Practices Established Between Parties Under the CISG From Austrian Law Perspective

Oliver Loksa speaking at the 11th pre-VIS Moot in Riga 2017

A. The 11th pre-VIS Moot in Riga 2017 – an Event to Return to

It could not have gone unnoticed to anybody in the arbitration community and even beyond that on 13 April 2017 the Annual Willem C. Vis International Commercial Arbitration Moot (the “VIS Moot”) came to an end in Vienna. Again, as every year, the city was buzzing from hosting young as well as more senior legal talents. Over 2,000 students from 350 law schools across 65 different countries participated in the competition. In the end, the University of Ottawa team won but it is fair to say that all participants can look back at valuable experiences and forward to 2018’s edition of the VIS Moot.

As has become common, the VIS Moot was preceded by numerous events in the course of which participants had the chance to practice for the competition in Vienna. One of such pre-VIS Moots took place in Riga, Latvia, from 10-11 March 2017. Just prior thereto, on 09 March 2017, a conference was held at which experts from all around Europe held speeches on issues forming the basis for this year’s VIS Moot: Following a welcome speech by Anita Rodina, Dean of the Faculty of Law of the University of Latvia, Wolfgang Hahnkamper (independent arbitrator, Vienna), Giedre Aukstuoliene (Valiunas Ellex, Vilnius), Natasha Peter (Gide Loyrette Nouel, Paris), Matej Kosalko (Dentons, Bratislava), Inese Druviete (docent, Riga Graduate School of Law) Janis Sarans (former participant and co-couch at the VIS Moot, University of Latvia) and the author of this blog provided everybody present with valuable insight into legal aspects not just significant for this year’s VIS Moot but also for disputes in legal practice, one of which being the question, when practices between parties are deemed established.

Special mention has to go to Inga Kacevska (Inga Kacevska Law Office, Riga, and Associate Professor at the Faculty of Law of the University of Latvia) for organizing this event and moderating the conference. I am convinced that thanks to her efforts participants will be happy to return to Riga in 2018.

B. Practices Established Between the Parties – Their Application on and Relevance for Contractual Interpretation[i]

1. Introduction

Taking a good look at practices established between the parties[ii] when interpreting a contract or establishing its content is hardly a new approach. It is thus not surprising that the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) makes numerous references thereto.[iii] However, neither provision nor the entire CISG contains a definition thereof.

2. When is a Practice Deemed to be Established?

It is undisputed that in order for a practice to be deemed established between the parties a certain lengths of the business relationship or a certain amount of transactions is required.[iv] It seems to be an established principle that the execution of one previous agreement does not suffice, nor does a one-off delivery of goods.

However, the Austrian Supreme Court (“OGH”) does not exclude that expectations of a party having arisen even upon commencement of a business relationship can, under certain circumstances, already qualify as practices established between the parties. The OGH established such principle in a decision in 1995 and confirmed it in another decision in 2005.

In the first decision,[v] the question arose whether claimant must have known that respondent concluded purchase contracts in writing only. Respondent argued that this must have been derived from respondent’s terms and conditions, the draft of a framework agreement and pre-contractual correspondence. Based on such conduct it was argued that practices between the parties were established despite there not having been any prior business relationships or transactions.

The OGH concurred with respondent’s general legal view that certain expectations can result in practices between the parties being deemed established despite a lack of previous transactions/agreements. However, in the given case such expectations were denied because it could not be established that claimant was actually provided with respondent’s terms and conditions. The OGH neither shared the respondent’s view that such practices could be derived from the draft framework agreement, as such agreement was to cover a different businesses than the purchase contracts and, in addition, remained a draft only.

