MODERN APPROACH TO THE BATTLE OF THE FORMS" PROBLEM IN THE 2001 CIVIL CODE OF THE REPUBLIC OF LITHUANIA

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1 ISSN TEISĖ MODERN APPROACH TO THE BATTLE OF THE FORMS" PROBLEM IN THE 2001 CIVIL CODE OF THE REPUBLIC OF LITHUANIA Jaunius Gumbis Vilniaus universiteto Teisės fakulteto Valstybės ir teisės teorijos ir istorijos katedros asistentas Saulėtekio al. 9,1 rūmai, LT-2054 Vilnius Tel. (370 2) Internationalsale contracts usually have taken up the form of documentary transactions. The battle the forms" is in its essence the key issue in contract formation and enforcement. The Civil Code of th Republicof Lithuania, Articles (acceptance with exceptions) and (collision of standard ter provides, following the 1980 Vienna Convention on International Sales of Goods Contracts and the UNIDROIT Principles of International Commercial Contracts, a modern solution to the terms of the contract" problem. This problem has been denied proper attention in Lithuania. Recent adoption of th new Civil Code of the Republic of Lithuania aims to change the status quo. Tarptautiniai pirkimo-pardavimo sandoriai dažniausiai įgauna pasikeitimo dokumentais formą. For mų konfliktas" - tai pagrindinė problema, su kuria susiduriama sudarant ir vykdant sutartis. Lietuv Respublikos civilinis kodeksas, sekdamas 1980 m. Vienos konvencija dėl tarptautinio prekių pirkimo-pardavimo sutarčių bei UNIDROIT tarptautinių komercinių sutarčių principais (6.178 (akceptas s išlygomis) ir (standartinių sąlygų kolizija) straipsniai), pateikė modernų sutarties sąlygų nustatymo" problemos sprendimą. Lietuvoje šiai problemai nebuvo skirtas tinkamas dėmesys. Naujojo Civilin kodekso įsigaliojimu siekiama pakeisti status quo. Introduction The modern commercial practice of making quotatioas and placing orders with conditions attached, usually in small print, is indeed likely to produce the battle of the forms. The problem is how should that battle be conducted? 1 Inlcrna- 1 Lawlon L. J. Butler Machine Tool Co. Ltd v. Gx- Ccll-O Corporation (England) Ltd. Case concerned the attempted imposition of a price variation clause uy the sellers of a machine. The key question was whether the sellers had made the contract on their terms of sale or not. [#S. Wheeler and J. Shaw, p. 201]. tional sale contracts usually arc taken in a form of documentary transactions. This is to speed up the formation of contracts. The purchase ordef forms, acknowledgement of order forms contain usualprc-printcd terms and conditions,oftenset forth on the reverse of the form, as well as an empty space on the face of the form to be filledin by the parties, regarding substantial provision 8 such as product, price, quantity and delivery. In addition, ordinary businessmen rarely read the prc-printcd clauses in the documents and it results in discrepancy between sale and purchase

2 forms. Thus, one of the most frequently litigated problems arising in documentary transactions is the so-called battle of the forms". Battie of the Forms" problem 2 : when a buyer and a seller seek to make a contract on the basis of their own standard forms - which may contradict each other in some significant respect - whose terms prevail? Since the present article is directed towards exploration of the battle of the forms"- terms of the contract" problem, the commercial agreements are discussed. Conventional contract doctrine, according to S. Wheeler and J. Shaw, states that it is a condition of the enforceability of an agreement that the parties should have intended to create legal relations. Therefore, unless clear words indicate the opposite, the intention is presumed. Also, the cases presented arc those in which the battle of the forms" problem is approached. For the purposes of the article we will not go deep in the is the contract concluded?" problem, but rather encompass only essential points pertaining to the problem which in its turn leads to the terms of the contract" issue. It is no exaggeration to say that the UN Convention on Contracts for the International Sale of Goods 1980 (hereinafter CISG" or thc Convention") represents a landmark in the process of internationalunificationof law. Its importance is demonstrated by the fact that the numberof dccisioas applying the Convention - by both State courts and arbitral tribunals - is rapidly increasing. Furthermore, it presently is part of the law of approximately fifty countries with vastly J Battle of the forms" is a term in commercial law, according to Blacks I.nw Dictionary used to describe effects of multitude of forms used by a buyer and a seller to accept and to confirm terms expressed in other forms. different social, legal and economicsystems. The UNIDROIT Principles of International Commercial Contracts (hereinafter referred to as PICC" or the Principles) also prove to be extremely successful. Some copies of the complete version-which exists in ten language versions, including Russian and Chinese - have been published in a wide range of law journals. Moreover, there are already reports of more than 40 arbitral awards and State court decisions referring to the UNI DROIT PICC in one way or another. Thus, the Second chapter will review the co-existence of two approaches to the battle of the forms" problemembodied in the Convention and in the Principles. The purpose is to prognosticate the success or failure of the Civil Code of the Republic of Lithuania (hereinafter thc Code") to deal with the battle of the forms" problem. Lithuania, being a party to the Convention, aiming to reform its contract law along with the entire legal system, chose, andrightlyso, to adopt the approach to the battle of the forms" problem outlined in the Vienna Convention 1980 and the UNIDROIT Principles of International Commercial Contracts [1994]. Since in practice businessmen and lawyers have been already using the standard forms for international and domestic trade, the discussion about applicability of the provisions of the Code on contract formation is outlined in Chaptcr3. Chapter 1. MODERN APPROACH TO MIRROR IMAGE" RULE IN DIFFERENT JURISDICTIONS No doubt the contract was concluded. But on what terms?... In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date... The better way is to look at all the documents passing

