Go to Database Directory || See also UNCITRAL Digest Cases + Added Cases
Search the entire CISG Database (case data + other data)

2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 9 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Introduction
Usages agreed to and practices established between the parties
Binding international trade usages (article 9(2)
Letters of confirmation, Incoterms, and the UNIDROIT Principles]

Article 9

(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

INTRODUCTION

1. This provision describes the extent to which parties to an international sales contract governed by the CISG are bound by usages, as well as by practices that the parties have established between themselves.[1] Usages to which the parties have "agreed," along with practices that the parties have established, are covered by article 9(1); usages that the parties "have impliedly made applicable to their contract" are addressed in article 9(2).

2. The validity of usages is outside the Convention's scope;[2] the Convention addresses only their applicability.[3] As a consequence, the validity of usages is governed by applicable domestic law.[4] If a usage is valid, it prevails over the provisions of the Convention, regardless of whether the usage is governed by article 9(1) or by article 9(2).[5]

Usages agreed to and practices established between the parties

3. Under article 9(1), the parties are bound by any usage to which they have agreed. Such an agreement need not be explicit,[6] but -- as one court has stated [7] -- may be implicit.

4. According to the same court, article 9(1) -- unlike article 9(2) -- does not require that a usage be internationally accepted in order to be binding; thus the parties are bound by local usages to which they have agreed as much as by international usages.[8] The same court (in a different case) has stated that usages need not be widely known in order to be binding under article 9(1)(as opposed to article 9(2)).[9]

5. According to article 9(1), the parties are also bound by practices established between themselves -- a principle that, according to one arbitral tribunal, "was extended to all international commercial contracts by the UNIDROIT Principles. "[10] Article 1.9(1) of those Principles provides that "the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves."

6. Several decisions provide examples of practices binding under article 9(1). An arbitral panel has found that a seller was required to deliver replacement parts promptly because that had become "normal practice" between the parties.[11] In another case, an Italian seller had been filling the buyer's orders for many months without inquiring into the buyer's solvency; thereafter, the seller assigned its foreign receivables to a factor and, because the factor did not accept the buyer's account, the seller suspended its business relationship with the buyer; a court held that, based on a practice established between the parties, the seller was required to take the buyer's interest into account in restructuring its business, and thus the seller was liable for abruptly discontinuing its relationship with the buyer.[12] In a different decision, the same court ruled that a seller could not invoke the rule in CISG article 18 which provides that silence does not amount to acceptance because the parties had established a practice in which the seller filled the buyer's orders without expressly accepting them.[13]

7. The Convention does not define when practices become "established between the parties." According to some courts, a practice is binding on the parties pursuant to article 9(1) only if the parties' relationship has lasted for some time and the practice has appeared in multiple contracts. One court asserted that article 9(1) "would require a conduct regularly observed between the parties [] [of] a certain duration and frequency [...]. Such duration and frequency does not exist where only two previous deliveries have been handled in that manner. The absolute number is too low.:[14] Another court dismissed a seller's argument that reference on two of its invoices to the seller's bank account established a practice between the parties requiring the buyer to pay at the seller's bank. The court held that, even if the invoices arose from two different contracts between the parties, they were insufficient to establish a practice under article 9(1) of the Convention. According to the court, an established practice requires a long lasting relationship involving more contracts of sale.[15] Another court has stated that one prior transaction between the parties did not establish "practices" in the sense of article 9(1).[16] According to a different court, however, "[i]t is generally possible that intentions of one party, which are expressed in preliminary business conversations only and which are not expressly agreed upon by the parties, can become 'practices' in the sense of article 9 of the Convention already at the beginning of a business relationship and thereby become part of the first contract between the parties. This, however, requires at least (article 8) that the business partner realizes from these circumstances that the other party is only willing to enter into a contract under certain conditions or in a certain form."[17]

8. Several courts have stated that the party alleging the existence of a binding practice or usage bears the burden of proving that the requirements of article 9(1) are met.[18]

Binding international trade usages (Article 9(2))

