Date: 17.05.1999
Country: USA
Number: Civ. A. 90-0380
Court: U.S. District Court, E.D., Louisiana
Parties: Medical Marketing International, Inc. v. Internazionale Medico Scientifica S.r.l.
A Louisiana marketing corporation (buyer) entered into an exclusive licensing agreement for the U.S. distribution of mammography units manufactured by an Italian company (seller). When the U.S. Food and Drug Administration seized the equipment for non-compliance with administrative procedures, a dispute arose over which party bore the responsibility for obtaining the required permits in compliance with the U.S. Governmental Safety Regulations. The seller declared the contract avoided (terminated) on the grounds of non-conformity of the goods.

The parties went into arbitration where the seller argued that buyer was not entitled to avoid the contract based on non-conformity under Art. 49 CISG, because the seller's breach was not "fundamental". To support its reasoning, the seller cited a German Supreme Court case, which held that under Art. 35 CISG, a seller is generally not obligated to supply goods that conform to public laws and regulations enforced at the buyer's place of business (Germany, Bundesgerichtshof, 08-03-1995. See Abstract and Full Text in UNILEX). The buyer did not dispute that CISG applied to the case at hand. An award was given in favor of the buyer.

The seller challenged the award on the grounds that the arbitrators misapplied the CISG since they refused to follow the German precedent interpreting Art. 35 CISG. Specifically, the seller argued that the arbitrators' decision was contrary to public policy and in manifest disregard of the duty to regard the international character of the Convention and to promote uniformity in its application, as provided by Art. 7 CISG.

In upholding the arbitral award, the District Court found that the arbitrators correctly interpreted the German precedent on Art. 35 CISG, paid regard to the international character of the Convention, and promoted uniformity in its application per Art. 7 CISG.

The District Court noted the German Supreme Court is holding that the general rule, according to which a seller is generally not obligated to supply goods that conform to public laws and regulations enforced at the buyer's place of business, carries with it exceptions in three limited circumstances: (1) if the public laws and regulations of the buyer's state are identical to those enforced in the seller's state; (2) if the buyer informed the seller about those regulations; or (3) if due to "special circumstances," such as the existence of a seller's branch office in the buyer's state, the seller knew or should have known about the regulations at issue. The District Court found that the arbitrators decided that under the third exception, the general rule did not apply to the case at hand, as the seller was, or should have been, aware of the buyer regulations prior to entering into the agreement.