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ICL-TUT-1 - Tutorial notes week 1

International Commercial Law (Maastricht University)

Studeersnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit


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CASE 1

You are junior members in Ferrero’s legal department in Italy and you have been tasked with
clarifying issues relating to the law governing diverse contracts concluded between various
Ferrero entities, its suppliers and customers. You have been asked to create an overview for
non-lawyers in the Ferrero Group who are involved in concluding contracts (e.g. sales and
purchasing officers) concerning issues relating to applicable law, and in particular the impact
of the CISG on the various contracts concluded. Before writing your overview, you review
diverse contracts and you encounter numerous contracts that do not include a choice of law
clause, for instance:
A) The factory in Belsk sources sugar from India and the factory in Vladimir sources
sugar from Brazil
1. India (CISG: X)  Poland (CISG: V) (place most closely connected to the
contract)
2. Art. 1 (1) (a)? X
3.  PIL: Rome I, Art. 4 = S = India  Indian law
 and the factory in Vladimir sources sugar from Brazil
1. S: Brazil (V)  B: Russia (V)
2. Art. 1 (1) (a)? V  CISG
B) The factory in Pocos de Caldas sources cocoa from Ecuador as well as from Nigeria
1. S: Ecuador (V)  B: Brazil (V)
2. Art. 1 (1) (a)? V  CISG
 as well as from Nigeria
1. Nigeria (X)  Brazil (V)
2. Art. 1 (1) (a)? X
3. Rome I, Art. 4  Nigerian law
C) The factory in Lithgow sources palm oil from Papua New Guinea as well as from
Malaysia
1. Papa New Guinea (X)  Australia (V)
2. Art. 1 (1) (a)? X
3. Rome I, Art. 4  law of Papa new Guina
 as well as from Malaysia
1. Malaysia (X) Australia (V)
2. Art. 1 (1) (a)? X
3. Rome I, Art. 4  Malaysian law
D) The sales office in Tokyo sells Nutella to a distributor located in Malaysia
1. S: Japan (V)  B: Malaysia (X)
2. Art. 1 (1) (a)? X
3. Rome I, Art. 4 + Art. 1 (1) (b)  Japanese law, CISG
E) The sales office in Johannesburg sells tic tacs to a chain of supermarkets in Namibia.
1. Nigeria (X)  Brazil (V)
2. Art. 1 (1) (a)? X
3. Rome I, Art. 4  Seller’s habitual residence = Nigerian law
You also encounter a contract between Ferrero (Italy) and the cocoa supplier from Ghana
that stipulates: ‘This contract is governed by the national law of Italy’.
1) S: Ghana (X)  B: Italy (V)

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2) Art. 1 (1) (a)? X
3) Rome I, Art. 4  Italy (CISG)
There is also a contract between the factory in Canada and its palm oil supplier located in
Malaysia that stipulates that the contract of sale that the contract is governed by Californian
law (Ferrero North America’s main sales office is located in Glendale, California) and that the
courts in California have jurisdiction over any disputes.
1. S: Malaysia (X)  B: Canada (V)
2. Choice of law: Californian law
3. Choice of Jurisdiction: Californian courts
4. US = CISG  Reference Art. 95
 Case law: Asante Technologies v PMC Sierra
Canada  US
Canada: CoL = British Columbia (Canada) = CISG
US: CoL = Californian court = CISG
No opt-ourt Art. 6
 CISG applies.
In light of your findings on applicable law, you are asked to provide concise and coherent
guidance for non-lawyers in the Ferrero Group on issues relating to applicable law. Your
guidance should include a flowchart for determining the law that governs contracts for the
international sale of goods and guidance on when the CISG applies, as well as how to
contract out of the CISG, including a model opt out clause.

1- What is the applicable law?


