Exercise Class #1, 2013, Suggested Answers

A
The seller, company A is a tyre manufacturer based in Canada. The buyer, Company B,
is a tyre distributor from Denmark. In July 2006 they signed an agreement for the
delivery of 3000 winter tyres for heavy trucks. The contract was concluded by email.
Having received the buyers acceptance, the seller made a reference in its final email
to its standard contract terms but the buyer never acknowledged this. The standard
contract terms stipulate that tyres of average quality would be delivered unless
otherwise agreed. The tyres were to be delivered CIF Copenhagen in December 2006
but were not delivered until January 2007. Upon delivery, the goods were transferred
to the buyers warehouse where they were not inspected until February 2007 when it
was discovered a) that 300 are missing and b) that that the rest are not proper winter
tyres and are therefore not fit for harsh Scandinavian weather.
Answer the following questions and give reasons for your answers:
1. Does Vienna Convention (CISG) apply?
Nothing in the Convention indicates the parties specific choice (which
could either include the CISG, completely or partially, or exclude it) so
general rules will apply. Both Canada and Denmark are contracting
parties and according to Article 1 the CISG will apply.
2. Were sellers standard contract terms incorporated in the contract?
Contractual terms are a result of the parties agreement. The
Convention allows the parties to freely agree on their relationship,
even to the exclusion of the Convention (Art. 6). The sellers terms
could only have been incorporated if the buyer had been properly
made aware of them and agreed to them. Silence does not constitute
agreement. In the example the buyer was made aware of the terms but
there is no indication that he agreed to them.
In addition, a good case can be formed around the argument that the
contract had already been concluded before standard contract terms
had been referred to. In that respect, the standard contract terms
would be an offer to modify the original contract and would have to be
accepted separately.
3. Under CISG, has seller fulfilled its obligations?
The seller ought to have delivered the a) correct goods, b) in the
correct quantity and c) on time. The seller contends that its standard
terms are applicable. This is unlikely to be the case as the buyer was

not properly made aware of them. In addition, the original order

already specified the correct use and nature of the goods. Finally, the
seller could have been aware of the use, being from a country with a
similar winter climate. (Art. 35) Therefore, the delivery was not
complete, was faulty in terms of quality and was not timely.
The buyers lack of timely inspection may have negative consequences
on the remedies available to him (i.e. Article 49) and the amount of
damages (i.e. the seller may be able to claim the damage arose during
the time the goods were waiting for inspection). The failure to notify,
on the other hand (Art. 39) leads to loss of the availability to rely on
remedies. The hard deadline is two years.
4. Can the buyer claim damages?
Damages are always available under CISG and are independent of any
other remedies (i.e. one can claim performance and sue for damages
for late delivery), provided there is a breach and a link between the
breach and potential loss. Any breach of contract makes the breaking
party liable in damages and these cannot be higher than the
foreseeable loss.
In this case the buyer is also in breach and his ability to sue for
damages would depend on whether and to what extent he fulfilled his
obligations. In any case, the buyer is under a relative obligation to
mitigate the loss. If he does not take steps to do so (i.e. does not
buy replacement tires) the damages would be reduced. See Article 77.
5. If funding were required for this transaction, what type of funding would be
most suitable for it?
This is a relatively simple one-off transaction. L/C may have been
arranged as a method of payment but in terms of funding, it is clear
that a simple bankers guarantee would almost certainly do the job
efficiently. There is nothing in the contract that would require complex
financing arrangements.
6. If the sale transaction between A and B was conducted through an agent, would
the agent be liable for the problems described in the question above?
Agency was not taught in 2015. The main characteristic of agents is
that they conclude contracts on behalf of the principal. As such, they
bind the principal, who is the only party in the transaction who can be
liable to the other party. If the agency is disclosed, the agent cannot
be sued. In case neither the existence nor the name of the principal
had been disclosed, the buyer will be able to sue either the seller or
the agent.

