International contract law - website incorporation into contracts requires actual notice under the CISG.

Author:Mueller, Kenneth
Position:Nations Convention on Contracts for the International Sale of Goods - Case note
 
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INTERNATIONAL CONTRACT LAW--Website Incorporation into Contracts Requires Actual Notice Under the CISG--Roser Technologies, Inc. v. Carl Schreiber GmbH, 81 U.C.C. Rep. Serv. 2d 693 (W.D. Pa. 2013).

The United Nations Convention on the International Sale of Goods (CISG) applies to contract formation and interpretation for certain international sale of goods transactions. (1) Upon a showing by both parties of mutual intent of exclusion, article 6 of the CISG allows contracting parties governed by the CISG to specifically exclude application of the CISG. (2) In Roser Technologies, Inc. v. Carl Schreiber GmbH, (3) the United States District Court for the Western District of Pennsylvania considered the inclusion of an exclusion contract term referenced by website link in a "battle of the forms" scenario, where the exchange of contrasting forms makes establishing contract formation uncertain. (4) The District Court held that when mutual intent to exclude has not been shown, as the website link did not incorporate the exclusion contract term into the contract, the court must undertake an analysis under the prevailing choice-of-law, the CISG. (5)

2013, Roser Technologies, Inc. (RTI), an American company, negotiated a contract with Carl Schrieber GmbH d/b/a CSN Metals (CSN), a German company, for the manufacture and sale of copper molding plates. (6) After two separate exchanges of forms, each exchange consisting of CSN quotation followed by RTI purchase order followed by CSN order confirmation, CSN notified RTI that RTI's credit line had been cut. (7) CSN then asked RTI to expedite payment or secure a letter of credit as an alternative payment option. (8) Claiming this demand evinced CSN's refusal to perform the contract and thus breached the contract, RTI then switched from CSN to an alternate supplier. (9) As a result, CSN then counterclaimed that RTI breached the contract by repudiation. (10)

The crux of the case related to which choice-of-law applied, whether German law, Uniform Commercial Code (UCC) or CISG. (11) RTI argued no choice-of-law existed because the UCC and CISG did not differ with respect to the issue before the court; CSN disagreed, saying a difference existed and CISG applied. (12) To examine the issue, the court performed an analysis of whether conflict exists as to the incorporation of CSN's standard conditions in the two different choice-of-law. (13) The court determined UCC section 2-207 differs in a significant manner from CISG articles 8 and 14 in that under UCC standard conditions become incorporated unless they would cause surprise or hardship to the other party, whereas under CISG articles 8 and 14 standard conditions become incorporated only when one party attempts to incorporate and the other party had reasonable notice of the attempted incorporation. (14) Finding a conflict, the court recognized CISG as controlling law since both Germany and the United States are contracting parties to the CISG. (15)

Despite asserting the CISG as controlling law, CSN supported the contention for inclusion of its standard conditions by relying on non-CISG case law, Citisteel USA v. General Electric Co., to suggest the standard for incorporation of CSN's website standard conditions of sale as objective, rather than subjective, intent. (16) The District Court disagreed, finding CSN's argument unpersuasive and citing U.S. CISG case law, Hanwha Corp. v. Cedar Petrochemicals, Inc., to demonstrate a preference for subjective intent, CSS Antenna, Inc. v. Amp hen ol-Tuchel Elecs., GmbH, to state the incorporation of homepage website references to be "ambiguous at best," and European CISG case law, the Tantalum powder case, to suggest applicable terms to a contract must be in the proposal of the party relying on them. (17) The court also cited other discrepancies in the "battle of the forms" as proof that opposing party RTI did not intend CSN's standard conditions to apply, as the RTI purchase orders contained contradictory details compared to the CSN order confirmation, including whether the orders were FOB destination or FOB origin, and whether payment became due within sixty or ninety days. (18) Lastly, the court found CSN's order confirmations stating that, "[i]f we have offered a payment target, a sufficient coverage by our credit insurance company is assumed. In case this cannot be obtained we have to ask for equivalent guarantees or payment in advance" to be a material term under Article 19 of the CISG, thereby making the order confirmations constitute not an acceptance but a counteroffer, a position consistent with CSN's argument. (19)

The swap of offer and counteroffer in the "battle of the forms"--where buyers and sellers exchange contrasting and often contradictory forms without agreement in forming a contract--has been recognized as one of the most difficult problems in contract law to resolve. (20) Adding to the difficulty, the CISG differs conceptually from both the common-law and UCC in approach. (21) Under common-law, an acceptance that added to or changed the term of the offer is deemed a rejection and counteroffer, with each form representing a counteroffer until the last one was accepted by conduct--the "last shot" rule. (22) By contrast, the UCC provides that "[a] definite and seasonable expression of acceptance ... operates as an acceptance even though it states terms additional to or different from those offered ..."--the "knock-out" rule, in which (when both parties are merchants) additional terms in the acceptance become part of the contract if expressly accepted by the offeror as long as the additional terms do not materially alter the contract, and the offeror does not object to the additional terms. (23) Taking a middle ground, the CISG operates, like common-law, as a version of the "last shot" rule, and as a "mirror image" in which "a reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer" but softened by the proviso that if the additional terms are not material and the offeror does not object to them, then the purported acceptance is an acceptance and the additional or different terms become part of the contract. (24) In almost all cases, however, the CISG defines material terms so broadly that almost all terms can be classified as material. (25)

Given this challenge of varying law on an already vexing subject, United States courts in the main have looked to the UCC and domestic cases for guidance as to how to interpret the CISG and rarely reference international cases, with the justification that "virtually no case law on the Convention" exists. (26) Filanto, S.P.A. v. Chilewich International Corp. illustrates the extent to which a district court misapplied the CISG so as to render the ruling consistent with its own interpretation, an interpretation consistent with the UCC. (27) In Filanto, the point of contention became determining whether an arbitration clause, a material term under Article 19 of the CISG and purportedly excluded by Filanto, remained a part of the contract or not. (28) In the course of the negotiations Filanto, a manufacturer, had tried to limit a contract with one party, the "Russian

Contract," by returning a cover letter that sought to exclude all terms of the Russian Contract except those related to packing, shipment and delivery; a contract then became formed when the other party accepted delivery. (29) Ignoring the explicit statement of the CISG that "[s]ilence or inactivity does not in itself amount to acceptance," the court instead relied on the parties' prior course of dealing, a paradigmatic concept of the UCC. (30)

Such confusion of established U.S. case law and CISG principles extends to whether a CISG exclusion term can be found effective or not. (31) In a recent decision by a federal court, American Biophysics Corp. v. Dubois Marine Specialties, the court upheld a choice-of-law clause providing that the parties' agreement was to be "construed and enforced in accordance with the laws of the state of Rhode Island," a clause similar to the present case where "[s]upplies and benefits shall exclusively be governed by German law." (32) The application of laws on international sales of moveable objects and on international purchase contracts on moveable objects is excluded." (33) Adding to the challenge, the CISG requires courts to suspend traditional notions of contract enforcement and analysis by considering that, even when a written contract suggests the parties did not intend to exclude application of the CISG, further analysis must be performed to consider other evidence, oral or otherwise, showing the parties nonetheless intended to exclude the CISG. (34) Thus the CISG reflects a different legal philosophy suggesting written agreements should be viewed...

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