Chapter 8 Inspection, Disputes ,

Force Majeure &Arbitration

StructureStructure

2. DISPUTES

3. FORCE MAJEURE

4. ARBITRATION

1. COMMODITY INSPECTION

Place and time of Inspection

Inspection agency and certificate

Time and place of reinspection

Definition of force majeure

Consequences of force majeure

Points to remember when drafting the clause

A buyer wants to make certain that the goods delivered to him are exactly the goods described by the contract he has signed with the seller.

In simple words, he wants to get his money's worth according to the contract.

The buyer's right of inspection has been widely recognized by either national laws or international conventions, although a buyer can choose to waive this right.

1. COMMODITY INSPECTION

On the other hand, a seller also wants to inspect the goods he is selling for two reasons. First, a seller wants to control the quality of the goods so that his image will not be damaged and the market will be developed．Second, a seller wants to prove with an inspection document that the goods delivered have met the relevant contract terms so that he will not be responsible for any problems in the goods after delivery.

(1)Place and time of Inspection

The place and time of inspection is the first item in an inspection clause.

It stipulates where and when the inspection should be conducted and is associated with the terms of delivery used, the nature of the commodity and packaging, and the laws or regulations of different countries.

Shipping quality and weight

With this method, inspectors from both sides conduct a joint inspection at the seller's factory.

The buyer will bear all the risks once the goods leave the factory.

Such an arrangement will ensure that the seller ships qualified goods.

Landed quality and weight

This method means that the inspection carried out at the port of destination is to be final.

It is favorable to the buyer.

Inspection at the port of shipment and reinspection at the port of destination

With this method of inspection, the certificate from the port of shipment will be used as one of the documents for payment, but the buyer retains the right to claim for compensation if the merchandise is not in conformity with the contract.

(2) Inspection agency and certificate

Agency There are three types of inspection agencies. State commodity inspection agency Notary public run by professional associations Manufacturer and user

Certificate

Certificate is a general name and it can be issued to include different items of inspection such as weight, quality and packaging, etc.

(3) Time and place of reinspection

If reinspection is permitted by the contract, the time and place of reinspection should be set clearly because they are closely related to the interests of both the seller and the buyer.

The choice of the time and place is largely related to the nature of commodity.

Ways to set the time limit of reinspection

xx days after the ship's arrival This method starts to count the number of days

allowed for reinspection once the ship arrives at the port of destination regardless of whether the goods have been discharged .4Apparently, it is unfavorable to the buyer in case the port is congested and unloading cannot start soon after the ship's arrival.

xx days after the discharge of goods This method is favorable to the buyer since it

starts to count the number of days allowed for reinspection only when the goods have been discharged from the carrying vessel.

The length of the time limit

If reinspection is allowed in the contract, there must be a time limit for reinspection, usually 30-180 days after discharge or ship's arrival, which should be set according to the nature of commodity and the unloading facilities at the port of destination.

Place of reinspection

There are several alternatives: on the dock; in bond (before paying customs duty); final destination buyer's business premises.

Methods and standards of inspection

Seller's, buyer's, international or a third country's standard can be used.

If a third country's standard is agreed upon, the method and standard should be supplied or obtained.

If applicable, the method of sampling should also be stipulated.

Receipt and acceptance

Receipt means that the goods have come into the control of the buyer without regard to ownership or to agreement to any aspect of the goods.

Acceptance means that the buyer has the control of the goods with consent regarding the goods delivered.

Claim

When one party to a contract fails to fulfil his obligations and causes the other party financial losses, the latter would demand the former to compensate him for the losses. This demand is called a claim.

(1)Reasons for Disputes As to the main reasons which lead to

disputes ， the laws of different countries and international practices have different explanations ．They can be generalized as follows：

2. DISPUTES

Whether the contract is tenable．Stipulations of the contract are unclearDuring the performance of the contract ， force majeure

events arise which result in non-performance and delay performance of the contract

Non-performance or incomplete performance of the contract is

touched off by the seller ， in such cases as inferior quality or discrepancy in quality ， deficient or poor packing ， insufficient quantity and delayed delivery ， etc．

Non-performance or incomplete performance of the contract iscaused by the buyer ， for instance ， the buyer does not dis-patch a vessel to carry the goods or does not name the carrierin time ， or does not open an L/C in time or rejects the goods unreasonably.

The carrier is liable for damage to or shortage in weight of the goods.

The insurer is liable for loss of ， or damage to the goods．

(2)Claim Clauses in the Contract The most commonly used claim clauses are

the discrepancy & claim clause and the penalty clause .

The discrepancy ＆ claim clause is stipulated in case the quality ， quantity or packing of the goods delivered by the seller is not in conformity with the contract..

Penalty clause is stipulated in case of delayed delivery by the sellers or delayed taking over the goods by the buyers ． Its feature is that the two parties shall stipulate a certain percentage of penalty in advance in the contract.

(1) Definition of force majeure A force majeure event is one that can

generally be neither anticipated nor brought under control．

Certain natural disasters and social disturbances are considered force majeure.

3. FORCE MAJEURE

A force majeure event should have the following features:

it happens after the contract is signed; it is not due to the negligence of the buyer or

the seller; neither the buyer nor the seller can control the

situation.

(2) Consequences of force majeureTermination of contract

In cases of natural disasters or other events that have made it impossible to fulfil the contract, the contract can be terminated.

Postponement of contract

In cases of events (such as transportation stoppage caused by an earthquake) that will only delay the fulfillment of a contract, the contract can be postponed but not terminated since it is still possible for the seller to carry out his contract obligations.

(3) Points to remember when drafting the clause Determine the scope The kinds of events that are to be considered

as force majeure should be specified as clearly as possible.

For instance, some people include social disturbances or strikes as force majeure events, but some other people disagree.

If the scope of the events is not clearly defined, there might be difficulties in using the clause.

Specify the consequences

Since there are different consequences of a force majeure, the clause should specify when the contract can be terminated and when it can only be postponed.

For example, the contract can be canceled only if the force majeure lasts over one month.

Designate the agency to issue certificate

A force majeure should be verified by a certificate issued by government authorities or a chamber of commerce at the location where the event takes place.

The clause should specify which agency is to be the issuer.

Set the time limit of notice to the other contractor

In case of a force majeure event, the party who wants to quote the clause should inform the other party of his decision within a reasonable time limit.

Points to remember when quoting the clause

Decide if an accident is within the scope according to the contract terms

Notify the other contractor as soon as possible (The other party should reply quickly if he agrees or disagrees.)

Supply the certificate issued by the correct agency

(1) Definition of arbitration Arbitration is the settling of a dispute by a

person or persons chosen by the parties in controversy.

(2) Function of the clause Arbitration agreements can be made before or after disputes arise. Such an agreement has the following functions.

4. ARBITRATION

1. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which one party has undertaken to the other, such a dispute shall be settled by a tribunal of their own constitution.

2. It excludes the court from having jurisdiction over the dispute.

3. It gives jurisdiction to the arbitrator

It should be noted that, in some countries, an arbitration agreement cannot exclude the court from having jurisdiction over the dispute.．

(3)Agency

Two types of arbitration agency are available: permanent organization of arbitration that

provides facilities and personnel; temporary arbitration tribunal setup for a

particular dispute.

The End!

Back to the Structure