to documents.
7.3.3.6 Retention of title
By completing A-6 of Part A of the model contract or otherwise, the parties may agree that the goods will remain the property of the seller until complete payment of the price, as indicated in Article 7 of Part B of the model contract. However, it should be noted that under many national laws retention of title of goods intended for resale is not always effective. The seller should therefore carefully check under the relevant law — which normally will be the law of the country where the goods are situated — if and to what extent he may rely on Article 7 of Part B, e.g. against third parties.
7.3.3.7 Warranty to consumers
Manufacturers of the type of goods for which the ICC model sale contract is primarily intended typically grant a warranty (for repair and/or replacement as the case may be) to the ultimate purchaser (consumer). In such a case, the manufacturer’s warranty to the final user may overlap with the obligations of the seller under the sale contract. In fact, where the goods are defective, the final purchaser may, in principle, make a claim against his seller under the sale contract or directly against the manufacturer under the warranty given by it or provided by law.
In these cases, it may be appropriate for the parties to the international sale contract specifically to agree that the buyer will co-operate with the seller, who might itself be the manufacturer, in managing the warranty, for example by confirming the date of the on-sale to the ultimate consumer, which is normally the commencement date of the manufacturer’s warranty. The parties may also agree that the buyer will perform on the manufacturer’s behalf certain obligations under the warranty, for example the duties of repair or replacement of non-conforming goods.
Elements of desirable co-operation between the parties are provided for in Article 12 of Part B of the model contract. Parties may wish to stipulate for other aspects of co-operation by appropriate stipulation in A-17 of Part A of the model contract.
[Page183:]
7.3.3.8 The provisions on time of delivery
It is important to bear in mind that the time of delivery, to be inserted by the parties at A-4 of Part A of the model contract, refers to the date on which or period within which the seller undertakes to perform its delivery obligations under the contract of sale, and in particular under the relevant Incoterms® 2010 rule selected by the parties. This “time of delivery” is linked to the contractual place of delivery, which is not necessarily the place where the goods reach the buyer. Thus, under CPT (Carriage Paid to) the seller fulfils its obligation to deliver the goods (according to article A4 of this Incoterms® rule) when it delivers the goods into the custody of the carrier and not when the goods arrive at the named place of destination. The Task Force therefore recommends that, before agreeing on the time of delivery by completing A-4 of Part A of the model contract, parties should check carefully the stage at which delivery occurs according to the Incoterms® rule chosen in A-3 of the model contract: i.e. the operation described as delivery under the relevant Incoterms® rule which the seller must perform at or by the time agreed in A-4 of the model contract.
The parties can agree a time of delivery by agreeing a precise date (e.g. “10 February 2012” or “by 10 February 2012”) or a period (“third week of February 2012”, “March 2012”). The parties can also agree a period of time running from a certain date (e.g. “60 days from signature of the sale contract”, “90 days after receipt of the agreed advance payment”). If a period of time is agreed, the seller may, according to article 33 CISG, deliver the goods at any time within that period, unless circumstances or the applicable Incoterms® 2010 rule indicate that the buyer is to choose a date.
When the buyer needs at all cost the delivery by a given date, box A-9 of Part A (Cancellation Date) should be used. In this case the seller is advised to ensure that it can in any case meet such delivery date, since seller will be unable to put forward any excuse, including force majeure, if it does not deliver.
As regards the rules on delay in delivery and the consequences of such delay, the ICC model contains provisions substantially different from those of the CISG.20
According to CISG, a delay in delivery for which the seller is responsible (i.e. which is not justified by force majeure) entitles the buyer to damages and, provided the delay implies a fundamental breach under Article 25 of the CISG21 or where the seller has not respected a reasonable additional period of time granted by the buyer,22 to contract termination.
The model contract, on the contrary, provides in general terms that the buyer is entitled to liquidated damages amounting to 0.5% of the price of the products not delivered in time, up to a maximum of 5%. Until the maximum period is reached (i.e. ten weeks), the buyer cannot terminate the contract, which means that he must accept to receive the goods with a delay. He is compensated for such inconvenience through liquidated damages.
If the seller does not deliver the goods within the maximum period, the buyer may avoid the contract and, in this case, may claim damages (in addition to the liquidated damages) which in the aggregate do not exceed the price of the non-delivered goods, or such maximum amount as may be agreed in Box A-11.
The above system is a compromise between the different needs of the parties: the buyer can count upon a lump-sum payment in case of delay (which should also induce the seller to be punctual) and the seller knows that by paying the liquidated damages he is sure not to lose the contract (unless he exceeds the maximum period).
Of course, this type of solution may be inadequate when respecting the delivery time is essential for the buyer. When this is the case, the parties can modify the above[Page184:] figures (an option expressly provided in box A-10 of the Special Conditions) by increasing the amount of the liquidated damages and/or by reducing the maximum amount.
Furthermore, in extreme cases the parties have the option to provide a “cancellation date” (by filling in box A-9), which entitles the buyer to terminate the contract if the goods are not delivered within such term for whatever reason, including force majeure events.
7.3.3.9 The remedies available in case of delivery of defective goods
The model contract follows a radically different approach if compared with the general rules of the CISG on another crucial topic, that of the remedies available to the buyer in case of non-conforming (defective) goods.
According to the CISG, where the goods are non-conforming, and provided he notifies the defect in due time, the buyer is entitled, to recover the damage suffered and to obtain the repair of the goods or a price reduction. In addition, where the non-conformity amounts to a fundamental breach, the buyer can demand contract termination, which implies that the seller must take back the goods and return the amount paid.
The ICC model follows a radically different approach, based on the idea that the seller should always have the right to make good the defects, even when they are substantial and imply a fundamental breach, and that the buyer should be entitled to avoid the contract only if the seller is unable to remedy the defects within a reasonable period of time.
In the ICC model, the non-conformity of the goods does not in itself give the buyer the right to avoid the contract, and if the seller remedies the breach, the buyer’s damages are limited to liquidated damages for the delay involved up to an amount which, when aggregated with the damages for the first period of delay (if any) under Article 10.1, cannot exceed the contractually agreed price of the non-conforming goods.
[Page185:]
[Page186:]
[Page187:]
[Page188:]
[Page189:]
[Page190:]
[Page191:]
Model Form | International Sale Contract
ICC INTERNATIONAL SALE CONTRACT (MANUFACTURED GOODS)
B. General Conditions
The General Conditions of the ICC Model International Sale Contract (Manufactured Goods)
Art. 1 General
1.1 These General Conditions are intended to be applied together with the Specific Conditions (Part A) of the ICC Model International Sale Contract (Manufactured Goods), but they may also be incorporated on their own into any sale contract. Where these General Conditions (Part B) are used independently of the said Specific Conditions (Part A), any reference in Part B to Part A will be interpreted as a reference to any relevant specific conditions agreed by the parties. In case of contradiction between these General Conditions and any specific conditions agreed upon between the parties, the specific conditions shall prevail.
1.2 Any questions relating to this contract which are not settled by the provisions contained in the contract itself (i.e. these General Conditions and any specific conditions agreed upon by the parties) shall be governed:
A. by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, hereafter referred to as CISG), and
B. to the extent that such questions are not covered by CISG and that no applicable law has been agreed upon, by reference to the law of the country where the Seller has its place of business.
1.3 Any reference made to a publication of the International Chamber of Commerce is deemed to be made to the version current at the date of conclusion of the contract.
1.4 No modification of the contract is valid unless agreed or evidenced in writing. However, a party may be precluded by its conduct from asserting this provision to the extent that the other party has relied on that conduct.
1.5 Any limitation to remedies in case of breach of contract shall be ineffective in cases of fraud or gross negligence of the breaching party.
Art. 2 Characteristics of the goods
2.1 It is agreed that any information relating to the goods and their use, such as weights, dimensions, capacities, prices, colours and other data contained in catalogues, prospectuses, circulars, advertisements, illustrations, price-lists of the Seller, shall not take effect as terms of the contract unless expressly referred to in the contract.
2.2 Unless otherwise agreed, the Buyer does not acquire any property rights in software, drawings, etc. which may have been made available to it. The Seller also remains the exclusive owner of any intellectual or industrial property rights relating to the goods.
2.3 It is agreed that the goods are suitable for the purpose for which they are intended by their very nature or which is evident from the contract of sale.
2.4 If express reference is made in the contract of sale to technical, safety, quality or other regulations and documents clearly designated in the agreement, even if not attached to the contract, the Seller shall be deemed to have knowledge of these. The Seller shall bear the costs related to, and obtain the necessary permission, permits or licences in good time required for carrying out the contract and for complying with the conditions stipulated therein.
Art. 3 Inspection of the goods before shipment
If the parties have agreed that the Buyer is entitled to inspect the goods before shipment, the Seller must notify the Buyer within a reasonable time before the shipment that the goods are ready for inspection at the agreed place.
Art. 4 Price
4.1 The price indicated under Box A-2 (contract price) includes any costs which are at the Seller’s charge according to this contract. However, should the Seller bear any costs which, according to this contract, are for the Buyer’s account (e.g. for transportation or insurance under FCA, EXW, FAS or FOB), such sums shall not be considered as having been included in the price under Box A-2. [Page192:]
4.2 If no price has been agreed, the Seller’s current list price at the time of the conclusion of the contract shall apply. In the absence of such a current list price, the price generally charged for such goods at the time of the conclusion of the contract in the Seller’s currency shall apply.
4.3 Unless otherwise agreed in writing, the price does not include indirect taxes (VAT, sales tax, excise duties, etc.), and is not subject to price adjustment.
Art. 5 Payment conditions
5.1 Unless otherwise agreed in writing, or implied from a prior course of dealing between the parties, payment of the price and of any other sums due by the Buyer to the Seller shall be on open account and time of payment shall be 30 days from the date of invoice. The amounts due shall be transferred, unless otherwise agreed, by telegraphic transfer or remittance to the Seller’s bank in the Seller’s country for the account of the Seller and the Buyer shall be deemed to have performed its payment obligations when the respective sums due have been received by the Seller’s bank in immediately available funds.
5.2 If the parties have agreed on payment in advance, without further indication, it will be assumed that such advance payment, unless otherwise agreed, refers to the full price, and that the advance payment must be received by the Seller’s bank in immediately available funds at least 30 days before the agreed date of shipment or the earliest date within the agreed shipment period. If advance payment has been agreed only for a part of the contract price, the payment conditions of the remaining amount will be determined according to the rules set forth in this article.
5.4 If the parties have agreed on payment by documentary collection, then, unless otherwise agreed, documents will be tendered against payment (D/P) and the tender will in any case be subject to the Uniform Rules for Collections (URC 522) published by the International Chamber of Commerce.
5.5 If the parties have agreed on payment against the security of a Bank Payment Obligation, then, unless otherwise agreed, the Buyer must arrange for the Seller to receive an assurance of payment in accordance with the agreed payment terms in the form of a Bank Payment Obligation to be issued by a bank in favour of the Seller’s Bank, subject to the URBPO rules (Uniform Rules for Bank Payment Obligations) published by the International Chamber of Commerce, and to be notified at least 30 days before the agreed date of shipment or at least 30 days before the earliest date within the agreed shipment period. Unless otherwise agreed, the Bank Payment Obligation shall be payable at sight and allow transhipments but no partial deliveries.
5.6 To the extent that the parties have agreed that payment is to be backed by a bank guarantee, the Buyer is to provide, at least 30 days before the agreed date of shipment or at least 30 days before the earliest date within the agreed shipment period, a first demand bank guarantee subject to the Uniform Rules for Demand Guarantees (URDG 758) published by the International Chamber of Commerce, or a standby letter of credit subject either to such Rules, to the International Standby Practices (ISP 98) or to the Uniform Customs and Practice for Documentary Credits (UCP 600) published by the International Chamber of Commerce, in any case issued by a reputable bank.
Art. 6 Interest in case of delayed payment
6.1 If a party does not pay a sum of money when it falls due the other party is entitled to interest upon that sum from the time when payment is due to the time of payment
[Page193:]
6.2 Unless otherwise agreed, the rate of interest shall be 5% above the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists at that place, then the same rate in the state of the currency of payment.
Art. 7 Retention of title
If the parties have validly agreed on retention of title, the goods shall, notwithstanding delivery and the passing of risk in the goods, remain the property of the Seller until the complete payment of the price, or as otherwise agreed.
Art. 8 Contractual term of delivery
Unless otherwise agreed, delivery shall be at FCA Seller’s premises (Incoterms® 2010 rules).
Art. 9 Documents
Unless otherwise agreed, the Seller must provide the documents (if any) indicated in the applicable Incoterms® rule or, if no Incoterms® rule is applicable, according to any previous course of dealing.
Art. 10 Late-delivery, non-delivery and remedies therefore
10.1 If the parties have agreed upon a cancellation date in Box A-9, the Buyer may declare the contract avoided by notification to the Seller in case delivery has not occurred by such cancellation date for any reason whatsoever (including a force majeure event).
10.2 When there is delay in delivery of any goods, the Buyer is entitled to claim performance and liquidated damages equal to 0.5% or such other percentage as may be agreed of the price of those goods for each commenced week of delay. Liquidated damages for delay shall not exceed 5% of the price of the delayed goods or such maximum amount as may be agreed in Box A-10.
10.3 When article 10.1 does not apply and the Seller has not delivered the goods by the date on which the Buyer has become entitled to the maximum amount of liquidated damages under article 10.2, the Buyer may at any time ask for performance or declare the contract to be avoided in writing.
10.4 In case of avoidance of the contract under article 10.1 or 10.3 the Buyer is entitled to claim damages which in the aggregate do not exceed the price of the non-delivered goods, or such maximum amount as may be agreed in Box A-11.
10.5 The remedies under this article exclude any other remedy for delay in delivery or non-delivery.
Art.11 Non-conformity of the goods
11.1 The Buyer shall examine the goods as soon as possible after their arrival at the place of business of the Buyer or any other agreed place of examination and shall notify the Seller in writing of any lack of conformity, specifying the nature of the lack of conformity of the goods within a reasonable time from the date when the Buyer discovers or ought to have discovered the lack of conformity. In any case the Buyer shall have no remedy for lack of conformity if it fails to notify the Seller thereof within 24 months from the date of arrival of the goods at the place of business of the Buyer or the otherwise agreed place of examination, if any.
11.2 Goods will be deemed to conform to the contract despite minor discrepancies which are usual in the particular trade or through course of dealing between the parties.
11.3 Where goods are non-conforming, the Seller shall at its option and provided it can do so without unreasonable delay and without causing the Buyer unreasonable inconvenience:
(a) replace the goods with conforming goods, without any additional expense to the Buyer, or
(b) repair the goods, without any additional expense to the Buyer.
The Buyer will be entitled to liquidated damages for the delay due to replacement or repair as specified under article 10.2 or as may be agreed in Box A-10.
11.4 If the Seller has failed or refused to properly perform its duties under article 11.3 within a reasonable period, and provided the parties have not agreed on a price reduction, [Page194:]the Buyer may resort to the remedies provided for by the CISG having regard to the terms laid down in this contract. As to the damages proven by the Buyer the maximum amount is limited to the contractually agreed price of the non-conforming goods.
11.5 Unless otherwise agreed in writing, the remedies under this article 11 exclude any other remedy for non-conformity.
11.6 Unless otherwise agreed in writing, no action for lack of conformity can be taken by the Buyer, whether before judicial or arbitral tribunals, after 4 years from the date of arrival of the goods at the place of examination. It is expressly agreed that after the expiry of such term, the Buyer shall not plead non-conformity of the goods, or make a counter-claim thereon, in defence to any action taken by the Seller against the Buyer for non-performance of this contract.
Art. 12 Cooperation between the parties
12.1 The Buyer shall promptly inform the Seller of any claim made against the Buyer by its customers or third parties concerning the goods delivered or industrial or intellectual property rights related thereto.
12.2 The Seller shall promptly inform the Buyer of any claim which may involve the product liability of the Buyer.
Art. 13 Force majeure
13.1 A party is not liable for a failure to perform any of its obligations in so far as it proves:
(a) that the failure was due to an impediment beyond its control, and
(b) that it could not reasonably be expected to have taken into account the impediment and its effects upon its ability to perform at the time of the conclusion of the contract, and
(c) that it could not reasonably have avoided or overcome the impediment or its effects.
13.2 A party seeking relief shall, as soon as practicable after the impediment and its effects upon that party’s ability to perform become known to it, give notice to the other party of such impediment and its effects on that party’s ability to perform. Notice shall also be given when the ground of relief ceases.
Failure to give either notice makes the party thus failing liable in damages for loss which otherwise could have been avoided.
13.3 Without prejudice to article 10.2, a ground of relief under this clause relieves the party failing to perform from liability in damages, from penalties and other contractual sanctions, from the duty to pay interest on money owing as long as and to the extent that the ground subsists.
13.4 If the grounds of relief subsist for more than three (3) months, either party shall be entitled to declare the contract to be avoided without notice.
Art. 14 Resolution of disputes
14.1 The parties may at any time, without prejudice to any other proceedings, seek to settle any dispute arising out of or in connection with the present contract in accordance with the ICC ADR Rules.
14.2 Unless otherwise agreed in writing, all disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
14.3 An arbitration clause does not prevent any party from requesting interim or conservatory measures from state courts.
7.4 AGENCY AND DISTRIBUTORSHIP AGREEMENTS
This part deals with contracts regarding the distribution of goods. After an introduction where the different means of organizing distribution will be analysed (infra, § 7.4.1), it concentrates on the two major contracts used in this context: commercial agency (§ 7.4.2-7.4.5) and distributorship contracts (§ 7.4.6-7.4.8). [Page195:]
7.4.1 Organizing distribution of products abroad
Distribution plays a vital role in international trade. A company wishing to sell its products in a foreign market will normally need to establish a distribution network in such country or at least appoint an importer or agent.
The following paragraphs examine the main alternatives for companies wishing to market their products abroad and highlight the most commonly used solutions.
7.4.1.1 Selling to exporters in the home country of the manufacturer
A first alternative, which cannot actually be considered as “distribution abroad”, consists of selling to a company from the same country as the manufacturer, which will subsequently sell the products abroad. This is a very timid approach to the foreign market, since it does not give the manufacturer any control over the resale abroad; he will normally be unable to know the names of the foreign customers and sometimes will not even know in which country his products are sold.
On the other hand, this solution has the advantage that the manufacturer does not need to worry about the problems of selling his products abroad and can concentrate on producing and selling in his home market.
Contracts of this type are common in certain countries (e.g. Japan) where powerful trading companies traditionally take over the export business of local producers. However, this alternative heavily limits the manufacturer’s opportunities to expand his business abroad: the actual exporter (trading company) will take — together with the risks — a large share of the benefits of such activity. Moreover, the danger exists that the exporter may replace his supplier when he finds a better (or cheaper) alternative.23
7.4.1.2 Direct sales to foreign customers
If we now take the alternative ways of making sales abroad, the simplest is that of a direct sale to foreign customers, without having recourse to a distribution organization in the foreign country.
