Source: http://cisgw3.law.pace.edu/cases/031217a3.html
Timestamp: 2017-01-16 12:46:08
Document Index: 564594537

Matched Legal Cases: ['Art. 96', 'Art. 8', 'Art. 6', 'Art. 12', '§ 11', '§ 36', 'Art. 14', 'Art. 19', 'Art. 9', 'Art. 38', 'Art. 39', 'Art. 39', 'Art. 39', 'Art 39', 'Art. 73', 'Art. 25', 'Art. 73', 'Art. 73', 'Art. 8', 'Art. 1', 'Art. 2', 'Art. 8', 'Art. 6', 'Art. 6', 'Art. 9', 'Art.14', 'Art. 8', 'Art. 14', '§ 5', 'Art. 8', 'Art. 9', 'Art. 9', 'Art. 8', 'Art. 8', 'Art 8', 'Art.17', 'Art. 73', 'Art. 73', '§ 405', '§ 1052', '§\n1052', '§ 1052', '§ 4', 'Art. 4', 'Art. 4', 'Art.\n19', '§ 52']

Austria 17 December 2003 Supreme Court (Tantalum powder case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/031217a3.html] Primary source(s) of information for case presentation: Case text Case Table of Contents
DATE OF DECISION: 20031217 (17 December 2003) JURISDICTION: Austria TRIBUNAL: OGH [ = Oberster Gerichtshof = Supreme Court ] JUDGE(S): Dr. Schalich (Vorsitz), Dr. Danzl, Dr. Schaumüller, Dr. Hoch, Dr. Kalivoda CASE NUMBER/DOCKET NUMBER: 7 Ob 275/03x CASE NAME: Austrian case citations do not generally identify parties to proceedings CASE HISTORY: 1st instance LG Innsbruck (GZ 12 Cg 32/02i-22) 6 February 2003; 2d instance OLG Innsbruck (GZ 1 R 90/03z-27) 3 June 2003; 4th instance LG Innsbruck 9 July 2004; 5th instance OLG Innsbruck 1 February 2005; 6th instance OGH 31 August 2005
SELLER'S COUNTRY: Hong Kong (plaintiff) BUYER'S COUNTRY: Austria (defendant) GOODS INVOLVED: Tantalum powder Case headnote
Excerpt from Internationales Handelsrecht (July/August 2004) [IHR 4/2004] 148
"1. The CISG does not contain specific requirements for the incorporation of standardized business terms. The rules for a valid incorporation are to be derived from Arts. 8 and 14 CISG.
"2. A valid incorporation requires that the general terms are deliberately made part of the contract offer and that such deliberation of the offeror was apparent to the offeree. This can also result from a trade custom between the parties to the contract.
"3. Whether general terms in a language that the offeree does not understand have been made part of the offer depends on whether the contemplated incorporation was apparent to the offeree and whether an incorporation would be just and reasonable. Criteria to determine the reasonableness are particularly the duration, intensity and importance of the business relationship and the prevalence of the foreign language in the offeree’s cultural area.
"4. If the offeree is an international enterprise, it has to dispute the incorporation of general terms in a foreign language if the terms are in a universal language that is not too remote to the offeree; besides English and French, German is to be considered such universal language.
"5. On the requirement of a tacit acceptance of a delivery that does not comply with contractual specifications.
"6. It can be left open whether the CISG applies in Hong Kong."
AUSTRIA: Oberster Gerichtshof 17 December 2003
Case law on UNCITRAL texts (CLOUT) abstract no. 534
An Austrian buyer ordered tantal powder from the seller in Hong Kong. The
order referred to a sample. The contract was drafted in English, but the order form
contained a provision referring to the buyer's general terms of contract, reproduced
on its back side in German. According to these terms, Austrian law would govern
The Court of Appeal, upholding the decision of the lower judge, deemed the
CISG applicable to the case, because both China and Austria were Contracting
States to the CISG and Hong Kong S.A.R. is bound by treaties entered into by
China. Moreover, the Court held that the buyer's general terms of contract were
inoperative as they had not been drafted in the language of the negotiations or of the
The Supreme Court discussed whether the buyer's general terms of contracts
could validly integrate the contract and, if not, which law should apply. The
Supreme Court found the CISG applicable by virtue of the parties' valid choice of a
Contracting State's law (here Austrian law), even if - contrary to the Court of
Appeal's finding - China had not extended the application of the CISG to Hong
Kong S.A.R.
The Supreme Court held that the question of the validity of the buyer's general
terms of contract had to be decided according to articles 8 and 14 CISG. The Court
stated that such general terms are valid and operative to the extent that the parties
realize that they apply to the contract and that they have a reasonable possibility to
understand their content. The Court added that this is the case when such terms are
not too long and are written in a language widely spoken as German, so that they
may be translated easily. The Court further stated that parties involved in
international business are supposed to object immediately to the applicability of the
terms if they are unable to understand them. It added that the financial terms of the
transaction, as well as the existence of earlier business contacts between the parties
which may have created a trade usage between them, should be taken into account
to establish the applicability of such general terms. The Supreme Court remanded
the case to the judge of first instance for further fact findings.
APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issue: Articles 1(1)(a) ; 6 ; 8 ; 9 ; 12 ; 14 ; 19 ; 25 ; 38 ; 39 ; 73 ; 96 Classification of issues using UNCITRAL classification code
1B1 [Internationality (parties in different Contract States): issue as to whether Hong Kong is a (part of a) Contracting State];
6B [Agreements to apply Convention: choice of law of Contracting State];
14A [Criteria for an offer (basic criterion): intention to be bound in case of acceptance];
19A1 [Acceptance with modifications: reply purporting to accept but containing additions or modifications (in general, constitutes rejection and counter-offer)];
73A ; 73B12 [Avoidance in installment contracts: fundamental breach with respect to installment; Refusal of future installments when breach in one installment gives grounds to expect fundamental breach with respect to future installments];
96A [Declaration preserving domestic formalities: written form]
Descriptors: Internationality ; Intent ; Usages and practices ; Formal requirements ; Declaration, Art. 96 ; Offers ; Counter-offer ; Language issues ; Standard terms and conditions ; Avoidance ; Fundamental breach ; Installment contracts ; Waiver Go to Case Table of Contents Editorial remarks
CITATIONS TO TEXT OF DECISION Original language (German): Austria Supreme Court website [go to <http://www.ris.bka.gv.at/jus/>, check "jus texte"
box, enter "7 Ob 275/03x" as "suchworte", click "suche starten"]; Internationales Handelsrecht (4/2004) 148-156 Translation (English): Text presented below CITATIONS TO COMMENTS ON DECISION English: [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 8 paras. 41, 42, 53, 54; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 139 Go to Case Table of Contents Case text (English translation)
Supreme Court (Oberster Gerichtshof)
17 December 2003 [7 Ob 275/03x] Translation [*] by Veit Konrad [**]
DECISION (BESCHLUSS)
The Appeal (Revision) is justified. The rulings of the Court of First Instance (see District Court
(Landesgericht) Innsbruck, judgment GZ 12 Cg 32/02i-22 of 6 February 2003) and of 1 R 90/03z-27 of 3 June 2003) are set aside and the case is remanded to the Court of First Appeal (see Court of Appeal (Oberlandesgericht) Innsbruck, judgment GZ 1 R 90/03z-27 of 3 June 2003 for retrial. FACTUAL BACKGROUND
Plaintiff [Seller], a registered company seated in Hong Kong, sued Defendant [Buyer], who is
domiciled in Austria, for payment for delivered Tantalum powder. The transaction had been
mediated by N.G. Ltd., which was represented by Chris H. [Seller]'s director, Alan C., who together with his son John C. represented [Buyer] in the
transaction, is also owner and director of N. Ltd. which functions as logistics provider and also
liquidates open claims for [Seller]. His son's company, P. Inc., registered in California U.S., sells
metal products on the U.S. market. Both companies, N. Ltd. and P. Inc. served as trade agents in
[Seller]'s transaction.
[Buyer] produces Tantalum wire to be used in mobile phones, computers and cars. To meet the requirements of [Buyer]'s customers, the wire has to be manufactured using Tantalum powder of low oxygen content. - Up to a content of 1100 µg/g, Tantalum powder can be used unmodified for its production; - Up to 1300 µg/g, has to be blended with lower oxygenized powder; - Tantalum powder with an oxygen content above 1300 µg/g has to go through a costly special refinement procedure to meet the standards for manufacture.
Chris H.'s N.G. Ltd. had been supplying [Buyer] with Tantalum products for years. Harald
M., one of [Buyer]'s representatives, asked Chris H. for delivery of Tantalum powder,
which he specified in a letter, written in English, on 19 August 1999. Among other physical
quality standards, the specification required a maximum oxygen content of 1100 µg/g. As
Chris H. was not able to deliver this Tantalum powder himself, he contacted [Seller]'s
representatives, Alan and John C., forwarding them [Buyer]'s quality requirements. In an e-mail of 15 November 1999, Chris H. informed [Buyer] that he found a Tantalum producer
in China, who could provide Tantalum with an oxygen content of 1300 µg/g and asked if that
was acceptable for [Buyer]. Correspondingly, [Buyer]'s representative, Harald M., asked
for a sample of 1 kg Tantalum. The sample powder contained the promised oxygen content
of 1300 µg/g and met [Buyer]'s other requirements. On 16 January 2000, [Buyer] ordered
another 41 kg sample from Chris H.'s N.G. Ltd. The order itself was written in English, but
referred to [Buyer]'s standard purchase conditions which were printed in German on the
backside of the document. This second sample, delivered to [Buyer] on 15 February 2000,
neither met the required quality standards, nor was it identical with the first 1 kg sample.
Yet, it could be used for [Buyer]'s purposes. On 19 July 2000, [Buyer] ordered directly
from [Seller] 500 kg Tantalum powder , "sinter quality (Sinterqualität) for test purposes".
In the English written order, [Buyer] again referred to its German standard terms on the
back of the document. After the powder had been delivered, [Buyer] undertook a quality
assessment, according to which the Tantalum was found to contain 1153 µg oxygen per g.
For that delivery, [Buyer] received a bill from N. Ltd, [Seller]'s trade agent, on 25 October
2000. Following negotiations with Chris N. and John C. thereafter, [Buyer] on 31 August
2000 ordered from N. G. Ltd. another 3,000 kg Tantalum powder of the quality of "sample
lot #0001T2-1", as referring to the 41 kg delivery. [Seller] was to deliver the goods in
several installments between 5 September 2000 and 7 March 2001. Again, [Seller]'s trade
agent, N. Ltd. sent the bills for the delivery to be paid to N. G. Ltd.. The oxygen content of
the first installment delivered on 5 September 2000 ranged between 1276 and 1420 µg/g.
In a telephone conversation of 21 September 2000, John C. asked [Buyer]'s representative,
Harald M., if an oxygen content of 1400 µg/g would still be acceptable for him. Harald M.
confirmed that [Buyer] would insist on a maximum oxygen content of 1250 µg/g. As it had
been agreed between Harald M. and John C., thereafter another 150 g sample "lot 2000-3"
taken from the Chinese Tantalum factory Z. was sent to [Buyer] on 28 November 2000.
For this sample, an oxygen content of 1300 µg/g had been certified by Chinese authorities.
