IBT - Part 1

Question 1

What does legal positivism say about morality?

Answer 1

Legal positivism maintains that the validity of law is not dependent on its moral content. According to positivist theory, laws derive their validity from recognized sources such as legislation, custom, or judicial decisions, rather than from moral principles or considerations of justice.

In other words, for a law to be considered valid from a positivist perspective, it must meet certain formal criteria, such as being enacted by a legitimate authority and conforming to established legal procedures. Whether a law is perceived as moral or just is irrelevant to its validity under positivism.

This means that a law can be considered valid and binding even if it is perceived as immoral or unjust by some individuals or groups. Legal positivists argue that the moral merits of a law are separate from its legal validity and that it is the role of the legal system to enforce laws as they are, regardless of their moral implications.

No other elements can influence the decision-making process.

Question 2

How does decision-making differ under legal positivism and legal realism?

Answer 2

Legal positivism emphasizes the importance of formal legal rules and principles in the decision-making process. E.g. legal rules, legal texts, codes, precedent, state-sanctioned rules, etc. are the only point of reference. No other elements can influence the decision-making process.

In legal realism, In the first place, decisions are made; at a second stage, the decision is “dressed” with a justification. Law is broadly defined and comprises anything that can have an impact on the decision-making process. In contrast to positivism, legal realism takes a broader view of law, considering not only formal legal rules but also social, economic, and political factors that may influence judicial decision-making. Realists believe that legal decisions are shaped by a complex interplay of legal, social, and political considerations.

Question 3

IBT – Normative Sources

Answer 3

National law & International Law
Domestic law & International Uniform Law
Hard Law & Soft Law
Trade usages & customs
De facto rules

Question 4

Private International Law, also known as conflict of laws, is a branch of law that deals with legal disputes involving foreign elements. What are the subjective and objective elements of internationality?

Answer 4

Subjective – Pertaining to the parties in the dispute, e.g. nationality, place of business, habitual residence, etc.

Objective – Pertaining to the situation in dispute, place of contracting, place of performance, place of accident, etc.

Question 5

What is the “lex fori”?

Answer 5

The term “lex fori” is Latin for “law of the forum.” In the context of Private International Law, the lex fori refers to the law of the jurisdiction where legal proceedings are taking place or where a court has jurisdiction over a particular matter. It encompasses the procedural rules and principles that govern the conduct of legal proceedings within that jurisdiction.

Question 6

What is considered the classic tripartite structure of Private International Law/Conflict-of-Laws?

Answer 6

i. International jurisdiction: Which court can resolve an international dispute?
ii. Choice-of-Law: What law governs an international dispute?
iii. Recognition & Enforcement: Can a judgment be given effect abroad?

Question 7

International jurisdiction: Which court can resolve an international dispute? who answers that question?

Answer 7

The court or tribunal where the parties submit their claim will decide on the jurisdiction.

Question 8

Why would a claimant choose Texas as a Lex Fori?

Answer 8

Courts in Texas allow punitive damages.

Question 9

Sufficient elements of internationality -> Application of conflict-of-laws rules. What does this mean?

Answer 9

When there are sufficient objective and subjective elements of internationality, private international law applies.

Question 10

In theory, should a court of country C resolve a dispute between countries A and B? Is this done in practice?

Answer 10

No, because of the principle of non-interference. In practice, courts resolve the disputes of other countries.

Question 11

What are the five theories that have been articulated in regard to why a court can resolve a dispute distinguishes by elements of internationality? Which are the common theories?

Answer 11

1) Territoriality. Court can resolve dispute if it is somewhat connected to its territory. Parties in A and B. So, territory of A and B (countries). Can provide you with justice. This theory has diminished in importance.

2) Nationality. Nationality. Substituted or replaced the territory theory. Is an evolution of that theory

3) Sufficient connection. Did not arise in territory but there is some sort of connection. IF the goods, for example, are within their country. There is an interest of that state to resolve that dispute.

4) Interest of the state. Considers the interest of the state for resolving disputes. For example, competition law. Collusion between companies that affects domestic markets.

5) Justice (procedural and substantive). Last resort. If there is no court available because of war, corruption, for any other reason. Some courts allow foreign litigants before them. That would be fair to do.

Nationality and sufficient connection are the common theories.

Question 12

What are the doctrines on private international law in the US, the EU, and Common Law?

Answer 12

US: Minimum Contracts Doctrine. This Supreme Court doctrine outlines the requirements that must be met for a court to exercise jurisdiction over a defendant in a civil case. The essence of the Minimum Contacts Doctrine is that a defendant must have sufficient connections with the forum state for the court in that state to assert jurisdiction over them without violating the defendant’s due process rights under the US Constitution. It is a right of the defendant.

EU: Close connection between the dispute and the court. The general rule is that individuals and companies domiciled in a member state shall be sued in the courts of that member state. You can sue the defendant at home. Same result (fairness) as under the US Constitution, but different point of departure.

Common Law (UK, HK, Singapore): Regarding service of process, which is the procedure by which the defendant is formally notified of the legal action being taken against them, if the defendant is physically present in the same jurisdiction where the legal action is being pursued, the plaintiff can serve them with court documents directly. Once served, jurisdiction is established, and the court can proceed with the case.

Question 13

What’s the difference between general and special jurisdiction?

Answer 13

• General jurisdiction: Focus on link between defendant and state
• Special jurisdiction: Focus on link between claim and state

Question 14

Why is it insufficient for parties to just choose a lex fori in their contract?

Answer 14

The courts in that jurisdiction also actually have to accept jurisdiction.

Question 15

What different approaches to general jurisdiction do the EU/China, the Common Law (UK), and the US have?

Answer 15

General Jurisdiction focuses on a link between defendant and state. Attributes that courts look for are territoriality, nationality, or domicile.

EU/Chinese Law: Domicile of defendant
Common Law: “Exorbitant” or “transient” jurisdiction. Domicile + defendant is served (also aliens).
US Law: Minimum presence or Continuous and systematic business in the country – The business must be “at home”

Question 16

What different approaches to special jurisdictions do the EU/China and the US have?

Answer 16

EU/China: Place of performance/damage occurred or felt
US: Long-arm statutes (limited by due process)

Question 17

What is the benefit of a choice-of-court-agreement?

Answer 17

The courts in the lex fori that are specified in the agreement are more likely to accept jurisdiction because it was the parties’ will.

Question 18

What are the positive and negative effects of a choice-of-court-agreement?

Answer 18

• Positive effect: Gives jurisdiction to the designated court (prorogation)
• Negative effect: Takes jurisdiction away from the default court (derogation)

Question 19

What is the default dispute resolution regime for international business transactions?

Answer 19

International arbitration

Question 20

For a choice-of-law agreement, what are the three questions to ask?

Answer 20

1) What is the legal relationship? (contract? what kind of contract?)
2) What is the connecting factor? (e.g. residence of one party)
3) Which law is applicable? (which can be used)

Question 21

In choice-of-law in international arbitration, what is the difference between voie directe and indirecte?

