Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

does not ensure the future conclusion of the contract for the sale of goods. The preliminary agreement only relates to the conduct of the parties at the negotiation stage, which is clearly beyond the CISG’s sphere of application.

The preliminary agreement to negotiate establishes mutual or unilateral obligations regulating the course of the negotiations. These obligations often include “preparatory expenses-sharing,” “confidentiality,” “standstill,” and “exclusivity” provisions. They all share the common character of governing the parties’ conducts during the time preceding the conclusion of the final contract.86

Preparatory expenses-sharing provisions allocate the costs jointly or severally borne by the parties in the course of the negotiations. Agreements of this kind are particularly relevant in that they directly set forth rules of conduct in the precontractual stage, precluding the application of alternative rules set under domestic law.87 Confidentiality provisions are of paramount importance whenever in the course of the negotiations a party discloses valuable information.88 Unlike the other obligations established by preliminary agreements, confidentiality agreements create obligations that typically do not expire when the negotiations or final contract are concluded.89 As a consequence, when the final contract is concluded the confidentiality agreement may continue as part of the final sales contract.90

The standstill and exclusivity provisions91 will be considered together here because of the meaning attached to them. The standstill prohibits a party, during the negotiations, to acquire interest or control in another entity, or to actively solicit or enter negotiations for the conclusion of contracts of the kind being negotiated between the negotiating parties. Similarly, an exclusivity provision or agreement (also referred to as a lock-out agreement) requires one or both parties to cease any existing negotiations with third parties for comparable business opportunities and often also to disclose any offers received by third

86See Lake and Draetta, Letters of Intent, 124ff.

87See Yeon-Koo Che and D.B. Hausch, “Cooperative Investments and the Value of Contracting,” 89 Am. Econ. Rev. 125, 125ff. (1999) (economic efficiency of this kind of agreement).

88See Farnsworth, “Precontractual Liability,” 278–7.

89See J.-M. Deleuze, Le Contrat de Transfert de Processus Technologique (Paris 1976), 31ff.

90Difficult questions thus arise, which the parties should address when drafting their contract. In particular, if, in the course of the performance of the final contract subsequently concluded, Party A breaches the confidentiality duties undertaken in the preliminary agreement, can party B resort to the remedies for breach of contract available under the CISG, leading, in particular, to the avoidance of the entire contract on the basis of a fundamental breach? It is maintained here that the answer to that question ought to be positive, as the very function of the confidentiality agreement and the unitary economic goal pursued in the transaction should induce the interpreter to conclude that the obligations stemming from the preliminary agreement are incorporated into the final contract, if concluded. However, it is here suggested that the parties would be better off making that conclusion clear by means of an explicit clause, or by providing for the incorporation of the confidentiality provision into the final contract at the earlier stage of the preliminary agreement. For a court decision dealing with a CISG contract in conjunction with a confidentiality agreement (although not of a preliminary character), see Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc., 201 F.Supp. 2d 236 (S.D.N.Y. 2002), available at http://cisgw3.law.pace.edu/cases/ 020821u1.html; see also TeeVee Toons Records and Steve Gottlieb Inc. v. Gerhard Schubert GmbH, 2002 WL 498627 (S.D.N.Y. 2002), available at http://cisgw3.law.pace.edu/cases/020329u1.html.

91On these preliminary agreements, see Farnsworth, “Precontractual Liability,” 279, observing that “‘Exclusive negotiation’ provisions are not . . . unusual in preliminary agreements arising out of ordinary contract negotiations, where they may be assented to by a party who will not grant a right of first refusal. A typical exclusive-negotiation clause obligates one party to refrain from negotiating with others for a stated period of time.”

parties in the course of the negotiations.92 As an aside, these types of agreements are subject to competition law due to their anticompetitive nature.93

