Interpreting International Business Contracts Satu Pitkänen 2015

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

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

Contract is enforceable as agreed “Pacta sunt servanda” Letter of intent => NOT a contract Consideration doctrine => unilateral acts are NOT binding

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

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”

FORM OF THE CONTRACT CISG COMMON LAW NO REQUIREMENTS REGARDING THE FORM ENTIRE AGREEMENT (”Parol Evidence Rule”) = 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

HOW TO INTERPRET A CONTRACT 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 All relevant circumstances of the case Practices and usages the parties have established between themselves or widely known and regularly observed in international trade

ADJUSTMENT AND INVALIDATION OF CONTRACTS CISG COMMON LAW CIVIL LAW Provisions on grounds for invalidity E.g. in Finland a contract may be invalidated on basis of disproportionality, error etc. if the other party was aware of it No provisions on grounds for invalidity => Subject to national laws Principle of Caveat emptor “let the buyer beware” => Strict position on mistakes Provisions on grounds for invalidity