Answer 21

Voie directe (Direct Choice):

In the context of conflict-of-laws, voie directe refers to the direct selection of the applicable law by the parties involved in the legal relationship. This means that the parties have the autonomy to choose the governing law that will apply to their contract or dispute.

Voie directe allows parties to select a specific legal system or set of laws that they believe will best suit their needs or interests. This choice is typically expressed through choice-of-law clauses in contracts or agreements.

Voie indirecte (Indirect Choice):

Voie indirecte, on the other hand, involves the determination of the applicable law through indirect means or conflict-of-laws principles when the parties have not expressly chosen the governing law.

In cases where the parties have not made a direct choice of law, voie indirecte requires the tribunal to apply conflict-of-laws rules to identify the most appropriate law to govern the dispute.

Conflict-of-laws rules typically consider factors such as the domicile of the parties, the place of contract formation or performance, the location of the subject matter of the dispute, and public policy considerations to determine the applicable law.

Question 22

Copy-pasting rules into a contract by reference. How is this called?

Answer 22

Incorporation-by-Reference Clauses

Question 23

In absence of a choice-of-law agreement, what does EU law say?

Answer 23

For sales of goods contracts, the law of the country where the seller has his habitual residence applies.

Question 24

There are three types of rule-selection agreements,
Which are the exceptions rather than the rule?

Answer 24

Choice-of-Law Agreements: Law (state law)
Choice-of-Rules Agreements: Rules (including standstill images of national law, e.g., UNCITRAL principles)
Incorporation by Reference Clauses: Can be anything

Most jurisdictions only allow the choice of state laws (including foreign law).

Question 25

What is the percentage of countries that allow choice-of-law agreements? What countries are exceptions?

Answer 25

95% of countries.
Exceptions: Brazil, Iran, Iraq, UAE, Brazil, some US states that follow the first restatement.

Question 26

If you have the choice between choosing the lex fori and applicable law, which one to choose?

Answer 26

If you have the choice, choose the court. Not the law. Because not all courts allow choice of law agreements.

Question 27

What are the two grounds upon which a choice-of-law agreement can be overruled?

Answer 27

Overriding mandatory rules: Protect state interests in positive law.
Public policy: Bars the application of certain foreign rules if judicial outcomes that are, in casu, repugnant to fundamental social values of the forum (e.g. Saudi Arabia and interest).

Question 28

Where do we find an application of overriding mandatory rules for choice-of-law agreements in EU law?

Answer 28

Rome I Regulation

Question 29

Do overriding mandatory rules nullify the choice-of-law process entirely?

Answer 29

No. But they override the substantive law that would usually apply (e.g., application of German or some other foreign law).

This also applies for public policy (e.g., China: If the application of a foreign law would cause harm to social and public interests of the People’s Republic of China, then the law of the People’s Republic of China applies).

Question 30

What are examples of overriding mandatory rules?

Answer 30

Anti-trust, securities regulations, international sanctions.

Question 31

The overriding mandatory rules and public policy reasons are under the law of which country?

Answer 31

Lex fori.

Question 32

What is the International Business Transaction Problematic?

Answer 32

International elements -> Conflict-of-laws -> Possibly different applicable law -> Different legal outcome -> Need for Unification or harmonization

Question 33

What is the difference between unification and harmonization?

Answer 33

Legal unification: Identical rules + Identical interpretation, typically, as an international convention – tel-quel adoption (as they are)
Legal harmonization: Different regimes, aligned rules, typically, through model legislation or soft-law

Question 34

What are the advantages of international uniform law?

Answer 34

Removes legal barriers to international contracting
Reduces transaction costs, deference to conflict-of-laws, and forum shopping practices
Fosters legal certainty and predictability
Creates a common global legal tongue
Instrument with ‘neutral’ aura

Question 35

What are the disadvantages of international uniform law?

Answer 35

Producing international uniform law can be costly and take a long time
Compromise solutions & Regulatory gaps
Lack of clarity in its interpretation and application
“Frozen” in time – Amendments virtually impossible

Question 36

What are arguments that speak in favour of arbitration?

Answer 36

Resolving before state courts could be detrimental to parties. Slow. Favouritism. Parties wound not want disclose the dispute. Arbitration comes to play because of that.

Question 37

What are the whacky places where parties can choose soft law as set of rules?

Answer 37

Louisiana, Uruguay, Paraguay.

Question 38

Given an example of an international uniform law

Answer 38

CISG

Question 39

What is animus unificandi? Does it render conflict-of-law rules unimportant?

Answer 39

The intention to create a unified legal framework that transcends national boundaries. Interpreting the law uniformly. Identical rules and identical, uniform interpretation. Ideally, this should render the choice of law and forum unimportant. But conflict of law rules are still important because we have gaps.

Question 40

What are three important aspects of international uniform law?

Answer 40

1) Identical rules + animus unificandi (unification)
2) Autonomous or uniform interpretation
3) Reduced Deference to Conflict-of-Laws

Question 41

What are stabilization clauses? What is the problem with them?

Answer 41

Freezes law in time. Enforceability before courts.

Question 42

What are the six application requirements for CISG? (Important)

Answer 42

i. The dispute arises from a sale of goods contract (arts. 30 and 53 CISG)
ii. The particular sale of goods has not been excluded from the scope of the Convention (art. 2 CISG)
iii. The dispute arises from an INTERNATIONAL sale of goods contract (art. 1(1) CISG)
iv. Both parties maintain their place of business in CISG Contracting States or the conflicts rules point to a CISG Contracting State (arts 1(1)(a) and 1(1)(b) CISG)
v. The dispute falls within the temporal scope of application of the CISG (art. 100 CISG)
vi. The parties have not excluded altogether or derogated from certain provisions of the Convention (art. 6 CISG).

Question 43

What is the problem with the application of the CISG in reality?

Answer 43

Judges do not know the CISG well enough.

Question 44

What happens if the six application requirements for CISG apply?
Do these also apply for arbitral tribunals?

Answer 44

When these are met, the court has to apply the convention directly without resorting to private international law.
No, applicability for tribunals.

Question 45

Who are the two notorious exceptions of countries that have not ratified the CISG?

Answer 45

India and the UK

Question 46

We only choose one private international law. Is this correct?

Answer 46

No, we select the lex fori, the court will apply its own private international law.

Question 47

Two parties have a choice of law agreement with the selection of Singapore. Which law will apply?

Answer 47

CISG because Singapore has ratified the CISG.

Question 48

According to art. 1(1) CISG, what are the two situations under which the CISG applies?

Answer 48

Both parties are CISG Contracting States.
When the rules of private international law lead to the application of the law of a Contracting State.

Question 49

What are the seller’s obligations under art. 30 CISG?

Answer 49

Deliver the goods
Hand over the documents
Transfer the property in the goods

Question 50

What are the buyer’s obligations under art. 53 CISG?

Answer 50

Pay the price
Take delivery of the goods

Question 51

According to Art. 2 of CISG, what are the six exceptions for what kind of transactions the CISG does not apply.

Answer 51

(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;
(b) by auction;
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities, negotiable instruments or money;
(e) of ships, vessels, hovercraft or aircraft;
(f) of electricity.