9. By virtue of article 9(2), parties to an international sales contract may be bound by a trade usage even in the absence of an affirmative agreement thereto, provided the parties knew or ought to have known of the usage and the usage is one that, in international trade, "is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned." One court has construed article 9(2) as providing that the usages and practices of the parties or the industry are automatically incorporated into any agreement governed by the Convention, unless expressly excluded by the parties.[19]

10. Usages that are binding on the parties pursuant to article 9(2) prevail over conflicting provisions of the Convention.[20] On the other hand, contract clauses prevail over conflicting usages, even if the usages satisfy the requirements of article 9(2), because party autonomy is the primary source of rights and obligations under the Convention, as the introductory language of article 9(2) confirms.[21]

11. As noted in paragraph 9 of this Digest, to be binding under article 9(2) a usage must be known by (or be one that ought to have been known to) the parties, and must be widely known and regularly observed in international trade. According to one court this does not require that a usage be international: local usages applied within commodity exchanges, fairs and warehouses may be binding under article 9(2) provided they are regularly observed with respect to transactions involving foreign parties.[22] The court also stated that a local usage observed only in a particular country may apply to a contract involving a foreign party if the foreign party regularly conducts business in that country and has there engaged in multiple transactions of the same type as the contract at issue.

12. The requirement that the parties knew or ought to have known of a usage before it will be binding under article 9(2) has been described as requiring that the parties either have places of business in the geographical area where the usage is established or continuously transact business within that area for a considerable period.[23] According to an earlier decision by the same court, a party to an international sales contract need be familiar only with those international trade usages that are commonly known to and regularly observed by parties to contracts of the same specific type in the specific geographic area where the party has its place of business.[24]

13. There is no difference in the allocation of burden of proof under article 9(1) and (2):[25] the party that alleges the existence of a binding usage has to prove the required elements, at least in those legal systems that consider the issue one of fact.[26] If the party that bears the burden fails to carry it, an alleged usage is not binding. Thus where a buyer failed to prove the existence of an international trade usage to treat a party's silence after receiving a commercial letter of confirmation as consent to the terms in the letter, a contract was found to have been concluded on different terms.[27] In another case, a party's failure to prove an alleged usage that would have permitted the court to hear the party's claim led the court to conclude that it lacked jurisdiction.[28] Similarly, a court has held that, although the Convention's rules on concluding a contract (articles 14-24) can be modified by usages, those rules remained applicable because no such usage had been proven.[29] Where a buyer failed to prove a trade usage setting the place of performance in the buyer's country, furthermore, the place of performance was held to be in the seller's State.[30] And the European Court of Justice has stated that, in order for silence in response to a letter of confirmation to constitute acceptance of the terms contained therein, "it is necessary to prove the existence of such a usage on the basis of the criteria set out" in article 9(2) of the Convention.[31]

14. There are several examples of fora finding that the parties are bound by a usage pursuant to article 9(2). In one case, an arbitral tribunal held that a usage to adjust the sales price was regularly observed by parties to similar contracts in the particular trade concerned (minerals).[32] In another decision, a court held that a bill of exchange given by the buyer had resulted in a modification of the contract, pursuant to article 29(1) of the Convention, which postponed the date of payment until the date the bill of exchange was due;[33] the court indicated that an international trade usage binding under article 9(2) supported its holding. In yet another case, a court stated that there was a usage in the particular trade concerned which required the buyer to give the seller an opportunity to be present when the buyer examined the goods.[34]

15. Several decisions have referred to usages when addressing the question of the interest rate to be applied to late payments. One court has twice invoked international usages binding under article 9(2) of the Convention to solve the issue. In the first decision, the court stated that payment of interest "at an internationally known and used rate such as the Prime Rate constituted" an accepted usage in international trade, even when it is not expressly agreed between the parties.[35] In the second decision, the court adopted the same position and commented that the Convention attributes [to international trade usages] a hierarchical position higher than that of the provisions of the Convention.[36]

