Week 5-Negotiating an International Commercial Contract
Week 5-Negotiating an International Commercial Contract
https://www.youtube.com/watch?v=QCT1BWZByko
Pre-Contractual Agreements
Types of Precontractual Agreements
• Letters of intent/Memorandum of Understanding
• Non-disclosure Agreements
• Estimate and Invoice Forms
Non-Disclosure Agreement(NDA)
• An agreement that is used by parties to ensure that information exchanged during
the pre-contractual stage of assessment or negotiations on a subsequent agreement
is kept confidential
• A non-disclosure agreement facilitates the exchange of ideas and negotiation of
commercial contracts
• It enables parties to protect their know-how and technology against
misappropriation or abusive use by the other party.
• It is usually signed as soon as discussions begin
• Disputes can arise from a non-disclosure agreement
• Purpose:
• To ensure that the information will be used only for the purpose of the
anticipated transaction (and not for any other competitive purpose)
• To ensure that all disclosed (confidential) information will be kept secret
Examples of
Model Non-
Disclosure https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/592212/Example-Mutual-
Non-Disclosure-Agreement.pdf
Agreements https://www.hkicpa.org.hk/-/media/HKICPA-Website/New-HKICPA/Tools/Tender-notice/NDA_form.pdf
Any proprietary information, including but not limited to,
technical and financial information disclosed by either
party to the other hereunder and designated as confidential
Sample Non- shall be kept secret and confidential and not used by the
receiving party other than in the course of the feasibility
Disclosure studies, or other evaluation contemplated hereunder nor
disclosed by such party other than to its employees requiring
Agreement same for performance of their duties hereunder, unless and to
the extent such information was known to the receiving party
prior to disclosure hereunder, is subsequently disclosed to the
receiving party by a third party or becomes public knowledge.
The obligations of this Article shall survive termination of
the letter of understanding and continue in effect for a
period of 7 years thereafter.
Estimate and Invoice Pro Forms
• A detailed status of projects and work to be performed, with an indication of the price,
either by nature of work or construction or by agreed consideration
• It only constitutes a study document which will enable the negotiations to pursue
• It may be optional or mandatory
• May take the form of a project, or of a preliminary study, in order to estimate the extent
of the work to be performed and the price at which the work will be accomplished
• A mere invitation to begin negotiations or a unilateral promise of agreement which
only binds the company offerer, and does not constitute an offer
• Depending on the intention of the parties, it will simply be a draft contract or a
reciprocal agreement which does not lead to the formation of the contract but provides
some obligations such as the payment of fees to the company offerer in case of a
failure of the negotiations or of the client's change of mind
A Letter of Intent
Are pre- party could, in good faith, reasonably anticipate that a contract would
result from the negotiations)
contractual • The party terminating such negotiations in bad faith can be held liable
for damages towards the other party (‘precontractual liability’)
Capacity to contract
Offer
• An offer for a commercial contract can take many forms
• It may be formal and informal
• An offer is a promise to do (or not to do) something in the future. An offer is also a display of
willingness to enter into a contract on specified terms, made in such a way that a reasonable
person would expect acceptance to result in a legally-binding contract.
• Once an acceptance of an offer is made, a contract exists between the parties.
Example
Please find.., a request for offers concerning a performance... This offer will enable us to establish a
contract... Considering this time limit, we would like to begin our exchanges, even though some
elements still need to be specified... You will find enclosed a first expression of need as well as a draft
contract.., in order to facilitate our discussions.., We would like to receive from you a financial and
technical proposition in response to this demand as soon as possible and at the latest the... We stay at
your disposal for any complementary information in helping finalizing your offer
An Invitation to Bid (Invitation to Treat)
• An invitation to treat is different from an offer
• It is a negotiating statement and a request for an offer
• It is a declaration of willingness to enter into negotiation
• It is not an offer, and thus cannot be accepted to be the basis for a binding contract.
