Contracts for the International Sale of Goods, Schemes and Mind Maps of Law

Download Contracts for the International Sale of Goods and more Schemes and Mind Maps Law in PDF only on Docsity! Contracts for the International Sale of Goods Recent Developments at the International and European Level S.A. Kruisinga* 1 Introduction In the globalizing economy, national borders seem to have disappeared. However, when determining which law will apply to a commercial transaction, the opposite is true. This paper will illustrate the relevance of nation- al borders for ascertaining the applicable legal regime for contracts for the international sale of goods. In 1980, the UN Convention on Contracts for the International Sale of Goods (hereafter the CISG) was specifically drafted to apply to contracts for the international sale of goods. Recently, the European Commission also pub- lished a document containing provisions that can apply to contracts for the international sale of goods. On 11 October 2011, the European Commission published a Proposal for a Regulation on a Common European Sales Law (hereafter referred to as the Regulation on CESL).1 If the Regulation on CESL enters into force, cross- border contracts for the sale of goods concluded between businesses within Europe can be governed by the CISG, the CESL and/or national contract law. Thus, these different systems of law may become each other’s competitors. Therefore, it is interesting to com- pare the scope of application of these two instruments and also to compare the CESL with the CISG in order to ascertain which provisions are most suitable for com- mercial transactions (section 2). It would, however, be going beyond the scope of this contribution to make a complete comparison of the two instruments. From the perspective of private international law, it is important to ascertain whether a contract contains a valid choice of law clause and/or a forum selection clause or an arbitra- tion clause. Such clauses are very often found in stand- ard terms and conditions. Therefore, it is interesting to compare the regulation of standard terms in the CISG and the CESL. This paper will provide a comparison in this respect (section 3). It should be noted that this paper does not intend to discuss the validity of choice of law and dispute settlement clauses in general. * Dr. S.A. Kruisinga is Associate Professor at the Molengraaff Institute of Private Law, Utrecht University, the Netherlands. 1. Proposal for a Regulation of the European Parliament and of the Coun- cil on a Common European Sales Law, Brussels 11 October 2011, COM(2011) 635 final. In addition, if it turns out that the contracting parties have not validly incorporated a dispute settlement clause in their contract, the EU Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I)2 may be of rele- vance to determine which court within the European Union has jurisdiction to hear a dispute in a certain case. The provisions in this Regulation which are of relevance for contracts for the international sale of goods which do not contain a valid dispute settlement clause will be addressed as well as the relevant recent case law by the Court of Justice of the European Union (section 4). 2 The Scope of Application of the Regulation on a Common European Sales Law (Opting in) and the CISG (Opting out) The CISG will generally apply to contracts for the international sale of goods if the contracting parties, i.e. the buyer and the seller, have their places of business in different states. Even though the CISG does not pro- vide a definition of a sales contract, a description of a sales contract can be derived from Articles. 30 and 53 CISG. Accordingly, sales contracts can be described as reciprocal contracts directed at the exchange of goods against a price. In general, the Convention only applies to contracts for the sale of movable goods. According to Article 3(1) CISG, a sales contract governed by the CISG can entail both the delivery of goods and the pro- vision of services: contracts for the supply of goods to be manufactured or produced are to be considered as sales, unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. Furthermore, the CISG will also apply to a contract that involves both the sale of goods and the provision of services, unless the preponderant part of the obligations of the purported 2. Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdic- tion and the recognition and enforcement of judgments in civil and commercial matters. 