>>> My International Trade Experiences

Respected Directors……………………………………….., PIMR

Respected Dr. P.K. Gupta, Dean, PIMR_Department of Law, Adv. Dr. Ajinkaya Dagaonkar, PIMR Faculty Members, My dear young Prestigeans

Good Morning Friends,    

I am really happy to be here at PIMR Department of Law.

To be very honest it has been my dream project, ever since, I thought Prestige Group needs to have world class Law Institution.  Looking at your bright and eager faces, I am assured that the dream is now on its way to a tangible reality of being a world class Law Institution. Prestige is well known in the arena of Management Education, now also in Commerce, Engineering, Mass Communication and various other fields.  I am sure that Prestige’s commitment to quality education and overall academic environment will nurture and accomplished professionals.

Law is an area which offers huge potential and is the corner stone on which the Business and Industry, Trade and Commerce are sustained.

At the outset from the establishment of a new venture to say its winding up or where any differences of opinion occurs or any matter which needs to be addressed or taken to its logical conclusions, the issues are referred to any law body, arbitration panel, may it be a reconciliatory procedure or going to Court of Law.

HISTORICAL BACKGROUND PROFILE

Since 1977, that’s all most 40 years  I have been actively involved  in International Business which we have initiated for Prestige Group of Industries which has been front ranking Agri-Business Conglomerate from Central India.  At the young age of 19, I got involved in International Business. To say candidly,  I learnt the nuances of International Business initially by practice. I consider myself more as a practitioner rather than a Professor, in spite of my doctoral and post-doctoral degrees. With my active role in heading the Industrial and business activities, not only for our own group of Industries but also representing the whole Soyabean Sector of India in the capacity of the Chairman of the Soyabean Processors Association of India popularly known as SOPA and such other Apex bodies connected to Oil Industry and Trade at the Apex level, I have been involved in setting up of new systems for promoting the trade, particularly India’s International  Business on healthy and sound footings.

INVITED TO SHARE INTERNATIONAL EXPERIENCES

I have been requested to share some of my International business experiences with you today. And I would like to emphasize that there are always fine intricacies involved in negotiating and conducting the business at International level, which need to be dealt with great diligence.

Let me begin with the year 1977 when we had just started the first Prestige Enterprise. With experience and wisdom of the Founding Chairman of the Prestige Group, Dr. N.N. Jain. we could strike some Export deals at a very early age of our business.  Right In the year 1978, we got a break through with our exports to the Middle Eastern countries.  Later,  when we saw the East Asian economies begin to boom, we systematically created our foot prints and marks forging sound relationships with trading partners there.  We practically performed in every Asian region which I think has given us enormous knowledge and experience dealings with the culture, the demography and systems as prevalent differently from country to country, region to region.  With our innate interest we tried to understand the needs and requirements of the buyers in each country, their trading preferences and tried to develop models which culminated into tangible business and I would say, developing this into bigger volumes year after year.  In fact, the language is also one of the key elements to deal in every country so there is a need either to employ a local person who could look after our interests, communicate on day to day basis with customers and  service those markets very effectively because every day brings new opportunities and possibilities of Business. We also face competition emanating from various other countries and need to strategize to effectively clinch the business in our favour.

We  would often meet the top Industrial & Trade Houses in South East Asia, particularly those involved in Agri-Business so to promote and supply our own Prestige brand of Agricultural products and commodities.  Our company has always enjoyed the reputation for servicing the International buyers with quality products and fair trade practices which led to continuous growth of our own business year after year.

DEALING INTERNATIONALLY

Circa 1990 … that was yes the mid 90s… Let me take you through a specific export transaction encompassing the whole gamut of international business, i.e. the contract, execution, payment guarantee, Export documentation, Banking, logistics and  chartering of vessel, cargo carriage and delivery, eventual dispute, the legal aspect and complex negotiations involved in minimizing the losses and realizing the proceeds.

This is regarding a consignment of Soyabean Meal, which we shipped to Malaysia through a Singapore based trader and importer. 

