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CISG CASE PRESENTATION

ICC Arbitration Case No. 7153 of 1992 (Hotel materials case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/927153i1.html]

Primary source(s) for case presentation: Case text


Case Table of Contents


Case identification

DATE OF DECISION: 19920000 (1992)

JURISDICTION: Arbitration ; ICC

TRIBUNAL: Court of Arbitration of the International Chamber of Commerce

JUDGE(S): Case report does not identify presiding arbitrator(s)

CASE NUMBER/DOCKET NUMBER: 7153 of 1992

CASE NAME: Case report does not identify parties to proceedings

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Austria (claimant)

BUYER'S COUNTRY: Yugoslavia [Croatia] (defendant)

GOODS INVOLVED: Provision and installation of materials for hotel


Case abstract

ICC Arbitration Case No. 7153 of 1992

Case law on UNCITRAL texts (CLOUT) abstract no. 26

Reproduced with permission from UNCITRAL

In the absence of an agreement of the parties on the law applicable, the arbitral tribunal found that CISG is applicable to the contract for the provision and installation of materials destined for the construction of a hotel.

CISG entered into force in Yugoslavia and Austria, the countries of the buyer and the seller respectively, before the conclusion of the contract. In addition, the contract falls within the scope of application of CISG, since it is clear from the text of the contract that the provision of services is secondary to the sale.

Consequently, if CISG applies, the buyer in default is obligated to pay the price and the interest for delay in payment. As CISG does not indicate the applicable interest rate, the arbitral tribunal applied the national law applicable in accordance with the rules of private international law, that is the law of the place of payment. Since the contract does not specify the place of payment, the tribunal applied Article 57(1) CISG and designated the place of delivery of the goods as the place of payment.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 3(2) ; 9(1) ; 53 ; 57(1)(b) ; 59 ; 78 [Also cited: Article 30 ]

Classification of issues using UNCITRAL classification code numbers:

3C ["Sale of goods"]

9C [Practices established by the parties]

53A [Obligations of the buyer: obligation to pay price of goods]

57B [Place for payment: agreement for payment in exchange for goods or documents]

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest]

Descriptors: Applicability ; Scope of Convention ; Installation services ; Payment, place of ; Usages and practices ; Interest

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Editorial remarks

EDITOR: Albert H. Kritzer

CISG issues ruled upon:

Applicability. The relevant place of business of the seller was in Austria; the relevant place of business of the buyer was in Yugoslavia. The CISG was in effect in both countries at the time the contract was concluded. The contract did not specify the governing law. The tribunal stated: "According to the deep-seated conviction of the court of arbitration, [the CISG] applies in the absence of an agreement between the parties relating to the law applicable to the case in point." Article 1(1)(a) is the relevant CISG provision.

Scope of CISG (goods vs. services). The contract was for "the furnishing and assembly of materials for a hotel". Article 3(2) states that the CISG "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." The tribunal states: "It is true that [seller] alleged that she did not only undertake the obligation of delivery [of the goods] but also that of assembling the installation. However, given that the text of the contract is unequivocal in this respect, and that no contrary provision emerges from [buyer], the court of arbitration assumed that the type of contract in question here was a sales contract, such that the Convention applies."

Additional information on the facts is provided in a case commentary by Dominique Hascher, Conseiller Général of the ICC International Court of Arbitration. He advises that the tribunal's conclusion "was further supported by a bill addressed to the [buyer] which made apparent that the price to be paid for the assembly of the materials was of a completely secondary order of magnitude compared to that of the price of the materials."

Payment, buyer's obligation to pay for the goods. The tribunal stated: "The claim of the [seller] results from a contract signed by the parties, related to [CISG] Article 53 . . . pursuant to which the buyer is required, in accordance with the contract provisions and the Convention, to pay the price for the goods."

Payment, place of/Usages and practices. The tribunal stated: "[T]he contract does not contain any provision as to the place of payment. In the absence of such a provision, Article 57(1) of the Convention . . . applies. [I]t stipulates that the Buyer is required to pay the price at the Seller's place of business or, if the payment is to be made against the handing over of the goods, where [the] handing over takes place. At the hearing, [seller] alleged that the payment was to be made against the handing over of the goods in [Czechoslovakia]. Since the [buyer] did not participate in the proceeding, this position was accepted, given that the contract contains no contrary position."

