1. INTRODUCTION

2. EXAMINATION OF THE GOODS

3. EXAMINATION OF THE GOODS DELIVERED

4. OBLIGATION TO NOTIFY OF THE LACK OF CONFORMITY

5. EXAMINATION AND THE NOTICE UNDER THE FSGA

6. CONCLUSION

1. INTRODUCTION

1.1 General remarks

The 1980 United Nations Convention on Contracts for the International Sale of Goods from herein the CISG or the Convention) plays an important role in the modern world of commerce. The growing international trade requires certainty and predictability, thus a unified substantive law is a necessity on international level. The CISG is drafted to satisfy for the needs of international trade. However, the majority of the traders are more familiar with the domestic sales law and feel more comfortable to use it. An ideal choice between the CISG and the domestic law is the one, which benefits both contracting parties the most. Therefore, it is important for a Finnish trader to be familiar with both the CISG and the Finnish Sale of Goods Act (from herein also the FSGA).

1.2 CISG and the Finnish Sale of Goods Act

1.2.1 Application of the CISG and the FSGA

The CISG applies, in general, to contracts of sale of goods between parties who have their place of business in different Contracting States or to cases in which the proper law of the contract is that of a Contracting State.[1] The Nordic countries, however, have made an Article 94 declaration. As regards Inter-Scandinavian sales, the Nordic countries did not want to replace their essentially uniform domestic sales acts with the CISG regime. Denmark, Finland, Norway and Sweden have declared that the CISG is not to apply to contracts of sale or to their formation where both parties have their places of business in those States.[2] However, basically common Sale of Goods Act was only adopted by Finland, Norway and Sweden, while Denmark chose to retain its Act from the beginning of the 20th century. The declaration Denmark has made is however effective until withdrawn.[3]

The scope of application of the Convention is also limited through the concept of "goods" and the particular exclusions of Articles 2-5. Hence, the CISG is applicable only where its application is not excluded either by virtue of party autonomy or by virtue of the Convention itself. Of course, because of the existing principle of the autonomy of the will of the parties, the parties may make the Convention applicable when it would otherwise not apply.[4] The other party might be more willing to sign an agreement if he is not forced to accept as a governing law of the contract a law unfamiliar to him. Frequently, neither of the parties wants to accept the application of the law of the county of the other party, since this may rightly or wrongly be assumed to be an unacceptable benefit to the other party.[5] Therefore, the trust may be reached more easily if both parties feel that they are on the neutral grounds.

Depending on the circumstances the parties may also wish to opt for the domestic law, i.e. FSGA instead of the CISG. Because Finland has made an Article 92 declaration that it is not bound by Part II of the Convention (Formation of the Contract) the parties have to pay attention to drafting the choice of law clause.[6] If the contract simply refers to the Finnish law, the CISG will apply except as to the formation of the contract. If the parties wish to apply the FSGA they have to make a clear and explicit reference to it, for example, in the following terms: "This contract is governed by the domestic law of Finland, including the Sale of Goods Act 1987".[7]

1.2.2 Legislative history of the Finnish Sale of Goods Act

1.2.2.1 Situation preceding the enactment of the FSGA 1987

Before moving onwards, the legislative history of the FSGA is presented briefly in order to demonstrate the close connection between the CISG and the FSGA. In addition, the principle of freedom of contract is discussed already at this point.

Before the Finnish Sale of Goods Act was enacted in 1987, the only general provisions available relating to the rights and obligations of the buyer and the seller dated as far as 1734. Provisions relating to sales of specific goods were of course enacted through out the years but many important issues were not regulated at all. In general, the legislation relating to the sale of goods could be described as out of date and incomplete.[8]

The insufficient regulation led to a situation where the rules of laws relating to the sale of goods had been developing through standard conditions, legal practice and legal literature. The situation was far from ideal. The development of any area of law through these means is problematic. One of the parties, the seller or the buyer, or an organisation representing one of the parties usually drafts the standard conditions. Thus the conditions become easily one-sided and further, the general conditions may differentiate in the areas where no need actually exists. The satisfactory development of laws though legal practice, on the other hand, requires that the parties to sale of goods have the possibility to keep up with and understand the recent rulings on the disputes. This is especially hard if arbitration is often used as a dispute resolution. Further, the courts of law and the arbitrators only deal with issues, which are brought to them. The outcome is necessarily random.[9]

This background in mind the Sale of Goods Act was bound to produce legal certainty and help the parties to evaluate their legal status in the case of a dispute. Further, the Act was also bound to prevent disputes or at least, work as a means of helping to resolve them.[10]

1.2.2.2 International sale of goods and the FSGA

In the international sale of goods, the situation where Finland did not have a proper Sale of Goods Act created different kinds of problems. When a sale of goods has a connection to more than one country, the parties may wish to decide the applicable law of the contract. This is important even today when a uniform sales law is available because the CISG does not govern all the relevant issues of the sale of goods transaction.[11] Without a written law, a Finnish party was in a weaker position from the beginning. It is always a nuisance to familiarise oneself with a foreign law, not to mention the situation when there is no written law. The Finnish party was often forced to accept the other party's choice of law without a chance for negotiations. The Sale of Goods Act lifts the Finnish parties from their disadvantageous starting point and gives them equal bargaining powers compared to those of their foreign business partners.[12]

1.2.2.3 Preparation of the FSGA

The first steps towards a new Sale of Goods Act were taken in the 1960's. After several reports and expert opinions, there was still no sales law in Finland although different participants to the process appreciated the urgency for one. After the CISG was approved in 1980, the Nordic countries (Norway, Sweden, Finland and Denmark) set up a working group to explore the possibilities to enact a uniform sales law applicable in Nordic home market. At the same time, the idea was to develop sales law toward the uniform international sales law. The current FSGA is based on the work of the group.[13]

When different possibilities to ratify the CISG were explored, it was discovered that even though it was important to develop domestic sales law in accordance with the international trend, the CISG was not suitable to form a new FSGA as such. The CISG was a compromise between the different legal traditions and it was essentially developed for the needs of international trade. While some provisions were seen as selfevident, others were seen to be too imprecise for the purposes of a domestic sales law. On the other hand, if a sales law would have provisions concerning both international sale of goods and domestic sale of goods the differences between the two would be easily detected and understood. However, it was discovered that several provisions would have to be modified for the purposes of domestic sales, which would eventually lead to a complex law. It was also feared that the solution would arouse suspicion among the foreign traders that domestic traditions influence the interpretation of the CISG.[14]

Due to the above-mentioned facts, Finland adopted a solution where it ratified the CISG as such on 20 March 1987 [15] and enacted a separate sales law for the domestic sales on 27 March 1987. The FSGA entered into force on 1 January 1988 and the CISG on 1 January 1989. The CISG was one of the bases for the FSGA.[16] Differences between the CISG and the FSGA were avoided as far as possible. Despite the efforts, important differences exist between the two.[17]

1.2.3 Party Autonomy

1.2.3.1 General remarks

The primary source in determining the relationship between the contract parties is the underlying contract itself. Both the CISG and the FSGA are built on this principle of contract law. The principle according to which the primary source of the rules governing sales contract is party autonomy cannot be stressed too much. In determining the issues relating to examination and notice of lack of conformity, the first and primary source is always the contract between the parties.[18] This should be kept in mind throughout the reading of this study.

1.2.3.2 Primacy of the contract in the CISG

The dominant theme of the Convention is the primacy of the contract. The theme is promoted throughout the Convention but the most important Article in this respect is Article 6.[19] By virtue of Article 6, the parties may exclude the Convention's applicability. It provides that the parties may exclude the application of the Convention or, subject to Article 12, derogate or vary the effect of any of its provisions. Article 12 provides that the Contracting State may preserve its domestic rules that require writing in the formation or modification of the contract.[20]

An expression of party autonomy can also be found in Article 9 of the Convention. The practices, which the parties have established between themselves and any usage to which the parties have agreed also override the provisions of the Convention. Further, the parties are considered to have impliedly made applicable to their contract a usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. The existence of a usage as such is thus not enough but the parties must have understood, at least impliedly, that a usage is a part of their contract.[21]

1.2.3.3 Freedom of contract in the FSGA

The FSGA is also dispositive. Paragraph 3 of the FSGA embodies the principle of freedom of contract in the following terms:

§ 3 The provisions of this Act are subject to the terms of the contract between the parties, to any practice which has been established between them and to any other usage which is to be considered binding on the parties.