3 between the parties and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points, even though there may be differences between the forms and conditions printed on the back of them... [I]t will be found that in most cases when there is a battle of the forms" there is a contract as soon as the last forms are sent and received without rejection being taken to it... The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who put forward the latest term and conditions, and, if they are not objected to by the other party, he may be taken to have agreed on them... That may however go too far. I n some cases, however, the battle is won by the man who gets blow in the first. If he offers to sell at a named price on the terms and conditions stated on the back and the buyer orders the goods purporting to accept the offer on an order form with his own different terms and conditions on the back, then, if the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller. There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. The terms and conditions of both parties are to be construed together. If they canbe reconciled so as to give a harmonious result, all is well and good. If differences arc irreconcilable, so that they are mutually contradictory, then the conflicting terms may have to be scrapped and replaced by a reasonable implication 3. 1 Opinion of prominent Lord Denning IJ in the case of Butler Machine Tool Co. Ltd v. lix-ccll-o Corporation (England) Ltd. The openingstatement of the chapter serves as an introduction to the main solution of the battle of the forms" problem applied by courts for a duration of well over a century and actively resented by presenting exemptions while applying the uniform law of the countries of various jurisdictions as well as in the legislation on the international contracts. 1. Mirror Image" Classical formalist approach to the mirror image" rule provides that if while purporting to accept the offer as a whole the offeree introduces a new term, s/he is merely making a counter-offer. The original offer is destroyed in this case, it can not be accepted subsequently by the offeree and, as a result, no contract cxisls. The perfect identity between the contents of two dcclaratioas of will (offer and acceptance) is required. This approach, however, is beingdismisscd, though not in its entirety, by the courts world wide. A reason for that being mounting number of techniques for the mitigation of the mirror-image" rule. Continuously mirtor-imagc" rule prevailed as the universally accepted solution of the battle of the forms" problem in the common law jurisdictions such as Australia, Ginada, New Zealand and in USA before the adoption, by majority of the states, of the Uniform Commercial Code (U.C.C.) 4. Civil (or Commercial) Codes of majority of civil law jurisdictions also have adhered to the mirror image" rule: Algeria, Argentina, Germany (paragraph 150 of BGB), Austria (paragraph 869 of ABGB), Italy ' U.C.C. - Uniform Commercial Code of USA is a body of statutes developed to govern most areas of commercial transactions. livery state has adopted some version of the UCC, bringing some measure of uniformity to the legal aspect of business dealings. It is comprised of several articles, each of which governs a specific area of business.

4 (Art of Italian Civil Code). The possibility of exception is rejected even in recent Italian case law on the battle of the forms" which states that if the parties are not expressly agreed on exactly the same terms, there Is no contract. The court cannot make a contract for the parties out of whatever common ground may appear between them [15, p. 47]. This prevailing view illustrates strict mechanistic mirror-image" rule approach to the battle of the forms" problem One can observe that by dismissing the modern last shot" and knock out" approaches Italian, English and Spanish law (case and statute) alike, adhered to mirror-image" rule up to the end of the last century. Rules of the Vienna Convention and increasing numbers of exceptions as to the mirror-image" rule in French and German law will promote the view that only parties arc free to determine whether a contract in fact has been concluded and on what terms. 2. The Last Shot" Doctrine The last shot" doctrine was elaborated and vastly applied by the courts in various jurisdictions. It was used to settle the battle of the forms" problem as soon as the existence of the contract was determined.the essence of t he last shot" doctrine is that where conflicting forms arc exchanged, each is a counter-offer and, in the case of performance, contract is formed on the terms of the final document in the series leading to the conclusion of the contract. In the classic English case of British Road Services I,td. V Arthur V Churchly Ltd. along with American case Poclv. Bmnswick- Blakc-CllcndcrCo. which illustrate the historically prevalent strict adherence to the doctrine, the bargainingof the parties was completely ignored, the buyer was permitted to act in bad faith and the seller was unfairly surprised by the court result.thus, even though Lord Denning's approach purports to give wide power of discretion to the courts which will, to certain extent, be able to take place of the parties in their contractual relationship [12, p. 243], the innovative approach is valuable for appreciation of the battle of the forms" problem, complementing the English theory with the notion of substantial and ancillary terms of the contract, and liberating the common law by offeringan effective alternative to the last shot" doctrine. In this regard, it conforms to the modern trend in most of the major jurisdictions as well as in the uniform law. 3. Permitted discrepancies in the application of the mirror-image" rule Necessity to mitigate the mirror-image" rale as it had been applied by courts in the course of last century stemmed from the very nature of individualised negotiations and private ordering. The mirror-image" rule could and can not be applied in every case of acceptance with variations. In the common practice of the application of the mirror-image" rule several allowable discrepancies between offer and acceptance should be indicated. Inconsistencies in wording between offer and acceptance, additional requirements applied by the courts to the new terms (these can be onlyшшог alterations-otherwise acceptance turns into a counter-offer) in the acceptance form, and in knock out" approach, the adoption of the terms which arc implied by Jawor as a matter of fact" are presented bellow. 3.1 Inclusion of additional information The precise verbal correspondence is not necessary to form contract. As shown in the Schreiber v. Hooker (1953) s according to the US case law 5 If acceptance is coupled with the oilier statements, American courts try to establish wbether the words expressing acceptance can be separated from the rest" and amount to an unqualified assent".

