Prof. Dr. Ingeborg Schwenzer, LL.M. Comparative Contract Law. Supplement

Transcription

1 Prof. Dr. Ingeborg Schwenzer, LL.M. Comparative Contract Law Supplement Istanbul Bilgi University Spring 2011

2 FOREWORD FOREWORD This reader is the second of two elements which together form the course materials for Professor Schwenzer s lecture on Comparative Contract Law. The first element is the second edition of the book Contract Law edited by Hugh Beale and others, published by Hart Publishing in the series Ius Commune Casebooks on the Common Law of Europe in the year The present reader is meant to be a supplement to the aforementioned book which became necessary due to two reasons. First of all, the book almost exclusively covers the contract law of Europe, which necessitates its complementation by US American legal provisions in order to give a comprehensive overview of the world s major legal systems. With respect to the Uniform Commercial Code, the students will find both the provisions currently in force and those resulting from the 2003 UCC revision. Since these have not yet come into effect in any State, they will be referred to as Draft UCC. Secondly, the focus of Professor Schwenzer s lecture will in some instances differ from the focus of the book. It is for this reason that in the present amendment some additional provisions and cases have been included from legal systems which are already referenced in the book. II

3 SCHEDULE SCHEDULE Topics Book (pp.) Supplement (pp.) 5 May May 2011 Offer and Acceptance Unfair Clauses May 2011 Remedies Range, Literal Enforcement, Withholding Performance May May 2011 Remedies Termination of the Contract Remedies Damages May 2011 Remedies Liability and Remedies for Non-Conforming Goods; Supervening Events III

4 TABLE OF CONTENTS TABLE OF CONTENTS FOREWORD...II SCHEDULE... III TABLE OF CONTENTS... IV MODULE 1: OFFER AND ACCEPTANCE OFFER AND ACCEPTANCE INTRODUCTORY NOTE OFFER A DISTINCTION BETWEEN PRELIMINARY DEALINGS AND OFFERS TO ENTER CONTRACT B REVOCABILITY OF AN OFFER C LAPSE OF OFFER ACCEPTANCE A FORM OF ACCEPTANCE B A REQUIREMENT OF COMMUNICATION? B.1 Acceptances in general C ACCEPTANCE THAT DEVIATES FROM THE OFFER C.1 Counter Offers C.2 The battle of the forms D THE LANGUAGE PROBLEM E FORMATION OF CONTRACT USING ELECTRONIC COMMUNICATION MODULE 2: UNFAIR CLAUSES UNFAIR CLAUSES INTRODUCTION CONTROLS UNDER THE GENERAL LAW A INCORPORATION TESTS B MISREPRESENTATION ETC C NATURE OF THE BREACH OF CONTRACT D INTERPRETATION E GOOD FAITH AND PUBLIC POLICY POLICING SUBSTANCE LEGISLATIVE CONTROLS A GERMANY: BGB B ENGLAND: THE UNFAIR CONTRACT TERMS ACT 1977AND UNFAIR TERMS IN CONSUMER CONTRACTS REGULATIONS C FRANCE: THE LOI SCRIVENER, THE CODE DE LA CONSOMMATION AND THE 2009 DECREE D US: THE UCC AND THE MAGNUSON-MOSS WARRANTY ACT E THE DRAFT COMMON FRAME OF REFERENCE F THE UNIDROIT PRINCIPLES KEY ISSUES IN UNFAIR CONTRACT TERMS LEGISLATION IV

5 TABLE OF CONTENTS 16.4.A CONSUMERS AND NON-CONSUMERS B NEGOTIATED AND NON-NEGOTIATED TERMS C BLACKLISTS AND GREY LISTS D CORE TERMS E FAIR, REASONABLE, IN ACCORDANCE WITH GOOD FAITH PUBLIC LAW CONTROLS CONCLUDING REMARKS MODULE 3: REMEDIES FOR NON PERFORMANCE RANGE; LITERAL ENFORCEMENT; WITHHOLDING PERFORMANCE THE RANGE OF REMEDIES FOR BREACH OF CONTRACT LITERAL ENFORCEMENT INTRODUCTION NON-MONETARY OBLIGATIONS A INTRODUCTORY NOTE B THE BASIC RULES C MAKING THE DEFENDANT PERFORM D PERFORMANCE BY A THIRD PARTY E PRACTICAL EXAMPLES F COMPARATIVE SUMMARY ON BASIC RULES AND THE INTERNATIONAL RESTATEMENTS G LIMITATIONS ON SPECIFIC PERFORMANCE G.1 Impossibility G.2 Disproportionate expense G.3 Effects on third persons or the public G.4 Employment contracts G.5 Obligations requiring the involvement of third parties G.6 Problems with supervising long-term contracts MONETARY OBLIGATIONS WITHHOLDING PERFORMANCE BASIC RULES THE ORDER OF PERFORMANCE A INTRODUCTORY NOTE B ESTABLISHING THE ORDER OF PERFORMANCE WITHHOLDING BECAUSE OF DEFECTIVE OR PARTIAL PERFORMANCE DEFAULT CAN BE ANTICIPATED NON-PERFORMANCE OF OTHER CONTRACTS MODULE 4: REMEDIES TERMINATION TERMINATION INTRODUCTION THE MEANING AND NATURE OF TERMINATION BASIC RULES AND THE MEANS OF TERMINATION THE SERIOUSNESS OF THE DEFAULT D INTERNATIONAL APPROACH TERMINATION BEFORE PERFORMANCE IS DUE AGREED RIGHTS OF TERMINATION A LAST CHANCE TO PERFORM V

