Reproduced with permission of 18 Pace International Law Review, Issue No. 1 (Spring 2006) [forthcoming]

CHAPTER 1:  INTRODUCTION

(i) Overview of the Problem

Since the time of the publication of the Lex Mercatoria in 1622, efforts have been made to create and codify a uniform international sales law.[1] With this thought in mind, Lord Mansfield expressed the view more than 250 years ago that "mercantile law...is the same all over the world. For from the same premises, the sound conclusions of reason and justice must universally be the same."[2] In more recent times, the efforts to create a uniform international sales law have culminated in the adoption by sixty-six countries of the 1980 United Nations Convention on Contracts for the International Sale of Goods ("CISG" or "Convention").[3] These countries represent over two-thirds of all world trade, making the CISG one of the most successful international conventions to date.[4] However, the CISG is not without its critics. Some academic commentary has also focused on the failure of the CISG to facilitate the development of a truly uniform body of rules to govern international sale of goods transactions.[5]

The CISG came into being because of a growing need for certainty in international sales contracts. As a result, functional uniformity should be at the core of the CISG, rather than absolute or strict uniformity.[6] This suggests that there should be a growing international convergence of interpretations and applications of the CISG by tribunals and national courts. In this respect the purpose of the CISG is not only to create new, state-sanctioned law, but also to give recognition to the rules born of international commercial practice and to encourage national courts to apply them in a functionally uniform manner through a form of jurisconsultorium.[7] Not surprisingly, courts in numerous jurisdictions are beginning to recognize that the mandate of the CISG requires them to consider international jurisprudence when deciding cases under the Convention.

In the attempt to create a standardized international sales law, the preamble of the CISG introduces the concept of uniformity. It states, inter alia, the desire to remove "legal barriers in international trade" and promote "the development of international trade."[8] It appears that the drafters of the Convention intended to adopt uniformity in the rules governing contracts for the international sale of goods. The objective of uniformity permeates the CISG by way of Article 7(1), which states, "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."[9] However laudable this stated goal of uniformity is, in practice it is difficult to achieve. Considering that the CISG is practiced in about 50 different languages, with signatory nations having diverse social, economic, and cultural backgrounds, the goal of uniformity is ambitious.[10] To make the goal of uniformity even more challenging, there are also great differences in the legal systems of each signatory state. Unless the CISG is fully understood by domestic courts, recourse to local law would seem inevitable.

According to Article 7(1), the goal of uniformity should impart an obligation upon legal practitioners, tribunals, and courts to look to standards of international practice in an interpretation or a determination of provisions of the Convention. In other words, the courts of all signatory nations are obliged to consider the practice and judgments of other countries, a form of "ipso facto stare decisis" or "supranational stare decisis."[11] Failure to do so, whether done consciously or not, leads to the "homeward trend," which reflects the tendency of domestic courts to ignore the autonomous-international requirement of the CISG, and instead make decisions with reference to domestic legal concepts.[12] This natural predisposition is found in all domestic legal systems. As John Murray Jr. notes, a national court finds it difficult to "transcend its domestic perspective and become a different court that is no longer influenced by the law of its own nation state."[13] However, the requirement for uniformity in certain international laws dictates otherwise. Tribunals and courts are obliged to resist the homeward trend, unless they are specifically directed to do so under the CISG. As Antonio Boggiano states, "[u]niform law requires...a new common law" in which "[f]oreign precedents would not be precedents of a foreign law, but of uniform law."[14] Similarly, Lord Scarman notes, "[c]ourts...have to develop their jurisprudence in company with the courts of other countries."[15] With this spirit in mind, the Supreme Court of the United States decided that when considering specific words in international conventions, court decisions from other nations are "entitled to considerable weight."[16] The court repeated this interpretive methodology in a 1999 treaty case.[17] Thus, in addition to the courts' own evaluation of the issues in a particular case, international precedent should also be considered. In the spirit of international uniformity, courts need not follow international precedent if it is incorrect or inapplicable. However, there is a minimal duty to consider similar cases from international practice.

There are problems for courts attempting to comply with the stated mandate of Article 7(1). This may explain why national courts were initially slow to refer to Article 7(1) and to the requirement for international uniformity. As Franco Ferrari notes, "requiring interpreters to consider foreign decisions can create practical difficulties. On the one hand, foreign case law was not readily available, i.e., it cannot easily be retrieved. On the other hand, foreign case law is often written in a language unknown to the interpreter."[18] Fortunately, in the last decade foreign case law, translated into English, has become readily available.[19] Thus, the blame for any lack of international case law to assist in an interpretation of the Convention lies squarely with legal practitioners.

In recent years, national courts appear to have made greater efforts to consider international precedent in CISG cases. This suggests that there is a growing development of a trend towards the jurisconsultorium that Article 7(1) contemplates -- at least at the broader, international level. For example, the courts of Italy and Switzerland were the first to consider international precedent in CISG cases, with rulings decided in 1996 and 1997 respectively.[20] Shortly thereafter, the German Supreme Court issued a ruling citing CISG material from England, France, Switzerland, and the United States.[21] More recently, a number of other national courts, including those in the United States, have referred to CISG authorities in other jurisdictions.[22] As a beacon of all things multicultural, it might be likely that Canada would, if not lead, at least follow these developments. Considering the cosmopolitan nature of Canadian society, it might also be expected that Canadian courts would be naturally predisposed to embracing foreign authorities, especially when such an opportunity is authorized by the Convention. However, after fourteen years as part of Canadian federal law -- and having been in effect in certain provinces for up to seventeen years -- the CISG is still treated as an interloper by Canadian courts.[23] As will be illustrated by the six cases discussed in this research paper, while some courts have made a modicum of effort to interpret the Convention, Canadian courts continue to suffer from the homeward trend. Instead of recognizing the Convention's "international character" and promoting uniformity, Canadian courts have reflexively invoked common law language and concepts that will only contribute to other conflicting interpretations of the Convention's rules. These interpretations are antithetical to purposes and general principles of the CISG. Should such a trend continue on a broader scale among signatory states, the purpose of the CISG would ultimately be defeated.

(ii) Methodology

This core of this research paper will analyze the case law (jurisprudence) involving six Canadian cases on the CISG, as well as consider relevant scholarly literature (doctrine). It must be noted, however, that there have been more than six Canadian cases that have mentioned the CISG in some way. As of August 1, 2005, at least nine Canadian cases have cited the CISG.[24] However, three of these cases do not consider the CISG in any significant manner.[25] For this reason they will not be considered. The focus of the remaining six cases[26] will be primarily on the extent to which Canadian courts have respected the CISG's requirement that it be interpreted with regard to its international character and the need to promote uniformity in the application of the Convention across signatory states. This requires that special attention be paid to interpretive rules embodied in Article 7. Canadian jurisprudence will be examined to discern the extent to which it has deviated from the standard established in Article 7 (and in other relevant provisions of the Convention). As the unification of international sales law demands a common interpretation by divergent legal systems, comparisons with similar court decisions from other signatory states will be made to determine the extent to which Canadian courts lead or lag in the development of a truly uniform international sales law, as envisioned by the CISG.

In examining Canadian jurisprudence and the CISG, this research paper will attempt to answer the following questions: to what extent have Canadian courts looked beyond domestic law when interpreting the provisions of the Convention? Have they become unsuspecting victims of a homeward trend and failed to implement the CISG requirement for autonomous, internationally-focused interpretations of the CISG? In other words, is Canadian CISG jurisprudence permeated with domestic gloss? If so, how do Canadian court decisions compare with those of other national jurisdictions? In broader terms, since the CISG has come into force, has there developed a functionally uniform international sales code, as evidenced by a duty to consider international precedents? If so, converging case law, as noted in the judgments of national courts, will be apparent. The extent to which Canadian court decisions have helped or hindered in the quest for international uniformity will also be considered.

CHAPTER 2:  THE BACKGROUND TO THE CISG

(i) The Ancient Lex Mercatoria [26a]

The quest for predictability and uniformity in the rules of international trade is not a modern phenomenon. Indeed, it could be argued that the roots of the CISG can be traced back more than 500 years to the beginning of the eleventh century when medieval Europe experienced a commercial resurgence that required a need for a special law to govern its commercial activities.[27] Gerard Malynes, writing in 1622, traces the existence of uniform merchant customs back even further, to ancient Greek and biblical times, "[s]o that it plainely appeareth, that the Law Merchant, may well be as ancient as any humane Law, and more ancient than any written Law."[28] Its precursor may have also been in the Roman ius gentium, which was the body of law that governed trade between foreigners and Roman citizens.[29]

With the Middle Ages came the rise of independent city-states, flourishing seaports, town markets, and boroughs which led to the flow of goods across new national borders.[30] The merchants not only brought good across borders; they also transported their unique practices into foreign markets. The impetus to create or crystallize a law for merchants came from a desire to overcome the fragmentary and obsolete rules of feudal and Roman law, which were unsuited to the needs of international commerce.[31] Thus, trading centres began to reduce local practices into regulatory codes, and the laws of particular towns, eventually grew into dominant codes of custom with an international flavor.[32] Stimulated by the maritime trade of burgeoning seaport towns throughout Europe, the lex mercatoria soon acquired its cosmopolitan character and reflected a retreat from local law to a universal system of law that transcended sovereigns and national boundaries. The end result was a new legal order, free from burdensome local laws and local legislators. In other words, the lex mercatoria became an autonomous body of law.

A unique feature of the lex mercatoria was that it incorporated the customs of commerce, trade fairs, markets, and maritime customs relating to trade, into a single law. It also had additional features, some of which are not unlike of the principles adopted by the CISG: cross-border disputes could be administered by the market tribunals of various trade centres; justice was quick and informal; and, the law stressed equity and fairness, hence, decisions were made on the basis of ex aequo et bono.[33]

The lex mercatoria governed international commerce for an extremely long period, until the early seventeenth century. At this point the autonomous mercantile courts began to decline in relative importance, and the lex mercatoria began to merge with common law. The reason for this wane is attributed to the rising influence of nationalism and the quest for state sovereignty.[34] The pace accelerated under the influence of Sir Edward Coke, who initiated a comprehensive common law for England and the British Empire. During this period, the common law courts were given the power to override the decisions of the mercantile courts.[35] Thus, in the case of a dispute, merchants would initiate an action with the common law courts, and bypass the mercantile courts altogether. Eventually, the mercantile courts became superfluous, and fell into disuse. Those that remained were eventually abolished by national laws.

The customs and usages of the merchants, while still relevant, were deemed not binding in the common law courts. Instead, they were treated as ordinary questions of fact, which had to be proved in each case to the satisfaction of twelve civilian jurors.[36] With the blending of the lex mercatoria with the peculiarities of national law, the former began to lose much of its uniform and cosmopolitan character. It likely would have faded into oblivion had it not been recognized in the mid-eighteenth century by Lord Mansfield, the Chief Justice of the King's Bench. In the famous case of Pillans v. Mierop,[37] Mansfield held that the rules of the lex mercatoria were questions of law to be decided by the courts, and not issues of custom or fact to be proved by the disputing parties.[38] With this ruling, the lex mercatoria became an integral part of the common law.

