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CISG CASE PRESENTATION

Austria 1 February 2005 Appellate Court Innsbruck (Powdered tantulum case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050201a3.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20050201 (1 February 2005)

JURISDICTION: Austria

TRIBUNAL: Oberlandesgericht [Appellate Court] Innsbruck

JUDGE(S): Dr. Brock (Vorsitz), Dr. Voigt, Dr. Höfle, Dr. Jensik

CASE NUMBER/DOCKET NUMBER: 1 R 253/04x

CASE NAME: Austrian case citations do not generally identify parties to proceedings

CASE HISTORY: 1st instance Landesgericht Innsbruck (GZ 12 Cg 32/02i-22) 6 February 2003; 2nd instance Oberlandesgericht Innsbruck (GZ 1 R 90/03z-27) 3 June 2003; 3rd instance Oberster Gerichtshof 17 December 2003; 4th instance Landesgericht Innsbruck 9 July 2004; 6th instance Oberster Gerichtshof 31 August 2005

SELLER'S COUNTRY: Hong Kong (plaintiff)

BUYER'S COUNTRY: Austria (defendant)

GOODS INVOLVED: Powdered tantulum


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 9(1) ; 73(2) [Also cited: Articles 19(1) ; 25 ; 39(1) ]

Classification of issues using UNCITRAL classification code numbers:

8B ; 8C [Interpretation of party's statement or other conduct: interpretation based on objective standards ; Interpretation in light of surrounding circumstances];

9D2 [Usages and practices: usages impliedly made applicable to contract];

73B [Avoidance in installment contracts: refusal of future installments]

Descriptors: Intent ; Usages and practices ; Standard terms and conditions ; Language issues ; Installment contracts ; Avoidance

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (German): CISG-online.ch website <http://www.cisg-online.ch/cisg/urteile/1130.pdf>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Court of Appeal (Oberlandesgericht) Innsbruck

1 February 2005 [1 R 253/04x]

Translation [*] by Institut für ausländisches und internationales
Privat- und Wirtschaftsrecht der Universität Heidelberg
Daniel Nagel [**]

DECISION

The Court of Appeal Innsbruck, with judge Dr. Brock as its President and judges Dr. Voigt and Dr. Höfle, decides in respect to the appeal of the [Seller], represented by attorney G, against the decision of the District Court:

The [Seller]'s appeal is dismissed. The decision on costs is changed to:

   -    The enforcing party has to reimburse the proceeding costs (1st court case) in the amount of € 312,252.92 (including € 176,301.80 for cash outlays and € 22,583.84 for sales tax) within fourteen days.
 
   -    The enforcing party has to reimburse the proceeding costs (2nd court case) in the amount of €16,276.29 (including € 2,712.71 for sales tax)

Further appeal is allowed.

CASE

The [Seller] is a registered company, domiciled in [Hong Kong], which trades powdered tantalum. Its managing director is Mr. A, whose son Mr. J is authorized to represent the company as well. Mr. A is also the owner and director of company N. That company is used for "parallel tasks" such as enforcing claims, managing deliveries, etc.

Mr. J owns company P, which is registered in K and which generally sells metallic products. Company P as well as company N function as trading-agents for the [Seller].

Company N is a trading company, which was represented by Mr. C, who arranged businesses between the [Seller] and the [Buyer].

The [Buyer] is domiciled in Austria and produces tantal-wire from powdered tantalum, which is used in the electronic industry, e.g., for mobile phones, computers, cars or cardiac pacemakers.

The manufactured wire has to meet certain prerequisites set by the purchasers. The quality of the powdered tantalum is of great importance for the production and the properties of the wire. Especially the content of oxygen in the powder is important as a high content of oxygen entails a high strength.

This can be prevented to a certain extent through particular treatment and mixing of the powder with high quality powder. This however makes production more difficult and increases production costs at a rate that cannot be estimated in advance.

It is possible to cleanly manufacture the powder up to a content of oxygen of 1.100µg/g. If the content of oxygen reaches 1300µg/g a production is possible if mixed with powdered tantalum with a lower content of oxygen at a proportion of 1:1. If the content of oxygen rises above 1300µg/g, a special treatment has to be initiated and the proportion has to be further reduced.

Mr. C, who is able to speak German -- A and J are not able to speak German -- trades ore and metal and has had a good business relationship (in respect to the delivery of tantal-sticks originating from K) for many years with the [Buyer].

H, who works as a company secretary for the [Buyer], asked C whether he could deliver powdered tantalum and sent a specification in respect to the quality of the powder on 19 August 1999 in English.

This specification stated the required chemical and physical properties and fixed the quality the [Buyer] expected the powdered tantalum to have in order to manufacture tantal-products. It also informed about the maximum levels for different types of pollutants in the powdered tantalum. Thereby, the maximum content of oxygen was fixed at 1.100µg/g.

C, who was not able to deliver powdered tantalum on his own, contacted A and J and sent the specification of the [Buyer] to them. He informed the [Buyer] via e-mail on 15 November 1999 that there was a manufacturer C asking whether a lower standard in respect to four components - among these a higher content of oxygen (1300µg/g) would be acceptable as well. Because of that, H. asked Huber to send a sample of 1kg.

The assay of this sample showed results as required by the [Buyer] in its specification.

Hence, the [Buyer] decided to order more powdered tantalum for further testing. On 26 January 2000, it ordered, after prior consultation with C, 41kgs of powdered tantalum in English. The order contained a hint on the back in English to standard terms of purchase (printed in German).

