Consignment Agreements

Prepared By: Robert Auerbach Email: robert@auerbach.co.nz Website: www.marketnewzealand.com/auerbach Consignment agreement checklist Disclaimer: These checklists are provided for information purposes only and are no substitute for professional advice, which should be sought prior to entering into any transaction. New Zealand Trade and Enterprise (NZTE) has not verified these checklists and makes no representations as to the completeness, correctness, currency, accuracy or fitness for purpose of the information, or the person that prepared the information. Accordingly, NZTE will not be responsible for any damage or loss suffered by any person arising from the information whether that damage or loss arises from negligence or otherwise. This document is one of a series of free information tools for exporters to assist businesses through every stage of the export process. Consignment agreement Checklist April 2006 For the protection of Robert Auerbach's clients, all names in this document are fictitious. Any resemblance to actual people or companies is purely coincidental. For information or advice, visit www.marketnewzealand.com, ring NZTE on 0800 555 888 or contact your Client Manager. 1 contents abstract ................................................................................ 3 1. definitions ........................................................................ 4 2. details about the consignee........................................... 4 3. due diligence about the consignee ............................... 4 4. purpose of the consignment agreement....................... 5 5. the consignment stock ................................................... 5 6. storage considerations................................................... 5 7. distinguishing consignment stock from other stock .. 6 8. insurance considerations............................................... 6 9. risk of loss or damage .................................................... 7 10. security........................................................................... 7 11. the consignee’s agent .................................................. 8 12. the consignor’s agent ................................................... 8 13. record keeping and reporting requirements .............. 8 14. physical stock takes ..................................................... 9 15. consignment stock management ................................ 9 16. the draw down procedure .......................................... 10 17. the replenishment procedure..................................... 10 18. the price of the consignment stock........................... 11 19. the payment terms ...................................................... 11 20. audit and inspection rights ........................................ 12 21. removal rights.............................................................. 12 22. reducing the potential for mischief and abuse of the consignment relationship by the consignee ......................................... 13 23. assignment .................................................................. 13 24. term of consignment agreement ............................... 13 25. compliance with local law .......................................... 14 26. alternative dispute resolution procedure ................. 14 27. arbitration..................................................................... 14 28. other conditions .......................................................... 15 Consignment agreement Checklist April 2006 2 abstract Lawyers hate consignment agreements... and for good reason. Their clients who sell on consignment are exposing themselves to significant credit risks. If an exporter sells on consignment, it usually means one of two things: (1) Their customer is unsure whether they really want the goods in the first place; or (2) Their customer does not have the money to pay for the goods. Perhaps this is a gross over simplification. But experience has borne out the risky nature of consignment agreements. Having said that, one must be realistic. A consignment agreement may be the price an exporter must pay to gain distribution of their products. The exporter may be so confident that the only way to convince a doubtful customer is to give them the goods and let the goods sell themselves. However, the exporter may condition the consignment arrangement upon a strong promotional effort by the customer. Often, a consignment agreement is the only means of getting a customer to carry 'buffer stock' during the slack season. 