VITA Global Networking Breakfast – “Legal 101 for Doing International Trade” Recap

With the continued growth of international business opportunities in the San Fernando Valley, VITA Board member Jeffery Daar and VITA member Jonathan Arnold of Daar and Newman, presented “Legal 101 for Doing International Trade” at the Global Networking Breakfast on May 31st. 

The presentation included the basics of international trade, introducing the Convention on the International Sales of Goods (CISG), international shipping terms (INCOTERMSĀ® 2010), the utility of standby letters of credit and ways to avoid disputes.

The attorneys provided background on the CISG. They pointed out that the CISG is the law of the State of California such that, if it is not expressly excluded, it will be applicable to transactions involving the sale of goods between California companies and entities in foreign jurisdictions (provided such foreign entities are in countries which have adopted the CISG, which presently includes 85 nations.) Given this, Jeffery and Jonathan then reviewed some fundamental aspects of the CISG as to contract formation, writing requirements, the scope of warranties, variances from the Uniform Commercial Code (UCC), the “Nachfrist Notice” (whereby one contracting party may give the other an extended period of time to perform.) 

As the international nature of the CISG necessarily calls for an analysis of shipping terms, the basics of INCOTERMS and their function within the ambit of CISG-based contracts was also reviewed. Some preliminary detail was provided on the precise obligations contracting parties will trigger by use of a particular INCOTERM, as well as how shipping insurance and indemnity should then best be brought into the mix. The next topic related to using the emerging norm for both reducing a seller’s financial risk and timely obtaining due payment: the standby letter of credit. Jonathan explained how this financial vehicle, which represents an independent payment obligation running from a buyer’s bank to a seller, not only demonstrates a potential buyer’s creditworthiness, but also provides a seller a ready mechanism for obtaining payment should a buyer not honor seller’s timely demand for payment.  

Several of the participants asked some very well-taken questions in connection with working with both a local bank and a foreign bank, and also resolving letter of credit documentation “discrepancies” (and related issues.) Jonathan was able to provide some concise guidance, especially how the letter of credit is generally deemed to be insolvency proof, such that a buyer’s bankruptcy (or sim.) properly does not impact a letter of credit and, accordingly, that a bank’s payment obligations to a seller remain intact even if the buyer become insolvent.

Jeffery then navigated the attendees through the fundamental issues surrounding the strategies for avoidance of cross border contractual disputes, including the need to work with counsel versed in international transactions and disputes. Issues discussed included the language of the contract, choice of law and venue issues, mediation, differences between international litigation and arbitration and the enforcement of court judgments and arbitration awards.