These 41kgs were delivered on 15 February 2000 by the [Seller]. An assay effected by the [Buyer] showed that this delivery was neither of the quality of the assayed 1kg nor of the quality required by the specification: The content of oxygen was at 1153µg/g. The [Seller] invoiced this delivery on 11 February 2000. This invoice was settled with N after prior consultation with C.

As powdered tantalum with a quality similar to the delivered 41kgs still was of use to the [Buyer], on 19 July 2000, it ordered directly from the [Seller], after prior consultation with C, 500kgs, sinter quality, with reference to the negotiations via phone between C and H. This order was placed in English and contained a hint in English to the standard terms of purchase printed on the back in German.

The goods which -- following this order -- were delivered by the [Seller], who did not contest the standard terms of purchase, were assayed by the [Buyer]. The results of this assay were sent to the [Seller] on 24 August 2000. The content of oxygen was at 1153µg/g. The delivery was invoiced on 25 October 2000 by N, acting as an agent for the [Seller].

Following negotiations with C and J, the [Buyer] ordered 3,000kgs of powdered tantalum according to "sample #0001T2-1" on 3 August 2000 from N. The order was placed in English with a hint in English to the standard terms of purchase printed on the back in German. The [Buyer] thereby referred to the 41kgs-sample. It continued to use this way of reference afterwards.

The [Seller] effected several partial deliveries between 5 September 2000 and 17 March 2001. The corresponding invoices were signed by N, acting as an agent for the [Seller], and requested payment to Nottington in Gibraltar.

The partial delivery of 5 September 2000 showed a content of oxygen between 1276µg/g and 1420µg/g.

J asked in a phone call on 21 September 2000 whether the [Buyer] was willing to accept a content of oxygen of 1400µg/g. The [Buyer] refused to accept this and explained that the maximum content of oxygen it would accept was 1250µg/g. Following further phone-calls, which included discussions on the content of oxygen with the Chinese manufacturer Z, M and J agreed to order a sample from Z.

On 28 November 2001 the [Seller] delivered a sample, named "lot 2000-3", and a Chinese certificate of assay which stated that the oxygen content was at 0.13% (1300µg/g).

At the end of the year 2000 and at the beginning of the year 2001, the prices for powdered tantalum rose considerably within a short period of time due to high demand.

H informed C at the beginning of the year 2001 that the [Buyer] would be interested in obtaining 10,000kgs of powdered tantalum at a quality similar to the 41kgs-sample and the sample of 28 November 2000 ("lot 2000-3"). H furthered the request to J, as the requested amount was exceeding the capacity of its company. J sent an offer to the [Buyer] on behalf of P, for 10,000kgs of powdered tantalum at a price of US $1,049.40/kg in monthly deliveries of 1,600kgs from February to July 2001.

Specification was effected by the phrase "metallurgic quality - 180 - mesh powder originating from sources similar to sample No 0001T2-1 and ZCCW lot 2000-3.

H and J modified the offer on 3 January 2001 during a phone call. The amount was reduced to 9,000kgs and both a delivery period and a documentation of the material were agreed on. The 9,000kgs powder were to be manufactured into 6,000kgs of tantal-wire, which already had been ordered from the [Buyer].

J sent a fax on 4 January 2001 using the letterhead of P in order to confirm the telephone conversation of 3 January 2001, which confirmed both the sale between the parties and the specification "powder of metallurgic quality originating from sources similar to sample No 0001T2-1 and ZCCW", but differed from the offer of 2 January 2001 as the definition 180-mesh was left out and as agreements on the documentation of the material and the way of accounting were added.

The [Buyer] on its part sent an order following the telephone conversation on 4 January 2001, which referred to the offer of 2 January 2001 and had the following content:

"This is to confirm our order via telephone of 3 January 2001 by Mr. H and your fax of 4 January 2001 the order -- according to our standard terms of purchase -- of 9,000kgs of powdered tantalum, sinter quality, grain size 180 mesh, ex O, according to sample #0001T2-1 and ZCCW, lot # 2000-3, at a price per unit of US $1,049.40 and at a total net price of US $9,444,600.00. for delivery until 2 August 2001 at the latest."

The standard terms of purchase of the [Buyer] were printed in German on the back of the order form.

Neither this order form nor the preceding order forms were signed or sent back by the [Seller] or N, but deliveries were effected, which referred on the delivery notes and the invoices to the order numbers as stated by the [Buyer]. Neither A nor J signed the order form as the latter held the opinion that a contract had already been concluded via phone.

The order has not been contested via phone or letter. J and H knew that the powdered tantalum had been ordered and was to be delivered according to the chemical and physical quality of the samples # 0001T2-1 and ZCCW, #2000-3.

The [Seller] manufactured the powdered tantalum with the help of two Chinese companies, namely, the one referred to in the order and known to the [Buyer] as ZCCW and a company called C, which was unknown to the [Buyer] at that point in time. Both companies manufacture powdered tantalum of different quality according to which purpose the powdered tantalum is needed for.

The [Seller] ordered the raw material needed to produce the 9,000kgs powdered tantalum and agreed with the companies mentioned above on processing.

The [Buyer] was informed on 2 March 2001 about the delivery dates for March, April and May and it was told that the powdered tantalum for the deliveries in June and July would already be in stock.

The demand for tantal-products started to decline in March 2001 and hence the prices fell considerably. The [Seller] was informed of this by the [Buyer] on 19 March 2001; It stated, that the selling prices, which had been calculated on the purchase price, were no longer accepted on the market.

Therefore, only the first three deliveries -- each at 1,500kgs -- should be effected as agreed on, but the deliveries for the remaining 4,500kgs should be postponed. The [Buyer] nevertheless wanted to sustain the contract and agreed that the invoices were sent by N instead of N.