As indicated below, this tribunal used place of payment to determine the rate of interest. Under the circumstances of this case, the CISG choices for place of payment were: pursuant to Article 57(1)(a) [at seller's place of business in Austria]; or pursuant to Article 57(1)(b) [in Czechoslovakia, the place where the goods were to be handed over]. Seller's testimony determined this issue. Article 9(1) provides that practices the parties have established between themselves control. It appears as though seller testified to a place-of-payment practice the parties established between themselves: payment where the goods were to be handed over, in Czechoslovakia.

Interest (right to, accrual of, rate of). The tribunal stated: (i) "In the absence of an agreement between the parties about the payment of interest accruing from the date of the commencement of this action, the [seller's] claim concerning . . . interest stems from Article 78 of the Convention, pursuant to which the seller has the right to receive interest, if the buyer neglects to pay the price for the goods." (ii) "[T]he rate of . . . interest is not provided for in the Convention, which is why we need to turn to the national law designated by the rule of conflict of laws. . . . In this case, the . . . applicable law is Czech law, i.e., the law applicable at the place of payment." (iii) "The New Czech Commercial Code does not explicitly speak to the amount of interest owing . . . The Czech Embassy in Paris confirmed, however, in any case, a claim for interest at a minimum rate of 12% should be customary. In this matter, the research of the [seller] overlaps with that of the arbitration court, such that the court . . . allowed an accrual rate of 12%"

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=15&step=Abstract>

German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER) / Revue Suisse de droit international et de droit Européen, 1995, 280-281

Italian: Diritto del Commercio Internazionale (1993) 651, 656 No. 17

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 241

CITATIONS TO TEXT OF DECISION

Original language (German): Unavailable

Translations:

English: 14 Journal of Law & Commerce (1995) 217-219 [text presented below]

French: Journal du Droit International (1992) 1005-1007 = ICC Coll III, 442-444; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=15&step=FullText>

Spanish: 8 Revista de la Corte Española de Arbitraje (1992) 249-250

CITATIONS TO COMMENTS ON DECISION

English: Ferrari, International Legal Forum (4/1998) 138-255 [191 n.461, 192 n.466 (analysis of Art. 3(2))]; Honnold, Uniform Law for International Sales (1999) 52 [Art. 2 (goods: materials used in construction of building)], 59 [Art. 3]; Behr, 17 Journal of Law and Commerce (1998) 266-288 [abstracts and comments on 29 interest rulings from 10 countries (this case presented at 275)]; Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.95, n.125] and 42 other interest rulings; Bonell/Liguori, Uniform Law Review (1996-1) 147 [152 n. 30]; Callaghan, 14 Journal of Law & Commerce (1995) 183 [195-200] [text presented below] ; Hascher, 14 Journal of Law & Commerce (1995) 220-224 (translation of Journal du Droit International (1992) 1007-1010 [text presented below]; Koneru, 6 Minnesota Journal of Global Trade (1997) 123-138 [comments on interest rulings in this case and other cases]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.80; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 6-31 n.353; Tuula Ämmälä, 5 Turku Law Journal (1/2003) Sections 2.2, 3.2; Liu Chengwei, Recovery of interest (November 2003) n.218; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 1 para. 23 Art. 78 paras. 27, 32

French: Hascher, Journal du Droit International (1992) 1007-1010 = ICC Coll III, 444-447; Mayer, Mélanges Loussouarn (1994) 275 [281-282]; Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995) 35, 106 n.115

German: Piltz, Neue Juristische Wochenschrift (NJW) 1994, 1101; Schlechtriem, Internationales UN-Kaufrecht (1996) 120 n.163; Will, UN-Kaufrecht und internationale Schiedsgerichtsbarkeit (1999) n.33

Italian: Liguori, Foro italiano (1996-IV) 145 [155 n. 51]

Spanish: Checa Martínez, 8 Revista de la Corte Española de Arbitraje (Jurisprudencia Arbitral) (1992) 249, 250-252; Castellanos, Autonomia de la voluntad y derecho uniforme en la compraventa internacional, thesis, Carlos III de Madrid (1998) 166-167

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Case text (English translation)

Reproduced with permission from 14 Journal of Law and Commerce (1995) 217-224

International Court of Arbitration, Matter No. 7153 in 1992 [1] [2]

I. APPLICABLE LAW. -- Vienna Convention on Contracts for the International Sale of Goods. -- Rules governing the application. Article 1 of the Convention.