'Out of stock' situations can not only result in lost sales but they can damage an exporter's goodwill. Unfortunately, all too often a consignment agreement leaves the exporter open to exploitation. The exploitation may border on the criminal if the customer receives goods that they never intend to pay for or return. Short of criminal culpability, there are many ways for a customer to abuse the consignment relationship. For example, the customer may not have the same incentive to aggressively market goods consigned to them as they would if they had bought the goods for their own account and risk. The customer may use the benefits of the consigned goods (i.e. free goods) to load up on another supplier's goods. In other words, another supplier reaps all the benefits from the financial leverage afforded by the exporter who sells on consignment. The good news is that all areas of potential mischief can be prevented provided the exporter can anticipate them. The bad news is that most exporters have little or no experience with consignment arrangements. Consequently, they do not anticipate the problems that could arise. The consignment agreement checklist will help an exporter consider all issues concerning a consignment relationship. It will guide the exporter through the landmines associated with these type of deals. The consignment agreement checklist covers the following issues, among others: • Distinguishing consignment stock from other stock. • Storage and insurance considerations. • Risk of loss or damage. • Security for consignment stock. • Record keeping and reporting requirements. • Physical stock takes. • The draw down procedure. • The replenishment procedure. • The payment terms. • Audit and inspection rights. • Termination of the arrangement and removal rights. Consignment agreement Checklist April 2006 3 To sum up, if at all possible, exporters should avoid consignment relationships like the plague. If an exporter must consider a consignment relationship, you will certainly know what you are getting into after reading this checklist. 1. definitions 1.1. “Consignee” refers to the customer who receives the Consignment Stock subject to the terms of the Consignment Agreement. 1.2. “Consignment Agreement” refers to the agreement that should be drawn up on the basis of the information covered in this Checklist. 1.3. “Consignment Stock” refers to the manufacturer’s products that are the subject of the Consignment Agreement. 1.4. “Consignor” refers to the manufacturer whose products are the subject of the Consignment Agreement. 2. details about the consignee 2.1. Provide full details about the Consignee including name, address, telephone, fax and contact person. 3. due diligence about the consignee 3.1. If the Consignee is a new customer, there are various types of “corporate intelligence” that you should consider: 3.1.1. Financial statements. 3.1.2. Credit check (eg. Dun and Bradstreet). See the Auerbach standard credit application at www.marketnewzealand.com/auerbach. 3.1.3. Lien search. 3.1.4. Bank references. 3.1.5. Trade references. 3.1.6. History of the company. 3.1.7. Background of its management. 3.2. Has the Consignee ever entered into a Consignment Agreement before? 3.2.1. If so, get the contact details for any other Consignors with whom the Consignee has previously dealt. Consignment agreement Checklist April 2006 4 4. purpose of the consignment agreement 4.1. Different legal and commercial considerations flow from the purpose of the agreement. The following examples are provided for purposes of illustration: 4.1.1. Is the purpose of the Consignment Agreement to provide a quantity of “buffer stock” to smooth out seasonal fluctuations in demand and to avoid “out of stock” situations? 4.1.2. Is the purpose to provide your customer with an inventory financing facility? 4.2. Describe the purpose of this Consignment Agreement. 4.2.1. Who has initiated the need for this agreement, you or your customer? 4.2.2. Why do you need a Consignment Agreement? 4.2.3. Are there any other means of achieving the parties’ objectives short of a consignment arrangement with all its legal and commercial risks? 4.2.4. Can you make less drastic alterations to conventional terms and thereby avoid the need for a consignment arrangement? (e.g. You may offer more generous credit terms, a more generous returns policy, allowances for slow moving stock, incentives to buy sufficient stock for a balanced inventory, storage of the goods in a public warehouse in the Consignor’s name or perhaps a “garden variety” agency relationship.) 4.3. Often, the terms of a Consignment Agreement are part of a more comprehensive arrangement relating to the distribution of the Consignor’s products by the Consignee. You may also wish to cover such issues as exclusivity, territory, performance criteria, after sales service, promotional strategy, warranty, etc. 4.3.1. In such a case, please refer to the Auerbach Distribution Agreement Checklist on www.marketnewzealand.com/auerbach. 