5 of the pre-ucc period (before the adoption of the Uniform Commercial Code) it can be concluded that, even if there is a difference in wording of the new terms, the acceptance is recognised as valid and not constituting a counter-offer. Also additional information included in acceptance upon which the contract is (or Ls intended to be) closed docs not materially alter the contract. In Australian case Carterv. Hyde the High Court of Australia held that the addition of the description of the objects purchased did not make the acceptance qualified. Additional information criteria pertain to the statements in which the acceptor indicates that he Ls not quite satisfied with the bargain, that the contract is hard for him etc.", as well as when an ofcrree adds some suggestions, expresses his state of mind, or adds some requests orwishes". 3.2 More special requirements as to the contents of the acceptance In distinguishing between a counter-offer and a query or request for further information, which does not affect the validity of the offer, court has to look at the circumstances of the individual case [15, p. 35]. Also in most of the civil law jurisdictions (France, Spain, Italy) if a party merely indicates something which in ordinary commercial dealings goes without saying because it Ls to be derived from standard otbona fides, docs not make an acceptance conditional. The modification of the application of the mirror-image" rule by looking into the real intentions of the oferce who allegedly imposes new terms, which were recognised as a mere request of new information, is illustrated by the court ruling in the Stevenson v. Mcl enn case. In this case the buyer's acceptance was held to be complete though coupled with inquiry as to whether he could take delivery over four weeks. In a French case of 1961 the Courdc Cassation held that an acceptance which differs from an offer merely because it includes some details about the property subject matter or merely because it includes some details about the property subject matter of the sale is valid and docs not affect the formation of the contract. The same was concluded in German cases where the offeree either had added some unimportant technical details as to how a certain brochure has to be printed. The uniform law of another common law country, the USA, in both instances - attempting to solve dealwelshcr" and terms of contract" problems - succeeded only after the revision of section following which the judges and commentators elaborated two possible approaches to provide a guidance in terms of contract" and dealwelshcr" problems.the latter were solved by supplementing section with a comment stating that an expression of acceptance in order not to operate as an acceptance must expressly make the acceptance conditional on the recipient's assent to the additional 6 Section provides: (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even thong' 1 it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms arc to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a)tlic offer expressly limits acceptance to the term* of the offer; (b) They materially niter it; or (c) notification of objection to them has already been given or i' given within a reasonable time after notice of them i 5 received. (3) Conduct by both parties which recognises th c existence of a contract is sufficient I» establish a contract for sale although the writings of the parties do no' otherwise establish a contract. In such case the terms o' the particular contract consist of those terms on which the writings of the parties agree, together with any sup' plcmcntnry terms incorporated under any other provisions of this Title.

6 or different terms 7. If there is no such condition, and parties performunderwhat they apparently believe to be a contract, the existence of the contract is recognised and the transaction is closed regarding the last communication to be an acceptance rather than counter-offer. In determining the actual terms of the contract section (2) creates complexity, referring only to additional terms, not to different terms. But the commentators adopted liberal approach state that the exclusion of different terms would violate one of the purposes of U.GGThus American Courts were, bearing in mind the circumstances of each individual case, left free to choose between the last shot" (supra) or knock out" (infra) approach to the problem. New Duch civil code (Burgerlijk Wetbock) makes an attempt to deal with the battle of the forms" providing solutions for both deal wclsher" and terms of the contract" problems 8. The UCC favours first shot" approach in determining which terms in general prevail (supra) and the knock out" approach as far as the conflicting terms are concerned. In this instance, any details which were left out were derived from the laws or usage gapfillers" or implied as a matter of fact". 'The Uniform Commercial Code docs not define, however, the nature of terms of minor importance" but at least has the virtue of requiring the offeror to repudiate expressly the terms he finds unacceptable. In such case, the offeror's attention should be drawn immediately to the contradiction and the conclusions to be drawn from his subsequent conduct should be clarified. ' An acceptance which deviates from the offer is considered to be a new offer and a rejection of the original oeffcr. Unless the offeror objects to the differences without delay, where a reply intended to accept an offer only deviates from the offer on points of minor importance, the reply is considered to be an acceptance and the contract is formed according to the latter. Where otter and acceptance refer to different general conditions the second reference is of no effect unless it expressly rejects the general conditions of the first reference" (15, p ). 3.3 The knock out" approach The essence of the knock out" approach is in comparing the conflicting terms in purchase order and acknowledgement of order forms. The terms may become the part of the contract if they can co-exist, however they will not become the part of the contract if they are irreconcilable and mutually contradictory. In that case they should be removed and replaced by the so called gap-fillers". The question of whether the terms are material rests upon the facts of each individual case. Lord Denning failed to specify where the replacement for the scrapped" terms should come from, his Lordship clearly refuses to follow the traditional offer-acceptance approach in the Gibson v. Manchester City Council case i52. Although the Mouse of Lords overruled the decisionof the Court of Appeal on the grounds that there was no reason to dismiss the conventional mirror-image" rule, their Lordships recognised that in certain cases thc courts will certainly hold that there is a contract even though it is difficult or impossible to analyse the transaction in terms of offer and acceptance". The solution proposed by the U.GG is the following. When conflicting terms cancel each other out of the contract then the non conflicting terms and any other terms supplied by U.GG are inclu- 9 To my mind it is a mistake to think that all contracts can be analysed into the form of offer and acceptance. I know in some textbooks it has been the custom to do so: but, as I understand the law, there is no need to look for a strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and sec therefrom whether the parties have come to an agreement on everything that was material. If by their correspondence and their conduct yon can sec an agreement on all material terms - which has been intended therefore to be binding - (hen there is a binding contract in law even though all the formalities have not been gone through...".