Choice of law clause? Use it
If not: default contract rules PIL, Rome I, national law
2- Does the CISG apply?
Is this an international sale? Art. 1 (1)  needs to have their place of
business in two different States = conventions
applies “automatically”
Is this about the sale of goods? Art. 2  excludes all consumer contracts (and
some others)

In order to opt out of the CISG (United Nations Convention on Contracts for the International
Sale of Goods), the parties to a contract must expressly agree to exclude the application of
the CISG in their contract. This is usually done by including a clear and unambiguous
provision in the contract that states that the CISG will not apply to their transaction.
It is important to note that the CISG provides certain default rules that will apply to the
contract if the parties do not expressly exclude its application. Therefore, if the parties wish
to exclude the CISG, they must do so explicitly and in writing.
Model opt-out clause:
“This contract shall not be governed by the United Nations Convention on Contracts for the
International Sale of Goods (CISG). The parties agree that the CISG is hereby excluded in its
entirety from this transaction. Any dispute arising out of or in connection with this contract
shall be resolved in accordance with the laws of [insert applicable jurisdiction], excluding the
provisions of the CISG.”

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CASE 2

The Ferrero factory in Stadtallendorf, Germany, requires wrapping plastic for the Kinder
Bueno confectionary line. It contacts Smith & Hughes Ltd, a manufacturer of packaging and
wrapping materials located in the United Kingdom. After making a few inquiries and
receiving the catalogue with details and prices, Ferrero’s plant manager phones with the
sales manager from Smith & Hughes to discuss specifics. After some final discussions about
requirements, the Smith & Hughes sales manager informs Ferrero’s plant manager that he
will mail him a special offer later that afternoon. Ferrero’s plant manager receives an offer
from Smith & Hughes which meets all his requirements and is also attractively priced, he
consequently sends a reply email with an order confirmation.
The packaging materials are delivered to Ferrero on the agreed upon date. Upon arrival,
Ferrero accepts delivery and arranges for the payment of the purchase price. The wrapping
plastic is stored in Ferrero’s warehouse and is not used for production until two weeks after
delivery. The plant manager soon receives a call from his foreman complaining about the
poor quality of the wrapping plastic which rips easily. A week later, Ferrero gives Smith &
Hughes notice of non-conformity by telephone and holds Smith & Hughes liable. Smith &
Hughes claims that this notice of non-conformity is not in accordance with Clause 2 of its
standard form, which provides:
… written notice of any claim under this contract must be given to the Seller within 5
days after delivery or after opening of the packaging when
products are intended to be stored in original wrapper after receipt, …
Ferrero claims that there must be some mistake since the relevant rules are to be found in
the standard terms on the reverse of its purchase order, in particular, clause 5, which
provides:
… Buyer shall have the right to inspect and test the goods within a reasonable time after
arrival and to notify the Seller of any lack of conformity
within a reasonable time after discovery thereof…
Smith & Hughes offer made reference to its standard terms and conditions which were
included as an attachment to the email. They provide that the contract is governed by English
law. Ferrero’s order confirmation form included Ferrero’s standard terms and
conditions. They provide that the contract is governed by German law.

1. S: Smith & Hughes Ltd (UK) X  B: Ferrero (Germany) V


2. Art. 1 (1) (a)? X – Germany reservation Art. 95 (Art. 1 (1) (b) will not be applicable)
3. No valid Choice of Law  UK law so therefore last shot and therefore standard terms
of Ferrero (Germany) excluding choice of law
Battle of norms: both the seller and the buyer have standard terms containing a choice of
law clause (UK and respectively German law)

Main rule  Article 19(mirror-image rule) – the main rule is that an acceptance, to
be effective, must correspond to the offer which it purports to accept.
 This article deals with the differences that may arise between the offer
and the acceptance. It reflects the “LAST-SHOT” doctrine.

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Basic principle:  Article 19– As a rule any deviation from the contents of the offer
complete constitutes a new and counter-offer.
correspondence
between offer  This counter-offer requires itself acceptance which can and often will
and acceptance occur in that the other party merely starts performance (dispatch of
the goods or payment of the price) = acceptance by conduct (article
18(1)).

 But in the absence of any express or implied acceptance no contract is


concluded. Mere silence or inactivity is not sufficient to bring a contract
about (article 18(1) sent. 2).

Exception for  Article 19(2)– ONE exception from the strict doctrine that an
immaterial acceptance must fully correspond to the offer is allowed by the CISG:
deviation from
offer o If the deviation does not materially alter the terms of the offer may
constitute an acceptance.

