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5 Turku Law Journal (1/2003) 85-105. Reproduced with permission of the author.

International Trade in Finland - the Applicable Rules

Tuula Ämmälä [1]

1.  Introduction
2.  The CISG
     2.1 CISG in Finland
     2.2 Applicability of the CISG
3.  Scope of the CISG
     3.1 Contracts for the Sale of Goods
     3.2 Manufactured Goods, Supplying Labour or other Services
     3.3 Turnkey contracts
4.  Interpretation of the CISG
5.  Gap Filling
6.  Choice of Law
     6.1 Choice of Law Rules in Finland
     6.2 The Rome Convention
7.  Applicability of the Finnish Sale of Goods Act
8.  Details
     8.1 Interest
     8.2 Problems in Finland
9.  Consumer Contracts
10.General Principles
11.Conclusion

List of References

1. Introduction

International trade means that the parties are from different States.[2]

The rules in Finland are very scattered. We can find them in different sources, i.e.: Contracts Act, Sale of Goods Act, The Old Commercial Code (1734), Act on Interest, Act on Damages, Consumer Protection Act, Rules concerning taxes, customs, export, import, product liability, competition, etc., EC rules, International Conventions, General Principles and General Conditions. One important rule is the contract between the parties.

There are many problems in international trade: The language and concepts can be different (for example, the terms termination and avoidance). Foreign cultures may cause difficulties, as well as different legal systems. Normally the parties are legal persons. The forum of disputes is perhaps in a foreign state or arbitration tribunal. The rules are often unknown and the economic value of the sale and dispute can be enormous. We also must remember that there is not only one contract but a net of contracts (financing, transport, taxes, etc.).

The aim of this article is to clarify some aspects concerning international trade in Finland.

The parties are free to choose which law shall be applied to their relationship.[3] The Choice of Law clause in the contract is very important, because applying a foreign law can be "a leap into darkness". Different States can choose different legal rules.

2. The CISG

2.1. CISG in Finland

The most important rules are found in the United Nations Convention of Contracts for the International Sale of Goods (also called as the Vienna Convention and the UNCITRAL Convention; hereinafter cited as the CISG), which Finland has ratified and which has entered into force the first of January 1989.[4]

We must also remember that Finland has certain reservations concerning CISG Art. 92, Part II and Art. 94, Paras 1) and 2). (As have given Sweden, Denmark, Island and Norway)

These reservations mean that Finland is not bound by Part II of the CISG concerning the formation of contracts (Finland is not a Contracting State concerning Part II of the CISG). Furthermore, the CISG does not apply to contracts of sale between parties which have their places of business in Nordic Countries. It depends on the choice of legal rules, i.e., which law should be applied, the Finnish Contracts Act for formation of contracts, the Finnish Sale of Goods Act or corresponding rules in another Nordic Country.

2.2. Applicability of the CISG

Article 1(1)(a)(b) of CISG states as follows:

"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."

The wording of Article 1(1)(a) is very strict: whenever the parties have their places of business in different Contracting States, the CISG "automatically" applies.[5]

The "automatic" applicability of the CISG, according to Article 1(1)(a), has been confirmed in many cases concerning international trade:[6]

ICC Arbitration Case No. 7153 of 1992 [available at <http://cisgw3.law.pace.edu/cases/927153i1.html>]: In the absence of an agreement between the parties on the applicable law, the arbitration tribunal found that the CISG is applicable to the contract for the provision and instalment of materials destined for the construction of a hotel.

The CISG entered into force in Yugoslavia and Austria, the countries of the buyer and the seller respectively, before the conclusion of the contract.

In his editorial remarks on this case, Kritzer [7] states that Article 1(1)(a) is the relevant CISG provision.

ICC Arbitration Case No. 7399 of 1993 [available at <http://cisgw3.law.pace.edu/cases/937399i1.html>]: The seller was from the United States (the State of California), the buyer was from Switzerland. The CISG was in effect in both countries at the time the contract was concluded.

The goods were to be furnished by a company conducting business in the State of California. Payment of the purchase price was to be made in US dollars in the State of California. The language of negotiation was English. The law of the State of California was the legal system with which the putative contract had the closest connection. Pursuant to Article 1(1)(a) the tribunal ruled that the CISG law of California applied to matters governed by the CISG.

If the two States in which the parties have their places of business are Contracting States, the CISG applies, even if the rules of private international law of the forum would normally designate the law of a third country, such as the law of the State in which the contract was concluded.[8]

Ferrari [9] states: By virtue of Art. 1(1)(a), the CISG applies when the parties have their place of business not only in different States, but in different Contracting States. This is true even where the parties are unaware that the States where their places of business are located are Contracting States. Therefore, if both parties have their places of business in different Contracting States, and if the lex fori is the law of any Contracting State, then the Vienna Convention will without any doubt apply, independent of a different solution provided for by the rules of private international law."