7 dcci, among them the terms incorporated by the course of dealing (& 1-205), course of performance (& 2-208), usage of trade (& 1-205), and other gap fillers" and off-the-rack" terms. Terms arc to be drawn from the parties' forms where the parties arc in agreement. But if such an agreement is lacking when one party's form contains additional provisions that have no counterpart in the other party's terms unless the latter party can, in view of the circumstances, be said to be in silent agreement" with the terms in question, and when a background law does not provide remedy in a particular situation, the solution suggested by the German courts is as follows: the buyer's purchase order form terms constitute a rejection not only of contradictory, but also of additional terms contained in the seller's acknowledgement form. In cases when the parties have performed German courts after the landmark decision of the Supreme Court of September 26, 1973 have separated the issue of contract formation ( deal welsher" problem) and that of contractual terms ( terms of the contract" problem). Having solved the first issue, the Supreme Court, however, did not formulate guiding principles for establishing contractual terms in the situation of the battle of the forms". In a decision of Obcrlandesgericht Koln the panel concluded that to the extent the parties' terms are in agreement, these terms are accepted and for the rest it would draw the needed terms from the background law. There is some support to the knock out" rule in German legislation as well 10. Danish law suggests an inno- vative approach to the problem, one which somewhat follows the tendencies proposed by Lord Denning of the English court of Appeal (supra p. 3): As regards the battle of the forms", the offeror's failure to object to contradictory terms put forward by the offeree will usually mean that the offerees terms prevail ( last shot" approach) - but not if the result is unfair. If the parlies know or should know that their terms are different, but carry on nonetheless with the problem unresolved, neither side's terms will necessarily apply. The general rules of law and implied terms may resolve the problem, as also when neither is aware of the difficulty until dispute arises [15, p. 43]. These developments suffer, however, from the similar problems that have been pointed out by English commentators: wide discretion of the courts does not provide for uniformity and, sometimes, opinions of judges replace real intentions of the parties. There is even less uniformity since Germany is a civil law jurisdiction and judges arc not bound to follow judicial precedents. As regards the terms implied as a matter of fact", the English courts rely on trade usage and the course of dealing between the parties. When the parties have entered into similar prior contracts containing express conditions, these conditions may be implied in a future contract that docs not refer to the conditions. But, as Mr. Pavel. A. Shcvtson alleges in his master thesis 11, this issue is far from being clear. The question in each case is whether one parly has let the other reasonably to believe that their respective rights and liabilities under contract should be govcr- 10 Section 6 of the Gesetz zur Regelung des Rechts der Allgemeinen Gcschasbedingungen (BGBl 1976/ 1142) provides that where, under applicable provisions of the AGB - Gcscte, a standard form term docs not become a part of the contract or is ineffective, the contractual terms arc to be drawn from the provisions of statutory (gesetzlichen) law. 11 ShcvtsovA. P. Hie Battle of the forms" solution under the United Nations Convention on Contracts for the Itcmational Sale of Goods of 1980". Central European University Ixgal Studies Department, Budapest- Vienna-Oxford, 1996.