(ii) The Nationalization of Sales Laws

The formal nationalization of the mercantile law, including international sales law, occurred in the nineteenth century. During this period, states began to codify commercial common law rules into national legislation. They decided to take full control over international trade, and developed new laws to regulate all aspects of economic relations between commercial parties. Furthermore, disputes between domestic and foreign parties were to be resolved in state courts by referring to private international law. The emergence of these national laws, and the exclusive state court jurisdiction over commercial disputes, marked the demise of the ancient lex mercatoria. By the end of this era, it had dissolved into an array of domestic legal regimes. With nationalization and codification, a universal, developing, cosmopolitan, commercial law ceased to exist.

The roots of Canadian sales law -- or that of its provinces and territories -- can be traced to this era. In 1888, MacKenzie Chalmers was commissioned by Lord Herschell to draft a sales law statute. Herschell advised him to endeavor "to reproduce as exactly as possible" existing English common law, rather than try to harmonize it with the codes of states on the European continent.[39] The end result was the Sale of Goods Act, 1893.[40] Because of their close ties to England, the common law provinces and territories of Canada were quick to adopt the English Act. In fact, it was essentially copied verbatim.[41] It was also viewed as a relatively sophisticated piece of legislation, and well suited to the needs of trade at that time.[42]

But by the 1900s, there were already signs that the international trade community felt unduly restricted by the array of national legal systems governing their cross-border transactions. As W. Mitchell remarks, "whenever the private law is splintered into many jurisdictional fragments, the need for uniformity shows up most strongly in the field of commercial law."[43] The complexity of the rules of private international law, and the obsolete character of domestic laws, failed to satisfy the business community's need for simplicity and predictability in cross-border trade. In particular, conflict of law rules often produced results that appeared arbitrary and impractical. It also became recognized that national laws were primarily enacted to govern domestic transactions, and often failed to address the unique requirements of international transactions.[44] This hindered global trade. As Lord Justice Kennedy wrote in 1909:

"The certainty of enormous gain to civilised mankind from the unification of law needs no exposition. Conceive the security and the peace of mind of the shipowner, the banker, or the merchant who knows that in regard to his transactions in a foreign country the law of contract, of moveable property, and of civil wrongs is practically identical with that of his own country..."[45]

States soon became aware of the negative impact to international commerce of a world divided into so many legal systems. Non-governmental institutions, such as the International Chamber of Commerce ("ICC"), and its International Court of Arbitration, were established to address some of the flaws inherent in the national regulation of global commerce. In 1926, the International Institute for the Unification of Private Law ("UNIDROIT"), an independent intergovernmental organization, was also founded as an auxiliary organ of the League of Nations. Its objective was to find methods for modernizing and harmonizing private international law between states or groups of states. Following the demise of the League, UNIDROIT was re-established in 1940, and continues to work towards preparation of modern, harmonized uniform rules of private law.

(iii) The Modern Lex Mercatoria

The establishment of the ICC and UNIDROIT reflected the renewed interest in -- and rediscovery of -- the historical, cosmopolitan character of commercial law, and the desire on the part of the business community to free itself from the restrictions of national law.[46] States began to address this dissatisfaction by introducing international conventions and model laws in the effort to harmonize private international law across borders. Considering the various economic, social, political, and legal systems of numerous participating states, the process was -- and continues to be -- difficult and time-consuming. However, considerable progress has been made, especially in the fields of arbitration, factoring, leasing, letters of credit, sale of goods, and contracts. In the 1960s, academics also began to question the effectiveness of national law in international transactions, and they also noted the revitalization of the lex mercatoria.[47] As Ana Rodriguez notes, "[j]ust as the medieval merchants overcame feudal law, present time traders were adopting alternative solutions to avoid the application of national law to their transactions."[48] With the use of standardized contract clauses, self-governing contracts, trade term usages, and recourse to international commercial arbitration, merchants began to introduce their own regulatory regime, which operated autonomously, as an addendum of national law. This development has since become known as the new lex mercatoria.

(iv) The History of the CISG

It is within the context of this dissatisfaction with national legal regimes, and the renaissance of the lex mercatoria, that the CISG came into being. However, the CISG was not the first modern attempt to codify a uniform international sales law. In the 1930s, a group of European scholars met to work towards the unification of international sales law under the auspices of UNIDROIT.[49] Work on this initiative was suspended with the outbreak of World War II, until 1951. With the support of 21 nations, UNIDROIT eventually produced two draft conventions, the final versions of which were adopted by a diplomatic conference at The Hague in 1964.[50] These were the Uniform Law on the International Sale of Goods ("ULIS")[51] and the Uniform Law on the Formation of Contracts for the International Sale of Goods ("ULF").[52] ULIS and ULF became the first modern attempts to eliminate the problems stemming from variations in national laws, particularly those rules relating to the sale of goods and conflicts of laws rules. Despite this admirable objective, neither of these two conventions received widespread acceptance. The common complaint with ULIS and ULF is that they reflected the parochial legal and social traditions of the Western European countries that were primarily responsible for their creation.[53] Without the input from nations worldwide, and participation from states with divergent social and legal systems, a universal contract and sale of goods convention would never receive extensive support from the international commercial community.

Credit for the drive to create a truly international version of ULIS and ULF may be given to the state of Hungary at the United Nations. While work on ULIS and ULF was being completed by UNIDROIT, the Hungarian Delegation proposed to the Nineteenth Session of the UN General Assembly the following: "consideration of steps to be taken for progressive development in the field of private international law with a particular view toward promoting international trade."[54] The Hungarians were concerned that the conflicts inherent in private international law, arising from divergent national legal systems -- and the resulting uncertainties and complications -- were creating barriers to the development of global trade.[55] They spoke convincingly, and at length, in support of their argument. At one point, they quoted a passage from a 1962 colloquium on the law of international trade, held in London, which summarized their position:

"...the main defect which this examination of the sources of the law of international trade has revealed is the lack of purposeful co-operation between the formulating international agencies...[T]he law of international trade, by its nature, is universal and for that reason, a progressive liaison and co-operation between the formulating agencies should be the next step in the development of an autonomous law of international trade."[56]

The UN decided to take up the matter, and the Secretary-General approved the production of a preliminary study based on the Hungarian recommendation.[57] Considering the concurrent work of UNIDROIT and other bodies, the preliminary study acknowledged that there were inefficiencies with the duplication of unification efforts by competing organizations. The Hungarians similarly complained that "this diversified activity, for all its usefulness, is lacking in direction, uniform organization and synthesis."[58] The remedy for this apparent state of affairs would lie in the establishment of a central organ based at the UN, which would co-ordinate and supervise activities for the harmonization of private international law.[59]

Thus, the Secretary-General's proposed the creation of the United Nations Commission on International Trade Law ("UNCITRAL") to lead the global effort on the unification front. This recommendation was adopted by the General Assembly in 1966.[60] The mandate of UNCITRAL is to provide for the "progressive harmonization and unification of the law of international trade."[61] In keeping with the international character of the UN, the organ is to "have due regard to adequate representation of the principal economic and legal systems of the world, and of developed and developing countries."[62] A number of representatives further expressed the hope "...that out of the co-operative endeavours of the Commission and other bodies active in the field, a new lex mercatoria would in time evolve reflecting the interest of the entire international community."[63]

At the first meeting of UNCITRAL in 1966, it was decided that priority was to be given to the development of a unified international sales law. Members of the UN were circulated copies of ULIS and ULF to solicit opinions on their acceptability as the basis for a new unified international law. However, neither of these two conventions were found to be adequate. The basic problem stemmed from the lack of participation from representatives of countries with different legal regimes in their creation. In simple terms, ULIS and ULF were too Western European in orientation. Even one of the world's largest traders, the United States, had little to do with the creation of ULIS and ULF, and never adopted the conventions.[64] Thus, UNCITRAL proposed the preparation of a new international sales convention that would more accurately reflect a cross-section of the organ's world-wide composition. By taking a pluralistic approach, UNCITRAL was confident that a universal international sales convention would win "wider acceptance by countries of different social, legal, and economic backgrounds."[65]

In 1978, the UNCITRAL draft of what was to become the CISG was completed. It clearly attempted to improve upon its less successful antecedents, not just by incorporating a collection of various rules from common, civil, and socialist law traditions, but by aiming for a true synthesis of the best features available from all modern sales law regimes. In the process, an array of cross-border legal traditions were reconciled, and a convention was produced that is truly global in scope.

In 1980, a UN Conference was held in Vienna to consider UNCITRAL's draft convention. True to its international roots, the delegates at the conference came from 62 states: 22 were from European or other developed Western states, 11 came from socialist countries, and the remaining 29 were from third world nations.[66] After only five weeks of deliberations, the CISG was unanimously approved and, as Errol Mendes notes, "the historical cycle of international sales law which began in the 11th & 12th centuries" was completed.[67] In this respect, perhaps most significant aspect of the Vienna Conference was that it represented a truly global effort by balancing representation from all regions of the world. It also took into account diverse social, economic, and legal systems. In keeping with its international character, the CISG was also adopted in six different languages. The end result is a sales convention that attempts to de-politicize international trade law, and escape the ethnocentric perspectives and biases of a single legal system. With the implementation of the CISG, as T.C. Drucker remarks, "[i]t is hoped that at least in the area of international sales Voltaire's complaint, when crossing Europe in the 18th century, will soon no longer hold true, namely, that he had to change laws as often as he changed horses."[68]

CHAPTER 3:  CANADIAN CASE LAW AND THE CISG:  THE QUEST FOR UNIFORMITY

(i) The CISG in Canada

Internationally, the CISG came into force on January 1, 1988, following the ratification by eleven nations, including the United States.[69] The American ratification of the CISG appeared to have the effect of prompting other nations to also ratify the Convention. However, the situation in Canada was complicated by its Constitution, which fails to give the federal government clear authority to implement treaties in areas primarily under the jurisdiction of the provinces. This situation exists even though the federal government alone is the nation's recognized international personality.[70] These constitutional complexities may account for the reason why Canada did not formally participate in the negotiations that eventually developed the CISG in 1980.[71] Fortunately, even though Canada did not take part in the Vienna Conference, it was able to lobby for the inclusion of a federal state clause in the CISG.[72] Thus, Article 93 of the CISG allows federal states to have the Convention apply to only certain provinces or territories. This is essential, as provincial governments are not bound by international agreements that fall within their exclusive areas of competence, such as sales law. The provinces, however, have usually made efforts to ensure that their laws conform with Canada's international treaty obligations. Fortunately, the CISG was not an exception, and the provinces began to adopt the CISG of their own volition as early as 1988.[73] At the federal level, it came into force on May 1, 1992.[74] It is now incorporated into the sales laws of every province and territory of the nation.[75]

(ii) Canada's First CISG Case: Nova Tool v. London Industries

Reporting in 1999 on the first Canadian court case involving the CISG, Jacob Ziegel notes that "the decision is not a good precedent for the treatment of the Convention in future Canadian litigation."[76] With a few minor exceptions, this seemingly innocuous statement has come to portend the dismal course of Canadian CISG jurisprudence -- at least to date. Although one of the most successful international conventions in history,[77] the CISG did not have an illustrious beginning domestically. Indeed, the case of Nova Tool & Mold Inc. v. London Industries Inc. seemed to establish the trend: the CISG was to be treated by legal practitioners in a cursory manner, and it was often misinterpreted through the lens of domestic law.[78] Some have ignored it altogether; few have attempted to analyze its interpretive methodology.