If the parties have not expressly or implicitly chosen the law governing their agreement, the rules of the conflict of laws are designed to do precisely this.[10]

One complicated question is Art 1(1)(b) of CISG.[11] The term "private international international law" should be construed in a broad way.[12] If a legal system contains procedural rules calling for the application of uniform law in cases where the applicable foreign law is not ascertainable, such rules fall within the scope of Article 1(1)(b).

3. Scope of the CISG

3.1. Contracts for the Sale of Goods

The CISG applies to "contracts for the sale of goods" (Art. 1), but it does not specifically define "contract for sale" and the "goods".

Legal scholars have stated that, taken together, Articles 30 and 53, which identify elements of a sale, constitute a definition of a contract for sale in the sense of Article 1(1). The sales contract can be defined as the contract by virtue of which the seller has to deliver the goods, hand over any documents relating to them, and transfer the property of the goods, whereas the buyer is bound to pay the price of the goods, and take delivery of them.[13]

Subject to the exclusions enunciated in CISG Art. 2, the term goods has been said to mean tangible moveables.[14] A uniform definition of the concept of "goods" does not yet exist. This should not, however, lead to resorting to domestic definitions in order to solve interpretive problems concerning the concept of goods in the sense of the CISG.[15] Art. 7(1) states that in the interpretation of the CISG regard is to be had to its international character and to the need to promote uniformity in its application. In order to achieve uniformity in the CISG's application we have to interprete expression goods in an autonomous way, but not in light of the concept of one's own legal system.[16]

3.2. Manufactured Goods, Supplying Labour or other Services

CISG Article 3 states:

"(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."

Paragraph 3(2) deals with contracts under which the seller undertakes to supply labour or other services in addition to selling goods, for example the seller agrees to sell machinery and undertakes to set it up in a plant in working condition or to supervise its installation. This paragraph does not attempt to determine whether obligations created by one instrument or transaction comprise essentially one or two contracts. The question whether the seller's obligations relating to the sale of goods and those relating to the supply of labour or other services can be considered as two separate contracts will be resolved in accordance with the applicable national law.[17]

The "preponderant part" is not defined in the CISG, nor does it identify its referent, for example costs, price or value.

Legal scholars have mostly been in opinion that in order for the contract to be excluded from the CISG, the provision of labour and services must form a major part of the obligations under the contract.[18] Sometimes this seems merely to refer to the comparison between the economic value of the obligations regarding the delivery of the goods, which means that the sale price of the goods to be delivered should be compared with the fee for labour and services, as if two separate contracts had been made.

Some authors have argued that the preponderance must be evaluated on the basis of other criteria as well: in order to determine preponderance, a two-part test involving a quantitative judgment of the predominant part of the agreement and a subjective judgment of the intent of the parties and the purpose of the agreement should be employed.[19]

In legal practice [20] the CISG has been applied, if the provision of services is secondary to the sale.

ICC Arbitration Case No. 7153 of 1992 [available at <http://cisgw3.law.pace.edu/cases/927153i1.html>]: The court decided that the contract fell within the scope of application of the CISG, since it was clear from the text of the contract that the provisions of services was secondary to the sale.

In his comment on this case Hascher [21] states: "... However, the line of demarcation can prove to be difficult to draw; the concept of "substantial part" or "preponderant part" on which the application of the Convention depends, being subject to the understanding of the interpreter ... . In order to resolve the difficulty, the arbitrator referred in the decision to the text and to the general meaning of the contract which established unambigiously that the principal transaction was a sale. This conclusion was further supported by a bill addressed to the [buyer] which made apparent that the price to be paid for the assembly of the materials was 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."

7 May 1993 Richteramt Laufen des Kantons Berne [available at <http://cisgw3.law.pace.edu/cases/930507s1.html>]: The Finnish seller, a producer of automatic storage systems, concluded, with a Swiss buyer, a metal-works company, a number of agreements, such as a non-disclosure agreement, a licence agreement and various contracts, for the supply of goods to be manufactured on or after 1988. In 1992, the seller sued the buyer for the outstanding balance of the purchase price on several of those agreements.

The court found that the parties had entered into contracts for the supply of goods to be manufactured and thus they were to be considered sales under article 3(1) CISG since, although the seller had to furnish a number of different services, these obligations were not preponderant (article 3(2) CISG). Therefore, the court held that the Convention was applicable pursuant to article 1(1)(b) CISG. (However, the court stated that, according to Swiss procedural law, it did not have subject-matter jurisdiction and, therefore, dismissed the claim.)

