Law of International Sales and Finance - Essay Example

Introduction A contract is "[a]n agreement between two or more parties that creates in each party a duty to do or not do something and a right to performance of the other's duty or a remedy for the breach of the other's duty" (San Diego Business Law Firm)1. Contracts therefore, serve as an important safety net to protect parties' interests, avoid conflict, or at the very least, ensure that conflicts can be resolved properly. However, since contracts are binding agreements, both parties to the contract must indicate their assent to ensure enforceability. Hence, while a valid offer indicates the assent of the party initiating the contract; a valid acceptance is also required to indicate the assent from the party whom the contract is offered to. In international sales, however, several applicable laws co-exist creating several standards that determine whether or not a valid acceptance was made. The United Nations Convention on Contracts for the International Sale of Goods (CISG), or the Vienna Convention, and Domestic Common Law are examples. Their applicability illustrates what Michael Bridge refers to as the "'bifocal' world of international sales law," where the broad provisions of the Vienna Convention and the details found in Common law are applied depending on the type of transaction being conducted2. Hence, it is crucial for contracting parties to understand the applicability of each in particular cases, as well as the differences and similarities embodied, to determine if a contract is duly enforceable or not. Rules of Acceptance under Common Law Since an acceptance of an offer indicates an offeree's assent to the terms of the offer and be bound by a contract, a set of established rules of acceptance are crucial in determining whether an acceptance is effective or not. First, a valid acceptance must be unqualified and without modifications or conditions of the offer. This is illustrated in Masters v. Cameron (1954) 91 C.L.R. 353, where in the case of a conditional offer, it was held that the use of the words "subject to contract" in the formation of the contract is "prima facie [to] create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract"3. With regard to counter-offers, Livingstone v. Evans (1925) 4 D.L.R. 769 states that "[i]f an acceptance does not mirror the offer, then it is ought to be construed as counter-offer4" and is considered as a rejection of the original offer. Second, acceptance must be communicated by the offeree to the offeror, where actual communication exists. Hence, silence or inactivity does not embody acceptance5. The case of Felthouse v. Bindley (1862) 11 C.B. (N.S.) 869 illustrates this point. However, acceptance can also expressed based on a party's conduct. In St. John Tug Boat Co. v. Irving Refinery Ltd. (1964) S.C.R. 614, although no acceptance was communicated, it was held that if a man's conduct indicates acceptance to an offer, "the man thus conducting himself would be equally bound as if he intended6." As illustrated in Powell v. Lee (1908) 99 LT 284, acceptance must also come from the offeree himself, or a person authorized by the offeree to accept the offer7. The manner in which an acceptance is communicated must also be given consideration. In this regard, Eliason v. Henshaw [1819] US SC, concludes that acceptance of an offer must be communicated "according to the terms in which the offer was made" such that "[a]ny qualification of, or departure from, those terms, invalidates the offer8." Offerees are therefore bound to abide by the stipulations of the offeror in terms of deadline for acceptance, method of acceptance, and the like. In Tallerman & Co. Pty. Ltd. V. Nathan's Merchandise Pty. Ltd. (1957) 98 CLR 93, the date and time that an acceptance is communicated and becomes effective is also the date and time that a contract is formed9. However, since offers are revocable10, and an offer is only effective until a time specified by the offeror or within a reasonable timeframe11, the date of acceptance is crucial to determine whether acceptance is communicated and a contract was formed. Under Common Law, communication takes effect when the acceptance reaches the offeror in instantaneous communication12. However, this rule only applies to forms of instantaneous communication like the telephone or telex. In cases where the method of communication is non-instantaneous like the post, it is only logical to give exclusion because of possible delays. Thus, the general rule does not apply. Instead the postal rule of acceptance where acceptance will take effect at the date and time that it was posted and at the place it was posted from is applied13. This is upheld in Household Fire Insurance Co. v Grant (1879) 4 Ex D 216 where it is stated that "as soon as the letter of acceptance is delivered to the post office, the contract is made complete and final and absolutely binding as if the acceptor had put his letter into the hands of a messenger sent by the offerer himself14." Henthorn v. Fraser (1892) 2 Ch. 27 (C.A. 1892) qualifies this stating that as opposed to being a common agent for both parties, the post is the offeree's chosen method of delivery15. However, in Holwell Securities v Hughes (1974) 1 All ER 161, an exception to the postal rule exists if the offeror makes a stipulation in the offer indicating that acceptance must reach the offeror16. Rules of Acceptance under the Vienna Convention The rules of acceptance under the Vienna Convention are embodied in Articles 18 to 24 of the Convention. According to Article 18, acceptance constitutes: a statement