An alternative to the standstill or exclusivity provisions is the grant of a “right of preference.”94 This provision grants to the beneficiary a preference over any third party to conclude a contract, under the same conditions as proposed by the third party.95 Exclusivity agreements and agreements granting a right of preference should be kept distinct from firm offers, such as those recognized under CISG Article 16(2), as well as from option contracts.96 In firm offers and option contracts the promissor has already manifested its consent to be bound contingent on the acceptance of the other party.97 This is not the case with respect to exclusivity agreements and agreements granting a right of preference. In these agreements, the party granting the exclusivity or preference, although limiting his or her her own possibility of entering alternative contracts, still reserves the right not to enter into the contract under consideration, despite the beneficiary of the provision’s willingness to do so.98

A slightly contrasting variation to the foregoing types of agreements occurs when the negotiating parties decide to enter a preliminary agreement binding them to conclude a contract at a later date.99 These types of agreements are most appropriately used where the parties have already agreed on all aspects of the final transaction but still decide not to conclude the final contract immediately. However, commercial practice confirms that there are many cases where the parties enter binding agreements to agree, although they still need to negotiate additional terms. In this sense these agreements can better be described as incomplete preliminary agreements to agree. They may still bind the parties to conclude on the basis of terms already agreed upon, irrespective of the content of the provisions not yet discussed. Of course, the more the parties are required to make relation-specific investments in the course of the negotiation, the more they are inclined to accept binding obligations, provided that they are mutual.100 Most importantly, each

92Cf. Lake and Draetta, Letters of Intent, 250 (these agreements are also referred to as “no-shop” agreements in the United States).

93It should be noted that under several domestic jurisdictions the agreement may be considered void or unenforceable on those grounds, and parties should therefore carefully draft the agreement in light of the competent forum and applicable law.

94See Schmidt, “Preliminary Agreements,” 44 (observing that “this type of obligation existed under Roman law, and is presently a part of most civil law systems”); see also G. Vettori, Efficacia ed opponibilita` del patto di preferenza (Milan, 1988).

95See, generally, A.S. Balbaa, “La Preemtion´ en droit compare,”´ Thesis, University of Dijon, 1938); P. Gallo,

Introduzione al diritto comparato, vol. 2: Istituti giuridici (Turin, 1998), 177–8.

96See also Schmidt, “Preliminary Agreements,” 45; for papers on option contracts, see, e.g., A.W. Katz, “The Efficient Design of Option Contracts,” working paper, March 2004; O. Bar-Gill, “Pricing Legal Options: A Behavioral Perspective,” 1 Rev. L. & Econ. (2005); E. Cesaro, Il contratto e l’opzione (Naples 1965).

97Moreover, option contracts, unlike firm offers, are assignable. See G. Gorla, “Problemi sulla cedibilita` dell’offerta contrattuale (di scambio), dell’opzione e del contratto preliminare,” Riv. Dir. Comm. 23, 23ff. (1963); this character also suggests the distinction to be made between option contracts (which are final contracts conditional upon the beneficiary’s declaration) and “unilateral preliminary contracts,” which are final contracts that bind only one party, but require a new contract to be concluded; see F. Galgano,

Diritto civile e commerciale (Padua, 2004), II, 1, 222.

98O. Ben-Shahar, “‘Agreeing to Disagree’: Filling Gaps in Deliberately Incomplete Contracts,” 2004 Wis. L. Rev. 389, 406ff. (2004) (highlighting the benefits of bonding in the course of negotiation).

99Cf. Knapp, “Enforcing the Contract,” 677.