Borderline  The core issue under article 19then is to draw the borderline between
between material and immaterial deviations from the original offer.
material and
immaterial  Article 19(3) – it gives some exemplary advice (non-exhaustive list). In
deviations fact, it declares in fact almost any kind of deviation as material:

o Not only modifications of the essentials of the bargain (price, payment,


quality and quantity of the goods, place and time of delivery) are material;

o But also changes concerning the liability of the parties or the settlement of
disputes

Discretion as to  The general guideline whether a deviation is immaterial should be


the whether a reasonable person in the shoes of the offeror would regard it
qualification as as so minor that with respect to the principles of good faith and fair
material or dealing it would accept it.
immaterial
 *Ex: a deviation in favor of the offeror (e.g. transport of goods to the
offeror without extra cost) is immaterial in the sense of article 19(3).

Solutions to the conflict of norms

Last-short  In essence, it treats each subsequent form as a counter-offer rejecting the


doctrine previous offer.

 Article 19 (when applied to cases of conflicting standard terms) = firstly


mean that the divergences between the standard terms of the parties are
regularly MATERIAL under article 19(3)material divergences between the
respective standard terms are the rule.

 That would secondly mean that as long as the parties continue to

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exchange their standard terms no contract is concluded even if one party


starts performance.

 Under article 19, a contract is only concluded if one party gives in and does
something which expresses consent without no longer sending or
otherwise relying on the own standard terms. Then the form fired last
constitutes the basis of the contract; the last shot of forms decides the
battle.

 According to the Last Shot Doctrine, a contract is formed at the moment


one party begins to perform because performance is considered an
acceptance of the last offer. The terms of the contract are the terms of the
last submitted offer.

 The last party who submits an offer, or in other words, forwards a letter
containing standard terms, fires the Last Shot, and wins the battle of
forms. Only the terms of the party who last referred to his standard
provisions become part of the contract. The terms of the other party are
rejected and not part of the contract.

 The Last Shot Doctrine does not strictly distinguish between the issue of
contract formation and the issue of the terms of the contract. Both issues
are simultaneously determined by the performance of one party. The
performance is deemed an acceptance of the last submitted offer and
results in the conclusion of the contract on the terms of that offer. The Last
Shot Doctrine is followed by many commentators, but it is not without
critics.

Knock-out  It accepts the agreement of the parties, leaves the non-conflicting standard
doctrine terms of both sides as part of the contract intact and substitutes the
conflicting terms by the respective provisions of the CISG or the otherwise
domestic applicable law.

 In other words:

o To remove the conflicting terms


o To fill in the gaps with CISG or domestic default rules (= contract law role)
o The main role of contract law is to fill the gaps that the parties did not provide
for themselves (default rules) o It is based on (to try to figure out the real intention
of the parties).
o Fortunately, does not preclude a solution based on the knock out approach.

 The Knock Out Rule gives much credit to the party's autonomy. If the
parties perform, it is assumed that both parties acted on the assumption of
a valid contract. The terms of the contract are those with which the parties
substantially agree. The conflicting terms cancel each other out and are
replaced by the provisions of the Convention. Literally, conflicting terms
knock each other out.

 Performance is considered as an implied agreement between the parties


to conclude a contract without regard to offer and acceptance in

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abrogation of article 19 CISG, pursuant to article 6 CISG. The parties


indicate by their conduct that they both want a contract concluded despite
the fact that there is no agreement about all the terms of the contract, as
CISG requires. A mutual agreement to deviate from the provisions of
articles 14-24 CISG_is permitted by and is also possible by implication from
conduct. Such implied derogation is possible according to, which provides
that conduct of a party is to be interpreted by his subjective intent as far as
the other party knew or had reason to know about this intent. If the
subjective intent of a party is not identifiable, article 8(2) CISG provides a
more objective analysis, and states that, "statements and other conduct of
a party are to be interpreted according to the understanding that a
reasonable person of the same kind as the other party would have had in
the same circumstances."

 The Knock Out Rule overrides the Mirror Image Rule reflected in articles
19(1) CISG_and its exception provided for in article 19(2), and assumes a
contract conclusion despite conflicting material terms, but replaces them
with the statutory provisions of the CISG.