This does not however mean that the contractual freedom is unlimited. A contract of sale, as any other contract is subject to Paragraph 36 of the Finnish Contracts Act. Under Paragraph 36 of the Contracts Act, the Finnish court has a possibility to adjust or to ignore a term of the contract which is unreasonable or which, if applied, would lead to unreasonableness. It applies to usage under Paragraph 3 of FSGA as well. The expression "which is to be considered" leaves the court a discretion whether to apply a usage or not. Unlike in the CISG, according the FSGA a mere existence of a usage makes it applicable to the contract. Therefore, it might be important to evaluate whether a usage is reasonable or not. The fact that a different approach is adopted in the CISG does not mean that the parties should not be bothered to familiarise with the relevant usage in the international trade, as a particular usage might be the one the parties ought to have known.[22]

1.3 Purpose of the study

This study deals with the examination of the goods delivered and the buyer's obligation to give notice to the seller of the lack of conformity. In order to define the scope of the study, the distinction between the examination before and after the conclusion of the contract and before paying the price is drawn in the beginning. The buyer's obligation to give notice of third-party claims, even though similar to the obligation in question, is not dealt within because of the special nature of third-party claims.[23]

The CISG was one of the bases the FSGA was built on. Consequently, the solutions adopted and actual effects of the particular provisions are in many cases almost identical. Some slight differences in the wording might appear but the underlying ideas are promoted equally in both codifications. It is, however, important to be aware of the differences, even if they are only slight ones. In order to avoid confusion, as regards the main sections of this study, i.e. the examination of the goods delivered and the obligation to notify of the lack of conformity, the CISG will be dealt with in detail before the study is extended to the FSGA. In the interpretation of the CISG, regard is to be had to its international character and to the need to promote uniformity in its application.[24] Thus, the Convention has opted for autonomous interpretation, i.e. independent form the particular concepts of a specific legal system.[25] The FSGA is prepared for the purposes of domestic sales and its solutions should not be confused with the solutions in the CISG. Issues relating to the examination of the goods and the buyer's obligation to give notice of the defect as required by the FSGA are discussed in a single section. The discussion concerning the FSGA is briefer than the discussion concerning the CISG and the emphasise will be on those areas where differences occur.

1.4 Methods used in the study

As far as the CISG is concerned, the commentaries by prominent scholars form the bases on which this study is built. In general, English literature on the CISG is easily available. It consists of commentary books and articles written by different scholars. In addition to international literature on the CISG, an enormous source of information has been the World Wide Web, especially the CISG Database maintained by the Institute of International Commercial Law at Pace University. In addition, there is extensive case law involving the CISG. As regards the cases, the CISG Database and the case law provided by the UNCITRAL have been the main sources. Cases where one of the parties is Finnish were easily accessible through the CISG Finland database.

As regards Finnish law, the sources consist of preparatory material of the Finnish Sale of Goods Act, general literature on contract law and commentaries on the FSGA. In order to give more thorough idea of the case law involving examination of the goods and notice of defect as required by the FSGA few decisions of the different Court of Appeals are presented together with the precedents of the Supreme Court of Finland. In addition, unlike the relevant CISG Articles, FSGA Paragraphs dealt within are written out in their correct form because the English version of the FSGA is not commonly available.

The case law is chosen to merely illustrate the scholarly writings in the best possible way. Due to the nature of the study, the cases are not analysed in detail and no extensive and reasoned conclusions are drawn. The reader should remember that the cases are presented in a very simplified form. Only details and circumstances important to the discussion in question are presented and even those in very general terms. As regards the case law on the CISG, most of the cases are tried in the German jurisdiction, namely because the majority of the published cases are German.[26] An ideal situation would allow a comparison between the case law from different legal traditions.

The unofficial translation of the FSGA published by the Ministry of Justice has been enormous help.[27] Other translations of the different Finnish Acts into English are by the author.

2. EXAMINATION OF THE GOODS

2.1 General remarks

Buyer's duty to examine the goods after delivery must be distinguished first of all from the buyer's right to examine the goods before paying the price under CISG Article 58(3) and from the examination of the sample or model as provided in CISG Article 35(2)(c) and Article 35(3). The corresponding provisions of the FSGA are Paragraph 49,2 as for the examination before paying the price and Paragraph 20,2 as for the examination of the goods before the conclusion of the contract. The FSGA is dealt with separately after CISG Articles in question are discussed.

2.2 Examination before paying the price

2.2.1 Right to examine the goods before paying the price under the CISG

The basic idea of Article 58 is to establish delivery and payment as concurrent conditions: one party obtains the performance of the other in exchange for his own performance.[28] The seller is not obliged to extend credit to the buyer and the buyer is not required to pay until he receives the goods or documents controlling their position.[29] This provision applies only insofar as nothing else can be derived from the contract, that is to say, that no other express or implied stipulations of the parties exist. This is of course consistent with the underlying idea of the freedom of contract as provided in Article 6.[30]

According to the first paragraph, the buyer must pay the price when the seller makes the goods available, either by placing the goods or the documents controlling them at the buyer's disposal. The second paragraph states that if the contract involves carriage of goods, the seller may dispatch the goods on terms whereby the goods or documents controlling their disposition will not be handed over to the buyer except against payment of the price.

Article 58(3) provides that the buyer is not bound to pay the price until he has had an opportunity to examine the goods, provided that this is consistent with the agreed delivery and payment arrangements. The right to examine the goods means a brief, superficial inspection, which does not preclude subsequent examination and complaint in accordance with Articles 38 and 39.[31] As long as the buyer eventually satisfies the requirements of Articles 38 and 39, he does not lose his right to rely on the lack of conformity.[32] The buyer is only entitled to examine the goods but not obliged.[33]

If the procedures for delivery or payment agreed by the parties are inconsistent with the right to examine the goods before payment, the buyer does not have such right. Payment clearly may not be made dependent on examination if advance payment or payment via letter of credit is agreed upon.[34] However, the buyer can protect himself against the risk of paying before examination of the goods, by agreeing a term requiring the seller to submit certificates of quality.[35]

2.2.2 Right to examine the goods before paying the price under the FSGA

Paragraph 49 of the FSGA is also based on the idea that the delivery and payment are to take place simultaneously. Paragraph 49,1 provides that the buyer is not obliged to pay before the goods are made available for him or have been placed at his disposal in accordance with the contract. Under Paragraph 49,3 the buyer may be required to pay against the bill of lading or upon receipt of the freight bill or other document confirming that the goods are being transported. Before paying the price the buyer has a right to make sure that, the goods correspond to the contract. Paragraph 49,2 states:

49§ …Before paying the price, the buyer is entitled to examine the goods in the manner tha is customary or appropriate under the circumstances, unless such examination is inconsistent with the terms of delivery and payment agreed upon.

This right to examine the goods means a brief, superficial inspection, which should not cause unreasonable delay to the seller.[36] If the examination is inconsistent with the terms of the contract, the buyer has no right to examine the goods before paying the price. This is the case, for example, when the goods are sent on C.O.D. The effect of the provision is similar to that of CISG Article 58(3).

2.3 Examination of a sample or model

2.3.1 Sale by a sample or model under the CISG

Under Article 35(2) (c), the seller warrants that the goods possess the qualities of goods, which he has held out as a sample or model. Of course, if the seller indicates that the sample or model is different from the goods to be delivered in certain respects or that the sample or model is held out 'without obligation', he will not be held to those qualities of the sample or model but will be held only to those qualities which he has indicated are possessed by the goods to be delivered.[37]

While the sample is taken from the goods to be delivered, a model is supplied to the buyer for his examination where the goods themselves are not available. Where the seller has held out a sample, he warrants that the goods possess all the qualities of that sample. In the case of a model, the contract needs to be interpreted in order to establish which qualities of the good are illustrated by the model and have therefore been contractually agreed upon.[38]

The obligation in respect of qualities in Article 35(2)(c) is imposed on the seller because in the usual sale the buyer would legitimately expect the goods to have such qualities even if they were not explicitly stated in the contract.[39] However, paragraph three of Article 35 provides that if at the time of the conclusion of the contract the buyer knew or could not have been unaware of a non-conformity in respect of one of the implied warranties provided in Article 35(2), he can not later say that he had expected the goods to conform in that respect. An obligation based on facts of which one "could not have been unaware" does not impose a duty to investigate; these are the facts that are before the eyes of one who can see. This expression slightly lightens the burden of proving that the facts that were before the eyes actually reached the mind.[40] The provision is based on the assumption that the buyer positively knows about the non-conformity in respect to a sample or model. Since it is hard to prove, what the buyer subjectively knew at the time of the conclusion of the contract the burden of proving the knowledge is lightened.[41]