8 ncd by conditions which have consistently been incorporated into previous contracts between them" 12. Chapter 2. SOLUTION UNDER THE VIENNA CONVENTION ON COOTRACTS FOR INTERNATIONAL SALE OF GOODS OF 1980 AND UNIDROIT PRINCIPLES OF PWTERNATIONALCOMMERCIAL CONTRACTS An opinion exists that thc rules of the Convention-and only these rules -provide comprehensive regulation of the formative scheme of the contract and the traditional declarations of will in the form of offer and acceptance" (exchange of forms in its entirety) [6, p. 15]. This defence of the Convention's approach to the battle of the forms" problem is well grounded but its unconditional nature should not be adhered to. As it will be revealed (infra section 2 ofthe chapter), the systematic interpretation of the Convention's provisions as well as the UNIDROIT Principles is fundamental to achieve justice and uniformity in solving the problemof the battle of the forms". Therefore, even though the formation provisions embody carefully negotiated compromises between civil law and common law concepts (with several serious concessions to the common law), where exchanged forms do not match, application of the Convention will lead to fewer enforceable contracts. Thus applying the rules embodied in CISG in conjunction with UNIDROIT Principles of International Contracts will lead to greater clarity and uniformity of interpretation by domestic courts and tribunals of legislation on international sales contracts. Failure of the drafters to give a particular provision dealing with the battle of the forms" si- "Wavin Ncd cr land BV v. lixcomb Lid. (formerly Coumbcx Lfd.) and olhcrs Queens Bench Division (Commercial Court) 1980 W No 2470 tuationgave rise to various interpretations and debates. Some commentators retain that courts should apply domestic law while others propose that the general principles of Vienna Convention can resolve this problem employing the trade usage as a general principle in context of the battle of the forms" 13. The position favouring the use, by the courts, of general principles, those of the Convention and PICC, will enable, by focusingon the material points towhich parties have agreed, to supply additional terms that will reasonably fill the remaining areas, and should prevail in practice. This opinion comes, in its essence, very close to the knock out" approach [2, p. 133]. The effectiveness of the regulatory tools of CISG should not be questioned. From the legislative history one can readily conclude that the battle of the forms" is regulated by the Vienna Convention rules on formation. The legislative history of Article 19 u CISGdocuments its applicability to situations in which there arc "Those authors who refer to the domestic rules argue that the battle of the forms", particularly the deal welsher" problem, is an issue of contract validity and can not be governed by the Vienna Convention (Art. 4(a) which excludes validity issues from the scope of the CISG). Other authors refer battle of the forms" to domestic law. because arguably the Vienna Convention does not provide any solution for this problem since it fails to determine the contractual terms 13, p. 257]. 14 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he docs not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes arc considered to alter the terms of the offer materially.

9 conflicts between clauses incorporated in the purchase and sale forms. Thus, ideas of some critics alleging that the incapability of the Convention to govern the battle of the forms" problem should be readily dismissed. 1. Battle of the forms" problem under CISG According to CISG Art. 19(1), the reply to an offer which docs not match exactly with the terms of the offer is a rejection and constitutes a counter-offer. The traditional mirror-image" rule is stated. Which, obviously, has to be rejected especially where there are acts of performance, and in most cases of the arguments in which the battle of the forms" problem arises they are present. If the battle of the forms" problem occurs after performance indicates the formation of the contract, only the application of the good faith" principle would result in a neutral solution, prevent ing cither party from gaining an advantage by being the first or the last to send a declaration of will. CISG Art. 19(2) seeks to relax the rule. It carves out from the CISG Art. 19(1) rule additional or different terms which do not materially alter the terms of offer. The dividing line between a material and a nonmaterial alteration is of great importance because only the latter constitutes an acceplance. Nevertheless, it can sometimes be difficult to draw the line, despite the CISG Art. 19(3) list of examples. This list is non-comprehensive because it contains the expression among other things" reinforced by the phrase are considered to alter terms of the offer materially" [6, p. 13). Applying Art. 19(1) to the dealwesher" problem one can see all the drawbacks of the Conventional approach. It allows either party to escape from contract on the grounds that no contract was concluded. This is subject to the cxemptionin art. 19(2) and to the techniques of the courts. One of the latter is to consider modifications as inquires or remarks which should not turn an offeree's response into the counteroffer 15. Another technique is to interpret the offeree's language relating to the variations as a mere suggestion, which the offeror might reject or accept. Thus, even if the reply makes inquiries or suggests the possibility of additional forms, the courts may not consider it as a counter-offer but as an independent communication intended to explore the willingness of the offeror to accept different terms. The acceptance is thendrvided into acceptance of the offer and further offer to modify the contract (#86pgTB - Franswoth, E. Allan Formation of Contracts" p. 332]. When there is an exchange of forms, their terms must be compared to determine if there are variations that may be deemed material- Concerning the terms of the contract" problem, where there has been performance on both sides, Art. 19(2) favours the party who fires the last shot" in the battle of the forms". Since each subsequent form is a counter-offer, rcjectingany priorofferof the otherparty, the resulting contract will be on the terms of the party who sends the last counter-offer, which then is accepted by the other party's performance according to art. 19(3). 2. UNIDROIT'S PICC - elaboration of an international restatement of general principles of contract law. Art (Battle of the forms) contains that [wjhere both parties use standard terms and re- "Thcy can find grounds for that in the notion thai the acceptance need not use the same words as used it' the offer as long as the differences in the wording used «' the acceptance would not change the obligations of tl" 1 parties.

