Negotiating Techniques in International Commercial Contracts

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NEGOTIATING TECHNIQUES IN INTERNATIONAL COMMERCIAL

CONTRACTS

Negotiating Techniques in

International Commercial

Contracts

C. CHATTERJEE

LLM (Cambridge), LLM (London),

PhD ( London), Barrister

First published 2000 by Ashgate Publishing

Reissued 2018 by Routledge

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Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright © C. Chattei:jee 2000

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used only for identification and explanation without intent to infringe.

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A Library of Congress record exists under LC control number: 00130123

ISBN 13: 978-1-138-70492-3 (hbk)

ISBN 13: 978-1-315-20250-1 (ebk)

Contents

Table of Cases viii

Table of International Conventions and Resolutions x

1 Some Basic Concepts Fundamental to Negotiation of

International Commercial Contracts 1

1.1 Introduction 1

1.2 What is Negotiation? 1

1.3 Negotiation and Conflict 2

1.4 What is not Negotiation 3

1.5 The Environment of Negotiation 3

1.6 Interdependence and Negotiation 4

1.7 Professionalism in Negotiation 5

1.8 Conclusions 6

2 Preparation for Negotiation 8

2.1 Introduction 8

2.2 Elements Common to the Preparatory Stages of Negotiation 8

2.3 The Briefing Session 9

2.4 The Stage Prior to Leaving for a Foreign Jurisdiction 11

2.5 Eligibility for Membership of a Negotiating Team 12

2.6 Conclusions 12

3 Negotiation of International Commercial Contracts and Risks 14

3.1 Introduction 14

3.2 Feasibility Studies 14

3.3 A Brief Analysis of Some of the Usual Risks Associated with

Private Foreign Investments 16

3.4 The Primary Causes of High Incidence of Expropriation of

Foreign Assets 40

3.5 Downward Trend in Taking of Foreign Assets 41

3.6 Conclusions 42

v

vi Negotiating Techniques in International Commercial Contracts

4 Negotiation of International Sales Contracts 46

4.1 Introduction 46

4.2 The Goods 46

4.3 Time of Delivery 47

4.4 Place of Delivery 48

4.5 The Payment Contract 48

4.6 A Brief Discussion of the Most Popular Types of Countertrade 52

4.7 Some Important Points to be Considered in Relation to

Countertrade 55

4.8 Carriage of Goods (Transportation) Contract 56

4.9 Replacement and Service 56

4.10 Negotiation for the Sale of Second-hand/Used Products 57

4.11 Conclusions 57

5 Negotiation of Transfer of Technology Contracts 58

5.1 Introduction 58

5.2 The Important Elements of a Contract for the Transfer of

Technology 59

5.3 Contents of the Contract 60

5.4 Conclusions 68

6 Project Finance 70

6.1 Introduction 70

6.2 Risks 72

6.3 Third Party Undertakings 73

6.4 Security for Payment 76

6.5 Inter-Lender Arrangements 80

6.6 Some General Issues that Should be Considered in Accepting

a Property as Security 80

6.7 Registration of Securities 82

6.8 Some Important Legal Issues Pertaining to Project Finance 84

6.9 Conclusions 92

7 Negotiation of Syndicated Loan Agreements 96

7.1 Introduction 96

7.2 The Initiation of a Syndication 96

7.3 The Negotiation Process 97

7.4 Organisation of Syndicated Loans 99

7.5 The Lead Manager 100

Contents vii

7.6 The Agent 101

7.7 Offer and Acceptance of a Syndicated Loan 103

7.8 Some of the Most Important Clauses that are Included in

Syndicated Loan Agreements 104

7.9 Conclusions 108

8 Negotiation of International Construction Contracts 109

8.1 Introduction 109

8.2 Preparation for Negotiation of an International Construction

Contract 110

8.3 How Should an Employer Select a Construction Contractor? 111

8.4 Is There any Standard Form of International Construction

Contract? 113

8.5 Some of the Most Important Clauses in International

Construction Contracts 113

8.6 Conclusions 130

9 Negotiation of Petroleum Contracts 132

9.1 Introduction 132

9.2 The Principal Features of State Contracts 136

9.3 Principal Contractual Terms in a Petroleum Agreement 138

9.4 Some General Comments on International Petroleum

Contracts 142

9.5 Conclusions 144

10 The Role of the Lawyer in Negotiating International

Commercial Contracts: Some Comments 146

10.1 Introduction 146

10.2 Jurisdictional Issues and Governing Law 148

10.3 Conclusions 149

Bibliography

Index

150

152

Table of Cases

AGIP and the Popular Republic of the Congo, 21 International Legal Materials (1982)

726.

