- Arbitral Award
- ICC Court of Arbitration - Paris
APPLICATION OF CISG - CHOICE BY PARTIES OF LAW OF CONTRACTING STATE AS GOVERNING LAW OF CONTRACT (ART. 1(1)(B) CISG)
ARBITRATION CLAUSE FIXING A THIRTY-DAY TIME LIMIT TO FILE A REQUEST FOR ARBITRATION AFTER PARTIES AGREE THAT DISPUTE CANNOT BE SETTLED BY NEGOTIATION - WITHOUT EFFECT ON TIME LIMIT FOR NOTICE OF LACK OF CONFORMITY OF GOODS (ART. 39 CISG)
INTEREST (AT. 78 CISG) - INTEREST RATE - APPLICABLE RATE TO BE DETERMINED BY GENERAL PRINCIPLES OF CISG OR, IN THE ABSENCE OF SUCH PRINCIPLES, BY DOMESTIC LAW GOVERNING CONTRACT (ART. 7(2) CISG)
A Dutch seller and and a buyer from the United States entered into a contract for the sale of cargoes of coke. The parties agreed that the contract shall be governed by 'the laws of Switzerland', and that any dispute arising out of it may be referred by either party to arbitration 'within thirty days after it was agreed that the difference or dispute cannot be resolved by negotiations'. When the buyer took delivery of the goods they turned out to be defective. The buyer promptly informed the seller of the defects, but when six months later it filed a request for arbitration claiming damages, the seller alleged that the claim was time barred.
The Tribunal held that the contract was governed by CISG. An express designation of a particular national law (here: 'Swiss law') by the parties cannot be construed as a reference to the provisions of that law which would apply at the domestic level, but it includes CISG if the Convention has been incorporated into that national law.
The Tribunal furthermore rejected the argument that the parties, by fixing a thirty day time limit to file a request for arbitration after it is agreed that the dispute cannot be resolved through negotiation, have derogated from the statutory time limit within which the buyer may rely on a lack of conformity of the goods (Art. 39 CISG) and established a shorter contractual period of guarantee. According to the Tribunal the arbitration clause in question and its time limit of thirty days has nothing to do with a contractual period of guarantee as mentioned in Art. 39(2) CISG. While the latter deals with the time limit within which the buyer must give notice of a lack of conformity to the seller so as not to lose the right subsequently to avail itself of any of the remedies provided for such lack of conformity, by virtue of the former the parties fixed a time limit within which any claim, concerning or not a dispute for lack of conformity, can be filed as a claim in arbitration.
With respect to the applicable rate of interest the Tribunal held that the matter had to be decided in accordance with Art. 7(2)CISG, and since in its opinion there are no general principles underlying the Convention which could provide an answer, it applied the statutory rate of the State whose law would have been the governing law of the contract in the absence of CISG, i.e. Switzerland.
ON THE APPLICABLE LAW
It is beyond any doubt that the parties have expressly made the Contract subject to 'the laws of Switzerland. '
Claimant has pointed out that on the date of Contract (June 16, 1991) Switzerland had as of March 1, 1991, incorporated in its law the United Nations Convention on Contracts for the International Sale of Goods, 1989 (the Vienna Convention) which means that the Contract, due to its express reference to 'the laws of Switzerland ' shall be subject to the whole of the Convention (Convention, Art. 1.1 (b)) while Swiss law has no more than a residual role to play in rare cases possibly not covered by the Convention.
Defendant however challenges the mandatory application of the Convention to the Contract. His argument is that an express designation of a national law (here: the Swiss law) by the parties shall be construed as an express reference to the provisions of that law which would apply at the domestic level, without any reference to provisions of private international law capable of referring the same matter to a different law. Such interpretation should particularly apply where, as was the present situation, parties have clearly made choice of a neutral law, i.e., the law of a country of which neither party is a national or resident.
That reasoning however is far from convincing.
On the first hand, the purpose of the incorporation of an international convention in the law of a country having signed or adhered to it is not to elect rules of private international law with the view to settle conflicts of laws, but to implement as part of that national law a set of material rules. So Swiss law, when applicable, consists of the Convention itself as of the date of its incorporation into Swiss law.
On the second hand, the neutrality argument, supposing that it was significant to the parties' choice, is satisfied whereas the Convention's objectives and contents are more than consistent with it. Certainly in incorporating the Convention's provisions such as to make it part of Swiss law so far as international sales of goods are concerned, Switzerland has rather increased than decreased the degree of neutrality the parties are suggested to have sought in the present circumstances.
Finally, the parties have themselves referred to 'the laws of Switzerland' and not to 'Swiss law.' That defeats Defendant's contention that the clause should result only in an election of the provisions of the Swiss Code of Obligations, with the exclusion of any other Swiss legal provisions. `
For the above stated reasons, the Arbitral Tribunal finds that the Contract is governed by the Vienna Convention, as incorporated in the 'laws of Switzerland. '
IS THE CLAIMANT'S CLAIM TIME BARRED IN ANY WAY?
According to Defendant, Claimant should have filed its Request for arbitration on February 16, 1992 at the latest. [The Request was filed on May 11, 1992].