10 ach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract. Official comment states, in short, the following: In the absence of express acceptance by the offeror of the offeree's standard terms, the problem arises as to whether a contract is concluded at all and if so, which, if either, of the two conflicting sets of standard terms should prevail. If the general rules on offer and acceptance were tobe applied, there would either be no contract at all since the purported acceptance by the offeree would, subject to the exception provided for in Art (2), amount to a counter-offer, or if the two parties started to perform without objecting to each other's standard terms, a contract would be considered to have been concluded on the basis of t hose terms which were the last to be sent or to be referred to (the last shot")... [TJhc present article provides, notwithstanding the general rules on offer and acceptance, that if the parties reach an agreement except on their standard terms, a contract is concluded on the basis of the agreed terms and of any standard terms which arc common in substance ( knockout" doctrine). A party may, however, always exclude the operation of the knock-out" doctrine by clearly indicating in advance, or by later and without undue delay informing the other, that it does not intend to be bound by a contract which is not based on its own standard terms. What will in practice amount to such a elear" indication cannot be stated in absolute terms but the inclusion of a clause of this kind in the standard terms themselves will not normally be sufficient since what is necessary is a specific declaration by the party concerned in its offer or acceptance. This comment provides an exhaustive summary, a guidance to the parties which use standard forms in pursuingeffective regulation of their transactions and to the courts in administrating justice. However, the PICC work only in instances when parties explicitly indicate that their transactions arc governed by the UNIDROIT Principles of International Contracts: 1Ъеу shall be applied when the parties have agreed that their contract be governed by them" (the PREAMBLE). Despite this, the efforts of the drafters should not be undermined or underestimated (derogated). Since PICC introduces more clarity as it directly points out that 2.22 pertains to the battle of the forms" problem and, apart from that, provides numerous tools for the solutionof the battle of the forms" problem under more general principles outlined in the other articles rather than Art. 2.22, for example Art. 2.19and The co-existence of the Vienna Convention and the UNIDROIT Principles has been proven on a number of occasions by scholars, drafters and byrefcrence(//i/ra), the analysis of the relationship between the two instruments reveals that the texts are not necessarily incompatible and indeed can usefully support one another [l,p. 93]. The binding nature of the CISG adopted in the form of international convention, and the non-binding nature of the UNIDROIT PICC-at most as a sort of international..restatement" of contract law are discussed. Is there the risk that the two will compete with one another and create confusion, and overlap? The conclusion, strongly supported herein, is that they may co-exist, and possibly even support each other, in practice. To the extent that the two instruments address the same issues, the rules laid down

11 in the PICC are normally taken either literally or at least in substance from corresponding provisions of CISG, cases where the former depart from the latter are exceptional. Relevant instances of the exemptions include: 1) The provision according to which usages do not bind the parties wherever their application would be unreasonable (UNIDROIT PICC Art. 1.8(2). As stated in the Comment, the reason for this limitation, which does not appear in CISG, is that the application of a particular usage, though regularly observed by the generality of business people in a particular trade sector, may nevertheless be unreasonable in a given case, for example, because of the special conditions in which one or both parties operate and/or the atypical nature of the transaction; 2) Article 2.11 of the PICCon modified acceptance no longer contains a list of terms which are to be considered material modification of the offer, and Article 3.2, contrary to Article 29(1) CISG, states in general terms that a contract is concluded, modified or terminated by the mere agreement of the parties without any further requirement [1, p. 93]. The direct relevance of the stated exceptions to the application of the gap fillers" in the knock out" approach to the terms of the contract" problem is express. Chapter 3. CISG IN CONJUNCTION WITH PICC AND THE CIVIL CODE OF THE REPUBLIC OF LITHUANIA The summary of years of experience of the legislators and the courts in various jurisdictions PICC provides for greater uniformity of application of the legislation on the international sales of goods contracts as well as international commercial transactions in general. Consolidation of exhaustive analysis of the practical application of both UNI CITRAL PICC and CISG are presented in scholars' works on interpretation of the Convention (solely or in conjunction with the PICC). The contrasting outcomes under the rules of the CISG, PICC and the Code arc presented for a number of scenarios. The analysis of hypotheses is based on the criterion used in the works on interpretation of the CISG. The use of the method presented allows to explore in detail various decisions which could be reached by the courts. Emerging markets, trying to escape problems in their foreign trade, encompass into the regulation of international transactions the very norms of the CISG and the PICC. The subsequent paragraphs concentrate on the solutions to the battle of the forms" problem under Vienna Convention, the UNI DROIT Principles and the Civil Code of the Republicof Lithuania. In exchange of forms with terms that do n modify the offer materially the solution offered by both CISG according to Art. 19(2) and Art and 2.11 (parallel to CISG art 19) of the Principles is as follows: modifying terms of acceptance (if not expressly rejected by an offeror) become part of the contract upon conclusion and the initial terms of the offer prevail. In this particular situation the Code offers the same solution. In exchange of forms with terms that ma riallymodify the offer by the supplementing clau ses (for example, an additional clause on the arbitration of disputes) the Vienna Convention converts the reply to a rejection and a counteroffer, which, if there is no further manifestation of some type of acceptance (express or be conduct), is not binding. Under the UNIDROIT Principles the contract is concluded excluding the additional clause. But Article 2.20 could be applied, thus even without express consent of