In this context, one can distinguish two rather different situations: the direct sale to the final customer and the sale to a foreign company that resells in its own country.
The first situation may arise, for instance, when a direct contact with the foreign customer is established at a trade fair or exhibition, but this will normally only give rise to occasional sales which do not imply an actual presence in the foreign territory. Only in particular industries (e.g. sale of equipment or tailor-made machines) where it is usual practice for the deal to be negotiated directly between the manufacturer and the end user, may a marketing organization in the foreign country not be necessary, since the exporter will be able to send his own personnel abroad to negotiate the business. However, even in such cases, parties may have recourse to occasional intermediaries that inform the manufacturer about the potential business and act as intermediaries on a case-by-case basis.
The second situation arises when the manufacturer chooses to sell to a foreign purchaser who already owns or controls a distribution network, for example a company with its own retail organization (e.g. modern distribution or a chain of retailers), or a company wishing to include within its range a product manufactured by a third party that it will resell under its own trademark. In these cases, the exporter will normally be unable to influence the purchaser’s marketing strategies. In most cases, he cannot even make his product known on the foreign market, since it will be marketed without a trademark or under the purchaser’s trademark.
Contracts of this type are radically different from the typical distribution agreements, and particularly from the distributorship contract that will be examined later. These supply or OEM contracts24 focus mainly on supply to the foreign customer and on the matters concerning such supply, such as minimum turnover, quantity forecasts, criteria [Page176:]for fixing and revising the prices (if the contract is to last for a longer period) instead of on the resale of the products, which will be decided by the purchaser without any interference from the exporter.
This type of solution has certain advantages for the exporter (high volumes of sales, low selling costs), but it does not give the exporter access to the foreign market. It cannot actually be considered as a method for distributing products abroad, although it may be a useful tool, particularly if it does not also prevent the exporter from marketing, through other channels, the products under his own trademark.25
A last case that should be mentioned in this context arises when the foreign purchaser uses buying agents established in the exporter’s country, a situation particularly common in the fashion industry. In this case, there will also be a direct sale to the foreign customer, but without establishing any actual presence in the foreign market, particularly if the goods are sold under the purchaser’s trademark.
7.4.1.3 Sale through non-integrated resellers or intermediaries (commission agents, wholesalers)
Another possible way of marketing the products in a foreign market is to sell the products through intermediaries or resellers who deal with several competing products. A typical example of this type of distribution is wholesalers whose function is precisely to offer their customers (normally retailers) the largest possible choice between competing brands. Another example is commission agents in certain trades (e.g. agricultural products) who act as intermediaries for a variety of competitors.
However, this solution appears to be less appropriate for branded products, which normally need to be marketed through a dedicated distribution network26 made up of people who do not work for competitors and who are willing to concentrate their efforts on promoting the manufacturer’s products in direct competition with those of his competitors.
Of course, the choice of an integrated distribution network does not necessarily exclude recourse to independent wholesalers. For example, the manufacturer may appoint a distributor/importer for a given country, and such distributor may sell through wholesalers to retailers, unless he prefers to supply retailers or final users directly through an integrated network (e.g. agents or sub-distributors). In other terms, a manufacturer who normally sells his products on his home market through a non-integrated network, may also have recourse to a dedicated/integrated distributor (exclusive importer) capable of organizing and controlling distribution in the country for which it is responsible.
7.4.1.4 Sale through occasional intermediaries
A solution frequently used when beginning to approach new markets, or for the sale of products that do not require a stable presence in the foreign territory, is to appoint occasional intermediaries, sometimes called brokers, indicateurs and the like.
The category of occasional intermediaries covers a large variety of situations.
On the one hand, we find intermediaries appointed for a single business, who may act, according to the circumstances, as fully independent intermediaries (brokers)27 or as intermediaries acting in the interest of the appointing party.
On the other hand, there are intermediaries, who, without assuming an obligation to promote business in a continuative way that would normally give rise to a commercial agency contract, are appointed for the negotiation of an undetermined number of possible contracts. These intermediaries tend to be more closely integrated into the manufacturer’s distribution network and, in many cases, may become real commercial agents at a later stage if their activity develops.
[Page197:]
7.4.1.5 Sale through agents and distributors
One of the solutions most commonly used in international distribution consists of appointing persons or companies bound to the exporter by a long-term contractual relationship, who undertake the responsibility of organizing and promoting sales in conformity with the marketing strategies of the manufacturer and thus become strictly integrated into the distribution network of the latter. The main advantage of this formula is that it gives the exporter the advantage of having recourse to self-employed intermediaries who organize their activity in the most efficient way, and without fixed costs for the manufacturer and, at the same time, opens the possibility of directing their activity so that it conforms to the exporter’s distribution and marketing policies.
The two main examples of the above28 are commercial agents and distributors (concessionnaires, exclusive importers). Both of these can be used by the exporter as an instrument for carrying out its own marketing policies, without becoming part of the manufacturer’s organization like employees or subsidiaries.
While the commercial agents are intermediaries in the strict sense of the word, who promote the conclusion of contracts between the manufacturer and its customers against payment of a commission, the distributors perform tasks similar to those of an agent, as regards commercial activity, i.e. organizing and promoting sales, but who act as buyers-resellers and are remunerated through a margin (i.e. the difference between the purchase price and the resale price).
Both contracts represent an interesting compromise solution with respect to setting up an organization owned by the manufacturer, such as a branch or a subsidiary. On the one hand, they imply lower costs for the manufacturer, with the further advantage that such costs are related to the actual sales made (be it the agent’s commission or the distributor’s margin), while the fixed costs of distribution are at the expense of the intermediary. On the other hand, they give the manufacturer the possibility of carrying out its own commercial policy through a dedicated intermediary. Thus, it is normal that agents and distributors undertake not to market competing products.
7.4.1.6 Sale through subsidiaries or distribution joint ventures
An even more integrated form of distribution consists in marketing the products through a subsidiary, which imports the goods and organizes their distribution in the country where it is established, in conformity with the manufacturer’s commercial strategies. This formula is particularly appropriate where a very strict control over the distribution is needed, e.g. when the manufacturer decides to manage a distribution network meant to reach the final consumer (franchising, selective distribution)29 or, more generally, where a direct presence on the foreign market is needed.
At the same time, this solution is workable only if there is an important turnover that can justify the high fixed costs that such a solution involves.
An intermediate solution, frequently used in the transition from a sales network organized by a distributor and the distribution through a subsidiary, is that of a joint venture with a local distributor-importer. This solution makes it possible to create the basis for establishing a wholly owned subsidiary without a brisk interruption in the relationship with the existing distributor, who will be involved, as minority shareholder, in the management of the joint venture and who will receive compensation for his past activity at a later stage when the exporter purchases the distributor’s shares.
7.4.1.7 Distribution systems implying control over a network of local retailers: franchising, selective distribution
The previous paragraphs have examined some forms of distribution involving a relationship between the exporter and counterparts of the foreign country acting at the wholesale level: occasional intermediaries, agents, distributors, subsidiaries.
[Page198:]
However, in certain cases, the manufacturer may decide to organize more sophisticated distribution networks that extend to the retail level. These more advanced distribution systems frequently imply the presence in the foreign country of a stable organization, normally a subsidiary, on which the sales network will depend.30 This is because the management of the network requires a close relationship with its members, which is normally not possible in a cross-border relationship. Another reason is that the applicable rules (e.g. administrative rules governing retail trade, as well as special laws regarding franchising, etc.) may differ from country to country.
These are the main reasons why franchising or selective distribution networks are normally organized on a national level.31
When this type of organization based on several national networks is set up, contracts with retailers (franchisees or selective distributors) will normally be domestic contracts, since they are entered into between parties from the same country. At the same time, however, the company that sets up a network composed of several national networks will normally need to obtain the maximum possible degree of uniformity of the contract terms in force within the different countries. Since the contracts will normally be governed by different laws, this requires careful legal analysis.
7.4.1.8 Direct sales to consumers through Internet
In recent years, it has become possible to directly reach customers thanks to Internet, and many companies are establishing websites for the direct sale of their products to consumers, without passing through the traditional distribution channels. Internet sales are developing steadily for certain types of products, like fashion, sportswear, etc., and may give rise to the necessity of a coordination with the traditional channels.
A further problem is that companies which in the past did not need to consider the rules protecting consumers, since they were supplying their products only to resellers, now need to set up specific conditions for the sale on the Internet which must comply with the rules protecting consumers in the countries where the products are sold.
7.4.2 Contracts with commercial agents
The recourse to commercial agents represents the easiest and least expensive means of entering a foreign market. This is why commercial agency contracts are frequently used in international trade.
7.4.2.1 The notion of commercial agent
A commercial agent is an intermediary entrusted with promoting, on a continual basis, the conclusion of contracts on behalf of a principal. In the great majority of cases, the activity of the commercial agent consists in negotiating the terms of a contract proposal (order) that is transmitted to the principal and that the principal is, in principle, free to accept or refuse. Sometimes, though it is rather exceptional in international trade, the principal grants the agent the authority to directly conclude contracts in his name and on his behalf.
A definition of commercial agent relevant for most European countries is contained in Article 1(2) of the European Directive 86/653/EC. According to such provision:
‘commercial agent’ shall mean a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called ‘the principal’, or to negotiate or conclude such transactions on behalf of and in the name of such principal.
7.4.2.2 The agent’s main activity: negotiating contracts
The basic task of the agent is to negotiate contracts for the principal and, exceptionally, to conclude them in the name of the principal.
[Page199:]
It should be said very clearly that in the practice of cross-border commercial agency the principal will almost never entrust the agent with the authority to conclude contracts in his name.32
In other words: the normal situation is that of an agent who negotiates a sales contract with a prospective customer, obtains an order from the customer and transmits such order to the principal, who will usually — if he has the products in stock, if he trusts the customer, etc. — accept such order and thus conclude the contract of sale.
In this context, the term “negotiate” may give rise to some misunderstandings. In fact, why should an agent who does not have the authority to conclude the contract negotiate its terms with the potential customer?
The answer is that the agent will actually discuss the contract conditions with the potential customer on the basis of terms and conditions he knows to be acceptable to the principal, and thus he will convince the customer to place an order which will most likely be accepted by the principal. The principal will nevertheless retain the right to decide, in his sole discretion, if he wishes to conclude the contract.
7.4.2.3 The commercial agent as “representative” of the principal
As stated in the previous paragraph, the main activity of the agent consists in promoting the conclusion of contracts for the principal, i.e. the typical activity of an intermediary.
However, the commercial agent is much more than an intermediary: he is responsible in more general terms for looking after the principal’s interests — at least from the point of view of the distribution of his products — in the territory for which he has been appointed.
In other words, he “represents” the principal within the ambit (territory or group of customers) entrusted to him, where the term “represent” should not be understood by its legal meaning (i.e. having the authority to make contracts in the name and on behalf of the principal), but in the more general sense of acting in the interest of the principal.
This explains why the term “representative” is commonly used to define commercial agents who normally have no authority to bind the principal, like the German Handelsvertreter or the “sales representatives” described in certain statutes of US states.
Of course, this characteristic of the commercial agent necessarily implies a continuous relationship with the principal and thus a difference from occasional intermediaries. Moreover, at least in some legislations, it implies a general obligation of the agent to protect the principal’s interests.33
Although the commercial agency contract originates from the wider notion of agency (in the sense of mandat in French law, of Geschäftsbesorgung, in German law, etc.), it has gradually become a different contract — especially in those legal systems which have enacted special statutory rules on commercial agents.
While the general notion of agency is characterized by the agent’s authority to bind the principal, in most cases a commercial agent does not have this authority. Moreover, the core of the commercial agent’s activity is not to “represent” the principal from a legal point of view (i.e. to enter into contracts on his behalf), but to promote his sales by visiting customers, participating in fairs, collecting orders, etc., in other words, to “represent” the principal from an economic point of view.
Of course, this does not exclude the fact that in legal systems that have no specific rules on commercial agents, the more general rules on agency may apply to the extent they are compatible with the functions of a commercial agent.
[Page200:]
It should finally be noted that in some jurisdictions (e.g. a number of countries of the Middle East)34 the term “agency” is used in a much wider sense, and covers intermediaries as well as buyers-resellers (distributors) who promote business for a principal/supplier.
7.4.2.4 Employed agents
The activity that consists of promoting the conclusion of contracts on a continuing basis, which is typical of the commercial agent, can also be carried out by employees, persons bound to the principal/employer by an employment contract.
In this case, the difference from a normal commercial agent is that the employed agent is much less independent. He will be bound to observe strict instructions given by his employer, as regards which clients to visit and, more generally, the organization of his time. Also, he will not bear the risks which are typically faced by a self-employed person (the employer will normally provide the office, a car, etc.).
Employed agents will not be dealt with here. If parties wish to appoint an agent on terms and conditions that do not leave him the degree of independence typical of a self-employed agent, they should check to see whether or not the contract will be subject to the labour law of the agent’s country.
A somewhat different situation arises where, under the applicable law, agents that would otherwise be considered to be truly self-employed commercial agents are qualified as employees by virtue of a legal presumption. Typical examples of this are the French Voyageurs Représentants Placiers (VRP) and the Belgian représentants de commerce.
Laws of this type have been enacted with the purpose of protecting agents acting as individuals35 by extending to them the protection of the rules of labour law, although they are not actually employees in the sense that, without the presumption of subordination contained in the law, they would be considered as independent traders. Of course, laws that aim at protecting agents through a fictitious assimilation to employees must be considered with great caution, since an individual who would be qualified as a self-employed commercial agent under most laws may actually be qualified as an employee and thus be subject to protective rules applicable within such a framework, if that particular law is applicable.36
7.4.2.5 Commercial agency within the national legal systems
The approach of a national legal system towards commercial agency contracts can vary enormously from country to country. The following paragraphs provide a short overview of the main approaches, it being understood that a thorough understanding of the situation under a given legal system can only be gained on the basis of an in-depth examination of the local law and case law.
(a) Countries with no special rules on commercial agency
There are still many countries in which no special rules on commercial agents exist and where the parties consequently enjoy the widest freedom in establishing the contents of their contracts.
A typical example of this type of approach can be found in most common-law countries, where the general principles governing agency do not actually deal with the specific problems of commercial agency and thus leave a very flexible framework for the drafting of commercial agency contracts. However, this situation is changing: the United Kingdom has been forced to enact statutory rules on commercial agents in order to implement the European directive; in the US, many states have enacted statutory rules on so-called “sales representatives”, who are actually very similar to commercial agents (as this term is understood in Europe).
[Page201:]
A similar situation arises in a number of civil law countries where, in the absence of specific rules on commercial agents, reference is to be made to the general rules on agency (mandat, mandato) and commission contracts contained in the civil and commercial codes. This situation was common to many European countries before the implementation of the European directive)37 and still exists in a number of South American states (e.g. Chile, Peru, Uruguay).
Where no statutory rules on commercial agency exist, the courts may have worked out some principles applying to this contract. In the absence of protective rules on self-employed commercial agents, the courts may refer — with respect to agents acting as individuals — to the contract of employment. These situations need to be verified case-by-case on the basis of a specific national law.
(b) Countries that have enacted specific rules on commercial agency
To the extent that the recourse to commercial agents is developing in domestic as well as in international trade, more and more countries have felt the need to enact rules governing this contract.
Some countries have followed a more neutral approach by establishing a set of rules that simply state the obligations of the parties without having mandatory rules aimed at protecting the agent as a weaker party.38
Several other countries, which represent the majority of those setting out specific rules on commercial agency, do protect the agent through mandatory rules that cover the main critical aspects where there is a risk that the agent would accept unbalanced conditions when entering into the contract, such as, commission, terms of notice, goodwill indemnity, etc. This approach has mainly been followed in Europe.
Other national legislations do not attempt to extensively regulate the commercial agency contract, but prefer to focus on a more limited number of issues. For example, the statutes on “sales representatives” enacted by several US states mainly concentrate on the agent’s right to a commission in case of contract termination. In several Arab countries, the main aspect covered is reserving the right to exercise the activity to citizens of the country, who must be inscribed on a special register.39 In a number of Latin American countries, the main purpose of the local law is to grant an indemnity to agents and distributors of foreign manufacturers in case of contract termination.40
(c) Relevance of mandatory rules of the law of the agent’s country
One of the main problems in the field of international commercial agency is how to know to what extent the possible mandatory rules of the agent’s country should be considered when drafting the contract.
This issue has been dealt with in general terms in Chapter 2, § 2.7.
At this stage, it is sufficient to recall that the parties have a certain freedom of choice and that the exact extent of that freedom, especially the effectiveness of the choice made by the parties, depends mainly on those laws which are potentially applicable (first of all, on the law of the agent’s country) and on the jurisdiction which is to decide the case.
Consequently, before drafting the agency contract the parties should inquire about the existence of mandatory rules in the law of the countries involved, and particularly in the law of the agent’s country.41
[Page202:]
7.4.2.6 European Directive No. 86/653 on self-employed agents
The EC Directive 86/653 of 18 December 198642 was enacted with the purpose of harmonizing the laws of the Member States of the European Community regarding independent (“self-employed”) commercial agents.
The above directive (called hereafter “European directive”) has substantially influenced, and is continuing to influence, the development of commercial agency legislation in Europe43 and also outside Europe.44 Although the directive has brought only a partial harmonization of the various domestic laws (many important provisions are still governed by differing rules), it does have the merit of having established a common core of principles recognized by most legal systems within the European area.
The preamble of the European directive on commercial agents indicates the following main reasons justifying its enactment:
In practice, the second objective has been the most successfully attained by increasing the level of the agent’s protection in most countries.
As to the goal of removing obstacles to trade within the Community, the results are far less convincing. In fact, due to the substantial differences still remaining between the various national laws, parties to a cross-border agreement cannot trust that the legislation of two Member States to be the same and must, on the contrary, accurately check the exact wording of the national laws which may apply.
Thus, a German principal wishing to appoint a French commercial agent would discover that, although the laws of these two countries are harmonized, both having implemented the directive, the agent will be entitled under French law to a termination indemnity amounting to two or three years’ commission, while under the German law the indemnity cannot exceed a maximum of one year.46
In other words, the European directive accomplishes only partial harmonization, mainly for the following reasons.
7.4.3 The ICC Model Commercial Agency Contract (long form)
The ICC Model Commercial Agency Contract, prepared in 1991, was the first in the series of ICC model contracts that now cover almost all types of agreements in the field of distribution (the list of the ICC model forms can be found in § 7.1.1).
At present, the model agency contract exists in two forms: a long form constituting a complete commercial agency contract, which is described in this paragraph, and a short form treating only the main issues, which will be examined in § 7.4.5.
The text of the model was revised in 2015 in order to take into account the latest developments in the law of agency and also to harmonize it with the models devised by ICC in the following years.
The following description of the model is based for the most part on the introduction to the model form, the full text of which can be found in the ICC publication No. 766.
