Crisis time drafting of commercial contracts | The Daily Star
12:00 AM, February 18, 2014 / LAST MODIFIED: 10:12 PM, March 09, 2015

Crisis time drafting of commercial contracts

Crisis time drafting of commercial contracts

Mohammed Forrukh Rahman

Loss of Cargo, Loss of Export earning, receiving defective goods, rejection by buyer, documentary Fraud etc. are increasingly becoming common in international trade practice in Bangladesh.
The problems are arising due to use of wrong Inco terms, lack of understanding of duties of parties at the documentary tender stage, delivery of goods stage, confusion as to roles and responsibility of parties involved e.g. seller, shipper, consignor, buyer, consignee, cargo receiver, issuing bank, advising bank, negotiating bank, confirming bank, notify party, freight forwarder, C & F agent, carrier etc., lack of understanding of the significance of crucial documents like Bill of lading, sales contracts and its terms, waiver, rejection, use of association rules, illegal practices like advance acceptance of documentary tender, inconsistencies in regulations etc. are contributing to the increasing the number of disputes.  
Although Free on Board (FOB) is more popular while amongst the exporter and Cost and Freight (CFR) is more popular amongst the buyer, the law allows uses of other Inco terms like E, D terms at the risk of the parties. In crisis time, the exporter may consider using E terms and importer may consider using D terms. However, at the same time, to comply with local laws both the exporter and importer need to negotiate with their counterpart so that they agree on issuance of Bill of Landing to the order of AD. Special caution should be given in agreeing any default association terms or charter party terms without knowing the content.  
While the problem in case of import is comparatively less although due to circulation of both received for shipment bill of lading and master bill either mistakenly or deliberately, consignment often get lost and cargo are released by buyer/agent/freight forwarder agent by one set of documents while seller is holding another set of bill of lading.  
In case of export, the Letter of Credit and D/A and D/P are the only mode of payment allowed. Foreign Exchange Regulation Act 1947 and guidelines there under imposes duty on the seller and AD to bring export proceeds in Bangladesh within four months hence irrespective of Inco terms used in sales contract and LC, carriers are bound to issue Bill of lading and other title documents to the order of Authorized Dealer (AD) Bank. In case of delay in receiving Bill of Lading, advising AD bank are allowed to providing credit facilities, negotiate on the basis of House Bill(received for shipment Bill) issued by freight forwarder.
However, this would not be sufficient for documentary tender as AD bank is required to take Master Bill as issued by Carrier. In practice, due to lack of knowledge, AD bank often complete documentary tender with House Bill while master bill is in circulation not taken by AD bank. This creates opportunity for fraud and often cargo get lost and released by using Master bill by the Agent/Buyer etc leaving the corresponding bank and seller unpaid by not accepting the documentary tender due to discrepancy.
Practice is required to be developed for using mediation and arbitration clause particularly in high volume international trades to give a clear picture to the parties and also to provide a clean legal redress mechanism.
Acceptance before documentary tender is contributing toward significant number of fraud practice.  Seller insists on prior acceptance even before or at the time of signing sales contract. Practice has grown in such a way that the buyers are bound to do so giving opportunity to the seller to non deliver or partially deliver the goods while receiving the payment from issuing bank in full.
Banks often open LC, mostly relying on UCP 600 terms without having the knowledge of other laws and practices and need for the existence of any sales contract. This is happening often due to own ignorance or by taking advantage from the ignorance of the seller. Further legal enforcement mechanism are often weak due to lack of understanding of the trade fraud and mechanism by the lawyers and others concerned. Parties generally do not use mediation and arbitration clause causing further difficulties in case of cross-border disputes.
Much more is required to be done by raising awareness amongst bankers, sellers, buyers, and freight forwarders. Focus should be given on the sales contract perhaps by ratifying the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (“CISG”).
FF Agents (Licensing) Rules 2008 created confusion by allowing issuance of “Bill of Lading” as if MTO although being a rule it cannot supersede the mother laws: Carriage of Goods by Sea Act 1925 and Carriage of Goods by Air 1966, which do not allow issuance of bill of lading other than by carrier, which is the ship-owner or airline as applicable. However, the confusion must be removed.  
If Multimodal transportation is required to be allowed, a lot is required to be done. Entire legal regulatory regime is required to be changed and MTO's licensing rule must address the need for bigger insurance and higher capital structure of the licensee.  

The writer is an Advocate, Supreme Court of Bangladesh.

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