6 TABLE OF CONTENTS 20.8.A RIGHT TO PERFORM BEFORE DUE DATE B REQUIREMENT OF NOTICE C COURT MAY GIVE ADDITIONAL PERIOD FOR PERFORMANCE EFFECTS OF TERMINATION A. THE EFFECT OF TERMINATION ON CLAIMS FOR DAMAGES FOR NON-PERFORMANCE B THE EFFECTS ON ANCILLIARY OBLIGATIONS C RESTITUTIONARY CLAIMS LOSS OF RIGHT TO TERMINATE A AFFIRMATION B LAPSE OF TIME C IMPOSSIBILTY OF RESTITUTION MODULE 5: REMEDIES DAMAGES DAMAGES THE BASIC MEASURE OF DAMAGES FOR BREACH OF CONTRACT THE REQUIREMENT OF NOTICE RESTRICTIONS ON DAMAGES RECOVERABLE A UNFORSEEABLE OR INDIRECT LOSSES B THE PROTECTIVE PURPOSE OF THE NORM C LOSSES WHICH MIGHT HAVE BEEN AVOIDED OR REDUCED BY THE CREDITOR D CONTRIBUTORY NEGLIGENCE E NON-PECUNIARY LOSS (PRÉJUDICE MORAL) SOME TYPICAL CASES A A SELLER OF GOODS FAILS TO DELIVER B A DEBTOR FAILS TO CARRY OUT WORK CORRECTLY PLAINTIFF'S LOSS OR DEFENDANT'S GAIN? AGREED DAMAGES AND FORFEITURE CLAUSES A THE VALIDITY OF AGREED DAMAGES CLAUSES B DEPOSITS AND FORFEITURE CLAUSES MODULE 6: REMEDIES LIABILITY AND REMEDIES FOR NON- CONFORMING GOODS; SUPERVENING EVENTS LIABILITY AND REMEDIES FOR NON-CONFORMING GOODS INTRODUCTION REMEDIES A EUROPEAN LAW B ENGLISH LAW C FRENCH LAW D GERMAN LAW E INTERNATIONAL LAW F SWISS LAW G US LAW SUPERVENING EVENTS- IMPOSSIBILITY OF PERFORMANCE INTRODUCTION IMPOSSIBILITY FRENCH LAW A THE DEFINITION OF FORCE MAJEURE VI

7 TABLE OF CONTENTS 23.3.B EFFECTS OF FORCE MAJEURE GERMAN LAW ENGLISH LAW A FRUSTRATION B EFFECTS OF FRUSTRATION SUPERVENING EVENTS HARDSHIP, IMPRÉVISION INTRODUCTION FRENCH LAW ENGLISH LAW RECOGNITION OF THE REVISING POWER: GERMAN LAW VII

8 OFFER AND ACCEPTANCE Module 1: Offer and Acceptance 6 OFFER AND ACCEPTANCE (see book pp ) 6.1 INTRODUCTORY NOTE 6.2 OFFER 6.2.A DISTINCTION BETWEEN PRELIMINARY DEALINGS AND OFFERS TO ENTER CONTRACT 6.1a (DCFR) DCFR Art. II. 4:201: Offer (1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it; and (b) it contains sufficiently definite terms to form a contract. (2) An offer may be made to one or more specific persons or to the public. (3) A proposal to supply goods or services at stated prices made by a businessin a public advertisement or a catalogue, or by a display of goods,is treated, unless the circumstances indicate otherwise, as an offer tosell or supply at that price until the stock of goods, or the business s capacity to supply the service, is exhausted. 6.2.B REVOCABILITY OF AN OFFER 6.10a (DCFR) DCFR II. 4:202: Revocation of offer (1) An offer may be revoked if the revocation reaches the offeree before the offeree has dispatched an acceptance or, in cases of acceptance by conduct, before the contract has been concluded. (2) An offer made to the public can be revoked by the same means as were used to make the offer. (3) However, a revocation of an offer is ineffective if: (a) the offer indicates that it is irrevocable; (b) the offer states a fixed time for its acceptance; or (c) it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. 6.10b (CISG) CISG Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. 1

9 OFFER AND ACCEPTANCE 6.11a (DE) 145 BGB: Binding effect of an offer Any person who offers to another to enter into a contract is bound by the offer, unless he has excluded being bound by it. 6.17a (US) Draft UCC.* Firm Offers An offer by a merchant to buy or sell goods in a signed record that by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may the period of irrevocability exceed three months. Any such term of assurance in a form supplied by the offeree must be separately signed by the offeror. *Only minimal changes from the previous version. 6.2.C LAPSE OF OFFER DCFR II. 4:203: Rejection of offer When a rejection of an offer reaches the offeror, the offer lapses. 6.18a (DCFR) 6.22a (US) UCC Offer and Acceptance in Formation of Contract. (1) [ ] (2) If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (3) [ ] 6.3 ACCEPTANCE 6.3.A FORM OF ACCEPTANCE 6.23a (DCFR) DCFR II. 4:204: Acceptance (1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. (2) Silence or inactivity does not in itself amount to acceptance. 6.23b (CISG) CISG Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. 2

