Role of Documents in International Business Sales Transactions

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Title: Role of Documents in International Business Sales Transactions
Author: Pirtilä, Jenna
Other contributor: Helsingin yliopisto, Oikeustieteellinen tiedekunta
University of Helsinki, Faculty of Law
Helsingfors universitet, Juridiska fakulteten
Publisher: Helsingfors universitet
Date: 2017
Language: eng
Thesis level: master's thesis
Discipline: Kauppaoikeus
Commercial law
Abstract: When goods are sold internationally, it is common that the seller receives the purchase price against documents. In many cases, the buyer does not have a chance to examine the goods before the seller obtains payment. Therefore, the buyer must rely on the accuracy of the information contained in the documents. The objective of the thesis is to discuss the risks that are related to the purchase price being paid against the documents. Furthermore, the thesis analyses what additional roles documents play in the contract of sale and contracts supplementing it. The main focus is on the bill of lading, which is a sea transportation document issued by the carrier, because it enables, for example, the goods to be sold during transit. A documentary credit is a commonly used method of payment. In order for the seller to obtain the purchase price, the seller must deliver conforming documents to the bank. This creates a documentary risk, meaning that there is a risk that documents provided by the seller might not be in accordance with the terms of the letter of credit. If this happens the bank must refuse payment. From the buyer’s perspective, there is a risk that the documents do not communicate accurately the status of the goods on loading. The description of the goods in the bill of lading is subject to the carrier’s obligation to check the quantity, quality, and condition of the goods. In practice, the carrier’s obligation to check is limited in particular when goods are containerised. Therefore, the information cannot be entirely reliable. Moreover, the carrier is not able to assess whether the goods are in accordance with the contract of sale because he is not an expert surveyor and not aware of the terms of the sale contract. According to the Finnish Maritime Code, the carrier is liable for inaccurate information in some situations which enhances the transferability of the document. The research illustrates that the system seeks to ensure that the documents are accurate. However, is not without gaps and thus, there is a risk that the seller obtains the payment even when the goods are not in accordance with the agreement between the seller and the buyer. Moreover, the system has not been constructed in a way which would easily detect the seller’s fraud. This is because the banks that examine the documents supplied by the seller adopt a formalistic approach which does not seek to assess the actual condition of the goods, rather it is based on the assumption that their description is sufficient. The bill of lading is also a tool needed in the delivery of the goods. Goods might arrive before the documents which certainly increases the likeliness of the carrier delivering the goods to the wrong party without complying with the rules on delivery as stipulated in the Finnish Maritime Code. The industry has developed arrangements to mitigate the risks related to delivery without a bill of lading which shows that the document is not able to meet the needs of today’s trade.

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