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- Understand how different legal systems affect dispute settlements.
Types of legal systems
The legal system which operates in certain overseas markets may have important implications for legal agreements and contracts and their enforceability. Three basic types of legal systems are in use globally:
- Common law - Based on tradition, precedent and usage as practiced in Australia, UK, USA and many Commonwealth countries. Business contracts tend to be lengthy to accommodate possible contingencies and interpretations. However, there is flexibility which takes into account particular situations and circumstances.
- Civil law - Based on a detailed set of written rules and statutes which constitute a legal code. It is practised in Western Europe and throughout Asia & Africa. Because all laws are codified and concise, parties to contracts are concerned with explicit wordings. This system is less adversarial than common law.
- Theocratic law - Based on religious teachings such as Islamic and Jewish. Businesses which operate in such countries must be extremely sensitive to local cultural values and beliefs and all activities must comply with local laws and traditions.
Whichever legal system is operating you must be aware of the enforceability of agreements such as those relating to confidentiality and sales contracts. Enforcing a contract may be a very expensive option and may involve arbitration.
Settling international disputes
The International Commission on Arbitration is responsible for the settlement of commercial disputes and the legal and procedural aspects of arbitration.
The most commonly used rules for the interpretation of trading terms are those set down by the International Chamber of Commerce and are known as Incoterms. They establish clear rules which govern the responsibilities of exporters and importers in relation to sales contracts.
Incoterms cover all aspects of international delivery of goods including transport, customs clearance, payment responsibilities, ownership of risk, and the condition of the goods at various locations in the transit process. They do not deal with transfer of title.
Incoterms were devised and published by the International Chamber of Commerce and endorsed by the United Nations Commission on International Trade Law (UNCITRAL).
The most commonly used terms are:
- Ex-works - the seller makes the goods available at his premises
- FAS - at a named port. Since 2000, (free alongside ship) sellers have been responsible for clearing goods for export. Suitable for maritime transport only.
- FOB - one of the most commonly (free on board) used terms. Seller loads the goods on board a designated vessel and the costs and risks are transferred at the ship’s rail
- CIF - another common arrangement, (cost, insurance & freight) under which the seller pays all costs of freight and insurance up to the port of destination.
Although originally used in sea transport, many of the 13 terms have been updated to cover other multimodal transport systems.