Alcom Ltd. v. Republic of Colombia [1984] 2 All ER 6.

Asian Agricultural Products Ltd. and the Republic of Sri Lanka, 30 International

Legal Materials (1991) 580.

Bacus Sri v. Sercio Nacional Del Trigo [1957] 1 QB 438.

Banco Creditor Agricol De Cartago, Barke v. Bancomer 762 F.2d.222 (2d Cir. 1985).

B .P. Exploration Co. (Libya) Ltd. v. Government of the Libyan Arab Republic (1979)

53 International Law Reports 297.

Birch Shipping Co. v. Republic of Tanzania, 507 F Supp. 311 (Ddc) 1980.

Callejo v. Bancomer 764 F.2d. (5th Cir. 1985).

Chile v. France (The Guano Case) UN Report, Vol. Xv, at 77.

Compania Mercantil Agrentina v. United States Shipping Board (1914) 131 Lt 388.

Eastern Timber Corporation v. Republic of Liberia, 659 F. Supp. 606 (DDC 1987).

Edward Owen Engineering Ltd. v. Barclays Bank International [1978] 1 All ER 976.

Factory at Charzow (Germany v. Poland) (1928) PCIJ, Series A, No. 17.

Government of the State of Kuwait and the American Independent Oil Co. (Aminoil),

ICSID Arbitration, 21 International Legal Materials (1982) 976.

Gulf Bank v. Mitsubishi [1994] 2 LLR 149.

Hungarian PR. v. Onori, 23 International Law Reports (1956) 203.

I Congress Del Partido [1981] 3 WLR 329.

Kleihs v. Republic of Austria, Ann, Digest (1948).

Krajina v. Tass Agency [1949] 2 All ER 274.

Liberia Eastern Timber Corporation v. Republic of Liberia, 659 F. Supp. 606 (DDC

1987).

Luther v. Sagor [1921] 3 KB 532.

Mobil Oil Iran Inc. and others v. Government of the Islamic Republic of Iran and

National Iranian Oil Co., 86 International Law Reports (1991) 231.

National Oil Corporation (Libya) and the Libyan Sun Oil Co. (U.S.), 29 International

Legal Materials (1990) 605.

Nuclear Tests Cases, ICJ Reports (1974) 253.

In Re Oil Spill by Amico Cadiz off the Coast of France, 16 March 1978.

The Schooner Exchange v. Mcfadden (1812) 7 Cranch 116.

SEDCO Inc. v. Iranian Oil Co. and the Islamic Republic of Iran, Iran-US Claims

Tribunal, Awards of 24 October 1985, 27 March 1986 and 2 July 1987, 84

International Law Reports (1991) 484.

Vlll

Table of Cases ix

Storelli v. Governer Delia Republic Francesse, Ann. Digest 2 (1923^4).

Sultan of Jahore v. Abubakar [1952] A.C. 318.

Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. the Government of

the Libyan Republic (1979) 53 International Law Reports 389.

Trail Smelter Arbitration (1941) 3 RIAA 1905.

Trendtex Trading Corporation v. Central Bank of Nigeria [1977] QB 529.

Table of International

Conventions and Resolutions

Brussels Convention on the Liability of Operators of Nuclear Ships, 1962.

Convention Establishing the Multilateral Investment Guarantee Agency, 1985.

Convention for the Prevention of Marine Pollution by Dumping from Ships and

Aircraft, 1972.

Convention for the Prevention of Marine Pollution by Dumping of Wastes and Other

Matter, 1972.

Convention for the Prevention of Marine Pollution from Land-based Sources, 1974.

Convention for the Protection of Birds Useful to Agriculture, 1902.

Convention for the Protection of the Ozone Layer, 1985.

Convention on Civil Liability for Oil Pollution Damage Resulting from Exploration

and Exploitation of Seabed Mineral Resources, 1977.

Convention on the Control of Transboundary Movements of Hazardous Wastes and

their Disposal, 1989.

Convention on the International Liability for Damage Caused by Space Objects, 1972.

Convention on the Regulation of Antarctic Mineral Resource Activities, 1988.

European Convention of State Immunity, 1972.

ILA Helsinki Rules on the Uses of the Waters of International Rivers, 1966.