The [Buyer] informed the [Seller] via fax on 12 March 2001 that there was more than a 50% fall in demand for tantal-wire and therefore asked for postponement of the first three deliveries. The remaining 4,500kgs would not be needed before the beginning of 2002.

At the beginning of April, the first delivery of 1,500kgs of powdered tantalum was effected and invoiced by N. 400kgs of this delivery showed an oxygen content of 1937µg/g and a further 600kgs an oxygen content of 2248µg/g. The [Buyer] informed the [Seller] that this material could not be used, transmitted the assay results and asked for collection and replacement with suitable material.

The remaining 500kgs showed an oxygen content of 1514µg/g or 1734µg/g, respectively. This material was declared to be acceptable by the [Buyer] and accepted as it could be mixed with material from other manufacturers with very low contents of oxygen and hence was still usable for processing.

The [Seller] assured that it would collect the goods as soon as possible and affirmed that it would "identify the root of the problem and find a solution."

The [Seller] informed via fax on 3 March 2001 that 3,571.10kgs of powdered tantalum had already been produced following the order of the [Buyer] and asked the [Buyer] to accept this amount until 1 August 2001 and the rest until 1 November 2001.

On 2 June 2001, 1,150kgs of replacement material were delivered and invoiced by Nottington Ltd. The replacement material showed an oxygen content of 1405µg/g or 1384µg/g, respectively.

The [Buyer] asked for information about the names of the manufacturers as it wanted to visit the production facilities. After an agreement had been reached on a "non-avoidance", the [Seller] told the [Buyer] via fax on 7 May 2001 the names of the suppliers. Representatives of the [Buyer] visited together with A and J the facilities of these suppliers in China between 10 June 2001 and 12 June 2001. The purpose of this visit was to get a personal impression about these production facilities and to talk with representatives about the quality of the powdered tantalum. The representatives of the [Buyer] noticed during their visit that the engineering condition of these production facilities was similar to the 1970s, that the condition of the buildings and facilities showed a need of ameliorating measures, that there were security risks and that only poor assay equipment was available.

They discussed the quality of the powdered tantalum with the representatives of the suppliers, handed over the specification of the [Buyer] and explained that the [Buyer] expected a higher quality for further deliveries.

Both [...] and [...] were able to produce a vast variety of powdered tantalum in as regards quality. [....] produces five different qualities of powdered tantalum for metallurgic usage and twenty different qualities for condenser usage. [...] produces two different qualities for metallurgic usage and four different qualities for condenser usage. Each quality shows different oxygen contents.

After their return from China and the study of the assay results of the replacement delivery of June 2001, the representatives of the [Buyer] concluded that, considering the present engineering conditions, the suppliers would hardly be able to deliver powdered tantalum of the quality as requested in the order.

The [Buyer] informed the [Seller] via letter on 26 June 2001 once more that the demand for tantal-wire had fallen considerably and that it would no longer be able to keep pace with other manufacturers due to the price collapse. The [Buyer] informed the [Seller] furthermore that only powdered tantalum of the quality as stated in the order of 4 January 2001 could be used as a "reference" if mixed with powder originating from European sources. It would accept the replacement delivery of 1,150kgs as a "sign of good intent", even though the quality could not be compared to the samples.

An amount of 3,000kgs according to the samples mixed with high quality powder would be sufficient supply for the [Buyer] until April 2002 due to the low demand. The [Seller] hence should comprehend, that the [Buyer] could not accept more than 3,000kgs of this powder at a price of US $1,049.40/kg. The [Seller] had already delivered 1,650kgs.

The [Seller] delivered a further 1,367.10kgs of powdered tantalum on 4 July 2001. This delivery was invoiced by N on 30 June 2001. According to the transmitted assay results, 717.13 kg of this powdered tantalum showed an oxygen content of 1300µg/g and 650kgs an oxygen content of 1400µg/g.

The assay of the [Buyer] showed contents of oxygen of 1474µg/g and 1296µg/g. The [Buyer] informed the [Seller] via letter on 12 July 2001 to which it attached the results of its assays that it would once more accept the delivery as a sign of good intent even though the quality would not meet the required specifications.

The acceptance of this delivery would, however, not be a confirmation that the quality of these goods would meet the standards as set out in the contract.

Following this, J and C visited the [Buyer] in Reutte. During their visit, they discussed the selling conditions, the quality of the powder and an avoidance of the contract. J and C made several proposals in respect to the solution of the conflict such as replacement deliveries with different material. These proposals, however, were not accepted by the [Buyer] and therefore an agreement was not reached. The [Buyer] stated again that the acceptance of the last delivery would signify the avoidance of the contract.

The [Seller] informed the [Buyer] on 3 August 2001 that it would not accept a unilateral termination of the contract.

The [Buyer] responded in a letter on 16 August 2001 that it had to reduce the percentage of the powder delivered by the [Seller] in its mixture due to the unreliable quality of the material and thus -- in addition to the low demand -- had no use for powder of such quality. It would have lost its confidence in respect to the quality delivered by the [Seller].

The [Seller] delivered a further 1,500kgs of powdered tantalum to the [Buyer] on 30 October 2001. The delivery contained a certificate of quality stating the oxygen content at 968µg/g. This delivery was not accepted by the [Buyer], who asked the [Seller] in a letter on 30 October 2001 to take back the powder and stated that the order would have been cancelled after the delivery and payment of a total amount of 3,017.10kgs of powdered tantalum. The [Seller] did not comply with this request. The [Buyer] has not paid the price for this delivery (US $1,574,100.-).

