France 16 June 1993 Appellate Court Grenoble (Ytong v. Lasaosa) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930616f1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 92/4223
CASE HISTORY: Earlier proceedings, Court of First Instance of Bourgoin-Jallieu 15 July 1992 [reversed]
SELLER'S COUNTRY: France (plaintiff)
BUYER'S COUNTRY: Spain (defendant)
GOODS INVOLVED: Construction material
Case law on UNCITRAL texts (CLOUT) abstract no. 25
Reproduced with permission from UNCITRAL
In the context of commercial relations providing for phrased delivery of goods, a Spanish businessman bought construction materials from a French company. He thus received delivery, from January to June 1991, of certain materials at the principal place of business of the French [seller]. Alleging that the materials were defective the buyer refused to pay their price and was sued before the French interim relief court, which found that it did not have substantive and territorial jurisdiciton.
Based on the provisions of Article 5/1 of the EC Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters of 27 September 1968, the appellate court found in favour of the competence of the French court, since it was the court of the place of performance of the obligation of the buyer to pay.
The appellate court held that the contractual relationship of the parties constituted an international sale of goods and applied CISG as the relevant French law, in accordance with the French private international law. Applying Article 57(1)(a) CISG the court determined that the price of the goods should have been paid at the place of business of the seller.Go to Case Table of Contents
APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code
57A [Place for payment: in absence of agreement, payment at
seller's place of business]
Classification of issues present
APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
57A [Place for payment: in absence of agreement, payment at seller's place of business]
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=27&step=Abstract>
German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER)/Revue suisse de droit international et de droit européen (1995) 274
Italian: Diritto del Commercio Internazionale (1994) 856-857 No. 40
Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 240
CITATIONS TO TEXT OF DECISION
Original language (French): CISG - France website ("http://Witz.jura.uni-sb.de/CISG/decisions/160693v.htm"); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=27&step=FullText>
Translation (English): 14 Journal of Law and Commerce (1995) 209-215 [text presented below]
CITATIONS TO COMMENTS ON DECISION
English: Callaghan, 14 Journal of Law & Commerce (1995) 183 [186-195] [text of this case commentary presented below]; Hager in Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) [Art. 57 (place of payment determining jurisdiction)] 467 n.26a; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.10; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 1-4 n.41
French: Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995) 82; Witz, Emptio-Venditio Internationales, Neumayer ed. (Basel 1997) 453-455
German: Piltz, Neue Juristische Wochenschrift 1994, 1101Go to Case Table of Contents
Reproduced with permission from 14 Journal of Law and Commerce 209-215 (1995)
Composition of the Court
At the proceedings and deliberation of judges: Mrs. PALISSE ... Appellate judge presiding as President, Mr. BALMAIN ... Appellate judge, Mrs. COMTE ... Appellate judge. Assisted in the proceedings by Mrs. Combe, clerk of the court.
At the open court hearing of May 19, 1993, The solicitors were heard in their statements and the barristers were heard in their oral arguments. Following which, the decision was rendered at the hearing of Tuesday, 15 June 1993 after the court's deliberations.
[Buyer], having raised [(1)] the lack of territorial jurisdiction of the judge of these proceedings; and [(2)] the existence of a serious dispute, the President of the Court of First Instance of Bourgoin-Jaillieu, by an order dated July 15, 1992, declared himself to lack territorial jurisdiction and said that a serious difficulty existed.
On November 2, 1992, [seller] duly gave notice of appealing that decision. In support of its appeal, it affirms that [buyer] took delivery of the goods at the Saint-Savin factory, that, being a sale of goods, it was performed in France and more specifically within the territorial jurisdiction of the Court of First Instance of Bourgoin-Jallieu; that article 46, paragraph 2 of the NCPC; article 10, section 5 of chapter 5 of the Spanish Civil Code; and article 5 of the Brussells Convention recognize, under these circumstances, Borjallian territorial jurisdiction; moreover, pursuant to article 24 of the Brussells Convention, a party may assert a claim to the judicial authorities of a Contracting State for the provisional measures provided for by the law of that State, even if, by virtue of the convention, another contracting state has subject-matter jurisdiction; that, in this particular case, the relief requested in the form of an allocation by the court of a sum of money in a procedure  in a matter of special urgency [before final judgment] clearly constitutes a provisional measure; that, thus, the Court of First Instance of Bourgoin-Jallieu certainly had jurisdiction.
