Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 71-76 Reproduced with permission of the publisher, Kluwer Law International, The Hague.
A. Reasons for Exclusion
B. Labels for Domestic Law and the Scope of the Convention
(1) "Product Liability"
§71 A. Reasons for Exclusion
The strong protection that the Convention gives to the international sales contract made it necessary to limit the Convention’s scope lest the Convention collide with the special protection that some domestic rules provide for the noncommercial consumer. See Ch. 1 at §2. For this reason, Article 2 provides that the Convention does not apply to sales "(a) of goods bought for personal, family, or household use...." A similar purpose underlies the present article.
"This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person."
Article 2(a) excludes certain purchases from the Convention; Article 5 excludes a specified type of claim —liability for death or personal injury—even though other aspects of the transaction may be governed by the Convention. This exclusion is significant in the following two situations.
(1) Under Article 2(a), although goods are bought "for personal, family, or household use" the Convention may apply when the seller "neither knew nor ought to have known that the goods were bought for any such use." In these unusual cases, Article 5 provides that the claim of such a buyer or any third person "for death or personal injury" falls outside the Convention, and hence will be governed by applicable domestic law.
(2) Goods not bought "for personal, family, or household use" may give rise to a claim to recover for "death or personal injury." Suppose [page 71] that an industrial machine injures an employee of the purchaser—A claim by the purchaser to recover damages from the seller because of the injury to the employee is not governed by the Convention. (A claim by the employee against the seller would not be based on the "obligation of the seller and the buyer arising from" the contract of sale, and hence would be left domestic law by Art. 4.)
The exclusions under Articles 2(a) and 5 have special significance in relation to the notice requirement of Article 39: A buyer "loses the right to rely on a lack of conformity of the goods" unless he gives notice to the seller within a reasonable time and, in event, within two years after receipt of the goods.
In many countries another important feature of "product liability" is the opportunity to sue a manufacturer or distributor with whom the plaintiff had no direct contractual relationship. The Convention (Art. 4) governs "only...the rights and obligations of the seller and buyer arising from" the "contract of sale". Thus, except for unusual cases (§63 supra ), the Convention would not govern actions by a buyer against persons other than the seller and consequently would not interfere with domestic rules, such as product liability, that permit such actions. Moreover, as we have seen, Article 5 preserves domestic rules on liability for "death or personal injury caused to any person" even for actions by the buyer against the seller.
§72 B. Labels for Domestic Law and the Scope of the Convention
Article 4 provides that the Convention governs the "obligations of the seller and the buyer arising from (the)...contract...." The discussion of Article 4 mentioned that a subtle issue of the relationship between the Convention and domestic law would be explored here. In schematic form the issue is as follows: Domestic law states that facts A, B, and C lead to legal result X, and gives this rule a label such as "tort" or "products liability." Under the Convention, facts A, B and C lead to legal results Y. Does the label that domestic law gives to its rule determine whether that rule is displaced by the Convention?
This issue was introduced in schematic form because the same basic issue may arise in various settings. But it may help to examine this problem in a specific setting—domestic rules of "product liability."[page 72]
"Product liability" differs among the various countries, and even among the fifty states of the United States, where this development (or eruption) has been unusually active. No attempt will be made to catalogue the various species of "product liability." To analyze the relationship between the Convention and domestic law, it will suffice to consider one extreme application of this doctrine.
Example 5A. Seller, in State A, sold Buyer, in State B, an industrial heater for use in Buyer’s factory. Seller was not negligent in manufacturing the heater, but there was a hidden flaw in the burner that led to an explosion that damaged the goods in Buyer’s factory. Domestic law of "product liability" would make Seller liable to Buyer for the damage. The operative facts that led to liability were these: (A) The defendant "supplied" the goods; (B) The goods were defective; (C) The goods caused damage to the user. Under such "product liability" Seller is liable to Buyer even if he establishes that he (or his supplier) exercised due care in making the heater. The buyer is not required to notify the seller of the defect in the goods. Local law classifies all such "product liability" under the heading of "tort" rather than "contract".
Does the Convention displace such domestic rules of "product liability?" The answer should be Yes. Whether the Convention applies is, or course, governed by the provisions of the Convention. Under Article 1 this was a "contract of sale of goods" and the transaction was not excluded by Articles 2–5.
The facts that invoke the domestic rules of "product liability" are the same facts that invoke the Convention. In examining Article 4 we noted that the Convention does not displace domestic remedies for fraud, but [page 73] those remedies respond to facts that are different from the facts that invoke the Convention. Domestic rules that turn on substantially the same facts as the rules of the Convention must be displaced by the Convention; any other result would destroy the Convention’s basic function to establish uniform rules. (Art. 7(1).)
A more difficult problem would be presented if, in a setting like problem 5A, Buyer offered to prove that the defect in the heater resulted from a lack of due care in Seller’s manufacturing operations and sought recovery under domestic tort law. At stake would be the applicability of the full range of the Convention’s rules—including the buyer’s obligation to notify the seller (Arts. 39, 40, 44), his right to avoid the contract (Art. 49) and the measurement of damages (Arts. 74–77).
In terms of the schematic presentation set forth at §72, supra, the buyer would argue that his claim under domestic tort law would not be based on the same facts as a claim under the Convention for breach of contract. Under the Convention, liability would be based on two elements—(A) failure of the goods to conform to the contract (Art. 35) and (B) damage resulting from this defect (Art. 74). The claim in tort would include a third element—(C) proof of lack of due care. However, it does not follow that this third element excludes the Convention.