II. OBLIGATIONS OF THE BUYER. -- Payment of the price (Article 53 of the Vienna Convention).

III. STAY OF INTEREST ACCRUING FROM THE DATE OF COMMENCEMENT OF ACTION. Assessment of the rate. -- Conflict of laws analysis.

Verdict rendered in Matter No. 7153 in 1992

The parties finalized a contract in 1989 for the furnishing and assembly of materials for the construction of a hotel. The [seller], an Austrian national, maintains that she furnished the totality of her goods, but maintains that she received payment for only a part of them. After unsuccessful attempts to obtain payment, she demanded arbitration. Notwithstanding the failure to respond of the [buyer], a Yugoslavian (Croatian) national, the arbitration was implemented by the International Court of Arbitration, in accordance with Article 4 of the ICC regulation. The proceeding in front of the sole arbitrator was, moreover, to be held in accordance with the provision of Article 15(2) of the Regulation, pursuant to which "[i]f one of the parties, despite being duly summoned, does not appear, the arbitrator, once he/she has ascertained that the absent party had notice of the summons, has the power, in the absence of a valid excuse [on the part of the absent party] to proceed nevertheless to the accomplishment of his/her mission, and the argument is deemed to be a full hearing of both sides."

The claim of the [seller] results from a contract signed by the parties, related to Article 53 of the Convention of 11 April 1980 of the United Nations on Contracts dealing with the International Sale of Goods (hereinafter referred to as the "Convention") pursuant to which the buyer is required, in accordance with the contract provisions and the Convention, to pay the price for the goods. According to the deep-seated conviction of the court of arbitration, said Convention applies in the absence of an agreement between the parties relating to the law applicable to the case in point.

Even though the article . . . of the contract is called "Litigation and Applicable Law," the parties nevertheless have not reached any agreement on this matter, such that the court of arbitration must apply that law which is designated by the law of conflicts which it deems appropriate (Article 13, paragraph 3 of the regulation of conciliation and arbitration).

According to the terms of Article 1 of the Convention, the latter applies to contracts for the sale of goods between parties having presences in various countries which are Contracting States. At the time of the contract's finalization, i.e., on 31 May 1989, Austria (the [seller's] place of business) as well as Yugoslavia (the [buyer's] place of business) were contracting states. The Convention became effective in Austria on 1 January 1989 and in Yugoslavia on 1 January 1988 (cf. Herber v. Caemmerer/Schlechtriem, Commentary on the Uniform Law of States). It is true that the [seller] alleged that she did not only undertake the obligation of delivery [of the goods] but also that of assembling the installation. However, given that the text of the contract is unequivocal in this respect, and that no contrary provision emerges from the [seller's] mail, the court of arbitration assumed that the type of contract in question here was a sales contract, such that the Convention applies.

The amount in controversy is not in dispute.

The [buyer] did not participate in the instant proceeding, despite having been duly requested to do so on several occasions and despite having been explicitly informed of the legal consequences of her non-participation. Consequently, the [seller's] argument has been accepted.

In the absence of an agreement between the parties about the payment of interest accruing from the date of the commencement of this action, the [seller's] claim concerning said interest stems from Article 78 of the Convention, pursuant to which the seller has the right to receive interest if the buyer neglects to pay the price for the goods.

Moreover, the rate of said interest is not provided for in the Convention, which is why we need to turn to the national law designated by the rule on conflict of laws. (Cf. Eberstein, in: V. Caemmerer/Schlechtriem, Commentary on the Uniform Law of Sales of the United Nations -- CISG -- 1990, Article 78, end of line 3.) In this case, the court of arbitration believed the applicable law to be Czech law, i.e., the law applicable at the place of payment.

