Learning from disaster…

6 instructive cases

TALES OF

HORROR IN

INTERNATIONAL

TRADE

The Chicken that Ate Switzerland

The issue: what is “chicken”?Young, broilers or fryers

Old, stewing chicken

What did the chicken experts say?Old birds are “fowl”

“Chicken is everything except

a goose, a duck and a turkey”

Why didn’t the judge apply “trade usage”?Defendants were newcomers

Experts disagreed

T h e Q u e s t i o n

What advice

would you

give to

traders

buying from

newcomers

to a particular

trade?

The answer (s)• Draft the contract very precisely

• Avoid dealing with newcomers

• Make sure the newcomers are

aware of industry practices

NOT Human!

• Dolls paid higher duties than toys

• Dolls are “human”; “monsters” are toys

• The judge took the toys clothes off!

• The judge noted that humans generally

lack robotic claws or the ability to

generate flames

• Conclusion: Wolverine isn’t human!

• Result: Toy Biz gets a lot of money back

from the U.S.

X-men case:

Mr. Spock

European Union case

EU agreed to

quota on toys

representing

“non-human” creatures

Intense international negotiations: an

exception was made for teddy bears

Toy companies complained this caused job

losses and cost them $200 million

UK Customs conclusions:

Batman and Robin: OK

Captain Kirk: OK

Mr. Spock: you’re not human!

QuestionAssuming such a customs decision affected a transaction that had

already been signed by exporter and importer:

1) Under which Incoterms is the exporter at risk?

2) Under which Incoterms is the importer at risk?

Answers• Exporter at risk: DDP (also DES/DEQ)

• Importer at risk: EXW, FAS, FCA, FOB, CFR, CIF, CPT, CIP, DAF, DDU

Attack of the Weevils

• Contract for the sale of flour to Bolivia

• Terms: FAS Mobile, product of “merchantable quality”

• Yecch: flour beetles discovered

• Yecch again: flour is fumigated, sold to Bolivian consumers at

a discount

• Seller: pay us for our buggy flour!

• Buyer: you *#&!%$# Americans!

Question

The Bolivians won the case.

What does this case teach

us about how to receive

shipments that

contain defects?

Answer• Object promptly

• Object in writing

• Be consistent

Mommy, I dropped my Coke!• Texas Exporter contracts to ship 1755 cases of soft drinks to

Kuwaiti importer

• While loading: crash…fizz…pop!

• Maximum recovery from carrier:

– $500 per “package”

– But….what’s a package?

Questions• How many silly references does the judge make

to soft drinks?• Had he been mixing a little bourbon with his

Sprite?• What did we learn about the need for cargo

insurance?

Answers• Silly soft drink references:

– TEN :

“Things go better with Coke”,

“Apparently Kuwaitis would like to be Peppers, too”,

“a real Teem effort”,

“Pepsi Cola hits the Spot – on the Pavement”,

“During the Refreshing Pause between arrival of the container and…”,

“In the Crush, the cans were damaged”,

“The stevedore was in no mood to have a Coke and a smile”,

“Things Go Better on appeal”,

“The winds of judicial change Schwepped away the $500 shelter”,

“Dr Pepper at 10,2 and 1304”

• Was judge mixing bourbon and Sprite?– Seems likely

Need for Cargo Insurance?Lesson – if your cargo insurance coverage is not sufficient, you could

find yourself having to pursue the carrier.

Be precise about:

- where the coverage begins and ends

- time when it begins and ends

- coverage of war risks, strikes, etc.

• Indian sellers contract to ship

1400 tons of “Coromandel Groundnuts”

to Danish buyers, payment by L/C

• The Danish banks refused to

pay the L/C because the Indians got

their nuts mixed up (I mean, they

were not consistent in using the term

“Coromandel groundnuts”)

The Case that drove me Nuts

• Why did the Danish buyers refuse to authorize payment under the credit?

• Who loses in this case?

• What does the judge

think of the folks in

Mincing Lane?

Questions

• Why did the Danish refuse to accept the nuts?

I think the Germans had something to do with it…Answer

Who loses?

-- The Indians: twice – they shipped the nuts, never got paid

Mincing Lane (nut experts)?

-- Bankers can’t be expected to know everything about nuts!

Answer