made by or other conduct of the offeree indicating assent to an offer... Silence or inactivity does not in itself amount to acceptance.17 This acceptance, becomes effective only if the following conditions are satisfied: first, the acceptance is communicated to the offeror within a time period specified, or a reasonable time period18; and second, in a case where the offeror specifies or both parties have established within themselves other ways to indicate assent to the offer, the offeree must satisfy such requirements by the offeror within the time period specified, or within a reasonable time19. It is important to note that the provisions in Art. 18 are in conjunction with the rules of acceptance identified in Common Law. The similarity between the two, however, ends here. Article 19 illustrates this. According to Article 19 an acceptance that "contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer"20. It distinguishes between material and non-material modifications. Thus, while the limitation in paragraph 1 is similar to Common Law, under paragraph 2, exclusions are given in favour of non-material modifications, unless the offeror rejects the modifications "without undue delay"21 This implies that while silence is not an acceptance of an offer, silence can be regarded as acceptance of non-material modifications to the contract. Par. 3, on the other hand, provides a list of modifications that are to be considered material. Article 19, therefore provides a significant difference between Common Law and the Vienna Convention due to the distinction between material and non-material modifications under the Vienna Convention. In reference to Art 18(2), which identifies what is considered as a "reasonable time" for accepting an offer, Article 20 determines what is meant by reasonable time such that: for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication begins to run from the moment that the offer reaches the offeree.22 Interestingly, Art 20 provides a distinction between instantaneous and non-instantaneous communication in the timeframe that an offeree has to accept an offer, where a rule similar to the postal rule in Common Law applies to non-instantaneous communication. Article 21 provides the rules applicable to late acceptance. According to this provision, while late acceptance of an offer is generally ineffective, the offeror has the ability to extend this deadline as long as the offeree is given notification of the extension prior to the deadline23. This is in contrast to Common Law where an acceptance is deemed ineffective once it is given after the deadline. Lastly, according to Article 22, the offeree has the right to revoke an acceptance, provided that the notice of revocation is given before or at the same time that the acceptance reaches the offeror24. This also contrasts with Common Law where an acceptance, once given is deemed irrevocable. Articles 23 and 24, on the other hand, provides the rules indicating when a contract is concluded by virtue of an effective acceptance25, and when a form of communication prior to conclusion of the contract reaches the addressee and becomes effective. According to Article 24, an acceptance "'reaches' the addressee when it is made orally to him or delivered by any other means to him personally "26. Interestingly the Convention, under this article, does not make a distinction between the instantaneous and non-instantaneous communication. Thus, an offer, an acceptance, or any other communication prior to the conclusion of the contract is considered to have reached its addressee, and becomes effective, only if it is communicated orally by the addressee, or when the addressee is made aware of the communication, regardless if communication is an offer, an acceptance, or a non-material modification. This should not be misconstrued with Art. 20 because Art. 20 do not determine when a communication becomes effective, but only how long an offer stays effective for acceptance. Hence, an acceptance, regardless of whether it is an instantaneous or non-instantaneous communication is only considered effective once it reaches the offeror. Thus, the Vienna Convention does not make the distinction applied by the postal rule of acceptance in Common Law. Practical Applicability of the Laws within International Sales While the rules that determines what constitutes a valid acceptance are applicable to all types of contract formation where Common Law has jurisdiction, the general rules that determine when an acceptance is communicated and becomes effective under Common Law is not applicable to all forms of acceptance. This is illustrated by the exclusions to the general rule provided by the postal rule of acceptance. As previously mentioned, exclusions apply when the acceptance is sent through non-instantaneous communications like the post. However, since its applicability was used in Adams v. Lindsell, the emergence of new forms of communications technology challenges the applicability of the postal rule. The postal rule was extended to include the telegram because of its similarities with postal mail27. However, this rule was not extended to take into account the use of the telex and facsimile because unlike postal mail, these communications were considered instantaneous. The telex were both considered as instantaneous, thus the general rule was applied and it was considered that acceptance was communicated in the date and time the offeror received the communication and the place of business of the offeror28. Facsimiles are also recognized as an instantaneous communication not covered by the postal rule. However, the