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CISG CASE PRESENTATION

Australia 14 March 2008 Supreme Court of South Australia (Vetreria Etruscia S.r.l. v. Kingston Estate Wines Pty Ltd)
[Cite as: http://cisgw3.law.pace.edu/cases/080314a2.html]

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

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Case identification

DATE OF DECISION: 20080314 (14 March 2008)

JURISDICTION: Australia

TRIBUNAL: Supreme Court of South Australia

JUDGE(S): Duggan

CASE NUMBER/DOCKET NUMBER: [2008] SASC 75

CASE NAME: Vetreria Etrusca S.r.l. v. Kingston Estate Wines Pty Ltd v. Vetreria Etrusca S.r.l.

CASE HISTORY: 1st instance District Court of South Australia 12 October 2007 [affirmed]

SELLER'S COUNTRY: Italy (plaintiff)

BUYER'S COUNTRY: Australia (defendant)

GOODS INVOLVED: Wine bottles


UNCITRAL case abstract

AUSTRALIA: Supreme Court of South Australia, 14 March 2008
(Vetreria Etrusca Srl v Kingston Estate Wines Pty Ltd [2008] SADC 102)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/116],
CLOUT abstract no. 1137

Reproduced with permission of UNCITRAL

Abstract prepared by J. Waincymer, national correspondent

This is a dispute between an Italian bottle manufacturer (the appellant) and an Australian winemaker (the defendant). The parties entered into an agreement for supply of wine bottles, which, later on, the buyer alleged not complying with the standard required by the contract. The seller claimed the price and damages for breach in an Italian court. The Australian company commenced the proceeding to claim damages for breach of contract in Australia. Later on the Italian manufacturer sought an interlocutory order to stay the Australian proceedings on the basis of a clause in the supply agreement which gave the court in Florence, Italy, the exclusive jurisdiction over the dispute.

In the first instance, the district court judge noted that neither party disputed that the proper law of the contract was the United Nations Convention on Contracts for the International Sale of Goods. However, the seller argued that ‘Australian’ law should be used to construe the choice of forum clause. The judge concluded that the dispute was not arising from the interpretation, execution or application of the sales agreement, “[r]ather it is an allegation by the plaintiff that the defendant has breached the Sales Agreement it has with the plaintiff”. “… The interpretation of the contract was not alleged to be in dispute, and there was no allegation that either party had not properly executed it. There is no dispute as to whether or not the contract applies as between the two parties”. Finally, the judge declined exercise of the discretion to stay proceedings due to the location of witnesses, experts and physical evidence. The application for a stay was dismissed.

Upon appeal, the Supreme Court of South Australia, like the judge of first instance, did not refer to the interpretive provisions of the CISG in construing the choice of forum clause: it upheld the decision of the lower court and dismissed the appeal.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7 ; 8 ; 9 [relevant but court considered domestic Australian law in lieu of]

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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) 199-203

Vetreria Etrusca Srl v Kingston Estate Wines Pty Ltd [410]

Vetreria does not awaken new hope [in Australia]. This case involved the supply of wine bottles from an Italian manufacturer to an Australian company. The bottles allegedly broke repeatedly during bottling processes. The seller claimed the price and damages for breach in an Italian court. The buyer sought damages for contractual breach on the basis the bottles were not fit for purpose and did not match the sample in an Australian court.

The seller sought interlocutory orders to stay the Australian proceedings on the basis of a clause purporting to grant an Italian court exclusive jurisdiction. At trial, the parties did not dispute that the CISG was the governing law.[411] The Supreme Court upheld the refusal to stay on appeal. Despite the undisputed fact that the CISG governed the contract, seller's counsel argued that 'Australian' law should be used to construe the choice of forum clause.[412] This led the Supreme Court, like the Court below, to ignore the CISG. The law of contract -- the CISG -- was not applied on appeal. Worse still, it was not mentioned in the judgment at all.

At trial in the South Australian District Court[413] the choice of forum was considered ambiguous. It covered disputes arising from 'interpretation, execution or application' of the contract, but Muecke J determined that this did not include performance. The judge further declined exercise of the discretion to stay proceedings due to the location of witnesses, experts and physical evidence.

The CISG applies to contractual formation and therefore the predominant view is that the CISG governs incorporation of choice of forum (jurisdiction) [page 199] clauses.[414] It is true that special local prerequisites to validity of forum clauses are not within the CISG's scope.[415] Likewise, international treaties on jurisdiction will prevail over the CISG.[416] Nevertheless, the CISG often resolves questions raised by such treaties, such as place of performance, or prima facie incorporation.[417] The better view is that the CISG not only determines formation and incorporation, but also the meaning and content of forum clauses, subject to local validity laws or superimposed treaty requirements. This view is indicated by the approach taken in most CISG cases and is consistent with mention of dispute resolution clauses in certain CISG provisions.[418]

Admittedly, issues surrounding the CISG's scope regarding choice of forum clauses are not simple. However, to ignore the CISG cases and commentary on the issue amounts to placing one's head in the sand. As the CISG governed the contract, the question should have been confronted.