The standard terms of purchase of the [Buyer] state as follows (abridged):

"The following terms apply to orders of P (in the following referred to as orderer) if not agreed on otherwise.

They do as well apply if the supplier expressly confirms something different. The acceptance of orders from P represents an agreement to these terms. Silence of the orderer does under no circumstances amount to an acceptance of standard terms of the supplier. Each of these terms is valid on its own.

1. Orders/offers
[....] orders only have legal force if placed in writing and signed by two authorized representatives of the orderer. Oral agreements need a confirmation in writing. An order is regarded as accepted if there is no answer of the supplier within 14 days of the order of P. Make-and-hold orders even after completion only amount to a duty to accept the goods if the orderer explicitly requests it. [....]

5. Guarantee
The supplier guarantees that the goods comply with the contractually agreed properties, which in turn comply with the present engineering conditions as well as that the goods are fit for the purposes for which goods of the same description would ordinarily be used and that they show no lack of conformity, which annuls or modifies the value or the usability for the ordinary or the contractual purpose. Furthermore, the supplier is liable in case the sale of the goods violates third parties' rights or in case the sale violates statutory provisions.

Lacks of conformity in the sense of paragraph 1 give rise to a right of the orderer to choose between replacement, reduction of the price, correction of faults, or to rescind the contract and claim damages due to non performance [....].

The supplier waives the right to object due to a late notice of non-conformity. A notice of non-conformity is furthermore in any case timely if it is given within a period of two months. [...]

The guarantee period starts at the time of the actual handing over of the goods at the place determined by the defendant. This period starts anew for replacement deliveries or after the correction of faults. [....]

6. Forum / statutory provisions
The orderer and the supplier agree on the applicability of Austrian law [....]"

[Seller]'s position

The [Seller] seeks payment of US $1,574,100.- (s.a.) as well as payment of a further US $4,704,355.03 matching with delivery of a further 4,482.09kgs of powdered tantalum of a grain size of 180 mesh and originating from sources similar to sample No. 0001T2-1 and ZCCW lot 2000-3. The [Seller] generally claims in a nutshell that the replacement of the delivery which, according to the view of the [Buyer], showed an excessive content of oxygen with powdered tantalum showing a lower oxygen content was a mere act of good will. There was no lack of conformity as the parties had never agreed on a precise content of oxygen. They had only agreed on a certain source the powdered tantalum should originate from, similar to the source where the samples preceding the conclusion of the contract originated from.

The name of the source was a sufficient reference to the quality, as there were only a few manufacturers of this material and therefore the market participants knew very well which quality was to attain from which source.

The [Buyer] had not asked the [Seller], to replace the allegedly faulty goods. The unconditional acceptance of the deliveries with an oxygen content of 1.153µg/g (or 1.300µg/g respectively) amounted to a clear modification of the contract -- irrespective of the allegations of the [Buyer] that the two samples were actually a subject matter of the contract.

There had not been any continuing business relationship between the parties before the conclusion of the contract. The language of the contract had been English, the standard terms of the [Buyer] had not been agreed on -- which in addition were printed in German.

[Buyer]'s position

The [Buyer] seeks to have the [Seller]'s claim dismissed. It alleges that the business relationship between the parties that was established through C acting as an agent, started in 1999. Orders that had been placed at N were in fact only directed to the [Seller]. C, who acted as an agent for N, had acted for the [Seller]. The [Seller] had known that the properties of the powdered tantalum and the oxygen content in particular had been of fundamental importance and that the [Buyer] only bought goods according to samples.

The offer on 2 January 2001 had fixed a specification of the goods. It had never accepted an agreement, which stated that the powdered tantalum only had to originate from certain sources but might be of a lower standard in quality. Such an agreement would have been very unusual. The standard terms of the [Buyer] had been agreed on.

As the deliveries of the [Seller] had not complied with the samples fixed as a reference, the [Buyer] had finally declared its withdrawal from the contract orally and in written form and had not accepted the delivery the [Seller] made -- despite its withdrawal -- on 30 October 2001.

Ruling of the Court of First Instance

The Court of First Instance dismissed the [Seller]'s claim. It held that the CISG, which also has been ratified by the People's Republic of China, was applicable in the present case. According to a declaration by the People's Republic of China, the contract required written form, which could be fulfilled through the transmission of e-mails or a fax. Such a formal defect could be healed through performance. The order of 4 January 2001 represented, according to Art. 19(1) CISG, a rejection of the offer of the [Seller] as the conditions set out in the offer had been changed considerably in respect to the specification of the powdered tantalum, and constituted a counter-offer. [Translator's note: The opinion refers to "Art. 9(1)". This has been corrected to "Art. 19(1), as it is obvious that this was intended.]

Although [Buyer]'s counter-offer was not expressly accepted by the [Seller], it was nevertheless common that the [Seller] accepted the orders of the [Buyer] and delivered according thereto, even though [Seller] had not responded to them. It therefore constituted a usage which bound the parties according to Art. 9(1) CISG. Hence, the order of the [Buyer] of 4 January 2001 was the basis for the contract and the standard terms had been effectively included.

The [Buyer] had given timely notice of the lack of conformity of the deliveries, namely, that the content of oxygen of the delivered powdered tantalum exceeded the maximum levels of the samples. The acceptance of the goods, which had not complied with the required quality, was not a tacit modification of the contract. Therefore, a fundamental breach of contract and a timely notice, which gave rise to a right to rescind [avoid] the contract -- as exercised in the present case -- was present, and thus the [Buyer] was neither obliged to accept the delivery of October 2001 and pay for it nor to accept the residual 4,482.09kgs of powdered tantalum.

