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Petar Sarcevic & Paul Volken eds, International Sale of Goods: Dubrovnik Lectures, Oceana (1986), Ch. 10, 335-363. Reproduced with permission of Oceana Publications.

The Vienna Convention and Standard Form Contracts

Jan Hellner
Professor of Law, Stockholm

[Introductory remarks
-   Principle issues
-   Sets of standard terms addressed
-   Sales of commodities vs. complex specially designed machinery
CISG 19(1) and standard form contracts
-   Battle of the forms
Rules of delivery under the CISG and Incoterms
-   Rules on passing of risk
-   Handing over of documents
Remedies for breach of contract by the seller
-   Remedies available to the buyer for non-conformity
Buyer's breach of contract
CISG 79 and exemptions
CISG 4(a) and domestic control of standard terms
-   Preventative domestic control of contract clauses
-   Domestic control of contracts that have been concluded
Concluding remarks ]

[Introductory remarks]

     1. Everyone is aware of the current importance of standard form contracts for international sales. Yet there is no explicit reference to such contracts in the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the Vienna Convention). Article 6 of the Convention simply states that the parties may derogate from or vary the effect of any of the provisions of the Convention. After seeing this provision, one might believe that the relationship between the Convention and standard form contracts is simple. However, there are a number of complications, and I shall deal with some of them.

There are three principal issues which are often intertwined:

  1. How do the rules of the Convention interact with the standard form contracts now in use?

  2. To what extent do the rules of the Convention correspond with the law embodied in modern standard form contracts?

  3. How will national rules on the control of standard form contracts function with regard [page 336] to contracts of sale subject to the Vienna Convention?

In discussing various questions involving these issues, I shall be chiefly concerned with three sets of standard terms: The "Incoterms," revised by the International Chamber of Commerce (ICC) in 1980; "The General Conditions for the Supply of Plant and Machinery for Export, prepared under the auspices of the United Nations Economic Commission for Europe" (known and hereinafter cited as the "ECE 188 contract"); and "The Uniform Customs and Practices for Documentary Credits (1983 revision)," issued by the ICC.

     2. Already at an early stage of the preparation of what has now become the Vienna Convention, there was a discussion on the relation between the proposed text of the new law and standard form contracts. It was said that the text did not pay sufficient attention to what was called "the living law" (le drolit vif ) found in standard forms. This criticism was chiefly voiced by the French Professor Edouard Lambert. Ernst Rabel, spiritus rector of the project for unifying the law of international sales, replied to this criticism in an article dedicated to his critic.[1] He admitted the importance of standard form contracts but gave a number of reasons why a uniform law would be useful even when such contracts were employed. The law would fill in the gaps left by the standard form contracts; it would unify the mandatory law which could not be touched by the standard form contracts; it would suppress differences in the interpretation of standard form contracts due to different mentalities of various national legislators; it would be useful as a basis for the law of standard form [page 337] contracts; it would influence arbitration; and it would be useful as a general law, as opposed to the diversities of national legislation. An expression that Rabel used is that the law should provide an "infrastructure" for standard form contracts.

We may note that Rabel speaks of the unification of mandatory rules as an advantage, in spite of the fact that neither the draft nor later versions, including the final Convention, contain any such rules. He was thinking primarily of rules regarding invalidity of contracts because of fraud, etc., and rules concerning passing of property, bankruptcy and similar matters. He also admitted that achieving unity in this field was particularly difficult. The problems of introducing control of standard terms had not yet attracted attention. I shall return to this matter at the end of this essay (infra 11).

Much later, in 1961, another Frenchman, Dr. Philippe Kahn, raised the criticism that the Uniform Law -- or rather the 1956 draft, the text that had been available to him -- was based to an unsatisfactory extent on earlier legislation and case law rather than on the requirements of modern trade, as manifested in standard form contracts.[3] He pointed out that contracts of sale differ greatly, depending chiefly on the kind of goods that are concerned. His criticism will be summarised briefly here since it serves as a background for my later discussion.

According to Kahn, at the one extreme we find sales of commodities such as grain, silk, coffee, oil, sugar. etc., which are bought and sold in great quantities in international markets. For the sale of commodities, strict rules on the duties of seller and buyer and on the remedies for breach of contract are required. Such contracts [page 338] generally contain an element of speculation, and gains and losses reflect fluctuations in price. Accordingly, damages depend on developments related to price, and if there is a breach of contract by the seller, the damages will be the same whoever the buyer is. If the goods are non-conforming and the buyer declares the contract avoided, the seller can generally sell them elsewhere without great difficulty, even if at a lower price because of the defect.

