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CISG CASE PRESENTATION

Australia 20 May 2009 Federal Court of Australia (Olivaylle Pty Ltd v. Flottweg GmbH & Co KGAA )
[Cite as: http://cisgw3.law.pace.edu/cases/090520a2.html]

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

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Case identification

DATE OF DECISION: 20090520 (20 May 2009)

JURISDICTION: Australia

TRIBUNAL: Federal Court of Australia (Brisbane: Heard in Adelaide)

JUDGE(S): Logan J

CASE NUMBER/DOCKET NUMBER: [2009] FCA 522

CASE NAME: Olivaylle Pty Ltd v. Flottweg GmbH & Co KGAA

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (defendant)

BUYER'S COUNTRY: Australia (plaintiff)

GOODS INVOLVED: Machinery for the processing of olive oil


IHR headnote

Reproduced from Internationales Handelsrecht (4/2009) 160

"The CISG does not apply to an international sales contract which contains the clause Australian law applicable under exclusion of UNCITRAL law."

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UNCITRAL case abstract

AUSTRALIA: Federal Court of Australia, 20 May 2009
(Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/96],
CLOUT abstract no. 956

Reproduced with permission of UNCITRAL

Abstract prepared by _________

The plaintiff, an Australian company, and the defendant, a German company, concluded a contract for the sale of an olive oil production line. After extensive negotiations about the terms of the contract and exchange of several preparatory documents, the defendant incorporated the plaintiff's ultimate comments into a final sales contract which the defendant's German export manager e-mailed to its Australian representative in New South Wales, Australia, on 8 February 2005. The latter forwarded this electronic message to the plaintiff with place of business in Victoria, Australia, on 10 February 2005. The final contract contained a clause providing "Australian law applicable under exclusion of UNCITRAL law."

In the contract, the seller undertook that the production line would meet certain benchmark operating speeds and yields, warranting to make repairs, supply replacements, or make good any services not carried out correctly within a reasonable time period; failing which, the buyer had the right to hire a technician to carry out repairs and recover costs from the seller. Moreover, the contract gave the plaintiff the right to claim a reduction in the purchase price or withdraw from the contract, but only after expiry of a "reasonable period of grace," which the buyer was obligated to specify in the event of the seller's default on its obligations.

The plaintiff claimed that it experienced several problems with the production line during the first harvesting season. In February 2006, it notified the seller that it would withdraw from the contract, unless the seller would remedy the alleged defects by the end of June 2006. The seller disagreed, claiming that the failure to meet the contract benchmarks resulted from the buyer's misuse of the machinery, but conceding that a gearbox needed to be replaced. The buyer refused to allow the seller to carry out the repair and sued.

Regarding contractual formation, the court interpreted the buyer's comments on the proposed contract it received from the seller in late 2004 as a counteroffer and held that the seller's February 2005 electronic communication, by incorporating the buyer's comments, constituted an acceptance. In line with Article 15 of the UNCITRAL Model Law on Electronic Commerce (which Australia had enacted in section 14 of its Electronic Transactions Act of 1999 and which the state of Victoria had enacted in section 13 of its Electronic Transactions Act of 2000), the court held that the place where the electronic acceptance was received should be deemed the place of contract formation. As to the time of formation, the court noted that, strictly, and in accordance with Article 15 of the MLEC, the contract was completed when the electronic acceptance reached the buyer, i.e. when it entered the buyer's information system on 10 February 2005. However, since both parties stipulated in pleadings that the contract was formed on 8 February 2005 and since the issue was not material to the dispute, the court agreed to act on the basis of that admission.

Furthermore, the court held that, by inserting the opt-out clause in the sale contract, the parties excluded the application of the CISG pursuant to its Article 6. Establishing that "UNCITRAL Law" in the contract referred to the CISG and that the Convention was part of Australian law, the court reasoned from the parties' intention as evidenced in their writing that they sought their contractual disputes to be resolved solely under Australian local law.

Proceeding to the buyer's claim that it had the right to withdraw from the contract, given the seller's failure to repair alleged defects within the time period indicated, the court noted that the concept of "grace periods" potentially giving buyers the right to withdraw or reduce the purchase price originated from the civil rather than the common law. Therefore, the court looked to Section III of Chapter II of the CISG ("Remedies for breach of contract by the seller"), in particular Articles 46 (3), 47, 48 (1), and 50, for guidance on how such terms were to be interpreted. In referencing the CISG, the court again pointed to the parties' intention to incorporate civil law terms in their contract. Relying on Article 48 (1) CISG, the court held that in February 2006 the buyer was not entitled to specify a grace period ending in June of that year, because the reasonable time period for seller's repairs had not expired at that time. According to the court, the reasonable time period for repairing defects that had materialized during the 2005 harvesting season expired at the end of June 2006; only at that point would the buyer have had the right to specify a grace period and threaten withdrawal. Finding the buyer's denial to allow the seller to repair the gearboxes unreasonable, the court affirmed the seller's claim to the final [installment] due under the contract.

