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BRINGING A LAWSUIT IS NOT ALWAYS A GOOD SOLUTION

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Mr. Old Man exchanging views with Frammi on legal action
www.letterofcreditforum.com

Bringing a lawsuit is not always a good solution

Dear Frammi,

I see no way to object to your reasoning. However, I wish to point out a fact that traders in developing countries like ours prefer to settling their disputes by amicable negotiation to bringing to courts. For these traders, bringing a lawsuit against their counterpart is a time and money waste but the probability of winning the case is low as they and even their lawyers do not know well the legal system and legal proceedings of their counterpart’s country whereas they do not want to pay for the foreign lawyer costs which are too high.

As a banker, I often hear this or that customer of my bank complaining that he has lost a considerable amount of profit due to the exporter’s failure to fulfil his shipment obligation under LC or contract but in most of the times I have not heard that he would take legal action against the exporter to recover the loss.

I just tell you what I have heard, seen and even touched in my daily work. Please understand that I never encourage any exporters, whether they are Vietnamese or my bank’s customers, to stop shipment when the prices jump high.

Last but not least, you always have a good tag for each of your comment. I agree with you that evil thoughts like boomerangs – they come back someday.

Best regards,
Nguyen Huu Duc

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Frammi's original view
Legal Action as Ultima Ratio!

Dear Huu Duc,

I have confidence in the Australian Justice and think that a delivery of 10 FCL Containers is always worth considering a lawsuit.

I think we both agree that if the price had dropped, the beneficiary would have insisted on payment of the full amount.

In a contract, there is always the possiblity to agree prices according to spot prices for raw materials or based on an index. However, under such conditions an opening of letter of credit will somehow be a bit more complicated or just covering a substantial amount, leaving the rest to be settled outside the credit.

You wrote
>In foreign trade, the fact that the exporter tries to avoid its shipment obligation by asking for amendments to the credit when the prices rise high is quite normal.>
I agree, depending on the country the exporter stems from, that there are some countries where this is truth and I would not wage or might even not be able to enter legal proceedings against the exporter, because foreigners are simply not allowed to sue someone in those countries.
But there are many cases in which the odds to win a lawsuit are quite good, provided the contract doesn't bear any unexpected clauses. I strongly feel that Australia as well as Northern Europe are such places.
Furthermore, in many cases, you don't have to complete the legal way, but those (nasty) exporters do comply to their duties as soon as a lawyer sends the first letters, threatening to enter legal proceedings.
Generally speaking I can't find breaching a contract is 'normal', but it is a crime like stealing or demolishing your neighbour's car. A deal is a deal! By fleeing from the contract, the exporter causes damage to his partner, because he relies on the delivery. The exporter even blocks the importer's credit lines so he might not be able to purchase the goods somewhere else and/or be forced to pay delay fines/penalties for non/late delivery. Furthermore the importer might lose customers he could not satisfy with a timely delivery.

Whoever did this to me, would be blacklisted in my mind, and I would tell it all around. At the long end, the breach might not pay out.

Given it was not an Australian exporter, but a Vietnamese – maybe a client of your bank, you do not know too well. What would you think about your client's behaviour? Would this have a positive or negative effect on your next credit decision, especially if it happens several times with several importers? Wouldn't you fear, he might try to escape from his credit contract in the same way he fled from his other contractual obligations?

-Evil thoughts are like boomerangs – they come back some day-

Best regards
Frammi …

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