5. the consignment stock 5.1. Your agreement should include a detailed schedule of the Consignment Stock. 5.1.1. Your schedule should include as much detail as possible given the nature of the goods. (i.e. Factory codes, serial numbers, lot numbers, model and style numbers, etc.) 5.2. Indicate whether this is a “one off” transaction or whether you intend to replenish the Consignment Stock as the Consignee sells it. 6. storage considerations Consignment agreement Checklist April 2006 6.1. In a typical Consignment Agreement, the Consignee will store and insure the Consignment Stock at the Consignee’s expense. 6.1.1. Is that true in this case? If not, you need to indicate any differences in your arrangements with the Consignee. 5 6.2. Since you, the Consignor, own the Consignment Stock, you will want to ensure that the Consignee provides adequate storage facilities. 6.2.1. Have you inspected the Consignee’s storage facility? 6.3. Will the Consignee segregate the Consignment Stock from its other stock? If so, what means of segregation will the Consignee employ? 6.3.1. Cordoning off. 6.3.2. Signs. 6.3.3. Separate room with lock. 6.3.4. Separate facility. 6.4. Will the Consignee co-mingle the Consignment Stock with other stock? 6.4.1. If so, see clause 7 regarding the need to distinguish Consignment Stock from non-Consignment Stock. 6.5. In a typical Consignment Agreement, the Consignee has no right to move the Consignment Stock, except in connection with a sale to a customer. What this means is that the Consignee can not move the Consignment Stock to a different storage facility or to a different area within the same storage facility, without the Consignor’s prior written consent. 6.5.1. If your arrangements with the Consignee are different from the norm, this should be indicated in the agreement. 7. distinguishing consignment stock from other stock 7.1. Do you intend to sell all stock on a consignment basis or will you be selling some stock on a more traditional basis? 7.1.1. If the latter, how will you distinguish a consignment sale from an ordinary sale? 7.2. Will the Consignee co-mingle Consignment Stock with other stock that the Consignee has bought outright? 7.2.1. Once again, how will you distinguish the Consignment Stock from the Consignee’s other stock? 7.2.2. Can you implement some sort of marking procedure? Even where the Consignee has committed to segregate Consignment Stock from its other stock, it is helpful to establish a procedure for its ready identification. 8. insurance considerations 8.1. Some products liability insurance policies restrict overseas warehousing operations by the insured. Check your policy to determine whether a Consignment Stock arrangement will invalidate it. Consignment agreement Checklist April 2006 8.2. What other insurance cover does the Consignee have (i.e. Fire, theft, accidents)? 8.2.1. Check the policy terms to make sure that they cover the Consignment Stock. Some policies may not cover assets that the insured party doesn’t own. 6 8.2.2. The Consignment Agreement will require the Consignee to provide the Consignor with certificates of insurance on an annual basis. 8.3. If possible, the Consignee should amend its policies in two respects: 8.3.1. The policy should name the Consignor as an additional insured party in respect to the Consignment Stock. 8.3.2. The insurance company should provide the Consignor with notice of cancellation or termination so that the Consignor can arrange other insurance cover. 8.4. Check your own insurance policies to determine whether they would cover your Consignment Stock. 9. risk of loss or damage 9.1. Notwithstanding the fact that the Consignor retains title to the Consignment Stock, the Consignee normally bears the risk of loss and damage to the Consignment Stock. The Consignee is responsible for any loss or damage to the Consignment Stock after the risk of loss and damage has passed from the Consignor to the Consignee. 9.2. Exactly when the risk of loss and damage passes from the Consignor to the Consignee depends upon the shipping terms the parties select. 9.2.1. For example, if the shipping terms are FOB, risk of loss would pass the moment the goods cross over the ship’s rail. 9.2.2. What shipping terms will govern this agreement? 9.3. The Consignee should promptly notify the Consignor in the event that any of the Consignment Stock arrives in damaged condition or if the quantity does not conform with the shipping documents. 9.3.1. Absent such notice, the Consignor shall deem that the Consignee accepted the Consignment Stock in the quantity stated on the shipping documents and in good condition. 10. security 10.1. According to the law of most jurisdictions, you don’t need to take a security interest in your own stock. However, some jurisdictions have filing requirements, the purpose of which is to keep third parties apprised that the Consignee doesn’t own the Consignment Stock. 