Defendant refers to the arbitration clause whereby 'differences or disputes' between the parties may be referred to arbitration 'by either party within thirty days after it was agreed that the difference or dispute cannot be resolved by negotiation.' He also stresses that the thirty day time limitation in the Contract reflects the parties' intention to depart from the provisions of either Article 210 of the Swiss Code of Obligations or alternatively Article 39.2 of the Vienna Convention relating to the statute of limitation of an action based upon the seller's guarantee of defects, by shortening the period of respectively one or two years which otherwise would prevail.
Therefore, it is submitted, since the Request for arbitration was filed more than thirty days after a date at which the parties had agreed upon their failing to possibly settle the matter amicably, Claimant's claim cannot be heard by the Tribunal.
For the reasons stated above, the Tribunal shall have no regard to the provisions of Article 210 C.O.
As regards Art. 39 of the Vienna Convention, it imposes on the purchaser of goods a double obligation in case of a claim for lack of conformity.
Firstly, as Article 38.1 says, 'the buyer must examine the goods, or cause them to be examined, within as short period as is practicable in the circumstances,' Article 39.1 further states that '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 covered it.'
Secondly and in addition to that obligation of rapid notice, Article 39.2 creates the following rule:
'In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within the period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.
Now turning to the case at hand, it is undisputed that Claimant gave rapid notice of the contended lack of conformity of the coke breeze cargo to Defendant once it was informed of the alleged defect.
It is otherwise indisputable that according to the Vienna Convention (Article 6) parties may depart from its provisions, which means that, in the matter of a lack of conformity, they could either shorten or extend the periods, as is also suggested by the last words of Article 39.2 as regards the two-year time limit.
Now, the only relevant question to determine is whether the parties through the arbitration clause have created a thirty days contractual period of guarantee depriving Claimant of its 'right to rely on a lack of conformity' of the coke breeze cargo in dispute if not notified before the expiration of that period.
Here the answer is clearly no, for at least two reasons.
The first reason is that art. 39.2 of the Vienna Convention has nothing to see with claims or other means of action in justice. It just deals with notice of a lack of conformity which must take place within two years from the delivery of the goods. It leaves entirely open the matter of the time during which, after that notice, a Claimant may or may not file its claim within a Court or an Arbitral Tribunal. This matter depends on the proper law of limitation (see H. Grigera Naon in 'The Transnational law of international commercial transactions,' Kluwer 1982, p. 112: 'this period is not to be understood as a Statute of limitation.' See also Ph. Kahn, 'Vente Commerciale Internationale,' Jurisclasseur droit international, Fasc. 565-A.5, No. 100).
The second reason is that the arbitration clause and its time limit of thirty days have nothing to see with 'a contractual period of guarantee.' There is no ground in it permitting to say that Defendant has guaranteed the conformity of the coke breeze for just thirty days, starting from the handing over of it to Claimant at the delivery port. The mere fact that the thirty days shall run after a parties' disagreement on the possibility to settle a dispute amicably (whichever the object of it), and is unrelated to the date of actual delivery of the goods, is inconsistent with the idea of a guarantee.
Last but not least, the thirty days condition is written in the arbitration clause. It strictly regards the time in which any claim, concerning or not a dispute for lack of conformity, can be filed as a claim in arbitration.
Based upon the provisions of articles 35.1 and 35.2 of the Vienna Convention, a seller is in breach of contract if he does not deliver the goods in the 'quantity, quality and description required by the contract' in particular when the goods either (a) are not fit for the purposes for which such goods would ordinarily be used or (b) are not fit for the particular purpose expressly or impliedly made known to the seller by the buyer.
According to Article 45 of the Vienna Convention the buyer may then exercise certain rights provided in articles 46 to 52 and claim damages provided in articles 74 to 77.
More particularly, Article 74 states that 'damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the party as a consequence of the breach.'
In the present case, as Claimant has proved that Defendant delivered him a product which, due to its intricate blend with substantial amounts of coal, cannot be considered as coke breeze (...), Defendant must be condemned to indemnify Claimant for all the losses including lost profit Claimant may justify.
On the claim for interest, Claimant requests Defendant be directed to pay interest on the granted sums 'at a commercial rate compounded monthly from August 14, 1991, through the date of actual payment. '
As stated above, the Contract is governed by the laws of Switzerland which include the provisions of the Vienna Convention as incorporated therein, but is not limited to such provisions where the Vienna Convention does not expressly settle a particular point of law.
In the Vienna Convention, nothing is said either in Article 74 (damages) nor in Article 78 (interests) about the rates nor the modus of calculation of interests where interests are due to a party in case of breach of contract by another party.
According to Article 7.2 of the Convention, questions not expressly settled by it shall be determined either in accordance with the general principles on which it is grounded or by the law which shall be elected according to private international law.
As the general principles do not settle the matter [...] and the parties have referred to the laws of Switzerland, it seems justified to refer to Article 73 of the Swiss Code of obligations whereby, in the absence of a determination of the rate of interest by agreement or law or usages, that rate shall be 5% per annum.
Interest shall be computed from January 1, 1992, on the assumption that the cargo would normally have been resold to Claimant's customers by the end of December 1991. It shall accrue and be paid until full payment of the awarded amount.'}}
Published in English:
- The ICC International Court of Arbitration Bulletin, Vol.6/N.2 - November 1995, 64-67
Commented on by:
- H. Muir Watt, L'applicabilité de la Convention des Nations Unies sur les contrats de vente internationale de marchandises devant l'arbitre international, Revue de Droit des Affaires International, 1996, 401-406}}