The Draft Uncitral Digest And Beyond: Cases, Analysis And Unresolved Issues in the U.n. Sales Convention

The Draft UNCITRAL Digest and Beyond

The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention Papers of the Pittsburgh Conference Organized by the Center for International Legal Education (CILE) edited by

Franco Ferrari, Harry Flechtner, Ronald A. Brand

Sellier. European Law Publishers

ISBN 0-421-875-40-2 (Hard cover edition by Sweet & Maxwell) ISBN 3-935808-14-3 (Soft cover edition by Sellier. European Law Publishers)

Die Deutsche Bibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detailierte bibliografische Daten sind im Internet
ber http://dnb.ddb.de abrufbar. #

2004 by Sellier. European Law Publishers GmbH, M
nchen / Sweet & Maxwell, London

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tzt. Jede Verwertung außerhalb der engen Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulssig und strafbar. Das gilt insbesondere f
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Table of Contents

Preface Digest of case law on the UN Sales Convention: The combined wisdom of judges and arbitrators promoting uniform interpretation of the Convention Jernej Sekolec

1

Articles 1-13, 78 The CISG’s sphere of application: Articles 1-3 and 10 Franco Ferrari

21

Scope of application: Articles 4-5 Franco Ferrari

96

CISG rules on exclusion and derogation: Article 6 Franco Ferrari

114

Interpretation of the Convention and gap-filling: Article 7 Franco Ferrari

138

Interpretation of statements: Article 8 Franco Ferrari

172

Trade usage and practices established between the parties: Article 9 Franco Ferrari

191

Writing requirements: Article 11-13 Franco Ferrari

206

CISG foreign case law: how much regard should we have? Joseph Lookofsky

216

A commentary on Articles 1-13 and 78 Michael Bridge

235

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Table of Contents

Articles 14-24, 66-77 Comments on the draft Digest relating to Articles 14-24 and 66-70 Pilar Perales Viscasillas

259

Observations on passing of risk Johan Erauw

292

Articles 25-34, 45-52 Beyond the Digest: Part III (Articles 25-34, 45-52) Ulrich Magnus

319

General provisions, obligations of the seller, and remedies for breach of contract by the seller Henry Gabriel

336

Cases, analyses and unresolved issues in Articles 25-34, 45-52 Alejandro M. Garro

362

Articles 35-44, 79-88 Buyer’s obligation to give notice of lack of conformity (Articles 38, 39, 40 and 44) Harry M. Flechtner

377

Article 79 and a transactions test analysis of the CISG Ronald A. Brand

392

Revisiting the north-south debate in light of the draft Digest: Articles 38, 39 and 44 Mark S. Walter

408

Articles 53-65 Beyond the Digest: Articles 53-65 Claude Witz

424

Buyer obligations under the CISG John E. Murray, Jr.

440

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Table of Contents

Obligations of the buyer and remedies for the buyer’s breach of contract (Articles 53-65) Filip De Ly

468

Articles 53-65 Petar Sˇarcˇevic´

482

Conclusion Concluding comments: Historic progress, opportunities, and the work ahead Harold Burman

496

The Draft UNCITRAL Digest on the United Nations Convention on Contracts for the International Sale of Goods (1980) Articles 1-13 Franco Ferrari

501

Articles 14-24 Peter Winship

580

Articles 25-34 Ulrich Magnus

600

Articles 35-44 Harry Flechtner

627

Articles 45-52 Ulrich Magnus

696

Articles 53-65 Claude Witz

725

Articles 66-77 Peter Winship

753

Article 78 Franco Ferrari

810

Articles 79-88 Harry Flechtner

818

VII

Preface and Acknowledgements The United Nations Commission on International Trade Law (UNCITRAL) was created in 1966 by the U. N. General Assembly to further the harmonization of transnational commercial law. One of UNCITRAL's most successful products is the United Nations Convention on Contracts for the International Sale of Goods (CISG), a multilateral commercial treaty that has now been adopted by more than 60 nations, which account for more than two-thirds of world trade in goods. With the appearance of numerous court decisions and arbitral awards (now numbering more than 1100) applying the CISG, the UNCITRAL Secretariat charged five CISG experts (Professors Franco Ferrari, Harry M. Flechtner, Ulrich Magnus, Peter Winship, and Claude Witz) from a variety of regions with the task of creating a digest of CISG case law. The appearance of UNCITRAL's CISG Case Digest is expected to revolutionize the understanding and practice of international sales law. This book contains both a draft version of the UNCITRAL Case Digest as it was given to the UNCITRAL Secretariat, as well as commentary that is the result of a conference held at the University of Pittsburgh School of Law and sponsored by its Center for International Legal Education on February 7, 2003. The conference presentations, and the chapters of this book, have allowed the Digest authors and other distinguished CISG scholars to address the results of UNCITRAL's Digest initiative. While the final UNCITRAL Digest will differ slightly from the draft version that appears in this volume, and will be available in all official U. N. languages, we sincerely hope that the draft Digest and the commentaries that follow will provide useful information for courts, scholars, and legal practitioners faced with questions arising from the CISG. This volume is intended to go beyond the draft Digest by providing the authors of its various chapters the opportunity to critique and analyze the cases catalogued in the Digest. While the Digest is an invaluable resource for those seeking information on existing interpretation of the CISG, it has two particular limitations. The first is that the Digest authors were charged only with the task of presenting cases interpreting the CISG. They were not asked (and were not allowed) to express opinions on whether the decisions in those cases were correct, or otherwise open to question. The second is that, by limiting itself to existing cases interpreting the CISG, the Digest contains no

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Preface and Acknowledgements

interpretive information on important issues not yet addressed in the cases. In this volume, we have invited the authors to travel both of these roads not taken in the Digest by providing both a critique of existing case law and commentary on issues not yet addressed by the courts. Their commentary thus goes “beyond” both the draft Digest and the ultimate final version of the Digest. In this sense, we hope this volume will serve as a useful companion to the Digest in all its versions, and will advance the goals of Article 7 of the CISG by promoting uniformity of interpretation. Ultimately, we hope this book will help us all come closer together through the efforts toward legal harmonization and unification made by the United Nations Commission on International Trade Law. There are many to whom we are indebted for the work that follows. The five Digest authors have set the foundation for this effort, and the two of us included in that group particularly thank the others for making this such a rewarding cooperative project. Secretary Jernej Sekolec and his staff at UNCITRAL deserve special congratulations for creating and shepherding the Digest to fruition. Secretary Sekolec deserves our particular gratitude for the special part he played in the conference and this book. Jeff Kovar and Harold Burman at the Office of Private International Law of the Legal Adviser's Office of the U. S. Department of State also played a special role in the conference and in supporting efforts to inform the legal profession about the work of UNCITRAL. Jamie Burchianti, Kerri Frederick, and Jamie Hudson provided valuable research assistance in editing the final product; and LuAnn Driscoll, Karen Knochel, Darleen Mocello, Valarie Pompe, and Barbara Salopek put up with endless variety in citation forms, handwriting, and odd requests in preparing the manuscript. Finally, we provide a note about citation form. As the parts to this volume were compiled, it became apparent that there exists no single workable source for citation conventions in such a global project. Thus, some conventions necessarily result from arbitrary decisions by the editors. To the extent possible, the following citation conventions were followed in the final version of materials in this volume: 1) All cases dealing with the CISG are cited by identifying the court, country, date of the decision, and CLOUT case number1 (e. g., Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No.167). 1

“CLOUT” stands for “Case Law on UNCITRAL Texts,” a project of UNCITRAL to collect decisions construing the CISG and other UNCITRAL initiatives, and to make available information concerning those decisions in the official U. N. languages. The CLOUTsummaries of decisions, organized by CLOUT number, are available online through the home page of UNCITRAL (http://www.uncitral.org/).

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This may be followed by the inclusion of additional useful citation information (e. g., the official reporter citation for U. S. cases) in parentheses where such information is considered helpful to the reader. Citations to the Unilex database and the Pace University School of Law website are included, particularly where the textual reference may have been derived from information not included in the CLOUT abstract, or at variance with the CLOUT abstract. 2) Citations to the draft Digest are to the article of the CISG being examined in the cited portion of the Digest, followed by the specific paragraph number(s) of the cited Digest discussion. For example, “draft UNCITRAL Digest art. 39, ¶ 20.” 3) Secondary English language materials (books and articles) generally are cited in accordance with the rules found in The Bluebook: A Uniform System of Citation (17th ed. 2000). 4) Secondary sources in languages other than English are not in large and small capital letters, and generally are cited in the form selected by the author of the particular chapter of the volume. Changes were made only as necessary to be certain that the information was complete enough to help the reader find the source. 5) All dates included in footnotes are in day/month/year format (e. g., 20 January 2003). 6) Use of the word “Article” in text or a textual footnote is with the first letter capitalized when the reference is to a specific provision of the CISG or any other treaty or law. Citations to articles of the CISG or other documents are abbreviated and in all lower case. (e. g., art. 7). 7) References to secondary case sources take two forms. For Unilex, the signal is “available in” or “also available in” without italics: e. g., “English abstract also available in Unilex at http://...” For other references, “available at” is used in italics: e. g., “English translation available at http://www.cisg. law.pace.edu/.” Pittsburgh and Verona October 2003

Digest of case law on the UN Sales Convention: The combined wisdom of judges and arbitrators promoting uniform interpretation of the Convention Jernej Sekolec* I. Need for uniform interpretation The United Nations Convention on Contracts for the International Sale of Goods (“CISG”) has been adopted by 62 States.1 Their combined share in cross-border trade represents over two-thirds of the total volume of international trade. The States members range from the least economically developed to the most developed, and all major legal traditions of the world are represented among them. This makes the Convention a world sales law and the experience with the Convention to date guarantees that membership in the Convention will continue to grow. The Convention has made the rights and obligations of parties to international export and import of goods remarkably transparent – easy to ascertain and easy to understand by parties from different legal systems – and in step with evolving international contract practices. One of its benefits is that it reduces the costs of administering international transactions for the sale of goods. This will remain so, however, only if the Convention is interpreted uniformly. The expectation of its uniform *

Secretary of UNCITRAL (United Nations Commision on International Trade Law) and Chief of the International Trade Law Branch of the United Nations Office of Legal Affairs. The views in this paper are personal and do not necessarily represent the views of the organization. 1 As of 21 January 2003, the following States had adhered to the Convention: Argentina, Australia, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Burundi, Canada, Chile; China, Colombia, Croatia, Cuba, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guinea, Honduras, Hungary, Iceland, Iraq, Israel, Italy, Kyrgyzstan, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Mongolia, Netherlands, New Zealand, Norway, Peru, Poland, Republic of Moldova, Romania, Russian Federation, Saint Vincent and the Grenadines, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syrian Arab Republic, Uganda, Ukraine, United States of America, Uruguay, Uzbekistan, Yugoslavia, and Zambia.

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interpretation will also help attract more States to membership in the Convention. The objective of uniform interpretation is expressed in Article 7(1) of the Convention: “In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity...” Yet, uniformity does not mean that the Convention should be frozen in time and independent of evolving circumstances. The longevity and usefulness of the Convention requires that it be interpreted in a way that allows the uniform regime to be in harmony with certain basic principles of law and to be adapted to evolving practices and needs. This flexibility is ensured in particular by the following provisions and principles: (a) Article 7(1), according to which one of the factors to be taken into account in interpreting the Convention (next to the need to promote uniformity in its application) is “the observance of good faith in international trade”; (b) Article 9, which provides that “The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves”. The threshold for usages to become binding on the parties is rather low, since under Article 9(2), “The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned”. Thus, evolving usages will complement or even supersede the specific statutory language of the Convention; (c) Article 7(2), according to which if questions should arise “concerning matters governed by this Convention which are not expressly settled in it”, those questions “are to be settled in conformity with the general principles on which [the Convention] is based ...” Only when such principles cannot be ascertained may the interpreter of the Convention resort to the non-unified national law determined in accordance with the rules of private international law. Accomplishing the task of promoting uniform interpretation is facilitated by the fact that the drafters of the Convention used, wherever it seemed possible, concepts that are described in factual terms, rather than traditional terms that have, over the course of history, acquired definite and possibly disparate meanings in national legal systems. Thus, for example, the Convention speaks of goods being “handed over” or “taken over” instead of using concepts such as “delivery” (or ‘‘de´liverance’’) which may in various

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Digest of case law on the UN Sales Convention: The combined wisdom

national laws carry established but different meanings. Article 79 of the Convention also describes in factual terms the circumstances in which a party is not liable for a failure to perform, and avoids using technical legal terms such as “force majeure” or “frustration”. Since it was not possible to completely eliminate from the Convention language that has a technical meaning in national legal systems, however, the interpreter is reminded (in Article 7(1)) that concepts of the Convention should not be given the meaning determined by the interpreter’s domestic legal system, but rather the CISG should be interpreted having regard to “its international character”. For any interpreter or user of the Convention, it would be difficult to ensure consistency with the uniform interpretation of the Convention, have an appreciation of what it means to have regard “to its international character”, ascertain how regularly observed trade usages are being given effect in the context of the Convention, or how good faith is being understood in international trade, without having information on how courts and arbitral tribunals in States that are parties to the Convention have interpreted the uniform text. Such information must be reliable, objective, easily accessed in various languages, as comprehensive as possible, and presented in a manageable and understandable way. The value of such information is helpful beyond the purpose of promoting uniformity of interpretation. First, information on decisions taken by courts and arbitral tribunals regarding the Convention assists parties and their legal advisers in negotiating and performing commercial sales contracts, particularly by allowing the tailoring of negotiated contracts or general contract conditions to individual needs and expectations, and by promoting contractual performance in line with the prevailing understanding of the Convention’s provisions. Second, dissemination of knowledge of case law created by the combined wisdom of judges and arbitrators of many countries exhibits the Convention in a more meaningful and complete way, rather than as an isolated international text that stands on its own in the context of one legal system. This will give confidence to States that have not yet joined the Convention to do so.

II. UNCITRAL and promotion of uniform interpretation of the Convention The United Nations Commission on International Trade Law, or UNCITRAL, which prepared the draft Convention that was eventually finalized at

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Jernej Sekolec

the Universal Diplomatic Conference in Vienna in 1980,2 was established in 1966 by the UN General Assembly3 with the objective of “the promotion of the progressive harmonization and unification of the law of international trade”.4 The General Assembly based its decision to establish UNCITRAL on considerations that included the following: – The interests of all peoples, and particularly those of developing countries, demand the improvement of conditions favouring the development of international trade; – Disparities in national laws governing international trade constitute one of the obstacles to the flow of international trade; – The progress in this area had not been commensurate with the importance and urgency of the problem; – Furthering international trade is one of the most important factors in economic development; – There was no existing United Nations organ which was both familiar with this technical legal subject and able to devote sufficient time to work in this field.5 When UNCITRAL was established, its founding resolution6 determined its mandate in the following terms: (a) Co-ordinating the work of organizations active in this field and encouraging co-operation among them;

2

Final Act of the United Nations Conference on Contracts for the International Sale of Goods, A/CONF.97/18 and Annex I, reproduced in United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, A/ CONF.97/19, at 176 (available at www.uncitral.org/english/travaux/sales/cisg/travaux-cisgindex-e.htm). 3 Resolution no. 2205(XXI) of 17 December 1966, reproduced in the UNCITRAL Yearbook, Volume I: 1968-1970, at 65 of the English version [hereinafter GA Res. 2205 (XXI)]. The Yearbook is available at http://www.uncitral.org under “UNCITRAL Yearbook”. 4 Id. at § I. 5 Id. 6 Id.

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Digest of case law on the UN Sales Convention: The combined wisdom

(b) Promoting wider participation in existing international conventions and wider acceptance of existing model and uniform laws; (c) Preparing or promoting the adoption of new international conventions, model laws and uniform laws and promoting the codification and wider acceptance of international trade terms, provisions, customs and practices, in collaboration, where appropriate, with the organizations operating in this field; (d) Promoting ways and means of ensuring a uniform interpretation and application of international conventions and uniform laws in the field of the law of international trade; (e) Collecting and disseminating information on national legislation and modern legal developments, including case law, in the field of the law of international trade; (f) Establishing and maintaining a close collaboration with the United Nations Conference on Trade and Development; (g) Maintaining liaison with other United Nations organs and specialized agencies concerned with international trade; (h) Taking any other action it may deem useful to fulfil its functions.7 The function, mentioned above at (d), of “[p]romoting ways and means of ensuring a uniform interpretation and application of international conventions and uniform laws in the field of the law of international trade”, has been undertaken by UNCITRAL and its Secretariat in a number of ways, including by publishing in the six UN languages (i. e., Arabic, Chinese, English, French, Russian, and Spanish) the travaux pre´paratoires on texts emanating from its work, by organizing conferences and seminars, and by publishing informational notes and bibliographies. However, the activity most focused on promoting uniform interpretation is the CLOUT information system, established in 1988, which has been complemented with the decision in 2001 to prepare a “digest” of cases on the Convention in the six UN languages.

7

Id. § II, ¶ 8.

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III. The CLOUT information system Based on a decision by UNCITRAL at its twenty-first session in 1988,8 the Secretariat has established a system for collecting and disseminating information on court decisions and arbitral awards relating to Conventions and Model Laws resulting from the work of the Commission. The system is known by the acronym “CLOUT” (Case Law on UNCITRAL Texts). The purpose of the system is to promote international awareness of legal texts endorsed or adopted by the Commission; to enable judges, arbitrators, lawyers, parties to commercial transactions, and other interested persons to take account of decisions and awards relating to those texts when dealing with matters within their responsibilities; and in that way to promote the uniform interpretation and application of those texts. The CLOUT system has been designed to cover, potentially, a number of legislative texts prepared by the Commission.9 However, the bulk of the information collected so far concerns the United Nations Convention on Contracts for the International Sale of Goods (1980) and the UNCITRAL Model Law on International Commercial Arbitration (1985). The system relies on a network of national correspondents designated by those States that are parties to a Convention or have enacted legislation based on a Model Law.10 The national correspondents monitor and collect court decisions and arbitral awards, and prepare abstracts of those considered relevant in one of the official languages of the United Nations. The abstracts are translated by the Secretariat into the other five United Nations

8 Report of the United Nations Commission on International Trade Law on the work of its twenty-first session, New York, 11-20 April 1988, A/43/17, ¶¶ 98-109, reproduced in the UNCITRAL Yearbook, 1988, which is also available at www.uncitral.org under “UNCITRAL Yearbook”. 9 These texts are, in particular: Convention on the Limitation Period in the International Sale of Goods (1974), as amended by the Protocol of 1980; United Nations Convention on Contracts for the International Sale of Goods (1980); UNCITRAL Model Law on International Commercial Arbitration (1985); United Nations Convention on the Carriage of Goods by Sea (1978); United Nations Convention on Independent Guarantees and Stand-by Letters of Credit (1995); UNCITRAL Model Law on Procurement of Goods, Construction and Services (1994); UNCITRAL Model Law on Electronic Commerce (1996); UNCITRAL Model Law on Cross-Border Insolvency (1997). 10 The list of national correspondents, which is regularly updated, may be obtained upon written individual request to the UNCITRAL Secretariat.

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Digest of case law on the UN Sales Convention: The combined wisdom

languages and are published in all six languages. The Secretariat stores the original court or arbitral decisions in its original language. The primary task of national correspondents is to collect decisions on a Convention which have been issued by courts of their respective implementing States. National correspondents may also collect other relevant decisions or awards, including those relating to a national law that is closely modelled on the text of a Convention endorsed by UNCITRAL even if the State is not party to the Convention. Special considerations apply to the collection of arbitral awards. The accessibility of arbitral awards varies considerably and is, as a rule, rather limited. Often, their availability is restricted by requirements of confidentiality. Thus, arbitral awards are included in the collection only to the extent they come to the attention of national correspondents and in the form in which they are made available to them. Generally, the complete court decision or arbitral award, in its original language, is forwarded to the Secretariat. In exceptional cases, however, a certain portion of a decision or arbitral award will be omitted for reasons, for example, of confidentiality, or because of a lack of relevance of the portion omitted to an UNCITRAL text, or because the portion is not available to the national correspondent. The Secretariat stores the decisions and awards in the form in which they are forwarded to the Secretariat by the national correspondents. They will be made available, subject to any copyright restrictions, in electronic form on the UNCITRAL website (www.uncitral.org). The abstracts are intended to provide sufficient information to enable readers to decide whether it is worthwhile to obtain and examine the complete decision or arbitral award that is the subject of the abstract. The abstracts are usually no longer than one-half of a page, in keeping with the expected large number of decisions and arbitral awards to be collected and of the costs of publishing the abstracts. In view of the necessity for brevity, the substantive part of the abstract is ordinarily not a complete summary of the full decision or award, but generally serves as a “pointer” to the specific issues concerning the application and interpretation of the relevant UNCITRAL text in a given decision or arbitral award. The abstracts and related information are published as U.N. documents and are also available on the UNCITRAL website.

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IV. Decision to prepare a Digest of case law One of the benefits of the CLOUT information system is that it can be used to identify issues in the interpretation of the Convention, including divergent or conflicting interpretations. In designing the CLOUT system, a key question was whether it could be enhanced by providing a way for resolving such issues in the interest of promoting uniformity. One possible idea in the Secretariat’s proposal made in 1985 to establish the CLOUT system was for the Commission itself to attempt to resolve conflicting interpretations in court or arbitral decisions. According to the Secretariat note: “Under this possibility, the Commission would consider conflicts in the interpretation of UNCITRAL legal texts by courts or arbitral tribunals and would express its opinion as to the proper interpretation of the texts”.11 While raising the idea, the Secretariat itself was skeptical, noting that: This approach might be found to be unsuitable with respect to conventions elaborated by the Commission and model laws adopted by it. Such legal texts are incorporated into the national laws of the States adhering to the conventions or implementing the model laws. This approach would therefore involve the Commission in intervening in interpretations by courts of their own national laws when the competence to do so has not been granted to the Commission by the States parties to or adopting the texts concerned. In addition, in the case of conventions which have been adopted in final form by forums other than the Commission itself (i. e. by conferences of plenipotentiaries), the Commission would become involved in interpreting texts which it had not even adopted in final form. Moreover, an interpretation of a legal provision is very often made within the particular factual context of the case in which the interpretation is rendered. Therefore, the task of resolving two conflicting interpretations would in many cases require a detailed review of the cases within which the interpretations were rendered. The performance of such a task by the Commission would make it very similar to an “international court of appeal”.12

11

Dissemination of decisions concerning UNCITRAL legal texts and uniform interpretation of such texts, A/CN.9/267, ¶ 10, reproduced in the UNCITRAL Yearbook, 1985 which is also available at www.uncitral.org under “UNCITRAL Yearbook”. 12 Id. ¶ 10.

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Digest of case law on the UN Sales Convention: The combined wisdom

Another possible way of dealing with such issues of interpretation would be to respond to questions referred to the Commission in the context of a dispute. Under such an approach, “the Commission would render interpretations of UNCITRAL legal texts at the request of a court or arbitral tribunal or of one or both of the parties to a dispute”.13 This suggestion was also not promoted by the Secretariat, which noted that: Many of the factors referred to in [the previously-quoted note concerning the proposal to have UNCITRAL resolve interpretational conflicts] may be relevant to the question of whether such an approach is suitable. It may also be relevant to consider that, if the interpretations were to be rendered by the Commission as a whole at its annual sessions, the resolution of the disputes could be delayed for substantial periods of time until such interpretations were rendered. In addition, it may be considered that in order for such a function to be exercised effectively by the Commission, the parties to the dispute should be entitled to present their views to the Commission on the question referred to it.14 A further idea mentioned was for the Commission to consider abstract questions of interpretation: Under this possibility, the Commission would respond to abstract questions of interpretation, arising from UNCITRAL legal texts, addressed to the Commission by parties to a commercial transaction or by other interested persons. Such questions are those which do not arise in the context of a dispute (although dealing with such questions may affect concrete disputes). The circumstances discussed in [the previouslyquoted note concerning the proposal to have UNCITRAL resolve interpretational conflicts] may also make this approach unsuitable with respect to abstract questions of interpretation of conventions elaborated by the Commission and model laws adopted by it.15 In the end the Secretariat suggested that, ... the Commission could request its Secretariat also to monitor judicial and arbitral decisions relating to the interpretation of such texts, and to report to the Commission on the status of the interpretation of such texts as circumstances warrant. In pointing out conflicts in the interpretation of provisions of UNCITRAL texts, as well as gaps in such provisions which come to light, the issuance of such reports could itself assist in promoting 13 14 15

Id. ¶ 11. Id. ¶ 11. Id. ¶ 12.

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the uniform interpretation of such texts. Moreover, in the light of these reports, the Commission could consider steps to be taken to deal with such conflicting interpretations or gaps.16 In 1988, when the Commission discussed the proposal to establish the CLOUT system (which it eventually adopted, defining the functions of the national correspondents and the Secretariat in the system), it also spent some time discussing how it wished to deal with the gathered material, in particular if the material would reveal such issues as divergent interpretations of the Convention.17 At that time the Commission considered what it termed a “far-reaching proposal” of establishing “a permanent editorial board” for the CLOUT system. According to the proposal, ... the board would proceed to a comparative analysis of the collected decisions and report periodically to the Commission at its annual sessions on the state of application of the Convention. The reports should evidence in particular the existence of uniformity or divergency in the interpretation of the individual provisions of the Convention as well as the existence of gaps in the provisions which might come to light in actual court practice. In support of the proposal, it was pointed out that the establishment of such a board, composed of representatives of States parties to the Convention, would ensure that in the comparative analysis of the material collected and the regular reporting on the state of application of the Convention equal attention would be given to the national experience of each State without giving any State or region a privileged position for political, economic or purely linguistic reasons. In response to the proposal, various concerns were expressed. At the technical or organizational level, the institution of a permanent editorial board was said to be too formalized and its operation appeared unwieldy in view of the expected large number of States parties to the Convention that would wish to have a representative on the board. At a substantive level, the proposal was said to be too ambitious or at least premature. In particular, there was a risk that the interpretation given to the Convention in the analysed decisions of a particular jurisdiction would appear to represent an authoritative opinion of the member State although the collection of court decisions and arbitral awards was unlikely to be complete and the status and value of court judgments differed consider16

Id. ¶ 15 and also Collection and dissemination of information on interpretation of

UNCITRAL legal texts, A/CN.9/312, ¶ 27. 17 Collection and dissemination of information on interpretation of UNCITRAL legal texts, A/CN.9/312, reproduced in the UNCITRAL Yearbook, 1988 which is also available at www.uncitral.org under “UNCITRAL Yearbook”.

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Digest of case law on the UN Sales Convention: The combined wisdom

ably from one legal system to another. Any such impression should be avoided, and reports on the interpretation of the Convention were to be for purposes of information only. After deliberation, the Commission decided for the time being not to establish a permanent editorial board. It was understood that the proposal would be reconsidered in the light of experience gathered in the collection of decisions and the dissemination of information along the lines suggested in the note and adopted by the Commission. It was generally understood that any measures in the new undertaking would have to be reviewed and possibly adjusted in the light of such experience.18 Over time, a considerable multinational body of case law on the Sales Convention has developed. As practitioners and academics evaluated this case law and noted divergences in interpretation, strong support was expressed for the provision of appropriate advice and guidance to help foster a more uniform interpretation of the Convention and to ensure that divergences would not be repeated and develop into distinct strands of interpretation. Against that background, in 2001 the Secretariat suggested that the Commission consider ways of ensuring the uniform interpretation and application of the Sales Convention.19 The delegates at the session were also reminded that when the Commission decided in 1988 to establish the CLOUT system, it had also considered the desirability of establishing an editorial board, which, among other things, could undertake a comparative analysis of the collected decisions and report to the Commission on the state of application of the legal texts. At that time, the Commission decided not to establish the board, but to reconsider the proposal in the light of experience gathered in the collection of decisions and the dissemination of information under the CLOUT system. The preparation of an analytical digest of court and arbitration cases, identifying trends in interpretation, was suggested as a method of providing the needed advice and guidance. One format suggested for the digest was to simply note diverging case law for information purposes; alternatively, 18

Report of the United Nations Commission on International Trade Law on the work of its twenty-first session, New York, 11-20 April 1988, A/43/17, ¶¶ 107-109. 19 The proposal was contained in Uniform Interpretation of UNCITRAL texts: sample digest of case law on the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980), A/CN.9/498, which is available at http://www.uncitral.org/english/ sessions/unc/unc-34/acn9-498e.pdf.

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guidance as to the interpretation of the Convention might be provided, based in particular on the legislative history of the provision and the reasons underlying it.20 The document that was submitted to the Commission to facilitate a discussion of the proposal summarized case law on articles 6 and 78 of the Convention.21 It was intended to offer the Commission an example of how court and arbitral decisions might be presented with a view to fostering uniform interpretation. In that paper it was suggested that the Commission consider whether the Secretariat, in consultation with experts from the different regions, should prepare a complete digest of cases reported on the various articles of the Convention. The Commission was invited to consider whether the approach taken in preparing the sample digest in the document under review, including the style of presentation and the level of detail, was appropriate.22 The Commission adopted the following report of its consideration of the proposal: The Commission took note with appreciation of the document in general and, in particular, of the examples given as to how court and arbitral decisions might be presented with a view to fostering uniform interpretation. The Commission commended the Secretariat for its innovative approach towards the implementation of the mandate the Commission had received from the General Assembly to promote and ensure a uniform interpretation and application of international conventions. A widely shared view was that, given the amount of information gathered, the decision taken in 1988 should be reconsidered and that the document constituted a good starting point for discussion in that respect. It was suggested that the Secretariat should also explore whether other initiatives could be undertaken to assist the Commission in carrying out its mandate. As to the contents of the document, it was suggested that the project should not only consider case law, but also existing legal writing. In respect of the drafting procedure of the digest, it was suggested that the Secretariat should avail itself of the network of national correspondents, as they were persons knowledgeable about CLOUT and its context. It was further suggested that the digest should not only have the goal of evidencing divergences in the case law of different countries or giving 20 21 22

12

Id. ¶ 3. Id. Id. ¶ 4.

Digest of case law on the UN Sales Convention: The combined wisdom

guidance as to the interpretation of uniform legal texts, but also to identify gaps in those texts. It would then be the task for the Commission to decide on how to deal with such gaps. It was further suggested that the project should be an ongoing one, in that it should be updated continually, as new cases emerged. In response, some concerns were expressed. It was stated that it was not clear to whom the digest would be addressed, as the natural addressees of any UNCITRAL text were States. States, however, might not need a digest such as the one under consideration. As far as practitioners and judiciaries were concerned, it was felt that they did not need such a digest, as much literature existed that aimed at helping to understand the Convention on Contracts for the International Sale of Goods. In respect of the contents, it was suggested that the digest could be merely a compilation of differences in the interpretation of the Convention rather than a guide. In support of that view it was stated that if the digest to be drafted were to function as a guide, it would necessarily have to indicate preference for some views over others. It was felt that such an expression of preference might be read as a criticism of decisions taken by national courts, which was felt to be an inappropriate result. With a view to alleviating some of the above-mentioned concerns, it was stated, for instance, that although it was true that much literature existed on the Convention on Contracts for the International Sale of Goods in some countries, there were countries where no such literature was available. It was also stated that any work done by UNCITRAL would have the advantage not only of being translated into the six official languages of the United Nations (and thus have a very wide reach), but also of taking a more international view than most existing commentaries and papers, which were drafted from a national point of view. As it was observed that any decision taken by the Commission with respect to the digest would be subject to reconsideration at any future session, it was felt that the Secretariat should be given the mandate to continue to draft that digest. It was again pointed out that, in line with the sample provisions presented in the note by the Secretariat,23 the digest should not criticize domestic case law. After discussion, the Commission requested the Secretariat to draft a digest on the entire Convention on Contracts for the International Sale of Goods. In doing so, the Secretariat should avail itself of the help of the network of national correspondents and avoid criticism of the decisions of national courts.24 23 24

Id. Report of the United Nations Commission on International Trade Law on its thirty-fourth

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Jernej Sekolec

V. Principles guiding the work towards a Digest A noteworthy feature of the discussions by delegates in the Commission session was the admonition that the Digest should avoid criticism of the decisions of national courts. Related to that was the suggestion that the Digest should be a compilation of differences in the interpretation of the Convention rather than a guide (because, if it were a guide, it would have to indicate preference for some views over others, which could be read as a criticism of decisions by national courts, which was felt to be an inappropriate result).25 That line of reasoning is sensible on several grounds. In many States, court decisions are frequently the subject of comments, sometimes critical, by practitioners and academics, and publications expressing such comments are widely used and appreciated. However, a criticism in a publication sponsored by an intergovernmental organization such as UNCITRAL might raise a number of questions for courts, practitioners or States – questions such as, who is the author of that view? Are there contrary views? Has the criticism taken into account all the factual particularities of the case? Could the State or the court respond to the criticism? And whether the criticism is endorsed by UNCITRAL. Such questions would draw the wrong kind of attention to the Digest and might compromise its usefulness. Bearing in mind that the Digest would be essentially an analytical summary of numerous decisions, it would be difficult to criticize a decision without presenting in sufficient detail all the factual and legal grounds on which it was based. Moreover, it was unnecessary to complement the Digest with criticisms of individual decisions, since questionable decisions tend to draw authored criticisms in various publications anyhow, and the Digest, by presenting the mainstream views emerging in practice, could fulfil its role of fostering uniform interpretation without censuring the decisions. Thus, to the extent differences have been identified in court practice, the Digest should either limit itself to identifying those differences or, if considered appropriate, offer comments based on the travaux pre´paratoires. The absence of criticism in the Digest, however, does not mean that a decision that is an aberration (and as such is likely to appear in the Digest as an isolated or minority view alongside the prevailing and mainstream position adopted by other courts) would not attract attention of the users session, 25 June-13 July, 2001 A/56/17, ¶¶ 391-395, which is available at http://www.uncitral.org/english/sessions/unc-34/A-56-17e.pdF. 25 Id. ¶ 393.

14

Digest of case law on the UN Sales Convention: The combined wisdom

of the Digest. It would be for readers to form their own opinion by considering the divergence of views. They could either find the decisions that form the prevailing view or the view supported by travaux pre´paratoires as the most convincing, or delve into the grounds of the decisions in search of reasons that justify distinguishing the various positions taken on the basis of facts, usages, good faith etc. Such an exercise, if it is undertaken by judges and then commented upon in academic writings and if such judicial decisions are reflected in subsequent editions of the Digest, will contribute to a welcome refinement of the understanding and interpretation of the Convention. During the discussion in the Commission referred to above,26 it was also suggested that the project should encompass not only case law, but also existing legal writing. The suggestion did not elicit much comment and, ultimately, was not picked up in the conclusion of the discussion. It seems that the purpose of the envisaged digest would not be furthered by including such opinions. The additional project, furthermore, would conflict with the approach that the digest should, in analytical fashion, compile the cases and indicate differences, giving the reader the sense of the number of courts having taken one or the other position, possibly combined with comments about the intended meaning of the provision pursuant to the travaux pre´paratoires. A further obstacle to including views expressed in legal publications is that it would be difficult to make that information representative of writings in all States party to the Convention and to take appropriate account of writings in the various languages of the States party to the Convention. Moreover, academic and other writings are available to users, and including them in the Digest would involve a process of selection among various points of view. Writings also tend to contain criticism, and their inclusion would be difficult to reconcile with the view that the Digest should refrain from criticism of court decisions. It is therefore perhaps better to limit the Digest to identifying the views and trends in interpretation and to leave to commentators the task of presenting evaluations, proposals and criticisms.

VI. The process of preparing the Digest The drafting of a digest of case law is a task that requires a full command of the preparatory materials for the Convention and the analysis of a large number of cases, whether included in the CLOUT system or not. The UNCITRAL Secretariat, with its limited resources could not undertake this enormous task, which also requires a specialized knowledge of the text. It was 26

Id. ¶ 392.

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Jernej Sekolec

therefore felt that the best approach would be to enlist the assistance of a group of experts who would prepare parts of the text, consult among themselves, and produce a draft that could then be circulated widely and in particular to national correspondents. The draft Digest would then be finalized by the UNCITRAL Secretariat on the basis of the comments received. We had the pleasure at the conference sponsored by the Center for International Legal Education of the University of Pittsburgh School of Law of discussing with most of these experts27 the result of their work, and of thanking them for it. Every effort has been made to make the draft Digest a comprehensive reflection of views taken by national courts. However, it is clear that there are decisions (in some countries, a good number of decisions) that have not been quoted in the draft Digest. Nevertheless, I am confident that the draft Digest is for all practical purposes a sufficiently broadly based and useful reflection of views of courts on individual provisions of the Convention. This confidence is based on the fact that the national correspondents are called upon to transmit to the UNCITRAL Secretariat a selection of court cases that are significant and representative and, in their view, reflect the case law of each country. In addition, cases have been included in the draft Digest that have not yet been included in the CLOUT system. The wide consultation process prior to finalizing the text will also increase the likelihood of obtaining information and suggestions that will help make the final version of the Digest more comprehensive and reflective of significant judicial views. To the extent decisions not reflected in the Digest confirm the broadly supported mainstream views taken by other courts, their omission may not be seen as critical. If the decisions not reflected are exceptional or regarded as aberrations in comparison to the mainstream view, their absence may also not materially affect the usefulness of the Digest, as the majority view is likely to be the most influential for users of the Digest. The reader will also note that the draft Digest does not (yet) refer to decisions from courts from all States party to the Convention. It is important that the Digest be, and be seen to be, a work reflecting as broadly as possible the case law in States from different geographical regions, with different legal traditions and at different levels of economic development. It should be noted that this will be the first edition of the Digest and that the text will be updated as developments in case law occur. The Secretariat, in 27 Professor Franco Ferrari; Professor Harry M. Flechtner; Professor Ulrich Magnus; Professor Peter Winship; and Professor Claude Witz.

16

Digest of case law on the UN Sales Convention: The combined wisdom

cooperation with the national correspondents and experts, will take care to monitor and act on such developments, and include in updates to the Digest new cases or significant cases that may have been missed. We should also cultivate lines of communication with the academic community in order to obtain the necessary information to ensure that the Digest is as comprehensive and useful as possible. The Secretariat plans, once the Digest has been issued, to circulate it widely and invite courts and others in States that are members of the Convention, in particular those that have no or few decisions reflected in the Digest, to provide us with the information to update the Digest. Therefore, I would like to conclude this introduction to the discussion of the draft Digest by thanking the University of Pittsburgh for organizing this conference and requesting the participants (and any readers of this text) to send us your comments or information that may be relevant for future editions of the text.28

VII. Digests for other texts In the Secretariat’s proposal for the preparation of a digest of case law on the Sales Convention, it was suggested that the reasons for the preparation of that digest also apply to the UNCITRAL Model Law on International Commercial Arbitration (1985).29 The Model Law has served as the basis for national legislation in some 44 jurisdictions and parts of its uniform texts have been used in many other jurisdictions. Its text and principles have become the standard for assessing the international acceptability of national regimes for international commercial arbitration. Many countries have taken the Model Law as the basis for legislation on domestic arbitration as well, because they consider that the policy considerations underlying domestic arbitration are no different from the policies on which the Model Law is based. With respect to the Model Law, more than 148 cases have been reported in the CLOUT system. Those decisions also reveal some unsettled issues and divergent trends. The provisions that have most frequently been interpreted 28 The UNCITRAL Secretariat can be contacted at the Vienna International Centre, P.O. Box 500, Room E0440, A-1400, Vienna, Austria (fax 43-1-26060-5813; email: uncitral@ uncitral.org). 29 The proposal was contained in Uniform Interpretation of UNCITRAL texts: sample digest of case law on the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980), A/CN.9/498, ¶ 5, which is available at http://www.uncitral.org/ english/sessions/unc/unc-34/acn 9-498e.pdf.

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by reported court decisions include those regarding the scope of application of the Model Law (Article 1); the extent of court intervention (Article 5); the definition and form of the arbitration agreement (Article 7); the referral of the parties to arbitration by the court before which an action has been brought (Article 8); the arbitration agreement and interim measures of protection granted by a court (Article 9); the appointment of arbitrators by the court (Article 11); the competence of the arbitral tribunal to rule on its jurisdiction (Article 16); correction and interpretation of the award (Article 33); the recourse against the award (Article 34); and the recognition and enforcement of the award (Articles 35 and 36). The Commission discussed the idea of a digest of case law on the Model Law on Arbitration at its annual session in 2002 and, without considering further the guidelines for the preparation of a digest of case law (the implication being that the methodology used for the Digest on the Sales Convention would also apply), concluded that, in view of the importance of international commercial arbitration and the relevance of the UNCITRAL Model Law on International Commercial Arbitration in that context, the Secretariat should prepare a similar digest of case law on the Model Law.30 In that connection the Commission also discussed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), a landmark instrument and one of the most successful treaties in the area of trade law, currently having 133 States as members with the expectation of that number growing. It has served as a model for many subsequent international multilateral and bilateral treaties as well as the UNCITRAL Model Law on International Commercial Arbitration. The Convention has become a cornerstone of the rule of law in international commerce and is essential to ensuring that disputes regarding international contractual obligations are treated fairly. International trade can only prosper if it is based on the rule of law: if parties do not have that confidence, the expansion of trade relations to unfamiliar parties or parties in new markets will be seriously hampered. With respect to the enforcement of foreign arbitral awards, the UNCITRAL Secretariat has taken note of worrying developments in some trades. For example, in a recent letter to the UNCITRAL Secretariat from the International Cotton Advisory Committee (ICAC, an intergovernmental organization of States having an interest in the production, export, import and consumption of cotton), which was also brought to the Commission’s 30 Report of the United Nations Commission on International Trade Law on its thirty-fifth session (17-28 June 2002), A/57/17, ¶ 243, which is available at http://www.uncitral.org/ english/sessions/unc/unc-34/A-57-17e.pdf.

18

Digest of case law on the UN Sales Convention: The combined wisdom

attention, it was stated that in 2001 about two thirds of all arbitral awards issued in conjunction with international trade in cotton were ignored by the party at fault, and that this fact undermined confidence in the cotton trading system and imposed costs throughout the cotton distribution chain.31 The reaction in the Commission was “... that non-compliance with arbitral awards was a serious matter that required immediate attention since it could undermine the efficiency of arbitration and the reliability of contracts, which could seriously disrupt international trade”.32 While in other sectors of commerce the situation is not the same as it is in the cotton trade (or perhaps in some other commodity trades), it is necessary to ensure, in the interest of safeguarding the basis of the development of international trade, that the regime for the enforcement of arbitral awards is clear and well understood, both as regards legislation implementing the Convention and its judicial interpretation. As to the legislative aspect of the issue, UNCITRAL has on its agenda a project, undertaken jointly with Committee D of the International Bar Association (IBA), aimed at monitoring the legislative implementation of the New York Convention. The purpose of the project is limited to that aim, and is not to monitor individual court decisions applying the Convention. The Secretariat has sent out a questionnaire to States party to the Convention inquiring how the Convention was enacted, and has so far received over 60 replies (out of a current total of 133 member States). The Commission urged the Secretariat to intensify its efforts to obtain information necessary for preparing the report and for that purpose to re-circulate the questionnaire. The Secretariat has also been urged to obtain information from other sources, in particular intergovernmental and non-governmental organizations. This work will lead to a report presenting findings based on the analysis of the information gathered, which the Secretariat plans to prepare for a future session of the Commission.33 The discussion in UNCITRAL, however, showed that the interpretation of the Convention by courts also deserves attention, and that an analytical presentation of case law interpreting the New York Convention, compiled and presented in a fashion similar to the one used in the draft Digest of case law on the Sales Convention, would be useful. As a result, the Commission, at its annual session in 2002, decided that the Secretariat should explore the feasibility of preparing a digest of case law

31 32 33

Id. ¶ 236. Id. ¶ 236. Id. ¶¶ 234-235.

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Jernej Sekolec

on the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.34 The UNCITRAL Secretariat has included the implementation of these further mandates on its agenda. Bearing in mind that the Secretariat has to work with very limited personnel and other resources, and must give priority to the preparation of studies and drafts for legal texts that are being formulated by the Commission and its working groups, we hope to be able to show the first results soon. 34

20

Id. ¶ 243.

The CISG’s sphere of application: Articles 1-3 and 10 Franco Ferrari* I. Introduction The CISG’s provisions contained in Chapter I of Part I (relating to the “Sphere of Application”) are without any doubt the Convention’s most important provisions. Indeed, unless it has been decided on the basis of those provisions that the CISG applies at all, neither the Convention’s substantive provisions, nor its provisions on interpretation (i. e. Articles 7 and 8), can be used to solve any dispute. This is why it is no surprise that the Convention’s applicability has been dealt with in many state courts and arbitral tribunals, as can easily be evinced from a look at the draft Digest. Despite the large number of court decisions and arbitral awards concerning the issue at hand, there are many issues regarding the CISG’s applicability that have not yet been touched upon in any decision. This chapter deals both with the issues to which the draft Digest refers, for which there is case law, and to those with which the draft Digest does not deal due to the lack of case law. In doing so, this paper will go beyond the draft Digest in two ways: on the one hand, it will criticize those court decisions that deserve criticism; on the other hand, it will examine issues that are not at all touched upon by the draft Digest. This way of proceeding is designed to guide the practitioners in a way the Digest cannot due to its limited scope. Before looking more closely into the issues relating to the Convention’s applicability, it is necessary to focus briefly on a preliminary problem – very important in practice – that has to be solved before even examining whether the CISG’s applicability requirements are met: the question of whether a court (of a Contracting State) has to resort to its private international law rules in order to determine the applicable substantive law or whether it has to have direct recourse to the Convention. This problem arises due to the fact that both the Convention’s rules and private international law rules are specifically designed to deal with international (sales) disputes.

*

Professor of International Law, Verona University School of Law.

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Franco Ferrari

As pointed out by the draft Digest, according to some decisions, courts of Contracting States have to look into whether the CISG applies before resorting to the private international law rules (of the forum);1 in other words, recourse to the CISG (like recourse to any substantive law convention) prevails over recourse to the forum’s private international law.2 Two courts expressly stated this; they held that the CISG’s prevalence over the conflicts of law approach (i. e. over recourse to private international law) is due to the principle “lex specialis derogat generalis” and to the fact that the CISG is more specific than any private international law rule: This specificity is due not only to the narrower scope of the [CISG] (it applies only to sales contracts whose international character depends on the location of the buyer and seller in different countries, whereas – as is commonly recognized – [the private international law rules of the forum] apply to all kinds of international sales contracts) but also, and above all, to the fact that rules of uniform substantive law must always prevail over the rules of private international law (independent of their sources). Uniform substantive law is more specific per definitionem than the rules of private international law because the former settles ‘directly’ the question of applicable substantive law. It thus avoids the two-step approach – consisting first in the identification of the applicable law and then in its application – necessarily required by resort to private international law.3

1

Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)). 2 For this statement, see Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico 932 f. (2000)); Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/519.htm; Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Schweizerische Zeitschrift f
r europisches und internationales Recht 186 ff. (1999)); Oberlandesgericht Dresden, Germany, 9 July 1998, CLOUT case No. 347 (Internationales Handelsrecht 18 f. (2001)); Oberlandesgericht Frankfurt, Germany, 20 April 1994, CLOUT case No. 84 (Recht der internationalen Wirtschaft 593 f. (1995)). 3 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)). See also Tribunale di Rinini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003).

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The CISG’s sphere of application: Articles 1-3 and 10

II. The internationality of sales contracts under the CISG A. Internationality under the 1964 Hague Conventions In order for the CISG to apply (as was true under its predecessors, the 1964 Hague Conventions, as well), the contract for the sale of goods has to be “international”. In other words, the CISG (and, prior to the CISG, the 1964 Hague Conventions) solely applies to sales contracts deemed to be “international”, a choice that has been criticized on the grounds that currently “[the] differences which one time existed between transnational sales and sales of the same goods within one legal system have no reason [to exist]”.4 Although both sets of rules (the CISG and the 1964 Hague Conventions) apply only to “international” sales, their international spheres of application are very different. This is due to the different criteria adopted by these Conventions in order to determine the internationality of a sales contract.5 Indeed, the 1964 Hague Conventions (as opposed to the CISG) considered “international” only those sales which presented two elements of internationality: a subjective and an objective one.6 As far as the first element is concerned, the 1964 Hague Conventions required the parties’ place of business (or, absent a place of business, their residence)7 to be located in different States, regardless of the parties citizenship.8 As for the second element, the objective one, Article 1(1) ULIS9 required that “either [the] acts constituting offer and acceptance are effected in different States, or that 4

M. J. Bonell, La convenzione di Vienna sulla vendita internazionale: origine, scelte e principi fondamentali, Rivista trimestrale di diritto e procedura civile 717 (1990); for a similar statement, see Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L. J. 269 (1984). 5 See S. M. Carbone & M. Lopez de Gonzalo, Commento all’art. 1 della convenzione sui contratti di vendita internazionale di beni mobili, Nuove leggi civili commentate 3 (1989). 6 See A. Frignani, Il contratto internazionale 262 (1990). 7 See Article 1(2) ULIS: “Where a party to the contract does not have a place of business, reference is to be made to his habitual residence”. For a court decision applying the aforementioned provision, see Bundesgerichtshof, Germany, 22 October 1980, Neue Juristische Wochenschrift 1158 (1981). 8 See Article 1(3) ULIS: “The application of the present Law shall not depend on the nationality of the parties”. 9 See Article 1(1) ULIS: The present Law shall apply to contracts of sale of goods entered into by the parties whose places of business are in the territories of different States, in each of the following cases: (a) where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another;

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the goods are sold during international transports or are to be transported internationally, or that the act of offer and acceptance are made in a State other than the State of the place of delivery”.10 B. The Internationality of Contracts under the CISG It is common knowledge that the 1964 Hague Conventions’ international sphere of application was criticized. This criticism undoubtedly influenced the decision of the drafters of the CISG to decide against the objective criterion of internationality and, thus, simplify the CISG’s approach. Indeed, according to the CISG, the sole criterion to determine the internationality of a sales contract corresponds to the subjective criterion of the 1964 Conventions. Thus, under the CISG the internationality of a contract depends merely on the parties having their places of business (or habitual residences)11 in different States, as stated by several courts.12 As pointed out by one court, in order to be relevant, the aforementioned internationality must exist at the moment of conclusion of the contract.13 It must be noted, however, that the CISG did not adopt the approach of the 1964 Hague Conventions according to which the criteria of internationality constituted, at the same time, the only criterion of applicability. Thus, the internationality of a sales contract does not by itself suffice to make the CISG applicable, as recently pointed out by an Italian court decision, referred to in the draft Digest.14 It is for this reason that a German court15 – correctly, in (b) where the acts constituting the offer and the acceptance have been effected in the territories of different States; (c) where delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected. 10 F. J. A. van der Velden, The Law of International Sales: The Hague Convention 1964 and the Uncitral Uniform Sales Code 1980 – Some Main Items Compared, 4 Hague-Zagreb Essays 50 (C. C. A. Voskuil & J. A. Wade eds., 1983). 11 See Article 10(b): “[...] if a party does not have a place of business, reference is to be made to his habitual residence”. 12 See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana (2001), 280 ff.); Oberlandesgericht Kln, Germany, 21 May 1996, CLOUT case No. 168, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/254.htm; Oberster Gerichtshof, Germany, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)); Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122 (Neue Juristische Wochenschrift 245, 246 (1995)). 13 Oberlandesgericht Dresden, Germany, 27 December 1999, available at http://www. jura.uni-freiburg.de/ipr1/cisg/urteile/text/511.htm. 14 Tribunale di Vigevano, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)).

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The CISG’s sphere of application: Articles 1-3 and 10

this author’s opinion – stated that it is wrong to suggest, as some authors do,16 that the different States in which the parties must have their places of business in order for a sales contract to be international under CISG must also be Contracting States. Where the “subjective international prerequisite” is missing, the CISG will not be applicable per se, even if the contract’s execution involves different States,17 as has been confirmed by a German court decision referred to in the draft Digest.18 The court refused to apply the CISG to a case where a German buyer had acquired tickets from a German seller for the 1990 Soccer World Cup final where the tickets were to be handed over in Rome, on the grounds that the contract was not an international one. On the other hand, the contract can be considered international even in those cases where the goods do not cross any border19 and where the parties have the same citizenship, since, as pointed out by case law quoted in the draft Digest, citizenship is – according to article 1(3) CISG – irrelevant in determining internationality,20 as is the civil or commercial nature of the contract or the parties,21 as long as the parties have their place of business in different States. Internationality does not appear to create many problems in case law, unless an agent is involved in the conclusion of the contract. In this case it becomes 15

Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrensrechts 401 (1991)), where it is expressly stated that in order for a sales contract to be international under the CISG, the parties do not have to have their places of business in different Contracting States. 16 See, e. g., Carbone & Lopez de Gonzalo, supra note 5, at 68; A. Kaczorowska, L’internationalit d’un contrat, Journal de droit international et de droit compar 223 (1995). 17 See R. Herber & B. Czerwenka, Internationales Kaufrecht 18 (1991). 18 Oberlandesgericht Kln, Germany, 27 November 1991 (Die Deutsche Rechtsprechung auf dem Gebiete des Internationalen Privatrechts, T
bingen 85 (1991)). 19 For a similar conclusion, see, e. g., Peter Schlechtriem, From the Hague to Vienna – Progress in Unification of the Law of International Sales Contracts?, The Transnational Law of International Commercial Transactions 127 (Horn/Schmitthoff eds., 1982). 20 See Bundesgerichtshof, Germany, 31 October 2001, available at http://www.cisg.law. pace.edu/cisg/wais/db/cases2/011031gl.html (Internationales Handelsrecht 14 f. (2002)); Rechtbank van Koophandel Veurne, Belgium, 25 April 2001, available at http://www.law. kuleuven.ac.be/int/tradelaw/WK/2001-04-25.htm; Court of Arbitration of the Bulgarian Chamber of Commerce and Industry, Bulgaria, 24 April 1996, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=421&step=FullText (award No. 56/1995). 21 Bundesgerichtshof, Germany, 31 October 2001, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases/011031gl.html (Internationales Handelsrecht 14 f. (2002)).

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necessary to identify who is party to the contract (the principal or the agent) in order to determine internationality. Since agency is, as often pointed out in case law,22 one of the issues that falls outside the CISG’s scope of application, it is on the basis of the law applicable by virtue of the rules of private international law of the forum that it must be decided who is party to the contract.23 Thus, where the agent discloses the principal and according to the applicable law this leads to the principal being the party to the contract, it is the principal’s place of business that is to be taken into account to determine whether the contract is international.24 C. The “place of business” under the CISG Considering that by virtue of Article 1(1) CISG the internationality of a sales contract (and, thus, the applicability of the CISG) depends on the location of the parties’ places of business, the importance of the definition of “place of business” is evident.25 It is therefore surprising that the drafters of the CISG have not defined it, apparently due to the lack of a uniform concept acceptable to all the delegates to the Vienna Diplomatic Conference, who suggested the most disparate definitions.26

22 For court decisions stating that issues of agency law and related matters are not dealt with by the Convention, see Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 376 (Giurisprudenza italiana 280 ff. (2001)); Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189 (Zeitschrift f
r Rechtsvergleichung 204 ff. (1997)); Appellationsgericht Tessin, Switzerland, 12 February 1996, CLOUT case No. 335 (Schweizerische Zeitschrift f
r internationales und europisches Recht 135 ff. (1996)); Obergericht Thurgav, Switzerland, 19 December 1995, CLOUT case No. 334 (Schweizersche Zeitschrift f
r internationales Recht 118 ff. (2000)); Landgericht Kassel, Germany, 22 June 1995, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/370.htm; Amstgericht Alsfeld, Germany, 12 May 1995, CLOUT case No. 410 (Neue Juristische Wochenschrift RechtsprechungsReport 120 f. (1996)); Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der internationalen Wirtschaft 683 f. (1996)); Zivilgericht Kanton Basel-Stadt, Switzerland, 21 December 1992, CLOUT case No. 95 (Baseler Juristische Mitteilungen 310 ff. (1993)); Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrensrechts 400 ff. (1991)). 23 See Oberlandesgericht Kln, Germany, 13 November 2000, available at http://www. cisg.law.pace.edu/cisg/text/001113g1german.html. 24 Id. 25 According to Kaczorowska, supra note 16, at 228, the definition of “place of business” is “the center of the CISG”. 26 For an overview of the various definitions proposed in 1980 on the occasion of the Vienna Diplomatic Conference, see Carbone & Lopez de Gonzalo, supra note 5, at 5.

26

The CISG’s sphere of application: Articles 1-3 and 10

The difficulties on the part of the drafters of the CISG in coming up with a definition of “place of business” acceptable to all parties does not preclude one from being able to identify some elements that allow for a better determination of “place of business”, even though one must keep in mind that there is no general abstract definition. The “place of business” has to be defined on a case-by-case basis, as pointed out in scholarly commentary.27 As a general rule, however, it can be asserted that there is a place of business where there is a stable business organization28 or, as stated by the German Supreme Court (in relation, however, to the 1964 Hague Conventions), where “the center of the business activity directed to the participation in commerce” is located,29 which links the contracting party to the State where the business is conducted, as long as the party has autonomous power.30 A look at the draft Digest shows that a similar definition can also be found in a much more recent court decision (this one relating to the CISG) which defines “place of business” as “the place from which a business activity is de facto carried out [...]; this requires a certain duration and stability as well as a certain amount of autonomy”.31 That autonomous power is an element that characterizes the concept of place of business is evidenced by the fact that an arbitral award considered that a contract concluded between a Chinese seller and an Austrian buyer was international, despite the fact that the buyer had conducted the negotiations partially through its liaison office located in China;32 a liaison office, as pointed out by an even more recent French

27

For this conclusion, see G. A. Ferretti, Commento all’art. 10 della convenzione di Vienna sui contratti di vendita internazionale di beni mobili, Nuove Leggi civ. commentate 43 (1989). 28 For this requirement of stability, see, e. g., Kevin Bell, The Sphere of Application of the Vienna Convention on Contracts for the International Sale of Goods, 8 Pace Int’l L. Rev. 245 (1996); Carbone & Lopez de Gonzalo, supra note 5, at 5; Czerwenka, supra note 1, at 131 ff. 29 Bundesgerichtshof, Germany, 2 June 1982 (Juristische Wochenschrift 2731 (1982)). 30 See also Carbone & Lopez de Gonzalo, supra note 5, at 5, arguing that even though it is necessary that there be autonomous power, it is doubtful whether the power must relate to the possibility of concluding the contract or whether it is sufficient that it relates to the possibility of conducting the bargaining. 31 Oberlandesgericht Stuttgart, Germany, 28 February 2000, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/000228gl.html (Internationales Handelsrecht 66 (2001)); for a similar definition, see also Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)); for a court decision stating that the Convention’s definition of “place of business” requires the parties to “really” do business out of that place, see Amtsgericht Duisburg, Germany, 13 April 2000, CLOUT case No. 360, available at http://www.cisg.law.pace.edu/cisg/text/000413g1german.html. 32 ICC Court of Arbitration, Case No. 7531, 1994, CLOUT case No. 304 (ICC Bulletin 67-68 (1995)).

27

Franco Ferrari

Supreme Court decision33 (which confirmed a decision of the Cour d’appel de Paris)34 must not be considered a “place of business”, since it has no distinct legal personality and no autonomy. The other element characterizing the concept de quo, i. e., the stability requirement, has been referred to only once, without having been examined closely.35 Legal writers suggest, however, that from this requirement it follows that places of temporary sojourn cannot be considered “places of business”.36 This is why one cannot consider conference centers housing exhibitions or hotels or rented offices at exhibitions as being places of business under the CISG.37 Hopefully, case law will soon adopt this view, too. D. Multiple places of business Although the concept of “place of business” will not cause too many problems, the exact determination38 of the relevant place of business does, at least in those cases where a party to the contract has more than one place of business. It is common knowledge that the 1964 Hague Conventions did not answer the question of which among several places of business was to be considered the relevant one. This is why a dispute arose among legal scholars as to what criteria had to be used in order to solve the problem.39 While several legal scholars favored the view according to which the relevant place of business was that where the principal place of business was located,40 others suggested 33

Cour de Cassation, France, 4 January 1995, CLOUT case No. 155 (Recueil Dalloz Sirey 289 (1995)). 34 Cour d’appel de Paris, France, 22 April 1992, CLOUT case No. 158, available at http:// witz.jura.uni-sb.de/CISG/decisions/220492v.htm. 35 See Oberlandesgericht Stuttgart, Germany, 28 February 2000, available at http://www. cisg.law.pace.edu/cisg/text/000228g1german.html. 36 For this conclusion, see, e. g., John O. Honnold, Uniform Law for International Sales § 43 (3d ed. 1999). 37 See Franco Ferrari, International Sale of Goods 45 (1999); Honnold, supra note 36, at § 124. 38 Note that the exact determination of the places of business of the party is not only important for the applicability of the Sales Convention, but for other purposes as well. See, e. g., arts. 12, 20(2), 24, 31(c), 42(1), 57, 69(2), 90, 93(3), 94, 96. 39 For a very detailed discussion of the issue de quo, see, e. g., Gerold Herrmann, Anwendbarkeit des Einheitskaufrechts auf Kaufvertrag mit Zweigniederlasung (Art. 1 Abs. 1 EKG), Praxis des internationalen Privat- und Verfahrensrechts 214 (1983). 40 This view was favored, for instance, by U. Huber, Das Einheitliche Gesetz
ber den internationalen Kauf, Der Betrieb 1205 (1975).

28

The CISG’s sphere of application: Articles 1-3 and 10

that the solution depended upon which place of business had the closest relationship with the contract.41 The dispute was finally solved in 1982 by the German Supreme Court,42 which stated that the preferred solution was the second one and that “one must not share [...] the point of view according to which the decisive place of business is always the principal one”.43 Under the CISG, this dispute does not have any reason to exist, as the Convention expressly provides for a solution to the foregoing problem. According to this solution, laid down in Article 10(a) CISG, the place of business relevant for the determination of the internationality of a sales contract is the one having the closest relationship with the contract, as recalled by a recent German court decision.44 The CISG has, in other words, expressly rejected the so-called “theory of the principal place of business”.45 However, although Article 10(a) prevents a dispute among legal scholars as to which thesis should apply (“principal place of business theory” or “closest relationship theory”), it does not solve all of the problems. Indeed, quid iuris where the contract is concluded at one place of business and has to be executed at another one? To solve this issue, which is one of those on which no case law exists – and which is why the draft Digest does not even refer to it – one has first to examine whether the parties have agreed upon which place of business must be considered relevant. If this is the case, the problem of determining which of several places of business is relevant will not arise, since that agreement will have to be taken into account in determining the relevant place of business. But where there is no agreement concerning the relevant place of business, Article 10(a) CISG creates a new problem, that of how to determine the “closest relationship with the contract and its execution”. In order to facilitate this task, Article 10(a) itself provides for some elements to be used, which, however, have not yet been employed by courts, although at least one court might have had reason to do so.46 41

See V. Sttter, Internationales Einheits-Kaufrecht 132 (1975). Bundesgerichtshof, Germany, 1 June 1982 (in Internationale Rechtsprechung zu EKG und EAG). Eine Sammlung belgischer, deutscher, italienischer und niederlndischer Entscheidungen zu den Haager Einheitlichen Kaufgesetzen 89 ff. (Schlechtriem/Magnus eds. 1987). 43 D. Memmo, La “sede d’affari” secondo la disciplina uniforme sulla vendita internazionale nella pi recente giurisprudenza della Corte federale tedesca, Rivista trimestrale di diritto e procedura civile 759 (1983). 44 Oberlandesgericht Stuttgart, Germany, 28 February 2000, available at http://www. cisg.law.pace.edu/cisg/text/000228g1german.html. 45 For the use of this expression, see Peter Schlechtriem, Einheitliches UN-Kaufrecht 29 (1981). 46 In U. S. District Court for the Southern District of New York, United States, 14 April 1992, CLOUT case No. 23 (Filanto S. p. A. v. Chilewich International Corp., 789 F. Supp. 42

29

Franco Ferrari

According to Article 10(a) CISG, one must take into account all the circumstances known to or contemplated by the parties at any time before (or contemporaneous with) the conclusion of the contract. Consequently, one is not allowed to take into consideration the circumstances which become apparent only after the contract is concluded. Thus, it does not matter whether the places of business change after the conclusion of the contract, as pointed out by the Secretariat Commentary to the Draft Convention.47 Sometimes, however, the circumstances are insufficient to unequivocally determine the relevant place of business. In such circumstances it is here suggested, as no guidance can be found in case law (and, thus, in the draft Digest), that the international character of a sales contract be determined by resorting to the places of business involved in the conclusion of the contract, since these places of business will always be known to both parties.48 However, where the parties know that the contract is to be performed at a place of business different from the one involved in the conclusion of the contract, the text of Article 10(a) suggests that the relevant place of business is the one where performance takes place. In those rare cases where the parties do not have a place of business, Article 10(b) CISG provides that one must resort to the parties’ habitual residence in order to determine whether a sales contract is international. That means, in this author’s opinion, that one must look at a situation of fact, i. e., the real place of sojourn for a long period of time. Whether courts will adopt this view is still to be seen, as there appears to be no case law on the issue yet.

1229), the court did not address the issue of which of several places of business was the “relevant” one, although the buyer had places of business in the United States and England. 47 United Nations Conference on Contracts for the International Sale of Goods, Official Records: Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committees (Vienna, 10 March - 11 April 1980) 19 (United Nations ed., 1981), available in Documentary History of the Uniform Law for International Sales: The Studies, Deliberations and Decisions that Led to the 1980 United Nations Convention with Introductions and Explanations 409 (John O. Honnold ed., 1989) [hereinafter Documentary History]. 48 Franco Ferrari, The Sphere of Application of the Vienna Sales Convention 9 (1995).

30

The CISG’s sphere of application: Articles 1-3 and 10

E. Knowledge of the location of the place of business As can be evinced from the draft Digest, an Italian court49 recently stated that for the CISG to apply it is not sufficient that parties have their places of business in different States, i. e., that the sales contract be an international one. Even though it is not required that the parties be conscious of the applicability – or existence – of the CISG, Article 1(2) requires, as emphasized by the aforementioned Italian court decision, that the internationality of the transaction be apparent to both parties. The Convention, in other words, seeks to protect parties who rely upon the domestic setting of their contract. Given a very recent United States court decision not to be found in the draft Digest,50 this cannot be stressed enough. The aforementioned United States court appears not to have understood this; it interpreted Article 1(2) CISG to protect the parties’ reliance upon the CISG’s inapplicability. This is incorrect. As mentioned, Article 1(2) CISG protects the parties’ reliance upon the domestic setting in which a particular transaction is embedded. The position taken by the United States court would limit the CISG’s applicability in a way not intended by the drafters of the CISG. In order to determine whether the aforementioned requirement – apparent internationality of the contract – is satisfied, the following objective elements51 – exhaustively listed in Article 1(2) CISG – must be taken into account: the contract itself, and the dealings between, or the information disclosed by, the parties before or at the conclusion of the contract. Thus, the Convention is not applicable “[...] where the parties appeared to have their place of business in the same State but one of the parties was acting as the agent for an undisclosed foreign principal”.52 As far as the burden of proof is concerned, a recent Italian decision correctly stated that the party invoking the impossibility of recognizing the interna-

49

Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)). 50 U. S. District Court for the Southern District of Florida, United States, 22 November 2000, available at http://cisgw3.law.pace.edu/cisg/wais/db/cases2/021122u1.html (Impuls I. D. Internacional, S. L., Impuls I. D. Systems, Inc., and PSIAR, S. A. v. Psion-Teklogix Inc.). 51 See Czerwenka, infra note 103, at 136; M. Karollus, UN-Kaufrecht 29 (Vienna/New, 1991). Contra, B. Audit, La vente internationale 19 (1990) (stating that the parties must know that they have concluded a contract which is to be considered an international one under the CISG). 52 Official Records of the United Nations Conference, supra note 47, at 15, available in Documentary History, supra note 47, at 405.

31

Franco Ferrari

tional character of the sales contract (and, thus, the inapplicability of the CISG) carries that burden.53

III. The criteria for applicability of the CISG A. The CISG’s “direct” application ex Article 1(1)(a) As can be evinced from the draft Digest, there is at least one court54 that – correctly – states that in order for the CISG to apply, it is not per se sufficient that the sales contract be an (apparently) international one. Article 1(1) CISG also lists two alternative requirements for applicability, at least one of which has to be met in order to lead to the applicability of the Convention. According to the criterion set forth in Article 1(1)(a), the CISG is “directly”55 or “autonomously”56 applicable, or, as stated by the German Supreme Court, “without the need to resort to the rules of private international law”,57 when the parties have their places of business in different Contracting States, and this is true even where the parties are unaware that the States where their places of business are located are Contracting States. Thus, whenever this requirement is met (and the contract is an apparently international one) and the parties have not excluded the CISG,58 it will be applicable. 53

Tribunale di Vigevano, Italy, 12 July 2000 (Giurisprudenza italiana 280, 287 (2001)). For the same solution in scholarly writing, see Czerwenka, infra note 103, at 136; Herber & Czerwenka, supra note 19, at 21. 54 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)). 55 For a reference to the CISG’s “direct” applicability in case law, see, e. g., Schweizerisches Bundesgericht, Switzerland, 11 July 2000, available at http://www.cisg.law.pace.edu/cisg/text/ 000711s1german.html; in scholarly writing see U. Magnus, Zum rumlich-internationalen Anwendungsbereich des UN-Kaufrechts und zur Mngelr
ge, Praxis des internationalen Privat- und Verfahrensrechts 390 (1993); G. Reinhart, UN-Kaufrecht. Kommentar zum bereinkommen der Vereinten Nationen vom 11 April 1980
ber Vertrge
ber den internationalen Warenkauf 13-14 (Heidelberg, 1991); P. Schlechtriem, Internationales UN-Kaufrecht 8 (T
bingen, 1996). 56 This expression was used by several courts. See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)); Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189, available at http://www.cisg.at/2_5897m.htm. 57 Bundesgerichtshof, Germany, 11 December 1996, CLOUT case No. 268 (Neue Juristische Wochenschrift 870 ff. (1997)). 58 Courts and arbitral tribunals have often pointed out that the lack of an exclusion of the CISG by the parties is a requirement for the CISG to apply. See Tribunale di Vigevano, Italy,

32

The CISG’s sphere of application: Articles 1-3 and 10

Although initially this criterion did not often lead to the CISG’s applicability, given the current number of Contracting States to the CISG59 – sixty-two60 – it now is the prevalent basis for its application,61 as can easily 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2001)); Oberster Gerichtshof, Germany, 9 March 2000, available at http://www.cisg.at/6_31199z.htm; Court of Arbitration of the Zurich Chamber of Commerce, Switzerland, 31 May 1996, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=396&step=FullText; Arbitration Court of the Chamber of Commerce and Industry of of Budapest, Hungary, 5 December 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/163.htm. 59 See also Bell, supra note 28, at 247, stating that “[t]he odds of the CISG not being applied in circumstances contemplated by sub. (1)(a) grow increasingly remote as more States adhere to the Convention”. 60 For an updated list of Contracting States, see the following site on the Internet: http:// www.uncitral.org/english/status/status-e.htm#United Nations Convention on Contracts for. 61 For court decisions rendered in the last years applying the Convention by virtue of article 1(1)(a), see Hof Beroep Gent, Belgium, 21 January 2002, available at http://www.law. kuleuven.ac.be/int/tradelaw/WK2002-01-31.htm; Cour d’appel d’Orlans, France, 29 March 2001, CLOUT case No. 398, available at http://witz.jura.uni-sb.de/CISG/decisions/ 290301v.htm; Landgericht Trier, Germany, 7 December 2000, abstract available in Unilex at http://www.unilex.info/case.cfm?pid.=1&do=case&id=800&step=Abstract (Internationales Handelsrecht 2001, 35); Oberlandesgericht Oldenburg, Germany, 5 December 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/001205g2.html (Recht der internationalen Wirtschaft 2001, 30 ff.); Landgericht Stendal, Germany, 12 October 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/001012g1.htm; Tribunal de Commerce de Montargis, France, 6 October 2000, available at http://witz.jura.uni-sb.de/ CISG/decisions/061000v.htm; Oberster Gerichtshof, Austria, 7 September 2000, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=473&step=Abstract (Internationales Handelsrecht 2001, 42 ff.); Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000830g1.html (Recht der internationalen Wirtschaft 2001, 383 f.); Sixth Civil Court of First Instance, City of Tijuana, Mexico, 14 July 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/000714m1.html (Internationales Handelsrecht 2001, 38 f.); Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2001)); Oberster Gerichtshof, Austria, 28 April 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/000428a3.html#cx (Zeitschrift f
r Rechtsvergleichung 2000, 188 f.); Oberster Gerichtshof, Austria, 13 April 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/000413a3.html#cx (Zeitschrift f
r Rechtsvergleichung 2000, 231); Audiencia Provincial de Navarra, Spain, 27 March 2000, CLOUT case No. 397 (Revista general de derecho 2000, 12536 ff.); Oberster Gerichtshof, Austria, 21 March 2000, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=478&step=Abstract (Internationales Handelsrecht 2001, 40 f.); Oberster Gerichtshof, Austria, 9 March 2000, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/000309a3.html#cx (Internationales Handelsrecht 2001, 39 f.); Oberlandesgericht Stuttgart, Germany, 28 February 2000, available at

33

Franco Ferrari

http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000228g1.html#cx (Internationales Handelsrecht 2001, 65 ff.); Tribunal Supremo, Spain, 28 January 2000, CLOUT case No. 395 (Repertorio de Jurisprudencia 454 (2000)); Ontario Court of Appeal, Canada, 26 January 2000, available at http://is.dal.ca/~cisg/cases/nova2.htm (Nova Tool & Mold Inc. v. London Industries Inc.); Oberlandesgericht Hamburg, Germany, 26 January 2000, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/000126g1.html#cx (OLG-Report Hamburg 464 f. (2000)); Oberlandesgericht M
nchen, Germany, 3 December 1999, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/991203g1.html#ct (Internationales Handelsrecht 25 f. (2001)); Oberlandesgericht Koblenz, Germany, 18 November 1999, CLOUT case No. 359 (OLG-Report Koblenz 281 (2000)); Oberster Gerichtshof, Austria, 12 November 1998, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=476& step=Abstract (Zeitschrift f
r Rechtsvergleichung 78 (2000)); Bundesgerichtshof, Germany, 11 November 1999 (Recht der internationalen Wirtschaft 381 f. (2000)); Cour d’Appel Grenoble, France, 21 October 1999, CLOUT case No. 313, available at http://witz.jura.unisb.de/CISG/decisions/211099.htm; Kantonsgericht Z
rich, Switzerland, 21 October 1999 (Internationales Handelsrecht 45 (2001)); Amstgericht Stendal, Germany, 21 October 1999 (unpublished); Obergericht Basel-Landschaft, Switzerland, 5 October 1999, CLOUT case No. 332 (Schweizerische Zeitschrift f
r internationales und europisches Recht 115 f. (2000)); Ontario Superior Court of Justice, Canada, 31 August 1999, CLOUT case No. 341 (La San Guiseppe v. Forti Moulding Ltd., available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=413&step=FullText; Oberster Gerichtshof, Austria, 27 August 1999, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/990827a3.html#ct (Zeitschrift f
r Rechtsvergleichung 31 f. (2000)); Oberster Gerichtshof, Austria, 29 June 1999, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/990629a3.html#cx (Transportrecht-Internationales Handelsrecht 48 ff. (1999)); Handelsgericht Aargau, Switzerland, 11 June 1999, CLOUT case No. 333 (Schweizerische Zeitschrift f
r internationales und europisches Recht 117 f. (2000)); Appelationsgericht Kanton Tessin, Switzerland, 8 June 1999, CLOUT case No. 336 (Schweizerische Zeitschrift f
r internationales und europisches Recht 120 (2000)); Cour de Cassation, France, 26 May 1999, CLOUT case No. 315, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=417&step=FullText; Cour d’appel de Paris, France, 21 May 1999, CLOUT case No. 314, available at http:// witz.jura.uni-sb.de/CISG/decisions/210599v.htm; Oberster Gerichtshof, Austria, 19 March 1999 (Zeitschrift f
r Rechtsvergleichung 33 (2000)); U. S. District Court for the Eastern District of Louisiana, United States, 17 May 1999, CLOUT case No. 418 (Medical Marketing Int’l, Inc. v. Internazionale Medico Scientifica, S. r. l., available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=360&step=FullText; Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362 (Transportrecht-Internationales Handelsrecht 22 f. (2000)); Handelsgericht Z
rich, Switzerland, 8 April 1999, CLOUT case No. 325 (Schweizerische Zeitschrift f
r internationales und europisches Recht 113 f. (2000)); Bundesgerichtshof, Germany, 24 March 1999, CLOUT case No. 271 (Transportrecht-Internationales Handelsrecht 35 ff. (1999)); Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/519.htm;

34

The CISG’s sphere of application: Articles 1-3 and 10

be evinced from the number of court decisions quoted in the draft Digest in relation to Article 1(1)(a). This criterion of applicability generally causes no problems. Problems may, however, arise with respect to whether a State must be considered a Oberster Gerichtshof, Austria, 11 March 1999, CLOUT case No. 306 (Zeitschrift f
r Rechtsvergleichung 152 (1999)); Kantonsgericht Zug, Switzerland, 25 February 1999, CLOUT case No. 327 (Internationales Handelsrecht 45 (2001)); Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331 (Internationales Handelsrecht 44 f. (2001)); Cour d’appel Grenoble, France, 4 February 1999, CLOUT case No. 243 (Transportrecht-Internationales Handelsrecht 43 f. (1999)); Schiedsgericht Hamburger Freundschaftliche Arbitrage, Germany, 29 December 1998, CLOUT case No. 293 (Internationales Handelsrecht 35 ff. (2001)); Landgericht Regensburg, Germany, 17 December 1998 (Transportrecht-Internationales Handelsrecht 30 f. (2000)); Ontario Court, Canada, 16 December 1998 available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/981216c4.html#ta (1998 ACWSJ LEXIS 56746); Corte di appello Milano, Italy, 11 December 1998, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/981211i3.html#cx (Rivista di diritto internazionale privato e processuale 112 ff. (1999)); Comisin para la Proteccin del Comercio Exterior de Mexico, Mexico, 30 November 1998, available at http://www.uc3m.es/cisg/smexi3.htm; Landgericht Mainz, Germany, 26 November 1998, CLOUT case No. 346, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/563.htm; Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270 (Praxis des internationalen Privat-und Verfahrensrechts 377 ff. (1999)); U. S. District Court for the Northern District of Illinois, United States, 27 October 1998 CLOUT case No. 419 (Mitchell Aircraft Spares v. European Aircraft Service, 23 F. Supp. 2d 915); Cour d’appel Paris, France, 4 March 1998, available at http:// witz.jura.uni-sb.de/CISG/decisions/211099v.htm; Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (sterreichische Juristische Bltter 321 f. (1999)); Oberlandesgericht Oldenburg, Germany, 22 September 1998, CLOUT case No. 340 (TransportrechtInternationales Handelsrecht 23 ff. (2000)); Bezirksgericht Unterrheintal, Switzerland, 16 September 1998, CLOUT case No. 263 (Transportrecht-Internationales Handelsrecht 14 f. (2000)); Oberlandesgericht Koblenz, Germany, 11 September 1998, CLOUT case No. 285 (OLG-Report Koblenz 49 f. (1999)); Oberlandesgericht Celle, Germany, 2 September 1998, CLOUT case No. 318, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 506.htm; Oberlandesgericht Bamberg, Germany, 19 August 1998, available at http://www. jura.uni-freiburg.de/ipr1/cisg/urteile/text/482.htm; Corte Suprema di Cassazione, Italy, 7 August 1998, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case &id=348&step=FullText; Landgericht Erfurt, Germany, 29 July 1998, CLOUT case No. 344, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/561.htm; Cour de Cassation, France, 16 July 1998, CLOUT case No. 242 (Transportrecht-Internationales Handelsrecht 43 (1999)); Oberster Gerichtshof, Austria, 30 June 1998, CLOUT case No. 305 (Zeitschrift f
r Rechtsvergleichung 249 (1999)); Oberster Gerichtshof, Austria, 25 June 1998, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=347&step=Abstract (Zeitschrift f
r Rechtsvergleichung 248 f. (1999)).

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Contracting State or not. As stated in article 99 CISG, a State becomes a Contracting State once it has either ratified, approved, accepted or acceded to the Convention and once a twelve month period of time – fixed by the CISG itself – has elapsed. However, as far as the applicability of Part II (Formation of Contracts) of the Convention is concerned, the applicability presupposes, according to Article 100, that a State be a Contracting state before the offer is made. It is, in other words, not sufficient that a sales contract be concluded after the Convention enters into force for the Contracting States concerned, as pointed out, among others, by the Italian Supreme Court.62 The court had to decide a dispute that had arisen between 62

Corte Suprema di Cassazione, Italy, 24 October 1988, CLOUT case No. 8 (Giustizia civile 1998 (1998/I)). For other judicial applications of Article 100, see also Bundesgerichtshof, Germany, 17 December 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/ text/296.htm (not applying the CISG to a contract concluded between a German seller and an Israeli buyer); Tribunal Supremo, Spain, 3 March 1997, CLOUT case No. 188 (La Ley 9 ff. (1997)) (not directly applying the CISG on the grounds that the contract had been concluded prior to the CISG’s entry into force in Spain); Rechtbank voor koophandel Hasselt, Belgium, 24 January 1995, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=261&step=Abstract (Rechtkundig Weekblad 444 f. (1995-96)) (not applying the CISG to a contract concluded between a German seller and a Belgium buyer); Oberster Gerichtshof, Austria, 16 May 1994, available at http://www.cisg.at/2_53494.htm (not applying the CISG since the requirements for its application laid down in Article 100 were not met); Rechtbank voor koophandel Hasselt, Belgium, 30 March 1994, available at http://www.law .kuleuven.ac.be/int/tradelaw/WK/1994-03-30.htm (Rechtkundig Weekblad 264 (1994-95)) (not applying the CISG to a contract concluded between a Dutch seller and a Belgian buyer); Kantonsgericht Zug, Switzerland, 13 January 1994 (Schweizerische Zeitschrift f
r internationales und europisches Recht 135 (1996)) (excluding the applicability of the CISG for the same reasons); Rechtbank Arnhem, Netherlands, 27 May 1993, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=72&step=Abstract (Nederlands Internationaal Privaatrecht 328 (1994)) (relying upon Art.100(1) to rightly deny the applicability of the CISG to a contract concluded in 1990 between a Dutch seller and a German buyer); Rechtband Arnhem, Netherlands, 29 April 1993, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=73&step=Abstract (Nederlands Internationaal Privaatrecht 692 f. (1993)) (rightly refusing to apply the CISG to a contract between a German buyer and a Dutch seller concluded in 1986); Rechtbank Arnhem, Netherlands, 15 April 1993, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=74&step=FullText (Nederlands Internationaal Privaatrecht 690 ff. (1993)) (not applying the CISG to an English-Dutch contract concluded in 1986); Gerechtshof Amsterdam, Netherlands, 8 April 1993, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=75&step=FullText (Nederlands Internationaal Privaatrecht 460 f. (1993)) (holding that the CISG was not applicable to a contract concluded in 1990 between a Dutch buyer and a German seller, since the CISG had not entered into force in either country); Rechtbank Arnhem, Netherlands, 12 November 1992,

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an Italian seller and a German buyer in relation to a contract for the sale of fruit concluded prior to the CISG’s entry into force in Italy in 1988. According to Article 100(2), for the applicability of Part III (Rights and Obligations of Buyer and Seller), it is sufficient that, in either the Contracting States referred to in Article 1(1)(a) or the Contracting State referred to in Article 1(1)(b), the CISG had entered into force at a date not later than that of the conclusion of the contract.

available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/921112n1.html#cabc (excluding the CISG’s applicability to a contract between a German seller and a Dutch buyer); Rechtbank Arnhem, Netherlands, 22 October 1992, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=100&step=FullText (Nederlands Internationaal Privaatrecht 185-6 f. (1993)) (Justifying the decision not to apply the CISG to an international sales contract concluded in 1991 between an English seller and a Dutch buyer by quoting Art.100(1)); Hoge Raad, Netherlands, 25 September 1992, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=71&step=FullText (Nederlands Internationaal Privaatrecht 126 ff. (1993)) (the court held that the CISG was not applicable to a contract concluded in 1986 between a French seller and a Dutch buyer); Rechtbank Arnhem, Netherlands, 3 September 1992, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=99&step=FullText (Nederlands Internationaal Privaatrecht 183 (1993)) (not applying the CISG since the rules of private international law led to the law of the Netherlands, which at the time of the conclusion was still a non-Contracting State); Rechtbank Arnhem, Netherlands, 7 May 1992, abstract available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=98&step=Abstract (Nederlands Internationaal Privaatrecht 659 f. (1992)) (not applying the CISG to a contract concluded in 1989, i. e., before the CISG’s entry into force either in Germany or the Netherlands, the countries in which the parties to the contract had their places of business); Gerechtshof s’Hertogenbosch, Netherlands, 27 November 1991, abstract available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=96&step=Abstract (Nederlands Internationaal Privaatrecht 338 (1992)) (excluding ex Art.100-and-99-the CISG’s applicability to a contract concluded in 1989 between a German seller and a Dutch buyer); Handelsgericht Z
rich, Switzerland, 9 April 1991, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=89&step=FullText (not applying the CISG to a contract concluded between an Italian seller and a Swiss buyer); C mera Nacional de Apelaciones en lo Comercial, Argentina, 15 March 1991, CLOUT case No. 22 (El derecho 307 f. (1993)) (finding that the contract could not be governed by the CISG since it had been concluded prior to its entry into force); Corte Suprema di Cassazione, Italy, 24 October 1988, CLOUT case No. 8 (Foro italiano 2878 ff. (1989/I)) (the court held rightly that the CISG could not govern since the contract between an Italian seller and a German buyer had been entered into before the CISG’s coming into force and, thus, the requirements laid down in Art.100 were not met).

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B. The impact of reservations on the status of “Contracting State” (Articles 92 and 93) With reference to the concept of “Contracting State”, it must also be pointed out that where a State declares itself not to be bound by Part II or Part III of the CISG – either of which is possible under Article 9263 – it cannot be considered a Contracting State in respect of the Part that it has excluded. Consequently, it is possible that a sales contract concluded between two parties that have their places of business in two Contracting States, one of which has made a declaration according to Article 92, either is governed by the CISG as a whole or is governed partly by the rules of the CISG and partly by the rules of domestic law. This is true even with respect to issues normally within the scope of the CISG – a situation that certainly does not favour uniformity. The effects of the Article 92 reservation have been dealt with in several court decisions, as evidenced by the draft Digest’s references to case law. In one case, a German court64 had to decide whether the CISG was applicable to a contract for the sale of 3000 tons of nickel-copper electrolyte cathodes between a German buyer and a Finnish seller. The court held that the CISG was applicable to the rights and obligations of the parties by virtue of Article 1(1)(a), but that the issue of the contract’s formation could not be governed by Part II (Formation of Contracts) of the CISG, at least not by virtue of Article 1(1)(a), since Finland had made an Article 92 reservation and therefore could not be considered a Contracting State in respect to that Part. Nevertheless, the court held that by virtue of Article 1(1)(b) (relating to the CISG’s indirect applicability, to be examined more closely in the next chapter), the CISG had to govern contract formation as well, since the German private international law rules made German law (i. e. the law of a contracting State) applicable to that issue. Similarly, a court, even though located in Denmark – i. e. a State that made an article 92 reservation in respect of Part II – applied the CISG as a whole, in part on the basis of

63 Article 92 CISG: (1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention. (2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect to Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect to the matters governed by the Part to which the declaration applies. 64 Oberlandesgericht M
nchen, 8 March 1995, CLOUT case No. 134, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/145.htm.

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Article 1(1)(a) (Part III), and in part by virtue of its rules of private international law leading to the law of a Contracting State (Part II).65 In another case, a German court of appeals66 had to decide whether a dispute between a Danish seller and a German buyer had to be solved by resorting to the rules of the CISG. The court held that since both Germany and Denmark were Contracting States at the moment of the conclusion of the contract, the CISG applied by virtue of Article 1(1)(a), except for the CISG’s rules on formation of contract. Since Denmark had made an Article 92 reservation by virtue of which it is not bound by Part II, it cannot “be considered a Contracting State within paragraph (1) of article 1 of [the] Convention”.67 The German court therefore resorted to its private international law rules and applied Danish domestic, non-uniform law to the formation of the contract. More recently, a Hungarian court68 as well as an arbitral tribunal69 – correctly – took the same view on this issue.

65

Østre Landsret, Denmark, 23 April 1998, CLOUT case No. 309, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=393&step=FullText. For a comment on this decision, see Joseph Lookofsky, Alive and Well in Scandinavia: CISG Part II, 18 J. L. & Com. 289 ff. (1999). 66 Oberlandesgericht Rostock, Germany, 27 July 1995, CLOUT case No. 228 (OLG-Report Rostock 50 f. (1996)). 67 Article 92(2) CISG. 68 Metropolitan Court of Budapest, Hungary, 21 May 1996, CLOUT case No. 143, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/960521h1.html. The court held that, even though a contract concluded between a Swedish seller and a Hungarian buyer after the CISG’s entry into force in both Sweden and Hungary was generally governed by the CISG by virtue of Article 1(1)(a), its formation was not, since Sweden had made an Article 92 reservation by virtue of which it was not bound by Part II of the CISG. The court therefore had recourse to its rules of private international law and determined that Swedish law had to govern the formation of the contract. In another case, Gerichtsprsident Laufen, Switzerland, 7 May 1993, CLOUT case No. 201, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=105&step=Full Text, the Article 92 reservation was mentioned. A Finnish manufacturer sold industrial equipment to a Swiss buyer. The court applied the CISG to the rights and obligations of the parties by virtue of Article 1(1)(b) as part of the law of Finland, where the CISG had already entered into force. As for Part II, the court stated that the conclusion of the contract was not disputed, which is why it did not take the reservation into account. 69 ICC Court of Arbitration, Case No. 7585, 1992, CLOUT case No. 301 (Journal du droit international 1015 ff. (1995)) (applying the CISG in its entirety to a contract concluded between an Italian seller and a Finnish buyer, due partially to article 1(1)(a) – with respect to CISG Part III – and partially to article 1(1)(b) – with respect to CISG Part II).

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In deciding whether a party to an international sales contract has its place of business in a Contracting State, another reservation also has to be taken into account, namely the one referred to in Article 93. According to that provision, if a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in the CISG, that Contracting State may make a declaration pursuant to which the CISG does not extend to all of the territorial units. The consequence of such a declaration is that if the place of business of a party is located in that territorial unit, that place of business is considered not to be in a Contracting State. As only one State, Canada, made use of the possibility of limiting the reach of the CISG to certain “territorial units”, and since that State later extended the CISG to all of its “territorial units”, it is no surprise that no case law can be found on this subject in the draft Digest. C. The CISG’s “indirect” application by virtue of Article 1(1)(b) and the 1980 Rome Convention The applicability of the CISG is not necessarily excluded where the parties do not have their places of business in different Contracting States. By virtue of Article 1(1)(b) CISG, one of the provisions that has led to major discussions,70 the CISG can be applicable even where one or both parties do not have their places of business in Contracting States, provided that the rules of private international law (of the forum, as pointed out by a recent Italian court decision71) lead to the application of the law of a Contracting State, as they have apparently done rather often, given the number of court decisions quoted in the Digest in this regard.72 In that case, the CISG is 70 For papers dealing with this provision, see F. Diedrich, Anwendung der “Vorschaltlsung” im Internationalen Kaufrecht, Recht der internationalen Wirtschaft 758 ff. (1993); Franco Ferrari, Diritto uniforme della vendita internazionale: Questioni di applicabilit e diritto internazionale privato, Rivista di diritto civile 669 ff. (1995/ II); Franco Ferrari, CISG Article 1(1)(b) and Related Matters, Nederlands Internationaal Privaatrecht 317 ff. (1995); H. P
nder, Das Einheitliche UN-Kaufrecht – Anwendung kraft kollisionsrechtlicher Verweisung nach Art. 1 Abs. 1 lit. b UN-Kaufrecht, Recht der internationalen Wirtschaft 869 ff. (1990). 71 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 286 (2001)). 72 For recent applications of the CISG by virtue of Article 1(1)(b), see Cour de Cassation, France 26 June 2001, available at http://witz.jura.uni-sb.de/CISG/decisions/2606012v.htm; Supreme Court of Queensland, Australia, 17 November 2000, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=472&step=FullText (Downs Investment Pty Ltd. v. Perwaja Stell SDN BHD, Supreme Court of Queensland, unpublished); C mara Nacional de Apelaciones en lo Comercial, Argentina, 24 April 2000, available at http://

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applied as part of the law of the forum, and not as part of foreign law, even www.cisg.law.pace.edu/cisg/wais/db/cases2/000424a1.html; Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico 932 f. (2000)); Oberlandesgericht Hamburg, Germany, 26 November 1991 (Internationales Handelsrecht 19 ff. (2001)); Oberlandesgericht Bamberg, Germany, 13 January 1999, CLOUT case No. 294 (Transportrecht-Internationales Handelsrecht 17 f. (2000)); Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Transportrecht-Internationales Handelsrecht 12 (2000)); Oberlandesgericht Celle, Germany, 11 November 1998, CLOUT case No. 274 (Transportrecht-Internationales Handelsrecht 18 ff. (2000)); Ostre Landsret, Denmark, 23 April 1998, CLOUT case No. 309 (Ugeskrift for Retsvaesen 1092 (1998)); Corte di appello Milano, Italy, 20 March 1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/98032i3.html#ct (Rivista di diritto internazionale privato processuale 170 ff. (1998)); Oberster Gerichtshof, Austria, 12 February 1998, CLOUT case No. 238 (Zeitschrift f
r Rechtsvergleichung 65 ff. (1999)); Cour de Cassation, France 27 January 1998, CLOUT case No. 224, available at http://witz.jura.uni-sb.de/CISG/decisions/270198.htm; Hoge Raad, Netherlands, 7 November 1997, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=333&step=FullText (Nederlands Internationaal Privaatrecht No. 91 (1998)); Rechtbank Koophandel Kortrijk, Belgium, 6 October 1997, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1997-10-06.htm; Oberlandesgericht Kln, Germany, 9 July 1997, CLOUT case No. 283, available at http://www.jura.uni-freiburg.de/ipr1/ cisg/urteile/text/495.htm; Rechtbank Zutphen, Netherlands, 29 May 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=353&step=FullText (Nederlands Internationaal Privaatrecht No. 110 (1998)); Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277 (OLG-Report Hamburg 149 ff. (1997)); Handelsgericht Z
rich, Switzerland, 5 February 1997, CLOUT case No. 214 (Schweizerische Zeitschrift f
r internationales und europisches Recht 75 ff. (1998)); Rechtbank Koophandel Kortrijk, Belgium, 6 January 1997, available at http://www.law.kuleuven.ac.be/int/tradelaw/ WK/1997-01-06.htm; Cour de Cassation, France, 17 December 1996, CLOUT case No. 206 (Revue critique de droit international priv 72 f. (1997)); Cour d’Appel Grenoble, France, 23 October 1996, CLOUT case No. 205, available at http://witz.jura.uni-sb.de/CISG/decisions/ 231096v.htm; Rechtbank van Koophandel Hasselt, Belgium, 9 October 1996, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1996-10-09.htm; Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176 (Recht der Wirtschaft 203 ff. (1996)); Landgericht Siegen, Germany, 5 December 1995, available at http://www.jura.uni-freiburg.de/ ipr1/cisg/urteile/text/287.htm; Rechtbank van Koophandel Hasselt, Belgium, 8 November 1995, available at http://www.law.kuleuven.ac.be /int/tradelaw/WK/1995-11-08.htm; Rechtbank van Koophandel Hasselt, Belgium, 18 October 1995, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=266&step=FullText (Rechtkundig Weekblad 1378 f. (1995-1999)); Landgericht Hamburg, Germany, 2 October 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/395.htm; Tribunal de Commerce Nivelles, Belgium, 19 September 1995, available at http://www.law.kuleuven.ac.be/int/tradelaw/ WK/1995-09-19.htm; Hof Arnhem, Netherlands, 22 August 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=156&step=FullText (Nederlands In-

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ternationaal Privaatrecht 683 ff. (1995)); Rechtbank Almelo, Netherlands, 9 August 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=155&step=Full Text (Nederlands Internationaal Privaatrecht 686 (1995)); Oberlandesgericht Frankfurt, Germany, 5 July 1995, CLOUT case No. 276, available at http://www.jura.uni-freiburg.de/ipr1/ cisg/urteile/text/258.htm; Landgericht Kassel, Germany, 22 June 1995, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/370.htm; Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Praxis des internationalen Privat- und Verfahrensrechts 269 f. (1996)); Rechtbank Zwolle, Netherlands, 1 March 1995, abstract available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950301n2.html (Nederlands Intrnationaal Privaatrecht 126 f. (1996)); Cour de Cassation, France 4 January 1995, CLOUT case No. 155 (Recueil Dalloz Sirey 289 f. (1995)); Rechtbank Middelburg, Netherlands, 30 November 1994, abstract available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2 /941130n1.html (Nederlands Internationaal Privaatrecht 410 f. (1996)); Tribunal Commercial de Bruxelles, Belgium, 5 October 1994, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/199410-05.htm; Rechtbank Amsterdam, Netherlands, 5 October 1994, abstract available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/941005n1.html (Nederlands Internationaal Privaatrecht 195 f. (1995)); Landgericht D
sseldorf, Germany, 25 August 1994, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=150&step=FullText; Rechtbank van Koophandel Hasselt, Belgium, 16 March, 1994, available at http://www.law. kuleuven.ac.be/int/tradelaw/WK/1994-03-16.htm; Rechtbank Zwolle, Netherlands, 16 March 1994 (Nederlands Internationaal Privaatrecht 126 f. (1996)); Rechtbank van Koophandel Hasselt, Belgium, 23 February 1994, available at http://www.law.kuleuven.ac.be/ int/tradelaw/WK/1994-02-23.htm; Oberlandesgericht Kln, Germany, 22 February 1994, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/940222gl.html (Praxis des internationalen Privat- und Verfahrensrechts 393 ff. (1995)); Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT case No. 81 (Der Betrieb 2492 ff. (1994)); Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der internationalen Wirtschaft 683 f. (1994)); Rechtbank Arnhem, Netherlands, 30 December 1993, CLOUT case No. 100 (Nederlands Internationaal Privaatrecht 339 f. (1994)); Tribunal Cantonal Vaud, Switzerland, 6 December 1993, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=173&step=FullText; Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281 (Recht der internationalen Wirtschaft 934 ff. (1993)); Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49 (Recht der internationalen Wirtschaft 845 f. (1993)); Cour d’Appel Grenoble, France, 16 June 1993, CLOUT case No. 25 (published in English in 14 Journal of Law and Commerce 209 ff. (1995)); Gerichtsprsident Laufen, Switzerland, 7 May 1993, CLOUT case No. 201, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=105&step=FullText; Rechtbank Roermond, Netherlands, 6 May 1993, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=94&step=FullText; Oberlandesgericht D
sseldorf, Germany, 12 March 1993, CLOUT case No. 310, available at http://www.jura.uni-freiburg.de/ipr1/cisg/ urteile/text/82.htm; Rechtbank Arnhem, Netherlands, 25 February 1993, CLOUT case No. 99 (Nederlands Internationaal Privaatrecht 686 ff. (1993)); Oberlandesgericht Saar-

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where the the rules of private international law lead to the law of a State different from the forum State. In practice this means, for instance, that where the lex fori is the law of a Contracting State in which the relevant rules of private international law of sales contracts are based upon the 1980 EEC Convention on the Law Applicable to Contractual Obligations (hereinafter: Rome Convention), as in many European countries, the CISG will generally be applicable when the law either chosen by the parties or, absent choice of law, that having the closest connection with the contract, is the law of a Contracting State. The Rome Convention’s recognition of party autonomy (in the sense of choice of law) did not raise any problems, it being a concept widely acknowledged throughout European private international law codifications long before the Rome Convention came into force. This is why its application to international sales contracts does not cause many difficulties,73 as evidenced by the fact that several courts,74 as well as arbitral br
cken, Germany, 13 January 1993, CLOUT case No. 292, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/83.htm; Oberlandesgericht D
sseldorf, Germany, 8 January 1993, CLOUT case No. 48 (Recht der internationalen Wirtschaft 325 (1993)); Zivilgericht Kanton Basel-Stadt, Switzerland, 21 December 1992, CLOUT case No. 45 (Baseler Juristische Mitteilungen 310 ff. (1993)); Oberlandesgericht Karlsruhe, Germany, 20 November 1992, CLOUT case No. 317 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1316 f. (1993)). 73 See, however, the decision of the Tribunale di Monza, Italy, 29 March 1993 (Foro italiano 916 ff. (1994)), which expressly states that the rules of private international law to which Article 1(1)(b) refers cannot be applied when the parties have expressly chosen the law applicable to their contractual relationship. For strong criticism, see Franco Ferrari, Uniform Law of International Sales: Issues of Applicability and Private International Law, 15 J.L & Com. 159 ff. (1995). 74 See Hof Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/ int/tradelaw/WK/2002-05-17.htm (applying the CISG due to the choice of French law as the applicable law); Cour de Cassation, France 17 December 1996, CLOUT case No. 206 (Revue critique de droit international priv 72 f. (1997)) (annulling the appellate’s court decision not to apply the CISG to a contract concluded between a French seller and an Irish buyer which contained a choice of law clause leading to the law of a Contracting State); Rechtbank s’Gravenhage, Netherlands, 7 June 1995, abstract available in Unilex at http://www.unilex. info/case.cfm?pid=1&do=case&id=154&step=Abstract (Nederlands Internationaal Privaatrecht 687 (1995)) (applying the CISG due to the choice of Dutch law as the law applicable to the contract); Oberlandesgericht Kln, Germany, 22 February 1994, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/940222gl.html (Recht der internationalen Wirtschaft 972 f. (1994)) (applying the CISG to a contract concluded between a Dutch seller and a German buyer by virtue of the parties’ choice of German law as the applicable law and, thus,

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tribunals,75 all referred to in the draft Digest, have already relied upon the parties’ choice of law to make the CISG applicable by virtue of Article 1(1)(b). Absent choice of law, the Rome Convention makes applicable the law of the country with which the contract is most closely connected,76 as pointed out by several court decisions that can be found in the draft Digest.77 And since it is presumed that the contract is most closely connected with the country where the party who is to effect the contract’s characteristic performance has the law of a Contracting State); Oberlandesgericht D
sseldorf, Germany, 8 January 1993, CLOUT case No. 48 (Neue Juristische Wochenschrift 999 f. (1993)) (applying the CISG – by virtue of the choice of German law – to a contract concluded between a Turkish seller and a German buyer at a date at which Germany but not Turkey was a Contracting State). 75 See, e. g., Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166 (Monatschrift f
r deutsches Recht 781 ff. (1996)) (wrongly applying the CISG to a contract concluded between a German buyer and a Chinese seller by virtue of the [hypothetical] choice of German law as the law applicable to the contract; since the parties had their place of business in different Contracting States, the CISG should have been held applicable by virtue of Article 1[1][a] not 1[1][b]); ICC Court of Arbitration, case No. 8324, 1995, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=240&step=Abstract (Journal du droit international 1019 ff. (1996)) (applying the CISG to a sales contract by virtue of the choice of French law, the law of a Contracting State, as the applicable law). 76 See Article 4(1) EEC Convention: “To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country”. 77 For cases referring to the “closest connection”, see Rechtbank Amsterdam, Netherlands, 5 October 1994, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=124&step=Abstract (Nederlands Internationaal Privaatrecht 195 (1995)); Landgericht D
sseldorf, Germany, 25 August 1994, available in Unilex at http://www. unilex.info/case.cfm? pid=1&do=case&id=150&step=FullText; Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT case No. 81, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/116.htm; Rechtbank Arnhem, Netherlands, 30 December 1993, CLOUT case No. 100 (Nederlands Internationaal Privaatrecht 339 f. (1994)); Rechtbank Roermond, Netherlands, 6 May 1993, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=94&step=FullText; Oberlandesgericht Karlsruhe, Germany, 30 November 1992, CLOUT case No. 317 (Neue Juristische Wochenschrift RechtsprechungsReport 1316 f. (1993)); Oberlandesgericht Koblenz, Germany, 27 September 1991, CLOUT case No. 316, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/30.htm; Oberlandesgericht Frankfurt, Germany, 13 June 1991, CLOUT case No. 1 (Recht der internationalen Wirtschaft 591 f. (1991)).

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its place of business78 – and since the monetary obligation is generally not the characteristic one, as expressly stated by a German court79 – the law applicable to international sales contracts is generally (i. e. where the presumption is not rebutted80) the law of the seller. This has often been pointed out in case law,81 since it is the seller who has to execute the characteristic performance consisting of the transfer of ownership and the delivery of the goods, as stated by various courts82 and arbitral tribunals,83 reference to which can be found in the draft Digest. D. The CISG’s “indirect” application by virtue of Article 1(1)(b) and the 1955 Hague Convention It must be noted that, although the 1980 EEC Convention on the Law Applicable to Contractual Obligations has come into force in all EU countries, it does not mean that the issue of what law is to be applied to 78

See Article 4(2) EEC Convention. For this statement in case law, see Oberlandesgericht Koblenz, Germany, 16 January 1992, CLOUT case No. 226 (Recht der internationalen Wirtschaft 1024 (1992)), expressly stating that “the payment of money never constitutes the characteristic performance”. 80 For a case in which the presumption contained in article 4(2) of the Rome Convention was rebutted and the law of the buyer was applied rather than the law of the seller, see Landgericht Kassel, Germany, 22 June 1995, available at http://www.jura.uni-freiburg.de/ipr1/ cisg/urteile/text/370.htm. 81 See, e. g., Hof Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2002-05-17.htm; Landgericht Kassel, Germany, 15 February 1996 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1146 (1996)); ICC Court Arbitration, Case No. 8324, 1995, abstract available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=240&step=Abstract (Journal du droit international 1019 ff. (1996)); Rechtbank s’Gravenhage, Netherlands, 7 June 1995, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=154&step=Abstract (Nederlands Internationaal Privaatrecht 687 (1995)); Oberlandesgericht D
sseldorf, Germany, 8 January 1993, CLOUT case No. 48 (Praxis des internationalen Privat- und Verfahrensrechts 412 ff. (1993)); Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/91.htm. 82 See, e. g., Landgericht Berlin, Germany, 24 March 1998, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=440&step=FullText; Landgericht M
nchen, Germany, 6 May 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 341.htm; Landgericht Siegen, Germany, 5 December 1995, available at http://www.jura. uni-freiburg.de/ipr1/cisg/urteile/text/287.htm; Rechtbank Amsterdam, Netherlands, 5 October 1994, abstract available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/94100 n1.html#cabc (Nederlands Internationaal Privaatrecht 195 (1995)); Rechtbank Zwolle, Netherlands, 1 March 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=152&step=FullText; Oberlandesgericht M
nchen, Germany, 2 March 1994, 79

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an international sales contract must always be solved by resorting to that Convention. Even in the countries bound by the Rome Convention, that Convention is not always the one to be taken into account to determine the applicable law. Indeed, since Article 21 of the Rome Convention states that it “shall not prejudice the application of international conventions to which a Contracting State is, or becomes, a party”, other rules might govern the foregoing issue, despite the Rome Convention being in force. Thus, in those States bound by the Rome Convention where the 1955 Hague Convention on the Law Applicable to International Sales of Goods is still in force, such as in France and Italy, one must resort to the rules of this Convention rather than those of the Rome Convention, as several courts have done recently.84 Unfortunately, however, the issue of the relationship between the Rome CLOUT case No. 83 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1076 (1994));

Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT case No. 81 (Recht der internationalen Wirtschaft 54 (1995)); Kammersgericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der internationalen Wirtschaft 683 (1994)); Oberlandesgericht Karlsruhe, Germany, 20 November 1992, CLOUT case No. 317 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1316 (1993)); Oberlandesgericht Kln, Germany, 16 October 1992, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=90&step=Abstract (Recht der internationalen Wirtschaft 144 (1993)); Oberlandesgericht Koblenz, Germany, 16 January 1992, CLOUT case No. 226 (Recht der internationalen Wirtschaft 1024 (1992)); Oberlandesgericht Frankfurt, Germany, 17 September 1991, CLOUT case No. 2 (Recht der internationalen Wirtschaft 951 (1991)); Landgericht Frankfurt, Germany, 16 September 1991, CLOUT case No. 6 (Recht der internationalen Wirtschaft 953 (1991)); Oberlandesgericht Frankfurt, Germany, 13 June 1991, CLOUT case No. 1 (Neue Juristische Wochenschrift 3102 (1991)); Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrensrechts 401 (1991)); Amstgericht Oldenburg, Germany, 24 April 1990, CLOUT case No. 7 (Praxis des internationalen Privat- und Verfahrensrechts 337 (1991)); Landgericht Aachen, Germany, 3 April 1990, CLOUT case No. 46 (Recht der internationalen Wirtschaft 492 (1990)); Landgericht Stuttgart, Germany, 31 August 1989, CLOUT case No. 4 (Praxis des internationalen Privat- und Verfahrensrechts 317 (1990)). 83 See, e. g., ICC Court of Arbitration, Case No. 8611, 1997, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=229&step=FullText; ICC Court of Arbitration, Case No. 7197, 1992, CLOUT case No. 104 (Journal du droit international 1030 (1993)). 84 In this respect see, e. g., Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico 932 f. (2000)) (stating that in Italy “the conflict of law rules relating to international sales are not those provided by the Rome Convention; instead, one must look to the Hague Convention of 15 June 1955 (ratified by Law of 4 February 1958 no. 50, entered into force in Italy on 1 September 1964), since by virtue of Article 21 of the Rome Convention, the Hague Convention takes precedence over the conflict rules of the Rome Convention”.).

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The CISG’s sphere of application: Articles 1-3 and 10

Convention and the 1955 Hague Convention has not been dealt with in the draft Digest, although references to case law applying the CISG by virtue of recourse to either convention can be found in it. For the sake of completeness, it should be mentioned that as far as party autonomy is concerned, the application of the 1955 Hague Convention, rather than the Rome Convention, does not lead to diverging results, as article 2 of the 1955 Hague Convention85 also obliges judges to acknowledge the choice of law made by the parties, a provision that has already led to the application of the CISG.86 Absent choice of law, under the 1955 Hague Convention courts have to apply the law of the seller,87 except in cases where the seller receives the order in the buyer’s country, in which case the law of the buyer governs.88

85

See article 2 of the Hague Convention: A sale shall be governed by the domestic law of the country designated by the Contracting Parties. Such designation must be contained in an express clause, or unambiguously result from the provisions of the contract. Conditions affecting the consent of the parties to the law declared applicable shall be determined by such law. 86 For a case applying the CISG by virtue of a choice of law acknowledged by the court on the grounds of article 2 of the 1995 Hague Convention, see Tribunal Commercial de Bruxelles, Belgium, 13 November 1992, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/ 1992-11-13.htm. 87 See Rechtbank Hasselt, Belgium, 9 October 1996, available at http://www.law.kuleuven. ac.be/int/tradelaw/WK/1996-10-09.htm; Rechtbank Hasselt, Belgium, 8 November 1995, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1995-11-08.htm; Cour d’appel Grenoble, France, 26 April 1995, CLOUT case No. 151, available at http://witz.jura.uni-sb.de/ CISG/decisions/2604952v.htm; Rechtbank Hasselt, Belgium, 18 October 1996 (Rechtkundig Weekblad 1995, 1378 f.); Tribunal Commercial de Bruxelles, Belgium, 5 October 1994, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1994-10-05.htm; Kantonsgericht Wallis, Switzerland, 6 December 1993, available in Unilex at http://www.unilex. info/case.cfm?pid=1&do=case&id=173&step=FullText; Gerichtsprsident Laufen, Switzerland, 7 May 1993, CLOUT case No. 201 (Schweizerische Zeitschrift f
r internationales und europisches Recht 277 f. (1995)); Pretore della Giurisdizione di Locarno-Campagna, Switzerland, 27 April 1992, CLOUT case No. 56 (Schweizerische Zeitschrift f
r internationales und europisches Recht 665 (1993)). 88 Cour de Cassation, France 26 June 2001, available at http://witz.jura.uni-sb.de/CISG/ decisions/2606011v.htm; Tribunale di Verona, Italy, 17 December 1997 (Rivista veronese di giurisprudenza economica e dell’impresa 22 ff. (1998)).

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From what has been said thus far, one general rule can be set forth: provided that the parties have not excluded the CISG and that no electio iuris occurred, the CISG should be applied in the courts of Contracting States (provided the State did not limit the scope of Article 1(1)(b) by means of an Article 95 reservation, to be discussed infra), at least to most international sales contracts involving a seller who has its place of business in a Contracting (non-reservatory) State. E. The impact of the Article 95 reservation on the CISG’s applicability The CISG’s “indirect” application was criticized,89 both by former socialist countries which “wanted to avoid the excessive restriction of the applicability of their domestic statutes governing the relationships with foreign parties”,90 as well as by the United States. As a consequence of such criticism, the drafters of the CISG provided for a reservation clause, Article 95 CISG, which gives Contracting States the option not to be bound by Article 1(1)(b). Although the Article 95 reservation has a big impact on trade relations involving States that have adopted it, in case law and, thus, in the draft Digest, the reservation’s effects have not been dealt with often, nor have they been dealt with in depth. The only cases listed in the draft Digest that deal with the reservation at hand merely (but correctly) point out that the reservation does not impact the CISG’s applicability by virtue of article 1(1)(a). Therefore it is no surprise that courts of Contracting States that declared an Article 95 reservation have applied the CISG as a whole by virtue of Article 1(1)(a) where the parties to the sales contract had their relevant places of business in different Contracting States.91 89

For a criticism of Article 1(1)(b), see, e. g., Gyula Ersi, A propos the 1980 Vienna Convention on Contract for the International Sale of Goods, 31 Am. J. Comp. L. 353 (1983); G. Sacerdoti, I criteri di applicazione della convenzione di Vienna sulla vendita internazionale: diritto uniforme, diritto internazionale privato e autonomia dei contratti, Rivista trimestrale di diritto e procedura civile 739-740 (1990). 90 R. Luzzatto, Vendita (dir. internaz. priv.), in 46 Enciclopedia del diritto 510 (1993). 91 4th Circuit U. S. Court of Appeals, United States, 21 June 2002, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/020621u1.html (Schmitz-Werke GmbH & Co. v. Rockland Industries, 37 Fed. Appx. 687); U. S. District Court for the Northern District of Illinois, United States, 7 December 1999, CLOUT case No. 417 (Magellan International v. Salzgitter Handel, 199 U. S. Dist. LEXIS 1938b, available at http://www.cisg.law.pace.edu/cisg/ wais/db/cases2/991207u1.html); State of Minnesota District Court for the Fourth Judicial District of the County of Hennepin, United States, 9 March 1999, CLOUT case No. 416 (KSTP-FM, LLC v. Specialized Communications, Inc. and Adtronics Signs, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/990309u1.html); U. S. District Court for the East-

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The CISG’s sphere of application: Articles 1-3 and 10

But what impact does the Article 95 reservation have on the “indirect” applicability of the CISG? In this author’s opinion, several situations – none of which is dealt with by the Digest – must be distinguished.92 (A) It has been argued, that where the forum is located in a reservatory State and the rules of private international law of that state lead to the applicability of the law of a Contracting State (whether reservatory or not), the CISG will not apply,93 since the Contracting reservatory States are bound to apply the CISG only where both parties have their places of business in Contracting States.94 This view is held not only by commentators but also by a United ern Division of the Northern District of Illinois, United States, 27 October 1998, CLOUT case No. 419 (Mitchell Aircraft Spares, Inc. v. European Aircraft Service AB, 23 F. Supp. 2d 915, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/981027u1.html); 11th Circuit U. S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S. p. A., 144 F.3d 1384, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980629u1.html); U. S. District Court for the Southern District of New York, United States, 6 April 1998, CLOUT case No. 413 (Calzaturificio Claudia s. n. c. v. Olivieri Footwear Ltd., 1998 Westlaw 164824); U. S. District Court for the Southern District of New York, United States, 21 July 1997, CLOUT case No. 187 (Helen Kaminski Pty. Ltd. v. Marketing Australian Products, Inc. d/b/a Fiona Waterstreet Hats, U. S. District Court, LEXIS 10630 (1997)); Circuit U. S. Court of Appeals, United States, 6 December 1995, CLOUT case No. 138 (Delchi Carrier, SpA v. Rotorex Corp.,71 F.3d 1024, 1995 U. S. App. LEXIS 34226); U. S. District Court for the Southern District of New York, United States, 22 September 1994, CLOUT case No. 86 (Graves Import Company, Ltd. and Italian Trading Company v. Chilewich International Corporation, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/940922u1.html); U. S. District Court for the Southern District of New York, United States, 6 April 1994 (S. V. Braun v. Alitalia-Linee Aeree Italiane, S. p. A. v. AEL International Shipping Company, U. S. Dist. LEXIS 4114); 5th Circuit U. S. Court of Appeals, United States, 15 June 1993, CLOUT case No. 24 (Beijing Metals & Minerals Import/Export Corp. v. American Business Center, Inc., 993 F.2d 1178, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/930615u1.html); U. S. District Court for the Southern District of New York, United States, 14 April 1992, CLOUT case No. 23, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 920414u1.html (Filanto S. p. A. v. Chilewich Int’l Corp., 789 F. Supp. 1229). 92 See Franco Ferrari, La vendita internazionale, Applicabilit ed applicazioni della Convenzione di Vienna 78 ff. (1997). 93 For this solution, see, among others, Isaak I. Dore, Choice of Law under the International Sales Convention: A U. S. Perspective, 77 Am. J. Int’l Law 537 (1983); Malcolm Evans, Art. 95, in Commentary on the International Sales Law 656 (C. M. Bianca & M. J. Bonell eds., 1987); P
nder, supra note 70, at 872. 94 For a similar conclusion, see Bradley J. Richards, Note, Contracts for the International Sale of Goods: Applicability of the United Nations Convention, 69 Iowa L. Rev. 222 (1983) (stating that where an Article 95 reservation has been declared, the application of the Convention in

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States court that recently stated that “the only circumstance in which the CISG could apply [in the court of a reservatory State] is if all the parties to the contract were from Contracting States”.95 It is certainly true that, in this situation, the courts of reservatory States do not have to apply the CISG by virtue of Article 1(1)(b), as pointed out by the aforementioned Unites States court. This does not mean, however, that the CISG cannot be applied. Indeed, it is here suggested96 that even the courts of a reservatory State should apply the CISG in this situation – not by virtue of Article 1(1)(b), but as part of the law of the Contracting State to which the conflict of law rules lead.97 There is, however, a limit: if it is true, as has been suggested, that the ratio behind the possibility of the Article 95 reservation is to promote the application of domestic law,98 it must be concluded that in cases where the

reservatory States is limited to contracts between parties having their places of business in different Contracting States). 95 U. S. District Court for the Southern District of Florida, United States, 22 November 2002, available at http://cisgw3.law.pace.edu/cisg/wais/db/cases2/021122u1.html (Impuls I. D. Internacional, S. L. v. Psion-Teklogix Inc., 234 F. Supp. 2d 267). For similar statements see Francis A. Gabor, Stepchild of the New Lex Mercatoria: Private International Law from the United States Perspective, 8 Nw. J. Int’l L. & Bus. 538 (1988); Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 33 (1989); A. Lanciotti, Norme uniformi di conflitto e materiali nella disciplina convenzionale della compravendita 116 (1992); Richards, supra note 94, at 222. 96 For this conclusion, see also Ferrari, supra note 92, at 79. 97 A similar solution has already been suggested by Peter Winship, The Scope of the Vienna Convention on International Sale Contracts, in International Sales, in The United Nations Convention on Contracts for the International Sale of Goods 1. 32 (N. Galston & H. Smit eds., 1984) stating that a court from a reservatory State “might conclude after examining the facts that the law of a Contracting State, such as France, is the applicable law and apply the Convention although not bound by treaty to do so”. (emphasis added). See also Volker Behr, Commentary to Journal of Law and Commerce Case 1: Oberlandesgericht Frankfurt am Main, 12 J. L. & Com. 272-273 (1993), stating that despite the Article 95 reservation, the courts of reservatory States may very well be in a situation to apply CISG based on private international law. Courts of a State which has made such a reservation are not obliged to apply Article 1(1)(b). But when the State’s private international law requires its courts to apply foreign law under which CISG is triggered, the court must apply CISG as part of that foreign law. 98 See Bell, supra note 28, at 248, where it is stated that “[t]he Article 95 reservation narrows the applicability of the Convention and enlarges the applicability of the domestic law”. For a similar statement, see also E. Allen Farnsworth, Review of Standard Forms or Terms Under the Vienna Convention, 21 Cornell Int’l L. J. 440 (1988).

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The CISG’s sphere of application: Articles 1-3 and 10

forum is located in a Contracting reservatory State whose private international law leads to the law of the forum, the CISG is inapplicable.99 (B) There is a dispute regarding another situation as well: quid iuris where the forum is located in a Contracting non-reservatory State whose rules of private international law lead to the applicability of the law of a Contracting reservatory State? According to some authors, the CISG should not be applicable in this scenario100 because, it is argued, the judges from the reservatory State would not apply the CISG.101 Consequently, “[...] in the situation where State A has not taken the reservation under Article 95 and State B has done so, and where the parties have their places of business in State B and in non-Contracting State C, consistency would appear to require that a court in State A should, if it finds the law of State B to be applicable, select the domestic law of that State as the law governing the contract rather than the Convention”.102 The preferable view, however, seems to be to the contrary,103 not only because generally a reservation of the kind at hand 99

For this conclusion, see also M. Pelichet, La vente internationale de marchandises et le conflit de lois, Recueil des Cours 43-44 (1987), according to which, in the situation discussed in the text, the Convention is inapplicable only where the rules of private international law of the forum State which has declared an Article 95 reservation lead to the application of the law of the forum. Where, however, the rules of conflict of laws lead to the application of the law of a different Contracting State, the Convention is always applicable. 100 See, e. g., Dore, supra note 93, at 538-539 (stating that when the forum is a third Contracting State and its rules of private international law lead to U. S. law, the forum should apply the U. C. C. instead of the Convention, since the United States declared an Article 95 reservation). 101 See Schlechtriem, supra note 55, at 12. 102 Evans, supra note 93, at 657; for a similar solution, see also K. Neumayer, Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen
ber den internationalen Warenkauf, Recht der internationalen Wirtschaft 101 (1994); P
nder, supra note 70, at 872; L. Vekas, Zum persnlichen und rumlichen Anwendungsbereich des UN-Einheitskaufrechts, Recht der internationalen Wirtschaft 344 (1987); L. Vekas, Diskussionsbeitrag, in Einheitliches Kaufrecht und nationales Obligationenrecht 109 (Peter Schlechtriem ed., 1987); Peter Winship, Private International Law and the U. N. Sales Convention, 21 Cornell Int’l L. J. 523524 (1988). 103 Several authors favor this solution. See, e. g., B. Czerwenka, Rechtsanwendungsprobleme im internationalen Kaufrecht. Das Kollisionsrecht bei grenz
berschreitenden Kaufvertrgen und der Anwendungsbereich der internationalen Kaufrechts
bereinkommen 159 (1988); B. Czerwenka, Diskussionsbeitrag, in Einheitliches Kaufrecht und nationales Obligationenrecht, supra note 102, at 109; Franco Ferrari, Vendita internazionale di beni mobili. Art. 1-13. Ambito di applicazione. Disposizioni generali 41 (1994); R. Herber, Gedanken zum Inkrafttreten des VN-Kaufrechts
bereinkommens, Recht der internationalen Wirtschaft 342 (1987); Gerold Herrmann, Anwendungsbereich des Wiener Kaufrechts – Kollisions-

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made by one State cannot bind another State104 (unless the forum State adheres to the comity doctrine), but also because, from the point of view of the Contracting (forum) State, all the prerequisites for the applicability of the Convention set forth in Article 1(1)(b) are met.105 And this view is preferable despite the contrary opinion of some German writers106 who prefer to apply domestic law rather than the CISG in cases where the rules of private international law lead to the law of a reservatory State. But in this case, the German writers’ views cannot be decisive, since in Germany the courts must adopt this approach: a statute – which, in this author’s opinion contradicts, if nothing else, CISG Article 7(1) – was passed in Germany under which German judges are bound to apply domestic sales law107 rather than the CISG108 when their rules of private international law lead to the law of a Contracting reservatory State.109 There are, however, some German court decisions which should be taken into account and which support the solution here suggested. Indeed, in applying the Hague Conventions, rechtliche Probleme, in Wiener Kaufrecht. Der schweizerische Aussenhandel unter dem bereinkommen
ber den internationalen Warenkauf 89 (E. Bucher ed., Bern, 1991); O. Lando, The 1985 Hague Convention on the Law Applicable to Sales, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 82 (1987); Luzzatto, supra note 90, at 510; B. Piltz, Internationales Kaufrecht, Neue Juristische Wochenschrift 619 (1989); K. Siehr, Der internationale Anwendungsbereich des UN-Kaufrechts, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 602 (1988). 104 For this argument, see also Ferrari, supra note 103, at 42; P. Kindler, Die Anwendungsvoraussetzungen des Wiener Kaufrechts
bereinkommens der Vereinten Nationen im deutschitalienischen Rechtsverkehr, Recht der internationalen Wirtschaft 778 (1988). 105 For this line of reasoning, see, e. g., N. Boschiero, Le Convenzioni di diritto materiale uniforme, in 21 Trattato di diritto privato 272 (P. Rescigno ed., 1987); Ferrari, supra note 92, at 82. 106 For a reference to these opinions, see Ulrich Magnus, Stand und Entwicklungen des UNKaufrechts, Zeitschrift f
r Europisches Privatrecht 205 (1995). 107 See Article 2 of the German statute introducing the CISG from July 5, 1989, BGBl. II 586 (1989). This statute violates Article 7(1) insofar as it provides an interpretation of what the effects of an Article 95 reservation are, thus preventing German judges from taking into account the Convention’s “international character and ... the need to promote uniformity in its application”. 108 For a short reference to this statute, see also F. Enderlein et al., Internationales Kaufrecht: Kaufrechtskonvention. Verjhrungskonvention. Vertretungskonvention. Rechtsanwendungskonvention 294 (1991). 109 This is why the decision of the Oberlandesgericht D
sseldorf, 2 July 1993, CLOUT case No. 49 (Recht der internationalen Wirtschaft 845 f. (1993)), has to be criticized. In this case, the German court applied the CISG to a contract concluded between a German buyer and an American seller before the CISG entered into force in Germany, despite the statute mentioned in the text.

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German courts have stated that the reservations declared by other Contracting States were to be disregarded,110 i. e., German courts have applied the Hague Conventions even where the Contracting States whose law was to be applied would not have done so by virtue of a reservation.111 (C) There is disagreement also as to the solution where the forum is located in a non-Contracting State whose rules of private international law lead to the law of a Contracting reservatory State. Despite some statements that the CISG should not apply in this situation,112 it is here suggested113 that the CISG should be applied. The application, however, cannot be based upon Article 1(1)(b), but must be based upon the CISG’s being part of the applicable (foreign) law.114 One should, in other words, adopt the same solution employed in cases where the rules of private international law of the non-Contracting State lead to the applicability of the law of a Contracting non-reservatory State. In this situation, the courts have to apply the CISG for the very same reasons,115 i. e. not by virtue of Article 1(1)(b) (as wrongly stated by very many courts116) because the forum is not bound by that 110

For a reference to this case law in support of the applicability of the CISG in cases where the rules of private international law of a forum located in a Contracting State lead to the law of a Contracting reservatory State, see, e. g., Ferrari, supra note 92, at 82-83. 111 See, e. g., Bundesgerichtshof, Germany, 4 December 1985 (Europische Zeitschrift f
r Wirtschaftsrecht 166 (1986)); Oberlandesgericht Karlsruhe, Germany, 14 April 1978 (Recht der internationalen Wirtschaft 544 f. (1978)). 112 See, e. g., Boschiero, supra note 105, at 272; Dore, supra note 93, at 537-538; Luzzatto, supra note 90, at 510-511; J.-P. Plantard, Un nouveau droit uniforme de la vente internationale: La Convention des Nations Unies du 11 avril 1980, Journal du droit internationale 321 (1988); P
nder, supra note 70, at 872; Reinhart, supra note 55, at 15; Sacerdoti, supra note 89, at 742. 113 See also Franco Ferrari, L’ambito di applicazione della convenzione di Vienna sulla vendita internazionale, Rivista trimestrale di diritto e procedura civile 923-924 (1994). 114 For this solution, see also Kindler, supra note 104, at 778; Pelichet, supra note 99, at 44; Siehr, supra note 103, at 610. 115 For this solution, see also Ferrari, supra note 103, at 42-43. 116 See, e. g., Rechtbank Amsterdam, Netherlands, 7 December 1994 (Nederlands Internationaal Privaatrecht 196 f. (1995)); Rechtbank Amsterdam, Netherlands, 5 October 1994, abstract available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/941005n1.html#cabc (Nederlands Internationaal Privaatrecht 195 (1995)); Oberlandesgericht Frankfurt, Germany, 5 July 1995, CLOUT case No. 276, available in Unilex at www.unilex.info; Rechtbank Zwolle, Netherlands, 1 March 1995, available in Unilex at www.unilex.info/case. cfm?pid=1&do=case&id=152&step=Abstract; Tribunal de Grand Commerce Bruxelles, Belgium, 5 October 1994, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 941005b1.html; Landgericht Stuttgart, Germany, 13 August 1991, available in Unilex at www.unilex.info/case.cfm?pid=1&do=case&id=86&step=Abstract; Oberlandesgericht

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provision,117 but rather by virtue of the CISG being part of the applicable foreign law. This view is not only held by legal scholars,118 but it has already found judicial application in several instances,119 as can be evinced from the draft Digest.120 Frankfurt, Germany, 13 June 1991, CLOUT case No. 1 (Neue Juristische Wochenschrift 3102 (1991)); Rechtbank Dordrecht, Netherlands, 21 November 1990, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=32&step=Abstract (Nederlands Internationaal Privaatrecht 214 (1991)); Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Recht der internationalen Wirtschaft 1015 ff. (1990)); Amstgericht Oldenburg, Germany, 24 April 1990, CLOUT case No. 7 (Praxis des internationalen Privat- und Verfahrensrechts 337 (1991)); Landgericht Stuttgart, Germany, 31 August 1989, CLOUT case No. 4 (Praxis des internationalen Privat- und Verfahrensrechts 317 (1990)). 117 The applicability of the CISG in cases where the forum is located in non-Contracting States cannot be based upon Article 1(1)(b), since the courts of non-Contracting States are not bound by this Article, has been pointed out, for instance, by P
nder, supra note 70, at 872. For a more detailed criticism, see Franco Ferrari, CISG Art. 1(1)(b) and Related Matters: Brief Remarks on the Occasion of a Recent Dutch Court Decision, Nederlands Internationaal Privaatrecht 317 ff. (1995). 118 See, e. g., Pelichet, supra note 99, at 38-39; Plantard, supra note 112, at 321; P
nder, supra note 70, at 872; Reinhart, supra note 55, at 14. 119 For a list of cases in which the CISG was applied in non-Contracting States by virtue of the conflict of laws rules of the forum State leading to the law of a Contracting (non-reservatory) State, see, e. g., Rechtbank Koophandel Kortrijk, Belgium, 16 December 1996, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=340&step= Abstract; Rechtbank Koophandel Hasselt, Belgium, 9 October 1996, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case &id=264&step=FullText; Rechtbank Koophandel Hasselt, Belgium, 8 November 1995, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=265&step=FullText; Rechtbank Koophandel Hasselt; Belgium, 18 October 1995, available in Unilex at http://www.unilex. info/case.cfm?pid=1&do=case&id=266&step=FullText (Recktkundig Weekblad 1378 f. (1995)); Tribunal de commerce Nivelles, Belgium, 19 September 1995, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/950919b1.html; Rechtbank Amsterdam, Netherlands, 7 December 1994 (Nederlands Internationaal Privaatrecht 196 f. (1995)); Tribunal Commercial de Bruxelles, Belgium, 5 October 1994, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/941005b1.html; Rechtbank Arnhem, Netherlands, 5 October 1994 (Nederlands Internationaal Privaatrecht 195 f. (1995)); Rechtbank Koophandel Hasselt, Belgium, 16 March 1994, available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=267&step=FullText; Rechtbank Koophandel Hasselt, Belgium, 23 February 1994, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=268 &step=FullText; Tribunal Commercial de Bruxelles, Belgium, 13 November 1992, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=175&step=FullText; Rechtbank Roermond, Netherlands, 19 December 1991, CLOUT case No. 98 (Nederlands

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F. The application of the CISG by arbitral tribunals In order for the CISG to be applicable in the courts of Contracting States, either the requirements set forth in Article 1(1)(a) or those laid down in Article 1(1)(b) must be met. There appears to be little doubt as to the applicability of these same rules to arbitral tribunals. Indeed, the draft Digest Internationaal Privaatrecht 665 ff. (1992)); Oberlandesgericht Koblenz, Germany, 27 September 1991, CLOUT case No. 316 (available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=128&step=FullText); Oberlandesgericht Frankfurt, Germany, 17 September 1991, CLOUT case No. 2 (Recht der internationalen Wirtschaft 950 ff. (1991)); Landgericht Frankfurt, Germany, 16 September 1991, CLOUT case No. 6 (Recht der internationalen Wirtschaft 952 ff. (1991)); Landgericht Baden-Baden, Germany, 14 August 1991, CLOUT case No. 50 (Recht der internationalen Wirtschaft 62 f. (1992)); Landgericht Stuttgart, Germany, 13 August 1991, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=86&step=FullText; Oberlandesgericht Frankfurt, Germany, 13 June 1991, CLOUT case No. 1 (Recht der internationalen Wirtschaft 591 f. (1991)); Amstericht Frankfurt, Germany, 31 January 1991, CLOUT case No. 51 (Praxis des internationalen Privat-und Verfahrensrechts 345 f. (1991)); Amstgericht Ludwigsburg, Germany, 21 December 1990, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/17.htm; Rechtbank Dordrecht, Netherlands, 21 November 1990, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=32&step=FullText (Nederlands Internationaal Privaatrecht 214 (1991)); Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Europische Zeitschrift f
r Wirtschaftsrecht 181 f. (1991); Landgericht Hildesheim, Germany, 20 July 1990, available at http://www.jura.uni-freiburg.de/ipr1/cisg/ urteile/text/241.htm; Landgericht Frankfurt, Germany, 2 May 1990, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/183.htm; Landgericht Aachen, Germany, 3 April 1990 CLOUT case No. 46 (Recht der internationalen Wirtschaft 491 f. (1990)); Amtsgericht Oldenburg, Germany, 24 April 1990, CLOUT case No. 7 (Praxis des internationalen Privat-und Verfahrensrechts 336 f. (1991)); Oberlandesgericht Koblenz, Germany, 23 February 1990, available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=22&step=FullText (Recht der internationalen Wirtschaft 316 ff. (1990)); Rechtbank Alkmaar, Netherlands, 8 February 1990, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=31&step=FullText (Nederlands Internationaal Privaatrecht No. 460 (1990)); Rechtbank Alkmaar, Netherlands, 30 November 1989 (Nederlands Internationaal Privaatrecht No. 289 (1990)); Landgericht Stuttgart, Germany, 31 August 1989, CLOUT case No. 4 (Recht der internationalen Wirtschaft 984 f. (1989)); Landgericht M
nchen, Germany, 3 July 1989, CLOUT case No. 3 (Praxis des internationalen Privat- und Verfahrensrechts 316 f. (1990)). 120 The draft Digest lists cases in which the courts of non-Contracting States have applied the CISG where their rules of private international law led to the law of a Contracting nonresevatory State. The Digest does not deal with the issue of whether the courts of nonContracting States would apply the CISG where the applicable law is that of a Contracting State that made an Article 95 reservation.

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lists several arbitral awards that apply the CISG on the grounds that both parties have their places of business in different Contracting States.121 There are also many arbitral awards that make the CISG applicable because the rules of private international law resorted to by the arbitrators lead to the law of a Contracting State.122 From this it follows that arbitration tribunals generally apply the CISG as if they were courts located in Contracting States. 121 For arbitral tribunals applying the CISG to international sales contracts where both parties had their place of business in different Contracting States, see ICC Court of Arbitration, case No. 9887, August 1999 (ICC court of Arbitration Bulletin 109 ff. (2000)) (location of the parties’ places of business not indicated); Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Hunrary, 25 May 1999, CLOUT case No. 265 (arbitral award No. Vb/97142, Transportrecht-Internationales Handelsrecht 16 (2000)) (applying the CISG to a contract between a Hungarian seller and an Austrian buyer); Hungarian Chamber of Commerce Court of Arbitration, Hungary, 5 December 1995, CLOUT case No. 164, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=181&step=Full Text) (applying the CISG to a contract between a Hungarian seller and an Austrian buyer); ICC Court of Arbitration, case No. 7531, 1994, CLOUT case No. 304, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=139&step=FullText) (applying the CISG to a contract concluded between an Austrian buyer and a Chinese seller on the grounds that the parties had their place of business in two Contracting States); ICC Court of Arbitration, case No. 7331, 1994, CLOUT case No. 303, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=140&step=FullText) (applying the CISG by virtue of Article 1[1][a] CISG, since the parties had their place of business in different Contracting States, namely Yugoslavia and Italy); ICC Court of Arbitration, case No. 7153, 1992, CLOUT case No. 26 (14 J. L. & Com. 217 ff. (1995)). 122 See, e. g., Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166 (Recht der internationalen Wirtschaft 766 ff. (1996)) (applying the CISG by virtue of Article 1(1)(b) to a contract concluded between a German buyer and a Hong Kong seller, which contained a choice of law clause making applicable the law of Germany, a Contracting State to the CISG); ICC Court of Arbitration, case No. 8324, 1995 (Journal du droit international 1019 ff. (1996)) (applying the CISG by virtue of Article 1(1)(b)); ICC Court of Arbitration, case No. 7660, 23 August 1994, CLOUT case No. 302 (ICC Bulletin 69 ff. (November 1995)) (applying the CISG on the grounds that the parties chose the law of a Contracting State as the applicable law and, thus, the requirements set forth in Article 1(1)(b) were met); ICC Court of Arbitration, case No. 7565, 1994, CLOUT case No. 300, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=141&step=FullText (applying the CISG to an international sales contract by virtue of the choice of law of the parties leading to the law of a Contracting State); Internationales Schiedsgericht der Bundeswirtschaftskammer der gewerblichen Wirtschaft Wien, Austria, 15 June 1994, CLOUT case No. 94 (Recht der internationalen Wirtschaft 591 f. (1995)) (applying the CISG by virtue of a choice of law which led to the law of a Contracting State); ICC Court of Arbitration, case No. 7197, 1992, CLOUT case No. 104 (Journal du droit international 1028 ff. (1993)) (applying the CISG by virtue of Article 1(1)(b) to a contract

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At this point, however, it is worth mentioning that some arbitral tribunals have – incorrectly – applied the CISG even where the contract was outside the Convention’s stated sphere of application. In one case, an arbitral tribunal123 applied the CISG to a series of contracts concluded in 1979, on the grounds that “[t]here is no better source to determine the prevailing trade usages than the terms of the United Nations Convention on the International Sale of Goods of 11 April 1980 [...]. This is so even though neither the [country of the Buyer] nor the [country of the Seller] are parties to that Convention”.124 In another case, the Iran-United States Claims Tribunal125 applied the CISG as part of the so-called “lex mercatoria” or as relevant trade usages126 to a contract not subject to the CISG under the rules in Article 1. This line of cases, which opens the door to the applicability of the CISG even to cases not falling within its scope, has been rightly criticized for several reasons. It has been said, for instance, that the CISG’s provisions do not necessarily reflect uniform commercial practices,127 but are rather the result of a careful political compromise.128 Most importantly, however, the appliconcluded between an Austrian seller and a Bulgarian buyer); ICC Court of Arbitration, case No. 6653, 26 March 1993, CLOUT case No. 103 (Journal du droit international 1040 ff. (1993)) (applying the CISG to a German-Syrian contract by virtue of the parties’ choice of French law). 123 See ICC Court of Arbitration, case No. 5713, 1989, CLOUT case No. 45 (Yearbook of Commercial Arbitration 70 ff. (1990)). 124 Id. 125 See Iran-United States Claim Tribunal, 28 July 1989 (Yearbook of Commercial Arbitration 220 f. (1990), Watkins Johnson Ltd. v. The Islamic Republic of Iran & Bank Saderat Iran). 126 For another award where the CISG was referred to as a reflection of “general principles of international commercial practice and usages”, see ICC Court of Arbitration, case No. 7331, 1994, CLOUT case No. 303 (ICC Bulletin 73 ff. (1995)). 127 See, e. g., John C. Reitz, A History of Cutoff Rules as a Form of Caveat Emptor: Part I – The 1980 U. N. Convention on the International Sale of Goods, 36 Am. J. Comp. L. 471 n. 127 (1988), stating that “[m]erchants’ custom does not appear to have played as significant a role in the drafting of the CISG. Proponents of the notice rule, for example, do not appear to have based their arguments to any significant extent on custom”. 128 See Richard Hyland, Commentary on ICC Arbitration Case No. 5713 of 1989, in ICMGuide to Practical Applications of the UN Convention on Contracts for the International Sale of Goods, Suppl. 9 (April 1994), Case Commentaries, at 11, stating, with reference to the provisions of the CISG applied by the ICC Court of Arbitration in arbitral award No. 5713, that “the source of the CISG’s conformity provisions was not a uniform commercial practice, as found, for example, in standard terms frequently employed in international commercial contracts. Rather, those provisions represent a careful political compromise between those states that demanded shorter periods of inspection and notice of defects and those states that had hoped that the CISG would permit even longer periods. In

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cation of the CISG to contracts concluded before its coming into force violates a principle that appears to be recognized by most developed legal systems, according to which, absent an agreement among the parties, the law in force at the moment a contract is concluded governs the contract even if that law is modified.129 Therefore, one can only hope that arbitral tribunals, like State courts, hold (as a few recent arbitral awards have actually done130) that the CISG is inapplicable to transactions entered into before the CISG’s coming into force in the countries involved.

IV. The Convention’s sphere of application A. The sales contract For a contract to be governed by the CISG, it is not sufficient that the contracts meet the requirements discussed in the foregoing chapters; the contracts must also fall within the CISG’s sphere of application ratione materiae,131 i. e. it must be a contract for the sale of goods (or any other type of contract governed by the CISG). The first question to be dealt with, therefore, is that of what constitutes a “sale”. In this respect, it must be noted that the CISG, like the 1964 Hague Conventions,132 does not define “sales contract”, as pointed out not only in scholarly writing,133 but also in other words, there is no reason to believe that the CISG rules on this question rest on the generalized trade practice”. 129 See Hyland, supra note 128, at 12-13. 130 See, e. g., ICC Court of Arbitration, case No. 6281, 26 August 1989, CLOUT case No. 102 (Journal du droit international 1054 ff. (1991)) (holding that the CISG was not applicable to a contract concluded in 1987 between an Egyptian seller and a Yugoslav buyer). 131 For a distinction between the international, territorial, and personal prerequisites on the one hand, and the prerequisites ratione materiae on the other hand, see Carbone & Lopez de Gonzalo, supra note 5, at 4-5; Ferrari, supra note 92, at 91. 132 It has often been pointed out that the 1964 Hague Conventions did not define “sales contract”. See, among others, A. Frignani, Il contratto internazionale 264 (Padova, 1990); R. Herber, Art. 1, in Kommentar zum Einheitlichen Kaufrecht 8 (H. Dlle ed., Munich, 1976); L. Reczei, The Field of Application and the Rules of Interpretation of ULIS and UNCITRAL Conventions, Acta Juridica Academiae Scientiarum Hungaricae 170 f. (1982). 133 See, e. g., Bell, supra note 28, at 250; P. Kahn, Convention de Vienne du 11 avril 1980. Caractres et domaine d’application, Droit et pratique du commerce international 387 (1989); F. Padovini, Der internationale Kauf: Von den Haager Konventionen zur Wiener Konvention – Erfahrungen und Aussichten, Zeitschrift f
r Rechtsvergleichung 91 (1987); B. Piltz, Internationales Kaufrecht. Das UN-Kaufrecht (Wiener bereinkommen von 1980) in praxisorientierter Darstellung 23 (1993); Richards, supra note 94, at 227; C. Samson, La Convention des Nations Unies sur les contrats de vente internationale de marchandises:

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two cases,134 the older one of which is quoted in the draft Digest. The lack of an express definition does not, however, make it impossible to define the sales contract covered by the CISG. This is pointed out not only in commentary135 and in the case law referred to in the draft Digest,136 but also in a more recent court decision, rendered on January 8, 2003.137 Indeed, a definition of “sales contract” can be inferred from Articles 30 and 53,138 the provisions laying down the obligations of the parties to a sales contract governed by the CISG. Furthermore, “the economic function of exchange [also] constitutes a valid reference in order to unify without contrasts the concept of sale, as opposed to other contractual schemes”.139 Thus, independently from the civil or commercial character of the parties or of the contract itself,140 the sales contract can – and has been – defined both in scholarly writing141 and case law as the contract “pursuant to which one Etude comparative des dispositions de la Convention et des rgles de droit qubcois en la matire, 23 Cahiers de droit 927 (1982). 134 See Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106, available at http:// www.cisg-online.ch/cisg/urteile/117.htm. 135 For this conclusion, see Fritz Enderlein & Dietrich Maskow, International Sales Law 27 (1992) (stating that “[t]he description of what is a contract of sale, whose existence is the first decisive criterion for the application of the Convention, follows in particular from the provisions on the obligations of the seller [Article 30] and of the buyer [Article 53]. Both taken together could be conceived as a definition of the contract of sale”); Kritzer, supra note 95, at 69 (stating that “the Convention does not contain a section on the definition of the sales contract. However, taken together, Articles 30 and 53, which identify the elements of a sale, are said to constitute a definition”). 136 Rechtbank Rotterdam, Netherlands, 1 November 2001 (Nederlands Internationaal Privaatrecht, No. 114 (2001)); Tribunal Cantonal Vaud, Switzerland, 11 March 1996, CLOUT case No. 211 (Schweizerische Zeitschrift f
r internationales und europisches Recht 82 (1998)). 137 Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003). 138 Id. 139 D. Memmo, Il contratto di vendita internazionale nel diritto uniforme, Rivista trimestrale di diritto e procedura civile 189 (1983). P. Bernardini, La compravendita internazionale, in Rapporti contrattuali nel diritto internazionale 85 (Milan, 1991), as well, points out that the economic function of an exchange of goods for a price constitutes a center of reference to be used in order to identify a uniform definition of the sales contract as governed by the CISG. 140 See Article 1(3) CISG: “Neither the nationality of the parties nor the civil or commercial character of the parties or the contract is to be taken into consideration in determining the application of this Convention”. 141 See Louis F. Del Duca & Patrick Del Duca, Practice under the Convention on International Sale of Goods (CISG): A Primer for Attorneys and International Traders (Part I), 27 UCC Code Law Journal 350 (1995), stating that

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party – the seller – is bound to deliver the goods and transfer the property in the goods sold and the other party – the buyer – is obliged to pay the price and accept the goods”.142 Thus, it is not surprising that one court held that the essence of a sales contract lies in goods being exchanged for money.143 The aforementioned seller’s obligation to transfer the property in the goods seems to exclude the applicability of the CISG to contracts that transfer the property in the goods at the moment the contract is concluded and that, therefore, do not create any obligation to transfer the property in the goods.144 This is true, for instance, in both the Italian and French legal systems.145 In these systems, the property passes generally solo consensu, that is, at the moment the sales contract is concluded146 – whenever the goods are specified, exist and belong to the seller – as opposed to the transfer of property by means of the delivery of the goods, a rule applicable, for instance, in the Germanic legal systems.147 However, a similar exclusion from the [i]n determining whether a particular transaction qualifies as a “sale of goods” and is therefore subject to the CISG, the general understanding within the international community of what constitutes a “contract for the sale of goods” (subject to any specific provision in the CISG to the contrary) would therefore appear to be applicable. Such an approach would be consistent with the rule of construction set forth in Art. 7. 142 Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106, available at http://www.cisg-online.ch/cisg/urteile/117.htm. For this exact same definition, see also Tribunale di Rimini, Italy, 8 January 2003 (unpublished). For a reference to the buyer’s obligation mentioned in the definition referred to in the text, see Rechtbank Koophandel Hasselt, Belgium, 2 May 1995, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/ 1995-05-02.htm. 143 Kantonsgericht Zug, Switzerland, 21 October 1999, CLOUT case No. 328 (Internationales Handelsrecht 45 (2001)). 144 For a more detailed discussion of this issue see Ferrari, supra note 103, at 46 ff. 145 For an overview of legal systems employing the rule that the conclusion of a sales contract immediately transfers the property of moveables (provided that the goods are specified, existing and belonging to the seller), see Francesco Galgano, Il trasferimento della propriet

per atto tra vivi. Il trasferimento della propriet in civil law e common law, in Atlante di diritto privato comparato 104-105 (F. Galgano et al. eds., 3d ed., 1999); R. Sacco, Le transfert de la proprit des choses mobilires dtrmines par acte entre vifs en droit compar, Rivista di diritto civile 452 ff. (1979). 146 For a discussion of this principle as well as of other principles which can govern the transfer of moveable goods, see U. Drobnig, Transfer of Property, in Towards a European Civil Code 345 ff. (Arthur Hartkamp et al. eds., 1994); Franco Ferrari, Vom Abstraktionsprinzip und Konsensualprinzip zum Traditionsprinzip. Von den Mglichkeiten der Rechtsvereinheitlichung im Mobiliarsachenrecht, Zeitschrift f
r Europisches Privatrecht 52 ff. (1993). 147 For a detailed discussion of the principles governing the transfer of moveable property in the Germanic legal systems (Austria, Germany and Switzerland), see, in addition to the

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CISG cannot be justified,148 not only because otherwise the sphere of application of the CISG would become too restricted, but – and fore-

most – because the effects which an international sales contract may have on the property in the goods sold have, unfortunately,149 been placed by Article 4(b) CISG beyond the Convention’s scope of application, as will be shown later. B. Other contracts governed by the Vienna Sales Convention The sales contract as defined above is not the only contract governed by the CISG. According to several courts (all referred to in the draft Digest)150 and

commentators,151 contracts modifying an international sales contract fall under the CISG as well, since they directly affect the rights and obligations of the parties to the international sales contract.152 Furthermore, as can be evinced from the draft Digest, courts – true also for legal writers153 – also consider

authors quoted in the preceding note, Franco Ferrari, Principio consensualistico ed “Abstraktionsprinzip”, Contratto e impresa 889 ff. (1992); H. Kronke, Il trasferimento della propriet mobiliare per atto tra vivi. Il trasferimento della propriet nel diritto tedesco, in Atlante di diritto privato comparato, supra note 145, at 108 ff. 148 For this conclusion, see also Ferrari, supra note 103, at 46. 149 For a criticism of the exclusion of the transfer of property from the matters governed by the Uniform Sales Law, see Franco Ferrari, Abstraktionsprinzip, Traditionsprinzip e consensualismo nel trasferimento di beni mobili. Una superabile divaricazione?, Rivista di diritto civile 756-757 (1993). 150 See Oberlandesgericht Hamburg, Germany, 5 October 1998, CLOUT case No. 279, available at http://www.cisg-online.ch/cisg/urteile/473.htm; Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 131, available at http://www.cisg-online.ch/ cisg/urteile/143.htm; ICC Court of Arbitration, Case No. 7331, 1994, CLOUT case No. 303 (Journal du droit international 1001 ff. (1995)); Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrenshrechts 400 (1991)). 151 See, in this respect, Herber & Czerwenka, supra note 17, at 16. Note that contracts modifying an international sales contract fell under the 1964 Hague Conventions; see, e. g., Oberlandesgericht Hamburg, Germany, 3 March 1982 (Recht der internationalen Wirtschaft 435 f. (1982)). 152 For this reasoning as well as for this conclusion, see Ferrari, supra note 103, at 47-48. 153 This view is favored, for instance, by G. De Nova, L’ambito di applicazione ratione materiae della Convenzione di Vienna, Rivista trimestrale di diritto e procedura civile 749 (1990); M. Endler & J. Daub, Internationale Software
berlassung und UN-Kaufrecht, Computer und Recht 601-602 (1993); Schlechtriem, supra note 55, at 16. Doubts were, however, expressed by Padovini, supra note 133, at 91.

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contracts for the delivery of goods by instalments as falling under the CISG’s sphere of application.154 As far as the CISG’s applicability to distribution agreements is concerned, this is an issue dealt with by various courts, as can easily be derived from the draft Digest. The draft Digest also shows, however, that the matter is not solved uniformly. The Italian Supreme court,155 for instance, in a much criticized decision rendered in 1999,156 applied the CISG to distribution agreements. The majority of courts have, however, taken the opposite view.157 Unfortunately, the draft Digest does not indicate what view is to be favoured, although this would without doubt contribute to uniformity. According to the majority view (which should be followed),158 distribution agreements are not covered by the CISG, because as has been expressly pointed out by one court, this type of agreement aims more at the “organization of the distribution” than the transfer of the goods’ ownership.159 This is also why 154

Contracts for the delivery of goods by instalments were also considered to fall under the 1964 Hague Conventions’ sphere of application. See, e. g., Bundesgerichtshof, Germany, 28 March 1979 (Neue Juristische Wochenschrift 1779 ff. (1979)). 155 Corte di Cassazione, Italy, 14 December 1999, CLOUT case No. 379 (Giustizia civile 2333 (2000)). 156 For critical comments on the decision cited in the preceding note, see, e. g., F. Ferrari, Contratti di distribuzione, ambito di applicazione ratione materiae della Convenzione di Vienna del 1980: gli insegnamenti che si possono trarre dalla giurisprudenza straniera, Giustizia civile 2334 ff. (2001); F. Ferrari, Der Vertriebsvertrag als vom UN-Kaufrechts
bereinkommen (nicht) erfasster Vertragstyp oder wie der italienische Kassationshof einen groben Fehler htte vermeiden knnen; zu Corte di Cassazione (I) 14. 12. 1999, The European Legal Forum 7 ff. (2000). 157 See, e. g., Oberlandesgericht Hamburg, Germany, 5 October 1998, CLOUT case No. 279, available at http://www.cisg-online.ch/cisg/urteile/473.htm; Oberlandesgericht Hamm, Germany, 5 November 1997, CLOUT case No. 295, available at http://www.cisg-online.ch/cisg/ urteile/381.htm; U. S. District Court for the Southern District of New York, United States, 21 July 1997, CLOUT case No. 187 (Helen Kaminski v. Marketing Australian Products, U. S. Dist. LEXIS 10630 (1997)); Oberlandesgericht Luzern, Switzerland, 8 January 1997, CLOUT case No. 192, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/970108sl.html; Oberlandesgericht D
sseldorf, Germany, 11 July 1996, CLOUT case No. 169 (Recht der internationalen Wirtschaft 958 (1996)); Fov rosi Bis g, Hungary, 19 March 1996, CLOUT case No. 126; Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281 (Recht der internationalen Wirtschaft 934 f. (1993)); Gerechtshof Amsterdam, Netherlands, 16 July 1992 (Nederlands Internationaal Privaatrecht 716 (1992)). 158 Franco Ferrari, Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing, 15 J. L. & Com. 56 (1995). 159 Obergericht des Kantons Luzern, Switzerland, 8 January 1997, CLOUT case No. 192 (Transportrecht-Internationales Handelsrecht 53 (1999)).

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franchise agreements are considered to fall outside the CISG’s substantive sphere of application, a view validated by two court decisions.160 Where, however, the distribution agreement itself creates obligations comparable to those arising out of a sales contract, that agreement can, at least according to one author161 and one court, be governed by the CISG.162 Although commentators do not agree on whether distribution agreements fall under the CISG’s sphere of application, they all hold – in this author’s opinion, correctly – that the single contracts concluded in execution of such distribution agreements fall under the CISG’s sphere of application,163 even where the distribution agreement was concluded prior to the entry into force of the CISG. This view was recently confirmed by a Swiss court, also referred to in the draft Digest.164 The aforementioned contracts are not the only ones that raise the issue of whether they are governed by the CISG. So far, however, courts have not had the occasion to deal with other contracts. For example, barter transactions, where all of the price is to be paid in something other than money, do not fall under the CISG.165 This is the preferable view, even though the contrary has been argued,166 and some authors even assert that there are many arguments in favor of applying the Convention to barter transactions.167 It has been argued, for instance, that “[a]ny partner is to be considered here both as buyer and seller, though with 160

See Bundesgerichtshof, Germany, 23 July 1997, CLOUT case No. 236 (Neue Juristische Wochenschrift 3309 (1997)); Obergericht des Kantons Luzern, Switzerland, 8 January 1997, CLOUT case No. 192 (Transportrecht-Internationales Handelsrecht 53 (1999)). 161 U. Magnus, Das UN-Kaufrecht: Fragen und Probleme seiner praktischen Bewhrung, Zeitschrift f
r europisches Privatrecht 829-830 (1997). 162 Oberlandesgericht M
nchen, Germany, 22 September 1995, CLOUT case No. 286 (Recht der internationalen Wirtschaft 1035 ff. (1996)). 163 For a similar affirmation in scholarly commentary, see Ferrari, supra note 92, at 102-03. 164 Handelsgericht Z
rich, Switzerland, 16 April 1997 (Transportrecht-Internationales Handelsrecht 54 (1999)). 165 For this solution, see Ferrari, supra note 92, at 49; H. Hoyer, Der Anwendungsbereich des Einheitlichen Wiener Kaufrechts, in Das Einheitliche Wiener Kaufrecht 419 (H. Hoyer & W. Posch eds., Vienna, 1992); Karollus, supra note 51, at 25; R. Loewe, Internationales Kaufrecht 27 (Vienna, 1989); Reinhart, supra note 55, at 13; Winship, supra note 97, at 1. 24. 166 See, e. g., B. Lurger, Die Anwendung des Wiener UNCITRAL-Kaufrechts-
bereinkommens 1980 auf den internationalen Tauschvertrag und sonstige Gegengeschfte, Zeitschrift f
r Rechtsvergleichung 421 ff. (1991). 167 For this view, see, e. g., Enderlein & Maskow, supra note 135, at 28, stating that “[a]n overwhelming number of arguments in our view speaks in favour of applying the Convention

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regard to different performances – in respect of the obligations to deliver, to hand over documents, to acquire title in the goods and to take delivery”.168 This view does not give due consideration to Article 53 CISG which expressly mentions the buyer’s obligation “to pay the price”,169 i. e. an element the lack of which characterizes the barter transaction. Where, however, the buyer trades goods and pays a price, the CISG’s application will depend on whether the price to be paid is higher than the value of the goods to be traded and whether the parties wanted to conclude a sales contract rather than a countertrade transaction.170 Leasing contracts as well, do not fall within the sphere of application of the CISG,171 not even when they contain a purchase option,172 because their economic function is different from that of the sales contract covered by the CISG.173 Although some scholars suggest that consignment contracts are excluded from the CISG’s sphere of application,174 it is here suggested175 that even in this case [barter]”. See also De Nova, supra note 153, at 749-750, favoring the view that international countertrade transactions fall within the scope of the CISG. 168 Enderlein & Maskow, supra note 135, at 28. See also D. Maskow, Art. 53, in Commentary on the International Sales Law, supra note 93, at 386, stating that the Uniform Sales Law should apply to barter transactions as well, since “in genuine barter contracts both parties are sellers. Therefore, the Convention would not necessarily be excluded”. 169 For this line of reasoning, see Piltz, supra note 133, at 24. 170 For this conclusion, see Ferrari, supra note 92, at 100-01. 171 For this conclusion, see Czerwenka, supra note 103, at 146; Enderlein & Maskow, supra note 135, at 28; M. Karollus, Der Anwendungsbereich des UN-Kaufrechts im berblick, Juristische Schulung 380 (1993); Piltz, supra note 133, at 28. 172 See Enderlein & Maskow, supra note 135, at 28, stating that “[t]he Convention cannot be applied to leasing contracts even if they contain a purchase option”). See also Ferrari, supra note 92, at 50. For a position expressing doubt about this conclusion, see L. Reczei, The Rules of the Convention Relating to Its Field of Application and to Its Interpretation, in Problems of Unification of International Sales Law 74 (1980), stating that “[i]t is not clear [...] whether a leasing-contract, which guarantees to the leaseholder an option for the purchase of the object of lease, comes within the domain of the Convention. There are legal systems which do not consider leasing-contracts without option as leasing. According to others, an option qualifies the leasing-contract as sales contract”. 173 For this reasoning see Ferrari, supra note 92, at 50, and authorities cited therein; F. Graf von Westphalen, Grenz
berschreitendes Finanzierungsleasing, Recht der internationalen Wirtschaft 258 (1992). Hire-purchase contracts, like leasing contracts, are excluded from the sphere of application of the CISG (for this conclusion, see also Czerwenka, supra note 103, at 146). The reason behind this exclusion is the economic function of this type of contract, which is not comparable to that of a sales contract. 174 See Winship, supra note 97, at 1. 24, stating that consignment arrangements “under which

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they fall within the Convention’s sphere of application, as they fell under the sphere of application of the 1964 Hague Conventions.176 Since a sale-and-lease-back transaction is generally composed of two different contracts, a sales contract and a leasing contract, one must distinguish between them. Whereas the latter does not fall under the CISG, as already mentioned,177 the former does. C. Contracts for the sale of made-to-order goods and services Even though the sales contract as defined above178 still constitutes the “commercial contract par excellence”179 and, consequently, the “pillar of the entire system of commercial relations”,180 it has undergone (and still is undergoing) a change.181 This change is due to the fact that modern trade not only calls for ready-made-goods, but also for goods to be manufactured and, therefore, for the “sale” of labor and services.182 This is why it is fair to state that the sales contract tends to become more and more a service contract.183 The tendency to consider as sales contracts those contracts “which require further activities besides the traditional exchange of goods with money”184 has been evident for years, not only in the various legal systems, but also in the efforts made to unify international sales law.185 Indeed, the Draft Conventions of 1935186 and 1939,187 as well as that of 1956,188 and finally the ... supplier will take back unsold units might not be within the convention because title to the goods may not be transferred to the consignee and payment is conditional on resale”. 175 See also Ferrari, supra note 92, at 102. 176 See Landgericht M
nster, Germany, 25 August 1977 reported in P. Schlechtriem & U. Magnus, Internationale Rechtsprechung zu EKG und EAG. Eine Sammlung belgischer, deutscher, italienischer und niederlndischer Entscheidungen zu den Haager Einheitlichen Kaufgesetzen 107 ff. (1987), applying the 1964 Hague Conventions to a consignment contract. 177 See the text accompanying note 171. 178 See the text accompanying note 142. 179 Galgano, Il diritto privato fra codice e costituzione 6 (2d ed., 1980). 180 Memmo, supra note 139, at 181. 181 For a similar affirmation, see Ferrari, supra note 92, at 77 ff., with further references. 182 For a similar affirmation, see Honnold, supra note 36, at § 58, stating that “a modern sales law must include transactions which call for the manufacture or production of goods [...]”. In this respect, see also De Nova, supra note 153, at 750. 183 See Ferrari, supra note 92, at 78. 184 Memmo, supra note 139, at 189. 185 See, e. g., Ferrari, supra note 92, at 78. 186 See Article 2 of the 1935 Draft Convention.

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the ULIS of 1964,189 included a provision dealing with the relation between sales contracts and transactions that call for the manufacture or production of goods. That is why it is not surprising that the draftsmen of the CISG extended its applicability190 to the point that it governs (within certain limits) contracts which under some domestic laws are considered to be service contracts.191 Article 3(1) CISG deals with the Convention’s applicability to contracts for the supply of goods to be manufactured or produced, whereas Article 3(2) CISG deals with contracts that include the supply of labor or other services in the “seller’s obligations”. Thus, the CISG contains some provisions which “confront the scholar with contractual schemes which have uncertain functional characteristics”192 and “which therefore raise the problem of whether such contracts fall under its sphere of application”.193 This is true, above all, in cases where the seller is liable not only for the transfer of ownership and the delivery of the goods, but also for providing labor or services.194 But it is also true for those cases in which the buyer has to deliver part of the materials needed for the production of the goods. Among the contracts falling in the latter category are those contemplated by Article 3(1) CISG,195 i. e., contracts for the supply of goods to be manufactured or produced, which in practice seem to be rather important given 187

See Article 2 of the 1939 Draft Convention. See Article 10 of the 1956 Draft Convention. 189 See Article 6 ULIS: “Contracts for the supply of goods to be manufactured or produced shall be considered to be sales within the meaning of the present Law, unless the party who orders the goods undertakes to supply an essential or substantial part of the materials necessary for such manufacture or production”. 190 See, in addition to De Nova, supra note 153, at 751, Secretariat Commentary on Art. 3, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406. 191 For a similar statement, see Enderlein & Maskow, supra note 135, at 36, stating that “[the] inclusion of contracts for the delivery of goods to be manufactured (machines, manufactured goods) or produced (agricultural produce, raw materials) at the time of the conclusion of the contract in sales contracts means that the CISG can be applied also to certain contracts which are considered to be work contracts”. 192 Bernardini, supra note 139, at 85. 193 Id. 194 See also Memmo, supra note 139, at 189, stating that the CISG governs even those contracts “where the seller is bound not only to the delivery, but where he is also liable for the preliminary phase [of preparing the goods to be sold]”. 195 See Michael J. Bonell & Fabio Liguori, The U. N. Convention on the International Sale of Goods: A Critical Analysis of Current International Case Law (Part I), Uniform L. Rev. 150 (1996); Ferrari, supra note 92, at 79. 188

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the number of decisions dealing with those contracts in the draft Digest.196 By treating these contracts like the more “classical” contracts for the sale of goods, it is made clear that the sale of goods to be manufactured or produced is as much subject to the CISG as the sale of ready-made goods.197 But there is a limit to the CISG’s applicability to these contracts. Indeed, Article 3(1) CISG itself excludes from the scope of the Convention contracts where the party who “buys” the goods to be manufactured or produced supplies a “substantial part” of the materials necessary for the manufacture or production (it is not sufficient that such contracts serve a different purpose). Unfortunately, however, the provision does not set forth a specific test to be used in determining whether the materials supplied by the buyer constitute a “substantial part” of the materials necessary to manufacture or produce the

196

See, e. g., Hof van Beroep Gent, Belgium, 17 May 2002, available at http://www.law. kuleuven.ac.be/int/tradelaw/WK/2002-05-17.htm; Oberster Gerichtshof, Austria, 18 April 2001, available at http://www.cisg.at/7_7601d.htm; Saarlndisches Oberlandesgericht, Germany, 14 February 2001 (Internationales Handelsrecht 64 (2001)); Oberlandesgericht Stuttgart, Germany, 28 February 2000, available at http://www.jura.uni-freiburg.de/ipr1/ cisg/urteile/text/583.htm; Handelsgericht Kanton Z
rich, April 8, 1999, CLOUT case No. 325 (Internationales Handelsrecht 45 (2001)); Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331 (Internationales Handelsrecht 44 f. (2001)); Handelsgericht Z
rich, Switzerland, 21 September 1998, CLOUT case No. 252 (Transportrecht-Internationales Handelsrecht 14 (2000)); Landgericht Saarbr
cken, Germany, 26 March 1996, CLOUT case No. 337, available at http://www.cisg-online.ch/cisg/urteile/ 391.htm; Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 5 December 1995, CLOUT case No. 164 (Arbitral award No. 94131), available at http:// www.cisg-online.ch/cisg/urteile/163.htm; Hof s’Hertogenbosch, Netherlands, 9 October 1995 (Nederlands Internationaal Privaatrecht No. 118 (1996)); Landgericht Oldenburg, Germany, 9 November 1994 (Recht der internationalen Wirtschaft 65 f. (1996)); Gerichtskommission Oberrheinthal, Switzerland, 30 June 1995, CLOUT case No. 262 (Transportecht-Internationales Handelsrecht 11 (2000)); Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 131, available at http://www.cisg-online.ch/cisg/urteile/ 142.htm; Landgericht Memmingen, Germany, 1 December 1993 (Praxis des internationalen Privat- und Verfahrensrechts 251 f. (1995)); ICC Court of Arbitration, case No. 7660, 1994, CLOUT case No. 302 (ICC Court of Arbitration Bulletin 69 ff. (1995)); ICC Court of Arbitration, case No. 7844, 1994 (ICC Court of Arbitration Bulletin 72 ff. (1995)); Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97. 197 See Secretariat Commentary on Art. 3, Official Records of the United Nations Conference, supra note 47, at 17, available in Documentary History, supra note 47, at 407, stating that Article 3(1) of the Uniform Sales Law “provides that the sale of goods to be manufactured or produced by the seller to the buyer’s order is as much subject to the provisions of this convention as the sale of ready-made-goods”. See also Piltz, supra note 133, at 26 (stating the same).

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goods,198 thus giving rise to a dispute as to how to determine the “substantial part”. Despite this dispute, commentators agree that the supply of accessories does not exclude the CISG’s applicability.199 Conversely, where all the materials are supplied by the buyer, there is no doubt that the CISG is inapplicable, as confirmed by a decision of the Austrian Supreme Court from 1994.200 As for the determination of the concept of “substantial part”, some commentators argue that it is to be judged merely from a quantitative point of view.201 A recent arbitral award202 – the only decision cited in the draft Digest on this issue – seems to have adopted this view when it held that the CISG was applicable by virtue of Article 3(1) on the sole grounds that the value of the materials supplied by the buyer amounted only to about 10% of the total value of the goods (containers) to be produced.203 The fact that the aforementioned arbitral award is the only decision cited in the draft Digest on this issue should, however, not lead one to believe that 198

For this criticism, see also Rosett, supra note 4, at 280, stating that Article 3 explicitly includes contracts for goods to be manufactured unless the goods are incidental to supplying labor and services, without providing guidance concerning the determination of the meaning of the “incidental” criterion. See also S. M. Carbone & M. Lopez de Gonzalo, Art. 3, Nuove Leggi civ. commentate 8 (1989); Memmo, supra note 139, at 189. 199 For this conclusion, see also Ferrari, supra note 92, at 81; Memmo, supra note 139, at 189. 200 See Oberster Gerichtshof, Austria, 27 October 1994, CLOUT case No. 105 (Zeitschrift f
r Rechtsvergleichung 159 ff. (1995)), holding that the CISG was inapplicable since the buyer supplied all the material necessary for the manufacturing of the goods. For a reference to this case, see Bonell & Liguori, supra note 195, at 151 n. 24. 201 See, e. g., T. C. Ebenroth, Internationale Vertragsgestaltung im Spannungsverhltnis zwischen ABGB, IPR-Gesetz und UN-Kaufrecht, sterreichische Juristische Bltter 684 (1986); A. Garro & A. Zuppi, Compraventa internacional de mercaderias 74 (1990); Herber & Czerwenka, supra note 17, at 28; H. Lacasse, Le champ d’application de la Convention des Nations Unies sur les contrats de vente internationale de marchandises, in Actes du colloque sur la vente internationale 29 f. (H. Lacasse & L. Perret eds., 1989); Piltz, supra note 133, at 26; Reinhart, supra note 55, at 20. Some authors prefer to use a “criterion of value”. See, e. g., Winship, supra note 97, at 1. 24 (stating that it is difficult to determine whether the materials provided by the buyer are a “substantial part” of the materials necessary for the production unless one uses a measure that looks to value). This approach, however, does not differ from the one described in the text, since the latter refers to an economic evaluation of the relationship between materials provided by the buyer and those provided by the seller. 202 Arbitration Court of Chamber of Commerce and Industry of Budapest, Hungary, 5 December 1995, CLOUT case No. 164 (Arbitral award No. 94131), available at http:// www.cisg-online.ch/cisg/urteile/163.htm. 203 For another reference to this case, see Magnus, Das UN-Kaufrecht, supra note 161, at 828.

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that award’s solution is correct and should therefore be followed. On the contrary, in determining whether the materials provided by the buyer constitute a “substantial part” of the material necessary for the production or manufacture of the goods, a qualitative criterion should be used as well,204 not unlike under the 1964 Hague Conventions.205 This view is based, on the one hand, on the French language counterpart of the “substantial part” requirement, which reads “partie essentielle”, thus stressing the importance of the “essence” – and, therefore, the quality – of the materials as well. On the other hand, this view is based on the fact that the wording used, “substantial part”, is different from that used in Article 3(2) which speaks of “preponderant part”, a concept undoubtedly linked to a mere quantitative approach. Consequently, “the materials to be provided by the buyer may constitute a substantial part of the goods sold even where their value represents less than 50% of the value of the goods”.206 Although many courts have already applied Article 3(1) CISG,207 they have not yet explicitly elaborated on the concept of “substantial part” in the aforementioned exception. However, a different issue has been touched upon by some courts: whether the buyer’s supply of plans, design specifications, etc., compares to the supply of “material necessary” for the manufacture or production of the goods.208 In one case,209 for instance, the CISG was held inapplicable, on the grounds of Article 3(1), to a contract under which the French seller had to manufacture goods according to the Italian

204

For this conclusion, see also Audit, supra note 51, at 26. Despite the different wording of the relevant provisions of the CISG and the 1964 Hague Conventions, it has been suggested that there is no difference between the criteria to be used. See, e. g., Richards, supra note 94, at 231 (stating that “[d]espite the deletion of ‘essential’ from the CISG, the nature of the materials supplied will be a factor in deciding whether a ‘substantial’ amount of the materials will be supplied”). Arguing that there is no space for an approach which takes into account the quality of the goods provided by the buyer, see W. Khoo, Art. 3, in Commentary on the International Sales Law, supra note 93, at 42, stating that “[u]nder paragraph (1), unlike the parallel provision in ULIS, the materials supplied need not be essential for the manufacture or production. Nor is it sufficient to take the transaction out of the Convention that the material supplied is an essential part”. 206 Carbone & Lopez de Gonzalo, supra note 198, at 8. 207 See supra note 196. 208 In this respect, see, most recently, Bonell & Liguori, supra note 195, at 151; Magnus, Das UN-Kaufrecht, supra note 161, at 828-829. 209 Cour d’Appel Chambry, France, 25 May 1993, available at http://witz.jura.uni-sb.de/ CISG/decisions/250593v.htm. 205

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buyer’s specifications.210 It appears that the court considered the plans and instructions given to the “seller” by the “buyer” as being a “substantial part of the materials necessary” for the production of the goods.211 As a look at the draft Digest shows, there are courts that have favored the opposite view.212 Thus, the problem arises, once again, as to which of the opposing views neutrally cited in the draft Digest is to be preferred. In this author’s opinion213 (and this appears to be the prevalent view today214), design specifications, plans or the like provided by the buyer should not be relevant in deciding whether a contract is outside the scope of the CISG under Article 3(1),215 as such items do not constitute “material necessary for the manufacture or production” of the goods. D. Contracts for the sale of labor and services The applicability of the Vienna Sales Convention extends not only to contracts for the sale of made-to-order goods. Article 3(2) CISG extends it also to contracts pursuant to which the seller undertakes to supply labour or other services in addition to the obligations to deliver the goods, transfer the property and hand over the documents,216 as long as the supply of labour or services does not constitute the “preponderant part” of the seller’s obligation,217 as often pointed out in case law.218 This provision was introduced in 210

See C. Witz, Les premires applications jurisprudentielles du droit uniforme de la vente internationale. Convention des Nations Unies du 11 avril 1980 34 f. (Paris, 1995). 211 For a summary of this case in light of the issues discussed in the text, see also Del Duca and Del Duca, supra note 141, at 352 ff. 212 See Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331, available at http://www.cisg-online.ch/cisg/urteile/488.htm; Oberlandesgericht Frankfurt, Germany, 17 September 1991, CLOUT case No. 2 (Neue Juristische Wochenschrift 633 f. (1991)). 213 Ferrari, supra note 92, at 111. 214 See Magnus, Das UN-Kaufrecht, supra note 161, at 829; Witz, supra note 210, at 34-35; Witz & Wolter, supra note 85, at 811. 215 For this conclusion, compare Schlechtriem, supra note 55, at 17. 216 For a definition of the contract for the sale of goods covered by the CISG which refers to these obligations, see the text accompanying note 142. 217 For a very detailed comparative study of the categories of contracts for the supply of labor and/or services as opposed to contracts for the supply of goods, see Werner Lorenz, Contracts for the Work on Goods and Building Contracts, in 8/8 International Encyclopedia of Comparative Law 1 ff. (1980). 218 See Gerechtshof Arnhem, Netherlands, 27 April 1999 (Nederlands Internationaal Privaatrecht No. 245 (1999)); Kantonsgericht Zug, Switzerland, 25 February 1999, CLOUT case No. 327 (Internationales Handelsrecht 45 (2001)); Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 287 (Betriebs-Berater 2295 (1998)); Oberlandesgericht Luzern, Switzerland, 8 January 1997, CLOUT case No. 192 (Schweizerische Ju-

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order to solve the problems that had arisen under the 1964 Hague Conventions concerning their applicability to contracts for the supply and installation of goods,219 such as turn-key contracts220 and the concept of Liefervertra¨ge mit Montageverpflichtung recognized in German law.221 The relevant element on the basis of which to decide whether the CISG is applicable to contracts for the supply of goods and labor or services222 is the “preponderance” of the seller’s obligations regarding the supply of services or labor.223 This criterion seems to generate fewer difficulties than the “subristenzeitung 515 ff. (1998)); Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)); Cour d’appel Grenoble, France, 26 April 1995, CLOUT case No. 152, available at http://www.cisg-online.ch/cisg/ urteile/154.htm; Oberster Gerichtshof, Austria, 27 October 1994, CLOUT case No. 105, available at http://www.cisg-online.ch/cisg/urteile/133.htm; Richteromt Laufen des Kantons Berne, Switzerland, 7 May 1993, CLOUT case No. 201 (Schweizerische Zeitschrift f
r internationales und europisches Recht 277 (1995)). For a recent decision in which article 3(2) was mentioned, but in which the court did not resolve the issue of whether the contract was one for the sale of goods or one for the supply of labour and services, see Rechtbank van Koophandel Hasselt, Belgium, 19 September 2001, available at http://www.law.kuleuven. ac.be/int/etradelaw/WK/2001-09-19.htm. 219 For this justification for the introduction of Article 3(2) CISG, see, e. g., Peter Schlechtriem, Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods 31 (1986), stating that Article 3(2) “attempts to regulate a question that proved to be difficult in Ulis, namely whether a contract for both the delivery and the installation of goods is covered by the Uniform Law for International Sales”. 220 That Article 3(2) has been introduced in order to solve the problems concerning the extension of the CISG’s applicability to turn-key-contracts can be deduced from the statements to be found in 7 UNCITRAL Yearbook 98 (1976). For a reference to the CISG’s applicability to turn-key-contracts, see Ferrari, supra note 92, at 83-84 (arguing that turn-key-contracts do not fall within the scope of the CISG). 221 For a detailed discussion on whether the Liefervertra¨ge mit Montageverpflichtung were governed by the 1964 Hague Conventions, see U. Huber, Diskussionsbeitrag, in Einheitliches Kaufrecht und nationales Obligationenrecht, supra note 102, 107-108; Memmo, supra note 139, at 191. 222 Several courts have already dealt with the issue at hand; compare Cour d’Appel Grenoble, France, 26 April 1995, CLOUT case No. 152, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=109&step=FullText; Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=166&step=FullText; ICC Court of Arbitration, Case No. 7153, 1992, CLOUT case No. 26 (Journal du droit international 1005 ff. (1992)). 223 Note, that “[w]hen the terms ‘labor’ or ‘services’ are used to characterize non-sales obligations, then this is obviously done to express that human labor as such is owed, irrespective of whether it has a form giving effect or not. If it is only the result of labor which is

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stantial part” criterion laid down in Article 3(1) CISG,224 as it seems merely to refer to a comparison between the economic value of the obligations regarding the supply of labor and services, on the one hand, and the economic value of the obligations regarding the delivery of the goods, on the other hand.225 “The sale price of the goods to be delivered must [in other words] be compared with the fee for labor and services”,226 as if two separate contracts have been made – a principle which, according to the draft Digest, appears to already have found support in case law.227 Thus, where the owed, like in many contracts on the preparation of scientific or technological results (project contracts), then there exists a sales contract in the sense of the CISG in any case”. Enderlein & Maskow, supra note 135, at 38. 224 However, according to Schlechtriem, supra note 219, at 31, the criterion of “preponderance”, “is likely to prove difficult to interpret and to apply. Therefore, the parties should attempt to reach clear agreement in their contract”. 225 For a similar affirmation, see Ferrari, supra note 92, at 83; Garro & Zuppi, supra note 201, at 74-76; Herber & Czerwenka, supra note 17, at 29; Karollus, supra note 51, at 24; Schlechtriem, supra note 219, at 17. Note, however, that some authors have argued that “preponderance” must be evaluated having regard to other criteria as well. See, e. g., Richards, supra note 94, at 240, stating that in order to determine the “preponderance” of the obligations to supply services and labor versus the supply of goods, “[a] two-part test involving a quantitative judgement of the predominant part of the agreement and a subjective judgement of the intent of the parties and the purpose of the agreement should be used”. Based upon the fact that a United Kingdom proposal to use a “major part in value” criterion in order to distinguish sales contracts from contracts for the supply of labor and services was rejected (for this proposal, see Report of the First Committee at the 1980 Vienna Diplomatic Conference, Article 3, Official Records of the United Nations Conference, supra note 47, at 84, available in Documentary History, supra note 47, at 656). Reinhart, supra note 55, at 21, states that “a quantitative criterion is not sufficient to determine the preponderance of either the obligations regarding the supply of goods or those consisting in the supply of labor or services”. 226 Schlechtriem, supra note 219, at 31. In case law see Kantonsgericht Zug, Switzerland, 25 February 1999, CLOUT case No. 327 (Internationales Handelsrecht 45 (2001)). 227 See ICC Court of Arbitration, case No. 7153, 1992, CLOUT case No. 26 (published in English at 14 J. L. & Com. 217 ff. (1995)). The dispute related to a contract concluded in 1989 by an Austrian seller and a Yugoslavian buyer for the furnishing and assembling of materials to be used in the construction of a hotel in then-Czechoslovakia. In resolving the dispute, the arbitral tribunal dealt with the issue of whether the contract was one for the sale of goods by stating merely that “given that the text of the contract is unequivocal in this respect, and that no contrary provision emerges from the plaintiff’s mail, the court of arbitration assumes that the type of contract in question here was a sales contract, such that the Convention applies”. Per se, this statement does not support the rule mentioned in the text. However, it has been stated that the tribunal’s aforementioned conclusion “was supported by a bill addressed to the defendant which made apparent that the price to be paid for the assembly of the materials was

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economic value of the obligation regarding the supply of labor or services is “preponderant”, i. e., where it amounts to more than 50%,228 as is usually the case in turn-key contracts229 and Liefervertra¨ge mit Montageverbindung,230 the CISG is inapplicable.231 It is on the basis of the aforementioned criterion that a court decided – correctly – that a contract asking for a market study did not fall under the CISG’s sphere of application.232 On the other hand, a contract for the sale and dismantling of a second-hand hangar was considered to fall within the CISG’s sphere of application on the grounds that the value of the dismantling amounted only to 25% of the total value of the contract.233 It must be noted, however, that one court stated that, because a clear calculation would not always be possible, other circumstances (such as those surrounding the conclusion of the contract, as well as the purpose of the contract), should also be taken into account in evaluating whether the of a completely secondary order of magnitude compared to that of the purchase of the materials. The arbitrator thus correctly examined the economic value of the benefits furnished in order to conclude that the contract at issue came within the purview of the Vienna Convention”. Dominique Hascher, Commentary on International Court of Arbitration, Matter No. 7153 in 1992, 14 J. L. & Com. 222-223 (1995). See also Bonell & Liguori, supra note 195, at 152. 228 There is no doubt among legal scholars that a “preponderant” part is more than a “substantial part” and that the former has to mean more than 50%. For similar statements, see, e. g., Enderlein & Maskow, supra note 135, at 37 (stating that “the ‘preponderant’ part is bigger than a substantial part and has to mean more than half”); Honnold, supra note 36, at 106 (stating that “a ‘substantial’ part would be less than preponderant”); Schlechtriem, supra note 219, at 32 (stating that “[p]reponderant in this sense should be considerably more than 50% of the price”). 229 Several authors have pointed out that the “preponderance” test prevents the CISG from being applicable to turn-key-contracts. See, e. g., Czerwenka, supra note 103, at 145; R. Herber, Art. 3, in Kommentar zum Einheitlichen UN-Kaufrecht 70 (P.Schlechtriem ed., 2d ed., 1995); Richards, supra note 94, at 243. According to some authors, however, turn-key-contracts are not per se excluded from the CISG’s sphere of application, but only where the “preponderance” test leads, on particular facts, to their exclusion. See, for instance, P. Schlechtriem, Einheitliches UN-Kaufrecht. Das bereinkommen der Vereinten Nationen vom 11 April 1980
ber Vertrge
ber den internationalen Warenkauf (CISG), JuristenZeitung 1039 (1988). 230 See Herber & Czerwenka, supra note 17, at 28-29. 231 See Richards, supra note 94, at 234. 232 See Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122 (Recht der internationalen Wirtschaft 970 ff. (1994)). 233 See Cour d’appel Grenoble, France, 26 April 1995, CLOUT case No. 151, available at http://www.cisg-online.ch/cisg/urteile/154.htm.

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obligation to supply labour or services is preponderant.234 Another court referred to the overall purpose of the contract as a criterion to determine whether the CISG is applicable or should be disregarded.235 In this author’s opinion, these criteria may well be relevant, but only where the aforementioned “preponderance test” does not lead to a solution: the text of the CISG appears to be very clear on this, as it only refers to “preponderance”. An issue closely related to the one just examined, but not yet dealt within decisions (as evidenced by the lack of any reference to this matter in the draft Digest), is whether a contract for the supply of both goods and services or labor is entirely governed by (or excluded from) the CISG or whether the CISG always governs at least the part concerning the supply of goods.236 Even though both legal scholars237 and the Official Records of the United Nations Conference238 assert that this question should be answered by the relevant rules of domestic law, the better view seems to be to the contrary: the question of severability should be answered by resorting to the principles of the CISG,239 since otherwise the mandate (set forth in Article 7(1) of the CISG) to promote uniformity in the Convention’s application would not be sufficiently honored.240 However, since the CISG, as well as most domestic laws, resort to party autonomy as the principal criterion in order to solve the problem de quo, the differing views will hardly lead to different results,241 at least from a practical point of view.242 234

See Landgericht Mainz, Germany, 26 November 1998, CLOUT case No. 346, available at http://www.cisg-online.ch/cisg/urteile/563.htm. 235 See Corte Suprema di Cassazione, 9 June 1995 (Foro padano 2 ff. (1997)). 236 For a discussion of this issue, see, inter alia, Honnold, supra note 36, at 108. 237 See, e. g., Schlechtriem, supra note 219, at 32, stating that in contracts for the supply of goods and labor or services it is difficult “to decide whether there are, in fact, two separate contracts, and, for example, whether the delivery is subject to the Uniform Law for International Sales while the installation contract is governed by domestic law. Domestic law should decide whether these two contracts can be distinguished” (footnotes omitted). This solution has also been advanced by Lacasse, supra note 201, at 31; C. Samson, supra note 133, at 928-929. 238 See Secretariat Commentary on Art. 3, Official Records of the United Nations Conference, supra note 47, at 16-17 available in Documentary History, supra note 47, at 40607, stating that “the question whether the seller’s obligations relating to the sale of goods and those relating to the supply of labor or services can be considered as two separate contracts (under what is sometimes called the doctrine of ‘severability’ of contracts), will be resolved in accordance with the applicable national law”. 239 See, e. g., Czerwenka, supra note 103, at 146 n. 696; Herber & Czerwenka, supra note 17, at 29. 240 For this view, see also Enderlein & Maskow, supra note 135, at 38. 241 For this statement, see also R. Herber, Art. 1, in Kommentar zum Einheitlichen UN-

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E. The international sale of “goods” The CISG governs only international sales contracts (or other international contracts which the CISG considers to be sales contracts)243 whose subject matter, at the time of delivery,244 is moveable, including245 livestock,246 plants,247 art objects,248 as well as chemical substances needed for the production of pharmaceuticals.249 As far as the concept of “moveable goods” under the CISG is concerned, it essentially corresponds to the one in the 1964 Hague Conventions,250 even though the expressions used by the different laws partially differ from each other.251 While all the English language texts use the expression “goods”, the official French version of the Kaufrecht, supra note 229, at 70; Piltz, supra note 133, at 27; P. Schlechtriem, Anwendungsvoraussetzungen und Anwendungsbereich des UN-bereinkommens
ber den internationalen Warenkauf (CISG), Archiv f
r die juristische Praxis 347 (1992). 242 See Ferrari, supra note 92, at 86. 243 See text accompanying notes 150-242. 244 See, e. g., Cour d’appel Grenoble, France, 26 April 1995, CLOUT case No. 152, available at http://www.cisg-online.ch/cisg/urteile/154.htm; Herber & Czerwenka, supra note 17, at 16-17 (stating that “the goods must be moveable at the time of delivery, not necessarily at the moment the contract is concluded”); P. Schlechtriem, Das Wiener Kaufrechts
bereinkommen von 1980 (Convention on the International Sale of Goods), Praxis des internationalen Privat- und Verfahrensrechts 278-279 (1990) (stating the same). 245 For an overview on recent case law concerning this issue, see also Magnus, Das UNKaufrecht, supra note 161, at 830-831. 246 Landgericht Flensburg, Germany, 19 January 2001 (Internationales Handelsrecht 67 f. (2001)) (applying the CISG to the sale of live sheep); Gerechtshof Arnhem, Netherlands, 22 August 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=156&step=FullText (applying the CISG to a contract for the sale of living lambs between a German seller and a Dutch buyer). 247 See Rechtbank s’Gravenhage, Netherlands, 7 June 1995, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=154&step=FullText (applying the CISG to a contract for the sale of apple trees); Oberlandesgericht Innsbruck, Austria, 1 July 1994, CLOUT case No. 107 (Schweizerische Zeitschrift f
r internationales und europisches Recht 51 (1996)) (applying the CISG to a contract for the sale of daisies). 248 See Rechtbank Amsterdam, Netherlands, 15 June 1994, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=126&step=FullText (applying the CISG to a contract for the sale of lithographs). 249 See Amstgericht M
nchen, Germany, 23 June 1995, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/368.htm. 250 For this conclusion, see Ferrari, supra note 92, at 51. For a detailed discussion of the concept de quo under the 1964 Hague Conventions, see Herber, supra note 132, at 9. 251 For this conclusion, see also Czerwenka, supra note 103, at 147; Herber, supra note 241, at 50; V. Heuz, La vente internationale de marchandises. Droit uniforme 6 (Paris, 1992).

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CISG uses the expression “marchandises” as opposed to the expression “objets mobiliers corporels” employed by the 1964 Hague Conventions.252 However, this innovation is considered to be merely a terminological change, not a substantial one.253 Thus, as confirmed by some court decisions cited in the draft Digest, only “moveable and tangible”254 goods are considered goods under the CISG,255 regardless of whether the goods are solid or not256 and regardless of whether they are used or new goods.257 Consequently, the sale of immovable property,258 or of intangible goods,259 such as industrial property rights,260 or a quota of a limited liability 252

This has already been pointed out by several authors. See, e. g., F. Diedrich, Anwendbarkeit des Wiener Kaufrechts auf Software
berlassungsvertrge, Recht der internationalen Wirtschaft 446 (1993); Ferrari, supra note 113, at 930-931; Herber, supra note 241, at 50. 253 For this conclusion, see Herber & Czerwenka, supra note 17, at 16. 254 See Kantonsgericht Z
rich, Switzerland, 21 October 1999 (Internationales Handelsrecht 45 (2001); Tribunale Pavia, Italy, 27 December 1999 (Corriere giuridico 932 ff. (2000)); Oberlandesgericht Kln, Germany, 21 May 1996, CLOUT case No. 168, available at http:// www.cisg-online.ch/cisg/urteile/254.htm; Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)); Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122, available at http://www.cisg-online.ch/ cisg/urteile/132.htm. 255 See also Bernardini, supra note 139, at 85 (stating that “goods” in the sense of the CISG are only “corporeal moveable goods”); Enderlein et al., supra note 108, at 42 (stating the same); Endler & Daub, supra note 153, at 602 (stating the same); Herber, supra note 241, at 50 (stating the same); H. Hoyer, Der Anwendungsbereich des UNCITRAL-Einheitskaufrechts, Wirtschaftsrechtliche Bltter 71 (1988) (stating the same); Samson, supra note 133, at 927. 256 See Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 170 (Recht der Wirtschaft 203 ff. (1996) (applying the Convention to the international sale of propane gas). 257 See Landgericht Kln, Germany, 16 November 1995, available at http://www.cisgonline.ch/cisg/urteile/265.htm. 258 See Honnold, supra note 36, § 56, at 52, stating that “[m]any provisions of the Convention also make clear that the term ‘goods’ (French: marchandises; Spanish: mercaderias) refers to moveable tangible assets. A sale of land is excluded. Any possible doubt on this point is foreclosed by numerous provisions that are incompatible with transactions in land – e. g., quality and packaging (Art. 35), replacement or repair of defective parts (Art. 46), shipment and damage during transit (Art. 46), delivery by instalments (Art. 73), preservation and warehousing to prevent loss or deterioration (Art. 85-88)”. 259 Id. at 51, stating that “‘goods’ governed by the Convention must be tangible, corporeal things, and not intangible rights”. For this conclusion, see also B. Piltz, UN-Kaufrecht, in Handbuch des Kaufvertragsrechts in den EG-Staaten einschließlich sterreich, Schweiz und UN-Kaufrecht 10 (F. Graf von Westphalen ed., 1993). 260 See also Enderlein & Maskow, supra note 135, at 29, stating that “[t]he goods referred to [in the CISG] are conceived as moveable assets ... hence, sales of immovable property and legal assets (e. g. sales of industrial property rights) are not covered by the Convention”.

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company,261 or receiveables, do not constitute sales of “goods” in the sense of the CISG.262 It should be noted, however, that the draft Digest cites (as always without any further comment) one case in which the court states that the concept of “goods” is to be interpreted “extensively”.263 Hopefully courts will not construe that reference to mean that intangible goods or immoveable goods should be considered “goods” under the CISG. By virtue of this definition of “goods” which is favored here, the sale of “know-how”, as well, is to be excluded from the CISG’s sphere of application,264 despite some statements to the contrary.265 Whereas computer hardware clearly falls under the CISG concept of “goods”,266 it is not clear whether that concept also encompasses computer software and, if it does, to what extent. This dilemma is evidenced by the fact that the draft Digest cites several court decisions that hold opposing views – without giving any guidance as to which view is to be favored. According to some court decisions, only standard software is considered a “good” under the CISG.267 According to one court, however, any kind of software is considered a “good”, even custom-made software.268 In this author’s opinion, the sale of See also Honnold, supra note 36, § 56, at 52, asserting that “[the] conclusion that ‘goods’ refers to tangible, corporeal things means that sales of patent rights, copyrights, trademarks ... are not governed by the Convention”. 261 See Arbitration Court of Chamber of Commerce and Industry of Budapest, Hungary, 20 December 1993, CLOUT case No. 161 (stating that the CISG is inapplicable to a contract for the sale of shares of a limited liability company). 262 For this conclusion, see also Ferrari, supra note 92, at 51; B. Piltz, Der Anwendungsbereich des UN-Kaufrechts, Anwaltsblatt 59 (1991). 263 Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281, available at http://www.cisg-online.ch/cisg/urteile/91.htm. 264 For this conclusion, see Ferrari, supra note 92, at 52; Honnold, supra note 36, at § 56; P. Schlechtriem, Einheitliches Kaufrecht. Erfahrungen mit den Haager Kaufgesetzen – Folgerungen f
r das Wiener UN-Kaufrecht, Recht der Wirtschaft 43 (1989). 265 See, e. g., De Nova, supra note 153, at 752; Piltz, supra note 133, at 30. 266 See, e. g., Landgericht M
nchen, Germany, 29 May 1995 (Neue Juristische Wochenschrift 401 f. (1996)) (applying the CISG to a contract for the sale of computer hardware); Landgericht Heidelberg, Germany, 3 July 1992, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/38.htm (applying the CISG to a contract for the sale of computer components). 267 See Landgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 131, available at http://www.cisg-online.ch/cisg/urteile/203.htm; Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122, available at http://www.cisg-online.ch/cisg/urteile/132.htm. 268 Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281, available at http://www.cisg-online.ch/cisg/urteile/91.htm.

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software other than custom-made software and standard software that is extensively modified to fit the purposes of the buyer is governed by the CISG,269 at least when the software is incorporated in corporeal goods.270 According to one court, however, even though intended to be incoporated in a document, a market study does not constitute a “good” in the sense of the CISG.271 The justification for the exclusion of contracts for the sale of custom-made software, even if incorporated in a tangible good, is to be found in Article 3(2): in this kind of “sales”, the labor or service part will generally be preponderant; where this is not the case, even custom-made software can fall under the CISG. Furthermore, even though the sale of immovable property is excluded from the sphere of application of the CISG,272 the sale of a mobile building, even though it is intended to be permanently affixed to immovable property, falls within the CISG’s field of application.273 The same is true for the sale of tangible goods to be extracted or severed from land.274 It is clear that a precise and uniform definition of the concept of “goods” does not yet exist.275 However, this should not lead one to resort to domestic definitions in order to solve interpretive problems concerning that con-

269

This view is held, for instance, by Czerwenka, supra note 103, at 148; Diedrich, supra note 252, at 441-442; Arthur Fakes, The Application of the United Nations Convention on Contracts for the International Sale of Goods to Computer, Software and Database Transactions, 3 Software L. J. 582-584 (1990); Ferrari, supra note 92, at 52; Herber & Czerwenka, supra note 17, at 17; Herrmann, supra note 103, at 92; Karollus, supra note 171, at 380; Magnus, supra note 178, at 35; Piltz, supra note 133, at 30; L. Scott Primak, Computer Software: Should the U. N. Convention on Contracts for the International Sale of Goods Apply? A Contextual Approach to the Question, 11 Computer L. J. 214 & 217 (1991). 270 For this line of argument, see also Diedrich, supra note 252, at 449; Endler & Daub, supra note 153, at 603; Ferrari, supra note 113, at 931-932; Piltz, supra note 133, at 30. 271 Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122 (Neue Juristische Wochenschrift Rechtsprechungs-Report 247 (1995)). 272 See, in addition to the authority cited in note 258, Ferrari, supra note 92, at 54; Karollus, supra note 51, at 380. 273 For this conclusion, see, e. g., Honnold, supra note 36, § 56, stating that “the Convention would apply to an international sale of mobile building even though the buyer might decide to affix it permanently to his land”. For a similar statement, see Memmo, supra note 139, at 194. 274 See Herber, supra note 241, at 51; Herber & Czerwenka, supra note 17, at 17; Karollus, supra note 51, at 21. 275 For this affirmation, see also Diedrich, supra note 252, at 443 & 446.

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cept.276 In order to achieve uniformity in the CISG’s application, one must interpret the expression “goods” (not unlike most other expressions used by the CISG) in an autonomous way, that is, not in the light of the concept of one’s own domestic legal system.

V. Exclusions from the Convention’s sphere of application by virtue of Article 2 A. General remarks For the CISG to apply it is not sufficient that all the above mentioned prerequisites exist.277 The CISG’s sphere of application, as it results from Articles 1 and 3, is restricted by Article 2 of the CISG.278 Article 2 is important because it excludes certain categories of international sales contracts from the CISG’s sphere of application. These exclusions, which are analogous, but not identical to the ones contemplated by the ULIS, can be divided into three categories279 (and not into two, as has been stated280) depending on the reasons for the exclusions from the CISG’s field of application. The exclusions are based either on the purpose of the acquisition of the goods (Article 2(a)), or on the type of sales contract (Article 2(b) and (c)), or on the kind of goods sold (Article 2(d), (e) and (f)).281 276

For this view with respect to the 1964 Hague Conventions, see P. Kahn, La Convention de La Haye du 1er juillet 1964 portant loi uniforme sur la vente internationale d’objets mobiliers corporels, Revue trimestrielle de droit commercial 692 (1964). But see Garro & Zuppi, supra note 201, at 78-79, favoring recourse to domestic definitions to determine what must be considered a “good” under the CISG. 277 For a similar conclusion, see Ferrari, supra note 92, at 56. 278 It is commonly understood that Article 2 restricts the CISG’s sphere of application. In this respect, see, e. g., Boschiero, supra note 105, at 276; S. M. Carbone & M. Lopez de Gonzalo, Art. 2, Nuove Leggi civ. commentate 7 (1989); Schlechtriem, supra note 219, at 28. 279 For this tripartition, see Enderlein et al., supra note 108, at 45; Karollus, supra note 171, at 380; Samson, supra note 133, at 928. 280 For the bipartition, see, e. g., Carbone and Lopez de Gonzalo, supra note 278, at 7 (categorizing the exclusions on the basis of the characteristics of the contractual relationship created by the parties and on the nature of the goods sold); Honnold, supra note 36, § 49 (categorizing the exclusions on the basis of the nature of the transaction and the nature of the goods). 281 For a similar tripartition, see Enderlein & Maskow, supra note 135, at 32 (stating that “[t]here are three types of restrictions in this article [Article 2]; – those based upon the purpose for which the goods were purchased (subpara. (a)), – those based on the type of sales

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Even though there is dispute among legal scholars as to the number of categories of sales contracts excluded from the sphere of application of the CISG by Article 2, most legal scholars agree upon the importance of the restrictions referred to in Article 2, despite the lack of case law dealing with these exclusions, as evidenced by the small number of court decisions cited in the draft Digest. Thus, interpreters will not find much guidance in the cases (or in the draft Digest), but rather must look to scholarly commentary, which is why this part of the discussion attempts to deal in depth with the matters touched upon in Article 2. The exclusions are commonly understood to be further-reaching than those provided for in the 1964 Hague Conventions.282 This is evidenced, for example, by the exclusion of auction sales from the sphere of application of the CISG,283 an exclusion not to be found in the ULIS,284 at least if one interprets this exclusion to refer merely to private auctions. According to the contract (subparas. [b] and [c]), – those based on the kinds of goods sold, (subparas. (d), (e) and (f)”); W. Khoo, Art. 2, in Commentary on the International Sales Law, supra note 93, at 37 (stating the same); Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating the same); Paul Volken, The Vienna Convention: Scope, Interpretation, and Gap-Filling, in International Sale of Goods, Dubrovnik Lectures 34 (Peter arcˇevic´ & Paul Volken eds., 1986) (stating the same). 282 See, for a similar affirmation, R. Herber, Art. 2, in Kommentar zum Einheitlichen UNKaufrecht, supra note 229, at 59. 283 Even though auction sales are not subject to the CISG, this does not mean that sales at commodity exchanges are excluded from the CISG’s sphere of application (for this conclusion, see Heuz, supra note 251, at 76). Indeed, the sales at commodity exchanges being “rather rapidfire communication of offers and acceptances” (Honnold, supra note 36, § 51 n. 3), they cannot be considered as auction sales. For a similar argument, see M. Kantor, The Convention on Contracts for the International Sales of Goods: An International Sales Law, 1 International Legal Practice 10 (1988) (stating that “sales on commodity exchanges are not sales by ‘auction’ but rather extremely quick communications of offers and acceptance. Therefore, as long as a commodities trading contract is between companies with places of business in different Contracting States and the transaction is not otherwise excluded from coverage under the Convention, the Convention is applicable to international sale of goods consummated on such ... exchanges”.). For a similar conclusion, see Audit, supra note 51, at 29; Ferrari, supra note 92, at 57 n. 7 (stating that the CISG can be applicable to commodity exchange transactions). 284 It has often been stated that the exclusion of auction sales constitutes one of the innovative characteristics of the CISG. See, e. g., Khoo, supra note 281, at 36 (stating that “[p]aragraph (b) excepting ‘auction[s]’ has no precedent in Ulis. It was introduced by the Working Group in 1970 [...]. There is a similar provision in the 1974 Limitation Convention”). See also Carbone & Lopez de Gonzalo, supra note 278, at 7 (stating the same).

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Official Records of the United Nations Conference, that exclusion finds its reason to exist in the draftsmen’s intent to avoid a conflict between CISG rules and special rules to which auction sales are often subject under national law.285 B. Exclusions of consumer contracts: The definition of consumer contracts Article 2 of the CISG also excludes the sale of goods bought for personal use from the Sales Convention’s sphere of application. Even though it has been argued that this exclusion has no antecedent in the 1964 Hague Conventions,286 its rationale underlies the Article 5(2) ULIS exclusion,287 although the latter has a more restrictive scope of application.288 This exclusion,289 which despite the proclaimed irrelevance of the civil or

285

See Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating that “[s]ubparagraph (b) of this article [Article 2] excludes sale by auction from the scope of the Convention. Sales by auction are often subject to special rules under the applicable national law and it was considered as desirable that they remain subject to those rules even though the successful bidder was from a different State”). Note, however, that some authors have justified the exclusion de quo differently. See, e. g., Enderlein & Maskow, supra note 135, at 34-35 (stating that the exclusion of sales by auction is rather due to the intent to avoid a conflict between CISG rules and party autonomy: “the rules for auctions are mostly created by the very institutions which hold such auctions; and the participants in the auction are obliged to accept those conditions”). For a similar justification of the Article 2(b) exclusion, see Reczei, supra note 172, at 70. 286 For a similar statement, see, e. g., Cabone & Lopez de Gonzalo, supra note 278, at 7 (stating that the Article 2(a) exclusion “has no antecedent in the 1964 Hague Conventions”); Boschiero, supra note 105, at 276 (stating the same); Czerwenka, supra note 103, at 148; Reinhart, supra note 55, at 18 (stating the same). 287 For a similar affirmation, see Memmo, supra note 139, at 196, stating that “the consideration of this question has already emerged during the drafting of the uniform laws of The Hague of 1964 and has been incorporated in Article 5(2) of the ULIS”. See also Schlechtriem, supra note 219, at 28, stating that “this exclusion intends to ensure that domestic consumer-protection laws are not affected by the Uniform Law for International Sales. Article 2(a) thereby fulfills the same function as article 5(2) of ULIS”. 288 For this conclusion, see Herber & Czerwenka, supra note 17, at 23, stating that the scope of the exclusion of Article 5(2) of the ULIS is more restricted than the one contained in Article 2(a) of the CISG. 289 The importance of this exclusion has already been stressed by the commentators on the 1978 Draft of the CISG; see, e. g., I. Fadlallah, Le projet de convention sur le vente de marchandises, Journal du droit international 764 (1979); John O. Honnold, The Draft

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commercial nature of the contract290 leads de facto to a limitation of the CISG’s sphere of application to commercial contracts.291 It has been justified, on the one hand, on the ground that the CISG should not be applicable to contracts having only local relevance,292 and on the other hand, on the ground that there are only a few cases where the consumer contract is international.293 However, a more convincing justification for the exclusion of sales of goods bought for personal use (i. e., for the exclusion of consumer contracts294) seems to be the intent of the draftsmen to avoid a conflict between CISG rules and domestic laws aimed at consumer protection.295 The German Supreme Court, however, pointed out in a recent decision cited in the draft Digest that a conflict cannot always be avoided,296 since domestic law defines “consumer sales” differently than does the CISG. At this point, it is worth focusing on the prerequisites a sales contract must meet in order to be excluded by virtue of Article 2(a) from the CISG’s sphere Convention on Contracts for the International Sales of Goods: An Overview, 27 Am. J. Comp. L. 227 (1979); U. Magnus, Reform des Haager Einheitskaufrechts, Zeitschrift f
r Rechtspolitik 131 (1978). 290 See Article 1(3) quoted supra at note 21. 291 For this conclusion, see Samuel K. Date-Bah, The United Nations Convention on Contracts for the International Sale of Goods: Overview and Selective Commentary, 11 Rev. Ghana L. 53 (1979); Ferrari, supra note 92, at 59; Garro & Zuppi, supra note 201, at 80; Herber, supra note 282, at 61; Reinhart, supra note 55, at 18; Schlechtriem, supra note 55, at 8 n. 5; P. H. Wang, Das Wiener bereinkommen
ber internationale Warenkaufvertrge vom 11 April 1980, Zeitschrift f
r vergleichende Rechtswissenschaft 186 (1988). 292 For this argument, see Herber, supra note 282, at 60; 2 UNCITRAL Yearbook 56 (1971). For a criticism of this justification, see Reczei, supra note 172, at 70. 293 For this argument, see, e. g., Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating that “most consumer sales are domestic transactions and it was felt that the Convention should not apply to the relatively few cases where consumer sales were international”); M. J. Bonell, La revisione del diritto uniforme della vendita internazionale, Giurisprudenza commerciale 123 (1980); Date-Bah, supra note 291, at 53 (arguing the same way); Maureen T. Murphy, Note, United Nations Convention on Contracts for the International Sale of Goods: Creating Uniformity on International Sales Law, 12 Fordham Int’l L. J. 746 (1989); Schlechtriem, supra note 45, at 13 (stating the same). 294 It has often been pointed out that the exclusion from the sphere of application of the CISG of the sale of goods bought for the purposes mentioned in Article 2(a) corresponds to the exclusion of consumer sales. For similar affirmations, see, e. g., Bernardini, supra note 139, at 87; De Nova, supra note 153, at 749; Ferrari, supra note 92, at 60; Garro & Zuppi, supra note 201, at 81-82; Magnus, supra note 289, at 131; Schlechtriem, supra note 45, at 19. This is also evidenced by the fact that the first Draft Conventions (for the history of Article 2[a], see, e. g., Czerwenka, supra note 103, at 148 f.; Khoo, supra note 281, at 34-36) contained a

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of application. The sole297 criterion to be taken into account, as pointed out in case law,298 is the intention with which the goods are bought;299 the actual use of the goods is irrelevant.300 The goods must be bought for a non commercial purpose,301 i. e., for “personal” use,302 as for example where the

definition of “consumer sale” (for such a definition, see, e. g., 2 UNCITRAL Yearbook 55 (1971), defining the consumer sales as a sale “[...] of a kind and in quantity ordinarily bought by an individual for personal, family or household use”) which in the early 1970’s was abandoned (for this decision, see 6 UNCITRAL Yearbook 51 [1975]) in favor of the expression “sale of goods bought for personal, family or household use”. 295 For a similar justification of the Article 2(a) exclusion, see, e. g., Honnold, supra note 36, § 50 (stating that “[i]n UNICTRAL attention was drawn to the development of national legislation and case law designed to protect consumers; it was agreed that the Convention should not supersede these rules”); Murphy, supra note 293, at 746 (stating that “the drafters wanted to ensure that domestic consumer-protection laws were not minimized by the Sale of Goods Convention”); Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (arguing that “[a] rationale for excluding consumer sales from the scope of this Convention is that in a number of countries such transactions are subject to various types of national laws that are designed to protect consumers. In order to avoid any risk of impairing the effectiveness of such national laws, it was considered advisable that consumer sales should be excluded”). 296 Bundesgerichtshof, Germany, 31 October 2001 (Internationales Handelsrecht 16 (2002)). 297 See Bernardini, supra note 139, at 87; Lanciotti, supra note 95, at 126; Memmo, supra note 139, at 194 (stating the same). 298 Bundesgerichtshof, Germany, 31 October 2001 (Internationales Handelsrecht 16 (2002)). 299 For this conclusion, see Ferrari, supra note 92, at 61. 300 See, e. g., Oberster Gerichtshof, Austria, 11 February 1997, CLOUT case No. 190, available at http://www.cisg.at/10_150694.htm. 301 It is commonly understood that the criterion by which sales contracts are excluded ex Article 2(a) is the non-commercial purpose of the sale of goods. For a similar statement, see, e. g., Enderlein & Maskow, supra note 135, at 33 (stating that “[t]hose contracts are mostly excluded from the Convention’s scope of application which in many countries are regarded as civil law contracts (in contrast to trade law contracts). That criterion, however, is not applied with regard to the character of the parties to a contract, which would have to be defined, but rather, to the purpose of the goods”). 302 Various legal scholars have stressed the fact that the commercial nature of the goods is irrelevant; what matters is the commercial purpose of the sales contract. See Kritzer, supra note 95, at 71 (stating that the Article 2(a) exclusion “is an exclusion of consumer sales; it is not an exclusion of consumer goods”). For similar affirmation, see, e. g., Carbone & Lopez de Gonzalo, supra note 278, at 7; Honnold, supra note 36, § 50, at 47.

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buyer purchases a car303 or a caravan304 to use it for himself as opposed to for business. The fact that the goods are consumer goods is generally speaking irrelevant for the purposes of the Article 2(a) exclusion.305 However, this does not necessarily mean that the contract must be concluded for either commercial or industrial purposes in order to be governed by the CISG. The CISG is also applicable where the goods are bought for professional use;306 consequently, where a professional photographer buys a camera to use it for business, the application of the CISG is not excluded.307 The same is true where a lawyer buys an office machine in order to use it in his law firm.308 In order to determine whether a sales contract falls within the Article 2(a) exclusion, only the purpose at the time of purchase is relevant,309 that is, it is 303 See Oberster Gerichtshof, Austria, 11 February 1997, CLOUT case No. 190, available at http://www.cisg.at/10_150694.htm; Kantonsgericht Nidwalden, Switzerland, 5 January 1996, CLOUT case No. 213 (Transportrecht-Internationales Handelsrecht 10 (1999)). See also Landgericht D
sseldorf, Germany, 11 October 1995, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=234&step=FullText, where, however, the court did not realize that the sale should have been excluded from the CISG’s sphere of application by virtue of Article 2(a), since the good, a generator, was to be installed to provide for the cooling system on the buyer’s yacht, used merely for pleasure trips. 304 Rechtbank Arnhem, Netherlands, 27 May 1993 (Nederlands Internationaal Privaatrecht (No. 261 1994)). 305 See, e. g., Carbone & Lopez de Gonzalo, supra note 278, at 7; J. Erauw, Waneer is het Weens koopverdrag van toepassing?, in Het Weens Koopverdrag 40 (H. van Houtte et al. eds., 1997); Karollus, supra note 171, at 380; Piltz, supra note 133, at 34. 306 For this conclusion, see also Audit, supra note 51, at 28; Ferrari, supra note 92, at 133; Herber, supra note 282, at 61; Karollus, supra note 171, at 380; Piltz, supra note 133, at 34; Schlechtriem, supra note 244, at 278. 307 For this example, see also Garro & Zuppi, supra note 201, at 81; Honnold, supra note 36, § 50, at 47. For this and other examples, see Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating that “the following situations are within the Convention: the purchase of a camera by a professional photographer for use in his business; the purchase of soap or other toiletries by a business for the personal use of the employees; the purchase of a single automobile by a dealer for resale”). 308 For this example, see Schlechtriem, supra note 219, at 28. For a court decision relating to a case with a similar fact pattern (covered, however, by the ULIS), see Bundesgerichtshof, Germany, 11 May 1977 (Neue Juristische Wochenschrift 1632 f. (1977)). 309 For a similar statement, see, e. g., Honnold, supra note 36, § 50 (stating that “[t]he phrase ‘goods bought for personal, family or household use’ refers to the purpose of the buyer at the time of the purchase”); Audit, supra note 51, at 28 (stating the same); Carbone & Lopez de

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irrelevant that the use the buyer makes of the good is different than the intended one.310 Consequently, the CISG will not apply where the goods are bought for an intended personal use, even though the buyer later changes its mind and uses them for commercial purposes.311 For the determination of the applicability of the Article 2(a) exclusion it is also relevant to determine whether the intended personal use is an exclusive one or not.312 Where the goods are bought exclusively for personal use, the CISG is not applicable,313 while, conversely, it is applicable where the purpose is not an exclusively personal one, even though the personal use might be the primary purpose of the purchase.314 This is confirmed by the fact that during the drafting process a proposal was rejected to exclude even those sales of goods bought “primarily” for personal use.315 C. The recognizable purpose of the purchase of goods and the burden of proof The problem of determining whether a specific sale falls within the Article 2(a) exclusion is accentuated by the Article 2(a) requirement that the “consumer” purpose of the purchase be known316 (or ought to have been known)317 to the seller at the time of the conclusion of the contract.318 Consequently, it is irrelevant whether the seller learns of the non-comGonzalo, supra note 278, at 7 (stating the same); Herber, supra note 282, at 58 (stating the same); Herber & Czerwenka, supra note 17, at 24 (stating the same); Karollus, supra note 51, at 25-26. 310 For a similar conclusion, see also Enderlein & Maskow, supra note 135, at 33 (stating that “late changes in purpose are irrelevant”); Ferrari, supra note 92, at 63 (stating the same). 311 Conversely, the CISG will apply, even where the buyer uses the goods for non-commercial purposes, if, at the time of the conclusion of the contract, he intended to make a commercial use of them. 312 For a short discussion of this question, see Ferrari, supra note 92, at 63-64. 313 For this solution, see also Czerwenka, supra note 103, at 151-152; Herber & Czerwenka, supra note 17, at 24; Karollus, supra note 51, at 26; Piltz, supra note 133, at 34. 314 For this solution, see, e. g., Herber, supra note 282, at 58. 315 For a reference to this proposal, see UNCITRAL Yearbook 44 (1971). 316 This might be the case where the seller expressly states that the intended use is a personal one. 317 As far as this criterion is concerned, it has been said that the CISG is excluded solely where the personal use to be made of the goods was unknown to the seller because of his gross negligence. See, e. g., Herber & Czerwenka, supra note 17, at 24-25. The preferable view is, however, that any kind of negligence is relevant in order to invoke the Article 2(a) exclusion. See, e. g., Schlechtriem, supra note 45, at 13. 318 For this conclusion, see Enderlein et al., supra note 108, at 34; Khoo, supra note 281, at 37; Memmo, supra note 139, at 197.

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mercial purpose of the purchase after the conclusion of the contract.319 Some suggest that the rationale for this exclusion is the need for certainty of law: the seller has to know whether the CISG or its domestic sales law is applicable.320 Whether this view is tenable, however, is doubtful since it requires the seller to know about the CISG, which he often does not. One of the most practical problems concerning this “prerequisite” relates to the burden of proof. Indeed, there has been (and still is) dispute among legal scholars as to its allocation. Some authors assert that the CISG does not deal with any procedural questions321 and, consequently, that the issue of the burden of proof also should be left to domestic procedural law.322 The better view seems to be to the contrary: there is a general principle regarding the 319

For a similar statement, see, e. g., Enderlein & Maskow, supra note 135, at 34 (stating that “[i]n regard to whether the seller ‘knew’ or ‘ought to have known,’ what matters again is the time of the conclusion of the contract. It is not sufficient to gain this knowledge only when, for instance, the machine is being installed”); Herber and Czerwenka, supra note 17, at 25 (stating that the seller has to have knowledge (or the possibility of knowing) of the personal use the buyer wants to make of the goods at the moment the contract is concluded). See also Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406. 320 For this rationale, see Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406, stating that “[t]he seller might have no reason to know that the goods were purchased for [personal] use. This information must be available to the seller at least by the time of the conclusion of the contract so that he can know whether his rights and obligations in respect to the sale are those under this Convention or those under the applicable national law”. For a similar statement, see Khoo, supra note 281, at 36. 321 For papers on procedural issues in general and the issues of burden of proof under the CISG, see C. Antweiler, Beweislastverteilung im UN-Kaufrecht. Insbesondere bei Verletzungen des Verkufers (1995); O. Hartwieg, Prozessuale Aspekte einheitlicher Anwendung der Wiener UN-Konvention
ber den Internationalen Warenkauf (CISG), Zeitschrift f
r vergleichende Rechtswissenschaft 282 ff. (1993); H. Michael, Die Frage der Beweislast im Rahmen des UNKaufrechts (1995); C. Giovannucci Orlandi, Procedural law issues and uniform law conventions, Uniform L. Rev. 23 ff. (2000); B. Reimers-Zocher, Beweislastfragen im Haager und Wiener Kaufrecht (1995). 322 This view is taken, for instance, by Khoo, supra note 281, at 39, according to whom the same view was favored by the delegates during the Vienna Conference: “[d]elegations speaking on the burden of proof were all quite definite that it was not the intention to deal in the Convention with any questions concerning the burden of proof. The consensus was that such questions must be left to the court as matters of procedural law”. For the statements of several delegates at the Vienna Conference, see Summary Records of the First Committee at the 1980 Vienna Diplomatic Conference, First Meeting (10 March 1980) and Twelfth Meeting (19 March 1980), Official Records of the United Nations Conference, supra note 47,

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burden of proof upon which the CISG is based, as will be shown in the comments on the draft Digest parts relating to the CISG’s scope of application. On the basis of that principle, the burden of proving that the seller did not know (or that it ought not to have known) the buyer’s purpose is placed on the party claiming the applicability of CISG.323 In addition to the question of the burden of proof, there is an issue as to the criteria to be used in deciding whether the “personal use” purpose was (or should have been) known to the seller.324 In this regard, there are various indicia from which to infer the non-commercial purpose of a sales contract325 and, therefore, the inapplicability of the CISG.326 It has been stated, for example, that the goods’ non-commercial use can be inferred from their being generally used for personal purposes,327 as in the case of the purchase of clothing, food,328 or a caravan.329 On the other hand, the purchase of several items of the same type of goods, even where they are generally intended for personal use, might lead to the opposite presumption – that is, that they are bought for a purpose different than personal use.330

at 238-239 and 295-298, available in Documentary History, supra note 47, at 459-60, 51619. 323 For this solution, see Schlechtriem, supra note 219, at 28, stating that “[t]he exception for sellers who ‘neither knew nor ought to have known’ that the goods were for private use is deliberately formulated in the negative in order to place the burden of proof firmly on those who claim the exception to the consumer-contracts exclusion and assert that the Convention should apply” (footnote omitted). See also Ferrari, supra note 48, at 20. 324 For this issue, see Herber, supra note 282, at 61-62; Memmo, supra note 139, at 198. 325 Note, that where the contract is concluded by an agent, the law applicable by virtue of the rules of private international law of the forum will decide whether the non-commercial purpose of the purchase must be recognizable to the agent or to the principal. Herber, supra note 282, at 62. 326 For a discussion of this problem, see Ferrari, supra note 92, at 66. 327 For this statement, see U. Huber, Der UNCITRAL-Entwurf eines bereinkommens
ber internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 421 (1979). 328 See Herber, supra note 282, at 61-62. 329 See Rechtbank Arnhem, Netherlands 27 May 1993 (Nederlands Internationaal Privaatrecht No. 261 1994) (declaring the CISG inapplicable to a contract concluded between a German buyer and a Dutch seller on two grounds: that the object of the contract was a caravan bought for personal use, and that the contract had been concluded at a time at which neither Germany nor the Netherlands was a Contracting State). 330 See Ferrari, supra note 92, at 66.

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There are other indicia that do not relate to the nature of the goods, but to the “buyer”.331 Where, for instance, the buyer concludes a contract providing an enterprise’s address as the one to which the goods must be delivered, then an intent to use the goods for non-commercial purposes does not seem to be recognizable.332 The same is true where the buyer concludes a sales contract using an enterprise’s letterhead, or where the buyer uses an enterprise’s office during the bargaining process.333 However, Article 2(a) CISG provides that the goods need not necessarily be intended for personal use334 in order to be excluded from the CISG’s scope of application.335 Indeed, Article 2(a) equates family and household use to personal use, but it is doubtful whether the express contemplation of “family and household use” adds anything to the exclusion of the sale of goods bought for personal use,336 since the former exclusions merely represent examples of “personal use”.337 However, those who argue that “family or household use” has a meaning different and independent from “personal use” must avoid defining these terms on the basis of their domestic law;338 rather, they have to interpret them in a fashion that conforms to Article 7(1) CISG. This is why these concepts should be interpreted on a sociological basis339 rather than a legal one. Thus, the purchase of goods for a god-child340 or a cohabiting partner341 will fall within the Article 2(a) exclusion.

331

See also Herber, supra note 282, at 62. See Memmo, supra note 139, at 198. 333 This has already been pointed out by Herber, supra note 282, at 62. 334 The exclusion of “sales of goods bought for personal use” seems to require that the buyer be a person, as opposed to a corporation or enterprise. For a similar conclusion, see Huber, supra note 327, at 422 (stating that “[t]he buyer has to be a natural person”); Memmo, supra note 139, at 198 (stating the same). 335 Note that the expression “personal use” does not necessarily signify that the goods must be bought for a use strictly related to the person of the buyer. Consequently, the Article 2(a) exclusion applies, for instance, where the sale is made in order to complete a private collection. See Herber & Czerwenka, supra note 17, at 24. The same appears to be true for goods which the buyer wants privately to donate to another person. 336 See Czerwenka, supra note 103, at 152; Huber, supra note 327, at 422. 337 See Memmo, supra note 139, at 196. 338 See Ferrari, supra note 92, at 63; Schlechtriem, supra note 45, at 14-15. 339 See Schlechtriem, supra note 219, at 29, stating that “the purpose of Article 2(a) is to allow a broad description, based on sociological evidence, of those persons who are regarded as included in the family or household”. See also Herber, supra note 282, at 61. 340 Several authors have argued in favor of the inclusion of the god-child within the concept of CISG’s “family”. See, e. g., Herber, supra note 282, at 61; Schlechtriem, supra note 45, at 15. 341 See Ferrari, supra note 92, at 63; Herber, supra note 282, at 62. 332

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D. Exclusions of sales based upon the nature of the goods sold: Negotiable instruments and money As already pointed out,342 the Article 2 exclusions are not only based upon the purpose behind the acquisition of the goods or upon the type of sales contract (such as auction sales or sales on execution or otherwise by authority of law mentioned in Article 2(c)), but also on the kind of goods sold (Article 2(d), (e) and (f)).343 Article 2(d) excludes sales of stocks, shares, investment securities, negotiable instruments, and money from the CISG’s sphere of application344 in order to avoid a conflict between CISG rules and domestic rules governing these matters, which often are mandatory.345 The commercial instruments referred to in Article 2(d) (which some authors consider to be a superfluous provision, because the concept of “goods”, which can be deduced from the Convention, is sufficient to exclude the instruments listed in the provision de quo)346 include bills of exchange, cheques,347 as well as other “[...] instruments calling for the payment of money”.348 Sales of documents controlling the delivery of goods, such as warehouse receipts and bills of lading,349 are, on the contrary, governed by CISG rules,350 for the real subject of those sales is the goods rather than the documents.351 342

See the text accompanying note 281, supra. See Garro & Zuppi, supra note 201, at 79, expressly stating that the exclusion of some sales is based upon the goods sold. 344 See Piltz, supra note 133, at 31. 345 For this rationale for the Article 2(d) exclusion, see Schlechtriem, supra note 219, at 30, stating that the exclusion de quo “takes into consideration that international securities and currency transactions are governed by their own rules and laws which are often compulsory”. See also Enderlein et al., supra note 108, at 47, stating that the Article 2(d) exclusion “can be explained by the existence of mandatory domestic rules”. 346 See, e. g., Audit, supra note 51, at 29, stating that “the expression ‘marchandises’ which has been used ... in the Vienna Convention would suffice to justify the exclusion of stocks, negotiable instruments and money from the Convention’s sphere of application”. Honnold, supra note 36, § 53, goes even further and states that “[t]he exclusion of the intangible rights listed in Article 2(d) illustrates ... that the sale of ‘goods’ refers to moveable, corporeal things”. 347 For a reference to bills of exchange and cheques as instruments excluded from the Convention’s sphere of application, see Enderlein & Maskow, supra note 135, at 35; Erauw, supra note 305, at 41; Ferrari, supra note 92, at 71; Reinhart, supra note 55, at 19. 348 Honnold, supra note 36, § 53. 349 For a more detailed list of documents controlling the delivery of goods, the sale of which are subject to the CISG, see Herber, supra note 282, at 65. 350 For this conclusion, see Heuz, supra note 251, at 37 (stating that documentary sales are 343

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Article 2(d) expressly excludes the sale of money from the sphere of application of the Vienna Sales Convention.352 Since, in this author’s opinion,353 “money” in the sense of the CISG means “money that is legal tender in a country”, there is no reason why the CISG should not be applied to the sale of money which is no longer in use. Consequently, the purchase of vintage coins from the last century by a store owner, made with the intention of reselling them, should be subject to the CISG. And the same appears to be true with reference to the aforementioned negotiable instruments: if a museum, for example, buys a number of shares which have only historical or artistic value, there is no reason why this sale should not be governed by the CISG,354 even though the sale of shares is generally not governed by the CISG, as pointed out in case law and the draft Digest.355

not excluded from the CISG’s scope of application); Kantor, supra note 283, at 11 (stating that “[t]he reference to ‘negotiable instruments’ is intended to refer to instruments calling for the payment of money. Instruments such as bills of lading and other documents controlling the delivery of goods, even though characterized as ‘negotiable instruments’ under Article 3 of the UCC, should be subject to the Convention when employed to effect the delivery of goods”); Karollus, supra note 51, at 21-22 (stating that the sale of documents controlling the delivery of goods is governed by the CISG); Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating that Article 2(d) “does not exclude documentary sales of goods from the scope of [the] Convention, even though, in some legal systems, such sales may be characterized as sales of commercial paper”); Schlechtriem, supra note 219, at 30 (arguing that the “[s]ales contracts which name a document as the subject of the sales, because the document controls the delivery of goods, are considered to be within the sphere of application of the Uniform Law for International Sales”). 351 For a similar affirmation, see Enderlein & Maskow, supra note 135, at 35 (“the buyers of such papers are basically the buyers of the goods to which those refer”); Czerwenka, supra note 103, at 152 (stating the same); Ferrari, supra note 92, at 71 (stating the same); Grigera Naon, The UN Convention on Contracts for the International Sale of Goods, in The Transnational Law of International Commercial Contracts 96 (N. Horn & C. M. Schmitthoff eds., 1982); Reinhart, supra note 55, at 19 (stating the same). 352 See D. Martiny, Kommentar zum UN-Kaufrecht, in 7 M
nchener Kommentar zum B
rgerlichen Gesetzbuch 1652 (H.-J.Sonnenberger ed., 2d ed., 1989); Piltz, supra note 133, at 31. 353 See Ferrari, supra note 92, at 72; see also Herber, supra note 282, at 65. 354 See also Plantard, supra note 112, at 325. 355 For decisions excluding the Convention’s applicability to the sale of shares, see Cour de Justice de Genve, Switzerland, 9 October 1998, CLOUT case No. 260 (TransportrechtInternationales Handelsrecht 12 (2000)); Arbitral Tribunal attached to the Zurich Chamber of Commerce, Switzerland, 31 May 1996 (Arbitral Award No. ZHK 273/95, Yearbook Commercial Arbitration 128 ff. (1998)).

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E. The exclusion of sales of ships, vessels, hovercraft, aircraft and electricity (Article 2(e) and (f)) The exclusion of the sale of ships,356 vessels, hovercrafts and aircrafts357 fall within the same category as the exclusion of commercial paper and money,358 that is, sales excluded on the basis of the nature of the goods sold.359 These exclusions,360 which according to the Official Records of the United Nations Conference are due to the existence, in some legal systems, of rules according to which the excluded “goods” are treated as immovables,361 were – at least partially – already contained in ULIS.362 Indeed, Article 5(1)(b) of ULIS excluded the sale of ships, vessels and aircraft from the sphere of application of the 1964 Uniform Sales Law.363 However, it did not mention the sale of

356 For cases dealing with the inapplicability of the Convention to contracts for the sale of ships, see Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 6 April 1998, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/980406r1.html (award No. 236/1997); Yugoslav Chamber of Economy Arbitration Proceeding, Yugoslavia, 15 April 1999, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/990415y1.html#ca (award No. T-23/97). 357 For the inapplicability of the Convention to a contract for the sale of an aircraft, see Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 2 September 1997, available at http://www. cisg.law.pace.edu/cisg/wais/db/cases2/970902r1.html (award No. 255/1996). 358 See Heuz, supra note 251, at 76-77. 359 See Kritzer, supra note 95, at 72. 360 Note that the exclusions de quo were retained despite arguments in favor of their elimination during the Vienna Conference. For references to these arguments, see Summary Records of the First Committee at the 1980 Vienna Diplomatic Conference, Second Meeting (11 March 1980), Official Records of the United Nations Conference, supra note 47, at 240241, available in Documentary History, supra note 47, at 461-62 (reporting the delegates’ views on the Article 2(e) exclusion); Schlechtriem, supra note 219, at 30. 361 See Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (“This subparagraph excludes from the scope of the Convention all sales of ships, vessels and aircraft. In some legal systems ... some sales of ships, vessels and aircraft are assimilated to sales of immovables”.). See also Garro and Zuppi, supra note 201, at 79; Samson, supra note 133, at 928. 362 Under the ULIS, as well, the basis for the exclusion of sales of ships, vessels and aircraft from its sphere of application was that they were similar to sales of immovables. See, e. g., Kahn, supra note 276, at 694. 363 For a comment on Article 5 ULIS, see R. Herber, Art. 5, in Kommentar zum Einheitlichen Kaufrecht, supra note 132, at 25 ff.