This rule does not go to those characteristics of the goods explicitly required by the contract and, is therefore subject to the first sentence of Article 35(1), i.e. the seller must deliver goods, which are of the quantity, quality and description required by the contract. Paragraph three refers only to the implied warranties provided in points (a) to (d) of Article 35(2). Even if at the time of the conclusion of the contract the buyer knows that the seller will deliver goods, which do not conform to the contract, the buyer has a right to contract for full performance from the seller. If the seller does not perform as agreed, the buyer may resort to any of his remedies, which may be appropriate as provided in Article 45(1).[42]

Furthermore, paragraph three is of no practical importance in the context of sale by a sample or model. Article 35(2)(c) provides that the goods are in accordance with the contract if they correspond to the sample or model, even if the buyer recognised defects when examining the sample or model or could not have been unaware of such defects.[43] The examination of a sample of a model does not enable the buyer to rely on apparent qualities he knows in reality not to be present in the goods he is going to buy.[44]

2.3.2 Examination before the conclusion of the contract under the FSGA

Paragraph 17, 2 point 3 of the FSGA is identical to CISG Article 35(2)(c):

The corresponding provision for Article 35(3) is found in Paragraph 20, which states:

The idea in subparagraph one is identical to CISG Article 35(3), i.e. there is no defect in the goods because the goods correspond to what has been agreed on. However, the provision does not apply to cases where the seller had promised to repair the defect after the conclusion of the contract.[45] This limitation is similar to the one in the CISG. As stated earlier, paragraph three of Article 35 applies only to the qualities provided in points (a) to (d) of the second paragraph. The seller's concrete promises stay untouched. It is also important to note that even if the buyer has been aware of the defect he necessarily has not understood the significance of the defect. If this is the case, the buyer can still rely on the defect.[46]

There is no corresponding provisions to subparagraphs two and three of Paragraph 20 in the CISG. Under the CISG, it is presumed that if the buyer has an opportunity to examine the goods before the conclusion of the contract he does so on his own initiative and for his own benefit.[47] This is important difference to be noted. Under Paragraph 20 of the FSGA, the buyer has no obligation to examine the goods. The precondition for the buyer to loose the right to rely on the lack of conformity under subparagraph two of Paragraph 20 is that he actually examines the goods before the sale -- and does not discover a defect he ought to have -- or that he fails to comply with the seller's exhortation to examine the goods without acceptable reason. Under the CISG, on the other hand, it is in the buyer's interest to examine the goods[48] The buyer is required to undertake the examination that is normal in the branch of trade according to the circumstances.[49] The third subparagraph of Paragraph 20 is related to Paragraph 17, point 3. In cases involving a sale by a sample, the defects must relate to a property of the goods that appeared in the sample.

2.4 Buyer's obligation to examine the goods delivered

2.4.1 General remarks

The examination of the goods delivered is regulated in CISG Article 38. The corresponding provision in the FSGA is Paragraph 31.

Article 38 lays down a fundamental principle that requires the buyer to examine the goods delivered by the seller within as short period as is practicable in the circumstances. Article 38 is prefatory to Article 39, which provides that if the buyer fails to notify the seller of lack of conformity of the goods within a reasonable time after he has discovered it or ought to have discovered it, he loses the right to rely on it.[50]. Article 38 is important in fixing the time when the buyer "ought to have discovered" the defect; this time, in turn, starts the running of the "reasonable time" within which the buyer must notify the seller.[51] The strict connection between Article 38 and Article 39 means that the buyer has a burden rather than a duty to examine the goods in a short time.[52] In practical terms, an obligation to examine the goods after the delivery has more importance than the buyer's duty to notify the seller of the lack of conformity. When the buyer has detected the deficiency, he has no reason to postpone the notification.[53]

Paragraph 31 of the FSGA is almost identical with CISG Article 38. Paragraph 31 provides that the buyer must examine the goods delivered as soon as is practicable in the circumstances. As Article 38 is prefatory to Article 39, Paragraph 31 is prefatory to Paragraph 32. The underlying idea of the provisions is the same.

It should be stressed that even though the examination of the goods constitutes a prerequisite for the application of the notice requirement as provided in CISG Article 39 and FSGA Paragraph 32, the lack of thereof does not per se lead to the lost of the buyer's rights. The rules on examination and notice do not specify the obligations of the buyer in the sense that the seller may resort to remedies for non-compliance by the buyer. They have the effect that the buyer must comply with them in order to retain his rights under the Convention or the FSGA.[54]

2.4.2 Purpose of the examination and the notice

2.4.2.1 General remarks

The motivation behind the buyer's duty to examine the goods is the belief that the seller will be substantially prejudiced if he is not notified of the non-conformity within a reasonable time after the buyer discovered or ought to have discovered it. However, it should be noted already at this point that proof of actual prejudice to the seller is not required.[55]

At the same time as the seller's interests are protected, the buyer may be substantially prejudiced if he is not able to rely on the defect only after a short period has passed after the delivery. The restriction on the buyer's rights needs to be justified.

2.4.2.2 Seller's need for notification

The obligation to examine the goods and to notify the seller of any lack of conformity is, in particular, intended to place the seller in a position in which he may, if possible, remedy the lack of conformity by delivering the missing goods or a substitute or by repair, or reduce the buyer's loss in some other way.[56] The period within which the goods should be examined is also significant for the purposes of avoiding the contract. Because of the defect, also the seller may have demands on his own suppliers. In order to notify his own suppliers in time the seller needs to be warned about the possible defects as soon as it is possible.

Further, the notice should not only be given to the seller within a reasonable time after the buyer discovered the lack of conformity or ought to have discovered it, but it should also specify the nature of the lack of conformity. The purpose of the notice is to inform the seller what he must do to remedy the lack of conformity, to give him the basis on which to conduct his own examination of the goods, and in general to gather evidence for use in any dispute with the buyer over the alleged lack of conformity.[57] In addition, it should be noted that the seller's responsibility is to provide goods that confirm to the contract when the risk of loss passes to the buyer.[58] If the buyer notifies the seller promptly, the seller can inspect and test the goods to ascertain whether a claim is justified.[59]

Even though it is important to protect the buyer's right to rely on latent defects which become evident only after a period of time for giving notice has passed, it is also important to protect the seller against claims which arise long after the goods have been delivered. Claims made long after the goods have been delivered are often of doubtful validity.[60] CISG Article 39(2) recognises the interest of sealing off the sales by requiring the buyer to give the seller notice of the non-conformity within two years, at the latest, from the date the goods were actually handed over to him.[61] Professor Reitz argues that cutoff rules constitute a form of caveat emptor rule.[62] He is of an opinion that the benefits the cutoff rules create for sellers do not appear to be substantial enough to justify the depriving the buyer of his rights entirely.[63]

2.4.3 Obligation to examine the goods as part of the Good Faith obligation

2.4.3.1 Good Faith in the CISG

The CISG refers to good faith only once, in Article 7. Article 7 provides that in the interpretation of the Convention, regard is to be had, not only to the necessity of promoting the Convention's uniform application, but also to the need of promoting the observance of good faith in international trade.[64] At first sight, Article 7 seems to be limited only to the interpretation of the CISG itself. Indeed, it has been argued that it does not, by itself, impose good faith obligation on the parties to the contract.[65] However, while it is true that the CISG's only explicit reference to good faith is directed at those charged with the interpretation of the Convention, many of the provisions directed at the parties to CISG contracts would be rendered meaningless without recognising a general good faith obligation.[66]

2.4.3.2 Good faith in the FSGA

One of the main rules of contract law is the protection of good faith and reliance. There are some loyalty duties between the contracting parties throughout the contractual process, starting from the negotiations and lasting until all the contractual obligations have been fulfilled. Paragraph 36 of the Finnish Contracts Act embodies generally the idea that the contracting parties must act honestly and in accordance with good faith.[67]

2.4.3.3 Obligation to examine the goods promoting the Good Faith

The obligation to examine the goods and to notify the seller of any lack of conformity is, at one level, intended to establish certainty for the seller in regard to those accounts, which he can consider to be closed at any particular time.[68] On another level, it serves to prevent bad faith attempts by a buyer who, upon discovering the non-conformity, might be attempted to wait in order to speculate on the seller's cost.[69]

A buyer acting in bad faith might be tempted to increase his own loss in anticipation of litigation and furthermore, he might even be tempted to cause non-conformity to the goods if the transaction had lost its overall profit potential after some months after the delivery. The obligation to examine the goods works to prevent these attempts.[70]

CISG Article 40 is a strong evidence of the vitality of good faith as an unspoken requirement of the CISG.[71] Indeed, when dealing with the good faith principle, the Secretariat Commentary refers, among the others, to Article 40.[72] Article 40 precludes the seller from relying on the fact that notice of non-conformity is not given in accordance with Articles 38 and 39 if the lack of conformity relates to facts of which the seller knew or could not have been unaware and which he did not disclose to the buyer. The corresponding provision in the FSGA is Paragraph 33, which provides that the buyer is entitled to rely on a defect if the seller is guilty of gross negligence or conduct which is incompatible with honour and good faith even if he has failed to give notice to the seller of the defect. These limitations on the seller would be virtually meaningless without the concept of good faith at their foundation. They are designed to prevent sellers from attempting to pass off defective goods in the hope that the buyer will not notice the non-conformity until it is too late. The seller is unlikely to be fallen under the scope of Article 40 or Paragraph 33 if he is not acting in bad faith.[73]

3. EXAMINATION OF THE GOODS DELIVERED

3.1 Application of CISG Article 38

As discussed earlier, one of the bases the FSGA was built on was the CISG. The CISG will be dealt with at first, before the examination is extended to the FSGA.

