Cite as Bonell, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 103-115. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
Michael Joachim Bonell
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(1) The parties are bound by any usages to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.
1. History of the provision.
1.1. - The effect which should be given to usages that develop more or less spontaneously in trade practice, has always been a highly controversial issue in the context of uniform legislation on international sales contracts. In examining this issue at least two questions must be asked. First, what criteria are to be adopted in order to determine which usages are binding on the parties to a given contract? Secondly, can usages override the uniform law or should they apply only when the uniform law contains no conflicting provisions?
1.2. - The antecedent of this article is to be found in Article 9 of ULIS which read:
(2) They shall also be bound by usages which reasonable persons in the same situation as the parties usually consider to be applicable to their contract. In the event of conflict with the present law, the usages shall prevail unless otherwise agreed by the parties.
(3) Where expressions, provisions or forms of contract commonly used in commercial practices are employed, they shall be interpreted according to the meaning usually given to them in the trade concerned. [page 103]
ULFC had no corresponding provision, but in the end, it gave more or less the same effect to usages in connection with the formation of sales contracts. Indeed, after expressly referring on several occasions to «practices which the parties have established between themselves» and «usages» which may implement or derogate from its own provision (see Articles 2(1), 4(2), 5(3), 6(2), 8(1), 11, 12(2)), Article 13(1) of ULFC, defined «usages» as «any practice or method of dealing, which reasonable persons in the same situation as the parties, usually consider to be applicable to the formation of their contract».
1.3. - Some of the changes introduced in this article are merely of a technical nature.
1.3.1. - The fact that it no longer expressly states that in the case of a conflict between usages and the provisions of the Convention the former will prevail, does not mean that under the new Convention the usages may apply only to the extent that they do not conflict with any of the Convention's provisions. According to the prevailing view within UNCITRAL (see Yearbook, VI (1975), 53) and at the Vienna Conference (see Official Records, II, 263 et seq.) such an express statement was simply considered to be unnecessary as the precedence of the usages applicable under paragraphs (1) and (2) of this article automatically follows from Article 6 which embodies the principle of the parties' autonomy.
1.3.2. - Similarly, the reference now made in paragraph (2) to usages which the parties are considered to have made applicable not only to their «contract» but also to its «formation», is a logical consequence of the fact that this article, placed in Part I of the Convention (Sphere of Application and General Provisions), is intended to deal with both the formation of the sales contract (Part II) and its effects (Part III) (see Official Records, II, 264-265).
1.4. - On the other hand, the new wording of paragraph (2) and the deletion of Article 9(3) of ULIS (as well as of Article 13(2) of ULFC) could be viewed as changes in the substance.
1.4.1. - In particular, paragraph (2), at least at first glance, appears to have become an ancillary provision to paragraph (1) since [page 104] its purpose is to define the usages which the parties are deemed to have impliedly made applicable to their contract. On the contrary, Article 9(2) of ULIS, by referring to «usages which reasonable persons in the same situation as the parties usually considered to be applicable to their contract», clearly recognized the binding force of a different type of usage, i.e., usages not expressly or impliedly agreed upon by the parties in the sense of paragraph (1). This approach has from the very beginning met with considerable criticism. From a legal perspective it has been pointed out that the reference to «reasonable persons» was too vague, since usages relating to the same type of contract might differ from one region to another so that «reasonable persons» from different parts of the world might very well consider different usages as applicable to the contract (see Yearbook, II (1971), 58). From an economic and political perspective the excessive effect given to usages by Article 9(2) of ULIS has been also criticized because in practice it would almost certainly be detrimental to contracting parties from developing countries. Indeed, since most of the usages nowadays existing in international trade developed at the commodity markets and exchanges situated in the major industrialized nations, not only are they often one-sided as to their content, but are also to a large extent entirely unknown to merchants from other countries (see Yearbook, I (1968-1970), 169; Yearbook, VI (1975), 52).
