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Reproduced with permission from 14 Journal of Law and Commerce 183-200 (1995)

U.N. Convention on Contracts for the International Sale of Goods:
Examining the Gap-filling Role of the CISG in Two French Decisions

James J. Callaghan

I. Introduction

II. Ytong v. Lasaosa

A. Facts
B. Analysis of the Grenoble Court's application of CISG
     1. Article 1(1)(b) as applied by the Grenoble court
     2. Article 57(1)(a) as applied by the Grenoble court
C. Conclusion

III. ICC International Court of Arbitration Case No. 7153

A. Facts
B. Analysis of tribunal's application of CISG
     1. Article 1(1)(a) as applied by the ICC tribunal
     2. Article 57(1)(b) as applied by the ICC tribunal
     3. Conclusion

I. INTRODUCTION

International trade thrives when impediments and restrictions to its flow are minimized.[1] The existence of a multitude of diverse legal traditions among trading partners, many created with the specific intent of protecting local trade and industry, constitute the type of impediment that stifles trade and constricts markets. In 1896, the individual states of the United States of America recognized the need for uniform rules governing basic commercial transactions and cooperated in the preparation and enactment of the Negotiable Instrument Law and later the Uniform Sales Act of 1906.[2] The virtually unanimous enactment of the Uniform Commercial Code (U.C.C.) in every state is testimony of the success of uniform laws in the area of commercial transactions in the United States.[3] However, unification of laws within a federal system of shared heritage and legal tradition is, without question, a less daunting task than such an attempt on a global level.[4]

It has been suggested that many of the problems facing contemporary international trade could be circumvented if our trading partners would simply agree to be bound by our domestic laws,[5] but this U.S.-centric view of commercial contract law is no longer tolerated (if it ever was) by our foreign trading partners. The United States Supreme Court recognized this when it stated in The Bremen v. Zapata Off-Shore Co. that "[w]e cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts."[6]

The Member States of what has become the European Union (EU) also recognized the importance of reducing impediments to foreign [page 183] trade, as evidenced by the mandate in the Treaty of Rome to reduce barriers to the movement of goods.[7] The Europeans realized that their diverse legal systems posed a considerable impediment to the goal of achieving a common market. The Brussels Convention of 1968 was implemented by the Member States to provide for mutual recognition and enforcement of judgments in the areas of civil and commercial matters.[8] More recently, the EU adopted the Convention on the Law Applicable to Contractual Obligations (also known as the Rome Contractual Obligations Convention -- RCOC).[9] The RCOC provides a uniform set of conflict of laws rules within the EU.[10] The EU's ability to enforce its laws equally and uniformly between its member states has greatly contributed to its success in the realm of inter-member trade.[11]

These regional solutions, although relatively successful, serve only to remedy the problem of diverse commercial laws within limited geographic areas and do not address the wider diversity of legal systems that exist in the global market. The United Nations' Convention on Contracts for the International Sale of Goods[12] (CISG) is the most recent attempt to codify private international law in the area of the international sale of goods.[13] CISG is an important attempt to bridge [page 184] the gap between these regional efforts and the global market as a whole; hence, its significance as a tool in international trade. Enhancing certainty in the realm of international sales will greatly facilitate the flow of international trade and serve the interests of all parties engaged in commerce.[14]

In order to facilitate the continuing goal of the Journal of Law and Commerce to raise awareness among U.S. practitioners and courts of the importance of CISG,[15] this note analyzes the application of CISG in two cases translated from the French language.[16] The first case, Ytong v. Lasaosa,[17] is from the Court of Appeals in Grenoble, France; the second is a decision from the International Court of Arbitration (ICA) of the International Chamber of Commerce (ICC).[18] The two cases have remarkably similar fact patterns, each involving contracts for the international sale of construction materials, and apply similar articles of CISG. However, although both tribunals apply Articles 1 and 57, they utilize them very differently in order to achieve different results.[19] It is important to understand the interaction of [page 185] CISG with other bodies of private international law in order to grasp the reasoning of each tribunal.[20]

A step-by-step analysis of these cases will start with the seemingly obvious question -- should CISG have been applied in these instances? This question is significant as it may determine the outcome of the litigation and have consequences which are more or less favorable to a particular party than if another body of law were applied.[21] The answer to this first question depends considerably on whether and how Article 1 of CISG can be applied. It also depends on the understanding of the parties; for example, whether the parties understood that the contract involved the international sale of goods.[22]

This Note will discuss some of the important articles of CISG, particularly Articles 1 and 57, and analyze the rationale used by the tribunals in their application of CISG. In addition, the Note emphasizes the importance of anticipating the kinds of problems faced by the parties involved in the featured cases and providing for them in their agreement.

II. YTONG v. LASAOSA

A. Facts [23]

Ytong, a French manufacturing company, entered into an oral contract with Angel Lasaosa, a Spanish national, for the sale of various construction materials. The goods were delivered to Lasaosa at Ytong's Saint Savin factory in France, but despite several formal notices, Ytong was unable to obtain payment for the goods. Ytong brought action [page 186] against Lasaosa in the Court of First Instance of Bourgoin-Jallieu, France, on June 3, 1992, seeking a verdict obliging Lasaosa to pay the price of the goods, which totaled 741,191 francs, in addition to interest on that sum, and 35,000 francs pursuant to Article 700 of the New Code of Civil Procedure.[24] Lasaosa raised the defense of lack of jurisdiction by the French court and the existence of a serious dispute.[25] The President of the Court subsequently declared himself to be without territorial jurisdiction over the contract.

