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CISG CASE PRESENTATION

Australia 24 April 2003 Supreme Court of Victoria (Playcorp Pty Ltd v Taiyo Kogyo Limited) (Toys case)
[Cite as: http://cisgw3.law.pace.edu/cases/030424a2.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 20030424 (24 April 2003)

JURISDICTION: Australia

TRIBUNAL: Supreme Court of Victoria

JUDGE(S): Hansen J

CASE NUMBER/DOCKET NUMBER: No. 6056 of 1997

CASE NAME: Playcorp Pty Ltd v Taiyo Kogyo Ltd

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Japan (defendant)

BUYER'S COUNTRY: Australia (plaintiff)

GOODS INVOLVED: Toys, in particular, radio controlled toys


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 35 [Also relevant (although not cited): Article 74 and perhaps other remedial provisions of the CISG as well]

Classification of issues using UNCITRAL classification code numbers:

35A ; 35B [Conformity of the goods: quality, quantity and description required by contract; Requirements implied by law];

74A [General rules for measuring damages: loss suffered as consequence of breach]

Descriptors: Conformity of goods ; Damages

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Editorial remarks

Playcorp Pty Ltd v Taiyo Kogyo Limited
[2003] VSC 108 (24 April 2003)

EDITOR: Dr. Bruno Zeller

This is another disappointing case where the CISG should have been applied but was in essence ignored. It appears that the CISG has not fallen on fertile ground in Australia.

This case between an Australian buyer and a Japanese seller deals with a breach of a distribution agreement as well as a claim for damages for the supply of defective goods. As there was no choice of law clause in the contract the CISG namely article 35 is applicable. As far as the distribution agreement is concerned domestic law needs to be applied pursuant to article 4.

It is astounding to note that the defence argued that the CISG is not applicable because Japan is not a signatory to the Convention. The fact that they submitted to a Victorian court would have made it clear - and the court noted it - that they submitted to Victorian law. However equally astounding is the fact that the plaintiff and the court used terms contained in s 19 of the Goods Act 1958 Vic such as fitness for purpose and merchantable. The Court noted:

"It was not suggested that there was any material difference or inconsistency between the provisions of art 35 and s 19(a) and (b) and because of that and the way the case was conducted, it is unnecessary to consider whether there is. Counsel proceeded on the basis that there was no material difference or inconsistency." [Playcorp at 235].

The question is not whether there is an inconsistency the simple fact is the Goods Act does not apply. The CISG does not use remedial terms such as breach of warranty or condition. Furthermore the remedial regime of article 35 is different to the one prescribed by s.19. The court did note that there was difficulty and uncertainty in the ascertainment of damages.

Article 74 should have been the first step in looking for remedies or article 25 if a fundamental breach is envisaged. Instead the court looked at domestic case law for guidance and never consulted the CISG. It is well established in academic writing and case law that the CISG does not permit the use of domestic law in the interpretative process. It has been suggested - and it is also my view - that a breach of article 7 can lead to a successful appeal in law no different to a misapplication of any article within the Convention.

It is also interesting to note that the defence never explored articles 38 and 39. In brief the buyer must examine the goods within a short period and pursuant to article 39 loses the right to any remedy if he does not notify the seller of such defects within reasonable time after discovery of the defects. Furthermore the question of mitigation of damages pursuant to article 77 was also never addressed.

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Editorial remarks

EDITOR: Lisa Spagnolo

Excerpt from analysis of Australian case law on the CISG. Reproduced with permission of 10 Melbourne Journal of International Law (2009) 189-193

Playcorp Pty Ltd v Taiyo Kogyo Ltd [309]

The sale in this case was between an Australian buyer and Japanese seller of radio controlled toys. The Court held their distribution agreement had been rescinded by the buyer following the seller's repudiation when it wrongfully refused to continue supplying the buyer pursuant to that agreement. This determination appropriately drew on domestic law. The distribution agreement in this case contained a choice of Australian law. Choice of Australian law (or indeed a specific state or territory law) in sales contracts leads to application of the CISG, because it is part of Australian law.[310] The application of non-CISG domestic law to the distribution agreement in this instance was correct because distribution agreements are generally outside the CISG's scope.[311]

By contrast, individual sales made pursuant to distribution agreements can fall within the CISG's scope, so if the sales had involved a choice of Australian law the CISG would have applied to them.[312] However, the individual sales in this case did not themselves involve any express choice of law. Thus the CISG could apply to the sales if both parties were from Contracting States (art 1(1)(a)), or because the law of a Contracting State applied pursuant to the conflict rules of the forum, in this case, Australian conflict rules (art 1(1)(b)). The seller's arguments centred on art 1(1)(a).