As we shall see, the Convention embodies a deliberate choice that the question of negligence is irrelevant to the buyer’s right to recover from the seller for damage caused by nonconforming goods. One of the reasons for this choice is this: When the seller has produced defective goods (as in the present case) it is likely that the defect resulted from lack of due care in production methods. However, proof of lack of due care is expensive and the outcome of litigation is difficult to predict; to promote legal certainty, the Convention makes the seller legally responsible for defects in the goods that it sells. Thus, proof of the seller’s lack of due care does not change the essential character of the claim, and access to domestic law based on such proof would make it possible to circumvent the uniform international rules established by the Convention.
In examining articles 4 and 5 we met cases in two quite distinct categories: (1) An action to rescind the contract for fraud (e.g., false statements by the seller concerning his production capability or false financial statements supplied by the buyer) (§65) and (2) Claims for damages [page 74] caused by defective goods based on domestic rules as to "product liability" or tort (§73). Between these two poles there may well arise situations where the claim under domestic law depends on facts that differ, in varying degrees, from the facts necessary to establish a claim under the Convention. However, if it is clearly determined that claims like those in category (2), above, may not invoke domestic law, the cases that fall between these two categories should not seriously interfere with the application of the Convention.
Professor Schlechtriem concludes that the Convention supersedes domestic tort rules in actions to recover "for the inferior value of nonconforming goods". This type of action protects an "economic interest" which is "the essence of contractual interests". On the other hand the Convention does not supersede actions based on "property" interests that exist "independently of contractual obligations".
From these premises Schlechtriem concludes that actions may be based on domestic law when defective goods "non-conforming to the contract or not" cause "property damage". Domestic law may be invoked even though "damage is recoverable under CISG, Article 74" since this action is "outside the principal domain of interests created by contracts". Domestic tort rules would also apply "even if the goods themselves were destroyed by a defect giving rise to a tort action based on strict liability".
These views are intriguing and merit the most careful consideration. One question that calls for attention is the justification for displacing inconsistent domestic law within only part of the Convention’s area of applicability. Displacing inconsistent domestic law is of the essence of establishing uniform law. In areas where appeals for domestic law were [page 75] persuasive to the international legislative body the Convention carved out exceptions— e.g., by excluding sales to consumers (Art. 2(a)), claims based on death or personal injury (Art. 5), and validity of the contract, any of its provisions, or usage (Art. 4(a)). Adding exceptions to the area of uniformity seems inconsistent with the compromises on scope and substance that led to international agreement.
One might suppose that nothing more than generosity results from permitting claimants to choose more favorable domestic law: This alternative merely adds to the claimant’s protection; if domestic law is not more favorable than the Convention claimants will invoke the Convention. However, the Convention was devised to provide a fair balance between buyers and sellers, claimants and defendants.
A less basic point: Permitting recourse to domestic law can be unfair since not all domestic systems permit choice between contract law ("non-cumul"); under German law parties to contracts may choose ("Anspruchskonkurrenz"). More important, however, is the difficulty of maintaining uniformity of the international rules once a breach has been opened in the line set by the Convention’s own rules on its sphere of applicability. The appeal of familiar domestic law to domestic judges is strong and should not be given further encouragement.[page 76]
FOOTNOTES: Chapter on Article 5
1. There was no comparable provision in the 1978 or earlier UNCITRAL drafts or in ULIS. Art. 5 was adopted at the diplomatic conference; Com. I, O. R. 245–246, 423; Docy. Hist. 466–467, 644.[Editor's note: Footnote 2 not present in the text]
3. The application of "product liability" to international sales was explored in Secretariat reports of UNCITRAL: Rep. S-G, "Liability for Damage", VI YB 255–272; Rep. S-G, "Liability for Damage." VIII YB 235–269 Rep. S-G. "Analysis of the Replies of Governments," VIII YB 269–287. See also 1977 UNIDROIT Unif. L. Rev. Vol I, 192–209: Text: European Convention on Products Liability, Strasbourg 27 January 1977. Under Art. 4, supra at §63, attention was given to product liability rules in connection with a very different issue—the applicability of the Convention to a producer’s promises to a buyer who purchased the goods from dealer.
4. "Product liability" usually applies to "dangerous" goods which do physical damage to a "consumer" or his property. However, case law on occasion has extended product liability to situations like Example 5A. See White & Summers §11–2, discussing Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965) (lost profits when truck turned over).
5. We shall have occasion to return to this principle in connection with the Convention’s rules on conformity of the goods with the contract. See Art. 35, infra at §222. Problems of applying this principle will arise when domestic rules are invoked by facts that are, in varying degrees, similar to the facts that invoke the Convention.
6. Schlechtriem, The Borderland of Tort and Contract, Cornell Colloq. 467, 469 (1988). The article also mentions that an interest in "health", like property, is independent of contractual obligations; this interest seems to present no problem of overlap in view of Article 5’s exclusion of "death or physical injury". The same is true of domestic statutes that require a higher standard of quality or a different price than that provided by the contract, or by Article 35, infra. cf.: Schlechtriem, Com. (1998) 47, 50.
7. Id. 473–477. Special mention is made that a tort action would not be bound by the requirement of notice (Art. 39) or the foreseeability limit on damages (Art 74); apparently none of the Convention’s rules would be binding. It is not clear whether concurrent tort actions for "property damage" would extend to materials spoiled or defective goods produced by a machine that did not conform to the contract.
8. Id. 474. In this discussion reference was made to a "dangerous defect" but it is not clear whether this limits the scope of concurrent tort recovery; perhaps under this approach the Convention’s rules would control when perishable commodities (e.g. fruit) are destroyed because they were infected with fungus or disease or were over-ripe.
9. Id. 468, 470. B. Nicholas, French Law of Contract 53 (1982).