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Also published in the Pace Review of the Convention on Contracts for the International Sales of Goods (2003-2004) 115-122.

CISG Case Commentary on Preëmption in Geneva Pharmaceuticals and Stawski

Joseph Lookofsky [1]
April 2004

Article 4 of the 1980 Vienna Sales Convention (CISG)[2] helps delimit the Convention's sphere of application.[3] According to this provision, the Convention "governs only" the formation of an international sales contract (CISG Part II)[4] and the rights and obligations of the parties "arising from such a contract" (CISG Part III);[5] conversely, the Convention is "not concerned with" sales contract "validity," just as it cannot be concerned with non-contractual claims.[6]

Given this seemingly clear-cut delimitation, one might be tempted to conclude that claims relating to (e.g.) misrepresentations or other "abuses of the [sales contract] bargaining process"[7] can only be settled by the application of domestic law rules.[8] In some such cases, however, the relationship between the Convention and domestic law is problematic.

One complicating factor which enters into the Article 4 equation relates to the fact that some domestic systems -- including American (state-law) systems [9] -- provide both delictual and contractual remedies for contractual "abuses" like misrepresentation,[10] just as claims grounded in tort (delict) are sometimes allowed to co-exist -- and thus "compete" -- with contract-based claims.[11] For these reasons, a given plaintiff might (depending on the particular jurisdiction and the particular circumstances) have access to remedial relief if she succeeds in proving the facts needed to support either claim.[12] In other systems, however, the applicability of a contractual remedy to a given set of operative facts might itself be held to "preëmpt" -- and thus effectively "trump" -- the assertion of a competing claim in tort.[13]

Within the international sales context this complex state of domestic affairs gives rise to two possible approaches: a court or tribunal in a particular CISG Contracting State might (a) allow a domestic theory of recovery to compete with a given plaintiff's CISG-based claim or (b) hold that the CISG preëmpts the application of such domestic remedial rules.

Assume, for example, that a seller in CISG State X negligently or even fraudulently misrepresents the quality of goods subsequently sold to a buyer in CISG State Y, and that this might give rise to delictual (tort) liability for the economic consequences of the misrepresentation under domestic (X or Y) law.[14] In this and other, arguably analagous situations,[15] the domestic remedies for misrepresentation (damages and/or "avoidance/rescission") might be seen to "overlap" with CISG remedies for breach (e.g., damages and/or "avoidance"),[16] thus raising a question of Convention interpretation: should the very fact that the plaintiff's claim "fits within" the CISG remedial scheme (a) eo ipso preëmpt domestic remedies otherwise available for abuse of the bargaining process, or should the domestic and Convention remedies (b) be allowed to serve concurrently, "side by side?"[17]

There is, I have argued, no simple answer to this complex question.[18] In some situations, courts and arbitrators will have good reason to exercise restraint before they permit domestic rules to compete with the otherwise uniform remedial solution provided by the CISG.[19] But the limited "command" in Article 7 -- to have (some) "regard" to the need to promote uniform Convention interpretation[20] -- hardly warrants, let alone dictates the conclusion that domestic remedies invariably are preëmpted (trumped), i.e., whenever the "operative facts" of the case seem "covered" by a given CISG rule.[21] On the contrary, in a State where domestic sales law, tort law and rules of validity work to supplement each other, that State's accession to the Convention requires the substitution of domestic sales law (as such) with the CISG; it does not imply an obligation to "merge" CISG sales law with domestic tort law and/or validity-related (domestic) contractual regimes.[22]

Certain aspects of the preëmption conundrum were confronted recently by a U.S. Federal District Court in Geneva Pharmaceuticals,[23] a case brought against the Canadian manufacturer (S) of a chemical ingredient used in the production of an anticoagulant (blood-thinning) medication. S had supplied the American plaintiff (B) with samples of the ingredient and confirmed it would support B's application for approval by the Food and Drug Administration (FDA) as the supplier of the ingredient for the manufacture of the drug; S subsequently issued a letter to the FDA confirming it would serve as supplier to B. Two years later, after B received FDA approval, S (having incurred conflicting commitments to third parties) refused to honor a purchase order submitted by B.