Cour d'appel Grenoble, 26 April 1995 [available at <http://cisgw3.law.pace.edu/cases/950426f2.html>]: A company with its place of business in France sold to an individual resident in Portugal a used warehouse for the price of 500,000 French francs, including the cost of dismantling and delivery, the price of the warehouse being 381,200 francs and the dismantling and delivery costs amounting to 118,800 francs. Following the buyer's refusal to pay the last part of the price on the grounds that the dismantled metal elements were defective, the court of Appeal of Grenoble found that the disputed contract covered the sale of a used warehouse together with its dismantling and that it was apparent from the invoices submitted that the supply of services did not constitute the preponderant part of the contractual obligations. The court concluded that the contract therefore fell within the scope of application of CISG (art. 3(2)).

3.3. Turnkey Contracts

Some problems concerning turnkey contracts have been in legal practice. These are normally project contracts which contain elements that are alien to sales.

Concerning turnkey contracts, it shall be compared if the part of the work or other service is a preponderant part of the contract. Article 3 of CISG an example of this.

Kritzer [22] states: "When the terms 'labour' and 'other services' are used to characterize non-sales obligations, then this is obviously done to express that human labour as such is owed ... If it is only the result of labour which is owed, like in many contracts on the preparation of scientific and technological results (project contracts), then there exists a sales contract in the sense of the CISG in any case. ... 'Labour' or 'other services' include, above all, assembly work, supervision, control, storage, after-sales services and maintenance" (Enderlein & Maskow Commentary, pp. 37-38).

4. Interpretation of the CISG

Article 7 CISG states:

"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."

What are these principles, mentioned in Art. 7(2)? One answer is, for instance, good faith which is expressly mentioned in Art. 7(1). The other principles could be reasonableness, pacta sunt servanda, mitigating the loss and the autonomy of the parties.[23] The idea of Art. 7 CISG is that state courts should be discouraged from interpreting the CISG in terms of their own national laws.

Questions concerning matters governed by the CISG which are, however, not expressly settled by its provisions if the general principles on which it is based fail, are to be settled in conformity with the law applicable by virtue of the rules of private international law. In the case of a lacuna, general principles should first be consulted. For instance, Boyysen [24] has stated that "General principles can only mean the general principles of the international lex mercatoria; a fact which emphasises the close link between the CISG and the international lex mercatoria." There is no international consensus on the exact meaning of lex mercatoria and its existence is not universally accepted.[25]

5. Gap Filling

There are also matters which do not fall within the CISG's scope of application. The national rules may also be silent on a number of important issues which may arise in connection with the conclusion or the performance of an international sales contract. Which law is then applicable? The solution are the choice-of law rules, which, however, can vary in different countries.

6. Choice of Law

6.1. Choice of Law Rules in Finland

When applying domestic law it is necessary to apply the rules of private international law. The main rule in the Finnish Act on Law Applicable to Sale of Goods of International Character (26.6.1964/387), paragraph 4, states that the applicable law is the law of the state where the seller had his domicile at the time the seller received the order. This is the main rule in many states.

There are some exceptions: The law of the buyer´s state will be applied if the seller or his agent received the order in the state where the buyer has his domicile or where he owns a business establishment. If the goods are sold on an auction or on the stock exchange, the applicable law is the law of the state where the stock exchange or the auction is held. Situations concerning examination of the goods (form and time of examination, notices, measures if the buyer refuses to receive the goods): the applicable law is the law of the state where the goods shall be examined.

It should be observed that those rules are to be applied if the parties have not explicitely or implicitely agreed otherwise (Section 3).

If the choice of law rules lead to, e.g. the French law, Part II of the CISG has to be applied even though the other party is Finnish. France has ratified the CISG as a whole. So if the French law shall be applied, the rule of Part II of the CISG shall be applied for the formation of the contract though Finland is not a Contracting State concerning Part II.

6.2. The Rome Convention

One possibility in international trade (other than the sale of goods, i.a. services) is to apply the Rome Convention (1980).[26] Finland has ratified a part of the Rome Convention and the rules entered into force on the first of April 1999 (Act 18.12.1998/398). According to Article 17 of the Rome Convention it shall apply in a Contracting State to contracts made after the date on which this Convention has entered into force with respect to that State.

Article 3 of the Rome Convention states:

"Freedom of choice

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 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."

In Article 4 of the Rome Convention there are rules for the applicable law in the absence of choice:

"1. 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.

2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with 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, his habitual residence, or, in the case of a body corporate, its central administration. However, if the contract is entered into in the course of that party´s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

3. Nothwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.

4. A contract for the carriage of goods shall not be subject to the presumption in paragraph 2. In such a contract if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country. In applying this paragraph single voyage charter-parties and other contracts the main purpose of which is the the carriage of goods shall be treated as contracts for the carriage of goods.

5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country."

The term "most closely connected" has caused some difficulties in legal practice.[27]

The Finnish Act on Law Applicable to Contracts of International Character (27.5.1988/466) was abrogated by the Act 18.12.1998/398.

