1. Cross-border supply agreements

2. Table of contents The issue Legal framework Model contracts What to do? Why German law? Contracting German law Offer Delivery Defective performance Rights in case of default Statute of limitations Conclusion example WAHL CESAREC 2

3. The issue Your company is offering supplies to German companies; German companies are interested in your products; General conditions for such a supply are negotiated and agreed upon rather quickly; The German company is requesting a written contract as a basis of such supply; OR Your company wants to have a written contract. WAHL CESAREC 3

4. Legal framework Respective national laws on sale and purchase of goods including national provision on International Private Law; EU Regulation no. 593/2008 of 17/06/2008 on the law applicable to contractual obligations (so-called "Rome I" regulation); "Rome II" only applies to non-contractual obligations; United Nations Convention on contracts for the international sale of goods / Vienna Sales Convention from 1980 ("CISG"). WAHL CESAREC 4

5. Model contracts Model contracts of the International Chamber of Commerce (www.iccwbo.org);www.iccwbo.org Model contracts of Global negotiator (www.globalnegotiator.com);www.globalnegotiator.com Model contracts of the International Trade Centre (www.intracen.org);www.intracen.org INCOTERMS; etc. WAHL CESAREC 5

6. What to do? It is somehow natural to assume, that each company is to a certain extent familiar with the relevant laws for sales and purchases of its country of residence; It is also somehow natural to assume, that nobody is happy to leave its own comfort zone; It is further likely to assume, that in particular business women / men from smaller countries tend to offer and agree on international rules, e.g. CISG; BUT: German companies often do not want this, but only German law. WAHL CESAREC 6

7. What is the reason for Germans asking for German law to be applied? BGB (German civil law code) and pertaining jurisprudence is more than 100 years old; CISG is only about 30 years old; National (Slovene) legislation is also rather young – and unknown to Germans; According to German IPL (International Private Law) the laws at the place of residence of the seller shall be applied, i.e. CISG in case the seller is located in a country which is a member of CISG, like Slovenia is; Warranty rules in BGB are more favourable for purchasers than in CISG. WAHL CESAREC 7

8. Contracting German law Usually, German companies provide for a provision in their GTC that German material law shall apply; However, this is valid only, in case the counter party explicitly confirms in the contract that the GTC of the German company shall apply!; and If the application of CISG is excluded in the GTC; If this is not the case, CISG applies via German material law. WAHL CESAREC 8

9. German law vs. CISG - Offer In case the other party does not completely accept the offer: Answer is considered as new offer – NO AGREEMENT! In case of CISG only material divergence is considered as new offer. Offeror is bound by its offer once the offer is delivered; In case of CISG the other party is entitled to recall its offer until the other party has sent out the confirmation to the offer. Letter of confirmation ("LoC" - kaufmännisches Bestätigungsschreiben – common law): In case the other party does not reply to a LoC, the agreement is valid according to the LoC; In case of CISG a LoC usually has not the aforementioned legal effect – be careful, it could be understood as new offer or confirmation of an offer. WAHL CESAREC 9

10. German law vs. CISG - Delivery Place of delivery: In case no other agreement is in place (e.g. INCOTERMS), place of service provision is at the place of residence of the respective party; Only regarding place of delivery for payment CISG provides for delivery at the place of residence of the seller; Moment of delivery: In case no other agreement is in place the delivery has to take place immediatly; According to CISG delivery has to take place within suitable time period. WAHL CESAREC 10

11. German law vs. CISG – defective performance Examination and complaint: Purchaser is obliged to inspect the goods immediately and to notify the seller immediately about any defect; otherwise the goods are deemed to be accepted; Hidden defects have to be notified immediately after the purchaser took notice thereof; Under CISG defects have to be notified within suitable period of time, otherwise the right to notify defects is excluded. WAHL CESAREC 11

12. German law vs. CISG – defective performance Material defects under German law: if goods defer from the agreed quality; if goods are not suitable for the use intended under the contract; if goods are not suitable for the customary use and their quality differs from the usual quality in goods of the same kind and the purchaser may expect such quality; if the agreed assembly by the seller has been carried out improperly or if the assembly instructions are defective; or if the seller supplied different goods or a lesser amount of the goods. WAHL CESAREC 12