postal rule can also be applied to the facsimile if the acceptance was sent through a third party who owns the facsimile unit29. Theoretically, the Vienna Convention is applicable to acceptance using all these methods of communication. As expressed in Article 24, the Vienna Convention does not discriminate between the different methods of communication, such that all are considered as communicated only if it reaches the offeror. This view is shared by Azzouni (2002) and Williams (2001) who both note that the postal rule is rejected under the Vienna convention30. However, its practical applicability has yet to be tested because in dealing with legal issues regarding the differences between the methods of communication, Art. 24 have yet to be used in court31. In fact, as Kilian argues, "the unwillingness of common law judges to apply the CISG is due to the lack of precedents among common law jurisdictions applying CISG, simply because common law judges want to get their precedents in first" such that there is little to no case law on CISG in general and Article 24, in particular32. In the recent years, the emergence of e-commerce and cyberspace - through the internet, emails, and websites - are yet again challenging the traditional rules of acceptance under Common Law. Defined as, "a decentralised, global medium of communication comprising a global use of linked networks," 33 cyberspace and e-commerce are presenting new problems with regard to the applicability of the paper-based framework of traditional rules to modern forms of communication in a paperless environment. This environment has crucial implications to the applicable laws, particularly whether the postal rule should apply to these forms of communication or not. Under the Common Law to determine whether the general rule or the postal rule is applicable to online communication, it is imperative to determine whether the communication is instantaneous or non-instantaneous. At first glance, this communication seems instantaneous because of the speed that messages and communications are sent from the sender to the addressee. This is upheld in O'Shea v Skeahan [1997] 13 (QUTLJ), where the court concluded that online communication using emails are instantaneous34, hence the postal rules does not apply. However, there is enough reason to think that although transmission through the internet is undoubtedly fast, once sent it cannot be strictly considered as an instantaneous form of communication because of the technology used35. Thus, should the postal rule apply to online communication In considering whether the postal rule should apply, it is important to understand the nature of cyberspace communication and online contracts. There are two methods that can be used to send an acceptance online: through emails using the worldwide web or through a website using electronic data interchange (EDI)36. In this sense, acceptance through EDI can be considered instantaneous; however, emails are more questionable because of the significant delays that can affect it. Sharon Christiansen outlines the arguments both for and against the application of the postal rule. Arguments for the application of the postal rule enumerate by Christiansen include: acceptance sent through emails can be considered as a modern postal system, where instead of sending letters through post, they are sent through an ISP; delays are possible through system failures, incorrect addresses, and hacking by third parties; there are numerous choices of time can be considered when the acceptance reaches the offeror such as the time the offeror's ISP receives the message, the time it is sent in the Inbox, and the time that an offeror actually checks mail; and last, the risk is placed on the offeree if communication is instantaneous37. Arguments against the application of the postal rule, as Christiansen enumerates include: the postal rule, upon establishment did not anticipate email communication and would not create certainty nor efficiency if applied; the issues of delay present in email communication are similar to facsimiles but the postal rule was not applied to them; application of the postal rule may create problems in determining the applicable law during disputes; and the postal rule is not conducive to sound business practices38. Given valid arguments on both sides, the decision of postal rule's applicability is still inconclusive. Under the Vienna Convention, however, its rules of acceptance should be applicable to internet communication under Art 24 because the rules do not discriminate between the methods of communication. However, the Convention only disregards the aforementioned arguments for the postal rule by treating communication using these methods as instantaneous. Hence, it still does not solve the problem. Instead, the Vienna Convention only chooses to ignore it. This resonates Jacob Ziegel's claim that the Vienna Convention does not deal with, or in some cases inadequately deals with, a number of substantial issues in contract formation39. Furthermore, as mentioned, the fact that Art 24 has not been used in courts yet makes the Vienna Convention's applicability questionable. In this regard, there is value in Christiansen's argument that:"[n]o universal rule can cover all such cases"40. The Need for Reform The inconclusiveness of Common Law in deciding whether the postal rule or the general rule should apply to communication through cyberspace and the lack of attention given to it by the Vienna Convention, as well as the fact that the Vienna Convention has yet to be applied to cyberspace calls for the need to