international sales

INTERNATIONAL SALESINTERNATIONAL SALES

Conflict rule:Conflict rule:- Obligational aspects: see Obligational aspects: see Conflict rulesConflict rules; but see Art. 1 CISG; but see Art. 1 CISG- Transfer of property: Transfer of property: lex rei sitaelex rei sitae Degree of harmonisation : Degree of harmonisation : - CISG, Succesful, limited to international business sales of CISG, Succesful, limited to international business sales of

movablesmovables- Applicable national law: domestic sales and non-business salesApplicable national law: domestic sales and non-business sales- EU law has harmonised some aspects of consumer sales (and very EU law has harmonised some aspects of consumer sales (and very

few aspects of other sales) few aspects of other sales) - Result: fragmentation of sales lawResult: fragmentation of sales law- But influence of CISG on developments outside its scope is huge.But influence of CISG on developments outside its scope is huge.

SALES – UNIFORM LAWSSALES – UNIFORM LAWS

Predecessor: ULIS & ULFIS (Hague conventions 1964, Unidroit)Predecessor: ULIS & ULFIS (Hague conventions 1964, Unidroit) Replaced by Vienna Sales Convention 1980 (Uncitral, 1 convention), in Replaced by Vienna Sales Convention 1980 (Uncitral, 1 convention), in

force 1988, in 2011 already 77 countries (map outdated, i.a. Japan force 1988, in 2011 already 77 countries (map outdated, i.a. Japan joined)joined)

CISG – SCOPE OF CISG – SCOPE OF APPLICATIONAPPLICATION

Ratione materiae:Ratione materiae:A « contract for sale » requires an obligation to transfer property and one A « contract for sale » requires an obligation to transfer property and one to pay a price (monetary consideration) (no barter)to pay a price (monetary consideration) (no barter)

- Art. 2: This Convention does not apply to sales:Art. 2: This Convention does not apply to sales:- (a) of goods bought for personal, family or household use, unless the (a) of goods bought for personal, family or household use, unless the

seller, at any time before or at the conclusion of the contract, neither seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such knew nor ought to have known that the goods were bought for any such use;use;

- (b) by auction;(b) by auction;- (c) on execution or otherwise by authority of law;(c) on execution or otherwise by authority of law;- (d) of stocks, shares, investment securities, negotiable instruments or (d) of stocks, shares, investment securities, negotiable instruments or

money;money;- (e) of ships, vessels, hovercraft or aircraft(e) of ships, vessels, hovercraft or aircraft- (f) of electricity.(f) of electricity.

- Only corporeal movables; incl. gas Only corporeal movables; incl. gas

CISG – MIXED CONTRACTS CISG – MIXED CONTRACTS

Art. 3 on mixed contracts:Art. 3 on mixed contracts: (1) Contracts for the supply of goods to be manufactured or produced are (1) Contracts for the supply of goods to be manufactured or produced are

to be considered sales unless the party who orders the goods undertakes to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such to supply a substantial part of the materials necessary for such manufacture or production.manufacture or production.> “substantial part of materials”: criterion is economic (value); plans & > “substantial part of materials”: criterion is economic (value); plans & know how are as such not materials (CISG advisory council Opinion n° 4)know how are as such not materials (CISG advisory council Opinion n° 4)

(2) This Convention does not apply to contracts in which the (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.consists in the supply of labour or other services.> if preponderant part is labour, services (turn key etc.)> if preponderant part is labour, services (turn key etc.)> again “economic” criterion > again “economic” criterion

Distribution / Agency agreements ?Distribution / Agency agreements ?-- The framework agreement ≠ actual saleThe framework agreement ≠ actual sale