At the other extreme, for sales of complex machinery, above all machinery specially manufactured for the buyer, more lenient rules are suitable. The avoidance of such a contract will hurt the seller badly and often will not be very advantageous to the buyer either, who may then have to wait a long time for the delivery of another machine. For this reason, avoidance of the contract is not a suitable remedy except in extreme cases. The buyer's loss and the corresponding damages will depend less on fluctuations in price than on the individual situation of the buyer, in particular on the effect of a breach of contract on his production. Often the seller cannot foresee these consequences for the buyer, and, therefore, cannot predict the amount of damages covering the whole loss of the buyer. When there is a defect in a machine, the most important remedy is the duty of the seller to remedy the defect.

The gist of Kahn's criticism is that the differences between various kinds of goods were not reflected in the 1956 draft. The situation has not changed much since Kahn wrote his book. However, there are some changes in the rules that bear on the peculiarities of various goods. In the Vienna Convention, we find a rule concerning remedies for breach of contract -- inserted at a [page 339] fairly late stage -- according to which a buyer is permitted to require the seller to remedy non-conformity by repair (Art. 46(3)). Another change is that the rules in the 1964 Uniform Law on the International Sale of Goods [ULIS] (see Art. 28) that introduce special remedies for breach of contract in a sale of goods for which a price "is quoted on a market where the buyer can obtain them" have been omitted from the Vienna Convention. These changes can be regarded as a sign that the Convention is less concerned with commodities and more concerned with machinery and similar goods. But this does not change the fact that the Convention is intended to apply equally to all kinds of goods, regardless of differences between them.

[CISG article 19(1) and standard form contracts]

     3. As is now apparent, we must assume that the Convention will be supplemented by standard form contracts in a number of cases. The first question will therefore be how the mechanism for the introduction of such forms operates during the formation of a contract. If both parties agree that a certain standard form is to apply -- as is fortunately by far the most common case -- there is no difficulty. If they do not agree, problems arise.

The relevant provision, Art. 19 para. (1) refers to a "reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications." It is generally assumed that this provision applies not only to individual terms but also to terms contained in standard form contracts.[4] The article primarily concerns cases in which, before performance of the contract has begun, one party maintains that he has not entered into a contract, whereas the other claims that he has.[5] We can imagine that buyer B [page 340] offers to buy goods from seller S, who replies affirmatively but refers to or sends over a standard form contract. B, who does not like the standard form contract, or who has changed his mind, prefers not to enter into the contract.

The first possibility is that the reference to the standard form contract does not involve any modification at all. This case is not as improbable as might first appear. It is thus possible that a reference to the "Incoterms" in a contract between two continental European parties would be regarded merely as a confirmation of what would apply even without such a reference. There will then be no opportunity for B to withdraw from the contract by invoking the reference to the Incoterms. On the other hand, if the seller is a Swede and the buyer an American, it is more likely that the reference to the Incoterms would be regarded as a modification. The second possibility is that the reference to the standard form contract is regarded as a modification but not a "material" one. B must then give notice of his objection "without undue delay" (para. (2)). If he does not, the terms of the contract are those of the offer with the modifications contained in the acceptance. If he does object, the primary result is that there is no contract, but presumably in many cases the negotiations will continue.[6] The third possibility is that the alteration is material, and then B is not bound to the contract, even if a long time passes without his having objected. There is a description in para. (3) of what constitutes materiality. This description is such as to make most standard form contracts modify the terms materially. Para. (3) mentions, for instance, "settlement of disputes," which means that an arbitration clause in a standard form contract [page 341] will be considered to alter the terms materially.[7] ECE 188 may be mentioned as an example of a standard form contract which contains an arbitration clause.

In my opinion, these rules are not well suited to standard form contracts, of which there are many different kinds. The distinctions between additions which do not modify the contract, those that modify the contract but not materially, and those that modify the contract materially, cause difficulties which may be hard for the parties to observe and can scarcely be justified. As for the third group, which is probably the most common, it seems curious that the party receiving a reply which purports to be an acceptance but which contains a reference to a standard form contract, has no duty to react, apparently not even if he notices the difference and its importance. If he does not react, no contract exists (because it lapses if the counter-offer is not accepted).

[ - Battle of the forms]

As mentioned earlier, Art. 19 is primarily concerned with cases in which the disagreement between the parties becomes apparent before performance has begun. There is another situation to which Art. 19 may also possibly apply. This is the famous "battle of forms." When a contract has been performed, and thus there is no practical possibility to maintain that no contract exists, it is discovered that each party has sent his standard form contract to the other and that there are differences between them. The question will be whose contract is to prevail.

If the differences are so slight that they will not be considered as "material" modifications, it might be possible to apply Art. 19 para. (2), mentioned earlier, according to which the terms of the contract are those of the offer with the modifications contained in the acceptance. [page 342] But if a number of communications have passed between the parties, it may be uncertain which one is to be considered the acceptance. It might further be argued that if part of Art. 19 is applicable, the whole of it should be.[8] However, since the differences will be material in most instances and the rule in Art. 19 is, in this case, that there is no contract, little guidance can be found.