Under art 1(1)(a), the CISG applies if each party is from a Contracting State.[313] The seller therefore argued that the CISG was not applicable to the sales [page 189] on the basis that Japan was not, at the time, a signatory to the CISG.[314] Strategically, the argument seemed to suit the seller's position that there were no terms relating to quality in the sales contracts at all. It argued that there were no express terms as to the quality of the product, and further, implied terms did not arise because the CISG was inapplicable, nor did they arise under the Goods Act 1958 (Vic) because of past practices between the parties, since no defect claims had been made in the previous nine years.[315]

Unfortunately, the seller's strategy ignored art 1(1)(b), discussed above,[316] which makes the CISG applicable where the forum's conflict rules indicate the law of a Contracting State, such as Australian law, governs the contract.[317] The seller's counsel submitted that the proper law was the law of the place of performance, but was less than definitive as to which law fitted that description.[318] The buyer's counsel submitted that Victorian law applied, since sales 'took place under the aegis of the distribution agreement', which contained an express choice of Australian law, and the sales had their 'closest and most real connection' with Victoria.[319] As required by art 1(1)(b), Hansen J correctly applied conflict rules to determine Victorian law applied.[320]

Regrettably, the effect of this conclusion was not fully appreciated. As discussed above, if Australian law applies as the proper law of an international sale, then (unless excluded), the CISG is applicable as part of Australian law.[321] Yet the Court concluded it meant that 'either the Goods Act or the Convention applied' and although the CISG enjoyed 'paramountcy' over the Goods Act, that this was only 'in the event of any inconsistency between the two'.[322] In other words, the Court considered that the local enabling Act required the CISG to be considered 'before the Goods Act',[323] however, if there were no 'material differences or inconsistencies' between the two, it would be acceptable to apply the local Goods Act provisions, since '[n]othing turn[ed] on the fact that I have reversed that order'.[324] Effectively, the Court was stating that the CISG would only be applied if the paramountcy provision was enlivened by an inconsistency.[325]

With respect, this is not the way the CISG works. The enabling Act gives the CISG the force of law.[326] The CISG's own terms require that it be applied in its entirety when it is the governing law of the contract, not just to the extent of [page 190] inconsistency.[327] In other words, when the CISG applies, the Goods Act is displaced by it. The CISG applies exclusively, to the extent of its scope. Were it not so, it would be incapable of achieving its purpose of unifying sales laws around the world for international sales. One cannot rely upon seemingly familiar provisions to conclude it is 'consistent' with local sales provisions, and therefore no harm flows from their application. The interpretive method demanded by art 7 for the autonomous interpretation of the CISG's provisions will always render the CISG inconsistent with domestic law regardless of any surface similarities.[328] In any event, neither ss 5 or 6 confines the CISG's operation to only those situations in which it differs from domestic law. The reference to the CISG prevailing in the event of 'inconsistency' in s 6 of the enabling Act is a mere clarification. It should not usurp the force of law granted by s 5, but instead be interpreted as underlining the pre-emptive effect of the CISG on local laws which overlap with its scope. The latter construction enables ss 5 and 6 to be read not only consistently with one another, but also in harmony with the CISG's legislative history, purpose and jurisprudence.

The misunderstanding meant that yet another court had succumbed to viewing the CISG through 'domestic lenses'. The Court openly applied domestic law rather than the actual law of the contract, the CISG. Hansen J compared s 19 of the Goods Act 1958 (Vic) with art 35, and concluded that because it 'was not suggested that there was any material difference or inconsistency between [them] and because of ... the way the case was conducted, it is unnecessary to consider whether there is'.[329]

It would have been preferable for the Court to have taken the tough stance evident in Perry. Instead, the Court allowed itself to be led astray. Counsel's approach led the Court to apply the wrong law. Consequently, vital issues were omitted, and domestic law and common law language crept into the judgment.