International Convention on Civil Liability for Oil Production Damage, 1969.

International Convention on the Establishment of an International Fund for

Compensation for Oil Pollution Damage, 1971.

International Convention for the Prevention of Pollution from Ships (MARPOL) 1973.

London Convention for the Prevention of the Pollution of the Sea by Oil, 1954.

London Convention Relative to the Preservation of Fauna and Flora in the Natural

State, 1933.

Off-shore Pollution Liability Agreement, 1974.

Paris Convention on Third Party Liability in the Field of Nuclear Energy, 1960.

Peace Treaty with Italy, 1947, UNTS, Vol. 49, 126.

Principles Concerning Transfrontier Pollution (OECD), 1974.

Tanker Owners' Voluntary Agreement Concerning Liability for Oil Production

(TOVALOP) 1969.

The Rio Declaration, 1992.The World Charter for Nature, 1982.

UN Code of Conduct on Transnational Corporations, 1992.

UN Convention on Long-range Transboundary Air Pollution, 1982.

x

Table of International Conventions and Resolutions xi

UN General Assembly Resolution entitled 'The Charter of Economic Rights and

Duties of States', 1974.

UN General Assembly Resolution on Permanent Sovereignty over Natural Resources,

1962.

Vienna Convention on Civil Liability for Nuclear Damage, 1962.

Vienna Convention on Succession of States in Respect of Treaties, 1978.

Warsaw Convention for the Unification of Certain Rules Relating to International

Carriage by Air, 1929.

1 Some Basic Concepts

Fundamental to Negotiation of

International Commercial

Contracts

1.1 Introduction

The negotiation of international commercial contracts requires certain

techniques. The international commercial world seems to proceed on the

presumed belief that businessmen are aware of such techniques and that

experience matters most. It should be pointed out in this context that where a

party enjoys monopoly on a market, the question of negotiating a contract

would not arise, as the stronger party imposes its terms upon the weaker, but

where competitors are available in a market, the technique of negotiating a

contract assumes great importance, which is increasingly the case in the current

international commercial world. Furthermore, there seems to exist a perception *

that the economically weaker world lacks bargaining power; consequently,

the old-fashioned technique based on old-fashioned attitudes is often activated

in negotiating international commercial contracts with such parties.

It is to be emphasised that in the current international commercial world

choices exist, hence the need for learning the technique of negotiating

international commercial contracts, irrespective of the economic and financial

standing of the other party.

In this chapter an attempt is made to explain some of the concepts which

are considered to be fundamental to negotiating an international commercial

contract.

1.2 What is Negotiation?

To negotiate means to 'hold communication or conference for the purpose of

1

2 Negotiating Techniques in International Commercial Contracts

arranging some matter by mutual agreement, to discuss a matter with a view

to some settlement or compromise'.1

To compromise means the settlement of

a dispute by mutual concession.

As the definition indicates, to negotiate is to confer with others, with the

object of reaching a compromise or an agreement. In this process, mutual

concessions may have to be made. In other words, in a negotiation process,

negotiators must not rigidly adhere to their own terms and conditions, as that

will defeat the whole basis for and purpose of negotiation. Lack of flexibility

on the part of a negotiating team would mean that the team wishes to hold the

upper hand and to try to impose its terms and conditions on the other party. It

is to be emphasised that in a negotiating process both parties' position must

be treated as equal, and the terms and conditions that may be reached by

mutual concession, will lead to a contract with a high probability of being

performed.

1.3 Negotiation and Conflict

The meaning of the term 'negotiation' has already been explained. 'Conflict'

means an encounter with arms, fight, battle, a prolonged struggle, the clashing

or variance of opposed principles, statements or arguments.2

Based on this meaning, it is possible to maintain that conflict has no place

in negotiation. In fact, the term should not be used to describe the hurdles that

negotiators may experience in negotiating international commercial contracts.

'Differences of opinion' are different from 'conflict'. It is the very purpose of

negotiation to iron out the differences between the parties by mutual

concession. The perception of conflict in a negotiating process is not only

irrelevant but also damaging; it may adversely affect the sense of mutuality in

negotiation. The differences may quickly be resolved if parties come to

negotiation with alternative proposals and strategies. Differences of opinion

should be anticipated, otherwise there would be no need for negotiation.

Differences of opinion arise as each party wants to gain as much as it can

from a deal. The objective of negotiation is to reach a compromise by a process

of narrowing down the differences and eventually agreeing on all issues for

the purpose of concluding the contract.