September 9, 2011
WSJ on Global Business Norms and "Contracting" in China
The concept of contract law is often novel in developing economies, especially communist or formerly communist ones. Sparked by a dispute between Cosco, China's biggest state-owned shipping company, and foreign ship owners, the WSJ has an interesting discussion of business norms in China and a "Chinese corporate sector that doesn't always play by established global rules."
Apparently, Cosco has halted or delayed payments for vessels it leased in 2008, at the height of the shipping boom. Prices for these cargo ships have plunged since then. Naturally, Cosco wants to renegotiate these leases, but unilaterally reneging the contracts defies established global business norms.
The article explains:
Foreign companies that do business in China are routinely warned that contracts aren't viewed in China with the same sort of legal sanctity that they receive in most developed economies. Jingzhou Tao, a Beijing-based lawyer with Dechert LLP, says that withholding payments is a frequent tactic used in China to force price negotiations. "A contract is not an unchangeable bible for Chinese companies," Mr. Tao said.
* * *
Analysts and lawyers say big Chinese state-owned companies can be especially aggressive in dealing with foreign companies because of their government backing and the enormous clout they wield within China in industries that are often oligopolies.
"State-owned enterprises that are dominant in their own sector and in some cases more powerful than government departments are used to having things their way," said Lester Ross, a Beijing-based partner at law firm WilmerHale. Mr. Ross said that Chinese companies in the minerals and cotton industries have a history of walking away from deals when prices move against them, and that foreign companies sometimes charge a premium for services to Chinese government companies because of the contract risks.
"These companies are only partly companies. They are also political entities," said Carl Walter, a former Beijing-based banker for J.P. Morgan Chase & Co. who has co-authored two books about China's state-owned enterprises. That means political imperatives, such as concerns over the value of national assets, can sometimes drive decisions by company chief executives, who at Chinese state-owned enterprises are appointed by the Communist Party. "When you do business with these major SOEs, you better make sure you make enough money to cover," Mr. Walter said.
Arthur Bowring, managing director of the Hong Kong Shipowners Association, argues that while Cosco's moves are worrisome for the industry, they won't likely be that damaging to the company long term. He adds that in late 2008, Australian iron-ore producer Fortescue Metals Group Ltd. backed out of its obligations under some shipping contracts. After a period of arbitration, the company said in October that it had settled all disputes with shipping companies.
"People are now doing business with [Fortescue Chairman] Andrew Forrest again...and it's almost like it never happened," Mr. Bowring said.
Mr. Bowring said Cosco, which has been operating internationally for decades, is too experienced to think that it can apply Chinese rules to overseas deals. Still, he said that company relationships are viewed differently in China than in many other places. "Chinese culture will build a relationship before the contract," he said. "The relationship is always something that can be talked about. The contract is just a set of papers that you keep in your bottom drawer."
[Meredith R. Miller]
September 7, 2011
New in Print
Robert A. Caplen, Turning Esch to Dust? The State of Supplementation of the Administrative Record in Bid Protests before the Court of Federal Claims, 12 Whittier L. Rev. 197 (2011)
Michael H. LeRoy, The New Wages of War--Devaluing Death and Injury: Conceptualizing Euty and Employment in Combat Zones, 22 Stan. L. & Pol'y Rev. 217 (2011)
Henry Schneider, Moral Hazard in Leasing Contracts: Evidence from the New York City Taxi Industry,. 53 J.L. & Econ. 783 (2010)
Andrew A. Schwartz, Consumer Contract Exchanges and the Problem of Adhesion, 28 Yale J. on Reg. 313 (2011)
Marina Tsikun and Kuei-Jung Ni, Using Licensing Contracts to Protect Holders of Traditional Knowledge Related to Genetic Resources -- a Reflection on ICGB Projects, 42 IIC: Int'l Rev. Intell. Prop. & Competition L. 299 (2011)
September 6, 2011
The Contracts Behind the CSA: Just Food on Supporting Farms and Shared Risk
Hurricane Irene was not as destructive as predicted for New York City. It did, however, unleash extensive devastation in upstate New York and many farms were severely flooded. In line with an FDA ruling, the New York State Department of Agriculture & Markets has issued a blanket recommendation prohibiting the sale of any crops exposed to flood waters, declaring that food unfit for human consumption.
As a result, the farm that supplies my CSA share (pictured before the flood) was put out of business for the season. I am out my money, but I have tremendous sympathy for the farmers. I am reminded that the CSA is made possible by contracts, which allocate risks from farmer to consumer.
A recent CSA newsletter from Just Food was forwarded to me, and it reflects poingnantly on shared risk:
In New York City Hurricane Irene was much less severe than projected, however, the same cannot be said for many areas in upstate New York, New Jersey, Vermont, and throughout the Northeast. While not all of our CSA farmers were severely affected, others sustained tremendous damage. All week we have been soberly witnessing images of farms under feet of water, hearing stories of farmers who are still unsure of the severity of the damage to their fields, helping farmers think through their next steps and beginning to have what I'm sure will be the first of many conversations with NYC CSA members.
Community Supported Agriculture is a partnership- a mutually beneficial long term relationship between farmers and their members. Shared risk is a concept that is included in every description of CSA and in every membership agreement form. In most years, sharing risk means that a few of the crops that a farmer originally plants and plans to include in shares don't make it in. Occasionally it means a late start to the season due to a wet spring. In 2009, sharing the risk meant few or no tomatoes as most New York farmers were hit with tomato blight. But mostly we don't notice our risk as our shares are supplemented with the bounty of the other 100 varieties of vegetables that CSA farmers have planted.