The Court did not concentrate on art 35. Clearly, it was persuaded that this was unnecessary. The pleadings referred to 'implied conditions', despite the fact the CISG does not distinguish between conditions, warranties,[330] or intermediate terms.[331] Instead, the CISG elevates certain breaches as fundamental breaches which enable avoidance of the contract by the aggrieved party.[332] The pleadings attributed implied terms of fitness for purpose and merchantability to s 19 of the Goods Act 1958 (Vic) and art 35,[333] although merchantability is not a word used by the CISG. The Court ultimately disregarded merchantability, but not because [page 191] it was applying the CISG.[334] Hansen J referred to the buyer's reliance on the seller's skill and experience,[335] also pertinent to art 35(2)(b), but did not refer to CISG cases on this aspect.[336]

Again, like Ginza, the need for both buyer examination and notice of non-conformity within a reasonable time were overlooked.[337] In the haste to distance the case from the CISG, valuable argument on these points never surfaced. There was an ambiguous reference to 'timely notice' in the seller's pleadings, but apparently the matter was not pressed as a pre-condition to damages.[338]

The issue was certainly alive on the facts. Notification of the defects seems to have been given in August 1994,[339] or perhaps February 1995.[340] For some of the goods, non-conformities dated back to January 1994.[341] It was therefore possible to argue that the buyer had lost its right to damages, because it took between seven and 13 months to notify the seller, and that this was 'unreasonable' within the meaning of art 39(1). Of course, what is reasonable will depend on a number of factors which can be gleaned from CISG cases and scholarship. The nature of the goods is of obvious importance to this question. Depending on the goods, CISG cases indicate that anything from 25 days to four months has been held to be unreasonably long in the context of art 39(1).[342] There is also an important CISG Advisory Council Opinion on interpretation of arts 38 and 39.[343]

Counter-argument on the point was also available to the buyer. The seller had 'strung Playcorp along'[344] in an attempt to create a pretext to end the distribution agreement. In interpretation of what constitutes a 'reasonable' period under art 39(1), the Court might, in light of this behaviour, have accepted a longer period than usual. Article 7(1) directs interpretation of the CISG to promote good faith in international trade.[345] The Court's negative view on the potential under domestic law for good faith duties in the distribution agreement [346] would have no bearing on the sales contracts, which were governed by the CISG. [page 192] Additionally, past practices on returns and repairs held relevance to interpretation of a 'reasonable' notice period.[347] Finally, it could be strongly argued that in fact no notice was required, since the seller 'knew or could not have been unaware' of the defect pursuant to art 40. As the Court pointed out, the seller was aware of high levels of returns elsewhere.[348]

The buyer's claim to damages was calculated on wholesale prices for the goods.[349] Hansen J rejected this approach as inappropriate.[350] Yet this could only be evaluated in light of the applicable law.[351] Like Ginza, a failure to focus on the CISG meant fundamental breach was never canvassed,[352] thus questions as to whether the buyer was substantially deprived of what it was entitled to expect, and whether there was a declaration of avoidance went unanswered.[353] These were important, since, if the contract was validly avoided, a different measure of damages might have been appropriate.[354]

Comment on Playcorp has been mostly confined to local observers interested in good faith as a domestic contractual duty or interpretive aid.[355] In the CISG context, it was described as yet another Australian case in which the CISG was 'in essence ignored'.[356]
_________________________

309. [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) ('Playcorp'). Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/030424a2.html>; available from CISG-online, Search by Cases (Case No 808) <http://www.globalsaleslaw.org/index.cfm?pageID=29>.

310. See above n 4. Note the difference between a choice of law of a Contracting State and a specific choice of the CISG: see discussion above nn 10-17 and accompanying text.

311. CISG-AC, Opinion No 9, above n 52, Commentary [3.4]; Schlechtriem, 'Arts 1-6', above n 52, 27-8; Huber and Mullis, above n 16, 48; Bridge, 'Uniform and Harmonized Sales Law', above n 11, 959; Ferrari, 'Applicability and Applications', above n 20, 186. See, eg, Mineral Water and Wooden Pallets Case (Foreign Trade Court of Arbitration, Serbian Chamber of Commerce, 13 November 2007) <http://cisgw3.law.pace.edu/cases/071113sb.html>; Instruments Case (Fovárosi Birság, Hungary, 19 March 1996) <http://cisgw3.law.pace.edu/cases/960319h1.html>; Vidamed AG v A Schmidt (Arrondissementsrechtbank Gravenhage, Netherlands, 2 July 1997), available from <http://www.unilex.info>. Only a minority of cases have applied the CISG to a distribution agreement: Imperial Bathroom Company v Sanitari Possi SpA (Corte di Cassazione, Italy, 14 December 1999) <http://cisgw3.law.pace.edu/cases/991214i3.html>. See also Ziegel, 'The Scope of the Convention', above n 9, 60-1 (clarifying the definition of distribution contract for this purpose). See also Medical Marketing v Internazionale Medico Scientifica (US District Court (ED La), US, 17 May 1999) <http://cisgw3.law.pace.edu/cases/990517u1.html>.

