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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 40
Seller Aware of Defect

196. By virtue of Articles 38 and 39, a buyer who fails to notify the seller of a given non-conformity will, in the great majority of cases, lose the right to rely thereon.

However, a seller who is or should be aware of the defect concerned ought not to be permitted to enjoy the protection which these inspection and notice provisions provide. For this reason, Article 40 provides:

'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.'

Although the rule is generally regarded as a 'safety valve' designed to function in exceptional circumstances, the rule - may be regarded as an expression of the 'general principle' which requires both CISG parties to act in good faith.[1]

A prime example of the application of Article 40 has been provided by the decision of an arbitral tribunal rendered in Sweden in 1998.[2] In this case, the tribunal held that the buyer could rely on a non-conformity first discovered some 3 years after delivery of the machinery in question, upon the rationale that the seller in question 'could not have been unaware' that improper installation of a certain substitute machine part could lead to a serious malfunction; in fact, the seller had not only done nothing to eliminate the risk; the seller was found to have 'consciously disregarded' facts related to the cause of the malfunction. The tribunal further held that, by failing to provide adequate installation instructions or supervise the installation of the machine, the seller had breached its duty to disclose the non-conformity in question, and that - by virtue of the safety valve in Article 40 - the buyer was not time-barred from presenting its claim for damages.

1. Regarding the proper interpretation of the Convention having due regard, inter alia, to 'good faith' see Article 7(1) and No. 75 et seq. Regarding 'good faith' as a general principle pursuant to Article 7(2) see supra No. 79.
2. See the award rendered by the Arbitration Institute of the Stockholm Chamber of Commerce on 5 June 1998, reported in UNILEX.
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Pace Law School Institute of International Commercial Law - Last updated April 4, 2005