Case law Both parties had agreed to the contract on the basis of their standard contract
(Knock-out terms which differed on the
rule):
Powered regulation of liability for damage. After delivery and payment, the buyer gave
milk case notice of defects of the powder. The seller conceded the defect but invoked its
general conditions which restricted the amount of damages insofar differing from
the buyer's general conditions. The Court held that neither the seller's nor the
buyer's standard terms applied. Both the knock out rule and the last shot rule
would result in that consequence: the knock out rule would exclude the conflicting
terms; under the last shot rule the principle of good faith (Article 7) would yield
the same result because the seller could not expect that the buyer would accept
the seller's conditions to which it had objected via its own conditions. Anyhow, the
effect of the decision is the result regularly achieved by the knock out rule.

o In this phase of the contract the question is no longer whether there was a
contract but only what was its content. As stated above it is much more convincing
then to exclude the conflicting terms altogether than to accept those which were
brought in last.

(1) Do we have a contract at all?


Questions (2) Which terms and conditions apply?
to be asked Last shot:
 This doctrine makes a double assumption: that the contract is valid and that the
terms and conditions are the ones of the last party who sends them.
Knock out:
 This doctrine does not consider whether the contract is valid or not. It assumed
that the contract is always in place. Regarding the terms and conditions, only the
conflicting ones are taken out and replaced by either the CISG or any other
applicable law.

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CASE 3

The Ferrero factory located in Canada has entered into a contract to purchase palm oil from
Agropalma SA, a supplier located in Brazil. The contract provides that it is governed by
AgroPalma’s standard terms of sale. The standard terms of sale were not attached to the
contract presented to Ferrero for signature.
During the negotiations, AgroPalma sent a draft of the sales contract and the cover letter
accompanying the draft contract included a hyperlink to the standard terms of sale on their
website. Ferrero’s contracts manager tried to access the standard terms on a number of
occasions by clicking on the hyperlink, but he kept on receiving an error message. After
contacting the supplier on this matter, he was sent a new link to the standard terms, but
these were only available in Portuguese. Before Ferrero’s contracts manager is able to
request an English translation, the purchasing officer signs the contract. The contracts
manager subsequently runs the standard terms through Google Translate and discovers that
the seller has limited its liability to the total price paid by the buyer to the seller and has
excluded all liability for consequential or incidental damages of any kind. If the contract
manager would have been aware of this term in time, it would have advised against signing
the contract.

- Offer & Acceptance according to Art. 14 & 18 CISG


- Easily accessible & provided in a language that is understandable for the other
party  Art. 8 (1) + (2) CISG.
- Advisory Opinion something??
- Reasonable option to have seen them: (according to Advisory Opinion??) they
must be available (reference is enough).
- Language: language of contract or negotiations (because of reasonable
standard according to Art. 8 CISG).

STUDY QUESTIONS

1) What is the CISG? What was the rationale for creating an international convention
to deal with the international sale of goods?

The CISG (United Nations Convention on Contracts for the International Sale of Goods) is a
treaty that establishes a uniform and widely accepted legal framework for international sales
of goods. It was adopted in 1980 by the United Nations Commission on International Trade
Law (UNCITRAL) and entered into force in 1988. As of 2021, it has been adopted by 94
countries, including major trading nations such as China, Germany, and the United States.

The rationale for creating the CISG was to address the legal uncertainties and inconsistencies
that arose from the differences in domestic laws and practices governing international sales
of goods. Prior to the CISG, parties involved in cross-border transactions had to navigate
different legal systems, languages, and business practices, which often led to
misunderstandings and disputes.

By creating a uniform set of rules for the international sale of goods, the CISG seeks to
promote the growth of international trade and facilitate the movement of goods across
borders. The CISG's provisions cover a wide range of issues, including the formation of

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contracts, the obligations of the seller and the buyer, the remedies available for breach of
contract, and the limitations on liability.

Overall, the CISG aims to provide a more predictable and efficient legal framework for
international sales of goods, and to promote harmonization and cooperation in international
trade.