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hovercraft.364 The CISG’s innovation was introduced in order to make sure that the exclusion applies to hovercraft as well,365 independently of whether hovercraft are ships, vessels or aircraft.366 The scope of the CISG’s Article 2(e) exclusion is different367 and broader than the ULIS’ Article 5(1)(b) exclusion for another reason as well. Indeed, whereas the ULIS merely excluded the ships, vessels and aircrafts that were subject to registration by virtue of national law,368 the CISG, by eliminating this criterion, broadened the exclusion of sales of the foregoing “goods”.369 The deletion of the registration requirement has some advantages. It avoids, for instance, requiring judges to examine the difficult question of which ships, vessels or aircraft are subject to a registration requirement and, therefore, fall within the scope of the exclusion.370 However, it raises the question whether sales of smaller boats fall within the scope of the Article 2(e) exclusion.371 The view, held by several authors, according to which the concept of “ship” (or “vessel”) is limited to larger ships (or vessels) 364

See Herber, supra note 282, at 67. See also Herber, supra note 282, at 67. 366 According to Khoo, supra note 281, at 38, this is the rationale behind the inclusion of sales of hovercraft in the list of excluded sales. Indeed, the express exclusion of sales of hovercraft “makes it unnecessary to decide whether hovercraft are ships, vessels or aircraft”. For a similar justification for the exclusion de quo, see Carbone and Lopez de Gonzalo, supra note 278, at 8. 367 See Martiny, supra note 352, at 1652. 368 See Erauw, infra note 305, at 41; Reinhart, supra note 55, at 19. 369 See Ferrari, supra note 92, at 73. 370 See Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406: [I]n most legal systems at least some ships, vessels and aircraft are subject to special registration requirements. The rules specifying which ones must be registered differ sidely. In order not to raise questions of interpretation as to which ships, vessels or aircraft were subject to this Convention, especially in view of the fact that the relevant place of registration, and therefore the law which would govern the registration, might not be known at the time of the sale, the sale of all ships, vessels and aircraft was excluded from the application of this Convention. See also Khoo, supra note 281, at 38 (omitting the registration requirement as the criterion for exclusion has the effect that “[...] all vessels, ships, hovercraft and aircraft are excluded, whether or not they are subject to the registration requirement of any national law”.). 371 See Schlechtriem, supra note 219, at 30 (“With the elimination of the registration criterion, it has, however, become uncertain whether and to what extent smaller boats – row boats, canoes, dinghies and yachts – belong to the subject matter excluded from the application of the Convention”.). See also Honnold, supra note 36, § 54, at 50, wondering whether “the exclusion of the sales of ‘ships, vessels’ (Fr.: navires, bateaux; Sp.: buques, embarcaciones) [does] extend to small pleasure craft such as sailboats and row boats”. 365

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only, does not seem to be grounded in the text of the CISG.372 The better view is that the size of a watercraft is not a relevant criterion for the exclusion of a sale from the CISG’s sphere of application.373 But this does not mean that all purchases of small watercraft fall within the CISG’s sphere of application. It only means that an exclusion must be based upon a criterion different than the size of the watercraft, such as the functional characteristics of the watercraft.374 Consequently, the sale of watercraft which do not have the function ships or vessels have, i. e., watercraft which are not permanently destined for the transport of goods or persons, does not fall within the exclusion de quo (regardless of their size).375 This is why the sale of a row boat376 or a sailing boat should be governed by the CISG.377 Indeed, these boats must be considered sporting goods378 rather than means of transport.379 It may be that if one were to use a ship or vessel’s normal function as a criterion to decide whether the sale of a watercraft is excluded from the CISG’s sphere of application, the award referred to in the draft Digest,380 which held that the CISG was applicable to the sale of an out-of-commission military submarine, could be justified, although more facts would be needed to decide whether the arbitral tribunal was correct.

372 See Herber, supra note 282, at 63. See, however, Reczei, supra note 172, at 71, who admits the possibility that, on the basis of the text of the CISG, the exclusions of sales of ships and vessels could be restricted to larger ships and vessels only, since “[i]n the English language [...] the terms ‘ship’ and ‘vessel’ are used to denote watercraft of larger dimensions. The question is how other languages are capable of expressing the shades and hues distinguishing the one term from the other”. 373 For this view, see, e. g., Honnold, supra note 36, § 54, at 50 (“UNCITRAL’s inability to find a workable basis for distinguishing between large and small crafts and the difficulty that courts would encounter in developing such a distinction suggests that Article 2(e) must be read without qualification: Sales of small pleasure craft do not fall within the Convention”). See also Martiny, supra note 352, at 1652. 374 For this solution, see Ferrari, supra note 92, at 74; Schlechtriem, supra note 45, at 16. 375 See Herber, supra note 282, at 66. 376 See Piltz, supra note 133, at 32. 377 See Czerwenka, supra note 103, at 154. 378 See Herber, supra note 282, at 66. 379 Note, however, that where a row boat is bought for personal use, it is irrelevant whether it is considered a sporting good or a “ship” or “vessel”, since consumer sales are excluded from the Sales Convention’s sphere of application (Article 2(a)), not unlike sales of ships or vessels (Article 2(e)). Where, however, the row boat is bought by an owner of a shop with the apparent intent to resell it, the CISG could apply. 380 See Russian Maritime Commission Arbitral Tribunal, Russia, 18 December 1998, available at http://cisgw3.law.pace.edu/cisg/text/draft/981218case.html.

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The aforementioned problem (size of watercraft as criterion for exclusion from CISG’s sphere of application, an issue to which the draft Digest does not refer at all) was not the only one which produced doctrinal dispute. There was also disagreement among scholars as to whether the sale of components of goods excluded by Article 2(e) would be subject to the exclusion. Some authors argue that such a sale falls within the sphere of the exclusion, at least where the components are essential elements of the good excluded ex Article 2(e).381 The better view, however, is to the contrary,382 and has been confirmed by a Hungarian Supreme Court decision383 applying the CISG to a sales contract concerning aircraft engines, which certainly constitute “essential elements” of aircraft. Finally, there is the exclusion from the CISG’s sphere of application of sales contracts covering electricity.384 According to some authors, the exclusion de quo can be justified on the ground of the electricity’s “unique” nature385 or “[...]on the ground that in many legal systems electricity is not considered to be a good”.386 Neither justification appears to be convincing.387 Indeed, the

381 See, e. g., Herber, supra note 282, at 66, stating that the sale of non-essential parts of a “good” excluded under Article 2(e) should not fall within the exclusion; conversely, the sale of essential parts of those “goods” should not be governed by the Sales Convention. 382 This view has been expressed, for instance, by Karollus, supra note 51, at 22; R. Loewe, Internationales Kaufrecht 28 (1989); Reinhart, supra note 55, at 19. 383 See the decision rendered by the Legfelsbb Birs g, Hungary, 25 September 1992, CLOUT case No. 53, published in English in 13 J. L. & Com. 31 ff. (1993). 384 This exclusion was also found in Article 5 of the ULIS. 385 For a similar justification of the exclusion of sales of electricity from the Convention’s sphere of application, see, e. g., Heuz, supra note 251, at 77 (stating that the exclusion of sales of electricity can be explained on the ground of its nature); Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406 (stating that the exclusion of electricity is justified because its sale presents unique problems that are different from those presented by the usual international sale of goods). 386 Secretariat’s Commentary on Article 2, Official Records of the United Nations Conference, supra note 47, at 16, available in Documentary History, supra note 47, at 406. For a similar justification of the Article 2(f) exclusion, see Samson, supra note 133, at 928. 387 For a detailed summary of the different justifications suggested for the electricity exclusion, see N. R. Merchor, La regulacion internacional de las operaciones mercantiles enfrentada a un caso extremo: el trafico transfronterizo de energia electrica, Derecho de los Negocios 9 ff. (1995).

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first overlooks the fact that there are other goods whose sale presents “unique” problems,388 such as the sale of gas389 and crude oil,390 which are governed by the Sales Convention,391 as are sales of other sources of energy.392 The second one is not convincing, “because the Convention may create its own definition of good”.393 Indeed, the exclusion of electricity sales from the sphere of application of the CISG cannot be justified. 388

For this argument, see Winship, supra note 97, at 1. 25 (“[A]ny suggestion that the problems raised by the excluded items are ‘unique’ overlooks other items, such as oil and gas supply contracts or livestock transactions, which also raise unique problems”.). 389 See Honnold, supra note 36, § 56 (arguing that the sale of gas is within the Convention); Huber, supra note 327, at 419 (stating the same and criticizing the exclusion of the sale of electricity). 390 See Herber, supra note 282, at 64. For a detailed discussion of the problems of the oil trade and the Sales Convention, see J. W. Skelton, CISG and Crude Oil Traders, 9 Hous. J. Int’l L. 95 ff. (1986). 391 For a case applying the CISG to the sale of gas, see Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176, available at http://www.cisg-online.ch/cisg/urteile/ 224.htm. 392 For a discussion of the issues relating to the sale of energy under the CISG, see Peter Winship, Energy Contracts and the United Nations Sales Convention, 25 Texas Int’l L. J. 365 ff. (1990). 393 Enderlein & Maskow, supra note 135, at 35.

95

Scope of application: Articles 4-5 Franco Ferrari* I. Introduction Whereas Articles 1-3 (as well as Article 6) deal with the CISG’s sphere of application, Articles 4 and 5 define the Convention’s scope of application. In other words, whereas the former provisions determine whether the CISG applies at all, the latter ones determine to what extent it applies. From this, one can gather the importance of Articles 4 and 5. Although the CISG may be applicable, by limiting the CISG’s scope of application, these two Articles may make it necessary to resort to domestic law, as the CISG may not deal with the specific substantive issue to be solved. It is therefore of paramount importance to determine exactly the CISG’s scope of application. Case law may be helpful in doing so, which is where the Digest (in particular, the Digest parts relating to Articles 4 and 5) becomes relevant, as it provides what is supposed to be a complete list of existing cases on the issue. The following remarks will show, however, that for an exact determination of the CISG’s scope of application, the draft Digest is only of limited help, for various reasons. There are instances where the court decisions that are acritically cited in the draft Digest are incorrect; there are other instances where the case law cited in the draft Digest is contradictory (contradictions the draft Digest does not attempt to solve); and, last but not least, there are issues the draft Digest does not refer to at all, since no cases dealing with those issues yet exist.

II. Issues the CISG is expressly concerned with The need to determine exactly the CISG’s scope of application is due to the fact that the CISG is, contrary to what has been stated by one court,1 not an “exhaustive body of rules”. If it were exhaustive – if, in other words, it were concerned with all matters that can arise from a sales contract – an exact *

Professor of International Law, Verona University School of Law. Gerichtsprsident Laufen, Switzerland, 7 May 1993, CLOUT case No. 201, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=105&step=FullText. 1

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determination of its scope of application would not be necessary. Like any other substantive uniform law convention,2 however, the CISG only deals with some specific matters, not all of them, with the result that some issues will always be left to a set of rules different from those of the CISG. For the purpose of determining the CISG’s exact scope of application, the most relevant provision is Article 4, since it identifies both the matters the CISG is concerned with (“this Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract”), and some of the matters that are excluded from its scope (“In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold”). As far as the first part of the provision is concerned, it is worth pointing out that despite the wording, the matters listed are not the only ones the CISG is concerned with. It is therefore incorrect to state, as have several French courts,3 that the CISG applies only to those matters. For example, Article 8 sets forth rules relating to the interpretation of any statement or conduct of a party, issues that do not relate to any of the matters listed in the first part of Article 4. Moreover, the issue dealt with in Article 29 (modification of contracts) also cannot be classified as one of the matters listed in the first part of Article 4.4 It may be more appropriate to consider the reference in Article 4 to the matters the CISG is “only” concerned with as meaning that these matters are “without any doubt” dealt with in the CISG. It must also be stressed that not all issues relating to those listed in Article 4 as governed by the CISG actually fall within the scope of the Convention, as is correctly pointed out by the draft Digest. As far as formation of contract is concerned, for instance, the CISG merely governs the mechanism leading to 2

Accord, e. g., S. Annibale, Il diritto uniforme: problematiche e limitazioni (dalla giurisprudenza all’art. 2 della legge di riforma del sistema di diritto internazionale privato, Archivio civile 158-159 (1996)); F. Ferrari, Das Verhltnis zwischen den Unidroit-Grundstzen und den allgemeinen Grundstzen internationaler Einheitsprivatrechtskonventionen, JuristenZeitung 10 (1998); J. Kropholler, Internationales Einheitsrecht. Allgemeine Lehren 167 (1975); B. Trompenaars, Pluriforme unificatie en uniforme intepretatie 18 ff. (1988). 3 See Cour de Cassation, France, 5 January 1999, CLOUT case No. 241 (Revue critique de droit international priv 519 (1999)); Cour d’appel Paris, France, 22 April 1992, CLOUT case No. 158, available at http://witz.jura.uni-sb.de/CISG/decisions/220492v.htm. 4 See A.K. Schluchter, Die G
ltigkeit von Kaufvertrgen unter dem UN-Kaufrecht: Wie gestaltet sich die Ergnzung des Einheitsrechts mit deutschen und franzsischen Nichtigkeitsnormen? 27 (1996).

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the conclusion of a contract,5 i. e., it is concerned solely with the objective requirements for conclusion of a contract, as is also pointed out in case law.6 The issue of whether a contract is validly formed, however, is subject to the applicable national rules,7 as can easily be derived from Article 4(a), except for those issues for which the Convention provides exhaustive rules, as correctly emphasized by a German court.8 Thus, issues such as capacity to contract,9 and the consequences of mistake, duress and fraud,10 are left to applicable domestic law. Where, however, one party errs with respect to the qualities of the goods to be delivered or the solvency of the other party, the rules of the applicable law give way to those of the Convention, since the Convention exhaustively deals with those issues,11 as is correctly pointed out in the draft Digest. As far as the reference to “the rights and obligations of the seller and the buyer arising from [an international sales] contract” is concerned, it must be pointed out (although the draft Digest does not do so) that it leads to third party rights not falling within the CISG’s scope.12 “Rights and obligations of 5

F. Bydlinski, Das allgemeine Vertragsrecht, in Das UNCITRAL-Kaufrecht im Vergleich zum sterreichischen Recht 60 (P. Doralt ed., 1985); M. Karollus, UN-Kaufrecht 55 (1991); U. Magnus, Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG) 109 (13th revised ed., 1999). 6 See Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/ 1_4901i.htm; Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176, available at http://www.cisg.at/10_51895.htm; Zivilsgericht Basel, Switzerland, 21 December 1992, CLOUT case No. 95 (Baseler Juristische Mitteilungen 310 ff. (1993)). 7 In case law see, e. g., Handelsgericht St. Gallen, Switzerland, 24 August 1995, CLOUT case No. 329, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=162&step=FullText; Camara Nacional de Apelaciones en lo Comercial, Argentina, 14 October 1993 (EL Derecho 4 ff. (April 2, 1994)). 8 Landgericht Aachen, Germany, 14 May 1993, CLOUT case No. 47, available at http:// www.cisg-online.ch/cisg/urteile/86.htm. 9 See Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/ 1_4901i.htm; Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrensrecht 400 (1991)). 10 See Schiedsgericht der Handelskammer Z
rich, Switzerland, 31 May 1996, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=396&step=FullText (Arbitral Award No. 273/95). 11 For this conclusion, see also R. Loewe, Internationales Kaufrecht 29 (1989). For the position that the CISG leaves these issues, too, to be solved by the applicable domestic law, see T.C. Ebenroth, Internationale Vertragsgestaltung im Spannungsverhltnis zwischen AGBG, IPR-Gesetz und UN-Kaufrecht, Juristische Bltter 688 (1986); Karollus, supra note 5, at 42; R. Lessiak, UNCITRAL-Kaufrechtsabkommen und Irrtumsanfechtung, Juristische Bltter 487 ff. (1989).

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the seller and the buyer” are basically those arising between the parties, independently of whether they originate from the CISG’s provisions or from a specific agreement between the parties.

III. Matters expressly excluded from the CISG’s scope of application:

validity and the effects on the property of the goods sold Article 4 not only lists some of the matters the CISG is without doubt concerned with, but it also contains a non-exhaustive13 list of matters it is not concerned with (Article 4(a) and (b)), namely the validity of the contract or of any of its provisions or of any usage as well as the effect the contract may have on the property in the goods sold. As correctly pointed out in the draft Digest, the reason for the exclusion of these issues from the CISG’s scope of application is to be found in the fact that unifying the rules on these issues proved rather difficult. If the drafters had insisted upon dealing with these matters, completion of the CISG would certainly have been much delayed.14 At first sight, the aforementioned part of Article 4 does not seem to cause any problems (one author has even stated that the provision at hand was superfluous, since it only stated the obvious).15 Quite the contrary is true, however, even though one would not be able to infer this from the draft Digest which, once again, appears to oversimplify things. The insertion, for instance, of the introductory wording to Article 4(a) and (b) (“except as otherwise expressly provided in this Convention”) leads to the conclusion that even where a dispute concerns a matter listed either in Article 4(a) or Article 4(b) and thus, apparently, is excluded from the CISG’s scope of application, one cannot simply disregard the CISG. Rather, one has to first examine whether the CISG provides a solution for the specific problem.16 When an issue arises with respect to validity, for instance, which according to Article 4(a) is a matter excluded from the CISG’s scope of

12 See F. Ferrari, Art. 4, in Kommentar zum Einheitlichen UN-Kaufrecht 94 (P. Schlechtriem ed., 3d ed., 2000). 13 F. Ferrari, Vendita internazionale di beni mobili. art. 1-13. Ambito di applicazione. Disposizioni generali 101 note 1 (1994); Schluchter, supra note 4, at 26. 14 See UNCITRAL Yearbook 65 f. (1978). 15 Warren Khoo, Art. 4, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 45 (C. Massimo Bianca & Michael Joachim Bonell, eds., 1987). 16 F. Ferrari, Jurisprudence Concernant les Questions non abordes par la CVIM, Revue de Droit des Affaires Internationales 836 (1998).

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application (as often pointed out in case law17), one has to first look into whether the validity issue in dispute is expressly dealt with by the CISG before resorting to the law applicable by virtue of the private international law rules of the forum. Apart from the matters already referred to above (mistake as regards the characteristics of the goods and the financial soundness of the parties18), the CISG is also concerned with the formal validity of the contracts it governs. Article 11 provides that a contract governed by the CISG need not be concluded in or evidenced by writing and is not subject to any other requirement of form, thus dealing with an issue that in many legal systems is considered to be an issue of validity. This problem is not the only one, however, that arises from the wording quoted above. Another (rather important) one – not at all referred to in the draft Digest – is the definition of “validity” for the purposes of the CISG. The importance of that definition becomes evident if one considers how different the definitions of validity in the various legal systems are.19 In defining it for purposes of the CISG, one should not resort to one’s own legal background, but rather should interpret this concept, like most other CISG concepts, “autonomously”.20 Most recently, an attempt to define the concept was made by a U.S. court.21 According to that court, a validity issue is “any issue by which the domestic law would render the contract void, voidable, or unenforceable”.22 Whether this definition will prevail is still to be seen. The outcome of those decisions dealing with the issue of whether a contract was validly concluded by a third person acting on behalf of one of the parties 17

See U.S. District Court for the Southern District of New York, United States, 10 May 2002, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020510u1.html#svia (Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236); U.S. District Court for the San Jose Division of the Northern District of California, United States, 27 July 2001, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/010727u1.html (Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F. Supp. 2d 1142); Oberster Gerichtshof, Austria, 7 September 2000, available at http://www.cisg.at/8_2200v.htm; Hof van Bereop Antwerpen, Belgium, 18 June 1996, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1996-06-18.htm. 18 See supra note 11 and accompanying text. 19 For a recent comparative overview of concepts of validity, see E.A. Kramer, Der Irrtum beim Vertragsschluss: Eine Weltweit Rechtsvergleichende Bestandsaufnahme (1998). 20 For a detailed analysis of the interpretation of the CISG, see “Interpretation of the Convention and Gap-Filling: Article 7”, infra. 21 U.S. District Court for the Southern District of New York, United States, 10 May 2002, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020510u1.html#svia (Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., U.S. Dist. Lexis 8411 (2002)). 22 The definition cited in the text was borrowed from Helen Elizabeth Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale J. Int’l L. 45 (1993).

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would not have been different. That issue would certainly be left to applicable national law, since agency is not governed by the CISG.23 The validity of standard contract terms, as correctly pointed out in the decisions cited in the draft Digest, is also clearly outside the scope of the CISG.24 The validity exclusion in Article 4(a), however, is not limited to the validity of the contract or of its individual provisions, such as a retention of title clause inserted into the contract.25 It also encompasses the validity of usages, which is why the Austrian Supreme Court26 was correct in stating that this issue is left to applicable domestic law. As the draft Digest correctly points out, this validity issue must be distinguished from the questions of how usages are to be defined, under which circumstances they are binding on the parties, and what their relationship is to the substantive rules set forth in the CISG. These issues are dealt with in Article 9, as stated correctly by the Austrian Supreme Court.27

23

See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001)); Handelsgericht Aargau, Switzerland, 11 June 1999, CLOUT case No. 333 (Schweizerische Zeitschrift f
r internationales und europisches Recht 117 f. (2000)); Landgericht Berlin, Germany, 24 March 1999, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=440&step=FullText; Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Schweizerische Zeitschrift f
r internationales und europisches Recht 186 ff. (1999)); Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189, available at http://www.cisg-online.ch/cisg/urteile/ 269.htm; Amstgericht Tessin, Switzerland, 12 February 1996, CLOUT case No. 335 (Schweizerische Zeitschrift f
r internationales und europisches Recht 135 ff. (1996)); Obergericht Thurgau, Switzerland, 19 December 1995, CLOUT case No. 334 (Schweizerische Zeitschrift f
r internationales und europisches Recht 118 ff. (2000)); Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der Internationalen Wirtschaft 683 f. (1994)). 24 See Oberster Gerichtshof, Austria, 7 September 2000, available at http://www.cisg.at/ 8_2200v.htm; Rechtbank Zutphen, Netherlands, 29 May 1997 (Nederlands Internationaal Privaatrecht No. 110 (1998)); Amstgericht Nordhorn, Germany, 14 June 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/259.htm. 25 See Federal Court for the South Australian District in Adelaide, Australia, 28 April 1995, CLOUT case No. 308 (Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Pty. Ltd. and Reginald R Eustace), available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=197&step=FullText; Oberlandesgericht Koblenz, Germany, 16 January 1992 (Recht der internationalen Wirtschaft 1019 ff. (1992)). 26 See Oberster Gerichtshof, Austria, 21 March 2000 (Internationales Handelsrecht 40 ff. (2001)). 27 See Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Zeitschrift f
r Rechtsvergleichung 63 f. (1999)).

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Article 4 also makes clear that the CISG does not govern the passing of property in the goods sold.28 According to the travaux pre´paratoires of the Convention, this exclusion was implemented because it was considered impossible to unify the rules on this point29 (although today that view is rejected by various commentators).30 Thus, the effects of the contract on the property in the goods sold is unfortunately31 left to the applicable national law, to be determined by the rules of private international law of the forum.

IV. Matters expressly excluded from the CISG’s scope of application: Liability for death or personal injury According to Article 5, a provision which does not have a predecessor in the 1964 Hague Conventions, the CISG is not concerned with liability for death or personal injury caused by the goods to any person,32 a point emphasized in case law as well.33 28

See U.S. District Court for the Eastern Division of the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880); U.S. District Court for the Southern District of New York, United States, 26 March 2002 (St. Paul Guardian Insurance Co. et al. v. Neuromed Medical Systems & Support et al., 2002 U.S. Dist. Lexis 5096). 29 See Secretariat’s Commentary, Art. 4, ¶ 4, in United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee 16 (1981). 30 Ulrich Drobnig, Transfer of Property 495 ff., in Towards a European Civil Code (Arthur Hartkamp et al., eds., 1994). 31 For a criticism of this exclusion, see, e. g., F. Padovini, Der internationale Kauf: Von den Haager Konventionen zur Wiener Konvention – Erfahrungen und Aussichten, Zeitschrift f
r Rechtsvergleichung 93 (1987). 32 For papers dealing with the issue referred to in the text, see R. Herber, UN- Kaufrechts
bereinkommen: Produkthaftung – Verjhrung, Monatsschrift f
r Deutsches Recht 105 ff. (1993); R. Herber, Mangelfolgeschden nach dem CISG und nationales Deliktsrecht, Internationales Handelsrecht 187 ff. (2001); D. Kuhlen, Produkthaftung im internationalen Kaufrecht. Entstehungsgeschichte, Anwendungsbereich und Sperrwirkung des Art. 5 des Wiener UN-Kaufrechts (CISG) (1997); D. Otto, Produkthaftung nach dem UN-Kaufrecht, Monatsschrift f
r Deutsches Recht 533 ff. (1992); D. Otto, Nochmals – UN-Kaufrecht und EG- Produkthaftungsrichtlinie, Monatsschrift f
r Deutsches Recht 306 ff. (1993); D. Schneider, UN-Kaufrecht und Produktehaftpflicht: zur Auslegung von Art. 4 Satz 1 und Art. 5 CISG und zur Abgrenzung vertraglicher und außervertraglicher Haftung aus der Sicht des CISG (1995). 33 See Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)).

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At first sight this provision, like Article 4, seems to raise no problems. Unfortunately, this is not true. One problem relates to whether the Article 5 exclusion really is a general one, i. e., whether it in fact covers liability for death or personal injury caused by the goods to “any person”. It has been correctly pointed out not only by commentators,34 but also in the draft Digest, that the exclusion covers “both injury to the buyer or other persons participating at least indirectly in the contract and also injury to nonparticipating third parties”.35 Because the exclusion covers liability for death or personal injury “to any person”, the buyer’s claims for pecuniary loss resulting from a claim made against the buyer by its own customer for personal injury caused by the goods is also excluded from the CISG’s scope of application,36 despite a decision cited in the draft Digest that states the contrary.37 This latter view has been justified on the grounds that “only in that way can the damages claim be passed back to the producer through the contractual claim”.38 Whereas liability for personal injury is excluded from the CISG’s scope, liability for damage caused to property is not, as pointed out both in commentary39 and case law.40 This, of course, may cause a conflict – not referred to in the draft Digest – between contractual claims based on the CISG and tort claims based on domestic law.41 The issue is whether the 34 B. Audit, La vente internationale de merchandises 36 (1990); Ferrari, supra note 13, at 104; J.-P. Plantard, Un nouveau droit uniforme de la vente internationale: La Convention des Nations Unies du 11 avril 1980, Journal du droit international 327 (1988). 35 Rolf Herber, Art. 5, in Commentary on the UN Convention on the International Sale of Goods (CISG) 50 (Peter Schlechtriem ed., 1998). For similar statements, see Kuhlen, supra note 32, at 61; Magnus, supra note 5, at 128; G. Reinhart, UN-Kaufrecht 25 (1991). 36 Audit, supra note 34, at 36; Ferrari, supra note 13, at 105 n. 13; Herber, supra note 35, at 50. 37 See Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49, available at http://www.cisg-online.ch/cisg/urteile/74.htm. 38 Herber, supra note 35, at 50. 39 Ferrari, supra note 13, at 106; Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 95 (1989); Peter Schlechtriem, The Borderland of Tort and Contract – Opening a New Frontier?, 21 Cornell Int’l L.J. 471 (1988); H. Stoll, Inhalt und Grenzen der Schadensersatzpflicht sowie Befreiung von der Haftung im UN-Kaufrecht im Vergleich zu EKG und BGB, in Einheitliches Kaufrecht und nationales Obligationenrecht 257 ff. (P. Schlechtriem ed., 1987); contra, Muna Ndulo, The Vienna Sales Convention 1980 and the Hague Uniform Laws on International Sale of Goods 1964: A Comparative Analysis, 38 Int’l & Comp. L.Q. 5 (1989). 40 See Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)). 41 Because the CISG pre-empts the applicability of domestic contract law, domestic rules

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damaged party can also bring a tort claim or whether the CISG pre-empts that possibility, even though the CISG, as correctly pointed out in case law, is not concerned with tort law.42 According to some commentators, this issue is irrelevant in practice.43 This is incorrect, as evidenced, for instance, by the fact that under the CISG claims based on damage to property caused by the goods require the buyer to notify the seller within the reasonable time period referred to in Article 39,44 whereas most legal systems do not require such notice. Thus, in those legal systems a tort claim can be brought even where no notice was given.45 In this author’s opinion,46 the view that the CISG is exclusively applicable in these property damage situations,47 i. e., that it prevails also over domestic tort law,48 is to be rejected.49 The reason for this can be summarized as follows: If the goods are defective – non-conforming to the contract or not – and cause bodily injury, we are outside the scope of the CISG, Article 5. But even if only property damages were caused, ... we are outside the principal domain that classify product liability as a contract law issue cannot be applied concurrently with the CISG. See Herber, supra note 32, at 50. 42 U.S. District Court for the Southern District of New York, United States, 10 May 2002, available at http://cisgw3.law.pace.edu/cases/020510u1.html#svib (Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., 201 F. Supp. 2d 236); U.S. District Court for the Eastern District of Pennsylvania, United States, 29 August 2000, CLOUT case No. 420, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/000829u1.html (Viva Vino Import Corp. v. Farnese Vini S.r.l., 2000 U.S. Dist. LEXIS 12347). 43 See, e. g., Otto, Produkthaftung, supra note 32, at 537. 44 See Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)). 45 B. Rudolph, Kaufrecht der Export- und Importvertrge 126 (1996). 46 See F. Ferrari, Art. 5, in Kommentar zum einheitlichen UN-Kaufrecht 108 (P. Schlechtriem ed., 3d ed., 2000). 47 For this view, see Kuhlen, supra note 32, at 114 ff.; Otto, Produkthaftung, supra note 32, at 537; G. Ryffel, Die Schadenersatzhaftung des Verkufers nach dem Wiener bereinkommen
ber internationale Warenkaufvertrge vom 11 April 1980 136 (1992). 48 See Herber, supra note 32, at 105 f. 49 B. Czerwenka, Rechtsanwendungsprobleme im internationalen Kaufrecht. Das Kollisionsrecht bei grenz
berschreitenden Kaufvertrgen und der Anwendungsbereich der internationalen Kaufrechts
bereinkommen, 168 f. (1988); U. Magnus, Aktuelle Fragen des UNKaufrechts, Zeitschrift f
r europisches Privatrecht 95 f. (1993); Plantard, supra note 34, at 327; Peter Schlechtriem, Einheitliches UN-Kaufrecht. Das bereinkommen der Vereinten Nationen vom 11 April 1980
ber Vertrge
ber den internationalen Warenkauf (CISG), JuristenZeitung 1040 (1988).

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of interests created by contracts and protected by contractual remedies, and would have entered the field of genuinely extra-contractual remedies. Therefore, a tort action for property damages caused by defective and non-conforming goods should not be barred by an omission to give notice within reasonable time under Article 30 of CISG.50 The solution here advocated is also more compatible with the CISG’s dispositive nature. If the CISG were to be the exclusive law governing all claims – whether contractual or extra-contractual – arising from property damage, and the CISG were to be excluded (or the relevant provisions were derogated from), the damaged party would not be able to claim damages for the injury at all. This cannot be. The draft Digest does not deal with another important issue, that of the relationship between the CISG and the EC Product Liability Directive of July 25, 1985.51 This issue arises because Article 90 CISG states that under certain circumstances the CISG “does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention”. According to some commentators,52 this provision leads, by analogy,53 to the priority of domestic rules enacted on the basis of the aforementioned EC Product Liability Directive over the rules of the CISG. In this author’s opinion, this position is not tenable because,54 among other reasons, the EC Product Liability Directive itself does not constitute an “international agreement” in the sense of CISG Article 90. Furthermore, an application of Article 90 by analogy is incorrect; as Article 90 constitutes an exception to the usual rule on the applicability of the CISG, it should be interpreted restrictively, thus excluding the possibility of an application by analogy.

50

Schlechtriem, supra note 39, at 473-474. See EC Council Directive 85/374/EEC, Official Journal 29 ff. (L 210, 1985). 52 Ryffel, supra note 47, at 137. 53 A direct application of Article 90 to the domestic statutes enacted on the basis of the EC Product Liability Directive mentioned in the text is not possible. This has been acknowledged even by those commentators that favor the priority of the domestic statute over the CISG. See, e. g., Herber, UN- Kaufrechts
bereinkommen: Produkthaftung, supra note 32, at 105 f.; Kuhlen, supra note 32, at 122. 54 Accord, Otto, Produkthaftung, supra note 32, at 306. 51

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V. Other matters the CISG is not concerned With As mentioned above, CISG Articles 4 and 5 expressly list by way of example only a few matters with which the Convention is not concerned. There are, nevertheless, many other matters that fall outside the CISG’s scope of application.55 The draft Digest shows that many courts have tried to identify such matters. Unfortunately, however, not all the matters they have identified in fact fall outside the CISG’s scope of application. Matters that courts have correctly excluded from the CISG’s scope include the validity of a choice of forum clause,56 the validity of a penalty clause,57 the validity of a settlement agreement,58 the assignment of receivables,59 the assignment of a contract,60 the applicable statute of limitations,61 the issue of 55

For an overview, see, in addition to the paper cited in note 16 supra, C. Witz, CVIM: interprtation et questions non couvertes, Revue de droit des affaires internationales 253 ff. (2001). 56 See Camara Nacional de los Apelaciones en lo Comercial, Argentina, 14 October 1993, available at http://www.uc3m.es/uc3m/dpto/PR/dppr03/cisg/sargen6.htm. 57 See Rechtbank van Koohandel Hasselt, Belgium, 17 June 1998, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/1998-06-17.htm; Hof van Beroep Antwerpen, Belgium, 18 June 1996, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/199606-18.htm; Hof Arnhem, Netherlands, 22 August 1995 (Nederlands Internationaal Privaatrecht No. 514 (1995)); ICC Court of Arbitration, Case No. 7197, 1992, CLOUT case No. 104 (Journal du droit international 1028 ff. (1993)). 58 See Landgericht Aachen, Germany, 14 May 1993, CLOUT case No. 47 (Recht der internationalen Wirtschaft 760 f. (1993)). 59 See Oberster Gerichtshof, Austria, 7 September 2000, available at http://www.cisg.at/ 8_2200v.htm; Oberster Gerichtshof, Austria, 25 June 1998 (Zeitschrift f
r Rechtsvergleichung 77 (2000)); Bundesgerichtshof, Germany, 12 February 1998, CLOUT case No. 269 (Neue Juristische Wochenschrift 3205 (1998)); Obergericht Thurgau, Switzerland, 19 December 1995, CLOUT case No. 334 (Schweizerische Zeitschrift f
r internationales und europisches Recht 118 ff. (2000)); Tribunal de Commerce Nivelles, Belgium, 19 September 1995, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1995-09-19.htm; Oberlandesgericht Hamm, Germany, 8 February 1995, CLOUT case No. 132 (Recht der internationalen Wirtschaft 153 ff. (1997)); Bezirksgericht Arbon, Switzerland, 9 December 1994, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id= 172&step=FullText. 60 See Bundesgerichtshof, Germany, 15 February 1995, CLOUT case No. 124 (Recht der internationalen Wirtschaft 60 (1996)). 61 See Rechtbank van Koophandel Ieper, Belgium, 29 January 2001, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/2001-01-29.htm; Oberster Gerichtshof, Austria, 7 September 2000, available at http://www.cisg.at/8_2200v.htm; Tribunale di Vigevano, Italy,

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jurisdiction,62 other issues of procedural law,63 the assumption of debts,64 the acknowledgement of debts,65 the effects of the contract on third parties,66 and the issue of whether one is jointly liable.67 One court also ruled that the question of who had priority rights in the goods as between the seller and the third party creditor also was beyond the scope of the CISG, and was therefore governed by the applicable national law.68 Whereas courts unanimously exclude the aforementioned matters from the CISG’s scope of application (at least according to the draft Digest), there are matters in respect of which case law is in conflict. This is true, for instance, with respect to the issue of set-off. Although the majority of cases rightly exclude it from the matters with which the CISG is concerned,69 there are 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001), English translation at 20 J.L. & Com. 209 ff. (2001)); Oberlandesgericht M
nchen, Germany, 21 January 1998, CLOUT case No. 297, available at http://www.cisg-online.ch/cisg/urteile/536.htm; Oberster Gerichtshof, Austria, 25 June 1998 (Zeitschrift f
r Rechtsvergleichung 77 (2000)); Landgericht Heilbronn, Germany, 15 September 1997, CLOUT case No. 345, available at http://www.cisg-online.ch/cisg/urteile/562.htm; Cour de Justice Genve, Switzerland, 10 October 1997, CLOUT case No. 249 (Schweizerische Zeitschrift f
r internationales und europisches Recht 182 (1999)); Landgericht D
sseldorf, Germany, 11 October 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/180.htm; Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Recht der internationalen Wirtschaft 689 f. (1996)); ICC Court of Arbitration, Case No. 7660, 1994, CLOUT case No. 302 (ICC Court of Arbitration Bulletin 69 ff. (1995)). 62 See Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)). 63 Bundesgericht, Switzerland, 11 July 2000, available at http://www.cisg.law.pace.edu/cisg/ text/000711s1german.html. 64 See Oberster Gerichtshof, Austria, 24 April 1997 (Zeitschrift f
r Rechtsvergleichung 89 ff. (1997)). 65 See Oberlandesgericht Hamm, Germany, 23 June 1998, CLOUT case No. 338 (Recht der internationalen Wirtschaft 786 f. (1999)). 66 See U.S. District Court for the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880); Bundesgerichtshof, Germany, 12 February 1998, CLOUT case No. 264 (Neue Juristische Wochenschrift 3205 (1998)). 67 See Landgericht, M
nchen, Germany, 25 January 1996, available at http://www.cisgonline.ch/cisg/urteile/278.htm. 68 U.S. District Court for the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880). 69 See Oberster Gerichtshof, Austria, 22 October 2001 (Internationales Handelsrecht 27 (2002)); Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001), published in English in 20 J.L. & Com. 209 ff. (2001)); Amstgericht

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two court decisions70 stating that set-off is governed by the CISG, provided that the mutual debts arise from contracts governed by the CISG. In this author’s opinion, the latter view is not tenable because nowhere does the CISG deal with the issue of set-off. Another issue as to which there is contradictory case law is estoppel. According to one court decision, estoppel is not dealt with in the CISG.71 According to other decisions, however, estoppel is to be regarded as a general principle of the CISG.72 In this author’s opinion, the latter view is Duisburg, Germany, 13 April 2000, CLOUT case No. 360 (Internationales Handelsrecht 114 f. (2001)); Oberlandesgericht M
nchen, Germany, 11 March 1998, CLOUT case No. 232 (Transportrecht-Internationales Handelsrecht 20 ff. (1999)); Kantongericht Freiburg, Switzerland, 23 January 1998, CLOUT case No. 259 (Transportrecht-Internationales Handelsrecht 13 (2000)); Landgericht Hagen, Germany, 15 October 1997, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/311.htm; Landgericht M
nchen, Germany, 6 May 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/341.htm; Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273, available at http:// www.cisg-online.ch/cisg/urteile/282.htm; Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275, available at http://www.cisg-online.ch/cisg/urteile/385.htm; Oberlandesgericht D
sseldorf, Germany, 11 July 1996, CLOUT case No. 169 (Recht der internationalen Wirtschaft 958 ff. (1996)); Landgericht Duisburg, Germany, 17 April 1996, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/186.htm; Landgericht Stuttgart, Germany, 21 August 1995 (Recht der internationalen Wirtschaft 943 f. (1995)); Landgericht M
nchen, Germany, 20 March 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/164.htm; Rechtbank Middelburg, Netherlands, 25 January 1995 (Nederlands Internationaal Privaatrecht No. 127 (1996)); Amstgericht Mayen, Germany, 6 September 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/382.htm; Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281 (Recht der internationalen Wirtschaft 934 ff. (1993)); Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Recht der internationalen Wirtschaft 689 f. (1996)); Rechtbank Roermond, Netherlands, 6 May 1993, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=94&step=FullText; Rechtbank Arnhem, Netherlands, 25 February 1993, CLOUT case No. 99 (Nederlands Internationaal Privaatrecht No. 445 (1993)). 70 For the application of the Convention to set-off in respect of receivables all arising out of contracts governed by the Convention, see Amstgericht Duisburg, Germany, 13 April 2000, CLOUT case No. 360 (Internationales Handelsrecht 114 f. (2001)); Oberlandesgericht M
nchen, Germany, 9 July 1997, available at http://www.cisg-online.ch/cisg/urteile/282.htm. 71 Rechtbank Amsterdam, Netherlands, 5 October 1994 (Nederlands Internationaal Privaatrecht No. 231 (1995)). 72 See Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230 (Recht der internationalen Wirtschaft 235 ff. (1998)); Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft in sterreich, Austria, 15 June 1994, CLOUT case No. 94 (Arbitral Award 4318, Recht der internationalen Wirtschaft 591 f. (1995)); Inter-

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preferable,73 as it is but a manifestation of the general principle of good faith underlying the CISG.74 Another matter on which case law is contradictory concerns the currency of payments. Various courts have correctly held that this matter falls outside the CISG’s scope of application and, where the parties did not choose the currency,75 is therefore rightly left to the applicable domestic law.76 According to one court, however, the issue of the currency of payment is, absent an agreement of the parties, to be determined in conformity with a general principle allegedly to be derived from Article 57, on the basis of which the currency of the place of payment applies.77 It does not appear, however, that such a general principle exists. nationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft in sterreich, Austria, 15 June 1994, CLOUT case No. 93 (Arbitral Award 4366, Recht der internationalen Wirtschaft 590 f. (1995)); Hof s’Hertogenbosch, Netherlands, 26 February 1992 (Nederlands Internationaal Privaatrecht No. 354 (1992)). 73 For this view, see also U. Magnus, Die allgemeinen Grundstze im UN-Kaufrecht, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 481 (1995). But see B. Frigge, Externe L
cken und Internationales Privatrecht nach dem UN-Kaufrecht (Art. 7(2)) 82 (1994). 74 For papers dealing with good faith under the CISG, see, e. g., S. Keinath, Der gute Glauben im UN-Kaufrecht (1997); G. Lefebvre, La bonne foi dans la Convention des Nations Unies sur les contrats de vente internationale de marchandises, 27 Revue Juridique Thmis 561 ff. (1993); Ulrich Magnus, Remarks on Good Faith: The United Nations Convention on Contracts for the International Sale of Goods, 10 Pace Int’l L. Rev. 89 ff. (1998); E.N. Najork, Treu und Glauben im CISG (2000); Paul J. Powers, Defining the Undefinable: Good Faith and the United Nations Convention on the Contracts for the International Sale of Goods, 18 J.L. & Com. 333 ff. (1999). 75 For a case expressly referring to the fact that the parties are free to choose the currency of payment, since the Convention does not deal with the issue, see Oberlandesgericht Frankfurt, Germany, 20 April 1994, CLOUT case No. 84 (Recht der internationalen Wirtschaft 593 ff. (1994)). 76 See Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/ 1_4901i.htm; Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Schweizerische Zeitschrift f
r internationales und europisches Recht 186 ff. (1999)); Kantonsgericht Wallis, Switzerland, 30 June 1998, CLOUT case No. 255 (Schweizerische Zeitschrift f
r internationales und europisches Recht 192 f. (1999)). 77 Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der internationalen Wirtschaft 683 f. (1994)). See, however, Landgericht Berlin, Germany, 24 March 1998, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case &id=440&step=FullText) (expressly stating that only a minority view holds that the Convention deals with the issue by referring to the currency of the place of payment of the price).

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VI. Burden of proof As evidenced by the draft Digest, there is also a dispute in case law (as well as in academic writing) as to whether the allocation of the burden of proof is a matter governed by the CISG. Given the importance of this matter, it appears appropriate to deal with it in more detail. Some authors claim that the issue of burden of proof is not governed by the CISG,78 and so one should – apart from very exceptional cases79 – have

recourse to domestic law to solve it.80 There is, however, no agreement between these commentators as to how to determine the applicable domestic law. Whereas some hold the view that recourse should be had to the lex fori, on the basis that the issue is one of procedural law,81 others propose to resort to the domestic law applicable by virtue of the rules of private international law of the forum.82 The preferable view, however, appears to be that the issue of burden of proof is a matter governed by the CISG,83 at least implicitly”.84 This view has been 78

See Reinhart, supra note 35, at 90. For an author who states that the issue of burden of proof is generally not governed by the CISG, but who claims that there are exceptions to the rule, see M. Hutter, Die Haftung des Verkufers f
r Nichtlieferung bzw. Lieferung vertragswidriger Ware nach dem Wiener UNCITRAL-bereinkommen
ber internationale Warenkaufvertrge vom 11. April 1980 44 (1988). 80 See, e. g., Warren Khoo, Art. 2, in Commentary on the International Sales Law, supra note 15, at 39; U. Huber, Der UNCITRAL-Entwurf eines bereinkommens
ber internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 479 f. (1979); Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 281 (1984). 81 Ryffel, supra note 47, at 59. 82 See Shivbiv S. Grewal, Risk of Loss in Goods Sold During Transit: A Comparative Study of the United Nations Convention on Contracts for the International Sale of Goods, the Uniform Commercial Code, and the British Sale of Goods Act, 14 Loy. L.A. Int’l & Com. L.J. 102 (1991). 83 C. Antweiler, Beweislastverteilung im UN-Kaufrecht. Insbesondere bei Vertragsverletzungen des Verkufers 74 (1995); J. Aue, Mngelgewhrleistung im UN-Kaufrecht unter besonderer Ber
cksichtigung stillschweigender Zusicherungen 110 ff. (1989); C.M. Bianca, Art. 36, in Commentary on the International Sales Law, supra note 15, at 287; Ferrari, supra note 13, at 102; M. Henninger, Die Frage der Beweislast im Rahmen des UN-Kaufrechts: zugleich eine rechtsvergleichende Grundlagenstudie zur Beweislast 153 ff. (1995); R. Herber, Anwendungsbereich des UNCITRAL-Kaufrechts
bereinkommens, in Das UNCITRALKaufrecht im Vergleich zum sterreichischen Recht 41 (Doralt ed., 1985); A. Imberg, Die Verteilung der Beweislast beim Gefahr
bergang nach UN-Kaufrecht 20 ff. (1998); R. Jung, 79

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justified on the grounds that the CISG itself provides at least one rule on the burden of proof, namely the one to be found in Article 79,85 and this is why it cannot be asserted that the CISG does not govern the issue at hand.86 Another justification is that the issue of burden of proof is so closely linked to substantive law that a rule on the allocation of burden of proof must necessarily be derived from the CISG, i. e., the set of applicable substantive rules.87 Thus the issue of burden of proof is a matter governed, albeit not expressly, by the CISG. But how is the burden of proof to be allocated in concreto? A close examination of both the wording88 and the legislative history of the various provisions of the CISG has led those legal writers who conclude that the CISG governs the issue of burden of proof to assert that the allocation is based upon the principle, “ei incumbit probatio, qui dicit, non qui negat”.89 This means, on the one hand, that a party has to prove the existence of the factual prerequisites required by a legal provision from which it wants to derive beneficial legal consequences.90 On the other hand, this also means that a Die Beweislastverteilung im UN-Kaufrecht insbesondere bei Vertragsabschluß, bei Vertragsverletzungen des Kufers, bei allgemeinen Bestimmungen sowie bei gemeinsamen Bestimmungen
ber Verkufer- und Kuferpflichten 10 ff. and 40 (1996); Victor Knapp, Art. 74, in Commentary on the International Sales Law, supra note 15, at 541; U. Magnus, Stand und Entwicklungen des UN-Kaufrechts, Zeitschrift f
r europisches Privatrecht 207 (1995); K. Noussias, Die Zugangsbed
rftigkeit von Mitteilungen nach den Einheitlichen Haager Kaufgesetzen und nach dem UN-Kaufgesetz 105-106 (1983); B. Reimers-Zocher, Beweislastfragen im Haager und Wiener Kaufrecht 148 (1995); K. Siehr, Art. 4, in Kommentar zum UNKaufrecht 71 (H. Honsell ed., 1997); Kazuaki Sono, Art. 44, in Commentary on the International Sales Law, supra note 15, at 327. 84 R. Herber, Art. 4, in Kommentar zum Einheitlichen UN-Kaufrecht 77 (P. Schlechtriem ed., 2d ed., 1995); R. Herber & B. Czerwenka, Internationales Kaufrecht. UN-bereinkommen
ber Vertrge
ber den internationalen Warenkauf. Kommentar 32-33 (1991). 85 For this justification, see, e. g., Reimers-Zochers, supra note 83, at 146 ff. 86 Magnus, supra note 5, at 122. 87 C. Hartwieg, Prozessuale Aspekte einheitlicher Anwendung der Wiener UN-Konvention
ber den Internationalen Warenkauf (CISG). Eine komparative Fallstudie zur einheitlichen Rechtsanwendung, Zeitschrift f
r vergleichende Rechtswissenschaft 288-289 (1993); Jung, supra note 83, at 38 and 40. 88 For discussion of the wording of the CISG as an element to be taken into account in allocating the burden of proof, see Rolf Herber, Art. 4, in Commentary on the International Sale of Goods, supra note 35, at 47, stating that the wording can give clues in that regard, but is not decisive. 89 See Ferrari, supra note 12, at 104; Jung, supra note 83, at 44. 90 See Magnus, supra note 5, at 123; Reimers-Zocher, supra note 83, at 146 ff.

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party claiming an exception has the burden of proving that exception’s prerequisites.91 As the draft Digest shows, CISG case law mirrors the dispute found in legal writing. Although a few courts conclude that the issue of burden of proof is a matter beyond the scope of the CISG, most courts hold that it is governed by the Convention.92 Thus an ICC arbitral award rendered soon after the CISG’s entry into force,93 expressly stated that the issue of burden of proof is not governed by the CISG, but rather by domestic law to be determined either by means of the rules of private international law (if it is considered to be a substantive issue) or by the lex fori (if it is considered a procedural one). More recently, a similar view was held by a Swiss court.94 Most courts, however, rightly embrace the view that the matter is governed by the CISG.95 One of these courts96 expressly stated that even though the issue of burden of proof is not one explicitly settled in the CISG, it is implicitly governed by it. In other words, the issue involves an internal gap in the CISG which, according to both that Swiss court and an Italian one,97 has to be settled by resorting to the CISG’s general principles. Several courts,

91

See Ulrich Magnus, General Principles of UN-Sales Law, International Trade and Business Law Annual 52 (1997). 92 For a decision that refers to the dispute on this matter, without, however, itself taking a position one way or the other, see Tribunale d’appello Cantone Ticino, Switzerland, 15 January 1998, CLOUT case No. 253 (Schweizerische Zeitschrift f
r internationales und europisches Recht 189 f. (1999)). 93 See ICC Court of Arbitration, Case No. 6653, 1993, CLOUT case No. 103 (Journal du droit international 1044 (1993)). 94 See Tribunal de la Sane, Switzerland, 20 February 1997, CLOUT case No. 261 (Schweizerische Zeitschrift f
r internationales und europisches Recht 195-196 (1999)). 95 See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001), English translation at 20 J.L. & Com. 209 ff. (2001)); Tribunale di Pavia, Italy, 27 December 1999 (Corriere giuridico 932 f. (2000)); Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331 (Internationales Handelsrecht 44 f. (2001)); Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (Transportrecht-Internationales Handelsrecht 54 (1999)); Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=136&step=FullText. 96 Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=136&step=FullText. 97 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001), published in English in 20 J.L. & Com. 209 ff. (2001)).

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including a German98 and an Austrian one99 have expressed their view on the general principles governing the issue de quo. These views have been summarized in a recent Italian case100 which rightly lists the following three general principles: (a) any party which wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual requirements of that provision; (b) any party claiming an exception has to prove the existence of the factual prerequisites for that exception to apply; and (c) those facts that fall exclusively under the sphere of responsibility of a specific party and which therefore are – at least theoretically – better known to that party have to be proven by that party, since it is that party who exercises control over that sphere. The practical results of the aforementioned principles are very well evidenced by the cases referred to in the draft Digest. 98 Landgericht Frankfurt, Germany, 6 July 1994, available in Unilex at http://www.unilex. info/case.cfm?pid=1&do=case&id=189&step=FullText. 99 Oberlandesgericht Innsbruck, Austria, 1 July 1994, CLOUT case No. 107, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/107.htm. 100 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001), English translation at 20 J.L. & Com. 209 ff. (2001)).

113

CISG rules on exclusion and derogation: Article 6 Franco Ferrari* I. Introduction The draft Digest comments on Article 6 CISG, not unlike those on other provisions, evidence both the Digest’s usefulness and its weaknesses. The former is evidenced by the number of court decisions cited in the draft Digest – court decisions the retrieval of which would otherwise be difficult. Furthermore, the Digest is helpful as it organizes all decisions under appropriate headings, thus making research even easier. With respect to the draft Digest’s weaknesses, it is worth mentioning that the most important one is closely related to the aforementioned strength: as the draft Digest cites most, if not all, the decisions that deal with a specific provision, there will be cases where contrasts in case law will emerge. Pursuant to a decision taken by the United Nations Commission on International Trade Law when authorizing the drafting of the Digest,1 it was not allowed to criticize any decision, not even when decisions are contradictory. Neither is the Digest allowed to point out those cases that are worth being followed. This means, however, that ultimately the draft Digest is not too helpful in guiding the interpreter through the labyrinth of case law which it makes readily available. If one were to look for a guide, one would therefore have to look elsewhere, for instance to comments by legal writers. This is true also in respect of those issues that – albeit linked to the provisions the Digest is concerned with – have not yet arisen in case law, as those matters, too, are beyond the Digest.

II. Effects of Article 6 in general It is common knowledge, confirmed by the draft Digest, that even where all the CISG’s requirements for applicability (the international requirement,

*

Professor of International Law, Verona University School of Law. See Report of the United Nations Commission on its thirty-fourth session, UN document A/56/17. 1

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the substantive requirement, the temporal requirement, the personal/territorial requirement)2 are met, the CISG does not necessarily apply.3 This is so because, pursuant to Article 6,4 the parties may exclude the Convention’s application. Consequently, in order to decide whether the CISG is applicable, one must also look into whether it has been excluded by the parties,5 as pointed out in several court decisions quoted in the draft Digest.6 Thus, the lack of an agreement to exclude is also an applicability requirement.7

2

For remarks concerning these requirements, see the author’s Comments on the Draft Digest Parts Relating to the CISG’s Sphere of Application (Articles 1-3, 10), supra. 3 See Franco Ferrari, The Sphere of Application of the Vienna Sales Convention 20 (1995). 4 For a detailed overview of the history of Article 6 of the CISG, see Maureen T. Murphy, United Nations Convention on Contracts for the International Sale of Goods: Creating Uniformity on International Sales Law, 12 Fordham Int’l L.J. 727-29 (1989). 5 Accord, Kenneth C. Randall & John E. Norris, A New Paradigm for International Business Transactions, 71 Wash. U. L.Q. 616 f. (1993). 6 See, e. g., Tribunale di Vigevano, Italy, July 12, 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001)); Oberlandesgericht Hamm, Germany, 23 June 1998, CLOUT case No. 338, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/434.htm; Cour d’appel Paris, France, 15 October 1997, CLOUT case No. 223, available at http://witz.jura.unisb.de/CISG/decisions/151097v.htm; Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 281.htm; Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/263.htm; Oberster Gerichtshof, Austria, 11 February 1997, CLOUT case No. 190, available at http://www.cisg.at/ 10_150694.htm; Landgericht Landshut, Germany, 5 April 1995, available at http://www. jura.uni-freiburg.de/ipr1/cisg/urteile/text/193.htm; Landgericht Oldenburg, Germany, 15 February 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/197.htm; Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 f. (1995)); Tribunal Cantonal Valais, Switzerland, 29 June 1994, CLOUT case No. 199 (Zeitschrift f
r Walliser Rechtsprechung 125 (1994)); Amstgericht Nordhorn, Germany, 14 June 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/ urteile/text/259.htm; Oberlandesgericht Karlsruhe, Germany, 20 November 1992, CLOUT case No. 317 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1316 f. (1993)); Landgericht D
sseldorf, Germany, 9 July 1992, available at http://www.jura.uni-freiburg.de/ ipr1/cisg/urteile/text/42.htm. 7 In this respect, see Landgericht Trier, Germany, 12 October 1995, CLOUT case No. 170 (Neue Juristische Wochenschrift Rechtsprechungs-Report 564 ff. (1996)) (expressly mentioning the parties’ not having excluded the CISG as a requirement for the CISG’s applicability).

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By providing for the possibility of the parties excluding the Convention, the draftsmen of the CISG reaffirmed one of the general principles already embodied in the 1964 Hague Conventions,8 that is, the principle that the primary source of the rules governing international sales contracts is party autonomy.9 That is why it is not surprising that some court decisions state that the CISG is based upon the general principle of “prevalence of party autonomy”.10 By stating that the CISG can be excluded, the drafters clearly acknowledged the CISG’s dispositive nature11 – emphasized also in case 8

Despite some textual differences, Article 6 CISG is based upon Article 3 ULIS, as has often been pointed out. See, e. g., Michael Joachim Bonell, Art. 6, in Commentary on the International Sales Law 51 (C. Massimo Bianca and Michael Joachim Bonell eds., 1987); F. Ferrari, La vendita internazionale. Applicabilit ed applicazioni della Covnenzione di Vienna 157 (1997); R. Herber, Art. 6, in Kommentar zum Einheitlichen UN-Kaufrecht 83 (P. Schlechtriem ed., 2d ed., 1995). 9 For similar statements, see B. Audit, La vente internationale de marchandises 37 (1990) (stating that “the Convention makes of the parties’ will the primary source of the sales contract”); F. Enderlein, Die Verpflichtung des Verkufers zur Einhaltung des Lieferzeitraums und die Rechte des Kufers bei dessen Nichteinhaltung nach dem UN-bereinkommen
ber Vertrge
ber den Internationalen Warenkauf, Praxis des internationalen Privat- und Verfahrensrechts 314 (1991); H. Hoyer, Der Anwendungsbereich des Einheitlichen Wiener Kaufrechts, in Das Einheitliche Wiener Kaufrecht 41 (H. Hoyer & W. Posch, 1992); U. Magnus, Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG) 133 (13th rev. ed., 1999). 10 See Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 (2003); Hof Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/int/ tradelaw/WK/2002-05-17.htm; Rechtbank Koophandel Ieper, Belgium, 29 January 2001, at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2001-01-29.htm; Landgericht Stendal, Germany, 12 October 2000 (Internationales Handelsrecht 32 (2001)). 11 For this statement, see S.M. Carbone, L’ambito di applicazione ed i criteri interpretativi della convenzione di Vienna, dans La vendita internazionale. La Convenzione dell’11 aprile 1980 78 (1981); S.M. Carbone & R. Luzzatto, I contratti del commercio internazionale, in 11 Trattato di diritto privato 131 (P. Rescigno ed., 1984); J. Erauw, Waneer is het Weens koopverdrag van toepassing?, in Het Weens Koopverdrag 47 (Hans van Houtte et al. eds., 1997); F. Ferrari, Vendita internazionale di beni mobili. Art. 1-13. Ambito di applicazione. Disposizioni generali 110 (1994); Herber, supra note 8, at 84; A. Lanciotti, Norme uniformi di conflitto e materiali nella disciplina convenzionale della compravendita 146 (1992); B. Piltz, Internationales Kaufrecht 64 (Munich, 1993); G. Reinhart, UN-Kaufrecht 26 (1991); G. Sacerdoti, I criteri di applicazione della convenzione di Vienna sulla vendita internazionale: diritto uniforme, diritto internazionale privato e autonomia dei contratti, Rivista trimestrale di diritto e procedura civile 744 (1990); C. Witz, L’exclusion de la Convention des Nations Unies sur les contrats de vente internationale de marchandises par la volont des parties (Convention de Vienne du 11 avril 1980) Receuil Dalloz Chron. 107 (1990). Note, however, that even though the principle of party autonomy is widely accepted, there

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law12 – and the “central role which party autonomy plays in international commerce and, particularly, in international sales”.13 As far as party autonomy is concerned,14 it must be pointed out that Article 6 CISG refers to two different possibilities15 – one where the Convention’s application is entirely excluded, the other where the parties derogate from – or modify the effects of – CISG provisions on a substantive level.16 These two situations differ from each other in that the former, according to the CISG, does not per se encounter any restrictions,17 whereas the latter is were some States which expressed reservations about it: “[t]heir concern was that, in practice, the principle could be abused by the economically stronger party imposing his own national law or contractual terms far less balanced than those contained in the Convention”. Bonell, supra note 8, at 51. See also 1 UNCITRAL Yearbook 168 (1968-1970); 2 UNCITRAL Yearbook 43-44 (1971); 3 UNCITRAL Yearbook 73 (1973). 12 For an express reference to the Convention’s non-mandatory nature, see Cassazione civile, Italy, 19 June 2000 (Giurisprudenza italiana 236 (2001)); Oberster Gerichtshof, Austria, 21 March 2000 (Internationales Handelsrecht 41 (2001)); Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Zeitschrift f
r Rechtsvergleichung 63 ff. (1999)); Handelsgericht Wien, Austria, 4 March 1997, available at http://www.cisg.at/ 1R4097x.htm; Kantonsgericht Wallis, Switzerland, 29 June 1994, CLOUT case No. 199 (Zeitschrift f
r Walliser Rechtsprechung 126 (1994)). 13 M.J. Bonell, Commento all’art. 6, Nuove Leggi civili commentate 16 (1989). For similar affirmations in scholarly writing, see S.K. Date-Bah, The United Nations Convention on Contract for the International Sale of Goods: Overview and Selective Commentary, Review of Ghana Law 54 (1979); Enderlein, supra note 9, at 316; H. Hoyer, supra note 9, at 41; P. Schlechtriem, Einheitliches UN-Kaufrecht 21 (1981). For a reference in case law to party autonomy’s central role, see Landgericht Stendal, Germany, 12 October 2000 (Internationales Handelsrecht 32 (2001)). 14 Carbone, supra note 11, at 78, has compared the affirmation of party autonomy as a basic principle of the CISG to “the recognition of a necessity for the development of international commerce”. See also L. Rovelli, Conflitti tra norme della Convenzione e norme di diritto internazionale privato, in La vendita internazionale, supra note 11, at 102, stating that the introduction of Article 6 CISG and, therefore, the recognition of party autonomy, was a “political need”. 15 For this statement, see Bonell, supra note 8, at 53; E. Castellanos Ruiz, Autonomia de la voluntad y derecho uniforme en la compraventa internacional 37 (1998); F. Ferrari, La compraventa internacional 119 ff. (1999); T. Vazquez Lepinette, Compraventa internacional de mercaderias. Una vision jurisprudencial 86 (2000). 16 For this distinction, see also Lanciotti, supra note 11, at 148 f.; Magnus, supra note 9, at 105 ff.; D. Martiny, Kommentar zum UN-Kaufrecht, in 7 M
nchener Kommentar zum B
rgerlichen Gesetzbuch 1655 f (H.J. Sonnenberger ed., 1989); Sacerdoti, supra note 11, at 745-46; P. Schlechtriem, Internationales UN-Kaufrecht 15 (1996). 17 For this statement, see Hoyer, supra note 9, at 41.

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limited, as there are provisions from which the parties are not allowed to derogate. Where, for instance, at least one of the parties to a contract governed by the CISG has its place of business in a State that has made a reservation under Article 96, the parties may not derogate from or vary the effect of Article 12. In those cases, according to Article 12, any provision “that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply”. Although the fact that the effect of an Article 96 reservation cannot be derogated from has been referred to in the draft Digest as well, the draft Digest does not conclusively deal with the effects of such a reservation, not even in its comments on Article 12. It states – correctly – that there is case law indicating that the effects of Article 12 lead to the principle that form requirements are not per se applicable where one party has its relevant place of business in a State that made an article 96 declaration.18 It then cites the opposing views adopted in other cases with respect to the effects of an Article 96 declaration, unfortunately without stating which view is the correct one: the one according to which the sole fact that one party has its place of business in a State that made an Article 96 reservation does not necessarily mean that the form requirements of that State apply,19 thus letting it (correctly) depend on the law to which the rules of private international law of the forum lead;20 or that pursuant to which, if one party has its relevant place of business in a State that made an Article 96 reservation, the contract must necessarily be concluded or evidenced or modified in writing.21

18

See Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/1995-05-02.htm. 19 See Rechtbank Rotterdam, the Netherlands, 12 July 2001 (Nederlands Internationaal Privaatrecht, 2001, No. 278). 20 See Rechtbank Rotterdam, the Netherlands, 12 July 2001 (Nederlands Internationaal Privaatrecht, 2001, No. 278); Hoge Raad, the Netherlands, 7 November 1997, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=333&step=FullText; Metropolitan Court Budapest, Hungary, 24 March 1992, CLOUT case No. 52. 21 See The High Arbitration Court of the Russian Federation, Russian Federation, 16 February 1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980216r1. html; Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/1995-05-02.htm.

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It should be noted that, although the Convention does not expressly mention it, there are other provisions that the parties cannot derogate from, as correctly pointed out in the draft Digest. Specifically, the public international law provisions of the CISG (i.e. Articles 89-101) are not subject to derogation.22 As the draft Digest correctly states, this is due to the fact that those provisions relate to issues relevant to Contracting States rather than private parties. Even though the draft Digest states that there is no case law on this point yet, it should be noted that the Tribunale di Vigevano, in its rather famous decision of July 12, 2000, expressly took the view referred to in the draft Digest and stated that Article 89-101 cannot be derogated from. The aforementioned exceptions, however, are the only ones. All other provisions can be derogated from.23

III. Implied exclusion of the CISG and choice of the applicable law Party autonomy also played a very important role under the ULIS.24 A comparison of Article 6 CISG and its “direct predecessor”,25 Article 3 ULIS, could even lead to the conclusion that under ULIS party autonomy was more widely recognized,26 since the ULIS expressly stated that its exclusion could also be made implicitly.27 However, this provision was later criticized,28

22

Accord, B. Czerwenka, Rechtsanwendungsprobleme im internationalen Kaufrecht 172 (1988); Ferrari, supra note 11, at 111. 23 Thus, it is not surprising that a court has stated that Article 55, relating to open-price contracts, is only applicable where the parties have not agreed to the contrary. Cour d’appel Grenoble, France, 26 April 1995, CLOUT case No. 152, available at http://witz.jura.uni-sb.de/ CISG/decisions/2604952v.htm. Neither is it surprising that a decision states that Article 39, relating to the notice requirement, is not mandatory and can be derogated from. Landgericht Giessen, Germany, 5 July 1994 (Neue Juristische Wochenschrift Rechtsprechungs-Report 438 (1995)). According to the Austrian Supreme Court, furthermore, Article 57 also can be derogated from. Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)). 24 For a similar statement, see R. Herber, Art. 3, in Kommentar zum Einheitlichen Kaufrecht 19 (H. Dlle ed., 1976); Hoyer, supra note 9, at 41; Lanciotti, supra note 11, at 145-46. 25 Bonell, supra note 13, at 17. 26 This has already been pointed out by Carbone and Luzzatto, supra note 11, at 132. 27 Article 3 ULIS reads as follows: “The parties to a contract of sale shall be free to exclude the application thereto of the present Law either entirely or partially. Such exclusion may be express or implied”. 28 See 1 UNCITRAL Yearbook 168 (1968-1970).

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which is why the express reference to the possibility of an implicit exclusion was not retained by the CISG,29 even though at the Vienna Diplomatic Conference proposals to reintroduce that express reference were made.30 However, this does not mean that under the CISG exclusion always has to be made expressly,31 despite contrary statements in several court decisions 29 See C. Samson, La Convention des Nations Unies sur les contrats de vente internationale de marchandises: Etude comparative des dispositions de la Convention et des rgles de droit qubcois en la matire, Cahiers de droit 931 (1982). 30 Both the representatives of England and Belgium made proposals to reintroduce a reference to the possibility of implicitly excluding the CISG’s application. For references to these attempts, see Ferrari, supra note 8, at 162; Herber, supra note 8, at 83-84; Magnus, supra note 9, at 134; United Nations Conference on Contract for the International Sale of Goods, Official Records: Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committees (10 March – 11 April 1980) 85-86 and 249-250 (1981) 249-250; Schlechtriem, supra note 13, at 22 note 98. 31 The possibility of an implicit exclusion is favored by most legal scholars. See, e. g., W.A. Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG) 25 (2000); Audit, supra note 9, at 38; Kevin Bell, The Sphere of Application of the Vienna Convention on Contracts for the International Sale of Goods, 8 Pace Int’l L. Rev. 255 (1996); J. Cappuccio, La deroga implicita nella Convenzione di Vienna del 1980, Diritto del commercio internazionale 868 (1994); Carbone & Luzzatto, supra note 11, at 132; Czerwenka, supra note 22, at 170; Date-Bah, supra note 13, at 54; Ferrari, supra note 11, at 113; A. Garro & A. Zuppi, Compraventa interncional de mercaderias, Buenos Aires 98 (1990); R. Herber & B. Czerwenka, Internationales Kaufrecht 42 (1992), R. Holthausen, Vertraglicher Ausschluß des UN-bereinkommens
ber internationale Warenkaufvertrge, Recht der internationalen Wirtschaft 515 (1993); Hoyer, supra note 9, at 41; M. Karollus, UN-Kaufrecht, 38 (1991); N. Lacasse, Le champ d’application de la Convention des Nations Unies sur les contrats de vente internationale de marchandises, in Actes du colloque sur la vente internationale 37 (N. Lacasse and L. Perret eds., 1989); F. Liguori, La Convenzione di Vienna sulla vendita internazionale di beni mobili nella pratica: un’analisi critica delle prime cento decisioni, Foro italiano 158 (1996); J. Lindbach, Rechtswahl im Einheitsrecht am Beispiel des Wiener UN-Kaufrechts 253 (1996); U. Magnus, Das UN-Kaufrecht tritt in Kraft, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 126 (1987); Martiny, supra note 16, at 1655 f.; Barry Nicholas, The Vienna Convention on International Sales Law, 105 L. Q. Rev. 208 (1989); Reinhart, supra note 11, at 27; Bradley J. Richards, Contracts for the International Sale of Goods: Applicability of the United Nations Convention, 69 Iowa L. Rev. 237 (1983); Schlechtriem, supra note 13, at 21; Peter Winship, The Scope of the Vienna Convention on International Sale Contracts, in International Sales: The United Nations Convention on Contracts for the International Sale of Goods 1. 35 (Nina Galston and Hans Smit, eds., 1984); Witz, supra note 11, at 108. See also Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 281 (1984), where the author criticizes the draftsmen who, although they could have foreseen the problems which the lack of an express

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cited – once again, without any comment – in the draft Digest.32 This is evidenced, inter alia, by the fact that “the majority of delegations was ... opposed to the proposal according to which a total or partial exclusion of the Convention could only be made ‘expressly.’”33 Consequently, the lack of express reference to the possibility of an implicit exclusion must not be regarded as precluding such possibility.34 Rather it has a different meaning: to discourage courts from too easily inferring an “implied” exclusion or derogation.35 Therefore, an implicit exclusion must be regarded as possible, reference to the possibility of implicitly excluding the Convention would cause, “chose to provide little guidance”. 32 See U.S. District Court for the Southern District of New York, United States, 21 July 1997, CLOUT case No. 187 (Helen Kaminski Pty. Ltd. v. Marketing Australian Products, Inc. d/b/a Fiona Waterstreet Hats, 1997 U.S. Dist. LEXIS 10630); Landgericht Landshut, Germany, 5 April 1995, available at http://www.jura.uni-freiburg.de/iprl/Convention; Court of International Trade, United States, 24 October 1989 (Orbisphere Corp. v. United States of America, 726 F. Supp. 1344 (1990)). 33 Bonell, supra note 8, at 52; see also Audit, supra note 9, at 38; Piltz, supra note 11, at 48. For the proposal mentioned in the text, see Official Records of the United Nations Conference, supra note 30, at 86 and 249-50. 34 However, several authors have argued that in order to be effective, the exclusion of the Convention’s application must be explicit. See, e. g., Isaak I. Dore & James E. Defranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 Harv. Int’l L.J. 53 (1982), stating that “unlike the U.C.C. ... the Convention does not seem to recognize implied agreements which exclude the application of the Convention. The Convention may therefore govern contracts which the parties by their implied agreement might have assumed to be governed by domestic law”. For a similar conclusion, see Isaak I. Dore, Choice of Law under the International Sales Convention: A U.S. Perspective, 77 Am. J. Int’l Law 532 (1983); Caroline Delisle Klepper, The Convention for the International Sale of Goods: A Practical Guide for the State of Maryland and Its Trade Community, 15 Md. J. Int’l L. & Trade 238 (1991); Murphy, supra note 4, at 728; Robert S. Rendell, The New U.N. Convention on International Sales Contracts: An Overview, 15 Brook. J. Int’l L. 25 (1989). 35 For a similar justification for the lack of reference to the possibility of implicitly excluding the CISG’s application, see Official Records of the United Nations Conference, supra note 30, at 17 (stating that “[t]he second sentence of the Ulis, article 3, providing that ‘such exclusion may be express or implied’ has been eliminated lest the special reference to ‘implied’ exclusion might encourage courts to conclude, on insufficient grounds, that the Convention has been wholly excluded”); Peter Schlechtriem, Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods 35 (1986) (stating that “[i]n contrast to Article 3 sentence 2 of Ulis, the Convention does not mention the possibility of an ‘implied’ exclusion, but this does not mean that a tacit exclusion is impossible. The intent to delete the word ‘implied’ was to prevent the courts from being too quick to impute exclusion or the Convention”); see also Bell, supra note 31, at 255; Cappuccio, supra note 31, at 868; T.C.

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a view that has already been confirmed by several court decisions36 which the draft Digest cites, like the cases holding the opposite view, without commenting on them. Of course, there must be clear indications that the parties really wanted such an exclusion,37 that is, there must be a real – as opposed to theoretical, fictitious or hypothetical38 – agreement on exclusion.39

Ebenroth, Internationale Vertragsgestaltung im Spannungsverhltnis zwischen ABGB, IPRGesetz und UN-Kaufrecht, Juristische Bltter 684 (1986); Ferrari, supra note 11, at 145-146; Magnus, supra note 9, at 104; Piltz, supra note 11, at 48. 36 See Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/ 1_7701g.htm; Cour de Cassation, France, 26 June 2001, available at http://witz.jura.unisb.de/CISG/decisions/2606012v.htm; Tribunale di Vigevano, 12 July 2000, Italy, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001)); Oberlandesgericht Dresden, Germany, 27 December 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/511. htm; Oberlandesgericht M
nchen, Germany, 9 July 1997 CLOUT case No. 273, available at http://www.cisg-online.ch/cisg/urteile/282.htm; Landgericht M
nchen, Germany, 29 May 1995 (Neue Juristische Wochenschrift 401 f. (1996)); Oberlandesgericht Celle, Germany 24 May 1995, CLOUT case No. 136, available at http://www.cisg-online.ch/cisg/urteile/ 152.htm. 37 For a similar affirmation, see M.J. Bonell, La nouvelle Convention des Nations-Unies sur les contracts de vente internationale de marchandises, Droit et pratique du commerce international 13 (1981) (stating that a “tacit exception may only be admitted if there are valid elements of indications showing the parties ‘true’ intention”); Fritz Enderlein & Dietrich Maskow, International Sales Law 48 (1992) (suggesting that there must be clear indications that an implicit exclusion is wanted); Erauw, supra note 11, at 47 (stating the same); Rovelli, supra note 14, at 105 (stating that “of course, the determination of the applicable law can result from an implicit choice of the parties, but is must be ‘certain’: this means that the intention of implicitly excluding the Convention must be real, not hypothetical”). 38 See also Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der internationalen Wirtschaft 683 (1994)) (stating that the CISG’s applicability cannot be excluded by a hypothetical choice of law). 39 For a similar statement, see John O. Honnold, Uniform Law for International Sales 80 (3d ed., 1999) (stating that “although an agreement to exclude the Convention need not be ‘express’ the agreement may only be implied from facts pointing to real – as opposed to theoretical or fictious – agreement”); for similar statements, see C. Reifner, Stillschweigender ausschluss des UN-Kaufrechts im Prozess?, Interrnationales Handelsrecht 55 (2002). Note, however, that according to Murphy, supra note 4, at 749, the possibility of implicitly excluding the CISG conflicts with the need for certainty of law.

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This is not a merely theoretical problem, as evidenced by the variety of ways to implicitly exclude the CISG. A typical40 way is through the parties’ choice of the applicable law.41 There is no doubt that such a choice is an effective exclusion of the CISG, at least where the applicable law chosen by the parties is the law of a non-Contracting State.42 This was true under the ULIS as well43 and has been confirmed by a German court decision44 cited in the Digest. The choice of the law of a Contracting State as the law governing the contract poses more difficult problems.45 One of these problems relates to the question of whether the CISG is applicable when the parties agree upon a national law, such as French, US, or Italian law, as the law applicable to their

40

Accord, Herber, supra note 8, at 81; Magnus, supra note 9, at 138. As far as the validity of a choice of law agreement is concerned, it must be judged on the basis of the law applicable to this issue. According to Article 2 of the 1955 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods, the electio iuris is governed by the law chosen by the parties; the same is true according to Article 3(4) and 8 of the 1980 EEC Convention on the Law Applicable to Contractual Obligations. For further discussion of this problem, see Bonell, supra note 13, at 19; Ferrari, supra note 11, at 115-16; Herber and Czerwenka, supra note 31, at 43. 42 For similar statements, see, e. g., Bonell, supra note 8, at 56 (stating that there is an “[implicit] indication of the parties’ intention to exclude the application of the Convention, either entirely of partially, whenever they have chosen as the proper law of their contract the law of a non-Contracting State”); Audit, supra note 9, at 39; Carbone & Luzzatto, supra note 11, at 132; F. Enderlein et al., Internationales Kaufrecht: Kaufrechtskonvention. Verjhrungskonvention. Vertretungskonvention. Rechtsanwendungskonvention 58 (1991); Ferrari, supra note 8, at 166; Garro and Zuppi, supra note 31, at 95; Holthausen, supra note 31, at 515; O. Lando, The 1985 Hague Convention on the Law Applicable to Sales, Rabels Zeitschrift f
r auslndisches und internationals Privatrecht 84 (1987); Liguori, supra note 31, at 158; Lindbach, supra note 31, at 308; Magnus, supra note 9, at 138; Martiny, supra note 16, at 1656; Piltz, supra note 11, at 48; Reifner, supra note 39, at 55; Sacerdoti, supra note 11, at 746; Winship, supra note 31, at 1. 35. 43 See Herber, supra note 24, at 20. See, however, Rechtbank Koophandel Tongeren, Belgium, 18 March 1976, in Internationale Rechtsprechung zu EKG und EAG 136 f. (P. Schlechtriem and U. Magnus eds., Baden-Baden, 1987); Rechtbank Koophandel Tongeren, Belgium, 9 June 1977, in Internationale Rechtsprechung zu EKG und EAG, supra this note at 138. 44 See, e. g., Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49 (Recht der internationalen Wirtschaft 845 (1993)). 45 For an overview of this issue, see F. Ferrari, Zum vertraglichen Ausschluss des UNKaufrecht, Zeitschrift f
r europisches Privatrecht 743 ff. (2002); Magnus, supra note 9, at 138-39. 41

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contract. As the draft Digest clearly shows, in respect of this issue case law is again contradictory. Since the draft Digest, however, simply lists the contradictory cases, once again without commenting on them at all, the interpreter has to look elsewhere to determine which cases should be followed. In respect of the issue at hand, several courts (acritically cited in the draft Digest)46 as well as several commentators47 suggest that designating the law of a Contracting State ought to amount to an implicit exclusion of the CISG, because otherwise the manifested intent of the parties would have no practical meaning.48 In this author’s opinion,49 however, this solution is not tenable under the CISG.50 As was the case under the ULIS;51 designating the

46

See Cour d’Appel Colmar, France, 26 September 1995, available at http://witz.jura.unisb.de/cisg/decisions/260995.htm; Kantonsgericht Zug, Switzerland, 16 March 1995, CLOUT case No. 326 (Internationales Handelsrecht 44 (2000)); Ad Hoc Arbitral Tribunal Florence, Italy, 19 April 1994, CLOUT case No. 92 (Diritto del commercio internazionale 861 ff. (1994)); Tribunale Civile di Monza, 14 January 1993, CLOUT case No. 54 (Foro italiano 916 ff. (1994/I)). 47 See, e. g., F. Bydlinski, Diskussionsbeitrag, in Das UNCITRAL-Kaufrecht im Vergleich zum sterreichischen Recht 48 (P. Doralt ed., 1985); M. Karollus, Der Anwendungsbereich des UN-Kaufrechts im berblick, Juristische Schulung 381 (1993). 48 See, in addition to the authors cited in the preceding note, Karollus, supra note 31, at 3839; F.A. Mann, Anmerkung zu BGH, Urteil vom 4. 12. 1985, JuristenZeitung 647 (1986); W.A. Stoffel, Ein neues Recht des internationalen Warenkaufs in der Schweiz, Schweizerische Juristenzeitung 173 (1990); L.Vekas, Zum persnlichen und rumlichen Anwendungsbereich des UN-Einheitskaufrechts, Recht der internationalen Wirtschaft 346 (1987). 49 See F. Ferrari, Exclusion et inclusion de la CVIM, Revue de droit des affaires internationals 403 (2001). 50 This view was also expressed at the Vienna Diplomatic Conference, where a large number of delegations rejected proposals by Canada and Belgium (for these proposals, see Official Records of the United Nations Conference, supra note 30, at 250) under which domestic sales law, and not the CISG, would have to be applied whenever the parties indicated the law of a Contracting State as the proper law for their contract. For a reference to the rejection of the foregoing proposals as an argument in favor of the view expressed in the text, see Bonell, supra note 8, at 56; Magnus, supra note 9, at 106. 51 This view was predominant under the 1964 Hague Conventions. For a reference to this view in legal writing, see, e. g., Enderlein & Maskow, supra note 37, at 49; Herber, supra note 24, at 21; G. Reinhart, Dix ans de jurisprudence de la Re´publique Fe´de´rale d’Allemagne a` propos de la loi uniforme sur la vente internationale d’objets mobiliers corporels, Uniform L. Rev. 424 (1984); Witz, supra note 11, at 110; K. Zweigert and U. Drobnig, Einheitliches Kaufrecht und internationales Privatrecht, Rabels Zeitschrift f
r auslndisches und internationals Privatrecht 162 f. (1965).

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law of a Contracting State, if done without particular reference to the domestic law of that State52 (as in two of the cases cited in the draft Digest53) does not per se exclude the Convention’s application,54 as confirmed by many court decisions55 and arbitral awards56 cited in the draft Digest. And this is 52 There is no doubt that the CISG’s application is excluded where the parties merely refer to the domestic law of a Contracting State. For a similar conclusion, see Bonell, supra note 13, at 18; Cappuccio, supra note 31, at 873; Erauw, supra note 11, at 49; Ferrari, supra note 11, at 117; Schlechtriem, supra note 35, at 35. Consequently, where the parties state, for instance, that “the contract is governed by American law as laid down in the U.C.C.”, the CISG’s application should be considered as being excluded. For further examples of clauses that successfully exclude the Convention’s application, see B. Blair Crawford, Drafting Considerations under the 1980 United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & Com. 193 (1988); E. Allen Farnsworth, Review of Standard Forms or Terms under the Vienna Convention, 21 Cornell Int’l L.J. 442 (1988); Herber, supra note 8, at 87; Holthausen, supra note 31, at 515; David L. Perrott, The Vienna Convention 1980 on Contracts for the International Sale of Goods, Int’l Cont. L. & Fin. Rev. 580 (1980); Piltz, supra note 11, at 48; Winship, supra note 31, at 1. 35. 53 Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://cisgw3. law.pace.edu/cisg/text/000830g1german.html; Oberlandesgericht Frankfurt, Germany, 15 March 1996, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/284.htm. 54 This view is shared by the majority of commentators. See, e. g., Audit, supra note 9, at 39; Bonell, supra note 8, at 56; Erauw, supra note 11, at 21, 25 and 48; Farnsworth, supra note 52, at 442; Ferrari supra note 11, at 117; R. Herber, Anwendungsvoraussetzungen und Anwendungsbereich des Einheitlichen Kaufrechts, in Einheitliches Kaufrecht und nationales Obligationenrecht 104 (P. Schlechtriem ed., 1987); Herber & Czerwenka, supra note 31, at 44; Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 100-01 (1989); J.P. Plantard, Un nouveau droit uniforme de la vente internationale: La Convention des Nations Unies du 11-4-1980, Journal du droit international 321 (1988); Schlechtriem, supra note 13, at 22; P. Thieffry, Les nouvelles rgles de la vente internationale, Droit et pratique du commerce international 373 (1989); Peter Winship, International Sales Contracts under the 1980 Vienna Convention, 17 UCC L.J. 65 (1984). 55 Hof van Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/ int/tradelaw/WK/2002-05-17.htm; Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://cisgw3.law.pace.edu/cisg/text/000830g1german.html; Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270 (Transportrecht-Internationales Handelsrecht 18 ff. (1999)); Oberlandergericht Hamburg, Germany, 5 October 1998, CLOUT case No. 279, available at http://www.cisg-online.ch/cisg/urteile/473.htm; Kantonsgericht Nidwalden, Germany, 3 December 1997, CLOUT case No. 220 (Transportrecht-Internationales Handelsrecht 10 (1999)); Bundesgerichtshof, Germany 25 June 1997, CLOUT case No. 235, available at http://www.cisg-online.ch/cisg/urteile/277.htm; Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 287, available at http://www.cisg-online. ch/cisg/urteile/281.htm; Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case

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No. 230, available at http://www.cisg-online.ch/cisg/urteile/263.htm; Handelsgericht Z
rich, 5 February 1997, CLOUT case No. 214, available at http://www.cisg-online.ch/cisg/urteile/ 327.htm; Cour de Cassation, France, 17 December 1996, CLOUT case No. 206, available at http://www.cisg-online.ch/cisg/urteile/220.htm; Landgericht Kassel, Germany, 15 February 1996, CLOUT case No. 409 (Neue Juristische Wochenschrift Rechtsprechungs-Report 1146 f. (1996)); Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Recht der internationalen Wirtschaft 689 f. (1996)); Rechtbank s’Gravenhage, Netherlands, 7 June 1995, (Nederlands Internationaal Privaatrecht No. 524 (1995)); Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 167, available at http:// www.cisg-online.ch/cisg/urteile/142.htm; Oberlandesgericht Kln, Germany, 22 February 1994 (Praxis des internationalen Privat- und Verfahrensrechts 393 ff. (1995)); Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281 (Recht der internationalen Wirtschaft 934 ff. (1993)); Oberlandesgericht D
sseldorf, Germany, 8 January 1993, CLOUT case No. 48 (Recht der internationalen Wirtschaft 325 (1993)). 56 See ICC Court of Arbitration, Case No. 9187, 1999, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=466&step=FullText (CISG applicable pursuant to the parties’ choice of French law, i.e. the law of a Contracting State); Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166 (Monatsschrift f
r Deutsches Recht 781 ff. (1996)) (applying the CISG on the grounds that the choice of the Hamburg arbitral tribunal was to be analogized to the choice of German law, i.e., that of a Contracting State); Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 17 November 1995, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=217& step=FullText (stating that the CISG was applicable, among other reasons, because the parties had chosen the law of two (!) Contracting States as the law governing the contract); ICC Court of Arbitration, Case No. 8324, 1995 (Journal du droit international 1019 ff. (1996)) (applying the CISG to a contract which the parties had subjected to French law, i. e., the law of a Contracting State); ICC Court of Arbitration, Case No. 7844, 1984 (ICC Court of Arbitration Bulletin 72 f. (1995)) (stating that the CISG is applicable where the parties have chosen the law of a Contracting State to govern their international sales contract); ICC Court of Arbitration, Case No. 7660, 1994, CLOUT case No. 302 (ICC Court of Arbitration Bulletin 68 (1995)) (holding that the CISG was applicable on the grounds that the parties had agreed upon the law of a Contracting State (Austria) as the law governing their contract and that the choice of the law of a Contracting State included the CISG); ICC Court of Arbitration, Case No. 7565, 1994, CLOUT case No. 300 (ICC Court of Arbitration Bulletin 64 ff. (1995)) (applying the CISG to a contract to which the parties had made applicable “the Laws of Switzerland”, based upon the argument that “Swiss law, when applicable, consists of the Convention itself as of the date of its incorporation into Swiss law”); ICC Court of Arbitration, Case No. 6653, 1993, CLOUT case No. 103 (Journal du droit international 1040 ff. (1993)) (applying the CISG to a contract which the parties had agreed to subject to French law, the law of a Contracting State); Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft – Wien, Austria, 15 June 1994, CLOUT case No. 93 (Arbitral Award No. SCH-4366, Recht der internationalen Wirtschaft 590 f. (1995))

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true even where the law chosen is that of a Contracting State that made an Article 95 reservation.57 The application of the Convention does not make the national law irrelevant, as has been suggested;58 the designation of the law of a Contracting State must be interpreted as both making the CISG applicable (as part of the chosen law)59 and as determining the law applicable to issues not governed by the CISG itself (to the extent to which the parties are allowed to make a choice in respect of those issues),60 such as issues relating to validity. Interpreting the parties’ choice of law in this fashion avoids having to resort to the complex rules of private international law in order to determine the law applicable to issues not governed by the CISG.61 Quid iuris if under the 1964 Hague Conventions the parties have established practices between themselves according to which the reference to the law of a Contracting State had to be interpreted as an exclusion of the uniform sales law, and the parties continue to refer to the law of that State even after that State ratifies the CISG? Does the continuing reference to the law of that State have to be considered an exclusion of the CISG? Even though several

(expressly stating that “the parties’ choice of the law of a Contracting State is understood as a reference to the corresponding national law, including the CISG as the international sales law of the State and not merely to the – non-unified – domestic sales law”). 57 Accord, G. Herrmann, Anwendungsbereich des Wiener Kaufrechts – Kollisionsrechtliche Probleme, in Wiener Kaufrecht. Der schweizerische Aussenhandel unter dem bereinkommen
ber den Internationalen Warenkauf 95 (E. Bucher ed., 1991); Magnus, supra note 9, at 139. For the argument that in this type of case the CISG should not apply, see Audit, supra note 9, at 39 n. 3. 58 See also Ferrari, supra note 8, at 170. 59 See Schlechtriem, supra note 16, at 13. 60 Compare F. Ferrari, Diritto uniforme della vendita internazionale: questioni di applicabilit e di diritto internazionale privato, Rivista di diritto civile 685 (1995/II); Liguori, supra note 31, at 158. 61 For a similar conclusion in respect of the consequences of the parties’ choice of the law of a Contracting State as the proper law for their contract, see Enderlein & Maskow, supra note 37, at 49, stating that “[w]hen a state participates in the Convention the latter can be assumed to be part of his domestic law so that additional reference to it could be considered as superfluous at first, and/or for the reference to make sense, as an exclusion of the CISG. But the application of the Convention does in no way make the application of the other parts of the national law irrelevant ... Therefore, it must be recommended to the parties to determine the national law that is applicable in addition to the Convention ... so that they can avoid the uncertainties involved in determining that law, using the conflict-of-law norms”.

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authors have argued in favor of an affirmative answer to this question,62 most recently the opposite view was adopted by a German court.63

IV. Exclusion of the CISG by virtue of standard contract forms and choice of forum The choice of the law of a State – whether Contracting or not – does not constitute the only kind of implicit exclusion which can be used to bar the Convention’s application,64 as is evidenced by the draft Digest. Indeed, in certain situations, as was also true under the 1964 Hague Conventions,65 the use of standard contract forms can lead to the exclusion of the CISG’s application.66 This occurs if the forms become part of the contract67 and (a) their content is so profoundly influenced by the rules and the concepts of a specific legal system that their use is incompatible with the CISG and implicitly manifests the parties’ intention to have the contract governed by that legal system68 and (b) their use suggests an intention to exclude the 62

See, e. g., Ferrari, supra note 11, at 118; Holthausen, supra note 31, at 516. Compare Landgericht D
sseldorf, Germany, 11 October 1995, available at http://www. jura.uni-freiburg.de/ipr1/cisg/urteile/text/180.htm (where the court stated that the express exclusion of the 1964 Uniform Sales Law did not amount per se to an implied exclusion of the CISG, and therefore applied the CISG to an international sales contract which the parties had agreed upon subjecting to the sole law of Germany, i.e., the law of a Contracting State). 64 Accord, Achilles, supra note 31, at 26; Ferrari, supra note 8, at 172 ff.; Magnus, supra note 9, at 140 ff. 65 For a very detailed discussion of the possibility of implicitly excluding the application of both the Ulis and Ulf, among others by adopting standard contract forms, see, e. g., F.Graf van Westphalen, Allgemeine Geschftsbedingungen und Einheitliches Kaufgesetz (EKG), in Einheitliches Kaufrecht und nationales Obligationenrecht, supra note 54, at 49 ff.; R. Hausmann, Stillschweigender Ausschluß der Einheitlichen Kaufgesetze durch allgemeine Geschftsbedingungen, Recht der internationalen Wirtschaft 186 ff. (1977); G.Reinhart, Erschwerter Ausschluß der Anwendung des Einheitlichen Kaufgesetzes, Praxis des internationalen Privat- und Verfahrensrechts 288 ff. (1986). 66 For a similar statement, see also Erauw, supra note 11, at 49; Herrmann, supra note 57, at 95-96; Martiny, supra note 16, at 1656. 67 See Schlechtriem, supra note 16, at 14. 68 The possibility of an implicit exclusion of the CISG by means of standard contract forms has also been favored by Bonell, supra note 8, at 56-57, who states that the use of general conditions or of standard from contracts whose content is influenced by principles and rules typical of the domestic law of a particular State, is certainly an element from which one could infer the intention of the parties to have that domestic law rather than the Convention govern their contract. Before reaching such a conclusion, however, due consideration should be given to other circumstances of the case. 63

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application of the CISG as a whole.69 Where, on the contrary, standard contract forms are intended to merely regulate specific issues in derogation from certain rules of the Convention, one must presume that only a partial exclusion of the CISG is desired.70 Furthermore, the choice of a forum can also lead to the exclusion of the Convention’s application.71 The same is true with reference to the choice of an arbitral tribunal,72 provided that two requirements are met: (a) one must be able to infer from the parties’ choice their clear intention to have the domestic law of the State where the forum or arbitral tribunal is located govern their contract,73 and (b) the forum must not be located in a

This view is shared by other authors as well. See, e. g., Audit, supra note 9, at 39; U. Huber, Der UNCITRAL-Entwurf eines bereinkommens
ber internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 426 (1979); Schlechtriem, supra note 13, at 21. 69 See Magnus, supra note 9, at 141, stating that standard contract forms which contrast with specific provisions of the CISG should not per se be looked upon as excluding the CISG as a whole. This was true under the Hague Conventions as well. See, for instance, Oberlandesgericht Hamm, Germany, 7 May 1979 (Internationale Rechtsprechung zu EAG und EKG, supra note 43, at 141 f.). 70 For a similar solution, see Enderlein & Maskow, supra note 37, at 49 (stating that “[o]n no account can the exclusion of the Convention be deduced merely from agreement of such terms of contract which contradict specific provisions because deviating individual exclusions are indeed compatible with the CISG”). This view is also held by Ferrari, supra note 11, at 119; Witz, supra note 11, at 111. 71 Note in this regard that it has been asserted that “[i]f the parties have not provided otherwise, but have included a choice of forum clause, courts are inclined to rule that the choice of forum indicates a choice of that jurisdiction’s substantive law”, Ronald A. Brand, Nonconvention Issues in the Preparation of Transnational Sales Contracts, 8 J.L. & Com. 167 (1988). For illustrations of this tendency, see Court of Appeal, England, 24 January 1968 (Tzotrzis v. Monard Line A/B, [1968] W.L.R. 406, 411-412 (C.A.)); U.S. Supreme Court, United States, 12 June 1972 (Bremen v. Zapata Off-Shore Co., 407 U.S. 1 n. 15 (1972)). 72 For this conclusion, see Holthausen, supra note 31, at 517-518; Magnus, supra note 9, at 140-41. 73 Several authors have pointed out that, even though the choice of a forum or of an arbitral tribunal may indicate the parties’ intention to exclude the CISG, that choice by itself is not sufficient to bar the Convention’s application. See Herber & Czerwenka, supra note 31, at 43 (stating that an arbitration clause or the choice of a forum might indicate the parties’ intention to exclude the Convention); Huber, supra note 68, at 426 (stating that the choice of an arbitral tribunal by itself does not lead to the exclusion of the Convention); Schlechtriem, supra note 35, at 35 (stating that the choice of an arbitral tribunal does not by itself imply that the parties wish to exclude the Convention’s application).

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Contracting State,74 because in that case the CISG is applicable,75 as confirmed by two arbitral rewards referred to in the draft Digest.76 Finally, although this possibility is nowhere referred to in the draft Digest, parties can exclude the CISG by agreeing that specific issues arising under their contract be subject to provisions of a law different than the CISG. The exclusion will occur if the designated issues are fundamental ones,77 and if from the subjection of those issues to a domestic sales law one can infer the parties’ clear intention to have the contract governed by a law different from the Sales Convention. This was the approach taken by various court decisions rendered under the 1964 Hague Conventions.78 As correctly stated in a decision referred to in the draft Digest, however, the inclusion of Incoterms by the parties does not constitute an implicit exclusion of the Convention.79

V. Implicit exclusion and pleadings based solely on domestic law Quid iuris where the parties argue a case on the sole basis of a domestic law despite the fact that all of the CISG’s criteria of applicability are met? Although this issue is mentioned in the draft Digest, as there is case law on it, the draft Digest itself does not help to answer the question: the cases it cites are contradictory, a contradiction the draft Digest does once again not help to solve.

74 For similar, albeit not identical conclusions, see Erauw, supra note 11, at 49; Herber, supra note 8, at 87; Holthausen, supra note 31, at 519; Reifner, supra note 39, at 55. 75 For this solution, see G. Walter, Kaufrecht. Handbuch des Schuldrechts 632 (1987) (stating that whenever the arbitral tribunal chosen by the parties is located in a Contracting State, the CISG is applied). 76 See Schiedsgericht der Hamburger freundlichen Arbitrage, Germany, 29 December 1998, CLOUT case No. 293 (Internationales Handelsrecht 36-37 (2001)) (applying the CISG on the grounds that the choice of the Hamburg arbitral tribunal was to be analogized to the choice of German law, i. e., that of the Contracting State in which the arbitral tribunal was located); Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996 (Monatsschrift f
r deutsches Recht 781 ff. (1996)) (applying the CISG on the same grounds)). 77 For this prerequisite, see Herber, supra note 8, at 87. 78 See, e. g., Landgericht Bamberg, Germany, 12 October 1983 (Praxis des internationalen Privat- und Verfahrensrechts 266 (1984)); Bundesgerichtshof, Germany, 26 November 1980 (Neue Juristische Wochenschrift 1156 f. (1981)). 79 Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/ 1_7701g.htm.

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In this author’s opinion,80 the mere fact that the parties argue on the sole basis of domestic law does not per se lead to the exclusion of the CISG,81 a view recently confirmed by several courts,82 unless the parties are aware of the CISG’s applicability or the intent to exclude the CISG can otherwise be inferred with certainty. If the parties are not aware of the CISG’s applicability and argue on the basis of a domestic law merely because they believe that this law is applicable, the judges will nevertheless have to apply the CISG on the grounds of the principle iura novit curia, provided that this principle is part of the lex fori. One of the courts stated this very clearly: The fact that during the preliminary legal proceedings in this case the parties based their arguments exclusively on Italian domestic law without any references to the CISG cannot be considered an implicit manifestation of an intent to exclude application of the Convention ... Reference in a party’s brief to the non-uniform national law of a Contracting State – even though it is theoretically some evidence of an intent to choose the national law of that State – does not imply the automatic exclusion of the CISG. One has to assume that the parties wanted to exclude the application of the Convention only if it appears in an unequivocal way that they recognized its applicability and they nevertheless insisted on referring only to national, non-uniform law. In the present case, it does not appear from the parties’ arguments that they realized that the CISG was the applicable law...; we cannot, therefore, conclude that they implicitly wanted to exclude the application of the Convention by choosing to refer exclusively to national Italian law. Thus according to the principle iura novit curia, it is up to the judge to determine which Italian rules should be applied; for the reasons mentioned above, the applicable rules are those in the Vienna Convention.83

80

See Ferrari, supra note 45, at 744 ff. For this conclusion, see also Schlechtriem, supra note 16, at 14. 82 See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 281 ff. (2001)); Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Praxis des internationalen Privat- und Verfahrensrechts 269 (1996)); Landgericht Landshut, Germany, 5 April 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/ urteile/text/193.htm. 83 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378, English translation quoted from 20 J.L. & Com. 213-14 (2001). 81

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In light of what has been said thus far, one has to reject the opposite view held by two tribunals (a state court84 and an arbitral tribunal85), acritically referred to in the draft Digest, according to which if the parties’ pleadings are based solely on domestic law, that automatically leads to the exclusion of the CISG.

VI. Express exclusion of the CISG Problems can arise not only with respect to implicit exclusion of the CISG, but also with respect to its explicit exclusion.86 Two situations should be distinguished: exclusion with and exclusion without designation of the law applicable to the contract between the parties.87 Nulla quaestio that the tribunal must apply the law chosen by the parties when the CISG is excluded with an indication of the applicable law.88 Under the CISG, not unlike under the Hague Conventions,89 such a designation can also be made in the course of a legal proceeding,90 at least where this is

84

Cour de Cassation, France, 26 June 2001, available at http://witz.jura.uni-sb.de/CISG/ decisions/2606012v.htm. 85 ICC Court of Arbitration, Case No. 8453, 1995 (ICC Court of Arbitration Bulletin 55 (2000)). 86 For a suggestion of various clauses by means of which the CISG can be expressly excluded, see Peter Winship, Changing Contract Practices in the Light of the United Nations Sales Convention: A Guide for Practitioners, 29 Int’l Law. 538 (1995). 87 For this distinction, see Ferrari, supra note 11, at 121. 88 Accord, Sacerdoti, supra note 11, at 746. 89 Under the 1964 Hague Conventions, designation of the applicable law could be made during the legal proceeding. For a reference to this rule in respect of ULIS and ULF, see V. Sttter, Stillschweigender Ausschluß der Anwendbarkeit des Internationalen Kaufabschluß
bereinkommens und des Einheitlichen Kaufgesetzes, Recht der Internationalen Wirtschaft 38 (1980); C. von der Seipen, Zum Ausschluß des Einheitlichen Kaufrechts im Deutsch-Englischen Rechtsverkehr, Praxis des Internationalen Privat- und Verfahrensrechts 246 (1984). For judicial applications of this principle, see, e. g., Bundesgerichtshof, Germany, 26 November 1980 (Neue Juristische Wochenschrift 1156 (1981)); Bundesgerichtshof, Germany, 26 October 1983 (Recht der internationalen Wirtschaft 151 (1984)). 90 See Erauw, supra note 11, at 47; Karollus, supra note 31, at 38; Schlechtriem, supra note 16, at 14.

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admissible according to the lex fori,91 as in Germany92 and Switzerland93 for instance, and even though the parties normally make their choice before the conclusion of the contract.94 The law chosen by the parties also is the law on the basis of which a judge has to decide upon the validity of the choice of law, at least where the applicable rules of private international law correspond to those laid down in the 1980 Rome Convention.95 Where the parties’ choice of law is invalid, the contract should be governed by the law to be determined on the basis of the rules of private international law of the forum.96 If this law turns out to be that of a Contracting State to the CISG, its domestic law rather than the CISG should be applied.97

91 See Achilles, supra note 31, at 27; Czerwenka, supra note 22, at 169-170; Holthausen, supra note 31, at 515; U. Magnus, Zum rumlich-internationalen Anwendungsbereich des UN-Kaufrechts und zur Mngelr
ge, Praxis des internationalen Privat- und Verfahrensrechts 391 (1993). 92 Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122, available at http://www.cisg-online.ch/cisg/urteile/132.htm; Oberlandesgericht Saarbr
cken, Germany, 13 January 1993, CLOUT case No. 292, available at http://www.cisg-online.ch/cisg/urteile/ 83.htm. 93 Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331 (Schweizerische Zeitschrift f
r internationales und europisches Recht 111 (2000)). 94 In this respect, it has been stated that “[o]ne might expect that, in practice, the parties would normally indicate their intention at the beginning of their negotiations, or at least before the contract is concluded. Nonetheless, there is nothing to prevent them from deciding at a later stage, even after the initiation of a legal proceeding relating to their contract ... It should, however, be borne in mind that any exclusion of or derogation from the Convention agreed upon after the conclusion of the contract amounts to a modification of the contract, which in some cases may require a particular form”. Bonell, supra note 8, at 58. 95 Although it is common knowledge that the question of whether the parties’ choice of law is valid falls outside the sphere of application of the Convention, there is uncertainty about the law on the basis of which to decide whether the parties have validly excluded the Convention, as has been pointed out, for instance, by Bonell, supra note 8, at 60-61, stating that “given the special nature of a choice-of-laws clause, it is uncertain whether the validity of the parties’ consent is to be decided according to the proper law as objectively determined, the law chosen by the parties, or the substantive rules of the forum. ... [S]ee Article 10 of the 1985 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods, according to which whenever the parties’ agreement as to the applicable law is either express or clearly demonstrated by the terms of the contract and the conduct of the parties, the existence and validity of that agreement shall be determined by the law chosen”. 96 Accord, Bonell, supra note 8, at 61; Ferrari, supra note 11, at 121; Honnold, supra note 39, at 126. 97 But see Herber & Czerwenka, supra note 31, at 44 (favoring the view according to which the invalidity of the parties’ choice of law leads to the application of the CISG).

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Quid iuris, however, in the case of an express exclusion without indication of the applicable law (an issue also referred to in the draft Digest, although there is no case law on it yet)?98 In this case, the preferable view, held by most legal scholars,99 is the one according to which “if the parties merely agree that the Convention does not apply, rules of private international law would determine the applicable domestic law”.100 And whenever these rules refer to the law of a Contracting State, its domestic sales law, not the uniform one, should apply.101 Undoubtedly, this rule applies in cases in which the CISG is excluded in toto.102 However, its application to cases in which the Convention is excluded only partially created disagreement among legal scholars.103 Some authors favor the view that the issues dealt with in the excluded provisions must be settled, according to Article 7(2) CISG, in conformity with the CISG’s general principles.104 In this author’s opinion,105 the better view is the opposite one: the rules to substitute for the excluded CISG provisions are to be determined, as in the case of an exclusion in toto of the Convention, by applying the rules of private international law of the forum State106 – without resorting to the general principles of the CISG; otherwise, the exclusion would have no practical meaning. Indeed, it would make little

98

Note that, while at one point an exclusion without indication of the applicable law was considered inadmissible, this view is no longer tenable. See, e. g., M.J. Bonell, UN-Kaufrecht und das Kaufrecht des Uniform Commercial Code im Vergleich, Rabels Zeitschrift f
r auslndisches und internationals Privatrecht 28 (1994); but see Honnold, supra note 39, at 78. 99 This solution has been favored, for instance, by Ferrari, supra note 8, at 179; Sacerdoti, supra note 11, at 746; Schlechtriem, supra note 13, at 21. 100 Honnold, supra note 39, at 78. For the same conclusion, see Bonell, supra note 13, at 19; Ferrari, supra note 11, at 122; K. Kostkiewicz & I. Schwander, Zum Anwendungsbereich des UN-Kaufrechts
bereinkommens, in Festschrift Neumayer 48 (F. Majoros ed., Basle, 1997); Magnus, supra note 9, at 137. 101 Accord Herber, supra note 8, at 85; Karollus, supra note 31, at 38; Magnus, supra note 9, at 104; Martiny, supra note 16, at 1656; K. Siehr, Der internationale Anwendungsbereich des UN-Kaufrecht, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 600 (1988). 102 Accord, Bonell, supra note 8, at 59. 103 For a recent overview of the discussion on this issue, see Magnus, supra note 9, at 142-43. 104 For this view, see, e. g., Bonell, supra note 8, at 59; Herber, supra note 8, at 88-89; Herber & Czerwenka supra note 31, at 42. 105 See Ferrari, supra note 11, at 122. 106 Compare Ferrari, supra note 8, at 180.

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sense to replace specific solutions provided for by the Convention and which, therefore, are necessarily in conformity with its general principles, with solutions that are “in conformity with the general principles on which [the Convention] is based”.107

VII. Opting-in to the CISG As stated, the CISG provides for the possibility of the parties excluding (totally or partially) its application. The Convention does not, however, address the issue of whether the parties may make the Convention applicable when it would otherwise not apply,108 that is, where the prerequisites for application are not met.109 As pointed out in the draft Digest, this issue did not arise at all under the ULIS, which included a provision, Article 4,110 that expressly provided for

107

Article 7(2). For a discussion of this problem, see also Audit, supra note 9, at 40; Ferrari, supra note 11, at 124-26. 109 Note, that according to Bonell, supra note 8, at 63-64, the issue of “opting-in” arises only where State courts are involved, since generally the parties are not allowed to select by virtue of a choice of law an international convention, instead of a particular domestic law. “The situations may be different if the parties agree to submit the disputes arising from their contract to arbitration. Arbitrators are not necessarily bound by a particular domestic law. This is self-evident, if they are authorized by the parties to decide ex aequo et bono ... But even in the absence of such an authorization there is a growing tendency to permit arbitrators to base their decisions on principles and rules different from those adopted by State courts. This tendency has recently received a significant confirmation by the UNCITRAL Model Law on International Commercial Arbitration, where it is expressly stated that “[t]he arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute” (Article 28[1]) ... Following this approach the parties to an international contract would be free to indicate in the Convention the ‘rules of law’ according to which the arbitrators shall decide any dispute, with the result that the Convention would directly apply regardless of whether or not the positive and negative conditions for this application are fulfilled in the single case”. 110 See Article 4 ULIS: The present law shall also apply where it has been chosen as the law of the contract by the parties, whether or not their places of business or their habitual residences are in different States and whether or not such States are Parties to the Convention dated the 1st day of July 1964 relating to a Uniform Law on the International Sale of Goods, to the extent that it does not affect the application of any mandatory provisions of the law which would have been applicable if the parties had not chosen the Uniform Law. 108

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the possibility of “opting-in”.111 However, this omission should not be interpreted as preventing the parties from doing so under the CISG.112 This is evidenced by the fact that a proposal was made by the former German Democratic Republic,113 under which the Convention would apply even where the preconditions for its application were not met, as long as the parties wanted it to be applicable. This proposal was rejected on the sole ground that it was not necessary,114 because of the already existing principle of party autonomy.115 More recently, this view was confirmed by a Chinese court which applied the CISG by virtue of the parties’ opting-in under a contract for the sale of fish powder that otherwise would have fallen outside the CISG’s scope116 – a decision not referred to in the draft Digest.

111

For a reference to Article 4 of ULIS in scholarly writing relating to Article 6 CISG, see, e. g., Ferrari, supra note 8, at 182-183; Herber & Czerwenka, supra note 31, at 45; Honnold, supra note 30, at 82. 112 For the possibility of “opting-in”, see also Enderlein & Maskow, supra note 37, at 51 (stating that “the Convention can be interpreted in such a way that its application ... can be agreed. In this case the substantive and territorial, and hence personnel and time scope of application, can be extended”); Schlechtriem, supra note 35, at 36 (stating that “[n]ot only can the parties agree to reject the application of the Convention, but they can also agree to apply the Convention when the preconditions for application have not been met”); Winship, supra note 31, at 1. 34, stating that “[a]lthough the conference rejected an amendment which would have expressly permitted parties to derogate from Articles 2 and 3 the debate suggests that delegations could not agree on how to express the limitations on party autonomy required by “mandatory” national laws. Parties should not be foreclosed, therefore, from agreeing to have the convention apply to a transaction otherwise excluded as long as the policy behind the specific exclusion is not contravened”. 113 See Official Records of the United Nations Conference, supra note 30, at 86 (proposing to amend Article 6 to include the following: “Even if this Convention is not applicable in accordance with articles 2 or 3, it shall apply if it has been validly chosen by the parties”). 114 For similar reasoning, see Ferrari, supra note 11, at 125; Honnold, supra note 30, at 83; Magnus, supra note 9, at 145. 115 For this argument, see, e. g., the comments of the delegate of the Republic of Korea at the Vienna Conference, reported in Official Records of the United Nations Conference, supra note 30, at 252 (stating that “the provision proposed by the [former] German Democratic Republic was not necessary because of the principle of the autonomy of the will of the parties. It [is] thus always possible for the parties to decide to apply the Convention, even in the cases covered by articles 2 and 3”). 116 See Xiamen Intermediate People’s Court, China, 5 September 1994 (published in English at www.unilex.info).

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As far as the significance of the parties’ “opting-in” is concerned, it must be emphasized that by virtue of “opting-in” the Convention becomes part of contract in a manner not unlike any other contractual clause,117 as there are no private international law rules that allow “opting-in” to have a different value. Consequently, it can be presumed that “[t]he mandatory rules of the applicable law are ... not affected by this [opting-in]”.118 117

For a similar statement, see Audit, supra note 9, at 40; Luzzatto, supra note 25, at 511-12. Enderlein & Maskow, supra note 37, at 51. For a similar conclusion, see Bonell, supra note 13, at 19, stating that the result of the parties’ “opting-in” “will be that the individual provisions of the Convention like any other contractual term may bind the parties only to the extent that they are not contrary to mandatory rules of the proper law of contract, i. e., the domestic law which by virtue of the rules of private international law of the forum governs the transaction in question”. See also Grigera Naon, supra note 163, at 101 (stating the same); Herber & Czerwenka, supra note 31, at 45 (stating the same); Honnold, supra note 30, at 134 (stating that “[r]ules of domestic law that are ‘mandatory’ are not disturbed when the Convention becomes applicable by virtue of an agreement by the parties”); Magnus, supra note 9, at 111; Sacerdoti, supra note 11, at 746 (stating the same). Note, however, that a similar statement had already been made at the Vienna Conference. See Official Records of the United Nations Conference, supra note 30, at 252, reporting the following statement by the Egyptian delegate: [t]he draft amendment was an attractive one but was unnecessary because of the principle of the autonomy of the will of the parties. If the latter agreed to apply the Convention, even in cases where it would normally not apply, their wish should be respected. Naturally, if the applicable law did not admit certain provisions of the Convention, that law would prevail. But is was not for the Convention to settle this question. 118

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Interpretation of the Convention and gap-filling: Article 7 Franco Ferrari* I. Introduction It is common knowledge that in order to create legal uniformity, it is insufficient merely to devise and enact uniform law instruments,1 because “even when outward uniformity is achieved ..., uniform application of the agreed rules is by no means guaranteed, as in practice different countries almost inevitably come to put different interpretations upon the same enacted words”.2 In order to reduce the risk of diverging applications of a single text, that text must also be interpreted uniformly, since, as stated by Viscount Simonds on behalf of the House of Lords in Scruttons Ltd. v. Midland Silicones Ltd.,3 “it would be deplorable if the nations should, after protracted negotiations, reach agreement ... and that their several courts should then disagree as to the meaning of what they appeared to agree upon”.4 The drafters of the CISG (as well as those of many other uniform law conventions, such as the 1980 Rome Convention on the Law Applicable to Contractual Obligations and the 1988 UNIDROIT Conventions on Inter-

*

Professor of International Law, Verona University School of Law. For similar affirmations, see D. Martiny, Autonome und einheitliche Auslegung im Europischen Zivilprozeßrecht, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 427 (1981); Lisa M. Ryan, The Convention on Contracts for the International Sale of Goods: Divergent Interpretations, 4 Tul. J. Int’l & Comp. L. 101 (1995); Michael F. Sturley, International Uniform Law in National Courts: The Influence of Domestic Law in Conflicts of Interpretation, 27 Va. J. Int’l L. 731 (1989). 2 R.J.C. Munday, Comment, The Uniform Interpretation of International Conventions, 27 Int’l & Comp. L.Q. 450 (1978). 3 House of Lords, United Kingdom, 6 December 1961 (Scruttons Ltd. v. Midland Silicones Ltd. 1962 A.C. 471). 4 For similar statements see F. Ferrari, La vendita internazionale. Applicabilit ed applicazioni della Convenzione di Vienna del 1980 10 f. (1997). 1

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national Factoring and International Financial Leasing5), were aware of this problem, which is why they inserted Article 7 into the Convention. This provision is designed to help reach the uniformity they aimed at. The relevant part of the provision states that in interpreting the CISG “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade”.6 Article 7 is one of the CISG provisions most often addressed by commentators, since it deals not only with the interpretation of the CISG,7 but also with gap-filling.8 5

See Article 18 of the EEC Convention on the Law Applicable to Contractual Obligations, reprinted in 19 I.L.M. 1496 (1980); Article 4 of the UNIDROIT Convention on International Factoring, reprinted in 27 I.L.M. 945 (1988); Article 6 of the UNIDROIT Convention on International Financial Leasing, reprinted in 27 I.L.M. 933 (1988). 6 Art. 7(1) CISG. For identical provisions, see art. 4(1) of the International Factoring Convention, and art. 6(1) of the International Financial Leasing Convention, supra note 5. 7 For papers dealing with the interpretation of the CISG, see J. Adame Goddard, Reglas de interpretacion de la Convencion sobre Compraventa Internacional de Mercaderias, Revista de investigaciones juridicas 9 ff. (1990); M.J. Bonell, L’interpretazione del diritto uniforme alla luce dell’art. 7 della Convenzione di Vienna sulla vendita internazionale, Rivista di diritto civile 221 ff. (1986/II); V. Susanne Cook, The Need for Uniform Interpretation of the 1980 United Nations Convention on Contracts for the International Sale of Goods, 50 U. Pitt. L. Rev. 197 ff. (1988); F. Diedrich, Autonome Auslegung von Internationalem Einheitsrecht. Computersoftware im Wiener Kaufrecht (1994); Franco Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int’l & Comp. L. 183 ff. (1994); Franco Ferrari, CISG Case Law: A New Challenge for Interpreters?, 17 J.L. & Com. 245 ff. (1998); Franco Ferrari, Interprtation uniforme de la Convention de Vienne de 1980 sur la vente internationale, Revue internationale de droit compare 813 ff. (1996); Franco Ferrari, Brevi considerazioni critiche in materia di interpretazione autonoma ed applicazione uniforme della convenzione di Vienna, Rivista di diritto civile 81 ff. (1998/II); Richard Happ, Anwendbarkeit vlkerrechtlicher Auslegungsmethoden auf das UN-Kaufrecht, Recht der internationalen Wirtschaft 376 ff. (1997); Richard Happ & Marianne Roth, Interpretation of Uniform Law Instruments According to Principles of International Law, 1997 U. L. Rev. 702 ff.; E.A. Kramer, Uniforme Interpretation von Einheitsprivatrecht – mit besonderer Ber
cksichtigung von Art. 7 UNKR, sterreichische Juristische Bltter 137 ff. (1997); Phanesh Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, 6 Minn. J. Global Trade 105 ff. (1997); U. Magnus, Whrungsfragen im Einheitlichen Kaufrecht. Zugleich ein Beitrag zu seiner L
ckenf
llung und Auslegung, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 116 ff. (1989); D. Maskow, Zur Auslegung des Einheitskaufrechts der UNOKaufrechtskonvention von 1980, in Nationales Komitee f
r Rechtswissenschaft der DDR (ed.), Nationalberichte zum XII. Internationalen Kongreß f
r Rechtsvergleichung (Sydney/

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As will be shown infra, Article 7, and more specifically paragraph (1) thereof, is also the provision on the basis of which the efforts towards the elaboration of the draft Digest attempted during the Pittsburgh Conference and in this book can be justified. The Digest’s ultimate goal, as can be evinced from the Report of the UNCITRAL on its Thirty-Fourth Session, is “to promote and ensure a uniform interpretation and application” of the CISG.9

II. The issue of interpretation (Article 7(1)) A. Autonomous interpretation As already mentioned, Article 7(1) provides that, in interpreting the CISG, “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade”. Many commentators construe the reference to the obligation to regard the Convention’s “international character” in its interpretation to mean that the CISG is to be interpreted “autonomously”,10 not “nationaMelbourne, 18. – 26. 8. 1986) 5 ff. (1986); M.d.P. Perales Viscasillas, Una aproximacion al articulo 7 de la Convencion de Viena de 1980 sobre compraventa internacional de mercaderias, Quadernos de derecho y comercio 55 ff. (1995); A. Rizzi, Interpretazione e integrazione della legge uniforme sulla vendita internazionale di cose mobili, Rivista di diritto privato 237 ff. (1997); Michael P. van Alstine, Dynamic Treaty Interpretation, 146 U. Pa. L. Rev. 687 ff. (1998); Tom s Vazquez-Lepinette, The Interpretation of the 1980 Vienna Convention on International Sales, Diritto del commercio internazionale 377 ff. (1995). 8 For papers on gap-filling under the CISG, see, James J. Callaghan, Convention on Contracts for the International Sale of Goods: Examining the Gap-filling Role of CISG in two French Decisions, 15 J.L. & Com. 183 ff. (1995); F. Diedrich, L
ckenf
llung im Internationalen Einheitsrecht – Mglichkeiten und Grenzen richterlicher Rechtsfortbildung im Wiener Kaufrecht, Recht der internationalen Wirtschaft 353 ff. (1995); B. Frigge, Externe L
cken und internationales Privatrecht nach dem UN-Kaufrecht (art. 7 Abs. 2) (1994); Alejandro Garro, The Gap-Filling Role of the UNIDROIT Principles in International Sales Law, 69 Tul. L. Rev. 1149 ff. (1995); J. Hellner, Gap-Filling by Analogy: Art. 7 of the U.N. Sales Convention in Its Historical Context, in Studies in International Law: Festskrift till Lars Hjerner 219 ff. (J. Ramberg ed., 1990); Mark N. Rosenberg, The Vienna Convention: Uniformity in Interpretation for Gap-Filling – An Analysis and Application, Austl. Bus. L. Rev. 442 ff. (1992); H. Stoll, Regelungsl
cken im Einheitlichen Kaufrecht und IPR, Praxis des internationalen Privat- und Verfahrensrechts 75 ff. (1993). 9 Report of the United Nations Commission on International Trade Law on its ThirtyFourth Session, 25 June – 13 July, 2001, UN document A/56/17, at 74, ¶ 391. 10 See, among others, B. Audit, La vente internationale de marchandises 47 (1990); M.J. Bonell, Commento all’art. 7 della Convenzione di Vienna, Nuove Leggi civili commentate 21 (1989); Frank Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous

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listically”, i. e. not in the light of domestic law.11 This is the case despite the fact that, once put in force by individual states, international conventions become part of their domestic law.12 Consequently, one should not have recourse to any domestic concept in order to solve interpretive problems arising under the CISG.13 Many commentators have argued that what has just been said is true even where the expressions employed by the CISG (but this is also true for any uniform law convention)14 are textually the same as expressions which within a particular legal system have a specific meaning – for example, “avoidance”, “reasonable”, “good faith”, “trade usages”, etc. Such expressions have to be considered independent15 and different16 from the domestic concepts designated by the same words,17 since the Interpretation: Software Contracts under the CISG, 8 Pace Int’l L. Rev. 303 ff. (1996); F. Ferrari, Il factoring internazionale 106 ff. (1999) (with respect to the 1988 Unidroit Convention on International Factoring); M. Jametti Greiner, Der Vertragsabschluß, in: Das Einheitliche Wiener Kaufrecht. Neues Recht f
r den internationalen Warenkauf 42 (H. Hoyer ed., 1992). 11 See similarly John O. Honnold, The Sales Convention in Action – Uniform International Words: Uniform Applications?, 8 J.L. & Com. 208 (1988), where the author states that “one threat to international uniformity in interpretation is a natural tendency to read the international text through the lenses of domestic law”. See also Andrew Babiak, Defining ‘‘Fundamental Breach’’ under the United Nations Convention on Contracts for the International Sale of Goods, 6 Temp. Int’l & Comp. L.J. 117 (1992). 12 Compare S. Carbone, L’ambito di applicazione ed i criteri interpretativi della convenzione di Vienna, in La vendita internazionale. La Convenzione di Vienna dell’11 aprile 1980 84 (1981); W. Witz, H. Ch. Salger, M. Lorenz, International Einheitliches Kaufrecht 81 (2000). 13 Accord, John O. Honnold, Uniform Law for International Sales under the United Nations Convention 89 (3d ed. 1999), stating that “the reading of a legal text in the light of the concepts of our domestic legal system [is] an approach that would violate the requirement that the Convention be interpreted with regard to its international character”. For a similar affirmation in case law, see Corte Suprema di Cassazione, Italy, 24 June 1968 (Rivista di diritto internazionale privato e processuale 914 (1969)). 14 For a detailed discussion of the interpretation of uniform law conventions as well as of the issues referred to in the text, see S. Bariatti Interpretazione delle convenzioni internazionali di diritto uniforme (1985); B.W.M. Trompenaars, Pluriforme unificatie en uniforme interpretatie – in het bijzonder de bijdrage van UNCITRAL aan de internationale unificatie van het privaatrecht (1989). 15 For this affirmation, see, e. g., R. Herber, B. Czerwenka, Internationales Kaufrecht. Kommentar zum bereinkommen der Vereinten Nationen vom 11. April 1980
ber Vertrge
ber den internationalen Warenkauf 47 (1991). 16 See Franco Ferrari, The Relationship Between the UCC and the CISG and the Construction of Uniform Law, 29 Loy. L.A. L. Rev. 1026 (1996). 17 For a similar statement, see also A. Lanciotti, Norme uniformi di conflitto e materiali nella

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expressions employed by uniform law conventions such as the CISG are intended to be neutral.18 Indeed, it has often been noted that the choice of one expression rather than another is generally the result of a compromise19 and does not correspond to the adoption of a concept peculiar to a specific domestic law,20 at least where it is not apparent from the legislative history that the drafters wanted a specific concept to be interpreted in light of a specific domestic law.21 The policy behind the autonomous interpretation principle also precludes recourse to domestic interpretive techniques in order to solve problems,22 since that would lead to results which conflict with the other premise upon which the interpretation of the CISG is to be based – the need to promote uniformity in its application.23

disciplina convenzionale della compravendita 287 (1992). Contra, F. van der Velden, Indications on the Interpretation by Dutch Courts of the United Nations Convention on Contracts for the International Sale of Goods, in Netherlands Reports to the Twelfth Congress of Comparative Law: Sidney-Melbourne (1986), 33 (1987). 18 The presumed neutrality of the CISG’s language has also been pointed out by Michael J. Bonell, Art. 7, in Comment. Int’l Sales L. 74 (M.C. Bianca & M.J. Bonell eds., 1987) (stating that when “drafting the single provisions these experts had to find sufficiently neutral language on which they could reach a common understanding”). 19 Diedrich, supra note 10, at 310, even states that “the [entire] text of the CISG consists of unique, supranational collective terms formed out of compromises between state delegates based on several systems of laws”. For statements to the effect that the provisions of the CISG are the result of a compromise, see, among others, Eva Diederichsen, Commentary to Journal of Law & Commerce Case I, Oberlandesgericht Frankfurt am Main, 14 J.L. & Com. 177 (1995); Ferrari, Uniform Interpretation, supra note 7, at 201; Koneru, supra note 7, at 105; Barton S. Selden, Lex Mercatoria in European and U.S. Trade Practice: Time to Take a Closer Look, 2 Ann. Surv. Int’l & Comp. L. 121 (1995). 20 See F. Enderlein et al., Internationales Kaufrecht: Kaufrechtskonvention, Verjhrungskonvention, Vertretungskonvention, Rechtsanwendungskonvention 61 (1991). 21 For a similar statement, see Ferrari, supra note 16, at 1021 (using several concrete examples to illustrate the negative consequences that can arise from the use of domestic concepts). For an earlier statement, see V. Zannini, Questioni sull’uniformit di interpretazione del diritto uniforme, Rivista di diritto internazionale privato e processuale 336 (1971) (with reference to a different uniform law convention). 22 For similar statements, see, e. g., Bonell, supra note 18, at 72, stating, in respect of the CISG, that “[t]o have regard to the ‘international character’ of the Convention means first of all to avoid relying on the rules traditionally followed in interpreting ordinary domestic legislation”. 23 For similar statements, see Ferrari, Uniform Interpretation, supra note 7, at 202.

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Similar statements can now be found in CISG case law as well, as evidenced by the draft Digest. Several courts have expressly referred to the need to take into account the CISG’s international character.24 One United States court, like several before it,25 interpreted that need to mean that “although the CISG is similar to the UCC with respect to certain provisions, ... it would be inappropriate to apply UCC case law in construing contracts under the CISG”.26 According to various Swiss courts,27 the need to take into account the CISG’s international character obliges one to interpret the CISG autonomously and not in light of any domestic law. Similar statements can also be found in a recent decision rendered by the German Supreme Court.28 On an earlier occasion, that same court29 had stated that generally it did not matter whether there were differences between domestic German law and the CISG, since one was not allowed to interpret the CISG in light of domestic law in any case. This, however, is merely a different way of saying that the CISG has to be interpreted autonomously. The draft Digest shows, however, that there are also courts that have – in this author’s opinion, wrongly – taken the opposite view, i. e., that case law interpreting analogous domestic law provisions may also inform a court where the language of the relevant provisions of the CISG tracks that of the 24

See, e. g., U.S. District Court for the Eastern District of Louisiana, United States, 17 May 1999, CLOUT case No. 418 (Medical Marketing International, Inc. v. Internazionale Medico Scientifica, 1999 U.S. Dist. LEXIS 7380) (“under CISG, the finder of fact has a duty to regard the ‘international character’ of the Convention and to promote uniformity in its application. CISG Article 7”); 2d Circuit U.S. Court of Appeals, United States, 6 December 1995, CLOUT case No. 138 (Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1028); Oberlandesgericht Frankfurt, Germany, 20 April 1994 CLOUT case No. 84, available at http:// 131.152.131.200/cisg/urteile/125.htm; Bezirksgericht Laufen, Switzerland, 7 May 1993 (Schweizerische Zeitschrift f
r internationales und europisches Recht 277 (1995)). 25 See 2d Circuit U.S. Court of Appeals, United States, 6 December 1995, CLOUT case No. 138 (Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1028) (stating that “UCC case law is not per se applicable”); U.S. Court of International Trade, United States, 24 October 1989 (Orbisphere Corp. v. United States, 726 F. Supp. 1355) (stating the same). 26 U.S. District Court for the Southern District of New York, United States, 6 April 1998, CLOUT case No. 413 (Claudia v. Olivieri Footwear Ltd., 1998 U.S. Dist. LEXIS 4586). 27 See Handelsgericht Aargau, Switzerland, 11 June 1999, CLOUT case No. 333 (Schweizerische Zeitschrift f
r internationales und europisches Recht 117-118 (2000)); Bezirksgericht Laufen, Switzerland, 7 May 1993 (Schweizerische Zeitschrift f
r internationales und europisches Recht 277 (1995)). 28 Bundesgerichtshof, Germany, 24 March 1999, CLOUT case No. 271 (Recht der internationalen Wirtschaft 617 ff. (1999)). 29 Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171 (Neue Juristische Wochenschrift 2364 ff. (1996)).

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domestic law, even though the domestic law “is not per se applicable”.30 This line of cases clashes with the CISG’s goal of promoting uniformity. Unfortunately, the draft Digest does not criticize those decisions, just as it does not criticize other incorrect decisions, due to its limited scope. B. Resort to foreign case law: Practical issues Considering the CISG an “autonomous body of rules” does, however, not per se guarantee uniformity.31 In order to achieve the CISG’s ultimate goal of uniformity,32 it is also necessary, as pointed out by courts, to consider the CISG’s legislative history33 and to take into account international scholarly writing.34 According to many commentators, it is even more important to resort to the practice of other jurisdictions,35 i. e., to “what others have already done”.36 In others words, uniformity can only be achieved if one also considers foreign case law.37 The interpreter must therefore consider decisions rendered by 30

See, e. g., 2d Circuit U.S. Court of Appeals, United States, 6 December 1995, CLOUT case No. 138 (Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1028). For a more recent case stating the same, see 4th Circuit U.S. Court of Appeals, United States, 21 June 2002 (Schmitz-Werke v. Rockland, 37 Fed. App. 687). 31 For a very similar statement, see Bonell, supra note 18, at 74-75. 32 It has often been pointed out that the CISG’s ultimate goal is uniformity. See, e. g., Susie A. Malloy, The Inter-American Convention on the Law Applicable to International Contracts: Another Piece of the Puzzle of the Law Applicable to International Contracts, 19 Fordham Int’l L.J. 667 n. 17 (1995). 33 See Landgericht Aachen, Germany, 20 July 1995, available at http://www.jura.unifreiburg.de/ipr1/cisg/ (referring to the legislative history of article 78); Oberlandesgericht Frankfurt, Germany, 20 April 1994, CLOUT case No. 84 (Recht der internationalen Wirtschaft 593 f. (1994)). 34 Oberster Gerichtshof, Austria, 13 April 2000, available at http://www.cisg.at/ 2_10000w.htm. 35 See R. Herber, Art. 7, in Kommentar zum Einheitlichen UN-Kaufrecht 94 (P. Schlechtriem ed., 2d ed., 1995); Peter Winship, Changing Contract Practices in the Light of the United Nations Sales Convention: A Guide For Practitioners, 29 Int’l Law. 528 (1995). 36 D. Maskow, The Convention on the International Sale of Goods from the Perspective of the Socialist Countries, in La vendita internazionale, supra note 12, at 54. 37 See Joanne M. Darkey, A U.S. Court’s Interpretation of Damage Provisions Under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step Towards an International Jurisprudence of CISG or a Missed Opportunity, 15 J.L. & Com. 142 (1995); Helen E. Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale Int’l L.J. 7 (1993); V. Heuz, La vente internationale de marchandises. Droit uniforme 79 (1992); Elizabeth Hayes Patterson, United Nations

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judicial bodies from foreign jurisdictions,38 since it is possible that the same or similar questions have already been examined by other States’ courts.39 Commentators derive this obligation directly from that part of Article 7(1) that reads: “regard is to be had to ... the need to promote uniformity in [the Convention’s] application”. Requiring interpreters to consider foreign decisions, however, creates practical difficulties, for two main reasons: foreign case law is not readily available, i. e. it cannot easily be retrieved, and even where it can be retrieved, it is often written in a language unknown to the interpreter. In order to overcome these difficulties, many steps have been taken.40 The Pace University Institute of International Commercial Law, for instance, has developed a web-site41 which at no cost provides not only the text of the CISG, a current list of Contracting States, and the most up-to-date bibliography on the CISG, but also case law from all over the world.42 Similar web-sites have been created in Austria,43 Belgium,44 Germany,45 France,46 Switzerland,47 Spain48 and elsewhere.49 Convention on Contracts for the International Sale of Goods: Unification and the Tension Between Compromise and Domination, 22 Stan. J. Int’l L. 283 (1986). 38 See most recently, V. Susanne Cook, The U.N. Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricity, 16 J.L. & Com. 259 (1997). 39 See G. Reinhart, UN-Kaufrecht. Kommentar zum bereinkommen der Vereinten Nationen vom 11. April 1980
ber den internationalen Warenkauf 30 (1991). 40 For an overview of the steps taken, see also R. Herber, CLOUT, Unilex and andere Verffentlichungen zum internationalen Kaufrecht, Recht der Internationalen Wirtschaft 502 ff. (1995). 41 See http://cisgw3.law.pace.edu. 42 For a description of this as well as other Internet sites dealing with the CISG, see, e. g., Camilla Baasch Andersen, Furthering the Uniform Application of the CISG: Sources of Law on the Internet, 10 Pace Int’l L. Rev. 403 ff. (1998); Claire M. Germain, The United Nations Convention on Contracts for the International Sale of Goods: Guide to Research and Literature, 1995 Cornell Rev. on the CISG 117 ff. (1995); Albert H. Kritzer, The Convention on Contracts for the International Sale of Goods: Scope, Interpretation and Resources, 1995 Cornell Rev. on the CISG 147 ff. (1995). 43 See http://www.cisg.at/. 44 See the web-site created by the Institute for International Trade Law of the Katholieke Universiteit Leuven: http://www.law.kuleuven.ac.be/int/tradelaw/WK/WKhome.html. 45 See the web-site created by the Institute of Foreign and International Law of Freiburg University: http://www.jura.uni-freiburg.de/iprl/cisg. 46 See the web-site created at Saarbr
cken University: http://www.jura.uni-sb.de/FB/LS/ Witz/cisg.htm. 47 See http://131.152.131.200/.

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The Centre for Comparative and Foreign Law Studies in Rome has put together UNILEX,50 a “reasoned collection of case law and an international bibliography on the CISG”,51 which includes features similar to those found on the Internet sites mentioned above, and which is now available for free on the Internet.52 The most “official” efforts to neutralize the danger of diverging interpretations and applications of the CISG by making foreign decisions (or at least abstracts of such decisions) available are, however, the efforts made by UNCITRAL. After rejecting the idea of creating an international tribunal to which all cases should be referred, which some considered to be the only way to ensure uniformity,53 UNCITRAL, in its twenty-first working session,54 decided to adopt a procedure in which the decisions rendered in the application of the CISG in the various States are gathered by so-called national correspondents. The national correspondents then have to “send to the UNCITRAL Secretariat the full text of the decisions in their original languages” and “[t]he Secretariat will then make these decisions accessible to

48

See http://www.uc3m.es/cisg. For other Internet sites dedicated to the CISG, see the links provided at http:// www.cisg.law.pace.edu/cisg/links.html. 50 For a comment on UNILEX as a tool to promote the CISG’s uniform application, see F. Liguori, “UNILEX”: A Means to Promote Uniformity in the Application of CISG, Zeitschrift f
r europisches Privatrecht 600 ff. (1996). 51 Michael J. Bonell, F. Liguori, The U.N. Convention on the International Sale of Goods: A Critical Analysis of Current International Case Law (Part I), Unif. L. Rev. 147 n. 1 (1996). 52 See www.unilex.info. 53 This issue arose under the 1964 Hague Conventions as well. See, e. g., R.H. Graveson, The International Unification of Law, 16 Am. J. Comp. L. 12 (1968), where the author states that “[a]llowing for the necessary and inevitable divergence of human decision, a problem still remains of ensuring that any tendencies towards divergence in the application of uniform laws shall be corrected at appropriate times and in suitable ways. How then shall continuing uniformity be ensured? Shall it be done by giving ultimate jurisdiction to an international court, such as the International Court of Justice?” However, “a similar solution can hardly be conceived with respect to [the Vienna Sales] Convention. This Convention, like other international conventions elaborated under the auspices of the United Nations or other international organizations ... is intended to receive a world-wide acceptance. To expect that all adhering States, notwithstanding their different social, political and legal structure, could even agree on conferring to an international tribunal the exclusive competence to resolve divergences between the national jurisdictions in the interpretations of the uniform rules, would be entirely unrealistic”. Bonell, supra note 18, at 89. 54 See Report of the United Nations Commission on International Trade Law on its TwentyFirst Session, New York, 1988, at 98 ff. 49

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any interested person”.55 One way that UNCITRAL makes the decision accessible is by preparing abstracts of them, translating the abstracts into the various official languages of the United Nations, and distributing the papers in which they are published, the so-called CLOUTs,56 to the interested parties.57 The most recent effort by UNCITRAL, however, is the UNCITRAL Digest, the focus of the Pittsburgh Conference and this volume. As the purpose of the Digest, the parameters for its elaboration and its limits have already been dealt with in detail by Secretary Sekolec, it may suffice to refer here to his paper. Although the aforementioned efforts may appear to have more theoretical than practical value, two recent Italian court decisions show that some of these efforts have begun to yield concrete results in practice (of course, as far as the Digest is concerned, as it has not yet been publicized, one will have to wait before it starts producing practical results). In the most recent case, decided on January 8, 2003 (and therefore not cited in the draft Digest), the Tribunale di Rimini58 decided a dispute concerning a contract governed by the CISG by resorting to about 30 foreign court decisions that had been published not only in law reviews, but also on the various Internet sites referred to earlier. In the other Italian case, decided in 2000, the Tribunale di Vigevano59 had to decide a dispute concerning a contract concluded between a German party and an Italian one. In dealing with issues such as the applicability of the CISG, its exclusion, its rules on non-conformity, and the issue of burden of proof, the Vigevano court quoted even more foreign court decisions (40 to be exact) published both in law reviews and on the most disparate Internet sites.60 55

Honnold, supra note 13, at 98. Note that the CLOUTs (Case Law on UNCITRAL Texts) are available at http// www.un.or.at/uncitral/. 57 For a reference to this procedure, see also Michael J. Bonell, International Uniform Law in Practice – Where the Real Trouble Begins, 38 Am. J. Comp. L. 878 (1990); Herber, Czerwenka, supra note 15, at 48. 58 Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003). 59 See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2001)). 60 For comments on the decision referred to in the text, see F. Ferrari, Problematiche tipiche della Convenzione di Vienna sui contratti di vendita internazionale di beni mobili risolte in una prospettiva uniforme, Giurisprudenza italiana, 2001, 281 ff.; F. Ferrari, Internationales Kaufrecht einheitlich ausgelegt – Anmerkungen anlßlich eines italienischen Urteils (Trib. Vigevano, 12. 07. 2000), Internationales Handelsrecht 56 ff. (2001); F. Ferrari, Applying the CISG in a Truly Uniform Manner: Tribunale di Vigevano, 12 July 2000, Unif. L. Rev. 203 ff. 56

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Although these two court decisions are without doubt exceptional for the number of foreign court decisions they refer to, they are not the only ones in which foreign court decisions have been cited, as evidenced by the draft Digest comments relating to Article 7. One Belgian court,61 for instance, cited two foreign court decisions, as did an Italian court.62 In other cases, courts have referred to one foreign court decision in reaching their decisions.63 C. Resort to foreign case law: Methodological issues The basic methodological problem created by the need to refer to foreign case law concerns the degree of its authority. Is foreign case law to be treated as binding or as having merely persuasive value? According to one author, “[i]f there is already a body of international case law”64 it should have the authority of precedent. Another author even speaks of a “supranational stare decisis”65 which can be achieved if “common law and civil law judges ... reverse their approaches in a number of ways”,66 that is, for example, if the civil law judge starts to “search other cases throughout (2001); F. Ferrari, Tribunale di Vigevano: Specific Aspects of the CISG Uniformly Dealt With, 20 J.L. & Com. 225 ff. (2001); F. Rosati, Anmerkung zu Trib. Vigevano, 12. 7. 2000, Internationales Handelsrecht 78 ff. (2001); N. Spiegel, Exclusion tacite de la CVIM par les parties et dnonciation des dfaits de conformit, Recueil Dalloz 395 f. (2002); A. Veneziano, Mancanza di conformit delle merci ed onere della prova nella vendita internazionale: un esempio di interpretazione autonoma del diritto uniforme alla luce dei precedenti stranieri, Diritto del commercio internazionale 509 ff. (2001). 61 Rechtbank Koophandel Hasselt, Belgium, 2 December 1998, available at http://www.law. kuleuven.ac.be/int/tradelaw/WK/1998-12-02.htm. 62 Tribunale Civile di Cuneo, Italy, 31 January 1996, available at http://www.unilex.info/ case.cfm?pid=1&id=160&do=case. 63 See U.S. District Court for the Eastern Division of the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880, availableathttp://www.unilex.info/case.cfm?pid=1&do=case&id=746&step=FullText;Rechtbank Koophandel Hasselt, Belgium, 6 March 2002, available at http://www.law.kuleuven. ac.be/int/tradelaw/WK/2002-03-06s.htm; Oberster Gerichtshof, Austria, 13 April 2000, available at http://www.cisg.at/2_10000w.htm; Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico, 2000, 932 f.); Cour d’Appel Grenoble, France, 23 October 1996, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=222& step=FullText. 64 Bonell, supra note 18, at 91. 65 Lawrence A. Dimatteo, An International Contract Law Formula: The Informality of International Business Transactions Plus the Internationalization of Contract Law Equals Unexpected Contractual Liability, 23 Syracuse J. Int’l L. & Com. 79 (1997).

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the world and follow precedent in much the same way the common law judge does within her national system”.67 One must agree that in order to obtain uniformity civil law judges should start to “approximate their common law counterparts in increasing their reliance on [case law]”,68 just as common law judges should increasingly take into account legal writing as well as legislative history. This does not mean, however, that one can attribute the value of precedent to uniform foreign case law, much less advocate a doctrine of “supranational stare decisis”.69 From a substantive point of view, stating that uniform foreign case law should be treated as binding precedent does not take into account that a uniform body of case law does not per se guarantee the correctness of a substantive result,70 as evidenced by the criticism directed toward the large body of CISG case law which has applied the rate of interest of the domestic law designated by the rules of private international law.71 66

Lawrence A. Dimatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, 22 Yale J. Int’l L. 133 (1997). 67 Id. 68 Vivian Grosswald Curran, The Interpretive Challenge to Uniformity, 15 J.L. & Com. 177 (1997). 69 For this criticism, see most recently F. Ferrari, Art. 7, in Kommentar zum UN-Kaufrecht – CISG 128 (P. Schlechtriem ed., 3d ed. 2000). 70 For similar remarks, albeit with reference to a different uniform law convention, see C.W. Wilhelm Canaris, Die Bedeutung allgemeiner Auslegungs- und Rechtsfortbildungskriterien im Wechselrecht, JuristenZeitung 543 ff. (1987). 71 For case law applying the rate of interest of the domestic law applicable by virtue of the rules of private international law, see, most recently, Landgericht Stendal, Germany, 12 October 2000 (Internationales Handelsrecht 31 (2001)); Oberlandesgericht Stuttgart, Germany, 28 February 2000 (OLG-Report Stuttgart 407 f. (2000)); Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico 932 f. (2000)); ICC Court of Arbitration, Case No. 8611, 1997, available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=229&step=FullText, full text English translation available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/978611i1.html); Tribunal civil de la Gl ne, Switzerland, 20 May 1996, abstract available in Unilex at http://www.unilex.info/case. cfm?pid=1&do=case&id=239&step=Abstract; Unilex; Amstgericht Tessin, 12 February 1996 (Schweizerische Zeitschrift f
r internationales und europisches Recht 135 f. (1996)). For papers dealing with the issue of interest under the CISG, see H. Asam, Ersatz des Zins- und Geldentwertungsschadens nach dem Wiener Kaufrechts
bereinkommen vom 11. 4. 1980 bei deutsch-italienischen Kaufvertrgen, Recht der internationalen Wirtschaft 841 ff. (1989); F. Ferrari, Uniform Application and Interest Rates Under the 1980 Vienna Sales Convention, 24 Ga. J. Int’l & Comp. L. 467 ff. (1995); F. Ferrari, Le taux d’intrÞt applicable au montant des arrirs dans la jurisprudence concernant la CVIM, Revue de droit des affaires internationals 86 ff. (1999); F. Ferrari, Tasso degli interessi ed applicazione uniforme della convenzione di

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From a methodological point of view, the suggestion to create a system of “supranational stare decisis” similar to that existing in common law countries must be criticized, since it does not take into account the rigid hierarchical structure of the various court systems in which any “national” stare decisis doctrine is embedded. It is the lack of a similar hierarchy on an international level that does not allow for the creation of a “supranational stare decisis” doctrine.72 Indeed, how should one decide whether a specific court is, from a hierarchical point of view, a lower court in respect to the court of a different country? And how, in the scheme of things, would arbitral tribunals fit into the hierarchy? Are they to be considered hierarchically superior to courts of first instances, appellate courts or even supreme courts? And what about the courts of Non-Contracting States? Should their decisions be taken into account at all? In order to be able to solve these problems, foreign case law should always be considered as having merely persuasive value.73 This view has been confirmed by various Italian court decisions, one of which expressly stated that “foreign case law, contrary to what a minority of authorities have argued, is not binding on this tribunal. It must nevertheless be considered in order to assure and to promote uniform enforcement of the CISG”.74 This result, in essence, is what Article 7(1) of the CISG imposes when it provides that “regard is to be had ... to the need to promote uniformity in its application”.75 Foreign case law – and therefore also the Digest – should be used as a source from which to draw either arguments or counterarguments.76 Vienna sui contratti de vendita internazionale, Rivista di diritto civile 277 ff. (1995); U. Kniger, Die Bestimmung der gesetzlichen Zinshhe nach dem deutschen Internationalen Privatrecht (1997); G. Reinhart, Flligkeitszinsen und UN-Kaufrecht, Praxis des internationalen Privat- und Verfahrensrechts 376 ff. (1991); D. Roßmeier, Schadensersatz und Zinsen nach UN-Kaufrecht – Art. 74 bis 78 CISG, Recht der internationalen Wirtschaft 407 ff. (2000); Christian Thiele, Interest on Damages and Rate of Interest Under Article 78 of the U.N. Convention on Contracts for the International Sale of Goods, 2 Vindobona J. Int’l Com. L. & Arb. 3 ff. (1998). 72 For this criticism, see also Ferrari, Brevi considerazioni critiche, supra note 7, at 81. 73 For this conclusion, see also Ferrari, supra note 69, at 128; Kramer, supra note 7, at 146; Witz, Salger, Lorenz, supra note 12, at 83. 74 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2001), English translation at 20 J.L. & Com. 209 ff. (2001)). See also Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Tribunale di Pavia, Italy, 29 December 1999, CLOUT case No. 380 (Corriere giuridico 932 f. (2000)). 75 Article 7(1) CISG (emphasis added). 76 For similar statements, see F. Enderlein, D. Maskow, International Sales Law 56 (1992), where the authors state that “[w]hat matters ... is not a prejudicial effect of rulings by

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Consequently, an arbitral award could have more influence on a specific issue than a decision of a supreme court of a country whose judges are not accustomed to dealing with international issues in general, and the CISG in particular. Similarly, a court decision of a Non-Contracting State could be more influential than that of a Contracting State. Furthermore, the obiter dicta to be found in one decision could impact the resolution of an issue more than the rationes decidendi of other court decisions. D. Good faith: Mere instrument of interpretation or more? According to Article 7(1) CISG, in interpreting its provisions one must have regard not only to the necessity of promoting the Convention’s uniform application, but also to the need for promoting the observance of good faith in international trade.77 This provision represents a compromise between the views of those representatives “who would have preferred a provision imposing directly on the parties the duty to act in good faith, and those who on the contrary were opposed to any explicit reference to the principle of good faith in the Convention”.78 The question this history raises is, how does one interpret the result of this compromise: is good faith relevant only with reference to the interpretation of the CISG, or is it also relevant as far as the parties’ behavior is concerned?

foreign courts or arbitrational tribunals and not that the decision taken by an organ, which by accident entrusted first to deal with a specific legal issue, is attached a particularly great importance; rather, the existing material in regard to relevant rulings has to be taken account of when giving the reasons for a decision”. 77 For papers dealing with good faith under the CISG, see, e. g., S. Keinath, Der gute Glauben im UN-Kaufrecht (1997); G. Lefebvre, La bonne foi dans la Convention des Nations Unies sur les contrats de vente internationale de marchandises, 27 Revue Juridique Thmis 561 ff. (1993); Ulrich Magnus, Remarks on Good Faith: The United Nations Convention on Contracts for the International Sale of Goods, 10 Pace Int’l L. Rev. 89 ff. (1998); E.N. Najork, Treu und Glauben im CISG (2000); Paul J. Powers, Defining the Undefinable: Good Faith and the United Nations Convention on the Contracts for the International Sale of Goods, 18 J.L. & Com. 333 ff. (1999). 78 Bonell, supra note 18, at 83-84; for similar affirmations, see Honnold, supra note 13, at 99, according to whom art. 7(1) “was adopted as a compromise between two divergent views: (a) Some delegates supported a general rule that, at least in the formation of the contract, the parties must observe principles of ‘fair dealing’ and must act in ‘good faith’; (b) Others resisted this step on the ground that ‘fair dealing’ and ‘good faith’ had no fixed meaning and would lead to uncertainty”.

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According to some authors, good faith is relevant solely as an additional tool of interpretation to which judges must resort and which must be employed by them to neutralize the danger of reaching inequitable results.79 One must note, however, that even if conceived as a mere instrument of interpretation, good faith may pose some problems and conflict with the “ultimate” goal of the Convention, i. e., the promotion of its uniform application. In fact, since the concept of good faith is very vague,80 several authors state that “courts will be unable to develop a common definition”.81 This will inevitably lead to differing interpretations of the Convention’s uniform provisions.82 This danger becomes apparent if one considers the variety of good faith definitions one can find in a comparative setting.83 For example, in the United States, where, by virtue of the influence of civil law teachings,84 the principle of good faith was adopted by both the Uniform Commercial Code85 and the

79

See, e. g., E. Allen Farnsworth, The Convention on the International Sale of Goods from the Perspective of the Common Law Countries, in La vendita internazionale, supra note 12, at 18; Honnold, supra note 13, at 99; Peter Winship, Commentary on Professor Kastely’s Rhetorical Analysis (Symposium Reflections), 8 Nw. J. Int’l L. & Bus. 631 (1988). 80 The vagueness of the concept of good faith has been criticized, for instance, by Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 289 (1984) (pointing out “the multiple meanings of good faith and the differing connotations the doctrine possesses in different legal systems”). 81 Isaak I. Dore & James E. Defranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 Harv. Int’l L.J. 63 (1982). For a similar conclusion, see also Gyula Eorsi, Problems of Unified Law on the Formation of Contracts for the International Sale of Goods, 27 Am. J. Comp. L. 314 (1979). 82 Regarding this risk, see Note, A Practitioner’s Guide to the United Nations Convention on Contracts for the International Sale of Goods, 16 Int’l L. & Pol’y 89 (1983) (“the vagueness of a good faith provision may create problems for courts trying to decide when and how to apply it; in addition, overuse or underuse of the principle may lead to inconsistent results or to outright abuse”). 83 For a comparative overview on good faith, see, e. g., Ralph A. Newman, The General Principles of Equity, in Equity in the World’s Legal Systems: A Comparative Study 589 ff. (Ralph A. Newman ed., 1973). 84 For a similar statement, see Honnold, supra note 13, at 100 (the “general requirements of ‘good faith’ is not [sic] typical of common-law statutory drafting; [it] reveals the unstated influence of some of the civil law codes”). 85 See U.C.C. § 1-203 (1978) (“Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement”.). For a detailed discussion of the good faith provision in the U.C.C., see Steven J. Burton, Good Faith Performance of a Contract Within Article 2 of the Uniform Commercial Code, 67 Iowa L. Rev. 1 ff. (1981); E. Allen Farnsworth, Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code, 30

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Restatement (Second) of Contracts,86 its area of operation is limited to the performance of the contract.87 In civil law systems, on the contrary, there is not only a “common law duty to perform in good faith”,88 but the good faith principle operates also with regard to the interpretation and the formation of contracts.89 However, “even where ... the principle as such is expressly stated with respect not only to performance but also to formation and interpretation of the contract ... its specific applications in practice may differ considerably”.90 Recall, for example, the importance of the good faith principle set down in § 242 of the German Civil Code.91 While some authors, as mentioned, hold that good faith operates solely as an instrument for the interpretation of the CISG, other authors affirm that the reference to the necessity of promoting the “observance of good faith in international trade”92 (Article 7(1)) is “also necessarily directed to the parties to each individual contract of sale”.93 This is so despite the reference to good faith being found only in the provision dedicated to the CISG’s interpretation.94 In support of this thesis, according to which good faith can U. Chi. L. Rev. 666 ff. (1963); Robert S. Summers, ‘‘Good Faith’’ in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va. L. Rev. 195 ff. (1968). 86 See Restatement (Second) of Contracts § 205 (“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement”.). 87 See, e. g., Farnsworth, supra note 79, at 18 (“[T]he American rules on good faith go to the performance of the contract”.). 88 For this expression, see Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369 (1980). 89 See Rosett, supra note 80, at 290 (“In continental and socialist systems the concept [of good faith] may have broader connotations. In particular, the notion of good faith is not limited to the performance of completed agreements, but extends to the process of formation. It operates as a limit on the right of a party to terminate the formation process”). 90 Bonell, supra note 18, at 85-86. 91 See § 242, German Civil Code [hereinafter BGB]: “The debtor is bound to effect performance according to the requirements of good faith, giving consideration to common usage”. 92 As far as the notion “good faith in international trade” is concerned, it has been pointed out that the reference to international trade prevents national courts from being allowed to draw on domestic conceptions of good faith. But see, Note, Unification and Certainty: The United Nations Convention on Contracts for the International Sale of Goods, 97 Harv. L. Rev. 1991 (1984) (“In applying the [good faith] rule, national courts remain free to draw on domestic – and hence diverse – conceptions of ‘good faith.’”). 93 Bonell, supra note 18, at 84. For similar statements, see P. Schlechtriem, Uniform Law of Sales 39 (1986); P. Schlechtriem, Einheitliches UN-Kaufrecht 25 (1981). 94 See, for a similar statement, Gyula Eorsi, General Provisions, in International Sales, in The United Nations Convention on Contracts for the International Sale of Goods

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also be considered as being one of the “general principles” upon which the CISG is based, it is sufficient to recall that there are several provisions which constitute a particular application of that principle,95 such as Article 16(2)(b).96 In fact, it is undeniable that the aforementioned provision is grounded on the principle of good faith to the extent that it provides that a proposal is irrevocable where it was reasonable for the offeree to rely upon the offer being held open and the offeree acted in reliance on the offer.97

2-8 (Nina M. Galston & Hans Smit eds., 1984) (“[T]he good faith clause may play an active role in spite of its location in the Convention”.). The same has been said by U. Huber, Der UNCITRAL-Entwurf eines bereinkommens fur internationale Warenkaufvertrage, 43 Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 432 (1979); Laszlo Reczei, The Rules of the Convention Relating to its Field of Application and to its Interpretation, in Problems of Unification of International Sales Law 86 (1980). 95 Similar statements can be found in Audit, supra note 10, at 49; Honnold, supra note 13, at 100; Albert Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 111 (1989). 96 Article 16(2)(b) provides, in its pertinent part, “(2) [A]n offer cannot be revoked: ... (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer”. 97 For a list of other applications of the good faith principle in particular provisions of the Convention, see Secretariat’s Commentary, Art. 6 ¶ 3, in Official Records of the United Nations Conference on Contracts for the International Sale of Goods. Vienna, 10 March - 11 April 1980, at 18 (1981), where it is stated that “[a]mong the manifestations of the requirement of the observance of good faith are the rules contained in the following articles: – article 19(2) [which became final art. 21(2)] on the status of a late acceptance which was sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time; – article 27(2) [which became final art. 29(2)] in relation to the preclusion of a party from relying on a provision in a contract that modification or abrogation of the contract must be in writing; – article 35 and 44 [which became final articles 37 and 48] on the rights of a seller to remedy non-conformities in the goods; – article 38 [which became final art. 40] which precludes the seller from relying on the fact that notice of non-conformity has not been given by the buyer in accordance with articles 36 and 37 [which became final articles 38 and 39] if the lack of conformity relates to facts of which the seller knew or could not have been unaware and which he did not disclose to the buyer; – articles 45(2), 60(2) and 67 [which became final articles 49(2), 64(2) and 82] on the loss of the right to declare the contract avoided; – articles 74 and 77 [which became final articles 85 and 88] which impose on the parties obligations to take steps to preserve the goods”.

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Those who argue in favor of a similar notion of good faith, i. e., good faith as one of the general principles of the CISG rather than an instrument of mere interpretation,98 risk, however, being driven to the conclusion that “[a]s such it may even impose on the parties additional obligations of a positive character”,99 such as acting in good faith in the bargaining and formation process.100 In this author’s opinion, the possibility of imposing on the parties additional obligations based upon the good faith principle must be doubted. This does not mean, however, that one should adopt the view that good faith represents merely an instrument of interpretation. It means that obligations different from the ones resulting from the CISG should not be imposed on the parties. Where, however, an obligation already exists under the CISG, the parties’ behavior in relation to the performance of that obligation must be measured against a good faith standard.101 As for the courts, the draft Digest shows that they appear to favor the view that the good faith principle is one of the general principles upon which the CISG is based.102 This is why it is not surprising that in one case a court 98

A similar notion seems to be supported, for instance, by Dore, Defranco, supra note 81, at 61, where the authors state that the good faith provision does not constitute a mere instrument of interpretation, but rather, it “appears to be a pervasive norm analogous to the good faith obligation of the U.C.C”. 99 Bonell, supra note 18, at 85. 100 The view that art. 7(1) imposes on the parties the duty of good faith bargaining has been taken, for instance, by Pedro F. Silva-Ruiz, Some Remarks about the 1980 Vienna Convention on Contracts for the International Sale of Goods – Emphasis on Puerto Rico, 4 Ariz. J. Int’l & Comp. L. 141 (1987), where the author states that “Article 7 makes good faith applicable not only to the performance and enforcement of contracts but also to their formation”, and (citing Gert Reinhart, Development of the Law for the International Sale of Goods, 14 Cumb. L. Rev. 100 (1983)) that the culpa in contrahendo principle “may be incorporated into the Convention by the court even though not expressly adopted by the Convention”. For the view expressly denying the existence of a duty of good faith bargaining imposed on the parties by virtue of Article 7, see Jametti Greiner, supra note 10, at 46; Herber, supra note 35, at 74. 101 Maskow, supra note 36, at 55, seems to reach the same conclusion by stating that “the most objective criterion for what the principle of goof faith in international trade means is the Convention itself”. 102 See Hof Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/ int/tradelaw/WK/2002-05-17.htm; Bundesgerichtshof, Germany, 9 January 2002 (Internationales Handelsrecht 17 (2002)); Bundesgerichtshof, Germany, 31 October 2001 (Internationales Handelsrecht 14 ff. (2002)); Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Transportrecht-Internationales Handelsrecht 12 (2000)); Corte d’Appello Milano, Italy, 11 December 1998, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=359&step=FullText; Compromex Arbitration, Mexico, 30 Novem-

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justified an order to pay damages on the basis that the liable party’s conduct was “contrary to the principle of good faith in international trade laid down in article 7 CISG”; the court also stated that abuse of process violates the good faith principle.103 In another case, this one also quoted in the draft Digest, the view that the good faith principle is one upon which the CISG is based led one court to state that an explicit declaration of avoidance of the contract was not necessary once the seller had refused to perform its obligations, and that to insist on such a declaration would be against the principle of good faith.104 In this author’s opinion, that holding is incorrect. Since general principles are to be resorted to only in order to deal with matters not expressly settled in the CISG, as will be pointed out in greater detail infra, and the CISG expressly requires a declaration to avoid the contract, the issue at hand is not one in respect of which interpreters are entitled to resort to the CISG’s general principles at all. Unfortunately, the draft Digest does not point out this inconsistency.

ber 1998, available at http://www.uc3m.es/cisg/rmexi3.htm; Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277 (OLG Rechtsprechungs-Report Hamburg, 1997, 149); Rechtbank Arnhem, Netherlands, 17 July 1997, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=355&step=FullText; Landgericht M
nchen, Germany, 6 May 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/341.htm; Landgericht Saarbr
cken, Germany, 26 March 1996, CLOUT case No. 337, available at http:// 131.152.131.200/cisg/urteile/391.htm; Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166 (Recht der internationalen Wirtschaft, 1996, 766 ff.); Oberlandesgericht Celle, Germany, 24 May 1995, CLOUT case No. 136, available at http://131.152.131.200/cisg/urteile/152.htm; ICC Court of Arbitration, Case No. 8128, 1995 (Journal du droit international 1024 ff. (1997)); Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 17 November 1995 (Award No. VB/94124, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=217&step=FullText; Cour d’appel Grenoble, France, 22 February 1995, CLOUT case No. 154 (Journal du droit international 632 ff. (1995)); Court of Appeal of New South Wales, Australia, 12 March 1992 (Renard Constructions v. Minister for Public Works, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=57&step=FullText). 103 Cour d’appel Grenoble, France, 22 February 1995, CLOUT case No. 154, available at http:// 131.152.131.200/cisg/urteile/151.htm. 104 Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277, available at http://131.152.131.200/cisg/urteile/261.htm.

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III. Gap-filling and general principles A. General issues Although “[o]ne of the reasons for enacting the Convention is to provide a uniform body of law in the event the parties fail to consider, or agree on, the applicable body of law”,105 the Convention does not “constitute an exhaustive body of rules”,106 i. e., it does not provide solutions for all the problems that can originate from an international sale. According to Article 4 CISG,107 the issues governed by the CISG are limited to formation of the contract and the rights and obligations of the parties resulting from such a contract.108 This limited scope of application gives rise to issues relating to the incompleteness of the CISG. To resolve such issues, Article 7(2) CISG provides that [q]uestions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. The aim of Article 7(2) is not very different from that of Article 7(1),109 i. e., uniformity in the CISG’s application. Since this is the ultimate goal, 105

Kritzer, supra note 95, at 31. G. Benedetti, Commento all’art. 4, Nuove Leggi civili commentate 9 (1989). 107 CISG art. 4 provides: This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold. 108 For an overview of issues the CISG does not deal with, see, e. g., F. Ferrari, Die Schuld
bernahme als vom UN-Kaufrecht nicht geregelte Rechtsmaterie, Forum International 89 ff. (1997); F. Ferrari, Jurisprudence concernant les questions non abordes par la CVIM, Revue de droit des affaires internationales 835 ff. (1998); Henry Mather, Choice of Law for International Sales Issues not Resolved by the CISG, 20 J.L. & Com. 155 ff. (2001); C. Witz, CVIM: interprtation et questions non couvertes, Revue de droit des affaires internationals 253 ff. (2001). 109 For a discussion of the relationship between art. 7(1) on interpretation and art. 7(2) on gap filling, see Eorsi, supra note 94, at 2-9, where the author, after having discussed art. 7(1), states [a]s a transition to Article 7(2), it might be mentioned that gaps in the law constitute a danger in respect of interpretation of the Convention, since one way to follow the homeward trend is 106

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[i]n accordance with the basic criteria established in paragraph (1), first part, for the interpretation of the Convention in general, not only in the case of ambiguities or obscurities in the text, but also in the case of gaps, courts should to the largest possible extent refrain from resorting to the different domestic laws and try to find a solution within the Convention itself.110 Before providing a list of the general principles referred to in Article 7(2) (as identified in case law), however, it is necessary to identify the matters to which the rule set forth in Article 7(2) applies. In this respect, it must be noted that the gaps to which the rule refers are not the matters excluded from the scope of application of the Convention, such as the excluded issues contemplated in Articles 4 and 5 CISG, but the gaps praeter legem – i. e., issues to which the Convention applies but which it does not expressly resolve.111 To fill these gaps (praeter legem), the drafters of the CISG have chosen an approach that combines recourse to general principles with recourse, where needed, to the rules of private international law,112 a choice that shows that the drafters were aware of the fact that absolute independence from domestic law is unreachable.113 Recourse to general principles in filling gaps is a method well-known in civil law countries.114 In fact, recourse to general principles in order to fill gaps “finds precedent in many codes of the Roman-Germanic legal systems, even though among such codes there are differences”.115 It is sufficient to recall to find gaps in the law. On the other hand, if a gap is detected, the problem arising thereby should be solved by way of interpretation of the Convention. This must be the means whereby gaps are filled. 110 Bonell, supra note 18, at 75. 111 Bonell, supra note 18, at 75 also stresses that “[a] first condition for the existence of a gap in the sense of Article 7(2) is that the case at hand relates to ‘matters governed by [the] Convention.’ Issues which are not within the scope of the Convention have been deliberately left to the competence of the existing non-unified national laws”. 112 For a similar statement, see Kritzer, supra note 95, at 117, affirming that “[w]hen a matter is governed by the Convention but not expressly settled in it, the Convention’s solution is (i) internal analogy where the Convention contains an applicable general principle; and (ii) reference to external legal principles (the rules of private international law) where the Convention does not contain an applicable general principle”. 113 For a similar statement, see A. Frignani, Il contratto internazionale 309 (1990). 114 See Honnold, supra note 13, at 102, where the author emphasizes that the provision contemplating the settlement of questions in conformity with the general principles of the Convention “reflects the approach established for civil law codes”. 115 Frignani, supra note 113, at 308.

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Article 12(2) of the Italian Civil Code’s Preliminary Provisions, which states that “if a controversy cannot be decided on the ground of a specific provision, one can resort to similar provisions or analogous matters; if the question remains doubtful, it shall be settled in conformity with the general principles of the legal system of the [Italian] State”. It is upon this approach that other civil law systems, such as that of Austria,116 Egypt,117 Spain,118 and others,119 are based as well. In the common law, the notion of general principles is different from that in civil law,120 in part, because of the “diverse notion and function of the ‘general principles,’”121 and in part because of the different sources from which the general principles are derived. In fact, in civil law the source is legislation, whereas in common law, the source is case law.122 In effect, at common law statutes are seen merely as fixing rules for defined situations, not as a possible source of general principles. As such, not only are statutes traditionally interpreted in a very strict fashion, but where there is no provision specifically regulating the case at hand, the gap will immediately be filled by principles and rules of the judge-made common law.123 116 See Article 7 of the Austrian Civil Code [hereinafter ABGB] (1811) (“Where a case cannot be decided either according to the literal text or the plain meaning of a statute, regard shall be had to the statutory provisions concerning similar cases ... If the case still remains doubtful, it shall be decided ... on the ground of principles of natural law”.). 117 See Article 1(2) of the Egypt Civil Code (1948). For a reference to this provision, see Bonell, supra note 18, at 77. 118 See Article 6(2) of the Spanish Civil Code (“Whenever there is no directly applicable statutory provision, usages must be applied and, absent such usages, the general principles of the law”.). 119 According to Bonell, supra note 18, at 77, even “in countries such as France or the Federal Republic of Germany, where the approach is not formally imposed by statute, it is taken for granted that a Code or any other legislation of a more general character must be considered as more than the mere sum of its individual provisions. In fact, it must be interpreted and, if necessary, supplemented on the basis of the general principles which underlie its specific provisions”. 120 It has even been said that “the term [general principles] sounds alien to English lawyers”. N. Brown, General Principles of Law and the English Legal System, in New Perspectives for a Common Law of Europe 174 (M. Cappelletti ed., 1978). 121 Frignani, supra note 113, at 308. 122 For a similar statement, see O. Kahn-Freund, Common Law and Civil Law – Imaginary and Real Obstacles to Assimilation, in New Perspectives for a Common Law of Europe, supra note 120, at 154 (“in the common law world, the lawyer looks for his principles in the ‘cases,’ and the statutes merely fill in details, the “case law” playing the role of the Codes on the Continent”). 123 Bonell, supra note 18, at 77-78.

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To fill gaps, one can resort to various types of reasoning in order to find a solution within the Convention itself.124 In this respect, recourse to general principles constitutes merely one method of gap-filling. Therefore one must determine whether Article 7(2) CISG also covers other methods of legal reasoning, such as analogical application,125 or whether it is to be interpreted restrictively. On this question, one can share the opinion of those legal scholars who assert not only that the CISG permits both methods, but also that “[i]n the case of a gap in the Convention the first attempt to be made is to settle the unsolved question by means of an analogical application of specific provisions”.126 However, when the matter de quo is not so closely related to matters expressly settled in the CISG as to justify analogical application,127 one must resort to general principles as contemplated in Article 7(2) of the Convention. This procedure differs from analogical application in that it does not resolve the case at hand solely by extending specific provisions dealing with analogous matters, but rather solves the issue “on the basis of principles and rules which because of their general character may be applied on a much wider scale”.128 B. General principles of the CISG in case law Hereinafter only those general principles will be dealt with that have been identified in case law. This does not mean that the general principles identified by case law really are in fact general principles upon which the CISG is based, nor does is mean that other general principles do not exist; it 124

Enderlein & Maskow, supra note 76, at 58, point out that Article 7(2)’s major concern is to make sure that gaps are “closed ... from within the Convention. This is in line with the aspiration to unify the law which ... is established in the Convention itself”. 125 For a clear distinction between analogical application and recourse to general principles, see J. Kropholler, Internationales Einheitsrecht 292 (1975). 126 Bonell, supra note 18, at 78. Analogical application as a method of gap-filling has been advocated by other authors as well. See, e. g., Enderlein & Maskow, supra note 76, at 58, where the authors state that gap-filling can be done, as we believe, by applying such interpretation methods as extensive interpretation and analogy. The admissibility of analogy is directly addressed in the wording contained in the CISG because it is aimed at obtaining, from several comparable rules, one rule for a not expressly covered fact and/or a general rule under which the fact can be subsumed. 127 For a similar criterion employed in order to distinguish analogical approach from recourse to general principles, see Bonell, supra note 18, at 79 (stating that if cases expressly settled by specific provisions and the case in question are so analogous “that it would be inherently unjust not to adopt the same solution”, the gap should be closed by resorting to the general principles). For a criticism of this criterion, see Rosenberg, supra note 8, at 451 (affirming that “[t]here are inherent problems with an ‘inherently unjust’ test”). 128 Bonell, supra note 18, at 80.

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simply signifies that decisions have, to date, identified the following general principles and there is yet no case law on other principles. The most important general CISG principle is that of party autonomy.129 The importance of this principle is shown by the fact that it confers a dispositive nature to the CISG130 and, thus, a subsidiary role to it.131 As a consequence, where there is a conflict between the principle of party autonomy and any other general principle, the former always prevails.132 Courts have also 129

For this view, see, e. g., Kritzer, supra note 95, at 114. Many commentators consider the principle of “party autonomy” one of the general principles upon which the CISG is based. See, e. g., Achilles, infra note 160, at 30; F. Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT Principles 194 (2000); A. Garro & A. Zuppi, Compraventa internacional de mercaderias 58 note 10 (1990); Richard Hyland, Conformity of Goods to the Contract under the United Nations Sales Convention and the Uniform Commercial Code, in Einheitliches Kaufrecht und nationales Obligationenrecht 329 ff. (P. Schlechtriem ed., 1987); M. Karollus, UN-Kaufrecht 16 f. (1991); Kramer, supra note 7, at 149. 130 For references to the CISG’s dispositive nature in scholarly writing, see Carbone, supra note 12, at 78; S. Carbone & R. Luzzatto, I contratti del commercio internazionale, in 11 Trattato di diritto privato 131 (P. Rescigno ed., 1984); Calvo Caravaca, Art. 6, in La compravendita internacional de mercaderias 92 (L. Diez-Picazo ed., 1998); Ferrari, supra note 4, at 158; Lanciotti, supra note 17, at 146; J. Lindbach, Rechtswahl im Einheitsrecht am Beispiel des Wiener Kaufrechts 67 (1996); B. Piltz, Internationales Kaufrecht § 2, Rn.174 (1993); G. Sacerdoti, I criteri di applicazione della convenzione di Vienna sulla vendita internazionale: diritto uniforme, diritto internazionale privato e autonomia dei contratti, Rivista trimestrale di diritto e procedura civile 744 (1990); C. Witz, L’exclusion de la Convention des Nations unies sur les contrats de vente internationale de marchandises par la volont des parties (Convention de Vienne du 11 avril 1980) Chron. 107 Recueil Dalloz (1990). For express reference to the CISG’s non-mandatory nature in case law, see Suprema Corte di Cassazione, Italy, 19 June 2000 (Giurisprudenza italiana, 2001, 236); Oberster Gerichtshof, Austria, 21 March 2000 (Internationales Handelsrecht 41 (2001)); Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Transportrecht-Internationales Handelsrecht 25 (1999)); Handelsgericht Wien, Austria, 4 March 1997 (unpublished); Kantonsgericht Wallis, Switzerland, 29 June 1994, CLOUT case No. 199 (Zeitschrift f
r Walliser Rechtsprechung 126 (1994)). 131 For this thesis, see, for example, Honnold, supra note 13, at 4 (stating that “the Convention’s rules play a supporting role, supplying answers to problems that the parties have failed to solve by contract”). For a similar conclusion, see Kazuaki Sono, The Vienna Sales Convention: History and Perspective, in International Sale of Goods: Dubrovnik Lectures 14 (Petar arcˇevic´ & Paul Volken eds., 1986) (affirming that “the rules contained in the Convention are only supplementary for those cases where the parties did not provide otherwise in their contract”). 132 E.A. Farnsworth, Rights and Obligations of the Seller, in Wiener bereinkommen von 1980
ber den internationalen Warenkauf 84 (1985), draws the same conclusion (“[I]n case of

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adopted this correct view. Indeed, they not only refer to “party autonomy” as a general principle, but they also speak of the principle of the “prevalence of party autonomy”.133 According to some courts134 as well as some commentators,135 another general principle, this one closely linked to the general principle of good faith,136 is that of “estoppel”. Although that opinion is the prevailing one, there is case law137 and commentary138 that deny that “estoppel” is one of the general principles upon which the CISG is based. With respect to the conflicting case law on this issue, the draft Digest, once again, merely cites the contrasting decisions, without guiding the interpreter

a conflict between the contract and the Convention, it is the contract – not the Convention – that controls”). 133 See Tribunale di Rimini, Italy, 8 January 2003 (unpublished) (on file with the author); Hof Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/int/tradelaw/ WK/2002-05-17.htm; Rechtbank Koophandel Ieper, Belgium, 29 January 2001, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2001-01-29.htm; Landgericht Stendal, Germany, 12 October 2000 (Internationales Handelsrecht 32 (2001)). 134 See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 27 July 1999 (award No. 302/1996, available in English at http://www.cisg.law.pace.edu/cgi-bin/SFgate?language=english&verbose=0& listenv=DL&application=&convert=&waisurl=cases2/HTML/12519/1=cisgw3.law.pace.edu %3A210;2=/usr/local/apache/htdocs/cisg/wais/cases2;3=0%2012519%20/usr/local/apache/ htdocs/cisg/wais/db/cases2/990727r1.html;4=cisgw3.law.pace.edu%3A210;5=/usr/local/apache/ htdocs/cisg/wais/cases2;6=0%2012519%20/usr/local/apache/htdocs/cisg/wais/db/cases2/9907 27r1.html;7=%00; Oberlandesgericht, Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230 (Recht der internationalen Wirtschaft 235 ff. (1998)); Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Austria, 15 June 1994, CLOUT case No. 93 (Arbitral Award SCH-4366, available at Recht der internationalen Wirtschaft 590 ff. (1995)); Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Austria, 15 June 1994, CLOUT case No. 94 (Arbitral Award SCH-4318, available at Recht der internationalen Wirtschaft 590 ff. (1995)); Hof s’Hertogenbosch, Netherlands, 26 February 1992 (Nederlands International Privaatrecht No. 354 (1992)). 135 See Ferrari, supra note 69, at 134; U. Magnus, Die allgemeinen Grundstze im UNKaufrecht, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht, 481 (1995). 136 As was noted previously, both cases and commentators have recognized that good faith is one of the general principles on which the CISG is based. See supra notes 77-104 and accompanying text. 137 Rechtbank Amsterdam, Netherlands, 5 October 1994 (Nederlands Internationaal Privaatrecht No. 231 (1995)). 138 See Frigge, supra note 8, at 82.

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as to which decisions are to be followed. Whether this helps to promote uniformity in the application of the CISG is questionable. Case law has also dealt with the issue of whether there is a general principle concerning the place of performance of monetary obligations. In determining the place for payment of compensation for non-conformity of the goods, one court for instance stated that “if the purchase price is payable at the place of business of the seller” under Article 57 CISG, then “this indicates a general principle valid for other monetary claims as well”.139 In a comparable situation, another court, confronting an action for restitution of an overpayment received by the seller, stated that there was a general principle under which “payment is to be made at the creditor’s domicile, a principle that is be extended to other international trade contracts under Article 6. 1. 6 of the UNIDROIT Principles”.140 The Austrian Supreme Court, which had previously adopted the opposite position, decided that the gap in the CISG with respect to the place to perform the restitutionary obligations arising upon avoidance was to be filled by means of a general principle of the CISG, according to which “the place for performance of restitution obligations should be determined by transposing the primary obligations – through a mirror effect – into restitution obligations”.141 It should be noted, however, that there is one decision which denies (correctly, in this author’s opinion) the existence of a general principle to determine the place of performance for all monetary obligations.142 Of course, the draft Digest once again does nothing to help the interpreter to decide which solution to favor. One court has observed that the determination of the currency of payment is a question governed by, albeit not expressly settled in, the CISG.143 The court referred first to the view that, according to a general principle underlying CISG, the seller’s place of business is the relevant location for all obligations relating to payment, at least where the parties have not agreed otherwise, and therefore it also determines the question of currency. The court, however, also mentioned the view that the question cannot be solved by applying a general principle of the CISG, but rather must be determined by 139

Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49 (Recht der internationalen Wirtschaft 845 f. (1993)). 140 Cour d’appel Grenoble, France, 23 October 1996, CLOUT case No. 205 (Revue critique de droit international priv 756 (1997)). 141 Oberster Gerichtshof, Austria, 29 June 1999 (Transportrecht-Internationales Handelsrecht 48 (1999)). 142 Cour d’appel Paris, France, 14 January 1998, CLOUT case No. 312 (Schweizerische Zeitschrift f
r internationales und europisches Recht 201 (1999)). 143 Landgericht Berlin, Germany, 24 March 1998, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=440&step=FullText.

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applying domestic law. Nevertheless, the court did not choose between the alternatives since in the case at hand the result was the same (payment should be made in the currency of the seller’s place of business). In this author’s opinion, the currency in which payment is to be made is not an issue dealt with, even implicitly, by the CISG, and thus it is not one to be determined by recourse to a general principle; rather, it is an issue to be left to domestic law. According to some courts,144 the issue of the burden of proof is a matter governed by, but not explicitly settled in, the CISG. Therefore, the issue is to be settled in conformity with the general principles on which the Convention is based.145 Various decisions argue that Article 79(1)146 and, at least according to one court, Article 2(a) evidence the general principles of the CISG in respect of this issue. These general principles have been summarized as follows: the party who wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of the provision,147 and any party claiming an exception has to prove the factual prerequisites of that exception.148 This view is to be preferred149 over that of a few courts – also cited in the draft Digest150 – and commentators151 that 144

See Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana, 2001, 280 ff.); Tribunale di Pavia, Italy, 27 December 1999 (Corriere giuridico 932 f. (2000)); Handelsgericht Z
rich, Switzerland, 26 April 1995, CLOUT case No. 196 (TransportrechtInternationales Handelsrecht 54 (1999)); Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97. 145 See Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97. 146 Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2001)); Bundesgerichtshof, Germany, 9 January 2002 (www.unilex.info); Tribunale di Pavia, Italy, 27 December 1999 (Corriere giuridico 932 f. (2000)). 147 For references to this principle, see Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana, 2001, 280 ff.); Landgericht Frankfurt, Germany, 6 July 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/; Oberlandesgericht Innsbruck, Austria, 1 July 1994, CLOUT case No. 107, available at http://131.152.131.200/cisg/urteile/107.htm. 148 See Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana 280 ff. (2000)). 149 For commentators asserting that, as far as the issue of burden of proof is concerned, the CISG is based upon the general principles referred to in the text, see Magnus, supra note 135, at 489. 150 See Bezirksgericht Saane, Switzerland, 20 February 1997, CLOUT case No. 261 (Transportrecht-Internationales Handelsrecht 11 (2000)); ICC Court of Arbitration, Case No. 6653, 1993, CLOUT case No. 103 (Journal du droit international 1040 ff. (1993)). In one case, a state court referred to the question of whether the Convention contains a particular general principle in respect of the issue of burden of proof or whether the issue is one

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argue that the issue of burden of proof is one governed not by the CISG, but by the applicable domestic law. Courts152 and commentators153 as well have asserted that the CISG is also based upon the principle of full compensation. However, one court restricted this general principle to cases in which, as a result of a breach of contractual obligations, a contract is avoided.154 In this author’s opinion, the aforementioned general principle is not so limited. Of course, if one looks to the draft Digest for guidance on this issue, one looks in vain, as it merely lists the various court decisions dealing with “full compensation” without further comment. Several tribunals have expressly stated – correctly – that the principle of informality, referred to in Article 11 CISG, also constitutes a general principle upon which the CISG is based.155 From this principle it follows, among other things, that the parties are free to modify or terminate their contract in writing or orally or in any other form. Even an implied

not governed by the Convention, but it left the question open. See Tribunale cantonale del Ticino, Switzerland, 15 January 1998, CLOUT case No. 253 (Transportrecht-Internationales Handelsrecht 12 f. (2000)). 151 See, e. g., W. Khoo, Art. 2, in Comment. Int’l Sales L., supra note 18, at 39. 152 Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Oberster Gerichtshof, Austria, 9 March 2000, available at http://www.cisg.at/6_31199z.htm; Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Austria, 15 June 1994, CLOUT case No. 93 (Arbitral Award SCH-4366, Recht der internationalen Wirtschaft 590 ff. (1995)); Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Austria, 15 June 1994, CLOUT case No. 94 (Arbitral Award SCH-4318, Recht der internationalen Wirtschaft 590 ff. (1995)). 153 See Franco Ferrari, General Principles and International Uniform Law Conventions: A Study of the 1980 Vienna Sales Convention and the 1988 UNIDROIT Conventions on International Factoring and Leasing, 10 Pace Int’l L.J. 173 (1998, 173); Dionysios P. Flambouras, The Doctrines of Impossibility of Performance and Clausula Rebus Sic Stantibus in the 1980 Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law – A Comparative Analysis, 13 Pace Int’l L. Rev. 289 (2001); Magnus, supra note 135, at 484 f.; Mather, supra note 108, at 158; Michael P. van Alstine, Dynamic Treaty Interpretation, 146 U. Pa. L. Rev. 752 (1998). 154 Oberster Gerichtshof, Austria, 9 March 2000, available at http://www.cisg.at/6_ 31199z.htm. 155 See Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Compromex Arbitration, Mexico, 16 July 1996, available at http://www.uc3m.es/cisg/rmexi2.htm; Compromex Arbitration, Mexico, 29 April 1996, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=258&step=FullText.

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termination of the contract has been held possible.156 Furthermore, on the basis of the aforementioned general principle, it has been held that a written contract may be changed orally.157 The dispatch principle set forth in Article 27 appears to be the CISG’s general principle concerning communications made after the parties have concluded their contract. According to that principle a notice, request, or other communication becomes effective as soon as the declaring party releases it from its own sphere by an appropriate means of communication. This rule applies to notice of non-conformity or of third-party claims (Articles 39, 43); to requests for specific performance (Article 46), price reduction (Article 50), damages (Article 45 par. 1 (b)) or interest (Article 78); to a declaration of avoidance (Articles 49, 64, 72, 73); to the fixing of an additional period for performance (Articles 47, 63); and to other notices as in Articles 32(1), 67(2) or 88. According to case law, as a general principle underlying Part III of the CISG, the dispatch principle applies as well to any other communication the parties may have provided for in their contract unless they have agreed that the communication has to be received to be effective.158 Article 77 lays down a mitigation principle pursuant to which a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If the aggrieved party fails to mitigate its losses, the party in breach is entitled to claim a reduction in damages in the amount by which the loss should have been mitigated. Both courts159 and commentators have

156

Oberster Gerichtshof, Austria, 29 June 1999 (Zeitschrift f
r Rechtsvergleichung 33 (2000)). 157 Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176, available at http:// 131.152.131.200/cisg/urteile/224.htm. 158 See Landgericht Stuttgart, Germany, 13 August 1991, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/33.htm (according to the contract notice of non-conformity had to be by registered letter. The court held that this meant that the notice had to be received by the other party. Moreover, the declaring party had to prove that the notice had been received by the other party). See also Oberster Gerichtshof, Austria, 30 June 1998, CLOUT case No. 305 available at http://www.cisg.at/1_27397x.htm. 159 See Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.uni-freiburg.de/ ipr1/cisg/urteile/text/519.htm; ICC Court of Arbitration, Case No. 8817, 1997, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=398&step=FullText.

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considered mitigation to be a general principle upon which the CISG is based.160 Another general principle acknowledged by courts161 and commentators162 is that underlying the rule in Article 9(2) that, unless otherwise agreed, the parties are bound by a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. One court suggested that the issue of set-off was governed, but not expressly settled-in, the CISG, and that the CISG contained a general principle within the meaning of Article 7(2) that permitted reciprocal claims arising under the Convention (such as the buyer’s claims for damages and the seller’s claim for the balance of the sale proceeds) to be offset.163 In this author’s opinion, this view is not tenable, since, as pointed out by many courts164 (as well as the 160

See W.H. Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG) 30 (2002); Audit, supra note 10, at 52. 161 See Rechtbank Koophandel Ieper, Belgium, 29 January 2001, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2001-01-29.htm. 162 See Dore & Defranco, supra note 81, at 63; Karollus, supra note 129, at 17; J.P. Plantard, Un nouveau droit uniforme de la vente internationale: La Convention des Nations-Unies du 11 avril 1980, Journal du droit international 332 (1988). 163 Oberlandesgericht Hamburg, Germany, 26 November 1999, CLOUT case No. 348 (OLG Rechtsprechungsreport Hamburg 155 (2000)). 164 See Oberster Gerichtshof, Austria, 22 October 2001 (Internationales Handelsrecht 27 (2002)); Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378 (Giurisprudenza italiana, 2001, 280 ff.); Amtsgericht Duisburg, Germany, 13 April 2000, CLOUT case No. 368 (Internationales Handelsrecht 114 f. (2001)); Oberlandesgericht M
nchen, Germany, 11 March 1998, CLOUT case No. 232 (Transportrecht-Internationales Handelsrecht 20 ff. (1999)); Kantonsgericht Freiburg, Switzerland, 23 January 1998, CLOUT case No. 259 (Transportrecht-Internationales Handelsrecht 13 (2000)); Landgericht Hagen, Germany, 15 October 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht M
nchen, Germany, 6 May 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/ text/341.htm; Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273, available at http://131.152.131.200/cisg/urteile/282.htm; Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275, available at http://131.152.131.200/cisg/urteile/ 385.htm; Oberlandesgericht D
sseldorf, Germany, 11 July 1996, CLOUT case No. 169, available at http://131.152.131.200/cisg/urteile/201.htm; Landgericht Duisburg, Germany, 17 April 1996, available at http://www.jura.uni-freiburg.de/ipr1/cisg/; Oberlandesgericht Stuttgart, Germany, 21 August 1995, CLOUT case No. 289, available at http:// 131.152.131.200/cisg/urteile/150.htm; Landgericht M
nchen, Germany, 20 March 1995, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/164.htm; Rechtbank Mid-

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majority of commentators), the issue of set-off is not governed by the Convention at all and, therefore, is left to applicable domestic law.165 This issue presents one more example of the situation where the draft Digest lists conflicting court decisions without providing any help as to which should be followed. An arbitral tribunal (correctly166) stated that the entitlement to interest on all sums in arrears also constitutes a general principle of the CISG.167 Some courts have further stated that entitlement to interest does not require a formal notice to the debtor in default.168 The majority of commentators rightly hold that same view. There are, nevertheless, courts that state that a formal notice must be given to the debtor before one is entitled to interest on sums in arrears.169 Commentators170 have also correctly suggested that the CISG is based upon the “favor contractus” principle, “which means that, whenever possible, a delburg, Netherlands, 25 January 1995 (Nederlands Internationaal Privaatrecht, 1996, No. 127); Amtsgericht Mayen, Germany, 19 September 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/; Oberlandesgericht Koblenz, Germany, 17 September 1993, CLOUT case No. 281, available at http://131.152.131.200/cisg/urteile/91.htm; Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125 (Recht der internatinoalen Wirtschaft 689 f. (1996)); Rechtbank Roermond, Netherlands, 6 May 1993, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=94&step=FullText; Rechtbank Arnhem, Netherlands, 25 February 1993, CLOUT case No. 99 (Nederlands Internationaal Privaatrecht No. 445 (1993)). 165 See, e. g., F. Ferrari, Art. 4, in Kommentar zum Einheitlichen UN-Kaurecht, supra note 69, at 101. 166 For this view, see also F. Ferrari, Das Verhltnis zwischen den Unidroit-Grundstzen und den allgemeinen Grundstzen internationaler Einheitsprivatrechtskonventionen, JuristenZeitung 12 (1998). 167 ICC Court of Arbitration, Cae No. 8908, 1998, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=401&step=FullText. 168 Handelsgericht Aargau, Switzerland, 26 September 1997, CLOUT case No. 217 (Transportrecht-Internationales Handelsrecht 11 (1999)); Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80 (Recht der Internationalen Wirtschaft 683 f. (1994)); Pretore della giurisdizione Locarno-Campagna, Switzerland, 27 April 1992, CLOUT case No. 56 (Schweizerische Zeitschrift f
r internationales und europisches Recht 665 (1993)). 169 Arbitral Tribunal at the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998 (award No. 11/1996, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=420&step=FullText; Landgericht Zwickau, Germany 19 March 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/519.htm. 170 For discussion of the favor contractus principle, see Ferrari, supra note 166, at 12; J.O. Honnold, Uniform Words and Uniform Application: The 1980 Vienna Sales Convention

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solution should be adopted in favour of the valid existence of the contract and against its premature termination on the initiative of one of the parties”.171 This view was also adopted by two courts. One court expressly referred to the principle of favor contractus.172 The other court stated that avoidance of the contract constitutes an “ultima ratio” remedy,173 which, in essence means the same as favor contractus. Several courts have identified Article 40 as embodying a general principle of the CISG. According to one arbitration tribunal, “Article 40 is an expression of the principles of fair trading that underlie also many other provisions of the Convention, and it is by its very nature a codification of a general principle”.174 Thus, the decision asserted, even if Article 40 did not directly apply to a lack of conformity under a contractual warranty clause, the general principle underlying Article 40 would be indirectly applicable to the situation by way of Article 7(2). In another decision, a court derived from Article 40 the general principle that even a very negligent buyer deserves more protection than a fraudulent seller, and then applied the principle to hold that a seller could not escape liability under Article 35(3)175 for misrepresenting the age and mileage of a car, even if the buyer could not have been unaware of the lack of conformity.176 The draft Digest, furthermore, cites (again, without any comment) the opinion of an arbitral tribunal177 that, when deciding what rate of interest to apply to sums in arrears, courts should apply the average bank short term lending rate to prime borrowers. The tribunal adopted this approach because it is the one taken by both Article 7. 4. 9 of the UNIDROIT Principles of and International Judicial Practice, in Einheitliches Kaufrecht und nationales Obligationenrecht, supra note 129, at 140; Plantard, supra note 162, at 333; Rosenberg, supra note 8, at 452. 171 Bonell, supra note 18, at 81. 172 Cour de Justice de Gnve, Switzerland, 10 October 1997, CLOUT case No. 249 (Schweizerische Zeitschrift f
r internationales und europisches Recht 182 ff. (1999)). 173 Oberster Gerichtshof, Austria, 7 September 2000, available at http://www.cisg.at/ 8_2200v.htm. 174 Arbitration Institute of the Stockholm Chamber of Commerce, Sweden, 5 June 1998, CLOUT case No. 237 (Transportrecht-Internationales Handelsrecht 26 (1999)). 175 Article 35(3) provides that a seller is not liable for a lack of conformity under Article 35(2) “if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity”. 176 Oberlandesgericht Kln, Germany, 21 May 1996, CLOUT case No. 168, available at http:// 131.152.131.200/cisg/urteile/254.htm. 177 ICC Court of Arbitration, Case No. 8128, 1998, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=207&step=FullText.

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International Commercial Contracts and Article 4.507 of the Principles of European Contract Law, and the arbitral tribunal argued that such rules had to be considered general principles on which the CISG is based. In this author’s opinion, it is not correct to use either the UNIDROIT Principles of International Commercial Contracts or the Principles of European Contract Law to derive the general principles upon which the CISG is based.178 Article 7(2) CISG clearly refers to “the general principles on which it [the CISG] is based”. Thus recourse to external principles, such as the UNIDROIT Principles and the Principles of European Contract Law, appears to be excluded.179 This does not mean, however, that the UNIDROIT Principles and the Principles of European Contract Law are meaningless with respect to a contract governed by the CISG. These principles can be useful, for instance, to corroborate a solution reached through the application of the CISG’s rules, as evidenced not only by several arbitral awards,180 but also by one state court decision.181 In these cases, the UNIDROIT Principles of International Commercial Contracts were used to confirm the results reached by applying the rules of the CISG. According to a state court, furthermore, the UNIDROIT Principles can also help to determine the exact meaning of a general principle upon which the CISG is based.182 C. Resort to private international law as ultima ratio Article 7(2) CISG states that gaps praeter legem are to be filled in conformity with the Convention’s general principles. What happens when recourse to such general principles does not solve the problem? To address this question, the drafters of the CISG, after some debate,183 laid down the rule that, absent dispositive general principles, one has to resort to the “law applicable by virtue of the rules of private international law” (Article 7(2)). Thus, as

178

For a detailed analysis of the arguments in favor of this position, see Ferrari, supra note 166, at 9 ff. 179 See also R. Herber, “Lex mercatoria” and “Principles”, Internationales Handelsrecht 1 ff. (2003). 180 ICC Court of Arbitration, Case No. 9117, 1998, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=399&step=FullText; ICC Court of Arbitration, Case No. 8817, 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=398&step=FullText. 181 Cour d’appel Grenoble, France, 23 October 1996, CLOUT case No. 205 (Revue critique de droit international priv 756 (1997)). 182 Rechtbank Zwolle, Netherlands, 5 March 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=332&step=FullText. 183 For an overview of the dispute which finally led to the solution adopted by the Uniform Sales Law, see Schlechtriem, supra note 93, at 23.

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pointed out both in case law184 and legal writing,185 one should resort to the applicable national law only as ultima ratio,186 i. e., only where the general principles do not lead to a solution or where no such principles exist. In that case, however, not only is one allowed to have recourse to the rules of private international law, one is obliged to do so.187 This does not mean that recourse to the rules of private international law should be abused.188 Such recourse “represents under the ... uniform law a last resort to be used only if and to the extent that a solution cannot be found either by analogical application of specific provisions or by the application of ‘general principles’ underlying the uniform law as such”.189 Of course, matters beyond the scope of the CISG are to be resolved directly by having recourse to the applicable national law190 – i. e., without first having to look into whether general principles of the CISG exist. 184 See ICC International Court of Arbitration, Case No. 8611/HV/JK, 1997, available at http://www.jura.uni-freiburg.de/ipr1/cisg/. 185 Ferrari, supra note 166, at 15. 186 M.J. Bonell, art. 7, Nuove Leggi civili commentate 25 (1989); Herber, supra note 35, at 93. 187 For a similar conclusion, see Bonell, supra note 18, at 83, stating that the “recourse to domestic law for the purpose of filling gaps under certain circumstances is not only admissible, but even obligatory”. 188 The danger of an abuse of the recourse to the rules of private international law is considerable, since gaps can easily be filled by virtue of the rules of private international law: “It is enough to state that no general principles can be found and therefore the only way out is to resort to private international law”. Eorsi, supra note 94, at 2-12. 189 Bonell, supra note 18, at 83. 190 See, e. g., Cour d’appel Paris, France, 6 November 2001, available at http://witz.jura.unisb.de/CISG/decisions/061101v.htm, stating that issues not governed by the Convention have to be solved by means of the applicable law. For similar statements, see Camara Nacional de Apelaciones en lo Comercial, Argentina, 24 April 2000, available at http://www.uc3m.es/ uc3m/dpto/PR/dppr03/cisg/sargen10.htm; Handelsgericht Aargau, Switzerland, 11 June 1999, CLOUT case No. 333 (Schweizerische Zeitschrift f
r internationales und europisches Recht 117 f. (2000)); Rechtbank Zutphen, Netherlands, 29 May 1997, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=353&step=FullText; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 28 March 1997 (arbitral award No. 38/1996, English available at http://www.cisg.law.pace.edu/cgi-bin/SFgate?language=english&verbose=0&listenv=DL& application=&convert=&waisurl=cases2/HTML/14964/1=cisgw3.law.pace.edu%); Amtsgericht Mayen, Germany, 6 September 1994, available at http://www.jura.uni-freiburg.de/ipr1/ cisg/urteile/text/382.htm; Handelsgericht Z
rich, Switzerland, 9 September 1993, CLOUT case No. 97.

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Interpretation of statements: Article 8 Franco Ferrari* I. Introduction The draft Digest comments on Article 8, like those on other CISG provisions, show that even though the Digest is very useful in providing a means for interpreters to know what case law exists on specific issues, it is helpful only in a limited way. This is due to the restrictive guidelines, set by the United Nations Commission on International Trade Law in its thirtyfourth session.1 The guidelines require that the Digest not criticize any court’s decisions, with the consequence that, where it lists contradicting views, it is not supposed to point in any particular direction. Of course, this means that the guidance it provides is limited. Furthermore, the Digest is supposed to refer merely to the issues dealt with in case law; it is not supposed to deal with other issues, even though they may be more important than those arising in existing cases. This is why it is necessary to go beyond the Digest, in the sense that it is important to take a position not only in those instances where there is contradictory case law, but also on those issues for which there is no case law at all. It is with this goal in mind that the draft Digest comments on interpretation will be dealt with. As the draft Digest itself points out, the CISG contains two provisions that refer to issues of interpretation, namely Articles 7 and 8. Whereas Article 7 concerns the interpretation (and gap-filling) of the Convention, which has often been the focus of legal scholars,2 Article 8 sets forth dispositive3 rules relating to the interpretation of any statement or conduct of a party. The rules of Article 8 seem to have been neglected by commentators, despite *

Professor of International Law, Verona University School of Law. Report of the United Nations Commission on its Thirty-Fourth Session, UN document A/56/17, at 74. 2 For discussion of interpretation and the gap-filling of the CISG, see the sources cited supra, “Interpretation and Gap-Filling”, notes 7 and 8. 3 The dispositive nature of the CISG’s rules on interpreting the statements of the parties has been pointed out for instance by Junge, Art. 8, in Kommentar zum Einheitlichen UNKaufrecht (CISG) 141 (P. Schlechtriem ed., 3d. ed., 2000); W. Witz et al., International Einheitliches Kaufrecht 96 (2000). 1

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being rather important in practice. This paper will discuss those rules, the importance of which is evidenced by the number of cases that dealt with these rules and are cited in the draft Digest. Even though Article 7 lays down rules on the interpretation of the CISG designed to “promote its uniform application”,4 Article 8 also assists in that goal by setting forth uniform rules (on the interpretation of statements and conduct) which prevent interpreters from resorting to domestic interpretive criteria.5 Indeed, invoking domestic interpretive criteria would be detrimental to the uniformity aimed at by the CISG,6 as such criteria vary from country to country.7 By laying down interpretive criteria, which, where applicable, prevail over any domestic interpretive rule (as pointed out by a German court cited in the draft Digest8), Article 8 reduces the need to have recourse to non-uniform domestic rules, thus undoubtedly promoting uniformity.

II. The scope of the rules on interpretation set forth in Article 8 Before looking more closely into the various rules laid down in Article 8 – rules which, according to one decision cited in the Digest, correspond to principles generally accepted in international commerce9 – it seems appropriate to remark at least briefly on the scope of those rules, i.e., in what circumstances they are applicable.

4

Article 7(1). Accord, F. Ferrari, Art. 7, in Kommentar zum einheitlichen UN-Kaufrecht, supra note 3, at 124. 6 For discussion of the dangers for uniformity raised by interpretation based on domestic interpretive criteria rather than uniform ones, see, among others, Michael F. Sturley, International Uniform Law in National Courts: The Influence of Domestic Law in Conflicts of Interpretation, 27 Va. J. Int’l L. 733 ff. (1987). 7 See F. Diedrich, Autonome Auslegung von Internationalem Einheitsrecht 59 ff. (1994); H.Ktz, Rabels Rechtsvergleichung – Nutzen, Kosten, Methoden, Zielen, Zeitschrift f
r auslndisches und internationales Privatrecht 33 (1986). 8 Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Recht der internationalen Wirtschaft 1015 ff. (1990)). 9 ICC Court of Arbitration, Case No. 7331, 1994, CLOUT case No. 303 (ICC Court of Arbitration Bulletin 73 ff. (1995)), stating that “the Vienna Convention reflects ... general international commercial principles and sets forth in Article 8 general rules with respect to interpreting statements of parties and provisions of contract”. 5

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The Article 8 rules apply only to statements and conduct10 that relate to matters governed by the Convention,11 as pointed out not only by legal scholars12 but also by a decision of the Austrian Supreme Court cited in the draft Digest.13 In that case,14 the Austrian Supreme Court had to determine whether a Court of Appeal had correctly applied Article 8 in interpreting a party’s conduct. The Supreme Court stated that Article 8 was not applicable at all on the grounds that “pursuant to Article 4 CISG, the Convention exclusively [governs] the formation of sales contracts and the rights and obligations of the seller and the buyer deriving from the contract” and that “Article 8 [relates only to] the interpretation of declarations and conduct as governed by the Convention”. Thus the provision could not be applied in relation to an assumption of debts because such assumption is excluded from the CISG’s sphere of application. Article 8 is one of the CISG’s “general provisions”.15 Consequently, Article 8 applies whenever a statement or conduct of a party (relating to a matter governed by the Convention) is to be interpreted with a view to determining its contents, or whenever it is to be decided whether that statement or conduct has legal effects for the purposes of the Convention,16 independently of whether the issue in question relates to Part II (on “Formation”) or

10 According to commentors, the “statements” and “conduct” subject to the rules of Article 8 also include omissions, although no case on this issue is cited in the draft Digest. See Melis, Art. 8, in Kommentar zum UN-Kaufrecht 95 (H. Honsell ed., 1997). 11 The legislative history also points in this direction. See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee at 18 (1981), stating that Article 8 “on interpretation furnishes the rules to be followed in interpreting the meaning of any statement or other conduct of a party which falls within the scope of application of this Convention” (emphasis added). 12 Witz et al., supra note 3, at 97. 13 Oberster Gerichtshof, Austria, 24 April 1997, available at http://www.cisg.at/2_ 10997m.htm. 14 For a comment on this decision, see Franco Ferrari, Assumption of Debts as a Subject Matter Excluded from the UN Sales Convention (Commentary on Oberster Gerichtshof, Austria, 24 April 1997), Int’l Legal F. 90 ff. (1997). 15 Melis, supra note 10, at 94. 16 For a distinction between the two issues mentioned in the text, see F. Ferrari, Vendita Internazionale di beni mobili art. 1-13 Ambito di applicazione. Disposizioni generali 172 f. (1994); C. Fioravanti, Commento all’art. 8, Nuove Leggi Civ. Commentate 33 (1989); M. Karollus, UN-Kaufrecht 46 (1991); A. Kaczorowska, Rgles uniformes d’interprtation d’un contrat international, Revue de Droit International et de Droit Compar 297 (1991).

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Part III (on “Rights and Obligations of the Parties”) of the CISG.17 This can be evinced not only from the legislative history,18 but also from case law referred to in the draft Digest. Courts have indeed resorted to the criteria set forth in Article 8 to interpret statements and conduct relating to both formation of contracts governed by the CISG19 and the performance of such contracts20 as well as avoidance of contract.21 Although Article 8 CISG appears to be applicable merely to the interpretation of unilateral acts of a party to a contract governed by the CISG, according to the Convention’s legislative history,22 legal writing,23 and case

17 This means that Article 8 also applies in those countries that have declared a reservation under Article 92 – as have the Scandinavian countries. 18 Official Records of the United Nations Conference, supra note 11, at 18. 19 For cases in which Article 8 CISG was used to interpret statements relating to the formation process, see Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://cisgw3.law.pace.edu/cisg/text/000830g1german.html; Oberster Gerichtshof, Austria, 9 March 2000, available at http://www.cisg.at/6_31199z.htm; Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/519.htm; Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189 (Zeitschrift f
r Rechtsvergleichung 204 ff. (1997)); Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176 (Zeitschrift f
r Rechtsvergleichung 248 ff. (1996)); Obergericht Thurgau, Switzerland, 19 December 1995, CLOUT case No. 334 (Schweizerische Zeitschrift f
r internationales und europisches Recht 118 ff. (2000)); Kantonsgericht St. Gallen, Switzerland (Internationales Handelsrecht 44 (2001)); Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Praxis des internationalen Privat- und Verfahrensrechts 137 ff. (1996)). 20 See, e. g., Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270 (Neue Juristische Wochenschrift 1259 ff. (1999)) (dealing with the issue of whether an offer to pay damages on the seller’s part constitutes a waiver of the seller’s right to rely on Articles 38 and 39). 21 See Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT case No. 282 (OLGReport Koblenz 37 ff. (1997)) (dealing with the issue of whether certain conduct amounted to avoidance of the contract). 22 Official Records of the United Nations Conference, supra note 11, at 18, suggesting, however, that Article 8 is restricted to the interpretation of a contract “when the contract is embodied in a single document”. 23 See W.A. Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG), 32 (2000); F. Bydlinski, Das allgemeine Vertragsrecht, in Das UNCITRAL-Kaufrecht im Vergleich zum sterreichischen Recht 74 (H. Doralt ed., 1985); F. Enderlein et al., Internationales Kaufrecht. Kommentar 67 (1991); E. Allan Farnsworth, Art. 8, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 101 (C.M. Bianca & M.J. Bonell eds., 1987); A.M. Lopez Lopez, Art. 8, in La compraventa internacional de

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law cited in the draft Digest,24 it “is equally applicable to the interpretation of ‘the contract.’25

III. Interpretation according to the subjective intent of a party

(Article 8(1)) Article 8, which does not have an antecedent in the 1964 Hague Uniform Laws26 but is modelled after the UNIDROIT Draft Law for the Unification of Certain Rules Relating to the Validity of Contracts for the International Sale of Goods,27 lists two different interpretive rules in Articles 8(1) and 8(2). As can easily be derived from the wording of these provisions, the drafters intended to lay down the order in which those rules would apply.28 Accordingly, one has to first interpret a statement or conduct subjectively, on the basis of Article 8(1)29 – i. e., one has to resort first to the real “subjective intention” of the declaring party,30 and a mere hypothetical

mercaderias. Comentario de la convencion de Viena 115 (L. Diez-Picazo ed., 1998). But see V. Heuz, La vente internationale de marchandises No. 235 (2d ed., 1999). 24 See ICC Court of Arbitration, Case No. 7331, 1994, CLOUT case No. 303 (Journal du droit international, 1995, 1001). 25 See Bundesgericht, Switzerland, 22 December 2000, available at http://www.cisg.law.pace.edu/cisg/text/001222s1german.html. 26 See, e. g., Ferrari, supra note 16, at 172; U. Huber, Der UNCITRAL-Entwurf eines bereinkommens
ber Internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 429 (1979); U. Magnus, Wiener UN-Kaufrecht (CISG) 164 (1999). 27 See Farnsworth, supra note 23, at 95; Lopez Lopez, supra note 23, at 113 f. 28 For similar statements, see Ferrari, supra note 16, at 174; W. Junge, Art. 8, in Commentary on the UN Convention on Contracts for the International Sale of Goods (CISG) 70 (P. Schlechtriem ed., 1998); B. Rudolph, Kaufrecht der Export- im Importvertrge 140 (1996). 29 Commentators have often highlighted the order referred to in the text, i.e., the prevalence of the criterion referred to in Article 8(1) over that contained in Article 8(2). See, e. g., Ferrari, supra note 16, at 174; Fioravanti, supra note 16, at 34; R. Herber & B. Czerwenka, Internationales Kaufrecht 52 (1992); K. Neumayer & C. Ming, Convention de Vienne sur les Cotnracts de Vente Internationale de Marchandises. Commentaire 111 (1993); Michael van Alstine, Consensus, Dissensus, and Contractual Obligation through the Prism of Uniform International Sales Law, 37 Va. J. Int’l L. 58 (1996). 30 For an express reference to “subjective” interpretation, see Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://cisgw3.law.pace.edu/cisg/text/000830g1german.html.

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intention is not relevant.31 As the draft Digest shows, one court paraphrased the rule in Article 8(1), stating that it requires a substantial inquiry into the parties’ subjective intent, even if the parties did not engage in any objectively ascertainable means of registering this intent. Article 8(1) ... instructs courts to interpret the “statements ... and other conduct of a party... according to his intent” as long as the other party “knew or could not have been unaware” of that intent. The plain language of the Convention, therefore, requires an inquiry into a party’s subjective intent as long as the other party to the contract was aware of that intent.32 Article 8(1) also applies if the other party could not have been unaware of such intent.33 This means, as correctly pointed out in scholarly writing34 (although confirmation of this in case law is still lacking), that where the addressee of a statement does not recognize the intent of the party making the statement even though it is easily recognizable, that addressee will be bound by the declaring party’s subjective intention. And if the addressee understands the declaring party’s real subjective intention, despite that party’s unclear or incorrect language, the declaring party’s real subjective intention will be binding,35 regardless of what a reasonable person may have understood.36 Thus, according to commentators (case law on this point is missing, which is why once again the draft Digest does not refer to this issue and therefore is of limited help), the principle “falsa demonstratio non nocet” applies.37

31

Junge, supra note 28, at 70. 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1387). For other cases in which the part of Article 8(1) referred to in the text was invoked, see Cour d’appel de Grenoble, France, 21 October 1999, CLOUT case No. 313 (Somm. 441-442 Recueil Dalloz (2000)); Bundesgerichtshof, Germany, 11 December 1996, CLOUT case No. 268 (Neue Juristische Wochenschrift 873 ff. (1997)). 33 For references to this part of the Article 8(1), see, e. g., Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationlaes und europisches Recht 84 f. (1998)). 34 Magnus, supra note 26, at 166. 35 B. Piltz, Internationales Kaufrecht 67 (1993). 36 Farnsworth, supra note 23, at 98. 37 Accord, Achilles, supra note 23, at 32; M. Jametti Greiner, Der Vertragsabschluss, in Das Einheitliche Wiener Kaufrecht 53 (H. Hoyer & W. Posch eds., 1992); Magnus, supra note 26, at 166. 32

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Of course, for the subjective intent of a party to be relevant at all, it must somehow have been manifested.38 This view was adopted by a German court that, according to the draft Digest, held that “the intent that one party secretly had, is irrelevant”.39 That court also stated – correctly, in this author’s opinion – that the party who asserts that the other party did know or could not have been unaware of the former party’s subjective intent has to prove that assertion.40

IV. Interpretation according to objective intent: General issues Although courts must first try to establish the meaning of a statement or other conduct by looking into the subjective intent of the party making the statement or performing the conduct,41 as correctly pointed out by one arbitral tribunal, “most cases will not present a situation in which both parties to the contract acknowledge a subjective intent ... In most cases, therefore, Article 8(2) of the [Convention] will apply, and objective evidence will provide the basis for the court’s decision”.42 The fact that in most cases Article 8(1) will be inapplicable is, according to the aforementioned arbitral tribunal, due to the fact that Article 8(1) requires either that the parties have established practices between themselves and know each other well, or that the statements are very clear about the declarant’s subjective intent.43 Thus if, in the interpretation of a statement or conduct (or omission)44 of a party, it is not possible to rely on Article 8(1), one must – according to both case law45 and commentary46 – resort to “a 38

See Lopez Lopez, supra note 23, at 120; Witz et al., supra note 3, at 98. Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des Internationalen Privat- und Verfahrensrechts 400 ff. (1991)). 40 Id. 41 See, e. g., ICC Court of Arbitration, Case No. 8324, 1995, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText. 42 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1384). For similar statements in legal writing, see, e. g., John Murray, Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & Com. 48 (1988); Witz et al., supra note 3, at 98. 43 ICC Court of Arbitration, Case No. 8324, 1995 available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText. 44 See, the authority cited supra in note 10, and Junge, supra note 3, at 142. 45 See ICC Court of Arbitration, Case No. 8324, 1995, available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText. For other cases expressly referring to the need, absent the possibility of a subjective interpretation, to interpret the statements or conduct of the parties on a more “objective” basis, see Oberlandesgericht 39

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more objective analysis” provided for in Article 8(2). According to this provision, which is often relied upon in cases,47 (as can easily be deduced from the draft Digest), the statements and 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. According to one court, this means simply that a tribunal must “reasonably interpret the parties’ statements”.48 This also means, however, that the actual understanding of the addressee of the statement to be interpreted is

Kln, Germany, 16 July 2001, available at http://www.cisg.law.pace.edu/cisg/text/ 010716g1german.html; Bundesgericht, Switzerland, 22 December 2000, available at http:// www.cisg.law.pace.edu/cisg/text/001222s1german.html; Oberlandesgericht Frankfurt, Germany, 30 August 2000, available at http://cisgw3.law.pace.edu/cisg/text/000830g1german. html; 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1384); Hoge Raad, Netherlands, 7 November 1997, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=333&step=FullText; Landgericht Kassel, Germany, 15 February 1996, CLOUT case No. 409, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/ text/190.htm. 46 For a reference in legal writing to the fact that Article 8(2) can only be used where Article 8(1) is not applicable, see Bydlinski, supra note 23, at 74; Peter J. Calleo, The Inapplicability of the Parol Evidence Rule to the United Nations Convention on Contracts for the International Sale of Goods, 26 Hofstra L. Rev. 819 (2000); Ferrari, supra note 16, at 175; Fioravanti, supra note 16, at 34; Kaczorowska, supra note 16, at 297; Murray, supra note 42, at 46; van Alstine, supra note 29, at 58. 47 For cases referring to this provision and wording, see Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/519.htm; Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189 (Zeitschrift f
r Rechtsvergleichung 204 ff. (1997)); Hoge Raad, Netherlands, 7 November 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=333&step=FullText; Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationals und europisches Recht 84 f. (1998)); Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166 (Recht der internationalen Wirtschaft 766 ff. (1996)); Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 17 November 1995 (Arbitral Award No. Vb 94124, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=217&step=Full Text; Federal Court of Adelaide, Australia, 28 April 1995, CLOUT case No. 308 (Roder Zeltund Hallenkonstruktionen v. Rosedown Park Pty Ltd and Reginald R Eustace), available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/218.htm; Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)). 48 Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/282.htm.

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irrelevant, as was made clear in a decision by the German Supreme Court.49 Instead, one has to resort to the understanding of a normally diligent businessman50 that has the same knowledge as the actual addressee of how business is conducted in the trade concerned,51 of technical language,52 and of the technical implementation of the transaction.53 According to one author, this signifies that the addressee’s understanding “therefore applies in this case too, but in a generalized form;”54 in other words, the reasonable person referred to in Article 8(2) is “not a reasonable person in the abstract”.55 What happens, however, when the “objective interpretation” attributed to a statement differs from that which the declaring party wanted to attribute to it? Since this issue should be characterized as one of validity of the contract,56 which pursuant to Article 4(a) falls outside the CISG’s scope of application,57 the issue of whether the contract can be rescinded on the grounds of mistake will depend on the applicable domestic law, as pointed out not only by commentators,58 but also by the Austrian Supreme Court.59

49 Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270 (TransportrechtInternationales Handelsrecht 18 ff. (1999)). 50 See Herber & Czerwenka, supra note 29, at 53; Kaczorowska, supra note 16, at 304. 51 See Witz et al., supra note 3, at 99. 52 See Lopez Lopez, supra note 23, at 125. 53 See Achilles, supra note 23, at 32. For a discussion at the Vienna Diplomatic Conference of the concept of the reasonable person to be taken into account, see Official Records of the United Nations Conference, supra note 11, at 260-61. 54 Junge, supra note 28, at 72. 55 Farnsworth, supra note 23, at 99. 56 See Herber & Czerwenka, supra note 29, at 53. 57 It may well be that a validity issue comes within the scope of the CISG – for example the validity of a contract affected by a mistake regarding the characteristics of the goods. The issue referred to in the text, however, is one of those validity issues that is not governed by the CISG. In this respect, see F. Ferrari, Art. 4, in Kommentar zum Einheitlichen UN-Kaufrecht, supra note 3, at 95 ff.; Helen Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale J. Int’l L. 1 ff. (1993); Christoph R. Heiz, Validity of Contracts Under the United Nations Convention on Contracts for the International Sale of Goods, April 11 1980, and Swiss Contract Law, 20 Vand. J. Transnat’l L. 639 ff. (1987); A. Schluchter, Die G
ltigkeit von Kaufvertrgen unter dem UN-Kaufrecht (1996); Todd Weitzmann, Validity and Excuse in the U.N. Sales Convention, 16 J.L. & Com. 265 ff. (1997). 58 See Achilles, supra note 23, at 33; Farnsworth, supra note 23, at 102; Karollus, supra note 16, at 41; Neumayer, Ming, supra note 29, at 114; P. Schlechtriem, Internationales UNKaufrecht 36 (1997); A. L
deritz and A. Fenge, Art. 8 CISG, in B
rgerliches Gesetzbuch mit

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V. Interpretation according to objective intent: Case law Since “in most cases, ... Article 8(2) of the [Convention] will apply, and objective evidence will provide the basis for the court’s decision”,60 rather than Article 8(1) and its “subjective interpretation”, it is not surprising that courts have relied upon Article 8(2) to solve various interpretive problems. In order to show the effects of an “objective” interpretation, some cases cited in the draft Digest will be discussed. In one case, a Swiss court inferred the buyer’s intention to be bound and the quantity of the goods by interpreting the buyer’s statements and conduct according of the understanding of a reasonable person of the same kind as the other party in the same circumstances. The court held that, absent any relevant circumstance or practice between the parties at the time the contract was concluded (which must always be taken into account), the buyer’s intention to be bound could be deduced from the buyer’s request to the seller to issue an invoice for the delivered textiles.61 The Austrian Supreme Court has noted that according to Article 14(1) CISG, a declaration must be sufficiently definite in order to constitute a proposal, and that a proposal is sufficiently definite where it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. The Court then stated that for the offer to be accepted, “it suffices that the required minimum content can be understood as being sufficiently definite as understood by ‘a reasonable person of the same kind’ as the other party (offeree) ‘in the same circumstances.’62 In determining the quality of goods agreed upon, the German Supreme Court held that, since the parties had a different understanding of the meaning of the contract, the language of the contract had to be interpreted according to Article 8(2), i. e., “according to the understanding that a reasonable person of the same kind as the other party would have had in the Einf
hrungsgesetzen und Nebengesetzen, vol. 13, bereinkommen der Vereinten Nationen
ber Vertrge
ber den internationalen Warenkauf (CISG) 29 (2000). 59 See Oberster Gerichtshof, Austria, 20 March 1997, CLOUT case No. 189 (sterreichische Juristische Bltter 592 f. (1997)). 60 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1384). 61 Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationals und europisches Recht 84 f. (1998)). 62 Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 (1995)).

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same circumstances”. The buyer was an expert and knew that it had not been offered a new machine, but rather one which was built fourteen years prior to the conclusion of the contract. Consequently, the machine did not conform to the latest technical expectations. The court of first instance had found that, under Article 8(2), the seller was entitled to expect that the buyer had concluded the contract in full knowledge of the technical limitations of the machinery. The supreme court concurred with the court of first instance that the machine sold was offered to the buyer in conformity with the specifications of the contract.63 In another case,64 a different German court cited Article 8(2) CISG as “the primary source of interpretation”. It held that the claim for the purchase price was due at the end of the agreed period for payment. Only within this period was the buyer allowed to propose a compensation transaction as provided in the contract. The offer would have given the [buyer] a respite in payment while the performance of the compensation transaction would have fulfilled the [buyer’s] obligation to pay the purchase price. The parties’ interests also point in favor of such an understanding of their agreement. While the [buyer] would have benefited from reciprocal shipments which allowed it to set-off its payment obligation against the [seller’s], it was evidently important for the [seller] to receive a [monetary] equivalent for its goods no later than at the expiration of the payment period. In particular, the [buyer] could not have been unaware that it would have been commercially unreasonable for the [seller] to grant a respite in payment beyond the agreed period only upon the [buyer’s] announcement of a compensation transaction. Article 8(2) was also used in a dispute relating to non-conformity of the goods in order to determine whether the seller had, through its behavior, implicitly waived its right to invoke the defense that notice of nonconformity was not timely under Article 39(1).65 More specifically, the court stated that a seller who enters into negotiations over the lack of conformity of the goods need not necessarily be regarded as having waived its rights under Article 39. Instead, the circumstances of each case should be considered, a view this author shares. Since after its own inspection of the claimed defect, the seller in the case at hand “negotiated over the amount 63

Bundesgericht, Switzerland, 22 December 2000, available at http://www.cisg.law.pace.edu/ cisg/text/001222s1german.html. 64 Oberlandesgericht Dresden, Germany, 27 December 1999, available at http://www.jura. uni-freiburg.de/ipr1/cisg/urteile/text/511.htm. 65 Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270 (TransportrechtInternationales Handelsrecht 18 ff. (1999)).

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and manner of a settlement of damages for practically 15 months – ... without expressly or at least discernibly reserving the objection to the delay” and even “offered through legal counsel to pay compensatory damages that amount to practically seven times the value of the goods”,66 Articles 8(2) and 8(3) led the court to state that “the [buyer] could only reasonably understand that the [seller] was seeking a settlement of the affair and would not later refer to the allegedly passed deadline as a defense to the [buyer’s] reimbursement claim”, i. e. that the seller had waived its right to rely on the untimeliness of the notice. According to another court,67 such a waiver cannot be assumed from the mere readiness of the seller to discuss the issue with the buyer. This results both from the need for certainty in commercial transactions and from the principle of good faith, which is applicable also in the interpretation of the parties’ statements or other conduct. One court resorted to Article 8(2) to interpret the clause “franco domicile” contained in a contract. The court found that this clause dealt not merely with the cost of transporting the goods but also with the passing of the risk. In reaching this conclusion, the court interpreted the phrase ‘franco domicile’ according to the understanding that a reasonable person would have had in the same circumstances (Article 8(2)). In the court’s opinion, a buyer entitled to the delivery of goods ‘franco domicile’ would not worry about transportation and insurance for the goods. Furthermore, the court found that the fact that the seller obtained transport insurance meant that it was prepared to take the risk of the transportation of the goods. According to the court, this clearly indicated the parties’ intention to accept the passing of the risk at the buyer’s place of business, and accordingly to deviate from Article 31(a). In a different case,68 Article 8(2) was invoked in order to determine whether the conduct of one party indicated that an agreement as to the purchase price had been reached by the parties. Since the buyer had taken delivery of the goods without contesting the price indicated by the seller, and since such conduct was to be interpreted as acceptance of the price under Article 8(2), the court ordered the buyer to pay the price requested by the seller.

66

Id. Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Schweizerische Zeitschrift f
r internationales und europisches Recht 186 ff. (1999)). 68 Cour d’appel de Grenoble, France, 26 April 1995, CLOUT case No. 151, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/default.htm. 67

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Article 8(2) and the interpretive standards to which it refers were also invoked in order to determine whether a loss was to be considered foreseeable under Article 74.69

VI. Elements to be taken into account in interpreting statements: Negotiations and the parol evidence rule Article 8(3) provides that, in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case,70 including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.71 According to both commentators72 and courts,73 these criteria have to be taken into account whenever a statement or conduct has to be interpreted, i. e., regardless of whether the interpretation is to occur under Article 8(1)74 or Article 8(2).75 As the list of relevant criteria in Article 8(3) is non-exhaustive,76 however, other elements may become germane. One court, for instance, stated that in the interpretation of statements or conduct the good faith principle referred to in Article 7(1) in connection with interpreting the Convention, must also

69 Oberster Gerichtshof, Austria, 14 January 2002, available at http://131.152.131.200/cisg/ urteile/643.htm. 70 See Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Praxis des internationalen Privat- und Verfahrensrechts 137 (1996)). 71 For references in case law to Art. 8(3), see Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationales und europisches Recht 84 f. (1998)); Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)). 72 See B. Audit, La vente Internationale de Marchandises 43 (1991); Melis, supra note 10, at 94; Murray, supra note 42, at 48; Rudolph, supra note 28, at 142. 73 In arbitration, see ICC Court of Arbitration, Case No. 8324, 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText. 74 See Bundesgerichtshof, Germany, 11 December 1996, CLOUT case No. 268 (Der Betrieb 572 (1997)) stating that the elements referred to in art. 8(3) have to be taken into account when interpreting a statement or other conduct by a party under art. 8(1). 75 See Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106 (Zeitschrift f
r Rechtsvergleichung 79 ff. (1995)). 76 According to both the legislative history (see Official Records of the United Nations Conference, supra note 11, at 18) and scholarly writing (see Bydlinski, supra note 23, at 75; Farnsworth, supra note 23, at 100; Ferrari, supra note 16, at 179; Lopez Lopez, supra note 23, at 125; Melis, supra note 10, at 96), the list of circumstances to be taken into account is not an exhaustive list.

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be considered.77 Taking into account all these elements may, as pointed out both in scholarly writing78 and by case law referred to in the draft Digest,79 result in silence amounting to acceptance of an offer. With respect to the circumstances expressly listed in Article 8(3), it has been suggested that the order in which the circumstances appear indicates a hierarchy to be followed in employing them.80 Pursuant to that view, priority is to be given to the negotiations, a view justified on the basis that the contents of a contract can – more often than not – be deduced mainly from the negotiations.81 Despite this view, which I share,82 one court applied the so-called “parol evidence rule” to a contract governed by the Convention.83 This rule, which notwithstanding its name applies indiscriminately to both parol and written evidence,84 seeks to give legal effect to the contracting parties’ final, and in certain instances complete, expressions of their agreement which they have reduced to writing. Consequently, where the agreement is supposed to be a complete integration, the parol evidence rule prohibits a party from introducing evidence of prior agreements or negotiations that contradict or even are consistent with the writing. This means, however, that the parol evidence rule is inconsistent with Article 8(3), by virtue of which the negotiations have to be taken into account in the interpretation of a contract. This is why the majority of commentators rightly find that the parol evidence rule does not apply to contracts governed by the CISG.85 Moreover, this decision is in contrast with opinions from 77

Handelsgericht Z
rich, Switzerland, 30 November 1998, CLOUT case No. 251 (Schweizerische Zeitschrift f
r internationales und europisches Recht 186 ff. (1999)). See also Schiedsgericht der Handekkammer Hamburg, Germany, 21 June 1996, CLOUT case No. 166, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=196&step= FullText. 78 See Junge, supra note 28, at 73; Rudolph, supra note 28, at 140. 79 See U.S. District Court for the Southern District of New York, United States, 14 April 1992, CLOUT case No. 23 (Filanto S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229). 80 See Witz et al., supra note 3, at 102. 81 See Audit, supra note 72, at 43. 82 See Ferrari, supra note 16, at 180-81. 83 5th Circuit U.S. Court of Appeals, United States, 15 June 1993 (Beijing Metals & Minerals Import/Export Corporation v. American Business Center, Inc., 993 F.2d 1178). 84 See, e. g., Calleo, supra note 46, at 806-07. 85 See Ron N. Andreason, MCC-Marble Ceramic Center: The Parol Evidence Rule and Other Domestic Law under the Convention on Contracts for the International Sale of Goods, 1999 BYU L. Rev. 351 ff. (1999); Audit, supra note 72, at 43 note 3; Louis F. Del Duca & Patrick Del Duca, 106 Dick. L. Rev. 208-10 (2001); Samuel J.M. Donnelly & Mary Ann Donnelly, Commercial Law, 49 Syracuse L. Rev. 303 (1999); Anite Esslinger, Contracting in the Global Marketplace:

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several U.S. courts,86 which the draft Digest also quotes without taking any position as to which of the opposing views is the better one. Thus here is another example where more guidance would better promote the uniform and correct application of the CISG. One court87 expressly stated that “the parol evidence rule is not viable in [Convention] cases in light of Article 8 of the Convention”,88 since Article 8(3) expressly directs courts to give ‘due consideration ... to all relevant circumstances of the case including the negotiations’ to determine the intent of the parties. Given Article 8(1)’s directive to use the intent of the parties to interpret their statements and conduct, Article 8(3) is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the parties’ intent. According to another court, “Article 8(3) essentially rejects ... the parol evidence rule”.89 And another court correctly stated that “contracts governed by the [Convention] are freed from the limits of the parol evidence rule and there is a wider spectrum of admissible evidence to consider in construing the terms of the parties’ agreement”.90 One court, after pointing out the problems that may arise under the Convention with respect to parol evidence, stated that to the extent parties The UN Conventions on Contracts for the International Sale of Goods and the Limitation Period in the International Sale of Goods, SE06 A.L.I.-A.B.A. 84 (1999); Sunil R. Harjani, The Convention on Contracts for the International Sale of Goods in United States Courts, 23 Hous. J. Int’l Law 77 ff. (2000); Monica Killian, CISG and the Problem with Common Law Jurisdictions, 10 J. Transnat’l L. & Pol. 231 (2001); Lopez Lopez, supra note 23, at 118; Murray, supra note 42, at 46; Witz et al., supra note 3, at 96. 86 In addition to the decisions referred to subsequently in the text, see U.S. District Court for the Western District of Michigan, United States, 17 December 2001 (Shuttle Packaging Systems v. Tsonakis et al., 2001 U.S. Dist. LEXIS 21630) also available at http://www. cisg.law.pace.edu/cisg/wais/db/cases2/011217u1.html; U.S. District Court for the Northern District of Illinois, United States, 27 October 1998, CLOUT case No. 419 (Mitchell Aircraft Spares, Inc. v. European Aircraft Service AB, 23 F. Supp. 2d 915). 87 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1384). 88 Id. 89 U.S. District Court for the Southern District of New York, 14 April 1992, CLOUT case No. 23 (Filanto S.p.A. v. Chilewich Int’l Corp., 789 F. Supp. 1229). 90 U.S. District Court for the Southern District of New York, United States, 6 April 1998, CLOUT case No. 413 (Calzaturificio Claudia S.n.c. v. Olivieri Footwear Ltd., 1998 U.S. Dist. LEXIS 4586).