Between the end of 2000 and the beginning of the year 2001, the prices for Tantalum
powder rose considerably. In the beginning of 2001, [Buyer]'s representative Harald M.
informed Chris H., that [Buyer] was interested in the delivery of another 10,000 kg
Tantalum of the quality as analyzed in the 41 kg sample and in sample "lot 2000-3"
delivered on 28 November 2000. Chris H. forwarded [Buyer]'s request to John C., who in
turn made an offer in the name of P. Inc. for the delivery of 10,000 kg Tantalum at the
purchase price of US $1,049.40 per kg due in monthly installments of 1,600 kg between
February and July 2001. The quality was specified as follows: "metallurgische Qualität -- 180 -- mesh Pulver aus Quellen wie für Musterposten Nr
0001T2-1 und ZCCW, Posten 2000-3." [metallurgical quality -- 180 -- mesh powder from the
same producers as sample #0001T2-1. and ZCCW, lot 2000-3.]
In a telephone conversation on 3 January 2001 between Harald M. and John C., the offer had been
modified: Beside other modifications regarding the time of delivery and the quality documentation,
the quantity to be delivered was reduced to 9,000 kg. It was also made clear that the material was
to be used to produce 6,000 kg of Tantalum wire for which [Buyer] had received a fixed order from
one of its customers. In a fax of 4 January 2001 which bore the letterhead of P. Inc., John C.
confirmed the agreement between [Seller] and [Buyer], specifying the powder as of "metallurgical
quality from the same producers as sample #0001T2-1 and ZCCW, lot 2000-3" (translation of
the German original). Unlike the original order, the fax did not mention the definition "180 mesh",
but contained additional provisions as regards payment and documentation of the material. On 4 January 2001, referring to the offer in the telephone conversation two days before, [Buyer]
sent an order to [Seller], in which [Buyer] confirmed the purchase of 9,000 kg Tantalum powder, sinter
quality, of about 180 mesh, ex China, according to sample #0001T2-1 and ZCCW, lot 2000-3 for
the price of US $1,049.40 per unit, in total US $9,444,600.00. Delivery was due until 2 August
2001. The English written document referred to [Buyer]'s standard purchase conditions, which were
printed in German at the backside. As had become established practice, [Seller] did not sign and
return the order to [Buyer], but accepted it implicitly by delivering the installments. On the other
hand, the order was not signed by either Alan or John C., as they were assuming that the actual
contract had already been concluded in the telephone conversation of 2 January 2001.
To meet [Buyer]'s demand, [Seller] ordered 9,000 kg of raw Tantalum from two Chinese factories,
ZCCW, which had already been mentioned within the negotiations with [Buyer], and CT & NS, and
agreed with both factories on the refinement procedure. In a fax dated 2 March 2001, [Seller]
notified [Buyer] of the exact dates in March, April and May 2001 when the installments were to be
delivered, and assured [Buyer] that the Tantalum powder for the installment deliveries in June, July
and August was already in stock. Due to a substantial decrease of the Tantalum prices since 2001, [Buyer] notified [Seller] on 19
March 2001 that prices for [Buyer]'s Tantalum wire, which had been calculated on the basis of the
costs for the raw material delivered by [Seller], could not compete on the market anymore.
Therefore, while keeping to the contract as a whole, [Buyer] suggested that the time of the
installment deliveries be modified: While the first three installments of 1,500 kg each should be
delivered as agreed, the remaining 4,500 kg should be called up later than had been specified in the
contract. In a fax dated 12 April 2001, [Buyer] asked [Seller] to postpone the delivery of the first three
installments as well, as the demand for Tantalum on the world market had decreased to 50%. As
regards the rest, [Buyer] would not call up the installments before the beginning of the following
year. In the beginning of April, the first 1,500 kg installment was delivered: 400 g of this delivery
contained 1937 µg oxygen per g; 600 g contained 2248 µg oxygen per g. Submitting the results of
the quality analysis that was conducted, [Buyer] asked for replacement of the defective goods. As
regards the remaining 500 g as to which [Buyer]'s assessment revealed an oxygen content of 1514,
respectively, 1734 µg/g, [Buyer] accepted the delivery, because blended with Tantalum power of a
considerably lower oxygen content, the goods could be used for its production. [Seller] assured that it would take back the deficient goods and provide a substitute as soon as possible. [Seller] also
declared its intent to ascertain the cause of the problems that had occurred and to devise an
appropriate solution. In a fax dated 3 May 2001, [Seller] notified [Buyer] that 3,751.10 kg of
Tantalum powder were on stock ready to be called up for delivery, which it asked for until 1
August 2001. As regards the rest of the order, [Seller] asked for call for delivery until 1 November
2001. On 2 June 2001, [Seller] delivered 1,150 kg Tantalum powder as a substitute for the
defective delivery. The corresponding bill was sent by N. Ltd. The substitute goods had an oxygen
content of 1405 µg/g, respectively, 1384 µg/g. [Buyer] asked [Seller] for the details of its suppliers,
in order to conduct an inspection himself. After an agreement to prevent direct business relation
between [Buyer] and [Seller]'s suppliers under circumvention of [Seller] (Nichtumgehungsvereinbarung) had been concluded, on 7 May 2001 [Seller] faxed the details of
its suppliers, ZCCW and CT & NS. Between 10 and 12 June 2001, representatives of [Buyer],
together with Alan and John C., inspected [Seller]'s supplying factories to discuss the problems that
had occurred with those in charge of the production of the raw material. During this visit, [Buyer]
noted that [Seller]'s supplying factories were at the technical standards of 1970: the building and the
machines were in a very poor state of condition, the working conditions suffered from very low
security standards, the equipment was deficient. [Buyer]'s representatives submitted their quality
specifications directly to those responsible for the production in the Chinese factories, and made
clear that they expected these quality standards to be met in the future. Yet, after they returned from
their visit and after they received the result of the quality assessment conducted with the substitute
material, they decided that it would not be possible for the suppliers in China to deliver material that
would meet [Buyer]'s required standards. In a letter dated 26 June 2001, [Buyer] again mentioned
the reduced demand for Tantalum powder. [Buyer] also made clear that it would only accept
material that would meet the quality standards as agreed on 4 January 2001, as only this -- blended
with powder of European provenance -- could be used as a reference. It was a mere gesture of
good will to accept [Seller]'s substitute delivery of 1,150 kg in replacement for its defective
delivery, despite the fact that the quality was not comparable to the reference samples. Given the
low demand for Tantalum wire on the world market, an amount of 3,000 kg, complying with the
quality standards of the samples, would meet the demand for [Buyer]'s production until April 2002.