7.4.3.1 A uniform model form for international trade
When negotiating agency agreements abroad, one of the main difficulties faced by parties engaged in international trade is the lack of uniform rules for agreements of this type. Since there is no internationally agreed uniform legislation on the subject, unlike, for example, in the case of the international sales contracts,50 parties must rely on national laws on agency, which: (i) do not take into account the specific needs of international trade, since they have been enacted in primis for domestic agreements, and (ii) substantially differ from one country to another.
An important step towards the harmonization of national laws, has been made within the European Union, in virtue of the EEC Directive n° 86/653 of 18 December 1986, which has been implemented in all Member States and has influenced the development of legislation in countries outside Europe. However, the directive does not cover all [Page204:]aspects of the contract and leaves the Member States free to choose, with regard to several matters, between alternative solutions. Moreover, it leaves Member States free to maintain, or possibly adopt in the future, provisions that derogate the directive in favour of the agent. This means that even within the European Union, there are still important differences between national laws on commercial agency. If we consider the rest of the world, the differences are much greater.
For the above reasons, ICC believes that there is space for an alternative solution, consisting in the use of uniform contractual rules, not based on any specific national law, but incorporating the prevailing practice in international trade, as well as the principles generally recognized by the domestic laws on agency.
In preparing this model form, the working group has tried to find fair and balanced solutions to the main problems arising from an agency relationship, in accordance with prevailing legislative standards, and in particular those indicated in the European directive. However, since it is impossible to make uniform rules and, at the same time, to respect every rule of the various national laws, which may contradict each other, the model form may contain some clauses which are not in accordance with the specific mandatory provisions of a particular legal system. However, since it is in line with the basic principles of domestic agency laws, the risk of conflict with national ordre public provisions — and in particular with domestic rules which would remain applicable whatever the law applicable to the contract — should be almost non-existent. In any event, in order to cover exceptional situations of this kind, it is expressly stated that, if a conflict with ordre public rules of the country of the agent arises, the latter provisions should be considered, if their application appears reasonable in the context of international trade (Article 24.2).
7.4.3.2 The governing law
The model contract has been based on the assumption that it will not be governed by a specific national law, but only by the provisions of the contract itself and the principles of law generally recognized in international trade as applicable to agency contracts (also called lex mercatoria). The purpose of this solution is to ensure that the rules of this model form can be applied in a uniform way to principals and agents from different countries, without the interference of national laws, which may differ on a number of points of detail,51 and without giving one party the advantage and the other party the disadvantage of applying that party’s national law.
Of course, this solution, while avoiding the particularities of national laws, implies — at least for matters not expressly governed by the contract clauses — the recourse to less precise and predictable rules than those contained in the domestic laws on agency, although not all countries have detailed rules on commercial agency contracts.
The drafting group is of the opinion that this can be overcome by making a reference to the UNIDROIT Principles of International Commercial Contracts, which offer a reasonably foreseeable legal framework for most issues that may arise.
In fact, the UNIDROIT Principles offer adequate solutions to the majority of contractual problems of a more general nature (e.g. formation of contract, validity, performance, non-performance, damages, etc.). Only in some very exceptional cases, may the provisions of the UNIDROIT Principles not actually reflect the expectations of international trade.52 However, when this happens the general principles of international trade and the trade usages will prevail over the particular provisions of the UNIDROIT Principles on the basis of Article 24.1A, which puts the various sources incorporated by reference in the following hierarchical order: contract clauses, general [Page205:]principles of law, trade usages, UNIDROIT Principles. This also implies that, even when the UNIDROIT Principles provide that certain rules are mandatory, the Principles will not prevail over the contractual clauses, general principles of law or trade usages.
In any case, if the parties wish to have their contract governed by a specific national law, they can use the alternative set forth in Article 24.2B. In such a case, they should carefully check if this model form conforms to all provisions and/or judicial precedents of the national law they have chosen.53 The alternative national law is preferable if the parties submit the contract to the jurisdiction of ordinary courts (see Article 23) instead of arbitration.
7.4.3.3 The EU rules on competition
On 20 April 2010, the European Commission enacted Regulation No. 330/2010, which came into force on the 1 June 2010 and which replaces Regulation No. 2790/1999. Such regulation exempts certain vertical agreements from the prohibition of Article 101 of the Treaty on the Functioning of the European Union (TFEU) .
As a general rule, agency agreements do not fall under the prohibition of Article 101 of the TFEU, because they are not considered to constitute an agreement between independent undertakings for the purpose of Article 101. Only in special cases where the agent bears risk or costs relating to the sale of the goods which would normally be for the principal (e.g. advertising, transportation, repair and assistance of products, stock of products and/or spare parts), may Article 101 apply, and the parties will have to check if the contract conforms to Regulation No. 330/2010.54 Under this regulation, the agent must have the right to accept non-solicited orders from customers outside the contractual territory. He must be free to grant price reductions on his own commission. A possible non-competition clause (prohibition to promote products of the principal’s competitors) should not last more than five years and should not, in any case, apply after contract termination.
Since situations where contracts with commercial agents fall under Article 101 are rather exceptional, this model contract does not contain clauses specifically drafted to meet this situation. If parties think that their agency contract might fall under Article 101, they should seek expert advice on drafting the appropriate clauses.
7.4.3.4 Sales through the Internet
Since e-commerce has opened new possibilities for marketing products, the working party decided to deal with the issue of whether and to what extent sales made by the principal through his website should fall under the exclusivity, by adding a new clause, 13.5 and by retaining Article 6.5 on limits on agent’s right to sell on the Internet.
The issue is not simple, since situations where the principal sells through his website may be very different.
In some cases (e.g. for products sold directly to professional users, such as machine tools), the principal will reach exactly the same customers through the Internet as those contacted by the agent.
In other cases, the Internet will be a means to promote the products to new customers not within the agent’s reach. For example, a wine producer sells to consumers through a website, while an agent promotes sales to wine shops, restaurants, wholesalers, etc.
While the first situation implies that the principal is making direct sales to the same market as the agent — and it appears therefore appropriate to warrant the agent full commission on such sales — in the second case, the principal is opening a new distribution channel and it may therefore be reasonable not to offer the agent a commission on such sales, provided the Internet sales do not interfere with the agent’s activity.
[Page206:]
It is for this reason that the working party decided to have two alternative solutions, respectively Articles 13.5A and 13.5B. Parties are invited to use alternative B only in cases where sales through the Internet do not appreciably interfere with the agent’s activity.
7.4.3.5 The provisions on indemnity
Provisions in a certain number of countries grant the agent an indemnity if the contract expires or is terminated for reasons other than a default attributable to the agent. Such “indemnity” may be construed as a compensation for goodwill created by the agent and which accrues to the principal after the end of the contract, or as a compensation for the loss suffered by the agent (e.g. loss of the commissions he would have earned had the contract lasted for a longer period or the investments he would have amortized if the contract had not been terminated) as a consequence of the expiration or termination of the contract.
These two solutions are incorporated (as alternatives) in Articles 17.2 and 17.3. of the EC directive. In fact, they have the same purpose, to compensate the agent for the loss of goodwill when the contract is terminated without his fault. Hereafter the above indemnity or compensation will be referred to as “goodwill indemnity”.
On the other hand, many countries do not foresee any right to a goodwill indemnity in favour of the agent.55
Under these conditions, it appears appropriate to give the parties the opportunity to choose whether or not they wish to include the indemnity provision in their contract. For this purpose, Article 21 provides two alternatives (A and B) to cover the different situations.
It is strongly recommended to choose alternative A whenever the right to indemnity is recognized by the law of the agent’s country. In particular, as concerns EU countries alternative B of Article 21 would conflict with mandatory rules of the legislation of the agent’s place of business. It should be noted that the European Court of Justice has ruled that when the agent performs his contractual activity within the European Union the rules on indemnity of the directive must apply even if the parties have submitted the contract to the law of a non-EU country.56
Furthermore, even in cases in which the legislation of the agent’s country has no rules on indemnity, it may be fair to grant indemnity to the agent, particularly if this conforms with international trading practice in that particular business and/or area.
As concerns the system of indemnification, the model form has incorporated the principles contained in Article 17.2 of the EC directive, i.e. the “German” system, which appears to prevail in the countries that recognize the indemnity.57
7.4.3.6 Resolution of disputes
7.4.3.7 Scope of application
This model form was prepared on the assumption that it would apply only to international agency agreements, with self-employed commercial agents acting for the sale of goods.
Since the present model form was established especially for these situations, it will, in principle, not be appropriate for domestic contracts, i.e. contracts between parties having their place of business in the same country.
The parties are therefore advised not to use this model form for domestic contracts unless they check which amendments are necessary in order to comply with a local situation.
A simple way to avoid such problems, particularly in the context of this model form, could be to contract with agents who are legal persons (e.g. companies).62 This solution is especially recommended when the agent is established in a country where a broad notion of employed agents, or agents assimilated to employed agents, is accepted by the law or jurisprudence.
7.4.3.8 Precautions for use of the model form
Any model contract should, to the extent possible, be adapted to the circumstances of a specific case.
Of course, in theory the best solution consists in drafting an individual contract based on existing model forms in order to take account of all the specific requirements of the parties. However, the parties are often not in a position to prepare a specific contract and prefer to have recourse to a ready-to-use balanced model form. In this case, they will ask for a model that can be used as it stands, without any need to make modifications or additions.
The present model is an attempt to achieve a balance between these two possibilities.
ICC has tried to work out a single solution on every issue. However, where this has not been possible (see e.g. Articles 8, 13, 18, 21, 23, 24 and 29), alternatives have been suggested.
Such alternative solutions are presented side-by-side under the letters A and B, in order to underline that only one of them can apply.
Therefore, before signing the contract, the parties must decide which of the alternative solutions they wish to choose, and then cancel the alternative they do not want to apply.
In any event, the model form provides that, if the parties do not make a choice by cancelling one alternative, one of them will automatically apply according to Articles 25.1 and 25.2 of the model form.
There are also a number of points on which the parties must fill in their requirements: definition of the territory and the products, amount of commission, etc.
All such points have been put in the annexes to this document so that the parties can fill in and, where necessary, modify the annexes during the life of the contract without making changes to its basic text.
Before signing the contract, the parties should (and must, as far as Annex V is concerned) fill in the Annexes and, if appropriate, delete the parts they do not need.
[Page209:]
In order to avoid misunderstandings, the parties should, when signing the contract, put their initials on each page of the contract and of the Annexes, in order to make sure which amendments they have agreed upon or which alternative solutions they have chosen.
The Annexes have been construed throughout (except for Annex V regarding commission) so that even when the parties do not fill in some points, a solution can be found within the contract.
7.4.4 Text of the ICC Model Commercial Agency Contract (long form)
MODEL FORM OF INTERNATIONAL AGENCY CONTRACT
IT IS AGREED AS FOLLOWS
Article 1 Scope of contract: Territory, Products and customers 63
1.1 The Principal appoints the Agent, who accepts, as its commercial agent, to promote the sale of the products listed in Annex I, § 1 (hereinafter called “the Products”) in the territory defined in Annex I, § 2 (hereinafter called “the Territory”) to the customers (hereinafter called “Contractual Customers”), as defined in Annex 1, § 3.
1.2 Contractual Customers are all customers, except the Excluded Customers (if any) listed in Annex 1, § 3.
1.3 If the Principal decides to sell any other products in the Territory, it shall inform the Agent in order to discuss the possibility of including them within the Products defined under Article 1.1. However, the above obligation to inform the Agent does not apply if, in consideration of the characteristics of the new products and the specialization of the Agent, it is not to be expected that such products may be represented by the Agent (e.g. products of a completely different range).
[Page210:]
Article 2 Good faith and fair dealing
2.1 In carrying out their obligations under this contract the parties will act in accordance with good faith and fair dealing.
2.2 The provisions of this contract, as well as any statements made by the parties in connection with this agency relationship, shall be interpreted in good faith.
Article 3 Agent’s functions
3.1 The Agent agrees to use its best endeavours to promote the sale of the Products in the Territory in accordance with the Principal’s reasonable instructions and shall protect the Principal’s interests with the diligence of a responsible businessperson.
3.2 The Agent shall not solicit orders from customers established outside the Territory unless permitted to do so by the Principal. Where the Agent solicits orders from customers in the Territory which results in contracts of sale with customers established outside the Territory,64 Article 15.2 shall apply.
3.3 Unless otherwise specifically agreed, the Agent has no authority to make contracts on behalf of, or in any way to bind the Principal towards third parties.65 The Agent only solicits orders from customers for the Principal, who is free (save as set forth in Article 4.2 hereafter) to accept or to reject them.66
3.4 When dealing with customers, the Agent shall offer Products strictly in accordance with the terms and conditions of the contract of sale which the Principal has communicated to it.67
3.5 The Agent is not entitled to receive payments on the Principal’s behalf without prior written authorization from the Principal to that effect. When the Agent has been so authorized, it must transmit them as soon as possible to the Principal and until then hold them separately on deposit on the Principal’s behalf.68
Article 4 Acceptance of orders by the Principal
4.1 The Principal shall inform the Agent without undue delay of its acceptance or rejection of the orders transmitted by the latter. The Principal may accept or reject any individual order transmitted by the Agent at its own discretion.
4.2 The Principal may not however unreasonably reject the orders transmitted by the Agent. In particular, a repeated refusal of orders contrary to good faith (e.g. if made for the only purpose of hindering the Agent’s activity) shall be considered as a breach of contract by the Principal.
Article 5 Undertaking not to compete .69
5.1 Without the prior written authorization of the Principal, the Agent shall not, directly or indirectly, represent, manufacture or distribute any products which are in competition with the Products, for the entire term of this contract.
[Page211:]
5.2 The Agent may represent, distribute or manufacture any products which are not competing with the Products, provided the Agent informs the Principal in advance of such activity. However, the above obligation to inform the Principal does not apply if, in consideration: (i) of the characteristics of the products which the Agent wants to represent, and (ii) of the field of activity of the Principal for whom the Agent wishes to act, it is unreasonable to expect that the Principal’s interests may be affected.
5.3 The Agent shall refrain from representing or distributing non-competing products of a manufacturer who is a competitor of the Principal, if requested to do so by the Principal, provided the latter’s request is reasonable, taking into account all the circumstances of the case.70
5.4 The Agent declares that it represents (and/or distributes or manufactures, directly or indirectly) the products listed in Annex II on the date on which this contract is signed.
Article 6 Sales organization, advertising and fairs, the Internet
6.1 The Agent shall provide an adequate organization to promote sales and, where appropriate, after-sale service, with all necessary means and personnel, in order to ensure the fulfilment of its obligations throughout the Territory under this contract.
6.2 The Agent agrees to accept any reasonable invitation of the Principal to discuss, develop, implement, evaluate and when applicable amend a marketing and advertising strategy for the Territory.
6.3 The parties may agree on the advertising and other marketing activities to be made in the Territory. The contents of any advertising must be approved by the Principal. The cost of advertising carried out by the Agent shall be apportioned between the parties as indicated in Annex III, § 1.
6.4 The parties shall agree on their participation in fairs, exhibitions within the Territory. The cost of the Agent’s participation in such promotional activities shall be apportioned between the parties as indicated in Annex III, § 2.71
6.5 The Agent is not authorized to advertise the Products or its activity as Agent of the Principal on the Internet without the Principal’s prior written approval.
Article 7 Sales targets — Guaranteed Minimum Target72
7.1 The parties may agree annually on the sales targets for the forthcoming year.
7.2 The parties shall make their best efforts to attain the targets agreed upon, but the non-attainment shall not be considered as a breach of the contract by a party, unless that party is clearly at fault.
7.3 In Annex IV the parties may agree on a Guaranteed Minimum Target and on the consequences of its non-attainment.
Article 8 Sub-agents73
[Page212:]
Article 9 Principal to be kept informed
9.1 The Agent shall exercise due diligence to keep the Principal informed about its activities, market conditions and the state of competition within the Territory. It shall answer any reasonable request for information made by the Principal.74
9.2 The Agent shall exercise due diligence to keep the Principal informed about: (i) the laws and regulations which are to apply in the Territory to which the Products must conform (e.g. import regulations, labelling, technical specifications, safety requirements, etc.), and (ii) the laws and regulations concerning its activity, as far as they are relevant for the Principal.
Article 10 Financial responsibility
The Agent shall satisfy itself, with due diligence, of the solvency of customers whose orders it transmits to the Principal. The Agent shall not transmit orders from customers of which it knows or ought to know that they are in a critical or difficult financial position, without informing the Principal in advance of such fact. The Agent shall, furthermore, give reasonable assistance to the Principal in recovering debts due.
Article 11 Principal’s trademarks, trade names and symbols
11.1 The Agent shall use the Principal’s trademarks, trade names and symbols, but only for the purpose of identifying and advertising the Products, within the scope of this contract, in the Principal’s sole interest.
11.2 The Agent shall not register nor have registered on its behalf any trademarks, trade names, or symbols of the Principal (or which are confusingly similar with the Principal’s), or use such as domain names or metatags, in the Territory or elsewhere.75
11.3 The right to use the Principal’s trademarks, trade names and symbols, as provided for under the first paragraph of this Article, shall cease immediately for the Agent, on the expiration or termination, for any reason, of the present contract.
11.4 The Agent shall notify the Principal of any infringement of the Principal’s trademarks, trade names and symbols that comes to its attention.
Article 12 Complaints by customers
The Agent shall immediately inform the Principal of any observations or complaints received from customers in respect of the Products. The parties hereto shall deal promptly and properly with such complaints. The Agent has no authority to engage in any way the Principal, unless after the Agent has received a specific written authorization to such effect.
Article 13 Exclusivity
13.1 The Principal shall not, during the life of this contract, grant any other person or undertaking within the Territory the right to represent or distribute the Products to the Contractual Customers.
13.2 The Principal is however entitled to deal directly, without the Agent’s intervention (provided the Principal informs the latter) with customers situated in the Territory; in respect of any sales arising therefrom, the Agent shall be entitled to the commission provided for in this contract, unless provided otherwise in Article 13.5.
13.3 The Principal shall be entitled to deal directly with the special customers listed in Annex V, § 2; in respect of the sales to such customers the Agent shall be entitled to the reduced commission or to no commission, if the parties so agree, as provided for in Annex V, § 2. Paragraph 13.3. shall not apply if § 2 of Annex V (Special customers/Reduced commission) has not been filled in by the parties.
13.4 Parties may agree on a possible withdrawal by the Principal of certain Contractual Customers from the exclusivity in consideration of an equitable compensation in conformity with Article 21 to the Agent.
Article 14 Agent to be kept informed
14.1 The Principal shall provide the Agent with all necessary written information relating to the Products (such as price lists, brochures, etc.) as well as with the information needed by the Agent for carrying out its obligations under the contract.
14.2 The Principal shall furthermore inform the Agent without undue delay of its acceptance, refusal and/or non-execution of any business transmitted by the Agent.
14.3 The Principal shall keep the Agent informed of any relevant communication with customers in the Territory.
14.4 If the Principal expects that its capacity of supply will be significantly lower than that which the Agent could normally expect, it will inform the Agent within a reasonable time.