1.4.2. - The reasons for deleting the provision contained in article 9(3) of ULIS (as well as that in Article 13(2) of ULFC) are basically the same: The fear was expressed that by virtue of such a provision a given expression or commercial term employed in a contract could be interpreted by means of model definitions or rules unknown to one of the parties (see Yearbook, VI (1975), 52). And since any attempt to conform the rule of interpretation laid down in Article 9(3) of ULIS to the criteria for determining the relevant usages in general which have now been adopted in paragraphs (1) and (2) of the present article would inevitably have led to unnecessary repetition, it was felt preferable to delete the provision contained in Article 9(3) of ULIS altogether. The point was raised again at the Vienna Conference where several delegations favoured the reintroduction of a rule similar to that in Article 9(3) of ULIS in the final text of Article 9. They [page 105] argued that, as it was simply a rule of interpretation, its purpose was quite different from that of Articles 9(1) and 9(2) and that it was precisely in the absence of an express provision of the kind adopted in Article 9(3) of ULIS that a national judge might be tempted to give a commercial term employed in an international transaction a meaning familiar only to him (and to only one of the parties) (see Official Records, II, 267). However all the amendments in this sense presented at the Conference (see Official Records, I, 89-90) were rejected, although by a small majority.
2. Meaning and purpose of the provision.
2.1. - Paragraph (1) states that the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
2.1.1. - By «practices which [the parties] have established between themselves» is meant a course of dealing adopted by the individual parties. Except for the case in which a party expressly excludes their application for the future, courses of dealing are automatically applicable not only to supplement the terms of the contractual agreement but also, pursuant to Article 8, to help to determine the parties' intent. This almost literally corresponds with § 1-205 of the United States Uniform Commercial Code whereby a course of dealing, defined as «a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct», serves the purpose «to give particular meaning to and supplement or qualify terms of an agreement». In most cases a course of dealing will relate to a minor point, such as a certain tolerance for non-observance of statutory or contractual time requirements or for quantitative or qualitative defects of the delivered goods, the granting of a price reduction, or notice procedures. However, a course of dealing could sometimes affect the entire content of the contract. For example, if the parties in their previous transactions regularly adopted certain general conditions contained in a separate writing, in subsequent contracts they may be bound by such conditions even in the absence of any express reference thereto. [page 106]
2.1.2. - The fact that the parties are bound by usages to which they have agreed derives from the general principles of party autonomy (Article 6). Indeed the parties may either negotiate all the terms of their contract or for certain aspects simply refer to other sources including usages. In such a case the usages become an integrated part of the contractual agreement. The parties may refer to any usage irrespective of its original sphere of application. Thus they may stipulate the application of a usage developed in a region or trade sector to which neither party belongs, or of a usage relating to a different type of contract. It is even conceivable that the parties agree on the application of what are sometimes misleadingly called usages, i.e., a set of rules issued by a particular trade association under the title of «usages», but which reflect only in part established general lines of conduct.
Article 9(1) does not state that an agreement to apply a usage must be express; thus the agreement may also be implied. For example, this would be the case where the parties with respect to particular issues related to the formation or the performance of the contract deliberately act in conformity with a local usage or a usage within a given trade. Yet, an implied reference to a usage may also be contained in an express statement of one party (e.g., the offer or the statement of acceptance), provided that the interpretation of the statements permits such an inference. According to Article 8(1) the decisive factor in this respect is the actual intent of the party making such statement, provided that the other party knew or could not have been unaware of that intent. Otherwise the understanding which a reasonable person of the same kind as the other party would have had in the same circumstances is to be considered (Article 8(2)). In both cases regard is to be given to all the relevant circumstances of the particular situation, including inter alia «any practices which the parties have established between themselves and usages» (Article 8(3)) (see commentary on Article 8, § 2.2.-2.6., supra). It follows that an implied agreement on the application of the particular usage may be inferred when the statement of one party customarily can be interpreted as an implied reference to that usage, and the other party failed to expressly object to it. However, in interpreting the statements of the parties only usages which fulfil the requirements of Article 9(2) may be employed. [page 107]
2.2. - Paragraph (2), by referring to usages which «the parties are considered ... to have impliedly made applicable», gives the impression that its purpose is only to qualify further the general principle expressed in paragraph (1). However a closer examination reveals that this is not entirely true. The criteria set forth for the identification of usages whose application is justified on the presumption of an implied intention of the parties, are of two kinds. First, the usage must be one «of which the parties knew or ought to have known». Second, the usage must be one «which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned».
2.2.1. - The first requirement is intended to make sure that there will always be an effective link between the application of a particular usage and the parties' intention. Yet this will clearly be the case only when both parties actually knew of the usage, so as to legitimate the inference that, in the absence of any express statement to the contrary, they intended to incorporate it tacitly into their contract. The same cannot be said where a usage applies simply because both or one of the parties ought to have known it. In this case it is the law itself which confers the binding force on the usage, and to explain its application on the basis of an implied agreement between the parties amounts to a legal fiction.
