Buying and selling hardware How to unravel international law

by BOB C ROMIJN

L egal aspects of international buy- ing and selling of goods are very complex. The purpose of this

paper is to present a ‘bird’s eye view’ of the territory and discuss some points of practical interest for every- day business practice.

In the legal considerations concern- ing the international sale of goods, and this refers to computer hardware only, there are a number of factors to consider.

The formation of the contract

The questions arising here are mainly:

l what is an offer? l is the offer binding? l is the offer revocable? l what is an acceptance? l is an acceptance revocable? l influence of death

This is the second paper given at the Computer Brokers Exchange (CBE) in Frankfurt. The speaker was addressing IBM equipment brokers at the conference.

Abstract: Intern&on& laws governing the buying and selling of computer hardware are bewildering. Those involved in international sales should take note of some of the treaties which cover this area. It is often the small print which causes most legal battles.

Keywords: data processing, computer hard- ware, intemuttil law.

Bob Romijn is a partner at Smithysen and Vermenten, Solicitors in the Netherlands.

0 means of communication 0 requirements of form

The consequences of the contract refer to delivery, time, place, quality of the goods. If the delivery is faulty, this is another consequence of the contract. If this occurs, one needs to consider time and form of protest.

When payment is due the con- sequence of the contract refers to time, place, calculation, interest as well as consequences of non-payment. Other aspects include liberating cir- cumstances and risk.

Legal approaches

The legal approach to these problems is as follows:

0 private international law (PIL) which is the classical approach,

l international rules which is more modern than PIL,

l standard conditions or contracts.

Private international law

Every nation has in its legal system PIL rules, indicating which national law governs a specific international relationship. PIL is especially import- ant in the field of family law and the law of torts. In the field of contracts, PIL is less developed but still import- ant. These rules are applied by the national jurisdiction. They are by no means uniform, so that a court in one country can easily differ completely from a court in another country.

To improve this situation, a num- ber of international treaties have been concluded, which contain a unifica- tion of these conflict rules.

Treaties of this kind, which con- cern the international sale of goods are the Hague Treaty 1955, signed by Italy, Belgium, France, Denmark, Finland, Norway, Sweden, Switzer- land, Niger and the EEC-Treaty, Rome 1980, on contractual obliga- tions. These treaties do little in the way of unification of rules. They serve mostly to minimize the confusion.

Both treaties give preference to the choice of law by the parties to the contract. If no such choice has been made by the parties the applicable law has to be found under the rules of the treaties which by and large tend to indicate the seller’s law where in contracts on the international sale of goods are concerned.

International rules

These differ from PIL as defined above in that they do not refer to a particular national law, but contain in themselves the rules which govern a contract. They take the form of treat- ies which stipulate that the rules have to be incorporated in the legal systems of the nations which have signed the treaty. The level of unification of these treaties is much higher. They tend to have a profound influence upon international legal practice and litigation.

The most important of these rules are first the Hague Treaty on the formation of contracts for the inter- national sale of goods, 1964 (Belgium, West Germany, Gambia, UK, Israel, Italy, Netherlands, San Marino). This treaty introduces the Uniform Law on the formation etc., abbreviated as ULFIS.

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Second, the Hague Treaty on the international sale of goods, 1964 (the same signatories). This treaty intro- duces the Uniform Law on the inter- national sale of goods etc., abbre- viated as ULIS.

Third, the CISG Treaty, Vienna 198 1. This treaty has been inspired by the United Nations. After the uni- form law treaties of 1964 had been undersigned it became apparent that important trading countries such as the USA and an important economic organization like Comecon found that too little of their own rules on the international sale of goods was in- corporated in the uniform laws, so that they decided not to join the treaties. Therefore, starting in the late 196Os, the United Nations Commis- sion on international trade law

(UNCITRAL) has worked on a new treaty which would be more widely acceptable. This work culminated in a diplomatic conference in Vienna, leading to this treaty of 1981.

The treaty is meant to replace ULIS and ULFIS and presents some considerable improvements upon the text of the uniform laws but it has not yet been sufficiently undersigned and put into effect to be of practical importance. However, the ULFIS and ULIS are very useful for day-to- day reference. They have been de- signed with an open eye for the existing usages in international trade.

Their major weakness is their re- stricted applicability. Both uniform laws apply only if two conditions are fulfilled. Both parties must be domi- ciled in a treaty country, and the goods and/or the negotiations and/or the delivery involved must have an international character. Under these conditions it can easily happen, that when the same object is sold and resold internationally by the same party, the first Icontract falls under the uniform laws while the second does not.

The rules which govern the con- tract, however, are modern and

important. They present the strong

side of the uniform laws.