10 OFFER AND ACCEPTANCE (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph B A REQUIREMENT OF COMMUNICATION? 6.3.B.1 Acceptances in general 6.29a (DCFR) DCFR II. 4:205: Time of conclusion of the contract (1) If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror. (2) In the case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror. (3) If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by doing an act without notice to the offeror, the contract is concluded when the offeree begins to do the act. BGB 151 Acceptance without declaration to the offeror 6.32a (DE) A contract comes into existence through the acceptance of the offer without the offeror needing to be notified of acceptance, if such a declaration is not to be expected according to customary practice, or if the offeror has waived it. The point of time when the offer expires is determined in accordance with the intention of the offeror, which is to be inferred from the offer or the circumstances. 6.3.C ACCEPTANCE THAT DEVIATES FROM THE OFFER 6.3.C.1 Counter Offers 6.40a (DCFR) DCFR II. 4:208: Modified acceptance (1) A reply by the offeree which states or implies additional or different terms which materially alter the terms of the offer is a rejection and a new offer. (2) A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies additional or different terms, provided these do not materially alter the terms of the offer. The additional or different terms then become part of the contract. (3) However, such a reply is treated as a rejection of the offer if: (a) the offer expressly limits acceptance to the terms of the offer; (b) the offeror objects to the additional or different terms without undue delay; or 3

11 OFFER AND ACCEPTANCE (c) the offeree makes the acceptance conditional upon the offeror s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time. 6.3.C.2 The battle of the forms 6.45a (DCFR) DCFR Art. II. 4:209: Conflicting standard terms (1) If the parties have reached agreement except that the offer and acceptance refer to conflicting standard terms, a contract is nonetheless formed. The standard terms form part of the contract to the extent that they are common in substance. (2) However, no contract is formed if one party: (a) has indicated in advance, explicitly, and not by way of standard terms, an intention not to be bound by a contract on the basis of paragraph (1); or (b) without undue delay, informs the other party of such an intention. Cass civ. 1re, 16 July Les Verreries de Saint Gobain, SA v. Martinswerk GmbH 6.48a (CISG) Judgment: THE COURT: On [buyer's] first argument: The appeal is of a ruling that set aside the competence of the Commercial Tribunal of Orléans as stipulated in the order form the French [buyer] addressed to its German supplier through [seller's] intermediary, the French company Lonza. The Court of Appeals ruled that the French tribunal is not competent to rule on the argument relative to the delivered goods. [Buyer] alleges that the Court's ruling against [buyer's] jurisdiction clause did not take into consideration the role of [seller's] subsidiary company, Lonza France; and that the Court erred by relying on a contradictory jurisdiction clause stipulated by the [seller]. However, considering that [seller's] terms and conditions contained a clause, conferring jurisdiction upon the courts at [seller's] principal place of business [in Germany], the Court of Appeals came to the justified conclusion that the different jurisdiction clause stipulated in [buyer's] forms could not be found applicable. Indeed, considering articles 18 and 19 of the Vienna Convention of 11 April 1980 on International Sales Contracts, an answer which leans towards the acceptance of an offer, but contains different elements substantially altering the terms of the offer, such that, according to article 19(3), there is a different stipulation on the settlement of disputes, does not lead to the application of the clause contained in [buyer's] form. The ruling of the Court of Appeals is, on this point, legally justified. [ ] 1 CISG-online 344; cited from Pace Law School CISG database; available at: 4

12 OFFER AND ACCEPTANCE Reasons given by counsel for [buyer] 2 [Buyer's] first reasons for reversal [...] [Buyer] bases its claim on the clause contained in its purchase order form specifying that the Commercial Tribunal of Orléans shall have jurisdiction in the event of dispute. [Buyer] emphasizes that on this form it is stated that "the acceptance of our orders implies the acceptance of the general conditions of purchase stipulated in the front and the back of this form." [...] [Seller] cannot take advantage of the different jurisdiction clause contained in its general sales conditions which, obviously, were not accepted by the buyer. [...] Article 8 of [buyer's] general purchase conditions provides that the sending of an acknowledgment of receipt joined with the order "will mark" the acceptance of the provider of both the order and the general purchase conditions and its particularities. By focusing only on the fact that such an acknowledgment of receipt was not sent by [seller], the Court of Appeals erred in deducing that [seller] did not accept [buyer's] jurisdiction clause, without removing any other element that would result for this company -- without any explanation for why, once the litigation began, [seller] can take advantage of solely the jurisdictional clause.... Ignoring the actions of [seller] and of its subsidiary Lonza France, which received [buyer's] order as well as the general purchase conditions that were attached to it and performed the contract without discussing or asking for any modification, the Court of Appeals contented itself with the fact that [seller] has not signed any document containing the jurisdictional clause; notably, that [seller] did not send an acknowledgement of receipt from which one could deduce that it accepted [buyer's] clause. This does not pay proper attention to the principle of consensus; it violates article 1134 of the Civil Code. [...] In conformity with article 18 of the Vienna Convention of 11 April 1980, declared applicable in this case, the performance by [seller] of the sales contract, without discussing any clause of the offer that had been proposed to it by [buyer], constitutes acceptance of [buyer's] offer. By supposing that the confirmations of the order sent by [seller] contained a jurisdictional clause different from that in [buyer's] general purchase conditions, such clause alters substantially the terms of the offer according to article 19 CISG, so that the terms of the contract can only be those contained in [buyer's] offer. By excluding the acceptance of the clause contained in [buyer's] offer under the pretext that [seller's] confirmations of the order contain a different jurisdiction clause, the Court of Appeals violated articles 18 and 19 CISG. [ ] 2 By tradition, the decisions of the French Supreme Court are normally quite laconic. This translation of the Court's decision is accompanied by excerpts from an annex that contains additional detail on the controversy. 5