7. Would any EU courts have jurisdiction under Brussels Regulation (Reg. 44/2001)
if one of the parties were to sue the other?
Regulation 44/2001 applies where the defendant has domicile in a
Member States. Here, this will only be the case if B is the defendant. In
that case, A could sue B in Denmark under Article 2. No other articles
come into play. If B is to sue A this would, presumably, have to happen
in Canada. It is worth noting that regulation 44/2001 applies to
Denmark only by virtue of a special agreement.

B
Corporation A from Germany wants to enter into a contract with Corporation B from
Denmark. They would like to avoid the application of CISG altogether. What should
they do?
Article 6 directly allows the parties to contract out of CISG. If the parties
wish to avoid the application of CISG, they should specifically say so in their
contract. This declaration is especially important in situations where the law
applied is the law of a CISG state. Therefore, a good clause would be The
law applicable to this contract shall be the law of Denmark excluding the
provisions of the Vienna Convention

C
Answer the following questions and give reasons for your answers:
Seller A from Italy concludes a contract for sale of computer parts with buyer B from
India. The contract involves regular shipping of computer parts to Bs factory in India,
where B will employ local workforce, add other necessary parts and assemble
computers which will then be distributed under As trademark.
The contract has a clause which provides that all disputes arising out of this contract
shall be resolved in accordance with Italian law.
The payment for goods is by a revolving letter of credit.
The first shipment of computer parts gets intercepted by Somali pirates off the coast
of Kenya. The cargo is subsequently destroyed.
The buyer:

a) claims that A is liable for non-delivery

b) wants to avoid the contract
At the same time, the buyers bank refuses to pay as it claims that the bill of lading is
faulty as it does not contain certificates of compliance signed by two qualified experts,
as required in buyers instructions.
1. Does CISG apply to this case?
Correction India is not a Member States so Art. 1.1.a does not apply.
The parties have opted for Italian law as the applicable law, and Italy is
a party to CISG. This means that Art. 1.1.b can be used to achieve CISG
applicability.
2. When does the risk in goods pass?
CISG distinguishes between carrier and non-carrier contracts. Since
the present is a carrier contract, the risk will pass, according to Article
67, when the goods were handed over to the first carrier. The goods
must be identified, otherwise the risk does not pass.
Better candidates might mention the rules in Articles 66 and 70 which
deal with remedies and passing of the risk in cases of sellers breach.
3. Can the buyer avoid the contract?
If the seller is blameless (i.e. delivered on time and of the right
quality), the passing of the risk to the buyer (after the goods are
handed to the first shipper, unless something else is agreed) will
remove any right of remedies the buyer might have. On the other
hand, if the seller is at fault, the buyer will maintain the remedies. See
Articles 66 and 70. In this case, it is unlikely that the seller had really
done anything bad although the question remains open.
According to Art. 49, the buyer can only avoid the contract if the
sellers breach is fundamental which, in turn, can be determined with
the help of Article 25. In case of non-delivery, additional period must
be granted before avoidance. In case of late delivery and other causes,
reasonable time must be used to inspect the goods or complain of late
delivery. In the present case the sellers breach would not amount to a
fundamental.
4. What other remedies will the buyer have at its disposal?
In principle, none as the seller had not failed to perform the contract.
Better candidates will notice that Article 51 might apply as this is only
one of a series of shipments.

With a faultless seller, the buyer is not entitled to damages. Better

candidates would notice that Article 79 limits the availability of
damages in cases of unforeseen events anyway.
5. Is the contract at issue a contract for exclusive distribution or another type of
marketing contract?
The contract has features of both: regular shipments and trademarks
use may feature in an exclusive distribution contract but are not
fundamental for it. On the other hand, there is no mention of any
exclusivity for the Indian territory so it is safer to assume that this is
not an exclusive distribution. The contract is, on the hand, based on
licensing of IP rights (at least trademark).
6. Is buyers bank entitled to refuse to pay?
International letter of credit is based on the principle of strict
compliance. This means that a bank is entitled to refuse payment if the
documents submitted do not comply absolutely and strictly with the
buyers instructions. If these provide for opinion of two experts to be
included, L/C payment may be refused if they are not tendered.