100Cf. A. Schwartz and R.E. Scott, “Contract Theory and the Limits of Contract Law,” 113 Yale L. J. 611ff. (2003).

party wants to hold the other party to the bargain, and believes the preliminary agreement performs that function.101 In the absence of the parties’ intention to that effect, however, the agreement cannot be treated as a definitive contract.102

Given the various roles or functions played by agreements discussed here, the parties (especially in complex transactions) may enter a series of these agreements mirroring the different steps in the negotiations (“point-by-point negotiation”).103 The subsequent agreements not only reflect the point-by-point progress of the negotiations, but also have different increasingly bonding legal consequences, in accordance with the parties’ intent and confidence in the feasibility of the transaction. During the early part of the negotiations, the parties’ intention is likely to only memorialize the ongoing discussion, whereas the closer the negotiations comes to a conclusion, the more likely the parties are to accept obligations to conclude a final contract.104

It is debatable whether the agreement “to formalize and sign the Final Contract” can be interpreted as an unconditional obligation to conclude the final contract, whatever the case. In fact, different answers would be given under different domestic legal systems.105 Parties willing to enter a binding preliminary agreement to conclude the final contract should include language to make it clear that the preliminary agreement is intended “to bind the parties to conclude the final contract.”106

As far as the applicability of the CISG is concerned, one may argue that preliminary agreements to conclude a future contract are beyond the scope of the CISG on the basis of the different nature and structure of the obligations undertaken by the parties. Indeed, the obligation to conclude a contract is radically different from the obligation to transfer property or to pay a purchase price. This argument, however, is too formalistic. Focus on the nature and structure of the obligation (or on the object of the contract)107 should not prevail over the economic substance of the agreement. Accordingly, the CISG is arguably applicable to some types of preliminary agreements. For example, the commercial practice of the parties may view the preliminary agreement as sealing the deal and view the outstanding points as marginal issues, most likely to be provided by

101Ben-Shahar, “‘Agreeing to Disagree,’” 406ff. (economic benefits of legal bonding in the course of contract formation).

102This conclusion may also be argued under the CISG, primarily on the basis of the language of Article 14, which requires the “intention to be bound” by the final contract: for a recent court decision finding that the parties intended to create a definitive CISG contract, thus rejecting arguments to the contrary brought by a buyer who sought to demonstrate that the parties did not intend to enter a binding agreement, see Kantogericht Freiburg, Switzerland, October 11, 2004 IHR 72 (2005), available at http://cisgw3.law.pace. edu/cases/041011s1.html.

103See also Schmidt, “Preliminary Agreements,” 51, where the author points out that “facilitating the conclusion may be realized by two different techniques: either the negotiation of the future contract is divided, or it is unified for a whole series of future contracts.”

104See A. Schwartz and J.C. Watson, “The Law and Economics of Costly Contracting,” 20 J. L. Econ. & Org. 2 (2004) (economic explanation of the dynamics of contracting and related investments).

105See also Schmidt, “Preliminary Agreements,” 58ff.

106It should be noted, however, that under some legal systems the enforceability of an agreement to conclude a contract may be denied notwithstanding the clear language used by the parties; for instance, for an analysis of the difficulties to enforce the agreement under the English common law, see Dugdale and Lowe, “Contracts,” 31ff. (criticize the “so-called principle that the law does not recognize a contract to enter into a contract”).

107Cf. G. Gorla, “The Theory of Contract Object in Civil Law: A Critical Analysis by means of the Comparative Method,” 28 Tulane L. Rev. 442, 447ff. (1953–4).

their lawyers. Most importantly, the parties may intend the obligations stemming from the agreement to be the substantive obligations of the final contract, which is to become effective at a later stage.

From a normative perspective, the threshold of enforceability is that the likelihood of concluding a final contract is reasonably high and comparable to that of a final contract. This situation occurs when the basic elements of the future contract are already agreed upon; in this respect, the applicability of the CISG is to be determined on the basis of whether the preliminary agreement is considered to consist of sales-type obligations that are sufficiently definite.108 In such cases, the applicability of the CISG is fully justified109 and the breaking off of negotiations is to be treated as a breach of contract triggering the remedies available under the CISG.

V. Closing Remarks

This chapter shows that the applicability of the CISG to issues of precontractual liability should not rest upon the labeling of an agreement as “precontractual,” which in fact describes different factual situations, which may or may not have legal consequences under different domestic laws or implicate the use of the CISG. As to the area of domestic remedies, a comparative analysis was undertaken. It showed that different jurisdictions provide different rules of conduct to be observed in the negotiation phase. These differences include different qualifications of the claim, which may be treated as falling under the law of contract, of tort, or under alternative doctrines such as unjust enrichment.