[Seller] had to understand that [Buyer] could not possibly call for more than these 3,000 kg for the
price of US $1,049.40. Of this amount 1,650 kg had already been delivered. On 4 July 2001,
[Seller] delivered another 1,367.10 kg of Tantalum powder. A corresponding bill had been sent to
[Buyer] by N. Ltd. on 30 June 2001. Tests conducted by [Seller] revealed that 717.1 kg of this
delivery contained 1300 µg oxygen per g; 650 kg had an oxygen content of 1400 µg/g. However,
[Buyer]'s quality analysis revealed an oxygen content of 1474 µg/g, respectively, 1296 µg/g. In a
letter dated 12 July 2001, [Buyer] notified [Seller] that it would accept the delivery as a mere
gesture of its good will, although it did not meet the required standards. Yet, [Buyer]'s acceptance
was not to be interpreted as declaring that the goods that were delivered complied with the
contractual standards. On 30 July 2001, John C. and Chris H. visited [Buyer] at its domicile in R.
As regards the poor quality of the goods, they made several suggestions, including substitute
delivery. However, [Buyer] did not find any of their propositions suitable for its demands and again
declared that it considered the contract terminated after the last delivery. In a letter dated 3 August 2001, [Seller] notified [Buyer] that it would not regard [Buyer]'s
declaration to terminate the contract as binding. In its response of 16 August 2001, [Buyer] pointed out that it was not only due to the decreased demand on the market, but also due to the
poor quality of [Seller]'s delivered Tantalum powder, which could only be used in low doses
blended in higher quality material, that [Buyer] had no use for more of [Seller]'s goods. Moreover,
due to the non-complying deliveries it lost confidence in [Seller]'s ability to provide Tantalum
powder of the requested quality. On 30 October 2001, [Seller] delivered another installment of 1,500 kg Tantalum powder. The
goods were certified to contain 968 µg oxygen per g. In a letter of 30 October 2001, [Buyer]
refused to accept delivery. As after delivery and payment for a total amount of 3,017.10 kg
Tantalum, [Buyer] had declared the contract terminated, it asked [Seller] to take back this further
delivery. [Seller] did not comply. [Buyer] did not pay the purchase price of US $1,574,100.00 for
this further delivery. [Buyer]'s standard terms contained the following provisions:
"For all orders given by the [Buyer] the following conditions apply if not agreed otherwise.
These provisions apply irrespective of whether the supplier in its confirmation of an offer
explicitly diverges from them. In accepting the order the supplier impliedly agrees to these
standard terms. As regards diverging standards terms of the supplier, remaining silent on side of
the [Buyer] does not imply their agreement. Each of the following provisions applies irrespective
of the applicability of the others.
1) Offers / Orders:
[...] Orders are considered binding only when given in writing and signed by two
representatives of the [Buyer]. Orally given orders need to be confirmed in writing. An order
given by the [Buyer] is considered to be accepted if the supplier does not object in writing within
fourteen days after it had become known to him. Orders concerning installment deliveries on
call, are binding only after the call for delivery has been given. Hereby the supplier accepts the
modification of delivery dates at any time. [...]
The supplier attains liability for the contractually stipulated quality, and guarantees that the
delivered good meets current technical standards, fits the purposes for which goods of that kind
are commonly used. He is liable for any defect which would diminish the value and / or the
ordinary or contractually presupposed usage of the good. Moreover the supplier guarantees that
the good is not the property of third persons and that the sale of the goods does not contravene
statutory interdicts.
If defects of the kind mentioned above occur, the [Buyer] may chose to proportionately reduce
the purchase price, may insist that the supplier make up the defect, or may claim damages for
breach of contract. The [Buyer] is also free to rescind the contract as a whole. [...] Hereby, the
supplier declares to accept complaints even if given delayed. In any event, notification as regards
defective delivery is considered as given within reasonable time if made within two months after
acceptance of the delivery. [...] The time limitation begins with the passing of the risk at the place
of delivery. In case of made up or replacement deliveries, the time limit starts to run again.
The [Buyer] and its suppliers hereby agree their contracts are to be governed by Austrian law.
(Abridged translation of the German written standard terms)
POSITIONS OF THE PARTIES IN FIRST INSTANCE [Seller]'s claim for the purchase price
[Seller] filed for payment of US $1,574,100.00 as the purchase price of delivered Tantalum powder
and for the amount of US $4,704,355.03 in exchange for the due delivery of another 4,482.09 kg
Tantalum powder, according to the 180 mesh quality stemming from the same production as sample
#0001T2-1 and sample ZCCW lot 2000-3. To support its claim, [Seller] submitted that the
replacement of the delivered high oxygen Tantalum powder was a mere act of good will on its side.
As an exact maximum oxygen content had never been stipulated, the high oxygenized powder was
not defective, but complied with the contract. As regards the quality standard, it has only been
agreed that the goods should stem from the same factory as one of the given samples. As there were
only few Tantalum manufacturers, the name of the supplier would suffice to indicate the required
quality standard. Despite the claimed defects, [Buyer] did not even ask [Seller] for replacement of
the goods. [Seller] further argued that [Buyer]'s standard terms, printed in German at the backside
of its order, have not been validly incorporated in the English written contract between the parties. [Buyer]'s response
In its response, [Buyer] sought to have the case dismissed. As the parties had business relations
with one another since 1999 -- including relations with Chris H.'s N.G. Ltd. which functioned as a
mediator for [Seller]'s N. Ltd., and thus must be seen as [Seller]'s representative -- [Seller] knew
exactly about the quality standard required for [Buyer]'s purposes. In particular, [Seller] knew that a
low oxygen content was essential for [Buyer]'s production and that [Buyer] could only use Tantalum
powder up to a certain maximum oxygen content according to the given samples. [Buyer]'s order
given on 2 January 2001 entailed an exact specification of the required quality. The mentioning of the
produced samples only served as a reference for the required quality. It was not meant as a quality
standard itself in a way that, irrespective of its metallurgic quality and its oxygen content, the goods
would have merely had to be taken from the same suppliers as the samples to meet [Buyer]'s
demand. An agreement as presumed in [Seller]'s version of the facts would be highly obscure and
extremely uncommon in the parties' field of business. Moreover, [Buyer]'s standard terms had been
validly incorporated in the contract. As the delivered goods did not comply with [Buyer]'s quality
standards according to the given samples, [Buyer] eventually revoked the contract orally and in
writing. Consequently, [Buyer] did not accept [Seller]'s delivery of 30 October 2001.