Question 52

The places of business are of importance when determining the applicability of the CISG. However, what needs to be known about them for the CISG to apply?

Answer 52

The fact of having places of business in different states to influence the application of private international law or international conventions, there needs to be explicit mention or evidence of this fact in the contract or the parties’ communications.

Question 53

If a party has more than one place of business, which one is the place of business?

Answer 53

That which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract.

Question 54

Opt-out article.

Answer 54

Article 6

Question 55

The gap filler provision. What does it say?

Answer 55

Art. 7(2).

Matters not governed by the CISG are to be settled in conformity with the general principles on which it is based.
In the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Question 56

What is an internal or external gap?

Answer 56

Internal Gap:

An internal gap refers to a situation where the CISG itself does not provide a clear rule or guideline for resolving a particular issue or dispute that falls within its scope.
This type of gap arises when the convention does not expressly address a specific aspect of international sales contracts, such as the interpretation of certain terms, the performance obligations of the parties, or the remedies available for breach of contract.
When an internal gap occurs, courts or arbitrators may need to interpret the CISG’s provisions in light of its underlying principles, the intent of the parties, or the general principles of international commercial law to fill the gap and ensure a just and equitable resolution.

External Gap:

An external gap, on the other hand, refers to a situation where the CISG does not apply at all to a specific type of contract or transaction (out of scope).
This type of gap occurs when the CISG’s scope of application does not cover certain contracts or when the parties have explicitly excluded its application through choice-of-law clauses or by the nature of the transaction.
For instance, the CISG does not apply to contracts for the sale of goods bought for personal, family, or household use, nor does it apply to sales of certain types of goods such as electricity, ships, or aircraft.
When an external gap exists, national laws or other international conventions may apply instead of the CISG to govern the rights and obligations of the parties.

Question 57

What has to be adduced to determine the internal gaps?

Answer 57

The issues covered by the Convention and the general principles of the CISG must be determined in
the light of the travaux preparatoires, case-law, and scholarly writings.

Question 58

What are the general principles of the CISG?

Answer 58

There is no list of them.

Question 59

Art. 4 mentions two external gaps of the CISG, which?

Answer 59

(a) the validity of the contract or of any of its provisions or of any usage;
(b) the effect which the contract may have on the property in the goods sold. (transfer of property)

Question 60

What are the general principles of international law to be considered in CISG?

Answer 60

Party autonomy, freedom of contract, pacta sunt servanda, equality of parties, favor contractus, reasonableness, freedom of form, estoppel, prohibition of contradictory behaviour, cooperation of the parties, etc.

Question 61

Can UNIDROIT Principles be used as an inspiration for the application of CISG principles?

Answer 61

Cannot directly use UNIDROIT but can use it as an inspiration to fill the gaps. CISG created in 1980. Principles were created in 1994. 14 years difference. It makes no sense. Have been used by Supreme Court of Belgium. Lots of opinions drafted that this was a horrible decision.

Question 62

On Art. 18, SPC 2021 Minutes, what did the SPC say on external gaps?

Answer 62

the people’s court shall determine the law to be applied in accordance with the provisions of the Law on Application of Laws to Foreign-Related Civil Relations and other laws. (that’s Chinese private international law)

Question 63

Peter has his place of business in state X (a CISG Contracting State). Anna has her place of business in state Y (a CISG Contracting State). Does this CISG apply if:

(i) Peter contracts to sell Anna 10,000 tonnes of wheat and to ship the wheat from state X to state Y.
(ii) As in (i), except that the goods are to be shipped from state X to state Z (not a CISG Contracting State).
(iii) As in (i), except that the goods are to be transported from city F to city G in state Y.

Answer 63

All apply.

Question 64

Are pre-contractual negotiations covered by the CISG?

Answer 64

No.

Question 65

Would it make sense for someone to insist on the application of the CISG when they buy two laptops for their business?

Answer 65

No. Consumer protection laws might be stronger. Arguing for the application for the CISG does not make sense if it can be covered by customer protection. The price itself is not a good factor to consider. Usually the quantity is the factor to consider.

Question 66

Why is Art. 7 CISG important?

Answer 66

Art. 7(1) CISG: Interpretation of the Convention rules
Art. 7(2) CISG: Gap-filling mechanism

Question 67

Which articles are important for the interpretation of the CISG in the Vienna Convention of the Law of Treaties?
Which one is the most important in practice?

Answer 67

1969 Vienna Convention on Law of Treaties, arts. 31-33:
i. literal, ii. historical, iii. teleological, and iv. systematic interpretation
The literal interpretation.

Question 68

For the interpretation of the CISG, what documents can we look at?

Answer 68

Consult scholarly writings and foreign case-law (not binding; persuasive authority)
No recourse to domestic legal system.

Question 69

How do we fill internal and external gaps? (Important)

Answer 69

Internal gaps of the CISG: General principles of the Convention; if no principles, applicable national law
External gaps of the CISG: Applicable national law

Question 70

Which are the interpretation articles in the CISG?

Answer 70

Art. 7(1) and 8

Question 71

Why is the historical interpretation (VLT) problematic?

Answer 71

The historical interpretation is not followed in all jurisdictions. Professor states that in common law jurisdictions historical interpretation is considered for interpretation. So, some arbitrators might not be familiar with historical interpretation.

Question 72

What is teleological interpretation? (arts. 31-33 VLT)

Answer 72

Purposive interpretation. What is the purpose? What is the reason for this rule?

Question 73

Art. 8 CISG has special requirements for interpretation, which?

Answer 73

According to Article 8(1), statements made by a party and their conduct should be interpreted based on the party’s intent if: The other party knew or could not have been unaware of that intent.

If the intent of a party is not clear or ascertainable under Paragraph 1, Article 8(2) states that statements and conduct should be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

Article 8(3) further directs that in determining the intent of a party or the understanding that a reasonable person would have had, all relevant circumstances of the case should be taken into account.

This includes considerations such as:
The negotiations between the parties,
Any practices established between the parties,
Usages in the relevant trade or industry,
Any subsequent conduct of the parties after the contract was formed.

Question 74

What are the interpretation requirements under art. 7(1)?

Answer 74

International character
Need to promote uniformity
Good faith in international trade

Uniformity - identical rules (should be the same everywhere)
International character - no resort to domestic law

Question 75

Art.8 CISG writes about a two-tier regime. What does that mean?

Answer 75

Step 1: Subjective interpretation focusing on the true intention of the parties
Step 2: If the true intention cannot be established, an objective interpretation must be adopted

Question 76

Can pre-contractual negotiations be considered for interpretation?

Answer 76

Yes, there is no parole evidence rule under the CISG.

Question 77

Why are ‘merger,’ ‘four corners,’ ‘entire agreement,’ ‘integration’ clauses frequently included in contracts?

Answer 77

To exclude precontractual negotiations.

Question 78

Where are usages regulated?

Answer 78

In art. 9 CISG.

Question 79

What does art. 9 CISG say?