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wish to avoid parol evidence problems they can do so by including a merger clause in their agreement, thus extinguishing any and all prior agreements and understandings not expressed in the writing.91

VII. Elements to be taken into account in interpreting statements:

Subsequent conduct Pursuant to Article 8(3), another element to be taken into account in the interpretation of statements is the subsequent conduct of the parties. According to one author, the reference to the subsequent conduct is surprising, “since the meaning of a statement is supposed to be determined at the time of its effectiveness”.92 This is why various authors (correctly) have stated that subsequent conduct merely serves to show what intention existed at the time the statement was made,93 a view held also by both a Swiss court94 and a German one.95 In the Swiss case,96 the court inferred the buyer’s intention to be bound and the quantity of the goods by interpreting the buyer’s statements and conduct according to the understanding of a reasonable person of the same kind as the other party in the same circumstances. It held that, absent any relevant circumstance or practice between the parties, the intention to be bound had to be interpreted according to the subsequent conduct, after the conclusion of the contract, of the party that had made the statement. In particular, it held that the buyer’s request to the seller to issue an invoice to the embroiderer for delivered textiles was sufficient evidence of the buyer’s intention to be bound at the time it made its proposal. Furthermore, the fact that the buyer complained about the quantity only two months after delivery to the embroiderer gave the court good reason to believe that a valid contract had been concluded for the sale of the quantity of textiles actually delivered to the embroiderer. It has also been stated that “waiver clauses” do not prevent subsequent conduct from being relevant, as the purpose of “waiver clauses” is simply to 91

11th Circuit U.S. District Court, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S.p.A, 144 F.3d 1384). 92 Schlechtriem, supra note 58, at 36-37. 93 See Achilles, supra note 23, at 33; Farnsworth, supra note 23, at 100; Magnus, supra note 26, at 168; Melis, supra note 10, at 97; Karollus, supra note 16, at 49. 94 Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationales und europisches Recht 84 f. (1998)). 95 Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5 (Praxis des internationalen Privat- und Verfahrensrechts 400 ff. (1991)). 96 Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r internationales und europisches Recht 84 f. (1998)).

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bar modification of the contract through conduct. These clauses should not, however, prevent subsequent conduct from being relevant for determining the meaning of a contract already concluded.97 Where subsequent conduct of one party conflicts with a statement that party made, the latter must prevail98 on the basis of the principle “protestatio facto contraria non valet”.99 Where, however, there is a contrast between the original common intention of the parties and their subsequent conduct, this may be seen as a modification of the contract pursuant to Article 29 CISG.100 This issue is another one of those not dealt with in the draft Digest, as case law on this point is still missing.

VIII. Standard contract terms and the language of statements Finally, it should be mentioned that Article 8 has also been invoked not only in commentary, but also in case law, to solve the problem of whether and under what conditions standard contract terms proposed by one party become part of the contract.101 As for case law (referred to in the draft Digest), the German Supreme Court has correctly held that the issue of the inclusion of standard terms is to be 97

See Witz et al., supra note 3, at 103. See Magnus, supra note 26, at 169; Melis, supra note 10, at 97. 99 See Junge, supra note 28, at 71. 100 See Schlechtriem, supra note 58, at 37. 101 For papers dealing in detail with the issue referred to in the text, see, e. g., W. Drasch, Einbeziehungs – und Inhaltskontrolle Vorformulierter Geschftsbedingungen im Anwendungsbereich des UN-Kaufrechts (1999); C.T. Ebenroth, Internationale Vertragsgestaltung im Spannungsverhltnis zwischen AGBG, IPR-Gesetz und UN-Kaufrecht, sterreichische Juristische Bltter 681 ff. (1986); A. Janssen, Kollidierende Allgemeine Geschftsbedingungen im internationalen Kaufrecht (CISG), Wirtschaftsrechtliche Bltter 453 ff. (2002); C.M. Moecke, Das UNCITRAL-bereinkommen
ber den Warenkauf und die Allgemeinen Geschftsbedingungen – doch etwas mehr als nichts?, Recht der internationalen Wirtschaft 678 ff. (1984); H.M
ller, Allgemeine Geschftsbedingungen im internationalen Wirtschaftsverkehr (1994); P. Schlechtriem, Kollidierende Geschftsbedingungen im internationalen Vertragsrecht, in Festschrift f
r Rolf Herber zum 70. Geburtstag 36 ff. (K.H.Thume ed., 1999); C. Sistermann, Die Anwendung des AGB-Gesetzes bei Geltung des Kaufrechts
bereinkommens der Vereinten Nationen vom 11. April 1980 am Beispiel formularmssiger Schadensersatzfreizeichnungen (1995); S. Teklote, Die Einheitlichen Kaufgesetze und das deutsche AGB-Gesetz (1994); F.G. von Westphalen, Allgemeine Geschftsbedingungen und Einheitliches Kaufgesetz, in Einheitliches Kaufrecht und nationales Obligationenrecht 49 ff. (P. Schlechtriem ed., 1987). 98

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resolved on the basis of the Convention’s interpretation rules rather than the rules of applicable domestic law.102 Invoking the interpretive criteria set forth in Article 8, the German Supreme Court stated that whether the standard contract terms are part of a proposal must be determined on the basis of how a “reasonable person of the same kind as the other party” would have understood the offer. Specifically, the court asserted that “it is required that the recipient of a contract offer that is supposed to be based on general terms and conditions has the possibility to become aware of them in a reasonable manner” and that “an effective inclusion of general terms and conditions above all requires that the intention of the offeror that it wants to include its terms and conditions into the contract be apparent to the recipient of the offer”. Furthermore, according to the court, the Convention requires the user of general terms and conditions to transmit the text or make it available” to the other party.103 A different German court104 reached basically the same conclusions, and in doing so it also dealt with the issue of the language in which statements have to be made to be effective. According to that court, in the absence of an express provision in the Convention, the inclusion of standard contract terms has to be decided on the basis of an interpretation of the contract in light of Article 8. A reference by one party to its standard terms must be such as to put a reasonable person of the same kind as the other party in a position to understand it and to gain knowledge of the standard terms. According to the court, one of the circumstances to be taken into account is the language in which the standard terms are written. In the case at hand the seller’s standard contract terms were not in the language of the contract. The seller should have sent a translation or at least a text both in the language of the contract and in the other language. Since, however, the seller had not done this, the standard contract terms had not become part of the contract. A similar solution was adopted by a Belgian court which stated that standard contract terms written in a language different from that of the contract cannot bind the other party.105 Another German court, furthermore, held that a party that accepts statements relating to the contract in a language different from the one used for the contract is bound by the contents of such statements, since it is up to that party to get acquainted with the contents of 102 Bundesgerichtshof, Germany, 31 December 2001 (Internationales Handelsrecht 14 ff. (2002)). 103 Id. 104 Landgericht Heilbronn, Germany, 15 September 1997, CLOUT case No. 345, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/562.htm. 105 Rechtbank Koophandel Hasselt, Belgium, 2 June 1999, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1999-06-02.htm.

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that statement.106 In this author’s opinion, this decision does not necessarily contradict the foregoing ones. However another German decision, also referred to in the draft Digest,107 is inconsistent with the foregoing decisions. In that case, the court held that whether a notice written in a language other than the language in which the contract was made (and not the language of the addressee) was effective had to be decided on a case-by-case basis, taking into account the understanding of a reasonable person and giving due consideration to usages and practices observed in international trade, as per Articles 8(2) and 8(3). The mere fact that the notice was given in a language that was not that of the contract or the addressee did not prevent the notice from being effective. The foreign language could be the language normally used in the respective trade sector, to which the parties may be considered to have agreed; and even where this was not the case, the notice would be effective if the debtor, as was true in the case before the court, could have reasonably been expected to request from the sender of the notice explanations or a translation. The cases that deal with the language issue again illustrate the limits of the draft Digest, which merely cites the various court decisions without commenting on them, even where the decisions conflict with each other. This goes to show that, although the draft Digest is useful, it should not be read acritically. 106

Landgericht Kassel, Germany, 15 February 1996, CLOUT case No. 409, available at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/190.htm. 107 Oberlandesgericht Hamm, Germany, 8 February 1995, CLOUT case No. 132 (Recht der Internationalen Wirtschaft 153 ff. (1997)).

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Trade usage and practices established between the parties: Article 9 Franco Ferrari* I. Introduction Despite the importance of Article 9 – it describes the extent to which trade usages and practices established between the parties are binding – it has seldom been referred to in case law, as evidenced by the limited number of court decisions cited in the draft Digest section dealing with this provision. Nor has it been frequently discussed in academic writing.1 Since the few existing cases have not dealt with all the issues which may arise in connection with trades usages and practices established between the parties, it is once again necessary to go beyond the Digest. This is true, however, not only with respect to the issues the draft Digest does not touch upon, but also with respect to those to which it refers by merely citing court decisions that in some cases contradict each other. The starting point for these remarks, obviously, is the text of Article 9, which has its predecessors in Article 13 ULF and Article 9 ULIS,2 but which *

Professor of International Law, Verona University School of Law. For articles on usages and practices, see Stephen M. Bainbridge, Trade Usages in International Sales of Goods: An Analysis of the 1964 and 1980 Sales Convention, 24 Va. J. Int’l L. 619 ff. (1984); M.J. Bonell, Die Bedeutung der Handelsbruche im Wiener Kaufrechts
bereinkommen von 1980, Juristische Bltter 385 ff. (1985); E. Allan Farnsworth, Unification of Sales Law: Usage and Course of Dealing, Unification and Comparative Law in Theory and Practice: Liber amicorum Jean Georges Sauveplanne 81 ff. (1984); F. Ferrari, La rilevanza degli usi nella convenzione di Vienna sulla vendita internazionale di beni mobili, Contratto e Impresa 239 ff. (1994); Aleksandar Goldstajn, Usages of Trade and Other Autonomous Rules of International Trade According to the UN (1980) Sales Convention, in International Sale of Goods: Dubrovnik Lectures 55 ff. (Ptar arcˇevic´ & Paul Volken, eds., 1986); V. Holl & O. Keßler, “Selbstgeschaffenes Recht der Wirtschaft” und Einheitsrecht – Die Stellung der Handelsbruche und Gepflogenheiten im Wiener UNKaufrecht, Recht der internationalen Wirtschaft 457 ff. (1995). 2 See W.H. Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG) 35 (2000); Michael Joachim Bonell, Art. 9, ¶ in Commentary on the International Sales Law 104 1

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nevertheless generated intense discussions at the 1980 Vienna Conference at which the final text of the CISG was adopted.3 Article 9, which is as dispositive as any other provision of the CISG4 (with the exception of Article 12), although this is nowhere pointed out in the draft Digest, defines the legal consequences of trade usages and practices within the framework of the CISG.5 With regard to their binding character, however, it is essential to note that the text of Article 9 distinguishes – as does the draft Digest6 – between usages and existing practices that have been accepted by the parties (paragraph (1)), and other relevant usages which bind the parties even in the absence of any agreement between them (paragraph (2)).7

II. Usages agreed to and practices established between the parties (Article 9(1)) A. Usages Under Article 9(1), the parties are bound by any usage to which they have agreed. As pointed out in case law (referred to in the draft Digest), such agreement need not be explicit;8 the agreement by which a usage becomes relevant may be implicit,9 as long as there is a real consent,10 and it can also take place after conclusion of the contract. (Cesare Massimo Bianca & Michael Joachim Bonell eds., 1987); R. Herber & B. Czerwenka, Internationales Kaufrecht. Kommentar zu dem bereinkommen der Vereinten Nationen vom 11 April 1980
ber Vertrge
ber den internationalen Warenkauf 56 (1991); W. Melis, Art. 9, Kommentar zum UN-Kaufrecht 99 (H. Honsell ed., 1997); U. Magnus, Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen, Wiener UNKaufrecht (CISG) 172 (13th revised ed., 1999). 3 See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee 89, 262 ff. (1981); Bonell, supra note 2, at 109-10. 4 See M.J. Bonell, Commento all’art. 9, Nuove leggi civ. comm. 38 (1989). 5 See Holl & Keßler, supra note 1, 457. 6 See draft UNCITRAL Digest comments on Article 9, ¶ 1. 7 See A. Goddard, El Contrato de Compraventa Internacional 80 (1994); Calvo Caravaca, Art. 9, in La compraventa internacional de mercaderas. Comentario de la Convencin de Viena 137 (L. Diez-Picazo ed., 1998). 8 See, e. g., Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/ 10_34499g.htm. 9 See Official Records of the United Nations Conference, supra note 3, at 19; Achilles, supra note 2, at 36; Bonell, supra note 2, at 107; Bonell, supra note 4, at 39; Ferrari, supra note 1, at 247; Melis, supra note 2, at 99; U. Huber, Der UNCITRAL-Entwurf eines bereinkommens

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The term “usage” is unfortunately not defined in the CISG.11 Nevertheless, this does not warrant recourse to domestic notions or definitions, as this would run counter to the ratio conventionis.12 As is the case with most of the terms used in the CISG,13 the concept of “usage” must be interpreted autonomously;14 in other words, it must be interpreted on its own, without resorting to the national law of the interpreter or to particular national concepts or perceptions.15 Accordingly, “usage” within the meaning of the
ber internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 427 (1979); M. Karollus, UN-Kaufrecht, 50 (1991); B. Rudolph, Kaufrecht der Export und Import Vertrge, Kommentierung des UN-bereinkommens
ber Internationale Warenkaufvertrge mit Hinweisen f
r die Vertragspraxis 141 (1996); W. Junge, Art. 9, in Kommentar zum Einheitlichen UN-Kaufrecht (CISG) 150-151 (P. Schelchtriem ed., 3d ed., 2000); A. L
deritz & A. Fenge, art. 9, B
rgerliches Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen, Volume 13, bereinkommen der Vereinten Nationen
ber Vertrge
ber den internationalen Warenkauf (CISG) 31 (2000); W. Witz et al., International Einheitliches Kaufrecht 107 (2000); to the same effect in the case law, see Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/10_34499g. htm. For the opposite view, see Goddard, supra note 7, at 80 ff.; Clayton P. Gilette, Harmony and Stasis in Trade Usages for International Sales, 39 Va. J. Int’l L. 713. (1999). 10 See Achilles, supra note 2, at 37; Herber & Czerwenka, supra note 2, at 57-58; Magnus, supra note 2, at 174. 11 See Goddard, supra note 7, at 80; Bonell, supra note 2, at 110-11; Bonell, supra note 4, at 38; Calvo Caravaca, supra note 7, at 140; Goldstajn, supra note 1, at 96; Melis, supra note 2, at 99; Rudolph, supra note 9, at 144; Junge, supra note 9, at 148. 12 See F. Ferrari, Vendita internazionale di beni mobili. Arts. 1-13. Ambito di applicazione. Disposizioni generali 187 (1994); Holl & Keßler, supra note 1, at 458. 13 For more details, see F. Ferrari, La jurisprudence sur la CVIM: un nouveau dfi pour les interprtes?, Revue de droit des affaires internationales 495 ff. (1998). 14 See Achilles, supra note 2, at 35-36; Bonell, supra note 2, at 111; Bonell, supra note 1, at 386; Calvo Caravaca, supra note 7, at 140; Ferrari, supra note 12, at 187; Herber & Czerwenka, supra note 2, at 57; Melis, supra note 2, at 99; Witz et al., supra note 9, at 107. 15 See F. Diedrich, Autonome Auslegung von Internationalem Einheitsrecht. Computersoftware im Wiener Kaufrecht 77 (1994); F. Ferrari, Besprechung von Magnus, Wiener UNKaufrecht, Berlin, 1995, Praxis des internationalen Privat- und Verfahrensrechts 65 (1997); V. Heuz, La vente internationale de marchandises – droit uniforme No. 95 (2d ed., 2000); P. Schlechtriem, Internationales UN-Kaufrecht 29-30 (1996); Paolo Torzilli, The Aftermath of MCC-Marble: Is This the Death Knell for the Parol Evidence Rule?, 74 St. John’s L. Rev. 859 (2000). In the case law, see Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=296&step=FullText (stating that German legal terms such as “mistake” and “warranties” are not transferable to the CISG); Gerichtsprsident Laufen, Switzerland, 7 May 1993, CLOUT case No. 201, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=105&step=FullText (stating that the CISG should be interpreted

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CISG includes all those actions or modes of behaviour (including omissions)16 that are generally and regularly observed in the course of business transactions in a specific area of trade or at a certain trade centre.17 It is not necessary, however, that the relevant commercial circles believe that the usages are binding.18

In contrast to usages that the parties are bound by under Article 9(2),19 usages to which the parties are bound by agreement under Article 9(1) need not be international, as is correctly pointed out in case law20 cited in the draft Digest.21 Local, regional or national usages may also be relevant under Article 9(1).22 Furthermore, Article 9(1), as opposed to Article 9(2),23 does not require that the usages be “widely known”24 – as was correctly stated by the Austrian Supreme Court.25 The fact that any rule agreed on by the parties supersedes those of the CISG26 has induced some authors to contend that an exact definition of “usages” is not relevant as far as Article 9(1) is concerned, although this is not true to the same extent in respect of Article 9(2).27 According to Article 4 CISG, the issue of validity is one generally28 not dealt with by the CISG,29 as has been expressly stated by the Austrian Supreme Court on two different occasions,30 both of which are cited in the draft autonomously and not from the national law viewpoint held by the individual applying the law). 16 See Ferrari, supra note 1, at 244; Junge, supra note 9, at 148. 17 See Bonell, supra note 2, at 112; Melis, supra note 2, at 99; Magnus, supra note 2, at 173. 18 See Junge, supra note 9, at 148. 19 See infra notes 53 ff and accompanying text. 20 See Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/ 10_34499g.htm. 21 See Melis, supra note 2, at 101; Karollus, supra note 9, at 51. 22 See Achilles, supra note 2, at 36; Bonell, supra note 2, at 388; Junge, supra note 9, at 15051. 23 See infra notes 51 ff and accompanying text. 24 To this effect, see L
deritz & Fenge, supra note 9, at 31; Magnus, supra note 2, at 173-74. 25 Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Juristische Bltter 318 (1999)). 26 See, e. g., Bonell, supra note 2, at 107. 27 See Magnus, supra note 2, at 173; Rudolph, supra note 9, at 144-45. 28 However, it follows from Article 11 CISG that the formal requirements under the applicable national law concerning validity do not govern as a rule. See, contrary to all others, Herber & Czerwenka, supra note 2, at 57. 29 See, e. g., Bonell, supra note 4, at 42; Karollus, supra note 9, at 50; Rudolph, supra note 9, at 143. 30 See Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.at/

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Digest. Thus whether usages agreed to by the parties are valid will depend on either the national law applicable by virtue of the private international law rules,31 as correctly stated by the Austrian Supreme Court,32 or in the case of usages that are common to certain trade centres (such as seaports or stock exchanges), the law applicable to that location.33 If it is determined that these usages are applicable (and effectively agreed upon), they prevail over the provisions of the CISG.34 This point was recently made in case law.35 B. Practices established between the parties “Practices” within the meaning of the CISG are modes of conduct that are regularly observed by or have been established between the parties to a specific transaction36 (such as, to name one of the examples referred to in the draft Digest,37 the prompt delivery of spare parts for machinery).38 Thus, the practice between the individual parties, rather than general practice, is decisive.39 This necessarily presupposes a business relationship characterised 1_4901i.htm; Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/ 10_34499g.htm. 31 See Goddard, supra note 7, at 83; Bonell, supra note 2, at 109-10; Ferrari, supra note 12, at 188; Holl & Keßler, supra note 1, at 460; Melis, supra note 2, at 100; L
deritz & Fenge, supra note 9, at 32; Magnus, supra note 2, at 174; Witz et al., supra note 9, at 111. 32 Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Zeitschrift f
r Rechtsvergleichung 63 (1999)). 33 See Junge, supra note 9, at 149. 34 See Goddard, supra note 7, at 81; F. Enderlein et al., Internationales Kaufrecht 70-71 (1991); Ferrari, supra note 12, at 192; Herber & Czerwenka, supra note 2, at 57-58; Holl & Keßler, supra note 1, at 460; Melis, supra note 2, at 101; Karollus, supra note 9, at 50; J.-P. Plantard, Un nouveau droit uniforme de la vente internationale: La Convention des Nations Unies du 11 avril 1980, Journal du droit international 317 (1988); Rudolph, supra note 9, at 143; Junge, supra note 9, at 147. 35 Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/ 10_34499g.htm. 36 See Bonell, supra note 2, at 387; Karollus, supra note 9, at 51; B. Piltz, Internationales Kaufrecht 69 (1993). 37 For other examples of court decisions referring to practices established between the parties, see Cour d’appel Grenoble, France, 21 October 1999, CLOUT case No. 313, available at http://witz.jura.uni-sb.de/CISG/decisions/211099v.htm; Cour d’appel Grenoble, France, 13 September 1995, CLOUT case No. 202 (Transportrecht-Internationales Handelsrecht 7 (1999)). 38 ICC Court of Arbitration, Case No. 8611, 1997, available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=229&step=FullText. 39 See Bonell, supra note 2, at 106; Bonell, supra note 4, at 39; Ferrari, supra note 12, at 189; Herber & Czerwenka, supra note 2, at 56-57; Holl & Keßler, supra note 1, at 457; Melis, supra

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by a certain duration and the conclusion of a number of contracts.40 Thus, the requirements are not satisfied in the case of a relationship between two parties limited to two prior contracts that were concluded simultaneously.41 Furthermore, no practice can arise from a single delivery of goods between the parties.42 Another court decision on this issue,43 also cited in the Digest (unfortunately without any comment as to whether the view expressed therein is correct), is surprising, to say the least. The court ruled that a party’s perceptions from preliminary discussions, although not expressly agreed upon, could become “practices” within the meaning of Article 9 even at the outset of the business relationship, provided that the business partner realizes from these circumstances that the other party is only willing to enter into a contract under certain conditions or in a certain form. The fact that parties are bound by those practices that have originated between them in the course of extended business relations is in keeping with the general principles of good faith underlying the CISG,44 as well as the prohibition of venire contra factum proprium.45 An element of trust, which should not be frustrated, has come into existence between the parties.46 Accordingly, for instance, a party cannot contend that the contract does not provide for notification periods if existing practices indicate the opposite. The parties may, of course, dispense with these practices by agreement.47 note 2, at 100; Karollus, supra note 9, at 51; K. Neumayer & C. Ming, Convention de Vienne sur les contrats de vente internationale de marchandises. Commentaire 111 (1993); Rudolph, supra note 9, at 143; L
deritz & Fenge, supra note 9, at 31; Magnus, supra note 2, at 174. 40 See Junge, supra note 9, at 150; Schlechtriem, supra note 15, at 38. 41 See Zivilgericht Basel-Stadt, Switzerland, 3 December 1997, CLOUT case No. 221, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=372&step=FullText. See also Amstgericht Duisburg, Germany, 13 April 2000, CLOUT case No. 360 (Internationales Handeslrecht 115 (2001)), where it is explicitly pointed out that the requisite duration and continuity does not yet exist in the case of two previous deliveries. 42 See Landgericht Zwickau, Germany, 19 March 1999, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/519.htm. 43 Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176, available at http:// www.cisg.at/10_51895.htm. 44 See Melis, supra note 2, at 100; Junge, supra note 9, at 150. 45 See Calvo Caravaca, supra note 7, at 137; John O. Honnold, Uniform Law for International Sales No. 116 (3d ed. 1999); Melis, supra note 2, at 100; Rudolph, supra note 9, at 143; Witz et al., supra note 9, at 112. 46 See Herber & Czerwenka, supra note 2, at 56-57; Honnold, supra note 45, ¶ 116; L
deritz & Fenge, supra note 9, at 31. 47 See Honnold, supra note 45, ¶ 116; in case law, see ICC Court of Arbitration, Case No. 8817, 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=398&step=FullText.

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With regard to the relationship between practices existing between the parties and the provisions of the CISG, it must be assumed that the former have priority,48 as have usages agreed upon by the parties.49 Should the usages agreed upon contradict the practices established between the parties, the usages take precedence.50

III. The binding force of international trade usages (Article 9(2)) A. Widely-known and regularly-observed usages Even absent any agreement to that effect, the parties to an international sales contract may be bound by certain trade usages, as the parties “are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation”51 those usages. Thus, by means of a “fiction”,52 Article 9(2) makes applicable those trade usages. At the 1980 Vienna Diplomatic Conference concerns were expressed by several countries that Article 9(2) would lead to the applicability of usages unknown to them or in the development of which they had not taken part.53 As a result, the scope of the “fictional agreement” Article 9(2) refers to has been very narrowly circumscribed.54 Indeed, in order to be binding under Article 9(2) usages must be widely known and regularly observed in the particular

48

See Calvo Caravaca, supra note 7, at 138; Rudolph, supra note 9, at 143; Magnus, supra note 2, at 174; Witz et al., supra note 9, at 105-06. 49 See note 27 supra, and accompanying text. 50 See Achilles, supra note 2, at 38; Calvo Caravaca, supra note 7, at 138; Ferrari, supra note 12, at 192; A. Garro & A. Zuppi, Compraventa internacional de mercaderas 62 (1990); Piltz, supra note 36, at 69; G. Reinhart, UN-Kaufrecht, Kommentar zum bereinkommen der Vereinten Nationen vom 11 April 1980
ber Vertrge
ber den internationalen Warenkauf 35 (1991). For different opinions, see Magnus, supra note 2, at 174-75 (proposing a case-bycase approach); Enderlein et al., supra note 34, at 71 (holding the view that practices should take precedence). 51 Article 9(2). 52 See Achilles, supra note 2, at 37; Bonell, supra note 4, at 40; Enderlein et al. supra note 34, at 71; Herber & Czerwenka, supra note 2, at 58; Melis, supra note 2, at 101; Rudolph, supra note 9, at 143; Magnus, supra note 2, at 175; Witz et al., supra note 9, at 108. In case law, see Oberster Gerichtsohf, Austria, 21 March 2000, available at http://www.cisg.at/10_ 34499g.htm. 53 See Junge, supra note 9, at 151; H. van Houtte, Algemene Bepalingen en interpretatie, in Het Weens Koopverdrag 65 (H. van Houtte et al. eds., 1997). 54 See Schlechtriem, supra note 15, at 38-39.

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international trade concerned, as has been emphasized also in case law.55 Moreover, the parties must have known (or ought to have known) about the usages.56 If the aforementioned prerequisites are met, the usages are binding57 and take precedence over the CISG,58 as was correctly pointed out in two cases decided by the Austrian Supreme Court and mentioned in the draft Digest.59 The draft Digest also cites a recent U.S. decision that gives a different – less restrictive – reading of Article 9(2), stating that all “usages and practices of the parties or the industry are automatically incorporated into any agreement governed by the Convention, unless expressly excluded by the parties”.60 The draft Digest, as usual, limits itself to acritically citing all the cases, without taking a position as to which view is preferable. It is therefore once again up to commentators to determine which interpretation 55

See Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Juristische Bltter 318 (1999)). 56 See Ferrari, supra note 12, at 195; Herber & Czerwenka, supra note 2, at 58; Gilette, supra note 9, at 719; D. Maskow, The Convention on the International Sale of Goods from the Perspective of the Socialist Countries, in La vendita internazionale. La convenzione di Vienna dell’11 aprile 1980 58 (1981); Neumayer & Ming, supra note 39, at 117-18. In case law, see ICC Court of Arbitration, Case No. 8324, 1995 (English abstract available in Unilex at www.unilex.info); Zivilsgericht Basel-Stadt, Switzerland, 21 December 1992, CLOUT case No. 95, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=104& step=FullText. 57 Thus the decision of the U.S. District Court for the Southern District of New York, United States, 10 May 2002 (Geneva Pharms. Tech. Corp. v. Barr Labs. Inc., 201 F. Supp. 2d 236), according to which the usages always apply provided that the parties have not expressly negated them, is incorrect. 58 See B. Audit, La vente internationale de marchandises 45 (1990); P. Bernardini, La compravendita internazionale, in Rapporti internazionali nel diritto internazionale 82 (G. Mirabelli ed., 1991); F. Bydlinski, Das allgemeine Vertragsrecht, in Das UNCITRALKaufrecht im Vergleich zum sterreichischen Recht 76 (P. Doralt ed., 1985); S.M. Carbone, L’ambito di applicazione ed i criteri interpretativi della convenzione di Vienna sulla vendita internazionale, in La vendita internazionale. La convenzione di Vienna dell’11 aprile 1980 77 (1981); Calvo Caravaca, supra note 7, at 144; Ferrari, supra note 12, at 202; Garro & Zuppi, supra note 50, at 62; Gilette, supra note 9, at 711; Honnold, supra note 45, ¶ 122; Official Records of the United Nations Conference, supra note 3, at 19; Rudolph, supra note 9, at 145. 59 Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/ 10_34499g.htm; Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Juristische Bltter 318 (1999)). 60 U.S. District Court for the Southern District of New York, United States, 10 May 2002 (Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/020510u1.html#vi).

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is to be preferred and which is to be rejected. The correct view is that only those usages which the parties knew or ought to have known and which in international trade are widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned, apply through Article 9(2)) (and the less restrictive U.S. court’s interpretation is wrong). As previously mentioned,61 where there is a conflict between usages applicable by virtue of Article 9(2) and rules of the CISG, the former prevail; where, however, there is a conflict between usages agreed upon by the parties or practices established between them, under Article 9(1), and usages that are applicable by virtue of a fictional agreement between the parties referred to in Article 9(2), the former takes precedence.62 This conflict is not dealt with in the draft Digest, but the draft Digest touches upon a different conflict – that between individual contractual clauses and usages applicable by virtue of Article 9(2): it refers to a German court decision which (correctly) states that the contractual clauses prevail.63 This conclusion should not cause any dispute, as the precedence of the contractual clauses can clearly be derived from the introductory language of Article 9(2). No court has yet dealt with the issue of which usage is to be preferred where there is a conflict between several usages applicable under Article 9(2). In that case, it may be assumed that those usages most closely related to the contractual relationship would take precedence.64 As mentioned earlier, to bind the parties by virtue of Article 9(2) usages must be “widely known” in the relevant branch of international trade.65 This does not mean that all persons who are active in that particular trade must know those usages,66 nor is it necessary that the usages be known throughout the

61

See note 58 supra, and accompanying text. See Achilles, supra note 2, at 35; Bonell, supra note 4, at 40; Gilette, supra note 9, at 722; Herber & Czerwenka, supra note 2, at 58; Rudolph, supra note 9, at 144-45; L
deritz & Fenge, supra note 9, at 31; Magnus, supra note 2, at 175. 63 Oberlandesgericht Saarbr
cken, Germany, 13 January 1993, CLOUT case No. 292, available at http://www.cisg-online.ch/cisg/urteile/83.htm. 64 See Achilles, supra note 2, at 38. For a different suggestion, see Bonell, supra note 2, at 109, who is of the opinion that the contradicting usages cancel each other out. 65 The period during which usages have been exercised is irrelevant, provided that the usages are widely known and observed regularly. See Honnold, supra note 45, ¶ 120. 1; Magnus, supra note 2, at 176. 66 See Magnus, supra note 2, at 176. 62

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world.67 This requirement also does not preclude the application of those usages which may be of mere local relevance, or valid only in certain places, such as usages at trade exhibitions or seaports.68 For such local usages to be valid under Article 9(2), however, it is necessary that international trade occur at these places69 and that the usages comply with all requirements concerning the degree of recognition and regular observance.70 This view now finds support in case law that is cited in the draft Digest. According to an Austrian court,71 Article 9(2) does not mean that, in the future, purely national or local usages can find no application for the interpretation and supplementation of contracts without an explicit reference by the parties. One can still presume an exception for usages that are in force at certain stock markets, trade fairs or deposit sites, as long as the usage is also regularly observed there in the trade with foreigners. Furthermore, the possibility does not seem to be excluded that a foreign tradesman, who is constantly active in another country and has already formed a number of transactions there, is bound by possible national usages. Some commentators have suggested that the requirement concerning the regular observance of usages is a “superfluous” prerequisite, since all usages that are widely known would also be regularly observed.72 This is not valid,73 however, since it is certainly possible that particular usages in certain

67

See Achilles, supra note 2, at 37; Audit, supra note 58, at 46; Bonell, supra note 2, at 391; Calvo Caravaca, supra note 7, at 142; Ferrari, supra note 12, at 199; Herber & Czerwenka, supra note 2, at 58-59; Rudolph, supra note 9, at 145; Junge, supra note 9, at 151; van Houtte, supra note 53, at 65. 68 See Achilles, supra note 2, at 37; Audit, supra note 58, at 46; Bonell, supra note 2, at 109; Bonell, supra note 4, at 40; Ferrari, supra note 1, at 255; Herber & Czerwenka, supra note 2, at 59. For a different opinion, see Harold J. Berman & Colin Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 Harv. Int’l L.J. 221 (1978); Melis, supra note 2, art. 9, ¶ 8. 69 See Herber & Czerwenka, supra note 2, at 58-59; Junge, supra note 9, at 151; L
deritz & Fenge, supra note 9, at 31-32. 70 See Achilles, supra note 2, at 38-39; Audit, supra note 59, at 46; Bonell, supra note 2, 391; Calvo Caravaca, supra note 7, at 142; Ferrari, supra note 12, at 199; Honnold, supra note 45, ¶ 120. 1; Karollus, supra note 9, at 52; Neumayer & Ming, supra note 39, at 118-19; Magnus, supra note 2, at 176. 71 Oberlandesgericht Graz, Austria, 9 November 1995, CLOUT case No. 175, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=370&step=FullText. 72 See Huber, supra note 9, at 428. 73 Accord, Herber & Czerwenka, supra note 2, at 59.

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countries are also known in other countries, but are not regularly observed there.74 B. Extent of familiarity with usages Under Article 9(2), parties involved in a specific business transaction are bound only if usages are known to them at the time of conclusion of the contract,75 or if they ought to have been familiar with the usages. This subjective requirement76 would often but – and this is the point – not always be satisfied in the case of usages that are “widely known”; the requirement is therefore not dispensable or redundant.77 One could in fact conceive of cases where usages were not known to the particular parties and where the parties ought not necessarily to have known about these usages, even though such usages were indeed “widely known”.78 Some commentators have argued that only parties involved in the relevant trade and located in the area where usages are widely known are subject to being bound by usages because of constructive (as opposed to actual) knowledge of the usages.79 This view appears to find confirmation in case law as well, as evidenced by the draft Digest. According to the Austrian Supreme Court,80 a usage can bind a party by virtue of Article 9(2) only if it either has its place of business in the geographical area where the usage is applicable, or if the party permanently deals within the area where the usage is applicable. In an earlier decision, that same court had made a similar statement:81 it held that a party to an international sales contract is charged with being familiar only with those international trade usages that are commonly known and regularly observed by parties to contracts of that specific branch in the specific geographic area where the party in question has his or her place of business. 74

See also Enderlein et al., supra note 34, at 73; Ferrari, supra note 1, at 253. See Karollus, supra note 9, at 52. 76 See Achilles, supra note 2, at 37-38; Ferrari, supra note 12, at 196; A. Frignani, Il contratto internazionale 311 (1990); Herber & Czerwenka, supra note 2, at 59; Reinhart, supra note 50, at 36. But see Bainbridge, supra note 1, at 655, characterizing the requirement as an objective one. 77 To this effect, see Huber, supra note 9, at 428. See also L
deritz & Fenge, supra note 9, at 32 (pointing out the limited practical importance of the requirement). 78 See Enderlein et al., supra note 34, at 72; Ferrari, supra note 12, at 198. 79 To this effect, see Magnus, supra note 2, at 176; Achilles, supra note 2, at 37-38. 80 Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/10_ 34499g.htm. 81 Oberster Gerichtshof, Austria, 15 October 1998, CLOUT case No. 240 (Juristische Bltter. 318 (1999)). 75

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C. Silence as a response to commercial letters of confirmation Are rules governing silence by the recipient of a commercial letter of confirmation usages that are binding on the parties to a contract governed by the CISG? This question must be answered in light of what was said above with respect to Article 9(2) – a position confirmed by one court.82 Thus the rules pertaining to this issue may be understood as “usages” within the (autonomous) meaning of the CISG.83 However, neither this fact, nor the fact that the rules relating to letters of confirmation are valid at the place of business of the recipient, suffice to bind the parties under Article 9(2).84 It is required that both parties have their place of business in the area where this practice exists or that they conduct business there on a regular basis. Furthermore, the practice must be well known and regularly observed in the relevant branch of trade.85 This position finds confirmation in two out of the three decisions cited in the draft Digest on this issue, namely in a German court decision86 and a Swiss one.87 The third cited decision,88 however, contradicts the aforementioned ones, as it rejected (wrongly, in this author’s opinion) the idea that usages on the effects of silence in response to a letter of confirmation may be at all relevant under the CISG.

82

Zivilgericht Basel-Stadt, Switzerland, 21 December 1992, CLOUT case No. 95, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=104&step=FullText (stating that a letter of confirmation is contractually binding, provided that this manner of concluding a contract meets the requirements for a trade usage under Article 9 CISG). 83 To this effect, see M.J. Esser, Die letzte Glocke zum Geleit? – Kaufmnnische Besttigungsschreiben im Internationalen Handel: Deutsches, Franzsisches, sterreichisches und Schweizerisches Recht und Einheitliches Recht unter der Kaufrechtskonvention von 1980, Zetischrift f
r Rechtsvergleichung 188 ff. (1988); Piltz, supra note 36, at 69. 84 Accord, Herber & Czerwenka, supra note 2, at 59-60. But see T.C. Ebenroth, Internationale Vertragsgestaltung im Spannungsverhltnis zwischen AGBG, IPR-Gesetz und UN-Kaufrecht, Juristische Bltter 688 (1986). 85 See Achilles, supra note 2, at 36, ¶ 4; Bydlinski, supra note 58, at 79 ff.; Holl & Kessler, supra note 1, at 459; Neumayer & Ming, supra note 39, at 118-19; Schlechtriem, supra note 15, at 39; L
deritz & Fenge, supra note 9, at 32; Magnus, supra note 2, at 177; van Houtte, supra note 53, at 65 (setting less stringent requirements). 86 Oberlandesgericht Frankfurt, Germany, 5 July 1995, CLOUT case No. 276, available at http://www.cisg-online.ch/cisg/urteile/258.htm. 87 Zivilgericht Basel-Stadt, Switzerland, 21 December 1992, CLOUT case No. 95, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=104&step=FullText. 88 Landgericht Frankfurt, Germany, 6 July 1994, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=189&step=FullText.

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The foregoing remarks show once again that, although the draft Digest is useful in that it cites (supposedly) all the decisions and views to be found in case law, it does not provide enough guidance. Per se the draft Digest cannot help to resolve doubts where there is contradicting case law. Neither does is help where there is no case law. D. INCOTERMS and the Unidroit Principles As indicated in the draft Digest, the relationship between usages and the INCOTERMS has been dealt with in case law. Clearly the INCOTERMS may

be binding under Article 9(1) on the basis of an agreement between the parties89 or under Article 9(2), if the requirements set forth in that provision are met. But the recent statement of U.S. court90 that, pursuant to article 9(2) of the Convention, “INCOTERMS definitions should be applied to the contract despite the lack of an explicit INCOTERMS reference in the contract” is incorrect. The court held that where “a contract refers to CIFdelivery, the parties refer to the INCOTERMS”,91 even where an explicit reference to the INCOTERMS is lacking. A similar statement can also be found in an arbitral award,92 as well as in the decision of an Italian court93 that interpreted an FOB clause according to the INCOTERMS, even though the parties had made no reference to the INCOTERMS. In this author’s opinion (and other commentators hold the same view),94 that position is incorrect, as it does not take into account that in various countries abbreviations such as FOB, CIF, etc., do not always have the meaning ascribed to them by the INCOTERMS.95 Unfortunately, the fact that the draft Digest lists three decisions all holding the same view makes that view appear not only to be the correct one, but also the only one. This is not necessarily so. Once again, it is wise to take a critical approach toward the draft Digest and the material it provides. 89

See Melis, supra note 2, at 101. U.S. District Court for the Southern District of New York, United States, 26 March 2002 (St. Paul Insurance Co. v. Neuromed Medical Systems & Support, 2002 U.S. Dist. LEXIS 5096, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020326u1.html. 91 Id. 92 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 6 June 2000 (Award No. 406/1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000606r1.html). 93 Corte d’appello Genova, Italy, 24 March 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=198&step=FullText. 94 See, e. g., Witz et al., supra note 9, at 112; contra, see Goddard, supra note 7, at 85; Bonell, supra note 2, at 113-14; Bonell, supra note 4, at 42; Enderlein et al., supra note 34, at 73; Herber & Czerwenka, supra note 2, at 61. 95 Accord, Gilette, supra note 9, at 736 ff. 90

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This should also be kept in mind when considering those decisions cited acritically in the draft Digest holding that the UNIDROIT Principles of International Commercial Contracts constitute usages of the kind referred to in Article 9(2) CISG.96 Whether those Principles in fact constitute usages in the sense of Article 9(2) CISG is to be decided on a case-by-case basis. At this point the Principles do not necessarily constitute usages of which the parties knew or ought to have known and which in international trade are widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned, even though a few arbitrators and commentators state the contrary.

IV. Burden of proof In conclusion, the question of the burden of proof will be touched upon briefly, although this is an issue of great practical importance. The starting point of any discussion on this issue is the question of whether it is possible to draw up one or more general principles relating to the burden of proof that precludes the application of national law under Article 7(2). This is a controversial question.97 Although several authors have rejected the point of view that the burden of proof is governed by the CISG and have therefore suggested that national law applies,98 the prevalent opinion – including in case law – is to the contrary.99 In principle, according to the prevailing view, the party benefiting from a provision must prove the prerequisites set out by

96

See ICC Court of Arbitration, Case No. 9333, 1998, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=400&step=Abstract; International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation, Russian Federation, 5 June 1997 (award No. 229/1996, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=682&step=Abstract). 97 For monographs on the relationship between the CISG and procedural law in general and the burden of proof in particular, see M. Henninger, Die Frage der Beweislast im Rahmen des UN-Kaufrechts: Zugleich eine rechtsvergleichende Grundlagenstudie zur Beweislast (1995); R. Jung, Die Beweislastverteilung im UN-Kaufrecht (1996); B. Reimers-Zocher, Beweislastfragen im Haager und Wiener Kaufrecht (1995). 98 See, e. g., Warren Khoo, Art. 2, in Commentary on the International Sales Law, supra note 2, at 39. 99 See, e. g., Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003); Tribunale di Vigevano, 12 July 2000, CLOUT case No. 378 (published in English translation in 20 J.L. & Com. 209 ff. (2001). But see, e.g, ICC Court of Arbitration, Case No. 6653, 1993, CLOUT case No. 103 (Journal du droit international 1044 (1993)) (applying the Convention, but solving the problem of the burden of proof on the basis of non-uniform French law).

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Trade usage and practices established between the parties: Article 9

that provision.100 As far as the allocation of the burden of proof is concerned, the basic rule is therefore actore incumbit probatio. This rule has also gained recognition in case law,101 most recently in an Italian court decision rendered on January 8, 2003.102 Therefore, the party that alleges the existence of any binding usage has to prove it,103 at least in those legal systems104 that consider the issue as being one of fact105 or in which for other reasons the tribunal is not obliged to seek proof of the usage itself.106 Where the party that carries the burden of proof does not succeed in proving it, the alleged usage will not be binding.107 100

See U. Magnus, Die allgemeinen Grundstze im UN-Kaufrecht, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 489 (1995); Neumayer & Ming, supra note 39, at 77-78; Schlechtriem, supra note 15, at 33-34. 101 See supra note 99. 102 Tribunale di Rimini, Italy, 26 November 2002, Giurisprudenza italiana 896 ff. (2003). 103 See Herber & Czerwenka, supra note 2, at 62; Witz et al., supra note 9, at 111. 104 In Austria, the question of whether a specific trade usage exists is a factual question, as expressly stated in a decision by the Oberster Gerichtshof, Austria, 21 March 2000, available at http://www.cisg.at/10_34499g.htm. 105 Id. 106 See Goddard, supra note 7, at 84; Rudolph, supra note 9, at 145. 107 See, e. g., Oberlandesgericht Dresden, Germany, 9 July 1998, CLOUT case No. 347, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/559.htm (party alleging that recipient’s lack of response to a letter of confirmation constitutes consent was unable to establish that this was a valid international trade usage); Zivilgericht Basel-Stadt, Switzerland, 3 December 1997, CLOUT case No. 221, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=372&step=FullText (party alleging existence of a binding international trade usage according to which payment by means of direct transfer into the account of the seller is acceptable in the import trade industry need not prove that the parties ought to have been aware of this practice).

205

Writing requirements: Article 11-13 Franco Ferrari* I. Freedom from form requirements As pointed out both by commentators1 and courts,2 Article 11 CISG, which is based on Article 15 ULIS and Article 3 ULF,3 establishes for the Convention the principle of freedom from form requirements, which is also found in many domestic legal systems.4 Thus, under the CISG a contract of sale need in general not be concluded in writing and is not subject to any other specific requirement as to form.5 This means that a contract can, as has *

Professor of International Law, Verona University School of Law. See J. Adame Goddard, El contrato de compraventa internacional 73 (1999); K. Neumayer & C. Ming, Convention de Vienne sur les contrats de vente internationale de marchandises. Commentaire 126 (1993); B. Piltz, Internationales Kaufrecht 106 (1993); J. Rajski, Art. 11, in Commentary on the Uniform Sales Law: The 1980 Vienna Sales Convention 121 (Cesare Massimo Bianca & Michael Joachim Bonell, eds., 1987). 2 See Bundesgericht, Switzerland, 15 September 2000, available at http://www.bger.ch/ index.cfm?language=german&area=Jurisdiction&theme=system&page=content&maskd= 220. 3 Coca Pyeras, Art. 11, in La compraventa internacional de mercaderas. Comentario de la Convencion de Viena 150 (1998); R. Herber & B. Czerwenka, Internationales Kaufrecht 65 (1992). 4 Peter Schlechtriem, Art. 11, in Kommentar zum Einheitlichen UN-Kaufrecht 157 (Peter Schlechtriem ed., 3d ed., 2000). 5 See Oberster Gerichtshof, Austria, 9 March 2000, available at http://www.cisg.at/ 6_31199z.htm; Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215 (Schweizerische Zeitschrift f
r Internationales und Europisches Recht 84 (1998)); Oberster Gerichtshof, Austria, 2 February 1995 (Zeitschrift f
r Rechtsvergleichung 248 (1996)); Federal Court of Australia for the South Australian District in Adelaide, Australia, 28 April 1995, CLOUT case No. 308 (Roder Zelt-und Hallenkonstruktionen GmbHv. Rosedown Park Pty. Ltd., et al., available at http://cisgw3.law.pace.edu/cisg/wais/db/cases2/950428a2.html; Oregon Court of Appeals, United States, 12 April 1995, CLOUT case No. 137 (GPL Treatment v. Louisiana-Pacific, 133 Or. App. 633, also available at http://www.cisg.law.pace.edu/cisg/wais/ db/cases2/950412u1.html. See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of 1

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been confirmed by various court decisions, be concluded orally6 as well as through the conduct of the parties.7 Article 11, furthermore, also pre-empts domestic rules that require a contract to be signed to bind the parties, a view apparently shared by a Swiss court which stated that a signature was not necessary because a sales contract is not subject to any requirement as to form.8 From a substantive view Article 11 refers only to the conclusion of contracts. Thus, the principle of freedom from form requirements expressly applies only to matters that are relevant in the formation process (such as an offer, withdrawal, revocation, acceptance, etc.9). The informality principle, however, should in fact apply generally to all matters governed by the CISG.10 In respect of agreements that relate to the termination or modification of a contract governed by the CISG this can be derived from Article 29, which presupposes the principle set forth in Article 1111 and extends it to cover these other agreements.12 Consequently, both commentators13 and courts14 have rightly held that a written contract can be modified orally, provided the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee 20 (1981). 6 See 11th Circuit U.S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A., 144 F.3d 1384), also available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980629u1.html; Oberster Gerichtshof, Austria, 2 February 1995 (Zeitschrift f
r Rechtsvergleichung 248 (1996)); Oberlandesgericht M
nchen, Germany, 8 March 1995, CLOUT case No. 134, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/145.htm. For an example of a case where an oral contract was held to be valid, see Oberlandsgericht Kln, Germany, 22 February 1994, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/127.htm. 7 See Hof van Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven. ac.be/int/tradelaw/WK/2002-05-17.htm; Oberlandesgericht M
nchen, Germany, 8 March 1995, CLOUT case No. 134, available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 145.htm. 8 Handelsgericht St. Gallen, Switzerland, 5 December 1995, CLOUT case No. 330 (Schweizerische Zeitschrift f
r internationales und europisches Recht 53 (1996)). 9 W.H. Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG) 40 (2000). 10 U. Magnus, Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG) 183 (13th revised ed., 1999). 11 For a similar statements, see Schlechtriem, supra note 4, at 159. 12 F. Ferrari, Vendita internazionale di beni mobili. Art. 1-13. Ambito di applicazone. Disposizioni generali 221 f. (1994); Neumayer & Ming, supra note 1, at 126; Piltz, supra note, at 105. 13 M. Karollus, UN-Kaufrecht 78 (1991); W. Melis, Art. 11, in Kommentar zum UNKaufrecht 107 (H. Honsell ed., 1997). 14 Hof van Beroep Gent, Belgium, 17 May 2002, available at http://www.law.kuleuven.ac.be/

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that the written contract does not contain a provision requiring a modification or termination by agreement to be in writing.15 Furthermore, an implied termination of a contract has been held possible.16 In respect of those matters to which neither Article 11 nor Article 29 applies directly, freedom from form requirements depends on finding a general principle upon which the CISG is based. Such a principle can be derived from Articles 11 and 29, pursuant to which, as has been pointed out in case law (referred to in the draft Digest),17 parties are free to make any statement in any form, be it in writing or orally or in any other form.18 Of course, this general principle can only be resorted to where the statements relate to issues dealt with in the CISG. Therefore it is up to applicable domestic law to determine, for example, what form requirements have to be met for a choice of forum clause19 or an agreement restricting competition20 to be validly included in the contract.

int/tradelaw/WK/2002-05-17.htm; Oberster Gerichtshof, Austria, 2 February 1995 (Zeitschrift f
r Rechtsvergleichung 248 (1996)). 15 See ICC Court of Arbitration, Case No. 9117, 1998, available at http://www.unilex.info/ case.cfm?pid=1&do=case&id=399&step=FullText. 16 Oberster Gerichtshof, Austria, 29 June 1999 (Zeitschrift fu¨r Rechtsvergleichung, 2000, 33). 17 See Compromex Arbitration, Mexico, 16 July 1996, available at http://www.uc3m.es/cisg/ rmexi2.htm; Compromex Arbitration, Mexico, 29 April 1996, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=258&step=FullText; Oberster Gerichtshof, Austria, 2 February 1995 (Zeitschrift f
r Rechtsvergleichung 248 (1996)). 18 For this general principle, see, in legal writing, Achilles, supra note 9, at 40-41; Michael Joachim Bonell, Art. 7, in Commentary on the Uniform Sales Law, supra note 1, at 80; F. Ferrari, Das Verhltnis zwischen den UNIDROIT-Grundstzen und den allgemeinen Grundstzen internationaler Einheitsprivatrechtkonvention. Zugleich ein Beitrag zur L
ckenf
llung durch staatliche Gerichte, JuristenZeitung 12 (1998); Herber & Czerwenka, supra note 3, at 50; contra, i. e. denying that the principle of freedom from form requirements constitutes a general principle on which the CISG is based, M. Jametti Greiner, Der Vertragsabschluss, in Das Einheitliche Wiener Kaufrecht 46 f. (H. Hoyer & W. Posch eds., 1992). 19 Herber & Czerwenka, supra note 3, at 66; Melis, supra note 13, at 107; H. van Houtte, Algemeene bepalingen en interpretatie, in Het Weens Koopverdrag 69 (H. van Houtte et al. eds., 1997); contra, stating that where the choice of forum clause is inserted into a contract govnerned by the CISG, no form requirements have to be met, Piltz, supra note, at 106. 20 See Magnus, supra note 10, at 183.

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Writing requirements: Article 11-13

II. Definition of “form” and the rules superseded by the CISG According to Article 11, not only does a contract not have to be concluded in writing, it also “is not subject to any other requirement as to form”. Unfortunately, the CISG does not provide a definition of what constitutes a “form” requirement. The CISG merely contains a dispositive provision,21 Article 13, that equates telegrams and telexes with “writings”.22 This provision does not constitute a definition of “writing”23 but rather an interpretive rule24 that is supposed to make sure that telegrams and telexes are considered “writings”.25 Although the provision only refers to telegrams and telexes, it does not preclude other means of communication from being a “writing”.26 For example, due to its similarity to a telex, a telefax should also be considered a “writing”,27 as has been pointed out not only in legal writing28 but also in case law (referred to in the draft Digest).29 Despite some commentary to the contrary,30 communications transmitted electronically should also be considered “writings”.31

21 See Achilles, supra note 9, at 42; W. Witz et al., International Einheitliches Kaufrecht 123 (2000). 22 Compare P. Schlechtriem, Art. 13, in Kommentar zum Einheitlichen UN-Kaufrecht, supra note 4, at 166. 23 See Achilles, supra note 9, at 42; Ferrari, supra note 12, at 232; Magnus, supra note 10, at 189. 24 For this qualification, see Schlechtriem, supra note 22, at 166-67. 25 Herber & Czerwenka, supra note 3, at 70. 26 B. Rudolph, Kaufrecht der Export- und Importvertr
ge 151 (1996); M. Wey, Der Vertragsabschluß beim internationalen Warenkauf nach UNCITRAL- und schweizerischem Recht 486 (1984). 27 See, however, Peter Schlechtriem, Art. 13, in Commentary on the UN Convention on Contracts for the International Sale of Goods (CISG) 94-95 (Peter Schlechtriem, ed., 1998), stating that “Article 13 can be applied only a fax which has been printed; in the present author’s opinion, it cannot apply to a fax which is transferred from compute rto computer and only appears on the recipient’s screen or is only retrievable”. 28 B. Audit, La vente internationale de marchandises 73 (1990); A. Garro & A. Zuppi, Compraventa internacional de mercaderias 69 (1990); Manfredonia, Commento all’art. 13, Nuove Leggi civili commentate 50 (1989); Witz et al., supra note 21, at 124. 29 See Oberster Gerichtshof, Austria, 2 July 1993, available at http://www.unilex.info/case.cfm?pid=1&do=case&id=165&step=FullText. 30 V. Heuz, La vente internationale de marchandises. Droit uniforme 187 (2d ed., 1999); Witz et al., supra note 21, at 124. 31 Franco Ferrari, Einige kurze Anmerkungen zur Anwendbarkeit des UN-Kaufrechts beim Vertragsschluss
ber das Internet European Legal Forum 305 (2001); Christopher C. Nicoll,

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Although Article 13 is certainly helpful in solving the question of whether the aforementioned means of communications are “writings”, it also raises a new problem: when is the rule it sets forth applicable (another one of the issues the draft Digest does not even touch upon)? Nulla quaestio in the few cases where the CISG itself refers to “writing”, such as in Articles 21 and 29: in those cases Article 13 ensures that telegrams and telexes (as well as the other means of communication referred to above32) fulfill the writing requirement.33 According to commentators, Article 13 also applies where the parties agree upon a writing requirement.34 It also applies in those cases in which a writing requirement is based on practices established between the parties or usages that are applicable pursuant to Article 9(2),35 unless the agreement of the parties, their practices, or the usages provide otherwise.36 As pointed out above,37 Article 13 merely provides a rule of interpretation for the term “writing”; it does not define the “requirements as to form” referred to in Article 11. This does not mean that one should resort to domestic law to define that concept. “Requirements as to form” is a term to be defined – as with most other terms used in the CISG – “autonomously”, i.e. not in light of any domestic law.38 Therefore it is not surprising that the expression in question has been defined broadly,39 so as to include all requirements that “make validity conditional on the observance of requirements as to form and which therefore render contracts invalid, void, or voidable (but possibly curable) where those requirements have not been observed”.40 E.D.I. Evidence and the Vienna Convention, J. Bus. Law 31 (1995); Magnus, supra note 10, at 190. 32 See the text accompanying notes 27-31 supra. 33 See also F. Enderlein et al., Internationales Kaufrecht: Kaufrechtskonvention, Verj
hrungskonvention, Vertretungskonvention, Rechtsanwendungskonvention 77 (Berlin, 1991); Neumayer & Ming, supra note 1, at 134-35. 34 Accord, Schlechtriem, supra note 27, at 95. 35 Heuz, supra note 30, at 187; Magnus, supra note 10, at 190; Neumayer & Ming, supra note 1, at 135. 36 For a similar statement with reference to the agreement of the parties, see Achilles, supra note 9, at 42. 37 See supra, text accompanying notes 22 and 23. 38 For a detailed analysis of the CISG’s “autonomous interpretation”, its advantages and its difficulties, see “Comments on the Draft Digest Parts Relating to the CISG’s General Provisions: Interpretation of the Convention and Gap-Filling (Article 7)” supra. 39 See Magnus, supra note 10, at 183, asking for an extensive interpretation of “form”. 40 Schlechtriem, supra note 27, at 95.

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This broad definition leads, for example, to the irrelevance of domestic rules requiring written communications to be signed.41 The definition also leads to “consideration” being irrelevant as a requirement for validity,42 and for the exclusion of form requirements created in order to assist the enforcement of exchange controls and other regulatory purposes.43 However, as pointed out in the draft Digest and the CISG’s legislative history to which it refers, any administrative or criminal sanctions for breach of the rules of any State requiring that such contracts be in writing, whether for purposes of administrative control of the buyer or seller, for purposes of enforcing exchange control laws, or otherwise, would still be enforceable against a party which concluded the non-written contract even though the contract itself would be enforceable between the parties.44

III. Form requirements for evidentiary purposes Article 11 establishes the principle of freedom from form requirements not only for substantive purposes, but also for evidentiary ones.45 That is why it has been asserted that Article 11 has a procedural aspect.46 By establishing the informality principle also for evidentiary purposes, the drafters wanted to make sure that parties are freed from having to comply with domestic requirements concerning the means to be used in proving the existence of a contract governed by the Convention.47 Consequently, domestic rules 41

Accord, Achilles, supra note 9, at 142; Ferrari, supra note 12, at 233; Manfredonia, supra note 27, at 49. Contra Herber & Czerwenka, supra note 3, at 70-71. 42 Audit, supra note 28, at 74; Samuel K. Date-Bah, Art. 2, in Commentary on the Uniform Sales Law, supra note 1, at 109; Enderlein et al., supra note 33, at 241-42; Ferrari, supra note 12, at 222; U. Huber, Der UNCITRAL-Entwurf eines bereinkommens f
r internationale Warenkaufvertrge, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 435 (1979); Jametti Greiner, supra note 18, at 46. 43 Fritz Enderlein & Dietrich Maskow, International Sales Law 73 (1992); John O. Honnold, Uniform Law for International Sales under the United Nations Convention 135 (3d ed., 1999). 44 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee 20 (1981). For similar affirmations, see Adame Goddard, supra note 1, at 118; Wey, supra note 26, at 421. 45 L. Comoglio, Libert di forma e libert di prova nella compravendita internazionale di merci, Rivista trimestrale di diritto e procedura civile 788 (1990); Rajski, supra note 1, at 123. 46 Witz et al., supra note 21, at 118. 47 Peter Schlechtriem, Art. 11, in Commentary on the UN Convention on Contracts for the International Sale of Goods (CISG), supra note 27, at 88.

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requiring a contract to be evidenced by a writing in order to be enforceable (such as Section 2-201 UCC (United States), Article 1341 of the French Civil Code, Article 2721 of the Italian Civil Code, etc., all of which exclude oral testimony in cases where the value of the contract is higher than a certain amount)48 are superseded. That is why several decisions cited in the Digest are correct when they state that “the contract can be proven by any means”,49 including through witnesses. The CISG does not deal with the probative value of evidence presented by the parties;50 in other words, the CISG does not establish a hierarchy of the probative value of different types of evidence.51 Thus, as was held correctly both by a Belgian case52 and a German one,53 it is up to the judge to determine, within the limits set by the procedural rules of the forum, how to evaluate that evidence.54 Consequently, a judge may well attribute more weight to a written document than to oral testimony, as has been pointed out both in legal writing55 and case law.56

48

For references to various domestic rules superseded by Article 11 CISG, see also Achilles, supra note 9, at 41; M.J. Bonell, UN-Kaufrecht und das Kaufrecht des Uniform Commercial Code im Vergleich, Rabels Zeitschrift f
r auslndisches und internationales Privatrecht 35 (1994); Enderlein et al., supra note, at 76; Ferrari, supra note 12, at 216; Michael Kabik, Through the Looking Glass: International Trade in the ‘‘Wonderland’’ of the United Nations Convention on Contracts for the International Sale of Goods, 9 Int’l Tax & Bus. Law. 418 (1992); Magnus, supra note 10, at 184; Rudolph, supra note 26, at 148. 49 See Rechtbank van Koophandel Hasselt, Belgium, 22 May 2002, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/2002-05-22.htm; Rechtbank van Koophandel, Kortrijk, Belgium, 4 April 2001, available at http://www.law.kuleuven.ac.be/int/tradelaw/ WK/2001-04-05.htm; Handelsgericht St. Gallen, Switzerland, 5 December 1995, CLOUT case No. 330 (Schweizerische Zeitschrift f
r internationales und europisches Recht 53 (1996)); Oberlandesgericht M
nchen, Germany, 8 March 1995, CLOUT case No. 134, available at http://www.cisg-online.ch/cisg/urteile/145.htm. 50 Witz et al., supra note 21, at 121. 51 Magnus, supra note 10, at 183; Melis, supra note 13, at 107-08. 52 Rechtbank van Koophandel Kortrijk, Belgium, 4 April 2001, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2001-04-05.htm. 53 Landgericht Memmingen, Germany, 1 December 1993, available at http://www.jura.unifreiburg.de/ipr1/cisg/urteile/text/73.htm. 54 A. L
deritz & A. Fenge, Art. 11 CISG, in Brgerliches Gesetzbuch mit Einfhrungsgesetzen und Nebengesetzen, vol. 13, bereinkommen der Vereinten Nationen
ber Vertrge
ber den internationalen Warenkauf (CISG) 33 (2000); Schlechtriem, supra note 27, at 88. 55 See Achilles, supra note 9, at 41; Herber & Czerwenka, supra note 3, at 66; Neumayer & Ming, supra note 1, at 128-29.

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IV. Limitations on the freedom from form requirements As was correctly pointed out in a case cited in the draft Digest,57 according to Article 12 the principle of freedom from form requirements does not per se apply where one party has its relevant place of business in a State that made an Article 96 declaration.58 But, as was also pointed out in the draft Digest, conflicting views exist in case law as to the effects of the Article 96 reservation. Unfortunately, this is one more instance in which the draft Digest merely points out the different views, without giving any guidance as to which view is preferable. According to one view, if at least one party has its relevant place of business in a State that made an Article 96 reservation, the contract must be concluded in or evidenced by, or even modified, in writing.59 In this author’s opinion, this view is to be rejected. Instead, the sole fact that one party has its place of business in a State that made an Article 96 reservation does not necessarily make applicable the form requirements of that State,60 as was pointed out in a recent Dutch case.61 Rather, the rules of private international of the forum should dictate whether any form requirements have to be met.62 The legislative history of the Convention appears to corroborate this view, since at the 1980 Vienna Diplomatic Conference a proposal was rejected pursuant to which the form requirements of a State that had made an Article 96 reservation had to be applied.63 Thus, where those rules lead to 56

Rechtbank van Koophandel Hasselt, Belgium, 22 May 2002, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2002-05-22.htm. 57 See Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/1995-05-02.htm. 58 See Harry M. Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and other Challenges to the Uniformity Principle in Article 7(1), 17 J. Law & Com. 196 (1998). 59 See, e. g., The High Arbitration Court, Russian Federation, 16 February 1998, referred to on the Internet at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980216r1.html; Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, available at http://www.law.kuleuven.ac.be/ int/tradelaw/WK/1995-05-02.htm. 60 Accord, Achilles, supra note 9, at 267; Jametti Greiner, supra note 18, at 47. Contra E. Rehbinder, Vertragsschluß nach UN-Kaufrecht im Vergleich zu EAG und BGB, in Einheitliches Kaufrecht und nationales Obligationenrecht 154 (Peter Schlechtriem ed., 1987). 61 Rechtbank Rotterdam, Netherlands, 12 July 2001 (Nederlands Internationaal Privaatrecht No. 278 (2001)). 62 Herber & Czerwenka, supra note 3, at 399-400; Magnus, supra note 10, at 767. 63 See 9 UNCITRAL Yearbook 45 (1978). See also Malcolm Evans, Art. 96, in Commentary on the Uniform Sales Law, supra note 1, at 658.

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the law of a State that made an Article 96 reservation, the form requirements of that State (where they exist)64 will be applicable.65 Where, on the other hand, the applicable law is that of a Contracting State that did not make an Article 96 reservation, the principle of freedom from form requirements laid down in Article 11 applies, as has been repeatedly pointed out in case law.66 The draft Digest refers (although not exhaustively) to the restrictions on the principle of freedom from form requirements resulting from (at least) one party having its place of business in a Contracting State that declared an Article 96 reservation. It does not refer at all, however, to the possibility of the parties limiting the principle of freedom from form requirements. Article 11, like most provisions of the CISG,67 is subject to derogation, so that the parties can agree upon a specific form requirement to be met in order for a statement to have effect.68 Whereas the conclusion of such an agreement is subject to the rules of the CISG,69 specifically those on formation of contracts (Articles 14-24),70 the consequences if a party fails to comply with the form requirement agreed upon are not governed by the CISG, but rather by applicable domestic law. The draft Digest does not expressly deal with the allocation of the burden of proof. Since freedom from form requirements is the Convention’s general rule, the general principles governing the burden of proof – which have been laid out elsewhere71 – dictate that the party asserting the existence of 64

Although according to Article 96 only States “whose legislation requires contracts of sale to be concluded in or evidenced by writing” are allowed to declare an Article 96 reservation, it appears that some States, such as Argentina and Chile have made such a reservation although their domestic law does not meet that requirement. 65 Melis, supra note 13, at 110; Witz et al., supra note 21, at 122. 66 See, e. g., Rechtbank Rotterdam, Netherlands, 12 July 2001 (Nederlands Internationaal Privaatrecht No. 278 (2001)); Hoge Raad, Netherlands, 7 November 1997, available at http:// www.unilex.info/case.cfm?pid=1&do=case&id=333&step=FullText; Municipal Court of Budapest, Hungary, 24 March 1992, summary published in Praxis des internationalen Privatund Verfahrensrechts 263 (1996). 67 See Comoglio, supra note 45, at 792; S. Patti, Commento all’art. 4, Nuove Leggi civili commentate 47 (1989); Rajski, supra note 1, at 123. 68 See Adame Goddard, supra note 1, at 118; M.J. Bonell, La formazione del contratto, in La vendita internazionale. La convenzione di Vienna dell’ 11 Aprile 1980 123 (1981); Ferrari, supra note 12, at 225 f.; Herber & Czerwenka, supra note 3, at 67; Karollus, supra note 13, at 78; Wey, supra note 26, at 423. 69 See Magnus, supra note 10, at 185. 70 See Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176 (Zeitschrift f
r Rechtsvergleichung 248 ff. (1996)). 71 See the Comments on the Digest Part Relating to the CISG’s Scope of Application, supra.

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an agreement that requires a specific form for a statement to be effective has to prove that such agreement exists.72 72

For this conclusion, see also R. Jung, Die Beweislastverteilung im UN-Kaufrecht insbesondere bei Vertragsabschluß, bei Vertragsverletzungen des K
ufers, bei allgemeinen Bestimmungen sowie bei gemeinsamen Bestimmungen ber Verk
uferund K
uferpflichten 140 f. (1996); Magnus, supra note 10, at 185.

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have? Joseph Lookofsky* I. Introduction: Uniform interpretation and Article 7(1) As my contribution to this Conference, the University of Pittsburgh has invited me to comment upon draft sections of the UNCITRAL Digest of the 1980 Vienna Sales Convention (CISG). I will address certain sections drafted by Professor Franco Ferrari,1 particularly those which relate to Part I of the Convention, its Sphere of Application and General Provisions.2 The interpretation of the entire Vienna Convention – including, of course, CISG Part I – is governed by CISG Article 7(1), the first part of which provides: “In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application ...”3 I permit myself to dwell on this particular General Provision at the outset, because it relates to many comments I have with respect to other rules in CISG Part I. Article 7(1) is, in effect, a command to all CISG Contracting States to “have regard” to the Convention’s international character and the need to promote its uniform application. Furthermore, as Professor Ferrari’s

*

Professor of Law, University of Copenhagen. In addition to being a distinguished CISG scholar, Professor Ferrari has also been a key player in the UNCITRAL Digest project. His Digest drafts relating to Articles 6 and 78 were originally prepared for use by the UNCITRAL Secretariat as examples (models) for the entire Digest project. See Report of UNCITRAL on its 34th Session, 25 June – 13 July 2002, A/56/ 17, ¶ 389. 2 I was originally also invited to comment on the other Digest segments authored by Professor Ferrari: those dealing with CISG Part IV (Final Provisions), as well as Article 78 on Interest in CISG Part III (Sale of Goods). For various reasons, the Conference organizers and I decided it would be best to limit my commentary to the drafts relating to CISG Part I. 3 Emphasis added. Compare (e. g.) the very similar provision in Article 18 of the 1980 (Rome) Convention on the Law Applicable to Contractual Obligations [1998] OJ C27/34 (consolidated version), also available at http://europa.eu.int/eur-lex/pri/en/oj/dat/1998/c_027/ c_02719980126en00340053.pdf. 1

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excellent Digest confirms, Article 7 requires courts in Contracting States to “take into account decisions rendered by foreign courts”.4 In fact, the goal of the whole Digest project is to promote uniform interpretation of the Convention, especially in the light of the fact that divergences in CISG interpretation have been noted, and since appropriate advice and guidance would be useful to foster a more uniform interpretation.5 In other words, the Case Digest project is in full accord with CISG Article 7(1); it is also in line with – and helps “organize” – the ongoing CLOUT project,6 which itself is an integral part of UNCITRAL’s effort to promote uniform interpretation and application of international conventions and uniform laws.7 The Digest, including the segments drafted by Professor Ferrari, will surely help courts fulfill their obligation to “have regard” to foreign case law, not least because the Digest will provide those who interpret the Convention with increased access to CISG decisions rendered by courts around the world. This is indeed a very important service, since – apart from the “black letter” of the treaty text itself – the CISG case law must be regarded as the single most important source of CISG “law”.8 On the other hand, a few words of caution would also seem to be in order, especially since our previous experience with similar international instruments shows that mere “access” to foreign precedent does not ensure uniform interpretation,9 particularly when the uniform law in question does not specify how much “regard” to foreign case law courts should “have”. 4 Draft UNCITRAL Digest art. 7, ¶ 3 (emphasis added). See also generally Herbert Bernstein & Joseph Lookofsky, Understanding the CISG in Europe § 2-9 (2d ed., 2002). 5 See ¶ 13 of United Nations Document A/CN.9/503 ¶ 13 (26 March 2002), available at http://www.uncitral.org/english/sessions/unc/unc-35/503.e.pdf. 6 Case Law on UNCITRAL Texts. This is the system previously established by UNCITRAL for the collection and dissemination of information on court decisions and arbitral awards relating to normative texts emanating from the Commission, inter alia, the CISG. See U. N. Document A/CN.9/SER.C/GUIDE/1/Rev.1; see also A/CN.9/503, supra note 5, at ¶ 12. 7 When the U. N. General Assembly gave UNCITRAL its mandate, the Commission was instructed to implement it, inter alia, by promoting ways and means of ensuring a uniform interpretation and application of international conventions and uniform laws in the field of the law of international trade. See the Report of UNCITRAL, supra note 1, at ¶ 386. 8 See generally Bernstein & Lookofsky, supra note 4, at §§ 2-8 and 2-9. Regarding the CISG legislative history (travaux pre´paratoires) see id. and text infra with notes 31 et seq. 9 For an example concerning the application of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards see U. S. Supreme Court, United

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According to Professor Ferrari, only two courts (both in Italy) have dealt with the question of the value which foreign CISG decisions should have, and the answer provided by both these courts was that foreign court decisions “merely have persuasive, non-binding value”.10 Though I would not dare challenge Professor Ferrari’s Digest of Italian case law, and though that case law might also reflect the “majority” view in (Italian and German) academic circles,11 I would nonetheless suggest that foreign court decisions at most have “persuasive” (non-binding) value. The fact that (e. g.) an Italian court must have regard to the need to promote uniform CISG application – and thus “have regard” to CISG decisions rendered by courts in Denmark, the United States and elsewhere – means only that the Italian court must “take [them] into account”.12 Because there is no established system or “scale” to evaluate the “weight” of foreign CISG precedents,13 the “persuasiveness” of any foreign CISG decision will depend on various factors, including “the force of the reasoning in the opinion and the apparent soundness of the result;”14 it may also depend on the prominence of the court and whether the decision has support in other jurisdictions.15 We can, of course, take a “head count” of foreign decisions States, 2 July 1985 (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614), discussed by Joseph Lookofsky & Ketilbjørn Hertz, Transnational Litigation and Commercial Arbitration ch. 6. 3. 1 (2d ed., 2003). 10 See draft UNCITRAL Digest art. 7, ¶ 4 (emphasis added), citing the cases in note 11. Conversely, I assume that a lower Italian court called upon to interpret a given CISG rule would consider itself bound by any prior decisions rendered by higher Italian courts on the same point. 11 See Franco Ferrari, Tribunale di Vigevano: Specific Aspects of the CISG Uniformly Dealt With, 20 J. L. & Comm. 230 n. 39 (2001) (citing Ferrari, Kramer, Melis, & Magnus), also available at http://cisgw3.law.pace.edu/cisg/biblio/ferrari6.html. 12 Regarding the quoted passage see draft UNCITRAL Digest art. 7, ¶ 3. 13 For a fuller discussion of this problem – and a proposed method for determining the precedential authority of foreign decisions – see generally Harry Flechtner, Recovering Attorneys Fees as Damages under the U. N. Sales Convention: A Case Study on the New International Commercial Practice and the Role of Foreign Case Law in CISG Jurisprudence, 22 Northwestern J. Bus. L. & Policy 727 (2002), also available at http://cisgw3.law.pace. edu/cisg/biblio/flechtner4.html. 14 E. Allan Farnsworth, An Introduction to the Legal System of the United States 52-57 (3d ed. New York 1996) (speaking of the American notion of “persuasive” – as opposed to binding – “case law authority”, a category which includes the decisions of courts of other jurisdictions). 15 Id. Since Professor Farnsworth’s observations (cited here and in the preceding note) apply, inter alia, to the “regard” which the (e. g.) New York courts have for decisions rendered in New Jersey, and since the role played by the courts and case law in the American system is much

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rendered with respect to a given, perhaps debatable proposition – (e. g.) 2 cases for, 1 against – and a court might then take that statistical fact “into account”, but the numbers do not necessarily count for very much, e. g., if the reasoning of the (first-in-time) majority is weak,16 or if a “heavyweight” court later proves the majority “wrong”.17 If my largely “academic” reasoning as to the factors affecting the value of foreign case law is itself “persuasive” (I can only cite a bit of Italian case law to back it up),18 it follows that courts in Contracting States need not follow the case law reported in the Digest even if that case law, at a given point in time, represents the “majority view”. For example, if a majority of courts in Contracting States (thus far) have held that only “standard” software is a “good” under the Convention,19 courts in other jurisdictions which rule on the same question remain free to treat all software – “even custom-made software” – as CISG “goods”.20 By the same token, a given court might first take a given line of foreign decisions “into account”, and then decide to beat an entirely different path, especially if that court is not persuaded by the force of the reasoning of the foreign cases or the soundness of their results.21 This might lead to (increased) uncertainty, but the hard fact is that no international court has been placed at the top the CISG “pyramid” with the authority to iron out differences in opinion among the many national instances below.22 For this reason, Professor Schlechtriem has likened the courts in the many Contracting States to members of an orchestra without a greater than in other systems (see, e. g., Mads Bryde Andersen, Ret & Metode, 155 (2002), I consider it fair to generalize on this basis. See also Flechtner, supra note 13. 16 Accord Clayton Gillette & Steven Walt, Sales Law Domestic and International 6 (Rev. ed. 2002) (U. S. court unlikely to adopt interpretation favored by a court elsewhere simply because that decision was promulgated first). 17 Consider, for example, the zig-zag course of precedent on the “attorneys’ fees” issue, discussed infra (text with notes 65-72) in connection with the draft Digest of Article 4. 18 See the decision of the Tibunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378, as translated in 20 J. L. & Com., 220 (2001) regarding the burden of proof issue (“According to a minority of courts and commentators ... According to better reasoned and more numerous authorities, however...”) (emphasis added). 19 See the draft UNCITRAL Digest art. 1, ¶ 10 with notes 29-30. See also discussion infra notes 46-48 and accompanying text. 20 Id. 21 Regarding (e. g.) the “shifting” of attorneys’ fees as procedural matter not governed by the Convention, see the comments to the draft Digest of Article 4 infra notes 63-72 and accompanying text. 22 Contrast the authority granted to the European Court to answer questions submitted by the courts of EU Member States regarding the proper interpretation of EU legislation.

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conductor,23 and the reality of that metaphor is confirmed by both Professor Ferrari’s Digest and other case law sources: the CISG musicians do not all play the same tune.24 Granted, the advent of the Digest should make it easier for courts to hear the message sounded by foreign precedent, but the Digest authors have no baton of legitimacy to make judges (let alone arbitrators) march in step. For this and related reasons, some might regard the Digest project as a risky, even “dangerous” venture,25 especially to the extent Digest authors (themselves academics) cannot resist the temptation to put scholarly “spin” on the (often diverging) case law they report.26 Significantly, the task assigned to the Digest authors is not just to “take note” of CISG case law for “information” purposes;27 the authors should also “provide guidance” as to the proper interpretation of the Convention.28 But since any expression of “preference” for one judicial view over another might be viewed as criticism of decisions taken by national courts, and since the Commission hoped the Digest would take a more “international” view than existing commentaries and papers, the only “politically correct” source of Digest guidance – in addition to case law – is the CISG legislative/diplomatic history (travaux pre´paratoires).29 23

Peter Schlechtriem, Uniform Sales Law in the Decisions of the Bundesgerichtshof, available at http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html. 24 Regarding (e. g.) the varied interpretations by national courts of the notice provisions in CISG Articles 38-39, see Bernstein & Lookofsky, supra note 4, at § 4-9. 25 Compare Rolf Herber, Article 7, Commentary on the UN Convention on the International Sale of Goods (CISG) 63 (Peter Schlechtriem ed., 1998), characterizing a previous “Digest”-project proposal (to form an Editorial Board to monitor and clarify published CISG decisions) as “dangerous”. See also Report on UNCITRAL work on its 21st session, 11-22 April 1988, ch. X at § 98 et seq. 26 In some instances, for example, it is not difficult to read a certain sense of “approval” or disapproval into Professor Ferrari’s otherwise objective digest of existing “majority” and “minority” views. See (e. g.) draft UNCITRAL Digest art. 1, ¶ 6 (“Despite one court decision stating the contrary...”) and draft UNCITRAL Digest art. 3, ¶ 3 (regarding one decision which “contradicts” others). For a different kind of example, involving the hardly objective sources of foreign case law upon which Professor Ferrari sometimes must draw, see discussion infra regarding the Danish decision cited in the draft UNCITRAL Digest art. 1, ¶ 19 n. 49. 27 In respect of the contents, it was suggested, as one alternative, that the Digest could be merely a compilation noting diverging case law for information purposes. See ¶ 3 of the Note on Uniform Interpretation by the UNCITRAL Secretariat, 26 April 2001, A/CN.9.498, also available at http://www.uncitral.org/english/sessions/unc/unc-34/acn9-498e.pdf. 28 Id. 29 See id. regarding the Commission’s reluctance to permit “criticism” of the case law, but compare id. regarding acceptable non-case law sources (“guidance may be provided ... in particular on the legislative history and the reasons underlying it”) (emphasis added).

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In my view, these sources are insufficient to provide a realistic picture of CISG “law”. Just as I have reservations regarding the precedential value of foreign case law, I think experience dictates caution when it comes to legislative history.30 The CISG history is, to be sure, voluminous,31 but it is often inconclusive;32 and I would not base much “guidance” on it. Indeed, CISG scholarly writing (doctrine) – even if taboo in the Digest context – may sometimes provide the only reliable available information as to why courts and arbitrators have ruled as they do, especially in those instances where the Digest does not (maybe can not) reveal the ratio underlying the decision(s) concerned.33 Having set forth these preliminary (Article 7) observations, I shall now proceed to comment more specifically upon portions of Professor Ferrari’s Digest draft, especially those which I find most interesting from my own (academic) point of view. Because practical considerations preclude a “complete” commentary, I am pleased that Professor Ferrari has drafted an excellent Digest of what hundreds of CISG cases tell us about CISG Part I. I approach my own very limited assignment with all due respect. Obviously, it 30 See, e. g., Lookofsky & Hertz, supra note 9, ch. 4. 2, regarding the U. S. Supreme Court’s interpretation of the Hague Service Convention in Volkswagenwerk A. G. v. Schlunk, 486 U. S. 694 (1988), where both the majority and minority of the Court cite excerpts from the same history in support of their own, respective positions. 31 Many commentators trace the CISG “history” back to the first Uniform Sales Law, ULIS (Bernstein & Lookofsky, supra note 4, at § 1-2), but since that (separate and distinct) treaty was found unacceptable by most States who later became CISG States, the application of ULIS concepts, interpretations and precedents will not always advance the goal of a uniform (and autonomous) interpretation of the CISG. For examples of the use of ULIS as a CISG interpretative tool see Bernstein & Lookofsky, id., § 2-5 n. 49, § 2-6 n. 78 and § 2-9 n. 122. 32 See Bernstein & Lookofsky, id. at § 2-8 (proposals, counter-proposals and comments by scores of delegates during years of drafting cannot provide simple solutions to complex questions of interpretation). Accord Gillette & Walt, supra note 16, at 171. See also Franco Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int. & Comp. L. 183 (1994), text with note 125 (“recourse to such materials must not be overestimated”). Even as regards the use of his own Documentary History of the 1980 Uniform Law for International Sales (John O. Honnold ed., 1989), John Honnold urges restraint: “Interpretation based on discussions by a large legislative body is more meaningful for decisions of broad issues of policy than for detailed applications”. John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 463 (3d ed. 1999). 33 I. e., in American legal parlance, the holding: see Farnsworth, supra note 14, at 54 (distinguishing the holding from less consequential dictum, i. e. “whatever else the judges said which was not necessary to their decision”). For examples of the lack of information provided by the Digest drafts in this respect, see infra, notes 46-52 and accompanying text.

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was far more difficult for Professor Ferrari to research and formulate his most scholarly Digest contribution than it is for me, a Conference Commentator, to indulge the temptation to take a few isolated (and surely debatable) “pot shots” at it.

II. CISG Part I: Sphere of application and general provisions This Part of the Convention sets forth the rules used by courts and arbitrators to determine whether or not the Convention applies (Articles 1-6). It also contains important General Provisions (Articles 7-13) regarding, inter alia, the proper interpretation of both the Convention text and of contracts regulated by the Convention regime. Article 1 According to CISG Article 1(1), the Convention applies to sales of goods between parties whose places of business are in different States (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. According to the CISG case law, courts in Contracting States should look to the Convention before they have recourse to their rules of private international law.34 Though I certainly agree with that proposition, I might prefer to defend it on the basis of logic which differs from the ratio of the (relatively few cases) reported on point.35 I also wonder whether my preferred explanation might find support in any of the 100 or so other cases separately cited by Professor Ferrari in connection with the “autonomous applicability” of the Convention by virtue of Article 1(1)(a).36 A “special Article 1 situation” arises where one of the parties to a CISG contract has its place of business in a State which has made an Article 92 reservation. In that situation, the draft Digest reports that “one must determine on the basis of Article 1(1)(b) whether the Part of the Convention to which the reservation relates is applicable”.37 In support of this proposition, the draft cites four cases – each involving a Scandinavian34

Draft UNCITRAL Digest art. 1, ¶ 2 nn.1 and 2. If I understand Professor Ferrari correctly, the ratio of all the cases cited in the draft Digest of Article 1, ¶ 2, notes 1-4, rest on lex specialis logic. But as regards the application of the CISG in an Article 1(1)(a) situation, I would add that there is simply no conflict of laws. See Joseph Lookofsky, Understanding the CISG in Scandinavia § 2-3 (2d ed. 2002). 36 See draft UNCITRAL Digest art. 1, ¶ 17 n. 46. 37 See draft UNCITRAL Digest art. 1, ¶ 19. For a further explanation regarding the need for 35

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based party.38 However, since two of these decisions – a Hungarian decision (reported in CLOUT) and an ICC award (reported in Unilex)39 – make no reference to Article 1(1)(b) whatsoever,40 I wonder whether “case law” per se supports the “digested” view. (I do not, by the way, make this point to challenge the Digest proposition set forth by Professor Ferrari, but rather to illustrate that the “politically correct” Digest sources do not always themselves provide readers with all the information they might need.41) The Convention does not define the concept of “goods”, but – according to the Digest – this does “not allow” us to look into domestic law to find a definition; instead, like most other Convention concepts, “goods” must be interpreted “autonomously”.42 However, the only documentation which the draft provides in support of this particular proposition is a general crossreference to the Digest of Article 7,43 and there we find reference to seemingly contradictory (case law) authority: according to a minority of courts, “case law interpreting analogous domestic law provisions [while not per se applicable] may also inform a court ...”44 Does the bold proposition set forth in the draft of Article 1 (which forbids us access to domestic law) perhaps indicate the Digester’s subjective sympathy for the majority view?45 and nature of this determination, see Joseph Lookofsky, Alive and Well in Scandinavia: CISG Part II, 18 J. L. & Com. 289-99 (1999). 38 Article 92 reservations have thus far only been made by the Scandinavian States: Denmark, Finland, Norway and Sweden. Iceland which is not a member in the “Scandinavian” group has not made an Article 92 reservation. 39 See draft UNCITRAL Digest art. 1, ¶ 19 n. 49, citing Fov rosi Birs g Budapest, Hungary, 21 May 1996, CLOUT case No. 143, and ICC Court of Arbitration, Case No. 7585/92, 1992, CLOUT case No. 301. 40 At least not in the CLOUT and Unilex reports. 41 Østre Landsret, Denmark, 23 April 1998, CLOUT case No. 309 certainly supports Professor Ferrari’s Case Digest, but had the person who prepared the CLOUT abstract of that opinion not himself put a considerable measure of scholarly “spin” on it, I doubt that Professor Ferrari would be in a position to cite the case as authority for the point he himself makes in the Digest text. For more information regarding the complex relationship between Articles 1(1)(b) and 92 in this particular case, see Joseph Lookofsky& Ketilbjørn Hertz, in Ugeskrift for Retsvæsen B 1999, at 6-10. See also Lookofsky, supra note 37 and Lookofsky supra note 35, at § 8-4. Regarding the relationship between CISG scholarly writing (doctrine) and acceptable Digest sources of law, see note 33, supra and accompanying text. 42 Draft UNCITRAL Digest art. 1, ¶ 8. 43 Id. n. 18. 44 See draft UNCITRAL Digest art. 7, ¶ 2 n. 5. 45 See id. (“Nevertheless, there are courts that have stated ...”) and compare Franco Ferrari, Tribunale de Vigevano: Specific Aspects of the CISG Uniformly Dealt With, 20 J. L. & Com. 225 (2001) 226-27 with notes 11-15.

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“According to some courts, only standard software is considered a ‘good’ under the Convention;46 according to one court, however, any kind of software is considered a ‘good’, even custom-made software”.47 But since the majority on this question only leads by a score of “2 to 1”,48 I would like to know why each of these courts held as they did. We are also advised of a related, albeit more general limitation: that CISG goods “are, at the moment of delivery, moveable and tangible”,49 in that only “one court ... appears” to have extended the concept to intangible goods.50 We are not, however, advised whether the majority view extends to software (which may be “intangible” at the moment of delivery/downloading).51 Since the Digest provides no information regarding the ratio underlying any of these diverging decisions – and since the Digest is not allowed to even allude to the (extensive) scholarly opinion on point – I cannot help but wonder whether the limited information which the Digest does provide on the software issue will be put to “good” use.52 Article 3 Article 3(2) “extends the Convention’s sphere of application to also cover contracts pursuant to which the seller undertakes to supply labour or other services alongside the obligation to deliver the goods”.53 Though I would tend to agree with that statement, I would hope that the Digest would provide some case-law documentation for it: (1) because the word “alongside” does not find obvious support in the letter of Article 3, (2) because I am not sure about the scope of the related Digest proposition that the Convention is “inapplicable” where the obligation to supply services “amounts to more

46

See draft UNCITRAL Digest art. 1, ¶ 10 n. 29. Id., ¶ 10 n. 30 (emphasis added). 48 Id. n. 29 reveals that “some” means “2”. 49 Id., ¶ 9 n. 20 (emphasis added). 50 Id. n. 27 (emphasis added). 51 Those who maintain that the CISG only applies to software contained in a “tangible medium” may be confusing the intangible good (the software) with the (tangible or intangible) medium which “carries” and/or “contains” that good. If B buys a program on a disk, she has really bought two “things”: a program and a disk. See generally Joseph Lookofsky, In Dubio Pro Conventione? Some Thoughts About Opt-Outs, Computer Programs and Pree¨mption under the 1980 Vienna Sales Convention (CISG), 13 Duke J. Int. L. 258 (forthcoming 2003) also available at http://www.law.duke.edu/journals/djcil/djciltoc13n3.htm. 52 See id. and Lookofsky, supra note 35, at § 2-5. 53 Draft UNCITRAL Digest art. 3, ¶ 4 (emphasis added). 47

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than 50%” of the seller’s obligations,54 and (3) because I doubt whether the case cited in the same section of the Digest regarding the supply of a “market study” concerns the supply of services “alongside” goods.55 What I am quite sure about is this: If a fancy restaurant (B) in Italy buys a high-priced set of dishes from the Royal Copenhagen Factory (S) in Denmark, then that transaction does qualify as a CISG “sale of goods” (as opposed to a transaction involving the provision of “services”) – this notwithstanding the fact that the design on each dish is painstakingly hand-painted by a Danish crafts(wo)man, i. e., although the value of the “labour or other services” required to produce these handmade items dwarfs all other manufacturing costs concerned. Article 4 Article 4 helps us identity matters which the CISG “governs” – as opposed to matters with which it is “not concerned”. Issues of “procedural law” are among the issues which have been “identified by Courts as not being dealt with by the Convention”.56 The draft Digest not only tells us that this proposition applies to the (obviously procedural) issue of whether a court has jurisdiction;57 it also applies generally, i. e., to “any other issue of procedural law”.58 While I see no reason to disagree with the Digest on this (general) point, I would emphasize that the line between substance and procedure is not always clear. For example, when the draft cites case law indicating that statutes of limitation are “not governed” by the Convention, this is not necessarily because they are “procedural” in nature;59 indeed, in some places such statutes are ordinarily classified as “substantive”.60 I also think that burden-of-proof issues lie on the conceptual “borderline”, but the otherwise extensive Digest on this particular aspect of Article 4 contains no reference (or cross-reference) to burden-of-proof issues – perhaps because “some, albeit not all, courts” have held that the Convention governs the burden

54

Id. In other words, I am not sure whether this statement (also) refers to the “alongside” situation referred to in the first sentence of the same paragraph. 55 See case cited at id. n. 12. 56 See draft UNCITRAL Digest art. 4, ¶ 13. 57 Id. n. 39. 58 Id. n. 40, citing (as the sole authority for this very general proposition) Bundesgericht, Switzerland, 11 July 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 000711s1.html. 59 Compare id. with note 36. 60 For an interesting illustration in a conflict-of-laws context see the decision of the Danish Court of Appeal in Krægpøth v. Rasmussen (1982), reported in UfR 1982.886 VL, translated into English and discussed by Lookofsky & Hertz, supra note 9, at ch. 3. 2. 3.

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of proof,61 or perhaps because the Digest draft itself takes the position that the burden of proof should not be grouped in the “procedural law” category.62 The elusive line between (CISG) substance and (non-CISG) procedure leads to other complications as well. For example, since the Convention expressly governs the “rights and obligations” of the parties to a CISG contract,63 and since an injured CISG party is generally entitled to full “expectation-interest protection”,64 several decisions rendered by courts in Europe might lend support to the proposition that the prevailing party in a CISG litigation should recover its attorneys’ fees,65 and a U. S. Federal District Court – citing this foreign case law – has also so held.66 However, since the prevailing party in an American litigation is generally not entitled to recover its attorneys’ fees,67 and since this “American rule” applies in all civil cases (not just contract cases), the whole fee-shifting “matter” is arguably not governed by the Convention at all!68 So it was hardly surprising that the U. S. District Court decision was subsequently reversed by a U. S. Court of Appeal.69 While this latter opinion (authored by Judge Posner “himself”70) 61

See draft UNCITRAL Digest art. 4, ¶ 4. Id., ¶ 13. 63 See CISG art. 4. 64 At least within the limits of “foreseeability”. See CISG art. 74 and Lookofsky, supra note 35, at § 6-15. 65 See generally Flechtner, supra note 13. 66 U. S. District Court for the Northern District of Illinois, United States, 28 August 2002, available at http://cisgw3.law.pace.edu/cases/010828u1.html (Zapata Hermanos Sucesores, S. A. v. Hearthside Baking Co., Inc.). 67 See, e. g., Supreme Court, United States, 12 May 1975 (Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240). Although the judgment rendered by an American court will usually require the losing party to pay the costs of the successful party (e. g. fees paid to the court), such “costs” do not generally include attorney’s fees. Although this principle has been modified by “fee shifting” statutes in certain instances, no fee-shifting is still the overwhelming “American rule”: see Supreme Court, United States, 29 May 2001 (Buckhannon Board and Care Home, Inc. v. West Virginia Dept. of Health and Human Resources, 532 U. S. 598). The same rule does not, however, necessarily apply in (American) arbitrations. 68 See Lookofsky, supra note 35, at 142-43. See also Joseph Lookofsky, at http://www. cisg.law.pace.edu/cisg/biblio/lookofsky5.html and Harry Flechtner, at http://cisgw3.law. pace.edu/cisg/biblio/flechtner4.html. But see John Felemegas, at http://cisgw3.law.pace. edu/cisg/biblio/felemegas1.html and compare Peter Schlechtriem, at http://cisgw3.law.pace. edu/cisg/biblio/schlechtriem4.html. 69 See 7th Circuit U. S. Court of Appeals, United States, 19 November 2002, available at http://cisgw3.law.pace.edu/cases/021119u1.html (Zapata Hermanos Sucesores, S. A. v. Hearthside Baking Company, Inc., 313 F.3d 385). 70 Regarding the prominence of the court – and even the judge (in this case, the renowned 62

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cites no CISG cases, it does take particular note of the absence of specific CISG legislative history on the fee-shifting issue. To this extent, the appellate judge takes at least one Digest-acceptable source “into account”. But the main ratio underlying the decision seems to be Judge Posner’s “gut reaction”, as tempered by a good common sense: in America – as in Denmark (and elsewhere) – the question of fee-shifting is rightly regarded as a procedural question,71 and obviously, “The Convention is about contracts, not about procedure”.72 Article 5 CISG Article 5 deals with the non-applicability of the Convention to certain “product liability” issues (the seller’s liability for death or personal injury). As regards this provision and the related (very brief) draft Digest segment on it, I note only the Digest proposition that “claims based on damage to property caused by the goods require the seller to have been notified within the reasonable time period referred to in Article 39”.73 I assume that what is meant here is that no such “claims” can succeed unless the seller has been notified in accordance with Article 39, i. e., even if other relevant CISG requirements (under Articles 35 et seq.) are met.74 But if that is what is “father” of Law and Economics) – as supplementary factors which enter into the “persuasiveness” (value) of CISG case law, see note 15 supra and accompanying text. 71 Regarding American law see note 67 supra, and accompanying text. Regarding (e. g.) the Danish Code of Civil Procedure (Retsplejeloven) see Bernhard Gomard, Civilprocessen (Copenhagen 2000) at 584: “The losing party must generally reimburse the winning party for expenses incurred in connection with the litigation, unless the parties have made a different agreement, or the court, due to special circumstances finds good reason to depart from this rule ... The losing party’s obligation ... to compensate the winning party for its costs is not dependent on whether the winning party could have demanded compensation for these costs under general substantive liability principles [almindelige erstatningsregler] ...” (translation by the present author). 72 See p. 3 of Judge Posner’s opinion cited supra note 69. By discussing this issue within the context of Article 7(2), Judge Posner seems to imply that the issue of attorneys’ fees is “governed” (but not settled) by the Convention. In my opinion, the issue of attorneys’ fees is simply not governed – and therefore, of course, not (expressly) “settled” – by Article 74 or any other part of the Convention (for a criticism of the District Court’s opinion, see Lookofsky, supra note 68; regarding Article 7(2) see Lookofsky, supra note 35, at § 2-11). Accord, Harry Flechtner and Joseph Lookofsky at http://cisgw3.law.pace.edu/cisg/biblio/ flechtner5.html. In any case, Professor Ferrari might want to add the Court of Appeals decision in Zapata – and perhaps also the foreign precedents cited by the District Court – to his draft Digest of Articles 4 and Article 7(2). 73 Draft UNCITRAL Digest art. 5, ¶ 3 (emphasis added). 74 See Bernstein & Lookofsky, supra note 4, § 2-6, at 27 nn.84-86 and accompanying text.

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meant, I doubt whether the single (Swiss) case cited in the draft provides sufficient case law authority for such a (very general) proposition,75 since it would seem to ignore the possibility – discussed in the CISG jurisprudence, though not yet dealt with by CISG case law – that, in some jurisdictions, domestic “product liability” law rules would be allowed to “compete” with the CISG regime.76 For these reasons, I would suggest a slightly different “digest” of the Swiss case.77 Article 6 Though this section of the Digest deals with the parties’ freedom to limit Convention application – a provision which is very important in practice – I only find occasion to make a minor comment with respect to Professor Ferrari’s comprehensive Digest draft. As noted in paragraph 3 of the draft Digest, Article 6 makes a distinction between exclusion (of the entire Convention) and derogation (from some of it). Though the draft Digest suggests that the former “does not encounter any limitations”,78 I assume we are to understand this statement as modified (1) by the requirement that “opting-out” requires clear evidence of the parties’ intent,79 and (2) by the requirement that the parties’ choice of non-CISG law be “acknowledged” by the applicable rules of private international law.80 Article 7 I have previously made some general observations with respect to the first part of the rule in Article 7(1), concerning CISG interpretation, as well as the draft Digest of it.81 In addition, “Article 7(1) requires that the Convention be interpreted in such a manner that the observance of good faith in international trade is promoted”.82 Moreover – and perhaps more sig75

According to the CLOUT abstract of Swiss case cited in the draft UNCITRAL Digest art. 5, ¶ 3 n. 4, the holding was much more narrow, focusing – as it should – on the rights and obligations of the parties in the particular case concerned. 76 See Bernstein & Lookofsky, supra note 4, at § 2-6, Illustration 2b. 77 E. g.: “In one case it was held that the buyer’s claim for damage to property caused by allegedly non-conforming goods could not succeed, because the seller had not been notified of the defect within the reasonable time period ...” 78 Draft UNCITRAL Digest art. 6, ¶ 3. 79 Though I am quite sure that this is what is meant by the last sentence of paragraph 1 of the draft Digest, I suggest that it be re-reformulated. 80 Draft UNCITRAL Digest art. 6, ¶ 7 n. 16. 81 See the Introduction to the present commentary, supra. 82 Although the letter of Article 7 provides primary (and hardly debatable) authority for this

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nificantly – the CISG case law confirms that the obligation of the parties to act in good faith is a (broad) general principle upon which the Convention is based.83 When it comes to the existence or scope of certain other CISG “general principles”, however, the “case law” seems more open to debate. For example, while I understand that the Digest “rules” do not permit criticism of any court,84 I wonder how much (uncritical) regard we should have for the single reported (1993) decision which extends the general place-of-payment principle underlying Article 57 to determine the place of payment of compensation (damages).85 Does the fact that this particular German decision has not (yet) been challenged by courts elsewhere mean the case represents “good law”, or should Digest readers have more regard to the fact that CISG commentators have attacked its underlying logic?86 Assuming, arguendo, that the latter is the better view,87 I would submit that the “service” performed by the Digest – providing access to unpersuasive “case law” (and nothing else) – may actually represent a well-meaning disservice: what we in Denmark aptly refer to as a bjørnetjeneste.88 proposition, the draft UNCITRAL Digest art. 7, ¶ 5 n. 12 provides secondary authority (in the form of legislative history) as well. 83 The draft UNCITRAL Digest art. 7, ¶ 8 nn.17 and 18, is in accord with my “expanded” statement; it also seems confirmed by the text of the Digest with note 19 (regarding a party’s “conduct”). 84 See note 29 supra and accompanying text. 85 See draft UNCITRAL Digest art. 7, ¶ 11 n. 23 citing CLOUT case No. 49. 86 See (e. g.) Bernstein & Lookofsky, supra note 4, at § 2-11, text with notes 174-78 (and the additional sources cited there). 87 In the last sentence of para. 11 Professor Ferrari notes “however, that there is also one decision which denies the existence of a general principle under the Convention on the basis of which to determine the place of performance for all monetary obligations” (emphasis added). I doubt, however, that the French decision cited in note 26 (CLOUT case No. 312) provides persuasive support for the broad proposition that the place-of-payment principle governs “all monetary obligations” (i. e., including the obligation to pay damages for breach), and I wonder how many of the other cases cited by Professor Ferrari do. Regarding the distinction between ratio and dictum, see supra note 33 and accompanying text. If I perceive some healthy academic disagreement between Professor Ferrari and me on this issue, it may relate to the range of “matters” governed-but-not-settled pursuant to Article 7(2). See generally Lookofsky, supra note 35, at § 2-11, and compare the (case law?) view in para. 6 of the Digest draft: “Para. 7(2) makes sure” that gaps, if possible, are filled; whereas only matters “not governed at all” are to be solved by the national/domestic law” (emphasis added). 88 Literally, a “bear-service” (German: Ba¨rendienst), a term deriving from La Fontaine’s 19th century fable about the bear who – in a well-meaning attempt to brush a fly off its master’s head – cracked the master’s skull.

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Article 8 Whereas Article 7 deals with the interpretation of the Convention, Article 8 is another important rule which deals with the interpretation of CISG contracts, and Professor Ferrari has provided us with an extensive and most informative digest of the case law on point. In determining the intent of a party or the understanding of a reasonable person, due consideration is to be given to all relevant circumstances of the case, including the negotiations.89 In this connection, the draft describes the relationship between Article 8(3) and the “parol evidence rule” – i. e., the rule of substantive law which, in some American states,90 in some circumstances, serves to limit the content of a contract in writing to the “four corners” of that document.91 Quite apart from the fact that I doubt whether the draft Digest formulation of the rule is correct,92 and that I doubt CISG parties can always “avoid parol evidence problems”,93 I wonder about the subtle Digest criticism of cases which do not go the “right” way.94 Not that I disagree with this critique – on the contrary95 – but it is my understanding that the Digest is not supposed to criticize CISG case law.96 Perhaps I might suggest a way out of this (academic) Digester’s predicament: to express his 89

See draft UNCITRAL Digest art. 8(3), ¶ 17 n. 33. The rule, where applicable, is a rule of state (as opposed to federal) law. 91 See (e. g.) Joseph Lookofsky, Consequential Damages in Comparative Context 55 (1989), citing the rule as formulated by A. Corbin, Contracts (1963) § 573: When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing (emphasis added). Accord E. Allan Farnsworth, Contracts § 7. 3 (3d ed. 1999). As indicated in the draft Digest of Article 11, a CISG contract need not be in writing in all; if the contract is not in writing (or does not represent a complete and accurate integration), the parol rule cannot apply for that reason. 92 Compare the formulation in the preceding note (and Farnsworth) with para. 18 of the draft Digest, text following note 36, suggesting that the rule excludes “consistent” (supplementary) evidence. Apart from the need to correct this part of the Digest formulation, I would suggest that the word “indiscriminately” be changed to “both”. 93 Even by the inclusion of a “merger clause”, as suggested in para. 19 of the digest Draft (citing CLOUT case No. 222): see Gillette & Walt, supra note 16, at 175-76. 94 See draft UNCITRAL Digest art. 8, ¶ 18: “The express reference in article 8(3) ... did not prevent one court from holding ...” that the rule applies even to CISG contracts. 95 See Joseph Lookofsky, Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules, 39 Am. J. Comp. L. 403 (1991). See also Bernstein & Lookofsky, supra note 4, at § 4-5. 96 See supra note 29. 90

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objective “disapproval” of CLOUT case No. 24,97 the Digester could first indicate that the view expressed in that case represents only dictum;98 then, to express (objective) “approval” of CLOUT case No. 222,99 the quotation from that court’s opinion could be expanded to include the court’s own references to the international scholarly opinion supporting the arguably “better” view.100 Turning to a more general point, I would ask whether Article 8 – when read together with Articles 4 and 7 – really “precludes the applicability of [all] domestic interpretative rules;”101 in other words, I wonder whether Article 8 deals “exhaustively” with the issue of CISG contract interpretation. For even assuming, arguendo, that this broad Digest proposition is “supported by” the single (1990 German) cited to that end,102 the proposition hardly represents the holding of that case.103 (Certainly no Danish court would see any reason to make a sweeping statement like that, i. e., in order to decide whether a given CISG seller “could know” that its buyer made a certain statement which intended to bind a particular third party.104) Beyond this, I would hardly expect Scandinavian judges and arbitrators to regard the three sentences in Article 8 as a viable “replacement” for everything they have ever learned about “contract interpretation”. In other words, I doubt that it is realistic to demand or expect truly “autonomous” interpretation of CISG contracts. Consider, for example, the familiar situation where an arguably onerous clause purports to displace an otherwise applicable remedial rule.105 Asked to deal with the effect of such a clause, courts and arbitrators – in Scandinavia and elsewhere – are likely to 97

Draft UNCITRAL Digest, ¶ 18 n. 38. See Bernstein & Lookofsky, supra note 4, at § 4-5 n. 9. Regarding the distinction between holding (ratio) and dictum see supra note 33. 99 Draft UNCITRAL Digest, ¶ 18 nn.40-41 and accompanying text. 100 11th Circuit U. S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S. p. A., 144 F.3d 1384), citing, inter alia, the views of Bernstein & Lookofsky in the first edition of Understanding the CISG in Europe (The Hague 1997). 101 See Draft UNCITRAL Digest art. 8, ¶ 2. 102 See Landgericht Hamburg, Germany, 26 September 1990, CLOUT case No. 5, cited in draft UNCITRAL Digest art. 8, ¶ 2 n. 7. 103 See note 33 supra and accompanying text. 104 Id. 105 Regarding Scandinavian sellers’ use of standard terms (Nordiske Leveringsbetingelser) in international sales see Lookofsky, supra note 35, at § 7-1. Regarding the use of the similar terms in domestic and inter-Scandinavian sales see Joseph Lookofsky, Køb. Dansk indenlandsk købsret ch. 9. 1 (2d ed. 2002). 98

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proceed cautiously, employing an inter-related series of “tests”. The first test asks whether the clause in question has been incorporated into the overall contract between the parties.106 If this hurdle is passed, courts and arbitrators will employ an interpretation test to determine whether the term applies to the dispute at hand.107 Finally, as regards incorporated terms held applicable, courts sometimes proceed to inquire into the validity of such terms and, as a result of their inquiry, may refuse to give effect to a particular unreasonable clause.108 In Scandinavian theory, the question of whether a given judge decides to use the first, second and/or third tool to “strike out” an unreasonable term is simply (and realistically) regarded as a matter of taste,109 just as the opaque ratio of a Danish court’s “unanimous” decision might well conceal which elements were decisive for the individual judges concerned.110 So if the Danish Supreme Court (Højesteret) decides a CISG case involving these issues, it might cite Article 8 in the ratio, but commentators would still rightly wonder if there were more than meets the eye.111 Even as regards “interpretation” per se, I doubt whether Article 8 provides all the tools courts and arbitrators need in order to interpret (e. g.) one party’s standard terms, especially if the language supplied by one party is susceptible to two “reasonable” interpretations, one of which favors each party. In such a situation, it may be most reasonable to construe a standard warranty exclusion or liability limitation clause (purporting to displace the otherwise applicable CISG rules) “narrowly”, i. e., against the drafter (contra proferentem/stipulatorem), especially since such standard terms rarely reflect the kind of balance resulting from negotiations between organisations of equal bargaining power (capable of protecting the interests of sellers and buyers alike). The contra proferentem idea, though perhaps not a CISG “general principle”, is at least consistent with the letter and spirit of Article 8; it is also an internationally accepted rule.112

106

In the CISG cases involving a party whose place of business is in a Scandinavian State, this issue will sometimes be governed by the CISG, sometimes by domestic law. Regarding the effect of the Scandinavian Article 92 declarations see Lookofsky, supra note 35, at § 8-4. 107 In the CISG context, the obvious starting point is Article 8. See id. at § 7-3. 108 Regarding the applicable domestic validity rules in this context, see id. at § 7-4. 109 Regarding Danish domestic law, see Lookofsky, supra note 105, at 211. 110 Id. In Denmark, where “concurring” opinions are rare, tradition dictates that the members of the Supreme Court majority formulate a ratio which they all can “live with”. 111 For a fuller, more comparative discussion see Joseph Lookofsky, The Limits of Commercial Contract Freedom: Under the UNIDROIT ‘‘Restatement’’ and Danish Law, 46 Am. J. Comp. Law 485-508 (1998), also available at http://www.cisg.law.pace.edu/cisg/biblio/lookofsky2.html. 112 See Lookofsky, supra note 35, at § 7-3.

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III. Conclusions I certainly believe that national courts in all Contracting States should consider themselves bound by the rule of interpretation in CISG Article 7(1), just as they should always, to the extent practicable, “have regard” to the case law concerning relevant CISG rules. For this reason alone, I am convinced that the UNCITRAL Digest assembles – and helps organize – much relevant and useful CISG information “under one roof”. Having (re)stated that, I would respectfully make a few humble suggestions to those who author the Digest and to those who will read it. The first of these suggestions is that the UNCITRAL Digest authors – Professor Ferrari and all my other distinguished friends who have done such fine work on this project – take a hard second look to make sure there is clear authority for every (objective) Digest remark. In this connection, I suggest that the Digesters do their (objective) best to take the “why-question” – i. e., the ratio underlying the reported decisions – “into account”. To this end, I have suggested that the Digest might do well to include occasional references to CISG scholarly writings (doctrine), in that UNCITRAL might view such citations as “politically correct” in those cases where the courts – in their published decisions – themselves expressly refer to such secondary authority.113 On the other hand, I would caution courts (and arbitrators), as well as lawyers and other readers, not to rely on the Digest as their sole source of CISG law, since – in many, if not most instances – the selected sources in the Digest cannot provide courts and arbitrators (or anyone else) with a balanced and realistic picture of CISG “law”. At the same time, I should emphasize that the “solution” to the problems created by the narrow range of acceptable Digest sources should definitely not be the establishment by UNCITRAL of a panel of academics, i. e., with a view to promulgating a “uniform” – and thus perhaps “politically correct” – academic point of view (of the case law or anything else). We cannot – and ought not attempt to – replace healthy academic debate on controversial CISG issues by the creation of a body which, by necessity, could only speak with “one voice”. This is hardly the right place to get (even more) philosophical about the degree of commercial law harmonization which we – by way of the Vienna Sales Convention (or other uniform law initiatives) – might seek to

113

See text supra with note 100.

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achieve,114 but I will say that I do not believe that CISG “success” should be measured solely in terms of legal “certainty”, especially since the kind of certainty some might seek could only be obtained at a price which other Convention advocates would not want to pay.115 114 Regarding private law harmonization see also: Lookofsky, supra note 95; Joseph Lookofsky, The State of the Union in Contract and Tort, 41 Am. J. Comp. L. 89 (1993); and Joseph Lookofsky, The Harmonization of Private and Commercial Law: ‘‘Towards a European Civil Code’’, 39 Scandinavian Studies in Law 111 (2000). 115 Regarding the spirit of Scandinavian Realism see Lookofsky, supra note 91, at 17-18, citing Richard Posner, Legal Formalism, Legal Realism and the Interpretation of Statutes and the Constitution, 37 Case W. Res. L. Rev. 179 (1986/87). See also Lookofsky, id. at 192 (regarding skønnet, i. e., “judicial discretion” which often determines the outcome before the premises, which test the correctness of the conclusion, are established).

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A commentary on Articles 1-13 and 78 Michael Bridge* The decision of the United Nations Commission on International Trade Law (UNCITRAL) to compile a Digest of case law on the Convention on the International Sale of Goods (the CISG) represents a pragmatic and realistic response to the challenge of uniformity of law. There is more to uniformity than the diplomacy and compromise that produces an agreed text and the persuasion that follows to see that the text is adopted by signatory States. The agreed text does not remain inert in the treaty that gives it birth, but grows in the hands of tribunals and commentators. In the course of that growing process, a uniform law that is drawn into the interstices of domestic law ceases to be uniform. Article 7 of the CISG, seeking to prevent this from happening, is the primary engine of continuing uniformity. It requires that the CISG be interpreted in an international spirit and that gaps in its coverage be filled in a way that is true to the principles on which it is based. In the pursuit of these objectives by tribunals, a Digest of decided cases is an invaluable aid to decision making. A Digest represents, however, only a starting point in the approach of a tribunal to decided cases and should not be seen as a substitute for a critical evaluation of the decisions recorded in it, or as an invitation to pursue uniformity by the mechanical expedient of counting decisions and following the majority view. The object of this selective commentary is twofold. First, it aims to draw upon a limited number of court and arbitral decisions recorded in the draft Digest1 and consider their contribution to the development of those articles of the CISG under review in this commentary. Secondly, it aims to present a critical assessment of those same provisions: case law has not penetrated all the depths of the CISG provisions. The development of the CISG is best achieved by a partnership of case law and critical commentary. The CISG has now been in force for nearly 15 years and has been adopted by more than 60 States. It has attracted a huge literature and has been the subject of many hundreds of national court decisions and arbitral awards. Its *

Professor, University College London. For reasons of brevity, cases on a particular point will not be listed in this commentary. They can be drawn readily from the draft Digest. 1

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influence has by no means been confined to the law of commercial sales. The ideas generated in the CISG are also evident in influential soft law instruments, namely, the Lando Principles of European Law2 and the Unidroit Principles of International Commercial Law,3 as well as in the EU Directive on Consumer Sales Guarantees.4 It is likely to have a powerful influence on the draft European Civil Code prepared under the auspices of the Study Group for a European Civil Code.5 The field of comparative private law has been transformed in recent years. The CISG may be seen as both the product and the progenitor of activity in this field. It is much more than just a special statute dealing with one of the more important contracts. Some years ago, I wrote that the challenge confronting the CISG was the manufacture of an enveloping culture of uniformity before the assimilating properties of national legal systems imposed their different stamps upon the CISG.6 Nationalist tendencies are probably fated to be with us always but the events of the last several years contain a most impressive record of success. This has been due in a large measure to the private sector, namely, the commentators who have written at length about the CISG, have created web pages rendering it and its offshoots just as accessible to researchers and lawyers in countries with underresourced library systems as in those more generously endowed and, in collating decisions and in translating them, have provided much assistance to judges and arbitrators all over the world, with the fruits of such assistance beginning to emerge. The UNCITRAL Digest provides a real opportunity for a fruitful partnership between public and private sectors. 2

The Commission of European Contract Law, Principles of European Contract Law (O. Lando & H. Beale eds., 2000) [hereinafter PECL]. 3 Principles of International Commercial Contracts (Rome, 1994) [hereinafter UNIDROIT Principles or UPICC]. 4 Council Directive 99/44, 1999 O. J. (L 171), through which it finds its way into UK consumer sales law as the directive is transposed, though the UK has not adopted the CISG itself. See The Sale and Supply of Goods to Consumer Regulations 2002, SI 2002 No. 3045 (laid before Parliament and entered into force 31 March 2003). 5 In the short to medium term at least, it is by no means likely that there will be a Civil Code for the European Union. Following on from its Communication on European Contract Law of July 2001 (COM (2001) 398), the Commission in its January 2003 Communication on European Contract Law (COM (2003) 68) firmly rules out the possibility of a European Civil Code (see also its Green Paper on the Rome Convention of 1980 (COM (2002) 654), para. 1. 6), though intriguingly it mentions the possibility of an optional instrument for dealing with cross-border contracts that (bewilderingly) could be binding on contracting parties (see paras 92 and 94). 6 Michael Bridge, The Bifocal World of International Sales: Vienna and Non-Vienna, in Making Commercial Law 277-96 (Ross Cranston ed., 1997).

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Articles 1-2 There is little in the case law on Article 1 that provides insight into the meaning and significance of its provisions. Though cited in many decisions, it is simply a routine port of call for a tribunal that is identifying the applicable law. In view of the success of the CISG, with more than 60 countries adopting it, it should be no surprise that the dual residence (or place of business)7 gateway to the application of the CISG in Article 1(1)(a) is much more important now than the private international gateway contained in Article 1(1)(b). Similarly, Article 95, which permits Contracting States to declare that they will not be bound by Article 1(1)(b) – a regrettable departure from uniformity – has lost much of its significance. A matter of some theoretical importance arises out of the relationship between uniform law and national and domestic law.8 In simple terms, the question is whether uniform law is part of the national law of the adopting State or part of an international order arrived at by a tribunal pursuant to its choice of law process. For Article 1(1)(b), the answer, superficially at least, is clear: the CISG applies by virtue of the private international law rules of the forum in the Contracting State. The differentiation of Article 1(1)(a) makes it again superficially clear that the dual residence test has nothing to do with private international law. But is this correct? And does the indirect application of the CISG by Non-Contracting States throw any light on the process of its application? Taking first the dual residence test, it has been said by one eminent authority that Article 1(1)(a) “can be seen as including a kind of choice-of-law rule, one which makes the Vienna Convention as adopted and interpreted by either the buyer’s State or the seller’s State applicable where both States are Parties to the Vienna Convention”.9 As a choice of law rule it is incomplete in that it gives the forum no guidance as to whether the CISG is applied as the law of the State of the seller’s or of the buyer’s residence. The CISG, by 7

The place of business is identified according to the tests in Article 10. By domestic law, I mean the law of a State minus its private international law rules; by national law, I mean the law of a State plus its private international rules. 9 Professor Arthur T. Von Mehren, Explanatory Report on the 1986 Hague Convention on the Law Applicable to International Sales of Goods ¶ 192 (1986). The argument is assumed to be wrong in the decisions of the Tribunale Civile di Vigevano, Italy, 12 July 2000, CLOUT case No. 378; Landgericht Landshut, Germany, 5 April 1995, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950405g1.html; and U. S. District Court for the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, 209 F. Supp. 2d 880, 47 UCC Rep. Serv. 2d 887). 8

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this reasoning, would therefore certainly not be applied as part of the domestic law of the forum in those cases where the forum State is neither the State of the seller’s nor of the buyer’s residence. It may seem a matter of no great interest how the forum arrives at the CISG under Article 1(1)(a) but the matter is not unimportant in determining potential conflicts between the CISG and private international law conventions like Hague 195510 and Rome 1980.11 It would certainly become important if the CISG were regrettably to be domesticated by different national laws counter to the rule of international interpretation in Article 7(1). If, for example, American federal courts were to take a different line on the interpretation of the CISG to that taken by German courts, then litigants would have a real interest in knowing whether it was Germany’s CISG or the version of the CISG applied in those federal courts that governed the case. The status of the CISG in the forum State is also important in the matter of its practical application. Under the conventional choice of law process, foreign law is a fact and is pleaded and proved like any other fact. The parties are free, if they wish, not to plead and prove it, whereupon the court will rely upon the fiction that foreign law is the same as the lex fori. The cost of dealing with foreign law and the unpredictability of foreign law, given the very high degree of risk that the forum will get it wrong, persuades many litigants to leave foreign law undisturbed. Now, if the CISG is part of the domestic law of the Contracting State in whose courts the dispute is being heard, then it is not foreign law. It is local, specialised law in just the same way as the Contracting State might have separate sales laws for commercial and consumer contracts of sale. If the CISG is part of the forum State’s domestic law in this way, the principle of jura novit curia, if applicable in that State, will oblige the forum to apply the CISG even if the parties themselves do not invoke it.12 In addition to this principle, it is arguable that the forum State is treaty-bound to ensure that its courts apply the CISG pursuant to Article 1. Given the long-standing freedom for litigants to turn to domestic instead of to foreign law in the choice of law process, Article 1 would have to be clearer than it is about the mandatory application of the CISG for that freedom to be excluded, if the CISG were applied as part of the forum’s choice of law process. If the CISG, however, were part of the forum State’s domestic law, the mandatory application argument might have more substance, at least in those cases where the conduct of the parties in the course of litigation could

10

Hague Conference on Private International Law Convention on the Law Applicable to International Sale of Goods (1955). 11 European Community, Convention on the Law Applicable to Contractual Obligations opened for signature in Rome, 19 June 1980, consolidated version at 1998 O. J. C27. 12 See, e. g., Tribunale Civile di Vigevano, Italy, 12 July 2000, CLOUT case No. 378.

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not be seen as a tacit agreement ousting the application of the CISG pursuant to Article 6. In those cases where the CISG is applied by the courts of a Non-Contracting State, such application will necessarily occur by way of the choice of law process. Cases where the CISG might have been applied according to the dual residence test in a Contracting State will in a Non-Contracting State be disposed of pursuant to its private international law rules. An English court, for example, in a case involving a German buyer and a French seller is likely, where there is no chosen applicable law, pursuant to the Rome Convention to apply French law as the law of the place of residence of the characteristic performer, namely, the French seller.13 What then is the English court to do? It should apply the CISG if the dual residence test means that the CISG is part of French domestic law. But suppose the buyer is English instead of German. If the dispute were before a French court, that court would be required by the Rome Convention to apply French law. The French court, turning to Article 1(1)(b) of the CISG and recognising that France is a Contracting State under the CISG, would therefore apply the CISG. If however the dispute between the English buyer and French seller were before an English court, that court, equally bound under the Rome Convention to apply French law, could on the face of it apply the CISG only with the aid of French private international law rules, which would involve an infringement of the prohibition on renvoi in the Rome Convention.14 This conclusion is avoidable only if a rather bold interpretation of Article 1(1)(b) is advanced, namely that, despite the reference to private international law in that provision, the CISG has become part of French domestic law in substitution for the former body of law that included French private international law rules. After all, the French court itself would apply the CISG, not because its private international law rules say so, but because it is treaty-bound under the CISG to do so. If the English court adopted the same view of the location of the CISG within French law, then it could apply the CISG without invoking renvoi. Paradoxically, given the characterisation of the homeward trend in private international law cases as fundamentally opposed to the spirit of internationalism, the best way to promote the international operation of the CISG is to view it as the domestic law of Contracting States. Another private international law issue that is immanent in Article 1, and not expressly referred to in it, concerns the freedom of contracting parties to choose the CISG as the applicable law outside cases where it would otherwise apply under Article 1. The Uniform Law on the International Sale of Goods 13 EC Convention on the Law Applicable to Contractual Obligations, 19 June 1980 [Rome Convention] art. 4(2). 14 Id. art. 15.

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1964 (ULIS) explicitly recognised the right of parties to do this,15 though of course such right would not be binding on the courts of a Non-Contracting State. If the right of parties to choose were to be recognised by Contracting States, then it could not be by virtue of the CISG itself but rather according to the choice of law rules of that State, whether of purely national origin or derived from an international convention. For EU States, the autonomy of the parties in choosing the applicable law is recognised,16 subject to certain exceptions of a public policy and mandatory law kind,17 but there is very real doubt whether the parties can choose a body of legal rules that is not as such chosen as part of an applicable law and the better view is that they cannot. In consequence, the parties might not expect a court to recognise their choice of the UNIDROIT Principles of International Commercial Contracts (UPICC) as the applicable law. Nor too, though it is a very different type of instrument, may they expect their choice of the CISG to prevail. It is one thing for the parties to choose French law when French law, applying the dual residence test in Article 1(1)(a), would apply the CISG; it is a quite different matter for those parties to go directly to the CISG. Now, it may be that too much is being made of the difficulties facing the parties. Because the CISG lacks rules on validity and property, all that is left are dispositive rules that can be ousted by contrary intention. As such, they are in competition with similar dispositive rules of domestic law. A court, therefore, faced with a choice of the CISG, should give very careful attention to the question whether the parties, in choosing the CISG, have thereby evinced an intention to exclude the corresponding domestic rules of the law that is the applicable law under the forum’s private international law rules, supplanting those rules severally and in gross with the corresponding CISG rules. Article 1 can be taken as a reference point for some other issues that are not of a private international law kind. It states the application of the CISG to contracts of sale of goods without defining either sale or goods. It seems to be uncontroversial, however, that the definition of a contract of sale can be drawn from Articles 30 and 53, taken together, with their vital references to “price” and to “the property in goods”. But the only guide to the meaning of “goods” resides in the exceptions in Article 2, which perhaps, with their specific references to electricity, negotiable instruments and money, encourage an expansive interpretation of “goods”.18 (If items beyond the 15

Convention Relating to a Uniform Law on the International Sale of Goods, 1 July 1964 [ULIS] art. 4. 16 Rome Convention, supra note 13, art. 3. 17 Id. arts. 7 and 16. 18 This may explain why a contract for the preparation of a market study was excluded from

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conventional understanding of goods have to be explicitly excluded, does this not suggest an otherwise broad definition?) This would be a matter of some significance when dealing with software which, despite certain decisions, cannot be treated as goods if the conventional interpretation of goods as tangible items is followed. The disk that incorporates the software, if it exists (and in many cases a disk is not used to download), is just the packaging and not the software. If, however, the meaning of goods in the CISG is not confined to tangible things – and this is an open question, not to be resolved by reference to national laws – then it should accommodate software if it were sold. The reality, however, is that software is not sold but rather licensed for use. The licensor is under no obligation to transfer the property in the software and so the licensing agreement falls outside the CISG. An issue that has arisen on a number of occasions is whether framework contracts, such as distributorship agreements, under which individual contracts of sale are concluded from time to time, qualify as contracts of sale. There is a real risk of discord if, for example, the applicable law treats such a framework contract as enforceable, in circumstances where individual contracts will always give the seller an exemption under Article 79,19 but this is no more of a problem than the problem of reconciliation that arises in the case of a single contract and dpeage (or the allocation of different aspects of the contract to different applicable laws).20 As convenient as it would be to incorporate distributorship agreements in the CISG, this is not the view generally taken in the case law. It would also not be easy to reconcile with the text of Article 30 and the seller’s duty to transfer the property in the goods under the contract. No property passes under the distribution agreement as such. The difficulty with dismissing the application of the CISG on this ground, however, is that it could justify the exclusion of output and requirements contracts if these were seen as distinct from the individual transactions effected under them. There seems little reason to exclude output and requirements contracts which might be alternatively rationalised, not as framework contracts coupled with satellite sales, but rather as single sales agreements with instalments and delivery dates to be settled from time to time. Given the other purposes of distribution agreements (which in the CISG under Article 3 instead of Article 1: Oberlandesgericht Kln, Germany, 26 August 1994, CLOUT case No. 122. 19 But see Bundesgerichtshof, Germany, 23 July 1997, CLOUT case No. 231 (holding that the sales contracts forming the basis of the seller’s claim were not affected by the nullity of the parties’ distribution agreement). 20 This is expressly allowed under the Rome Convention Articles 3(1), 4(1). There is no reason why, in a case arising under Article 1(1)(a) of CISG, the same principle should not be recognised in the guise of a derogation from CISG provisions under Article 6.

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some respects are akin to commercial agency contracts), in particular the distributor’s obligation to advance sales of the manufacturer’s goods in the defined territory, a line can be drawn between output and requirements contracts, on the one hand, and distribution agreements on the other.

Article 3 In some legal systems, the distinction between sale of goods and related contracts has been difficult to draw. This has been the history of English law though the subject in modern times has lost most of its significance. This is because the courts worked assiduously to apply to related contracts, outside the Sale of Goods Act, the same rules refashioned as common law rules, an activity that was carried on later by the legislature.21 Such a relaxed approach, however, is not possible with the CISG. This is because the domestic rules of the forum applicable to non-sale-of-goods contracts may be quite different from those in the CISG. Article 3 requires some care to be taken when interpreting its two paragraphs since different quantitative words are used – “substantial” (where the buyer supplies the materials) and “preponderant” (where labour or other services come with the goods). In addition, those quantitative words are applied to different matters – “substantial” goes to materials and “preponderant” to obligations. It is not easy to see why there should be such quantitative differentiation. In addition, the rationale for the exclusion of certain cases where the buyer supplies materials is unclear: why should it matter whether the materials come from the buyer or from a third party (especially in a convention that does not contain rules on the transfer of property)? Still less, why should a contract be excluded where only a “substantial” part of the materials is supplied by the buyer? However that may be, “preponderant” in respect of the supplier’s obligations connotes a bare majority of those obligations, but how can this be measured? It hardly makes sense to count individual contractual obligations without regard being paid to the onerousness of those obligations.22 As for what constitutes a “substantial” part of the materials supplied by the buyer, this is plainly less than a majority but how much less? Inevitably, these words will be interpreted impressionistically, with the result that it will be a challenge even for tribunals in the same jurisdiction to interpret them consistently.

21

See Michael Bridge, The Sale of Goods 45-49 (1997). The financial onerousness of those obligations has been favoured: Kantonsgericht Zug, Switzerland, 25 February 1999, CLOUT case No. 327. 22

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It has been held that the CISG is excluded where the seller supplies goods to the buyer’s specifications,23 but the text of the CISG has to be liberally extended to justify the exclusion and this runs counter to the spirit of uniform legislation. In any case, this interpretation runs against the grain of Article 65 which deals explicitly with cases where the buyer is bound “to specify the form, measurement or other features of the goods”. If in such respects the buyer plays an active part in defining the seller’s delivery obligations, why should design be singled out for special treatment?

Article 4 Article 4 excludes from the CISG both validity (of the contract or any of its provisions or of usages) and property issues. The validity exclusion is particularly significant in charting the uniform interpretation of the CISG. Since the meaning of “validity” can vary so much among legal systems, it is especially important that the word, like any other concept in the CISG, be given a uniform interpretation. For example, since the CISG deals at some length with matters of form, it would be subversive of the Convention and of uniformity if national courts were to treat it as going to validity because it is so treated in their own system. In view of the wide scope given to mistake in some legal systems, particular care must be taken with it. For example, given that the CISG deals at such length with the rights and duties of the buyer concerning the quality and fitness of goods, it would be destructive of the CISG if the domestic law of mistake were to be applied because of the buyer’s misapprehension about important attributes of the goods. The scope of mistake (or erreur) could be a particular problem in the case of French law, which grants relief in the case of subjective, unilateral mistake,24 going beyond the subject matter of the contract and extending to substantial qualities of the subject matter.25 Similarly, the existence in some common law jurisdictions of contractual rescission for misrepresentation, even where the misrepresentation has only 23

Cour d’Appel de Chambry, France, 25 May 1993, CLOUT case No. 157 (treating the buyer as supplying a substantial part of the “materials”). 24 See Code Civil (France) art. 1110. There can be relief where one party’s contractual consent has been determined by the false idea that the party had (“fausse ide que cette partie avait”) concerning the rights he acquired under the contract: Cour de cassation 17 November 1930, DP 1932. 1.161. 25 The Dalloz commentary on the Code civil makes it clear that an established body of case law (jurisprudence constante) supports relief in respect of mistakes concerning “qualits substantielles”, a category that includes matters pertaining to origin, authenticity and use of the subject matter. C. civ. 1995-96 art. 1110, ¶ 6.

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a partial inducing effect on entry into the contract, should not be allowed to subvert the Convention’s scheme of remedies and particularly the rule that avoidance of the contract for non-conforming goods requires the seller’s breach to be fundamental. The ability to rescind a contract with no great difficulty, as a result of a misrepresentation by the other party to the contract, is destructive of core CISG values of contractual continuance and the avoidance of economic waste. Whilst rescission in common law systems for misrepresentation is retrospective and avoidance under the CISG is prospective, this is only a technical difference: in both cases, the buyer throws unwanted goods back on the seller. For the uniform integrity of the CISG, it is vital that not only must “validity” be interpreted autonomously, but that the permissible scope of domestic validity rules be determined according to the CISG. This would mean curtailing any broad effect of domestic validity rules where this would undermine CISG rules on performance and remedies.26 Another issue of validity concerns cause and consideration. In a bilateral contract, the former civilian doctrine is most unlikely to cause any difficulties. To a significant degree, the very nature of sale – a transfer of goods for the payment of a price – leads to the same conclusion. In the case where consideration is most likely to cause practical problems in the commercial world of sale, it will be in relation to open offers and contractual variation. In both cases, the CISG, whilst not explicitly rejecting consideration, makes it clear that the doctrine has no part to play.27 The definition of “property” – also excluded from the CISG – is not straightforward, given that different legal systems draw the line between contract and property differently. This is the case for assignment of contractual rights in common law and civil law systems. Possession too is more likely to be regarded as a proprietary interest in common law than in civil law systems. In those cases where the seller’s duty to deliver and the buyer’s duty to take delivery and pay are mutual and concurrent, the seller relying upon the terms of Article 30 can stand on the buyer’s failure to pay as a defence to his own non-delivery. A duty to deliver “as required by the contract” in a contract of this type is a duty to deliver against payment. The

26

In the case of subjective mistake, this approach gains support from Article 8(1), which applies a subjective approach to the interpretation of statements and conduct only where a party knew or must have known of the other’s intention. 27 Articles 16(2) (an offer cannot be revoked in stated circumstances) and 29(1) (modification of the contract “by the mere agreement of the parties”).

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effect of an unpaid seller’s lien is therefore replicated in contractual terms.28 The same easy shift from property to contract cannot, however, be carried out in respect of the unpaid seller’s right of stoppage in transit in Article 71(2). If stoppage were anything other than the rare event that it is, its precise analysis ought to call out for considerable thought. But stoppage amounts to a reversal of delivery and moreover cannot readily be reconciled with the terms of the contract of carriage which, in any case, is not the subject of the CISG. Stoppage bears the trappings of a proprietary right. The question of property also arises in a disguised form in Article 81(2), where the seller is given a right to restitution of the goods after avoidance of the contract which, to be effective, requires the property in those goods to be retransferred to the seller. That said, it goes too far to say that, if the law dealing with property issues permits the buyer to retain the goods despite non-payment, then the remedy of avoidance is no longer governed by the CISG.29 Rather, it is a normal consequence of avoidance that is unavailable. The separation of contract and property in Article 4(b) is by no means the straightforward matter that it might appear to be under Article 4(b). It therefore seems that, until a third party claiming property rights in the goods or an insolvency officer appears, the CISG does not in fact shirk from dealing with property. A seller who includes in the terms of the contract a reservation of property clause may properly claim that the buyer should respect that right and not deal or otherwise dispose of the goods except in a way that is consistent with the clause. As between seller and buyer, the remedies provisions of the CISG – not the corresponding provisions of the law otherwise applicable to the property issues – should apply.30 Once the third party dimension intrudes, however, the case law supports the exclusion of the CISG.

28

See also Article 82(1) (seller’s right to retain goods against reimbursement of reasonable expense arising out of buyer’s failure to take delivery). 29 U. S. District Court for the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, 209 F. Supp. 2d 880, 47 UCC Rep. Serv. 2d 887). 30 Federal Court of the South Australian District, Australia, 28 April 1995, CLOUT case No. 308 (instalment sale).

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Article 5 Article 5 has yielded very few reported cases. It is, however, gratifying to see that a German court has given it a sensible commercial interpretation by ruling that, where the buyer incurs liability under domestic law to sub-buyers for personal injuries, this should be classified as an economic loss when the buyer seeks recovery from the seller under the CISG.31 The seller in such a case is not being made liable for personal injury caused to the sub-buyer; the seller is being made liable to the buyer for the balance sheet loss that flows from the buyer’s liability to the sub-buyer for personal injuries. The words “any person” at the end of Article 5 appear to be surplusage, quite possibly attributable to the late appearance of this provision in the drafting process. Article 5 was designed largely to minimise the risk of conflict between the CISG and domestic systems of product liability and tort. The CISG does, however, apply to property damage. Suppose a seller has been negligent in recommending to the buyer goods that are not at all suitable for the buyer’s purpose and that damage the buyer’s plant and machinery. Suppose too that the buyer fails to comply with the examination and notice of defect provisions in Articles 38-39. May the buyer by-pass the restrictions on recovery in the CISG and obtain full damages in domestic tort law? In some respects, this might appear a similar question to the one dealt with above concerning mistake and misrepresentation. Nevertheless, while that question went to the heart of sales law and the CISG, the application of the CISG to property damage seems more of an extension of sales law. Moreover, the earlier inquiry concerned the meaning of “validity”, a Convention concept. There is no such Convention concept of tort (or delict) that could limit the domestic application of a Contracting State’s tort rules. Consequently, a buyer ought to be able to take the tort route, especially if domestic law permits a free election between different causes of action. Issues of this kind are bound to arise where uniformity is partial and does not run through the whole of private law. Election should, unless a very good counter-argument can be made, be treated as a matter of the broader domestic law. If it had been intended to deprive the buyer of freedom to sue in tort, then the CISG ought to have explicitly said so.

31

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sseldorf, Germany, 2 July 1993, CLOUT case No. 49.

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Article 6 A question squarely raised by Article 6 concerns whether the parties may impliedly derogate from or exclude the CISG, or whether they must do so expressly. The drafting history of the CISG shows32 that, despite the rejection of an attempt to refer explicitly to express and implied exclusion, as was done under ULIS,33 no significance should be attached to the failure to repeat the ULIS approach. Decisions of courts to the contrary34 can be criticised for their failure to refer to the history of the Convention. They might also be based upon a failure of logic. Just because Article 6 makes no mention of express exclusion and derogation is no reason to rule out an express agreement of the parties, so why should a similar argument succeed with an implied agreement, especially in a Convention that gives extensive recognition to informal dealings between the parties?35 Implied exclusion is a matter that most often arises in connection with a choice of law clause. While such a clause does not explicitly exclude the CISG, that may be its implicit meaning. If the parties choose the law of a Non-Contracting State, this can only mean that they have availed themselves of their rights under Article 6. But what is the case if they choose the law of a Contracting State? The issue is one of interpretation of the parties’ intentions36 and should be so treated in a Convention that recognises freedom of contract and party autonomy. It should not be treated as a case of the parties availing themselves of a legal privilege which must be narrowly 32

Documentary History of the Uniform Law for International Sales 469-71 (John O. Honnold ed., 1989) [hereinafter Documentary History] (First Committee Deliberations 1980 (A/CONF. 97/C.1/SR4)). 33 ULIS, supra note 15, art. 3: “The parties to a contract of sale are free to exclude the application thereto of the present Law either entirely or partially. Such exclusion may be express or implied”. 34 See, e. g., Landgericht Landshut, Germany, 5 April 1995, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/950405g1.html; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 24 January 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000124r1.html (case No. 54/1999). 35 Note, however, that the drafting history shows a rejection of the mention of implied agreements in order to discourage courts and tribunals from too readily finding such an intention: Documentary History, supra note 32, at 470-71, ¶ 18 (Japanese delegate) (First Committee Deliberations 1980 (A/CONF. 97/C.1/SR4)). 36 It is entirely appropriate to demand a genuine intention of the parties to depart from the CISG: see Obergericht des Kantons Luzern, Switzerland, 8 January 1997, CLOUT case No. 192.

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interpreted: the CISG is not a regulatory law. If the parties are resident in different Contracting States, it might fairly be asked why they inserted an applicable law clause in favour of a Contracting State when the CISG would have applied in any event. Is the insertion of the clause to be regarded as otiose? The same problem does not arise so keenly, of course, if the CISG applies as a result of the reference to the forum’s private international law rules under Article 1(1)(b). The selection by the parties of the law of a Contracting State may well be the only way that they could have brought in the CISG, assuming that they could not have chosen the CISG itself directly as the applicable law. This tends to the conclusion that the parties intended the CISG to apply, or at least that they did not intend to exclude it, which is sufficient. Further, if the applicable law clause is treated as a contractual provision to be interpreted in just the same way as other contractual provisions, it might be important to know whether the parties are using a standard form that predates the CISG. Language inserted expressly in the contract after the circumstances giving rise to the applicability of the CISG might be seen as more readily displaying an intention to exclude the CISG than old boilerplate language. It is relevant to ask further how the parties ought to have expressed an intention that French sales law, for example, as contained in the Code Civil, should govern the contract. To say that they should have stated that this does not mean the CISG comes close to demanding that the CISG can only be excluded expressly. This is a matter that concerns a number of English lawyers37 since many contracts that have no physical or party connection to England contain English law governing clauses, precisely because of the perceived commercial merits of English law.38 The routine insertion of a clause ousting the CISG, which is a feature of many oil and commodities trading forms, may not be as readily achieved in a bespoke shipbuilding contract. Suppose, to continue with our French example, that the parties say French domestic law applies. It would be the worst sort of pedantry to say that the CISG is part of French domestic law and therefore has not been excluded by the parties. The parties are merchants and do not have lawyers looking over their shoulders. In an arbitration, French domestic law was held applicable when the contract referred to French law and the terms of reference of the arbitral tribunal mentioned French law without its private

37

And might explain in part the United Kingdom’s failure to adopt the CISG. For example, the great majority of contracts for the construction of ships and tankers (“newbuildings”) are governed by English law. This is particularly true of newbuildings in Japanese and Korean yards. 38

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international law rules.39 Since the question is one of intention, it must be wrong to say, as the German Bundesgericht has done in the Benetton II case, that “an agreement on the applicability of substantive German law by itself cannot be seen as an exclusion of the CISG” and to demand that the parties refer to German national sales law provisions.40 For that reason, it is too dogmatic to say, as the Austrian Oberster Gerichtshof has done, that: “The choice of law without an explicit declaration that the Convention be excluded does not constitute an implicit exclusion, and because the CISG is a part of the chosen law, it is therefore included in the referral, and takes precedence over the non-unified law which would otherwise be applicable ...”41 This is to confuse party intention with the precedence of legal instruments. The resolution of this issue is by no means easy and the only sensible advice that can be given – namely, to be as clear as possible about the meaning of the governing law clause – is addressed to transaction lawyers as opposed to litigation lawyers.

Article 7 Article 7(1) deals with the interpretation of the CISG and Article 7(2) with the filling of gaps in it, an exercise seen in common law countries as one of implying terms in the contract. The former provision proclaims that, however much the CISG may have been incorporated into the domestic law of a Contracting State, it is not domestic law in the same way that other national legal instruments are. The international character of the CISG has to be recognised as a matter of treaty obligation and not just pious aspiration. This is all the more reason why terms used in the CISG should be given an autonomous interpretation and why great care should be taken in using domestic legal experience of similar or even identical terms. For example, supposing the U. K. were belatedly to adopt the CISG, it might well be useful to turn to English law on the meaning of fitness for purpose in Article 35 but it would be very dangerous to call up English cases on the meaning of description which, for a number of reasons, some of them occult, has been given a highly artificial interpretation in English case law.

39

ICC Court of Arbitration, Case No. 7754, 1 January 1995, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/957754i1.html. 40 Bundesgerichtshof, Germany, 23 July 1997, CLOUT case No. 236. 41 Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/011022a4.html.

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To counter the homeward tendency, which is the natural enemy of uniform law, a reference to academic literature,42 and to the decisions on the CISG of foreign courts and tribunals is to be positively encouraged. To serve the cause of uniformity, a premium is placed upon tight and persuasive reasoning and it would therefore be useful for courts to consider the export potential of their judgments. It has to be said, however, that the case law tends to fall short of this high standard, with many judges and arbitrators contenting themselves with assertion rather than reason. Perhaps intellectual persuasion is more of a task for legal scholars than for judges. The development of an internationalist spirit should encourage courts not to go looking in the CISG for longstanding problems in domestic law.43 It might alert those courts referring to a paucity of case law on the CISG to the difference between a paucity of national decisions and an abundance of decisions world-wide. After a very slow start, there are encouraging signs of a greater willingness of courts to look at decisions handed down outside their national boundaries.44 This tendency can only be encouraged by the remarkable achievements of those who have created data bases and have posted there decisions translated into English, which has become the lingua franca of the uniform law movement. A sensitive point that does arise under Article 7(1) concerns the extent to which a court ought to follow the decisions of a foreign court even if it considers that those decisions lay down bad law. A number of the decisions of German courts on the examination of goods and the giving of notice of defect under Articles 38-39, which take as their starting point of comparison decisions on their own very strict domestic commercial law, have set a standard of harshness and pedantry that few tribunals would want to emulate. Even an internationally-minded court should be free not to follow bad law. One way would be to observe the distinction between law and fact and to note that what constitutes a reasonable notice and the giving of notice within a reasonable time can be a matter for local variation and usage. This is an expedient, however, that should be used sparingly if the interests of 42

Oberster Gerichtshof, Austria, 13 April 2000, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/000413a3.html. 43 See, e. g., the American concern with the parol evidence rule in 11th Circuit U. S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S. p. A., 144 F.3d 1384). 44 See, e. g., Tribunale Civile di Vigevano, Italy, 12 July 2000, CLOUT case No. 378; Tribunale Civile di Cuneo, Italy, 31 January 1996, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/960131i3.html; U. S. District Court for the Northern District of Illinois, United States, 28 March 2002 (Usinor Industeel v. Leeco Steel Products, 209 F. Supp. 2d 880, 47 UCC Rep. Serv. 2d 887); U. S. District Court for the Southern District of New York, United States, 26 March 2002 (St. Paul Insurance Co. v. Neuromed Medical Systems & Support GmbH, 2002 WL 465312).

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uniformity are to prevail. It might therefore be better – certainly it would be more transparent – to depart expressly and on principled grounds in order to give a lead to other tribunals. The same might be said for the reference to good faith in Article 7(1). In view of the inherent vagueness of the expression, and the tendency to use it in a reductionist way to mean whatever the user wants it to mean, there is a threat posed to uniformity if it is given too expansive a meaning by some national courts. I am far from convinced, for example, that the laying of a duty on contracting parties to preserve the contract goods is a manifestation of good faith. If good faith explains everything, then it explains nothing. The real test for good faith will come, however, in the case of a party who follows the letter of the CISG and is accused of acting in breach of the good faith standard.45 If, for example, a buyer were to take steps to make time of the essence of the contract, believing that the seller would not be able to perform in the reasonable time given, and serving such a notice only because the market had swung against him, would it be a good faith interpretation of Article 47 if his notice to the seller were recognised as effective? Should the existence of a good faith motivation be read into Article 47? Similarly, if a buyer were to declare the contract avoided as soon as a fundamental breach has occurred, so as to deprive the seller of a chance to cure the defective performance, should not Articles 48-49 be interpreted so as to prevent the buyer from acting in this way? Article 7(2) is in many ways the linchpin of the CISG since its use by courts and tribunals will have a marked effect upon the future of the CISG. Sale is but a special contract which draws upon general contract law. There is however no uniform general contract instrument that corresponds to the CISG. Yet, when the CISG is compared to the UPICC, it can be seen that, once validity provisions have been stripped out, the UPICC, if appropriately supplementing the CISG, add some useful extra detail in certain areas but hardly venture into parts of contract that are not dealt with in the CISG, either in detail or in outline. In other words, apart from validity, the CISG might be said to contain the whole of contract law in the particular setting of sale of goods. This is a justification for giving an expansive reading to Article 7(2) so that a court should not be too ready to say that a contractual matter falls outside the CISG. Yet a number of courts, for example, have said that set-off is not dealt with by the CISG.46 In such a case, the court will 45

See Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277 (bad faith for a seller to insist on a declaration of avoidance from the buyer). 46 See, e. g., Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/011022a4.html; Oberlandesgericht Hamm, Germany, 9 June 1995, CLOUT case No. 125.

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invoke its rules of private international law to find the applicable law. The result is the same as if set-off were recognised as belonging to the CISG but incompletely dealt with by it so that, in the absence of helpful general principles, the court has to turn to its rules of private international law pursuant to Article 7(2). Nevertheless, there is scope for arguing that set-off, or at least one version of it, is governed by the CISG. It is not a large step from the recognition that the buyer reducing the price under Article 50 may exercise self-help and tender to the seller only that reduced price (“... the buyer may reduce the price ...”) to the conclusion that this is a type of set-off broadly considered and that Article 50 contains but one example of a general principle on which the CISG is based. The inclusion of claim and cross-claim in this way, both arising under the same contract of sale, provides of course no warrant for an altogether different type of set-off as where, for example, a buyer might want to set off against the seller’s claim for the price the buyer’s own claim for the reimbursement of sums due under a previous and unconnected transaction. A reference to private international law under Article 7(2) is an admission that the uniformity vehicle has broken down. In the interest of uniformity, courts and tribunals should be encouraged to adopt a creative approach to reading the text of the CISG in the search for general principles. There is a restrictive argument to the effect that it is not all general principles that might be inferred from the CISG that may be brought in under Article 7(2) but only those general principles on which the CISG is “based”. By this reasoning, an isolated example, such as perhaps the implicit reference to setoff in Article 50, may not be sufficient. The danger of this reasoning is that it would cut down uniformity and speed the assimilation of international sales law incorporating the CISG into the domestic laws of the Contracting States. If the particular example of set-off in Article 50 is seen as an isolated case, so as thereby evincing an intention to exclude other types of set-off pursuant to the inclusio unius, exclusio alterius principle, one response to this would be to descend from set-off to the more general case of self-help and point to other examples of self-help in the CISG.47 If self-help could then be seen as a general principle on which the CISG is based, it might be less controversial to assert the existence of other examples of set-off in addition to that specifically provided for in Article 50. A catalogue of general principles immanent in the CISG has been drawn up by more than one author. There is no need to repeat the exercise here, though it is a matter of no small interest to note that the various lists differ. Do I have to agree with an Austrian court that full compensation is a general 47

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principle48 when Article 74 plainly contains a remoteness of damage rule which is designed to limit recovery in respect of losses caused by a breach of contract? There is obviously a balance that has to be struck between excessive conservatism and excessive creativity: each is destructive of uniformity. The best antidote to these two extremes is to take heart from Article 7(1) and cultivate the spirit of internationalism in order to create a true CISG community. One item that would feature on most if indeed not all lists of immanent general principles would be good faith. It may not have been expressly incorporated in the CISG as an overriding principle governing the rights and duties of the parties, though there is much in the argument that an interpretation of the CISG according to the canon of good faith amounts to the same thing, since the enforceability of the parties’ rights and duties derives from the CISG itself. Even assuming this argument to be sound, however, good faith is not entrenched in the CISG as it is in the UPICC,49 namely, as an overriding principle which the parties may not exclude in the contract. Interestingly, however, the freedom the parties may exercise under Article 6 to exclude or derogate from the CISG in part or in full may not extend to Article 7(1), since that provision lays a duty on courts and tribunals rather than upon contracting parties. Nevertheless, to the extent that the parties in a contract make it expressly clear that a party serving a time of the essence notice may do so in all cases regardless of motive or impulsion, the court will no longer be interpreting the time of the essence provisions in CISG as such but rather the express terms of the contract itself. Article 7(1) applies to the interpretation of the Convention and not of the contract. If this response is to be countered, then it will have to be on the ground that Article 6 itself is being interpreted by the court so as to place limits on the parties’ freedom to opt out. As for what does constitute good faith, it is much easier to find agreement on its immanent existence in the CISG than agreement on its precise content. It is almost certain that judge and jurist will bring domestic baggage into the definition of good faith. How can a German judge resist the mass of legal culture reposing in the extensive body of law resting upon § 242 of the German Civil Code? The reductionist tendency inherent in good faith is so strong that there is a very real danger that it will come to mean anything and everything so that, even if there is uniformity of definition, the concept no longer serves a useful purpose and moreover introduces a dangerous degree of unpredictability into the CISG. 48 Oberster Gerichtshof, Austria, 9 March 2000, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/000309a3.html. 49 UPICC art. 1. 7(2).

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Article 8 The question of objectivity versus subjectivity is one of those questions that bedevils relations between civil lawyers and common lawyers. Article 8 contains an admirable compromise from the point of view of a common lawyer. In paragraph (1), it appears to lay down a subjective standard, yet carefully circumscribes it so that the subjective intent governs only where the other party either knew or must have known what that intent was. This confines paragraph (1) to an empty statement of the subjectivity principle. Paragraph (2) then introduces as a residual rule a standard based upon the hypothetical reasonable cocontractant. Though a residual rule, this objective rule is the controlling one and has been recognised as such.50 This same provision has also proved useful in dealing with the sufficiency of notice that a party may demand if the other’s standard terms are to be incorporated into the contract.51 Any lingering affection that a domestic court might have for the parol evidence rule ought to be comprehensively banished by paragraph (3),52 which makes available a comprehensive mass of evidence, precontractual and post-contractual and of various kinds, all adding up to difficulties for any legal system using civil juries. One of the general principles often cited as capable of being inferred under Article 7(2) is estoppel. Some support for this can be found in Article 8(2) which, in any case, is capable of being used in a free-standing way to assert an estoppel (or waiver in the sense of estoppel) position. On this basis, a German court concluded in one case that the seller had by its conduct in negotiating a settlement over an extensive period waived its right to raise the buyer’s lateness in giving notice of non-conformity.53 In systems of law like English law, which place a bar on post-contractual behaviour as a guide to interpreting the contract, doctrines of waiver and estoppel by convention are sometimes employed to achieve the same result as would have been reached by an ex post facto interpretation. A reliance on waiver is less necessary when subsequent conduct can be looked at under Article 8(3) as a guide to interpretation.

50

Oberlandesgericht Dresden, Germany, 27 December 1999, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/991227g1.html. 51 Landgericht Heilbronn, Germany, 15 September 1997, CLOUT case No. 345. 52 But note the perverse decision in 5th Circuit U. S. Court of Appeals, United States, 15 June 1993, CLOUT case No. 24 (Beijing Metals & Minerals v. American Business Center Inc., 993 F.2d 1178). 53 Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270.

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Article 9 Article 9 has a potentially wide scope, along with Article 7, in putting the flesh on the skeleton of international uniform sales law laid out in the CISG. Paragraph (1), with its reference to practices established between the parties, might – like Article 8 – be used to support waiver and estoppel, but the better view is that it is predicated on a series of prior contracts and contacts between the parties.54 Paragraph (2) introduces into the contract widely observed international usages that should have been known to the parties. Perhaps the most interesting question is what amounts to a “usage” under Article 9. It has been held that the UPICC may be usages under Article 9.55 If so, this would avoid some of the difficulties inherent in bringing them in under Article 7, the most notorious of which is: How can the UPICC furnish general principles on which the CISG was based when they were published 14 years after the diplomatic conference in Vienna where the CISG was signed? The response, that the UPICC recorded principles already in existence, is countered by the preface to the UPICC which makes it plain that they were not selected on the basis of their general acceptance but rather upon their individual quality. Article 9 does not necessarily represent an easier passage for the UPICC. How many of them qualify as usages? The rules dealing with validity are hardly a matter of “usages” that are “observed by” parties in international trade. The same can also be said for substantive contractual rules like the definition of fundamental non-performance.56 A somewhat more promising prospect for incorporation under Article 9 is presented by the Incoterms57 which most certainly do represent usages in that they give clear practical guidance to parties in international sales as to what each is required to do to bring the contract to fruition. What they might lack in subtlety58 they more than make up for in clarity and suitability for those contracting parties who may not be adept in the field of international 54

Zivilgericht Basel-Stadt, Switzerland, 3 December 1997, CLOUT case No. 221. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 6 June 2000, available at http://www.cisg.law. pace.edu/cisg/wais/db/cases2/000606r1.html (case No. 406/1998). 56 UPICC art. 7. 3. 1. 57 Published by the International Chamber of Paris, the current version is Incoterms 2000 (ICC Publication No. 560). 58 The Incoterms are quite dogmatic in allocating certain responsibilities to each of the parties (e. g. export licences) even though the particular facts of a case might argue for a more nuanced approach. 55

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sales. They have been held applicable under Article 9(2).59 It must however be stressed that Article 9(2) refers to usages adopted by “parties to contracts of the type involved in the particular trade concerned”. The widespread use of Incoterms in international sales generally would not be sufficient to bring them into a contract without express incorporation. They are frequently expressly incorporated in contracts for the sale of oil in bulk but are rarely to be seen in the sales of dry commodities (such as wheat and soya bean meal). Any argument tending towards their inclusion in an oil contract under Article 9(2) would therefore carry no weight in the case of a contract for the sale of dry commodities. Even so, some degree of disquiet must still be expressed about their silent incorporation into oil contracts. If they are frequently expressly incorporated into oil contracts, does this not show an intention not to incorporate them if the oil contract is silent? Oil sales are carried out on the basis of standard forms; contracts are not hurriedly drafted on the back of an envelope. Apart from this, the scope of Article 9(2) should be determined according to the degree of detail to be found in the particular contract as well as to the nature of that detail. It may be that Article 9(2) is most appropriately used in respect of matters of fine detail that one might expect not to be the subject of express treatment in the contract. In certain types of contracts, involving dry commodities for example, the contract forms descend into minute detail. This degree of detail leaves little scope for Article 9(2), just as in domestic contract law there is a relationship of inverse proportion between the implication of terms in a contract and the amount of express detail.

Articles 11-13 Articles 11-13 deal with form and writing. In promoting the cause of informal contracting, they reinforce the cause of party autonomy and, by diminishing the possibility of technical escapes from contractual obligation, promote the CISG values of good faith and the avoidance of economic waste that comes from a premature end to the contract. It is well-known in those countries that have Statute of Frauds provisions that the objection raised by a party to the lack of formality is usually made, not for purist reasons, but rather to shroud the true, often, but by no means always, unmeritorious, reason for escaping from the contract. In a similar way, a seller may object that a complaining buyer has not given a proper notice of defect under Article 39 when the seller’s real grievance is that it was that the goods were conforming goods all the while. Largely to accommodate the interests of socialist 59 See, e. g., U. S. District Court for the Southern District of New York, United States, 26 March 2002 (St. Paul Insurance Co. v. Neuromed Medical Systems & Support GmbH, 2002 WL 465312).

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economies, provision was made for countries to make a declaration under Article 96 disapplying Articles 11 and 29 to the extent that they permit contracts to be concluded, modified, and terminated by informal means. The Article 96 declaration only applies if at least one of the parties has his place of business60 in a declaring country. The parties themselves may not derogate from or vary the Article 96 declaration,61 which has the following odd result. Although a party might be precluded under Article 29 by his conduct from asserting a contractual provision demanding that any contractual modification or termination be in writing, no such waiver or estoppel should apply in Article 96 cases. At the risk of propounding a pathetic fallacy, Article 96 appears to be designed to protect the susceptibilities of legal systems and not contracting parties. And yet it applies on the face of it whether or not proceedings are brought in the courts of a State that has made a declaration. It may turn out to be an empty diplomatic gesture. Article 12 disapplies provisions of the CISG permitting informality: it does not bring into effect any CISG provisions that actually require formality because the CISG contains no such provisions. If the forum State were a declaring State, it would no doubt impose its own formal rules, but there is no machinery in the CISG for requiring the courts of a Non-Declaring State to implement the formal requirements of a declaring State. Even to recognise the interests of the Declaring State might be inconsistent with private international law conventions having a very pluralistic approach to determining the governing law in matters of form.62 And that same Declaring State might be treatybound under such a convention to recognise the formal validity of an informally concluded contract. Nor is there any way in which the courts of a Non-Declaring State could manufacture an ideal rule of form for international sale of goods contracts in the absence of express provision for such in the CISG. What are the courts of a Non-Declaring State to do, especially when Article 96 does not require them to respect another State’s declaration? The answer is to ignore it.

60 Principal place or any place? Under Article 10, it would seem that this is the place of business with the closest relationship to the contract. 61 Article 12. 62 For example, the Rome Convention on the Law Applicable to Contractual Obligations 1980, Article 9 (either the law applicable to the contract, or the law of the State where both parties are present, or the law of the State where either party is present when they are present in different States). See also the private international approach adopted by the Rechtbank Rotterdam, Netherlands, of 12 July 2001.

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Article 78 Article 78 has generated a very large amount of case law as a result of stating an entitlement to interest where the price or any other sum is in arrears but without stating when interest is to run and at what rate and whether it is to be compound or simple. There appears to be some overlap with Article 74: some legal systems recognise a right to interest as damages, where the payee has either lost an investment opportunity or has had to borrow as a result of the payer’s breach of contract in not making payment. In such cases, the terms of borrowing and prevailing rates of investment should solve the questions left unanswered under Article 78 by providing a route under Article 74 instead.63 Not all cases of non-payment, however, will be in breach of contract, so there will remain a need to fill out that provision. Furthermore, some may not pass the test of remoteness of damage in Article 74. As for whether the various questions concerning interest are governed by the Convention, it is hard to agree with those courts who see them as excluded.64 Why is there an Article 78 at all if the practical questions that follow on from its provision do not fall within the CISG? This should be a case for applying Article 7(2) to fill the gap in the coverage of the CISG. Nevertheless, as for the arbitral tribunals that found a general principle of full compensation,65 one can only say that compensation is payable upon breach and breach permits recourse to Article 74 and thus obviates any need to implement Article 78. 63

The separate route under Article 74 has been recognised on a number of occasions: see the cases listed by Ferrari in draft UNCITRAL Digest art. 78 n. 11. The CISG does not deal expressly with matters of currency but it is notorious that currency and interest are separate sides of the same coin. For example, it would be inappropriate to award an Argentinian interest rate in the case of a Swiss franc debt and vice versa. Currency, like interest, is commonly a function of compensation for breach and should therefore be seen in an appropriate case as an Article 74 matter. 64 See the cases listed by Ferrari in draft UNCITRAL Digest art. 78 n. 29. 65 Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft (Austrian Arbitral Tribunal – Vienna), Austria, 15 June 1994, CLOUT case No. 94.

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Comments on the draft Digest relating to Articles 14-24 and 66-70 Pilar Perales Viscasillas* I. Introduction The draft UNCITRAL Digest certainly constitutes a major aid to understanding the case law arising under the 1980 U. N. Convention on Contracts for the International Sale of Goods (CISG). This effort to further harmonize the case law has to be seen as a companion to other initiatives around the world, including the CISG databases (CLOUT,1 UNILEX,2 PACE3). The UNCITRAL Digest, however, presents several advantages over its companions, mainly that it is a systematic approach to cases, prepared by experts, that will help courts and arbitrators identify issues and the relevant decisions from tribunals around the world. This will certainly help to harmonize the results achieved in litigation involving the CISG. The University of Pittsburgh’s Center for International Legal Education, which is well known for its initiatives promoting a better understanding of the CISG, has gone “Beyond the Digest” by asking several CISG Commentators to analyze the draft Digest. I have been asked to study, critique and analyze the portion of the draft Digest authored by Professor Peter Winship, covering Articles 14 to 24 (formation of contract) and 66-70 (passing of risk). For reasons of limited time and space, and also because many case citations to these articles are of limited interest, I will confine my written comments to selected cases and issues raised in that portion of the draft Digest.

*

Professor of Commercial Law, Carlos III University of Madrid. http://www.uncitral.org. CLOUT (Case Law on UNCITRAL Texts) also compiles cases on UNCITRAL Texts besides the CISG. 2 http://www.unilex.info. Unilex also collects cases on the 1994 UNIDROIT Principles of International Commercial Contracts. 3 http://www.cisg.law.pace.edu, with links to other databases – for example, Basel University (Switzerland) and Carlos III University of Madrid (Spain). 1

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II. Consideration or causa In a decision by the U. S. District Court for the Southern District of New York (Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc. et al.),4 the defendant-seller raised challenges involving the doctrine of consideration. The court analyzed the issue under non-uniform domestic law (New Jersey law) because it considered it to be a question of validity and thus outside the scope of the Convention (see Article 4(a)). It relied on an article written by Professor Helen Hartnell5 and her statement that by validity, the CISG refers to any issue by which “domestic law would render the contract void, voidable, or unenforceable”.6 In my opinion, the statement made by the court raises an important question, particularly since the Convention also states in Article 4 that it governs the formation of contracts of sale.7 The question is what is the treatment of an issue that is labeled as a validity matter under domestic law8 – like consideration or causa9 – but that it is also covered by the CISG. Part II of the CISG is entitled “Formation of the contract”, and it does not mention the need for consideration or causa in order to have a contract concluded. Under Part II of the Convention only nudum consent is needed. Furthermore, Article 29 expressly states that a contract may be modified or terminated by 4

U. S. District Court for the Southern District of New York, United States, 10 May 2002 (Geneva Pharmaceuticals Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236). In this case a U. S. buyer alleged that an implied-in-fact contract was created under the CISG which obligated the seller to supply clathrate (a component of the oral anti-coagulant named “warfarin sodium”). The buyer also maintained that a contract was concluded under the doctrine of promissory estoppel (see infra, part III). 5 Helen Elizabeth Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale J. Int’l Law 1 (1993). 6 Id. at 45. 7 See ICC Court of Arbitration, Case No. 7399, 1993, CLOUT case No. 299 (abstract also available in Bulletin de la Cour Internationale d’Arbitrage, ICC, November 1995, vol. 6 n. 2, 67-68) (“That the Convention applies not only to completed contracts but also to the question whether or not a contract has been validly made is apparent from the fact that the Convention contains a section (Chapter 1, Part II) entitled “Formation of the Contract.’”). 8 And probably so labelled under international uniform law as well, although, as we will see, consideration or causa is irrelevant. 9 See, e. g., Restatement of Conflicts of Law § 332 (1934), cited by Hartnell, note 226, and article 1261 Spanish Civil Code, stating that there is no contract unless the following conditions are met: the will of the parties, object and causa. Article 1261 is located in chapter II (the essential conditions for the validity of contracts), Title II (Contracts) of the Civil Code of Spain.

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the mere agreement of the parties, so no consideration is needed.10 Thus, it is clear that the Convention displaces the domestic rules of validity about consideration and causa, deeming them unnecessary for contract conclusion, modification or termination. Now also, the statement of the U. S. court about the meaning of the term “validity” under the CISG, which is quoted from Professor Hartnell’s article, is taken out of context. It is also worth mentioning that, on the one hand, Professor Hartnell supports the view that an adjudicator should adopt a balanced approach to the matter of validity in order to preserve the internationalist goals articulated in CISG Article 7(1),11 and on the other, that she refers only very briefly on two occasions to consideration and causa.12 Besides, the court failed to apply the solutions given by Professor Hartnell to certain issues under CISG, like the treatment of formal validity, which I believe is analogous to consideration and causa. Had the Court applied the kind of reasoning employed by Professor Hartnell in relation to formal validity under CISG, for the reasons stated above, the Court would have concluded that under the CISG the requirement of consideration or causa are pre-empted, and that neither is needed for the conclusion, modification or termination of a contract. This is precisely the holding of the U. S. District Court for the Western District of Michigan,13 which dealt with a non-competition clause in a sales contract. The Court held that under Article 29 there is no need for consideration in order to modify a contract of sale. The Court could have resorted to Article 7(1) and the need to achieve a 10

Scholars agree on the irrelevance of consideration and causa in international contracts: Ulrich Drobnig, Substantive Validity, 40 Am. J. Comp. L. 635 (1992); Barry Nicholas, The Vienna Convention on International Sales Law, 105 Law Q. Rev. 214 (1989); Peter Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht: Das U¨bereinkommen der Vereinten Nationen u¨ber Vertra¨ge u¨ber den internationalen Warenkauf (3d ed. 2000), Widerruf des Angebots, n. 8; M. del Pilar Perales Viscasillas, La formacin del contrato de compraventa internacional de mercaderas 344, 447-448. See also Alejandro Garro, Reconciliation of Legal Traditions in the UN Convention on Contracts for the International Sale of Goods, 23 Int’l Law. 453-54 (1989), pointing out that “consideration” is supplied by the obligation assumed by the parties to deliver the goods and pay the price; Peter Winship, Formation of International Sales Contracts Under the 1980 Vienna Convention, 17 Int’l Law. 3-5 (1983). 11 See Hartnell, supra note 5, at 17-18. 12 Id. at 23 (referring to choice of law rules pertaining to validity issues such as consideration) and at 26 (referring to the Draft rules of UNIDROIT prepared to deal with the substantive validity of contracts of sale covering, among other issues, the requirement of consideration). Those rules have been converted into Chapter 3 (Validity) of the UNIDROIT Principles of International Commercial Contracts, 1994. 13 U. S. District Court for the Western District of Michigan, United States, 17 December 2001 (Shuttle Packaging Systems, L. L. C. v. Tsonakis, 2001 WL 34046276).

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uniform and international interpretation of the Convention. Particularly, the UNIDROIT Principles, as well as the European Principles of Contract Law, 1998, shed light on the meaning of validity under the CISG. In this regard, Chapter III (Validity) of the UNIDROIT Principles does not require either consideration or causa for the formation, modification or termination of contracts.14

III. Promissory estoppel In the Geneva Pharmaceuticals case, the Court said that promissory estoppel, as claimed by the buyer, was not preempted by the CISG (Article 16(2)(b)). Invamed (the US buyer) alleged that a promise on which it relied (the issuing of a letter by the seller to the FDA – Food and Drug Administration – supporting the buyer’s application for permission to manufacture a medication and confirming that the seller would serve as a supplier of clathrate to the buyer) should be recognized as binding, as if it were a contract.15 The Court asserted that Article 16(2)(b) adopts a modified version of promissory estoppel, which would preempt domestic law only if a plaintiff were to bring a promissory estoppel claim to avoid the need to prove the existence of a firm offer. The Court thus seems to have analyzed this issue based on a very narrow and literal application and interpretation of Article 16(2)(b). The Court also said that the promissory estoppel claim would be preempted only if the CISG had contemplated a similar “reliance” principle in its determination of whether a contract had been formed. Since the defendants did not present any argument that the CISG does so, the

14

See Article 3. 2 of the UNIDROIT Principles, which states: “A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirement”. See also The Commission of European Contract Law, Principles of European Contract Law Parts I and II Combined and Revised (O. Lando & H. Beale eds., 2000) art. 2:101 cmt. D. This approach is consistent with the opinion of Professor Hartnell about the meaning of “validity” under the CISG. According to Hartnell, a balancing approach has to be applied and “the only way to be sensitive to both the parochial interests reflected in the CISG’s drafting history and the internationalist object and purpose embodied in article 7(1) is to consider domestic validity law in light of evolving concepts of public policy and the development of jurisprudence under CISG”. Hartnell, supra note 5, at 21. 15 Another issue arose from this case: whether an order for “commercial quantities” of the raw material (clathrate) was sufficiently definite to constitute an offer under Article 14(1). No specific quantity was mentioned by the buyer, who declared that this was an industry custom. The Court considered that the alleged usage of trade could be a valid method for determining the quantity. Interestingly, the court applied Article 18(3) to the acceptance of the offer.

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court held that the particular promissory estoppel claimed was not preempted.16 In my opinion, the Geneva Pharmaceuticals court not only adopted a myopic interpretation of Article 16(2)(b), but also failed to analyze the problem as an issue of the scope of the CISG; although the court was probably constrained by the defendants’ lack of arguments. In any event, the correct analysis of the problem would have been based on a study of the CISG and its goals. Part II of the Convention governs contract formation, adopting the traditional model for contract conclusion, i. e., the exchange of an offer and its acceptance. The issue, from this perspective, is whether the CISG, Part II, can govern other ways or mechanisms forming a contract. If one considers Article 4 (which states that the CISG governs the formation of international sales contracts), part II (Formation of the Contract), and the principles of a uniform and international interpretation of the Convention – particularly the good faith principle (Article 7) – the solution could only be that the CISG governs contract formation whether or not the contract followed the offer and acceptance pattern. In this regard, both scholars and the case law are in agreement.17 In my opinion, it can be derived from Part II of the Convention that in order to conclude a contract a sufficient agreement of the parties is needed. Also, one of the general principles derived from Articles 16(2)(b), 29(2) and 80 is to protect a party who relies on statements or conduct of the other party.18 16

In the decision of the Metropolitan Tribunal, Hungary, 17 June 1997, CLOUT case No. 173, the buyer claimed damages based on a promissory estoppel theory. The Court considered the claim under domestic, non-uniform law (Hungarian law) and rejected the claim. Again, the tribunal failed to analyze the case under the general principles on which the CISG is based (Arts. 16(2)(b) and 29(2)). 17 See Perales Viscasillas, La formacin del contrato, pp. 117-124 (with further citations). Oberlandesgericht M
nchen, Germany, 8 March 1995, CLOUT case No. 134, held that under the CISG other forms of consent are possible as long as they can be regarded as a mutually binding arrangement and the agreement process is comparable to Articles 14-24 CISG. In this regard, both the UNIDROIT Principles (art. 2. 1) and the European Principles of Contract Law (art. 2:211) recognize the possibility that a contract can be concluded without an offer and acceptance. The question in regard to the facts of the Geneva Pharmaceuticals case would be whether it is possible to derive general principles from Part II of the Convention to apply to the dispute (Article 7(2)). The answer should be “yes”, if one considers Article 16(2)(b). 18 This principle, which has been recognized as a general principle applicable within the Convention, has been used to solve other issues under the Convention, i. e. the question of a possible forfeiture of the defense of late notice, see Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft-Wien, Austria, 15 June 1994, CLOUT case No. 94 (SCH-4318), which states, citing Arts. 7, 16(2)(b), and 29(2), that the principle of

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This general principle can be applied to situations like the Geneva Pharmaceuticals case, provided that the promise and the acts done in reliance on the promise (statements or conduct made by the other party) are enough to show an indication of assent to a contract, i. e., an intention to be bound (Article 8 would be an important article to consider in these kinds of situations). This would mean, analogously to the test for claims for promissory estoppel under U. S. Law, that a clear and definite promise as well as reasonable reliance by the promisee is needed. These kinds of issues involved in the Geneva Pharmaceuticals case seem to be distinguishable from the issue of precontractual liability under the CISG. Specifically, the OLG Frankfurt am Main,19 seemed to consider precontractual liability issues outside the scope of the CISG. The buyer claimed damages based on the doctrine of culpa in contrahendo, asserting that the seller, by a manifested willingness to deliver, had established a basis for the buyer to rely on the promise of delivery and thus contract for resale of the estoppel or, to use another expression, the prohibition of venire contra factum protium, represents a special application of the general principle of good faith; Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230, relying on arts. 7(1) (good faith principle) and 80 CISG; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and industry, Russian Federation, 27 July 1999, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/990727r1.html (302/1996), citing the good faith principle under art. 7(1) and treating estoppel as a principle of the lex mercatoria; and Tribunale di Rimini, Italy, 26 November 2002, available at http://www.cisg.law.pace.edu/cisg/ wais/db/cases2/021126i3.html (obiter dicta, without referring to any particular article of the Convention). Professor Ferrari, in Draft UNCITRAL Digest art. 7, ¶ 28 n. 21, cites the decision of the Gerechtshof s’Hertogenbosch, Netherlands, 26 February 1992, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=97&step=FullText, editorial remarks available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/920226n1.html. However, it appears from the “full” text that appears on Unilex that the case does not state that estoppel is a general principle of the Convention. It is in editorial remarks on the Pace database treatment of the case where it is stated that “Article 7. 2 could also be relevant if one regards estoppel as a general principle of the Convention”. But see Arrondissementsrechtbank Amsterdam, Netherlands, 5 October 1994, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=124&step=FullText, considering estoppel under German Law; and U.S. District Court for the Northern District of Illinios, Eastern Division, United States, 29 January 2003, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/030129u1.html (Ajax Tool Works, Inc. v. Can-Eng Manufacturing Ltd., 2003 U.S. Dist. LEXIS 1306), where the Court held that the question of waiver (whether the seller has waived its right to enforce the limited warranty) in accordance with art. 7(2) has to be solved under the rules of private international law, suggesting that the Court was not able to find any general principles or case law to apply. 19 Oberlandesgericht Frankfurt am Main, Germany, 4 March 1994, CLOUT case No. 121.

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goods. The Court, without further explanation, analyzed this issue under German domestic law (BGB), although the contract was subject to the CISG. The Court rejected the buyer’s claim, as it was clear the buyer was not arguing for the conclusion of the contract based on promissory estoppel (as in the Geneva Pharmaceuticals case) or the irrevocability of the offer based on Article 16(2)(b), but was seeking damages based on precontractual liability. This is a situation which is not governed by the CISG, as shown by the drafting history of the Convention, where a German proposal to address those issues was rejected.20

IV. Incorporating standard terms The use of preprinted forms by the parties during the process of forming a contract raises many issues, which have been solved in different ways by the CISG case law. This is not a surprise considering the different views among scholars, and different approaches in national laws. The first issue is whether the CISG governs the incorporation of standard terms. Although the Convention does not have special rules dealing with the use of standard terms, the question has to be answered affirmatively, since the Convention governs the formation of contracts. In other words, since the issue is whether the general terms and conditions used by the parties are part of the contract, then the solution can only be found by applying the rules that govern the formation of international sales contracts (Part II of the Convention). Other rules of the Convention would apply as well (e. g., Article 8). In this regard, Court decisions that deny the application of the CISG and resort to the application of non-uniform domestic law have to be rejected.21 They not only conflict with an international and uniform interpretation of the CISG but also are not supported by the legislative history of the Convention, which shows that the incorporation of standard terms is not a question excluded from the scope of the CISG.22

20 See Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March-11 April, 1980, 11th meeting, 18 March 1980, ¶ 77-87, A/ CONF.97/C.1/SR.11, reprinted in Documentary History of the Uniform Law for International Sales (John O. Honnold ed., 1989) [hereinafter “Documentary History”] at 515-16. 21 Those decisions are cited by Professor Winship in Draft UNCITRAL Digest, Overview of Part II of the CISG, ¶ 11, nn.18-20. 22 In this regard, the preprinted terms are declarations that can be analyzed under the offer and acceptance rules.

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To take the issue of language problems relating to general conditions, an analysis of case law shows different interpretations adopted by tribunals. The fact that some courts apply the CISG to solve the problem raised by the use of general conditions in a language different from that used during the negotiations that led to the conclusion of the contract (which in my opinion, is the correct solution under the Convention),23 while others 23

Amtsgericht Kehl, Germany, 6 October 1995, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/951006g1.html, holding that under the CISG general terms and conditions written in a language (German) different from that of the contract (Italian) do not become part of the contract. A different approach is that of Gerechtshof Arnhem, Netherlands, 27 April 1999, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 990427n1.html, that purportedly applied the CISG (it does mention the applicability of the CISG but it does not refer to any single rule of the CISG in regard to the general conditions) to the incorporation of general terms and conditions contained on the back of the seller’s invoices. Each invoice also contained a reference on its front page to the conditions on the back (“said conditions are presented on the back”). After affirming that the general conditions were part of the contract, the tribunal commented on the language of the text of the terms. The general terms and conditions were written in the seller’s language – Dutch – while the buyer had its place of business in Germany. In the opinion of the tribunal, the general conditions were binding upon the buyer, although drafted in Dutch, because the buyer was acting in the operation of the seller’s business. This opinion was reinforced by the fact that it is not unusual in Germany for a party operating its business (as the seller was here) to use general conditions. In the opinion of the tribunal, it was up to the buyer to request a clarification by, for example, asking for information from the seller such as a German translation. The tribunal also considered that the buyer did not object to the terms until the proceedings began. Finally, the tribunal referred to a previous practice of the seller, different from the one described above, consisting of just mentioning to a contractual counter-party that the conditions that applied to the contract were deposited in the Registry of the Court. According to the tribunal, in those circumstances the buyer was not bound by the terms when he was not a resident or established in the Netherlands. Finally, it is interesting to note the correct reasoning of the 11th Circuit Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino S.p.A., 144 F.3d 1384), which analyzed a transaction conducted outside the ordinary course of dealing in international contracts. It was not a contract concluded at a distance, and the order, which contained the general terms and conditions of the seller, was signed by the buyer. In this case, the contract was orally negotiated in English and Italian through a translator in Italy. The parties recorded the crucial terms agreed upon orally on one of the seller's standard, pre-printed order forms, which were in Italian. The front of the order contained a clause acknowledging the terms on the reverse, and on the reverse side the terms and conditions were signed by the buyer, who did not understand Italian. The buyer stated that the parties subjectively intended not to be bound by the terms on the reverse of the form. The court ruled that the buyer should have an opportunity to prove its allegations, but said in a footnote (n.9) that: we find nothing in the CISG that might counsel this type of

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without further explanation consider it a question of validity beyond the scope of the CISG,24 does not help to build a uniform body of case law. This is particularly true of the language issue, which has produced a third position: that the incorporation of general conditions drafted in a different language from the negotiations ought to be analyzed under Article 8, but the validity of the terms is governed by domestic law.25 It is also worth noting the lack of supporting arguments in the decisions that analyze the incorporation of standard terms under non-uniform domestic law. Some Courts do not even refer to the possible application of the CISG, and apply domestic law by virtue of the forum’s rules of private international law,26 while others refer expressly to Article 4(a) CISG to justify applying domestic law.27 Not even the cases that analyze this issue under both domestic law and the CISG really help to clarify the position.28 reckless behavior and nothing that signals any retreat from the proposition that parties who sign contracts will be bound by them regardless of whether they have read them or understood them”. 24 See Oberlandesgericht Celle, Germany, 2 September 1998, CLOUT case No. 318, which did not consider validly incorporated the general conditions of the seller on the grounds that the reference to his standard terms was in small print and in Dutch. 25 Landgericht Heilbronn, Germany, 15 September 1997, CLOUT case No. 345. Cour d’Appel de Paris, France, 13 December 1995, CLOUT case No. 203, addressed the inclusion of a forum selection clause in the general conditions of the offeror, since those terms were accepted by the addressee, but found that Article 17 of the Brussels Convention precluded enforcing the terms (there was no mention on the front page of the general conditions on the back). 26 Some tribunals expressly refer to this issue as a question of validity (Oberlandesgericht Celle, Germany, 2 September 1998, CLOUT case No. 318), while others do not. Landgericht Duisburg, Germany, 17 April 1996, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/960417g1.html; Landgericht M
nchen, Germany, 29 May 1995, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=161&step=Abstract; Rechtbank van Koophandel Hasselt, Belgium, 24 January 1995, available at http:// www.law.kuleuven.ac.be/int/tradelaw/WK/1995-01-24j.htm. 27 See Rechtbank’s Hertogenbosch, Netherlands, 2 October 1998, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/981002n1.html, considering the application of domestic law by virtue of Article 4 to the issue of the validity of the agreement and the clauses contained therein. The court refused to incorporate the general conditions of the seller due to the fact that it did not inform the buyer in due time of the existence of new general conditions, but it is not clear if the holding was based on the CISG. See also Kantonsgericht Freiburg, Switzerland, 23 January 1998, CLOUT case No. 259. 28 See, e. g., Oberlandesgericht Braunschweig, Germany, 28 October 1999, CLOUT case No. 361 (“Since the parties are acting in their commercial capacity, the incorporation of these standard terms is valid both under domestic German Law... and under the alternatively

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In contrast, at least one case that considers the incorporation of general standard terms and conditions under the CISG discusses the application of the CISG more extensively. In particular, the High Court of Germany (Bundesgerichtshof)29 applied the CISG rules on formation of contracts (Articles 14 and 18) as well as the rules on interpretation (Article 8).30 It also cited several scholars (not only CISG commentaries but also commentaries on the domestic German Unfair Contract Terms Act) who support that view. In determining whether general terms and conditions are part of an offer under Article 8, the court found first that this can follow from the negotiations between the parties, the existing practices between the parties, applicable UN Sales Law”); Rechtbank s’Hertogenbosch, Netherlands, 24 April 1996, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=224&step=Full Text. 29 Bundesgerichtshof, Germany, 31 October 2001, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/011031g1.html, deals with an international sales contract between a German seller and a Spanish buyer of a second-hand machine. The tribunal discusses whether or not the seller’s general terms of delivery referred to in the offer but not attached to it were included in the contract. 30 The other cases applied the rules on formation of contract, i. e., they considered the incorporation of standard terms and conditions a formation of contract issue. Landgericht Norhorn, Germany, 14 June 1994, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/940614g1.html, applying art. 14, stating that the validity of the incorporation is governed by the CISG, but not the validity of the standard terms ((art. 4(a)), although the Court referred to the CISG rules); Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362, applying art. 19(2); Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176; Tribunal de commerce Nivelles, Belgium, 19 September 1995, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950919b1.html, applying arts. 19(2), 8(1), and 8(3) CISG; Courd’ Appel de Paris, France, 13 December 1995, CLOUT case No. 203, applying arts. 19(1) and 19(2), but deciding validity under the Brussels Convention; Bundesgerichtshof, Germany, 9 January 2002, available at http://www.cisg.law.pace.edu/cisg/ wais/db/cases2/020109g1.html, applying art. 19(1) and (3) CISG, and applying the knock-out rule to a battle of the forms problem. The last case also held that a rejection clause in the seller’s terms replaced the general conditions of the buyer. Rechtbank van Koophandel Hasselt, Belgium, 18 November 1995, applied the CISG in a case in which general terms and conditions were contained in invoices sent after the delivery of the goods (i. e. post-conclusion of the contract). Such terms included a penalty clause in case of non-performance by the buyer. The tribunal held that a derogation from CISG rules need not be express but it must clearly result from the common intention of the parties. In the opinion of the court, the provisions in the seller’s invoice were unilateral and did not bind the buyer. Some cases also refer to article 8. See, e. g., 11th Circuit U. S. Court of Appeals, United States, 29 June 1998, CLOUT case No. 222 (MCC – Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S. p. A., 144 F.3d 1384).

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or international custom (Article 8(3)). The tribunal also analyzed how a reasonable person of the same kind as the other party would have understood the offer (Article 8(2)). Applying this standard, and in accordance with the view of some scholars, the court held that it is unanimously required that the recipient of a contract offer that is supposed to be based on general terms and conditions have the possibility to become aware of them in a reasonable manner ... (i. e.) that the intention of the offeror that he wants to include his terms and conditions into the contract be apparent to the recipient of the offer. In addition, as the Court of Appeals correctly assumed, the Uniform Sales Law requires the user of general terms and conditions to transmit the text or make it available in another way. I agree with the court,31 although it does not appropriately refer to the CISG rules in its analysis. Instead of referring to arguments related to consumer protection or considerations of speed, the court could have referred to the Convention itself. In my opinion, interpretative argument based on Article 8 and on the general principles on which Part II of the Convention is based is missing from the decision. Under Part II of the Convention, an offer or counteroffer has to reach the other party in order to become effective (Articles 15(1) and 24). Thus, if the offeror wants its general terms and conditions to become part of its offer and the offeree to become aware of them, then the offeror – in the Bundesgerichtshof’s words – ought to transmit the text32 or make it available in another way, i.e, in a way that reasonably allows the offeree to acquire knowledge of the terms. In my opinion, it will suffice if, for example, the offeror includes the general terms and conditions in an attachment to an e-mail message or on a web site referenced by address. 31

See a partially different view in Martin Schmidt-Kessel, On the Treatment of General Terms and Conditions of Business under the UN Convention on Contracts for the International Sale of Goods (English translation of commentary on decision of Bundergerichtshof, Germany, 31 October 2001, published in Neve Juristische Wochenshrift (2002)), available at http:// cisg.law.pace.edu. 32 Impliedly, such a duty is required by Amstgericht Kehl, Germany, 6 October 1995, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/951006g1.html, and by Landgericht Nordhorn, Germany, 14 June 1994, available at http://www.cisg.law.pace.edu/cisg/ wais/db/cases2/940614g1.html, which analyzed the incorporation of standard terms under Article 14 and stated that the terms of the seller were included in the contract because they were printed on the back of the order in the language of the contract and also in the language of the buyer, and because a clause on the front side of the order form referred to the standard terms. In the opinion of the Court “this is sufficient to make the standard terms an effective part of the contract”.

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The court also referred to the question of whether the recipient of an order containing a reference to general terms and conditions has a duty to inquire about them. The court correctly stated that this would contradict the general principle of good faith in international trade (Article 7(1)) as well as the parties’ general obligations to cooperate and provide information.33 The court, however, did not explicitly address possible exceptions to the rule in situations in which the inclusion of general terms and conditions is well known to both parties (because the parties had extensive prior dealings, because the conditions are well known in the trade, etc.). This issue is important in light of the statement of the court that “the user of general terms and conditions has to transmit the text or make it available in another way”. In my opinion, a different answer might be reached from the reasoning of the court, i. e., that a mere reference to general terms and conditions that are well known to both parties will suffice to include them in the contract.34 The answer could be based on the Article 8 interpretative criteria (assuming, of course, no practice or usage under Article 9) as well as on the duty of good faith (Article 7(1)). This approach is consistent with a Belgian decision35 in which an international sales contract for “vulcanization machinery” was made between a Swiss seller and a Belgian buyer. The negotiations began in June 1990 and continued through numerous offers from the seller from October 1990 through 31 July 1991 (the date of the last offer, which was accepted). The tribunal held that the general terms and conditions of the seller were accepted by the buyer (Article 19(2)), since all the offers made reference in bold print to the conditions of the Swiss Association of Machinery Manufacturers. Thus, on the basis of Articles 8(1) and (3), the buyer, during the negotiations, was or should have been aware of the conditions to which the offers from the seller made reference.36 33

The tribunal made an interesting distinction between the situation in national and international trade. According to the tribunal, in a domestic environment between merchants a duty to inquire exists because the clauses within one industry sector are often similar and usually known to the participating merchants. 34 When the court rejected the existence of a duty to inquire about the contents of general conditions as contrary to the duty of good faith (Article 7(1)) and the general obligations to cooperate and provide information, the Court restricted its analysis to general terms and conditions which are unknown to the other party. 35 Tribunal de commerce Nivelles, Belgium, 19 September 1995, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/950919b1.html. 36 The existence of a duty to inquire or to ask for a translation was recognized by the Oberlandesgericht Hamm, Germany, 8 February 1995, CLOUT case No. 132. In this case, an Italian seller and a German buyer concluded a contract in Italian for the sale of socks. The seller assigned to a bank the right to receive payment of the price. The seller notified the buyer

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V. Open price contracts One of the most difficult issues under the CISG is whether a contract can be concluded when it is silent about the price. As is well known, this problem arises from an apparent contradiction between Articles 14 and 55. The former expressly states that, to constitute an offer, the proposal for concluding a contract needs to have an expressly or impliedly fixed price or to make provision for determining the price. The latter provision, which is placed in Part III of the Convention, indicates that a contract might be validly concluded although the parties are silent about the price, i. e. they have neither expressly or implicitly fixed the price, nor made a provision for determining it. The most delicate problems in regard to the relationship between Articles 14 and 55 CISG arise when two specific circumstances are present. First, if the parties keep silent on the price and the price is not impliedly fixed by the practices established between the parties, usages37 or previous negotiations. of the assignment in English and French. The buyer did not pay the price to the bank, and the bank commenced action against the buyer for the price. The court relied on several articles of the Convention, particularly Article 24. The court held that the parties may use either the language agreed upon or the one customarily practiced between them (Articles 8 and 9). Otherwise, the circumstances of the case are decisive: since the buyer in the case recognized that the assignment notice could have some legal relevance, it was up to the buyer to request from the sender of the notice explanations or a translation (Article 8). It seems that this case is not really a case dealing with general conditions, although it is so cited in the Draft UNCITRAL Digest, Overview of Part II of the CISG, ¶ 12, n. 23. There is no contradiction with the decision of the Gerechtshof’s Hertogenbosch, Netherlands, 19 November 1996, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=329&step=Abstract, because in this case only one of the parties – the seller – used general conditions while the offer made by the buyer (the offer to modify the contract was a confirmation of an oral contract) did not contain general conditions, but did include a forum clause in favor of German courts in a footnote in small characters. Also, the buyer’s confirmation said that the general terms and conditions of the seller were excluded if they were in conflict with the ones stated in the buyer’s confirmation. 37 It seems from the obiter dicta of ICC Court of Arbitration, Case No. 7819, 1999 (available in Bulletin de la Cour internationale d’arbitrage de la CCI, vol. 12 n. 2, 2. Semestre 2001, 6061), that in the particular trade involved in the case – sugar – contracts are ordinarily concluded without a price. The case deals with an insurance contract between a bank and a syndicate of insurance companies. The object of the contract was the risk of a change in circumstances, due to the political situation in Brazil, that rendered the international sales contract financed by the bank impossible to perform. The insurance companies alleged the validity of the export contracts under Brazilian Law, and the arbitrators stated that “the sale

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Second, if there is no performance of the contract. If the contract is performed, no conflict between Articles 14 and 55 arises. This is a situation in which the contract would be considered concluded under the rules of the Convention, and the gap in the contract would be filled by Article 55. The part of the draft Digest devoted to Articles 14 and 55 refers to eight cases that cite Article 55. Not all of them, however, involved open price contracts. An analysis of these cases – and a couple of others in which the courts did not refer to Article 55 even though the contract was concluded without a price – are discussed below: A. Cases in which the contract was not performed and the offer did not include a price – Budapest Metroplitan Court, 10 January 1992; and Hungarian Supreme Court, 25 September 1992 (CLOUT case No. 53) (Hungary). This case involved the sale of airplane engines by the U. S. Company Pratt and Whitney (seller) to the Hungarian Airline Malev (buyer). This is a complex case, complicated also by the fact that the Metropolitan court and the Supreme Court differed as to their conclusions. I will focus my comments on the lack of price, although there were other issues discussed by both courts. The Metropolitan court did not discuss the issue of the lack of price, since it held that the offer unambiguously indicated the price. Therefore it did not discuss whether the lack of the price for one of the engines (PW 4060) was an impediment to the valid conclusion of the contract. The High Court did refer to this issue. There were four engines offered to Malev, along with spare engines. The buyer, Malev, had not decided what brand of airplane it would acquire, and according to the seller’s proposal, two of the engines were offered for a Boeing model plane (PW 4056 and PW 4060, plus the spare engines), while the other two (PW 4152 and PW 4156A, also coupled with spare engines) were offered for an Airbus model. The proposal for the PW 4060 did not contain the base price, while the proposal for the Airbus model engines included only the spare engine price – and not the base price of the jet engine system. In the Supreme Court’s opinion, based on Pratt and Whitney’s own submissions, the concepts of jet engine system and jet engine were not identical because the former includes other parts and as a result the price is different. Therefore, since the offer did not contain either the base price of the PW 4060 engine or the price of the jet engine systems, the Supreme Court held that it did not comply with the requirements of Article 14(1) CISG. without prior fixing a price is common in international trade, as is shown by the Vienna Convention of 11 April 1980 on the international sale of goods (art. 55) and the Unidroit Principles for international commercial contracts (art. 5(7))”.

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The Hungarian Court also referred to Article 55, but only in one sentence, stating that the “price cannot be determined according to Section 55 of the Agreement [sic – “convention”?] either, as jet engine systems have no market price”. It seems that the court viewed Article 55 as a method for determining the price. However, this seems to contradict the wording of Article 55 and the court’s opinion that an offer needs to have a price. The court certainly lost an opportunity to discuss the relationship between Articles 14 and 55. The analysis might have provided some insight about the different approaches to this problem by CISG scholars. It might also have analyzed the relationship between the validity exception under Article 4 and the introductory words of Article 55, “when the contract has been validly concluded ... ”. The court, in fact, referred to Article 55, but it did not stop the legal analysis with the offer, and went on to analyze the “acceptance” by Malev.38 It thus seems that the court opened the door to a possible “cure” of the lack of a price term in the offer if a market price and an acceptance would exist.39 However, the Court found that no acceptance was made since Malev chose neither the engine nor the jet engine system. Thus, the Malev declaration that it had chosen the PW 4000 series engine “expresses a mere intention to close the contract, which is insufficient for the establishment of the contract”.40 This declaration of the Court goes to the core question of the interplay between Articles 14 and 55 when there is no performance, i. e., the relationship between the several conditions established in article 14 for having an offer (something that is deeply linked in common law and civil law systems to the formation of a contract). The question is whether the subjective intent element in Article 14 – the intention of the offeror to be bound in case of acceptance – prevails over the material requirements – the specification of quantity or price – or if all of those elements are required 38

The purported acceptance by Malev was made on the same day as the deadline stated in the offer. In a letter, Malev informed Pratt and Whitney that “it had chosen the PW4000 engine for its new fleet of wide-bodied aircraft”. According to the Metropolitan Court this was an acceptance, and that court rejected Malev’s allegation that it was a letter of intent. The court further noted that Malev even explained the reasons for its decision in that letter, namely that the decision had been based on technical and economical evaluations. The letter of acceptance also gave details of the technical and economic advantages, pointing out that the credit facilities granted by the plaintiff for the introduction of PW4000 engines were essential in its decision. 39 I do not agree with the remarks on this case in the part of the draft Digest devoted to Article 55 CISG, ¶ 3. 40 The Tribunal also said that, “Lacking an appropriately explicit offer from Plaintiff and not having a clear indication as to the subject of the service in Defendant’s declaration of acceptance, no sales contract has been established between the parties”.

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(as seems to be the approach in the case). The answer remains uncertain when it is not clear if the parties intended to waive an agreement on the price. Several other issues arise from the Malev decision. One is whether the identification by the tribunal of market price with “the price generally charged” (Article 55) was accurate. Another is whether, in this kind of situation, other international texts (like the UNIDROIT Principles), can be used to help interpret or supplement the CISG. This can be difficult since the definition of “offer” in the UNIDROIT Principles (see Article 2. 2) does not expressly require specification of the price. – Oberlandesgericht Frankfurt am Main, 4 March 1994 (Germany). In this case, the court analyzed the negotiations between a buyer located in Sweden and a German seller. The court held that a letter in which the buyer requested the seller to make an offer for specified screws of a certain quality had to be considered an invitation to make an offer (invitation ad offerendum). The seller’s answer, in which it filled in the prices and the delivery periods, was the offer, since it had all the essential elements: a description of the goods, along with specification of the quantity, price, and time of delivery. The “order” of the buyer dated 5 March 1992, in which the buyer ordered 3,400 pieces of the named screws (stated by price), as well as 290 pieces of six other items not previously mentioned and without a price, could not be considered either an acceptance or a counteroffer. It was not an acceptance because the buyer deviated from the seller’s offer with regard to the quantity and the additional items, which did not have a price. It was not a counteroffer (new offer) due to the lack of sufficient certainty, i. e., the price of some ordered items was neither fixed nor determinable. The court went on to say that even if one considered the “order” on 5 March 1992 an offer, the reply of the seller on 10 March 1992, in which it thanked the buyer for the order and informed the buyer of its request for payment in advance or a letter of credit, had to be considered a counteroffer. In the court’s opinion, only the pro-forma invoice sent by the seller should be considered an offer, because it listed all the items of a lower quality with their respective prices. Since this proposal was never accepted, according to the court, no contract was ever concluded between the parties. In this case, although the court did not mention Article 55 CISG, it is my impression that it did analyze the possibility that the “order” of 5 March 1992 was an offer with an open price term, only to reject that possibility. In the court’s opinion it is implied that an offer is not an offer unless it contains all the essential elements mentioned in Article 14. Therefore, implied that Article 55 would not play a role in situations like the one before the court, in which there is no performance. After finding that the buyer’s order could not

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be considered an offer since the price was neither fixed nor determinable, the court commented that, “[t]hough it could be conceivable to presume a contractual agreement pertaining to the matching items in the offer, this presumes a divisibility of the complete order. However, that would be something that the buyer explicitly did not want: in its written order dated 5 March 1992, the buyer expressly insisted on the delivery of the total order of all items”. B. Cases in which there was performance of the contract and the offer did not include a price – Handelsgericht St. Gallen, 5 December 1995 (Switzerland). This case involved a sales contract between a Swiss buyer and a German seller of computer hardware. The buyer sent an unsigned fax to the seller ordering three computer devices. The order contained the following language: “we order” and “immediate delivery”, but did not contain the price of the goods. The seller sent the goods, but the buyer did not pay, so the seller sued the buyer, who alleged that the fax was not a valid offer, and therefore no valid contract was concluded. The tribunal found that the intention of the offeror to be bound was derived from the terms of the order and stated that the offer was valid although the fax did not indicate the price of the goods. The tribunal referred to Article 14 but it did not mention Article 55. This, however, is the type of case in which Article 55 should play a role in determining the price where the parties failed to agree on it. The tribunal nevertheless did not consider applying this provision, probably because the buyer’s pleadings did not claim a reduction of the invoiced price to reflect the price generally charged for such goods, but instead merely challenged the validity of the contract. The tribunal did correctly refer to Article 14 to analyze the intention of the offeror to be bound by its order. It implied that the most important element for the formation of a contract is the intention of the parties to be bound, so if that intention is found, even if one of the other Article 14 elements is missing, this will not deprive the declaration of its offer status. The tribunal did not explore the relationship between Articles 14 and 55, although this is certainly correct, particularly since in this case the order required from the seller “immediate delivery”. CISG scholars41 are in agreement that Article 55 applies to situations in which there is an implied exclusion of the price in the offer (Articles 6 and 14) – in this case, the fax required immediate delivery, and there was an acceptance of such offer by delivering the goods or by sending a notification of acceptance (Article 18). The tribunal could also have resorted to the 41 See Perales Viscasillas, La formacin del contrato, pp. 355-357, citing Ersi, Schlechtriem and Plantard for similar approaches.

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estoppel principle to conclude that the buyer could not take advantage of the lack of the price in his offer when he accepted the goods with no objections. Cases in which performance has occurred might be easily analyzed under this principle. Finally, the tribunal could have adopted another kind of analysis: that the buyer’s order (fax) was an invitation to deal (assuming it could not be an offer since the price was missing), the delivery of the goods by the seller was an offer, and the receipt of the goods was the acceptance (Article 18(3)). Berzirksgericht St. Gallen, 3 July 1997 (Switzerland). In this case there was a sales contract between a Dutch seller and a Swiss buyer, which manufactured goods with textiles delivered by the seller. Before delivery to the buyer, the textiles had to be processed by an embroiderer. The seller sent some textiles to the embroiderer. After a visit to the seller, the buyer decided to quit the relationship and asked the seller to send an invoice for the textiles delivered. One month after receiving the invoice, the buyer complained to the seller about the high price. The buyer did not pay, and the seller sued. The buyer did not allege the invalidity of the contract due to the lack of a price, but rather claimed a reduction of the invoiced price. The tribunal, however, analyzed the requirements for contract conclusion and, after considering Articles 14 and 8(2) – (3), it concluded that the buyer, when it asked the seller to issue an invoice for the textiles delivered to the embroiderer, had an intention to be bound by a contract. To this point the analysis of the tribunal is certainly correct. It then considered the price in the invoice in light of Article 55, and stated that the invoice price was to be interpreted as the price generally charged under comparable circumstances in the trade concerned. This kind of analysis is not only unnecessary but also dangerous. It is unnecessary because, as the tribunal pointed out, the buyer did not object promptly to the price invoiced. Thus, the tribunal is implicitly saying that the buyer made a tacit acceptance of that price, so the citation of Article 55 seems futile. The analysis, in my opinion, was also dangerous because if the agreed price has to be interpreted as the price generally charged, then there is an open door to the application of Article 55 to reduce or increase an agreed price to conform it to the standard in Article 55. Handelsgericht Aargau, 26 September 1997 (Switzerland). A German seller and a Swiss buyer concluded a contract in which the seller produced sets of cutlery for the buyer based on an order by the latter. The buyer refused to accept delivery and claimed that no contract had been validly concluded. The tribunal ruled that the contract was validly concluded although the offer contained no purchase price. It analyzed the buyer’s order under Article 14 and concluded not only that the offer was sufficiently definite (the buyer used the words for order (Auftrag and Abrufbestellung), specified the exact number of sets, and informed the seller about the time of delivery), but also

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that the offer indicated clearly the intention of the offeror to be bound in case of acceptance. The seller had replied to the order by assuring delivery on time at the price prevailing at that moment, something that was not taken into account by the tribunal, which also considered that not all the required elements were agreed in writing – for example, the price was mentioned only during a phone conversation. Note that, since all three cases discussed in this section come from Swiss tribunals, they could have been influenced by the Swiss Code of Obligations (Article 212 Code des Obligations), which allows open price contracts.42 C. Cases in which Article 55 was cited, although the issue did not involve an open price contract – Landgericht Graz, 4 March 1993 (Austria). In this case there was a sales contract between a German seller and an Austrian buyer for chinchilla pelts. The parties agreed to a price between DM 35 and 65 per fur, depending upon quality. The Court of Appeal found that the agreed price range did not affect the valid conclusion of the contract and cited article 55. The Supreme Court43 correctly analyzed the case under Article 14 and concluded that there was a determinable price agreed by the parties, thus rejecting the application of Article 55 to the case at hand. The Supreme Court pointed out the correct field of application for Article 55: “In this case, the question can remain open whether, at the relevant point of conclusion and in absence of an express or implicit determination of the price, a contract can be validly concluded through the fiction of an agreement on the usual price (Article 55 CISG)”. – Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 3 March 1995 (Russia).44 In this case an 42

Article 212 provides: 1. Si l’acheteur a fait une commande ferme, mais sans indication de prix, la vente est pre´sume´e conclue au cours moyen du jour et du lieu de l’execution. 2. Lorsque le prix se calcule sur le poids de la marchandise, le poids de l’emballage (tare) est de´duit. 3. Sont re´serve´s les usages particuliers du commerce, d’apre`s lesquels le prix de certaines marchandises se calcule, soit sur le poids brut, soit avec une de´duction fixe ou de tant pour cent. 43 Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106. 44 The Pace Database refers to two cases from the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry rendered on 3 March 1995. One of them is designated as case number 309 (CLOUT case No. 139) http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/950303rl.html, while the other is case nuber 304 (no CLOUT abstract) http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950303r2.html. The latter is accompanied by a case commentary by M. Rozenberg, which gives details on the grounds of the decision. Reading the commentary, one has the impression that both cases are

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international sales contract covering certain goods was concluded between an Austrian buyer and a Ukrainian seller. The background to the contract is described in several documents. One referred to a previous contract between the parties, while the second referred to a telex sent by the seller in which it offered to deliver to the buyer an additional quantity of the goods in the first quarter of the following year at prices to be agreed upon by the parties ten days before the new year began. The third document was the buyer’s telex confirming acceptance of the seller’s offer. The issue was whether a contract for additional goods was concluded between the parties. Citing Article 14, the tribunal found that the seller’s telex failed to provide the price of the goods or a way to determine the price. The tribunal found that the statement in the telex that the prices of the goods would be agreed upon (revised) ten days before the new year began could not be construed as signifying the mode of determining the price. Therefore, in the tribunal’s opinion, the agreement of the parties to agree in the future about the price of the contract was not a valid method for determining the price under Article 14. Consistent with this point of view, the tribunal pointed out that Article 55 was not applicable. The central issue in this case was whether under the CISG an agreement of the parties to agree to the price in the future is a valid method for determining the price under the Convention. In my opinion, the tribunal failed to examine certain considerations in its analysis. First, Article 14 is silent about the permissible means for determining the quantity and the price, and thus a wide range of freedom is given to the parties in the ways of determining these elements. Second, the majority of scholars are in agreement that a valid method for determining the price is to leave the determination to a third party or even to one of the parties, so a fortiori a determination by both parties is possible. Third, the modern approach to contract formation, as expressed in the UNIDROIT Principles (Article 2(14)(1)) and the Principles of European Contract Law (Article 2(103)), is to allow contract conclusion when the parties intend to conclude a contract, even though they leave a term to be agreed upon in further negotiations. Had the tribunal considered these matters, the analysis should have focused on the will of the parties: did the parties have the purpose to conclude a contract? The seller might be seen as having made an offer to the buyer, which was accepted four days later. If this is so, however, the tribunal would have needed to answer another question: whether the lack of a subsequent agreement on the price prevented contract conclusion. This question has the same. I follow the commentary of M. Rozenberg as well as CLOUT abstract 139 in my comments on this case.

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been answered affirmatively by the UNIDROIT Principles, which state that the existence of the contract is not affected by the fact that subsequently the parties fail to reach agreement on a term (Article 2(14)(2)(a)). The answer under the Convention, which is necessarily linked to the existence of a method to fill in the essential elements of a contract, might have been derived from the general principles of the Convention (yielding a “reasonableness” standard) and the application by analogy of Article 55 to supply the missing price term.45 – Cour d’appel Grenoble, 26 April 1995 (France). This case involved a sales contract for candy between an Italian seller and a French buyer. The buyer asserted that his successor had benefited from lower prices than those charged to him by the seller and requested that the court apply Article 55 to reduce the debt claimed by the seller. The Court said that if Article 55 were applicable to the case, it would be displaced by the contrary agreement of the parties. In this case, the buyer had taken delivery of the goods without specifically inquiring about the purchase price, and the seller was justified under Articles 8(2) and 8(3) to interpret this behaviour as indicating acceptance of the rate charged. It does not seem that the parties were in fact silent as to the price, even though the buyer was demanding a reduction of the price. It simply is not clear whether in this case the parties agreed on a price during the formation of the contract. If they did, the reference to Article 55 was unnecessary, although the court needed to discuss it because it was invoked by the buyer. – Amtsgericht Alsfeld, 12 May 1995 (Germany). This case involved a sales contract between a German buyer and an Italian seller entered into at a market fair through a standhostess of the seller. After the seller sent an invoice to the buyer, the hostess collected the price from the buyer but did not transfer it to the seller. The seller sued the buyer for payment of the price; and the buyer requested a discount from the invoiced price pursuant to an agreement with the standhostess after the conclusion of the sales contract. As is clear from the facts of the case, this is a problem of agency law, i. e., whether the standhostess had the authority to discount the price. The tribunal, however, cited Article 55, stating that the buyer did not allege circumstances justifying a lower price under Article 55. Again, the tribunal wrongfully resorted to Article 55 and opened the door to an application of Article 55 as a rule to correct an agreed price.

45

See Perales Viscasillas, La formacin del contrato, pp. 313-15.

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– Oberlandesgericht Frankfurt, 15 March 1996 (Germany).46 In this case, an Italian seller claimed payment for clothes delivered to a German buyer. The Court cited Articles 14 and 55 to inquire whether the parties undertook definite obligations under the oral contract. – Landgericht Darmstadt, 9 May 2000 (Germany). This case involved a sales contract for video recorders between a German seller and a Swiss buyer. It appears that the buyer argued that the price in the seller’s invoices should be reduced by 30% because the invoiced price was not a realistic one, i. e., it differed from the current price of the goods. Although the court did not agree with the allegations of the buyer, it again opened the door to an incorrect interpretation of Article 55. The court referred to the buyer’s submission as one under Article 5547 (although the buyer apparently did not invoke that provision) and held that “there is no indication that the parties formed an implicit agreement on the price generally charged at the time of the conclusion of the contract”. Thus, the Court seemed to believe that Article 55 is a method for determining the price when there is a (previous) implied agreement between the parties on the price generally charged. It is my opinion that the court failed to state something which was obvious: that the parties agreed on a price and therefore there was no room for the application of Article 55. In fact, the court’s discussion of the importance of freedom of contract under the CISG was enough to reject the buyer’s argument, without the need to mention Article 55.48 A couple of statements by the court deserve some attention. In one, the court asserted that “there is no indication that the buyer was tricked into the settlement through willful deceit on the part of the seller”, and in the second the Court referred to the fact that the buyer was not arguing that the price was unconscionable. As in a case described previously, one of the parties to the contract relied on Article 55 to obtain a discount from the invoiced price. Article 55, however, was not designed to cover that kind of situation. The situation would be different if the parties had not agreed on the price, and the seller had sent an invoice with a higher price than the current price. 46

Affirmed, Bundesgerichtshof, Germany, 23 July 1997, CLOUT case No. 236, although the

BGH did not discuss Articles 14 and 55 CISG. 47 In the translation of this case on the PACE Database (see http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/000509g1.html), the translator adds a note stating that the reference to Article 55 is probably a typo and that the reference is intended to Article 50. However, I believe that the tribunal, considering the arguments of the buyer, is referring to Article 55. 48 The court correctly stated that, since freedom of contract is a principle that underlies the CISG and that it was manifest that the prices were negotiated and then invoiced accordingly, whether or not these prices corresponded to the current price of the goods is absolutely irrelevant, as the agreement on price is each business person’s own responsibility.

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In this situation, the buyer, provided it complained in time, would have been entitled to receive the price generally charged. Whether Article 55 can be helpful in situations in which the price is unconscionable is a different issue.49 Although it is not easy to find cases in which the price is unconscionable, particularly because unconscionability is more commonly found with respect to general terms and conditions, it is my opinion that if the price clause is a standard term, the solution might depend on the consideration of unconscionable terms under CISG, i. e., whether unconscionability is a question of validity (excluded from the CISG by Article 4) or an issue governed by the CISG. In the latter situation, the reasonableness principle in the CISG, or even the standard of Article 55 CISG, could control the content of the price clause. However, if the price term is not a standard term, I find it difficult to believe that an international businessman would agree to an unconscionable price, so therefore Article 55 would not help, nor was it intended to control the content of the agreement.

VI. The place where the contract is concluded The part of the draft Digest devoted to Article 23 states that “Article 23 does not address where a contract is concluded. One court deduced from article 23 that the contract was concluded at the place of business where the acceptance reached the offeror”. The case referred to is an Australian decision.50 I do not, however, agree with the statement in the draft Digest, since the court notes that “it was a common ground between the parties that the acceptance occurred in Germany, and that the contract of sale was made in Germany”.51 It therefore seems that the parties were in agreement about that issue and therefore the will of the parties prevailed over the Convention and the non mandatory domestic law. Even assuming that the court linked the moment of the conclusion of the contract with the place of conclusion, it is still an unresolved issue how the court arrived at that result. It is true that the CISG does not expressly address the question of the place for the contract conclusion. Therefore, the issue here would be whether that question is a gap in the Convention that has to 49

Black’s Law Dictionary 1526 (7th ed. 1999), refers to an unconscionable bargain or contract as a contract or a clause in a contract that is grossly unfair to one of the parties because of the stronger bargaining power of the other party. 50 Federal Court, South Australian District, Adelaide, Australia, 28 April 1995, CLOUT case No. 308 (Roder Zelt-und Hallenkonstruktionen GmH v. Rosedown Park Pty Ltd and Reginald R Eustace). 51 See ¶ 21 of the opinion, available at http://www.law.pcae.edu/cisg/wais/db/cases2/ 950428a2.html.

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be solved in accordance with its general principles (Article 7(2)) or is a question outside the Convention’s scope (Article 4) and thus governed by domestic law. The question is important because the place of contract conclusion might be useful for purposes, among others, of identifying the applicable law and the competent court. In the Australian case, under either of the two approaches the result would be the same, i. e., that the contract was concluded in Germany. If the question is treated as a gap in the CISG to be resolved pursuant to Article 7(2), the general principle that could be inferred from articles 18 and 23 is that the place of the conclusion of the contract is where the acceptance is considered to be effective. Under this approach, the question of the place of the conclusion of the contract would be settled by the CISG. In the Australian case, since the contract was concluded when the acceptance reached the offeror, who had his place of business in Germany, then the place of the conclusion of the contract would have been Germany as well. This reasoning is in accordance with the presumption made by several domestic contract laws that connect the moment of the conclusion of the contract with the place of conclusion (§ 130 of the German Civil Code (BGB) and Article 1326. 1 in combination with Article 1335 of the Italian Civil Code). Other legal systems, however, follow a different approach. For example, Article 444 of the Russian Civil Code, 1994, and Article 1262 of the Spanish Civil Code and Article 54 of the Spanish Commercial Code establish that the place of contract conclusion is the place where the offeror has his place of business.52 This approach means that if the contract is concluded following the dispatch or “mailbox” rule (for example, under Article 18(3) CISG), then the contract would be concluded when the acceptance is sent, but the place of the contract conclusion would be the place where the offeror is located. If the place of contract conclusion is deemed a question outside the scope of the Convention, and therefore non-uniform domestic law would apply to the issue, then the differences among domestic laws described in the previous paragraph would play a role. In the Australian case under discussion, this would mean that, since German domestic law links the moment and the place of the conclusion of the contract, then the place the contract was concluded would be Germany. Applying domestic law has a certain logic since the legislative history of the CISG shows that the place of the performance of the contract was a question that was consciously placed

52 However, the place of conclusion of electronic contracts is where the service provider has its place of business (Article 29 Spanish Electronic Commerce Law, 11 July 2002, n. 34).

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outside the scope of the CISG.53 There are several reasons for that conscious decision. First, there is not any single rule within the CISG that relates to the place of the conclusion of the contract.54 Second, questions that are very closely connected to the rules of private international law generally are outside the scope of the work of UNCITRAL. In conclusion, it is my opinion that it cannot be inferred that the moment and the place of the conclusion of the contract are linked questions under the CISG.

VII. Application of Article 24 and the meaning of “reaches” According to the draft Digest, “Article 24 applies only to communications made before or at the time the contract is concluded. For communications after the contract is concluded, Article 27 provides that the addressee bears the risk of non-receipt or of delay or error”.55 This statement is certainly correct, subject to one caveat: Article 24, in my opinion, applies also to communications made under Part III of the Convention where it expressly provides for the application of the receipt principle. As for the meaning of the term “reaches” in Article 24, a Dutch case of 5 October 199456 applied Article 24 to the seller’s letter that was sent in response to the buyer’s letter explaining the reason for partially rejecting the goods. The decision must be considered wrong. The seller’s communication, which seems to have been a specific performance notice under article 62, is subject to the general rule under Article 27, and therefore the application of Article 24 is excluded. The application of Article 27 to the case was not considered by the tribunal even though it would have easily solved the question before it, i. e., the effectiveness of a communication sent by the seller that never reached the buyer because the buyer changed its address. In my opinion, the seller fulfilled the requirements of Article 27, and therefore 53

A proposal by the Italian delegation to the 1980 Vienna Diplomatic Conference that would have linked the moment and the place of contract conclusion was rejected. See Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March-11 April, 1980, 11th meeting, 18 March 1980, ¶ 16-17, A/CONF.97/C.1/ SR.11, reprinted in Documentary History, supra note 20, at 511. 54 See the Secretariat Commentary to the draft Convention art. 21 (current art. 23), reprinted in Documentary History supra note 20, at 416. 55 Draft UNCITRAL Digest art. 24, ¶ 2. 56 Arrondissementsrechtbank Amsterdam, Netherlands, 5 October 1994, available at http:// www.unilex.info/case.cfm?pid=1&do=case&id=124&step=FullText (Tuzzi Trend Tex Fashion v. Keijer-Somers).

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the fact that the communication never reached the buyer-addressee does not undercut its effectiveness. The buyer was negligent in not providing the seller with the new address. The Dutch decision is, however, important because it establishes that, for purposes of Article 24, a communication is considered to be received if it reaches a party’s mailing address even though the addressee did not in fact receive the communication because of a change of address which was not communicated to the other party. In other words, as the Dutch case asserts, a declaration reaches a party when it is delivered to the place of business or mailing address previously designated by that party, despite a subsequent change of address that was not communicated to the other side.

VIII. Passing of risk There have not been many decisions dealing with Articles 66-70 (Passing of Risk), but some of them deserve attention in this commentary.57 Several decisions deal impliedly with the foundations of the passing of risk from the seller to the buyer. A German Court had to interpret the meaning of the clause “free delivery, duty-paid, untaxed”, contained in a contract between a French seller and a German buyer.58 The Court stated that the “free delivery” clause as interpreted by German law dealt not merely with the cost of the transport but also with the passing of the risk. The Court further noted that the interpretation of the clause by the parties had to be taken into account (Article 8(2)), and held that the parties intended to provide for the passing of the risk at the buyer’s place of business in Germany and accordingly to deviate from Article 31(a). According to the CLOUT summary of the case, “the fact that the seller concluded a transport insurance meant that it was prepared to take the risk of the transportation of the goods”, as did the fact that “the seller had sometimes carried certain goods for the buyer by its own means of transportation”. In my opinion, the Court is making an incorrect assumption when it reasons that the fact that the seller is in charge of the insurance and of the transport 57 Some articles dealing with the passing of the risk have been cited in reported decisions, although those decisions do not necessarily interpret the contents of the CISG provisions, as pointed out in draft UNCITRAL Digest art. 68 ¶ 1. One case cited in id. n. 41 (Landgericht Trier, Germany, 12 October 1995, CLOUT case No. 170) does not cite art. 68 CISG, although the presentations of the case in the Pace website (see http://www.cisgw3.law.pace.edu/cases/ 951012g1.html) and in the Basel website (see http://www.cisg-online.ch/cisg/overview.cfm ?test=160) do. 58 Oberlandesgericht Karlsruhe, Germany, 20 November 1992, CLOUT case No. 317.

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costs means that it will be in charge of the delivery of the goods to the buyer’s place of business, and therefore the seller assumes the risk of loss or damage to the goods. That is incorrect,59 as shown by current commercial terms,60 by scholars,61 and by the antecedents of the CISG.62 In this regard, the holding of a Spanish court is more correct.63 In the Spanish case, involving a sales contract between an Italian seller and a Spanish buyer, the tribunal stated that the seller’s responsibility in accordance with Articles 31 and 67 ended when the goods passed the ship’s rail at the port of shipment. From that point on, the risk was on the buyer irrespective of whether it contracted for the insurance of the goods sold. The German and the Spanish cases are interesting for another reason: they both interpret commercial terms agreed upon by the parties in a contract subject to the CISG. Twelve out of the twenty cases on the passing of risk cited in the draft Digest contain a trade term, which shows the importance such terms have in practice. In the German case cited previously, the parties agreed to the clause “free delivery (frei Haus), duty-paid (versollt), untaxed (unversteuert)”, and the court interpreted that clause according to German law because the seller had used a clause common in German commerce, drafted in German and with a German buyer (Article 8(2) CISG). It is worth mentioning that the tribunal did not analyze the clause in line with listings of international terms, like the INCOTERMS, which have been treated as usages of trade under paragraph 1 or 2 of Article 9 (see also Article 8(3)). For example, the court could have said that the clause, franco domicilie (frei Haus), duty paid, corresponded with the INCOTERM DDP or with Article 69(2) CISG.64 The court, however, interpreted the clause according 59 Also incorrect was the judgment of the C mara Nacional de Apelaciones en lo Comercial, Argentina, 31 October 1995, CLOUT case No. 191, involving an international sales contract with a C&F clause, where the Court said that the buyer contracted for the insurance and therefore it was aware that it assumed the risk of loss during the transportation of the goods. 60 According to INCOTERMS 2000 (International Chamber of Commerce (ICC)), under a CIF clause the seller must contract for the carriage of the goods to the named port of destination and also must obtain at its own expense the cargo insurance. The risk, however, is on the buyer when the goods have passed the ship’s rail at the port of shipment. 61 Id. See, e. g., Francisco Oliva, La transmisin del riesgo en la compraventa internacional de mercancas. Valencia: Tirant lo blanch, 2000, p. 37, with further citations. 62 According to Article 101 of the 1964 Uniform Law on International Sales (ULIS), the passing of risk is not necessarily determined by the provisions of the contract concerning expenses. 63 Audiencia Provincial de Crdoba, Spain, 31 October 1997, CLOUT case No. 247. 64 Note that under Article 69(2) it does not matter whether the seller arranges for transport by his own means of transportation or by contracting with an independent third party (unlike cases under article 67(1). Therefore, the fact that the seller carries goods to the buyer by its

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to non-uniform German law, and was also of the opinion that the parties’ agreement on the frei Haus clause meant an implied exclusion of CISG Articles 31(a) (and 67(1)65 by virtue of Article 6. Of course, interpreting the agreed clause in the German case in accordance with one of the INCOTERMS was difficult due to the fact that the clause did not exactly correspond with any of them. This was also the case in the Spanish decision, where the court more correctly, in my opinion, interpreted the term “C. F. F. O”. under both the INCOTERMS 1990 and the CISG itself.66 This kind of reasoning seems to be correct (particularly when the parties have failed to specify the specific regime that will govern the agreed commercial term, as they could by specifying, e. g., INCOTERMS 2000), and consistent with the fact that international contracts need international and uniform interpretation rather than interpretation in light of a domestic system (Article 7(1)). Such an approach also reflects the fact that Articles 66 et seq. of the CISG are drafted in line with modern international commercial practices as embodied own means of transportation could help to interpret whether the parties agree on a shipment term or on a destination term. However, in the German case discussed above, the court derived the intention of the parties to agree on a destination term from the fact that “the seller had sometimes carried certain goods for the buyer”, nothwithstanding that in the actual case, the goods were handed over to a carrier. 65 This is the description in the Unilex abstract. The CLOUT abstract is closer to the original German of the decision, because it refers only to the implied exclusion of Article 31(1)(a). But see Audiencia Provincial de Murcia, Spain, 18 June 2001, available at http://www.uc3m.es/ cisg/sespan18.htm, interpreting a clause “ex factory Caravaca (Murcia) met by mutual agreement of the parties on July 5 1999 “in accordance with Article 31. 66 The draft UNCITRAL Digest, Overview of Part II, Chapter IV of the CISG, ¶ 6, n. 10, states: “Not all trade terms address the issue of risk of loss or damage. See, e. g., Audencia Provincial de Crdoba, Spain, 31 October 1997, CLOUT case No. 247 (CFFO allocates cost of shipment to the destination, but has no relevance to passing of risk)”. However, the Spanish court held in relation to the interpretation of the CFFO clause that: it cannot be interpreted in the terms done by plaintiff, since in conformity with the clauses of the Vienna Convention of 11th April 1980 (ratified by Spain in 1991) ..., the two first acronyms – CF, presently “INCOTERM CFR” – meant that the seller has to pay the expenditures and the transportation needed to carry the goods at the delivery port, being on the buyer the risk of loss and damage, as well as any other additional agreement when the goods are delivered on board the vessel. The next two acronyms – FO – , are a condition for stowing the goods, that the carrier is relieved during the unloading operations. It is clear from the decision that the court did consider the clause as relevant to the passing of the risk. In this regard, it is worth mentioning that the decision relied on both the CISG and the INCOTERMS, particularly when it dealt with the passing of the risk, where the court used the same wording as clause A.5 in the INCOTERMS 1990 treatment of CFR.

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in the INCOTERMS,67 and also that the use of trade terms does not entirely displace the CISG rules on the passing of risk. In this regard, the holding of a Chinese arbitration panel68 and of a Russian arbitral tribunal69 also seem to 67

See C mara Nacional de Apelaciones en lo Comercial, Argentina, 31 October 1995,

CLOUT case No. 191. It should be noted that CLOUT abstract 191 incorrectly states that the

court held that “a C & F clause does not affect the passing of the risk”. On the contrary, the court said that: “the shipment of the goods means the delivery of the goods to the buyer and also the transfer of the property, and from then on the risk of loss or damage is on the buyer”. See also id. Oberlandesgericht Kln, Germany, 9 July 1997, CLOUT case No. 283 (interpreting the clause “list price ex works”, where the court found that there was no inconsistency between the terms and the provisions of Article 67(1) CISG); Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 10 December 1996, CLOUT case No. 163 (where the parties agreed on a price FOB Kladovo (Yugoslavia) and the court said that according to Article 60 CISG the buyer’s obligation consists of taking delivery of the goods, which had to be interpreted in light of the INCOTERMS treatment of “FOB”.). This also seems to be the reasoning in ICC Court of Arbitration, Case No. 7197, 1992 CLOUT case No. 104, where the parties agreed that the goods would be delivered “DAF (ICCIncoterms 1980)” and the Court cited Article 69 CISG to say that the risk in respect of the goods had not passed to the buyer as the seller had neither delivered the goods nor placed them at the disposal of the buyer. In this case, the goods were to be delivered by the seller 4 weeks after the opening of the documentary letter of credit. However, the buyer never opened it, and the seller put the goods into storage. The seller claimed, among other things, the expenses it incurred in storing the goods, as well as damage to the goods due to the prolonged period of storage. The court refused to award those damages to the seller since it never delivered the goods nor placed them at the disposal of the buyer according to Article 69(2). In my opinion, the court did not exam the central issue here: whether the breach of the buyer had an influence on the passage of the risk. Article 69(2) is certainly the provision to apply to this case. That provision provides for the transfer of risk to the buyer when delivery is due. Delivery was to take place (Articles 30 and 58(1)) in accordance with the contract 4 weeks after the opening of the documentary credit by the buyer, which never happened. Therefore, the court should have investigated the impact of the breach of the buyer on the passing of the risk. Although the CISG is silent on this particular issue, the court could have taken into account the provision of Article 69(1) and the interpretation of it advanced by scholars (for example: G
nter Hager, Article 69, in Commentary on the UN Convention on the International Sale of Goods (CISG) 513 n. 9 (Peter Schlechtriem ed., 2d ed. (in translation) 1998), as well as the principles embodied in Articles 66 and 58(1). Article 58(1) specifies the basic contract rule of exception on adimpleti contractus (for this statement, see ICC Court of Arbitration, Case No. 7645, March 1995, available at http://www.cisg.law.pace.edu/cisg/wais/ db/cases2/957645i1.html). 68 China International Economic and Trade Arbitration Commission (CIETAC), China, 1995, English abstract available at http://www.unilex.info/case.cfm?pid=1&do=case&id =210&step=Abstract. In this case the parties agreed on a “CIF New York” clause, and the tribunal applied Article 66 since the damage to the goods was caused by an act or omission of

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be correct. This is particularly important because the German case described above opened the door to the interpretation of those commercial terms in the light of domestic law. It is also well known that INCOTERMS is not the only codification of trade terms in the world, and that there are certain discrepancies among the different legal texts.70 In my opinion, the interpretation of commercial terms agreed on by the parties (for example, FOB or CIF terms) has to be made, for the reasons stated above, in light of INCOTERMS and the CISG. Using the text of the INCOTERMS will provide a uniform interpretation of the clauses used by the parties with the consequence that the terms, absent a contrary intention of the parties, will govern the passing of risk and also the question of the distribution of costs.71 The use of the CISG would operate as an aid to the the seller, who did not give to the carrier the appropiate directives as regards the temperature of the goods (10,000 kg of jasmine aldehyde) during transport, even though the buyer warned the seller that the goods were subject to deterioration at high temperatures. 69 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 20 June 2000, where the Court interpreted a CIF term under INCOTERMS 1990: “Although the contract does not refer to Incoterms, the Tribunal considers it is reasonable and allowed relying on the Incoterms guidelines which reflect the practices of international trade”. 70 Note, however, that in the recently approved revision of Article 2 the Uniform Commercial Code (UCC) the sections defining trade terms (sections 2-319 et seq.) have been erased. 71 Oberlandesgericht Kln, Germany, 9 July 1997, CLOUT case No. 283, is a case in which the clause “list price ex works” was interpreted as referring only to responsibility for costs and not to the passing of the risk. The court found that the term was not inconsistent with Article 67(1) CISG, and that the seller was not able to prove that the delivery to the first carrier had occurred. Although it is difficult to analyze this case due to the fact that only the CLOUT abstract is available, an EXW term under INCOTERMS means that the seller delivers the goods at its factory. In this case, although the seller was from Spain, the goods were produced in Japan, so under an EXW term the obligation of the German buyer would have consisted in taking delivery of the goods at the production factory in Japan. However, the Court considered that the risk passed to the buyer, according to Article 67(1), when the goods were to be taken by a third-party carrier. See also Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary, 10 December 1996, CLOUT case No. 163, where the parties (a Yugoslavian seller and a Hungarian buyer) agreed that the “buyer has to pick up the fish eggs at the Seller’s address and bring the goods to his facilities in Hungary and the price was agreed on FOB Kladovo basis”, and that “the freight bills contained terms of delivery ‘FCO KAMION KLADOVO.’” In this case, it seems that the parties agreed on a price FOB Kladovo (Yugoslavia) and the delivery of the goods at the seller’s address, which seems to be Kladovo as well. In this regard, the Court said that according to Article 60 the buyer’s obligation consisted of taking delivery of the goods, which had to be interpreted as governed

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interpretation of the agreed term or to fill gaps in the INCOTERMS,72 particularly when there is no express reference in the parties’ agreement to the application of the ICC text. In this situation, reference should normally be made to Article 8(3) (interpretative usages) and Article 9(1) (agreed by the INCOTERMS, which in the case applied to the contract to pick up the goods at Seller’s facilities, FOB Kladovo. In Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331, the parties agreed on prices “ex works”, while noting that the goods were “ready for delivery”. The parties disputed who had to bear the risk for the delay in the delivery of the goods by the forwarding agent. The seller submitted that it arranged for the forwarder solely as a favor and without a corresponding obligation. The buyer argued that the forwarding agency and the responsibility for its actions were the seller’s obligation. The court analyzed Article 31 CISG and stated that it did not cover a situation where the seller had to deliver the goods to one of the buyer’s places of business. The court asserted that in doubtful cases, such an obligation cannot be assumed: if the contract requires carriage of the goods at all, the seller has an obligation to dispatch the goods; in other cases the goods are to be placed at the buyer’s disposal at the seller’s place of business. The conclusion was clear: the seller’s delivery obligation consisted in initiating the transport of the goods. In ICC Court of Arbitration, Case No. 7645, March 1995, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/957645i1.html the parties’ contract under the heading “price”, referred to a clause “CNF FO ... Korea (INCOTERMS 1990)”. In order to interpret the meaning and effect of the said clause the tribunal referred to Articles 8 and 9(1) CISG and held that the parties intended a CFR clause with the meaning of that term under INCOTERMS 1990. Therefore, the intention of the parties was to incorporate all the aspects of the clause as embodied in the INCOTERMS: “the reference is to be understood to refer to the clauses “CFR” (cost and freight ...named port of destination), and whereby further the reference was to be understood as a general reference to such clauses and not as a reference for defining the price only”. See also Sentencia Audiencia Provincial Castelln, Spain, 12 January 2000. This case involved an international sales contract concluded between Spanish and French corporations. Although the tribunal did not mention the applicability of the CISG, the contract contained a CIP clause that was interpreted in the light of INCOTERMS 1990. See also Audiencia Provincial de Barcelona, Spain, 14 September 1994, involving an international sales contract between a Swedish buyer and a Spanish seller with a clause “ex works”. Again the tribunal did not mention the applicability of the CISG, but interpreted the clause ex works in accordance with the INCOTERMS. 72 See ICC Court of Arbitration, Case No. 7645, March 1995, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/957645i1.html, where in interpreting a clause “CNF FO ... Korea (INCOTERMS 1990)” the tribunal referred to Articles 8 and 9(1). It also said: “Where the provisions of the contract and of the Incoterm clauses do not provide specific answers, the rules of the CISG and, in a subordinated way, rules of its underlying principles and, even in a more subordinated way, the rules of Austrian Law are determining for defining the mutual obligations of the parties based on their contract”.