Ruling of the Court of Appeal

Following the appeal of the [Seller], the Court of Appeal changed the decision of the Court of First Instance. It held that the [Buyer] was liable to pay US $1,574,100.- plus interest and to pay a further US $4,704,355.30 matching with the delivery of a further 4,482.09kgs of powdered tantalum of a grain size of 180 mesh and originating from sources similar to sample No 0001T2-1 and ZCCW lot 2000-3 and with a maximum oxygen content of 1299µg/g. It confirmed the applicability of the CISG, but negated the effective inclusion of the standard terms, as these had not been agreed on in the language used for the negotiations.

As the [Buyer] had accepted the replacement deliveries as well as further deliveries that did not comply with the contract and paid the entire amount, without giving any specified notice in the sense of Art 39(1) CISG, as the letter in question had not clearly stated, which lack of conformity the [Buyer] wanted to assert, it had shown through its conduct that the quality of the delivered goods was acceptable. The Court of Appeal held that the transgression of the maximum content of oxygen did not amount to a fundamental breach in the sense of Art. 25 CISG. In addition, the requirements in order to declare a contract avoided according to Art 73(2) CISG had not been met. Hence, the [Seller] was entitled to a payment of US $4,704,355/30 matching with delivery of the remaining 4,482.90kgs of powdered tantalum. As the parties had agreed on a maximum content of oxygen at 1299µg/g, this clarification had to be implied in the judgment.

Supreme Court ruling

In response to the appeal by the [Buyer], the Supreme Court repealed the judgments of the Court of First Instance and the Court of Appeal on 17 December 2003, 7Ob 275/03x = 12 Cg 32/02-32, and referred the case back to the Court of First Instance for retrial. The Supreme Court held the opinion -- which is binding on the lower instances -- that the conflict in respect of the inclusion of the standard terms of purchase was to be solved according to the EVÜ [*] as loi uniforme and, due to the choice of Austrian law, on the basis of the CISG. According thereto, the standard terms of purchase would have had to become part of the offer according to the intent of the offeror that was known or could have been known to the offeree (Art 8(2) CISG). This could be effected through a hint or tacitly or it could be deduced from the negotiations between the parties or from any practices which they have established between them in the sense of Art 9(1) CISG.

The decision on whether the standard terms of purchaser had to be considered as a part of the offer depended on whether their inclusion was known to the offeree or could have been known to him.

As the standard purchase terms had been sent in a foreign language the question on whether it could be expected that the offeree translated them depended on the length, intensity and importance of the business relationship as well as on the general use of the language used within the corresponding cultural circles.

On the level of international business, a party has to immediately inform its trade partner if standard terms are printed in a language it does not understand, in any case if the language is not a universal language which is usually known.

German had to be considered as a universal language as well. In addition to the financial extent of the business deal under dispute, the fact that the [Buyer] had continually hinted in English to its standard terms of purchase printed on the back had to be considered as well. It was furthermore worth mentioning in respect to the language risk that even if father and son C had not been able to understand German at least C was able to speak it, who could be assigned to the [Seller] as he not only had acted as a business facilitator for the [Seller] but -- in particular -- had acted as an agent for the [Seller] and the [Seller]'s agent N. As the length and the intensity of business relationship as well as practices established thereby could be crucial criteria it was -- in this context -- of interest whether the [Buyer] had effected business transactions with the [Seller] or one of its agents basing on the standard terms of purchase of the [Buyer] before.

In addition, the existence of former business relations as purported by the [Buyer] could be important in regard to the issue whether a practice had been established between the parties whereby the [Seller] accepted the orders of the [Buyer] even though it did not respond or sign them respectively. Hence, in order to answer the question whether the standard terms of purchase had been a part of the contract in the present case, a review of the facts was necessary.

If the standard terms of purchase of the [Buyer] had been a part of the contract, [Buyer]'s withdrawal from the contract would have been rightful as -- despite the notices of non-conformity and objections of the [Buyer] -- the [Seller] had not delivered powdered tantalum in accordance with the specification agreed on even though it had continuously assured to do so and as, in regard to the remainder, defective delivery could be feared.

In the event that the choice of law was void, the [Seller] had to be provided an opportunity to comment on the documents submitted by the [Buyer] in its statement of revision, which ought to support its view on the non-applicability of the CISG in Hong Kong.

If there had been no choice of law the contract had thus to be assessed according to the particular law of the Hong Kong Special Administrative Region; the corresponding statutes -- if they do not provide for the applicability of the CISG -- had to be ascertained ex officio -- if need be together with the parties -- through obtaining information from the Federal Ministry of Justice according to § 4 (1) IPRG [*].

The [Seller] did not comment on these documents submitted by the [Buyer] during the appeal proceedings.

The question on how the case had to be assessed according to the particular law of the Hong Kong Special Administrative Region has neither been discussed with the parties nor have any submissions been made in this regard.

The [Seller] has additionally submitted that German was not common in the cultural circle of the Hong Kong Special Administrative Region and that on this continent it was not regarded as a universal language. A subsequent inclusion of the standard terms was not possible after the contract was orally concluded on 3 January 2001 due to the subsequent purchase order. Furthermore, the clause of the standard terms containing a right of withdrawal was void as it was unusual, unexpected and very discriminatory and additionally it had not had to contemplate such content -- on top of that in a foreign language.

