B1: International Business Transactions | Introduction to the UN Convention on Contracts (ACCA LW)

The UN Convention on contracts has several applications, general provisions and rules including the ICC Incoterms.

Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms

a. Explain the sphere of application and general provisions of the Convention

The Convention applies to contracts where the buyer and seller are in different countries, when the countries are contracting countries and when the rules of private international law lead to the application of the law of a contracting country.

It can be applied in situations where both countries have accepted the convention or where only one of the countries has accepted the convention.

The UN Convention on Contracts for the International Sale of Goods (UNCISG) does not apply to:

  • sales of goods bought for personal, family or household use
  • goods acquired via auction
  • goods bought on the authority of the law
  • stocks, shares, investment securities, negotiable instruments of money
  • ships, vessels, hovercraft or aircraft
  • electricity
  • the supply of services or contracts where one party’s main obligation is labour
  • contracts of manufacture where the buyer provides most of the materials for manufacture
  • the contract’s validity or usage
  • the effect of the contract on the property in goods sold

b. Explain and be able to apply the rules for creating contractual relations under the Convention

Under the Convention:

  • contracts are agreements which consists of an offer and an acceptance
  • an offer becomes valid when it reaches the offeree
  • an offer can end by withdrawal, revocation and rejection
  • acceptance indicates assent which must be in the form of a statement or an act
  • acceptance becomes valid when it reaches the offeror
 Note: Offers can be made orally 

An offer is a proposal for concluding a contract addressed to more than one person. It indicates the goods in question and makes provision for prices and quantities of goods.

Acceptance is a statement made by the offeree and must meet the offeror in reasonable time or within the specified time stated in the contract. Acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time acceptance would have become effective.

c. Explain the meaning and effect of the ICC Incoterms

The International Chamber of Commerce produced and promoted the Incoterms to address the main issues involved in international trade. The 11 Incoterms are divided into two categories – those relevant to contracts involving any mode of transportation and those relevant to maritime transport only.

Incoterms address:

  • who pays the carriage costs from seller to buyer
  • who bears the risk of damage
  • who bears the cost of insuring the goods
  • who pays customs duties and if they are included in the contract price
  • who bears responsibility for customs clearance documents

Incoterms for any mode of transport are:

  • Ex works (EXW)
    • minimum obligations for the seller with respect to the delivery of goods
    • the buyer is responsible for all costs incurred in delivery
  • Free carrier (FCA)
    • seller fulfils obligtions when goods have been cleared for export and handed over to the carrier
  • Carriage paid to (CPT)
    • seller pays delivery costs to a specified location
    • when goods arrive at the location the buyer assumes responsibility
  • Carriage and Insurance paid to (CIP)
    • seller pays carriage and insurance costs up to a specified location
    • when goods arrive at the location the buyer assumes responsibility
  • Delivered at Terminal (DAT)
    • seller pays for carriage costs and all costs up to when goods are offloaded at the terminal
    • does not include import clearance costs
    • goods are considered to be delivered when they are offloaded at the terminal and placed at the buyer’s disposal
    • the terminal is listed in the contract
  • Delivered at Place (DAP)
    • seller bears all costs except import clearance costs
  • Delivered Duty Paid (DDP)
    • seller completes all obligations when the goods have been delivered to the buyer at a specified location
    • seller pays all costs of delivery

Incoterms for Maritime Transport only:

  • Free alongside ship (FAS)
    • applied when goods are transported by ship
    • seller’s obligations end when good are placed on the quay
    • buyer has to arrange export
  • Free on board (FOB)
    • buyer arranges shipment
    • seller’s obligations end when goods are loaded onto the ship
    • seller provides export documentation
    • buyer provides import documentation
  • Cost and freight (CFR)
    • applies to goods being transported by ship
    • seller pays all costs up until goods have passed ship’s rail in the destination port
    • buyer arranged for marine insurance and custom costs
  • Cost, Insurance and Freight (CIF)
    • seller bears all three costs
    • insured in such a way that the buyer has the right to recover from the insurer
    • minimum insurance cover is contract price plus 10%

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