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usages)73 and not to Article 9(2) (normative usages, i. e., usages that have the force of law) unless it can be proved that the agreed term fulfills the requirements of paragraph 2 of Article 9. Article 9(2) has been invoked by several tribunals. For example, the U. S. District Court for the Southern District of New York,74 held, in an international sales dispute between a U. S. buyer and a German seller, that a CIF clause had to be interpreted in accordance with INCOTERMS 1990 pursuant to Article 9(2). In the opinion of the court, the INCOTERMS are incorporated into the CISG through Article 9(2). If this is so, the analysis made by the court under German domestic non-uniform law was unnecessary, although it could be seen as an additional argument to sustain the court’s decision. The same approach was followed by an Argentine court,75 where the court stated (obiter dicta) that usages of international commerce have long been accepted in the commercial jurisprudence – as an example, by the FOB, C&F, CIF clauses regulated by the International Chamber of Commerce INCOTERMS. Usages of international commerce are presently accepted as a source of law applicable to international sales, even over the 1980 Vienna Convention, as the rule of the Convention mandates in its Article 9(2).76

73

See, e. g., Corte di Appello di Genova, Italy, 24 March 1995, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/950324i3.html: “according to the accepted scheme of the international sale FOB-Free on Board-port of loading agreed, ... is binding inter partes as an international trade usage under Article 9 CISG (...)”. Although the court did not refer expressly to paragraph 1 of Article 9, the reference to the agreement inter partes has to be so understood. In any case, the court failed to provide an analysis of the case under the CISG rules that were presumably applicable by virtue of Article 1(1)(b) CISG. The seller sold contaminated oil (mixed with water) before the passing of the risk (which occurred, according to the FOB clause, with the entrance of the product into the tanks of the ship that the buyer had chartered), and also delivered a lesser quantity than that contracted. This means that this case involved not only the passing of risk but also a lack of conformity (quantity) of the goods delivered before the passing of risk (Article 36(1) CISG). However, the court failed to appreciate the former issue. See also High Arbitration Court of the Russian Federation, Information letter n. 10, 25 December 1996, although it also cites Article 9(2) CISG without further explanation. 74 United States 26 March 2002 (St. Paul Guardian Insurance Co. v. Neuromed Medical System & Support, 2002 WL 465312). 75 Juzgado Nacional de Primera Instancia, Argentina, 20 May 1991, CLOUT case No. 21. 76 The Argentine case is clearly wrong in mentioning the C&F clause as one regulated by INCOTERMS. It is certainly a variation of the CIF clause, but it is not expressly covered by the INCOTERMS.

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In a German case,77 the court seemed to interpret a DDP term using the INCOTERMS,78 although it is uncertain in this case whether the parties also expressly agreed not only to the acronym of the term but also to the word “Incoterm”.79 Such a reference definitely would incline the interpretation towards INCOTERMS particularly if the words are used by a non-English speaker. In the cases mentioned, the courts were of the opinion that the most wellknown and frequently-used trade terms defined in INCOTERMS (CIF and FOB clauses) had to be considered as trade usages in the sense of Article 9(2) CISG. There have not been any cases involving less known trade terms, such as some of the “D” terms, and therefore the interpretative results for those terms are still uncertain. 77

Oberlandesgericht Oldenburg, Germany, 22 September 1998, CLOUT case No. 340. See also Hof van Beroep Gent, Belgium, 17 May 2002, interpreting a price list DDP term (“425 Francs Frangais DDP unloaded at Guyancourt or another address in France”) under INCOTERMS 1990. 79 The decision mentions the DDP clause only twice: 1) “The fax noted the time allowed for delivery (15-25 June), the delivery address, and the terms for delivery (Incoterm DDP);” 2) “A diverging place of delivery does not bar a correct performance of the contractual obligations, even though the (seller) was obliged under the contract and Incoterm ‘DDP’ to deliver the goods at his cost and risk to the delivery address (v. Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, Anh. V, DDP, A3)”. The clause DDP was interpreted using INCOTERMS in conformity with the German commentary cited by the court. In support of the assertion that courts will interpret a trade term in conformity with the INCOTERMS, even absent an express contractual reference to INCOTERMS, the draft Digest also cites Cantone del Ticino, La Seconda Camera civile del Tribunale d’appello, Switzerland, 15 January 1998, CLOUT case No. 253; and Oberster Gerichtshof, Austria, 2 February 1995, CLOUT case No. 176. See Draft UNCITRAL Digest, Overview of Part III, Chapter IV of the CISG, ¶ 9, n. 19. I assume this refers to the interpretation of commercial terms agreed in a contract, like FOB or CIF, but without express reference to INCOTERMS, and thus, I believe it refers to the interpretation of those terms under INCOTERMS. In Cantone del Ticino, LaSeconda Camera civile del Tribunale d’appello, Switzerland, 15 January 1998, CLOUT case No. 253, the parties agreed upon a CIF clause. However, the court did not mention anything about the interpretation of that clause using INCOTERMS. On the contrary, the court just mentioned Article 67 (“the transfer of risk to the buyer occurred with the delivery of the identified goods to the carrier”). From Oberster Gerichsthof, Austria, 2 February 1995, it cannot be derived (at least from the abstract) that the FOB term agreed by the parties was enforced as an INCOTERM. 78

291

Observations on passing of risk Johan Erauw* I. Introduction I have chosen to discuss problems of the passing of risk. For that purpose I will discuss primarily Articles 66 to 70 of the Convention on Contracts for the International Sale of Goods (CISG). In and beyond the draft UNCITRAL Digest, there are a few cases that invite analysis and some problems remain unsolved. Articles 66-70 are strongly influenced by the risk of loss provisions of the earlier Uniform Law on the International Sale of Goods (ULIS) of UNIDROIT, concluded at The Hague on 1st July 1964 (Articles 96-101). Indeed, risk of loss concepts used in uniform sales law have been the object of debate, study and practice since 1930. Article 99 ULIS was the most discussed rule of the old uniform sales law at the time of drafting; and the debate continued into the preparation of the comparable rule in the CISG.1 But because risk of loss issues can be tricky, they are frequently avoided by traders. Buyers and sellers tend to clarify things for themselves by their agreement. They frequently avoid problems by referring to well-known trade terms. Parties often use the INCOTERMS of the ICC to agree on the division of burdens and costs and also to determine the place and time of delivery and of the passing of risk. CISG Article 6 gives preference to party agreements relating to any principle or section of the convention. This may explain the scarcity of cases. Pilar Perales, in her comments for this volume, remarks that twelve of the twenty cases mentioned in the part of the draft UNCITRAL * Professor of Law, University of Ghent and American University (Washington College of Law). The author thanks Professor Harry Flechtner for his editing. 1 Dlle/Neumayer, “Zeitpunkt des Gefahren
bergangs – Art. 97 ULIS” (1976), at 601 – transfer of risk is “one of the big problems” and remains a “crucial problem” – and at 607 – “difficult and controversial”; John Honnold called the transfer of risk for the sale of goods in transit a “troublesome situation”. John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention § 359 (3d ed. 1999). See also Elise Degroote, Overgang van het risico en zorg voor de zaak, in Het Weens Koopverdrag (Hans Van Houtte Johan Erauw & Patrick Wautelet, eds., 1997) at 283.

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Digest devoted to risk, involved contracts containing a trade term. Even where the parties have agreed to a trade term, application of the rules governing risk transfer can be difficult. For the education of commercial lawyers further doctrinal analysis therefore is necessary. We need to compare the rules in the articles on transfer of risk, with the solutions that several of the INCOTERMS offer. We need to understand the dispositive nature of the risk rules, their replacement by agreed terms and their interplay with such terms. The CISG provisions, such as Article 66, compliment and work in tandem with the INCOTERMS. A comparison with the rules of the UNIDROIT Principles on International Commercial Contracts (1994) is also informative. Note that the effect of the sale agreement on the property in the goods sold is not covered by the CISG (Article 4). Neither does the CISG deal with a number of topics that concern liability arising from the goods and diverse aspects of what may fall under the “risk” of either party.2 The discussion of Articles 66-70 of the Convention will require examination of several other articles of the CISG, because the notion of risk is central to the relationship between the two parties. For example, we must look at the risk the seller runs when preparing to make a conforming delivery – in particular, the mechanism whereby the risk may be rerouted back to the seller under Articles 70 and 82(2) and then may pass again to the buyer thanks to a new delivery in which the non-conformity was remedied.

II. The notion and nature of risk in CISG – which risks? A. “Loss or damage” The risk of loss rules of the Convention contain definition of the types of risk they cover. Actually, a good number of questions relating to risk are not handled in the CISG, so there is occasion to speculate on the types of risk within the scope of the convention. The notion of risk is vague, but the draft UNCITRAL Digest offers good illustrations. The wording used in the CISG is “loss or damage” (Articles 66 and 68) or “goods (that) have perished or deteriorated” (Article 82, 2(b)). In ULIS the terms were always “loss or deterioration” (Articles 96 and 99 ULIS).

2 For example, the liability of the seller for death or personal injury is beyond the scope of the CISG, Article 5 CISG. Also consider risk associated with services provided in conjunction with a sale and the transfer of documents that may not be governed by CISG.

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B. Physical loss and deterioration Physical risks to the goods, including their entire destruction, are covered by the concept of “loss”. Also covered is disappearance of the goods, including theft, misplacing the goods, their transfer to a wrong address or person, and mixing up the goods with other goods. Risk of physical loss or deterioration is a broad notion that encompasses occurrences in transporting the goods from one party to the other and in handling and storage.3 It includes the risk of natural processes leading to a decline in quality, including deterioration through ripening, aging, oxidation, sickness or death of the merchandise.4 Such natural processes of decline usually resulting from lack of care, including inappropriate packaging or insufficient cooling (e. g. leakage, softening, melting,5 shrinking, loss of weight or of strength or taste, discoloring, risk of scratching or otherwise showing wear and tear). Risk of physical loss or deterioration also encompasses the risk of others causing damage to the goods. It is necessary to determine not only who bears the risk, but also the amount of compensation that will be due as a result of the risk. Thus the risk associated with goods might include the cost of new packaging and the expense of repackaging frozen products that had thawed. The costs of measuring, handling, replacing, and moving, goods need to be counted. The risk of loss for documents relating to the goods, in my opinion, passes together with the risk for the goods. In many cases, some of the documents actually accompany the goods. A bill of lading, furthermore, is deemed to represent the physical goods. The time and place to hand documents over is the same as for goods (Article 34). Thus, if the documents are lost, the risk should be treated similarly. This justifies using the approach in Articles 67 through 69, which generally associates risk with physical control over the goods, for documents. Article 34 provides that, if the documents were handed over early and were deficient, the shortcoming may be cured as long as such cure does not cause the buyer unreasonable inconvenience or expense. That illustrates that paperwork may reach the buyer before the agreed time of delivery and even before its “conformity” was assured. 3 Annemieke Romein, The Passing of Risk: A Comparison Between the Passing of Risk Under the CISIG and German Law (1999) (English translation of thesis, Heidelberg, available at http://www.cisg.law.pace.edu/cisg/biblio/romein.html). 4 The exclusion of death or personal injury in Article 5 is only for damage caused by the goods to a “person”. 5 Rechtbank von Koophandel Hasselt, Belgium, 2 May 1995 (sale of deep-frozen raspberries).

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Remedies for such non-conforming documents may include avoidance as well as self-declared extension of the delivery date, both of which stop risk from passing. Thus the risk of loss rules of the Convention apply as easily to documents as to goods. Note that there is a positive side to receiving risk of loss – namely the benefit of acquiring any fruits, by-products or offspring of the goods (e. g. the right to the foal of a mare), which right passes together with the risk.6 The loss of the buyer who bears risk of loss is limited to the price paid or still to be paid (see the comment infra on Article 66). If there was also a breach on the seller’s part, then the buyer’s loss may be reduced (see the comment infra on Article 70). Thus if the seller has breached, there may be a partial return of the goods for lack of “delivery”, and speaking in terms of risk there will be less to compensate. Delay in delivery (which might occur in combination with a deterioration in the quality of the goods) can constitute a breach of contract that prevents risk from passing. The possibility of delayed delivery may seem like an aspect of “legal risk”, but it is not the same: it is a risk associated with contracting to perform by a particular date, and nonperformance by the date is simply a breach of contract. The same comments apply, mutatis mutandis, to delivery at the wrong place. The draft Digest7 describes a case in which a painting represented at the time of sale to be the work of a famous artist was later shown to be misattributed.8 The court, invoking Articles 69(1) and 36(1), dismissed the buyer’s claim because, at the time of delivery, there were no indications that the artist was not the painter. The court incorrectly treated the risk of a faulty attribution of the painting as a part of the risk that passes to the buyer. Contrary to the court’s view, the circumstances of the case present a case of non-conforming delivery for which the seller should be liable. The identity of the creator of a work of art or an antique is, in my view, at most an economic risk which, in the circumstances of this case, did not pass to the buyer. Of course, delivering a wrongly attributed painting may be attacked under the national law governing misrepresentation or error in substance because such rules are matters of validity.9

6

See Barry Nicholas, An Introduction to Roman Law 180 (1962). See draft UNCITRAL Digest art. 69, ¶ 3. 8 Arrondissementsrechtbank Arnhem, The Netherlands, 17 July 1997, affirmed on other grounds (CISG held inapplicable), Hof Arnhem, The Netherlands, 9 February 1999. 9 See CISG art. 4a. 7

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C. Economic risk Economic risk has to do with the fluctuation of the value of goods on the market. It is closely linked to property in the goods or the passing of title. These concepts can coincide with risk for loss or damage, as we shall see with sale of goods afloat (in transit). At the time of a conclusion of a sale, the price is fixed (or is determinable) in the currency of account. The market price of the goods as well as the currency exchange rate could thereafter fluctuate. Later fluctuations of the market-price bring advantage either to the seller (when there is an intermediate drop in price) or to the buyer (if a price increase occurred).10 The economic risk may pass in parallel or in a manner similar to the risk of damage. But Professor Nicholas11 does not connect this risk, historically, to the “periculum” as it was discussed under the Roman law. The terms of Articles 66-70 do not treat the issue of fluctuation in marketprice, nor of exchange-rate fluctuation. I would say the risk of these events passes at the time of the valid conclusion of the agreement. D. Legal risk It is uncertain whether legal risk passes together with physical risk.12 Such risk comprises the chance that an authority will intervene (“act of state doctrine”), confiscate, or forbid the possession, intended use or further commercial exploitation of the goods. It is the risk that through operation of the law a party would be deprived of the right to make valuable use of the goods. I think, those risks too are to be allocated along the lines of the rules that I will discuss. It is true, that the wording of the CISG seems to exclude the literal application of its risk of loss rules to legal risk.13 Risks as to obtaining customs clearance for export and receiving import permission or customs quotas are included in the agreement comprised in the use of an INCOTERM. If the parties have not adopted a trade term to deal with those risks, they might be treated under the Convention’s risk of loss rules; but – again – the wording of the CISG seems to preclude this. 10

See Clive M. Schmitthoff, The Risk of Loss in Transit in International Sales in Unification of the Laws Governing International Sales 179 (John Honnold ed., 1966); Sylvain Bolle, The Theory of risks in the Vienna Sale of Goods Convention in Pace Review of the Convention on Contracts for the International Sale of Goods 271 (1999). 11 Nicholas, supra note 6, at 179 ff. 12 See Degroote, supra note 1, at 284 referring to Herbots and Heuz, who both include legal risk with physical risk, and Schlechtriem, who rejects that approach. Bolle, supra note 10, at 273 includes loss by confiscation as parallel to physical loss. 13 Article 97(2) ULIS was quite different: it gave a rule regarding the transfer of risk for nonconformity, and therefore it could be said that legal risk transferred in the same manner: Dlle/ Neumayer, supra note 1, at 619.

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I would also place the risks associated with language under the heading of legal risk, and consider such risks not included in the risk of physical loss or deterioration of goods. The risk of an impediment to performance beyond a party’s control (force majeure) is discussed by the commentators analyzing Article 79.14 I will discuss the relationship with Article 66 below. E. Contractual risk: Seller liable for lack of conformity – buyer liable to pay price The law only explicitly treats the “passing” of risk. It logically leaves us to put the risk with the seller before it passes, and subsequently with the buyer after it passes. Before a contract is concluded, all risk including legal, economic and physical risk, lies with the seller. The risk of obtaining all needed documents and of managing the documentary or administrative process, is part of this. Perhaps the most important risk has to do with the kind of obligations a party takes on, as a result of the contract negotiations. Thus there is the risk of non-satisfactory performance (as in choosing your business-partner – insolvency, incompetence and the like). That can be called the contractual risk, and it applies to both buyer and seller.15 The CISG imposes on the seller an obligation to make a conforming delivery, generally measured as of the time the risk passes (Articles 35-37). That should suffice, because the Convention is oriented towards contractual provisions and offers what the crucial performance phase of the transaction requires – namely detail as to the obligations imposed for a legally effective “delivery” – the “handing over” of the right thing.16 The buyer will have to pay good money. The different possible deficiencies on the point of conformity are mentioned in Article 35. If there was lack of conformity at the time that risk normally passes to the buyer, seller’s “liability” for that breach does not pass to the buyer (Article 36). The rule of breach trumps the passing of risk.17 The risk of loss or deterioration of the goods covers the buyer’s risk of having to pay the 14

Bolle, supra note 10, at 276-77 discusses this as a risk factor. Romein, supra note 3. 16 This is done without the terminological difficulties of the de´livrance concept that the ULIS previously employed. See Honnold, supra note 1, at § 359. 17 As was noted above, remedies for material defects can be cut-off (Articles 38 and 39 CSIG); so risk for breach can indeed effectively pass, at the deadline for giving notice of lack of conformity indicated by Article 39 (which must be read in conjunction with Articles 40 and 44 CISG). See also the discussion of article 70. 15

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price for what is either entirely not there or not there in full value. This price risk – the obligation to pay notwithstanding the loss or reduced value – is a negative way of defining the risk that undoubtedly does pass to the buyer.18 Article 66 describes the effect of this “passing”, and specifically puts the effect problem in terms of the law’s choice not to discharge the buyer of his asyet-unperformed obligation.19 There may also be risk flowing from the way the parties structure their legal relationship. For example, part of the risk associated with a non-conforming delivery involves the costs of transporting and insuring during transport, as well as the costs of handling and storage. Depending on what the buyer paid to the seller for the goods, which may include the cost of those services, the seller may lose that value because getting a replacement product delivered to the same place will cost anew. These costs will be higher if the goods were to be delivered at or close to the buyer’s establishment. This risk looks to be decided by the agreement and by price negotiations. Those transport costs are a matter of contractual risks even if they were not included in the product price and needed to be contracted out to other entities. If the parties have by agreement added other financial consequences to the delivery of non-conforming goods, such as a penalty clause (which is not expressly addressed in the Convention) the contractual risk is greater.20

III. Measuring risk of loss: Comparing the breaching seller’s

obligation to pay damages A. Damage caused by the goods after risk has passed The risk of loss for goods sold under a sales contract is altogether different from the risk of damage later caused by the goods sold. The sold goods can deteriorate and can damage persons or other property – e. g. stains, damage by fire, contamination. The sold goods can also disturb processes or cause further loss to other property by mechanical or electronic failure. This other damage raises issues of contractual or tortuous liability between buyer and 18 The buyer’s obligation may be to pay a reduced price in conjunction with, e. g., Articles 70, 50 and/or 51. 19 Romein, supra note 3; Neil Gary Oberman, Transfer of Risk from Seller to Buyer in International Commercial Contracts: A Comparative Analysis of Risk Allocation Under the CISG, UCC and INCOTERMS (1997) (Thesis, Laval, available at http://www.cisg.law. pace.edu/cisg/thesis/Oberman.html. 20 Albert H. Kritzer, Guide to Practical Applications of the United Nations on Contracts for the International Sale of Goods 21-22 (1989).

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seller,21 or tortuous liability vis- -vis third parties who suffer damage to their property or economic loss. With respect to contractual liability between buyer and seller, recovery for this damage is exclusively based on breach of contract (lack of conformity) and the damages fall under Article 74 CISG. The risk for this damage also passes to the buyer when the delivery is duly made or when the deadline for notice of non-conformity under Article 39 (see also Articles 40 and 44) runs out. Claims under tort law, of course, are beyond the scope of CISG and outside the possible extensions of its principles by way of gap-filling (Article 7(2)). But even contractual liability for damage caused to other property of the buyer cannot be simply identified with or subsumed under the rubric of passing of risk: The convention’s risk of loss rules clearly limit their ambit to loss or damage to “the goods” (i. e., the goods sold) – Articles 66 and 68 – or “in respect of goods sold” – Article 68. A seller’s liability for casualty caused by the goods to other property of the buyer, and also the compensation for damage to the sold goods themselves, is handled by Article 74 – the article that orders full compensation for broadly defined losses. A seller’s liability for such damages under Article 74 would be based on a breach by delivery of non-conforming goods even though the damage caused, shown to be within the chain of causality, might occur after the time of delivery (Article 36(2)).22 The conforming delivery (quod plerumque fit) or the withdrawal of remedies makes that “risk” for damage to other property pass definitively. The appearance of such damage, of course, could be the first indication that something was wrong with the goods all along, a situation that implicates the time limits for giving notice of lack of conformity under Article 39 (mitigated by Article 44, but not for the two-year limitation on notice imposed by Article 39(2)). B. Harm to persons The express exclusion from the scope of the CISG of compensation for persons injured or killed by the goods (Article 5), implies, a contrario, that the risk of collateral damage to other property of the buyer is covered.23 The 21 The Hague Convention on the law applicable to product liability would exclude such a case from its field of application. 22 Article 70 makes clear that the rules on transfer of risk at one or other point in time leave the buyer’s remedies for fundamental breach unimpaired. 23 Kritzer, supra note 20, at 27-28; Johan Erauw, Wanneer is het Weens Koopverdrag van Toepassing in Het Weens Koopverdrag (Hans Van Houtte, Johan Erauw & Patrick Wautelet, eds., 1997) at 45.

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applicable national law of contract or tort will come to the rescue for personal injury. But, of course, by making the distinction between personal and property damage and by letting damage to persons be governed by conflicts rules, and national substantial law, a split between the liability principles for the two kinds of injury is inevitable.

IV. The structure of part III, chapter IV of CISG Chapter IV of Part III of the CISG (Articles 66-70) determines the place where risk passes. It provides different rules depending on whether the sales agreement involves the carriage of the goods (Article 67), whether the sale relates to goods in transit (Article 68), or whether the transaction does not fit into the prior two categories (Article 69). The distinctions controlling which rule applies are not clear to all, as the draft Digest illustrates. In international sales, presumably, the large majority of transactions will involve carriage, so that Article 67 will usually be applicable. Professor Honnold intimated that sales not involving carriage were typically domestic, or were otherwise the unusual case where one may presume the seller had its own trucks for distribution.24 Article 67 should indeed apply whenever the goods are to be handed over to an independent carrier, including to a forwarding agent.25 The Digest asserts that if the contract is silent about carriage, Article 69 rather than Article 67 will govern.26 The question whether the contract “involves carriage of the goods” so that Article 67 applies, turns on the parties’ agreement. In one case, a contract provision requiring the buyer “to pick up” the goods and to “take the goods to” its facilities in another country was held to mean that the contract “involved carriage of the goods” and thus was governed by Article 67 where the contract also included an “FOB” delivery term.27 On the other hand, an arbitration panel in another case discerned an absence of carriage arrangements and applied Article 69(2), notwithstanding the parties had used the INCOTERM DAF (“Delivery at

24 Honnold, supra note 1, at 237; see also Jan Hellner, The Vienna Convention and Standard Form Contracts in International Sale of Goods: Dubronik Lectures (Petar arcˇevic´ & Paul Volken, eds., 1986) at 345. 25 See Romein, supra note 3, who excludes from Article 67 only the case where the seller hands the goods over to personnel under the seller’s responsibility for transmittal. 26 Draft UNCITRAL Digest art. 69, ¶ 2. 27 Court of Arbitration of the Hungarian Chamber of Commerce, Hungary, 10 December 1996, CLOUT case No. 163.

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Frontier”).28 The results of applying Article 69(2) are very much in line with that particular INCOTERM. Still, the risk was, in my view, to pass simply according to the Contract term used, rather than the CISG-provision, even though the result was the same. The value of this latter decision as precedent for application of Article 69 is questionable.

V. Agreements concerning passage of risk and the use of international trade terms (INCOTERMS et al.) A. Party autonomy and diversity of standard terms on offering Under Article 6 of the Convention, parties have freedom of contract and they may deviate from provisions of the CISG governing the passing of risk, or, for that matter, any aspect of risk. In a CIETAC-arbitration,29 a buyer of jasmine aldehyde from China warned the seller to keep the goods cool during transport to New York. The seller took insufficient care to assure a direct transport, and during the vessel’s stop-over excessive heat accumulated causing the goods to deteriorate. The contract included the term “CIF New York”. The tribunal found that, notwithstanding the CIF clause (under which the risk passes when goods cross the ship’s rail) the parties had entered into a separate agreement relating to temperature risk. The tribunal found that the seller was responsible for the damage under Article 66 CISG. Trade terms typically dictate who takes the price-risk (economic risk) of providing carriage. In the language of Article 67 CISG, contracts including such a trade term generally “involve carriage” in the contract, but by employing a trade term they at least partly derogate from the CISG. They opt out of some aspects of the rules on passing of risk and, while involving carriage, they put the application of Article 67 in doubt. That makes the application of Article 67 (discussed below) not straightforward at all. The use of commercial terms for shipping is pervasive. If parties consider carriage, they very often use INCOTERMS or a similar shorthand reference to usages in shipping.30 Besides INCOTERMS promulgated by the ICC in 28

ICC Court of Arbitration, Case No. 7197, CLOUT case No. 104.

29

China International Economics and Trade Arbitration Commission (CIETAC), China, 1995, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do= case&id=210&step=Abstract. 30 There seems to be consensus on this point. See Comments on Passage of Risk under National Rules, under CISG, and under INCOTERMS (Albert H. Kritzer, ed.), available at www.cisg.law.pace.edu/cisg/text/passage.html; Fritz Enderlein & Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the

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Paris, with support of the world business community, there were the terms promoted by CMEA (1968/1976) and those of the United Nations Economic Commission for Europe. Presently American law contains, in UCC §§ 2-319 et. seq. several definitions of trade terms (such as “F.O.B”.) that are explicitly intended to cover the passing of risk. Under the revised version of UCC Article 2 being considered, those definitions would be deleted.31 Besides terms with a broad geographical range of use, there are many local trade usages in particular localities or trades that relate to passage of risk.32 B. The legal effect of INCOTERMS in an international sales contract The draft Digest illustrates that there is a need to know how the CISG and INCOTERMS interact. One author says a properly-agreed-to INCOTERM draws the entire definition of the term into the contract by way of incorporation.33 The cases cited in the draft Digest seem to concur. Another author feels that swapping otherwise applicable uniform world law for contract-based rules that are neither complete nor necessarily in harmony with the provisions of law is inappropriate.34 Commercial partners that have, in the past, regularly, employed an INCOTERM in their contracts may subsequently be bound by the term on the basis of Article 9(1) of CISG, even in a contract that does not expressly refer to the INCOTERM.35 The trickier question is whether INCOTERMS bind parties who have not established such a personal practice? A great many people have referred to the INCOTERMS as an example of lex mercatoria or

International Sale of Goods 257 (1992) (absence of agreement is “rare”); Joseph Lookofsky, Understanding the CISG in Scandinavia 110-11 (2d ed. 2002) (the “realities of contract life” are that “a large percentage of [international sales] contracts contain trade terms clearly designed to regulate the passing of risk”). 31 See Pilar Perales Viscasillas, Comments on Articles 14-24, 66-70 of the Draft UNCITRAL Digest, supra. 32 Didier Le Masson, Les INCOTERMS in Convention de Vienne et les INCOTERMS 41 (Yves Drains & Jacques Ghestin, eds., 1990). 33 Lookofsky, supra note 30, at 112. 34 Burghard Piltz, INCOTERMS and the CISG in Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) (1999). I offer illustrations of a few discrepancies between INCOTERMS and the risk of loss rules of the CISG in the following paragraphs. 35 Honnold, supra note 1, at § 145; M.J. Bonell, Article 9: Usages and Practices in Commentary on the International Law: The 1980 Vienna Sales Convention (C.M. Bianca & M.J. Bonell eds., 1987) at 113; Piltz, supra note 34.

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soft law.36 According to those authors, the definitions in the INCOTERMS should be consulted whenever parties have used a trade term defined in INCOTERMS, even if the parties have used only a similar term or have not expressly incorporated those definitions. But I cannot see an INCOTERM being imposed without the parties making a clear reference to it. The Foreword to the INCOTERMS (2000) stated that a reference to the INCOTERMS, must be included in the contract in order for their definitions to apply. CISG Article 9(2) – which binds parties to industry usages that “the parties knew or ought to have known” – does not seem to change that result because the harmonized international sales law that is binding under the CISG is not fully compatible with the INCOTERMS, suggesting that the INCOTERMS rules are neither international usages nor usages that the parties “ought to have known”.37 Professor Pilar Perales, my fellow commentator on the risk of loss rules of the draft Digest, shares a similar view.38 C. Rules of interpretation – Article 8(3) The true content and significance of the trade terms used in a particular sale, is not always clear. There are differences in the definitions of the same trade term in the various sets of trade terms. Surely many business people are not well aware of the precise meaning or legal content of such terms, and are not familiar with the divergences among them.39 Perhaps the framers of ULIS and after them the UNCITRAL Commission that prepared the CISG should have promulgated their own shipping terms;40 but that was not practicable. The positive side is, this leaves the business world the chance to develop

36

See Le Masson, supra note 32, at 39. See also J.H. Dalhuizen, Dalhuizen on International Commercial, Financial and Trade Law 273 (2000). 37 See Piltz, supra note 34, who finds support from Andreas Renck, with Ulrich Magnus, in Staudinger/Magnus, Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen: Wiener Kaufrecht (CISG), and from K. Neumayer & C. Ming, Convention de Vienne sur les contats de vente internationale de marchandises: Commentaire (1993) at 120. 38 Perales Viscasillas, Comments on Articles 14-24, 66-70 of the Draft UNCITRAL Digest, supra this volume. Dalhuizen, supra note 36, at 273 would go further – too far, in my view – in giving pre-eminence to the INCOTERMS. 39 According to P.M. Roth, The Passing of Risk, 27 Am. J. Comp. L. at 309-10 (1979), the many variations are not generally known, particularly in developing countries. A similar complaint was made at the time ULIS was negotiated. I note a decision of the Hof van Beroep Brussels, Belgium, 2 September 1998, in which it was wrongly said the CIF-term determined the place of payment of the purchase price (Rechtskundig Weekblad 1998-1999, at 924 and comment by J. Meeusen at 1546). 40 See the criticism in Roth, supra note 39, at 309.

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terms freely and to adapt them to changing needs. The downside is, that parties’ true intentions in employing a trade term are often not clear.41 When the parties have used a trade term, therefore an important problem of interpretation arises, for which we must look to Article 8(3) CISG. It provides that, in determining the intent of the parties, all circumstances shall be considered, including negotiations, practices between the parties, usages and any subsequent conduct of the parties. When parties to a sales agreement use a standard INCOTERMS, the exercise of their autonomy is both narrow and clear. Where the parties have used a general trade term42 and have used it correctly; interpretation is necessary.43 The applicable national law must be sought to fill in the gaps regarding the terms of delivery and the passing of risk. This flows from Article 7(2) CISG, which requires supplementation of the CISG via the rules of conflict of laws if no general principle of the convention fills the gap. The national law so applicable may look to the INCOTERMS for guidance on the meaning of trade terms. If parties have made unclear references or used confusing terms, the same applicable national law of the contract may supplement the provisions of the agreement. If the parties use clear contract terms, however, those terms prevail over the rules of the CISG. A clear reference to an INCOTERM, for example, calls for the full incorporation into the agreement of the definition of the particular term as a “codified” trade practice. D. Discrepancies between the CISG and INCOTERMS The relationship between the CISG and INCOTERMS in itself is problematic. Neither CISG nor INCOTERMS absolutely, in all cases, tie in the passing of risk with the de facto handing over of control over the goods. But there is a link in both the CISG and in INCOTERMS.44

41

Kritzer, supra note 20, at 229, cites Honnold’s argument for abstention; Roth, supra note 39, at 309 gives arguments for and against. 42 The most authoritative commentators advise an explicit reference to the INCOTERMS: Jan Ramberg, ICC Guide to INCOTERMS 2000: Understanding and Practical Use (1999) at 10; approvingly cited by Piltz, supra note 34. 43 See Perales Viscasillas, Comments on Articles 14-24, 66-70 of the Draft UNCITRAL Digest, supra this volume. 44 Hellner, supra note 24, at 345-46; Dionysios P. Flambouras, Transfer of Risk in the Contract of Sale Involving Carriage of Goods: A Comparative Study in English, Greek Law and the United Nations Convention on Contracts for the International Sale of Goods (Oxford thesis, 1999), available at http://www.cisg.law.pace.edu/cisg/biblio/flambouras at n. 283 (“they are connected”).

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Under the INCOTERMS the place of “delivery” (as the term is used) is close to the place of “handing over”, as referenced in Article 67(1) of the CISG, but the INCOTERMS use the time and place of physically placing the goods on board the vessel for the terms most often used. When the word “delivery” is used under CISG, furthermore, it implies “conformity”, meaning the absence of defect in the performance.45 In comparing the CISG and INCOTERMS, there are two sets of problems that we must distinguish: The first problem involves the time that risk passes. When carriage is involved, the rule on the passing of risk in CISG is different from the mostused INCOTERMS FCA or FOB and C&F or CIF – because the place of delivery differs for those important types of sales. Under those INCOTERMS risk passes at the place of loading onto the vessel; under the CISG risk passes at the place of “handing over to the carrier”. When you choose an INCOTERM, you exclude the CISG for the narrow issue of the passing of risk, thus altering the point of “handing over” – and sometimes not requiring the strict identification of the goods as mandated under CISG Article 67(2). The second problem is the relation of the passing of risk to other elements of the sale, such as the place of performance, defining what constitutes non delivery, and determining the consequences of breach in relation to the passing of risk. For example, “delivery” as defined under the INCOTERMS makes risk pass, but such delivery does not necessarily occur at the same place where seller must perform his delivery obligation under the CISG (“place of delivery”). Indeed, the place of delivery and the place where risk passes may not be the same even under the CISG. The INCOTERMS, furthermore, do not deal with the consequence of a non-conforming delivery on the passing of risk, whereas under the CISG the effect of a breach is rather harmoniously built into the rules on risk transfer. Article 70, for example, coordinates the passing of risk and the existence of remedies for a fundamental breach. E. Using the CISG to supplement an INCOTERM is hazardous It has been said that the INCOTERMS are so complete on the point of passing of risk, there is no need to supplement them with provisions from the CISG.46 That seems exaggerated. Piltz recently wrote that INCOTERMS used to be supplemented by national law; now they effectively are supple-

45 46

See Honnold, supra note 1, § 238, who compares the problems of ULIS in this area. Hellner, supra note 24, at 343. See also Lookofsky, supra note 30, at 113.

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mented by the uniform rules on sales law.47 He sees a need for supplementation because the INCOTERMS only provide for the primary obligations of the parties. They give no detailed rules for the times of delivery or for the buyer’s obligation to pay. The INCOTERMS say nothing about possible exceptions to the parties’ obligations. The elements of contract conclusion and the consequences of the failure to perform are not provided for. The INCOTERMS have nothing like Articles 66 and 70 of CISG. As indicated above, the INCOTERMS do not relate the concept of delivery to the concept of conforming goods. Therefore, a discrepancy between the results under the INCOTERMS and under the CISG is possible. Although the risk would appear to have passed to the buyer under an INCOTERM, in reality – under the sales contract – the seller may have breached his obligation to deliver and the risk might remain on the seller under the CISG. This situation highlights a need for harmonization in this area, although such harmonization would require cooperation between different institutions.

VI. Risk under the CISG in case of sale with transport A. The goods need to be clearly identified to the contract When the sales-contract involves carriage, Article 67(2) formulates a strict condition before risk can pass to the buyer: the goods must be clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise. It is a basic principle that risk of loss cannot pass until the goods in question are identified.48 This is a general concern throughout several rules in Chapter IV. I will return to the problem later because some specific rules apply to bulk goods and to retroactive identification. B. Sale involving carriage but no specified place to hand the goods over to the carrier (Article 67(1)) Article 67 offers a double rule for two possibilities: The first hypothesis covered by Article 67(1) is where sale “involves carriage” but no particular place is specified to hand the goods over to the carrier: risk in this case passes when the “goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale”. Von Hoffmann has looked closely at this rule to define the first carrier. He 47 48

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Piltz, supra note 34. Dlle/Neumayer, supra note 1, at 657-59 with comments on ULIS.

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points out that vehicles of the seller itself (e. g., its truck bringing the goods to the station or airport) are generally thought not to constitute a “carrier” within the meaning of Article 67(1);49 under this approach the risk stays with seller as long as the goods are in the seller’s vehicles. Von Hoffmann finds that neither logical, nor necessary. He argues that the movement towards the buyer was initiated when the seller started his own transport and the seller generally holds insurance for that part of the transport, which he can turn over to the buyer. Essentially, Von Hoffman argues, once goods are loaded and traveling, it is often hard to determine the location of the occurrence that damaged or destroyed them, especially if deterioration took place during multi-model transport. Consider also the use of the INCOTERMS FCA (delivery at first carrier) and FOB (free on board) with no further indication as to the location, and how those terms interact with the risk of loss rules of the CISG. There are differences as to the place where risk passes under these terms and under the CISG. Under these INCOTERMS the place of delivery and of the passing of risk coincide. The goods need to be put on to the carrier before risk passes, so that the risk of storage at the place of loading and of further handling as well as the risk of stowage and of trimming lies with the seller. Under the FOB term the delivery (and thus risk transfer) is said to occur, in a symbolic way, at the moment when the goods pass the ship’s railing, but in effect the stowage will still need to be completed inclusive of the tying down and trimming. Under Article 67(1) risk passes at a different time: “when the goods are handed over to the first carrier”, i. e. when they are brought into the control of the carrier. That moment is much less well defined.50 It could certainly mean that warehousing and handling within the confines of a carrier’s facilities would be at the risk of the buyer. With reference to goods handled in a harbor, that result would look more like the result under the INCOTERM FAS (free alongside ship). But if stowage was contracted out to a harbour authority or to stowage firms, the goods would indeed not be handed over to the carrier until they were put on the ship. C. Sale involving carriage with specification of the place for handing over (Article 67(1)) The second hypothesis covered by Article 67(1) is the case where the sale involves carriage of the goods and the seller is bound to hand the goods over to the carrier at a particular or named place. Here too, international 49

Bernd von Hoffman, Passing of Risk in International Sales of Goods in International Sales of Goods: Dubrovnik Lectures, supra note 24, at 286-87. See also Romein, supra note 3. 50 Dlle/Neumayer, supra note 1, at 659.

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commercial practices play a role in how such specification of a particular place for handing over the goods may be accomplished (Article 9). For example, under terms such as FCA and FOB the buyer may name e. g., the airport or port.51 The indication of a vessel might also indicate the place where the vessel will moor within the relevant time. Risk will then pass when conditions for handing over the goods to the carrier at that particular place have been fulfilled and – as mentioned above – the goods have been identified to the contract. But handing over to a carrier at the wrong place does not make risk pass unless the buyer clearly waives its right to reject. The difference between the CISG and INCOTERMS concerning the place for passage of risk is the same as previously described. Even after the goods have been handed over to the carrier, the seller might retain documents, e. g. to fulfill documentary conditions of a letter of credit issued for its benefit. For example, the seller might retain a bill of lading, the prime example of a document “controlling the disposition of the goods” (Article 67(1), third sentence). Under applicable law, that might mean the seller retains title. The risk however is not associated with title to the goods and the final sentence of Article 67(1) reminds us of that fact. D. Some consequences of applying Article 67(1) Where Article 67(1) governs, the risk passes to the buyer before he must determine and give notice of a lack of conformity under Articles 38 and 39.52 Thus, “if the contract involves carriage”, Article 38(1) the buyer must examine the goods after their arrival at the destination of the transport. Under Article 67(1), risk will generally have passed to the buyer before then. If the goods (or the documents controlling the goods) are lost, destroyed or damaged during transit in such a manner that determining their conformity at the time the risk passed is impossible, the presumption of conforming delivery is to the advantage of the seller, who has transferred control and subsequently also has transferred the risk to the buyer. The buyer has the burden to prove that the goods were non-conforming. If the buyer succeeds, it gets the buyer’s remedies.53 That is however not the case for the buyer who exercises a remedy and who, in doing so, has the non-conforming goods under its control. That is the case where the buyer avoided the contract and is in the process of restitution, triggering obligations of preservation under Article 76(1); or he could be 51

Then again, the use of such a particular indication, if accompanied by a clear reference to the INCOTERMS definitions, obviates any need to call on Article 67. 52 For the situation under ULIS, see Dlle/Neumayer, supra note 1, at 629. 53 Dlle/Neumayer, supra note 1, at 629.

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waiting for the seller to deliver a replacement or to cure or repair. See my comments below on Article 70.

VII. Goods sold in transit (Article 68): Cargo afloat A. A history of difficulties The draft Digest indicates that no decisions have actually applied Article 68 on goods sold while in transit. Perhaps the Convention has got the rule right, in conformity with what the commercial world knows and expects. Article 68 differs in important respects from its predecessor, Article 99 ULIS. Neumayer wrote a seminal critique of the ULIS provision. He indicated that there were misunderstandings (and some incompetence) exhibited in the drafting of provision in the 1950’s. He challenged the parallel drawn by delegates to the working groups and conference between the ULIS provision and the INCOTERM CIF (Cost, Insurance, Freight) – under which the risk passes when the goods cross the ship’s rail, irrespective of whether the agreement requires the seller to pay the cost of insurance for the buyer. Article 99 ULIS – governing the purchase of goods while they are in transport – made buyers retroactively liable for risk, from the time goods were handed over to the carrier, even before the contract of sale was concluded. Neumayer explained that this approach was not justified or even technically correct: there was not necessarily any agreement on insurance in this scenario, which could lead to odd situations; and under the ULIS provision the risk was not made to pass at the ship’s rail which made the arrangement potentially more lopsided.54 But it may in fact be wise to relate risk back to the time that goods were loaded onto the carrier in this situation. That approach avoids the difficult task of determining the time when deterioration of the goods occurred while they were in transit. There is also good practical – and legal – support for the approach, because most transit sales are accomplished through the transfer of a bill of lading.55 That document controls title and it offers a record of the outward appearance of the goods when they were received on board the carrier. In many cases, 54 Dlle/Neumayer, “Vertrge
ber schwimmende Ware – Art 99” (1976) at 643 et seq. (647-648 and 653). Risk, it was said, could pass much earlier than the time the goods passed the ship’s rail – namely as soon as the carrier had taken control. 55 Romein, supra note 3, indicates that German law follows the approach of transferring risk upon the handing over of the bill of lading. For historical background about the transfer of property, see Nicholas, supra note 6, at 179. Also see Article 1138 of the French Code Civil for transfer of risk as the corollary to transfer of title; see also Dlle/Neumayer, supra note 1, at 612 ff. Flambouras, supra note 44; Oberman, supra note 19, at n. 120.

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moreover, there is also insurance coverage provided to protect the buyer, which justifies the retroactive transfer of risk. The retroactive passing of risk is generally considered acceptable in those cases where the buyer has insurance. B. The CISG’s two-legged rule CISG restored balance to the rules governing passage of risk for goods sold in transit. Under Article 68 the presumptive rule is that risk passes from the time of conclusion of the contract of sale.56 However, the provision pushes the date for buyer’s assumption of risk back to the time the goods were handed over to the carrier “if the circumstances so indicate”.57 The phrase allows courts to check for insurance coverage that benefits the buyer. If there is such insurance, the buyer is best placed to claim compensation. I note again, that “handing over” to the carrier is not synonymous with passing the ship’s rail; and there is a chance that insurance for transport might not go back far enough in time to cover storage with the carrier, handling or stowage.

C. Comparison with INCOTERMS: If identification of the goods in transit is feasible Does Article 68 require that goods be identified to the particular contract of sale before risk passes? Articles 67 and 69 explicitly require identification, and the omission of such a requirement from Article 68 is notable. Because we often see bulk shipments of fungible commodities, in high seas trade, it must be determined if identification is necessary for risk to pass.58 A German scholar states that current opinion assumes that the identification requirement also applies to sale of goods, in transit, but she is satisfied the requirement is met for undifferentiated fungible goods that are sold out of a bulk transport.59 She compares the situation with the situation described in Article 31(b) – unidentified goods drawn from a stock. She sees the handing over of the bill of lading as a mode of placing the bulk goods that are to be sold at the disposal of buyer at the place where they are destined, thus effectuating identification.60 56 Of course, the exact time of conclusion of an agreement may be hard to determine, and so can the moment the casualty occurred (or when the damage became inevitable). For the rule to apply properly, the two times have to be measured precisely. 57 The expression is not precise and is criticized by Flambouras, supra note 44; see also Oberman, supra note 19, at n. 115 et seq. 58 Flambouras, supra note 44, calls CISG unclear on this point. 59 Romein, supra note 3. 60 Id. Similarly appeased by the provision of the bill of lading is N.G. Oberman, supra note 19

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D. A rebuttable presumption of retroactive risk transfer The second leg of the rule of Article 68, in effect, offers a presumptive rule (that risk has passed retroactively) which allows a court to put the burden of proof on the buyer. The latter can reverse the risk, by proving that the loss or damage arose before the sales contract was concluded, and that circumstances indicate that putting such risk on the buyer’s shoulders is inequitable – specifically because the buyer is uninsured and is not the cause of casualty to the goods.61 He thus asks for the first leg of Article 68 to apply. Furthermore, in conjunction with the final sentence in Article 68, the buyer may succeed in demonstrating that the seller ought to have known of the existence of damage before he sold. E. Risk remains on seller for fault The last sentence of Article 68 indicates that when the seller knew or ought to have known, at the time of a sale during transit, that the good had been lost or damaged (seller’s mala fide or negligence being for the buyer to prove), and did not disclose this, the loss or damage remains the seller’s liability. In this way the loss of uninsured goods or of the uninsured portion thereof is on the seller who was negligent or acted in bad faith. Article 68 places such risk on the seller for the whole transit, so that in this scenario too, there is no shifting or sharing of the burden of damage according to its occurrence or increase before or after the moment of sale.62

VIII. Article 69: The residual rule on passing of risk A. Sale with no carriage: In general Article 69 covers sales not “involving carriage” and not relating to goods sold in transit; it is thus the residual rule for passage of risk. It does not in practice cover the standard international case. It seems to cover scenarios more associated with domestic sales. The analysis of situations covered by Article 69 may be simpler, for carriage is not involved; the value of the provision, however, may be greater, because the parties are less prone to make their own arrangements in the kinds of situations covered by Article 69.

n. 120. Article 100 ULIS made a clear reference to Article 19(3) ULIS which allowed as an alternative mode of identification the handing over of documents specifying the goods. 61 Dlle/Neumayer, supra note 54, at 652. 62 Under article 100 ULIS, the rule related back only until the sending of the documents whose transfer was part of the sale; the CISG rule is stronger.

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The only distinction made in Article 69, does not turn on the parties’ agreement or practices or on usage of trade: the distinction focuses on the place where the buyer is to “take over” the goods: – at a place of business of the seller (which is the result under the default rule of Article 31(c) if the parties’ agreement does not specify a place of delivery), producing a situation governed by Article 69(1), or – at a place that is not “a place of business of the seller” producing a situation governed by 69(2). Under Article 69(1), risk passes when the buyer either takes over control of the goods or the buyer breaches by failing to take delivery while the goods were at his disposal. If Article 69(2) applies, risk passes when delivery is due and the buyer is aware that the goods are at his disposal. B. Passing of risk in comparative law At this point one could compare a number of the approaches of domestic rules on passage of risk. Several systems exist and they often lead to very similar results. Risk can follow ownership in systems where ownership passes at agreement.63 Alternatively, risk can be placed with the buyer, even though title only passes to the buyer at the time of taking over the goods.64 Finally, risk can follow ownership in systems where ownership passes late – indeed at the time of taking over.65 This is what ULIS adopted and the CISG, in the main, maintains. As the typical international sale is over a distance, the Convention seeks to pass the risk when the goods effectively leave the 63 ”Res perit domino”; reflecting the influence of the Code Civil. This approach is too disadvantageous for the buyer. R. Dekkers, a great civilist and specialist of Roman law, said that article 1138 Code civil was probably based on historical error (Handboek voor burgerlijk recht, II, 1971, at 99). In classical Rome, there was no insurance and sellers needed incentive to deliver to risky, out-of-the-way places. Risk was therefore shifted to the buyer at an earlier time than when title and control passed, namely at the time of agreement, thus forcing the faroff buyer to insure against loss and making him pay even when delivery failed. That explains how property and risk were disassociated. Later there was no longer this same pressing social need to advantage the seller. See historical references in Kritzer, supra note 30. See also Dalhuizen, supra note 36, at 228-32. 64 ”Periculum est emptoris” reflecting Roman law, the law of Switzerland and the Netherlands, and the commercial law of Spain. See Dlle/Neumayer, supra note 1, at 601-02. 65 This is the approach in Germany, the Scandinavian countries and (in part) Austria. Ernst Rabel, schooled in Germany, pushed this principle in ULIS in 1939. Transfer of property interests is beyond the scope of the CISG (Article 4(b)), but passing of risk is addressed in the Convention, which thus in effect disassociated risk from the property right.

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control of the seller. The focus is on actions and facts, and not on legal abstractions like title. In the international setting, title passes in accordance with the law applicable to property. There would be no uniform results if the passing of risk were linked to the passing of title. C. Chronological analysis of the CISG rules on passing of risk under Article 69 (a) When the goods are taken over by the buyer at the seller’s place of business (Article 69(1), first part), risk passes even if this occurs before the date by which delivery is due. (b) In other cases the key element for passing of risk is the goods being at the disposal of buyer (Article 69(2) and the second part of Article 69(1)). That means they must be identified to the contract (Article 69(3)). 1. If the buyer is to take over the goods at the seller’s place of business but the buyer delays such taking over (Article 69(1) second part), risk passes when buyer is in breach for not taking delivery, provided the goods have been placed at the buyer’s disposal. The provision does not explicitly require the seller to notify the buyer that the goods are available. But as Article 67(2) makes clear, identification of the goods often requires communication or notice. Furthermore the agreement between the parties may require such notice. When the parties did not agree on the delivery at a particular place other than the seller’s place of business, the seller must place them at the disposal of the buyer – by virtue of Article 31(c) – at the seller’s place of business as it existed at the time of conclusion of the contract. 2. If the buyer is to take over the goods at a location other than a place of business of the seller (e. g., where the seller is to transport the goods to the buyer’s plant), risk passes when “delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place” (Article 69(2)). The risk shifts more readily when the place of delivery is not at a place of business of the seller. There are several reasons for this. First, the buyer knows the place. Secondly, it is likely that the buyer was notified or otherwise became aware of the availability of the goods.66 Thus under Article 69(2) the risk shifts independently of whether the buyer has breached it’s obligation to take over the goods.67 In my view, Article 69(2) covers some of the situations 66

Roth, supra note 39, at 295. Neumayer & Ming, supra note 37, at 447; P. Schlechtriem, Internationales UN-Kaufrecht: Ein Studien- und Erluterungsbuch zum bereinkommen der Vereinten Nationen
ber der Vertrge
ber den internationalen Warenkauf (CISG) (1996) at 130; Degroote, supra note 1, at 294. 67

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contemplated by Article 31(b) – i. e., when the parties have not agreed on a place of delivery of specific goods, goods to be drawn from a specific stock, or goods to be manufactured or produced, and when the contract was concluded the parties knew that the goods were located at (or were to be manufactured or produced at) a location that was not a place of business of the seller.

IX. Consequences of the passing of risk (Article 66) A. Buyer must pay the price despite loss or damage to the goods: Price-risk and performance-risk I have, to this point, postponed mentioning the first article (Article 66) of Chapter IV, Part III of the CISG. Article 66 describes the effect if risk passes, as detailed in the three articles that follow it. It emphasizes that, once risk has passed, the buyer has the price risk. The article, in a sense, repeats or reaffirms Article 53, which imposes the payment obligation on the buyer. The buyer acquires the price-risk at the moment the seller is divested of the risk of loss.68 Up until that point, in order to assure conforming delivery the seller must procure the goods, must preserve them, repair them if necessary and duly bring them to the point of delivery; and if they are lost or undergo accidental damage during this process, he must re-supply them because his obligation remains. If the risk is still with the seller and loss occurs due to an impediment not within the seller’s control (force majeure), then the loss is still the seller’s. But the risk of being liable for the buyer’s damages is alleviated by Article 79. If loss or damage to goods occurs after the parties have performed their obligations and while the goods are under the control of the buyer, the rule that the buyer loses the value is self-evident. This reflects the economic risk after purchase, a matter beyond the scope of the Convention. The rule of Article 66 is contractual by nature and relates to the performance of the buyer’s obligation to pay (Article 53). The payment obligation applies subject to Article 58, which establishes the time of payment and which, for example, usually permits a buyer to first examine the goods (Article 58(3)).69 Once risk of loss has passed, the buyer has the price-risk meaning the buyer must pay even though the goods in his possession are damaged or lost. Article 66 so states, but it also introduces the possibility of passing the performance-risk back to the seller if the loss or damage is due to the seller’s “act or omission”. Thus the seller may find its obligations to care, to repair

68 69

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and eventually to re-deliver, all reborn again – with no clear time-limit and under a vague standard. B. The text of Article 66 requires clarification Article 96 of the ULIS, which with only minor change became Article 66 CISG, was criticized for only confirming the evident effect of the rule of risk transfer.70 In the process of preparing CISG, several countries asked for this rule to be clarified, but they were not successful. That part of the CISG provision that makes the seller bear the risk of loss or damage due to its “act or omission” has been called “an unfortunate rule”.71 Article 66 also covers damage or loss occurring after the passing of risk, but flowing from old defects that existed before the passing of the risk (see also, in this regard Article 36(2)). Article 66 indeed contemplates that there may have been a breach by the seller. The rules on non-conforming delivery specify the consequences of such a breach. Article 66 only reminds us that the buyer must pay the price. The provision explains that the buyer enjoys no automatic exceptions and finds no automatic liberation from his payment obligation because of loss or damage occurring after risk of loss has passed. It could be held to influence buyer’s possible use of the remedy of Article 71(1) and its exceptio non adimpleti contractus (recognized in Article 80). If the seller has committed a fundamental breach, this could be seen as crass punishment for the buyer. Article 66 looks like it introduces a principle of “pay first, discuss later”. Realistically speaking, however, it will not work where the buyer has a defense to a demand for full or partial payment from the seller. In such a setting the rule simply imposes the burden of proof regarding his claims on the buyer. C. Risk can fall back to the seller: Due to the seller There is, furthermore, mitigation to the strictness of the rule of Article 66. This relief comes not from Article 70, because that deals with the effect of a seller’s fundamental breach – a matter beyond the scope of Article 66. Rather, the relief comes from the final words of Article 66, providing that the buyer is discharged from its price obligation in case “the loss or damage is due to an act or omission of the seller”. The first appearance of that phrase in the ULIS had brought surprise. It introduced something like a possible right of

70

Dlle/Neumayer, supra note 1, at 605. But the provision has also been characterized as useful because it defines the concept of risk as the risk to have to pay the price. Bolle, supra note 10, at 270. 71 Enderlein & Maskow, supra note 30, at 261-63.

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set-off for a tort the seller may have committed.72 That would be odd indeed under the Convention, because both tort and set-off fall outside the scope of CISG. But the vague wording seems to introduce the fault concept into the Convention’s treatment of mutual contractual obligations.73 The final CISG text refers only to the seller’s own actions, and mentions the seller’s “omission” suggesting that the CISG exception merely covers – with quaint phrasing – the possibility that a seller’s breach of contract has caused the particular damage or this loss. When the exception applies, presumably, the buyer’s obligation to pay the whole price or to pay part of it is postponed or even waived, and the obligations of the seller are reborn in part or entirely. It is conceivable, in this situation, that neither of the parties carries the risk. But taking a dynamic view of the “passing” of risk (the title of Chapter IV), it looks more logical to decide that risk stayed put with the seller. If the seller were to cure or to replace the lost or damaged goods with substitute goods then the obligation to pay the price would be back on the buyer. I presume too, that when the risk returns to the seller, it gets rights commensurate with the type of relief the buyer has appealed for under the odd terms of Article 66. The exception in the last words in Article 66 can be interpreted broadly or narrowly. The drafting literally allows the buyer to suspend or withhold payment for a variety of reasons connected to the behavior of the seller. In any case it is a disturbing exception. It will be especially interesting to see whether the exception will be applied if the parties choose to use INCOTERMS – where the effect would again be to offer an equitable exception to the passing of price-risk.

X. Remedies for fundamental breach apply after risk has passed (Article 70) As a rule, the conformity of delivered goods must be judged at the time of the passing of the risk.74 This was neatly formulated in Article 97(2) ULIS, the remote antecedent of Article 70. Under the CISG, conformity is governed by Articles 35 and 36. Under the latter provision, conformity is sometimes determined as of the passing of risk (Article 36(1)); in other cases, however,

72

The Article 96 ULIS (1964) version said: “due to the act of the seller or of some other person for whose conduct the seller is responsible” – phrasing that truly seemed to raise the question of tort compensation. 73 Seller’s omission could perhaps be justified through an appeal to Article 79 (exemption for force majeure). 74 Comisin pare la Proteccin del Comercio Exterior de Mxico (Compromex), Mexico, 29 April 1996.

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defects occurring after that stage will render goods non-conforming under the rule of Article 36(2). What effect do Articles 67 to 69 (which determine how risk for loss or damage to the goods passes) have on the buyer’s remedies in cases of breach of contract by seller?75 Article 70 declares that Articles 67-69 do not impair the remedies for seller’s fundamental breach. Thus, CISG Article 70 allows the buyer to call on the remedies available in case seller’s breach was fundamental. The buyer’s remedies for fundamental breach with respect to delivered goods are: requiring delivery of substitute goods (Article 46(2)), asking repair (Article 46(3)), reducing the price (Article 50), avoiding the contract (Article 49(1)(a)) and claiming damages (Articles 74-77). If a buyer either avoids the contract or demands substitute goods, the original delivered goods are returned to the seller (Articles 81(2) and 82), hence the risk also goes back to the seller.76 Given the consequences on the original delivery if a buyer avoids the contract or successfully demands substitute goods, one understands the drastic effects of these remedies. The risk goes back to the seller retroactively. And depending on the remedy used, that might for example mean: a substitute good is due or the contract is avoided because the original delivery was non-conforming – but the first delivery has been lost or destroyed so that only damaged goods (or perhaps no goods at all) are returned to the seller. The CISG conditions the availability of the remedies of avoidance and demanding substitute goods, on meeting the requirements of Article 82.77 But a buyer who has lost the right to use those two remedies under Article 82 still retains his right for all other remedies (Article 83). For example, damages may be requested. And a reduction of purchase price pursuant to Article 50, based on proven breach, may still be imposed, even after the goods have been destroyed. These are examples of claims by the buyer who 75 After risk has passed according to the rules of articles 67, 68 and 69, loss or damage could be caused by the seller’s breach, but also by some other cause, including force majeure. Even if the risk passed because of a breach by the buyer, or the buyer committed a breach after the risk passed the buyer may still be entitled to a remedy against the seller. 76 Henry D. Gabriel, Practitioner’s Guide to the CISG and UCC: A Comparison of the Substantive Law of the United Nations Convention on Contracts for the International Sale of Goods (CISG) with the Uniform Commercial Code (UCC) 216 (1994). 77 Dlle/Neumayer, supra note 1, at 624-25.

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still has the obligation to pay the price; such claims result in a set-off from the price, as was recognized in a German decision.78 When the buyer holds goods in his possession while waiting for substitute goods or after avoiding the contract, the buyer does not bear risk, but does have an obligation to preserve the goods pursuant to Articles 86-88. The risk also does not pass to a buyer to whom the seller has communicated that he will remedy a non-conforming delivery of documents or of goods tendered before the date of maturity (Articles 34 and 37). 78

See Oberlandesgericht D
sseldorf, Germany, 11 July 1966, CLOUT case No 169. Set-off is not governed by the CISG and falls under the domestic law applicable to the contract. Erauw, supra note 23, at 46; Schlechtriem, supra note 67, at 28.

318

Beyond the Digest: Part III (Articles 25-34, 45-52) Ulrich Magnus* I. Introduction The CISG is the first of UNCITRAL’s children which its originator really cares for after having created it. Not only has UNCITRAL built up the CLOUT system,1 which provides systematic information on the international court practice on CISG, but also, for the first time UNCITRAL has prepared and published an official commentary on how the legal text has been applied in practice and should therefore be understood. This “CISG Digest”, a draft version of which accompanies this book, will probably further add to the global reception of the CISG since it will considerably reduce the uncertainties which the pure text not only of the CISG but of any legislative instrument inevitably poses. Hopefully the CISG Digest can and will serve as a model for similar initiatives for other UNCITRAL conventions and model acts. At the Pittsburgh conference and in this book I am invited to go “beyond the Digest”. This mandate could be understood in rather different ways. It could mean pursuing problems of interpretation of the CISG which have not yet been addressed in the draft Digest and have not aroused any court practice but which nonetheless merit mentioning, or which, on the other hand, have been incorrectly decided by digested decisions. In this sense to go beyond the Digest would be a critique of the Digest and the method used by the Digest, which merely reports the existing case material irrespective of its correctness or the respective weight of the decisions (a county court decision counts almost as much as a Supreme Court decision). “Beyond the Digest” could, however, also mean exploring the hidden and dangerous question of whether the review of court practice reveals any shortcomings of the CISG so that the Convention should be amended in some respect. This would mean a critique of the CISG itself, though it might *

Professor of Law, University of Hamburg, Germany; Judge, Court of Appeal of Hamburg. ”Case Law on UNCITRAL Texts”, a valuable data bank which contains English abstracts of national court decisions on CISG (and some other UNCITRAL texts), available on line at http://www.uncitral.org. 1

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appear as hubris even to think of amending the CISG – having in mind that the CISG is the fruit of nearly a century’s efforts of leading lawyers of almost all nations.2 But as time goes by even such a time-honoured monument may need adaptation to new demands. For my part of the “Beyond the Digest” project I will therefore combine both understandings as far as possible.

II. Beyond Articles 25-34 and 45-52 of the Draft Digest: An overview My part of the “Beyond the Digest” project covers Articles 25-34 and 45-52. On the one hand these articles contain some general definitions relevant for the whole of Part III (the substantive sales law) of the Convention. On the other hand they prescribe the main obligations of the seller – except his duty to deliver conforming goods3 – and the remedies to which the buyer is entitled when the seller has violated his duties. The following discussion starts with some questions and observations concerning the general definitions, in particular the notion of fundamental breach. Then some critical points of the provisions on the seller’s obligations and the buyer’s remedies are addressed. It is, however, not intended to discuss in detail each provision which belongs to ‘my’ part of the “Beyond the Digest” project.

III. The notion of fundamental breach The meaning of fundamental breach is a key issue of the Convention.4 It is addressed in several provisions of the CISG5 and, in particular, it draws the dividing line between cases where a contract can be terminated6 and cases where only other remedies which are less incisive (like damages7 or price 2 It should be remembered that the efforts to unify the law for international sales started as early as 1929, when UNIDROIT authorized Ernst Rabel to prepare a first draft of a uniform sales law. 3 This duty is dealt with in arts. 35-44. 4 For recent discussions of the notion of fundamental breach in relation to CISG see Lurger, Die wesentliche Vertragsverletzung nach Article 25 CISG, Internationales Handelsrecht (IHR) 2001, 91 ss. with many references; Trommler, Die Auslegung des Begriffs “wesentliche Vertragsverletzung” in Article 25 CISG (2002). See also Andrew Babiak, Defining ‘‘Fundamental Breach’’ under the United Nations Convention on Contracts for the International Sale of Goods, 6 Temp. Int. Comp. L.J. 113 (1992). 5 See CISG arts. 49(1)(a); 51(2); 64(1)(a); 72(1); 73(1) and (2). Specific performance by way of replacement presupposes that the non-conformity of the delivered goods constitutes a fundamental breach. See CISG art. 46(2). 6 See the Articles cited in the preceding footnote. 7 Damages as a remedy require only a violation of a contractual duty of whatever kind; they

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reduction) are available.8 The relevant provision defining fundamental breach of contract in the sense of the Convention is Article 25. Four questions in connection with this provision shall be answered here: (1) Is the definition precise enough? (2) Can a reparable non-conformity of goods constitute a fundamental breach, and if so, in what circumstances? (3) At what point in time must the party in breach have foreseen the detrimental consequences of the breach? (4) Does the provision allocate the burden of proof? A. Is the definition precise enough? Article 25 stamps a breach as fundamental: if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. The language of the provision is not easy to understand. One reason is that the article employs many vague legal terms like “fundamental”, “substantial”, and “reasonable”. Even “detriment” has no precise and clear meaning, but is capable of covering a variety of different meanings. In particular the term can be understood in a more “subjective” or more “objective” way. Another reason for difficulties with Article 25 is that the core idea is expressed in complicated and to some extent redundant language. In fact, the central idea of the provision is simple and convincing: in order to be fundamental and to constitute grounds for the termination of the contractual bond the breach must on the one hand totally or mainly (“substantially”) eliminate the benefit the aggrieved party could expect from the contract. The aggrieved party must have lost her interest in the bargain. On the other hand the party in breach or a reasonable party in its place must have foreseen that the breach would result in the loss of the bargain’s benefit. It seems common ground now that an objective yardstick has to be applied to both requirements.9 However, this should not be misunderstood. It means, to are expressly foreseen by CISG arts. 45(1)(b); 47(2) (sentence 2); 48(1) (sentence 2); 61(1)(b); 63(2) (sentence 2). 8 See CISG art. 50. 9 See Michael Will, Article 25 in Commentary on the International Sales Law: The 1980 Vienna Sales Convention ¶ 2. 1. 2. 1. (Cesare Massimo Bianca & Michael Joachim Bonell eds., 1987); Heuz, La vente internationale de marchandises. Droit uniforme (2d ed. 2000) no. 399; Karollus, UN-Kaufrecht. Eine systematische Darstellung f
r Studium und Praxis (1991) 91; Lurger (supra n. 4) 91; Schlechtriem(-Schlechtriem), Kommentar zum

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put it positively, that the benefit of the contract depends in the first place on the terms of the contract and the allocation of risks as agreed upon by the parties. It is not the objective weight of the breach as such that automatically counts as fundamental but the weight the parties have given it.10 If nothing specific has been contracted for, then a fundamental breach occurs only if the aggrieved party was deprived of what a reasonable person in the same situation – the Convention’s general standard where more specific commitments are lacking11 – would have expected to be the normal benefit of the contract. Problems due to the vagueness of the definition in Article 25 may also be indicated by the fact that many court decisions12 deal with different aspects of the notion of fundamental breach. However, despite the problems with the language of the provision I am not of the opinion that the wording of Article 25 CISG necessarily needs amendment. The border line between contracts which – due to their breach – should be allowed to be terminated, and those which should be maintained, cannot be formulated except in a flexible way. And that means some necessary vagueness in order to cover a great variety of different factual situations.13 Moreover, the relatively high number of court decisions concerning Article 25 is to some extent explained by the fact that the notion of fundamental breach plays a role in a number of Convention provisions.14 It also seems clear that Article 25 can be given more precise meaning only if courts delineate certain typical situations of fundamental and non-fundamental breach. The courts can thereby formulate and develop specific subrules for those groups of cases.15 To a considerable extent this has already Einheitlichen UN-Kaufrecht – CISG (3d ed. 2000) Article 25 no. 9; Schlechtriem, internationales UN-Kaufrecht (2d ed. 2003) no. 111; von Staudinger(-Magnus), Kommentar zum B
rgerlichen Gesetzbuch mit Einf
hrungsgesetz und Nebengesetzen. Wiener UN-Kaufrecht (CISG) (new ed. 1999) Article 25 no. 13; Witz/Salger/Lorenz, International Einheitliches Kaufrecht. Praktiker-Kommentar und Vertragsgestaltung zum CISG (2000) Article 25 no. 7. 10 Compare Achilles, Kommentar zum UN-Kaufrechts
bereinkommen (CISG) (2000) Article 25 no. 3; Heuz, supra note 9, at 399; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at 111; von Staudinger(-Magnus), supra note 9, at art. 25 no. 13; Witz/Salger/ Lorenz, supra note 9, at art. 25 no. 7. 11 See CISG art. 8(2), which extends this objective standard to statements and “other conduct of a party”. 12 Compare the decisions cited at draft UNCITRAL Digest art. 25. 13 See also John O. Honnold, Uniform Law for International Sales § 181. 2 (3d ed. 1999). 14 See supra note 5. 15 Compare the various groups of cases cited at draft UNCITRAL Digest art. 25.

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been achieved, and this also explains the rather large number of court decisions on Article 25. B. Fundamental breach in cases of reparable non-conformity of the goods? Among the various types of breaches for which it has already been decided whether or not they qualify as fundamental, the decision as to one type of case is still doubtful. It is still not quite clear whether the delivery of seriously defective goods constitutes a fundamental breach of contract if the nonconformity can be repaired. When the seller offers and effects speedy and full repair, courts tend to deny there was a fundamental breach.16 It is, however, open to debate whether in every case of delivery of seriously defective but reparable goods the buyer must first give the seller the chance to cure the defect – by repair or replacement – or whether the buyer can immediately declare the contract avoided. To give an example: flowers which ought to bloom the whole summer do so only for two months and then stop blooming.17 Is the buyer now entitled to avoid the contract at once, or must he first give the seller the chance to deliver new blooming flowers? Article 48 (which gives the seller a right to cure) and Article 49 (which gives the buyer a right to avoid when a breach is fundamental) provide no full and clear answer. Although Article 48 applies “(s)ubject to article 49”, it remains open whether the delivery of seriously defective but reparable goods amounts to a fundamental breach – confronting us with a potentially little vicious circle: no right to cure if the breach is fundamental, but no fundamental breach if the defect is curable. The answer should be that, in these cases of serious but easily and quickly reparable defects, the seller should have a second chance unless specific interests of the buyer require otherwise.18 Such an interest could be that the buyer needs the goods at a certain date or that he could not be expected to trust the seller any more, for example when the seller delivered goods (e. g.,

16 See, e. g., Cours d’Appel de Grenoble, France, 26 April 1995, CLOUT case No. 152; Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT case No. 282. 17 These were the facts in Oberlandesgericht Innsbruck, Switzerland, 1 July 1994, CLOUT case No. 107 (Schweizerische Zeitschrift fu¨r Internationales und Europa¨isches Recht 1996, 51). 18 Accord, Herbert Bernstein & Joseph Lookofsky, Understanding the CISG in Europe § 6-9 (2d ed., 2003); Honnold, supra note 13, at § 184 (see also the example given there) and § 296; Schlechtriem(-Huber), supra note 9, at art. 48 no. 23; Staudinger (-Magnus), supra note 9, at art. 48 no. 30; most recently: Magnus, Aufhebungsrecht des Kufers und Nacherf
llungsrecht des Verkufers im UN-Kaufrecht, in: Festschrift Schlechtriem 599 ss. (2003).

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food or drink) which he produced in violation of criminal statutes,19 or which were seriously dangerous (cattle with contagious diseases). C. Point of time at which consequences of breach must have been foreseen Article 25 does not state the point of time at which the party in breach must have foreseen the detrimental effects of the breach in order for the breach to be fundamental.20 Consequently the question which was left undecided at the Diplomatic Conference in Vienna21 is disputed.22 Either the time of conclusion of the contract is regarded as the relevant time,23 or foresight at any time – even after conclusion of contract – may suffice.24 Thus far the question has aroused little case law.25 There the view is taken, also supported here, that in principle it must be the time of conclusion of the contract which is relevant. Since the contractual risk is undertaken at that time and under the circumstances then foreseeable, the party who later breaches the contract should generally be entitled to rely on the fact that the original risk had not changed. Statements made and information given by the other party after that time, one-sided as they are, cannot and should not change the allocation of risk as originally agreed upon. The same principle is approved by Article 35(2)(b), which also shows that unilateral extra wishes 19 See Cour de Cassation, France, 23 January 1996, CLOUT case No. 150 (also available at Dalloz 1996.334) (artificially sugared wine contrary to statute = fundamental breach); Landgericht Trier, Germany, 12 October 1995, CLOUT case No. 170 (Neue Juristische Wochenschrift – Rechtsprechungs-Report 1996, 564) (artificially sugared wine = fundamental breach). 20 As to the discussion of the question, compare Honnold, supra note 13, at § 183; Honsell(-Karollus), Kommentar zum UN-Kaufrecht (1997) Article 25 no. 26 ss; Neumayer/ Ming, Convention de Vienne sur les contrats de vente internationale de marchandises. Commentaire (1993) Article 25 no. 8 (all with numerous references). 21 As to the history of this part of Article 25 see Honnold, supra note 13, at § 183. 22 The differing opinions are recorded in detail by Honsell(-Karollus), supra note 20, at art. 25 no. 26. 23 See, e. g., Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275; Achilles, supra note 10, at art. 25 no. 14; Herber/Czerwenka, Internationales Kaufrecht – UN-bereinkommen
ber Vertrge
ber den internationalen Warenkauf (1991) Article 25 no. 9; Heuz (supra n. 9) no. 400; Schlechtriem(-Schlechtriem), supra note 9, at art. 25 no. 15; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 112; Staudinger(-Magnus), supra note 9, at art. 25 no. 19; Witz/Salger/Lorenz, supra note 9, at art. 25 no. 14. 24 See, e. g., Will, supra note 9, at art. 25 no. 2. 2. 2. 2. 5; Honnold, supra note 13, at § 183; Honsell(-Karollus), supra note 20, at art. 25 no. 27 s.; Neumayer/Ming, supra note 20, at art. 25 no. 8. 25 See Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275.

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of the buyer must be disclosed when the contract is concluded. However, the obligation of good faith (Article 7(1)) may have an overriding effect where exceptional circumstances of the case so require.26 But in general, in order to change the effect which a breach exerts on the existence of the contract, a new agreement between the parties is necessary. D. Burden of proof Article 25 CISG does not expressly address the burden of proof, but its wording and even more so its legislative history indicate rather clearly that the formulation “unless the party in breach...” was meant to shift the burden of proof for the fact that the effects of a breach were unforeseeable to the shoulders of the party in breach. This is clear because, in order to achieve that allocation of burden of proof, the prior ambiguous formulation was changed.27 Article 25 is therefore another example – besides, e. g., Article 79 – evidencing that the drafters of the Convention intended on several occasions to regulate the issue of burden of proof.28

IV. Is Article 28 necessary? A further provision of general application for Part III of the Convention is Article 28, which concerns the issue of specific performance. Specific performance – the right to require delivery in kind – is a remedy normally

26 Honnold, supra note 13, at § 183, gives an example where a seller refuses to deliver rice in new bags after the buyer – after the conclusion of the contract – had asked him to do so, whereas the seller intended to deliver in used bags but could easily deliver also in new bags at extra cost (which the buyer offered to bear). The buyer needed new bags for a favorable resale. It is doubtful whether the buyer should be entitled here to terminate the contract because of a fundamental breach when the seller delivers in used bags. This is particularly doubtful as Article 35(2)(b) states that extra requirements must be disclosed at the conclusion of the contract. In my opinion the good faith principle requires more extreme cases to constitute a fundamental breach – for instance, that the buyer must stop production and faces grave losses if the seller does not fulfill the buyer’s later disclosed extra wishes (again only if the seller could easily fulfill these wishes and if the buyer offers to bear any extra cost). 27 See Documentary History of the Uniform Law for International Sales 324 (John O. Honnold ed., 1989); Will, supra note 9, at art. 25, ¶ 2. 2. 1; Honnold, supra note 13, at § 183. 28 For a general discussion of the issue of burden of proof, see infra Section XI of this chapter.

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available in Civil Law countries,29 but less frequently employed in Common Law countries where it is granted as a rare exception, for instance where the contracted goods are unique.30 Article 28 has the function of bridging this gap between Civil and Common Law.31 The article therefore provides that courts in countries which would not grant specific performance under domestic law – like the Common Law countries – are not forced to give this redress under the Convention either. Many questions concerning the interpretation of the provision are, however, disputed and unsettled.32 Despite the deep theoretical difference between the two approaches to specific performance, the article has not gained much practical importance. It has attracted almost no court practice – only one US case has thus far been reported where on a preliminary procedural level it was held that the UCC allowed for specific performance when the claimant faced difficulties in concluding a cover purchase.33 It could therefore be questioned whether Article 28 was and still is necessary or should be deleted. The provision is a good example of one of those theoretically interesting attempts to deal with irreconcilable conceptual problems which in practice prove unimportant. But since the provision does no harm it seems unnecessary to change it. Equally unnecessary appears extended discussion of it.

V. Articles 29 and 30 and electronic communication or documents The Convention was drafted and finalised when internet, computer, and electronic communication did not even exist as words. Consequently, none of the provisions of the Convention mentions these new communication techniques.34 Nor have court decisions thus far decided the question of whether or not the new techniques are covered by the Convention’s 29

See, e. g., for France: Article 1603, 1610 Code civil; for Germany: § 433 para. 1 B
rgerliches Gesetzbuch (Civil Code – BGB). 30 For Great Britain see, e. g., Michael Bridge, The Sale of Goods 531 ff (1997); for the United States, see § 2-716(1) Uniform Commercial Code (UCC) (specific performance is allowed “where the goods are unique or in other proper circumstances”). 31 See Rabel, Begr
ndung zum Entwurf von 1935 in RabelsZ 9(1935) 69. 32 See in particular Schlechtriem(-Huber), supra note 9, at art. 28 no. 12 ss.; Staudinger (-Magnus), supra note 9, at art. 28 no. 6 ss. 33 U.S. District Court for the Northern District of Illinois, United States, 7 December 1999, CLOUT case No. 417 (Magellan Int’l Co. v. Salzgitter Handel GmbH, 76 F. Supp. 2d 919, English abstract also available in UNILEX at www.unilex.info). 34 The general provisions on form (of the contract and of communications) are CISG arts. 11, 12, 13 and 29.

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provisions concerning form requirements.35 But such cases will come for decision. Therefore, it must be answered in relation to the CISG provisions relevant here (namely Articles 29, 30, and 34) whether the new communication forms can be regulated by the Convention, whether the Convention should be amended to address them explicitly, or whether the question should be left to the applicable national law. It is strongly advocated here that the new communication techniques can and should be regarded as being included wherever the Convention refers to writing (as, prominently, in Article 13, but also in Article 29 and other provisions)36 or to documents (as in Article 30, 34, 57(b) and 58). The reason for this solution is simple: the CISG’s general definition of “writing” (Article 13)37 is formulated in an open, non-exhaustive way.38 It therefore leaves room for addition by analogy. Thus, when the fax became a much used way of communication it was regarded as being covered by the Convention’s definition of “writing”.39 Today, e-mail has become more and more the regular form of communication and has more or less replaced typed letters or other forms of written communication. In essence, e-mail is nothing other than the immediate transmission of a written declaration. An e-mail message can probably be more easily forged than a hand-written signature, but that concerns only its value as evidence. At any rate, the Convention does not necessarily require that a written communication must be signed by

35

The draft Digest concerning the form provisions, supra note 34, reveals thus far no case law with respect to electronic communication is available. In particular, it is still undecided whether Article 13 is capable of covering e-mail as an equivalent to writing. Supporting the view that e-mail is covered, see, e. g., Bernstein & Lookofsky, supra note 18, at § 3-11; Ferrari, Einige kurze Anmerkungen zur Anwendbarkeit des UN-Kaufrechts beim Vertragsschluss
ber das Internet; The European Legal Forum 2000/01, 301 (305); Honnold, supra note 13, at § 130; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 68 (though with the qualification that the e-mail could be printed); Ulrich G. Schroeter, Interpretation of Writing, Vindobona Journal of International Comercial Law and Arbitration 274 (2002); Staudinger(-Magnus), supra note 9, at art. 13 no. 5; contra, e. g., Witz/Salger/Lorenz, supra note 9, art. 13 no. 2. 36 Another provision relevant here is CISG art. 21(1). 37 CISG art. 13 reads: “For the purposes of this Convention “writing” includes telegram and telex”. 38 See Ferrari, supra note 34, at 305; Honnold, supra note 13, at § 130; Schlechtriem (-Schlechtriem), supra note 9, at art. 13 no. 2; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 68. 39 It is common ground that Article 13 covers, e. g., communication by fax: Oberster Gerichtshof, Austria 26 April 1997 (for a reference to this decision see draft UNCITRAL Digest art. 13, ¶ 2 n. 190).

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hand40 – both a telegram and a telex, which Article 13 defines as “writings”, do not carry hand-written signatures. Moreover, electronic communication poses no greater or different problems than other forms of written communication. Therefore, both means – electronic and other written communication – should be treated alike.41 Thus, if the parties have agreed (in writing) that their contract could be modified or terminated only in writing, electronic communication by e-mail of the modification or termination should suffice unless the parties have agreed upon a stricter form. Also where the parties use electronic documents for communication between them – be it either by agreement, by usage, or by international custom42 – the placement of the electronic documents in the electronic mail-box of the receiver should be taken as the handing over required by Articles 30 and 34.43 INCOTERMS 2000 address to some extent the issue of electronic documents. They only apply, however, if they are agreed upon. If the seller is obliged to provide the buyer with the usual delivery or transport documents, as is the case under the F-, C- and D-clauses of INCOTERMS, and if the parties have agreed on electronic communication between them, then electronic data interchange (EDI) is necessary and sufficient.44

VI. Additional or more precisely formulated obligations of the seller The Convention specifies where and when the seller has to deliver (Articles 31-33). Moreover, the CISG also regulates extensively how the seller has to deliver, namely to deliver conforming goods which are also free from third party rights45 and to perform his duties generally in accordance with the 40

See Honnold, supra note 13, at § 130; Burghard Piltz, Internationales Kaufrecht. Das UN-Kaufrecht (Wiener berinkommen von 1980) in praxisorientierter Darstellung (1993) § 3 no. 115; Schlechtriem(-Schlechtriem), supra note 9, at art. 13 no. 2; Staudinger (-Magnus), supra note 9, at art. 13 no. 4. 41 This seems to be the prevailing view. See the references supra note 32. 42 These are means to establish binding obligations between the parties. See CISG art. 9. 43 Thus far there seems to exist neither case law nor extended discussion on the question whether and when electronic documents suffice as documents under the CISG, and what is necessary for their (electronic) handing over. 44 See the F-, C- and D-Incoterms in International Chamber of Commerce, Incoterms 2000: ICC Official Rules for the Interpretation of Trade Terms, ICC No. 560 (1999), § A.8. As to EDI compare in particular Siegfried Eiselen, Electronic Commerce and the U.N. Convention on the International Sale of Goods, 6 EDI L. Rev. 21 (1999). 45 CISG arts. 35, 41, 42.

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requirements of good faith.46 And in a number of instances the CISG establishes further duties, requiring the seller in particular to inform the buyer, as far as necessary, of the identification of the goods,47 of suspension of performance,48 of a claimed anticipatory breach,49 and of an impediment to performance.50 Further duties of the seller – to preserve the goods – follow from Articles 85 and 88. Thus far, court practice does not evidence any need for a codification of further obligations of the seller, nor do decisions reveal serious shortcomings in the formulation of the respective Convention provisions.51 Nor do legal authors advance proposals in that respect. The CISG has codified the main obligations of the seller. However, a general duty of reasonable cooperation between the parties can be, and has been, inferred from the existing duties of both the seller and the buyer.52 This duty of cooperation is to be regarded as a general principle of the Convention under Article 7(2).53 In sum, it appears unnecessary to add any further obligations to those codified in the Convention.

VII. Is notice required for delivery at the wrong time or at the

wrong place? From a practical perspective the most important provisions of the CISG are those which provide that a buyer of non-conforming goods will lose all remedies unless he gives timely notice of the defect (Articles 38, 39, and 43). The bulk of decisions on the CISG concern this notice requirement.54 However, no such notice is required when the seller violates duties other than the duty to deliver conforming goods that are free of third party rights. It could therefore be asked whether a like notice requirement should apply – 46

CISG art. 7(1).

47

CISG art. 32(1).

48

CISG art. 71(3).

49

CISG arts. 72(2) and (3).

50

CISG art. 79(4).

51

Compare the court practice cited in the draft Digest with respect to the CISG provisions mentioned in the previous paragraph. 52 See Bundesgerichtshof, Germany, 31 October 2001 (Internationales Handelsrecht 2002, 14 ff). 53 Michael Joachim Bonell, Art. 7 in Commentary on the International Sales Law, supra note 9, at ¶ 2. 3. 2. 2; Honnold, supra note 13, at § 292; Schlechtriem(-Ferrari), supra note 9, at art. 7 no. 24; Staudinger(-Magnus), supra note 9, at art. 7 no. 47. 54 See the decisions cited in the draft UNCITRAL Digest arts. 38 and 39.

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and be added to the Convention – when the seller violates the obligations under Articles 31 and 33 and delivers the goods at the wrong place or at the wrong time. The short answer should be, no. The reasons for this answer are the following: In some cases falling under Article 31 or 33 a kind of notice requirement exists. If the seller delivers at the wrong place or at the wrong time and if this constitutes a fundamental breach and entitles the buyer to avoid the contract – certainly a rare case – then the buyer has to react within reasonable time. Article 49(2) requires the buyer so to do. Otherwise the buyer will lose his right to declare the contract avoided. But for other remedies, or where the seller did not even begin delivery, the Convention does not set any express time limit.55 In these other situations, however, the principle of good faith (Article 7(1)) governs. It excludes claims which are instituted years after the seller had violated his duty.56 According to this principle, claims brought after an unreasonably long time are estopped as being too late. The reason for the notice requirement in case of defective goods is the uncertainty and difficulty of proof which typically increase as the time since delivery passes. In contrast, proof of the wrong time or the wrong place of delivery, or even of non-delivery, is normally not much impeded by the lapse of time. Therefore, it seems unnecessary to introduce a notice requirement – as in Articles 39 and 43 – for other cases of incomplete performance, in particular for failures of the seller to comply with his obligations under Articles 31 and 33.

VIII. The merits of Article 45 Article 45 introduces the part of the Convention which deals with the remedies granted if the seller has violated one of his obligations. Article 45(1)(a) merely refers to other remedy provisions, and thus is no more than a recital. It lists the possible remedies without adding any substantial consequence of its own. Such “narrative” provisions (compare Article 61(1)(a)) might appear superfluous. Nonetheless, such introductory provisions which only survey other articles are likely to enable an easier application of the whole instrument. They seem 55

See Herber/Czerwenka, supra note 23, at art. 49 no. 15; Honnold, supra note 13, at § 307; Staudinger(-Magnus), supra note 9, at art. 49 no. 30. 56 See, e. g., Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 133. The court denied the buyer’s right to terminate the contract after 2 1/2 years although the goods had not been delivered. The decision was based on the good faith principle.

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particularly appropriate for international instruments since they give some systematic guidance – in the case of Article 45(1) a record of the possible remedies of the buyer – and the implicit exclusion of further remedies not listed there. This can ensure a more uniform interpretation and application of the CISG than would be achieved without such provisions. It should also be mentioned that the recent German revision of the law of obligations has equally adopted this legislative “recording” technique.57

IX.The relationship between Article 48 and Article 49 Article 48 provides for the seller’s right to cure any failure of performance “(s)ubject to article 49”. Article 49 allows the buyer to avoid the contract where the seller committed a fundamental breach of contract or did not deliver even after a reasonable “Nachfrist”. The relationship between the two articles is disputed.58 For a specific factual situation (delivery of seriously defective but reparable goods), the coordination of the two provisions has already been discussed.59 The question which of the two articles prevails is, however, a general one. The argument in favor of a general predominance of Article 48 over Article 49 is that good faith and fair dealing require that the seller must be given a chance to remedy a non-conforming tender.60 The argument that Article 49 should prevail is that in case of a grave – “fundamental” – breach, the buyer must be entitled to terminate the contract immediately. As always, one single solution for very different factual situations is problematic. Therefore, different cases where the priority between Articles 48 and 49 has to be decided must be distinguished. First, the hierarchy of the two provisions is only at stake where cure is possible and offered without unreasonable delay and inconvenience.61 Secondly, there must be a serious failure to perform which, absent the possibility of cure, would amount to a fundamental breach.

57

The amended § 437 BGB now lists the remedies which a buyer of defective goods has, and refers to other specific provisions which substantively regulate the individual remedy. 58 Compare Heuz, supra note 9, at no. 422; Honnold, supra note 13, at ¶ 296; Karollus, supra note 9, at 142 ss.; Piltz, supra note 40, at § 5 no. 197 ss.; Schlechtriem(-Huber), supra note 9, art. 48 no. 17 ss.; Staudinger(-Magnus), supra note 9, art. 48 no. 17 ss.; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 180 regards the dispute as practically less important. 59 See supra, part III(B) of this discussion. 60 See, e. g., Honnold, supra note 13, at § 296, who strongly relies on the duty of cooperation between the parties. 61 See CISG art. 48(1).

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Which cases – apart from delivery of defective but reparable goods, which has been already dealt with – will meet these conditions? A first category of such cases is delayed delivery. Cure through a belated delivery will often be possible, but mere delay as such normally does not amount to a fundamental breach.62 In that case no priority problem arises. The seller may cure or the buyer may fix an additional period of time according to Article 47. The priority question is also not at stake where later delivery has become impossible. In that case the buyer is normally entitled to terminate the contract because final non-delivery is generally a fundamental breach.63 If, however, the delay as such constitutes a fundamental breach – namely where time is of the essence – cure would not restore the buyer’s interest. Therefore, when time is of the essence – because a fixed date was agreed as essential or because the goods are seasonal goods and have to be at market before a certain date – then the buyer’s right to terminate must be given priority over the seller’s right to cure.64 A second category is the case where the seller makes a final refusal to deliver. This means, of course, that he does not offer cure. No question of priority between Articles 48 and 49 then arises. The unjustified final refusal to deliver constitutes a fundamental breach of contract and entitles the buyer to avoid the contract.65 A third category is the delivery of defective (but non-remediable) goods. If they are neither reparable nor replaceable then cure is impossible. Again, no question of priority between cure and avoidance arises. The latter remains the applicable remedy provided that the defect renders the goods substantially useless for the buyer.66 If the buyer can use the goods (for instance resell them with a rebate) then damages or reduction of the price are the only

62

See, e. g., Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275; Corte di Appello di Milano, Italy, 20 March 1998, English abstract available in Unilex at www.unilex.info. 63 See, e. g., Pretura circondiale di Parma, Italy, 24 November 1989, CLOUT case No. 90; Oberlandesgericht Celle, Germany, 24 May 1995, CLOUT case No. 136; Lurger, supra note 4, at 95; Staudinger(-Magnus), supra note 9, at art. 25 no. 20. 64 Accord, Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 180. 65 See, e. g., Lurger, supra note 4, at 95; Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 180; Staudinger(-Magnus), supra note 9, at art. 25 no. 20. 66 See, e. g., Bundesgerichtshof, Germany, 3 April 1996 (Entscheidungen des Bundesgerichtshofs in Zivilsachen 132, 290); Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248.

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remedies.67 As stated previously, however, in case of remediable goods the buyer must accept cure unless his specific interest allows prompt avoidance.68 A fourth category involves the fundamental breach of duties other than the duty to deliver in time or to deliver conforming goods, for instance the duty to render additional services (assuming the CISG applies to such a contract under Article 3(2)). Here, if cure is possible and promptly and conveniently offered, immediate avoidance should also only be granted if a specific interest of the buyer, such as lost confidence, justifies that the contract be avoided at once. Moreover, difficulties with the relationship between Articles 48 and 49 can be further removed when the information procedure foreseen in Article 48(2) is applied in a reasonable way.69 Since it is likely that in most cases the buyer will first react to any failure of performance and request some remedy, it is then up to the seller to respond. If the seller offers realistic and prompt cure and gets no answer within a reasonable time, this is an indication that the buyer has no interest in immediate avoidance. Thus, the seller is then entitled to cure.70 If the buyer refuses the seller’s offer of cure, the right to declare the contract avoided depends on the rules mentioned above.

X. Is Article 49 too complicated? Article 49 fixes the conditions under which a buyer is entitled to declare the contract avoided. Though one could imagine a clearer formulation of Article 49(1), it is clear that the remedy of avoidance only applies in two situations: in the case of fundamental breach, and in the case of non-delivery (which in itself does then not yet amount to a fundamental breach) after the expiry of an additional period of time granted under the “Nachfrist” procedure. It makes sense that Article 49(2) in general requires that avoidance be declared within a reasonable time after the buyer becomes aware of this right. However, the further distinctions drawn by Article 49(2)(a) and in particular Article 49(2)(b) appear unnecessarily refined and detailed. When advanced students read the text for the first time they regularly misunderstand it or do not understand it at all. Though their level of understanding is 67 68 69 70

See Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248. See supra part III(B) of this discussion. Accord, Honnold, supra note 13, at § 296. See CISG art. 48(2).

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not decisive, it is a sign of an overly complicated regulation which could easily be misunderstood. A general rule that avoidance must be declared within a reasonable time after the buyer knew or should have known of the breach would not be less clear or more difficult to apply than the present text. If any amendment of the text of the CISG could be imagined, Article 49(2) would be a candidate.

XI. Rules on the burden of proof The burden of proof is a general issue for the CISG. Whereas the present paper deals only with few specific CISG provisions, the burden of proof shall be discussed in a general way here. As already indicated, the Convention addresses the allocation of the burden of proof explicitly in Article 79(1) and implicitly in a few provisions where the burden of proof can be inferred from the text, as in Article 2571 and some other provisions.72 But for most CISG provisions the text is silent on this issue. Nevertheless, the burden of proof should be dealt with uniformly under the Convention.73 This could be achieved by inferring general principles – in the sense of Article 7(2) – from the few provisions on burden of proof. The central rule that could be gathered from them is the principle that a party who relies on certain facts for its claim or defense normally bears the burden to prove these facts. If accepted as a general principle for an issue governed by – albeit not settled in – the Conventions, no express regulation in the CISG would be needed.

71

See supra part III(D) of this discussion. E.g., Arts. 2(2), 46(3) (sentence 1), 49(2), 58(3), 64(2) (“unless [the seller] does so...”). 73 This seems now to be the prevailing view. See the cases cited in the draft UNCITRAL digest at art. 7, ¶ 13; Achilles, supra note 10, at art. 7 no. 8; Honsell(Schnle), supra note 20, at art. 66 no. 32 ss.; Schlechtriem(-Ferrari), supra note 9, at art. 7 no. 56; Staudinger (-Magnus), supra note 9, at art. 7 no. 57; Witz/Salger/Lorenz, supra note 9, at art. 7 no. 31; cautiously also Schlechtriem, Internationales UN-Kaufrecht, supra note 9, at no. 50. But see, e. g., ICC Court of Arbitration, Case No. 6653, 1993, CLOUT case No. 103, also available at J.D.I. (1993); Bezirksgericht Saane, Switzerland, 20 February 1997, CLOUT case No. 261; Warren, Khoo, Article 2, in Commentary on the International Sales Law, supra note 9, at ¶ 3. 2. 72

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XII. Concluding remarks My conclusions can be short and rather simple. As far as the part of the Convention which I had to address is concerned, there appears to be no urgent necessity to amend the CISG. What does appear necessary is its uniform interpretation and application, and further steps in that direction. The publication of the draft CISG Digest – and hopefully of future revised and enlarged editions – is a welcome step in that direction.

335

General provisions, obligations of the seller, and remedies for breach of contract by the seller Henry Deeb Gabriel* The Convention on Contracts for the International Sale of Goods (CISG)1 is the very successful product of the United Nations Commission on International Trade Law (UNCITRAL). Twenty years after its initial promulgation, under the general editorship of five of the most prominent scholars in the area, UNCITRAL has embarked upon this ambitious effort to draft a Digest of the cases which have analyzed, interpreted and applied the CISG. In this paper, I discuss those parts of the digest that are concerned with the general provisions of performance in Part III,2 the obligation of the seller to deliver the goods and hand over documents,3 and the remedies for breach of contract by the seller.4

Article 25 The determination of fundamental breach5 is an essential prerequisite for many rights and remedies under the Convention, such as a party’s right to avoid the contract,6 the right to require delivery of substitute goods,7 and *

DeVan Daggett Professor of Law, Loyola University New Orleans. United Nations Convention on Contracts for the International Sale of Goods (1980) [hereinafter CISG or Convention]. 2 Arts. 25-29. 3 Arts. 30-34. 4 Arts. 45-52. 5 Article 25 states: “A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result”. 6 Arts. 49(1)(a) and 64(1)(a). 7 Art. 46(2). 1

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certain aspects of risk of loss.8 In general, Article 25 defines the line between the normal remedies for breach of contract, such as damages and price reduction, and the right to avoid the contract or demand specific performance of replacement goods. Because the effect of a fundamental breach is set out in the other provisions of the Convention, the cases dealing with Article 25 have almost universally addressed the question of whether the breach constitutes a fundamental breach. The cases are legion in this area, and it is very difficult to make anything other than broad sweeping generalizations about them as each case stands on its own particular facts and circumstances. And as soon as a trend is noted, it is easy to see what the possible reasonable exceptions will be. For example, where one might conclude from the cases that buyers cannot expect that delivered goods comply with the regulations and standards in the buyer’s country,9 this result would not be the same when the contract was express in setting out the firm requirements of the regulations. Because of this, the cases that analyze the question of whether there is a fundamental breach will continue to proliferate. There are a few questions raised by the Convention which are unanswered in the text and have begun to be answered in the cases. For example, although Article 25 requires the extent of the breach to be foreseeable, it does not state when the forseeability must occur. Consistent with general notions of contract principles that rights and obligations are created at the time of contract formation, the decisions have sensibly determined that the relevant time to determine forseeability is at the time of contract formation.10 It is also clear that Article 25 does not specify what type of breach is necessary for a fundamental breach, and therefore, although defective goods or late delivery or late payment alone will not necessarily constitute a fundamental breach,11 the decisions have found that all of these breaches

8

Art. 70. Bundesgerichtshof, Germany, 8 March 1995, CLOUT case No. 123; see also U. S. District Court for the Eastern District of Louisiana, United States, 17 May 1999, CLOUT case No. 418 (Medical Marketing International, Inc. v. Internazionale Medico Scientifica, S. R. L., 1999 WL 311945); Oberster Gerichtshof, Austria, 13 April 2000, available at http://www.cisg.law.pace. edu/cisg/wais/db/cases2/000413a3.html; Internationales Handelsrecht 2001, 117. 10 See, e. g., Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275. 11 See, e. g., Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171 (defective goods); Schweizerisches Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248 (defective goods); Corte di Appello di Milano, Italy, 20 March 1998, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=275&step=Abstract (late delivery); 9

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may do so in appropriate circumstances.12 In the circumstance of defective goods, there appears to be a general standard that there is not a fundamental breach as long as the buyer can use or resell the goods, irrespective of the fact that the buyer is entitle to damages.13 This is undoubtedly the correct result, and it is anticipated that the decisions will continue to analyze the question of fundamental breach irrespective of the type of breach involved. Although the Convention does not specify which party has the burden of proof on the question of substantial deprivation, the cases have uniformly held that the burden of proof is properly on the party claiming to have been harmed. At least one case has found that the burden of showing forseeability is on the breaching party to show the lack of forseeabilty.14 This holding, however, might not be applied universally. In the common law cases, there is a split of authority on whether forseeability is an element required in the proof of the breach or a defense to the breach. It is likely that this question will also create a split of authority in the cases covered by the Convention.

Article 26 That there is no form requirement for a notice of declaration of avoidance is consistent with the lack of any form requirements for contracts in the

Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275 (late delivery); ICC Court of Arbitration, Case No. 7585, 1992, CLOUT case No. 301 (late payment). 12 See, e. g., Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277 (the late delivery under a CIF sale was held o be a fundamental breach of contract); Corte di Appello di Milano, Italy, 20 March 1998, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=275&step=Abstract (in that case the buyer had ordered seasonal knitted goods and pointed to the essential importance of delivery at the fixed date although only after conclusion of the contract); ICC Court of Arbitration, Case No. 8786, January 1997, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/978786i1.html (ICC International Court of Arbitration Bulletin 2000, award No. 70); Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275 (late delivery constitutes a fundamental breach when the buyer would prefer non-delivery instead and the seller could have been aware of this). 13 See, e. g., Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171; Schweizerisches Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248; Cour de Cassation, France, 23 January 1996, CLOUT case No. 150; Oberlandesgericht Frankfurt, Germany, 18 January 1994, CLOUT case No. 79; Landgericht Landshut, Germany, 5 April 1995, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=121&step=Abstract; Oberlandesgericht Innsbruck, Austria, 1 July 1994, CLOUT case No. 107. 14 Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171.

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CISG.15 Thus, for example, an oral notice of declaration of avoidance has

been recognized.16 This, of course, raises in this particular context, the broader question of whether electronic notices are permissible under the CISG. Although there is much debate and work at UNCITRAL about the possibility of an international convention to provide for electronic contract formation, and possibly to expand the scope to include such performance aspects of contracts as notices, at best this project is several years from completion. Moreover, useful as the convention would be, it is not clear that it is needed to provide for electronic notices in the CISG, as the lack of a form requirement, either generally or in the particular context of a notice of avoidance, would appear to provide for electronic notices of avoidance under Article 26.17 This is an area that will likely develop in the cases, and I would suggest that the proper result will be to allow electronic notices.18 The question of whether the filing of a statement of claim could constitute notice is a more difficult issue. Although, as cited in the Digest, at least one court has found that it can,19 it would be dangerous to suggest this as a general proposition. In the case cited, the notice of avoidance was given by the seller under Article 63. The buyer had been placed under insolvency administration in violation of the contract and there was nothing either party could do to mitigate the breach. In the more common case of a fundamental breach on the part of the seller, the possible ability of the seller to cure under Article 48, combined with the buyer’s obligation to mitigate under Article 77, might restrict the ability of a party to claim that the notice under Article 26 was properly given by the filing of an action against the seller. To conclude otherwise would be to ignore the independent functions of the notice requirement under Article 26 in addition to notifying the opposing party of impending litigation. Moreover, because the notice requirement of Article 25 is tied in to the requirement in Articles 49(2) for an avoiding buyer and 64(2) for an avoiding seller, both requiring that the 15

See Art. 11. Secretariat Commentary on Article 24 of the 1978 Draft [became CISG Article 26], UN Doc. A/CONF. 97/5 (14 March 1979), in United Nations Conference on Contracts for the International Sale of Goods, Official Records, UN Doc. A/CONF.97/19 (1991), p. 27, para. 4. See also Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 11 May 1997, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/970511r1.html. 17 This, of course, does not apply to those states that have made an article 96 declaration and have a writing requirement under the CISG. 18 This, of course, is subject to the evidentiary questions of proof as well as the question of what constitutes delivery. 19 Federal Court of the South Australian District, Australia, 28 April 1995, CLOUT case No. 308. 16

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notice be given within a reasonable time, it will be a rare circumstance that the filing of a claim will meet the time requirements for the giving of notice. As for the content of the notice, because the CISG does not set up any specific content requirements, the problems have been and will likely continue to be the middle ground between very express statements of avoidance and actions that may implicitly suggest avoidance. Because the CISG sets up a two tiered notice structure that distinguishes between notice of non-conformity20 and notice of avoidance,21 the decisions have taken a fairly uniform view that the notice of avoidance under Article 26 must be quite clear in setting out that the aggrieved party not only has a legitimate complaint about the other party’s performance, but also that the aggrieved party must indicate the intent to avoid the contract.22 The question remains, though, what statements express this intent. Thus, for example, although one court noted that the buyer had effectively avoided the contract by communicating to the seller that it could not use sub-standard goods,23 it would appear dangerous to rely on such a notice alone, for it is not clear that this would universally be considered an expression of the intent to avoid the contract.

Article 27 The scope of Article 27 is somewhat limited. The rule that this article sets forth – the “dispatch” rule; in other words, that the risk of transmission is on the recipient – only applies to Part III of the Convention. For questions of formation in Part II of the Convention, the opposite assumption is made, and therefore the risk of transmission is on the sender.24 Moreover, the number of exceptions to the rule25 cover a host of potential communications. 20

Article 39 states: “The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it”. 21 Article 26 states: “A declaration of avoidance of the contract is effective only if made by notice to the other party”. 22 As noted in the draft Digest, though, a single communication could suffice to meet both notice requirements: avoidance and non-conformity. 23 Bundesgerichtshof, Germany, 25 June 1997, CLOUT case No. 235. 24 Arts. 15(1) and 18(2). 25 See Arts. 47(2) (notice to buyer from seller that the seller will not perform in the additional time provided by buyer); 48(4) (notice by seller of the intent to cure); 63(2) (requiring the seller not to resort to the remedy of breach of contract during additional time period); 65(1) (allowing the seller to supply missing information); 65(2) (requiring the seller to give notice to the buyer of missing terms and supplied terms and fixing additional time for

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Thus, what is left are notices of non-conformity or of third-party claims,26 requests for specific performance,27 price reduction,28 damages29 or interest,30 declarations of avoidance,31 the fixing of an additional period for performance,32 and the notices in Articles 32(1), 67(2) and 88. What is common about these articles that are included within the scope of Article 27 is that they generally apply to communications that are made by the aggrieved parties.33 There have been some problems with the language in the requirement that the communication must be ” by means appropriate to the circumstances”. Although there is no express requirement of the language in which a notice must be made, the cases have clearly indicated that it must be either the language of the underlying agreement or the language of the parties’ customary practice, and if neither exists, then the language of the recipient.34 This will presumably continue to be of some concern because of the informal nature of communications common in contract performance as opposed to the formal nature of contract formation. What we are likely to see as a new and larger concern under this article is the attendant problems that will arise from the growth of the use of electronic communications. The conflict will arise from the more common use of electronic communication with the still strong reluctance of judicial systems to recognize legal validity for these modes of communications. Moreover, with the rise of many domestic laws governing electronic commerce,35 as well as the work done by UNCITRAL both on the existing Model Law on

the buyer to correct the supplied terms); and 79(4) (requiring the party who fails to perform to give notice to the other party of the impediment and its effect on his ability to perform). 26 Arts. 39 and 43. 27 Art. 46. 28 Art. 50. 29 Art. 45(1)(b). 30 Art. 78. 31 Arts. 49, 64, 72, and 73. 32 Arts. 47 and 63. 33 With the exception of arts. 32(1), 67(2) and 88. 34 See, e. g., Oberlandesgericht Hamm, Germany, 8 February 1995, CLOUT case No. 132; Amtsgericht Kehl, Germany, 6 October 1995, available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=163&step=Abstract; Landgericht Kassel, Germany, 15 February 1996, CLOUT case No. 409. 35 See, e. g., National Conference of Commissioners on Uniform State Laws, Uniform Electronic Transactions Act (UETA) (1999) (recognizing legal barriers to electronic commerce).

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Electronic Commerce36 and the possible emerging convention on international electronic contracts,37 there is and will continue to be evolving conflicts in the rules governing what constitutes dispatch and receipt. These conflicts will be two-fold. First, there will be the conflicts (not between the CISG and the law governing electronic notices) that will arise when the court or arbitral tribunal must look to law external to the CISG to determine whether there has been in fact a “dispatch”. Obviously, the solution to this problem is not within the domain of the CISG, but instead must be resolved by the slow emergence of international uniform standards for electronic commerce on such questions as what constitutes “receipt”. A second potential problem is that which will arise if there evolve separate legal regimes that only govern electronic contracting and these new regimes have their own internal substantive rules that will conflict with the rules governing traditional paper based contracting. In these cases, there will be the potential of a duality of legal regimes for notices and other communications used in electronic transactions, and these rules may conflict with the substantive rules in the CISG, such as Article 27. To the extent that there continues to be a strong push toward the development of wholly separate sets of legal rules for electronic transactions, in those cases where the transaction is conducted through partially electronic and partially non-electronic mediums, these conflicts will persist, and they do not lend themselves to easy solutions.

Article 2838 Article 28 is the best example in the CISG of the compromises necessary to reconcile the common law and civil law traditions in a uniform international legal regime. This compromise, of course, was not new to the CISG, and Article 28 is primarily derived from Article 16 of the 1964 Uniform Law on the International Sale of Goods (ULIS). As with many articles of the CISG, 36 United Nations Commission on International Trade Law (UNCITRAL), Model Law on Electronic Commerce (1996) (noting that an increasing number of transactions in international trade are carried out by means of electronic data interchange and other means of communication, commonly referred to as “electronic commerce”, which involve the use of alternatives to paper-based methods of communication and storage of information). 37 There is presently an UNCITRAL working group studying this possibility. 38 Article 28 states: “If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention”.

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the effect of this provision can only be appreciated by noting the interplay between this section with other substantive provisions. Thus, to the extent that Article 28 applies, it restricts the right of the buyer to demand delivery of the goods or documents under Article 30, or to demand repair or replacement of defective goods under Article 46, or to demand other performance obligations assumed by the contract for sale. Likewise, to the extent it applies, it restricts the right of the seller to demand payment of the price from the buyer under Article 53 or to demand the buyer to take delivery of the goods under Article 60. For all of the speculation that this article would provide for all sorts of legal maneuvering and forum shopping,39 in fact there is only one reported decision on Article 28.40 This decision, not surprisingly, is from a common law jurisdiction, the United States. To the extent there might otherwise be some significant decisions from the United States on Article 28, given the recent proposed changes in the American domestic sales law which provide for the parties to agree upon specific performance as a remedy,41 this is likely to be less so. It is interesting to note from this one reported decision that the court simply looked to the domestic law governing remedies, and asked whether the remedy of specific performance would be provided for in a domestic contract. What the court did not do is ask whether, in a contract not governed by the CISG, the domestic private international law would have looked to the law of the jurisdiction of the other party. In other words, the court read the language “its own law” as not including the domestic conflicts of law rules governing private international law. This is consistent with what commen39 See Amy H. Kastely, Unification and Community: A Rhetorical Analysis of the United Nations Sales Convention, 8 Nw. J. Int’l L. & Bus. 615 (1988) (stating “[S]ince Article 28 makes the availability of specific performance dependent on the law of the forum, parties will be encouraged to forum-shop for a national court system that will or will not grant specific performance”.). 40 U. S. District Court for the Northern District of Illinois, United States, 7 December 1999, CLOUT case No. 417 (Magellan International Corp. v. Salzgitter Handel GMBH, 76 F. Supp. 2d 919). 41 The proposed changes to section 2-716 in Article 2 of the American Uniform Commercial Code provide that: “In a contract other than a consumer contract, specific performance may be decreed if the parties have agreed to that remedy. However, even if the parties agree to specific performance, specific performance may not be decreed if the breaching party’s sole remaining contractual obligation is the payment of money”. National Conference of Commissioners on Uniform State Laws, Proposed Amendments to Uniform Commercial Code Article 2 – Sales (Draft July-August 2002), available at www.nccusl.org.

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tators have long speculated the proper result should be,42 but for which there has been scant case or arbitral authority.

Article 2943 The importance of Article 29 is contained both in the substantive rule it sets out and in the form requirements with which it deals, and both of these present their own questions and problems. As for the substantive aspect of the rule that “a contract may be modified or terminated by the mere agreement of the parties”, this article is another example of the balancing act in the CISG between the common law and the civil law. As noted in the Digest, “[t]he provision does, and is intended to, abolish the doctrine of ‘consideration’ of the common law as far as the Convention applies”.44 This is a sensible result. Throughout the CISG there is an assiduous avoidance of either the civil law doctrine of “cause” or the common law doctrine of consideration as the basis for contract formation.45 Adding a “consideration” requirement for contract modification would be an awkward fit in the Convention.46 This, however, leaves open the question of what constitutes an “agreement” for purposes of Article 29. Neither the term “agreement” nor the term “contract” is defined in the CISG.47 Having no structural basis, such as the 42

See, e. g., John O. Honnold, Uniform Law for International Sales § 195 (3d ed. 1999); Peter Schlechtriem, Commentary on the U. N. Convention on the International Sale of Goods (CISG) 205-06 (1998). 43 Article 29 provides: (1) A contract may be modified or terminated by the mere agreement of the parties. (2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct. 44 Draft UNCITRAL Digest art. 29, ¶ 2. 45 Although given the requirement of the seller to deliver goods and the buyer to pay the price of the goods, particularly in the context that the CISG operates – international commercial contracts, it is unlikely that any formation of an agreement under the Convention would not meet both the requirements of cause as well as the requirements of consideration. 46 American lawyers have never felt any tension in this provision, as a similar rule has long existed in the domestic American law. U. C. C. § 2-209(1) provides that: “[a]n agreement modifying a contract within this Article needs no consideration to be binding”. 47 Neither is the term “sale” defined in the CISG.

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concept of “consideration” or “cause” for determining what a legally enforceable “agreement” is, some cases have looked to formation provisions of the CISG for guidance.48 Thus, for example, one German case, using article 18(1)49 by analogy, determined that mere silence by one party to a proposal to modify the agreement did not constitute acceptance of the proposal.50 This seems to be a sensible result in this particular case. Cases are suggesting a broader rule that all questions of what constitutes an agreement should be resolved by the formation rules in Part II seem over broad. There appears to be no reason to import formalities, such as the rules governing dispatch and receipt for contract formation, into the definition of “agreement” to modify the contract. It has to be kept in mind that section (1) not only deals with the substantive rule, but also the question of form. Article 29(1) has to be read in conjunction with Article 11, and therefore a modification need not be in writing or have any other specific form requirements.51 However, this default rule is overridden by article 29(2) which allows the parties to put in the agreement a “no oral modification clause”. This provision, of course, is just a particularized application of the general concept of party autonomy and freedom of contract, and the cases have generally shown no problems in its application. What has been interesting, though, is that at least one case has applied this principle to the related question of “parol evidence” – the question of whether evidence of prior or contemporaneous oral or written agreements is admissible to show the meaning of or additional terms of the final written agreement.52 This is a sensible decision. Although it is common to exclude this evidence in common law courts, the general assumption is that the CISG has no such restriction.53 But as a practical matter, parties often place such restrictions in the agreement, and just as it is common for parties to put in the 48

See, e. g., Oberlandesgericht Kln, Germany, 22 February 1994, CLOUT case No. 120. To the same effect, see Cour d’Appel de Grenoble, France, 29 March 1995, CLOUT case No. 153; Obergericht des Kantons Basel, Switzerland, 5 October 1999, CLOUT case No. 332. 49 Article 18(1) provides: “A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance”. 50 Oberlandesgericht Kln, Germany, 22 February 1994, CLOUT case No. 120. 51 This, of course, is subject to the possible limitations of Articles 96 and 12, and therefore in some states a writing or form requirement may be imposed despite Article 29(1). 52 ICC Court of Arbitration, Case No. 9117, March 1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/989117i1.html (ICC International Court of Arbitration Bulletin, 2000, 83). 53 See, e. g., Art. 8(3). 11th Circuit U. S. Court of Appeals, United States, 29 June 1998,

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agreement a “no oral modification clause”, it is also common for the parties to put a “merger clause” in the agreement that limits the admissibility of evidence of prior or contemporaneous agreements. Consistent with the policy that allows parties to agree to no oral modification, parties should also be allowed to agree to restrict evidence of prior or contemporaneous agreements.

Article 30 Article 30 is the first in a series of articles that set out the seller’s obligations.54 The simple rule that Article 30 puts forth: “The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention”, is significant in that it shows the primacy of the contract over the default terms of the Convention. Thus, when the parties use well-recognized shipping terms, such as the INCOTERMS,55 or there is an understood trade usage in the particular industry56 or course of dealing between the parties,57 it is appropriate to look to those sources first before relying on the CISG to determine the parties’ agreement. It is also important to note that, although a failure to deliver the required documents in an agreement otherwise governed by the CISG is a breach that is governed by the CISG, neither the form or validity of the documents or the commercial method for delivering them is governed by the CISG. Those issues are properly governed by law external to the Convention, and the specific law governing these issues is to be determined by the appropriate private international law. Overall, the cases have shown no problem with the application of Article 30, except for the question of what constitutes the “transfer of property” in the goods. Article 4(b) specifically excludes from the scope of the Convention “[t]he effect the contract may have on the property in the goods”. Thus, whether property rights have been transferred is not a question governed by the Convention, but is determined by the law designated by the rules of private international law of the forum. CLOUT case No. 222 (MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino S. p.A., 144 F.3d 1384). 54 Arts. 30-52. 55 See, e. g., Cour d’Appel de Paris, France, 4 March 1998, CLOUT case No. 244; Oberlandesgerichts Oldenburg, Germany, 22 September 1998, CLOUT case No. 340. 56 Art. 9(2). 57 Art. 9(1).

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An example of where this has been a problem, and is likely to continue to cause confusion, can be seen in the cases involving the financing of the sale of goods by the seller. For example, in Roder Zelt-und Hallenkonstruktionen GmbH v. Rosedown Park Pty Ltd.,58 the contract for sale had a retention of title clause.59 In this case, the Federal Court of Australia stated that whether the clause had been validly agreed upon in the sales contract and whether the retention of title constitutes a breach of contract has to be determined according to the rules of the Convention, although the question of whether there had been a valid retention of title at all was a question of local law. This seemingly straightforward division between the contract for sale and the question of the transfer of property rights brought the breach of the retention of title clause within the remedial structure of the CISG. Such a result would make no sense in the United States or the common law provinces of Canada where there is a wholly separate statutory framework for security rights in personal property that has its own internal remedial structure separate from the law governing the sale of goods. Moreover, this result would likely create problems in other jurisdictions in which the retention of property rights as a financing method for the credit sale of goods is treated as part of the contract of sale and not as a wholly separate legal regime. Such jurisdictions may still consider the rights retained in the goods a question to be resolved by the law of property and not the law of contract.

Article 31 Article 31, which provides for the seller’s obligation to deliver the goods at a specific place, broadly contemplates two situations: when the goods are to be shipped to the buyer by a third party carrier,60 and when the goods are to be delivered to the buyer without carriage by a third party.61 Article 31, as with most performance rules in the CISG, is a default provision, and therefore this article only applies when the parties have not expressly or implicitly agreed otherwise.62 Thus, when the parties use INCOTERMS or other generally 58 Federal Court for the South Australian District, Australia, 28 April 1995, CLOUT case No. 308. For a full discussion and analysis of this case, see Jacob S. Zeigel, Comment on Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Pty Ltd., in Review of the Convention for the International Sale of Goods (ed., 1998). 59 What North American law would refer to as a “conditional sales contract”. 60 Art. 31(a). 61 Art. 31(b) & (c). The Convention does not specifically mandate that the “carrier” must be an independent third party, but this requirement is generally recognized by the commentators, and the cases certainly have not suggested otherwise. 62 Oberlandesgericht M
nchen, Germany, 3 December 1999, available at http://www.cisg.

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recognized shipping terms, it has been generally understood in the cases that these terms govern over the CISG.63 However, since the Convention is the operative law of the overall agreement, there has been a tendency in the cases to write in a requirement that the burden to prove a derogation from the default rule is on the party claiming the derogation.64 Because of the very common practice of using shipping terms, there have been few cases which have actually relied on the default principles of Article 31(a), and for that reason questions regarding what precisely constitutes “handing the goods over to the first carrier” (in other words, what constitutes proper physical delivery), or whether the seller is also responsible for the acquisition of export licenses and taxes are left unanswered. Moreover, the cases are quite flexible in describing Article 31(a) as the operative provision when it is not really applicable at all, such as when the parties have used INCOTERMS to define the delivery responsibility.65 The Convention does not require the parties to designate expressly that the goods are to be shipped by carrier. This obligation may arise either out of trade usage or prior dealings between the parties, or simply out of geographical necessity. Thus, it may be necessary to determine whether the contract provides for shipment under Article 31(a) or whether the buyer had the obligation to take delivery from the seller at the place of manufacture or production (Article 31(b)) or the place of the seller’s business (Article 31(c)). However, because of either the prevalence of express terms in the agreement or the ability to glean under Article 8 a reasonable basis of party intent, there has been no real development of analysis on this point.

Article 32 Article 32 supplements Article 31 and further clarifies the seller’s responsibilities when the goods are to be shipped by carrier.66 This section, which is

law.pace.edu/cisg/wais/db/cases2/991203g1.html#cabc (Recht der Internationalen Wirtschaft 2000, 712). 63 See, e. g., Cour d’Appel de Paris, France, 4 March 1998, CLOUT case No. 244; Cour d’Appel de Paris, France, 18 March 1998, CLOUT case No. 245. 64 See, e. g., Amtsgericht Duisburg, Germany, 13 April 2000, CLOUT case No. 360. 65 See, e. g., Audiencia Provincial de Crdoba, Spain, 31 October 1997, CLOUT case No. 247. 66 Article 32 states: (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by

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derived from the Uniform Law on the International Sale of Goods (ULIS),67 has only been the subject of one reported case, and that case was resolved on the basis of domestic law rather than the Convention.68 In that case, the issue was whether the parties had agreed that the goods were to be transported by truck, as the buyer claimed, or whether the seller had the choice of the mode of transport. The court held that, as the CISG does not contain rules on the burden of proof, it is necessary to rely on the rules of private international law of the forum, which, in this case, led to the application of Swiss domestic law. Under that law, since the buyer was unable to meet the burden of proof evidencing an agreement to transport the goods by truck, the court found that the choice of transportation mode had been left to the seller.69 This case, of course, is a reminder of the broader question of the scope of the Convention, and that although the CISG has done much to bring uniformity to international commercial transactions, much of the practical legal issues that arise from the cases, such as procedural and evidentiary questions, are not resolved by the Convention, and will inevitably have to be resolved by non-uniform domestic law.

Article 3370 Although there have been some decisions based on Article 33, the decisions are by necessity fact specific and do not develop any specific doctrinal view points. This, of course, is because Article 33 is not really subject to much doctrinal analysis.

shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer’s request, provide him with all available information necessary to enable him to effect such insurance. 67 Article 32(1) is based on ULIS 19(3), and article 32(2) & (3) are based on ULIS 54(1) & (2). 68 See Bezirksgericht der Saane, Switzerland, 20 February 1997, CLOUT case No. 261. 69 Id. 70 Article 33 states: The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that

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Article 33(a) and (b) are particularized applications of Articles 6 and 30, and emphasize the primacy of the agreed upon contract terms for a time of delivery. As long as the date or period of delivery is fixed, the sole question under these paragraphs is whether the seller has factually met the required date or period, and this raises neither a question of interpretation of the contract nor of the CISG. When the date or period of delivery is not fixed by the contract, there arises the interpretation question of whether the date or period is determinable from the agreement. This, although not raising any question of interpretation of the Convention, does pose interpretative questions of the meaning and responsibilities under the agreement that are properly resolved under Articles 8 and 9. When the time of delivery is not agreed upon or determinable by the contract, the seller is required to deliver the goods within a reasonable time. This, too, is a case-by-case specific determination, and although there are cases that have determined what constitutes a reasonable time period under particular facts,71 these cases are only of the most general and rough guidance for future cases – cases that will inevitably be decided on their own facts.

Article 34 Article 34 is, in many respects, a provision designed to simplify other provisions of the Convention.72 Because modern commercial practices often anticipate the transfer of documents as well as the goods to effectuate the transaction, without this separate article, the other articles that deal with the delivery of goods would have had to contain additional references to the delivery of documents.73 period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract. 71 See, e. g., Tribunal Cantonal Valais, Switzerland, 28 October 1997, CLOUT case No. 219; Audiencia Provincial de Barcelona, Spain, 20 June 1997, CLOUT case No. 210; Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362. 72 Article 34 states: If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention. 73 This legislative history is set out in Honnold, supra note 42, at §§ 219-220.

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The Convention uses the generic term “documents” and does not require any specific documents as part of a documentary exchange of goods. As to what documents are involved in the transaction, this will normally be set out in the contract, either expressly, by the use of standardized shipping terms such as the INCOTERMS, or by custom and usage. Moreover, the documents required in the transaction also may be specified and supplemented by the requirements of the letter of credit if a letter of credit is used for the payment guarantee. As with the other articles that set out the seller’s general obligations, the primacy of the contract controls, and the time, place and manner as set out in the contract must be complied with. One area where this may raise some concern is where there has been an early tender of non-conforming documents and the seller attempts to cure the defect. Although Article 34 provides for this, it is a default rule and is only applicable if the contract does not provide otherwise.74 Thus, as is often the case, when the agreement sets out the time, place and manner of document delivery, the seller may lose the right to cure. To the extent that the seller has the right to cure, the question arises whether a breach for failure properly to deliver documents that would otherwise be a fundamental breach under Article 25 is still subject to the seller’s right to cure. To understand the context of this question, one must remember that the Convention suggests that the seller loses the right to cure when a failure in the delivery of the goods constitutes a fundamental breach.75 Some commentary, and a growing number of cases, have suggested that the seller retains the right to cure despite what would otherwise be a fundamental breach if the seller can cure without any unreasonable costs or inconvenience to the buyer.76 Likewise, consistent with this trend, at least one case has found that the seller retains the right to cure an improper tender of documents that would otherwise constitute a fundamental breach because the cure did not cause the buyer any unreasonable inconvenience.77

74

Schlechtriem, supra note 42, at 272. See Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277, reported by Robert Koch, The Concept of Fundamental Breach of Contract Under the United Nations Convention on Contracts for the International Sale of Goods, Review of the Convention on Contracts for the International Sale of Goods (CISG) 177354 (1998). 76 Cour d’Appel de Grenoble, France, 26 April 1995, CLOUT case No. 152; Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT case No. 282. See also Amtsgericht Ludwigsburg, Germany, 21 December 1990, reported by Koch, supra note 75, at 177 ff. 77 Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171. 75

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Article 45 Article 45 summarizes the buyer’s remedies in the various parts of the Convention and sets out how they are related.78 In addition, this article creates specific legal rights. Although subsection (1)(a) merely lists the rights the buyer has under Articles 46 through 52,79 subsection (1)(b) creates the buyer’s right to pursue damages under Articles 74 through 77.80 This is an important point, Articles 74 through 77 explain how the damages are to be measured, but give no right to pursue them.81 As pointed out in the draft Digest, these cases have not shown any difficulty in applying this rule, and

78 Article 45 states: (1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: (a) exercise the rights provided in articles 46 to 52; (b) claim damages as provided in articles 74 to 77. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract. 79 Although all of these provisions require a breach of an obligation, there are distinctions in the obligations these provisions create. Thus, articles 46(2), 49 and 51(2) require a fundamental breach. Article 49(1)(b) applies only in the case of a non-delivery. It is doubtful whether Article 50 extends to cases other than delivery of non-conforming goods. Article 51 is concerned with partial non-performance, and Article 52 deals with early delivery and with over-delivery. 80 There is a parallel provision for the seller. See art. 61(1)(b). 81 See, e. g., U. S. District Court for the Northern District of New York, United States, 9 September 1994, CLOUT case No. 85 (Delchi Carrier, SpA v. Rotorex Corp., 1994 WL 495787); 2d Circuit U. S. Court of Appeals, United States, 6 December 1995, CLOUT case No. 138 (Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 16 March 1995, CLOUT case No. 140; Cairo Chamber of Commerce and Industry (CRCICA), Egypt, 3 October 1995, English abstract available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=427&step=Abstract; Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166; ICC Court of Arbitration, Case No. 8247, June 1996, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/968247i1.html (ICC International Court of Arbitration Bulletin, 2000, 53); Bundesgerichtshof, Germany, 23 July 1997, CLOUT case No. 236; Schweizerisches Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248.

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the cases generally cite Article 45(1) as a predicate to get to the substantive damage provision.82

Article 46 Article 46 sets out the buyer’s right to compel the seller’s performance. Although the extent to which the common law restricts performance is often exaggerated, the common law is generally more restrictive than the civil law, and this article clearly favors the civil law preference for allowing specific performance. Article 46 is of course subject to the limitations in Article 28. As there has only been one case dealing with Article 28, there has not been any opportunity for the case law to develop on the interplay between Article 46 and Article 28.83 As noted in the draft Digest, Article 46 has not been the subject of many cases. This is due, to a large extent, to the fact that in international commerce the enforcement mechanism for specific performance generally lacks the speed of resolution necessary to make it as powerful a tool as it would be if there were more efficient methods of enforcing this right. Concomitant to the issue of how long it would take to enforce a request for specific performance, there is the question of how long the buyer has to request specific performance. Article 46(2) and (3),84 cover the request to repair or replace non-conforming goods, set out specific requirements that the buyer make the request for repair or replacement within a “reasonable time”. Because Article 46(1) has no such equivalent restriction, at least one decision has determined that the time the buyer has to require specific performance runs to whatever the underlying statute of limitations is for the 82

See, e. g., Handelsgericht des Kantons Z
rich, Switzerland, 5 February 1997, CLOUT case No. 214. 83 See supra notes 38-42 and accompanying text. 84 Article 46 provides: (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

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contract.85 It is assumed however, that this could not be a general proposition, and the requirements of commercial reasonableness and good faith would normally impose upon the buyer a commercially reasonable period in which to request specific performance under Article 46(1). The draft Digest notes that the ability of the buyer to demand replacement goods as opposed to the repair of non-conforming goods is dependent upon a finding of fundamental breach. Although there have been many cases on this question, they inevitably have been decided under Article 25 on whether there was a fundamental breach, or Article 49 on whether there was a right to avoid the contract. Because the question of whether there is a fundamental breach continually vexes the decisions, this undoubtedly will continue to generate much discussion in the decisions. An important question for purposes of Article 46 is whether the buyer’s right to demand repair requires a non-conformity. This issue likewise generally is resolved by looking outside of Article 46, and in this case by applying the standards of conformity under Article 35.

Article 47 Article 47 gives the buyer the right, but does not create the obligation, to allow the seller a reasonable additional time to perform the seller’s obligations. This right has the practical effect of allowing the buyer to avoid the contract under Article 49(b) if the seller does not comply within the additional time given. Because this article presupposes that there is a time set for performance, and the seller has either not met it or has indicated that the time will not be met, the two factual questions that arise from this article are whether the additional time granted by the buyer is reasonable, and whether the buyer has given clear notice to the seller that the seller has additional time to perform. Not surprisingly, many cases have addressed the question of what constitutes a reasonable time.86 Consequently, it is quite common for parties to rely on these cases to suggest that there has or has not been a reasonable time 85

Landgericht Mainz, Germany, 26 November 1998, CLOUT case No. 346. See, e. g., Audiencia Provincial de Barcelona, Spain, 20 June 1997, CLOUT case No. 210 (delivery time determined to be reasonable under the circumstances since contract contained no specific delivery date); Oberlandesgericht Saarbr
cken, Germany, 3 June 1998, CLOUT case No. 290 (perishable good reasonable time one day); Diritto del Commercio Inter86

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granted by the buyer in their respective cases. This cannot be a settled area, as each new case necessarily depends on its own individual circumstances. Thus, we will continue to see a growth of cases on this point. Whether the buyer must expressly state that he is giving the seller additional time has not been resolved by the cases. Although the drafting history of the Convention suggests that an express statement must be made,87 some cases have provided that when the buyer accedes to the seller’s request for a late delivery88 or simply does not complain about the late delivery,89 the buyer has implicitly given the seller the additional time provided by Article 47. Several cases have concluded that if the buyer sets an unreasonably short period of time for the seller’s late performance, this does not invalidate the buyer’s actions under Article 47, but merely triggers an additional period of what would be a reasonable extension of time for performance.90 Using this logic, at least one case has concluded that even if the buyer sets an unreasonably short extension of time for the seller to perform, if the buyer waits until a reasonable period of time has passed, the buyer is entitled to avoid the contract under Article 49.91 Whether these cases are consistent with the spirit of Article 47 is somewhat questionable because Article 47 places upon the buyer specific obligations in order to be able to exercise the right of avoidance under Article 49. One of these obligations is to set a “reasonable” period of additional time for the seller’s performance. To allow the buyer to exercise the right of avoidance without meeting the buyer’s express obligation may be seen as punishing the seller by taking away from the seller the right to have the reasonable period set before being subject to the sanction of avoidance. nazionale (1996) 631-632 No. 104 (Germany 1996) (a delay of notice of over twenty days not reasonable). 87 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, 39 (United Nations publication, Sales No. E. 81 IV. 3). 88 See, e. g., Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277; Cour d’Appel de Versailles, France, 29 January 1998, CLOUT case No. 225. 89 Audiencia Provincial de Barcelona, Spain, 3 November 1997, CLOUT case No. 246. 90 See, e. g., Oberlandesgericht Celle, Germany, 24 May 1995, CLOUT case No. 136; Landgericht Ellwangen, Germany, 21 August 1995, available at http://www.cisg.law.pace. edu/cisg/wais/db/cases2/950821g2.html#cabc; Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362. 91 Landgericht Ellwangen, Germany, 21 August 1995, available at http://www.cisg.law. pace.edu/cisg/wais/db/cases2/950821g2.html#cabc; Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362.

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Article 48 Article 48 sets out the seller’s right to cure defective performance after the time for performance has expired.92 The perennial question raised by this article is whether the seller retains the right to cure under this article when the buyer has a right to avoid the contract under Article 49. A literal reading of the Convention suggests the seller does not have this right, as Article 48 is prefaced with the clause “[s]ubject to article 49”, and this result is supported by substantial case law.93 Moreover, this result is suggested in the official commentary to the [Draft] Convention.94 Yet there is a growing body of commentary and cases that suggest that the seller’s right to cure under Article 48 supercedes the buyer’s right to avoid the 92 To the extent the seller has a right to cure prior to the time of performance, that right is contained in Article 37. 93 See, e. g., Pretura circondariale di Parma, Italy, 24 November 1989, CLOUT case No. 90; Oberlandesgericht Frankfurt, Germany, 17 September 1991, CLOUT case No. 2; Oberlandesgericht Oldenburg, Germany, 1 February 1995, CLOUT case No. 165; Bundesgerichtshof, Germany, 25 June 1997, CLOUT case No. 235; ICC Court of Arbitration, Case. No. 7531, 1994, CLOUT case No. 304. At least one court has gone further in supporting this result by noting that the seller’s right to cure is conditioned on the buyer’s permission. See ICC Court of Arbitration, Case. No. 7531, 1994, CLOUT case No. 304. This result may to be based on a misreading of paragraph (2) of Article 48, though. Paragraph (2) of Article 48 states that: “If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request”. CISG article 4(2) (emphasis added). The purpose of this section is not to require the seller to get the buyer’s permission, but instead, is designed to allow the seller to find out whether the buyer will accept the substitute performance. This is often necessary, for although the seller has the right to cure under paragraph (1), if this can be done “without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer”, the seller may not have sufficient information to know whether these requirements are met. The request to the buyer under paragraph (2) give the seller the protection of this knowledge. 94 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March - 11 April 1980, 40-41 (United Nations publication, Sales No. E. 81 IV. 3) (stating “5. If there has been a fundamental breach of contract, the buyer has an immediate right to declare the contract avoided. He need not give the seller any prior notice of his intention to declare the contract avoided or any opportunity to remedy the breach under [then] article 44. 6. However, in some cases the fact that the seller is able and willing to remedy the non-conformity of the goods without inconvenience to the buyer may mean that there would be no fundamental breach unless the seller failed to remedy the non-conformity within an appropriate period of time”.).

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contract under Article 49.95 This view has long been taken by some commentators, such as Professor Honnold, who suggest that there has not been a fundamental breach by definition in those cases where cure can be easily made.96 The trend in the cases has been to allow the seller the right to cure even in the face of what would otherwise be a fundamental breach if the cure can be easily made without any significant burden on the buyer. As this is consistent with the overarching policy in the Convention to keep contracts functioning, this trend is likely to continue.

Article 49 Article 49(a) sets out the right for and the requirements of one of the buyer’s most powerful rights – the right to avoid the contract. Because the right to avoid under Article 49(a) is based on either a fundamental breach under Article 25 or the failure of the seller to perform after being allowed additional time by the buyer under Article 47, and because the notice of avoidance is required under Article 26, the majority of the cases under Article 49(a) have been resolved on the collateral issues of whether the requirements of Articles 25 or 47 have been met and whether proper notice of avoidance has been given under Article 26.97 In those cases where the buyer has a right to avoid the contract under Article 49(1), if the buyer chooses to avoid the contract, Article 49(2) requires that the buyer do so within a reasonable time.98 There has been a proliferation of cases presenting this question. And, as noted by the discussion in the draft Digest, the decisions show no uniformity or particular 95

See, e. g., Landgericht Regensburg, Germany, 24 September 1998, CLOUT case No. 339. Honnold, supra note 42, at § 220. This is also supported in the cases. See, e. g., ICC Court of Arbitration, Case No. 7754, January 1995, available at http://www.cisg.law.pace.edu/cisg/ wais/db/cases2/957754i1.html (ICC International Court of Arbitration Bulletin 2000, 46). 97 The right of the buyer to avoid the contract is set out in Article 49(1): (1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed. 98 This provision distinguishes between late delivery and other kinds of breaches of contract. In case of late delivery the period starts when the buyer has become aware of delivery (art. 49(2)(a)). In case of other breaches, the reasonable period of time for declaring the contract avoided runs from when the buyer became aware of the breach or ought to have been aware of it, or after a period has expired set in accordance with Article 47(1) or Article 48(2). 96

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trend as to what constitutes a reasonable time. The only discernable pattern is that longer is more unreasonable than shorter. Thus, a period of five months after being informed of the breach was not a reasonable period for declaring avoidance.99 Neither was eight weeks.100 However, five weeks has been regarded as a reasonable period of time,101 as well as three weeks,102 and 48 hours.103 Because each case is fact-specific, future cases will continue to address the question of what is a “reasonable time”.

Article 50 Article 50 sets out the buyer’s right to reduce the price when the goods are non-conforming. This is an alternative to the measure of damages in Article 74. When such right is available, the price may be reduced by a portion of the contract price that has the “same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time”.104 This remedy is based on the actio quanti minoris of the Roman Law and has been adopted by various civil law legal systems, but is unknown in the common law. The practical effect of Article 50 is to give the buyer two advantages over the general remedy structure set out in Article 74.105 First, in those rare circumstances when the goods do not conform to the agreement, but the buyer is not entitled to damages (such as when the seller is exempted under Article 79 for impossibility), the buyer may still be able to reduce the price by an amount equal to the contract price multiplied by a fraction in which the numerator is the reduction in value caused by the non-conformity and the denominator is the value that conforming goods would have had. Second, in 99 Bundesgerichtshof, Germany, 15 February 1995, CLOUT case No. 124; see also Oberlandesgericht M
nchen, Germany, 2 March 1994, CLOUT case No. 83. 100 Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT case No. 282. 101 Oberlandesgericht Oldenburg, Germany, 1 February 1995, CLOUT case No. 165. 102 Oberlandesgericht Hamburg, Germany, 26 November 1999, CLOUT case No. 348. 103 Audiencia Provincial de Barcelona, Spain, 3 November 1997, CLOUT case No. 246. 104 Art. 50. 105 There has been some suggestion by commentators that the time of measurement of damages varied between Article 74 (at the time of delivery) and Article 50 (at the time the contract was formed). See, e. g., Eric E. Bergsten & Anthony J. Miller, The Remedy of Reduction of Price, 27 Am. J. Comp. L. 255-277 (1979). Nonetheless, the cases have sensibly rejected this distinction and correctly noted that under article 50, the relevant date for the comparison of values is the date of actual delivery and the relevant place is the place of delivery. See, e. g., Pretore della giurisdizione di Locarno Campagna, Switzerland, 27 April 1992, CLOUT case No. 56; Oberlandesgericht Graz, Austria, 9 November 1995, CLOUT case No. 175.

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the case where the value of the goods if they were as contracted for is less than the contract price, the reduction formula under Article 50 may provide a higher measure of damages than that accorded under Article 74.106 For the most part, the decisions have read this article sensibly and correctly. One area where there has been a gloss on the text is on the question of the notice of price reduction. Although price reduction under Article 50 is a selfhelp remedy that neither requires permission of the seller nor court approval, there is some authority that Article 50 further requires that the buyer declare the price reduction.107 Moreover, the cases have correctly noted that Article 50 presupposes that the buyer has given proper notice of the lack of conformity of the goods under Article 39 or 43.108 In addition, the decisions have also correctly reflected that because Article 45(2) provides that the buyer can combine several remedies under Articles 46 through 52, and therefore the buyer can also combine price reduction with a damages claim, if damages are claimed in combination with price reduction, damages can only be awarded for any loss other than the reduced value of the goods because this loss is already reflected by the price reduction.109

Article 51 Article 51 places a limitation on the buyer’s remedies in the case of part performance by limiting the buyer’s remedies under Articles 46 to 50 to that portion of the contract that has not been performed unless the part performance, in and of itself, constitutes a fundamental breach.110 106 This can be best understood by an example. Suppose the goods were contracted at a price of 25, but if they were conforming at the time of delivery, would only be worth 20. Further, assume the due to the non-conformity, the goods were only worth 15. Under Article 74, the measure of damages would be 5 – this being the difference between the value of the goods if the goods were conforming and the actual value of the goods. However, under Article 50, the buyer would be entitled to 6. 25. This figure is derived by dividing the contract price, which is 25 by the proportion of the difference between what the good should have been worth (20) and the actual value of the goods delivered (15). Since the proportional difference is 25%, the buyer can reduce the contract price by 25%, which yields 6. 25. 107 See, e. g., Oberlandesgericht M
nchen, Germany, 2 March 1994, CLOUT case No. 83. 108 See, e. g., Pretore della giurisdizione di Locarno Campagna, Switzerland, 27 April 1992, CLOUT case No. 56; Oberlandesgericht M
nchen, Germany, 11 March 1998, CLOUT case No. 232. 109 See, e. g., Schweizerisches Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248. 110 Article 51 states: (1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in

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Consistent with the general policy of the Convention to keep contracts functioning, as well as the more specific policy set out in this article that the buyer must accept the aspect of the contract that has been properly performed, the cases have been rather strict on finding a fundamental breach where there has been partial performance,111 while limiting this result to findings where the goods delivered are of no use to the buyer.112 Because Article 51(1) refers only to the remedies provided in Articles 46-50, the limitations set out in this article do not restrict the right of the buyer to remedies under the common remedies provisions of Articles 71 through 78, and these rights remain unimpaired and can be exercised in addition to or instead of the remedies referred to in Article 51(1). Thus, even if the buyer has lost its right to declare a part of the contract avoided because of lapse of time, the buyer may still be entitled to damages.113

Article 52 Article 52 recognizes the principle that even where the seller does more than is required by the contract, he has not properly performed, and therefore the buyer is entitled to appropriate recourse. Article 52 applies to two situations. First, when the seller delivers before the time fixed in the agreement,114 and second, when the seller delivers a greater quantity than is called for in the agreement.115 This article has raised very few questions, and there is a paucity of cases analyzing it.

conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform. (2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract. 111 See, e. g., ICC Court of Arbitration, Case No. 7660, 1994, CLOUT case No. 302. 112 See, e. g., Bundesgerichtshof, Germany, 25 June 1997, CLOUT case No. 235. 113 Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT case No. 82; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 23 November 1994, (award No. 251/93), available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=250&step=Abstract (stated as principle, but not applied to the case at issue because of a penalty clause). 114 Article 52(1) provides that “[i]f the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery”. 115 Article 52(2)provides that “[i]f the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity”.

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As to the question of early delivery, there often is the need for contract interpretation to determine whether a delivery date is actually fixed or is flexible or open, before a determination is made about early delivery. The cases have generally resolved this issue in accordance with Article 33.116 In the case of early delivery, the buyer has the option to accept or refuse delivery, but when the buyer accepts delivery, it is obvious, and the cases have recognized that in such circumstances the buyer has the obligation to pay the contract price for the accepted goods.117 This does not prevent the buyer from claiming any actual damages that are caused by the early delivery, such as additional storage costs.118 However, this is subject to a finding that the earlier delivery date did not constitute an agreed modification of the agreement under Article 29. This question of modification has not been discussed in the cases, but is certainly an issue that is likely to arise in the future. As for the question of excess quantity, this also may raise the interpretive issue; that being, whether the quantity delivered was within the amount permitted by the contract. Thus, for example, when the contract allowed for delivery “+/– 10%” and delivery remains within these limits, there is no excess quantity delivered.119 116

For the text of Article 33, see supra note 66. See, e. g., Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, CLOUT case No. 141. 118 Art. 45(1)(b). 119 Ontario Superior Court of Justice, Canada, 31 August 1999, CLOUT case No. 341. 117

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Cases, analyses and unresolved issues in Articles 25-34, 45-52 Alejandro M. Garro* On the various provisions assigned to this commentary – which focuses on the portions of the draft UNCITRAL Digest that were drafted by Professor Ulrich Magnus – the following discussion selects a few issues that have proven most challenging from an analytical standpoint or that simply remain unresolved. The discussion will start with Chapter I, Part III of the CISG, which includes a few provisions applicable to the sale of goods in general (Articles 25-29); followed by Section I of Chapter I, dealing with the seller’s obligations to deliver the goods and hand over the documents (Articles 3452); and ending with Section III of Chapter I, which covers the remedies given to the buyer for the seller’s failure to perform his obligations under the contract (Articles 45-52).

I. Articles 25-29 (Part III, Chapter I: General Provisions) A. Cases and analyses Within the scheme of remedies available to the buyer under the CISG, distinctions are drawn among specific performance, substitutional relief (money damages), price reduction, and avoidance of the contract. In the English terminology of the CISG, “avoidance” means putting the contract to an end due to the other party’s breach, preserving the liability of the latter. This concept in legal English is not uniform, for it is equivalent to “cancellation” under the Uniform Commercial Code1 and “termination” under the UNIDROIT Principles on International Commercial Contracts.2 Under the CISG the remedies available to the nonbreaching party do not turn on whether the breaching party has accepted, rejected, or ineffectively *

Professor of Law, Columbia University. UCC § 2-106(4) (2001). 2 UNIDROIT Principles of International Commercial Contracts (1994), art. 7. 3. 1. 1

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revoked its acceptance, but rather on the possibility of avoiding the contract. And avoidance (or termination) can take place only under one of two conditions: a “fundamental breach”3 or the breaching party’s failure to deliver conforming goods or pay the price within the reasonable additional time (the so-called “deadline” or Nachfrist period) set by the nonbreaching (injured) party. Notice of avoidance must be given in either case.4 The buyer’s right to require delivery of substitute goods presupposes a “fundamental breach”, a term which also has a bearing on the transfer of risk. The relevance of a shared understanding of “fundamental breach” cannot be overemphasized. According to Article 25, the nonperformance of a contractual obligation, in order to qualify as “fundamental”, must substantially deprive the obligee of what he is entitled to expect under the contract. The breaching party, however, must have foreseen that the breach would result in such deprivation of expectations. The main issue, therefore, is whether the breach did away with the aggrieved party’s justified expectations. What is the nonbreaching party “entitled to expect” under the contract, what result should the breaching party have foreseen, and when should it have foreseen it? Some issues are easier than others, and the case law throws some light on what is reasonable for a buyer to expect in case of breach by the seller and, vice versa, what is reasonable for a seller to expect in case of breach by the buyer. In case of breach by the seller, there are some clear-cut cases finding that the buyer’s reasonable expectations to get the goods are most likely to be fundamentally frustrated if the seller were to sell the goods elsewhere,5 or if a third-party claimant compels the buyer to surrender the goods. The main focus of inquiry is the buyer’s expectations, so if they may be satisfied with monetary compensation or a reduction in price there can be no room for avoidance of the contract. Similarly, if the goods are delivered burdened with a security interest, but the buyer is able to redeem the goods, or if he has not paid the price and can exercise the right of set-off, these are instances where the courts are unlikely to permit avoidance. Which “ordinary” characteristics should the goods have? The buyer’s expectations are paramount and are to be measured, in principle, by those 3

CISG, arts. 25, 49(1)(a), and 64(1)(a).

4

CISG, art. 26.

5

The buyer’s right to avoid under Article 49(a)(1) is clear in case of seller’s non-delivery, especially if seller sold the goods elsewhere. See Landgericht Dusseldorf, Germany, 17 November 1983.

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of a reasonable buyer from the same trade sector. A different situation may be presented, and the breach may more easily qualify as “fundamental”, if the parties have agreed on the quality of the goods6 or the buyer has expressly made known that the goods are required for a particular purpose.7 There is not much difference of opinion as to the timing of the foreseeability requirement, which goes back to the time the contract was concluded.8 The cases have also been fairly consistent that final non-delivery of goods, coupled with the buyer’s inability to buy the goods elsewhere, make a breach “fundamental”. More controversial are issues such as who has to prove what, and whether late performance, delivery short of full delivery, defective but repairable performance, or failure to perform an ancillary obligation may qualify as a fundamental breach. As to the burden of proof (i. e., burden of production – who has to come up with the evidence), there is authority to allocate it differently depending on the issue to be established. Thus, it has been held by a German court that the nonbreaching (aggrieved) party is the one who must establish that the nonperformance deprived her of what she was entitled to expect under the contract, and that the breaching party is the one who bears the burden of establishing that she did not foresee – and no reasonable person could have foreseen – the detrimental effect of the breach.9 Delay or late performance, as a rule, does not constitute a fundamental breach, because the obligee (promisee) can always fix an additional period of time, the lapse of which will turn a nonfundamental breach fundamental.10 There are exceptions, as when delivery is to be on a fixed date or when the goods to be sold are seasonal.11 Even where there was a fixed date, this was not an excuse for a German appellate court to abstain from delving into the facts. This fact-intensive search showed that the seller was not aware that time was of the essence of the contract, hence the seller could not foresee the result of the breach. In this case the contract provided for a fixed date for delivery of skirts and jackets. Although the seller failed to deliver on that date, an intermediate appellate court in Stuttgart convincingly held that it 6 7

CISG, art. 35(1).

CISG, art. 35(b)(2). See Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171 (available in ZIP 1996, 1041, 1044). 8 See, e. g., Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No 275. 9 Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171. 10 CISG, art. 49(1)(b) and art. 64(1)(b). 11 See Corte di Appello di Milano, Italy, 20 Mar. 1998, English abstract also available in Unilex at http://www.unilex.info (where a buyer of seasonal knitted goods expressly alerted the seller as to the importance of the fixed date for delivery).

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was not clear that the buyer had an absolute interest to have delivery made on that date and that, in any event, even if such an interest were found, it was not discernible to the seller.12 Is it possible to find a party in fundamental breach for having failed to perform only part of his obligations, as in the case of a seller who fails to deliver in full13 or a buyer who fails to pay one or more installments?14 There is consensus that the answer depends on the importance attached by the buyer to full delivery and, as to foreseeability, on whether the relevance of the failure to perform in part is apparent from the contract. What is not so clear is how much is needed for a partial non-performance to become “fundamental”. Does the seller’s failure to deliver between 10% and 50% of the goods free from defects amount to a fundamental breach? This is not clear, but it has been held (not surprisingly) that failure to deliver 80% of the amount ordered makes the breach fundamental.15 B. Unresolved Issues

1. Seller’s breach How defective must the seller’s performance be in order to amount to a ‘‘fundamental breach’’? Separating the scenario of a seller’s fundamental breach, as opposed to a buyer’s, I would place at the top of the list of unresolved issues one concerning delivery of non-conforming goods. There is consensus that there can be no fundamental breach on the part of the seller – hence no right to avoid on the part of the buyer – as long as the buyer can use or resell the goods without much inconvenience. A classic example is the Swiss case in which it was decided that a seller of frozen meat which contained too much fat and water, amounting to a 25% decrease in the quality contracted for, had not committed a fundamental breach, because the buyer could resell at a lower price or otherwise process the goods, so that monetary compensation was a fair remedy for the loss.16 Another case offering a similar line of reasoning is the Austrian decision holding that the seller does not commit a 12

Oberlandesgericht Stuttgart, Germany, 28 June 1988 (unpublished opinion cited in Peter Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG) 182 n. 61 (2d ed., 1998)). 13 CISG, art. 51(2). 14 CISG, art. 73. 15 Oberlandesgericht Koblenz, Germany, 18 May 1984 (finding a fundamental breach in a case where only 20% of the amount ordered was free from defects). 16 Schweizerisches Bundesgericht, Switzerland, 28 October 1998, CLOUT case No. 248.

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fundamental breach by delivering flowers which, though meant to bloom during the whole summer, did so only for part of it.17 Should the possibility of cure or repair to remove a defect, or of delivering substitutes, be taken into account in determining whether a breach is ‘‘fundamental”? The clash between the seller’s right to cure or repair, that is, to have a second chance to perform, and the buyer’s right to avoid the contract for fundamental breach should also be listed as an unresolved issue, for there are those who privilege one right over the other. One thing is certain: defective performance can be remedied, the buyer may not simply give an additional period of time to fix the defects with the view of turning the breach “fundamental” if the seller fails to remedy the defects within the given time.18 A fair reading of Article 48(1) may lead the interpreter to the conclusion that there can be no fundamental breach as long as there is still time to cure or repair and as long as the seller is in a clear position to do it – i. e., there is still time to cure or repair, the removal of the defects or delivery of substitute goods appears reasonable, and the buyer’s plans for the goods are fairly taken into account (i. e., as long as the buyer’s expectations are not frustrated by the time it takes to repair the goods). Others privilege the buyer’s right to avoid under Article 49(1)(a) over the seller’s right to cure under Article 48(1). The cases are more likely to turn on the seriousness of the breach and the ease with which repairs can be effected rather than on the wording of either Article 48(1) or 49(1) (a). Of course it should be clear that, while the possibility of cure will usually mean that the non-conformity does not amount to a fundamental breach, the mere fact that the non-conformity cannot be cured does not amount necessarily to a fundamental breach.

2. Buyer’s breach Buyer’s failure to pay the price. In this scenario we are faced with several examples of clear-cut cases of fundamental breach, such as if the buyer

17

Oberlandesgericht Innsbruck, Austria, 1 July 1994, CLOUT case No. 107. CISG Article 49(1)(b) refers to an avoidance in case of non-delivery within a so-called “Nachfrist” deadline, but not to a failure to remedy defects within the additional period of time. 18

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deliberately refuses to pay, becomes insolvent,19 or fails to pay one installment and it becomes obvious that he will be unable to meet subsequent installments.20 Delay in payment, however, only exceptionally amounts to a fundamental breach. Reluctance to grant the remedy of avoidance in this situation may be based in part on the possibility that the seller will pave a clearer path to avoiding the contract by fixing a period of time for payment under the “Nachfrist” procedure.21 Buyer’s failure to take delivery. I would classify it a fundamental breach if the buyer refuses or it is impossible for him to take delivery, in which case the seller should be free to avoid the contract, sell the goods in a cover transaction, and calculate his damages.22 On the other hand, in case of a mere delay in taking delivery, whether the breach is fundamental should depend on the significance that punctuality has for the seller. In cases of doubt, the seller should give the buyer an additional period of time to take delivery.23

3. Failure to perform ancillary obligations The fact that certain obligations are merely ancillary is not determinative of whether failure to perform them would make the breach “fundamental”. Thus, the failure to obtain certain permits, certificates or other documents, preventing the re-importation of the goods into the seller’s country, may well amount to a fundamental breach. That even a breach of a collateral duty may amount to a fundamental breach has been clearly established in a case in which the seller’s obligation to deliver goods under an exclusive trademark was punctually met, yet the seller substantially deprived the buyer of what he was entitled to expect by displaying the same goods at a fair.24 The seller’s failure to pack goods or to provide instructions to the buyer’s employees as to how to use the imported machinery were held to be nonfundamental breaches under Article 55 of ULIS, allowing only damages to the buyer.25 A similar turn of events may tilt the balance towards the nonfundamentality of the breach under Article 25 CISG, depending on the 19

See Federal Court, South Australian District Adelaide, Australia, 28 April 1995, CLOUT case No. 308. 20 See Handelsgericht Z
rich, Switzerland, 5 February 1997, CLOUT case No. 214. 21 CISG, art. 64(1)(b). 22 CISG, art. 75. 23 CISG, art. 64(2). 24 Oberlandesgericht Frankfurt am Main, Germany, 17 September 1991, CLOUT case No. 2 (English abstract also available in 14 J.L. & Com. 232 (1994)). 25 Oberlandesgericht Celle, Germany (Recht der Internationalen Wirtschaft 571 (1985)).

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relevance of such omission to the expectations of a particular buyer in a given set of circumstances.

II. Article 28 and the right to demand and obtain specific performance Article 28 presents a challenging issue, yet it has produced little case law, probably due to the fact that in commercial cases the parties content themselves with monetary compensation. The language of Article 28 has given rise to some debate, starting with the phrase “a court is not bound to enter specific performance unless the court would do so under its own law”. It seems clear that the language does not compel a court to follow its own law: if not bound to grant specific performance, the court nevertheless retains discretion to do so. What is not so clear is whether the court enjoys as much leeway as the lex fori gives the court in deciding whether to grant specific or substitutionary relief under domestic law, or whether the court must use the discretion that the CISG grants to it for the purpose of promoting uniformity in the application of the CISG.26 Following the latter line of reasoning, it has been argued that if the purpose of Article 28 is to promote uniformity in the application of the Convention, then the court should take into account the nationality or place of residence of the plaintiff for the purpose of ensuring that the plaintiff is granted the same type of relief it would have obtained on its own turf.27 This would mean that if a plaintiff coming from a civil law jurisdiction were to sue in the U.S., the U.K., or any other common law jurisdiction, Article 28 would encourage the common law court to grant specific performance so as to parallel what that plaintiff would have obtained if suing in its own country. There is no textual or historical support for this rationale, which appears to be based on a wrong assumption as to what prompted the adoption of Article 28. Actually, rather than seeking to promote uniformity, the motivation behind Article 28 was to save common law courts from the obligation of granting specific relief, as shown by an amendment introduced at the 1980 Vienna conference at which the final text of the CISG was adopted. Whereas a draft provision stated that a court is not bound to grant specific performance “unless the court could do so under its own law”, the 26 27

CISG, art. 7(1).

For an extended discussion as to the different approaches aimed at reaching uniformity of results under Article 28, see Peter Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG) 205-08 (2d ed., 1998).

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amendment (now the final text of Article 28) read “unless the court would do so under its own law”.28 In brief, Article 28 is a conflicts rule that leaves to the lex fori the question of whether to grant specific performance. Whether the reference to the tribunal’s own law, the lex fori, also includes the conflict of law rules of the forum has been another point of contention, for it has been argued that the word “law” includes the rules of private international law, which may lead to the application of foreign law on matters of remedies. According to this view, a court in a common law jurisdiction entertaining a dispute with contacts in a civil law jurisdiction, applying its own conflict of law rules, may be led to the granting of specific performance, as provided by the substantive law of that civil law jurisdiction that would be applicable in the absence of the CISG. This interpretation misses the point to the extent that it disregards, once again, the main reason behind Article 28, which was to save courts in common law jurisdictions from having to grant specific performance in cases in which it would be inappropriate to do so under common law principles.29 Such was the understanding of a U.S. court which is the only court that has had the opportunity to apply Article 28.30

III. Articles 26-27, 29: “Notice”, “writing” requirements and electronic

communications Article 26 requires a party intending to “avoid” the contract to provide the other side with notice. The case-law on and analyses of this requirement are fairly clear and consistent in the sense that any form of notice, including oral notice, will do,31 as long as the addressee gets a clear message that the sender

28

See the amendments proposed by the United Kingdom (A/CONF.97/C.1/L.113) and the United Sates (A/CONF.97.C.1/L. 117), available in Documentary history of the Uniform Law for International Sales 672 (John O. Honnold, ed., 1989) (emphasis added) [hereinafter “Documentary History”] at 672. 29 That the formula “under its own law” was meant to refer to the domestic, national, and non-conflict-of-laws rule of the forum (be it characterized as procedural or substantive) appears to be confirmed by the text in ULIS from which Article 28 derives (”.. . la loi du tribunal saisi...”). In case Article 28 were to be applied by an arbitral tribunal, it seems that the mandatory nature of the issue of remedies suggests the application of the law of the seat of the arbitration – where the arbitrators meet, the proceedings and hearings are conducted, or the award is rendered. 30 U.S. District Court for the Northern District of Illinois, United States, 7 December 1999, CLOUT case No. 417 (Magellan Int’l Corp. v. Salzgitter Handel GmbH, 76 F. Supp. 2d 919). 31 See Oberster Gerichtshof, Austria, 2 February 1995, CLOUT case No. 176.

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considers the contract terminated.32 The gray area concerns the “implicit” notice which a court would consider satisfactory enough to convey an intention to avoid the contract in unequivocal terms. A communication to the effect that the sender does not want to conduct any further businesses with the addressee has been held to constitute a declaration of avoidance.33 Similarly, the buyer’s placing of the goods at the disposal of the seller with notice that they are of no use to the buyer has been deemed adequate notice of avoidance.34 On the other hand, requesting a reduction in price,35 or merely returning the goods to the seller36 have been held insufficient to express an intention to avoid the contract. Article 27 adopts the dispatch rule as a general principle in Part III of the Convention,37 placing on the addressee the risks implicated in possible delay and errors in the transmission of the communication. This general principle has prompted a German court to place on the addressee the burden of proving the parties’ intention to adopt the opposite rule, in which case it is the dispatcher’s burden to establish that the notice was actually received by the addressee.38 The requirement of giving “notice” to keep the other contracting party informed or to indicate what the sender intends to do must be interpreted now in light of the pervasive use of electronic messages. One of the most pressing “unresolved” issues under the CISG relates to the appropriateness of electronic means of communication to satisfy notice requirements, including those set forth in Articles 26 and 27. Electronic communications were obviously not considered when the CISG was being drafted in the 1970’s. Legislative intent, however, is relevant but not necessarily controlling in construing the Convention, and it seems that electronic communication, as long as it is retrievable in perceivable form, should be deemed an “appropriate” means of communication at the dawn of 32

See Landgericht Frankfurt, Germany, 16 September 1991, CLOUT case No. 6. Bundesgerichtshof, Germany, 25 June 1997, CLOUT case No. 235. 34 Schiedsgericht Hamburger Freundschaftliche Arbitrage, Germany, 29 December 1998, CLOUT case No. 293. 35 See Oberlandesgericht M
nchen, Germany, 2 March 1994, CLOUT case No. 83, available in Recht der Internationales Wirtschaft 515 (1994). 36 See Landgericht Frankfurt, Germany, 16 September 1991, CLOUT Case No. 6. 37 CISG Arts. 25-89. For departures from this rule, adopting the “receipt principle”, see CISG Arts. 47(2), 48(4), 63(2), 65(1), and 79(4). 38 Landgericht Stuttgart, Germany, 13 Aug. 1991, English abstract also available in Unilex at www.unilex.info. See also Oberster Gerichtshof, Austria, 30 June 1998, CLOUT case No. 305; Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362. 33

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the 21st century. Fairness seems to demand, however, that the addressee have expressed somehow his willingness to accept electronic communications, either explicitly or implicitly.39 Accordingly, as long as the information conveyed to the addressee expresses the sender’s unequivocal intent to avoid or terminate the contract, an electronic message should satisfy Article 26. Similarly, an electronic communication should be deemed “appropriate in the circumstances” under Article 27, provided that the addressee has assented to receiving electronic communications of that type.

IV. Articles 30-34: Seller’s obligations to deliver the goods and hand over the documents Articles 30-34 are concerned with the place and time of delivery of goods and documents. Unlike in CISG’s predecessor (ULIS), there is neither a definition nor much discussion of what should be understood by “delivery”. The Secretariat’s Commentary and one German decision on the subject, however, provide a pragmatic, as opposed to conceptualistic, answer to this issue: the seller is deemed to satisfy his obligation to deliver as long as he performs all those acts required by Articles 31, 32, and 34 of the CISG.40 Article 31 deals with the place where the seller is bound to deliver the goods. This is an important provision, not only because it makes clear the seller’s obligation in this regard, but more importantly because it will often determine which national law applies to the contract in the absence of the Convention.41 It also helps the buyer determine, in the absence of a choice-of-forum clause, the proper court in which to file suit in case the seller 39 Acceptance of this means of communication may be shown under Article 8, governing the interpretation of the conduct of the parties, or Article 9, which may become relevant due to the use of electronic data interchange either as a course of dealing between the parties or a trade usage of which the parties were or ought to have been aware. For a more thorough analysis of the role played by electronic communications under several provisions of the CISG, see the first opinion by the Advisory Council of the CISG (“CISG-AC”), 15 Aug. 2003, Internationales Handelsrecht – IHR 2003, 244 ff. 40 UNCITRAL Secretariat Commentary on the 1978 Draft Convention, Document A/ CONF.97/5, art. 31, available in Document History, supra note 28, at 40-21; Landgericht Oldenburg, Germany, 27 March 1996. 41 Under the many domestic rules of private international law applicable to international contracts in many civil law countries, as well as some international conventions on this matter, the applicable law is the one in force at the place where the performance which is most characteristic of the contract in question has been or ought to be performed. The “most characteristic” performance is generally understood as the performance that does not involve the payment of money (a performance common to many types of contracts), which in a

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fails to deliver the goods or delivers nonconforming goods.42 Precision as to the place where the seller is to deliver the goods is also important for shifting to the buyer the risk of loss or damage to the goods.43 Placing the goods “at the buyer’s disposal” means what it says, as a German court held by articulating that the seller’s duty under Article 31(b) is to take all steps necessary under the contract to effect delivery. Otherwise Article 31 is sufficiently clear as to fend off much controversy as to what it means, so most judicial decisions revolve around the construction of contractual clauses meant to exclude Article 31 and fix a different place for the seller’s obligation to deliver the goods. Some judicial decisions have struggled with terms, such as the ICC INCOTERMS, adopted by the parties which are not clear as to whether they mean to change the place of performance or simply to allocate risks or costs.44 Helpful judicial analyses have stressed the importance of examining the circumstances of the case in order to ascertain whether the parties actually intended to agree on a place of performance other than those set forth in Article 31. Thus, the seller’s obligation to install the goods at a particular place has been construed as an implicit agreement to deliver at that particular place.45 contract of sale generally designates the law of the place where the seller’s obligation to deliver the goods is to be performed. 42 The seller’s obligation to deliver the goods, or to deliver conforming goods, varies according to whether the contract involves carriage of goods, or involves “specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced”, provided that, “at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place...” The general rule, however, is that the goods are to be delivered at the seller’s place of business. Under many jurisdictional rules, including those embodied in the Brussels Convention of 1968 (and 1988 Lugano Convention), the competent court is the one with jurisdiction over the place where the obligation sued upon, or the performance of which is sought, was performed, is to be performed, or should be performed. See Brussels Convention Article 5(1). 43 See Handelsgericht Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331; Landgericht Flensburg, Germany, 24 March 1999, CLOUT case No. 377. 44 For example, it has been argued that contracts including “F” or “C” INCOTERMS (e. g., FOB, CIF), involving carriage of goods, are subject to paragraph (a) of Article 31, so that delivery to the first carrier has been deemed the place of performance. See Secretariat’s Commentary, supra note 41, art. 25, ¶ 5, available in Documentary History, supra note 28, at 419. The adoption of other INCOTERMS such as “EXW” (“ex works”) and “DDP” (“delivered, duty paid”) may determine the parties’ intention to fix the place of performance at, respectively, the seller’s or buyer’s place of business. 45 Oberlandesgericht M
nchen, Germany, 3 December 1999, available in Recht der

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Another jurisprudential hint that should not go unnoticed is in Article 32(2), dealing with the seller’s obligation to “arrange” for the carriage of the goods. As long as the seller acts reasonably and with due care, he may choose the mode of transportation. So held a Swiss court in a case in which the buyer insisted that the goods be carried by truck, yet he was unable to prove that the seller had assumed the obligation to arrange for that mode of transportation.46 This issue is connected with the perennial question of the allocation of the burden to produce evidence, an issue which is not excluded from the scope of application of the CISG, yet an issue on which who must prove what is not self-evident. By and large courts have been acting quite sensibly on this matter. This was evidenced by the Swiss decision in which the buyer was unable to prove that the seller was bound to carry the goods by truck. Whereas Article 31 spells out where the seller is to perform his obligation to deliver the goods, Article 33 focuses on when such delivery is to take place. Paragraphs (a) and (b) of Article 33 provide for a situation where the contract has fixed either a date or a period of time within which the goods are to be delivered.47 In other cases, the fall back provisions in paragraph (c) calls for delivery “after a reasonable time after the conclusion of the contract”. What is reasonable under Article 33(c) receives the same answer as in other CISG provisions: whatever is reasonable “under the circumstances”. The guidance offered by the courts, therefore, can only be understood in light of the nature of the goods to be delivered and a myriad of circumstances not always clear from the factual narration by the courts or the excerpt of the decision that is published. With those limitations, it may be helpful to know that a Swiss court found reasonable the delivery of a bulldozer two weeks after the buyer received the invoice and paid the first installment.48 As is the case with other CISG provisions, the issue of the burden of proof has been adequately addressed whenever it came up before the courts. Thus, the party

Internationales Wirtschaft 712 (2000); Corte Suprema di Cassazione, Italy, 10 March 2000, available in Recht der Internationales Wirtschaft 308 (2001). 46 Kanton St. Gallen, Gerichtskommission Oberrheintal, Switzerland, 30 June 1995, CLOUT case No. 262. 47 The first inquiry is whether the parties actually intended to fix a date or period of time for delivery, an issue on which the language of the contract may not always be clear. For example, a contract concluded in January and calling for delivery in “April, delivery date remains reserved”, was held not clear enough to fix a concrete date of delivery, thus triggering the residuary “reasonable time” rule in Article 33(c). See Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362. 48 Tribunal Cantonal Valais, Switzerland, 28 October 1997, CLOUT case No. 219.

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asserting that there was an agreement for delivery to take place on a certain date must come forward with the proof of such agreement.49 As for the seller’s obligation to hand over documents, a subject addressed in Article 34, the main issues confronting the courts have concerned not the place, time and manner of handing over the documents, but rather the more basic questions as to which documents are to be delivered to the buyer. Failing an express indication in the contract, the answer to this question may be easier when the parties have adopted INCOTERMS for the contract50 or when there were practices established between the parties over the course of their dealings, or trade usages prevalent in that specific branch of trade.51 In the absence of those guidelines, one can find some comfort in the Secretariat’s comment to the effect that the documents to be handed over, as well as the time, place, and manner of handling them over, should be such as “allow the buyer to take possession of the goods from the carrier when the goods arrive at their destination, bring them through customs into the country of destination and exercise claims against the carrier or insurance company”.52 Generally, that type of “paper” in legal English is called a “document of title” and includes a bill of lading, dock receipt, warehouse receipt, etc. The word “documents” may also include, according to the Secretariat’s commentary, insurance policies, commercial invoices, certificates of origin, certificate of inspection or analysis, etc.53

49

Oberlandesgericht Naumburg, Germany, 27 April 1999, CLOUT case No. 362. See, e. g., Compromex Arbitration proceeding, Mexico, 29 April 1996, English abstract available in UNILEX at http://www.unilex.info; (holding that under an FOB contract the seller is bound to deliver a commercial invoice stating the quantity and quality of the goods); ICC Court of Arbitration, case No. 7645, 1995, available in ICC International Court of Arbitration Bulletin 2000, 34. 51 CISG, art. 9. 52 Secretariat’s Commentary, supra note 41, art. 32, ¶ 3, available in Documentary History supra note 28, at 421. 53 Secretariat Commentary, supra note 41, art. 32, ¶ 2, available in Documentary History, supra note 28, at 421. It has been held, however, that the buyer is not in a position to demand that the seller procure customs documents for the export of the goods, unless the contract expressly so provides. Kantonsgericht St. Gallen, Switzerland, 12 August 1997, CLOUT case No. 216. 50

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V. Articles 45-52: Buyer’s remedies in cases of breach by the seller Article 45 provides an overview of the remedies available to the buyer, but it falls short of enumerating all of them.54 Yet the more important message conveyed by Article 45 is that if the seller fails to perform, there can be no recourse to the remedies available to the buyer under the otherwise applicable domestic national law. To the extent the issue of remedies is covered by the Convention, the Convention reigns supreme.55 Another fundamental point, perhaps not expressly conveyed in Article 45, yet clear in the mind of those who drafted it, is that the seller’s failure to perform triggers liability regardless of notions of fault or negligence. The Convention focuses on the objective failure to perform, without possibility of exoneration save under Articles 79 and 80. In the remedial scheme provided by the Convention, as is made clear in Article 45(2), remedies are cumulative. Yet it is important to realize that Articles 46 through 51 provide different types of remedies depending on the type of breach or non-performance by the seller. Thus Article 46(2) deals with a fundamental breach relating to non-conforming goods and Article 49(1) deals with fundamental breach on account of non-delivery; price reduction, governed by Article 50, is triggered only by delivery of nonconforming goods; Article 51 focuses on partial nonperformance and Article 52 on early delivery and delivery of excess quantities. The most troublesome issues dealt with by the courts concern situations of delivery of non-conforming goods which, though seriously defective, are repairable, triggering the seller’s right to cure under Article 46(3) and 48. It is a fact-intensive inquiry to ascertain when a fundamental breach may occur despite the repairability of non-conforming goods, because the right to cure lies only if not unreasonable under the circumstances.56 Another bone of contention involves the additional period of time to which the buyer is allowed to fix for the seller to perform under Article 47. There is a string of German decisions that make it appear as if the buyer is bound in 54

See CISG, arts. 71-73, 84(1). See U.S. District Court for the Southern District of New York, United States, 10 May 2002, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/02051u1.html (Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236). 56 See Cour d’ appel Versailles, France, 29 January 1998, CLOUT case No. 225. For a discussion as to the tension between the seller’s right to cure the nonconformity of the goods the buyer’s right to terminate on account of fundamental breach, see supra, note 18 and accompanying text, at 365. 55

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some fashion to grant an addition period for performance, no matter how serious the seller’s breach, if the buyer wants to terminate or avoid the contract.57 If case-law were to be erected as an important tool to guide the uniform interpretation of the Convention, and court decisions were to be counted rather than weighed according to the persuasiveness of their reasoning, the buyer would have no right to avoid the contract except after fixing an additional period of time for delivery which the seller then fails to meet. 57

See e. g., Amstgericht Oldenburg in Holstein, Germany, 24 April 1990, CLOUT case No. 7; Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT No. 82; Oberlandesgericht Kln, Germany, 22 February 1994, CLOUT No. 120.

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Buyer’s obligation to give notice of lack of conformity (Articles 38, 39, 40 and 44) Harry M. Flechtner* CISG Articles 38 and 39, which govern a buyer’s obligation to examine

delivered goods and to notify the seller if they do not conform to the contract, are among the most heavily-litigated provisions of the Convention. There are several reasons for this phenomenon. One involves the manner in which Articles 38 and 39 are drafted. By necessity, the provisions employ flexible, and thus necessarily vague, standards. For example, Article 39(1) requires the buyer to give notice of lack of conformity within “a reasonable time” after the buyer discovers or “ought” to have discovered it. As one might expect, determining what constitutes “a reasonable time”1 and the circumstances in which a buyer “ought” to have discovered a lack of conformity are fertile sources of disputes. The question of when the buyer ought to have discovered a lack of conformity is closely connected to the buyer’s obligation under Article 38 to examine the goods – a provision that itself contains an uncertain deadline (the buyer must conduct the examination “within as short a period as is practicable in the circumstances”). Disputes over whether a buyer’s notice was detailed enough to satisfy the requirement of Article 39(1) that the notice “specify[] the nature of the lack of conformity” have also been common.

*

Professor of Law, University of Pittsburgh School of Law. A.B., 1973, Harvard College; M.A. 1975, Harvard University; J.D. 1981, Harvard Law School. 1 At the 1980 Diplomatic Conference in Vienna at which the text of the CISG was approved, several delegates fretted about the uncertainty of the “reasonable time” limitation in Article 39(1). See Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March – 11 April, 1980, 21st meeting, 25 March 1980, 567 (comments of Mr. Farnsworth, representing the United States), 567 (comments of Mr. Ghestin, representing France) & 568 (comments of Mr. Wang, representing China), U.N. DOC. A/CONF.97/C.1/SR.21, reprinted in Documentary History of the Uniform Law for International Sales 567 & 568 (John O. Honnold ed., 1989) [hereinafter Documentary History]. A French delegate to the conference predicted (accurately) that the determination of what constituted a reasonable time for notice would be “a fruitful source of litigation”. Id., Records of the 21st Meeting of the First Committee, ¶ 15.

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An even more important reason for the focus on the notice requirement in litigation is that Article 39 attaches very severe consequences to a buyer’s failure to comply with its requirements: the buyer “loses the right to rely” on a lack of conformity for which it did not provide the requisite notice. The dire punishment visited on a failure to notify made the rule in Article 39 one of the most contentious provisions taken up at the Vienna Diplomatic Conference that fashioned the final text of the Convention. Under the draft proposal that was brought to the Conference, the only palliative to the rule stripping the buyer of all remedies for failure to give proper notice was the provision that became Article 40 in the final text of the Convention: A seller cannot invoke a buyer’s failure to give notice as to a lack of conformity that arose from “facts of which [the seller] knew or could not have been unaware and which he did not disclose to the buyer”.2 The other CISG provision that softens the impact of a failure to give notice – Article 44 – was not a part of the draft Convention that was brought to the 1980 Diplomatic Conference, and was added during the course of the Conference as a result of a debate that is worth recounting. The severity of the notice rule in the draft Convention threatened to create a serious rift. Developing nations generally objected to punishing a failure to give the specified notice with sanctions that one delegate described as “draconian”.3 Developed countries, on the other hand, appear to have favored sanctions that would give a strong incentive for buyers to give the required notice. Proposals to soften those consequences were introduced by Ghana, and garnered substantial – although not majority – support.4 The matter was finally resolved after a working group, appointed to seek a compromise, came up with the proposal that eventually became Article 44, allowing a buyer to retain certain specified remedies if it had a “reasonable excuse” for its failure to give the required notice.5 Despite this ameliorating 2

This provision (which became Article 40 of the CISG) was adopted without substantive change. 3 Statement by Mr. Date-Bah (Ghana) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna, in Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March – 11 April, 1980, 16th meeting, 20 March 1980, ¶ 32, U.N. DOC. A/CONF.97/C.1/SR.16, reprinted in Documentary History, supra note 1, at 541. 4 See Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March – 11 April, 1980, 16th meeting, 20 March 1980, ¶¶ 32 ff., U.N. DOC. A/CONF.97/C.1/SR.16, reprinted in Documentary History, supra note 1, at 541-44. 5 See Summary Records of Meetings of the First Committee of the United Nations Diplomatic Conference, Vienna, 10 March – 11 April, 1980, 17th meeting, 21 March 1980, ¶¶ 1-19, U.N. DOC. A/CONF.97/C.1/SR.17, reprinted in Documentary History, supra note 1, at 544-45 and Summary Records of Meetings of the First Committee of the United Nations Diplomatic

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addition, the rule that emerged in the final text of the CISG is stark: a buyer who fails properly to notify the seller of a lack of conformity loses all remedies for that non-conformity unless the seller was aware of the lack of conformity and failed to disclose it, or the buyer had a reasonable excuse for its failure – and in the last case the buyer is still stripped of many of its most important and effective remedies. Thus, if the seller can successfully argue that the required notice was not given, it prevails over a buyer’s claim of lack of conformity, even if the goods did not in fact conform to the contract – making Article 39 a popular provision among sellers facing allegations that delivered goods were nonconforming. The lure of the Article 39(1) argument for a seller facing a claim of non-conformity was undoubtedly enhanced by decisions – primarily from German courts – that appeared to set very short time limits for the notice.6 Thus, a 1995 decision suggested that eight days after delivery would be the normal deadline for a buyer to discover and give notice of lack of conformity in durable, non-seasonal goods.7 Another relatively early decision indicated that notice would be due a few days after discovery of the lack of conformity.8 It should be noted, in fairness, that the German courts have increasingly accepted a theory that the normal time for giving notice is one month following the time the defect was or ought to have been discovered – an approach sometimes referred to as the “noble month” position.9

Conference, Vienna, 10 March – 11 April, 1980, 21st meeting, 25 March 1980, ¶¶ 1-28, U.N. DOC. A/CONF.97/C.1/SR.21, reprinted in Documentary History, supra note 1, at 566-68. See also Peter Schlechtriem, Uniform Sales Law: The U.N. Convention on Contracts for the International Sale of Goods 68-72 (1986), available at http:// www.cisg.law.pace.edu/cisg/biblio/schlechtriem-39.html. 6 See Draft UNCITRAL Digest art. 39, ¶¶ 20 & 22. 7 Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 167, also available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=117&step= Abstract. 8 Landgericht Landshut, Germany, 5 April 1995, English abstract by Camilla Andersen, available at http://www.cisg.law.pace.edu/, also available in Unilex at http://www.unilex.info/ case.cfm?pid=1&do=case&id=121&step=Abstract. 9 Bundesgerichtshof, Germany, 8 March 1995, CLOUT case No. 123; Oberlandesgericht Stuttgart, Germany, 21 August 1995, CLOUT case No. 289; Amtsgericht Augsburg, Germany, 29 January 1996, available at http://www.cisg.law.pace.edu/; Bundesgerichtshof, Germany, 3 November 1999, CLOUT case No. 319; Hungarian Chamber of Commerce and Industry Court of Arbitration, Hungary, 5 December 1995, CLOUT case No. 164 (suggesting acceptance of a notice period of approximately one month in general, but finding that facts of the particular case required quicker notice).

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Some opinions set surprisingly high standards for the level of specificity concerning the lack of conformity required in the Article 39 notice.10 For example, in one case the buyer had given notice specifying that stones for the facade of a building were mislabeled, that some stones and sills were not the proper size, and that the material provided for mounting the stones was defective. The court found the notice insufficiently specific, stating that the notice should have detailed which specific items were unlabelled, the quantity and specific items that were of the wrong size, and the exact quantity of stones that had been treated with the defective glue.11 My own view is that the standards for the timing and specificity of the Article 39 notice imposed by some of these decisions are too demanding on the buyer. Before focusing on where tribunals have gone wrong, I should note that in recent decisions tribunals have been liberal when determining the amount of time it would normally take a buyer to give notice after a lack of conformity is or should have been discovered. After all, it does not take a great deal of time to compose a notice describing a non-conformity, and a reasonable buyer will normally act quickly once it is aware of a problem. In fact, judged by the standard of how a reasonable buyer would behave, decisions suggesting that a buyer normally has a month after it discovers (or ought to have discovered) a lack of conformity to give the seller notice thereof12 seem overly generous. The idea that a buyer’s notice can normally be given rather quickly following discovery of a defect, however, is subject to an important caveat. A buyer’s notice of lack of conformity is often less a discrete event than a process, taking the form of a series of communications over time between the parties. It seems to me that the standards of Article 39 should be applied to the communications process as a whole, and that a buyer engaged, in good faith, in a dialogue with the seller concerning nonconforming goods should be judged by a lenient standard. For example, suppose a buyer gives an initial quick but rather vague notice of lack of conformity, followed later by notice with more specifics. It seems to me that, in judging whether the specificity standards in Article 39 were met, a tribunal should take into account the buyer’s second more detailed communication, and in deciding whether the notice was timely, the tribunal should take into account the earlier, less specific notice. Perhaps neither notice would, in isolation, satisfy Article 39 – the first being too vague and the second too late – but taking them out of context would not serve the purposes of Article 39 (as discussed below) and would not apply Article 39 in a fashion designed to promote the observance of good faith in international 10 11 12

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See Draft UNCITRAL Digest art. 39, ¶¶ 11-13. Landgericht Kln, Germany, 30 November 1999, CLOUT case No. 364. See the decisions cited in note 9 supra.

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trade, as mandated by Article 7(1). A German decision involving a delivery of paprika illustrates both the phenomenon of a buyer giving notice of lack of conformity by a series of communications with the seller, and a court willing to look at the entire communications process in determining whether the Article 39 notice standards were met.13 After the paprika was delivered, the buyer received information from its government that paprika from the seller’s state had been found to contain contaminants. The buyer conveyed this information to the seller and asked for assurances that the delivery was not contaminated. When the seller did not provide a formal confirmation of non-contamination, the buyer arranged for an expert to test the goods. A week after the expert’s report came back (34 days after the paprika had been delivered), the buyer notified the seller of the results, which indicated that the paprika contained contaminants. The court found that the buyer had discovered the non-conformity in a timely fashion, and had given proper notice thereof to the seller. The notion that the buyer’s notice of lack of conformity may take the form of a series of communications with the seller suggests another point – that the seller, whose alleged breach by delivering non-conforming goods is at the root of the dispute, should have some responsibility in the communications process. If, for example, a buyer’s initial notice was not sufficiently specific, should not a seller be expected to request the specific information it needs? Article 39 appropriately places the notice obligation on the buyer. But an interpretation of the obligation that would permit a seller who has delivered non-conforming goods to sit back and hope that the buyer loses its rights under Article 39 – and, indeed, even to promote that result by not responding to the buyer’s communications – surely does not promote the observance of good faith in international trade. In other words, Article 39 should be interpreted so that its specificity requirement is deemed satisfied by notice that gives the seller sufficient information to make further inquiries, provided such further inquiries would not unduly delay the seller. If the seller fails to make further inquiries, it would promote good faith in international transactions to permit the buyer to retain its claim of non-conformity. Indeed, the duty to communicate information needed by the other party has been recognized as a general principal underlying the Convention by both commentators14 and a recent decision of the German Bundesgerichtshof.15 13

See Landgericht Ellwangen, Germany, 21 August 1995, English translation available at http://cisgw3.law.pace.edu/cases/950821g2.html. 14 John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention § 100(b) (3d ed. 1999); Franco Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int’l & Comp. L. 183, 226 (1994). 15 Bundesgerichtshof, Germany, 31 October 2001, English translation available at http:// cisgw3.law.pace.edu/cases/011031g1.html.

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Thus, the proposed interpretation is also consistent with the rule in Article 7(2) governing the methodology for filling gaps in the CISG. Take, for example, the decision mentioned previously in which a buyer complained that stones for a building’s facade were mislabeled, of improper size, and not provided with proper materials for mounting.16 The court found the buyer’s notice insufficiently specific because it did not identify the individual stones that were problematic. But should the seller have no responsibility for asking for more specific information after receiving the buyer’s complaint? In another case, the court found that a buyer’s notice concerning a defective tractor (the only one the buyer had ever purchased from the seller) was not sufficiently specific under Article 39 because it failed to identify the serial number of the tractor. The court opined that the seller should not have to search its records to determine which machine was involved.17 Would it, however, have been unduly burdensome for the seller, who allegedly had sold an expensive piece of machinery that was defective, to ask the buyer to identify the serial number? Does the seller have no responsibility for communicating with the buyer in such situations? Of course, if a seller who has received notice that needs further fleshing out does make inquiries of the buyer, the responsibility for responding should be back on the buyer – again illustrating the importance of considering the entire process of communication between the parties. My point is that an interpretation of Article 39 that promotes good faith behavior on the part of both the buyer and the seller should be favored under Article 7(1).18 One reason why some decisions seem overly strict in applying the Article 39 notice requirement may involve tribunals’ tendency to read strict notice requirements from their own national sales law into the Convention (i. e., the “homeward trend”), thus violating the mandate of Article 7(1). More fundamentally, however, I believe the mistake derives from a failure to understand clearly the purposes of the Article 39 notice requirement, and from confusion about the role of the buyer’s duty to give notice in the overall system of the Convention. For example, I believe that, in determining how long the buyer has to give notice and how specific that notice must be, tribunals sometimes have been influenced by the credibility of the buyer’s evidence that the goods did not conform to the contract. In other words, 16

Landgericht Kln, Germany, 30 November 1999, CLOUT case No. 364. Landgericht Marburg, Germany, 12 December 1995, English translation available at http:// cisgw3.law.pace.edu/cases/951212g1.html. 18 Note that this point is based only on a non-controversial, literal reading of the reference to good faith in Article 7(1), and does not require that a good faith obligation be imposed directly on the parties – a position some have argued despite the lack of textual support in Article 7(1). 17

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some decisions appear to hold that a buyer’s notice was too late or too vague because the tribunal was skeptical about the factual basis for the buyer’s claim that the goods were non-conforming. Dismissing the claim on the basis of Article 39 was a “cleaner” and less antagonistic way to dispose of the matter than questioning the believability of the buyer’s allegations.19 Such credibility concerns are not proper considerations in determining whether the requirements of Article 39 have been met. A failure to satisfy Article 39 cuts off a buyer’s allegation of lack of conformity even if the buyer’s claim is completely meritorious. If a court holds that notice given within a particular period was too late because the court disbelieves the buyer’s claim, the court is establishing timing standards that will apply even when the buyer’s allegations are quite believable. The determination of whether a buyer has met the timing and specificity requirements imposed by Article 39 is simply the wrong point in the analytical process at which to consider whether the buyer’s evidence of lack of conformity is credible. That determination should occur when weighing the evidence, not when determining whether the prerequisites to the buyer’s claim have been established. Of course, the fact that the buyer has delayed complaining about the quality of the goods or has been vague in describing alleged quality problems may well raise questions about the credibility of the buyer’s allegations. Indeed, 19

See, e. g., Oberlandesgericht Koblenz, Germany, 11 September 1998, CLOUT case No. 285. In this case, the lower court dismissed the buyer’s allegations that plastic material it had tried to use in outmoded extrusion equipment (where it caught fire) was nonconforming. On appeal, the buyer raised a new argument – that the material was not suitable for use even in current normal methods of production. It seems apparent that the court was highly skeptical of the buyer’s new allegations – it noted that the plastic material has been on the market and in general use for many years – but it chose to dispose of the case by finding that the buyer’s notice of the alleged non-conformity, given three weeks after the buyer took delivery of the goods (albeit a little more than a month after the goods were made available to the buyer at the port of arrival), was too late. Although the buyer’s production equipment was not operational when the goods arrived, and the buyer gave notice to the seller the day after it first attempted to use the material in production, the court stated that the buyer was limited to one week for examining the goods followed by one week for giving notice. Another case that may involve (although less clearly) a court influenced by concerns over the credibility of the buyer’s claim of non-conformity is Amtsgericht Riedlingen, Germany, 21 October 1994, English translation by Dr. Peter Feurerstein and Ruth M. Janal, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/941021g1.html, where the buyer alleged that ham was not properly aged but the court found that the buyer’s notice – given 20 days after delivery – was too late (even though the court recognized that examination of the goods was delayed because of the Christmas holiday).

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several statements found in the travaux pre´paratoires of the Convention suggest a link between a buyer’s failure promptly to give the notice required by Article 39 and concerns about the credibility of the buyer’s claim of lack of conformity.20 In assessing the buyer’s proof that the goods did not conform to the contract, it may well be pertinent and proper to consider the implications of the buyer’s delay in notifying the seller that the goods did not conform or the buyer’s lack of specificity in describing the nonconformity – even if that delay was not sufficiently egregious to fail the requirements of Article 39. Consideration of the credibility of the buyer’s allegations of non-conformity, however, has no place in determining whether, as a threshold matter, the buyer has given notice that is prompt and detailed enough to satisfy the Article 39 notice requirements. The standards established for the timing and specificity of notice of lack of conformity must also apply to perfectly credible claims of non-conformity. In short, the purpose of requiring prompt and specific notice under Article 39 is not to establish the credibility of the buyer’s claim of lack of conformity, despite the support for such a view suggested by some statements in the Convention’s travaux pre´paratoires.21 Instead, the true purposes of the Article 39 requirement appear to be primarily two-fold: 1) to give the seller the information it needs for a proper opportunity to cure the problem, as permitted by Articles 37 and 48;22 and 2) to allow the seller to collect and/or preserve evidence relating to the lack of conformity.23 It has also been 20

See, e. g., the Secretariat Commentary on Draft Article 37(2) (corresponding to final Article 39(2)) (“Claims made long after the goods have been delivered are often of doubtful validity...”); Statement by Mr. Khoo (Singapore) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (“All would agree that the buyer should give notice of non-conformity, within a reasonable time, since otherwise the credibility of his claim might be questioned”.). Documentary History, supra note 1, at 542. 21 See supra note 20. 22 Statement by Mr. Date-Bah (Ghana) at the 21st meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (“the requirement for due notice by the buyer was an important aspect of the seller’s right to cure”); Documentary History, supra note 1, at 566. Statement by Mr. Hjerner (Sweden) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (arguing that a proposal to weaken the buyer’s obligation to give notice of lack of conformity “overlooked the duty of the seller to repair goods or to deliver substitute goods”); Documentary History, supra note 1, at 542. Landgericht M
nchen, Germany, 3 July 1998, CLOUT Case No. 3, English abstract available at 14 J.L. & Com. 225 (1995) and at http://cisgw3.law.pace.edu/cases/890703g1.html; Landgericht Erfurt, Germany, 29 July 1998, CLOUT Case No. 344, English translation available at http://cisgw3.law.pace.edu/cases/980729g1.html; Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT case No. 282, available at http://cisgw3.law.pace.edu/ cases/970131g1.html.

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suggested that prompt notice of allegations of non-conformity is required in order to protect the seller from losing its rights against its own suppliers for supplying defective goods.24 Forgetting the underlying purposes of Article 39 has led to a failure to recognize that the notice requirement is an instrumentality – a means to an end rather than an end in itself – and a secondary obligation under the CISG, as opposed to a primary focus of the Convention. The ultimate goal of the Convention is not to induce buyers to give the notice required by Article 39, but rather to validate the reasonable expectations of the parties to an international sales contract – for example, the reasonable expectations of the buyer and the seller relating to the “quantity, quality and description” of the goods purchased (see Article 35). Requiring buyers to give prompt and timely notice of a lack of conformity is merely an indirect means to promote 23 See, e. g., the Secretariat Commentary on Draft Article 37(2) (corresponding to final Article 39(2)) (“[W]hen the seller receives his first notice of [a claim of lack of conformity] at a late date, it would be difficult for him to obtain evidence as to the condition of the goods at the time of delivery...”); Documentary History, supra note 1, at 425; Statement by Mr. Hjerner (Sweden) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (“The main purpose of the rule was in fact to secure evidence in the case of dispute. If the seller were to establish the cause of the defects complained of, he would need to know of them at an early stage”.); Documentary History, supra note 1, at 542; Statement by Mr. Herber (Federal Republic of Germany) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (arguing that the provisions of what became Article 39 “were crucial because one of the main difficulties in cases of non-conformity was to secure proof”.); Documentary History, supra note 1, at 543; Statement by Mr. STALEV (Bulgaria) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (asserting that what became Article 39(1) “gave the seller an opportunity of ascertaining whether there was a defect in the goods as claimed by the buyer at the moment of the passing of the risk. Experience in arbitration cases on liability for defects showed how difficult it was to establish whether goods were really defective at that decisive moment”.); Documentary History, supra note 1, at 542; Statement by Mr. FARNSWORTH (United States of America) at the 21st meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (“If there was considerable delay in giving notice of lack of conformity, the seller might legitimately complain that evidence with regard to testing and testimony of relevant witnesses was no longer available for his defence in a suit brought against him by the buyer”.); Documentary History, supra note 1, at 567. 24 See the Secretariat Commentary on Draft Article 37(2) (corresponding to final Article 39(2)) (“[W]hen the seller receives his first notice of [a claim of lack of conformity] at a late date, it would be difficult for him ... to invoke the liability of a supplier from whom the seller may have obtained the goods or the materials for their manufacture”.). Documentary History, supra note 1, at 425.

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that end by helping the seller preserve its opportunity to cure, its access to evidence of lack of conformity, and its rights against its own suppliers. Many decisions, however, appear to elevate the giving of notice to an ultimate goal in itself. For example, a number of decisions have attempted to establish presumptive time periods for the giving of notice by imagining how long it should normally take buyers who were paying attention to examine goods and to give notice of problems discovered.25 When determining whether the buyer’s notice was sufficiently specific, decisions often focus on whether the buyer was at fault in not including more detail.26 Such decisions do not go on to ask whether the purposes of the notice requirement have been fulfilled. A seller might not have suffered the kind of harm that the notice requirement was designed to prevent even if the buyer acted negligently by giving notice that was tardier or less specific than should normally be expected. The consequences of a finding that the buyer failed to give proper notice are substantial: loss of all remedies for even the most real and serious non-conformities. Thus, a decision finding that a buyer has failed to fulfil its Article 39 notice requirements, even where the seller has suffered no prejudice because of tardy or vague notice, elevates a secondary and instrumental duty under the Convention to one that is on a par with, and even supercedes, a primary and ultimate duty under the CISG – the seller’s obligation to deliver goods that conform to the contract. The approach that focuses exclusively on the buyer’s behavior in giving notice without regard for the effect of the notice on the seller’s ability to cure, preserve evidence, or seek redress from its suppliers, is fundamentally flawed. It visits a buyer’s negligence in giving notice with the most catastrophic consequences – loss of all remedies for a lack of conformity – without regard for whether the purposes of the notice requirement or the Convention in general are served by such punishment. In my view, only when tardiness or vagueness in the buyer’s notice is likely to interfere with these purposes should the notice strip the buyer of its rights. Remember, even if the buyer is negligent, the seller allegedly has breached the contract, and that is a more central concern of sales law than the secondary duty of giving notice. The severe sanctions for violating Article 39 should not be triggered merely because the buyer has behaved negligently, in terms of the timing or 25

See Draft UNCITRAL Digest art. 39, ¶ 20. This appears to have been the approach in Handelsgericht des Kantons Z
rich, Switzerland, 21 September 1998, CLOUT case No. 252, available at http://cisgw3.law.pace.edu/cases/ 980921s1.html, and Landgericht Erfurt, Germany, 29 July 1998, CLOUT case No. 344, English translation available at http://cisgw3.law.pace.edu/cases/980729g1.html, both of which indicated that a professional or specialist would be held to a higher standards of specificity in giving notice. 26

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specificity of notice, but should come into play only if the seller is likely to have been prejudiced by the lack of adequate notice. Specifically, I suggest the following approach to determining whether a buyer’s notice of lack of conformity meets the requirements of Article 39. First, the tribunal should determine whether the buyer has given notice within the time, and with the specificity, that would normally be expected of one in the buyer’s position – a standard that is akin to a negligence standard. If the answer is yes, the buyer’s notice should be deemed adequate, since acting with reasonable care should be enough to preserve an aggrieved party’s rights. If the answer is no, however, I would not automatically find that the buyer has failed to comply with Article 39, as many decisions would apparently suggest. I would permit the buyer to show that the tardiness or vagueness of the notice did not interfere with the seller’s right to cure, to collect and preserve evidence, or to seek redress from its own supplier – i. e., that the notice did not prejudice the seller with respect to the purposes served by the Article 39 notice requirement. If the buyer could demonstrate that lack of prejudice, then its notice – although not as prompt or as detailed as would normally be expected – should still be deemed to have been given in “a reasonable time” and to have sufficiently “specif[ied] the nature of the lack of conformity” within the meaning of Article 39.27 Under this approach, a buyer would retain a strong incentive to meet reasonable standards for giving notice,28 since doing so would obviate the difficult task of proving lack 27

My suggested approach puts the burden of proving lack of prejudice from late or vague notice on the buyer. It does so, however, as a method for instituting my suggested interpretation of the substantive requirements for notice. I do not here take a position on whether the question of the burden of proof is one that in general is governed by the Convention. 28 Some delegates to the 1980 Vienna Diplomatic Conference at which the final text of the CISG was adopted defended the severe consequences for failing to give the requisite notice on the ground that the buyer needed a strong incentive to provide such notice. See the Statement by Mr. Trnning (Denmark) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (referring to “a danger that in the absence of a severe sanction of the kind provided in [the provision that became CISG article 39(1)], buyers would fail to give notice”); Documentary History, supra note 1, at 543; the Statement by Mr. Herber (Federal Republic of Germany) at the 16th meeting of the First Committee during the 1980 Diplomatic Conference in Vienna (complaining that a proposed amendment to what became Article 39 which would have lessened the sanction if a buyer failed to give proper notice of lack of conformity “could well prove to be too weak to ensure that the buyer made defects known to the seller as soon as possible in order to have them examined in time”); Documentary History, supra note 1, at 543. As the text accompanying this note indicates, however, under the approach I propose the buyer would retain a strong incentive to avoid negligence in giving notice of lack of conformity.

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of prejudice to the seller. The suggested approach, however, would reduce pointless punishment of the buyer for violating a secondary duty when the violation caused no harm. I wish to emphasize that what I am suggesting is an interpretation of the “reasonable time” and specificity requirements of CISG Article 39 to achieve the purposes behind the Convention’s notice provision – a goal that I believe is not achieved by the prevailing current interpretation of those requirements. Although Articles 40 and 44 serve to limit or mitigate the operation of Article 39, neither of those provisions addresses the concerns of which I speak. Under Article 40, a seller cannot invoke a buyer’s failure to examine goods as required by Article 38 or to give notice as required by Article 39, with respect to a lack of conformity that relates to facts of which the seller “knew or could not have been unaware and which he did not disclose to the buyer”. Under Article 44, certain remedies that a buyer would lose because it failed to give the notice required by Article 39(1) are restored if the buyer “has a reasonable excuse for his failure to give the required notice”. My concern, however, is for situations where the seller was not aware of a lack of conformity, and where the buyer has no “reasonable excuse” for failing to give the required notice, but where the buyer’s notice – albeit later and/or vaguer than would have been the case had the buyer exercised reasonable care in examining and giving notice of non-conformity – nevertheless can be shown not to have prejudiced the seller. Neither Article 40 nor Article 44 helps in this situation. Only a proper interpretation of Article 39(1) will do the trick. In suggesting this approach I might be accused of succumbing to the homeward trend: UCC § 2-607(3)(a), the notice provision in U.S. domestic sales law that parallels CISG Article 39, is in the process of being amended to provide that a buyer who fails to give timely notice of breach with regard to goods that have been accepted will lose its rights only if the seller proves it was prejudiced by the lack of notice.29 However, the current version of UCC § 2607(3)(a), which has been in force for many years and will likely remain so for at least several more, does not require proof of prejudice from lack of notice. Thus, I believe my views on Article 39 derive not so much from a tendency to see familiar domestic law in the provisions of the Convention (the homeward trend), but rather from being sensitized to the shortcomings

29

Proposed Amendments to Uniform Commercial Code Article 2 – Sales, Draft for Approval at the 2002 Annual Meeting of the National Conference of Commissioners on Uniform State Laws (NCCUSL), § 2-607(3)(a) (2002), available at http://www.law. upenn.edu/bll/ulc/ulc_frame.htm. This draft has been approved by NCCUSL and the American Law Institute (ALI), the two organizations that sponsor the UCC.

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of the current interpretation of Article 39 by my experience under similarlyflawed domestic law. I suspect that the failure to view the notice requirement of Article 39 as stating a secondary or instrumental obligation also underlies – or at least aggravates the consequences of – a curious application of Article 38 of the CISG found in several decisions. Some courts have stated that, in the case of a latent defect in the goods (i. e., one not obvious or reasonably discoverable when the goods are first received by the buyer), the question of when a buyer should have discovered the defect (for purposes of triggering the Article 39 obligation to notify the seller of the defect within a reasonable time) is governed by Article 38.30 These cases seem to conceive of the Article 38 examination as a continuous or ongoing process that is not finished until all latent defects have been revealed (or until the buyer can no longer complain about latent defects because, e. g., the two-year cut-off for notice under Article 39(2) has expired). I believe, however, that the examination of goods contemplated by Article 38 is a single, discrete event, to occur soon (i. e., “within as short a period as is practicable in the circumstances”) after the goods become available for examination by the buyer.31 Defects not discoverable during this initial examination – i. e., latent defects – are beyond the scope of Article 38. In other words, the buyer’s obligation to discover such latent defects should not be governed by Article 38, and 30

See Draft UNCITRAL Digest art. 38, ¶ 16. See also Bundesgerichtshof, Germany, 3 November 1999, CLOUT case No. 319, English translation available at http://cisgw3.law. pace.edu/cases/991103g1.html (the time for conducting the Article 38 examination of goods to discover latent defects in grinding device began when the goods broke down approximately three weeks after delivery); Tribunale di Vigevano, Italy, 12 July 2000, CLOUT case No. 378, English translation available at 20 J.L. & Com. 209 (2001) and at http://cisgw3.law.pace.edu/ cases/000712i3.html (“the time when the buyer is required to examine the goods under Art. 38(1) ... as a rule is upon delivery or shortly thereafter and only exceptionally may be later, for instance when the defect is discoverable only by processing the goods); Hoge Raad, the Netherlands, 20 February 1998, English abstract available in Unilex at http://www. unilex.info/ (implying that the period for examining for latent defects in floor tiles began to run when buyer’s customer complained, some seven months after seller delivered the tiles to buyer); Landgericht D
sseldorf, Germany, 23 June 1994, English abstract available at http:// www.unilex.info/ (suggesting that period to examine engines for latent defects did not begin until buyer had installed and put goods into operation); Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, available at http://www.law.kuleuven.ac.be/int/tradelaw/WK/1997-0627.htm (time for examination of goods and notice of lack of conformity was extended for goods that had to be processed before defects could be discovered (dicta)). 31 Subsections (2) and (3) of Article 38 deal with special situations where a buyer can defer examination of the goods because the goods are not genuinely available for examination immediately after delivery.

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several decisions have in fact recognized this.32 Rather, the buyer’s obligation to discover latent defects is implied and governed by Article 39(1) itself, in the language requiring a buyer to give notice of lack of conformity (including latent lack of conformity) within a reasonable time after the buyer “discovered or ought to have discovered it” (emphasis added). Applying Article 38 to the discovery of latent defects can cause confusion, and it raises an unfortunate implication that a buyer, even after having conducted an adequate initial examination of the goods, remains obligated to continually examine them to check for latent defects. I do not believe this is how buyers normally behave, nor do I believe that they should be required to behave this way. Once the buyer has conducted the initial examination of the goods and determined that they apparently conform to the contract, the buyer should normally be free to use or resell them without continually probing for underlying defects. Of course, if a buyer becomes aware of facts, such as a malfunction of the goods, suggesting the possibility that the goods have a latent defect, the buyer must pursue an investigation or run the risk that it will not discover the defect in time to permit notice of the defect within a reasonable time after it “ought to have discovered it”, as required by Article 39(1). Applying the provisions of Article 38 to latent defects, furthermore, would apparently require that a buyer’s continuous examination for such defects be conducted “within as short a period as is practicable in the circumstances”. This suggests that if it was “practicable” for the buyer to have discovered a latent defect before it actually did, the buyer’s discovery came too late. Under this standard, once again, the buyer runs the risk of losing its right to complain of a latent lack of conformity unless it continuously probes the delivered goods in order to discover such defects at the earliest “practicable” moment. Thus, the misapplication of Article 38 to the discovery of latent defects that do not come to light in an initial examination of the goods following their delivery threatens to place an excessive burden on the buyer, and thereby to elevate unduly the significance of the buyer’s duty to discover and give notice of such defects. It also reinforces the wrong notion that the giving of timely notice is a primary, fundamental duty under the CISG, rather than a secondary, instrumental duty. In short, I believe that many – perhaps a majority – of the existing decisions applying Articles 38 and 39 misconceive the nature of the duty to examine goods and to give notice of lack of conformity found in those provisions. Those duties should not be treated as fundamental and primary obligations of the buyer, but as secondary and instrumental duties – means to the ends of 32

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See Draft UNCITRAL Digest art. 38, ¶ 17.

Buyer’s obligation to give notice of lack of conformity

the CISG, rather than ends in themselves. Failure to keep in mind the secondary nature of these duties has led some courts to apply the requirements of Articles 38 and 39 in an overly zealous fashion that may visit a buyer’s failure to provide proper notice with the most dire consequences, even if the buyer’s lapse caused no harm. That is a miscarriage of justice that presents a more than trivial threat to the achievement of a workable and widely-accepted system of international sales law.

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Article 79 and a transactions test analysis of the CISG Ronald A. Brand* I. Introduction This book celebrates a milestone in the life of the United Nations Convention on Contracts for the International Sale of Goods (CISG or “Convention”): the coming of an official catalogue of cases from around the world that have interpreted and applied the CISG. This provides an opportunity to critique whether the CISG has met the initial test of its application in litigation throughout world. This is not, however, the only method for testing the value of a commercial code. The rules of any commercial code must satisfy the litigation test and prove their value when called into application in the courts. But it is not just litigators who use those rules. In order to have real value such rules must prove their worth to those who structure commercial transactions; they must pass the transactions test as well. A transactions analysis of the CISG often begins with a discussion of the Article 6 authorization to opt out (“derogate from”) the Convention’s rules.1 In fact, for parties sophisticated enough to understand when the Convention will apply to a transaction, anecdotal information suggests that the common practice is to choose an applicable law other than the Convention when that is possible.2 Other Articles are important to drafting considerations, however, and not the least of these is Article 79. This Article serves as a useful focal point for the lawyer drafting a contract for a transaction that falls within the scope of the Convention. Thus, in this chapter I use Article 79 in applying a transactions analysis to the CISG. This will include reference to commentary of the mid-twentieth century on international sales and doctrines of excuse for non-performance, as well as to commentary and cases to date interpreting Article 79. Ultimately, this inquiry considers *

Professor of Law and Director, Center for International Legal Education, University of Pittsburgh. 1 Article 6 provides that parties to a contract “may exclude the application of this Convention or ... derogate from or vary the effect of any of its provisions”. 2 See, e. g., V. Susanne Cook, CISG: From the Perspective of the Practitioner, 17 J. L. & Com. 349-52 (1998).

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whether Article 79 moves us forward in terms of the ability of parties entering a commercial relationship to plan for unexpected circumstances and knowingly allocate the incumbent risks. More importantly, it demonstrates the value of the UNCITRAL Digest to transactions lawyers as well as to litigators.

II. The basics of Article 79 Article 79 provides a rule authorizing excuse for non-performance that is a compromise between the strict approach of the civil law and the more liberal “commercial impracticability” approach of the U. S. Uniform Commercial Code. Paragraph (1) of Article 79 provides that either party to a sale of goods transaction may escape liability for damages upon that party’s failure to perform any obligation under the contract if (1) the failure is “due to an impediment beyond his control”, (2) at the time of the contract the party “could not reasonably be expected to have taken the impediment into account”, and (3) the party subsequently could not reasonably be expected “to have avoided or overcome” the impediment “or its consequences”. This differs in several ways from the approach of the Uniform Commercial Code. UCC § 2-615 provides excuse only for the seller, and only as to two aspects of performance: “delay in delivery” and “non-delivery”.3 Under CISG Article 79(1), on the other hand, either party may be excused from liability for damages, “for a failure to perform any of his obligations”. Thus, while the threshold test for excuse under the CISG may be stricter than that found in the UCC, its benefits are available in a wider set of circumstances. At the same time, however, paragraph (5) of Article 79 limits these benefits to 3

UCC § 2-615 Excuse by Failure of Presupposed Conditions: Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraph (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in Paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. ...

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escaping the obligation to pay damages and does not prevent the other party “from exercising any [other] right” available under the CISG.4 The compromise nature of Article 79 has led commentators to question whether the rules it establishes provide real clarity for parties to a commercial transaction. Professor Honnold has gone so far as to suggest that “Article 79 may be the Convention’s least successful part of the halfcentury of work towards international uniformity”.5 Others have described Article 79 as “one of the most difficult in the whole convention”,6 and have stated that “the flexible terms of Article 79 will always leave considerable room for judicial appraisal”.7 These concerns with the “elastic words”, “flexible terms”, “contradictions”, and “ambiguities” of Article 798 have led to repeated recommendations that parties draft carefully so as not to have to rely on the rules contained in its terms.9 If the result is a total opt out of the Convention under Article 6, then the question becomes how a contractual excuse clause is to be read in conjunction with the resulting applicable law. That is an issue for another day and another conference. Here, however, it is worth considering how a contract otherwise governed by the CISG, but including an explicit “force majeure”, “hardship”, “impossibility”, or “impracticability” clause will be

4

CISG art. 79(5). These rights include those found in Articles 46, 49, 50, and 78. While Article 79 clearly provides for excuse for non-performance, the debate is still out on whether it also covers excuse for defective performance. Compare John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention § 427 (3d ed. 1991) (“exemption applies only to impediments that prevent performance (as contrasted with circumstances that lead to defective performance)”) (emphasis in original) with Joseph Lookofsky, Fault and No-Fault in Danish, American and International Sales Law: The Reception of the 1980 United Nations Sales Convention, 1983 Scandinavian Studies in Law 180 (“Art. 79’s theoretical applicability to defects is ... no cause for buyers to panic”). 5 Honnold, supra note 4, at § 432. 1. 6 Ziegel, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods 150-151 (July 1981), cited in Albert H. Kritzer, International Contract Manual: Guide to UN Convention 623 (Supp. 9 Apr. 1994). 7 C. Massimo Bianca & Michael Joachim Bonell, Commentary on the International Sales Law: The 1980 Vienna Sales Convention 595 (1987). 8 ”Embarassment of choice among types of flexibility” reported in Barry Nicholas, Force Majeure and Frustration, 27 Am. J. Comp. L. 242-44 (1979). 9 See, e. g., Honnold, supra note 4, at § 432. 1 (the language of Article 79 “calls for careful, detailed contract drafting to provide solutions to fit the commercial situation at hand”); Kritzer, supra note 6, at 624 (“The recommended response is explicit contract attention to the subject”.).

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interpreted, and thus how best to draft such a clause to serve a client’s interests.

III. The debate over strict and liberal excuse doctrine Doctrines dealing with when, if ever, a party to a commercial contract may be excused from its promised performance as a result of events outside the contractual relationship have produced some of the most interesting and conflicting commercial law decisions and commentary of the past century.10 Thus, the application and analysis of Article 79 of the CISG is important both to concerns for systemic rules and to practical decisions regarding the drafting of contract provisions. In the mid-twentieth century, a series of cases resulting from the closing of the Suez Canal provided grist for commentary on doctrines of force majeure.11 The resulting debate can be demonstrated through writings representing the two ends of the spectrum in that debate. One end of that spectrum is represented in an early article by Professor John Henry Schlegel, 10 See, e. g., Robert L. Birmingham, A Second Look at the Suez Canal Cases: Excuse for Nonperformance of Contractual Obligations in the Light of Economic Theory, 20 Hastings L. J. 1393 (1969); Michael G. Rapsomanikis, Frustration of Contract in International Trade Law and Comparative Law, 18 Duq. L. Rev. 551 (1980); Richard E. Speidel, Excusable Nonperformance in Sales Contracts: Some Thoughts About Risk Management, 32 S. C. L. Rev. 241 (1980); John D. Wladis, Common Law and Uncommon Events: The Development of the Doctrine of Impossibility of Performance in English Contract Law, 75 Geo. L. J. 1575 (1987). 11 See, e. g., House of Lords, England, 15 February 1961, (Tsakiroglou & Co. Ltd. v. Noblee Thorl G. m. b.H, [1962] A. C. 93 (H. L.)) (excuse was not available for seller of groundnuts from Sudan to Hamburg where shipment via Suez Canal was no longer possible and carriage would have to be via the Cape of Good Hope); Queen’s Bench Division, England, 25 October 1963, (Ocean Tramp Tankers Corp. v. V/O Sovfracht (The Eugenia), [1964] 2 Q. B. 226) (the blocking of the Canal did not bring about so fundamentally different a situation as to frustrate a time charter contract); Queen’s Bench Division, England, 12 May 1960, (Societe Franco Tunisienne D’Armement v. Sidermar S. P.A, [1961] 2 Q. B. 278) (charter-party (freight contract) frustrated by closure of the Suez Canal in light of express provisions of the contract and the surrounding circumstances); Queen’s Bench Division, England, 3 July 1958, (Carapanayota & Co., Ltd. v. E.T Green Ltd., [1959] 1 Q. B. 131) (excuse granted where sales contract was frustrated by closure of Suez Canal and obligation to ship by an emergency route via the Cape would impose a fundamentally different obligation on the seller). For a U. S. case, see 2d Circuit U. S. Court of Appeals, United States, 26 February 1960 (Glidden Co. v. Hellenic Lines, Ltd., 275 F.2d 253) (evidence taken regarding conduct in negotiating the charter contract without the usual frustration provision held to make clear that nonperformance of the contract would not be excused).

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who suggested a liberal doctrine of excuse that would seek fairness in allocating the costs of unforeseen circumstances between the parties. This “implied term” theory assumes that parties – particularly those using form contracts – do not engage in a “complete allocation of risk”, and that “the assumption that the parties, even if they actually bargained out the terms stated in the form contract, expected all losses to remain on the party incurring them, is no more reasonable than the opposite assumption that they wanted all events not specifically dealt with to result in frustration”.12 Thus, it is argued that the appropriate response to unforeseen impediments to contract performance is for the court or arbitrator to determine what the parties would have included in their contract had they considered the impediment from the beginning and had drafted to deal with it. This afterthe-fact approach clearly focuses on a litigation test of the default rule, and not on a transactions test. Such a test finds its claim to reasonableness in the fact that it is applied in the litigation mode, when all of the actual facts are known to have occurred. The other end of the spectrum is represented by Professor Harold Berman’s classic article on excuse for non-performance.13 Berman favors a strict construction analysis that interprets party obligations in accordance with the traditional pacta sunt servanda doctrine. Under this approach, few if any conditions will serve to excuse a party for non-performance. Berman justifies this approach on the basis of concern for the draftsperson: [T]he effort to imply a missing term or to reconstruct the hypothetical intentions of the parties is misguided; ... the effect of the liberalization of the doctrine of excuse is to impose a heavy burden of draftsmanship on the parties ... Above all, the argument of the “missing term” or “gap” fails to take sufficiently into account the problems of drafting an international trade contract. The parties to such a contract almost invariably insert clauses stating that their obligations shall be discharged by the occurrence of contingencies A, B, C, D, E, or F. A doctrine which permits their obligations also to be discharged by the occurrence of contingencies X, Y, or Z – not mentioned in the contract – imposes an intolerably heavy burden on the draftsman.14

12

John Henry Schlegel, Of Nuts, and Ships, and Sealing Wax, Suez, and Frustrating Things – The Doctrine of Impossibility of Performance, 23 Rutgers L. Rev. 445-46 (1969). 13 Harold J. Berman, Excuse for Nonperformance in the Light of Contract Practices in International Trade, 63 Colum. L. Rev. 1413 (1963). 14 Id. at 1415-17.

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Berman too seeks fairness, but not fairness in terms of conflict resolution so much as fairness in terms of the resulting burden on the transaction planner. His basic argument is that appropriate rules should allow parties involved in a transaction to allocate all risks from the beginning of the transaction so as to enhance order and predictability. A liberal rule of excuse, particularly one that allows a party out of its obligation on the basis of shifting economic conditions, serves only to make drafting a clause that does fully allocate risks more difficult. That, in Berman’s analysis, is the ultimate defect. His focus is on the transactions test of the rule, and not on the litigation test. If the consequences of the unforeseen circumstances are considered not in terms of the effect on the parties when those circumstances occur, but rather in terms of the burden the applicable rule places on the parties when the contract is concluded, then the strict construction approach appears quite reasonable. Thus, the reasonableness of an excuse for non-performance rule depends on the context in which it is considered. A liberal rule appears reasonable under a litigation test, while a strict rule is more reasonable when judged by a transactions analysis. The problem demonstrated by the compromise found in Article 79 of the CISG is that of trying to produce a rule that provides reasonable results under both a litigation test and a transactions test.

IV. A transactions test analysis of Article 79 Application of a litigation test is much easier than is the application of a transactions test when we judge a rule – as does the UNCITRAL draft Digest – by considering the cases that have applied that rule. Application of a transactions test can be more difficult, and requires that we consider the elements of the rule as those elements influence contract drafting decisions, when the actual events that may occur in the future remain unknown to the parties. Cases covered in the draft Digest have, however, begun to provide some assistance in this analysis. A. Elements of Article 79 It is useful at this point to consider both those aspects of the rule found in Article 79 that affect drafting considerations, and other issues that will be important to any clause excusing non-performance. The following is a list of elements of the rule found in CISG Article 79 that should be taken into account in drafting an excuse provision in a contract otherwise governed by the Convention.

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1. The party protected by the rule and the party most likely to benefit from a contract provision on excuse The excuse rule found in UCC § 2-615 operates to protect only the seller;15 thus the greater burden is on the buyer if that party wants force majeure protection. CISG Article 79 protects any party, making the drafting burden more equally shared. We generally think of the seller in a sale of goods transaction as being the most likely to benefit from a contract or code provision providing for excuse for non-performance, but the cases to date raise important questions about that assumption. Professor Flechtner catalogues eleven cases in which a seller sought exemption for failure to perform (two of which were successful), and eight cases in which a buyer sought exemption from failure to perform (two being successful).16 This indicates that resort to excuse doctrine has so far been much more balanced between buyer and seller under the CISG than may generally be thought to be the case.17

2. The obligations covered by the rule The UCC provides excuse only for delay in delivery and non-delivery,18 continuing the idea of a burden on the party deemed most likely to use the excuse rule (the seller) to draft to cover excuse for other obligations. The CISG provides excuse for the failure to perform any obligation, thus placing a burden on the party not likely to seek the benefit of the clause to pare down its results.

3. The relief available under the rule UCC § 2-615 operates to make the relevant non-performance “not a breach”. Thus, it provides full excuse. On the contrary, CISG Article 79

provides relief only from the obligation to pay damages. Other obligations remain intact.19 Thus, under the CISG the burden is on the party seeking 15

See supra note 3 and accompanying text. Draft UNCITRAL Digest art. 79, ¶ 7. 17 This count would appear to raise questions about the approach of a national commercial code provision that makes excuse under its provisions only available to the seller, as is the case with UCC § 2-615. 18 See supra note 3 and accompanying text. 19 See, e. g., Honnold, supra note 4, at § 423. 4: Confining exemption to “damages” has this important consequence: When one party fails to perform its obligations the other party’s right to “avoid the contract” is not impaired. (In nonlegal terms, when the seller can not deliver the buyer need not pay; when the buyer can not pay the seller need not deliver.) The grounds for avoidance that we have examined (Arts. 25, 16

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access to the excuse doctrine to draft to expand the available relief if that is deemed desirable.

4. The burden of proving entitlement to excuse under the rule Article 79 places the burden of proof on the party seeking to be excused from liability for damages. This burden can be divided into four specific parts, the first of which is proof of the existence of “an impediment”. Professor Flechtner describes this as the “prerequisite to an exemption”.20 This is the focus of many contractual excuse clauses that can become quite long in their lists of circumstances justifying a party’s claim of exemption from performance. The drafting problem here also includes determining whether the list in the clause is exclusive or merely indicative of the type of circumstances that will qualify for relief. As catalogued by Professor Flechtner,21 the list of impediments that so far have been held to be sufficient to justify excuse under Article 79 include: 1) a refusal by State officials to permit importation of the goods into the buyer’s country (excusing the buyer from damages for failure to take delivery),22 2) the manufacture of defective goods by the seller’s supplier (excusing the seller who had not acted in bad faith),23 3) the failure of a carrier to meet a guarantee that the goods would be delivered on time (excusing the seller from paying damages for late delivery),24 and 4) a seller’s delivery of non-conforming goods (excusing the buyer’s performance of the payment obligation).25 47, 49, 63, 64, 72 and 73) remain applicable although the disappointed party may not recover damages. 20 Draft UNCITRAL Digest art. 79, ¶ 11. 21 Id. 22 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, Russian Federation, 22 January 1997, available at http://www.cisg.law.pace.edu. 23 Tribunal de Commerce de Besanon, France, 19 January 1998, available at http:// www.cisg.law.pace.edu. 24 Handelsgericht des Kantons Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331. 25 Amtsgericht Charlottenburg, Germany, 4 May 1994, English translation by Martin Elmer (Ruth M. Janal ed.), available at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 386.htm and (in the case presentation for Landgericht Berlin, Germany, 4 May 1994), available at http://www.cisg.law.pace.edu/.

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On the other side of the coin, Professor Flechtner’s list includes the following alleged impediments that did not result in the tribunal granting excuse under Article 79:26 1) a buyer’s failure to pay the purchase price because of inadequate reserves of a convertible currency,27 2) a seller’s failure to deliver based on an emergency halt to production by the seller’s supplier,28 3) a buyer’s refusal to pay because of negative market developments and problems storing the goods,29 and 4) a seller’s failure to deliver because a supplier had experienced financial difficulty.30 The second element of proof required of the party claiming excuse under Article 79(1) is that the impediment is “beyond his control”. This factor, along with the just-stated list, reminds us that the cases are still too few to give significant guidance in terms of language to use in contractual excuse provisions. Thus, a conservative draftsperson will continue to be as complete as possible in listing the types of impediments that, should they occur, will justify excuse for his or her client. The third element of proof required of a party claiming Article 79 excuse is that it was reasonable not to have expected the resulting impediment to performance. The fourth is that the party could not reasonably have been expected to avoid the impediment or overcome it, nor to have avoided or overcome its consequences. Like the second element, these too must await further cases for judicial guidance.

26

Draft UNCITRAL Digest art. 79, ¶ 12. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 17 October 1995, CLOUT case No. 142. 28 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 16 March 1995, CLOUT case No. 140. 29 Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=420&step=Abstract. 30 Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166, English translation available at http://www.cisg.law.pace.edu/. 27

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B. Contractual lists of excuse catalysts In addition to consideration of the Article 79 elements necessary to prove excuse, when drafting a contractual excuse clause it is also useful to consider specific events that may occur and how they might affect the right to excuse for non-performance under Article 79. The cases to date provide some guidance in how courts deal with certain types of impediments under Article 79, and thus provide some indication when special drafting may be warranted. The following is a list of some of these impediments, noting the value of Professor Flechtner’s Digest comments to the transactions lawyer.

1. Excusing delivery of defective goods As noted above, UCC § 2-615 provides excuse only for the seller, and only as to two aspects of performance: “delay in delivery” and “non-delivery”.31 Thus, there clearly is no excuse for delivery of defective goods under the UCC. Under CISG Article 79(1), however, either party may benefit from the excuse from liability, “for a failure to perform any of his obligations”. Professor Honnold argues that this does not allow excuse for delivery of defective goods.32 Schlechtriem, on the other hand, suggests that excuse for defective performance may be available.33 So, should a seller draft a clause that would excuse delivery of defective goods? If Honnold is right, the answer is that inclusion of such a clause in a contract governed by the CISG is the only way the seller will be able to claim excuse for delivery of defective goods. 31

See supra note 3 and accompanying text. Honnold, supra note 4, at § 427: UNCITRAL faced this issue and replaced “circumstances” [from the 1964 Hague Conference Uniform Law on International Sales] with “impediment” – a word that (like “obstacles”) implies a barrier to performance, such as delivery of the goods or transmission of the price rather than an aspect personal to the seller’s performance. This decision that exemption applies only to impediments that prevent performance (as contrasted with circumstances that lead to defective performance) is supported by the language of paragraph (4): “The party who fails to perform must give notice to the other party of the impediment ...” – a requirement that would be absurd in connection with the delivery of goods with a hidden defect. It is significant that no notice requirement was included in ULIS 74 – a provision that, as we have seen, was understood to permit exemption for the non-negligent delivery of defective goods. This fundamental point – that exemption provided by Article 79 of CISC [sic] does not apply to defective performance such as the supply of non-conforming goods – was confirmed by the discussions and by decisions taken at the Diplomatic Conference. 33 Cf. Peter Schlechtriem, Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods 101 n. 416a (1986), available at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem. 32

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If Schlechtriem is correct, then such a contract provision may not be necessary. Two German cases mentioned in the Draft Digest have noted this issue, but have not claimed to resolve it,34 while one French case apparently granted an Article 79 exemption when a seller delivered non-conforming goods.35 Given the uncertainty of both the cases and the commentary, the conservative draftsperson representing a seller will include such a provision if the option of claiming excuse for defective goods is desirable.

2. Excuse based on a supplier’s breach Sellers in several cases have claimed that the failure of a supplier to deliver goods, or his delivery of non-conforming goods, should be grounds for excuse under Article 79. One decision held that the seller is responsible for the risk that its supplier will deliver late or deliver non-conforming goods under Article 79.36 Another, on the other hand, excused the seller based on a third party’s defective manufacture of the goods.37 Thus, without more, the burden seems to remain on the seller to cover this issue in a clause on excuse for nonperformance if the availability of relief is to be certain.