Article 15 Agent’s commission
15.1 The Agent is entitled to the commission provided for in Annex V, § 1, on all sales of the Products which are made during the life of this contract to customers established in the Territory.
15.2 If the Agent, when dealing with customers established in the Territory, secures orders resulting in contracts of sale with customers established outside the Territory, and if the Principal accepts such orders, the Agent shall be entitled to receive a reduced commission, the amount of which shall be decided on a case-by-case basis. Similarly, the Agent’s commission shall be reduced when another agent solicits orders with customers established outside the Territory resulting in contracts of sale with customers established within the Territory.
15.3 A reduced commission may be agreed in advance between the Principal and the Agent in appropriate circumstances where a Contractual Customer is to be granted terms or conditions which are more favourable than the Principal’s standard conditions, with respect to special customers (Annex V, § 2) or in case of discounts granted under Annex V, § 3. If the parties have filled in § 3 of Annex V, the figures indicated therein shall apply in the respective situations.
15.4 Unless otherwise agreed in writing, the commission covers any expenses incurred by the Agent in fulfilling its obligations under this contract (such as telephone, office, travel expenses, etc.).
Article 16 Method of calculating commission and payment
16.1 Commission shall be calculated on the EXW Incoterms® rule reference value, irrespective of the Incoterms® rule chosen in the contract of sale.76
16.2 The Agent shall acquire the right to commission after full payment by the customers of the invoiced price. In case of partial payment made in compliance with the sales contract, the Agent shall be entitled to a proportional payment.
16.3 The Principal shall provide the Agent with a statement of the commissions due in respect of each quarter and shall set out all the business in respect of which such commission is payable. The commission shall be paid not later than the last day of the month following the relevant quarter.
16.4 The Agent is entitled to receive all the information, and in particular extracts from the Principal’s books, necessary to check the amount of the commission due to it. The [Page214:]Principal shall permit an independent auditor appointed for that purpose by the Agent to inspect the Principal’s books for the purpose of checking the data relevant for the calculation of the Agent’s commission. The costs of such inspection shall be borne by the Agent. The Principal shall reimburse the costs of such inspection should the inspection prove the statements provided by the Principal in 16.3 to be incorrect.
16.5 Should any governmental authorization (e.g. due to exchange control regulations in the Principal’s country) be necessary for the Principal to transfer abroad the commission (or of any other sum the Agent may be entitled to receive), then the payment of the amount shall be made after such authorization has been given. The Principal shall take all necessary steps for obtaining the above authorizations.
16.6 Except as otherwise agreed, the commission shall be calculated in the currency of the sales contract in respect of which the commission is due.
Article 17 Unconcluded business
17.1 No commission shall be due in respect of offers or orders transmitted by the Agent and not accepted by the Principal.
17.2 If a contract made by the Principal as a result of orders transmitted by the Agent is not thereafter put into effect, the Agent shall be entitled to commission unless non-performance of the contract is due to reasons for which the Principal is not responsible.
Article 18 Term of the Contract
18.3 During the notice period the parties will act loyally towards each other and in accordance with the principles in Article 2 and Article 28.
Article 19 Unfinished business
19.1 Orders transmitted by the Agent or received by the Principal from customers established in the Territory before the expiry or termination of this contract and which result in the conclusion of a contract of sale not more than six months after such expiration, shall entitle the Agent to commission.
19.2 No commission is due to the Agent for contracts of sale made on the basis of orders received after the expiry or termination of this contract, save if such transaction is mainly attributable to the Agent’s efforts during the period covered by the agency contract and if the contract was entered into within a reasonable period after the expiry or termination of this contract. The Agent must however inform the Principal in writing, before the expiry or termination of this contract, of the pending negotiations which may give rise to commission under this paragraph. [Page215:]
Article 20 Earlier termination77
20.1 Each party may terminate this contract with immediate effect, by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), in case of a substantial breach by the other party of the obligations arising out of the contract, or in case of exceptional circumstances justifying the earlier termination.
20.2 Any failure by a party to carry out all or part of its obligations under the contract resulting in such detriment to the other party as to substantially deprive it of what it is entitled to expect under the contract, shall be considered as a substantial breach for the purpose of Article 20.1 above. Circumstances in which it would be unreasonable to require the terminating party to continue to be bound by this contract, shall be considered as exceptional circumstances for the purpose of Article 20.1 above.
20.3 The parties hereby agree that the violation of the provisions under Articles ………………78 of the present contract is to be considered in principle, unless the contrary is proved, as a substantial breach of the contract. Moreover, any violation of the contractual obligations may be considered as a substantial breach, if such violation is repeated notwithstanding a request by the other party to fulfil the contract obligations.
20.4 If the parties have filled in Annex VI, the contract may also be terminated by the Principal with immediate effect in case of change of control, ownership and or management of the agent-company, according to the provisions set forth in Annex VI.
20.5 If a party terminates the contract according to this Article, but it is thereafter ascertained that the reasons put forward by that party did not justify the earlier termination, the termination will be effective, but the other party will be entitled to damages for the unjustified earlier termination. Such damages will be equal to the average commission for the period the contract would have lasted in case of normal termination, unless the damaged party proves that the actual damage is higher (or, respectively, the party having terminated the contract proves that the actual damage is lower). The above damages are in addition to the indemnity which may be due under Article 21.
[Page216:]
Article 21 Indemnity in case of termination79 80
[Page217:]
[Page218:]
[Page219:]
[Page220:]
[Page221:]
[Page222:]
[Page223:]
ANNEX VII ICC Model Confidentiality Clause 2006 (Article 28)
1.1 “Agreement” means the contract incorporating this Clause.
“Purpose” means the purpose of the Agreement.
“Disclosing Party” means the Party disclosing Confidential Information to the Receiving Party.
“Permitted Recipients” means any director, officer, employee, adviser or auditor of the Receiving Party or any of its Related Companies who reasonably needs to know Confidential Information for the Purpose.
“Receiving Party” means the Party receiving Confidential Information from the Disclosing Party.
“Related Company” means any corporation, company or other entity that controls, or is controlled by, one Party or by another Related Company of that Party, where control means ownership or control, direct or indirect, of more than fifty (50) per cent of that corporation’s, company’s or other entity’s voting capital.
“Confidential Information” means any information or data, or both, communicated by or on behalf of the Disclosing Party to the Receiving Party, including, but not limited to, any kind of business, commercial or technical information and data in connection with the Purpose, except for such information that is demonstrably non-confidential in nature. The information shall be Confidential Information, irrespective of the medium in which that information or data is embedded, and whether the Confidential Information is disclosed orally, visually or otherwise. Confidential Information shall include any copies or abstracts made of it as well as any products, apparatus, modules, samples, prototypes or parts that may contain or reveal the Confidential Information. Confidential Information is limited to information disclosed on or after the date of signature of this Agreement.
1.2 The Receiving Party shall:
a) not disclose any Confidential Information to anyone except to the Permitted Recipients, who are bound to the same level of confidentiality obligations as set forth by this Clause;
b) use any Confidential Information exclusively for the Purpose; and
c) keep confidential and hold all Confidential Information with no less a degree of care as is used for the Receiving Party’s own confidential information and at least with reasonable care.
1.3 Any obligation to keep confidential all Confidential Information shall not apply to the extent that the Receiving Party can prove that any of that information:
1.4 Unless otherwise specified by the Disclosing Party at the time of disclosure, the Receiving Party may make copies of the Confidential Information to the extent necessary for the Purpose.
1.5 Nothing in this Agreement shall obligate either Party to disclose any information. Each Party has the right to refuse to accept any information under this Agreement prior to any disclosure. Confidential Information disclosed despite an express prior refusal is not covered by the obligations under this Clause.
1.6 Nothing in this Agreement shall affect any rights the Disclosing Party may have in relation to the Confidential Information, neither shall this Agreement provide the Receiving Party with any right or license under any patents, copyrights, trade secrets, or the like in relation to the Confidential Information, except for the use of Confidential Information in connection with the Purpose and in accordance with this Clause.
1.7 The Disclosing Party makes available the Confidential Information as is and does not warrant that any of this information that it discloses is complete, accurate, free from defects or third-party rights, or useful for the Purpose or other purposes of the Receiving Party.
1.8 This Clause does not:
1.9 In addition to any remedies under the applicable law, the Parties recognize that any breach or violation of any provision of this Clause may cause irreparable harm to the other Party, which money damages may not necessarily remedy. Therefore, upon any actual or impending violation of any provision of this Clause, either Party may obtain from any court of competent jurisdiction a preliminary, temporary or permanent injunction, restraining or enjoining such violation by the other Party or any entity or person acting in concert with that Party.
1.10 Within ninety (90) days of termination of this Agreement, the Disclosing Party may request the disposal of the Confidential Information. Disposal means execution of reasonable measures to return or destroy all copies including electronic data. Destruction shall be confirmed in writing. Disposal shall be effected within thirty (30) days of the request being made.
The provisions for disposal shall not apply to copies of electronically communicated Confidential Information made as a matter of routine information technology back-up and to Confidential Information or copies of it that must be stored by the Receiving Party or its advisers according to provisions of mandatory law, provided that this Confidential Information or copies of it shall be subject to continuing obligations of confidentiality under this Agreement; but no further use shall be permitted as from the date of the request.
1.11 Neither Party shall be in breach of this Clause to the extent that it can show that any disclosure of Confidential Information was made solely and to the extent necessary to comply with a statutory, judicial or other obligation of a mandatory nature, afterwards referred to as “Mandatory Obligation”. Where a disclosure is made for these reasons, the Party making the disclosure shall ensure that the recipient of the Confidential Information is made aware of and asked to respect its confidentiality. This disclosure [Page225:]shall in no way diminish the obligations of the parties under this Clause except to the extent that a Party is compelled by any Mandatory Obligation to disclose Confidential Information without restriction.
To the extent permitted by any Mandatory Obligation, the Receiving Party shall notify the other Party without delay in writing as soon as it becomes aware of an enquiry or any process of any description that is likely to require disclosure of the other Party’s Confidential Information in order to comply with any Mandatory Obligation.
1.12 Upon termination, the Receiving Party shall stop making use of the Confidential Information. The obligations of the Parties under this Agreement shall survive indefinitely or to the extent permitted by the applicable mandatory law.
7.4.5 The ICC Model Commercial Agency Contract (short form)
The ICC Short Form Model International Agency Contract, which was prepared several years after the publication of the “long form”, intends to answer the needs of business people seeking a short contract dealing only with the most important issues.
The following description of the model is based for the most part on the introduction to the model form, the full text of which can be found in ICC publication No. 791.
7.4.5.1 Scope of application of the short form
The ICC Short Form Model International Agency Contract is a simplified contract intended for parties who do not want a detailed commercial agency contract, but prefer a shorter, simpler form covering only the most essential issues.
It should be stressed that a “short form” contract will contain only provisions covering the most typical issues arising between the parties, and will not provide the choice of more sophisticated alternative provisions which might actually be more appropriate for some users. Indeed, some issues may arise which are not covered at all. They will be left for the courts to determine.
If parties need more sophisticated solutions, they should use the “full” ICC Model Commercial Agency Contract” (ICC publication No. 766), which provides a more complete set of clauses and options, particularly through the annexes.
The model has been made bearing in mind mainly the situation of agents who promote the sale of goods. It can also be applied to agents who promote services, but in such cases, the parties should check whether all of the clauses are appropriate for their situation.
7.4.5.2 Comments on specific points
Products (Box A-3-A). If the parties do not fill in A-3, the contract will cover all of the principal’s products (see Article 1.2). If the parties define the products in box A-3, they may refer to categories of products or to specific models. If the space is not sufficient, reference may be made to an Annex, e.g. by writing in box A-3-A “see Annex 1”.
Goodwill indemnity (Box A-6). In many countries (e.g. in all Member States of the European Union) the law provides that, except in the circumstances identified in Article 9.3, the agent is entitled to an indemnity in the event of termination by the principal, in order to repay the agent for the goodwill developed by the agent from which the principal will benefit after the contract has ended. If the agent is domiciled in such a country, it is strongly recommended that the agent be granted such an indemnity, by choosing alternative A-6-A (or by not completing Box A-6, which will have the same effect: see Article 9). If, on the contrary, the agent is domiciled in a country where no such indemnity is required by law, the parties may choose alternative B.
Applicable law (Box A-7). The recommended solution is not to submit the contract to a specific national law, but to only refer to the general principles of law generally recognized in international trade together with the UNIDROIT Principles (see Article 10.1). In many countries (e.g. in all Member States of the European Union) the law provides that, except in the circumstances identified in Article 9.3, the agent is entitled to an indemnity in the event of termination by the principal, in order to repay the agent for the goodwill developed by the agent from which the principal will benefit after the contract has ended. If the agent is domiciled in such a country, it is strongly[Page226:]recommended that the agent be granted such an indemnity, by choosing alternative A-6-A (or by not completing Box A-6, which will have the same effect: see Article 9). If, on the contrary, the agent is domiciled in a country where no such indemnity is required by law, the parties may choose alternative B. For a more detailed information about the pros and cons of this a-national choice of law clause, you can consult the study drafted by a special task force of the CLP Commission: “Developing neutral legal standards for international contracts. A-national rules as the applicable law in international commercial contracts with particular reference to the ICC Model Contracts”. The publication in question is available for free download on the ICC store homepage: http://store.iccwbo.org/.
However, since this solution (i.e. that the contract be governed by general principles of law instead of a domestic law) is more appropriate when disputes are submitted to arbitration rather than to litigation in national courts, the choice of a specific national law will be preferable if the parties decide to have recourse to litigation before the ordinary courts (see Box A-8). In this case, however, the parties should check if and to what extent the contract conforms to the provisions of the applicable domestic law.
Resolution of disputes (Box A-8). Box A offers the choice between arbitration and jurisdiction of ordinary courts. If no choice is made, ICC arbitration will apply, by virtue of Article 12.3. Parties should be aware that in certain countries the above clauses may be ineffective due to public policy rules reserving jurisdiction to local courts.
EU competition rules. As regards contracts within the European Union (or capable of producing significant effects within the EU) the EU competition rules and particularly Article 101 of the Treaty on the Functioning of the European Union (TFEU) are to be respected. However, in principle agency agreements do not fall under the prohibition of Article 101 and therefore need not to comply with the EU antitrust rules. Only in exceptional cases, where the agent takes financial and commercial risks which are similar to those of a distributor (reseller), the contract may fall under Article 101 and will therefore need to comply with Regulation 330/2010 in order to be exempted from the prohibition. In this case parties should ask for expert advice.
Internet sales. If the Principal wishes to sell its products on the Internet through its own website or otherwise, parties should decide whether they should exclude such sales from the exclusivity granted to the agent under Article 5 or look for other possible solutions. It has been considered that it was not appropriate to deal with this issue in this “short form”. A clause offering two alternative solutions to this issue can be found in Article 13.5 of the “full” ICC Model Commercial Agency Contract” (ICC publication No. 766).
7.4.6 Text of the ICC Model Commercial Agency Contract (short form)
ICC SHORT FORM MODEL CONTRACT International Commercial Agency
PART I Special Conditions
[Page227:]
[Page228:]
PART II General Conditions
1 Territory and Products
1.1 The Principal appoints the Agent, who accepts, to promote the sale of the products listed in box A-3A as well as any other products the parties may agree in writing to include in box A-3-A at any time during the term of this Contract (hereinafter called the “Products”) in the territory (if any) indicated in box A-3B (hereinafter called the “Territory”).
1.2 If the parties have not completed box A-3A, all products manufactured and/or marketed by the Principal at present and in the future will be considered as “Products” for the purpose of this Contract. [Page229:]
2 Good faith and fair dealing
2.1 In carrying out their obligations under this Contract the parties will act in accordance with good faith and fair dealing.
2.2 The provisions of this Contract, as well as any statements made by the parties in connection with this agency relationship, shall be interpreted in good faith.
3 Agent’s functions
3.1 The Agent agrees to use its best endeavours to promote the sale of the Products in the Territory in accordance with the Principal’s reasonable instructions and shall protect the Principal’s interests with the diligence of a responsible person.
3.2 Unless otherwise specifically agreed, the Agent has no authority to make contracts on behalf of, or in any way to bind the Principal towards third parties. The Agent only solicits orders from customers for the Principal, who is free to accept or to reject them.
3.3 The Agent shall satisfy itself, with due diligence, of the solvency of customers whose orders it transmits to the Principal. The Agent shall not transmit orders from customers of which it knows or ought to know that they are in a critical or difficult financial position, without informing the Principal in advance of such fact. The Agent shall, furthermore, give reasonable assistance to the Principal in recovering debts due.
3.4 The Agent is not entitled to receive payments on the Principal’s behalf without prior written authorization from the Principal to that effect. When the Agent has been so authorized, it must transmit them as soon as possible to the Principal and until then hold them separately on deposit on the Principal’s behalf.
4 Undertaking not to compete
4.1 Without the prior written authorization of the Principal, the Agent shall not, directly or indirectly, represent, manufacture or distribute any products which are in competition with the Products, for the entire term of this Contract.
4.2 The Agent is entitled to represent, manufacture, market or sell any products which are not competitive with the Products, provided it informs the Principal in advance of such activity.
5 Exclusivity
5.1 The Principal shall not, during the term of this Contract, grant any other person or undertaking (including a subsidiary of the Principal) within the Territory the right to represent or distribute the Products.
5.2 The Principal shall be entitled to deal directly, without the Agent’s intervention, with customers situated in the Territory provided the Principal informs the Agent in advance. In respect of such sales the Agent shall be entitled to the commission provided for in Article 6.1.
5.3 If box A-4 has been filled in, the customers listed in the box will be managed directly by the Principal. Unless otherwise agreed, the Agent is not entitled to commission on such business.
6 Commission
6.1 Except as otherwise agreed, the Agent is entitled to the commission indicated in box A-5 on all sales of the Products which are made by the Principal during the term of this Contract to customers established in the Territory.
6.2 If the Agent, when dealing with customers established in the Territory, secures orders resulting in contracts of sale with customers established outside the Territory, and if the Principal accepts such orders, the Agent shall be entitled to receive a reduced commission, the amount of which shall be decided on a case by case basis. Similarly, the Agent’s commission shall be reduced when another agent solicits orders with customers established outside the Territory resulting in contracts of sale with customers established within the Territory.
6.3 Commission shall be calculated on the EXW Incoterms® rule reference value, irrespective of the Incoterms® rule chosen in the contract of sale. [Page230:]
6.4 Unless otherwise agreed (e.g. as indicated in box A-5), the Agent shall acquire the right to commission only after full payment by the customers of the invoiced price. In case of partial payment, made in compliance with the sale contract, the Agent shall be entitled to a proportional payment.
6.5 The Principal shall provide the Agent with a statement of the commissions due in respect of each quarter, or such shorter period as the parties may agree, and shall set out all the business in respect of which such commission is payable. The commission shall be paid not later than the last day of the month following the relevant quarter.