In November 1992, Ytong submitted notice that it was appealing the decision of the lower court and requested the Court of Appeals of Grenoble to reverse the lower court's decision and grant it relief in the form of payment for the delivered goods. In support of its appeal, Ytong stated that Lasaosa took delivery of the goods at Ytong's Saint Savin factory. Thus, the sale of goods was performed in France, and more specifically within the territorial jurisdiction of the Court of First Instance, so that the Court clearly had jurisdiction over the matter. Ytong further argued that although problems were encountered in the construction of buildings using its materials, Ytong never acknowledged that these problems were due to defects in these materials. In addition, Ytong argued that during the almost two years since the delivery of the products to Lasaosa, it had never been summoned to court or asked to give any testimony on this issue and that the possibility of Lasaosa bringing such an action had long since been extinguished pursuant to Article 1648 of the Civil Code.[26]

Lasaosa countered that his relationship with Ytong was that of a franchisee, industrial agent, or international distributor, giving him responsibility for sales of Ytong's products in the northern region of Spain. Given that the place of performance of the contract was in Spain, he argued that Spanish courts possessed subject matter jurisdiction over the matter. He further argued that a meeting had taken place on July 9, 1991, at which Ytong had made an inventory of the various [page 187] claims [27] existing in Catalonia, that Ytong had undertaken personal responsibility for dealing with those actions, and that as a result, a novation had occurred and his debts were conveyed to Ytong.

Lasaosa thus requested that the Court of Appeals affirm the lower court's decision and grant him 25,000 francs both as damages and interest for abuse of proceedings, as well as on the basis of Article 700 of the New Code of Civil Procedure. The Court of Appeals, however, reversed the finding of the Court of First Instance and found jurisdiction for Ytong's action against Lasaosa. It also found Lasaosa provisionally liable[28] to pay Ytong 600,000 francs along with 10,000 francs pursuant to Article 700 of the New Code of Civil Procedure[29] and the total costs of both the litigation from the Court of First Instance and the appeal. The Court also denied Lasaosa's claims of damages and interest.

B. Analysis of the Grenoble Court's Application of CISG

It is important to determine first whether the Court of Appeals was correct in applying CISG based on the facts of this case. Beeause of the oral nature of the contract, there was no provision for either a choice of law or forum.[30] As CISG does not address jurisdictional issues,[31] the Court must first ascertain where the contractual obligation occurs. The reason for this becomes apparent only when one understands the jurisdictional structure in the EU under the Brussels Convention.[32] The Brussels Convention provides the jurisdictional boundaries for the members of the EU in litigation involving civil and commercial matters.[33] Article 2 of the Brussels Convention states that "persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State."[34] In this case, Lasaosa is not [page 188] a domiciliary of France, and thus is not subject to jurisdiction in France under Article 2. However, Article 5(1) of the Brussels Convention provides special jurisdiction in that "a person domiciled in a Contracting State may, in another Contracting State, be sued in matters relating to a contract, in the courts for the place of performance of the obligations in question."[35] In order to apply Article 5(1), it was thus necessary to determine the place of performance of the obligations.

Since the contract was silent as to the place of performance of the obligations, it was necessary to apply appropriate law in order to determine its location. The Grenoble Court applied CISG. This appears to be exactly the situation for which CISG was intended. Parties to an international sale of goods neglected to provide for a forum or the law to be applied in case of litigation arising from the contract. But does this case provide the right circumstances to merit the application of CISG?

1. Article 1(1)(b) as Applied by the Grenoble Court

Article 3(3) of CISG states that "[t]his Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services."[36] Lasaosa argued on appeal that the contractual relationship between the parties was either a franchise (under which he was personally in charge of selling products made by Ytong in the northern region of Spain), an industrial agent, or an international distributor for Ytong.[37] Article 8 of CISG deals with party intent and appears to combine both subjective and objective elements.[38] Article 8(1) provides that "statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been aware what that intent was."[39] If the Court applied this subjective approach it would not matter what Lasaosa thought, but only what [page 189] Ytong had intended. However, certain commentators call for a greater reliance on the objective approach embodied in Article 8(2).[40] Article 8(2) provides that "[i]f the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the circumstances."[41] In this case it does not seem unreasonable that the parties may have entered into some form of agency agreement.

The Court, however, construed the contract as one for the international sale of goods and not as a franchise contract or eontraet for an industrial agent since no aspect of the contract established a mandate given from Ytong to Lasaosa.[42] As the contract was oral, the Court should have given weight to trade usage, course of dealing, or parole evidence, such as the alleged novation that was entered into by the parties on July 9, 1991.[43] But courts generally tend to strongly favor domestic concerns and discount those of foreign parties[44] and the Grenoble Court may have illustrated such bias toward Ytong, a French corporation. Finding that the contract was one for the international sale of goods, the Court applied CISG to determine the place of the contractual obligations.