[Seller] specifies that it never contested the problems which affected the buildings constructed with the materials furnished to [buyer] but never acknowledged that the problems were caused by a defect in those materials; that fact has, moreover, neither been proven nor even alleged by the defendant; that, in addition, almost two years after the deliveries, which took place over the period from January to June of 1991, [seller] was not summoned to any court or requested to give any testimony, that, finally, the action which may be commenced against [seller] by [buyer] would long since have been extinguished pursuant to article 1648 of the Civil Code.
[Seller] therefore requests the reversal of the decision  a finding of liability on the part of [buyer] for the payment of 641,711 Francs with interest at the legal rate, to be counted from 11 July 1991; and the allocation of 40,000 Francs pursuant to article 700 of the NCPC.
[Buyer] responds that his relation with [seller] comes within the scope of a contrat de concession, he personally being in charge of selling products manufactured by [seller] in the northern part of Spain; that, thus, the applicable law is that of the contract's place of performance; that the Spanish courts thus have jurisdiction; that the same result would obtain if the parties were bound by an international contract for a commercial representative, since, if the law chosen by the parties is not established, the applicable law is that of the country in which the commercial agent's residence is located; that, finally, even if it were a question of a simple contract for international distribution, only the Spanish courts would have jurisdiction because the materials were used in Spain.
He is of the opinion that, in view of the importance of this litigation, the instant action is not amenable to a provisional or protective measure. He adds that the materials delivered have shown themselves to be unfit for their intended use since their implementation revealed numerous problems and defects; that a meeting took place on 9 July 1991, in the course of which [seller] made an inventory of the various claims existing in Catalonia; that it was agreed upon at that occasion that [seller] undertook personal responsibility for dealing with those actions; that a new legal relationship thus came into effect between the parties, with [seller] benefiting from a transfer of credits by him. He therefore requests that the lower court's order be affirmed and that he be granted 25,000 Francs both as damages and interest for abuse of proceedings as well as on the basis of article 700 of the NCPC.
Grounds for the Decision
Firstly, with respect to territorial jurisdiction
Service of the writ of summons for the emergency procedure  was served on 3 June, 1992. Under these circumstances, and pursuant to articles 29 and 32 of the Saint Sebastien Convention of 26 May 1989, the latter applies to the present action since it was required by France on 11 October 1990 and by Spain on 22 November 1990. The Brussells Convention of 27 September 1968, as modified by the above-cited convention, consequently controls the rules of jurisdiction to the present proceedings.
The contract, which is the basis of the claim which [seller] has submitted to the judge of emergency proceedings, is construed as an international contract, since no aspect of it establishes the existence of such a contract between [seller] and [buyer], even if in fact an agreement of that type may have been signed by [buyer] and [seller]. Nor is the contract a contract for a commercial representative, since no aspect of it establishes the existence of a mandate given by [seller] to [buyer]. It is, thus, this contract for the sale of goods which must be examined to determine the court with jurisdiction to adjudicate the claim; i.e., the court of the location where the duty which forms the basis of the claim was, or should be, performed.
In the present case, the duty which forms the basis of the claim is the duty of [buyer] to pay for the goods which were delivered to him. It is thus appropriate to ascertain where that obligation is to be performed. That location is to be determined in conformity with the law which governs the duty at issue according to the rules pertaining to conflicts concerning the forum.
Thus, since the parties have not expressly designated the law to be applied in case of litigation, no written contract having been established at the time of the sales, and only delivery confirmation and bills having been produced, as well as correspondence between the parties, it has happened from the circumstances of the suit that the parties wished to locate the contractual obligation in France, to the extent that the delivery vouchers and bills are drafted in French, that the price of the merchandise was assessed in French currency and was anticipated to be made at the departure from the factory.
Under these circumstances, pursuant to articles 1(1)(b) and 57(a) of the Vienna Convention, dated 11 April 1980, applicable to France since January 1988, which provides that "if the buyer is not bound to pay the price at any other particular place, he must pay it to the seller at the seller's place of business["], the place of performance of the agreement is France.
France has the jurisdiction to adjudicate the claim of [seller]; which leads to the reversal of the order given for the reasons stated above.
Secondly, on the existence of a serious dispute
To justify his refusal to pay, [buyer] argues that the delivered goods were unfit for their intended purpose and that [seller] profited from an assignment of claims, because it declared that it was making its personal business the settling of those damages, including the recovery of the unpaid sums after retaking the defective goods, [all of] which casts serious doubt as to his obligation.
Yet, the documents proffered during the proceedings reveal that, even if, in fact, malfunctioning affected a building complex called "the Estel" (cf. report of de ROCAFIGUERA, Esquire, dated 31 October 1991) and even if cracks appeared on the walls which were constructed with partitions of concrete [béton cellulaire] of [seller's] brand, yet nothing indicates that these defects originate in inherent defects of those materials rather than, for example, from their defective implementation.