7 Term and termination of the Contract
7.1 This Contract is concluded for an indefinite period and enters into force on the date on which it is signed.
7.2 This Contract may be terminated by either party by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), not less than 4 months in advance. If the Contract has lasted for more than four years, the period of notice will be of not less than 6 months. The end of the period of notice must coincide with the end of a calendar month.
8 Earlier contract termination
8.1 Each party may terminate this Contract with immediate effect by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), in case of a substantial breach by the other party of the obligations arising out of the Contract, or in case of exceptional circumstances justifying the earlier termination. Any failure by a party to carry out all or part of its obligations under the Contract resulting in such detriment to the other party as to substantially deprive it of what it is entitled to expect under the Contract, shall be considered as a substantial breach for the purpose of this Article 8.1. Circumstances in which it would be unreasonable to require the terminating party to continue to be bound by this Contract, shall be considered as exceptional circumstances for the purpose of this Article 8.1.
8.2 If a party terminates the Contract in accordance with this Article, and it appears thereafter that the reasons put forward by that party did not justify the earlier termination, the termination will be effective, but the other party will be entitled to damages for the unjustified earlier termination. Such damages will be equal to the average commission for the period the Contract would have lasted in case of normal termination, unless the damaged party proves that the actual damage is higher (or, respectively, the party having terminated the Contract proves that the actual damage is lower). The above damages are in addition to the indemnity which may be due under Article 9.
9 Goodwill indemnity
9.1 Unless otherwise agreed (e.g. in box A-6), upon termination of the Contract the Agent shall be entitled to an indemnity (“goodwill indemnity”) if and to the extent it has brought the Principal new customers or has significantly increased the volume of business with existing customers and the Principal continues to derive substantial benefits from the business with such customers, and the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the Agent on the business transacted with such customers and provided that the Agent claims such indemnity in writing within one year from contract termination.
9.2 The amount of the indemnity shall not exceed a figure equivalent to an indemnity for one year calculated from the Agent’s average annual remuneration over the preceding five years and, if the Contract lasted for less than five years, the indemnity shall be calculated on the average for the period in question.
9.3 The Agent shall have no right to indemnity in the following cases:
9.4 The goodwill indemnity under this Article 9 (“Contractual Indemnity”) is in lieu of any goodwill indemnity or equivalent compensation the Agent may be entitled to by virtue of rules of law applicable to the present Contract (“Statutory Indemnity”) and will consequently replace such Statutory Indemnity (if any). However, in case the Agent’s right to the Statutory Indemnity cannot be validly replaced by the Contractual Indemnity under the applicable law, Article 9.1 will not apply and the Agent will be entitled to the Statutory Indemnity in lieu of the Contractual Indemnity set out in this Article 9.
10 Applicable law - Arbitration
10.1 Unless otherwise agreed in writing (whether in box A-7 or elsewhere), any questions relating to this agency Contract shall be governed, in the following order:
10.2 The parties may at any time, without prejudice to Article 10.3., seek to settle any dispute arising out of or in connection with this agency Contract in accordance with the ICC Mediation Rules.97
10.3 Unless otherwise agreed in writing (whether by completing Box A-8 or otherwise), all disputes arising out of or in connection with this agency Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
7.4.7 The ICC Model Distributorship Contract (long form)
Together with commercial agency agreements, distributorship contracts are the most frequently used means for organizing the distribution of goods in a foreign country. Almost every company engaged in international trade has at least some distributors abroad, which means that most exporters, whether large or small, must face the problem of drafting an international distributorship agreement.
The ICC model intends to assist business people engaged in international trade and the lawyers aiding them in drafting and negotiating contracts by proposing a model contract that tries to be time simple and complete at the same.
The following description of the model is based for the most part on the introduction to the model form, the full text of which can be found in ICC publication No. 776.
7.4.7.1 A uniform model for international trade
When negotiating distribution agreements abroad, one of the main difficulties faced by parties engaged in international trade is the lack of uniform rules for agreements of this type. In most countries, distribution agreements are not governed by specific statutory provisions.98 Where such rules are established by the courts, their decisions often refer to distributors acting as retailers at local level, which implies that they are not always adequate for international distributors-importers.
Some principles are established at the international level, but they refer mainly to antitrust aspects of the contract (i.e. validity of certain restrictive clauses regarding exclusivity, territorial restrictions, etc.) and do not cover the rights and obligations of the parties.
This means that parties must refer primarily to the rules they establish in their contracts; consequently, these rules must be set out carefully.[Page232:]
The ICC hereby puts at the disposal of parties engaged in international trade a set of uniform contractual rules which incorporate the prevailing practice in international trade.
In preparing this model form, the ICC working group that drafted it sought to strike a fair balance between the interests of the supplier and those of the distributor-importer. In other words, this model form does not favour the position of one of the parties, but aims at protecting and balancing the legitimate interests of both.
For this reason, parties looking for stronger protection of their own interests should use models prepared according to the categories to which they belong (suppliers-exporters or, respectively, distributors-importers).
7.4.7.2 Scope of application
In principle, this model form is intended to apply only to international agreements where distributors act as buyers-resellers and as importers who organize distribution in the country they are responsible for.
International agreements
Since this model form is intended for international contracts, in principle it will not be appropriate for domestic contracts, i.e. contracts between parties having their place of business in the same country.
The parties are therefore advised to use this model form for domestic contracts only after having checked what amendments may be necessary in order to comply with local laws and practices.
Buyer-reseller
The model form does not deal with transactions between principals and commercial agents.99 The distributor is not an intermediary or broker, but rather a dealer who buys goods in order to resell them in its own name and on its own behalf, even if the distributor is often called an “agent” in business practice.
A different problem arises when, within the context of a “real” distribution contract, the distributor also acts as an intermediary for certain business, thus combining the functions of distributor and agent. This situation has been envisaged under Article 3.4.
Distributor-wholesaler/importer
This model is designed to cover the situation of a distributor acting at the wholesale level, being responsible for organizing the distribution of the supplier’s products within a country or part of it. Therefore, it does not apply in principle to dealers selling at retail level, although many provisions of the model will be compatible with such a situation.
Product liability
The working party decided not to include clauses on product liability in the model form.100 In fact, the problems arising in connection with this issue — particularly as concerns the possibility of reducing or increasing the responsibility in the relationship between supplier and distributor through exemption clauses or “hold harmless” provisions — are complex and depend on the applicable law, which may differ on the matter substantially from country to country.
The parties should give serious consideration to the need for product liability insurance.
7.4.7.3 What is a distributor?
The most commonly used terms for the type of contract which is the subject matter of this model are “distributorship” in English, concession commerciale or concession de vente in French, and Vertragshändlervertrag or Eigenhändlervertrag in German. However, in practice, the terms “agent”, or “general agent” are often used, although [Page233:]these terms may have a different meaning in law, since a commercial agent does not normally act as a reseller. The words “importer” or “general importer” are sometimes used to define a distributor responsible for organizing distribution in a given country.
The distributor is not simply a reseller;101 it is linked to the supplier by a closer tie. In particular, the following characteristics should be noted:
7.4.7.4 Distribution contract and sales contracts
Since the distribution contract implies by definition that the parties conclude sales contracts between them, they need to agree on certain points relating to their seller-purchaser relationship: prices, conditions of payment, warranties, etc. This is normally dealt with by making reference to the general conditions of sale of one of the parties (generally those of the supplier: see Article 7.3).
The parties may also make use of to the General Conditions contained in the ICC Model International Sales Contract (ICC publication No. 738)
However, the parties may wish to determine certain aspects of the sales contracts within the distribution contract itself, particularly with reference to points which require special rules when the buyer is a distributor (e.g. prices and/or discounts; conditions of payment). In this case, the special rules contained in the distribution contract will prevail in the event of conflict with the general conditions of sale (see Article 7.3).
7.4.7.5 The applicable law
This model contract has been based on the assumption that it will not be governed by a specific national law, but only by the provisions of the contract itself and the principles of law generally recognized in international trade as applicable to distribution contracts (also called lex mercatoria). The purpose of this solution is to enable the rules of this model form to be applied in a uniform way to suppliers and distributors from different countries without giving one party the advantage and the other party the disadvantage of applying one party’s national law.
Of course this solution, while avoiding the particularities of national laws, implies (at least for matters not expressly governed by the contract clauses) the recourse to less precise (and predictable) rules than those contained in the domestic laws (although most countries do not have specific rules governing distributorship contracts). The drafting group is of the opinion that the possible disadvantages resulting from the application of flexible and general rules is counterbalanced by the greater certainty of a uniform set of contractual rules and by the reference to a set of rules on contracts, such as the UNIDROIT Principles of International Commercial Contracts, which offer a reasonably foreseeable legal framework for most issues that may arise.
For more detailed information about the choice of a-national rules to govern the contract and in particular the model clause provided in the ICC model contracts, see the study published by the ICC and drafted by a special task force of the CLP Commission: “Developing neutral legal standards for international contracts. A-national rules as the applicable law in international commercial contracts with particular reference to the ICC Model Contracts”. The publication in question is available for free download on the ICC Store homepage: http://store.iccwbo.org/. In any case, if the [Page234:] parties wish to have their contract governed by a specific national law, they can use the alternative set forth in Article 24.1. B. In such case they should carefully check if this model form conforms to the provisions and/or judicial precedents of the national law they have chosen.102 This alternative (national law) is preferable if parties submit the contract to the jurisdiction of ordinary courts (see Article 23) instead of arbitration.
7.4.7.6 Countries in which special precautions should be taken
This model, although written with the purpose of giving a balanced solution to the issues arising out of distribution, may, in exceptional cases, conflict with national laws protecting the distributor.
In such cases the parties should seek the advice of an expert before using this contract.
In certain cases, the protection granted to the distributor under the local law also implies that possible disputes must be decided by local courts, which may imply the ineffectiveness of arbitration clauses.
7.4.7.7 The need to comply with antitrust rules
Distribution contracts normally contain clauses which may restrict competition, such as exclusivity, non-competition obligations, resale price maintenance, etc., and which may consequently conflict with antitrust rules. It is therefore recommended to check if all clauses are in accordance with such rules. Since it is impossible to consider the provisions contained in the various national antitrust laws, the following paragraphs consider the rules of the European Union and only make some short reference to national laws on this subject.
Clauses likely to be inconsistent with antitrust rules have been put under the title “CHECK ANTITRUST COMPLIANCE”. This does not mean that other clauses cannot conflict with antitrust rules.
EU Rules: Article 101 and Regulation 330/2010
The European Commission enacted on 20 April 2010 Regulation No. 330/2010 which replaces Regulation 2790/99 and which came into force on the 1 June 2000.103 Such Regulation exempts certain vertical agreements from the prohibition of Article 101 of the Treaty on the Functioning of the European Union (TFEU). In principle, the clauses contained in this model are in accordance with the above EU regulation. However, since some of the clauses may be inappropriate when dealing with distributors outside the common market, in certain cases (Articles 11, 12, 16.2) alternative solutions which do not comply with the EU antitrust rules have been proposed. In these cases, it has been stated very clearly that these alternatives are not meant for use within the EU.104
A particular problem arises with respect to the clause prohibiting the distributor to sell competing products (or to purchase such products exclusively from the supplier). According to Regulation 330/2010 such obligation should not last more than five years, i.e. after such period the clause should be considered as ineffective. Now, since such clause is essential within the distribution agreement (because a supplier will normally not accept that its distributor markets competing products), the model form provides in the alternative of Article 19 to be applied within the EU, (i.e. alternative A) that the duration of the contract is limited to five years. Of course, this does not prevent the parties to enter into a new contract after the previous contract has expired.
In this connection, it should be noted that the block exemption under Regulation 330/2010 does not apply if the supplier’s share of its sales market or the distributor’s share of its purchasing market relating to the products in question exceeds 30%. It should also be noted that, as a rule, the block exemption under Regulation 330/2010 [Page235:]does not apply to distributorship contracts between competing undertakings (e.g. where the supplier sells a competing product of a different brand at the wholesale level). In these cases parties should seek expert advice.
National legislations
It is likely that the clause whereby the distributor is to respect the resale prices fixed by the supplier is prohibited under most national antitrust laws.
As to the other clauses (exclusivity, non-competition, export prohibition), it is impossible to provide general indications, since the solutions may vary from country to country.
7.4.7.8 Recourse to international arbitration
Since the model form is a set of uniform contractual rules, avoiding, as far as possible, the direct application of conflicting domestic legislations, it is appropriate that possible disputes be solved by a uniform resolution system organized on an international level.
From this point of view, the best solution appears to be international commercial arbitration (see particularly Article 23), which permits a truly international approach and avoids the risk of differentiation which would arise in case of recourse to domestic courts.
Since arbitration is essential in the framework of this model, this ICC model contract should be adapted in cases where the dispute may be considered non-arbitrable (i.e. “not capable of settlement by arbitration”) according to the New York Convention of 1958. The above risk exists in particular under national laws that protect the local distributor, whenever this implies an exclusive jurisdiction of the national courts.105
7.4.7.9 Precautions for use of the model form
To the extent possible, any model contract should be adapted to the circumstances of a specific case.
Of course, in theory the best solution consists in drafting an individual contract based on existing model forms in order to take account of all the specific requirements of the parties.
However, the parties are often not in a position to prepare a specific contract and prefer to have recourse to a ready-to-use, balanced model form. In this case, they will ask for a model that can be used as it stands, without any need for modifications or additions.
ICC has tried to work out a single solution on every issue. However, where this has not been possible (see e.g. Articles 12, 16.2, 16.3, 19, 21, 23.2 and 24), alternatives have been suggested.
Such alternative solutions have been presented side-by-side under the letters A and B in order to emphasize that only one of them can apply.
Therefore, before signing the contract, the parties must decide which of the alternative solutions they choose, and then cancel the alternative they do not want to apply.
In any event, the model form provides (Article 25.1) that, if the parties do not make a choice by cancelling one alternative, one of them will automatically apply.
There are also a number of points on which the parties must insert their requirements: definition of the territory and the products, non-competing products marketed by the distributor, reimbursement of advertising expenses, discounts, guaranteed minimum target, minimum stock, commission on direct sales, etc.
All of these points have been incorporated in the annexes to this document, so that the parties can complete and, where necessary, modify by mutual agreement the annexes during the life of the contract, without making changes to the basic text of the agreement.[Page236:]Before signing the contract the parties should complete the annexes and, if appropriate, delete the parts they do not need.
In order to avoid misunderstandings, the parties should, when signing the contract, put their initials on each page in order to check and make completely clear which amendments they have agreed upon or which alternative solutions they have chosen.
7.4.8 Model Form of International Sole Distributorship Contract
ICC DISTRIBUTORSHIP CONTRACT (SOLE IMPORTER-DISTRIBUTOR)
IT IS AGREED AS FOLLOWS:106
Article 1 Territory and Products
1.1 The Supplier grants and the Distributor accepts the exclusive right to market the products listed in Annex I, § 1 (hereinafter called “the Products”) in the territory defined in Annex I, § 2 (hereinafter called “the Territory”) to the customers (hereinafter called “Contractual Customers”), as defined in Annex I, § 3. Contractual Customers are all customers, except the Excluded Customers (if any) listed in Annex I, § 3.
1.2 If the Supplier decides to market any other products in the Territory, it shall so inform the Distributor in order to discuss the possibility of including such other products within the Products defined under Article 1.1. However, the above obligation to inform the Distributor does not apply if, in consideration of the characteristics of the new products and the specialization of the Distributor, it is not to be expected that such products may be marketed by the Distributor (e.g. products of a completely different range).
2.2 The provisions of this Contract, as well as any statements made by the parties in connection with this distributorship relationship, shall be interpreted in good faith.
Article 3 Distributor’s functions
3.1 The Distributor sells in its own name and for its own account, the Products supplied by the Supplier.
[Page237:]
3.2 The Distributor agrees to efficiently promote the sale of the Products in the Territory in accordance with the Supplier’s policy and shall protect the Supplier’s interests with the diligence of a responsible businessperson.
3.3 The Distributor has no authority to act in the name or on behalf of the Supplier or in any way to bind the Supplier towards third parties, unless previously and specifically authorized in writing to do so by the Supplier.
3.4 The Distributor may, in exceptional cases in which it is not in a position to buy and resell, propose such business to the Supplier for a direct sale to the customer. For such activity as intermediary the Distributor will receive a commission as set out in Annex II, § 1 (if completed) or otherwise to be agreed upon case by case, to be calculated and paid according to Annex II, § 3. It is expressly agreed that such activity as intermediary, to the extent it remains of an accessory character, does not modify the legal status of the Distributor as a trader acting in its own name and for its own account.
Article 4 Undertaking not to compete
4.1 Without the prior written authorization of the Supplier, the Distributor shall not represent, directly or indirectly, manufacture, market or sell in the Territory107 any products which are in competition with the Products, for the entire term of this Contract.
4.2 The Distributor is entitled to represent, manufacture, market or sell any products which are not competitive108 with the Products, provided he informs the Supplier in advance of such activity and provided the exercise of such activity does not prejudice the fulfilment of its obligations under this contract.
4.3 The Distributor declares that it represents (and/or manufactures, markets or sells, directly or indirectly) on the date on which this contract is signed the products listed in Annex III.
Article 5 Sales organization
The Distributor shall set up and maintain an adequate organization for sales and, where appropriate, after-sales service, with all means and personnel as are reasonably necessary in order to ensure the fulfilment of its obligations under this Contract for all Products and throughout the Territory.109
Article 6 Marketing strategies — Advertising and Fairs
6.1 The parties shall discuss in advance the marketing programme for each year. All advertising materials, including digital, must be approved by the Supplier in advance. The costs of agreed advertising and other marketing activities shall be shared between the parties in accordance with Annex IV, § 1 (if completed); otherwise each party will bear the marketing expenses it has incurred.
6.2 The Supplier shall provide Distributor, at Supplier’s discretion, with brochures, leaflets, technical and commercial information on the Products, as a support for its marketing activity. Parties shall agree on sharing possible costs of translation and adaptation of such materials. All promotional materials delivered shall remain the exclusive property of Supplier, undertaking Distributor to return them to Supplier upon contract termination.
6.3 The parties shall agree on their participation in fairs, exhibitions, and other promotional activities within the Territory. The costs of the Distributor’s participation in such fairs, exhibitions and other promotional activities shall be apportioned between the parties as indicated in Annex IV, § 2.
[Page238:]
6.4 The parties may agree on a detailed marketing strategy on the basis of the indications contained in Annex V.110
Article 7 Conditions of supply — Prices
7.1 The Supplier shall supply all Products ordered, subject to their availability, and provided payment of the Products is adequately warranted. The Supplier may not unreasonably reject orders received from the Distributor; in particular, a repeated refusal of orders contrary to good faith (e.g. if made for the purpose of hindering the Distributor’s activity) shall be considered as a breach of contract by the Supplier.