The Court could have taken its lead from Roder Zelt. The disputed clause there involved an issue falling outside the CISG, that is, property in the goods.[419] As the CISG governed the contract, formation and interpretation of content and meaning of the contract were determined by the CISG.[420] Once the existence and meaning of the clause are established, its effect can be determined in accord with [page 200] the law applicable to the external issue on the basis of conflicts rules.[421] In Roder Zelt, this was Australian property law. In Vetreria, the existence of the choice of forum clause and its construction should have been determined pursuant to the CISG as the first step. The clause should then have been subject to the secondary step of Australian procedural principles concerning stay of proceedings.

The Court itself identified that its first task was to 'determine the agreement of the parties as to jurisdiction'.[422] Since the CISG applied, its proper application required exclusive use of its own interpretive provisions and methodology for this task. In particular, the Court needed to heed arts 7, 8 and 9. An examination of CISG cases on choice of forum clauses would therefore be necessary, in order to interpret the CISG's terms internationally and uniformly.[423] The contract needed to be construed in light of all relevant circumstances, including pre-contractual negotiations and post-contractual conduct in accordance with art 8(3), a stance quite contrary to ordinary Australian principles of contractual construction.[424] Article 8(1) and (2) directs the Court in construing statements and conduct of parties, and art 9 controls the impact on construction of international usages and practices between the parties.[425] The parol evidence rule [page 201] is not applicable.[426] Article 7 precludes resort to domestic methods of interpretation and construction, to the extent of the CISG's scope.[427] Unfortunately, the Court was diverted from the task of construing the clause in accordance with the (undisputed) law of the contract by the unanimous preference of counsel for an inapplicable law.

What might have happened had the Court applied the CISG? Arguably, the result might have been the same. The Court might have still maintained that the clause would be viewed as deliberately limited in scope, and that 'execution' is a term that a 'reasonable person' under art 8(2)[428] would take to mean the signing of the contract rather than its performance. The idea that an ambiguous standard clause should be construed against its author (contra proferentem) might have been relevant.

However, the CISG's application might have encouraged a more generous construction of the words 'interpretation, execution or application'. In interpreting the CISG to promote good faith, the Court might have concluded that a reasonable person would give more holistic weight to the preceding words 'any disputes, none excluded'[429] as indicative that this was an absolute choice of forum,[430] rather than one limited on technical grounds relating to common law definitions of the single word 'execution'. A reasonable business person rather than a lawyer might have understood a dispute over performance to involve 'application' and/or 'interpretation' of the contract. Notably, under the CISG, the parol evidence rule does not apply and the court is directed to construe contractual intent in light of both prior and subsequent conduct of the parties.[431] The court would need to construct the clause in light of any international usages that should have been known to both parties or past practices developed between them.[432]

It should be of no comfort that the recent Canadian decision of Linamar upheld a similar error.[433] The decision immediately attracted criticism.[434] The Canadian Court determined the point of formation of the contract without any reference to the CISG, applying common law principles rather than the CISG's own rules regarding the 'battle of the forms'.[435] It consequently determined that [page 202] forum clauses had not been incorporated, but on the basis of the wrong law. The decision was upheld on appeal, with similar disregard for the CISG.[436]

In the Canadian decision, the party attempting to uphold the forum clauses was Italian, and, of the various forum clauses dealt with in that case, one bore an uncanny resemblance to the clause in Vetreria. As it held that the clause was not incorporated, the Court did not deal with its construction. Strangely, there was no mention of any alternative argument that performance was not encompassed by 'interpretation and execution', despite the fact that the underlying dispute related to performance, and the clause was arguably less emphatic than the one in Vetreria.[437] If such wording is prevalent in trade with Italian counterparties, an interesting argument could be run regarding the objective understanding of such clauses by parties frequently importing or exporting from Italy.[438]

Had the Court in Vetreria adopted a more liberal interpretation of the clause pursuant to the CISG, it could still have declined to stay Australian proceedings. The discretion is exercised according to Australian procedural principles, which, in situations where a choice of forum clause exists, dictate an inclination to hold parties to their bargain, unless there is sufficient cause not to do so.[439] In this case, all physical evidence, relevant experts and witnesses were located in Australia.

