FIN 3163 Unit 5 slides.pptx

 International Trade Finance UNIT 5 Disputes in International Trade ◎ Identifying the Nature of the Issue ◎ Dispute Resolution © 2017, 2020, 2021 FITT All Rights Reserved  Why Is This Imp...

 International Trade Finance UNIT 5 Disputes in International Trade ◎ Identifying the Nature of the Issue ◎ Dispute Resolution © 2017, 2020, 2021 FITT All Rights Reserved  Why Is This Important? © 2017, 2020, 2021 FITT All Rights Reserved  Types of Disputes Financial disputes arise when counterparties disagree on the amount outstanding amongst themselves, whereas contractual disputes arise when the counterparties breach signed contractual agreements. © 2017, 2020, 2021 FITT All Rights Reserved  Common Areas of Disagreement FIGURE 5.1 © 2017, 2020, 2021 FITT All Rights Reserved  Common Areas of Disagreement Payment Terms Disputes in contracts are not only caused by the quality of the goods Letter of Guarantee and/or services provided, but also Disputes arise in situations where could be due to: the seller is performing as per the  Delays on contract completion. contractual terms, however the  Modifications to specifications buyer drew on the letter of without consent of all parties. guarantee to obtain additional  Failure to comply with verbal funds for liquidity purposes. This is agreements that were not known as a wrongful call. Such signed for on the contract. disputes are generally resolved via  Non-shipment or blockage at mediation, arbitration, or the court. port due to change in laws or government. © 2017, 2020, 2021 FITT All Rights Reserved  Common Areas of Disagreement Contd. Foreign Exchange Rates Disputes arise in situations where the currencies of the buyer or seller fluctuate in value, resulting Documentation Error in the buyer having to pay Given international trade is being significantly more, or the seller supported by many trade tools, receiving significantly less, than such as the letter of credit, letter of anticipated when the contract was guarantee, forward contracts, signed. futures, options and others, it is highly likely that mistakes happen This can result in seller’s balking in working or issuance of these on delivery or buyer’s balking on documents. making payment, both scenarios that can create animosity between the seller and the buyer. © 2017, 2020, 2021 FITT All Rights Reserved  Identifying the Nature of the Issue Types of Disputes See Figure 5.1 – Common Areas of Disagreement Payment Terms Key Elements of an Letter of Guarantee Arbitration Agreement Enforcement and appeals Foreign Exchange Rate Applicable law to arbitration Arbitration language Documentation Error Number of arbitrators required Arbitration location Drafting Contracts to Avoid Disputes © 2017, 2020, 2021 FITT All Rights Reserved  Dispute Resolution Traditionally, litigation has been the way international commercial parties have dealt with disputes. However, there are various factors that encourage those engaged in international trade to seek alternative dispute resolution (ADR) methods. These factors include:  Costs of litigation  Preferred location  Applicable law  Time available ADR aims to resolve disputes in a way that is less expensive, faster, and more predictable than adversarial judiciary processes. © 2017, 2020, 2021 FITT All Rights Reserved  Dispute Resolution Alternative Dispute Resolution Methods o Arbitration o Mediation o Conciliation o Fact Finding © 2017, 2020, 2021 FITT All Rights Reserved  Alternative Dispute Resolution Methods Arbitration Arbitration is a process by which parties voluntarily entrust the resolution of a dispute to a neutral party, an arbitrator, whose authority derives not from a court system, but from the consent of the parties as contained in their contract or other agreement. As with a contract, the result of arbitration binds both parties and is enforceable by a court. Arbitration becomes international when the parties in conflict have their place of business in more than one country, when most commercial obligations are conducted in another country Elements or if the arbitration of an Arbitration Agreementitself takes place in another country. The following are key elements that parties should address in an arbitration agreement:  Enforcement and appeals  Applicable law to arbitration  Arbitration language  Number of arbitrators required  Arbitration location © 2017, 2020, 2021 FITT All Rights Reserved  Elements of an Arbitration Agreement Contd. In addition to these elements, an arbitration agreement must also include:  The procedure for discovery where parties can request documents from one another before the trial to be used as evidence.  