2) When is the CISG applicable? If it is not, what law governs the contract?

Art. 1 CISG

3 conditions:
1- contract for the sale of goods
2- internationality
3- between contracting states

3) Would you advise opting out of the CISG? Give reasons why (not)?
4) How is the formation of the contract regulated in the CISG?

Article 14 of the CISG sets out the basic principles for the formation of a contract, which
requires an offer and an acceptance. According to Article 14, a proposal for concluding a
contract, or an offer, is sufficiently definite if it indicates the goods, their quantity, and the
price. The offer must also indicate the terms of payment, delivery, and any other important
conditions.

Article 18 of the CISG deals with acceptance of an offer. An acceptance must indicate the
assent of the offeree to the terms of the offer, and must be communicated to the offeror
within a reasonable time. An acceptance is effective when it reaches the offeror. If the
acceptance is not made in the same terms as the offer, it constitutes a counter-offer, and the
original offer is terminated.

The CISG also recognizes the use of standard terms and conditions in international sales
contracts. Article 19 of the CISG provides that, if the parties have not agreed on the terms of
the contract, but have conducted themselves in a way that shows that they have reached an
agreement, then the terms of the contract are those which are commonly used in similar
transactions in the trade concerned, or if there is no such common usage, the terms that are
reasonable in the circumstances.

5) What are the requirements for a binding offer and acceptance?

1. Offer: An offer must be made with an intent to be bound, and it must be sufficiently
definite, meaning that it must clearly indicate the subject matter, quantity, quality,
price, and terms of delivery and payment. The offer can be made in writing, orally, or
by conduct.
2. Acceptance: The acceptance must be a clear indication of assent to the terms of the
offer, and it must be communicated to the offeror. The acceptance can be made in
any manner, as long as it indicates the offeree's willingness to be bound by the terms
of the offer.

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3. Time of acceptance: An acceptance must be made within a reasonable time, which
will depend on the circumstances of the transaction. If the offer specifies a time limit
for acceptance, the acceptance must be made within that time limit.
4. Mirror image rule: The acceptance must be a mirror image of the offer, meaning that
it must accept all the terms of the offer without modification. If the acceptance
contains additional or different terms, it is not a valid acceptance, but rather a
counter-offer.
5. Mode of acceptance: The CISG does not require any specific form of acceptance, but
it must be communicated to the offeror in a manner that is appropriate to the
circumstances of the transaction.

6) Does the CISG adopt the dispatch or receipt doctrine for the formation of the
contract?

The CISG adopts the dispatch or "mailbox" rule for the formation of the contract, meaning
that a communication such as an acceptance is considered effective when it is dispatched or
sent by the offeree, regardless of whether or not it is received by the offeror.

This is stated in Article 18(2) of the CISG, which provides that "an acceptance of an offer
becomes effective at the moment the indication of assent reaches the offeror." However,
there is an exception to this rule, which is set out in Article 18(3) of the CISG.

Article 18(3) provides that an acceptance is not effective if it is received by the offeror after
the offer has lapsed or if it reaches the offeror after a counter-offer has been made. In these
cases, the acceptance is considered to be a new offer.

7) What is a battle of forms?

The battle of the forms refers to the resulting legal dispute of these circumstances, wherein
both parties recognize that an enforceable contract exists, however they are divided as to
whose terms govern that contract. In most cases the buyer sends his offer with his terms and
conditions, then the seller sells a counter-offer (acceptance) along with his own terms and
conditions.

The 'ping-pong' of mutually sending again and again the own standard conditions often with
the declaration that any contract, is exclusively governed by these conditions and that no
other conditions are accepted is still commercial practice and particularly in international
sales transactions.

8) What problems can arise in the case there is a battle of forms?


9) Explain the last shot and knock out approaches to the battle of forms.
10) How does the CISG regulate the battle of forms, i.e. what approach does the CISG
adopt for the battle of forms?

The CISG provides rules to address the battle of forms under Article 19. Article 19 provides
that when the parties have not reached an agreement on the terms of the contract, but their
conduct shows that they intended to conclude a contract, the terms of the contract are
determined by the offer and the acceptance, and if there is no agreement on those terms,
the contract is governed by the provisions of the CISG.

