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CISG CASE PRESENTATION

ICC Arbitration Case No. 8324 of 1995 (Magnesium case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/958324i1.html]

Primary source(s) for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 19950000 (1995)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Case report does not identify presiding arbitrator(s)

CASE NUMBER/DOCKET NUMBER: 8324

CASE NAME: Case report does not identify parties to proceedings

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Unavailable

BUYER'S COUNTRY: Unavailable

GOODS INVOLVED: Minerals (magnesium)


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(b)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 8(1) and 8(3) ; 9(2) ; 14 ; 55

Classification of issues using UNCITRAL classification code numbers:

6B [Choice of law of Contracting State];

8A; 8C3 [Interpretation of party's statements or other conduct: intent of party making statement or engaging in conduct; Interpretation in light of surrounding circumstances (usages)];

9B; 9D2 [Implied agreement on international usage; Usages implicitly made applicable to contract];

14A12 [Criteria for an offer (intention to be bound): determination of price];

55A3 [Open-price contracts: where parties intend to be bound, Article 55 upholds the agreement]

Descriptors: Applicability ; Choice of law ; Intent ; Usages and practices ; Offers ; Open-price contracts

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Editorial remarks

Excerpt from Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at 338-339

"Article 55, on supplying 'the price generally charged,' has served as a gap filler in determining whether an offer is 'sufficiently definite' as required by Article 14(1). National courts have shown flexibility in finding that a price is sufficiently definite if it can be fixed or determinable in some way, such as a reference to market prices.[197]

"National courts have used other CISG articles to fill in missing price and quantity terms. Article 8 determination of intent based upon a totality of the circumstances analysis [198] (prior dealings, course of performance, usage), as well as Article 9 (usage, prior dealings), which addresses industry practices and prior dealings between the parties, supplement Article 14 in determining whether the parties intended to be bound and whether the terms of the agreement are sufficiently definite in light of that intent. For example, national courts have held that price and quantity may be impliedly fixed by a long time commercial relationship between the parties.[199] Similarly, the ICC Court of Arbitration found that a contract was sufficiently definite even though the price agreed on by the parties was provisional and subject to revision depending on the price obtained from the final buyer. [200] The court's finding relied on Article 9(2) which assumes that [page 338] parties apply customary trade usage, as well as Article 8(3) which allows all relevant circumstances of the case, including negotiations, usages and practices, to be taken into account in determining the parties' intent.[201] The tendency of national courts to respect industry practice and custom is also reflected in a case where the plaintiff claimed that well-established industry custom was to rely on unwritten supply commitments. Noting that the CISG has 'a strong preference for enforcing obligations and representations customarily relied upon by others in the industry,' the U.S. court in Geneva Pharmaceutical Tech. Corp. v. Barr Labs., Inc.[202] held that a purchase order for 'commercial quantities' of a product was sufficiently definite under Article 14 since it was supported by evidence of industry custom.[203]" [page 339]

197. See, e.g., Fauba v. Fujitsu Microelectronik, Cour de Cassation, Paris, 92-16.993, Apr. 22, 1992 (Fr.) (term specifying revision of price according to market trends was sufficiently definite), available at <http://cisgw3.law.pace.edu/cases/920422f1.html>; OLG Frankfurt/M 10 U 80/93, Mar. 4, 1994 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/940304g1.html> [English translation by Dr. Peter Feuerstein, translation edited by Todd J. Fox] (some items in the order contained prices but as buyer insisted on delivery of total order, the offer was not sufficiently definite under either German Civil Code or CISG Art. 14 because special screws did not contain a price).

198. For a discussion of the "totality of the circumstances analysis" approach to contract interpretation see generally, Larry A. DiMatteo, The Counterpoise of Contracts: The Reasonable Person Standard and the Subjectivity of Judgment, 48 S.C. L. Rev. 293, 318-24 (1997); Larry A. Dimatteo, Contract Theory: The Evolution Of Contractual Intent 56-60 (1998).

199. See AZ 12.G.41.471/1991, Mar. 24, 1992, supra note 132. (quality, quantity, and price of goods impliedly fixed by the established practice of parties where seller repeatedly delivered the same type of goods and buyer paid after delivery).

200. ICC Court of Arbitration - Paris 8324/1995 (Arbitral Award 1995) [available at <http://cisgw3.law.pace.edu/cases/958324i1.html>] (flexible price was valid where no market price established by common exchange institution for manganese) (on file with author).