Moreover, [seller] neither benefited from an assignment of debts by [buyer], contrary to the appellee's attorneys' arguments, nor recognized its responsibility. Indeed, during the meeting of 9 July 1991, it was contemplated only that [seller] receive directly the payments of amounts owing to [buyer]. The claim of [seller] against [buyer] is thus not genuinely in doubt.
Consequently, he will have to be found liable for payment to the appellant company of the amount of 600,000 Francs, to be added to the totality of his debt.
Thirdly, with respect to the accessory claims
[Buyer] will be non-suited with respect to his claim for damages and interest as well as with respect to his claim for indemnification of those of his expenses not included in the court costs, since he loses. Moreover, he will have to pay to [seller] the sum of 10,000 Francs pursuant to Article 700 of the New Code of Civil Procedure.
Based on these grounds
Ruling publicly and after hearing full argument on both sides, after having deliberated in accordance with the law, receives the appeal, reverses the decision of the lower court in all of its provisions, and ordering anew, [this Court] holds that the French judiciary has jurisdiction to rule on the instant case.
[This Court] finds [buyer] provisionally liable to pay to [seller] the sum of six hundred thousand francs (600,000 f.),
So Declared publicly by Madame the Judge COMTE and signed by Judge PALISSE  functioning as President and by Mme Combe, Clerk of the Court.
1. The Courts of Appeal hear both criminal and civil cases. For civil cases, the courts are divided into several civil sections or chambres civiles. See. e.g., CHRISTIAN DADOMO & SUSAN FARRAN, THE FRENCH LEGAL SYSTEM 51-68 (1993). All footnotes in the following material were supplied by the translator and did not appear in the original material.
2. This Journal of Law & Commerce case
translation was prepared by
Vivian Curran, Legal Writing Instructor, University of Pittsburgh School of
(B.A. University of Pennsylvania; Ph.D., J.D., Columbia University). Any
who intends to rely on this case must consult the original text, a copy of
which can be obtained from the Journal of Law & Commerce. The
Journal of Law & Commerce is extremely grateful to Peter Winship,
Cleo Thompson, Sr. Trustee Professor of Law, Southern Methodist University
School of Law, who generously provided the original French text of this
case. [For an Internet presentation of the French text of this case,
4. Reference is to the tribunal de grande instance; the other French court of first instance is the tribunal d'instance. The tribunal de grande instance was created in 1958, replacing the tribunal de première instance.
5. The court of first instance is comprised of no fewer than three judges, one of whom functions as President. In certain areas (i.e., divorce; traffic; and juvenile cases) a single judge is permitted to adjudicate. See arts. 311 and 312 of the Code de l'organisation judiciaire.
6. That procedure is the référé described supra, note 3.
7. I.e., of the Court of First Instance.
8. The référé described supra, note 3.
9. I.e., of the référés.
10. Reference here is to the United Nations Convention on Contracts for the International Sale of Goods, U.N. Doc. A/Conf. 97/18 (1980) [hereinafter "CISG"], reprinted in S. Treaty Doc. No. 98-9, 98th Cong., 1st Sess. and 17 INT'L LEGAL MAT. 668 (1980).
11. These judges are called conseillers. "Conseiller" means to advise. The term originated at the time of the French monarchy, when the King was advised as to how to render justice by his conseillers de longue robe, advisors attired in long robes. See DADOMO & FARRAN, supra note 1, at 80 n.57.Go to Case Table of Contents
International trade thrives when impediments and restrictions to its flow are minimized. 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. 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. 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.
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, 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."
The Member States of what has become the European Union (EU) also recognized the importance of reducing impediments to foreign trade, as evidenced by the mandate in the Treaty of Rome to reduce barriers to the movement of goods. 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. More recently, the EU adopted the Convention on the Law Applicable to Contractual Obligations (also known as the Rome Contractual Obligations Convention--RCOC). The RCOC provides a uniform set of conflict of laws rules within the EU. 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.
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 (CISG) is the most recent attempt to codify private international law in the area of the international sale of goods. CISG is an important attempt to bridge 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.
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, this note analyzes the application of CISG in two cases translated from the French language. The first case, Ytong v. Lasaosa, 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). 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. It is important to understand the interaction of CISG with other bodies of private international law in order to grasp the reasoning of each tribunal.
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. 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.