After all only in this way is it explicable that the rule laid down in paragraph (2) is expressly made subject to a contrary agreement between the parties («the parties are considered, unless otherwise agreed, to have impliedly made applicable ...) (emphasis added). Actually it would make little sense to provide that there is no contractual agreement concerning the application of the usages, if the parties agreed otherwise. Only if one accepts that the justification for the application of the usages lies in the law itself, can one understand why the law simultaneously provides that the parties in each case are free either to exclude entirely the envisaged application of the usages or to make it contingent upon stricter or less stringent conditions than those set forth in Article 9(2).
2.2.2. - The second requirement which a usage must meet in order to be applicable under paragraph (2) is an objective one. The fact that the usages must be regularly observed within the [page 108] particular trade to which the parties belong (e.g., wheat trade, trade with industrial machinery, etc.) and for contracts of the type involved (e.g., different stages of distribution; trade with soft wheat and hard wheat, etc.), corresponds in substance to the solution already to be found in Article 9(2) of ULIS as to the personal and material sphere of application of the usages envisaged therein. The additional requirement that the respective usage be widely known in international trade is new. Its purpose is to avoid that usages, which until now have been confined to domestic sales, will be applied to transactions with foreign traders (SCHLECHTRIEM, UN-Kaufrecht, 28; Uniform Sales Law, 41). British machine exporters therefore can no longer rely on usages of the domestic British machine trade when dealing with an Indian or Nigerian importer, even if such usages are within the United Kingdom so widely known that the foreign party either knew or at least should have been aware of them.
2.2.3. - However, the new formulation of Article 9(2) should not be understood to prevent in all cases usages of a purely local or national origin from being applied without any reference thereto by the parties. One exception, for example, should be the applicability of usages existing at certain commodity exchanges, trade exhibitions or ports, provided that they are regularly followed also with respect to trade with foreigners. Another exception concerns the case of a businessman who in a foreign country has already entered into a number of similar contracts and should therefore be bound by the usages established within that country for such contracts (RÉCZEI, The Rules of the Convention, 84; BAINBRIDGE, Trade Usages in International Sales of Goods, 658).
One must still mention that, since the Convention gives local usages very limited recognition, cases will seldom occur where a conflict between two or more such usages arises. However, in the exceptional case that such conflicting usages are equally applicable, they mutually exclude each other and the issue has to be resolved either according to the relevant provisions of the Convention or, in the absence thereof, according to the gap-filling principles of Article 7.
2.3. - At the Vienna Conference the view was expressed that the question of usages is one of the issues which had been most fiercely debated and that the final formwation of this article represents a «hard-won compromise» (see Official Records, II, 266). [page 109]
As a matter of fact, a comparative analysis of the various national laws shows (see BONELL, The Relevance of Courses of Dealing, Usages and Customs in the Interpretation of International Commercial Contracts, in New Directions in International Trade Law, Dobbs Ferry, N.Y. (Oceana), 1977, I, 110 et seq., 4 et seq.; JUNGE, in DÖLLE, Einheitliches Kaufrecht, 41 et seq.) that the approaches traditionally taken with respect to the problems of the relevance of usages in the interpretation of contracts are, broadly speaking, of two different kinds. On the one hand, there is a tendency to consider usages, just as any other contractual term, applicable only if there has been a corresponding express or implied intention of the parties. On the other hand, there are those who prefer to explain the binding force of usages on objective grounds. They do this either by identifying them with rules which, as such, have objective and general validity, or by pointing out that, since it is the law itself which refers to them as a possible means of interpreting contracts, their application in a particular case depends no longer on a corresponding intention of the parties, but directly on the law.
Compared with these two different approaches the solution adopted by this Article clearly represents a compromise. However, it should not be overlooked that even within the various national laws the differences between the subjective and the objective approach are at least in practice less marked than might appear at first sight. Thus even in those legal systems in which the application of usages is in principle made dependent on a corresponding intention of the parties, such an intention is very likely to be presumed by virtue of the simple fact that a particular usage is commonly observed in the trade sector in which both parties operate. On the other hand, the prevalence in different legal systems of the objective approach does not prevent them from requiring for the application of a particular usage a corresponding intention or at least the knowledge of the parties whenever that usage proves to be insufficiently certain and notorious as to justify the expectation that it will be observed with respect to the transaction in question.