The foregoing leads to a great degree of uncertainty when negotiations take place in a cross-border setting. Characterization of the issue is, indeed, essential for a proper conflict-of-laws analysis to determine the competent court and the applicable law; but characterization is also essential to address the question as to whether the issue at hand is covered by the CISG.

A review of the different factual situations that may lead to claims for damages of the kind often referred to as precontractual liability has led to the conclusion that in many cases the resort to domestic rules is precluded because the preliminary agreement is within the scope of the CISG. In the end, the rules of the CISG may not recognize the claim and fail to award damages. Therefore, prudent parties negotiating a prospective cross-border sale should consider “contractualizing” the duties owed to each other throughout the negotiations, reducing the uncertainties as to the rules of conduct that must be observed and the legal consequences for nonobservance.

108Of utmost relevance, in this respect, is the rule under CISG Article 14, stating that a proposal (which in turn appears to be extendable to the contract as a whole) “is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.”

109See also F. Ferrari, “Vendita internazionale di beni mobile – Art. 1–13 (Ambito di applicazione. Disposizioni generali),” Commentario del Codice Civile Scialoja-Branca (Bologna and Rome, 1994).

Part VIII Practitioner’s Perspective

II. Empirical Evidence on the Use of the CISG

A. The CISG in Practice: Existing Surveys

Empirical evidence on the CISG’s role as law in practice essentially comes in two forms – (1) the number of court decisions and arbitral awards applying the CISG, and

(2) surveys among lawyers. A number of CISG-related surveys have been conducted over the years. They followed a similar design in that questionnaires were sent to members of the targeted group. The first such survey was conducted by Michael Gordon of the University of Florida in 1997 and targeted faculty teaching at law schools in Florida, 124 practitioners specializing in transactional international law, as well as judges at state courts in Florida.5 In 2004, Justus Meyer surveyed German attorneys specializing in international sales matters, with a sample size of 479.6 In 2007, he duplicated the survey using Austrian attorneys with a sample size of 319,7 and among 396 Swiss attorneys.8 At the same time, a combined survey using identical questionnaires in three countries was conducted by Martin Koehler and Guo Yujun, with Koehler targeting practicing attorneys in Germany and the United States (in 2004–5) and Guo targeting attorneys in the People’s Republic of China.9 Unfortunately, small sample sizes – 50 responses from U.S. lawyers, 33 from German lawyers, and 27 from Chinese lawyers – limit the statistical power of the Koehler–Guo surveys.10 In 2006–7, Peter Fitzgerald collected a total of 236 responses, primarily from California, Florida, Hawaii, Montana, and New York.11 Two additional surveys were conducted in 2007: George Philippopoulos collected a data set from 46 commercial litigation attorneys whose practices dealt with international transactions,12 and in Switzerland Corinne Widmer and Pascal Hachem targeted registered lawyers practicing in the field of commercial law and conflict of laws, receiving 170 usable replies.13 Finally, in late 2009, Ingeborg Schwenzer and

5Michael Wallace Gordon, “Some Thoughts on the Receptiveness of Contract Rules in the CISG and UNIDROIT Principles as Reflected in One State’s (Florida) Experience of (1) Law School Faculty, (2) Members of the Bar with an International Practice, and (3) Judges,” 46 Am. J. Comp. L. (Suppl.) 361 (1998).

6Justus Meyer, “UN-Kaufrecht in der deutschen Anwaltspraxis,” 69 Rabel J. Comp. & International Private

L. 457, 468 (2005).

7 ¨

Justus Meyer, “UN-Kaufrecht in der osterreichischen¨ Anwaltspraxis,” Osterreichische Juristenzeitung 792, 794 (2008).

