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2012 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 3 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Overview
Contracts for the sale of goods to be manufactured or produced
Contracts for the delivery of labour and services]

Article 3

1. Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

2. This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

Overview

1. This provision makes clear that the Convention's sphere of application extends to some contracts that include acts in addition to the supply of goods.[1]

Contracts for the sale of goods to be manufactured or produced

2. Pursuant to paragraph 1 of article 3, the Convention extends to contracts for the sale of goods to be manufactured or produced.[2] This means that the sale of such goods is subject to the provisions of the Convention as much as the sale of ready-made goods.[3] This aspect of the Convention's sphere of application is, however, subject to a limitation: contracts for goods to be manufactured or produced are not governed by the Convention if the party who "orders" the goods supplies a "substantial part" of the materials necessary for their manufacture or production.[4] Article 3(1) does not provide specific criteria for determining when the materials supplied by the buyer constitute a "substantial part". Some courts have resorted to a purely quantitative test to determine whether the materials supplied by the buyer constitute a "substantial part" of the material necessary.[5] One court also considered -- on the basis of the French version of the Convention -- the quality of the goods.[6]

3. A different -- albeit related -- issue is whether providing instructions, designs or specifications used for producing goods is equivalent to the supply of "materials necessary" for the goods' manufacture or production; if so, a sales contract in which the buyer supplies such information is excluded from the Convention's sphere of application if the "substantial part" criterion is met. In one case, a court held that the Convention was inapplicable, on the grounds of article 3(1), to a contract under which the seller had to manufacture goods according to the buyer's design specifications.[7] The court deemed the plans and instructions that the buyer transmitted to the seller to constitute a "substantial part of the materials necessary" for the production of the goods. Other courts have found that design specifications are not considered "materials necessary for the manufacture or production of goods" within the meaning of article 3(1).[8]

Contracts for the delivery of labour and services

4. Article 3(2) extends the Convention's sphere of application to contracts in which the seller's obligations include -- in addition to delivering the goods, transferring the property and handing over the documents[9] -- a duty to provide labour or other services, as long as the supply of labour or services does not constitute the "preponderant part" of the seller's obligations.[10] It has been held that work done to produce the goods themselves is not to be considered the supply of labour or other services for purposes of article 3(2).[11] In order to determine whether the obligations of the seller consist preponderantly in the supply of labour or services, a comparison must be made between the economic value of the obligations relating to the supply of labour and services and the economic value of the obligations regarding the goods,[12] as if two separate contracts had been made.[13] Thus, where the obligation regarding the supply of labour or services amounts to more than 50 per cent of the seller's obligations, the Convention is inapplicable.[14] Some courts require that the value of the service obligation "clearly" exceeds that of the goods.[15] On the basis of this reasoning, several courts stated that a contract for the delivery of goods providing also for the " seller's" obligation to install the goods is generally covered by the Convention, since the installation obligation is generally minor in value compared to the more traditional "sale" obligations.[16] Similarly, a contract for the delivery of goods obliging the seller to also assemble the goods does not generally fall under the article 3(2) exclusion.

[17] The same holds true for contracts for the delivery of goods that also contain an obligation to train personnel,[18] to provide maintenance services,[19] or to design the goods,[20] if these additional obligations are only ancillary to the primary obligation to make delivery. On the basis of very similar reasoning, one court decided that a contract for a market study did not fall under the Convention's sphere of application.[21] On the other hand, a contract for the dismantling and sale of a second-hand hangar was deemed to fall within the Convention's sphere of application on the ground that the value of the dismantling services amounted to only 25 per cent of the total value of the contract.[22]

5. While one court stated that turn-key contracts are governed by the Convention except when the obligations other than that of delivering the goods prevail from an economic value point of view,[23] several courts stated that turn-key contracts are generally not covered by the Convention, [24] because turn-key contracts "do not so much provide for an exchange of goods against payment, but rather for a network of mutual duties to collaborate with and assist the other party".[25]

6. It has also been stated that factors other than purely economic ones -- such as the circumstances surrounding the conclusion of the contract,[26] the purpose of the contract[27] and the interest of the parties in the various performances[28] -- should also be taken into account in evaluating whether the obligation to supply labour or services is preponderant.[29] Another court referred to the essential purpose of the contract as a criterion relevant to determining whether the Convention was applicable.[30]

7. The party who relies on article 3(2) to exclude the application of the Convention to a contract in which the party who has to furnish the goods also has to supply labour or other services bears the burden of proving that the supply of labour or services constitutes the preponderant part of the obligations.[31]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.uncitral.org/pdf/english/clout/CISG-digest-2012-e.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
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   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,400 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. See United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 16.