In a pattern that seems to be a recurring theme in Canadian CISG jurisprudence, counsel for the plaintiff in Nova Tool argued that the CISG governed the sales transaction, yet courts at two levels failed to address its direct applicability to the case. This is a remarkable omission considering that a central tenant of the CISG is, according to Article 7(1), regard is to be had to its international character, and to the need to promote uniformity in its application at the international level.[79] This is a very broad power, and dictates that the CISG be interpreted by courts in an autonomous manner, and not through the lens of domestic law. Moreover, Article 7(2) of the CISG provides that if the Convention does not expressly deal with an issue of law under consideration, such a question is to be settled in conformity with the general principles upon which the CISG is based. These principles are set out in the Preamble of the Convention, and include, inter alia, "the establishment of a new International Economic Order," and the "adoption of uniform rules" to govern contracts for the international sale of goods.[80] Considering "the different social, economic and legal systems" of the world, a uniform law "would contribute to the removal of legal barriers in international trade and promote the development of international trade."[81] As a last resort, if these principles are absent, the courts' interpretation is to be made in conformity with the law applicable under the rules of private international law.[82] While it is difficult to determine the exact weight to be placed on words in a treaty preamble to which Canada has acceded, the Vienna Convention on the Interpretation of Treaties ("Vienna Convention") provides some guidance.[83] It explicitly notes that the preamble of a treaty is to be considered as being part of its context for interpretative purposes.[84] At a minimum, the Preamble informs the other provisions of the CISG, and has a close, ideological connection with Article 7.

The words of Article 7 may admonish, but they cannot ensure that uniformity will reign as an interpretive principle. As John Honnold notes, uniform words in themselves will not guarantee uniform results.[85] There are bound to be interpretational challenges with the CISG. This was recognized during the drafting of the Convention. Gyula Eörsi, who headed the diplomatic conference on the CISG, commented on the problems Article 7 would encounter:

"[i]t could be argued that the provisions of Article 7(1) are but pious wishes: the paragraph is necessarily vague and therefore open to surprising results...the elements of regard to the international character of the Convention and uniformity in its application were well chosen. The first, as we have seen, was devised to check the homeward trend, and the second is an admonition to follow precedents on the international plane."[86]

To meet the challenges in the attempt to create a uniform international law, Article 7 was devised to allow judges, arbitrators, and counsel to refer to the court decisions of other signatory states. Thus, in addition to the courts' own evaluation of the issues in a particular case, international precedent should also be considered for its non-binding, persuasive value. In the spirit of international uniformity, courts need not follow international precedent if it is incorrect or inapplicable. However, there is a duty to consider similar cases from international practice. This is the notion of jurisconsultorium that permeates the Convention. However, as the Nova Tool case illustrates, this is where interpretive errors with the CISG most often seem to arise. Canadian courts have frequently become their own victims of the homeward trend, and invariably fail to transcend their domestic orientation. In doing so, they also fail to seek the autonomous-international interpretation that the CISG requires. In words that appear to foretell the course of Canadian CISG jurisprudence, R.J.C. Munday noted long before the CISG became effective that, "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."[87]

The particulars of the Nova Tool case are straight forward. A Canadian seller from Windsor Ontario, Nova Tool & Mold ("Nova"), and a U.S. buyer based in Ohio, London Industries ("London"), concluded a contract for the production and delivery of molds which London was to use to in the manufacture of automobile parts. Time was of essence in the contract, as London was required to meet the production schedule of its customer, Honda Motors. When Nova fell behind schedule, and London discovered numerous quality problems with the product during interim testing, the latter sub-contracted with another producer to finish one of the ordered molds. Accordingly, when Nova sued for payment, London counterclaimed for damages for the extra costs caused by the change of producer to finish the mold. London further claimed damages for breach of warranty, since some of the molds did not conform to the specifications of the contract.

At trial, Zalev J. ruled in favour of London, including its counterclaim. However, considering the international dimensions of this case, it is remarkable that she does not specifically address the issue of applicable law. Thus, no conflict of laws analysis is conducted. This would be understandable had this case arisen from an inter-provincial sale of goods, as there are few conflict of law issues arising from inter-provincial trade. In an international case, where the parties are from different states, this omission is disappointing, if not inexcusable. The trial court does acknowledge that this is a transaction for the sale of goods between a U.S. buyer and a Canadian seller. Having been adopted by the United States and in all jurisdictions in Canada, the CISG automatically applies to all foreign sales transactions when the parties are from two signatory states -- unless the parties exclude it. Considering that London and Nova did not bar the CISG as applicable law, it would apply by default.[88] Instead, the court relies either on the terms of the agreement between the parties or on Canadian case law and common law principles. This seems all the more perplexing considering that U.S. sales law could also, arguably, apply to the case. In fairness to Zalev J., it is likely that counsel failed to make this argument.

The sole reference to the CISG in the trial court's opinion is during the discussion on London's claim for breach of warranty. This is found at paragraph 61, and states:

"London relies on this contractual warranty and also relies on the implied warranties under the International Sale of Goods Act R.S.O. 1990 c. I.10. London relies particularly on Article 1(1)(a) and (1)(b), 35(1), 36(1), (2), 45(1)(a), (1)(b) and 74 all of which follow as Schedule 'B'."[89]

With this single exception, there is no more mention of the CISG and no analysis of any of these specific Convention articles. Why Zalev J. mentioned these articles at all is left for the reader to discern. With a few exceptions, the CISG, as incorporated into the provincial statute, addresses all the standard features of contemporary sales law, such as contract formation, conformity of goods, passage of risk, remedies for breach of contract, damages, etc. Zalev J. could have utilized it as readily as the Ontario Sale of Goods Act.[90] The end result would likely have been the same. But, as Ziegel notes, it's possible that counsel for London raised the issue of the applicability of the CISG in its pleadings, specifically as it related to Nova's breach of warranty obligations; thereafter, it did not mention the Convention in its oral pleadings at trial, so Zalev J. no longer felt compelled to raise any CISG issues.[91] However, considering the importance of the CISG as uniform law internationally, as well as the fact that this was Canada's first case on the Convention, the omission is striking. An important precedent could have been established had the jurists' in this case taken heed. Unfortunately, matters did not fare any better when Nova appealed the case. The Ontario Court of Appeal upheld the trial court's judgment but did not discuss or mention the CISG in its decision.[92]

With counsel for London having raised the issue of the CISG, Zalev J. should have insisted that the parties review and consider the relevant aspects of the Convention. Had this been done, the parties could have made reference to Article 7, which establishes the main interpretive rules of the Convention. In particular, it provides that, "[i]n 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."[93] This requires national courts to avoid recourse to domestic legal concepts, unless they have no other option. To this end, Article 7(1) emphasizes the importance of having due regard for the Convention's international character, as well as for the need to promote uniformity across all signatory states. Reliance on domestic law would likely lead to different, contradictory, and confusing rules, and would ultimately defeat the purpose of the CISG. As a result, the functional uniformity at the heart of the CISG requires that legal practitioners, tribunals, and courts look to standards of international practice in an interpretation or a determination of provisions of the Convention. In other words, the courts of the signatory states are obliged to consider the practice and judgments of other countries, in the form of non-binding precedent.

In non-CISG cases, Canadian courts have begun to recognize international practices. In particular, reference to the general principles of a treaty, as well as their interpretive rules, have been sanctioned by Canadian courts in recent years.[94] This cosmopolitan tendency is an interesting development considering that Canadian common law principles of statutory interpretation have been relatively more restrictive than their international counterparts, particularly the rules regarding extrinsic evidence, such as the use of legislative history. Generally, this is not admissible. However, the Supreme Court has taken a broad, international approach in a number of cases. For example, international agreements on human rights have been referred to as aids to the interpretation of provisions in the Charter of Rights.[95] In Pushpanathan v. Canada (Minister of Citizenship and Immigration), for example, the Court states that it must adopt an interpretation that is consistent with Canada's obligations under an international convention. It notes that these rules are articulated in the Vienna Convention, and allows for the use of several interpretive devices, such as the drafting history of, and preparatory work on the provision in question, as well as previous judicial commentary on the purpose and object of the treaty. The Court further considers the submissions of the individual state delegations to the convention from the travaux preparatoires.[96] This approach appears to be consistent with methods adopted by the Court in other rulings. For example, in R. v. Parisien, it cited Article 31 of the Vienna Convention, and stated that in interpreting Canada's extradition commitments to Brazil, a treaty must be read in context with reference to its object and purpose, as well as in the light of general principles of international law.[97] Unfortunately, the courts in Nova Tool failed to follow this line of reasoning.

Just as the Supreme Court has utilized an internationalist perspective and methodology in certain cases, some legislatures have also sanctioned this technique in laws that contain an international component. Provincial treaty-implementing legislation has recognized the need to refer to international sources to aid in the understanding of concepts that may be alien to domestic legal practitioners. For example, section 13 of Ontario's International Commercial Arbitration Act provides:

"13.  For the purpose of interpreting the Model Law, recourse may be had, in addition to aids to interpretation ordinarily available under the law of Ontario, to,
(a) the Report of the United Nations Commission on International Trade Law on the work of its eighteenth session (June 3-21, 1985); and
(b) the Analytical Commentary contained in the Report of the Secretary General to the eighteenth session of the United Nations Commission on International Trade Law, as published in The Canada Gazette, Part I, Vol. 120, No. 40, October 4, 1986, Supplement."[98]

This reference is apt considering that, like the CISG, the UNCITRAL Model Law is an international convention that is incorporated into the Ontario Act. It similarly introduces a number of words and concepts that may be foreign to the Canadian legal practitioner. This is the result of compromise at the international level, which invariably leads to an amalgam of ideas from civil and common law jurisdictions, as well as from non- and free-market economies, and developed and developing countries. Thus, in an interpretation of the Act, the courts are instructed to look beyond the narrower, domestic rules of statutory construction. As Henry J. notes in granting leave to appeal in Rio Algom Limited v. Sammi Steel Co.:

"There can be no doubt that the proposed appeal involves matters of considerable importance to the development of consistency in the application of the Model Law throughout the nations that have adopted it. As I understand it, the purpose and spirit of the [International Commercial Arbitration Act] in adopting the Model Law, was to make Ontario commercial arbitration law consistent with the law of other international trading countries so as to enhance and encourage international commerce in Ontario and the resolution of disputes by rules of international commercial arbitration: for this it is important that appellate courts address the issues emerging in this case."[99]

(iii) International Precedents and the CISG

As the Nova Tool case illustrates, the CISG requires legal practitioners to refer to and, if appropriate, utilize emerging case law from other signatory states. With the burgeoning of case law on the Convention globally, the practice of considering foreign cases is slowly emerging -- at least in jurisdictions outside Canada. A review of this development provides some perspective on Canada's place within this larger jurisprudence. In particular, the issues of contractual and implied warranties in Nova Tool have been considered in a number of other international CISG cases. For comparative purposes, it is interesting to take into account how some of these jurisdictions have dealt with these issues, as well as look at the extent to which they have referred to foreign case law.