But the concept of shared risk is very real, and in the wake of Irene we are all reminded of this. No matter how skilled a farmer is, no matter how hard she works, no matter how well he's planned, there was nothing they could have done to prevent the severe flooding. Farmers continue to wait for flood waters to recede so that they can determine the full extent of the damage.
In addition, area farmers received notice from the FDA yesterday that crops covered in flood waters should not be sold for human or animal consumption. While affected farmers are struggling to ensure that they have safe food to provide to their members, yesterday's FDA ruling will likely make it even harder for farms to recover.
Unfortunately, this all comes at the worst time of the season. Money has already been invested in crops that now cannot be harvested, and it is now too late in the season to replant many crops. When bad weather strikes in the spring, farmers have time to replant and recover. This late in the season there simply aren't enough days to start over for many crops, particularly for slower growing winter crops: for instance, winter squash takes 100 days from seed to harvest, potatoes take from 70 to 120 days, turnips 60 days, onions 80 to 150 days. Unfortunately, at this point in the season, there just isn't that much time left.
In addition, CSA farms often don't have crop insurance. Crop insurance is tied to a particular crop, rather than the farm as a whole, and as a result, is better geared for farms that grow large amounts of fewer crop varieties. For this reason, it's very difficult for CSA farmers--who grow 100-150 different crop varieties--to value their crops in order to apply for crop insurance. For CSA farms who do have crop insurance, the insurance doesn't come close to covering their losses, the claims process is incredibly complicated, and reimbursement can take months.
These losses are devastating, but CSA farmers are not just throwing up their hands and walking away. At the same time they greatly appreciate the support that CSA provides, they also feel a tremendous sense of responsibility to their members. As we speak, farmers and their crews are diving in and working hard to assess the damage, begin clean up, and make repairs to fences and barns to make the farm ready and viable for next season. They're also looking at their fields-those that aren't still under water-to figure out how, or even if it's possible, to make the best of the remaining season for their members.
Many CSA core groups and members have reached out to Just Food to find out what they can do to help their farmers. As CSA members, you have already provided stability and support for your farms. Hurricane Irene is an all-too-real example of the kind of weather disaster that can put small family farms out of business. CSA is a vital partnership that can allow farms instead to survive, to return next season and provide the usual bounty to its members.
What your CSA farmers need the most now are your patience and understanding, as well as your commitment to their farm over the long haul.
This reflection is about farms and risks, but it is fundamentally about the contracts that make the CSA possible.
[Meredith R. Miller]
The Business Lawyer Seeks Editors
The Business Lawyer (TBL) plans to appoint at least one additional editor beginning with Volume 67. The responsibilities of an editor will be to:
(ii) ensure that each statement of fact has an accurate citation that supports it;
(iii) conform all citations to the Blue Book; and
(iv) make sure that manuscripts satisfy TBL Author Guidelines.
Over the course of a volume, each editor should expect to work on a combination of articles, reports, and surveys that are published in TBL.
Since Volume 64, Professor Gregory Duhl of the William Mitchell College of Law has been responsible for all style editing, cite-checking, and Blue-Booking of TBL. Professor Duhl is the current Associate Editor-in-Chief, and the editors would work in collaboration with him, the Editor-in-Chief, who rotates yearly, and the Production Manager, Diane Babal, to ensure that TBL maintains its high quality and timeliness. The editors would also work closely with the Associate Editor-in-Chief to update the TBL Author Guidelines to maintain consistency in the journal.
TBL seeks editors from all business law disciplines, who have experience editing an academic publication, a keen attention to detail, and an ability to meet deadlines. Each editor would receive an honorarium upon completion of his or her work for that issue. If interested in this position, please e-mail a resume to Diane Babal, at Diane.Babal@americanbar.org. Any questions about the position can be addressed to Professor Duhl at Gregory.firstname.lastname@example.org.
Weekly Top Tens from the Social Science Research Network
September 5, 2011
Law of Obligations Conference at the University of Western Ontario
Sixth Biennial Conference on the Law of Obligations:
Hosted by The Faculty of Law at the University of Western Ontario
London, Ontario, Canada
July 17-20, 2012
The Faculty of Law at the University of Western Ontario is pleased to be hosting the Sixth Biennial Conference on the Law of Obligations. The conference will bring together leading scholars in tort, contract, equity and unjust enrichment from throughout the common law world.
The theme of the conference is "Challenging Orthodoxy." We have prepared an academic program of over 60 speakers in which professors, graduate students and eminent practitioners will challenge established common law rules and suggest new approaches to both old and emerging problems. The plenary speakers are Chief Justice Beverley McLachlin and Justice Thomas Cromwell (Supreme Court of Canada), Melvin Eisenberg (Berkeley), John Goldberg (Harvard), Andrew Robertson (Melbourne), Ernest Weinrib (Toronto), Richard Wright (Chicago-Kent), and Ben Zipursky (Fordham).
The Obligations Conference originated at the University of Melbourne in 2002, and has since become one of the leading private law conferences in the common law world. The biennial conferences have been held at the University of Melbourne, the University of Queensland, the National University of Singapore and the University of Oxford.
For more information on the Conference and to register please visit: http://www.law.uwo.ca/Conferences/Obligations6/index.html.