It is true that the contract does not contain any provision as to the place of payment. In the absence of such a provision, Article 57(1) of the Convention nevertheless applies. The latter stipulates that the buyer is required to pay the price at the seller's place of business or, if the payment is to be made against the handing over of the goods, where said handing over takes place. At the hearing, the [seller] alleged that the payment was to be made against the handing over of the goods in Prague. Since the [buyer] did not participate in the proceeding, this position was accepted, given that the contract contains no contrary provision. The New Czech Commercial Code does not explicitly speak to the amount of interest owing. (Cf. Articles 735, 502 of the Commercial Code). Despite intensive efforts undertaken by the arbitrator, it was not possible to gain precise information on this matter. The Czech Embassy in Paris confirmed, however, that, in any case, a claim for interest at a minimum rate of 12% should be customary. In this matter, the research of the [seller] overlaps with that of the arbitration court, such that the court had to allow an accrual rate of 12%.

The [buyer], having incontestably acknowledged a delay of payment, dating from the . . . [seller's] claim in this matter similarly is justified.

Since the [buyer] is the losing party in the present proceeding, she is required to bear the costs and expenditures of the arbitration proceeding as well as the fees and necessary expenses of the representatives ad litem of the [seller] (original in German).


FOOTNOTES

1. The following excerpts . . . were originally published in French in 4 JOURNAL DU DROIT INTERNATIONALE [J.D.I] 1005 (1992). Case No. 7153, International Chamber of Commerce, International Court of Arbitration (1992) . . .

2. This Journal of Law & Commerce case translation was prepared by Vivian Curran, Legal Writing Instructor, University of Pittsburgh School of Law (B.A. University of Pennsylvania; Ph.D., J.D. Columbia University). Any reader who intends to rely on this case must consult the original text.

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Case commentaries


Reproduced with permission from 14 Journal of Law and Commerce (1995) 220-224

Commentary on ICC Case 7153 of 1992

Dominique Hascher [3]

I. This judgment is the first decision of an arbitrator, at least in the ICC system, to apply the Vienna Convention of 1980 on International Sales to the litigation before it. In a prior publication (J.D.I. 1991, p. 1054), a group of judgments was reported in which the arbitrators referred to the rules of that Convention, or evoked it to support solutions drawn from the national law which they had to apply in order to resolve the litigation before them. The Vienna Convention, by reason of the large number of states interested in this text, thus greatly exerted an influence on the jurisprudence of arbitration, even if its role was only subsidiary because the conditions for its application had not at that time been met. Indeed, the Vienna Convention, although adopted by a diplomatic conference which was held in Vienna from 10 March to 11 April 1980, only became effective following the ratification by ten states on 1 January 1988. Since that date, 24 other states have joined the first ones, thus bringing the number of Contracting States to 34, to which four other signatory states were added (DOC. CNUDCI A/CN-9/368, 28 April 1992.) It still was necessary to wait for contracts which came within the purview of the Convention to lead to litigation brought before arbitrators. Indeed, we should recall that, pursuant to its Article 100, the new Convention applies . . . to the formation of contracts made following an offer which occurred after the Convention's effective date; as well as . . . to the obligations of the seller and the buyer which arise out of contracts entered into after 1 January 1988. In the instant case, the contract was formed in the first six months of 1989; namely, after the Convention took effect in the States in which the parties had their places of business according to the meaning of Article 1(1)(a). Paragraph (a) thus retains the permanent geographical criterion of the place of business at the time of the formation of the contract in order to determine the area of the Convention's application. The latter does not consider either the State in which it is performed or the nationality of the parties. Article 1(1)(b) of the Convention, however, contains a legal criterion which contemplates its application when the rules of private international law designate the law of a Contracting State.