58 DQ October 2014 | No. 2 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker seller consists of the supply of labour or other services (Article 3(2) CISG). The Convention provides that it will apply if both states where the buyer and seller have their respective places of business are Contracting States (Article 1(1)(a) CISG). Almost all EU Member States are Contracting States to the CISG, except for the United Kingdom, Ireland, Portugal and Malta.3 Thus, to most contracts for the sale of goods within the EU, the Convention will apply. It should be noted, however, that the Convention does not in principle apply to consumer sales (Article 2(a) CISG). The CISG will also apply when the rules of private international law lead to the application of the law of a Contracting State (Article 1(1)(b) CISG). The contracting parties may agree to (completely or partly) exclude the application of the CISG (Article 6 CISG). The question may arise whether a choice of law clause, referring to the law of a Contracting State, implies an exclusion of the CISG. The majority view in both the legal literature and in the case law is that a choice of law clause that refers to the law of a Contract- ing State will lead to the application of the CISG.4 This may be different if the respective choice of law clause expressly refers to the application of the national law of a Contracting State.5 In this context, it is relevant to note that the party who claims the exclusion of the CISG will bear the burden of proof for such an inter- pretation. It may be doubted whether, alongside the CISG, an additional instrument of contract law would be necessa- ry. The European Commission gave three reasons as to why the CISG would not suffice.6 First of all, the CISG regulates certain aspects of contracts for the sale of goods but also leaves matters outside its scope, such as unfair contract terms and prescription. While this is true, it should also be mentioned that the CESL does not regulate all legal aspects of a contract for the sale of goods either; for example, it does not regulate set-off, representation and plurality of debtors.7 Secondly, not all Member States have ratified the CISG. However, as was stated supra, the majority of the EU Member States have ratified the CISG. Thirdly, there is no mechanism which could ensure a uniform interpretation of the CISG. Even though there is no supranational court which can safeguard its uniform interpretation, this does not mean that there is no uniformity in the application of the convention.8 There are a number of initiatives which promote the uniform interpretation of the convention. One of the most important initiatives is the establishment of the CISG Advisory Council (here- 3. See: <www. uncitral. org/ uncitral/ en/ uncitral_ texts/ sale_ goods/ 1980CISG_ status. html> (last accessed on 16 July 2014). 4. Schwenzer & Hachem 2010, pp. 108-111; Mistelis 2011, pp. 104-106. 5. Compare Schlechtriem & Butler 2009, p. 19. 6. Proposal for a Regulation of the European Parliament and of the Coun- cil on a Common European Sales Law, Brussels 11 October 2011, COM(2011) 635 final, p. 5. See also on this issue: Kornet 2012, pp. 171-175; Kruisinga 2013, pp. 344 et seq. 7. See Art. 11a subsection 2 of the Proposal for a Regulation on a Com- mon European Sales Law. 8. Kieninger 2012, p. 227. after the CISG-AC).9 This is a private initiative by scholars to promote a uniform interpretation of the CISG; it does so by issuing opinions relating to the interpretation and application of the CISG. Quite recently, the CISG-AC published an Opinion on the incorporation of standard terms, which will be discussed hereafter (section 3). For these reasons, the European Commission stated that the CISG does not suffice within the EU. When the European Commission published its Proposal for a Reg- ulation on a Common European Sales Law, it stated that the divergences between national contract laws con- stitute an obstacle to cross-border transactions and impede the functioning of the internal market. There- fore, the objective of this proposal is to “improve the conditions for the establishment and the functioning of the internal market by making available a uniform set of contract law rules” (Article 1 of the Regulation on CESL). The proposed Regulation itself provides for the scope of application of the instrument. The provisions of the proposed instrument of European contract law (here- after referred to as the Common European Sales Law or CESL) are to be found in Annex I. In September 2013, the Legal Affairs Committee of the European Parliament approved the text of this proposal with a number of amendments, the most important being to limit the scope of application of the Regulation to dis- tance contracts, notably online contracts. On 26 Febru- ary 2014, the European Parliament backed this proposal with the suggested amendments.10 The next step in the legislative procedure (co-decision) is that the proposed Regulation will have to be adopted by the Council of Ministers. At this moment (July 2014), it is not certain whether the Council will adopt the proposed Regula- tion. In general, one can say that the publication of the pro- posed Regulation has led to different responses; some authors discuss the CESL with scepticism.11 Other authors promote a revision of the text of the Proposal.12 The German Federal Bar13 recommends for B2B con- tracts to include the CISG in the CESL without any change and to include additional provisions on questions which are not regulated by the CISG. Both the UK Law Commission and the European Law Institute (hereafter ELI) have reviewed the text of the Proposal in a critical 9. See <www. cisgac. com> and Schwenzer & Hachem 2010, pp. 124-127. 