Legal Implications of Oral Contracts

As it has been dictated by the abovementioned case study herein, Fine Coffee Imports Pty Ltd., attended a virtual trade fair in the month of May, 2020. During the abovementioned meeting, Ms. Jaynes on behalf Fine Imports Pty Ltd. interacted with sales representative of Columbia Coffee SA based on Columbia and both of them reached an oral exchange of words regarding buying the Arabica coffee beans named Calidad Superior from Columbia Coffee SA. To that effect, Ms. Jaynes received samples of the coffee beans as well.

After carefully examining the quality of the coffee beans, Ms. Jayes on behalf of Fine Imports Pty Ltd. sent an email containing a proposal of buying the coffee beans from Columbia Coffee SA on 1st July, 2020. In the abovementioned email, she provided a term of proposal including a price of $5 per kilogram and specified all the details regarding the coffee beans, required by Fine Imports Pty Ltd. including the number of shipments and the timeline.

On the following day, Mr. Ugarte on behalf of Columbia Coffee SA contacted Ms. Jaynes with slight alteration to the abovementioned terms provided by Ms. Jaynes of Fine Imports Pty Ltd. Two days laters, Ms. Jayes on behalf of Fine Imports Pty Ltd. contacted Ms. Ugarte regarding the same and thanked him.

Hereby, according to The United Nations Convention on Contracts for the International Sale of Goods (herein being referred as the CISG), also known as Vienna Convention of 1989, Australia and Colombia are both contracting parties in this convention which implies the terms and conditions mentioned under CISG shall be bound on these countries as well. Thus, article 1(1) of Contract for the International Sale of Goods (CISG) states that both of the countries shall come under the purview of the application of CISG and thus their import of coffee beans by Australia from Colombia shall also be adjudicated by the terms and conditions of CISG.

Under the ambit of CISG and carefully examining the facts presented by Sparkle and Heckle and on behalf of their client Fine Imports Pty Ltd herein, it can be concluded that Ms. Jaynes on

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1. ‘CISG: List of Contracting States’ , ICCL (Web Page 23rd May, 2021) < https://iicl.law.pace.edu/cisg/page/cisg-list-contracting-states >
2. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), art. 1(1).

behalf of Fine Imports Pty Ltd. has tabled a proposal under article 14(1) of CISG via email to Mr. Ugarte of Colombia Coffee SA. In this regard, it is to be discussed that 11th article of CISG clarifies that the above referred international legislation intends to conclude a contract by way of writing and it does not require any other types of forms to be included in the subject. Again, according to article 13 of CISG, defines writing to be including of telegram and telex. However, in the view of the recent pandemic situation and the development of the electronic communication, it is thus safe to assume that email shall be considered as a valid form of communication in writing and the same was held by the Supreme Court of Egypt where the court decided that email shall be considered as a valid form of communication for the effectiveness of a contract of international sale of goods under CISG. Again, UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996 holds the view that electronic communication shall be regarded as a valid form of legal binding. However, if a mode of concluding a contract of sale is mentioned, the interpretation of CISG shall have no value.

In the abovementioned case matter of Fine Import Pty Ltd., both the parties contacted over email given the pandemic of Covid-19. In the last email, Ms. Jaynes’s positive approach to proceed with order was clear and the email followed by a production of form. According to article 96 of CISG article 1.2 under UNIDROIT principles contracting, 2010 and if a state has any law regarding production of a form to conclude a contract, the interpretation of CISG shall have no

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3. Ibid, art 14(1).
4. Ibid, art 11.
5. Ibid, art 13.
6. H. El-Saghir, The CISG in Islamic Countries: The Case of Egypt. In L. DiMatteo (Ed.), (2014), International Sales Law: A Global Challenge, Cambridge: Cambridge University Press. 505.
7. UNCITRAL 2012 digest of case law on the Model Law on International Commercial Arbitration, United Nations Commission on International Trade Law, New York :United Nations.
8. Anon, CLOUT case No. 1083 (2002), Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade, Ukraine.
9. Anna Duke; What Does the CISG Have to Say About Smart Contracts? A Legal Analysis (2019); V.20 Chicago Journal of International Law, 143
10. Smart Contract Alliance ; Smart Contracts: Is the Law Ready? (2018); CHAMBER OF DIGITAL COMMERCE
11. Brownwyn Lincoln; The UN CISG and its implications for Australian businesses during the COVID-19 pandemic (2020); Mondaq < https://www.mondaq.com/australia/international-trade-investment/940488/the-un-cisg-and-its-implications-for-australian-businesses-during-the-covid-19-pandemic > accessed on 23rd May, 2021
12. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n6) art 96.
13. UNIDROIT (2010), International Institute for the Unification of Private Law, art 1.2, p.8.

value whatsoever. Again, on the mention of the order form by Fine Improts Pty Ltd., Mr. Ugarte on behalf of Colombia Coffee SA did not raise any objection which subsequently shall prove that both the parties herein agreed to the same mode of concluding the contract.

However, a contract of sale of goods does not fully rely on CISG and UNIDROIT, 2012 but it also depends on complying with INCOTERMS, 2010 and UCP, 600 as well. Thus, practically, if the buyer refuses to abide by the terms of the obligations to be performed by the seller herein, Fine Imports Pty Ltd. might not need to accept the first shipment from Calidad Superior herein. International trade is highly dependent on the terms and conclusions of INCOTERMS 2010 and UCP, 600. Thus, for the purpose of concluding a contract of sale of goods between two States, compliance under INCOTERMS 2010 and UCP, 600 are mandatory. Thus, through a mere email conversation, none of these compliances were discussed herein. UCP 600 is legally binding and demands strict compliance, unless otherwise explicitly mentioned so.

Thus, according to article 19(2) of CISG and article 2.1.6 of UNIDROIT, 2012 and as per the discussion as has been held above, it can be concluded that Fine Imports Pty Ltd. had a valid agreement of sale of goods under CISG with Colombia Coffee SA for the purchasing of ‘Calidad Superior’ theoretically. Thus under the impression of a courtesy agreement, Fine Imports Pty Ltd. may pay the price that was agreed upon before the price dip in the month of August as per the terms of their contract herein for the first shipment which has reached the port of Brisbane.

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14. In re World Imports, Ltd. (2017) 16-1357, 2813, U.S. Court of Appeals (3rd Cir.) USA, CISG-online
15. ICC (2007); UCP, publication no. 600, article 14
16. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n13) art 19(2).
17. Anon, CLOUT case No. 189 (1997) Oberster Gerichtshof, Austria.
18. UNIDROIT 2010, International Institute for the Unification of Private Law, art 2.1.6, p.42.

Article 73(1) and (3) of the CISG, it has been enacted that in case of contracts having installment procedures, if one of the parties to the contract fails to adhere to the performance of thecontract herein, the contract shall be considered avoided. Also, it has made provision regarding the future deliveries if the buyer decides to avoid such contract as well. Again, according to the INCOTERMS, 2010 and UCP 600, there exist several rules which need to be abided by the seller and impose the several duties on part of the seller to provide for documents and also the rules require strictly for the buyer to accept them.

Thus, after receiving the first shipment from Colombia Coffee SA, Ms. Jaynes on behalf of Fine Imports Pty Ltd. communicated to Mr. Ugarte on behalf of Colombia Coffee SA about the evading of the contract in respect of deliveries to be arrived in the near future under article 73(3) of CISG. Therefore, the claims made by Mr. Ugarte regarding the acceptance of all the future shipments of the Calidad Superior is retrospective in nature and the performance of contract cannot be coerced upon buyer where there has been enough ground for the avoidance of the courtesy contract, where all the relevant terms about compliance with INCOTERMS, 2010 and UCP 600 was not included. Although according to article 62 of CISG the seller may demand for specific performance but as per the email binds for the contract between two parties, there has been no mention of specific performance of the contract or any other mention of the avoidance of the contract as well. Thus, depending on this open end of the contract herein where Fine Imports Pty Ltd. is not required to oblige according to the terms of INCOTERMS, 2010, the client will not have to accept all the future shipments of Calidad Superior from Colombia Coffee SA.

For the purpose of not accepting the rest three shipments of from Colombia Coffee SA, Fine Imports Pty Ltd. shall have to give proper notice of avoidance of contract to the seller herein.

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19. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n17) art 73.
20. INCOTERMS 2010, ICC (Web Page 23rd May, 2021) < https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/ >
21. UCP (2007), ICC (2007); publication no. 600, article 14
22. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n20) art 73(3).
23. John Mo; International Commercial Law, (Butterworths Australia 5th Edition 2012, p.630)

According to article 62 of CISG, the seller herein asked for the specific performance of the contract; however the same shall not be implemented by court if the domestic law governing such sale of goods requires such specific performance of contract. Also, as per the conversations between the two parties, it can be seen that the agreement is of mere courtesy nature as well.