Paragraph 5, Clauses 1 and 2 of this Act stated: "The applicable law in the absence of choice. To the extent that the law applicable to the contract has not been chosen in accordance with § 4, the contract shall be governed by the law of the country with which it is most closely connected. If the performance of a party is characteristic of the contract it shall be presumed that the contract is most closely connected with the counttry where this party has his place of business."

The Preamble to the Government Bill of this Act (44/1987) stated (pages 17 and 18): "For the closest connection is according to the principle of charasteristic performance searched from inside of the contractual relation. External factors like the place of concluding or performance of the contract are not significant in this connection, although they otherwise are worthy of consideration. Characteristic for the contract is the performance the fulfilment of which is the principal purpose of the contract, that means, not the payment of money. If only the performance of the other party is professional, it is his performance which is characteristic for the contract. This can be for example delivery of goods, work or service performance or covering the risk. As examples of characteristic performance in different types of contract can be mentioned the following: in sale of goods the performance of the seller, ... and in contracts of service the performance of the employee. ... It has to be noted that the principle of the characteristic performance is the main rule and that the yielding of this presumption is exceptional."

Section 2, paragraph 2 stated: "This Act does not apply in those parts which have been provided otherwise by other law."

The Preamble to the Government Bill of this Act (44/1987) stated (P. 14): "According to the rules of this paragraph, Clause 2, the proposed rules are subsidiary so that the choice of law rules in some other act set them aside. The law applicable to the sale of goods is the Act on Law applicable to Sale of Goods of International Character."

It is to be noted that the Act on Law applicable to Sale of Goods of International Character (26.6.1964/387) was not abrogated by the Act 18.12.1998/398.

It is clear that the character of different types of contracts, for example, the sale of goods and the sale of shares, can be different. Also the circumstances in different cases can vary.

What does characteristic performance mean? The Preamble of the Government Bill (103/1998) for the Act 18.12.1998/398 [28] states: "The characteristic performance of a contract is the performance the fulfilment of which is the principal purpose of the contract. Generally the characteristic performance is not the payment of money but something else. As examples of the characteristic performance can be mentioned delivery of goods in the sale of goods, ..."

7. Applicability of the Finnish Sale of Goods Act

As stated before, the Finnish Sale of Goods Act shall be applied if the seller is from Finland and the buyer, for example, is from Sweden.

The Finnish Sale of Goods Act,[29] Section 1 states:

"This Act applies to the sale of property other than real property (goods).

This Act applies, where applicable, also to barter.

This Act does not apply to the conveyance of a building or a fixed installation or structure on the land of a third person if the lease of the land is simultaneously transferred."

Section 2 states:

"This Act applies to a contract for the supply of goods to be manufactured or produced unless the party who orders the goods undertakes to supply a substantial part of the materials needed for the manufacture or production. The Act does not apply to a contract for the construction of a building or other fixed installation or structure on land or in water.

This Act does not apply to a contract under which the party who furnishes the goods also undertakes to perform work or other services if the services constitute the preponderant part of the obligations of that party."

The first sentence of paragraph of Section 2 is similar to CISG Art. 3(2).[30] In the CISG there is no rule compared to the second sentence in the first paragraph. The second paragraph of Section 2 contains a similar rule as CISG Art. 3(2).[31]

Which rules shall then apply in Finland if we cannot apply Section 2 of the Finnish Sale of Goods Act?

Concerning manufactured goods, General Conditions and general principles of contract law shall be applied.[32]

We have no common Act concerning services. The only rules we have are in Chapter 8 of the Finnish Consumer Protection Act. These rules, anyhow, can be applied to services provided by a business (contractor) against consideration to a consumer (commissioner) and consisting of work or other performance relating to movables, a building, other structures or real estate or the production of movable goods. Certain construction contracts shall, however, be governed by the provisions of chapter 9. (Consumer Protection Act Chapter 8 Section 1, Paragraph 1).[33]

In other situations the common rules of the Finnish Contracts Act, General Conditions and general principles shall be applied.

8. Details

8.1. Interest

One question the CISG does not answer is interest. The CISG establishes only the right to interest but deals neither with the rate of interest nor with the time for which interest may be calculated.

CISG Article 78 states:

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

Some scholars state that the formula to calculate the rate of interest is governed by the applicable domestic law.[34] At any rate, different opinions have been stated: The CISG provides in Article 7(2) that matters governed by the Convention but which are not expressly stated in it should be settled in conformity with the general principles on which it is based.[35]

Bernstein and Lookofsky [36] state: "... So, assuming the contract is silent as to the rate, the matter must be determined either by resort to the "applicable law" or by the application of "general [CISG] principles" to fill the gap, and recent CISG decisions provide examples of both techniques. Determining the otherwise applicable law in cases of delayed payment, German courts have awarded interest at the average lending rate in the country where the seller should have received payment; (in note 264 the writers mention some cases, reported in UNILEX.) if the contract does not specify the place of payment, Article 57 may be used to fill in this gap. Where payment is to be made in (e.g.) Eurodollars, the applicable international rate for that currency has sometimes been held to apply.