7.2 The Supplier agrees to make its best efforts to fulfil the orders it has accepted.111
7.3 Sales of the Products to the Distributor shall be governed by the Supplier’s general conditions of sale, the currently applicable version of which is attached to this Contract (Annex VI, § 1). In case of conflict between such general conditions and the terms of this Contract, the latter shall prevail.112
7.4 The prices payable by the Distributor shall be those set forth in the Supplier’s price list in force at the time the order is received by the Supplier with the discount, delivery conditions and lead time indicated in Annex VI, § 2.113 Unless otherwise agreed, such prices are subject to change at any time, subject to one month’s notice.114
7.5 The Distributor agrees to comply, with the utmost care, with the terms of payment agreed upon between the parties.115
7.6 It is agreed that the Products delivered remain the Supplier’s property until the Supplier has received payment in full.116
Article 8 Sales targets — Guaranteed Minimum Target117
8.1 The parties may agree annually on the sales targets for the forthcoming year.
8.2 The parties shall make their best efforts to attain the targets agreed upon, but the non-attainment shall not be considered as a breach of the contract by a party, unless that party is clearly at fault.
8.3 In Annex VII the parties may agree on a Guaranteed Minimum Target and on the consequences of its non-attainment.
Article 9118
Sub-distributors or agents
9.1 The Distributor may appoint sub-distributors or agents for the sale of the Products in the Territory, provided the Distributor informs the Supplier before the engagement.
[Page239:]
9.2 The Distributor shall be responsible for its sub-distributors or agents.
Article 10 Supplier to be kept informed
10.1 The Distributor shall exercise due diligence to keep the Supplier informed about the Distributor’s activities, market conditions and the state of competition within the Territory. The Distributor shall answer any reasonable request for information made by the Supplier.119
10.2 The Distributor shall exercise due diligence to keep the Supplier informed about: (i) the laws and regulations which are applicable in the Territory and relate to the Products (e.g. import regulations, labelling, technical specifications, safety requirements, etc.), and (ii) as far as they are relevant for the Supplier, the laws and regulations concerning the Distributor’s activity.
Article 11 Resale prices
The Distributor is free to fix the resale prices of the Products, with the only exception of maximum sales prices that the Supplier may impose. The Supplier may indicate “non binding” resale prices, provided this does in no way limit the Distributor’s right to grant lower prices.
Article 12 Sales outside the Territory — Internet120 121
12.2 The Distributor may promote the Products through the Internet, but may not use the Supplier’s trademarks, trade names, symbols and other Intellectual property rights without previously agreeing in writing with the Supplier the details of such use.123
Article 13 Supplier’s trademarks, trade names and symbols
13.1 The Distributor shall use the Supplier’s trademarks, trade names and symbols for the purpose of identifying and advertising the Products, within the scope of this Contract.
13.2 The Distributor shall not register nor have registered on its behalf any trademarks, trade names, or symbols of the Supplier (or which are confusingly similar with the Supplier’s), or use such as domain names or metatags, in the Territory or elsewhere.124
13.3 The right to use the Supplier’s trademarks, trade names and symbols, as provided for under the first paragraph of this Article, shall cease immediately for the Distributor, on the expiration or termination, for any reason, of the present Contract.
[Page240:]
13.4 The Distributor shall notify the Supplier of any infringement of the Supplier’s trademarks, trade names and symbols as well as of any act of unfair competition or illegal trade practice in relation thereto that comes to its attention.
Article 14 Confidential Information
Each party agrees not to disclose to third parties any Confidential Information disclosed to it by the other party in the context of this Contract in conformity with the ICC Model Confidentiality Clause at Annex VIII. This Article 14 survives the termination of this Contract.
Article 15 Stock of Products and spare parts — After sales service
15.1 The Distributor agrees to maintain at its own expense, for the whole term of this Contract, a stock of Products and spare parts sufficient for the normal needs of the Territory, and in any case at least as indicated in Annex IX.
15.2 The Distributor agrees to provide after sales service according to the terms and conditions set out in Annex IX, provided such Annex has been completed.
Article 16 Sole distributorship
16.1 The Supplier shall not, during the term of this Contract, grant any other person or undertaking (including a subsidiary of the Supplier) within the Territory the right to represent or market the Products. The Supplier shall furthermore refrain from selling to customers established in the Territory, except pursuant to the conditions set out under Article 17 hereafter.125
Article 17 Direct sales
17.1 The Supplier shall be entitled to deal directly with the special customers listed in Annex II, § 2; in respect of the sales to such customers the Distributor may be entitled to a commission, if any, as provided for in Annex II, § 2. This article shall not apply if § 2 of Annex II (Special customers commission) has not been completed by the parties.
17.2 Whenever a commission is due to the Distributor, it shall be calculated and paid according to Annex II, § 3.
Article 18 Distributor to be kept informed
[Page241:]
18.1 The Supplier shall provide the Distributor free of charge with all documentation relating to the Products (brochures, etc.) reasonably needed by the Distributor for carrying out its obligations under the Contract.126 The Distributor shall return to the Supplier, at the end of this Contract, all documents that have been made available to it by the Supplier and that remain in its possession.
18.2 The Supplier shall provide the Distributor with all other information reasonably needed by the Distributor for carrying out its obligations under the Contract including without limitation any information regarding a material decrease in its supply capacity.
18.3 The Supplier shall keep the Distributor informed of any relevant communication with customers in the Territory.
18.4 If the Supplier expects that its capacity of supply will be significantly lower than that which the Distributor could normally expect, it will inform the Distributor within a reasonable time.
Article 19 Term of the Contract127128
Article 20 Earlier termination130
20.1 Each party may terminate this Contract with immediate effect, by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), in case of a substantial breach by the other party of the obligations arising out of the Contract, or in case of exceptional circumstances justifying the earlier termination.
20.2 Any failure by a party to carry out all or part of its obligations under the Contract resulting in such detriment to the other party as to substantially deprive such other party of what it is entitled to expect under the Contract, shall be considered a substantial breach for the purpose of Article 20.1. above. Circumstances in which it would be unreasonable to require the terminating party to continue to be bound by this Contract, shall be considered as exceptional circumstances for the purpose of Article 20.1. above.
20.3 The parties hereby agree that the violation of the provisions under ……………..131 of the present Contract is to be considered, as a substantial breach of the Contract. Moreover, any violation of the contractual obligations may be considered as a substantial breach, if such violation is repeated notwithstanding a request by the other party to fulfil the contractual obligations.
20.4 Furthermore, the parties agree that the following situations shall be considered as exceptional circumstances which justify the earlier termination by the other party: bankruptcy, moratorium, receivership, liquidation or any kind of arrangement between debtor and creditors,132 or any other circumstances which are likely to affect substantially one party’s ability to carry out its obligations under this Contract.
[Page243:])
20.5 If the parties have filled in Annex XI, the Contract may also be terminated by the Supplier with immediate effect in case of change of control, ownership and/or management of the Distributor company, according to the provisions set forth in Annex XI.133
20.6 If a party terminates the Contract according to this Article, but it is thereafter ascertained that the reasons put forward by that party did not justify the earlier termination, the termination will be effective, but the other party will be entitled to damages for the unjustified earlier termination. Such damages will be equal to the gross profits of the sale of the Products for the period the Contract would have lasted in case of normal termination, based on the turnover of the preceding year, unless the damaged party proves that the actual damage is higher (or, respectively, the party having terminated the Contract proves that the actual damage is lower). The above damages are in addition to the indemnity which may be due under Article 21.
Article 21 Goodwill indemnity134
Article 22 Return of documents and products in stock
22.1 Upon expiry of this Contract the Distributor shall return to the Supplier all promotional material and other documents and samples which have been supplied to it by the Supplier and are in the Distributor’s possession.
22.2 At the Distributor’s option, the Supplier will buy from the Distributor all Products the latter has in stock, provided they are still currently sold by the Supplier and are in new condition and in original packaging, at the price originally paid by the Distributor. Products not so purchased by the Supplier must be sold by the Distributor in accordance with the Contract on usual terms.
[Page244:]
Article 23 Resolution of disputes
23.1 The parties may at any time, without prejudice to Article 23.2, seek to settle any dispute arising out of or in connection with this Distributorship Contract in accordance with the ICC Mediation Rules.136
[Page245:]
Distributorship Contract will be governed by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, hereafter referred to as CISG), and to the extent that such questions are not covered by CISG and that no applicable law has been agreed upon, by reference to the law of the country where the Supplier has its business.
Article 25 Automatic inclusion under the present Contract
25.1 If the parties have not made a choice between the alternative solutions provided in Articles 12, 16.2, 16.3, 19, 21, 23.2 and 24.1 under the letters A and B, by deleting one of the alternatives, and provided they have not expressly made a choice by other means, alternative A shall be considered applicable.
25.2 The Annexes attached to this model form an integral part of the Contract. Annexes or parts of Annexes which have not been completed will be effective only to the extent and under the conditions indicated in this Contract.
Article 26 Previous agreements — Modifications — Nullity — Assignment
26.1 This Contract replaces any other preceding agreement between the parties on the subject, except for any pre-existing confidentiality agreements.
26.2 No addition or modification to this Contract shall be valid unless agreed in writing. However, a party may be precluded by its conduct from asserting the invalidity of additions or modifications not made in writing to the extent that the other party has relied on such conduct.
26.3 If any provision or clause of this Contract is found to be null or unenforceable, the Contract will be construed as a whole to effect as closely as practicable the original intent of the parties; however, if for good cause, either party would not have entered into the Contract knowing the interpretation of the Contract resulting from the foregoing, the Contract itself shall be null.
26.4 The present Contract cannot be assigned without the prior written agreement of the parties.
Article 27 Authentic text
The English text of this Contract is the only authentic text.139
Annex I Products and Territory (Article 1.1)
§ 1 Products
If this paragraph 1 of Annex I has not been filled in, all products manufactured and/or sold by the Supplier at present and in the future shall be considered as “Products” for the purpose of this Contract.140
[Page246:]
Annex IV Advertising, fairs and exhibitions (Article 6)
§ 1 Advertising and other marketing expenses (Article 6.1)
Except as otherwise agreed in writing, the costs of agreed advertising and other marketing expenses shall be shared between the parties as follows:
Supplier: ………….%
Distributor:………… %
If the spaces left blank in the above paragraph are not filled in by the parties, each party will bear the advertising costs it has incurred.
§ 2 Fairs and exhibitions (Article 6.3)
Except as otherwise agreed in writing, the costs for participation in fairs and exhibitions shall be shared between the parties as follows:
Supplier:……………… %
Distributor:…………. %
Annex V Marketing strategies (Article 6.4)
Note to Supplier and Distributor
Please provide your views to adapt this Annex to your Product and target market.
Market research
Distributor undertakes to accomplish during the six-month term following the date this Contract enters in force and to provide the Supplier, with a market research, whose minimum scope shall be the following:
Marketing Strategies
Please summarize Distributor´s commitments concerning market approach, i.e.:
Training commitments
Distributor shall maintain competent and skilled staff properly trained by the Supplier to promote, sell and maintain an adequate after sales service for the Products (please clarify the Supplier´s contribution to this training in terms of cost, venue, term, etc).
Disclosure commitments
Distributor shall provide Supplier on a half-yearly basis:
Annex VI Conditions of sale — Discounts (Article 7)
§ 1 Supplier’s general conditions of sale
To be annexed to the Contract.
The Supplier’s conditions of sale shall apply only if they have been annexed to this document, or if they have been otherwise transmitted in writing to the Distributor for the purposes of this Contract.
If the space left blank in the above paragraph is not filled in by the parties, and provided there is no special list price for distributors, the Distributor will be entitled to the discount normally granted by the Supplier to distributors being in the same situation for similar quantities of Products.
§ 3 Terms of payment
The parties may choose between the following terms of payment:
In addition, the parties have agreed on the following payment securities, if any:
If neither paragraph 1 of this Annex VI is applicable, nor this paragraph 3 of Annex VI has been completed by selecting one of the alternatives and no other agreement on terms of payment has been made in writing, alternative A (with 30 days from date of invoice) shall apply.
[Page249:]
Annex VII Guaranteed Minimum Target (Article 8.3)
This Annex VII is applicable only if the parties have fixed the minimum target by filling in one of the alternatives hereafter.
The Distributor undertakes, during each year, to place orders for not less than:
(amount in money)144
(amount in Products)
If at the end of the year the above Guaranteed Minimum Target has not been attained, unless the Distributor shows that it cannot be held responsible for such non-attainment, the Supplier shall be entitled, subject to giving one month’s notice, at its choice, to terminate this contract, or to cancel the Distributor’s exclusivity, or to reduce the extent of the Territory or the range of the Products. This right must however be exercised in writing not later than two months after the end of the year in which the Guaranteed Minimum Target has not been attained.
Unless the parties hereafter agree on different figures, the Guaranteed Minimum Target indicated above shall also be applicable for each year of the duration (including the case of renewal) of this Contract.
Annex VIII ICC Model Confidentiality clause 2006 (Article 14)
1.1 Agreement means the contract incorporating this Clause.
Purpose means the purpose of the Agreement.
Disclosing Party means the Party disclosing Confidential Information to the Receiving Party.
Permitted Recipients means any director, officer, employee, adviser or auditor of the Receiving Party or any of its Related Companies who reasonably needs to know Confidential Information for the Purpose.
Receiving Party means the Party receiving Confidential Information from the Disclosing Party.
Related Company means any corporation, company or other entity that controls, or is controlled by, one Party or by another Related Company of that Party, where control means ownership or control, direct or indirect, of more than fifty (50) per cent of that corporation’s, company’s or other entity’s voting capital.
Confidential Information means any information or data, or both, communicated by or on behalf of the Disclosing Party to the Receiving Party, including, but not limited to, any kind of business, commercial or technical information and data in connection with the Purpose, except for such information that is demonstrably non-confidential in nature. The information shall be Confidential Information, irrespective of the medium in which that information or data is embedded, and whether the Confidential Information is disclosed orally, visually or otherwise. Confidential Information shall include any copies or abstracts made of it as well as any products, apparatus, modules, samples, prototypes or parts that may contain or reveal the Confidential Information. Confidential Information is limited to information disclosed on or after the date of signature of this Agreement.
[Page250:]
1.5 Nothing in this Agreement shall obligate either Party to disclose any information.
Each Party has the right to refuse to accept any information under this Agreement prior to any disclosure. Confidential Information disclosed despite an express prior refusal is not covered by the obligations under this Clause.
1.6 Nothing in this Agreement shall affect any rights the Disclosing Party may have in relation to the Confidential Information, neither shall this Agreement provide the Receiving Party with any right or licence under any patents, copyrights, trade secrets, or the like in relation to the Confidential Information, except for the use of Confidential Information in connection with the Purpose and in accordance with this Clause.
1.9 In addition to any remedies under the applicable law,2 the Parties recognize that any breach or violation of any provision of this Clause may cause irreparable harm to the other Party, which money damages may not necessarily remedy. Therefore, upon any actual or impending violation of any provision of this Clause, either Party may obtain from any court of competent jurisdiction a preliminary, temporary or permanent injunction, restraining or enjoining such violation by the other Party or any entity or person acting in concert with that Party.
1.11 Neither Party shall be in breach of this Clause to the extent that it can show that any disclosure of Confidential Information was made solely and to the extent necessary to comply with a statutory, judicial or other obligation of a mandatory nature, afterwards [Page251:]referred to as “Mandatory Obligation”. Where a disclosure is made for these reasons, the Party making the disclosure shall ensure that the recipient of the Confidential Information is made aware of and asked to respect its confidentiality. This disclosure shall in no way diminish the obligations of the parties under this Clause except to the extent that a Party is compelled by any Mandatory Obligation to disclose Confidential Information without restriction.
Annex IX Stock of products and spare parts (Article 15.1)
The Distributor agrees to maintain the following minimum stock of Products and spare parts:
If the Annex here-above is not filled in by the parties, the minimum stock will be determined according to the reasonable requirements for the Territory.
Annex X After sales service, repairs, warranty (Article 15.2)
This Annex shall be applicable only if signed by the parties.
1. The Distributor agrees to provide, at its expense and with its own personnel and technical means, suitable after sales service, which shall extend to all the Products in respect of which such assistance may be required in the Territory. Such after sales service shall be provided in accordance with the standards indicated by the Supplier.
2. The Supplier shall provide the Distributor with the training necessary to enable the latter’s personnel to provide the above services. The Distributor agrees that, at its own expense, its technical and sales personnel will participate in such relevant training and updating of courses as the Supplier may decide to organize.
3. The Distributor shall carry out free of charge all repairs and replacements provided for in the warranty conditions of the Supplier and shall bear all the expenses of such service. The Supplier shall supply the Distributor with the items or parts needed to replace defective items or parts under the warranty conditions.
4. After expiration for whatever reason of this Contract the Distributor shall discontinue any after sale or warranty service, unless otherwise agreed upon in writing between the parties. Any request from the customers shall be transmitted by the Distributor to the persons indicated by the Supplier.
The Supplier
The Distributor
Annex XI Change of control, ownership and/or management in the Distributor (Article 20.5)
The supplier may terminate this Contract with immediate effect, if:
Mr./Ms. ……………………………………………ceases to own more than ………………………………….% of the shares of the Distributor company
[Page252:]
Mr./Ms…………………………………………………………………… ceases to be the ………………………………………145 of the Distributor company.
Annex XII Goodwill Indemnity146
(Article 21 B)
§ 1 In case of Contract termination by the Supplier for reasons other than a breach by the Distributor, justifying earlier termination under Article 20, the latter shall be entitled to an indemnity equal to 50 % or % of the annual gross profit made with new customers acquired by the Distributor or with customers with whom the Distributor has significantly increased the volume of business, to be calculated on the average of the preceding five years (or, if the Contract has lasted less than five years on the average of such duration).
§ 2 The Distributor undertakes to make its best efforts to have the existing customers transferred to the Supplier or to the new distributor (or agent) of the Supplier. In pursuance of the above obligation the Distributor agrees to refrain, for a period of 12 months from Contract termination, directly or indirectly, from selling, distributing or promoting any products which are in competition with the Products to customers to which it previously sold the Products or promoted the sale of the Products under this Contract.
§ 3 The indemnity shall be paid in three instalments of equal amount respectively 4, 8 and 12 months after contract termination. The payment of the indemnity is made conditional upon the performance, by the Distributor, of the obligation under § 2, here above.
§ 4 The Distributor has the option to waive its right to indemnity at any time. In this case the non-competition clause under § 2 above as well as the obligation to encourage the transfer of existing customers to the Supplier or new distributor (or agent) will cease to apply. Exercising this option shall not require the Distributor to reimburse any instalment which has already been paid.
7.4.9 The ICC Model Distributorship Contract (short form)
The ICC Short Form Model International Distributorship Contract intends to answer the need of business people who are looking for a short contract that only deals with the most important issues.
7.4.9.1 Scope of application of the “short form”
This “short form” is a simplified contract intended for parties who do not want a detailed distributorship contract, but prefer a shorter simpler form covering only the most essential issues.
It should be stressed that a “short form” contract will contain only provisions covering the most typical issues arising between the parties and will not provide the choice of more sophisticated alternative provisions, which might be more appropriate for some users. Indeed, some issues may arise which are not covered at all, and they will be left for the courts to determine.