• The distinction between offer and invitation to treat is found, respectively, in the intention or in the
absence of an intention to be bound as soon as the addressee accepts the terms stated. An invitation to
treat is a request to the addressee to negotiate rather than an invitation to communicate an acceptance.
Example
Party A and B attend the 2022 Hong Kong Fair for Manufactures of Industrial Kitchen Equipment’s. Party A
who is a manufacturer of industrial ovens displays these ovens. The display includes the price of the ovens,
description, models and functions of the ovens.
Analysis
The display of goods by Party A, price-lists, circulars and advertisements will be considered an invitations to
treat.
Elements of Valid Offer
• The offer must be definite and precise
• It must be firm
• It must state clearly sets out the fundamental elements of the contract.
In German Law, the offer, must include an undertaking and the intent to be bound, and mention
the fundamental points of the contract
In American Law, the UCC holds the same requirements as French Law: to be binding, the
offer must include the fundamental elements of the contract. If some elements were to be
missing, § 2-204 provides that the contract is nevertheless formed if the intent of the
parties can be proved and if there is a "reasonable basis" to complete this contract.
Examples
Example 1
Party A sends an email to Party B stating that I offer you 1000 bags of cement.
Analysis
This is not a valid offer because it is not definite
Example 2
Dear x,
Please find attached the invoice for the stated goods price individually for 500 HKD. If you
agree with this offer, please email xxx to confirm your acceptance of the offer. Afterwards, our
sales representative in Hong Kong will contact you.
Analysis
This is a valid offer which can be the basis for the parties commercial contract.
Termination of Offer
• An offer terminates when there is a:
• Rejection of the offer by the offeree;
• Revocation of the offer by the offeror;
• lapse of time;
• death or other incapacity of one of the parties; or
• • failure of the condition to materialise where the offer is conditional
Example
Party A makes a written offer to party B which includes the following clause ‘This offer is valid until the 21 of
August 2022’. Party B writes back to Party A accepting the offer on 21 September 2022.
Analysis
The offer was terminated on 21 August 2022.
If the offeror revokes the offer,
The offeror can withdraw the
a notice of revocation must be
offer at any time before it is
communicated to the offeree
accepted.
before acceptance is made
Revocation of
Offer The general rule is that an
acceptance of an offer must be
The offeror, as part of the
communicated to the offeror
offer, may specify the method
before revocation of the offer
of acceptance by the offeree
or before expiration of the
offer through the lapse of time
Counter-offer
A counter-offer is usually considered to be a rejection of the original offer and the making
of a new offer by the offeree
Withdrawal of the counter-offer does not restore the original offer so as to allow the
offeree to accept the same
An offeree’s request for information, or even an enquiry to negotiate a better price, is not
a counter-offer
Example
Party A offers to sell 1000 cars to party B at the price of 50,000 HKD each. Party B accepts but offers to
buy the cars at the price of 40,000 HKD each.
Analysis
Party B has made a counter-offer for purchase of the cars which will be considered a new offer.
Main Differences between Common Law and
Civil Law
Common Law Civil Law
Tribunals are reluctant to admit pre-contractual Recognizes the possibility of pre-contractual liability.
liability. The dominant perception is that in a However, there are some differences concerning the
negotiation each party pursues its own interests basis for such liability.
The judge assumes that true intent of the parties what The judge will refer to all preliminary documents
is agreed to by the parties in the contract. (correspondences, letters of intent...) in order to
determine the true intent of the parties
Different Domestic Laws (Summary)
Law A Valid Offer
English Law (As applicable in Hong Kong ) The offer must include elements of a contract
American Law The offer must include the fundamental elements of the
contract.
If some elements were to be missing, § 2-204 provides
that the contract is nevertheless formed if the intent
of the parties can be proved and if there is a "reasonable
basis" to complete this contract.
French Law The offer be definite and precise, and that it clearly sets out
the fundamental elements of the contract.
