The Pakistani-Vietnamese negotiations during Covid-19

by Chanan Hertzberger, IA Group

Early February 2020, a Pakistani trading company purchased a container load of polyester polo shirts from a Vietnamese seller, the subsidiary of a large Chinese manufacturer. These trendy shirts were shipped and delivered to the port of Karachi.

The sales contract provided that the shirts were supposed to be delivered by February 29, 2020. However, they arrived in early April as the world grappled with the Covid-19 pandemic.

The Pakistani buyer defaulted payment, complaining that their customers did not get the shirts in time due to shipment delays. They stressed that time was of the essence in their commitments to their customers.

As the government lockdown ensued, the situation became even more complex. The release of shipments at the port and transportation within the country were heavily restricted. To make matters worse, the demurrage fees already reached USD 10,000 and were increasing by the day. The buyer continued to refuse payment of the demurrage fees due to the late delivery of the goods.

The seller’s export credit insurer commissioned IA to step in and facilitate the recovery of the defaulted payment and release of the goods. IA’s local lawyer in Pakistan approached the buyer, negotiating in the local language for a settlement offer. The creditor considered the late arrival of the goods, the running demurrage and port fees, and the difficulty of releasing the goods amidst ongoing transport restrictions.

IA recommended the seller to consider awarding a discount of 35% to the buyer. This discount was initially deemed unreasonable by the seller. However, as the IA counsel pointed out, the challenging times and the economic difficulties corporate buyers and sellers alike during Covid-19 faced, was something to be reckoned with. In the end, the discounted settlement amount was readily accepted by both the seller and his credit insurer. The buyer promptly paid the settlement amount, and the seller’s bank released the documents. After paying the demurrage fees, the debtor was able to pick up the large shipment of polo shirts.