10. See <www. europa. eu/ rapid/ press -release_ MEMO -14 -137_ en. htm> (last accessed on 16 July 2014). 11. See, for example, Mankowski 2012, p. 45. 12. See, for example, Piltz 2012, p. 133. 13. See “Stellungnahme der Bundesrechtsanwaltskammer”, 3 Internatio- nales Handelsrecht 2012, p. 53. A similar comment was made by Lando 2011, p. 722. 59 DQ October 2014 | No. 2 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker quantity of the goods, the place and time of delivery, the extent of one party’s liability towards the other or the settlement of disputes. This presumption can be rebut- ted in an individual situation. General conditions usually contain provisions on either of these subjects; a seller will, for example, generally insert a forum selection clause in its standard terms. If the buyer’s standard terms contain a different dispute settlement clause, the sets of general conditions will dif- fer from each other. This means that an offer will be answered by a counter-offer, and this will finally imply that the contract is concluded at the time of performance (Article 18 CISG). From this, most schol- ars conclude that the last shot rule is applicable; the counter-offer that is sent last is decisive. In other words, the general conditions that were sent last become part of the contract.28 This interpretation of the CISG that leads to the appli- cation of the last shot rule has often been criticized in the legal literature.29 The choice for the application of the terms that were sent last seems to be coincidental, and one may question whether the offeree has indeed agreed to the standard terms of the offeror merely by perform- ing the contract. Therefore, the CISG Advisory Council has opted for a different approach, the so-called knock- out rule. To this end, black letter rule number ten of Opinion No. 13 states that (w)here both parties seek to incorporate standard terms and reach agreement except on those terms, a contract is concluded on the basis of the negotiated terms and of any standard terms which are common in substance, unless one party clearly indicates in advance, or later on but without undue delay objects to the conclusion of the contract on that basis. Thus, in case of a battle of the forms, the contract was concluded and contained all standard terms which were ‘common in substance’. All other general conditions did not form part of the contract. The issues that were pro- vided for in these other terms (which were ‘knocked out’) will be governed by the provisions in the national law or in the CISG, whichever is found to be applicable. The knock-out rule will not apply if a party clearly indi- cates that it does not intend to be bound by other stand- ard terms than its own. According to the CISG-AC, it will not be sufficient in this context if the other party uses its own standard terms which provide that the conditions of the first party will not apply. An explicit declaration by the other party is required in its purpor- ted acceptance. The more difficult question will be how to apply this knock-out rule if the standard terms of one party have no counterpart in the standard terms of the other party.30 Unfortunately, the CISG-AC does not spend many 28. See for example Meeusen 1997, pp. 93-94; Ferrari 2011, pp. 289-290 and Schroeter 2010, pp. 348-349. 29. Compare, for example, Ventsch & Kluth 2003, pp. 63-64 and Meeusen 1997, p. 94. 30. See Kruisinga 2013, pp. 360 et seq. words on this issue in its Opinion. It merely states that in determining which parts are ‘common in substance’ and which parts conflict, a court should consider the standard terms as a whole and should not consider clau- ses in isolation. To me, the term ‘common in substance’ would mean that both parties must have a similar provi- sion in their standard terms concerning the particular issue. It is only in these cases that the parties in fact reached agreement on this subject. This position was also taken, albeit using a different name, by Schroeter, before the Opinion by the CISG-AC was published. Schroeter31 stated that in the application of the CISG, the rest validity theory should apply. He concludes that “the terms that the parties agreed upon (…) in the stand- ard forms which do not contradict each other become part of the contract”. In reply to the question of when such a contradiction arises, Schroeter32 states that such a contradiction even exists where the terms of one party deal with matters on which the other party’s terms are silent. He states that there will be a contradiction in such cases since the other party’s declaration must then be supplemented by the – typically different – rules of the CISG. The knock-out rule can also be found in Article 39 of the CESL which provides that where the parties have reached agreement except that the offer and acceptance refer to conflicting standard contract terms, a contract is nonetheless concluded.33 The standard contract terms are part of the contract to the extent