13 OFFER AND ACCEPTANCE BGH, 9 January b (CISG) Conflicting standard forms are entirely invalid and are replaced by CISG provisions, while the contract as such stays valid. 4 Facts: A German firm had sold powdered milk to an enterprise in the Netherlands which, in turn, exported the goods to customers in Algeria and Aruba (Antilles). The customers claimed that some parts of the powdered milk were defective, and the buyer sought compensation from the German seller. While the seller conceded the defects and offered to take back the powdered milk, it declined to pay damages as requested by the buyer. The seller argued that the CISG was derogated by a clause in its standard forms and that, under the applicable German Civil Code, no damages could be claimed. In addition, a clause in the standard forms of the Plaintiff (buyer) (!) limited recoverable damages to the purchase price and was applicable here despite the conflict of forms because it was favorable for the seller. 5 3 Judgment: THE COURT: [ ] II.1. The Court of Appeals [ ] correctly assumed that the compensation rules of the CISG for the claims of [buyer 1] are not excluded by its General Terms and Conditions ("M.P.C. conditions"), which provide considerable limitations of liability for the seller, inter alia, by restricting any compensation to the amount invoiced for the delivered goods. a) The Court of Appeals correctly assumed that the partial contradiction of the referenced general terms and conditions of [buyer 1] and [seller 1] did not lead to the failure of the contract within the meaning of Art. 19(1) and (3) CISG because of the lack of a consensus (dissent). His judicial appraisal, that the parties have indicated by the execution of the contract that they did not consider the lack of an agreement between the mutual conditions of contract as essential within the meaning of Art. 19 CISG, cannot be legally challenged and is expressly accepted by the appeal. b) The Court of Appeals further correctly stated that the warranty clauses in the M.P.C. conditions used by [buyer 1], which are beneficial to [seller 1], were replaced by the rejection clause of [seller 1]. The objections raised by the appeal in this regard are not persuasive. The question to what extent colliding general terms and conditions become an integral part of a contract where the CISG applies, is answered in different ways in the legal literature. According to the (probably) prevailing opinion, partially diverging general terms and conditions become an integral part of a contract (only) insofar as they do not contradict each other; the statutory provisions apply to the rest (so-called "rest validity theory"). Whether there is VIII ZR 304/00, CISG-online 651; cited from Pace Law School CISG Database, available at 4 Excerpt from Peter Schlechtriem, Battle of the Forms in International Contract Law: Evaluation of approaches in German law, UNIDROIT Principles, European Principles, CISG; UCC approaches under consideration, translation of "KollidierendeGeschäftsbedingungeniminternationalenVertragsrecht", in: Karl-Heinz Thume ed., Festschrift für Rolf Herberzum 70. Geburtstag, Newied: Luchterhand (1999) 36-49, with an updated reference to the ruling by this court added thereto at note 16a, which is quoted here. 5 Ibid. 6