The value of Contract was over 1 million US Dollar which in today’s exchange is around Rs. 7 Crores. But those years the value of a US Dollar was about Rs. 42.  The export order was contracted by an importer based in Singapore who had their counterpart manufacturing unit in Malaysia.  It was basically a Chinese Origin Company and as per the information gathered, their business set up as a manufacturing unit in Malaysia was not too old. After we received the order confirmation, the export contract was drawn up and signed by both the parties. We were the Sellers and the Singapore Company was the Buyer and the stipulation was that the shipment was to be sent to Malaysia.  Since the consignment was around 4000 tons, a vessel was required to be chartered to carry this Cargo.  As per the payment terms, a documentary Letter of Credit was to be established by the buyers in our favour through our Bank.  We received the Letter of Credit from a French Origin Bank based in Singapore and we prepared the goods, carried it to the Port of Shipment while we received the LC.  We found in their LC conditions that there are 3 Original Bills of Lading which is considered as the full set of Bills of Ladings. This is the principal document for delivery which is issued by the shipping company who receives the Cargo and carries on their nominated vessel for shipment.  As I mentioned it was a Chartered Vessel and there was a certain lack of understanding.  The UCPDC i.e. Uniform Customs and Practices for Documentary Credit is an Internationally released document and guidelines for Letters of  Credit opened by the International Bankers and issued based on the format approved by International Trade Body of Geneva.  Under UCPDC that format gets revised after several years after getting several practical issues faced during that period.  There are amendments carried out in that UCPDC and accordingly changes take place in Letter of Credits issued for International Business.

In those years we had actually contracted for Yellow Soyabean Meal. India also had Black Hull Soyabean Meal, while the other is Creamish to Yellowish color.  The documentary Letter of Credit stipulated One Bill of Lading to be sent directly to the receivers of the cargo.  Although this was a peculiar condition and we were not even told about it while entering into the contract.  But since it was backed as per Letter of Credit like a Guarantee for payment from an International Bank, we were under impression that even sending one original Bill of Lading directly to the Notify Party would not pose any problem in getting the payment released by the Bank, since it was drawn under their duly issued LC. This I would say was lack of our in-depth study of the procedure and also an error in not getting it vetted by a Senior Consultant. Since the Cargo was already at the port of shipment we had a very limited time available at our disposal for completing the shipping and documentation, we completed the necessary shipping formalities, loaded the Cargo on the nominated chartered vessel, got the Bills of Lading released and in terms of the stipulation we sent one original copy of Bill of Lading directly to the receiver of the cargo.  The other documents which were required to have complete set of documentation are the Invoice issued by Exporter (Shippers), Certificate of Origin, Certificate of Quality and Analysis, Certificate of Weight normally issued by the Internationally based surveyor company, Certificate of Origins issued by Chamber of Commerce and Industry.

Now we come to the interesting aspect…. The legal issues :

At one place in the Invoice copy instead of Yellow Soyabean Meal the words Red got typed erroneously which was not really the colour of the Cargo, but other Invoices showed it correctly as Yellow.  

As it was a Chartered vessel, it directly went to the destination (discharge) port in Malaysia.  But as the Trade and Contract was also governed by GAFTA (Grain and Feeds Trade Association) based in London. They have a standard Contract Format which stipulates that for any delayed shipment, there is penalty clause at 1.5%  of Cargo value for upto 8 days, to be allowed to the Buyer.  Any further delay thereafter is to be mutually settled between the parties or the buyer has an option to cancel the contract and claim the damages as per prevalent market prices.

But the buyer’s LCs do not stipulate any such thing and since there was slight delay in shipment we approached the buyers for the extension of shipping period which they carried out to allow us delayed shipment without any stipulation of such discounts and we were under the impression to negotiate the documents under LC without deduction of delay penalty amount.