[Page253:]If parties need more sophisticated solutions, they should use the “full” ICC Model Distributorship Contract (Sole Importer-Distributor) (ICC publication No. 776), which provides a more complete set of clauses and options, particularly in the annexes.
7.4.9.2 Comments on specific points
Products (Box A-3-A). If the parties do not fill in A-3, the contract will cover all of the supplier’s products (see Article 1.2). If the parties define the products in box A-3, they may refer to categories of products or to specific models. If the space is not sufficient, reference may be made to an annex: e.g. by writing in box A-3-A “see Annex 1”.
Goodwill indemnity (Box A-6). In most countries, the distributor is not entitled to a goodwill indemnity. However, since parties may wish to introduce this type of benefit, the model gives them the option (under box A-6) to make such a choice. If the parties decide to agree upon a “contractual” goodwill indemnity, such indemnity is assumed to be the only goodwill indemnity due to the distributor. This is why Article 11.2 expressly states that the goodwill indemnity under Article 11 cannot be cumulated with any indemnity that might be due under the applicable law.
Applicable law (Box A-12). The recommended solution is not to submit the contract to a specific national law, but to only refer to the general principles of law generally recognized in international trade (see Article 12.1). In this case, parties should either not complete Box A-7 or should choose alternative A-7-A. For a more detailed information about the pros and cons of this a-national choice of law clause, you can consult the study drafted by a special task force of the CLP Commission: “Developing neutral legal standards for international contracts. A-national rules as the applicable law in international commercial contracts with particular reference to the ICC Model Contracts”. The publication in question is available for free download on the ICC Store homepage: http://store.iccwbo.org/.
However, since this solution is more appropriate when disputes are submitted to arbitration rather than to litigation in national courts, the choice of a specific national law will be preferable if the parties decide to have recourse to litigation before the ordinary courts (see Box A-8-B). In this case, however, the parties should check if and to what extent the contract conforms to the provisions of the applicable domestic law.
Law governing sales to the distributor (Article 12.2). As regards sales contracts concluded between the supplier and the distributor, Article 12.2 provides that the sale contract will be governed by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, also called “CISG”), since such solution appears to be the most appropriate for international contracts of sale. This does not, of course, prevent the parties from making a different choice, particularly by using general conditions of sale (or of purchase) annexed to the distributorship contract.
Reservation of title (Article 6.5). This Article states in general terms that the products delivered to the distributor remain the property of the supplier until complete payment is received. However, such reservation of title will only be effective to the extent that it is permitted by the law governing transfer of title of the products, which will normally be the law of the country where the goods are. Parties should consequently check if reservation of title is valid in the distributor’s country and if any special requirements are needed for its validity.
EU competition rules. As regards contracts within the European Union (or capable of producing significant effects within the EU) the EU competition rules and particularly Article 101 of the Treaty on the Functioning of the European Union (TFEU) are to be respected. Except for the case that the supplier has a market share of 30% or higher (in which case an individual exemption may be needed), in all other cases it will be sufficient that the contract complies with the block exemption under Regulation 330/2010. In this model solutions are proposed which meet the requirements of that [Page254:]regulation, particularly as regards sales outside the contractual territory (Article 7.1) and resale prices (Article 7.2). Moreover, since under the regulation non-competition obligations should not exceed five years, the maximum duration of the contract has been limited to five years (see Article 9.1).
Internet sales. If the Principal wishes to sell its products on the Internet through its own website or otherwise, parties should decide whether they should exclude such sales from the exclusivity granted to the distributor under Article 5 or look for other possible solutions. It has been considered that it was not appropriate to deal with this issue in this “short form”. A clause offering two alternative solutions to this issue can be found in Article 16.3 of the “full” ICC Model Distributorship Contract (ICC publication No. 776).
7.4.10 Text of the ICC Model Distributorship Contract (short form)
[Page255:]
[Page256:]
1.1 The Supplier grants and the Distributor accepts the exclusive right to market and sell the products listed in box A-3-A , as well as any other products the parties may agree in writing to include in box A-3-A at any time during the term of this Contract (hereinafter called “the Products”) in the territory (if any) indicated in box A-3-B (hereinafter called “the Territory”).
1.2 If the parties have not completed box A-3-A, all products manufactured and/or marketed by the Supplier at present and in the future will be considered as “Products” for the purpose of this Contract.
3 Distributor’s functions
3.1 The Distributor sells in its own name and for its own account, in the Territory, the Products supplied by the Supplier.
3.2 Unless otherwise agreed in writing, the Distributor is not entitled to act in the name or on behalf of the Supplier, unless previously and specifically authorized in writing to do so by the latter.
3.3 The Distributor agrees to efficiently promote the sale of the Products in the Territory in accordance with the Supplier’s policy and shall protect the Supplier’s interests with the diligence of a responsible businessperson. The Distributor shall set up and maintain an adequate organization for sales and, where appropriate, after-sales service, with all means and personnel as are reasonably necessary in order to ensure the fulfilment of its obligations under this Contract for all Products and throughout the Territory.
3.4 The Distributor may, in exceptional cases in which it is not in a position to buy and resell, propose such business to the Supplier for a direct sale to the customer. For such activity as intermediary the Distributor will receive a remuneration to be agreed upon [Page257:]case by case. It is expressly agreed that such activity as intermediary to the extent it remains of an accessory character, does not modify the legal status of the Distributor as a trader acting in its own name and for its own account.
4.1 Without the prior written authorisation of the Supplier, the Distributor shall not represent, directly or indirectly, manufacture, market or sell in the Territory any products which are in competition with the Products, for the entire term of this Contract.
4.2 The Distributor is entitled to represent, manufacture, distribute or sell any products which are not competitive with the Products, provided it informs the Supplier in advance of such activity and provided the exercise of such activity does not prejudice the fulfilment of its obligations under this Contract.
5 Minimum purchase obligation
5.1 The Distributor undertakes to purchase, during each year, Products amounting to at least the minimum yearly turnover indicated in box A-5.
5.2 If the Distributor fails to attain within the end of any year the minimum purchase in force for such year, the Supplier shall be entitled, subject to giving one month’s notice, at its choice, to terminate this Contract, or to cancel the Distributor’s exclusivity, or to reduce the extent of the Territory. This right must however be exercised in writing not later than two months after the end of the year in which the minimum yearly turnover has not been attained.
5.3 Unless otherwise agreed, if the contract continues in force after the last year for which the Yearly Minimum purchase is indicated in Box A-5, such Minimum shall also be applicable for each of the following years.
6 Conditions of supply - Prices
6.1 The Supplier agrees to supply all Products ordered, subject to their availability, and provided payment of the Products is adequately warranted. All sales of the Products to the Distributor shall be governed by the Supplier’s general conditions of sale, if attached to this Contract or otherwise communicated in writing to the Distributor. In case of contradiction between such general conditions and the terms of this Contract, the latter shall prevail.
6.2 The prices payable by the Distributor shall be those set forth in the Supplier’s price-lists as in force at the time the order is received by the Supplier with the discount indicated in box A-6 (if completed). Such prices are subject to change at any time, subject to one month’s notice.
6.3 The Distributor agrees to comply, with the utmost care, with the terms of payment agreed upon between the parties.
6.4 It is agreed that the Products delivered remain the Supplier’s property until complete payment is received by the Supplier. The Distributor agrees to cooperate with the Supplier by performing such actions as may be necessary for the protection of the latter’s rights.
7 Resale of the Products by the Distributor
7.1 The Distributor agrees not to actively promote sales (e.g. through advertising, establishing branches or distribution depots) into the territories reserved by the Supplier exclusively for itself or allocated by the Supplier to other exclusive distributors or buyers.
7.2 The Distributor is free to determine its resale prices with the only exception of maximum sales prices that the Supplier may impose.
8 Exclusivity
8.1 The Supplier shall not, during the term of this Contract, grant any other person or undertaking (including a subsidiary of the Supplier) within the Territory the right to represent or market the Products. The Supplier shall furthermore refrain from selling to customers established in the Territory, except as provided in Article 8.3. [Page258:]
8.2 The Supplier is entitled to sell the Products to customers outside the Territory, even if such customers intend to export the Products into the Territory, but may not actively solicit or otherwise provoke such sales to third parties with the purpose of circumventing the exclusivity under Article 8.1.
8.3 If box A-4 has been filled in, the customers listed in the box will be supplied directly by the Supplier.
9 Term and termination of the Contract
9.1 This Contract enters into force on the date of its signature and shall remain in force until terminated in accordance with Articles 5.2, 9.2 or 10, but shall in any case expire (if not terminated earlier) after a period of five years from the date of its entry into force. The parties agree to meet at least three months before the end of the five years’ period in order to discuss the possibility of entering into a new contract after its expiration.
9.2 This Contract may be terminated by either party at any time by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), not less than 6 months in advance. The end of the period of notice must coincide with the end of a calendar month.
10 Earlier contract termination
10.1 Each party may terminate this Contract with immediate effect by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), in case of a substantial breach by the other party of the obligations arising out of the Contract, or in case of exceptional circumstances justifying the earlier termination. Any failure by a party to carry out all or part of its obligations under the Contract resulting in such detriment to the other party as to substantially deprive it of what it is entitled to expect under the Contract, shall be considered as a substantial breach for the purpose of this Article 10.1. Circumstances in which it would be unreasonable to require the terminating party to continue to be bound by this Contract, shall be considered as exceptional circumstances for the purpose of this Article 10.1.
10.2 If a party terminates the Contract in accordance with this Article, and it appears thereafter that the reasons put forward by that party did not justify the earlier termination, the termination will be effective, but the other party will be entitled to damages for the unjustified earlier termination.
11 Applicable law - Arbitration
11.1 Unless otherwise agreed in writing (whether in Box A-7 or elsewhere), any questions relating to this Contract shall be governed, in the following order:
11.2 Unless otherwise agreed in writing, the sale contracts concluded between the Supplier and the Distributor within this Contract will be governed by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, hereafter referred to as CISG).
11.3 The parties may at any time, without prejudice to Article 11.4., seek to settle any dispute arising out of or in connection with this Contract in accordance with the ICC Mediation Rules.147
11.4 Unless otherwise agreed in writing (whether by completing Box A-8 or otherwise), all disputes arising out of or in connection with this distributorship Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
1 Thus, under the Vienna Convention of 1980 (United Nations Convention on Contracts for the International Sale of Goods: CISG), as well as under most national sales laws, the seller’s responsibility is, in principle, unlimited.
2 The ICC decision not to adopt the lex mercatoria approach for the model sale contract is due to the fact that in this case the contract has been submitted to the United Nations Convention on Contracts for the International Sale of Goods (CISG), and thus to a uniform law expressly made for international trade. With regard to questions not covered by CISG, it would have been in theory possible to refer to the lex mercatoria; however, since disputes regarding the kind of contracts falling within the scope of the model (manufactured goods) are normally submitted to national courts (and only exceptionally to arbitration), the lex mercatoria approach was considered inappropriate in this specific context.
3 Which makes reference to the domestic law of the country of the site, unless otherwise agreed. The reason for adopting this solution within the task force is that in the context of large construction projects this solution would normally be imposed by the owner.
4 Thus, in many countries, the buyers often state in their general conditions of purchase that the contract of sale is governed by the national law of the buyer, and expressly exclude the application of the CISG uniform rules
5 See, for example, Article 24.2 of the distributorship model (second edition); Article 36.2 of the model for the turnkey supply of an industrial plant; Article 18.2 of the M&A (share purchase) agreement; Article 23.2 of the selective distribution contract
6 Of course, this in no way limits the parties’ freedom to modify any part of the text of the model: the drafters have only tried to create a situation in which the parties are induced not to change the clauses of the contract by giving them predetermined options or separate spaces, like annexes, for working out more specific solutions.
7 This is far more important than one would think, because parties that use a model contract often forget to choose between the proposed alternatives, even when the need to do so is clearly indicated in the model form.
8 Numerous examples of clauses that do not sufficiently identify the services to be supplied by the intermediary are found in NCND agreements, such as, for example, a clause referring to “any business transaction whatsoever, done through, via and/or with the cooperation of either parties to this agreement”.
9 Moreover, in many jurisdictions a contract which does not sufficiently define the obligations of the parties may be considered unenforceable.
10 Introduction to the ICC Model International Franchising Contract (Publication No. 712), § 3.
11 Of course, this implies that all the members of the network (as well as the producer himself) must undertake the obligation not to sell the products to traders who are not part of the network.
12 Franchising contracts can also be used for obtaining control over retail distribution, but they imply further requirements, such as the existence of commercial know-how. Moreover, franchising implies, in most cases, that the franchisee/retailer sell only one brand of products, while in selective distribution the retailer usually sells a variety of competing products
13 This is particularly the case within the European Union.
14 A first project of uniform law on sales was launched by UNIDROIT in 1929 and led to two international conventions, the Uniform Law on International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFIS). Since these conventions were unable to achieve broad acceptance, UNCITRAL worked out a new project in the years 1968-1977, which culminated in the Vienna Convention in 1980
15 This is an actual case, decided by the Appellate Court of Antwerp on 18 June 1996 (http://www.law.kuleuven.ac.be/ipr/eng/cases/1996-06-18.html" target="_blank">http://www.law.kuleuven.ac.be/ipr/eng/cases/1996-06-18.html).
16 In theory the French court could come to a different solution if it were to find a closer relationship with England (by virtue of Article 4(5) of the Rome Convention (supra, § 2.5.2)), but this is unlikely.
7 This may be the case, for example, where the parties expressly refer to provisions of the domestic rules on contracts of sale of the law chosen. However, if the parties refer in their pleadings to the domestic rules, before having become aware that the CISG is applicable, this will not amount to a choice in favour of the domestic rules: see Tribunale Vigevano (Italy), 12 July 2000, Rheinland Versicherungen v Atlarex, in http://cisgw3.law.pace.edu/cases/ 000712i3.html.
18 However, if the parties enter into an agreement setting up the framework for a number of individual sale contracts, such as a distribution agreement, the sale contracts made under such framework agreement may be governed individually by these conditions.
19 In the absence of such choice FCA (Seller’s premises) shall apply: see art. 8 of Part B
20 It should be noted that according to Article 6 of the CISG parties are free to derogate from or vary the effect of any of its provisions.
21 According to which “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.”
22 According to Article 47(1) and Article 49(1)(b) of the CISG
23 The latter risk will be greater if the products are sold without the manufacturer’s trademark or under a trademark belonging to the exporter.
24 The term OEM (Original Equipment Manufacturer) contract is frequently used in the electronics field (computers, printers, photocopiers, etc.) for contracts implying the supply of complete products, which the purchaser will resell as if they were manufactured by itself (i.e. with its trademark, servicing, etc). In the case of the supply of components to be incorporated by the purchaser in its own products, the term “industrial subcontracting” is more frequently used.
25 This is, in fact, one of the critical points that arise when negotiating the contract. The purchaser will normally request an exclusive purchase right, while the supplier will try not to grant any exclusivity. A compromise is often found by differentiating the external appearance (colour, etc.) of the products sold by the purchaser and by the exporter under their respective trademarks.
26 This kind of distribution is frequently called «integrated distribution», because the distributor, be it a reseller or an intermediary, is part of the manufacturer’s distribution network, while the wholesaler is a wholly independent trader, not closely bound to any particular supplier.
27 Normally paid by both parties.
28 Leaving aside those intermediaries which act at retail level, such as franchisees, which will be considered later: § 7.4.1.7
29 Or, in case the manufacturer chooses to sell through a network of employed agents. In fact, it only makes sense to appoint employed agents who can be obliged to strictly follow the principal’s directions if the principal is actually capable of exercising such control through an organization established in the country where the network of employed agents is located.
30 Another possible option is to license a third party to operate the network in the foreign country, e.g. through a master franchising contract.
31 However, within the European Union, due to the unification of the national markets, cross-border networks are also beginning to develop. For example, there are some cases of franchisors who appoint franchisees in neighbouring countries without the intermediary of a company responsible for such country.
32 For example, the ICC model commercial agency form does not even provide an alternative for the agent to have the authority to conclude contracts on the principal’s behalf: see article 3.3 of the model form and respective footnote.
33 See, for example, Article 3(1) of the European directive (infra, § 7.4.2.5), which says that “… in performing has activities a commercial agent must look after his principal’s interests and act dutifully and in good faith
34 See, for instance, Lebanon, Saudi Arabia, Yemen.
35 With regard to companies, there is normally no rationale for arguing they are employees
36 This is why special precautions should be taken when dealing with agents acting as individuals in countries like France or Belgium in order to make sure that they are qualified as true self-employed commercial agents and not as «VRPs» or “représentants de commerce”.
37 It should be noted that all the countries that became part of the European Union in 2004 and 2007 have implemented the European directive.
38 See for example China, and the Russian Federation.
39 See, for instance, Bahrein, Egypt, Kuweit, Saudi Arabia, Oman, Syria
40 40 See, for example, Guatemala, Panama.
41 41 An information about the laws of almost any country in the world can be found on the website of the International Distribution Institute, www.idiproject.com
42 The directive has been commented on by several authors. See, inter alia, Leloup, La directive européenne sur les agents commerciaux, in Semaine Juridique, 1987, Ed E, II, 491 et seq.; Crahay, La directive européenne relative aux agents commerciaux indépendants, in Droit commercial belge, 1987, 164 et seq.; De Theux, Le statut européen de l’agent commercial, Bruxelles, 1992.
43 Since the directive has been implemented by all Member States of the European Union and by several other European countries, for example Iceland and Norway.
44 A number of African countries, bound by the Ohada Treaty, have adopted legislation on commercial agency based on the European directive.
45 45 § 2 of the Preamble.
46 This is only the most striking difference between the two systems
47 It should be noted that the issue was dealt with in the previous draft of the directive in 1976 OJ C 13 of 18 January 1976, 2 et seq., but was not taken up in the final text.
48 This principle is expressed in the fifth paragraph of the preamble, where it is said that “it is appropriate to be guided by the principles of article 117 of the Treaty and to maintain improvements already made.”
49 See the French rules on Voyageurs, Représentants Placiers (VRP) and the Belgian rules on the so-called représentants de commerce.
50 In particular, the Vienna Convention on the International Sale of Goods of 1980 (CISG).
51 However, in particular cases, mandatory rules of the law of the agent’s country may be held to be applicable by the courts of such country, notwithstanding the choice to submit the contract exclusively to general principles.
52 This may be the case with respect to certain rules which protect the disadvantaged party to an extent that goes beyond the usual standards in business-to-business relations: see for instance, Article 3.2.7 on gross disparity (particularly as concerns the end of the sentence in para 1(a), where reference is made to “the improvidence, ignorance, inexperience or lack of bargaining skill” of a party in order to justify contract avoidance) and the rules on hardship contained in Articles 6.2.1–6.2.3 (particularly with regard to the rule authorizing courts to modify the contract terms). Parties may also expressly exclude the application of specific rules they consider inappropriate.
53 In any case, even if no choice of a national law has been made, according to Article 23.3 the mandatory rules of the agent’s country which would be applicable independently from the applicable law (the so-called lois de police) must be considered.