312. See above Part II.

313. Parties are to have 'places of business' in Contracting States, but this fact must be apparent before the contract is concluded: CISG, above n 1, art 1(2). See also above n 9.

314. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [211]. Japan has since become a Contracting State: see above n 21.

315. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [211].

316. See above n 10 and accompanying text.

317. See also Bruno Zeller, 'Editorial Remarks' in Pace Law School, CISG Case Presentation: Playcorp Pty Ltd v Taiyo Kogyo Limited (2003) <http://cisgw3.law.pace.edu/cases/030424a2.html#ce>.

318. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [212].

319. Ibid [242], [243].

320. Ibid [244].

321. See above n 9 and Part II.

322. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [235], [245].

323. Ibid [235].

324. Ibid.

325. A similar statement was made in Ginza [2003] WASC 11 (Unreported, Barker J, 17 January 2003) [188].

326. Sale of Goods (Vienna Convention) Act 1987 (Vic) s 5.

327. See CISG, above n 1, art 1(1), and the hierarchy inherent in art 7(2).

328. See discussion on requirements for proper application of CISG as governing law, above n 123 and accompanying text. This conclusion is further supported by arts 8 and 9.

329. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [235].

330. Zeller, CISG Cases, above n 2, 3. An Italian court recently commented on this aspect of the CISG: Mitias v Solidea Srl (Tribunale di Forli, Italy, 11 December 2008) [3.4] <http://cisgw3.law.pace.edu/cases/081211i3.html> (observing that the CISG does not distinguish between fundamental or non-fundamental terms, therefore even breach of an ancillary term could be a fundamental breach if it met the very strict criteria in art 25).

331. See Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115.

332. On art 25, see above nn 71, 72 and accompanying text.

333. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [199], [235]. See also text at [203], [211], [230].

334. Ibid [209]-[214], [229]-[230], stating that despite the absence of an express provision on quality, that the goods should be fit for purpose was 'obvious' or 'plain'. However, the Court should have adopted the CISG interpretive methodology, rather than resort to domestic interpretive techniques: see above Part V, above n 137 and below n 431 and accompanying text.

335. Playcorp [2003] VSC 109, [229], [249] (Hansen J).

336. On art 35, see above nn 275, 279, 280, 283, and below n 394.

337. See Zeller, 'Editorial Remarks: Playcorp', above n 317 (stating that: 'It is also interesting to note that the defence never explored articles 38 and 39'). On art 39, see further above n 74.

338. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [200].

339. Ibid [250].

340. Ibid [249]-[254].

341. Ibid [257].

342. See discussion below nn 483, 484, 486-489 and Rheinland Versicherungen v Srl Atlarex and Allianz Subalpina SpA (Tribunale di Vigevano, Italy, 12 July 2000) <http://cisgw3.law.pace.edu/cases/000712i3.html>, discussed below n 488. On art 39 of the CISG, see above n 74.

343. See discussion below n 494. See further above n 74.

344. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [265].

345. Further, a general principle of good faith underlying the CISG is also applicable via art 7(2), where the CISG governs but does not expressly deal with an issue.

346. Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [267].

347. See CISG, above n 1, arts 8(3), 9(1). See also ibid [265] (referring to the seller 'shun[ning] its prior manner of dealing').

348. See, eg, Playcorp [2003] VSC 108 (Unreported, Hansen J, 24 April 2003) [249]-[253].

349. Ibid [378].

350. Ibid.

351. See also Zeller, CISG Cases, above n 2, 3.

352. CISG, above n 1, art 25. On art 25, see above n 71 and accompanying text.

353. CISG, above n 1, art 26. See above nn 71, 72, 74 and accompanying text.

354. See, eg, CISG, above n 1, art 76.

355. See, eg, Adam Wallwork, 'A Requirement of Good Faith in Construction Contracts?' (2004) 20 Building and Construction Law Journal 257; Trevor Thomas, 'Alliance Contracts: Utility and Enforceability' (2007) 23 Building and Construction Law Journal 329, 341. Commenting on Playcorp as a CISG case: Zeller, 'Traversing International Waters', above n 134, 54 (arguing that the case demonstrates a misunderstanding of the CISG).

356. See Zeller, 'Editorial Remarks: Playcorp', above n 317.

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CITATIONS TO TEXT OF DECISION

Original language (English): [2003] VSC 108; click here for text of this case [this text prints-out to 100 pages]

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Pace Law School Institute of International Commercial Law - Last updated September 10, 2009
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