2. See [SWITZERLAND Kantonsgericht Zug 14 December 2009]; [SWITZERLAND Obergericht Aargau 3 March 2009]; [GERMANY Oberlandesgericht Oldenburg, 20 December 2007]; [AUSTRIA Oberlandesgericht Innsbruck 18 December 2007]; [AUSTRIA Oberlandesgericht Linz 24 September 2007]; [SWITZERLAND Kantonsgericht Aargau 20 September 2007]; CLOUT case No. 935 [SWITZERLAND Handelsgericht des Kantons Zürich 25 June 2007]; [SWITZERLAND Cour de Justice de Genève 20 January 2006]; [CHINA International Economic and Trade Arbitration Commission, People's Republic of China, 2005 (Arbitral award No. CISG/2005/12)]; [SWITZERLAND Handelsgericht Aargau 25 January 2005]; [BELGIUM Rechtbank van Koophandel Hasselt 14 September 2005]; [SWITZERLAND Handelsgericht St. Gallen, 29 April 2004]; [AUSTRIA Oberster Gerichtshof 21 April 2004]; CLOUT case No. 892 [SWITZERLAND Kantonsgericht Schaffhausen 27 January 2004]; [HUNGARY Szegedi Itelotabla 2003]; CLOUT case No. 886 [SWITZERLAND Handelsgericht St. Gallen 3 December 2002]; CLOUT case No. 882 [SWITZERLAND Handelsgericht Aargau 5 November 2002]; CLOUT case No. 1017 [BELGIUM Hof van Beroep Gent 15 May 2002]; CLOUT case No. 541 [AUSTRIA Oberster Gerichtshof 14 January 2002] (see full text of the decisions); [GERMANY Landgericht Hamburg 21 December 2001]; [AUSTRIA Oberster Gerichtshof 18 April 2001]; CLOUT case No. 446 [GERMANY Oberlandesgericht Saarbrücken 14 February 2001]; [GERMANY Landgericht München 16 November 2000]; [GERMANY Oberlandesgericht Stuttgart 28 February 2000]; CLOUT case No. 430 [GERMANY Oberlandesgericht München 3 December 1999]; CLOUT case No. 313 [FRANCE Cour d'Appel de Grenoble 21 October 1999]; [ICC Court of Arbitration of the International Chamber of Commerce, 1999 (Arbitral award No. 9083)]; CLOUT case No. 630 [ICC Court of Arbitration of the International Chamber of Commerce, July 1999 (Arbitral award No. 9448)]; [NETHERLANDS Hof Arnhem 27 April 1999]; CLOUT case No. 325 [SWITZERLAND Handelsgericht des Kantons Zürich 8 April 1999]; CLOUT case No. 331 [SWITZERLAND Handelsgericht des Kantons Zürich 10 February 1999]; CLOUT case No. 252 [SWITZERLAND Handelsgericht des Kantons Zürich 21 September 1998] (see full text of the decision); CLOUT case No. 337 [GERMANY Landgericht Saarbrücken 26 March 1996]; CLOUT case No. 164 [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 5 December 1995]; [NETHERLANDS Hof 's-Hertogenbosch 9 October 1995]; [GERMANY Landgericht Oldenburg 9 November 1994]; CLOUT case No. 167 [GERMANY Oberlandesgericht München 8 February 1995] (see full text of the decision); CLOUT case No. 262 [SWITZERLAND Kanton St. Gallen, Gerichtskommission Oberrheintal 30 June 1995]; [GERMANY Landgericht Memmingen 1 December 1993]; CLOUT case No. 302 [ICC Court of Arbitration of the International Chamber of Commerce, 23 August 1994 (Arbitral award 7660/JK)]; [ICC Court of Arbitration of the International Chamber of Commerce, 1994 (Arbitral award No. 7844)]; CLOUT case No. 97 [SWITZERLAND Handelsgericht des Kantons Zürich 9 September 1993]; CLOUT case No. 95 [SWITZERLAND Zivilgericht Basel-Stadt 21 December 1992] (see full text of the decision).

3. See also United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980, Official Records, Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committee, 1981, 17.