There is no doubt that an autonomous-international interpretation of the CISG could have informed the court in Nova Tool. For example, the breach of warranty issue raised in relation to CISG Article 35 is often implicated in many commercial sales disputes -- both domestically and internationally -- due to the nature of the seller's key obligation: that it provide goods of the quantity, quality, and description required in the contract. This usually requires a trial court to conduct an evidentiary inquiry to determine whether there was non-conformity, and if so, the nature and extent of the non-conformity. In such cases, as, for example, Nova Tool, considerable reference is made to the description of the goods in the contract. In a purely domestic transaction, national law is cited, and the decision is made on this basis. However, national laws differ world-wide on this point. For example, the corresponding provisions to Article 35 are those contained in the Ontario Sale of Goods Act sections 14, 15, 16, and 55.[100] There are similarities between the CISG provisions and the provincial provisions, but there are also some significant differences. If the CISG is to provide uniformity for parties involved in international transactions, courts are obliged to harmonize divergent national sales laws by considering international practice and the relevant judgments of courts in other signatory states. Thus, the extent to which foreign courts have been influenced by the homeward trend, or have sought uniformity of interpretation at the international level in similar CISG cases, requires consideration.

It has been less than a decade since the first cases on the CISG began to refer to foreign case law in search of the non-binding precedents that the Convention requires courts to contemplate in the quest for international uniformity. The first country to consider foreign precedent in a CISG case was Italy, in 1996. As in Nova Tool, the Italian case of Sport d'Hiver di Genevieve Culet v. Ets. Louys et Fils also involved the issue of product non-conformity.[101] In its ruling, the Italian court referred to similar CISG cases in Switzerland and Germany before reaching its verdict.[102]

In 1999, the Austrian Supreme Court considered a dispute involving the sale of non-conforming wall panels from a German seller to a buyer in Vienna.[103] In the attempt to resolve the dispute, the parties agreed that the panels would be shipped back by the buyer. However, upon return of the product, the seller found them to be severely damaged and unfit for resale. The seller invoiced the buyer for the value of the panels, claiming that they were not shipped back correctly. It also took the position that the buyer had assumed the transportation risk. The court held that the shipping of non-conforming panels constituted a delivery of non-conforming goods and a breach of contract under CISG Article 35, as opposed to a non-delivery of goods. This distinction is significant as it provides that the seller retains the risk of loss per CISG Article 82(2)(a) and (b). By contrast, Austrian sales law would have made a distinction between the delivery of non-conforming goods and non-delivery of conforming goods.[104] This distinction hinges on the degree of the deviation from the contract and on whether the incorrect delivery was subject to approval. In resisting the temptation of applying domestic law, the court considers this distinction with reference to academic CISG commentary. By relying on these authorities, the court suggests a commitment to interpret the CISG in a manner that promotes international uniformity.

A similar case was decided in Belgium in 2001.[105] While this case arose after Nova Tool, it is still interesting to consider the difference in the judicial approach applied elsewhere. In its attempt to avoid paying the contract price for goods, the buyer claimed a "non-conforming delivery" and "latent defects," but invoked the Belgian commercial code to support its position.[106] In the decision, the court referred to existing case law and other authorities, but resisted the homeward trend and held that the CISG to be the applicable law. More importantly, the court insisted that "[t]he CISG knows only one uniform concept of conformity," and within the Convention, "no distinction is made between a guarantee against latent defects and the seller's obligation to deliver. The seller must deliver conforming goods and that is all."[107]

One of the more remarkable applications of the interpretive methodology embodied within the CISG is another Italian court ruling, Tribunale di Vigevano, decided in 2000.[108] In a consideration of product non-conformity and notification rules under CISG Articles 35 and 39, the judge cited cases from Austrian, Dutch, French, German, Italian, and Swiss courts, as well as ICC arbitral awards.[109] The court also noted two CISG websites and the UNILEX database on the CISG.[110] While recognizing the non-binding nature of these cases, the court remarked that the purpose in making these references was "to assure and promote uniform enforcement of the United Nations Convention [the CISG]."[111] Not surprisingly, this decision has been praised by CISG scholars as ground-breaking in the quest to have courts advance the goal of uniformity and discourage the natural inclination to domestic legal concepts and authorities. As Franco Ferrari remarks:

"The conclusions which may be drawn from reading the Tribunale di Vigevano decision are obvious. Recourse to foreign court decisions in interpreting and applying the CISG, something that legal scholars have been asking for from the time the Convention came into force, is apparently possible. It is equally obvious, however, that not all courts (as mentioned earlier) will apply the CISG as did the Tribunale di Vigevano. We can only hope that the Tribunale di Vigevano will soon be called upon to decide another case dealing with the CISG."[112]

Ferrari is correct in suggesting that CISG uniformity is best achieved when courts make reference to foreign judgments. Fortunately, these references appear to be occurring more frequently than in the past, particularly in Italy where many judges are relatively young, and have had legal training on the CISG.[113] Two years after the Vigevano case, another Italian court, in Rimini, cited 37 CISG precedents in a single ruling.[114] As in Nova Tool and the foreign cases noted above, this case also involved various articles of the CISG concerning non-conforming goods. Since the Rimini case, two other Italian decisions have referred to foreign CISG jurisprudence, but these cases did not involve issues of product non-conformity.[115]

Foreign courts have also considered the issue of damages for breach of contract under the CISG. As already noted, the issue of damages under Article 74 was raised by London in Nova Tool, but it received only a single mention in the trial court's judgment, being lumped together with the breach of contractual and implied warranties.[116] As the first Canadian court to interpret the CISG, Zalev J. in Nova Tool should have conducted a thorough analysis of all the relevant facts and applied them to all of the appropriate provisions of the Convention. Such an application could have contributed significantly to the development of case law on the CISG, not only within Canada, but internationally as well. Unfortunately, by referring to strictly domestic legal concepts, the court in Nova Tool missed another opportunity during its discussion on damages for breach of contract. For example, the court considered the common law concepts of accord and satisfaction, and setoff. It similarly discussed the mitigation of damages and calculated these with reference to domestic law. It failed to invoke any reference to the CISG, particularly, Articles 74-77, which establishes a unique set of rules for damages.

The Canadian court in Nova Tool is not alone in its failure to consider the relevant aspects of the CISG. As a relatively new law in 66 countries around the world, it might be expected that legal practitioners in the signatory states will need time to become familiar with the CISG and its unique interpretive methodology. In fact, the worldwide collection of case law on the Convention is replete with instances were courts have displayed remarkable ignorance of the CISG. Even common law courts in other signatory states have made interpretive errors with the CISG. For example, a controversial American case in 2002 also considered damages under Article 74, and overturned a district court ruling.[117] It did so even though the court deemed the CISG to be the governing law. Further, it ultimately held that because certain references or terms were not explicitly mentioned in Article 74, such as legal fees being recoverable as damages, the matter was not expressly settled by the CISG. The gap was, thus, filled by domestic law, even though there was a wide body of extant case law from other CISG signatory nations holding that legal fees are recoverable under Article 74.[118] While a flawed analysis of the CISG led to an imperfect decision, the court still seemed to have a more advanced understanding and appreciation for the Convention that did its Canadian counterpart in Nova Tool. So too did the U.S. Solicitor General. In an interesting statement in the certiorari petition to the U.S. Supreme Court, the Solicitor General pointed out the importance of seeking international uniformity in the CISG:

"Article 7(1)'s reference to 'the need to promote uniformity in [the Convention's] application' is not appreciably different from the rule that judicial decisions from other countries interpreting a treaty term are 'entitled to considerable weight'."[119]

It might be suggested that broad interpretations of CISG provisions, such as that suggested by the use of Article 7(1), could lead to extreme results or the establishment of erroneous precedent. As if acting reflexively, the court in Nova Tool adopted the default approach: it provided neither a broad nor narrow interpretation of the Convention. Rather, it effectively ignored the CISG. In doing so, it failed to discuss, apply, or analyze the CISG in any meaningful way. Instead of taking the opportunity to chart new legal territory, it fell back on familiar domestic legal concepts. The result is an opinion that provides little insight into the much-anticipated first Canadian court decision on the Convention. In this respect, the court in Nova Tool seemed to set the tone for future cases.

CHAPTER 4:  LA SAN GUISEPPE v. FORTI MOULDING:  A SMALL STEP FORWARD

(i) Background to the Case

Shortly after the release of the court decision in Nova Tool, another judgment involving the CISG was released in Ontario. While this case can be considered an improvement over the handling of the CISG in Nova Tool, it also fails to properly apply the Convention. In particular, while the CISG is deemed to be the governing law in La San Giuseppe v. Forti Moulding Ltd., its application and treatment by the court is far from satisfactory.[120] Relevant points of the CISG were overlooked, including the requirement that the court recognize the international character of the Convention, as enunciated in Article 7(1), in the goal of promoting interpretive uniformity.

In La San Giuseppe, an Italian manufacturer of picture frame mouldings (La San Guiseppe) sold its product from 1989 to 1996 to a Canadian buyer (Forti Moulding), located in Toronto.[121] La San Guiseppe also sold a piece of equipment to Forti Moulding, a double mitre saw. In the numerous transactions over the course of seven years, there was no written agreement between the parties. Around 1995, Forti Moulding encountered financial difficulties and became delinquent in meeting a series of payment deadlines that had been granted by La San Guiseppe. The latter party thus initiated an action against Forti Moulding to recover a balance owing of 48,707,460 lira plus interest. Forti Moulding counterclaimed for about twice this amount for damages,[122] alleging lack of conformity of some goods, over-shipments, and added that the mitre saw was defective.

(ii) Application of the CISG

In commencing this action in Ontario, La San Guiseppe argued that the CISG was the governing law in the case, having been in effect in Ontario since its incorporation into law through the International Sale of Goods Act in 1992.[123] The defendant argued that, although the CISG became effective in Italy in 1988, it did not apply in this case because the initial, master contract between the parties was made in 1989 and, therefore, before the Convention became law in Ontario. Based on this argument, the defendant appeared to have been referencing Article 100(1), which provides that the rules on the formation of the contract (Parts I and II of the CISG) are applicable only when "the proposal for concluding the contract" is made on or after the Convention enters into force for the relevant contracting state or states.[124] Furthermore, pursuant to Article 100(2), the rules governing the rights and obligations under contracts (Parts I and III of the CISG) are applicable "only to contracts concluded after the date when the Convention enters into force" for the relevant contracting state or states.[125] In other words, the Convention does not have retroactive effect. The court also correctly noted that the contract was for the sale of commercial goods, and not a contract for the supply of personal or domestic goods. Thus, Article 2(a), which provides that the CISG does not apply to goods bought for personal, family, or household use, did not exclude the contracts between the disputing parties.