10.2. In addition, you may wish to take a security interest in the Consignee’s “other” assets to offset the risks inherent in a consignment relationship. This is a reasonable quid pro quo. 10.2.1. At one end of the spectrum, the security interest might only cover the “debts” created through the sale of Consignment Stock. 10.2.2. At the other end of the spectrum, the security interest might cover assets unrelated to the Consignment Stock, both tangible and intangible. Consignment agreement Checklist April 2006 10.3. Personal guarantees are another option. However, if you have to bolster your security from the Consignee with personal guarantees from its principals, that sends a loud and clear warning that a consignment relationship may be too risky. 7 11. the consignee’s agent 11.1. At the end of the day, the security of your Consignment Stock largely depends upon placing your trust in human beings. 11.2. The Consignee should appoint one individual to manage the consignment relationship. If anything goes wrong, the buck stops with them. Although this individual will normally be on the payroll of the Consignee, they should act as an ombudsman. They should be a person of unquestioned integrity, a person in whom the Consignor has confidence. In all likelihood, this individual will not be senior management. 11.2.1. Caution: If the Consignee is unable to appoint such a person willing to accept responsibility for the Consignee’s obligations, that should raise warning flags with you. 11.3. Identify such a person in the agreement. 12. the consignor’s agent 12.1. Your agent would normally be the person on your staff who handles the credit management function for your company. It could also be a staff accountant or perhaps your company secretary. 12.2. Sound credit management, as we all know, means staying right on top of the debtor. The same applies to a consignment arrangement. 12.3. Make sure that you "walk through" the Consignment Agreement with the person you select to manage the consignment relationship. Make sure that the person understands all of their responsibilities, the Consignee’s obligations and the potential risk areas. 13. record keeping and reporting requirements 13.1. Determine what records the Consignee should maintain. 13.1.1. These records will be subject to your audit and inspection rights. (See clause 20 below.) 13.1.2. If possible, the Consignee’s records should be in the same format as the records you keep in respect to your own stock. Describe your record keeping procedures or attach your standard formats to the agreement. 13.1.3. It is likely that your record keeping procedures are on computer. If so, identify your hardware platform, operating system and application software for inventory control in the agreement of this Checklist. Do you know whether the Consignee uses a compatible system? 13.2. Determine the types of reports you require. Consignment agreement Checklist April 2006 13.2.1. As for the types of reports, you will certainly want to know the amount of Consignment Stock sold since the date of the previous report, the amount received since the date of the previous report and the amount of Consignment Stock on hand at any given point in time. 8 13.2.2. You may also wish to know about the Consignee’s anticipated future requirements for Consignment Stock. 13.2.3. Each report should reconcile with the previous report so that there is a clear paper trail. 13.2.4. If you have a specific accounting format that you would like the Consignee to follow, attach it to this Checklist. 13.3. Frequency of reports. 13.3.1. This will depend upon the amount of activity in the Consignment Stock. Monthly is recommended even if there is little or no activity involving the Consignment Stock. 13.3.2. If there is much activity involving the Consignment Stock, a weekly report might be appropriate. 14. physical stock takes 14.1. The Consignment Stock should be subject to a physical stock take on a periodic basis. 14.1.1. Determine how frequently the Consignee should undertake physical stock takes. 14.2. Who should do the stock take, the Consignee or the Consignee’s independent accountants? 14.3. The Consignor should receive notice of any physical stock take in case the Consignor wishes to attend. 14.4. Whether or not the Consignor attends, the Consignee should send the Consignor a copy of the final report. 14.5. The Consignee should be liable for any “inventory shrinkage.” 15. consignment stock management 15.1. Depending upon the nature of the Consignment Stock, it may require special care and handling while in storage. 