The preferable view seems to be that "the battle of forms" should not be judged at all by the rules on offers and counter-offers.[9] This view is reinforced by the fact that at the Vienna Conference in 1980, the Belgian delegation proposed that the Convention should include a rule on "the battle of forms." This proposal was rejected.[10] If we assume that Art. 19 should not be applied at all to the "battle of forms," the question arises as to which rules should apply. To this question I have no answer; there are a number of different solutions.[11]

[Rules of delivery under the CISG and Incoterms]

     4. Let us now direct our attention to the rules on delivery in the Vienna Convention and compare them with the corresponding provisions in the Incoterms. Delivery is dealt with in Articles 31 and 32 of the Convention. Art. 31 contains the main provisions, whereas Art. 32 has some supplementary rules of minor interest in this connection. Accordingly, we should direct our attention to Art. 31.

Art. 31 covers three cases, numbered (a) to (c), or rather four cases, if we include the introduction to the article. The first case is that the seller is bound to deliver the goods at a particular place (the introduction). The three other cases (a, b and c) presuppose that he is [page 343] not so bound. If the contract of sale involves carriage of the goods, delivery consists in handing the goods over to the first carrier for transmission to the buyer (a). The other two cases need not concern us much; they refer to two different situations in which the contract does not involve carriage of goods. The gist of the rules (b) and (c) is that the goods are delivered at the seller's place of business.

In the Incoterms we find rules for the interpretation of a great number of so-called "trade terms," the best-known of which are "f.o.b." and "c.i.f." Together, the Incoterms provide a very comprehensive set of possibilities for regulating delivery, passing of risk, distribution of costs, etc. I do not intend to examine these various clauses; my intention is rather to look at Art. 31 of the Convention from the point of view offered by the Incoterms.

If a contract contains an explicit reference to the Incoterms, no problem arises. The Incoterms are so complete that there is no need to supplement them with the rules of the Convention. They have been "derogated" by the contract.

If a trade term is used but there is no explicit reference to the Incoterms, and if it is not indicated by any other fact (such as the "previous course of dealing" of the parties) that the Incoterms or some other set of provisions are to apply, it is more uncertain whether Art. 31 of the Convention has any significance. Some relevant possibilities may be mentioned.

The trade term "c.i.f." does not mention the place of delivery, since it states the place of destination, in spite of the fact that it denotes a shipment contract in the sense that delivery is effected when the goods are shipped. Is such a contract one in which "the seller is not bound to [page 344] deliver the goods at any particular place" and to which, accordingly, Art. 31 rule (a) should apply? The consequences would be that when there is first a land transportation by an independent carrier and then a carriage by sea, the goods are delivered when they are handed over to the land carrier. However, in international usage -- which is amply confirmed by the Incoterms -- goods sold c.i.f. are not delivered until they have been loaded in the ship.[12] It seems clear to me that in this case the common interpretation must prevail over the words of the Convention. A similar question might be asked concerning a sale which does not involve carriage of the goods. But in this case the question has less importance, since, according to both the Convention and the interpretation of the clause "ex works" in the Incoterms, delivery consists of "placing the goods at the buyer's disposal" at the seller's place of business (Art. 31(b)(c) of the Convention).[13]

It is a more difficult matter to decide what is meant by the expression "the contract of sale involves the carriage of the goods." Is it sufficient that, according to the contract, it appears that the goods must be transported, or should it be required that the seller has contracted to transport the goods? Expressed in trade term language, are goods sold "free carrier" or "ex works" when the contract contains no direct indication? In my opinion, the latter view must be correct. If the seller has not undertaken to perform any part of the transportation, his duties should not depend on where it is possible to find an independent carrier.[14] The Incoterms will not help us in this case, since they are concerned with the interpretation of various clauses. The ECE 188 contract, for example, [page 345] states explicitly that when there is no indication in the contract of the form of sale, the goods are to be considered to be sold "ex works."

The principal function of Art. 31(b) is to provide a rule for the cases in which it is clear that the seller has a duty of transportation but no further indication of the extent of his duties can be found. The rule that handing over the goods to the first carrier, rather than shipping the goods in a ship, constitutes delivery makes the Convention rule coincide with the trade terms "Free carrier... (named point)," "Freight or carriage paid to," "Freight or carriage and insurance paid to" which were introduced by the 1980 revision of the Incoterms. The Convention rule thus differs from the old and well-known terms "f.o.b.," "c & f," and "c.i.f.," each of which provides that if sea transportation is included, the goods are not delivered until they have been loaded in the ship. This is a policy decision by the Convention which is noteworthy.[15]

[ - Rules on passing of risk]

     5. As for the rules on passing of risk, there are two principal types of legal technique. One is to link the passing of risk to delivery and provide that risk passes on delivery (with certain exceptions). The other is to provide separate rules on delivery and on passing of risk. Both the Convention and the Incoterms employ the latter technique. The rules of the Convention on passing of risk (Articles 66-70) do not contain any reference to delivery. The Incoterms contain separate provisions, in the form that they state from which moment the buyer must bear all risks.