Article 38 applies to all cases of lack of conformity. The concept of lack of conformity relevant under Articles 38 and 39 is to be derived from Article 35.[74] Conformity of the goods includes quantity, quality, description and packaging.[75] The scope of this study does not allow deeper examination of the concept of conformity. In the case of non-conforming documents, there is no express duty to examine them or to notify the seller of any lack of conformity. However, without a duty to examine the documents and a duty to notify the seller, in practice, the seller's right to cure under Article 34 would be undermined.[76]

3.2 Method of examination

3.2.1 Examiner of the goods

Under the Convention, it is irrelevant whether the buyer examines the goods himself, through his employees or through other persons, e.g. customer.[77] Article 38(1) provides that the buyer must examine the goods, or cause them to be examined. In particular circumstances it might even be necessary to call in experts in order to carry out test on complicated machinery.[78] Moreover, the parties often agree upon a neutral test body. Official bodies may also be competent for carrying out an examination at the appropriate place.[79] The buyer is advised to demand an official testing especially if he needs accurate and reliable test results soon after the delivery for the purpose of notifying his own suppliers.

3.2.2 Agreed method of examination

The CISG is not mandatory law; primarily the method of examination is determined by agreement.[80] Article 6 provides that the parties may exclude the application of the Convention or, derogate from or vary the effect of any of its provisions.[81] This means that not only can parties agree that Article 38 is not to apply, they may also lay down more precise rules in that regard.[82]

Domestic law governs the effectiveness of such agreements: Article 4(a) states that the Convention is not concerned with the validity of the contract or of any of its provisions.[84]

As we will see, there is no general solution to determine what is a proper examination and when it should take place. Each case must be determined its particular circumstances and special features in mind. To avoid conflicts prudent business people take these issues into account already when drafting the contract.

3.2.3 Usage qualifying the method

3.2.3.1 Validity of a usage

If the parties have not reached any specific agreement, the method of examination required may follow from the usage or practice.[85] An applicable usage has the same effect as a contract, i.e. a usage, which forms part of a contract, takes priority over the dispositive provisions of the CISG.[86] There is again one limitation provided in Article 4: A usage is invalid if a contract term embodying the usage would be invalid under applicable domestic law.[87]

If the usage relates to transactions which are always concluded at a particular place or where a usage concerns only the conduct at a particular place, the domestic law of that place decides whether or not they are valid. In those cases, only practical way by which a usage may cease to be valid is that conflicting, mandatory rules are subsequently adopted.[88] However, in standard cases of the international sale of goods, it is for the domestic law applying for the purposes of Article 7(2) [89] to establish the proper law of the contract and whether or not a usage is valid. The precise forum chosen, its rules of private international law and the freedom of contract allowed by the applicable domestic law may lead to differences in the extent to which a usage is recognised, particularly where such recognition is precluded by mandatory provisions of domestic law.

3.2.3.2 Practices between the parties

Article 9 clarifies the order in which commercial customs are to be taken into account for the purpose of interpreting and supplementing the parties' contract of sale. First, Article 9 provides that the parties are bound by practices, which have become established between them. Expectations that have the force of contract can be established by patterns of relationship established by the seller and the buyer.[90] A course of dealing or practice that the parties have established will often have more concrete meaning to them than the general words of the contract. This approach is consistent with the rule of the CISG Article 8(3) that in determining intent "due consideration is to be given to all relevant circumstances of the case including any practice which the parties have established between themselves, usages and any subsequent conduct of the parties".

3.2.3.3 Usages

In addition to practices, regard must be had to a usage, which the parties have agreed to observe. In these cases where the parties have expressly or impliedly intended a usage to apply to their contract, the sole requirement is that the usage exists, it does not matter whether it is international or domestic.

Paragraph two of Article 9 provides further that in the absence of contrary agreement, parties are considered to have impliedly made applicable to their contract a usage of which the parties knew or should have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade. This language invokes a pattern of conduct only if it is so "widely known" and "regularly observed" that it can be assumed to be a part of the expectations of the parties.[91]

Thus, the Convention gives effect to a usage only if, on objective bases, it constitutes a part of the contractual expectations of the parties. In interpretation of the Convention, regard is to be had to its international character and to the need to promote uniformity in its application.[92] Secretariat's Commentary indeed states that because of the international nature of transaction, the determination of the type and scope of examination required should be made in the light of international usages.

Disregarding an applicable usage may result in a lost of rights. In a case above, if the buyer had invited the seller to the examination the questions concerning the credibility of the test results might have been avoided.

3.2.4 Method in the absence of agreement or usage

In the absence of agreement or usage, the rules for examination must be developed from the CISG itself. The buyer must examine the goods in a manner, which takes account of their nature, amount, packaging, and all other circumstances.

Generally, the criterion for adequate examination is objective. However, subjective factors can be taken into account if the seller knows them or he should have been aware of them. Subjective factors include, for example, the buyer's lack of experience and the lack of the infrastructure necessary for proper examination.[96]

3.3 Degree of examination

3.3.1 Standard for examination

Article 38 does not define the intensity of the examination required. However, in general it must be concluded that the examination is one, which is "reasonable" in the circumstances. Professor Lookofsky has suggested that the intensity of the examination required is a matter governed-but-not-settled by the Convention, and that the matter could be settled appropriately in accordance with the general CISG principles of "reasonableness" as provided in Article 7(2).[97] Article 7(2) provides that questions concerning the matters governed by the Convention which are not expressly settled in it are to be, at first hand, to be settled in conformity with the general principles on which it is based.

The examination must be such as to disclose recognisable defects, due regard being had to all the circumstances. The duty to examine the goods, however should not be too onerous to the buyer, the buyer is normally not required to make an examination, which would reveal every possible defect.[98] However, in general the buyer has a heavy duty to examine the goods. If it is possible to examine the goods without delay and the examination does not require complex technological analysis, the examination cannot be regarded as too onerous to the seller.

Where the buyer has the relevant experience, he must carry out an expert, thorough examination. This is also the case if there have been defects in previous deliveries.

A need for thorough and detailed examination of the goods where the buyer is an expert in the particular field of business or where the buyer is alerted to defects because of the previous deliveries could also be derived from the general good faith obligation.[99] If, for example, the buyer is aware that the seller's supplier has previously had problems in manufacturing the goods he cannot examine the goods superficially relying on the fact that the seller bears the risk of the lack of conformity in any case.

A risk of large, consequential losses should also alert the buyer to more thorough examination than in a normal case. Where large quantities have been delivered, the buyer is not required to examine all the goods, but he may restrict the examination to representative, random test.[100]

The situations which may occur in international trade are numerous and most importantly, each case should be taken its circumstances in mind. In the case involving perishable goods, for example, the necessity for a particularly prompt complaint precludes time-consuming methods of examination.[102]

3.3.2 Defective examination

The buyer must generally bare the consequences of a defective examination of a third person. However, that cannot apply if the parties agreed upon a neutral third party or if the seller even insisted upon examination being effected by a particular third person. Nor is the buyer generally responsible for the consequences of a defective examination by official bodies; in any event, the buyer ought then to have a reasonable excuse for the purpose of Article 44.[103] There is however contrary evidence on this matter that the buyer should keep in mind.

The buyer's duty to examine the goods after the delivery is a heavy one. Because an immediate examination of the goods after delivery would have revealed the latent defect, the buyer was to bear the risk when failing to notify the seller. The reason why the buyer was not allowed to rely on the certificate of inspection seems to be the fact that the examination by a third party was conducted before the delivery.[104]

In general, however, when the buyer is not able to discover a lack of conformity through the required examination, he may rely on such conformity and give notice to the seller only after the lack of conformity has been discovered.[105]

3.4 Time for examination

3.4.1 Period practicable in the circumstances

The CISG requires examination 'within as short period as is practicable in the circumstances". The rule is based on the fundamental idea of reasonableness, meaning that the buyer must examine the goods as soon as reasonably possible.[106] In the view of the extreme diversity of goods that might be the subject matter of an international contract for the sale of goods, the CISG rightly chose this flexible period. For example, the language seems to acknowledge that the shortest applicable period to inspect complex machinery received by a buyer in an isolated town of a developing country may be different from the shortest applicable period to inspect other types of goods by a sophisticated buyer in a big industrial city.[107]

The appropriate period is indeed hard to establish with certainty. As a starting point, the two following cases illustrate that examination within few days after delivery is certainly appropriate and if the buyer follows this rule he should be on the safe side.