3. Third party failure to perform Related to the supplier’s breach is the specific rule found in paragraph (2) of Article 79, providing that a party may claim excuse based on “the failure by a third person whom he has engaged to perform the whole or a part of the contract”. Such relief is available only if the party is exempt under 79(1) and the third-party would also be exempt under the same tests. Tribunals have held that this provision covers failure by a supplier when the buyer fails to provide items necessary to the performance,38 and when a carrier is unable to perform the freight contract.39 Another tribunal has held that, though 34

See Bundesgerichtshof, Germany, 9 January 2002, available at http://www.cisg.law.pace. edu/cisg/text/020109g1german.html; Bundesgerichtshof, Germany, 24 March 1999, CLOUT case No. 271. 35 Tribunal de Commerce de Besanon, France, 19 January 1998. A German case asserted that such an exemption is available, but denied it on the specific facts. Oberlandesgericht Zweibr
cken, Germany, 31 March 1998, CLOUT case No. 272. See Draft UNCITRAL Digest art. 79, ¶ 8. 36 Bundesgerichtshof, Germany, 24 March 1999, CLOUT case No. 271, English translation by Walter, Conston, Alexander & Green, P. C., available at http://www.cisg.law.pace.edu/. 37 Tribunal de Commerce de Besanon, France, 19 January 1998, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=416&step=Abstract. 38 ICC Court of Arbitration, Case No. 8128, 1995, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=207&step=Abstract. 39 Handelsgericht des Kantons Z
rich, Switzerland, 10 February 1999, CLOUT case No. 331;

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default by a “sub-contractor” would suffice under Article 17(2), failure to perform when the third-party is a “manufacturer or sub-supplier” does not qualify.40 Thus, it would at this point remain wise to include specific excuse authorization in the contract in order to avoid the limited and ambiguous jurisprudence on this issue.

4. Increased cost of performance Increased cost of performance is one of the basic issues in any discussion of excuse for non-performance. It is central to the “impossibility” versus “impracticability” debate. Professor Berman’s strict compliance rule would, of course, rule out any reliance on changed economic circumstances, while Professor Schlegel’s implied term theory may in fact allow relief if the changes are extreme enough. So far, the cases side with Berman, denying relief based on increased cost of performance.41 While the celebrated Alcoa case stands as the primary non-CISG example of a court’s willingness to provide relief for increased cost of performance,42 it seems unlikely that there will be global adoption of such a position under the CISG. Thus, if relief from economic distress is desired, it most likely will have to be based on a contractual provision.43 C. Article 79 and contractual excuse clauses As noted earlier,44 commentators have suggested that parties to a transaction governed by the CISG should respond to Article 79 by providing clear excuse for non-performance clauses in their contracts. This raises a number of questions regarding the relationship between Article 79 and such a clause. While the cases have not yet answered all of these questions, it is worth giving them some consideration. 1. What is the impact of an event not covered by the excuse clause? If the parties did not provide for it, is it then to fall on the party on which the risk Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, Russian Federation, 22 January 1997, English abstract available in Unilex at http://www.unilex.info. 40 Schiedsgericht der Handelskammer Hamburg, Germany, 21 March 1996, CLOUT case No. 166, English translation available at http://www.cisg.law.pace.edu/. 41 See Draft UNCITRAL Digest art. 79, ¶ 15. 42 U. S. District Court for the Western District of Pennsylvania, United States, 7 April 1980, (Aluminum Co. of America v. Essex Group, Inc., 499 F. Supp. 53, 29 U. C. C. Rep. 1). 43 Note that Honnold agrees with the idea that “impediment” in Article 79 can result in “exemptions based on economic dislocations”. Honnold, supra note 4, at § 432. 2. 44 Supra note 9 and accompanying text.

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normally would be allocated, or can Article 79 be used to claim excuse outside the language of the contractual provision? This question is not answered by the cases, but remains an important one at the contract drafting stage. It may be arguable that the existence of an excuse clause in the contract effectively opts out of Article 79 through derogation as allowed by Article 6. Cases to date do not provide assistance in determining the proper relationship between these two provisions. 2. Will Article 79 serve to fill gaps in an excuse clause or does the excuse clause, under Article 6, constitute the parties’ decision to opt out of the Convention rules through derogation from the effects of Article 79? If this is not clear, should the clause contain language that makes clear the parties’ intent on this issue? This set of questions is related to the first, and explores the relationship between Articles 6 and 79. When the contract is otherwise governed by the CISG, it may be wise to include in any excuse clause a clear indication of whether the clause is meant to be exhaustive and prevent additional reference to Article 79 for potential further relief. Professor Flechtner notes two cases to date dealing with the relationship between Article 79 and contractual excuse for non-performance clauses: Article 79 is not excepted from the rule in article 6 empowering the parties to “derogate from or vary the effect of” provisions of the Convention. Decisions have construed article 79 in tandem with force majeure clauses in the parties’ contract. One decision found that a seller was not exempt for failing to deliver the goods under either article 79 or under a contractual force majeure clause, thus suggesting that the parties had not preempted article 79 by agreeing to the contractual provision. Another decision denied a buyer’s claim to exemption because the circumstances that the buyer argued constituted a force majeure were not found in an exhaustive listing of force majeure situations included in the parties’ contract.45

45

Draft UNCITRAL Digest art. 79, ¶ 23, citing Oberlandesgericht Hamburg, Germany, 28 February 1997, CLOUT case No. 277, and Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 17 October 1995, CLOUT case No. 142; and High Arbitration Court of the Russian Federation, Russian Federation, 16 February 1998, Information Letter No. 29, English abstract available in Unilex at http://www.unilex.info.

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3. Is there some kind of cascading operation of the contract clause, then Article 79, then Article 7(2) under the Convention? According to Professor Honnold: Article 7(2) permits recourse to “the law applicable by virtue of the rules of private international law” only as a last resort – i. e., when questions are “not expressly settled” by the Convention and cannot be “settled in conformity with the general principles on which it is based” (§ 102, supra). The fact that a provision of the Convention presents problems of application does not authorize recourse to some one system of domestic law since this would undermine the Convention’s objective “to promote uniformity in its application” (Art. 7(1)). However, no such difficulty arises from a comparative law approach that seeks guidance from the prevailing patterns and trends of modern domestic law.46 This question takes the analysis a step further and includes consideration of Article 7. Again, cases to date provide no clear guidance. Neither is the Convention language itself clear on this issue. Once again, a careful draftsperson will choose language in an excuse clause that makes this relationship as clear as possible. 4. If the parties omit an excuse clause from the contract, what are the consequences? Is there ever a time when a party would want to avoid an excuse clause in the contract and rely instead on Article 79? The party least likely to benefit from any doctrine of excuse for nonperformance would want the relationship to be governed by rules allowing for little or no opportunity for excuse. Thus, if the option is between a broad contractual provision on excuse and Article 79, then Article 79 would be preferable to the clause for such a client. On the other hand, it may be possible to draft a clause that actually shrinks the opportunity for excuse when compared to Article 79, so long as it makes clear that it replaces any resort to Article 79 under the CISG. 5. If there is no excuse clause in the contract, is Article 79 the only provision to turn to in the event of a claim for excuse on the part of one party? Schlechtriem answers with a “speculative” “maybe not” to this question in his comments in the 1998 Roundtable:

46

Honnold, supra note 4, at § 429.

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I think the remedy of price reduction in Article 50 of the Convention is a kind of adjustment of the contract to reflect a disturbed balance between performance on one side and obligation on the other side. The defects in the goods, or the non-conformities of the goods, constitute a disturbance of the equilibrium or balance of the exchanged performances. That is why we defended price reduction – as a just instrument for adjusting the disturbed balance of performances. Of course the Common Law countries who are not familiar with the price reduction remedy regard it as something entirely different – as a kind of damages set-off against the purchase price. But if you can accept the notion that it has an entirely different function and aim, then it could be – it’s a bit speculative, of course, but in a workshop like this you should allow such speculation – then you could use this principle as a springboard to develop a general rule of adjustment in hardship cases.47 6. Article 79(4) places on the non-performing party an obligation to provide notice within a reasonable time of “the impediment and its effect on his ability to perform”. Thus, failure to provide such notice removes the benefits of Article 79. Is this an obligation the contract clause can remove under Article 6 of the Convention? If so, should a seller draft the clause so as to remove this obligation? The simple intuitive answer to this question is that the Article 6 ability to derogate from CISG rules is expressly subject only to Article 12 (dealing with declarations regarding writing requirements). Thus, it would appear that derogation from the notice requirement of Article 79(4) is possible. It is important to note, however, that failure to give notice may only result in other obligations. According to Schlechtriem, “[i]f a party fails to notify, he must compensate for damages caused by the lack of notice, even if he would otherwise be exempt”.48 Whether an exemption from liability under Article 79 also constitutes an exemption from contractual penalties and liquidated damages provisions depends on the contractual prerequisites for such secondary claims and the applicable domestic law. The German Democratic Republic’s proposal to exempt from contractual penalties and liquidated damages parties whose liability for damages is exempted under Article 79 was therefore rejected.49

47

Harry Flechtner, ed., Transcript of a Workshop on the Sales Convention, 18 J. L. & Com. 20022 (1999) (comments of Peter Schlechtriem). 48 Schlechtriem, supra note 33, at 104. 49 Id.

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7. When, if ever, will provisions of the contract other than an explicit force majeure clause serve as basis for an Article 6 derogation from Article 79? Will a price-delivery term ever serve this purpose? A Berman strict compliance analysis would mean that a seller in a c. i. f. contract would always carry the burden of providing the goods and being responsible for the costs of insurance and freight, even if those obligations increase beyond any quantity or quality reasonably foreseeable at the time the parties entered into the contract. Thus, the price-delivery term arguably serves as its own type of non-excuse clause – allocating risks from which the parties cannot claim excuse. Under a transactions analysis, in which the primary goal is predictability, this clearly would serve the function of a contractual excuse for non-performance clause. No case to date appears to have dealt with whether a price-delivery term constitutes an Article 6 derogation from excuse otherwise available under Article 79.

V. Conclusion It is important that we consider the CISG and the Draft UNCITRAL Digest under both a litigation analysis and a transactions analysis. Ultimately, the CISG will prove its value only if transactions lawyers both understand and use its rules, and do not engage in an automatic exclusion of the CISG as governing law because of a failure to understand its terms. The difference in focus of the two available types of analysis can be usefully understood by considering the dichotomy of approaches demonstrated by Professors Berman and Schlegel in their mid-twentieth century commentary on doctrines of excuse for non-performance. This in turn makes the set of excuse for nonperformance rules of CISG Article 79 a useful tool in determining whether cases to date provide valuable guidance for transactions lawyers considering how best to draft contractual excuse clauses. While the cases do not yet provide guidance on all of the issues that may arise in this context, the ability to access the cases through the Digest is extremely important. This will make the Digest an essential tool in drafting contracts that best serve clients whose transactions are governed by the CISG, and thus at least as important to transactions lawyers as it is to judges and litigators.

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Revisiting the north-south debate in light of the draft Digest: Articles 38, 39 and 44 Mark S. Walter* I. Introduction: The image created by the Draft Digest The draft UNCITRAL Digest presents the unique opportunity to see the law more clearly; that is, it allows us to visualize the United Nations Convention on Contracts for the International Sale of Goods (CISG or “Convention”) and its interpretations as though it was a stained glass window, with bits of colored glass arranged into a meaningful pattern. If the reader has not yet noticed, the innovation in this project is its attempt to create a comprehensive, ordered, and purely descriptive collection of the case law interpreting the Convention. Other admirable projects have created descriptive collections of the case law – comprehensive online databases, for example1 – but as they are composed primarily of raw data, they lack a certain order; the individual pieces of stained glass remain a bit scattered and difficult to view as a group. Academic discourse, conversely, may make an initial attempt at being descriptive but tends to be colored by judgement and most often only allows a look at a small group of “representative” cases – a vaguely recognizable portion of the stained glass window – in isolation. The descriptive nature of the draft Digest, on the other hand, provides the order. Its comprehensiveness allows us to look at larger, though by no means complete, portions of the window, and because it is composed of a descriptive “composite” of the caselaw it presents an easily readable distillation of the raw data. This allows us to stand back and ask whether the hundreds of pieces of stained glass have somehow miraculously fallen into place to form something that, while perhaps not an image, is not overly incongruous.2 * Assistant Director, Center for International Legal Education, University of Pittsburgh School of Law. 1 See, e. g., CLOUT, the Caselaw of UNCITRAL Texts (UN Doc. A/CN.9/SER.C/ABSTRACTS), at http://www.uncitral.org/english/clout/; the UNILEX Database from the Italian National Research Council (CNR), at http://www.unilex.info; and the CISG database from Pace University at http://www.cisg.law.pace.edu/. 2 For additional general comments on the draft Digest itself, I refer the reader to my far more experienced co-authors. I have read their comments and can only say that I find the points to

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This paper attempts to build upon the composite that is created by the draft Digest and to describe the image that is created using the so-called “industrial north-developing south debate” as a lens. Nearly fifteen years ago, Professor Garro noted the following: Opponents of the Convention in the United States have pointed out that in many instances during the negotiations developed countries were held hostage by the more numerous delegates from Third World countries in order to force compromise solutions.3 He suggested, however, that such hostage taking may have been a necessary counterweight to the “powerful influence of industrialized nations”, and that some sense of balance was achieved.4 Professor Eiselen has noted that “[the Convention’s] drafters endeavoured to construct a convention which was free of any particular institutions, remedies, concepts or values of any particular legal system or doctrine. In that sense it also embodies a compromise of various approaches, traditions and doctrines”.5 The North-South debates during the drafting of the Convention were lively and focused on key legal issues, one of which was the buyer’s notification of nonconformity dealt with in Articles 39, 40 and 44. After some comments on uniformity in Section II, Section III of this commentary provides a brief review of the debates taking place among the delegates at the nine UNCITRAL Working Group6 sessions held between 1970 and 1977 and

be well made and, if not for the minor divergences among them, I would happily agree with all of them. 3 Alejandro M. Garro, Reconciliation of Legal Traditions in the U. N. Convention on Contracts for the International Sale of Goods, 23 Int’l Law. 468 (1989). 4 Id., citing Ghestin, Les obligations du vendeur selon la Convention de Vienne du 11 avril 1980 sur les contrats de vente internationale de marchandises, Revue de Droit des Affaires Internationales 6 (1988). 5 Seigfried Eiselen, A Comparison of the Remedies for Breach of Contract under the CISG and South African Law, in Basedow et al. ed., Aufbruch nach Europa – 75 jahre MaxPlanck-Institut fur Privatrecht, (2001). 6 The Working Group was composed of fourteen members: Brazil, France, Ghana, Hungary, India, Iran, Japan, Kenya, Mexico, Norway, Tunisia, the former Union of Soviet Socialist Republics, the United Kingdom of Great Britain and Northern Ireland and the United States of America. Report of the UNCITRAL on the Work of its First Session, U. N. GAOR, 23rd Sess., Supp. No. 16, at ¶¶ 40-42, U. N. Doc. A/7216 (1968), reprinted in [1968-70] I UNCITRAL Y. B. 71, U. N. Doc. A/CN.9/SER.A/1970.

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which produced the draft Convention.7 Section IV outlines the critical provisions in the Convention regarding conformity of the goods. Though the focus of this commentary is on notice of nonconformity (Article 39), a number of the Convention’s provisions are closely interrelated. Section V is a look at the larger picture that may be suggested by the draft Digest and an analysis of some of the draft Digest’s specific observations on cases which may indicate whether the balance suggested by Professor Garro has been borne out. Issues explored here and suggested for future draft Digest-based scholarship are the following: Is the composite cohesive? Do the pieces create a discernible pattern? Is it a pattern that complements/is true to what was intended? How many of the pieces of the composite are incongruous? Are basic components of the law entirely missing, or incomplete?

II. A preliminary note on uniformity Ultimately, there can be no clear image of the collective interpretation – or, the collection of independent interpretations, as the case may be – of the Convention without at least a sampling of the cases that have been decided under the Convention everywhere. The Convention is now in force in 62 nations,8 yet for the purposes of Professor Flechtner’s contribution to the draft Digest, English language texts, translations, or abstracts were available for cases decided in only 12 Contracting States for the section on Article 359 and in only 10 Contracting States for the section on Article 39.10 The vast majority of these cases were from a single country, Germany. While this appears to reflect the reality that a disproportionately large number of CISG cases do indeed come from the states cited by Professor Flechtner, cases from other Contracting States exist, though they may be

7

John Honnold, Documentary History of the Uniform Law for International Sales 27 (1989) [hereinafter Documentary History]. 8 As of 20 March, 2003. For updated information see the Status of Texts section of the UNCITRAL website at http://www.uncitral.org/en-index.htm. 9 For Article 35 Professor Flechtner cites cases decided in courts or arbitration tribunals in Austria, Belgium, Canada, Finland, France, Germany, Italy, Mexico, the Netherlands, Sweden, Switzerland and the United States. 10 For Article 39 Professor Flechtner cites cases decided in courts or arbitration tribunals in Austria, Belgium, Finland, France, Germany, Italy, Mexico, the Netherlands, Switzerland, and the United States. He also refers to one arbitration decided in the United Kingdom which is not party to the Convention.

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inaccessible either because they are not published11 or because they are not translated into a language used by the reporter.12 As noted by Camilla Baasch Andersen, the reality is that caselaw from Russia and Asia is not easily available to “western” scholars despite the fact that two of the CISG’s official languages are Russian and Chinese.13 Even where caselaw is available to judges and arbitrators, there appears to be little use made of it.14 Though this problem is presented but discussed no further in this article, it is a matter of significant concern and is raised only to emphasize that an image created by the draft Digest will necessarily be incomplete unless and until a global descriptive representation of caselaw can be devised.15

III. The Working Group debates Professor Kritzer has noted that at the stage of drafting the Convention the developed Northern nations “generally wanted freedom of contract when they trade with one another and parties from developing countries. On the other hand parties from developing countries generally wanted greater protection when they purchase from parties from industrialized countries. The Convention is a trade-off that seeks to give each what they wanted most”.16 A key question fifteen years on is whether this “trade-off” actually paid off; assuming the existence of the freedom of contract desired by the North, has the Convention provided the protection sought by the South?

11

Examples of arbitral organizations which do not make decisions available are the International Commercial Arbitration Court under the Chamber of Commerce and Industry of Ukraine and the Maritime Arbitration Commission under the Chamber of Commerce and Industry of Ukraine. 12 See, e. g., http://www.cisg.ru/, a website that publishes Russian cases both in the original Russian and in German. 13 Camilla Baasch Andersen, Reasonable Time in the CISG: Is Article 39(1) Truly a Uniform Provision, Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, 67 (1999). 14 See generally Joseph Lookofsky, CISG Foreign Case Law: How Much Regard Should We Have? A Commentary on the UNCITRAL Draft Digest of CISG Part I, supra. See also Harry Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translation, Reservations and Other Challenges to the Uniformity Principle in Article 7(1), 17 J. L. & Com. 187 (1998). 15 An additional problem is the disadvantage resulting from treating such an unrepresentative collection of cases as representative of the law of the CISG. 16 Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 9 (1989) [hereinafter Guide to Practical Applications].

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The draft provisions dealing with the rights and obligations of the buyer in receipt of nonconforming goods were the subject of hard-fought compromise and led to “one of the most dramatic debates at the U. N. Conference”.17 The primary issues in the debate were the reasonably timed and specific notice of nonconformity provision in Article 39(1) and the outside limit for notice of two years imposed by Article 39(2).18 The concern of the developing countries was that buyers “from a have-not economy ... must buy most manufactured and complex goods from outsiders who are believed to be selling shoddy goods, whose flaws become apparent only long after delivery...”19 Therefore, certain protections needed to be added. The Conference debate was clearly argued on North-South lines. Mr. DateBah, the Ghanian delegate, moved for the deletion of the notice provision, calling it “too draconian”.20 He observed that “[t]raders in jurisdictions which did not have a rule requiring notice to the seller might be unduly penalized, since they were not likely to be aware of the new requirement until it was too late”.21 The Finnish delegate responded that if the notice provision were deleted the words “Must inspect the goods” in CISG Article 38(1)22 would have no meaning “since it meant that no penalties were provided if the buyer did not comply”.23 In addition to Finland, the Bulgarian, British, French and Australian delegates formally opposed the deletion of the provision.24 Only the Nigerian delegate supported the deletion;25 however, the Pakistani delegate later made known his misgivings concerning the draft language.26 The Chairman (Mr. Loewe, the Austrian delegate) suggested

17

Gyula Ersi, A Propos for the 1980 Vienna Convention on Contracts for the International Sale of Goods, 31 Am. J. Comp. Law 350 (1983) (“[e]ight modifying texts were presented and no less than 111 interventions were made”). The Conference debates took place at the 16th, 17th, and 21st meetings of the First Committee. Documentary History, supra note 7, at 539-71. 18 Arts. 37(1) and (2), respectively, in the 1978 Draft Convention. 19 Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L. J. 285 (1984), citing Date-Bah, The United Nations Convention on Contracts for the International Sale of Goods, 1980: Overview and Selective Commentary, 11 Rev. Ghana L. 50 (1979); Ersi, supra note 17, at 340-50. 20 Documentary History, supra note 7, at 541. 21 Id. 22 Art. 36(1) in the 1978 Draft Convention. 23 Documentary History, supra note 7, at 541. 24 Id. at 541-42. 25 Id. 26 Mr. Inaamullah called the draft language “highly detrimental to the interests of the buyer”. Id. at 566.

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that the proposed amendment be rejected “as a majority appeared not to favor” it.27 The Record then states that “it was so agreed”.28 The debate then turned to an alternative proposal from the Ghanian delegate that would still require notice of nonconformity but also provide that failure to give notice in a reasonable time would merely result in a reduction of damages.29 This alternative was expressly supported by the delegates from Kenya, Pakistan, China, Nigeria, the United Kingdom, Mexico, Singapore,30 and the Libyan Arab Jamahiriya.31 It was expressly objected to by the delegates from the Netherlands, Korea, Switzerland, Sweden,32 Bulgaria,33 Austria,34 Australia, Japan, Germany, Finland,35 and Spain.36 Thus, with the notable exception of the United Kingdom,37 the debate followed North-South lines fairly closely. The alternative was withdrawn by Ghana after an “indicative vote” of thirteen delegates in favor of the amendment and twenty-nine against.38

27

Id. at 542. Id. (emphasis in original). 29 Ghana (A/CONF.97/C.1/L.124): 2. Alternatively, article 37 should be revised to read as follows: (1) The buyer must give notice to the seller specifying the nature of a lack of conformity within a reasonable time after he has discovered it or out to have discovered it. (2) If the buyer fails to give the notice referred to in paragraph (1) above, such failure shall be regarded as a failure to mitigate loss and the party in breach may rely on [CISG Article 77] [to reduce the damages payable by him]. Documentary History, supra note 7, at 679. 30 The Singapore delegate’s support went only so far as to object to the draft language on the same grounds as the Ghanian delegate. Id. at 542. 31 Id. 32 The Swedish delegate suggested that he might change his mind if the remedy were revised and if the provision accounted for the seller’s duty to “repair goods or to deliver substitute goods”. Id. 33 The Bulgarian delegate was concerned that it was impossible “to know the real meaning of ... ‘reduction of damages’ ...” Id. 34 The Austrian delegate noted that under Austrian law, the time limit for notice was eight days. He implied that Austria was being generous, therefore in agreeing to the 2 year outside limit in CISG art. 39(2) (37(2) of the Draft Convention). 35 The Finnish delegate threw – figuratively – his hands up in frustration. Id. at 543. 36 Id. at 542-43 37 The British delegate observed that it “seemed harsh to deprive the buyer of his right to damages based on nonconformity of goods merely because he had not given notice of that nonconformity within a reasonable time”. Id. at 542. 38 Id. at 680. 28

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Finally, a third alternative was proposed after the Swedish delegate suggested that a working group made up of the countries which had taken a firm position on the issue be formed.39 The joint proposal was introduced at the 21st meeting by a group comprised of two-thirds developing countries.40 This proposed amendment was probably quite indicative of the concerns that had been expressed by the developing nations and, according to the sponsors of the proposal was meant to serve as a “compromise under which a buyer who had a reasonable excuse for failure to give notice did not lose all his rights to rely on a lack of conformity, but which at the same time recognized that the requirement for due notice by the buyer was an important aspect of the seller’s right to cure”.41 The proposed change to paragraph (1) would have relieved the buyer in receipt of nonconforming goods of the duty to specify the nature of the nonconformity and, under a third paragraph of the article, would have allowed a reduction in damages where the buyer did not provide notice of the nonconformity but had a reasonable excuse for not doing so. Support for the amendment came from delegates from Australia, Austria,42 Iraq, the United Kingdom, China, and Chile, indicating movement in the direction of compromise. Objections came from Czechoslovakia, the United States,43 39

Id. at 544. The delegate, Mr. Hjerner, said that during informal talks after the previous day’s meeting he had come to realize the importance of the Ghanian amendment for the Asian-African Legal Consultative Committee. Although he had made his own position on the question perfectly clear, he would not like to miss an opportunity to find a solution to the problems which would be more satisfactory for delegations that were in the majority. 40 By Finland, Ghana, Kenya, Nigeria, Pakistan and Sweden (A/CONF.97/C.1/L/204): Paragraph (1). (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not notify the seller of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. Paragraph (2). Remains unchanged. New paragraph (3). (3) Notwithstanding the provisions of paragraph (1) of article 37, paragraph (2) of article 39, and paragraph (3) of article 40, the buyer may declare the price reduced in accordance with article 46 or claim damages except for loss of profit if he has a reasonable excuse for his failure to give the required notice. However, the seller shall be entitled to set off, in any claim by the buyer pursuant to this paragraph any foreseeable financial loss caused him by the buyer’s failure to give the notice. Id. at 680 (emphasis in original). 41 Id. at 566. 42 In principle only. Id. at 567. 43 Professor Farnsworth thought it a “praiseworthy attempt to strike a balance” but doubted its practical usefulness. Id. at 567.

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Greece, the Soviet Union, Germany and Denmark.44 Others objected to the lack of clarity in the proposed amendment.45 Ultimately, and inexplicably, no vote was taken on the amendment to paragraph (1) and the draft language was adopted.46 The jointly proposed addition of paragraph (3) was orally amended to discard the last sentence – concerning seller’s set off right – and adopted (as what is now Article 44) by a vote of 21 to 19.47 Thus, two major battles were fought and each of the North and South were victorious in one. The developed North got the requirement of specificity of notice and the developing South won the excusability of lack of notice. Using Professor Kritzer’s rationale,48 this should have contributed to the balance that was struck. Using the final text of the Convention as the only guide (i. e., without benefit of caselaw), the South seems to have gotten the better deal. While specificity is required when notice is given, complete lack of notice is permitted (although possibly penalized) where there is a reasonable excuse. This also seems to be the fairest outcome. If notice had been unconditionally required but with no specificity requirement, nervous buyers might be inclined to issue eleventh-hour general nonconformity notices prophylactically in order to buy time. If a specific nonconformity presented later, the buyer could always claim compliance with the notice requirement.

IV. Nonconformity of the goods: Creation of a simple framework There exists a close relationship between a number of articles in the CISG section entitled “Conformity of the Goods and Third Party Claims”.49 The most notably interrelated are Articles 35, 38, 39, 40 and 44 – all of which will be discussed in varying detail – but the foundation for the relationship lies in Articles 35 and 39, for these are the articles which set the threshold for the buyer that wishes to seek a remedy for a breach of contract that is related

44

Id. at 566-68. Id. 46 Id. at 680. 47 CISG Article 44: Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice. 48 Guide to Practical Applications, supra note 16. 49 CISG Part III, Ch. II, § II. 45

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to “goods” that have been delivered. Article 38 contains the preliminary inspection requirement.50 Article 39(1)51 requires that the buyer wishing to take recourse against the seller that delivers “nonconforming” goods must notify the seller of the nonconformity within a reasonable period of time. The effect of Article 39(1), aside from establishing the notice requirement, is to inform the buyer of its right to seek a remedy if it does notify the seller of the nonconformity. Articles 4052 and 4453 are intended to minimize the severity of the inspection and notification rules. Article 35, in turn, provides the definition of nonconformity.54 Basically, so long as the seller delivers something that can be defined as goods, the buyer will be subject to Article 39 in order to be eligible for relief. 50 (1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. 51 “The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it”. 52 ”The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer”. 53 See supra note 47. 54 (1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. (2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any

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Where goods have been delivered and are nonconforming, noncompliance with the Article 39 notice requirement may be excused in only three circumstances: (1) where the seller knew or could not have been unaware of the lack of conformity and did not disclose this to the buyer;55 (2) where the buyer has a reasonable excuse for not giving notice (subject to a reduction in damages);56 and, arguably, (3) where the nonconformity amounts to a fundamental breach and the “reasonable” notice of Article 39 is displaced by the more relaxed notice requirement associated with avoidance.57

V. The images created by judicial and arbitral treatment of nonconformity issues If it is true that “[t]here is no fair unification law without compromises”,58 and it is also true that the rules developed from the body of Convention caselaw should in some way contribute to the unification of the law, then it follows that we should see the same spirit of compromise in the caselaw. Therein lies the tremendous utility of the draft Digest; each unit – observation, paragraph or section – can be viewed as an image. The broader the observation that is analyzed, the more comprehensive (not necessarily clearer, however) the image that is produced. And, while the draft Digest is ostensibly an observational product,59 any commentary that it engenders is judgmental by nature. Therefore, a number of varied images may be produced, depending upon the commentator’s point of view. Much new scholarship – not, of course, only what follows – is bound to be generated by the Digest. If compromise exists in the caselaw, we should be able to get glimpses of it from the observations made in the Digest.

lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity. 55 CISG Article 40: “The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer”. 56 Article 44, supra note 47. 57 Article 26: “A declaration of avoidance of the contract is effective only if made by notice to the other party”. 58 Gyula Ersi, Problems of Unifying Law on the Formation of Contracts for the International Sale of Goods, 27 Am. J. Comp. Law 319 (1979). 59 Professor Franco Ferrari admits that some editorializing on the part of the draft Digest reporters was inevitable. See Session One of the streaming video presentation of the Beyond the UNCITRAL Digest Conference (University of Pittsburgh, Feb. 7, 2003), at http:// www.law.pitt.edu/programs/international/UncitralDigestVideo.htm.

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Partly because of the paucity of the cases in which one party is from a developing nation and the other is from a developed nation,60 and partly because the Digest is not specifically targeting the issues that concern parties from developing nations, it is difficult to make sweeping generalizations about judicial and arbitral treatment of North-South concerns. Nevertheless, some general inferences can be made. Most, if not all, of the primary concerns raised in defense of the developing regions can be traced to two characteristics that are often, but, of course, not always, present for traders in the developing South that can lead to disadvantage. Both of these characteristics may become more pronounced as the technical complexity of the traded goods increases. The first is a potential lack of sophistication; as capital-intensive industry grows in the developing world, an ever-increasing number of manufacturers and resellers purchase technologically advanced equipment and materials abroad. Traders and manufacturers new to the industry may lack the sophistication necessary to discover or recognize defects in purchased goods until long after they have been put into use. The second characteristic is that importers in developing regions may not have adequate access to the experts that may be needed for adequate inspection of goods. Consideration of the circumstances of a case and the recognition that sophistication of the buyer plays some role in resolving these legal issues seems to fit well with the notion of compromise, though it does not actually provide the compromise. These considerations simply provide some sort of precedent for applying equitable principles rather than rigid rules to a given dispute. The draft Digest reports on CISG Articles 38, 39 and 44 directly or indirectly observe caselaw references to these or similar characteristics a number of times. Direct observations consist of language specifically referencing a buyer’s ability to discover (and, therefore, notify the seller of) a defect. Indirect observations would be nonspecific references to the buyer’s circumstances from which relevant inferences may be drawn. Article 38 Article 38(1), requiring the buyer to “examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances” expressly recognizes the need to decide issues in the context of the situation. The provision invites judges and arbitrators to take into account any impediment that may delay appropriate examination of the goods. Thus,

60 No draft Digest references specifically indicate this; a manual search of the references is required, and even then it is often not possible to determine the locations of the parties.

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the draft Digest reports that the phrase “‘as short a period as is practicable in the circumstances’ – has been addressed in many decisions”.61 The draft Digest reports that at least one tribunal has suggested a set of “objective and subjective” criteria for determining the Article 38(1) meaning of “short”.62 The original case is in German but an English language abstract lists the criteria to be used as, inter alia, the “size of the buyer’s business, the kind of goods to be examined, their quantity, complexity, seasonal or perishable character, [and] the expenditures required for a proper examination, etc”.63 Though the parties were both from within the European Union, and the goods involved were decidedly low-tech “trekking shoes”, the criteria suggested are clearly universal and could be applied to any parties and any goods. Notably, citing the German language version of the case, the draft Digest reports that “objective and subjective” criteria “should” be considered,64 while the English language abstract contends that “... a court has to take into account both the objective and the subjective peculiarities of the individual case”.65 This difference highlights a common problem when dealing with materials that exist in many different languages; the line between the imperative and the discretionary is often blurred. Though none of the CISG caselaw carries any international notion of stare decisis, precedential value should exist if we can look forward to something approaching uniformity and we must therefore strive for consistency. Another reference to circumstances is a recognition that “the standard [governing the time period for inspection] is a flexible one” and that – though time for examination is not a long period – account should be taken of “all other relevant circumstances”.66 61

Draft UNCITRAL Digest art. 38, ¶ 5. Draft UNCITRAL Digest art. 38, ¶ 8, citing Oberster Gerichtshof, Austria, 27 August 1999, available at http://www.cisg.at/1_22399x.htm. 63 Abstract of Oberster Gerichtshof, Austria, 27 August 1999, available at http://www. cisg.law.pace.edu/cisg/wais/db/cases2/990827a3.html. 64 Draft UNCITRAL Digest art. 38, ¶ 8. 65 Abstract of Oberster Gerichtshof, supra note 63 [emphasis added]. 66 Draft UNCITRAL Digest art. 38, ¶ 14 n. 46, citing Oberster Gerichtshof, Austria, 27 August 1999, available at http://www.cisg.at/1_22399x.htm; Obergericht des Kantons Luzern, Switzerland, 8 January 1997, CLOUT case No. 192, Tribunale Civile di Cuneo, Italy, 31 January 1996, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=160&step=Abstract; Oberlandesgericht D
sseldorf, Germany, 10 February 1994, CLOUT case No. 81, Oberlandesgericht Karlsruhe, Germany, 25 June 1997; CLOUT case No. 230. 62

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The draft Digest also relates that some decisions have considered the buyer’s subjective circumstances where “such considerations suggest a high standard for the examination”.67 One case ruled that “because buyer was an experienced merchant, it should have conducted an expert examination and detected defects”.68 The court’s rationale for such statement is not provided and neither does it appear in the CLOUT abstract of the case or, for that matter in the other two primary caselaw databases.69 The absence of rationale should leave future tribunals free to apply the logical corollary of the German court’s statement – specifically, where the buyer is an inexperienced merchant, it should be excused for conducting an inexpert examination. The report cites other cases, however, that have declined to consider the buyer’s circumstances in such a situation.70 A look at the associated footnote,71 however, reveals that the circumstances in each of these cases is distinguishable from the types of circumstances that would generally cause delay for a buyer in a developing country. The first case involved a delay due to the buyer’s vacation72 and in the second the delay was the result of a “disorganized” buyer.73 The draft Digest report on Article 38(1) indirectly references the circumstances of the buyer with regard to the adequacy of the inspection – or delay of inspection – at least seven times, and in so doing provides some additional guidelines, though not all necessarily favorable to the buyer from a developing country. The draft Digest refers to the use in the caselaw of such signposts as “‘reasonable’ examination”,74 criteria such as the “cap-

67 Draft UNCITRAL Digest art. 38, ¶ 8 n. 23 [emphasis added], citing Oberlandesgericht M
nchen, Germany, 11 March 1998, CLOUT case No. 232; Landgericht Stuttgart, Germany, 31 August 1989, CLOUT case No. 4. 68 Draft UNCITRAL Digest art. 38, ¶ 8 n. 23, citing Oberlandesgericht M
nchen, Germany, 11 March 1998, CLOUT case No. 232. 69 See Unilex at http://www.unilex.info; Pace University CISG database at http://www.cisg. law.pace.edu/. 70 Draft UNCITRAL Digest art. 38, ¶ 8 n. 24, citing Hoge Raad, the Netherlands, 20 February 1998, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=328&step=Abstract; Oberlandesgericht Koblenz, Germany, 11 September 1998, CLOUT case No. 285. 71 Draft UNCITRAL Digest art. 38, ¶ 8 n. 24. 72 Hoge Raad, the Netherlands, 20 February 1998, abstract available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=328&step=Abstract. 73 Oberlandesgericht Koblenz, Germany, 11 September 1998, CLOUT case No. 285. 74 Draft UNCITRAL Digest art. 38, ¶ 10, citing Oberster Gerichtshof, Austria, 27 August 1999, available at http://www.cisg.at/1_22399x.htm.

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abilities of the buyer”,75 the “complexity of the goods”,76 and the “difficulty of conducting an examination”.77 Article 39 CISG Article 39 contains no express reference to the buyer’s circumstances

in guiding courts and tribunals in determining the reasonable time for notice of nonconformity. However, by requiring notice “within a reasonable time after he has discovered [the nonconformity] or ought to have discovered it” [emphasis added], it arguably recognizes that buyers in different circumstances might discover the same nonconformity at different times. Because the reference to discovery of the nonconformity is clearly tied to Article 38(1), this may be an allowance for the “circumstances” mentioned in that article.78 The specificity of notice required by Article 39(1) is more troubling. The draft Digest’s mosaic of the caselaw on the subject suggests that courts and tribunals consistently have used fairly high standards for specificity of the notice.79 Based on the language of the article – which leaves little room for flexibility in the detail it requires – this is expected. In determining a definition for the nonconformity that is to be specified, however, the draft Digest clearly indicates that the courts and tribunals have taken an approach that puts unsophisticated buyers at a disadvantage. Most decisions seem to agree that the purpose behind the requirement of specificity is so that the seller may cure the defect.80 Therefore, the actual, underlying defect – or, cause – rather than the more apparent effect of the nonconformity, must be 75 Draft UNCITRAL Digest art. 38, ¶ 10 n. 31, citing Oberlandesgericht Karlsruhe, Germany, 25 June 1997, CLOUT case No. 230, reversed on other grounds by Bundesgerichtshof, Germany, 25 November 1998, CLOUT case No. 270. 76 Draft UNCITRAL Digest art. 38, at ¶ 14 n. 53, citing Landgericht Dusseldorf, Germany, 23 June 1994, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1& do=case&id=115&step=Abstract. 77 Draft UNCITRAL Digest art. 38, ¶ 14 n. 54, citing Cour de Cassation, France, 26 May 1999, CLOUT case No. 315; Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=339&step= Abstract; Rechtbank van Koophandel Kortrijk, Belgium, 6 October 1997, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=339&step=Abstract; Landgericht D
sseldorf, Germany, 23 June 1994, abstract available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=115&step=Abstract. 78 Draft UNCITRAL Digest art. 39, ¶¶ 16-19. 79 Draft UNCITRAL Digest art. 39, ¶¶ 11-14. 80 Draft UNCITRAL Digest art. 39, ¶ 22, citing, e. g., Bundesgerichtshof, Germany, 4 December 1996, CLOUT Case No. 229. For a similar statement, see Bundesgerichtshof,

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reported to the buyer. This type of notice is required even in cases where the cause is likely to be determined by the seller who is made aware only of the effect. One case that is reported provides an excellent example. The buyer notified the seller that the truffles it had received were softer than they should have been. The court held that even though most professional sellers of truffles know that softness implies the existence of worms in the truffles, the notice should have specified that the nonconformity was the existence of worms.81 A more relaxed requirement of specificity would clearly benefit buyers who are in a position to discover the effect of the defect but not the defect itself. Some decisions reported in the draft Digest take a more flexible approach to the general requirement of specificity and apply different standards to “different kinds of buyers”.82 Article 44 The draft Digest recognizes a need for application of the excuse available under Article 44 to take an even more flexible and circumstance-based tack than under Articles 38 or 39.83 Three cases reported in the draft Digest directly or indirectly refer to the buyer’s circumstances as playing a role in determining reasonable excuse.84 Taken together, these cases indicate the need for a court or tribunal to consider all the relevant pressures that the buyer may be under in determining the nonconformity and then notifying the buyer of it. Until the quantity of caselaw deciding Article 44 issues increases, however, no clear picture will be available.

Germany, 3 November 1999, CLOUT Case No. 319. See also Oberlandesgericht Koblenz, Germany, 31 January 1997, CLOUT Case No. 282. 81 Draft UNCITRAL Digest art. 39, ¶¶ 5 n. 20, citing Landgericht Bochum, Germany, 24 January 1996, CLOUT case No. 411, abstract also available in Unilex at http://www. unilex.info/case.cfm?pid=1&do=case&id=194&step=Abstract. 82 Draft UNCITRAL Digest art. 39, ¶ 5 n. 20, citing Handelsgericht des Kantons Z
rich, Switzerland, 21 September 1998, CLOUT case No. 252; Landgericht Erfurt, Germany, 29 July 1998, CLOUT case No. 344. 83 Draft UNCITRAL Digest art. 44, ¶ 3. 84 Draft UNCITRAL Digest art. 39, ¶ 18 n. 97, citing Oberlandesgericht Koblenz, Germany, 11 September 1998, CLOUT case No. 285; Landgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 167; Obergericht des Kantons Luzern, Switzerland, 8 January 1997, CLOUT case No. 192.

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VI. Conclusion The abovementioned draft Digest references and others clearly suggest significant flexibility in determining the requirements for the buyer’s inspection of the goods. The overall tone of the report illustrates by analogy, if not by example, that the guidelines created by courts and arbitration tribunals may easily be applied to the circumstances in which buyers from developing nations often are situated. That caselaw does set the stage for compromise by creating mechanisms for being equitable. But this does not mean that these tools will be used in future cases, or that the tools will be used to benefit parties from developing regions. Disputes involving parties from these areas and involving these issues will provide the only real answers. The Digest will be an invaluable guide to scholars, courts and arbitration tribunals because it provides a simple, easily understood, although imperfect, image of the continuing compromises in international commercial law begun by the drafters of the Convention. Though the debates leading up to the Convention were resolved, it is difficult to determine the success of the solutions until the kinds of disputes that were anticipated – and hotly debated – come with some frequency before courts and arbitration tribunals. To be sure, many of the differences between social, economic, and legal cultures have never been adequately tended to; many were, of course, never even raised in the Convention negotiations. Ultimately, perhaps the Convention’s drafters (dare we call them negotiators?) were right to stray from their ideological grooves and beat out some rather unsatisfying compromises. The hope is that the arbiters of disputes are doing the same thing. In these matters, consensus comes by degree. It may be the only way we ever reach the semblance of uniformity.

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Beyond the Digest: Articles 53-65 Claude Witz* Translated from the original French by Vivian Grosswald Curran**

The provisions the CISG devotes to the buyer’s obligations are few in number, twelve in all. It flows from this that the part of the draft Digest dealing with the buyer’s obligations necessarily is shorter than the other parts of the draft Digest. The buyer’s obligations in international trade, just as in domestic trade, are simple to articulate and demand only light regulation: the buyer must pay the price and take delivery of the goods. These obligations do not necessitate regulation as detailed and subtle as for the obligations of the seller, who is the debtor in terms of the performance that is essential to the contract. Consequently, it is not surprising that the case law dealing with the buyer’s obligations is substantially less ample than its counterpart concerning the seller’s obligations. Paradoxically, the case law dealing with the buyer’s duty to examine the goods and to give notice of the lack of conformity within a reasonable time (Articles 38 and 39) has nurtured more cases than the obligations of the buyer in the strict meaning of the term (Articles 53 to 60). The decisions accessible since February 12, 2002, the date of submission of the part of the draft Digest synthesizing the case law dealing with Articles 53 to 60, and the Pittsburgh colloquium, should be added to the Digest. Most of them are of only limited interest and confirm tendencies already observed in the draft Digest.1 *

Professor of Law, University Robert Schuman, France (Visiting Professor, Strasbourg III (France), University of the Sarre (Germany)). ** Professor of Law, University of Pittsburgh. Translator’s Note: Throughout the text, and after consultation with the author, I have translated the one-word French terms “portable” [literally, “portable”] as “the debtor must seek the creditor;” and “que´rable” [literally, “which are to be sought”] as “the creditor must seek the debtor”. – VC 1 Many decisions refer correctly to Article 53 in the context of a verdict against the seller to pay the price: Landgericht Gttingen, Germany, 20 September 2002, available at http:// www.cisg-online.ch/cisg/urteile655.htm; Amtsgericht Viechtach, Germany, 11 April 2002, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020411g1.html; Oberlandesge-

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Had it been possible for this author to enter into a critical appraisal of the case law within the framework of the Digest, I would have taken a position on two questions: the first concerning the place of performance of the duty to pay the price or other monetary obligation (I); the other concerning the additional time period accorded to the buyer by the seller (II).

I. The place of execution of the duty to pay the price or other monetary duty A. The question of applying the rule of Article 57(1) to paying monetary sums other than the price

1. Recourse to a general principle or to the national law applicable to the contract Judges often have confronted the question of whether the rule set forth by Article 57(1), fixing the place of the payment of the price in principle at the seller’s place of business, applies equally to other financial obligations arising from the sales contract, such as the seller’s obligation to make restitution of the price following avoidance of the contract; the obligation by the party in breach of contract to pay damages; or, finally, the seller’s obligation to make restitution to the buyer of excess payments pocketed by the seller.2 The richt Rostock, Germany, 25 September 2002, available at http://cisg-online.ch/cisg/urteile/ 672.htm. One decision relies on Article 59 to give free run to the interests that are the focus of Article 78. Oberlandesgericht Rostock, supra. See also, in an implicit manner, Tribunal de commerce de Namur, Belgium, 15 January 2002, available at http://www.kuleuven.ac.be/int/ tradelaw/WK/2002-01-15.htm. Several decisions correctly apply Article 57 in order to ascertain the place of payment of the price, the first two within the framework of determining jurisdiction. Bundesgerichtshof, Germany, 7 November 2001, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/011107g1.html; Landgericht Flensburg, Germany, 19 January 2001, available at http://www.cisg-online.ch/cisg/urteile/619.htm; Oberster Gerichtshof, Austria, 22 October 2001, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 011022a3.html. Two American decisions usefully illuminate the conditions of resolution for the buyer’s failure to meet his obligations. U. S. District Court for the Western District of Michigan, United States, 17 December 2001, available at Shuttle Packaging Systems v. Tsonakis, 2001 WL 34046296, 2001 U. S. Dist. Lexis 21630, http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/011217u1.html; U. S. District Court for the Southern District of New York, United States, 10 May 2002, available at Geneva Pharmaceuticals Tech. Corp. v. Barr Labs, Inc., 201 F. Supp. 2d 236, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020510u1.html. (“Under Art. 60(a) of CISG failure to give commercially reasonable notice by Plaintiff does not entitle Defendant to terminate the contract”.). 2 Draft UNCITRAL Digest, art. 57, ¶ 3 et seq.

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practical impact attached to determining the place of performance of these financial obligations is significant. Indeed, the question of who must initiate the necessary steps to pay the financial debt and who must bear the risks and the cost of paying it, depends on the determination of this place of performance. If the debt is one for which the debtor must seek the creditor, in other words, if it must be paid at the creditor’s place of establishment, the steps that must be taken as well as the risks and costs belong to the debtor. In the event that the debt is one for which the creditor must seek the debtor, they are the creditor’s burden. We should remember that, pursuant to Article 57(1), the payment of the sales price in principle is one for which the debtor must seek the creditor. The draft Digest summarizes existing case law and shows that it is divided. Judges hesitate between applying relevant national law to questions not covered by the Vienna Convention,3 and implementing a solution derived from a general principle on which the Convention is based.4 It is striking to notice that the supreme court of one country, Austria, has changed position on this point in the space of little more than a year.5 Of the decisions rendered, the majority opt to resolve these issues by discovering and applying a general principle on which the Convention is based. I resolutely take a position in favor of recognizing a general principle at the heart of the Convention to govern these questions. It appears that we are dealing with a matter governed by the Convention, within the meaning of Article 7(2), since at stake is an element of the legal regime of an obligation that arises from a sale, in this case the place of performance, and the CISG expressly speaks to this place in situations involving the payment of the price, without giving an express answer in cases involving the payment of monetary debts other than the price. Having recourse to national law would be a source of complications and would have the disadvantage of leaving the law of the international sales of goods without uniformity with respect to a question that, considering the existing litigation, appears to be an important one from a practical perspective.

3 See, e. g., Oberster Gerichtshof, Austria, 10 March 1998; Cour d’appel de Paris, France, 14 January 1998, cited in draft UNCITRAL Digest, art. 57, ¶ 7 nn. 25-26. 4 See, e. g., Oberster Gerichtshof, Austria, 29 January 1999; Cour d’appel de Grenoble, France, 23 October 1996, CLOUT case No. 205; Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49, cited in draft UNCITRAL Digest, art. 57, ¶ 27-29. 5 See Oberster Gerichtshof, Austria, 10 March 1998; Oberster Gerichtshof, Austria, 29 June 1999 (draft UNCITRAL Digest, art. 57, ¶¶ 25, 29.

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2. Selecting a general principle The general principle to be sought is not necessarily unitary. It is important to analyze the issue in accordance with the nature of the monetary debt, and therefore to differentiate among restitution of the price following avoidance of contract, payment of damages, and the transfer back to the buyer of a surplus over the price.

a. Price restitution following avoidance of the contract CISG Articles 81 et seq. deal with the effects of avoidance, providing in

Article 81(2) for mutual obligations of restitution for parties to an avoided contract. The CISG does not, however, specify the modalities of the restitution of goods and of price. The CISG thus contains an internal gap which must be filled by a general principle on which the Convention is based. The widely prevailing scholarly commentary recommends the general principle approach, but the authors are in conflict as to the terms of the general principle that ought to be selected. According to one approach, representing only a small minority of scholars, it would be appropriate to apply Article 57(1) (a) and Article 31(c) directly to the restitution operations. Thus, just as the price in principle is payable at the seller’s place of business, similarly, the price also would be subject to restitution at the seller’s place of business.6 This solution was followed by the German Federal Court of Justice construing the ULIS with respect to the restitution of the price following avoidance.7 The validity of this solution can be contested seriously. Indeed, if one applies this principle, the buyer, even if a victim of a breach of contract, would have to assume the costs and risks of price restitution. If one extends this principle so that the goods would also be subject to restitution at the seller’s place of business, the consequences would be worse still: the buyer, even if the victim of a failure to perform, would have to assume the costs and risks of transporting the goods.8 On a theoretical level, one legitimately can pose the question whether the

6

Rolf Herber & Beate Czerwenka, Internationales Kaufrecht art. 57, no. 14 (1991). Bundesgerichtshof, Germany, 22 October 1980 (BGHZ 78, at 257 et seq.). See Peter Schlechtriem’s criticism, “Auslegung und L
ckenf
llung im internationalen Einheitsrecht: ‘Erf
llungsort’ f
r R
ckabwicklungspflichten in EuGV und EKG”, IPRAX 1981, at 113 et seq. 8 The disadvantages of the solution can be diminished as to the costs relating to restitution because they are subject to indemnification as damages sustained by the victim, pursuant to the prevailing view. See in particular Peter Schlechtriem, Internationales UN-Kaufrecht, no. 331 (1996). 7

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solutions applicable to primary obligations necessarily should be extended to secondary obligations arising from failure to perform the contract. According to a second approach, the prevailing one, Articles 57(1)(a) and 31(c) apply to restitution duties following avoidance by virtue of a mirror effect (,,spiegelbildlich‘‘). By this logic, the duty to make restitution of the price must be performed at the creditor’s place of business, since Article 57(1) articulates this rule for the payment of the price. If the price must be paid at the seller’s place of business, i. e., the creditor with respect to price, then one would conclude that monetary debts other than the price also must be paid at the creditor’s place of business. In other words, Article 57(1) would be seen to contain a general principle in theory covering the totality of monetary debts, and specifically debts of price restitution: the latter are debts for which the debtor must seek the creditor. Therefore, the restitution of price must take place at the creditor’s place of business, which in this case turns out to be the buyer’s place of business.9 This general principle follows the rule that debts of money are debts for which the debtor must seek the creditor, thus converging with the UNIDROIT Principles of International Commercial Contracts,10 and the Principles of European Contract Law,11 which contemplate the same rule for all monetary debts. This rule is sound. It is fair that the responsibility for transferring funds should be the debtor’s, and that the debtor should be free to choose the method of transmitting the funds. A parallel solution should be adopted with respect to restitution of the goods. Given that the seller’s duty to deliver the goods consists of putting the goods at the buyer’s disposal, in the absence of contrary agreement, at the place where the seller had its business at the time of the conclusion of the contract (Article 31(c)), the buyer that is obliged to make restitution of the goods must put them at the seller’s disposal at the buyer’s place of business. Thus, the return of goods as a general rule would be subject to the creditor’s duty to seek the debtor.12 A third approach, still distinctly in the minority but gaining support in recent commentary, focuses on the potentially negative consequences 9

See Ulrich Magnus, in Staudiger, Kommentar zum Wiener UN-Kaufrecht, art. 81, no. 19 (1999); Hans G. Leser, Rainer Hornung, in Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht art. 81, no. 17 et seq. (2000); Wolfgang Witz in Witz/Salger/Lorenz, Internationales einheitliches Kaufrecht, art. 57, no. 4 (2000). 10 UNIDROIT Principles of International Commercial Contracts, art. 6. 1. 6, ¶ 1(a) (1994). 11 See Principles of European Contract Law, art. 7:101(1)(a) (2000). 12 See Ulrich Magnus in Staudinger, supra note 9, at art. 81, no. 19; Hans G. Leser, Rainer Hornung, in Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, supra note 9, at art. 81, no. 17.

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flowing from the general principle under which the return of goods is subject to the creditor’s duty to seek the debtor, while restitution of money requires that the debtor seek the creditor.13 This approach concedes that the principle operates equitably in situations involving avoidance of contract following the seller’s failure to perform one of its obligations, especially in the situation of delivery of non-conforming goods. The seller will have to pay the amount corresponding to the price or to the fraction of the price received at the buyer’s place of business, and it is at the same place that it will have to take back the goods. The innocent buyer thus is freed from having to take any steps, and escapes the costs and risks associated with restitution procedures. On the other hand, this general principle leads to unfair consequences in a situation involving avoidance based on the buyer’s breach. The effects are particularly regrettable with respect to the place of the duty to make restitution of the goods. The seller, a victim of non-performance, would be forced to recover the goods at the buyer’s place of business, and thus assume the costs of transport. Although such costs would be reimbursable to the seller in the form of damages, that is a less than certain prospect, especially in cases where the buyer has failed to pay the price.14 It would be more logical for the buyer, the party in breach, to assume directly the costs and risks of transportation. As to the duty to make restitution of the price, it also would be appropriate that the buyer, who is owed restitution but who is the party in breach, should have to recover its payments at the seller’s place of business. The monetary debt thus would be one the creditor would have to seek from the debtor (seller).15 This outcome with respect to restitution of the price would have the double advantage both of relieving the innocent seller of the costs and risks of repaying the funds, and of facilitating reciprocal restitution within the framework of Article 81(2), since the place of restitution of the goods and of the price would be the same.

13

See Vincent Heuz, La vente internationale de marchandises, Droit uniforme 2000, no. 444 et seq. (2000); Markus Krebs, Die R
ckabwicklung im UN-Kaufrecht, 83 et seq.; Christian Thiele, Erfu¨llungsort bei der Ru¨ckabwicklung von Vertragspflichten nach Art. 81 UN Kaufrecht – ein Pla¨doyer gegen die herrschende Meinung, RIW 2000, p. 892 et seq. Accord, Ulrike Babusiaux, commenting on Oberster Gerichtshof, Austria, 29 June 1999 (Dalloz 2002, summary p. 318 et seq.). See also Peter Schlechtriem, Internationales UN-Kaufrecht, supra note 8, at no. 331, which describes the solution adopted by this approach as “conceivable and defensible for good reasons”. 14 See Krebs, supra note 13, at 86. 15 Accord Vincent Heuz, supra note 13, at no. 445; Christian Thiele, supra note 13, at 895. See contra Krebs, supra note 13, at 87, who advocates with respect to the duty to make restitution of the price the principle that the debtor must seek the creditor.

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It then would be appropriate to say that, in general, restitution duties following an avoidance of contract because of breach would have to be carried out at the place of business of the party that was the victim of the non-performance. The price therefore is subject to restitution at the buyer’s place of business if the avoidance occurred after the seller breached the contract, and at the seller’s place of business if the avoidance followed a breach of contract by the buyer. This principle is not in accordance with the general principle that monetary obligations are the burden of the debtor to seek from the creditor, but could be based on the principle of good faith. It would be contrary to good faith to make the victim of non-performance bear the risks of the non-performance.16 This author totally endorses this scholarly view and hopes that courts will adopt it. No judicial or arbitral decision to date has followed it.17

b. Amicable resolution The CISG contemplates amicable resolution of situations involving a claimed breach of contract by means of settlement agreements,18 but does not specify the method for reaching such a resolution. In cases involving such a settlement, priority is to be given to the parties’ wishes in determining the place of restitution of what has been paid under the contract. If the search to identify the parties’ wishes is not fruitful, the solution that should be followed is the principle that a monetary obligation should be performed at the creditor’s place of business. Nevertheless, one may well ask if this rule should not be modified for certain scenarios involving amicable resolutions. Indeed, certain settlements involve nothing other than the conventional arrangement the CISG contemplates for non-performance of the contract.19 There would be reason in such situations to extend to the amicable resolution the same general principle as would apply if the situation were governed by the Convention’s rules for breach:20 if the buyer has breached, restitution of goods should be effected by the buyer at the seller’s place of 16

Accord, Babusiaux, supra note 13; Thiele, supra note 13. See, nevertheless, Landgericht Krefeld, Germany, 24 November 1992, available at www.cisg-online.ch/cisg/urtcite/62.htm, which implicitly approved of this view with respect to the duty to make restitution of the goods. 18 See CISG art. 29. 19 The Oberster Gerichtshof, Austria, 29 June 1999, had the opportunity to rule on an amicable resolution of this kind: it had been reached following the delivery of nonconforming goods. The High Court ruled in favor of the application of Article 31 by virtue of a mirror effect to the rule governing the duty to make restitution of the goods. 20 Accord, Babusiaux, supra note 13. 17

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business. Thus it would be up to the debtor to seek the goods from the creditor. Similarly, the creditor would have to seek a refund of payments from the debtor. In other words, the obligation the seller bears to make restitution of all or part of the price would be situated at the seller’s place of business.

c. Restitution of surplus payments A decision of the Court of Appeals of Grenoble (France) reveals that the issues arising if the seller must make restitution of over-payments by the buyer are not hypothetical ones.21 It happens in real life that the amount paid by the buyer may exceed the sales price, in payment of a bill which contemplates a higher price than the one the parties actually agreed to, or due to a mistake by the buyer. The prevailing scholarly view, as well as the path the Grenoble Court of Appeals chose, is to implement the general principle which says the debtor of a monetary obligation must pay at the creditor’s place of business, monetary obligations as a general rule being those for which the debtor must seek the creditor. It seems to this author preferable, in keeping with the solution increasingly recommended in recent commentary on the restitution of the price following avoidance, to take into consideration the factual cause of the payment of the surplus. If such a payment is imputable to the seller’s act – which will be the case as a general rule – the surplus will have to be repaid at the buyer’s place of business, leading to the same result as the one that follows from the principle that the debtor must seek monetary obligations from the creditor. On the other hand, in the rarer situations in which the buyer has inadvertently paid a higher price than was agreed upon, the debt would be subject to the obligation of the creditor (buyer) to seek the debtor (seller).

d. Debts for damages Case law has less often encountered the issue of determining the place of the obligation to pay damages due because of a breach of contract. With respect to jurisdictional competence, the determination of the place of a debt for damages is irrelevant under the Brussels and Lugano Conventions or the Community Regulation of December 22, 2000, if the place of delivery is in a Member State. The place satisfying the requirements for the special jurisdiction contemplated with respect to contractual issues is identified in the Bloos decision of the European Court of Justice, a solution confirmed by the Treaty of Adhesion of 1978,22 as the place that was the basis for the 21

Cour d’appel Grenoble, France, 23 October 1996, CLOUT case No. 205. See Article 5(1) of the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (Brussels Convention), as modified by the Treaty of Adhesion of Oct. 9, 1978: “A person domiciled in a Member State may, in another Member State, be sued 22

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demand. In other words, the relevant place is the place of performance of the primary obligations that were breached, and we know that the obligation to deliver the goods is the only one to be considered pursuant to the Regulation of December 22, 2000.23 But other types of cases can arise. One distinction that has not yet emerged in the scholarly commentary deserves to be explored. Two categories of cases must be distinguished. First difficulties can arise with respect to special jurisdictional competence that is not based on any of the three instruments mentioned above. In such cases, it is up to domestic norms, such as Section 29 of the German ZPO (Code of Civil Procedure),24 or international norms that contemplate a special jurisdictional competence in contractual matters, to determine if it is necessary to focus on the place of performance of the obligation to pay damages, or on the place for performance of the primary obligation whose violation generated the damages. Once this issue is resolved, it is the substantive law governing damages, or that which governs breach of duty, which is relevant for determining the place of performance of the obligation. It is in this context that the CISG applies. In cases in which the law that contemplates a special jurisdictional competence refers not to the place of performance of the primary breached obligation, but rather to the place of performance of the obligation to pay damages, an internal gap appears in the Vienna Convention, since it is silent as to the place where damages are to be settled. This gap should be filled by the general principle that monetary debts are payable in principle at the creditor’s place of business.25 Secondly, a dispute may arise between the parties as to the place where the damages debt should be settled by the debtor, independently of any issue of a determination of jurisdictional competence. The general declaration sometimes made by scholarly writers,26 that the place of performance of a duty to ... in matters relating to a contract, in the courts for the place of performance of the obligation in question”. The Lugano adopts the same rule. 23 See draft UNCITRAL Digest art. 57, ¶¶ 4 and 5. When the place of delivery is not in a Member State, Article 57 regains all its importance and determines the place of payment and consequently jurisdictional competence. For more information on the interaction of Article 5(1) of the Regulation and the Vienna Convention, see Ulrich Magnus, Das UN-Kaufrecht und die Erf
llungsortzustndigkeit in der neuen EuGVO, IHR (Internationales Handelsrecht) 45 et seq. (2002). 24 See Section 29(1), ZPO (Zivilprozessordnung, Germany): “For litigation arising from a contractual relation and its existence, the court with jurisdiction is that of the place where the obligation which is the subject of the litigation must be performed”. 25 See the arguments above. 26 See Ulrich Magnus, in Staudinger, Kommentar zum Wiener UN-Kaufrecht art. 57, no. 22 (1999); Alexander L
deritz, Christiane Budzikiewicz, in Soergel, CISG art. 57, no. 8 (2000).

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repair damage is to be determined according to the place where the breached obligation was supposed to be performed, is debateable. From the contract breach that gives rise to damage, a new debt arises for the victim’s benefit, and the new debt is subject to its own system. On a pragmatic level, the solution that ties the place of performance of the monetary obligation to the (place of performance of the) primary obligation that was breached can lead to arbitrary results and should be rejected.27 Imagine a contract which assigns to a seller located in country A the obligation to deliver the goods ordered by the buyer located in country B directly to a sub-buyer located in country C, and the seller fails to perform its delivery obligation. Suppose that the buyer sues the seller, and the court rules that the seller must pay damages. Fixing the place of performance of the obligation to pay damages at the place of business of the sub-buyer would not make sense. The natural place for payment of the debt of damages can be only the place of business of the creditor or of the debtor. For the same reasons developed generally in support of the principle that the debtor must seek monetary debts from the creditor, it is appropriate to apply the rule that the debt of damages must be paid at the creditor’s place of business. B. Possible effects of assigning the price debt for the place of payment An important practical question is one that arose before the Oberlandesgericht Celle (Germany):28 when the receivable for the sales price has been assigned, does the assignment have the effect of transferring the place of payment to the place of business of the assignee? Given the frequency of debt assignments, whether in the context of factoring or of secured lending, this problem will arise with increasing frequency in practice. The Oberlandesgericht Celle was obliged to rule on its jurisdictional competence pursuant to Article 5(1) of the Brussels Convention, which provides for a special jurisdictional authority at the place of the performance of the obligation on which the suit is based. The court applied the Vienna Convention to determine the place of performance of the obligation to pay the price. The sale was concluded between a seller whose place of business was in Germany, and a buyer whose place of business was in Portugal. Pursuant to CISG Article 1(1)(b), the German court applied the Vienna Convention and Article 57(1)(a). The seller had assigned its debt to 27

See along these lines Peter Schlechtriem, Notes on Oberlandesgericht D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49 (at 1075 et seq.); G
nter Hager, in Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, supra note 9, art. 57, no. 25. 28 Oberlandesgericht Celle, Germany, 11 November 1998, CLOUT case No. 274 (in draft UNCITRAL Digest art. 57, ¶ 11).

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a third party whose place of business was in the Netherlands,29 the court ruled that the assignment operated to transfer the place of payment, initially in Germany, to the Dutch assignee’s place of business. Thus the German court found that under the Vienna Convention, the place of payment of the price is the assignee’s place of business. As a result, the judges found that they lacked jurisdiction to judge the litigation. One line of commentators on the Vienna Convention agrees with this case that the assignment of the debt of the sales price, assuming it is effective under the relevant national law applicable to debt assignment, results in the transfer of the place of payment pursuant to the Vienna Convention, and that it is appropriate to apply Article 57(2) by analogy. Just as “the seller must bear all increases in the fringe expenses to the payment which result from its change of place of business after the conclusion of the contract”, so too the seller must bear the increase in the expenses generated by a change in place of payment due to the assignment of the debt.30 This analysis appears highly contestable.31 It is universally agreed that issues of debt assignment are outside the scope of the CISG, and that they constitute external gaps rather than internal gaps governed by Article 7(2). It is thus a matter left exclusively to applicable national law, or to international conventions unifying the law of assignments,32 or even to 29

I have intentionally simplified the facts here: in the actual case, numerous intertwined assignments occurred. 30 Magnus, in Staudinger, supra note 9, at art. 5, no. 18; Hager, in Schlechtriem, supra note 9, at art. 57, no. 8; Witz, in Witz/Salger/Lorenz, supra note 9, at art. 57, no. 15. 31 Accord A. K. Schnyder & R. M. Staub, in Kommentar zum UN-Kaufrecht, art. 57, no. 24 (1996); Wolfgang Rosch, remarks on Oberlandesgericht Celle, Germany, 11 November 1998, CLOUT case No. 274 (D. 2000, Summary, at 437 et seq.). See also Dietrich Maskow, Article 57, in Commentary on the International Sales Law 3. 1 (Cesare Massino Bianca & Michael Bonett, eds., 1987). 32 See UNIDROIT Convention on International Factoring (Ottawa, 28 May 1988) art. 8(1): [t]he debtor is under a duty to pay the factor if, and only if, the debtor does not have knowledge of any other person’s superior right to payment and notice in writing of the assignment ... (b) reasonably identifies the receivables which have been assigned and the factor to whom or for whose account the debtor is required to make payment; see United Nations Convention on the Assignment of Receivables in International Trade (2001), Article 15, from which it emerges that an assignment of debt has no effect on the rights and duties of the debtor, including the conditions of payment articulated in the initial contract, but that the payment instructions may be modified with respect to the person, address or on behalf of whom the debtor must make payment, but not with respect to “[t]he State specified in the original contract in which payment is to be made to a State other than that in which the debtor is located.

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non-binding instruments33 chosen by the parties or implemented by the arbitrator, to determine if a debt assignment results in a transfer of the place of payment. It is illogical to conclude, given that debt assignment does not come within the purview of the Convention, that a specific aspect of the debt assignment system – that determining the place of payment – nevertheless is governed by the Vienna Convention. It seems equally vain to argue, as a counter to the approach of submitting the issue to the law governing debt assignment, that the situation involving a change of place of business due to a debt assignment is too close to that of a seller’s change of place of business during the course of a contract (in which case, under Article 57, the buyer must pay at the new place of business) to justify a different outcome. Conceptually, however, the two situations deserve to be distinguished clearly. The seller’s change of place of business is an event that occurs in the course of the sales contract, whereas the debt assignment is an event external to the sale.34 To require the buyer to pay the price at the assignee’s place of business is a restriction that goes beyond, by both its nature and its effects, that which obliges the buyer to pay the price at the seller’s new place of business. Since the effects of the debt assignment on the place of payment of the sales price are not governed by the CISG, there are only two possibilities. Either the norm applicable to the assignment obliges the assigned debtor to pay the debt at the domicile or place of business of the assignee – in which case the buyer will have to pay the price at this new place – or else this norm adheres to the principle that the assignment does not affect the place of payment. In the latter case it is incumbent upon the assignee to take the necessary steps, for example, by conferring on the assignor of the debt (i. e., the seller of the goods) the power to receive the price or by opening a bank account at the initial place of performance, or even by proposing to the buyer that the assignee assume the extra costs of paying the price at the assignee’s place of business. Otherwise, the assigned debtor will have to proceed to a deposit of

33

See the appealing regulation adopted by the Principles of European Principles of Contract Law within the framework of Chapter 11 on assignment of claims: Article 11:306 – Place of Performance – (1) Where the assigned claim relates to an obligation to pay money at a particular place, the assignee may require payment at any place within the same country or, if that country is a Member State of the European Union, at any place within the European Union, but the assignor is liable to the debtor for any increased costs which the debtor incurs by reason of any change in the place of performance. (2) Where the assigned claim relates to a non-monetary obligation to be performed at a particular place, the assignee may not require performance at any other place. 34 Accord, Rosch, supra note 31.

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funds pursuant to the applicable law of the country where the initial payment was made.

II. Transactions involving an additional time period for performance granted to the buyer by the seller Article 63(1) is devoted to the seller’s right to grant the buyer an additional time period to perform its obligations. This provision is very useful in practice if the additional time has been granted for the performance of the obligation of paying the price or of taking possession of the goods. In case of the buyer’s failure to pay or take delivery within the additional time, the seller can declare the contract avoided, without such avoidance being conditioned on establishing a fundamental breach (Article 64(1)(b)). Article 63(1) and Article 64(1)(b) should not be particularly difficult to apply. There is, however, the question of what one should understand by “obligation to pay the price” within the meaning of Article 64(1)(b). Pursuant to the clearly dominant scholarly view, the obligation to pay that this norm addresses includes preparatory measures for payment, such as obtaining an authorization to transfer currencies or opening of a letter of credit.35 The case law dealing with Articles 63(1) and 64(1)(b) is hardly abundant.36 In the few extant decisions, it is surprising that the judges still are not clear on the norms, even though their meaning actually is clear. Two decisions may be criticized. The decision of the Supreme Court of Queensland of November 17, 2000 deserves such criticism.37 The buyer had failed to open a letter of credit that the contract made the buyer’s responsibility, and the Australian judges concluded that the contract had been avoided for fundamental breach pursuant to Article 64(1)(a). Yet the facts, provided in meticulous detail by the Court, reveal that the seller had, by letter of August 5 sent by the seller’s lawyers, required the buyer to establish a letter of credit by the end of the day on August 7. The Court attached no particular importance to this letter. A good judicial decision would have included an analysis of the combined effect of Article 63(1) and Article 64(1)(b). It is possible that the seller, by 35

See Albert Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 389-90 (1989). 36 See Draft UNCITRAL Digest art. 63, ¶ 2. 37 Supreme Court of Queensland, Australia, 17 November 2000 (Downs Investments v. Perwaja Steel).

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its letter of August 5, granted the buyer an additional time period of reasonable length for the performance of the buyer’s obligation. The judge then should have inquired as to whether the avoidance declared by the seller following the expiration of the additional time period could be based on Article 64(1)(b), which permits the seller to declare the contract avoided “if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price ...” The Court then should have examined the issue of whether the measures that were preparatory or incidental to paying the price, which were the buyer’s responsibility under the contract, arose from the “obligation to pay the price” (Article 54). Pursuant to the clearly prevailing scholarly view, as noted previously, the answer is yes. Consequently, the judges should have deduced that the Seller’s avoidance was within the scope of Article 64(1)(b), since the buyer did not deliver the letter of credit in the additional period of time granted by the seller. It therefore was unnecessary to verify the existence of a fundamental breach as the Australian judges had done. This decision reflects an insufficient understanding by the judges and the lawyers of the provisions and workings of the CISG. A similar failure to understand is evident in the decision of September 20, 2002 of the Gttingen Landgericht.38 A series of sales contracts had been concluded between a seller whose place of business was in Germany and a buyer whose place of business was in The Netherlands. The buyer failed to pay several invoices and had not taken delivery of an order, and the seller claimed damages as a consequence. The German court ruled, in reasoning that is immune to criticism, that the claim for damages was justified in this case, that the right to damages derived from Article 61(1)(b) of the CISG, that according to this norm the seller has the right to damages when the buyer fails to perform one of the obligations arising from the contract, and that taking delivery of the goods was an obligation of the buyer. But the judges then declared, in a highly questionable statement, that “pursuant to Article 63(1), the seller must grant the buyer a reasonable amount of time for the performance of the buyer’s obligations”, and that such a time period had not been granted by the seller. The court went on to hold that the seller did not need to grant the additional time in this case because the buyer refused in a definitive manner to accept the delivery. Thus, despite the failure to grant the buyer additional time to take delivery, the seller was able to obtain damages following the buyer’s breach of contract. It is easy to pinpoint the mistake in interpretation committed by the German judges in this decision of a court of first instance: the granting of an 38 Landgericht Gttingen, Germany, 20 September 2002, available at http://www.cisgonline.ch/cisg/urtcile655.htm.

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additional period of time under Article 63 is not, in any situation, an obligatory step in the system of remedies the CISG contemplates. It is only an option open to the victim of the non-performance. The terms of Article 63(1), pursuant to which the seller “may” grant an additional time period are very clear. Apparently, the judges in the case under discussion transposed to the heart of the Vienna Convention the rules of Germany’s Civil Code.39 The erroneous handling, in these two decisions, of the provisions dealing with the granting of an additional time period following a breach by the buyer is due to a too cursory reading of the CISG’s rules. But this reproach to these specific decisions should not be generalized to other decisions applying Articles 63 or 64.40

III. Conclusion No doubt the preparation of a Digest on the Vienna Convention, or on other instruments initiated or overseen by UNCITRAL, is a good initiative. Judges will certainly profit from a work showing the trends in case law. It is a shame, however, that a synthesizing work tracing fifteen years of application of the Vienna Convention could not contain critical remarks or cautionary statements. It also is regrettable that citations to scholarly commentary are absent from the work, with the consequent loss of an efficient assistance to judges who have not gone beyond the text of the Convention and of the Digest in their reading. The uncertainties surrounding the question of the place of performance of monetary obligations other than the obligation to pay the price illustrate the irreplaceable role of scholarly commentary in the search for a reasonable outcome. Although one might think that everything has been said already, and that one hardly can imagine new proposals on the interpretation of the Vienna Convention, new solutions still are conceivable. For example, the 39

See old Section 326, ¶ 1 BGB and new Section 323 BGB, applicable since Jan. 1, 2002. For a good application of the rules governing Nachfrist, see the caselaw cited in the draft UNCITRAL Digest art. 63, ¶ 2. In addition, see Oberster Gerichtshof, Austria, 28 April 2000, available at http://www.cisg-online.ch/cisg/urteile/581.htm. For a good application of the rules governing avoidance, see US District Court for the Western District of Michigan, United States, 17 December 2001 (Shuttle Packaging Systems v. Tsonakis, et al., 2001 U. S. Dist. LEXIS 21630) (“Article 64 is also specifically worded to give the implication that nonpayment of the purchase price is the most significant form of a fundamental breach by a buyer, since, as to a serious non-payment, no additional notifications are required for avoidance of the contract”.). 40

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suggestion that the place of performance of restitutionary obligations resulting from avoidance of a sales contract depends on the party responsible for the failure to perform has been advanced only recently. The safeguarding and the reinforcement of the process to bring uniformity to the law of international sales surely implies the need for a fruitful dialogue between scholarly commentary and case law. One must, therefore, salute the initiative in this respect that the University of Pittsburgh’s Center for International Legal Education has taken in organizing this book and the conference from which it grew.

439

Buyer obligations under the CISG John E. Murray, Jr.* The performance obligations of the buyer under the Vienna Convention on Contracts for the International Sale of Goods are found in Part III, Chapter III, in thirteen Articles, 53 through 65. Article 53 mandates the basic obligations of the buyer to pay the price and take delivery of the goods as required by the contract and the Convention. Section I (Articles 54 through 59) governs what price must be paid, when it must be paid and where it must be paid. Section II (Article 60) establishes the buyer’s obligation in taking delivery of the goods. Section III (Articles 61 through 65) provide the sellers’ remedies for the buyer’s breach of contract.

Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. Principal obligations of the buyer This Article states the general principle that the buyer must pay the price and take delivery of the goods “as required by the contract and this Convention”.1 If the contract requires performance that conflicts with the Convention, the contract terms prevail. In effect, the Article recognizes the right of the parties to derogate from the Convention pursuant to Article 6. Absent such conflicting terms, the requirements of the Convention will apply. Thus, the buyer’s obligations under Article 53 may be seen as the basic “default” or “background” rules that apply absent contract terms requiring another manner of performance. In a contract between a Russian seller and English buyer, the seller sent an invoice to a third party (another English company) pursuant to the buyer’s request. The buyer intended to place the payment obligation on the third *

Chancellor and Professor of Law, Duquesne University. Cf. U.C.C. § 2-301, stating that the general obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

1

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party. When the seller delivered the goods to the buyer as required, the buyer failed to pay for the goods. The Tribunal relied on Article 53 requiring the buyer to pay the price as required under the contract. Even assuming the buyer had a commitment from the third party to pay the seller, the contract contained no provision allowing the buyer to transfer its obligation to the third party. Absent such a provision, there was no contract term in conflict with the obligation of the buyer under Article 53 to pay for the goods upon delivery. The Tribunal granted recovery of the full price to the seller.2 Additional obligations of the buyer Among the additional obligations the contract terms may impose upon the buyer, a common obligation requires the buyer to provide a letter of credit. Where a Hong Kong seller and a Chinese buyer contracted for the purchase and sale of fish powder, the buyer’s failure to obtain an irrevocable letter of credit as required by the contract constituted a breach of contract.3 The contract may impose other obligations on the buyer such as the obligation to specify the form, measurement, or other features of the goods.4 While Article 53 is mentioned in numerous cases as a general principle, the cases typically focus upon the more specific subsequent Articles which elaborate the principal obligations stated in Article 53.5 Beyond the basic obligation to pay the price, it is rare for a court to rely on Article 53 alone to analyze other buyer obligations.6

Article 54 The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

2 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 22 January 1996, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/960122r1.html#cabc (Case No. 40/1995). 3 Xiamen Intermediate People’s Court, China, 31 December 1992, abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=212&step=Abstract (Lian Zhong v. Xiamen). 4 The Convention addresses the failure of a buyer to meet such a requirement in Article 65. 5 See, e. g., ICC Court of Arbitration, Case No. 8716, February 1997, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/978716i1.html. 6 See Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 133.

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The general requirement The preparatory steps necessary to make payment when due are obligations of the buyer. Thus, a buyer’s failure to meet the necessary formalities, laws and regulations required to make payment or the failure of the buyer to perform other preparatory requirements under the contract, such as the opening of a letter of credit or other security arrangements, constitutes a breach of contract, activating the seller’s remedies for the buyer’s breach in Articles 61 through 65. The effect of the failure to perform these obligations should be distinguished from the situation that may allow a seller to suspend performance under Article 71(1)(b), anticipatory breach, where it becomes apparent that the buyer will not be able to perform a substantial part of his obligations as a result of his conduct in preparing to perform the contract. In a contract between a German buyer and Austrian seller, the court recognized the buyer’s obligation under Article 54 to obtain a letter of credit, though the buyer was excused under the facts of this case because the seller had not provided the necessary details. The buyer was not obligated to provide a “blank” letter of credit.7 Scope of the buyer’s obligations Whether Article 54 requires the buyer only to use reasonable or best efforts to accomplish the necessary preparatory steps for payment or whether he is obligated to produce the results that will allow payment is subject to interpretation. Where the preparatory steps are commercial in nature such as the opening of a letter of credit, the buyer is obliged to obtain this result. Where, however, the preparatory steps require approval by an administrative authority such as the approval of a transfer of funds, Article 54 may be interpreted only to require the buyer to use best efforts to assure that result on the footing that the buyer should not be held to guarantee administrative competence. Another interpretation, however, would require the buyer to ascertain this result, subject only to being excused under Article 79 for failure to do so because of an impediment beyond his control which he could not have been reasonably expected to have taken into account at the time the contract was concluded or to have later overcome. As a practical matter, however, there may be preciously little difference between these interpretations where a buyer pursues reasonable and best efforts to meet administrative requirements that will allow him to pay for the goods but such payment is precluded by unexpected impediments.

7

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Oberster Gerichtshof, Austria, 6 February 1996, CLOUT case No. 176.

Buyer obligations under the CISG

Currency of payment Article 54 does not address the currency of payment. The parties may expressly or impliedly agree on the currency of payment. Article 9 binds the parties to any usages or practices they have established between themselves (9(1)) as well as widely known usages in international trade that they knew or ought to have known (9(2)). Absent such agreement, Article 7(2) directs courts to settle matters not expressly settled by the Convention in accordance with the general principles on which it is based. Thus, courts generally find that the currency of payment is the currency at the seller’s place of business on the footing that this is generally the place where the obligation to pay the price is discharged.8 Absent other contract terms, it is also the place where the seller is bound to place the goods at the buyer’s disposal (Article 31(c)). Interest payments Neither Article 54 nor other Articles in Chapter III address the recovery of interest when the price is not paid when due. Where an American seller sought to recover the price plus interest from an Argentine buyer, the court held that the interest was recoverable since it was a widely known usage in international trade to which the parties were bound under Article 9(2).9 In Chapter V, however, Article 78 states that the seller is entitled to interest, “without prejudice to any claim for damages”. Various efforts to elaborate this provision and to provide some certainty in its application failed. Beyond the general recognition that the seller is entitled to interest on sums in arrears, the Convention does not provide further delineation. The tendency is to leave the matter to domestic law though Article 7(2) would suggest settlement in accordance with the general principles of the Convention.10 The interpretation directive in Article 7(1) to promote uniformity would suggest a determination of interest in accordance with the terms of the contract. If the currency of payment is generally the currency at the seller’s

8 A court held that a contract between a German buyer of clothes and an Italian seller expressly required payment in Italian lire, but even if the contract did not contain such a term, payment in Italian currency would have been required under Article 57(1)(a). Kammergericht Berlin, Germany, 24 January 1994, CLOUT case No. 80. 9 Juzgado Nacional de Primera Instancia en lo Comercial No. 7, Argentina, 20 May 1991, CLOUT case No. 21 (Elastar Sacifia v. Bettcher Industries). 10 Further discussion is beyond the scope of this paper. For an exploration of different views including whether domestic law or the principles of CISG should govern, see Franco Ferrari, Specific Topics of the CISG in the Light of Doctrinal Writings and Judicial Applications, 15 J.L. & Com. 122-25 (1995).

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place of business, uniformity would argue that the rate of interest should be determined in the same fashion.

Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. The celebrated controversy over the interpretation of Article 55 is predicated on a confrontation with the requirements for a sufficiently definite offer in Article 14(1) which states that a proposal for concluding a contract is sufficiently definite if it “expressly or implicitly fixes or makes provision for determining ... the price”. One interpretation of Article 55 suggests that a contract may be “validly concluded” even though it neither expressly nor implicitly fixes a price. Another interpretation finds no solution in Article 55 since that Article becomes operative only after it is determined that a contract has been validly concluded. Thus, Article 55 in Part III of CISG dealing with the obligations of parties to an existing contract is said to be designed for use only where a Contracting State made an Article 92(1) declaration that it will not be bound by Part II of the Convention, which includes Article 14. If the contract containing no express or implicit price was found to be validly concluded under the domestic contract law of that State, Article 55 could then be applied to insert a “price generally charged”. There is a foundation for each interpretation in the delegates’ deliberations of these sections.11 Whatever their respective merits, it is important to consider other dimensions of the Convention. On its face, Article 55 may appear to state a contradiction. It assumes a validly concluded contract that fails to expressly or implicitly make provision for determining the price. It further assumes, however, that there is a “price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances” to which the parties have “impliedly made reference”. If such a generally charged price exists to which the parties have impliedly made reference, it is plausible to suggest that the parties “implicitly” fixed the price for such goods. Such a construction, 11

For a more complete exploration of this controversy involving two distinguished American scholars, Professors John Honnold and Alan Farnsworth, see John E.Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 7 J.L. & Com. 11 et seq. (1988).

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however, would make Article 55 superfluous. The conventional wisdom is that, unlike Article 14(1) that recognizes the fixing of an “implicit” price by a party making the offer which is accepted, Article 55 recognizes price fixing by a court. Again, however, by its terms Article 55 assumes the existence of a generally charged price for such goods under comparable circumstances to which the parties have impliedly made reference at the time the contract was formed. It is clear that Article 55 does not apply where the parties have determined the price.12 It is equally clear that Article 55 is inapplicable where the parties have made the price determinable13 or where the parties made their contract subject to subsequent agreement on the price.14 Since the contract price is such a critical term, cases where the parties have neither determined the price nor manifested an intention of how it would become determinable while otherwise manifesting an intention to be contractually bound are rare. Notwithstanding the absence of any express or implicit price term in a contract for raw materials, a Dutch seller recovered the contract price from a Swiss buyer under Article 55.15 On the other hand, the case most often discussed in relation to Articles 14(1) and 55 concluded that the price term was insufficiently definite under 14(1) and could not be rescued under 55.16 A United States manufacturer of jet engines agreed to sell engines to a Hungarian buyer. The particular engine model depended upon whether the buyer would later choose to purchase aircraft from Boeing or Airbus. The parties signed an agreement evidencing their intention to be bound. When the buyer stated that it would not purchase the engines, the court of first instance decided that a contract had been formed, but the Hungarian Supreme Court found that since the seller’s offer did not contain the price for all types of engines, under Article 14(1) the offer was insufficiently definite. It would, however, be erroneous to assume that the court found that no contract could be “validly concluded” because the offer neither expressly nor 12

See, e. g., Cour d’Appel de Grenoble, France, 26 April 1995, CLOUT case No. 151, where the court held that Article 55 is overridden by the contrary agreement of the parties as to price. 13 ICC Court of Arbitration, Case No. 8324, 1995, abstract available in Unilex at http:// www.unilex.info/case.cfm?pid=1&do=case&id=240&step=Abstract (Journal du Droit International 1019 (1996)); Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106. 14 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 3 March 1995, CLOUT case No. 139. 15 Bezirksgericht St. Gallen, Switzerland, 3 July 1997, CLOUT case No. 215. 16 Legfelsobb Brs g (Supreme Court), Hungary, 25 September 1992, CLOUT case No. 53 (Pratt & Whitney v. Malev Hungarian Airlines).

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implicitly fixed the price. Indeed, the court briefly considered the possible application of Article 55 to salvage this contract to determine whether the parties could be said to have impliedly referenced a price for the jet engines “generally charged at the time of the conclusion of the contract”. The court concluded that “jet engines have no market prices”. In the absence of a “price generally charged at the time of the conclusion of the contract”, Article 55 could not rescue this agreement. There can be no doubt that the interpretation of contracts under the CISG is predicated upon the intention of the parties. Unless a party knows or could not have been aware of the other party’s subjective intention,17 statements and 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”.18 “[A]ll relevant circumstances” must receive “due consideration” in determining the “understanding of a reasonable person” including “practices which the parties have established between themselves, usages and any subsequent conduct of the parties”.19 The parties are bound by such courses of dealing or usages20 as well as usages which they knew or ought to have known, including those which are widely known in international trade and regularly observed by parties to contracts of the type involved.21 Thus, a price term can be implicitly determined by the parties’ course of dealing between themselves, trade usage, or their course of performing the contract. A case illustrating these principles involved an Austrian buyer that ordered 249 chinchilla pelts from a German seller. The price was stated as between 35 and 65 German marks per pelt. Without opening the package, the buyer resold the goods to an Italian dealer in pelts who returned thirteen pelts of allegedly inferior quality. The Austrian buyer refused to pay for the rejected pelts. The court of first instance found that the pelts were as specified in the contract and established 50 German marks per pelt as a reasonable price. The Court of Appeal confirmed the decision and found that the price range agreement (35 to 65 marks) did not preclude the valid conclusion of the contract since Article 55 of the Convention recognizes the usual market price where the price is not otherwise explicit or implicit. The Supreme Court, however, found that resort to Article 55 was unnecessary. It held that the offer was sufficiently definite under Article 14 since it could be perceived as such by a reasonable person under Article 8(2). In determining that the 17 18 19 20 21

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Art. 8(1). Art. 8(2). Art. 8(3). Art. 9(1). Art. 9(2).

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offer was sufficiently definite, the court recognized the behavior of the Austrian buyer who accepted the goods and resold them without questioning the price, quality or quantity.22 Courts are required to observe good faith in international trade and to promote uniformity in the application of the CISG.23 Matters not expressly governed by the Convention are to be settled in conformity with such foundational principles.24 If, therefore, parties manifest an intention to be bound to a contract, a court must resolve any ambiguities in accordance with the underlying philosophy of the Convention.25 This would include effectuating the intention of the parties as required by the Convention and rejecting overly technical claims that would allow a party to exercise bad faith in a claim that no contract had been formed. On these bases alone, the different interpretations of the interaction between Articles 14 and 55 may be reconciled. Again, however, even a literal application of their norms provides a reconciliation. If parties manifest an intention to be bound to an agreement but have not determined the price, absent contrary evidence, it would be absurd to conclude that a reasonable buyer did not intend to pay a price generally charged for such goods. Indeed, such a price could be said to be “implicitly fixed” in the proposal. Trade usage and usages widely known in international trade support such an “implicit price”. In the extremely rare situation in which the court cannot discover a price generally charged for such goods, a court will have no basis for affording a remedy. In discussions of Articles 14 and 55, it is tempting to suggest that the domestic law of a given contracting state would be more liberal in permitting a court to supply an omitted price term.26 The United States Uniform Commercial Code states, “The parties if they so intend can conclude a contract for sale even though the price is not settled”.27 A Comment to this section, however, recognizes a rare situation where the absence of a price will 22

Oberster Gerichtshof, Austria, 10 November 1994, CLOUT case No. 106. Art. 7(1). 24 Art. 7(2). 25 Where a German seller sued a Swiss buyer, the court found that an unsigned fax that did not contain all of the elements of a contract was sufficiently definite under Article 14(1) because it expressed the buyer’s intention to purchase the equipment. Handelsgericht St. Gallen, Switzerland, 5 December 1995, CLOUT case No. 330. 26 See, e.g., Paul Amato, U.N. Convention on Contracts for the International Sale of Goods – The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, 13 J.L. & Com. 17-18 (1993). 27 U.C.C. § 2-305(1). 23

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preclude the finding of a contract. Thus, where the parties agree that the price of a particular painting for which there is no market standard will be valued by a known and trusted expert, a court will not recognize a binding agreement if that expert becomes unavailable.28 In the language of the Convention, there would be fatal absence of a “generally charged price”. Thus, while such a domestic law standard may appear to be more liberal that the Convention standard, in terms of practical judicial reasoning in pursuit of the underlying philosophy of the Convention, the differences may be more apparent than real. The inescapable conclusion is that, what has become a celebrated controversy over the appropriate interpretations of Articles 14 and 55 may be much ado about not very much.

Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. Absent a contrary agreement between the parties, this rule of interpretation requires the weight of the goods to be the “net weight”, i. e., the weight of the goods and not the packaging, to determine the price. Article 35(2)(d) requires the seller to deliver goods that are appropriately packaged, but unless otherwise agreed, the price must be determined by the weight of the goods inside the package. This Article presents no controversy and has been rarely mentioned in the case law.29

Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: (a) at the seller’s place of business; or

28

Comment 4 to U.C.C. § 2-305. While it played no significant role in the decisions, two cases mention Article 56: U.S. Bankruptcy Court for the Northern District of Ohio, United States, 10 April 2001 (Victoria Alloys v. Fortis Bank, 37 Bankr. Ct. Dec. 213); Juzgado Nacional de Primera Instancia en lo Comercial No. 7, Argentina, 20 May 1991, CLOUT case No. 21 (Elastar Sacifia v. Bettcher Industries). 29

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(b) if the payment is to be made against the handing over of the goods or documents, at the place where the handing over takes place. (2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract. The general meaning of Article 57 This Article defines where payment is to be made. Absent a contrary agreement, the buyer is bound to pay the price at the seller’s place of business (57(1)(a)) unless the parties agree that the price is to be paid against handing over of the goods or documents in which case the price must be paid at the place where the handing over occurs (57(1)(b)). The buyer sustains the burden of proving that payment of the price has been made.30 If the seller changes its address after the contract is concluded, the buyer must pay the price at the seller’s new address. A seller is not, however, justified in complaining about a buyer failure to make payment when due at a new address if the seller has failed to notify the buyer in time to allow performance at the new address.31 Moreover, where the seller’s change of address causes an increase in expenses incidental to the payment, the seller must bear the increase in such expenses (57(2)).32 Jurisdiction and Article 57 Though jurisdiction issues are outside the scope of the Convention, many courts have resorted to the Convention to determine whether they have jurisdiction. This is particularly true in Europe under Article 5(1) of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters which allows a party domiciled in a Contracting State to be sued on contract matters in the court for the place of the performance of the obligation in question.33 Courts have generally agreed that Article 57(1) identifies the place of performance where the 30 Juzgado Sexto de Primera Instancia del Partido de Tijuana Estado de Baja California, Mexico, 14 July 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000714 m1.html#cabc, (Internationales Handelsrecht 38 (2001)); Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273. 31 Art. 80. 32 There is a question as to the applicability of Article 57(2) where the seller assigns its right to another party. One case holds that the assignment of the right to receive the price does not have the effect of transferring the buyer’s obligation to pay from the place of the assignor to the assignee; Oberlandesgericht Celle, Germany, 11 November 1998, CLOUT case No. 274.

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obligation is the payment of the price.34 For countries in the European Union, however, this analysis has recently undergone a modification. With the exception of Denmark, a new European Council Regulation that became effective on March 1, 200235 replaced the Brussels Convention with the result that Article 57 of the Convention will no longer affect jurisdictional issues. Unless the parties have otherwise agreed, the regulation substantively determines the place of performance to be considered for contracts for the sale of goods and contracts for services. In sale of goods cases, the relevant place is “the place in a Member State where, under the contract, the goods were delivered or should have been delivered”. Article 57 will no longer be relevant in making this determination. The purpose of the new regulation is to lessen the ease of sellers in suing buyers before courts of the seller’s domicile or place of business. Monetary obligations other than the price The courts are not in complete agreement as to whether Article 57(1) is applicable to actions to recover sums other than the price. Where a French Company purchased two circus elephants from a Spanish trader, the buyer cancelled the purchase because veterinary services had not authorized the importation of the animals. Since the cancellation had occurred seventy days after the invoice date and for reasons unconnected to the animals, the seller refunded only part of the purchase price. The buyer sued the seller before the Commercial Court of Paris. Invoking the Brussels Convention on Jurisdiction and the Enforcement of Judgments under which a defendant may be sued in contractual matters at the place where the obligation underlying the claim has been or is to be performed, the Commercial Court declined jurisdiction in favor of the Spanish courts. The Court of Appeal upheld the decision under Article 5(1) of the Brussels Convention. In referring to CISG, the court considered Article 7(2) to determine whether the place of restitution of the price could be settled in accordance with the general principles on which CISG is based. It held that Article 57(1) could not be construed as a general principle regarding the place of payment since 33 See also Article 5(1) of the analogous 1988 Lugano Convention which is binding on the countries of the European Free Trade Association. 34 See, e. g., Corte di Cassazione, Italy, 14 December 1999, CLOUT case No. 379 (Imperial Bathroom Company v. Sanitari Possi S.P.A.); Østre Landsret København, Denmark, 22 January 1996, CLOUT case No. 162 (Dnisches Bettenlager GmbH & Co. v. Forenede Factors Als). 35 Council Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 12, 16 January 2001) became effective on March 1, 2002.

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one party had both the capacity of seller and the capacity of creditor. Thus, absent stipulations, the obligation to pay at that party’s place of business could correspond to the principle of payment at the seller’s domicile as well as to payment at the creditor’s domicile. The court, therefore, found the applicable law via the rules of private international law. It applied Article 1171 of the Spanish Civil Code which provides that payment is in principle to be made at the debtor’s domicile which, in this case, was the domicile of the Spanish seller.36 Other decisions, however, discovered a CISG general principle. Recognizing a gap in the Convention, a court found a general CISG principle with respect to restitution actions.37 In another action to recover damages for nonconformity of the goods, a court stated that the obligation to pay the price at the place of business of the seller under Article 57 indicates a general principle valid for other monetary claims.38 These and similar holdings simply recognize the Article 57(1) obligation of the buyer to pay the price at the seller’s place of business as a general principle pursuant to Article 7(2).

Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.

36

Cour d’Appel de Paris, France, 14 January 1998, CLOUT case No. 312. Oberster Gerichtshof, Austria, 29 June 1999, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/990629a3.html (Transportrecht-Internationales Handelsrecht 48 (1999)). 38 Oberlandesgericht, D
sseldorf, Germany, 2 July 1993, CLOUT case No. 49. 37

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General principle This Article defines when the price becomes due, unless the contract terms otherwise stipulate.39 In fixing the time for payment, it necessarily determines the time at which interest (Article 78) on such payment begins to accrue as suggested in various cases.40 Under 58(1) or 58(2), the delivery of the goods or the handing over of documents controlling their disposition activates the buyer’s duty to pay the contract price.41 Typical documents controlling the disposition of the goods would be a bill of lading or warehouse receipt. Customs documents, however, do not control the disposition of goods within the meaning of 58(1),42 nor do certificates of origin and quality.43 Simultaneous performance Article 58 establishes the principle of simultaneous performance in the absence of contrary agreement. The seller is not required to extend credit to the buyer. The buyer is obliged to pay the price when the seller places either the goods or the documents controlling their disposition at the buyer’s disposal. Absent payment at that time, the seller retains the goods or documents. On the other hand, the buyer is not bound to pay the price until the goods or documents controlling their disposition have been handed over.44 Derogations from simultaneity Either the express terms of the contract or the international usages and practices established between the parties may bind the purchaser to pay the price at another specific time under 58(1).

39

Tribunal Cantonal Valais, Switzerland, 20 December 1994, CLOUT case No. 137 (Marmipedretti Graniti S.r.l. v. Nichini S.A. Pierres naturelles et artificielles). 40 See, e. g., Amtsgericht Viechtach, Germany, 11 April 2002, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/020411g1.html; Oberlandesgericht Rostock, Germany, 27 July 1995, CLOUT case No. 228; Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Austria, 15 June 1994, CLOUT case No. 93 (SCH-4366). 41 Kantonsgericht St. Gallen, Switzerland, 12 August 1997, CLOUT case No. 216. 42 Id. 43 Bundesgerichtshof, Germany, 3 April 1996, CLOUT case No. 171. 44 United States domestic contract law would refer to this common situation as one involving concurrent constructive conditions.

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Place of handing over the goods or documents Unless otherwise agreed, the place of handing over the goods or documents is determined under Article 31 of the Convention. Where the contract involves carriage of the goods, the seller completes its obligation by handing the goods over to the first carrier for transmission to the buyer (31(a)). For the sale of goods at a particular place, the seller is obliged to place the goods at the buyer’s disposition at that place (31(b)). Otherwise, the seller is bound to place the goods at the buyer’s disposition at the place where the seller had its principal place of business at the time the contract was concluded (31(c)). Buyer’s right to examine the goods Article 58(3) recognizes the buyer’s right to examine the goods before paying the price. Only contract terms requiring payment before examination of the goods will cause the buyer to lose its right to examine before making payment. The contract may contemplate a modality of payment that is incompatible with the buyer’s right to examine. Where, for example, the contract provides that a bill of lading will be handed over to the buyer only upon payment of a bill of exchange, such an agreed payment procedure necessarily eliminates the buyer’s right to examine the goods before payment.

Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller. Formalities eliminated This Article requires payment of the price as soon as it becomes due without any requirement of notice or compliance with any formality. Where an Italian seller made a series of deliveries of leather goods to a German buyer, the court held that it was not significant whether the buyer had received all of the invoices since Article 59 required the purchase price to be paid on the due date without further demand.45 Interest payments on the amount due

45

Oberlandesgericht M
nchen, Germany, 9 July 1997, CLOUT case No. 273. If, however, the buyer was unaware of the price until receipt of an invoice, it could not be expected to pay until the price became known. Other cases adopting the general principle include: Tribunal Cantonal Valais, Switzerland, 20 December 1994, CLOUT case No. 197; Landgericht Stendal,

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pursuant to Article 78 are also recoverable.46 While Article 59 is clear in dispensing with formalities, as a practical matter, the buyer would have to be informed that the goods are ready for collection at the seller’s place of business or that the goods have been shipped.47 Elimination of formalities concerning other monetary obligations It is generally assumed that Article 59 provides a general principle, pursuant to Article 7(2), that other monetary obligations such as restitution of the price and compensation payments are due and payable absent formalities. The case law, however, has yet to confirm this assumption.

Article 60 The buyer’s obligation to take delivery consists: (a) in doing all the acts which could reasonably be expected of him in order to enable the seller to take delivery; and (b) in taking over the goods. Cooperation Article 60(a) imposes a clear duty of cooperation on the buyer. To enable the seller to make delivery, the buyer must undertake all reasonable acts such as obtaining necessary import documents.48 If installation of a product is contemplated, the buyer must make all of the necessary preparations for such installation by the seller. If delivery is to occur at the buyer’s place of business, the buyer must provide reasonable access to that location. If the Germany, 12 October 2000, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/ 001012g1.html (Internationales Handelsrecht 30-34 (2001). 46 See, e. g., Oberlandesgericht D
sseldorf, Germany, 24 April 1997, CLOUT case No. 275. See also the discussion of interest payments under the discussion of Article 54, supra. 47 Cf. U.C.C. § 2-504(c), which requires prompt notification of shipment to the buyer. Failure to notify, however, will allow for rejection only if material delay or loss is caused by such failure. 48 U.S. District Court for the Southern District of New York, United States, 10 May 2002, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020510u1.html#cx (Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp.2d 236, 284); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 11 June 1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/ cases2/970611r1.html#cx.

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delivery obligation requires the seller to put the goods at the disposal of the buyer at the seller’s place of business, the buyer must take charge of the goods, i. e., the buyer is responsible for removing the goods from the seller’s location or at another location pursuant to the contract (60(b)).49 Rejection Article 60 does not address the buyer’s right to reject the goods. A buyer who has received goods and intends to exercise his right to reject them has an obligation to take reasonable steps to preserve them under Article 86(1).50 The buyer may refuse delivery of goods if they are delivered before the date fixed in the contract (Article 52(1)) or if an excess quantity is delivered (52(2)). The buyer has the right to reject if the seller commits a fundamental breach (Article 25).

Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (a) exercise the rights provided in articles 62 to 65; (b) claim damages as provided in articles 74 to 77. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract. Purposes of Article 61(1) By stating that the seller may “exercise the rights provided in articles 62 to 65”, 61(1)(a) merely recognizes the rights in those Articles.51 Standing alone, Article 61(1)(a) does not provide any normative force to Articles 62 49

Amtsgericht Oldenburg in Holstein, Germany, 24 April 1990, CLOUT case No. 7. If the goods have been placed at the buyer’s disposal at their destination and he exercises his right of rejection, he must take possession of the goods on behalf of the seller if this can be done without payment of the price or unreasonable inconvenience or expense. He must then take reasonable steps to preserve them (86(2)). This obligation does not apply if the seller or the seller’s authorized representative is present at the destination. Cf. U.C.C. § 603. 51 Arts. 62 to 65 are explored infra. 50

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to 65. Thus, it may be seen as simply a recognition that the buyer is entitled to pursue rights under those sections. On the other hand, Article 61(1)(b) provides the seller with a right to claim damages under Articles 74 to 7752 which adumbrate the damages to which the seller is entitled. Thus, it is not uncommon for a court to cite Article 61(1)(b) as the basis for the seller’s right to claim damages as calculated under Articles 74 to 77.53 Since Article 61(1) states that CISG rights and remedies become available to the seller where the buyer fails to perform any “obligations under the contract”, they become available even with respect to contract obligations not otherwise provided under the Convention.54 The purpose of Article 61(2) While contrary to the legal tradition of some countries, the seller may claim damages notwithstanding the exercise of its right to other remedies. Where, for example, a seller chooses to fix an additional time for payment under Article 63, he may still claim damages for the buyer’s delay in performance. Purpose of the period of grace 61(3) While the seller may grant an extension of time for the buyer’s performance, Article 63(3) precludes a judge or arbitrator from granting a period of grace to a buyer to pay the contract price. The basis for this provision was recognition that a seller may not avoid a contract for an insubstantial delay by the purchaser. Unless the delay amounts to a fundamental breach under Article 25, the seller may not avoid the contract. There was, therefore, no need to allow a judge or arbitrator to provide a period of grace for performance. Moreover, to expose the parties to the discretion of a judge of the same nationality as one of the parties was deemed inappropriate in the context of international commerce.

Article 62 The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement. 52

Beyond the principal remedies listed in 61(1)(b), other seller’s remedies are found in Articles 71, 72, 73, 78 and 88. 53 See, e.g., Oberlandesgericht D
sseldorf, Germany, 11 July 1996, CLOUT case No. 169. 54 See, e. g., Oberlandesgericht Kln, Germany, 8 January 1997, CLOUT case No. 311; Handelsgericht Aargau, Germany, 26 September 1997, CLOUT case No. 217.

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Specific performance Article 62 provides the seller’s specific performance remedy.55 It manifests the civil law adherence to the concept of pacta sunt servanda. It immediately raises one of the historic differences between the civil law and the common law which treats this remedy as extraordinary. In the United States, a seller may bring an action for the price of accepted goods, goods lost or destroyed after the risk of loss passes to the buyer, or goods that are not resalable at a reasonable price.56 If, however, the goods are resalable at a reasonable price, the seller may not recover the price. It is relegated to the difference between the contract price and the resale price,57 or the difference between the contract and market prices,58 except where that remedy would be inadequate to place the seller in the position it would have been in had the contract been performed.59 These remedies, however, are not specific performance remedies as that concept is understood in a common law context. Though the seller’s action for the price is, in effect, a specific performance remedy, it is an action “at law” for damages while specific performance is available only before a court sitting as a court of “equity”. Specific performance in contracts for the sale of goods in the United States is a buyer’s remedy which is available where the goods are unique or in other proper circumstances such as the inability of the buyer to purchase a reasonable substitute (“cover”).60 In a civil law system, the preferred remedy of specific performance may be confusing to a common lawyer who will wonder why a given civil law system will allow remedies such as cover under a specific performance rubric. The mitigation of Article 28 On its face, Article 62 allows the seller to require the buyer to pay the price of unaccepted goods, whether or not they are resalable, as well as requiring the buyer to take delivery of goods and performing other contractual obligations. While it is common to see the application of Article 62 to a seller’s action for 55

The correlative buyers’ specific performance remedy is found in Article 46(1). See U.C.C. § 2-709 57 U.C.C. § 2-706. 58 U.C.C. § 2-708(1). 59 Where the subject matter is typically sold at standard prices, neither the resale remedy nor the price differential remedy may be adequate (the “lost volume” seller). In that situation, the seller will be entitled to its lost profit on the breached contract, including reasonable overhead. § 2-708(2). 60 U.C.C. § 2-716(1). The buyer also has a right of replevin for goods identified to the contract if a reasonable “cover” purchase (§ 2-712) is unavailable. 56

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the price,61 illustrations of the use of Article 62 to force a buyer to take delivery of the goods are extremely rare. To mitigate the tension between civil law and common law concepts of specific performance, CISG states that a court “is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contract not governed by this Convention”.62 The phrase “judgment for specific performance” is sufficiently broad to include both civil and common law concepts though they differ in scope. The civil law concept is broader. The phrase, “under its own law”, raised commentators’ questions as to whether it included not only the substantive law of the forum but the forum’s choice-of-law rules as well. Since an interpretation that would include choice-of-law rules could defeat the purpose of Article 28, fundamental notions of statutory construction relegate the phrase to the substantive law of the forum. The phrase, “similar contracts of sale not governed by this Convention”, has been realistically interpreted to mean contracts outside the CISG, primarily domestic contracts for the sale of goods. Thus, if the forum would not grant specific performance if the contract were governed by domestic law, it is not bound to grant specific performance under the CISG. The fact that a court is “not bound” to order specific performance has induced the suggestion that a court should have discretion in deciding whether to order specific performance that it would not order under its domestic law.63 Whether such discretion will be exercised is a matter of speculation. The mitigation of Articles 85 and 88 While Article 62 allows the seller to require the buyer to take delivery of the goods, Professor John Honnold suggests that the draconian effect of this right may be mitigated by Articles 85 and 88.64 Where a buyer refuses to take the goods, the seller in possession of the goods or in control of their disposition is required to take reasonable steps to preserve them (85). If the buyer’s delay or the costs of preservation become unreasonable, the goods may be resold (88(1)). The temptation to resell under these circumstances may be difficult to resist.

61 See, e. g., Landgericht Erfurt, Germany, 29 July 1998, CLOUT case No. 344; Landgericht Bielefeld, Germany, 2 August 1996, CLOUT case No. 376. 62 Art. 28. 63 See Amy H. Kastley, The Right to Require Performance in International Sales: Towards an Internatinoal Interpretation of the Vienna Convention, 63 Wash. L. Rev. 607-51 (1988). 64 See John O. Honnold, International Sales Under the 1980 Convention § 349 (3d ed. 1999).

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Inconsistent remedies Article 62 precludes a seller from seeking specific performance if the seller has resorted to other remedies. If the seller has chosen to avoid the contract, the remedy of specific performance will obviously not lie since the seller has chosen not to perform the contract. If the seller chooses to fix an additional period of time for the buyer’s performance (the seller’s Nachfrist provision under Article 63), such a remedy is “inconsistent” only during the additional period. Denouement Notwithstanding the differences between the remedy of specific performance in civil and common law jurisdictions, the differences in its practical application appear to be small. The remedy is rarely pursued in civil law jurisdictions. The costs to a seller in retaining and preserving the goods induces a strong desire to resell. Where, however, the goods are delivered to a foreign port where the seller may confront difficulties in reselling them, there is an argument for a liberal specific performance application. Even there, however, the seller’s best assurance of performance lies in the use of security devices such as documents of title and letters of credit.

Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. (2) Unless the seller has received notice that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance. Nachfrist Article 63 presents the seller’s Nachfrist.65 Where a buyer refuses to pay the price and take delivery of the goods on time, the seller confronts the necessity of determining whether the delay constitutes a fundamental breach under Article 25 that will allow the seller to avoid the contract under 65

The buyer’s correlative Nachfrist provision is found in Article 47. The popular caption is derived from German law (see ¶ 326 of the Burgerliches Gesetzbuch). There are, however, differences between the CISG and German provisions, including the fact that the BGB does not differentiate between fundamental and non-fundamental breaches of contract and the

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Article 64.66 A similar challenge is found under the domestic contract law of the United States where a seller must determine whether a buyer’s delay in performance constitutes an uncured material breach that will allow the seller to treat the contract as discharged. As a well known United States case suggests, the decision is “fraught with peril”.67 Should the seller’s decision to treat a breach as fundamental be subsequently determined by a court to have been unwarranted, the seller rather than the buyer will be in breach. In a case governed by the CISG, a seller decided that a delay of a few days constituted a fundamental breach allowing the seller to avoid the contract. The court held that such a delay was not a fundamental breach and that the seller had, therefore, wrongfully terminated the contract allowing the buyer to recover damages as calculated under Article 74.68 The court concluded that, under the circumstances, the seller should have allowed the buyer an additional period of time for performance.69 The utility of the seller’s Nachfrist under Article 63, therefore, is particularly evident where there is doubt as to whether the buyer’s delay in performance constitutes a fundamental breach that would permit the seller to avoid the contract. The additional period of time must be “of reasonable length”. Where an Italian seller agreed to deliver a printer device to a French buyer which refused delivery, the court held that a total additional time of two and one half months was “undoubtedly” reasonable under the circumstances.70 The determination of “reasonable length”, however, creates some uncertainty.71 right to terminate a contract under German law is rather severely restricted while CISG allows a contract to be avoided for any fundamental breach. 66 Unless time is of the essence, a short delay in payment will not constitute a fundamental breach. The longer the delay, the more a fundamental breach becomes likely. 67 Supreme Court of Michigan, United States, 28 February 1957 (Walker & Co. v. Harrison, 347 Mich. 630, 635, 81 N.W.2d 352, 355). 68 Cour d’Appel, Grenoble, France, 4 February 1999, CLOUT case No. 243 (Ego Fruits v. La Verja Begastri). 69 Id. 70 Corte di Appello di Milano, Italy, 11 December 1998, available at http://www.cisg.law. pace.edu/cisg/wais/db/cases2/981211i3.html#cx (Bielloni Castello v. EGO). 71 While there is no corollary to the Nachfrist concept in United States law, an analogous situation occurs where a seller (or buyer) has reasonable grounds for insecurity concerning the other party’s ability to perform the contract. The seller may not treat such grounds as an anticipatory repudiation of the contract which leaves the seller in a state of uncertainty concerning the buyer’s performance. This situation is recognized in CISG Article 71 which allows the seller (or buyer) to suspend performance, but requires performance to be resumed upon the receipt of adequate assurances from the other party. The U.C.C. § 2-609 allows a seller to demand adequate assurances of performance and the buyer’s failure to provide such

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The purpose of the “reasonable length” requirement is designed to preclude a seller from fixing a short period and thereby converting an inconsequential delay into a fundamental breach that would allow the seller to avoid the contract. If the additional time is such that a buyer’s delay to the end of the fixed time would still fail to constitute fundamental breach, the additional time is not of reasonable length. There is disagreement among commentators as to whether the Nachfrist notice must make it clear to the buyer that the additional period establishes a final, fixed period for performance or whether such an unequivocal warning is necessary. In an arbitration case involving a contract by an Italian company to sell foamed boards to a Finnish buyer, the arbitral tribunal appeared to hold that no such warning is required.72 This is the better interpretation since there is nothing in Article 63 requiring such an interpretation and a buyer is not reasonable in assuming that a seller intends to provide further additional periods for the buyer’s performance absent the seller’s manifestation to that effect. Suspension of seller’s remedies Article 63(2) precludes a seller from any remedy for breach during the additional time the seller has established for the buyer’s performance unless the buyer notifies the seller that he will not perform within the additional time. Thus, absent such a notice from the buyer, the seller’s commitment to provide additional time is irrevocable during that period. The seller, however, is not deprived of his right to claim damages for the delay in the buyer’s performance.

Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of Article 63, perform his obligation to pay the price

assurance “within a reasonable time not exceeding thirty days” constitutes a repudiation of the contract. The thirty day limitation provides a seller with a “safe harbor” determination of a “reasonable time”. 72 ICC Court of Arbitration, Case No. 7585, 1992, CLOUT case No. 301.

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or take delivery of the goods, or declares that he will not do so within the period so fixed. (2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer before the seller has become aware that performance has been rendered; or (b) in respect of any breach other than late performance by the buyer within a reasonable time: (i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of Article 63, or after the buyer has declared that he will not perform his obligations within such an additional period. Avoidance: Fundamental breach – (64(1)(a)) The basic requirement for avoidance of the contract is a fundamental breach – a breach that substantially deprives the seller of what he is entitled to expect under the contract unless the buyer did not foresee and a reasonable person like the buyer under the same circumstances would not have foreseen such a result.73 The seller must notify the buyer that the seller declares the contract avoided.74 Article 64(1)(a) recognizes that a fundamental breach may result from the failure of the buyer to perform any of its obligations under the contract or any of his obligations under the Convention. The buyer is required to pay the price on time, either as specified in the contract or, in the absence of such a specified time, in accordance with the requirements of the Convention.75 Unless time is of the essence, however, an insubstantial delay in payment will not constitute a fundamental breach absent other circumstances such a rapid decline in currency or the inability to store the goods.76 With respect to other buyers’ obligations, 73

Art. 25. Art. 26. 75 Art. 58. 76 In ICC Court of Arbitration, Case No. 7585, 1992, CLOUT case No. 301, the arbitrator held that delay in opening a letter of credit does not necessarily amount to a fundamental breach. In this case, however, the seller’s delay of several months in declaring the contract avoided created, in effect, a Nachfrist additional period of time under Article 63. The arbitrator declared the contract avoided under 64(1)(b) that allows such avoidance where the buyer fails to perform his obligation or declares that he will not do so within the period so 74

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where a buyer refused to take more than half of the goods, a court found that the seller was entitled to avoid the contract under 64(1)(a).77 Fundamental breach – Buyer’s failure to perform within an additional period (64(1)(b)) Where the seller fixes an additional, reasonable length of time for the buyer’s performance under Article 63(1) and the buyer either fails to perform during that period or declares that he will not do so, the seller may declare the contract avoided (64(1)(b)). Where an additional period of time was fixed by a seller’s lawyer who stated that no performance would be accepted after the fixed period, the court regarded the statement as a sufficient declaration of avoidance under Article 26.78 Avoidance: Time constraints The avoidance rights of a seller where the buyer has failed to pay the price when due are not expressly limited in time. Where the buyer has paid the price, however, if his performance is late or he has committed a breach other than late performance, Article 64(2) places time constraints on the seller’s right to avoid the contract. With respect to late performance, the seller must declare the contract avoided “before the seller has become aware that performance has been rendered” (64(2)(a)). This requirement invites a comparison with constraints on the buyer’s right to avoid where the seller has delivered the goods. Where the seller has delivered the goods but the delivery is late, the buyer loses the right to avoid the contract unless he does so “within a reasonable time after he has become aware that delivery has been made” (49(2)(a)). Thus, the buyer, unlike the seller, has a reasonable time after becoming aware that the late performance has occurred to determine whether the late fixed. Another court found that a delay in opening a letter of credit does not, in itself, constitute a fundamental breach (Landgericht Kassel, Germany, 21 September 1995, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950921g1.html), but where the buyer refused to open a letter of credit under circumstances involving several delays and a decline in the market price of the goods, the court found that such failure constituted a fundamental breach (Supreme Court of Queensland, Australia, 17 November 2000, available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/001117a2.html (Downs Investments v. Perwaja Steel)).). 77 Oberlandesgericht Hamm, Germany, 22 September 1992, CLOUT case No. 227. The buyer accepted only four of ten installments. 78 Oberster Gerichtshof, Austria, 28 April 2000, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/000428a3.html#cx.

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performance constitutes a fundamental breach allowing avoidance of the contract. Since the seller must avoid the contract before becoming aware that performance has been rendered, the seller does not have the advantage of the additional “reasonable time” after becoming aware to determine whether the delay amounts to a fundamental breach allowing avoidance. Estimating the period of delay in performance that the hindsight of a tribunal will deem sufficient to constitute a fundamental breach allowing a seller to avoid is a necessarily uncertain process. Confronted with the specter of losing the right to avoid as soon as he becomes aware that the buyer has rendered performance may induce earlier declarations of avoidance by the seller. Moreover, where a buyer’s delay in performance has clearly reached the level of a fundamental breach, the seller’s subsequent awareness that the buyer has finally performed before the seller has declared avoidance transforms the breach, requiring the seller to perform and limiting the seller’s recovery to non-avoidance damages for delay. With respect to breaches other than the buyer’s late performance, the seller must avoid the contract within a reasonable time after he knew or ought to have known of the breach 64(2)(b)(i)). If the seller has fixed an additional time for the buyer’s performance (Nachfrist under 63(1)), he must declare avoidance within a reasonable time after the expiration of the additional fixed period or after the buyer has declared that the buyer will not perform within that fixed time (64(2)(b)(ii)). With respect to breaches other than late performance, the seller’s right to avoidance is limited in the same fashion as the buyer’s right.79

Article 65 (1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him.

79

See Article 49(2)(b)(i) and (ii). Subparagraph (iii) of this Article provides the same time limitation with respect to Article 48(2) where the seller requests the buyer to make known whether the buyer will accept performance and the buyer does not comply with the seller’s request within a reasonable time. The seller may perform within the time indicated in the seller’s request. Under Article 49(2)(b)(iii), the buyer loses the avoidance right within a reasonable time after the expiration of the additional time indicated by the seller under Article 48(2) or after the buyer declares that the buyer will not accept performance.

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(2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding. Purpose and effect of Article 65 It has been suggested that, “[I]t is difficult to become excited over Article 65 one way or the other”.80 It was, however, controversial at its birth. There were delegates who thought the seller was sufficiently protected without it, while its proponents argued that it achieved a better balance between buyers and sellers. The classic example is a contract for the purchase and sale of a thousand pairs of shoes under which the buyer is to make a selection among styles, sizes and colors.81 Article 65 contemplates a contract under which the parties agree that, either by a certain date or within a reasonable time after a request from the seller, the buyer will provide the necessary specifications to allow the seller to make delivery. The contract, however, is clearly formed before the buyer provides the specifications. The buyer has an obligation under the contract to cooperate in providing the specifications. Thus, this Article not only recognizes that a contract may be concluded though its terms have yet to be finally determined, it also recognizes that an offer that allows the buyer to make such specifications after the contract is formed can meet the standard of sufficient definiteness under Article 14(1) to create a power of acceptance in the offeree. The concept clearly implies that a determinable price under 14(1) or an impliedly referenced, generally charged price under Article 55, is clearly contemplated in such contracts. Article 65 provides an additional seller’s remedy. If the buyer’s failure to make the specification constitutes a breach, the seller may provide the specification. Article 65(1) provides this seller’s remedy “without prejudice to any other rights he may have”. Thus, in place of or in addition to making the specification, the seller could claim damages under 61(1)(b). If the buyer’s failure constituted a fundamental breach, the seller could avoid the contract under 64(1)(a). The seller could also fix an additional period of time under its Nachfrist remedy (63(1)), and if the buyer failed to specify

80

Jacob S. Zeigel, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods (comment on Article 65) (1981). 81 This is the example found in the Secretariat Commentary to the 1978 CISG Article 61 (counterpart to Article 65) ¶ 2, reprinted in Documentary History of the Uniform Law for International Sales 441 (John O. Honnold ed., 1989).

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during the additional fixed time, the seller could avoid the contract under 64(1)(b).82 A United States lawyer will recall a similar provision in the Uniform Commercial Code (UCC) which rejects an earlier view that a contract leaving particulars of performance to be specified by one of the parties is fatally indefinite.83 The language of Article 65(1), however, refers to “the form, measurement or other features of the goods”. The UCC begins with the broad phrase, “particulars of performance to be specified”,84 but addresses the obvious example of an “assortment of goods” in a separate subsection.85 While Article 65 does not expressly refer to “assortment”, there is no doubt that it contemplates specifications relating to the assortment of goods as illustrated by the contract to buy and sell 1,000 pairs of shoes. The size of the shoes would be included within Article 65 under “measurement”, the style under “form”, and the color under “other features”. Seller’s right to specify (65(1)) If the buyer fails to specify as required by the contract, the seller may “make the specification himself in accordance with the requirements of the buyer that may be known to him”. The implication is that the requirements of the buyer may not be known to the seller. A seller’s substitute specification that is not made in accordance with the requirements of the buyer would not be binding on the buyer.86 The buyer’s requirements may be known to a seller through trade usage or “practices which they have established between themselves” (Article 9). It may also be known through “all relevant circumstances” or “negotiations” between the parties (8(3)). Notice of seller’s specification (65(2)) Where the seller makes the specification himself, he must inform the buyer of its details and fix a reasonable time within which the buyer may choose a different specification.87 The buyer must receive the seller’s proposed

82

See id., at 441, ¶ 6. U.C.C. § 2-311. 84 U.C.C. § 2-311(1). 85 U.C.C. § 2-311(2). 86 Secretariat Commentary to the 1978 CISG Article 61 ¶ 9, reprinted in Documentary History of the Uniform Law for International Sales 441 (John O. Honnold ed., 1989). 87 If the buyer does not provide a reasonable time for the buyer to make a different specification, the buyer would still be entitled to a reasonable time to do so. 83

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specification.88 If the buyer fails to provide a different specification within the time fixed by the seller, the seller’s specification is binding. Conclusion The dearth of case law applying Article 65 may suggest that the situation it envisions arises only infrequently. The absence of Article 65, however, could present courts with complexities that are avoided by its presence. Moreover, its presence may have even greater utility in precluding litigation. On balance, therefore, CISG is clearly better with Article 65 than without it. 88

Article 65(2) contemplates the buyer’s receipt of the specification since the last sentence of this subsection deals with the effect of the buyer’s failure to choose a different specification after his receipt of the seller’s specification. Thus, the risk of this transmission is on the seller as contrasted with the general principle in Article 27 that does not deprive a party from relying on a communication that is delayed, erroneous or fails to arrive.

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Obligations of the buyer and remedies for the buyer’s breach of contract (Articles 53-65) General observations and some specific issues Filip De Ly* I. General observations The upcoming publication by UNCITRAL of a CISG Case Law Digest, in my opinion, constitutes a landmark in a process in which the CISG is gaining worldwide acceptance and maturity. In the initial stages, during which the Convention entered into force and attracted increasing adherence, much information was collected on its interpretation and application. The Digest marks a point in time where there is a clear need to structure the overwhelming amount of information on the CISG and to make that information more transparent for the benefit of the business and legal communities worldwide. In this respect, UNCITRAL is to be credited for its lead in undertaking the major project of analyzing and classifying CISG case law. Nevertheless, there may be some drawbacks to the project at this stage, and some words of caution may be appropriate in relation to the following issues: 1) A final text of the Digest is – to the best of my knowledge at the time of writing of this comment – not yet ready. 2) The translation of the Digest into all of the official languages of the United Nations is still to begin. 3) The ways in which electronic access will be available are not yet precisely known and remain untested. 4) The process of updating the case law digest information has not been put into place.

*

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Professor of Law, Erasmus University Rotterdam Faculty of Law.

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These reservations are primarily procedural and will or could be solved by appropriate means. Some reservations regarding the Digest are of a more substantive nature: 1) The Digest is only a partial compilation of CISG information because scholarly writings are not covered. This may lead to a more frequent use of the Digest in common law jurisdictions where the citation of cases is methodologically more in line with traditional judicial reasoning.1 2) The Digest is only a partial compilation of CISG case law because some cases are not covered by the Digest for a variety of reasons – e. g., cases not reported by national correspondents to the sources (such as CLOUT, Unilex or the Pace Internet site) on which the Digest draws, cases not translated into a language familiar to the drafter of a specific part of the Digest, and cases not publically available (particularly arbitral awards). 3) The Digest may give an incomplete or wrong impression of case law because of choices or errors made in the process of selecting, analyzing or reporting a case on the basis of limited information on the case, translation difficulties, and the like. Notwithstanding these well-known methodological problems and risks, the advantages of the Digest will clearly outweigh the procedural and substantive issues outlined above. In this respect, the Digest will do for the CISG what similar ventures have done for other uniform texts such as the New York 1958 Convention on the recognition and enforcement of foreign arbitral awards, the Hague conventions on private international law, the Geneva uniform laws on bills of exchange, promissory notes and cheques and CISG’s predecessors (the uniform laws on the formation of international sale of goods and on international sale of goods). In varying degrees, these compilations of case law have been useful notwithstanding shortcomings similar to the ones described above. With the support of UNCITRAL, the availability of translations in the languages of the United Nations, and electronic access, the Digest seems to have the potential for a bright future provided updating is arranged soon after publication. In order to make the case for the prospects of the Digest, its possible functions are to be kept in mind. They include the following:

1 However, one might also predict that in civil law jurisdictions the Digest will be important in combination with citations from scholarly writings.

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1) educational and training functions for law students, practitioners and judges, showing how the CISG is applied and interpreted in various jurisdictions, and demonstrating how the major issues it raises are resolved in case law; 2) a reference function for practitioners who need general information on the CISG or insights into particular issues when they confront legal problems while negotiating and litigating sales disputes; 3) an information function for all those faced with CISG interpretation issues and needing guidance to relevant authorities, which have been cited in favor of certain propositions in submissions or judgments. In all these instances, the Digest – if used – will save much time and money in relation to CISG research and generally will increase the quality of information on CISG. In litigation where the interests at stake do not justify extensive research, the use of the Digest will also contribute to the quality of decisional standards used. All this may also lead to a more uniform interpretation of the CISG in conformity with the mandate of Article 7 CISG and, thus, may lead to more international decisional harmony, gradual convergence of cases in different states, and less forum shopping on the basis of divergent interpretations.

II. Some specific issues The purpose of this comment is not to give an overview or a discussion of the draft Digest in relation to the obligations of the buyer and remedies in case of a buyer’s breach of contract. In this respect, reference is made to the Digest provisions prepared by Professor Claude Witz and to the discussions in this volume by Professors Witz and Murray. The nature of a comment has forced me to limit my observations to a number of issues where the Digest has identified major disagreement in the case law in different jurisdictions, or to novel issues where interpretation issues may arise or where the Digest did not yet note interpretation problems. In all these categories, the question is where uniform sales law is heading, and whether the Digest may play a role in solving the problems that have been encountered. I will discuss four issues: 1) the place where the buyer has to pay; 2) the currency of payment; 3) set-off as a remedy; and 4) open price contracts. Issues 1) and 4) allow discussion of new developments while issues 2) and 3)

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demonstrate that case law and the draft Digest have hardly covered the entire spectrum of possible problems. A. Place of performance of the obligation to pay The place of performance of the obligation to pay is relevant in a number of respects. One of these is that the place of performance may be relevant to determine international jurisdiction. That point is elaborated at paragraphs 4 and 5 of the chapter of the draft Digest covering Article 57 CISG. This point is of great importance in Europe where the 1968 Brussels Convention (as amended on four occasions) and the 1988 Lugano Convention on Jurisdiction and Enforcement provide in Article 5(1) that courts in contracting states other than the place of domicile of the defendant have international jurisdiction over an action in contract if the court is in the place for performance of the obligation in question. As the draft Digest shows, Article 5(1) of the Brussels and Lugano Conventions led to much case law regarding collection claims instituted by unpaid sellers. The Brussels and Lugano Conventions are, indeed, important conventions regarding international jurisdiction in sales matters because they generally apply to the exclusion of domestic law whenever the defaulting buyer is domiciled in one of the fifteen member states of the European Union or – by virtue of the Lugano Convention – in Iceland, Norway, Poland and Switzerland. In relation to the interpretation of article 5(1) of the Brussels Convention, the European Court of Justice, in its 1994 decision Custom Made Commercial Ltd. v. Stewa Metallbau GmbH,2 held that the place of performance was to be determined by application of uniform sales law, if applicable.3 The case dealt with a sales contract governed by the 1964 Hague Uniform Sales Law (“ULIS”), but the principle embodied in the decision also extends to CISG. Consequently, under the Brussels and Lugano Conventions, the place of performance of collection claims regarding sales is to be determined in CISG cases by Article 57 CISG. Under both conventions, and absent forum selection by the parties, Article 57 CISG affects the determination of international jurisdiction if a defendant is domiciled in one of the 19 countries mentioned above.

2

European Court of Justice, Case 288/92, 29 June, 1994, CLOUT case No. 298 (1994 ECR 2913). 3 There is also persuasive authority to similar effect in decisions of the European Court of Justice relating to the interpretation of the 1988 Lugano Convention.

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Article 5(1) of the Brussels and Lugano Conventions has been criticized over the years for a number of reasons: the over-complexity of the provision, the fact that substantive law plays a role in determining international jurisdiction (thus causing delays and additional costs at the time of determining jurisdiction), and the fact that it is too friendly to plaintiffs. In relation to CISG, it leads indeed to the consequence that under Article 57 the seller often may litigate in its home country rather than at the place of domicile of the buyer. In practice, decisions dealing with the relation between CISG and jurisdictional conventions are important because cases raising jurisdictional questions frequently arise if the parties did not incorporate forum selection clauses in their contracts or if one party did not agree to the other party’s forum selection clause. Litigation raising such jurisdictional issues is common concerning to sales contracts involving small and medium-sized enterprises. With increasing integration within the European Union, the Union – at the time of the conclusion of the Amsterdam Treaty – was vested with express powers in the field of private international law under Article 65 of the EC Treaty (as amended). Under these new powers, the Union is working on codification of some parts of private international law. This is relevant not only for the existing fifteen member states but also in the near future for the ten new member states that automatically will become bound by the existing Union rules upon their accession by virtue of the principle of the acquis communautaire.4 In this respect, the 1968 Brussels Convention has been replaced as of March 1, 2002 by a Regulation of the European Union (the “Brussels Regulation”5), which contains some important changes from the Brussels Convention.6 As stated at paragraph 5 of the draft Digest for article 57, the changes brought about by the Brussels Regulation will affect international 4

The countries joining the Union in May 2004 are: the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. 5 Regulation 44/2001, December 22, 2000, OJ L 12, 16 January, 2001. 6 Under Article 65 of the EC Treaty, Denmark opted out of private international law codification while the United Kingdom and Ireland negotiated for an opting – in right. In relation to the Brussels Regulation, the UK and Ireland exercised their opting – in right and the Brussels Regulation thus binds them. Denmark is not bound by it but is still bound by the 1968 Brussels Convention. It is anticipated that a convention between Denmark and the other EU countries will be concluded to bring Denmark in line with the other member states. As to Iceland, Norway, Poland and Switzerland, it is also expected that negotiations will lead to a new Lugano Convention to narrow the differences between the existing Lugano

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jurisdiction in relation to collection claims under sales contracts. This comment is intended to elaborate somewhat on this point. Article 5(1) of the Brussels Regulation – in parts relevant to sales – currently reads as follows: “A person domiciled in a Member State may, in another Member State, be sued: 1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (b) for the purposes of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: – in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered, – ... (c) if subparagraph (b) does not apply then subparagraph (a) applies.” A superficial reading of the new Article 5(1) might suggest that international sales litigation under the Brussels Regulation has been simplified because all litigation is concentrated at the place of delivery (as an alternative to the defendant’s domicile). Thus, one might be tempted to say that the place of payment is no longer relevant for jurisdictional purposes. To some extent, any such generalization is correct. However, a few interpretation issues remain. First, the generalization is only correct if the place of delivery is in a member state. The following hypothetical example may clarify the problem. A Finnish seller sells FOB Helsinki (Finland) on an open account basis to a buyer based in Germany. The buyer does not pay. There is no applicable forum selection clause. CISG is applicable because both Finland and Germany are contracting states. The German courts under Article 2 of the Brussels Regulation would have jurisdiction because the defendant is domiciled in Germany. The unpaid Finnish seller may sue not only in Germany but – pursuant to Article 5(1)(b) of the Brussels Regulation – also in Finland because the place of delivery under Article 31 CISG is in Finland. However, if the contract is concluded FOB Riga (Latvia) because the goods were manufactured in Latvia, there is no place of delivery in a Convention and the new Brussels Regulation. These elements will not be discussed further in this comment.

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member state, because Latvia is not joining the EU until 2004, and Article 5(1)(b) of the Brussels Regulation does not apply. Under Article 5(1)(a) of the Regulation, in combination with Article 57 CISG, the Finnish seller can sue not only in Germany but also in Finland because the contract is an open account contract and under Article 57 CISG the price is payable at the seller’s place of business. This example shows that Article 57 CISG may still determine international jurisdiction under the Brussels Regulation if the place of delivery is not in a member state. Second, an interpretation problem has already arisen in relation to the words “under the contract” in Article 5(1)(b) of the Brussels Regulation. According to one opinion, the wording “under the contract” is to be construed literally and restrictively to mean “in accordance with the text of the contract or the intention of the parties”.7 Suppose that in the FinnishGerman sale mentioned above the parties had not agreed on a place of delivery. The restrictive view would lead to the conclusion that there is no place of delivery under the contract and, hence, that the Finnish seller could also sue in Finland by virtue of the combined application of Articles 5(1)(a) of the Brussels Regulation and 57 CISG. Again, under the restrictive view, article 57 CISG clearly would affect international jurisdictional issues. The phrase “under the contract” also has been interpreted to mean “in accordance with the contract” or, absent a contract provision, “by virtue of applicable law”.8 In the example set forth above, the alternative view would look to Article 31 CISG to determine the place of delivery and would ignore the place of payment under Article 57 CISG. In the example, delivery under Article 31 CISG would be in Finland and the unpaid seller could also sue in Finland. The alternative view has the advantage of primarily looking to the place of delivery and concentrating all sales litigation at such place, but it is more difficult to reconcile with the English text of Article 5(1)(b) of the Brussels Regulation. However, other language versions of the Regulation may be interpreted to support the alternative view.9 Moreover, the alter7

See P. Vlas, Herziening EEX: van verdrag naar verordening, WPNR 2000, No. 6421, 748750; J. J. van Haersolte-van Hof, NTER, 2001, 245-246. 8 H. Gaudemet-Tallon, Comptence et excution des jugements en Europe, Rglement no. 44/2001 – Conventions de Bruxelles et de Lugano, 3d ed., 2002, 162-163; A. Briggs, The Conflict of Laws 74 (2002); G. E. Schmidt, De EEX-Verordening: de volgende stap in het Europees procesrecht, NIPR, 2001, 153-157; C. Rommelaere, De internationale bevoegdheid inzake verbintenissen uit overeenkomst, R. D. C., 2003, 108. 9 The English text reads “under the contract”. The German and Dutch texts seem to express a similar idea, referring respectively to “nach dem Vertrag” and “volgens de overeenkomst”. However, the French and Italian texts may support the alternative view since they refer to “en vertu du contrat” and “in base al contratto”.

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native view may better reflect the intention of the drafters of the Brussels Regulation. A third approach combines the first theory above with a major additional requirement. Under this theory, one first must look to the actual place of delivery to determine jurisdiction for all sales litigation. If actual delivery had not occurred, the agreed place of delivery would come into play. Only when there is no actual or agreed delivery place would one fall back on Article 5(1)(a) of the Regulation,10 with the possible consequence of permitting sales litigation in multiple fora. That result, however, would not be frequent because in many cases there will have been actual delivery. The major advantage of this theory is that it often avoids falling back on Article 5(1)(a), but it is not clear whether it complies with the text of Article 5(1)(b) in regard to the relationship between the actual and agreed place of delivery, and whether the extension of the notion of actual delivery was intended by the drafters of the Brussels Regulation. It is astonishing that a major provision of the new Brussels Regulation has already led to three different interpretations, casting doubt on the quality of legislative drafting in Brussels. Ultimately, the European Court of Justice will have to solve this interpretation issue, but this may take another four to five years because, under Article 65 of the EC Treaty, only supreme courts in member-states may refer preliminary questions to the European Court of Justice. In the meantime, those in practice will have to learn to live with uncertainty and may be advised to avoid litigation on international jurisdiction by the use of appropriate forum selection or place of performance clauses. A final application problem recently arose in Belgium. The jurisdiction rule of Article 5(1)(b) of the Brussels Regulation is a default rule. Parties may agree otherwise as to the place of performance of the payment obligation and, thus, indirectly change the jurisdiction rules. In two decisions, the Commercial Court of Hasselt (Belgium)11 was faced with this problem. The two cases dealt with a clause in standard invoice terms providing for payment at the seller’s place of business. The invoice was sent by the Belgian seller after contract formation and performance, and the German buyer did not protest the invoice terms. Under Article 2 of the Brussels Regulation, jurisdiction normally would rest with the German courts at the place of domicile of the defendant. The question arose as to whether the parties had 10

U. Magnus, Das UN-Kaufrecht und die Erf
llungsortzustndigkeit in der neuen EuGVO,

IHR 2002, 47-48. 11 Rechtbank van Koophandel Hasselt, Belgium, May 15, 2002 (two decisions) (T. B. H./ R. D. C. 2002, 595 (as reported by H. Van Houtte)).

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agreed or could be deemed to have agreed to payment in Belgium for the purpose of establishing jurisdiction in Belgium. The Hasselt Commercial Court accepted that the place of payment clause was valid under the applicable law,12 and, consequently, the court accepted jurisdiction. These decisions are in line with Article 57 CISG in that a particular place of payment agreed upon by the parties prevails. On the other hand, they show the practical problems of establishing that the parties have agreed on such a particular place. B. Currency of payment In paragraph 6 of the Chapter of the draft Digest covering Article 54 CISG, reference is made to the issue regarding the currency in which payment is to be made and the different answers to that problem in case law. The problem usually arises when the parties have not identified a currency in their contract, but many other issues may be envisaged at these crossroads between sales law and monetary law. It would exceed the scope of this comment to discuss these issues, which have not yet frequently arisen in CISG cases. This comment purports only to express some words of caution regarding these problems. In this respect, it is submitted that currency issues cannot completely be reduced to CISG interpretation issues, which either fall within the CISG system and are to be solved by intra-interpretation, or which fall outside the scope of CISG and are to be solved by means of conflict rules. The existing cases, which apply the currency of the place of payment or the place of the seller’s place of business, or refer to private international law, must thus be applied in a prudent way and be put in context. This is all the more so because they touch upon one of the main commercial aspects of the sales contract i. e., its price and risk allocation mechanisms. First, one has to determine whether an issue at hand raises questions regarding the money of account (i. e., the currency in which a sales receivable is expressed). Questions regarding the identity of the money of account at the time the contract was concluded are foremost factual questions regarding the construction of the contract. In this respect, all relevant circumstances including established practices between the parties, industry practices, and usages are important. The place of payment is only one element in this 12

It referred to Article 4 of the Rome Convention on the law applicable to contractual obligations under which the law of the seller (Belgian law) was deemed applicable as being the law of the country in which the party performing the most characteristic obligation has its place of business. Under Belgian law, invoice conditions between merchants are binding unless objected to.

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process, but it is neither decisive nor presumptive. The determination of the money of account is, absent a provision of CISG to that effect, not to be deduced from the general principles on which CISG is based but only by reference to the law applicable to the sales contract by virtue of the rules of private international law.13 The proposition set forth in this comment is forcefully advocated by F. Mann who states: “For the determination of the money of account is nothing but a question of construction; it relates to the substance of the obligation, not to the mode of performance; it concerns the question what is owed, not how payment is to be effected.”14 There may be other issues regarding the money of account, such as changes in that currency or changes of its value. These problems are respectively to be solved by means of the lex monetae or the law applicable to the sales contract to the extent CISG does not apply. Payment issues are different questions. They relate to performance and determine, for instance, whether payment at the place of performance is permissible or possible in the money of account. If not, a conversion from the money of account into the money of payment will be necessary, including determination of the exchange rate and the moment at which the conversion rate is to be determined. Another complication may arise from procedural law at the place where litigation is pending. Sometimes, domestic courts can only give judgment in local currency, which may be different from the money of account or the money of payment, raising further complications. In addition, there may be various banking regulatory restrictions (under local law, European law or public international law) at the place where the money is kept which must be complied with and which may cause delays in or even prevent transferring money abroad. These restrictions on a buyer under public law may impede performance, and may or may not be excused under applicable laws. Finally, there is the question whether a seller can obtain compensation for currency devaluation or depreciation in case of late or non-payment by the 13

Article 6. 1. 10 of the UNIDROIT Principles of International Commercial Contracts, which provides for payment in the currency of the place where payment is to be made, is in my opinion not to be followed. 14 F. A. Mann, The Legal Aspect of Money: With Special Reference to Comparative Private and Public International Law 238-39 (5th ed. 1992).

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buyer. That issue is not a question of the determination of a buyer’s obligation but of damages for breach of contract. In dealing with currency issues, all these aspects are to be distinguished. As such, this section has tried to establish that there is quite a life beyond the Digest in relation to the monetary aspects of a buyer’s obligation under CISG. C. Set-off as a remedy for the buyer The buyer and seller are protected in the CISG by a balanced remedies system under which avoidance of the contract is the ultimate remedy and alternative less draconian remedies are available. In relation to the obligations of the buyer, the question arises whether the buyer may set-off his obligation to pay the purchase price against claims he may have against the seller in relation to the same contract, earlier contractual arrangements or other relationships. Set-off generally is thought not to fall under the CISG.15 As a principle, set-off is a mechanism that operates by virtue of the law and, thus, could benefit the buyer if the requirements for set-off are fulfilled. In this respect, it is submitted that the law applicable to the contractual claim which is being extinguished by operation of set-off applies as to these requirements.16 However, in case of insolvency the lex concursus would seem to apply.17 Set-off is again an area where the draft Digest does not report many decisions, and where beyond the Digest there will be a need to update if and to the extent cases would arise. D. Open price contracts In a traditional view of sales, a sales contract is concluded when parties agree not only on the goods to be sold but also on the price. In commercial practice, however, sales have also encompassed transactions ranging from one-off contracts to long-term contracts, under which a seller is obligated to sell certain goods to a buyer at a price to be determined. Examples are

15

Draft UNCITRAL Digest art. 4, ¶ 13. See also R. Bertrams, Set-off in Private International Law, in Comparability and Evaluation, Essays on Comparative Law, Private International Law and International Commercial Arbitration in Honour of Dimitra KokkiniIatridou 153-165 (K. Boele-Woelki et al. ed., 1994). 17 See for instance Article 4(2)(d) of the European Insolvency Regulation 1346/2000, OJ L 160, 30 June, 2000, 1. 16

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requirement contracts, long-term supply contracts, and sales under distribution agreements. So-called open price contracts are dealt with by national legal systems primarily in two ways.18 On the one hand, some jurisdictions, such as some Central and Eastern European countries,19 as well as France and some countries with legal systems based on the French Civil Code,20 view open price contracts as creating a validity issue. Under this approach, an open price contract is treated with suspicion because the subject matter of the buyer’s obligation is not certain from the outset. Absent such certainty, this approach considers that the obligation of the buyer may be insufficiently clear or may not be easily subject to determination, which may render the obligation null and void. This hostility applies particularly in instances where the price determination is left to the seller because any such price determination may be arbitrary. In other jurisdictions, such as the United States, The Netherlands or Germany, a unilateral price determination by the seller is deemed valid but subject to subsequent court control if the seller should exercise his right in a manner contrary to good faith and fair dealing. This divide between national legal systems came up during the negotiations of the CISG and led to Articles 14 and 55 CISG. Article 14, dealing with formation, provides that for CISG purposes an offer must be sufficiently definite. In relation to price, an offer is deemed sufficiently definite if it expressly or implicitly fixes or makes provision for determining price. Article 55 provides that, in the absence of any indication to the contrary, the parties are considered to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned, if the contract was validly concluded and does not expressly or implicitly fix or make provision for determining the price. As the draft Digest makes clear, the relationship between Articles 14 and 55 has led to problems in case law.21 18 D. Tallon, La dtermination du prix dans les contrats (tude de droit compar) 148 (1989); I. Corbisier, La de´termination du prix dans les contrats commerciaux portant vente de marchandises, 1988 Rev. Int. Dr. Comp. 767-832. 19 Article 484 of the new 1994 Russian Civil Code apparently has changed the position of Russian law to the effect that open price contracts are now permissible under Russian law. The author wishes to thank Professor Witz for drawing his attention to this development. 20 There are some exceptions in French-based jurisdictions. In Belgium, for example, unilateral price determination clauses are deemed valid. 21 See C. Witz, Les premires applications jurisprudentielles de la Convention de Vienne sur la vente internationale de marchandises, in The Unification of International

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Different problems may arise with respect to open-price contracts. First, the contract may provide for an initial price determination mechanism and, then, Article 14 would enter into the picture. In those jurisdictions which contain restrictions on unilateral price determination by the seller, the argument could be made that this is a validity issue governed by domestic law (and not by the CISG) based on Article 4. Often the applicable law would be the law of the seller, and the buyer would then be protected by the law of the seller against possible abuses by the latter. However, one could also rely on Article 7 for the proposition that Article 14 is to be interpreted by reference to article 55 and that a reasonable price is due. Second, there may be an initial price but for later deliveries that price may be modified. Then, one would look primarily to a contractual price adjustment clause and subsidiarily to Article 55 to determine the price. However, any such open price contract may still lead to problems in more restrictive jurisdictions either because the price modification is considered to lead to contract modification that is subject to rules on formation of sales contracts, or because the price adjustment clause is deemed null and void from the outset. There are no simple answers to these different hypotheticals, as they involve policy issues concerning the predictability of dispute resolution, court intervention regarding prices in commercial transactions, flexibility of contract formation and modification on the basis of commercial needs, and the protection of buyers against arbitrary price fixing by sellers (concerning which different jurisdictions have different – albeit legitimate – solutions). In practice, sellers from restrictive jurisdictions ought to be aware of problems they may face in these jurisdictions22 and should be advised to avoid these problems by appropriate choice of law, forum selection or arbitration clauses. In this respect, the Digest will not solve the problem but it will give information to the marketplace to help it avoid pitfalls. Sometimes, developments impacting international sales law come from domestic systems. With regard to the issues under discussion, French law may present an example. In four decisions dated December 1, 1995, the French Commercial Law, F. Ferrari (ed.), Baden-Baden, Nomos, 1998, 165-167 in relation to the Hungarian case Malev v. Pratt & Whitney in which the Hungarian Supreme Court invalidated a contract for the sale of aircraft engines for lack of a determined price (cited in the Draft UNCITRAL Digest art. 55 nn.4 & 7). 22 See also Paul Amato, U. N. Convention on Contracts for the International Sale of Goods – The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, 13 J. L. & Com. 22 (1993); James M. Klotz & John A. Barrett, International Sales Agreements: An Annotated Drafting and Negotiating Guide 81 (1998).

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Supreme Court decided that unilateral price determination clauses no longer create validity problems under French law as long as the contract cannot be characterized as a sales contract. Framework contracts or distribution contracts may, thus, contain these clauses. Sales contracts proper, however, remain governed by Article 1591 of the French Civil Code, prohibiting open prices determined solely by one of the parties.23

III. Conclusion Upon publication, the Digest will be a wonderful instrument for legal education, training and practice. However, no miracles can be expected from it. Developments at the international, European or domestic levels will have to be taken into account to keep it up-to-date (see above under place of payment and open price contracts). In relation to delicate policy issues, a mere inventory and analysis of case law will not be able to bridge different legal cultures (see above under open price contracts). Finally, the Digest will not be an end product but should be a dynamic process of case law reporting in which new problems coming up in case law are being incorporated. This comment in its parts on the currency of payment and on set-off has attempted to give two areas where further sophistication may take place. 23 Cour de Cassation, France, 1 December, 1995, opinion of Advocate-General Jol, case note L. Aynes, Dalloz, 1996, 13. For comments, see J. Ghestin, Trait de droit civil, Les effets du contrat, 3d ed., Paris, L. G. D. J. 2001, 665-761; V. Heuz, La vente internationale de marchandise, Droit uniforme, Paris, L. G. D. J., 2000, 145-152; E. Hondius, La convention de Vienne aprs l’arrÞt Cofratel, Etudes offertes Jacques Ghestin, Le contrat au dbut du XXI sicle, Paris, L. G. D. J., 2001, 419-423; S. Valory, La potestativit dans les relations contractuelles, Aix-en-Provence, Presses universitaires d’Aix-Marseille, 1999, 309-324.

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Articles 53-65 Professor Petar Sˇarcˇevic´ * Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. It goes without saying that each article of the CISG needs to be interpreted within the context of the Convention as a whole. Thus, it often occurs that the “true” meaning or implication of an article cannot be grasped by analyzing one or even several provisions in isolation. In my opinion, this is one of the problems confronting all commentators and one that I constantly have been aware of in my attempt to comment on the excellent part of the draft Digest prepared by Professor Claude Witz, covering Articles 53-65. As Sevon once remarked, the provisions on the obligation of the buyer in Articles 53-65 cannot be analyzed in isolation from the rest of the Convention.1 Article 53 is a good example because it is the counterpart of Article 30, which defines the obligations of the seller. Both articles need to be read together to understand the definition of a contract for the sale of goods in the sense of Article 1(1).2 Since the two articles specify the most important obligations of the parties, taken together they provide a good indication “of the obligations whose breach is more likely to result in a fundamental breach of the contract”.3 The decision of the Oberlandesgericht Munich of 8 February 1995,4 cited in

*

Professor of Law, University of Rijeka, Croatia. L. Sevon, Obligations of the Buyer under the UN Convention on Contracts for the International Sale of Goods, in International Sale of Goods, Dubrovnik Lectures 204 (P. arcˇevic´ P. Volken eds., 1986). 2 See D. Maskow, Buyer’s Obligations in General, in Commentary on the International Sales Law 383 (C.M. Bianca & M.J. Bonnell eds., 1987). 3 Id. 4 Oberlandesgericht M
nchen, Germany, 8 February 1995, CLOUT case No. 133. 1

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the draft Digest,5 also shows the importance of reading articles together, specifically Articles 31 and 53. In this case it would be difficult to understand how the plaintiff, an Italian trading company, committed a breach of contract by not delivering the cars (Article 53), without knowing that the defendant (a German automobile marketing company) had fulfilled its contractual obligations by giving notice that the cars were ready to be picked up (Article 31). Similarly, in some other court decisions, Article 53 is interpreted in connection with Article 39(1) regarding notice of lack of conformity6 and the requirements that must be met by the buyer.7 A recent decision of the Hanseatische Oberlandesgericht Hamburg8 turned on the question of whether a contract is considered performed when delivery is made by a third party. In this case, which concerned a contract for the delivery of honey, the seller engaged a third party to deliver the goods because it did not have an export license. However, the buyer did not consider such delivery as performance and refused to pay the price to the seller. Finding that the contract had been performed in the sense of Article 53, the Court held that the seller had a right to obtain payment of the price. As to the admissibility and effects of performance by a third party, the Court concluded that this question is not governed by the CISG but by the applicable national law chosen by the parties in the contract, i. e., German law.

Article 54 The buyer’s obligation to pay the price includes taking such steps and complying with the formalities as may be required under the contract or any laws and regulations to enable payment to be made. Not enough emphasis can be placed on the buyer’s obligation to pay the price. In this sense, I agree that, as Professor Magnus said in his Staudinger Commentary, Article 54 obliges the buyer to do everything in its power to

5

Draft UNCITRAL Digest art. 53, ¶ 3 n. 3. Landgericht Kassel, Germany, 15 February 1996, CLOUT case No. 409; Landgericht Bochum, Germany, 24 January 1996, CLOUT case No. 411. 7 Landesgericht Trier, Germany, 28 June 2001, available at http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/010628g1.html. 8 Oberlandesgericht Hamburg, Germany, 26 January 2000, available at http://www.cisg. law.pace.edu/cisg/wais/db/cases2/000126g1.html. 6

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pay the price.9 In my opinion, expressing the buyer’s main obligation in such a strong statement could be useful in the Digest as well. The scope of the buyer’s obligations under Article 54 is discussed in two paragraphs of the draft Digest.10 In addition, I would like to mention a recent Spanish decision in which the buyer refused to pay the price on the ground that the goods were defective.11 The seller delivered the goods – special equipment for cooling and heating drinking water – to the buyer; however, the equipment began to develop operational defects before the buyer was obliged to make payment. Without informing the seller of the defect, the buyer attempted to repair it himself despite the fact that the contract contained a five-year warranty clause. Finding the buyer in breach of his obligation to demand enforcement of the manufacturer’s warranty, the court rejected the buyer’s claim. A question that frequently arises in international court and arbitration cases concerns the currency of payment. As shown in the court decisions cited in the draft Digest,12 the Convention provides various solutions for determining the currency of payment: the correct currency could be designated by the will of the parties (Article 6), according to commercial usages (Article 9(2)), according to commercial practices among the parties (Article 9(1)), by the location of the seller’s business (Article 57(1)(a)), or by the place where the handing over of the goods or of documents takes place (Article 57(1)(b)). Another decision ruled that “the currency of payment should be determined by the law which would govern the contract if the Convention were not applicable”.13 As I understand this decision, the question raised is whether payment was to be made in Italian lire or in Swiss francs. Noting that the CISG does not expressly deal with the currency in which the purchase price has to be paid, the court concluded that this issue is to be determined in accordance with the law applicable to the contract (Article 4). Accordingly, the decision shows that, in the absence of other solutions, the currency issue is to be resolved in accordance with the applicable law designated by the relevant conflict of laws rules. Thus, in my opinion, this decision does not raise the question of whether the Convention applies but is only a referral to the applicable law.

9 U. Magnus, J. von Staudingers Kommentar zum Bu¨rgerlichen Gesetzbuch, Berlin, 13. Bearbeitung 1994, p. 448. 10 Draft UNCITRAL Digest art. 54, ¶¶ 3-4. 11 Audencia Provincial de Navarra, Spain, 27 March 2000, CLOUT case No. 397. 12 Draft UNCITRAL Digest art. 54, ¶ 5-6. 13 Kantonsgericht Kanton Wallis (Zivilgerichtshuf I), Switzerland, 30 June 1998, CLOUT case No. 255.

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Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. The rule of Article 55 – specifically, the part providing that a contract may be deemed valid even if the indications as to the price are missing – is contrary to the national contract law in a number of countries. It is important to note that Article 55 applies only to contracts that are valid and contain no express or implied provision for determining the price. However, since the CISG contains no rules for determining the validity of a contract, the question arises, as Professor Witz rightly states, whether Article 55 is “applicable only if the contract of sale was validly concluded without a price”.14 In this regard, the decisions cited in the draft Digest show that the courts and arbitral tribunals tend to “accept the responsibility of establishing the missing price with a view of rendering the contract effective”,15 thus giving precedence to Article 55 over Article 14. The tendency to avoid applying national rules when determining the validity of the contract is an interesting simplification of the problem that, in my opinion, could lead to greater uniformity.

Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. To be more precise, it may be helpful to clarify at which time the weight of the goods is to be determined. In this context, Schlechtriem (Hager) suggests that the weight at the time of the passing of the risk serves to fix the price in the sense of Article 56.16 This is surely a good way to determine the decisive moment for establishing the weight of goods.

14 15 16

Draft UNCITRAL Digest art. 55, ¶ 4. Draft UNCITRAL Digest art. 55, ¶ 4. Peter Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht 597 (3d ed. 2000).

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Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: (a) at the seller’s place of business; or (b) if the payment is to be made against the handing over of the goods or of the documents, at the place where the handing over takes place. (2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract. Until recently, Article 57 was important in EU Member States not only as a substantive rule for determining the place where the buyer must pay the price but also, when applied in connection with Article 5. 1 of the Brussels and Lugano Conventions, as a means of establishing the jurisdiction of the courts at the seller’s place of business. As pointed out in the Commentary, the combined effect of Article 57 CISG and Article 5. 1 of the Brussels and Lugano Conventions, which allowed the seller to sue a defaulting buyer in the courts at the seller’s own place of business or domicile, resulted in frequent use of these provisions in practice.17 In response to strong criticism, Council Regulation No 44/200118 has made the place of performance relevant when establishing jurisdiction, thus making it more difficult for the seller to sue at its own place of business or domicile. This fact that the seller’s place of business could be both the place of payment and the place of jurisdiction ran counter to the very purpose of Article 57(1), i. e., to divide the risk between the parties to the sales contract. As a result, I agree with Schlechtriem that the criticism of this situation raised in Germany was justified. In light of this, it is not surprising that Schlechtriem warned the buyer to protect himself by insisting that the parties agree on the place of jurisdiction in the contract.19 Although balance has been restored in EU countries by the Council Regulation, this shows how important it is to attempt to find universal solutions when applying the CISG. By the same token, it also shows how 17

Draft UNCITRAL Digest art. 57, ¶ 4. Council Regulation 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 12 of 16. 1. 2001). 19 Schlechtriem, supra note 16, at 601-02. 18

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dangerous it could be if solutions favoring one party were adopted globally. Therefore, it would perhaps be advisable to adopt a conclusion in the Digest encouraging courts in other parts of the world not to apply Article 57(1) in connection with national jurisdictional rules as a vehicle to enable the seller to sue the buyer at the seller’s own place of business or domicile.

Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity. In its decision of 14 July 2000,20 the Juzgado sexto de Primera Instancia del Partido de Tijuana (Mexico) held that, pursuant to Article 58(1) CISG, payment of the price was due upon delivery of the goods because no express provision had been made in the contract. As to the payment of interest, which had been agreed in the contract, the court awarded interest accruing from the date of the request to import the goods into Mexico, having no other way of determining as the date of delivery. The issue of the buyer’s right not to pay the price until having the opportunity to examine the goods (Article 58(3)) was raised, inter alia, in a recent decision of the Landgericht Stendal.21 Since the seller had fulfilled his obligation by delivering the goods (natural stone) but no date had been fixed for payment, the court found that, pursuant to Article 58(1) CISG, the buyer was bound to pay the price at the time the seller had placed the goods at the buyer’s disposal. Moreover, the court rejected the buyer’s claim that he had been unable to examine the goods. Since the seller had not requested 20

Juzgado sexto de Primera Instancia del Partido de Tijuana, Mexico, 14 July 2000, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=514&step=Abstract. 21 Landgericht Stendal, Germany, 12 October 2000, English translation available at http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/001012g1.html#cx.

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payment until several weeks after delivery of the stones, the court found that this had left the buyer reasonable time to examine the goods in the sense of Article 58(3). Further, the Court found that, under Article 38(1), the buyer was bound to examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. From this it follows that Article 58(3) is to be applied in connection with Article 38(1) in matters concerning the buyer’s right to examine the goods. Whether examination occurs within a reasonable time depends on the circumstances of the particular case.

Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without need for any request or compliance with any formality on the part of the seller. The main rule of Article 59, i. e., “the price must be paid as soon as it becomes due”,22 was recently confirmed in a decision of the Landgericht Munich of 6 April 2000.23 The act of the buyer – blocking payment of the check he had issued to pay for the goods – was regarded by the court as the buyer’s refusal to make payment. The court found the buyer in arrears of payment from the day it had ordered the check to be blocked.

Article 60 The buyer’s obligation to take delivery consists: (a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and (b) in taking over the goods. A 10 May 2002 decision of a U.S. court24 dealt, inter alia, with the question whether the buyer’s failure to give commercially reasonable notice of its purchase order entitled the seller to terminate the contract. The court held 22

Draft UNCITRAL Digest art. 59, ¶ 2. Landgericht M
nchen, Germany, 6 April 2000, available at http://www.cisg-online.ch/ cisg/urteile/665.htm. 24 United States District Court for the Southern District of New York, United States, 10 May 2002, available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=739&step=FullText (Geneva Pharms., Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236). 23

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that the buyer’s failure to give commercially reasonable notice under Article 60(a) does not entitle the seller to terminate the contract. In its arbitral award of 12 February 1998 concerning a contract between a Russian seller and a Bulgarian buyer,25 the Bulgarian Chamber of Commerce and Industry made it clear that a sales contract cannot be changed by a unilateral action on the part of the buyer. After receiving the first shipment of steel ropes, the buyer sent several faxes to the seller requesting deliveries to be stopped. Claiming that the goods delivered after its request to stop deliveries had not become its property, the buyer paid only part of the price for the goods and refused to pay the rest. Rejecting the buyer’s unilateral action, the arbitral tribunal ordered the buyer to fulfill his obligations under Articles 53 and 60, i. e., to take delivery and pay the rest of the price for the delivered goods.

Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (a) exercise the rights provided in articles 62 to 65; (b) claim damages as provided in articles 74 to 77. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract. Two issues deserve comment in connection with this article. First, the case law is inconsistent with regard to the question whether remedies provided by national law are available if they cover a buyer’s obligation outside the Convention.26 I agree with the draft Digest that it is not necessary to enlarge the catalogue of remedies under Article 61(1) by invoking national rules, especially in light of the series of other remedies for special situations available to the seller in Articles 71-73, 78 and 88. The German Bundes-

25 Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, available at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/980212bu.html#cx. 26 Draft UNCITRAL Digest art. 61, ¶ 3-4.

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gerichtshof, however, has ruled differently and permitted recourse to national law, as the draft Digest notes.27 Secondly, in regard to the prohibition of a court or arbitral tribunal granting a “period of grace” pursuant to Article 61(3), it should be noted that the view is sometimes held that this is not absolutely excluded in cases before arbitral tribunals. When applying the CISG as the governing law, an arbitral tribunal must follow the same rules as the courts; however, if the tribunal has the right to decide ex aequo et bono and uses the CISG only as a model in its decision, such extension may be held justifiable.28

Article 62 The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement. As stated in the draft Digest, Article 62 is commonly invoked to require payment of the purchase price but rarely to require the taking of delivery.29 In addition, the seller may invoke Article 62 to require performance of other obligations of the buyer, such as issuing a guaranty. However, this right is not available under Article 62 if the seller has resorted to a remedy that is inconsistent with the requirement sought. In addition, pursuant to Article 28, the court is not bound to order specific performance on behalf of the seller “if the judge would not do so under its domestic law in respect of similar contracts”.30 In legal scholarship a debate has developed as to whether the term “specific performance” in Article 28 should be construed in accordance with its common law meaning, which is “usually (but by no means always) associated with an aggrieved buyer’s right to require performance of the seller’s obligations”.31 While proponents of using the common law meaning argue that the purpose of the provision of Article 28 was to accommodate “the remedial traditions of the common law system”, this could lead to diversity in interpretation. I agree with Erauw’s and Flechtner’s conclusion that, “if the 27

Id. ¶ 4. Magnus, supra note 9, at 483 (point 32). 29 Draft UNCITRAL Digest art. 62, ¶ 2. 30 Draft UNCITRAL Digest art. 62, ¶ 3. 31 Johan Erauw & Harry M. Flechtner, Remedies under the CISG and Limits to their Uniform Character, in International Sale of Goods Revisited 56 (P. arcˇevic´ P. Volken eds., 2001). 28

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common meaning of the phrase ‘specific performance’ were applied to Article 28, the provision arguably might not apply to a seller’s right under Article 62 to require the buyer to perform”.32

Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance. In addition to the issues raised in the draft Digest, attention should be devoted to the question how to determine whether the length of an additional period of time specified under Article 63(1) is “reasonable”. It is widely acknowledged that the reasonableness of the period fixed for performance is to be assessed on a case-to-case basis.33 This entails taking account of the circumstances of the particular case, including any difficulties encountered by the parties. In Bieloni Castello S.p.A. v. EGO S.A.,34 the French buyer failed to take delivery of the goods (a printing press) on time because of administrative problems that prevented his new factory from opening on the scheduled date. Two months after the date for taking delivery and payment had passed, the seller sent a notice to the buyer requesting performance within 15 days. When the buyer failed to perform, the seller sent a second notice with the same contents; however, the buyer again failed to perform. Assessing the seller’s notices as fixing an additional period of time for performance under Article 63, the court of appeals considered the additional period fixed by the seller (a total of two and one half months) to be of reasonable length in the sense of Article 63(2). In view of these circumstances, the court found that the seller was entitled to declare the contract avoided as the buyer had failed to perform within the additional period of time fixed by the seller (Article 64(1)(b) CISG).

32

Id. See Magnus, supra note 9, at 494; Bruno Zeller, Seller’s Notice Fixing Additional Final Period for Performance: Remarks on the Manner in which the Principles of European Contract Law May Be Used to Interpret or Supplement Articles 63 and 64(1)(b) CISG, available in www.cisg.law.pace. edu/cisg/text/perlcomp63.html#er. 34 Corte d’appello di Milano, Italy, 11 December 1998, English abstract available in Unilex at http://www.unilex.info/case.cfm?pid=1&do=case&id=359&step=Abstract. 33

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Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed. (2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or (b) in respect of any breach other than late performance by the buyer, within a reasonable time: (i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period. Article 64(1)(a) allows the seller to avoid the contract in cases where the buyer has committed a fundamental breach. The term “fundamental breach” is to be construed by the courts in accordance with the definition set out in Article 25. When determining whether the buyer has committed a fundamental breach under Article 64, the decisive criterion is whether the breach, in relation to the agreement reached by the parties, substantially deprives the seller of its interest in the performance of the contract. This is illustrated in SARL Ego Fruits v. La Verja,35 which concerned a sales contract for 860,000 liters of pure orange juice from the Spanish seller. The contract stipulated that the deliveries were to be staggered from May to December 1996. In return for a price reduction, the parties agreed that the September delivery would take place in late August. At the time of that delivery, the French buyer refused the goods but requested delivery in September. Upon the 35 Cour d’appel de Grenoble, France, 4 February 1999, CLOUT case No. 243, available at http://www.jura.uni-sb.de/FB/LS/Witz/040299.htm.

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seller’s refusal to deliver, the buyer purchased supplies elsewhere at a higher price and refused to pay for the previous deliveries. Citing the buyer’s delay in taking delivery, the court of first instance – the Commercial Court of Romans – found that the seller was entitled to defer the performance of its obligations and ordered the French company to pay the price of the goods. The ruling was later set aside by the court of appeal. When determining whether the seller was entitled to declare the contract avoided under Article 64(1)(a), the court found that the buyer’s failure to take delivery of the goods in late August did not amount to a fundamental breach in the sense of Article 25. In the absence of a fundamental breach, the seller should have granted the buyer an additional period of time in which to take delivery. Thus, in the court’s opinion, the seller’s unilateral avoidance constituted a wrongful termination of the contract. In case No. 7585 of 1992, the ICC Arbitral Tribunal approved a seller’s declaration of avoidance of the contract under Article 64(1)(b).36 By failing to procure letters of credit on the date required, the buyer had not complied with the requirements of Articles 53 and 54 in respect of the buyer’s obligation to pay the price. Reading Article 25 in connection with Articles 53 and 54, the arbitral tribunal concluded that the mere fact that the buyer caused some delay in payment does not necessarily amount to a fundamental breach. In this case, however, the seller had waited several months before declaring the contractual relations terminated, although it was clear that the buyer did not have adequate financial resources. The arbitral tribunal regarded the period between the buyer’s default and the declaration of avoidance by the seller as an “additional period” specified by the seller under Articles 63(1) and 64(1)(b), thus justifying the avoidance. In another case, arbitral proceedings were initiated before the Zu¨richer Handelskammer37 by the buyer in a dispute concerning a sales contract for aluminum. The buyer requested delivery of the quantity of aluminum specified in the contract and damages due to late shipment. The seller pleaded that the buyer’s delay in paying the price for past deliveries amounted to a fundamental breach of its contractual obligations, thus justifying the seller’s refusal to perform. The seller also refused to enter into renegotiations of the sales contract to attempt to settle the dispute amicably. The arbitral tribunal found that the buyer was not in fundamental breach, and that the seller had failed to fix an additional period for payment (Article 64(1)(b)). 36

ICC Court of Arbitration, Case No. 7585, 1992 CLOUT case No. 301, available at http:// cisgw3.law.pace.edu/cases/927585i1.html. 37 Z
rich Handelskammer, Switzerland, 31 May 1996, available at http://www.cisg.law. pace.edu/cisg/wais/db/cases2/960531s1.html.

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Article 65 (1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him. (2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding. Article 65 applies in cases where a contract of sale has been concluded38 but the buyer has failed to specify all the characteristics of the goods. The intention is to prevent a buyer from evading its obligations by not supplying missing specifications.39 Two types of cases may be distinguished: 1) when the contractually agreed date for the buyer to give the specifications has elapsed, and 2) when the buyer has failed to provide specifications within a reasonable period of time after receiving a request for such specifications from the seller. In both cases, if the buyer fails to provide necessary specifications as to form, measurement, or other features of the goods, the seller may ultimately supply the specifications himself, taking account of the buyer’s requirements.40 However, as the draft Digest notes, the seller is under no obligation to make the specifications: it is up to the seller to decide whether or not to “keep the contract alive”.41 Article 65 operates without prejudice to the seller’s other rights. Thus, as has been noted by Amissah, where the seller chooses not to make his own specifications but instead requests the buyer to perform, the breach may eventually become fundamental in the sense of Article 62 if the

38

Ralph Amissah, Missing Specifications in International Sales, available at http://www.cisg. law.pace.edu/cisg/text/cross/65.html. 39 John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention § 357 (3d ed. 1999). 40 Amissah, supra note 38, at 6. 41 Draft UNCITRAL Digest art. 65, ¶ 1.

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buyer continues to refuse to perform.42 In my opinion, however, if the seller assumes the duty to supply the specifications, this should be interpreted as forfeiting his right to avoid the contract on that ground. 42

Amissah, supra note 38, at 6.

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Concluding comments: Historic progress, opportunities, and the work ahead Harold Burman* Providing a summary of the presentations made at the February 7, 2003, University of Pittsburgh School of Law conference on the draft UNCITRAL Digest of CISG cases is not an easy task. An article-by-article commentary on my part obviously is not possible within our time limits. What I’d like to do instead is consider the context; what this is all about and where it might go in the future. If we focus on the discussion of specific articles and the various academic or professional critiques at this point, it becomes too easy to forget the context; and I think the context is very important for the future. The CISG has become a historic – and many would say unexpected – standard for the development of international private law. Up through the 1950s and the 1960s there was no comparable multilateral process to that which produced the CISG. There were organizations that professed to be multilateral, but which were in fact regional. In the 1960s that began to change. There was a movement by the Hague Conference on Private International Law, and a movement by UNIDROIT, to expand their membership and, inter alia to bring in more common law states to balance with the civil law states. Immediately following that, UNCITRAL was organized. It may be easy to think that somehow it automatically came into existence and the CISG just followed naturally, but that was not the case. In fact, what went on was that many western nations (in U.N. terms, the “WEO” Group, which means Western Europe and the United States, New Zealand, Canada, and Australia) began to go into damage control mode. The ‘60s and ‘70s at the United Nations was the time of the Group of 77 (A UN “non-aligned” group that most often took positions contrary to the WEO Group), and the origin of the New International Economic Order (“NIEO”). This had implications for the Charter of UNCITRAL, and also for the * Senior Attorney, Office of the Legal Adviser for Private International Law, U.S. Department of State; Executive Director, Secretary of State’s Advisory Committee on Private International Law.

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preamble to the CISG, which carries a reference to the NIEO, which was then a cover term for reallocating the resources of the world along a South versus North and an East versus West spectrum. It was in the context of this rampant politicization at the U.N. that somehow UNCITRAL magically stayed clear of all of that and in the 1970s and in the early part of the 1980s produced the United Nations Convention on the Limitations Period in the International Sale of Goods and the CISG. Even after the CISG, other South-versus-North, or NIEO, issues almost reached the UNCITRAL agenda, but ultimately fell by the wayside. UNCITRAL has throughout remained technically focused and non-politicized. So if you look at these developments in the context of the United Nations, these achievements of the ‘70s are very relevant to what can be done now with the Digest, and to how fast whatever can be done can be done safely. The Digest is a product, not of the Hague Conference or of UNIDROIT, but of the United Nations, and there are a lot of limitations that apply because of that. At the Pittsburgh conference on which this volume is based, Professors Ferrari and Garro spoke with vigor and eloquence about how expansive the UNCITRAL Digest effort could and should be. And there is an argument for that. But, I definitely came out at the end of the day lining up with UNCITRAL Secretary Sekolec and Professor Winship and others who spoke about the constraints necessary at the U.N. for such a project – in other words, of a more modest level of achievement, at least in its initial phase. I would suggest that the Digest itself represents a very strong movement toward harmonization. It can re-energize a process that gave rise to the CISG, and I think that is needed in the twenty-first century. The CISG has not always been there, and if those who labor in this vineyard don’t work hard at it and continue to foster harmonization, it won’t always remain the preeminent standard that it is. One has to watch the changes of the times, as I’ll explain. On the other hand, I think this conference and book present a great opportunity. As Professors Magnus and Ferrari have indicated, the commentary here can go beyond the present Digest to include issues that are in dispute, and discuss the relative weight of the arguments, as well as the reasons for the disagreements. Here we have the opportunity also to go on to discuss important issues that have not yet come up in court decisions. There are other worlds besides the courts. Professor Brand very correctly pointed out that, although there has been a lot of discussion of judicial process, the CISG is important for other constituencies. I would say that probably more than half of the importance of the CISG is its guidance to transactional counsel and transactional parties. And I would add a third

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factor that is somewhat different, and often not seen, but nevertheless is part of the transactional world. That is the world of commercial finance and credit ratings, where the CISG is reviewed and matched up against a country’s legal performance, for the purpose of establishing credit ratings and extending credit, especially when the sales transactions involve third world countries. This is a reality of the international sales of goods picture which I think ought not to be forgotten. Could the Digest project go even further? There are people who say, “well the Digest project shouldn’t go too far because it might lead to suggestions that we need amendments to the CISG”. Here we’re talking about rewriting nearbiblical text, and I think that is not all together a pleasant idea for some commentators. The project could go still further and begin to look at result-based assessments. It is not always easy to be objective when you analyze decisions of this court and that arbitration panel. UNCITRAL is a body created by the U.N. General Assembly whose mandate is to further commerce and trade to the benefit of all regions of the world, which includes developing countries as well as developed countries. I would suggest that its charge is properly read as an invitation to be result-based in the analysis of and the effect of what it does. It is not neutral, and arguably should not be neutral. One might go further on down the road of what this process could lead to. I think each of these possible avenues to the future ought to be considered and discussed. Each would have to be very carefully considered, however, within the context and limitations of working within the United Nations. The CISG has been tremendously successful as a document that harmonizes several leading legal systems in the world. Since the completion of the CISG, particularly during the mid-1990s, several new private commercial law conventions have come along that have moved away from harmonization as a standard. In each case they have dealt with specialty commercial law. In each case there have been economic and transactional objectives, and harmonization has not been a principal objective. This includes, for example, the UNIDROIT Convention on International Interests in Mobile Equipment, the UNCITRAL Convention on the Assignment of Receivables in International Trade, and the very recent Hague Conference Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary. Each of these was driven by result-based analysis. Result-based analysis does not necessarily affect the CISG directly. That type of analysis did not reign at the time of the negotiation of CISG. One could, however, argue that economic and development results could be considered

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today as one litmus test to determine both trends and their effects on harmonization. But there is another wave of issues coming down the road that is important, and which I think those who follow the CISG need to take into account. That is the whole world of electronic commerce, as well as intellectual property, and changes that are happening internationally as well as in national law. The movement – and controversy – in those fields of law is creating pressure to determine whether certain provisions of the CISG work appropriately in electronic commerce contexts. Electronic commerce raises new questions for CISG analysis. For example, transactional parties may no longer be certain about the application of Article 1, because there will be difficulty in determining, ex ante reliably, the location of a place of business or principle place of business. In addition, determining in the electronic world what transactions are “international” may become problematic unless either new rules are created or the passage of time results in more settled rules that may again allow predictability. UNCITRAL is right now wrestling with these issues in its Working Group on Electronic Commerce. I’m not sure that I see an end in sight in that process, in the sense that I don’t know whether there can be consensus on important issues for some years to come. If people turn to the CISG and say that we no longer have certainty and predictability, that is unhealthy for the Convention. One way or another those issues must be dealt with. Dodging these challenges is not going to create longevity for the Convention, if we want to see it remain a preeminent standard in international transactions. Finally, there is the problem of regionalism. Certainly we have the pressure created by activities within the European Union. If one proposes changes to the CISG there are some who are concerned that this would move it onto the table of competency issues within the European Union. And that perhaps ought to be avoided, unless the changes are really necessary. In other areas, such as Latin America, regional developments may open opportunities to extend adoption of the CISG. There are at the same time opportunities. The CISG has been adopted by a large number of countries. It affects a huge amount of trade; and it affects much more than just trade in the countries where it has been adopted. It is widely utilized by arbitral tribunals. Thus, it sets a standard even beyond the Contracting States. This is exemplified when private parties from noncontracting states choose the CISG as a party-selected regime because of its

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wide acceptance and because they are confident (or at least hopeful) that their choice may be upheld. At the same time, there are regions and subregions where there are not many countries that have adopted the CISG, for varying reasons. This includes a number of countries in North Africa and sub-Saharan Africa, a number of countries in Southeast Asia, and some in Central and Latin America. The expanded Digest process can be used to kick start a new effort to bring the benefits of enhanced harmonization to the attention of players in those countries and to start up a new round of ratifications and accessions. The message I would draw from the Pittsburgh conference is that this is a historic time. It is a time providing great opportunities for international sales law. Those opportunities go way beyond what the issues are in, say, Article 14 or Article 55, or any other provision. I hope very much that the law unification community will take advantage of this opportunity. For all this we have the Secretariat of UNCITRAL to thank for the new initiative on the Digest; and we have the Center for International Legal Education to thank for this book and the conference that produced it. But a lot of work remains to be done. My message is that it is not enough to sit back and say, well if we do it or we don’t do it the CISG will be there and everything will be the same for the next 50 years. I wouldn’t count on that. It can remain, but I think it’s going to take work to make it a continuing success.

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The Draft UNCITRAL Digest on the United Nations Convention on Contracts for the International Sale of Goods (1980) The Draft UNCITRAL Digest was written by the following five persons: Professor Franco Ferrari: Articles 1-13, 78 Professor Peter Winship: Articles 14-24, 66-77 Professor Ulrich Magnus: Articles 25-34, 45-52 Professor Harry Flechtner: Articles 35-34, 79-88 Professor Claude Witz: Articles 53-65

Part I Sphere of Application and General Provisions Chapter I Sphere of Application Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. (3) Neither the nationality of the parties or the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention. 1. This article provides some of the rules for determining whether the Convention applies. Article 1 has to be read in connection with articles 2

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and 3, which respectively narrow down and extend the substantive sphere of application of the Convention.

Convention Prevails over Recourse to Private International Law 2. The first issue to be decided before examining the Convention’s substantive, international and territorial sphere of application is that of its relationship to the private international law rules of the forum. This is necessary, as both the Convention and the private international law rules deal with international contracts. According to case law, before resorting to the private international law rules of the forum, courts of Contracting States have to look into whether the Convention applies;1 in other words, recourse to the Convention prevails over recourse to the forum’s private international law;2 this is due to the Convention’s rules being more specific, in the sense that they directly lead to a substantive solution, as the Convention is a substantive law convention,3 whereas the private international law approach requires a two step approach (identification of the applicable law and application thereof).4

Contracts Governed by the Convention 3. The Convention applies to contracts for the sale of goods. Although the Convention does not provide any definition of this type of contract,5 a definition can be derived from articles 30 and 53.6 Thus, the contract for the sale of goods covered by the Convention can be defined as a contract “pursuant to which one party (the seller) is bound to deliver the goods and transfer the property in the goods sold and the other party (the 1 2

CLOUT case No. 378, Italy, 2000.

For this solution, see CLOUT case No. 380, Italy, 1999; Landgericht Zwickau, Germany, 19 March 1999, available on the Internet at ; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 345, Germany, 1997; CLOUT case No. 84, Germany, 1994. 3 Oberster Gerichtshof, Austria, 9 March 2000, available on the Internet at ; Tribunale d’appello Lugano, Switzerland, 8 June 1999, available on the Internet at . 4 For this argument, see CLOUT case No. 378, Italy, 2000. 5 This has been pointed out for instance by CLOUT case No. 106, Austria, 1994. 6 In this respect see Rechtbank Rotterdam, Netherlands, 1 November 2001, Nederlands Internationaal Privaatrecht, 2002, No. 114. See also Kantonsgericht Wallis, Switzerland, 11 March 1996, Unilex.

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buyer) is obliged to pay the price and accept the goods”.7 Thus, as one court put it, the essence of the contract lies in goods being exchanged for money.8 4. The Convention also covers other types of contracts, such as contracts for the delivery of goods by installments,9 as can be derived from article 73 of the Convention, and contracts providing for the delivery of the goods sold directly from the supplier to the seller’s customer.10 Pursuant to article 29, contracts modifying a sales contract also fall within the substantive sphere of application of the Convention.11 5. Article 3 contains a special rule which extends – within certain limits – the Convention’s substantive sphere of application to contracts for the sale of goods to be manufactured or produced as well as to contracts pursuant to which the seller is also bound to deliver labour or services. 6. Despite one court decision stating the contrary,12 the Convention does not apply to distribution agreements,13 as these agreements aim more at the “organization of the distribution” than at the transfer of the ownership.14 The various contracts for the sale of goods concluded in execution of the distribution agreement, can, however, be governed by the Convention,15 7 See CLOUT case No. 106, Austria, 1994; for a reference to the buyer’s obligation mentioned in the definition referred to in the text, see also Rechtbank Koophandel Hasselt, Belgium, 2 May 1995, available on the Internet at . 8 CLOUT case No. 328, Switzerland, 1999. 9 See Schiedsgericht der Hamburger freundlichen Arbitrage, Germany, 29 December 1998, Internationales Handelsrecht, 2001, 337; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 238, Austria, 1998; CLOUT case No. 166, Arbitration, 1996; Landgericht Ellwangen, Germany, 21 August 1995, unpublished; CLOUT case No. 154, France, 1995. 10 See CLOUT case no. 269, Germany, 1998; CLOUT case No. 261, Switzerland, 1997. 11 See CLOUT case No. 297, Germany, 1998; CLOUT case No. 133, Germany, 1995; ICC Court of Arbitration, award No. 7331, Journal du droit international, 1995, 1001 ff.; CLOUT case No. 5, Germany, 1990. 12 See CLOUT case No. 379, Italy, 1999. 13 See CLOUT case No. 297, Germany, 1998; CLOUT case No. 295, Germany, 1997; CLOUT case No. 273, Germany, 1997; CLOUT case No. 187, United States, 1997; CLOUT case No. 169, Germany, 1996; CLOUT case No. 126, Hungary, 1996; CLOUT case No. 281, Germany, 1993; Hof Amsterdam, Netherlands, 16 July 1992, Nederlands Internationaal Privaatrecht 1992, Nr. 420; for a case in which the issue was raised but not resolved, see CLOUT case No. 187, United States, 1993. 14 CLOUT case No. 192, Switzerland, 1997. 15 See CLOUT case No. 295, Germany, 1997; CLOUT case No. 273, Germany, 1997; CLOUT

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even where the distribution agreement was concluded before the entry into force of the Convention.16 7. Franchise agreements as well fall outside the Convention’s sphere of application.17

Goods 8. The Convention does not define “goods”. This, however, does not allow one to look into domestic law to find a definition. Like most other concepts, that of “goods” has to be interpreted autonomously,18 i. e. in the light of the Convention’s international character. 9. According to case law, “goods” in the sense of the Convention are goods that are, at the moment of delivery,19 “moveable and tangible”,20 independently of whether they are solid or not,21 independently of whether they are used or new goods22 and independently of whether they are alive or not.23 In the light of this case law, it is no surprise that intangible goods, such as intellectual property rights, a quota of a limited liability company24 or receivables25 are considered not to fall within the Convention’s concept of “goods”. The same is true for a market research study.26 However, according to one court, the Convention appears to also apply to goods that are not tangible, since the court states that the concept of “goods” is to be interpreted “extensively”.27 case No. 169, Germany, 1996; CLOUT case No. 204, France, 1996; CLOUT case No. 281, Germany, 1993 16 CLOUT case No. 281, Germany, 1993. 17 See CLOUT case No. 192, Switzerland, 1997. 18 See text under article 7. 19 See CLOUT case No. 152, France, 1995. 20 See CLOUT case No. 328, Switzerland, 1999 CLOUT case No. 380, Italy, 1999; CLOUT case No. 168, Germany, 1996; CLOUT case No. 122, Germany, 1994; CLOUT case No. 106, Austria, 1994. 21 See CLOUT case No. 176, Austria, 1996, applying the Convention to the international sale of propane gas. 22 See Landgericht Kln, Germany, 16 November 1995, unpublished. 23 For a decision that considers animals as “goods” in the sense f the Convention, see Landgericht Flensburg, Germany, 19 January 2001, Internationales Handelsrecht, 2001, 67 et seq. 24 See CLOUT case No. 161, Arbitration, 1993. 25 See CLOUT case No. 378, Italy, 2000. 26 See CLOUT case No. 122, Germany, 1994.

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Art.1

10. Whereas the sale of computer hardware clearly falls within the sphere of application of the Convention,28 the same cannot be said about software. According to some courts, only standard software is considered a “good” under the Convention;29 according to one court, however, any kind of software is considered a “good”, even custom-made software.30

Internationality and Place of Business 11. The Convention’s sphere of application is limited to contracts for the international sale of goods. According to article 1(1), a contract for the sale of goods is international when the parties have – at the moment of the conclusion of the contract31 – their relevant place of business in different States.32 12. Although the concept of “place of business” is paramount to the determination of internationality, the Convention does not define it. It solely deals with the problem of which of the various places of business of one and the same party is to be taken into account to determine internationality (article 10). 13. According to one court, “place of business” can be defined as “the place from which a business activity is de facto carried out [...]; this requires a certain duration and stability as well as a certain amount of autonomy”.33 In the light of this definition, it is no surprise that a court stated that a liaisonoffice cannot be considered a “place of business” under the Convention.34

27

CLOUT case No. 281, Germany, 1993.

28

See Landgericht M
nchen, 29 May 1995, Neue Juristische Wochenschrift 1996, 401 f.; Landgericht Heidelberg, 3 July 1992,Unilex. 29 See CLOUT case No. 122, Germany, 1994; CLOUT case No. 131, Germany, 1995. 30 See CLOUT case No. 281, Germany, 1993. 31 See OLG Dresden, Germany, 27 December 1999, available on the Internet at . 32 For this affirmation in case law see CLOUT case No. 378, Italy, 2000; CLOUT case No. 168, Germany, 1996; CLOUT case No. 106, Austria, 106. 33 OLG Stuttgart, Germany, 28 February 2000, Internationales Handelsrecht, 2001, 66; for a similar definition see CLOUT case No. 106, Austria, 1994; for a court decision stating that the Convention’s definition of “place of business” requires the parties to “really” do business out of that place, see Amtsgericht Duisburg, Germany, 13 April 2000, available on the Internet at . 34 See CLOUT case No. 158, France, 1992.

505

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Draft Digest

14. The internationality requirement is not met where the parties have their relevant place of business in the same country. This is true even where they have different nationalities, as article 1(3) states that “the nationality of the parties [...] is [not] to be taken into consideration in determining the application of this Convention”.35 Neither is the contract international when the place of conclusion of the contract is located in a State different from that in which the performance takes place.36 For the purposes of the Convention’s applicability, also the parties’ civil or commercial character is irrelevant.37 15. Where the contract for the sale of goods is concluded through an intermediary, it is necessary to establish who is party to the contract in order to be able to determine whether the contract is international. As the issue of who is party to a contract is not dealt with in the CISG,38 recourse is to be had to the law applicable by virtue of the rules of private international law of the forum in order to determine who is party to the contract. It is that party’s place of business which has to be taken into account to decide whether the contract is international.39 16. According to article 1(2), internationality is irrelevant where “the fact that the parties have their places of business in different States [...] does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract”.40 Thus, the Convention protects the parties’ reliance upon 35

For references to the irrelevance of the parties’ nationality, see Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 14 et seq.; Rechtbank Koophandel Veurne, Belgium, 25 April 2001, available on the Internet at ; Court of Arbitration of the Bulgarian Chamber of Commerce and Industry, award No. 56/1995, available on the Internet at . 36 See OLG Kln, Germany, 27 November 1991, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/. 37 Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 16. 38 For court decisions stating that issues of agency law and related matters are not dealt with by the Convention, see CLOUT case No. 378, Italy, 2000; CLOUT case No. 189, Austria, 1997; Appellationsgericht Tessin, Switzerland, 12 February 1996, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 1996, 135 ff.; CLOUT case No. 334, Switzerland, 1995; Landgericht Kassel, Germany, 22 June 1995, unpublished; AG Alsfeld, Germany, 12 May 1995, Neue Juristische Wochenschrift Rechtsprechungs-Report 1996, 120 f.; CLOUT case No. 80, Germany, 1994; CLOUT case No. 95, Switzerland, 1992; CLOUT case No. 5, Germany, 1990. 39 See Oberlandesgericht Kln, 13 November 2000, available on the Internet at . 40 For a reference to this provision in case law, see Oberster Gerichtshof, Austria, 21 March

506

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Art.1

the domestic setting of the transaction. The party that asserts that the Convention is not applicable due to the internationality of the contract not being apparent has to prove its assertion.41

Autonomous Applicability 17. The internationality of the contract for the sale of goods by itself is not sufficient to make the Convention applicable.42 Article 1(1) lists two alternative criteria of applicability, one of which has to be met in order for the Convention to apply. According to the criterion set forth in article 1(1)(a), the Convention is “directly”43 or “autonomously”44 applicable, i. e. without the need to resort to the rules of private international law,45 when the States in which the parties have their relevant place of business are Contracting States. As the list of Contracting States is growing, this criterion is leading more and more often to the applicability of the Convention.46 2000, available on the Internet at ; CLOUT case No. 378, Italy, 2000. 41 See CLOUT case No. 378, Italy, 2000. 42 For this statement, see CLOUT case No. 378, Italy, 2000. 43 For this expression, see Bundesgericht, Switzerland, 11 July 2000, available on the Internet at http://www.cisg.law.pace.edu/cisg/text/000711s1german.html>; CLOUT case No. 261, Switzerland, 1997. 44 See CLOUT case No. 378, Italy, 2000; CLOUT case No. 189, Austria, 1997. 45 For this statement, see CLOUT case No. 268, Germany, 1996. 46 For court decisions rendered in the last years applying the Convention by virtue of article 1(1)(a), see Hof Beroep Gent, 21 January 2002, available on the Internet at ; CLOUT case No. 398, France, 2001; Landgericht Trier, Germany, 7 December 2000, Internationales Handelsrecht 2001, 35; OLG Oldenburg, Germany, 5 December 2000, Recht der internationalen Wirtschaft 2001, 381 f.; Landgericht Stendal, Germany, 12 October 2000, Internationales Handelsrecht 2001, 30 ff.; Trib. Comm. Montargis, France, 6 October 2000, available on the Internet at http:// witz.jura.uni-sb.de/CISG/decisions/061000v.htm; Oberster Gerichtshof, Austria, 7 September 2000, Internationales Handelsrecht 2001, 42 ff.; OLG Frankfurt, Germany, 30 August 2000, Recht der internationalen Wirtschaft 2001, 383 f.; Sixth Civil Court of First Instance, City of Tijuana, State of Baja California, Mexico, 14 July 2000, Internationales Handelsrecht 2001, 38 f.; CLOUT case No. 378, Italy, 2000; Oberster Gerichtshof, Austria, 28 April 2000, Zeitschrift fu¨r Rechtsvergleichung 2000, 188 f.; Oberster Gerichtshof, Austria, 13 April 2000, Zeitschrift fu¨r Rechtsvergleichung 2000, 231; Audiencia Provincial de Navarra, Spain, 27 March 2000, Revista general de derecho 2000, 12536 ff.; Oberster Gerichtshof, Austria, 21 March 2000, Internationales Handelsrecht 2001, 40 f.; Oberster Gerichtshof, Austria, 9 March 2000, Internationales Handelsrecht 2001, 39 f.; OLG Stuttgart, Germany, 28 February 2000, Inter-

507

Art.1

Draft Digest

nationales Handelsrecht 2001, 65 ff.; CLOUT case No. 395, Spain, 2000; Ontario Court of Appeal, Canada, 26 January 2000, unpublished; Hanseatisches OLG Hamburg, Germany, 26 January 2000, OLG-Report Hamburg 2000, 464 f.; CLOUT case No. 416, United States, 1999; OLG M
nchen, Germany, 3 December 1999, Internationales Handelsrecht 2001, 25 f.; OLG Koblenz, 18 November 1999, OLG-Report Koblenz 2000, 281; Oberster Gerichtshof, Austria, 12 November 1999, Zeitschrift fu¨r Rechtsvergleichung 2000, 78; CLOUT case No. 319, Germany, 1999; Cour d’Appel Grenoble, 21 October 1999, available on the Internet at http:// witz.jura.uni-sb.de/CISG/decisions/211099.htm; CLOUT case No. 328, Switzerland, 1999; AG Stendal, Germany, 12 October 1999, unpublished; OG Kanton Basel-Landschaft, Switzerland, 5 October 1999, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 2000, 115 f.; CLOUT case No. 341, Canada, 1999; Oberster Gerichtshof, Austria, 27 August 1999, Zeitschrift fu¨r Rechtsvergleichung 2000, 31 f.; Oberster Gerichtshof, Austria, 29 June 1999, Transportrecht-Internationales Handelsrecht 1999, 48 ff.; CLOUT case No. 333, Swtizerland, 1999; Appelationsgericht Kanton Tessin, Swtizerland, 8 June 1999, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 2000, 120; CLOUT case No. 315, France, 1999; CLOUT case No. 265, Arbitration, 1999; CLOUT case No. 314, France, 1999; Oberster Gerichtshof, Austria, 19 March 1999, Zeitschrift fu¨r Rechtsvergleichung 2000, 33; CLOUT case No. 418, United States, 1999; OLG Naumburg, Germany, 27 April 1999, Transportrecht-Internationales Handelsrecht 2000, 22 f.; CLOUT case No. 325, Switzerland, 1999; CLOUT case No. 271, Germany, 1999; Landgericht Zwickau, Germany, 19 March 1999, unpublished; CLOUT case No. 306, Austria, 1999; CLOUT case No. 416, United States, 1999; CLOUT case No. 327, Switzerland, 1999; CLOUT case No. 331, Switzerland, 1999; CLOUT case No. 243, France, 1999; CLOUT case No. 293, Arbitration, 1998; CLOUT case No. 339, Germany, 1998; Ontario Court, Canada, 16 December 1998, 1998 ACWSJ LEXIS 56746; Corte di Appello Milano, 11 December 1998, Rivista di diritto internazionale privato e processuale 1999, 112 ff.; Comisin para la proteccin del comercio exterior de Mexico Mexico, 30 November 1998, unpublished; CLOUT case No. 346, Germany, 1998; CLOUT case No. 270, Germany, 1998; CLOUT case No. 248, Germany, 1998; CLOUT case No. 419, United States, 1998; CLOUT case No. 244, France, 1998; CLOUT case No. 240, Austria, 1998; OLG Oldenburg, Germany, 22 September 1998, Transportrecht-Internationales Handelsrecht 2000, 23 ff.; CLOUT case No. 252, Switzerland, 1998; CLOUT case No. 263, Switzerland, 1998; CLOUT case No. 285, Germany, 1998; CLOUT case No. 318, Germany, 1998; OLG Bamberg, 19 August 1998, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Corte di Cassazione, Italy, 7 August 1998, Unilex; CLOUT case No. 344, Germany, 1998; CLOUT case No. 242, France, 1998; CLOUT case No. 305, Austria, 1998; CLOUT case No. 255, Switzerland, 1998; CLOUT case No. 222, United States, 1998; CLOUT case No. 256, Switzerland, 1998; Oberster Gerichtshof, Austria, 25 June 1998, Zeitschrift fu¨r Rechtsvergleichung 1999, 248 f.; CLOUT case No. 338, Germany, 1998; CLOUT case No. 237, Arbitration, 1998; CLOUT case No. 290, Germany, 1998; CLOUT case No. 280, Germany, 1998; Landgericht Aurich, Germany, 8 May 1998, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/; Corte di Cassazione, Italy, 8 May 1998, Rivista di diritto internazionale privato e processuale 1999, 290 ff.; CLOUT case No. 413, United States, 1998; CLOUT case

508

Draft Digest

Art.1

No. 272, Germany, 1998; CLOUT case No. 245, France, 1998; CLOUT case No. 232, Germany, 1998; Oberster Gerichtshof, Austria, 10 March 1998, Zeitschrift fu¨r Rechtsvergleichung 1998, 161 f.; CLOUT case No. 244, France, 1998; Hoge Raad, Netherlands, 20 February 1998, Nederlands Juristenblad 1998, 566 f.; CLOUT case No. 269, Germany, 1998; Arbitration Court attached to the Bulgarian Chamber of Commerce and Industry, award No. 11/1996, unpublished; Landgericht B
ckeburg, Germany, 3 February 1998, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 288, Germany, 1998; CLOUT case No. 259, Switzerland, 1998; CLOUT case No. 297, Germany, 1998; Trbi. Comm. Besan_on, France, 19 January 1998, available on the Internet at http://witz.jura.unisb.de/CISG/decisions/190198v.htm; CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 312, France, 1998; CLOUT case No. 257, Switzerland, 1997; CLOUT case No. 254, Switzerland, 1997; Trib. Grande Instance Colmar, France, 18 December 1997, unpublished; Landgericht Bayreuth, Germany, 11 December 1997, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/; Schiedsgericht der Brse f
r landwirtschaftliche Produkte in Wien, award No. S 2/97, Zeitschrift fu¨r Rechtsvergleichung 1988, 211 ff.; CLOUT case No. 220, Switzerland, 1997; CLOUT case No. 221, Switzerland, 1997; CLOUT case No. 207, France, 1997; CLOUT case No. 295, Germany, 1997; CLOUT case No. 246, Spain, 1997; CLOUT case No. 247, Spain, 1997; CLOUT case No. 219, Switzerland, 1997; Trib. Comm. Paris, France, 28 October 1997, http://witz.jura.uni-sb.de/CISG/decisions/281097v.htm; Landgericht Erfurt, Germany, 28 October 1997, available on the Internet at http://www. jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 218, Switzerland, 1997; Landgericht Hagen, Germany, 15 October 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/ cisg/; CLOUT case No. 248, Switzerland, 1997; Hof s’Hertogenbosch, Netherlands, 2 October 1997, Nederlands Internationaal Privaatrecht 1998, No. 103; Hoge Raad, Netherlands, 26 September 1997, Nederlands Juristenblad 1997, 1726 f.; CLOUT case No. 217, Switzerland, 1997; CLOUT case No. 345, Germany, 1997; CLOUT case No. 307, Austria, 1997; Oberster Gerichtshof, Austria, 8 September 1997, Unilex; CLOUT case No. 284, Germany, 1997; CLOUT case No. 216, Switzerland, 1997; Landgericht Gttingen, Germany, 31 July 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Hof s’Hertogenbosch, Netherlands, 24 July 1997, Nederlands Internationaal Privaatrecht 1998, No. 125; CLOUT case No. 187, United States, 1997; CLOUT case No. 236, Germany, 1997; Landgericht Saarbr
cken, Germany, 18 July 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/ cisg/; Rechtbank Arnhem, Netherlands, 17 July 1997, Nederlands Internationaal Privaatrecht 1998, No. 107; CLOUT case No. 273, Germany, 1997; CLOUT case No. 287, Germany, 1997; CLOUT case No. 215, Switzerland, 1997; CLOUT case No. 172, Hungary, 1997; CLOUT case No. 235, Germany, 1997; CLOUT case No. 230, Germany, 1997; Landgericht M
nchen, Germany, 23 June 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/ cisg/; Landgericht Hamburg, Germany, 19 June 1997, Recht der internationalen Wirtschaft 1997, 873 f. CLOUT case No. 239, 1997; CLOUT case No. 173, Hungary, 1997; Hof Arnhem, 17 June 1997, Nederlands Internationaal Privaatrecht 1997, No. 341; Landgericht Paderborn, Germany, 10 June 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/ cisg/; CLOUT case No. 174, Arbitration, 1997; Landgericht M
nchen, Germany, 6 May 1997,

509

Art.1

Draft Digest

18. In order for the Convention to be applicable by virtue of article 1(1)(a), the parties must have their relevant place of business in a Contracting State. “If the two States in which the parties have their places of business are Contracting States, the Convention applies even if the rules of private international law of the forum would normally designate the law of a third country”,47 provided that the application of that country’s law is not due to a parties’ choice that is intended to exclude the Convention.48 19. When a State becomes a Contracting State is determined by article 99. For the applicability of the Convention by virtue of article 1(1)(a), one must also take into account whether the States in which the parties have their relevant place of business have declared either an article 92 or an article 93 reservation. Where one State has made and article 92 reservation, the Convention as a whole cannot be applicable by virtue of article 1(1)(a). available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 275, Germany, 1997; Landgericht Frankenthal, Germany, 17 April 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 189, Austria, 1997; Rechtbank Zwolle, Netherlands, 5 March 1997, Nederlands Internationaal Privaatrecht 1997, No. 230; CLOUT case No. 261, Switzerland, 1997; CLOUT case NO. 396, Spain, 1997; CLOUT case No. 282, Germany, 1997; Pretura Torino, Italy, 30 January 1997, Giurisprudenza italiana 1998, 982 ff.; CLOUT case No. 192, Switzerland, 1997; CLOUT case No. 311, Germany, 1997; CLOUT case No. 206, France, 1996; Rechtbank Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; CLOUT case No. 268, Germany, 1996; Landgericht M
nchen, Germany, 9 December 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 229, Germany, 1996; Rechtbank Rotterdam, Netherlands, 21 November 1996, Nederlands Internationaal Privaatrecht 1997, No. 223; AG Koblenz, Germany, 12 November, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; OG Wien, Austria, 7 November 1996, unpublished; Landgericht Heidelberg, Germany, 2 October 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; OLG D
sseldorf, 13 Sepember 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 169, Germany, 1996; CLOUT case No. 193, Switzerland, 1996; Landgericht Paderborn, Germany, 25 June 1996, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/; AG Bottropp, 25 June 1996, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht Hamburg, Germany, 17 June 1996, Unilex; CLOUT case No. 168, Germany, 1996; CLOUT case No. 143, Hungary, 1996; CLOUT case No. 204, France, 1996; Arbitration Court attached to the Bulgarian Chamber of Commerce and Industry, award No. 56/1995, unpublished; Landgericht Aachen, Germany, 19 April 1996, Unilex; Landgericht Duisburg, 17 April 1996, Recht der internationalen Wirtschaft 1996, 774 ff.; CLOUT case No. 171, Germany, 1996; CLOUT case No. 337, Germany, 1996. 47 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 15. 48 For an analysis of the issue of exclusion of the Convention, see the comments to article 6.

510

Draft Digest

Art.1

Rather, one must determine on the basis of 1(1)(b) whether the Part to which the reservation relates is applicable.49 The same is true mutatis mutandis in respect of a party that has its relevant place of business in a territory in relation to which the Contracting State to which the territory belongs has made an article 93 reservation.

Indirect Applicability 20. In Contracting States, the Convention can be applicable – by virtue of article 1(1)(b) – also where one or neither party has its relevant place of business in Contracting States,50 as long as the rules of private international law lead to the law of a Contracting State.51 Since the relevant rules of 49

See CLOUT case No. 309, Denmark, 1998; CLOUT case No. 143, Hungary, 1996; CLOUT case No. 228, Germany, 1995; ICC Court of Arbitration, award No. 7585/92; Unilex. 50 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 15. 51 For cases referring to article 1(1)(b), see Supreme Court of Queensland, Australia, 17 November 2000, unpublished; C mara Nacional de Apelaciones en lo Comercial, Argentina, 24 April 2000, available on the Internet at ; CLOUT case No. 400, France, 2000; Trib. Pavia, Italy, 29 dicembre 1999, Corriere giuridico 2000, 932 f.; CLOUT case No. 348, Germany, 1999; CLOUT case No. 294, Germany, 1999; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 274, Germany, 1998; CLOUt case No. 309, Denmark, 1998; Corte d’Appello Milano, Italy, 20 March 1998, Rivista di diritto internazionale privato e processuale 1998, 170 ff.; CLOUT case No. 238, Austria, 1998; CLOUT case No. 224, France, 1998; Hoge Raad, Netherlands, 7 November 1997, Nederlands Internationaal Privaatrecht 1998, No. 91; Rechtbank Koophandel Kortrijk, Belgium, 6 October 1997, Unilex; CLOUT case No. 283, Germany, 1997; Rechtbank Zutphen, 29 May 1997, Nederlands Internationaal Privaatrecht 1997, No. 110; CLOUT case No. 227, Germany, 1997; CLOUT case No. 214, Switzerland, 1997; Rechtbank Koophandel Kortrijk, Belgium, 6 January 1997, Unilex; Cour d’Appel Grenoble, France, 23 October 1996, Unilex; Rechtbank Koophandel Haaselt, Belgio, 9 October 1996, Unilex; Schiedsgericht der Handelskammer Hamburg, Arbitration, 21 June 1996, Recht der internationalen Wirtschaft 1996, 771 ff.; Hof Leeuwarden, Netherlands, 5 June 1996, Nederlands Internationaal Privaatrecht 1996, No. 404; Landgericht Oldenbrug, Germany, 27 March 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 166, Arbitration, 1996; Landgericht Bad Kreuznach, Germany, 12 March 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 176, Austria, 1996; Landgericht Siege, Germany, 5 december 1995, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/; Rechtbank Koophandel Hasselt, Belgium, 8 November 1995, Unilex; Landgericht Hamburg, 23 October 1995, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/; Rechtbank Koophandel Hasselt, Belgium, 18 October 1995, Rechtskun-

511

Art.1

Draft Digest

private international law are those of the forum,52 it will depend on the domestic rules of private international law whether the parties are allowed to choose the applicable law, whether one has to look into the rules of private international of the law designated by the rules of private international of the forum, etc. 21. Where the private international law rules of the forum are based upon the 1980 Rome Convention on the Law Applicable to Contractual Obligations,53 the parties’ choice of the law of a Contracting State can lead to the applicability of the Convention by virtue of article 1(1)(b),54 since article 3 of the Rome Convention recognizes party autonomy.55 This is also dig Weekblad 1995, 1378 f.; Trib. comm. Nivelles, 19 September 1995, Unilex; Rechtbank Almelo, Netherlands, 9 Aufust 1995, Nederlands Internationaal Privaatrecht 1995, No. 520; CLOUT case No. 276, Germany, 1995; CLOUT case No. 262, Germany, 1995; Landgericht Kassel, Germany, 22 June 1995, available on the Internet at http://www.jura.uni-freiburg.de/ ipr1/cisg/; CLOUT case No. 152, France, 1995; AG Wangen, Germany, 8 March 1995, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Rechtbank Zwolle, Netherlands, 1 March 1995, Nederlands Internationaal Privaatrecht 1996, No. 95; Rechtbank Middelburg, Netherlands, 25 January 1995, Nederlands Internationaal Privaatrecht 1996, No. 127; CLOUT case No. 155, France, 1995; AG Mayen, Germany, 6 September 1994, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht D
sseldorf, Germany, 25 August 1994, Unilex; ICC Court of Arbitration, award No. 7660/JK, Unilex; CLOUT case No. 93, Arbitration, 1994; CLOUT case No. 94, Arbitration, 1994; CLOUT case No. 92, Arbitration, 1994; CLOUT case No. 120, Germany, 120; CLOUT case No. 81, Germany, 1994; CLOUT case No. 80, Germany, 1994; CLOUT case No. 100, Netherlands, 1993; CLOUT case No. 156, France, 1993; CLOUT case No. 281, Germany, 1993; CLOUT case No. 49, Germany, 1993; CLOUT case No. 25, France, 1993; CLOUT case No. 201, Switzerland, 1993; CLOUT case No. 310, Germany, 1993; CLOUT case No. 99, Netherlands, 1993; CLOUT case No. 292, Germany, 1993; CLOUT case No. 48, Germany, 1993; CLOUT case No. 95, Switzerland, 1992; CLOUT case No. 317, Germany, 1992; CLOUT case No. 227, Germany, 1992; CLOUT case No. 56, Switzerland, 1992; CLOUT case No. 158, France, 1992; CLOUT case No. 98, Netherlands, 1991; CLOUT case No. 55, Switzerland, 1991; CLOUT case No. 316, Germany, 1991; CLOUT case No. 2, Germany, 1991. 52 For a court decision pointing out that the relevant rules of private international law are those of the forum, see CLOUT case No. 378, Italy, 2000. 53 For the text of this convention, see Official Journal L 266, 9 October 1980, 1 et seq. 54 See Hof Beroep Gent, 17 May 2002, available on the Internet at ; CLOUT case No. 409, Germany, 1996; ICC Court Arbitration, award No. 8324/95, Journal du droit international 1996, 1019 ff.; Rechtbank s’Gravenhage, Netherlands, 7 June 1995, Nederlands Internationaal Privaatrecht 1995, Nr. 524; CLOUT case No. 48, Germany, 1993; CLOUT case No. 281, Germany, 1993. 55 See article 3 of the Rome Convention: “1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the

512

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Art.1

true where the rules of private international law of the forum are those laid down by the 1955 Hague Convention on the Law Applicable to International Sales,56 as article 257 of this Convention also obliges judges to acknowledge the choice of law made by the parties.58 22. Where the parties did not make a choice of law or where the choice is not valid, one has to resort to the objective criteria set forth by the rules of private international law of the forum to determine whether the Convention can be applicable by virtue of article 1(1)(b). Thus, under article 4(1) of the 1980 Rome Convention, one has to apply the law “most closely connected” to the contract;59 according to article 4(2), it is presumed that the contract is most closely connected with the law of the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, its habitual residence, which is why the Convention was often applied in contracting States to the Rome Convention when the seller, i. e. the party that has to effect the characteristic performance,60 had its place of business in a Contracting State to the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract. 2. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice under this article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under article 9 or adversely affect the rights of third parties. 3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called “mandatory rules”. 4. The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of Articles 8, 9 and 11”. 56 For the text of this convention, see UN Treaty Series 57 See article 2 of the Hague Convention: “A sale shall be governed by the domestic law of the country designated by the Contracting Parties. 58 For cases applying the United Nations Sales Convention by virtue of a choice of law acknowledged by the judges on the grounds of article 2 of the 1995 Hague Convention, see Trib. Comm. Bruxelles, Belgium, 13 November 1992, Unilex. 59 For cases referring to the “closest connection”, see CLOUT case No. 81, Germany, 1994; Landgericht D
sseldorf, Germany, 25 August 1994, available on the Internet at ; Rechtbank Roermond, Netherlands, 6 May 1993, Unilex; CLOUT case No. 316, Germany, 1991; CLOUT case No. 1, Germany, 1991. 60 For cases expressly pointing out that the seller is the party that has to effect the

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Convention.61 Under the 1955 Hague Convention, absent choice of law, one has to apply the law of the seller,62 except in cases where the seller receives the order in the buyer’s country, in which case the law of the buyer governs.63 23. On the occasion of the elaboration of the Convention, it was suggested that countries that had enacted special legislation regarding international transactions should be allowed not to apply article 1(1)(b), so as to avoid “the effect which article 1(1)(b) would have on the application of their special legislation on international trade”.64 As a consequence, article 95 was introduced, which gives Contracting States the possibility to choose not to be bound by article 1(1)(b).65 Thus, judges located in Contracting States that declared an article 95 reservation will not apply the Convention by virtue of article 1(1)(b); this does not, however, affect the Convention’s applicability in those Contracting States by virtue of article 1(1)(a).66 characteristic performance, see Landgericht Berlin, Germany, 24 March 1998, available on the Internet at ; Landgericht M
nchen, Germany, 6 May 1997, available on the Internet at ; Rechtbank Amsterdam, Netherlands, 5 October 1994, Nederlands Internationaal Privaatrecht, 1995, No. 231; CLOUT case No. 81, Germany, 1994; CLOUT case No. 317, Germany, 1992; CLOUT case No. 6, Germany, 1991; Landgericht Frankfurt, Germany, 2 May 1990, available on the Internet at . 61 For cases applying the Convention on the basis of the presumption referred to in the text, see, e. g., Cour d’appel Mons, Belgium, 8 March 2001, available on the Internet at ; Landgericht Bad Kreuznach, Germany, 12 March 1996, available on the Internet at ; Landgericht Frankfurt, 6 July 1994, available on the Internet at ; CLOUT case No. 50, Germany, 1991. 62 See Rechtbank Hasselt, Belgium, 9 October 1996, Unilex; Rechtbank Hasselt, Belgium, 8 November 1995, Unilex; CLOUT case No. 152, France, 1995; Rechtbank Hasselt, Belgium, 18 October 1996, Rechtskundig Weekblad 1995, 1378 f.; Trib. Comm. Bruxelles, Belgium, 5 October 1994, Unilex; KG Wallis, Switzerland, 6 December 1993, Unilex; CLOUT case No. 201, Switzerland, 1993; CLOUT case No. 56, Switzerland, 1992. 63 Cour de Cassation, France, 26 June 2001, available on the Internet at ; Trib. Verona, 19 December 1997, Rivista veronese di giurisprudenza economica e dell’impresa 1998, 22 ff. 64 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 229. 65 The following States declared an article 95 reservation: China, Singapore, United States of America, Czech Republic, Saint Vincent and the Grenadines, Slovakia. 66 See CLOUT case No. 417, United States, 1999; CLOUT case No. 416, United States,

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24. Although the Convention does not bind non-Contracting-State, it has been applied in courts of non-Contracting States where the rules of private international law led to the law of a Contracting State.67

Article 2 This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity. 1. This provision sets out those sales that are excluded from the Convention’s sphere of application. The exclusions are of three types: those based on 1999; CLOUT case No. 419, United States, 1998; CLOUT case No. 222, United States, 1998; CLOUT case No. 413, United States, 1998; CLOUT case No. 187, United States, 1997; CLOUT case No. 138, United States, 1995; CLOUT case No. 86, United States, 1994; CLOUT case No. 85, United States, 1994; CLOUT case No. 24, United States, 1993; CLOUT case No. 23, United States, 1992. 67 See Rechtbank Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; Rechtbank Koophandel Hasselt, Belgium, 9 October 1996, Unilex; Rechtbank Koophandel Hasselt, Belgium, 8 November 1995, Unilex; Rechtbank Koophandel Hasselt, Belgium, 18 October 1995, Rechtskundig Weekblad 1995, 1378 f.; Trib. comm. Nivelles, Belgium, 19 September 1995, Unilex; Trib. Comm. Bruxelles, Belgium, 5 October 1994, Unilex; Rechtbank Koophandel Hasselt, Belgium, 16 March 1994, Unilex; Rechtbank Koophandel Hasselt, Belgium, 23 February 1994, Unilex; Trib. comm. Bruxelles, Belgium, 13 November 1992, Unilex; CLOUT case Nr. 98, Netherlands, 1991; AG Ludwigsburg, Germany, 21 December 1990, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 5, Germany, 1990; Rechtbank Dordrecht, Netherlands, 21 November 1990, Nederlands Internationaal Privaatrecht 1991, No. 159; Landgericht Hildesheim, Germany, 20 July 1990, published at the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht Frankfurt, 2 May 1990, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 7, Germany, 1990; CLOUT case No. 46, Germany, 1990; OLG Koblenz, Germany, 23 February 1990, Recht der internationalen Wirtschaft 1990, 316 ff.; Rechtbank Alkmaar, Netherlands, 8 February 1990, Nederlands Internationaal Privaatrecht 1990, No. 460; Rechtbank Alkmaar, Netherlands, 30 November, 1989, Nederlands Internationaal Privaatrecht No. 289; CLOUT case No. 4, Germany, 1989; CLOUT case No. 3, Germany, 1989.

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the purpose for which the goods were purchased, those based on the type of transaction and those based on the kinds of goods sold.1

Consumer Sales 2. According to Art. 2(a), a sale falls outside the Convention’s sphere of application if it relates to goods which at the time of the conclusion of the contract are intended to be used personally, in the family or in the household. The intention before or at the conclusion of the contract is relevant,2 rather than the real use of the goods.3 Thus, the sale of a car4 or a caravan5 bought for personal use falls outside the Convention’s sphere of application.6 3. If the goods are purchased by an individual for a commercial or professional purpose, the sale does not fall outside the Convention’s sphere of application. Thus, the following situations are governed by the Convention: the purchase of a camera by a professional photographer for use in its business; the purchase of a soap or other toiletries by a business for the personal use of its employees; the purchase of a single automobile by a dealer for resale.7 4. If the goods are purchased for the aforementioned purposes, the Convention does not apply “unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use”.8 This narrows down the applicability of the exception and leads to the possibility of a conflict between domestic law and the Convention in those cases where the domestic law does not require that the seller either knew or ought to have known of the personal use.9 1 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16. 2 For this statement, see Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 16. 3 See CLOUT case No. 190, Austria, 1997. 4 See CLOUT case No. 213, Switzerland, 1996; CLOUT case No. 190, Austria, 1997. 5 See Rechtbank Arnhem, 27 May 1993, Nederlands Internationaal Privaatrecht, 1994, No. 261. 6 See, however, Landgericht D
sseldorf, 11 October 1995, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg, applying the Convention to the sale of a generator destined for personal use. 7 For these examples, see Official Records, supra note 1, at 16. 8 See Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 16. 9 Id.

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Other Exclusions 5. The exclusion of sales by auction covers both auctions resulting from authority of law as well as private auctions. Sales at commodity exchanges do not fall under theses categories, as they merely constitute a particular way of concluding the contract. 6. The sale on judicial or administrative execution or otherwise by authority of law is excluded from the Convention’s sphere of application as such sales are normally governed by mandatory laws of the State under whose authority the execution is made. 7. The exclusion of sales of stocks, investment securities and negotiable instruments is due to the intention to avoid a conflict with mandatory rules of domestic law.10 Documentary sales are not covered by this exclusion. 8. The sale of ships,11 vessels, aircrafts12 and hovercrafts is not covered by the Convention either. However, the sale of parts of ships, vessels, aircrafts and hovercrafts falls under the Convention’s sphere of application, even where 10

For decisions excluding the Convention’s applicability to the sale of shares, see CLOUT case No. 260, Switzerland, 1998; Zurich Chamber of Commerce Arbitral Tribunal, ZHK 273/ 95, Yearbook Commercial Arbitration, 1998, 128 ff. 11 For cases of inapplicability of the Convention to contract for the sale of ships, see Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, award No. 236/1997, referred to on the Internet at ; Yugoslav Chamber of Economy Arbitration Proceeding 15 April 1999, award No. T-23/97, available on the Internet at . 12 For the inapplicability of the Convention to a contract for the sale of an aircraft, see Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, award, No. 255/1996, referred to on the Internet at .

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these are essential, such as engines,13 since the exclusions from the Convention’s sphere of application have to be interpreted restrictively. According to one arbitral tribunal, the sale of an out-of-commission military submarine does not fall within the scope of the article 2(e) exclusion.14 9. Although the sale of electricity is excluded from the Convention’s sphere of application, the same is not true as far as the sale of gas is concerned15

Article 3 (1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services. 1. This provision extends the Convention’s sphere of application to some contracts that include some act in addition to the supply of goods.1

Contracts for the Sale of Goods to be Manufactured or Produced 2. Paragraph (1) makes the Convention applicable to contracts for the sale of goods to be manufactured or produced,2 thus making clear that the sale of these goods is as much subject to the provisions of the Convention as the sale 13

See CLOUT case No. 53, Hungary, 1992. See Russian Maritime Commission Arbitral Tribunal, 18 December 1998, referred to on the Internet at http://cisgw3.law.pace.edu/cisg/text/draft/981218case.html. 15 See CLOUT case No. 176, Austria, 1996. 1 See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16. 2 In case law see Hof van Beroep Gent, Belgium, 17 May 2002, available on the Internet at ; Oberster Gerichtshof, 18 April 2001, available on the Internet at http://www.cisg.at/7_7601d.htm; Saarlndisches OLG, 14 February 2001, Internationales Handelsrecht, 2001, 64; Oberlandesgericht Stuttgart, Germany, 28 February 2000, available on the Internet at ; CLOUT case No. 325, Switzerland, 1999; CLOUT case No. 331, Switzerland, 1999; CLOUT case No. 252, Switzerland, 1998; CLOUT case No. 337, 14

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of ready-made-goods.3 The extension of the Convention’s sphere of application is, however, limited in so far as paragraph (1) excludes that the contracts where the party who “buys” the goods to be manufactured or produced supplies a “substantial part” of the materials necessary for the manufacture or production of the goods can be considered contracts for the sale of goods.4 The provision does not provide a specific criterion to be used in determining when the materials supplied by the buyer constitute a “substantial part” of the goods necessary to manufacture or produce the goods. One decision is based upon the idea that a merely quantitative criterion should be used to determine whether the goods delivered by the “buyer” constitute a “substantial part” of those necessary for the production and manufacture of the goods.5 While there is disagreement as to whether quantity is the sole criterion to be used, there is agreement that the “substantial part” referred to in paragraph (1) is less than the “preponderant part” referred to in paragraph (2). 3. A different – albeit related – issue is that of whether the buyer’s supply of indications, design specifications, etc., compares to the buyer’s supply of “material necessary” for the manufacture or production of the goods which leads to the contract’s exclusion from the Convention’s sphere of application. In one case, a court held that the Convention was inapplicable, on the grounds of article 3(1), to a contract according to which the seller had to manufacture goods according to the buyer’s design specifications.6 The court Germany, 1996; CLOUT case No. 164, Arbitration, 1995; Hof s’Hertogenbosch, Netherlands, 9 October 1995, Nederlands Internationaal Privaatrecht, 1996, No. 118; Landgericht Oldenburg, Germany, 9 November 1994, Recht der internationalen Wirtschaft, 1996, 65 f.; CLOUT case No. 167, Germany, 1995; CLOUT case No. 262, Switzerland, 1995; Landgericht Memmingen, Germany, 1 December 1993, Praxis des internationalen Privat- und Verfahrensrechts, 1995, 251 f.; ICC Court of Arbitration Award 7660/JK, ICC Court of Arbitration Bulletin, 1995, 69 ff.; ICC Court of Arbitration Award 7844/1994, ICC Court of Arbitration Bulletin, 1995, 72 ff.; CLOUT case No. 97, Switzerland, 1993; CLOUT case No. 92, Switzerland, 1992. 3 See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16. 4 For the applicability of the CISG in cases where reference was made to article 3(1), but where the courts stated that the “substantial part of the materials necessary” was provided by the seller, see Landgericht M
nchen, 27 February 2002, available on the Internet at ; CLOUT case No. 313, France, 1999; Landgericht Berlin, Germany, 24 March 1998, available on the Internet at . 5 See CLOUT case No. 164, Arbitration, 1994. 6 See CLOUT case No. 157, France, 1993.

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considered the plans and instructions handed to the “seller” by the “buyer” as being a “substantial part of the material necessary” for the production of the goods. This decision contradicts other decisions according to which specifications are not considered “material necessary for the manufacture or production of goods”.7

Contracts for the Delivery of Labour and Services 4. Article 3(2) extends the Convention’s sphere of application to also cover contracts pursuant to which the seller undertakes to supply labour or other services alongside the obligations to deliver the goods, transfer the property and hand over the documents,8 as long as the supply of labour or services does not constitute the “preponderant part” of the seller’s obligation.9 In order to determine whether the obligations of the seller consist ” preponderantly” in the supply of labour or services a comparison has to be made between the economic value of the obligations regarding the supply of labour and services and the economic value of the obligations regarding the goods,10 as if two separate contracts have been made.11 Thus, where the obligation regarding the supply of labour or services amounts to more than 50% of the obligations of the “seller”, the Convention is inapplicable. It is on this basis that a Court decided that a contract asking for a market study did not fall under the Convention’s sphere of application.12 On the other hand, a contract for the sale and the dismantlement of a second-hand hangar was considered to fall within the Convention’s sphere of application on the grounds that the value of the dismantlement amounted only to 25% of the total value of the contract.13 7

See CLOUT case No. 331, Switzerland, 1999; CLOUT case No. 2, Germany, 1991. For a definition of the contract for the sale of goods under the Convention, see the text of the Digest relating to art. 1. 9 See Hof Arnhem, Netherlands, 27 April 1999, Nederlands Internationaal Privaatrecht, 1999, No. 245; CLOUT case No. 327, Switzerland, 1999; CLOUT case No. 287, Germany, 1997; CLOUT case No. 192, Switzerland, 1997; CLOUT case No. 196, Switzerland, 1995; CLOUT case No. 152, France, 1995; CLOUT case No. 105, Austria, 1994; CLOUT case No. 201, Switzerland, 1993; for a recent decision in which article 3(2) was mentioned, but in which the court did not solve the issue of whether the contract was one for the sale of goods or one for the supply of labour and services, see Rechtbank Koophandel Hasselt, 19 September 2001, available on the Internet at . 10 See CLOUT case No. 327, Switzerland, 1999. 11 For an implicit affirmation of the principle referred to in the text, see CLOUT case No. 26, Arbitration, 1992. 12 See CLOUT case No. 122, Germany, 1994. 13 See CLOUT case No. 152, France, 1995. 8

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5. One Court stated that – as a clear calculation would not always be possible – other circumstances such as those surrounding the conclusion of the contract as well as the purpose of the contract should also be taken into account in evaluating whether the obligation to supply labour or services is preponderant.14 Another Court referred to the overall purpose of the contract as a criterion to determine whether the Convention was applicable or had to be disregarded.15

Article 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold. 1. In its first part, the provision at hand lists the matters in respect of which the Convention’s provisions prevail over those of domestic law, i. e. the formation of contract and the rights and obligations of the parties.1 In its second part, the provision contains a non-exhaustive list of issues with which it is not concerned, namely the validity of the contract or of any of its provisions or of any usage as well as the effect which the contract may have on the property in the goods sold. The issues referred to in the second part of article 4 have not been dealt with in the Convention as this would have delayed the Convention’s conclusion.2 2. Matters not governed by the Convention have to be settled either in conformity of the applicable set of uniform rules3 or the applicable domestic law.4

14

See CLOUT case No. 346, Germany, 1998. See Cass. civ., Italy, 9 June 1995, no. 6499, Foro padano, 1997, 2 ff. 1 CLOUT case No. 241, France, 1999. 2 See UNCITRAL Yearbook, 1978, 65 f. 3 See CLOUT case No. 202, France, 1995, stating that the assignment of receivables is not governed by the Convention and applying the 1988 UNIDROIT Convention on International Factoring as the assignment fell under its sphere of application. 4 See CLOUT case No. 97, Switzerland, 1993. 15

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Draft Digest

Issues Dealt with by the Convention 3. As far as the formation of contract is concerned, the Convention merely governs the issue of the objective requirements for the conclusion of the contract.5 The issue of whether a contract is validly formed, on the contrary, is subject to the applicable national rules, except for those issues in respect of which the Convention provides exhaustive rules.6 Thus, issues such as capacity to contract7 and the consequences of mistake, duress and fraud are left the applicable domestic law.8 Where, however, one party errs in respect of the qualities of the goods to be delivered or the solvency of the other party, the rules of the applicable law give way to those of the Convention, since the Convention exhaustively deals with those issues. 4. Despite the fact that article 4 does not list the issue of burden of proof as one with which the Convention is concerned, according to some,9 albeit not all,10 courts, the Convention also governs the issue of burden of proof.11 This view is based upon the fact that the Convention provides for at least one instance, article 79, in which the issue of burden of proof is dealt expressly with.12 As the issue is therefore governed, albeit not expressly settled in, the Convention, the matter has – as required by article 7(2) – to be settled in conformity with the general principles on which the Convention is based.13 As far as the allocation of the burden of proof is concerned, the following general principles have been identified: the party which wants to derive beneficial legal consequences from a legal provision has to prove the

5

See CLOUT case No. 95, Switzerland, 1992. For this affirmation, see CLOUT case No. 47, Germany, 1993. 7 See Oberster Gerichtshof, Austria, 22 October 2001, available on the Internet at ; CLOUT case No. 5, Germany, 1990. 8 See Schiedsgericht der Handelskammer Z
rich, Switzerland, award No. 273/95, available on the Internet at . 9 See CLOUT case No. 378, Italy, 2000; CLOUT case No. 380, Italy, 1999; CLOUT case No. 331, Switzerland, 1999; CLOUT case No. 196, Switzerland, 1995; CLOUT case No. 97, Switzerland, 1993. 10 See CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 103, Arbitration, 1993. 11 For a decision which refers to the dispute on this matter, without, however, itself siding one way or the other, see CLOUT case No. 253, Switzerland, 1998. 12 For this line of argument, see Bundesgerichtshof, Germany, 9 January 2002, Internationales Handelsrecht, 2002, 19; CLOUT case No. 378, Italy, 2000; CLOUT case No. 380, Italy, 1999. 13 See CLOUT case No. 97, Switzerland, 1993. 6

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existence of the factual prerequisites of the provision;14 any party claiming an exception has to prove the factual prerequisites of that exception. 5. These principles have led Courts to state that the buyer who asserts the non-conformity of the goods has to proof the non-conformity as well as the existence of a proper notice of non-conformity.15 Similarly, two Courts decided that the buyer had to pay the price and was not entitled to damages or to avoidance of the contract for non-conformity of the goods, since it had not proved the non-conformity of the goods according to article 35.16 In one case, a Court decided that the buyer had lost its right to rely upon the nonconformity, since it had not been able to prove to have given timely notice thereof to the seller.17 6. In two cases, the aforementioned general principles induced Courts to state that under article 42, which provides for a rule according to which the seller has to deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which the seller knew or could not have been unaware, the buyer had the burden of proving that the seller knew or could not have been unaware of the third party industrial or intellectual property rights.18 7. The aforementioned general principles were also the basis for several decisions dealing with the issue of damages. In this respect, one Court stated that “according to the Convention the damaged buyer has the burden of proving the objective prerequisites of his claim for damages. Thus, he has to prove the damage, the causal link between the breach of contract and the damage as well as the foreseeability of the loss”.19 In other cases, it was stated

14

For references to this principle, see CLOUT case No. 378, Italy, 2000; Landgericht Frankfurt, 6 July 1994, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 107, Austria, 1994. 15 See CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 196, Switzerland, 1995. 16 See Landgericht D
sseldorf, Germany, 25 August 1994, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 107, Austria, 1994. 17 See Rechtbank Koophandel Hasselt, Belgium, 21 January 1997, Unilex. 18 See Rechtbank Zwolle, Netherlands, 1 March 1995, Nederlands Internationaal Privaatrecht, 1995, No. 95; Hof Arnhem, Netherlands, 21 May 1996, Nederlands Internationaal Privaatrecht, 1996, No. 398. 19 CLOUT case No. 196, Switzerland, 1995; for another case dealing with the issues of damages and burden of proof, see CLOUT case No. 214, Switzerland, 1997, stating that a buyer is generally entitled to interest on the loss of profit, but that in the case at hand the buyer lost his right to interest as he did not prove the time in which the profit would have been made.