15.2. Describe any special care and handling instructions applicable to the Consignment Stock in the agreement or attach them as an appendix. 15.2.2. The Consignment Agreement should impose an obligation upon the Consignee to comply with such care and handling instructions. 15.3. Are there any unusual storage specifications pertaining to the Consignment Stock (i.e. Temperature, humidity, storage life, etc.)? 15.3.1. If so, indicate such storage specifications in the agreement. Consignment agreement Checklist April 2006 15.4. What other stock management procedures do you wish to impose upon the Consignee (e.g. International Standards Organisation 9002 standards)? 9 16. the draw down procedure 16.1. Generally, the Consignor will want the Consignee to draw upon Consignment Stock on a first in first out (“FIFO”) basis. 16.1.1. If you wish to stipulate a different draw down procedure, indicate it in the agreement. 16.2. If the Consignee holds stock that it has bought outright, the Consignee will naturally favour that stock over the Consignment Stock. 16.2.1. In order to discourage this, the Consignment Agreement normally provides that the Consignee must draw down Consignment Stock before using its own stock. 16.3. The Consignee must notify the Consignor as and when the Consignee draws down Consignment Stock. This is referred to as a “Draw Down Notice.” 16.3.1. The parties should agree upon the form of Draw Down Notice. 16.4. How soon after the Consignee draws down Consignment Stock must the Consignee send a Draw Down Notice? 16.4.1. This will depend upon the frequency of draw downs. If they are very frequent, a weekly notice reporting all draw downs during the week may be sufficient. If they are less frequent, then the Consignee should issue the Draw Down Notice by 5.00 pm on the day after the draw down. 16.5. Normally, the Consignee does not require the prior written consent of the Consignor to issue a Draw Down Notice and remove the Consignment Stock. 16.5.1. Please indicate whether, in this particular deal, the Consignee must obtain the Consignor’s prior written consent before the Consignee issues a Draw Down Notice and removes the Consignment Stock. 16.6. Normally, the Consignment Stock is “sold” to the Consignee, and a purchase obligation arises, the moment that the Consignee draws down the Consignment Stock. 16.6.1. Until then, legal and beneficial ownership of the Consignment Stock remains with the Consignor. 16.6.2. The Consignee draws down the Consignment Stock when the Consignee removes the Consignment Stock from its regular place of storage and readies it for shipment. 17. the replenishment procedure 17.1. Except in the case of a “one off” transaction, a Consignor will normally replenish Consignment Stock as the Consignee draws down Consignment Stock. 17.1.1. The Consignee will place additional orders on the Consignor for Consignment Stock. The Consignor will then issue a confirmation in much the same way as it would do in a traditional purchase and sale transaction. Consignment agreement Checklist April 2006 17.2. The Consignor may wish to limit its exposure by specifying a maximum limit to the amount of Consignment Stock held at any given time by the Consignee. 17.2.1. You may specify such a maximum limit in the agreement. 10 17.3. In the agreement, indicate the key operational elements of your Consignment Stock replenishment programme focusing upon the key differences with your standard ordering procedure. 18. price of the consignment stock 18.1. State the price of the Consignment Stock in the agreement. Alternatively, you may attach a price schedule. 18.2. What about price increases? 18.2.1. In a typical Consignment Agreement, the Consignor can not increase the price of Consignment Stock already in the hands of the Consignee. However, the Consignor may institute a price increase in respect to future shipments of Consignment Stock. 18.2.2. Indicate in the agreement if your arrangement differs from the norm. 19. payment terms 19.1. In a Consignment Stock Agreement, the Consignor can normally demand stricter payment terms. 19.1.1. This is to compensate the Consignor for financing the Consignee’s inventory and assuming the risks inherent in a consignment relationship. 19.1.2. Indicate your payment terms in the agreement. 19.2. Determine the relevant payment cycle. 19.2.1. You can provide for payment so many days after each sale. This is generally too cumbersome when dealing with large quantities of fast moving stock. 19.2.2. You can provide for payment on a periodic basis (i.e. Weekly, fortnightly monthly or quarterly). This is the preferred method. 19.2.3. Here is a common clause in a Consignment Agreement relating to payment: “By the _____ day following each _______ during the term of this Consignment Agreement, the Consignee shall render a full accounting of all Consignment Stock sold by it during such period and shall pay the Consignor the purchase price for such Consignment Stock.” 