When determining the duration of the period, the circumstances of the individual case and the parties' reasonable opportunities must be considered.[109]

The solution the Appeal Court has adopted in the case above seems to be contrary to the approach in the CLOUT Case 280 from Germany.[111] Unlike the German court, the Finnish Appeal Court held that it was reasonable for the buyer to rely on the test results dating before the delivery. The buyer was not allowed to neglect the examination altogether, but he was allowed to postpone it until the goods had been delivered fully. The circumstances of the two cases are not identical but in my opinion, they illustrate well the difference between the German and Finnish approaches in general. Unlike Germany, Finland can be considered a fairly buyer friendly country.[112]

In general, it may be said that goods of more sophisticated technology and those of complex composition need a longer reasonable time to be examined.[113] This rule is of course subject to special circumstances of each case.

The only matters, which are of no relevance, are purely subjective factors with which the seller does not need to reckon.[114] In other words, impediments relating personally to the buyer or to those in charge of examining the goods, such as illness, are not relevant. A delay in examining the goods may be justified only when due to general and objective impediments.[115]

The period within which the goods should be examined basically starts to run upon their delivery. If the necessary operating instructions for technical equipment are missing or if the seller has not provided the contractually agreed instructions, so that the buyer is not in a position to make a proper examination of the goods, the period for examination cannot begin to run. In addition, if the delivery is made prematurely, i.e. before the agreed date for delivery or before the beginning of a period for delivery, it cannot be expected that the buyer who has taken over the goods should examine the goods before the agreed delivery. In any event, the agreed delivery date must be taken into account when determining the period within which the examination must be carried out.[116] However, if the buyer accepts the prematurely delivery there is no reason why he should postpone the examination if the circumstances allow it.[117]

3.4.2 Contract involving carriage of goods

If the contract provides for carriage of goods, according to Article 38(2), the period within which the goods must be examined begins to run only upon their arrival at their destination. The rule takes into account the fact that if the contract involves carriage of the goods, an examination at the time of delivery, i.e. upon the handing over the goods to the first carrier is usually impossible, but in any event, it is not reasonable to require the buyer to do so. Article 38(2) applies irrespective of which party concluded the contract of carriage. If the contract of carriage requires the carrier to examine the goods taken over as regards their external condition, the carrier does not act as an agent of the buyer in that regard. In addition, in these cases the carrier maintains the same role of conveyer of the goods from the seller to the buyer.[118] If it is clear from the transport documents that, when handed over to the carrier, the goods were externally not in good condition, the buyer gains awareness of that fact upon receiving those documents, so that the period for giving notice of lack of conformity under Article 39 then begins to run.[119]

3.4.3 Redirection in transit or redispatch

Article 38(3) clarifies the rules on examination of the goods even further. If the goods are redirected in transit or redispatched, then in certain circumstances the period for examining the goods begins only when the goods have arrived at their new destination. Goods are redirected in transit if the goods are in transit and they are redirected to another destination before reaching the originally intended destination. Goods are redispatched, if the buyer (or in the case of direct dispatch, his customer) redispatches them after they have been received at the destination. In both cases, it is irrelevant who causes the redirection or the goods to be redispatched.[120]

What really matters is whether the buyer has had a reasonable opportunity to inspect the goods before redispatching. This depends mainly on how long the goods stay at the original destination before their redispatch. Other relevant circumstances to be taken into account include the way the goods are contained and packaged, whether the examination of the goods requires the removing of the trademark attesting the authenticy of the product and the fact that the goods are sent in separate parts to be assembled.[121] Mere resale without additional carriage does not fall under Article 38(3).

The fact that the goods are resold without the buyer having a sufficient opportunity to examine the goods should, however, be taken into account in the context of Article 38(1) both as regards the form of examination and, above all, the length of the period allowed for the purpose.[122]

For there to be a postponement of the time allowed for examination, the seller must or ought to have known at the time of the conclusion of the contract of the possibility of redirection or redispatch. It is not necessary that the seller knew or ought to have known that the goods would be redispatched or redirected in transit, only that there was such a possibility.[123] The facts one "ought to have known" include those facts that would be disclosed by an investigation or inquiry that the party should make[124]. However, the possibility that the goods are redirected or redispatched is not related to what abstractly could happen but to a foreseeable event. The seller must face this possibility when the buyer has expressly mentioned or impliedly let it be known, as when the buyer is an international professional trader.[125]

It should be stressed, however, that it is advisable for the buyer expressly to draw to the seller's attention at the time of concluding the contract the fact that the goods may be redirected or redispatched, even though the buyer's intention to redispatch the goods may be evident from the circumstances of the particular case.[127] If, after the conclusion of the contract the buyer changes his mind as to the final place of destination without having a possibility to examine the goods before the redispatch or redirection, he faces a possibly of loosing his right to rely on the lack of conformity.[128]

A longer period for possible claims from the buyer is a disadvantage to the seller. Apart from the case of predictable redirection in transit or redispatch it is not up to the buyer to postpone at his discretion the examination of the goods. Thus, the buyer may not defer the time of examination of the goods by giving notice to the seller of an unexpected change of their original destination.[129]

Redirection or redispatch of the goods leads to the postponement of the beginning of the period for examining the goods only if the buyer previously had no reasonable opportunity to examine them. Furthermore, even if the requirements of Article 38(3) are satisfied, only the period within which the goods must be examined is postponed, the buyer is still responsible for examining the goods and for notifying the seller of any lack of conformity. If he leaves that examination to his customer, he must take responsibility for the latter's acts and omissions.[130] In other words, if the new buyer fails to examine the goods promptly, he himself loses the right to rely on the lack of conformity but the first buyer also loses that right toward the first seller.[131]

3.5 Cost of examination

In general, unless the parties' agreement or usage indicates otherwise, the buyer must bear the cost of the examination. However, if the contract is avoided because of a lack of conformity, the buyer can claim compensation for those costs by way of damages (Article 76(1)). The same applies in the case of the delivery of substitute goods or of repair, if the buyer thereby reincurs the cost for examining the goods (Article 37, second sentence, 45(1)(b), 48(1), second sentence).[132]

4. OBLIGATION TO NOTIFY OF THE LACK OF CONFORMITY

4.1 General remarks

Article 38 states the period within which the buyer must examine the goods. These rules are given legal effect by Article 39, which cuts off the buyer's rights if he fails to notify the seller of a non-conformity within a reasonable time after he "ought to have discovered" it.[133] Articles 40 and 44 contain special exceptions from the general rules of Article 39.[134]

Under Article 39(1) any lack of conformity, which the buyer has established or should have established upon a proper examination of the goods, and any subsequent lack of conformity discovered, must be notified to the seller. The reason for the lack of conformity is irrelevant.[135]

4.2 Application of CISG Article 39

Buyer's obligation to examine the goods delivered as stipulated in Article 38 applies to all cases of lack of conformity within the meaning of Article 35. Under Article 39, the buyer must notify of "lack of conformity". Similarly to Article 38, this concept is defined in Article 35. The notification requirement must also apply to cases where entirely different goods are delivered because otherwise the reasoning behind Article 39 would fail, i.e. that the seller must be put in a position where he can cure any lack of conformity.[136]

Article 38 does not provide an express obligation to examine the documents nor does Article 39 provide an express duty to notify the seller of the lack of conformity in the documents. However, as noted earlier,[137] the Convention is drafted on the assumption that goods will often be delivered by way of documents; in such deliveries supplying the correct documents is part of the seller's obligation to deliver the goods.[138] Thus, Article 39(1) should also apply to defect in documents.[139] Furthermore, Article 34 provides that the seller has a right to cure a defective delivery of documents before the date for delivery provided that it does not cause the buyer unreasonable inconvenience or unreasonable expense. This provision would be of little value unless the seller is notified of the defect.[140]

4.3 Notice

4.3.1 Need to specify the nature of the lack of conformity

The notice must specify the nature of the lack of conformity. This requirement is intended to place the seller in a position whereby he can comprehend the lack of conformity and take the appropriate steps. This requirement should not however be exaggerated.[141]

However, the buyers are advised too be as specific as they can to avoid doubts. The following cases illustrate the fact the buyer's obligation to be specific is a heavy one.

