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Sales Contract

The formulation of a sales contract represents the conclusion of the negotiations between the seller and the buyer. Particular care should be taken regarding the preparation of the terms. It must be borne in mind the primary task is to sell the products at a profit and therefore, the contract should be able to fulfil this objective and be capable of being executed under reasonable circumstances.

Details of a sales contract may differ from country to country and product to product. Nevertheless a list of the recommended items to be contained in the contract is included for your reference:

1. The exporter's (seller's) registered name and address.

2. The importer's (buyer's) registered name and address.

3. A short title of each party quoted in (1) and (2).

4. Purpose of the contract. For example, it should confirm the specified merchandise is sold by the party in (1) to the addressee in (2), and the goods the latter has bought according to the terms and conditions laid down in the contract.

5. The number and quantity of goods precisely and fully described to avoid later misunderstanding or dispute. In particular, one must mention details of any batches and reconcile goods description with custom tariff specification.

6. Price. This may be quoted in any currency depending on its general stability or some other currency which is not likely to vary in value significantly throughout the contract duration, such as US dollar. To counter inflation, it is usual to incorporate an escalation clause, and to reduce the risk of the quoted currency fluctuation implications.

7. Term of delivery, refer to Incoterms compiled by the International Chamber of Commerce.

8. Term of payment, eg. open account, cash with order, letter of credit or documents against payment or acceptance.

9. Delivery date / shipment date or period. The exporter should check with his production department whether the delivery date quoted is realistic and the shipping or airfreight space will be available on the date or period specified. The exporter's obligations regarding the latter will depend on the terms of delivery.

10. Method of shipment, eg. container, cargo wagon, Ro/Ro or air freight. An increasing volume of trade is now conveyed under combined transport operation arrangements.

11. Method of packing. It is desirable both parties are fully aware and agree on the packing specification to ensure no dispute later arises regarding packing or any variation to it.

12. Cargo insurance policy or certificate terms.

13. Import or export licence details or other instructions. The period of their validity must be reconciled with the terms of payment and delivery date / shipment date or period.

14. Shipping / freight / documentary requirements and / or instructions, which includes marking of cargo.

15. Contract conditions, eg. sale, delivery, performance (quality) of goods, arbitration, etc. With regard to arbitration, this tends to speed settlement of any disputes without costly litigation.

16. Signature. Both parties to sign the contract by a responsible person at director or managerial level, and the date recorded.

17. Arbitration clause, (if applicable) model clauses recommended by the Hong Kong International Arbitration Centre:

a. "Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force and as may be amended by the rest of this clause."

b. "The appointing authority shall be the Hong Kong International Arbitration Centre."

c. "The place of arbitration shall be in Hong Kong at Hong Kong International Arbitration Centre (HKIAC)."

d. "Any such arbitration shall be administered by the HKIAC in accordance with its 'Procedures for Arbitration' in force at the date of this contract including such additions to the UNCITRAL Arbitration Rules as are therein contained."

e. "The language(s) to be used in the arbitral proceedings shall be ___________."

Obviously the terms of the export sales contract will vary by circumstance but other areas which may include agency involvement, after-sales activities such as availability / supply of spares, product servicing, training, advertising / promotion cost and so on.

A copy of the contract should be retained by each party. On these days, an increasing volume of business is conducted on the basis that the export invoice contains the contractual terms. It is also important that such a document must be carefully compiled to reflect the terms of the original quotation to the buyer and the importer's acceptance.

Content provided by Picture: HKTDC Research