In two international commercial arbitrations in Austria (in note 267 the writers mention Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft - Wien, Arbitral awards no. SCH-4318 and SCH-4366, 15 June 1994, RIW 1995, 590,591) it was held that the rate of interest is a matter governed but not expressly settled by the CISG. Referring to the "general principle" of full compensation underlying Article 78 and Article 74, as well as to Article 7.4.9 of the UNIDROIT Principles, the tribunal awarded interest in both cases at the average prime rate in the seller's country (Austria). But a more recent German case rejects the Article 7(2) solution on the ground that the drafters of CISG tried, but failed to solve the interest-rate problem; the German court (LG Aachen, 20 July 1995, RIW 1993) therefore applied the applicable domestic rule."

Ferrari [37] states: "From what has been discussed thus far, one conclusion can be drawn: the formula to calculate the rate of interest is determined by the law of the country of the seller, at least where the rules of private international law of the forum is based upon the criteria comparable to those set forth by the 1980 EEC Convention on the Law Applicable to Contractual Obligations. Absent a choice of law, the Vienna Convention makes applicable the law with which the contract has the closest connection: this is presumed to be the law where the party who is to effect the "characteristic performance" has its place of business or habitual recidence. As one author (Jayme, The Rome Convention on the Law Applicable to Contractual Obligations, 1980) states, 'As a rule, the characteristic performance of a contract is not the payment of money. However, in the case of a sales contract, it is the delivery of the goods ... which characterizes the contract. It is, therefore, the seller's law which applies'."

The Convention on the Law Applicable to the International Sales of Goods (the Hague Convention 1955), Article 3 states:

"In default of a law applicable by the parties under the conditions provided in the preceeding article, a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order."

When applying domestic law it is necessary to apply rules of private international law (PIL). The main rule in the Finnish Act on Law Applicable to Sale of Goods of International Character 26.6.1964/387), paragraph 4, states that the applicable law is the law of the state where the seller had his domicile at the time the seller received the order. Thus, the Finnish Act on Interests (20.8.1982/633) is the applicable law, and in matters which this Act does not deal with, the Finnish Commercial Code Chapter 9, paragraph 5 applies.

Court of Appeal of Turku 18.2.1997, S 95/1023 [available at <http://cisgw3.law.pace.edu/cases/970218f5.html>]: The claimant (T GmbH, Germany) demanded, among other things, that the defendant (F Ltd, Finland) should pay the claimant 32,741.28 DM, 16 % interest due on 17 November 1994 and expenses. Alternatively, if the Finnish Interest Act could not be applied in this case, the claimant demanded that the interest ought to be paid according to the German Bank-Debet-Zinsen.

The defendant had ordered packages for animal food from the agent of the claimant's company, Sf. The confirmation of the order was signed by the agent on 6 August 1992. The following were delivered: 36,864 packages marked PG, weighing 100 grams, at 0.52 DM per package, totalling 19,169.28 DM; 21,600 packages marked PrG, weighing 150 grams, at 0.62 DM per package, totalling 13,392 DM; and 12 packages marked Ep, at 15.00 DM per package, totalling 180 DM.

The defendant was sent an invoice for 32,741.28 DM, on 18 February 1993, the date of payment being 20 March 1993. In spite of the claimant's reminders, the defendant did not pay the purchase price.

The alternative demand for interest made by the claimant was mentioned in the general conditions of sale, which were printed on the reverse side of the forms the claimant used in its business.

The District Court therefore ruled that the claimant had proved their case. The defendant was obliged to pay the claimant the amount of the invoice minus the amount the district customs office had already restored to the claimant, 16% interest due on 20 March 1993, expenses, and the VAT.

The Decision of the Appeal Court

According to Article 1(1)(a) of the CISG the Convention applies to contracts of sale of goods between parties whose places of business are in different States, when the States are Contracting States. The place of business of T GmbH is in West Germany and of F Ltd in Finland. Both States are Contracting States. The CISG is applicable in this case.

There are no provisions in the CISG concerning whether a partial payment ought to be credited primarily as a payment of the capital or the interest. Therefore, the applicable law is the law of the State according to the rules of the Finnish Act on Law Applicable to Sale of Goods of International Character. The Agent of T GmbH had received the order in Finland, where F Ltd is domiciled. The applicable law in this question is Finnish law, i.e. the Finnish Commercial Code (The Act on Law Applicable to Sale of Goods of International Character, § 4,2).

[...]