Answer 79

(1) Trade usages and established practices apply (global or regional), if agreed between the parties. Can be regional or global.
(2) Certain widely known trade usages, which the parties were aware or ought to have been aware of, apply automatically unless otherwise agreed between the parties.

Question 80

Which is the opt-out article?
What general principles in international law does it enshrine?

Answer 80

Art. 6 CISG
Party autonomy
Freedom of contract

Question 81

What options to parties have with art. 6 CISG?

Answer 81

Parties can exclude the application of the Convention altogether (opt-out) or only certain of its provisions (derogation)

Question 82

Which articles cannot be excluded?

Answer 82

1 - Scope
4 - External Gaps
6 - Opt-out
7 - Interpretation & Gap-Filling Mechanism
12 - Formal requirements, reservations art. 96
28 - What the court can do
89-101 - Final provisions

Question 83

What could be an argument against the CISG?

Answer 83

There is no supranational court that gives an absolute interpretation.

Question 84

What is the reason the CISG might be excluded from contracts?

Answer 84

Because lawyers and merchants do not know about and do not want to learn about it.

Question 85

Can parties exclude or derogate from the CISG unilaterally?

Answer 85

No.

Question 86

What is the difference between an opt-out and and exclusion?

Answer 86

Opt-out means that the parties selected a governing law of a non-Contracting state.
Exclusion means that the parties selected a governing law of a Contracting state but want to exclude the application of CISG.

Question 87

What are the positive and negative effects of a choice-of-law agreeement?

Answer 87

Positive: Select the application of a particular law.
Negative: The law that usually applies does not apply.
Third effect: Opt-out or not?

Question 88

What happens to a choice-of-law agreement for Hong Kong that was made before the CISG entered into force in Hong Kong? Would CISG apply?

Answer 88

The opt out is crystallized at the time of the agreement. Once HK law changed, it does not mean that the parties did not want an opt out. They wanted an opt out then. If they want to change they need to make a new agreement.

Question 89

Two parties make their submissions assuming that domestic law applies, ignoring the application of the CISG. Is this an agreement?

Answer 89

No, an agreement to exclude the application of the CISG must be informed. SPC gives the parties the chance to opt out in the proceedings. Not unique to China, happens in many courts.

Question 90

Can a choice-of-law agreement be made for UNIDROIT rules?
For arbitration?

Answer 90

In 95% of cases, courts only accept domestic law. UNIDROT are rules, not choice of law. It does not affect the law, it is an agreement of the parties to deviate from the rules. This would be a choice-of-rules agreement.
For arbitration, it’s possible.

Question 91

What are INCOTERMS? Do they exclude CISG?

Answer 91

International Commercial Terms. Sets of rules that are prepared by ICC chamber of commerce. Set of provisions that enshrine trade usages. CIF, FOB, FAS. Examples. FOB captures an entire contract, for instance. Three letter acronyms. Incoterms – exclude CISG? No. The terms refer to specific obligations of parties. Only a derogation of the parties. INCOTERMS are very common.

Question 92

Can parties from non-Contracting States opt into CISG in litigation and arbitration?

Answer 92

No, for litigation it’s soft law.
Yes for arbitration. By choosing the law of a CISG state.

Question 93

Which is the no reservations except expressly authorized provision?

Answer 93

Art. 98 CISG

Question 94

The CISG allows for reservations in what areas?

Answer 94

Art. 90 CISG: Conflict-of-Conventions rule
Arts 92 & 94 CISG: Regional harmonization reservations
Arts 93 CISG: Territorial units reservation
Art. 95 CISG: Exclusion of art. 1(1)(b) CISG
Art. 96 CISG: Form requirements

Question 95

Arts 93 CISG: Territorial units reservation - what does it mean?

Answer 95

Federal states. States can say that to certain parts of the country this will not apply.

Question 96

Art. 96 CISG: Form requirements - what does it mean?

Answer 96

For states that insist that contracts must be made in writing.

Question 97

Art. 90 CISG: Conflict-of-Conventions rule - what does it say?

Answer 97

Art. 90 CISG: “This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided
that the parties have their places of business in States parties to such agreement.

Question 98

Where do we find the provisions on the formation of contract?

Answer 98

Art. 14-21

Question 99

The CISG rules on contract formation are dispositive rules, what does that mean?

Answer 99

They can be set aside by agreement between the parties (art. 6 CISG) or established practices/trade usages (art. 9 CISG).

Question 100

For the interpretation of all party statements and conduct pertaining to contract formation, which articles do we have to keep in mind?

Answer 100

The interpretation articles: Art. 7(1) and 8.

Question 101

What are the offer and acceptance provisions?

Answer 101

Art. 23 CISG - Offer and acceptance are required

Art. 14(1) CISG -

For a valid offer, three requirements must be met:

i. It must be addressed to one or more specific persons (but see art. 14(2) CISG)
ii. It must be ‘sufficiently definite’ (art. 14(1) CISG)
a. Goods determined/-able; b. Quantity determined/-able; c. Price determined/-able
iii. Intention to be bound by the contract in case of acceptance

Lack of a pre-condition à No valid offer; salvaged as an invitation to make an offer

Question 102

Art. 14(2) distinguishes an offer from an invitation to make offers. What is the difference?

Answer 102

Not an offer when it’s addressed to one or more persons unless clearly indicated: Specifically, not only by their name but also pertains to addressing a group of people when we know who is in that group of people. Like list of students, we have a list of students, i.e., specific students. Prospectus and send it to a 1000 people. If they are not members of a group. Randomly. That is not an offer addressed to specific persons. It’s too uncertain. Advertisement on tv or radio or social media. 14(2) if we have that is not addressed to specific persons. It’s not a truly an offer, even if you call it an offer, it’s not truly an offer. It’s an invitation to make an offer. Not an offer you can accept. An invitation to make an offer is not binding.

Unless clearly indicated – even if you do not address the offer to specific persons or a specific group, you can express in the offer that you’d intend to be bound even if you do not address it to a specific group. 14(2)

Question 103

Are precontractual negotiations important for the formation of a contract?

Answer 103

No, but important for the interpretation of a contract (art. 8(3)).

Question 104

Art. 14(1) CISG - An effective offer has three elements:

Addressed to one or more specific persons,
sufficiently definite, and
indicates the intention to be legally bound.

What is contained in sufficiently definite?
What does “intention to be legally bound” mean?

Answer 104

We need to know what goods we are referring to, the quantity of the goods, and the price that must be paid by the buyer. Focusing on the quantity and price, we do not need to have a specific number, a formula is sufficient. So we can quantity or price, that would be enough to conclude a contract.

Final requirement for an offer: The intention to be bound in case of acceptance. This will generally be there unless a statement of offeror indicating the opposite. Memorandum of understanding or invitation to make an offer. Even if it has the first two elements, how can the title illustrate that we are making to negotiate and I do not want to be bound in this matter.

If we don’t have any of these elements, we do not have an offer. All we have is an invitation to make an offer.

Question 105

Art. 15(2) and 24 have to read together for withdrawals, what do they state?

Answer 105

Art. 15(2) CISG: “An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.”

Art. 24 CISG: “An offer, declaration of acceptance or any other indication of intention ‘reaches’ the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.”