201. Id.

202. Geneva Pharm., 201 F. Supp. 2d at 281.

203. Id.

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=240&step=Abstract>

Italian: [1998] Diritto del Commercio Internazionale 1096-1097 No. 199

CITATIONS TO TEXT OF DECISION

Original language (French): Journal de Droit international (1996) 1019-1022; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-255 [173 n.287, 217 n.715 (choice of law of Contracting State)]; Honnold, Uniform Law for International Sales (1999) 156 [Art. 14 (definiteness and price: prior to delivery and acceptance)]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.54; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 8 paras. 17, 21, 46 Art. 14 paras. 10, 17, 21, 46

French: Hascher, Journal du Droit International (1996) 1022-1024

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Arbitral Award, ICC Court of Arbitration - Paris

Case Number: 8324 of 1995

Translation by Julia Hoffmann [*]

[...]

FACTS OF THE DISPUTE

On [date], an agreement was concluded between the Claimant [Seller] and Company X [Buyer], which at the time was a subsidiary of the Respondent, and subsequently absorbed by the latter. The dispute relates to the sale of [...] magnesium. The mineral was deposited and stored at [...] in an area designated to [Company Y] who was also responsible for its surveillance.

[Buyer] contracted not to sell the mineral to any company other than [Company Y], and the re-sales were to be spaced out over a period of twelve months.

[Company Y] who was not a signatory to the contract, participated in the proceedings on the basis of its interest in the performance of the contract. It is noted that at the time of execution of the contract and of another agreement (see infra), [Company Y] was an indirect subsidiary of the Respondent.

THE APPLICABLE LAW

Clause [...] of the Agreement [formed between the parties] provided for the application of French Law, without specifying whether it was the intention of the parties that this was a reference to French Domestic Law or International French Law, that is to say the Vienna Convention of 11 April 1980, in force in France since 1 January 1988, and therefore prior to the execution of the contract.

Article 1(1)(b) provides that the Convention is applicable where the rules of private international law lead to the application of the law of a Contracting State. The autonomy of the parties being a rule of private international law, their designation of French law in this case leads to the application of the Convention, according to the general interpretation of commentators (see recently, Claude Witz, 'Les premières applications jurisprudentielles du droit uniforme de la vente internationale', L.G.D.J. 1995, nos 9 et 28). To avoid all uncertainty on this point, this interpretation was confirmed in the terms of reference. It is the Vienna Convention that constitutes the applicable law in the following terms:

"The same clause (arbitration clause) provides that the applicable substantive law is French Law. The choice is confirmed. It is specified that it is the French Law applicable to international sales, that is to say the Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods. Therefore, it is the Vienna Convention that is applicable."

INTERPRETATION OF THE AGREEMENT DATED 18 DECEMBER 1992 (RULES)

The terms of reference provided to the arbitrators is the interpretation of clause [...] of the agreement [...]:

"The price indicated above is a provisional price that will be revised according to the actual price paid during the period of sale of [Company Y]".

The rules of interpretation of the contract are found in articles 8 and 9 of the Vienna Convention. The rules differ quite significantly from Articles 1156-1164 of the French Civil Code.

Firstly, the statements made by and other conduct of a party are to be interpreted according to its intent where the other party knew or could not have been unaware what the intent was (Article 8(1)). This implies that the parties either already had strong business ties and knew each other well, or the statements and conduct of each could be known and decoded by the other party.

If these conditions are not fulfilled, the statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances (art. 8(2)).

In the application of these two rules, due consideration is to be given to all relevant circumstances of the case, namely, the relevant circumstances that surrounded the negotiations and the practices which the parties have established between themselves.

Finally, the parties are bound by any usage to which they have agreed, and save for any agreement to the contrary, by any usage which they knew or ought to have known which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

We therefore have a three-step process starting with a subjective analysis (the declaration of a party), which then leads to an objective analysis (the usages of international trade involved in the particular trade concerned). It is necessary to complete this system by the common techniques of reasoning arising from common sense (reasoning by analogy, a contrario, etc.).

It is in reference to articles 8 and 9 of the CISG that the tribunal will interpret, as it is requested, clause [...] of the agreement [...].

PROVISIONAL PRICE

Was the [...] price, taken into account for issuing the [...] invoice, a provisional price?