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more generally that the party claiming damages has to prove the damage suffered.20

Validity of the Contract and of Usages 8. Although the Convention generally leaves issues concerning the validity of the contract to the applicable national law,21 there is at least one case where the Convention provides rules which may contradict those on validity of the applicable national law.22 This is true in respect of the issue dealt with in article 11 which provides that a contract for the international sale of goods need not be concluded in or evidenced by writing and is not subject to any other requirement of form, as in some legal writings the form requirement for a contract for the sale of goods is considered to be an issue of validity of the contract. 9. The issue of whether a contract was validly concluded by a third person acting on behalf of one of the parties is an issue left to the applicable national law, since agency is not governed by the Convention.23 The same is true for the validity of standard contract terms.24

20 See CLOUT case No. 380, Italy, 1999; CLOUT case No. 210, Spain, 1997; Landgericht D
sseldorf, Germany, 25 August 1994, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/. 21 See Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., United States, 10 May 2002, available on the Internet at ; Asante Technologies, Inc. v. PMC-Sierra, Inc., United States, 21 July 2001, available on the Internet at ; Oberster Gerichtshof, Austria, 7 September 2000, available on the Internet at ; Hof van Bereop Antwerpen, Belgium, 18 June 1996, available on the Internet at . 22 See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16. 23 See CLOUT case No. 378, Italy, 2000; CLOUT case No. 333, Switzerland, 1999; Landgericht Berlin, 24 March 1999, available on the Internet at ; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 189, Austria, 1997; AG Tessin, Switzerland, 12 February 1996, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1996, 135 ff.; CLOUT case No. 334, Switzerland, 1995; CLOUT case No. 80, Germany, 1994. 24 See Oberster Gerichtshof, Austria, 7 September 2000, available on the Internet at ; Rechtbank Zutphen, Netherlands, 29 May 1997, Nederlands

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10. The validity of the usages – which is not dealt with by the Convention,25 but is left to the applicable domestic law26 – must be distinguished from that of how usages are to be defined, under which circumstances they are binding for the parties and what their relationship is with the rules set forth in the Convention; these issues are dealt with in article 9.27

Effect on the Property of the Goods Sold 11. The Convention makes clear that it does not govern the passing of property of the goods sold.28 During the drafting process, it was not regarded possible to unify the rule on this point.29 Thus, the effects on the property of the goods sold are left to the applicable national law to be determined by the rules of private international law of the forum. 12. The Convention does not deal with the validity of a retention of title clause either.30

Other Issues not Dealt with by the Convention 13. The Convention itself expressly lists – by way of example – only few issues it is not concerned with. There are many other issues not dealt with by the Convention. The following issues have been identified by Courts as not being dealt with by the Convention: the validity of a choice of forum clause,31 the validity of a penalty clause,32 the validity of a settlement Internationaal Privaatrecht, 1998, No. 110; AG Nordhorn, Germany, 14 June 1994, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/. 25 See Oberster Gerichtshof, 21 March 2000, Internationales Handelsrecht 2001, 40 et seq. 26 Id. 27 See CLOUT case No. 240, Austria, 1998. 28 See also Usinor Industeel, v. Leeco Steel Products, Inc., United States, March 28, 2002, 2002 Westlaw 655540 (N. D.Ill.). 29 See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16. 30 See CLOUT case No. 308, Australia, 1995; CLOUT case No. 226, Germany, 1992. 31 See Camara Nacional de los Apelaciones en lo Comercial, Argentina, 14 October 1993, Unilex. 32 See Rechtbank van Koohandel Hasselt, 17 June 1998, available on the Internet at ; Hof van Beroep Antwerpen, Belgium, 18 June 1996, available on the Internet at
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agreement,33 the assignment of receivables,34 the assignment of contract,35 set-off36 – at least where the receivables do not all arise from contracts governed by the Convention -,37 statute of limitations,38 the issue of whether a court has jurisdiction39 – and, generally, any other issue of procedural law,40

tradelaw/WK/1996-06-18.htm>; Hof Arnhem, Netherlands, 22 August 1995, Nederlands Internationaal Privaatrecht, 1995, No. 514; CLOUT case No. 104, Arbitration, 1992. 33 See CLOUT case No. 47, Germany, 1993. 34 See Oberster Gerichtshof, Austria, 7 September 2000, available on the Internet at ; Oberster Gerichtshof, Austria, 25 June 1998, Zeitschrift fu¨r Rechtsvergleichung, 2000, 77; CLOUT case No. 269, Germany, 1998; CLOUT case No. 334, Switzerland, 1995; Trib. Comm. Nivelles, Belgium, 19 September 1995, Unilex; CLOUT case No. 132, Germany, 1995; BG Arbon, Switzerland, 9 December 1994, Unilex. 35 See CLOUT case No. 124, Germany, 1995. 36 See Oberster Gerichtshof, 22 October 2001, Internationales Handelsrecht, 2002, 27; CLOUT case No. 378, Italy, 2000; AG Duisburg, Germany, 13 April 2000, Internationales Handelsrecht, 2001., 114 f.; CLOUT case No. 232, Germany, 1998; CLOUT case No. 259, Germany, 1998; Landgericht Hagen, Germany, 15 October 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht M
nchen, Germany, 6 May 1997, available on the Internet at ; CLOUT case No. 273, Germany, 1997; CLOUT case No. 275, Germany, 1997; CLOUT case No. 169, Germany, 1996; Landgericht Duisburg, Germany, 17 April 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 289, Germany, 1995; Landgericht M
nchen, Germany, 20 March 1995, available on the Internet at ; Rechtbank Middelburg, Netherlands, 25 January 1995, Nederlands Internationaal Privaatrecht, 1996, No. 127; AG Mayen, Germany, 19 September 1994, available on the Internet at http://www.jura.unifreiburg.de/ipr1/cisg/; CLOUT case No. 281, Germany, 1993; CLOUT case No. 125, Germany, 1995; Rechtbank Roermond, Netherlands, 6 May 1993, Unilex; CLOUT case No. 99, Netherlands, 1993. 37 For the application of the Convention to set-off in respect of receivables arising out of contracts governed by the Convention, see AG Duisburg, Germany, 13 April 2000, Internationales Handelsrecht, 2001, 114 f.; CLOUT case No. 273, Germany, 1997. 38 See Rechtbank van Koophandel Ieper, 29 January 2001, available on the Internet at ; Oberster Gerichtshof, Austria, 7 September 2000, available on the Internet at ; CLOUT case No. 378, Italy, 2000; CLOUT case No. 297, Germany, 1998; Oberster Gerichtshof, Austria, 25 June 1998, Zeitschrift fu¨r Rechtsvergleichung, 2000, 77; CLOUT case No. 345, Germany, 1997; CLOUT case No. 249, Switzerland, 1997; Landgericht D
sseldorf, Germany, 11 October 1995, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 125, Germany, 1995; ICC Court of Arbitration, award No. 7660/KJ, ICC Court of Arbitration Bulletin, 1995, 69 ff. 39 See CLOUT case No. 196, Switzerland, 1995.

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the assumption of debts,41 the acknowledgement of debts,42 the effects of the contract on third parties43 as well as the issue of whether one is jointly liable.44 According to some courts, the Convention does not deal with tort claims.45 14. According to one court decision, estoppel as well is not dealt with by the Convention.46 According to other decisions, however, estoppel should be regarded as a general principle of the Convention.47 Furthermore, one court ruled that the question of who had priority rights in the goods as between the seller and the third party creditor was, under CISG article 4, beyond the scope of the Convention and was governed instead by applicable national law, under which the third party creditor prevailed.48 15. According to some courts, the issue of the currency of payments is not dealt with by the Convention and is therefore left, where the parties did not chose the currency,49 to the applicable domestic law.50 According to one court, the issue of the currency of payment is, absent an agreement of the

40 Bundesgericht, Switzerland, 11 July 2000, available on the Internet at . 41 See Oberster Gerichtshof, Austria, 24 April 1997, Zeitschrift fu ¨r Rechtsvergleichung, 1997, 89 ff. 42 See CLOUT case No. 338, Germany, 1998. 43 See Usinor Industeel v. Leeco Steel Products, Inc., 28 March 2002, 209 F. Supp. 2d 880 (N. D. Ill. 2002); CLOUT case No. 269, Germany, 1998. 44 See Landgericht M
nchen, Germany, 25 January 1996, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/. 45 Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., United States, 10 May 2002, available on the Internet at ; CLOUT case No. 420, Unites States, 2000. 46 RB Amsterdam, Netherlands, 5 October 1994, Nederlands Internationaal Privaatrecht, 1995, No. 231. 47 See CLOUT case No. 230, Germany, 1997; CLOUT case No. 94, Arbitration, 1994; CLOUTcase No. 93, Arbitration, 1994; Hof s’Hertogenbosch, 26 February 1992, Nederlands Internationaal Privaatrecht, 1992, No. 354. 48 Usinor Industeel v. Leeco Steel Products, Inc., 28 March 2002, 209 F. Supp. 2d 880 (N. D. Ill. 2002). 49 For a case expressly referring to the fact that the parties are free to choose the currency, since the Convention does not deal with the issue, see CLOUT case No. 84, Germany, 1994. 50 See Oberster Gerichtshof, 22 October 2001, available on the Internet at ; CLOUT case No. 255, Switzerland, 1998; CLOUT case No. 251, Switzerland, 1998.

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parties, to be determined by resorting to the currency of the place of payment to be determined on the basis of article 57.51

Article 5 This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. 1. Pursuant to this provision, the Convention does not deal with liability for death or personal injury caused by the goods to any person,1 independently of whether the injured party is the buyer or any third party. Consequently, national law applies to this issue. 2. Since liability for death or personal injury “to any person” is excluded from the Convention’s scope of application, it was suggested that the buyer’s claims for pecuniary loss resulting from a claim against the buyer for personal injury caused by the goods should be outside the Convention as well. In one case, however, a court applied the Convention to that kind of claims.2 3. Liability for damage caused to property is not excluded by article 5.3 Unlike under some legal systems, however, under the Convention claims based on damage to property caused by the goods require the seller to have been notified within the reasonable time period referred to in article 39.4 Where the damage to property is not “caused by the goods”, as in the case where the buyer’s property is damaged upon delivery of the goods bought, it is on the basis of the applicable national law that the liability issue will have to be settled.

51

CLOUT case No. 80, Germany, 1994; see, however, Landgericht Berlin, 24 March 1998, available on the Internet at , expressly stating that only a minority view holds that the Convention deals with the issue by resorting implicitly, i. e. by referring to the currency of the place of payment of the price. 1 See CLOUT case No. 196, Switzerland, 1995. 2 See CLOUT case No. 49, Germany, 1993. 3 See CLOUT case No. 196, Switzerland, 1995. 4 See CLOUT case No. 196, Switzerland, 1995.

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Article 6 The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.

Introduction 1. According to article 6 of the Convention, the parties may exclude the Convention’s application (totally or partially) or derogate from its provisions. Therefore, even if the Convention is otherwise applicable, one must nevertheless determine whether the parties have excluded it or derogated from its provisions in order to conclude that the Convention applies in a particular case.1 According to various courts, the possibility of opting-out is subject to a clear intent of the parties.2 2. By allowing the parties to exclude the Convention and derogate from its provisions, the drafters affirmed the principle according to which the primary source of the rules governing international sales contracts is party autonomy.3 In doing so, the drafters clearly acknowledged the Convention’s non-mandatory nature4 and the central role that party autonomy plays in international commerce and, in particular, in international sales.5

1 See CLOUT case No. 378, Italy, 2000; CLOUT case No. 338, Germany, 1998; CLOUT case No. 223, France, 1997; CLOUT case No. 230, Germany, 1997; CLOUT Case No. 190, Austria, 1997; CLOUT case No. 311, Germany, 1997; CLOUT case No. 211, Switzerland, 1996; CLOUT case No. 170, Germany, 1995; CLOUT case No. 106, Austria, 1994; CLOUT case No. 199, Switzerland, 1994; CLOUT case No. 317, Germany, 1992. 2 Asante Technologies, Inc. v. PMC-Sierra, Inc., available on the Internet at ; Tribunal de Commerce Namur, Belgium, 15 January 2002, available on the Internet at . 3 For a reference to this principle, see CLOUT case No. 229, Germany, 1996. 4 For an express reference to the Convention’s non-mandatory nature, see Cassazione civile, Italy, 19 June 2000, Giurisprudenza italiana, 2001, 236; Oberster Gerichtshof, Austria, 21 March 2000, Internationales Handelsrecht, 2001, 41; CLOUT case No. 240, Austria, 1998; HG Wien, 4 March 1997, unpublished; KG Wallis, 29 June 1994, Zeitschrift fu¨r Walliser Rechtsprechung, 1994, 126. 5 Landgericht Stendal, Germany, 12 October 2000, Internationales Handelsrecht, 2001, 32.

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Derogation 3. Article 6 makes a distinction between the exclusion of the application of the Convention and the derogation from some of its provisions. Whereas the former does not encounter any limitations, the latter does. Where one of the parties to the contract for the international sale of goods has its place of business in a State that has made a reservation under article 96,6 the parties may not derogate from or vary the effect of article 12. In those cases, any provision “that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply” (article 12). All other provisions may be derogated from.7 4. Although the Convention does not expressly mention it, there are other provisions that the parties cannot derogate from, more specifically, the public international law provisions (i. e. articles 89-101). This is due to the fact that those provisions address issues relevant to contracting States rather than private parties.

Express exclusion 5. The applicability of the Convention can be expressly excluded by the parties. In respect of this kind of exclusion, two lines of cases have to be distinguished: the exclusion with and the exclusion without any indication by the parties of the law applicable to the contract between the parties. In those cases in which the Convention’s application is excluded with an indication of the applicable law, which in some countries can be made in the

6

See article 96: “A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State”. 7 Thus, it cannot surprise that a court has recently stated that article 55, relating to openprice contracts, is only applicable where the parties have not agreed to the contrary (CLOUT case No. 151, France, 1995). Neither is a court decision surprising which expressly states that article 39, relating to the notice requirement, is not mandatory and can be derogated from (Landgericht Gießen, Germany, 5 July 1994, Neue Juristische Wochenschrift RechtsprechungsReport, 1995, 438). To take another example, according to the Austrian Supreme Court, article 57 also can be derogated from (CLOUT case No. 106, Austria, 1994).

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course of the legal proceedings,8 the law applicable will be that applicable by virtue of the rules of private international law of the forum,9 which in most countries makes applicable the law chosen by the parties.10 Where the Convention is expressly excluded without an indication of the applicable law, the applicable law is to be identified by means of the private international law rules of the forum.

Implicit Exclusion 6. A number of courts have considered the question of whether the Convention’s applicability can be excluded implicitly. According to many courts,11 the lack of an express reference to the possibility of implicitly excluding the Convention does not preclude it. This view is supported by a reference in the Official Records, which shows that the majority of delegations was opposed to the proposal advanced during the Diplomatic Conference according to which a total or partial exclusion of the Convention could only be made “expressly”.12 The express reference in the Convention to the possibility of an implicit exclusion merely “has been eliminated lest the special reference to ‘implied’ exclusion might encourage courts to conclude, on insufficient grounds, that the Convention had been wholly 8

This is true for instance in Germany, as pointed out in case law; see, for example, CLOUT case No. 122, Germany, 1994; CLOUT case No. 292, Germany, 1993; this is also true in Switzerland, see Handelsgericht Kanton Z
rich, 10 February 1999, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 2000, 111. 9 See CLOUT case No. 231, Germany, 1997; Oberlandesgericht Frankfurt, Germany, 15 March 1996, Neue Juristische Wochenschrift Rechtsprechungs-Report, 1997, 170 ff. 10 Where the rules of private international law of the forum are those laid down either in the 1955 Hague Convention on the Law Applicable to International Sales of Goods (United Nations publication, Sales No. 73.V.3), in the 1980 Rome Convention on the Law Applicable to Contractual Obligations (United Nations, Treaty Series, vol. 1605, No. 28023), or in the 1994 Inter-American Convention on the Law Applicable to Contractual Obligations, the law chosen by the parties will govern. 11 See Oberster Gerichtshof, Austria, 22 October 2001, available on the Internet at ; Cour de Cassation, Frane, 26 June 2001, available on the Internet at http://witz.jura.uni-sb.de/CISG/decisions/2606012v.htm; CLOUT case No. 378, Italy, 2000; Oberlandesgericht Desden, Germany, 27 December 1999, available on the Internet at ; CLOUT case No. 273, Germany, 1997; Landgericht M
nchen, Germany, 29 May 1995, Neue Juristische Wochenschrift, 1996, 401 f.; CLOUT case No. 136, Germany, 1995. 12 Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 85-86.

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excluded”.13 According to few court decisions14 and an arbitral award,15 however, the Convention cannot be excluded implicitly, on the grounds that the Convention does not expressly provide for that possibility. 7. A variety of ways of implicitly excluding the Convention have been suggested. One possibility is for the parties to choose the law16 of a noncontracting State as the law applicable to their contract.17 8. The choice of the law of a contracting State as the law governing the contract poses more difficult problems. It has been suggested in an arbitral award18 and several court decisions19 that the choice of the law of a contracting State ought to amount to an implicit exclusion of the Convention’s application, since otherwise the choice of the parties would have no practical meaning. Most court decisions20 and arbitral awards,21 however, 13

Ibid., 17. See Landgericht Landshut, Germany, 5 April 1995, available on the Internet at: http:// www.jura.uni-freiburg.de/iprl/Convention/; Orbisphere Corp. v. United States, United States of America, 726 Fed. Supp. 1344 (1990). 15 See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, award No. 54/1999, referred to on the Internet at . 16 Whether such a choice is to be acknowledged at all depends on the rules of private international law of the forum. 17 See CLOUT case No. 49, Germany, 1993. 18 See CLOUT case No. 92, Arbitration, 1994. 19 See Cour d’Appel Colmar, France, 26 September 1995, available on the Internet at: http:// witz.jura.uni-sb.de/cisg/decisions/260995.htm; CLOUT case No. 326, Switzerland, 1995; CLOUT case No. 54, Italy, 1993. 20 Hof van Beroep Gent, 17 May 2002, available on the Internet at ; Oberlandesgericht Frankfurt, 30 August 2000, available on the Internet at ; CLOUT case No. 270, Germany, 1998; CLOUT case No. 297, Germany, 1998; CLOUT case No. 220, Germany, 1997; CLOUT case No. 236, Germany, 1997; CLOUT case No. 287, Germany, 1997; CLOUT case No. 230, Germany, 1997; CLOUT case No. 214, Germany, 1997; CLOUT case No. 206, France, 1996; Landgericht Kassel, Germany, 15 February 1996, Neue Juristische Wochenschrift Rechtsprechungs-Report, 1996, 1146 f.; CLOUT case No. 125, Germany, 1995; Rechtbank s’Gravenhage, the Netherlands, 7 June 1995, Nederlands Internationaal Privaatrecht, 1995, No. 524; CLOUT case No. 167, Germany, 1995; CLOUT case No. 120, Germany, 1994; CLOUT case No. 281, Germany, 1993; CLOUT case No. 48, Germany, 1993. 21 See ICC Court of Arbitration, award No. 9187, available on the Internet at ; CLOUT case No. 166, Arbitration; Arbitration Court attached to the Hungarian Chamber of Commerce and 14

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take a different view. The grounds for that view may be summarized as follows: on the one hand, the Convention is part of the law of the contracting State chosen by the parties and, on the other, the choice of the law of the contracting State functions to identify the law by which the gaps in the Convention must be filled. According to this line of decisions, the choice of the law of a contracting State, if made without particular reference to the domestic law of that State, does not appear to exclude the Convention’s applicability. Of course, where the parties clearly chose the domestic law of a Contracting State to apply, the Convention must be considered as having been excluded.22 9. The choice of a forum may also lead to the implicit exclusion of the Convention’s applicability. In those cases, however, where the forum chosen is located in a contracting State and there is evidence that the parties wanted to apply the law of the forum, two arbitral tribunals have applied the Convention.23 10. The question has arisen of whether the Convention’s application is also excluded where the parties argue a case on the sole basis of a domestic law despite the fact that all of the Convention’s requirements of applicability are met. In those countries where the judge must always apply the correct law even if the parties based their arguments on a law that does not apply in the case (jura novit curia), the mere fact that the parties argued on the sole basis of a domestic law did not in itself lead to the exclusion of the Convention.24 If the parties are not aware of the Convention’s applicability and argue on the basis of a domestic law merely because they believe that this law is applicable, the judges will nevertheless have to apply the Convention.25 In one country where the principle jura novit curia is not acknowledged, when the parties argued their case by reference to a domestic law of sales, a Industry, Hungary, 17 November, Unilex; ICC Court of Arbitration, France, award No. 8324, Journal du droit international, 1996, 1019 ff.; ICC Court of Arbitration, France, award No. 7844, Unilex; ICC Court of Arbitration, France, award No. 7660, Unilex; ICC Court of Arbitration, France, award No. 7565, Journal du droit international, 1995, 1015 ff.; CLOUT case No. 103, Arbitration, 1993; CLOUT case No. 93, Arbitration, 1994. 22 Oberlandesgericht Frankfurt, Germany, 30 August 2000, available on the Internet at ; Oberlandesgericht Frankfurt, Germany, 15 March 1996, available on the Internet at . 23 Schiedsgericht der Hamburger freundlichen Arbitrage, Germany, 29 December 1998, Internationales Handelsrecht, 2001, 36-37; CLOUT case No. 166, Arbitration, 1996. 24 See CLOUT case No. 378, Italy, 2000; CLOUT case No. 125, Germany, 1995; Landgericht Landshut, Germany, 5 April 1995, Unilex. 25 CLOUT case No. 136, Germany, 1995.

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court applied that domestic law.26 This solution was, however, also adopted by a court27 as well as an arbitral tribunal28 sitting in countries that acknowledge the principle iura novit curia. 11. According to one court decision, the inclusion of Incoterms by the parties does not constitute an implicit exclusion of the Convention.29

Opting-in 11. While the Convention expressly provides the parties with the possibility of excluding its application either in whole or in part, it does not address the issue of whether the parties may make the Convention applicable when it would not otherwise apply. This issue was expressly dealt with by the 1964 Hague Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods, which contained a provision, article 4, that expressly provided the parties with the possibility of “opting in”. The fact that the Convention does not contain a provision comparable to that article does not necessarily mean that the parties are not allowed to “opt in”. This view is also supported by the fact that a proposal made during the diplomatic conference (by the former German Democratic Republic)30 according to which the Convention should apply even where the preconditions for its application are not met, as long as the parties wanted it to be applicable, was rejected on the ground that, to allow the parties to “opt in”, an express provision was unnecessary, because of the existence of the principle of the party autonomy.

26

GPL Treatment Ltd. v. Louisiana-Pacific Group, United States of America, 133 Or. App.633 (1995). 27 Cour de Cassation, Frane, 26 June 2001, available on the Internet at http://witz.jura.unisb.de/CISG/decisions/2606012v.htm. 28 ICC Court of Arbitration, award No. 8453, ICC Court of Arbitration Bulletin, 2000, 55. 29 Oberster Gerichtshof, Austria, 22 October 2001, available on the Internet at . 30 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 86.

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Art. 7

Chapter II General Provisions Article 7 (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Interpretation of the Convention 1. As national rules on the law of sales are subject to sharp divergences in approach and concept, it is important that an interpretation of the Convention be avoided that is influenced by the concepts used in the legal system of the country of the forum.1 It is for this reason that article 7(1) provides that in the interpretation of the Convention “regard is to be had to its international character and to the need to promote uniformity in its application”. 2. In effect, according to some courts the reference to the Convention’s international character2 is to be understood as preventing courts from resorting to an interpretation of the concepts used in the Convention that is based on national law;3 rather, courts should interpret the Convention “autonomously”.4 Nevertheless, there are courts that have stated that case law interpreting analogous domestic law provisions may also inform a court 1

See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, p. 17. 2 For references in case law to the need to take the Convention’s international character into account in the interpretation of the Convention, see CLOUT case No. 418, United States, 1999; CLOUT case No. 138, Unites States of America, 1995; CLOUT case No. 84, Germany, 1994; CLOUT case No. 201, Switzerland, 1993. 3 See CLOUT case No. 222, United States, 1998; CLOUT case No. 413, United States, 1998; CLOUT case No. 230, Germany, 1997; CLOUT case No. 171, Germany, 1996; CLOUT case No. 201, Switzerland, 1993.

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where the language of the relevant provisions of the Convention tracks that of the domestic law, even though the domestic law “is not per se applicable”.5 According to case law, reference to the Convention’s legislative history is admissible6 as well as to international scholarly writing.7 3. As far as the obligation is concerned to take into account also the need to promote the uniform application of the Convention, it has been interpreted in the sense that courts should also take into account decisions rendered by foreign courts. In one case, one court quoted forty foreign court decisions as well as arbitral awards.8 In other cases, two courts quoted two foreign court decisions,9 while there are several cases in which one foreign court decision is referred to.10 4. What value foreign court decisions should have was dealt with by two courts both of which stated that foreign court decisions merely have persuasive, non-binding value.11

4

CLOUT case No. 333, Switzerland, 1999; CLOUT case No. 271, Germany, 1999; CLOUT case No. 217, Switzerland, 1997. 5 CLOUT case No. 138, United States, 1995; for a more recent case stating the same, see Schmitz-Werke GmbH & Co. v. Rockland Industries, Inc.; Rockland International FSC, Inc., U. S. Circuit Court of Appeals (4th Circuit), United States, 21 June 2002, 2002 U. S. App. LEXIS 12336. 6 See Landgericht Aachen, Germany, 20 July 1995, published on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/ (referring to the legislative history of article 78); CLOUT case No. 84, Germany, 1994. 7 Oberster Gerichtshof, Austria, 13 April 2000, published on the Internet at . 8 See CLOUT case No. 378, Italy, 2000. 9 See Rechtbank Koophandel Hasselt, 2 December 1998, published on the Internet at ; Trib. Cuneo, 31 January 1996, UNILEX. 10 See Usinor Industeel, v. Leeco Steel Products, Inc., U. S. District Court for the Northern District of Illinois, Eastern Division, 28 March 2002, published on the Internet at ; Rechtbank Koophandel Hasselt, 6 March 2002, published on the Internet at ; Oberster Gerichtshof, Austria, 13 April 2000, published on the Internet at ; CLOUT case No. 380, Italy, 1999; CLOUT case No. 205, France, 1996. 11 CLOUT case No. 378, Italy, 2000; CLOUT case No. 380, Italy, 1999.

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Observance of Good Faith in International Trade 5. Article 7(1) also requires that the Convention be interpreted in such a manner that the observance of good faith in international trade is promoted.12 Although an express reference to the good faith principle is to be found solely in the provision relating to the Convention’s interpretation, there are numerous applications of that principle throughout the Convention. Among the manifestations of that principle are the rules contained in the following provisions: – article 16(2)(b) on the non-revocability of an offer where it was reasonable for the offeree to rely upon the offer being held open and the offeree acted in reliance on the offer; – article 21(2) on the status of a late acceptance which was sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time; – article 29(2) in relation to the preclusion of a party from relying on a provision in a contract that modification or abrogation of the contract must be in writing; – article 37 and 46 on the rights of a seller to remedy non-conformities in the goods; – article 40 which precludes the seller from relying on the fact that notice of non-conformity has not been given by the buyer in accordance with articles 38 and 39 if the lack of conformity relates to facts of which the seller knew or could not have been unaware and which he did not disclose to the buyer; – article 47(2), 64(2) and 82 on the loss of the right to declare the contract avoided; – article 85 to 88 which impose on the parties obligations to take steps to preserve the goods.13 12 See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, p. 17. 13 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, p. 17

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Gap-filling and General Principles 6. Paragraph (2) makes sure that gaps, i. e. matters the Convention governs but which it does not expressly solve, are, if possible, filled without resorting to domestic law, but rather in conformity to the Convention’s general principles. Only where no such general principles can be identified should one resort to the applicable national law.14 Matters the Convention does not govern at all are to be solved directly by having recourse to the applicable national law.15 As for the issues considered to fall outside the Convention’s scope, they have been listed under the comments to article 4. 7. According to several courts, one of the general principles upon which the Convention is based is that of the “prevalence of party autonomy”.16 8. The principle of good faith as well is one of the general principles upon which the Convention is based.17 In one case, that general principle has led 14

See ICC International Court of Arbitration, Award No. 8611/HV/JK, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/. 15 See, e. g., Cour d’appel Paris, 6 November 2001, published on the Internet at , expressly referring to article 7 of the Convention when stating that issues not governed by the Convention have to be solved by means of the applicable law; for a similar statement, see also Camara Nacional de Apelaciones en lo Comercial, Argentina, 24 April 2000, published on the Internet at (stating the same); CLOUT case No. 333, Switzerland, 1999; Rechtbank Zutphen, Netherlands, 29 May 1997, published on the Internet at (stating the same); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, award No. 38/1996, published in English on the Internet at ; Amtsgericht Mayen, Germany, 6 September 1995, published on the Internet at (stating the same); CLOUT case No. 97, Switzerland, 1993 (stating the same). 16 See Hof Beroep Gent, Belgium, 17 May, 2002, published on the Internet at ; Rechtbank Koophandel Ieper, Belgium, 29 January 2001, published on the Internet at ; Landgericht Stendal, Germany, 12 October 2000, Internationales Handelsrecht, 2001, 32. 17 See Hof Beroep Gent, Germany, 17 May 2002, published on the Internet at ; Bundesgerichtshof, Germany, 9 January 2002, Internationales Handelsrecht, 2002, 17; Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 14 ff.; CLOUT case No. 297, Germany, 1999;

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one court even to state that an explicit declaration of avoidance of the contract was not necessary once the seller had refused to perform its obligations and that to insist on such a declaration would be against the principle of good faith, even though the Convention expressly requires a declaration of avoidance of contract.18 In another case, a court justified the order to one party to pay damages on the basis that that party’s conduct was “contrary to the principle of good faith in international trade laid down in article 7 CISG”; in doing so, the court also stated that the abuse of process violates the good faith principle.19 9. A more recent court decision referred to the general principle of good faith and stated that it leads to the parties’ having to both cooperate with each other and exchange the information relevant for the performance of their respective obligations.20 10. According to some tribunals, estoppel also is one of the general principles upon which the Convention is based; more specifically, it is a manifestation of the principle of good faith.21 According to one court, however, estoppel is a matter the Convention is not concerned with.22 CLOUT case No. 251, Switzerland, 1998; Corte d’Appello Milano, Italy, 11 December 1998,

published on the Internet at ; Compromex Arbitration, Mexico, 30 November 1998, published on the Internet at ; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 277, Germany, 1997; Rechtbank Arnhem, 17 July 1997, published on the Internet at ; Landgericht M
nchen, Germany, 6 May 1997, published on the Internet at (stating the same); CLOUT case No. 337, Germany, 1996; CLOUT case No. 166, Arbitration, 1996; CLOUT case No. 136, Germany, 1995; ICC International Court of Arbitration, Award No. 8128/1995, Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, award No. VB/94124, published on the Internet at ; CLOUT case No. 154, France, 1995; Renard Constructions v. Minister for Public Works, Court of Appeal, New South Wales, Australia, 12 March 1992, published on the Internet at . 18 See CLOUT case No. 277, Germany, 1997. 19 CLOUT case No. 154, France, 1995. 20 Bundesgerichtshof, Germany, 31 October 2001, Internationales Handelsrecht, 2002, 14 ff. 21 See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, award No. 302/1996, published in English on the Internet at < http://www.cisg.law.pace.edu/cgi-bin/SFgate?language=english&verbose=0&listenv=DL&application=&convert=&waisurl=cases2/HTML/12519/1=cisgw3.law.pace.edu %3A210;2=/usr/local/apache/htdocs/cisg/wais/cases2;3=0%2012519%20/usr/local/apache/ htdocs/cisg/wais/db/cases2/990727r1.html;4=cisgw3.law.pace.edu%3A210;5=/usr/local/apache/

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11. Decisions opting for the existence of a general principle upon which the Convention is based in respect of the place of performance of monetary obligations are more numerous. Thus, in determining the place of payment of compensation due for non-conformity of the goods one court stated that “if the purchase price is payable at the place of business of the seller”, under article 57 of the Convention, then “this indicates a general principle valid for other monetary claims as well”.23 In a comparable situation, another court, considering an action for restitution of an excess in the price received by the seller, stated that there was a general principle under which “payment is to be made at the creditor’s domicile, a principle that is be extended to other international trade contracts under article 6. 1. 6 of the UNIDROIT Principles”.24 The Supreme Court of another State, which had previously adopted the reverse principle, decided that the gap of the Convention in respect of the legal consequences of avoidance, particularly with regard to the performance of restitution obligations, were to be filled by means of a general principle of the Convention, according to which “the place for performance of restitution obligations should be determined by transposing the primary obligations – through a mirror effect – into restitution obligations”.25 It should be noted, however, that there is also one decision which denies the existence of a general principle under the Convention on the basis of which to determine the place of performance for all monetary obligations.26 12. As far as the currency of payment is concerned, one court observed that it is a question governed by, albeit not expressly settled in, the Convention.27 The court referred first to the view that according to a general principle underlying the CISG the seller’s place of business governs all questions relating to payment, at least where the parties did not agree otherwise, and therefore also the question of currency. The court, however, also mentioned htdocs/cisg/wais/cases2;6=0%2012519%20/usr/local/apache/htdocs/cisg/wais/db/cases2/990 727r1.html;7=%00;>; CLOUT case No. 230, Germany, 1997; CLOUT case No. 94, Arbitration, 1994; CLOUT case No. 93, Arbitration, 1994; Hof s’Hertogenbosch, Netherlands, 26 February 1992, Nederlands Internationaal Privaatrecht, 1992, No. 354. 22 Rechtbank Amsterdam, Netherlands, 5 October 1994, Nederlands Internationaal Privaatrecht, 1995, No. 231. 23 CLOUT case No. 49, Germany, 1993. 24 Cour d’appel Grenoble, 23 October 1993, Revue critique de droit international prive´, 1997, 756. 25 Oberster Gerichtshof, Austria, 29 June 1999, Transportrecht-Internationales Handelsrecht, 1999, 48. 26 CLOUT case No. 312, France, 1998. 27 Landgericht Berlin, Germany, 24 March 1998, published on the Internet at .

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the view that the question cannot be solved by applying a general principle of the Convention but rather by the domestic law applicable. The Court however did not choose between the alternatives since in the case at hand the result was the same (currency of the seller’s place of business). 13. According to some decisions,28 the issue of burden of proof is a matter governed by, albeit not explicitly settled in, the Convention. Therefore, the issue is to be settled in conformity with the general principles on which the Convention is based.29 According to various decisions, it is article 79(1)30 and, at least according to one court decision, article 2(a) that evidence the existence of general principles of the Convention in respect of this issue. These general principles have been summarized as follows: the party which wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of the provision31any party claiming an exception has to prove the factual prerequisites of that exception.32 It must be noted, however, that according to some courts, the issue of burden of proof is one not governed by the Convention, which is why domestic law is supposed to be applied to that issue.33 14. According to some arbitral tribunals, the Convention is also based upon the principle of full compensation.34 One court restricted this general principle to cases in which, as a result of a breach of contractual obligations, a contract is declared void.35

28

See CLOUT case No. 378, Italy, 2000; CLOUT case No. 380, Italy, 1999; CLOUT case No. 196, Switzerland, 1995; CLOUT case No. 97, Switzerland, 1993. 29 See CLOUT case No. 97, Switzerland, 1993. 30 CLOUT case No. 378, Italy, 2000; Bundesgerichtshof, Germany, 9 January 2002, Unilex; CLOUT case No. 380, Italy, 1999. 31 For references to this principle, see CLOUT case No. 378, Italy, 2000; Landgericht Frankfurt, 6 July 1994, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 107, Austria, 1994. 32 See CLOUT case No. 378, Italy, 2000. 33 See CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 103, Arbitration, 1993; in one case, a state court referred to the problem of whether the Convention is based upon a particular general principle in respect of the issue of burden of proof or whether the issue is one not governed by the Convention, but left the issue open; see CLOUT case No. 253, Switzerland, 1998. 34 Oberster Gerichtshof, Austria, 9 March 2000, published on the Internet at ; CLOUT cases Nos. 93 and 94, Arbitration, 1994. 35 OGH, Austria, 9 March 2000, published on the Internet at .

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15. Several tribunals expressly stated that the principle of informality, laid down in article 11, also constitutes a general principle upon which the Convention is based;36 from this principle it follows, among other things, that the parties are also free to modify or terminate their contract in any form be it either in writing or orally or in any other form. Even an implied termination of the contract has been held possible;37 furthermore, it has been held that a written contract may be orally changed.38 16. The dispatch principle appears to be the general principle of the Convention concerning communications after the parties have concluded their contract. According to the principle a notice, request or other communication becomes effective as soon as the declaring party releases it from its own sphere by an appropriate means of communication. This rule applies to the notice of non-conformity or of third-party claims (articles 39, 43), to requests of specific performance (article 46), price reduction (article 50), damages (article 45 par. 1 (b)) or interest (article 78), to the declaration of avoidance (articles 49, 64, 72, 73), to the fixing of an additional period for performance (articles 47, 63) and other notices as in articles 32 par. 1, 67 par. 2 or 88. As stated in case law, as a general principle for Part III of the Convention, the dispatch principle applies as well to any other communication the parties may have provided for in their contract unless they have agreed that the communication has to be received to be effective.39 17. The mitigation principle laid down in article 77, pursuant to which a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach, in order to avoid the party in breach to be entitled to claim a reduction in the damages in the amount by which the loss should have been mitigated, has also been considered a general principle upon which the Convention is based.40 36

See Compromex Arbitration, Mexico, 16 July 1996, published on the Internet at ; Compromex Arbitration, Mexico, 29 April 1996, published on the Internet at . 37 Oberster Gerichtshof, Austria, 29 June 1999, Zeitschrift fu¨r Rechtsvergleichung, 2000, 33. 38 CLOUT case No. 176, Austria, 1996. 39 Landgericht Stuttgart, Germany, 13 August 1991, published on the Internet at (according to the contract the notice of non-conformity had to be by registered letter. The court held that that meant that the notice had to be received by the other party. Moreover, the declaring party had also to prove that the notice had been received by the other party). See also CLOUT case No. 305, Austria, 1998. 40 Landgericht Zwickau, 19 March 1999, published on the Internet at
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Art. 7

18. Another general principle, recognized by case law, is that according to which, unless otherwise agreed, the parties are bound by a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.41 19. One court suggested that the issue of set-off was governed, albeit not expressly settled-in, the Convention and that the Convention contained a general principle within the meaning of article 7(2) that permitted reciprocal claims arising under the Convention (here, the buyer’s claims for damages and the seller’s claim for the balance of the sale proceeds) to be offset.42 According to other courts, however, the issue of set-off is not governed at all by the Convention.43 20. An arbitral tribunal stated that the entitlement to interest on all sums in arrears also constitutes a general principle of the Convention.44 According to some tribunals, the Convention is based upon the general principle pursuant to which the aforementioned entitlement to interest does not

freiburg.de/ipr1/cisg/urteile/text/519.htm>; ICC Court of Arbitration, award No. 8817, published on the Internet at . 41 Rechtbank Koophandel Ieper, Belgium, 29 January 2001, published on the Internet at . 42 CLOUT case No. 348, Germany, 1999. 43 See Oberster Gerichtshof, 22 October 2001, Internationales Handelsrecht, 2002, 27; CLOUT case No. 378, Italy, 2000; Amtsgericht Duisburg, Germany, 13 April 2000, Internationales Handelsrecht, 2001., 114 f.; CLOUT case No. 232, Germany, 1998; CLOUT case No. 259, Germany, 1998; Landgericht Hagen, Germany, 15 October 1997, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; Landgericht M
nchen, Germany, 6 May 1997, available on the Internet at ; CLOUT case No. 273, Germany, 1997; CLOUT case No. 275, Germany, 1997; CLOUT case No. 169, Germany, 1996; Landgericht Duisburg, Germany, 17 April 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 289, Germany, 1995; Landgericht M
nchen, Germany, 20 March 1995, available on the Internet at ; Rechtbank Middelburg, Netherlands, 25 January 1995, Nederlands Internationaal Privaatrecht, 1996, No. 127; Amtsgericht Mayen, Germany, 19 September 1994, available on the Internet at http://www. jura.uni-freiburg.de/ipr1/cisg/; CLOUT case No. 281, Germany, 1993; CLOUT case No. 125, Germany, 1995; Rechtbank Roermond, Netherlands, 6 May 1993, Unilex; CLOUT case No. 99, Netherlands, 1993. 44 ICC Court of Arbitration, award No. 8908, published on the Internet at .

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require a formal notice to the debtor in default.45 There are, however, decisions that state that a formal notice must be given to the debtor before one is entitled to interest on sums in arrears.46 21. Commentators have also suggested that the Convention is based upon the favor contractus principle, pursuant to which one should adopt those solutions that favor the contract’s existence rather than its avoidance. This view appears to have been adopted by two courts; one court expressly referred to the principle of favor contractus,47 whereas the other court stated that the avoidance of the contract merely constitutes an “ultima ratio” remedy.48 22. Several decisions have identified article 40 as embodying a general principle of the Convention applicable to resolve unsettled issues under the Convention. According to an arbitration panel, “article 40 is an expression of the principles of fair trading that underlie also many other provisions of the Convention, and it is by its very nature a codification of a general principle”.49 Thus, the decision asserted, even if article 40 did not directly apply to a lack of conformity under a contractual warranty clause, the general principle underlying article 40 would be indirectly applicable to the situation by way of article 7(2). In another decision, a court derived from article 40 a general principle of the Convention that even a very negligent buyer deserves more protection than a fraudulent seller, and then applied the principle to hold that a seller could not escape liability under article 35(3)50 for misrepresenting the age and mileage of a car even if the buyer could not have been unaware of the lack of conformity.51

45

CLOUT case No. 217, Switzerland, 1997; CLOUt case No. 80, Germany, 1994; CLOUT case No. 56, Switzerland, 1992. 46 Arbitral Tribunal at the Bulgarian Chamber of Commerce and Industry, award No. 11/ 1996, published on the Internet at ; Landgericht Zwickau, Germany, 19 March 1999, published on the Internet at . 47 CLOUT case No. 248, Switzerland, 1998. 48 Oberster Gerichtshof, Austria, 7 September 2000, published on the Internet at . 49 CLOUT case No. 237, Arbitration, 1998. 50 Article 35(3) provides that a seller is not liable for a lack of conformity under article 35(2) “if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity”. 51 CLOUT case No. 168, Germany, 1996.

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23. One arbitral tribunal,52 when having to decide what rate of interest to apply to the sums in arrears, applied the average bank short term lending rate to prime borrowers, being the solution adopted both by article 7. 4. 9 of the UNIDROIT Principles of International Commercial Contracts and by article 4.507 of the Principles of European Contract Law; the arbitral tribunal adopted that solution on the grounds that such rules had to be considered general principles on which the Convention is based. In other cases,53 arbitral tribunals referred to the UNIDROIT Principles of International Commercial Contracts to find corroboration of the results reached by applying the rules of the Convention; one State court also referred to the UNIDROIT Principles of International Commercial Contracts to corroborate a solution adopted on the basis of the Convention.54 Furthermore, according to a State court, the UNIDROIT Principles can also help to determine the exact meaning of a general principles upon which the CISG is based.55

Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. (2) If the preceding paragraph is not applicable, statements made by 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. (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

52

See ICC Court of Arbitration, award No. 8128, published on the Internet at . 53 ICC Court of Arbitration, award No. 9117, published on the Internet at ; ICC Court of Arbitration, award No. 8817, published on the Internet at . 54 CLOUT case No. 205, France, 1996. 55 See Rechtbank Zwolle, Netherlands, 5 March 1997, published on the Internet at .

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Interpretation of the Statements and Conduct of a Party and of the Contract 1. Whereas article 7 concerns the interpretation and gap-filling of the Convention, article 8, which according to one arbitral tribunal states rules which correspond to principles generally accepted in international commerce,1 relates to the interpretation of any statements or other conduct of a party, provided that those statements or conduct relate to a matter governed by the Convention, as expressly pointed out by the Supreme Court of one contracting state.2 Therefore, whenever the statement or the conduct to be interpreted relates to a matter governed by the Convention, the interpretative criteria set forth in article 8 are to be used in order to interpret those statements or conduct, whether those statements or conduct relate to Part II (on “Formation”) or Part III (on “Rights and Obligations of the Parties”). This can be evinced not only from the legislative history,3 but also from case law. Courts have indeed resorted to the interpretative criteria set forth in article 8 to interpret both statements and other conduct concerning the process of formation of contract,4 as well as statements and other conduct concerning the performance of the contract5 and its avoidance.6 2. Where the provision is applicable, it precludes the applicability of domestic interpretative rules, since article 8 exhaustively deals with the issue of interpretation.7 1 2

CLOUT case No. 303, Arbitration, 1994.

See Oberster Gerichtshof, Austria, 24 April 1997, published on the Internet at . 3 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 18. 4 Oberlandesgericht Frankfurt, Germany, 30 August 2000, published on the Internet at ; Oberster Gerichtshof, Austria, 9 March 2000, published on the Internet at ; Landgericht Zwickau, Germany, 19 March 1999, published on the Internet at ; CLOUT case No. 189, Austria, 1997; CLOUT case No. 176, Austria, 1996; CLOUT case No. 334, Switzerland, 1995; CLOUT case No. 330, Switzerland, 1995; CLOUT case No. 106, Austria, 1994. 5 CLOUT case No. 270, Germany, 1998 (dealing with the issue of whether the offer to pay damages on the seller’s part constitutes a waiver of the seller’s right to rely on articles 38 and 39). 6 CLOUT case No. 282, Germany, 1997 (dealing with the issue of whether a certain conduct amounted to avoidance of the contract). 7 CLOUT case No. 5, Germany, 1990.

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3. Although article 8 appears to be applicable merely to the interpretation of unilateral acts of each party, according to both legislative history8 and case law9 it “is equally applicable to the interpretation of “the contract”,10 when the document is embodied in a single document”11

Subjective Intent of the Party (article 8(1)) 4. The provision at hand sets forth two sets of criteria, namely the ones provided for in articles 8(1) and 8(2). According to one court, article 8(1) permits “a substantial inquiry into the partie’s subjective intent, even if the parties did not engage in any objectively ascertainable means of registering this intent. Article 8(1) instructs courts to interpret the “statements ... and other conduct of a party ... according to his intent” as long as the other party “knew or could not have been unaware” of that intent. The plain language of the Convention, therefore, requires an inquiry into a party’s subjective intent12 as long as the other party to the contract was aware of that intent”13 or could not have been unaware of it.14 5. The party that asserts that the other party did know or could not have been unaware of the former party’s intent has to prove that assertion.15 6. In order for the subjective intent of the party to be relevant at all, it must somehow have been manifested; this is the rationale behind the statement of

8 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 18. 9 CLOUT Case No. 303, Arbitration, 1994. 10 See Bundesgericht, Switzerland, 22 December 2000, published on the Internet at . 11 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 18. 12 For an express reference to the “subjective” interpretation, see Oberlandesgericht Frankfurt, Germany, 30 August 2000, published on the Internet at . 13 CLOUT case No. 222, United States of America, 1998; for other cases in which the part of article 8(1) referred to in the text was recalled, see CLOUT case No. 313, France, 1999; CLOUT case No. 268, Germany, 1996. 14 For references to this part of the article 8(1), see CLOUT case No. 215, Switzerland, 1997. 15 Id.

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one court according to which “the intent that one party secretly had, is irrelevant”.16 7. However, although courts have to first try to establish the meaning of a statement of other conduct by looking into the intent of the party making that statement or holding that conduct, as emphasised for instance by one arbitral tribunal,17 “most cases will not present a situation in which both parties to the contract acknowledge a subjective intent [...]. In most cases, therefore, article 8(2) of the [Convention] will apply, and objective evidence will provide the basis for the court’s decision”.18 According to one arbitral tribunal this is due to the fact that the application of article 8(1) requires either that the parties have established practices between themselves and know each other well or that the statements are very clear.19

Objective Interpretation 8. Where in the interpretation of a statement or other conduct of a party it is not possible to rely on article 8(1), and, ultimately, on that party’s intent, one has to resort to “a more objective analysis”,20 provided for in article 8(2).21 According to this provision, statements or other conduct of a party are to be interpreted according to the understanding that a reasonable person of the 16 17

CLOUT case No. 5, Germany, 1990.

ICC Court of Arbitration, award No. 8324, published on the Internet at . 18 CLOUT case No. 222, United States of America, 1998. 19 ICC Court of Arbitration, award No. 8324, published on the Internet at . 20 Id.; for other cases expressly referring to the need, absent the possibility of a subjective interpretation, to interpret statements or other conduct of the parties on a more “objective” basis, see Oberlandesgericht Kln, 16 July 2001, published on the Internet at ; Bundesgerichtshof, Germany, 22 December 2000, published on the Internet at ; Oberlandesgericht Frankfurt, Germany, 30 August 2000, published on the Internet at ; CLOUT case No. 222, United States of America, 1998; Hoge Raad, Netherlands, 7 November 1997, published on the Internet at ; LG Kassel, Germany, 15 February 1996, published on the Internet at . 21 It may well be that neither an interpretation based upon article 8(1) nor one based upon article 8(2) leads to the result wanted by the plaintiff, see Hoge Raad, Netherlands, 7 November 1997, published on the Internet at .

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same kind as the other party would have had in the same circumstances.22 According to one court, the result of an interpretation based on the aforementioned criteria corresponds to the result of a “reasonable interpretation”.23 9. There are various examples in which courts relied upon article 8(2). In one case, a court inferred the buyer’s intention to be bound by its declaration and the possibility of determining the quantity of the goods by interpreting its statements and conduct according of the understanding of a reasonable person of the same kind as the other party in the same circumstances. The court held that, absent any relevant circumstance or practice between the parties at the time the contract was concluded, which have always to be taken into account, the buyer’s intention to be bound could be evinced from the buyer’s request to the seller to issue the invoice of the delivered textiles.24 10. After holding that according to article 14(1) of the Convention a declaration must be sufficiently definite in order to constitute a proposal and that it is sufficiently definite where it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price, one court stated that for the offer to be able to be accepted, “it suffices that the required minimum content can be understood as being sufficiently definite by “a reasonable person of the same kind” as the other party (offeree) would have “in the same circumstances”.”25 11. In another case, when having to determine what qualities of the goods were agreed upon, one Supreme Court held, given that the parties had a different understanding of the meaning of the contract, that the language of the contract had to be interpreted according to article 8(2), i. e. “according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances”. Consequently, since the buyer was an expert and knew that it was not offered a new machine, but one which was built fourteen years prior to the conclusion of the contract and 22

LG Zwickau, Germany, 19 March 1999, published on the Internet at ; CLOUT case No. 189, Austria, 1997; Hoge Raad, Netherlands, 7 November 1997, published on the Internet at ; CLOUT case No. 215, Switzerland, 1997; CLOUT case No. 166, Arbitration, 1996; Arbitration Court of the Chamber of Commerce and Industry of Budapest, Arbitration, award No. Vb 94124, published on the Internet at ; CLOUT case No. 308, Australia, 1995; CLOUT case No. 106, Austria, 1994. 23 CLOUT case No. 273, Germany, 1997. 24 CLOUT case No. 215, Switzerland, 1997. 25 CLOUT case No. 106, Austria, 1994.

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consequently did not conform to the latest technical expectations, it was without doubt compatible with article 8(2) if the Court of First Instance had found that the seller was entitled to expect that the buyer concluded the contract in full knowledge of the technical limitations of the machinery and its equipment. For these reasons, the Supreme Court concurred with the Court of First Instance that the sold machine was offered to the buyer in conformity with the specifications of the contract.26 12. In yet another case,27 one court stated that article 8(2) of the Convention “is the primary source of interpretation” and, in respect of the case to be decided by the court, showed “that the claim for the purchase price was due at the end of the agreed period for payment. Only within this period was the buyer allowed to propose a compensation transaction as provided in the contract. The offer would have given the [buyer] a respite in payment while the performance of the compensation transaction would have fulfilled the [buyer’s] obligation to pay the purchase price. The parties’ interests also point in favor of such an understanding of their agreement. While the [buyer] would have benefited from reciprocal shipments which allowed it to set-off its payment obligation against the [seller’s], it was evidently important for the [seller] to receive a [monetary] equivalent for its goods no later than at the expiration of the payment period. In particular, the [buyer] could not have been unaware that it would have been commercially unreasonable for the [seller] to grant a respite in payment beyond the agreed period only upon the [buyer’s] announcement of a compensation transaction”. 13. Article 8(2) was also used in a dispute relating to the non-conformity of goods in order to determine whether the seller had implicitly waived, through its behavior, its right to set up the defense that the notice of nonconformity was not timely.28 More specifically, the court stated that the fact that a seller enters into negotiations over the lack of conformity of the goods need not necessarily be regarded as a waiver, but should be considered in conjunction with the circumstances of each case. Since in the case at hand, after its own inspection of the claimed defect, the seller “negotiated over the amount and manner of a settlement of damages for practically 15 months – [...] without expressly or at least discernibly reserving the objection to the delay” and even “offered through legal counsel to pay compensatory damages that amount to practically seven times the value of the goods”,29 article 8(2) 26

Bundesgerichtshof, Germany, 22 December 2000, published on the Internet at . 27 OLG Dresden, Germany, 27 December 1999, published on the Internet at . 28 CLOUT case No. 270, Germany, 1998. 29 Id.

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and 8(3) led the court to state that “the [buyer] could only reasonably understand that the [seller] was seeking a settlement of the affair and would not later refer to the allegedly passed deadline as a defense to the [buyer’s] reimbursement claim”, i. e. that the seller had waived its right to rely on the untimeliness of the notice. The issue of whether the seller had waived its right to raise the untimeliness of the buyer’s notice of non-conformity was dealt with by another court as well.30 According to that court, such a waiver cannot be assumed from the mere readiness of the seller to discuss the issue with the buyer. This results both from the need of certainty in commercial transactions, and from the principle of good faith, which is applicable also in the interpretation of the partie’s statements or other conduct. 14. One court resorted to article 8(2) to interpret the meaning of the clause “franco domicile” contained in a contract. The court found that this clause did not merely deal with the cost of the transport but also with the passing of the risk. In reaching this conclusion, the court interpreted the term ‘franco domicile’ according to the understanding that a reasonable person would have had in the same circumstances (article 8(2) CISG). In the court’s opinion, a buyer entitled to the delivery of goods ‘franco domicile’ would not worry about transportation and insurance of the goods; furthermore, the court held that the fact that the seller concluded a transport insurance meant that it was prepared to take the risk of the transportation of the goods. This clearly indicated the parties’ intention to accept the passing of the risk at the buyer’s place of business, and accordingly to deviate from article 31(a) CISG. 15. In a different case,31 article 8(2) was resorted to in order to determine whether the conduct of one party allowed the court to decide whether an agreement as to the purchase price had been reached by the parties. In the case at hand, since the buyer had taken delivery of the goods without contesting the price indicated by the seller and since such conduct was to be interpreted as acceptance of the price, according to article 8(2), the court ordered the buyer to pay the price requested by the seller, as it considered that an agreement on the purchase price had been reached. 16. Article 8(2) and the interpretive standards it refers to were also invoked in order to determine whether a loss occurred was to be considered foreseeable under article 74 of the Convention.32

30

CLOUT case No. 251, Switzerland, 1998.

31

CLOUT case No. 151, France, 1995.

32

Oberster Gerichtshof, Austria, 14 January 2002, published on the Internet at .

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Draft Digest

Elements To Be Taken into Account in Interpreting Statements or Other Conduct of a Party 17. According to article 8(3), in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including33 the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.34 According to several courts,35 these criteria have to be taken into account when interpreting a statement or other conduct in the light of both article 8(1)36 and article 8(2).37 18. The express reference in article 8(3) to the negotiations as element to be taken into account in interpreting statements or other conduct by the parties did not prevent one court from holding that the the “parol evidence rule” applies even in relation to contract governed by the Convention.38 This rule, which notwithstanding its name applies indiscriminately to both parol and written evidence, seeks to give legal effect to the contracting parties’ final, and in certain instances, complete expressions of their agreement which they have reduced to writing. If the agreement is supposed to be a complete integration, the parol evidence rule prohibits a party from introducing evidence of prior agreements or negotiations that are contradictory as well as consistent with the writing. This decisions is in contrast with that of several other courts of that same State.39 One court40 expressly stated that “the parol 33

According to the Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 18, the list to be found in article 8(3) is not an exhaustive list of element to be taken into account in interpreting statements or other conduct by the parties. 34 For references to article 8(3), see CLOUT case No. 215, Switzerland, 1997; CLOUT case No. 106, Austria, 1994. 35 In arbitration, see ICC Court of Arbitration, award No. 8324/1995, published on the Internet at . 36 CLOUT case No. 268, Germany, 1996, expressly stating that the elements referred to in article 8(3) have to be taken into account when interpreting a statement or other conduct by a party in the light of article 8(1). 37 CLOUT case No. 106, Austria, 1994. 38 CLOUT case No. 24, United States of America, 1993. 39 See, apart from the decisions referred to subsequently in the text, Shuttle Packaging Systems v. Tsonakis et al., U. S. District Court, Western District of Michigan, Southern Division, United States of America, 17 December 2001, published on the Internet at ; CLOUT case No. 419, United States of America, 1998.

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evidence rule is not viable in [Convention] cases in light of article 8 of the Convention”41 since “article 8(3) expressly directs courts to give ‘due consideration [...] to all relevant circumstances of the case including the negotation’s to determine the intent of the parties. Given article 8(1)’s directive to use the intent of the parties to interpret their statements and conduct, article 8(3) is a clear instruction to admit and consider parol evidence regarding the negotiations to the extent they reveal the partie’s intent”. According to another court, “article 8(3) essentially rejects [...] the parol evidence rule”.42 Yet another court stated that “contracts governed by the [Convention] are freed from the limits of the parol evidence rule and there is a wider spectrum of admissible evidence to consider in construing the terms of the partie’s agreement”.43 19. One court, after pointing out the problems that may arise under the Convention in respect of parol evidence, stated that to the extent parties wish to avoid parol evidence problems they can do so by including a merger clause in their agreement that extinguishes any and all prior agreements and understandings not expressed in the writing.44 18. As far as the subsequent conduct is concerned, it generally serves to show what intention existed at the time the statement was made, as stated by different courts.45 In one case,46 the court inferred the buyer’s intention to be bound and the possibility of determining the quantity of the goods by interpreting the buyer’s statements and conduct according to the understanding of a reasonable person of the same kind as the other party in the same circumstances. It held that, absent any relevant circumstance or practice between the parties, the intention to be bound had to be interpreted according to the conduct after the conclusion of the contract of the party that had made the statement. In particular, it held that the buyer’s request to the seller to issue the invoice of the delivered textiles to the embroiderer was sufficient evidence of the buyer’s intention to be bound at the time it made its proposal. Furthermore, the fact that the buyer complained about the quantity only two months after delivery to the embroiderer gave the court good reason to believe that a valid contract had been concluded for the sale of the quantity of textiles actually delivered to the embroiderer.

40

CLOUT case No. 222, United States of America, 1998.

41

Id.

42

CLOUT case No. 23, United States of America, 1992.

43

CLOUT case No. 413, United States of America, 1998.

44

CLOUT case No. 222, United States of America, 1998.

45

CLOUT case No. 215, Switzerland, 1997; CLOUT case No. 5, Germany, 1990.

46

CLOUT case No. 215, Switzerland, 1997.

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Draft Digest

19. It should be noted that according to one court, the circumstances referred to in article 8(3) may lead to silence amounting to acceptance.47 20. Apart from the elements expressly listed in article 8(3) as elements to be taken into account in the interpretation of statements or other conduct of the parties, according to one court in their interpretation the good faith principle referred to in article 7(1), in respect of the interpretation of the Convention, must also be taken into account.48

Standard Contract Terms and Language of the Statements 21. Article 8 was also invoked to solve the problem of whether and under what conditions standard contract terms proposed by one party become part of the contract. In one case,49 the Supreme Court of a Contracting State held that the issue of the inclusion of such terms is to be solved on the basis of the Convention’s rules on interpretation rather than of those of the applicable domestic law. On the grounds of the applicability of the interpretive criteria set forth in article 8, the court stated that whether the standard contract terms are part of the proposal must be analyzed on the basis of how a “reasonable person of the same kind as the other party” would have understood the offer and that that means that “it is required that the recipient of a contract offer that is supposed to be based on general terms and conditions has the possibility to become aware of them in a reasonable manner” and that “an effective inclusion of general terms and conditions above all requires that the intention of the offeror that it wants to include its terms and conditions into the contract be apparent to the recipient of the offer”. In addition, according to the court, “[...], the Convention requires the user of general terms and conditions to transmit the text or make it available” to the other party”.50 22. In a different case, another court51 reached basically the same conclusions, but in doing so, it also dealt with the issue of the language in which the statements had to be made to be effective. According to that court, in the absence of an express provision in the Convention the inclusion of standard 47 48

CLOUT case No. 23, United States of America, 1992.

CLOUT case No. 251, Switzerland, 1998; Arbitral Tribunal of the Hamburg Chamber of Commerce, Arbitration, 21 June 1996, published on the Internet at . 49 Bundesgerichtshof, Germany, 31 December 2001, published on the Internet at . 50 Id. 51 See CLOUT case No. 345, Germany, 1997.

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contract terms has to be decided on the basis of an interpretation of the contract in light of article 8. A reference by one party to its standard terms must be such as to put a reasonable person of the same kind as the other party in a position to understand it and to gain knowledge of the standard terms. According to the court, one of the circumstances to be taken into account is the language in which the standard terms are written. In the case at hand the seller’s standard contract terms were not in the language of the contract; the seller should have sent an translation or at least a text both in the language of the contract and in the other language. Since, however, the seller had not done this, the standard contract terms had not become part of the contract. A similar solution was also adopted in a court of another country, which stated that the standard contract terms written in a language different from that of the contract cannot bind the other party.52 23. The language issue was dealt with in another decision as well.53 On that occasion, the court held that whether a notice written in a language other than the language in which the contract was made or than the language of the addressee was effective was to be decided on a case-by-case basis and taking into account the understanding of a reasonable person, giving due consideration to usages and practices observed in international trade, according to article 8(2) and 8(3). The mere fact that a notice was given in a language which was not that of the contract or that of the addressee was not an obstacle for the notice to be effective. The foreign language could be the language normally used in the respective trade sector, to which the parties may be considered to have agreed upon; and even when this was not the case, the notice would be effective if the debtor, as in the case at hand, could have reasonably been expected to request from the sender of the notice explanations or a translation. 24. In yet another decision,54 a court held that the party that accepts statements relating to the contract in a language different from the one used for the contract is bound by the contents of such statements, since it is up to that party to get acquainted with the contents of that statement.

52

Rechtbank Koophandel Hasselt, Belgium, 2 June 1999, published on the Internet at . 53 CLOUT case No. 132, Germany, 1995. 54 LG Kassel, Germany, 15 February 1996, published on the Internet at .

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Art. 9

Draft Digest

Article 9 (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. 1. This provision describes the extent to which usages and practices established between the parties are binding on the parties to the contract.1 In doing so, it makes a distinction between usages to which the parties have agreed and the practices which they have established (paragraph 1) on the one hand, and other relevant usages which bind the parties even in the absence of any agreement (paragraph 2), on the other hand. 2. Whether the usages that may bind the parties are valid, is an issue that falls outside the Convention’s scope;2 the Convention merely deals with their applicability;3 consequently, the validity of usages is to be evaluated on the basis of the applicable domestic law.4 Where the usages are valid, they prevail over the provisions of the Convention, independently of whether they bind the parties pursuant to article 9(1) or article 9(2).5 1

See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 19. 2 Oberster Gerichtshof, Austria, 22 October 2001, published on the Internet at . 3 See Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at . 4 See Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at ; CLOUT case No. 240, Austria, 1998. 5 See Rechtbank Koophandel Ieper, Belgium, 18 February 2002, published on the Internet at ; Rechtbank Koophandel Veurne, Belgium, 25 April 2001, published on the Internet at ; Rechtbank Koophandel Ieper, Belgium, 29 January 2001, published on the Internet at ; Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at ; Juzgado Nacional de Primera Instancia en lo Comercial No. 10, Argentina, 6 October 1994, published on the Internet at .

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Usages Agreed to and Practices Established between the Parties 3. Pursuant to article 9(1), the parties are bound by any usage to which they have agreed. As far as this agreement is concerned, one court pointed out that it must not necessarily be made explicitly,6 but that it can also be made implicitly.7 4. That court also pointed out that the usages article 9(1) refers to do not have to be usages that are internationally accepted, unlike under article 9(2); consequently, where the parties agree on local usages, these local usages bind the parties as much as international usages agreed to by them.8 In a different case, that same court also stated that the usages the parties agree to do not have to be widely known in order to be binding pursuant to article 9(1).9 5. As expressly stated in article 9(1), the parties are also bound by practices established between themselves, a principle which according to one arbitral tribunal “was extended to all international commercial contracts by the UNIDROIT Principles. Principle 1. 8 provides that “the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves””.10 6. As for examples of practices established between the parties, one arbitral tribunal stated for instance that “a prompt delivery of replacement parts had become normal practice as defined by article 9(1) of the [Convention]”.11 In another case,12 a court held that since the Italian seller had been complying with the buyer’s orders for months without asking for its solvency, when the seller decided to assign its foreign receivables by means of a factoring contract and to suspend its business relationship with the buyer, it should 6

For a case in which the parties expressly chose to be bound by trade usages, see China International Economic and Trade Arbitration Commission, Arbitration, award relating to 1989 Contract #QFD890011, published on the Internet at >http://www.cisg.law.pace.edu/ cisg/wais/db/cases2/900000c1.html> (in the case at hand the parties chose to be bound by a FOB clause). 7 Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at . 8 Id. 9 CLOUT case No. 240, Austria, 1998. 10 ICC Court of Arbitration, award No. 8817, published on the Internet at . 11 ICC Court of Arbitration, award No. 8611/HV/JK, published no the Internet at . 12 CLOUT case No. 202, France, 1995.

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Art. 9

Draft Digest

have taken into account the buyer’s interest; as a consequence, the court found the seller liable for abrupt discontinuance of business relations between parties bound by long-standing practices. In a different case13 (in which the conclusion of the international sales contract was in dispute), after pointing out that the seller had not proved, as it alleged, that it had not received the orders from the buyer, that same court held that the seller could not invoke the rule laid down in article 18 CISG (providing that silence does not in itself amount to acceptance) because, according to the practices previously established between the parties, the seller was used to performing the orders without expressly accepting them. 7. The Convention does not state when it is possible to speak of “practices established between the parties”. According to some courts, for these practices to be binding on the parties pursuant to article 9(1), it is necessary that the parties’ relationship lasts for some time and that it has led to the conclusion of various contracts. One court expressly emphasized this requirement, as it stated that the practice it had to decide upon “does not establish usage in the meaning of [article 9(1)], which would require a conduct regularly observed between the parties and thus requiring a certain duration and frequency [...]. Such duration and frequency does not exist where only two previous deliveries have been handled in that manner. The absolute number is too low”.14 This rationale also underlies a decision by a different court that dismissed the seller’s allegation that the indication on the invoice of the seller’s bank account established a practice between the parties under which the buyer was bound to pay at the seller’s bank. Although the court left open the issue of whether the parties concluded one or two different contracts for the delivery of two ship cargoes, it held that under article 9(1) of the Convention two contracts were anyway not sufficient to establish a practice between the parties. According to the court, in order for a practice between the parties to be established, a long lasting contractual relationship involving more sale contracts between the parties is required.15 Similarly, another court stated that one prior dealing between the parties did not lead to “practices” in the sense of article 9(1).16 According to yet another court, however, “it is generally possible that intentions of one party, which are expressed in preliminary business conversations only and which are not expressly agreed upon by the parties, can become “practices” in the sense of article 9 of the Convention already at the beginning of a business relationship and thereby become part of the first 13

CLOUTR case No. 313, France, 1999.

14

CLOUT case No. 360, Germany, 2000.

15

CLOUT case No. 221, Switzerland, 1997.

16

Landgericht Zwickau, Germany, 19 March 1999, published on the Internet at .

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Draft Digest

Art. 9

contract between the parties. This, however, requires at least (article 8) that the business partner realizes from these circumstances that the other party is only willing to enter into a contract under certain conditions or in a certain form”.17 8. As for the burden of proof, several courts stated that it is the party alleging the existence of practices established between themselves or usages agreed upon that bears it.18

Binding International Trade Usages (article 9(2)) 9. By virtue of article 9(2), even in the absence of any agreement of the parties to that effect, the parties to an international sales contract may be nevertheless bound by specific trade usages, as long as these trade usages are usages that the parties knew or ought to have known and which in international trade are widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. One court construed article 9(2) differently, without limiting the applicable usages to the ones that meet the aforementioned requirements. According to that court, “the usages and practices of the parties or the industry are automatically incorporated into any agreement governed by the Convention, unless expressly excluded by the parties”.19 10. In any case, usages that are binding on the parties pursuant to article 9(2) prevail over the conflicting provisions of the Convention.20 In case of a conflict between the usages applicable by virtue of article 9(2) and clauses contained in the contract, these clauses prevail, as the primary source of the international sales subject to the Convention is party autonomy, as can also be derived from the introductory language of article 9(2).21 11. As mentioned sub para. 9, in order to be binding, any usage must or ought to be known by the parties, and must be widely known in the international trade and regularly observed. According to one court this does not mean that solely international usages can bind the parties. The court stated that it is 17

CLOUT case No. 176, Austria, 1995.

18

CLOUT case No. 360, Germany, 2000; CLOUT case No. 347, Germany, 1998.

19

Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., United States of America, 10 May 2002, published on the Internet at . 20 Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at ; CLOUT case No. 240, Austria,. 1998. 21 For this solution, see CLOUT case No. 292, Germany, 1993.

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Draft Digest

also possible that, in certain circumstances, a local usage may be applicable to the contract. This is particularly the case with respect to usage applied within local commodity exchanges, fairs and warehouses, provided that such usage is regularly observed also with respect to businesses involving foreign dealers. The Court also stated that even a local usage applied only in a particular country may be applicable to a contract involving a foreign party, provided that the foreign party does business in the particular country on a regularly basis and that it has concluded several contracts of the same manner in the same particular country.22 12. As far as the requirement is concerned, according to which any usage must be known or ought to be known to the parties in order to bind them, one court23 stated that a usage can bind a party only if it either has its place of business in the geographical area where the usage is applicable, or if the party permanently deals within the area where the usage is applicable. In an earlier decision, that court had already made a similar statement:24 according to the court, a party to an international sales contract has to be familiar only with those international trade usages that are commonly known and regularly observed by parties to contracts of that specific branch in the specific geographic area where the party in question has his or her place of business. 13. As for the burden of proof, there is no difference between these usages and the usages agreed upon by the parties or the practices established between them:25 the party that alleges the existence of any binding usage has to prove it, at least in those legal systems that consider the issue as being one of fact.26 Where the party that carries the burden of proof does not succeed in proving it, the usages will not be binding. In one case this led a court27 to hold that since the buyer had not proven that an international trade usage existed that says that silence to a commercial letter of confirmation is sufficient for the contract to be concluded with the content of that letter, the contract was concluded with a different contents. In another case, failure to prove an alleged usage led a court to affirm that it had no jurisdiction, which the claimant exclusively based on a trade usage which, if it existed, would have allowed the court to hear the case.28 In yet another case,29 a court held that 22 23

CLOUT case No. 175, Austria, 1995.

Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at . 24 CLOUT case No. 240, Austria, 1998. 25 See supra the text accompanying note 18. 26 Oberster Gerichtshof, Austria, 21 March 2000, published on the Internet at 27 See CLOUT case No. 347, Germany, 1998. 28 CLOUT case No. 221, Switzerland, 1997.

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Draft Digest

Art. 9

although usual requirements for the formation of a contract under the Convention could be modified by usages, a usage to conclude contracts on the basis of rules different from those to be found in articles 14 to 24 of the Convention had not been proven, which is why the court applied the rules laid down in the aforementioned provisions. Another court relied on the fact that the party alleging a trade usage by virtue of which the place of performance was located in that party’s country could not prove the existence of such trade usage to state that the place of performance was in the seller’s country.30 The European Court of Justice also referred to the issue of burden of proof when stated that for silence in response to a letter of confirmation to amount to acceptance of the terms contained therein “it is necessary to prove the existence of such a usage on the basis of the criteria set out” in article 9(2) of the Convention.31 14. As far as usages are concerned that courts resorted to, several decisions have to be mentioned. In one case,32 an arbitral tribunal held that the revision of the price is a usage regularly observed by parties to contracts of the type involved in the particular trade (of minerals) concerned. In another case,33 a court held that the bill of exchange given by the buyer had validly modified the contract according to article 29(1) of the Convention to the effect that the date of payment of the purchase price was postponed until the date when the bill of exchange was due. In reaching this conclusion, the court took into account the existence of an international trade usage to this effect and its relevance pursuant to article 9(2) of the Convention. In yet another case,34 a court stated that a trade usage existed in the particular trade concerned in respect of the examination of the goods sold, according to which the buyer has to give the seller an opportunity to be present while checking the goods. 15. Several courts referred to usages to solve the issue of what interest rate should be applied to late payments. One and the same court expressly referred to international trade usages on the basis of article 9(2) of the Convention to solve the issue. In one case, the court stated that payment of 29

CLOUT case No. 176, Austria, 1996.

30

Højesteret, Denmark, 15 February 2001, published on the Internet at . 31 Mainschiffahrts-Genossenschaft eb (MSG) v. Les Gravihres Rhinanes SARL, 20 February 1997, European Community Reports I 927 n. 34 (1997). 32 ICC Court of Arbitration, award No. 8324, published on the Internet at . 33 CLOUT case No. 5, Germany, 1990. 34 See Helsinki Court of Appeal, Finland, 29 January 1998, published on the Internet at .

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Art. 9

Draft Digest

interest “at an internationally known and used rate such as the Prime Rate” constituted “an accepted usage in international trade, even when it is not expressly agreed between the parties”.35 In another case, that court held the same view, but in doing so it also stated that the “Convention attributes [to international trade usages] a hierarchical position higher than that of the provisions of the Convention”.

Letter of Confirmation, INCOTERMS and UNIDROIT Principles 16. Several cases dealt with the issue of whether silence in response to a letter of confirmation signifies agreement to the terms contained in that letter of confirmation. One court36 stated that “due to the requirement of internationality referred to in article 9(2), it is not sufficient for the recognition of a certain trade usage if it is only valid in one of the two Contracting States. Therefore, [in order to bind the parties], the rules on commercial letters of confirmation would have to be recognized in both Contracting States and it would have to be concluded that both parties knew the consequences [...]. It is not sufficient that the trade usage pertaining to commercial letters of confirmation exists only at the location of the recipient of the letter”. Since, however, the law of one of the States involved did not acknowledge the contractual effects of silence in response to a letter of confirmation, the court found that the terms contained in the letter of confirmation had not become part of the contract. In doing so, the court pointed out, however, that although there was no room for rules on silence in response to a letter of confirmation, “a letter of confirmation can have considerable importance in the evaluation of the evidence”. Another court,37 after holding that the letter of confirmation “only has contractual effect in the meaning of the Convention, if this form of contract formation can be qualified as commercial practice under article 9 of the Convention”, stated that a commercial usage in the sense of article 9(2) existed, since in the countries in which the parties had their places of business “the contractual effect of commercial communications of confirmation (in domestic contractual relations) is not denied” and since the “parties recognized the legal effects of such a communication and also had to take into account that they might be held to those legal effects”.38 Yet another court rejected the idea that the

35

Juzgado Nacional de Primera Instancia en lo Comercial No. 10, Argentina, 23 January 1991, published on the Internet at . 36 CLOUT case No. 276, Germany, 1995. 37 CLOUT case No. 95, Switzerland, 1992. 38 Id.

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Draft Digest

Art. 9

aforementioned rules on the effects of silence to a letter of confirmation may be relevant where the Convention is applicable.39 17. One court dealt with the relationship between article 9(2) and INCOTERMS.40 After observing that “the aim of INCOTERMS, which stands for international commercial terms, is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade” and that “these trade terms are used to allocate the costs of freight and insurance in addition to designating the point in time when the risk of loss passes to the purchaser”, the court stated that “INCOTERMS are incorporated into the Convention through Article 9(2)”. The court further stated that pursuant to article 9(2) of the Convention, “INCOTERMS definitions should be applied to the contract despite the lack of an explicit INCOTERMS reference in the contract”; consequently, the court held that where “a contract refers to CIF-delivery, the parties refer to the INCOTERMS”,41 even where an explicit reference to the INCOTERMS is lacking. As far as the latter issue is concerned, a similar statement can be found in a different arbitral award,42 as well as in the decision of a State court;43 on that occasion, the court interpreted the clause FOB in the light of the INCOTERMS, although a reference to the INCOTERMS was lacking. 18. One court held that the UNIDROIT Principles on International Commercial Contracts constitute usages of the kind referred to in article 9(2) of the Convention.44 Similarly, an arbitral tribunal stated that they echo international trade usages under article 9(2).45

39 Landgericht Frankfurt, Germany, 6 July 1994, published on the Internet at . 40 St. Paul Insurance Company et al. v. Neuromed Medical Systems & Support et al., United States of America, 26 March 2002, published on the Internet at . 41 Id. 42 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Arbitration, award No. 406/1998, published on the Internet at . 43 Corte d’appello Genova, Italy, 24 March 1995, published on the Internet at . 44 International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation, award No. 229/1996, summarized on the Internet at . 45 ICC Court of Arbitration, award No. 9333, published on the Internet at .

563

Art.10

Draft Digest

Article 10 For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence. 1. Article 10 provides two rules: the rule laid down in article 10(a) is to be used to identify which place of business, out of several ones, is to be taken into account to determine whether the Convention is applicable; article 10(b), one the other hand, states that where a party does not have a place of business, that party’s habitual residence is to be taken into account.1 This rule is helpful, as the determination of the relevant place of business is necessary for various purposes, ranging from the determination of the internationality of the contract to the applicability of the Convention by virtue of article 1(1)(a) as well as other purposes.2 2. As for article 10(a), although it may have been referred on various occasions,3 it was relevant for the purposes of determining the relevant place of business only in few cases. In one case, for instance, it was resorted to in order to decide whether a contract concluded between a party with place of business in France and a party with a place of business both in the United

1 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 19. 2 For provisions referring to the “place of business”, see articles 1(1), 12, 20(2), 24, 31(c), 42(1)(b), 57(1)(a) and (2), 69(2), 90, 93(3), 94(1)(1) and (2), 96. 3 See Asante Technologies v. PMC-Sierra, United States of America, 27 July 2001, 164 F. Supp. 2d 1142, simply quoting the text of article 10(a); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Arbitration, award No. 2/1995, published on the Internet at , referring to article 10(a) when deciding that one company’s place of business was located in Switzerland rather than in England, without, however, specifying any reason for its decision.

564

Draft Digest

Art.10

States of America and in Belgium was governed by the Convention.4 The court stated that since the invoice was sent to the Belgian place of business and since it was in Dutch, a language know only at the buyer’s Belgian place of business, the place of business most closely connected to the contract and its performance was the Belgian one and, therefore, the Convention applied. The court also noted that since the Convention had entered into force also in the United States of America, the Convention would apply even if the buyer were considered to have its relevant place of business in that country. 3. In another case,5 a court had recourse to article 10(a) to determine whether the sales contract was international under the Convention; the issue arose since the purchase order was sent by a buyer that had its place of business in France, to the representative of the seller that had its place of business in that same country. In deciding the issue, the court stated that “the evidence produced by the parties does not allow one to decide whether this person – of whom we ignore moreover under which form it exercises its activity – can be considered as the defendant seller’s French place of business. It is, however, established that the order confirmations emanating from the seller, the invoices, and the deliveries of the goods were made from the seat of seller in Germany. Thus, even supposing that [the representative] was responsible for managing in France one of seller’s places of business, the place of business “which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract” and which must for this reason be taken “into consideration” is indeed the place of business whose seat is in [Germany]. The international character of the disputed contract is as a consequence established”. 4. In yet another case,6 a different court had to decide whether the Convention applied to the claim of a German manufacturer of floor covering, the plaintiff, who demanded that the Spanish buyer pay for several deliveries of floor coverings. The buyer objected, claiming that it had always contracted only with an independent company governed by Spanish law, which, as was known to the Spanish defendant, had links with the German plaintiff, as the Spanish company’s board members were partially identical with those of the German plaintiff. The court held that the contract was an international one, subject to the Convention. The court left open whether the Spanish company was a trade representative or a place of 4

Rechtbank Koophandel Hasselt, Belgium, 2 June 1999, published on the Internet at . 5 CLOUT case No. 400, France, 2000. 6 Oberlandesgericht Stuttgart, Germany, 28 February 2001, published on the Internet at .

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Art.11

Draft Digest

business of the German plaintiff. It stated that the Spanish company might have acted as though it were a “place of business”, but legally it was not as it did not possess power to bind the German manufacturer. Moreover, even if one were to assume that the Spanish company in fact was a place of business of the German plaintiff, the German place of business had the closest relationship to the contract and its performance, and, thus, was the only one to be taken into account pursuant to article 10(a). 5. Article 10(a) was referred to in another decision as well.7 In that decision, the court held that where a party has multiple places of the business it is not always the principal one that is to be taken into account to determine whether a contract is international or whether the Convention applies. 6. Article 10(b) has been referred to only once; in that case, the court merely recalled the text of the provision.8

Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

Freedom from Form Requirements as to the Conclusion of the Contract 1. This provisions lays down the rule pursuant to which, subject to article 12, a contract of sale need not be concluded in writing and is not subject to any other specific requirement as to form.1 The provisions, in other words, establishes the principle of freedom from form requirements.2 One court even stated that “under article 11 [...], a contract of sale can be concluded 7

CLOUT case No. 261, Switzerland, 1997.

8

CLOUT case No. 106, Austria, 1994.

1

See Oberster Gerichtshof, Austria, 9 March 2000, published on the Internet at ; CLOUT case No. 215, Switzerland, 1997; CLOUT case No. 176, Austria, 1996; CLOUT case No. 308, Australia, 1995; CLOUT case No. 137, United States of America, 1994; for similar affirmations, see also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 20. 2 See Bundesgericht, Switzerland, 15 September 2000, published on the Internet at .

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informally”.3 According to case law this means that a contract can also be concluded orally4 and through the conduct of the parties.5 Furthermore, one court stated that a signature was not necessary for the contract to be valid because a sales contract is not subject to any requirement as to form.6 2. Several tribunals expressly stated that the aforementioned principle, pursuant to which no form requirements have to be met as far as the conclusion of the contract is concerned, constitutes a general principle upon which the Convention is based;7 from this principle it follows, among other things, that the parties are free to modify or terminate their contract in any form be it in writing or orally or in any other form. Even an implied termination of the contract has been held possible;8 furthermore, it has been held that a written contract may be orally changed.9 3. As can be evinced from the legislative history, despite the existence under the Convention of the aforementioned general principle, “any administrative or criminal sanctions for breach of the rules of any State requiring that such contracts be in writing, whether for purposes of administrative control of the buyer or seller, for purposes of enforcing exchange control laws, or otherwise, would still be enforceable against a party which concluded the non-written contract even though the contract itself would be enforceable between the parties”.10

3

CLOUT case No. 95, Switzerland, 1992.

4

See CLOUT case No. 222, United States of America, 1998; CLOUT case No. 176, Austria, 1996; CLOUT case No. 134, Germany, 1995; for an example of a case where an oral contract was held to be valid, see Oberlandsgericht Kln, Germany, 22 February 1994, published on the Internet at . 5 For this statement, see Hof van Beroep Gent, Belgium, 17 May 2002, published on the Internet at ; CLOUT case No. 134, Germany, 1995; 6 CLOUT case No. 330, Switzerland, 1995. 7 See Compromex Arbitration, Mexico, 16 July 1996, published on the Internet at ; Compromex Arbitration, Mexico, 29 April 1996, published on the Internet at ; CLOUT case No. 176, Austria, 1996. 8 Oberster Gerichtshof, Austria, 29 June 1999, Zeitschrift fu¨r Rechtsvergleichung, 2000, 33. 9 Hof van Beroep Gent, Belgium, 17 May 2002, published on the Internet at ; CLOUT case No. 176, Austria, 1996. 10 United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 20.

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Form Requirements and Evidence of the Contract 4. Article 11 frees the parties also from having to comply with domestic requirements as to the means to be used in proving the existence of a contract governed by the Convention. Indeed, as expressly stated by various courts, “the contract can be proven with any means”.11 Consequently, domestic rules requiring a contract to be evidenced in writing in order for it to be enforceable are superseded; one court, for instance, stated that “under the [Convention], evidence of the oral conversations between [seller] and [buyer], relating to the terms of the purchase, could be admitted to establish that an agreement had been reached between [the parties]”.12 5. As far as the evidence presented by the parties is concerned, it is up to the judge to determine – within the limits set by the procedural rules of the forum – how to evaluate it.13 It is on this basis that one court14 held that a judge may well attribute more weight to a written document than to oral testimony. 6. For comments on the applicability of the parol evidence rule under the Convention, see article 8, sub para. 18.

Limits to the Freedom from Form Requirements 7. According to article 12 of the Convention, the principle of freedom from form requirements does not per se apply where one party has its relevant place of business in a State that made an article 96 declaration.15 Opposing views exists as to the effects of the article 96 reservation. According to one 11

See Rechtbank van Koophandel Hasselt, Belgium, 22 May 2002, published on the Internet at ; Rechtbank van Koophandel, Belgium, 4 April 2001, published on the Internet at ; CLOUT case No. 330, Switzerland, 1995; CLOUT case No. 134, Germany, 1995. 12 CLOUT case No. 414, United Stated of America, 2000. 13 See Rechtbank van Koophandel Kortrijk, Beligum, 4 April 2001, published on the Internet at ; LG Memmingen, 1 December 1993, published on the Internet at . 14 Rechtbank van Koophandel Hasselt, Belgium, 22 May 2002, published on the Internet at . 15 See Rechtbank van Koophandel, Belgium, 2 May 1995, published on the Internet at .

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view, the sole fact that one party has its place of business in a State that made an article 96 reservation does not necessarily mean that the form requirements of that State apply.16 Rather, it will depend on the rules of private international of the forum whether any form requirements have to be met. Thus, where those rules lead to the law of a State that made an article 96 reservation, the form requirements of that State will have to be complied with; where, on the other hand, the law applicable is that of a contracting State that did not make an article 96 reservation, the principle of freedom from form requirements laid down in article 11 applies, as repeatedly pointed out in case law.17 According to the opposing view, however, where one party has its relevant place of business in a State that made an article 96 reservation, the contract must be concluded or evidenced or modified in writing.18

Article 12 Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.

General Issues and Requirements 1. Article 12 recognizes that some States consider that it is important that contracts or their modifications or termination by agreement be in writing. Therefore, article 12 enables a Contracting State to make a declaration under article 96 to prevent the application of any provision of article 11, article 29 or Part II of the Convention which allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other 16

Rechtbank Rotterdam, the Netherlands, 12 July 2001, Nederlands Internationaal Privaatrecht, 2001, No. 278. 17 Rechtbank Rotterdam, the Netherlands, 12 July 2001, Nederlands Internationaal Privaatrecht, 2001, No. 278; Hooge Raad, the Netherlands, 7 November 1997, publihsed on the Internet at ; CLOUT case No. 52, Hungary, 1992. 18 The High Arbitration Court of the Russian Federation, Arbitration, 16 February 1998, referred to on the Internet at ; Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, published on the Internet at .

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indication of intention to be made in any form other than in writing where any party has his place of business in that Contracting State.1 It must be pointed out, however, that according to article 96 of the Convention only those Contracting States are allowed to declare an article 96 reservation whose legislation requires contracts of sale to be concluded in or evidenced by writing. 2. As can be evinced from both the legislative history2 and case law, article 12, unlike most provisions of the Convention, cannot be derogated from.3

Sphere of Application and Effects 3. In the light of the legislative history, it appears that, as the operation of article 12 is confined to articles 11 and 29 and to Part II of this Convention, it does not encompass all notices or indications of intention required under the Convention but only those which relate to the formation of the contract, it modifications and its termination by agreement.4 4. The effects of article 12 of the Convention lead to the principle of freedom from form requirements not being per se applicable where one party has its relevant place of business in a State that made an article 96

1

For this statement, albeit with reference to the draft provisions contained in the 1978 Draft Convention, see United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 20. 2 See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 20: “Since the requirement of writing in relation to the matters mentioned in article 11 [draft counterpart of the Convention’s article 12] is considered to be a question of public policy in some States, the general principle of party autonomy is not applicable to this article. Accordingly, article 11 [draft counterpart of the Convention’s article 12] cannot be varied or derogated from by the parties”. 3 Cour d’appel Paris, France, 6 November 2001, published on the Internet at ; CLOUT case No. 378, Italy, 2000, expressly stating that article 12 – as well as the final provisions – cannot be derogated from. 4 For the wording used in the text, see United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 20.

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declaration.5 Opposing views exists as to the effects of the article 96 reservation. According to one view, the sole fact that one party has its place of business in a State that made an article 96 reservation does not necessarily mean that the form requirements of that State apply.6 Rather, it will depend on the rules of private international of the forum whether any form requirements have to be met. Thus, where those rules lead to the law of a State that made an article 96 reservation, the form requirements of that State will have to be complied with; where, on the other hand, the law applicable is that of a contracting State that did not make an article 96 reservation, the principle of freedom from form requirements laid down in article 11 applies, as repeatedly pointed out in case law.7 According to the opposing view, however, where one party has its relevant place of business in a State that made an article 96 reservation, the contract must be concluded or evidenced or modified in writing.8

Article 13 For the purposes of this Convention “writing” includes telegram and telex. 1. The goal of this provision, which is based upon article 1(3)(g) of the 1974 UNCITRAL Convention on the Limitation Period in the International Sale of Goods, is to make sure that declarations that take the form of a telegram or telex met any writing requirement where such a requirement exists at all. 2. In case law, this provision has been referred to very rarely. In one case,1 a court had to decide whether the avoidance of a lease contract via telefax met the writing requirement of the applicable domestic law. On that occasion, 5

See Rechtbank van Koophandel, Belgium, 2 May 1995, published on the Internet at . 6 Rechtbank Rotterdam, the Netherlands, 12 July 2001, Nederlands Internationaal Privaatrecht, 2001, No. 278. 7 Rechtbank Rotterdam, the Netherlands, 12 July 2001, Nederlands Internationaal Privaatrecht, 2001, No. 278; Hooge Raad, the Netherlands, 7 November 1997, publihsed on the Internet at ; CLOUT case No. 52, Hungary, 1992. 8 The High Arbitration Court of the Russian Federation, Arbitration, 16 February 1998, referred to on the Internet at ; Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, published on the Internet at . 1 See Oberster Gerichtshof, Austria, 2 July 1993, published on the Internet at .

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the court stated that if the Convention were applicable, a message sent by telefax should be considered valid on the basis of article 13 of the Convention. The court then stated that article 13 of the Convention is applicable only to international sales contracts and should not be applied by analogy to lease or other contracts. In another case2 that same court reaffirmed its view according to which article 13 of the Convention cannot be applied by analogy, justifying it on the grounds that article 13 contains an exception and that exceptions have always to be interpreted restrictively.

Part II Formation of the Contract 1. Part II of the Sales Convention sets out rules for the formation of an international sales contract. Under these rules, a contract is concluded when an acceptance of an offer becomes effective. Article 23. The first four articles of Part II (articles 14-17) deal with the offer, while the following five articles (articles 18-22) deal with the acceptance. The final two articles (articles 2324) address the time when a contract is concluded and when a communication ‘reaches the addressee, respectively. One court has described these provisions as embodying ‘a liberal approach to contract formation and interpretation, and a strong preference for enforcing obligations and representations customarily relied upon by others in the industry’.1 2. A number of decisions have applied the offer-acceptance paradigm of Part II to proposals to modify a sales contract (article 29)2 or to proposals to terminate the contract.3 Several decisions have distinguished between the conclusion of the sales contract and an agreement to arbitrate disputes arising under that contract.4 2

Oberster Gerichtshof, Austria, 26 April 1997, published on the Internet at . 1 [Federal] Southern District Court of New York, USA, 10 May 2002, Federal Supplement (2nd Series) 201, 236 ff. 2 CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 347, Germany, 1998; CLOUT case No. 193, Germany, 1996; CLOUT case No. 133, Germany, 1995; CLOUT case No. 203, France, 1995. 3 CLOUT case No. 120, Germany, 1994; China International Economic and Trade Arbitration Commission, 1 April 1993, Unilex. 4 Tribunal Supremo, Spain, 26 May 1998, available on the Internet at http://www.uc3m.es/ cisg/respan10.htm (conclusion of sales contract established but not agreement to arbitrate); Tribunal Supremo, Spain, 17 February 1998, available on the Internet at
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Permitted Reservations by Contracting States 3. A Contracting State may declare that it is not bound by Part II of the Sales Convention. Article 92. Denmark, Finland, Iceland, Norway and Sweden have made this declaration. A majority of decisions apply the forum’s rules of private international law to determine whether the parties have concluded a contract. The relevant national law may be either domestic contract law (which will be the case if the applicable national law is that of a declaring State)5 or the Convention (which will be the case if the applicable national law is that of a Contracting State).6 Several decisions do not go through a private international law analysis. One decision expressly rejects a private international law analysis and instead applies the principles underlying Part II of the Convention.7 Several decisions apply Part II, without analysis, to a contract between a party with a place of business in a Contracting State that has made a declaration and one that has a place of business in a Contracting State that has not done so.8 In the absence of a dispute about whether a contract had been concluded, one court declined to analyze the effect of article 92.9

www.uc3m.es/cisg/respan8.htm> (conclusion of sales contract established under Sales Convention but agreement to arbitrate not established under 1958 New York Convention). 5 Turku Hovioikeus (Court of Appeal), Finland, 12 April 2002, available on the Internet at http://cisgw3.law.pace.edu/cases/020412 f5.html (transaction between Finnish seller and German buyer; Finnish law applicable); CLOUT case No. 143, Hungary, 1996 (transaction between Swedish seller and Hungarian buyer; Swedish law applicable); CLOUT case No. 228, Germany, 1995 (transaction between Danish seller and German buyers; Danish law applicable). See also CLOUT case No. 419, USA, 1998 (transaction between Swedish seller and US buyer; although US state law would apply to contract formation, the issue before the court was whether domestic parol evidence rule excluded testimony and article 8 (3) – in Part I – preempted that rule). 6 CLOUT case No. 309, Denmark, 1998 (transaction between Danish seller and French buyer; French law applicable); CLOUT case No. 301 [ICC award No. 7585/1992], 1992 (transaction between Italian seller and Finnish buyer; Italian law applicable). 7 CLOUT case No. 134, Germany, 1995 (contract between Finnish seller and German buyer). 8 CLOUT case No. 362, Germany, 1999 (contract between Danish seller and German buyer); Chansha Intermediate People’s Court Economic Chamber, China, 1995, Unilex (negotiations between Chinese seller and Swedish buyer); CLOUT case No. 121, Germany, 1994 (negotiations between German seller and Swedish buyer). 9 CLOUT case No. 201, Switzerland, 1993 (contract between Finnish seller and German buyer). See also Højesteret (Supreme Court), Denmark, 15 February 2001, available on the Internet at http://www.cisg.dk/hd15022001danskversion.htm (transaction between Italian

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4. Two or more Contracting States that have the same or closely-related legal rules on the formation of a sales contract may declare that the Convention is not to apply to the formation of sales contracts where the parties have their places of business in these States. CISG article 94 (1). A Contracting State may also make such a declaration if it has the same or closely-related legal rules as a non-Contracting State. CISG article 94 (2). Such a non-Contracting State may, when it becomes a Contracting State, declare that the Convention shall continue to be inapplicable to the formation of sales contracts with persons in the earlier-declaring Contracting State. CISG article 94 (3). Denmark, Finland, Norway and Sweden made declarations with respect to each other and also with Iceland. When Iceland became a Contracting State it declared that it would continue this arrangement. See also Commentary on article 94.

Exclusivity of Part II 5. Part II sets out rules for the conclusion of a contract. Part II does not state that compliance with its provisions is the exclusive way to conclude an enforceable contract governed by the Sales Convention. Article 55 in Part III of the Convention recognizes that a contract may be validly concluded even though it does not expressly or implicitly fix or make provision for determining the price. Several cases have examined the relation of article 55 to the requirement in article 14 that a proposal to conclude a contract must expressly or implicitly fix or make provision for determining the price. See Commentary on articles 14 and 55. 6. The partie’s conduct may establish that they intended a mutually-binding arrangement even if Part II does not govern. One court, recognizing that Finland had made an article 92 declaration, nevertheless applied the principles underlying the Convention rather than national contract law and found that the conduct of a Finnish seller and a German buyer evidenced an enforceable contract.10 7. Several decisions have recognized that one party’s promise may be enforced under the applicable national law doctrine of promissory estoppel. One court found that a supplier would be bound by its promise to supply raw materials when in reliance on this promise the promisee sought and received administrative approval to manufacture generic drugs.11 Another court seller and Danish buyer; issue of whether court had jurisdiction resolved by reference to article 31). 10 CLOUT case No. 134, Germany, 1995. 11 [Federal] Southern District Court of New York, USA, 21 August 2002, 2002 Westlaw

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considered a similar claim but concluded that the party seeking to enforce a promise had established its case.12

Validity of Contract; Formal Requirements 8. Part II governs the formation of the contract of sale but, except as otherwise expressly provided by the Convention, is not concerned with the validity of the contract or any of its provisions or of any usage. CISG article 4(a). Consequently, national law applicable by virtue of the rules of private international law will govern issues of validity. See also Commentary on article 4. 9. The Convention expressly provides that a contract of sale need not be concluded in writing and is not subject to any other requirement as to form. CISG article 11. A Contracting State may declare that this rule does not apply where any party has his place of business in that State. CISG articles 12, 96. See also Commentary on articles 11, 12 and 96. 10. Part II is silent on the need for ‘consideration’ or a ‘causa’. One case found, applying domestic law under article 4(a) of the Convention, that a buyer seeking to enforce a contract had alleged sufficient facts to support a finding that there was “consideration” for an alleged contract.13

Incorporating Standard Terms 11. The Convention does not include special rules addressing the legal issues raised by the use of standard contract terms prepared in advance for general and repeated use.14 Some Contracting States have adopted special legal rules 1933881 (accepting that claim stated an enforceable cause of action for promissory estoppel when it alleged breach of ‘(1) a clear and definite promise, (2) the promise is made with the expectation that the promisee will rely on it, (3) the promisee in fact reasonably relied on the promise, and (4) the promisee suffered a definite and substantial detriment as a result of the reliance’). 12 CLOUT case No. 173, Hungary, 1997 (considering and rejecting a claim that there had been a breach of promise that would be enforceable if the promise reasonably induced the other party to change its position in reliance on the promise). 13 [Federal] Southern District Court of New York, USA, 10 May 2002, Federal Supplement (2nd Series) 201, 236 ff. (quoting definition of consideration as ‘bargained.-for exchange of promises or performance’). 14 For a definition of ‘standard term’s see article 2. 17 (2) of the UNIDROIT Principles of International Contract Law (1994).

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on the enforceability of standard terms.15 Notwithstanding these special rules, a majority of courts apply the provisions of Part II of the Convention and its rules of interpretation in article 8 to determine whether the parties have agreed to incorporate standard terms into their contract.16 Several of these decisions expressly conclude that the Convention displaces recourse to national law on the issue of whether the parties have agreed to incorporate standard terms into their contract.17 Nevertheless, several courts have applied the special national legal rules to determine the enforceability of standard terms in contracts otherwise governed by the Convention,18 while several others have noted that the standard terms would be enforceable under either national law or the Convention.19 Several decisions recognize, 15

See, e. g., the German Gesetz zur Regelung des Rechts der Allgemeinen Gescha¨ftsbedingungen (AGBG) [Unfair Contract Terms Act]. 16 Bundesgerichtshof, Germany, 31 October 2001, Neue Juristische Wochenschrift, 2001, 370 ff.; CLOUT case No. 362, Germany, 1999 (standard terms in purported acceptance); Rb ‘s-Hertogenbosch, Netherlands, 2 October 1998, Unilex (in ongoing relationship buyer not bound by seller’s amended general conditions because seller failed to inform buyer of amendment); CLOUT case No. 222, USA, 1998 (standard terms on back of seller’s form not enforceable if both parties know buyer did not intend to incorporate them in contract); CLOUT case No. 272, Austria, 1998 (applying article 8 to determine whether standard terms incorporated in contract); CLOUT case No. 232, Germany, 1998 (buyer, by performing contract, accepted seller’s standard terms that modified buyer’s offer); CLOUT case No. 345, Germany, 1997; CLOUT case No. 176, Austria, 1996 (buyer did not agree to ‘framework agreement’ drafted by seller to govern subsequent sales); CLOUT case No. 203, France, 1995 (standard term on back of form not binding on recipient); Trib. Comm. Nivelles, Belgium, 19 September 1995, Unilex (buyer should have been aware that seller’s offers incorporated standard terms); C mara Nacional de Apelaciones en lo Comercial, Argentina, 14 October 1993, Unilex (standard terms on back of ‘pro forma’ invoice accepted by other party when recipient objected to one part of invoice but not to standard terms). See also Rechtbank van Koophandel Hasselt, Belgium, 18 October 1995 (seller’s standard terms in invoice sent with goods a unilateral act to which buyer had not consented). For analysis of the effect of conflicting terms when each party uses standard terms (the so-called ‘battle of the form’s), see the Commentary to article 19. 17 Bundesgerichtshof, Germany, 31 October 2001, Neue Juristische Wochenschrift, 2001, 370 ff.; CLOUT case No. 345, Germany, 1997. 18 CLOUT case No. 318, Germany, 1998 (applying German law as the law applicable by virtue of the forum’s rules of private international law); LG Duisburg, Germany, 17 April 1996, Unilex (applying Italian law as the law applicable by virtue of the forum’s private international law rules); LG M
nchen, Germany, 29 May 1995 (applying German law as the law applicable by virtue of the forum’s rules of private international law); Rechtbank van Koophandel Hasselt, Belgium, 24 January 1995, Unilex (applying German law as the law applicable by virtue of the forum’s private international law rules). 19 CLOUT case No. 361, Germany, 1999 (standard terms enforceable under both applicable

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however, that the Convention does not govern the substantive validity of a particular standard term – a matter left to applicable national law by virtue of article 4 (a).20 12. Several decisions rely on the Convention’s rules on interpretation to require the user of standard terms to send a copy of the terms to the other party or otherwise make them reasonably available.21 One decision expressly rejects the proposal that a party has an obligation to search out standard terms referred to by the other party on the grounds that to do so would contradict the principle of good faith in international trade and the partie’s general obligations to cooperate and to share information.22 Another decision relies on article 24 to conclude that standard terms do not ‘reach’ the addressee unless in a language agreed to by the parties, used by the parties in their prior dealings, or customary in the trade.23 Several other decisions give no effect to standard terms when they are not translated into the language of the other party.24 Another decision refers to the ‘general domestic law and the Convention); Gerechtshof’s Hertogenbosch, Netherlands, 24 April 1996, Unilex (standard terms enforceable under both applicable domestic law and the Convention). 20 Oberster Gerichtshof, Austria, 7 September 2000, Unilex (validity of standard terms determined by national law subject to condition that any derogation from Convention’s fundamental principles ineffective even if valid under applicable national law); CLOUT case No. 272, Austria, 1998 (national law, rather than Convention, determines validity of exemption clause in standard terms); CLOUT case No. 345, Germany, 1997 (national law governs validity of standard term limiting liability); Amtsgericht Nordhorn, Germany, 14 June 1994 (standard terms on back of form incorporated in contract but validity of terms to be determined under domestic law). See also CLOUT case No. 230, Germany, 1997 (citing both article 4 and article 14 ff., court leaves open issue of whether standard terms were enforceable). 21 Bundesgerichtshof, Germany, 31 October 2001, Neue Juristische Wochenschrift, 2001, 370 ff.; Hof Arnhem, Netherlands, 27 April 1999, Unilex (deposit of standard terms in Dutch court did not bind non-Dutch party but standard terms printed in Dutch on back of invoice are binding); Rb ‘s Hertogenbosch, Netherlands, 2 October 1998, Unilex (if numerous prior sales between parties have been subject to the general conditions of one party and that party amends those general conditions, that party must inform the other party of the changes). 22 Bundesgerichtshof, Germany, 31 October 2001, Neue Juristische Wochenschrift, 2001, 370 ff. 23 CLOUT case No. 132, Germany, 1995 (discussion of ‘language risk’ in light of article 8). 24 CLOUT case No. 345, Germany, 1997 (in transaction between German seller and Italian buyer seller’s standard terms in German language not incorporated in contract and validity of those in Italian language determined by German law as the as the law applicable by virtue of the forum’s private international law rules); Amtsgericht Kehl, Germany, 6 October 1995, Unilex (standard terms in German language only sent by a German buyer to an Italian seller).

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principle’ that ambiguities in the standard terms are to be interpreted against the party relying upon them.25

Commercial Letters of Confirmation 13. In a few Contracting States there is a recognized usage of trade that gives effect to a letter of confirmation sent by a merchant to another merchant notwithstanding the recipient’s silence. The commercial letter of confirmation may conclude the contract or, if the contract had already been concluded, establish the terms of the contract in the absence of intentional misstatement by the sender. Courts have disagreed about the effect to be given to these usages when the transaction is governed by the Convention. Several decisions have refused to give effect to a local trade usage that would give effect to the letter of confirmation because the usage was not international.26 However, one court found, without analysis of the scope of the trade usage, that the recipient was bound,27 and another court gave effect, under both paragraphs (1) and (2) of article 9, to the usage when the seller and buyer each had its place of business in a jurisdiction that recognized such a usage.28 Another court applied the formation provisions to find that the recipient of the letter of confirmation had accepted its terms by accepting the goods.29 Yet another court concluded that the Convention was silent on the effect of a confirmation letter that incorporated standard terms and therefore the court applied domestic law to determine whether the standard terms were applicable.30 Even if a letter of confirmation is not given full effect it may be relevant for the evaluation of evidence of the partie’s intent31

25 26

CLOUT case No. 165, Germany, 1995.

CLOUT case No. 347, Germany, 1998; CLOUT case No. 276, Germany, 1995. See also LG Duisburg, Germany, 17 April 1996, Unilex (doubts existence of international usage recognizing incorporation of standard terms into contract by letter of confirmation); Opinion of Advocate General Tesauro, EC Reports, 1997, I-911 ff. (adopting by analogy article 9 (2)’s standard for an ‘international usage’). 27 OLG Saarbr
cken, Germany, 14 February 2001, Unilex. 28 CLOUT case No. 95, Switzerland, 1992. 29 CLOUT case No. 292, Germany, 1993 (citing article 18 (1)). 30 Arrondissemenetsrechttbank Zutphen, Netherlands, 29 May 1997, Unilex. See also Rechtbank van Koophandel Hasselt, Belgium, 24 January 1995, Unilex (German law applicable to issue of whether standard terms referred to in letter of confirmation are effective). 31 CLOUT case No. 276, Germany, 1995.

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Part II Introduction

Interpretation of Statements or Conduct 14. A person may make a proposal for concluding a contract or may accept such a proposal by a statement or by conduct. CISG articles 14 (1), 18 (1). Numerous cases apply the rules of article 8 to the interpretation of a party’s statements or other conduct before the conclusion of a contract.32 15. Several courts have had to identify the party proposing to conclude a contract governed by the Convention. They have usually done so by interpreting the statements or conduct of the parties in accordance with article 8 of the Convention.33 The issue may also arise when an agent acts for

32 See, e. g., CLOUT case No. 417, USA, 1999 (article 8); CLOUT case No. 306, Austria, 1999 (citing article 8 (1)); CLOUT case No. 413, USA, 1998 (article 8 (3)); Hoge Raad, Netherlands, 7 November 1997, Unilex (articles 8 (1), (2)); CLOUT case No. 189, Austria, 1997 (article 8 (2)); LG Oldenburg, Germany, 28 February 1996, Unilex (article 8(2)); CLOUT case No. 334, Switzerland, 1995 (Art. 8 (1), (2) & (3)); CLOUT case No. 308, Australia, 1995 (Arts. 8 (1), (2)); CLOUT case No. 106, Austria, 1994 (article 8 (2), (3)); CLOUT case No. 23, USA, 1992 (article 8 (3)); CLOUT case No. 227, Germany, 1992 (Art. 8 (2)). 33 OLG Frankfurt, Germany, 30 August 2000, Unilex (citing article 8, court states that invoice intended by sender to be offer on its behalf rather than on behalf of its parent company with whom recipient had been dealing did not bind the recipient who was unaware of this intent and it was not established that a reasonable person in position of recipient would so understand the communication); OLG Stuttgart, Germany, 28 February 2000, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/583.htm (citing article 8 (1) & (3), court states that negotiations and subsequent conduct of the parties indicated that buyer intended to conclude the contract with foreign company rather than local company with some same Board members); Hoge Raad, Netherlands, 7 November 1997, Unilex (citing articles 8 (1) & (2)), court concludes no contract had been concluded when a person, intending to make an offer, made a payment to a seller who did not know and could not have been aware that the payor was making a payment on its own behalf rather than on behalf of a buyer with whom the seller had ongoing business relations and reasonable person in same circumstances would not so understand communication). See also Comisin pare la Proteccin del Comercio Exterior de Mxico, Mexico, 29 April 1996, Unilex (without express reference to article 8, commission refers to surrounding circumstances to identify seller); CLOUT case No. 330, Switzerland, 1995 (citing article 14 (1), court concludes that buyer’s unsigned fax to seller clearly indicated an intent to purchase the equipment and that seller thought buyer rather than sister company was buyer); CLOUT case No. 276, Germany, 1995 (circumstances establish defendant and not unnamed third person was party to contract); LG Memmingen, Germany, 1 December 1993, Unilex (citing article 11, court applies forum’s rule on proof as to which company seller had contracted with); CLOUT case

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a principal.34 Whether a person is entitled to bring a legal action to enforce contractual obligations is a distinct issue.35

Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. 1. Article 14 sets out the conditions on which a proposal to conclude a contract is an offer that, if accepted by the addressee, will lead to the conclusion of a contract under the Convention. This article has been applied to determine whether a statement or other conduct rejecting an offer (see article 19 (1)) constitutes a counter-offer.1 The principles set out in this article – the offeror must intend to be bound; a proposal must be sufficiently definite – have been applied, together with those in other articles of Part II, No. 95, Switzerland, 1992 (defendant bound even if she was subject to control of another firm). 34 CLOUT case No. 239, Austria, 1997 (remand to determine whether purported buyer was an agent); CLOUT case No. 416, USA, 1997 (finding from documents and circumstances that defendant was a seller rather than an agent); CLOUT case No. 334, Switzerland, 1995 (citing article 8, court concludes manufacturer rather than its distributor was party to contract); CLOUT case No. 5, Germany, 1990 (citing article 8 (1), court states that seller did not know and could not have been aware of buyer’s intent to refer to ‘AMG GmbH’ when buyer referred to ‘AMG Import Export’, a non-existent company; agent bound under applicable law of agency). 35 See, e. g., CLOUT case No. 345, Germany, 1997 (lessee, to whom the buyer/lessor assigned its rights as buyer, avoided contract); CLOUT case No. 334, Switzerland, 1995 (although manufacturer rather than its distributor was original party to contract, distributor could enforce the contract because manufacturer had assigned its claim for breach to distributor); CLOUT case No. 132, Germany, 1995 (assignee enforces seller’s claim). 1 CLOUT case No. 121, Germany, 1994 (a buyer’s purported acceptance that included both screws for which the seller had stated the price and additional screws for which the seller had not stated the price was a counter-proposal that was not sufficiently definite because the price of the latter screws were not fixed or determinable). See also CLOUT case No. 189, Austria, 1997 (stating that a counter-offer must satisfy the conditions of article 14).

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a principal.34 Whether a person is entitled to bring a legal action to enforce contractual obligations is a distinct issue.35

Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. 1. Article 14 sets out the conditions on which a proposal to conclude a contract is an offer that, if accepted by the addressee, will lead to the conclusion of a contract under the Convention. This article has been applied to determine whether a statement or other conduct rejecting an offer (see article 19 (1)) constitutes a counter-offer.1 The principles set out in this article – the offeror must intend to be bound; a proposal must be sufficiently definite – have been applied, together with those in other articles of Part II, No. 95, Switzerland, 1992 (defendant bound even if she was subject to control of another firm). 34 CLOUT case No. 239, Austria, 1997 (remand to determine whether purported buyer was an agent); CLOUT case No. 416, USA, 1997 (finding from documents and circumstances that defendant was a seller rather than an agent); CLOUT case No. 334, Switzerland, 1995 (citing article 8, court concludes manufacturer rather than its distributor was party to contract); CLOUT case No. 5, Germany, 1990 (citing article 8 (1), court states that seller did not know and could not have been aware of buyer’s intent to refer to ‘AMG GmbH’ when buyer referred to ‘AMG Import Export’, a non-existent company; agent bound under applicable law of agency). 35 See, e. g., CLOUT case No. 345, Germany, 1997 (lessee, to whom the buyer/lessor assigned its rights as buyer, avoided contract); CLOUT case No. 334, Switzerland, 1995 (although manufacturer rather than its distributor was original party to contract, distributor could enforce the contract because manufacturer had assigned its claim for breach to distributor); CLOUT case No. 132, Germany, 1995 (assignee enforces seller’s claim). 1 CLOUT case No. 121, Germany, 1994 (a buyer’s purported acceptance that included both screws for which the seller had stated the price and additional screws for which the seller had not stated the price was a counter-proposal that was not sufficiently definite because the price of the latter screws were not fixed or determinable). See also CLOUT case No. 189, Austria, 1997 (stating that a counter-offer must satisfy the conditions of article 14).

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notwithstanding that Part II was not applicable by virtue of a declaration under article 92.2 For discussion of whether Part II of the Convention provides the exclusive way to conclude a contract governed by the Convention, see the Introduction to Part II. 2. The identity of the person making a proposal or of the person to which the proposal is made may be uncertain. Decisions have applied article 14 and the rules of interpretation in article 8 to this issue.3

Addressees of Proposal 3 The first sentence of paragraph (1) provides that proposals are to be addressed to one or more specific persons. Under the applicable law of agency, the maker of an offer addressed to an agent may be bound by the acceptance of the principal.4 One decision states that article 14 (1) rather than the law of agency governs the issue of identifying whether a manufacturer or its distributor is party to the contract.5 4. Paragraph (2) provides for proposals other than ones addressed to one or more specific persons. There are no reported decisions applying paragraph (2).

2 CLOUT case No. 134, Germany, 1995 (applying the general principles of Part II rather than the national law applicable by virtue of private international law to transaction between Finnish seller and German buyer). 3 OLG Frankfurt, Germany, 30 August 2000, Unilex; OLG Stuttgart, Germany, 28 February 2000, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/ 583.htm; Hoge Raad, Netherlands, 7 November 1997, Unilex; CLOUT case No. 334, Switzerland, 1995; CLOUT case No. 330, Switzerland, 1995; CLOUT case No. 5, Germany, 1990. See Commentary in introduction to Part II. 4 CLOUT case No. 239, Austria, 1997 (if offeror knew that addressee was acting as agent, then offeror should expect proposal to be transmitted to the principal; if offeror did not know or was unaware that addressee was an agent, the offeror was not bound by principal’s acceptance; case remanded to determine whether the addressee was agent and whether offeror knew of this). 5 CLOUT case No. 334, Switzerland, 1995 (interpreting the statements and acts of the parties in accordance with article 8, manufacturer rather than its dealer was party to contract; manufacturer had, however, assigned its claim for breach to dealer).

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Indication of Intent to be Bound by Acceptance 5. The first sentence of paragraph (1) provides that a proposal to conclude a contract must indicate the intention of the proponent to be bound if the addressee accepts the proposal. The intent may be shown by interpretation of a statement or act in accordance with paragraphs (1) or (2) of article 8.6 By virtue of paragraph (3) of article 8, this intent may be established by all the relevant circumstances, including statements or other conduct during negotiations and the conduct of the parties after conclusion of the contract.7 A buyer was found to have indicated its intent to be bound when it sent the seller an ‘order’ that stated that ‘we order’ and ‘immediate delivery’.8 A communication in the English language sent by a French seller to a German buyer was interpreted by the court as expressing the seller’s intent to be bound.9 Where both parties had signed an order indicating a computer programme and its price, the buyer was unable to establish that the order merely indicated an intention to indicate details of a contract to be concluded at a later time rather than an intention to conclude the contract by the order.10 Another buyer’s order specifying two sets of cutlery and the time for delivery was likewise interpreted as indicating the intent to be bound in case of acceptance notwithstanding buyer’s argument that it had merely proposed to conclude future purchases.11

Definiteness of Proposal 6. To be deemed an offer, a proposal to conclude a contract not only must indicate an intent to be bound by an acceptance but also must be sufficiently definite.12 The second sentence of paragraph (1) provides that a proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. Practices established between the parties may supply the details of quality, quantity

6 7

CLOUT case No. 215, Switzerland, 1997.

CLOUT case No. 215, Switzerland, 1997 (stressing the partie’s conduct subsequent to conclusion of the contract). 8 CLOUT case No. 330, Switzerland, 1995. 9 OLG Hamburg, Germany, 4 July 1997, Unilex (‘We can only proposed you’; ‘First truck could be delivered’). 10 CLOUT case No. 131, Germany, 1995. 11 CLOUT case No. 217, Switzerland, 1997. 12 CLOUT case No. 417, USA, 1999 (conditions satisfied).

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and price left unspecified in a proposal to conclude a contract.13 Decisions have applied the rules of interpretation in article 8 to determine whether a communication or act is sufficiently definite. One court has concluded that, if the intent to be bound by an acceptance is established, a proposal is sufficiently definite notwithstanding the failure to specify the price.14 7. Article 14 does not require that the proposal include all the terms of the proposed contract.15 If, for example, the parties have not agreed on the place of delivery16 or the mode of transportation17 the Convention may fill the gap.

Indication of the Goods 8. To be sufficiently definite under the second sentence of paragraph (1) a proposal must indicate the goods. There is no express requirement that the proposal indicate the quality of the goods. One court found that a proposal to buy _chinchilla pelts of middle or better quality_ was sufficiently definite because a reasonable person in the same circumstances as the recipient of the proposal could perceive the description to be sufficiently definite.18 Another court assumed that an offer to purchase monoammoniumphosphate with the specification ‘P 205 52% +/- 1%, min 51%’ was a sufficiently definite indication of the quality of the goods ordered.19 If, however, the parties are unable to agree on the quality of the goods ordered there is no contract20

13

CLOUT case No. 52, Hungary, 1992 (citing article 9 (1), court concludes that prior sales transactions between the parties supply unstated details in telephone order). 14 CLOUT case No. 330, Switzerland, 1995 (fax ‘ordering’ software devices sufficiently definite notwithstanding failure to mention price). 15 See also CLOUT case No. 131, Germany, 1995 (contract for purchase of software enforceable even if parties intended further agreement with respect to use of software). 16 CLOUT case No. 360, Germany, 2000 (article 31 (a) applies when buyer unable to establish parties agreed on different place). 17 CLOUT case No. 261, Switzerland, 1996 (seller authorized to arrange transportation under article 32 (2) when buyer unable to establish parties agreed on transport by truck). 18 CLOUT case No. 106, Austria, 1996. 19 CLOUT case No. 189, Austria, 1997 (remanding to lower court, however, to determine whether an apparently contradictory response was sufficiently definite). 20 CLOUT case No. 125, Germany, 1995 (no agreement on quality of test tubes).

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Fixing or Determining the Quantity 9. To be sufficiently definite under the second sentence of paragraph (1) a proposal must expressly or implicitly fix or make provision for determining the quantity. A proposal was found to be sufficiently definite in the following cases: a proposal that refers only to ‘700 to 800 ton’s of natural gas because usage in the natural gas trade so provides;21 ‘a greater number of Chinchilla fur’s was sufficient because the buyer accepted the furs tendered without objection;22 ‘three truck loads of egg’s because the other party reasonably understood or ought to have understood that the trucks should be filled to their full capacity;23 ‘20 truck loads of tinned tomato concentrate’ because the parties understood the meaning of these terms and their understanding was consistent with the understanding of the trade;24 ‘10,000 tons +/- 5%’.25 A court has found that a buyer’s proposal which specified no specific quantity was sufficiently definite because under an alleged customary usage the offer would be construed as an offer to purchase the buyer’s needs from the offeree.26 Another court found that the seller’s delivery of 2,700 pairs of shoes in response to the buyer’s order of 3,400 pairs was a counter-offer accepted by the buyer when it took delivery and the contract was therefore concluded for only 2,700 pairs.27 10. A distribution agreement specifying terms on which the parties would do business and obliging the buyer to order a specified amount was found not sufficiently definite because it did not state a specific quantity.28

Fixing or Determining the Price 11. To be sufficiently definite under the second sentence of paragraph (1) a proposal must expressly or implicitly fix or make provision for determining not only the quantity but also the price. A proposal was found to be sufficiently definite in the following cases: a proposal to sell pelts of varying 21

CLOUT case No. 176, Austria, 1995.

22

CLOUT case No. 106, Austria, 1994 (citing article 8 (2), (3)).

23

LG Oldenburg, Germany, 28 February 1996, Unilex (citing article 8 (2)). OLG Hamburg, Germany, 4 July 1997, Unilex. 25 CLOUT case No. 189, Austria, 1997 (remanding to lower court to determine whether other elements of acceptance were sufficiently definite). 26 [Federal] District Court for the Southern District of New York, USA, 10 May 2002, Federal Supplement (2nd Series) 201, 236 ff. 27 CLOUT case No. 291, Germany, 1995. 28 CLOUT case No. 187, USA, 1997. 24

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quality ‘at a price between 35 and 65 German Marks for furs of medium and superior quality’ because the price could be calculated by multiplying the quantity of each quality by the relevant price;29 the price for similar goods in a previous contract between the parties supplied the price for a transaction in which there was no specific agreement on price because the parties had established a course of dealing;30 a proposal that the prices are to be adjusted to reflect market prices;31 agreement on a provisional price to be followed by the definitive price after the buyer resold the goods to exclusive final buyer because such an arrangement is regularly observed in the trade.32 12. The following proposals were found to be insufficiently definite: a proposal that incorporated several alternatives but did not indicate a proposed price for some elements of the alternative proposals;33 an agreement that the parties would agree on the price of additional goods ten days before the new year.34 13. One court has concluded that if the intent to be bound by an acceptance is established a proposal is sufficiently definite notwithstanding the failure to specify the price.35

Relevance of Price Formula in Article 55 14. Article 14 states that a proposal to conclude a contract is sufficiently definite if it ‘fixes or makes provision for determining’ the price. Article 55 provides a price formula ‘where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price.’ The price supplied by article 55 is ‘the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.’

29

CLOUT case No. 106, Austria, 1996.

30

CLOUT case No. 52, Hungary, 1992 (citing article 9 (1)).

31

CLOUT case No. 155, France, 1995, affirming, CLOUT case No. 158, France, 1992 (‘

revoir en function de la baisse du march’). 32 ICC award No. 8324/1995, Unilex. 33 CLOUT case No. 53, Hungary, 1992. 34 CLOUT case No. 139, Russia, 1993; Federation Chamber of Commerce and Industry award No. 304/1993, Russia, 3 March 1995, available at Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy 1997, No. 21 [46-54] (citing article 8). 35 CLOUT case No. 330, Switzerland, 1995 (fax ‘ordering’ software devices sufficiently definite notwithstanding failure to mention price).

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15. Most decisions have declined to apply article 55.36 Several have concluded that article 55 was not applicable because the parties had expressly or implicitly fixed or made provision for determining the price, thereby satisfying the definiteness requirement set out in article 14 (1).37 One tribunal found that where the parties had agreed to fix the price at a later time but had not done so, the proposal was not sufficiently definite under article 14 (1) and that article 55 was not applicable because of the partie’s agreement to fix the price at a later time.38 In another case where the proposal to conclude a contract failed to fix the price, the court declined to apply article 55 to fix the price because there was no market price for the airplane engines that the parties were negotiating about.39 Another court also found that, to the extent the price formula of article 55 might be applicable, the parties had derogated from that formula by their agreement.40 16. One court has looked to article 55 when it enforced the partie’s agreement notwithstanding that they had not fixed the price in their original negotiations. In that case, the court stated that the price set out in a corrected invoice issued by the seller at the request of the buyer and to which the buyer did not object was to be interpreted as the price charged under comparable circumstances in the trade concerned as provided in the article 55 formula.41

36

See also OLG Frankfurt, Germany, 15 March 1996, available on the Internet at http:// www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/275.htm (citing articles 14 and 55 when expressing doubt parties had undertaken obligations), affirmed, BGH, VIII ZR 134/96, 23 July 1997 (no citation to articles 14 or 55); CLOUT case No. 410, Germany, 1995 (court indicates that buyer did not allege circumstances from which a lower price could be established in accordance with article 55). 37 CLOUT case No. 343, Germany, 2000 (partie’s agreement as to price enforceable even if price different from that of the market); CLOUT case No. 106, Austria, 1994 (transaction between a German seller and an Austrian buyer; parties had fixed the price in the contract concluded by offer and acceptance and therefore reversed an intermediate court’s application of article 55). 38 CLOUT case No. 139, Russia, 1995 (transaction between a Ukranian seller and an Austrian buyer; buyer may have separate claim for failure of the seller to propose a price during the designated time). 39 CLOUT case No. 53, Hungary, 1992 (transaction between a US seller and a Hungarian buyer). 40 CLOUT case No. 151, France, 1995 (buyer had accepted invoices with higher than market prices). 41 CLOUT case No. 215, Switzerland, 1997 (transaction between a Dutch seller and Swiss buyer; buyer’s subsequent conduct interpreted as establishing buyer’s intent to conclude a contract).

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Art.16

Article 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. 1. Paragraph (1) of article 15 provides that an offer becomes effective when it reaches the offeree. Article 24 defines when a revocation ‘reache’s the offeree. Although paragraph (1) has been cited,1 no reported decision has interpreted it. 2. Paragraph (2) provides that an offeror may withdraw its offer if the withdrawal reaches the offeree before or at the same time as the offer. After the offer reaches the offeree, the offeror may no longer withdraw the offer but may be entitled to revoke the offer in accordance with article 16. There are no reported cases applying paragraph (2).

Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. 1. Paragraph (1) of article 16 sets out rules for the effective revocation of an offer. (Article 24 defines when a revocation ‘reache’s the offeree.) Article 15 (2) provides that an offeror may withdraw an offer as long as the withdrawal 1

OLG M
nchen, Germany, 3 December 1999, Unilex (citing articles 14, 15 (1), 18 & 23);

CLOUT case No. 308, Australia, 1993 (citing articles 8, 11, 15 (1), 18 (1) & 29 (1) when

holding that parties had concluded contract with a retention of title clause). The following decisions cite article 15 but because they do not involve withdrawal of the offer – see para. 2 – the citations effectively refer to paragraph (1) of article 15: CLOUT case No. 318, Germany, 1998 (citing articles 14, 15 & 18 when finding that parties had concluded a contract); LG Oldenburg, Germany, 28 February 1996, Unilex (citing articles 14, 15, 16, 17, 18 & 19); CLOUT case No. 191, Germany, 1995 (citing articles 14, 15, 18 (3), 19 (1) & (3)); LG Krefeld, Germany, 24 November 1992, Unilex (citing articles 15 & 18); CLOUT case No. 318, Germany, 1991 (citing articles 14, 15 & 18).

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reaches the offeree no later than the time the offer reaches the offeree. After the offer has reached the offeree, article 16 (1) empowers the offeror to revoke the offer if the revocation reaches the offeree before he has dispatched an acceptance unless the offer cannot be revoked by virtue of article 16 (2). Although there have been citations to article 16,1 there are no reported cases interpreting paragraph (1). 2. Sub-paragraph (a) of paragraph (2) provides that an offer cannot be revoked if it indicates that it is irrevocable, whether by stating a fixed time for acceptance or otherwise. There are no reported cases applying this subparagraph. 3. Sub-paragraph (b) of paragraph (2) provides that an offer cannot be revoked if the offeree relied on the offer and it was reasonable for him to do so. This sub-paragraph has been cited as evidence of a general principle of estoppel (“venire contra factum proprium”).2 It has also been held that domestic legal rules on promissory estoppel are not preempted except when the Sales Convention provides the equivalent of promissory estoppel, such as it does in sub-paragraph (b).3

Article 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror. 1. Article 17 states that an offer terminates when a rejection reaches the offeror. This is true whether or not the offer is irrevocable. Article 24 defines when a revocation ‘reache’s the offeror. Although article 17 has been cited,1 there are no reported cases interpreting it.

1

The following decision cites article 16 but because the case did not involve irrevocability of the offer – see para. 2 – the citation effectively refers to paragraph (1) of article 16: LG Oldenburg, Germany, 28 February 1996, Unilex (citing articles 14, 15, 16, 17, 18 & 19). 2 CLOUT case No. 94, Arbitration-Austria, 1994 (seller’s continued requests for information about complaints induced buyer to believe that seller would not raise defense that notice of nonconformity was not timely). 3 [Federal] District Court for the Southern District of New York, USA, 10 May 2002, Federal Supplement (2nd Series) 201, 236 (finding limited to scope of promissory estoppel as claimed by buyer). 1 [Germany] Landgericht Oldenburg, 12 O 2943/94 (28 February 1996), Unilex E.19963. 2. 1, published on the internet at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/

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Art.18

Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph. 1. Article 18 is the first of five articles that deal with the acceptance of an offer. Paragraph (1) of article 18 addresses what constitutes the acceptance of an offer, while paragraphs (2) and (3) determine when the acceptance is effective. Article 19 qualifies article 18 by providing rules for when a purported acceptance so modifies an offer that the reply is a counter-offer. 2. Decisions have applied article 18 not only to offers to conclude a contract but also to acceptance of counter-offers,1 proposals to modify the contract2 and proposals to terminate the contract.3 The provisions of

189.htm and http://www.unilex.info/case.cfm?pid=1&do=case&id=256&step=FullText (citing articles 14, 15, 16, 17, 18 & 19). 1 CLOUT case No. 291, Germany, 1995 (delivery of 2,700 pairs of shoes in response to order of 3,400 pairs was a counter-offer accepted by buyer when it took delivery). 2 CLOUT case No. 251, Switzerland, 1998 (no acceptance in communications regarding modification); CLOUT case No. 347, Germany, 1998 (proposal to modify in commercial letter of confirmation not accepted); CLOUT case No. 193, Germany, 1996 (proposal to modify not accepted by silence of addressee); CLOUT case No. 133, Germany, 1995 (proposal to modify time of delivery not accepted); CLOUT case No. 203, France, 1995 (proposal to modify in letter of confirmation not accepted). 3 CLOUT case No. 120, Germany, 1994 (acceptance of proposal to terminate contract); China International Economic and Trade Arbitration Commission, 1 April 1993, Unilex (acceptance of proposal to terminate).

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article 18 have also been applied to matters not covered by the Sales Convention.4

Indication of Assent to an Offer 3. An offeree accepts an offer by a statement or other conduct indicating assent. Whether or not the statement or conduct indicates assent is subject to interpretation in accordance with the rules of paragraphs (1) and (2) of article 8.5 All the circumstances, including negotiations prior to conclusion of the contract and the course of performance after conclusion, are to be taken into account in accordance with paragraph (3) of article 8.6 If a statement or conduct indicating assent to an offer cannot be found there is no contract under Part II.7 4. Only the addressee of a proposal to conclude a contract is entitled to accept the offer.8 5. Whether an offeree’s reply indicating assent to an offer but modifying that offer is an acceptance or a counter-offer is determined by article 19.9 Whether a counter-offer is accepted is then determined by article 18.10

4

CLOUT case No. 308, Australia, 1995 (applying article 18 to determine whether retention of title clause accepted). 5 OLG Frankfurt, Germany, 30 August 2000, Unilex (sending of promissory note interpreted as not an acceptance). 6 See, e. g., Comisin pare la Proteccin del Comercio Exterior de Mxico, Mexico, 29 April 1996, Unilex (alleged seller’s letter in reply to offer, letter of credit naming it as payee, and subsequent conduct of the parties evidenced conclusion of contract); CLOUT case No. 23, USA, 1992 (course of dealing created duty to respond to offer). 7 CLOUT case No. 173, Hungary, 1997 (no clear agreement to extend distribution contract); CLOUT case No. 135, Germany, 1995 (correspondence did not reach agreement on quality of glass ordered). 8 CLOUT case No. 239, Austria, 1997 (remand to determine whether the offer was made to a mercantile agent). 9 CLOUT case No. 242, France, 1998 (reply with different jurisdiction clause a material modification under article 19 and therefore a counter-offer); CLOUT case No. 227, Germany, 1992 (reply with reference to ‘unwrapped’ bacon a counter-offer under article 19 and not acceptance under article 18). 10 CLOUT case No. 232, Germany, 1998 (buyer, by performing contract, accepted seller’s standard terms that modified buyer’s offer); CLOUT case No. 227, Germany, 1992 (buyer accepted counter-offer when its reply did not object to counter-offer).

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Art.18

6. The indication of assent may be in an oral or written statement11 or by conduct.12 Conduct found to indicate assent include: buyer’s acceptance of goods;13 third party’s taking delivery of goods;14 issuance of letter of credit;15 signing invoices to send to financial institution requesting financing of the purchase;16 sending a reference letter to an administrative agency.17

Silence or Inactivity as Assent to an Offer 7. In the absence of other evidence indicating assent to an offer, an offeree’s silence or inactivity on receiving an offer does not amount to an acceptance.18 By virtue of article 9 (1), parties are bound by practices established between themselves and these practices may indicate assent to an offer notwithstanding the silence or inactivity of the addressee.19 Parties are also bound by usages as provided in paragraphs (1) and (2) of article 9 and these usages may give effect to an offer notwithstanding the addressee’s silence or inactivity.20 One court stated that the course of dealing between the parties 11

CLOUT case No. 395, Spain, 2000 (faxed unconditional acceptance); CLOUT case No. 308, Australia, 1995 (statement in offeree’s letter interpreted as an acceptance). 12 OLG Frankfurt, Germany, 30 August 2000, Unilex (sending fax and promissory note could be act indicating acceptance but interpretation of documents showed no such acceptance): CLOUT case No. 291, Germany, 1995 (seller’s delivery of fewer pairs of shoes than ordered was a counter-offer accepted by buyer taking delivery). 13 CLOUT case No. 292, Germany, 1993 (buyer’s acceptance of goods indicated assent to offer, including standard terms in letter of confirmation). 14 CLOUT case No. 193, Switzerland, 1996 (third party taking delivery for third party was act accepting increased quantity of goods sent by seller). 15 CLOUT case No. 417, USA, 1999 (pleading stated cause of action by alleging facts showing parties concluded contract of sale). 16 C mara Nacional de Apelaciones en lo Comercial, Argentina, 14 October 1993, Unilex. 17 [Federal] Southern District Court of New York, USA, 10 May 2002, Federal Supplement (2nd Series) 201, 236 ff. 18 CLOUT case No. 309, Denmark, 1998 (parties had no prior dealings); CLOUT case No. 224, France, 1998 (without citation of the Sales Convention, court of cassation finds that court of appeal did not ignore rule that silence does not amount to an acceptance); CLOUT case No. 193, Switzerland, 1996 (no acceptance where addressee silent and no other evidence of assent). 19 CLOUT case No. 313, France, 1999 (in prior transactions seller had filled buyer’s without notifying the buyer); CLOUT case No. 23, USA, 1992 (course of dealing created duty to respond to offer). 20 Gerechtshof’s Hertogenbosch, Netherlands, 24 April 1996, Unilex; CLOUT case No. 347, Germany, 1998 (buyer who sent commercial letter of confirmation did not establish existence of international usage by which silence constitutes assent). See also Opinion of Advocate

591

Art.18

Draft Digest

created a duty on a party to object promptly to an offer and the party’s delay in objecting constituted acceptance of the offer.21 A buyer’s failure to exercise any remedy under the Convention in response to the seller’s proposal to examine the delivered goods and to resell them was construed as acceptance of an offer to terminate the contract.22

Effectiveness – time Limits for Acceptance 8. Paragraph (2) of article 18 provides that, except in the circumstances set out in paragraph (3), an acceptance becomes effective at the moment it reaches the offeror if it does so within the time limit for acceptance. The acceptance ‘reache’s the offeror when article 24 is satisfied. By virtue of article 23 a contract is concluded when the acceptance becomes effective.23 9. To be effective, however, the acceptance must reach the offeror within the time limits set by paragraph (2) of article 18 as modified by article 21 on late acceptance. Article 20 provides rules of interpretation for determining the time limits. An offer cannot be accepted after the time limit expires unless the offeror informs the offeree without delay that the acceptance is effective.24

Effectiveness by Performance of Act 10. An acceptance is effective at the moment the offeree performs an act when the offeree is authorized to indicate its acceptance of the offer by an act by virtue of the offer or as a result of practices which the parties have established between themselves or of usage. Several decisions have cited paragraph (3) rather than paragraph (1) for the proposition that a contract may be concluded by the performance of an act by the offeree.25 General Tesauro, EC Reports, 1997, I-911 ff. (commercial letter of confirmation enforceable notwithstanding recipient’s silence if international usage established). 21 CLOUT case No. 23, United States, 1993. See also CLOUT case No. 313, France, 1999 (seller with manufacturing samples and original material in its possession should have questioned buyer about absence of order from buyer). 22 CLOUT case No. 120, Germany, 1994. 23 CLOUT case No. 203, France, 1995 (contract concluded before receipt of letter of confirmation so no acceptance of the standard terms referred to in letter). 24 ICC Court of Arbitration, award No. 7844/1994, 1994, The ICC International Court of Arbitration Bulletin (Nov. 1995) 72-73. 25 CLOUT case No. 416, USA, 1997 (if Convention applicable, party accepted by performance under article 18 (3)); CLOUT case No. 193, Germany, 1996 (third party taking

592

Draft Digest

Art.19

Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. 1. Article 19 qualifies article 18 by providing that a purported acceptance which modifies the offer is a rejection of the offer and is considered instead to be a counter-offer.1 Paragraph (1) of article 19 states this basic proposition, while paragraph (2) makes an exception for immaterial modifications to which the offeror does not object. Paragraph (3) lists matters which are considered material.

Material Modifications 2. Paragraph (1) provides that a reply to an offer that adds to, limits or otherwise modifies the offer is a rejection of the offer. Several decisions have reviewed the partie’s exchange of multiple communications and have concluded, without specifying the modifications, that at no point was there an acceptance of an offer.2

delivery of greater number of goods than contracted for an acceptance under article 18 (3), but not acceptance of seller’s proposal to modify price); CLOUT case No. 291, Germany, 1995 (delivery of goods an acceptance under article 18 (3) but because amount differed materially from order the acceptance is a counter-offer under article 19). 1 But see CLOUT case No. 189, Austria, 1997 (the reply must satisfy the definiteness requirements of article 14 (1) in order to be a counter-offer). 2 See, e. g., CLOUT case No. 251, Switzerland, 1998 (no agreement on termination of contract); CLOUT case No. 173, Hungary, 1997 (no clear agreement to extend distribution contract).

593

Art.19

Draft Digest

3. Paragraph (3) lists matters as to which modifications are to be considered material. Modifications of the following listed matters have been found to be material: price;3 payment;4 quality and quantity of the goods;5 place and time of delivery;6 settlement of disputes.7 However, notwithstanding paragraph (3) one decision has stated that modifications of matters listed in that paragraph are not material if the modifications are not considered material by the parties or in the light of usages.8

Immaterial Modifications 4. Paragraph (2) provides that a reply with immaterial modifications of the offer constitutes an acceptance unless the offeror notifies the offeree without undue delay that the offeror objects to the modifications.9 One court has stated that modifications that favour the addressee are not material and do not have to be accepted expressly by the other party.10 5. The following modifications have been found to be immaterial: a reply that modified an offer by stating that the price would be modified by increases as well as decreases in the market price and deferring delivery of one item;11 seller’s standard term reserving the right to change the date of delivery;12 a request that buyer draft formal termination agreement;13 a request to treat the contract confidential until the parties make a joint public 3

Oberster Gerichtshof, Austria, 9 March 2000, Unilex; CLOUT case No. 417, USA, 1999;

CLOUT case No. 193, Switzerland, 1996. 4

CLOUT case No. 176, Austria, 1996 (time of payment).

5

CLOUT case No. 291, Germany, 1995 (delivery of fewer pairs of shoes than ordered);

CLOUT case No. 135, Germany, 1995 (difference in quality of glass test tubes); CLOUT case

No. 121, Germany, 1994 (acceptance ordering additional kinds of screws); CLOUT case No. 227, Germany, 1992 (acceptance offering to sell ‘unwrapped’ bacon rather than bacon). 6 CLOUT case No. 413, USA, 1998 (delivery terms); CLOUT case No. 133, Germany, 1995 (time of delivery). 7 CLOUT case No. 242, France, 1998 (differing choice-of-forum clause); CLOUT case No. 23, USA, 1992 (inclusion of arbitration clause). 8 CLOUT case No. 189, Austria, 1997. 9 Tribunal commercial de Nivelles, Belgium, 19 September 1995, Unilex. 10 CLOUT case No. 189, Austria, 1997. 11 CLOUT case No. 158, France, 1992, affirmed, CLOUT case No. 155, France, 1995 (affirming with no specific reference to the Convention). 12 CLOUT case No. 362, Germany, 1999 (delivery clause interpreted in accordance with article 33 (c)). 13 China International Economic and Trade Arbitration Commission, award No. 75, 1 April 1993, Unilex.

594

Draft Digest

Art.19

announcement;14 requirement that buyer must reject goods delivered within stated period15

Conflicting Standard Terms 6. The Convention does not have special rules to address the issues raised when a potential seller and buyer each uses standard contract terms prepared in advance for general and repeated use (the so-called ‘battle of the form’s). Several decisions conclude that the partie’s performance notwithstanding partial contradiction between their standard terms established enforceable contracts.16 As for the terms of these contracts, several decisions would include those terms on which the parties substantially agreed and replace with the default rules of the Convention those standard terms that, after appraisal of all the terms, conflict,17 while several other decisions give effect to the standard terms of the last person to make an offer accepted by subsequent performance of the other party.18 Another decision refused to give effect to either set of standard terms: the seller was not bound by the buyer’s terms on the back of the order form in the absence of a reference to them on the front of the form, while the seller’s terms were in a confirmation letter sent after the contract was concluded and the buyer did not accept them by its silence.19

14

Fov rosi Birs g (Metropolitan Court) Budapest, Hungary, 10 January 1992, Englishlanguage trans. available on the Internet at http://cisgw3.law.pace.edu/cases/920110h1.html, reversed on other grounds, CLOUT case No. 53, Hungary, 1992. 15 CLOUT case No. 50, Germany, 1991. 16 Bundesgerichtshof, Germany, 9 January 2002, available on the Internet at http://www.rwsverlag.de/bgh-free/volltex5/vo82717.htm; LG Kehl, Germany, 6 October 1995, Unilex (partie’s performance established that parties either derogated from article 19 or waived enforcement of conflicting standard terms); CLOUT case No. 232, Germany, 1998 (buyer accepted standard terms that differed from its offer by performing contract). 17 Bundesgerichtshof, Germany, 9 January 2002, available on the Internet at http://www.rwsverlag.de/bgh-free/volltex5/vo82717.htm; LG Kehl, Germany, 6 October 1995, Unilex (enforcing only standard terms in common). 18 CLOUT case No. 232, Germany, 1998 (by performing buyer accepted standard terms that differed from its offer); ICC Court of Arbitration award No. 8611/1997, 1997, Unilex (if standard terms considered counter-offer recipient accepted by taking delivery of goods with invoice to which standard terms are attached). See also Hof’s Hertogenbosch, Netherlands, 19 November 1996 (seller’s acceptance stated that its standard terms applied only to extent they did not conflict with buyer’s standard terms). 19 CLOUT case No. 203, France, 1995.

595

Art. 20

Draft Digest

Article 20 (1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree. (2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows. 1. Article 20 sets out rules for determining the calculation of the time period for communications to reach the other party. 2. Paragraph (1) provides for when the time period begins to run. The paragraph distinguishes between communications at a distance (sentence 1) and instantaneous communications (sentence 2). There are no reported cases applying this paragraph. 3. Paragraph (2) addresses the effect of official holidays and non-business days on the calculation of the time period. There are no reported cases applying this paragraph.

Article 21 (1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect. (2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect. 1. Article 21 provides that a late acceptance is nevertheless effective if the conditions set out in paragraphs (1) or (2) are satisfied. Article 18(2) requires that an acceptance reach the offeror within the time period calculated as

596

Draft Digest

Art. 23

provided by that paragraph and article 20. Article 24 defines when a revocation ‘reache’s the offeree. 2. Paragraph (1) provides that a late acceptance is effective if an offeror notifies the offeree without delay that the acceptance is effective.1 3. Paragraph (2) provides that a communication that would normally have reached the offeror within the time period fixed for acceptance is effective notwithstanding that it reaches the offeror after that period expires unless the offeror notifies the offeree without delay that he considers the offer to have lapsed. There are no reported cases applying paragraph (2).

Article 22 An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. 1. Article 22 provides that an offeree may withdraw its acceptance if the withdrawal reaches the offeror before or at the same time as the acceptance becomes effective. An acceptance is effective at the moment it reaches the offeror in accordance with article 18 (2). Article 24 defines when a withdrawal ‘reache’s the offeror. There are no reported cases applying this article.

Article 23 A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. 1. Article 23 provides that a contract is concluded when an acceptance of an offer becomes effective. Except as provided in article 18 (3), an acceptance is effective at the moment it reaches the offeror in accordance with article 18 (2). The exception in article 18 (3) provides that an acceptance is effective at the moment the offeree performs an act if, by virtue of the offer or as a result of practices which the parties have established between themselves or 1

ICC Court of Arbitration award No. 7844/1994, 1994, The ICC International Court of Arbitration Bulletin (Nov. 1995) 72-73 (reference to Austrian law and Convention for proposition that a late acceptance would not be effective unless the offeror notified offeree without delay that the acceptance is effective).

597

Art. 24

Draft Digest

of usage, the offeree is authorized to indicate its acceptance of the offer by an act. 2. A contract is concluded when communications between the parties, as interpreted in accordance with article 8, establish that an acceptance of an offer reaches the offeror.1 One decision concluded that an offer conditioned on the approval of the partie’s respective Governments, when properly interpreted, did not postpone conclusion of the contract under the Convention2 Another decision found that a supplier and a potential subcontractor had agreed to condition the conclusion of the sales contract on the award of a sub-contract by the main contractor.3 3. Once a contract is concluded, subsequent communications may be construed as proposals to modify the contract. Several courts subject these proposals to the Convention’s rules on offer and acceptance.4 4. Article 23 does not address where a contract is concluded. One court deduced from article 23 that the contract was concluded at the place of business where the acceptance reached the offeror.5

Article 24 For the purposes of the Part of the Convention, an offer, declaration of acceptance or any other indication of intention “reaches” the addressee when 1 Comisin pare la Proteccin del Comercio Exterior de Mxico, Mexico, 29 April 1996, Unilex (contract concluded when acceptance reached buyer); CLOUT case No. 134, Germany, 1995 (although Part II not applicable because of article 92 declaration, court finds contract concluded by intention of the parties); CLOUT case No. 158, France, 1992 (contract concluded when acceptance reached offeror); CLOUT case No. 5, Germany, 1990 (exchange of communications, interpreted in accordance with article 8, established partie’s intent to conclude contract). 2 Fov rosi Birs g (Metropolitan Court) Budapest, Hungary, 10 January 1992, Englishlanguage trans. available on the Internet at http://cisgw3.law.pace.edu/cases/920110h1.html, reversed on other grounds, CLOUT case No. 53, Hungary, 1992. 3 ICC Court of Arbitration award No. 7844/1994, 1994. 4 CLOUT case No. 395, Spain, 2000 (proposal to modify price not accepted); CLOUT case No. 193, Switzerland, 1996 (proposal to modify price not accepted by silence, citing article 18 (1)); CLOUT case No. 203, France, 1995 (confirmation letter sent after contract concluded not accepted). 5 CLOUT case No. 308, Australia, 1995 (German law applied because acceptance reached offeror at its place of business in Germany).

598

Draft Digest

Art. 24

it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence. 1. Article 24 defines, for the purposes of Part II on the formation of the contract, when a communication reaches the other party. The Convention refers to when a communication ‘reache’s the other party in articles 15 (1) (offer), 15 (2) (withdrawal of offer), 16 (1) (revocation of acceptance), 17 (rejection), 18 (2) (acceptance), 20 (1) (commencement of time period when instantaneous communication), 21 (2) (late acceptance when would have arrived in normal time), and 23 (conclusion of contract). 2. Article 24 applies only to communications made before or at the time the contract is concluded. For communications after the contract is concluded, article 27 provides that the addressee bears the risk of non-receipt or of delay or error.1 3. An oral communication reaches the addressee when it is made to him. There are no reported cases applying this provision. 4. Any other communication reaches the addressee when it is delivered to the addressee personally or delivered to his business or mailing address. If the addressee does not have a place of business or mailing address, the communication is to be delivered to his habitual residence. A communication delivered to the relevant address is effective even if the addressee has changed its address.2 4. Article 24 does not expressly mention whether a communication in a language that the addressee is unable to understand ‘reache’s the addressee. In accordance with paragraphs (1) and (2) of article 8 a communication is to be interpreted in accordance with the common understanding of the parties or with the understanding of a reasonable person of the same kind as the other party would have had in the same circumstances. One court has stated that, in accordance with article 8, a communication does not ‘reach’ the addressee unless the language of the communication was agreed to by the parties, used by the parties in their prior dealings, or customary in the trade.3 1 But see Arrondissementsrechtbank Amsterdam, Netherlands, 5 October 1994, Unilex (applying article 24 to seller’s letter in response to buyer’s letter explaining reason for partial rejection of the goods). 2 Arrondissementsrechtbank Amsterdam, Netherlands, 5 October 1994, Unilex (seller’s letter in response to buyer’s letter explaining reason for partial rejection of the goods ‘reached’ the buyer even though buyer did not receive it because of change of address). 3 CLOUT case No. 132, Germany, 1995 (discussion of ‘language risk’ in light of article 8).

599

Art. 25

Draft Digest

Several other courts have given no effect to standard terms when they were not translated into the language of the other party.4

Part III Sale of Goods Chapter I General Provisions Article 25 A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

Purpose of the Provision 1. Article 25 defines the notion of fundamental breach as used in various provisions of the Convention. A fundamental breach in this specific sense is a prerequisite for certain remedies under the Convention, such as the party’s right to terminate the contract (artt. 49 par. 1(a) and 64 par. 1(a); but see also arts. 51 par. 2, 72 par. 1, 73 par. 1 and 2), the right to require delivery of substitute goods presupposes a fundamental breach (art. 46 par. 2). A fundamental breach also has some bearing under the risk provisions of the Convention (art. 70). In general article 25 defines the boarder line between the ‘normal’ remedies for breach of contract – like damages and price reduction – and incisive remedies like termination and specific performance.

4

CLOUT case No. 345, Germany, 1997 (standard terms in German language only sent by a German seller to an Italian buyer); Amtsgericht Kehl, Germany, 6 October 1995, Unilex (standard terms in German language only sent by a German buyer to an Italian seller).

600

Art. 25

Draft Digest

Several other courts have given no effect to standard terms when they were not translated into the language of the other party.4

Part III Sale of Goods Chapter I General Provisions Article 25 A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

Purpose of the Provision 1. Article 25 defines the notion of fundamental breach as used in various provisions of the Convention. A fundamental breach in this specific sense is a prerequisite for certain remedies under the Convention, such as the party’s right to terminate the contract (artt. 49 par. 1(a) and 64 par. 1(a); but see also arts. 51 par. 2, 72 par. 1, 73 par. 1 and 2), the right to require delivery of substitute goods presupposes a fundamental breach (art. 46 par. 2). A fundamental breach also has some bearing under the risk provisions of the Convention (art. 70). In general article 25 defines the boarder line between the ‘normal’ remedies for breach of contract – like damages and price reduction – and incisive remedies like termination and specific performance.

4

CLOUT case No. 345, Germany, 1997 (standard terms in German language only sent by a German seller to an Italian buyer); Amtsgericht Kehl, Germany, 6 October 1995, Unilex (standard terms in German language only sent by a German buyer to an Italian seller).

600

Draft Digest

Art. 25

Definition of Fundamental Breach 2. A fundamental breach requires first, that one party has committed a breach of contract. The breach of any obligation under the contract suffices irrespective whether the duty had been specifically contracted for or followed from the provisions of the Convention. Even the breach of any collateral duty can amount to a fundamental breach. Therefore, e. g., a manufacturer’s duty to deliver goods under a certain trademark exclusively to the buyer has been held to have been fundamentally violated when the manufacturer displayed those goods at a fair for sale and kept them there despite a warning by the buyer.1 3. In order to rank as fundamental a breach must be of a certain nature and weight. It is required that the aggrieved party suffered such detriment as substantially to deprive it of what it was entitled to expect under the contract. The breach must therefore nullify or essentially depreciate the aggrieved party’s justified contract expectations. What expectations are justified depends on the specific contract and the risk allocation envisaged by the contract provisions, on eventual usages and on the additional provisions of the Convention. Buyers can, for example, normally not expect that delivered goods comply with regulations and official standards in the buyer’s country.2 Therefore, e. g., the delivery of cadmium-contaminated mussels has not been regarded as a fundamental breach since the buyer could not have expected that the seller met the contamination-standards in the buyer’s country and since the consumption of the mussels in small portions as such did not endanger a consumer’s health.3 4. It is further required that the violating party must have foreseen the result of the breach of the contract. However, the provision does not mention at which time forseeability must be given. One court has decided that the time of conclusion of contract is the relevant time.4

1

CLOUT case No. 2, Germany, 1991; see also CLOUT case No. 217, Switzerland, 1997.

2

CLOUT case No. 123, Germany, 1995; in the same sense and relying on the precited decision, see CLOUT case No. 418, United States, 1999; Oberster Gerichtshof, Austria, 13 April 2000, Internationales Handelsrecht 2001, 117. 3 CLOUT case No. 123, Germany, 1995. 4 CLOUT case No. 275, Germany, 1997.

601

Art. 25

Draft Digest

Specific Situations of Fundamental Breach 5. There exist typical case situations for which it has already been decided whether or not a breach qualifies as fundamental. It has been held on various occasions that final non-performance of a party’s contractual duty constitutes a fundamental breach of contract unless the party has a justifying reason to withhold its performance. This has been decided in the case of final non-delivery5 as well as in the case of final non-payment.6 However, if only a minor part of the contract is finally not performed, e. g., one of several deliveries not supplied this remains a simple, non-fundamental breach of contract.7 On the other hand the serious, final and unjustified announcement not to fulfil one’s own contractual obligations is a fundamental breach.8 Likewise, the insolvency and placement of the buyer under administration has been held to constitute a fundamental breach under article 64 (or probably under article 72) since it deprives the unpaid seller of what it was entitled to expect under the contract, namely payment of the full price.9 It has been also held that non-delivery of the first instalment in an instalment sale gives the buyer reason to believe that further instalments will not be delivered and therefore a fundamental breach of contract was to be expected (article 73 par. 2).10 6. As a rule late performance – be it late delivery of the goods or late payment of the price – does not constitute in itself fundamental breach of contract.11 Only when the time for performance is of essential importance either if it is so contracted12 or if it is due to evident circumstances (e. g., seasonal goods)13 then delay as such can amount to a fundamental breach.14 5

CLOUT case No. 90, Italy, 1989 (only partial and very late delivery); CLOUT case No. 136, Germany, 1995. 6 CLOUT case No. 130, Germany, 1994. 7 CLOUT case No. 275, Germany, 1997. 8 See CLOUT case No. 136, Germany, 1996. In that case the seller had given notice that he had sold the specified good to another buyer. See also Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, Russia, 4 April 1998, award No. 387/1995, Unilex (final refusal to pay the price). 9 CLOUT case No. 308, Australia, 1995. 10 CLOUT case No. 214, Switzerland, 1997. 11 Corte d’Appello di Milano, Italy, 20 March 1998, Unilex (late delivery); CLOUT case No. 275, Germany, 1997 (late delivery); CLOUT case No. 301, Arbitration, 1992 (late payment). 12 CLOUT case No, 277, Germany, 1997 (the late delivery under a CIF sale was held to be a fundamental breach of contract). 13 Corte d’Appello di Milano, Italy, 20 March 1998, Unilex (in that case the buyer had

602

Draft Digest

Art. 25

But even if there is no fundamental breach, the Convention allows the aggrieved party to fix an additional period of time after the unsuccessful lapse of which this party may declare the contract avoided (articles 49 par. 1(b) and 64 par. 1(b)).15 Therefore in case of a delay in the performance, but only in that case, the lapse of that additional period turns a non-fundamental breach into a fundamental one. 7. If defective goods are delivered, the buyer can terminate the contract when the non-conformity of the goods is to be regarded as a fundamental breach (article 49 par. 1 (a)). It becomes therefore essential to know under what conditions delivery of non-conforming goods constitutes a fundamental breach of contract. Court decisions on this point have held that any non-conformity concerning quality remains a mere, non-fundamental breach of contract as long as the buyer – without unreasonable inconvenience – can use the goods or resell them even with a rebate.16 Thus, e. g., the delivery of frozen meat which was too fat and too wet and therefore according to an expert opinion worth 25.5% less than meat of the contracted quality was not regarded as a fundamental breach of contract since the buyer had the opportunity to resell the meat at a lower price or to process it otherwise.17 On the contrary, if the non-conforming goods cannot be used or resold with reasonable effort this constitutes a fundamental breach and entitles the buyer to declare the contract avoided.18 This has been held to be the case as well where the goods suffered from a serious and unreparable defect although they were still useable to some extent (e. g. flowers which were supposed to flourish the whole summer but did so only for part of it).19 A fundamental breach also has been accepted without any reference to alternative possibilities of the buyer to use the goods otherwise or to resell them when the goods had major defects and the buyer needed the goods for manufacture.20 The same solution had been reached where the non-conordered seasonal knitted goods and pointed to the essential importance of delivery at the fixed date although only after conclusion of the contract); ICC International Court of Arbitration, France, award No. 8786, January 1997, ICC International Court of Arbitration Bulletin 2000, 70. 14 CLOUT case No. 275, Germany, 1997: late delivery constitutes a fundamental breach when the buyer would prefer non-delivery instead and the seller could have been aware of this. 15 See, e. g. CLOUT case No. 301, Arbitration, 1992. 16 CLOUT case No. 171, Germany, 1996; CLOUT case No. 248, Switzerland, 1998. 17 CLOUT case No. 248, Switzerland, 1998. 18 CLOUT case No. 150, France, 1996 (artificially sugared wine); CLOUT case No. 79, Germany, 1994 (shoes with fissures in leather); Landgericht Landshut, Germany, 5 April 1995, Unilex (T-shirts which shrink by two sizes after first washing). 19 CLOUT case No. 107, Austria, 1994. 20 See CLOUT case No. 138, Unites States, 1995 (lower cooling capacity and higher power consumption than contracted of compressors delivered for the manufacture of air condi-

603

Art. 25

Draft Digest

formity of the goods resulted from added substances the addition of which was illegal both in the country of the seller and the buyer.21 8. Special problems arise when the goods are defective but reparable. Some courts have held that easy reparability excludes any fundamentality of the breach.22 At least when the seller offers and effects speedy repair without any inconvenience to the buyer courts deny a fundamental breach.23 9. The violation of contractual obligations other than the aforementioned obligations can also amount to a fundamental breach. It is, however, necessary that the breach deprives the aggrieved party of the main benefit of the contract and that this result could have been foreseen by the other party. Thus, a court stated that there is no fundamental breach in case of delivery of the wrong certificates pertaining to the goods if either the goods were nevertheless merchantable or if the buyer itself could – at seller’s expense – easily get the correct certificates.24 The unjustified denial of contract rights of the other party – e. g. the validity of a retention of title clause and the seller’s right to possession of the goods25 or the unjustified denial of a valid contract after having taken possession of the goods26 – can amount to a fundamental breach of contract. The same is true when resale restrictions have been substantially violated.27 10. A special case is the delayed acceptance of the goods. A delay in accepting the goods will generally not constitute a fundamental breach all the more so when the delay extends over few days only.28 11. The cumulated violation of several contractual obligations makes a fundamental breach more probable but does not automatically constitute a tioners); CLOUT case No. 150, France, 1996 (artificially sugared wine); CLOUT case No. 315, France, 1999 (metal sheets absolutely unfit for the foreseen kind of manufacture by the buyer’s subbuyer). 21 Compare CLOUT case No. 150, France, 1996 (artificially sugared wine which is forbidden under EU-law and national laws); CLOUT case No. 170, Germany, 1995 (also artificially sugared wine). 22 Handelsgericht des Kantons Z
rich, Switzerland, 26 April 1995, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 1996, 51 (obiter). 23 CLOUT case No. 152, France, 1995; CLOUT case No. 282, Germany, 1997. 24 CLOUT case No. 171, Germany, 1996. 25 CLOUT case No. 308, Australia, 1995. 26 CLOUT case No. 313, France, 1999. 27 CLOUT case No. 2, Germany, 1991; CLOUT case No. 154, France, 1995; CLOUT case No. 282, Germany, 1997; CLOUT case No. 217, Switzerland, 1997. 28 CLOUT case No. 243, France, 1999.

604

Draft Digest

Art. 26

fundamental breach.29 Whether a fundamental breach exists depends on the circumstances of the case as well as on whether the breach resulted in the aggrieved party losing the main benefit of, and the interest in, the contract.30

Burden of Proof 12. Article 25 regulates also to some extent the burden of proof. As far as foreseeability is concerned the burden lies on the party in breach.31 This party has to prove that it did not foresee the detrimental effect of its breach and that a reasonable person of the same kind in the same circumstances would not have foreseen such an effect. The aggrieved party on the other hand has to prove that the breach deprived it substantially of what it was entitled to expect under the contract.32

Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other party.

Purpose of the Provision 1. The article provides that any avoidance must be declared by the party who intends to terminate the contract and that the declaration must be effected by notice to the other party. The CISG does not acknowledge an automatic termination of contract..1 2. The purpose of the notice requirement is to ensure that the other party becomes aware of the the fate of the contract.

29

CLOUT case No. 171, Germany, 1996.

30

Id. Id. 32 Id. 1 See also CLOUT case No. 176, Austria, 1996; CLOUT case No. 294, Germany, 1999; ICC Court of Arbitration, France, award No. 9887, ICC International Court of Arbitration Bulletin 2000, 109. 31

605

Art. 26

Draft Digest

Form of Notice 3. The notice need not be given in a particular form (see also art. 11). It therefore can be made in writing or even orally.2 Also, a notice in the statement of claim filed with the court suffices.3 4. Article 26 does not mention the possibility of an implicit notice. Several courts had to deal with this issue. One court held that the mere purchase by the buyer of substitute goods does not constitute a valid (implicit) notice of declaration of avoidance;4 another court decided that the fact that the buyer sends back the delivered goods without further explanation does not amount to a valid notice of.5

Contents of Notice 5. The notice must express with sufficient clarity that the party will not be bound by the contract any longer and considers the contract terminated.6 Therefore, any announcement that the contract will be terminated in future if the other party does not react7 or a letter demanding either price reduction or taking the delivered goods back8 or the mere sending back of the goods9 does not constitute a valid notice because it does not state in unequivocal terms that the party wanting to terminate the contract believes that the contract is terminated. The same is true if a party requests damages.10 However, the term “(declaration of) avoidance” need not be used nor need the relevant provision of the Convention be cited.11 The use similar terms is sufficient. Thus, one court held that the buyer effectively gave notice by declaring that it could not use the defective goods and that it placed them at the disposal of the seller.12 The same has been ruled with respect to a letter in which the buyer stated that no further business with the seller would be 2

CLOUT case No. 176, Austria, 1996.

3

CLOUT case No. 308, Australia, 1995.

4

CLOUT case No. 294, Germany, 1999.

5

CLOUT case No. 6, Germany, 1991.

6

Id. Landgericht Zweibr
cken, Germany, 14 October 1992, Unilex. 8 Oberlandesgericht M
nchen, Germany, 2 March 1994, Recht der Internationalen Wirtschaft 1994, 515. 9 See the decision cited in n. 5. 10 CLOUT case No. 176, Austria, 1996. 11 CLOUT case No. 6, Germany, 1991. 12 CLOUT case No. 235, Germany, 1997. 7

606

Draft Digest

Art. 27

conducted.13 Notice of non-conformity of the goods and notice of avoidance can be combined and expressed in one declaration.14

Addressee of the Notice 6. The notice must be directed to the other party, normally the other party to the original contract or its authorised agent. If the contractual rights have been assigned to a third party the declaration must be addressed to this new party.15

Communication of Notice 7. Generally notice of avoidance need not be given within a specified time. Articles 49 par. 2 and 64 par. 2, however, prescribe that notice must be communicated within a reasonable time. Concerning article 49 it has been held that notice after several months is clearly not reasonable.16 To meet any time limit dispatch of the notice within the period is sufficient (see article 27).

Article 27 Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.

Meaning and Purpose of the Provision 1. Article 27 states that in general the dispatch principle applies to all kinds of communications provided for in Part III of the Convention (articles 2589). Under this principle the declaring party has only to dispatch its communication by using an appropriate means of communication; the 13

CLOUT case No. 293, Arbitration, 1998.

14

CLOUT case No. 235, Germany, 1997.

15

CLOUT case No. 6, Germany, 1991.

16

See CLOUT case No. 124, Germany, 1995 (notice after 5 months: too late); CLOUT case No. 84, Germany, 1994 (2 months: too late); CLOUT case No. 83, Germany, 1994 (4 months: too late); CLOUT case No. 6, Germany, 1991 (1 day: in time).

607

Art. 27

Draft Digest

addressee then bears the risk of correct and complete transmission of the communication.1

The Dispatch Principle 2. The dispatch principle is the general principle of the Convention concerning communications after the parties have concluded their contract. According to the principle a notice, request or other communication becomes effective as soon as the declaring party releases it from its own sphere by an appropriate means of communication. This rule applies to the notice of non-conformity or of third-party claims (articles 39, 43), to requests of specific performance (article 46), price reduction (art. 50), damages (article 45 par. 1 (b)) or interest (article 78), to the declaration of avoidance (article 49, 64, 72, 73), to the fixing of an additional period for performance (articles 47, 63) and other notices as in articles 32 par. 1, 67 par. 2 or 88. As a general principle for Part III of the Convention, the dispatch principle applies as well to any other communication the parties may have provided for in their contract unless they have agreed that the communication has to be received to be effective.2 3. Some provisions of Part III of the Convention, however, expressly prescribe that the respective communication becomes only effective when the addressee “receives” it (see articles 47 par. 2, 48 par. 4, 63 par. 2, 65 par. 1 and 2, 79 par. 4). To these communications article 24 applies.

Appropriate Means of Communication 4. The declaring party must use appropriate means for its communication. In one case a court stated that giving notice to a self-employed broker that did not act as a commercial agent for the seller was not appropriate. In order for that notice to be considered as having been given by means appropriate in the circumstances the buyer had to assure itself about the reliability of the self-employed broker. The buyer had to indicate to the broker its function as

1 2

CLOUT case No. 305, Austria, 1998.

Landgericht Stuttgart, Germany, 13 August 1991, Unilex (according to the contract the notice of non-conformity had to be by registered letter. The court held that that meant that the notice had to be received by the other party. Moreover, the declaring party had also to prove that the notice had been received by the other party). See also CLOUT case No. 305, Austria, 1998.

608

Draft Digest

Art. 27

a messenger and the importance of the notice and had to control the performance of the commission.3 5. Article 27 does not explicitly deal with the language of the communication. But in order to be effective the communication must be either in the language the parties have explicitly chosen or used among them before or in a language the receiving party does understand or has communicated to understand.4 6. It has been held that article 27 does not refer to oral communications.5 As far as those communications are concerned, one court stated that they are effective if the other party can hear them and – as the language is concerned – can understand them.6

Effect of Appropriate and Inappropriate Communications 7. Where the declaring party uses an inappropriate way of transmission the communication remains is generally considered as not being effective. Therefore, e. g., the buyer looses its remedies for non-conformity of the delivered goods when transmitting the notice of non-conformity to the wrong person.7

Burden of Proof 8. It has been held that the declaring party must prove that the communication was dispatched as well as when and in which way it was dispatched.8 If the parties have agreed on a specific form of communication the declaring party must also prove that it used the agreed form.9 The declaring party need, however, not prove that the communication reached the addressee.10

3

CLOUT case No. 409, Germany, 1996.

4

CLOUT case No. 132, Germany, 1995; Amtsgericht Kehl, Germany, 6 October 1995, Unilex; CLOUT case No. 409, Germany, 1996. 5 CLOUT case No. 305, Austria, 1998. 6 Id. 7 See also CLOUT case No. 409, Germany, 1996. 8 CLOUT case No. 305, Austria, 1998; Landgericht Stuttgart, Germany, 13 August 1991, Unilex; CLOUT case No. 362, Germany, 1999. 9 Landgericht Stuttgart, Germany, 13 August 1991, Unilex. 10 CLOUT case No. 362, Germany, 1999.

609

Art. 28

Draft Digest

Article 28 If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.

Meaning and Purpose of the Provision 1. The article constitutes a compromise between legal systems that deal differently with the contractual right of a party to claim specific performance of the contract. According to article 28, where under national law in a similar case no specific performance would be granted, a court is allowed not to grant specific performance. 2. By specific performance it is meant that a party may require (and enforce it through court action) that the other party performs its promised obligation in kind; for example, the buyer may require that the seller delivers such quantity and quality of steel as contracted.1 3. There is little case law on this provision; only one case has been reported thus far.2 In that case, a court stated that that where the Convention entitles a party to claim specific performance article 28 allows the seized court to look to the availability of such relief under its own substantive law in a like case.3 If the national law would equally grant specific performance in the case at hand no conflict with the Convention and no problem arises.4 If the national law would, however, dissallow specific performance the alternative relief – regularly damages – had to be granted. Article 28 does not compel the seized court to adopt the solution of its national law (“is not bound”).

Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties. 1

Id. Apparently the only case is CLOUT case No. 417, United States, 1999. 3 CLOUT case No. 417, United States, 1999: “Simply put, that (sc. Art 28) looks to the availability of such relief under the UCC”. 4 That was the outcome in CLOUT case No. 417, United States, 1999. 2

610

Draft Digest

Art. 29

(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

Meaning and Purpose of the Provision 1. The provision concerns the modification (which includes additions)1 and termination of an already concluded contract through agreement of the parties. According to article 29(1), the mere consent of the parties is sufficient to effect any variation of the contract. If the parties have, however, agreed in writing on a written form for a modification or termination of their contract par. 2 of the provision rules that the contract then cannot be modified or terminated otherwise unless and to the extent that it would be inequitable to invoke the form requirement. 2. The provision does, and is intended to,2 abolish the doctrine of “consideration” of the common law as far as the Convention applies.

Modification or Termination by Mere Agreement 3. An agreement is needed in order for the parties to be able to change a contract provision or to terminate their contract. If such an agreement exists, is to be determined on the basis of the provisions to be found in Part II (articles 14-24) of the Convention.3 Therefore, in line with article 18(1), it was stated that mere silence of one party to modifying proposals of the other does not in itself amount to acceptance.4 However found that, on the basis of article 29, a contract could be modified purely by agreement of the parties. However, it also found that the modification of the purchase price could not, as in the case in point, result from the general mood of a meeting, it has also been stated that there was agreement as to the termination of a contract where a buyer refused to pay due to alleged non-conformity and subsequently the seller offered to market the goods itself, offer to which the buyer did not reply.5 One court stated that, although on the basis of article 29 a contract 1

See, although only obiter, CLOUT case No. 86, United States, 1994. See Secretariat Commentary to (then) art. 27 nos.2 and 3 (“overcoming the common law rule that “consideration” is required”). 3 CLOUT case No. 120, Germany, 1994; to the same effect see CLOUT case No. 153, France, 1995, and CLOUT case No. 332, Switzerland, 1999. 4 CLOUT case No. 120, Germany, 1994; CLOUT case No. 332, Switzerland, 1999. 5 CLOUT case No. 120, Germany, 1994. 2

611

Art. 29

Draft Digest

could be modified purely by agreement of the parties, the modification of the purchase price could not result merely from the general mood of a meeting.6 The uncommented acceptance of a bill of exchange as payment has, however, been regarded as implied consent to a postponement of the date for payment provided for in the contract until the maturity of the bill.7 4. The interpretation of the partie’s agreement as to the modification or termination of the contract is based on the Convention’s rules on construction (in particular article 8). 5. Nothing else than the agreement of both parties is required in order to modify or terminate their contract.8 No form requirements must be met9 unless the reservation concerning form applies (articles 11, 12, 96)10 or unless the parties have agreed otherwise. When article 96 applies, modifications agreed upon only orally are invalid.11 For all other cases it follows from article 11 as a general principle of the Convention that the parties are free to modify or terminate their contract in any form be it either in writing or orally or in any other form. Even an implied termination of the contract has been held possible;12 furthermore, it has been held that a written contract may be orally changed.13

Form Agreements 6. According to article 29(2), a written or oral contract may generally be modified or terminated orally or in writing. If, however, a written contract contains a provision that any modification or termination of the contract must be in writing (“no oral modification”-clause or “written modification”-clause) then the parties cannot modify or terminate the contract in a different way.14 An oral variation would be ineffective if

6

CLOUT case No. 153, France, 1995.

7

CLOUT case No. 5, Germany, 1990.

8

CLOUT case No. 176, Austria, 1996.

9

CLOUT case No. 413, United States, 1998; Oberster Gerichtshof, Austria, 29 June 1999, Zeitschrift fu¨r Rechtsvergleichung 2000, 33. 10 For a similar case see Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995, available on the Internet at . 11 High Court of Arbitration of the Russian Federation, 16 February 1998, Unilex (abstract). 12 Oberster Gerichtshof, Austria, 29 June 1999, Zeitschrift fu¨r Rechtsvergleichung 2000, 33. 13 CLOUT case No. 176, Austria, 1996. 14 ICC Court of Arbitration, Switzerland, March 1998, ICC International Court of Arbitration Bulletin, 2000, 83.

612

Draft Digest

Art. 30

invoked by one party in such a case unless article 29(2)(2) were to apply.15 7. A so-called merger clause according to which the complete contents of prior negotiations is merged in the contract document has been treated like a “no oral modification”-clause.16 Therefore no evidence of oral agreements prior to the written contract could be adduced in order to modify or terminate that contract.

Abuse of “No Oral Modification” Clause 8. Article 29(2)(2) provides that a “no oral modification”-clause cannot be invoked by a party who by its conduct aroused the impression not to rely on the clause while, and to the extent that, the other party relied upon that conduct. It was stated that the provision is an expression of the general good faith principle that governs the Convention (article 7 par. 1).17

Chapter II Obligations of the Seller Article 30 The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.

Meaning and Purpose of the Provision 1. Article 30 states and summarises the main duties which the seller is obliged to fulfil. The seller, however, is equally bound to perform any additional obligation provided for in the contract or by any usage or practice

15

CLOUT case No. 86, United States, 1994.

16

ICC Court of Arbitration, Switzerland, March 1998, ICC International Court of Arbitration Bulletin, 2000, 83. 17 Compare also CLOUT case No. 94, Arbitration, 1994.

613

Art. 30

Draft Digest

between the parties, such as a contractual duty to deliver exclusively to the buyer.1

Obligation to Deliver 2. The seller is obliged to deliver the goods. In several instances the parties specified the duty to deliver the goods by using one of the Incoterms which then prevails over the rules of the Convention.2

Obligation to Hand over Documents 3. The Convention obliges the seller to hand over the documents concerning the goods but does not itself establish a duty of the seller to issue certain documents on the goods.

Obligation to Transfer Property 4. Although the Convention “is not concerned with the effect which the contract may have on the property in the goods sold” (art. 4(b)), the seller’s principal obligation is to transfer the property of the goods sold to the buyer. Whether such effect has been achieved and whether property passed is not a question governed by the Convention but has to be determined according to the law designated by the rules of private international law of the forum. Also the effect of a retention of title clause on the property in the goods is a no matter governed by the Convention,3 rather, the law designated by the rules of private international law of the forum applies. However, one court stated that whether such clause has been validly agreed upon in the sales contract and whether an alleged retention of title constitutes a breach of contract has to be determined according to the rules of the Convention.4

1

See, e. g., Oberlandesgericht Frankfurt, Germany, 17 September 1991, Neue Juristische Wochenschrift 1992, 633. 2 Compare, e. g., CLOUT case No. 244, France, 1998 (Incoterm EXW used); CLOUT case No. 340, Germany, 1998 (Incoterm DDP used). 3 CLOUT case No. 226, Koblenz, 1992. 4 CLOUT case No. 308, Australia, 1995.

614

Draft Digest

Art. 31

Other Obligations 5. The Convention itself provides for further obligations imposed upon the seller not mentioned in article 30, as the one arising out of Chapter V (articles 71-88), that relates to obligations of both the buyer and the seller. Additional obligations may derive from usages or practices established between the parties (article 9).

Section I. Delivery of the goods and handing over of documents

Article 31 If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists: (a) if the contract of sale involves carriage of the goods – in handing the goods over to the first carrier for transmission to the buyer; (b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place – in placing the goods at the buyer’s disposal at that place; (c) in other cases – in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

Meaning and Purpose of the Provision 1. The article specifies the place of performance of the seller’s duty of delivery. The provision fixes where the seller has to deliver the goods and what he has to do for that purpose. Article 31 addresses three different cases for which different rules apply. The general rules, however, appears to be that the seller’s place of business is preferred as the regular place of performance.1

1 In Italy the constitutionality of the corresponding domestic rule has been attacked but has been rejected – among others based upon article 31 (a) CISG: CLOUT case No. 91, Italy, 1992.

615

Art. 31

Draft Digest

General Remarks 2. Under some procedural rules, such as the ones based upon article 5(1) of the 1968 Brussels and 1988 Lugano Conventions2 article 31 can found jurisdiction.3 The jurisdiction covers also claims concerning the breach of the duty to deliver, as well as claims relating to the delivery of nonconforming goods.4 3. The rules formulated in article 31 apply only when the parties have not agreed otherwise, as pary autonomy prevails over article 31.5 Many of the court decisions concerning article 31 therefore deal with the construction of contract terms in order to decide whether those terms fix a place of performance or merely allocate the costs of transportation. If one of the Incoterms is included in the contract this term defines the place of performance and excludes the Convention’s rule.6 4. Article 31 can be – and has been – used to determine the place of performance where the buyer has to return the goods after the contract has been avoided (article 81 par. 2).7 Therefore in case of doubt and if not otherwise foreseen in the contract the buyer has to deliver back the goods at his place of business.8

2 Under that article jurisdiction is founded at the place at which the obligation has been actually performed or had to be performed. The place where the obligation had to be performed has to be determined according to the applicable law or – where uniform law applies – by the latter, see CLOUT case No. 298, European Court of Justice, 1994. 3 E. g., CLOUT case No. 268, Germany, 1996; Hoge Raad, Netherlands, 26 September 1997, Unilex; CLOUT case No. 207, France, 1997; CLOUT case No. 242, France, 1998; Oberster Gerichtshof, Austria, 10 September 1998, Unilex. 4 CLOUT case No. 268, Germany, 1996; Gerechtshof Hertogenbosch, Netherlands, 9 October 1995, Unilex; CLOUT case No. 244, France, 1998; CLOUT case No. 245, France, 1998. 5 Oberlandesgericht M
nchen, Germany, 3 December 1999, Recht der Internationalen Wirtschaft 2000, 712. 6 CLOUT case No. 244, France, 1998; CLOUT case No. 245, France, 1998. 7 Oberster Gerichtshof, Austria, 29 June 1999, Transportrecht-Internationales Handelsrecht 1999, 48. 8 Id.

616

Draft Digest

Art. 31

Carriage Involved (lit. a) 5. The first alternative of article 31 presupposes that a carriage of the goods be involved. For distant sales it has been held that regularly article 31(a) applies.9 A carriage of the goods is generally involved if the parties have envisaged or if it is clear from the circumstances10 that the goods be transported by independent carrier(s) from the seller to the buyer. Therefore, shipment contracts (e. g., under the Incoterms FOB, CIF or other F- or Cterms) as well as destination contracts (e. g. Incoterm EXW) involve a carriage of the goods.11 6. The provision by implication further requires that it is neither the seller’s nor the buyer’s own obligation under the contract to bring the goods from the place of the seller (or from where they are) to the place of the buyer (or whereto the buyer requests).12 It does not imply that the seller itself must deliver the goods to the place of destination of the transport. On the contrary, the seller has duly performed its duty of delivery when the goods are handed over to the carrier.13 If several subsequent carriers are involved handing over to the first carrier constitutes delivery.14 7. Handing over means that the goods are taken in possession by the carrier.15 The handing over of the documents relating to the goods does not appear to substitute the handing over of the goods themselves and could not constitute their delivery unless otherwise agreed upon by the parties.16

Goods at a Particular Place 8. The second alternative of article 31 requires first that no carriage of the goods in the sense of lit. a is involved so that it is the buyer’s task to get possession of the goods. It is secondly required that specific goods or goods of a specific stock or goods to be manufactured or produced are at stake. The third requirement is that both parties knew when the contract was concluded

9 10 11 12 13 14 15 16

Compare CLOUT case No. 360, Germany, 2000. Hoge Raad, Netherlands, 26 September 1997, Unilex. See the Secretariat Commentary to (then) article 29 no. 5. See also the Secretariat Commentary to (then) art. 29 nos. 5 and 8. CLOUT case No. 331, Switzerland, 1999. Id. CLOUT case No. 247, Spain, 1997 (loading on board). Secretariat Commentary to (then) art. 29 no. 9.

617

Art. 31

Draft Digest

that the goods were at a particular place. If those conditions are met the seller has there to place the goods at the buyer’s disposal.17 9. To place the goods at the buyer’s disposal means that “the seller has done that which is necessary for the buyer to be able to take possession”.18 The seller has therefore to prepare everything necessary under the circumstances so that the buyer has nothing else to do than to take the goods at the place of delivery.19

Other cases (lit c) 10. Article 31(c) is a “residuary rule”.20 The provision covers those cases which do not fall under para. (a) or (b) and for which the contract does not provide a particular place of performance. In that situation the seller has to place the goods at its place of business at the buyer’s disposal.

Contractual Modifications of the Conventional Place of Performance 11. Many decisions relate to the construction of contract clauses which may or may not modify the place of performance as provided in article 31. The courts generally look at all the circumstances of the case. The meaning of certain formulations can therefore vary with the circumstances. In respect of the Incoterm EXW (“ex works”) it has been stated that it does not vary the place of performance under article 31(a) or (c).21 As far as the Incoterm DDP (“delivered, duty paid”) it has been decided that the place of delivery is at the buyer place of business.22 However, the parties can agree upon a different place of delivery at any time. If the buyer requests that the goods be delivered to another firm processing the goods for the buyer the place of business of that other firm is then the place to which the goods have to be delivered.23 The clause “free delivery (buyer’s place of business)” has been interpreted in different ways. Two courts considered that clause as a mere allocation of costs 17 See, e. g., CLOUT case No. 47, Germany, 1993 (place of manufacture of ear devices corresponds to the place of delivery under art. 31 (b)). 18 Secretariat Commentary to (then) art. 29 no. 16. 19 CLOUT case no. 338, Germany, 1998. 20 Secretariat Commentary to (then) art. 29 no. 15. 21 CLOUT case No. 244, France, 1998; CLOUT case No. 245, France, 1998. With the same result for a German clause “ex work”, see CLOUT case No. 311, Germany, 1997, and Oberster Gerichtshof, Austria, 29 June 1999, Transportrecht-Internationales Handelsrecht 1999, 48. 22 CLOUT case No. 340, Germany, 1998. 23 Id.

618

Draft Digest

Art. 31

which left the place of performance untouched.24 Other courts stated the contrary.25 The contract clause “pricing ex work Rimini/Italy” as such has been held not to change the place of performance under article 31 in a case where an Italian seller had to deliver an installation to manufacture windows to a German buyer.26 But the additional contract provision that the seller had to erect and to run for a certain period the installation at the buyer’s place of business led to the conclusion that that was were the place of delivery was located.27 If the seller is obliged to install the delivered goods at a particular place or to erect there the sold installation that place has been regarded as the place of delivery.28

Consequences 12. When the seller has delivered the goods it has fulfilled its duty of delivery and is no longer responsible for the goods. Regularly also the risk of subsequent damage to, or loss of, the goods unless intentionally or negligently caused by the seller passes onto the buyer. Therefore if the seller has handed over the goods to the first carrier any delay in the transmission of the goods is the risk of the buyer who may or may not have a claim against the carrier.29 Equally if goods are shipped on board in the designated port the seller has performed its duty of delivery.30

Burden of Proof 13. The party asserting that a particular place of performance – other than the place provided for in article 31 – had been agreed upon must prove such agreement.31

24

CLOUT case No. 268, Germany, 1996; Oberster Gerichtshof, Austria, 10 September 1998,

Unilex. 25 CLOUT case No. 317, Germany, 1992; Oberlandesgericht Kln, Germany, 8 January 1997, Unilex. 26 Oberlandesgericht M
nchen, Germany, 3 December 1999, Recht der Internationalen Wirtschaft 2000, 712. 27 Id. 28 Corte di Cassazione, Italy, 10 March 2000, Recht der Internationalen Wirtschaft 2001, 308. 29 CLOUT case No. 331, Switzerland, 1999; similarly CLOUT case No. 377, Germany, 1999. 30 CLOUT case No. 247, Spain, 1997. 31 CLOUT case No. 360, Germany, 2000.

619

Art. 32

Draft Digest

Article 32 (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer’s request, provide him with all available information necessary to enable him to effect such insurance.

Meaning and Purpose of the Provision 1. Article 32 specifies – in addition to article 31 – further obligations of the seller when the carriage of the goods is involved. 2. The article addresses three situations: If the identification of the goods raises problems while they are in the hands of third persons (carrier) the seller is obliged to enable the buyer to identify the goods (par. 1). When the seller has undertaken to arrange for the carriage of the goods he must act with reasonable care (par. 2); if the buyer needs information in order to insure the goods the seller is obliged to give all necessary help (par. 3). 3. Thus far, there appears to be only one case dealing with this provision,1 more particularly, with article 32(2). According to this provision, where the seller is bound to arrange for the transport of the goods or part of them, the seller is bound to act with due care and to opt for appropriate means of transportation. The seller, however, is not bound to use a particular means of transportation, unless otherwise agreed. According to the aforementioned court decision, since the buyer was unable to meet the burden of proof evidencing an agreement to transport the goods by truck, the court found that the choice of transportation mode had been left to the seller.2

1 2

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See CLOUT case No. 261, Switzerland, 1997. Id.

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Art. 33

Burden of Proof 4. The party asserting an agreement which modifies or specifies the rules of article 32 must prove that such an agreement has been concluded. Failing that article 32 applies.3

Article 33 The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract.

Meaning and Purpose of the Provision 1. Article 33 specifies the time within which the seller has to deliver the goods. In this respect one first has to look at the delivery date or period fixed in the contract (lit. a and b) thereby letting party autonomy prevail over the provisions of the Convention.1 If no specific date or period can be inferred from the contract, article 33(c) fixes as default rule a reasonable time after the conclusion of the contract. 2. Although article 33 addresses merely the duty to deliver its rules apply as well to other duties of the seller which have also to be performed at the date provided in the contract and, absent any such provision, within a reasonable time.

Fixed Date 3. Article 33(a) presupposes that the parties have fixed a precise day for

3 Id. (the buyer did not succeed in proving that a transport to Moscow by truck had been agreed upon). 1 CLOUT case No. 338, Germany, 1998.

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delivery2 or that such date can be inferred from the contract (e. g., “15 days after eastern”) or is determined by any usage or practice. In that case the seller has to deliver precisely on that fixed date.3 Any delivery at a later time constitutes a breach of contract. 4. According to one court, 33(a) also covers the situation where the parties have fixed no specific date of delivery but have agreed that the seller should deliver at the request of the buyer.4 If the buyer, however, does not request delivery then the seller is not in breach.5

Fixed Period for Delivery 5. Article 338(b) requires that the parties have fixed a period of time during which the goods can be delivered or that such period can be inferred from the contract. The seller then may deliver at any date during that period. 6. A period for delivery is, e. g., fixed by a contract provision “until: end December”.6 Any delivery between the conclusion of the contract and the end of December would conform to the contract while the delivery after December 31 would be constitute a breach of contract. The same is true if delivery is to be “effected in 1993-1994”.7 In that case, any delivery between January 1, 1993 and December 31, 1994 corresponds to a timely performance.8 The right to choose the concrete date of delivery during the period rests generally with the seller.9 For the buyer to be able to choose the delivery date, an agreement to that effect is necessary.10 In one case, the contract provision for delivery “July, August, September + -” was understood to mean that one third of the shipment was to be delivered during each of the aforementioned months.11 2

See the example in Corte di Appello di Milano, Italy, 20 March 1998, Unilex (“Delivery: 3rd December, 1990”). 3 See also the Secretariat Commentary to (then) art. 31 no.3. 4 CLOUT case No. 338, Germany, 1998. 5 Id. (in this case the seller had to deliver according to “delivery graphics” provided by the buyer. But the buyer did never provide those “graphics”). 6 See the case in ICC Court of Arbitration, Switzerland, award No. 8786, ICC International Court of Arbitration Bulletin 2000, 70. 7 See the case in ICC Court of Arbitration, France, award No. 9117, ICC International Court of Arbitration Bulletin 2000, 83. 8 Id. 9 Id.. 10 Id.; impliedly also CLOUT case No. 338, Germany, 1998. 11 CLOUT case No. 7, Germany, 1990.

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Reasonable Time 7. Article 33(c) applies where neither the contract nor any usage or practice between the parties provides a specific time for delivery. The seller has then to deliver within a reasonable time. “Reasonable” means a time adequate in the circumstances. Therefore, delivery of a bulldozer two weeks after receipt of invoice and payment of first instalment has been held reasonable.12 Where a contract is concluded in January and provides for delivery “April, delivery date remains reserved”13 also a reasonable time has been held to apply since a concrete delivery date had never been fixed. In the case where the buyer had made clear that he was interested in delivery until March 15 the reasonable time has been held to end before April 11.14

Meaning of Delivery 8. Article 33 requires that the seller has performed in time all acts to which he is obliged under the contract or under articles 31, 32 or 34. Unless otherwise agreed upon article 33 does not require that the buyer be enabled to take possession of the goods on the date of delivery.15

Consequences 9. Any delivery after the date or after the end of the period for delivery is a breach of contract to which the rules of the Convention on remedies apply. If the delivery date was essential then late delivery amounts to a fundamental breach and even avoidance of contract can be declared.16 However, according to one court, a one day delay in the delivery of a small part of the goods does not constitute a fundamental breach even in case of a fix date 12

CLOUT case No. 219, Switzerland, 1997. Also stating the reasonableness of the time of delivery despite the seasonal character of the Christmas goods: CLOUT case No. 210, Spain, 1997. 13 CLOUT case No. 362, Germany, 1999. 14 CLOUT case No. 362, Germany, 1999 (the court held that the offer “March 15” was not materially altered by the acceptance “April, delivery date reserved”. Since the offeror did not object to the terms of the acceptance, its contents became part of the contract according to art 19 par. 2). 15 See the Secretariat Commentary to (then) art. 31 no. 2; also Landgericht Oldenburg, Germany, 27 March 1996, Unilex. 16 ICC Court of Arbitration, Switzerland, award No. 8786, ICC International Court of Arbitration Bulletin 2000, 70.

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of delivery agreed upon the parties.17 But the parties are always free to write into their contract that any delay of delivery is to be treated as a fundamental breach of contract.18 10. One arbitral tribunal held that the seller’s declaration that it would not be able to deliver the goods on time constituted an anticipatory breach of contract in the sense of art. 71.19

Burden of Proof 11. The party asserting that a specific date or period for delivery has been agreed upon has to prove such agreement.20 A buyer who asserts that it is to choose the actual date during a period of delivery must prove a respective agreement or circumstances evidencing that assertion.21

Article 34 If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.

Meaning and Purpose of the Provision 1. The provision specifies the seller’s duty to deliver documents relating to the goods, where such an obligation exists.

17

Landgericht Oldenburg, Germany, 27 March 1996, Unilex. ICC Court of Arbitration, Switzerland, award no. 8786, ICC International Court of Arbitration Bulletin 2000, 70 (in that case the agreed general conditions of the buyer provided that any delay of delivery constituted a fundamental breach of contract). 19 ICC Court of Arbitration, Switzerland, January 1997, award no. 8786, ICC International Court of Arbitration Bulletin 2000, 72. 20 CLOUT case No. 362, Germany, 1999. 21 ICC Court of Arbitration, France, March 1998, award no. 9117, ICC International Court of Arbitration Bulletin 2000, 90. 18

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2. According to the first part of article 34, the documents must be tendered as required by the contract. If the seller has delivered non-conforming documents before the agreed time, the seller has the right to cure the defects if this would not cause the buyer unreasonable inconvenience or expense. Despite the seller’s cure, the buyer is allowed to claim any remaining damages.

Documents Relating to the Goods 3. The provision refers generally to documents relating to the goods. What documents must be handed over is generally provided for in the contract, more so, when the contract has incorporated one of the Incoterms. In one case, the court held therefore that under a FOB contract the seller is obliged to provide the buyer with an invoice stating the quantity and value of the goods.1 Trade usages and practices between the parties may also indicate which documents are to be provided. 4. ”Documents” in the sense of article 34 are mainly documents that give its holder the control over the goods, such as bills of lading, dock receipts, warehouse receipts,2 but also insurance policies, commercial invoices, certificates of origin, weight, contents or quality or the like are covered.3 5. It has been held that the seller is generally not obliged to procure customs documents for the export of the goods, unless otherwise agreed upon by the parties.4

Handing Over of Documents 6. The place, time and manner of handing over of the documents has to comply with the contract.5 Where Incoterms are agreed upon, they will often fix these modalities. With regard to the Incoterm CFR (“cost, freight”), one arbitral tribunal decided that that clause does not render time (for the

1

COMPROMEX Arbitration, Mexico, 29 April 1996, Unilex.

2

Secretariat Commentary to (then) art. 32 no. 2; see also CLOUT case No. 216, Switzerland, 1997. 3 CLOUT case No. 171, Germany, 1996 (certificate of origin and certificate of analysis); see also Secretariat Commentary of to (then) art. 32 no. 2. 4 CLOUT case No. 216, Switzerland, 1997. 5 See also ICC Court of Arbitration, France, March 1995, award no. 7645, ICC International Court of Arbitration Bulletin 2000, 34.

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handing over of documents) essential to the contract.6 If neither the contract nor trade usages nor practices between the parties provide for specific modalities of handing over the documents then the seller must tender the documents “in such time and in such form as will allow the buyer to take possession of the goods from the carrier when the goods arrive at their destination, bring them through customs into the country of destination and exercise claims against the carrier or insurance company”.7

Non-conforming Documents 7. The handing over of non-conforming documents constitutes a breach of contract to which the normal remedies apply.8 Provided the breach is of sufficient gravity it can also amount to a fundamental breach and allow the buyer to declare the contract avoided.9 However, delivery of non-conforming documents (false certificate of origin and faulty certificate of chemical analysis) has been held not to constitute fundamental breach if the buyer itself can easily cure the defect by requesting correct documents from the producer.10

Early Tender of Documents 8. Article 34 grants the seller a right to cure any defects up to the delivery time as long as the buyer is not caused unreasonable inconvenience or expense. The cure may be executed by delivery of conforming documents.11

6

Id. Secretariat Commentary to (then) art. 32 no. 3. 8 CLOUT case No. 171, Germany, 1996. 9 Id. 10 Id. 11 ICC Court of Arbitration, France, March 1998, award no. 9117, ICC International Court of Arbitration Bulletin 2000, 90. 7

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Section II. Conformity of the Goods and Third Party Claims

Article 35 (1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. (2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

Introduction 1. Article 35 of the CISG defines standards for determining whether goods delivered by the seller conform to the contract in terms of type, quantity, quality, and packaging, thereby defining the seller’s obligations with respect to these crucial aspects of contractual performance. Two courts have stated that the unitary notion of conformity defined Article 35 displaces the concepts of “warranty” found in many domestic laws.1 2. In general, a failure by the seller to deliver goods that meet the applicable requirements of Article 35 constitutes a breach of the seller’s obligations,2 1

CLOUT case No. 256, Switzerland, 1998; CLOUT case No. 219, Switzerland, 1997.

2

See, e. g., CLOUT case No. 123, Germany, 1995, (stating that a fundamental breach of contract “can be caused by a delivery of goods that do not conform with the contract”);

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although it has been stated that a failure of goods to conform to the contract is not a breach if the non-conforming goods are equal in value and utility to conforming goods.3 A seller’s breach of its obligations under Article 35, furthermore, can in proper circumstances rise to the level of a fundamental breach of contract as defined in Article 25 of the Convention, and thus justify the buyer in avoiding the contract under Article 49(1) of the Convention.4

Article 35(1) 3. Article 35(1) requires a seller to deliver goods that meet the specifications of the contract in terms of description, quality, quantity and packaging. Thus it has been held that a shipment of raw plastic that contained a lower percentage of a particular substance than that specified in the contract, and which as a result produced window blinds that did not effectively shade sunlight, did not conform to the contract, and the seller had therefore breached its obligations.5 It has also been held that a shipment of goods containing less than the quantity specified in the contract lacks conformity under Article 35(1), with the court noting that a lack of conformity comprises both a lack of quality and a lack of quantity.6 A used car that had been licensed two years earlier than indicated in the car’s documents and whose odometer did not state the full mileage on the car was held to be nonconforming under Article 35(1).7 On the other hand, one court has held that there was no violation of Article 35(1) when the seller delivered shellfish containing a high level of cadmium because the parties did not specify a maximum cadmium level in their agreement.8 4. In ascertaining, for purposes of Article 35(1), whether the contract requires goods of a particular quantity, quality or description, or requires that the goods be contained or packaged in a particular manner, one must refer to general rules for determining the content of the partie’s agreement.9 In this Landgericht Paderborn, Germany, 25 June 1996, Unilex (stating that the seller had breached its obligations by delivering goods that failed to conform to the technical specifications of the contract). 3 CLOUT case No. 251, Switzerland, 1998. 4 CLOUT case No. 123, Germany, 1995; CLOUT case No. 79, Germany, 1994. 5 Landgericht Paderborn, Germany, 25 June 1996, Unilex. 6 CLOUT case No. 282, Germany, 1997. 7 CLOUT case No. 168, Germany, 1996, Unilex. 8 Oberlandesgericht Frankfurt, Germany, 20 April, 1994, Unilex. 9 Such general rules for determining the contents of the partie’s agreement would include the general standards in the CISG relating to the meaning and contents of a contract for sale,

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connection, one court, on appeal of the decision concerning shellfish with high cadmium levels mentioned in the previous paragraph, held that the seller had not impliedly agreed to comply with recommended (but not legally mandatory) domestic standards for cadmium in shellfish existing in the buyer’s country.10 The court reasoned that the mere fact the seller was to deliver the shellfish to a storage facility located in the buyer’s country did not constitute an implied agreement under Article 35(1) to meet the standards for resalability in the buyer’s country or to comply with public law provisions of the buyer’s country governing resalability.11

Article 35(2): Overview 5. Article 35(2) states standards relating to the good’s quality, function and packaging that, while not mandatory, are presumed to be a part of sales contracts. In other words, these standards are implied terms that bind the seller even without affirmative agreement thereto. If the parties do not wish these standards to apply to their contract, they can (in the words of Article 35) “agree otherwise”.12 Unless the parties exercise their autonomous power to contract out the standards of Article 35(2), they are bound by them.13 An arbitral tribunal has found that an agreement as to the general quality of goods did not derogate from Article 35(2) if the agreement contained only positive terms concerning the qualities that the goods would possess, and not negative terms relieving the seller of responsibilities.14 One court applied domestic law to invalidate a particular contract clause that attempted to exclude the seller’s liability for a lack of conformity in the goods: the court held that the question of the validity of such a clause is an including Article 8 (standards for determining a party’s intent) and Article 9 (usages and practices to which the parties are bound). 10 CLOUT case no. 123, Germany, 1995. 11 Bundesgerichtshof, Germany, 8 March 1995, Unilex. 12 The partie’s power to contract out of the implied standards of Article 35(2) (i.e., to agree otherwise) is a specific application of the partie’s power under Article 6 to “derogate from or vary the effect of any of [the Convention’s] provisions”. See CLOUT case No. 229, Germany, 1996. (“If the [buyer] has warranty claims against the seller – and of what kind – primarily depends upon the warranty terms and conditions of [seller], which became part of the contract. They have priority over the CISG provisions (CISG Art. 6)”.). 13 One court has held that machinery was sold “as is” – in effect, without the protections of Article 35(2)(a) – because it was second-hand, but the court of appeal chose not to rely on this approach and instead affirmed this portion of the lower court decision on other grounds. See Oberlandesgericht Kln, Germany, 8 January 1997, Unilex, affirming in relevant part Landgericht Aachen, Germany, 19 April 1996. 14 CLOUT case No. 237, Sweden, 1998.

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issue beyond the scope of the Convention, and is governed by the domestic law applicable under private international law rules.15 6. Article 35(2) is comprised of four subparts. Two of the subparts (Article 35(2)(a) and Article 35(2)(d)) apply to all contracts unless the parties have agreed otherwise. The other two subparts (Article 35(2)(b) and Article 35(2)(c)) are triggered only if certain factual predicates are present. The standards stated in these subparts are cumulative – that is, the goods do not conform to the contract unless they meet the standards of all applicable subparts.

Article 35(2)(a) 7. Article 35(2)(a) requires the seller to deliver goods “fit for the purposes for which goods of the same description would ordinarily be used”. This standard was held to be violated when the seller delivered a refrigeration unit that broke down soon after it was first put into operation.16 It was also found violated when the seller delivered wine that had been diluted with 9% water, causing domestic authorities to seize and destroy the wine,17 and when the seller delivered chaptalized wine.18 It was also held violated where the seller substituted a different component in a machine without notifying the buyer and without giving the buyer proper instructions for installation, and as a result the machine failed after three years of use, thus disappointing the buyer’s expectation for “long, continuous operation of the [machine] without failure”.19 8. The standard of Article 35(2)(a), however, requires only that the goods be fit for the purposes for which they are ordinarily used. It does not require that the goods be perfect or flawless, unless perfection is required for the goods to fulfil their ordinary purposes.20 One court has raised but not resolved the 15

CLOUT case No. 168, Germany, 1996. See also Supermicro Computer, Inc. v. Digitechnic, S.A., 145 F. Supp. 2d 1147 (N. D.Cal. 2001), wherein a United States District Court declined to hear a dispute that was already subject to litigation in France because resolving the matter would require the court to determine the validity of a warranty disclaimer clause under the CISG (145 F. Supp. 2d at 1151). 16 CLOUT case No. 204, France, 1996. 17 CLOUT case No. 170, Germany, 1995. 18 Cour de Cassation, France, 23 January 1996, Unilex. 19 CLOUT case No. 237, Sweden, 1998. 20 ICC Arbitration Case No. 8247, June 1996, 11 Int’l Ct. Arb. Bull. 53 (2000) (microcrystaline chemicals that had solidified but could easily be re-transformed into crystals did not fail to conform to the contract); CLOUT case No. 252, Switzerland, 1998 (one

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issue of whether Article 35(2)(a) requires goods of average quality, or goods of merely “marketable” quality.21 9. Several decisions have discussed whether conformity with Article 35(2)(a) is determined by reference to the quality standards prevailing in the buyer’s jurisdiction. According to one decision, the fact that the seller is to deliver goods to a particular jurisdiction and can infer that they will be marketed there is not sufficient to impose the standards of the importing jurisdiction in determining suitability for ordinary purposes under Article 35(2)(a).22 Thus the fact that mussels purchased and delivered to the buyer’s country contained cadmium levels exceeding the recommendations of the buyer’s country’s health regulations did not establish that the mussels failed to conform to the contract under Article 35(2)(a).23 The court indicated that the standards in the importing jurisdiction would have applied if the same standards existed in the seller’s jurisdiction, or if the buyer had pointed out the standards to the seller and relied on the seller’s expertise.24 The court raised but did not determine the question whether the seller would be responsible for complying with public law provisions of the misplaced line of text, which did not impede the legibility of the text, did not render an art exhibition catalogue non-conforming); CLOUT case No. 30, Canada, 1999 (shipments containing a small percentage of defective picture frame mouldings did not fail to conform to the contract when the evidence indicated that shipments from any supplier would include some defective mouldings). 21 CLOUT case No. 123, Germany, 1995. One court has stated that, to comply with Article 35(2)(a), goods must be of average quality, and not merely marketable; see Landgericht Berlin, Germany, 15 September 1994, Unilex. 22 CLOUT case No. 123, Germany, 1995 (“a foreign seller can simply not be required to know the not easily determinable public law provisions and/or administrative practices of the country to which he exports, and ... the purchaser, therefore, cannot rationally rely upon such knowledge of the seller, but rather, the buyer can be expected to have such expert knowledge of the conditions in his own country or in the place of destination, as determined by him, and, therefore, he can be expected to inform the seller accordingly”). The court raised but did not resolve the issue of whether goods must meet the standards of the seller’s own jurisdiction in order to comply with Article 35(2)(a). 23 Id. Compare CLOUT case No. 343, Germany, 2000, where a Swiss purchaser of video recorders complained that the German seller had only supplied instruction booklets in German and not in the other languages spoken in Switzerland. The court rejected the argument because the recorders had not been produced specially for the Swiss market and the buyer had failed to stipulate for instruction booklets in other languages. 24 In a later decision involving vine wax that failed to protect vines grafted using the wax, the German Supreme Court found that the wax did not meet the requirements of Article 35(2)(a) because it “did not meet the industry standards – of which both parties were aware and which both parties applied...”.

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importing country if the seller knew or should have known of those provisions because of “special circumstances” – e. g., if the seller maintained a branch in the importing country, had a long-standing business connection with the buyer, often exported into the buyer’s country, or promoted its products in the importing country.25 A court from a different country, citing the aforementioned decision, has upheld an arbitral award finding a seller in violation of Article 35(2)(a) because it delivered medical devices that failed to meet safety regulations of the buyer’s jurisdiction:26 the court held that the arbitration panel acted properly in finding that the seller should have been aware of and was bound by the buyer’s country’s regulations because of “special circumstances” within the meaning of the opinion of the court that rendered the aforementioned decision. A different court has held that a seller of cheese was required to comply with the buyer’s country’s standards because it had had dealings with the buyer for several months, and therefore must have known that the cheese was destined for the market in the buyer’s country;27 the seller, therefore, violated its obligations under CISG Article 35 when it delivered cheese that did not have its composition marked on the packaging, as required by the buyer’s country’s marketing regulations.

Article 35(2)(b) 10. Article 35(2)(b) requires that the goods be fit for “any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract”. The Article 35(2)(b) obligation arises only if one or more particular purposes were revealed to the seller by the time the contract was concluded. In addition, the requirements of Article 35(2)(b) do not apply if “the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement”. With regard to the latter reliance element, one court has stated that in the usual case, a buyer cannot reasonably rely on the seller’s knowledge of the 25

One court has held that, in the following circumstances, a Spanish seller of pepper agreed that the goods had to comply with German food safety laws: the seller had a long-standing business relationship with the German buyer; the seller regularly exported into Germany; and in a previous contract with the buyer the seller had agreed to special procedures for ensuring compliance with German food safety laws; Landgericht Ellwangen, Germany, 21 August 1995, Unilex. The court, citing Article 35(1), found that pepper products containing ethylene oxide at levels exceeding that permitted by German food safety laws did not conform to the contract; it therefore ruled in favor of the buyer, who had argued (presumably on the basis of Article 35(2)(a)) that the pepper products “were not fit for the purposes for which the goods would ordinarily be used and not fit to be sold in Germany”. 26 CLOUT case No. 418, USA, 1999. 27 CLOUT case No. 202, France, 1995.

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importing country’s public law requirements or administrative practices relating to the goods, unless the buyer pointed such requirements out to the seller.28 The court therefore found that mussels with cadmium levels exceeding the recommendations of German health regulations did not violate the requirements of Article 35(2)(b) where there was no evidence that the buyer had mentioned the regulations to the seller. By so holding, the court affirmed the decision of a lower court that the seller had not violated Article 35(2)(b) because there was no evidence that the parties implicitly agreed to comply with the buyer’s country’s health recommendations.29 On the other hand, one court has found that a seller violated Article 35(2)(b) when it delivered skin care products that did not maintain specified levels of vitamin A throughout their shelf life.30 The court found that the buyer intended to purchase products with the specified vitamin levels, that “the special purpose ... was known by the [seller] with sufficient clarity”, and that “the buyer counted on the seller’s expertise in terms of how the seller reaches the required vitamin A content and how the required preservation is carried out”.

Article 35(2)(c) 11. Article 35(2)(c) requires that, in order to conform to the contract, goods must “possess the qualities of goods which the seller has held out to the buyer as a sample or model”. Several courts have found that delivered goods violated this provision.31 Article 35(2)(c), by its terms, applies if the seller has held out a sample or model to the buyer, unless the parties “have agreed otherwise”. One court has nevertheless indicated that the goods must conform to a model only if there is an express agreement in the contract 28

CLOUT case No. 123, Germany, 1995.

29

CLOUT case No. 84, Germany, 1994, opinion described in CLOUT case No. 123, Germany, 1995. 30 Helsinki Court of First Instance, Finland, 11 June 1995, affirmed by Helsinki Court of Appeal, Finland, 30 June 1998, English translation available on the Internet at http:// www.cisg.law.pace.edu. 31 CLOUT cas No. 79, Germany, 1994 (holding that the goods (shoes) failed to conform to a sample supplied by the seller, but that the lack of conformity was not shown to be a fundamental breach); CLOUT case No. 138, USA, 1995 (finding that air conditioner compressors delivered by the seller did not conform to the contract, and that such lack of conformity constituted a fundamental breach: “The agreement between Delchi and Rotorex was based upon a sample compressor supplied by Rotorex and upon written specifications regarding cooling capacity and power consumption ... The president of Rotorex ... conceded in a May 17, 1988 letter to Delchi that the compressors supplied were less efficient than the sample ...”).

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that the goods will do so.32 On the other hand, it has been held that the section will apply if it is the buyer rather than the seller that has provided the model, provided that the parties agreed that the goods should conform to the model.33

Article 35(2)(d) 12. Article 35(2)(d) supplements the last clause of Article 35(1), which requires that the goods be “contained or packaged in the manner required by the contract”. Several cases have found that improperly packaged goods failed to conform to the contract under Article 35(2)(d). Where a seller sold cheese that it knew would be resold in the buyer’s country, and the cheese was delivered in packaging that did not comply with that country’s food labelling regulations, the goods were deemed non-conforming under Article 35(2)(d).34 In another case, a seller of canned fruit was found to have violated Article 35 where the containers were not adequate to prevent the contents from deteriorating after shipment.35

Article 35(3) 13. Article 35(3) relieves the seller of responsibility for a lack of conformity under Article 35(2) to the extent that the buyer “knew or could not have been unaware” of the non-conformity at the time the contract was concluded.36 Under this provision, a buyer has been held to have assumed the risk of defects in a used bulldozer that the buyer inspected and tested before purchasing.37 One court has opined that, under Article 35(3), a buyer who elects to purchase goods despite an obvious lack of conformity must accept 32

Landgericht Berlin, Germany, 15 September 1994, Unilex. CLOUT case No. 175, Austria, 1995. 34 CLOUT case No. 202, France, 1995. 35 Conservas La Costella S. A. de C. V. v. Lann San Luis S. A. & Agroindustrial Santa Adela S. A., Arbitration Proceeding before Compromex (Comisin pare la Proteccin del Comercio Exterior de Mexico), Mexico, 19 April 1996, Unilex. The Compromex decision did not specifically cite CISG Article 35(2)(d). 36 Note that Article 35(3) only relieves the seller of responsibility for non-conformity under Article 35(2)(a)-(d). A lack of conformity under Article 35(1) (requiring the goods to be of “the quantity, quality and description required by the contract”) is not subject to the rule of Article 35(3). Nevertheless, a buyer’s awareness of defects at the time the contract is concluded should presumably be taken into account in determining what the partie’s agreement requires as to the quality of the goods. 37 CLOUT case No. 219, Switzerland, 1997. After the buyer inspected the bulldozer, the 33

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the goods “as is”.38 The rule of Article 35(3), however, is not without limits. Where a seller knew that a used car had been licensed two years earlier than indicated in the car’s documents and knew that the odometer understated the car’s actual mileage but did not disclose these facts to the buyer, the seller was liable for the lack of conformity even if the buyer (itself a used car dealer) should have detected the problems.39 Citing Articles 40 and 7(1), the court found that the Convention contains a general principle favoring even a very negligent buyer over a fraudulent seller.

Burden of Proof 14. A number of decisions have discussed who bears the burden of proving that goods fail to conform to the contract under Article 35. One court has twice indicated that the seller bears that burden.40 On the other hand, several tribunals have concluded that the buyer bears the burden of proving lack of conformity, although the decisions adopt different theories to reach that result. For example, after noting that the CISG does not expressly address the burden of proof issue, one arbitral tribunal applied domestic law to allocate the burden to the buyer as the party alleging a lack of conformity.41 Other courts have concluded that the Convention itself, although it does not expressly answer the burden of proof question, contains a general principle that the party who is asserting or affirming a fact bears the burden of proving it, resulting in an allocation of the burden to a buyer who asserts that goods did not conform to the contract.42 Some decisions suggest parties agreed that the seller would replace three specific defective parts. The seller replaced the parts before delivering the machine, but the buyer then complained of other defects. 38 CLOUT case No. 256, Switzerland, 1998. The court’s comments on Article 35(3) appear to be dicta as the court had already found that the seller was not liable because the buyer failed to give proper notice of lack of conformity under Article 39. 39 CLOUT case No. 168, Germany, 1996. 40 Rechtbank van koophandel Kortrijk, Belgium, 6 October 1997, Unilex; Rechtbank van koophandel Kortrijk, Belgium, 16 December 1996, available on the Internet at . 41 CLOUT case No. 103, Arbitration, 1993. A Swiss court has acknowledged the view that the burden of proving a lack of conformity should be allocated by applying domestic law, but it neither adopted nor rejected this approach because the contrary view led to the same result (buyer bore the burden). CLOUT case No. 253, Switzerland, 1998. 42 CLOUT case No. 378, Italy, 2000 (containing an extended discussion of the issue). To the same general effect, see CLOUT case No. 97, Switzerland, 1993. One court has noted the view that the Convention contains a general principle allocating the burden to the buyer, but it neither adopted nor rejected this approach because the contrary view led to the same result (buyer bore the burden). CLOUT case No. 253, Switzerland, 1998. Without expressly

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that the burden of proof varies with the context. Thus, one court has stated that the buyer bears the burden of proving a lack of conformity if it has taken delivery of the goods without giving immediate notice of non-conformity.43 Similarly, another court has indicated that the seller bears the burden of proving that goods were conforming at the time risk of loss passed, but the buyer bears the burden of proving a lack of conformity after the risk shifted if it has accepted the goods without immediately notifying the seller of defects.44

Evidence of Lack of Conformity 15. Several decisions address evidentiary issues relating to a lack of conformity under Article 35. Direct evidence that the standards of Article 35 were violated has been adduced and accepted by courts in several instances. Thus a showing that delivered wine had been seized and destroyed by authorities in the buyer’s country because it had been diluted with water was accepted by the court as establishing that the wine did not conform with the contract for sale.45 Similarly, one court has held that, once the buyer established that a refrigeration unit had broken down shortly after it was first put into operation, the seller was presumed to have violated Article 35(2)(a) and thus bore the burden of showing it was not responsible for the defects.46 Expert opinion has also been accepted as establishing a lack of conformity,47 although the results of an investigation into the quality of discussing the issue, several decisions appear to have impliedly adopted the view that the CISG allocated the burden of proving lack of conformity to the buyer. See CLOUT case No. 107, Austria, 1994 (buyer failed to prove that the goods did not conform to the contract); Landgericht D
sseldorf, Germany, 25 August 1994, Unilex (buyer failed to prove lack of conformity). 43 CLOUT case No. 123, Germany, 1995. One court has ruled that, because it was shown that a refrigeration unit had broken down soon after it was first put into operation, the seller bore the burden of proving that it was not responsible for the defect. CLOUT case No. 204, France, 1995. 44 CLOUT case No. 251, Switzerland, 1998. 45 CLOUT case No. 170, Germany, 1995. 46 CLOUT case No. 204, France, 1996. 47 CLOUT case No. 50, Germany, 1991. But see CLOUT case No. 378, where the court rejected expert opinion evidence offered by the seller because under Italian civil procedure law only an expert appointed by the court can offer such an opinion. For cases in which courts appointed experts to evaluate the conformity of the goods, see CLOUT case No. 123, Germany, 1995 (reporting that the trial court had obtained an expert opinion of public health authorities on the cadmium level in mussels); CLOUT case No. 271, Germany 1999 (expert opinion that damage to vines was caused by defective vine wax); Rechtbank van Koophandel,

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the goods have been held insufficient to establish a lack of conformity where the buyer ignored a trade usage requiring that the seller be permitted to be present at such investigations.48 On the other hand, it has been held that the early failure of a substituted part in a machine did not by itself establish that the machine was not in conformity with the contract, since the failure might have been due to improper installation.49 Furthermore, a buyer’s failure to complain of obvious defects at the time the goods were received has been taken as affirmative evidence that the goods conformed to the contract.50 In another case, deliveries of allegedly non-conforming chemicals had been mixed with earlier deliveries of chemicals; thus, even though the buyer showed that glass produced with the chemicals was defective, it could not differentiate which deliveries were the source of the defective chemicals; and since the time to give notice of non-conformity for the earlier deliveries had expired, the buyer failed to prove a lack of conformity:51 Finally, it has been held that a seller’s offer to remedy any defects in the goods did not constitute an admission that the goods lacked conformity.52

Jurisdictional Issues 16. For purposes of determining jurisdiction under Article 5(1) of the Brussels Convention, several cases have held that the conformity obligation imposed on the seller by CISG Article 35 is not independent of the obligation to deliver the goods, and both obligations are performed at the same place.53

Kortrijk, Belgium, 6 October 1997, Unilex (appointing judicial expert to determine the conformity of yarn); Rechtbank van Koophandel, Kortrijk, Belgium, 16 December 1996, available on the Internet at . 48 Helsinki Court of Appeal, Finland, 29 January 1998, available on the Internet at . 49 CLOUT case No. 237, Sweden, 1998. 50 CLOUT case No. 341, Canada, 1999. 51 CLOUT case No. 50, Germany, 1991. 52 CLOUT case No. 97, Switzerland, 1993. 53 CLOUT case No. 245, France, 1998; CLOUT case No. 244, France, 1998; CLOUT case No. 203, France 1995.

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Article 36 (1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. (2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.

Overview of Article 36 1. Article 36 deals with the time at which a lack of conformity must have arisen in order for the seller to be responsible for it. Article 36(1) states a general rule that the seller is liable for a lack of conformity that exists at the time risk of loss for the goods passes to the buyer.1 In certain circumstances, Article 36(2) extends the seller’s responsibility by providing that the seller is liable for a lack of conformity occurring even after risk has passed if the nonconformity is caused by a breach by the seller of its obligations, including a breach of a guarantee of the future performance or qualities of the goods.2 Several decisions illustrate the operation of the two paragraphs of Article 36. A flower shop that purchased daisy plants refused to pay the price when the buyer’s own customers complained that the plants did not bloom throughout the summer as expected.3 A court of appeals affirmed the seller’s right to the price because 1) the buyer failed to prove, pursuant to Article 36(1), that the plants were defective when the risk passed to the buyer, and 2) the buyer failed to prove that the seller had guaranteed the future fitness of the goods under Article 36(2). Similarly, another court held that the seller was not liable under Article 36(1) for damage to pizza boxes that occurred while the boxes were being shipped by carrier because risk of loss had passed to the buyer when the goods were handed over to the first carrier, and the seller was also not liable under 36(2) because the damage was not due to any breach by the seller.4

1

Rules on risk of loss, including rules on when risk shifts from the seller to the buyer, are given in Articles 66-70 of the Convention. 2 The substance of the two paragraphs of Article 36 constitutes a mirror image of Article 66, which provides: 3 CLOUT case No. 107, Austria, 1994. 4 CLOUT case No. 360, Germany, 2000.

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Article 36(1) Overview 2. Article 36(1) makes the seller liable “in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer”. The principle of seller responsibility for defects existing before risk passes is reinforced by the final clause of Article 36(1), which confirms the seller’s liability “even though the lack of conformity becomes apparent only after [the time risk passes to the buyer]”. Thus it is the time that the lack of conformity comes into existence, not the time it is discovered (or should have been discovered), that is critical for the rule in Article 36(1).5 One court decision involving the sale of cocoa beans from Ghana illustrates the general operation of Article 36(1).6 The contract provided that risk would shift to the buyer when the goods were handed over to the first carrier. It also required the seller to supply, before the goods were shipped, a certificate from an independent testing agency confirming that the beans met certain quality specifications. The independent agency tested the goods some three weeks before they were packed for shipment, and issued the required certificate. When the goods arrived, however, the buyer’s own testing revealed that the cocoa beans were below contract-quality. The court stated that the seller would be liable for the lack of conformity in three situations: 1) if the pre-shipment certificate of quality from the independent agency were simply mistaken and the goods thus lacked conformity at the time they were inspected; 2) if the deterioration in the quality of the goods occurred in the three week gap between inspection and shipment; or 3) if the defects otherwise existed when the goods were shipped but the defects would only become apparent after they were delivered to the buyer.

Seller’s Liability for Defects Existing When Risk Passed 3. The basic principle of Article 36(1), that the seller is liable for a lack of conformity that exists at the time risk passes to the buyer, has been affirmed in several decisions.7 Conversely, the principle that the seller is not normally liable for a lack of conformity arising after risk has passed has also been applied in several decisions. For example, where a contract for the sale of 5 Under Article 39(1), in contrast, it is the time of discovery of a lack of conformity that is critical: that article provides that a buyer loses its right to rely on a lack of conformity if it fails to “give notice to the seller specifying the nature of the of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it”. 6 CLOUT case NO. 253, Switzerland, 1998. 7 CLOUT case No. 204, France, 1996, reversed by CLOUT case No. 241, France, 1999; CLOUT case No. 253, Switzerland, 1998.

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dried mushrooms included a “C & F” clause, and the mushrooms deteriorated during shipment, one court held that the lack of conformity occurred after risk of loss had passed and the seller was therefore not responsible for it under Article 36(1).8

Defects Not Apparent until after Risk Passed 4. Article 36(1) states that a seller is liable for a lack of conformity existing when risk passed to the buyer “even though the lack of conformity becomes apparent only after that time”. This principle has been applied in several cases. Thus where a refrigeration unit that had been sold installed on a truck trailer failed within 15 days of delivery, the court found that a lack of conformity had existed at the time risk passed even though the nonconformity did not become apparent until the unit had been put into use.9 On the other hand, a buyer of a painting said to be by a specific artist sued the seller when the party to whom the buyer resold the painting determined that it could not be attributed to that artist.10 The court stated that the seller was not liable because, under Article 36(1), the seller was only responsible for non-conformities existing at the time risk of loss passed to the buyer, and there was no indication at that time that the artist indicated was not the painter.11

Burden of Proof Regarding the Time a Defect Arose 5. Under Article 36(1), the partie’s rights often hinge on whether a lack of conformity existed at the time the risk of loss passed to the buyer. For this reason, the question of which party bears the burden of proof on this issue is a critical one.12 A court has noted that some scholars suggest the question should be settled by reference to domestic law applicable under the rules of 8

CLOUT case No. 191, Argentina, 1995. To similar effect, see CLOUT case No. 107, Austria, 1994; CLOUT case No. 360, Germany, 2000. 9 CLOUT case No. 204, France, 1996, reversed on other grounds by CLOUT case No. 241, France, 1999. See also CLOUT case No. 253, Switzerland, 1998; Conservas L Costea S. A. de C. V. v. Lann San Lui S. A. & Agroindustrial Santa Adela S. A., Compromex Arbitration, Mexico, 29 April 1996, Unilex. 10 Arrondissementsrechtbank Arnhem, the Netherlands, 17 July 1997, Unilex. On appeal, the court found that the CISG was inapplicable but affirmed the result on the basis of domestic law. Gerechtshof Arnem, the Netherlands, 9 February 1999, Unilex. 11 This statement was an alternative holding. The court also reasoned that the seller was not liable because any claim against the buyer by its own buyer was time-barred. 12 This question is closely related to the general question of which party bears the burden of

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private international law, whereas other scholars argue that the Convention itself contains a general principle (controlling under Article 7(2)) that the party asserting the non-conformity (i. e., the buyer) bears the burden; in the particular case the court did not have to resolve this disagreement because both approaches placed the burden on the buyer.13 Other courts appear to have taken a factual approach to the question. Thus, one court has held that a buyer who accepts goods upon delivery without promptly objecting to their quality bears the burden of proving that they did not conform to the contract.14 On the other hand, a court from a different country concluded that where a refrigeration unit broke down shortly after it was delivered, the defect was presumed to have existed when the goods were shipped, and the seller bore the burden of proving it was not responsible for the lack of conformity.15

Article 36(2) 6. Article 36(2) provides that a seller is liable for a lack of conformity occurring after the time that risk passed to the buyer, but only if the lack of conformity is due to a breach by the seller. An arbitral tribunal has invoked this provision in holding a seller liable for the lack of conformity of canned fruit that deteriorated during shipment because of inadequate packaging, even though the buyer bore transit risk under the FOB term in the contract.16 On the other hand, a court has held that the seller was not responsible for damage to pizza boxes occurring after risk of loss passed to the buyer because the buyer did not demonstrate that the damage was due to any breach by the seller.17 Article 36(2) specifically mentions that the seller will be responsible for post-risk non-conformities if they result from “breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose18

proof when the buyer claims the goods do not conform to the contract under Article 35. See Paragraph 15 of the case summary for Article 35, supra. 13 CLOUT case No. 253, Switzerland, 1998. 14 CLOUT case No. 377, Germany, 1999. 15 CLOUT case No. 204, France, 1996, Unilex, reversed on other grounds by CLOUT case No. 241, France, 1999. 16 Conservas L Costea S. A. de C. V. v. Lann San Lui S. A. & Agroindustrial Santa Adela S. A., Compromex Arbitration, Mexico, 29 April 1996, Unilex. 17 CLOUT case No. 360, Germany, 2000. 18 Article 35(2)(a) of the CISG provides that, unless otherwise agreed, goods do not conform to the contract unless they “are fit for the purposes for which goods of the same description would ordinarily be used”. This provision does not, however, expressly require the goods to be fit for ordinary purposes for any specified “period of time”.

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or for some particular purpose19 or will retain specified qualities or characteristics”. Another court has placed the burden of proving the existence of an express guarantee of future performance on the buyer, and held that a seller of plants was not liable under Article 36(2) for the failure of the plants to bloom throughout the summer because the buyer did not prove that the seller had guaranteed future performance of the plants.20

Article 37 If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.

Overview and Case Law 1. Article 37 deals with deliveries made by the seller before the date specified in the contract. The first sentence of Article 37 specifies that, in the case of a delivery of insufficient quantity, the seller can cure by “deliver[ing] any missing part” or by “mak[ing] up any deficiency in the quantity of the goods delivered”. In the case of a delivery of goods deficient in quality, the seller can cure by delivering replacement goods1 or by “remedy [ing] any lack of conformity in the goods delivered”.2 The second sentence of Article 37 specifies that the buyer retains any right to damages provided by the Convention, although the amount of such damages presumably must 19

Article 35(2)(b) of the Convention provides that, unless otherwise agreed, goods do not conform to the contract unless they “are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement”. This provision does not, however, expressly require the goods to be fit for particular purposes for any specified “period of time”. 20 CLOUT case No. 107, Austria, 1994. 1 A seller’s right under Article 37 to deliver goods to replace non-conforming goods should be compared to a buyer’s right under Article 46(2) of the CISG to require the seller to deliver goods in substitution for non-conforming goods. 2 A seller’s right under Article 37 to “remedy” non-conforming goods should be compared to a buyer’s right under Article 46(3) of the CISG to require the seller to repair non-conforming goods.

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reflect any cure accomplished by the seller under the first sentence of the provision. The second sentence of Article 37 was invoked by an arbitral tribunal where a seller had made a delivery of confectionary products before the buyer had furnished a banker’s guarantee required by the contract.3 Although the buyer accepted the delivery, it failed to pay for the goods, arguing that the seller had breached the contract by delivering before the guarantee was in place and that this default should be considered a fundamental breach of contract justifying the buyer’s non-payment. The arbitral tribunal, however, ruled that the breach by the seller did not permit the buyer to refuse to pay, noting that under the last sentence of Article 37 the buyer could claim damages for any losses caused by the early delivery.

Article 38 (1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.

Overview of Article 38 1. Article 38 directs a buyer to whom goods have been delivered to examine them or cause them to be examined. Much of the text of Article 38 focuses on the time when this examination should take place. Thus Article 38(1) specifies the general rule that the examination must occur “in as short a period as is practicable in the circumstances”. Article 38(2) provides a special rule for cases involving carriage of goods, permitting the examination to be deferred until the goods arrive at their destination. With respect to the relationship between Articles 38(1) and 38(2), one court has explained that normally the place of examination is the place where the seller’s delivery obligation is performed under Article 31 of the Convention, but if the contract involves carriage of the goods the examination may be deferred until the goods reach their destination.1 Article 38(3) contains another special rule, applicable if the buyer redirects goods while they are in transit or 3

CLOUT case No. 141, Russian Federation, 1995.

1

Landgericht Landshut, Germany, 5 April 1995.