12 the contracting party the..surprising term" 16 could be applicable in cases where it could be reasonably expected to regulate individual transactions. The knock out" rule is applicable according to Art of the Civil Code of the Republic of Lithuania, which mirrors Art of the Principles. acceptance, followed by performance, the Vienna Convention contains that a contract is composed of the terms of the offer. In accordance with Art of the Principles, the term which is not included in the acceptance will not become a part of the content of the contract. As the offering party, by conduct and without indication of the opposite, assented to the exclusion of the term at first present in the offer, the term, therefore, is excluded according to Art of the Code. Incase of a materially altering the term which is added in the acceptance but not in the offer, followed by performance, the Convention will deem the acceptance to be clearly a counter-offer (Arts. 19(1) and 19(2)), thus the additional term (clause) will be applicable. Under both the UNIDROIT Principles and the Code, since there has been no clear indication in advance (before performance which serves as acceptance) that a party docs not intend to be bound by the supplementary term, it will be excluded. "Sec Official Comments of the UNIDROIT Principles of International Commercial Contracts [1994]. An acceptance contains a defensive clause". If Ihe dispute is to be resolved under Art. 19(1), the reply will be considered a counter-offer. According to the Principles, the solution will turn to two factors: first, whether acceptance conditional intent is clear; second, whether intent is expressed in a standard or a non-standard clau An argument in a case of an exchange offonns se. A non-standard clause will prevail over a standard clause (Art of the Principles and with contradictory terms, followed by performance would, under the Convention, result in proclaiming the purported acceptance a counter-of does not apply in this case. Art of the Code). The knock-out" rule fer and deeming that by performance the latter's The offeror insists that only his tenns may be terms prevail. In conformity with Art of considered a part of the contract and an offeree the Principles and Art of the Code the accepts adding a clause. The solution according outcome is the same. to the Convention insists that the material term When a term isincludedin the offer but not in not mentioned by the offeror turns the acceptance into the counter-offer, the Iattercan be accepted by an act of performance (reception of the goods). The courts or arbitrators would, according to the Principles and the Code, come to the conclusion that additional term is excluded. In cases where the previous negotiations are present but the existence of the contract is unclear. According to the Convention if there is no identifiable sequence of declarations of will in the form of offer and acceptance, but there is performance, nothing prevents the application of the general principles of the CISG, the contract will be concluded. Under the Principles the result will be the same based on the fact that the contract will be understood concluded, as indicated by the behaviour of the parties, as relevant proof of its existence (Art. 2.11). In case of usage of standard forms, even if there is no explicit indication of entry into contract, the parties have to be acquainted with the terms (under conditions designated by the Code) for the courts to recognise them as binding. The Code, thus, provides a complete set of rules for the solutionof the problem First, these arc articles embodying material provisions on

13 "Art. 1 of the Vienna Convention 1980: (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of (his Convention. In conjunction wiih Art. 7 (2) of the Convention - Questions concerning matters governed by this Convcn- the battle of the forms". Second, provisions on in instances when one of the parties do not cortf interpretation of contracts and on the freedom from a Contracting State (of the Convention), of contract principle establish common rules for judges can find more guidance as to the solution interpretation of contracts. Lithuania is a civil to the battle of the forms" problem. law jurisdiction, therefore courts are not entitled to establish practice of usage of techniques ce of the courts and contracting parties, interna The legislator has codified, for the convenien for solving battle of the forms" problem on their tional as well as pre-code domestic practices of own. The Code, though, succeeds in providing the solution of the battle of the forms" problem the courts with those tools. Part 5 of Article provides that as the contract is construed negotiations preceding the Articles 2.19 (Contracting Under Standard Terms), 2.20 (Surprising Tenns), 2.21 (Conflict conclusion of the contract, practices of relations Between Standard Terms and Non-Standard between the parties (established by the parties Terms) and 2.22 (Battle of the Forms) are, with minor alterations and additions (for example including thoroughdescriptionof what is meant by standard terms"), included into, or constitute as a whole, articles of the Civil Code of the Republic of Lithuania 6.185, 6.186, 6.187, and respectively. Thus, Lithuania's legislator has, taking into consideration the lack of governmental authority of the PICC, established a firm ground for application of the general principles of contract formation in international transactions and, if the rules of the international private law deem Lithuanian domestic law applicable to the transactions in question 17, this is relevant or present as a matter of fact), the behaviourof the parties after conclusion of the contract and customs (usage) shall be observed". Article also empowers courts, while rendering the term definite, to examine the real intentions of the parties, but warns no to deviate from the fairness principle. Article (Freedom of Contract) along with traditional declaration of parties'freedom to enter into a contract and to determine its content in accordance with applicable mandatory rules, part 6 allows courts, basing their decision on custom and criteria of justice, prudence and fairness, as well as solutions offered by specialised provisions on sales contracts, to determine [fix, establish], in case of a dispute, the missing terms of t he contract. Pertaining to the battle of the forms" problem the provision enables to save the contract" from bcingdeclarcd void and to solve the terms of the contract" problem with due consideration of the opportunities for the best possible solution. Consequently, optional and mandatory terms outlined in the Code and laws pertaining to the sales of goods contracts at lion which arc not expressly settled in it are to be settle in conformity with the general principles on which it ' 5 based or. in the absence of such principles, in conform'' ty with the law applicable by virtue of the rules of privat international law.