14 OFFER AND ACCEPTANCE such a contradiction that impedes the integration, cannot be determined only by an interpretation of the wording of individual clauses, but only upon the full appraisal of all relevant provisions. The appeal misunderstands this when it wants to compare only the limited rejection clause of [seller 1] to [buyer 1]'s warranty clauses, which are favorable to [seller 1]. As the Court of Appeals has correctly determined, the Dutch M.P.C. conditions contain substantial deviations from the CISG's warranty rules - which would essentially remain applicable based on the General Terms and Conditions of [seller 1] - and it cannot be assumed that [buyer 1] wanted to have the M.P.C. conditions, which are internally balanced, apply to it insofar as they are noticeably more detrimental than the statutory provisions without having the benefit of the clauses that are favorable to it. Vice versa, there is nothing to show that [seller 1] wanted those clauses of the M.P.C. conditions that are unfavorable to it apply to the contracts. The result is no different if one follows the contrary opinion ("Last shot" doctrine). Certainly under the point of view of good faith and fair dealing (Art. 7(1) CISG), [seller 1] should not have assumed that the question whether certain provisions of the opposing terms and conditions contradicted its own (even insofar as it served its Terms and Conditions last) could be answered in isolation for individual clauses with the consequence that the individual provisions that were beneficial to it would apply. [ ] OLG Köln, 24 May c (CISG) In case of conflicting general terms and conditions the non-conflicting terms and conditions are agreed upon; for the other the last shot doctrine applies. Judgment: THE COURT: 1. [ ] During the appellate proceedings both parties addressed the question [ ] of the standard terms and conditions, which included a choice of forum agreement. There are different standard terms at hand: first, those attached to [Buyer]'s order of 21 November 2004; second, those [Seller] attached toits acknowledgment of 28 November The admissible appeal is unfounded. The subsidiary motion is also dismissed. The Court of First Instance Cologne rightly dismissed the motion because the court lacks international jurisdiction and proper venue. [ ] Through the incorporation of [Seller]'s standard terms, the parties concluded a valid choice of forum agreement. This agreement, which can be found under para of [Seller]'s general terms and conditions, is in writing as required by Art. 23(1) sentence 3(a) Brussels-I-Regulation. The requirement of written form can also be fulfilled by reference to the standard terms containing the choice of forum clause. The attachment of standard terms to the acceptance of an offer generally does not yet lead to a choice of forum agreement based on a choice of forum clause contained in those terms, because the requirement of a (mutual) writing is not fulfilled. The situation is different however, if the other party confirms the standard terms in writing and thus agrees to the choice of forum clause U 25/06; CISG-online 1232; cited from Pace Law School CISG database; available at: 7

15 OFFER AND ACCEPTANCE [ ] [Buyer] used a form for its order, on the reverse of which the standard terms of the German Association for Motor Trades and Repairs (Zentralverband des DeutschenKraftfahrzeuggewerbes) were printed in the German language. These terms contain a choice of forum clause identical in content to the one at issue here. [Buyer] explicitly referred to these standard terms during the appellate proceedings. Thus, the mere fact that the choice of forum clause in the [Seller]'s standard terms, identical in content to the one contained in the standard terms of the German Association for Motor Trades and Repairs expressly accepted by [Seller], was written in a foreign language does not raise doubts as to its validity. Concerning the question of jurisdiction, it can remain undecided whether the parties agreed to the standard terms of [Seller] or the ones of the German Association for Motor Trades and Repairs, because in this respect these partially differing standard terms contain an identical choice of forum provision. Pursuant to the provisions of the CISG -- which is applicable to the contract because Germany and The Netherlands are Contracting States and the parties did not exclude its application, Art. 6 CISG -- the interpretation of contracts with conflicting terms leads to the application of at least those provisions which do not differ. Beyond this, the so-called "last-shot doctrine" applies, according to which the governing terms are those which were exchanged last. Here, both alternatives lead to the result that the parties validly concluded a choice of forum agreement. [ ] 6.3.D THE LANGUAGE PROBLEM OLG Hamm, 8 February a (CISG) Facts: The German [buyer] ordered several times large lots of socks from an Italian manufacturer [seller]. Four contracts were concluded in the Italian language, the [buyer] being represented by its Italian agent. The [seller] delivered the socks and sent four invoices in Italian to the [buyer]. Before payment, the [seller] assigned its payment claims to [seller's assignee], an Italian bank, and gave notice to the [buyer]. The assignment notice was in French and English. Despite the notice, the [buyer] who understood only little English and no French paid to the [seller], against whom bankruptcy proceedings were instituted shortly afterwards. The [seller's assignee] claimed (second) payment from the [buyer]. Judgment: THE COURT: A.II. [ ] 2. According to Art C.c., the assignment only becomes valid towards the debtor [here: Buyer], as soon as the assignment was consented to or brought to the attention of this party by means of service. The last mentioned option must be considered here. This means that if the assignment is valid towards the [Buyer], the payments made by the [Buyer] to the [Seller] (assignor) cannot discharge the [Buyer] from its debts owed to the [Seller's assignee]. [ ] b) However, Art C.c. further requires that the assignment must be brought to the attention of the debtor. Concerning the debtor's knowledge, Art U 206/93; CISG-online 141; cited from Pace Law School CISG database; available at: 8