The [Buyer] basically explained that it had given a timely notice of non-conformity. The [Seller] had known due to the preceding business transactions that the [Buyer] was only willing to order according to its standard terms of purchase. The standard terms of the [Buyer] therefore had become a part of the contract as a practice in the sense of Art 9 EVÜ [*].

The [Buyer] had not known that N [of A] and N [of C] were different legal entities. All deliveries had been effected by the [Seller] and invoiced by N, the agent of the [Seller].

Court of First Instance ruling in the second instance

The Court of First Instance completely dismissed the [Seller]'s claim in the second proceedings as well. It again ascertained the undisputed facts of the case -- as presented on p 19-39 of the judgment of the Court of First Instance -- and added inter alia the following declarations which were highlighted in bold print in its judgment:

"The enforcing party and C could have known that the [Buyer] wanted to conclude a contract on the basis of its standard terms of purchase, to which it had hinted in each case in English on the front page, even though the parties had never talked about the standard terms beforehand, due to the orders of 19 July 2000 and due to the orders at the end of the year of 1999, of 26 January 2000 and 31 August 2000, which had been transmitted to the [Seller] by C.

German is an unimportant language in the Hong Kong Special Administrative Region. Nevertheless, the [Buyer] is in respect to its order of January 2001 among the most important four to five customers of the [Seller], who hoped for a long term business relationship.

Prior to the business transactions mentioned above, no business relationship had been established between the parties or between the [Buyer] and company P or company N.

The [Buyer], however, had long-term business relations with C and its company N, which were continuously based on its standard terms of purchase.

The enforcing party is willing to deliver the remaining 4,482.90kgs of powdered tantalum according to the specification, that had been agreed on and confirmed in the judgment of the Court of First Instance."

The Court of First Instance legally argued that in contemplation of the observations of the Supreme Court in its resolution on revocation it was to assume in respect to the findings that due to the fact that every order contained a hint in English on the front directed at the standard terms of purchase printed on the back and that the [Seller] had never objected to them, the [Seller] at least tacitly agreed with the continuous procedure of the [Buyer] and thus a practice in the sense of § 9(1) CISG had been established.

Due to the wording of the text and the positioning of the hint for the [Seller], the [Buyer] had clearly stated that these terms formed a part of the order. This had been clearly discernible for the [Seller] as well as for its agents, in their capacity of international enterprises.

In respect to the extent of the transaction, the importance of the business relationship and the quantity of anticipated further transactions, it had been appropriate for the [Seller] to translate the standard terms on its own or to ask the [Buyer] to do it.

The German language furthermore was a universal language. The fact that C was able to speak German and that the company represented by him (N) accepted the standard terms, acting as an agent for the [Seller], could be assigned to the [Seller] as well.

Due to the inclusion of the standard terms, Austrian law hence was applicable to the case. The Supreme Court had bindingly held that the deliveries of the [Seller] had been defective in the sense of paragraph 1 point 5 of the delivery terms and that the [Buyer] was entitled to withdraw from the contract according to paragraph 2. There could not have been any doubts on the part of the [Seller] that the [Buyer] had given notice in respect to the excessive content of oxygen of the delivered powdered tantalum due to the [Buyer]'s letters or faxes, respectively. Therefore, the withdrawal of the [Buyer] from the multiple delivery contract was rightful.

The grounds of the [Seller]'s timely appeal against this judgment are based on erroneous fact-finding, erroneous consideration of evidence as well as erroneous legal assessment.

It requests to change the judgment under appeal in the sense of a complete allowance of the claim. The [Buyer] has timely responded to the appellate brief and requests that the appeal be dismissed.

Ruling of the Court of Appeal

The [Seller]'s appeal is rejected.

It has to be stated in advance that the Supreme Court, in its decision of 17 March 2003, 7 Ob 275/03, revoked the preliminary judgement only in respect to the issue on the inclusion of the standard terms of purchase as to whether the [Buyer] had business relations with the [Seller] or a company acting for the [Seller] prior to the case, which were based on the standard terms of purchase or whether and, if so, what practices had been established and whether the [Seller] had agreed to the orders of the [Buyer] even if it had not signed them or responded to them, respectively.

The remaining questions of law -- in case the inclusion of the standard terms is assumed -- have finally been decided by the Supreme Court on the basis of the facts known at that time, namely, that the risk in respect to the language had to be borne by the [Seller] as C, who was able to speak German, acted for it and its agent N, as well as that the withdrawal from the contract was rightful in case the choice of law is affirmed.

Therefore, the parts I) II) a) b) and g) of the reproof in respect to the fact-finding will not be considered whereas parts II) d) and e) are related to the reproof in respect to the legal assessment.

For the remaining parts it is held as follows:

Ad II) f): The [Seller] seeks the findings on p. 26 paragraph 2 of the first judgement "C transferred the request to J" to be amended with "[...] as the order exceeded its capacities" as stated during the first proceedings.

Irrespective of the fact that there is no ground for an appeal due to the fact that the [Seller] alleges a secondary defect of fact-finding, the legal conclusion in respect to the missing part has already been bindingly drawn by the Supreme Court on the basis of the missing part.

Ad II) h): The [Seller] opposes the findings on p. 38 paragraph 2 of the first judgment " The [Seller] and C could have known that the [Buyer] was only willing to contract according to the standard terms of purchase it had transmitted and hinted to in English on the front page of its written order even though the parties had not talked about standard terms prior to this, due to the orders at the end of the year 1999, of 26 January 2000 and of 31 August 2000 which had been transferred to the [Seller] by Chris Huber"

These findings are not fact-findings but an evaluation which belongs to the legal assessment. This applies for the submissions of the [Buyer], which have been brought forward in respect to this as well. Hence the purported ground for appeal is not present.