Question 106

Drafted email with an offer but not sending it. Stays with draft email. Is this an effective offer?

Answer 106

No, according to Art. 24 CISG the acceptance must have reached the sphere of control of the addressee.

Question 107

Does Art. 24 CISG apply to offer or acceptance?

Answer 107

Art. 24 is used not only for the offer but also for the acceptance. It’s not referring to offeror or offeree. Wording in art. 24 is neutral

Question 108

An offer is stolen from me and is placed at the place of residence of the offeree, is this acceptance?

Answer 108

No, the offer has to enter the sphere of control of the offeree consensually.

Question 109

When an offer has been made, we can still take the offer back with two concepts, which?

Answer 109

Revocation or withdrawal.

Question 110

What is the difference between a valid offer and an effective offer?

Answer 110

A valid offer satisfies the requirements under Art. 14(1) CISG:

i. It must be addressed to one or more specific persons (but see art. 14(2) CISG)
ii. It must be ‘sufficiently definite’ (art. 14(1) CISG)
a. Goods determined/-able; b. Quantity determined/-able; c. Price determined/-able
iii. Intention to be bound by the contract in case of acceptance

Lack of a pre-condition à No valid offer; salvaged as an invitation to make an offer.

An effective offer has to satisfy the requirements under Art. 24 CISG:

-Reaches the addressee (enters the sphere of control of the offeree)
-Orally or delivered personally with other means

Question 111

Revocation and withdrawal are two different concepts. What is the difference? Where do we find the legal bases?

Answer 111

Withdrawal: Before or at the same time the offer has reached the offeree. If it reached at the same time, there must be no legitimate expectation that the offer was valid.
Revocation: After the offer has reached the offeree and before the acceptance has reached the offeror.

Withdrawal: Art. 15(2)
Revocation: Art. 24

Question 112

What makes an offer irrevocable? Where do we find this in the CISG?

Answer 112

(a) if it indicates, whether by stating a fixed time for acceptance or
otherwise, that it is irrevocable; or
(b) if it was reasonable for the offeree to rely on the offer as being
irrevocable and the offeree has acted in reliance on the offer.”

Art. 16(2) CISG.

Question 113

What is a rejection, where can we find the legal basis?

Answer 113

Art. 17 CISG: “An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.”

Question 114

What is valid acceptance and effective acceptance? What article?

Answer 114

Valid acceptance, two requirements:
i. Assent to the conclusion of a contract, and
ii. intention to be bound by the contract
Art. 18(1) CISG.

Art. 18(2) CISG: (2) An acceptance of an offer becomes effective at the moment the
indication of assent reaches the offeror. The acceptance must be effected in a timely manner.

Question 115

Does silence or inactivitiy amount to acceptance?

Answer 115

No. Art. 18(1) CISG.

Question 116

Validity of acceptance differs from validity of offer, how so?

Answer 116

Validity of acceptance is governed by both Art. 18(2) and Art. 24.
Art. 24 only governs the validity of offers.

Question 117

The acceptance must be effected in a timely manner (Art. 18(2) CISG). What are the two scenarios if the offer arrives late?

Answer 117

Either in timeframe defined by offeror or without timeframe, within a reasonable time from receiving the time. Reasonable time, reasonableness is a general principle of the convention.

Scenario No. 1 - Acceptance reaches offeror belatedly:
Contract presumed not concluded, but the offeror can bring it to life (art. 21(1) CISG). Offeror has to dispatch a notice or orally inform the offeree. This is the opposite of the second situation (offeror can save the situation).

Scenario No. 2 - Acceptance reaches offeror belatedly (due to abnormal circumstances): Contract presumed concluded, but the offeror can ‘kill’ the contract (art. 21(2) CISG). To kill, he has to orally inform or dispatch a notice. This scenario only applies to writings.

Question 118

Where do we find the mirror-image rule in the CISG? What does it say?

Answer 118

Art. 19 CISG: “(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.

Question 119

What are minor deviations in relation to the mirror-image rule?

Answer 119

Minor discrepancies (‘immaterial alteration’) à The contract is formed, unless the offeror objects without delay (art. 19(2) CISG).

Art. 19(3) CISG shows a non-exhaustive list of material terms: price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes.

Question 120

Is a clause mandating exclusive arbitration in an offer considered a material change that could lead to rejection of the offer instead of the conclusion of a contract?

Answer 120

Yes, a clause mandating exclusive arbitration in an offer could be seen as a material change. If the offer specifies that arbitration is the only method for dispute resolution, the offeree may reject the offer rather than accept it, as this condition differs from what was initially proposed. However, if the offeree agrees to arbitration but also allows the offeror the option of choosing litigation, this typically does not constitute a material change. Such flexibility benefits the offeror without placing any additional burden on the offeree.

Question 121

If a discount in price is offered, is this a material change?

Answer 121

No, offering a discount in price is generally not considered a material change. A discount represents a benefit or advantage to the offeree by reducing the cost of the goods or services offered. It does not impose any additional obligations or burdens on the offeree and typically encourages acceptance of the offer rather than rejection. Therefore, a discount in price is usually seen as an incentive rather than a material change that would lead to rejection of the offer.

Question 122

Is offering a change in quantity considered a material change?

Answer 122

Yes, offering a change in quantity can be considered a material change to an offer. Unlike offering a discount in price, which typically benefits the offeree, a change in quantity alters the fundamental terms of the offer. It may impose additional obligations or costs on the offeree, such as requiring storage space or incurring extra charges. These changes can materially affect the balance or equilibrium of the offer, potentially leading the offeree to reject the original offer or seek renegotiation of terms that better accommodate the new quantity requirement.

Question 123

We can have two different scenarios how contracts are formed, which?

Answer 123

1) Offer – Acceptance + Confirmation (Art. 23 CISG). No usage scenario. Request for confirmation will be a counter-offer that goes back to the offeror. When offeror sends the confirmation, it’s acceptance.
2) Usage scenario (Art. 9 CISG): If there is usage in the industry, offer – acceptance. Normally, acceptance is formation of contract. But the confirmation is needed. An extra element based on trade usage that the offeree will send another confirmation. Confirmation must have the elements of a trade usage. The additional element in the CISG.

Question 124

Why will the mirror image rule (Art. 19(1) CISG) rarely apply?

Answer 124

Because the terms are rarely mirrored.

Question 125

What different theories for the Battle of Forms exist?

Answer 125

Mirror-image rule: à If the offer and acceptance are not identical, there is no agreement between the parties

Last-shot rule: à The standard contract terms introduced (‘fired’) last become part of the contract either by virtue of a clear rule or because they have been accepted by conduct

First-shot rule: The standard contract terms introduced (‘fired’) first prevail (exceptional position in law)

Knock-out rule: Keep the contract alive; several variations of this approach with different results

Question 126

How is the “battle of the forms” problem solved in the CISG? What are the four positions?
Which one is favored by the professor?