Exercise of the discretion to order or refuse a stay is a matter for domestic procedural law. Conversely, if there is a choice of forum clause in a contract governed by the CISG, then construction of the bargain upon which the discretion rests is a matter for the CISG. The discretion cannot be properly exercised without preliminary interpretation of the bargain in accordance with applicable law. While it might not have ultimately altered the outcome, Vetreria stands as another example of counsel steering the bench away from that course.

The sole good news from Vetreria was that the original statement of claim actually referred to the CISG. This points to early awareness of the CISG, a rarity by Australian standards.
_________________________

410. [2008] SASC 75 (Unreported, Duggan J, 14 March 2008). Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/080314a2.html>.

411. Kingston Estate Wines Pty Ltd v Vetreria Etrusca Srl [2007] SADC 102 (Unreported, Muecke J, 12 October 2007) [27]. Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/071012a2.html>.

412. Vetreria [2008] SASC 75 (Unreported, Duggan J, 14 March 2008) [9].

413. Kingston Estate Wines Pty Ltd v Vetreria Etrusca Srl [2007] SADC 102 (Unreported, Judge Muecke, 12 October 2007).

414. SA Gantry v Socit de Droit Suisse (Tribunal de commerce Nivelles, Belgium, 19 September 1995) <http://cisgw3.law.pace.edu/cases/950919b1.html> (CISG not domestic law determines inclusion of forum clause); Synthetic Window Parts Case (Landgericht Trier, Germany, 8 January 2004) <http://cisgw3.law.pace.edu/cases/040108g1.html>; Chateau des Charmes Wines Ltd v Sabat USA, Inc (US Circuit Court of Appeals (9th Cir), US, 5 May 2003) <http://cisgw3.law.pace.edu/cases/030505u1.html>; Chateau des Charmes Wines Ltd v Sabat USA, Inc (Superior Court of Justice, Ontario, Canada, 28 October 2005) <http://cisgw3.law.pace.edu/cases/051028c4.html> (related proceeding); Ferrari, 'Choice of Forum and CISG', above n 17, (fn 6). Contra Alejandro M Garro, 'The UN Sales Convention in the Americas: Recent Developments' (1998) 17 Journal of Law and Commerce 219, 237. See also Inta SA v MCS Officina Meccanica SpA (Cámara Nacional de Apelaciones en lo Comercial, Argentina, 14 October 1993) <http://cisgw3.law.pace.edu/cases/931014a1.html> (validity outside CISG's scope but referring to art 18 in regard to formation); Schmidt-Kessel, above n 59, 138 (neutral).

415. CISG, above n 1, art 4(a); Schmidt-Kessel, above n 59; Ferrari, 'Choice of Forum and CISG', above n 17, 130.

416. CISG, above n 1, art 90.

417. Generators Case (Oberlandesgericht Düsseldorf, Germany, 30 January 2004) <http://cisgw3.law.pace.edu/cases/040130g1.html> (the CISG still determined incorporation and interpretation of clause); Synthetic Window Parts Case (Landgericht Trier, Germany, 8 January 2004) <http://cisgw3.law.pace.edu/cases/040108g1.html> (still referring to CISG to extent not overridden); Tannery Machines Case (Oberlandesgericht Köln, Germany, 8 January 1997) <http://cisgw3.law.pace.edu/cases/970108g1.html> (determining the jurisdiction in accordance with the international treaty, but the place of performance for that purpose was determined pursuant to art 31 of the CISG). See also Torsello, above n 96, 219-20) (referring to role of the CISG in the context of the Council Regulation (EC) No 44 /2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, [2001] OJ L 12/1, concerning jurisdiction and predecessor Brussels Convention 1968).

418. See above nn 414, 417. Article 19(3) of the CISG refers to clauses for 'settlement of disputes' in relation to formation, and art 81(1) similarly in the context of avoidance.

419. This is an issue excluded from the CISG's scope by art 4(b).

420. See also Ziegel, 'Comment on Roder Zelt', above n 172, 55, 60.

421. See also, Ferrari, 'Choice of Forum and CISG', above n 17, 143 (lex fori determines effectiveness or enforceability of choice of forum). See Ved P Nanda and David K Pansius, Litigation of International Disputes in US Courts (2005-2007) vol 2, [12:9] (must determine whether disclaimers form part of the contract under CISG before assessing domestic enforceability); Chateau des Charmes Wines Ltd v Sabat USA Inc (US Circuit Court of Appeals (9th Cir), US, 5 May 2003) <http://cisgw3.law.pace.edu/cases/030505u1.html> (recognising CISG formation issues are antecedent to validity and enforceability issues)

422. Italian Imported [2006] NSWSC 1060 (Unreported, Malpass AsJ, 13 October 2006) [16].

423. See, eg, Generators Case (Oberlandesgericht Düsseldorf, Germany, 30 January 2004) <http://cisgw3.law.pace.edu/cases/040130g1.html> [(1)]. See above n 412.

