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Reproduced, with permission, from 14 Journal of Law and Commerce 217-224 (1995)

INTERPRETIVE DECISIONS APPLYING CISG

JOURNAL OF LAW AND COMMERCE CASE III:

INTERNATIONAL COURT OF ARBITRATION, MATTER NO.

7153 IN 1992[1]

TRANSLATED TEXT[2]

I. APPLICABLE LAW. -- Vienna Convention on Contracts for the International Sale of Goods. -- Rules governing the application. Article I of the Convention.

II. OBLIGATIONS OF THE BUYER. -- Payment of the price (Article 53 of the Vienna Convention).

III. STAY OF INTEREST ACCRUING FROM THE DATE OF COMMENCEMENT OF ACTION. Assessment of the rate. -- Conflict of laws analysis.

Verdict rendered in Matter No. 7153 in 1992

The parties finalized a contract in 1989 for the furnishing and assembly of materials for the construction of a hotel. The plaintiff, an Austrian national, maintains that she furnished the totality of her goods, but maintains that she received payment for only a part of them. After unsuccessful attempts to obtain payment, she demanded arbitration. Notwithstanding the failure to respond of the defendant, a Yugoslavian (Croatian) national, the arbitration was implemented by the International Court of Arbitration, in accordance with Article 4 of the ICC regulation. The proceeding in front of the sole arbitrator was, moreover, to be held in accordance with the provision of Article 15(2) of the Regulation, pursuant to which "[i]f one of the parties, despite being duly summoned, does not appear, the arbitrator, once he/she has ascertained that the absent party had notice of the summons, has the power, in the absence of a valid excuse [on the part of the absent party] to proceed nevertheless to the accomplishment of his/her mission, and the argument is deemed to be a full hearing of both sides."

The claim of the plaintiff results from a contract signed by the parties, related to Article 53 of the Convention of 11 April 1980 of the United Nations on Contracts dealing with the International Sale of Goods (hereinafter referred to as the "Convention") pursuant to which the buyer is required, in accordance with the contract provisions and the Convention, to pay the price for the goods. According to the deep-seated conviction of the court of arbitration, said Convention applies in the absence of an agreement between the parties relating to the law applicable to the case in point.

Even though the article . . . of the contract is called "Litigation and Applicable Law," the parties nevertheless have not reached any agreement on this matter, such that the court of arbitration must apply that law which is designated by the law of conflicts which it deems appropriate (Article 13, paragraph 3 of the regulation of conciliation and arbitration).

According to the terms of Article I of the Convention, the latter applies to contracts for the sale of goods between parties having presences in various countries which are contracting states. At the time of the contract's finalization, i.e., on 31 May 1989, Austria (the plaintiff's place of business) as well as Yugoslavia (the defendant's place of business) were contracting states. The Convention became effective in Austria on 1 January 1989 and in Yugoslavia on 1 January 1988 (cf. Herber v. Caemmerer/Schlechtriem, Commentary on the Uniform Law of States). It is true that the plaintiff alleged that she did not only undertake the obligation of delivery [of the goods] but also that of assembling the installation. However, given that the text of the contract is unequivocal in this respect, and that no contrary provision emerges from the plaintiff's mail, the court of arbitration assumed that the type of contract in question here was a sales contract, such that the Convention applies.

The amount in controversy is not in dispute.

The defendant did not participate in the instant proceeding, despite having been duly requested to do so on several occasions and despite having been explicitly informed of the legal consequences of her non-participation. Consequently, the plaintiff's argument has been accepted.

In the absence of an agreement between the parties about the payment of interest accruing from the date of the commencement of this action, the plaintiff's claim concerning said interest stems from Article 78 of the Convention, pursuant to which the seller has the right to receive interest if the buyer neglects to pay the price for the goods.

Moreover, the rate of said interest is not provided for in the Convention, which is why we need to turn to the national law designated by the rule on conflict of laws. (Cf. Eberstein, in: V. Caemmerer/Schlechtriem, Commentary on the Uniform Law of Sales of the United Nations -- CISG -- 1990, Article 78, end of line 3.) In this case, the court of arbitration believed the applicable law to be Czech law, i.e., the law applicable at the place of payment.