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redispatches goods before having a reasonable opportunity to examine them: in such cases, examination may be deferred until after the goods arrive at their “new destination”, provided the seller was on notice of the possibility of such redirection or redispatch when the contract was concluded. 2. As is asserted by the Secretariat Commentary relating to Article 382 and by numerous cases,3 the time when a buyer is required to conduct an examination of the goods under Article 38 is intimately connected to the time when the buyer “ought to have discovered” a lack of conformity under Article 39 – an occurrence that starts the clock running on the buyer’s obligation to give notice of the non-conformity. The examination obligation imposed by Article 38, therefore, can have very serious consequences: if a buyer fails to detect a lack of conformity because it did not conduct a proper and timely examination, and as a result fails to give the notice required by Article 39, the buyer will lose rights – quite possibly all rights – relating to the lack of conformity.4 3. The obligation to examine under Article 38 (and to give notice of lack of conformity under Article 39) applies not just to non-conformities under CISG Article 35, but also to non-conformities under contractual provisions that derogate from Article 35.5 The examination mandated by Article 38, furthermore, should ascertain not only that the quality, quantity, capabilities and features of the goods conform to the seller’s obligations, but also that the goods are accompanied by documentation required by the contract.6 4. According to several opinions, the purpose of the Article 38 examination obligation, in conjunction with the notice requirement imposed by Article 39, is to make it clear, in an expeditious fashion, whether the seller has properly performed the contract.7 In this regard, Article 38 is similar to rules commonly found in domestic sales law – and, indeed, Article 38 has 2

Secretariat Commentary to Article 36 (draft counterpart to final Article 38) ¶ 2. E,g., CLOUT case No. 123, Germany, 1995; CLOUT case No 378, Italy, 2000; ICC Arbitration Case No. 8247, June 1996, 11 ICC Int. Ct. Arb. Bull 53 (2000; CLOUT case No. 81, Germany, 1994; CLOUT case No. 48, Germany, 1993. 4 See, e. g., CLOUT case No. 4, Germany, 1989; Hoge Raad, Netherlands, 20 February 1998, Unilex; CLOUT case No. 364, Germany, 1999; CLOUT case No. 56, Switzerland, 1992. For further information concerning the effect of failure to give timely notice, see the discussion infra of Articles 39, 40 and 44. 5 CLOUT case No. 237, Arbitration, 1998. 6 Gerechtshof Arnem, the Netherlands, 17 June 1997, Unilex. 7 Obester Gerichtshof, Austria, 27 August 1999, available on the Internet at ; CLOUT case No. 284, Germany, 1997. The buyer’s obligation to examine goods under Article 38 has also been linked to the principle of good faith in the 3

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been applied as a matter of “international trade usage” even though the states of neither the buyer nor the seller had, at the time of the transaction, ratified the Convention.8 Article 38, however, is a provision of international uniform law distinct from similar domestic rules,9 and is to be interpreted (pursuant to Article 7(1)) from an international perspective and with a view to promoting uniformity in its application.10 It has been asserted that the requirements of Article 38 are to be strictly applied.11

Article 38(1) in General 5. Article 38(1) mandates that the buyer “examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances”. The meaning of the phrase specifying the time within which the examination must be conducted – “as short a period as is practicable in the circumstances” – has been addressed in many decisions.12 The text of Article 38(1) does not expressly address the type or method of examination required, and this issue has also generated substantial comment in the cases.13 6. Under Article 6 of the Convention, the parties can derogate from or vary the effect of any provision of the CISG. This principle has been applied to Article 38, and an agreement concerning the time and/or manner of the examination of goods has been held to supersede the usual rules of Article 38.14 On the other hand, it has been held that contractual provisions addressing the terms and duration of warranties, the buyer’s obligation to give notice of defects occurring after delivery, and the buyer’s rights if the seller did not cure defects, did not displace the provisions of Article 38.15 performance of international sales contracts. Arrondissementsrechtbank Zwolle, the Netherlands, 5 March 1997, Unilex. 8 CLOUT case No. 45, Arbitration, 1989. 9 CLOUT case No. 230, Germany, 1997. 10 CLOUT case No. 284, Germany, 1997. 11 CLOUT case No. 81, Germany, 1994. 12 See the discussion ¶¶ 11-14 infra. The time frame specified in Article 38(1) is subject to Article 38(2) and 38(3), which state special rules applicable to particular situations. See ¶¶ 16-17 infra. See also the discussion of latent defects in ¶ 15 infra. 13 See the discussion ¶¶ 9-10 infra. 14 CLOUT case No. 94, Austria, 1994 (agreement as to time and manner of examination); Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at (dicta); Arrondissementsrechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (agreement as to time). 15 CLOUT case No. 229, Germany, 1996.

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Derogation from Article 38 can also occur by trade usage,16 although the express terms of the agreement may negate the applicability of a usage.17 7. After the goods have been delivered, the seller may waive its right to object to the propriety of the buyer’s examination of the goods,18 or it may be stopped from asserting such right.19 On the other side, it has been asserted that a buyer may lose its rights to object to a lack of conformity if the buyer takes actions indicating acceptance of the goods without complaining of defects that it had discovered or should have discovered in its examination.20 8. Evidentiary questions can play a crucial role in determining whether a buyer has met its obligations under Article 38(1). Several decisions have asserted that the buyer bears the burden of proving that it conducted a proper examination.21 In determining whether an adequate examination was 16 Helsinki Court of Appeal, Finland, 29 January 1998, available on the Internet at ; Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at ; Arrondissementsrechtbank Zwolle, the Netherlands, 5 March 1997, Unilex; CLOUT case No. 170, Germany, 1995; CLOUT case No. 290, Germany, 1998. 17 CLOUT case No. 292, Germany, 1993. 18 CLOUT case No. 270, Germany, 1998 (seller impliedly waived it rights because it had negotiated for a period of 15 months over the amount of damages for non-conforming goods without reserving the right to rely on Articles 38 and 39, it had paid for an expert at buyer’s request, and it had offered damages amounting to seven times the price of the goods); CLOUT case No. 235, Germany, 1997, (seller waived rights by agreeing to give a credit for goods that the buyer showed were non-conforming). But see CLOUT case No. 94, Arbitration, 15 June 1994 (seller had not waived its rights under Articles 38 and 39 merely by failing to object immediately to the timeliness of buyer’s notice; the seller’s intention to waive must be clearly established); CLOUT case No. 251, Switzerland, 1998 (the fact that seller, at the buyer’s request, examined goods that the buyer claimed were non-conforming did not mean that seller waived its right to claim late notice of the non-conformity). 19 CLOUT case No. 94, Arbitration, 15 June 1994 (seller was estopped from asserting its rights under Articles 38 and 39 because 1) it engaged in conduct that the buyer could justifiably interpret as indicating the seller accepted the validity of buyer’s complaint of lack of conformity, and 2) buyer relied upon the indication that seller would not raise a defense based on Articles 38 or 39). 20 CLOUT case No. 343, Germany, 2000; CLOUT case No. 337, Germany 1996. But see CLOUT case No. 253, Switzerland, 1998 (acceptance of pre-shipment certificate showing proper quality of cocoa beans, for purposes of drawing on letter of credit, did not deprive the buyer of right to examine goods after delivery and to contest their quality). 21 CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 97, Switzerland, 1993; CLOUT case No. 378, Italy, 2000; Oberster Gerichtshof, Austria, 27 August 1999 available on the Internet at . See also Landgericht Duisburg, Germany, 17

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conducted, furthermore, it has been asserted that a tribunal should consider both “objective” and “subjective” factors, including the buyer’s “personal and business situation”.22 Some decisions appear in fact to take into account the buyer’s subjective circumstances in judging the adequacy of an examination, at least where such considerations suggest a high standard for the examination.23 Other decisions, however, have refused to consider the buyer’s particular situation when it was invoked to argue for a low standard for the examination.24

Method of Examination 9. By stating that the buyer must either examine the goods or “cause them to be examined”, Article 38(1) implies that the buyer need not personally carry out the examination. In a number of cases, examinations were (or should have been) conducted by a person or entity other than the buyer, including the buyer’s customer,25 subcontractor,26 or an expert appointed by the buyer.27 It has also been held, however, that the buyer bears ultimate responsibility under Article 38 for examinations carried out by others.28

April 1996, Unilex (holding in favor of seller because buyer had not produced evidence of timely examination of goods and timely notice of defect). 22 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . 23 CLOUT case No. 232, Germany, 1998 (because buyer was an experienced merchant, it should have conducted an expert examination and detected defects); CLOUT case No. 4, Germany, 1989 (in light of its expertise and the fact that it had found defects in the first delivery, buyer should have conducted a more thorough examination). 24 Hoge Raad, the Netherlands, 20 February 1998, Unilex (despite buyer’s summer vacation, it should not have delayed in examining the goods when its customer complained in July); CLOUT case No. 285, Germany, 1998 (fact that buyer’s manufacturing facilities were still under construction and that buyer was disorganized should not be considered in determining whether the buyer conducted a proper examination). 25 CLOUT case no. 167, Germany, 1995 Unilex (buyer’s customer should have examined goods and discovered defect sooner than it did); CLOUT case No. 120, germany, 1994 (examination by buyer’s customer, to whom the goods had been transshipped, was timely and proper). 26 CLOUT case No. 359, Germany, 1999 (third party to whom buyer transferred the goods (fiberglass fabrics) for processing would conduct the Article 38 examination; because buyer unjustifiably delayed transferring the goods to the third party, the examination was late). 27 CLOUT case No. 319, Germany, 1999; Oberster Gerichtshof, Austria, 27 August 1999, Unilex. 28 CLOUT case No. 167, Germany, 1995.

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10. Except for implying that the examination need not be carried out by the buyer personally, Article 38(1) is silent about the method the buyer should employ in examining the goods. In general, it has been asserted, the manner of inspection will depend on the partie’s agreement, trade usages and practices;29 and that in the absence of such indicators a “reasonable” examination, “thorough and professional” is required, although “costly and expensive examinations are unreasonable”.30 It has also been asserted that the extent and intensity of the examination are determined by the type of goods, packaging and the capabilities of the typical buyer.31 The issues relating to the method or manner of examination that have been addressed in decisions include: the impact of the buyer’s expertise on the level of examination required;32 whether spot testing or “sampling” is required33 or adequate;34 the effect of the packaging or shipping condition of the goods on 29 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at at . For discussion of contractual provisions and usages relating to examination, see ¶ 6 supra. 30 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . See also Landgericht Paderborn, Germany, 25 June 1996, Unilex (holding that the buyer did not need to conduct special chemical analyses of plastic compound). 31 CLOUT case No. 230, Germany, 1997, reversed on other grounds by CLOUT case No. 270, Germany, 1998. 32 CLOUT case No. 232, Germany, 1998; CLOUT case No. 4, Germany, 1989 (in view of his expertise, merchant buyer should have conducted “a more thorough and professional examination”). 33 CLOUT case No. 230, Germany, 1997 (requiring test use of goods for defects that would only become apparent upon use and asserting that random testing is always required), reversed on other grounds by CLOUT case No. 270, Germany, 1998; CLOUT case No. 232, Germany, 1998; CLOUT case No. 98, the Netherlands, 1991 (buyer required to thaw and examine a portion of shipment of frozen cheese); Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at ; CLOUT case No. 292, Germany, 1993; CLOUT case No. 285, Germany, 1998 (buyer should have conducted a test by processing a sample of delivered plastic using its machinery); CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 81, Germany, 1994; CLOUT case No. 4, Germany, 1989 (spot checking of delivery of shoes not sufficient where defects had been discovered in an earlier delivery). 34 CLOUT case No. 170, Germany, 1995 (taking samples of wine for examination the day after delivery was adequate; buyer did not have to examine for dilution with water because that is not generally done in the wine trade); CLOUT case No. 280, Germany, 1998 (examination of random samples of live fish after delivery would have been sufficient); CLOUT case No. 192, Switzerland, 1997 (spot checking of wrapped medical devices would be adequate). But see Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (examination of delivery of fish by sample would not be sufficient where the buyer had ready opportunity to

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the type of examination the buyer should conduct;35 whether an outside expert can or must be utilized;36 and whether the presence or absence of defects in earlier deliveries or transactions should affect the manner of examination.37

Time Period for Examination 11. Article 38(1) states that the buyer must examine the goods “within as short a period as is practicable in the circumstances”. It has been asserted that the purpose of the deadline for examination established in Article 38(1) is to allow the buyer an opportunity to discover defects before the buyer resells,38 and to permit prompt clarification of whether the buyer accepts the goods as conforming,39 but the period for examination has been interpreted in a fashion that serves other purposes – for example, to mandate examination before the condition of the goods so changes that the opportunity to determine if the seller is responsible for a lack of conformity is lost.40 examine entire shipment when it was processed and buyer had discovered lack of conformity in another shipment by the seller). 35 CLOUT case No. 98, the Netherlands, 1991 (fact that delivery consisted of frozen cheese did not excuse buyer from obligation to examine: buyer should have thawed and examined a portion of shipment); CLOUT case No. 292, Germany, 1993 (fact that doors had been delivered wrapped in plastic sheets on pallets and buyer contemplated sending them on to its customers did not prevent buyer from examining goods: buyer should have unwrapped a sample of the doors); Rechtbank van Koophandel Kortrijk, Belgium, 6 October 1997, Unilex (not reasonable to expect buyer of yarn to unroll the yarn in order to examine it before processing); CLOUT case No. 192, Switzerland, 1997 (buyer should have removed a sample of medical devices from shipping boxes and examined them through transparent wrapping). 36 CLOUT case No. 319, Germany, 1999; Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at ; Landgericht Ellwangen, Germany, 21 August 1995, Unilex. 37 Landgericht Ellwangen, Germany, 21 August 1995, Unilex; CLOUT case No. 4, Germany, 1989 (spot checking of delivery of shoes not sufficient where defects had been discovered in an earlier delivery). 38 CLOUT case No. 251, Switzerland, 1998. 39 CLOUT case No. 230, Germany, 1997. 40 CLOUT case No. 284, Germany, 1997 (immediate examination of chemicals required where the chemicals were going to be mixed with other substances soon after delivery); Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (examination was due quickly where shipment of fish was to be processed by the buyer, making it impossible to ascertain whether the fish were defective when sold); Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex (examination of furs not conducted until .they had already undergone processing was not timely).

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Art. 38

Draft Digest

12. Except where the contract involves carriage of the goods (a situation governed by Article 38(2), discussed below) or where the goods are redirected in transit or redispatched (circumstances handled in Article 38(3), discussed below), the time for the buyer’s examination as a rule begins to run upon delivery of the goods41 – which in general corresponds to the time risk of loss passed to the buyer.42 Requiring the buyer to conduct an examination after delivery, therefore, is consistent with Article 36(1) of the Convention, which establishes the seller’s liability for any lack of conformity existing when the risk passes. Where the lack of conformity is a hidden or latent one not reasonably discoverable in the initial examination, however, decisions have indicated that the period for conducting an examination to ascertain the defect does not begin to run until the defects reveal (or should reveal) themselves. Thus where a buyer alleged a lack of conformity in a grinding device that suffered a complete failure approximately two weeks after being put into service (approximately three weeks after delivery), one court indicated that the period for examining the goods with respect to this defect began to run at the time of the failure.43 41

E. g., CLOUT case No. 48, Germany, 1993 (where the contract provided for delivery of cucumbers “free on refrigerated truck Turkish loading berth”, the German buyer should have examined the goods when they were loaded in Turkey, instead of waiting until they had been forwarded to Germany); CLOUT case No. 81, Germany, 1994 (asserting that the period for examining the goods under Article 38 and giving notice under Article 39 begins upon delivery to the buyer); CLOUT case No. 378, Italy, 2000 (buyer’s time for examining goods begins to run upon delivery or shortly thereafter, except where the defect can only be discovered when the goods are processed); CLOUT case No. 56, Switzerland, 1992 (buyer must examine goods upon delivery); Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (examination due at the time of delivery or shortly after). In dicta, the German Supreme Court has suggested that an Article 38 examination of machinery should be conducted both at the time of delivery and at the time of installation; see CLOUT case No. 319, Germany, 1999. In a decision involving the sale and installation of sliding gates, one court held that the defects in the gates should have been discovered when installation of the gates was substantially complete, even though some minor work remained unperformed by the seller; see CLOUT case No. 262, Switzerland, 1995. The court did not actually cite Article 38. Instead, it discussed the Article 39(1) obligation to give notice of a lack of conformity within a reasonable time after the non-conformity was discovered or should have been discovered – but the decision clearly implies that the time for the buyer’s examination of the goods commenced even before seller had completed all its duties. 42 See CISG art. 69. 43 CLOUT case No. 319, Germany, 1999. See also CLOUT case No 378, Italy, 2000 (“the time when the buyer is required to examine the goods under Art. 38(1) ... as a rule is upon delivery or shortly thereafter and only exceptionally may be later, for instance when the defect is discoverable only by processing the goods); Hoge Raad, the Netherlands, 20 February 1998,

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13. The mandate in Article 38(1) to examine the goods “within as short a period as is practicable” has indeed been applied in a strict fashion in several cases.44 It has also been asserted that the phrase is to be strictly interpreted.45 In light of the requirement in Article 38(1) that the time period for examination be one that is “practicable in the circumstances”, however, decisions have also recognized that the standard is a flexible one, and that the period for examination will vary with the facts of each case. According to one court, the short period for the examination depends on the size of the buyer’s company, the type of the goods to be examined, their complexity or perishability or their character as seasonal goods, the type of the amount in question, the efforts necessary for an examination. Furthermore, the objective and subjective circumstances of the concrete case must be considered, in particular the buyer’s personal and business situation, characteristic features of the goods, the amount of the delivery of goods or the type of the chosen legal remedy.46 Unilex (implying that the period for examining for latent defects in floor tiles began to run when buyer’s customer complained, some seven months after seller delivered the tiles to buyer); Landgericht D
sseldorf, Germany, 23 June 1994, Unilex (suggesting that period to examine engines for latent defects did not begin until buyer had installed and put goods into operation); Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, available on the Internet at (time for examination of goods and notice of lack of conformity was extended for goods that had to be processed before defects could be discovered (dicta)). 44 Court of Arbitration of the International Chamber of Commerce, ICC Arbitration Case No. 8247, June 1996, 11 ICC Int. Arb. Bull. 53 (2000) (buyer should have examined a large shipment of chemical compound on the day it arrived in the port of destination); Landgericht Landshut, Germany, 5 April 1995, Unilex (asserting that buyer’s obligation to examine the goods must be complied with immediately, even if the goods are not perishable); CLOUT case No. 56, Switzerland, 1992 (because both buyer and seller were merchants, buyer should have examined the goods immediately upon delivery); Hof Arnem, the Netherlands, 17 June 1997, Unilex (buyer, who was a dealer in medical equipment, should have checked immediately after delivery whether documents necessary to satisfy regulations were present); CLOUT case No. 290, Germany, 1998 (buyer must examine flowers on the day of delivery); CLOUT case No. 81, Germany, 1994 (examination of shirts was required immediately following delivery). 45 CLOUT case No. 81, Germany, 1994; CLOUT case No. 251, Switzerland, 1998. 46 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . The opinion continues by asserting that “the reasonable periods pursuant to Arts. 38 and 39 CISG are not long periods. For other statements on the flexible standard for the time for examination and/or the factors that should be considered in determining whether examination was timely, see CLOUT case No. 192, Switzerland, 1997 (indicating that a tribunal should consider “the nature of the goods, the quantity, the kind of wrapping and all other relevant circumstances”); Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex (asserting that scholars discussing Article 38 have indicated that the time frame

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Art. 38

Draft Digest

14. As the aforementioned statement indicates, the perishable nature of goods is a factor that tribunals have considered in determining the period for examination.47 Other factors that the decisions recognize as relevant include the professionalism and/or expertise of the buyer,48 the timing and nature of the buyer’s expected use or resale of the goods,49 the buyer’s knowledge of the seller’s need for speedy notice of lack of conformity,50 whether the goods had passed a pre-delivery inspection,51 whether there were non-business days during the period for examination,52 the complexity of the goods,53 the is “elastic, leaving space to the interpreter and in the end to the judge, in terms of reasonableness, so that the elasticity will be evaluated in accordance with the practicalities of each case”); CLOUT case No. 81, Germany, 1994 (in determining the time for examining the goods “the circumstances of the individual case and the reasonable possibilities of the contracting parties are crucial”); CLOUT case No. 230, Germany, 1997 (asserting that, although the “median” time for an examination of durable goods is three-to-four days, “[t]his figure can be corrected upward or downward as the particular case requires”). 47 CLOUT case No. 290 (flowers); CLOUT case No. 98, the Netherlands, 1991 (cheese); Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (fish). 48 CLOUT case No. 56, Switzerland, 1992; Hof Arnem, the Netherlands, 17 June 1997, Unilex. 49 CLOUT case No. 284, Germany, 1997, Unilex (immediate examination of chemicals required where the chemicals were going to be mixed with other substances soon after delivery); Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (examination was due quickly where shipment of fish was to be processed by the buyer, making it impossible to ascertain whether the fish were defective when sold); Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex (examination of furs not conducted until they had already undergone processing was not timely). 50 Landgericht Kln, Germany, 11 November 1993, Unilex, reversed on other grounds by CLOUT case No. 122, Germany, 1994. 51 Compare Helsinki Court of First Instance, 11 June 1995, available on the Internet at (existence of pre-delivery tests showing acceptable vitamin content for skin care products excused buyer from testing for vitamin content immediately after delivery) with CLOUT case No. 280, Germany, 1998 (buyer was not entitled to rely on pre-importation veterinarian’s inspection certificate certifying health of live fish: buyer should have examined samples of fish after delivery). 52 CLOUT case No. 120, Germany, 1994 (buyer’s examination was timely, taking into account the fact that two days of the period were weekend days); Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex (3 days for examining delivery of ham was sufficient even though Christmas holidays interfered with examination). But see Hoge Raad, the Netherlands, 20 February 1998, Unilex (despite buyer’s summer vacation, it should not have delayed in examining the goods when its customer complained in July). 53 Landgericht D
sseldorf, Germany, 23 June 1994, Unilex (where the goods consisted of two engines to be used for manufacturing hydraulic presses and welding machines, buyer had

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difficulty of conducting an examination,54 whether there were defects in prior deliveries,55 and the obviousness (or non-obviousness) of the lack of conformity.56 15. Although the flexibility and variability of the period within which the buyer must examine the goods is widely recognized, several decisions have more than the usual time for an examination in order to determine conformity with technical specifications; because buyer delayed examining the goods until some four months after delivery of the second engine (16 months after delivery of first engine), however, the examination was untimely). 54 CLOUT case No. 315, France, 1999 (time for examination took into account the difficulty of handling the metal sheets involved in the sale); Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, Unilex (period for examination was longer for goods that had to be processed before defects could be discovered (in this case, yarn to be woven)); Rechtbank van Koophandel Kortrijk, Belgium, 6 October 1997, Unilex (buyer of crude yarn did not have to examine goods until they were processed; it would be unreasonable to expect buyer to unroll the yard in order to examine it before processing); Landgericht D
sseldorf, Germany, 23 June 1994, Unilex (buyer had longer than normal period to examine engines to be used in its manufacturing process because buyer had to install and put goods into operation in order to discover defects). Compare CLOUT case No. 81 (the time for examination depends on the circumstances of the particular case, in this case, involving a sale of shirts, “it was easily possible to examine the shirts – at least by way of sampling – immediately after their delivery”). But see CLOUT case No. 98, the Netherlands, 1991, (fact that sale involved frozen cheese did not excuse buyer from prompt examination, buyer could thaw and examine a sample of delivery). 55 Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (buyer should have examined fish before processing and selling them to its customers given that buyer had already discovered lack of conformity in a previous shipment by the seller); Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, available on the Internet at (“defects in prior shipments a factor to consider in determining timeliness of examination”). 56 Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex (defects in under-seasoned ham were easily discernible, and thus buyer should have examined goods and discovered defects quickly); Landgericht Kln, Germany, 11 November 1993, Unilex, reversed on other grounds in CLOUT case No. 122, Germany, 1994 (mistake in business report was easily discoverable, and thus examination was required to be quick); CLOUT case No. 359, Germany, 1999 (where defects are easy to discover, the time for examination should not exceed one week); CLOUT case No. 284, Germany, 21 August 1997 (where chemicals were to be mixed with other substances and defects were easily discernible, immediate examination of the goods was required); CLOUT case No. 359, Germany, 1999 (“where defects are easy to discover . . the examination period should not exceed a period of one week”). See also Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex (time period for notice (and, perhaps, examination) is reduced if defects are easily recognizable).

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Draft Digest

attempted to establish presumptive time periods for the buyer’s examination. Thus some opinions have asserted that the general base-line period for examination (which might be lengthened or shortened by particular circumstances) is one week after delivery.57 Other decisions have set presumptive examination periods ranging from three or four days58 to a month.59 Based on the facts of the particular case, examinations have been found timely when they were conducted within approximately two weeks of the first delivery under the contract,60 within a few days after delivery at the port of destination,61 and on the day of delivery.62 An examination by an expert was also deemed timely when it was conducted and completed at an unspecified time following delivery, but where arrangements to have the expert examine the goods were initiated before the goods arrived at their destination.63 Examinations in the following periods have been held untimely in the particular circumstances: four months after the delivery of the second of two engines (20 months after the delivery of the first engine);64 more than 10 days following delivery;65 beyond one week to 10 days after delivery;66 beyond one week following delivery;67 more than a few days after delivery;68 after three or four days following delivery;69 beyond three days 57 CLOUT case No. 285, Germany, 1998, Unilex (“Generally speaking, examination of the goods by the buyer should occur within a week after delivery”); CLOUT case No. 284, Germany, 21 August 1997 (where chemicals were to be mixed with other substances and defects were easily discernible, immediate examination of the goods was required); CLOUT case No. 359, Germany, 1999 (“where defects are easy to discover . . the examination period should not exceed a period of one week”); Landgericht Mnchengladbach, Germany, 22 May 1992, Unilex (generally allowing one week for examination of goods). Compare Oberster Gerichtshof, Austria, 27 August 1999 available on the Internet at (unless special circumstances suggest otherwise, buyer has a total of approximately 14 days to examine and give notice of defects). 58 CLOUT case No. 230, Germany, 1997. Compare Landgericht D
sseldorf, Germany, 23 June 1994 (a few working days). 59 CLOUT case No. 284, Germany, 1997. 60 CLOUT case No. 315, France, 1999. 61 China International Economic and Trade Arbitration Commission (CIETAC) Arbitration, China, 1995, Unilex. 62 CLOUT case No. 46, Germany, 1990. 63 CLOUT case No. 45, Arbitration, 1989. 64 Landgericht D
sseldorf, Germany, 23 June 1994 Unilex. 65 CLOUT case No. 192, Switzerland, 1997. 66 CLOUT case No. 251, Switzerland, 1998. 67 CLOUT case No. 285, Germany, 1998; Landgericht Mnchengladbach, Germany, 22 May 1992, available on the Internet at ; CLOUT case No. 359, Germany, 1999. 68 Landgericht, Kln, Germany, 11 November 1993, Unilex.

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after delivery;70 after the day of arrival at the port of destination;71 any time later than immediately following delivery.72

Latent Lack of Conformity 16. The question of the buyer’s obligation to examine the goods for a hidden or latent lack of conformity not discernible during an initial inspection73 is an important one because Article 39(1) requires the buyer to give notice of a lack of conformity “within a reasonable time after [the buyer] discovered or ought to have discovered it” (emphasis added). Tribunals have adopted different approaches to examination for latent defects, apparently varying with the view taken of the nature of the examination required by Article 38. Some decisions appear to conceive of the Article 38 examination as an ongoing or repeated process involving a continuous search for all nonconformities, including latent ones. Such decisions seem to treat the question of when the buyer ought to have found any defect, including a latent one not discoverable in an initial examination, as an issue governed by Article 38, on the apparent assumption that Article 38 requires the buyer to continue examining the goods until all defects are revealed. Thus some decisions indicate that the period for an Article 38 examination for latent defects does not begin to run until such defects should reveal themselves,74 whereas the period for examination of obvious defects begins to run immediately upon delivery.75 These opinions apparently contemplate multiple or continuous examinations under Article 38. Other decisions appear to conceive of the examination required by Article 38 as a single discrete event to occur shortly after delivery. For tribunals adopting this approach, the question of when latent defects should be discovered if they are not reasonably discernible in the initial Article 38 examination is an issue beyond the scope of Article 38.76 69

CLOUT case No. 230, Germany, 1997.

70

Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex; Landgericht Landshut, Germany, 5 April 1995, Unilex (examination for proper quantity of sports clothing). 71 ICC Arbitration Case No. 8247, 1996, Unilex. 72 CLOUT case No. 81, Germany 1994. 73 For the distinction between latent and obvious (patent) defects, see CLOUT case No. 4, Germany, 1989; CLOUT case No. 378, Italy, 2000; CLOUT case No. 284, Germany, 1997; CLOUT case No. 230, Germany, 1997. 74 See footnote 43 supra and accompanying text discussing CLOUT case No. 319, Germany, 1999 (period for examination to discover latent defects in grinding device did not begin until device broke down approximately three weeks after delivery). 75 See footnote 41 supra and accompanying text; footnote 56 supra and accompanying text. 76 Under this approach, the question of the timely discovery of such latent defects is an issue

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Draft Digest

17. Illustrating this approach, one decision has been characterized as holding that, “where a buyer can prove that a satisfactory examination would not reasonably have revealed the lack of conformity ... Article 38 [is] not relevant to Article 39”.77

Article 38(2) 18. As was noted previously, under Article 38(1) the period for the buyer to examine the goods as a rule begins to run upon delivery of the goods.78 Where such delivery is to occur, in turn, is governed by the sales contract or, in the absence of a contractual provision addressing this question, by the default rules stated in Article 31.79 In many transactions in which the goods will be delivered to the buyer by means of a third-party carrier, the place of delivery will be where the seller hands over the goods to the carrier for transportation.80 In such cases, it will often not be convenient or even possible for the governed not by Article 38 but by the requirement in Article 39(1) that the buyer notify the seller of a lack of conformity “within a reasonable time after [the buyer] discovered or ought to have discovered it”. In other words, even though this approach posits that a latent defect might not be reasonably discoverable during the examination required by Article 38, the buyer still is charged with taking reasonable action to discover such defects under Article 39. For further discussion related to this issue, see the discussion infra of Article 39. 77 Landgericht Paderborn, Germany, 25 June, 1996, Unilex. For other decisions that may take a similar approach to the relationship between the Article 38 examination and discovery of latent defects, see CLOUT case No. 280, Germany 1998 (failure to examine goods as provided in Article 38 would be irrelevant if the buyer could show that an expert examination would not have detected the defect (dicta)); Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at (suggesting that, if buyer had conducted a thorough and professional post-delivery examination of the goods that did not reveal a latent lack of conformity, buyer would have satisfied its obligations under Article 38); Landgericht Ellwangen, Germany, 21 August 1995, Unilex (suggesting that buyer satisfied its Article 38 obligations by examining the goods without a chemical analysis that, when conducted later, revealed a latent defect). 78 See footnote 41 supra and accompanying text. 79 See Landgericht Landshut, Germany, 5 April 1995, Unilex (stating that the Article 38 examination must usually be conducted at the place for the performance of the obligation to deliver under Article 31). 80 This will be true, for example, if the parties agree to any of the various trade terms under which the buyer bears the risk of loss while the goods are in transit – e. g., Free Carrier (FCA) named point under the Incoterms. The same result would occur in transactions involving carriage of the goods if the parties have not agreed upon the place of delivery: in such cases, Article 31(a) provides that delivery occurs when the seller hands the goods over to the first carrier for transmission to the buyer.

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buyer to examine the goods at the point of delivery, and thus in fairness the period for examination should not begin running at that point. For this reason, in transactions involving “carriage of goods” (i. e., transportation by third-party carrier), Article 38(2) permits the buyer to defer the examination “until after the goods have arrived at their destination”. This rule has been applied in several cases. In one transaction involving goods to be transported from Tallinn, Estonia to Abu Dhabi in the United Arab Emirates, the court held that the buyer could postpone examination until the goods arrived at Abu Dhabi even though the contract provided for delivery FOB Tallinn.81 On the other hand, Article 38(2) is subject to the contrary agreement of the parties.82 Thus where a contract between a seller and a buyer provided that the goods were to be delivered “free on refrigerated truck Turkish loading berth (Torbali)” and from there to be shipped on to the buyer’s country by carrier, the court found that the partie’s agreement had excluded Article 38(2) and the buyer was required to conduct the Article 38 examination in Turkey rather than at the place of arrival, because the contract contemplated that a representative of the buyer would inspect the goods at the Turkish loading dock and the buyer was responsible for making arrangements for transporting the goods to its country.83

Article 38(3) 19. Article 38(3) permits a buyer in certain circumstances to defer examination of the goods until after the time that the period for examination would otherwise have commenced.84 Specifically, where the goods are “redirected in transit” or “redispatched by the buyer without a reasonable 81 Helsinki Court of Appeal, Finland, 29 January 1998, available on the Internet at . For other cases applying Article 38(2), see CLOUT case No. 123, Germany, 1995; ICC Arbitration Case No. 8247, 1996, 11 Int. Ct. Arb. Bull. 53 (2000); Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex; Landgericht Landshut, Germany, 5 April 1995, Unilex; China International Economic and Trade Arbitration Commission (CIETAC) Arbitration, China, 1995, Unilex (under a CIF contract, where delivery to the buyer occurs when the goods pass the ship’s rail at the port for loading, the buyer’s time for examination did not start until the goods arrived at the port of destination). 82 Not only does Article 6 of the CISG provide that the parties may “derogate from or vary the effect of any of [the Convention’s] provisions”, but Article 38(2) itself is phrased in permissive (“examination may be deferred”) as opposed to mandatory fashion. 83 CLOUT case No. 48, Germany, 1993. 84 Unless Article 38(3) applies, the time for the buyer to examine the goods usually commences when the goods are delivered or, in the case of goods transported by a third-party carrier, when the goods arrive at their destination. See ¶ 18 supra.

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Draft Digest

opportunity for examination by him”,85 Article 38(3) permits examination to be deferred “until after the goods have arrived at the new destination”, provided the seller “knew or ought to have known of the possibility of such redirection or redispatch” when the contract was concluded. Under this provision, an examination of a delivery of rare hard woods that the buyer (with the seller’s knowledge) redispatched to the buyer’s customer could be deferred until the goods arrived at the customer’s facilities.86 Several decisions, however, have strictly construed the requirements for Article 38(3) to apply. Thus it has been stated that the provision only applies if the goods are delivered directly from the seller to the end customer or if the buyer acts simply as an intermediary between the seller and the end customer, and the provision was held inapplicable where the buyer received and stored the goods in its own warehouse without knowing in advance whether and when they would be resold.87 It has also been held that Article 38(3) allows a deferred examination only if all (rather than just a part) of a delivery of goods is redispatched, or redirected in transit, and then only if the buyer does not have a reasonable opportunity to examine the delivery.88

Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. (2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time limit is inconsistent with a contractual period of guarantee.

85 According to a statement of a delegate from the Netherlands at the 1980 Vienna Diplomatic Conference at which the final text of the CISG was adopted, the distinction between “redirected in transit” and “redispatched” is as follows: “’Redispatched’ implied that the goods had reached their first destination and had subsequently been sent on. ‘Redirected in transit’ implied that they had never reached their first destination”. Note to Secretariat Commentary on Article 38 (Article 36 of the draft Convention) available on the internet at . 86 Oberlandesgericht Kln, Germany, 22 February 1994, Unilex. 87 CLOUT case No. 292, Germany, 1993. 88 CLOUT case No. 192, Switzerland, 1997.

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Draft Digest

Art. 39

Overview of Article 39 1. Article 39 imposes on a buyer who claims that delivered goods do not conform to the contract an obligation to give the seller notice of the lack of conformity. The provision is divided into two subsections addressing different time periods for the required notice: Article 39(1) requires that the notice be given within a reasonable time after the buyer has discovered it or ought to have discovered it; Article 39(2) specifies that, in any event, the buyer must give the seller notice of the claimed lack of conformity within two years of the date on which the goods were actually handed over to the buyer, unless this time limit is inconsistent with a contractual period of guarantee.

Scope of Article 39 2. The notice obligation imposed by Article 39 applies if the buyer claims that delivered goods suffer from a lack of conformity. The concept of conformity is defined in Article 35. The great majority of decisions applying the Article 39 notice requirements involve claims that the goods were defective or otherwise not of conforming quality. Nevertheless, the Article 39 notice obligation has been applied not only to breaches of the quality obligations imposed by Article 35, but also to a breach of a contractual warranty made in derogation of Article 35.1 It has also been applied where the claimed lack of conformity was a failure to provide proper instruction manuals to accompany the goods.2 Several decisions have held that Article 39 requires notice when the buyer claims that an inadequate quantity (as opposed to quality) of goods was delivered.3 One court has also applied the Article 39 notice requirement when the buyer complained that delivery of seasonal goods was late,4 although that decision has not been followed in other cases.5 Each separate lack of conformity is subject to the notice requirement, and the fact that the buyer may have given proper notice

1

CLOUT case No. 237, Arbitration, 1998.

2

CLOUT case No. 343, Germany, 2000.

3

CLOUT case No. 48, Germany, 1993; CLOUT case No. 282, Germany, 1997; Landgericht Landshut, Germany, 5 April 1995, Unilex. 4 Amtsgericht Augsburg, Germany, 29 January 1996, Unilex. 5 Note that the CISG provision governing time of delivery (Article 33) is not found in the section of the CISG entitled “Conformity of the goods” (Section II of Part III, Chapter I), but rather is located in the section entitled “Delivery of the goods and handing over of documents” (Section I of Part III, Chapter II).

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as to one defect does not necessarily mean it has given valid notice as to all claimed non-conformities.6

Consequences of Failure to Give Notice 3. Both Article 39(1) and Article 39(2) state that failure to give the requisite notice results in the buyer losing the right to rely on the lack of conformity. This appears to mean that the buyer loses the right to any remedy for the non-conformity, including, e. g., the right to require the seller to repair the goods,7 the right to claim damages,8 the right to reduce the price,9 and the right to avoid the contract.10 One court, however, appears to have permitted the buyer to partially avoid the contract based on a lack of conformity that had not been timely noticed.11 It should also be noted that a buyer’s remedies for a lack of conformity concerning which it has not given proper notice may be restored in whole or in part under CISG Articles 40 and 44.12

Burden of Proof 4. There appears to be a consensus in reported decisions that the buyer bears the burden of proving that it gave the required Article 39 notice of nonconformity. This position has been adopted both expressly13 and by implication.14 Although several decisions have invoked domestic legal rules to 6

CLOUT case No. 123, Germany, 1995; Landgericht Landshut, Germany, 5 April 1995, Unilex; Landgericht Bielefeld, Germany, 18 January 1991, Unilex; Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . 7 CLOUT case No. 196, Switzerland, 1995. 8 CLOUT case No. 50, Germany, 1991; CLOUT case No. 230, Germany, 1997, reversed on other grounds by CLOUT case No. 270, Germany, 1998. 9 CLOUT case No. 232, Germany, 1998; CLOUT case No. 273, Germany, 1997. Compare also CLOUT case No. 46, Germany, 1990 (finding that buyer had the right to reduce the price under Article 50 because it had given proper notice of lack of conformity). 10 CLOUT case No. 232, Germany, 1998; CLOUT case No. 282, Germany, 1997. 11 CLOUT case No. 50, Germany, 1991. 12 See the discussion of these provisions infra. 13 CLOUT case No. 378, Italy, 2000; CLOUT case No. 251, Switzerland, 1998; Oberster Gerichtshof, Austria, 27 August 1999, Unilex; CLOUT case No. 305, Austria, 1998; Pretura di Torino, Italy, 30 January 1997, Unilex; CLOUT case No. 196, Switzerland, 1995, CLOUT case No. 97, Switzerland, 1993. 14 Rechtbank s’Gravehage, the Netherlands, 7 June 1995, Unilex; Landgericht Marburg, Germany, 12 December 1995, Unilex; Landgericht Duisburg, Germany, 17 April 1996,

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justify allocating the burden to the buyer,15 a larger number have based their allocation on the general principles underlying the CISG.16 A decision by an Italian court, for example, expressly rejected reliance on domestic law in determining the burden of proof, and discovered in provisions such as Article 79(1) a general CISG principle (in the sense of Article 7(2)) requiring the buyer to prove valid notice.17

Form of Notice 5. Article 39 does not specify the form of notice required, although the parties can by agreement require a particular form.18 Notice in written form has often been found satisfactory, and the contents of a series of letters has been combined in order to satisfy the Article 39 requirement.19 Oral notice (by telephone) has also been found sufficient,20 although in several cases evidentiary issues have caused a buyer’s claim to have given telephonic notice to fail.21 One court has held that a buyer claiming to have given notice by telephone must prove when the call took place, to whom the buyer spoke, Unilex; CLOUT case No. 290, Germany, 1998; CLOUT case No. 289, Germany, 1995; CLOUT case No. 191, Germany, 1995, Unilex; CLOUT case No. 81, Germany, 1994; ICC Award No. 8611 of 1997, Unilex; Arbitral Panel of the Zurich Chamber of Commerce, award no. ZHK 273/95, 31 May 1996, Unilex. 15 Pretura di Torino, Italy, 30 January 1997, Unilex. 16 CLOUT case No. 378, Italy, 2000; CLOUT case No. 251, Switzerland, 1998; CLOUT case No. 196, Switzerland, 1995; CLOUT case No. 97, Switzerland, 1993. 17 CLOUT case No. 378, Italy, 2000. 18 CLOUT case No. 222, United States, 1988, the buyer had signed an order form containing a clause requiring complaints of defects in the goods to be in writing and made by certified letter. The decision proceeds on the premise that, if this clause became part of the partie’s contract, the buyer’s oral notice of lack of conformity would not have been valid. The court remanded the case to determine whether the clause had in fact been incorporated into the agreement. 19 CLOUT case No. 225, France, 1998. 20 Landgericht Frankfurt, Germany, 9 December 1992, Unilex. This is one of the very rare decisions in which a particular telephonic notice was held to satisfy the notice requirement in fact. Another decision recognized the theoretical validity of telephone notice while finding on its particular facts that the requirements of Article 39 had not been satisfied. Landgericht Frankfurt, Germany, 13 July 1994, Unilex. Some decisions have found that telephonic notice failed to satisfy Article 39 in some respect (e. g., because it was given too late) without commenting on the form of the notice. Landgericht Bochum, Germany, 24 January 1996, Unilex; Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex. 21 Landgericht Marburg, Germany, 12 December 1995, Unilex; Amtsgericht Kehl, Germany, 6 October 1995, Unilex; CLOUT case No. 4, Germany, 1989.

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and what was said during the conversation; the buyer’s failure to prove these elements prevented it from establishing that the Article 39 notice requirement was satisfied.22 An earlier decision had similarly held that a buyer’s claim of telephonic notice had not been sufficiently substantiated because the buyer had not proven the date of the call, the party spoken to, or the information conveyed concerning the lack of conformity.23 In one decision, moreover, a court appeared to impose special requirements for sufficient oral notice by stating that, if the seller failed to respond to telephone notice given to the seller’s agent, the buyer was obliged to follow-up with written notice to the seller.24 Finally, a court has rejected a buyer’s argument that it gave implied notice of lack of conformity when it refused to pay the seller, holding that the notice required by Article 39 must be express.25

To Whom Must Notice Be Given 6. Article 39 states that the required notice of lack of conformity must be given to the seller.26 Thus it has been held that communications between the buyer and its customer concerning defects in the goods did not satisfy the Article 39 notice requirement because they did not involve the seller.27 Notice of defects conveyed by the buyer to an independent third party who had acted as an intermediary in the formation of the contract but who had no further relationship to the seller was held not to have been given by means appropriate in the circumstances within the meaning of Article 27, and thus the buyer bore the risk when the notice was not received by the seller.28 Similarly, notice given to an employee of the seller who was not authorized to receive such communications but who promised to transmit the information to the seller was held insufficient when the employee in fact did not inform the seller; the court noted that, when notice is not given to the seller personally, the buyer must ensure that the seller actually receives the notice.29 On the other hand, it has been held that notice given to an agent of the seller would satisfy Article 39, although the question of the recipient’s 22

Landgericht Frankfurt, Germany, 13 July 1994, Unilex. CLOUT case No. 4, Germany, 1989. 24 Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, Unilex. 25 Landgericht Aachen, Germany, 28 July 1993, Unilex, reversed on other grounds by the Oberlandesgericht Kln, Germany 22 February 1994, Unilex. 26 Article 39(1) requires the buyer to give notice to the seller, and Article 39(2) states that the buyer must give the seller notice. 27 CLOUT case No. 220, Switzerland, 1997. 28 Landgericht Kassel, Germany, 15 February 1996, Unilex. The court also noted that the notice must be specifically directed to the seller. 29 Landgericht Bochum, Germany, 24 January 1996, Unilex. 23

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agency status and authority were matters beyond the scope of the CISG to be determined under applicable domestic law.30

Agreements Relating to Notice 7. Article 39 is subject to the partie’s power under Article 6 to derogate from or vary the effect of any provision of the Convention. A significant number of decisions have involved agreements relating to the buyer’s obligation to give the seller notice of claims that the goods do not conform to the requirements of the contract. Such agreements have generally been enforced, and buyers have several times lost the right to complain of a lack of conformity because they failed to comply with the terms of such an agreement.31 A few decisions, however, appear reluctant to enforce contractual provisions governing notice: they rely on the standards of Article 39 even though the partie’s contract included clauses addressing notice of defects,32 and/or they suggest that the contract provisions are enforceable only to the extent they are judged reasonable by the standards of Article 39.33 Of course to be enforceable under any approach, terms relating to notice of lack of conformity must have become part of the partie’s agreement under applicable contract formation rules, which in the case of the Convention are found in Part II of the Convention. Thus it has been held that, although the parties can derogate from Article 39, they had not done so where a clause requiring the buyer to give notice within eight days of delivery was illegible and appeared on documents unilaterally generated by the seller after the contract was concluded.34 Parties also have been held not to have derogated 30

CLOUT case No. 364, Germany, 1999.

31

CLOUT case No. 336, Switzerland, 1999; Landgericht Gießen, Germany, 5 July 1994, Unilex; Landgericht Hannover, Germany, 1 December 1993, Unilex; CLOUT case No. 303, Arbitration, 1994; CLOUT case No. 94, Austria, 1994; CLOUT case No. 50, Germany, 1991; CLOUT case No. 50, Germany, 1991. See also CLOUT case No. 305, Austria, 1998 (remanding to determine whether contractual provision governing time for giving notice of defects had been complied with); but see Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (although the court notes that the seller’s standard term setting the time for giving notice of defects applied to the contract, the court apparently did not apply the term B although its analysis of whether the buyer gave notice within a reasonable time was influenced by the term). 32 CLOUT case No. 232, Germany, 1998; CLOUT case No. 292, Germany, 1993. 33 CLOUT case No. 232, Germany, 1998; CLOUT case No. 303, Arbitration, 1994. 34 CLOUT case No. 378, Italy, 2000. In CLOUT case No. 222, United States, 1998, the court ruled that, although the parties had each signed a form with a provision requiring the buyer to give written notice of defects within 10 days of delivery, evidence showing the parties did not subjectively intend to be bound by the provision should have been admitted under CISG

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from Article 39 just by agreeing to an 18-month contractual warranty.35 On the other hand, it has been recognized that a trade usage relating to notice of defects can derogate from Article 39 if the trade usage is binding on the parties under Article 9.36 To the extent an agreement by the parties relating to notice of non-conformity fails to address particular issues, the provisions of Article 39 have been invoked to fill the gaps.37

Waiver by the Seller or the Buyer 8. Although Article 39 gives a seller the right to prevent a buyer from relying on a lack of conformity if the buyer does not give the seller timely and proper notice thereof, a seller can waive this right by misleading the buyer into thinking that the seller would not object to the buyer’s notice. Thus where the seller, after receiving notice from the buyer that the delivered goods were not conforming, declared that it would give credit for the goods if the buyer’s complaints about defects were confirmed, one court found that the seller had waived its right to object to the timeliness of the buyer’s notice.38 On the other hand, another court invoked domestic law and a policy encouraging amicable settlements in holding that a seller did not waive its right to claim that notice was untimely just because it accepted return of the goods in order to examine them and granted the buyer a provisional pro forma credit for the price.39 And yet another court has held that the mere fact that seller Article 8(1). One court has held that a term requiring the buyer to give notice of defects within 30 days of delivery bound the buyer because it had been incorporated into the contract under the rules of Article 19 of the CISG; see CLOUT case No. 50, Germany, 1991. Another court found that under Article 18(1) a buyer accepted terms on the seller’s order confirmation, including a clause requiring notice of defects to be given within eight days after delivery, by accepting delivery of the goods; see CLOUT case No. 292, Germany, 1993. 35 CLOUT case No. 237, Arbitration, 1998. 36 CLOUT case No. 292, Germany, 1993. On the facts of the particular case, the court found that the partie’s agreement to a clause requiring notice within eight days of delivery excluded the applicability of any such trade usage. 37 CLOUT case No. 229, Germany, 1996 (agreement requiring the buyer to give immediate notice of defects occurring after delivery of the goods did not govern the obligation to notify of defects existing at delivery; the latter was therefore regulated by Article 39(1)); ICC Arbitration Case No. 8611, 1997, Unilex (because the partie’s agreement regarding notice of defects did not address, e. g., the specificity with which the notice must describe the claimed defect, the court supplemented the agreement by reference to Article 39(1)). 38 CLOUT case No. 235, Germany, 1997. 39 CLOUT case No. 310, Germany, 1993. The court indicated that waiver by the seller of its Article 39 rights would only be deemed to occur in clear circumstances, as where the seller unconditionally accepted return of the goods by the buyer.

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examined the goods, at the buyer’s request, after receiving the buyer’s complaint of lack of conformity did not constitute a waiver of the right to argue that the buyer’s notice of non-conformity was late. Another court has stated that a seller can waive its rights under Article 39 either expressly or impliedly, and that implied waiver requires specific indications that would lead the buyer to understand that the seller’s actions constituted a waiver; the court went on to hold that, although the seller in the case did not waive its right to object to the timeliness of notice of a lack of conformity by entering into settlement negotiations with the buyer over the non-conformity, the willingness to negotiate was a fact to consider; and this fact, in combination with the extended period during which such negotiations continued (15 months), the failure of the seller to reserve its rights under Article 39 during that time, and the seller’s actions in acceding to the buyer’s request to pay for an expert to examine the goods and in offering the buyer damages equal to seven time the price for the goods, supported the conclusion that the seller had waived its right to object to late notice.40 Another court has distinguished between waiver of a seller’s Article 39 rights and estoppel from asserting such rights: it held that the seller had not waived its right to object to late notice because the intention of parties to waive rights had to be very clearly established, and the mere fact that the seller did not immediately reject the notice as late at the time it was given was not sufficient evidence of waiver; on the other hand, by remaining in communication with the buyer in order to keep informed of the buyer’s customer’s complaints, and by making statements to the buyer indicating that the seller would not raise the defence of late notice, the seller became estopped from invoking that defence when the buyer relied on the impression that the seller would not complain of untimely notice.41 9. Buyers have also been deemed to have waived (or to be estopped from exercising) their rights under Article 39 when they affirmatively indicated acceptance of delivered goods and/or acknowledged an obligation for the price without raising objection to defects that were apparent. Thus a buyer was held to have lost its right to complain about missing parts and defects that should have been discovered when it agreed to the amount of a disputed balance remaining on the purchase price and accepted bills of exchange for that balance.42 Similarly, a buyer who negotiated a reduction in the price of video recorders on the basis of certain defects lost its right to object to other

40

CLOUT case No. 270, Germany, 1998.

41

CLOUT case No. 94, Austria, 1994. According to the court, the buyer had relied on the impression that the seller would not object to late notice because the buyer refrained from taking immediate legal action against its customer or the seller. 42 CLOUT case No. 337, Germany, 1996.

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Draft Digest

defects known to the buyer at the time the price-reduction was agreed to.43 And a buyer who paid outstanding invoices with bank checks and then stopped payment on the checks before they were honored was deemed to have lost its right to complain of defects known when the checks were provided.44

Article 39(1) – Purposes 10. Article 39(1) requires a buyer who claims that the goods do not conform to the contract to give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. This requirement has been identified with several different purposes. A number of decisions indicate that a purpose is to promote prompt clarification as to whether a breach has occurred.45 It has also been suggested that the required notice is designed to give the seller the information needed to determine how to proceed in general with respect to the buyer’s claim,46 and more specifically to facilitate the seller’s cure of defects.47 One decision states that the purpose is to promote the quick settlement of disputes and to assist the seller in defending itself.48 Another decision similarly suggests that Article 39(1) assists the seller in defending itself against invalid claims.49 The notice requirement has also been associated with a buyer’s obligation of good faith.50

Contents of Notice; Specificity Required 11. The notice required by Article 39(1) must “specify the nature of the lack of conformity...”. This language has been interpreted and applied in a large number of decisions. Several have made general pronouncements concern43 44

CLOUT case No. 343, Germany, 2000.

Hof s’Hertogenbosch, the Netherlands, 26 February 1992, Unilex. Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at ; CLOUT case No. 48, Germany, 1993; CLOUT case No. 284, Germany, 1997; CLOUT case No. 3, Germany, 1989. 46 CLOUT case No. 337, Germany, 1996; CLOUT case No. 378, Italy, 2000. 47 CLOUT case No. 344, Germany, 1998; CLOUT case No. 3, Germany, 1989. See also CLOUT case No 282, Germany, 1997 (implying that purpose of notice is to facilitate cure by the seller). 48 Landgericht Kassel, Germany, 15 February 1996, Unilex. 49 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . 50 Rechtbankk Zwolle, the Netherlands, 1997, Unilex. 45

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ing the specificity requirement. It has been said that notice of the mere fact of a lack of conformity is insufficient, but that the buyer must specify the precise nature of the defects;51 that notice should indicate both the nature and the extent of the lack of conformity, and should convey the results of the buyer’s examination of the goods ;52 that notice should be specific enough to allow the seller to comprehend the buyer’s claim and to take appropriate steps in response, i. e., to examine the goods and arrange for a substitute delivery or otherwise remedy the lack of conformity;53 that the purpose of the specificity requirement is to enable the seller to understand the kind of breach claimed by the buyer and to take the steps necessary to cure it, such as initiating a substitute or additional delivery;54 that notice should be sufficiently detailed that misunderstanding by the seller would be impossible and the seller could determine unmistakably what the buyer meant;55 that the notice should be sufficiently specific to permit the seller to know what item was claimed to lack conformity and what the claimed lack of conformity consisted of.56 Several decisions have emphasized that the notice should identify the particular goods claimed to be non-conforming;57 one such decision held that, even though the piece of agricultural machinery that the buyer claimed was defective was the only one of its type that the buyer had purchased from the seller, the specificity requirement was not satisfied where the notice failed to identify the serial number or the date of delivery, because the seller should not be forced to search its files for the records of the machine in question.58 A number of decisions have noted that each claimed non-conformity must be specifically described, and the fact that notice may be sufficiently specific as to one defect does not mean that the notice requirement for other claimed defects is satisfied.59 The specificity requirement has been applied to oral notice of lack of conformity.60 On the other 51

Landgericht Hannover, Germany, 1 December 1993, Unilex. CLOUT case No. 344, Germany, 1998. 53 Id. 54 CLOUT case No. 229, Germany, 1996. For a similar statement, see CLOUT case No. 319, Germany, 1999; see also CLOUT case No. 282, Germany, 1997 (implying that the purpose of the specificity requirement is to permit the seller to remedy the lack of conformity). 55 Id. 56 See also CLOUT case No. 319, Germany, 1999. 57 CLOUT case No. 319, Germany, 1999; ICC Arbitration Award No. 8611, 1997, Unilex; CLOUT case No. 282, Germany, 1997; Landgericht M
nchen, Germany, 20 March 1995, Unilex. 58 Landgericht Marburg, Germany, 12 December 1995, Unilex. 59 CLOUT case No. 123, Germany, 1995; Landgericht Bielefeld, Germany, 18 January 1991; Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at . 60 CLOUT case No. 4, Germany, 1989. 52

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hand, several decisions have warned against setting up an overly-demanding standard of specificity.61 It has also been suggested that different standards of specificity are required of different kinds of buyers, with expert buyers expected to provide more detailed notice.62 In the case of machinery and technical equipment, it has been held that the specificity requirement is satisfied by a description of the symptoms of a lack of conformity, and that an explanation of the underlying causes is not required.63 12. The following descriptions of a lack of conformity have been found to be sufficiently specific to satisfy Article 39(1): notice informing a seller of shoes that the buyers customer had received an alarming number of complaints about the goods, that the shoes had holes, and that the outer sole and heel of the children’s shoes became loose;64 notice to a seller of a machine for processing moist hygienic tissues that the buyer’s customer had found steel splinters in semi-finished products produced by the machine, resulting in patches of rust on the finished products;65 notice that floor tiles suffered from serious premature wear and discoloration.66 13. The following descriptions in notices have been held not to satisfy Article 39(1) because they were insufficiently specific:67 notice that stones for the facade of a building were mislabelled, that some stones and sills were not the proper size, and that the glue provided for mounting the stones was defective, where the notice failed to specify which specific items were unlabelled, the quantity and specific items that were of the wrong size, and the exact quantity of stones treated with the defective glue;68 notice that flowering plants were in miserable condition and suffered from poor growth (the court noted that the latter might refer to either the size or the appearance of the plants);69 notice that cotton cloth was of bad quality;70 61

CLOUT case No. 229, Germany, 1996; CLOUT case No. 252, Switzerland, 1998.

62

CLOUT case No. 252, Switzerland, 1998; CLOUT case no. 344, Germany, 1998.

63

CLOUT case No. 319, Germany, 1999. See also Hoge Raad, the Netherlands, 20 February 1998, Unilex (implying that description of symptoms rather than causes of defects in floor tiles would be sufficient). 64 Oberster Gerichtshof, Austria, 27 August 1999, Unilex. 65 CLOUT case No. 319, Germany, 1999. 66 Hoge Raad, the Netherlands, 20 February 1998, Unilex (dicta). 67 For other decisions holding that buyer’s notice lacked sufficient specificity, see CLOUT case No. 337, Germany, 1996; CLOUT case No. 336, Switzerland, 1999; ICC Arbitration case No. 8611 of 1997; CLOUT case No. 4, Germany, 1989; CLOUT case No. 252, Switzerland, 1998; 68 CLOUT case No. 364, Germany, 1999. 69 CLOUT case No. 290, Germany, 1998. 70 Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex.

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notice that furniture had wrong parts and much breakage;71 notice of poor workmanship and improper fitting as to fashion goods;72 notice that failed to specify that cheese was infested with maggots;73 notice that the quality of fabric was objectionable and the dimensions of the delivered cloth prevented it from being cut in an economical fashion, where the notice failed to specify the nature of the quality problems and failed to indicate what dimensions would permit economical cutting;74 notice that agricultural machinery failed to function properly but that did not specify the serial number or the delivery date of the machine;75 notice that truffles had softened when they in fact contained worms, even though most professional sellers would understand that softness implied worms;76 notice that shoes were not of the quality required by the contract, but which did not describe the nature of the defects;77 notice that frozen bacon was rancid, but which did not specify whether all or only a part of the goods were spoiled;78 notice that documentation for a printer was missing, where it was ambiguous whether the buyer was referring to the entire printing system or just the printer component of system;79 notice that sheets of vulcanized rubber for shoe soles had problems or presented defects;80 notice stating that leather goods did not conform to the buyer’s specifications, could not be sold to the buyer’s customers, and 250 items were badly stamped;81 notice that five reels of blankets were missing, but which did not specify the design of the missing blankets and therefore did not permit seller to cure.82 14. Beyond the specificity requirement discussed above, the Convention does not further define the contents of the notice required by Article 39(1). One court has stated that, so long as the notice precisely describes defects in the goods reported by the buyer’s customer, the notice need not claim that such defects constitute a breach by the seller, and may even express doubts that the customer’s complaints were justified.83 On the other hand, another court has held that a buyer who merely requested the seller’s assistance in 71

CLOUT case No. 220, Switzerland, 1997.

72

CLOUT case No. 3, Germany, 1989.

73

CLOUT case no. 98, the Netherlands, 1991.

74

CLOUT case No. 339, Germany, 1998.

75

Landgericht Marburg, Germany, 12 December 1995, Unilex. Landgericht Bochum, Germany, 24 January 1996, Unilex. Landgericht Hannover, Germany 1 December 1993, Unilex. Landgericht M
nchen, Germany, 20 March 1995, Unilex. CLOUT case No. 229, Germany, 1996. CLOUT case No. 378, Italy, 2000. CLOUT case No. 273, Germany, 1997. CLOUT case No. 282, Germany, 1997. Hoge Raad, the Netherlands, 20 February 1998, Unilex.

76 77 78 79 80 81 82 83

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addressing problems with computer software had not given notice of lack of conformity as required by Article 39(1).84

Timely Notice in General 15. Article 39(1) requires the buyer to give notice of lack of conformity within a reasonable time after he has discovered or ought to have discovered it. This limitation on the time in which notice must be given, it has been asserted, is to be determined on the basis of the interests of good business, so that neither side has an unfair advantage and the rapid settlement of disputes is promoted.85 Framing the time for notice in terms of a reasonable time is designed to promote flexibility,86 and the period varies with the facts of each case.87 Several decisions have indicated that the reasonable time standard is a strict one.88 It has also been asserted that the reasonable time for giving notice of lack of conformity under Article 39(1) is the same as the reasonable time for giving notice of avoidance under Article 49(2)(b).89

When Time for Notice Begins to Run – Relation to Article 38 16. The reasonable time within which the buyer must give notice under Article 39(1) commences at the moment the buyer discovered or ought to have discovered the lack of conformity. Thus the period for the buyer’s notice begins to run at the earlier of two moments: the time the buyer actually (or subjectively) discovered the non-conformity, and the time the buyer theoretically should have discovered (ought to have discovered) the non-conformity.90

84

CLOUT case No. 131, Germany, 1995.

85

CLOUT case No. 310, Germany, 1993.

86

Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex. Id.; CLOUT case No. 310, Germany, 1993; CLOUT case No. 81, Germany, 1994; CLOUT case No. 378, Italy, 2000. 88 Oberster Gerichtshof, Austria, 27 August 1999, available on the Internet at ; CLOUT case No. 310, Germany, 1993; CLOUT case No. 81, Germany, 1994; CLOUT case No. 251, Switzerland, 1998. 89 CLOUT case No. 196, Switzerland, 1995. See also CLOUT case No. 123, Germany, 1995 (distinguishing between late notice of lack of conformity under Article 39(1) and late notice of avoidance under Article 49(2)(b), but suggesting that the periods for both notices should be limited in the interest of promoting prompt clarification of the legal relationship between the parties). 90 For decisions in which the buyer’s notice was found too late because it should have 87

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17. The time when the buyer actually discovered the lack of conformity can be shown if the buyer admits the time at which it became subjectively aware of the defects91 or there are objective facts proving when the buyer acquired such knowledge.92 Complaints that the buyer received from customers to whom the goods were resold may establish actual knowledge: it has been held that the time for giving notice of lack of conformity commences, if it has not started previously, when the buyer receives such complaints,93 even if the buyer doubts their accuracy.94 18. As was earlier noted in the discussion of Article 38,95 the time at which the buyer should have discovered a lack of conformity for purposes of Article 39(1) is closely connected to the buyer’s obligation under Article 38 to examine the goods. In the case of a non-conformity that should reasonably have been discovered by the buyer upon the initial examination of the goods, the buyer’s time for giving notice begins to run from the time such examination should have been conducted. As one court stated, “[t]he point in time at which the buyer was obligated to have determined the breach of contract is governed by the provisions regulating the duty to examine. In this context, Article 38 provides that the goods must be examined within as short a period of time as the circumstances permit”.96 Thus in cases in which an initial examination following delivery should have revealed the lack of discovered the defects before it in fact did, see, e. g., CLOUT case No. 378, Italy, 2000; CLOUT case No. 4, Germany, 1989; CLOUT case No. 81, Germany, 1994. 91 This was the case in the decision of the Landgericht Berlin, Germany, 16 September 1992, Unilex. 92 An example of such objective evidence can be found in Helsinki Court of First Instance, Finland, 11 June 1995, and Helsinki Court of Appeals, Finland, 30 June 1998, Unilex, where the buyer commissioned a chemical analysis of the goods which revealed their defects. 93 CLOUT case No. 210, Spain, 1997. 94 Hoge Raad, the Netherlands, 20 February 1998, Unilex. 95 See the discussion supra Article 38 at ¶ 2. 96 CLOUT case No. 81, Germany, 1994. Accord, CLOUT case No. 378, Italy, 2000. For decisions holding that the buyer’s notice came too late because the buyer should have discovered the lack of conformity during the initial examination of the goods, see CLOUT case No. 81, Germany (the buyer should have examined and discovered the lack of conformity within a few days after delivery, and therefore buyer’s notice given more than two months after delivery was too late); CLOUT case No. 262, Switzerland, 1995 (buyer’s time for giving notice of lack of conformity began to run upon delivery and substantial installation of sliding gates, even though the seller had not entirely completed its duties; notice given a year after delivery was too late); Pretura di Torino, Italy, 30 January 1997, Unilex; ICC Arbitration Case No. 8247, June 1996, 11 ICC Int. Ct. Arb. Bull. 53 (2000); CLOUT case No. 48, Germany, 1993; CLOUT case No. 123, Germany, 1995; Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex; CLOUT case No. 4, Germany, 1989.

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conformity, the buyer’s reasonable time for giving notice begins after the period for examining the goods under Article 38 has run, and the deadline for buyer’s notice should accommodate both the period for examination under Article 38 and a further reasonable time for notice under Article 39(1). Many decisions have recognized these two separate components of the time for the buyer’s notice of non-conformities,97 although some decisions do not appear to acknowledge the distinction.98 19. In the case of latent defects not reasonably detectable before some period of actual use, the time when the buyer should discover the lack of conformity occurs later than the time for the initial examination of the goods immediately following delivery.99 One decision raised the question whether the time for giving notice of latent defects should ever start before the buyer acquires actual knowledge of the defects, although the decision avoided resolving the issue.100 Other decisions, however, have determined that the reasonable time for giving notice of latent defects commenced at a time when the buyer should have discovered the defects, whether or not the buyer had actual knowledge of the defects at that time.101 Some decisions appear to recognize that the discovery of latent defects may be a process that occurs over a period of time, and have suggested that the buyer’s notice need only convey the information reasonably available to the buyer at the time of the notice, to be supplemented by information in later notices.102

97

E. g., CLOUT case No. 123, Germany, 1995; CLOUT case No. 251, Switzerland, 1998;

CLOUT case No. 285, Germany, 1998; Landgericht D
sseldorf, Germany, 23 June 1994,

Unilex; Landgericht Mnchengladbach, Germany, May 22 1992, Unilex; Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex. 98 E. g., Tribunal commercial de Bruxelles, Belgium, 5 October 1994, Unilex; CLOUT abstract No. 256, Switzerland, 1998 (concluding that notice given seven to eight months after delivery was too late, without distinguishing time for examination and discovery). 99 Landgericht Paderborn, Germany, 25 June 1996, Unilex; Landgericht Ellwangen, Germany, 21 August 1995, Unilex; Helsinki Court of First Instance, Finland, 11 June 1995, and Helsinki Court of Appeals, Finland, 30 June 1998, Unilex. In the case of latent defects not reasonably discoverable in an initial examination, it is not clear whether the obligation to examine under Article 38 remains relevant to determining when the buyer ought to have discovered the non-conformity; see the discussion supra Article 38 ¶ 15. 100 CLOUT case No. 319, Germany, 1999. 101 CLOUT case No. 378, Italy, 2000 (even supposing that the defects could not have been discovered at delivery, the buyer should have discovered them at the latest when processing the goods and given notice immediately thereafter, while it waited until it received complaints by its own customer); Landgericht D
sseldorf, Germany, 23 June 1994, Unilex. 102 CLOUT case No. 225, France, 1998; Hoge Raad, the Netherlands, 20 February 1998, Unilex.

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Presumptive Periods for Notice 20. Although the time period set in Article 39(1) for the buyer to give notice B within a reasonable time after the buyer discovers or ought to have discovered the non-conformity B is designed to be flexible103 and will vary with the circumstances of the case,104 a number of decisions have attempted to establish specific presumptive time periods as general guidelines or default rules. Courts adopting this approach usually contemplate that the presumptive notice periods they put forward will be adjusted to reflect the facts of the particular case.105 The suggested presumptive periods vary considerably both in length and in the approach taken to measuring the period. Several decisions propose presumptive periods measured from the time goods are delivered, so that the periods encompass not only the time for giving notice after discovery of the lack of conformity, but also the time for the buyer to discover the non-conformity in the first place. In this vein, presumptive periods of 8 days after delivery (in the case of durable, nonseasonal goods),106 14 days for examination and notice,107 and one month after delivery108 have been suggested. Other decisions distinguish between the time for discovering the lack of conformity and the time for giving notice following discovery, often proposing presumptive periods for both components and frequently indicating particular categories of goods to which the period would apply. The following have been suggested as the presumptive reasonable time for giving notice: a few days after discovery of the lack of conformity;109 one week (following one week for examination under Article 38);110 eight days following discovery;111 two weeks (following one

103

Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex. Id.; see also CLOUT case No. 310, Germany, 1993; CLOUT case No. 81, Germany, 1994; CLOUT case No. 378, Italy, 2000. 105 E. g., Oberster Gerichtshof, Austria, 27 August 1999, Unilex (suggesting a presumptive period of 14 days for examining the goods and giving notice “[i]nsofar as there are no specific circumstances militating in favor of a shorter or longer period”); CLOUT case No. 284, Germany, 1997; CLOUT case No. 164, Arbitration, 1995. 106 CLOUT case No. 167, Germany, 1995. 107 Oberster Gerichtshof, Austria, 27 August 1999, Unilex. 108 CLOUT case No. 192, Switzerland, 1997; CLOUT case No. 232, Germany, 1998. 109 Landgericht Landshut, Germany, 5 April 1993 Unilex database (presumptive time period for defects that are not hidden). 110 CLOUT case No. 285, Germany, 1998 Unilex; Landgericht Mnchengladbach, Germany, 22 May 1992. The latter case indicated that the presumptive periods it proposed applied where the goods were textiles. 111 CLOUT case No. 280, Germany, 1998; CLOUT case No. 230, Germany, 1997, reversed on 104

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Art. 39

Draft Digest

week for examination).112 A theory that in normal circumstances the reasonable time for giving notice is one month following the time the defect was or ought to have been discovered – sometimes referred to as the noble month approach – has been accepted in several decisions.113 Where the goods are perishable, some decisions have suggested very short presumptive notice periods.114

Factors Influencing Reasonable Time for Notice 21. It is clear that the reasonable time for notice will vary with the circumstances of the particular case.115 Decisions have identified a variety of factors that will impact the length of the notice period. A frequently cited factor relates to the obviousness of the lack of conformity – a patent, easily noticeable defect tends to shorten the period for notice.116 The nature of the

other grounds, CLOUT case No. 270 (presumptive period applicable to non-perishable goods). 112 CLOUT case No. 359, Germany, 1999 (applicable to case of obvious defects); CLOUT case No. 251, Switzerland, 1998 (also proposing presumptive period of seven to 10 days for examination). 113 CLOUT case No. 123, Germany, 1995; CLOUT case No. 289, Germany, 1995; Amtsgericht Augsburg, Germany, 29 January 1996; CLOUT case No. 319, Germany, 1999. See also CLOUT case No. 164, Arbitration, 1995 (suggesting acceptance of a notice period of approximately one month in general, but finding that facts of particular case required quicker notice). 114 CLOUT case No. 290, Germany, 1998 (in sales of fresh flowers, notice should be given on day of delivery); CLOUT case No. 230, Germany, 1997, reversed on other grounds CLOUT case No. 270 (asserting that notice of defects in perishable goods often due in a few hours). See also Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex, where the court stated that the buyer should have examined ham within 3 days and given notice within further three days. Although the goods in that case were perishable, the court did not specifically mention this factor in setting out its time limits. 115 Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex; CLOUT case No. 310, Germany, 1993; CLOUT case No. 81, Germany, 1994; CLOUT case No. 378, Italy, 2000. 116 Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; CLOUT case No 310, Germany, 1993, Unilex; CLOUT case No. 284, Germany, 1997, Unilex; Landgericht Landshut, Germany, 5 April 1995, Unilex; Landgericht Berlin, Germany, 16 September 1992, Unilex; Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex; Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex; Landgericht Berlin, Germany, 30 September 1993, Unilex. Consideration of the obviousness of the defect may be more relevant to determining when the reasonable time for notice should commence (i.e., when the buyer ought to have discovered the lack of conformity) than to the question of the duration of the reasonable time.

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goods is another frequently-cited factor:117 goods that are perishable118 or seasonal119 require earlier notice of defects; notice with respect to durable or non-seasonal goods, in contrast, is subject to a longer notice period.120 The buyer’s plans to process the goods121 or otherwise handle them in a fashion that might make it difficult to determine if the seller was responsible for a lack of conformity122 may also shorten the time for notice. Trade practices123 as well as usages established between the parties124 can also influence the time for notice, as can the buyer’s awareness that the seller itself was operating under a deadline that would require prompt notice of defects.125 An expert or professional buyer has been held subject to a shorter period for notice.126

Application of Reasonable Time Standard 22. It has been held that a buyer who did not give any notice of a lack of conformity before filing suit against the seller had failed to meet the requirements for timely notice under Article 39(1), and had lost the right

117

CLOUT case No. 98, the Netherlands, 1991; Pretura di Torino, Italy 30 January 1997, Unilex (referring to the “nature and value of the goods”); CLOUT case No. 378, Italy, 2000. 118 CLOUT case No. 98, the Netherlands, 1991; CLOUT case No. 290, Germany, 1998; CLOUT case No. 378, Italy, 2000. See also Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (citing perishable nature of goods as factor mandating a short period for examination under Article 38, which in turn meant that buyer’s notice was given beyond a reasonable time from when it should have discovered the defects). 119 Oberster Gerichtshof, Austria, 27 August 1999, Unilex; Amtsgericht Augsburg, Germany, 29 January 1996, Unilex. 120 CLOUT case No. 167, Germany, 1995, Unilex. See also CLOUT case No. 248, Switzerland, 1998 (noting that the appeals court did not review lower court’s decision that notice was timely because the goods consisted of frozen rather than fresh meat). 121 Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex; Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; see also Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex (citing buyer’s plans to process goods as factor mandating a short period for examination under Article 38, which in turn meant that buyer’s notice was given beyond a reasonable time from when it should have discovered the defects). 122 CLOUT case No. 284, Germany, 1997, Unilex. 123 Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; Rechtbank Zwolle, the Netherlands, 5 March 1997, Unilex. 124 CLOUT case No 164, Arbitration, 1995, Unilex. 125 Landgericht Kln, Germany, 11 November 1993, Unilex. 126 Hof Arnem, the Netherlands, 17 June 1997, Unilex; CLOUT case No. 232, Germany, 1998, Unilex.

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Draft Digest

to rely on the lack of conformity.127 Even where the buyer did provide notice, the notice has been found too late in many instances. As measured from the date the goods were delivered, notices given at the following times have been found untimely on the facts of particular cases: 24 months;128 one year;129 nine months;130 seven to-eight months;131 four months;132 three and one-half months;133 three months;134 more than two and one-half months;135 two months;136 two months in the case of one delivery and approximately seven weeks in the case of another delivery;137 six weeks;138 one month;139 25 days;140 24 days;141 23 days;142 21 days;143 20 days;144 19 days;145 16 days;146 almost two weeks;147 any time beyond the day of delivery (involving perishable flowers).148 As measured from the date that the buyer discovered or ought to have discovered the lack of conformity, notices given at the following times have been found too late on the facts of particular cases: 127 CLOUT case No. 219, Switzerland, 1997, Unilex. See also CLOUT case No. 341, Canada, 1999, where on disputed evidence the court concluded the buyer had not given the seller notice of lack of conformity. 128 Landgericht D
sseldorf, Germany, 23 June 1994, Unilex. 129 CLOUT case No. 262, Switzerland, 1995; CLOUT case No. 263, Switzerland, 1998. 130 Tribunal commercial de Bruxelles, Belgium, 5 October 1994, Unilex. 131 CLOUT case No. 256, Switzerland, 1998. 132 CLOUT case No. 232, Germany, 1998; CLOUT case No. 378, Italy, 2000. 133 CLOUT case No. 192, Switzerland, 1997, Unilex; Landgericht Berlin, Germany, 16 September 1992, Unilex. 134 Hof Arnem, the Netherlands, 17 June 1997, Unilex; Rechtbank van Koophandel Kortrijk, Belgium, 27 June 1997, Unilex; CLOUT case No. 167, Germany, 1995. 135 CLOUT case No. 292, Germany, 1993. 136 Rechtbank van Koophandel Kortrijk, Belgium, 16 December 1996, Unilex; CLOUT case No. 81, Germany, 1994. 137 Oberster Gerichtshof, Austria, 27 August 1999, Unilex. 138 Amtsgericht Kehl, Germany, 6 October 1995, Unilex. 139 Landgericht Mnchengladbach, Germany, 22 May 1992, Unilex. 140 CLOUT case No. 359, Germany, 1999; CLOUT case No. 310, Germany, 1993. 141 CLOUT case No. 230, Germany, 1997. 142 Tribunale Civile di Cuneo, Italy, 31 January 1996, Unilex. 143 CLOUT case No. 285, Germany, 1998; Landgericht Kln, Germany, 11 November 1993, Unilex, reversed on grounds that CISG was inapplicable by CLOUT case No. 122, Germany, 1994. 144 Amtsgericht Riedlingen, Germany, 21 October 1994, Unilex; Landgericht Berlin, Germany, 16 September, 1992, Unilex. 145 Landgericht Landshut, Germany, 5 April 1995, Unilex. 146 CLOUT case No. 4, Germany, 1989. 147 CLOUT case No. 284, Germany, 1997. 148 CLOUT case No. 290, Germany, 1998.

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Draft Digest

Art. 39

seven months;149 almost four months;150 more than two months;151 six weeks;152 32 days;153 one month (by fax) and three weeks (by telephone);154 four weeks;155 three weeks;156 approximately two weeks;157 seven days.158 On the other hand, a number of decisions have found that the buyer gave notice in timely fashion. On the facts of particular cases, notices given at the following times have been held to be within the reasonable time mandated by Article 39(1): one day after the goods were handed over to the buyer;159 one day after the goods were examined;160 three days after delivery;161 seven days after the buyer learned of the defects;162 within eight days after the goods were examined;163 eight days after an expert’s report identified defects in the goods;164 a series of notices, one given two weeks after an initial provisional test on the goods, another given a month after a second test, and final notices given six months after delivery of one machine and eleven months after delivery of another machine;165 19 days after delivery;166 19-21 days after the examination of the goods;167 four weeks after the buyer hypothetically ought to have known of the lack of conformity;168 within one month of delivery.169

149

Pretura di Torino, Italy 30 January 1997, Unilex. Hoge Raad, the Netherlands, 20 February 1998, Unilex. 151 Landgericht Berlin, Germany, 16 September, 1992, Unilex. 152 CLOUT case No. 123, Germany, 1995. 153 CLOUT case No 164, Arbitration, 1995. 154 ICC Arbitration Case No. 8247, 1996, Unilex. 155 CLOUT case No. 280, Germany, 1998; CLOUT case No. 196, Switzerland, 1995. 156 Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex. 157 CLOUT case No. 230, Germany, 1997. 158 CLOUT case No. 48, Germany, 1993. 159 CLOUT case No. 229, Germany, 1996. 160 CLOUT case No. 46, Germany, 1990. 161 Landgericht Bielefeld, Germany, 18 January 1991, Unilex. 162 Helsinki Court of First Instance, Finland, 11 June 1995, and Helsinki Court of Appeals, Finland, 30 June 1998, available on the Internet at . 163 Oberlandesgericht Kln, Germany, 22 February 1994, Unilex (noting that buyer examined goods at the beginning of July and gave notice on or before July 8, which the court held was timely, particularly in light of fact that July 4 and 5 were weekend days). 164 CLOUT case No. 45, Arbitration, 1989. 165 CLOUT case No. 225, France, 1998. 166 Landgericht Frankfurt, Germany, 9 December 1992, Unilex. 167 CLOUT case No. 315, France, 1999. 168 CLOUT case No. 319, Germany, 1999. 169 CLOUT case No. 202, France, 1995. Several other decisions have found that the buyer’s notice was timely, although the precise period found reasonable by the court is not clear; see 150

677

Art. 39

Draft Digest

Article 39(2) 23. Article 39(2) establishes an absolute cut-off date for notice of lack of conformity – two years from the date the goods were actually handed over to the buyer, subject to an exception where such a time limit would be inconsistent with a contractual period of guarantee.170 Without such a limit the time for notice might not have a clear end under the flexible and variable time standards in Article 39(1). In the case of latent defects, for example, the time the buyer discovers or ought to discover the lack of conformity, and thus the moment that the buyer’s reasonable time for giving notice under Article 39(1) commences, could be long after the goods are delivered. In such cases, absent a contractual guarantee period that protects the buyer for a longer time, Article 39(2) will cut-off the buyer’s right to give notice at two years after the goods were actually handed over, and thus prevent the buyer from preserving its rights to rely on a lack of conformity which is not discovered and noticed before that point.171 Unlike the period for notice established in Article 39(1), which is designed to be flexible and to vary with the circumstances, the two-year limit in Article 39(1) is precise and non-variable (except where the contractual period of guarantee exception applies). Indeed, the apparent purpose of Article 39 is to provide a specific, predictable period beyond which a seller can be confident that claims of a lack of conformity in the goods will not be legally cognizable. 24. The rather limited number of decisions applying Article 39(2) have addressed several aspects of the provision. Thus several decisions have indicated that notice which is not specific enough to satisfy Article 39(1) will not constitute adequate notice under Article 39(2), even though the latter provision does not expressly incorporate the language in Article 39(1) requiring that the notice specify the nature of the lack of conformity,172 CLOUT case No. 98, the Netherlands, 1991; Landgericht Paderborn, Germany, 25 June 1996,

Unilex. The buyer’s obligation to give notice under Article 39(2) is also subject to Article 40, which prevents the seller from invoking Article 39 “if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer”. 171 See Landgericht Marburg, Germany, 12 December 1995, Unilex, where the court invoked Article 39(2) to deny the buyer any remedy for a claimed lack of conformity. 172 CLOUT case No. 344, Germany, 1998; Landgericht Marburg, Germany, 12 December 1995, Unilex. Both of these cases held that, because the notice given by the buyer was not specific enough to satisfy Article 39(1), the two-year period in Article 39(2) had elapsed before proper notice was given. Neither court, apparently, considered the possibility that the buyer’s notice might have been sufficient to satisfy Article 39(2) even though it did not comply with the specificity requirement in Article 39(1). 170

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Draft Digest

Art. 39

Several other decisions have explored the relationship between Article 39(2) and rules specifying a a deadline for commencing litigation based on breach of a sales contract (statutes of limitation or prescription periods). In one series of decisions, the courts of one country struggled to reconcile a one-year limitations period in domestic law with the two-year notice period in Article 39(2), eventually opting to extend the domestic limitations period to two years.173 Other decisions were at pains to distinguish between the rule of Article 39(2), which establishes a deadline for giving notice of lack of conformity, and a statute of limitations or prescription period, which establishes deadlines for commencing litigation.174 A number of decisions have involved claims that the parties had derogated from Article 39(2) by agreement. Thus an arbitral tribunal found that the parties had derogated from Article 39(2) by agreeing to a maximum guarantee period of 18-months, although the tribunal also explained that the prescription period for a buyer who has given timely notice was not governed by Article 39(2), and was a matter beyond the scope of the Convention to be subject to domestic law.175 On the other hand, an arbitral panel has determined that a clause requiring that disputes be submitted to arbitration within 30 days after the parties reached an impasse in negotiations did not operate as a derogation from Article 39(2).176 Yet another arbitration decision held that the parties had not derogated from the two-year cutoff in Article 39(2) just because the seller may have orally represented to the buyer that the goods (sophisticated machinery) would last 30 years.177 This decision presumably implies that such a representation does not constitute a contractual period of guarantee within the meaning of Article 39(2), because otherwise the clause would have extended the cut-off period for notice. Another decision also dealt with the meaning of the phrase contractual period of guarantee, finding that a clause fixing a deadline for submitting disputes to arbitration did not create such a contractual guarantee period.178

173

CLOUT case No. 249, Switzerland, 1997.

174

CLOUT case No. 202, France, 1995; CLOUT case No. 302, Arbitration, 1994; CLOUT case No. 300, Arbitration, 1993. 175 CLOUT case No. 302, Arbitration, 1994. 176 CLOUT case No. 300, Arbitration, 1993. 177 CLOUT case No. 237, Arbitration, 1998. 178 CLOUT case No. 300, Arbitration, 1993.

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Art. 40

Draft Digest

Article 40 The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.

Overview of Article 40 1. Article 40 relieves the buyer from the consequences of failing to meet the requirements of Articles 38 (which governs the buyer’s obligation to examine delivered goods) and 39 (which regulates the buyer’s obligation to notify the seller of lack of conformity in delivered goods). The relief provided by Article 40 is available only if the buyer’s failure to meet its examination and/or notice obligations relates to a lack of conformity that is known to the seller, or of which the seller “could not have been unaware”.

Article 40 in General 2. In an arbitral award that discusses Article 40 at length, it is asserted that the provision expresses a principle of fair trading found in the domestic laws of many countries and underlying many other provisions of the Convention; that Article 40 constitutes “a safety valve” for preserving the buyer’s remedies for non-conformity in cases where the seller has himself forfeited the right of protection, granted by provisions on the buyer’s timely examination and notice, against claims for such remedies; that the application of Article 40 “results in a dramatic weakening of the position of the seller, who loses his absolute defences based on often relatively short-term time limits for the buyer’s examination and notice of non-conformity, and instead is faced with the risk of claims only precluded by ... general prescription rules ...”; and that Article 40 should be restricted to “unusual circumstances” so that the protections offered by time limits for claims do not become “illusory”.1 A dissenting opinion from the same arbitration would limit the application of Article 40 even further to “exceptional circumstances”.2 It has also been held that Article 40 must be applied independently to each separate lack of conformity claimed by the buyer. Thus a seller can be precluded by Article 40 from relying on Articles 38 and 39 with respect to one non-conformity, but permitted to raise defenses based on Articles 38 and 39 with respect to a different non-conformity.3 1

CLOUT case No. 237, Arbitration, 1998.

2

Id.

3

CLOUT case No. 251, Switzerland, 1998 (buyer’s late notice of non-conformity prevented

680

Draft Digest

Art. 40

Scope and Effect of Article 40 3. According to several court decisions, when its requirements are satisfied, Article 40 prevents a seller from relying on a buyer’s non-compliance with Article 38 and/or Article 39;4 in other cases, a buyer’s invocation of Article 40 has failed.5 It has also been held that Article 40 applies to contractual examination and notice provisions agreed to in derogation of Articles 38 and 39 – i. e., it excuses a buyer who has failed to comply with a contract clause governing examination of goods or a contractual provision requiring notice of non-conformity.6 Alternatively, it has been posited that, even if Article 40 were not directly applicable to such contractual examination and notice provisions, the principle of Article 40 would apply indirectly under Article 7(2) to fill this gap in the Convention.7 A court has also held that the general principle embodied in Article 40 prevents a seller who knowingly and fraudulently misrepresented the mileage and age of a used car from escaping liability under Article 35(3), a provisions that shields a seller from liability for a lack of conformity of which the buyer knew or could not have been unaware at the time of the conclusion of the contract.8 it from asserting that the color and weight of jackets that the seller had delivered did not conform to the contract; the seller, however, was aware that some jackets were a different model than specified in the contract, and Article 40 precluded seller from relying on late notice with regard to this lack of conformity); Landgericht Landshut, Germany, 5 April 1995, Unilex (seller admitted pre-delivery knowledge that the goods (clothes) suffered a shrinkage problem, so that Article 40 prevented seller from relying on Article 38 and 39 as a defense to buyer’s claim for this lack of conformity; but buyer failed to prove that seller was aware or could not have been unaware that some items were missing from delivery boxes, and seller could use late notice as a defense as to this non-conformity). 4 In the following cases, the tribunal held that Article 40 precluded the seller from relying on Articles 38 and/or 39: CLOUT case No. 45, Arbitration, 1989; CLOUT case No. 237, Arbitration, 1998; CLOUT case No. 170, Germany, 1995; Landgericht Landshut, Germany, 5 April 1995, Unilex. In the following cases, the tribunal found that further proceedings were required to determine whether Article 40 prevented the seller from relying on Articles 38 and 39: CLOUT case No. 98, the Netherlands, 1991; CLOUT case No. 251, Switzerland, 1998. 5 In the following cases, the tribunal found that the requirements to apply Article 40 had not been established: CLOUT case No. 285, Germany, 1998; CLOUT case No. 341, Canada, 1999; CLOUT case No. 232, Germany, 1998; Landgericht Landshut, Germany, 5 April 1995, Unilex (re some but not all non-conformities); CLOUT case No. 378, Italy, 2000; Arbitration Case 56/1995 of the Bulgarska turgosko-promishlena palata, Bulgaria, 24 April 1996, Unilex; CLOUT case No. 230, Germany, 1997, CLOUT case No. 270, Germany, 1998. 6 CLOUT case No. 237, Arbitration, 1998. 7 Id. 8 CLOUT case No. 168, Germany, 1996.

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Art. 40

Draft Digest

Requirement that the Seller Knew or Could Not Have Been Unaware of Facts Related to a Lack of Conformity: in General 4. Article 40 applies with respect to a lack of conformity that relates to “facts of which [the seller] knew or could not have been unaware”. The nature of this requirement of seller awareness has been examined in several decisions. It was discussed at length in an arbitration decision in which a majority of the arbitrators indicated that the level of seller awareness required by the provision was not clear, although in order to prevent the protections of Article 39 from becoming illusory Article 40 required something more than a general awareness that goods manufactured by a seller “are not of the best quality or leave something to be desired”.9 The decision states that there is a “general consensus that fraud and similar cases of bad faith” will meet the requirements of Article 40, and that the requisite awareness exists if the facts giving rise to the lack of conformity “are easily apparent or detected”. With respect to situations in which the seller does not have actual knowledge of a lack of conformity, the arbitration decision indicates that there is a split between those who assert that the requirements of Article 40 are met if the seller’s ignorance is due to “gross or even ordinary negligence”, and those who would require something more, approaching “deliberate negligence”.10 Similarly, according to the tribunal, there is a split between those who argue that a seller is under no obligation to investigate for possible non-conformities, and those who assert that the seller must not “ignore clues” and may have a duty to examine the goods for lack of conformity “in certain cases”.11 A majority of the tribunal concluded that the level of seller awareness of non-conformities that is required to trigger Article 40 is “conscious disregard of facts that meet the eyes and are of evident relevance to the non-conformity”. A dissenting arbitrator agreed with the standard, although he believed that it required a higher degree of “subjective blameworthiness” on the seller’s part than had been proven in the case.12 One court has indicated that the requirements of Article 40 are satisfied if the seller’s ignorance of a lack of conformity is due to gross negligence.13 Another decision asserts that Article 40 requires that the seller have notice not only of the facts giving rise to the lack of conformity, but also that those facts would render the goods non-conforming.14

9

CLOUT case No. 237, Arbitration, 1998.

10

Id. Id. Id. (dissenting opinion). CLOUT case No. 232, Germany, 1998. CLOUT case No. 230, Germany, 1997, CLOUT case No. 270, Germany, 1998.

11 12 13 14

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Draft Digest

Art. 40

Requirement that the Seller Knew or Could Not Have Been Unaware of Facts Related to a Lack of Conformity: Burden of Proof 5. Several decisions have indicated that the buyer bears the burden of proving that the seller knew or could not have been unaware of a lack of conformity.15 At least two decisions have noted, however, that the “could not have been unaware” language of Article 40 reduces the evidentiary burden associated with proving the seller’s actual knowledge of a lack of conformity.16 An arbitral tribunal has asserted that the result of this language is a shifting burden of proof: “If the evidence [adduced by the buyer] and the undisputed facts show that it is more likely than not that the seller is conscious of the facts that relate to the non-conformity, it must be up to the seller to show that he did not reach the requisite state of awareness”.17 According to another decision, the buyer must prove that the seller had notice not only of the facts underlying a lack of conformity, but also that those facts rendered the goods non-conforming.18

Requirement that the Seller Knew or Could Not Have Been Unaware of Facts Related to a Lack of Conformity: Application (Evidence) 6. Although producing sufficient evidence that the seller knew or had reason to know of a lack of conformity can be a difficult task, buyers in several cases have successfully borne the burden. Where the seller admitted that it was aware of a defect, obviously, a court found that the requirement of Article 40 was satisfied.19 Even without such an admission, a buyer succeeded in establishing the awareness element where the seller, while manufacturing a complex piece of industrial machinery (a rail press), had replaced a critical safety component (a lock plate) with a part that the seller had not previously used for such an application: the fact that the seller drilled several unused 15

CLOUT abstract No. 98, the Netherlands, 1991; CLOUT case No. 237, Arbitration, 1998. Other decisions have implied that the buyer bore the burden of proving that seller was on notice of a lack of conformity with the meaning of Article 40. CLOUT case No. 378, Italy, 2000; CLOUT case No. 230, Germany, 1997; Landgericht Landshut, Germany, 5 April 1995, Unilex. The last case distinguishes between the burden of proving that the seller knew or could not have been unaware of a lack of conformity (which the buyer bears) and the burden of proving that the seller disclosed the lack of conformity to the buyer (which the court suggests the seller bears). 16 CLOUT case No. 237, Arbitration, 1998; CLOUT case No. 230, Germany, 1997. 17 CLOUT case No. 237, Arbitration, 1998. 18 CLOUT case No. 230, Germany, 1997. 19 Landgericht Landshut, Germany, 5 April 1995, Unilex.

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Art. 40

Draft Digest

trial holes for positioning the substitute lock plate on the rail press evidenced both that it was aware that it was improvising by using a part that did not fit properly, and that it realized proper positioning of the substitute plate was critical, yet the seller never tried to ascertain that the buyer properly installed the plate; as a result, the majority concluded, the seller had “consciously disregarded apparent facts which were of evident relevance to the non-conformity”, and Article 40 excused the buyer’s failure to give timely notice of the defect.20 In dicta, the tribunal indicated that the Article 40 “knew or could not have been unaware” requirement would be satisfied where the non-conformity in identical or similar goods had previously resulted in accidents that had been reported to the seller or to the “relevant branch” of the seller’s industry.21 In another decision, a court found that the seller “could not have been unaware” that wine it sold had been diluted with water, because the non-conformity resulted from an intentional act.22 Another court found that, because of the nature of the non-conformity (some of the jackets that seller had shipped were not the models that the buyer had ordered), the seller necessarily knew of the lack of conformity.23 In another decision, the court continued the proceedings in order to permit the buyer to prove that the seller knew or could not have been unaware that the cheese it sold was infested with maggots: the court stated that the buyer would carry its burden by proving that the maggots were present when the cheese was frozen before shipment.24 7. In several other decisions, however, the court concluded that the Article 40 requirement concerning seller’s awareness of a lack of conformity had not been met. This was the case where the buyer simply failed to produce evidence that the seller was or should have been aware of the lack of conformity.25 Where the seller sold a standard product suitable for use in modern equipment, but the product failed when processed by the buyer in unusually-old machinery, the court found that the buyer had not shown that the seller knew or could not have been unaware of the problem because the buyer had not informed the seller that it planned to employ obsolete 20

CLOUT case No. 237, Arbitration, 1998.

21

Id.

22

CLOUT case No. 170, Germany, 1995.

23

CLOUT case No. 251, Switzerland, 1998.

24

CLOUT case No. 98, the Netherlands, 1991. In an arbitral award, the tribunal found that Article 40 excused the buyer from failing to perform its obligations under Articles 38 and 39 because the seller knew or could not have been unaware of the lack of conformity but the decision does not specify the facts that supported this conclusion, indicating only very generally that “it clearly transpires from the file and the evidence that the Seller knew and could not be unaware” of the lack of conformity; see CLOUT case No. 45, Arbitration, 1989. 25 Landgericht Landshut, Germany, 5 April 1995, Unilex.

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Art. 40

processing equipment.26 In another decision, the court relied on the fact that the buyer had re-sold the goods to its own customers in order to conclude that the defects complained of were not obvious; the buyer, therefore, had failed to show that the seller could not have been unaware of the lack of conformity.27 Another court held that, although some of the picture frame moldings supplied by the seller were non-conforming, it was not clear whether the number exceeded the normal range of defective moldings tolerated in the trade, and there was insufficient evidence to conclude that the seller was aware, or should have been aware, of the defects.28 Another decision by an arbitral tribunal rejected a buyer’s argument that the nature and volume of the defects in the goods and the seller’s procedure for inspecting its production established that the Article 40 prerequisites relating to the seller’s awareness of a lack of conformity were satisfied.29

Requirement that the Seller Knew or Could Not Have Been Unaware of Facts Related to a Lack of Conformity: Time as of Which Seller’s Awareness is Determined 8. Article 40 does not specify the time as of which it should be determined whether the seller knew or could not have been unaware of a lack of conformity. One decision has indicated that this determination should be made as of the time of delivery.30

Seller’s Disclosure of Lack of Conformity 9. Article 40 states that the relief it provides a buyer that has failed to comply with its obligations under Articles 38 and/or 39 does not apply if the seller disclosed the lack of conformity to the buyer. The seller’s obligation under Article 40 to disclose known non-conformities on pain of losing its protections under Articles 38 and 39 has been discussed in only a small number of decisions,31 and actually applied in even fewer. In one arbitral 26

CLOUT case No. 285, Germany, 1998.

27

CLOUT case No. 232, Germany, 1998.

28

CLOUT case No. 341, Canada, 1999. This situation may illustrate a seller’s “general awareness” of defects that, as mentioned in ¶ 4 supra, an arbitration tribunal has indicated is insufficient to satisfy the requirements of Article 40; see CLOUT case No. 237, Arbitration, 1998. 29 Arbitration 054/1999, International Court of Commercial Arbitration of the Chamber of Commerce and Industry, Russian Federation, 24 January 2000, Unilex. 30 Landgericht Landshut, Germany, 5 April 1995, Unilex. 31 CLOUT case No. 285, Germany, 1998 (recognizing a seller’s duty to warn of known non-

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proceeding, the majority opinion asserted that, “to disclose in the sense of Article 40 is to inform the buyer of the risks resulting from the nonconformity”.32 Thus where the seller, when manufacturing a complex industrial machine, had replaced a critical safety component (a lock plate) with a different part that required careful installation to function properly, the tribunal found that the seller had not adequately disclosed the lack of conformity for purposes of Article 40 just because the buyer could deduce that a change had been made from the fact that the part number on the substitute lock plate differed from the part number indicated in the service manual: “even if [seller] had informed [buyer] of the exchange as such (and without any further information on proper installation or the risks involved in the arrangement, etc.) this would not be enough ...”.33 In another arbitration proceeding, however, the tribunal held that the seller had made adequate disclosure of a lack of conformity to prevent the buyer from invoking Article 40, although the particular facts that supported this conclusion are unclear.34 Another decision suggested that, although the buyer bears the burden of proving that the seller “knew or could not have been unaware” of a lack of conformity within the meaning of Article 40, it is the seller who bears the burden of proving adequate disclosure to the buyer.35

Derogation and Waiver 10. Nothing in the Convention expressly excepts Article 40 from the power of the parties, under Article 6, to “derogate from or vary the effect of any of [the Convention’s] provisions”. An arbitration panel, however, has held that, because Article 40 expresses fundamental “principles of fair dealing” found in the domestic laws of many countries and underlying many provisions of the Convention itself, a derogation from Article 40 should not be implied from a contractual warranty clause that derogates from Articles 35, 38 and 3936 – even though the provisions expressly derogated from are closely associated and generally work in tandem with Article 40. conformities under Article 40, but finding no such duty in the case because the goods were in fact conforming); CLOUT case No. 237, Arbitration, 1998; Arbitration Case 56/1995 of the Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex. See also Landgericht Landshut, Germany, 5 April 1995, Unilex, which indicates that the seller bears the burden of proving adequate disclosure. 32 CLOUT case No. 237, Arbitration, 1998. 33 Id. 34 Arbitration Case 56/1995 of the Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex. 35 Landgericht Landshut, Germany, 5 April 1995, Unilex. 36 CLOUT case No. 237, Arbitration, 1998.

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Indeed, in dicta the majority opinion suggests that, despite Article 6, “even if an explicit derogation was made – a result of drafting efforts and discussions that stretch the imagination – it is highly questionable whether such derogation would be valid or enforceable under various domestic laws or any general principles for international trade”.37 On the other hand, a buyer was held to have waived its right to invoke Article 40 when the buyer negotiated with the seller a price reduction based on certain defects in the goods, but did not at that time seek a reduction for other defects of which it then had knowledge.38

Article 40 as Embodying General Principles Underlying the Convention 11. Under Article 7(2), questions within the scope of the Convention that are not expressly settled in it are to be resolved “in conformity with the general principles on which [the Convention] is based ...”.39 Several decisions have identified Article 40 as embodying a general principle of the Convention applicable to resolve unsettled issues under the Convention. According to an arbitration panel, “Article 40 is an expression of the principles of fair trading that underlie also many other provisions of Convention, and it is by its very nature a codification of a general principle”.40 Thus, the decision asserted, even if Article 40 did not directly apply to a lack of conformity under a contractual warranty clause, the general principle underlying Article 40 would be indirectly applicable to the situation by way of Article 7(2). In another decision, a court derived from Article 40 a general principle that even a very negligent buyer deserves more protection than a fraudulent seller, and then applied the principle to hold that a seller could not escape liability under Article 35(3)41 for misrepresenting the age and mileage of a car even if the buyer could not have been unaware of the lack of conformity.42

37

Id. Note that, under CISG Article 4(a), questions concerning the “validity” of a contract or its provisions are beyond the scope of the Convention, and thus are governed by other law as determined by the rules of private international law. 38 CLOUT case No. 343, Germany, 2000. 39 In the absence of general CISG principles that would settle an unresolved issue, Article 7(2) directs that the question be settled “in conformity with the law applicable by virtue of the rules of private international law”. 40 CLOUT case No. 237, Arbitration, 1998. 41 Article 35(3) provides that a seller is not liable for a lack of conformity under Article 35(2) “if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity”. 42 CLOUT case No. 168, Germany, 1996.

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Article 41 The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller’s obligation is governed by article 42.

In General 1. Article 41 governs the seller’s duty to deliver goods of which the buyer will enjoy undisturbed possession and ownership. Although under Article 4(b) questions concerning “the effect which the contract may have on the property in the goods sold” is beyond the scope of the Convention, Article 41 makes it clear that the seller’s obligation to give the buyer clear property rights in the goods, so that the buyer is free from third party rights or claims, is a matter governed by the Convention, and that the seller will be in breach of its duties if it does not meet the requirements imposed by Article 41. The basic statement of the seller’s obligation is found in the first sentence of Article 41: the seller must deliver goods that “are free from any right or claim of a third party... “. An exception to this obligation arises, however, if the buyer “agreed to take the goods subject to that right or claim”. The second sentence of Article 41 mandates a distinction between third party rights or claims based on “industrial or other intellectual property” and other rights or claims of third parties. Only the latter are within the scope of Article 41, whereas the former are governed by Article 42 of the Convention.

Application of Article 41 2. There have been relatively few decisions applying Article 41; they have tended to focus on what constitutes a breach of the seller’s obligations under the provision. In one, the court stated that a seller would violate Article 41 if it delivered goods subject to a restriction, imposed by the seller’s own supplier, on the countries in which the buyer could resell the goods, unless the buyer had previously consented to the restriction.1 In another, an arbitration panel indicated that Article 41 required a seller to arrange for its wholly-owned subsidiary, which had obtained a court order putting under arrest the vessel in which the goods were loaded, to avoid or lift the effects of the order.2 1

CLOUT case No. 176, Austria, 1995.

2

ICC Arbitration Case No. 8204 of 1995, Unilex.

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Draft Digest

Art. 42

Article 42 (1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property: (a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or (b) in any other case, under the law of the State where the buyer has his place of business. (2) The obligation of the seller under the preceding paragraph does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.

In General 1. Article 42 states the seller’s duty to deliver goods that are free of intellectual property rights or claims of third parties. A seller breaches if it delivers goods in violation of Article 42, but the seller’s obligation to deliver goods free of third party rights or claims based on intellectual property is subject to three significant limitations. First, the seller is only liable under Article 42 if the third party’s right or claim is one “of which at the time of the conclusion of the contract the seller knew or could not have been unaware”.1 Second, the seller is only liable if the third party’s right or claim is based on the law of the State designated by Articles 41(1)(a) or (b), whichever alternative is applicable. The third limitation on the seller’s obligations under Article 42 is stated in Article 42(2), and appears to be based on assumption of risk principles: the seller is not liable if the third party’s right or claim is one of which the buyer “knew or could not have been unaware”2 when the contract was concluded, or if the right or claim arose from the seller’s compliance with technical requirements (“technical drawings, designs, formulae or other such specifications”) that the buyer itself supplied to the seller. 1

The phrase “knew or could not have been unaware” as a standard for a party’s responsibility for awareness of facts is also used in Articles 8(1), 35(3), 40 and 42(2)(b). 2 The phrase “knew or could not have been unaware” as was just noted, is also used in Article 42(1). It also appears in Articles 8(1), 35(3), and 40.

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Application of Article 42 2. Article 42 has been the subject of few decisions. In one piece of litigation, both the lower court and the appeals court emphasized that the buyer bears the burden of proving that, at the time the contract was concluded, the seller knew or could not have been unaware of the third party’s intellectual property right or claim that the buyer alleges produced a violation of Article 42.3 In another decision, although the transaction was governed by the 1964 Hague Convention on the Uniform Law for International Sales (“ULIS”) the court invoked Article 42(2) in deciding that, although the seller delivered goods with a symbol that infringed a third party’s well-known trademark, the seller was not liable to the buyer because the buyer could not have been unaware of the infringement, and the buyer had itself specified attachment of the symbol in the designs that the buyer supplied the seller.4

Article 43 (1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim. (2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.

Article 43 in General 1. Article 43(1) imposes on the buyer a notice requirement with respect to breaches of Articles 41 and 42. Article 43(2) provides for a defense for a buyer’s failure to give the notice required by Article 43(1). The provisions of Article 43 parallel in many ways the notice requirement and defense thereto that Articles 39 and 40 establish with respect to breaches of Article 35.

3 Hof Arnhem, the Netherlands, 21 May 1996, Unilex; Rechtbank Zwolle, the Netherlands, 1 March 1995 (final decision) and 16 March 1994 (interim decision), Unilex. 4 Supreme Court of Israel, 22 August 1993, Unilex.

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Art. 44

Decisions Relating to the Interpretation of Article 43 2. There is very little in the way of decisions construing Article 43. Presumably those called upon to interpret Article 43(1) or 43(2) may look for guidance from the numerous decisions that apply the parallel provisions of Article 39 and 40, although the differences between those provisions and Article 43 should certainly be kept in mind.

Article 44 Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.

Overview and Effect 1. When it applies, Article 44 softens – although it does not eliminate – the consequences suffered by a buyer that has failed to give the notice called for by either Article 39(1), requiring notice of lack of conformity in delivered goods, or Article 43(1), requiring notice of third party claims relating to the goods.1 Normally, a buyer that does not comply with these notice provisions loses its remedies against the seller for the breach represented by the lack of conformity or the third party’s claim. Under Article 44, however, if a buyer has “a reasonable excuse” for its failure to give proper notice under Articles 39(1) or 43(1), some of the buyer’s remedies are restored: “the buyer may reduce the price in accordance with Article 50 or claim damages, except for loss of profit ...”. Other remedies that the buyer would have if it had satisfied the notice requirements, such as remedies associated with avoidance of contract, are not restored, however. Thus in one decision in which Article 44 applied, an arbitral panel permitted the buyer to recover damages for a lack of conformity despite the buyer’s failure to properly notify the seller under Article 39(1), although the tribunal denied any damages for loss of profit as per the provisions of Article 44.2 In another arbitration ruling, a buyer that had failed to notify the seller of a lack 1

Article 44 is not the only provision that limits the impact of a buyer’s failure to give the required notice. Articles 40 and 43(2) contain similar (but not identical) provisions excusing the buyer’s failure to notify based upon the seller’s awareness of a lack of conformity or of a third party’s claim to the goods. 2 ICC Arbitration No. 9187, June 1999, Unilex.

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of conformity within the time permitted by the contract was permitted to reduce the price as per Article 50, although the panel noted that the buyer would be denied remedies premised on avoidance of the contract.3

Scope of Article 44 2. The relief granted by Article 44 is restricted to failure to comply with the notice requirements of Articles 39(1) or 43(1). Article 44 does not by its terms grant a buyer relief from the two-year cut-off of notice of lack of conformity imposed by Article 39(2). A buyer that has failed to meet the notice deadline imposed by Article 39(2) cannot apply Article 44 to escape the consequences, even if the buyer has a “reasonable excuse” for the failure. In addition a court has held that, because Article 44 does not refer to the buyer’s obligation to examine goods under Article 38, a buyer cannot invoke Article 44 if the reason it failed to comply with the notice requirements of Article 39(1) is because it did not examine the goods in a timely fashion, even if the buyer has a reasonable excuse for the tardy examination.4 On appeal, however, this decision was reversed on other grounds,5 and at least two other decisions appear to contradict it by applying Article 44 where a buyer gave untimely notice because it delayed its examination of the goods but had a reasonable excuse for the delay.6 Apparently taking an expansive view of the scope of Article 44, one of the latter decisions applied the provision to a buyer that failed to meet a deadline for notice of a lack of conformity that was imposed not by Article 39(1), but by a contractual provision.7

3 Arbitration 054/1999, International Court of Commercial Arbitration of the Chamber of Commerce and Industry, Russian Federation, 24 January 2000, Unilex. 4 CLOUT case No. 230, Germany, 1997. In other words, according to this decision only a failure or delay in actually dispatching notice is subject to the “reasonable excuse” doctrine of Article 44; failure to comply with the Article 38(1) examination requirement, no matter what the reason, is not within the scope of Article 44. Note that the “dispatch principle” of Article 27, under which a delay or error in transmitting a notice or its failure to arrive does not deprive the notice of effect, apparently would apply to notice under Articles 39(1) or 43(1). 5 CLOUT case No. 270, Germany, 1998. In this appeal the court found that the seller had waived its right to rely on the buyer’s failure to give proper notice, and for this reason the court expressly left open the issue of whether buyer could invoke Article 44. 6 ICC Arbitration No. 9187, June 1999, Unilex; Arbitration 054/1999, International Court of Commercial Arbitration of the Chamber of Commerce and Industry, Russian Federation, 24 January 2000, Unilex. 7 Id.

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Draft Digest

Art. 44

”Reasonable Excuse” Requirement: In General 3. Article 44 applies if the buyer “has a reasonable excuse” for failing to give the notice required by either Article 39(1) or Article 43(1). The notice requirements of Articles 39(1) and 43(1) incorporate flexible standards in order to accommodate differing circumstances in the wide variety of transaction to which the Convention applies. Article 44 comes into play only if the flexible notice standards of Article 39(1) and 43(1) are not satisfied. Therefore, the “reasonable excuse” standard must take an even more particularized and “subjective” approach to the buyer’s circumstances, and several decisions appear to have adopted this track.8 Thus although one decision indicated that a reasonable excuse under Article 44 requires that the buyer have acted “with the care and diligence required under the circumstances”, the court stressed that this should be assessed by reference to the buyer’s “concrete possibilities”.9 Another decision emphasized the very particular situation of the buyer by asserting that an individual engaged in business (an independent trader, artisan or professional) is more likely to have a reasonable excuse for failing to give required notice than is a business entity engaged in a fast-paced business requiring quick decisions and prompt actions.10 Yet another decision implied that the small size of the buyer’s operation, which did not permit it to spare an employee full time to examine the goods, might form the basis for a reasonable excuse for delayed notice, although the court found that the buyer’s excuse in this case was not causally connected to its failure to even begin examining the goods until more than three months after it should have.11

”Reasonable Excuse” Requirement: Burden of Proof 4. It has been expressly asserted that the buyer bears the burden of proving the applicability of Article 44 – in particular, the burden of proving the existence of a “reasonable excuse” for the buyer’s failure to comply with the notice requirements of Articles 39(1) or 43(1).12 Several other decisions appear to have implied the same rule when they rejected the buyer’s

8

All three of the decisions discussed in this paragraph concluded by holding that the buyer did not have a reasonable excuse and thus was not entitled to the benefits of Article 44. 9 CLOUT case No. 285, Germany, 1998. 10 CLOUT case No. 167, Germany, 1995. 11 CLOUT case No. 192, Switzerland, 1997. 12 CLOUT case No. 285, Germany, 1998; CLOUT case No. 292, Germany, 1993.

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argument that Article 44 should apply based on a lack of sufficient evidence of a reasonable excuse.13

”Reasonable Excuse” Requirement: Application 5. Article 44 has been invoked in a number of decisions, but seldom successfully: in a substantial majority of decisions, the deciding tribunal found that the “reasonable excuse” requirement was not satisfied.14 In one case, for example, a buyer argued that it had a reasonable excuse for failing to give timely notice of a non-conformity because the goods had been held up in customs when they arrived in the buyer’s country, and the installation of processing machinery needed for a trial run of the goods had been delayed. The court, however, ruled that the buyer had failed to show that it could not have gotten access to the goods in order to examine them when they first arrived in the port of destination; furthermore, the buyer had failed to show that the delay in the installation of the processing machinery was not due to its own neglect.15 In another case the buyer argued that the seller had delivered fish of a different type than the buyer had ordered. The buyer also argued that the fish had other non-conformities, and that its reasonable excuse for not giving timely notice of the additional non-conformities was that it considered the contract avoided because seller had delivered the wrong type of fish. The court, however, found that the buyer had acquiesced in the seller’s written description of the fish that were delivered; thus the buyer could not object to the type of fish supplied, and its excuse for failing to give notice of the other non-conformities was also not valid under Article 44.16 Another decision asserted that, because the buyer’s business was in general fast-paced, requiring quick decisions and prompt action, the buyer did not have a reasonable excuse for failing to give timely notice of a 13

CLOUT case No. 280, Germany, 1998; CLOUT case No. 303, Arbitration, 1994; CLOUT case No. 378, Italy, 2000; ICC Arbitration Case No. 8611, 1997, Unilex. 14 In the following cases, the court found that they buyer did not have a reasonable excuse for its failure to satisfy the notice requirement of Article 39(1): Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex; CLOUT case No. 285, Germany, 1998; CLOUT case No. 280, Germany, 1998; CLOUT case No. 167, Germany, 1995; CLOUT case No. 192, Switzerland, 1997; CLOUT case No. 303, Arbitration, 1994; CLOUT case No. 230, Germany, 1997; CLOUT case No. 378, Italy, 2000; ICC Arbitration Case No. 8611, 1997, Unilex; CLOUT case No. 273, Germany, 1997; CLOUT case No. 292, Germany, 1993; CLOUT case No. 263, Switzerland, 1998; Sø og Handelsretten, Denmark, 31 January 2002, available on the Internet at . 15 CLOUT case No. 285, Germany, 1998; CLOUT case No. 280, Germany, 1998. 16 Sø og Handelsretten, Denmark, 31 January 2002, available on the Internet at .

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lack of conformity.17 Another court found that a buyer who did not examine furs until they had been processed by a third party, and who as a result failed to give timely notice of a lack of conformity in the furs, did not have a reasonable excuse for its late notice because an expert could have examined a sample of the goods when they were delivered, and adequate means of communication existed between the parties to convey prompt notice.18 6. In at least two arbitration cases, however, a buyer successfully pleaded a reasonable excuse for failing to satisfy the Article 39(1) notice requirement, and as a result was able to invoke the remedies that Article 44 preserves for the buyer. In one decision, coke fuel was examined by an independent inspector, appointed jointly by both parties, at the time it was loaded on the carrier, and the inspector issued a certificate of analysis. When the delivery arrived, however, the buyer discovered that the delivery differed in both quantity and quality from the certificate of analysis, and the buyer thereupon notified the seller of the problem. The tribunal ruled that the buyer’s notice was not timely under Article 39(1), but that the erroneous certificate of analysis gave the buyer a reasonable excuse for the delay: because the certificate was the product of an independent body appointed by both parties, the buyer was not bound by it or responsible for its errors, and thus it could invoke Article 44.19 In another arbitration proceeding, a provision of the contract required claims of non-conformity to be brought forward within 50 days of the date stamped on a bill of lading issued when the goods were dispatched. Inspection of the goods at the port of shipment became unfeasible, and the buyer did not examine the goods until they arrived at their destination. As a result, the buyer did not give notice of lack of conformity within the 50 day deadline, but the court found that the buyer had a reasonable excuse for the delay and applied Article 44 to permit the buyer to reduce the price of the goods pursuant to Article 50 of the Convention.20

17

CLOUT case No. 167, Germany, 1995.

18

Hof s’Hertogenbosch, the Netherlands, 15 December 1997, Unilex. ICC Arbitration No. 9187, June 1999, Unilex. 20 Arbitration 054/1999, International Court of Commercial Arbitration of the Chamber of Commerce and Industry, Russian Federation, 24 January 2000, Unilex. In another case, a court implied that the small size of the buyer’s operation, which did not permit it to spare an employee full time to examine the goods, might constitute a reasonable excuse for delayed notice, although the court found that the buyer’s excuse in this case was not causally connected to its failure to even begin examining the goods until more than three months after it should have. See CLOUT case No. 192, Switzerland, 1997. 19

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Draft Digest

Section III. Remedies for Breach of Contract by the Seller

Article 45 (1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: (a) exercise the rights provided in articles 46 to 52; (b) claim damages as provided in articles 74 to 77. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract.

Meaning and Purpose of Provision 1. This provision gives an overview of the remedies available to the buyer when the seller has committed a breach of contract by non-performance of any of its contractual duties.1 In its paragraph (1)(a), the provision simply refers to other provisions, namely articles 46-52, which specify the conditions under which the rights provided by those provisions may be exercised. On the other hand, article 45(1)(b) constitutes the basis for the buyer’s right to claim damages and has as such great practical importance.2 As far as the amount of damages is concerned, it is to be adjudicated according to articles 74-76. Article 45(2) allows the combination of the right to damages with other remedies. Article 45(3) disallows courts and arbitral tribunals to grant periods of grace which would depreciate the remedial system of the Convention. 2. Article 45 does not enumerate the buyer’s remedies exhaustively. The Convention provides for further remedies, e. g., in article 71-73 or 84(1). Nevertheless, article 45 is exhaustive in the sense that is preempts the buyer 1 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 37 (“index to the remedies available to the buyer”). 2 See, e. g., CLOUT case No. 85, United States, 1994 (appellate decision: CLOUT case No. 138, United States, 1995); CLOUT case No. 140, Arbitration, 1995; CRCICA Arbitration Cairo, Egypt, 3 October 1995, Unilex; CLOUT case No. 166, Arbitration, 1996; ICC Court of Arbitration, France, award No. 8247, ICC International Court of Arbitration Bulletin, 2000, 53; CLOUT case No. 236, Germany, 1997; CLOUT case No. 248, Switzerland, 1998.

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from being able to invoke contractual remedies otherwise available under the applicable domestic law, since the Convention excludes recourse to domestic law where the Convention provides a solution.3

Non-performance of an Obligation as Prerequisite for Remedies 3. The availability of any remedy to the buyer presupposes that the seller has failed to perform an obligation deriving either from the contract, from trade usages, from practices between the parties or from the the Convention. Even if an additional duty – for instance, the duty to extend a bank guaranty in favour of the buyer4 – has been breached the buyer is entitled to the remedies available under the Convention. The extent of the seller’s failure to perform is irrelevant for the purposes of deciding whether the buyer is entitled to the remedies. Of course, there are some remedies that are available to the buyer only where the breach is fundamental. Generally, the reasons for the seller’s breach are irrelevant, too, except for the purposes of article 79(5). In particular, article 458(1) does not require that the seller acted with negligence or intent. 4. However if the seller’s responsibility for a breach depends on further conditions – in particular on a timely and orderly notice of the buyer (articles 38, 39, 43) – then also any remedy is only given if the additional condition is satisfied.

Rights under Articles 46-52 5. Article 45(1)(b) merely refers to articles 46-52. Although the remedies provided for in the provisions referred to all require that a breach of an obligation has occurred they make distinctions as to the kind of breach that occurred. Thus, articles 46(2), 49 and 51(2) require a fundamental breach. Article 49(1)(b) applies only in case of non-delivery; for article 50 it is doubtful whether its application extends also to other cases than delivery of non-conforming goods. Article 51 concerns partial non-performance; article 52 deals with early delivery and with over-delivery.

3

Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., United States, 10 May 2002, available on the Internet at . 4 See the case in CRCICA Arbitration Cairo, Egypt, 3 October 1995, Unilex.

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Draft Digest

Claim of Damages 6. Article 45(1)(b) lays down the substantive conditions for a claim of damages of the buyer.5 In case of breach of whatever contractual obligation by the seller the buyer who has suffered any damage through that breach can claim damages. It has been therefore held that the buyer can also claim such damage which ensued through the delivery of defective goods.6 A buyer can also claim damages for any incurred loss when the seller declares in advance that it will be unable to deliver on time thereby committing an anticipatory breach of contract in the sense of article 71.7 However, if the contract or the Convention requires further conditions for the entitlement of the buyer – like the notice requirement under articles 38, 39, 43 – these conditions must also be satisfied.8 7. In contrast to many national systems the right to claim damages does not depend on any kind of fault, on any breach of express promise or the like but presupposes merely an objective failure of performance.9 Only under the conditions of article 79 or in case of article 80 the seller is exempted from liability.10 8. Articles 74-77 to which article 45(1)(b) refers provide rules for the calculation of the amount of damages but do not form a basis for a claim of damages.11

5

A parallel provision is article 61(1)(b), which entitles the seller to claim damages for any breach of contract by the buyer. 6 See for example CLOUT case No. 125, Germany, 1995 (seller who had delivered and installed defective windows was held liable to compensate buyer’s costs of replacing the defective windows). 7 ICC Court of Arbitration, Switzerland, award No. 8786, ICC International Court of Arbitration Bulletin, 2000, 70. 8 See, e. g., ICC Court of Arbitration, France, award No. 8247, ICC International Court of Arbitration Bulletin 2000, 53; CLOUT case No. 364, Germany, 1999; see also the commentary to these provisions. 9 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 37. 10 For an instance in which the exemption under article 79 was found not to be applicable, see CLOUT case No. 140, Arbitration, 1995. 11 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 37.

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Art. 45

9. The decisions that applied article 45(1)(b) evidence no difficulty with the application of this provision as such.12 Problems may arise as to the existence and extent of an obligation of the seller or to the amount of damages. But since both aspects are dealt with by other provisions (articles 30-44 and 74-77 respectively), article 45(1)(b) is merely referred to, without being discussed in detail.13

Cumulation of Remedies (article 45(2)) 10. The right to claim damages is the remedy that is always available to the buyer if a breach of contract has caused the buyer any damage. This right can be cumulated with any other remedy in order to get compensation for any damage which would otherwise remain. The amount of damages, however, depends on which other remedy has been resorted to by the buyer.14

No period of Grace (article 45(3)) 11. Article 45(2) disallows courts and arbitral tribunals to grant a period of grace and to extend the time for performance when the buyer holds the seller liable for a breach of contract.15 Although such possibility could be anyway regarded as a matter of procedural law and therefore outside the Convention’s scope of application, the provision nevertheless explicitly excludes it. The provision addresses only judiciary bodies. The parties are, however, free to extend or otherwise modify the period for performance at any time.

Further Questions 12. The place of performance for all rights and claims under article 45 follows the place of performance of the primary obligation – to deliver, to hand over

12

See, e. g., the decisions cited in No. 2. See as further examples: CLOUT case No. 82, Germany, 1994; CLOUT case No. 83, Germany, 1994; CLOUT case No. 168, Germany, 1996; ICC Court of Arbitration, France, award No. 8247, ICC International Court of Arbitration Bulletin, 2000, 53; CLOUT case No. 214, Switzerland, 1997; Tribunal Cantonal Valais, Switzerland, 28 October 1997, Unilex; CLOUT case No. 293, Arbitration, 1998; CLOUT case No. 348, Germany, 1999. 14 See the remarks to articles 74 – 76. 15 This is possible, e. g., under art. 1184 par. 3 and art. 1244 of the French Code civil and in legal systems which have been influenced by the French civil code. 13

699

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documents et cetera – which has been breached.16 Therefore it is important to determine the place of performance of the primary obligation. 13. The Convention does not deal with the statute of limitations.17 The limitation of the rights and claims granted under article 45 has thus to be determined according to the applicable national law or – as far as applicable – according to the United Nations Convention on the Limitation Period in the International Sale of Goods of 1974 as amended in 1980.

Burden of Proof 14. The question of burden of proof is only relevant for a damages claim under article 45(1)(b) since the other parts of the provision do not grant concrete rights on the basis of which the buyer could sue. For the damages claim the burden is on the buyer who has to prove the breach of an obligation by the seller as well as the damage caused by that breach. According to article 79, the burden then lies on the seller to prove any exempting circumstances.

Article 46 (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

16

Bundesgerichtshof, Germany, 11 December 1996, CLOUT case No. 268; Gerechtshof Hertogenbosch, Netherlands, 9 October 1995, Unilex; Cour d’Appel de Paris, France, 4 March 1998, CLOUT case No. 244; Cour d’Appel de Paris, France,18 March 1998, CLOUT case No. 245. 17 See the remarks sub article 1, n. 13.

700

Draft Digest

Art. 46

Meaning and Purpose of the Provision 1. Article 46 gives the buyer a general right to require the seller to perform its contractual obligations in kind. While paragraphs 2 and 3 deal with replacement and repair of non-conforming goods in the sense of article 35 and articulate some restrictions for these specific remedies, paragraph 1 applies to all other cases. 2. The right to require performance is subject to the restriction provided for by article 28. If the seized court does not grant such remedy under its own national law, it will not be bound to grant it under the Convention.1 Therefore the courts of those jurisdictions that do not allow for specific performance may refuse to grant specific performance of the obligation in dispute and may award only damages. 3. The fact that the right to performance is ranking first in the list of remedies mentioned in articles 46-52 indicates also a tendency of the Convention that the contractual bond should be preserved as far as possible while the termination of the contract should be available as ultima ratio2 only if the continuation of the contract would be no longer tolerable because of the severe breach of contract the seller has committed (see article 49). The same concept applies when the buyer has breached the contract (articles 62 and 64). 4. Despite its importance, the right to require performance has not occasioned much case law. In practice other remedies – in particular the right to claim damages – are preferred.

General Requirements 5. It is obvious that the right to require performance presupposes that the obligation in dispute exists and has thus far not been fulfilled. 6. Furthermore the buyer must “require” performance. This means a clear demand that the disputed obligation should be fulfilled.3 Under the 1

Compare for details the remarks relating to article 28. See Oberster Gerichtshof, 7 September 2000, available on the Internet at . 3 See, for an example of an ambiguous request, See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 38 (delivery term 1 July. Buyer’s 2

701

Art. 46

Draft Digest

conditions of article 46(2) and (3) notice of it must be given within a reasonable time. The buyer is also entitled to set an additional period of time for performance in accordance with article 47.

The General Right to Require Performance (article 46(1)) 7. Except in cases covered by article 46(2) and (3), the buyer has a general right under article 46(1) to ask for the seller’s performance of any due obligation in kind. Thus the buyer is entitled to request that the goods be delivered, that the seller extends a stipulated bank guaranty or respects an exclusive sales obligation.4 The buyer could claim and – subject to the restrictions imposed by article 28 – enforce these obligations with the assistance of the courts. 8. If performance in kind is impossible – e. g., a unique good has been sold and afterwards destroyed – then also the buyer’s right to require performance is extinguished. 9. Article 46 (1) disallows the general right to compel performance when the buyer has already resorted to a remedy inconsistent with performance. Such inconsistency exists between performance and avoidance, but also between performance and price reduction.5 However, the buyer can combine its request for performance and a claim for any remaining damage, e. g., caused by delayed performance.6 The buyer having once requested performance can still opt for a different remedy, e. g., declare the contract avoided if all the requirements for avoidance are met. Only if the buyer has fixed an additional period of time for performance is the buyer for that period excluded from requesting other remedies except damages under the conditions of article 47.

letter from 5 July: “we need the goods until 15 July”. Probably no clear request of performance but only modification of delivery term when seller delivers on 15 July). 4 In these cases the buyers, however, resorted to other remedies, namely damages and as far as possible avoidance: compare, e. g., ICC Court of Arbitration, Switzerland, award No. 8786, ICC International Court of Arbitration Bulletin 2000, 70 (late delivery); CRCICA Arbitration Cairo, Egypt, 3 October 1995, Unilex (extension of bank guaranty); CLOUT case No. 2, Germany, 1991 (breach of exclusive sales agreement). 5 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 38. 6 Id.

702

Draft Digest

Art. 46

10. The general right to require performance need not be claimed within a certain period of time apart from the normal period of limitation according to the applicable national law7 or, as far as it applies, according to the United Nations Convention on the Limitation Period in the International Sale of Goods. This contrasts with the notice requirement in article 46(2) and (3); but also under article 46(1) a clear declaration that the buyer requests the performance of a contractual obligation is needed.8

Delivery of Substitute Goods (article 46(2)) 11. Article 46(2) presupposes that the seller has delivered non-conforming goods; that the non-conformity constitutes a fundamental breach of contract; that the buyer has requested replacement within a reasonable time. Given these conditions the buyer is entitled to require delivery of substitute goods. 12. The non-conformity of the goods has to be determined according to article 35 which includes the delivery of defective goods, of different goods (aliud), defects of package and deficiencies in quantity.9 13. A fundamental breach with regard to non-conformity of the goods is given when the delivery of the defective goods substantially deprives the buyer of what the buyer is entitled to expect under the contract (article 25). The fundamental breach under article 46(2) has to be determined in the same way as under article 49 and in accordance with the general definition given in article 25. Leading court decisions on the point (although rendered in respect of article 49) have held that a non-conformity concerning quality remains a non-fundamental breach of contract as long as the buyer can – without unreasonable inconvenience – use the goods or resell them even with a rebate.10 Thus, e. g., the delivery of frozen meat which was too fat and too wet and therefore according to expert opinion worth 25.5% less than meat of the contracted quality was considered not to constitute a fundamental breach of contract since the buyer had the opportunity to resell the meat at a lower price or to process it otherwise.11 On the contrary, if the non7

See for instance CLOUT case No. 346, Germany, 1998. See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 38. 9 Compare for details the remarks relating to article 35. 10 Bundesgerichtshof, Germany, 3 April 1996, Entscheidungen des Bundesgerichtshofs (BGHZ) 132, 290; CLOUT case No. 248, Switzerland, 1998. 11 CLOUT case No. 248, Switzerland, 1998. 8

703

Art. 46

Draft Digest

conforming goods cannot be used or resold with reasonable effort this constitutes a fundamental breach.12 The same is true where the goods suffer from a serious and defect – although they may still be used to some extent (e. g. flowers which should flourish the whole summer but did so only for a minor part of it)13 or where the goods have major defects and the buyer needs the goods for manufacture.14 The same solution has been reached where the non-conformity of the goods resulted from added substances the addition of which was illegal both in the country of the seller and the buyer.15 14. Special problems arise when the goods are – even seriously – defective but reparable. Several courts have held that easy reparability excludes any fundamentality of the breach.16 At least when the seller offers and effects speedy repair without any inconvenience to the buyer courts deny a fundamental breach.17 This is in line with seller’s right to cure as provided for in article 48 of the Convention. 15. Article 46(2) requires a notice within reasonable time. The request for substitute goods can be coupled with the notice of lack of conformity under article 39 for which then the time limits under that provision apply. It can, however, also be given within a reasonable time afterwards. 16. It has to be noted that the right to require delivery of substitute goods can in principle only be exercised if the buyer is able to make restitution of the delivered goods substantially in the condition in which he received them (article 82).

12 Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine); Oberlandesgericht Frankfurt/M, Germany, 18 January 1994, Neue Juristische Wochenschrift 1994, 1013 (shoes with fissures in leather); Landgericht Landshut, Germany, 5 April 1995, Unilex (T-shirts which shrink by two sizes after first washing). 13 Oberlandesgericht Innsbruck, Austria, 1 July 1994, Unilex. 14 See CLOUT case No. 138, United States, 1995 (lower cooling capacity and higher power consumption than contracted of compressors delivered for the manufacture of air conditioners); Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine); CLOUT case No. 315, France, 1999 (metal sheets absolutely unfit for the foreseen kind of manufacture by the buyer’s subbuyer). 15 In result Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine which is forbidden under EU-law and national laws); Landgericht Trier, Germany, 12 October 1995, Neue Juristische Wohenschrift-Rechtsprechungs-Report 1996, 564 (also artificially sugared wine). 16 Handelsgericht des Kantons Z
rich, Switzerland, 26 April 1995, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 1996, 51 (obiter). 17 CLOUT case No. 152, France, 1995; CLOUT case No. 282, Germany, 1997.

704

Draft Digest

Art. 47

Repair (article 46(3)) 17. Article 46(3) provides for a right to repair if the delivered goods do not conform to the contract in the sense of article 35. Moreover, repair must not be unreasonable in the light of all the circumstances. Finally, the buyer must give timely notice of its request for repair.18 18. It is necessary that the goods are reparable so that the defect can be cured by repair. A request for repair would, however, be unreasonable if, e. g., the buyer could easily repair the goods himself. But the seller remains liable for any costs of such repair.19 19. Repair is effectively executed when after repair the goods can be used as agreed.20 If the repaired goods are again defective the buyer must give notice of the defects.21 It has been held that as to this notice the period of time of article 39 applies.22 However, the request for repair can be notified within a reasonable time thereafter.23 A first notice within two weeks, a second notice after a month and further notices after six and eleven months have been regarded as notices within a reasonable time.24

Article 47 (1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. (2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.

18 19 20 21 22 23 24

As to this requirement see CLOUT case No. 225, France, 1998. CLOUT case No. 125, Germany, 1995. CLOUT case No. 152, France, 1995. Landgericht Oldenburg, Germany, 9 November 1994, Unilex. Id. CLOUT case No. 225, France, 1998. Id.

705

Art. 47

Draft Digest

Meaning and Purpose of the Provision 1. Article 47(1) entitles the buyer to fix an additional period of time within which the seller is requested finally to perform its obligations. The provision thus complements the right to require performance under article 46, but it is particularly relevant for the right to terminate the contract under article 49. In fact the provision has practical importance only under the latter provision since article 49(1)(b) provides that once the additional period of time fixed in accordance with article 47 expires, the buyer can declare the contract avoided. Thus the fixing of an additional period of time paves the way for the termination of the contract. It has, however, to be noted that this mechanism only works in case of non-delivery.1 2. Article 47(2) states that the buyer who fixes an additional period of time binds itself not to resort to other remedies except damages during that period. This binding effect is intended to protect the seller who may prepare the performance – even at considerable expense – and should be entitled to expect that the buyer will accept the requested performance if it is not otherwise defective.2 Only if the seller informs the buyer that it will not perform during the additional period the buyer will be free to resort to any other available remedy since in that case the seller needs no protection against such change. 3. Article 47 allows to fix an additional period of time for any obligation the seller has thus far not performed. Like article 46(3) the provision thus refers to all obligations the seller has agreed to fulfil. But in order to function as a precursor of avoidance the additional time period requires that the seller has violated its duty to deliver the sold goods.

Fixing of Additional Period of Time (article 47(1)) 4. The buyer is entitled, but not obliged, to fix an additional period for performance.3 In case of non-delivery of the goods, however, the buyer can benefit from this the mechanism in that it clarifies whether late delivery justifies the termination of the contract.4 There are cases stating that where 1

See for further details the commentary to art 49. See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 39-40. 3 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex. 4 See article 49(1)(b). 2

706

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Art. 47

the buyers had not granted an additional period of time, they had no right to avoid the contract.5 5. The buyer must fix an additional period of time of reasonable length. A period of two weeks for the delivery of three printing machines from Germany to Egypt was found to be too short (obiter), whereas a period of seven weeks in that case was regarded as reasonable.6 In a Danish-German car sale a period of three to four weeks was found to be reasonable.7 If the buyer fixes an unreasonably short period it was held that instead a reasonable period runs.8 It also suffices if the buyer having fixed an unreasonably short period then waits with its notice of avoidance until a reasonable period time has expired.9 6. Where the buyer fixes a certain date or a certain period of time, the buyer must make clear that the seller has to perform within that time in order for the buyer to be entitled to avoid the contract.10 A clear expression that a final deadline is granted is necessary (e. g. “final delivery date: 30 September 2002”).11 It has therefore been decided that a mere reminder demanding prompt delivery does not suffice, since no additional time period for delivery had been fixed.12 On the contrary, for the purposes of article 47(1) it has been held to be sufficient if the buyer accepts a new delivery date offered by the seller when the buyer makes clear at the same time that performance until that date is of essential importance.13 The same result was reached in a case where the buyer accepted several requests of the seller to prolong the time for delivery.14 Where a buyer tolerated the late delivery of several instalments of an instalment sale, it was held that the buyer’s behaviour compared to the granting of an additional period of time.15 5

See, e. g., CLOUT case No. 7, Germany, 1990; CLOUT case No. 82, Germany, 1994;

CLOUT case No. 120, Germany, 1994. 6

CLOUT case No. 136, Germany, 1995.

7

CLOUT case No. 362, Germany, 1999 (one week was obiter doubted as being too short).

8

CLOUT case No. 136, Germany, 1995; Landgericht Ellwangen, Germany, 21 August 1995, Unilex; CLOUT case No. 362, Germany, 1999. 9 Landgericht Ellwangen, Germany, 21 August 1995, Unilex; CLOUT case No. 362, Germany, 1999. 10 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 39. 11 Id. 12 CLOUT case No. 275, Germany, 1997. 13 CLOUT case No. 277, Germany, 1997. 14 CLOUT case No. 225, France, 1998. 15 CLOUT case No. 246, Spain, 1997.

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Art. 48

Draft Digest

7. There is generally no form requirement as to the form of the granting of the additional period of time, as can evinced from article 11; where an article 96 reservation was declared, a form requirement may have to be met. Whether the time extension has been communicated in writing or orally or has been made impliedly is irrelevant..16

Effect of Fixing an Additional Period of Time (article 47(2)) 8. The fixing of an additional period of time for performance assists at first the seller who gains an extension of time for performance. According to article 47(2) the buyer is then hindered to claim avoidance or price reduction as long as the additional period of time lasts, unless the seller has declared that it is not able or willing to not perform17 or has made its performance dependant of conditions not stipulated in the contract.18 If the seller performs during the additional period of time the buyer must accept the performance. The buyer nevertheless retains the right to claim any damages caused by the delay of performance. If the seller does not perform the buyer may resort to any available remedy including avoidance if the nonperformance exists of non-delivery.

Article 48 (1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention. (2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller. (3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.

16 17 18

708

See the decisions cited in the preceding paragraph. See CLOUT case No. 293, Arbitration, 1998. Id.

Draft Digest

Art. 48

(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.

Meaning and Purpose of the Provision 1. Article 48(1) gives the seller the so-called right to cure which allows the seller to cure any failure to perform its obligations under the contract or under the Convention even after the date for performance, provided that the exercise of that right does not cause the buyer unreasonable inconvenience and other discomfort.

The Right to Remedy a Failure of Performance (article 48(1)) 2. Article 48(1) permits the seller to cure any failure of performance of whatever contractual obligation. Article 48(1) grants the seller the right to cure only “subject to article 49”. Avoidance of the contract therefore excludes the seller’s right to cure. Generally, it has been held that it is for the buyer to decide whether or not the contract should be avoided. If a right to avoidance is established courts have regularly held that the buyer may exercise it without being in any way restricted by the seller’s right to cure.1 This solution is also supported by article 48(2) according to which the seller must ask for the buyer’s consent for cure.2 Therefore the buyer who is entitled to avoid the contract need not wait first for cure but may declare the contract avoided at once3 (but see also the notice procedure under par. 2-4, infra nos. 11 et seq.). There are courts, however, that have adopted a different view, namely that the buyer must first allow the seller to cure any failure (even a fundamental one) and courts that have denied a fundamental breach where the buyer had not given the seller the opportunity to remedy the failure of

1

See, e. g., CLOUT, case No. 90, Italy, 1989; CLOUT case No. 2, Germany, 1991; CLOUT case No. 165, Germany, 1995; CLOUT case No. 235, Germany, 1997; CLOUT case No. 304, Arbitration, 1994. 2 See also CLOUT case No. 304, Arbitration, 1994. 3 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 40-41: “5. If there has been a fundamental breach of contract, the buyer has an immediate right to declare the contract avoided. He need not give the seller any prior notice of his intention to declare the contract avoided or any opportunity to remedy the breach under [then] article 44. 6. However, in some cases the fact that the seller is able and willing to remedy the non-conformity of the goods without inconvenience to the buyer may mean that there would be no fundamental breach unless the seller failed to remedy the nonconformity within an appropriate period of time”.

709

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Draft Digest

performance.4 It has to be noted, however, that a breach is rarely fundamental when the failure of performance could easily be remedied.5 But this rule should not be misunderstood to mean that in each case the seller must first be offered an opportunity to cure.6 3. The right to cure is only granted under certain circumstances, namely when the failure to perform can be remedied without unreasonable delay, without unreasonable inconvenience to the buyer and without uncertainty that the seller will compensate any costs the buyer may have had to advance. It has been held that these conditions are satisfied when, e. g., defective motors can easily be adjusted in due time and at minimal costs.7 4. It has been concluded from articles 46 and 48 that the seller has to bear the costs which the buyer incurs when the buyer remedies defects of the delivered goods.8 5. The willingness of the seller to cure a failure of performance has been taken into account as a factor in determining whether a lack of quality amounts to a fundamental breach of contract.9

Right to Claim Damages 6. Even if the seller cures any failure of performance the buyer retains the right to claim damages. Therefore it has been held that a buyer was entitled to 10 % of the overall value of the sale as estimated damages when delivery was delayed and the buyer had to arrange for the transportation of the goods.10

4

See, e. g., CLOUT case No. 339, Germany, 1998. See for example ICC Court of Arbitration, France, award No. 7754, ICC International Court of Arbitration Bulletin 2000, 46. 6 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 41 (“in some cases”). 7 ICC Court of Arbitration, France, award No. 7754, ICC International Court of Arbitration Bulletin 2000, 46. 8 CLOUT case No. 125, Germany, 1995 (costs for replacing defective windows). 9 CLOUT case No. 282, Germany, 1997. 10 CLOUT case No. 151, France, 1995 (a dismantled second-hand hangar of which certain metallic elements were defective and had to be repaired twice). 5

710

Draft Digest

Art. 49

Request to Remedy a Failure of Performance (article 48 (2) – (4)) 7. The seller who has failed to perform its obligation cannot force the buyer to accept a later performance. Article 48(2) and (3) offer, however, a mechanism that can eventually lead to almost that result. The seller may give notice of its willingness to perform. According to article 48(3) such notice is deemed to be a request whether the buyer will accept cure within the time indicated in the notice; if the buyer consents or does not react within a reasonable time11 the seller may cure; the buyer must then accept performance and is barred from resorting to remedies inconsistent with performance. Where the buyer contradicts the seller’s request or notice to cure such request or notice does not have the effects provided for paragraphs (2) and (3); rather, the buyer remains free to resort to any remedy available to him. 8. Both a request and a notice by the seller under article 48(2) and (3) must specify the time within which the seller will perform. If they do not indicate the time frame for the proposed cure they do not have the effect paragraphs (2) and (3) accord them.12 9. As an exception to the dispatch principle in article 27 the buyer must receive the request or notice of the seller (paragraph (4)), oherwise it will not produce any effects. But article 27 applies to the buyer’s reply which is effective if dispatched by appropriate means.13

Article 49 (1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed. (2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so: 11

As to such case see Amtsgericht Nordhorn, Germany, 14 June 1994, Unilex. See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 40. 13 Id. 12

711

Art. 49

Draft Digest

(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made; (b) in respect of any breach other than late delivery, within a reasonable time: (i) after he knew or ought to have known of the breach; (ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or (iii)after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance.

Meaning and Purpose of the Provision 1. Article 49 specifies the conditions under which the buyer is entitled to declare the contract avoided. Avoidance under article 49 is available if either the seller’s failure to perform its contractual obligations amounts to a fundamental breach (article 49(1)(a)) or non-delivery of the goods within the additional period of time fixed (article 49(1)(b)). 2. Avoidance of the contract, which is a remedy that serves as a means of last resort (ultima ratio) which applies when it cannot be expected any longer of the buyer to continue the contract.,1 terminates the contract only if declared by notice (article 26). Provided that all prerequisites for termination of the contract by the buyer are met, the buyer is entitled to terminate the contract at any time. However, if the seller has delivered the goods the buyer looses the right to avoid the contract if the buyer does not exercise it within a reasonable time (article 49(2)).

General Remarks 3. The buyer must declare the contract avoided by means of a notice (article 26). No specific form is prescribed for that notice, unless the reservation under articles 12, 96 applies. The notice need, however, express clearly that the buyer now treats the contract as terminated. A mere announcement of future termination, an urging for delivery or the uncommented sending back of the goods do not suffice.2 4. Avoidance for delivery of non-conforming goods or of goods with third party rights requires – in addition to the fact that the breach must constitute 1 In this sense see, e. g., CLOUT case No. 171, Germany, 1996; Oberster Gerichtshof, Austria, 7 September 2000, Internationales Handelsrecht 2001, 42. 2 CLOUT case No. 6, Germany, 1991; CLOUT case No. 282, Germany, 1997.

712

Draft Digest

Art. 49

a fundamental breach of contract – that the buyer has given notice of the lack in accordance with articles 39 and 43. Failure to comply with the notice requirement disentitles the buyer to declare the contract avoided.3

Avoidance for Fundamental Breach (article 49(1)(a)) 5. Under article 49(1)(a) any fundamental breach as defined in article 25 justifies the avoidance of the contract. The seller’s non-performance of any of its obligations must therefore substantially deprive the buyer of what he was entitled to expect objectively under the contract. If that is the case has to be determined in the light of all of the circumstances of the case. But case law provides some helpful guidelines. 6. A fundamental breach requires firstly that the seller has violated a duty it was obliged to perform either under the contract, under trade usages, practices established between the parties or under the Convention. The non-performance of an additionally agreed duty suffices as well, for instance, the violation of duties under an exclusive sales contract.4 The breach of the duty entitles to avoid the contract if it is fundamental, i. e. when it deprives the buyer of the main benefit of the contract. The breach must frustrate or essentially depreciate the buyer’s justified contract expectations; what expectations are justified depends on the specific contract and the risk allocation envisaged by the contract provisions, on usages, where they exist, and on the additional provisions of the Convention. Buyers can, for instance, normally not expect that delivered goods comply with regulations and official standards in their country.5 Unless otherwise agreed upon it is generally the standard in the seller’s country that determine whether the goods are fit for their ordinary purpose (article 35(2)( a)).6 Therefore, e. g., the delivery of cadmium-contaminated mussels has not been regarded as a breach, let alone a fundamental breach since the buyer could not have expected that the seller met the contamination-standards in the buyer’s country and since the consumption of the mussels in small portions as such did not endanger a consumer’s health.7

3

See, e. g., CLOUT case No. 196, Switzerland, 1997. See, e. g., CLOUT case No. 2, Germany, 1991; CLOUT case No. 154, France, 1995; CLOUT case No. 282, Germany, 1997; CLOUT case No. 217, Switzerland, 1997. 5 CLOUT case No. 123, Germany, 1995; in the same sense (and relying on the precited CLOUT case), see CLOUT case No. 418, United States 1999; Oberster Gerichtshof, Austria, 13 April 2000, Internationales Handelsrecht 2001, 117. 6 See the decisions cited in n. 3. 7 CLOUT case No. 123, Germany, 1995. 4

713

Art. 49

Draft Digest

7. A fundamental breach requires further that the party in breach has foreseen the result of the breach of contract (article 25). Even if the seller did not foresee that the breach would deprive the buyer of most or all of the benefit of the contract the breach remains fundamental when a reasonable person in the same conditions would have foreseen such a result. Article 25 does not state at what time foreseeability must be given. Courts have decided that the time of conclusion of contract is the relevant time.8

Specific Instances of Fundamental Breach 8. In respect of a number of situations case law has to some extent developed guidelines that may help to determine in similar cases whether or not a breach of contract qualifies as fundamental. It has been held on various occasions that the final non-delivery by the seller constitutes a fundamental breach of contract unless the seller has a justifying reason to withhold its performance.9 However, if only a minor part of the contract is finally not performed, e. g., one of several instalments is not supplied, one cannot talk of fundamental breach of contract unless the delivered part by itself is of no use to the buyer.10 On the other hand, the serious, final and unjustified refusal of the seller to fulfil its contractual obligations amounts to a fundamental breach.11 It has been also held that the final non-delivery of the first instalment in an instalment sale gives the buyer reason to believe that further instalments will not be delivered and that therefore a fundamental breach of contract was to be expected.12 9. As a rule, late performance does not constitute by itself a fundamental breach of contract.13 Only when the time for performance is of essential importance – either because it is so stipulated between the parties14 or 8 9

CLOUT case No. 275, Germany, 1997.

CLOUT case No. 90, Italy, 1989 (only partial and very delayed delivery); CLOUT case No. 136, Germany, 1995. 10 CLOUT case No. 275, Germany, 1997. 11 See CLOUT case No. 136, Germany, 1995. In that case the seller had given notice that he had sold the specified good to another buyer. See also Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, Russia, 4 April 1998, award No. 387/1995, Unilex (final refusal to pay the price). 12 CLOUT case No. 214, Switzerland, 1997. 13 Landgericht Oldenburg, Germany, 23 March 1996, Unilex (one day delay in dispatch of seasonal goods no fundamental breach); Corte di Appello di Milano, Italy, 20 March 1998, Unilex (late delivery); CLOUT case No. 275, Germany, 1997 (late delivery). 14 CLOUT case No, 277, Germany, 1997 (under the circumstances of the case late delivery under a cif-sale was held to be a fundamental breach of contract).

714

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Art. 49

because it results form the circumstances (e. g., seasonal goods)15 – the delay can amount to a fundamental breach. 10. The same result has been reached where the delay in the performance came close to non-performance, for instance when the agreed delivery date was one week and the seller had delivered only one third of the goods after two months.16 But even if there is no fundamental breach, the Convention allows the buyer to fix an additional period of time after the unsuccessful lapse of which the buyer may declare the contract avoided..17 Therefore in case of delay of performance, the lapse of an additional period for performance turns a non-fundamental breach into a fundamental one. 11. The greatest problems arise in respect of the delivery of defective goods. Leading court decisions on this point have held that any non-conformity concerning quality remains a mere, non-fundamental breach of contract as long as the buyer – without unreasonable inconvenience – can use the goods or resell them even with a rebate.18 Thus, e. g., the delivery of frozen meat which was too fat and too wet and therefore according to expert opinion worth 25.5% less than meat of the contracted quality was not regarded as a fundamental breach of contract since the buyer had the opportunity to resell the meat at a lower price or to process it otherwise.19 On the contrary, if the non-conforming goods cannot be used or resold with reasonable effort this constitutes a fundamental breach and entitles the buyer to declare the contract avoided.20 The buyer can avoid the contract also where the goods suffered from a serious defect than cannot be repaired, even though they were still useable to some extent (e. g. flowers which should bloom the whole summer but did so only for part of it).21 Eventually, a fundamental breach has been also accepted without any reference to alternative possibilities of the buyer to use the goods otherwise or to resell 15

Corte di Appello di Milano, Italy, 20 March 1998, Unilex (in that case the buyer had ordered seasonal knitted goods and pointed to the essential importance of delivery at the fixed date although only after conclusion of the contract); ICC Court of Arbitration, France, award No. 8786, ICC International Court of Arbitration Bulletin 2000, 70. 16 CLOUT case No. 90, Italy, 1989. 17 See, e. g., CLOUT case No. 82, Germany, 1994. 18 Bundesgerichtshof, Germany, 3 April 1996, Entscheidungen des Bundesgerichtshofs (BGHZ) 132, 290; CLOUT case No. 248, Switzerland, 1998. 19 CLOUT case No. 248, Switzerland, 1998. 20 Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine); Oberlandesgericht Frankfurt/M, Germany, 18 January 1994, Neue Juristische Wochenschrift 1994, 1013 (shoes with fissures in leather); Landgericht Landshut, Germany, 5 April 1995, Unilex (T-shirts which shrink by two sizes after first washing). 21 Oberlandesgericht Innsbruck, Austria, 1 July 1994, Unilex.

715

Art. 49

Draft Digest

them when the goods had major defects and the buyer needed the goods for manufacture.22 The same solution was reached where the non-conformity of the goods resulted from added substances the addition of which was illegal both in the country of the seller and the buyer.23 The rules concerning the delivery of defective goods apply as well if wrong goods are delivered.24 12. Special problems arise when the goods are – even seriously – defective but reparable. Some courts have held that easy reparability excludes that there can be a fundamental breach.25 At least when the seller offers and effects speedy repair or replacement without any inconvenience to the buyer courts deny a fundamental breach.26 This is in line with seller’s right to cure as provided for in article 48 of the Convention. But if repair is delayed or causes the buyer unreasonable inconvenience an otherwise fundamental breach remains to be such a breach. However, the fundamentality of a breach cannot be denied only because the buyer did not first request the seller to cure any defective performance.27 13. Defects in the documents constitute a fundamental breach if they essentially impair the buyer’s possibility to negotiate the goods.28 If the buyer itself can easily cure any defects in the documents, e. g. by requesting new documents, a fundamental breach was denied.29 14. The violation of contractual obligations other than the aforementioned ones can also amount to a fundamental breach. But again it is necessary that the breach deprives the buyer of the main benefit of the contract and that that result could have been foreseen by the seller. Thus, a court decided that the delivery of false certificates did not constitute a fundamental breach of 22 See CLOUT case No. 138, Unites States, 1995 (lower cooling capacity and higher power consumption than contracted of compressors delivered for the manufacture of air conditioners); Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine); CLOUT case No. 315, France, 1999 (metal sheets absolutely unfit for the foreseen kind of manufacture by the buyer’s sub-buyer). 23 In result Cour de Cassation, France, 23 January 1996, Dalloz 1996.334 (artificially sugared wine which is forbidden under EU-law and national laws); Landgericht Trier, Germany, 12 October 1995, Neue Juristische Wohenschrift Rechtsprechungs-Report 1996, 564 (also artificially sugared wine). 24 Oberster Gerichtshof, Austria, 29 June 1999, Unilex. 25 Handelsgericht des Kantons Z
rich, Switzerland, 26 April 1995, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht 1996, 51 (obiter). 26 CLOUT case No. 152, France, 1995; CLOUT case No. 282, Germany, 1997. 27 See for details the commentary to article 48. 28 CLOUT case No. 171, Germany, 1996. 29 Id.

716

Draft Digest

Art. 49

contract if either the goods were nevertheless merchantable or if the buyer itself could – at seller’s expense – easily get the correct certificates.30 Likewise, the unjustified denial of contract rights of the other party – e. g. the validity of a retention of title clause and the seller’s right to possession of the goods31 or the unjustified denial of a valid contract after having taken possession of the goods32 – can amount to a fundamental breach of contract. The same is true when resale restrictions have been substantially violated.33

Avoidance for Non-delivery during Additional Period of Time (article 49(1)(b)) 15. Article 49(1)(b) states a second ground for avoidance which applies only in case of non-delivery: that the seller who has not delivered does not do so within the additional period of time the buyer has fixed under article 47(1). If the seller does not use the time extension for delivery the buyer is entitled to avoid the contract. The same effect is reached if the seller declares that it will not deliver within the fixed time.

Period of Time for Declaration of Avoidance of Delivered Goods (article 49(2)) 16. Generally the buyer is not bound to declare the contract avoided during a certain period of time; he can do so at any time if a ground for avoidance exists.34 This principle is, however, subject to a qualification under article 49(2) if the goods have been delivered. In that case, the buyer must declare avoidance within a reasonable time. As far as the time is concerned when the reasonable period starts running, article 49(2) distinguishes between late delivery and other kinds of breaches of contract. In case of late delivery the period starts when the buyer has become aware of delivery (article 49(2)(a)). In case of other breaches the reasonable period of time for declaring the contract avoided starts running when the buyer became aware of the breach or ought to have been aware of it or after a period has expired set in 30

Id.

31

CLOUT case No. 308, Australia, 1995.

32

CLOUT case No. 313, France, 1999.

33

CLOUT case No. 2, Germany, 1991; Cour d’Appel de Grenoble, France, 22 February 1995, Journal du Droit International 1995, 632; CLOUT case No. 282, Germany, 1997; CLOUT case No. 217, Switzerland, 1997. 34 But see also CLOUT case No. 133, Germany, 1995, where the court denied the buyer’s right to declare the contract avoided after 2 years although the goods were not delivered basing the decision on the principle of good faith.

717

Art. 50

Draft Digest

accordance with article 47(1) or with article 48(2). A period of five months after being informed of the breach has been held not to constitute a reasonable period for declaring avoidance under article 49(2)(b);35 neither has a declaration made eight weeks after becoming aware of the breach.36 On the other hand, five weeks were regarded as a reasonable period of time to declare the contract avoided under article 49(2)(b).37 A declaration of avoidance after several time extensions had been granted was in time as well38 and so was a declaration within 48 hours.39 Also a declaration three weeks after notice of lack of conformity was considered to be timely.40

Burden of Proof 17. It has been held that the burden is on the buyer to prove that the seller’s breach of contract was fundamental and did substantially deprive the buyer of what it was entitled to expect under the contract.41

Article 50 If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.

Meaning and Purpose of the Provision 1. The article allows for a price reduction when the seller delivered goods which do not conform with the contract. The buyer then may reduce the price in proportion to the reduced value of the goods. The remedy is, however not available if the seller has cured any defect of the goods either

35

CLOUT case No. 124, Germany, 1995; see also CLOUT case No. 83, Germany, 1994.

36

CLOUT case No. 282, Germany, 1997.

37

CLOUT case No. 165, Germany, 1995.

38

CLOUT case No. 225, France, 1998.

39

CLOUT case No. 246, Spain, 1998.

40

CLOUT case No. 348, Germany, 1999.

41

CLOUT case No. 171, Germany, 1996.

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Draft Digest

Art. 50

under article 37 or under article 48 or if the buyer has refused the seller the opportunity to such cure.

Prerequisites of Price Reduction 2. Article 50 requires that it is established that the sold goods do not conform with the contract.1 Non-conformity is to be understood in the sense of article 35, i. e., defects as to quantity,2 quality, description (aliud) and package. Also defects of documents relating to the goods can be treated as a case of non-conformity.3 The remedy of price reduction is, however, not available if the breach of contract is based upon late delivery4 or the violation of any other obligation of the seller. 3. Price reduction applies irrespective whether the non-conformity constitutes a fundamental or a simple breach of contract, whether or not the seller acted negligently or whether the seller was exempted from liability under article 79. The remedy does also not depend on the fact whether the buyer has already paid.5 4. Price reduction presupposes, however, that the buyer has given notice of the lack of conformity of the goods in accordance with article 39 (or 43).6 Without due notice the buyer is not allowed to rely on the lack of conformity and loses all remedies.7 Article 44 establishes an exception where the buyer can reasonably excuse its failure to give notice of defect.8

1 S. V. Braun Inc. v. Alitalia Linee Aeree Italiane, S. p. A., US District Court Southern District, New York, United States of America, 6 April 1994, Unilex; CLOUT case No. 377, Germany, 1999. 2 Including the weight of the goods, see S. V. Braun Inc. v. Alitalia Linee Aeree Italiane, S. p. A., US District Court Southern District, New York, United States of America, 6 April 1994, Unilex. 3 Article 48 to which article 50 refers covers also the cure of documents, see the remakrs relating to article 48. 4 Landgericht D
sseldorf, Germany, 5 March 1996, Unilex. 5 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 42. 6 CLOUT case No. 56, Switzerland, 1992. 7 CLOUT case No. 48, Germany, 1993; CLOUT case No. 273, Germany, 1997; CLOUT case No. 303, Arbitration, 1994; CLOUT case No. 343, Germany, 2000. 8 In this respect, see, e. g., CLOUT case No. 303, Arbitration, 1994; CLOUT case No. 273, Germany, 1997.

719

Art. 50

Draft Digest

5. It has been held that article 50 further requires that the buyer declares price reduction.9 6. Article 50, second sentence, states the more or less selfunderstanding rule that the remedy of price reduction is no longer available when the seller has remedied any defects either under article 37 – cure in case of early delivery – or under article 48 – later cure. The same result applies if the buyer refuses to accept performance when the seller has offered cure in accordance with articles 37 or 48.10 7. As provided for in article 45(2), the buyer can combine several remedies under articles 46-52;. Thus, the buyer can also combine price reduction with a damages claim. However, were damages are claimed in combination with price reduction damages can only be awarded for any loss other than the reduced value of the goods because this loss is already reflected by the price reduction.11

Calculation of Price Reduction 8. The amount of price reduction has to be calculated in a proportionate way. The contract price has to be reduced in proportion of the value of the delivered goods to the value conforming goods would have. The relevant date for the comparison of values is the date of actual delivery at the place of delivery.12

Place of Performance 9. The place of performance of the remedy of price reduction is located where the place of performance for the delivery of the goods lies.13

9

CLOUT case No. 83, Germany, 1994.

10

CLOUT case No. 282, Germany, 1997.

11

CLOUT case No. 248, Switzerland, 1998.

12

CLOUT case No. 56, Switzerland, 1992; CLOUT case No. 175, Austria, 1995.

13

CLOUT case No. 295, Germany, 1997.

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Draft Digest

Art. 51

Article 51 (1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform. (2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract.

Meaning and purpose of the provision 1. Article 51 deals with partial non-delivery and delivery of partially nonconforming goods. The general rule is that apart from damages all remedies of the buyer refer only to that part of the contract which is not performed. The rest of the contract remains unimpaired. In particular the entire contract can generally not be declared avoided.1 Only if the partial nonperformance amounts to a fundamental breach of the entire contract the buyer is also entitled to avoid the entire contract.

Prerequisites 2. Article 51 presupposes that the seller has breached the contract either by delivering less goods than contracted or by delivering goods of which a part does not conform with the contract in the sense of article 35.2 In any case, article 51 requires that the delivered goods consist of separable parts, e. g., some tons of cucumber,3 a shipment of tiles,4 textiles,5 larger quantities of stainless steel wire,6 scaffold fiitings7 or even a complete automatic assembly line for batteries for which the contracted spare parts were missing.8 In case of a defective piece of a machinery article 51 has been held to apply when the piece forms an independant part of the contracted good.9

1

CLOUT case No. 302, Arbitration, 1994.

2

However, article 35 covers as a matter of fact also the case of delivery of a smaller quantity than that stipulated. 3 CLOUT case No. 48, Germany, 1993. 4 CLOUT case No. 50, Germany, 1991. 5 CLOUT case No. 82, Germany, 1994. 6 CLOUT case No. 235, Germany, 1997. 7 CLOUT case No. 304, Arbitration, 1994. 8 CLOUT case No. 302, Arbitration, 1994. 9 Id.

721

Art. 51

Draft Digest

3. The remedies provided by article 51 presuppose that the buyer has given notice of the lack of conformity as required by article 39.10 The notice requirement has to be observed equally in cases where the seller has delivered only a part of the goods.11

Remedies for Partial Non-performance 4. With regard to the non-conforming part of the delivered goods the buyer is entitled to any of the remedies referred to in articles 46-50. However, the specific requirements of those provisions must be satisfied in each case. If the buyer therefore wants to declare avoidance with regard to the part of goods which do not conform with the contract then the lack of quality must constitute a fundamental breach – that means that the non-conforming goods must be of no reasonable use to the buyer.12 On the other hand, the fixing of an additional period of time for the delivery of conforming goods cannot help to a right of avoidance since the mechanism of article 49(1)(b) applies only in case of non-delivery but not in case of delivery of defective goods.13 Partial non-delivery does regularly not constitute a fundamental partial breach of contract and does therefore as such not entitle to avoidance of the contract. The buyer may however fix an additional period of time for delivery of the missing part and may declare the contract partially avoided when delivery is not effected during the period so fixed. Partial non-delivery on a fixed date amounts to a fundamental breach – with regard to the missing part – only if the buyer has a special interest in delivery exactly on time and in respect of which the seller could foresee that the buyer would prefer non-delivery instead of late delivery.14 5. Article 51(1) refers only to the remedies provided in articles 46-50. This does not mean that the remedy of damages is excluded. On the contrary, this remedy remains unimpaired and can be exercised in addition to or instead of the remedies referred to in article 51(1). Even if the buyer has lost its right to declare a part of the contract avoided because of lapse of time, it may still claim damages.15 10

CLOUT case No. 48, Germany, 1993; CLOUT case No. 50, Germany, 1991.

11

CLOUT case No. 48, Germany, 1993.

12

See CLOUT case No. 235, Germany, 1997 (parts of delivered steel wire were sub-standard and therefore not useable for the buyer’s purposes); for details compare article 49 nos. 16, 17. 13 See article 49 no. 21. 14 CLOUT case No. 275, Germany, 1997. 15 CLOUT case No. 82, Germany, 1994; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, Russia, 23 November 1994, award No. 251/ 93, Unilex (stated as principle, but not applied to the case at issue because of a penalty clause).

722

Draft Digest

Art. 52

Avoidance of the Entire Contract (article 51(2)) 6. According to article 51(2) the buyer can avoid the entire contract only if the partial non-performance constitutes a fundamental breach of the entire contract. The partial breach must deprive the buyer of the main benefit of the whole contract (article 25). This is however the exception rather than the rule.16

Article 52 (1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery. (2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate.

General Remarks 1. Even where the seller does more than is required by the contract, this raises an issue of non-performance. The article refers to two such situations, namely when the seller delivers too early (article 52(1)) or delivers too much (article 52(2)). In both cases the buyer is entitled to refuse the delivery of the goods. If the buyer accepts them, the buyer will be bound to pay the contract price for any excess quantity.

Early Delivery (article 52(1)) 2. If the seller delivers the goods before the time for delivery stipulated in the contract the buyer may refuse the tender. There is early delivery when the contract stipulates a certain date or period at or during which delivery has to be effected (e. g., “delivery during the 36th week of the year”) and delivery is effected prior to that date. In other cases, e. g., “delivery until 1 September”, any delivery before that date would be in accordance with the contract because article 33 permits to start delivery immediately after the conclusion of contract unless otherwise agreed.1 If the buyer has rightfully refused the goods because of early delivery the seller must then redeliver the goods at the 16

CLOUT case No. 302, Arbitration, 1994.

1

For details see the remarks relating to article 33.

723

Art. 52

Draft Digest

correct time.2 But under the conditions of article 86 the buyer remains responsible for the goods in the meantime.3 3. If, however, the buyer takes (early) delivery of the goods, the buyer is obliged to pay the contract price.4 Any remaining damage (additional storing costs and the like) may be claimed according to article 45(1)(b) unless the acceptance of the early tendered goods amounts to an agreed modification of the delivery date.5 4. The rules referred to that concern early delivery also apply if documents relating to the goods are prematurely tendered.

Delivery of Excess Quantity (article 52(2)) 5. If the seller delivers a greater quantity of goods than stipulated, the buyer is entitled to reject the excess quantity. According to case law, one cannot speak of delivery of a greater quantity of goods where the contract allows for delivery “+/- 10 %” and delivery remains within these limits.6 Furthermore the buyer must give notice of the wrong quantity since any incorrect quantity is a con-conformity to which the notice requirement of article 39 applies. After a rightful refusal to take the excess quantity, according to article 86 the buyer must preserve the excess quantity of goods. But if the buyer takes all or part of the excess quantity, it is obliged to pay the contract price for the part in excess as well.7 If the buyer cannot reject the excess quantity, the buyer can avoid the entire contract if the delivery of the excess quantity amounts to a fundamental breach of contract.8 Therefore, if the buyer has to take

2 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 44. 3 Id. 4 CLOUT case No. 141, arbitration, 1995 (dispatch – in mid-December – of goods – chocolates for Christmas – before buyer transmitted bank guaranty which was the stipulated delivery date; buyer obliged to pay full price). 5 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 44. 6 CLOUT case No. 341, Canada, 1999. 7 Id. 8 See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 44.

724

Draft Digest

Art. 53

delivery of the excess quantity of goods, the buyer must pay for it but can claim compensation for any damages he thereby suffered.9

Chapter III Obligations of the Buyer Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Principal Obligations of the Buyer 1. This article states the principal obligations of the buyer and serves as an introduction to the provisions set out in Chapter III. The principal obligations of the buyer are to pay the price for and take delivery of the goods “as required by the contract and this Convention”. From that and from article 6 of the Convention it follows that where the contract provides for the performance to take place in a certain manner that contracts with the Convention, the partie’s agreement prevails.

Other Obligations of the Buyer 2. According to the Convention itself, the contract may impose on the buyer obligations other than payment of the price and taking of delivery,1 such as the establishment of security guaranteeing payment of the price, the supply of materials needed for manufacture or production of the goods (article 3(1)) or the submission of specifications regarding the form, measurement or other features of the goods (article 65).

Illustrations from Case Law 3. Since it merely states the obligations of the buyer which are treated more fully in subsequent articles, article 53 raises no particular difficulties for the courts. There have been numerous court decisions referring to article 53 in 9 1

Id. See the text of articles 61 (1) and 62.

725

Draft Digest

Art. 53

delivery of the excess quantity of goods, the buyer must pay for it but can claim compensation for any damages he thereby suffered.9

Chapter III Obligations of the Buyer Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

Principal Obligations of the Buyer 1. This article states the principal obligations of the buyer and serves as an introduction to the provisions set out in Chapter III. The principal obligations of the buyer are to pay the price for and take delivery of the goods “as required by the contract and this Convention”. From that and from article 6 of the Convention it follows that where the contract provides for the performance to take place in a certain manner that contracts with the Convention, the partie’s agreement prevails.

Other Obligations of the Buyer 2. According to the Convention itself, the contract may impose on the buyer obligations other than payment of the price and taking of delivery,1 such as the establishment of security guaranteeing payment of the price, the supply of materials needed for manufacture or production of the goods (article 3(1)) or the submission of specifications regarding the form, measurement or other features of the goods (article 65).

Illustrations from Case Law 3. Since it merely states the obligations of the buyer which are treated more fully in subsequent articles, article 53 raises no particular difficulties for the courts. There have been numerous court decisions referring to article 53 in 9 1

Id. See the text of articles 61 (1) and 62.

725

Art. 54

Draft Digest

connection with judgements requiring the buyer to pay the price.2 Illustrations from case law involving the application of article 53 to other obligations of the buyer are less common.3

Section I. Payment of the price

Article 54 The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

General 1. This provision deals with actions preparatory to payment of the price which are specified in the contract or in applicable laws and regulations. Thus the contract may provide for the opening of a letter of credit, the establishment of security or of a bank guarantee, or the acceptance of a bill of exchange. Preparatory actions required under the applicable laws or regula-

2 Landgericht Stendal, Germany, 12 October 2000, Internationales Handelsrecht, 2001, 30; Kantonsgericht des Kantons Zug, Switzerland, 25 February 1999, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 2000, 114, CLOUT case No. 327, Switzerland, 1999; OLG Oldenburg, Germany, 22 September 1998, Neue Juristische Wochenschrift Rechtsprechungs-Report, 2000, 1364; CLOUT case No. 318, Germany, 1998; OLG M
nchen, Germany, 28 January 1998, Recht der internationalen Wirtschaft, 1998, 559; CLOUT case No. 236, Germany, 1997; CLOUT case No. 273, Germany, 1997; CLOUT case No. 275, Germany 1997; CLOUT case No. 163, Hungary, 1996; CLOUT case No. 169, Germany, 1996; Landgericht Duisburg, Germany, 17 April 1996, Recht der internationalen Wirtschaft, 1996, 774; Landgericht Kassel, Germany, 15 February 1996, Neue Juristische Wochenschrift RechtsprechungsReport, 1996, 1146; Amtsgericht Wangen, Germany, 8 March 1995, available on the Internet at <>; OLG Koblenz, Germany, 17 September 1993, Recht der internationalen Wirtschaft, 1993, 934; ICC Court of Arbitration, award No. 7197, Journal du droit international, 1993, 1029; ICC Court of Arbitration, 1992, award No. 7153, Journal du droit international, 1992, 1005; CLOUT case No. 46, Germany, 1990. 3 CLOUT case No. 133, Germany, 1995.

726

Draft Digest

Art. 54

tions could, for example, be any administrative authorizations required for a transfer of funds. 2. The usefulness of this provision is twofold. On the one hand, article 54 lays these obligations, unless otherwise specified in the contract, on the buyer who must bear the costs thereof. One court decision seems to indicate that the costs associated with payment are generally the responsibility of the buyer.1 Furthermore, the steps which the buyer has to take are obligations, violation of which entitles the seller to have recourse to the remedies specified in articles 61 et seq. and are not considered simply as part of “his conduct in preparing to perform or in performing the contract” (article 71 (1)); they can be analysed, should the case arise, only in terms of an anticipatory breach of contract.

Scope of the Buyer’s Obligations 3. The question arises whether article 54 obliges the buyer only to carry out such steps as are necessary for the accomplishment of preparatory actions, without making him responsible for the result, or whether the buyer is in breach of his obligations the moment it is seen that the result has not been attained. A number of decisions have been delivered with regard to letters of credit and follow the principle that the buyer is in breach of its obligations if it does not deliver the letter of credit opened on behalf of the seller.2 4. Certain hesitations are justified with regard to the administrative measures required under the applicable laws or regulations. Under one possible interpretation of article 54, a distinction has to be drawn in determining the scope of the buyer’s obligations, between measures of a commercial nature and administrative measures. Under the first of these the buyer is thought to assume a commitment with regard to the result whereas for the second the buyer is thought to take on only a best-effort obligation, 1

Landgericht Duisburg, Germany, 17 April 1996, Recht der Internationalen Wirtschaft, 1996, 774, concerning costs associated with payment of the price by cheque. 2 Supreme Court of Queensland, Australia, 17 November 2000, available on the Internet at <>; CLOUT case No. 176, Austria, 1995: in this case, however, the buyer was not considered to have been in breach of its obligations since the seller had omitted to indicate the port of embarkation when that was in fact necessary, under the contract, for establishing the letter of credit; CLOUT case No. 104, Arbitration, 1992. Similarly, it was decided in arbitration that a buyer who had not paid the price for equipment delivered was liable if it had merely given instructions to its bank to make a transfer to the seller but had done nothing to ensure that the payment could actually be made in convertible currency; see CLOUT case No. 142, Arbitration, 1995.

727

Art. 54

Draft Digest

since the buyer cannot guarantee, for example, that the competent administrative authority will approve the transfer of funds; the buyer’s only obligation then would be to carry out the steps needed to obtain the relevant administrative authorization. Under another interpretation of the provision, however, this distinction should not be made since the buyer is responsible as a matter of law if the preparatory action, whatever its nature may be, is not carried out, subject to the operation of article 79 of the Convention.

Currency of Payment 5. The provision says nothing about the currency of payment. Here one has to consider first and foremost the will of the parties (article 6) as well as commercial usage (article 9 (2)) and any practices the parties have established between themselves (article 9 (1)). In the many cases where the currency of payment cannot be established in this way, hesitations are justified as to the appropriate manner of determining it. 6. Most decisions in case law refer to the law of the place where the seller’s place of business is located or to the law of the place where payment is to be made.3 These decisions reflect a current of doctrine that reasons in terms of an internal gaps, within the meaning of article 7(2) of the Convention, and in general defines the currency of payment as the one that exists in the place where the seller’s place of business is located, since this is generally also the place where the obligation to pay the price is discharged (article 57) and the place where delivery is taken (article 31 (c)). However, one court has rendered a decision according to which the currency of payment should be determined by the law which would govern the contract if the Convention were not applicable.4

3

See CLOUT case No. 80, Germany, 1994, in which the court found that the currency of payment should, in case of doubt, be that of the place of payment; CLOUT case No. 281, Germany, 1993, where the court pronounced in favour of the currency of the place where the seller has his place of business as the currency in which the price should be paid; CLOUT case No. 52, Hungary, 1992, in which the court compelled the buyer to pay the seller in the seller’s currency without giving any particular reason. 4 CLOUT case No. 255, Switzerland, 1998.

728

Draft Digest

Art. 55

Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.

Introduction 1. As has been revealed by the preparatory work, the interplay of articles 14 and 55 is one of the most delicate questions raised by the Convention.

Priority of the Intention of the Parties 2. One constant feature emerges from case law. For the application of article 55, as for other provisions of the Convention, one must refer first and foremost to the intention of the parties. As evidenced by a number of court decisions and arbitral awards, article 55 does not enable a judge or arbitrator to establish a price legally when it has already been determined,1 or made determinable, by the contracting parties.2 Article 55 of the Convention is likewise inapplicable when the parties have decided to make their contract subject to subsequent agreement on the price.3

Salvage of a Contract Specifying no Price 3. In one case, a Supreme Court decided, with regard to the sale of aircraft engines, that an offer to sell had no force in the light of article 14 of the Convention because it did not contain the price of all types of aircraft engines among which the buyer could choose and that the contract was therefore invalid.4 That decision seems to show that article 55 does not make it possible to give effect to a contract which is invalid owing to the absence of a price and that article 14 of the Convention thus prevails. Under that

1

CLOUT case No. 151, France, 1995.

2

ICC Court of Arbitration, award No. 8324, Journal du droit international, 1996, 1019;

CLOUT case No. 106, Austria, 1994. 3

CLOUT case No. 139, Arbitration, 1995.

4

CLOUT case No. 53, Hungary, 1992.

729

Art. 56

Draft Digest

interpretation of article 55, the provision is applicable only if the contract of sale was validly concluded without a price. 4. On the other hand, one court invoked article 55 to determine the sale price of raw materials not agreed upon beforehand by the parties.5 Equally, it appears that arbitrators, confronted with articles 14 and 55, give precedence to article 55 over article 14 and accept the responsibility of establishing the missing price with a view to rendering the contract effective.6

Price Fixing by Courts 5. The price established by the judge or arbitrator is that “generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned”. While implementation of this provision should not give rise to any particular difficulties when the goods consist of raw materials or semi-finished products, it is a different matter when the contract deals with manufactured products. Thus, in a case involving the sale of aircraft engines, the Supreme Court of a State came to the conclusion that the price of aircraft engines could not be determined under article 55 because they in fact have no market price as such.7

Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. 1. According to this provision if the price is fixed according to the weight of the goods, it is the weight remaining after deduction of the weight of the packaging which, in case of doubt, governs the price. This is a rule of interpretation which is applied in the absence of contractual stipulations, usage or practices established between the parties.

5 6

CLOUT case No. 215, Switzerland, 1997.

See in this connection the obiter dictum of an arbitral award concerning the validity of export contracts under Brazilian law: “Sale without prior fixing of a price is common in international trade, as is shown by the Vienna Convention of 11 April 1980 on the international sale of goods (art. 55) [...]”, ICC Court of Arbitration, 1999, award No. 7819, Bulletin of the ICC International Court of Arbitration, 2001, 60. 7 CLOUT case No. 53, Hungary, 1992.

730

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Art. 57

2. Court decisions referring to article 56 have been extremely rare.1

Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: (a) at the seller’s place of business; or (b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place. (2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract.

Introduction 1. This provision defines, firstly, the place where payment is to be made (paragraph (1)). Absent an agreement of the parties, the price is to be paid at the seller’s place of business unless it has been agreed that the price should be payable against the handing over of the goods or of documents, in which case payment is to be made at the place where the handing over takes place (paragraph 1). As has been made plain by two court decisions, the burden of proof of payment of the price rests on the buyer.1 2. Furthermore, this provision envisages the possibility that the seller might change its place of business following the conclusion of the contract (paragraph 2), in which case any increase in the expenses incidental to payment caused by the change in the place of business is to be borne by the seller.

Determination of the Place of Payment of the Price 3. Article 57 has attracted a vast amount of comment in case law. Judges refer to this provision, for example, in determining the currency of payment.2

1

See U. S. Bankruptcy Court for the Northern District of Ohio, United States of America, 10 April 2001, Victoria Alloys, Inc. v. Fortis Bank SA/NV, 2001 Bankr. LEXIS 309. 1 Court of Tijuana, Mexico, 14 July 2000, Internationales Handelsrecht, 2001, 38; CLOUT case No. 273, Germany, 1997. 2 See supra, article 54 No. 6.

731

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Draft Digest

4. Above all, however, article 57(1) plays an important role in the practice of countries whose legal systems provide for jurisdictional competence at the place of performance of obligations. This is the case in Europe, for example. In fact, article 5. 1 of the 1980 Brussels Convention, which is binding for the countries of the European Union and relates to jurisdiction and the enforcement of judgements in civil and commercial matters, permits the plaintiff to sue the defendant “in matters relating to a contract, in the courts for the place of performance of the obligation in question” (article 5. 1). This same provision was incorporated in the Convention of Lugano of 16 September 1988, which is binding on the countries of the European Free Trade Association (EFTA). The combined effect of article 5. 1 of the Brussels and Lugano Conventions and article 57 of the United Nations Convention on Contracts for the International Sale of Goods is that the seller can bring a defaulting buyer before the court having jurisdiction at the seller’s place of business in connection with an international sale of goods covered by the Convention. This practice has developed especially in the countries of the European Union since the European Community Court of Justice was able to remove the hesitations that might have been felt by confirming that the place where the obligation to pay the price is to be performed “must be determined on the basis of the substantive law provisions governing the obligation at issue according to the rules of conflict of the jurisdiction in which the action was brought, even if those rules indicate that a unified substantive law, such as the 1964 Hague Convention relating to the Uniform Law on the International Sale of Goods, must apply to the contract”.3 Court decisions applying article 57 of the CISG Convention in connection with the implementation of article 5. 1 of the Brussels4 and Lugano5 Conventions have been numerous. 3 4

CLOUT case No. 298, European Court of Justice, 1994.

See in particular Cour de cassation, 1re chambre civile, France, 26 June 2001, Recueil Dalloz, 2001, Jurisprudence, 2593; LG Darmstadt, Germany, 9 May 2000, Internationales Handelsrecht, 2001, 27; LG Trier, Germany, 7 December 2000, Internationales Handelsrecht, 2001, 35; Audienca provincial de Barcelona, Spain, 7 June 1999, available on the Internet at <; OLG Celle, Germany, 11 November 1998, Zeitschrift fu¨r Internationales Privat- und Verfahrensrecht 1999, 456; Cour d’appel de Paris, France, 15 October 1997, available on the Internet at ; CLOUT case No. 287, Germany, 1997; CLOUT case No. 284, Germany, 1997; CLOUT case No. 162, Denmark, 1996; Cour d’appel de Grenoble, France, 23 October 1996, Revue critique de droit international prive´, 1997, 756; LG Siegen, Germany, 5 December 1995, available on the Internet at ; Gerechtshof’s-Hertogenbosch, Netherlands, 9 October 1995, Nederlands International Privaatrecht 1996, No. 118; OLG M
nchen, Germany, 28 June 1995, available on the Internet at << http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/406.htm>; CLOUT case No. 153, France, 1995; Rechtbank Middelburg, Netherlands, 25 January 1995, Nederlands

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Draft Digest

Art. 57

5. On 1 March 2002, in the countries of the European Union, with the exception of Denmark, the Council Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters,6 entered into force, which is replacing the Brussels Convention. Article 57 of the United Nations Convention on Contracts for the International Sale of Goods will thus cease to play the role it has hitherto played in the determination of jurisdiction. In fact, the question of special competence in contractual matters is substantially revised by the new text. Although the basic rule is retained, the regulation determines substantively the place of performance to be considered, unless otherwise agreed between the parties, for two types of contract, namely contracts for the sale of goods and contracts for the provision of services (article 5. 1(b)). For the sale of goods, the place in question is “the place in a Member State where, under the contract, the goods were delivered or should have been delivered”, the aim of the authors being to regroup such actions, whatever the obligations at issue might be, and to avoid making it too easy for the seller to sue the buyer before the courts of the seller’s place of domicile or place of business.

Application of Article 57 (1) to Sums of Money other than the Price 6. It is a controversial question whether the rule established by article 57(1), establishing payment of the price at the seller’s place of business as a general principle, can be applied also to other monetary obligations emerging from the contract of sale, such as compensation due from a party who has been in breach of contract, or return of the sale price by the seller following avoidance of the contract. Case law is not uniform on this issue. 7. Certain decisions refer to the national law governing the contract. Thus the Supreme Court of one State affirmed that article 57 of the Convention was not applicable to claims for restitution of the sale price following amicable avoidance of the contract and stated that the place for bringing such claims should be determined by the law applicable to the avoided contract.7 According to another decision, it is impossible to discern any International Privaatrecht, 1996, No. 127; Hof s’Hertogenbosch, 26 October 1994, Nederlands International Privaatrecht, 1995, No. 261; Cour d’appel de Paris, France, 10 November 1993, Journal du droit international, 1994, 678; CLOUT Case No 25, France, 1993. 5 CLOUT case No. 221, Switzerland, 1997; CLOUT case No. 194, Switzerland, 1996. 6 OJEC, Legislation, 16 January 2001. 7 Oberster Gerichtshof, Austria, 10 March 1998, o¨sterreichische Zeitschrift fu¨r Rechtsvergleichung, 1998, 161.

733

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Draft Digest

general principle with regard to restitution of the sale price following avoidance of a contract because the obligation to pay at the seller’s place of business established by article 57 of the Convention could correspond to the principle of payment at the seller’s domicile as well as to that of payment at the creditor’s domicile.8 These legal decisions seem to support the thesis that the applicable law should be the national law determined by the choiceof-law rules. 8. Decisions opting for the existence of a general principle within the Convention are more numerous. Thus in order to determine the place of payment of compensation due for non-conformity of the goods one court stated that “if the purchase price is payable at the place of business of the seller”, under article 57 of the Convention, then “this indicates a general principle valid for other monetary claims as well”.9 In a comparable situation, another court, considering an action for restitution of an excess in the price received by the seller, stated that there was a general principle under which “payment is to be made at the creditor’s domicile, a principle that is be extended to other international trade contracts under article 6. 1. 6 of the UNIDROIT Principles”.10 The Supreme Court of another State, which had previously adopted the reverse principle, decided that the gap of the Convention in respect of the legal consequences of avoidance, particularly with regard to the performance of restitution obligations, were to be filled by means of a general principle of the Convention, according to which “the place for performance of restitution obligations should be determined by transposing the primary obligations – through a mirror effect – into restitution obligations”.11

The Change in the Seller’s Place of Business 9. In providing that the seller must bear any increase in the expenses incidental to payment which is caused by a change in its place of business subsequent to the conclusion of the contract, article 57(2) imposes on the buyer the obligation to pay the price at the seller’s new address. This being so, it is necessary that the seller should have informed the buyer in good time of the change. Under article 80 of the Convention the seller has no right to rely on any delay in payment of the price caused by late notification of the change 8

CLOUT case No. 312, France, 1998.

9

CLOUT case No. 49, Germany, 1993.

10

Cour d’appel Grenoble, 23 October 1996, Revue critique de droit international prive´, 1997, 756. 11 Oberster Gerichtshof, Austria, 29 June 1999, Transportrecht-Internationales Handelsrecht, 1999, 48.

734

Draft Digest

Art. 58

of address. Under article 57(2), the seller must bear any increase in expenses associated with the change in its place of business, such as increases in the expenses associated with payment of the price. 10. A controversial question is whether article 57(2) remains applicable when the seller assigns the right to receive payment of the purchase price to another party. According to one court, the assignment of the right to receive the purchase price does have the effect of transferring the place of payment from the business premises of the assignor to those of the assignee.12

Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.

Introduction 1. Article 58 defines the moment when the price becomes due in the absence of any particular contractual stipulation to that effect. In fixing the time at which payment of the price may be demanded, article 58 also determines the point in time at which interest based on article 78 of the Convention starts to accrue, a point that has been made in a number of court decisions.1

12

CLOUT case No. 274, Germany, 1998.

1

See CLOUT case No. 228, Germany, 1995; CLOUT case No. 79, Germany, 1994; CLOUT case No. 1, Germany, 1991.

735

Art. 58

Draft Digest

The Principle of Simultaneous Payment of the Price and Handing over of the Goods or Documents (article 58 (1)) 2. The Convention does not mean to oblige the seller, in the absence of a particular agreement on the subject, to grant credit to the buyer. Article 58(1) establishes the principle of simultaneous handing over of the goods or documents controlling their disposition and payment of the price: the buyer must pay the price when the seller places either the goods or documents controlling their disposition at his disposal. As is stated in the second sentence of article 58(1), the seller may refuse to hand over the goods or documents controlling their disposition to the buyer if the latter does not pay the price at that time. The buyer thus enjoys the right to retain the goods or documents controlling their disposition in these circumstances. 3. The inverse of the principle established in article 58(1) also applies: the buyer is not bound to pay the price until the goods or documents controlling their disposition have been handed over. Article 58(3) grants the buyer the complementary right of prior examination of the goods, though only to the extent that contractual provisions concerning handing over and the modalities of payment make this possible.2 4. Contractual terms as well as international usage and practices established between the parties may derogate from the principle of simultaneity in handing over the goods and paying the price, a principle which applies only “if the buyer is not bound to pay the price at any other specific time”, according to the terms of article 58(1). One court affirmed that the parties had derogated from the principle of simultaneous performance in a case where they had agreed on payment of 30 per cent of the price upon ordering of the goods, 30 per cent at the beginning of assembly, and 30 per cent at the completion of installation, the final 10 per cent to be paid after successful start-up of the facility.3 5. The place of handing over of the goods or of documents depends on the relevant terms of the contract and, where no such terms exist, on the rules established by the Convention (article 31). For the sale of goods at a particular place (article 31(b) and (c)), the price becomes payable when the seller has placed the goods at the disposal of the buyer in the agreed place or at its place of business and has given the buyer the opportunity to examine

2 3

736

See infra, No. 8 et seq. CLOUT case No. 194, Switzerland, 1996.

Draft Digest

Art. 58

the goods. Article 58(2) covers the case of sales involving a transport contract.4 6. Article 58(1), like article 58(2), puts delivery of the goods and handing over of documents controlling their disposition on the same level, anticipating that they will have the same effect. One court found that the handing over of documents controlling the disposition of the goods to the buyer caused the price to become due, as provided in article 58(1).5 The question, however, is to know what exactly is meant by “documents controlling the disposition of the goods”. It has been decided that certificates of origin and quality,6 and also customs documents,7 do not constitute documents controlling the disposition of the goods within the meaning of article 58(1) and that their non-delivery could therefore not be taken to justify refusal on the part of the buyer to pay the price.

Sales Involving a Transport Contract (article 58 (2)) 7. Article 58(2) deals with the case of a sale involving a transport contract. Under this provision, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. Thus, article 58(2) does not entitle the seller to let the handing over of goods to the carrier depend on advance payment of the price by the buyer, in the absence of a particular contractual provision to that effect. The buyer is accordingly not required to pay the price until the moment when the goods or documents controlling their disposition are handed over to him by the carrier.

The Buyer’s Right to Examine the Goods in Advance (article 58 (3)) 8. In principle the buyer is not bound to pay the price until he has had an opportunity to examine the goods. Prior examination may be excluded by a contractual stipulation to that effect or by modalities of delivery or payment which are incompatible with such examination, such as clauses involving “payment against handing over of documents” or “payment against handing over of the delivery slip”.

4 5 6 7

See infra, No. 7. CLOUT case No. 216, Switzerland, 1997. CLOUT case No. 171, Germany, 1996. CLOUT case No. 216, Switzerland, 1997.

737

Art. 59

Draft Digest

9. The provision says nothing about whether the buyer is entitled to suspend payment of the price in the event that examination reveals that the goods are not in conformity with the contract. The courts have not been able to reach any final decision on this difficulty.

Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.

Dispensation from Formalities prior to Payment of the Price 1. Under this provision the price must be paid as soon as it is becomes due without the need for any notice or compliance with any other formality.1 An effect of this, as one court decision noted, is that the seller can have recourse to all the remedies provided under the Convention in the event of default by the buyer in respect of its obligation to pay the price, and without prior notice at that.2 Furthermore, the interest provided for under article 78 begins to accumulate as soon as the price becomes due.3 1

For applications of that principles, see LG Stendal, Germany, 12 October 2000, Internationales Handelsrecht, 2001, 30; CLOUT case No. 297, Germany, 1998; CLOUT case No. 273, Germany, 1997; CLOUT case NO. 163, Arbitration, 1996; CLOUT case No. 163; Amtsgericht Augsburg, Germany, 29 January 1996, available on the Internet at ; CLOUT case No. 197, Switzerland, 1994; Landgericht Hannover, Germany, 1 January 1993, available on the Internet at ; Amtsgericht Ludwigsburg, Germany, 21 December 1990, available on the Internet at <; CLOUT case No. 7, Germany, 1990, CLOUT case No. 46, Germany, 1990. 2 OLG Koblenz, Germany, 17 September 1993, Recht der internationalen Wirtschaft, 1993, 937. 3 In this respect see, e. g., CLOUT case No. 275, Germany, 1997; LG Kassel, Germany, 15 February 1996, available on the Internet at ; LG M
nchen, Germany, 25 January 1996, available on the Internet at ; Amtsgericht Kehl, Germany, 6 October 1995, Recht der internationalen Wirtschaft, 1996, 957; Amtsgericht Alsfeld, Germany, 12 May 1995, Neue Juristische Wochenschrift – Rechtssprechungs-Report, 1996, 120; OLG Frankfurt am Main, Germany, 18 January 1994, Recht der internationalen Wirtschaft, 1994, 240; LG Berlin, Germany, 6 October 1992, available on the Internet at ; LG Mnchengladbach, Germany, 22 May 1992,

738

Draft Digest

Art. 60

Dispensation from Formalities prior to Settlement of Other Monetary Obligations 2. It is often said that this article embodies a general principle within the meaning of article 7(2) valid for any and all monetary claims which one of the parties to a sales contract may have against the other, such as restitution of the price following dissolution of the contract, payment of compensation or repayment of sums expended for conservation of the goods. Courts have not yet had an opportunity to confirm whether this article embodies such a general principle.

Section II. Taking delivery

Article 60 The buyer’s obligation to take delivery consists: (a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and (b) in taking over the goods.

Introduction 1. This provision defines the buyer’s obligation to take delivery of the goods, one of the two basic obligations laid upon him by article 53. The obligation to take delivery involves the two elements described in the provision.

Duty to Cooperate 2. Article 60(a) imposes upon the buyer a duty to cooperate. The buyer must “do all the acts which could reasonably be expected of him in order to enable the seller to make delivery”. The specific content of this duty to cooperate available on the Internet at ; Pretore della giurisdizione di Locarno-Campagna, Italy, 16 December 1991, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1993, 665; CLOUT case No. 7, Germany, 1990.

739

Art. 60

Draft Digest

will vary with the variation of the contractual terms. By way of illustration of article 60(a), it may be noted that if the place of delivery is the place of business of the buyer, he must ensure that the seller has access to those premises and, in the event that the seller is called upon to install equipment, the site must be appropriately prepared for that purpose.

Buyer’s Duty to Take over the Goods 3. Article 60(b) sets out the second element of the buyer’s obligation to take delivery, namely the buyer’s duty to take over the goods at the place where the seller is to deliver them.1 The arrangements for taking over the goods depend on the form of delivery agreed upon by the parties. For example, when the obligation to deliver consists in putting the goods at the disposal of the buyer in the seller’s place of business (article 31(c)), the buyer must either remove the goods or have them removed by a third party of its own choice.

Right to Reject the Goods 4. Article 60 says nothing about cases in which the buyer is entitled to reject the goods. The Convention foresees two specific cases, that of delivery before the date fixed (article 52(1)) and that of delivery of a quantity of goods greater than that provided for in the contract (article 52(2)). It must also be conceded that the buyer has the right to reject the goods if a breach of contract committed by the seller is fundamental (article 25), which gives the buyer the right to declare the contract avoided (article 49(1)(a)) or to demand delivery of substitute goods (article 46(2)). As was found in one court decision, the buyer is required to take delivery of the goods when a fault in conformity does not constitute a fundamental breach.2 When the buyer is entitled to reject the goods, he may nevertheless be required to take possession of them with a view to preserving them (article 86).

1

CLOUT case No. 47, Germany, 1993.

2

OLG Frankfurt, Germany, 18 January 1994, Neue Juristische Wochenschrift, 1994, 1013.

740

Draft Digest

Art. 61

Section III. Remedies for breach of contract by the buyer

Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (a) exercise the rights provided in articles 62 to 65; (b) claim damages as provided in articles 74 to 77. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.

Remedies Available to the Seller (article. 61(1)) 1. Article 61(1) describes in general terms the remedies available to the seller when the buyer does not perform one of its obligations. In stating that the seller may “exercise the rights provided in articles 62 to 65”, the Convention merely refers to these provisions without giving them any normative force. On the other hand, in providing that the seller may “claim damages as provided in articles 74 to 77”, article 61(1)(b) does provide a legal basis for the seller’s right to claim compensation; articles 74 to 77 merely specify what damage is to be compensated. In the event that a buyer is condemned to pay compensation, there is thus reason to have recourse, as a number of court and arbitrational decisions have done,1 also to article 61(1)(b) and not just to article 74 of the Convention. 2. Failure on the part of the buyer to perform any one of its obligations is the only prerequisite for recourse to the remedies referred to in article 61(1). As one court decision put it, recourse to the remedies available to the seller is not subject to the seller proving that the buyer is at fault.2 3. Article 61(1) mentions only the principal remedies available to the seller. Other remedies apart from those mentioned in this provision may be available to a seller who is damaged by the buyer’s breach of contract.

1

See CLOUT case No. 169, Germany, 1996; CLOUT case No. 166, Germany, 1996; CLOUT case No. 47, Germany, 1993; CLOUT case No. 227, Germany, 1992. 2 CLOUT case No. 281, Germany, 1993.

741

Art. 61

Draft Digest

These remedies are set out in articles 71, 72, 73, 78 and 88 of the Convention. 4. The main difficulty to which this provision gives rise in case law relates to those cases in which the contract of sale imposes on the buyer particular obligations not provided for by the Convention. As the heading of this section indicates, failure by the buyer to perform any of its obligations under the contract, even when the contractual obligation infringed is a consequence of the party autonomy, opens recourse to the remedies provided under the Convention, without any need to apply the national law governing the contract for questions not covered by the Convention. Some decisions apply the Convention in cases of this kind.3 There has been one decision, however, where the courts had recourse to national law.4

Recourse to Damages in Combination with Other Remedies (article 61(2)) 5. Under article 61(2), the seller is not deprived of any right the seller may have to claim damages by exercising its right to other remedies. This provision is contrary to the legal tradition of certain countries. This was true, for example, in Germany before the reform of the law of obligations which entered into force on 1 January 2002 and that authorized combined remedies.5 3

See, with regard to a re-export prohibition: Cour d’appel de Grenoble, France, 22 February 1995, Journal du droit international, 1995, 632; with regard to the violation of an exclusivity agreement, see CLOUT case No. 217, Switzerland, 1997; with regard to an obligation to redress a fault of conformity within an agreed period of time, see CLOUT case No. 311, Germany, 1997; with regard to the opening of a letter of credit, see ICC Court of Arbitration, award No. 7197, Journal du droit international, 1993, 1028; CLOUT case No. 104; Bezirksgericht der Saane, Switzerland, 20 February 1997, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1999, 195; Supreme Court of Queensland, Australia, 17 November 2000, available on the Internet at . 4 Bundesgerichtshof, Germany, 5 February 1997, Neue Juristische Wochenschrift, 1997, 1578. 5 The German courts have been able to depart from their national law and grant damages parallel to other remedies such as avoidance of contract; see the following decisions concerning article 45(2) which, with regard to the remedies available to the buyer, incorporates the same principle as article 61(2): CLOUT case No. 348, Germany, 1999; CLOUT case No. 345, Germany, 1997; Landgericht Landshut, Germany, 5 April 1995, available on the Internet at ; Landgericht M
nchen, Germany, 20 March 1995, Recht der internationalen Wirtschaft, 1996, 688; CLOUT case No. 50, Germany, 1991; similarly, see CLOUT case No. 235, Germany, 1997.

742

Draft Digest

Art. 62

Refusal of a Period of Grace (article 61(3)) 6. Under this provision, a judge or arbitrator is not empowered to grant the buyer a period of grace for payment of the price or to authorize partial payments. Such measures were judged contrary to the best interests of international trade. Only the seller itself can allow these measures.6 There is controversy over the question of whether article 61(3) does constitute an obstacle to the right of collective procedures under the applicable by virtue of the choice-of-law rules in case that that law grants a defaulting buyer a period of grace for making payment.7

Article 62 The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.

The Right to Require Specific Performance 1. This provision entitles the seller to require the buyer to perform its obligations, a possibility which not all legal systems provide for. 2. This provision is designed to assist sellers who have a particular interest in the performance by the buyer, in particular the obligation to take delivery of the goods. However, illustrations of recourse to this remedy in case law, involving the hypothesis that a buyer refuses to take delivery, are rare.1 Illustrations of the application of article 62 to the payment of the purchase price, on the other hand, are numerous.2

6

For the fixing of an additional period of time, see article 63. One court was confronted with this difficulty and avoided it by finding that the Convention was not applicable because the non-performance in question was connected with a distribution agreement, a kind of contract not governed by the Convention; see CLOUT case No. 187, United States of America, 1997. 1 CLOUT case No. 133, Germany, 1995. 2 See CLOUT case No. 273, Germany, 1997; CLOUT case No. 135, Germany, 1995; CLOUT case No. 134, Germany, 1995; ICC Court of Arbitration, award No. 7197, Journal du droit international, 1993, 1028. 7

743

Art. 63

Draft Digest

Limitations of the Right to Require Specific Performance 3. The right to require performance does, however, have two kinds of limitations. One emerges clearly from the wording of the provision: the seller is deprived of this right if it has resorted to a remedy which is inconsistent with the seller insisting upon the specific performance, as in the case where it had declared the contract avoided (article 64) or fixed an additional period of time for performance (article 63). The second limitation is related to the application of article 28. Thus, the competent judge is not bound to order specific performance on behalf of the seller as required under article 62 if the judge would not do so under its domestic law in respect of similar contracts.

Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.

Usefulness of granting an additional period of time 1. In granting the seller the right to fix an additional period of time, article 63 is in fact giving him the same right as that granted to the buyer under article 47: the two provisions are conceived in the same fashion and worded in comparable terms. The principal purpose of article 63, as of article 47, is to clarify the situation that arises when the buyer does not perform its obligation to pay the price or take delivery of the goods in time: if the additional period of time elapses without result, the seller is entitled to declare the contract avoided even if the buyer has not been responsible for a fundamental breach of contract (article 64(1) (b)).

744

Draft Digest

Art. 64

Illustrations of recourse to an additional period of time 2. In practice sellers tend to grant an additional period of time, thereby giving judges the opportunity to apply article 63. Illustrations in case law are connected with the grant of an additional period to secure the issuance of a letter of credit1 and to take delivery of the goods.2

Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed. (2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or (b) in respect of any breach other than late performance by the buyer, within a reasonable time: (i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.

1 Bezirksgericht der Saane, Switzerland, 20 February 1997, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1999, 195; Supreme Court of Queensland, Australia, 17 November 2000, available on the Internet at . However, in this case the court did not attach any particular consequences to the additional period of time fixed by the buyer since it found that a fundamental breach of contract had occurred; in this context, compare the granting of an additional period of time for the opening of a letter of credit required under a distribution agreement, CLOUT case No. 187, United States of America, 1997. 2 CLOUT case No. 47, Germany, 1993.

745

Art. 64

Draft Digest

Introduction 1. This provision deals with cases in which the seller may declare the contract avoided when the buyer has been in breach of one of its obligations. The rules mirror those of article 49 governing the buyer’s right to declare the contract avoided owing to a failure by the seller to perform its obligations under the contract. The effects of avoidance are governed by articles 81 to 84. In all cases avoidance requires a declaration by the seller as specified in article 26.

Requirements for the Right to Declare the Contract Avoided (paragraph (1)) 2. Article 64(1) specifies two cases in which the seller has the right to declare the contract avoided.

The Case of Fundamental Breach of Contract (article 64(1)(a)) 3. The first case envisaged in article 64(1) is that of fundamental breach of contract as defined in article 25. For this provision to apply, it is necessary that the breach of contract caused such damage to the seller that the seller was substantially deprived of what it was entitled to expect under the contract. One arbitral award found that, “according to both the general framework of the Convention and its interpretation in case law, the notion of fundamental breach is usually construed narrowly in order to prevent an excessive use of the avoidance of the contract”.1 A number of illustrations in case law can be cited with regard to the three conceivable types of contract violation, namely failure to pay the purchase price, failure to take delivery of the goods and failure to perform other obligations specified under the contract. 4. Thus it has been decided that definitive failure to pay the price constitutes a fundamental breach of contract.2 According to another decision, the delay in opening a letter of credit does not in itself constitute a fundamental breach of contract;3 yet another decision stated that the 1

ICC Court of Arbitration, award No. 9887, ICC International Court of Arbitration Bulletin., 2000, 118. 2 Id.; see also CLOUT case No. 130, Germany, 1994. 3 Landgericht Kassel, 21 September 1995, available on the Internet at .

746

Draft Digest

Art. 64

refusal on the part of the buyer to open the letter of credit does constitute a breach of contract.4 5. Final refusal to take delivery, or return of the goods in the absence of a fundamental breach of contract by the seller, have been judged as constituting fundamental breaches of contract.5 6. Non-performance of obligations arising from the contract – that are not imposed upon the parties by the Convention may also constitute a fundamental breach, as in the case where the buyer violated a re-export prohibition6 or of an exclusive rights clause.7

Fixing of an Additional Period of time Without Result (article 64(1)(b)) 7. If the buyer does not perform its obligation to pay the price or to take delivery of the goods within the additional period of time fixed by the seller under article 63(1), or if the buyer declares that it will not do so within the period so fixed, the seller may declare the contract avoided. 8. The obligation to pay the price includes that of taking the necessary steps for that purpose under article 54. Thus it has been decided that the buyer’s failure to take the necessary steps within the additional period of time granted to him by the seller by itself justifies the seller’s right to declare the contract avoided.8

Timing of the Declaration of Avoidance of the Contract (article 64(2)) 9. It is apparent from article 64(2) that the seller may declare the contract avoided as long as the buyer has not paid the price. Once the price has been paid, the declaration of avoidance is subject to certain rules of timing. When the buyer performs its obligations, albeit belatedly, the seller loses the right to declare the contract avoided unless the seller does so before it has become 4 Supreme Court of Queensland, Australia, 17 November 2000, available on the Internet at . 5 See CLOUT case No. 217, Switzerland, 1997, in connection with non-performance of the obligation to take delivery; CLOUT case No. 227, Germany, 1992, in connection with a buyer’s refusal to take delivery of more than half of the goods. 6 CLOUT case No. 154, France, 1995. 7 CLOUT case No. 217, Switzerland, 1997. 8 CLOUT case No. 261, Switzerland, 1997, in connection with failure to open a letter of credit following expiry of the additional period of time fixed by the seller.

747

Art. 65

Draft Digest

aware of the performance having been rendered (article 64(2)(a)). In other cases, the right is lost after the expiration of a reasonable period of time starting from the moment when the seller knew or ought to have known of the breach (article 64(2)(b)(i)) or, where an additional period of time was fixed in accordance with article 63(1), following the expiration of that additional period.

Article 65 (1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him. (2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding.

Introduction 1. This provision applies in cases where the contract leaves it to the buyer to specify certain features of the goods sold, such as dimensions, colour or shape. It is intended to resolve the problems that arise when the buyer does not provide promised specifications by the date agreed upon or within a reasonable period of time after receipt of a request to that effect from the seller.

The Seller’s Right to Make Specifications 2. Article 65(1) gives the seller the right to make specifications in accordance with the requirements of the buyer that may be known to him. The seller has, however, no responsibility to make the specification. He may prefer to rely on the remedies available in case the buyer’s conduct constitutes a breach of contract.

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Draft Digest

Chapter IV Introduction

Implementation of the right to make specification 3. Article 65(2) deals with the implementation by the seller of its right to make the specification, requiring the seller at the same time to inform the buyer of the details thereof and allow the buyer a reasonable period of time to make a different specification. It has been decided that in cases where the seller makes the specification without fulfilling the requirements of article 65(2), the buyer retains the right to make its own specification.1

Chapter IV Passing of Risk

1. Chapter IV deals with the passing to the buyer of the risk of loss of or damage to goods. The first article of the chapter (art. 66) states the consequences for the buyer after the risk of loss or damage to goods passes to the buyer. The following three articles (articles 67-69) set out rules for when the risk passes to the buyer. The final article of the chapter (art. 70) states the allocation of the risk of loss or damage if the seller commits a fundamental breach. 2. As a general rule, a seller that satisfies its obligation to deliver goods or documents (see arts. 31-34) will cease to bear the risk of loss or damage. The language used in chapter IV and articles 31-34 is often identical. One decision concludes that therefore the same interpretation should be given to the word ‘carrier’ in both articles 31 and 67.1 3. The rules in chapter IV apply without regard to whether the seller or the buyer owns the goods.2 Chapter IV therefore displaces domestic sales law that allocates risk to the “owner” of the goods although the outcome may be

1

Landgericht Aachen, Germany, 19 April 1996, available on the Internet at . 1 CLOUT case No. 360, Germany, 2000. 2 St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support GmbH, [Federal] District Court of Southern District of New York, USA, 26 March 2002, 2002 Westlaw 465312.

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Chapter IV Introduction

Draft Digest

the same in any particular case under both the Convention and the applicable domestic law.3

Nature of Risk 4. Chapter IV deals with casualty to the goods sold. This is stated expressly in the first clause of article 66 and implicitly in the other articles. The loss of goods includes cases where the goods cannot be found,4 have been stolen, or have been transferred to another person.5 Damage to the goods includes total destruction, physical damage,6 deterioration,7 and shrinkage of the goods during carriage or storage. 5. Several courts have applied a chapter IV provision to the passing of risks other than the risk of loss to or damage to goods. These risks include the risk of delay by the carrier after the seller has handed over the goods to the carrier8 and the risk that the attribution of a painting is incorrect.9

Partie’s Agreement on Passing of Risk 6. The seller and buyer may agree on when the risk of loss or damage passes to the buyer. They will frequently do so by expressly incorporating into their agreement trade terms, such as the International Chamber of Commerce’s Incoterms10. They may agree to vary a standard trade term,11 adopt a trade term that is local,12 or use a trade term in connection with the price rather 3 CLOUT case No. 163, Hungary, 1996 (Yugoslav law that risk passes with title and that title passes on handing over goods yields same result as Convention). 4 See, e. g., CLOUT case No. 338, Germany, 1998 (cannot be found at insolvent warehouse). 5 See, e. g., CLOUT case No. 340, Germany, 1998 (insolvent processor of raw salmon transfers processed salmon to other customers) 6 See, e. g., CLOUT case No. 360, Germany, 2000 (physical damage). 7 See, e. g., CLOUT case No. 377, Germany, 2000 (deterioration); CLOUT case No. 191, Argentina, 1995 (deterioration). 8 CLOUT case No. 219, Switzerland, 1997(buyer bears risk of subsequent delay). 9 Arrondissementsrechtbank Arnhem, Netherlands, 17 July 1997, Unilex, affirmed on other grounds, Hof Arnhem, 9 February 1999 (Convention not applicable). 10 Not all trade terms address the issue of risk of loss or damage. See, e. g., CLOUT case No. 247, Spain, 1997 (‘CFFO’ allocates cost of shipment to the destination, but has no relevance to passing of risk). 11 See, e. g., CLOUT case No. 191, Argentina, 1995 (‘C & F’). 12 See, e. g., CLOUT case No. 317, Germany, 1992 (‘frei Haus’).

750

Draft Digest

Chapter IV Introduction

than delivery.13 The parties may also agree to the allocation of risk in the standard terms or general business conditions of the seller or buyer.14 In accordance with article 6, the partie’s agreement will govern even if it derogates from the provisions of chapter IV that would otherwise apply. Notwithstanding article 6, however, a German court interpreted a trade term set out in a French seller’s general business conditions in accordance with German law because the seller had used a clause common in German commerce, drafted in the German language, and the buyer was German.15 7. The Convention’s rules in article 8 on interpretation of statements and acts of the parties apply. Thus, one court found that the parties had agreed that the seller would deliver the goods at the buyer’s place of business because, in accordance with article 8 (2), a reasonable person in the same circumstances as the buyer would understand use of the German term “frei Haus” (“free delivery”) to mean delivery at the buyer’s place of business.16

Other Binding Rules on Passing of Risk 8. Article 9 (1) provides that parties are bound by any practices, including those allocating risk of loss or damage, that they have established between themselves. Courts have occasionally looked to the prior practices of the parties for evidence of the partie’s intent with respect to risk of loss.17 One court has concluded, however, that conduct by one party with respect to risk on two prior occasions is insufficient to establish a binding practice.18 9. The seller and buyer may also be bound by trade usages with respect to risk of loss or damage. Under article 9 (1), they are bound if they agree to a usage, whether international or local. They are also bound under article 9 (2) by widely-observed international usages which they know or should know unless they agree otherwise. If the parties expressly incorporate an incoterm 13

See, e. g., CLOUT case No. 283, Germany, 1997 (‘list price ex works). See, e. g., CLOUT case No. 317, Germany, 1992 (French seller’s general business conditions enforced). Whether the parties have agreed to standard terms or general conditions is left to the applicable rules on contract formation and the validity of such terms and conditions. 15 CLOUT case No. 317, Germany, 1992. 16 CLOUT case No. 317, Germany, 1992 (article 69 rather than article 67 governed passing of risk). 17 CLOUT case No. 317, Germany, 1992 (seller’s practice of delivering in its own trucks used to interpret partie’s agreement). 18 CLOUT case No. 360, Germany, 2000 (practice permitting buyer to offset value of physical damage). 14

751

Chapter IV Introduction

Draft Digest

into their contract paragraph (1) makes the term binding, but the incoterm is so widely-used courts will enforce an incoterm even absent express incorporation.19

Burden of Establishing the Passing of Risk 10. Article 66 and the other provisions of chapter IV are silent on who has the burden of establishing that the risk of loss or damage has passed to the buyer.20 One court has endorsed the view that the burden is on the party that argues that the risk has passed.21 The issue of who bears the risk arises, however, in the context of actions to enforce obligations of the seller (e. g., to deliver conforming goods) or buyer (e. g., to pay for the goods) under other provisions of the Convention. 11. The cases place the burden upon the seller that brings an action to recover the price in accordance with article 62. In several cases the sellers failed to establish that they had delivered the goods and therefore the buyers were not obliged to pay. In one case, the court found that a bill of lading that accurately described the goods sold but did not indicate the name of buyer as recipient was insufficient proof.22 In a second case, the court found that a stamped but unsigned receipt was not sufficient proof of delivery at the buyer’s place of business as required by the contract of sale.23 12. Where the goods are delivered but the dispute is over whether damage occurred before or after the risk of loss passed to the buyer, the buyer usually has the burden of establishing that the damage occurred before the risk of damage passed to it. Thus, where a seller produced a bill of lading with the master’s annotation ‘clean on board’ and the buyer produced no evidence that deterioration occurred before the seller handed over the goods to the carrier, the buyer bore the risk of deterioration.24

19

See, e. g., St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support GmbH, [Federal] District Court of Southern District of New York, USA, 26 March 2002, 2002 Westlaw 465312 (‘CIF’); CLOUT case No. 253, Switzerland, 1998 (‘CIF’); CLOUT case No. 340, Germany, 1998 (‘DDP’); CLOUT case No. 176, Austria, 1995 (‘FOB’);. 20 CLOUT case No. 253, Switzerland, 1998 (unnecessary to decide whether to apply CISG general principles placing burden on buyer or to apply national law because same result under each alternative). 21 CLOUT case No. 338, Germany, 1998. 22 CLOUT case No. 283, Germany, 1997. 23 CLOUT case No. 317, Germany, 1992. 24 CLOUT case No. 247, Spain, 1997.

752

Draft Digest

Art. 66

Risk of Loss or Damage Following Avoidance 13. If the parties agree to terminate the contract after the risk has passed to the buyer, the risks implicit in article 81 through 84 with respect to restitution following avoidance supersede the risk provisions of chapter IV.25 When restoring the goods, the obligations of the parties restoring the goods should mirror the obligations of the parties in the performance of the avoided contract. If the seller agreed to deliver goods ‘ex factory’ then following termination the risk passes to the seller when the buyer hands over the goods to a carrier at the buyer’s place of business.26

Article 66 Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. 1. Article 66 provides that the buyer is not discharged from its obligation to pay the price after the risk of loss or damage has passed to the buyer unless the loss or damage was caused by the seller. Article 66 does not create the obligation to pay the purchase price; that obligation is set out in article 53. Article 66 is also silent as to when the risk of loss or damage passes. The partie’s contract and articles 67-70 set out rules for determining when the risk passes.

Consequence of Passing of Risk to Buyer 2. Once it has been established that the risk of loss or damage has passed, decisions routinely require the buyer to pay the price unless it is established that the seller was responsible for the loss or damage.1 Most, but not all, these 25

OG, Austria, 29 June 1999, available on the Internet at http://www.cisg.at/1_7499k.htm. OG, Austria, 29 June 1999, available on the Internet at http://www.cisg.at/1_7499k.htm. 1 CLOUT case No. 360, Germany, 2000 (obligation to pay not discharged after risk of loss has passed to buyer); CLOUT case No. 340, Germany, 1998 (risk had passed to the buyer by delivery of raw salmon to processing plant and buyer’s obligation to pay therefore not discharged even though plant delivered processed salmon to other customers); CLOUT case No. 338, Germany, 1998 (buyer obliged to pay because risk had shifted to seller under article 69 (2)); CLOUT case No. 163, Hungary, 1996 (risk having passed to buyer under FOB term, buyer’s obligation to pay not discharged even if buyer was unable to make proper use of 26

753

Draft Digest

Art. 66

Risk of Loss or Damage Following Avoidance 13. If the parties agree to terminate the contract after the risk has passed to the buyer, the risks implicit in article 81 through 84 with respect to restitution following avoidance supersede the risk provisions of chapter IV.25 When restoring the goods, the obligations of the parties restoring the goods should mirror the obligations of the parties in the performance of the avoided contract. If the seller agreed to deliver goods ‘ex factory’ then following termination the risk passes to the seller when the buyer hands over the goods to a carrier at the buyer’s place of business.26

Article 66 Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. 1. Article 66 provides that the buyer is not discharged from its obligation to pay the price after the risk of loss or damage has passed to the buyer unless the loss or damage was caused by the seller. Article 66 does not create the obligation to pay the purchase price; that obligation is set out in article 53. Article 66 is also silent as to when the risk of loss or damage passes. The partie’s contract and articles 67-70 set out rules for determining when the risk passes.

Consequence of Passing of Risk to Buyer 2. Once it has been established that the risk of loss or damage has passed, decisions routinely require the buyer to pay the price unless it is established that the seller was responsible for the loss or damage.1 Most, but not all, these 25

OG, Austria, 29 June 1999, available on the Internet at http://www.cisg.at/1_7499k.htm. OG, Austria, 29 June 1999, available on the Internet at http://www.cisg.at/1_7499k.htm. 1 CLOUT case No. 360, Germany, 2000 (obligation to pay not discharged after risk of loss has passed to buyer); CLOUT case No. 340, Germany, 1998 (risk had passed to the buyer by delivery of raw salmon to processing plant and buyer’s obligation to pay therefore not discharged even though plant delivered processed salmon to other customers); CLOUT case No. 338, Germany, 1998 (buyer obliged to pay because risk had shifted to seller under article 69 (2)); CLOUT case No. 163, Hungary, 1996 (risk having passed to buyer under FOB term, buyer’s obligation to pay not discharged even if buyer was unable to make proper use of 26

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Art. 66

Draft Digest

decisions cite both article 53 and article 66.2 Several decisions cite article 66 for the proposition that a buyer is not obligated to pay the price if the seller is unable to establish that risk of loss has passed.3 3. Other articles explicitly or implicitly state the consequences for the buyer of bearing the risk. If, for example, the buyer takes delivery of goods without notifying the seller of nonconformity, the buyer bears the burden of establishing that the goods did not conform at the time the risk of loss passed.4

Exception when Loss or Damage Due to Seller’s Acts or Omissions 4. The last clause of article 66 provides an exception to non-discharge of the buyer’s obligation to pay the price if it is established that the loss or damage is due to an act or omission of the seller. An arbitral tribunal found that the seller’s failure to give the carrier agreed instructions on the temperature at which the goods were to be stored during carriage caused the loss through melting and leakage.5 Several cases place the burden of showing this exception on the buyer but in none of these cases has the buyer carried this burden.6 5. This exception to the buyer’s obligation to pay is distinct from the seller’s continuing liability under article 36 for nonconformities that exist at the time the risk of loss passes or for nonconformities that appear subsequently if the seller has guaranteed the goods against these latent nonconformities.

goods because of subsequent U. N. embargo); CLOUT case No. 191, Argentina, 1995 (obligation to pay not discharged despite deterioration of goods during transit because risk of damage had passed and buyer was unable to establish that seller was responsible for the deterioration). 2 The following cases cite article 53: CLOUT case No. 377, Germany, 1999; CLOUT case No. 340, Germany, 1998; CLOUT case No. 338, Germany, 1998; CLOUT case No. 163, Hungary, 1996. 3 CLOUT case No. 283, Germany, 1997 (no obligation to pay price under articles 66 and 67 (1) where seller did not establish delivery to first carrier); CLOUT case No. 317, Germany, 1992 (no obligation to pay price under articles 66 and 67 (1) because risk of loss had not passed under “frei Haus” trade term). 4 CLOUT case No. 377, Germany, 1999. 5 China International Economic and Trade Arbitration Commission, 1995, Unilex. 6 CLOUT case No. 163, Hungary, 1996; CLOUT case No. 191, Argentina, 1995.

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Draft Digest

Art. 67

Article 67 (1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. (2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise. 1. Article 67 provides rules for when the risk of loss or damage passes to the buyer if the contract of sale involves carriage of the goods.1 In general, the risk passes to the buyer when the seller hands over the goods to the specified carrier. The risk passes without regard to whether the seller or the buyer has title to the goods2 or to who is responsible for arranging transport and insurance.3 The consequence of the passing of the risk on the buyer’s obligation to pay is dealt with in article 66. The effect on the passing of risk in cases where the seller commits a fundamental breach is addressed in article 70. 2. Article 67 states a generally-accepted international rule. A constitutional court, hearing a challenge to a similar domestic rule on the ground that it was inconsistent with the constitutional principle of equality, cited articles 31 and 67 of the Convention as evidence of general acceptance.4 3. The parties may agree to derogate from the provisions of article 67 (article 6) or may be bound by usages of trade or a course of dealing that derogate (article 9). If the partie’s agreement is consistent with article 67, courts frequently cite the article. This is also true when the parties agree on trade 1 St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support GmbH, [Federal] District Court of Southern District of New York, USA, 26 March 2002 (plaintiff’s experts wrongly asserted that Convention did not include rules on passage of risk). 2 St. Paul Guardian Ins. Co. v. Neuromed Medical Systems & Support GmbH, [Federal] District Court of Southern District of New York, USA, 26 March 2002 (passage of risk and transfer of title need not occur at the same time). 3 CLOUT case No. 247, Spain, 1997 (risk passes without regard to who must arrange for transport or insurance). 4 CLOUT case No. 91, Italy, 1992.

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Draft Digest

terms that address the passage of risk. Decisions have found the terms ‘CIF’,5 ‘C & F’6 and ‘list price ex work’s7 to be consistent with article 67 (1). If the trade term is inconsistent with article 67 (1), the partie’s agreement prevails in accordance with article 6. Thus, although the goods in the particular case were handed over to a third-party carrier, a court did not apply article 67 in a case where the parties agreed that the goods would be delivered ‘frei Hause’ (‘free delivery’), which the court construed to mean that the seller undertook to deliver the goods to the buyer’s place of business.8

Article 68 The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. 1. Article 68 provides rules for the passing of risk when goods are sold in transit. The general rule is that the risk passes from the time the contract of sale is concluded. If, however, the circumstances so indicate, the risk is deemed to pass when the goods are handed over to the carrier. Only if the seller knew or ought to have known that the goods were lost or damaged at the time the contract is concluded and did not inform the buyer will the risk remain with the seller. Although article 68 has been cited in reported decisions, these decisions do not interpret its contents.1

5

CLOUT case No. 253, Switzerland, 1998.

6

CLOUT case No. 191, Argentina, 1995.

7

CLOUT case No. 283, Germany, 1997.

8

CLOUT case No. 317, Germany, 1992.

1

CLOUT case No. 338, Germany, 1998 (affirming lower court without reference to article 68); Schiedsgericht der Brse f
r landwirtschaftliche in Wien, Austria, 10 December 1997, Unilex (citing article 68); CLOUT case No. 170, Germany, 1995 (citing article 68).

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Draft Digest

Art. 69

Article 69 (1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. (2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. (3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract. 1. Article 69 provides residual rules on the passing of risk in cases not covered by the previous two articles. Paragraph (1) covers cases where delivery is to take place at the seller’s place of business, while paragraph (2) addresses all other cases. The consequence of the passing of the risk on the buyer’s obligation to pay is dealt with in article 66. The effect on the passing of risk in cases where the seller commits a fundamental breach is addressed in article 70. 2. Article 69 applies only if the previous two articles do not apply.1 Article 67 governs cases where the contract of sale involves the carriage of goods. If the contract of sale is silent as to the carriage of goods, article 69 rather than article 67 will govern the passing of risk. This is true whether or not the buyer arranges for subsequent transportation of the goods by its own vehicles or by a third-party carrier. Which article applies in a particular case often turns on interpretation of the partie’s agreement. A court concluded that a contract term ‘list price ex work’s was not inconsistent with article 67 (1) where the goods were to be taken by a third-party carrier from Japan.2 An arbitral tribunal applied article 67 (1) to a contract that provided that ‘the buyer has to pick up the fish eggs at the seller’s address and take the goods to his facilities in Hungary’ and that the price was ‘FOB Kladovo’.3 On the other hand, with respect to a contract where the seller agreed to deliver the goods under the ‘DAF’ (‘Delivery at Frontier’) incoterm, an arbitral tribunal found that article 69 (2) rather than article 67 governed the issue of when risk passed.4 1

CLOUT case No. 360, Germany, 2000 (article 69 (1) applies only if previous two articles do not apply). 2 CLOUT case No. 283, Germany, 1997. 3 CLOUT case No. 163, Hungary, 1996. 4 ICC award No. 7197, France, 1992.

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Draft Digest

Taking over Goods at Seller’s Place of Business 3. When goods are to be delivered at the seller’s place of business, paragraph (1) of article 69 provides that the risk passes to the buyer when it takes over the goods. A court has applied the paragraph to the passing of risk in the sale of a painting at an auction.5 4. If the buyer fails to take over the goods, paragraph (1) provides that the risk passes when the goods have been placed at the buyer’s disposal and the buyer’s to take them over breaches the contract. Under paragraph (3), goods are at the buyer’s disposal when they are clearly identified to the contract. There are no reported cases applying this provision.

Taking over Goods at Other Locations 5. Paragraph (2) of article 69 addresses the passing of the risk in cases where the buyer is bound to take over the goods at a place other than the seller’s place of business. In these cases, the risk passes when the buyer is aware that the goods are placed at its disposition and delivery is due. Under paragraph (3), goods are at the buyer’s disposal when they are clearly identified to the contract. 6. Paragraph (2) covers a variety of cases, including cases where delivery is made of goods stored in a warehouse, delivery at some place other than the seller’s or buyer’s place of business, and delivery at the buyer’s place of business.6 In one case, an arbitral court found that the risk that furniture stored in a warehouse would be lost had not passed to the buyer to whom storage invoices had been issued but to whom delivery was not yet due because by their agreement delivery was due only on the buyer’s demand and it had not yet made a demand.7 Another case found, however, that the risk of loss had passed when the seller delivered raw salmon to a processor because the buyer acquiesced in the delivery and delivery was due.8 In another case, an arbitral tribunal found that the seller, who had stored the goods following the buyer’s failure to open an agreed letter of credit, bore the risk of loss 5

Kunsthaus Math. Lempertz OHG v. Wilhelmina van der Geld, Arrondissementsrechtbank Arnhem, Netherlands, 17 July 1997, Unilex, affirmed on other grounds, Hof Arnhem, 9 February 1999 (Convention not applicable). 6 CLOUT case No. 360, Germany, 2000 (paragraph (2) covers cases where buyer takes over goods at place other than seller’s place of business). 7 CLOUT case No. 338, Germany, 1998. 8 CLOUT case No. 340, Germany, 1998.

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Draft Digest

Art. 70

because the seller had not delivered the goods ‘DAF’ (‘Delivery at Frontier’) as agreed or placed the goods at the buyer’s disposal.9

Article 70 If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach. 1. Article 70 provides that, notwithstanding the passing of the risk of loss or damage in the previous three articles, the buyer retains its remedies unimpaired if the seller has committed a fundamental breach of contract. There are no reported cases applying this article.

Chapter V Provisions Common to the Obligations of the Seller and of the Buyer Section I Anticipatory Breach and Instalment Contracts

1. Section 1 includes three articles. Under the first two articles, an aggrieved party may suspend its obligations (article 71) or avoid the contract (article 72) before the time for performance is due if the conditions of these articles are satisfied. Where the parties have entered into a contract by which the goods are to be delivered in instalments, an aggrieved party may avoid the contract with respect to a single instalment, future instalments, or the contract as a whole as provided in the third article (article73).

9

ICC award No. 7197, France, 1992.

759

Art. 71

Draft Digest

Article 71 (1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract. (2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller. (3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance. 1. Article 71 authorizes a seller or a buyer to suspend performance of its obligations under the sales contract if it is unlikely to receive the substantial benefit of the counter-performance promised by the other party. The suspending party does not breach the contract if the suspension is rightful.1 If, however, the suspension is not authorized by article 71, the suspending party will breach the contract when it fails to perform its obligations.2 The right to suspend exists until the time for performance is due but once the date for performance has passed the aggrieved party must look to other remedies under the Convention.3 The right continues until the conditions for suspension no longer exist, there is a right to avoid the contract, or the other party gives adequate assurance of performance in accordance with article 71 (3).4 The Convention’s rules on the right to

1

LG Stendal, Germany, 12 October 2000, available on the Internet at http://cisgw3.law. pace.edu/cisg/text/001012g1german.html (suspension not breach but a unilateral right to modify time for performance); ICC arbitration award No. 8786, January 1997, Unilex (buyer would not breach if it had exercised right to suspend). 2 CLOUT case No. 51, Germany, 1991 (buyer entitled to damages because seller failed to give immediate notice that it was suspending delivery). 3 ICC arbitration award No. 9448, July 1999, Unilex (buyer not entitled to suspend obligation to pay after it had taken delivery of goods even though less goods were delivered than contracted for). 4 LG Stendal, Germany, 12 October 2000, available on the Internet at http://cisgw3.law. pace.edu/cisg/text/001012g1german.html (suspension not breach but a unilateral right to modify time for performance).

760

Draft Digest

Art. 71

suspend displace domestic sales law rules that permit the suspension of a party’s obligation.5 2. The right to suspend under article 71 is to be distinguished from the right to avoid the contract under article 72.6 Unlike the avoidance of a contract, which terminates the obligations of the parties (see article 81), the suspension of contractual obligations recognizes that the contract continues but encourages mutual reassurance that both parties will perform. The preconditions for exercise of the right to suspend and the right to avoid differ, as do the obligations with respect to communications between the two parties. 3. The right to suspend under article 71 applies both to contracts of sale for a single performance and to instalment contracts governed by article 73. When the preconditions of both articles are satisfied, the aggrieved party may choose between suspending performance and avoiding the contract with respect to future instalments under article 73 (2).7 If a party chooses to suspend performance with respect to future instalments it must give a notice in accordance with article 71 (3).8 4. The parties may agree, pursuant to article 6, to exclude application of article 71 or to derogate from its provisions. One decisions found that by agreeing to take back equipment, repair it and then redeliver it promptly, the seller had implicitly agreed to derogate from article 71 and therefore could not suspend its obligation to redeliver the equipment because of the buyer’s failure to pay past debts.9

Preconditions of Suspension 5. A party is entitled to suspend its obligations under paragraph (1) of article 7110 if it becomes apparent that the other party will not perform a substantial

5

CLOUT case No. 238, Austria, 1998.