Generally, the CISG requires notices to be framed in more detail than in general terms. Of course, a prudent seller might be expected to make inquiries with the buyer after receiving a non-specific notice of lack of conformity.[143]

Professor Schwenzer proposes that when determining which requirements must be satisfied by the buyer in specifying the nature of any lack of conformity, a mixed objective-subjective standard should be applied. This approach would have regard to the respective commercial situation of buyer and seller, to any cultural differences and above all to the nature of the goods.

Another relevant factor to be taken into consideration is the expertise of the buyer. Professional buyer in a particular field of business is advised to notify the seller with sophisticated terms.

It is unclear whether, when specifying a lack of conformity, the buyer must also indicate the extent to which the goods delivered are affected by the lack of conformity. The question whether a precise quantification of the goods affected by the lack of conformity can be insisted upon will largely depend upon the specific circumstances. In view of the spirit and purpose of the duty to notify lack of conformity, where there are discrepancies in the amount of goods delivered only a precise indication of the missing amount can put the seller in a position to take appropriate steps, i.e. preparing for delivery of additional or substitute goods. In other cases, as far as it is possible and reasonable for the buyer to do so, an approximate indication of the extent of the goods affected should be given. If obtaining such information entails considerable effort, it will be unreasonable to require the buyer to do so.[145]

The CISG does not mean to locate the risk of the breach of contract with the buyer.[147] The cases above, however, illustrate that at least in practice, the risk shifts easily on to the buyer.

4.3.2 Neutral as to the further steps

When giving the notice the buyer is not obliged to indicate at that stage which remedies he intends to assert. However, since both the right to require delivery of substitute goods or repair (Article 46(29 and (3)) and avoidance of the contract (Article 49(2)(b)(i)) basically depend upon the buyer having informed the seller of his intention within a reasonable period after giving the notice under Article 39 or after he knew or ought to have known of the breach, the buyer is advised, when giving notice of lack of conformity, to inform the seller of the rights which he intends to assert.[148]

4.3.3 Form of the notice

4.3.3.1 Dispatch principle

Generally, there are no requirements as to the form of the notice of a lack of conformity. However, it follows from Article 27,[149] which applies to notices of a lack of conformity, that if the buyer does not want to have to bear the risk of its loss in transit the notice must be sent by means appropriate in the circumstances.[150] The appropriate dispatch of a communication satisfies the notice requirement.[151] Article 27 is based on the idea that the risk of loss, delay, or a change in a communication is on the party whose acts have caused the need for the declaration.[152]

4.3.3.2 Appropriateness of the means of communication

The burden of proving the existence and the timeliness of a notice is on the buyer.

The appropriateness of the means of communication is to be determined according to the circumstances of the individual case. The means must be appropriate both in the country of dispatch and in the country of receipt and, also in any country through which the communication is to pass. Depending on the declaration involved, the speed of the means of communication available may also be relevant to its appropriateness and further, it may also be necessary to send a copy of the communication.[153]

Notice given orally or by telephone suffices, although the buyer would be advised, for reasons of proof, to give written confirmation of any notice given orally or by telephone.[154] At least the buyer must be able to give precise indications of the date and name of the person to whom he spoke.[155]

Professor Schlechtriem is of an opinion that it is necessary for the addressee to hear a declaration made orally or by telephone and, in the event of a dispute, that must be proved by the declarer. In his opinion the expressions 'transmission of the communication' and 'failure to arrive' indicate that Article 27 does not cover such oral declarations made inter prasentes or on the telephone. The direct communication enables the maker of the declaration to monitor the audibility of his declaration, or at least to check it by querying whether his declaration was understood.[156]

4.3.3.3 Dispatch

Article 27 governs the risk of loss, delay, or a change in the communication during transmission. It does require the declaration to be set in motion in such a manner that, as long as the chosen means of communication operates correctly, it will arrive correctly and on time. The recipient is to bear the transmission risk as long as the party making the declaration is able to prove that the declaration was dispatched in a manner by which it is capable of reaching the addressee.[157] However, to be effective, a communication does not have to be sent by means 'appropriate in the circumstances'. Even a communication sent by inappropriate means is effective if received by the addressee.[158]

4.3.3.4 Agreed form of notice

The parties may agree upon a particular form of notice, as Article 39 is dispositive. The parties may agree that the duty to give notice of lack of conformity does not apply at all or they may stipulate details of the notice required.[159] The effectiveness of such agreements is governed by domestic law (Article 4(a)). If "writing" has been agreed, communication by telegram or telex is sufficient by virtue of Article 13.[160] No problem regarding signatures arises in connection with communication by telegram or telex, as no reference to a "writing" requires a signature or other validating mark or sign.[161] Derogation from Article 27 that require communication to reach the addressee may also follow from a usage or from the practices established between the parties, applicable by virtue of Article 9.[162]

4.3.4 Addressee of the notice

The notice must be addressed to the seller. The question of which persons are entitled to receive notice of defects for the seller is not dealt with in the CISG, but had to determine in accordance with the law applicable under private international law. If person is not authorised under domestic law to receive notice to the seller, it must be examined whether this still is an appropriate means of communication for the purposes of Article 27. As a rule that question should be answered in the negative, so that the buyer bears the risk if a notice brought in such a manner does not reach the seller or does not reach him on time.[163]

4.4 Time for notice

4.4.1 Reasonable time

4.4.1.1 General remarks

The linguistic definition of the term reasonable is one based on expectations and toleration and is largely a subjective term. In the legal context, however, a larger degree of objectivity is required of a term.[165] The subjectivity of the term "reasonable" makes it flexible enough to be applied in different circumstances, but at the same time, it may turn out to be too imprecise to ensure uniformity in its application. The uniformity is essential in applying the CISG.[166]

On the other hand, flexibility is a necessary prerequisite to fairness in legislation and practice. However, in order to avoid arbitrary results the term reasonable needs a guideline. Because the CISG does not itself provide a guideline to determine the reasonableness the answer to the question must be looked from elsewhere, i.e. from the scholarly writings and international practice.[167]

4.4.1.2 Timeframe for the examination versus timeframe for giving notice

Under Article 39(1) the buyer must send the notice to the seller within a reasonable time after he discovered the lack of conformity or ought to have discovered it. When the buyer is ought to have discovered the lack of conformity is determined in Article 38, i.e. within as short period as is practicable in the circumstances. One period is followed by the other and therefore, as a rule, these two periods must be distinguished.[168]

A separation of the two periods will often be purely academic one as the time when the goods are to be examined and most nonconformities ought to have been discovered is dependant upon the time of delivery. However, these two periods should be kept separate in order to avoid taking irrelevant factors into account when determining each period.[169] Ideally in the future, more and more practitioners will follow the approach adopted in the following case.

A good example to illustrate the difference between the period for examination and the period for giving notice is to take a case where a defect is easily detectable. That should influence the time when the non-conformity ought to have been discovered but not the time, which it subsequently takes to give the notice.[171]

4.4.1.3 Beginning of the period for giving notice

The reasonable time will be calculated from the time the buyer has actually discovered the non-conformity or ought to have discovered it. Whether the buyer ought to have discovered the non-conformity depends on the circumstances and in particular, on whom the buyer is. If the sale concerns complicated machinery it might be necessary to employ an expert to examine the goods. This of course requires a longer time for the process.[172] If the defect ought to have been discovered upon a proper examination the period for given notice of lack of conformity begins at the end of the period for examining the goods.[173]

A lack of conformity, which is not recognisable upon a proper examination, must be notified by the buyer within a reasonable period after he actually establishes it or should have done so. This does not mean that the buyer is under a duty continuously to examine the goods.[174] The buyer does, however, have a burden of proving that the defect was latent and not discoverable upon the examination.

If the buyer has actual knowledge of the lack of conformity, the period for giving notice runs irrespective of whether the period for examining the goods has already expired. The buyer must for example give notice of a discrepancy in quantity established when the goods are handed over, even if the examination of the goods for defects in quality has not yet been completed.[175]

However, if delivery is premature, i.e. before the agreed date for delivery or the beginning of a delivery period, the period for giving notice does not begin until the agreed delivery date, even if the buyer has in fact already established a lack of conformity before that date.[176] However, it is hard to see why the buyer would postpone the notice if he actually has knowledge of the lack of conformity, as the notice does not need to specify the remedies the buyer intends to assert.[177]

4.4.1.4 Determining the reasonable period

A wide range of factors will influence the determination of the reasonable period for the notice following the time when the buyer discovers or ought to have discovered the non-conformity. The period depends on the circumstances of each case.[178] The contract between the parties is of course a starting point.