16 OFFER AND ACCEPTANCE C.c. contains the presumption that the debtor's knowledge has to be considered from the time the notice reaches the debtor's address; a different result only applies if the addressee furnishes evidence that it was impossible to obtain knowledge of the notice without fault. aa) It is not disputed that the notices of assignment, that means the letters themselves, must have reached the [Buyer]. Therefore, these notices must be considered as having been delivered, Art C.c. Again, on this issue, the court follows the expertise. bb) It also was possible for the [Buyer] to obtain knowledge of the notices of assignment pursuant to Art C.c. However, the notices were drafted in English and French, languages that were not the language of the contract and the [Buyer] was not able to understand - as revealed during the course of the manager's hearing [ ]. According to Italian Law, this does not preclude the possibility of obtaining knowledge. According to the expertise, Italian courts and legal authors have not yet dealt with the issue of the "risk of language"; only one publication has considered this issue, however, concerning the law in Germany. Since Italian law does not offer a solution for this issue, one can, according to the expertise, consider the surrounding law, at least the legal concepts. This means one can consider the concepts of the law of the country, where the inexpert party come from. Therefore, in this case, one can consider the "language risk" concepts developed in German law when interpreting Art C.c. According to the predominant view in Germany, a declaration in a foreign language is to be evaluated as a delivery issue. The prevailing view is to consider whether the addressee can obtain knowledge of the content of the notice under usual circumstances and whether one can expect him to actually obtain knowledge with due consideration of usages in the specific field. In this connection, one has to consider the behavior of a reasonable person under due consideration of practices and usages of international trade; this is in accordance with the idea of Arts. 8(2), (3), 9 CISG. The Court considers this solution to be sound since it allows one to consider the circumstances of each case. From this it follows: (1) There is no doubt about the delivery of declarations if they are made in a language agreed upon by the parties or in a language which is used in accordance with the parties' practices and usages to be considered pursuant to Art. 9 CISG. In the case at hand, this would have been either Italian as language of the contract or German. (2) When applying a so-called world language (for example English), the view is taken that an addressee, having a longstanding business relationship and a negotiating language, does not have to accept a declaration in another language. According to the other view one can expect a businessman in cross-border trade to have knowledge or at least an opportunity for translation of the world language English. The Court takes the view that the issue of risk of language cannot be solved by referring to general statements. A reasonable person cannot be allowed to totally ignore a legally relevant declaration which is not drafted in the negotiation language, nor can a businessman necessarily be expected to have knowledge of the world language English or an opportunity for translation. Rather, one has to consider the circumstances of each case. In the context of this case, one has to consider: The [Buyer] is a company with ten employees -- and it is undisputed that the company exclusively had business relations with Italian suppliers. Whether one can expect the 9

17 OFFER AND ACCEPTANCE manager of the company under these circumstances to have knowledge of the English language is questionable in the eyes of the Court. For the Court it is also questionable whether the [Buyer] was obliged to retain an interpreter or to render the translation on its own. However, there is no need to decide on this issue. For the specific circumstances of the case, one can expect the [Buyer] to obtain reliable knowledge of the contents of the declaration in another manner. It is to consider enquiring as to the content from the [Seller] as sender of the declaration or from the [Seller's assignee], or to send the declaration back requesting a declaration in the German or Italian language if necessary. According to international practices and usages, one can expect a reasonable person to act like this when receiving a writing in a foreign language that is discernibly of legal relevance. The foreign texts discernibly were related to invoices received from the [Seller] earlier; the invoice number as well as the invoice price were indicated. This shows that the legal relevance was not only discernible, but was known to the [Buyer]. The [Buyer]'s manager submitted at the hearing of 8 February 1995 [ ] that he phoned his Italian agent after receiving the notices of assignment, gave him the invoice number and enquired as to the character of the declaration; the agent answered that "you do not need to worry, this is the usual way, lots of parties do this, we acquire cheaper money by doing this." By being satisfied with this answer, the [Buyer] has not exhausted the opportunities of a reasonable person to obtain knowledge of the content. This is due to the fact that the answer of the Italian agent is in no way comprehensible. Also the [Buyer]'s manager was not able to see the sense of the agent's statement. Thus, the [Buyer] was not able to eliminate the presumption of obtained knowledge, established by Art C.c. [...] Judgment: THE SOLE ARBITRATOR: [ ] ICC Arbitration Case No of (Fashion products case) 6.49b (CISG) II. TERMINATION OF THE AGREEMENT (ARTICLE 64(1)(b) CISG) [ ] 2. Additional Period of Time of Reasonable Length [51] "It has been ascertained that, at the beginning of August, [Buyer] found itself in breach of the obligation [ ]. [Seller] was therefore entitled to resort to the remedy provided by Art. 63(1) of the CISG, in the perspective of termination pursuant to Art.64(1)(b) of the CISG...." a. The regularity of the 2 August 2001 notification [52] "On 2 August, [Seller] sent [Buyer] the following registered letter: 'In relation with the above-captioned contract, we hereby ask you to proceed, within 20 days from receipt of the present letter, to the opening of the letter of credit as provided in Art. 3.6 of said contract. Such letter has now been 8 CISG-online 1421; cited from Pace Law School CISG database; available at: 10