However, even with the latter technique, there is a clear correspondence between delivery and passing of risk, as can be found in particular by [page 346] comparing Articles 31 and 67 of the Convention. Therefore, the same characteristic features and problems that were mentioned previously can be found in the rules on passing of risk.

We may note that a rule regarding passing of risk which has no counterpart in the Incoterms is found in Art. 68 of the Convention. It applies to goods sold in transit. The explanation is that since the Incoterms are mainly concerned with the relation between the first seller and the first buyer, it does not contain any clause which deals with the situation when the first buyer sells them while they are in transit. In addition, the Convention contains various rules which constitute exceptions to the general; principles for the passing of risk, referring chiefly to the conduct of the buyer. Most of these exceptions are not dealt with by the Incoterms. In the absence of such provisions in the Incoterms, guidance must be sought in the Convention's rules. These seem therefore to have greater importance for the passing of risk than for delivery

[ - Handing over of documents]

     6. With regard to the "handing over of documents" the Convention contains only one, very short rule (Art. 34). However, when payment is to be effected by a documentary credit, we must observe that the Uniform Customs and Practices for Documentary Credits contain a number of detailed rules regarding the documents that are accepted by banks for such credits. Although the Uniform Customs refer primarily to the relations between the buyer and the bank that the buyer instructs to open such a credit, the seller who has contracted for a documentary credit must be assumed to have agreed to comply with the rules found in [page 347] be uniform customs. Thus, the Uniform Customs supplement the Convention's rule. The risk of conflict between the two sets of rules is not very great, especially since the Convention prescribes in Art. 34 that the documents must be handed over "at the time and place and in the form required by the contract."

[Remedies for breach of contract by the seller]

     7. The provisions of the Convention on remedies for breach of contract by the seller (Articles 45-52) are rather complicated and cannot be described in detail here. Only some significant details will be pointed out. On the whole, the rules are common to all breaches of contract, although certain rules apply only to late delivery and non-delivery, whereas others refer only to non-conformity.

In case of late delivery and non-delivery the buyer may, according to the Convention, usually require performance (Art. 46). He can avoid the contract if either the breach is fundamental (Art. 49(1)(a)) or he has set a Nachfrist and the goods have not been delivered within it (Art. 49(1)(b)). He may claim damages in all cases of delay (Art. 45(2), 47(2)) unless the seller is exempted under Art. 79. The rules, especially the one concerning damages, must be considered to be strict regarding the seller.

The Incoterms do not contain any provisions on breach of contract. The ECE 188 contract, on the other hand, contains ample provisions on remedies. These will therefore be considered in what follows. In contrast to the case with the Convention, there is no uniformity in the remedies for late delivery and non-delivery, on the one hand, and for non-conformity (defects), on the other hand. [page 348]

The provisions regarding the consequences of late delivery (or non-delivery) in the ECE 188 contract differ entirely from those of the Convention. The primary remedy is a reduction of the price by a percentage which is to be fixed in the contract and which is computed on each complete week of delay. There is a maximum reduction, which is also to be fixed by the contract. For the period when the reduction operates, the contract cannot be declared avoided and no damages can be awarded. Only if delivery has not been effected at the expiration of the maximum period for reduction of the price can the buyer declare the contract avoided and claim damages. Damages cover only the loss suffered by the buyer after the period of reduction has expired. Even for such damages there is, in general, a fixed limit stated in the contract.

Our first conclusion must be that this system is entirely different from that of the Convention. Its system of avoidance and damages has been replaced by a system of reduction of price, the remedy of avoidance with a right to damages being available only in extreme cases.

The second conclusion is that, like other standard form contracts used in the sale of machinery, the ECE 188 contract reflects the features of sales of machinery which were pointed out by Dr. Kahn (supra 2). This theme need not be developed further here. But it is pertinent to ask whether the Convention should not have taken more account of contract practices relating to sales of machinery. My answer is no. Since the percentage of reduction of the price will be a matter of negotiations between the parties, and the height of the percentage plays a dominant role in deciding the character of the remedy, it would almost be impossible to insert suitable [page 349] rules into a convention. On the other hand, we must acknowledge that in the case of sales of machinery, the situation might be very awkward for the seller, if the Convention is not replaced by a standard form contract.

[ - Remedies available to the buyer for non-conformity]

     8. As for non-conformity, the Convention gives the buyer a number of remedies. He may require substitute goods provided that the breach is fundamental (Art. 46(2)), he may require the seller to remedy the lack of conformity unless this is unreasonable (Art. 46(3)), he may claim a reduction of the price (Art. 50), he may declare the contract avoided if the non-conformity amounts to a fundamental breach of contract (Art. 49(1)(a)), and finally, he is always entitled to damages, unless the seller is exempted under Art. 79.