It is not always clear whether the court considers the parties' agreement an actual derogation from the CISG. Detailed reasoning on the issue would clarify the determination of the reasonable period in general.[179]

The international trade usage and usage established between the parties are to be considered next if the contract itself does not provide an answer.

If the underlying sales contract or the usages do not resolve the problem whether the notice was given within a reasonable period other factors can be taken into consideration.[180] Without going any further the following cases illustrate one extreme, i.e. when it is obvious that the notice is not timely.

One of the factors to be taken into consideration is whether the goods are perishable or durable. The perishable nature of the goods indicates need for speed; notice of lack of conformity must often be given within hours or at least within a few days.[181]

In addition, when the case involves seasonal goods, more rapid notice of lack of conformity is needed. The seller must have an opportunity to care for or redispose of the rejected goods and thus reduce the chance for loss or damage to the goods or the incurring of unnecessary expense. On the other hand, if the relevant market is not dependant on trends and there is no chance for extra damage a more generous period can be applied.

CISG Database Case: Germany: Landgericht Heidelberg; O37/96 KfH II (2 October 1996). The court held that a notice given 21 days after discovery of the defect was timely. The case involved a sale of non-perishable, non-seasonally dependant sticky film that did not stick properly. Since an exact time frame for notice giving could not be pinpointed, a one-month guideline should be applied.

In addition, regard must also be had to the remedies which the buyer is invoking. If the buyer wishes to retain the goods and merely claim damages or a price reduction, the period can be calculated more generously than if he wishes to reject the goods.[183] Furthermore, a buyer's knowledge of the fact relating to the seller, which may require a speedy notice, reduces the period for the notice.[184]

It is extremely uncertain how the period is to be calculated for durable goods in the normal case, i.e. where there are no special circumstances indicating a reduction or an extension of it.[185] The following cases illustrate that on average the period is calculated fairly strictly.

CLOUT Case 230: Germany: Oberlandesgericht Karlsruhe; 1 U 280/96 (25 June 1997).[186] The court noted that for durable goods, a reasonable time for examination under Article 38(1) would be three or four days, while notice under Article 39 (1) should be given to the seller within 8 days after the lack of conformity ought to have been discovered.

CLOUT Case 251: Switzerland: Handelsgericht des Kantons Zürich; HG930634 (30 November 1998).[187] The court found that a period of "one week to ten days" for the examination and "a rather generous period" of two weeks for notification would be adequate. From the point of view of a functioning international trading system, there is no reason to extend these periods for examination and notice.

Excessive differences in interpretation are likely to occur because of the different legal traditions of the Contracting States. In order to promote uniformity in the application of the CISG a rough average should be adopted. Mrs Baasch Andersen, among the others, proposes a period of one month as an appropriate starting point.[188] The problem with this approach is of course, the establishing the "typical situation" which represents the norm.[189] Despite of this, the approach has already gained support among the courts.

Finally, it should be stressed that regardless of whether a period of one month is accepted as a starting point, it is the factors and considerations of an individual case that determine the actual timeliness. The individual circumstances and considerations may reduce the period of notice to be "reasonable" for each case, and in some circumstances adapt the period to be even longer where needed.[191] Article 39(1) provides an essentially flexible period, which should remain as such in the interest of fairness.[192]

4.5 Cut off period

4.5.1 Two-year period

In any event, the notice must be given within the two-year period provided in paragraph two of Article 39 even though a defect is discovered subsequent to that period. Notice of the lack of conformity must therefore be dispatched at the latest a date which would enable the seller to receive the notice within the 2-year period if the means of communication chosen functioned properly.[193]

The 2-year time limit applies if a lack of conformity was undetectable upon a proper examination and the buyer did not subsequently establish it and ought not to have done so. It even applies in cases in which the buyer had a reasonable excuse for failing to give notice under Article 39(1) according to Article 44.[194] It does not however apply if the seller was acting in bad faith for the purposes of Article 40.[195] The underlying idea of a cut-off period is to provide the seller with certainty that he does not need to reckon with claims after a given time and that he may treat the transaction as complete.[196] The seller acting in bad faith is not entitled to benefit from this.

4.5.2 Beginning of the 2-year cut-off period

The cut off period starts to run only when the goods are actually handed over to the buyer. This means the date of physical handing over of the goods and not the date of the receipt of documents of title relating to the goods.[197] Thus, it is irrelevant whether the risk passed at an earlier date or whether the buyer is already the owner of the goods at that date.[198]

Under Article 38(3) if the goods are redispatched by the buyer without a reasonable opportunity for examination by him, the examination may be deferred, provided that the requirements stipulated are fulfilled, until after the goods have arrived at the new destination. The date of physical handling over the goods may be as much as several months prior to the date on which examination of the goods becomes practicable or required under Article 38. However, this date "on which the goods were actually handed over to the buyer" was chosen as the most easily ascertainable date for the calculation of the time limit.[199]

When the goods are redirected in transit according to Article 38(3), they do not reach the originally intended destination and the goods are not yet actually handed over to the buyer. The cut-off period starts to run when the goods reach their final destination.[200]

The buyer bears the burden of proving whether a notice was given within the 2-year period, because as a rule he is the only one able to prove the precise date on which the goods were handed over.[201]

4.5.3 Contractual guarantees

Under Article 6, the parties are permitted to derogate from or vary the effect or provisions of the Convention including Article 39.[202] However, in the absence of a special provision, it would not be clear whether the obligation to give notice within two years was affected by an express guarantee that the goods would retain specified qualities or characteristics for a specified period.[203] Accordingly, Article 39(2) provides that if the time limit is inconsistent with a contractual period of guarantee, the two-year period will not apply.

The 2-year time limit may be extended by a guarantee, but also shortened. The question whether a particular contractual agreement is inconsistent with the main sentence of Article 39(2) and how that agreement affects the operation of the two-year period are matters left for the interpretation of the agreement.[204]

Secretariat Commentary illustrates the different contractual guarantees by following examples: [205]

However, even if there is a contractual guarantee, notice of non-conformity should be given within a reasonable time after the buyer became aware or should have become aware of it, provided that there is no contrary agreement by the parties.[206]

4.5.4 Limitation Convention

The 2-year time limit under Article 39(2) should not be confused with the question on limitation of warranty claims, which determines the period within which the buyer must bring an action before the courts in order to enforce his existing claim. The CISG does not govern this issue.

The Convention on the Limitation Period in the International Sale of Goods (from herein the LPISG or the Limitation Convention), signed 1974 in New York, applies in that regard. It was amended on April 14, 1980, the same day when the CISG was approved. The purpose of the 1980 Protocol was to align the provisions of the Limitation Convention with those of the CISG.[207]

The Limitation Convention is intended to replace a variety of conflicting national laws. The basic aim is to establish a uniform time limit that prevents the pressing of claims at such a late date that evidence has become unreliable.[208] The LPISG limits to four years the period within which a buyer or a seller may press claims based on a contract for the international sale of goods.[209] The LPISG Article 10 (2) provides that the 4-year limitation period for a claim arising from lack of conformity commences when the goods "are actually handed over to, or their tender refused by the buyer". This language was selected to avoid shortening the period while goods are in transit[210] The limitation period ceases to run when one party begins judicial or arbitral proceedings against the other. When a party making a claim is prevented by circumstances beyond his control from starting legal proceedings, he may have a one-year extension from the time when those circumstances cease to exist. The overall limit for extension of the limitation period is 10 years from the date when the period began to run.[211]

This 4-year rule is technically distinct from the time limit as stipulated in Article 39(2) of the CISG. The LPISG Article 1(2) provides that the Limitation Convention does not affect time limits within which a party was required to give notice to the other party as a condition for the acquisition or exercise of his claim[212] However, the buyer must bare in mind that even though under the Limitation Convention the buyer would have an opportunity to exercise his claim in reality it might be impossible since he might not be able to give the required notice to the seller within the two-year period stipulated in the CISG. If the buyer is not able to give the required notice within the stipulated time, he cannot rely on the lack of conformity.

If the parties do not have their places of business in Contracting States to the LPISG or if rules of private international law do not lead to the application of the law of a Contracting State,[213] the issue on limitation of warranty claims is governed by the proper law of the contract as determined by the applicable rules of private international law.[214]

4.6 Consequence of the failure to give a notice

If the buyer fails to notify the seller within the prescribed period, he loses the right to rely on the non-conformity. Article 39 bars the full range of remedies: a claim for damages (Articles 45(1)(b) and 74-77), requiring performance by the seller (Article 46), avoidance of the contract (Article 49) and reduction of the price (Article 50). Nor would a seller's action to recover the price be subject to a set-off or counterclaim based on a defect, which the buyer discovered or ought to have discovered, if the buyer has failed to notify the seller within the period stated in Article 39.[215]

Furthermore, if the seller delivers more than the contract provides for and the notice of lack of conformity is not given, the buyer must pay a correspondingly higher price under Article 52(2). Article 52(2) provides that if the buyer takes delivery of all or part of the excess quantity (he may of course refuse it), he must pay for it at the contract rate. In the situation where the market is likely to fall, this may turn to be something significantly important to remember.