The Court applied CISG via Article l(l)(b) as opposed to the less controversial, Article l(l)(a). Article l(l)(b) effcetively extends the scope of CISG in instances "when the rules of private international law lead to the application of the law of a contracting state."[45] This provision is clearly an attempt by the drafters to extend the reach of CISG [page 190] outside the realm of signatory nations. The drafters believed that since universal unification of the substantive law applicable to international sales contracts was unlikely to be achieved through worldwide ratification of CISG, the same goal might be achieved through the application of state private international law.[46] But the Court does not explain the rationale for applying Article l(l)(b) and it is useful at this point to determine why it did so.[47]

The legal basis for allowing CISG to weave a broader web by using Article l(l)(b) is that CISG is a "self-executing treaty."[48] The legal rules arising from self-executing treaties are available for immediate application by national judges.[49] All persons residing in a Contracting State to a self-executing treaty are entitled to assert their rights or demand the fulfillment of another party's duty by referring directly to the legal rules of the treaty itself.[50] In effect, CISG becomes a part of domestic law in each of the Contracting States, and its rules can be applied as if they were domestic, where private international law so provides, even when the other party to the contract is not a contracting party of CISG.

This breadth of scope granted CISG through Article l(l)(b) was restricted by the possibility of "opting-out" of the latter clause. Article 95, permits a state to declare that it does not wish to be bound by Article l(l)(b) upon its ratification of CISG.[51] Several countries had expressed their intention to make a reservation to the application of Article l(l)(b) under Article 95.[52] The U.S. took the opportunity to exercise its reservation under Article 95, thereby expressing its preference for the application of the U.C.C. in the event such party comes from a non-ratifying state. Indeed, former Secretary of State, George Shultz, in his Letter of Submittal of CISG to President Reagan, recommended that U.S. ratification be made subject to the declaration [page 191] permitted under Article 95 so that the U.S. would not be bound by Article l(l)(b).[53]

"As a result of this reservation, the Convention [CISG] will be applicable only when the seller and the buyer have their places of business in different Contracting States. This limitation, also approved by the American Bar Association, provides a clear, fair and adequate basis for the applicability of the Convention."[54]

Article 1(1)(b) is usually only applied in the event that the two parties are not located in Contracting States to CISG as provided in Article 1(1)(a). Both France and Spain are Contracting States so it would appear that the Court should have applied Article 1(1)(a).[55] The answer brings with it an important lesson when dealing with CISG--the articles of CISG should not be applied as if they were each in a vacuum. Article 100(2) informs us that "[t]his Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of Article 1."[56] Since Spain did not accede to CISG until July 24, 1990, and CISG did not enter into force there till August 1, 1991,[57] the contract concluded sometime before February 1991,[58] would place it outside the reach of Article 1(1)(a), according to Article 100(2).[59] France, however, was one of the original Contracting States as to which CISG entered into force on January 1, 1988.[60]

Article 1(1)(b) allows CISG to be applied when the rules of international law lead to the application of the law of a Contracting State.[61] The relevant choice-of-law rules are readily available in a French court because France is a party to the 1955 Hague Convention on the conflicts-of-laws rules for international sales contracts.[62] The rules of the [page 192] Hague Convention point to the law of the State where the seller has its establishment if the order is received there or, to the law of the State where the buyer resides if the order is given there.[63] CISG, being a self-executing treaty,[64] became part of French domestic law that can be applied according to Article 3 of the Hague Convention. The order for and delivery of the goods occurred at Ytong's Saint Savin factory [65] which satisfies Article 3 of the Hague Convention for applying the domestic law of the seller, Ytong. Since France did not make an Article 95 declaration when it ratified CISG, which would have invalidated the use of Article 1(1)(b),[66] the Grenoble Court properly applied Article 1(1)(b).

2. Article 57(1)(a) as Applied by the Grenoble Court

The place of payment does not constitute the forum with jurisdiction over the matter under CISG. An attempt was made during the Vienna Conference to clarify that CISG did not settle the question of jurisdiction and that it was thought inappropriate to solve this matter within the framework of CISG.[67] Article 4 states that (apart from the formation of the contract) CISG "governs only . . . the rights and obligations of the seller and the buyer arising from" a sales contract.[68] Construing CISG to define jurisdictional boundaries would broaden its scope beyond that intended in Article 4.[69] For this reason, where parties to a contract for the international sale of goods do not specify a choice of forum in the contract, it becomes necessary to decide the issue [page 193] of jurisdiction on other grounds, in this case by applying the Brussels Convention.

The Grenoble Court applied Article 57(1)(a) in order to locate the place of performance of the obligation (the obligation of the buyer to pay the seller) thereby allowing the application of Article 5(1) of the Brussels Convention, as discussed in Section B above. Article 57(1)(a) of CISG states that "[i]f the buyer is not bound to pay the price at any other place, he must pay the seller at the seller's place of business."[70] Because it was an oral contract, there was no designated place where Lasaosa was bound to make his payment to Ytong, and Article 57(1)(a) clearly applied here.