No payment can be credited as a capital before the interest has been paid. (The Finnish Commercial Code, chapter 9, § 5). The amount the district customs office already paid to T GmbH has to be credited as payment of the interest.

F Ltd was obliged to pay T GmbH the capital of the invoice 32,741.28 DM, the interest due on 17 November 1994, plus expenses.

8.2. Problems in Finland

Although the Nordic Countries have made reservations concerning the applicability of the CISG, the rules in the Nordic Countries are not quite similar. Also the CISG and the Finnish law differ from each other in some relations.

One important difference is the cut off time of reclamation. Section 31, paragraph 1 of the Finnish Sale of Goods Act states:

"When the goods have been delivered, the buyer must, as soon as is practicable in the circumstances, examine them in accordance with proper usage."

Section 32 of the Finnish Sale of Goods Act states:

"The buyer loses the right to rely on a defect if he does not give notice to the seller of the defect within a reasonable time after he discovered or ought to have discovered it (notice of defect)."

Section 33 states:

"Notwithstanding the provisions of sections 31 and 32, the buyer is entitled to rely on a defect if the seller is guilty of gross negligence or conduct which is incompatible with honour and good faith."

Art. 39 CISG states:

"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 time 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."

A similar rule is in the Swedish and Norwegian Sale of Goods Act (Section 32). In the Danish Sale of Goods Act (Section 54) the time limit is one year.[38]

As we can see the Finnish Sale of Goods Act has no exact cut-off time (except the general 10 years time). What is a reasonable time depends on circumstances in general, the goods sold, etc.

A two years cut-off time was in the Finnish Government´s Proposal for the Sale of Goods Act but the Parliament did not ratify it.

For a Finnish buyer it can be a surprise that the time of reclamation is so short for example in Denmark.

One difference between the CISG and the Finnish law is the usage.

Section 3 of the Finnish Sale of Goods Act states:

"The provisions of this Act are subject to the terms of the contract between the parties, to any practice which has been established between them and to any other usage which is to be considered binding on the parties."

CISG Art. 9 states:

"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."

According to Section 3 of the Finnish Sale of Goods Act a usage acquires influence only by its existence. There is a possibility to adjust un unreasonable usage.[39] The adjustment is, however, an exception, if a party knew the usage insufficiently. In Finland usage does not mean the same as general conditions.

According to the CISG the simple existence of the usage is not sufficient, because the requirements determining validity are in Art. 9 paragraph 2.

The CISG has no adjustment clause. So there are no means to change an unreasonable usage according to the CISG.[40]

There are also some errors in the Finnish translation of the CISG, see i.e. Art. 8 concerning interpretation of sale contracts.[41]

We have no general interpretation rule in Finland.[42] Contracts are interpreted according to general prinicples which are almost similar as stated in Art. 8 of CISG. To standard contracts, for example, contra proferentem rule has been applied.

9. Consumer Contracts

Art. 2(a) of CISG states: "This Convention does not supply to sales 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."

In an Austrian Case (10 Ob 1506/95, 11.2.1997) [available at <http://cisgw3.law.pace.edu/cases/970211a3.html>] B (Swiss) sued S (Austrian), an importer of Italian cars, for failure to deliver a Lamborghini. The Court held, pursuant to Art. 2(a), that the CISG did not apply since B purchased the car for personal use. The opinion noted that the CISG would have applied if the seller had proved that it "neither knew or ought to have known" that the car was purchased for personal use.[43]

The Finnish Consumer Protection Act Chapter 4 Section 5 states: "A choice -of-law term according to which the contract is subject to the law of a state outside the European Economic Area shall not prevail over the provisions of a member state of the European Economic Area on unreasonable contract terms, applicable but for the term in question, if the provisions offer more effective protection of consumers against unreasonable contract terms than does the law that would be applied on the basis of the choice-of-law term."

This rule can be applied only to unreasonable contract terms. If the seller neither knew nor ought to have known that the goods bought were for private use then according to Art. 2(a) the CISG is applicable.

The Finnish Consumer Protection Act Chapter 12 Section 1f states: "In so far as it is not otherwise provided in this Act or another Act, the law applicable to contractual obligations referred to this Act shall be chosen on the basis of the Rome Convention of 19 June 1980 on the Law Applicable to Contactual Obligations. Even if the contractual obligations referred to in this Act do not fall within the scope of this Convention, the Convention shall be applied to so far as appropriate."

The Finnish Consumer Protection Act is based mostly on directives of European Communities.[44]

10. General Principles

General principles can also be applied in gaps in legislation. As already stated, the CISG has a relatively narrow area. In international trade two main principles exist: UNIDROIT Principles and Principles of European Contract Law (hereinafter cited as PECL).

The purpose of the UNIDROIT Principles is to promote international unification of the contract law. The rules have no meaning without good faith and fair dealing principles, which, as a matter of fact, do not provide much guidance ... The principle of good faith is a general and pervasive principle in civil law countries, in contrast to common law systems where it only has meaning only in limited situations and specific rules.