If we look at the ECE 188 contract, we find the corresponding provisions under the heading "guarantee." In the first place, a guarantee period must be fixed. If a defect appears during this period, the seller's duty is to remedy the defect. We may ask what happens if he does not succeed in remedying the defect within a reasonable time. The answer is found in para. 9.13:

"If the vendor refuses to fulfill his obligation under the clause or fails to proceed with due diligence after being required to do so, the purchaser may proceed to do the necessary work at the vendor's risk and expense, provided that he does so in a reasonable manner."

No other remedy for non-conformity is mentioned.

Clearly, in this respect as well, there is a considerable difference between the ECE 188 contract and the Convention. [page 350]

Although the text of the ECE 188 contract does not contain any reference to the possibility of the buyer declaring the contract avoided, in the commentary by the experts on the ECE 188 contract, we find the following statement (Sec. 21):

"The Turkish and Yugoslav experts asked what would happen in the case of an irremediable defect, i.e., if the purchaser were unable to carry out the necessary repair when the vendor failed to do so. In their opinion, the General Conditions should have contained a provision on this subject giving the purchaser the right to recover damages and to automatic termination of the contract. The Working Party thought it unnecessary to consider this extremely remote eventuality in which, moreover, the results described by the Turkish and Yugoslav experts could be obtained simply by applying the general principles of law; for in all European countries the total failure of the vendor to fulfill his obligations would give the purchaser the right to recover damages. Moreover, non- fulfillment of his obligations by the vendor would be considered as a ground for termination under the law of most countries, except that of the Netherlands, where it would be necessary to apply to the courts for that purpose."

As for damages because of non-conformity, the provisions of the ECE 188 contract are somewhat vague since the only clear provision states:

"It is expressly agreed that the purchaser shall have no claim in respect of personal injury or of damage to [page 351]: property not the subject matter of the contract or of loss of profit unless it is shown from the circumstances of the case that the vendor has been guilty of gross misconduct."[16]

However, this provision in the text of the contract should be compared with the statement in the commentary of the experts quoted above.

It seems clear that we are facing a new aspect of the interaction between a standard form contract and the Convention. Even the semi-official commentary to the ECE 188 contract admits that it must be filled out with "general principles of law" found in "European countries." If the Convention is applicable to a contract of sale, the Convention rather than some national legal system must provide the "general principles" that are assumed to exist. On the other hand, the Convention's rules are obviously much stricter regarding the seller than the "general principles" mentioned in the commentary. It is clear that the group of experts who framed the ECE 188 contract did not expect avoidance and damages to enter into play except in extraordinary circumstances. The explicit exclusion of compensation for "loss of profit" in the ECE 188 contract differs entirely from the general principle of computing damages in Art. 74 of the Convention.

The difficulty lies deeper than in reconciling the two texts and deeper than in explaining the contents of the ECE 188 contract by reference to the kind of goods to which it refers, even if this is part of the explanation. The essential difficulty lies in the fact that whereas the Convention aims at justice between the parties, the ECE 188 contract protects the interests of the seller better than those of the buyer. Whereas the contract is explicit in limiting the obligations [page 352] of the seller in a number of respects, it maintains silence on his duties when a defect cannot be remedied. This silence puts the buyer at a disadvantage. The criticism raised by the Turkish and Yugoslav experts, together with the awkward answer given by the rest of the Working Party, brings this feature out.

Here it is impossible to discuss what a court or arbitrators should do when confronted by such a situation. However, we shall touch upon this matter in another context shortly when dealing with the control of standard form contracts which are governed primarily by the Convention (see infra 11).

[Buyer's breach of contract]

     9. Let us now turn briefly to the buyer's breach of contract and look at the rules in the light offered by the Uniform Customs and Practices. As has been mentioned before (supra 6), these rules must, when the contract between seller and buyer states that the latter is to open a documentary credit, be taken to also include the provisions of the Uniform Customs.

The failure to open such a credit may be held to constitute a breach against the obligation of payment, which includes taking "such steps ... as may be required under the contract ..." (Art. 54). Accordingly, this failure is not only an anticipatory breach but a breach in itself. Since, according to the contract, the credit generally shall be opened at some time before the seller is to deliver the goods, the buyer has an obligation that is to be performed before the seller's performance.

If the buyer fails to perform one of his obligations, the seller, according to the Convention (Art. 61), has a number of remedies open to [page 353] him. What we should look at here is the remedy of declaring the contract avoided. He may do so immediately if the breach is fundamental (Art. 64(1)(a)) and after the expiration of a Nachfrist if it is not fundamental (Art. 64(1)(b)).

