Kansainväliset sopimukset Luento 5 Case 5 Matti Rudanko

(Optimization of contract terms by means of business economics) Lecture 5: Slides Slide sets: 4, 9 (Optimization of contract terms by means of business economics) Kansainväliset sopimukset luento 5

Case: Economic Optimization of Contract Task: 1. International Dimension: Choice of Law 2. Damages Liabilities in Sales Contracts 3. Optimization of Contract 4. Bounded Rationality (i.a. Risk Aversion) of Parties Kansainväliset sopimukset luento 5

Other Material and Further Reading Cooter, Robert – Ulen, Thomas: Law and Economics (1996 or later ed.) Polinski, A. Mitchell: An Introduction to Law and Economics (1989 or later ed.) Posner, Richard A.: Economic Analysis of Law (1992 or later ed.) Please make use of your knowledge of IB, Accounting, Finance, Logistics, and other business economic or legal know how Kansainväliset sopimukset luento 5

Possible Tasks and Questions Please account for the: 1. International Dimension: Choice of Law 2. Damages Liabilities in Sales Contracts 3. Optimization of Contract view (Law and Economics and Contract Law views) Forward Agreement as Means of Risk Management Bounded Rationality, Especially Risk Aversion of Parties Kansainväliset sopimukset luento 5

Topics and Issues Price Risks in International Contracts Price formation systems (fixed price contracts, unit price / cost plus fixed fee / target price) Price risk division Price / Payment Risk Management Price terms Payment terms Security systems Forward Agreement (Hedging) Liability limitations, liquidated damages Optimization of contract Optimization of Contract Law and Economics Risk aversion and other types of bounded rationality Kansainväliset sopimukset luento 5

Specification of Price, ICC Model International Sale Contract “Art 4 Price 4.1 If no price has been agreed, the Seller's current list price at the time of the conclusion of the Contract shall apply. In the absence of such a current list price, the price generally charged for such goods at the time of the conclusion of the Contract shall apply. 4.2 Unless otherwise agreed in writing, the price does not include VAT, and is not subject to price adjustment. 4.3 The price indicated under A-2 (contract price) includes any costs which are at the Seller's charge according to this Contract However, should the Seller bear any costs which, according to this Contract, are for the Buyer's account (e.g. for transportation or insurance under EXW or FCA), such sums shall not be considered as having been included in the price under A-2 and shall be reimbursed by the Buyer.” Kansainväliset sopimukset luento 5

Payment and Other Risks ICC A-7 and A-8, B-5 risks: Credit risk Financing risk Country specific risk Payment risks Delay Banking Currency Mode of payment Kansainväliset sopimukset luento 5

Price Systems and Control of Payment Risks Fixed / floating price unit price cost plus fixed fee target price Management of payment risks Terms of payment Mode of payment Place and time of payment Delay and sanctions for it Payment systems E.g.cheque, payment order, letter of credit Security (collateral) systems E.g. bank guarantee, credit insurance Kansainväliset sopimukset luento 5

Maksuehdot riskienhallinnassa Art. 6 Interest in case of delayed payment 6.1 If a party does not pay a sum of money when it falls due the other party is entitled to interest upon that sum from the time when payment is due to the time of payment. 6.2 Unless otherwise agreed, the rate of interest shall be 2% above the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment. Kansainväliset sopimukset luento 5