formulate new laws, or at least revise existing laws to accommodate when acceptance becomes effective through this form of communication. However, all indications lead to the need to establish new applicable laws, or at the very least, revise the traditional ones, to take into account new forms of communication technology. Based on the previous arguments, communication through the internet is different from other forms of communication such that it needs a new set of laws to accommodate it41. Looking into Common Law and the way that the postal rule of acceptance was established, a new exclusion must be established as well because of the unique nature of cyberspace communication, which contains characteristics of both instantaneous and non-instantaneous communication. For the Vienna Convention, the need for reform is also imperative because some aspects of contract formation have become outdated "in the light of subsequent developments, particularly those related to electronic contracts"42. However, Ziegel adds that addressing the problem may not be as easy because the Vienna Convention has no mechanism to update or revise its provisions43. Conclusion Acceptance is an important aspect of contract formation. Since contracts, to be enforceable requires mutual assent from both offeror and offeree, an effective acceptance to a valid offer indicates that assent has been given by both parties, forming an enforceable contract. While the laws are clear with regard to what constitutes a valid acceptance, complications arise in determining applicable laws that decide if an acceptance is effective. These complications are evident in comparing Common Law and the Vienna Convention. With regard to Common Law, the rules are more definite and established such that exclusions are provided for by the postal rule to distinguish between instantaneous and non-instantaneous communications. As illustrated by the cases, the existence of the postal rule as exclusion is a logical decision because it allows acceptances sent through different means to be dealt with accordingly, taking into account their different natures - instantaneous and non-instantaneous. The Vienna Convention, however, takes a more general approach and provides only one set of rules to address all types of communication. Unlike Common Law, however, where the rules have been proven effective in light of the cases cited, Article 24 of the Vienna Convention has yet to be applied in a legal case. Thus, the postal rule makes Common Law more applicable to practical cases because it avoids the ambiguity and inadequacy of the Vienna Convention to some issues in international sales. Developments in e-commerce, however, question the applicability of both the general rule and postal rule in Common Law, as well as Article 24 of the Vienna Convention. Since the methods of communication in e-commerce are unique and possess characteristics of both instantaneous and non-instantaneous communications, it calls for the formulation of new laws that can take into account its unique character. References Cases Cited Adams v. Lindsell [1818] B & ALD 681 Brinkibon Ltd. v. Stahag Stahl und Stahlwarenhander (1983) 2 AC 34 Cowan v. O'Connor (1888) 20 QBD 640 Dickinson v. Dodds [1876] LR 2 Ch D 463. Eliason v. Henshaw [1819] US SC. Entores Ltd V. Miles Far East Corperation (1955) 2 QB 327 Felthouse v. Bindley [1862] 11 C.B. (N.S.) 869. Henthorn v. Fraser (1892) 2 Ch. 27 (C.A. 1892). Holwell Securities v Hughes (1974) 1 All ER 161 Household Fire Insurance Co. v Grant (1879) 4 Ex D 216 Leach Nominees Pty. Ltd. V. Walter Wright Pty. Ltd. (1968) WAR 244. Livingstone v. Evans (1925) 4 D.L.R. 769 Masters v Cameron (1954) 91 C.L.R. 353 O'Shea v Skeahan [1997] 13 (QUTLJ). Powell v. Lee [1908] 99 LT 284. Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109 St. John Tug Boat Co. v. Irving Refinery Ltd. [1964] S.C.R. 614 Tallerman & Co. Pty. Ltd. V. Nathan's Merchandise Pty. Ltd. (1957) 98 CLR 93 Legislation United Nations Convention on Contracts for the International Sale of Goods. Apr. 11, 1980, U.N. Doc A/CONF. 97/18, Annex I, reprinted in 19 I.L.M. 671 (1980). 16 October 2005 . Secondary Sources Azzouni, Ahmad. "The Adoption of the 1980 Convention on the International Sale of Goods by the United Kingdom." Pace Law School Institute of International Commercial Law (2002). 16 October 2005 . Bigel, S. "Beyond Our Control Confronting the Limits of Our Legal System in the Age of Cyberspace". Massachusetts: MIT Press, 2001. Bridge, Michael. "Uniformity and Diversity in the Law of International Sale." Pace International Law Review 15 (2003): 55-89. Christiansen, Sharon. ""Formation of Contracts by Email - Is it just the Same as Post" QUT Law and Justice Journal. 3 (2001). 16 October 2005 . Lutz, Henning. "The CISG and Common Law Courts: Is There Really a Problem" Victoria University of Wellington Law Review 35.3 (2004): 711-733, 16 October 2005 . Tagini, Phillip. "E-commerce in Vanuatu: Can Contract Law Accommodate for New Technology." Journal of South Pacific Law - Working Papers 4 (2000). 16 October 2005 . Williams, Allison. "Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom." Review of the Convention on Contract for the International Sale of Goods (CISG) 2001. Kluwer Law International (2000-2001). 16 October 2005 . Ziegel, Jacob. "The Future of the International Sales Convention from a Common Law Perspective." New Zealand Business Law Quarterly 6 (2000): 336-347. Legal Definitions and Terms. 16 October 2005. San Diego Business Law Firm. 16 October 2005. . UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Goods. 16 October 2005 . Read More