4. For the applicability of the CISG in cases where reference was made to article 3(1), but where the courts expressly stated that the "substantial part of the materials necessary" was not provided by the seller, see [GERMANY Landgericht München 27 February 2002]; [BELGIUM Tribunal de commerce Namur 15 January 2002]; CLOUT case No. 313 [FRANCE Cour d'appel de Grenoble 21 October 1999]; [GERMANY Landgericht Berlin, 24 March 1998]. For a case where the issue was touched upon by the court, but was not decided, since the court determined that the Convention was not applicable for temporal reasons, see [AUSTRIA Oberster Gerichtshof 18 April 2001].

5. See CLOUT case No. 325 [SWITZERLAND Handelsgericht des Kantons Zürich 8 April 1999]; CLOUT case No. 164 [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, 5 December 1995] (see full text of the decision).

6. CLOUT case No. 430 [GERMANY Oberlandesgericht München 3 December 1999].

7. See CLOUT case No. 157 [FRANCE Cour d'appel de Chambéry 25 May 1993].

8. See CLOUT case No. 331 [SWITZERLAND Handelsgericht des Kantons Zürich 10 February 1999] (see full text of the decision); CLOUT case No. 2 [GERMANY Oberlandesgericht Frankfurt am Main, 17 September 1991] (see full text of the decision).

9. For a definition of a contract for the sale of goods under the Convention, see the Digest forarticle 1.

10. For references in case law to article 3(2) of the Convention as an element to be looked into for the purpose of deciding whether the Convention applies, see [GERMANY Landgericht Landshut 12 June 2008]; [FRANCE Cour d'Appel de Colmar 26 February 2008]; [UNITED STATES District Court, Southern District of New York 23 August 2006]; [SWITZERLAND Handelsgericht Zürich 17 February 2000]; [NETHERLANDS Hof Arnhem, Netherlands, 27 April 1999]; CLOUT case No. 327 [SWITZERLAND Kantonsgericht Zug 25 February 1999]; CLOUT case No. 287 [GERMANY Oberlandesgericht München 9 July 1997] (see full text of the decision); CLOUT case No. 192 [SWITZERLAND Obergericht des Kantons Luzern 8 January 1997]; CLOUT case No. 196 [SWITZERLAND Handelsgericht des Kantons Zürich 26 April 1995]; CLOUT case No. 152 [FRANCE Cour d'appel de Grenoble 26 April 1995]; CLOUT case No. 105 [AUSTRIA Oberster Gerichtshof 27 October 1994]; CLOUT case No. 201 [SWITZERLAND Richteramt Laufen des Kantons Bern 7 May 1993]; for a decision in which article 3(2) was cited, but in which the court did not resolve the issue of whether the contract was one for the sale of goods or one for the supply of labour and services, see [BELGIUM Rechtbank Koophandel Hasselt]. For decisions in which the courts did not apply the Convention on the grounds that the service obligations were preponderant, see [BELGIUM Hof van Beroep Antwerpen 3 January 2005] (repairs to a cutting machine); [BELGIUM Hof van Beroep Ghent 24 November 2004] (contract for the delivery of computer equipment, with specifically designed software programs); [BELGIUM Hof van Beroep Ghent, 29 October 2003] (contract for the delivery of cooling installations that also included the provision of services and labor considered to be the preponderant part of the obligations); CLOUT case No. 728 [ITALY Corte di Cassazione 6 June 2002] (the obligation to assemble the machinery sold and to train workers were considered to be the preponderant compared to the obligation to deliver the machinery).

11. [GERMANY Oberlandesgericht Karlsruhe 12 June 2008]; [FRANCE Cour d'Appel de Colmar 26 February 2008]; CLOUT case No. 481 [FRANCE Court d'appel de Paris 14 June 2001]; see also CLOUT case No. 541 [AUSTRIA Oberster Gerichtshof 14 January 2002] (see full text of the decision) (approving lower appeals court's approach that applied the Convention to contract for the sale of specially manufactured goods and rejected trial court's holding that the Convention was inapplicable because the services used to produce the goods constituted the preponderant part of the seller's obligations).