CISG – TERRITORIAL CISG – TERRITORIAL APPLICATIONAPPLICATION

Ratione loci: only « international sales », more specifically in 2 cases :Ratione loci: only « international sales », more specifically in 2 cases :a) Direct application:a) Direct application:parties whose places of business are in different States and both States parties whose places of business are in different States and both States (of place of business) are Contracting States (i.e. have ratified CISG), or(of place of business) are Contracting States (i.e. have ratified CISG), orb) Indirect application:b) Indirect application:when the rules of private international law of the forum lead to the when the rules of private international law of the forum lead to the application of the law of a Contracting State (possible reservations, Art. application of the law of a Contracting State (possible reservations, Art. 95 CISG) (includes the choice of the law of a contracting state, and 95 CISG) (includes the choice of the law of a contracting state, and usually when sellers place of business in a contracting state, for the EU usually when sellers place of business in a contracting state, for the EU see Rome-I-Regulation)see Rome-I-Regulation)No other requirement (as e.g. cross-border delivery or payment) No other requirement (as e.g. cross-border delivery or payment) Problem of interpretation of place of business (comp. Rome-I-Regulation)Problem of interpretation of place of business (comp. Rome-I-Regulation)Exception in para (2): different place of business not apparentException in para (2): different place of business not apparentMore than one place of business > Art. 10More than one place of business > Art. 10

--

CISG – OPT-OUT & CISG – OPT-OUT & DEROGATIONDEROGATION

Art. 6 : The parties may:Art. 6 : The parties may:- exclude the application of this Convention (opt-out - domestic exclude the application of this Convention (opt-out - domestic

law then applies, incl. an optional sales law if domestic law so law then applies, incl. an optional sales law if domestic law so allows) allows)

- or or - derogate from or vary the effect of any of its provisions derogate from or vary the effect of any of its provisions

(remaining CISG articles apply) (no mandatory law in CISG)(remaining CISG articles apply) (no mandatory law in CISG)

CISG – REGULATED CISG – REGULATED MATTERSMATTERS

Regulated matters :Regulated matters :- Only law of obligations, no property law. Only law of obligations, no property law. - No procedural law, esp. burden of proofNo procedural law, esp. burden of proof

- Only formation (incl. question of writing), performance, non-Only formation (incl. question of writing), performance, non-performance and associated questions.performance and associated questions.

- Does include passing of risk.Does include passing of risk. Some (deliberate) lacunae such as price revision, interest Some (deliberate) lacunae such as price revision, interest

rate, ...rate, ...

Some CISG provisions not applicable in certain states because of Some CISG provisions not applicable in certain states because of reservations madereservations made


Matters of the law of obligations NOT Regulated :Matters of the law of obligations NOT Regulated :- legal capacitylegal capacity- validity and invalidity of the contract (see next slide)validity and invalidity of the contract (see next slide)- damage consisting of death or personal injurydamage consisting of death or personal injury- prescription (separate Convention NY 1974 as modified Vienna prescription (separate Convention NY 1974 as modified Vienna

1980)1980)- assignability of rights and effect of assignment in relation to the assignability of rights and effect of assignment in relation to the

assigned debtor (Assignment & Factoring Conventions); assigned debtor (Assignment & Factoring Conventions); subrogation; subrogation;

- set-off; set-off; - plurality of debtors; plurality of debtors; - authority of agents (1983 Unidroit Convention, not in force, 5 authority of agents (1983 Unidroit Convention, not in force, 5

ratifications)ratifications)

Choice of law useful for matters not regulatedChoice of law useful for matters not regulated


Validity is not regulated by CISG, includingValidity is not regulated by CISG, including- legal capacitylegal capacity- defects of consent, other invalidities (Unidroit Convention defects of consent, other invalidities (Unidroit Convention

without success; see general contract law principles) without success; see general contract law principles) - invalidity of specific clauses (nullity of penalties, exemption invalidity of specific clauses (nullity of penalties, exemption

clauses, unfair clauses ...)clauses, unfair clauses ...)- (except.: writing requirement falls under CISG, art. 11)(except.: writing requirement falls under CISG, art. 11)

Discussion about negative reflex effect of CISG provisions on Discussion about negative reflex effect of CISG provisions on possibility to invoke invalidity. esp. non-conformity and possibility to invoke invalidity. esp. non-conformity and mistake/misrepresentation (comp. Also UPICC art. 3.7)mistake/misrepresentation (comp. Also UPICC art. 3.7)