that they are ‘com- mon in substance’. Thus, according to the CESL, the same question arises so as to determine whether terms are ‘common in substance’ and how to deal with additio- nal terms. With regard to this latter question, DiMatteo34 distinguishes two possible solutions: (1) this is not a case of conflict and the term becomes part of the contract as long as it does not materially alter the terms of the offer within the meaning of Article 38 CESL, or (2) this is a conflicting term and thus the additional terms will not become part of the contract. Loos35 has advocated the first approach; it is his position that if the standard terms of one party regulate a particular issue and the other party’s terms remain silent on this topic, the relevant terms have become part of the contract. One may wonder, however, if the relevant terms will in such a case indeed be ‘common in substance’. 31. Schroeter 2010, pp. 354-355. 32. Schroeter 2010. 33. Article 39 CESL reads: ‘1. Where the parties have reached agreement except that the offer and acceptance refer to conflicting standard con- tract terms, a contract is nonetheless concluded. The standard contract terms are part of the contract to the extent that they are common in substance. 2. Notwithstanding paragraph 1, no contract is concluded if one party: (a) has indicated in advance, explicitly, and not by way of standard contract terms, an intention not to be bound by a contract on the basis of paragraph 1; or (b) without undue delay, informs the other party of such an intention.’ 34. DiMatteo 2012, p. 48. 35. Loos 2012, Section III.1. 62 DQ October 2014 | No. 2 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker 4 International Sale of Goods and Brussels I As will be addressed in more detail in the contribution by Dr. Rammeloo, the EU Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (also referred to as Brussels I)36 provides which courts have jurisdiction in international contracts. Article 2 Brussels I provides that persons domiciled in a Member State shall be sued in the courts of that state. Thus, the court of the place of business of the defendant will generally have juris- diction if this is within a Member State. In addition, Article 5 Brussels I contains an alternative ground for jurisdiction in case of a dispute concerning an interna- tional contract. It provides that in matters relating to a contract, a (legal) person domiciled in a Member State may be sued in another Member State in the courts for the place of performance of the obligation in question. The Brussels Convention 1968 on jurisdiction and the enforcement of judgments in civil and commercial mat- ters, which preceded the Brussels I Regulation, con- tained a very similar provision in Article 5(1). Thus, if a dispute arose concerning the payment of the purchase price in a contract that was governed by the CISG, the place of performance was determined by the application of Article 57 CISG. In a dispute concerning the delivery of goods, the place of performance was determined by Article 31 CISG.37 In 2000, the Brussels Convention was changed into an EU Regulation, the Brussels I Reg- ulation. When the Brussels I Regulation was introduced, parts of Article 5 were amended. Article 5(1)(b) Brussels I provides, and this part of the provision was newly introduced in the Brussels I Regulation, that for the purposes of this provision, and unless otherwise agreed, the place of performance of the obligation in question shall, in the case of the sale of goods, be the place in a Member State where, under the contract, the goods were delivered or should have been delivered. This means that jurisdiction for all disputes concerning the contractual obligations of both seller and buyer is uni- formly granted to the court of the place of delivery. The case law of the European Court of Justice38 illus- trates that in order to determine the place of delivery on the basis of the provisions of the contract within the meaning of Article 5 Brussels I, any agreed Incoterms are of importance. The ECJ held that the court must take into account all the relevant terms and clauses in that contract, including “terms and clauses generally recognized and applied in international commercial usage, such as the Incoterms, in so far as they enable 36. Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdic- tion and the recognition and enforcement of judgments in civil and commercial matters (OJ 2000 L12, p. 1). 