12. See, for the application of the economic value test referred to in the text, [SWITZERLAND Obergericht Aargau 3 March 2009]; [BELGIUM Hof van Beroep Ghent 14 November 2008]; [GERMANY Bundesgerichtshof 9 July 2008]; [ICC Court of Arbitration of the International Chamber of Commerce, 2000 (Arbitral award No. 9781)]; [AUSTRIA Oberlandesgericht Wien,1 June 2004]; [BELGIUM Rechtbank van Koophandel Hasselt 4 February 2004]; [SWITZERLAND Handelsgericht Zürich 17 February 2000]; CLOUT case No. 430 [GERMANY Oberlandesgericht München 3 December 1999]; CLOUT case No. 327 [SWITZERLAND Kantonsgericht Zug 25 February 1999]; CLOUT case No. 346 [GERMANY Landgericht Mainz 26 November 1998]; CLOUT case No. 152 [FRANCE Cour d'Appel de Grenoble 26 April 1995]; CLOUT case No. 26 [ICC Court of Arbitration of the International Chamber of Comerce, 1992 (Arbitral award No. 7153)].

13. For an express reference in case law to the principle mentioned in the text, see [SWITZERLAND Kantonsgericht Zug 14 December 2009]; for an implicit affirmation of the principle referred to in the text, see CLOUT case No. 26 [ICC Court of Arbitration of the International Chamber of Commerce, 1992 (Arbitral award no. 7153)].

14. [SWITZERLAND Kantonsgericht Zug 14 December 2009]; [RUSSIA Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Award No. 5/1997]; [SWITZERLAND Bundesgericht 18 May 2009] (applying the Convention to a purchase of a packaging machine consisting of ten individual devices as well as several transportation and interconnection systems, which also imposed upon the seller the obligation to install the packaging machine and prepare its operation at the buyer's works).

15. CLOUT case No. 327 [SWITZERLAND Kantonsgericht Zug 25 February 1999]; [SWITZERLAND Kreisgericht Bern-Laupen 29 January 1999].

16. [SWITZERLAND Kantonsgericht Zug 14 December 2009]; [ITALY Tribunale di Padova 10 January 2006]; CLOUT case No. 890 [SWITZERLAND Tribunale d'appello Lugano 29 October 2003]; [SWITZERLAND Kantonsgericht Schaffhausen 25 February 2002]; [GERMANY Landgericht München, 16 November 2000]. For a case where the installation obligation was preponderant and thus led to the Convention's inapplicability, see SERBIA Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce 9 May 2003].

17. See [ITALY Tribunale di Forlì 16 February 2009]; [BELGIUM Hof van Beroep Ghent 14 November 2008]; [SWITZERLAND Obergericht Zug 19 December 2006]; [SWITZERLAND Zivilgericht Basel-Stadt 8 November 2006]; CLOUT case No. 430 [GERMANY Oberlandesgericht München 3 December 1999].

18. [SWITZERLAND Zivilgericht Basel-Stadt 8 November 2006].

19. Ibid.

20. [AUSTRIA Oberster Gerichtshof 8 November 2005].

21. See CLOUT case No. 122 [GERMANY Oberlandesgericht Köln 26 August 1994].

22. See CLOUT case No. 152 [FRANCE Cour d'appel de Grenoble 26 April 1995] (see full text of the decision).

23.[SWITZERLAND Kantonsgericht Zug 14 December 2009].

24. [SWITZERLAND Obergericht Aargau 3 March 2009].

25. CLOUT case No. 881 [SWITZERLAND Handelsgericht Zürich 9 July 2002].

26. See CLOUT case No. 346 [GERMANY Landgericht Mainz 26 November 1998].

27. CLOUT case No. 346 [GERMANY Landgericht Mainz 26 November 1998]; see also [AUSTRIA Oberster Gerichtshof 8 November 2005] (referring to the intentions of the parties as an element to be taken into account when determining whether the contracts falls into the sphere of application of the Convention).

28. [AUSTRIA Oberlandesgericht Innsbruck 18 December 2007]; [SWITZERLAND Kreisgericht Bern-Laupen 29 January 1999]. See also [GERMANY Oberlandesgericht Dresden 11 June 2007]. See also CLOUT case No. 430 [GERMANY Oberlandesgericht München 3 December 1999], referring to the interest of the buyer as an element to be taken into account when determining whether the service obligation constitutes the preponderant part of the obligations of the party having to deliver the goods.

29. See CLOUT case No. 346 [GERMANY Landgericht Mainz 26 November 1998].

30. See [ITALY Corte di Cassazione, 9 June 1995].

31. [GERMANY Oberlandesgericht Oldenburg 20 December 2007]; [AUSTRIA Oberster Gerichtshof 8 November 2005].


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