A German corporation and a U.S. limited liability company, established under the law of Pennsylvania but wholly owned by the German corporation (Plaintiffs), entered into a contract for the sale of software designed to facilitate the billing of credit cards with a U.S. corporation established under the laws of the State of Georgia (Defendant). During negotiations, Plaintiffs explained to Defendant that the software would need to be compatible with German numeric symbols as it would be installed and used in Germany; in response, Defendant stated that the software "would be able to facilitate the processing of credit card charges to consumer credit card accounts". Upon installation by Plaintiff’s personnel, the software did not work properly. Defendant then provided Plaintiff with further software and instruction in an effort to solve the problem, but the software continued to bill costumers amounts that exceeded the actual purchases. Consequently, Plaintiffs brought an action against Defendant claiming for breach of contract and breach of implied and express warranties. In doing so, Plaintiffs alleged that CISG was the law applicable to the contract. On its part, Defendant denied that CISG was applicable and that the Court had jurisdiction to hear the case, on the ground that the contract contained a choice-of-law clause in favour of the law of Georgia and that, since the German corporation had not been a party to the agreement, the contract had to be deemed concluded between parties - i.e., the two U.S. corporations- not having their places of business in different Contracting States. By decision of 16 August 2005, the Court ordered Plaintiffs to supplement their briefs on the issue as to whether the German corporation had actually been a purchaser of the software or in some way a party to the contract. On August 30, Plaintiffs submitted a supplementary brief stating that “it would appear that [the alleged contract] was signed by [German corporation]”.
By decision of 6 January 2006, the Federal Court held that the choice-of-law clause in favour of the law of Georgia did not amount per se to an exclusion of the Convention (Art. 6 CISG) since the parties had failed to indicate by clear language that they intended to exclude its application. However, the Court found that Plaintiffs had not given adequate evidence as to the fact that the German corporation had actually been a party to the agreement. Although the latter could be considered the ultimate user of the software, the alleged contract was addressed to, and the purchase price paid by, the U.S. corporation. Consequently, the contract had been concluded between two parties from the U.S.A. and CISG could not be applied.
The Court also addressed Defendant’s further argument that it lacked jurisdiction because of a liquidated damages clause contained in the contract, the effect of which was that the amount of the controversy would be less than that required in order for a District Court to have jurisdiction over a diversity claim. Contrary to what had been put forward by Plaintiffs, the Court found that, even if applicable to the case at hand, CISG - and in particular its Art. 6 - would not prevent the parties from entering into a liquidated damages clause varying the effect of Art. 74 CISG.
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