37. See Kruisinga 2014, pp. 497 et seq. 38. European Court of Justice 9 June 2011, Case C-87/10 (Electrosteel). See also Kruisinga 2014, pp. 497 et seq. that place to be clearly identified”. It added that where a contract contains such terms or clauses it may be necessary to examine whether they are stipulations which merely lay down the conditions relating to the allocation of the risks connected to the carriage of the goods or the division of costs between the contracting parties, or whether they also identify the place of delivery of the goods. For contracts for the international sale of goods that are governed by the CISG, the question arose whether, if no place of delivery had been agreed upon, the place of delivery would have to be determined on the basis of Article 31 CISG. The European Court of Justice39 answered this question in the negative with regard to international sales contracts that involve carriage of the goods. It held that Article 5(1)(b) Brussels I must be interpreted as meaning that in the case of a sale involving carriage of goods, the place where, under the contract, the goods sold were delivered or should have been delivered must be determined on the basis of the provisions of that con- tract. Where it is impossible to determine the place of delivery on that basis, without reference to the sub- stantive law applicable to the contract, that place is the place where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained, actual power of disposal over those goods at the final destination of the sales transaction. Even though this definition includes a number of rele- vant criteria, such as the physical transfer of the goods and the actual power of disposal at the final destination, there will still be cases in which this definition may be difficult to apply. This will, for example, be the case if the buyer and seller have not agreed upon a particular place of delivery and the goods are delivered immediate- ly to a third purchaser in another country. 5 Conclusion When drafting a contract for the international sale of goods, one should take into account that it is important to expressly provide which law will be applicable. Nowadays, that can generally be either a particular national law, or the CISG. If the Regulation on CESL enters into force, an additional option is offered. Con- tracting parties within the EU will in that case, general- ly, be entitled to choose between the CISG, the CESL and national law. Thus, even more accurate attention will then have to be paid to the agreement on the appli- cable law. Questions concerning standard terms are provided for in a different manner in the CISG and the CESL. 39. European Court of Justice 25 February 2010, Case C-381/08 (CarTrim). 63 DQ October 2014 | No. 2 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker Thus, for a contracting party to rely on its standard terms, it has to be ascertained whether those standard terms were validly incorporated in the contract. As far as the CISG is concerned, numerous questions have been answered by the CISG Advisory Council in its Opinion No. 13 on the incorporation of standard terms. However, not all issues have been solved. Will the CESL offer any benefit for contracts for the international sale of goods? As the CISG Advisory Council has stated in its recent Declaration on the CISG and regional harmonization, while also explicitly refer- ring to the CISG and CESL, “the existence of a global and regional sales law, in addition to the two national laws of the contracting parties, would certainly have a complicating impact on the pre-contractual process”.40 Thus, there is never a dull moment in the field of con- tracts for the international sale of goods. Bibliography L.A. DiMatteo, “The Curious Case of Transborder Sales Law: A Comparative Analysis of CESL, CISG and the UCC”, in U. Magnus (ed.), CISG vs. Regional Sales Law Unification, Munich, Sellier European Law Publishers 2012. F. Ferrari, in S. Kröll et al. (eds.), UN Convention on Contracts for the International Sale of Goods (CISG), Munich, Beck 2011. M. Fornasier, “28. versus 2. Regime – Kollisionsrechtliche Aspekte eines optionalen europäischen Vertragsrecht”, 76 RabelsZ Bd 2012. M. Hesselink, “How to Opt into the Common European Sales Law? Brief Comments on the Commission’s Proposal for a Regulation”, 1 European Review of Private Law 2012. E.M. Kieninger, „Allgemeines Leistungsstörungsrecht im Vor- schlag für ein Gemeinsames Europäisches Kaufrecht“, in H. Schulte-Nölke et al. (eds.), Der Entwurf für ein optionales europäisches Kaufrecht, Munich, Sellier European Law Pub- lishers 2012. N. Kornet, “The Common European Sales Law and the CISG – Complicating or Simplifying the Legal Environment?”, 19 Maastricht Journal of European and Comparative Law 2012. S.A. Kruisinga, “Incorporation of Standard Terms According to the CISG and the CESL: Will these Competing Instruments Enhance Legal Certainty in Cross-Border Sales Transac- tions?”, 24 European Business Law Review 3, 2013. S.A. Kruisinga, “The Global Challenge of International Sales Law, Country Analysis: the Netherlands”, in L.A. 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Spanjaard & T.H.M. van Wechem, “Algemene voorwaar- den in het GEKR in vergelijking met het Nederlandse BW”, 7/8 Maandblad voor Vermogensrecht 2012. V. Ventsch & P. Kluth, „Die Einbeziehung van Allgemeinen Geschäftsbedingungen im Rahmen des UN-Kaufrechts“, 2 Internationales Handelsrecht 2003. S. Whittaker, “The Proposed Common European Sales Law: Legal Framework and the Agreement of the Parties”, 75 Mod- ern Law Review 4, 2012. 64 DQ October 2014 | No. 2 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker