International buyers, beware!

Or rather, be aware that the course of dealing between the parties trumps customary usage in the interpretation of contracts under the United Nations Convention on Contracts for the International Sale of Goods, according to the 11th Circuit in Treibacher Industrie, A.G. v. Allegheny Technologies, Inc. et al, No. 05-13005 (Sept. 12, 2006).

Of course, this decision makes sense in the context of the facts of the case: the parties had been contracting with each other over the course of seven years for the purchase of a fixed amount of materials on a “consignment” basis, which the parties understood to mean that the buyer was obligated to buy the entire amount of materials, but would only pay for them as they were used. In fact, at one point in their course of dealing, the buyer asked it if could return some of the unused materials, and the seller informed the buyer it could not, as it was obligated to purchase the entire amount, and the buyer acquiesced and purchased the contracted-for amount.

Then, after seven years of contracting on this basis, the buyer had an epiphany. The “consignment” term in the contract did not mean it was obligated to buy the total amount contracted for; the customary usage of the term “consignment” was that the buyer would only be obligated to pay for as much as it needed, and this customary usage trumped any implicit usage established by the parties’ course of dealing, whatever that might have been. (Query why it would make sense to contract for a fixed amount of materials, if there were no obligation to buy that amount....)  No doubt this epiphany was inspired by the existence of a seller who was willing to sell – and in fact did sell – the materials to the buyer at a lower price. Considering the damages, after mitigation, were over $5 million, it was apparently worth a shot.

Although the course of dealing strongly suggests that the buyer was simply being opportunistic in its interpretation of the contract, the 11th Circuit first addressed the contract interpretation issue under the CISG, which is in essence an international UCC, rather than reviewing the course of dealing first. The details of the analysis are in the opinion; what is interesting about the case is that there apparently is no caselaw on this issue, or at least, none was cited by the Court. The opinion is a pure statutory interpretation, apparently in a case of first impression, based on the text of the Convention and the relationship between three different sections of it. Nor is the interpretation chosen by the Court facially obvious – it makes sense after walking through the analysis, but it seems odd that there are not other cases interpreting this portion of the CISG. Perhaps the 11th Circuit decided to correct a dearth of published caselaw on the issue with this case?