Moreover, delayed penalties could be relaxed by the buyer as the price in the International market was rising so we thought buyers are considerate to give us 4 weeks extra time for shipping.  Well the shipment was effected.  The Cargo reached the destination and the documents reached the buyer’s bank who issued the LC. To our surprise, we received notification from the LC issuing bank that the buyer have not accepted the documents on the ground that it is not in conformity with LCs stipulated conditions and specifically pointed out that LC did not stipulate “Charter Party Bills of Lading acceptable”.  Despite it was clear understanding between the buyer and seller but the LC needs to have a condition precedent to be incorporated in LC which was actually not been asked or missing. It was a ‘Free Out’ delivery terms mentioned in the LC contract which means all delivery costs from the buyer account which are generally the conditions to any chartered shipments but the buyer very conveniently ignored and took an objection that the LC did not allow Chartered party Bills of Lading as accepted.

The other point was stipulated objection was regarding the Yellow and Red colour which was a typographic error, not having any bearing on the physical goods but in one of this invoice copies wrongly mentioned, which they have objected to and notified as discrepancy in the documents.

The third thing said that seller ought to have given allowances or the discounts on the delayed shipment as per the GAFTA contract has also not been provided and based on that the bank advised the negotiating bank in India and the exporter to deal directly with the buyers / receivers while rejecting the documents as the Bank has absolved themselves (the buyers and sellers to deal and decide outside LC purview) from the Guarantee under the Letter of Credit.

We approached the buyers through our local representatives in Singapore the buyers showed adamancy and we started getting to feel that the buyers wants hefty discounts from us from this consignments as they would hold the payments.

The Original Bills Lading were already released to them. They were also able to get the delivery of the consignment without making payment.

For all practical purposes the Cargo was out of our hand since it stands delivered and we remained unpaid for the whole consignment for over 1 million US Dollar.

Risky situation.- Dilemma when buyer are Adamant not releasing the payment and asking for heavy penalties and discounts practically taking us for ransom.

Since we have no way but to resolve this issue to go and find how to amicably achieve this by approaching the buyer with our General Manager and Local representatives in Singapore.

The issue regarding the Typographical error word ‘Red’ with delay penalties allowance as per original contract was accepted by us.  But the buyer had different intent, not clean and used unethical practice and ways since wanted to deduct almost 20% of the cargo value which in this case were 200,000 US Dollar i.e. almost Rs. 1 crore.

Market on rise on one side and out of pocket for Rs. 5 crores (The value of the consignment) and we were under full clutches of the buyer.  They showed their un-business like attitude.  Heavy pressure from Bankers on rejection of   LC documents and insistence to deposit the whole value of consignment.    

We were required to approach experienced Singapore Law firms in order to follow right course of action in such a complex situation.

INTERNATIONAL LAW AND BUSINESS

It was not a simple matter since Rs. 5 crores were at stake.  In today’s terms more than Rs. 7 crores.

I went to Singapore accompanying with my General Manager after consulting Indian Law Firms in New Delhi & Mumbai. Mumbai based Law firm helped to get legal assistances from a well renowned Singapore Law Firm.

It was not a common situation in International Business.

APPROACHED LAW FIRM IN SINGAPORE

Criminal act committed by buyers as advised by Delhi lawyers.  Mumbai Lawyers referred the matter to their counterpart lawyers in order to obtain legal assistance.

That was one of the International law firm in Singapore with more than 50 partners in the firm including advisers to the Prime Ministers of Singapore.

JUNIOR LAWYER PREPARED THE FILES AND BRIEF SYSTEMATICALLY AND CAME WITH ISSUES.

Meeting went on for 3 hours at Law firm, within 2 days of getting the papers by the law firm in Singapore, the preparation was done very systematically, documents flagged, indexing was done.  List of documents and correspondence put in working order so as to address the problem and find the plausible solutions.

We were questioned for lot of things, before the managing partner was briefed, Junior Lawyer summarized him of the important issues.  Once we thought that they are defenders counsel. They put us question after question, counter questions negating our all arguments preparing themselves to represent us in Court of Law effectively against the buyers.

We thought that we must first catch hold the Bankers, as they were the one who Guaranteed the payment under LC transaction and sending one bill of lading was complied with as condition.

Bankers cannot run away from their liability to pay for which they have issued letter of credit.