It is true that the contract does not contain any provision as to the place of payment. In the absence of such a provision, Article 57(1) of the Convention nevertheless applies. The latter stipulates that the Buyer is required to pay the price at the Seller's place of business or, if the payment is to be made against the handing over of the goods, where said handing over takes place. At the hearing, the plaintiff alleged that the payment was to be made against the handing over of the goods in Prague. Since the defendant did not participate in the proceeding, this position was accepted, given that the contract contains no contrary provision. The New Czech Commercial Code does not explicitly speak to the amount of interest owing. (Cf. Articles 735, 502 of the Commercial Code). Despite intensive efforts undertaken by the arbitrator, it was not possible to gain precise information on this matter. The Czech Embassy in Paris confirmed, however, that, in any case, a claim for interest at a minimum rate of 12% should be customary. In this matter, the research of the plaintiff overlaps with that of the arbitration court, such that the court had to allow an accrual rate of 12%.

The defendant, having incontestably acknowledged a delay of payment, dating from the . . ., the plaintiff's claim in this matter similarly is justified.

Since the defendant is the losing party in the present proceeding, she is required to bear the costs and expenditures of the arbitration proceeding as well as the fees and necessary expenses of the representatives ad litem of the plaintiff (original in German).

Comments[3]

I. This judgment is the first decision of an arbitrator, at least in the ICC system, to apply the Vienna Convention of 1980 on International Sales to the litigation before it. In a prior publication (J.D.I. 1991, p. 1054), a group of judgments was reported in which the arbitrators referred to the rules of that Convention, or evoked it to support solutions drawn from the national law which they had to apply in order to resolve the litigation before them. The Vienna Convention, by reason of the large number of states interested in this text, thus greatly exerted an influence on the jurisprudence of arbitration, even if its role was only subsidiary because the conditions for its application had not at that time been met. Indeed, the Vienna Convention, although adopted by a diplomatic conference which was held in Vienna from 10 March to 11 April 1980, only became effective following the ratification by ten states on 1 January 1988. Since that date, 24 other states have joined the first ones, thus bringing the number of contracting states to 34, to which four other signatory states were added (DOC. CNUDCI A/CN-9/368, 28 April 1992.) It still was necessary to wait for contracts which came within the purview of the Convention to lead to litigation brought before arbitrators. Indeed, we should recall that, pursuant to its Article 100, the new Convention applies [(1)] to the formation of contracts made following an offer which occurred after the Convention's effective date; as well as [(2)] to the obligations of the seller and the buyer which arise out of contracts entered into after 1 January 1988. In the instant case, the contract was formed in the first six months of 1989; namely, after the Convention took effect in the States in which the parties had their places of business according to the meaning of Article l(a). Paragraph (a) thus retains the permanent geographical criterion of the place of business at the time of the formation of the contract in order to determine the area of the Convention's application. The latter does not consider either the State in which it is performed or the nationality of the parties. Article l(b) of the Convention, however, contains a legal criterion which contemplates its application when the rules of private international law designate the law of a contracting State.