6

ICC arbitration award No. 8786, January 1997, Unilex (buyer did not suspend obligations but avoided contract under article 72 (1)); ICC arbitration award No. 8574, September 1996, Unilex (buyer’s purchase of substitute goods not a suspension of its obligations). 7 CLOUT case No. 238, Austria, 1998. 8 Federation Chamber of Commerce and Industry arbitration award No. 302/1996, Russia, 27 July 1999, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy 1999-2000, No. 27 [141-147]. 9 CLOUT case No. 311, Germany, 1997. 10 The following decisions recognize the applicability of the Convention and the right to

761

Art. 71

Draft Digest

part of its obligations11 and if the nonperformance is the result of either of the causes set out in subparagraphs (a)12 and (b).13 It is not necessary that the failure amount to a fundamental breach.14 6. A party was found to be entitled to suspend its obligations in the following circumstances: seller’s refusal to perform with respect to certain items;15 seller’s inability to deliver goods free of restriction imposed by seller’s supplier;16 buyer’s failure to pay for the goods;17 buyer’s nonpayment or delayed payment of the price under one or more earlier sales contracts;18 buyer’s failure to open an effective bank guarantee.19 A buyer’s failure to open a letter of credit gives rise to the right to avoid the contract under article 64 and the buyer is not limited to the remedies of articles 71 and 72.20

suspend but fail to cite article 71: Shuttle Packaging Systems v. Tsonakis, [Federal] Dicstrict Court for the Western District of Michigan, USA, 17 December 2001, 2001 Westlaw 34046276 (seller entitled to suspend non-competition clause because buyer’s failure to pay was a fundamental breach); Maglificio Dalmine v. Coveres, Tribunal commercial de Bruxelles, Belgium, 13 November 1992, Unilex (seller entitled to suspend delivery because buyer failed to pay price under prior contract). 11 OLG Dresden, Germany, 27 December 1999, Unilex (noting that there must be synallagmatic relation between the obligation suspended and the counter-performance). 12 The following cases cite subparagraph (a): CLOUT case No. 338, Germany, 1998; CLOUT case No. 238, Austria, 1998 (remand to consider further allegation of uncreditworthiness); Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex. 13 The following cases cite subparagraph (b): Malaysia Dairy Industries v. Dairex Holland, Rb ‘s Hertogenbosch, Netherlands, 2 October 1998, Unilex; CLOUT case No. 164, Hungary, 1995; LG Berlin, Germany, 15 September 1994, Unilex. 14 LG Berlin, Germany, 15 September 1994, Unilex. 15 LG Berlin, Germany, 15 September 1994, Unilex (citing article 71 (1)(b)). 16 CLOUT case No. 338, Germany, 1998 (citing article 71 (1)(a)); OLG Linz, Austria, 23 May 1995, available on the Internet at http://cisgw3.law.pace.edu/cases/950523a3.html, affirmed on other grounds, CLOUT case No. 176, Austria, 1996. 17 CLOUT case No. 164, Hungary, 1995 (citing article 71 (1)(b), court found seller justified in suspending its obligation to repair non-conforming goods). See also ICC arbitration award No. 8611/1997, 23 January 1997, Unilex (noting that seller’s failure occurred before it would have been entitled to suspend performance under article 71 (1)(b) because of buyer’s nonpayment). 18 J. P. S. BVBA v. Kabri Mode BV, Rechtbank van Koophandel Hasselt, Belgium, 1 March 1995, Unilex (seven-month delay in payment); Maglificio Dalmine v. Coveres, Tribunal commercial de Bruxelles, Belgium, 13 November 1992, Unilex (without citing article 71). 19 Arbitral award VB/94124, Hungary, 17 November 1995, Unilex (bank guarantee opened with a date that had already expired). 20 CLOUT case No. 176, Austria, 1996; but see Arbitral award VB/94124, Hungary, 17

762

Draft Digest

Art. 71

7. A buyer was found not entitled to suspend its obligations in the following circumstances: seller’s nonconforming delivery of only 420 kg. out of 22,400 kg.;21 buyer had received partial delivery;22 buyer had received the goods invoiced and the nonconformity related to goods delivered under a different contract.23 Several decisions observe that buyer’s submissions to the court failed to indicate that the seller would not perform a substantial part of its obligations.24 8. A seller was found not entitled to suspend its obligations in the following circumstances: the buyer had not paid the purchase price for two deliveries and that the buyer had cancelled a bank payment order;25 the seller had not established that the buyer would be unable to take delivery or to pay for the goods notwithstanding that the goods might not conform with health standards issued by the government in the buyer’s place of business.26

Stoppage in Transit 9. Paragraph (2) of article 71 authorizes a seller that has already dispatched the goods to stop the handing over of the goods to the buyer. There are no reported cases applying this paragraph.27

November 1995, Unilex (right to suspend under article 71 when ineffective bank guarantee opened). 21 CLOUT case No. 227, Germany, 1992. 22 ICC arbitration award No. 9448, July 1999, Unilex (buyer not entitled to suspend obligation to pay after it had taken delivery of goods even though less goods than contracted for); CLOUT case No. 275, Germany, 1997 (buyer not entitled to suspend payment for those goods not delivered). 23 BV BA. J. P. v. S. Ltd., Hof van Beroep Gent, Belgium, 28 April 2000, available on the Internet at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2000-04-28.htm. 24 OLG Dresden, Germany, 27 December 1999, Unilex; Arbitration award No. 273/95, Zurich Chamber of Commerce, Switzerland, 31 May 1996, Unilex. 25 CLOUT case No. 238, Austria, 1998 (article 71 (1)(a) covers cases where a party is subject to an insolvency proceeding or has completely ceased to pay but not where payment is slow). 26 Malaysia Dairy Industries v. Dairex Holland, Rb ‘s Hertogenbosch, Netherlands, 2 October 1998, Unilex (buyer offered to take delivery of the goods in Free Trade zone). 27 CLOUT case No. 51, Germany, 1991 (unnecessary to decide whether seller entitled to stop goods in transit because seller failed to give notice).

763

Art. 71

Draft Digest

Notice of Suspension 10. Paragraph (3) of article 71 requires the suspending party to give notice of the suspension immediately28 to the other party.29 The paragraph does not specify what constitutes notice. The following statements or acts have been found to be sufficient notice: buyer’s refusal to pay the costs of warehousing furniture when it had earlier agreed to contribute to these costs;30 a letter in which the buyer refused to accept nonconforming items and offered to return them.31 However, there was insufficient notice in the following circumstances: buyer’s failure to pay the price;32 a letter with respect to defects under other contracts.33 11. Paragraph (3) does not state expressly the sanction for failing to give immediate notice of suspension. Decisions uniformly conclude that in the absence of due notice the aggrieved party may not rely on its right to suspend performance.34 One decision concluded that the seller breached the contract by suspending delivery without immediately giving notice of the suspension to the buyer and that the buyer was therefore entitled to damages.35

28

BV BA. J. P. v. S. Ltd., Hof van Beroep Gent, Belgium, 28 April 2000, available on the Internet at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2000-04-28.htm (notice not ‘immediate’ when related to deliveries made seven and fourteen months before). 29 See ICC arbitration award No. 8611/1997, 23 January 1997, Unilex (notice not necessary under circumstances in case). 30 CLOUT case No. 338, Germany, 1998. 31 LG Berlin, Germany, 15 September 1994, Unilex.. 32 LG Stendal, Germany, 12 October 2000, available on the Internet at http://cisgw3.law. pace.edu/cisg/text/001012g1german.html (suspension not breach but a unilateral right to modify time for performance). 33 BV BA. J. P. v. S. Ltd., Hof van Beroep Gent, Belgium, 28 April 2000, available on the Internet at http://www.law.kuleuven.ac.be/int/tradelaw/WK/2000-04-28.htm (citing article 73 (1) for implicit affirmation of this point). 34 LG Stendal, Germany, 12 October 2000, available on the Internet at http://cisgw3.law. pace.edu/cisg/text/001012g1german.html (party may not rely on para. (1)); Federation Chamber of Commerce and Industry arbitration award No. 302/1996, Russia, 27 July 1999, available at Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy 1999-2000, No. 27 [141-147]; CLOUT case No. 51, Germany, 1991 (seller may not rely on right to stop goods in transit pursuant to para. (2)). 35 CLOUT case No. 51, Germany, 1991.

764

Draft Digest

Art. 72

Adequate Assurance of Performance 12. Paragraph (3) requires a party that has suspended its performance to end its suspension and continue to perform if the other party gives adequate assurance that it will perform. The paragraph does not elaborate on the form and manner of this assurance and does not state when the assurance must be given. There are no reported cases addressing adequate assurance under this paragraph.36

Article 72 (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided. (2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations. 1. Article 72 entitles a seller or a buyer to avoid the contract if it becomes clear before the date for performance that the other party will commit a fundamental breach. Article 49 rather than article 72 applies if, at or after the date for performance, a party’s failure to perform or nonconforming performance amounts to a fundamental breach. Thus, a buyer who has not declared the contract avoided before the date for performance may not avoid the contract under article 72 but must act instead under articles 45 and 49.1 2. The right of an aggrieved party to avoid the contract under article 72 is to be distinguished from the right to suspend its obligations under article 71.2 Both articles are concerned with predicting whether there will be a breach but the preconditions for the more drastic remedy of avoidance are more stringent than those for suspension, both as to the seriousness of the 36 A similar reference to adequate assurance is made in article 72 (2) and cases under that provision may be found relevant. ICC arbitration award No. 8786, January 1997, Unilex; CLOUT case No. 130, Germany, 1994. 1 CLOUT case No. 171, Germany, 1996; CLOUT case No. 124, Germany, 1995. 2 ICC arbitration award No. 8786, January 1997, Unilex (buyer did not suspend obligations but avoided contract under article 72 (1)); ICC arbitration award No. 8574, September 1996, Unilex (buyer’s purchase of substitute goods not a suspension of its obligations).

765

Art. 72

Draft Digest

predicted breach and the probability that the breach will occur. The notification requirements also differ. Article 72 requires ‘reasonable’ prior notice only if time allows and excuses the notice if the other party has declared that it will not perform, while article 71 requires immediate notice of suspension with no exceptions.3 3. Article 72 entitles an aggrieved party to avoid a contract before the date for performance if the contract is for a single sale, while article 73 provides special rules on avoidance of future instalments if the contract is an instalment contract. Several decisions recognize that where the parties have on-going relations the aggrieved party might act under either article as to future instalments or contracts.4

Preconditions for Avoidance 4. Paragraph (1) sets out the principal precondition for a rightful avoidance: it must be clear prior to the date for performance that the party required to perform will commit a fundamental breach. A very high probability that there will be a fundamental breach rather than complete certainty is required.5 One decision has stated that a claim of anticipatory repudiation must allege ‘(1) that the defendant intended to breach the contract before the contract’s performance date and (2) that such breach was fundamental’.6 5. A party that declares that it will not perform its obligations satisfies this precondition.7 Allegations, if proved, that the seller stated it would ‘no longer feel obligated’ to perform and would ‘sell the material elsewhere’

3 ICC arbitration award No. 8574, September 1996, Unilex (noting differences as to notice). 4 EP S. A.v FP Oy, Helsinki Court of Appeal, Finland, 30 June 1998, Unilex (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73 (2)); Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (fundamental breach as to future instalments is covered by both articles 72 and 73). 5 LG Berlin, Germany, 30 September 1992, Unilex (very high probability rather than complete certainty required). See also Arbitration award No. S 2/97, Schiedsgericht der Brse f
r Landwirtschaftliche Produkte – Wien, Austria, 10 December 1997, Unilex (‘good ground’s under article 73 means high probability, a less severe test than that found in article 72 (1)). 6 CLOUT case No. 417, USA, 1999 (citing articles 25 and 72). 7 See article 72 (3) (excusing the aggrieved party from giving prior notice ‘if the other party has declared that he will not perform his obligation’s).

766

Draft Digest

Art. 72

would entitle the buyer to avoid the contract.8 Conditioning delivery on new demands beyond those agreed upon is an anticipatory repudiation of the contract.9 6. The preconditions of paragraph (1) were also found to have been satisfied in the following circumstances: the buyer’s failure to pay for prior shipments;10 the buyer’s failure to open a letter of credit;11 the seller’s failure to reduce price and to commit to deliver fashion goods on time;12 the seller’s deliberate termination of delivery of goods.13 7. The preconditions were found not satisfied in the following circumstances: where the seller had held back the goods;14 where the seller expressed an interest in stopping deliveries but also agreed to continue negotiations;15 the buyer’s failure to pay one instalment.16

Notice of Intent to Avoid 8. Paragraph (2) of article 72 requires the aggrieved party to give the other party prior notice of the aggrieved party’s intent to avoid the contract if time allows.17 This notice is different from the declaration of avoidance governed by article 26.18 One decision concluded that if the aggrieved party is relying

8

CLOUT case No. 417, USA, 1999.

9

CLOUT case No. 293, Germany, 1998.

10

CLOUT case No. 130, Germany, 1994, affirming with modifications, LG Krefeld, 28 April 1993, Unilex; LG Berlin, Germany, 30 September 1992, Unilex. 11 Downs Investments Pty Ltd, Supreme Court of Queensland, Australia, 17 November 2000, Unilex. 12 ICC arbitration award No. 8786, January 1997, Unilex. 13 Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex. 14 CLOUT case No. 261, Switzerland, 1997. 15 ICC arbitration award No. 8574, September 1996, Unilex. 16 Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex. 17 EP S. A.v FP Oy, Helsinki Court of Appeal, Finland, 30 June 1998, Unilex (timing and content of fax gave prior notice). 18 ICC arbitration award No. 8574, September 1996, Unilex (noting difference between article 72 notice and declaration of avoidance and finding that declaration of avoidance was not timely); CLOUT case No. 130, Germany, 1994 (seller gave notice of intent to avoid followed by notice of avoidance when it heard nothing from buyer).

767

Art. 73

Draft Digest

on article 72 it must declare the contract avoided prior to the date for performance.19

Adequate Assurance of Performance 9. The party intending to avoid the contract must give notice of this intent in order to permit the other party to provide adequate assurance of performance.20 The Convention does not prescribe the form assurance must take. There is no requirement that the aggrieved party must post a bond.21

Article 73 (1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment. (2) If one party’s failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time. (3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract. 1. This article provides special rules for instalment contracts. These rules set out when a seller or a buyer is entitled to avoid the contract with respect to a single instalment, future instalments, or the contract as a whole.1 2. Article 73 does not preclude application of other articles of the Convention. When a party fails to deliver the goods or to pay for an instalment, the seller failed to deliver an instalment to a customer of the buyer, the 19 20

CLOUT case No. 124, Germany, 1995.

CLOUT case No. 130, Germany, 1994 (buyer failed to provide assurance when did not respond). 21 ICC arbitration award No. 8786, January 1997, Unilex. 1 See also ICC arbitration award No. 8740, 1996, Unilex (buyer duly avoided last instalment when total delivery of coal was less than contract amount).

768

Draft Digest

Art. 73

aggrieved party is entitled under article 47 or 64 to give the breaching party an additional period of time and to avoid the instalment when that party fails to perform within the additional time.2 When some but not all instalments are delivered article 51 on partial delivery and article 73 may be applicable.3 An aggrieved party may have the right to suspend its performance under article 71 (1) or to avoid the contract as to future instalments under article 73 (2).4 An aggrieved party may be able to avoid its contractual obligations to make further deliveries under either article 72 or article 73.5

What Constitutes an Instalment Contract 3. An instalment contract is one that provides for delivery of goods in separate lots.6 The goods do not have to be fungible so that an instalment contract may cover delivery of different kinds of goods in each instalment 2

Schiedsgericht der Brse f
r Landwirtschaftliche Produkte – Wien, Austria, 10 December 1997, Unilex.(buyer’s failure to take delivery); CLOUT case No. 214, Germany, 1997; Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (buyer’s failure to pay for instalment); LG Ellwangen, Germany, 21 August 1995, Unilex (seller’s failure to deliver to third party as agreed). 3 ICC arbitration award No. 9448, July 1999, Unilex (both articles 51 and 73 applicable but buyer did not establish right to withhold payments); ICC arbitration award No. 8128, 1995, Unilex. 4 Shuttle Packaging Systems v. Tsonakis, [Federal] District Court for the Western District of Michigan, USA, 17 December 2001 (citing articles 71-73 for remedies available in instalment transaction); ICC arbitration award No. 9448, July 1999 (buyer not entitled to suspend because had taken partial delivery of goods); CLOUT case No. 238, Austria, 1998 (in addition to right to avoid instalments under article 73, seller has right to suspend under article 71 (1) but seller failed to establish its right in this case). 5 Helsinki Court of Appeal, Finland, 30 June 1998, Unilex (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73 (2)); Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (fundamental breach as to future instalments is covered by both articles 72 and 73). 6 ICC arbitration award No. 9887, August 1999, Unilex (chemical substance); CLOUT case No. 251, Switzerland, 1998 (lambskin coats); CLOUT case No. 293, Germany 1998 (cheese); CLOUT case No. 238, Austria, 1998 (umbrellas); CLOUT case No. 246, Spain, 1997 (manufactured springs); CLOUT case No. 214, Germany, 1997 (sunflower oil); CLOUT case No. 154, France, 1995 (jeans); Arbitration award No. Vb 94124, Chamber of Commerce and Industry of Budapest, Hungary, 17 November 1995, Unilex (mushrooms); Chansha Intermediate Peoples’ Court Economic Chamber case No. 89, China, 18 September 1995, Unilex (molybdenum iron alloy); LG Ellwangen, Germany, 21 August 1995, Unilex (peppers); ICC arbitration award No. 8128, 1995, Unilex (chemical fertilizer).

769

Art. 73

Draft Digest

(e. g., men’s lambskin coats and women’s lambskin coats).7 One decision states that an instalment contract need not determine the quantity of individual instalments under article 73 as precisely as partial deliveries under article 51.8 4. Several decisions have characterized separate contracts between parties that have an on-going relationship as an instalment contract governed by article 739 or have concluded that the aggrieved party might act under either article 73 or another article, such as article 7110 or 72.11 One decision also applies article 73 to separate yearly supply contracts between same parties for the supply of aluminum.12 Another decision, however, distinguishes an instalment contract from a distribution or framework agreement, which may provide for non-sales matters such as exclusive representation in a geographical area or an agreement without any determinable quantity.13

Avoidance of a Single Instalment 5. Paragraph (1) entitles a party to declare a contract avoided as to a single instalment if the other party commits a fundamental breach (see article 25) with respect to that instalment. The same standards for determining whether a party commits a fundamental breach apply both to a contract that requires a single delivery and to a contract that requires delivery by instalments. The aggrieved party was found to be entitled to avoid the instalment in the following cases: when the seller failed to deliver the promised goods;14 when 7

CLOUT case No. 251, Switzerland, 1998.

8

CLOUT case No. 166, Germany, 1996.

9

Schiedsgericht der Brse f
r Landwirtschaftliche Produkte – Wien, Austria, 10 December 1997, Unilex (from economic perspective two instalment contracts for barley concluded same day to be delivered during same time period are part of same transaction and therefore governed by article 73). 10 CLOUT case No. 238, Austria, 1998 (attempted suspension under article 73 rather than article 71). 11 Helsinki Court of Appeal, Finland, 30 June 1998, Unilex (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73 (2)); Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (fundamental breach as to future instalments is covered by both articles 72 and 73). 12 Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (fundamental breach as to future instalments is covered by both articles 72 and 73). 13 CLOUT case No. 166, Germany, 1996 (leaving open whether contract in case before the court is an instalment contract). 14 CLOUT case No. 214, Germany, 1997.

770

Draft Digest

Art. 73

the seller conditioned delivery of an installment on satisfaction of new demands.15 On the other hand, the aggrieved party was found not to be entitled to avoid the instalment where the buyer had not paid the price for an instalment.16

Avoidance of Contract as to Future Instalments 6. Paragraph (2) of article 73 entitles an aggrieved party to avoid the contract as to future instalments if the party has good grounds to conclude that the other party will commit a fundamental breach (see article 25) of contract with respect to future instalments. 7. An aggrieved buyer was found to be entitled to avoid the contract as to future instalments in the following cases: the seller made no delivery despite taking payment;17 the seller failed to deliver first instalment;18 when the seller stated that it would not make further deliveries;19 when the seller refused to deliver further cherries because of dramatic increase in market price for the cherries;20 late delivery of three instalments caused disruption of buyer’s production;21 delivery of poor quality goods;22 the buyer had good grounds to believe that seller would be unable to deliver peppers that satisfied food safety regulations.23 8. In the following cases it was found that the seller had good grounds to avoid the contract: failure to open letter of credit gave good grounds to conclude that the buyer would not pay;24 the buyer would continue to breach

15

CLOUT case No. 293, Germany, 1998.

16

Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex. 17 CLOUT case No. 214, Germany, 1997. 18 Arbitration award No. 273/95, Z
rich Handelskammer, Switzerland, 31 May 1996, Unilex (failure to deliver first instalment good grounds for concluding later instalments would not be delivered). 19 CLOUT case No. 293, Germany, 1998. 20 CLOUT case No. 265, Hungary, 1999. 21 CLOUT case No. 246, Spain, 1997. 22 ICC arbitration award No. 9887, August 1999, Unilex. 23 LG Ellwangen, Germany, 21 August 1995, Unilex. 24 Arbitration award No. Vb 94124, Chamber of Commerce and Industry of Budapest, Hungary, 17 November 1995, Unilex.

771

Damages

Draft Digest

a contract term that prohibited the buyer from reselling the goods in specified markets.25 9. If a party declares the contract avoided as to future instalments under paragraph (2), it must notify the other party of the avoidance within a reasonable time. A buyer who was entitled to avoid the contract as to future instalments effectively avoided the contract when it gave notice to the seller within 48 hours of the third late delivery.26

Avoidance of Contract as a Whole 10. Paragraph (3) sets out rules for the avoidance of past or future instalments when the instalments are so interdependent that the purpose contemplated by the parties at the time the contract was concluded is frustrated. A party may avoid the contract as to these instalments only if it has avoided the contract as to a present instalment under paragraph (1). If a party avoids the contract as to future instalments under paragraph (3), it must notify the other party at the same time as it notifies the party of the avoidance of the present instalment. There are no reported cases applying this paragraph.

Section II. Damages 1. Articles 45 and 61 provide that the aggrieved buyer and the aggrieved seller, respectively, may claim damages as provided in articles 74 to 77 if the other party “fails to perform any of his obligations under the contract or this Convention”. CISG articles 45(1)(b); 61(1)(b). Articles 74 to 77, which comprise Section 2 of Chapter V, set out the damage formulas that apply to the claims of both aggrieved sellers and aggrieved buyers. These damage provisions are exhaustive and exclude recourse to national law.1

25

CLOUT case No. 154, France, 1995 (resale of jeans in Africa and South America; also citing article 64 (1)). 26 CLOUT case No. 246, Spain, 1997. 1 CLOUT case No. 345, Germany, 1997 (recourse to national law on damages excluded).

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Draft Digest

Damages

Overview 2. Article 74 establishes the general formula applicable in all cases where an aggrieved party is entitled to recover damages. It provides for the recovery of all losses, including loss of profits, caused by the breach to the extent that these losses were foreseeable by the breaching party at the time the contract was concluded. An aggrieved party may choose to claim under article 74 even if entitled to claim under article 75 or 76.2 The latter articles explicitly provide that an aggrieved party may recover additional damages under article 74. 3. Articles 75 and 76 apply only in cases where the contract has been avoided. Article 75 calculates damages concretely by reference to the price in a substitute transaction, while article 76 calculates damages abstractly by reference to the current market price. Article 76(1) provides that an aggrieved party may not calculate damages under article 76 if it has concluded a substitute transaction under article 75.3 If, however, an aggrieved party concludes a substitute transaction for less than the contract quantity, both articles 75 and 76 may apply.4 4. Pursuant to article 77, damages recoverable under articles 74, 75 or 76 are reduced if it is established that the aggrieved party failed to mitigate these damages. The reduction is the amount by which the loss should have been mitigated. 5. Several courts have deduced general principles from the articles of Section 2. One decision concludes that full compensation to an aggrieved 2 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (aggrieved party may claim under article 74 even if it could also claim under articles 75 or 76). 3 See ICC award No. 8574, September 1996, Unilex (no recovery under article 76 because aggrieved party had entered into substitute transactions within the meaning of article 75). See, however, CLOUT case No. 227, Germany, 1992 (damages calculated under article 76 rather than article 75 where aggrieved seller resold goods for one-fourth of contract price and for less than current market price). 4 CLOUT case No. 130, Germany, 1994. See also ICC award No. 8740, 1996, Unilex (aggrieved buyer unable to establish market price not entitled to recover under article 76 and entitled to recover under article 75 only to the extent it had made substitute purchases); but compare CIETAC award, China, 30 October 1991, available on the Internet at http:// cisgw3.law.pace.edu/cases/911030c1.html (aggrieved buyer who had made purchases for only part of the contract quantity nevertheless awarded damages under article 75 for contract quantity times the difference between the contract price and the price in the substitute transaction).

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Draft Digest

party is a general principle on which the Convention is based.5 Another decision states that the Convention prefers ‘concrete’ calculation of damages by reference to actual transactions or losses over abstract calculation by reference to the market price.6

Relation to Other Articles 6. Article 6 provides that parties may agree to derogate from or vary the provisions of the Convention, including the damage provisions set out in Section 2 of Chapter V. Several decisions implicitly rely on article 6 when enforcing contract terms limiting7 or liquidating8 damages. One decision concluded that where the parties had agreed that an aggrieved party was entitled to a ‘compensation fee’ if the contract was avoided because of the acts of the other party, the aggrieved party was entitled to recover both the compensation fee and damages under article 75.9 Another decision concluded that a post-breach agreement settling a dispute with respect to a party’s nonperformance displaced the aggrieved party’s right to recover damages under the damage provisions of the Convention.10 The validity of these terms is governed by applicable domestic law rather than the Convention. CISG article 4(a). 7. A breaching party is not liable for damages if he proves that article 79 or article 80 is satisfied. Under article 79, the breaching party must show that 5

CLOUT case No. 93, Arbitration-Vienna, 1994 (citing article 74 for general principle within meaning of article 7(2)). 6 CLOUT case No. 166, Germany, 1996 (CISG prefers concrete calculation of damages to the reference to market price in the article 76 formula). See also CLOUT case No. 348, Germany, 1999 (damages not calculated under article 76 because damages could be calculated by reference to actual transactions). 7 Hovioikeus [Court of Appeal] Turku, Finland, 12 April 2002, available (in English translation) on the Internet at http://cisgw3.law.pace.edu/cases/020412 f5.html (warranty term limiting recovery of damages enforceable). 8 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry case No. 302/96, Russia, 27 July 1999, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 27 [141-147] (liquidated damages substantiated; aggrieved buyer’s damages calculated on basis of lost profits); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry case No. 251/93, Russia, 23 November 1994, Unilex (damages for delay granted only to extent of contract clause stipulating penalty for delay). 9 CLOUT case No. 301, Arbitration, 1992. 10 CIETAC award No. 75, China, 1 April 1993, Unilex.

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Draft Digest

Damages

“the failure was due to an impediment beyond his control” and “that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences”. Article 79(1). The breaching party will, however, be liable for damages resulting from the other party’s non-receipt of a timely notice of the impediment and its effects. Article 79(4). Under article 80, an aggrieved party may not rely on a breach by the other party to the extent that the breach was caused by the aggrieved party’s act or omission. 8. Article 44 provides that a party who fails to give due notice of nonconformity as required by articles 39 or 43 nevertheless has the option to recover damages “except for loss of profit” if he establishes a reasonable excuse for his failure. 9. Article 50 authorizes an aggrieved buyer to reduce the price according to a stated formula when it receives and keeps nonconforming goods. The buyer may waive its right to damages under articles 74 to 76 by claiming instead for the reduction of the price under article 50.11 10. If the contract is avoided, the aggrieved party who claims damages under article 75 or 76 is also subject to articles 81 to 84 on the effects of avoidance. Although avoidance generally releases the parties from their obligations under the contract, a party’s right to any damages due survives avoidance.12 Article 81(1). 11. Other articles of the Convention may require a party to take specific measures to protect against losses. Articles 85 to 88 state, for example, when and how a buyer or seller must preserve goods in their possession.13 The party taking such measures is entitled by these articles to recover reasonable expenses.14

11

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry case No. 54/99, Russia, 24 January 2000, synopsis published in Rozenberg, Ezh-Yurist, No. 14 (April 2000). 12 CLOUT case No. 166, Arbitration, 1996 (damage provisions prevail over consequences of avoidance under articles 81-84). 13 CIETAC award, China, 6 June 1991, available on the Internet at http://www.cietacsz.org.cn/cietac/index.htm (cost of freight for return of goods split between buyer who failed to return goods in a reasonable manner and seller who did not cooperate in return). 14 See, e. g., CLOUT case No. 304, Arbitration, 1994 (awarding damages under article 74 for expenses incurred to preserve goods under articles 86, 87 & 88(1)). See also CLOUT case No. 104, Arbitration, 1992 (damages awarded for expenses incurred to preserve perishable goods even though not required to do so by articles 85 to 88).

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Burden of Proof 12. Although none of the damage formulas in articles 74, 75 and 76 expressly allocates the burden of proof, one court has concluded that the Convention recognizes the general principle that the party who invokes a right bears the burden of establishing that right and that this principle excludes application of national law with respect to burden of proof.15 Thus, the aggrieved party claiming damages under articles 74, 75 or 76, as well as the breaching party claiming a reduction in damages under article 77,16 will bear the burden of establishing his entitlement and amount of damages or the reduction in damages. The same opinion concludes, however, that national law rather than the Convention governs how a judge should reach its opinion (e. g. the weight to be given evidence) as this is a matter not covered by the Convention.17

Set Off 13. Although the Convention does not address the issue of whether a counterclaim may be set off against a claim under the Convention,18 the Convention does determine whether a counterclaim arising from the sales contract exists.19 If it does exist then the counterclaim may be set off against a claim arising under the Convention.20 15

FCF S. A. v. Adriafil Commerciale S. r. l., Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http://www.bger.ch. See also CLOUT case No. 217, Switzerland, 1997(aggrieved party has burden of establishing loss); ICC award No. 7645, March 1995, Unilex (‘Under general principles of law’ the party claiming damages has burden of establishing existence and amount of damages caused by the breach of the other party). See generally CLOUT case No. 378, Italy, 2000 (deriving general principle that claimant has burden of establishing its claim from article 79). 16 Article 77 of the Convention expressly provides that the party in breach may claim a reduction if the other party fails to take measures to mitigate the loss. 17 FCF S. A. v. Adriafil Commerciale S. r. l., Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http://www.bger.ch (construing article 8 of Swiss Civil Code). See also CLOUT case No. 261, Switzerland, 1997 (domestic law, rather than Convention, determines how damages are to be calculated if the amount cannot be determined); CLOUT case No. 214, Switzerland (domestic law determines whether estimate of damages for future losses is sufficiently definite). 18 CLOUT case No. 288, Germany, 1998 (applicable law, not Convention, determines whether set off permitted); CLOUT case No. 281, Germany, 1993 (applicable domestic law determines whether set off allowed). 19 CLOUT case No. 125, Germany, 1995 (set-off permitted under applicable national law;

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Jurisdiction; Place of Payment of Damages 14. Several decisions have concluded that, for the purpose of determining jurisdiction, damages for breach of contract are payable at the claimant’s place of business.21 These decisions reason that there is a general principle on which the Convention is based that a creditor is to be paid at its domicile unless the parties otherwise agree.

Article 74 Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

Overview 1. Article 74 sets out the Convention’s general formula for the calculation of damages. The formula is applicable if a party to the sales contract breaches its obligations under the contract or the Convention.1 The first sentence of article 74 provides for the recovery of all losses, including loss of profits, suffered by the aggrieved party as a result of the other party’s breach. The second sentence limits recovery to those losses caused by the breach that the breaching party foresaw or could have foreseen at the time the contract was counterclaim determined by reference to Convention). But see CLOUT case No. 170, Germany, 1995 (counterclaim arose under Convention; set off permitted under Convention). 20 CLOUT case No. 348, Germany, 1999 (buyer’s counterclaim offset against seller’s claim for price); CLOUT case No. 318, Germany, 1998 (buyer damages set off against price); CLOUT case No. 273, Germany, 1997 (buyer’s counterclaim would have been allowable as set off but seller had not breached). See also CLOUT case No. 280, Germany, 1998 (implicitly recognizing the possibility that buyer’s tort claim could be raised to set off against seller’s claim for the price, court applies CISG notice provisions to bar tort claim). 21 CLOUT case No. 205, France, 1996 (deriving general principle from article 57(1) that place of payment is domicile of creditor); CLOUT case No. 49, Germany, 1993 (deriving general principle on place of payment from article 57(1)). 1 Articles 45(1)(b) and 61(1)(b) provide that the aggrieved buyer and the aggrieved seller, respectively, may recover damages as provided in articles 74 to 77 if the other party fails to perform as required by the contract or the Convention.

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Draft Digest

concluded. The formula applies to the claims of both aggrieved sellers and aggrieved buyers. 2. The Convention determines the grounds for recovery but domestic procedural law may apply to the assessment of evidence of loss.2 Applicable domestic law also determines whether a party may assert a right to set off in a proceeding under the Convention (see para. 37 below). Domestic substantive law may also govern relevant issues for the determination of the amount of damages, such as the weighing of evidence.3 3. One tribunal has derived from the damage formula in article 74 a general principle of full compensation. Pursuant to article 7(2) the tribunal used this general principle to fill the gap in article 78, which provides for the recovery of interest in stated circumstances but does not indicate how the rate of interest is to be determined.4 4. In accordance with article 6 a seller and buyer may agree to derogate from or vary article 74. Several decisions enforce contract terms limiting5 or liquidating6 damages. The validity of these contract terms is, by virtue of 2 Helsingin hoviokeus [Helsinki Court of Appeals], Finland, 26 October 2000, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html (grounds of recovery under CISG but calculation of damages under article 17 of the Finnish Law of Civil Procedure); CLOUT case No. 261, Switzerland, 1997 (applicable domestic law determines how to calculate damages when amount cannot be determined); CLOUT case No. 138, United States, 1995 (“sufficient evidence [under common law and law of New York] to estimate the amount of damages with reasonable certainty”), affirming CLOUT case No. 85, 1994. 3 See, e. g., CLOUT case No. 377, Germany, 1999 (aggrieved seller recovers damages under article 74 for losses caused by the buyer’s delay in payment but applicable domestic law determines whether payment delayed because Convention is silent on time of payment). 4 CLOUT case No. 93, Arbitration-Vienna, 1994 (deriving general principle from article 74 for purpose of filling gap in article 78 in accordance with article 7(2)). See also CLOUT case No. 138, United States, 1995 (article 74 is “designed to place the aggrieved party in as good a position as if the other party had properly performed the contract”). 5 Hovioikeus Turku, Finland, 12 April 2002, available (in English translation) on the Internet at http://cisgw3.law.pace.edu/cases/020412 f5.html (contract term limiting recovery of damages enforceable). 6 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry, Russia, 27 July 1999, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 27 [141-147] (liquidated damage clause displaces remedy of specific performance; liquidated damages reasonable and foreseeable under article 74 as measure of expected profit); Tribunal of International Commercial Arbitration at the Russian Federation

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Art. 74

article 4(a), governed by applicable domestic law rather than the Convention.7

Relation to Other Articles 5. An aggrieved party may choose to claim under article 74 even if entitled to claim under articles 75 and 76.8 The latter provisions explicitly provide that an aggrieved party may recover additional damages under article 74. 6. Damages recoverable under article 74 are reduced if it is established that the aggrieved party failed to mitigate these damages as required by article 77. The reduction is the amount by which the loss should have been mitigated. See Digest article 77. 7. Article 78 expressly provides for the recovery of interest in specified cases but states that its provisions are “without prejudice to any claim for damages recoverable under Article 74”. Several decisions have awarded interest under article 74.9 Interest has been awarded as Chamber of Commerce & Industry case No. 251/93, Russia, 23 November 1994, Unilex (damages for delay granted only to extent of contract penalty for delay clause). 7 See CLOUT case No. 318, Germany, 1998 (term in seller’s general conditions limiting damages not validly incorporated into contract); CLOUT case No. 345, Germany, 1997 (validity of standard term excluding liability determined by domestic law but reference in domestic law to non-mandatory rule replaced by reference to equivalent Convention provision). 8 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (aggrieved party may claim under article 74 even if it could also claim under articles 75 or 76). See also CLOUT case No. 140, Russia, 1995 (citing article 74, tribunal awards buyer difference between contract price and price in substitute purchase) ; CLOUT case No. 93, Arbitration, 1994 (awarding seller, without citation of specific Convention article, difference between contract price and price in substitute transaction). 9 See, e. g., Van Dongen Waalwijk Leder BV v. Conceria Adige S. p. A., Gerechtshof Hertogenbosch, Netherlands, 20 October 1997, Unilex (interest awarded under both articles 74 & 78); Pretura di Torino, Italy, 30 January 1997, Unilex (aggrieved party entitled to statutory rate of interest plus additional interest it had established as damages under article 74); CLOUT case No. 205, Switzerland, 1996 (interest under articles 74 and 78 calculated from date of breach); CLOUT case No. 193, Switzerland, 1996 (seller awarded interest under article 74 in amount charged on bank loan needed because of buyer’s nonpayment); Amtsgericht Koblenz, Germany, 12 November 1996, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/400.htm (bank certificate established that aggrieved seller was paying higher interest rate than official rate under applicable law); Krjoikeus of Kuopio, Finland, 5 November 1996, available on the Internet at http://

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Draft Digest

damages in cases not covered by article 78 because not due for sums in arrears.10 8. An aggrieved seller may require the buyer to pay the price pursuant to article 62. An abstract of an arbitral opinion suggests that the tribunal awarded the seller the price as damages under article 74.11

Right to Damages 9. Article 74 provides a general formula for the calculation of damages. The right to claim damages is set out in articles 45(1)(b) and 61(1)(b). These paragraphs provide that the aggrieved buyer and the aggrieved seller, respectively, may claim damages as provided in articles 74 to 77 if the other party “fails to perform any of his obligations under the contract or this Convention”. Thus, the article 74 formula may be used for calculating damages for breach of obligations under the Convention as well as breach of the sales contract.12

www.utu.fi/oik/tdk/xcisg/tap6.html (breaching party could foresee aggrieved party would incur interest charges but not at actual rate in Lithuania); CLOUT case No. 195, Switzerland, 1995 (seller entitled to higher interest under article 74 if he established damages caused by nonpayment); CLOUT case No. 281, Germany, 1993; CLOUT case No. 130, Germany, 1994 (damages includes interest paid by aggrieved seller for bank loans); CLOUT case No. 104, Arbitration, 1993 (interest awarded at commercial bank rate in Austria); LG Berlin, Germany, 6 October 1992, available on the Internet at http://www.jura.uni-freiburg.de/ ipr1/cisg/urteile/text/173.htm (assignee of aggrieved party’s claim entitled to recover 23% interest rate charged by assignee); CLOUT case No. 7, Germany, 1990 (seller recovered price and interest at the statutory rate in Italy plus additional interest as damages under article 74). See also CLOUT case No. 377, Germany, 1999 (right to recover damages under the Convention for losses resulting from delay in payment but applicable domestic law determines when delay becomes culpable); CLOUT case No. 409, Germany, 1996 (failure to establish additional damages under article 74); CLOUT case No. 132, Germany, 1995 (claimant awarded statutory interest rate under article 78, but it failed to establish loss of higher interest rate under article 74). 10 See, e. g., Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (aggrieved buyer entitled to recover interest on reimbursable costs it incurred following subbuyer’s rightful rejection of goods). 11 ICC award No. 8716, February 1997, (Fall 2000) ICC International Court of Arbitration Bulletin, vol. 11, no. 2, pp. 61-63 (damages awarded in amount of price). 12 See, e. g., CLOUT case No. 51, Germany, 1991 (seller’s failure to notify the buyer that the seller was suspending performance in accordance with article 71(3) itself a breach of the Convention entitling buyer to damages).

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Art. 74

10. Article 74 states that damages may be awarded for “breach of contract” that causes loss without any qualification as to the seriousness of the breach or the loss. An abstract of one arbitral award suggests nevertheless that damages may be recovered under article 74 for “fundamental non-performance”.13 11. Under articles 45 and 61 an aggrieved party is entitled to recover damages without regard to the “fault” of the breaching party. Several decisions consider whether claims based on a party’s negligence are covered by the Convention. An arbitral award concluded that an aggrieved buyer failed to notify the seller of non-conformity in a timely manner and the tribunal applied domestic civil law to divide the loss equally between the seller and the buyer on the ground that the Convention did not govern the issue of joint contribution to harm.14 A court decision also concluded that the Convention did not cover a claim that the alleged seller had made a negligent misrepresentation inducing the conclusion of the sales contract.15 12. When the aggrieved party fails, without excuse,16 to give timely notice to the breaching party in accordance with articles 39 or 43, the aggrieved party loses its right to rely on the nonconformity when making a claim for damages.17 If excused from giving timely notice, the aggrieved party may 13

ICC award No. 8716, February 1997, (Fall 2000) ICC International Court of Arbitration Bulletin, vol. 11, no. 2, pp. 61-63. 14 Bulgarian Chamber of Commerce & Industry arbitration case No. 56/1995, Bulgaria, 12 April 2002, Unilex (50/50 division of the 10 percent of price held back by buyer because of nonconformity of goods). 15 Geneva Pharmaceuticals Tech. Corp. v. Barr Laboratories, Inc., United States, 10 May 2002, Unilex (domestic law ‘tort’ claim of negligent misrepresentation not preempted by Convention). See also CLOUT case No. 420, United States, 2000 (Convention does not govern non-contractual claims). 16 See CISG articles 40 (buyer’s failure excused when seller could not have been unaware of nonconformity) and 44 (excuse for failure to notify). See also CLOUT case No. 294, Germany, 1999 (buyer need not declare avoidance when seller stated it would not perform); CLOUT case No. 94, Arbitration-Vienna, 1994 (seller estopped from asserting buyer’s failure to give timely notice). 17 See, e. g., CLOUT case No. 364, Germany, 1999 (failure to give sufficiently specific notice); CLOUT case No. 344, Germany, 1998 (failure to give sufficiently specific notice); CLOUT case No. 280, Germany, 1998 (failure to satisfy article 39 bars both CISG and tortious claims for damages); CLOUT case No. 244, Germany, 1998 (buyer’s letters did not satisfy article 39); CLOUT case No. 282, Germany, 1997 (failure to give sufficiently specific notice); CLOUT case No. 196, Switzerland, 1996 (failure to give timely notice); CLOUT case No. 192, Switzerland, 1997 (failure to give timely notice); CLOUT case No. 167,

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Draft Digest

nevertheless recover damages other than lost profits in accordance with article 44.18 13. Article 79 excuses a breaching party from the payment of damages (but not from other remedies for nonperformance) if he proves that the conditions of paragraph (1) of article 79 are satisfied. Paragraph (4) of article 79 provides, however, that the breaching party will be liable for damages resulting from the other party’s non-receipt of a timely notice of the impediment and its effects. 14. Article 80 provides that an aggrieved party may not rely on a breach by the other party to the extent that the breach was caused by the aggrieved party’s act or omission.

Types of Losses 15. The first sentence of article 74 provides that an aggrieved party’s damages consist of a monetary sum to compensate him for “loss, including loss of profit, suffered ... as a consequence of the breach”. Except for the explicit inclusion of lost profits, article 74 does not otherwise classify losses. Decisions sometimes refer to the classification of damages under domestic law.19

– Losses Arising from Death or Personal Injury 16. Article 5 provides that losses arising from death or personal injury are excluded from the Convention’s coverage. However, when deciding on its jurisdiction, one court implicitly assumed that the Convention covers claims

Germany, 1995 (failure to notify); CLOUT case No. 82, Germany, 1994 (failure to notify); CLOUT case No. 50, Germany, 1991 (failure to give timely notice of nonconformity); CLOUT case No. 4, Germany, 1989 (failure to examine and notify of nonconformity of goods). 18 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry case No. 54/99, Russia, 24 January 2000, synopsis published in Rozenberg, Ezh-Yurist, No. 14 (April 2000). 19 See, e. g., Oberster Gerichtshof, Austria, 28 April 2000, Unilex (loss of profit in case was “positive damage”); CLOUT case No. 138, 1995 (“incidental and consequential” damages) affirming CLOUT case No. 85, United States, 1994.

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Art. 74

by a buyer against its seller for indemnification for claim by sub-buyer for personal injury.20

– Losses Arising from Damage to Other Property 17. Article 5 does not exclude losses for damage to property other than the good purchased.21

– Losses Arising from Damage to Non-Material Interests 18. Article 74 does not exclude losses arising from damage to non-material interests, such as the loss of an aggrieved party’s reputation because of the other party’s breach. Some decisions have implicitly recognized the right to recover damages for loss of reputation or good will,22 but at least one other has denied such recovery under the Convention.23 One court found claims for both loss of turnover and loss of reputation to be inconsistent.24

– Losses Arising from Change in Value of Money 19. Article 74 provides for recovery of “a sum equal to the loss” but does not expressly state whether this formula covers losses that result from loss of the value of money. Several courts have recognized that an aggrieved party may suffer losses as a result of nonpayment or delay in the payment of money. These losses may arise from fluctuations in currency exchange rates or devaluation of the currency of payment. The courts differ as to the 20

CLOUT case No. 49, Germany, 1993.

21

See CLOUT case No. 196, Switzerland, 1995 (recovery for damage to house in which container for weightless floating installed). 22 Helsingin hoviokeus, Finland, 26 October 2000, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html (recovery of good will calculated in accordance with national rules of civil procedure); CLOUT case No. 331, Switzerland, 1999 (article 74 includes recovery for loss of good will but aggrieved party could not substantiate claim); CLOUT case No. 313, France, 1999 (no recovery under CISG for loss of good will unless loss of business proved); CLOUT case No. 210, Spain, 1997 (aggrieved party did not provide evidence showing loss of clients or loss of reputation). 23 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce award No. 304/93, Russia, 3 March 1995 (“moral harm” not compensable under CISG). 24 CLOUT case No. 343, Switzerland, 2000 (damaged reputation insignificant if there is no loss of turnover and consequent lost profits).

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Draft Digest

appropriate solution. Several decisions have awarded damages to reflect devaluation25 or the changes in the cost of living.26 On the other hand, several other decisions refused to award damages for such losses. One decision concluded that in principle a claimant is not entitled to recover losses from currency devaluation but went on to suggest that a claimant might recover damages if it carried out transactions in foreign currency which it exchanged immediately after receiving the currency.27 Another court stated that while devaluation of the currency in which the price was to be paid could be damages under the Convention, no damages could be awarded in the case before it because future losses could be awarded only when the loss can be estimated.28

Expenditures by Aggrieved Party 20. Many decisions have recognized the right of the aggrieved party to recover reasonable expenditures incurred in preparation for or as a consequence of a contract that has been breached. The second sentence of article 74 limits recovery to the total amount of losses the breaching party could foresee at the time the contract was concluded (see paras. 32-34 below). Although the Convention does not expressly require that expenditures be reasonable, several decisions have refused to award damages when the expenditures were unreasonable.29 21. Decisions have awarded incidental damages to an aggrieved buyer who had made reasonable expenditures in the following cases: inspection of nonconforming goods;30 handling and storing nonconforming goods;31

25 Arrondissementsrechtbank Roermond, Netherlands, 6 May 1993, Unilex (damages in amount of devaluation because payment not made when due). 26 Maglificio Dalmine s. l. r. v. S. C. Covires Tribunal commercial de Bruxelles, Belgium, 13 November 1992, Unilex (failure to pay price; court allowed revaluation of receivable under Italian law to reflect change in cost of living). 27 CLOUT case No. 130, Germany, 1994 (seller did not establish its loss from devaluation of currency in which price was to be paid). 28 CLOUT case No. 214, Switzerland, 1997 (citing general principle of tort law). 29 CLOUT case No. 235, Germany, 1995 (expense of resurfacing grinding machine not reasonable in relation to price of wire to be ground); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce award No. 375/93, Russia, 9 September 1994 (recovery of storage expenses shown to be amounts normally charged). 30 Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (examination). 31 Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (storage);

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preserving goods;32 shipping and customs costs incurred when returning the goods;33 expediting shipment of substitute goods under an existing contract with third party;34 installing substitute goods;35 sales and marketing costs;36 commissions;37 hiring a third party to process goods;38 obtaining credit;39 delivering and taking back the nonconforming goods to and from a subbuyer;40 payments made to sub-buyers on account of nonconforming goods;41 moving replacement coal from stockpiles.42 Several decisions have awarded buyers who have taken over nonconforming goods the reasonable costs of repair as damages.43 At least one decision implicitly recognizes that an aggrieved buyer may recover incidental damages although in the particular

CLOUT case No. 138, United States, 1995 (citing article 77 rather than article 75), affirming CLOUT case No. 85, 1994. 32

CLOUT case No. 304, Arbitration, 1995.

33

CLOUT case No. 138, United States, 1995, affirming CLOUT case No. 85, 1994.

34

CLOUT case No. 138, United States, 1995 (citing article 77 rather than article 75), affirming CLOUT case No. 85, 1994. 35 CLOUT case No. 125, Germany, 1995. 36 Helsingin hoviokeus [Helsinki Court of Appeal], Finland, 26 October 2000, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html (damages recovered for sales and marketing expenses of aggrieved buyer). 37 CLOUT case No. 253, Switzerland, 1998 (commissions). 38 CLOUT case No. 311, Germany, 1997. 39 CLOUT case No. 304, Arbitration, 1995. 40 CLOUT case No. 318, Germany, 1998 (recovery allowed for handling complaints and for costs of unwrapping, loading and unloading returned nonconforming goods from sub-buyers); Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (freight, insurance and duties connected with delivery to sub-buyer; storage with forwarder; freight back to aggrieved buyer; storage before resale by aggrieved buyer; examination). 41 CLOUT case No. 168, Germany, 1996 (buyer entitled to damages in amount of compensation paid to sub-buyer for nonconforming good); LG Paderborn, Germany, 25 June 1996, Unilex (damages for reimbursement of sub-buyer travel expenses to examine product, costs of examination, cost of hauling defective products, costs of loss on a substitute purchase). See also CLOUT case No. 302, Arbitration, 1994 (no indemnity awarded because third party’s pending claim against buyer not yet resolved). 42 ICC award No. 8740, October 1996, Unilex (cost of moving replacement coal from stockpiles recoverable). 43 CLOUT case No. 138, United States, 1995 (expenses incurred when attempting to remedy the nonconformity), affirming CLOUT case No. 85, 1994; Nova Tool & Mold Inc. v. London Industries Inc., Ontario Court-General Division, Canada, 16 December 1998, Unilex (reimbursing expenses of having third party perform regraining overlooked by seller and repairing nonconforming goods); CLOUT case No. 49, Germany, 1993 (cost of repair).

785

Art. 74

Draft Digest

case the buyer failed to establish the damages.44 Another decision assumed that the Convention governed a buyer’s claim for indemnification for personal injury caused to an employee of the sub-buyer.45 22. Decisions may recognize that an aggrieved buyer may recover for particular types of expenditure but deny recovery in a particular case. Some decisions explicitly recognize the type of expenditure but deny recovery for failure to prove them, lack of causation, or their unforeseeability by the breaching party. Thus one decision recognized the potential recovery of a buyer’s advertising costs but declined to award damages because the buyer failed to carry its burden of proof.46 Other decisions may implicitly assume the right to recover particular expenditures. When deciding on its jurisdiction, one court implicitly assumed that the Convention covers claims by a buyer against its seller for indemnification of a sub-buyer’s claim for personal injury.47 23. An aggrieved seller recovered damages for the following incidental expenses: storage of goods at the port of shipment following the buyer’s anticipatory breach;48 storage and preservation of undelivered machinery;49 cost of modifying machine in order to resell it;50 costs related to the dishonour of the buyer’s cheques.51 A seller who has delivered nonconforming goods and subsequently cures the nonconformity is not entitled to recover the cost of cure.52 44 45

CLOUT case No. 318, Germany, 1998 (advertising costs not sufficiently particularized).

CLOUT case No. 49, Germany, 1993 (relying on the Convention but without analysis of article 5, court concluded that it had jurisdiction in action by buyer against its supplier to recover cost of its indemnification of sub-buyer for personal injury caused by defective machine sold by supplier). 46 CLOUT case No. 318, Germany, 1998 (advertising costs not sufficiently particularized). 47 CLOUT case No. 49, Germany, 1993. 48 CLOUT case No. 93, Arbitration-Vienna, 1994 (storage expenses incurred because of lateness in taking delivery); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce award No. 375/93, Russia, 9 September 1994 (recovery of storage expenses that were in amounts normally charged); CLOUT case No. 104, Arbitration, 1993 (recovery of cost of storage but not for damage to goods because of prolonged storage). 49 CLOUT case No. 301, Arbitration, 1992 (storage and preservation of undelivered machinery). See also CISG article 85 (seller must take steps to preserve goods when buyer fails to take over the goods). 50 CLOUT case No. 301, Arbitration, 1992 (cost of modifying machine in order to resell). 51 CLOUT case No. 288, Germany, 1998 (dishonoured cheque); CLOUT case No. 376, Germany, 1996 (buyer responsible for dishonoured cheques drawn by third party). 52 CLOUT case No. 125, Germany, 1995 (citing articles 45 and 48 but not article 74, court concluded that breaching seller must bear cost of repair or delivery of replacement goods).

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Art. 74

– Expenditures for Debt Collection; Attorney’s Fees 24. Decisions are split on whether the cost of using a debt collection agency other than a lawyer may be recovered as damages. One decision awarded the seller the cost,53 but several other decisions state that an aggrieved party may not recover compensation for the cost of hiring a debt collection agency because the Convention does not cover such expenses.54 25. A number of courts and arbitral tribunals have considered whether an aggrieved party may recover the costs of a lawyer hired to collect a debt arising from a sales contract. Several decisions award damages to compensate for legal fees for extra-judicial acts such as the sending of collection letters.55 One decision distinguished between the extra-judicial fees of a lawyer in the forum and similar fees of a lawyer in another jurisdiction, including the fees of the former in the allocation of litigation costs under the forum’s rules and awarding the fees of the latter as damages under article 74.56 26. Decisions are split as to whether attorney’s fees for litigation may be

53

CLOUT case No. 327, Switzerland, 1999 (recovery of debt collection costs allowed).

54

CLOUT case No. 296, Germany, 1997 (costs of collection agency and local attorney in debtor’s location not recoverable because not reasonable); CLOUT case No. 228, Germany, 1995 (CISG does not provide for expenses incurred by collection agency). 55 CLOUT case No. 254, Switzerland, 1997 (extra-judicial costs); CLOUT case No. 169, Germany, 1996 (reminder letter); LG Aachen, Germany, 20 July 1995, Unilex (pre-trial costs recoverable under article 74); Kantonsgericht Zug case No. A-3-1993-84, Switzerland, 1 September 1994, Unilex (expenses for non-judicial requests for payment reimbursable if payment overdue at time of request). See also CLOUT case No. 410, Germany, 1995 (seller failed to mitigate loss in accordance with article 77 when it hired a lawyer in buyer’s location rather than a lawyer in seller’s location to send a collection letter); CLOUT case No. 130, Germany, 1994 (although in principle legal costs incurred before avoidance of the contract are recoverable under article 74, they are not recoverable here because the fees were recovered in special proceedings); Gerechtshofs’ Hertogenbosch, Netherlands, 27 November 1991, Unilex (construing ULIS article 82, predecessor of article 74, court allowed extrajudicial costs). See also Zapata Hermanos Sucesores, S. A. v. Hearthside Baking Co., Inc., U. S. Court of Appeals, Seventh Circuit, United States, 2002, Unilex (leaving open whether certain prelitigation expenditures might be recovered as damages when, e. g., expenditures were designed to mitigate the aggrieved party’s losses). 56 CLOUT case No. 254, Switzerland, 1997 (reasonable prelitigation costs of lawyer in seller’s country compensable; prelitigation costs of lawyer in buyer’s country [the forum] to be awarded as part of costs).

787

Art. 74

Draft Digest

awarded as damages under article 74.57 Several arbitration tribunals have awarded, citing article 74, recovery of attorney’s fees for the arbitration proceedings.58 In a carefully reasoned award, another arbitral tribunal concluded that a supplemental interpretation of the arbitration clause by reference to both article 74 and local procedural law authorized the award of attorney’s fees before a tribunal consisting of lawyers.59 Another court stated that, in principle, legal costs could be recovered although the court in that case did not award them.60 Many cases award attorney’s fees without indicating whether the award is for damages calculated under article 74 or pursuant to the court’s rules on the allocation of legal fees.61 Several decisions have limited or denied recovery of the amount of the claimant’s attorney’s fees on the grounds that the fees incurred were unforeseeable62 or that the aggrieved party had failed to mitigate these expenses as required by article 77.63 An appellate court reversed a decision awarding attorney’s fees as damages under article 74 on the ground, inter alia, that the Convention did not implicitly overturn the “American rule” that the parties to litigation normally bear their own legal expenses, including attorney’s fees.64

Lost Profits 27. The first sentence of article 74 expressly states that damages for losses include lost profits. Many decisions have awarded the aggrieved party lost

57

Many decisions award attorney’s fees but support the award by citation to domestic law on the allocation of litigation costs. 58 CLOUT case No. 166, Arbitration-Hamburg, 1996 (supplemental interpretation of arbitration clause provided compensation for attorney’s fees when arbitral tribunal composed exclusively of lawyers); CLOUT case No. 301, Arbitration, 1992 (damages for expenses for attorneys and arbitration). 59 CLOUT case No. 166, Arbitration-Hamburg, 1996 (referring, inter alia, to inconclusive survey of local trade practice with respect to attorney’s fees in arbitral proceedings). 60 CLOUT case No. 130, Germany, 1994 (legal costs incurred in actions to enforce claims under two different contracts). 61 Hovioikeus Turku [Turku Court of Appeals], Finland, 12 April 2002, available (in English translation) on the Internet at http://cisgw3.law.pace.edu/cases/020412 f5.html (without citing article 74, court provides for recovery of attorney’s fees). See also 62 Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (attorney’s fees in dispute with freight forwarder about storage not recoverable because unforeseeable). 63 CLOUT case No. 410, Germany, 1995 (seller failed to mitigate loss in accordance with article 77 when it hired a lawyer in buyer’s location rather than a lawyer in seller’s location to send collection letter). 64 Zapata Hermanos Sucesores, S. A. v. Hearthside Baking Co., Inc., U. S. Court of Appeals,

788

Draft Digest

Art. 74

profits.65 When calculating lost profits, fixed costs (as distinguished from variable costs incurred in connection with fulfilling the specific contract) are not to be deducted from the sales price.66 One decision awarded a seller who had been unable to resell the goods the difference between the contract price and the current value of those goods.67 28. The second sentence of article 74 limits the damages that can be awarded for losses caused by the breach to the amount that the breaching party foresaw or should have foreseen at the time the contract was concluded. One decision reduced the recovery of profits because the breaching seller was not aware of the terms of the buyer’s contract with its sub-buyer.68

Seventh Circuit, United States, 2002, Unilex (leaving open whether certain prelitigation expenditures might be recovered as damages). [The U. S. Supreme Court has asked the Solicitor General to state the Government’s position on a petition for certiorari.] 65 Helsingin hoviokeus [Helsinki Court of Appeals], Finland, 26 October 2000, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html (lost profit calculated in accordance with national law of civil procedure); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry award No. 406/1998, Russia, 6 June 2000, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 57 [276-281] (aggrieved buyer entitled in principle to recover for lost profit from sale with sub-buyer); CLOUT case No. 348, Germany, 1999 (aggrieved buyer entitled to recover difference between value that contract would have had if seller had performed and costs saved by buyer); CLOUT case No. 214, Germany, 1997 (buyer entitled to lost profits); CLOUT case No. 168, Germany, 1996 (breaching seller liable in amount of buyer’s lost profits when buyer had to reimburse sub-buyer); CLOUT case No. 138, United States, 1995 (buyer’s lost profits), affirming CLOUT case No. 85, 1994; CLOUT case No. 301, Arbitration, 1992 (seller’s lost profits measured by article 75). See also CLOUT case No. 243, France, 1999 (buyer did not produce evidence of lost profits). 66 CLOUT case No. 348, Germany, 1999 (fixed costs not costs aggrieved buyer saved when calculating lost profits); CLOUT case No. 138, United States, 1995 (in absence of specific direction in Convention for calculating lost profits, standard formula employed by most US courts appropriate). 67 CLOUT case No. 130, Germany, 1994. 68 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry award No. 406/1998, Russia, 6 June 2000, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 57 [276-281] (buyer’s damages for lost profit reduced to 10% of price because breaching seller did not know terms of sub-sale; 10% derived from Incoterms CIF term which provides that insurance should be taken out in amount of 110% of price).

789

Art. 74

Draft Digest

29. Damages for lost profits will often require predictions of future prices for the goods or otherwise involve some uncertainty as to actual future losses. Article 74 does not address the certainty with which these losses must be proved. One decision required the claimant to establish the amount of the loss according to the forum’s “procedural” standards as to the certainty of the amount of damages.69 30. Evidence of loss of profits, according to one decision, might include evidence of orders from customers that the buyer could not fill, evidence that customers had ceased to deal with the buyer, and evidence loss of reputation as well as evidence that the breaching seller knew or should have known of these losses.70

– Damages for “Lost Volume” Sales 31. In principle, an aggrieved seller who resells the goods suffers the loss of a sale when he has the capacity and market to sell similar goods to other persons. In the absence of the buyer’s breach he would have been able to make two sales. Under these circumstances a court concluded that the seller was entitled to recover the lost profit from the first sale.71 Another court, however, rejected a claim for a “lost sale” because it did not appear that that the seller had been planning to make a second sale at the time the breached contract was negotiated.72 An aggrieved buyer may have a similar claim to 69

CLOUT case No. 138, United States, 1995 (“sufficient evidence [under common law and law of New York] to estimate the amount of damages with reasonable certainty”), affirming CLOUT case No. 85, 1994. 70 CLOUT case No. 210, Spain, 1997 (buyer had not provided necessary evidence of loss). CLOUT case No. 210, Spain, 1997 (aggrieved party did not provide any evidence to show his profits in previous years or the loss it suffered, such as orders given to him that could not be filled, loss of clients or loss of reputation). 71 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (aggrieved seller may recover profit margin on assumption that could sell at the market price). See also Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (aggrieved buyer’s loss of profits on its sale to first sub-buyer, who rejected, and on resale to second sub-buyer at price below original contract price); CLOUT case No. 217, Switzerland, 1997 (majority of court awarded seller, who had resold goods, global amount of 10 per cent of price stating that breaching buyer could expect such an amount of loss; dissenting opinion questioning whether sufficient proof of damages); Xiamen Intermediate People’s Court, China, 31 December 1992, Unilex (aggrieved seller’s lost profits calculated as difference between contract price and price in contract with its supplier). 72 Bielloni Castello v. EGO, Tribunale di Milano, Italy, 26 January 1995, Unilex (noting that claim of lost sale conflicted with claim for damages under article 75).

790

Draft Digest

Art. 74

damages. A court concluded that a buyer could recover for damages caused by its inability to supply the market demand for its product because of the non-conforming components supplied by his seller.73

Foreseeability 32. The second sentence of article 74 limits recovery of damages to those losses that the breaching party foresaw or could have foreseen might be a possible consequence of its breach at the time the contract was concluded. 33. Decisions have found that the breaching party could not have foreseen the following losses: rental of machinery by buyer’s sub-buyer;74 the processing of goods in a different country following late delivery;75 exceptionally large payments to freight forwarder;76 attorney’s fees in dispute with freight forwarder;77 the cost of resurfacing grinding machine where cost exceeded price of wire to be ground;78 lost profits where breaching seller did not know terms of contract with sub-buyer;79 inspection of the goods would take place in importing country rather than exporting country80

73

CLOUT case No. 85, United States, 1994 (distinguishing between lost sales for which there was sufficiently certain evidence of damage and other “indicated orders” for which evidence was too uncertain), affirmed by CLOUT case No. 138, 1995. 74 CIETAC award No. 1740, China, 20 June 1991, published in Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian (1989-1995) (Beijing 1997), No. 75 [429-438] (rental of machinery by buyer’s sub-buyer not foreseeable by breaching seller). 75 CLOUT case No. 294, Germany, 1999 (breaching party could not foresee that late delivery would require processing in Germany rather than Turkey). 76 Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (aggrieved buyer’s payments to freight forwarder exceptionally large and therefore reduced by 50%). 77 Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (aggrieved buyer’s attorney’s fees for dispute with freight forwarder). 78 CLOUT case No. 235, Germany, 1997 (expense of resurfacing grinding machine not foreseeable because not reasonable in relation to price of wire to be ground). 79 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry award No. 406/1998, Russia, 6 June 2000, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 57 [276-281] (buyer’s damages for lost profit reduced to 10% of price because breaching seller did not know terms of sub-sale). 80 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry award No. 054/1999, Russia, 24 January 2000, published on the Internet at http://arbitrage.spb.ru/2_art05.htm (seller could not foresee inspection abroad which was alleged to lead to loss of reputation of goods sold).

791

Art. 74

Draft Digest

34. On the other hand, several decisions have explicitly found that claimed damages were foreseeable. One decision states that the seller of a good to a retail buyer should foresee that the buyer would resell the good,81 while an arbitration tribunal found that the breaching seller could have foreseen the buyer’s losses because they had corresponded extensively on supply problems.82 Another decision concluded that a breaching buyer could foresee that an aggrieved seller of fungible goods would lose its typical profit margin.83 A majority of another court awarded ten per cent of the price as damages to a seller who had manufactured the cutlery to the special order of the buyer and the majority noted that a breaching buyer could expect that sum.84

Burden and Standard of Proof 35. Although none of the damage formulae in articles 74, 75 and 76 expressly allocates the burden of proof, those decisions that address the issue more or less expressly agree that the party making the claim bears the burden of establishing its claim.85 One court gave effect to a national law rule that 81

CLOUT case No. 168, Germany, 1996 (the seller of a good to a retail buyer should foresee that the buyer will resell the good). See also CLOUT case No. 47, Germany, 1993 (buyer who failed to take over electronic ear devices could foresee the seller’s delivery losses). 82 CLOUT case No. 166, Arbitration-Hamburg, 1996 (tribunal assumed, in its discretion as provided by domestic law, that amount of loss caused could be foreseen). 83 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (breaching buyer can foresee that aggrieved seller of fungible goods would lose its typical profit margin) 84 CLOUT case No. 217, Switzerland, 1997 (dissent argues that seller had not sufficiently proved the amount of its damages). 85 See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry award No. 406/1998, Russia, 6 June 2000, published in Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 57 [276-281] (aggrieved buyer had burden); CLOUT case No. 294, Germany, 1999 (aggrieved party failed to carry burden); CLOUT case No. 243, France, 1999 (aggrieved party carried burden of proof); CLOUT case No. 380, Italy, 1999 (aggrieved party failed to carry burden); CLOUT case No. 318, Germany, 1998 (aggrieved party failed to produce evidence of actual loss under article 74 or current market price under article 76); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry award No. 407/1996, Russia, 11 September 1998, Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1998) No. 46 [157-159] (aggrieved buyer established amount of breach); City of Moscow Arbitration Court case No. 18-40, Russia, 3 April 1995, available on the Internet in English translation at http://cisgw3.law.pace.edu/cases/950403r1.html (aggrieved buyer ‘substantiated’ relevant current price and currency conversion rate).

792

Draft Digest

Art. 74

where a breaching seller acknowledged defects in the delivered goods the burden of establishing that the goods conformed to the contract shifted to the seller.86 Another decision expressly placed the burden of establishing damages on the claimant.87 36. Several decisions state that domestic procedural and evidentiary law rather than the Convention governs the standard of proof and weight to be given evidence when determining damages.88

Set Off 37. Although the Convention does not address the issue of whether a counterclaim may be set off against a claim under the Convention,89 the Convention does determine whether a counterclaim arising from the sales contract exists90 and, if it does, then the counterclaim may be set off against a claim arising under the Convention.91

86 Bundesgerichtshof, Germany, 9 January 2002, available on the Internet at http://www.rwsverlag.de/bgh-free/volltex5/vo82717.htm (breaching seller failed to show conformity at time risk shifted to buyer). 87 CLOUT case No. 294, Germany, 1994 (aggrieved buyer had burden of establishing damages). 88 Helsingin hoviokeus [Helsinki Court of Appeals], Finland, 26 October 2000, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html (grounds of recovery under CISG but calculation of damages under article 17 of the Finnish Law of Civil Procedure); CLOUT case No. 261, Switzerland, 1997 (applicable domestic law determines how to calculate damages when amount cannot be determined); CLOUT case No. 138, United States, 1995 (“sufficient evidence [under common law and law of New York] to estimate the amount of damages with reasonable certainty”), affirming CLOUT case No. 85, 1994. 89 CLOUT case No. 288, Germany, 1998 (applicable law, not Convention, determines whether set off permitted); CLOUT case No. 281, Germany, 1993 (domestic law applicable by virtue of private international law rules determines whether set off allowed). 90 CLOUT case No. 125, Germany, 1995 (set-off permitted under applicable national law; counterclaim determined by reference to Convention). But see CLOUT case No. 170, Germany, 1995 (counterclaim arose under Convention; set off permitted under Convention). 91 CLOUT case No. 348, Germany, 1999 (buyer’s counterclaim set off against seller’s claim for price); CLOUT case No. 318, Germany, 1998 (buyer damages set off against price); Stockholm Chamber of Commerce Arbitration Award, Sweden, 1998, Unilex (damages for nonconformity set off against claim for price); CLOUT case No. 273, Germany, 1997 (buyer’s counterclaim would have been allowable as set off but seller had not breached). See also CLOUT case No. 280, Germany, 1998 (implicitly recognizing the possibility that buyer’s tort

793

Art. 75

Draft Digest

Jurisdiction; Place of Payment of Damages 38. Several decisions have concluded that, for the purpose of determining jurisdiction, damages for breach of contract are payable at the claimant’s place of business.92

Article 75 If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74. 1. Article 75 provides that an aggrieved party may claim recovery of the difference between the contract price and the price in a substitute transaction if the original contract has been avoided and if the substitute transaction was concluded in a reasonable manner and within a reasonable time after avoidance.1 The last clause of article 75 also provides that an aggrieved party may recover further damages under the general damage formula set out in article 74.2 The formula in article 75 is a familiar one and can be found in domestic sales laws.3

Relation to Other Articles 2. Article 75 sets out the first of two damage formulas applicable if the contract is avoided. Article 75 calculates damages as the difference between the contract price and the price of a substitute transaction, while article 76 claim could be raised to set off against seller’s claim for the price, court applies CISG notice provisions to bar tort claim). 92 CLOUT case No. 205, France, 1996 (deriving general principle from article 57(1) that place of payment is domicile of creditor); CLOUT case No. 49, Germany, 1993 (deriving general principle on place of payment from article 57(1)). 1 Articles 45(1)(b) and 61(1)(b) provide that the aggrieved buyer and the aggrieved seller, respectively, may recover damages as provided in articles 74 to 77 if the other party fails to perform as required by the contract or the Convention. 2 See paragraph 13 below. 3 See, e. g., CLOUT case No. 102, Arbitration, 1989 (applying Yugoslav law but also analyzing article 75).

794

Draft Digest

Art. 75

calculates damages as the difference between the contract price and a market price when the aggrieved party does not enter into a substitute transaction. Article 76(1) provides that an aggrieved party may not calculate damages under article 76 if it has concluded a substitute transaction.4 If, however, an aggrieved party concludes a substitute transaction for less than the contract quantity, both articles 75 and 76 may apply. Thus, one decision found that an aggrieved seller who resells only some of the contract goods to a third party may recover damages as to these goods under article 75 and damages as to the unsold goods under article 76.5 Where the aggrieved party failed to satisfy the conditions for application of article 75, one court applied the ‘abstract’ calculation of article 76 instead.6 3. The final clause of article 75 provides that an aggrieved party may recover additional damages under article 74. If the aggrieved party fails to satisfy the conditions for application of article 75, the aggrieved party may nevertheless recover damages under article 74.7 Even when it might recover under article 75, an aggrieved party may choose to claim damages under article 74 instead.8 Damages recovered under article 74 may be calculated in much the same way they would be calculated under article 75.9 4

See ICC award No. 8574, September 1996, Unilex (no recovery under article 76 because aggrieved party had entered into substitute transactions within the meaning of article 75). 5 CLOUT case No. 130, Germany, 1994. See also ICC award No. 8740, 1996, Unilex (aggrieved buyer unable to establish market price is not entitled to recover under article 76 and entitled to recover under article 75 only to the extent it had made substitute purchases); but compare CIETAC award, China, 30 October 1991, available on the Internet at http:// cisgw3.law.pace.edu/cases/911030c1.html (aggrieved buyer who had made purchases for only part of the contract quantity nevertheless awarded damages under article 75 for contract quantity multiplied by the difference between the contract price and the price in the substitute transaction). 6 CLOUT case No. 227, Germany, 1992 (damages calculated under article 76 rather than article 75 where aggrieved seller resold goods for one-fourth of contract price). 7 ICC award No. 8574, September 1996, Unilex (recovery allowed under article 74 where aggrieved party not entitled to recover under article 75 because it had concluded substitute transactions without having effectively avoided contract). 8 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (aggrieved party may claim under article 74 even if it could also claim under articles 75 or 76). 9 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (under article 74 seller can recover difference between cost of acquisition and contract price); CLOUT case No. 243, France, 1999 (citing article 74 but quoting from article 75); CLOUT case No. 140, Russia, 1995 (citing article 74 but determining damages as difference between contract price and price in substitute transaction). See also CLOUT case No. 304, Arbitration, 1994 (citing article 75, award of damages to aggrieved buyer for preserving and selling goods pursuant to articles 86, 87 & 88(1); buyer did not purchase substitute goods).

795

Art. 75

Draft Digest

4. Damages recoverable under article 75 are reduced if it is established that the aggrieved party failed to mitigate these damages as provided in article 77. The reduction is the amount by which the loss should have been mitigated. See ‘Calculation of damage’s below. 5. Pursuant to article 6, the parties may agree to derogate from or vary the formula set out in article 75. Several decisions implicitly rely on article 6 when finding that article 75 is not applicable. One decision found that where the parties had agreed that an aggrieved party was entitled to a ‘compensation fee’ if the contract was avoided because of the acts of the other party, the aggrieved party was entitled to recover both the compensation fee and damages under article 75.10 Another decision concluded that a post-breach agreement settling a dispute with respect to a party’s nonperformance displaced the aggrieved party’s right to recover damages under the damage provisions of the Convention.11

Conditions on Application of Article 75 6. Article 75 applies if the contract is avoided and if the aggrieved party concludes a substitute transaction in a reasonable manner and within a reasonable time after avoidance.

– Avoidance of Contract 7. Recovery of damages under article 75 is available only if the contract has been effectively avoided12 by the aggrieved party.13 Substitute transactions concluded before avoidance do not fall within the coverage of article 75.14 10

CLOUT case No. 301, Arbitration, 1992.

11

CIETAC award No. 75, China, 1 April 1993, Unilex.

12

Oberster Gerichtshof, Austria, 9 March 2000, Unilex (no declaration of avoidance); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry award No. 54/99, Russia, 24 January 2000, synopsis published in Rozenberg, Ezh-Yurist, No. 14 (April 2000) (no avoidance); CLOUT case No. 277, Germany, 1997; CLOUT case No. 294, Germany, 1994; CLOUT case No. 176, Austria, 1996 (declaration of avoidance equivocal so not effective). 13 See CLOUT case No. 362, Germany, 1999 (a seller, who resold goods after the aggrieved buyer had declared the contract avoided, not entitled to recover damages under article 75). 14 ICC award No. 8574, September 1996, Unilex (purchases by aggrieved buyer before it had avoided contract not substitute transactions under article 75); CLOUT case No. 85, United States, 1994, affirmed by CLOUT case No. 138, United States, 1995 (substitute compressors had been ordered before breach).

796

Draft Digest

Art. 75

Notwithstanding the condition that the contract be avoided, one court has concluded that, with reference to the need to promote observance of good faith in international trade, the aggrieved party did not have to establish that it had avoided the contract when the other party made it clear that it could not perform within the time fixed.15

– Substitute Transaction 8. An aggrieved party seeking damages calculated under article 75 must conclude a substitute transaction. If the seller is the aggrieved party, the substitute transaction is the sale to some other buyer of the goods identified to the avoided contract. An aggrieved buyer concludes a substitute transaction when it buys goods to replace those promised in the avoided contract.16 9. Article 75 requires that the substitute transaction be entered into “in a reasonable manner and within a reasonable time after avoidance”. There is no express requirement that the price in the substitute transaction be reasonable. Nevertheless, one decision concluded that where an aggrieved seller resold the goods for approximately one-fourth of the contract price the resale was not a reasonable substitute and the court calculated damages under article 76 rather than article 75.17 If there is a significant difference between the contract price and the price in the substitute transaction the damages recoverable under article 75 may be reduced pursuant article 77 because of the aggrieved party’s failure to mitigate damages.18

– Substitute Transaction – Reasonable Manner 10. An aggrieved party must conclude the substitute transaction in a reasonable manner. An arbitral tribunal described the requirement that there be a ‘substitute’ transaction as being one where the aggrieved buyer acts as a prudent and careful businessperson who sells goods of the same kind and quality, ignoring unimportant small differences in quality.19 A sale at market

15

CLOUT case No. 277, Germany, 1997.

16

CLOUT case No. 85, United States, 1994, affirmed by CLOUT case No. 138, United States, 1995 (delivery of compressors ordered from another supplier before seller’s breach not substitute goods under article 75). 17 CLOUT case No. 227, Germany, 1992. 18 ICC award No. 8128, 1995, Unilex (higher price paid by aggrieved buyer in substitute transaction justified because of buyer’s obligation to deliver goods promptly to sub-buyer). 19 ICC award No. 8128, 1995, Unilex.

797

Art. 75

Draft Digest

value on approximately the same freight terms was found to be a reasonable substitute sale.20

– Substitute Transaction – Reasonable Time 11. An aggrieved party must conclude the substitute transaction within a reasonable time after avoidance of the contract.21 What time is reasonable will depend on the nature of the goods and the circumstances. Noting that a reasonable time begins to run only when the contract is avoided, a court found that the aggrieved seller acted within a reasonable time when it resold shoes made for the winter season within two months where it was established that most potential buyers had already bought winter shoes by the time the contract was avoided.22 Another court found that an aggrieved seller who resold the printing press within six months after the additional period given the buyer to perform was within a reasonable time.23 These decisions assume that the aggrieved party must conclude the substitute transactions within the reasonable time but one decision has apparently construed the reasonable time requirement to mean that a reasonable time must elapse after avoidance before the substitute transaction may be concluded.24

Calculation of Damages 12. If the conditions for application of article 75 are satisfied, the aggrieved party may recover ‘the difference between the contract price and the price in the substitute transaction.’ This amount may be adjusted by adding further damages recoverable under article 74 or by deducting the loss that could have been avoided if the aggrieved party had mitigated its damages in

20

Downs Investments v. Perwaja Steel, Supreme Court of Queensland, Australia, 17 November 2000, Unilex. 21 But see CLOUT case No. 308, Australia, 1995 (where a seller is unable to resell goods until the breaching buyer returns them the seller has a reasonable time to resell from the time they are returned and damages should be calculated as of the date of the return). 22 CLOUT case No. 130, Germany, 1994 (avoidance on 7 August; resale on 6 & 15 October). 23 Bielloni Castello S. p. A. v. EGO S. A., Corte di Appello di Milano, Italy, 11 December 1998, Unilex. 24 ICC award No. 8574, September 1996, Unilex (reasonable time must pass after avoidance before an aggrieved buyer may purchase substitute goods). But see FCF S. A. v. Adriafil Commerciale S. r. l., Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http://www.bger.ch (aggrieved buyer made reasonable substitute purchase even though it concluded promptly after avoidance).

798

Draft Digest

Art. 75

accordance with article 77. Most courts have had little difficulty applying the damage formula set out in article 75.25 13. Several decisions have awarded additional damages under article 74 to compensate for incidental damages arising from the breach.26 There will, of course, be no additional recovery if further damages are not established.27 14. Several decisions have reduced the aggrieved party’s recovery under article 75 because the aggrieved party failed to mitigate its losses. An aggrieved seller who resold the goods to a third party at a price significantly below not only the original purchase price but also a modified price proposed by the buyer failed to mitigate its damages and the seller was consequently entitled to recover only the difference between the purchase price and the proposed modified price.28 There is no reduction if there is no failure to mitigate.29 In particular, an aggrieved seller who has the capacity and market to sell similar goods may resell the goods intended for the defaulting buyer to a third party and the aggrieved party need not reduce its damages on the ground that the resale was mitigation pursuant to article 77.30

Burden of Proof; Consideration of Evidence 15. Although none of the damage formulas in articles 74, 75 and 76 expressly allocates the burden of proof, one court has concluded that the Convention recognizes the general principle that the party who invokes a right bears the 25

See, e. g., CLOUT case No. 140, Russia, 1995; CLOUT case No. 130, Germany, 1994;

CLOUT case No. 301, Arbitration, 1992. But see CLOUT case No. 217, Switzerland, 1997

(majority of judges awarded seller of custom-made cutlery ten percent of purchase price as damages, a sum which included losses incurred on the resale of the cutlery). 26 CLOUT case No. 217, Switzerland, 1997 (recovery of transportation costs); CLOUT case No. 130, Germany, 1994 (recovery of interest on bank loan); LG Berlin, Germany, 30 September 1992, Unilex (recovery of legal fees but not sales commission which would have been paid if the buyer had performed). 27 CLOUT case No. 294, Germany, 1999 (aggrieved buyer failed to prove additional costs were foreseeable under article 74). 28 CLOUT case No. 395, Spain, 2000. 29 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (no failure to mitigate if aggrieved seller had capacity and market to sell similar goods to the party in substitute transaction); CLOUT case No. 130, Germany, 1994. 30 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (damages recovered under article 74). See also Bielloni Castello S. p. A. v. EGO S. A., Corte di Appello di Milano Italy, 11 December 1998, Unilex (evidence did not establish that aggrieved seller had lost a sale by its resale to a third party).

799

Art. 76

Draft Digest

burden of establishing that right and that this principle excludes application of national law with respect to burden of proof.31 The same opinion concluded, however, that national law rather than the Convention governs how a judge should reach its opinion (e. g. the weight to be given evidence) as this was a matter not covered by the Convention.32

Article 76 (1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance. (2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods. 1. Article 76 provides that an aggrieved party may claim recovery of the difference between the contract price and the current price for the goods if the contract has been avoided, if there is a current price for the goods and if the aggrieved party has not entered into a substitute transaction.1 The article designates when and where the current price is to be determined. The last clause of the first sentence of paragraph (1) also provides that an aggrieved

31

FCF S. A. v. Adriafil Commerciale S. r. l., Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http://www.bger.ch (breaching party failed to indicate measures aggrieved party should have taken in mitigation). See also CLOUT case No. 217, Switzerland, 1997 (aggrieved party has burden of establishing loss); ICC award No. 7645, March 1995, Unilex (‘Under general principles of law’ the party claiming damages has burden of establishing existence and amount of damages caused by the breach of the other party). 32 FCF S. A. v. Adriafil Commerciale S. r. l., Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http://www.bger.ch (construing article 8 of Swiss Civil Code). See also CLOUT case No. 261, Switzerland, 1997 (domestic law, rather than Convention, determines how damages are to be calculated if the amount cannot be determined). 1 Articles 45(1)(b) and 61(1)(b) provide that the aggrieved buyer and the aggrieved seller, respectively, may recover damages as provided in articles 74 to 77 if the other party fails to perform as required by the contract or the Convention.

800

Draft Digest

Art. 76

party may recover further damages under the general damage formula set out in article 74. The article 76 formula is a familiar one.2

Relation to Other Articles 2. Article 76 is the second of two damage formulas applicable if the contract is avoided. Whereas article 75 calculates damages concretely by reference to the price in a substitute transaction, article 76 calculates damages abstractly by reference to the current market price. The Convention prefers concrete calculation of damages.3 Paragraph (1) of article 76 provides that its damage formula is not available if an aggrieved party has concluded a substitute transaction.4 If an aggrieved party seller resold fewer goods than the contract quantity, one court calculated damages as to the resold goods under article 75 and damages as to the unsold goods under article 76.5 Another court calculated damages under article 76 rather than article 75 where an aggrieved seller resold the goods to a third party at significantly less than both the contract and market price.6 3. The final clause of the first sentence of article 76(1) provides that an aggrieved party may recover additional damages under the general damage formula set out in article 74. An aggrieved party may also choose to recover damages under article 74 even when it might recover under article 76.7 If the 2

ICC award No. 8502, November 1996, Unilex (reference to both article 76 and article 7. 4. 6 of Unidroit Principles of International Commercial Contracts). 3 CLOUT case No. 166, Germany, 1996 (Convention prefers concrete calculation of damages). 4 See ICC award No. 8574, September 1996, Unilex (no recovery under article 75 because aggrieved party concluded substitute transactions before it avoided the contract). See also CLOUT case No. 348, Germany, 1999 (damages not calculated under article 76 because damages could be calculated by reference to actual transactions). 5 CLOUT case No. 130, Germany, 1994. See also ICC award No. 8740, 1996, Unilex (aggrieved buyer unable to establish market price not entitled to recover under article 76 and entitled to recover under article 75 only to the extent it had made substitute purchases); but compare CIETAC award, China, 30 October 1991, available on the Internet at http:// cisgw3.law.pace.edu/cases/911030c1.html (aggrieved buyer who had made purchases for only part of the contract quantity nevertheless awarded damages under article 75 for contract quantity times the difference between the contract price and the price in the substitute transaction). 6 CLOUT case No. 227, Germany, 1992. 7 Oberster Gerichtshof, Austria, 28 April 2000, Unilex (aggrieved party may claim under article 74 unless party regularly concludes similar transactions and has designated one as a substitute within article 75); CLOUT case No. 140, Russia, 1995 (citing article 74 but

801

Art. 76

Draft Digest

conditions for recovery under article 76 are not satisfied, damages may nevertheless be recovered under article 74. 4. Damages recoverable under article 76 are reduced if it is established that the aggrieved party failed to mitigate these damages as provided in article 77. The reduction is the amount by which the loss should have been mitigated. See ‘calculation of damage’s below. 5. Pursuant to article 6, the seller and buyer may agree to derogate from or vary the formulas set out in article 76. One court has stated that a postbreach agreement settling a dispute with respect to a party’s nonperformance displaces the aggrieved party’s right to recover damages under the damage provisions of the Convention.8

Conditions on Application of Article 76 6. Article 76 applies if the contract is avoided (para. 7), if there is a current price for the goods (para. 8), and if the aggrieved party has not concluded a substitute transaction (para. 9). 7. Article 76 is not applicable if the contract has not been avoided.9 Thus, the article will not apply if the aggrieved party has not declared the contract avoided when entitled to do so10 or if the aggrieved party has not made an effective declaration of avoidance.11 8. The formula of article 76 can only be applied if there is a current price. The current price is the price generally charged on the market for goods of the same kind under comparable circumstances.12 One tribunal declined to use published quotations in a trade magazine because the reported quotations were for a different market from that where the goods were to be delivered determining damages as difference between contract price and price in substitute transaction). 8 CIETAC award No. 75, China, 1 April 1993, Unilex. 9 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry award No. 54/99, Russia, 24 January 2000, synopsis published in Rozenberg, Ezh-Yurist, No. 14 (April 2000) (article 76 not applicable when the contract had not be avoided). 10 CLOUT case No. 176, Austria, 1996 (no avoidance). 11 CLOUT case No. 238, Austria, 1998 (declaration of avoidance too early). 12 CLOUT case No. 318, Germany, 1998 (evidence did not establish current price). But see Oberlandesgericht Braunschweig, Germany, 28 October 1999, Unilex (calculation by reference not to market price but to seller’s profit margin, which was lowest possible rate).

802

Draft Digest

Art. 76

under the contract and adjustment to that price was not possible.13 The same tribunal accepted as the current price a price negotiated by the aggrieved seller in a substitute contract that was not ultimately concluded.14 Another tribunal found that the aggrieved party was unable to establish the current price for coal generally or for coal of a particular quality because the requirements of buyers vary and there is no commodity exchange.15 Another court suggested that the ‘auction realisation’ value of goods held by an insolvent buyer might be relevant if the aggrieved seller were to seek to recover under article 76.16 Stating that the seller’s lost profit was to be established under article 76, a court affirmed an award of damages to an aggrieved seller in the amount of ten per cent of the contract price because the market for the goods (frozen venison) was declining and the seller set its profit margin at ten per cent, which was the lowest possible rate.17 9. Damages may not be recovered under article 76 if the aggrieved party has not purchased substitute goods. Where a seller had failed to deliver the goods and the aggrieved buyer bought no substitute goods, the buyer’s damages are to be calculated under article 76.18

Calculation of Damages 10. An aggrieved party is entitled to recover the difference between the contract price and the current price at the time and place indicated by article 76.19 The time at which the current price is to be determined is the date of the effective avoidance of the contract or, if the aggrieved party has taken over the goods before avoidance, then it is this earlier time instead.20 For cases determining what constitutes evidence of a current price, see paragraph 8 above.

13

CIETAC award, China, 18 April 1991, available on the Internet at http://www.cietac-sz. org.cn/cietac/alfx/Case/My_03.htm (evidence did not reflect contract delivery). 14 Id. 15 ICC award No. 8740, 1998, Unilex (value of coal subjective because depends on buyer’s needs and shipping terms; aggrieved party, who made no claim under article 74, could recover under article 75 only to the extent it had entered into substitute transactions). 16 CLOUT case No. 308, Australia, 1995 (valuation arranged by insolvency administrator). 17 Oberlandesgericht Braunschweig, Germany, 28 October 1999, Unilex. 18 CLOUT case No. 328, Switzerland, 1999. 19 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex. 20 CIETAC award, China, 18 April 1991, available on the Internet at http://www.cietac-sz. org.cn/cietac/alfx/Case/My_03.htm (disagreeing with date claimed by aggrieved party).

803

Art. 77

Draft Digest

11. Paragraph (2) of article 76 indicates the relevant place for determining the current price. There are no reported cases construing this provision.

Burden of Proof; Consideration of Evidence 12. Although article 76 is silent on which party has the burden of establishing loss, decisions have placed this burden on the aggrieved party.21

Article 77 A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. 1. Article 77 requires an aggrieved party claiming damages to take reasonable steps to mitigate losses and, if he fails to do so, the breaching party may claim a reduction in the damages recoverable in the amount the loss should have been mitigated. If an aggrieved party does not request damages, whether by way of an affirmative claim or by way of set-off, article 77 does not apply.1

Relation to Other Articles 2. Article 77 appears in Section 2 (Damages) of Chapter V and therefore does not expressly apply to remedies other than damages that are available under the Convention. 3. Other articles of the Convention may require parties to take specific measures to protect against losses. Articles 85 to 88 provide, for example, that buyers and sellers must take reasonable steps to preserve goods in their possession following breach.2 21

See, e. g., CLOUT case No. 318, Germany, 1998 (aggrieved buyer failed to establish current price). 1 Oberster Gerichtshof, Austria, 9 March 2000, Unilex. 2 CIETAC award, China, 6 June 1991, available on the Internet at http://www.cietac-sz. org.cn/cietac/index.htm (cost of freight for return of goods split between buyer who failed to return goods in a reasonable manner and seller who did not cooperate in return).

804

Draft Digest

Art. 77

4. Pursuant to article 6, the seller and buyer may agree to derogate from or vary the formula set out in article 77. One decision concluded that if an aggrieved party seeks to enforce a penalty clause in the contract article 77 does not require the aggrieved party to reduce the penalty in order to mitigate the loss.3 5. Article 77 does not state at what point in a legal proceeding the issue of mitigation must be considered by a court or tribunal. One decision concluded that the issue of whether mitigation should be considered in a proceeding on the merits or in a separate proceeding to determine damages is a procedural issue governed by domestic law rather than by the Convention.4

Measures to Mitigate 6. An aggrieved party claiming damages must mitigate them by taking those steps that a reasonable creditor acting in good faith would take under the circumstances.5 If a contract has already been avoided, an aggrieved party’s notice to the breaching party of a proposed act to mitigate does not revoke the earlier avoidance.6 In some circumstances the aggrieved party may be excused from taking such measures (see paras. 11 & 14 below). 7. Article 77 does not expressly state when the aggrieved party must take measures to mitigate. Several decisions state that an aggrieved party is not obligated to mitigate in the period before the contract is avoided (i. e. at a time when each party may require the other to perform).7 If an aggrieved party does take measures, however, he must do so within a reasonable time under the circumstances. One decision found that the seller’s resale of goods to a third party two months after they had been rejected was reasonable within the context of the fashion industry.8 Another decision found that the buyer’s purchase of substitute goods approximately two weeks after the seller

3

Hof Arnhem, Netherlands, 22 August 1995, Unilex (validity of penalty clause determined under national law). 4 CLOUT case No. 271, Germany, 1999 (applying German law). 5 CLOUT case No. 176, Austria, 1996. 6 LG Berlin, Germany, 15 September 1994, Unilex. 7 CLOUT case No. 361, Germany, 1999 (forcing seller to resell would make it impossible for seller to perform the original contract during the period when the breaching party was entitled to demand performance); CLOUT case No. 130, Germany, 1994. 8 CLOUT case No. 130, Germany, 1994 (in August most retailers in Italian market have filled their stock for the coming season and have no reason to buy more goods for the winter season).

805

Art. 77

Draft Digest

declared that it would not perform was not a failure to mitigate even though the price in a volatile market had risen sharply.9

– Measures by Aggrieved Buyers 8. Decisions have found the following measures by aggrieved buyers to be reasonable: paying another supplier to expedite delivery of already-ordered compressors that could be substituted for defective compressors;10 contracting with a third-party supplier because of inability of breaching party to deliver molds in time;11 contracting with a third party to treat leather goods when the seller refused to return the machine sold;12 continuing to print fabric purchased notwithstanding the discovery of problems with the fabric;13 requesting permission from a Government authority and proposing to test milk powder in the Free Trade Zone prior to import;14 using the buyer’s own buffer stocks of coal when the seller made late deliveries;15 proposing to a sub-buyer that the goods the seller delivered late should be accepted with a 10% reduction in price;16 selling perishable goods even though not required to do so by articles 85 to 88.17 9. The aggrieved buyer was found to have failed to mitigate damages in the following circumstances: failure to inspect goods properly and to give documents setting out its claims of nonconformity;18 failure to examine shipments of aluminium hydroxide before mixing the shipments together;19 failure to stop the use of vine wax after the aggrieved party had discovered 9

CLOUT case No. 277, Germany, 1997 (transaction characterized as highly speculative).

10

CLOUT case No. 85, United States, 1994, affirmed, CLOUT case No. 138, 1995.

11

Nova Tool & Mold Inc. v. London Industries Inc., Ontario Court of Appeal, Canada, 26 January 2000, available on the Internet at http://is.dal.ca/~cisg/cases/nova2.htm. 12 CLOUT case No. 311, Germany, 1997. 13 Schmitz-Werke v. Rockland, [Federal] Fourth Circuit Court of Appeals, United States, 21 June 2002, 2002 U. S. App. LEXIS 12336, 2002 Westlaw 1357095 (continuation both at urging of seller and to mitigate damages; article 77 not cited). 14 Malaysia Dairy Industries v. Dairex Holland, Rb ‘s Hertogenbosch, Netherlands, 2 October 1998, Unilex. 15 ICC award No. 8740, October 1996, Unilex (seller bore risk that buyer’s buffers were insufficient in light of the unreliability of suppliers). 16 ICC award No. 8786, January 1997, Unilex. 17 CLOUT case No. 104, Arbitration, 1992. 18 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry case No. 54/1999, Russia, 24 January 2000, Rozenberg, Ezh-Yurist, No. 14 (April 2000). 19 CLOUT case No. 284, Germany, 1997.

806

Draft Digest

Art. 77

the wax to be defective;20 failure to look for replacement goods in markets other than the local region;21 failure to cancel its contract of sale with subbuyer or to conclude a substitute purchase;22 failure to provide evidence of the price it received on its sale of nonconforming goods to a sub-buyer;23 failure to provide evidence as to whether the aggrieved buyer could buy the same product from the wholesaler newly-designated by the seller.24 10. Several decisions have denied an aggrieved buyer’s claim for reimbursement of expenditures because the expenditures did not limit the loss. One decision declined to award the buyer damages to compensate for the expenses adapting a machine to process defective wire delivered by the seller because the cost of the adaptation was disproportionate to the purchase price of the wire.25 A buyer was denied recovery for the costs of translation of a manual to accompany the goods to be resold because the aggrieved buyer failed to notify the seller, which, as it was a multinational company, would already have had manuals in the language into which the manual was translated.26 A few decisions have denied the aggrieved party’s claim for the cost of enforcing its claim for breach of contract through a collection agent or lawyer.27 11. Several decisions have found that the buyer’s failure to act was not a breach of its duty to mitigate losses. One tribunal found that an aggrieved 20

CLOUT case No. 271, Germany, 1999.

21

CLOUT case No. 318, Germany, 1998.

22

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry case No. 406/98, Russia, 6 June 2000, Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy Moscow (1999-2000) No. 57 [276-281]. 23 CLOUT case No. 303, Arbitration, 1994. 24 Helsingin hoviokeus [Helsinki Court of Appeal], Finland, 26 October 2000, found on the Internet at http://cisgw3.law.pace.edu/cases/001026 f5.html. 25 CLOUT case No. 235, Germany, 1997. 26 CLOUT case No. 343, Germany, 2000. 27 CLOUT case No. 296, Germany, 1997 (employing debt collection agency in breaching party’s jurisdiction rather than bringing suit in aggrieved party’s jurisdiction and enforcing this judgment in breaching party’s jurisdiction); CLOUT case No. 410, Germany, 1995 (hiring collection lawyer in the aggrieved party’s jurisdiction rather than the breaching party’s jurisdiction); LG D
sseldorf, Germany, 25 August 1994, Unilex (employment of agent reasonable only if established that agent had more effective means of recovery than aggrieved party); LG Berlin, Germany, 6 October 1992, available on the Internet at http://www.jura. uni-freiburg.de/ipr1/cisg/urteile/text/173.htm (hiring collection agency contrary to duty to mitigate because it was foreseeable that buyer would refuse to and the additional expenses of hiring an attorney would have been included in trial costs recoverable from defaulting buyer).

807

Art. 77

Draft Digest

buyer’s failure to buy substitute goods from another supplier was justified by the short delivery time in the contract and the alleged difficulty in finding another supplier.28 A court concluded that the buyer had not breached its duty to mitigate by its failure to inform the seller that the buyer’s sub-buyer needed the goods without delay because it had not been established that the buyer knew of the sub-buyer’s production plans.29

– Measures by Aggrieved Sellers 12. Decisions have found the following measures by aggrieved sellers to be reasonable: incurring expenses to transport, store, and maintain the undelivered machinery;30 reselling goods to a third party.31 13. The aggrieved seller was found to have failed to mitigate damages in the following circumstances: drawing on a guaranty before avoiding the contract;32 reselling goods at a price below the price offered by the breaching buyer when the latter sought unsuccessfully to amend the contract.33 14. The seller was excused from taking steps to mitigate in the following circumstances: not reselling the goods during the period when the breaching party was entitled to demand performance on the ground that to require the seller to sell would make it impossible for the seller to perform the original contract;34 not reselling the stockings made to the buyer’s particular specifications.35

28

CLOUT case No. 166, Arbitration-Hamburg, 1996 (no ‘manifest violation’ of duty to mitigate). 29 Amtsgericht M
nchen, Germany, 23 June 1995, Unilex. 30 CLOUT case No. 301, Arbitration, 1992 (need to mitigate because of size and specifications of machinery). 31 CLOUT case No. 130, Germany, 1994; CLOUT case No. 93, Arbitration-Vienna, 1994 (resale by seller not only justified but may have been obligatory under article 77); CLOUT case No. 227, Germany, 1992; Watkins-Johnson Co. v. Islamic Republic of Iran, Iran-US Claims Tribunal, 28 July 1989, Unilex (seller’s right to sell undelivered equipment in mitigation of its damages is consistent with recognized international law of commercial contracts). 32 CLOUT case No. 134, Germany, 1995 (aggrieved seller drew on guaranty following breach without taking steps to mitigate). 33 CLOUT case No. 395, Spain, 2000. 34 CLOUT case No. 361, Germany, 1999. 35 CIETAC award (Contract #QFD890011), China, post-1989, available in English translation on the Internet at http://cisgw3.law.pace.edu/cases/900000c1.html.

808

Draft Digest

Art. 77

15. One court has stated that an aggrieved seller’s damages are not to be reduced under article 77 by the price received in a resale of the goods where the seller had the capacity and market to make multiple sales. The court reasoned that to treat the resale as a substitute transaction under article 75 meant that the seller would lose a sale bringing the same profit as the first contract.36

Reduction of Damages 16. The breaching party may claim a reduction in the damages to be awarded to the aggrieved party in the amount by which reasonable mitigation measures would have reduced the loss to the aggrieved party. Several decisions have calculated the reduction without specific reference to the loss that could have been avoided. One decision found that the aggrieved buyer who failed to mitigate should be entitled only to 50% of the difference between the contract price and the price the buyer received when it resold the nonconforming goods to its customers.37 An arbitral tribunal divided the loss between the aggrieved buyer and the breaching seller who was claiming payment for partial delivery because of the buyer’s failure to mitigate damages.38

Notice of Mitigation Steps 17. Article 77 does not explicitly require an aggrieved party to notify the other party of proposed steps to mitigate losses. One decision denied a buyer compensation for the cost of translating a manual where the buyer had failed to notify the seller on the ground that if the buyer had done so the seller could have supplied existing translations.39

Pleading; Burden of Proof 18. The second sentence of article 77 states that the breaching party may claim a reduction in damages for failure to mitigate losses. Decisions divide on which party bears the burden of pleading the failure to mitigate. An 36

Oberster Gerichtshof, Austria, 28 April 2000, Unilex. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry 54/1999, Russia, 24 January 2000, Rozenberg, Ezh-Yurist, No. 14 (April 2000). 38 CLOUT case No. 265, Arbitration-Hungary, 1999. 39 CLOUT case No. 343, Germany, 2000. 37

809

Art. 78

Draft Digest

arbitral tribunal has stated that the tribunal should review ex officio whether the aggrieved party had complied with its duty to mitigate but that the breaching party had the burden of establishing failure to comply.40 A court decision, on the other hand, stated that no adjustment to damages will be made if the breaching party fails to indicate what steps the other party should have taken to mitigate.41 Another decision, however, requires the aggrieved party to indicate the offers for substitute transactions it had solicited before putting the breaching party to the burden of establishing the loss due to failure to mitigate.42 19. Decisions on who has the ultimate burden of establishing failure to mitigate consistently place the burden on the breaching party of establishing the failure to mitigate and the amount of consequent los.43

Section III. Interest

Article 78 If a party fails to pay the price or any other sum that is in arrears, party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.

40 41

ICC award No. 9187, June 1999, Unilex.

Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http:// www.bger.ch/fr/index/jurisdiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm. 42 CLOUT case No. 318, Germany, 1998 (although burden of establishing failure to mitigate is on the breaching party, it is irrelevant in this case because the buyer was obliged to indicate which offers for a substitute transaction she obtained and from which companies). 43 CLOUT case No. 318, Germany, 1998; CLOUT case No. 176, Austria, 1996 (breaching party had to establish how other party had breached its duty, the possible alternatives and the loss that would have been presented; issue raised on appeal without specific reference to facts that might be relevant).

810

Art. 78

Draft Digest

arbitral tribunal has stated that the tribunal should review ex officio whether the aggrieved party had complied with its duty to mitigate but that the breaching party had the burden of establishing failure to comply.40 A court decision, on the other hand, stated that no adjustment to damages will be made if the breaching party fails to indicate what steps the other party should have taken to mitigate.41 Another decision, however, requires the aggrieved party to indicate the offers for substitute transactions it had solicited before putting the breaching party to the burden of establishing the loss due to failure to mitigate.42 19. Decisions on who has the ultimate burden of establishing failure to mitigate consistently place the burden on the breaching party of establishing the failure to mitigate and the amount of consequent los.43

Section III. Interest

Article 78 If a party fails to pay the price or any other sum that is in arrears, party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.

40 41

ICC award No. 9187, June 1999, Unilex.

Bundesgericht, Switzerland, 15 September 2000, available on the Internet at http:// www.bger.ch/fr/index/jurisdiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm. 42 CLOUT case No. 318, Germany, 1998 (although burden of establishing failure to mitigate is on the breaching party, it is irrelevant in this case because the buyer was obliged to indicate which offers for a substitute transaction she obtained and from which companies). 43 CLOUT case No. 318, Germany, 1998; CLOUT case No. 176, Austria, 1996 (breaching party had to establish how other party had breached its duty, the possible alternatives and the loss that would have been presented; issue raised on appeal without specific reference to facts that might be relevant).

810

Draft Digest

Art. 78

Prerequisites for Entitlement to Interest 1. This provision deals with the right to interest on “the price or any other sum that is in arrears”, with the exception of the instance where the seller has to refund the purchase price after the contract has been avoided, in which case article 84 of the Convention applies as lex specialis. 2. Article 78 entitles to interest on “the price and any other sum that is in arrears”; according to case law, this includes damages.1 3. Entitlement to interest only2 presupposes that the sum is due3 and that the debtor failed to comply with its obligation to pay the price or any other sum by the time specified in the contract4 or, absent such specification, by the Convention.5 According to several courts, the entitlement to interest does not, unlike under some domestic legal regimes, depend on any formal notice to be given to the debtor.6 As a consequence, interest starts to accrue as soon

1

CLOUT case No. 328, Switzerland, 1999; CLOUT case No. 214, Switzerland, 1997.

2

See CLOUT case No. 252, Switzerland, 1998; BG Arbon, Switzerland, 9 December 1994, published on the Internet at . 3 CLOUT case No. 217, Switzerland, 1997; AG Nordhorn, Germany, 14 June 1996, published on the Internet at . 4 CLOUT case No. 254, Switzerland, 1997. 5 For cases where the courts had to resort to the rules of the Convention, namely, article 58, to determine when the payment was due, since the parties had not agreed upon a specific time of performance, see LG Stendal, Germany, 10 December 2000, Internationales Handelsrecht, 2001, 30 ff.; CLOUT case No. 79, Germany, 1994; CLOUT case No. 1, Germany, 1991. 6 For this statement in case law, see Trib. Comm. Namur, Belgium, 15 January 2002, published on the Internet at ; RB Koophandel Kortrijk, Belgium, 3 October 2001, published on the Internet at ; RB Koophandel Kortrijk, Belgium, 4 April 2001, published on the Internet at ; LG Stendal, 10 December 2000, Internationales Handelsrecht, 2001, 30 ff.; CLOUT case No. 217, Switzerland, 1997; KG Waadt, Switzerland, 11 March 1996, published on the Internet at ; Landgericht Aachen, Germany, 20 July 1995, published on the Internet at ; ICC Court of Arbitration, France, award No. 7585, Journal du droit international, 1995, 1015 ff.; CLOUT case No. 166, Arbitration, 1992; CLOUT case No. 152, France, 1995; ICC Court of Arbitration, France, award No. 7331, Journal du droit international, 1995, 1001 ff.; Amtsgericht

811

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Draft Digest

as the debtor is in arrears. As far as damages are concerned, a court stated that interest accrues from the time damages are due.7 4. It must be noted, however, that both an arbitral tribunal8 and a state court9 stated that interest does not accrue unless the creditor sent a formal notice requiring payment to the debtor in default. 5. The entitlement to interest also does not depend on the creditor being able to prove to have suffered any loss. Therefore, interest can be claimed pursuant to article 78 independently from the damage caused by the payment in arrears.10 6. As can be derived from the text of article 78, the entitlement to interest on sums in arrears is without prejudice to any claim by the creditor for damages recoverable under article 74,11 such as a claim for the expenses triggered by the need to have to resort to a bank loan12 or a claim based upon the creditor not being able to invest the sum profitably.13 This led one arbitral tribunal to state that the purpose of article 78 is to introduce the Nordhorn, Germany, 14 June 1994, published on the Internet at http://www.jura.unifreiburg.de/ipr1/Convention/; CLOUT case No. 55, Switzerland, 1991. 7 HG Kanton Zug, 21 October 1999, published on the Internet at ; CLOUT case No. 214, Switzerland, 1997. 8 Arbitral Tribunal at the Bulgarian Chamber of Commerce and Industry, award No. 11/ 1996, published on the Internet at . 9 See LG Zwickau, Germany, 19 March 1999, published on the Internet at . 10 See CLOUT case No. 79, Germany, 1994; CLOUT case No. 5, Germany, 1990; CLOUT case No. 7, Germany, 1990. 11 This has often been emphasized in case law; see, e. g., RB Koophandel Hasselt, Belgium, 17 June 1998, published on the Internet at ; CLOUT case No. 248, Switzerland, 1998; ICC Court of Arbitration, award No. 8962, published on the Internet at ; CLOUT case No. 195, Switzerland, 1995; CLOUT case No. 79, Germany, 1994; CLOUT case No. 130, Germany, 1994; CLOUT case No. 281, Germany, 1993; CLOUT case No. 104, Arbitration; CLOUT case No. 7, Germany, 1990. 12 See CLOUT case No. 248, Switzerland, 1998; AG Koblenz, 12 November 1996, published on the Internet at ; CLOUT case No. 195, Switzerland, 1995; LG Kassel, Germany, 14 July 1994, published on the Internet at ; CLOUT case No. 79, Germany, 1994. 13 CLOUT case No. 7, Germany, 1990.

812

Draft Digest

Art. 78

distinction between interest and damages.14 It must be noted, that in order for a claim for damages – next to that for interest on sums in arrears – to be successful, all requirements set forth in article 74 must be met15 and proved by the creditor,16 i. e. the damaged party.

Interest Rate 7. Several courts pointed out that this provision merely sets forth a general entitlement to interest;17 it does not specify the interest rate to be applied,18 which is why one court considered the solution contained in article 78 a “compromise”.19 According to one court20 and an arbitral tribunal,21 this is due to irreconcilable differences which emerged during the Vienna Diplomatic Conference.

14

CLOUT case No. 301, Arbitration, 1992.

15

See CLOUT case No. 327, Switzerland, 1999; Landgericht Oldenburg, Germany, 9 November 1994, Recht der internationalen Wirtschaft, 1996, 65 f., where the creditor’s claim for damages caused by the failure to pay was dismissed on the grounds that the creditor did not prove that it had suffered any additional loss. 16 It has often been stated that the damages referred to in article 78 have to be proved by the damaged party; see CLOUT case No. 343, Germany, 2000; CLOUT case No. 275, Germany, 1997; AG Koblenz, 12 November 1996, published on the Internet ; AG Bottrop, 25 June 1996, published on the Internet at ; CLOUT case No. 132, Germany, 1995; LG Kassel, 14 July 1994, published on the Internet at ; CLOUT case No. 79, Germany, 1994. 17 See CLOUT case No. 248, Switzerland, 1998; ICC Court of Arbitration, France, award No. 7585, Journal du droit international, 1995, 1015 ff.; LG Aachen, 20 July 1995, published on the Internet at ; CLOUT case No. 83, Germany, 1994; CLOUT case No. 79, Germany, 1994; Oberlandesgericht Koblenz, Germany, 17 September 1993, Recht der internationalen Wirtschaft, 1993, 938; CLOUT case No. 1, Germany, 1991. 18 CLOUT case No. 380, Italy, 1999; Arbitral Tribunal at the Bulgarian Chamber of Commerce and Industry, award No. 11/1996, published on the Internet at . 19 CLOUT case No. 55, Switzerland, 1991. 20 HG Z
rich, Switzerland, 9 September 1993, published on the Internet at . 21 ICC Court of Arbitration, award No. 8128, published on the Internet at .

813

Art. 78

Draft Digest

8. The lack of a specific formula to calculate the rate of interest has led some courts to consider this matter as one governed by, albeit not expressly settled in, the Convention.22 Other courts consider this matter one that is not governed at all by the Convention. This difference in qualifying this matter has led to diverging solutions as to the applicable interest rate, since under the Convention, the matters governed by, but not expressly settled in, the Convention have to be dealt with differently than those falling outside the Convention’s scope. According to article 7(2) of the Convention, the former matters have to be settled in conformity with the general principles on which the Convention is based or, in the absence of those principles, in conformity with the law applicable by virtue of the rules of private international law. However, if a matter is considered to fall outside the Convention’s scope, it must be settled in conformity with the law applicable by virtue of the rules of private international law, without any recourse to the “general principles” of the Convention. 9. Several decisions have sought a solution on the basis of general principles on which the Convention is based. Some courts23 invoked article 9 of the Convention in order to solve the issue of the applicable rates of interest and determined the amount of interest payable according to the relevant trade usages. According to two arbitral awards24 “the applicable interest rate is to be determined autonomously on the basis of the general principles underlying the Convention”, on the grounds that the recourse to domestic law would lead to results contrary to those promoted by the Convention. In these cases, the issue of the interest rate was solved by resorting to the general principle of full compensation, which led to the application of the law of the creditor, since it is the creditor who has to borrow money in order to be as liquid as it would be had the debtor paid the sum it owed in due time.25 Other

22

For a case listing various criteria used in case law to determine the rate of interest, see ICC Court of Arbitration, France, award No. 7585, Journal du droit international, 1995, 1015 ff. 23 See RB Koophandel Ieper, Belgium, 29 January 2001, published on the Internet at ; CLOUT case No. 103, Arbitration, 1993; Juzgado Nacional de Primera Instancia en lo Comercial n. 10, Buenos Aires, Argentina, 6 October 1994, published on the Internet at ; Juzgado Nacional de Primera Instancia en lo Comercial n. 10, Buenos Aires, Argentina, 23 October 1991, published on the Internet at . 24 See CLOUT cases Nos. 93 and 94, Arbitration, 1994. 25 For a similar solution, that is, for an arbitral award basing its decision on the argument that the interest rate of the country has to apply in which the damage occurred, that is the country in which the creditor has its place of business, see also ICC Court of Arbitration, France, award No. 7331, Journal du droit international, 1995, 1001 ff.

814

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Art. 78

tribunals simply referred to a “commercially reasonable” rate,26 such as the London Interbank Offered Rate (LIBOR).27 10. Most courts consider the issue at hand as one not governed at all by the Convention and therefore tend to apply domestic law.28 In respect of this approach most courts applied the domestic law of a specific country by virtue of the rules of private international law of the forum29 and others applied the 26

See ICC Court of Arbitration, award No. 8769, published on the Internet at ; 27 See ICC Court of Arbitration, France, award No. 8908, published on the Internet at ; see also CLOUT case No. 103, Arbitration; note that this arbitral award was later annulled on the grounds that international trade usages do not provide appropriate rules to determine the applicable interest rate; see Cour d’appel de Paris, France, 6 April 1995, Journal du droit international, 1995, 971 ff 28 Note that some courts did not decide which law was applicable; this was possible, since all the countries involved in the particular dispute provided for either the same rate of interest (see, for example, CLOUT case No. 84, Germany, 1994; CLOUT case No. 56, Switzerland, 1992) or an interest rate higher than the one claimed by the plaintiff (see Oberlandesgericht Dresden, Germany, 27 December 1999, Transportrecht-Internationales Handelsrecht, 2000, 20 ff.). 29 See Landgericht Stendal, Germany, 12 October 2000, Internationales Handelsrecht, 2001, 31; Oberlandesgericht Stuttgart, Germany, 28 February 2000, OLG-Report Stuttgart, 2000, 407 f.; CLOUT case No. 380, Italy, 1999; ICC Court of Arbitration, Award No. 9187, published on the internet at ; HG Kanton Zug, 21 October 1999, published on the Internet at ; CLOUT case No. 327, Switzerland, 1999; CLOUT case No. 377, Germany, 1999; CLOUT case No. 248, Switzerland, 1998; CLOUT case No. 282, Germany, 1997; ICC International Court of Arbitration, France, award No. 8611, UNILEX (stating that the relevant interest rate is either that of the lex contractus or, in exceptional cases, that of the lex monetae); CLOUT case No. 376, Germany, 1996; Tribunal de la Glane, Switzerland, 20 May 1996, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1997, 136; CLOUT case No. 166, Arbitration; Appelationsgericht Tessin, Switzerland, 12 February 1996, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1996, 125; Amtsgericht Augsburg, Germany, 29 January 1996, UNILEX; CLOUT case No. 330, Switzerland, 1995; Amtsgericht Kehl, Germany, 6 October 1995, Recht der internationalen Wirtschaft, 1996, 957 f.; CLOUT case No. 195, Switzerland, 1995; CLOUT case No. 228, Germany, 1995; Landgericht Aachen, Germany, 20 July 1995, UNILEX; Landgericht Kassel, Germany, 22 June 1995, published on the Internet at http:// www.jura.uni-freiburg.de/ipr1/Convention/; CLOUT case No. 136, Germany, 1995; Amtsgericht Alsfeld, Germany, 12 May 1995, Neue Juristische Wochenschrift Rechtsprechungs-Report, 1996, 120 f.; Landgericht Landshut, Germany, 5 April 1995, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/Convention/; Landgericht M
nchen, Germany,

815

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Draft Digest

domestic law of the creditor without it being necessarily the law made applicable by the rules of private international law.30 There also are a few cases in which the rate was determined by reference to the law of the country in the currency of which the sum of money had to be paid (lex monetae);31 in a few other cases, the courts applied the rate of the country in which the price

20 March 1995, Praxis des internationalen Privat- und Verfahrensrechts, 1996, 31 ff.; Landgericht Oldenburg, Germany, 15 February 1995, published on the Internet at http://www.jura.unifreiburg.de/ipr1/Convention/; CLOUT case No. 132, Germany, 1995; CLOUT case No. 300, Arbitration; Kantonsgericht Zug, Switzerland, 15 December 1994, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1997, 134; Landgericht Oldenburg, Germany, 9 November 1994, Neue Juristische Wochenschrift Rechtsprechungs-Report, 1995, 438; Kantonsgericht Zug, Switzerland, 1 September 1994, Schweizerische Zeitschrift fu¨r internationales und europa¨isches Recht, 1997, 134 f.; Landgericht D
sseldorf, Germany, 25 August 1994, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/Convention/; Landgericht Gießen, Germany, 5 July 1994, Neue Juristische Wochenschrift Rechtsprechungs-Report, 1995, 438 f.; Rechtbank Amsterdam, the Netherlands, 15 June 1994, Nederlands Internationaal Privaatrecht, 1995, 194 f.; Amtsgericht Nordhorn, Germany, 14 June 1994, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/Convention/; CLOUT case No. 83, Germany, 1994; CLOUT case No. 82, Germany, 1994; CLOUT case No. 81, Germany, 1994; CLOUT case No. 80, Germany, 1994; CLOUT case No. 79, Germany, 1994; CLOUT case No. 100, the Netherlands, 1993; Tribunal Cantonal Vaud, Switzerland, 6 December 1993, UNILEX; CLOUT case No. 281, Germany, 1993; CLOUT case No. 97, Switzerland, 1993; Rechtbank Roermond, the Netherlands, 6 May 1993, UNILEX; Landgericht Verden, Germany, 8 February 1993, UNILEX; CLOUT case No. 95, Switzerland, 1992; Amtsgericht Zweibr
cken, Germany, 14 October 1992, published on the Internet at http://www.jura.uni-freiburg.de/ipr1/ Convention/; CLOUT case No. 227, Germany, 1992; Landgericht Heidelberg, Germany, 3 July 1992, UNILEX; CLOUT case No. 55, Switzerland, 1991; CLOUT case No. 1, Germany, 1991; CLOUT case No. 5, Germany, 1990; CLOUT case No. 7, Germany, 1990. 30 Several court decisions referred to the domestic law of the creditor as the law applicable, independently of whether the rules of private international law made that law applicable; see Bezirksgericht Arbon, Switzerland, 9 December 1994, published on the Internet at ; CLOUT case No. 6, Gemany, 1991; CLOUT case No. 4, Germany, 1989; for a criticism of the latter decision by a court, see Landgericht Kassel, Germany, 22 June 1995, published on the Internet . 31 See RB Ieper, Belgium, 18 February 2002, published on the Internet at ; RB Koophandel Veurne, Belgium, 25 April 2001, published on the Internet at ; CLOUT case No. 164, Arbitration; Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Hungary, 17 November 1995, published on the Internet at .

816

Draft Digest

Art. 78

had to be paid,32 the rate applied in the debtor’s country33 or even the rate of the lex fori.34 11. A few courts resorted to the interest rate specified by the UNIDROIT Principles of International Commercial Contracts (art. 7. 4. 9).35 12. Despite the variety of solutions mentioned above, there is a clear tendency to apply the rate provided for by the law applicable to the contract,36 that is, the law that would be applicable to the sales contract if it were not subject to the Convention.37 13. Where, however, the parties agreed upon a specific interest rate, that rate is to be applied.38

32

See CLOUT case No. 220, Switzerland, 1997; Rechtbank Almelo, the Netherlands, 9 August 1995, Nederlands Internationaal Privaatrecht, 1995, 686; CLOUT case No. 26, Arbitration, 1992. 33 See KG Waadt, Switzerland, 11 March 1996, published on the Internet at . 34 CLOUT case No. 85, United States, 1994. 35 See ICC Court of Arbitration, France, award No. 8769, published on the Internet at ; ICC Court of Arbitration, France, award No. 8128, Journal du droit international, 1996, 1024 ff.; CLOUT cases Nos. 93 and 94, Arbitration, 1994. 36 Some courts referred to this solution as a unanimous one; see CLOUT case No. 132, Germany, 1995; CLOUT case No. 97, Switzerland, 1993. In the light of the remarks in the text, it is apparent that, although this solution is the prevailing one, it has not been unanimously accepted. 37 For case law stating the same, see Landgericht Aachen, Germany, 20 July 1995, published on the Internet at ; Amtsgericht Riedlingen, Germany, 21 October 1994, published on the Internet at ; Amtsgericht Nordhorn, Germany, 14 June 1994, published on the Internet at . 38 See Hof Antwerp, Belgium, 4 November 1998, published on the Internet at ; LG Kassel, Germany, 22 June 1995, published on the Internet at .

817

Art. 79

Draft Digest

Section IV. Exemptions

Article 79 (1) A party is not liable for a failure to perform any of its obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. (2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. (3) The exemption provided by this article has effect for the period during which the impediment exists. (4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt. (5) Nothing in this article prevents either party from exercising any right other then to claim damages under this Convention.

Overview of Article 79 1. Article 79 specifies the circumstances in which a party “is not liable” for failing to perform its obligations, as well as the remedial consequences if the exemption from liability applies. Para (1) relieves a party of liability for “a failure to perform any of his obligations” if the following requirements are fulfilled: the party’s non-performance was “due to an impediment”; the impediment was “beyond his control”; the impediment is one that the party “could not reasonably be expected to have taken into account at the time of the conclusion of the contract”; the party could not reasonably have “avoided” the impediment; and the party could not reasonably have “overcome” the impediment “or its consequences”.

818

Draft Digest

Art. 79

2. Article 79(2) deals with the situation where a party engages a third person “to perform the whole or a part of the contract” and the third person fails to perform. 3. Article 79(3), which appears not to have been the subject of significant attention in case law, limits the duration of an exemption to the time during which the impediment that justifies the exemption continues to exist. Article 79(4) requires a party that wishes to claim an exemption for nonperformance “to give notice to the other party of the impediment and its effect on his ability to perform”. The second sentence of article 79(4) specifies that failure to give such notice “within a reasonable time after the party who fails to perform knew or ought to have known of the impediment” will make the party who failed to give proper notice “liable for damages resulting from such non-receipt”. Article 79(4) also appears not to have attracted significant attention in case law, although one decision did note that the party claiming exemption in that case had satisfied the notice requirement.1 4. Subsection (5) makes it clear that article 79 has only a limited effect on the remedies available to the party that has suffered a failure of performance for which the non-performing party enjoys an exemption. Specifically, article 79(5) declares that an exemption precludes only the aggrieved party’s right to claim damages, and not any other rights of either party under the Convention.

Article 79 in General 5. Several decisions have suggested that exemption under article 79 requires satisfaction of something in the nature of an “impossibility” standard.2 One decision has compared the standard for exemption under article 79 to those for excuse under national legal doctrines of force majeure, economic 1

Amtsgericht Charlottenburg, Germany, 4 May 1994, available on the Internet at . 2 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex; Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex; CLOUT case No. 277, Germany, 1997 (suggesting that a seller can be exempt from liability for failure to deliver only if suitable goods were no longer available in the market); CLOUT case No. 54, Italy, 1993. But see Amtsgericht Charlottenburg, Germany, 4 May 1994, available on the Internet at , where the court implied that article 79 imposes something less than an impossibility standard when it held that the buyer was exempt from interest for a delayed payment of the price, even though timely payment was clearly possible – albeit not reasonably to be expected in the circumstances, according to the court.

819

Art. 79

Draft Digest

impossibility, and excessive onerousness3 – although another decision asserted that article 79 was of a different nature than the domestic Italian hardship doctrine of eccessiva onerosita` sopravvenuta.4 It has also been stated that, where the CISG governs a transaction, article 79 preempts and displaces similar national doctrines such as Wegfall der Gescha¨ftsgrundlage in German law5 and eccesiva onerosita` sopravvenuta.6 Another decision has emphasized that article 79 should be interpreted in a fashion that does not undermine the Convention’s basic approach of imposing liability for a seller’s delivery of non-conforming goods without regard to whether the failure to perform resulted from the seller’s fault.7 And a court has linked a party’s right to claim exemption under article 79 to the absence of bad faith conduct by that party.8 6. Many decisions have suggested that the application of article 79 focuses on an assessment of the risks that a party claiming exemption assumed when it concluded the contract.9 The decisions suggest, in other words, that the essential issue is to determine whether the party claiming an exemption assumed the risk of the event that caused the party to fail to perform. Thus in one case, a seller had failed to make a delivery because the seller’s supplier could not supply the goods without an immediate infusion of substantial cash, and the seller did not have the funds because the buyer had justifiably (but unexpectedly) refused to pay for earlier deliveries. The seller’s claim of exemption under article 79 was denied because the buyer, as per the contract, had pre-paid for the missing delivery and the tribunal found that this arrangement clearly allocated to the seller risks relating to the procurement of goods.10 The risk analysis approach to exemption under article 79 is also 3

CLOUT case No. 166, Arbitration, 1996.

4

CLOUT case No. 54, Italy, 1993.

5

CLOUT case No. 47, Germany, 1993.

6

CLOUT case No. 54, Italy, 1993.

7

CLOUT case No. 271, Germany 1999.

8

Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. See CLOUT case No. 166, Germany, 1996 (in discussing application of article 79, tribunal asserts “[o]nly the apportionment of the risk in the contract is relevant here”); CLOUT case No. 271, Germany 1999 (“The possibility of exemption under CISG article 79 does not change the allocation of the contractual risk”). For other cases suggesting or implying that the question of excemption under article 79 is fundamentally an inquiry into the allocation of risk under the contract, see Rechtbank s’Hertogenbosch, the Netherlands, 2 October 1998, Unilex; Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex; Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex; CLOUT case No. 102, Arbitration, 1989; CLOUT case No. 277, Germany, 1997; ICC Court of Arbitration, award No. 8128, 1995, Unilex; CLOUT case No. 410, Germany, 1995. 10 See CLOUT case No. 166. 9

820

Draft Digest

Art. 79

evident in cases raising issues concerning the relationship between article 79 and risk of loss rules. Thus where the seller delivered caviar and risk of loss had passed to the buyer, but international sanctions against the seller’s State prevented the buyer from taking immediate possession and control of the caviar so that it had to be destroyed, an arbitral tribunal held that the buyer was not entitled to an exemption when it failed to pay the price: the tribunal emphasized that the loss had to be sustained by the party who bore the risk at the moment the force majeure occurred.11 And where a seller complied with its obligations under CISG article 31 by timely delivering goods to the carrier (so that, presumably, risk of loss had passed to the buyer), a court found that the seller was exempt under article 79 from damages caused when the carrier delayed delivering the goods.12 7. Article 79 has been invoked with some frequency in litigation, but with limited success. In two cases, a seller successfully claimed exemption for a failure to perform,13 but in at least nine other cases a seller’s claim of exemption was denied.14 Buyers have also twice been granted an exemption under article 7915 but have been denied in at least six other cases.16

11

CLOUT case No. 163, Arbitration, 1996.

12

CLOUT case No. 331, Switzerland, 1999.

13

Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex (seller granted exemption from damages for delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial refund); CLOUT case No. 331, Switzerland, 1999 (seller found exempt from damages for late delivery of goods). 14 CLOUT case No. 140, Arbitration, 1995; Rechtbank s’Hertogenbosch, the Netherlands, 2 October 1998, Unilex; Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex; CLOUT case No. 271, Germany 1999, affirming (on somewhat different reasoning) CLOUT case No. 272, Germany, 1998; Arbitration Case 56/1995, Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex; CLOUT case No. 277, Germany, 1997; ICC Court of Arbitration, award No. 8128, 1995, Unilex; CLOUT case No. 166, Germany, 1996; Landgericht Ellwangen, Germany, 21 August 1995, Unilex. See also CLOUT case No. 102, Arbitration, 1989 (tribunal applies Yugoslav national doctrines, but in dicta indicates that exemption would have been denied under article 79). 15 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 22 January 1997, Unilex (buyer that had paid price for goods granted exemption for damages caused by its failure to take delivery); Amtsgericht Charlottenburg, Germany, 4 May 1994, available on the Internet at (buyer granted exemption from liability for interest and damages due to late payment). 16 CLOUT case No. 142, Arbitration 1995; Information Letter No. 29 of the High Arbitration Court of the Russian Federation, Russia, 16 February 1998, Unilex; Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex; Arbitration before the Bulgarian

821

Art. 79

Draft Digest

Breaches for which an Exemption is Available: Exemption for Delivery of Non-Conforming Goods 8. It has been questioned whether a seller that has delivered non-conforming goods is eligible to claim an exemption under article 79. On appeal of a decision expressly asserting that such a seller could claim an exemption (although it denied the exemption on the particular facts of the case),17 a court recognized that the situation raised an issue concerning the scope of article 79.18 The court, however, reserved the issue because the particular appeal could be disposed of on other grounds. More recently, that court again noted that it had not yet resolved this issue, although its discussion seemed to suggest that article 79 might well apply when a seller delivered nonconforming goods.19 Nevertheless, at least one case has in fact granted an article 79 exemption to a seller that delivered non-conforming goods.20 9. Decisions have granted exemptions for the following breaches: a seller’s late delivery of goods;21 a seller’s delivery of non-conforming goods,22 a buyer’s late payment of the price;23 and a buyer’s failure to take delivery after paying the price.24 Parties have also claimed exemption for the following breaches, although the claim was denied on the particular facts of the case: a buyer’s failure to pay the price;25 a buyer’s failure to open a letter of credit;26 a

Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex; CLOUT case No. 410, Germany, 1995; CLOUT case No. 104, Arbitration, 1992. 17 CLOUT case No. 272, Germany, 1998. 18 CLOUT case No. 271, Germany 1999. 19 Bundesgerichtshof, Germany, 9 January 2002, available on the Internet at . 20 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 21 CLOUT case No. 331, Switzerland, 1999. 22 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 23 Amtsgericht Charlottenburg, Germany, 4 May 1994, available on the Internet at . 24 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 22 January 1997, Unilex. 25 CLOUT case No. 142, Arbitration 1995; Information Letter No. 29 of the High Arbitration Court of the Russian Federation, Russia, 16 February 1998, Unilex; CLOUT case No. 163, Arbitration, 1996; Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex; CLOUT case No. 410, Germany, 1995. 26 CLOUT case No. 104, Arbitration, 1992; Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex.

822

Draft Digest

Art. 79

seller’s failure to deliver goods;27 and a seller’s delivery of non-conforming goods.28

Article 79(1): “Impediment” Requirement 10. As a prerequisite to an exemption, article 79(1) requires that a party’s failure to perform be due to an “impediment” that meets certain additional requirements (e. g., that it was beyond the control of the party, that the party could not reasonably be expected to have taken it into account at the time of the conclusion of the contract, etc...). One decision has used language suggesting that an “impediment” must be “an unmanageable risk or a totally exceptional event, such as force majeure, economic impossibility or excessive onerousness”.29 Another decision asserted that conditions leading to the delivery of defective goods can constitute an impediment under article 79;30 on appeal to a higher court, however, the exemption was denied on other grounds and the lower court’s discussion of the impediment requirement was declared moot.31 More recently, one court appeared to suggest that the non-existence of means to prevent or detect a lack of conformity in the goods may well constitute a sufficient impediment for exemption of the seller under article 79.32 Yet another decision indicated that a prohibition on exports by the seller’s country constituted an “impediment” within the meaning of article 79 for a seller who failed to deliver the full quantity of goods, although the tribunal denied the exemption because the impediment was foreseeable when the contract was concluded.33 27

CLOUT case No. 140, Arbitration, 1995; Rechtbank s’Hertogenbosch, the Netherlands, 2 October 1998, Unilex; Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex; CLOUT case No. 102, Arbitration, 1989; Arbitration before the Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex; CLOUT case No. 277, Germany, 1997; ICC Court of Arbitration, award No. 8128, 1995, Unilex; CLOUT case No. 166, Germany, 1996. 28 CLOUT case No. 271, Germany 1999; Landgericht Ellwangen, Germany, 21 August 1995, Unilex. See also Rechtbank s’Hertogenbosch, The Netherlands, 2 October 1998, Unilex (denying exemption for seller that failed to deliver because it could not acquire conforming goods). 29 CLOUT case No. 166, Germany, 1996. 30 CLOUT case No. 272, Germany, 1998. The court nevertheless denied the seller claim of exemption on the facts of the particular case. 31 CLOUT case No. 271, Germany 1999. For further discussion of the question whether a seller can claim exemption under article 79 for delivery of non-conforming goods, see supra ¶ 8. 32 Bundesgerichtshof, Germany, 9 January 2002, available on the Internet at . 33 Arbitration before the Bulgarian Chamber of Commerce and Industry, 24 April 1996,

823

Art. 79

Draft Digest

11. Other available decisions apparently have not focused on the question of what constitutes an “impediment” within the meaning of article 79(1). In those decisions in which a party was deemed exempt under article 79, the tribunal presumably was satisfied that the impediment requirement had been met. The impediments to performance in those cases were: refusal by State officials to permit importation of the goods into the buyer’s country (held to exempt the buyer, who had paid for the goods, from liability for damages for failure to take delivery);34 the manufacture of defective goods by the seller’s supplier (held to exempt the seller from damages for delivery of nonconforming goods where there was no evidence the seller acted in bad faith);35 the failure of a carrier to meet a guarantee that the goods would be delivered on time (held, as an alternative ground for denying the buyer’s claim to damages, to exempt the seller from damages for late delivery where the seller had completed its performance by duly arranging for carriage and turning the goods over to the carrier);36 seller’s delivery of non-conforming goods (held to exempt the buyer from liability for interest for a delay in paying the price).37 12. In certain other cases, tribunals that refused to find an exemption use language suggesting that there was not an impediment within the meaning of article 79(1), although it is often not clear whether the result was actually based on failure of the impediment requirement or on one of the additional elements going to the character of the required impediment (e. g., that it be beyond the control of the party claiming an exemption). Decisions dealing with the following situations fall into this category: a buyer who claimed exemption for failing to pay the price because of inadequate reserves of currency that was freely convertible into the currency of payment, where this situation did not appear in the exhaustive list of excusing circumstances catalogued in the written contract’s force majeure clause;38 a seller who claimed exemption for failing to deliver based on an emergency halt to production at the plant of the supplier who manufactured the goods;39 a buyer who claimed exemption for refusing to pay for delivered goods because Unilex. The seller also claimed exemption for failing to deliver the goods (coal) because of a strike by its country’s coal miners, but the court denied the claim because the seller was already in default when the strike occurred. 34 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 22 January 1997, Unilex. 35 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 36 CLOUT case No. 331, Switzerland, 1999. 37 Amtsgericht Charlottenburg, Germany, 4 May 1994, available on the Internet at . 38 CLOUT case No. 142, Arbitration, 1995. 39 CLOUT case No. 140, Arbitration, 1995.

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of negative market developments, problems with storing the goods, revaluation of the currency of payment, and decreased trade in the buyer’s industry;40 a seller who claimed exemption for failing to deliver because its supplier had run into extreme financial difficulty, causing it to discontinue producing the goods unless the seller provided it a “considerable amount” of financing.41 13. The bulk of available decisions that deny a claimed exemption do so on the basis of requirements other than the impediment requirement, and without making clear whether the tribunal judged that the impediment requirement had been satisfied. The claimed impediments in such cases include the following: theft of the buyer’s payment from a foreign bank to which it had been transferred;42 import regulations on radioactivity in food that the seller could not satisfy;43 increased market prices for tomatoes caused by adverse weather in the seller’s country;44 significantly decreased market prices for the goods occurring after conclusion of the contract but before the buyer opened a letter of credit;45 an international embargo against the seller’s country that prevented the buyer from clearing the goods (caviar) through customs or making any other use of the goods until after their expiration date had passed and they had to be destroyed;46 a remarkable and unforeseen rise in international market prices for the goods that upset the equilibrium of the contract but did not render the seller’s performance impossible;47 failure of the seller’s supplier to deliver the goods to seller and a tripling of the market price for the goods after the conclusion of the contract;48 failure of the seller’s supplier to deliver the goods because the shipping bags supplied by the buyer (made to specifications provided by the seller) did not comply with regulatory requirements of the supplier’s government;49 failure of a third party to whom buyer had paid the price (but who was not an authorized collection agent of the seller) to transmit the payment to the seller;50 an

40

Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex. 41 CLOUT case No. 166, Germany, 1996. 42 Information Letter No. 29 of the High Arbitration Court of the Russian Federation, Russia, 16 February 1998, Unilex. 43 Rechtbank s’Hertogenbosch, the Netherlands, 2 October 1998, Unilex. 44 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex. 45 Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex. 46 CLOUT case No. 163, Arbitration, 1996. 47 CLOUT case No. 54, Italy, 1993. 48 CLOUT case No. 277, Germany, 1997. 49 ICC Court of Arbitration, award No. 8128, 1995, Unilex. 50 CLOUT case No. 410, Germany, 1995.

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Draft Digest

order by the buyer’s government suspending payment of foreign debts;51 chemical contamination of the goods (paprika) from an unknown source.52

Treatment of Particular Impediments: Breach by Suppliers 14. Certain claimed impediments appear with some frequency in the available decisions. One such impediment is failure to perform by a third-party supplier to whom the seller looked as the source for the goods.53 In a number of cases sellers have invoked their supplier’s default as an impediment that, they argued, should exempt the seller from liability for its own resulting failure to deliver the goods54 or for its delivery of nonconforming goods.55 Several decisions have suggested that the seller normally bears the risk that its supplier will breach, and that the seller will not generally receive an exemption when its failure to perform was caused by its supplier’s default.56 In a detailed discussion of the issue, a court explicitly stated that under the CISG the seller bears the “acquisition risk” – the risk that its supplier will not timely deliver the goods or will deliver nonconforming goods – unless the parties agreed to a different allocation of risk in their contract, and that a seller therefore cannot normally invoke its supplier’s default as a basis for an exemption under article 79.57 The court, which linked its analysis to the Convention’s no-fault approach to liability for damages for breach of contract, therefore held that the seller in the case before it could not claim an exemption for delivering non-conforming goods furnished by a third-party supplier. It disapproved of a lower court’s reasoning 51 52

CLOUT case No. 104, Arbitration, 1992.

Landgericht Ellwangen, Germany, 21 August 1995, Unilex. An arbitral panel has also indicated that a 13. 16% rise in the cost of steel – which the tribunal found was a predictable development – would not exempt the seller from liability for failing to deliver the steel; the comments on article 79, however, are dicta as the court ruled that domestic Yugoslavian excuse doctrines applied; see CLOUT case No. 102, Arbitration, 1989. 53 This situation also raises issues concerning the applicability of article 79(2) – a topic that is discussed infra, ¶ 21. 54 CLOUT case No. 140, Arbitration, 1995; CLOUT case No. 166, Germany, 1996; ICC Court of Arbitration, award No. 8128, 1995, Unilex; CLOUT case No. 277, Germany, 1997. 55 CLOUT case No. 271, Germany 1999; Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 56 CLOUT case No. 140, Arbitration, 1995; CLOUT case No. 277, Germany, 1997; ICC Court of Arbitration, award No. 8128, 1995; CLOUT case No. 166, Germany, 1996. In another case, the seller claimed that chemical contamination of the goods did not result from its processing, but the court declared that the source of the contamination was irrelevant for purposes of article 79; see Landgericht Ellwangen, Germany, 21 August 1995, Unilex. 57 CLOUT case No. 271, Germany 1999.

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which had suggested that the only reason the seller did not qualify for an exemption was because a proper inspection of the goods would have revealed the defect.58 Nevertheless, another court has granted a seller an exemption from damages for delivery of non-conforming goods on the basis that the defective merchandise was manufactured by a third party, which the court found was an exempting impediment as long as the seller had acted in good faith.59

Treatment of Particular Impediments: Change in the Cost of Performance or the Value of the Goods 15. Claims that a change in the financial aspects of a contract should exempt a breaching party from liability for damages have also appeared repeatedly in the available decisions. Thus sellers have argued that an increase in the cost of performing the contract should excuse them from damages for failing to deliver the goods,60 and buyers have asserted that a decrease in the value of the goods being sold should exempt them from damages for refusing to take delivery of and pay for the goods.61 These arguments have not been successful, and several courts have expressly commented that a party is deemed to assume the risk of market fluctuations and other cost factors affecting the financial consequences of the contract.62 Thus in denying a buyer’s claim to an exemption after the market price for the goods dropped significantly, one court asserted the such price fluctuations are foreseeable aspects of international trade, and the losses they produce are part of the “normal risk of commercial activities”.63 Another court denied a seller an exemption after the market price for the goods tripled, commenting that “it 58

The lower court opinion is CLOUT case No. 272, Germany, 1998. Another case also suggested that a seller’s opportunity to discover a lack of conformity by pre-delivery inspection was relevant in determining the seller’s entitlement to exemption under article 79; see Landgericht Ellwangen, Germany, 21 August 1995, Unilex. 59 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 60 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex; CLOUT case No. 102, Arbitration, 1989; CLOUT case No. 277, Germany, 1997; CLOUT case No. 166, Germany, 1996. See also CLOUT case No. 54, Italy, 1993 (dicta concerning whether article 79 would exempt a seller from liability for non-delivery where the market price of the goods rose “remarkably and unforeseeably” after the contract was concluded). 61 Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex; Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex. 62 See Arbitration before the Bulgarian Chamber of Commerce and Industry), Bulgaria, 12 February 1998, Unilex; CLOUT case No. 102, Arbitration, 1989; CLOUT case No. 277, Germany, 1997; CLOUT case No. 166, Germany, 1996. 63 Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995.

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Draft Digest

was incumbent upon the seller to bear the risk of increasing market prices ...”.64 Another decision indicated that article 79 did not provide for an exemption for hardship as defined in the domestic Italian doctrine of eccesiva onerosita` sopravvenuta, and thus under the CISG a seller could not have claimed exemption from liability for non-delivery where the market price of the goods rose “remarkably and unforeseeably” after the contract was concluded.65 Other reasons advanced for denying exemptions because of a change in financial circumstances are that the consequences of the change could have been overcome,66 and that the possibility of the change should have been taken into account when the contract was concluded.67

Requirement that the Impediment Be Beyond the Control of the Party Claiming Exemption 16. In order to qualify for an exemption, article 79(1) requires that a party’s failure to perform be due to an impediment that was “beyond his control”. It has been held that this requirement was not satisfied, and thus it was proper to deny an exemption, where a buyer paid the price of the goods to a foreign bank from which the funds were stolen and never received by the seller.68 On the other hand, some decisions have found an impediment beyond the control of a party where governmental regulations or the actions of governmental officials prevented a party’s performance. Thus a buyer that had paid for the goods was held exempt from liability for damages for failing to take delivery where the goods could not be imported into the buyer’s country because officials would not certify their safety.69 Similarly, an arbitral tribunal found that a prohibition on the export of coal implemented by the seller’s State constituted an impediment beyond the control of the seller, although it denied the seller an exemption on other grounds.70 Several decisions have focused on the issue whether a failure of performance by a third party who was to supply the goods to the seller constituted an 64

CLOUT case No. 277, Germany, 1997.

65

CLOUT case No. 54, Italy, 1993.

66

Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex. Arbitration before the Bulgarian Chamber of Commerce and Industry), Bulgaria, 12 February 1998, Unilex; CLOUT case No. 102, Arbitration, 1989. 68 Information Letter No. 29 of the High Arbitration Court of the Russian Federation, Russia, 16 February 1998, Unilex (abstract). 69 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 22 January 1997, Unilex. 70 Arbitration Case 56/1995 of the Bulgarian Chamber of Commerce and Industry), 24 April 1996, Unilex (denying an exemption because the impediment was foreseeable at the time of the conclusion of the contract). 67

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Art. 79

impediment beyond the seller’s control.71 In one decision, the court found that the fact defective goods had been manufactured by a third party satisfied the requirement, provided the seller had not acted in bad faith.72 Where the seller’s supplier could not continue production of the goods unless the seller advanced it “a considerable amount of cash”, however, an arbitral tribunal found that the impediment to the seller’s performance was not beyond its control, stating that a seller must guarantee its financial ability to perform even in the face of subsequent, unforeseeable events, and that this principle also applied to the seller’s relationship with its suppliers.73 And where the seller’s supplier shipped to the buyer, on the seller’s behalf, a newlydeveloped type of vine-wax that proved to be defective, the situation was found not to involve an impediment beyond the seller’s control: a lower court held that the requirements for exemption were not satisfied because the seller would have discovered the problem had it fulfilled it obligation to test the wax before it was shipped to its buyer;74 on appeal, a higher court affirmed the result but rejected the lower court’s reasoning, stating that the seller would not qualify for an exemption regardless of whether it breached an obligation to examine the goods.75

Requirement that the Party Claiming Exemption Could Not Reasonably Be Expected to Have Taken the Impediment into Account at the Time of the Conclusion of the Contract 17. To satisfy the requirements for an exemption under article 79, a party’s failure to perform must be due to an impediment that the party “could not reasonably be expected to have taken ... into account at the time of the conclusion of the contract”. Failure to satisfy this requirement was one reason cited by an arbitral tribunal for denying an exemption to a seller that had failed to deliver the goods because of an emergency production stoppage at the plant of a supplier that was manufacturing the goods for the seller.76 Several decisions have denied an exemption when the impediment was in existence and should have been known to the party at the time the contract 71 For further discussion of the application of article 79 to situations in which the seller’s failure of performance was caused by a supplier’s default, see supra ¶ 14, and infra ¶¶ 17, 18 and 21. 72 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 73 CLOUT case No. 166, Germany, 1996. 74 CLOUT case No. 272, Germany, 1998. 75 CLOUT case No. 271, Germany 1999. 76 CLOUT case No. 140, Arbitration, 1995. For further discussion of the application of article 79 to situations in which the seller’s failure of performance was caused by a supplier’s default, see supra ¶¶ 14 and 16, and infra ¶¶ 18 and 21.

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Draft Digest

was concluded. Thus where a seller claimed an exemption because it was unable to procure milk powder that complied with import regulations of the buyer’s State, the court held that the seller was aware of such regulations when it entered into the contract and thus took the risk of locating suitable goods.77 Similarly, a seller’s claim of exemption based on regulations prohibiting the export of coal78 and a buyer’s claim of exemption based on regulations suspending payment of foreign debts79 were both denied because, in each case, the regulations were in existence (and thus should have been taken into account) at the time of the conclusion of the contract. Parties have been charged with responsibility for taking into account the possibility of changes in the market value of goods because such developments were foreseeable when the contract was formed, and claims that such changes constitute impediments that should exempt the adversely-affected party have been denied.80

Requirement that the Party Claiming Exemption Could Not Reasonably Be Expected to Avoid or Overcome the Impediment 18. In order to satisfy the prerequisites for an exemption under article 79(1), a party’s failure to perform must be due to an impediment that the party could not reasonably be expected to have avoided. In addition, it must not reasonably have been expected that the party would overcome the impediment or its consequences. Failure to satisfy these requirements were cited by several tribunals in denying exemptions to sellers whose non-performance was allegedly caused by the default of their suppliers. Thus it has been held that a seller whose supplier shipped defective vine wax (on the seller’s

77

Rechtbank s’Hertogenbosch, the Netherlands, 2 October 1998, Unilex. Arbitration Case 56/1995 of the Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex. 79 CLOUT case No. 104, Arbitration, 1992. 80 Rechtbank van Koophandel, Hasselt, Belgium, 2 May 1995, Unilex (a significant drop in the world market price of frozen raspberries was “foreseeable in international trade” and the resulting losses were “included in the normal risk of commercial activities”; thus buyer’s claim of exemption was denied); Arbitration before the Bulgarian Chamber of Commerce and Industry, Bulgaria, 12 February 1998, Unilex (negative developments in the market for the goods “were to be considered part of the buyer’s commercial risk” and “were to be reasonably expected by the buyer upon conclusion of the contract”); CLOUT case No. 102, Arbitration, 1989, (when the contract was concluded a 13. 16 % rise in steel prices in approximately three months was predictable because market prices were known to fluctuate and had begun to rise at the time the contract was formed; dicta indicates that the seller would therefore have been denied an exemption under article 79). 78

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Art. 79

behalf) directly to the buyer,81 as well as a seller whose supplier failed to produce the goods due to an emergency shut-down of its plant,82 should reasonably have been expected to have avoided or surmounted these impediments, and thus to have fulfilled their contractual obligations.83 Similarly, it has been held that a seller of tomatoes was not exempt for its failure to deliver when heavy rainfalls damaged the tomato crop in the seller’s country, causing an increase in market prices: because the entire tomato crop had not been destroyed, the court ruled, the seller’s performance was still possible, and the reduction of tomato supplies as well as their increased cost were impediments that seller could overcome.84

Requirement that Failure to Perform Be “Due To” the Impediment 19. In order to qualify for an exemption under article 79(1), a party’s failure to perform must be “due to” an impediment meeting the requirements discussed in the preceding paragraphs. This causation requirement has been invoked as a reason to deny a party’s claim to exemption, as where a buyer failed to prove that its default (failure to open a documentary credit) was caused by its government’s suspension of payment of foreign debt.85 The operation of the causation requirement may also be illustrated by an appeal in litigation involving a seller’s claim to be exempt under article 79 from damages for delivering defective grape vine wax . The seller argued it was exempt because the wax was produced by a third party supplier that had shipped it directly to the buyer. A lower court denied the seller’s claim because it found that the seller should have tested the wax, which was a new product, in which event it would have discovered the problem.86 Hence, the court reasoned, the supplier’s faulty production was not an impediment beyond its control. On appeal to a higher court, the seller argued that all vine 81

CLOUT case No. 271, Germany 1999, affirming (on somewhat different reasoning)

CLOUT case No. 272, Germany, 1998. In CLOUT case No. 271, the court generalized that a

supplier’s breach is normally something that, for purposes of article 79, the seller must avoid or overcome. 82 CLOUT case No. 140, Arbitration, 1995. 83 For further discussion of the application of article 79 to situations in which the seller’s failure of performance was caused by a supplier’s default, see supra ¶¶ 14, 16 and 17, and infra ¶ 21. 84 Oberlandesgericht Hamburg, Germany, 4 July 1997, Unilex. 85 CLOUT case No. 104, Arbitration, 1992. See also Arbitration Case 56/1995 before the Bulgarian Chamber of Commerce and Industry, 24 April 1996, Unilex (seller’s argument that a miner’s strike should exempt it from damages for failure to deliver coal rejected because at the time of the strike seller was already in default). 86 CLOUT case No. 272, Germany, 1998.

831

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Draft Digest

wax from its supplier was defective that year, so that even if it had sold a traditional type (which it presumably would not have had to examine) the buyer would have suffered the same loss.87 The court dismissed the argument because it rejected the lower court’s reasoning: according to the court, the seller’s responsibility for defective goods supplied by a third party did not depend on its failure to fulfill an obligation to examine the goods; rather, the seller’s liability arose from the fact that, unless agreed otherwise, sellers bear the “risk of acquisition”, and the seller would have been liable for the nonconforming goods even if it was not obliged to examine them before delivery. The court apparently found that, even if the seller had sold defective vine wax that it was not obliged to examine, the default would still not have been caused by an impediment that met the requirements of article 79.

Burden of Proof 20. Several decisions assert that article 79(1) – in particular the language indicating that a party is exempt “if he proves that the failure [to perform] was due to an impediment beyond his control ...” – expressly allocates the burden of proving the requirements for exemption to the party claiming the exemption, thus also establishing that questions concerning the burden of proof are matters within the scope of the Convention.88 Such decisions also maintain that article 79(1) evidences a general principle of the Convention allocating the burden of proof to the party who asserts a claim or who invokes a rule, exception or objection, and that this general principle can be used, pursuant to CISG article 7(2), to resolve burden of proof issues that are not expressly dealt with in the Convention.89 The approach and/or language of several other decisions strongly imply that the burden of proving the elements of an exemption falls to the party claiming the exemption.90

87 88

CLOUT case No. 271, Germany 1999.

CLOUT case No. 378, Italy, 2000; Bundesgerichtshof, Germany, 9 January 2002, Unilex. The latter case, however, distinguishes the question of the effect on the burden of proof of an extra-judicial admission of liability, viewing this matter as beyond the scope of the Convention. 89 CLOUT case No. 378, Italy, 2000; Bundesgerichtshof, Germany, 9 January 2002, Unilex; CLOUT case No. 380, Italy, 1999. 90 CLOUT case No. 140, Arbitration, 1995 (denying the seller’s claim to exemption because seller was unable to prove the required facts); CLOUT case No. 104, Arbitration, 1992 (denying the buyer’s exemption claim because buyer did not prove that its failure to perform was caused by the impediment); CLOUT case No. 166, Germany, 1996 (tribunal uses language suggesting that the seller, who was claiming an exemption, had to submit the facts to substantiate the claim).

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Draft Digest

Art. 79

Article 79(2) 21. Article 79(2) imposes special requirements if a party claims exemption because its own failure to perform was “due to the failure by a third person whom he has engaged to perform the whole or a part of the contract”. Where it applies, article 79(2) demands that the requirements for exemption under article 79(1) be satisfied with respect to both the party claiming exemption and the third party before an exemption should be granted. This is so even though the third party may not be involved in the dispute between the seller and the buyer (and hence the third party is not claiming an exemption), and even though the third party’s obligations may not be governed by the Sales Convention. The special requirements imposed by article 79(2) increase the obstacles confronting a party claiming exemption, so that it is important to know when it applies. A key issue, in this regard, is the meaning of the phrase “a third person whom he [i. e., the party claiming exemption] has engaged to perform the whole or a part of the contract”. Several cases have addressed the question whether a supplier to whom the seller looks to procure or produce the goods is covered by the phrase, so that a seller who claims exemption because of a default by such a supplier would have to satisfy article 79(2).91 In one decision, a regional appeals court held that a manufacturer from whom the seller ordered vine wax to be shipped directly to the buyer was not within the scope of article 79(2), and the seller’s exemption claim was governed exclusively by article 79(1).92 On appeal, the court avoided the issue, suggesting that the seller did not qualify for exemption under either article 79(1) or 79(2).93 An arbitral tribunal has suggested that article 79(2) applies when the seller claims exemption because of a default by a “sub-contractor” or of the seller’s “own staff”, but not when the third party is a “manufacturer or sub-supplier”.94 On the other hand, another arbitral tribunal assumed that a fertilizer manufacturer with whom a seller contracted to supply the goods and to whom the buyer was instructed to send specified types of bags for shipping the goods was covered by article 79(2).95 It has also been suggested that a carrier whom the seller engaged to transport the goods is the kind of third party that falls within the scope of article 79(2).96

91 The application of the requirements of article 79(1) to situations in which a seller claims exemption because its supplier defaulted on its own obligations to the seller is discussed supra ¶¶ 14, 16, 17 and 18. 92 CLOUT case No. 272, Germany, 1998. 93 CLOUT case No. 271, Germany 1999. 94 CLOUT case No. 166, Germany, 1996. 95 ICC Court of Arbitration, award No. 8128, 1995, Unilex. 96 CLOUT case No. 331, Switzerland, 1999.

833

Art. 79

Draft Digest

Article 79(5): Consequences of Exemption 22. Article 79(5) of the Convention specifies that a successful claim to exemption protects a party from liability for damages, but it does not preclude the other party from “exercising any right other than to claim damages”. Claims against a party for damages have been denied in those cases in which the party qualified for an exemption under article 79.97 A seller’s claim to interest on the unpaid part of the contract price has also been denied on the basis that the buyer had an exemption for its failure to pay.98 In one decision it appears that both the buyer’s claim to damages and its right to avoid the contract were rejected because the seller’s delivery of nonconforming goods “was due to an impediment beyond its control”, although the court permitted the buyer to reduce the price in order to account for the lack of conformity.99

Derogation from Article 79: Relationship between Article 79 and Force Majeure Clauses 23. Article 79 is not excepted from the rule in article 6 empowering the parties to “derogate from or vary the effect of” provisions of the Convention. Decisions have construed article 79 in tandem with force majeure clauses in the partie’s contract. One decision found that a seller was not exempt for failing to deliver the goods under either article 79 or under a contractual force majeure clause, thus suggesting that the parties had not preempted article 79 by agreeing to the contractual provision.100 Another decision denied a buyer’s claim to exemption because the circumstances that the buyer argued constituted a force majeure were not found in an exhaustive listing of force majeure situations included in the partie’s contract.101

97 CLOUT case No. 331, Switzerland, 1999; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 22 January 1997, Unilex. 98 Amtsgericht Charlottenburg, Germany, 4 May 1994, Unilex. 99 Tribunal de Commerce de Besanon, France, 19 January 1998, Unilex. 100 CLOUT case No. 277, Germany, 1997. 101 CLOUT case No. 142, Arbitration, 1995; Information Letter No. 29 of the High Arbitration Court of the Russian Federation, Russia, 16 February 1998, Unilex (abstract).

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Art. 80

Article 80 A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission.

General 1. Article 80 strips a party of its right to rely on the other side’s failure to perform to the extent that the second party’s failure was caused by an “act or omission” of the first party. Article 80 operates to relieve a party of at least some of the legal consequences of a failure to perform. The broad equitable rule of article 80 that a party cannot claim legal redress for the other party’s breach to the extent its own actions caused the breach has been cited as evidence that principles of good faith apply under the CISG.1

Purposes for which Article 80 Applied 2. Article 80 has frequently been used as a tool for sorting out the partie’s rights when both sides have allegedly failed to perform their obligations. Several decisions have involved attempts by the seller to cure non-conforming goods. In one such case, the seller had not fulfilled a promise to cure a delivery of non-conforming goods, and the buyer had set-off the costs of remedying the defects from the price. The seller argued that article 80 should block the buyer’s right to set-off damages for the non-conformity because the buyer’s own failure to ship the goods back to the seller prevented the seller from curing. The court rejected this argument, however, ruling that the failure to cure was attributable to the carrier designated to return the goods to the seller, and that the seller was responsible for the carrier’s performance.2 In another case, however, a seller successfully argued that the buyer had forfeited its rights to a remedy for a lack of conformity because it had unjustifiably rejected the seller’s offer of cure.3 Another decision involving a seller’s agreement to take back and cure delivered goods also illustrates the use of article 80 to determine the effect of a buyer’s non-payment of debts from other dealings with the seller. The buyer returned machinery to the seller, who promised to adjust the equipment and ship it back to the buyer in a short time. Thereafter, however, the seller refused to return the goods to the buyer until the buyer paid some other debts that the buyer owed. The trial 1

CLOUT case No. 230, Germany, 1997. This decision was reversed on other grounds in

CLOUT case No. 270, Germany, 1998. 2 3

Amtsgericht M
nchen, Germany, 23 June 1995, Unilex. CLOUT case No. 282, Germany, 1997.

835

Art. 80

Draft Digest

court held that article 80 prevented the buyer from claiming damages for the late re-delivery because the buyer’s own action of failing to pay the past debts caused the seller to withhold the goods. An appeals court reversed, holding that the seller had no right to insist on payment of the other debts before returning the goods as no such condition had been included in the redelivery agreement.4 Similarly, a court rejected a seller’s article 80 defense that the buyer’s failure to pay prior debts disabled the seller from supporting a troubled supplier, leading to the seller’s failure to deliver the goods: the court found that an agreement under which the buyer prepaid for the delivery in question meant that the seller had assumed all risks relating to the supply of the goods.5 3. In a significant number of decisions article 80 has been applied to deny a remedy to a party whose own breach caused the other side to refuse to perform.6 For example, a seller involved in a long term contract to supply aluminum ore announced that it would make no future deliveries. The seller’s defense in the resulting lawsuit was that, after it announced it was stopping future deliveries, the buyer withheld payments for deliveries that had already been made. An arbitral panel rejected seller’s defense on the basis of article 80, holding that the buyer’s non-payment was caused by the seller’s repudiation of its future delivery obligations.7 Decisions applying article 80 to determine which party should be deemed in breach of contract can involve unusual or complex facts. In one such case, a seller contracted to sell a machine produced by a manufacturer with whom the seller had a distribution agreement, with title to the goods to be transferred to the buyer after payment of the final installment of the purchase price (which was due upon buyer’s acceptance of the machine). Before the machine was delivered, however, the manufacturer terminated its distribution agreement with the seller and refused to ship the seller any more machines. Instead, the 4

CLOUT case No. 311, Germany, 1997.

5

CLOUT case No. 166, Arbitration, 1996.

6

See, in addition to the decisions discussed in the text, CLOUT case No. 273, Germany, 1997 (buyer that had unjustifiably withheld payments for certain deliveries it had received denied damages, pursuant to article 80, for seller=s failure to make other deliveries because the buyer’s own failure to pay caused the seller to withhold delivery); CLOUT case No. 133, Germany, 1995 (buyer denied damages under article 80 because seller’s non-delivery was caused by buyer’s failure to take delivery); CLOUT case No. 176, Austria, 1995 (buyer’s failure to open a letter of credit, which would normally be a breach precluding it from recovering for seller’s failure to deliver, was caused in this case by seller’s failure to fulfill its obligation to designate a port for shipping the goods; therefore article 80 precluded the seller from invoking buyer’s failure as a defense in buyer’s suit for damages). 7 Arbitral Panel of the Zurich Chamber of Commerce, award No. ZHK 273/95, 31 May 1996, Unilex.

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Art. 80

manufacturer shipped the goods directly to the buyer, who made no further payments to the seller (paying the manufacturer instead) and who tried to avoid the contract with the seller on the grounds that the seller could not fulfill its obligation to convey title to the machine. The trial court denied the buyer’s right to avoid on the basis of article 80, ruling that the buyer’s action of accepting the goods while it was still bound to a contract with the seller led the seller to believe that it had fulfilled its obligations; thus, the trial court reasoned, any subsequent non-performance by the seller was caused by the buyer’s actions.8 An intermediate appeals court affirmed this part of the decision, holding that the seller was not obliged to transfer title until the buyer had paid the price; thus article 80 prevented the buyer from avoiding because the buyer’s own actions of withholding payment and failing to set an additional period of time under article 47(1) for the seller to transfer title after the price had been paid caused the seller’s non-performance.9 A higher appeals court affirmed the denial of the buyer’s right to avoid on grounds that did not involve article 80.10

Requirement that the Other Party’s Failure to Perform Be Due to an “Act or Omission” of the First Party 4. Article 80 requires that a party’s “act or omission” cause the other side’s failure to perform. In cases involving the following acts or omissions, tribunals have found that the requirements of article 80 were satisfied: a buyer’s breach of its obligation to pay the price and its failure to set a deadline for seller to perform under article 47(1);11 a buyer’s failure to pay the price for delivered goods;12 a buyer’s failure to take delivery;13 a seller’s failure to perform its obligation to designate the port from which the goods would be

8

Landgericht D
sseldorf, Germany, 9 July 1992, Unilex. Oberlandgericht D
sseldorf, Germany, 18 November 1993, available on the Internet at http://www.jura.uni-freiburg.de/ipr1/cisg/urteile/text/92.htm. 10 CLOUT case No. 124, Germany, 1995. 11 Oberlandesgericht D
sseldorf, Germany, 18 November 1993, available on the Internet at . A lower court decision in this case had focused upon the buyer’s act of accepting delivery of the goods from the manufacturer while still under contract with the seller (thus misleading the seller into thinking that its obligations had been fulfilled) in finding that article 80 applied; see Landgericht D
sseldorf, Germany, 9 July 1992, Unilex. On appeal of the decision of the appelate court, the Supreme Court affirmed without invoking article 80. CLOUT case No. 124, Germany, 1995. 12 CLOUT case No. 273, Germany, 1997. 13 CLOUT case No. 133, Germany, 1995. 9

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shipped;14 a seller’s repudiation of future delivery obligations;15 a buyer’s unjustified refusal to accept the seller’s offer to cure a lack of conformity in the goods.16 In cases involving the following acts or omissions, tribunals have refused to apply article 80, although not necessarily because the act or omission requirement was not satisfied: a buyer’s failure to ship goods back to the seller to permit cure (where the failure to ship was attributable to the carrier);17 a buyer’s failure to pay debts arising from other dealings with the seller (where such payment had not been made a condition to the seller’s duty to redeliver the goods to the buyer);18 a buyer’s failure to pay for prior deliveries of goods (where the buyer had prepaid for the delivery in question and the seller bore all risks relating to the supply of the goods).19

Requirement that the Other Party’s Failure to Perform Be “Caused By” the First Party 5. Article 80 requires that a party’s failure to perform be “caused by” the other side’s act or omission. In one case, the application of article 80 focused on whether it was the actions of the buyer or a third party that caused the seller not to fulfill its obligations. The seller had agreed to take back nonconforming chemicals and reprocess them in order to remedy their defects, and it told the buyer which carrier should be used to return the goods. When the buyer discovered that the carrier had delayed forwarding the goods to the seller, the buyer arranged for the chemicals to be reprocessed in its own country in order to meet the time demands of its customers. The buyer set-off the costs of the reprocessing against the purchase price. The seller complained that it could have performed the remedial work much more cheaply itself, and that article 80 should prevent the buyer from recovering its higher reprocessing expenses because the buyer’s own failure to ship the goods back to the seller prevented the seller from curing the defects. The court disagreed, holding that the delay of the carrier ultimately caused to the higher reprocessing costs, and that on these facts the carrier’s performance was the seller’s responsibility.20 In other decisions involving allegations of the following causal sequences, tribunals have refused to apply article 80, although this result was not necessarily due to failure to satisfy the causation 14 15

CLOUT case No. 176, Austria, 1995.

Arbitral Panel of the Zurich Chamber of Commerce, award No. ZHK 273/95, 31 May 1996, Unilex. 16 CLOUT case No. 282, Germany, 1997. 17 Amtsgericht M
nchen, Germany, 23 June 1995, Unilex. 18 CLOUT case No. 311, Germany, 1997. 19 CLOUT case No. 166, Arbitration, 1996. 20 Amtsgericht M
nchen, Germany, 23 June 1995, Unilex.

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requirement: a buyer’s failure to pay debts arising from other dealings with the seller causing the seller to refuse to redeliver the goods to the buyer;21 and a buyer’s failure to pay for prior deliveries of goods causing the seller to be unable to deliver because it could not financially support a distressed supplier.22 6. In cases involving allegations of the following causal sequences, tribunals have found that the requirements of article 80 were satisfied: a buyer’s breach of its obligation to pay the price and its failure to set a deadline for seller to perform under article 47(1) causing the seller to be unable to arrange for the buyer to receive title to the goods;23 a buyer’s failure to pay the price for delivered goods causing the seller to fail to deliver other goods;24 a buyer’s failure to take delivery of the goods causing the seller’s failure to make delivery;25 a seller’s failure to perform its obligation to designate the port from which the goods would be shipped causing the buyer’s failure to open a letter of credit;26 a seller’s repudiation of future delivery obligations causing the buyer’s failure to pay for some prior deliveries;27 a buyer’s unjustified refusal to accept the seller’s offer to cure a non-conformity causing the seller’s failure to cure.28

Consequences if Article 80 Applies 7. Unlike article 79, which only prevents an aggrieved party from claiming damages for a failure to perform, article 80 by its terms strips an aggrieved party of its right to “rely” on the other party’s non-performance. Thus while

21

CLOUT case No. 311, Germany, 1997.

22

CLOUT case No. 166, Arbitration, 1996.

23

Oberlandgericht D
sseldorf, Germany, 18 November 1993, Unilex. A lower court decision in this case had focused upon the buyer’s act of accepting delivery of the goods from the manufacturer while still under contract with the seller (thus misleading the seller into thinking that its obligations had been fulfilled) in finding that article 80 applied. Landgericht D
sseldorf, Germany, 9 July 1992, Unilex. On appeal of the decision of the appelate court, the Supreme Court affirmed without invoking article 80; see CLOUT case No. 124, Germany, 1995. 24 CLOUT case No. 273, Germany, 1997. 25 CLOUT case No. 133, Germany, 1995. 26 CLOUT case No. 176, Austria, 1995. 27 Arbitral Panel of the Zurich Chamber of Commerce, award No. ZHK 273/95, 31 May 1996, Unilex. 28 CLOUT case No. 282, Germany, 1997.

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Draft Digest

article 80 has been invoked to prevent a party from recovering damages,29 it has also been used to block a party from avoiding the contract30 and from using the other side’s non-performance as a defense.31

Decision that Appear to Apply the Principle Underlying Article 80 8. Some decisions appear to invoke the principle of article 80, although it is not clear if the tribunal actually cited the provision. For example, where a buyer supplied the design for boots that the seller manufactured for the buyer, and after delivery it was determined that a symbol on the boot violated another company’s trademark, the buyer was barred from claiming damages: although the court relied primarily on the fact that the buyer could not have been unaware of the infringement when the contract was concluded, which under article 42(2)(a) barred the buyer’s claim, the court also noted that the buyer itself had caused the infringement by specifying a design that included the offending symbol.32 This fact, it would appear, should have prevented the buyer from relying on the infringement under article 80. In another decision, the partie’s contract included a clause allowing the seller to terminate the contract if there was a substantial change in the management of the buyer. The buyer dismissed its general manager, and the seller invoked this as grounds for terminating the contract. The arbitral tribunal held that seller did not have the right to terminate because it had been involved in the activities that led to the general manager’s dismissal, and in fact had become an “accomplice” of the general manager.33 The tribunal appears to have invoked the principle of article 80 when, in support of its holding that the seller did not have the right to exercise the termination clause, it assert that “[a]s is the case with all sanctions, its application may not be requested by those who are even partially responsible for the modification on which they rely in order to terminate the contract”.

29

CLOUT case No. 273, Germany, 1997; CLOUT case No. 133, Germany, 1995; CLOUT case No. 282, Germany, 1997. 30 Landgericht D
sseldorf, Germany, 9 July 1992, Unilex, affirmed in relevant part by the Oberlandgericht D
sseldorf, Germany, 18 November 1993, Unilex, affirmed in relevant part without invoking article 80 in CLOUT case No. 124, Germany, 1995. 31 CLOUT case No. 176, Austria, 1995; Arbitral Panel of the Zurich Chamber of Commerce, award No. ZHK 273/95, 31 May 1996, Unilex. 32 Supreme Court of Israel, 22 August 1993, Unilex. The transaction in this decision was actually governed by the Hague Sales Convention (ULIS), but the court referred to the CISG by analogy. 33 ICC Court of Arbitration, award No. 8817, December, 1997, Unilex.

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Section V. Effects of Avoidance

Article 81 (1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract. (2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.

Article in General; “Consensual Avoidance” 1. Article 81 governs the general consequences that follow if one of the parties avoids the contract or some part thereof . 2. Article 81 and the other provisions in Chapter V Section V dealing with the “Effects of Avoidance” have been described as creating a “framework for reversal of the contract” that, at its core, contains a “risk distribution mechanism” overriding other risk allocation provisions of the CISG when the contract is avoided.1 It has also been stated that, under article 81, an avoided contract “is not entirely annulled by the avoidance, but rather it is ‘changed’ into a winding-up relationship”.2 Several decisions have held that article 81 does not apply to “consensual avoidance” – i. e., termination of the contract that occurs where the parties have, by mutual consent, agreed to cancel the contract and to release each other from contractual obligations – but rather is properly limited to cases where one party “unilaterally” avoids the contract because of a breach by the other party.3 In such cases of 1

Oberster Gerichtshof, Austria, 29 June 1999, Unilex. Id.; see also Landgericht D
sseldorf, Germany, 11 October 1995, Unilex (stating that avoidance “changes the contractual relationship into a restitutional relationship [winding up]”). 3 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 3 March 1997, Unilex; CLOUT case No. 288, Germany 1998, Unilex; Oberster Gerichtshof, Austria, 29 June 1999, Unilex; but see CLOUT case No. 136, Germany, 1995, where the tribunal appears to apply article 81(2) even though the 2

841

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“consensual avoidance”, it has been asserted, the rights and obligations of the parties are governed by the parties’ termination agreement.4 Thus where the parties agreed to cancel their contract and permit the seller to deduct its outof-pocket expenses before refunding the buyer’s advance payment, the seller was allowed to make such deductions but was denied a deduction for its lost profit because that was not part of the parties’ agreement.5 Where an issue arises that is not expressly addressed in the parties’ termination agreement, however, a court has asserted that, pursuant to article 7(2), the gap should be filled not by recourse to national law but by reference to the principles of article 81 and related provisions of the CISG.6

Consequences of Avoidance under article 81(1): Release from Obligations; Ineffective Avoidance 3. Several decisions have recognized that valid avoidance of the contract releases the parties from their executory obligations under the contract.7 Thus it has been held that buyers who avoid the contract are released from their obligation to pay the price for the goods.8 It has also been held that avoidance by the seller releases the buyer from its obligation to pay9 and

parties terminated the contract by mutual consent. See also the discussion of applying article 81 to fill gaps in the parties’ termination agreement in Oberster Gerichtshof, Austria, 29 June 1999, Unilex. 4 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 3 March 1997, Unilex; Oberster Gerichtshof, Austria, 29 June 1999, Unilex. 5 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 3 March 1997, Unilex. 6 Oberster Gerichtshof, Austria, 29 June 1999, Unilex. 7 For general statements regarding the parties’ release from their obligations upon avoidance see, e. g., Oberster Gerichtshof, Austria, 29 June 1999, Unilex; CLOUT Case No. 2, Germany, 1991; CLOUT case No. 261, Switzerland, 1997; ICC Court of Arbitration, award No. 9887, August, 1999, Unilex. 8 CLOUT case No. 235, Germany, 1997 (partial avoidance); CLOUT case No. 348, Germany, 1999; CLOUT Case No. 2, Germany, 1991; ICC Court of Arbitration, award No. 7645, March, 1995. See also Landgericht Krefeld, Germany, 24 November 1992, English abstract available in Unilex (implying that in partial avoidance situation the buyer was released from its obligation to pay for the portion of the goods subject to avoidance); CLOUT case No. 214, Switzerland, 1997, English abstract also available in the Unilex database (in partial performance situation, court appears to presume that buyer’s avoidance released both parties from remaining executory duties). 9 ICC Court of Arbitration, award No. 9887, August, 1999, Unilex.

842

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releases the seller from its obligation to deliver the goods.10 On the other hand, failure to effectively avoid the contract means that the parties remain bound to perform their contractual obligations.11 Courts have found a failure of effective avoidance where a party failed to follow proper procedures for avoidance (i. e., lack of timely and specific notice of avoidance to the other party)12 or where a party lacked substantive grounds for avoiding (e. g., lack of fundamental breach).13 10

CLOUT case No. 261, Switzerland, 1997. See also Z
rich Chamber of Commerce Arbitration Proceedings, Switzerland, 31 May 1996, Unilex, where the tribunal indicates that the buyer’s action for avoidance and damages for non-delivery was an alternative to its action to require seller to deliver. 11 In the following cases, the tribunal indicated that the buyer was not released from its obligation to pay because it had failed to avoid the contract: CLOUT case No. 284, Germany, 1997; Landgericht M
nchen, Germany, 20 March 1995, Unilex; CLOUT case No. 229, Germany, 1996; CLOUT case No. 79, Germany, 1994. See also CLOUT case No. 81, Germany, 1994 (implying that, because buyer did not validly avoid the contract it was not released from its obligation to pay) and CLOUT case No. 83, Germany, 1994 (same). It has also been held that a seller who fails to validly avoid the contact is not released from its obligation to deliver the goods. Z
rich Chamber of Commerce Arbitration Proceedings, Switzerland, 31 May 1996, Unilex. 12 CLOUT case No. 229, Germany, 1996 (buyer did not have right to avoid because its notice of lack of conformity was not sufficiently specific to satisfy article 39); Landgericht M
nchen, Germany, 20 March 1995, Unilex (buyer lost right to avoid because it did give sufficient notice of lack of conformity under article 39 and its notice of avoidance was untimely under article 49(2)); CLOUT case No. 81, Germany, 1994 (buyer lacked right to avoid because its notice of lack of conformity was not timely under article 39); CLOUT case No. 83, Germany, 1994 (buyer did not have right to avoid because its declaration of avoidance was untimely under article 49(2)); ICC Court of Arbitration Case No. 9887, August, 1999, Unilex (seller’s delivery of non-conforming goods did not release buyer from its obligation to pay because buyer did not give notice declaring the contract avoided as required by article 49(2)(b)(i) (although seller’s subsequent avoidance released both parties from their obligations)). 13 CLOUT case No. 284, Germany, 1997 Unilex (buyer lacked right to avoid because it either failed to prove or had waived its right to complain of lack of conformity); CLOUT case No. 79, Germany, 1994, (buyer did not have right to avoid for late delivery because it did not fix an additional period of time for seller to perform under Articles 47 and 49(1)(b), and buyer lacked right to avoid for lack of conformity because it failed to proved the defects constituted a fundamental breach); CLOUT case No. 83, Germany, 1994 (buyer had no right to avoid because the inferior quality of the goods did not constitute a fundamental breach); Z
rich Chamber of Commerce Arbitration Proceedings, Switzerland, 31 May 1996, Unilex (seller lacked right to avoid because buyer’s failure to make one installment payment did not constitute a fundamental breach of the contract, buyer had not committed an anticipatory repudiation of the contract, and seller had not fixed an additional deadline period under article 64 for buyer to pay); ICC Court of Arbitration, award No. 9887, August, 1999, Unilex

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Preservation of Right to Damages and of Provisions Governing the Settlement of Disputes and the Consequences of Avoidance 4. As one decision has noted, under article 81 an avoided contract “is not entirely annulled by the avoidance”,14 and certain contractual obligations remain viable even after avoidance. Thus the first sentence of article 81(1) states that avoidance releases the parties from their contractual obligations “subject to any damages which may be due”. Many decisions have recognized that responsibility for damages for breach survives avoidance, and have awarded damages to the avoiding party against the party whose breach triggered the avoidance.15 One court commented, “[w]here ... the contract is terminated and damages for failure to perform are claimed under Art. 74 CISG et seq., one uniform right to damages comes into existence ... and prevails over the consequences of the termination of a contract provided for in Arts. 81-84 CISG”.16 The second sentence of article 81(1) provides that “[a]voidance does not affect any provision of the contract for the settlement of disputes”. This has been applied to an arbitration clause contained in a written contract, and has been characterized as making the arbitration clause “severable” from the rest of the contract.17 The same sentence of article 81(2) also provides that avoidance does not affect “any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract”. This has been applied to preserve, despite avoidance of the contract in which it was contained, the legal efficacy of a “penalty” clause requiring a seller who failed to deliver to make certain payments to buyer.18 It has also been asserted that article 81(1) preserves other contractual provisions connected with the undoing of the contract,

(seller’s late delivery did not release buyer from its obligation to pay because buyer did not grant seller additional time for performance under article 47(1) (although seller’s subsequent avoidance released both parties from their obligations)). 14 Oberster Gerichtshof, Austria, 29 June 1999, Unilex; see also Landgericht D
sseldorf, Germany, 11 October 1995, Unilex (stating that avoidance “changes the contractual relationship into a restitutional relationship [winding up]”). 15 CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 345, Germany, 1997, Unilex; CLOUT case No. 214, Switzerland, 1997; CLOUT case No. 348, Germany, 1999; Oberster Gerichtshof, Austria, 29 June 1999, Unilex (dicta); Z
rich Chamber of Commerce Arbitration Proceedings, Switzerland, 31 May 1996, Unilex; CLOUT case No. 166, Arbitration, 1996. 16 CLOUT case No. 166, Arbitration, 1996. 17 CLOUT case No. 23, United States, 1992. 18 ICC Court of Arbitration, award No. 9978, March, 1999, Unilex.

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such as clauses requiring the return of delivered goods or other items received under the contract.19

Restitution under Article 81(2) 5. For parties that have wholly or partially performed their contractual obligations, the first sentence of article 81(2) creates a right to claim restitution from the other side of whatever the party has “supplied or paid under the contract”. One decision has suggested that the restitutionary rights created “by article 81(2) require that performance rendered under the contract be dislodged, but not through the establishment of a hypothetical goal such as as if the contract had been duly performed or as if the contract had never been concluded”. Rather the claim for the return of the rendered performance is permitted and thereby tied to the item of performance itself and to its fate.”20 Indeed, under article 82 a buyer’s inability to make restitution of delivered goods “substantially in the condition in which he received them” will, subject to important exceptions, forfeit the buyer’s right to avoid the contract (or to require the seller to deliver substitute goods).21 Under article 84(2), a buyer who must make restitution of goods to a seller must also “account to the seller” for all benefits it derived from the goods before making such restitution;22 similarly, a seller who must refund the price to the buyer must also, under article 84(1), pay interest on the funds until they are restored,23 although it has been held that, beyond such right to interest, a seller is not liable in damages for losses caused when it refused to give restitution of the price to the buyer.24 It has been almost universally recognized that avoidance of the contract is a precondition for claiming restitution under article 81(2).25 One decision stated that an obligation of 19

Oberster Gerichtshof, Austria, 29 June 1999, Unilex. Id. 21 See the discussion of article 82 in the next section of this Digest. 22 See infra the discussion of article 84(2). 23 See infra the discussion of article 84(1). 24 ICC Court of Arbitration, award No. 9978, March, 1999, Unilex; but see also Landgericht Landshut, Germany, 5 April 1995, Unilex, where the court apparently held a breaching seller liable for failing to make restitution to a buyer that had properly avoided the contract (although the remedy granted for this liability, if any, is unclear). 25 CLOUT case No. 293, Germany, 1998 (“The claimant’s claim as buyer under Art. 81(2) first sentence CISG for reimbursement of the prepayment first requires contract avoidance (article 81(1) first sentence CISG)”); CLOUT case No. 214, Switzerland, 1997; Landgericht D
sseldorf, Germany, 11 October 1995, Unilex (denying buyer restitution because it had not properly avoided the contract); CLOUT case No. 345, Germany, 1997 Unilex; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and 20

845

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Draft Digest

the seller for the repayment of the purchase price exists under Art. 81(2) CISG only after an avoidance of the sales contract by the buyer and that the avoidance of the contract is thus a constitutive right of the buyer, which changes the contractual relationship into a restitutional relationship.26 6. In many cases where the buyer has properly avoided the contract, tribunals have awarded the aggrieved buyer restitution of the price (or part thereof) that it had paid to the seller.27 A breaching seller is entitled to the restitution of the goods it delivered to a buyer who thereafter avoided the contract,28 and it has been held that an avoiding buyer has a right, under article 81(2), to force the seller to take back goods it delivered.29 A seller who properly avoided the contract has also been awarded restitution of the goods it delivered,30 and it has been recognized that breaching buyers are entitled to restitution of the portion of the price actually paid if the seller subseIndustry, Russia, 15 April 1994, Unilex; Landgericht Krefeld, Germany, 24 November 1992, Unilex; but see Compromex arbitration, Mexico, 4 May 1993, Unilex (invoking article 81(2) to justify the seller’s claim for the price of delivered goods where it does not appear the contract was avoided). 26 Landgericht D
sseldorf, Germany, 11 October 1995, Unilex. 27 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex; CLOUT case No. 302, Arbitration, 1994; CLOUT case No. 312, France, 1998,; China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex; CLOUT case No. 345, Germany, 1997; CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 214, Switzerland, 1997; CLOUT Case No. 103, Arbitration, 1993; CLOUT case No. 136, Germany, 1995; Cour d’appel Aix-en-Provence, France, 21 November 1996, Unilex; CLOUT case No. 315, France, 1999; Landgericht D
sseldorf, Germany, 11 October 1995, Unilex; Krjoikeus Kuopio, Finland, 5 November 1996, available on the Internet at ; ICC Court of Arbitration, award No. 9978, March, 1999, Unilex; CLOUT case No. 293, Germany, 1998 (awarding restitution of the buyer’s prepayment for a delivery because “[t]he rendered prepayment is, in the meaning of Art. 81(2) first sentence CISG, performance of the contract on the part of the claimant as buyer”). 28 See Landgericht Landshut, Germany, 5 April 1995, Unilex (ordering breaching seller to make restitution of price to avoiding buyer concurrently with buyer making restitution of goods to seller); China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex; CLOUT case No. 165, Germany, 199 (stating that buyer who avoided contract for the purchase of furniture must make restitution of defective furniture it received under the contract). See also article 82 (stripping a buyer of the right to avoid the contract if it cannot make restitution of the goods substantially in the condition in which it received them, unless one of the exceptions in article 82(2) applies). Article 82 is discussed in the next section of this Digest. 29 Landgericht Krefeld, Germany, 24 November 1992, Unilex. 30 CLOUT case No. 308, Australia, 1995.

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Art. 81

quently avoids.31 It has been held, however, that not all restitution claims arising out of a terminated sales contract are governed by the CISG. In one decision32 the parties had mutually agreed to cancel their contract and the seller had given the buyer a refund for a payment check that was later dishonored. When the seller sued to recover the refund, the court found that the seller’s claim was not governed by article 81(2) because that provision deals only with what a party has “supplied or paid under the contract”, whereas the seller was seeking reimbursement for a refund made after the contract was cancelled. Instead, the court held, the seller’s claim was based on unjust enrichment principles and was governed by applicable national law.

Place of Restitution; Jurisdiction over Actions for Restitution; Risk of Loss for Goods Being Returned; Currency of Restitution of Payments 7. Several decisions address the problem of where the obligation to make restitution under article 81(2) should be performed. This question has arisen either as a direct issue, or as a subsidiary matter related to a court’s jurisdiction or to the question of who bears risk of loss for goods that are in the process of being returned by the buyer. Thus in determining whether an avoiding buyer offered the breaching seller restitution of delivered goods at the proper location, a court has held that the issue of the place for restitution is not expressly settled in the CISG, nor can the CISG provision dealing with the place for seller’s delivery (article 31) be applied by analogy, so that the matter must be resolved by reference to national law – specifically (in this case), the law governing the enforcement of a judgment ordering such restitution.33 Employing somewhat similar reasoning for purposes of determining its jurisdiction under article 5(1) of the 1968 Brussels Convention on Jurisdiction, a court has held that the CISG does not expressly settle where a seller must make restitution of the price under article 81(2), that the CISG provision governing the place for buyer’s payment of the price (article 57(1)) did not contain a general principle of the Convention that can be used to resolve the issue, and thus that the matter must be referred to applicable national law.34 In contrast to the reasoning of the foregoing decisions, which led to the application of national law to the issue of the place for restitution, another decision asserted that jurisdiction under article 5(1) of the Brussels Convention over a buyer’s claim for restitution of the price should be determined by reference to the place of the 31

CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 308, Australia, 1995.

32

CLOUT case No. 288, Germany 1998.

33

Landgericht Landshut, Germany, 5 April 1995, Unilex. CLOUT case No. 312, France, 1998.

34

847

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Draft Digest

delivery obligation under article 31 of the CISG.35 Another court has found that the CISG does not expressly deal with the question of where, for purposes of determining who bore risk of loss, an avoiding buyer makes restitution of goods that are returned via third party carrier, but it resolved the issue by reference to the CISG itself without recourse to national law: it filled the “gap” pursuant to article 7(2) by identifying a general principle that the place for performing restitutionary obligations should mirror the place for performing the primary contractual obligations, and found that buyer made its delivery (and thus risk of loss transferred to the seller) when it handed the goods over to the carrier for return shipment, because under the contract risk had passed to buyer in the original delivery when the manufacturer handed the goods over to the carrier.36 The court also found this result consistent with the principles of article 82, which creates very broad exceptions to an avoiding buyer’s obligation to return goods in their original condition and thereby suggests that the seller bears the risk that the condition of the goods will deteriorate. Finally, it has been held that an avoiding buyer’s refund of the price was due in the same currency in which the price had been duly paid, and at the exchange rate specified in the contract for payment of the price to the seller.37

Requirement that Mutual Restitution Be Concurrent 8. The second sentence of article 81(2) specifies that, where both parties are required under the first sentence of the provision to make restitution (i. e., where both parties have “supplied or paid” something under an avoided contract), then mutual restitution is to be made “concurrently”. An arbitration panel has ordered simultaneous restitution of the goods by an avoiding buyer and restitution of the price by a breaching seller.38 Consistently with the principle of mutual restitution, a court has ruled that a breaching seller was not in default of its obligation to give the avoiding buyer restitution of the price until the buyer actually offered to return the goods seller had delivered, and it ordered the parties to make concurrent restitu-

35 36

CLOUT case No. 295, Germany, 1997.

Oberster Gerichtshof, Austria, 29 June 1999, Unilex. CLOUT case No. 302, Arbitration, 1994. 38 China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unlex (ordering avoiding buyer to return goods and breaching seller to return price); see also Cour d’appel Aix-en-Provence, France, 21 November 1996, Unilex (“the avoidance of the sale has, as a consequence, the restitution of the goods against restitution of the price”). 37

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Art. 81

tion.39 Another decision stated that an avoiding seller need not make restitution of the buyer=s payments until delivered goods were returned.40

Interaction between Right to Restitution under Article 81(2) and Rights under National Law 9. An avoiding seller’s right to restitution of delivered goods under article 81(2) can come into conflict with the rights of third parties (e. g., the buyer’s other creditors) in the goods. Such conflicts are particularly acute where the buyer has become insolvent, so that recovery of the goods themselves is more attractive than a monetary remedy (such as a right to collect the price or damages) against the buyer. Several decisions have dealt with this conflict. In one, a court held that an avoiding seller’s restitutionary rights under article 81(2) were trumped by the rights of one of buyer’s creditors that had obtained and perfected, under national law, a security interest in the delivered goods: the court ruled that the question of who had priority rights in the goods as between the seller and the third party creditor was, under CISG article 4, beyond the scope of the Convention and was governed instead by applicable national law, under which the third party creditor prevailed.41 This result held even though the sales contract included a clause reserving title to the goods in the seller until the buyer had completed payment (which buyer had not done), because the effect of that clause with respect to a non-party to the sales contract was also governed by national law rather than the CISG, and under the applicable law the third party’s claim to the goods had priority over seller’s. Another court, in contrast, held that an avoiding seller could recover goods from a buyer that had, after the goods were delivered, gone through insolvency proceedings.42 In this case, however, the seller had a retention of title clause that was valid under applicable national law and that had survived the buyer’s now-completed insolvency proceedings, and there apparently was no third party with a claim to the goods that was superior to seller’s under national law. Thus the two cases described in this section do not appear to be inconsistent. Indeed, the later case cited the earlier case in support of its analysis.

39 40 41 42

Landgericht Landshut, Germany, 5 April 1995, Unilex. CLOUT case No. 308, Australia, 1995. Usinor Industeel v. Leeco Steel Products, Inc., 209 F. Supp. 2d 880 (N. D. Ill. 2002). CLOUT case No. 308, Australia, 1995.

849

Art. 82

Draft Digest

Article 82 (1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. (2) The preceding paragraph does not apply: (a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; (b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.

Overview 1. Whereas article 81(2) gives the parties to an avoided contract a claim for restitution of whatever such party has supplied or paid under the contract, article 82 deals with the effect of an aggrieved buyer’s inability to make restitution of goods substantially in the condition in which they were delivered. Specifically, article 82(1) conditions an aggrieved buyer’s right to declare the contract avoided, as well as its right to require that the seller deliver substitute goods, on the buyer having the ability to return whatever goods have already been delivered under the contract substantially in the condition in which the buyer received them.1 article 82(2), however, creates three very broad exceptions to the rule of article 82(1): a buyer is not precluded from avoiding the contract or demanding substitute goods if its inability to return the goods to the seller substantially in their original condition was not the result of the buyer’s own act or omission (article 1

Thus, although it is located in the part of the CISG entitled “Effects of avoidance” (Chapter V Section V), article 82 is not limited to situations where a buyer seeks to avoid the contract or some part thereof under article 49, 51, 72 or 73: it also applies when a buyer does not avoid the contract and instead invokes the substitute goods remedy in article 46(2). Whereas article 81(2) clearly requires an avoiding buyer to make restitution of goods delivered under the avoided contract, article 46(2) does not expressly state that a buyer who wishes to require the seller to deliver substitute goods must return the original goods, except insofar as use of the term “substitute goods” suggests such an obligation. Article 82, however, indicates that a buyer seeking substitute goods must in fact give back the originals substantially in the condition in which it received them, unless one of the exceptions in article 82(2) applies.

850

Draft Digest

Art. 82

82(2)(a)), if it occurred as a consequence of the examination of the goods provided for in article 38 (article 82(2)(b)), or if it arose from buyer’s resale, consumption or transformation of the goods in the normal course and “before [the buyer] discovered or ought to have discovered the lack of conformity” (article 82(2)(c)).

Article 82 in General 2. The provisions in Chapter V Section Vof the CISG, which include article 82, have been cited in support of the proposition that avoidance of contract is “a constitutive right of the buyer, which changes the contractual relationship into a restitutional relationship”.2 article 82 has also been characterized as part of the Convention’s “risk distribution mechanism” for avoided contracts, under which “the seller alone bears the risk of chance accidents and force majeure”.3 In line with this view, this decision held that a buyer is not liable for loss or damage to the goods that occurred while they were being transported back to the seller following the buyer’s justified avoidance of the contract.4 The court reasoned that this “one-sided or predominant burdening of the seller with the risks of restitution” of the goods is explained by the fact that the seller caused these risks by breaching the contract.5

Article 82(1) 3. Article 82(1) imposes a requirement that, in order to preserve its right to avoid the contract or require the seller to deliver substitute goods, an aggrieved buyer must retain the ability to make restitution of goods that the buyer received under the contract “substantially in the condition in which [the buyer] received them”. Several decisions have denied a buyer the right to avoid the contract because it could not meet this requirement. Thus where a buyer attempted to avoid a contract for the sale of flower plants because the delivered plants allegedly were defective in appearance and color, a court noted that the buyer had lost the right to avoid under article 82(1) because it had discarded some plants and resold others.6 A buyer of textiles, some of which did not conform to a pattern specified in the contract, was also found 2

Landgericht D
sseldorf, Germany, 11 October 1995, Unilex. Oberster Gerichtshof, Austria, 29 June 1999, Unilex. 4 Id. 5 Id. 6 Rechtbank Rotterdam, the Netherlands, 21 November 1996, Unilex. Presumably the resale occurred after the buyer discovered or ought to have discovered the alleged lack of conformity. 3

851

Art. 82

Draft Digest

to have lost the right to avoid because it resold the goods.7 And another buyer lost its right to avoid the contract because, after it discovered that marble slabs delivered by the seller were stuck together and broken, it cut and processed the slabs, thus making it impossible to return them substantially in the condition in which they were received.8 4. On the other hand, a decision has held that article 82 does not prevent a buyer from avoiding the contract where no claim was made that buyer could not return the goods substantially in the condition in which they were received9 – suggesting that the party resisting avoidance bears the burden of going forward with evidence that article 82 precludes the remedy. The same decision also indicates that article 82 only encompasses loss of or deterioration in the goods that occurs before the declaration of avoidance is made.10 It has also been held that a buyer did not lose the right to avoid under article 82 merely by announcing, prior to trial, that it was attempting to resell the goods (an attempt that the court characterized as an effort to mitigate damages): the court indicated that article 82 would prevent the buyer from avoiding only if it had actually resold the goods before it declared the contract avoided.11 Several other decisions have refused to deny a buyer the right to avoid, even though the buyer could not make restitution of the goods substantially in the condition in which they were received, because the requirements of one or more of the exceptions in article 82(2) were satisfied.12

7

CLOUT case No. 82, Germany, 1994. Again, the resale presumably occurred after the buyer discovered or ought to have discovered the alleged lack of conformity. 8 CLOUT case No. 316, Germany, 1991. 9 CLOUT Case No. 2, Germany, 1991. 10 Id. 11 Amtsgericht Charlottenburg, Germany, 4 May 1994, Unilex. The court also indicated that the buyer would lose the right to avoid only if the resale occurred before the buyer discovered the lack of conformity. Article 82(2)(c), however, preserves the buyer’s right to avoid unless the resale (or other ordinary course consumption or transformation of the goods by the buyer) occurs after the buyer discovers or ought to have discovered the lack of conformity. 12 CLOUT case No. 235, Germany, 1997 (article 82(2)(b) satisfied); Landgericht Ellwangen, Germany, 21 August 1995, Unilex (article 82(2)(c) satisfied). For discussion of the exceptions in article 82(2), see infra ¶¶ 5-7.

852

Draft Digest

Art. 82

Article 82(2)(a) 5. Even if a buyer is unable to give restitution of previously-delivered goods substantially in the condition in which they were received, article 82(2)(a) provides that the buyer retains the right to avoid the contract or to require the seller to deliver substitute goods if the buyer’s inability to make restitution is not due its own act or omission. This provision was cited by a court in holding that a buyer was not liable for damage to goods that occurred while they were being transported back to the seller following the buyer=s justified avoidance of contract: the seller itself conceded that the damage occurred while the goods were in the hands of the carrier, and thus could not have been caused by the buyer’s act or omission.13 On the other hand, article 82(2)(a) did not protect the avoidance rights of a buyer who cut and processed non-conforming marble slabs before avoiding the contract, because the buyer’s inability to make restitution of the goods substantially in the condition in which they were received was indeed due to its own acts.14

Article 82(2)(b) 6. Article 82(2)(b) preserves an aggrieved buyer’s right to avoid the contract or to demand substitute goods where the buyer’s inability to make restitution of the goods substantially in the condition in which they were received arose as a result of the examination of the goods provided for in article 38. This provision has been invoked to preserve the avoidance rights of a buyer that processed wire before discovering that it did not conform to the contract: the court found that defects in the wire could not be detected until it was processed.15 The court also determined that the rule of article 82(2)(b), which by its terms applies if the goods “have perished or deteriorated” because of the article 38 examination, applied even though the processing of the wire actually enhanced its value.16 On the other hand, a court has held that the substantial change in condition of marble slabs that occurred when the buyer cut and processed them did not result from the article 38 examination, and thus the buyer’s avoidance rights were not preserved under article 82(2)(b).17

13 14 15 16 17

Oberster Gerichtshof, CLOUT case No. 316, CLOUT case No. 235, Id. CLOUT case No. 316,

Austria, 29 June 1999, Unilex. Germany, 1991. Germany, 1997. Germany, 1991.

853

Art. 83

Draft Digest

Article 82(2)(c) 7. Under article 82(2)(c), a buyer retains its right to avoid the contract or to demand that the seller deliver substitute goods even though it is unable to make restitution of the goods substantially in their delivered condition, provided that the goods were “sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity”. Under this provision, a buyer who resold paprika in its ordinary course of business before discovering that the goods contained ethylene oxide in amounts that exceeded domestic legal limits retained its right to avoid the contract under which it purchased the paprika.18 On the other hand, the requirements for this exception were not satisfied when a buyer resold textiles that were, in part, of a different pattern than that called for in the contract, and the buyer lost its right to avoid because it could not make restitution of the goods as required by article 82(1).19 And a buyer that cut and processed marble slabs after discovering that they were non-conforming did not meet the requirements of article 82(2)(c) and did not have the right to avoid the contract.20 It has also been suggested that a buyer’s resale of the goods after declaring the contract avoided is beyond the scope of article 82.21

Article 83 A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention.

18

Landgericht Ellwangen, Germany, 21 August 1995, Unilex. CLOUT case No. 82, Germany, 1994. 20 CLOUT case No. 316, Germany, 1991. 21 Amtsgericht Charlottenburg, Germany, 4 May 1994, Unilex (stating that they buyer would have lost the right to avoid the contract under article 82(1) only if it had resold by the time of its letter declaring the contract avoided. The court also indicated that the buyer would retain the right to avoid unless the resale occurred before the buyer discovered the lack of conformity. Article 82(2)(c), however, preserves the buyer’s right to avoid unless the resale (or other ordinary course consumption or transformation of the goods by the buyer) occurs after the buyer discovers or ought to have discovered the lack of conformity. 19

854

Draft Digest

Art. 83

In General 1. Article 83 states that although a buyer may have lost the right to avoid the contract or to require the seller to deliver substitute goods under article 82 it retains its other remedies, whether those remedies have their origin in provisions of the contract or in the CISG itself. Decisions have devoted very little attention to article 83. The provisions of Chapter V Section V of the CISG (“Effects of avoidance”), which includes article 83,1 have been cited in support of certain broad propositions concerning avoidance under the Convention. Thus it has been asserted that “[t]he avoidance of the contract is thus a constitutive right of the buyer, which changes the contractual relationship into a restitutional relationship (Arts. 81-84 CISG)”.2 And in a decision holding that a buyer was not responsible for damage to goods that occurred while they were being transported by carrier back to the seller following the buyer’s avoidance of the contract, the court asserted that “Articles 81-84 CISG contain at their core a risk distribution mechanism, which within the framework of the reversal of the contract (restitution), overrides the general provisions on the bearing of risk contained in Art. 66 et. seq. CISG”.3 In addition, an arbitral tribunal has asserted that where the contract is terminated, and damages for failure to perform are claimed under Art. 74 CISG et seq., one uniform right to damages comes into existence, which can be compared to the right to damages for non-performance under the applicable domestic law and prevails over the consequences of the termination of a contract provided for in articles 81-84 CISG.4 2. Furthermore, in one decision, a buyer was found to have lost the right to avoid the contract both because the buyer failed to set an additional period of time for performance under article 47, and because the buyer was unable to make restitution of the goods as required by article 82; the court noted that the buyer nevertheless retained a right to damages for breach of contract (although the buyer had not sought them), but the court did not cite article 83 in support of its assertion.5

1 2 3 4 5

Chapter V Section V comprises Articles 81 through 84 of the CISG. Landgericht D
sseldorf, Germany, 11 October 1995, Unilex. Oberster Gerichtshof, Austria, 29 June 1999, Unilex. CLOUT case No. 166, Arbitration, 1996. CLOUT case No. 82, Germany, 1994.

855

Art. 84

Draft Digest

Article 84 (1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods.

Article 84: When it Applies 1. Article 84 elaborates on the restitutionary obligations imposed on parties to a contract that has been validly avoided, as well as on the restitutionary obligations of a buyer that invokes its rights under article 46(2) to require the seller to deliver substitute goods. 2. Many decisions have awarded interest under article 84(1) on payments that a seller must refund to a buyer.1 Such awards have frequently been made against a breaching seller in favor of a buyer that has avoided the contract.2 1

CLOUT Case No. 103, Arbitration, 1993; Cour d’appel Paris, France, 6 April 1995, Unilex; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex; Cour d’appel Aixen-Provence, France, 21 November 1996, Unilex; CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 214, Switzerland, 1997; CLOUT case No. 302, Arbitration, 1994; Landgericht Landshut, Germany, 5 April 1995, Unilex; ICC Court of Arbitration, award No. 9978, March, 1999, Unilex; CLOUT case No. 136, Germany, 1995; CLOUT case No. 133, Germany, 1995; CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 293, Germany, 1998; China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex; see also CLOUT case No. 313, France, 1998 (indicating that avoiding buyer was entitled to interest under article 84 on the price to be refunded by breaching seller, but then declining jurisdiction over case). On the other hand, some courts appear to have awarded avoiding buyers damages under article 74 in the amount of foreseeable finance charges that the buyer incurred in order to finance payment for the goods, in lieu of interest under article 84; see CLOUT case No. 304, Arbitration, 1994; Krjoikeus Kuopio, Finland, 5 November 1996, available on the Internet at . 2 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex; CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 214, Switzerland, 1997; Landgericht Landshut, Germany, 5 April

856

Draft Digest

Art. 84

Interest under article 84 has also been awarded to a breaching buyer who became entitled to a refund of payments when the aggrieved seller avoided the contract.3 article 84(1) has also been held to govern a buyer’s claim for repayment of funds that a seller obtained under a bank guaranty for part of the price of goods covered by a canceled contract, even though the buyer’s claim was based on principles of applicable national law (because it arose from the seller’s dealing with the bank rather than the buyer) and not on restitutionary obligations under the Convention: the court reasoned that the buyer’s claim, while not based on the CISG, was nevertheless a claim for a refund of the price in a transaction governed by the CISG, and thus came within the terms of article 84(1).4 A court has also held that a buyer is entitled to interest under article 84 even though it had not made a formal request for such interest in its pleadings.5

Rate of Interest for Awards under Article 84(1) 3. Like article 78, article 84(1) does not specify the rate of interest applicable to awards made under its authority. Many decisions have set the interest rate according to the dictates of national law, resulting in the imposition of a domestic statutory rate of interest.6 Such decisions often 1995, Unilex; ICC Court of Arbitration, award No. 9978, March, 1999, Unilex; CLOUT case No. 293, Germany, 1998; China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex; CLOUT Case No. 103, Arbitration, 1993; Cour d’appel Paris, France, 6 April 1995. See also Krjoikeus Kuopio, Finland, 5 November 1996, available on the Internet at (apparently awarding buyer’s actual finance charges as damages under article 74, not as interest under article 84); CLOUT case No. 90, Italy, 1989 (court applied CISG to transaction and held that buyer was entitled to avoid and recover payments from seller; it also awarded interest, but without citing article 84 and perhaps on the basis of national law); CLOUT case No. 302, Arbitration, 1994 (court allows interest on buyer=s partial refund claim for undelivered spare part parts, but does not specifically discuss whether buyer avoided this part of the contract). 3 CLOUT case No. 261, Switzerland, 1997. 4 CLOUT case No. 133, Germany, 1995. 5 CLOUT Case No. 103, Arbitration, 1993, where the court noted that article 84(1) is not clear on whether such a formal request for interest is required, but that the provision would be construed not to demand such a request, particularly in light of the fact that domestic law that would apply under article 7(2) to resolve matters not settled by the provisions of the CISG or its general principles did not require a formal request for interest. This portion of the decision was affirmed in Cour d’appel Paris, France, 6 April 1995, Unilex. 6 CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 302, Arbitration, 1994; Landgericht Landshut, Germany, 5 April 1995, Unilex; CLOUT case No. 136, Germany,

857

Art. 84

Draft Digest

invoke choice of law principles to determine the applicable national law,7 and they frequently cite the directive in article 7(2) that issues within the scope of the CISG which are settled neither by its express provisions nor by the general principles on which it is based should be determined “in conformity with the law applicable by virtue of the rules of private international law”.8 On the other hand, interest has been awarded at the rate prevailing at the seller’s place of business, on the footing that this is where sellers are likely to have invested the payments they must refund.9 And an arbitral tribunal has awarded interest under article 84(1) on the basis of the rate used in international trade with respect to the currency of the transaction (eurodollars), leading to the application of London Inter-Bank Offered Rate (LIBOR),10 although this aspect of the arbitration award was reversed on appeal because the parties had not been given sufficient opportunity to be heard on the question of the proper interest rate.11 Some courts appear to have awarded avoiding buyers damages under article 74 in the amount of foreseeable finance charges that the buyer incurred in order to finance payment for the goods, in lieu of interest under article 84.12

199; CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 293, Germany, 1998; CLOUT case No. 133, Germany, 1995; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex; Cour d’appel Aix-en-Provence, France, 21 November 1996, Unilex; CLOUT case No. 253, Switzerland, 1998; ICC Court of Arbitration, award No. 9978, March, 1999, Unilex. See also CLOUT case No. 90, Italy, 1989 (the court applied CISG to transaction and held that buyer was entitled to avoid and recover payments from seller; it also awarded interest at the domestic law statutory rate, but without citing article 84 and perhaps on the basis of national law); China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex (tribunal awards 8% interest on payments that seller must refund to avoiding buyer, but does not specify how it determined the rate). 7 CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 302, Arbitration, 1994; Landgericht Landshut, Germany, 5 April 1995, Unilex; CLOUT case No. 136, Germany, 1995; ICC Court of Arbitration, award No. 9978, March, 1999, Unilex; CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 293, Germany, 1998; CLOUT case No. 133, Germany, 1995, Unilex. 8 CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 261, Switzerland, 1997; CLOUT case No. 293, Germany, 1998. 9 CLOUT case No. 214, Switzerland, 1997. 10 CLOUT case No. 103, Arbitration, 1993. 11 Cour d’appel Paris, France, 6 April 1995, Unilex. 12 See CLOUT case No. 304, Arbitration, 1994, Unilex; Krjoikeus Kuopio, Finland, 5 November 1996, available on the Internet at .

858

Draft Digest

Art. 84

Time Periods for Which Interest is Awarded under Article 84(1); Currency and Exchange Rate Considerations 4. Article 84(1) specifies that, when the seller must refund payments made by the buyer, it must pay interest “from the date on which the price was paid”. Many decisions have in fact awarded interest from this date.13 Where payment was made on behalf of the buyer by a guarantor bank and the buyer reimbursed the bank, the buyer was awarded interest from the date that the guarantor made payment.14 In the case of partial contract avoidance, it has been held that interest is due from the time that the buyer paid for goods covered by the avoided portion of the contract.15 article 84(1) does not state the date as of which interest should cease accruing, but it has been held that interest accrues until the time that the price is in fact refunded.16 It has also been held that an avoiding buyer’s refund, including interest thereon, was due in the same currency as that in which the price was duly paid (even though the contract price was valued in a different currency), and at the exchange rate that was specified in the contract for payment of the price to seller.17

13

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex; CLOUT case No. 253, Switzerland, 1998; CLOUT case No. 214, Switzerland, 1997 (advance payment); CLOUT case No. 302, Arbitration, 1994; Landgericht Landshut, Germany, 5 April 1995, Unilex; CLOUT case No. 136, Germany, 1995; CLOUT case No. 261, Switzerland, 1997 (award of interest to breaching buyer on refund from avoiding seller); CLOUT case No. 293, Germany, 1998; China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 30 October, 1991, Unilex; CLOUT case No. 312. But see CLOUT case No. 90, Italy, 1989 (court applied CISG to transaction and held that buyer was entitled to avoid and recover payments from seller; it awarded interest from the date of avoidance, but without citing article 84 and perhaps on the basis of national law). 14 Cour d’appel Aix-en-Provence, France, 21 November 1996, Unilex, Cour de Cassation, France, 26 May 1999, Unilex. 15 CLOUT Case No. 103, Arbitration, 1993; Cour d’appel Paris, France, 6 April 1995, Unilex. 16 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 15 April 1994, Unilex. 17 CLOUT case No. 302, Arbitration, 1994.

859

Art. 84

Draft Digest

Article 84(2) 5. Article 84(2) requires a buyer to account to the seller for benefits derived from goods that were delivered under a contract that was avoided, or from goods that the buyer is requiring the seller to replace pursuant to article 46(2). In both situations, the buyer is subject to the seller’s claim for restitution of delivered goods. Thus under article 81(2), a buyer who is party to a contract that has been avoided (whether by the buyer or the seller) must make restitution of goods received under the contract. Under article 82, furthermore, if a buyer wishes either to avoid the contract or to require the seller to deliver substitute goods pursuant to article 46(2), the buyer must make restitution of goods already delivered “substantially in the condition in which he received them”, unless one of the exceptions in article 82(2) applies. Article 84(2), in turn, requires the buyer to “account to the seller for all benefits which he has derived from the goods or part of them” whenever the buyer is obligated to make restitution of the goods (article 84(2)(a)), and whenever the buyer successfully avoids the contract or requires the seller to deliver substitute goods despite being unable to make restitution of the original goods substantially in the condition in which they were received (i. e., when, under article 82(2), an exception from the restitutionary requirement in article 82(1) applies). 8. Article 84(2) appears to have been subject to considerably fewer decisions than article 84(1). Article 84(2) has been characterized in general as requiring, when it applies, that the buyer “account to the seller the exchange value of all benefits which the [buyer] has derived from the goods or part of them”.18 It has been held that the burden of proving the amount of benefits for which the buyer must account under article 84(2) falls to the seller.19 In line with this principle, the seller was found not to have carried its burden, and thus a lower court’s award to the seller under article 84(2) was reversed, where it had only been shown that the buyer’s own customer might in the future avoid its purchase of the goods in question (furniture that proved nonconforming): the court reasoned that proof of the possibility the buyer might obtain benefits from its customer’s rescission was not sufficient to trigger the obligation to account for benefits under article 84(2), particularly where the extent of such possible benefits was also uncertain.20 The court therefore found no proof that the buyer obtained benefits from the goods “because the use of defective furniture is not a measurable monetary benefit and would

18

CLOUT case No. 165, Germany, 1995.

19

Id. Id.

20

860

Draft Digest

Art. 85

thus have to be considered as an imposed benefit”.21 Another decision indicated, in dicta, that if a buyer had sold shoes received under a contract that it avoided, the buyer “would have had to account to the seller for any profit under article 84(2) CISG”, which indicated to the court that the buyer’s attempt to sell the shoes was merely an effort to mitigate the “negative effect for both sides” of the shoes lack of conformity, and should not be deemed an “acceptance” of the shoes as conforming.22

Section VI. Preservation of the Goods

Article 85 If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods is to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.

In General 1. Article 85 creates both an obligation and a right, applicable to sellers that have retained possession or control of goods either because the buyer has delayed taking delivery or because the buyer has failed to make a payment due concurrently with delivery. Under the first sentence of article 85, such a seller must “take such steps as are reasonable in the circumstances” to preserve the goods. Under the second sentence of article 85, such a seller has the right to retain the goods until the buyer reimburses the seller’s reasonable expenses of preservation. Article 85 has been cited in relatively few decisions, most of which have focused on the seller’s right to reimbursement for the expenses of preserving the goods.

21 22

Id. Amtsgericht Charlottenburg, Germany, 4 May 1994, Unilex.

861

Art. 85

Draft Digest

Seller’s Obligation to Preserve Goods 2. A small number of decisions have dealt with the seller’s article 85 obligation to preserve goods. That obligation has been invoked to justify a seller’s actions after a buyer demanded that a seller stop making deliveries of trucks covered by a contract for sale: an arbitral tribunal stated that, because the buyer unjustifiably refused delivery, the seller had the right to take reasonable steps toward preserving the goods, including depositing them in a warehouse.1 In another proceeding, a buyer sought interim relief in the form of an order preventing the seller from selling a key component of industrial machinery. The seller had retained the component after the buyer failed to make full payment for the machinery, and the seller planned to transfer the machinery to another warehouse and re-sell it. Because the proceeding focused on interim relief, the court applied the national law of the forum rather than the CISG, holding that the seller could move the goods to a new warehouse, but (despite article 87) it would have to advance the warehouse expenses itself, and (despite article 88) it would be restrained from exporting or re-selling the component.2

Seller’s Right to Retain Goods until Reimbursed for Reasonable Expenses of Preservation 3. A number of decisions have held breaching buyers liable for expenses that an aggrieved seller incurred to preserve the goods. These decisions usually (although not always) cite article 85 in support of the award,3 but they frequently characterize the award as damages recoverable under article 74 of 1 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex. 2 CLOUT case No. 96 and No. 200 (both abstracts dealing with the same case), Switzerland, 1994. 3 See CLOUT case No. 361, Germany, 1999 (citing article 85 and awarding the seller’s costs for cold storage of meat); ICC Court of Arbitration, award No. 9574, August 1998, Unilex (citing article 85 and awarding the seller’s costs for storing and transporting equipment and spare parts); Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex (citing article 85 and awarding the seller’s costs for storing trucks in warehouse); CLOUT case No. 104, Arbitration, 1992 (citing article 85 and awarding the seller’s costs for storing goods in a warehouse). But see Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 9 September 1994, Unilex (apparently not citing article 85 in awarding seller’s costs for storing goods). See also CLOUT case No. 96 and No. 200 (both abstracts dealing with the same case), Switzerland,

862

Draft Digest

Art. 85

the CISG.4 One court has stated that “when applying the CISG, the [buyer’s] duty to pay damages is based on article 74, in part also on article 85”.5 The preservation costs for which sellers have successfully claimed reimbursement have generally been incurred after the buyer unjustifiably refused to take delivery,6 although in one case they were incurred after the buyer failed to open a letter of credit required by the sales contract.7 In several cases, an award of the seller’s expenses for preserving the goods was made only after the tribunal expressly determined the costs were reasonable.8 Where the seller was in breach and the buyer properly avoided the contract, however, it was found that the prerequisites for the seller to claim, under either article 74 or article 85, reimbursement for expenses of storing and re-selling the goods were not met because the buyer did not breach its obligations to pay the price or take delivery; the seller’s claim was therefore denied.9 And even where a buyer was found liable for seller’s costs of storing the goods in a warehouse, an arbitral tribunal denied seller’s claim for damage to the goods resulting from prolonged storage, because risk of loss had not passed to the buyer under applicable rules.10 Finally, the principle of the second sentence of article 85 that, in proper circumstances, a seller can retain goods until reimbursed for the reasonable costs of preserving them has also been invoked to support the idea that, unless otherwise agreed, a seller is not obligated to make delivery until the buyer pays the price.11

1994 (citing article 85, but applying national law of the forum to deny seller an interim order requiring the buyer to pay the costs of transporting the goods to a new warehouse). 4 See CLOUT case No. 361, Germany, 1999; CLOUT case No. 104, Arbitration, 1992. 5 CLOUT case No. 361, Germany, 1999. 6 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex; CLOUT case No. 361, Germany, 1999; ICC Court of Arbitration, award No. 9574, August 1998, Unilex; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 9 September 1994, Unilex. 7 CLOUT case No. 104, Arbitration, 1992. 8 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex; CLOUT case No. 361, Germany, 1999; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 9 September 1994, Unilex. 9 CLOUT case No. 293, Germany, 1998. 10 CLOUT case No. 104, Arbitration, 1992. 11 CLOUT case No. 96 and No. 200 (both abstracts dealing with the same case), Switzerland, 1994.

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Art. 86

Draft Digest

Article 86 (1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller. (2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be cone without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph.

Overview 1. Article 86 governs a buyer’s obligation to preserve goods if the goods are subject to the buyer’s control and the buyer intends to reject them. Article 86(1) closely parallels for buyers the provisions of article 85 applicable to sellers: article 86(1) imposes a duty on a buyer that has received goods and intends to reject them to take such steps to preserve them as are reasonable in the circumstances.1 Furthermore, article 86(1) gives a rejecting buyer a right to retain rejected goods until the seller reimburses reasonable preservation expenses. If a buyer who intends to reject goods has not “received” them within the meaning of article 86(1), but the goods have nevertheless reached their destination and been placed at the buyer’s disposition, article 86(2) requires the buyer to take possession of the goods “on behalf of the seller”, and the buyer then is subject to the rights and obligations relating to preservation provided for in article 86(1).

Applications 2. Article 86 has been cited or involved in a small number of decisions. Most of those decisions have focused on a buyer’s claim for the recovery of expenses of preserving goods that it wished to reject. Thus article 86 has been 1

As was the case with the seller’s article 85 obligation to preserve goods, furthermore, a rejecting buyer=s duty of preservation is further elaborated in article 87, which permits goods to be preserved by being deposited in a warehouse at the other party’s expense, and article 88, which in certain circumstances permits (or even requires) goods to be sold by the party obligated to preserve them.

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Draft Digest

Art. 87

invoked as the basis for a buyer’s recovery of the cost of preserving delivered goods after the buyer justifiably avoided the contract.2 On the other hand, an avoiding buyer’s costs of storing rejected air conditioner compressors have been treated as damages recoverable under article 74 without citation of article 86.3 A buyer’s failure to meet its obligation under article 86(1) to take reasonable steps to preserve a shipment of non-conforming chemicals (as well as its failure to sell the chemicals as required by article 88(1)) caused a court to deny, in large part, the buyer’s claim for the expenses of nearly three years of warehousing the goods.4 Finally, a buyer who allegedly received “excess” goods beyond the quantity called for in the contract was found to have an obligation either to return them or pay for them; in response to the buyer’s argument that article 86(1) permits a buyer to retain goods that it intends to reject until the seller reimburses the buyer’s expenses of preserving them, the court noted that the buyer had not come forward with any allegation that it had incurred such expenses.5

Article 87 A party who is bound to t he must take such steps to preserve them as are reasonable in the circumstances take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.

Overview and Applications 1. In certain circumstances, the CISG imposes upon sellers (article 85) and buyers (article 86) an obligation to take reasonable steps to preserve goods that are within the party’s possession or control, along with a right to retain the goods until the party is reimbursed its expenses of preservation. Article 87 specifies one means by which a party can fulfill its obligation to preserve goods: it can store the goods in a third party’s warehouse “at the expense of the other party provided that the expense incurred is not unreasonable”.

2

CLOUT case No. 304, Arbitration, 1994.

3

CLOUT case No. 85, United States, 1994 (characterizing recovery of preservation costs as “consequential damages”), affirmed in relevant part in CLOUT case No. 138 (characterizing recovery of preservation costs as “incidental damages”). 4 China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 6 June 1991, Unilex. 5 CLOUT case No. 155, France, 1995.

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Draft Digest

2. Only a small number of decisions, generally involving a party’s claim for reimbursement of the costs of storing goods in a warehouse, have involved article 87. Thus where a buyer refused to take delivery of trucks and the seller deposited them in a warehouse (before eventually reselling them to another buyer), an arbitral tribunal found that the seller’s actions were justified under Articles 85 and 87 and, after determining that the warehousing costs were reasonable, it awarded seller compensation for those expenses.1 Similarly, article 87 has been cited as part of the basis for a buyer’s recovery of the cost of storing delivered goods in a warehouse after the buyer justifiably avoided the contract.2 In another decision, an arbitral tribunal held a breaching buyer liable for the seller’s costs of storing the goods in a warehouse, but the tribunal denied the seller’s claim for damage to the goods resulting from prolonged storage because risk of loss had not passed to the buyer under applicable rules.3 Where the buyer properly avoided the contract, it was found that the prerequisites for the seller to claim, under articles 85 and 87, reimbursement for its expenses of warehousing the goods were not met because the buyer did not breach its obligations; the seller’s claim was therefore denied.4 An avoiding buyer’s costs of warehousing rejected air conditioner compressors have also been treated as damages recoverable under article 74 without citation of article 87.5 And where a buyer sought interim relief to prevent re-sale of a key component of industrial machinery that the seller had retained after the buyer failed to make full payment, the court held that the seller could move the component to a warehouse but, because the proceeding involved interim remedies, the seller could not rely on article 87 and would itself have to advance the expenses of depositing the component in the warehouse.6

1 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex. 2 CLOUT case No. 304, Arbitration, 1994. 3 CLOUT case No. 104, Arbitration, 1992. 4 CLOUT case No. 293, Germany, 1998. 5 CLOUT case No. 85, United States, 1994 (characterizing recovery of preservation costs as “consequential damages” recoverable under article 74), affirmed in relevant part in CLOUT case No. 138 (characterizing recovery of preservation costs as “incidental damages”). 6 CLOUT case No. 96 and No. 200 (both abstracts dealing with the same case), Switzerland, 1994.

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Draft Digest

Art. 88

Article 88 (1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party. (2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell. (3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance. 1. Under article 88 a party who is required by either article 85 or article 86 to preserve the goods for the other side may be entitled or even required to sell the goods to a third party.

Article 88(1): A Preserving Party’s Option to Sell the Goods to a Third Party 2. In several decisions, a party who was under an obligation to preserve goods was found under article 88(1) to have the right to sell them to a third party. Where a buyer refused to take delivery of trucks that it had contracted to purchase, triggering the seller’s obligation to preserve the goods under article 85, the seller was held to have the right to resell them at the market price when the buyer continued to refuse delivery.1 And where a buyer rightfully avoided a contract for the sale of scaffold fittings after the goods had been delivered, thus imposing on the buyer an obligation under article 86 to preserve them for the seller, and the seller thereafter refused to take the goods back, the buyer was found to have the right to sell the goods.2 In another decision, a buyer had rightfully avoided a contract for the sale of jeans after discovering that the deliveredgoods had various non-conformities;because thebuyer hadmade the jeans available for return to the seller on September 22, 1993 but the seller had not taken them back, the court approved the buyer’s sale of the goods, which occurred between April, 1995 and November, 1996.3 The court also approved 1

Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 25 April 1995, Unilex. 2 CLOUT case No. 304, Arbitration, 1994. 3 CLOUT case No. 348, Germany, 1999.

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Art. 88

Draft Digest

the buyer’s actions in disposing of a portion of the jeans that were infected with fungus, and reselling the remainder through “special sales” of second-quality goods, noting that the seller had been notified that the buyer would initiate the sale in order to recoup its costs unless the seller suggested another solution.4 In another decision, which was reached under applicable domestic law but which the tribunal justified by reference to article 88 of the Convention, an arbitral tribunal also approved a preserving party’s decision to dispose of some goods while reselling the remainder: the seller had withheld delivery of equipment because the buyer refused to make payment, and the tribunal asserted that the seller’s “right to sell undelivered equipment in mitigation of its damages is consistent with recognized international law of commercial contracts. The conditionsofarticle88of theConventionare allsatisfied in thiscase: there was unreasonable delay by the buyer in paying the price and the seller gave reasonable notice of its intention to sell”.5 Specifically, the tribunal found that the seller proved it had made reasonable efforts in reselling the goods by showingthatithadsoughtbuyersallovertheworldandbyofferingareasonable explanation for why the goods did not fetch as much as the original contract price; the seller also demonstrated that it had used its best efforts to resell the goods by showing that the part of the equipment seller decided to scrap could not be resold; with respect to notice, the seller had informed the buyer of its intention to resell, and although it had not notified the buyer of its intention to scrap some equipment, the buyer had never responded to the sales notices, and it was clear that the buyer was not genuinely interested in receiving delivery of the goods and had not been prejudiced.6 3. Other decisions have suggested limits to the authorization to resell given by article 88(1). Thus where a seller had withheld delivery of one component of machinery because the buyer had paid only part of the price,7 and the buyer sought interim relief in the form of an order preventing the seller from selling the component to any third party, the court recognized that article 88(1) would authorize the seller to sell the goods if the buyer had unreasonably delayed paying the price, but the court nevertheless issued the order against resale, holding that it was not bound by article 88 in an action for interim relief.8 And an arbitral tribunal has held that a seller was only authorized to resell undelivered goods under article 88(1) (and thus to 4

Id. Watkins-Johnson Co., Watkins-Johnson Ltd. v. Islamic Republic of Iran, Bank Saderat Iran, Iran/U. S. Claims Tribunal, 28 July 1989, Unilex. 6 Id. 7 Despite the buyer’s partial payment, the seller had not avoided the contract and thus was presumably obliged to preserve the goods pursuant to article 85. 8 CLOUT case No. 96 and No. 200 (both abstracts dealing with the same case), Switzerland, 1994. 5

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Draft Digest

Art. 88

recover the expenses of preserving and reselling the goods) if the buyer had breached its obligation to pay the sale price or take delivery; in the case at hand it was the seller who fundamentally breached and the buyer that rightfully avoided the contract; thus the tribunal concluded that the seller was not entitled to proceed under article 88(1).9

Article 88(2): A Preserving Party’s Obligation to Take Reasonable Measures to Sell the Goods to a Third Party 4. The article 88(2) obligation to take reasonable measures to resell goods, which is imposed on a party required to preserve goods under article 85 or 86 if they are subject to rapid deterioration or their preservation would involve unreasonable expense, was deemed violated where an aggrieved buyer deposited goods that it had received under an avoided contract (and was attempting to return to the seller) in a warehouse, where they remained for almost three years accumulating storage charges: an arbitral tribunal held that the buyer had failed to meet its article 88(2) resale obligation, which was triggered when the storage fees (eventually totaling almost the contract price for the goods) reached unreasonable levels; as a result of the buyer’s violation of article 88(2), the tribunal denied the greater part of the buyer’s claim against the seller for the expenses of preservation.10 On the other hand, several decisions have involved circumstances that were deemed not to trigger an obligation under article 88(2) to attempt to resell goods. Thus in issuing an interim order forbidding an aggrieved seller from reselling a key component of industrial machinery that the seller had retained because the buyer failed to pay the full contract price, a court noted that article 88(2) would not require the seller to sell the component because it was not subject to rapid deterioration.11 And an aggrieved seller that rightfully withheld delivery of venison when the buyer refused to make payment was found not to be obligated to sell the goods under article 88(2) “because the meat in question could be preserved through freezing, because the cost of such preservation did not exceed 10% of the value of the meat, and because the decrease in prices in venison to be expected after the Christmas holidays does not constitute a deterioration” in the meaning of Art. 88 of the Convention.12 9

CLOUT case No. 293, Germany, 1998.

10

China International Economic and Trade Arbitration Commission (CIETAC), People’s Republic of China, 6 June 1991, Unilex. The tribunal also noted that resale by the buyer pursuant to article 88(2) would have avoided or reduced the deterioration in the condition of the goods (chemicals) that occurred during the lengthy storage period. 11 CLOUT case No. 96 and No. 200 Switzerland, 1994. 12 CLOUT case No. 361, Germany, 1999.

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Draft Digest

Article 88(3): Disposition of the Proceeds of Sale 5. Several decisions have dealt with the rules in article 88(3) that govern how proceeds of a sale conducted under the authority of article 88 are to be allocated between the parties. According to article 88(3), a party that has sold goods pursuant to article 88 has the right to retain from the sale proceeds “an amount equal to the reasonable expenses of preserving the goods and selling them”, but must “account to the other party for the balance”. In one case an arbitral tribunal, applying domestic law but also supporting its decision by reference to article 88(3), found that an aggrieved seller who had justifiably resold the goods to a third party could deduct from sale proceeds the expenses it incurred in carrying out the sale, with the balance to be credited against the buyer’s liability under the contract: the tribunal held that the seller had adequately documented and proved such costs, and the buyer had not substantiated its objections to the documentation.13 Similarly, a buyer who rightfully avoided the contract and justifiably sold the goods after the seller refused to take them back was found to have submitted exhibits that adequately documented the total profit the buyer gained from the sale, and the seller had not made specific objection to the documentation; the buyer, however, was denied the right to deduct certain other expenses (agent costs and carriage costs) because the buyer failed to prove it was entitled to such deductions.14 In the same decision, furthermore, the court found that the breaching seller’s claim under article 88(3) for the balance of the sale proceeds was subject to set-off by the buyer’s claim for damages under articles 45 and 74: although article 88(3) expressly mentions only a selling party’s right to deduct reasonable costs of preserving and selling the goods from the sale proceeds, the court suggested that the Convention contained a general principle within the meaning of article 7(2) that permitted reciprocal claims arising under the Convention (here, the buyer’s claims for damages and the seller’s claim for the balance of the sale proceeds) to be offset; the court refused, however, to declare whether the buyer’s right in this case to set off its damage claim against its liability for the balance of sale proceeds was derived directly from the Convention, or was based on applicable domestic law that led to the same result.15

13

Watkins-Johnson Co., Watkins-Johnson Ltd. v. Islamic Republic of Iran, Bank Saderat Iran, Iran/U. S. Claims Tribunal, 28 July 1989, Unilex. 14 CLOUT case No. 348, Germany, 1999. 15 Id.

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Draft Digest

Art. 89-101

Part IV Final Provisions Article 89 The Secretary-General of the United Nations is hereby designated as the depositary for this Convention.

Article 90 This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement.

Article 91 (1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981. (2) This Convention is subject to ratification, acceptance or approval by the signatory States. (3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature. (4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations.

Article 92 (1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention. (2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies.

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Art. 89-101

Draft Digest

Article 93 (1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time. (2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends. (4) If a Contracting State makes no declaration under paragraph (1) of this Article, the Convention is to extend to all territorial units of that State.

Article 94 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations. (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. (3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration.

Article 95 Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention.

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Draft Digest

Art. 89-101

Article 96 A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.

Article 97 (1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval. (2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary. (3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under article 94 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary. (4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. (5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article.

Article 98 No reservations are permitted except those expressly authorized in this Convention.

Article 99 (1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92. (2) When a State ratifies, accepts, approves or accedes to this Convention after

873

Art. 89-101

Draft Digest

the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession. (3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect. (4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 52 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect. (5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect. (6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become effective. The depositary of this Convention shall consult with the Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect.

Article 100 (1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1. (2) This Convention applies only to contracts concluded on or after the date

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when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.

Article 101 (1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary. (2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary. Done at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic. In Witness Whereof the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention.

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