Flexibility versus certainty: on classical contract formation and modern methods of trading

Hjalmarsson, Johanna and Wu, Keren (2016) Flexibility versus certainty: on classical contract formation and modern methods of trading. In, Hjalmarsson, Johanna and Zhang, Jingbo (eds.) Maritime Law in China: Evolving Issues and Future Developments. (Contemporary Commercial Law) Abingdon, GB. Routledge, pp. 181-199.

Abstract

This chapter considers the approach of Chinese law to modern forms of contract making, exploring what systemic risks might arise from the current system of law. Our chosen example is the spot markets – contracts not least for the sale of commodities made between parties who are likely to be doing business with each other for the first time and who operate in a well-established and fast-trading market. Once the contract is made, the parties must take such risky actions as to charter a ship for thousands of dollars in daily rates, deliver the goods onto an unknown ship or arrange for on-sale of the goods. If there is uncertainty as to the status of the contract, or as to the complete, legally enforceable terms thereof, the parties incur risks arising from the law, rather from the transaction itself. Such risks may be capable of mitigation or dilution, not least by onward sales, and may therefore lie dormant. The risks will materialise where there is a precipitous drop in the market or an export ban, causing one of the parties to find that it would have been better off by not concluding the contract, and to look for ways to escape enforcement thereof. While the vast majority of trades are resolved by resorting to insurance cover, dilution of losses by spreading, writing off or even insolvency, others will end up in dispute resolution or court with one party defending the claim on the basis that the bargain that both parties thought themselves bound by never existed in the first place. This chapter seeks to define those risks in relation to Chinese law and identify the potential pitfalls inherent in the current position

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Contributors

Author: Johanna Hjalmarsson

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