Answer 126

Position No. 1: Battle of the forms not regulated altogether by the CISG (see travaux préparatoires) => Art. 7(2) CISG (gap filler) => Applicable contract law rules [external gap]

Position No. 2: Battle of the forms governed by the CISG, but no special rule => Art. 7(2) CISG (gap filler) => Good faith & favor contractus => Knock-out rule [internal gap]

Position No. 3(a): Battle of the forms to be regulated by the classic rules on contract formation => Last-shot rule [favored by the professor]

Position No. 3(b): Battle of the forms to be regulated by the classic rules on contract formation, but parties have implicitly derogated from art. 19 CISG => Knock-out rule

Question 127

One of the four theories for the Battle of Forms is not applied in the CISG, which?

Answer 127

The first-shot rule. Requires an express statutory rule. Seldom applied by legislators.

Question 128

What are the three “knock-out” rules for resolving conflicting terms in standard form contracts?

Answer 128

Conflicting Terms Rule (UCC Approach):

When conflicting terms exist, identical terms are retained, and conflicting ones are discarded.
The default rules of the applicable law, often similar to the Uniform Commercial Code (UCC), fill in any gaps.

Most Balanced Set of Rules Rule:

If standard contract terms from each party differ, the court selects the set of rules that is the most balanced between the two.
This ensures fairness and prevents terms that disproportionately favor one party.

Juxtaposition and Creation of a Frankenstein Agreement:

Judges mix and match terms from the standard contracts to create a coherent agreement.
This approach recognizes the practical limitations of adjudication, aiming for a solution that approximates the parties’ intentions.

Question 129

The first position in the battle of the forms problem considers the issue an external gap. How could such an argument be made?

Answer 129

The lack of agreement on the battle of the forms issue in diplomatic negotiations highlights a gap in the convention. Since the CISG does not expressly regulate how to resolve conflicts arising from the exchange of conflicting standard terms during contract formation, it leaves this issue unaddressed. In such cases, Article 7(2) of the CISG becomes relevant. This article stipulates that matters not expressly settled by the CISG are governed by the principles on which the CISG is based or by the applicable rules of private international law. Therefore, when the CISG does not provide specific rules for a particular issue, such as the battle of the forms, Article 7(2) directs parties and courts to apply the relevant state law or private international law principles to fill the gap.

Question 130

How to choose the position for battle of the forms issue in a dispute resolution scenario?

Answer 130

In a dispute resolution scenario, select the one that favors you the most. Double down on that. For every single theory, you can find case law. You have a shot at using the different positions.

Question 131

How can contracts be modified or terminated under the CISG?

Answer 131

Contracts under the CISG can only be modified or terminated through mutual consent of the parties. Unilateral attempts to change terms or terminate the contract are not valid. The original contract formation rules of the CISG apply, and any modifications must be clearly agreed upon by both parties.

Question 132

How is unilateral termination called?

Answer 132

Avoidance.

Question 133

Two parties have agreed on the basic terms but not the place and time of delivery. If these details are changed later, how is this treated legally?

Answer 133

If the parties have initially agreed on basic terms of a contract but have not specified the place and time of delivery, any subsequent change to these details would typically constitute a modification of the contract under the legal framework of the CISG. Modifications to contract terms require mutual consent of both parties. Changes to specifics such as the place and time of delivery would need to be agreed upon after the initial agreement on basic terms. The parties should communicate and agree on these changes in a clear and unequivocal manner to ensure the modification is legally binding. Therefore, any alteration to the place and time of delivery after the initial agreement would be legally treated as a modification of the contract, necessitating the mutual consent of both parties to be valid under CISG principles.

Question 134

We have a situation where there was no performance after the last form. Is there a contract?

Answer 134

Depends on the approach. By keep sending back and forth the standard terms, implicit statement that the party is not willing to conclude a contract without the terms.

Question 135

Does the offer and acceptance need to be in writing or signed?

Answer 135

No.

Question 136

In what forms can modifications, conclusions, terminations take place?

Answer 136

Orally, by conduct, in writing. The only requirement is that it needs to be by agreement (art. 29 CISG).

Question 137

What is the key lesson from the last shot rule?

Answer 137

Never respond right away without standard contract terms.

Question 138

Provision that states that contracts require no form

Answer 138

Art. 11 CISG

Question 139

Where is the transfer of property governed in the CISG?

Answer 139

It’s not. Art. 4.
It’s an external gap.

Applicable provisions. Art. 4, 7(2) (gap filler).
Lex loci rei site. Property law that applies is the property law where the movable good is located.

Question 140

Where, when, and what needs to be delivered - where is this governed in the CISG?

Answer 140

Where? – Place of delivery (art. 31 CISG)
When? – Time of delivery (art. 33 CISG)
What? – Goods to be delivered (art. 35 CISG)

(+2)

Question 141

What is Purchase in good faith?

Answer 141

Purchase in good faith refers to acquiring property from a seller believed to have the legal right to sell it, without knowing of any issues that could affect ownership. If purchased honestly and for value, the buyer may acquire legal ownership, depending on the applicable property laws and absence of notice of defects or claims.

Question 142

Why would you choose Italy or Sweden to transfer the property of the goods?

Answer 142

Put the goods into a regime that has flexible rules on good faith. Italy and Sweden. Goods in trade make a stop in Sweden and Italy. Sign a contract. Want to make sure that the property passes over to me. Cannot choose the law where the goods are situated. Property law is where the goods are.

Question 143

What scenarios do we have for the place of deliery?

Answer 143

Scenario No. 1: Delivery at the place agreed or place of established practices/trade usages (arts 6, 9, 31 CISG)
Scenario No. 2: If carriage of goods, delivery to first carrier (art. 31(a) CISG)
Scenario No. 3: If no carriage, but there is a known place of stock/manufacture, delivery at that place (art. 31(b) CISG)
Scenario No. 4: If none of the above, at the seller’s place of business (art. 31(c) CISG)

Question 144

What scenarios do we have for the time of delivery?

Answer 144

Scenario No. 1: Delivery on the agreed date (arts. 6 & 33(a) CISG)
Scenario No. 2: Delivery within the agreed period (art. 33(b) CISG)
Scenario No. 3: Delivery at the time of established practices/trade usages (art. 9 CISG)
Scenario No. 4: Delivery within reasonable time from contract formation (art. 33(c) CISG)

Question 145

Which provision governs the handing over of documents? What are the rights and obligations of the seller?

Answer 145

Art. 34 CISG

If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract.

If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense.

Question 146

What are the three documents that are usually comprised in the obligation to hand over documents?

Answer 146

Bill of lading
Commercial invoice
Insurance policy

Question 147

Art. 35 CISG requires the seller to provide the goods in what features?

Answer 147

Quantity
Quality
Description

This also includes packaging.

Question 148

Which provision governs the exceptions for the conformity in goods? What does the provision say?

Answer 148

Art. 35(2) CISG

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;
(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

Question 149

Art. 35(2)(b): are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement;

When can a buyer not rely on this article?

Answer 149

When the buyer has more expertise than the seller.

Question 150

Art. 35(2) CISG

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement;

Under what circumstances would the latter provision prevail over the former?

Answer 150

2b requires reliance by the buyer, the more special rule prevails over general rule, 2b is more specific than 2a.