8Justus Meyer, “UN-Kaufrecht in der schweizerischen Anwaltspraxis,” Schweizerische Juristenzeitung 421, 423 (2008).

9Martin F. Koehler and Guo Yujun, “The Acceptance of the Unified Sales Law (CISG) in Different Legal Systems,” 20 Pace Int’l L. Rev. 45, 47 (2008).

10The small number of replies can hardly be regarded as “an early indication of poor acceptance of the CISG,” as Koehler and Guo, “Acceptance of the Unified Sales Law,” 46–7, boldly claim – it is no more than an indication of the poor acceptance of the request to participate in their survey (and may have even be caused by the fact that many of the practitioners addressed had no time for a participation, as they were busy applying the CISG in real cases).

11Peter L. Fitzgerald, “The International Contracting Practices Survey Project: An Empirical Study of the Value and Utility of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts to Practitioners, Jurists, and Legal Academics in the United States,” 27 J. L. & Com. 1, 4–6 (2008).

12George V. Philippopoulos, “Awareness of the CISG among American Attorneys,” 40 Uniform Commercial Code L. J. 357 (2008).

13Corinne Widmer and Pascal Hachem, “Switzerland,” in The CISG and Its Impact on National Legal Systems (ed. F. Ferrari) (Munich: Sellier European Law Publishers, 2008), 281, 282.

her “Global Sales Law” research team at the University of Basel conducted the most comprehensive survey to date. The data set consisted of 640 responses from 66 countries.14 While most of the surveys mentioned focused on practicing attorneys, the Global Sales Law survey encompassed four target groups, namely practicing lawyers (347 responses), arbitrators (98 responses), businesses engaged in trade (60 responses), and law schools (135 responses).

In summary, all existing CISG surveys combined yielded usable responses from a total of 2,227 practicing attorneys, with a focus on five CISG contracting states: Switzerland, Germany, the United States, Austria, and China.15 However, as noted earlier, a number of these surveys lacked statistical power.

B. Courts’ Approach to the CISG

1. Empirical Evidence

The number of cases applying the CISG by the courts and arbitral tribunals has steadily increased since 1988. The Albert H. Kritzer CISG Database run by the Institute of International Commercial Law at Pace Law School16 lists a total of 2,697 court decisions and arbitral awards that, in one way or another, addressed the CISG.17 Table 40.1 shows the development of CISG case law over the years.

The use of the numbers displayed in Table 40.1 above as empirical evidence on the CISG’s practical relevance18 meets with some caveats. First, and maybe most importantly, the CISG database does not cover all CISG decisions that have been made, but only the CISG decisions that have been published. The real number of CISG decisions in practice could be considerably higher.19 Second, experience shows that court decisions in many jurisdictions are only published with a significant delay, sometimes years after they

14Ingeborg Schwenzer and Christopher Kee, “Global Sales Law – Theory and Practice,” in Towards Uniformity: The 2nd Annual MAA Schlechtriem CISG Conference (ed. I. Schwenzer and Lisa Spagnolo) (The Hague: Eleven International Publishing, 2011), 155, 156. The same survey’s results are reported in Ingeborg Schwenzer and Christopher Kee, “International Sales Law: The Actual Practice,” 29 Penn St. Int’l L. Rev. 425 (2011).

15Switzerland: 566; Germany: 512; United States: 456; Austria: 319; China: 27. (It is unclear how many lawyers participated in more than one of the surveys.)

16MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostina, S.p.A., June 29, 1998, 144 F.3d 1384, 1389 footnote 14 (11th Cir. 1998) refers to the database as “a promising source” for “persuasive authority from courts of other States Party to the CISG.”

17The case count was as of October 10, 2011.

18Harm Peter Westermann, “Das UN-Kaufrecht im Aufschwung?,” in Privatrecht und Methode: Festschrift fur¨ Ernst A. Kramer (ed. H. Honsell et al.) (Basel: Helbing & Lichtenhahn, 2004), 717, 719.

