- Arbitral Award
- ICC Court of Arbitration - Paris
APPLICATION OF CISG - ARBITRATION - CISG APPLICABLE AS REFLECTION OF GENERAL PRINCIPLES OF INTERNATIONAL COMMERCIAL PRACTICE AND USAGES
MODIFICATION OF THE CONTRACT (ART. 29 CISG) - NO NEED OF NEW CONSIDERATION - DIFFERENCE BETWEEN MODIFICATION OF CONTRACT AND NOVATION
NOVATION - MATTER EXCLUDED FROM SCOPE OF CISG - DOMESTIC LAW APPLICABLE - ART. 8 CISG APPLICABLE TO DETERMINE 'ANIMUS NOVANDI'
NOTICE OF LACK OF CONFORMITY - WITHIN CONTRACTUAL NOTICE PERIOD (ART. 39 CISG) - REASONABLE EXCUSE FOR FAILURE TO GIVE NOTICE (ART. 44 CISG) - BUYER'S BURDEN OF PROOF
INTEREST - INTEREST RATE (ART. 78 CISG) - DETERMINED BY THE LAW OF CREDITOR'S COUNTRY
In 1989 a Yugoslav seller and an Italian buyer concluded a contract for the sale of cow hides. The contract provided that the buyer would give the seller notice of the lack of conformity of the goods within one month of their arrival, together with an expert statement. Upon their arrival in Italy the goods were examined by the expert, who apparently found them defective. The buyer failed to give notice thereof to the seller. Subsequently the parties held a meeting in Moscow, also attended by the Russian supplier of the seller. The parties agreed that the buyer would immediately pay part of the price due, while the remaining amount would be paid 30 days later. In the meantime the Russian supplier should inspect the goods in Italy and possibly pay the buyer's debt. The Russian supplier failed to proceed with the agreed examination. The buyer then informed the seller that, due to the Russian supplier's omission, it was released from the obligation to pay the remaining part of the price: in its opinion the Moscow agreement amounted to a true novation of the original obligation to pay, by virtue of which the Russian supplier assumed the debt, releasing the buyer. Finally the buyer sold the allegedly non-conforming goods.
The Arbitral Tribunal, pursuant to Art. 13(3) ICC Rules, held that the contract was governed by general principles of international commercial practice and accepted trade usages, and as such, by CISG, which reflects those principles and usages. Moreover CISG was applicable as the parties had their places of business in Contracting States (Art. 1(1)(a) CISG).
The Tribunal noted that as CISG is silent with regards to novation, this question is to be solved in compliance with the relevant principles and rules common to the domestic laws related to the dispute. A novation, in fact, differs from a mere modification of the contract, dealt with in Art. 29 CISG: while Art. 29 CISG, in stating that a contract may be modified by mere agreement of the parties, replaces the common law rule requiring new consideration for a modification agreement to be binding, the doctrine of novation demands proof of the 'animus novandi' of the parties.
In order to ascertain whether the parties actually had an 'animus novandi', the Tribunal applied Art. 8 CISG, noting that it reflects rules of interpretation generally accepted. In the Tribunal's opinion, notwithstanding its literal wording, Art. 8 CISG can be applied to cases when negotiations result in the simultaneous signature of a writing by the parties. The Tribunal, taking into consideration the wording of the Moscow ageement and all relevant surrounding circumstances as required by Art. 8(3) CISG, held that the parties did not intend to novate their relationship releasing the buyer from its obligations under the original contract.
As to the matter of lack of conformity of the goods, the Arbitral Tribunal stated that the buyer had lost its right to rely on a lack of conformity, since it had not given notice of the defects within the contractual period (Art. 39 CISG); moreover, since the defective nature of the goods was easy to discover, the contractual notice period was reasonable. The buyer could not either rely on Art. 44 CISG, since it had not provided evidence of having a reasonable excuse for its failure to give timely notice.
The Tribunal thus decided in favor of the seller, who was also awarded interest. As CISG does not determine the rate of interest, the Tribunal applied the interest effective for commercial matters in the creditor's country.
The contracts entered into between the parties do not contain a choice of law provision.
Claimant has argued that this Tribunal should apply the law of the lex loci venditoris while incorporating the application of the Vienna Convention. Defendant on the other hand, has argued that no specific national law should apply to the dispute, but rather that general principles of international commercial law and accepted usages in international commercial practice, including the principle of good faith, should govern.
In determining the law applicable to the arbitration agreements as well as the substantive law to govern the dispute, this Tribunal is not bound to adopt any particular national law. Article 13(3) of the ICC Rules provides in relevant part as follows: '... In the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rule of conflict which he deems appropriate.'
The Tribunal also has the authority to base its decision on its understanding of the agreement in dispute, general principles of law, and the concept of good faith dealings and mutual trust in business relationships, as well as trade usages (see, e.g., ICC Case 3267/1979, extracts in 1980 Journal du droit international; ICC Case 313111979, IX Yearbook 109 (1984)).
The Tribunal agrees with Defendant that general principles of international commercial practice including the principle of good faith, should govern the dispute. The Tribunal believes that for the present dispute, such principles and accepted usages are most aptly contained in the United Nations Convention on Contracts for the International Sale of Goods, the incorporation of which, as noted above Claimant has pleaded for. The dominant theme of the Vienna Convention is the role of the contract construed in the light of commercial practice and usage, which was produced by agreement among States resulting from collaboration sustained for over a decade (see generally Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 1991, pp. 47-48).
Applying the Vienna Convention to the present dispute is all the more appropriate since Yugoslavia and Italy are signatories to such convention. For Yugoslavia and Italy, as well as nine other States, the Vienna Convention entered into force on January 1, 1988 (see Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 1991, p. 47). Thus, to the extent the Vienna Convention contains provisions relevant to the dispute, the Tribunal shall consider the same.
Regarding the issue of novation, which is at the core of the dispute between the parties, the Vienna Conv}}
Published in English:
The ICC International Court of Arbitration Bulletin Vol.6/N.2 - November 1995, 73-76
Commented on by:
- H. Muir Watt, L'applicabilité de la Convention des Nations Unies sur les contrats de vente internationale de merchandises devant l'arbitre international, Revue de Droit des Affaires internationales, 1996, 401-406}}