In my opinion, these rules are not satisfactory when the buyer has the obligation to open a documentary credit. The seller should always be allowed to declare the contract avoided if the buyer does not open the credit within the fixed time. The seller may depend on the exact fulfillment of such an obligation, and he should not be required to prove that the breach is fundamental. This is especially the case when the credit is transferable and the seller may need to transfer the credit immediately to the party from whom he has himself bought the goods that he is to deliver to his buyer.[18] The seller should not have to offer proof that such is the case or that in some other way the breach is to be considered fundamental.

[CISG article 79 and exemptions]

     10. One of the most discussed provisions of the Convention is Art. 79 which deals with exemptions. At the same time, it can be expected to be the most seldom applied provision since practically all standard form contracts of a general character, and many of those which are rudimentary in most respects, contain force majeure clauses. Most of these clauses differ from Art. 79, inter alia, by describing in detail what kinds of events constitute force majeure, although it is customary to supplement the enumeration of various events with a general provision exempting a party from other circumstances beyond its control. Here we shall deal only with one [page 354] special feature of Art. 79, i.e., the consequences of a seller being exempted.

According to the express provisions of Art. 79(5), nothing in the article prevents either party from exercising any right other than to claim damages under the Convention. This means that even if the seller is exempted, the buyer retains his right to declare the contract avoided if the breach is fundamental or if there is no delivery within the Nachfrist. The buyer may even claim performance of the contract.[19] For the sale of commodities, which can easily be sold and bought in world markets, such rules may be suitable. For the seller of machinery, the fact that the buyer can declare the contract avoided as soon as the breach becomes fundamental (or even earlier by using the device of the Nachfrist) may prove serious.

We find that the ECE 188 contract contains provisions on the effects of force majeure which differ entirely from the Convention. The main effect is that the period within which delivery is to be effected is extended ''as far as is reasonable having regard to all the circumstances of the case" (Sec. 7.2). This means that no remedies at all are available while force majeure operates. Since the period of delivery is extended, there is no breach of contract. However, the extension cannot continue for an indefinite period. Under Sec. 10.3 of the ECE 188 contract, both parties can terminate the contract if "the performance of the contract within a reasonable time becomes impossible." We may note that both parties, both the one whose performance is delayed and the other party, are entitled to declare the contract avoided. It cannot be excluded that a party whose performance is delayed because of force majeure will in this way be allowed to [page 355] escape from an unfavourable contract. If the contract is terminated in this way, special provisions apply to the division of expenses incurred in respect of the contract (Art. 10.4-6).

This is another example of a standard form contract containing provisions of a type which differ greatly from the system of the Convention. We admit that it would have been an almost impossible task to frame rules that would be 'suitable for both sales of commodities and sales of complex machinery. But once more we must realize the importance of permitting the Convention to be replaced by standard form contracts suited to special kinds of goods.

[CISG article 4(a) and domestic control of standard terms]

     11. Finally, we shall turn to the control of standard terms, an important matter in modern contract law. The attitude of the Vienna Convention is simple: Art. 4(a) states that the Convention is not concerned with the validity of the contract "or of any of its provisions." This means two things: there are no rules in the Convention itself that will interfere with the provisions of a contract to which it is applicable, and the fact that a contract is subject to the Convention will not prevent courts or arbitrators from enforcing national rules on invalidation of contract terms.

As we are now dealing with national law, it is necessary to restrict the discussion. For various reasons, I shall limit myself to three systems, the English, the West German and the Swedish. Of these, I can claim familiarity only with the Swedish system, which will be apparent in what follows.

Before dealing with special questions, we might ask whether there are sufficient practical [page 356] reasons for exercising control over international contracts. It might be argued that control should be limited to national contracts, especially contracts with consumers, and that courts and arbitrators should not interfere with international contracts. In my opinion, this is too simple a view. Among the standard examples of contracts that favour one party unduly are those of automobile manufacturers with their subcontractors, and these are often international contracts. A Volvo car, for instance, contains numerous and important parts that have been manufactured outside Sweden. We cannot start by assuming that all contracts between manufacturers and subcontractors should be automatically exempted from the control exercised over national contracts.

Even the ECE 188 contract, which has been prepared by an international organization, contains clauses that must be considered unsatisfactory. It states inter alia that the buyer shall have no claim in respect of personal injury (see supra 8). This provision is directly contrary to principles that are universally accepted at present, not to mention the Council of Europe Convention and the draft of the ECE directive on products liability. As we have seen, according to the commentary, the contract's provisions on remedies for a defect are supposed to be supplemented by general principles of law (supra 8). If there were no commentary, or if it is considered not to have persuasive force, a court might find that the only way of allowing termination and damages for a serious irremediable defect is to exercise a right of control of the contract provisions. [page 357]

     12. Control of standard form contracts may assume various forms. One is preventive control, by which certain clauses in standard form contracts are prohibited for the future by courts or by administrative authorities. Under the German AGB- Gesetz (Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen) 1976, a chamber of commerce or an organization for the purpose of protecting business interests may start proceedings for the prohibition of specified clauses (Art. 13(2) Rules 2 and 3). This procedure might be applied to international contracts as well. Sweden has a new statute that entered into force on July 1, 1984, under which certain organizations can bring suit against enterprises for an order of prohibition of specific clauses.[20] Suppose that a suit based on this rule would be ii successfully brought against a manufacturer of automobiles. In this case the manufacturer would undoubtedly be enjoined from using these clauses in contracts with foreign parties as well. It is too early to make predictions about the possible influence of the new statute on international contracts.

