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International Karting Industry Buyer's Guide

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EYE ON THE INDUSTRY

DRAFTING INTERNATIONAL SALES AGREEMENTS
As the karting industry grows and new opportunities arise around the world, it is important for the US karting industry to be well-informed in doing business with other countries. Hopefully the following information will be helpful in the pursuit of additional business overseas.

The United Nations Convention on the International Sales of Goods (CISG) was created in 1980 to harmonize the rules regarding the international sale of goods. By definition, the CISG “governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract.” This includes issue of offer as well as acceptance and the obligations of the buyer and seller. The scope of the CISG is limited to contracts for the international sale of goods in member countries (over 30 including the US).

The CISG does not apply to certain types of issues which can arise in contracts such as: validity of a contract including fraud in the inducement; authority or capacity to enter into a contract and whether a contract violates domestic law; what rights a third party might have in property sold under a contract. Moreover, issues of product liability are not covered in the CISG.

Use of CISG in the drafting of agreements—
The CISG will apply automatically to international sales contracts between buyers and sellers located in countries which have ratified the CISG. It can be incorporated into an agreement by reference even if the parties to the agreement are not from countries which have ratified and enacted the CISG. Similarly, the parties can opt out of one or more of the provisions of the CISG by mutual consent. This is true even I both parties are from CISG countries. The greatest single benefit of using the CISG is the certainty which is introduced by using an established and accepted regime.

It is important to assure the international sales agreement has adequate provisions for resolving disputes under the agreement.

In addition to the “traditional” terms which exist in both domestic and international sales agreements, often times unique provisions must be modified when the sales contract is for the sale of goods in the international market. For example:

a. A language of the contract must be selected and the text in that language must be clearly designated as the definitive and official version of the agreement.
b. The choice of law provision, which exists in domestic contracts, takes on new significance because of the vast differences in legal regimes that could be applied to an international contract. The law which might be applied to a contract in a Middle Eastern country could be very different from a law that might be applied in a western legal system.
c. The dispute settlement provision must be carefully drafted.

Like any domestic agreement, the international sales agreement will contain many of the same provisions any domestic agreement would have, i.e., risk loss and allocation of transportation and insurance costs. Price and delivery terms should be established. You should also be careful to assure that the sales transaction is not viewed as a licensing of an intellectual property right.

Agency and Distributor Agreements—
Agents: In general, agents do not buy and sell for their own account, rather they receive commission on their sales. Agents do not own the products they sell; the risk of loss remains with the company the agent represents (the principal). They may or may not have the power to accept orders or to otherwise obligate the principal. This means that they might not have the authority to set a sale price or sale items, or to bind the principal to a contract.

It is also important to remember that civil code and common law countries threat the agency relationship very differently. For example, the liability of a principal for the acts of undisclosed agents is a concept unique to the common law countries. In addition, there may be other local laws which will affect the principal/agent relationship. There may be a requirement of local representation. That is, the local laws may require that any sales made to a party within the country must occur through a local sales agent who is a national of that country.

Moreover, some countries do not allow certain types of sales through agents. Other countries may require contracts with local agents to be registered and certain information be disclosed, i.e., the amount of the commission. Some countries have limitations on the amount of commission which may be paid to local agents, and some countries require that the agreements be exclusive. There may also be restrictions on the termination of agency agreements.

Distributors: Distributors are different from agents. They generally make a large financial commitment to a market and often receive exclusive rights to sell for this commitment. The key legal distinction between an agent and distributor are:

1. A distributor takes title to the goods and therefore, accepts the risk of loss and makes profits by reselling the goods.
2. Distributors cannot contractually bind the company producing the goods.
3. Distributors establish the price and sales terms of the goods.
4. They do not have employment conditions subject to local labor laws. However, a distributor could be protected by other statues and therefore, one should include a “no employment relationship” provision in the agreement.

Drafting Considerations for Agent/Distributor agreements: The first and most important consideration is to ensure that the agreement clearly states what the relationship actually is — agent or distributor. As discussed previously, the rights and duties of the two different relationships are very significant. Given this distinction, the agreements should state very plainly and clearly what relationship is being established.

The agreement should also clarify the terms and conditions for selling the products. For example:

a. Determine whether the relationship is exclusive versus non-exclusive.
b. State which geographic regions that are to be covered.
c. Set forth issues of payment for the products (in the case of a distributor) and for payments of commissions (in the case of agents).
d. Determine the currency in which payments are to be made and address currency fluctuation issues.
e. Provide specific provisions regarding renewal of the agreement, including specific parameters for performance, promotional activity and notice of desire to renew.
f. Establish a specific provisions for termination of the agreement and for what reasons, i.e., failure to perform to the terms of the contract. (Be careful with this provision. Some foreign countries restrict or prohibit termination without just cause or compensation.)
g. Outline the termination process for the end of the agreement period.
h. Provide for workable and acceptable dispute settlement clauses.
i. Assure that the agreement addresses whether or not intellectual property rights are being licensed or reserved.
j. Do not allow, without the sellers consent, the contract to be assigned to another party (sub-agents or sub-distributors) to be used to fulfill obligations in the contract, or the contract to be transferred with a change of ownership or control over the agent/distributor.
k. Assure that your contract complies with both US and foreign laws on topics such as: export and import licenses; custom duties and sales taxes; relevant antitrust/competition laws relating to marketing restrictions and pricing methods; relevant laws on bribery; and employment and marketing discrimination.

For more information on this subject, contact the United States Department of Commerce who supplied the information for this article.

END

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