Swinton J. found that no contract was made between the parties in 1989, that is, prior to the CISG becoming law in Ontario. Rather, in their initial dealings, they simply agreed to establish a business relationship. This happened to last for several years, but back in 1989 there was no master agreement that contained the essential terms to create a sales contract, such as price, quantities, term, or payment conditions. Thereafter, each order made and accepted between the buyer and seller created a new contract. The result was the formation of a series of individual contracts and transactions for the supply of goods over the course of many years. Considering that the items in dispute arose during or after 1993, Swinton J. correctly concluded that the CISG was the applicable law. However, in arriving at this conclusion, she made a few stumbles along the way. One example illustrates a certain lack of comfort and familiarity with an international convention. In her opening paragraph on the issue of governing law, Swinton J. noted that La San Guiseppe had failed to provide documentary proof that Italy signed the CISG in 1986.[126] Nevertheless, she was willing to forgo this requirement because Italy's signature was a matter of "public record."[127] There is no explanation why accession by a foreign country to an international convention might be a matter of public record, or what requirements the court has for a party to prove that a particular international convention or local law applies in a foreign jurisdiction. The remark, thus, fails to clarify whether international conventions merit the same judicial notice as federal and provincial legislation within Canada. Furthermore, if this were the case, Swinton J. should have noted whether this were due to a common law rule or because a federal or provincial statutory provision required such notice.

Furthermore, in her opinion Swinton J. referred only to Article 1 of the Convention when ruling that the CISG did apply. No mention or analysis of Article 100 was undertaken, which seems odd considering the defendant appeared to rely on it in the attempt to dismiss the application of the CISG as governing law. Rather, she stated that "pursuant to Article 1, the Convention applies both because the contracting parties have places of business in contracting states, and because the rules of private international law lead to the application of the law of a contracting state -- namely, Ontario."[128] The latter part of this sentence is a reference to Article 1(b) which provides that the Convention also applies to contracts of sale of goods between parties "when the rules of private international law lead to the application of the law of a Contracting State."[129] To further confuse matters, while Swinton J. is correct in noting that the CISG applies to parties with businesses in different contracting states, her claim that the rules of private international also lead to Ontario as the applicable law of a contracting state is also perplexing for two reasons. Firstly, without a written contract it would remain up to the court to determine which of Ontario or Italy would have the closest connection with the contracts. As the seller, La San Guiseppe performed most of its contractual obligations in Italy. A strong argument could be made that Italy was, thus, the more appropriate forum. On this note, there is no further discussion. A possible reason for this void is that counsels for both parties were not interested in raising or pursuing the issue. That being the case, why Swinton J. brought it up is all the more puzzling. Secondly, if the CISG applied because the disputing parties were located in different contracting states, why Swinton J. felt the need to refer to -- or possibly invoke the rules of -- private international law is also bewildering. Private international law may lead to an application of the CISG when a party resides in a non-contracting state. This might be the case, for example, where a forum's conflict of law rules point to the law of a CISG contracting state, or where both parties have their places of business in different contracting states, but find themselves in a court of a non-contracting state whose rules of private international law point to the law of a contracting state. None of these situations were present in this case, so the need to refer to the rules of private international law in a determination of the CISG as governing law is superfluous.

(iii) Lack of Conformity and Reasonable Time

One of the key issues in the case was whether the buyer, Forti Moulding, gave notice of lack of product conformity within a reasonable time to the seller. This is a requirement of Article 39 of the Convention, and is also one of the most litigated articles in the courts of the signatory states, accounting for about one-quarter of all cases worldwide.[130] The reason for such a large number of cases is likely due to the vague and subjective nature of the term "reasonable time," and the fact that criteria for determining a "reasonable time" period was never included in the Convention,[131] even though the term is used in approximately 37 provisions of the CISG.[132] Even without taking into account the definitional complexities of this term, most sales controversies grow out of disagreements concerning whether goods conform to the contract. While Article 38 provides rules on how soon the buyer "must examine" the goods, Article 39 provides that a buyer notify the seller "within a reasonable time" after it discovers, or ought to have discovered, that the product does not conform to the contract. The latter article also provides that notice of non-conformity in all cases must be no later than two years after delivery. By comparison, from a Canadian common law perspective, this is a drastic provision, as no provincial sale of goods act contains prescriptive periods for initiating an action, or imposes time limits to preclude buyers from complaining about non-conforming goods.[133] One common element in the jurisprudence of all signatory states of the CISG, however, is the obligation of the buyer to demonstrate the reasonableness of the time in which it gave notice of the non-conformity to the seller.[134] Under the CISG, failure to notify the seller of the non-conformity within a reasonable time will usually deprive the buyer of all remedies, including the right to claim damages. This is a relatively harsh sanction, and may help to explain why Forti Moulding attempted to argue against the application of the CISG as the governing law in this case.

In considering the issue regarding the alleged non-conforming goods, the court rejected the claim by Forti Moulding because timely notice had not been given as required by Article 39. In addition, the buyer had not made any written complaints as to the lack of conformity until it filed its Statement of Defense with the court a few years later.[135] Furthermore, the court rejected reliance on Article 40, which provides that the seller cannot rely on the limitation period if it knew, or should have been aware, of the non-conformity, and did not disclose this fact to the buyer. As there was no evidence to support a conclusion that the seller was aware of the defects, the end result was that the buyer could not rely on Article 40 to counteract the debilitating effects of Article 39. A similar approach was also used when deciding the issue concerning the mitre saw. The court held that La San Guiseppe gave no warranty on the saw when it sold it to Forti Moulding. However, the court should have explored Article 35(2)(a) of the CISG, which provides for an implied warranty of merchantability on all sold goods, unless "the parties have agreed otherwise."[136]

In an interesting comment that appears to demonstrate a lack of understanding of the interpretive methodology of the CISG, Swinton J. recited the defendant's argument that it made complaints orally to La San Guiseppe on many occasions. She then commented that "the defendant argued that the complaints are not barred, and the serious defects in the goods, as well as overshipments, entitle it to remedies in accordance with the Sale of Goods Act, R.S.O. 1990, c. S.1."[137] Similarly, further into her judgment, Swinton J. finds that there is "no basis for the claims that the goods were not of merchantable quality nor in compliance with their description under ss. 14 through 16 of the Sales of Goods Act."[138] She commented no further on how the Ontario Sales of Goods Act can coexist with the CISG as the governing law in this case. As already noted in Nova Tool, courts should not interpret provisions of the CISG and invoke, or analogize, them to domestic law provisions covering the same issues. To do so is to misapply the CISG, and would lead to fragmentation and inconsistency in the application of the Convention, which is contrary to the objective of uniformity. In fairness to Swinton J., as Ziegel notes, it is possible that in these references to the Ontario Sales of Goods Act she was duped into responding to the buyer's pleadings to invoke domestic law.[139] The correct approach would have been to hold firm to the position that there was no need to refer to or apply Ontario's internal sales rules, as the CISG was the applicable law governing the case. In the CISG's attempt to codify the law on contracts for the international sale of goods, it was designed to replace existing domestic laws and case law. In this respect, as Felemegas notes, "it was not meant to be complementary to national laws; rather, it was intended to be an exhaustive regulation."[140] Even with the gaps that do exist in the CISG, the first attempt should have been to try to resolve them, not by reference to relevant provisions of Ontario sales law, but rather by analogizing them to the "general principles" on which the Convention is based.[141] Utilization of the "general principles" of the CISG can be an important, but not exclusive, mode for filling gaps in the Convention. To some scholars, such as Felemegas, this self-contained interpretive methodology is comprehensive enough in scope that "it should be a rare, or non-existent, case where there are no relevant general principles to which a court might have recourse under Art. 7(2)."[142] Unfortunately, this has not been the case in Canadian courts, which frequently seem inclined to rely on domestic law and legal principles -- even when gap-filling is unnecessary.

As to the alleged overshipment, the court found that the parties had agreed to a ten percent variation of the ordered quantity and that on previous occasions higher quantities had been accepted and paid for by the buyer. In a now-familiar pattern, Swinton J. rejected the claim pursuant to Article 52(2) of the CISG, "and s. 29(2) of the Sale of Goods Act," where "there can be no complaint several years later."[143] This is the third occasion in which the court has co-mingled Ontario's internal sales with the CISG. As already noted, the homeward trend of applying provincial sale of goods act analogues to an international sales dispute is antithetical to the principles under Article 7 of the CISG. Furthermore, even in her reference to CISG Article 52(2), Swinton J. misapplies the provision. What it states is that the buyer has the option to either reject the excess quantity, or to pay for it and retain the overshipped goods. More precise wording could have been used if, by this reference, the court instead meant to say that due to the lengthy delay in reporting non-conforming goods, the buyer was estopped from denying that it had agreed to retain the excess goods.

In concluding, the court dismissed the defendant's counterclaim, and awarded judgment in favour of the seller for the amount owing, plus pre- and post-judgment interest "in accordance with s. 128 of the Courts of Justice Act."[144] What the court failed to recognize is that, as a case governed by the CISG, Article 78 of the Convention, which covers the seller's entitlement to interest, should have been applied in lieu of domestic law. Under Article 78, recovery of interest is authorized on the payment price or any sum in arrears. While the CISG is silent on the computation of the rate of interest, reference to Article 7, the legislative history of the Convention, and scholarly opinion would likely lead to the conclusion that the rate of interest should be that in the country where the injured party has its place of business, in this case, Italy.[145] By contrast, application of the Courts of Justice Act would lead to a rate of interest prevailing in the jurisdiction that is deemed to be the proper law of contract, that is, Ontario.[146]

Similarly, the court decided that the currency conversion of the sum owing of 48,707460 Italian Lira should also be decided with reference to domestic law, per the judgment date rule. There is no provision in the CISG that addresses the proper date for currency conversion. This being the case, the court should have engaged in gap-filling, according to the procedures of Article 7(2). Obviously, the court did not consider the determination of a date for exchange rate conversion as being governed by the Convention, as no gap-filling analysis was conducted. As the matter was governed by the CISG and a gap existed, the court was required to first look to the general principles of the convention. If this did not provide a solution, the court should have then looked to the rules of private international law. Therefore, in this case, the outcome may have led to the same end result.

While an imperfect and inconsistent decision in terms of its treatment of the CISG, the court's attempt to deal with the Convention was superior to the handling it received in Nova Tool. In this respect, from a positive perspective, La San Guiseppe can be deemed a step forward in Canadian jurisprudence on the CISG; more realistically, it also suggests that much progress remains.