The Court went on to examine the circumstances surrounding the formation of the contract. It found that the parties intended to locate the contractual obligation in France because 1) the delivery vouchers and bills were drafted in French; 2) the price of the merchandise was expressed in French currency; and 3) payment was anticipated to be made at the departure from the factory.[71] This factual examination by the Court is unnecessary because by applying Article 57(1)(a), the location of the place of the obligation is the seller's place of business and no other evidence is necessary. If the Court found that payment was to be made when the transfer took place, then it should have applied Article 57(1)(b) which states that "if payment is to be made against the handing over of the goods or of documents, [then the place of payment is located] at the place where the handing over takes place."[72]

Whether the Court applied Article 57(1)(a) or (b), the result would have been the same--the place of performance of the obligation for the buyer to pay the seller was France and therefore the French courts had jurisdiction over the matter pursuant to Article 5(1) of the Brussels Convention.

C. Conclusion

The rationale of 5(1) of the Brussels Convention, which allows jurisdiction over a non-domiciliary, appears to be that in the case of business transactions, the parties are sophisticated and operate at armslength. Under Articles 26 and 31 of the Brussels Convention,[73] the [page 194] judgment of the French Court will be recognized and enforced in any other Contracting State. Thus, if Lasaosa has no assets in France, Ytong can have a judgment by the French courts recognized and enforced in Spain, or wherever else Lasaosa has assets in the EU.

Did the Court get it wrong? What was the alternative? Would it have been fair to force Ytong, the seller and injured party, to sue Lasaosa in a jurisdiction foreign to Ytong? This case is an example of why parties to a contract for the international sale of goods should provide for a forum and the form of law to be applied in the event of litigation.[74] Yet the parties here did not so provide, and CISG provided the law for the purpose of determining the place of performance of the obligation, in order to apply Article 5(1) of the Brussels Convention, and establish jurisdiction for the controversy. CISG appears to have provided a reasonable bridge between what the contract provided and the application of the Brussels Convention in order to determine the issue of jurisdiction in this case.

III. INTERNATIONAL CHAMBER OF COMMERCE (ICC), INTERNATIONAL COURT OF ARBITRATION (ICA) CASE No. 7153

A. Facts [75]

In 1989, a contract was entered into by the Seller, an Austrian national, and the Buyer, a Yugoslavian national (Croatian),[76] for the furnishing and assembling of materials to be used in the construction of a hotel in Czechoslovakia. The Seller maintained that it delivered all of the goods required by the contract but received only a portion of the payment. After unsuccessful attempts to obtain the outstanding payment, [page 195] the Seller demanded arbitration seeking the remaining balance along with interest on that balance. Although the Buyer was served with notice of the impending arbitration, it failed to respond. Notwithstanding the Buyer's failure to respond in accordance with Article 4 of the ICC Rules,[77] the arbitration was implemented in front of a sole arbitrator by the ICA. Article 15(2) of ICC Regulation states that:

[i]f one of the parties, although duly summoned, fails to appear, the arbitrator, if he is satisfied that the summons was duly received and the party is absent without valid excuse, shall have the power to proceed with the arbitration, and such proceeding shall be deemed to have been conducted in the presence of all parties.[78]

Although the contract between the parties contained an article called "Litigation and Applicable Law," the parties nevertheless had failed to reach an agreement on this matter.[79] The Court, pursuant to Article 13, paragraph 3, of the Regulation of Conciliation and Arbitration, "must apply that law which is designated by the law of conflicts which it deems appropriate."[80] Accordingly, the ICA applied CISG.

B. Analysis of the ICA's Application of CISG

The issue in this case is what rate of interest should be used in determining the Seller's damages. There is no question that the Seller is entitled to the outstanding balance of the contract price for the delivered [page 196] goods (absent some claim by the Buyer of which we are unaware due to the Buyer's refusal to participate in the proceedings). Article 53 of CISG, if CISG is indeed applicable here, states simply that "[t]he buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention."[81] The first stage of the analysis then is to determine whether it was appropriate for the ICA to apply CISG.

1. Article 1(1)(a) as Applied by the ICA

Article 1(1)(a) provides for the application of CISG if the contract for the sale of goods arises between parties whose places of business are in different states and where both states are signatories of CISG.[82] Buyer and Seller have their places of business in different states, Buyer in (the former) Yugoslavia and Seller in Austria, and both of these states are signatories of CISG.[83] Since the parties did not adequately provide for choice of law or forum in the article of the contract entitled "Litigation and Appropriate Law," as discussed in the previous section, the ICA applied CISG as the law designated by the law of conflicts.

There is, however, the question of whether the mixed nature of the contract, i.e., the fact that it involves both the furnishing of the goods and their assembly by the Seller, affects the proper application of CISG. As the Hascher Commentary on this case points out, Article 3(2) of CISG is applicable here. Article 3(2) states that "[t]his Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services."[84] The ICA treated this question as a factual issue finding that it was clear from the text of the contract that the provision of assembly services was secondary to the sale and the transaction could thus be treated as a contract for the international sale of goods.[85]

Notice the similarity between the issue of the nature of the contract here and that in Ytong. Here at least, there is evidence in the [page 197] contract that the parties intended to subordinate the assembly obligation to that of the obligation of the Seller to deliver the goods. In Ytong, there was no written indication of the nature of the contract and the French Court was forced to make a factual determination, which ultimately led to the application of CISG.