The application of the principles is not quite clear if the parties have not agreed on their applicability. The Preamble of the UNIDROIT Principles states: "They may be applied when the parties have agreed that their contract be governed by "general principles of law", the "lex mercatoria" or the like. They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law." I personally am skeptical that the Finnish courts would apply the UNIDROIT Principles in such cases.

In PECL the same rule exists as well as the following rule: "These Principles may be applied when the parties have not chosen any system or rules of law to govern their contract. These Principles may provide a solution to the issue raised where the system or rules of law applicable do not do so."

Talking about general principles is like moving in nebulas world of twilight. They consist of written principles and implied norms.

Generally accepted principles are pacta sunt servanda, loyalty between the parties (~ fair dealing), rebus stantibus, good faith (differences). In Finland generally accepted principles serve to protect the weaker party, information duty and adjustment. In practice we could argue: let the many flowers flourish?

11. Conclusions

There are also many other rules which are applied in Finland.

In international trade many general conditions are employed. It is important for the parties not to apply the wrong conditions.

Soft law consists of unofficial model contracts, for example, INCOTERMS and ICC Models.[45]

The need for Harmonization in International Trade is important. International trade is very complicated on the whole. International elements cause practical problems: export, import, exchange risks, transport risks, etc. The parties may not know each other or do not know each other well. There are differences in negotiation techniques and usages. Different legal systems cause legal security and foreseeability to weaken.

In European Communities the harmonization has occured in many areas, and it is still continuing on. One example is European contract law.[46]


List of References

Bernstein, Herbert & Lookofsky, J.: Understanding the CISG in Europe. International. Cambridge, MA, USA 1997.

Bianca, C.M. - Bonell, M.J.: Commentary on the International Sales Law the 1980 Vienna Sales Convention. Milan 1987.

The Commentaries of the Secreteriat of the United Nations pursuant to UN General Assembly Resolution 33/93.

Ferrari, Franco: The Sphere of Application of the Vienna Sales Convention. Kluwer Law International. Den Haag 1995.

Ferrari, Franco: Uniform Application and Interest Rates Under the 1980 Vienna Sales Convention, Cornell Review of the Conventions on Contracts for the International Sale of Goods, 1995, p. 3-19.

Ferrari, Franco: SPECIFIC TOPICS OF THE CISG IN THE LIGHT OF JUDICIAL APPLICATION AND SCHOLARLY WRITING, The Journal of Law and Commerce, Volume 15, Issue 1, Fall, 1995, pp. 33-34.

Honnold, John O.: Uniform Law for International Sales under the 1980 United Nations Convention. 3rd ed., Hague 1999.

Huber, Christian - Sundström, Mikko: Kodifioitua kansainvälistä kauppaoikeutta ("Wienin konventio") oikeuskäytännön valossa: Wienin konventio muotoutuu kansainvälisen oikeuskäytännön myötä. (Kodifiziertes Internationales Kaufrecht ("UN-Kaufrecht") im Spiegel der Rechtsprechung: Das "UN-Kaufrecht" erhält Konturen durch die internationale Rechtsprechung). Defensor Legis 1997, p. 747-759.

Kritzer, Albert: H.: Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Volume One. Kluwer Law and Taxation Publishers. Deventer. Boston. 1994.

Routamo, Eero - Ramberg, Jan: Kauppalain kommentaari. Helsinki 1997.
Schlechtriem, Peter: Commentary on the UN Convention on the International Sale of Goods (CISG). Second Edition. Oxford 1998.

Sevón, Leif: Obligations of the Buyer under the Vienna Convention on the International Sale of Goods, JFT 1990, p. 327-343.

Ämmälä, Tuula: "JÄRKEVÄ JA HUOLELLINEN HENKILÖ" - "A REASONABLE PERSON" - IRTAIMEN KAUPPAA KOSKEVAN SOPIMUKSEN TULKINNASSA, in Juhlajulkaisu Leena Kartio 1938 - 30/8 - 1998. Turun yliopiston oikeustieteellisen tiedekunnan julkaisuja. A. Juhlajulkaisut. Turku 1998. P. 407-420.

Ämmälä, Tuula: The International Lex Mercatoria, in Oikeustieteen rajoja etsimässä. Juhlajulkaisu Juha Tolonen 15.4.2001. Turun yliopiston oikeustieteellisen tiedekunnan julkaisuja. Kokoomateosten sarja. Juhlajulkaisut A 9. P. 295-311.

Ämmälä, Tuula: Kuluttajansuojaa tarkoittavien EY:n säännösten toteuttamisesta Suomessa. Yritys eurooppalaisessa oikeusyhteisössä. Turun yliopiston oikeustieteellisen tiedekunnan julkaisuja. A. Juhlajulkaisut N:o 11. Turun yliopiston oikeustieteellinen tiedekunta 2002. P. 765-794.