In considering B's various CISG and domestic law claims against S, the Geneva Court distinguished between intentional and negligent torts: whereas B's negligence-based (domestic law) claims were held preëmpted by the Convention, B's "business tort" claims for tortuous interference with contract and business relations were not.[24] Then, applying somewhat similar reasoning to resolve a related, equally complex problem, the Geneva court held that B also should be allowed to assert the (American) doctrine of promissory estoppel to support its "equitable" claim that the sales contract in question -- even if not supported by "consideration"[25] -- was nonetheless valid and binding under the applicable domestic (New Jersey) law.[26]

In yet another recent and complex illustration of the kind of "operative facts" which can trigger a preëmption-related CISG problem, a U.S. District Court held that the provisions of the Illinois Beer Industry Fair Dealing Act (IBIFDA) -- which limit the right of (e.g.) Polish brewers to "terminate" contracts with their American buyers (wholesalers)[27] -- were not preëmpted (trumped) by the arguably conflicting "avoidance" provisions of the CISG.[28]

Both the Geneva and Stawski decisions seem compatible with the position taken here: if the law of a given jurisdiction generally (e.g., in non-CISG contexts) permits a certain degree of rule-competition -- between contract and tort, etc. -- that State's adherence to the CISG (sales contract) regime does not require it to treat the Convention as a "non-cumul" regime.[29] In other words, domestic remedies need not be deemed preëmpted (trumped) by the Convention whenever a given set of "operative facts" (also) seems "covered" by CISG rules.[30]

To this extent the Geneva and Stawski decisions confirm that we are not likely to find simple answers to multi-faceted CISG preëmption questions.[31] When the Convention's (limited) sphere of application requires courts and arbitrators to handle "loose ends" like these,[32] we cannot expect all decision-makers to tie the same kinds of knots.[33]


FOOTNOTES

1. B.A. Lehigh University. J.D. New York University School of Law. Cand.jur. & dr.jur. University of Copenhagen. Professor of Private and Commercial Law, University of Copenhagen. Professor Lookofsky extends his thanks to Professor Albert Kritzer of Pace University for his invitation to comment upon the Geneva case online (in CISGW3) and for his subsequent "heads up" on the Stawski case. Professor Lookofsky also extends his thanks to Professor Harry Flechtner of the University of Pittsburgh for his comments on a prior draft of this Case Commentary and for his special contribution to note 26 infra.

2. See United Nations Convention on Contracts for the International Sale of Goods, U.N. Doc. A/CONF.97/18 (1980) [hereinafter CISG].

3. The rules which define the Convention's sphere of application are set forth in Chapter I of CISG Part I (Articles 1-6).

4. I.e., questions relating to offer and acceptance, what Common lawyers sometimes refer to as the "mechanics of consent". Re. American contract formation "mechanics" see, e.g., E. Allan Farnsworth, Contracts Ch. 3(C) (3d ed.).

5. See generally Joseph Lookofsky, Understanding the CISG in the USA §§ 2-6 & 4-6 (2d ed. 2004) regarding CISG Article 4. See also the corresponding sections in Herbert Bernstein & Joseph Lookofsky, Understanding the CISG in Europe (2d ed. 2002) and in Joseph Lookofsky, Understanding the CISG in Scandinavia (2d ed. 2002).

6. See id. Since the Convention "governs only ... the rights and obligations ... arising from such a contract" (Article 4, emphasis added), it can hardly be said to (also) "govern" rights arising from the breach of non-contractual obligations (tort). However, it is sometimes possible to apply CISG "general principles" to settle certain other "matters" which are "governed" -- though not expressly "settled" -- by the Convention, see CISG Article 7(2) and Lookofsky, supra note 5, at § 2-11.

7. See generally Farnsworth, supra note 4, at § 4.1, regarding such abuse in American domestic contract law.

8. I.e., the (domestic) "law applicable by virtue of the rules of private international law" of the forum. See CISG Article 7(2) and Lookofsky, supra note 5, at § 2-6.

9. In the United States, questions relating to both contract and tort are usually governed by state (as opposed to federal) law. See generally Joseph Lookofsky and Ketilbjorn Hertz, Transnational Litigation and Commercial Arbitration: An Analysis of American, European, and International Law Ch. 2.5 (2d ed. 2003).

10. See Farnsworth, supra note 4, at § 4.9 with note 1 (indicating the potential overlap between tort liability for misrepresentation and UCC warranty liability).

11. For a prominent example of limits to "competition" between contractual and delictual rules in a case involving the application of American federal (admiralty) law, see East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986).

12. Such competition between rule-sets is, e.g., the starting point in the Danish law of obligations: see M.B. Andersen & Joseph Lookofsky, Lærebog i Obligationsret Ch. 5.5.e (Copenhagen 2000).