424. The Australian position was confirmed recently in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57 (Unreported, Gummow, Kirby, Hayne, Heydon and Kiefel JJ, 11 December 2008) [35] (Gummow, Hayne and Kiefel JJ), citing Whitworth Street Estates v Miller [1970] AC 583, 603 (Lord Reid); contra [115] (Kirby J), holding that such matters can sometimes be taken into account and Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 (Unreported, Spigelman CJ, Basten JA and Handley AJA, 6 September 2007) [111], [126] (Spigelman CJ). See also The Square Mile Partnership Ltd v Fitzmaurice McCall Ltd (Court of Appeal, UK, 18 December 2006), available from <http://www.unilex.info>; Bridge, 'A Commentary on Articles 1-13 and 78', above n 59, 254 (commenting that UK law bars 'post-contractual behaviour as a guide to interpreting the contract').

425. Statements or conduct are to be given their subjective meaning if the addressee knew or could not have been unaware of the intent of that subjective intent: CISG, above n 1, art 8(1). However, only rarely can knowledge of intent can be proven, and 'gross negligence' is necessary before the 'objective filter' within art 8(1) of 'could not have been unaware' is satisfied. Thus, normally, the objective test of intent, being the understanding of 'a reasonable person in the [addressee's] shoes' will prevail per art 8(2). In both cases, the matters directed by art 8(3) should be taken into account: Huber and Mullis, above n 16, 12-13; Schmidt-Kessel, above n 59, 118 (preferring 'easy to discern' rather than 'gross negligence'); Ferrari, 'Interpretation of Statements', above n 185, 179-80 (noting that art 8(2) attributes knowledge of trade to the reasonable person). See also Bridge, 'A Commentary on Articles 1-13 and 78', above n 59, 254 (stating art 8(1) is an 'empty statement' while art 8(2) is the 'controlling rule'). For an example of art 8(1) in practice, see Glass Bottles Case (Bundesgerichtshof, Germany, 27 November 2007) [14], [15] <http://cisgw3.law.pace.edu/cases/071127g1.html>. See also discussion above n 347 and accompanying text. Ferrari, 'Interpretation of Statements', above n 185, 177, remarks upon an observation by Burghard Piltz, that, provided subjective intent is manifested, then art 8(1) will bind the addressee to that intent if it is unclearly expressed yet understood, and further, will still bind if clearly expressed but not understood by the addressee.

426. CISG, above n 1, arts 8(3), 11. See above n 59.

427. See above n 131.

428. See above n 425 for further discussion.

429. See Vetreria [2008] SASC 75 (Unreported, Duggan J, 14 March 2008) [8].

430. The view of a reasonable party is relevant in the interpretation of the words and conduct of the party under art 8(2).

431. See above nn 59, 425.

432. CISG, above n 1, art 9. See also ibid.

433. Linamar Holdings Inc v IGM USA Inc [2008] ONCA 256.

434. The decision of the Court of Appeal and that of the Supreme Court was criticised for failure to refer to the CISG in the formation and construction of a dispute resolution clause, and reference to domestic law and cases rather than CISG cases: James M Klotz, Peter Mazzacano and Antonin I Pribetic, 'Case Comment: All Quiet on the CISG Front - Guiliani v Invar Manufacturing, the Battle of the Forms, and the Elusive Concept of Terminus Fixus' (2008) 46 Canadian Business Law Journal 430.

435. CISG, above n 1, art 14-19. Guiliani v Linamar Holdings Inc (2007) 52 CPC (6th) 129. On formation provisions, see above n 60.

436. Linamar Holdings Inc v IGM USA Inc [2008] ONCA 256.

437. 'For every dispute regarding the interpretation and execution of the present contract the Court of Ravenna, Subsection of Faenza, will be the only an exclusive competent court': ibid [13].

438. On the basis of arts 8(2) and (3) of the CISG. See Pribetic, above n 26, 3 (discussing the difference between jurisdiction simpliciter and discretion on the grounds of 'strong cause' in Canada).

439. See Akai Pty Ltd v People's Insurance Co Ltd (1996) 188 CLR 418; The Eleftheria [1969] 2 All ER 641. The forum non conveniens test was applied in IGM USA Inc v Linamar Holdings Inc [2008] ONCA 256, because the Court held the forum clause had not been incorporated.

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): <http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/sa/SADC/2007/102.html?query=kingston%20estate%20wines>; also available at <http://www.austlii.edu.au/au/cases/sa/SASC/2008/75.html>

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

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Pace Law School Institute of International Commercial Law - Last updated June 12, 2012
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