3. Problems concerning the provision.
3.1. - This article lays down the criteria for the determination of the relevance of usages for the interpretation of a given contract, [page 110] i.e., it specifies the conditions under which the parties shall be considered to be bound by a particular usage. Yet it fails to define the concept of usages and does not deal with the questions of proof and of validity of usages.
3.2. - As to the meaning of the concept of usages in the context of this article, it certainly is to be determined in an autonomous and internationally uniform way. It follows that distinctions, traditionally made in the various national laws, between «custom», «proved trade usages» and simple «usages», «Gewohnheitsrecht» and «Handelsbräuche», «usages de droit» and «usages conventionnels», «usi» and «clausole d'uso», etc., are irrelevant for the purpose of this article. This article clearly refers to « usages» in the widest possible sense, i.e., to any practice or line of conduct regularly observed within a particular trade sector or at a particular market place, irrespective of whether, according to some national law, it would fall within one or the other of the categories mentioned above. The usages may or may not have been registered: the mere fact that they are contained in some official or semi-official publication in no way influences their binding character. Nor can the fact be excluded that, instead of being the result of a spontaneous and generalized practice, they were originally formulated by a particular trade association with a view to being adopted only by its own members. A set of rules, though at first drafted and adopted by a restricted group of persons, may subsequently, thanks to their voluntary and repeated use by a broad range of businessmen, become veritable usages of the whole trade sector, thus giving rise to what has been described as «the conscious creation of usages».
3.3. - Whether it is up to the party claiming the relevance of a particular usage to prove both its existence and its content or whether usages may also be applied ex officio is to be determined according to the law of procedure of the forum. A brief survey of the major legal systems shows that almost everywhere the first solution is adopted (see JUNGE, in DÖLLE, Einheitliches Kaufrecht, 48), it being understood that, once the existence of the usage has been proved by the party, the judge decides as a question of law whether the usage is applicable to the particular contract. The result might, however, be different if the disputes were submitted [page 111] to arbitration rather than to a court. This is because an increasing number of national and international legislation as well as arbitration rules adopted by the various arbitration institutions or other. organisations expressly allow or even require arbitrators to take into account relevant trade usages, when making their decision (see e.g., Article VII of the Geneva. Convention on International Commercial Arbitration of 1961; Article 1496 of the French Code of Civil Procedure as introduced by Décret n. 81-500 of 12 May 1981; Article 33 of the UNCITRAL Rules of Arbitration; Article 13 of the International Chamber of Commerce Rules on Conciliation and Arbitration; and Article 28(4) of the UNCITRAL Model Law on International Commercial Arbitration).
3.4. - According to Article 4(a) the Convention «is not concerned with ... the validity ... of any usage». It follows that the decision as to whether a given practice although meeting all the conditions of a usage, should be denied any effect because of its inconsistency with provisions of law, is to be made according to national law. Normally this will be the proper law of the contract, i.e., the national law which in the absence of the Convention would have governed the contract of sale as a whole.
3.4.1. - A usage may prove to be invalid either because its content is contrary to a legal prohibition or public policy or because the consent of the parties to apply that usage was defective. The latter case occurs if one of the parties were mistaken about the content of the usage or were induced to consent to the usage by fraud, threat or other illegal means, such as the abuse of unequal bargaining power. But the usage must be one whose reason for application is found within the parties' intent: in other words, the possibility of challenging a usage for defective consent is given only where such usage has been expressly or impliedly agreed upon according to Article 9(1), not where the usage is applicable on the basis of the legal presumption of Article 9(2).
3.4.2. - The suggestion to provide expressly in the Convention that only «reasonable» usages could bind the parties (see the corresponding proposal submitted at the. Vienna Conference by the delegation of the People's Republic of China: A/Conf.97/C.1./L. 24) did not receive sufficient support. One of the [page 112] arguments against the suggestion was that conduct contrary to good faith could never develop into a generally accepted usage (see Official Records, II, 263). Although this argument is questionable, the rejection of the proposed amendment is not to be regretted. Indeed, at least in the Anglo-American legal systems the «reasonableness test» has nothing to do with the question of substantive validity of usages, rather it serves to define more precisely the conditions of applicability of usages to which the parties did not expressly agree (see § 222 Restatement (Second) of the Law of Contracts, Official Comment: «A usage of trade need not be "ancient" or "immemorial", "universal", or the like. Unless agreed to in fact, it must be reasonable, but commercial acceptance by regular observance makes out a prima facie case that a usage of trade is reasonable»). The Convention contains a different provision which could serve as a uniform criterion for the substantive evaluation of usages. It is Article 7(2) according to which «in the interpretation of the Convention regard is to be had ... to the need to promote ... the observance of good faith in international trade». One can imagine that, based upon this provision, a usage could be disregarded, despite the fulfilment of all the conditions in Article 9(1) or (2), because in a given case its application would run counter to the principle of good faith in international trade (see commentary on Article 7, § 2.4.1., supra).