At the beginning, the arbitrator confronted the problem of coordination between the uniform rules and private international law. Even though the contract contained a clause entitled "Litigation and Applicable Law," nevertheless the parties had not made any choice of law. Thus, the arbitrator referred to Article 13(3) of the Regulation of the ICC, according to which, in the absence of an indication of the law applicable to the main issue, it is appropriate to apply the law designated by the conflicts of law rule which the judge in the instant case deemed appropriate. The text is identical to that of Article VII of the Geneva Convention of 1961 which the arbitrator did not mention, but which applied to the controversy by reason of the scope of its application. When the parties have not chosen the law applicable to the controversy, the arbitrator generally makes use of three different methods to determine the law which applies to the issue. The first [method] consists of applying cumulatively the systems of conflicts of laws of the States interested in the litigation. The second [method consists of] having recourse to the general principles of private international law, such as rules contained in international conventions, which, even if they are not applicable, either because they have not become effective, or because they have not been ratified by the States interested in the litigation, express an international consensus. The third method consists of choosing directly material rules, avoiding reasoning of a conflict of laws nature (Derains, "Legitimate expectation of the parties and applicable law to the substantive issue in international commercial arbitration": Travaux Comité fr. DIP, 1984-1985, p. 81).[4] Indeed, Article 13 (3 ) of the Regulation does not require recourse to the conflicts of laws method. In the context of Article 13(3), the meaning to be ascribed to the expression ["]rule of conflict["] is the general one of international law, rather than the narrow one of a rule which gives priority to one among several conflicting laws which are able to govern a specific situation. In the instant case, the arbitrator immediately determined the applicable international law. However, we must recall that Article I of the Vienna Convention can be considered as expressing a true rule of conflict even though it determines only the conditions of application of the Convention, and there is no contest between different laws which purport to apply to a situation, no more than the application of a rule of conflict to Article l(b) will suffice to transform the scope of application in a rule of conflict (Bianca and Bonnell, Commentary on the International Sales Law, Gouffré, p. 28; Honnold, Uniform Law for International Sales, Kluwer, and preparatory work, Official Documents A/Conf. 97/19, Report of the Secretariat, p. 15, which indicates that the Convention notably aims to discourage a search for the forum whose law is the most favorable and to reduce the need for recourse to rules of international private law).

The second problem which the arbitrator confronted with respect to the application of the Vienna Convention was the definition of the litigation. Indeed, the Convention nowhere defines the juridical operation which, however, determines its material area of application, its drafts people having renounced a search for a common definition of a kind to elicit the adherence of all. From then on, it has been appropriate to rely on the provisions of the Convention which, we must underscore, are generally characteristic of sales in all legal systems. Thus, Article 3 states that "the seller must deliver the goods and transfer the property in the goods," Article 53 provides that "the buyer must pay the price for the goods and take delivery of them." (See Kahn and Bérando, Le nouveau droit de la vente internationale de marchandises.[5] Marchés internationaux,[6] no. 89.) However, Article 3 of the Vienna Convention excludes both contracts for the supply of goods when the party who orders the goods furnished a substantial part of the materials necessary for the manufacture or production [Article 3(1)] and also [excludes] contracts for hiring labor or performing services when the preponderant part of the obligation of the party who furnishes the goods is to furnish labor or other services. [Article 3(2)]. In fact, the negotiators of the Convention deemed that these transactions are more closely related to another legal category than that of sale. However, the line of demarcation can prove to be difficult to draw; the concept of "substantial part" or "preponderant part", on which the application of the Convention depends, being subject to the understanding of the interpreter (Bianca and Bonnell, supra; Kahn and Bérando, supra; Audit, La vente internationale des marchandises,[7] LGDJ.[8]) In order to resolve the difficulty, the arbitrator referred in the decision to the text and to the general meaning of the contract which established unambiguously that the principal transaction was a sale. This conclusion was further supported by a bill addressed to the defendant which made apparent that the price to be paid for the assembly of the materials was of a completely secondary order of magnitude compared to that of the purchase of the materials. The arbitrator thus correctly examined the economic value of the benefits furnished in order to conclude that the contract at issue came within the purview of the Vienna Convention.

[II.] With respect to a claim for payment which, by the way, never had been contested by the defendant during the parties' attempt at conciliation preceding the arbitration, the arbitrator based his finding of liability on Article 53 of the Convention, pursuant to which the payment of the price and the taking of delivery of the goods is the principal obligation of the buyer. The payment of the price represents of course the counterpart of the delivery of the goods. One should recall that, according to Article 59 of the Convention, the payment takes effect either at the contractually agreed-upon date, or on the date determined by the Convention. No other formal notice or other procedure is necessary on the part of the seller.