Art. 35(2)(b) CISG must be examined before art. 35(2)(a) CISG as more special provision – Fitness for a particular purpose vs Fitness for all ordinary uses

Question 151

If goods are merchantable, can be resold to someone else without getting a lower price, is this a breach of contract under art. 35 CISG?

Answer 151

No. Some courts have decided so. But the professor thinks it’s a mistake.

Question 152

What is merchantability? How does it connect to art. 35?

Answer 152

Contained in Art. 35(2)(a) CISG.

Re-saleability of the goods (a.k.a. “merchantability”) is only one of the ordinary purposes.

Question 153

Art. 35 CISG, give the order in which the provision should be read (there are only three).

Answer 153

Rule 1: 35(1). Particular features. Then must have these features.
Rule 2: 35(2)(b) If the buyer has communicated expressly or implicitly, a particular purpose, she needs the goods for and relied on the skills or judge of the seller, the goods must be fit to the seller. Might not be the ordinary purpose.
Rule 3: 35(2)(a): Fit for the purpose. Ordinary use.

Question 154

What is the CISG Advisory Council?

Answer 154

Professors came together and wrote opinions of how CISG should be applied, some of the experts are not too good

Have two parts: First part, requires unanimity in the council to be produced, absolute minimum they could agree on, second part: just the opinion of the reporter.

Question 155

When is non-conformity to be assessed?

Answer 155

Non-conformity to be assessed at the time of passing of risk (art. 36(1) CISG).
Risk passes when transfer of control or goods enter the sphere of control of the buyer.

Question 156

Who bears the responsibility for compliance with public regulations under the CISG?

Answer 156

According to the CISG, the responsibility for compliance with public regulations typically falls on the buyer. This means if the buyer intends to sell or use the goods in a jurisdiction with specific regulatory requirements, it’s the buyer’s responsibility to ensure the goods meet those regulations. The seller is generally responsible for delivering goods that conform to the contract and are fit for their ordinary purpose, but compliance with public regulations is typically not the seller’s obligation unless specifically agreed upon in the contract.

Question 157

According to the CISG, the responsibility for compliance with public regulations typically falls on the buyer. What can a buyer do to put the onus on the seller?

Answer 157

Rely on art. 35(2)(b) (specific purpose), art. 35(2)(a) (ordinary purpose), or make a specific agreement.

Question 158

The New Zealand Mussels case and the German Federal Supreme Court (BGH) in 1995 addresses the issue of compliance with specialized public law provisions in the context of the CISG. What does it say?

Answer 158

The court emphasizes that under the CISG, the seller generally cannot be expected to ensure compliance with specialized public law provisions of the buyer’s country or the country where the goods will be used. This means the seller’s obligation is typically limited to delivering goods that conform to the contract and are fit for their ordinary purpose.

Exceptional Circumstances for Buyer’s Standards: There are exceptions where the standards in the buyer’s country can be considered:

*If similar standards exist in the seller’s country.
*If the buyer explicitly points out these standards to the seller and relies on the seller’s expertise.
*If the relevant provisions in the anticipated export country are known or should be known to the seller due to the circumstances of the case.

Question 159

Art. 36 also extends the liability to the seller after the risk has passed to the buyer, under what circumstances?

Answer 159

Art. 36(2) CISG.

The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that
for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or
will retain specified qualities or characteristics.

Question 160

At what time does the buyer have to examine the goods?

Answer 160

Art. 38 CISG: “(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.

Question 161

What is the notorious give notice to the seller obligation for the buyer?

Answer 161

Art. 39(1) CISG.

“(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.”

Question 162

What is the cut-off time for notifications of non-conformity of the buyer?

Answer 162

Two years (Art. 39(2) CISG).

Question 163

Under which circumstances do we deviate from the notification requirement under art. 39 CISG?

Answer 163

Art. 6 CISG: Derogation from art. 39 CISG and the requirement for notice of nonconformity, e.g. guarantee by the seller
Art. 9 CISG: Art. 39 CISG inapplicable because of established practices between the parties or international trade usages
Art. 40 CISG: Preclusion of bad-faith sellers, who were aware of the defects and did not bring these to the attention of the buyer
Art. 44 CISG: Reasonable excuse for failure to effect a notice Remedies limited to reduction of price or damages (except for loss of profit).

Question 164

Peter contracted to sell to Anna 100 ‘new’ dresses. At the time of the conclusion of the contract, Peter pointed out to Anna that some of the dresses had ‘some very minor defects,’ because they had been worn in a fashion show.

On arrival, 20 dresses were discovered to have tiny holes in them, hardly visible, and the sizes indicated on 10 other dresses did not correspond to their actual sizes. Has there been a breach of art. 35 CISG?

Answer 164

Breakdown:

35(1): Quantity, quality, and conformity.
Quality: Minor defects. Mere fact that there were worn once that they were worn once does not mean that they were not new. Essentially new.
Quantity: OK.
Conformity: 10 dresses have the wrong size.

35(2b): Particular purpose? No.
35(2a): For all ordinary purposes - unlikely to be worn, can become bigger. They are a defect. Theoretically, 35(2a) would be triggered. What else needs to be considered?

35(3): Did the buyer know about the tiny holes? Need to have clear communication. Clarity on the defects. Communication needs precision.

Question 165

Advise Anna on the basis of the UN Sales Convention. What does it mean if this is stated in the prompt?

Answer 165

We do not need to explore the applicability of the convention.

Question 166

On Feb. 1, Peter and Anna concluded a contract according to which Peter was to manufacture and deliver two cotton processing machines. The contract did not specify either the delivery date or the place of delivery. The contract contained a clause according to which Peter required to complete the manufacture of the equipment ‘within six months from the time of the conclusion of the contract.’

On Aug. 10, Peter delivered the machines to the carrier for the purpose of transmitting them to Anna. Anna obtained physical possession of the machines on Sept. 1 and on Sept. 5 the machines were installed in Anna’s plant. On Sept. 10, Anna discovered that the machines were not capable of processing cotton of ‘1A’ type. On Sept. 13, Anna sent an email to Peter indicating the machines’ inability to process ‘1A’ type of cotton and asking Peter ‘to remedy the defect as soon as possible.’ Peter replied that the machines conformed to the contract since the contract did not require him to manufacture the machines for the purpose of processing ‘1A’ type of cotton.

Peter stressed to Anna that at no point in time had Anna mentioned that the machines were to be used to process the said type of cotton. It is well known in the cotton processing industry that ‘1A’ is one of four main types of cotton used for the purposes of processing.

Advise Anna on the basis of the UN Sales Convention.

Answer 166

Time of delivery: 1st August.

Where? – Place of delivery (art. 31 CISG)
When? – Time of delivery (art. 33 CISG)
What? – Goods to be delivered (art. 35 CISG)

Place of delivery (31 CISG): Carriage of goods, at the first carrier delivered. No breach of contract.
Time of delivery (33 CISG): Absent agreement, absent trade usage, within a reasonable time from conclusion of contract. Delivery here is to carrier. Aug. 10. Because the parties have not agreed on delivery. It’s reasonable time. But the parties included an agreement on the manufacturing time. The products have to be manufactured time. So it must be during a reasonable time after manufacturing time.
Conformity of goods (35 CISG):
The description 1A implies that it’s the most common type. Thus, 2b (specific purpose) does not apply.