14 large arc, according to the Code, to be used, where appropriate and necessary, to complete the content of a contract. On the other hand the last shot" doctrine (Art of the Code) may be appropriate if the parties clearly indicate that the adoption of their standard terms is an essential condition for the conclusion of the contract. This international experience is adopted in Art of the Code. Where, on the other hand, the parties, as is very often the case in practice, refer to their standard terms more or less automatically, for example by exchanging printed order and acknowledgement of order forms with the respective terms on the reverse side, they will normally not even be aware of the conflict between their respective standard terms 18. There is in such cases no reason to allow the parties subsequently to question the very existence of the contract or, if performance has commenced, to insist on the application of the terms last sent or referred to. Thus, the importance of Art. 19 (1) and (2) of the Convention cannot be overlooked. It does not provide a list of terms which are considered material. The Civil Code in question provides neither the list of sources for the scraped terms (in case of the knock out" approach) nor the criteria for identifying materially altering" terms in purported acceptance (if adoption of the last shot" form is in question). It hints that the parties should introduce a clause eithcrdefiningwhat they consider tobe materiał alterations" or be prompt ("without undue delay") with their objections to the discrepancy. And only "In order for the standard terms to be binding on the parly this party has to be introduced to the standard terms under which the other party is willing to transact. The Code expands on the battle of the forms" prohlcm introducing a definition (Art part 1) of and a criteria for qualification of the standard terms" as being binding on the contracting parly other than the one which introduces the terms (Art parts 2 and 3). in the iaslance when the parties do not read the back of the forms (which is usually presumed in cases of the battle of the forms" problem), one should turn to the official comments of Art of the PICC and international interpretation of the Convention, which are not complete as to the sources of the gap fillers" (nor is the text of the CISG), but present one of the most important guidelines for the courts and tribunals, namely, that if..additional or different terms are commonly used in the trade sector concerned and therefore do not come as a surprise to the offeror" they do not amount to a materiał" modification. Though it is repeated throughout, that the peculiarities of an individual case have to bear prime importance. What amounts to a materiał" modification cannot be detenrtined in the abstract but will depend on the circumstances of each case. Additional ordiffcrent terms relating to the price or mode of payment, place and time of performance of a non-monetary obligation, the extent of one party's liability to the other or the settlement of disputes, will normally, but need not necessarily, constitute a material modificationofthe offer. Conclusion I laving considered the options presented before the courts by the modern doctrine and its reflections in the legislature and case law on the mirror-image" approach to the battle of the forms" problem of various jurisdictions around the world, the following conclusion can be drawn. The general rule slates that the last shot" decides the battle - those terms which are last or at least latest to be put forward without objection by the other side. But as lx>rd Justice of Appeal, Lord Denning, says, there are exceptions, up to and including the possibility that the conflicting terms cancel each other out. The only weakness in his otherwise admirable summary is that it

15 docs not really tell us when or why any one of these totally different answers may be given. But there is a good reason for that, M. H. Whincup claims, which is that the problem may arise at many different stages of negotiation between the parties and clearly there could not be one simple answer equally applicable to all. The facts of the cases themselves determine the outcome [14, p. 36]. It is up to legislative bodies (both national and international) to provide tools for administering justice and it is up to the courts to construe provisions and apply knock out", first or last shot" approaches depending on the circumstances of each case. AH over Europe the tendencies of the mitigation of the mirror-image" rule prevail in courts and legislation. Nonetheless it has to be noted that there are some fundamentally diverse decisions based both on the domestic law and international legislation. Mam criteria for stating that the contract is concluded is the distinction between subsidiary and essential (or substantial) terms of the contract and whether they do not cancel each other out. Itwas sought to be established by the civil law Jurisdiction, by the uniform law of the USA and in International legislation. The decisions of the courts followed which deemed that an agreement on essential elements was sufficient to form the contract. Thus, there are several approaches that have been considered over the last two decades. But neither merely choosing a domestic interpretation from another country nor choosing the majority rule of the existing domestic opinions of the countries of the parties (or the whole of the world) does amount to or equates the international interpretation. It is clear that uniformity in construing the Convention is crucial for protection of the interests of the parties and their right to contract on chosen (deliberated or implied) terms. Due to its binding nature the application of the Vienna Convention depends solely on the interpretation by the domestic courts of the CISG and construing the terms of international sales contracts The UNIDROIT Principles were not intended to become a binding instrument aimed at unifying national laws relating to international contracts, they were much less conditioned by the differences existing between various legalsystems As a result, it was possible for them to address a number of matters which arc either completely excluded or not sufficiently regulated by CISG. l' is apparent that no real competition exists between PICC and CISG. UNIDROIT Principles can be used to interpret (judges and arbitrators resort to the UNIDROIT Principles mdeterrmnuiggeneral principles, only relevant provisions of the PICC are the expression of a general principl e underlying CISG), supplement CISG (in cases when two parties are not situated in the ContractingStates of the Vienna Convention), and fill in the gaps left by the Convention (in this instance i' could be stated clearly in a special clause of a contract just to make it easier for the judges to deteiminc the real intentions of the parties as to the law which should govern the transaction). It is on a firm basis that the conclusion can be drawn that the Civil Code of the Republic of Lithuania has taken, at least on the legislative level, the regulation of the international transactions, sales of goods and others, a step further in direction of greater clarity and uniformity of regulation of the transactions. Success can be envisioned as regards the solution of the battle of the forms" problem, which in its turn encompassing the key terms of the contract" issue had to be solved in the context of ongoing integration into the EU, celebrated accession to the WTO and other inevitable globalisation processes. The Lithuanian market is an emcrgingsales of goods market. It is overcoming the crucial