REASONING OF THE DISTRICT COURT
The Court of First Instance (see District Court (Landesgericht) Innsbruck, judgment GZ 12 Cg
32/02i-22 of 6 February 2003) found that as [Buyer] of Austria and [Seller] of Hong Kong, China,
were domiciled in Member States of the Convention, the contract is governed by the CISG. As the
CISG was adopted into Austrian law, the Convention would also govern the contract, if [Buyer]'s
standard terms had been validly incorporated. Further, the provisions of the CISG have not been
excluded as possible under in Art. 6 CISG. Yet, as the People's Republic of China had refused to
adopt Art. 12 CISG, this provision, ensuring that a contract governed by the CISG may be
concluded, modified or terminated in any form, would not apply to the contract. Instead, the Court
of First Instance contended that Chinese law should apply as to questions of form. Under Chinese
law, contracts have to be concluded in writing. According to § 11 of the newly revised Chinese
Contract Law, declarations in faxes and e-mails would be considered as given in writing. Moreover,
according to § 36 of that Law, a contract is considered bindingly concluded irrespective of any non-compliance with formal requirements, if the agreement has been properly executed. The Court of
First Instance found that under Art. 14 CISG, [Seller]'s fax of 2 January 2001 constituted a binding
offer. On the other hand, the subsequent negotiations in telephone conferences could not be
considered as a binding agreement: They failed to comply with the Chinese form requirement.
Further, they did not cover all essential points of the planned transaction. The Court held that, under
Art. 19(1) CISG, [Buyer]'s reply given on 4 January 2001, including quality specifications which
diverged substantially from [Seller]'s original offer, is to be seen as a rejection and counter-offer to
[Seller]'s original proposal. According to Art. 9 CISG, this counter-offer, although [Seller] did not
explicitly respond to it, was impliedly accepted by delivering the requested goods in accordance
with the established practice between the parties. Hence, [Seller] also consented to the quality
specifications provided in [Buyer]'s counter-offer of 4 January 2001. As regards [Buyer]'s referred
standard conditions, the Court of First Instance contended that being printed in German language would not per se prevent them from being validly incorporated in the contract. The samples that were
provided served as a reference for the quality of the goods, namely for the required oxygen content.
As the delivered Tantalum powder did not meet these requirements, [Buyer] had good reason to
notify [Seller] of the lack of conformity. Doing so, [Buyer] clearly specified the claimed defect within
reasonable time, as required by Art. 38 and Art. 39 CISG. The fact that [Buyer] anyhow accepted the deficient powder for whatever reason, could not be interpreted as a waiver of the originally required quality standard and thus would not amount to an implicit subsequent modification of the
contract. Given that two-thirds of [Seller]'s delivery had been absolute waste, while the other third
could be used in [Buyer]'s production though still not meeting the agreed standards, and further
given that [Seller]'s replacement delivery still did not comply with the contract, [Buyer] after its visit
to [Seller]'s supplying factories in China was entitled to revoke for fundamental breach of contract.
Hence, the Court of First Instance concluded that [Buyer] was not obliged to accept and pay for
[Seller]'s delivery in October 2001, nor was [Buyer] bound to accept further deliveries. [Seller]'s
claim was unjustified.
On [Seller]'s appeal (Berufung) the Appellate Court (see Court of Appeal (Oberlandesgericht)
Innsbruck, judgment GZ 1 R 90/03z-27 of 3 June 2003) reversed the ruling of the Court of First
Instance, holding [Seller]'s claim justified
In the amount of US $1,574,100.00 plus interest, and
A further US $4,704,355.30 in exchange for the due delivery of another 4,482.20 kg
Tantalum powder of quality 180 mesh produced by [Seller]'s Chinese suppliers, as per the
given samples #0001T2-1 and ZCCW lot 2000-3; and containing oxygen of 1299 µg/g at
The Court of First Appeal contented that as Hong Kong was bound by international
conventions concluded and ratified by the People's Republic of China, the CISG also
applied to contracts for the sale of goods concluded by parties who are registered and
domiciled in Hong Kong. As regards the incorporation of [Buyer]'s standard terms, the Court found that it fell within
the responsibility of the party who provided the standard terms to ensure that these became
known to the other party. In principle, this implied that the standard terms had to be
formulated in the language in which the negotiations had been conducted and in which the
contract was concluded. As here the parties negotiated and contracted in English, [Buyer]
could not rely upon its German written standard terms. Although the Austrian Supreme
Court (Oberster Gerichtshof; OGH) in an obiter dictum to its ruling 7 Ob 176/98b,
resorting to the jurisprudence of the German Federal Supreme Court (Bundesgerichtshof;
BGH), found that standard terms written in foreign language unfamiliar to the other part may
nevertheless be validly incorporated if they were referred to in the contract in the language
the negotiations had been conducted and in which the contract had been concluded. Yet, in
that cited case the standard terms had actually been written in the language of the contract
so that the Supreme Court's decision was not based upon this point, the Appellate Court
did not feel bound by the cited ruling and concluded that [Buyer]'s standard terms had not
been validly incorporated. Relying on the Court of First Instance, the Appellate Court presupposed that according to
the contract [Seller] had to deliver Tantalum powder that complied with the samples
#0001T2-1 and ZCCW 2000-3 in terms of quality -- in particular, as concerns a maximum
oxygen content of 1299 µg/g. Yet the first 1,500 kg installment of April 2001 with an oxygen