Again, as has been mentioned above herein, the seller and buyer shall have to comply with the terms of agreements put by the INCOTERMS, 2010 and UCP 600, before entering into a contract or agreement of the nature as has been discussed in the case study. Thus accordingly it can be concluded that there is no existence of compliance of obligations by the seller under the rules of INCOTERMS, 2010 and UCP 600 and the seller herein did not notify the buyer i.e. Fine Imports Pty Ltd. regarding the same as well. Thus, for the future delivery of products which is the part of the same contract however which does not have any specific terms of obligation under INCOTERM, 2010 and UCP 600, the buyer herein, Fine Imports Pty Ltd. does not need to provide for a specific performance of the contract as mentioned herein and also, for a part of delivery addressed in the future as well

The client herein, Fine Imports Pty Ltd. shall be aware of the mode of contract under the law of CISG better and how CISG takes extreme wider measures when it comes to concluding of a contract of sale of goods between two member states herein. The establishment of smart contact

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24. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n23) art 62.
25. 8 International Arbitration Court of the Chamber of Commerce and Industry, Russian Federation (2007), Arbitral award No. 147/2005, Unilex.

was one of the agenda of UNCITRAL and thus the inclusion of article 13 happened. Thus, before agreeing or contemplating a term of a possible future agreement over an email should be written with ultimate cautious and explicitly clear terms should be conveyed to the other party to avoid any kind of conflicts regarding the existence of a contract.

And in case of electronic communication, both the parties shall discuss and clarify all the terms of a contract of sale of goods under CISG because otherwise, it leaves lots of void spaces which remain in the hands of the courts or the arbitration tribunal to decide. Under CISG, inactivity or silence does not constitute an acceptance. Thus, if the client is not sure about the commencement of the contract, remaining silent is one of the best options in case of avoiding any conflict of interests or any kind of miscommunication herein.

Again, the client should be well conversed with the rules and obligations under INCOTERMS, 2010 as well in order to invalidate a contract which shall fall under the ambit of the abovementioned case.



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26. United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988), (n25), art 13

Dig deeper into Legal Assessment of Fiduciary Duties with our selection of articles.

BIBLIOGRAPHY

Journal

Anna Duke; What Does the CISG Have to Say About Smart Contracts? A Legal Analysis (2019); V.20 Chicago Journal of International Law, 143

IICL; ‘CISG: List of Contracting States’ (2020) , < https://iicl.law.pace.edu/cisg/page/cisg-list-contracting-states > accessed on 23rd May, 2021

Smart Contract Alliance ; Smart Contracts: Is the Law Ready? (2018); CHAMBER OF DIGITAL COMMERCE

H. El-Saghir, The CISG in Islamic Countries: The Case of Egypt. In L. DiMatteo (Ed.), (2014), International Sales Law: A Global Challenge, Cambridge: Cambridge University Press. 505.

Book

John Mo; International Commercial Law, (Butterworths Australia 5th Edition 2012, p.630)

Article

Brownwyn Lincoln; The UN CISG and its implications for Australian businesses during the COVID-19 pandemic (2020); Mondaq < https://www.mondaq.com/australia/international-trade-investment/940488/the-un-cisg-and-its-implications-for-australian-businesses-during-the-covid-19-pandemic > accessed on 23rd May, 2021

International Case Laws/Judgments

Anon, CLOUT case No. 1083 (2002), Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade, Ukraine

Anon, CLOUT case No. 189 (1997) Oberster Gerichtshof, Austria.

In re World Imports, Ltd. (2017) 16-1357, 2813, U.S. Court of Appeals (3rd Cir.) USA, CISG-online

International Legislations/UN Materials/Others

‘CISG: List of Contracting States’ , ICCL (Web Page 23rd May, 2021) < https://iicl.law.pace.edu/cisg/page/cisg-list-contracting-states >

INCOTERMS 2010, ICC (Web Page 23rd May, 2021) < https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/ >

UCP (2007), ICC (2007); publication no. 600, article 14

8 International Arbitration Court of the Chamber of Commerce and Industry, Russian Federation (2007), Arbitral award No. 147/2005, Unilex.

UNCITRAL 2012 digest of case law on the Model Law on International Commercial Arbitration, United Nations Commission on International Trade Law, New York :United Nations

UNIDROIT (2010), International Institute for the Unification of Private Law

Treaty

United Nations Convention on Contracts for the International Sale of Goods, Vienna, opened for signature 11 April, 1980, UN Doc. No. A/CONF 97/19, 1489 UNTS 3 (entered into force 1st January, 1988)