The rules applicable to the contract, for example, parties can request the applicability of the national law of the importer or the exporter, a national law from a neutral country, or an international treaty such as the Contracts for the International Sale of Goods (CISG) or the International Institute for the Unification of Private Law (UNIDROIT).  Any local applicable peculiarities, for example, if a jurisdiction has cultural or legal provisions that could provide loopholes.  Any post-contractual obligations. © 2017, 2020, 2021 FITT All Rights Reserved  Alternative Dispute Resolution Methods Mediation Another ADR method is mediation, in which an independent third party, a mediator, with no vested interest in the outcome of the mediation, confidentially facilitates discussions and settlement between the disputing parties.  Unlike conciliation, a mediator is more of a facilitator. The mediator avoids offering proactive decisions, choosing instead to help disputing parties come to a realistically acceptable agreement, for example, by encouraging the exchange of information.  As with arbitration clauses or agreements, to proactively prepare for the risk of disputes, entrepreneurs can draft mediation clauses into contracts. Unlike arbitration or court litigation, mediation is non-binding—no winner or loser, and the parties are not bound by any decisions made by the mediator. The significance of mediation is growing as a best practice in many dispute resolution procedures. Even in cases that will ultimately result in litigation or arbitration, mediation is a way to streamline future proceedings by narrowing relevant issues. Many places around the world, such as China, require parties to submit to mediation before agreeing to hear the case in court. © 2017, 2020, 2021 FITT All Rights Reserved  Alternative Dispute Resolution Methods Conciliation Conciliation is a form of ADR in which a third or neutral party, a conciliator, helps conflicting parties avoid litigation by meeting with the parties separately to determine each party’s dispute and needs. Conciliation is often seen as the middle ground between arbitration and mediation. The conciliator’s goal is most often to restore goodwill, or repair a working relationship, usually through concessions. Unlike arbitration, conciliation findings are not binding, no awards are offered and the conciliator has no authority to call witnesses or request evidence. © 2017, 2020, 2021 FITT All Rights Reserved  Alternative Dispute Resolution Methods Fact Finding Fact finding is a very valuable element of ADR and can be used as a sole form of ADR or as a component of the other types of resolution. It involves assigning a person or group of people to determine the facts relevant to a dispute. The fact finder prepares a report detailing the findings and sometimes prepares a recommendation as to the action that should be taken to resolve the dispute. Fact finding is particularly useful in resolving complex trade disputes that are associated with intellectual property (IP), technological issues or scientific products. There are different types of fact finders. Neutral fact finders are third parties with no ties to any of the disputing parties. Fact finders can also be experts in a selected field who are asked to provide their opinion on selected legal, technical or scientific disputes. Whether their findings and subsequent recommendations will be conclusive or non-binding is usually determined in advance. Disputing parties can also agree to engage joint fact finders. In this form of fact finding, representatives from the disputing parties work together to develop responses to questions. © 2017, 2020, 2021 FITT All Rights Reserved  Benefits of Alternative Dispute Resolution It is important for any company to keep the following key points in mind while handing a dispute situation:  ADR is frequently a much cheaper and quicker way to resolve disputes (in comparison to litigation).  ADR should only be pursued if there is a genuine intention by both parties to resolve a dispute. The best way to ensure it is used is to incorporate it into the contract at the outset of the business relationship.  ADR can be used even if there is no contract clause requiring it.  If ADR methods are not suitable and litigation is pursued, a key concern is whether the other party has assets in the jurisdiction to satisfy a court judgment or not. © 2017, 2020, 2021 FITT All Rights Reserved  FINAL CHECK Test your understanding on the knowledge, skills and concepts presented in this course and practice for other FITT assessments. © 2017, 2020, 2021 FITT All Rights Reserved  iv, iii, i, ii ii, iii, i, iv ii, i, iii, iv i, ii, iii, iv © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved © 2017, 2020, 2021 FITT All Rights Reserved