     13. It is more interesting to look at the control of contracts that have been concluded, as this enters more directly into the sphere of application of the Vienna Convention.

The United Kingdom's Unfair Contract Terms Act of 1977 deals to a considerable extent with "standard terms of business" (see particularly Sec. 3). The Act limits the validity of exemptions for breach of contract (Sec. 3(2)(a)). However, it contains an express exception for international contracts (Sec. 26). Although the [page 358] wording of this rule is complicated and somewhat obscure, it seems to exclude most, if not all, contracts to which the Convention can apply.[21]

On the other hand, the English doctrine of "fundamental breach," as far as it survives recent precedents, makes no exception for international contracts. The Suisse Atlantique case provides an example.[22] The consequences this doctrine will have for contracts subject to the Convention cannot even be surmised by a foreign observer.

The German AGB-Gesetz contains no exemption for international contracts. It even contains an express rule making it applicable to some contracts to which German law does not apply in other respects (Sec. 12). On the other hand, the detailed provisions of Secs. 10 and 11, which make certain types of clauses void either conditionally or unconditionally, do not apply to contracts in which the party dealing with a party who employs a standard form contract is also a merchant (Sec. 24). But the "general clause" (Sec. 9), which declares all standard terms invalid that contrary to good faith and honour disfavour the other party unduly, can be applied to contracts between merchants as well. It is difficult to judge the implications of these provisions for international contracts. As for the general clause found in the German Civil Code Sec. 242, which appeals in a very general way to the notion of good faith and honour in the application of a contract, I can only make a guess. Nevertheless, it seems probable that a German Court would consider the implications of Sec. 242 regarding Geschäfts- grundlage to be irrelevant for contracts subject to the Convention, since the Convention contains its own rules on exemptions (Art. 79). On the [page 359] other hand, in so far as Sec. 242 invalidates unduly oppressive contracts (Knebelungsverträge), my guess would be that a German court would not hesitate to extend such application to international contracts as well. But these are of course, only the surmises of a foreign observer.

In Swedish law the relevant provision is the new "general clause" that was inserted into the Contracts Act (Sec. 36) some years ago.[23] There is a fair amount of case law on its application, but most of it deals with consumer contracts and all of it with national contracts. The provision itself makes no exception for international contracts. There is an important decision dealing with a commercial contract between two Swedish enterprises, in which the Supreme Court of Sweden accepted the validity of a clause exempting a seller from liability for consequential loss,[24] although it was pleaded that the clause was invalid according to Sec. 36. In this case the Court referred, inter alia, to the ECE 188 contract and cited its provisions as a ground for accepting the exemption as valid. Even if it is clear from this case that the Swedish Supreme Court is prepared to accept such deviations from statutory sales law as are consistent with modern business practice, it does not follow that the court will not interfere with clauses in international contracts that it considers unjust and unreasonable.

In view of what has been stated above about the law of the three countries, it appears that there is no certainty as to the control that national courts will apply to international contracts. Above all, there is no unity. [page 360]

[Concluding remarks]

     14. As a conclusion to the preceding brief survey, a few remarks can be made. The Vienna Convention, like national systems of sales law, cannot alone satisfy the need for diversity and variation In sales relations. As before, we shall have to rely on standard forms to achieve this diversity. This observation does not imply any criticism of the Convention. It is necessary to have rules which can act as an "infrastructure" -- to borrow Ernst Rabel's expression -- for standard form contracts. The question is whether the Convention fulfils this function.

On the whole, the diversity is not greater than appears necessary, although we could wish for greater clarity on a number of points. However, in some cases, the need for interaction with standard form contracts does not seem to have been observed sufficiently. This is particularly true for the part that deals with formation of contracts. The Convention lacks rules for the introduction of standard terms into contracts, and it does not solve the problem of the "battle of forms." If, as the result of this omission, the Convention will be applied instead of standard form contracts that are better suited to special goods, or special methods of transportation, or special methods of payment, the result might be unfortunate.