Letters of confirmation, Incoterms,and the UNIDROIT Principles

16. Several cases have invoked article 9 in determining whether silence in response to a letter of confirmation signifies agreement to the terms contained in the letter. In response to an argument seeking recognition of a usage that such silence constituted consent to terms in a confirmation, one court stated that:

"Due to the requirement of internationality referred to in article 9(2) CISG, it is not sufficient for the recognition of a certain trade usage if it is only valid in one of the two Contracting States. Therefore, [in order to bind the parties], the rules on commercial letters of confirmation would have to be recognized in both participating States and it would have to be concluded that both parties knew the consequences [...]. It is not sufficient that the trade usage pertaining to commercial letters of confirmation exists only at the location of the recipient of the letter []."[37]

Because the contractual effects of silence in response to a letter of confirmation were not recognized in the country of one party, the court found that the terms in the confirmation had not become part of the contract. Although the court noted that domestic doctrines attributing significance to silence in response to a confirmation had no relevance in the context of international sales law, the court nevertheless suggested that "a letter of confirmation can have considerable importance in the evaluation of the evidence. Another court noted that a letter of confirmation binds the parties only if this form of contract formation can be qualified as commercial practice under article 9 of the Convention.[38] The court held that such a usage, binding under article 9(2), existed in the case: both parties were located in countries in which "the contractual effect of commercial communications of confirmation" was recognized; furthermore, the "parties recognized the legal effects of such a communication" and for that reason should have expected that "they might be held to those legal effects".[39] Yet another court rejected the idea that domestic rules on the effects of silence in response to a letter of confirmation can be relevant when the Convention is applicable.[40]

17. One court has commented on the relationship between article 9(2) and INCOTERMS.[41] After asserting that "INCOTERMS are incorporated into the Convention through article 9(2)," the court stated that, pursuant to article 9(2), INCOTERMS' definitions should be applied to the contract despite the lack of an explicit INCOTERMS reference in the contract. Thus by incorporating a CIF term in their contract, the court held, the parties intended to refer to the INCOTERMS definition thereof.[42] Similar statements occur in an arbitral award [43] and in a decision of a court in a different State.[44] In the latter decision, the court interpreted an FOB clause by referring to the INCOTERMS even though the parties had not expressly referenced the INCOTERMS.

18. One court has held that the UNIDROIT Principles of International Commercial Contracts constitute usages of the kind referred to in article 9(2) of the Convention.[45] Similarly, an arbitral tribunal stated that the UNIDROIT Principles reflect international trade usages.[46]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
   -    To support UNCITRAL's recommendation to read more on the cases reported in the Digests, we provide mouse-click access to (i) CLOUT abstracts published by UNCITRAL (and to UNILEX case abstracts and other case abstracts); and also (ii) to full-text English translations of cases with links to original texts of cases, where available, in [bracketed citations] that we have added to UNCITRAL's footnotes; and
 
   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 19.

2. [AUSTRIA Oberster Gerichtshof 22 October 2001 (Gasoline and gas oil case)].

3. See [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)].

4. See [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)]; [AUSTRIA Oberster Gerichtshof 15 October 1998 (Timber case)] (see full text of the decision).

5. See [BELGIUM Rechtbank Koophandel Ieper 18 February 2002 (Pork meat case)]; [BELGIUM Rechtbank Koophandel Veurne 25 April 2001 (Diesel tram case)]; [BELGIUM Rechtbank Koophandel Ieper 29 January 2001 (Cooling installations case)]; [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)]; [ARGENTINA Juzgado Nacional de Primera Instancia en lo Comercial No. 10, 6 October 1994 (Looms and other goods case)].

6. For a case in which the parties expressly chose to be bound by trade usages, see [CHINA CIETAC Award relating to 1989 Contract #QFD890011] (in the case at hand the parties chose to be bound by a FOB clause).

7. [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)].

8. Id.

9. [AUSTRIA Oberster Gerichtshof 15 October 1998 (Timber case)] (see full text of the decision).