19.2.4. Indicate your payment arrangements in the agreement. 19.3. Do you wish to provide for self-generated invoices? That is to say, the Consignee issues the invoices to itself (on behalf of the Consignor) as and when the Consignee draws down the Consignment Stock. 19.4. In a Consignment Stock Agreement, the Consignee normally bears the full credit risk of its customers just as it would in a conventional purchase and sale arrangement. Thus, the Consignor normally receives payment from the Consignee, whether or not the Consignee has received payment from its customer. The Consignee holds all proceeds from the sale of Consignment Stock in trust. The beneficiary of such trust is the Consignor. This fiduciary obligation continues until such time as the Consignee has paid the Consignor in full. Consignment agreement Checklist April 2006 11 19.4.1. The Consignment Agreement must expressly state this. Otherwise, if a bad debt arises, the Consignee may argue that it was acting as your agent. The Consignee may claim that, as your agent, it was selling for your risk and account! 19.4.2. Indicate in the agreement if your understanding with the Consignee varies from the norm as stated above. 19.5. Normally, the Consignee has the absolute right to sell the Consignment Stock at such prices and upon such terms as it may set. 19.5.1. Indicate in the agreement if your understanding with the Consignee varies from the norm as stated above. 20. audit and inspection rights 20.1. In a Consignment Stock Agreement, the Consignee normally grants the Consignor extremely broad audit and inspection rights. This is appropriate because the Consignment Stock belongs to the Consignor. 20.1.1. Thus, the Consignor may inspect the Consignment Stock during regular business hours, with or without notice to the Consignor. 20.1.2. As for the right to audit the Consignee’s books and records, it is acceptable practice to give the Consignee some notice. 20.2. If your audit and inspection rights vary from the norm, note the differences in the agreement. 21. removal rights 21.1. In a Consignment Stock Agreement, the Consignee normally grants the Consignor extremely broad removal rights. 21.1.1. Thus, the Consignor may enter upon the Consignee’s premises and remove all or any part of the Consignment Stock during regular business hours, with or without notice to the Consignee, and with or without cause. 21.1.2. The Consignor would assume liability for any damage caused to the Consignee’s property during the removal process. 21.1.3. If your removal rights vary from the norm, note the differences in the agreement. 21.2. Occasionally, the Consignment Agreement will give the Consignee a right of first refusal to purchase on the spot, for cash, any Consignment Stock prior to its removal by the Consignor. 21.2.1. In such a situation, normal payment terms would not apply as one would assume that the Consignor is removing the Consignment Stock as a matter of urgency. Consignment agreement Checklist April 2006 21.2.2. Do you wish to grant the Consignee a right of first refusal to buy the Consignment Stock prior to its removal? 12 22. reducing the potential for mischief and abuse of the consignment relationship by the consignee 22.1. There is potential for abuse of the consignment relationship by the Consignee. Consider the following areas, among others, of potential abuse: 22.1.1. The Consignee may not have the same incentive to aggressively market Consignment Stock that he would have if he had bought the stock for his own account and risk. 22.1.2. The Consignee may use the benefits of the Consignment Agreement (i.e. free stock) to load up on another supplier’s stock. In other words, another supplier of the Consignee may reap the benefits from the financial leverage afforded by the Consignor. 22.1.3. What other ways might the Consignee abuse the consignment relationship? Mention them in the agreement. 22.2. What can the Consignor do to reduce the potential for such mischief and abuse of the consignment relationship by the Consignee? 22.2.1. Build into the Consignment Agreement incentives for aggressively marketing the Consignment Stock. What incentives would serve as powerful motivation to the Consignee? Consider what incentives might be appropriate in the circumstances. List possibilities in the agreement. 22.2.2. Limit the Consignee’s right to load up on other suppliers’ stock. For example, the Consignor may demand that the Consignee purchase stock from the Consignor on an equal footing with other named suppliers. List any such limitations in the agreement. 22.2.3. Prohibit the Consignee from stocking competitive products. Define as clearly as possible what constitutes a competitive product. 