Notification was given within a reasonable time (12 days).

Question 167

[Controversial] In the cotton-processing machine case, the parties did not specify on what type of cotton the machine should process. What information was left out?

Answer 167

There was no information about industry standards. Industry standards would be encompassed in art. 35(2)(a). For instance, if it’s an industry standard that all cotton-processing machines process all types of cotton, it would have been reasonable to expect that by ordering a cotton-processing machine, the buyer would get one that processes all types of cotton.

However, if it’s common that a cotton-processing machine can only process one type of cotton, the parties had omitted to declare which type of cotton the machine should process. It should still be argued that it should have been a machine that processes the most common type of cotton.

In any case, an industry standard can culminate in a trade usage according to art. 9 CISG. This overrides art. 35(2)(a).

Question 168

In the cotton-processing machine, we learned that trade usage has a dual function. What is it?

Answer 168

Trade usage can be used to override art. 35 CISG but also has an interpretative function.

Question 169

What five remedies exist for Breach of Contract?
One remedy is only available to the buyer, which?

Answer 169

Specific performance – Arts 28, 46, 62 CISG
Unilateral termination of the contract (“avoidance”) - Arts 49, 64 CISG
Damages – Arts. 74-77 CISG
Reduction of the price – Art. 50 CISG - Only available to the buyer
Interest on payments for sums in arrears – Art. 78 CISG

Question 170

Specific performance refers to three different articles, what do they govern?

Answer 170

28: Specific performance only available in countries where the courts would enforce in similar contracts.
46(1): Buyer’s request
62: Seller’s request

Question 171

What is the difference between termination and avoidance?

Answer 171

Termination: Consensual termination
Avoidance: Unilateral termination

Question 172

What two important forms of avoidance exist?

Answer 172

Avoidance for fundamental breach of contract (arts 49(1)(a), 64(1)(a) CISG)
Avoidance after lapse of an additional period for performance (“Nachfrist”) (arts 49(1)(b), 64(1)(b) CISG

Question 173

Why is avoidance an economically inefficient remedy?
Why does it go against general principles?

Answer 173

Because the parties incur the costs of export, import, carriage fees, legal fees. Return fees.
It goes against favor contractus and pacta sunt servanda.

Question 174

Can avoidance be paired with specific performance or damages.

Answer 174

Only with damages.

Question 175

In what cases would a party want to get avoidance?

Answer 175

Avoidance happens when the seller can sell the goods to a higher price or when the buyer’s price has plummeted. That’s the lawyer’s thinking.

Question 176

Why would a merchant not opt for avoidance?

Answer 176

Merchantability.

Question 177

What are the two requirements for a fundamental breach?

Answer 177

i. Substantial deprivation
ii. Foreseeability of the substantial deprivation (reasonable person standard)

Question 178

What is considered a substantial deprivation?

Answer 178

To be measured against the interests of the injured party. Even to the reputation of the non-breaching party, i.e., could not deliver to my customers. Had a great reputation for always delivering on time. Does not need to be a violation of a primary obligation (transfer property, delivery, documents), secondary: trade usages, good faith etc. Both kinds of obligations are covered. Small deprivation on their own might not be fundamental. But pooled they might be a fundamental breach.

Question 179

What is considered foreseeability?

Answer 179

Consequences would come as a consequence of the breach. Presumption of foreseeability. It’s for the breaching party that it could not or did not foresee under the circumstances. All the non-breaching party has to do that there was detriment.

Question 180

There’s a seller’s right to cure and a buyer’s right to cure. Where are they governed?
There are two theories on the seller’s right to cure. Which?

Answer 180

Art. 48 and 49.

Art. 48 CISG à ‘Subject to article 49…’ => The right to avoid prevails
Art. 48 CISG à If cure feasible à No substantial deprivation => No right to avoid

Professor prefers the one that keeps the parties bound, keeps the contract alive. Applied by Swiss court.

Question 181

How can be defined what a fundamental breach is?

Answer 181

What constitutes a fundamental breach can be defined in the contract (art. 6 CISG) or by virtue of established
practices/trade usages (art. 9 CISG).

Question 182

Fundamental Breach Scenarios (3)

Answer 182

Complete non-performance
Presumably a fundamental breach; it includes scenarios of unlawful avoidance by the counter-contracting party

Late delivery of goods
Not fundamental per se; but see time of the essence under the contract (e.g. perishable or seasonal goods, excessive storage costs, etc.)

Late payment of the price
Not fundamental per se; but see time of the essence under the contract (e.g. currency fluctuations, etc.)

Question 183

Who can grant a Nachfrist? Where are the requirements?

Answer 183

47: Buyer
63: Seller

It’s an option. Time must be reasonable. During that time, the non-avoiding party cannot resort to remedies unless the avoiding party has indicated that they will not perform despite the Nachfrist.

Question 184

What obligations does a party have that exercises its right of avoidance?

Answer 184

The avoidance must be communicated to the breaching party (art. 26 CISG); there is no form to be followed (arts 7(2), 11 CISG; but see arts 6, 9 CISG)

Question 185

What effects does avoidance have on restitution?

Answer 185

Avoidance leads to mutual obligation for simultaneous restitution of the part already performed (art. 81 CISG)

The general principles of the Convention prescribe the way restitution must be made; reverse sale of goods (seller becomes buyer & buyer becomes seller)

Question 186

49(1)(b): Complete non-delivery of the seller. How can the seller eliminate this fundamental breach?

Answer 186

Just send something. It can be something completely else from the goods agreed.

Question 187

Damages follow the principle of “full compensation.” What does that mean?

Answer 187

Inflicted party into the position if the company has been fully performed. This is expectancy damages.

Question 188

The CISG has three ways of calculating damages. Which?

Answer 188

Concrete Calculation: 74 CISG, requires establishing the losses sustained, foreseeability
Abstract Calculation: 75 CISG, no proof loss, no proof of causation required, no foreseeability, Damages = Cover price - Contract price + Further damages under art. 74 CISG
76: same, Damages = Contract price - Current price + Further damages under art. 74 CISG

Question 189

The obligation to mitigate losses is also in the CISG, where? What happens in case of failure?

Answer 189

Art. 77 CISG: “A party who relies on a breach of contract must take such measures as are
reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the
breach. If he fails to take such measures, the party in breach may claim a reduction in the
damages in the amount by which the loss should have been mitigated.

Question 190

Where are reduction of price and interest administered?

Answer 190

Reduction of the price (art. 50 CISG)
Interest for sum in arrears (art. 78 CISG)

Question 191

From when on is interest due? Is a notice required?
What is the interest rate?

Answer 191

Interest owed from when payment is due; no notice is required
What interest rate? No clear position. No position at all. Recommended the interest rate of the place of the court. If it’s an arbitration. The seat? Should not conflict with public policy of the place.