2. Article 57(1)(b) as Applied by the ICA

Whereas in Ytong the Court applied Article 57 to determine the place of performance of the obligation in order to apply the Brussels Convention for jurisdictional purposes, here the ICA is using Article 57 to determine whether interest on the unpaid balance of the purchase price is available and at what rate. Since the contract had no provision for an interest payment, the ICA applied Article 78 of CISG which provides that "[i]f a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable . . . ."[86] CISG, however, does not supply the applicable rate at which the interest is to be paid to the damaged party. Thus, the ICA had to determine an appropriate rate. The ability of a court to engage in such gap-filling is authorized by Article 7(2) of CISG, which states that:

"[q]uestions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."

The Hascher Commentary notes that arbitrators generally determine the rate of interest according to the law applicable to the contract, or they adopt the rate of the country of the creditor, or the state of the contractually agreed currency for payment.[87] The Hascher Commentary goes on to note that despite this common practice, the ICA chose to adopt the law of the place of payment. Since the parties did not provide for a place of payment in the contract, the ICA applied Article 57 to determine its location.[88] The ICA applied Article 57(1)(b), which states that "if the payment is to be made against the handing over of the goods or of documents, [then payment of the price [page 198] should be made] at the place where the handing over takes place."[89] The ICA held that the partial payment made by the Buyer, which occurred upon the handing over of the goods, placed the obligation to pay under Article 57(1)(b).[90] The contract does not mention that payment is to be made upon the handing over of the merchandise.[91] However Article 9(1) of CISG provides that "[t]he parties are bound by any usage to which they have agreed and by any practices which they have established between themselves."[92] The Seller alleged at the hearing that payment was to be made at the handing over of the goods in Prague.[93] Since the Buyer did not participate in the hearing, the ICA accepted the Seller's position and applied 57(1)(b). This makes a significant difference because if the ICA had applied 57(1)(a), the place of performance of the obligation would have been Austria, the location of the Seller's place of business. It appears that there must have been a more favorable rate of interest in Czechoslovakia since the Seller was so eager to convince the ICA that the place of payment was located there.

The Hascher Commentary criticizes the ICA's reasoning on this matter because of a growing tendency of arbitral jurisprudence to determine directly, without recourse to any particular state's law, a rate of interest which, taking into account the circumstances of each particular case, indemnifies against the harm due to the delay in payment.[94] A further anomaly of the ICA's holding is that the New Czech Commercial Code provided no firm position on the rate of interest either. The Czech embassy in Paris provided a figure of a minimal rate of 12% to be customary.[95] However, the Hascher Commentary seems to dispute this finding stating that Article 502 of the Czech Commercial Code (which took effect on January 1, 1992) provides that, "in the absence of an agreement of the parties, the rate of interest payable on the unpaid balance is that of credit extended by banks in the debtor's place of business at the time of entering the contract," i.e. Croatian banks.[96] [page 199]

C. Conclusion

There appear to be four possible methods of determining the rate of interest to be paid on the outstanding balance in this case. The first does not involve CISG and is the position the Hascher Commentary suggests is the growing trend in arbitrational jurisprudence. Using this method, the arbitrator considers the circumstances of each particular case to determine the appropriate rate. The second method involves applying Article 57(1)(a) of CISG, which would locate the place of the Buyer s obligation to pay the Seller in Austria, and Austrian interest rates would apply. The third method is the one chosen by the ICA. Applying Article 57(1)(b), the ICA found the place of performance of the Buyer's obligation to pay the Seller was Czechoslovakia since the partial payment of price was made upon the delivery of the goods. CISG allows parties to be bound by usage and established practices between them, but there is no concrete evidence that payment was to be made upon the handing over of the goods, and the ICA relies on the Seller's allegations. In addition, the ICA was unable to find a satisfactory solution under Czech national law and had to rely on a 12% customary figure. The fourth and final possibility involves applying section 502 of the New Czech Commercial Code instead of the customary figure applied by the ICA. In this case, the rate would be determined by the banks of the debtor's place of business, i.e., Croatia.

The foregoing illustrates the uncertain outcome where the parties to a contract for the international sale of goods do not adequately provide for defaults. Although CISG provides an aggrieved seller the remedy of interest on the unpaid balance, it does not provide for an applicable interest rate, thus subjecting the parties to the uncertainties common to private international law. CISG cannot be expected to fill all the gaps in all contracts for the international sale of goods, but serious problems, as well as anomalous decisions, can arise when courts and arbitrators are forced to fill the gaps in CISG itself.[page 200]


FOOTNOTES

1. See Richard D. Kearney, Developments In Private International Law, 81 AM. J. INT'L L. 724 (1987).

2. John Honnold, The Sales Convention: Background, Status, Application, 8 J.L. & COM. 1 ( 1988).

3. Id. Louisiana has adopted most of the UCC except for Art. 2.

4. V. Susanne Cook, Note, The Need for Uniform Interpretation of the 1980 United Nations Convention on Contracts for the International Sale of Goods, 50 U. PITT. L. REV. 197, 221 (1988).