10. [ICC Court of International Arbitration, Award 8817 of December 1997 (Food products case)].

11. [ICC Court of International Arbitration, Award No. 8611/hV/JK of 23 January 1997 (Industrial equipment case)].

12. [FRANCE Cour d'appel Grenoble 13 September 1995 (Cheese case)] (see full text of the decision).

13. [FRANCE Cour d'appel Grenoble 21 October 1999 (Footwear case)] (see full text of the decision).

14. [GERMANY Amtsgericht Duisburg 13 April 2000 (Pizza cartons case)] (see full text of the decision).

15. [SWITZERLAND Zivilgericht des Kantons Basel-Stadt 3 December 1997 (Furniture case)] (see full text of the decision).

16. [GERMANY Landgericht Zwickau 19 March 1999 (Chemical products case)].

17. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision).

18. [GERMANY Amtsgericht Duisburg 13 April 2000 (Pizza cartons case)] (see full text of the decision); [GERMANY Oberlandesgericht Dresden 9 July 1998 (Terry cloth case)].

19. [UNITED STATES Federal District Court, Southern District of New York, 10 May 2002 (Geneva Pharmaceuticals v. Barr Labs)].

20. [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)]; [AUSTRIA Oberster Gerichtshof 15 October 1998 (Timber case)].

21. [GERMANY Oberlandesgericht Saarbrücken 13 January 1993 (Doors case)] (see full text of the decision).

22. [AUSTRIA Oberlandesgericht Graz 9 November 1995 (Marble slabs case)].

23. [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)]

24. [AUSTRIA Oberster Gerichtshof 15 October 1998 (Timber case)] (see full text of the decision).

25. See paragraph 8 supra.

26. [AUSTRIA Oberster Gerichtshof 21 March 2000 (Wood case)].

27. See [GERMANY Oberlandesgericht Dresden 9 July 1998 (Terry cloth case)].

28. [SWITZERLAND Zivilgericht des Kantons Basel-Stadt 3 December 1997 (Furniture case)].

29. [AUSTRIA Oberster Gerichtshof 6 February 1996 (Propane case)] (see full text of the decision).

30. [DENMARK Hjesteret 15 February 2001 (Pipe case)].

31. [EUROPEAN COURT OF JUSTICE 20 February 1997 (Mainschiffahrts-Genossenschaft eb (MSG) v. Les Gravihres Rhinanes SARL) (A contract for time charter of a vessel) ].

32. [ICC Court of International Arbitration, Award 8324 of 1995 (Magnesium case)].

33. [GERMANY Landgericht Hamburg 26 September 1990 (Textiles case)] (see full text of the decision).

34. See [FINLAND Helsinki Court of Appeal 29 January 1998 (Steel plates case)].

35. [ARGENTINA Juzgado Nacional de Primera Instancia en lo Comercial No. 10, 23 October 1991 (Aguila Refractarios / Conc. preventivo)].

36. [ARGENTINA Juzgado Nacional de Primera Instancia en lo Comercial No. 10, 6 October 1994 ( Looms and other goods case)

37. [GERMANY Oberlandesgericht Frankfurt am Main 5 July 1995 (Chocolate products case)].

38. [SWITZERLAND Zivilgericht Basel-Stadt 21 December 1992 (Textiles case)].

39. Id.

40. [GERMANY Landgericht Frankfurt 6 July 1994 (Chocolate products case)].

41. [UNITED STATES Federal District Court, Southern District of New York, 26 March 2002 (St. Paul Insurance v. Neoromed Medical Systems)].

42. Id.

43. [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award 406/1998 of 6 June 2000 (Goods case)].

44. [ITALY Corte d'appello Genova 24 March 1995 (Petroleum case)].

45. [RUSSIA International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation, Award 229/1996 of 5 June 1997].

46. [ICC Court of Arbitration, award No. 9333 of October 1998 (Services case)].


©Pace Law School Institute of International Commercial Law - Last updated May 29, 2009
Go to Database Directory || Go to Information on other available case data
Comments/Contributions