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However, Article 19 also provides that if the parties have exchanged standard terms and
conditions and there is a conflict between them, the conflicting terms do not form part of
the contract, unless:
1. The offer expressly accepts the additional or different terms;
2. The offer does not object to the additional or different terms within a reasonable
time; or
3. The offer has already acted in reliance on the additional or different terms.

In other words, the CISG adopts a knock-out approach to the battle of forms. Under this
approach, conflicting terms cancel each other out, and the contract is governed by the
remaining terms of the offer and acceptance, supplemented by the provisions of the CISG.

11) How does the CISG establish whether parties have agreed to the incorporation of
standard terms or general conditions into a contract?

Under the CISG, parties may agree to incorporate standard terms or general conditions into
their contract. The CISG recognizes that parties may have different practices and uses in
international trade, and that it is common for parties to rely on standard terms and
conditions to facilitate their transactions.

The CISG establishes whether parties have agreed to incorporate standard terms or general
conditions into a contract by applying the principle of offer and acceptance. This means that
the offeror must make a clear and definite offer that includes the incorporation of standard
terms or general conditions, and the offeree must clearly indicate acceptance of those terms.

If the offeror includes the standard terms or general conditions in the offer, and the offeree
accepts the offer without objection, then the terms are incorporated into the contract. This
can be demonstrated by the offeree's conduct, such as performing the obligations under the
contract.

However, if the offeree objects to the standard terms or general conditions, the contract is
not concluded on those terms, unless the offeror agrees to them explicitly or through
conduct. If the offeree accepts the offer, but adds additional or different terms, then the
contract is formed with those terms if the offeror accepts them explicitly or through conduct.

12) What constitutes “having reasonable opportunity to take notice of the standard
terms”?

The question of what constitutes "having reasonable opportunity to take notice of the
standard terms" is a matter of interpretation under the CISG. The CISG does not provide
specific guidelines on what constitutes reasonable notice, but it generally requires that the
party seeking to rely on the standard terms take reasonable steps to bring the terms to the
attention of the other party.

What constitutes reasonable notice will depend on the circumstances of each case, such as
the nature and complexity of the standard terms, the method of communication used, and
the practices of the parties involved.

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For example, if the standard terms are included in a printed document that is attached to the
offer, it is generally considered that the other party has had a reasonable opportunity to take
notice of the terms, as they are physically present and can be read. On the other hand, if the
standard terms are buried in the small print of a lengthy document, the other party may not
have had a reasonable opportunity to take notice of the terms.

In summary, what constitutes "having reasonable opportunity to take notice of the standard
terms" according to the CISG is a matter of interpretation, and will depend on the specific
circumstances of each case. The party seeking to rely on the standard terms must take
reasonable steps to bring the terms to the attention of the other party, and the other party
must have had a reasonable opportunity to take notice of the terms.

13) When is a reference to the inclusion of standard terms considered to be sufficiently


clear in accordance with the CISG?

Under the CISG, parties may incorporate standard terms or general conditions into their
contract by referring to them in the offer or acceptance. For such reference to be effective,
the reference must be sufficiently clear and specific.

Whether a reference to the inclusion of standard terms is sufficiently clear will depend on
the specific circumstances of each case, and is a matter of interpretation under the CISG.
However, the CISG provides some guidance on when a reference is considered to be
sufficiently clear.

According to Article 14 of the CISG, an offer is sufficiently definite if it indicates the goods
and expressly or implicitly fixes or makes provision for determining the quantity and the
price. A reference to standard terms can be considered to be sufficiently clear if it meets
these requirements.

Furthermore, the CISG requires that the reference to the standard terms be specific enough
to enable the other party to know or have the means to know the content of the terms. This
means that the reference should be clear and unambiguous, and should identify the
standard terms with sufficient precision.

For example, a reference to "our standard terms and conditions of sale" may be sufficiently
clear if the terms have been previously provided or are commonly known in the trade.
However, a reference to "our usual terms and conditions" may not be sufficiently clear, as it
is too vague and does not provide the other party with a means to know the content of the
terms.

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