Lawyers remarked that Bankers deal with the documents and not with goods so based on the deficiencies pointed out, they were easily out of the contractual commitments / obligations for reimbursement under their LC.

LAW COURTS IN SINGAPORE

In Singapore Court of Law under the entire case is heard finally, the proceedings goes on continuously.  Continuous hearing goes on until the disposal of the case.  The party loses has to pay the entire cost of litigation also in Singapore.  Costs are also awarded, the party who scored.  It’s a Risk, if not proved the point, cost to be paid heavily.

Hence there is element of risk not to succeed based on documents, norms, regulations and prevalent laws.

Issues better to be solved amicably with the buyers directly as per practical Advice given by the Managing Partner of Singapore Law firm

Reach the buyer tomorrow with folded hands.

We reached the office of the buyer next morning before 8 O’clock and the office was not even open and we did not informed them in advance that we are in Singapore.

We put forth, be considerate, be sympathetic, we are here with folded hands and want to resolve the issue amicably and do not want to make a dispute out of it.

The deputed Manager from buyer’s side expressed that they require 200 thousand US Dollars discount otherwise he said we cannot help.  The port berth was vacant as per original delivery schedule and they suffered idling losses as per buyer.

The vessel has to wait at the destination port as the buyer was not ready to receive the cargo upon its arrival their port berth was occupied since some other cargo was getting discharged there.

So there was a delayed discharge of our vessel. The detention condition was there for delayed discharge at 4000 US Dollars per day.  With vessel’s waiting delay of 11 days, the demurrage accumulated to 100 thousand US Dollars.

Buyers now wanted hefty discounts of 300 thousand US Dollars in all.

After 2 hours negotiations, they came to 150 thousand dollars + vessels demurrage amount but we were not in a capacity to absorb such loss as sellers.

We kept on putting pleas and requests, the whole day.

We put a protest also not taking any food whole day even after requested by them.

Negotiations resumed after their lunch and finally, 100 thousand US Dollars + vessels demurrage amount at 1 O’clock.  They said accept it or leave it.

I still persuaded; Chinese New Year was around the corner even though my GM said that they are very tough to break.

As a young Entrepreneur I still requested them and said if you do not negotiate we both will lose our jobs in India.  I never disclosed that I am the owner of the company to them.

I conveyed the delay was not international and only at 6.30 PM,  I could finally get a break through.  I cannot bear more than 50,000 US Dollars with lots of persuasion deal was finalized by 7 PM at 50,000 US Dollars.

Arbitration clause was invoked by them as Chartered Party Shipping Company’s Agreement, International awards needs to be honoured otherwise the company is blacklisted, damages reputation also.

Shipping company filed demurrage and vessel’s detention recovery claim.  We took the shipping company’s claim for its settlement by ourselves as charterers of the vessel and given necessary discharge to the buyers for any such claim from them

Arbitration was appointed

We lodged our claim on the shipping company for all the damages incurred due to their lapse on effecting delivery of the cargo without collecting full set of bills of lading i.e. all three originals leading to buyer’s taking undue advantage  by rejecting our LC documents drawn under LC and making various unwarranted deductions on our invoices.

After 3 or 4 hearings both parties’ claims were contested before the arbitration panel.  Arbitration Award went in our favour as both parties withdrawn each other claims together.  They withdraw their 80,000 US Dollars demurrage claims and we withdraw our 145,000 US Dollars damages claimed to withdraw from the arbitration case  as mutually accepted by both parties.

The respective arbitration costs incurred were borne by each party by themselves.

CONCLUSION

No doubt technical education is important to groom as a law or management professional, but at the same time a bird’s eye-view is a must to ascertain and apply the knowledge to resolve the issue in hand, keeping in view the best interests of the client/business.

Formal education and its practical application are complementary and supplementary to each other. In this competitive and challenging world, a perfect mélange of the two is desired to carve you out as a competent professional. The business of law is to make sense of the confusion of what we call human life, to reduce it to order but at the same time to give it possibility, scope and dignity. 

Negotiation skills needs to be developed in resolving issues.

Legal procedures and processes are very important.