Letter of Credit Forum

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Hello Morshed,

Well there are three seperate issues here;

Was there actually contract between the parties?

I realise – or think I do – that you feel there was, but was there? Was the pro-forma an offer to do business or an only an advert? Was it time-sensitive and did the buyer not respond in time? Did it require written acceptance and was the acceptance forthcoming? Perhaps the buyer did not open up the credit as per the seller’s requirements and the seller feels the contract was void as a consequence of this omission or something along those lines. Maybe the seller's new price could be seen as a counter-offer and the negotiation as being still fresh...There is a lot to this issue – determining if you have a claim for breach begins by determining if a contract exists to be breached in the first place. Contracts are the actions or intentions of parties, not the paper – which merely evidences the parties’ intentions to act: but clearly, the written contract would be a handy thing to have in dispute resolution, such as you are now faced with. With no written record of the agreement to contract, you end up having, as I said, to prove the existence of a contract first, before you could contemplate damages.

The second point is – if we could prove the contract – what damages would you be entitled to? The UNCISG sets down a specific formula for loss and damages based on percentages of the contract value over a time-period for performance. They are not mandatory clauses, but in the absence of a written agreement laying down a formula, they are often used a guides, particularly if either or both parties are in countries who have ratified the UNCISG.

The third issue – and by far and away the most important point – is: if we assume the buyer has a claim for breach and further if we assume we can calculate what this claim amounts to materially, then; what could the buyer do to recover this amount? Sadly, the tyranny of distance means that the buyer can often not afford to pursue a claim in a foreign jurisdiction and defaults and breach such as you have described, become written-off by the aggrieved party as “experience”.

As Abrar has mentioned, there are means of securing performance through various bank instruments – but the credit is not one of these. The ultimate penalty for a beneficiary who fails to perform is that they do not get paid – but this is perhaps no compensation for the buyer who has consequences greater than the value of the goods to contemplate should the seller not perform.

This is perhaps not the reply you want, but it is most probably the correct reply none-the-less.

phill doran

"...in armour bright, the merchant men..."