It is perhaps also to be regretted that the Convention does not deal with the problem of control of standard terms in contracts. The main reason for this is simple. At the time when work on the Convention began, the discussion on such control for contracts of sale had hardly started. But during the long period of preparation, this discussion has become vivid, and a number of countries have introduced such control, both by legislation and by various devices which permit [page 361] the courts to exercise considerable discretion. Unification of such control seems as desirable as any other part of the unification of sales law. However, it must be admitted that attaining agreement on such a subject would probably have been even more difficult than reaching the unity that has now been achieved.


FOOTNOTES

1. E. Rabel, "L'Unification du droit de la vente internationale, ses rapports avec les formulaires ou contratstypes des divers commerces," Recueil d'études en l'honneur d'Edouard Lambert Paris 1938), reprinted in E. Rabel, Gesammel Aufsätze, vol. 3 (Tübingen 1967) p. 837.

2. Ibid. p. 654.

3. Ph. Kahn, La Vente commerciale internationale (Paris 1961) p. 20 et seq.

4. See e.g. J. Honnold, Uniform Law for International Sales under the Convention (Boston 1982) p. 190 et seq. The corresponding rule in the Uniform Commercial Code ( 2-207) fulfils a similar function. For a general discussion see Ontario Law Reform Commission, Report (Toronto 1979, Ministry of the Attorney General), vol. 1, p. 81 et seq.

5. Ibid. pp. 190, 192.

6. Ibid. cf. p. 193.

7. Cf. P. Schlechtriem, Einheitliches UN-Kaufrecht (Tübingen 1981) p. 42 et seq.

8. Ibid. at p. 44.

9. Cf. Lord Denning's judgment in Butler Machine Toll Co. Ltd. v. Ex-Cell-O Corporation (England) [1979] 1 All E.R. 965.

10. See United Nations Conference on Contracts for the International Sale of Goods, Official Records (New York 1981) p. 96.

11. See e.g. P. Schlechtriem, "Kollidierende Standardbedingungen und Eigentumsvorbehalt," Zum Deutschen und Internationalen Schuldrecht, P. Schlechtriem and H.G. Leser, eds. (Tübingen 1983) p. 1. It can be noted that Art. 33 para. 3 of the International Commercial Contracts Act of the German Democratic Republic contains an express provision on the "battle of forms." This provision codifies the "last shot" principle.

12. I.C.C. rule A 4 on the c.i.f. term. Cf. D.M. Sassoon, C.I.F. and F.O.B. Contracts (2 ed. 1975) p. 35. As for American law see Uniform Commercial Code 2-320 (2)(a). But cf. J. Honnold, supra n. 4, who seems to confuse the traditional c.i.f. clause with the new "Freight or Carriage and Insurance Paid to..." clause, which differs from the c.i.f. clause precisely by making handing over to the first carrier constitute delivery, even if he is a land carrier.

13. I.C.C. rule A 2 on the "ex works" clause.

14. See, however, J. Honnold, supra n. 4, p. 237 et seq. Honnold states that the provision on sales not involving carriage is most likely to apply when the seller and buyer are relatively near each other and the buyer operates trucks that can conveniently come to the seller's place of business. But he seems to overlook that the "ex works" solution can be and is in fact often used on other occasions as well. The buyer can, for example, employ a forwarding agent to take care of the transportation when goods are sold ex works. Honnold mentions UCC 2-509(1), which refers to cases where "the contract requires or authorizes the seller to ship the goods by a carrier," but he does not mention that UCC 2-308 -- which is the provision that corresponds to Art. 31 of the Convention -- states that unless otherwise agreed, the place for delivery of the goods is the seller's place of business.

15. Cf. J. Honnold, supra n. 4.

16. See para. 9.16 of the contract.

17. Cf. J. Hellner, "Consequential Loss and Exemption Clauses," 1 Oxford Journal of Legal Studies (1981) p. 13.

18. It has been suggested that the seller is permitted to avoid the contract immediately if payment is a "fixed obligation"; see U. Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge," (1979) RabelsZ p. 413 (516); cf. J. Hellner, "The UN Convention on International Sales of Goods -- an Outsider's View," Ius inter Nationes, Festschrift für Stefan Riesenfeld (Heidelberg 1983) p.71 (92). This view opens an easy way of overcoming the restrictions apparent in the Convention's system of remedies.

19. The obligation to perform even when performance is impossible is a curious feature. Cf. P. Schlechtriem, supra n. 7, p. 97.

20. Lag (1984:292) om avtalsvillkor mellan näringsidkare.

21. Cf. Bejamin's Sale of Goods, 2nd ed. (London 1981) p. 822.

22. Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A. C. 361 Cf. Benjamin on Sales, supra n. 21, p. 472 et seq.

23. See J. Hellner, "Contracts and Sales," An Introduction to Swedish Law, ed. S. Strömholm (Stockholm 1981) p. 207 et seq.

24. Nytt Juridiskt Arkiv 1979 p. 483. Cf. Hellner, supra n. 17, p. 34 et seq.


Pace Law School Institute of International Commercial Law - Last updated September 26, 2002
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