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
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 [the buyer] at [seller's] Saint Savin factory in France, but despite several formal notices, [seller] was unable to obtain payment for the goods. [Seller] brought action against [buyer] in the Court of First Instance of Bourgoin-Jallieu, France, on June 3, 1992, seeking a verdict obliging [buyer] 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. [Buyer] raised the defense of lack of jurisdiction by the French court and the existence of a serious dispute. The President of the Court subsequently declared himself to be without territorial jurisdiction over the contract.
In November 1992, [seller] 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, [seller] stated that [buyer] took delivery of the goods at [seller'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, [seller] never acknowledged that these problems were due to defects in these materials. In addition, [seller] argued that during the almost two years since the delivery of the products to [buyer], it had never been summoned to court or asked to give any testimony on this issue and that the possibility of [buyer] bringing such an action had long since been extinguished pursuant to Article 1648 of the Civil Code.
[Buyer] countered that his relationship with [seller] was that of a franchisee, industrial agent, or international distributor, giving him responsibility for sales of [seller'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 [seller] had made an inventory of the various claims existing in Catalonia, that [seller] had undertaken personal responsibility for dealing with those actions, and that as a result, a novation had occurred and his debts were conveyed to [seller].
[Buyer] 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 [seller's] action against [buyer]. It also found [buyer] provisionally liable to pay [seller] 600,000 francs along with 10,000 francs pursuant to Article 700 of the New Code of Civil Procedure and the total costs of both the litigation from the Court of First Instance and the appeal. The Court also denied [buyer'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. Because of the oral nature of the contract, there was no provision for either a choice of law or forum. As CISG does not address jurisdictional issues, 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. The Brussels Convention provides the jurisdictional boundaries for the members of the EU in litigation involving civil and commercial matters. 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." In this case, [buyer] is not 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." 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." [Buyer] 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 [seller] in the northern region of Spain), an industrial agent, or an international distributor for [seller]. Article 8 of CISG deals with party intent and appears to combine both subjective and objective elements. 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." If the Court applied this subjective approach it would not matter what [buyer] thought, but only what [seller] had intended. However, certain commentators call for a greater reliance on the objective approach embodied in Article 8(2). 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." 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 contract for an industrial agent since no aspect of the contract established a mandate given from [seller] to [buyer]. 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. But courts generally tend to strongly favor domestic concerns and discount those of foreign parties and the Grenoble Court may have illustrated such bias toward [seller], 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) effectively 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." This provision is clearly an attempt by the drafters to extend the reach of CISG 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. 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.
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." The legal rules arising from self-executing treaties are available for immediate application by national judges. 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. 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. Several countries had expressed their intention to make a reservation to the application of Article l(l)(b) under Article 95. 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 permitted under Article 95 so that the U.S. would not be bound by Article l(l)(b).
"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."
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). 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." Since Spain did not accede to CISG until July 24, 1990, and CISG did not enter into force there till August 1, 1991, the contract concluded sometime before February 1991, would place it outside the reach of Article 1(1)(a), according to Article 100(2). France, however, was one of the original Contracting States as to which CISG entered into force on January 1, 1988.
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. 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. The rules of the 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. CISG, being a self-executing treaty, 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 [seller's] Saint Savin factory which satisfies Article 3 of the Hague Convention for applying the domestic law of the seller, [seller]. Since France did not make an Article 95 declaration when it ratified CISG, which would have invalidated the use of Article 1(1)(b), 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. 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. Construing CISG to define jurisdictional boundaries would broaden its scope beyond that intended in Article 4. 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 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." Because it was an oral contract, there was no designated place where [buyer] was bound to make his payment to [seller], 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. 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."
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.
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, the judgment of the French Court will be recognized and enforced in any other Contracting State. Thus, if [buyer] has no assets in France, [seller] can have a judgment by the French courts recognized and enforced in Spain, or wherever else [buyer] has assets in the EU.
Did the Court get it wrong? What was the alternative? Would it have been fair to force [seller], the seller and injured party, to sue [buyer] in a jurisdiction foreign to [seller]? 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. 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
In 1989, a contract was entered into by the Seller, an Austrian national, and the Buyer, a Yugoslavian national (Croatian), 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, 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.
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. 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." 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." 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. 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. 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." 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.
Notice the similarity between the issue of the nature of the contract here and that in [seller]. 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 [seller], 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 ...." 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. 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. 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." 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). The contract does not mention that payment is to be made upon the handing over of the merchandise. 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." The Seller alleged at the hearing that payment was to be made at the handing over of the goods in Prague. 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. 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. 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.
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.
James J. CallaghanGo to Case Table of Contents