GENERAL CONTRACT LAWGENERAL CONTRACT LAW

Conflict rules: Conflict rules: Most national legal systems have no specific rules for cross-border Most national legal systems have no specific rules for cross-border

transactions or international contracts in generaltransactions or international contracts in general International instruments ? Some Conventions on specific International instruments ? Some Conventions on specific

transactions, eg factoring (on assignment)transactions, eg factoring (on assignment) Other instruments - Soft law and some model laws on specific Other instruments - Soft law and some model laws on specific

questions:questions:- Soft law: Unidroit « Principles », PECL (Lando-commission), possible Soft law: Unidroit « Principles », PECL (Lando-commission), possible

Optional instruments*. Conflict rule will determine whether accepted Optional instruments*. Conflict rule will determine whether accepted as « law » or merely as contract clausesas « law » or merely as contract clauses

- Model laws, e.g. Uncitral model law electronic commerce; Draft Model laws, e.g. Uncitral model law electronic commerce; Draft Common Frame of reference (DCFR)Common Frame of reference (DCFR)

- *Examples of existing optional instruments: CISG, European *Examples of existing optional instruments: CISG, European trademark, societas europea, international last will, european trademark, societas europea, international last will, european procedures.procedures.

UNIDROIT PICCUNIDROIT PICC

Unidroit Principles for International Commercial contractsUnidroit Principles for International Commercial contracts- « Principles », i.e. no Convention or Model Law« Principles », i.e. no Convention or Model Law- First edition 1994First edition 1994- Enlarged edition 2004Enlarged edition 2004- Endorsed by Uncitral 2007Endorsed by Uncitral 2007 Intended field of application: international commercial contractsIntended field of application: international commercial contracts Regulated matters: Formation (incl. Representation), Validity Regulated matters: Formation (incl. Representation), Validity

(defects of consent, specific clauses), Interpretation, (defects of consent, specific clauses), Interpretation, « Contents », Performance Non-performance and remedies, Set-« Contents », Performance Non-performance and remedies, Set-off, Contractual Assignment of rights, Transfer of obligations, off, Contractual Assignment of rights, Transfer of obligations, Limitations of Actions (Prescription) Limitations of Actions (Prescription)

Additional chapters 2011: conditions, other grounds of invalidity, Additional chapters 2011: conditions, other grounds of invalidity, plurality of debtors or creditors, restitution after invalidityplurality of debtors or creditors, restitution after invalidity

Not regulated: non-contractual assignmentNot regulated: non-contractual assignment

UPICC PREAMBLEUPICC PREAMBLE Preamble: Preamble: Purpose of the Principles)Purpose of the Principles) These Principles set forth general rules for international commercial These Principles set forth general rules for international commercial

contracts. contracts. They shall be applied when the parties have agreed that their They shall be applied when the parties have agreed that their

contract be governed by them.contract be governed by them. They may be applied when the parties have agreed that their They may be applied when the parties have agreed that their

contract be governed by general principles of law, the contract be governed by general principles of law, the lex lex mercatoriamercatoria or the like. or the like.

They may be applied when the parties have not chosen any law to They may be applied when the parties have not chosen any law to govern their contract. govern their contract.

They may be used to interpret or supplement international uniform They may be used to interpret or supplement international uniform law instruments. law instruments.

They may be used to interpret or supplement domestic law. They may be used to interpret or supplement domestic law. They may serve as a model for national and international They may serve as a model for national and international

legislators. legislators. See also 1.4. : applicable insofar as the conflict rule allows itSee also 1.4. : applicable insofar as the conflict rule allows it

CISG – INTERPRETATION CISG – INTERPRETATION AND GAP-FILLING (1)AND GAP-FILLING (1)

First question: matter governed by CISG or notFirst question: matter governed by CISG or not If not governed by CISG = « external » gap > national law If not governed by CISG = « external » gap > national law

applicable by virtue of the conflict of law rulesapplicable by virtue of the conflict of law rules If governed by CISG: either interpretation or « internal» gapIf governed by CISG: either interpretation or « internal» gap Art. 7 (1) CISG – Autonomous interpretationArt. 7 (1) CISG – Autonomous interpretation