A few interesting rules

An offer or acceptance need not be evidenced by writing and shall not be

subject to any other requirement as to form. In this respect the sales contract differs substantially from the trans- port contract in which documentary evidence plays an important role. A sales contract always comes first. Under the uniform laws this contract can be evidenced, if necessary, by

witnesses.

A communication constitutes an offer only when it is sufficiently definite to permit the conclusion of a

contract by acceptance and indicates the intention of the person conducting the sale to be bound. Acceptance consists of a declaration (by any means of communication). It may also consist of the despatch of the goods, or the payment of the price, relevant to the terms of the offer, the estab- lished practices or the usage.

This can mean, on the one hand, that a sales contract can be closed quite easily, such as when a simple offer of a specified machine has been made for a certain price say $25000, the unqualified acceptance will be sufficient to close the contract. All other aspects of the deal which have not been specified in these negotia- tions, can be filled in later as aspects relating to the fulfilment of the con- tract.

If however an offer or acceptance

has not been made unconditionally, the contract has not been definitely closed a range of possible legal rela- tionships may exist. In the used computers trade a well known con- dition is that the offer is made ‘subject to prior sale’. When the specifications of the offer are other- wise sufficiently definite, the uncon- ditional acceptance will lead to a contract unless the person conducting the sale can prove that a prior sale has in fact been concluded. If the person conducting the sale intends merely to

invite others to enter into negotiations with him he will have to choose the

wording of his condition accordingly.

Place of delivey. When no tran- sport has been stipulated in the con- tract the place of delivery is the domicile of the seller, or the place where the goods are situated at the time of sale. This is important for the question who will pay for the tran- sport of the goods and for establishing the moment on which the risk is transferred to the other party.

Reclamations have to be made

within a short period after delivery and inspection. The maximum period in any case is two years after delivery.

A change in circumstances of an unexpected and excessive nature can lead to a liberation of all obligations under the contract. Formerly only an ‘Act of God’ were considered to have a liberating effect. The description of liberating circumstances in the uni- form laws has been indicated as one of the most important contributions of

the ULIS. In the existing commentaries

examples of liberating circumstances have been given as faults in the public

mail service, the collapse of a public bridge which causes destruction of goods, strikes and lock-outs which were unforeseen, and sudden drastic changes in the foreign-exchange rate or even expropriation-measures.

Damages are limited by the extent of the losses that could be foreseen at the time of conclusion of the contract. This limitation seems to exclude a sudden rise in prices which would have made resale much more profit- able. It also excludes the conse- quences of a bankruptcy which can be said to have been caused by faulty delivery etc. The variety of damages admissible under the uniform law is reasonably large. Direct costs, maybe even the lawyer’s fee, name, damage, production, stagnation and the lost resale profit can be claimed as damages.

Delay in payment leads to payment of interest, fixed at the discount rate

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of the seller’s country plus one per cent. The uniform law prescribes no formal requirements for the interest claim. The simple delay in payment is sufficient.

Standard conditions or contracts

Of these, some widely known general texts are used internationally. The most important standard conditions are:

l Uniform Commercial Code, USA., 1952. This Code unifies the law for interstate commerce in the USA. As such it has international im- portance. Many parties outside the USA have to accept it for the American trade. Its strictly Ameri- can character (and its bulky size) makes the UCC unsuitable for world wide trade.

l Comecon conditions. These consti- tute in practice the law for all the

trade between the Comecon coun- tries. They have a tendency to

approach the western trade usages. Conclusion

General conditions for specific goods have been published by the Economic Commission for Europe (ECE) of the United Nations, seated in Geneva. Since 1950 a series of texts have been published which were translated into many languages and received a large circulation. They concern machinery and plants, and durable consumer goods which can be used in the computer trade.

An important lesson from this dis- cussion must be that international trade is far from uniform from the legal point of view. International trade custom and usage do much to remove the sharper edges from this problem. It seems desirable to design and introduce general conditions for the international computer trade along the lines of other similar general conditions.

An example of a standard contract in the computer business is recent Confederation of European Computer Users’ Associations (CECUA) con- tract for the buying of computer

hardware. This model was developed with financial support from the EC. It aims at the strengthening of the consumer’s position with regard to the international corporate suppliers of computer hardware. The scope is wide; for some contracts in the inter- national trade this text could be useful too.

As long as computer merchants have to operate under the present legal conditions, they should primar- ily keep in mind that most difficulties have their origin in negotiations that lack precision and clarity. It is, in any contract, but particularly when the telex is used, most important to leave nothing unsaid and to avoid all ambiguities. Too many lawsuits are caused by these faults. Contrary to what you may tend to believe, most practicing lawyers are not happy with such cases. q

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