5. Honnold, supra note 2, at 2.

6. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1979).

7. Article 3(c) of the TREATY ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITY, [hereinafter EEC TREATY] provides for "an internal market characterized by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital."

8. Article 220 of the EEC TREATY, as amended by Article 6(3) of the TREATY ON EUROPEAN UNION, Feb. 7, 1992 [hereinafter MAASTRICHT TREATY], provides that the Member States may enter into intergovernmental negotiations, i.e., outside the framework of the Treaty, "with a view to securing for the benefit of their nationals . . . the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals and of arbitration awards." The Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, 1972 J.O. (L 299) 32, reprinted in 29 I.L.M. 1417 (consolidated and updated text) [hereinafter Brussels Convention] is such an intergovernmental agreement, providing for the mutual recognition and enforcement of judgments in the areas of civil and commercial transactions between the Member States. The Brussels Convention is periodically updated, usually to reflect accession of new members, e.g., the Saint Sebastien Convention, which reflected the accession of Spain and Portugal into the EU.

9. Francis A. Gabor, Emerging Unification of Conflict of Laws Rules Applicable to the International Sale of Goods: UNCITRAL and the New Hague Conference on Private International Law, 7 NW. J. INT'L L. & BUS. 696, 698 (1986).

10. Id.

11. Cook, supra note 4, at 224.

12. United Nations Convention on Contracts for the International Sale of Goods, U.N. Doc. A/Conf.97/18, Annex I (1980) [hereinafter CISG], reprinted in UNITED NATIONS CONFERENCE ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, OFFICIAL RECORDS at 178, U.N. Doc. A/ Conf.97/19, U.N. Sales No. E.81.IV.3 (1981), and in 17 I.L.M. 668 (1980).

13. A.B.A. SEC. INTL. L. & PRAC., THE CONVENTION FOR THE INTERNATIONAL SALE OF GOODS: A HANDBOOK OF BASIC MATERIALS (Reed R. Kathrein & Daniel B. Magraw eds., 1987) [hereinafter HANDBOOK]. For more background on the origins and role of CISG, see John O. Honnold, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED NATIONS CONVENTION 47-56 (2d ed. 1991) [hereinafter UNIFORM LAW]. See also Paul Amato, Note, U.N. Convention on Contracts for the International Sale of Goods--The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, 13 J.L. & COMM. 1 (1993).

14. Kearney. supra note 1, at 725.

15. The Journal of Law and Commerce has published a series of articles dealing with CISG and its application, with the goal of educating the legal community of the importance of CISG in the realm of contracts for the international sale of goods, and to further CISG's mandate of a universal interpretation. This series began with a symposium of articles in Volume 8, Issue 1, 1988, and the Journal has regularly published Recent Developments: CISG, including analyses of translated cases from foreign courts and arbitration bodies, in order to expose practitioners to the application and interpretation of CISG in foreign jurisdictions.

16. Sincere thanks to Professor Vivian Curran, University of Pittsburgh School of Law (B.A. University of Pennsylvania; Ph.D., J.D., Columbia University), for her diligent work in translating both cases for the Journal of Law and Commerce. Any reader intending to rely on these cases should consult the original texts, copies of which can be obtained from the Journal of Law and Commerce.

17. Judgment of June 16, 1993 (Ytong v. Lasaosa), Cour d'Appel de Grenoble, Chambre des Urgences, No. 92/4223 (Fr.). Subsequent references to this case [hereinafter Ytong] will cite to the English translation which appears in this issue at 14 J.L. & COM. 211 (1995). Any reader who intends to rely on this case should consult the original text, a copy of which can be obtained from the Journal of Law and Commerce.

18. Case No. 7153, International Chamber of Commerce, International Court of Arbitration [hereinafter ICA Case], excerpts published in French in 4 JOURNAL DU DROIT INTERNATIONAL [J.D.I.] 1005 (1992), commented on by Dominique Hascher, 4 J.D.I. 1007 (1992) [hereinafter Hascher Commentary]. Any reader who intends to rely on this case should consult the original text.

19. In Ytong, the Court applies Article l(l)(b) in order to determine whether the contract fell within the scope of CISG, whereas the ICA applied Article l(l)(a). See 14 J.L. & COM. at 215. In seeking to locate the place of payment, the Court in Ytong uses Article 57(1)(a) whereas the ICA applies Article 57(1)(b). The reasons and results of application of these varying provisions will become apparent in the discussion infra.

20. In both cases, the tribunals apply CISG in order to fill a gap between what the contract provides for and what other bodies of private international law provide. For example, in Ytong, the Court applies Article 57 of CISG in order to determine whether Article 5(1) of the Brussels Convention could be applied to find jurisdiction in the French courts. See 14 J.L. & COM. at 214.

21. For example, French law dictates that in a civil action, the losing party is responsible for the cost of the litigations for both parties. French law also provides for a discretionary amount not covered under the normal cost of litigation. See infra note 24. In the Grenoble case, the court held Lasaosa, the losing party, to be liable for the totality of the costs, both for the litigation in the Court of First Instance, as well as the appellate litigation. See Ytong, 14 J.L. & COM. at 217. This appears to be an attempt to curb the amount of litigation and is a harsh penalty for the unsuccessful party.