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Classification of issues present

APPLICATION OF CISG: No

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 47 ; 48

Classification of issues using UNCITRAL classification code numbers:

6A [Exclusion of Convention by contract]

Descriptors: Autonomy of parties ; Choice of law

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Editorial remarks

EDITOR: Lisa Spagnolo

Excerpt from analysis of Australian case law on the CISG. Reproduced with permission of 10 Melbourne Journal of International Law (2009) 204-207

Olivaylle Pty Ltd v Flottweg GmbH & Co KGAA (No 4) [445]

In [a 2009] decision by the Federal Court, the contract involved the supply of production line equipment for olive oil production. Logan J determined [page 204] that the CISG was excluded by the words 'Australian law applicable under exclusion of UNCITRAL law'.[446] The case is almost chameleon-like in its approach to the CISG.

The Court reasoned that, although the CISG was 'part of the relevant Australian law', reference to exclusion of UNCITRAL law was sufficient to evince an intention to exclude the CISG.[447] The buyer contended that the exclusion related only to property issues, since the exclusion followed a sentence amounting to a retention of title clause.[448] Logan J correctly pointed out, with reference to Roder Zelt, that such a construction was unlikely to have been intended, given that the CISG does not deal with property issues anyway, pursuant to art 4(b).[449] Unfortunately, no reference to other CISG cases was made.[450]

The Court analysed the formation and interpretation of the choice of law clause by reference to domestic law concepts alone. By doing so, it acted as though the CISG did not have a priori application. In this sense, the Court fell into the same error as did the Court in Vetreria. Had application of the CISG to the questions of formation and construction resulted in a conclusion that the CISG was excluded, then resort to domestic law on formation and interpretation would have been entirely appropriate. But if the same process had led to the conclusion that the CISG was not properly excluded, recourse to domestic law would have been prohibited. The Court could only ever be in a position to know the right course of action by proper application of the CISG, at least up to the point at which exclusion was determined.

In fact, Logan J's application of domestic interpretive rules was rather liberal. Prior communications were examined, as well as the written 'contract',[451] and his Honour thus determined that the parties placed a high level of importance upon the written terms.[452] The CISG also deems such communications relevant, but would additionally deem subsequent communications of relevance in relation to interpretation of the parties' contractual intent.[453] Logan J took into account of the nature of the contract, the fact that the seller was known to trade internationally, and the position and context of the clause within the document. These would also be relevant under a CISG approach.[454] The biggest difference in construction would be the imperative to take an internationalist approach. The Court in Olivaylle should have looked at decisions on CISG exclusion clauses from around the world, and scholarly material on the issue. The need to look at such material is obvious when one considers that, in determining the question of exclusion, one is effectively interpreting art 6 of the CISG. Therefore, language [page 205] that is dispositive under domestic law 'acquires a different meaning under the Convention'.[455]

Obviously, the Court appreciated that a choice of Australian law would not have excluded the CISG.[456] Express exclusion is clearly permissible pursuant to art 6. Legislative history indicates, and most cases have held, that implicit exclusion is also possible,[457] but it requires 'clear' indications of 'real' rather than 'theoretical'[458] intent. For example, a choice of 'American law as laid down in the UCC' would suffice.[459] Although clumsy, the words in question in Olivaylle under a CISG construction would probably amount to implicit, if not express exclusion. Yet, without further analysis, one cannot be certain that the sloppily chosen words even formed part of the contract, at least in CISG terms.

The exclusion clause was contained within the seller's quotation of 8 February 2005. Logan J conducted a purely common law analysis of formation.[460] His Honour concluded that after the buyer's handwritten alterations to the seller's document of 1 October 2004, there were further discussions, and then the seller's quotation of 8 February 2005, which 'took up such of [the buyer's] alterations as [the seller] was prepared to adopt'.[461] The Court then considered various common law characterisations of formation. However, for the purposes of determining exclusion pursuant to art 6, formation should be analysed, at least initially, according to the CISG. There would need to be a 'sufficiently definite' offer.[462] As for the final document containing only some of the buyer's alterations,[463] the CISG would have had no difficulty classifying this as an acceptance if the terms omitted by the seller were immaterial, provided that [page 206] the buyer did not object to the modification.[464] Alternatively, if they were material omissions, it would amount to a counteroffer[465] accepted by the buyer's subsequent conduct, a conclusion similar to Logan J's less preferred construction.[466] Further, if, as suggested by Logan J, an earlier contract existed, possibly in October 2004,[467] then subsequent modification by agreement would have been permissible under art 29. On a CISG analysis, the clause would have been incorporated and the CISG excluded. Ultimately, the Court applied the correct law, although navigation to that conclusion might have been through much safer waters.

