Art. 67: Contract Interpretation and the Role of ‘Trade Usage’ in a Common European Sales Law

Abstract

Article 67 of the initial proposal for a Common European Sales Law (CESL) stipulates that usage and practices are binding on traders. It follows that, if such customs can be referred to in the interpretation of contracts, they create flexibility in the understanding of contractual agreements and therefore introduce a factor of uncertainty in commercial dealings. One may wonder whether a flexible rule like this is appropriate for the context in which the CESL, according to this initial proposal, is meant to operate – B2B contracts in which at least one of the parties is a small or medium-sized enterprise (SME). A particular concern for the European market, in which many businesses are SMEs, is that local usage is likely to be unknown or even unknowable to one or both of the parties. If a similar rule were to be included in the digital single market package its appeal as an alternative contract regime therefore may be diminished. This chapter addresses the question whether the CESL’s reference to trade usage in contract interpretation is indeed a weakness. A comparison is made with US literature in which two theories – the plain meaning rule and the incorporation theory – support different views on the role of usage in trade contracts. Applied to two existing uniform regimes for commercial contracts, the Uniform Commercial Code (UCC) and the Vienna Convention on Contracts for the International Sale of Goods (CISG), these theories reveal the strengths and shortcomings of the application of usage in specific market contexts. Distilling a number of parameters from earlier studies on these instruments, a comparison is made to test whether the CESL can safely make use of trade usage as a means of contract interpretation. It will be argued that the particular context in which the CESL operates – ie cross-border contracts involving SMEs – implies that the role of usage should be clarified in order to guarantee legal certainty. Such clarification can either mean that usage is only referred to in a very limited sense (eg only international usage widely observed in the particular area of trade in which the parties operate and which could be known to both parties to the contract), or that other means are created by which parties can become aware of trade usage in a particular market or area (eg databases of guidelines or trade practices).