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"Place of Business": Comparison between Provisions of the CISG (Article 10) and Counterpart Provisions of UNIDROIT (Article 1.10)

Allison E. Butler [*]
August 2004

  1. General interpretation and application in the CISG and UNIDROIT Principles
  2. Scope of the term "Place of Business"
  3. Definition of "Place of Business"
  4. Party with More than One Place of Business
    [a] General
    [b] Habitual
  5. Conclusion

1. General interpretation and application in the CISG and UNIDROIT Principles

UNIDROIT Principles Art. 1.10 is similar in substance and form to its counterpart provision contained in Art. 10 CISG. Both provisions exemplify the drafters' intent to adopt the "closest connection" principle in contract interpretation and supplementation when determining the relevant "place of business."[2] Additionally, each has application beyond the scope of its respective provision.[3] Case law under Article 10 CISG provides judicial application of this principle thereby providing additional supplemental authority.

2. Scope of the Term "Place of Business"

Application of Article 1.10 illustrates that a party's place of business is of relevance in a number of contexts throughout the UNIDROIT Principles. For example, place of business is relevant for the place for the delivery of notices (Art. 1.9(3)); a possible extension of the time of acceptance because of a holiday falling on the last day (Art. 2.8(2)); the place of performance (Art. 6.1.6); and the determination of the party who should apply for a public permission (Art. 6.1.14(a)). Hence, the term has applicability outside the realm of Article 1.10.

Similarly, the issue of determining the relevant place of business of a party is an issue that frequently arises in a number of different provisions under the CISG.[3] However, the primary and most common usage of "place of business" as facilitated under Article 10 CISG is its interpretive part in the unilateral conflict rule contained in Article 1(1)(a) CISG.[4]

3. Definition of Place of Business

The concept of "place of business" is not defined under the UNIDROIT Principles. The relevant place of business is however that which has the closest relationship to the contract and to its performance.[5] Under Article 10 CISG, there is an overwhelming cognizance that the place of business is where "the center of the business activity directed to the participation is located," which links the contracting party to the State where the business is conducted, provided the party has autonomous power.[6] Notably, a business' "autonomous power" appears to be the key component when courts have scrutinized this term.[7]

Consequently, this assumption has led many commentators and courts to conclude that a place of business such as the location of an agent, representative or distributor,[8] liaison office,[9] conference center or exhibition or a rented office(s) at an exhibition, fails to constitute a place of business for the purposes of Article 10 CISG, absent facts to the contrary. At least one court did find that a corporate branch was the place of business under Article 10 CISG and not the company's headquarters located in a different country. This finding was based on the fact that the branch had the closest relationship to the contract and its performance.[10]

4. Several places of business under the CISG and the UNIDROIT Principles

[a] General

Article 1.10 of the UNIDROIT Principles provides that when a party has multiple places of business (normally a central office and various branch offices), the relevant place of business should be considered to be that which has the closest relationship to the contract and to its performance.[11]

Absent from this provision is what place of business controls when the place of the conclusion of the contract and that of performance differ. The Official Comments to the UNIDROIT Principles provide that the place of performance would be more relevant.[12]

However, in determining the place of business which has the closest relationship to a given contract and to its performance, attention should be given to the circumstances known to or contemplated by both parties at any time before or at the conclusion of the contract.[13] Consequently, facts that are known only to one of the parties or of which the parties became aware only after the conclusion of the contract cannot be taken into consideration.

Article 10(a) CISG also establishes similar criteria to resolve this issue. Notably, when reference is made to the performance of the contract, it is referring to the performance that the parties knew or contemplated when they were entering into the contract. For example, if it was contemplated by a party that performance of the contract would be in State A, a determination that the party's place of business was in State A would not be altered by the party's subsequent decision to perform the contract at the party's place of business in State B.

In judicial application of Article 10 CISG, however, the courts have routinely looked not only to the intent of the parties but also to the "totality of the contract."