content of 1500 µg/g missed the agreed requirements by far. The 1,150 kg Tantalum
powder delivered in replacement still did not comply with the required oxygen standard. Of
the second installment delivered in June 2001, only 24% met the stipulated quality, while the
other 76% again missed the mark. However, despite the fact that the deliveries were not of
the required quality, [Buyer] accepted the installments, respectively, the deficient
replacement delivery and paid for them. In doing so, [Buyer] failed to give specified
notification of the claimed defect, as required by Art. 39(1): The results of [Buyer]'s
conducted quality assessment, which [Buyer] had communicated to [Seller], would not
suffice for this purpose because these charts only listed the discovered quality deviances
from the samples, but did not specify the particular defect, i.e., the high oxygen content, a
complaint in the sense of Art. 39(1) CISG might have relied upon. Hence, [Buyer] forfeited
its right to rely on the claimed lack of conformity under Art 39(1) CISG. Under Art. 73(2) CISG, a party to a contract for the delivery of goods by installments might
declare the contract avoided for the future if the other party's failure to perform any of its
obligations in respect of any installment gave good grounds to conclude that a fundamental
breach of contract will occur with respect to future installments, and if it did so within
reasonable time. [Buyer] had accepted the deliveries of the defective, high oxygenized
Tantalum powder and paid for the installments. Thus, according to the Court of First
Appeal, [Seller] could reasonably assume that the transgression of its oxygen standard
would not amount to a fundamental breach of contract in the sense of Art. 25 CISG for
[Buyer]. Consequently, a fundamental breach of contract could not be reasonably
concluded in respect of future installments. Hence, [Buyer] was not entitled to avoid the
contract for the future under Art. 73(2) CISG. Therefore, [Seller] relying on the contract was entitled to US $1,474,100.00 as purchase price for the third installment delivered on 30
October 2001, and further for the amount of US $4,704,355.30 in exchange for the due
delivery of another 4,482.90 kg Tantalum powder complying with the stipulated maximum
oxygen content of 1299 µg/g.
The Court of First Appeal allowed further appeal (Revision) to the Supreme Court, because
with regard to the applicable law, the incorporation of [Buyer]'s standard terms, and the
claim of fundamental breach of contract under Art. 73 CISG despite acceptance of delivery,
the case would touch upon relevant legal issues which had not yet been subject to Supreme
Court jurisprudence.
[Buyer]'s appeal (Revision) against the Appellate Court's decision focuses on claimed
irregularities within the appellate proceedings, as well as a presupposed misinterpretation of
substantive law by the Appellate Court. In its appeal, [Buyer] seeks to change the
Appellate Court's ruling as far as it diverged from the judgment of the Court of First
Instance. In eventu, [Buyer] wants that decision set aside and the case remanded to the
Court of First Instance for retrial. [Seller] seeks the dismissal of [Buyer]'s appeal.
The appeal (Revision) is admissible and justified as far is it seeks the Appellate Court's
decision to be quashed. The case is remanded to the Court of First Instance for retrial. REASONING OF THE FEDERAL SUPREME COURT OF AUSTRIA
In the beginning of January 2001, the parties entered into a sales contract for the delivery of
9,000 kg Tantalum powder, due in several installments. After the delivery of 3,017.10 kg in
three installments (including a replacement delivery of 1,150 kg for deficient Tantalum
powder), [Buyer] in July 2001 declared the contract avoided with respect to future
deliveries, arguing that it had good grounds to assume that [Seller] would not be able to
deliver goods of the required quality in the future as it has not in the past. It must be
assumed that a considerable part of the deliveries that [Seller] made had actually missed the
required quality standard by far. Therefore, the vital question as regards this appeal is whether [Buyer] was entitled to avoid
the contract for the future. This depends on whether [Buyer]'s standard terms have been
validly incorporated in the contract. In this respect, [Buyer] correctly argued that the
incorporation of standard terms as regards this contract is provided for in Art. 8 of the
Rome Convention on the Law applicable to Contractual Obligations of 19 June 1980
(Übereinkommen über das auf vertragliche Schuldverhältnisse anzuwendende Recht;
hereafter referred to as EVÜ) which has been valid in Austria since 1 December 1998 (see
Offner, Neuregelung des Internationalen Vertragsrechts, Römisches
Schuldvertragsübereinkommen, in RdW 1999, page 2). According to Art. 1(1) EVÜ, this
Convention applies to contractual obligations in any situation involving a choice between
laws of different countries. According to Art. 2 EVÜ, any law specified by the Rome
Convention applies irrespective of whether it is the law of a Contracting State. As [Buyer]'s
standard terms point to Austrian law as the law to govern the contract, their incorporation,
following Art. 8(1) EVÜ is provided for by the CISG being part of Austrian law (see:
Supreme Court (Oberster Gerichtshof; OGH) 1 Ob 77/01g). According to Art. 6 CISG,
the parties to a contract may expressly or implicitly exclude the application of this
Convention (see Posch, in: Schwimann2 Art. 6 UN-K note 3). However, such an exclusion
has not been claimed by either party. Moreover, an exclusion of the CISG would require the
Convention to be expressly referred to. The mere resort to national law (here: Austrian law) as in [Buyer]'s standard terms therefore cannot exclude the CISG, where both parties have their places of business in Member States of the Convention (see Supreme Court
(Oberster Gerichtshof; OGH) 1 Ob 77/01g; Lurger, Die neuere
Rechtsprechungsentwicklung zum UN-Kaufrechtsübereinkommen, in JBl 2002, page
750; Posch commenting on the ruling 2 Ob 328/97t, in ZfRV 1999, page 65; against this
interpretation: Wilhelm ecolex, 1998 page 693).