18 OFFER AND ACCEPTANCE requested to you repeatedly. It is understood that if you don't comply as above requested in the indicated period of time, the contract shall be considered terminated.' (Arbitrator's translation of Italian original) According to such letter, [Seller] granted to [Buyer] 20 additional days to comply with its obligation to open the letter of credit, and advised [Buyer] that, failing to do so within such period of time, the Agreement would be terminated. By doing so, [Seller] resorted to the remedy provided by Art. 63(1) of the CISG, according to which 'the seller may fix an additional period of time of reasonable length for performance by the buyer of his obligation'. [53] "[Buyer], however, has submitted that such letter did not comply with the requirements set forth by Art of the Agreement, because it was drafted in Italian [ ]. According to said Art. 12.5, 'All notices, requests and other documents delivered pursuant to this section shall be given in the English language if to Importer, and in the Italian language if to [Seller].' [ ] [55] "There is [ ] no doubt that, in sending to [Buyer] a notification drafted in Italian language, [Seller] did not comply with Art of the Agreement. The Arbitrator, however, does not believe that such circumstance should deprive the notification of its effectiveness. [56] "The Arbitrator believes... that the letter was properly understood by the managers of [Buyer]. In this regard, it should be recalled that Mr. C speaks Italian. It should also be added that, even if the letter was not immediately understood by the person who received it, it was certainly not difficult to immediately translate it, which was certainly done (or, in any event, should have been done by a diligent party) given the highly contentious context of the relationship between the parties at that time. Besides, we must stress that Mr. CC [another manager] was informed of the notification by an received the same day when the registered letter was received at [Buyer]'s New York offices. [57] "In rejecting [Buyer]'s submission as to the irregularity of the 2 August notification, the Arbitrator believes that due consideration should be given to Art. 27 of the CISG, which provides that 'Unless otherwise expressly provided... if any notice, request or other communication is given or made by a party... by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.' Such article sets a general principle of effectiveness of notifications, which prevents [Buyer] from prevailing itself of a mishap in the communication of the summons such as its drafting in the Italian language." [ ] 11

19 OFFER AND ACCEPTANCE OGH, 17 December c (CISG) "3. Whether general terms in a language that the offeree does not understand have been made part of the offer depends on whether the contemplated incorporation was apparent to the offeree and whether an incorporation would be just and reasonable. Criteria to determine the reasonableness are particularly the duration, intensity and importance of the business relationship and the prevalence of the foreign language in the offeree s cultural area. "4. If the offeree is an international enterprise, it has to dispute the incorporation of general terms in a foreign language if the terms are in a universal language that is not too remote to the offeree; besides English and French, German is to be considered such universal language. Facts: An Austrian buyer ordered tantal powder from the seller in Hong Kong. [ ] The contract was drafted in English, but the order form contained a provision referring to the buyer's general terms of contract, reproduced on its back side in German. According to these terms, Austrian law would govern the contract. Judgment: THE COURT: [ ]In the beginning of January 2001, the parties entered into a sales contract for the delivery of 9,000 kg Tantalum powder, due in several installments. After the delivery of 3, kg in three installments (including a replacement delivery of 1,150 kg for deficient Tantalum powder), [Buyer] in July 2001 declared the contract avoided with respect to future deliveries, arguing that it had good grounds to assume that [Seller] would not be able to deliver goods of the required quality in the future as it has not in the past. It must be assumed that a considerable part of the deliveries that [Seller] made had actually missed the required quality standard by far. Therefore, the vital question as regards this appeal is whether [Buyer] was entitled to avoid the contract for the future. This depends on whether [Buyer]'s standard terms have been validly incorporated in the contract. [ ] In its appeal, [Buyer] argues that, as all of its English written orders refer to its standard terms printed in German on the backside of the document, [Seller], by impliedly accepting this routine, established a practice in the sense of Art. 9(1) CISG according to which it is bound to the thus incorporated standard terms. The fact that the conditions were formulated in a foreign language would not hinder their applicability to the contract, because they had been expressly referred to in English on the order document. [ ] The Court of First Appeal did not investigate further as to whether [Buyer]'s standard terms could have been validly incorporated through established practice in the sense of Art. 9(1) CISG, as it held that, in any event, standard terms written in German language were not applicable to a contract written in English. 9 7 Ob 275/03x; CISG-online 828; cited from Pace Law School CISG database; available at: 12

20 OFFER AND ACCEPTANCE This undifferentiated view cannot be upheld by the Supreme Court. [ ] In any event, the addressee must be referred to the standard terms in a way that it could not be reasonably unaware of them: He must have knowledge to be able to understand them. This also depends on the language the conditions are formulated in, and on the language they are referred to in the contract. According to German doctrine, standard terms written in a foreign language might still be validly incorporated in a contract if they are referred to in the language the negotiations have been conducted and in which the contract has been concluded. In an obiter dictum to the ruling of 7 Ob176/98b, the Austrian Supreme Court joined this opinion. Criteria for cases in which the addressee might be expected to have knowledge and understanding of standard terms written in a foreign language are: length, intensity and economic importance of the business relations between the parties, as well as the spreading and use of the language within their society: The more intense and economically important the business relation becomes, the more can it be expected that the addressee of long and frequently referenced standard terms written in a foreign language will take measures to understand them, i.e., will ask for a translation to be provided by the other party or will attend to such a translation himself. According to widespread opinion among German and Austrian scholars, it suffices that standard terms were formulated in a language the addressee is familiar with, respectively, in one of the few internationally common languages, such as English, French and German. In case an international enterprise thus provides standard terms in one internationally common language, it is for the addressee to notify the other party of its lack of understanding, otherwise its knowledge can be reasonably presumed. During the business relationship with [Seller], [Buyer] on several occasions referred in English to its German written standard terms printed on the backside of its documents. As the parties entered into a deal of roughly about 7 million Euro, an economic importance in the sense mentioned above can be concluded. Further, it must be taken into account that Chris H., who mediated the deal between the parties and functioned as a representative of N. G. Ltd., a sales agent of [Seller], had a good command of the German language -- a fact that due to their long term business relations must have been known to [Seller]'s representatives John and Alan C. [Due to lack of facts, the Supreme Court left open the question of whether the standard terms had been validly incorporated into the contract and remanded the case to the Court of First Instance.] [...] 6.3.E FORMATION OF CONTRACT USING ELECTRONIC COMMUNICATION 1996 UNCITRAL Model Law on Electronic Commerce 6.49d (Int) Article 11. Formation and validity of contracts (1) In the context of contract formation, unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of data messages. Where a data message is used in the formation of a contract, that contract shall not be 13