13. In France, e.g., the doctrine of non-cumul might well preclude the assertion of a non-contractual theory of recovery in such circumstances. See Peter Schlechtriem, The Borderland of Tort and Contract - Opening a New Frontier?, 21 Cornell Int'l L. J. 467 (1988), available at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html> . The (for many non-Americans "foreign") term preëmption (often spelled preemption, but also pre-emption or preëmption) originally referred to the policy by which first settlers ("squatters") on U.S. public lands could purchase property they had improved. Within the American legal system, where law-making powers are shared by the federal and (50) state governments, claims of preëmption sometimes arise under Article VI (the Supremacy Clause) of the United States Constitution, the test being whether there is either an "actual conflict between state and federal law," or "a congressional expression of intent to preempt" (California Coastal Comm'n v. Granite Rock Co., 480 U.S. 572 (1987)). With regard to "preëmption" in the (highly political) post-9/11 context see, e.g., Seymour M. Hersh, Lunch with the Chairman, The New Yorker Magazine, April 17, 2003, available at <http://www.newyorker.com/fact/content/?030317fa_fact>.

14. I.e., the domestic law otherwise applicable by virtue of private international law (conflict-of-laws rules); see also supra note 6. For concrete examples, see Herbert Bernstein & Joseph Lookofsky, Understanding the CISG in Europe §§ 2-6 and 4-6 (2d ed. 2002). See also the corresponding sections in Joseph Lookofsky, Understanding the CISG in Scandinavia (2d ed. 2002) and Joseph Lookofsky, Understanding the CISG in the USA (2d ed. 2004).

15. Regarding CISG cases involving (inter-parties) "product liability" claims, see Lookofsky, supra note 5, at § 2-6 with illustration 2e and § 4-6 with illustration 4c. See also the corresponding illustrations (2b and 4c) in Bernstein & Lookofsky, supra note 14.

16. Under domestic law designed to "police" contractual agreements, i.e., to guard against "abuse of the bargaining process," a seller's misrepresentation might entitle buyer to declare invalid -- and "undo" -- the contract, thus restoring the parties to their pre-contractual positions. Under American domestic law, for example, such "rescission" (also called "avoidance") might be allowed for a fraudulent misrepresentation without concern for its materiality (see Farnsworth, supra note 4, at §§ 4-10 to 4-15), whereas under CISG Article 49(1)(a) a fundamental breach is the condicio sine qua non for "avoidance" under the CISG (see Ulrich Huber, in Commentary on the UN Convention on the International Sale of Goods (CISG) 416 (2nd ed. 1998) and in Kommentar zum Einheitlichen UN-Kaufrecht - CISG 535 (3d ed. 2000)). Note in this connection the "conflict" between international and domestic (Common law) terminology, adding additional confusion to an already complex problem: whereas Common lawyers use "avoidance" (and "rescission") to describe (e.g.) a misrepresentee's right to undo the transaction by "avoiding" it (see Farnsworth, supra note 4, at § 4.9), an injured CISG party's right to "avoid" provides a remedy for breach (of a binding contractual obligation) under Article 49(1) or 61(1). Regarding CISG and American avoidance terminoloy see also Lookofsky, supra note 5, at § 6.2.

17. Thus leaving the plaintiff with an alternative if, in the concrete circumstances, access to (e.g.) CISG remedies is denied (see examples cited supra note 14).

18. See Joseph Lookofsky, In Dubio Pro Conventione? Some Thoughts About Opt-Outs, Computer Programs and Preëmption Under the 1980 Vienna Sales Convention (CISG), 13 Duke J. Comp. & Int'l L. 63 (2003), available at <http://www.law.duke.edu/shell/cite.pl?13+Duke+J.+Comp.+&+Int%27l+L.+0263>.