22. The question of whether the contract was for the sale of goods is significant in Ytong as appellant, Lasaosa, argues alternatively that the contract was for services in the form of either a franchise, agency arrangement or distributorship. For further discussion, infra part II.B.2.

23. The following is a summary of the relevant facts from the translated case published along with this Note. Please refer to the translated case for the unabridged facts. See supra note 17.

24. Nouveau Code de procédure civile [N.C. PR. CIV.], art. 700 (Fr.) provides for an award of the amount of expenses and fees that are not covered under the regular "loser pays principle." This award is discretionary, and the judge may take into account the economic situation of the losing party when considering the amount of the award.

25. The serious dispute Lasaosa referred to was a defect in the building materials supplied by Ytong which rendered them unfit for their intended use.

26. Code Civil [C. CIV.], art. 1648 (Fr.) provides that "[a]n action resulting from defects of an anulling [sic] character must be brought by the buyer within a brief delay, according to the nature of the defects of an annulling character and the usage of the place where the sale is made."

27. Although the facts do not include details of these claims, presumably they consist of claims against Lasaosa by contractors in Catalonia as a result of the allegedly defective products from Ytong.

28. This appears to mean that when the case would be remanded to the lower court, the lower court should find the defendant, Lasaosa liable, on the basis of the Grenoble Court's reasoning.

29. See supra note 24.

30. Article 11 of CISG states that: [a] contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

31. See infra discussion on CISG and jurisdiction at part II.B (Article 57(1)(a) as Applied by the Grenoble Court).

32. For further discussion on the Brussels Convention, see supra note 8 and accompanying text.

33. Brussels Convention, supra note 8.

34. Id. art. 2.

35. Id. art. 5(1) (emphasis added). It is interesting to note that French domestic law provides jurisdiction over any party to a contract involving a French national regardless of their nationality. French Civil Procedure Code art. 14 provides:

An Alien, even though not residing in France, may be summoned before the French courts for the fulfillment of obligations contracted by him in France with a Frenchman; he may [also] be brought before the French courts for obligations contracted by him in a foreign country toward a Frenchman.

36. CISG art. 3(2).

37. Ytong, 14 J.L. & COM. at 213-14.

38. CISG art. 8.

39. Id. art. 8(1).

40. See Amato, supra note 13, at 25 (quoting John E. Murray, Jr., An Essay on the Formation of Contracts and Related Matters Under the United Nations Convention on Contracts for the International Sale of Goods, 8 J.L. & COM. 11, 17 (1988)).

41. CISG art. 8(2).

42. Ytong, 14 J.L. & COM. at 215.

43. The Court acknowledges that there may have been a novation between the parties for thc damages incurred for the defective goods, as Lasaosa had claimed, but rejected the claim for lack of evidence. Id. at 214. Such an agreement could have been construed as evidence of a franchise, industrial agency or international distributorship agreement. Article 8(3) of CISG provides that:

[i]n determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. (Emphasis added).
Further, Article 9(1) provides that:

[t]he parties are bound by any usage to which they have agreed and by any other practices which they have established between themselves. (Emphasis added).

44. Cook, supra note 4, at 205.

45. Id. (citing CISG art. 1(1)(b)).

46. Gabor, supra note 9, at 700.

47. The Court does refer to the fact that CISG has been applicable in France since 1 January, 1988, but does not go further with its analysis of the application of CISG. French cases are usually published along with a commentary prepared by a legal scholar (similar to the one included with the translation of the ICA Case). These commentaries often shed more light on the reasoning of the Court. Unfortunately, as of the date of this publication, it was not possible to obtain a copy of this commentary. In any event, it is a worthwhile exercise to examine the procedure for determining whether CISG ought to be applied under Article 1(1)(a) or 1(1)(b).

48. Paul Volken, The Vienna Convention: Scope, Interpretation, and Gap-Filling, in INTERNATIONAL SALE OF GOODS: DUBROVNIK LECTURES 19, 21 (Peter Sarcevic & Paul Volken eds., 1986).

49. Id.

50. Id

51. Kearney, supra note 1, at 727.

52. Gabor, supra note 9, at 700.

53. HANDBOOK, supra note 13, at 73 (citing Letter of Submittal from George P. Shultz, Secretary of State, to Ronald Reagan, President, in his Letter of Submittal, on August 30, 1983, reprinted in S. Treaty Doc. No. 9, 98th Cong., 1st Sess. (1984)).

54. Id

55. See Journal of Law & Commerce CISG Contracting States and Declarations Table, 14 J.L. & COM. 237, 244 (1995) [hereinafter Declarations Table].