CHAPTER 5:  MANSONVILLE PLASTICS v. KURTZ:  BREACH OF CONTRACTUAL OBLIGATIONS AND THE CISG

(i) Introduction

As already noted in the cases discussed thus far, most sales disputes arise out of some disagreement over whether the goods conform to the contract. Even the most thorough contract may fail to cover the issue that ultimately leads to litigation. Consequently, it is often up to the courts to determine the exact nature of each parties understanding and expectation at the time of the sale. In different legal jurisdictions, this problem is dealt with in various ways. For example, in common law jurisdictions, this issue is covered under the concept of "implied warranty," "expressed warranty," or "condition" regarding product quality or fitness for a purpose. By contrast, civil law jurisdictions use a different approach, and deal with issues of quality on the basis of distinctions between "latent" defects (vices cachés) and "apparent" defects (vices apparents).[147] Similarly, the concept of "merchantability" or "merchantable quality," is a standard of conformity that is found in English common law.[148] Its counterpart is the "average quality rule" found in the German, Austrian, French, and Swiss civil codes.[149]

As these examples illustrate, these words are unique to specific jurisdictions and are charged with legal meaning. To resolve these differences, the CISG requires the displacement of domestic legal concepts, such as "warranty," when determining each party's respective understanding and expectation upon contract formation. This explains why the CISG uses words that describe specific events, or results, that are typical in an international transaction, and not technical terms charged with legal meaning specific to a legal regime. This innovative approach to a common legal language within the CISG has been dubbed a new lingua franca.[150] This was a desired outcome among the delegates at the convention that created the CISG. John Honnold, who served as the head of UNCITRAL during the drafting of the CISG, noted that delegates at Vienna focused on hypothetical situations and sought consensus on desired outcomes typical in an international business transaction.[151] This allowed them to rise above the conceptual barriers of their own legal background, and to reach common and acceptable solutions that would be able to transcend national borders. Similarly, courts are required to apply the plain or generic language embodied in the CISG in the quest for international uniformity. This is an "open-textured" approach.[152] As Amy Kastely notes on her rhetorical analysis of the CISG, "[t]o unify the law among nations means to subject people around the world to a single set of rules and principles and to have them understand and conform to these rules and principles as they would to the laws of their own communities."[153] However, this "requires the establishment of a shared language in which legal deliberation can be conducted."[154] Without this understanding and sense of community, there would develop divergent court and arbitral opinions on the CISG. This would also ultimately destroy the Convention's goal to create a truly international law on sales contracts that bridges various legal regimes. Unfortunately, as the following case illustrates, Canadian courts have resisted membership in this textual community; they have struggled with the notion that the CISG requires them to utilize legal terminology and concepts that are not of domestic origin. In other words, Canadian courts have been reluctant to discard their interpretative baggage.

In Mansonville Plastics (B.C.) Ltd. v. Kurtz GmbH, the plaintiff ("Mansonville") of Surrey, British Columbia, claimed damages of approximately $2.7 million against the defendants (collectively known as "Kurtz") claiming deficiencies and defects in relation to two pieces of equipment that Mansonville purchased from Kurtz.[155] Kurtz is an international equipment manufacturer with its head office in Germany and production facilities in Austria. It also has a sales and service office in Wisconsin, USA. The equipment Mansonville purchased was used for the manufacture of polystyrene (or "styrofoam") construction products. In its claim, Mansonville alleged breach of contract and breach of statutory warranties of fitness. This related to the claimed late delivery of equipment from Kurtz, as well as from the inability of the machines to produce styrofoam of the quality claimed by the company's representatives at the time of the sale. The equipment failure lasted for approximately two years, but subsequent adjustments to the machinery ultimately produced satisfactory product. However, some deficiencies in the equipment could not be corrected, and required the on-going expenditure of additional manufacturing time and materials to produce styrofoam of an acceptable standard to the industry. Kurtz defended the action on the basis that there were no breaches of contract or statutory warranties. It took the position that many variables are involved in manufacturing styrofoam, and claimed the equipment was mechanically sound, and that it had operated within its normal parameters. In any event, Kurtz also maintained that Mansonville's claims were time-barred under German law, which it argued was the applicable law.

(ii) Applicable Law and the CISG

A sales contract cannot exist without a governing law, which provides a mechanism for the interpretation and enforcement of the contract in cases of dispute. In most jurisdictions around the world, the choice of governing law in an international sales contract can be determined by the parties.[156] The application of the CISG is governed by Article 1. In an international sale of goods transaction, the Convention automatically applies if both parties are from signatory states or if the rules of private international law lead to an application of the law of a signatory state.[157] Furthermore, the CISG is self-inclusive in that Article 6 requires that the Convention be excluded if the parties do not want it to govern their contract.[158] It must be noted that if a contract is silent on the application of the CISG, but, for example, the contract generally stipulates that the laws of British Columbia, are to apply, the Convention is thought to be applicable as it is incorporated into the province's domestic law. As the contract between Masonville and Kurtz did not stipulate the governing law, domestic conflict of law rules provide that the private international law of the state which has the "closest and most substantial connection" to the contract would be applied.[159] While the CISG is silent on the choice of law issue, the "closest connection" test appears to be in harmony with Article 10 of the CISG. It provides that "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."[160] Thus, the first issue to be resolved by the court was to determine the jurisdiction with the closest connection to the contract and, secondly, whether Mansonville's claims were time-barred by the applicable law. All parties agreed that should German law be deemed to apply, Kurtz would be able to use the time limitations defence to effectively bar the claim. Contrarily, the parties noted that should Austrian or British Columbia law apply, the claim would not be time- or statute-barred. For these reasons, the laws from these three jurisdictions were all deemed to be potentially applicable by Tysoe J. U.S. law was not considered, even though Kurtz had a sales and support centre in Wisconsin. Tysoe J. felt that although the U.S. office was involved in the servicing of the equipment sold to Masonville, this did not make it a vendor or a party to the contract.

While all of the jurisdictions involved in the case have implemented the CISG, Tysoe J. provided no explanation as to why the claim would be barred in Germany, but not in British Columbia or Austria. Presumably, he was considering the various limitations laws concerning procedure and not the CISG, which theoretically provides uniform treatment to all parties in any signatory jurisdiction. As such, the CISG is designed to discourage "forum shopping" as it applies the same law to all litigants, regardless of whether one is in a home or a foreign court. However, with the CISG as the law governing the transaction, it would be thought that the time limitations issue would have been determined with some reference to the CISG, at least regarding the matter concerning the amount of reasonable time within which a notice of lack of conformity must be given.[161]

After all, almost one month had lapsed between the time that the equipment was set-up and operating properly and notice sent to Kurtz that there were apparent production problems.[162] Considering this delay, the CISG's notice requirement under Article 39 should have been addressed by the court. Instead, Tysoe J. determined the time-bar and statute-bar issues on the basis of domestic case law and common law principles. In the final analysis, the court determined that Germany, and then Austria, had the least connections to the transaction.

(iii) 'Statutory Warranties' and the CISG

Having deemed British Columbian law to prevail, Tysoe J. next considered the various claims of breach of contractual obligations between the parties. In the process, he utilized the common law term "statutory warranties," even though that phrase is found nowhere within the text of the CISG. Furthermore, although Article 35 of the CISG mirrors the common law concepts of express and implied warranties, it is perplexing that the plaintiff initiated this action on the basis of an alleged breach of "statutory warranties" when the CISG utilizes much more neutral terminology.[163] This nuance was obviously overlooked by the court and counsel, but it is typical of the entrenched domestic legal concepts among jurists' in Canada.[164] One possible explanation for this oversight is that, although Article 35 of the CISG is not identical to common law provisions on statutory warranties of fitness, they are substantially similar and would likely lead to a comparable result. However, as C.M. Bianca notes in his commentary on Article 35, the CISG makes a concerted effort to avoid "the various distinctions still acknowledged in domestic laws between conditions and warranties [in common law], and specially the difficult [civil law] distinction between delivery of goods of a different kind (aliud pro alio) and defects or lack of qualities."[165] Article 35 replaces these distinctions with the concepts of non-fundamental and fundamental breach of contract.[166] In other words, the CISG focuses, not on the technical language of a specific legal regime, but on an action, in this case being whether or not the seller has provided goods conforming to the terms of the contract. If the goods are found to be defective or without the due qualities, the contract has not been properly performed. Thus, under the CISG, non-conforming goods are regarded as a defective performance of the seller's delivery obligation.

One of Masonville's assertions was that Kurtz was late in its delivery of the equipment. Kurtz defended its position by noting that Mansonville forfeited the right to complain about late delivery because it was the first party to breach its obligations under the contract. This breach concerned the requirement to provide Kurtz with a deposit upon order of the goods through a letter of credit. During the delay in receiving this payment, Kurtz suspended its work on the equipment. While payment in full was eventually provided to Kurtz, it arrived two weeks late. The court found that this delay was not a sufficient defence for Kurtz's own tardiness in supplying late goods to the buyer. Even by taking into account the two week delay in payment from the buyer, Kurtz was still six weeks late in supplying its equipment.

In the first reference to the CISG, Tysoe J. noted correctly that "the fact that Mansonville was in breach of its obligations under the contract does not necessarily excuse Kurtz from the performance of its obligations."[167] In limited circumstances, the CISG allows for anticipatory breach or suspension of performance if it becomes apparent that the other party is unable to substantially perform because of a serious deficiency in its ability to honour its contractual obligations. The aim is to provide a remedy while keeping a contract alive. With an apparently respectable grasp of the CISG, the court stated:

"Kurtz relies on the United Nations Convention on Contracts for the International Sale of Goods (the "Convention"), which is made applicable in British Columbia by the International Sale of Goods Act, R.S.B.C. 1996, c. 236 (and which is also applicable in Austria and Germany). Article 71 of the Convention provides that a party to a contract may suspend the performance of his obligations if it becomes apparent that the other party will not perform a substantial part of his obligations. Subsection (3) of Article 71 states that a party suspending performance must immediately give notice of the suspension to the other party."[168]

As Tysoe J. recognized, one limitation on suspension of performance is that the suspending party must give immediate notice of the suspension to the other party. This notice requirement enables the defaulting party to give adequate assurance of its performance. If a party declares that it will not perform its obligations, notice does not need to be provided. Fortunately, the court determined that the notice and assurance requirements were adequately provided by the respective parties.

Tysoe J. was less successful in his treatment of Kurtz's obligation to provide goods that were fit for the purpose know to the seller at the time of the conclusion of the contract. As already noted, even though the CISG does not utilize the common law term "statutory warranties," Tysoe J. analyzed the transaction on the basis of this domestic legal concept. In the process, the requirement to observe the international character of the CISG was neglected. His analysis began under the heading "Statutory Warranties of Fitness,"[168] and noted:

"Article 35 of the Convention reads, in part, as follows:
'(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 purpose 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...'."[170]

In a typical example of the homeward trend, Tysoe J. concluded this section by combining domestic law and common law principles with the CISG. He stated that "[s]ections 17 and 18 of the B.C. Sale of Goods Act, R.S.B.C. 1996, c. 410 are to like effect."[171] Not only is this comparison a simplification, but, as already noted in the Nova Tool and La San Guiseppe cases, mixing domestic law with the Convention is antithetical to the requirements of CISG Article 7, and suggests judicial parochialism. As John Felemegas observes in his study on Article 7, "[a]ny interpretation of the CISG's terms that relies on specific national connotations will be calamitous because what is wanted is an interpretation of the CISG that is not only uniform, but truly international as well."[172] With this brief reference, Tysoe J. demonstrated the court's inability to transcend its domestic orientation. In doing so, there was a failure to pursue an autonomous-international interpretation of the CISG.