In its appeal, [Buyer] argues that, as all of its English written orders refer to its standard
terms printed in German on the backside of the document, [Seller], by impliedly accepting
this routine, established a practice in the sense of Art. 9(1) CISG according to which it is
bound to the thus incorporated standard terms. The fact that the conditions were formulated
in a foreign language would not hinder their applicability to the contract, because they had
been expressly referred to in English on the order document.
Although the CISG does not specifically provide for standard terms (see: Supreme Court
(Oberster Gerichtshof; OGH) 10 Ob 518/95; Schlechtriem, Art.14 note 16), their incorporation is governed by Art. 8 CISG (see Schlechtriem, ibidem) and Art. 14 CISG et seq., which provide for the formation of a contract under the Convention in general (see
Supreme Court (Oberster Gerichtshof; OGH) 10 Ob 518/95; ZfRV 1996, page 248,
referring to Pitz, Internationales Kaufrecht, § 5 note 75). Following Art. 8(1) and (2)
CISG, standard terms, in order to be applicable to a contract, must be included in the
proposal of the party relying on them as intended to govern the contract in a way that the
other party under the given circumstances knew or could not have been reasonably unaware
of this intent. This might be done through express or implied reference to them in the
statement (see: Supreme Court 7 Ob 2707/96p). This intent might also be expressed within the
negotiations to the contract, or through an established practice as provided for in Art. 9(1)
CISG (see Supreme Court 10 Ob 518/95). The Court of First Appeal did not investigate further as to whether [Buyer]'s standard terms
could have been validly incorporated through established practice in the sense of Art. 9(1)
CISG, as it held that (following Ventsch / Kluth, Die Einbeziehung der Allgemeinen
Geschäftsbedingungen im UN-Kaufrecht, in IHR 2003, page 61), in any event, standard
terms written in German language were not applicable to a contract written in English. This undifferentiated view cannot be upheld by the Supreme Court. The incorporation of
standard terms depends on whether the intent to apply the standard conditions to the
contract is known or ought to have been known to the other party. Whether this is the case
depends on the circumstances of the particular case. It requires an unambiguous declaration
of the provider's intent. Hence, a reference to standard terms given in the actual proposal
must be specified and clear enough so that a reasonable person "standing in the shoes of the
other party" (Schlechtriem, ibidem, referring to Art. 8(2) CISG) would understand it. In
determining the intent of a party, or the understanding a reasonable person would have had,
due consideration is to be given to all relevant circumstances of the case, including
negotiations and practices established between the parties (Art. 8(3) CISG). In any event,
the addressee must be referred to the standard terms in a way that it could not be reasonably unaware of them: He must have knowledge to be able to understand them
(Schlechtriem, ibidem). This also depends on the language the conditions are formulated in,
and on the language they are referred to in the contract (Schlechtriem, ibidem; Melis in
Honsell, Commentary on the CISG (Kommentar zum UN-Kaufrecht), Art 8, note 7):
According to German doctrine, standard terms written in a foreign language might still be
validly incorporated in a contract if they are referred to in the language the negotiations have
been conducted and in which the contract has been concluded (Kropholler, Europäisches
Zivilprozessrecht6 Art.17 note 34 with references to German jurisdiction). In an obiter
dictum to the ruling of 7 Ob176/98b (in: JBl 2000 page 121 = RdW 1999 page 723 =
ecolex 1999/329 = ÖJZ-LSK 1999 page 266), the Austrian Supreme Court joined this
opinion. Criteria for cases in which the addressee might be expected to have knowledge and
understanding of standard terms written in a foreign language are: length, intensity and economic importance of the business relations between the parties, as well as the spreading
and use of the language within their society: The more intense and economically important
the business relation becomes, the more can it be expected that the addressee of long and
frequently referenced standard terms written in a foreign language will take measures to
understand them, i.e., will ask for a translation to be provided by the other party or will
attend to such a translation himself. According to widespread opinion among German and
Austrian scholars (see: Stadler Allgemeine Geschäftsbedingungen im Internationalen
Handel, page 86), it suffices that standard terms were formulated in a language the
addressee is familiar with, respectively, in one of the few internationally common languages,
such as English, French and German. In case an international enterprise thus provides
standard terms in one internationally common language, it is for the addressee to notify the
other party of its lack of understanding, otherwise its knowledge can be reasonably
presumed. During the business relationship with [Seller], [Buyer] on several occasions referred in
English to its German written standard terms printed on the backside of its documents. As
the parties entered into a deal of roughly about 7 million Euro, an economic importance in
the sense mentioned above can be concluded. Further, it must be taken into account that
Chris H., who mediated the deal between the parties and functioned as a representative of
N. G. Ltd., a sales agent of [Seller], had a good command of the German language -- a fact
that due to their long term business relations must have been known to [Seller]'s
representatives John and Alan C.
As concerns length and intensity of the business relations and the claimed established
practices, it appears necessary to check on [Buyer]'s submission that it had entered into
business relations underlying its standard purchase conditions with [Seller], respectively,
with its agent companies, several times before. In particular, it needs to be clarified whether
it had become an established practice of [Seller] to implicitly accept [Buyer]'s orders through
delivery -- without signing and returning them. Failing to investigate into these relevant
questions, the trial before the Court of First Appeal suffers from a secondary procedural
error as concerns the taking of evidence (sekundärer Feststellungsmangel), that demands
a retrial of the case taking account of these circumstances. If it turns out that [Buyer]'s standard terms are thus applicable to the contract, it has to be decided whether the delivered goods had been defective as required by section 5) subsection 1 of [Buyer]'s standard terms, so that [Buyer] was entitled to rescind the
contract in respect of future installments as provided in section 5) subsection 2 of its
conditions. As the contract between the parties constituted an agreement for the delivery of
goods by installments, the presumably applicable provisions of [Buyer]'s standard terms
must be interpreted according to Art. 73 CISG. The Court of First Appeal contended that [Buyer] in accepting the defective deliveries
impliedly waived its quality requirements so that the admittedly high oxygen content would
not constitute a fundamental breach of contract as required by Art. 73(1) CISG.