However, perhaps the Court's sensitivity to the CISG had been heightened, because later in the judgment, Logan J returned to the CISG as an aid to interpretation of certain contractual provisions. The welcome chameleon-like change in approach was driven by contractual provisions containing the 'civil law' concepts of 'reasonable period of grace' and 'reduction in price'.[468] Logan J sensibly returned to the CISG as a guide to construction, and drew upon arts 46, 47, 48 and 50.[469] Admirably, the Court looked at the concept of Nachfrist and some English scholarship on the CISG.[470] Had the Court looked beyond English scholars to other scholars and cases decided on the relevant CISG provisions, it would have found much greater guidance still. The usefulness of the CISG also prompts the question: why did the parties exclude the CISG in the first place?

Beside Hannaford, Olivaylle flickers intermittently. Through the darkness, it now appears that the Federal Court is willing and prepared to take the next step, should a case to which the CISG directly applies come before it.
_________________________

445. [2009] FCA 522 (Unreported, Logan J, 20 May 2009) ('Olivaylle') Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/090520a2.html>.

446. Ibid [28].

447. Ibid.

448. Ibid [29] (summarising the buyer's contention).

449. Ibid [30].

450. See above text accompanying n 187.

451. Olivaylle [2009] FCA 522 (Unreported, Logan J, 20 May 2009) [21].

452. Ibid [20]. See also ibid [21] (Email from Dr Paterson, Flottweg, to Mr De Moya, Olivaylle, 7 October 2004, stating that 'none of these discussions can take precedence over written communications').

453. CISG, above n 1, art 8(3).

454. Ibid arts 8(2), 8(3).

455. E Allan Farnsworth, 'Review of Standard Forms of Terms under the Vienna Convention' (1988) 21 Cornell International Law Journal 439, 442.

456. This has been upheld in many cases. See, eg, Tinned Cucumbers Case (Oberlandesgericht Düsseldorf, Germany, 8 January 1993) <http://cisgw3.law.pace.edu/cases/930108g1.html>.

457. For a summary of supporting cases and the minority holding to the contrary, see UNCITRAL, Digest of Case Law, above n 15, art 6. The Drafters did not want courts jumping to the conclusion of implied exclusion too quickly, see Official Records, above n 37, 17 (stating that the words 'such exclusion may be express or implied' were eliminated from art 5 because they 'might encourage courts to conclude, on insufficient grounds, that the [CISG was] excluded').

458. Honnold, Uniform Law for International Sales, above n 71, 80 (requiring 'real' and not 'theoretical' intent). See also Fritz Enderlein and Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods: Convention on the Limitation Period in the International Sale of Goods: Commentary (1992) 48 (stating that there must be 'clear indications'); Franco Ferrari, 'Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing' (1996) 15 Journal of Law and Commerce 1, 88 (fn 614).

459. Ferrari, 'Specific Topics of the CISG', above n 458, 89 (fn 626); see also Enderlein and Maskow, above n 458, 49.

460. Olivaylle [2009] FCA 522 (Unreported, Logan J, 20 May 2009) [22]-[23].

461. Ibid [22].

462. CISG, above n 1, art 14(1).

463. Olivaylle [2009] FCA 522 (Unreported, Logan J, 20 May 2009) [22]. In dealing with the long period of negotiations, Logan J concludes that after the buyer's handwritten alterations to the seller's document of 1 October 2004, there were further discussions, and then the seller's quotation of 8 February 2005, which 'took up such of [the buyer's] alterations as [the seller] was prepared to adopt'.

464. CISG, above n 1, art 19(2). Notably, art 19(3) lists changes to 'price, payment, quality and quantity ... delivery ... liability and [dispute settlement]' as material alterations. The document dated 8 February 2005 purported to be an 'offer' rather than an 'acceptance'. This would not necessarily be fatal, but would need to be dealt with by the Court, as indeed Logan J did in regard to common law construction.

465. Ibid art 19(1).

466. Olivaylle [2009] FCA 522 (Unreported, Logan J, 20 May 2009) [23]. The first, and least preferred characterisation of formation was that the 8 February 2005 document was an offer, the buyer's acceptance of which was to be 'inferred from its acquiescence' and subsequent conduct. However, Logan J preferred the second characterisation, which was that the handwritten alterations and subsequent discussions amounted to the buyer's counteroffer, and the 8 February 2005 document amounted to an acceptance of the counteroffer as it had 'come to be formulated', presumably after the intervening discussions.