It is unclear whether there should also be an increase in the price if goods that are more valuable are delivered. An analogy with Article 52(2) seems appropriate, since otherwise it would be necessary to apply domestic remedies of the seller lying outside the scope of the CISG, giving rise to conflicts. This situation is however unlikely to occur because Article 40 will often apply and preclude the seller from relying on a failure to give notice.[216]

A failure to notify the seller of the lack of conformity leads to a drastic outcome. Not only is the buyer bared to use the remedies that can be traced to the very reasoning why the seller has a right to an expeditious notice but also he is bared to demand the reduction of the price. This drastic outcome is however softened by Article 44.

4.7 Exemption from giving a notice

4.7.1 Scope of application

Article 44 serves as an exemption to the main rule in Article 39(1), i.e. the buyer's failure to give a timely and a specific notice of non-conformity will deprive the buyer of his right to assert any and all of the various remedies otherwise provided under the Convention for seller's breach.[217] Under Article 44, the buyer who has a reasonable excuse for his failure to give the required notice will be afforded some limited remedies.[218]

It has been argued that Article 44 does not add anything new to Articles 38 and 39 as the circumstances of each case are already taken into consideration and a reasonable excuse is already included in those circumstances.[219] However, it was seen as a necessary compromise in relation the drastic outcome of Article 39 alone. Keeping in mind the trend that the buyer's obligation to notify in time is interpreted strictly, it is not hard to justify Article 44's place even today. In practice, there are not many reported cases involving Article 44.

It should be stressed that the mitigation by Article 44 of the consequences of a failure to give notice extends only to the case where the buyer has failed to observe the time limits in Article 39(1). Thus, the excuse under Article 44 does not affect the two-year cut-off specified in paragraph two of Article 39. In other words, Article 44 embraces a "reasonable excuse" for failing to give notice within a "reasonable time" after the buyer discovers the defect or ought to have discovered it.

If the contract lays down a specific period within which notice of defects must be given, it overrides not only Article 39(1) but also Article 44. Likewise, if a usage binding the parties by virtue of Article 9 provides for strict notice period, there is no room for the application of Article 44.[220] A significant dilution of the buyer's Article 44 rights might however, be subjected to special scrutiny by the tribunal concerned, particularly if the buyer's bargaining position is weak and if the seller had drafted the clause in question.[221]

Finally, it should be marked that although Article 44 does not refer directly to Article 38, the protection afforded in cases of "reasonable excuse" is extended to comprise the buyer's failure to inspect on time.[222]

4.7.2 Reasonable excuse

It seems difficult to justify a buyer's failure to give notice within a "reasonable time" after he knew of the non-conformity. A buyer who allows the reasonable time laid down in Article 39 to pass without examining the goods and giving notice of a recognisable defect is always failing to act with the care required of a businessman.[223]

Professor Huber has suggested a following approach. In order to establish whether or not there is an "excuse" for the purpose of Article 44 it is necessary to appraise the circumstances by reference to notion of fairness. A buyer's conduct, although not in itself correct and in accordance with the rules, is excusable if in the circumstances of the specific case it deserves to be accorded a degree of understanding and leniency.[224] When appraising the circumstances of the specific case regard must be had, following Professor Huber's reasoning, to the interests of each party in so far as they merit protection, the seriousness of the buyer's breach of duty, the type of the buyer's business and the nature of the goods. In addition, the buyer's lack of experience should constitute a ground of excuse.[225]

Professor Lookofsky suggest that a party residing in an area where transportation and communication systems are less than well-developed might have a "reasonable excuse" for the failure to discover and notify of a defect as promptly as might otherwise (elsewhere) be expected. He refers to the legislative history of Article 44, mainly that it was drafted to meet the fears of the developing countries towards the drastic outcome of Article 39(1) alone.[226] Professor Honnold also stresses that Article 44 needs to be understood and applied in the light of its legislative history. Against the legislative background, the use of the expression "a reasonable excuse" indicates the applicability of more individualised considerations than would otherwise be relevant under the main rule provided in Article 39(1).[227]

The reasoning of each professor is easy to accept, as they all take into account the very reasoning why the Article 44 was drafted in the first place. However, the buyer should in all circumstances keep in mind that more time has passed after the discovery of non-conformity, more difficult it is for buyer to convince others that the non-conformity in question, whether apparent or not, did exist at the time when the risk passed to the buyer.[228]

4.7.3 Consequences of an excuse

4.7.3.1 Right to claim damages

The "excuse" provision of Article 44 does not preserve all of the buyer's remedies, only reduction of the price (Article 50) and recovery of damages other than loss of profit (Article 74). It does however remove the sharpest teeth of Article 39 other than the two-year cut-off period in paragraph two.[229]

Damages may be obtained for a reduction in value of the goods as such, i.e. the difference between the actual value of the non-conforming goods and the purchase price. The buyer may also recover consequential losses suffered because of the lack of conformity of goods provided that the loss was foreseeable.[230]

Article 44 is however subject to a further qualification, more specifically to Article 77. Article 77 provides that a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach. If the party not in breach fails to take such measures, the party in breach may claim a reduction in the damages. A party may not recover damages that he could reasonably have avoided.[231] When examining whether a failure to examine goods is a breach of the duty to mitigate the loss a distinction must be made between a buyer claiming compensation for the reduction in value of the goods and a buyer claiming compensation for consequential loss. In the first case, the loss would have been reduced if the buyer had recognised, and given notice of, the defect in time. By virtue of Article 77, the buyer must in this case bear the additional loss, which arose because of the delay in the subsequent sale. The result is different if a buyer has failed to give notice of the defect within the appropriate period, but can still claim damages under Article 44, and suffers consequential harm because of a hidden defect in the goods in the course of their use. In this case, the seller cannot rely on Article 77 in order to claim that the buyer would not have suffered the loss if he had examined the goods in time, because he would have discovered the defect and not used them. It is for the buyer to ensure that hidden defects in the goods do not cause loss to the buyer. There may of course be a contributory fault of the buyer for the purposes of Article 77 if he used the goods even though their defective nature should have been obvious to him. A lack of care in using the defective goods can lead to a reduction in damages.[232]

4.7.3.2 Right to price reduction

Article 44 retains the buyer's right to a price reduction as provided in Article 50. According to Article 50, if the goods do not confirm with the contract, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. The seller may not rely on Article 77 in order to counter this right to price reduction, as the sum, which the buyer receives, cannot be increased by a delay in giving notice of defects.[233]

4.7.3.3 Seller's right in the case of an exemption of giving a notice

Even where the late notice is excused under Article 44, the seller retains the right to cure the defect by delivering substitute goods or by repairing the defects. By doing so, the seller may avert a price reduction and the buyer's damages claim.[234]

The seller may not however claim himself damages because of the buyer's failure to notify him of the lack of conformity. As stated earlier [235] , the "obligation to examine the goods" under Article 38 is merely a preparatory act and establishes the beginning of the period for giving notice and the extent of the defect of which notice must be given within the period laid down in Article 39(1). Article 39(1) itself does not provide that the buyer is obliged to give notice of defects, but merely lays down that he loses his rights if he does not do so. Article 44 then limits the detrimental effects of that legal consequence. The "obligation" provided in Article 39 is not an obligation in legal sense, breach of which may lead to liability in damages, but a requirement which the buyer should satisfy in his own interest.[236]

Article 77 does not assist the seller in claiming damages because of the buyer's failure to notify him of lack of conformity. The loss the seller suffers is his own fault. By examining the goods, the seller could have protected himself against his loss of rights as against his own suppliers. If he failed to do so or relied upon the buyer's examination, he must bear the consequences of doing so.[237]

4.8 Excuse for failure to notify within reasonable time

Article 40 relieves the buyer of the examination and notice requirements when a lack of conformity relates to facts of which the seller "knew or could not have been unaware". It is an excellent example of bad faith depriving the seller of a defence to which he would otherwise be entitled.[238]

No one is to benefit from his own wrongdoing. The seller has no reasonable bases for requiring the buyer to notify him of the facts he knew or of which he could not have been unaware and which he did not disclose.[239] However, the seller's awareness of the defects is not always easily proven, as it is the buyer who must prove it.[240]