22.2.4. Can you think of any other ways to reduce the potential for mischief and abuse of the consignment relationship by the Consignee? If so, mention them in the agreement. 23. assignment 23.1. Because of the risks associated with a Consignment Agreement, the Consignee generally does not have the right to assign the Consignment Agreement. 23.1.1. Indicate in the agreement whether this is the case here. 24. term of consignment agreement Consignment agreement Checklist April 2006 24.1. A Consignment Agreement is usually a temporary relationship. It does not go on forever. At some stage, the parties should convert to a more conventional relationship. 24.2. What is the term of the Consignment Agreement? 13 24.2.1. For example, you can say: “_____ months or when all the Consignment Stock is sold, whichever occurs first.” 24.3. What happens to any Consignment Stock remaining unsold at the end of the term of the Consignment Agreement? 24.3.1. Normally, the Consignee shall either pay for any Consignment Stock that it may then wish to keep or return such unsold Consignment Stock to the Consignor. 24.4. As to any Consignment Stock that the Consignee does not wish to buy, who pays the cost of shipping such Consignment Stock back to the Consignor? 24.4.1. There is no norm here. It is purely a matter of negotiation between the Consignor and the Consignee. 25. compliance with local law 25.1. Different countries have different laws in respect to Consignment Stock. 25.1.1. For example, in the United States, the Uniform Commercial Code governs consignment sales in all states, except Louisiana. Due to a historical quirk, Louisiana’s law derives its legal precedents from the Napoleonic Code rather than from British common law. 25.2. In what country (and political subdivision thereof) will the Consignee hold the Consignment Stock? 25.2.1. The law of what country will apply? 26. alternative dispute resolution procedure 26.1. The author's experience is that neither litigation nor arbitration offers an acceptable procedure for resolving disputes between the Consignor and the Consignee. Accordingly, the author recommends that the parties agree upon an alternative dispute resolution procedure. A standard clause for this purpose has been provided by Robert Auerbach: 26.1.1. The parties would each designate a representative with authority to settle the dispute. If such representatives were unable to settle the dispute within a specified time period, they would submit the dispute to a mutually acceptable independent third party with the required technical expertise to consider the issues. If the designated representatives could not agree upon such independent third party, they would instruct the president of the relevant professional society to make such designation. 26.2. Please indicate whether an alternative dispute resolution procedure along the lines above is acceptable. If there are any special circumstances or conditions, note them in the agreement. 27. arbitration Consignment agreement Checklist April 2006 27.1. In the event that the parties do not wish to establish an alternative dispute resolution procedure, the author still believes that arbitration is preferable to litigation. 14 27.1.1. In a contract between two New Zealand parties, use the standard New Zealand arbitration clause. Designate the place of arbitration in the agreement. 27.1.2. In a contract with an overseas party, use the standard arbitration clause of the International Chamber of Commerce. Designate the place of arbitration in the agreement. 28. other conditions 28.1. This Checklist attempts to identify every possible issue that the Consignor should address with the Consignee. However, since there are so many facets to a consignment relationship, it is possible that a condition that is applicable to this specific transaction has been omitted. 28.1.1. If so, kindly note that condition or conditions in the agreement. Prepared by: Robert Auerbach P.O. Box 34-555 Birkenhead, Auckland 1330 New Zealand Tel: +64-9-419-2214 Fax: +64-9-418-3651 E-mail: robert@auerbach.co.nz Website: www.marketnewzealand.com/auerbach Disclaimer: These checklists are provided for information purposes only and are no substitute for professional advice, which should be sought prior to entering into any transaction. New Zealand Trade and Enterprise (NZTE) has not verified these checklists and makes no representations as to the completeness, correctness, currency, accuracy or fitness for purpose of the information, or the person that prepared the information. Accordingly, NZTE will not be responsible for any damage or loss suffered by any person arising from the information whether that damage or loss arises from negligence or otherwise. Consignment agreement Checklist April 2006 15