56. CISG art. 100(2).

57. See Declarations Table, supra note 55, at 244.

58. Ytong, 14 J.L. & COM. at 212.

59. See CISG art. 100(2).

60. See Declarations Table, supra note 55.

61. CISG art. 1(1)(b).

62. PARKER SCHOOL OF FOREIGN AND COMPARATIVE LAW, COLUMBIA UNIVERSITY, INTERNATIONAL SALES: THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (Nina M. Galston & Hans Smit eds., 1984), § 1.02[4][6] (citing the 1955 Hague Convention on the Law Applicable to International Sales of Goods, 510 U.N.T.S. 147 (1964)) [hereinafter Hague Convention].

63. Id. (citing Article 3 of the Hague Convention that states in relevant part:

In default of a law declared applicable by the parties . . ., a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order. If the order is received by an establishment of the vendor, the sale shall be governed by the domestic law of the country in which the establishment is situated.

Nevertheless, a sale shall be governed by the domestic law of the country in which the purchaser has his habitual residence, or in which he has the establishment that has given the order, if the order has been received in such country, whether by the vendor or by his representative, agent or commercial traveller.)

64. See discussion on self-executing treaties, supra text accompanying notes 48-50.

65. See Ytong, 14 J.L. & COM. at 213

66. See discussion on Article 95 supra text accompanying notes 51-54.

67. Leif Sevón, Obligations of the Buyer Under the UN Convention on Contracts for the International Sale of Goods, in INTERNATIONAL SALE OF GOODS: DUBROVNIK LECTURES, supra note 48, at 203, 214.

68. CISG art. 4.

69. UNIFORM LAW, supra note 13, at 417-18.

70. CISG art. 57(1)(a).

71. See Ytong, 14 J.L. & COM. at 215.

72. CISG art. 57(1)(b).

73. Brussels Convention, supra note 8, arts. 26 and 31 which read in relevant part:

Article 26 Recognition.

A judgement given in a Contracting State shall be recognized in the other Contracting States without any special procedure being required.

Article 31. Enforcement

A judgement given in a Contracting State and enforceable in that State shall be enforced in another Contracting State when, on the application of any interested party, the order for its enforcement has been issued there.

74. Article 17 of the Brussels Convention, supra note 8, allows for the prorogation of jurisdiction. It states in relevant part:

If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or courts shall have exclusive jurisdiction (emphasis added).

75. The following is a summary of the relevant facts from the translated case published along with this Note. Please refer to the translated case for the unabridged facts.

76. The names of the parties are not provided by the Court and will be referred to hereinafter as "Seller" and "Buyer."

77. INTERNATIONAL CHAMBER OF COMMERCE RULES OF CONCILIATION AND ARBITRATION (in force from 1 January 1988) [hereinafter ICC RULES], reprinted in W. LAURENCE CRAIG ET AL., INTERNATIONAL CHAMBER OF COMMERCE ARBITRATION, app. II (2d ed. 1990). Article 4 provides the procedures for the defendant's answer to the plaintiff's request for arbitration.

78. Id. app. II, at 9.

79. The ICA does not state the content of the article on "Litigation and the Law," but only that it was insufficient to provide the ICA with the applicable law to be applied in the conflict.

80. ICC RULES, supra note 77, app. II, at 3. Art. 13(3) states:

[t]he parties shall be free to determine the law to be applied by the arbitrator to the merits of the dispute. In the absence of any indication by the parties as to the applicable law, the arbiter shall apply the law designated as the proper law by the rule of conflict which it deems appropriate.

The Commentary following the case, written by Domonique [sic] Hascher, notes that when parties to a contract have not chosen the law applicable to the controversy, arbitrators generally use three different methods to determine which law applies. See Hascher Commentary, supra note 18. The first method consists of applying cumulatively the systems of conflicts of laws of the states interested in the litigation. The second method consists of having recourse to the general principles of private international law, such as the rules contained in international conventions, e.g. CISG, and the third method consists of directly choosing trial rules, avoiding rules of a conflictualist nature. Id., citing Derains, Legitimate Expectation of the Parties and Applicable Law to the Substantive Issue in International Commercial Arbitration, TRAVAUX COMITÉ DIP, 81, 1984-1985.

81. CISG art. 53.

82. Id. art. 1(1)(a).

83. Declarations Table, supra note 55, at 237, 244.

84. See Hascher Commentary, supra note 18, at 1009.

85. See ICA Case, case No. 7153, at 1007. The Hascher Commentary notes that this conclusion is further supported by a bill addressed to the Buyer which stated that the price for the assembly of the materials was of a completely secondary order of magnitude compared to that of the purchase of the materials. See Hascher Commentary, supra note 18, at 1009.

86. CISG art. 78.

87. See Hascher Commentary, supra note 18, at 1009 (citing Derains, Intérêts Monetaires, Dommages-Intérêts Compensatoires et Dommages Punitifs Devant l'Arbitre International, Mélanges Bellet, LITEC, p. 101).

88. See Hascher Commentary, supra note 18, at 1009.

89. CISG art. 57(1)(b).

90. ICA Case, case No. 7153, at 1007.

91. See id.

92. CISG art. 9(1).

93. See ICA Case, case No. 7153, at 1007.

94. See Hascher Commentary, supra note 18, at 1009-10 (citing Derains, supra note 87).

95. See ICA Case, case No. 7153, at 1007.

96. Id. at 1010


Pace Law School Institute of International Commercial Law - Last updated March 2, 2001
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