Immediately following these references to the CISG and domestic law, Tysoe J. invoked the leading domestic case law on statutory warranties of fitness. Had he instead remained true to the requirements of Article 7 and treated the CISG as an autonomous-international document, Tysoe J. would have deferred to the relevant judicial opinions from other signatory states. While there are plenty of examples of cases that provide poor treatment of the CISG, many others are sensitive to the international character of the Convention, and are illustrative of the resistance to the homeward trend. It is these latter cases which tend to be praised by CISG academics and are the subject of much scholarly commentary.[173] They are also readily available in translated form.[174] As already noted above in the Nova Tool case, international cases on Article 35 of the CISG are growing, and it is case law of this type that the court needed to refer to in order to guide its approach in interpreting and applying the Convention in an internationally uniform manner. Instead, Tysoe J. referred to five domestic cases, and one U.S. case -- which seems incongruous considering the judicial parochialism evident in the decision -- to direct him in the treatment of Article 35.[175] None of these cases concerned the CISG or involved the international sale of goods. Yet this did not prevent the court from finding that "Kurtz did not breach the statutory warranty of fitness under either the Convention or the B.C. statute."[176]

The co-mingling of the CISG and local law appears to be an unfortunate, but common, feature of Canadian jurisprudence. But perhaps ignoring the CISG altogether is preferable to mixing it in an inappropriate way with domestic law. In the second half of his decision, Tysoe J. considered Masonville's accusation that Kurtz breached its contractual warranties to the buyer. This involved alleged promises made by Kurtz prior to the purchase of the equipment. However, there was no further reference to the CISG in the court's relatively detailed analysis of the claimed breach. This omission is glaring considering that the court acknowledged the application of the CISG as governing the transaction. It also referred to the Convention in the first half of the decision during the discussion on the breach of statutory warranties of fitness. Without explanation, Tysoe J. assessed the breach of contractual warranties with sole reference to domestic case law and the common law principle of the parol evidence rule. On this basis, he found that Kurtz did breach some contractual warranties to the buyer regarding the performance of the equipment. The CISG could have equally guided the court in this analysis. For international sales transactions, it provides norms and principles for contractual interpretation and the introduction of evidence. For example, Article 8 generally permits all relevant circumstances, including the negotiations, to be considered in the course of contract interpretation, and Article 9 incorporates certain trade usages into the contract. Similarly, Article 11 provides that a contract and its terms may be proved by any means, including by witnesses, and need not be in writing. These rules should trump domestic rules on the interpretation and evidence of contractual agreements.

(iv) Damages, Interest, and the CISG

The court found that Mansonville was entitled to be compensated in damages for the breach of contract resulting from the six week delay in delivery of the equipment, as well as for the breach of the contractual warranties regarding the initial and ongoing performance problems with the equipment. In assessing damages, the court considered several domestic cases, and heard expert testimony from both parties on the calculation of the economic loss allegedly incurred by Masonville. Citing provincial case law, Tysoe J. ruled that these calculations were based on assumptions which may not be valid, and that the assessment of damages could not be done with sole reference to mathematical calculations.[177] As the governing law, the CISG could have provided similar guidance. Article 74 provides that an injured party may recover as damages "a sum equal to the loss, including loss of profit, suffered...as a consequence of the breach." This incorporates the notion that an action for damages is to place an injured party in the same economic position it would have been in had the contract been performed. The reference to "loss of profit" is made explicit because certain domestic legal systems do not recognize the concept of "loss" to include loss of profit.[178] It must be noted, however, that while the court considered damages for breach of contractual warranties, the CISG has no separate provision for a breach of this type. Instead, Article 74 applies to all breaches of contract. But like domestic law, there are no specific rules in Article 74 describing the appropriate method for determining the loss suffered as a consequence of the breach. Courts are allowed to use their discretion to calculate a loss in a manner that is best suited to the circumstances.

In the final analysis, Masonville was awarded $575,100 plus pre-judgment interest. While the CISG contains two explicit references to interest,[179] it provides no guidance for calculating interest and gives no indication of the circumstances under which pre-judgment interest should be awarded. Article 78, however, does introduce the broad principle of a general entitlement to interest.[180] Furthermore, there are numerous CISG cases from other signatory states on the subject of interest, but they are not consistent their rulings.[181] The three general approaches to the matter are: i) the CISG determines rate of interest by recourse to its "general principles" under Article 7(2); ii) the rate of interest is determined in conformity with the law applicable by virtue of the rules of conflicts of law of the forum; or, iii) the rate of interest is determined by the law of the forum without reference to its rules of conflicts of law.[182] As the Masonville court made no reference to the CISG or to the conflict of law rules, by default it would have calculated interest by its internal rules. Some commentators have suggested that the basis for this position is that the calculation of interest is a procedural issue.[183] As such, it is subject to the law of the forum, without reference to conflicts of law rules. However, most courts that have ruled on the interest calculation issue have adopted the approach that the conflict of law rules of the forum should determine which law will govern the awarding of interest under the CISG.[184] Many CISG commentators also agree with this approach.[185] The failure of the court in Masonville to raise or address the issue exemplifies the difficulty legal practitioners have had in accepting the CISG into fold of Canadian jurisprudence.

CHAPTER 6:  SHANE v. JCB BELGIUM:  THE CISG AND PRODUCTS LIABILITY

(i) Background to the Preliminary Motion

Certain matters are explicitly excluded from the application of the CISG. This is to afford the protection of domestic laws in certain areas, such as consumer sales and products liability. Thus, Article 2(a) provides that the Convention does not apply to sales "of goods bought for personal, family, or household use."[186] Article 4 further proclaims the general rule that the Convention governs only the formation of contracts of sale and the rights and obligations of buyers and sellers arising from such contracts. A similar purpose underlies Article 5, and helps to establish definitive boundaries for the CISG. Thus, it excludes claims based on death or personal injury caused by the sale of goods. It states that the "Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person."[187] However, liability for damage caused to property is not excluded by Article 5. The reasoning behind this article is to ensure that separate domestic laws apply to the complex area of products liability, even when the Convention governs other aspects of the transaction. The CISG approach is generally different from provincial sale of goods legislation, which makes sellers liable for a breach of warranty and/or physical or economic damage caused by defective goods, regardless of negligence.[188] Furthermore, under domestic law a seller may be liable in tort for negligently supplying goods causing physical injury to a person or property.

Despite the apparent clarity of excluding products liability and personal injury claims from the CISG, the relationship between the Convention and products liability damages can be problematic. This is the result of various domestic legal regimes, some of which consider products liability law under the heading "tort," and others as "contract." For example, under contract law in Germany, the remedies of "positive Vertragsverletzung," or the responsibility of the "vendeur professional" under the French Civil Code, apply in cases of death or personal injury.[189] This blurring of distinction -- or overlap -- has led one scholar to describe products liability law as being on the "borderland of tort and contract."[190] Not surprisingly, courts must often define the relationship between contract and tort law. It now appears to be established in many common law jurisdictions, including Canada, that the place where the tort or injury was committed, the locus delicti, is the prevailing doctrine for choice of law in tort, the lex loci delicti.[191] By contrast, the place where the contract was formed, the locus contractus, as well as the law of the place where the contract is concluded, the lex loci contractus, is the primary rule for determining choice of law in contract.[192] The clash between these two doctrines often becomes evident in a concurrent tort and contract action involving a choice of law issue.

(ii) Forum Non Conveniens, Lex Loci Delicti, and Lex Loci Contractus

This tension between tort and contract, and the CISG and products liability damages claims in general, is raised in Shane v. JCB Belgium.[193] Unfortunately, the case did not deal with the substance of the dispute between the parties, but instead involved a preliminary motion challenging jurisdiction under forum non conveniens. Thus, the case involved primarily procedural issues, which are clearly within the realm of domestic law. However, although the court did not judicially consider the application of Article 5 of the CISG to a product liability damage claim, it did identify key issues in this complex area of law. In doing so, it addressed the CISG in only a cursory manner.[194]

The Shane case involved an action by Stephen and Donald Shane (the "Shanes") for damages concerning a JCB tractor that was purchased by the plaintiff's directly from the defendant, JCB Belgium N.V. In August of 2001, shortly after the tractor was shipped to the Shanes' farm in Ontario in August of 2001, it caught fire and burned. Subsequently, the Shanes commenced an action for damages for negligent manufacture and design of the tractor. While the Shanes made their claim in Ontario, where the damages were suffered, the defendant disputed the jurisdiction and claimed that Belgium was the most convenient and appropriate forum. The motion placed before the court was to determine if the Shanes could proceed with their claim for damages in Ontario (the lex loci delicti), or whether the Shanes should commence their action in Belgium, where the contract was formed (the lex loci contractus).

The relevant facts of the case are typically international in scope. The defendant, JCB Belgium, is part of a large, complicated multinational corporate structure. It is headquartered in Belgium and is the authorized distributor of JCB tractors in that country. However, the tractor purchased by the Shanes was designed and manufactured by JCB Landpower Ltd., which is located in Staffordshire, England. It is a wholly owned subsidiary of JC Bamford Excavators Limited, also located in Staffordshire, England. JCB Belgium is an indirect subsidiary of JC Bamford, the parent company of JCB Landpower Ltd. JCB tractors are also distributed and sold in Canada by JCB Excavators Limited, which is owned by JC Bamford Excavators Limited, the same company which owns the shares of the manufacturer of the tractor purchased by the Shanes.

While the parties to the case agreed that there was a substantial connection with Ontario that was sufficient for it to assume jurisdiction simplicitor, JCB Belgium claimed that Belgium was the forum conveniens. Notwithstanding the parties' agreement, Smith J. conducted an analysis of the "real and substantial connection test"[195] and ultimately found that Ontario had grounds to assume jurisdiction over the case. The court invoked the seminal case of Moran v. Pyle to provide it with firm ground in support of Ontario as the governing forum.[196] In Moran, the Supreme Court considered the issue of where an action can be initiated when the negligent design and manufacture of products is alleged. It determined that if a foreign defendant negligently designs and manufactures a product, and that product is knowingly tendered in the domestic realm through normal commercial channels, and a user of the product is injured or suffers damages, then the courts of the forum in which the plaintiff suffered damages are entitled to exercise jurisdiction over the foreign defendant.[197] This approach towards liability differs with the CISG. Under the Convention, liability would be based on Article 35, that is, under nonconforming or defective goods, as well as Article 74, which involves the damage resulting from the substandard goods. The latter article also incorporates the notion that questions of negligence are irrelevant to a buyer's right to recover from the seller for damage caused by nonconforming goods. Thus, unlike a domestic case involving tort, under the CISG there is no need for a buyer to prove a lack of due care for negligently designed or manufactured goods that cause harm to property.

Related to the "real and substantial connection test" was a second issue, forum non conveniens. The court needed to resolve whether Ontario was the most appropriate jurisdiction for the case to be heard, or whether Belgium was a more suitable venue. It was during this discussion that the court considered the application of the CISG to the case. As Canada and Belgium are signatories to the Convention, both parties agreed that the CISG governed their contract, and the court concurred.[198] The court further reasoned that because the offer was extended from JCB in Belgium, it could be inferred that the contract was made there, but governed by the terms of the CISG. However, the CISG does not provide a rule on jurisdiction or venue. Furthermore, the contract was silent on which forum should apply to any claim for damages. To guide the court in this regard, Smith J. needed to determine where the tort occurred. He considered two possibilities: Staffordshire, England, where the tractor was manufactured and designed, or Ontario, where the damage occurred when the tractor caught fire and burned.

