INTERPRETATION of International Business Contracts 2/27/2019 INTERPRETATION of International Business Contracts HELIA / Satu Pitkänen

INTERNATIONAL CONTRACTS: SOURCES OF LAW International treaties and conventions United Nations Convention on Contracts for the International Sale of Goods, CISG National laws Civil law group Common law group Common trade practices 27/02/2019 HELIA / Satu Pitkänen

1. Sphere of application and general provisions United Nations Convention on Contracts for the International Sale of Goods, CISG PARTS: 1. Sphere of application and general provisions 2. Formation of a contract 3. Sale of goods 4. Final provisions 27/02/2019 HELIA / Satu Pitkänen

Contract is enforceable as agreed “Pacta sunt servanda” 2/27/2019 Contract is enforceable as agreed “Pacta sunt servanda” Letter of intent => NOT a contract Consideration doctrine => unilateral acts are NOT binding 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

INTERNATIONAL CONTRACT Whereas Recitals (Preamble) General conditions of the contract Definition of the concepts List of the relevant previously made agreements etc. Details of the agreement Merchandise, price, terms of delivery, terms of payment etc. Settlement of disputes Choice of law Choice of forum Dispute resolution Signatories

DOCUMENTS OF THE CONTRACT 2/27/2019 DOCUMENTS OF THE CONTRACT CISG GENERAL TRADE PRACTICES NO PROVISIONS CONTRADICTIONS Recent documents override older ones Written text overrides printed text STANDARD CONTRACT TERMS Must be explicitly incorporated into the contract Interpreted to the detriment of the composer “Battle of Forms” 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

FORM OF THE CONTRACT CISG COMMON LAW ENTIRE AGREEMENT 2/27/2019 FORM OF THE CONTRACT CISG COMMON LAW NO REQUIREMENTS REGARDING THE FORM ENTIRE AGREEMENT = Only what is stated in the written contract can be referred to => Oral changes to a written contract are invalid => It is important to make sure that all issues significant to the transaction are expressly written into the contract SUBJECTIVE APPROACH - rejected completely by some common law countries => ”The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, it must go by the externals, and judge parties by their conduct” CISG and many civil law countries accept it 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

INTERPRETATION DIFFERENCES 2/27/2019 INTERPRETATION DIFFERENCES CISG COMMON LAW 1. SUBJECTIVE INTENT OF A PARTY ”Meeting of minds” Applied if the other party knew or could not have been unaware of the intent 2. OBJECTIVE INTENT ”The understanding that a reasonable person of the same kind as the other party would have had in the same circumstances” OBJECTIVE INTERPRETATION Interpretation must go by the externals => the conduct of the parties SUBJECTIVE APPROACH - rejected completely by some common law countries => ”The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, it must go by the externals, and judge parties by their conduct” CISG and many civil law countries accept it 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

INTERPRETATION DIFFERENCES (cont.) 2/27/2019 CISG 1. SUBJECTIVE INTENT OF A PARTY ”Meeting of minds” Applied if the other party knew or could not have been unaware of the intent 2. OBJECTIVE INTENT ”The understanding that a reasonable person of the same kind as the other party would have had in the same circumstances” SUBJECTIVE APPROACH - rejected completely by some common law countries => ”The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, it must go by the externals, and judge parties by their conduct” CISG and many civil law countries accept it All relevant circumstances of the case Practices and usages the parties have established between themselves or widely known and regularly observed in international trade 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

ADJUSTMENT AND INVALIDATION OF CONTRACTS 2/27/2019 ADJUSTMENT AND INVALIDATION OF CONTRACTS CISG COMMON LAW CIVIL LAW No provisions on grounds for invalidity => Subject to national laws Principle of Caveat emptor => Strict position on mistakes Principle of fairness => Disproportionate contracts can be adjusted 27/02/2019 HELIA / Satu Pitkänen HELIA / Satu Pitkänen

CASE: Art Dealers Two art dealers are doing business. Mr. X is selling a painting he knows is a copy of Picasso. Mr. Y thinks the painting is an original Picasso and wants to buy it at a huge price. The deal is done. Later, Mr. Y wants to cancel the deal after learning that the painting only was a copy. 27/02/2019 HELIA / Satu Pitkänen

In Finland: Y was mistaken => if X knew about it he was not in good faith => Y can contest the contract on basis of invalidity because of his error 27/02/2019 HELIA / Satu Pitkänen

In Britain: 1) Traditional approach Caveat emptor = let the buyer beware => a buyer has the obligation to investigate the merchandise before he agrees to buy - any misunderstanding on his part will be assessed against him 2) Modern approach: Contracts imply a duty of good faith on the part of both parties => the burden should be levied against the party with the superior knowledge who could have corrected the mistake but did not 27/02/2019 HELIA / Satu Pitkänen