3.5. - Parties to an international sale contract quite often do not provide for detailed regulation of specific aspects of their transaction, such as the mode of delivery, the allocation of risk, the mode of payment, etc. Instead they simply refer for that purpose to one of the typical terms or expressions commonly used in international trade practice (e.g., F.O.B., C.I.F., F.A.S.; «Documents against Acceptance», «Documents against Payment», «Letter of Credit, etc.). In all these cases a question arises concerning the precise meaning to be given such terms or expressions.
Should they be construed according to the definition given to them by a particular national law and, if so, by which of the various conflicting laws, or should their meaning rather be determined according to the rules and practices which have more or less spontaneously developed within the respective trade sector? [page 113]
Article 9(3) of ULIS expressly stated that «where expressions, provisions or forms of contract commonly used in commercial practice are employed, they shall be interpreted according to the meaning usually given to them in the trade concerned». The absence of a similar provision in the Convention is regrettable. The reasons given for this absence (see Yearbook, I, (1968-70), 1, 83; II, (1971), 58; VIII (1977), 31) are not convincing.
The terms and contract forms normally used in international trade are not construed uniformly within the various national legal systems. The determination of their precise meaning is made with reference not only to possible existing legislation, but also to local usages. The argument that by referring to the sense usually given to the terms in the respective trade sector one risks that one party will be subjected to an interpretation which he could not have reasonably expected can therefore easily be turned around. Precisely in the absence of such a uniform rule of interpretation courts will continue to feel authorized to construe also in cases of international transactions the typical terms and forms of contract employed by the parties according to national criteria.
Equally questionable is the argument that the problem of the meaning to be attached to these kinds of terms and forms of contract could easily be solved on the basis of the criteria laid down in Article 8. According to Article 8(2), whenever it cannot be determined that the actual understanding which one party had of the disputed contractual term was known or at least should have been known by the other party, the understanding of a reasonable person of the same kind and in the same circumstances as the other party is decisive. This criterion, though appropriate with respect to parties' statements in general, could lead to unsatisfactory results in interpreting typical terms and forms of contract. For example, if a wheat dealer in New York receives an order from an Italian importer requesting a certain amount of wheat to be delivered «C.I.F.-Genoa», why should New York rules on «C.I.F.» prevail, although they differ not only from the current understanding in Italy but also from the uniform definitions contained in INCOTERMS? It is true that also in application of a special rule of interpretation like Article 9(3) of ULIS the problem may arise how to solve a possible conflict between different local meetings. The reference to «the meaning usually given ... in the trade concerned» however allows either the [page 114] determination of the parties' obligations according to the usages existing at their respective places of business (JUNGE, in DÖLLE, Einheitliches Kaufrecht, 46) or resort to a typical neutral meaning as for example the definitions and rules issued by the International Chamber of Commerce for the delivery and payment clauses -- or, in the case of contract forms of national origin, to the meaning attached to them in their original sphere of use (von HOFFMAN, Zur Auslegung von Formularbedingungen des internationalen Handels, in Aussenwirtschaftsdienst/Recht der internationalen Wirtschaft, 1970, 251; BONELL, op. cit., 22 et seq.).
In any event, the parties would be wise to set out expressly in their contract what rules should be applicable for the interpretation of the typical terms or forms used by them. Should the parties neglect to do so, one can only hope that judges, before resorting to national criteria and meanings, will carefully examine whether the application of internationally uniform definitions and rules could not be justified on the basis of the parties' implied reference to them according to Article 9(1). At least with respect to INCOTERMS and to the Uniform Customs and Practice relating to Documentary Credits, it should not be too difficult to justify finding such an implied reference, given the world-wide acceptance which these instruments prepared by the. International Chamber of Commerce and supported by UNCITRAL have gained in the meantime. [page 115]