FOOTNOTES

1. Doctor of Laws, Professor of International Trade Law. University of Turku, Faculty of Law.

2. See i.a. CISG Art. 1.

3. See i.a. CISG Art. 6; Rome Convention Art. 3.

4. The main rules of the CISG have been accepted by Act 795/88, given the 20th of March 1987.

5. See Bernstein & Lookofsky 1997, p. 10-11.

6. See e.g. list of these cases in <http://cisgw3.law.pace.edu>. See especially the Court of Appeal of Turku 18 February 1997, S 95/1023 and Court of Appeal of Helsinki 29 January 1998, S 96/1129.

7. See website supra note 6.

8. Secreteriat Commentary to subparagraphs (1)(a) and (1)(b), point 6. See also Honnold 1999, p. 34: "Applicability based on Sub (1)(a) responds to this central interest in certainty in two ways: (1) Applicability is not subject to the uncertainties inherent in general rules of conflicts (PIL); ...".

9. Ferrari 1995, p. 13. See also Ferrari, The Journal of Law and Commerce 1995, p. 33-34.

10. I.e. " For this contract the rules of the Finnish Sale of Goods Act (27 March 1987/355) shall be applied." See also Maniruzzaman 1999, p. 680-685.

11. For a discussion of those problems, see of the problems Ämmälä 2001, p. 298-300.

12. Jayme 1998, p. 33.

13. Ferrari 1995, p. 18; Honnold 1999, p.51-53; Maskow, in Bianca-Bonell,1987, p. 383.

14. Kritzer 1994, p. 19.

15. Ferrari 1995, p. 24.

16. Ferrari 1995, p. 24.

17. Secreteriat Commentary of Article 3(2), points 2 and 3.

18. Ferrari 1995, p. 22 and note 282; Honnold 1999, p. 58; Khoo, in Bianca-Bonell 1987, p. 42; Schlechtriem 1998, p. 39; Huber & Sundström Defensor Legis 1997, p. 749.

19. Ferrari 1995, note 280.

20. See, e.g.website supra note 6.

21. See website supra note 6.

22. Kritzer 1994, p. 25-26.

23. See further Bonell 1987, p. 80-94.

24. Boyysen 1995, p. 199.

25. See Ämmälä 2001, 296-310.

26. In the European Union there are plans to change some rules of the Rome Convention, see COM(2002) 654.

27. See Sisula-Tulokas 1998, p. 107-111 for cases of the Finnish Supreme Court.

28. P. 15

29. 355/87. An unofficial translation published in January 1990 by the Department of Legislation of the Ministry of Justice, Finland.

30. See Government´s Proposal 93/1986, p. 49.

31. See Government's Proposal 93/1986, p. 50.

32. See i.a. The ICC Model International Sale Contract. Manufactured goods intended for resale. ICC Publication No 556 (E), 1997, UNCITRAL Model Law on Procurement of Goods, Construction and Services with Guide to Enactment. United Nations. New York 1995.

33. The provisions of Chapter 8 do not apply to services consisting of the safekeeping of the property of the consumer (Consumer Protection Act Chapter 8, Section 1, Paragraph 2).

34. Sevón JFT 1990, p. 327-343; Schlechtriem 1998, p. 597-599.

35. See e.g. Kritzer 1994, p. 616-619; Koneru, in Bianca - Bonell 1987, p. Koneru mentioned case ICC Arbitration No. 7585 of 1992, in which an arbitrator granted an interest rate based on the currency in which the contract price was to be paid.

36. Bernstein & Lookofsky 1997, p. 121-122.

37. See Ferrari Cornell Review 1995, p. 3-19.

38. See also the United Nations Convention on the Limitation Period in the International Sale of Goods, 1990, which Finland has not ratified.

39. Section 36 of the Finnish Contracts Act, para 1 states: "A court may set aside or modify a contract term, or the whole contract, if it is improper with regard to the contents of the contract, the circumstances of the formation of the contract, subsquent events, the characteristics and position of the parties, and other circumstances."

40. Routamo - Ramberg 1997, p. 37.

41. See Ämmälä 1998, p. 410-412.

42. In some special Acts there are interpretation rules. See i.e. Chapter 4 Section 3 of the Finnich Consumer Protection Act.

43. See of the case Honnold 1999, p. 48.

44. See Ämmälä 2002, p. 765-794.

45. Sisula-Tulokas 1998, p. 40.

46. See Communication from the Commission to the European Parliament and the Councel. A More Coherent European Contract Law. An Action Plan. COM (2003) 68 final. Brussels, 12.2.2003.


Pace Law School Institute of International Commercial Law - Last updated July 9, 2003
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