At the beginning, the arbitrator confronted the problem of coordination between the uniform rules and private international law. Even though the contract contained a clause entitled "Litigation and Applicable Law," nevertheless the parties had not made any choice of law. Thus, the arbitrator referred to Article 13(3) of the Regulation of the ICC, according to which, in the absence of an indication of the law applicable to the main issue, it is appropriate to apply the law designated by the conflicts of law rule which the judge in the instant case deemed appropriate. The text is identical to that of Article VII of the Geneva Convention of 1961 which the arbitrator did not mention, but which applied to the controversy by reason of the scope of its application. When the parties have not chosen the law applicable to the controversy, the arbitrator generally makes use of three different methods to determine the law which applies to the issue. 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 rules contained in international conventions, which, even if they are not applicable, either because they have not become effective, or because they have not been ratified by the States interested in the litigation, express an international consensus. The third method consists of choosing directly material rules, avoiding reasoning of a conflict of laws nature (Derains, "Legitimate expectation of the parties and applicable law to the substantive issue in international commercial arbitration": Travaux Comité fr. DIP, 1984-1985, p. 81).[4] Indeed, Article 13(3) of the Regulation does not require recourse to the conflicts of laws method. In the context of Article 13(3), the meaning to be ascribed to the expression ["] rule of conflict ["] is the general one of international law, rather than the narrow one of a rule which gives priority to one among several conflicting laws which are able to govern a specific situation. In the instant case, the arbitrator immediately determined the applicable international law. However, we must recall that Article 1 of the Vienna Convention can be considered as expressing a true rule of conflict even though it determines only the conditions of application of the Convention, and there is no contest between different laws which purport to apply to a situation, no more than the application of a rule of conflict to Article 1(1)(b) will suffice to transform the scope of application in a rule of conflict (Bianca and Bonnell, Commentary on the International Sales Law, Gouffré, p. 28; Honnold, Uniform Law for International Sales, Kluwer, and preparatory work, Official Documents A/Conf. 97/19, Report of the Secretariat, p. 15, which indicates that the Convention notably aims to discourage a search for the forum whose law is the most favorable and to reduce the need for recourse to rules of international private law).

The second problem which the arbitrator confronted with respect to the application of the Vienna Convention was the definition of the litigation. Indeed, the Convention nowhere defines the juridical operation which, however, determines its material area of application, its drafts people having renounced a search for a common definition of a kind to elicit the adherence of all. From then on, it has been appropriate to rely on the provisions of the Convention which, we must underscore, are generally characteristic of sales in all legal systems. Thus, Article 30 states that "the seller must deliver the goods and transfer the property in the goods," Article 53 provides that "the buyer must pay the price for the goods and take delivery of them." (See Kahn and Bérando, Le nouveau droit de la vente internationale de marchandises.[5] Marchés internationaux,[6] no. 89.) However, Article 3 of the Vienna Convention excludes both contracts for the supply of goods when the party who orders the goods furnished a substantial part of the materials necessary for the manufacture or production [Article 3(1)] and also [excludes] contracts for hiring labor or performing services when the preponderant part of the obligation of the party who furnishes the goods is to furnish labor or other services. [Article 3(2)]. In fact, the negotiators of the Convention deemed that these transactions are more closely related to another legal category than that of sale. However, the line of demarcation can prove to be difficult to draw; the concept of "substantial part" or "preponderant part", on which the application of the Convention depends, being subject to the understanding of the interpreter (Bianca and Bonnell, supra; Kahn and Bérando, supra; Audit, La vente internationale des marchandises,[7] LGDJ.[8]) In order to resolve the difficulty, the arbitrator referred in the decision to the text and to the general meaning of the contract which established unambiguously that the principal transaction was a sale. This conclusion was further supported by a bill addressed to the [buyer] which made apparent that the price to be paid for the assembly of the materials was of a completely secondary order of magnitude compared to that of the purchase of the materials. The arbitrator thus correctly examined the economic value of the benefits furnished in order to conclude that the contract at issue came within the purview of the Vienna Convention.

[II.] With respect to a claim for payment which, by the way, never had been contested by the [buyer] during the parties' attempt at conciliation preceding the arbitration, the arbitrator based his finding of liability on Article 53 of the Convention, pursuant to which the payment of the price and the taking of delivery of the goods is the principal obligation of the buyer. The payment of the price represents of course the counterpart of the delivery of the goods. One should recall that, according to Article 59 of the Convention, the payment takes effect either at the contractually agreed-upon date, or on the date determined by the Convention. No other formal notice or other procedure is necessary on the part of the seller.

III. Pursuant to Article 78 of the Vienna Convention, a default in the payment of the price creates a right to interest on the sum owing, without prejudice to the damages which can be claimed in the event of a fundamental breach, or of a non-fundamental breach, of the contract (See Articles 25 and 74 of the Convention).[9] If the Convention contemplates allowing interest accruing from the date of the commencement of the action, it is silent as to the rates of such interest. With respect to this matter, the sole arbitrator decided to refer to a State law, adopting a conflict of laws type of procedure. 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 of the State of the contractually agreed currency for payment (Derains, "Intérêts moratoires, dommages-intérêts compensatoires et dommages punitifs devant l'arbitre international."[10] Mélanges Bellet, Litec, p.101). Somewhat strangely, this arbitrator referred to the law of the place of payment. When nothing has been provided in the contract about the place of payment, Article 57 of the Vienna Convention states that the buyer must pay the seller at the latter's place of business or at the place of the handing over of the documents. But in the final analysis, the arbitrator went to the law of the place of delivery of the goods; i.e., Czech law, based on the payment's having occurred against delivery. It appears that there was here first of all confusion between the place of payment and the time of payment, which last, according to Article 58 of the Convention, is deemed to occur, in the absence of indications to the contrary, at the time of the seller's placing the goods at the buyer's disposal. Moreover, one must call attention to the weakness of the link which the arbitrator made. The interest accruing from the date of the commencement of the action constitutes a contractual reparation which indemnifies for the deprivation of capital. Therefore, the emerging tendency of arbitrational jurisprudence is to determine directly, without recourse to a State's law, a rate [of interest] which, taking into account the circumstances of each particular case, indemnifies against the harm due to delay in payment. (Derains, supra.) Moreover, Article 502 of the Czech Commercial Code (which took effect on 1 January 1992) to which Article 735 of the same Code pertains, provides that, in the absence of an agreement of the parties, the rate of interest accruing from the date of the commencement of the action is that of credit extended by the banks in the debtor's domicile[11] at the time of entering the contract, which in this case means Croatian banks.


FOOTNOTES

(. . .)

3. Commentary by Dominique Hascher, Conseiller Général et Secrétaire Général Adjoint, International Court of Arbitration, International Chamber of Commerce, 4 J.D.I. at 1007, supra note 1. [Footnote explanations provided by Vivian Curran.]

4. DIP is the legal abbreviation for droit international public ("public international law") and for droit international privé ("private international law.").

5. The New Law of the International Sale of Goods.

6. International Markets.

7. The International Sale of Goods.

8. LGDJ is the legal abbreviation for Librairie Générale de Droit et de Jurisprudence.

9. U.N. Conference on Contracts for the International Sale of Goods, Final Act, U.N. Doc. A/Conf. 97/18 (1980) [hereinafter "CISG"], reprinted in S. Trcaty Doc. No. 98-9, 98th Cong., 1st Sess. and 17 INT'L LEGAL MAT. 668 (1980). Article 25 defines fundamental breach and Article 74 deals with the calculation of damages for breach of contract, without restricting its application to fundamental breaches.

10. "Interest Accruing From the Commencement of Actions, Compensatory Damages -- Interest and Punitive Damages Before the International Arbitrator."

11. Under French law, "domicile" is the place where a citizen has his or her principal establishment rather than actual residence. See CODE CIVIL, Domicile, art. 102-111 (edition of 1 January 1983); see also JEAN BALEYTE, ALEXANDRE KURGANSKY, CHRISTIAN LAROCHE, JACQUES SPINDLER, DICTIONNAIRE ÉCONOMIQUE JURIDIQUE (3d ed. 1992).


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

excerpt from

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

James J. Callaghan
(. . .)

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, 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 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 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 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]

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.

Go to entire text of Callaghan commentary


FOOTNOTES

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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

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