21 OFFER AND ACCEPTANCE denied validity or enforceability on the sole ground that a data message was used for that purpose. (2) The provisions of this article do not apply to the following: [...]. Article 12. Recognition by parties of data messages (1) As between the originator and the addressee of a data message, a declaration of will or other statement shall not be denied legal effect, validity or enforceability solely on the grounds that it is in the form of a data message. (2) The provisions of this article do not apply to the following: [...]. Article 14. Acknowledgement of receipt (1) Paragraphs (2) to (4) of this article apply where, on or before sending a data message, or by means of that data message, the originator has requested or has agreed with the addressee that receipt of the data message be acknowledged. (2) Where the originator has not agreed with the addressee that the acknowledgement be given in a particular form or by a particular method, an acknowledgement may be given by (a) any communication by the addressee, automated or otherwise, or (b) any conduct of the addressee sufficient to indicate to the originator that the data message has been received. (3) Where the originator has stated that the data message is conditional on receipt of the acknowledgement, the data message is treated as though it has never been sent, until the acknowledgement is received. (4) Where the originator has not stated that the data message is conditional on receipt of the acknowledgement, and the acknowledgement has not been received by the originator within the time specified or agreed or, if no time has been specified or agreed, within a reasonable time, the originator: (a) may give notice to the addressee stating that no acknowledgement has been received and specifying a reasonable time by which the acknowledgement must be received; and (b) if the acknowledgement is not received within the time specified in subparagraph (a), may, upon notice to the addressee, treat the data message as though it had never been sent, or exercise any other rights it may have. (5) Where the originator receives the addressee s acknowledgement of receipt, it is presumed that the related data message was received by the addressee. That presumption does not imply that the data message corresponds to the message received. (6) Where the received acknowledgement states that the related data message met technical requirements, either agreed upon or set forth in applicable standards, it is presumed that those requirements have been met. (7) Except in so far as it relates to the sending or receipt of the data message, this article is not intended to deal with the legal consequences that may flow either from that data message or from the acknowledgement of its receipt. Article 15. Time and place of dispatch and receipt of data messages (1) Unless otherwise agreed between the originator and the addressee, the dispatch of a data message occurs when it enters an information system outside the control of the originator or of the person who sent the data message on behalf of the originator. (2) Unless otherwise agreed between the originator and the addressee, the time of receipt of a data message is determined as follows: 14

22 OFFER AND ACCEPTANCE (a) if the addressee has designated an information system for the purpose of receiving data messages, receipt occurs: (i) at the time when the data message enters the designated information system; or (ii) if the data message is sent to an information system of the addressee that is not the designated information system, at the time when the data message is retrieved by the addressee; (b) if the addressee has not designated an information system, receipt occurs when the data message enters an information system of the addressee. (3) Paragraph (2) applies notwithstanding that the place where the information system is located may be different from the place where the data message is deemed to be received under paragraph (4). (4) Unless otherwise agreed between the originator and the addressee, a data message is deemed to be dispatched at the place where the originator has its place of business, and is deemed to be received at the place where the addressee has its place of business. For the purposes of this paragraph: (a) if the originator or the addressee has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction or, where there is no underlying transaction, the principal place of business; (b) if the originator or the addressee does not have a place of business, reference is to be made to its habitual residence. (5) The provisions of this article do not apply to the following: [...]. 6.49e (Int) 2005 UN Convention on the Use of Electronic Communications in International Contracts (signed by 18 countries, including China and Russia; not yet in force) Article 8. Legal recognition of electronic communications 1. A communication or a contract shall not be denied validity or enforceability on the sole ground that it is in the form of an electronic communication. 2. Nothing in this Convention requires a party to use or accept electronic communications, but a party s agreement to do so may be inferred from the party s conduct. Article 9. Form requirements 1. Nothing in this Convention requires a communication or a contract to be made or evidenced in any particular form. 2. Where the law requires that a communication or a contract should be in writing, or provides consequences for the absence of a writing, that requirement is met by an electronic communication if the information contained therein is accessible so as to be usable for subsequent reference. 3. Where the law requires that a communication or a contract should be signed by a party, or provides consequences for the absence of a signature, that requirement is met in relation to an electronic communication if: (a) A method is used to identify the party and to indicate that party s intention in respect of the information contained in the electronic communication; and (b) The method used is either: 15