In considering the location of the tort, Smith J. dismissed the significance of the CISG and Belgium contract law. He stated: "The law which the parties agree applies is the CISG and as such the application of Belgium contract law is not a factor of great weight."[199] As a preliminary motion, it might be expected that Smith J. did not need to delve into the deeper issues involving the CISG. However, the question of the CISG at the nexus of contract and products liability law was worthy of only obligatory mention and cursory treatment. The extent to which the CISG applied under Article 4 (contracts) and Article 5 (product liability damage claims) to the substantive and procedural aspects of this case was not to be discussed, even though during a subsequent motion on costs, the same justice was to admit that "the issues involving the International Sale of Goods Act... were complex."[200] A factor of greater importance to Smith J. was "the law where the tort occurred should be applied for claims in negligence."[201] The fact that liability for damage caused to property is not excluded by Article 5 may not have occurred to the court, even though it acknowledged on numerous occasions that "the terms of the contract are governed by the CISG."[202] The oversight is an unfortunate omission. It could have provided important guidance to other contracting states and jurists in this complex area of law.[203] There was to be no discussion on the principles by which an Ontario court could assume jurisdiction over a foreign manufacturer based upon a property damage claim allegedly involving negligent design and/or manufacture. The issue was to be avoided even though Smith J. appeared to be aware of the national and international import of the case. At the outset of the decision, he acknowledged the significance of this judgment:

"The Court's decision will affect many consumers and businesses who purchase manufactured goods from a foreign jurisdiction and subsequently, suffer damages caused by a defect in the manufacture or design of the goods where they live or carry on business."[204]

Having determined that the negligent design took place in England (which is not a signatory to the CISG),[205] Smith J. was able to evade the novel and intricate issues involving the CISG by focusing almost exclusively on tort and where the damages were suffered. In the final analysis, he invoked the Supreme Court ruling in Tolofson v. Jensen,[206] where the court held that "the law to be applied in torts is the law of the place where the activity occurred, i.e., the lex loci delicti."[207] The relationship between the CISG and contracts and product liability damage would need to be discerned by another court.

CHAPTER 7:  DIVERSITEL COMMUNICATIONS v. GLACIER BAY:  FUNDAMENTAL BREACH REVISITED

(i) Introduction

The case of Diversitel Communications Inc. v. Glacier Bay Inc.[208] involved a motion by the plaintiff ("Diversitel"), for summary judgment against the defendant ("Glacier Bay"), for breach of contract for failure to meet a delivery schedule for the supply of goods. More specifically, in August of 2002, Diversitel, a Canadian company located in Ottawa, Ontario, entered into a contract with Glacier Bay of Oakland, California, for the supply of vacuum panel insulation. Diversitel required delivery of the insulation to meet the terms of an existing contract for the production, delivery, and installation of power generators to Canada's Department of National Defence (DND) in the Arctic by the end of July, 2003. As a term of its contract with Glacier Bay, Diversitel established a specific schedule for the delivery of the insulation by the defendant. With this timetable, Diversitel appeared to establish the primacy of time for product delivery as an essential condition in the contract. Diversitel paid Glacier Bay $40,000 U.S. when it issued its purchase order in August of 2002. While Glacier Bay admitted that it breached the terms of the contract by its failure to deliver on time, it claimed this was due to problems that it encountered with its own principal supplier. Diversitel terminated the contract in early November, 2002, and commenced legal action for the return of its $40,000 U.S. In its defence, Glacier Bay claimed that Diversitel terminated the contract without appropriate justification, and counterclaimed for damages for breach of contract and for loss of profits. It further took the position that Diversitel may have received better pricing from an alternate supplier, and this was the real motivation behind the plaintiff ending the contract.

(ii) Fundamental Breach

In support of its position, Diversitel invoked the CISG as the governing law in the case. This was not disputed by the defendant. Diversitel argued that a failure to deliver what was contracted for constituted a fundamental breach of contract in accordance with Article 25, which 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."[209]

Reliance on Article 25 was crucial for the plaintiff because the remedies available to the buyer and seller under CISG are based on the characterization of the breach involved. Thus, if the breach is deemed to be fundamental, Diversitel would be justified in having avoided the contract. If the breach is deemed to be non-fundamental, Diversitel would be remitted to a claim in damages. Article 25 provides little guidance on what events constitute a fundamental breach. There is some consensus that "[f]or the purposes of art. 25 a breach 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 he could not reasonably have foreseen such a result."[210] Note also how general terminology is used to define fundamental breach, with words such as "detriment," "substantial," and to "deprive." Such vagueness appears to be due to a compromise reached by the drafters of the Convention to avoid legal terminology that was the product of a specific legal regime.[211] This was in an effort by the drafters to create a uniform, harmonized international sales law that would transcend national borders. Unfortunately, the court failed to heed to the Convention's lofty goals in this regard.

When examining the applicable law in this case, Toscano Roccamo J. initially appeared inclined to support an expansive role for the CISG. However, that she was already more than two-thirds of the way through her ruling before she first mentioned the CISG should have suggested that the Convention was not about to be well received. Toscano Roccamo J. noted that

"[t]he plaintiff relies on the International Sale of Goods Contracts Convention Act, S.C. 1991, c. 13, which has been in effect in Ontario since 1992 because of the International Sale of Goods Act, R.S.O. 1990 c.I.10. These two acts brought into effect in Canada the United Nations Convention on Contracts for the International Sale of Goods and would apply to commercial parties resident in countries which are parties to the Convention..."[212]

(iii) Effective Dismissal of the CISG

As Canada and the United States were both signatories to the CISG, and this commercial transaction was not subject to any of the Convention's exclusions, there was no disputing it as the governing law in the case. After this initial statement on the CISG, Toscano Roccamo's J. was not about to delve into law of the Convention. While she began the discussion with an apparent recognition of the supremacy of the CISG, this was not to continue. Her next statement set the tone for the remainder of the judgment. The CISG was to be subordinated to common law principles:

"Under the International Sale of Goods Act, supra, the plaintiff submits that a failure to deliver what was contracted for may constitute a fundamental breach of contract in accordance with article 25. The Act further provides that a seller must deliver by the date specified in the contract, pursuant to article 33. Article 49 provides that a buyer may declare the contract avoided in a case of fundamental breach thereby giving way to a claim for restitution, pursuant to article 81(2) in the schedule of the Act. The plaintiff submits that the International Sale of Goods Act may therefore establish a lower threshold for the proof of fundamental breach than that required by the common law. I was given no authority, nor argument that persuades me this is so."[213]

As the governing law to the transaction, proof of fundamental breach should have been guided exclusively by CISG Articles 25, 33, and 49. There was no "gap" to be filled with the inclusion of a common law principle on fundamental breach. A proper reading of the CISG would have made this clear. As all-inclusive provisions, Articles 25, 33, and 49 provide all the guidance necessary to make a determination of fundamental breach. Furthermore, as DiMatteo notes, "[t]he concept of fundamental breach under Article 25 is very restrictive."[214] It does not necessarily have a "lower threshold" than the common law equivalent. Like the common law rule, the breach must concern an essential term of the contract in order for it to be considered fundamental. Similarly, in CISG case law among signatory states, court "and arbitral decisions have focused on three types of breaches as potentially fundamental -- late delivery, deficiencies in the goods, and failure to uphold specific contractual terms."[215] Two of these types of breaches (late delivery and failure to uphold specific contractual terms) were at issue in the case. However, perhaps common law principles were simply too entrenched in the court's psyche for it to consider that the CISG mandates that national legal principles be supplanted by an international treaty. Instead, the homeward trend was to trump the CISG, despite the efforts of the plaintiff's counsel to argue the contrary. As with most cases on the CISG in Canada, the CISG was to be treated as an interloper, and was ultimately dismissed as being of relevance to the case. This became abundantly clear during the next paragraph in the judgment. As this is the first time that a Canadian court has considered CISG case law from other signatory states, the paragraph is reproduced in its entirety:

"The plaintiff submitted a bundle of case law on UNCITRAL texts which reflects how a number of European Courts have construed late delivery under article 33 as tantamount to fundamental breach of contract, pursuant to article 49 of the [CISG] Act. In an unpublished decision released May 24, 1999 from Germany: Oberlandesgericht Celle; 20 U 76/94 the plaintiff, an Egyptian businessman, entered into a contract with the defendant, a German company trading in used printing machines for the sale of nine used printing machines that were to be shipped to Egypt. According to the contract, the plaintiff was obliged to pay a considerable part of the contract upfront, which he did. The defendant was obliged to send its product in two shipments, the first including six machines and the second, three machines. However, the first shipment delivered by the defendant contained only three machines. After having demanded shipment of the missing machines several times, the plaintiff declared the contract at an end and requested the return of its money. The Court concluded that the plaintiff had applied articles 33 and 49 among others under the [CISG] Act, supra, and properly exercised the right to declare the contract avoided. Even though the Court concluded the additional delivery period of two weeks afforded by the plaintiff to the defendant was perhaps too short to save the contract, the Court concluded the total period and the actual declaration of avoidance was reasonable. Although this case is an instructive application of the various articles under the [CISG] Act, supra, I am not satisfied the [CISG] Act necessarily lowers the bar for proof of fundamental breach, as established under the common law."[216]

Even though counsel presented a "bundle of case law" on the CISG, the court mentioned only one foreign case in its decision.[217] Even there it provided a disservice to the CISG. It provided a quick review of the foreign case, and then failed to use the relevant articles of the CISG. In particular, the court discussed Article 49 without analyzing the related Article 25, which was mentioned earlier in the decision.[218] Articles 25 and 49 are not only related, in this case they are co-dependent. Article 49 allows for the avoidance of a contract in the event of a fundamental breach. However, a court cannot consider whether failure to deliver on time is fundamental to the contract without first considering Article 25. The latter article provides the parameters for making this determination. Without a consideration of the terms "substantially," "deprive," and "foreseeability," as incorporated in Article 25, and without the guidance of foreign cases applying the Article 25, there is little to prevent the court from defaulting to the homeward trend perspective of fundamental breach.

Conceding that the German case was "an instructive application" of "various articles" under the CISG, the court effectively dismissed the interpretive methodology embodied in Article 7 of the CISG by failing to seriously consider this and other pertinent foreign cases.[219] Instead, the court deferred to the rules for proof of fundamental breach "as established under the common law."[220] Toscano Roccamo's J. statement is exemplary of the homeward trend. It reflects the notion that national courts may give the Convention token acknowledgement, but ultimately ignore its mandate for an autonomous-international interpretation of the CISG in favor of one that is fully domestic in orientation. The problem for the CISG is that if any semblance of applied uniformity is to be achieved, it is imperative that courts consider relevant foreign decisions as voluntarily or persuasive precedent. The use of precedent is for guidance only and does not need to be binding. Where there are variations in decisions, the court should be selective, and reconcile divergent decisions with the appropriate use of the CISG's interpretive methodology. In other words, as DiMatteo notes, "courts' decisions should separat