This term is used as an examination of the contract as a whole. Hence, the fact that a third party negotiated a contract has had little significance to the courts when determining the "place of business." However, certain factors that are not known or contemplated by both parties at the time of entering into the contract may not be taken into consideration. Such factors include, but are not limited to, supervision over the making to the contract by a head office located in another State, or the foreign origin or final destination of the goods.[14] As with Article 1.10 of the UNIDROIT Principles, these matters are reviewed subjectively.

[b] Habitual residence

UNIDROIT Principles Article 1.10 fails to specifically deal with the case where one of the parties does not have business but is still subject to the Principles. However, logic concludes that the test used for place of business would be applicable. In contrast, Article 10(b) CISG specifically sets forth that a factual determination is to be made as to the party's habitual residence. Upon such finding, performance is to be effected at the party's habitual residence. "Habitual residence" is where the party actually lives. Notably, it is irrelevant as to whether he or she has a permit to live in the country or as to whether the party frequents another country, provided he or she normally returns to the first place. This holds true provided that the contract is for sale of goods intended for commercial purposes and not simply for "personal, family or household use" within the meaning of article 2(a) CISG.[15]

5. Conclusion

A comparison of the two provisions illustrates that both the respective articles of the CISG and the UNIDROIT adopt the "closest relationship" theory to determine the relevant "place of business." Moreover, in application, it is apparent that both provisions extend beyond the scope of their provisions by having further application and reference throughout their respective documents. Judicial review under the CISG has further refined the definition by expressly excluding those places that do not contribute to the totality of the sale, which the parties had intended. Therefore, CISG case law provides a valuable insight into the terms and application of the "closest connection" principle. This is also evident in the CISG's inclusion of the habitual residence provision.


FOOTNOTES

* The author received her J.D. from Loyola University School of Law, New Orleans, Louisiana, USA (Common Law Program) and her B.A. in International Relations, with honors, from the University of South Florida, Tampa, Florida, USA. She is a published author and a private practitioner in Martin County, Florida, USA.

1. See Art. 10 CISG; Art. 1.10 UNIDROIT. The "closest relationship theory" is the place of business having the closest relationship with the contract. In contrast, there is the "theory of the principal place of business," which is the relevant place of business is where the main seat is located.See generally, Franco Ferrari,Specific Topics of the CISG in the Light of Judicial Application and Scholarly Writing, 15 Journal of Law and Commerce (1995), Section II. 4. "The 'Place of Business' under CISG," available at <http://cisgw3.law.pace.edu/cisg/biblio/2ferrari.html>. The original intent of the drafters of the CISG to adopt the theory of "principal place of business" as evidenced by the proposal reprinted in UNCITRAL Yearbook, vol. II (1971) 52, available at <http://www.uncitral.org/english/yearbooks/yearbook-index-e.htm>; however, this was later rejected.

2. There are numerous applications of the place of business, in particular provisions of both documents; see the examples offered in the Secretariat Commentary to the Draft Convention as manifestations of the concept CISG Articles 12, 20(2), 24, 31(c), 42(1)(b), 57(1)(a) and 96; Text of Secretariat Commentary on Article 9 of the 1978 Draft [draft counterpart of Article 10 CISG], available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-10.html>; See also, UNIDROIT Articles. 1.9(3); Arts. 2.8(2); 6.1.6 and Art. 6.1.14(a).See, Official Comments on Article of the UNIDROIT Principles, available at <http://cisgw3.law.pace.edu/cisg/principles/un10.html>.

3. See CISG discussion,supra note 2.

4. When both articles are read in conjunction they "form the lex specialis of conflicts of laws in contract applicable to contracts of sale of goods between parties whose places of business are in different Contracting States to the Convention." Carolina Saf, A Study of Interplay between the Conventions Governing International Contracts of Sale, available at <http://cisgw3.law.pace.edu/cisg/biblio/saf.html>. See illustrative case, Germany 13 April 2000 Amtsgericht [Lower Court] Duisburg [English translation available online at <http://cisgw3.law.pace.edu/cases/000413g1.html>.