German Law The offer must include an undertaking and the intent to be
bound, and mention the fundamental points of the contract
Negotiations of Contract under
International Commercial Contract
Laws
Article 2.1.3
(Withdrawal of offer) (1) An offer becomes effective when it reaches the
offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the
withdrawal reaches the offeree before or at the same time as the
offer.
Article 2.1.4Revocation of offer
(1) Until a contract is concluded an offer may be revoked if the
revocation reaches the offeree before it has dispatched an acceptance.
(2) However, an offer cannot be revoked (a) if it indicates, whether by
stating a fixed time for acceptance or otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the offer as being
irrevocable and the offeree has acted in reliance on the offer.
ARTICLE 2.1.5 (Rejection of offer)
An offer is terminated when a rejection reaches the offeror.
Example
After lengthy negotiations the Executive Directors of two companies, A
and B, lay down the conditions on which B will acquire 51% of the shares
in company C which is totally owned by A. The “Memorandum of
Agreement” signed by the negotiators contains a final clause stating that
the agreement is not binding until approved by A’s Board of Directors.
Analysis
There is no contract before approval is given by A’s Board of Directors.
Although the proposal may contain all the essential terms of the
contract, it does not bind the parties.
Can a party walk away from negotiations and
change his mind?
• Generally, A party is free to enter into negotiations even though he
feels uncertain as to whether he will eventually make a contract.
• He may break off the negotiations, and does not have to disclose why
he broke off.
Case Examples
Date of Decision: May 13, 2021
Court: US District Court for the
District of Delaware
Claimant: Swiss National
Defendant: Delaware USA
Claimant’s Argument
Artemundi argued that AGB Director Benatar’s July 6 email does not constitute an
offer under the CISG because it lacked sufficiently definite terms and failed to
express AGB’s intent to be bound by terms Artemundi finally argues the parties’
negotiations after July 6 did not cure alleged deficiencies in the July 6 contract
formation.
Defendant’s Argument
AGB argued it made a sufficiently definite offer to buy the painting for $3,300,000 and Artemundi
CEO Lumbreras and AGB Director Benatar subsequently spoke on the phone and over email to
“confirm” this offer. AGB argues its email contained all the requisite elements of an offer—the
product, quantity, and price.
“The Offer”
“Dear Javier, I confirm our deal for your Picasso at $3,300,000 USD net
to you. As discussed, the attorney Mrs. Sylvie Horowitz, copied on this
email, will contact you tomorrow with a pro-format [sic] invoice
proposition; it should be very simple so hopefully we will be able to
finalise this very quickly.
Kind regards, Alain
Court’s Decision
AGB further plausibly alleges an intent to be
bound in the event of acceptance. AGB’s
communications, especially when interpreted in
the light most favorable to AGB and in the
context of their earlier negotiations and
conversations, demonstrates an intent to be
bound.
While we find the Swiss art dealer plausibly
pleads a breach of contract, we must dismiss its
contract claim under the forum non conveniens
doctrine without prejudice to submit its claim to
the Courts in its home country, Switzerland.
Richard G Andrews
Case Example 2
Facts
In December 2019 Claimant, a US company based in New York, and
Defendant, a Dutch company, signed a letter of intent (LOI) according
to which Defendant would acquire Claimant’s 50% stake in an
equestrian show-jumping business. The LOI provided that either party
could refuse to execute this agreement before the deadline set for 2
March 2020, by paying the other party a EUR 30 million “fee”.
https://www.youtube.com/watch?v=Cvrk-PF4LLY
1. What are some of the difficulties the parties may have faced during the negotiations?
2. What are some of the cultural differences between the two parties? Applicable law, language
3. What effect has the withdrawal of the offer had on the Brazil Burger King brand
4. What kind of commercial agreements would the parties have drafted? What will be the
importance of these agreements for the parties?
5. Will there be any liabilities for the parties
Discussion Questions for the Week