Counterproposals – when overseas deals become complicated

I recently wrote about the elements of law and practice of international trade which together bring about a binding deal. In clear terms, the elements of a valid offer, and those of a valid acceptance according to CISG (the UN Convention on the International Sales of Goods, our legal reference for the subject). See previous articles.

In short, the offer must be specific in respect to the addressee and the goods it refers to. It does not require immediate attention to quantity and price, but a reference for their determination. The valid acceptance takes place with clear assent of the terms of the offer, within its deadline.

But what if the addressee does not agree in full to the content of the received offer? What to do in practical terms, what consequences to draw from any such response, and on top of this, any hint on rules of international trade that apply?

Based upon valid CISG terms, the addressee’s suggestion of deviation from what has been proposed, if in respect to: pricing, payment terms, quality, quantity, place/time for delivery, liability, or dispute resolution will be deemed as a counterproposal, and consequently will cause the formal rejection of the prior offer, even if done unwillingly.

Such elements are indeed classified as material by CISG, and their modification is forcibly interpreted as a new proposal. Then, the only remedy for such rejection is to rely on the offeror’s unequivocal acceptance of the counterproposal, otherwise the deal is broken.

As a way of exception, the addressee’s reply on terms that may deviate from or add to the prior offer without however touching the material elements above, (a) is effectively deemed as an acceptance to the offer, if the offeror does not so object to them in due time (see here a lighter standard), and (b) the terms of the prior offer will be deemed complemented by the addressee’s new terms, forming a contract.

My take: often a negligent response to an offer will cause unexpected results. A reply to an offer must be purposedly crafted to avoid them. The addressee must review each point of the offer and check his willingness to accept them as proposed, or take the risk to repropose them (a) on grounds that may add or change non-material points to the offer, causing its full acceptance but including the new terms, or (b) on grounds that may add or change material points to the offer, causing its rejection and replacement by the addressee’s counterproposal, with all consequences it may entail.

Establishing binding commitments in overseas transactions

In my practice as a lawyer in international trade, few matters are more underrated than knowing when an overseas binding commitment is effectively concluded. How is it formed and when is it enforceable?

Setting up the stage, a valid and effective binding commitment is an obligation: a transaction that entered the “legal realm”, which means it exists, is confirmed by the rules of the system and produces legal effects. It is non-discretionary, as it may be enforced by the same system without a party’s objection, and its breach without fix leads to payable damages.

As paradoxical as it seems, most entrepreneurs do not know with clarity the elements that trigger the binding commitment to supply and to purchase at international level, lest the implications of turning back from an already accepted proposal.

This risk is often reflected in the rather chaotic process of transmission and acceptance of an offer. A key element for those involved in trade, understanding the rationale of a binding offer saves resources, reputation, and credibility, true currencies of international business.

In my experience, the best approach is to first understand when we have a valid offer, and second, when we have its valid acceptance.

We will use the CISG as key legal reference for this analysis (the UN Convention for the International Sales of Goods – please check my last article clarifying the broad application of CISG in international trade).

An offer, to be valid and effective, (a) must have been addressed to a specific person or persons, (b) must indicate the goods it refers to, (b) must, at least and implicitly, make a provision for determining the goods’ quantity and price – for example by referencing trade usages or authoritative third parties such as a commodity exchange, and (d) must have reached the counterparty. It does not require quality information neither will it require specific forms or signatures, save for rare exceptions.

A valid and effective acceptance of an offer consists of (a) the counterparty’s statement indicating assent to the offer – this may include performing an act towards the offer, such as paying the price (buyer’s assent), or signalling start of goods’ production (seller’s assent) and (b) that such assent is provided within the deadline proposed, when applicable. A counterparty’s silence is not deemed as an acceptance. 

Note that a party can revoke an offer pending the counterparty’s acceptance if the offer does not provide a fixed time for the counterparty to accept it.

The formation and conclusion of the international sale is a rich subject that also leads to controversial aspects and additional points of attention, including that of who in the company has the mandate to close deals, and additional risks associated with counterproposals and partial acceptance. More to come in the next article.

My take for today: international trade law leans towards a practical approach to proposals and tends to favour commercial usage and the conclusion of the potential deal. Subtle and non-formal communication prevails over form and procedure. Extra care is therefore required from entrepreneurs in overseas commercial mail exchange – these may quickly become binding commitments should key elements of goods, price and quantities be present in the communication.