In the second case,[vi] 4 offers were sent to seller, 3 thereof were carried out and one was explicitly accepted in writing. Such offers included a reference in English to terms and conditions in German, which were submitted together with the offers. Seller was a company based in Hong Kong and prior to the business relationship at hand the parties had not had any dealings together. Unsurprisingly, the OGH was of the opinion that practices between the parties have been established. Due to the offers submitted and carried out it must have been evident to seller that buyer was only willing to conduct business transactions under such terms and conditions, regardless of the language, as German has to be considered a language widely known and seller could have translated the terms or could have asked for a translation. Seller did not do so and thus gave the impression to buyer to accept its terms and conditions.

3. Relevance of Written Contract Requirement-Clauses

In practice, most contracts provide for amendments of a contract having to be in written form (via so-called waiver-clauses, NOM-clauses etc). In addition, very often, contracts also provide for a clause pursuant to which renouncing the written form requirement can validly be carried out in written form only. Such requirement is, logically, of no relevance for the determination of the initial intention of the parties. But can an agreement be amended, modified or terminated by such practices? The CISG is not silent on such issue. Art 29 (2) first sentence states:

A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement.

At first sight, everything seems clear: In case of a written form requirement, a contract cannot be amended in any other way. This has particular relevance, as not every jurisdiction follows such strict approach. Under Austrian law, for example, a contractual written form requirement does not automatically bar a modification thereof in another way than in writing. The OGH[vii] has repeatedly established that parties can renounce a written form requirement-clause both by oral agreement or implicitly. Such conduct is, however, only possible upon agreement of the parties. The burden of proof is borne by the party arguing such renouncement.

But under the CISG? Strictly speaking, such conduct should not be binding upon the parties. In most cases, however, second sentence of Art 29 (2) will be applicable:

However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

But does this ultimately lead to the same result as one would have under Austrian law, i.e. an amendment, modification or termination of the provision in question? No.According to an example contained in the Secretariat Commentary on the Draft on CISG,[viii] the agreement of the parties, which did not fulfil the written form requirements, remains invalid. The parties’ conduct does not lead to its validity. Rather, the “only” consequence is that the party asserting the initial provision, from which the parties subsequently deviated orally or impliedly, cannot invoke such provision. The party is barred therefrom.

This has significance for the future execution of the contract. The party asserting the provision has to accept the modification of the contract for the past. However, for the future, the other party has to reinstate the initial performance. Scholars[ix] have voiced their disapproval of such interpretation and have argued that the contract should be understood to have been modified, as at some point such practices will have to be qualified as established pursuant to Art 9 (1), regardless of a written form requirement. This seems reasonable but would contradict the clear wording of Art 29 (2). At least in Austria there does not seem to exist any case-law on this matter.

4. Final Remarks

There is, of course, a lot more to be said about practices between the parties and their impact. It is evident, as demonstrated by Austrian case law, that courts of different jurisdictions apply slightly different standards for the question when practices between parties are deemed established – despite the CISG having to be interpreted autonomously. Thus, it is certainly advisable not to refrain from reviewing and assessing decisions by courts from foreign jurisdictions. It was indeed interesting and fascinating to observe, how participants of the VIS Moot approached this significant and tricky issue.

written by Oliver Loksa

ENDNOTES

[i] The following is a summary of the author’s speech given at the conference in the course of the 11th pre-VIS Moot in Riga on 09 March 2017.

[ii] Not to be confused with usage.

[iii] Cf. Art 8 (3), Art 9, Art 29.

[iv] Schlechtriem/Schwenzer, Kommentar zum Einheitlichen UN-Kaufrecht, Art 9 rec. 8; Ferrari, Zur Bedeutung von Handelsgebräuchen und Gepflogenheiten nach UN-Kaufrecht, The European Legal Forum 5/2002, p. 274.

[v] OGH 06.02.1996, 10 Ob 518/95.

[vi] OGH 31.08.2005, 7 Ob 175/05v.

[vii] OGH, case-law bundles RS0038673, RS0014378.

[viii] Available at http://bit.ly/Secr_Comm_29CISG.

[ix] Gsell in Honsell, Kommentar zum UN-Kaufrecht, Art 29 rec. 22.

Oliver Loksa

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