International business law

“Convention on International Sale of Goods, 1980” more popularly known as the Vienna Convention, in force since 1988, is the basic international law dealing with International Sales Contracts with a view to ensure harmonized international trade.

In the present essay we are dealing with a particular contract that has been entered into by two persons staying and having their businesses in two different States. The legality and applicability of the Vienna Convention to the said contract is the first point that has to be determined. The essay shall then deal with the obligations of both the contracting parties, namely, the buyer and seller and will finally look into the remedies available to the buyer.

Article 1 of the Vienna Convention deals with the applicability of the Convention. It states that the Convention applies to those contracts entered into by two parties running their respective businesses in different States and the said two States are contracting States to the Vienna Convention and that both the parties are aware that they run businesses in different States and the same has been disclosed to all concerned either before or at the time of entering into the contract and the same can be ascertained from the contract or the dealings or the information disclosed (Indira Carr, 2005: 62-63)[1].

Article 2 of the Convention deals with the situations where the provisions of the Convention are not applicable. This clause clearly states that the Convention cannot be applied if the goods sold are for personal use, or are sold by auction or on execution or authority of law, or the goods in question are negotiable instruments, stocks shares or money, or are ships, vessels etc or in cases relating to electricity. Applying these provisions to the present case study, it is seen that both the buyer and seller have their respective businesses in different States, i.e., Germany and Australia.

Secondly, the facts of the case imply that both parties to the contract were aware that they were from different States. Further the goods sold do not fall under any of the specifications mentioned in Article 2 as the facts of the case clearly state that the goods were to be sold for commercial purpose during the World Cup matches in Germany.

However, it is pertinent to note that for any Convention to be enforceable or applicable in a particular State, it is necessary that the States ratify the Convention. In other words ratification mean that the State accepts the Convention and any contract entered into by persons belonging to that country that is made according the provisions of the Convention will be deemed to be enforceable in that country/ State.

It is therefore necessary to establish whether the two States that are covered in the present case study are parties to the Convention and have ratified the same or not. On going through the Status of Ratification published by the UNCITRAL it can be seen that both the States have ratified the Convention and can thus be said to be Contracting States for the purposes of this Convention (Status: 1980, United Nations Convention on Contracts for International Sale of Goods)[2].

Another aspect of the applicability is that the convention is applicable only to sale of goods and cannot be applied for contracts dealing with supply of labour or services. Thus we can safely conclude that the present case aptly falls within the sphere of the Convention as it confirms to all the essential elements listed in Article 1 and does not fall under any of the exceptions mentioned in Article 2 of the Convention and further deals with the sale of material goods and not labour or services.

Having determined the applicability of the Convention to the present case study, it is necessary to determine the obligations of both the Seller and Buyer conferred by the Convention. Article 30 of the Vienna Convention deals with the obligations of the Seller wherein it is clearly mentioned that the Seller is under obligation to deliver the goods to the buyer, hand over documents, if any and also transfer the property in the manner as specified in the Contract and in the Convention in the goods to the buyer.

By this it means that the documents have to be handed over to the buyer and not merely delivered. The clause also specifies that the property in the goods must be transferred as specified in the contract which in effect has reliance on the local law that is applicable.

Having stated the broad obligations of the Seller in Article 30, the Convention provides exact details of each obligation in the following Articles 31 to 37. The Convention specifies that when the contract does not mention any place of delivery then in case of carriage of goods the seller has to hand over the goods to first carrier, or if the parties knew where the goods were to be manufactured then at that place or at the last known place of business of the Seller. (International Legal Materials, XIX,1980: 671-699)[3]

The second obligation of the seller deals with those goods which have been handed over to the carrier and which cannot be clearly identified then the seller must give clear notice to the buyer specifying the goods. The seller is also obliged to provide carriage of the goods to the buyer and arrange for the same to happen smoothly.