54 For further details, see paragraphs 12-21 of the Guidelines on Vertical Restraints of the European Commission
55 For example, this is the case in most common law countries with the exception of Great Britain, which introduced the indemnity in order to implement the EC directive of 1986, and in general in countries where no statutory rules protecting the agent exist. This does not exclude the fact that the agent may be entitled to compensation for damages suffered as a consequence of a contract termination which amounts to a breach of the contract by the principal.
56 See Court of Justice, judgment of 9 November 2000, case C-381/98, Ingmar GB Ltd v Eaton Leonard Technologies.
57 This means that the indemnity system of the model form is not in strict compliance with the laws of those countries like France which follow the alternative solution set forth in Article 17.3 of the EC directive. However, since the model form meets the requirements of the EC directive, it is unlikely that the non-compliance with a specific solution of a law based on the same directive should give rise to problems.
58 E.g. for V.R.P. (France) and Représentants de commerce (Belgium) or for agents acting mainly with personal resources (Italy). In all of these cases, the national law provides an exclusive jurisdiction specialized in labour disputes which cannot be excluded by an arbitration clause.
59 See, for example, the clauses suggested in the ICC ADR Rules (Publication No. 809).
60 E.g. in France, with regard to VRP (voyageurs, représentants placiers), and in Belgium for représentants de commerce. The above rules establish a presumption that the agent is an employee: thus, even if the contract clearly states that the agent is independent, he will, in principle, be considered to be an employee. In the Netherlands, labour law may apply to the so-called Einfirmenvertreter, i.e. agents which represent only one principal.
61 E.g. in Italy the special procedural rules, that exclude inter alia recourse to arbitration, which govern employment contracts also apply to agency contracts in all cases where the agent has no important organization of his own, but is acting mainly with his own family and personal resources
62 Since it is normally admitted that a legal entity cannot, by definition, be considered as an employee
63 Parties may wish to limit the scope of the contract to certain categories of customers, brands of products and/or product lines. In this case they should exactly define the group of customers for which the agent is appointed and the brand is positioned to make sure that there is no overlap with other distribution channels (direct sales, agents or distributors). It should also be taken into account that limiting the scope of the contract to certain categories of customers will reflect on other clauses, like for example Article 13 (Exclusivity) and Article 15.1 (Commission) which need to be modified appropriately.
64 E.g. for goods to be sold to a subsidiary established in another country: the agent is acting within its territory, but the sale is made to a foreign customer, and the agent would have (in absence of Article 15.2.) no right to commission.
65 The other alternative, i.e. to give the agent the authority to conclude contracts on behalf of the principal, has not been considered in the model form, since it is uncommon in international trade. If the parties have special reasons for permitting the agent to make contracts on behalf of the principal, they can however so provide in Article 3.3.
66 It should be noted that in certain cases the third party (customer) may rely on the apparent authority of the agent: this means that, especially in legal systems where it is common that the agent is authorized to act on behalf of the principal, the exclusion of any such authority provided for in the contract between principal and agent (like Article 3.3 of this model form) does not necessarily bind a third party which had good reasons to rely on the apparent authority of the agent. It is, therefore, recommended that the principal avoids any action which may give third parties the impression that the agent has representative powers, and that it informs, if necessary and possible, third parties that the agent has no authority to bind the principal.
67 67 This is to ensure that orders by the customers conform to the Principal’s terms and conditions (e.g. prices, delivery terms, etc.): if this is not the case, the principal will be in an embarrassing situation (at least from a commercial point of view) if it refuses the order.
68 Parties should clarify whether this is an extra service that entitles the Agent to additional commission.
69 This clause only refers to the non-competition obligation during the contract. A clause whereby the agent agrees not to promote or represent competing products after contract termination is not very common in international trade and has therefore not been included in this model, which of course does not prevent parties from doing otherwise. In this case, however, they should consider possible limitations under the applicable laws. So, for instance, Article 20 of the EEC Directive states that the post contractual non-competition undertaking cannot exceed two years and must be limited to the territory, products, etc. covered by the agent; moreover, in some countries there are stricter limitations, and in certain cases the agent is entitled to a special compensation if it undertakes a non-competition obligation for the period after contract termination. For possible problems of conformity with EU antitrust rules, see Introduction, § 4.
70 E.g. if there are reasons to fear that the collaboration with a competitor may impair the confidence between the parties or the protection of confidential information.
71 If advertising is at the agent’s charge, there may be a risk that the contract may be considered as a distributorship agreement with regard to antitrust rules, see Introduction, § 3.
72 A distinction is made between a “sales target” (Articles 7.1., 7.2.) the non-attainment of which does not, in principle, involve a contract breach, and a “guaranteed minimum target” (Article 7.3.), which implies a possible contract termination (or other consequences) in case of non-attainment. If the parties wish to agree upon such “guaranteed minimum target”, they must fill in Annex IV.
73 In certain circumstances it may be advisable to add a clause providing that each party agrees not engage sub-agents and/or employees of the other party.
74 The parties may agree in an annex on the kind and form of information to be provided.
75 It is of course preferable that the principal registers its trademarks in the agent’s country. However if this is not possible (or too expensive), it is in any case important to provide an express prohibition, since under most trademark laws a registration made in breach of an express agreement may be invalidated. Moreover the prohibition also covers trademarks which are confusingly similar.
76 Please note that ICC does not recommend the Incoterms® rule EXW as the selected trade term for international sales
77 Principals should seek legal advice to verify whether a contract ruled by the law of the country of the agent allows contract termination for cause. The parties may make reference in Article 20.3 to those articles for which a breach is of particular importance. This may be the case for Articles 5 (non competition), 7.3 (guaranteed minimum target: if agreed),11.2 (unauthorized registration of the principal’s trademarks by the agent), 13.1 (grant of exclusivity by the principal) and 15.1 (payment of commission to the agent). It is recommended that the use of Article 20.3 should be limited to essential situations only.
78 The parties may make reference here to those articles for which a breach is of particular importance. This may be the case for Articles 5 (non competition), 7.3 (guaranteed minimum target: if agreed),11.2 (unauthorized registration of the principal’s trademarks by the agent), 13.1 (grant of exclusivity by the principal) and 15.1 (payment of commission to the agent). It is recommended that the use of this article should be limited to essential situations only.
79 Principals should consider that in many agency contracts the agent assumes all the costs and risks of developing the market. Only after this investment has resulted in actual turnover, the agent will be rewarded and a commission will become due. Contractual clauses (or a choice of law) that allow the principal to terminate the agency agreement unilaterally without notification nor indemnity, thus appropriating the return on the investment of the agent, will often not be considered valid.
80 In some countries, such as EU countries which have adopted the EC Directive or other countries with similar mandatory rules, alternative B would violate mandatory requirements.
81 This broad definition is meant to cover any compensation to be paid in case of contract termination independent from a breach of contract by the principal, including payments which are not defined as an “indemnity”, or “goodwill indemnity”; see above, § 5 of the Introduction
82 The ICC Mediation Rules can be found on the web site http://www.iccwbo.org/products-and-services/arbitration-and-adr/mediation/rules/
83 Parties should choose whether to appoint one or more arbitrators.
84 Parties should carefully check whether submission to ordinary courts will allow them to seek enforcement of a court decision in the country where pay or has property.
85 In case this alternative is chosen, it is advisable to choose arbitration (Article 23.2 A) for the resolution of disputes. In fact, it is doubtful whether ordinary courts would apply general principles instead of a national law.
86 This model form has been prepared on the assumption that it would not be governed by a specific national law (as stated in alternative A of Article 24.1.). If the parties prefer nevertheless to submit the agreement to a national law, they should carefully check in advance, if the clauses of the model conform to the mandatory provisions of the law they have chosen..
87 The purpose of this sentence is to make clear that the price paid by the new agent to the old one (which price may be influenced by facts which are out of the scope of the agency agreement), is not a basis for calculating the indemnity.
88 88 Parties may wish to consult the 2010 “ICC Guidelines on Agents, Intermediaries and Other Third Parties” at: www.iccwbo.org/advocacy-codes-and-rules/areas-of-work/corporate-responsability-and-anti-corruption/ICC-Third-Party-Guidelines.
89 Parties should attach the text of Appendix 2 of the current model.
90 If the contract is written in another language this clause should of course be modified to indicate the language of the contract.
91 Parties may define product lines here.
92 If the parties choose this solution (including any future products in the contract) problems may arise in case of conflict between new products from the principal and products of other manufacturers already represented by the agent. If such problems are foreseeable, the parties should define appropriate rules for solving the conflict.
93 Parties may define market segments here or withdraw
94 94 If this alternative is chosen, care should be taken in order to avoid that the agreed sum is automatically reduced (from year to year) as a consequence of inflation, e.g. by providing a yearly increase.
95 If a contract lasts more than one year, parties should agree if they wish to consider the agreement for the following year as a separate agreement. Parties should also clearly define the criteria for considering a group of supplies (e.g. machines and equipment for the same project) as one sales contract or as separate contracts.
96 Specify here the position that the qualifying person has in the agent-company, e.g. director, general manager, president of the board, as the case may be. This clause may be dangerous for the agent-company, particularly if the qualifying person is not the owner, but only an employee
97 The ICC Mediation Rules can be found on the web site http://www.iccwbo.org/products-and-services/arbitration-and-adr/mediation/rules/.
98 There are, however, important exceptions, for example in Belgium (Law of 27 July 1961 as amended by Law of 13 April 1971).
99 Which are covered by the ICC Model Commercial Agency Contract (ICC publication No. 496).
100 With respect to this problem, see in particular EC Directive No. 85/374 of 25 July 1985, which has become effective in most EU countries. Note that under the directive a person who imports into the Community a product for distribution in the course of his business is responsible as a producer.
101 .In its judgment of 19 December 2013 in case C-9/12, Corman-Collins v La Maison di Whisky, the European Court of Justice has ruled on the distinction between distribution agreements and sales agreements, and decided that “an exclusive distribution agreement, which requires the contract binding the parties to contain specific terms concerning the distribution by the distributor of goods sold by the grantor” is a contract for the supply of services and not a contract of sale.
102 In any case (even if no choice of a national law has been made), according to Article 24.2, the mandatory rules of the distributor’s country which would be applicable independently from the applicable law (the so called «lois de police», “overriding mandatory rules”) must be considered.
103 The text of EU Regulation 330/2010 may be found at: http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF
104 The same applies to the countries of the European Economic Area (EEA), i.e. Iceland, Norway and Liechtenstein
105 105 E.g. for the concessionnaires in Belgium.
106 Parties may wish to include certain introductory paragraphs describing the history of their relationship, for example to state that the contract continues a prior relationship.
107 The distributor is therefore free to market competing products in other territories. In special situations (e.g. where a relationship between the distributor and a particular competitor of the supplier would substantially impair the confidence between the parties or negatively affect the protection of confidential information), the parties may agree to extend the non-competition obligation beyond the contractual territory.
108 In certain cases the parties may wish to extend the non-competition obligation to the sale of non-competing products supplied by a manufacturer who is a competitor of the supplier. Such prohibition may be justified in cases where a relationship with a competitor of the supplier may impair the confidence between the parties and/or conflict with the need to protect confidential information.
109 The parties may specify in more detail the obligations to be performed: e.g. the nature of the sales premises, qualifications of technical staff, number of sub-distributors, etc. (see also Article 15.2, below). They may also, if appropriate, cover this subject matter in a separate contract.
110 The parties may agree on certain marketing rules such as the Consolidated ICC Code of Advertising and Marketing Communication Practice published on 01/08/2011, available at http://www.iccwbo.org/advocacy-codes-and-rules/document-centre/2011/advertising-and-marketing-communication-practice-(consolidated-icc-code)/
111 It is understood that the Supplier is not obliged to supply the Products whenever their sale to the Distributor is prohibited under the applicable law (e.g. in case of sanctions, embargo, etc.).
112 This is the more frequently used solution, which corresponds to the needs of the Supplier. However, the Distributor may not agree with all the provisions of general conditions drafted by the Supplier, and may ask to modify clauses it considers too much in favour of the other party. Parties may also wish to consult the General Conditions of the ICC Model International Sale Contract, ICC Publication No. 738, available for sale at: http://www.iccbooks.com/Product/ProductInfo.aspx?id=686
113 The parties may incorporate the current price list (or a special price list) in Annex I, together with the list of contractual products.
114 It is usual that the supplier retains the right to modify prices, provided he or she gives an appropriate notice. However, an abuse of this right (e.g. an unjustified price increase with respect to a particular distributor) may conflict with Article 2. In order to avoid abuses, parties may agree that the distributor will be granted the most-favored customer condition.
115 Payment conditions will normally be governed by the Supplier’s general conditions of sale, or agreed upon case by case. Parties may however decide to expressly agree in the Contract on the payment conditions to be applied to future sales to the Distributor (e.g. payment by documentary credit, payment on open account possibly backed by a bank guarantee, payment by documentary collection). For further details, consult the ICC Model International Sale Contract, ICC Publication No. 738, available for sale at: http://www.iccbooks.com/Product/ProductInfo.aspx?id=686
116 The effectiveness of this clause depends on the law applicable in the country where the goods are, and may therefore be invalid in certain countries.
117 A distinction is made between a ‘sales target’ (Articles 8.1 and 8.2) the non-attainment of which does not, in principle, involve a contract breach, and a ‘guaranteed minimum target’ (Article 8.3), which implies a possible contract termination (or other consequences) in case of non-attainment. The sales target is meant to give a realistic objective to pursue, whilst the guaranteed minimum should be the ultimate sanction against a distributor who is failing in the performance of its task. If the parties wish to agree upon such ‘guaranteed minimum target’, they must fill in Annex VII.
118 In certain circumstances it may be advisable to add a clause providing that each party agrees not to engage subagents and/or employees of the other party.
119 Parties are advised explicitly to address whether or not the customer list is included in the information obligation.
120 This clause is in accordance with Regulation 330/2010 and should therefore be used within the European Union. It may be useful to underline that under Regulation 330/2010 the distributor cannot be prevented from selling in territories that have not been reserved to the Supplier or granted to others on an exclusive basis.
121 This alternative is contrary to EU antitrust law, and should therefore be avoided in contracts with distributors of the European Union.
122 This means that the distributor must remain free to accept unsolicited orders from customers established outside the Territory (passive sales).
123 The Supplier is entitled to ensure that the use by the Distributor of Supplier’s trademarks for promoting the contractual products fully complies with Supplier’s prescriptions. However, using this right for the purpose of hindering the Distributor in its recourse to the Internet might be considered a restriction of competition.
124 It is of course preferable that the supplier registers its trademarks in the distributor’s country. However if this is not possible (or too expensive), it is in any case important to provide an express prohibition, since under most trademark laws a registration made in breach of an express agreement may be invalidated. Moreover the prohibition also covers trademarks which are confusingly similar.
125 This alternative is contrary to EU antitrust law, and should therefore be avoided in contracts with EU distributors, as well as in contracts w
126 Parties may further specify in the contract if such documentation should be adapted to the distributor’s market or if the distributor should make the necessary modifications at its own expense.
127 This alternative A has been worked out in order to comply with the EU antitrust rules. Since Regulation 330/2010 does not allow the non-competition clause (Article 4 of the model contract) to last for more than five years and since this clause is essential for the performance of the contract, Article 19.A limits the contract duration to a maximum period of five years. Of course the parties may enter into a new contract at the end of the five-year period.
128 This alternative B is very similar to option A: the only difference is that the clause does not foresee the maximum duration of 5 years requested by EU antitrust law. This clause should be considered as complying with the EU antitrust rules if the market share of each of the parties does not exceed 15% on any of the relevant markets affected by the agreement (see Commission notice on agreements of minor importance, 2014/C 291/01).
129 The parties may of course agree on shorter or longer periods of notice. It is however recommended that the period should be long enough to allow the parties to adapt themselves to the new situation created by the termination. This necessity should in particular be taken into account when the distributor agrees to make substantial investments specifically for the sale of the goods of the Supplier
130 This alternative C may also be used when the parties wish to have a trial period. If they wish that after such period the contract will be for an indefinite time, they must change appropriately article 19.2.
131 The parties may make reference here to those articles for which a breach is considered of particular importance. This may be the case for Articles 4 (undertaking not to compete), 7.5 (respect of agreed payment conditions), 8.3 (guaranteed minimum target: if agreed), 13.2 (unauthorized registration of the manufacturer’s trademarks by the distributor) and 16 (respect of exclusive rights by the manufacturer). It is recommended that the use of this Article be limited to really important obligations only.
132 Although provisions of this kind are commonly found in distributorship and agency agreements, it should be reminded that in several countries clauses which provide for the earlier termination in case of bankruptcy or similar proceedings are unlawful under such law.
133 In cases where the distributor is a company, the supplier may have entered into the contract in reliance on a particular individual remaining active within the organization. Annex XI can be completed to cover this situation.
134 This provision may be contrary to mandatory rules of certain countries. See, Introduction, §5
135 This broad definition is meant to cover any compensation to be paid in case of contract termination, independent from a breach of contract by the supplier, including payments that are no defined as an ‘indemnity’ or ‘goodwill indemnity’.
136 The ICC Mediation Rules can be found on the web site http://www.iccwbo.org/products-and-services/arbitration-and-adr/mediation/rules/.
137 137 Parties should choose whether to appoint one or more arbitrators
138 This model form has been prepared on the assumption that it would not be governed by a specific national law (as stated in alternative A of Article 24.1.). If the parties prefer nevertheless to submit the agreement to a national law, they should carefully check in advance, if the clauses of the model conform to the mandatory provisions of the law they have chosen.
139 If the contract is written in another language, this clause should of course be modified to indicate the language of the contract.
140 If the parties choose this solution (including any future products in the contract) problems may arise in case of conflict between new products from the Supplier and products of other manufacturers already represented by the Distributor. If such problems are foreseeable, the parties should define appropriate rules for solving the conflict.
141 Parties may define market segments here or withdraw individual customers who are already customers of the Supplier.
142 If the supplier wishes to include further customers in this list, he or she will require the agreement of the distributor. Parties may provide that in such case the supplier pays a goodwill indemnity on the turnover of such customers, if they have been acquired previously by the distributor.
143 Please note that the ICC does not recommend the Incoterms® EXW as the selected trade term for international sales.
144 If this alternative is chosen, care should be taken in order to avoid the agreed sum being automatically reduced (from year to year) as a consequence of inflation, e.g. by providing a yearly increase.
145 Specify here the position that the qualifying person has in the distributor (company), e.g. director, general manager, president of the board, as the case may be. This clause may be dangerous for the distributor company, particularly if the qualifying person is not the owner, but only an employee.
146 This clause is to be considered as an example of possible contractual solutions, which should be worked out by the parties, according to their specific needs. In particular, while this clause mainly refers to the value of the goodwill, other aspects (as, for example, investments made by the distributor) may be taken into account.
147 The ICC Mediation Rules can be found on the web site http://www.iccwbo.org/products-and-services/arbitration-and-adr/mediation/rule