19. Since, e.g., the exemption "safety valve" in CISG Article 79(1) provides a flexible tool for reaching fair solutions in cases involving force majeure-type "impediments" to performance -- including certain situations which might also be subsumed under domestic headings of "impossibility" or "mistake" -- the argument for preëmption of domestic remedies in such situations seems strong; see, e.g., the decision of Bielloni Castello S.p.A. v. EGO S.A., Corte di Appello di Milano (Italy), Dec. 11, 1998, available at <http://www.unilex.info/dynasite.cfm?dssid=2376&dsmid=13353&x=1>. But since Article 79 was hardly designed to deal with the topic of "hardship," and since the hardship "rules" set forth in Ch. 6(2) of the UNIDROIT Principles (see <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=14311>) do not "restate" generally applicable principles of international commercial law on this validity-related point (see Joseph Lookofsky, The Limits of Commercial Contract Freedom: Under the UNIDROIT "Restatement" and Danish Law, 46 Am. J. Comp. Law 485, 500-501 (1998), available at <http://cisgw3.law.pace.edu/cisg/biblio/lookofsky2.html>), courts and arbitrators should apply applicable domestic law to deal with hardship and similar (validity-related) issues (accord Tom Southerington, Impossibility of Performance and Other Excuses in International Trade, available at <http://www.cisg.law.pace.edu/cisg/biblio/southerington.html>).

20. See generally Joseph Lookofsky, CISG Foreign Case Law: How Much Regard Should We Have? A Commentary on the UNCITRAL Draft Digest of CISG Part I, in Beyond the Draft Uncitral Digest: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention (R. Brand, F. Ferrari & H. Flechtner eds., 2003).

21. Cf. John Honnold, Uniform Law for International Sales (3d ed. 1999) at 67-68; see also (concurring with Honnold) Clayton P. Gillette & Steven D. Walt, Sales Law: Domestic and International 49 (Revised ed. 2002) (if facts trigger CISG application, domestic law triggered by same facts displaced). Compare also Ulrich Huber in Commentary on the UN Convention on the International Sale of Goods (CISG), supra note 16, at 370 and in Kommentar zum Einheitlichen UN-Kaufrecht - CISG, supra note 16, at 476 (rejecting rule-concurrence in the absence of three "preconditions") and the decision of LG Aachen (Germany), May 14, 1993, reported in UNILEX (application of CISG precluded recourse to domestic law regarding mistake as to quality of goods). Some commentators have argued that CISG avoidance rules displace (some) domestic rules permitting a "mistaken" buyer to rescind: for a comparison of the widely diverging views on this point see Helen Elizabeth Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale J. Int. L. 1, 72-78 (1993) and compare, e.g., Peter Schlechtriem, Uniform Sales Law - The Experience with Uniform Sales Laws in the Federal Republic of Germany, in Juridisk Tidsskrift vid Stockholms Universitet 11-12 (Stockholm 1992). Regarding "hardship" and CISG Article 79, see supra note 19.

22. But compare Schlechtriem, supra note 13, with note 4 (legislator or court would breach obligation incurred by state in acceding to the Convention by creating or allowing remedies "inconsistent" with rules on liability under ClSG). The CISG legislative history does not indicate that the CISG drafters harbored "preëmptive" intent. As regards actions in respect of non-conforming goods, the CISG drafters themselves rejected a proposal to limit recourse to competing rules of domestic law. The ULIS Convention of 1964, which preceded the CISG, expressly excluded the buyer's right of recourse to domestic law in the case of non-conforming goods (ULIS Article 34), except in cases of fraud (ULIS Article 89), whereas the Vienna drafters - hoping it would be possible to create a separate, internationally uniform set of validity rules - intentionally refrained from including a similar provision in the CISG; see Ulrich Huber in Commentary on the UN Convention on the International Sale of Goods (CISG), supra note 16, at, Art. 45, Rd.Nr. 46-48 with n. 86, and in Kommentar zum Einheitlichen UN-Kaufrecht - CISG, supra note 16, at Art. 45, Rd.Nr. 46-48 with n. 106.

23. Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc., et al., 201 F. Supp.2d 236 (S.D.N.Y. 2002), reconsideration denied by the same court on 21 August 2002, both decisions available at <http://cisgw3.law.pace.edu/cases/020510u1.html>.

24. See id., Parts VI(C) and VII of the Geneva court's discussion. Recognizing the limited scope of CISG's preëmption in the Asante case (164 F. Supp.2d 1142 (N.D. Cal. 2001)), discussed in Lookofsky, supra note 5, at § 2-3 with n. 11), the Geneva court cited Viva Vino Import Corp. v. Farnese Vini S.r.l,2000 WL 1224903 (E.D. Pa. 2000) for the proposition that the "CISG clearly does not preempt the claims sounding in tort," but then noted that under New Jersey (domestic) law, economic expectations protected by contract principles are generally not entitled to supplemental protection by negligence principles, i.e., even when the application of such principles is not prëmpted by the Convention. In a related statement (id. with note 30), the Court opined that "a tort claim which is actually a contract claim, or that bridges the gap between contract and tort law," might be preëmpted by the CISG.