The Seller, even when the contract does not specify obligation to insure the goods, is bound to provide details regarding insurance facilities available to the buyer. As regards date of delivery, if the contract provides a specific date then the obligation of the seller is to deliver the goods at that specified date. In case the contract specifies a time period then within the specified time period and if no time is specified then within reasonable time after conclusion of contract. (International Legal Materials, supra)3

The third obligation of the Seller is to hand over documents, if any to the buyer which is to be handed over in the manner place and time specified in the contract. If the seller hands over the documents before the specified time, then the seller can remove any lack of conformity that may be present in the documents. The seller however, has to take into account the inconvenience that may be caused to the buyer and must be aware that the buyer can take recourse under the Convention for damages that may be caused. (International Legal Materials, supra)3

The seller is also obliged to deliver the goods in the quality, quantity and description as mentioned in the Contract. If there is a lack of conformity of the goods delivered to the buyer then the seller is obliged to make good the sale even if the non conformity comes to light after the contract is over. The seller is also liable for any breach of guarantee that may be given on the goods handed over to the buyer.

However, where the buyer knew or had reason to know of the non conformity of goods, if any, and still goes ahead with the contract, then the seller has no obligation towards the buyer. This provision is similar to the provision of “implied terms” as given in the Australian Sale of Goods Act wherein it is stated that if there is no exact description of goods then the fitness of the goods have to conform to what is the quality of goods that is normally the subject matter of such transactions. (International Legal Materials, supra)3

It can be further seen from the Convention that if the seller delivers the goods before the time specified in the contract, then the seller can make good any non conformance that has occurred provided that the buyer is not put to any inconvenience by way of this act of the seller. The seller is also under the obligation to ensure that the goods handed over to the buyer are clear as to its title and has no third party claim on it. However, if the buyer on knowing of such claim is ready to buy the goods then the seller is under no such obligation. (International Legal Materials, supra)3 In the present case, the contract is very clear with regard to the quality, quantity and description of the goods that have to be delivered by the seller to the buyer.

The buyer has also specified the time when the goods are to be delivered along with the purpose for which the goods are required.  Fred has specified the time of delivery of goods, the place of delivery and also the specifications in terms of quantity and quality of goods that he needed.

The Convention also specifies the obligations of the buyer which include that the buyer must pay the price of the goods and also take delivery of the goods in the manner mentioned in the Contract. The price of the goods is either that which is specified in the Contract or that which may be reasonably considered to be the cost of the goods at the time of conclusion of contract and in cases where the price is to be determined on weight then the price of net weight of the goods.

The buyer is obliged to see that he ensures that the seller is able to make his delivery on the date and place mentioned in the Contract and must pay the price of the goods at that time so specified. In absence of any specific time and place the buyer must pay the seller at the seller’s place of business or at the time of taking delivery of the goods and at a time determinable from the contract. It further states that if the seller changes his place of business after the contract then the seller must bear the cost that the buyer might incur on account of such change.

However, the buyer is not bound to pay the price unless he has had a chance to check the goods. In cases where such examination is not possible then the buyer has to pay irrespective of whether the goods have been examined or not.

Where the contract provides for the examination of the goods, it is the duty of the buyer to ensure that such examination takes place within reasonable time after taking delivery of goods and if the goods do not conform to the specifications in the Contract then the buyer is obliged to inform the seller immediately regarding the non conformity of the goods to the specifications mentioned in the Contract. However, in cases where the buyer refrains from such immediate intimation then the buyer loses the remedy that may be available to him under the Convention. (International Legal Materials, supra)3

In the present case, it is clear from the facts that Fred the buyer had specified the exact quantity, quality and description of goods and had also specified the time within which the same were to be delivered to him along with the place of delivery and these formed the conditions of the contract. The seller on the other hand delivered some of the goods early and did not deliver the rest within the specified time limit. The facts, however, do not reveal as to whether the buyer intimated the delay and the non conformity to the seller.