467. Ibid [23]. Logan J concluded that '[t]he effect of what occurred is that, whatever acceptance [had previously occurred] ... the parties agreed wholly to replace that agreement by an agreement set out in the terms of the quotation of 8 February 2005'.

468. Ibid [203].

469. Ibid [203]-[209].

470. Ibid [206]-[207], citing Barry Nicholas, 'The Vienna Convention on International Sales Law' (1989) 105 Law Quarterly Review 201; and at [204] and [209], citing Anthony G Guest (ed), Benjamin's Sale of Goods (7th ed, 2006).

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1443&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (English): Excerpt from text presented below; for entire text, go to <http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2009/522.html?query=^Olivaylle>; see also Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1443&step=FullText>; Internationales Handelsrecht (4/2009) 160-161

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text [excerpt]

Federal Court of Australia
Olivaylle Pty Ltd v. Flotweg GmbH & Co KGAA

(No 4) [2009[ FCA 522 (20 May 2009)

[...]

27. The Contract was one for the sale of goods between a party with its place of business in Victoria, Australia and a party with its place of business in Germany. The Sale of Goods (Vienna Convention) Act 1987 (Vic) (Sale of Goods (Vienna Convention) Act) adopts as part of the law of Victoria the United Nations Convention on Contracts for the International Sale of Goods: see s 5. That convention was made in Vienna in 1980; hence the reference to it as "the Vienna Convention". The terms of that convention form a schedule to that Act. Article 6 of the Vienna Convention provides, materially, that "The parties may exclude the application of this Convention".

28. The Contract provides, "Australian law applicable under exclusion of UNCITRAL law." The Sale of Goods (Vienna Convention) Act, being a law of a State is an "Australian law". The contractual reference to "UNCITRAL" is reference to the United Nations Commission on International Trade Law, the acronym for which is "UNCITRAL". In my opinion, for reasons which follow, "UNCITRAL law" is a reference to the Vienna Convention. That the Vienna Convention is an adopted part of the relevant Australian law does not mean that the contractual statement "Australian law applicable under exclusion of UNCITRAL law" is to be construed as thereby rendering applicable a convention that the parties to it sought expressly to exclude. Rather, the Contract evidences an intention to exclude the Vienna Convention altogether from application. So much is permitted by "Australian law"; relevantly, that convention as applied in Victoria by the Sale of Goods (Vienna Convention) Act.

29. A conclusion that the Vienna Convention as a whole is excluded accords with the construction of the Contract for which [Seller] contended. [Buyer] took a different view, submitting that the "exclusion of UNCITRAL law" should be construed as referring only to "an exclusion of United Nations Commission for International Trade Law (UNCITRAL) so far as it may affect issues of title". The inspiration for this submission was that the reference in the Contract to the exclusion immediately follows a sentence which reads: "[Seller] will retain ownership and title to the delivered goods and equipment until [Seller has received payment of all amounts owned by the buyer under the contract." Each of these sentences appear at the conclusion of the Contract under the heading "Other Dispositions", as the excerpt reproduced below evidences.

30. UNCITRAL is an agency of the United Nations established by the General Assembly in 1966. It has as its mandate from the General Assembly the progressive harmonisation and unification of the law of international trade. It has fostered the development of a number of international conventions and model laws which range in subject from the international sale of goods through to cross-border insolvency and, as Ms Christensen's article (supra) reminds, electronic commerce. When this fact and that the Vienna Convention "governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such contract; in particular [the Vienna Convention] is not concerned with the effect that the contract may have on the property to the goods sold" (Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Eustace (1995) 57 FCR 216 at 222) are taken into account, it is an unlikely construction of the Contract that the sentence referring to "UNCITRAL law" is to take its meaning from the sentence which precedes it. Given the nature of the Contract, the fact that a party to it, [Seller], was and was known by [Buyer] to be a company which sold its wares internationally and the reference to the exclusion of "UNCITRAL law" appearing at its conclusion under the heading "Other dispositions", the more likely construction of "UNCITRAL law" is that it was intended to be a reference to the particular UNCITRAL convention that governed the international sale of goods, ie the Vienna Convention. "Other dispositions" looks to me to be a heading which describes miscellaneous, unrelated terms of general application to the goods sold. The positioning of the sentence at the end of the Contract further supports a construction that it was meant to govern all of its terms.

[...]

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Pace Law School Institute of International Commercial Law - Last updated October 22, 2010
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