This cannot be upheld by the Supreme Court. As the Court of First Instance found, [Buyer] had repeatedly resorted to its quality specifications thus impliedly declaring its intent to
maintain them. [Buyer] also expressly objected in response to [Seller]'s query, whether an
oxygen content of 1400 µg/g was acceptable for [Buyer]. [Buyer] further visited [Seller]'s
Chinese supplying factories in order to make sure that the quality standards could be
achieved. [Buyer] repeatedly explained its acceptance of the deliveries as a mere gesture of
good will towards [Seller]. By its acceptance, it did not mean to confirm that the delivery
was complying to the contract. Underlying these facts, it cannot be concluded that [Buyer]
accepted the delivered Tantalum powder as complying with the contract -- as had been
assumed by the Appellate Court.
Nor can this Court follow the Appellate Court's further conclusion that, as [Buyer] in
accepting the first three deliveries had impliedly had given up its quality standards, the
remainder of 5,982.09 kg of Tantalum powder would not have to comply with the
specifications. To the contrary, [Buyer], who in its letters and faxes repeatedly notified
[Seller] of the non-compliance of its deliveries, could reasonably presume that the remaining
5,982.09 kg would also not meet the agreed quality standard. Therefore, if [Buyer]'s
standard terms were applicable, [Buyer] was entitled to declare the contract avoided with
respect to future deliveries. The presumption that [Buyer]'s decision to revoke the contract
might have been motivated by the massive price dump for Tantalum powder at the time, as
hinted on in its letters dated 19 March 2001, 12 April 2001 and 12 June 2001, has no
effect on this conclusion. [Buyer] correctly argued that in granting [Seller]'s claim for US $4,704,355.30 in exchange
for another 4,482.90 kg Tantalum powder that, according to the Appellate Court, did not
need to comply with [Buyer]'s specifications but with lower -- and indeed other -- standards
than mentioned in [Seller]'s claim, the Court of First Appeal exceeded its competences
violating the principle of ne ultra petitur as stated in § 405 of the Austrian Code of Civil
Procedure (Zivilprozeßordnung; ZPO) (see Aicher in Rummel3 § 1052 note 16). Yet, this
transgression does not necessarily lead to a dismissal of the claim. The claim for
performance in exchange for a counter performance can only be dismissed in case the
claimant who owes the counter performance definitely refuses to perform (Aicher, ibidem, §
1052 note 17). The mere denial of the existence of such a counter-obligation cannot be
interpreted as a definite refusal to perform in the sense mentioned above (see: HS 7287;
Supreme Court 8 Ob 55/02z, RIS-Justiz RS0020987 [T 3]; Aicher ibidem, § 1052 note
17). In the later case, the party, that presumably owes counter performance must be heard
by the court as to whether its refusal to perform will be kept up even in case it turns out
within the proceedings, that the counter obligation did actually exist. As the Court of First
Appeal failed to hear [Seller] on whether it will perform its obligation to deliver goods
according to [Buyer]'s agreed quality specifications, this point must be clarified in future
proceedings. If, however, [Seller] definitely keeps to its refusal to perform in the required
quality, its claim for US $4,704,355.30 will have to be dismissed.
Finally, [Buyer] claims the appellate proceeding suffered from a secondary procedural error
concerning the taking of evidence (sekundärer Feststellungsfehler) as far as it had been
neglected to define the applicable substantive law to govern the contract, in case [Buyer]'s
standard terms were not applicable: [Buyer] questions the Appellate Court's contention that
in this event, due to the restricted autonomy of Hong Kong in international and foreign affairs
the CISG adopted by the Chinese Republic was to govern the contract between the parties.
In this respect, [Buyer] submits a letter of a high official of the UN, according to which
China on 20 June 1997 had notified the Secretariat of the UN about any international
convention that was meant to be adopted for Hong Kong. However, the CISG was not
among the cited declarations, and consequently has not been applied to Hong Kong.
[Buyer] further submits several other pieces of evidence supporting its view that the CISG
was not applicable to Hong Kong related issues. Therefore, given the Court of First
Appeal's contention that [Buyer]'s standard terms would not apply, the court failed to
clarify what substantive law is to govern the contract at issue. Provided that [Buyer]'s submitted evidence supports its claim, [Seller] must be given the
chance to respond to it in future proceedings. In any event, § 4(1) of the Austrian Statute
regulating the Conflict of Laws (Gesetz über das internationale Privatrecht;
IPRG) demands further investigation as to the question of the applicable substantive law. If
the parties have not chosen otherwise, the contract is governed by the law of the country
with which it is most closely connected (Art. 4(1) EVÜ). Undoubtedly the connecting
factors mentioned in Art. 4(2) EVÜ point to Hong Kong as the State in the sense of Art.
19(1) EVÜ which has the closest relation to the case. Hence, the contract would be
governed by particular Hong Kong law. Given [Buyer]'s submission that the CISG has not
been made applicable for Hong Kong, the case would be governed by the Basic Law of the
(Bergmann/Ferid/Henrich, Internationales Ehe- und Kindschaftsrecht, 131. Lieferung,
Hong Kong, page 3), by previous law which had been adopted after 1 July 1997, by
Provisions newly released by the national authorities, or by statues released by the National
Committee of the Republic of China (see Bergmann/Ferid/Henrich, ibidem, page 7). As the trial of the case demands further investigations and clarifications to an extent that
cannot be overseen by the Supreme Court at that stage of the proceedings, a remanding to
the Court of First Instance appears appropriate.
The decision on the costs relies on § 52(1) of the Austrian Code of Civil Procedure
(Zivilprozeßordnung; ZPO). [...]
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellee, seated in Hong Kong, is
referred to as [Seller], the Austrian Defendant-Appellant is referred to as [Buyer].
Institute of International Commercial Law - Last updated July 23, 2007