After having dealt with the obligations it is now necessary to discuss the various remedies that are available to the buyer and seller in case of breach of contract by either. Prior to discussing remedies, it is important to examine what constitutes a fundamental breach of contract under the Convention. According to Article 25 of the Convention, a fundamental breach of contract is where the breach in contract is detrimental to the other party in such a way that it deprives him of his contractual benefits and that the party so deprived could not have ordinarily and reasonably expected such breach in contract and the loss caused thereof.

In the case of Roder-Zelt Und HallenkonstrucktionenGMBH v Rosedown park Pty Ltd. (1995)[4], the definition of breach of contract has been dealt with in length. In this case the plaintiff was a manufacturer of tent halls and party marquees and the defendants agreed to purchase the tents and party marquees for the Australian Grand Prix. The goods were to be paid by deposit and five instalments and from the details of the contract it could be seen that the seller was to retain the goods till the full payment. However, the buyer defaulted in paying the first and second instalment and came under the administration of the Corporations Act.

The Administrator refused to recognise the seller’s title to the goods and hence the seller sued the buyer for breach of contract and the administrator for return of the goods. The Court held that the contract was clear as to the fact that the seller was to retain the goods till full and final payment and that there was a breach in contract by the buyer and hence the seller can sue for breach and can get return of the goods and also get other appropriate remedies as specified in the Convention.

Articles 46-52 and 74-77 of the Convention deal with the remedies available to the buyer in case the seller fails to perform his obligations. Article 46 states that the buyer can ask for specific performance of the contract by the seller and if the goods so delivered by the seller do not conform with the description then the buyer can ask for substitute goods to be delivered.

However, this substitute delivery can be prayed for only if the breach is a fundamental breach of contract. Else the buyer can ask the seller to repair the non conformity in the goods so delivered by the seller. Notice must be given by the buyer to the seller of such request and the same must be given within specific time. The buyer can also fix a reasonable additional time for the performance by the seller and cannot resort to any remedy unless he is informed by the seller that the seller is not in a position to deliver the goods within the stipulated extended time.

The Convention also states that the seller can on his own seek to remedy the delay in delivering the goods at his own expense provided this does not cause inconvenience to the buyer. Such intention has to be communicated to the buyer by notice and the buyer is obliged to respond to the notice on its receipt. If the buyer does not respond in any manner then the seller can perform his obligations within the time period specified by him in the notice and the buyer cannot resort to any other remedy during that period.

One of the basic remedies available to the buyer is avoidance of the contract. However, a contract can be avoided only if there has been fundamental breach of contract or in case of non delivery of goods the seller has failed to deliver the goods within the stipulated extended time.  However, if the seller has delivered the goods the buyer cannot claim fundamental breach unless the delivery is exceptionally late or that the buyer has informed the seller about the non conformance of the goods and the seller has not taken any action regarding the same.

The Convention also provides for the buyer to reduce the price of goods and accept delivery in case of goods not conforming to the description. The Convention clearly states that the above mentioned provisions can be exercised only to the portion of the goods that are not in conformance to the provisions of the contract. However, in cases where the non delivery of complete consignment defeats the very purpose of the contract then the contract can be avoided in toto.

In cases where the seller delivers the goods before time then the buyer has the option of either taking delivery at that point of time or refusing to take delivery. In case the buyer decides to take delivery of the goods then it is the obligation of the buyer to make known to the seller any non conformities that may be there in the goods that have been delivered so as to enable the seller to remedy the problem within the stipulated time.

If the seller delivers a quantity more than the contract specifications, then the buyer may refuse to take delivery of the excess amount. However, if the buyer accepts delivery of the excess amount then the buyer has to pay to the seller the remaining amount of consideration for the excess that he has delivered.

Apart from these remedies the buyer has the remedy of suing for damages caused by the breach of contract of the seller. These damages include the loss incurred by the buyer as a result of such breach including the loss of profit, if any. If the seller fails to pay such damages to the buyer then the buyer can claim interest on the amount so claimed. However, while claiming breach the person has to ensure reasonable circumstances that mitigate the loss caused due to such breach for if the person does not do so then the loss so calculated may be reduced so as to ensure equity to the party in breach.