The tribunal answers this question in the affirmative: in effect, the agreement of [...] expressly indicates that the price indicated is a provisional price, the invoice referred to above, dated [...] emitted by [Seller] in performance of the contract and relating to the supply of [...] tons of [...] mineral, is entitled :provisional invoice" and clearly bears the annotation 'provisional price to be revised'. The invoice was paid, without protest on this point by [Buyer].

Besides, a letter from [Company Y] to [Buyer] refers to the eventuality of a price revision indicated in the contract [...] between [Seller] and [Buyer], and the acknowledgement by [Company Y]. The intention of the [Seller] is therefore made clear and understood by its partner.

Furthermore, of all of the documents provided by the parties, it is clear, as it will be developed below, that in the restricted market made up of mining-producers and [...], the base price stipulated in a contract concluded prior to the determination of a definitive price established within several parameters: distance, quality, amount bought, relations between the miner and producerů the price indicator appears to settle between the Japanese price and the production cost of extracting the mineral.

No contradictory piece of evidence has been submitted to alter these observations. Furthermore, the tribunal notes the stipulation of a provisional price in the agreement [...] expresses the intention of the parties and is in accordance with the usages of the profession.

On the other hand, the intentions of the parties is not as clear when it comes to the means of revision and the expression 'actual price paid' does not have an immediate meaning.

ACTUAL PRICE PAID

[...] This being the case, the tribunal notes that, as already stated, there is not doubt about the fact that the invoice dated [...] was a provisional invoice; on the other hand, the means of revision established in clause [...] of the agreement [...] are uncertain in the parties' redaction, and the interpretations that they make and that they propose to the tribunal are not particularly convincing.

For example when the [Seller] relies on the minutes of the Board of Directors of [Company Y], it forgets that the agreement on the price means authorization for the employees of [Company Y] to contract at the said price, but does not constitute a contractual obligation linking the two parties, particularly given that the price [...] called "market price" was not yet known as was susceptible to influencing the definitive price.

To analyze the actual price paid for the year during which the contract for the transfer of minerals to [Company Y] was to be performed as is done by [Seller], would make the [Respondent] the guarantor, at least partially, of the parties to the assignment contract, without taking into account the problem of the effects of such a modality on the relations at the time between [Buyer], the Respondent and [Company Y]. There is nothing in the documents provided, which leads to such an interpretation, and further that the evolution of the situation that led to the financial difficulties encountered by [Company Y] were not contemplated by the parties at the time of the conclusion of the agreement [...]. The benefit of the agreement is based more on the cordial relations, which explains the rather frustrated nature of the stipulations, if we compare them to the contracts concluded with "foreigners" produced by the two parties. Such a clause is not to be entirely rejected but would require a clearer drafting for such an obligation to exist.

The tribunal ascertains from the submissions of the parties [...] that there is no market price in the common sense of the term, that is to say, a price determined in a market like the London Metal Exchange or any other analogous institution and varying according to the offer and the demand, but a reference price which results from the annual negotiations between the Japanese steelworkers and the Australian and South African miners. It is that price which serves as a reference to all [mineral] professionals (miners and transformers) and which will enable each and every one to fix their own contractual price. The parameters generally used are the cost of transport, the quality of the mineral, the quantities bought, the links between each of them which can result in linking clause establishing a relationship between the price of the finished product and that of the mineral.

These practices, on the basis of the documents provided, are standard and provide the guidelines for what should be the price of the mineral re-sold by [Buyer] to [Company Y] if we accept that [Buyer] was the primary financier of [Company Y]. However, given the variety and the number of parameters used by these operators and notably the importance of the influence of the links between the miners and the transformers on the determination of the final price, which will ultimately be paid by the buyer, there is not one price. The tribunal will therefore proceed at a more circumstantial analysis of the relations between the parties, to establish if despite the controversial drafting of the clause relating to price, a definitive price was determinable and capable of numeric expression.

In order to do so, and given the preceding observations, the tribunal considers that given the prior relations between the parties, the good relationship which appeared to exist at the time of formation of the contract [...] (amicable tone of correspondence, exchange of information, drafting of an agreement significantly less detailed than other contracts produced by the parties in their evidence) and the trade usages, '"actual price paid" means the definitive actual price, after discounting by usage or negotiated. It is on the basis of the intention of the parties that the price can be determined.

[...]


FOOTNOTES

* Julia Hoffmann, BA, Dip. Lang, LLB (Hons) (Adel.). LLM (Paris I), Solicitor of the Supreme Courts of New South Wales and South Australia.

All translations should be verified by cross-checking against the original text.

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Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
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