5. See Official Comments on Articles of the UNIDROIT, Article 1.10, Comment 2, available at <http://cisgw3.law.pace.edu.cisg/principles/uni 10.html>.

6. See, Ferrari, supra note 1, referencing BGH, 2 June 1982, VIII ZR 43/81, Neue Juristische Wochenschrift (NJW) 1982, 2730-2732 (German Federal Supreme Court's interpretation of "place of business" in ULIS Article 1).

7. See the relevant case law:

- Germany 28 February 2000,Oberlandesgericht [Appellate Court] Stuttgart [English translation] available at <http://cisgw3.law.pace.edu/cases/000228g1.html>] (holding location of Spanish representative of German manufacturer-seller in Spain was not a place of business absent legal authority to bind the German manufacturer to Spanish buyer);

- Germany 13 November 2000,Landgericht [District Court] Köln, available at <http://cisgw3.law.pace.edu/cases/001113g1.html> (holding Italian agent in Germany did not have authority to bind Italian company in German-Italian contract dispute);

- United States 27 July 2001, Federal District Court,Asante Technologies, Inc. v. MC-Sierra, Inc., available at <http://cisgw3.law.pace.edu/cases/010727u1.html> (holding U.S. nonexclusive distributor not acting as agent absent authority to bind U.S. company in contract with Canadian company);

- France 4 January 1995,Cour de Cassation [Supreme Court],Fauba France FDIS GC Electronique v. Fujitsu Mikroelectronik GmbH [English translation] available at <http://cisgw3.law.pace.edu/cases/950104f1.html>] (holding liaison office of German company in France was not principal place of business absent corporate status in action against French buyer);

- ICC Arbitration Case No. 7531 of 1994, available at <http://cisgw3.law.pace.edu/cases/947531i1.html> (holding Austrian-buyer liaison located in China was not place of business in Chinese-Austrian dispute, notwithstanding that the liaison office in China may have been involved in the negotiating process).

8. See, Germany 28 February 2000,Oberlandesgericht [Appellate Court] Stuttgart,supra note 7; Germany 13 November 2000, District Court Köln, available at <http://cisgw3.law.pace.edu/cases/001113g1.html>; U.S. 27 July 2001, Federal District Court, Asante Technologies, Inc. v. MC-Sierra, Inc.,supra note 7.

9. See France 4 January 1995, Cour de Cassation [Supreme Court], Fauba France FDIS GC Electronique v. Fujitsu Mikroelectronik GmbH, supra note 7; ICC Arbitration Case No. 7531 of 1994, supra note 7.

10. Switzerland 20 February 1997, Zivilgericht [District Court] Saane, available at <http://cisgw3.law.pace.edu/cases/970220s1.html>. This is a very interesting case as it illustrates the flexibility and subjectivity in the judicial application of Article 10 CISG. In this case, an Austrian company entered into a contract with the Swiss branch of a company with headquarters in Liechtenstein for the purchase and transport of spirits to Russia. Notably, Liechtenstein is not a Contracting State to the CISG. A contractual dispute arose between the parties and the contract was never performed. The court found that the CISG was applicable because the Swiss branch, not the Liechtenstein headquarters, was the place of business that had the closest relationship to the contract and its performance (Articles 1(1)(a) and 10(a) CISG).

11. See UNIDROIT Comments, supra, note 5.

12. Id.

13. Id.

14. Secretariat Commentary, supra, note 2, Comment 8.

15. Id., Comment 9. See also, e.g., Austria 10 Oberster Gerichtshof [Supreme Court], 10 November 1994 [English translation] available at <http://cisgw3.law.pace.edu/cases/941110a3.html> (finding that an international sale occurred under CISG in a contract of sale of Chinchilla furs between breeder and buyer).


Pace Law School Institute of International Commercial Law - Last updated August 6, 2004
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