In Ginza Pte Ltd v Vista Corporation Pty Ltd [2003][5], the defendant imported contact lens solution from the plaintiff. In the contract there were two express clauses  (1) that goods supplied would be manufactured according to the requirements of the Australian Therapeutic Goods Administration (TGA); and (2) that the goods would be sterile. However, on receipt of the goods and on examination, the TGA found that they were contaminated with bacteria and this resulted in all the goods manufactured by the Plaintiff being recalled.

The Plaintiff sued for payment for outstanding invoices whereas the defendant sued for damages pursuant to articles 50 and 51(1) of the CISG. The court in its order held that the plaintiff had not conformed to the basic conditions of the contract and hence the defendant could rely on articles 50, 51(1) and 74 and can avoid the contract and seek damages from the Plaintiff.

In the present case, it can be seen from the facts that the buyer had very clearly specified his intention for buying the goods and had also specified the description of the goods to be delivered. The seller had either inadvertently or knowingly not conformed to the conditions fo the contract and this non conformity has ensured that there is a fundamental breach of contract by the seller.

This breach in contract is due to the fact that the seller has not delivered the goods in the manner and time that was specified in the contract thereby causing detriment to the buyer. However, it is not clear from the facts as to whether the buyer on accepting delivery of the goods has actually intimated the seller as to the non conformance. The goods being severable can be treated on different terms by applying different provisions of the Convention.

On application of the provisions of the Convention, it can be seen that the kangaroos mentioned in the contract arrived two weeks before the due date of delivery wherein the buyer Fred can either take or refuse to take delivery of the goods.  However, if he takes delivery of the goods he has to inform the seller as to the theft that has taken place before his taking delivery so as to enable the seller to do the needful.

As regards the key rings, they do not conform to the specifications mentioned by the buyer in the contract, Fred has the remedy of asking for substitute goods provided he does so within reasonable time after acquiring knowledge of the non conformity of goods and he may fix an additional time limit for delivery of the same. In this case if the goods do not arrive at the time so fixed by the buyer then the buyer can avoid the contract and sue for damages for the partial performance of contract.

However, with regard to the flags that did not arrive until after the match, the buyer can claim fundamental breach of contract and claim avoidance of contract as remedy. However, the buyer must have informed the seller of the non-delivery of the goods within reasonable time and the seller despite such information has not performed his obligations.

Finally, Fred has the remedy of claim damages from the seller as per Articles 74-77 of the Vienna Convention. This claim for damages can be only with respect to the flags as only there can the buyer claim fundamental breach of contract.

Bibliography Carr, Indira 2005. Convention on International Sale of Goods, 1980: The Vienna Convention: Sphere of Application. (International Trade Law.  Great Britain: Cavendish Publishing Ltd. p 62-63)

International Legal Materials XIX, 1980 p 671-699, The American Society of International Law

UNCITRAL. 2006. Status 1980- United Nations Conventions on Contract for the International Sale of Goods. [Online]. Available: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html. [26 September 2006]

Ginza Pte Ltd v Vista Corporation Pty Ltd [2003] WASC 11 (17 January 2003

Roder-Zelt Und HallenkonstrucktionenGMBH v Rosedown park Pty Ltd. (1995): Unreported judgement of the Australian Court, taken from International Legal Materials XIX, 1980 p 671-699, The American Society of International Law

[1] Carr, Indira 2005. Convention on International Sale of Goods, 1980: The Vienna Convention: Sphere of Application. (International Trade Law.  Great Britain: Cavendish Publishing Ltd. p 62-63)

[2] UNCITRAL. 2006. Status 1980- United Nations Conventions on Contract for the International Sale of Goods. [Online]. Available: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html. [ Accessed on 26 September 2006]

[3] International Legal Materials XIX, 1980 p 671-699, The American Society of International Law

[4] Unreported judgement of the Australian Court, taken from International Legal Materials XIX, 1980 p 671-699, The American Society of International Law

[5] Ginza Pte Ltd v Vista Corporation Pty Ltd [2003] WASC 11 (17 January 2003