In contrast to the [Seller]'s submissions, the imprint "already ordered via telephone" which was printed on both purchase orders is not of legal importance as the inclusion of the standard terms is not based on the acceptance of the purchase order which contained the standard terms and which is to be assessed as an offer.

Ad II) i): The [Seller] opposes the findings on p. 38 paragraph 3 "[...] four to five customers of the [Seller] that hoped for a long-term business relationship."

It is not mentioned how this should be amended or changed. It is only stated that there was no proof for this finding. It is, however, irrelevant for a legal assessment whether the [Seller] hoped for a long-term business relationship or not.

Ad II) j): The findings that the [Seller] could have been able to get to know the content of the standard terms of purchase in each case transmitted by the [Buyer] due to the considerable number of orders prior to the deliveries under dispute, is an evaluation which was made in the context of the legal assessment which does not bind the Court of Appeal. The purported ground for appeal is in this context hence not present. The additional submission made in this context that there was no proof whether the purchase orders with the standard terms printed on the back of the two transactions prior to the case at issue - namely, the commercial transactions of 18 July 2000 and 6 December 2000 -- had been sent via mail, can be opposed as the [Seller] has never contested during the proceedings that it had received them.

Ad II) k): The [Seller] opposes the findings which had been made in the context of the consideration of evidence "It is not under dispute that both N [of A] and N [of C] acted as agents for the [Seller]."

The [Seller] seeks to have this changed to:

"The N of A has been acting as an agent for the [Seller]. The N of C, however, was a business partner of the [Seller] and therefore not obliged to act continuously as intermediary in the name of and for account of the enforcing party."

Irrespective of the fact that even if these findings were changed as submitted it would still be possible to assume that P was acting as an intermediary for the [Seller] during the commercial transactions with the [Buyer], the Supreme Court has already bindingly held that C acted for the [Seller] as an agent and that the findings of the Court of First instance have not been changed in this respect. The Court of First Instance already based its decision on the findings that company N acted as an agent for the [Seller] and that the business relationship prior to 2001 which was mainly transacted via company N also related to the [Seller]. These findings have not been contested during the first proceedings.

The purported ground for appeal, that there was an erroneous fact-finding is therefore as a whole not present.

In addition there is no erroneous legal assessment.

The [Seller] basically contests the effective inclusion of the standard terms of the [Buyer] as affirmed by the Court of First Instance, as these had not been part of an offer and thus not part of the contractual offer according to the subsequent purchase order and hence could not have had any legal effect due to the preceding oral conclusion of the contract. The omission of protest of the [Seller] hence was irrelevant as it had not been proved that the standard terms of purchase had been transmitted via fax and as, apart from that, the purchase orders for the three prior commercial transactions had never been signed or returned.

It is the [Seller]'s position that:

   -    In addition, the silence of the [Seller] did not amount to any legal significance according to the relevant law. On the contrary, an acceptance of the offer of the [Seller] had been given orally by the [Buyer] via telephone. Therefore, it had to be assumed in the sense of Art 9(1) CISG that the contract was to be concluded without including the standard terms. There was no right of withdrawal according to Art 73(2) CISG as -- if at all -- only a minor breach of contract (minor transgression of the oxygen content) and not a fundamental breach of contract for prospective transactions had to be feared. Hence a withdrawal as ultima ratio could not be justified in respect to the prospective deliveries as well.
 
   -    And the Court of Appeal is additionally not bound by the legal assessment of the Supreme Court, as the latter had not considered the ascertained record and the Court of Appeal had to assess legally according to the now actually ascertained record.

It has to be stated in advance that the record as ascertained by the Court of First Instance has not been changed in the second instance and has not been changed considerably in respect to the amendment of the process as assigned by the Supreme Court. It is still sufficient in consideration of the binding legal assessment for a final assessment and the purported secondary erroneous fact finding is not of sufficient relevance to be considered.

Insofar as the [Seller], who apart from that no longer adheres to its opinion that the CISG was not applicable if the standard terms were considered as not included, alleges that the requirements for a withdrawal (also in respect to the pending partial deliveries) had not been fulfilled according to Art. 73 CISG and that there was no binding legal assessment of the Supreme Court, it can be opposed that a decision only loses its binding force if the record is changed in the continued proceedings (cf. RZ 1990/19; JBl 2000, 32 a.m.o.).

In the present case, however, the record has not been changed in respect to substantial parts (agreements on quality, non-conformity of partial deliveries, corresponding reaction of the [Buyer]), wherefore a binding force of the decision of the Supreme Court, which held that a withdrawal is to be affirmed if the choice of law and the applicability of the CISG was affirmed, is present.

The submissions of the [Seller] made in respect to the requirements of Art 73 CISG hence need not be considered.

In contrast to the view of the [Seller], the inclusion of the standard terms has to be affirmed according to the ascertained record as well.

As the Supreme Court has already stated, the question on whether the standard terms had been included is to be considered in respect to the CISG due to the included provision that Austrian law be applied. In the absence of special requirements, it is to be assessed according to Art. 8 and Art. 9 CISG. The standard terms thus have to be part of the offer according to the intent of the offeror that the offeree could have recognized in order to be included in the contract. A tacit inclusion due to negotiations or practices established between the parties is possible as well. If one party clearly states using a hint in the contractual language that it is only willing to contract according to its standard terms, it is -- in consideration of the extent of the commercial transaction -- sufficient that these (standard terms) are printed in a universal language such as German, which the Supreme Court bindingly called a universal language, or that the other party can be expected to understand it or to have it translated.