25. Regarding "consideration" in the Article 29 (contract modification) context, see (Bernstein &)Lookofsky, supra note 5, at § 3-10.

26. So, as in the case of B's "business tort" claims (see supra, text with note 24), B's "equitable" claim was held not preëmpted by the CISG (see part VI.B of the opinion), even though the Geneva court (Id., supra note 11) saw this as a "closer question," also notwithstanding the court's dictum that a party to a CISG contract could not employ domestic promissory estoppel doctrine to deny the existence of a CISG "firm offer" (see id. and (Bernstein &) Lookofsky, supra note 5, at § 3-6). Although the Geneva court first deals with consideration and its "substitutes" under the general heading of validity (a matter outside the Convention under Article 4; see part IV.A.3.b of the opinion), it proceeds to treat plaintiff's promissory estoppel (detrimental reliance) claim as an equitable cause of action separate from breach of contract (part VI.D of the opinion) -- this notwithstanding the fact that promissory estoppel provides an alternative to "consideration," i.e., a sufficient reason for enforcing a promise under American law. Compare the court's subsequent opinion (Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc., 2003 WL 1345136 (S.D.N.Y. 2003)) which distinguishes between promissory estoppel claims that are "contractual in nature" (since, as to these claims, detrimental reliance serves as a "consideration substitute") and promissory estoppel claims that are "independent" of contractual claims; the court found that the plaintiff's promissory estoppel claim fell into the latter category, and thus was not required to be heard by a jury. While Article 29 makes it clear that consideration is not required to modify a CISG sales contract (see preceding note), that leaves open the question of whether an unmodified CISG contract requires consideration (or a consideration substitute) if U.S. law applies (under the the PIL rules of the forum), and the Geneva court's affirmative, but sometimes loosely-reasoned answer ought not preclude further consideration of the question. For arguments and counter-arguments, see Harry Flechtner, More U.S. Decisions on the U.N. Sales Convention: Scope, Parol Evidence, "Validity," and Reduction of Price under Article 50, 14 J.L. & Com. 153, 166-69 (1995), available at <http://cisgw3.law.pace.edu/cisg/biblio/flechtner.html>. Professor Lookofsky extends his thanks to Professor Flechtner at the University of Pittsburgh for helping shed light on the difficult consideration-related issues in Geneva.

27. These restrictions are deemed incorporated into every agreement between an Illinois wholesaler and a brewer. 815 ILCS 720/2(b). Section 3 of the IBIFDA, for example, restricts a brewer from canceling or failing to renew an agreement without proper notice, which the Act defines as a notice of cancellation in writing, sent by certified mail and containing, inter alia, "a complete statement of the reasons therefore, including all data and documentation necessary to fully apprise the wholesaler of the reasons for the action."

28. See Stawski Distributing Co., Inc. v. Zywiec Breweries PLC, 2003 WL 22290412 (N.D.Ill. 2003), available at http://cisgw3.law.pace.edu/cases/031006u1.html>, holding that the CISG is to be given the same weight as any other Federal statute in a case implicating issues regulated by State law in accordance with the twenty-first Amendment to the U.S. Constitution. As an alternative and/or supportive ratio for the holding, I would argue that the IBIFDA constitutes a validity-related regime (designed to protect wholesalers with arguably inferior bargaining power) containing rules which lie outside the CISG scope (see preceding note and supra text, corresponding with note 5), and this validity-based logic hardly seems impaired by the Court of Appeal's subsequent decision in Stawski, 349 F.3d 1023 (7th Cir. 2003), reversing the District Court's order which had granted Stawski's motion to stay arbitration; see 2003 WL 21209860 & 2003 WL 22595266). Regarding "avoidance" terminology in the CISG and common/American domestic law, see supra note 16.

29. See text corresponding with note 13 supra.

30. See also generally Lookofsky, supra note 5, at §§ 2-6 and 4-6; accord supra note 17. But cf. sources cited supra note 21.

31. See text corresponding with note 18 supra.

32. See generally Joseph Lookofsky, Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules, 39 Am. J. Comp. L. 403 (1991). Regarding the Convention's sphere of application see also supra text, corresponding with notes 4 & 5.

33. See generally Lookofsky, supra note 19.


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