13. German law vs. CISG – defective performance Material defects under CISG: Goods have to comply with the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract; If the parties have not agreed otherwise, the goods do not conform with the contract unless they: are fit for the purposes for which goods of the same kind would ordinarily be used; are fit for any particular purpose made known to the seller at the time of the conclusion of the contract; possess the qualities of sample or model goods provided by the seller; are contained or packaged in the manner usual for such goods or adequate to preserve and protect the goods. WAHL CESAREC 13

14. German law vs. CISG – defective performance Crucial difference between German law and CISG is, that under CISG the goods have to comply with the qualities of sample or model goods; Under German law a material defect is to be assessed in case of doubt from the purchaser´s point of view; Under CISG the seller´s point of view is considered partly, in particular regarding an infringement of legal provisions from the country of residence of the purchaser, which the seller is not obliged to know. WAHL CESAREC 14

15. German law vs. CISG – rights in case of default Rights under German law: Purchaser is entitled to demand that the defect is remedied or goods free of defects are supplied ("cure"); Consequently, the seller is entitled to a 2nd delivery; Purchaser is entitled to withdraw from the contract in case the cure was not successful and the default is not insignificant; Purchaser is entitled to a price reduction instead of a withdrawal; Purchaser is entitled to damages if the seller is responsible for the default (i) in case of breach of the contract and (ii) instead of performance in case the cure was not successful; NO limitation of liability of the seller provided by law; NO claims can be made in case the purchaser knew the defect. WAHL CESAREC 15

16. German law vs. CISG – rights in case of default Rights under CISG: Purchaser is entitled to demand that the defect is remedied only in case this is not unreasonable; Purchaser is entitled to demand that goods free of defects are supplied in case the default is considered a fundamental breach of the contract; Consequently, the seller is not always entitled to a 2nd delivery, however, the seller may do so as long as the contract is not terminated; in such case the purchaser may in parallel ask for damages; Purchaser is entitled to withdraw from the contract in case of a fundamental breach of the contract; Purchaser is entitled to a price reduction in case the seller does not remedy the defect or in case the purchaser refuses to accept such remedy; Purchaser is entitled to damages in case of breach of contract (culpability not required!); Limitation of liability to foreseable damages at time of entering into the contract; NO claims can be made in case the purchaser knew the material defect (slightly different with legal defects). WAHL CESAREC 16

17. German law vs. CISG – statute of limitations German law: in general 2 years regarding rights in case of default; 2 yeares period could start again in case of cure; Up to 5 years after delivery to the purchaser in case the purchaser has sold the goods to consumers! CISG: preclusion of rights after 2 years as of delivery. WAHL CESAREC 17

18. German law vs. CISG – conclusion German law is in certain aspects more favorable for purchasers; CISG is in certain aspects more favorable for sellers; Preferred option should be assessed for each contract. WAHL CESAREC 18

19. Example German company as purchaser is entering into a framework contract for delivery of certain special screws with a Slovenian company as supplier. It is agreed that at least 10 mln. screws shall be supplied during a time period of 20 months. Within this time period the purchaser shall order each separate delivery according to its needs and the seller shall be prepared to deliver approx. 500,000 screws per month. The purchaser is not ordering approx. 500,000 screws per month and at the end of the agreed time period only 6 mln. screws were ordered and delivered. In the contract, the seller in particular confirmed with seperate signature that the GTC of the purchaser apply. In the GTC it is stated inter alia, that German material law shall apply to the contractual relationship and that CISG is excluded. What to do now? WAHL CESAREC 19

20. Thank you!

21. Contact details Law office Wahl Cesarec Miramarska 24 / VI HR - 10000 Zagreb Tel.: +385 (0) 1 5629 767 Fax: +385 (0) 1 5629 768 E-Mail: m.wahl@wcs.hr WAHL CESAREC 21