III. Pursuant to Article 78 of the Vienna Convention, a default in the payment of the price creates a right to interest on the sum owing, without prejudice to the damages which can be claimed in the event of a fundamental breach, or of a non-fundamental breach, of the contract (See Articles 25 and 74 of the Convention).[9] If the Convention contemplates allowing interest accruing from the date of the commencement of the action, it is silent as to the rates of such interest. With respect to this matter, the sole arbitrator decided to refer to a state law, adopting a conflict of laws type of procedure. Arbitrators generally determine the rate of interest according to the law applicable to the contract, or they adopt the rate of the country of the creditor or of the State of the contractually agreed currency for payment (Derains, "Intérêts moratoires, dommages-intérêts compensatoires et dommages punitifs devant l'arbitre international."[10] Mélanges Bellet, Litec, p.101). Somewhat strangely, this arbitrator referred to the law of the place of payment. When nothing has been provided in the contract about the place of payment, Article 57 of the Vienna Convention states that the buyer must pay the seller at the latter's place of business or at the place of the handing over of the documents. But in the final analysis, the arbitrator went to the law of the place of delivery of the goods; i.e., Czech law, based on the payment's having occurred against delivery. It appears that there was here first of all confusion between the place of payment and the time of payment, which last, according to Article 58 of the Convention, is deemed to occur, in the absence of indications to the contrary, at the time of the seller's placing the goods at the buyer's disposal. Moreover, one must call attention to the weakness of the link which the arbitrator made. The interest accruing from the date of the commencement of the action constitutes a contractual reparation which indemnifies for the deprivation of capital. Therefore, the emerging tendency of arbitrational jurisprudence is to determine directly, without recourse to a state's law, a rate [of interest] which, taking into account the circumstances of each particular case, indemnifies against the harm due to delay in payment. (Derains, supra.) Moreover, Article 502 of the Czech Commercial Code (which took effect on 1 January 1992) to which Article 735 of the same Code pertains, provides that, in the absence of an agreement of the parties, the rate of interest accruing from the date of the commencement of the action is that of credit extended by the banks in the debtor's domicile[11] at the time of entering the contract, which in this case means Croatian banks.

FOOTNOTES

1. The following excerpts and commentary were originally published in French in 4 JOURNAL DU DROIT INTERNATIONALE [J.D.I] 1005 (1992). Case No. 7153, International Chamber of Commerce, International Court of Arbitration (1992), commented on by Dominique Hascher, 4 J.D.I. 1007 (1992).

2. This Journal of Law & Commerce case translation was prepared by Vivian Curran, Legal Writing Instructor, University of Pittsburgh School of Law (B.A. University of Pennsylvania; Ph.D., J.D., Columbia University). Any reader who intends to rely on this case must consult the original text. All footnotes in the following material were supplied by the translator and did not appear in the original material.

3. Commentary by Dominique Hascher, Conseiller Général et Secrétaire Général Adjoint, International Court of Arbitration, International Chamber of Commerce, 4 J.D.I. at 1007, supra note 1.

4. DIP is the legal abbreviation for droit international public ("public international law") and for droit international privé ("private international law.").

5. The New Law of the International Sale of Goods.

6. International Markets.

7. The International Sale of Goods.

8. LGDJ is the legal abbreviation for Librairie Générale de Droit et de Jurisprudence.

9. U.N. Conference on Contracts for the International Sale of Goods, Final Act, U.N. Doc. A/Conf. 97/18 (1980) [hereinafter "CISG"], reprinted in S. Trcaty Doc. No. 98-9, 98th Cong., 1st Sess. and 17 INT'L LEGAL MAT. 668 (1980). Article 25 defines fundamental breach and Article 74 deals with the calculation of damages for breach of contract, without restricting its application to fundamental breaches.

10. "Interest Accruing From the Commencement of Actions, Compensatory Damages -- Interest and Punitive Damages Before the International Arbitrator."

11. Under French law, "domicile" is the place where a citizen has his or her principal establishment rather than actual residence. See CODE CIVIL, Domicile, art. 102-111 (edition of 1 January 1983); see also JEAN BALEYTE, ALEXANDRE KURGANSKY, CHRISTIAN LAROCHE, JACQUES SPINDLER, DICTIONNAIRE ÉCONOMIQUE JURIDIQUE (3d ed. 1992).

Pace Law School Institute of International Commercial Law - October 1997
Comments/Contributions

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