19Peter Schlechtriem, “Requirements of Application and Sphere of Applicability of the CISG,” 36 Victoria U. Wellington L. Rev. 781 (2005); Schwenzer and Kee, “International Sales Law,” 157.

were handed down (“publication lag”).20 Third, although the Kritzer Database reports a number of arbitral awards, the vast majority of arbitral awards remain unpublished.21 Fourth, the numbers listed in the table are overstated because they count the same dispute as a separate case at each stage of the appellate process. And fifth, they also include cases in which the CISG’s applicability was denied.

Surveys – potentially another source for empirical evidence on the courts’ approach to the CISG – have only rarely addressed the judiciary. The two surveys that tackled this task22 received so small a number of replies that they can hardly been seen as an indication of the judiciary’s attitude in general.23

2. Anecdotal Evidence

Because there is currently only limited empirical evidence on CISG-related matters, the present chapter will try to supplement it with “anecdotal” evidence on the CISG’s role in practice. Under this heading, it will present evidence of actions by the courts (and, in the respective following sections, by the parties and counsel), which, in the author’s subjective opinion, is indicative of general trends in the CISG’s application.

a.Pretending that there is “virtually no” CISG case law: The Filanto dictum and its progeny

In 1992, the United States District Court for the Southern District of New York rendered its decision in Filanto, S.p.A. v. Chilewich Intern. Corp.24 It was the first U.S. decision to address the CISG in a substantive way, and accordingly attracted significant attention among academic scholars.25 Its influence on the developing U.S. case law on the CISG, however, was not primarily due to its application of the CISG, but rather by its introductory dictum: “Although there is as yet virtually no U.S. case law interpreting the Sale of Goods Convention, . . . .26 This factual statement – certainly accurate at the time it was made, as there had merely been one earlier CISG decision by a U.S. court27 – was soon quoted by other U.S. courts, first in Beijing Metals & Minerals Import/Export Corp. v. American Business Center, Inc.28 and then in Delchi Carrier SpA v. Rotorex Corp.,

20 The effect of the publication lag is clearly visible in the case numbers for 2009 and 2010 listed in Table 40.1.

21Klaus Peter Berger, The Creeping Codification of the Lex Mercatoria (The Hague: Kluwer Law International, 1999), 65; Schwenzer and Kee, “International Sales Law,” 157 (hypothesizing that approximately 5,000 arbitrations concerning sales of goods must have been conducted between 2004 and 2008).

22Namely, the surveys conducted by Gordon, “Some Thoughts,” and by Fitzgerald, “International Contracting Practices Survey Project.”

23This point is also noted by Fitzgerald, “International Contracting Practices Survey Project.”

24Filanto, S.p.A. v. Chilewich Intern. Corp., 789 F. Supp. 1229, 1237 (S.D.N.Y. 1992).

25Cf. Ronald A. Brand and Harry M. Flechtner, “Arbitration and Contract Formation in International Trade: First Interpretations of the U.N. Sales Convention,” 12 J. L. & Commerce 239 (1993); Peter Winship, “The U.N. Sales Convention and the Emerging Caselaw,” in Emptio-Venditio Inter Nationes (ed. F. Majoros) (Basel: Recht und Gesellschaft, 1997), 227.

26Filanto, S.p.A. v. Chilewich Intern. Corp., 789 F. Supp. 1229, 1237 (S.D.N.Y. 1992), appeal dismissed, 984 F.2d 58 (2nd Cir. 1993).

27Interag Ltd v. Stafford Phase, May 22, 1990, 1990 WL 71478 (S.D.N.Y.); see also, Orbisphere v. U.S., October 24, 1989, 726 F.Supp. 1344 (Ct. Int’l Trade 1989) (court had made an obiter reference to the CISG without interpreting or applying any of its provisions).

28Beijing Metals & Minerals Import/Export Corp. v. American Business Center, Inc., June 15, 1993, 993 F.2d 1178, 1183 (5th Cir. 1993).