In consideration of these criteria, there cannot be any doubt that the German form of the standard terms is no obstacle for their inclusion in the contractual relationship of the parties, as German is to be seen as an universal language and as furthermore C who acted in the name of company N as an agent for the [Seller] is able to speak German. The [Seller], therefore, can be expected to have understood the standard terms or to have had it translated.

As the Supreme Court held that an amendment of the proceedings was necessary in respect to the practices, namely, whether prior to the case commercial transactions with the [Seller] or an agent acting for the [Seller], respectively, had taken place which were based on the standard terms of purchase of the [Buyer], it is to be assumed that an inclusion of the standard terms was not effected solely through the hint in English on the written order of the [Buyer] (purchase order) of 4 January 2001 and the following meekly (partial) performance, as an amendment of the proceedings would not have been necessary in this case.

Therefore, it only has to be assessed whether, due to the ascertained business relations between the [Seller] or one of its agents, respectively, and the [Buyer], a practice in the sense of Art 9 CISG (in conjunction with Art 8(3) CISG) has been established that provided for the inclusion of the standard terms of the [Buyer].

It thereby has to be taken into account that C, who subsequently acted as intermediary for the [Seller], knew or ought to have known that the [Buyer] was only willing to contract according to its standard terms of purchase. This is to be affirmed due to the signed return of the [Buyer]'s order of 1 February 2000, which contained the hint to the standard terms of purchase and particularly as the second order from company N of 31 August 2000 contained the hint to the standard terms (in each case in English and with reference to the order confirmation of 1 February 2000) after a delivery had already been effected pursuant to an order from the [Seller] (of 19 July 2000) which contained the hint as well and was not objected to. The following orders from the [Seller] of 6 December 2000 and 4 January 2001 contained a clear hint in English to the standard terms of purchase printed on the back; the [Seller] did not object to them.

Even if it has to be assumed that these orders have not been signed and returned to the [Buyer], it has to be assumed that due to the lack of objection and the actually effected deliveries or the silence following the request of the [Buyer] to contract according to its standard terms, respectively, a practice has been established tacitly, that commercial transactions are to be carried out according to the standard terms of the [Buyer] similar to the commercial transactions with company G.

The meekly performance of the contract can be seen as an inclusion of the standard terms as well. According to good faith, the [Buyer] could therefore assume that the [Seller] would object if it did not want to accept the standard terms, as it could proceed on the assumption that the [Seller] had taken note, after C had explicitly accepted them acting as an agent for company G, who also acted for the [Seller].

If the [Seller] did not respond in any way to the written orders of 6 December 2000 and 4 January 2001 and meekly performed its contractual duty, it has to be concluded that this silence constituted an acceptance in the sense of Art 8(3) CISG from the [Buyer]'s point of view.

The allegations of the [Seller] that the contracts had been concluded orally without any hint to the standard terms prior to this are hence irrelevant.

It can be concluded that, due to the effective inclusion of the standard terms into the contract, a valid choice of law in the sense of the applicability of Austrian law is present. The question on the withdrawal is thus to be assessed in consideration of the corresponding provision in the standard terms of purchase (article 5) and the provisions of the CISG which have not been excluded and therefore are to be applied.

This question has been finally answered by the Supreme Court, which held that the [Buyer] had a right of withdrawal, wherefore the converse arguments of the [Seller] do not have to be considered.

It is hence irrelevant for the outcome of this case that an assessment of the letter of the director of the United Nations Treaty Section and the letter of the vice Trade Commissioner in [Hong Kong], which have been included in the statement of revision, as well as the necessary inquiries on the particular law applicable at the time of the conclusion of the contract in [Hong Kong] according to § 4 IPRG [*] have remained unconsidered and that the parties have not made any further submissions in respect to this.

Hence the [Seller]'s appeal is not justified.

The appeal is, however, partially justified in respect to the costs.

The [Seller] challenges the granting of costs for the request for providing security and for the written pleading of 17 September 2002 as not necessary in order to carry out the legal procedure appropriately.

The costs for the request for providing security not only are already due to the [Buyer] based on its intermediate recovery, but (the [Buyer]) also was not bound to consolidate its request with its statement of defense.

The [Seller] is, however, right in alleging, that the [Buyer] was not entitled to recover costs for its written pleading of 17 August 2002.

It is true that this written pleading is admissible according to § 258 ZPO [*]. However, it arrived so short of the oral proceedings that it cannot be considered as appropriate and necessary for the legal proceedings. The [Buyer] was not able to explain why it was not possible to send this written pleading earlier. The costs for this written pleading (EUR 7,812.76 gr.) hence had to be eliminated and the decision on costs had to be changed accordingly.

The decision on costs is based on §§ 50, 41 ZPO. The partial success of the appeal in respect to the costs as part of the appeal, which has been dismissed, has no influence on the decision on costs.

Revision is admissible according to § 502 (1) ZPO.

[...]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee of Hong Kong Special Administrative Region is referred to as [Seller] and the Defendant-Appellant of Austria is referred to as [Buyer].

Translator's note on other abbreviations: EVÜ = Convention on the Law Applicable to Contractual Obligations (Rome 1980); IPRG = Bundesgesetz über das Internationale Privatrecht [Austrian Federal Act on International Private Law]; ZPO = Zivilprozessordnung [Austrian Code of Civil Procedure].

** Daniel Nagel has been a law student at Heidelberg University since October 2002 and an exchange student at Leeds University in 2004/2005.

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Pace Law School Institute of International Commercial Law - Last updated June 6, 2007
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