- elements: internationality, need for uniformity, promotion of - elements: internationality, need for uniformity, promotion of good faith in international tradegood faith in international trade- no duty to act (perform) in good faith ! Good faith only for - no duty to act (perform) in good faith ! Good faith only for interpretation of CISG itselfinterpretation of CISG itself

CISG – INTERPRETATION CISG – INTERPRETATION AND GAP-FILLING (2)AND GAP-FILLING (2)

Art 7 (2) CISG – Gap-filling (for internal gaps)Art 7 (2) CISG – Gap-filling (for internal gaps) 1° Usages and practices (Art. 9)1° Usages and practices (Art. 9) 2° Gap can be filled according to Art. 7, 2 on the basis of the 2° Gap can be filled according to Art. 7, 2 on the basis of the

« underlying principles »« underlying principles » 3° Gap cannnot be filled on the basis of underlying principles / 3° Gap cannnot be filled on the basis of underlying principles /

in the absence of such principles, applicable national law (e.g. in the absence of such principles, applicable national law (e.g. interest rate, ...)interest rate, ...)

Examples:Examples:- Place of payment of compensation: internal gapPlace of payment of compensation: internal gap- Electronic communication as writing ? Internal gap. See CISG Electronic communication as writing ? Internal gap. See CISG

Advisory Council n° 1: yes.Advisory Council n° 1: yes.- Interest rate: gap; disputed whether internal or external gapInterest rate: gap; disputed whether internal or external gap- Hardship: disputed, see discussion furtherHardship: disputed, see discussion further

UPICC– INTERPRETATION UPICC– INTERPRETATION AND GAP-FILLINGAND GAP-FILLING

Art. 1. 6 (Comp. 7 CISG) – Autonomous interpretationArt. 1. 6 (Comp. 7 CISG) – Autonomous interpretation

(Interpretation and supplementation of the Principles) (Interpretation and supplementation of the Principles)

(1) In the interpretation of these Principles, regard is to be had to (1) In the interpretation of these Principles, regard is to be had to their international character and to their purposes including the their international character and to their purposes including the need to promote uniformity in their application. need to promote uniformity in their application.

(2) Issues within the scope of these Principles but not expressly (2) Issues within the scope of these Principles but not expressly settled by them are as far as possible to be settled in settled by them are as far as possible to be settled in accordance with their underlying general principles. accordance with their underlying general principles.

But ALSO duty to act in good faith: Art. 1.7 But ALSO duty to act in good faith: Art. 1.7 (Good faith and fair (Good faith and fair dealing) dealing)

(1) Each party must act in accordance with good faith and fair (1) Each party must act in accordance with good faith and fair dealing in international trade. dealing in international trade.

(2) The parties may not exclude or limit this duty. (2) The parties may not exclude or limit this duty. And art. 1.9 Usages and practices And art. 1.9 Usages and practices

CISG – GENERAL CISG – GENERAL PROVISIONS JURIDICAL PROVISIONS JURIDICAL

ACTS (1) ACTS (1) No duty to act according to good faith (see Art. 7)No duty to act according to good faith (see Art. 7) How intention is determined – interpretation of acts : Art. 8How intention is determined – interpretation of acts : Art. 8- (1) intent known or not unaware of > intent- (1) intent known or not unaware of > intent- (2) subsidiary: reasonable person, taking into account all (2) subsidiary: reasonable person, taking into account all

circumstances , incl. later conduct (can be excluded: « No Oral circumstances , incl. later conduct (can be excluded: « No Oral Modification » clause in art. 29, 2 CISG, however, estoppel can Modification » clause in art. 29, 2 CISG, however, estoppel can apply to that clause)apply to that clause)

- Not incorporating plain meaning rule, parol evidence rule (CISG Not incorporating plain meaning rule, parol evidence rule (CISG AC Opinion n° 3) AC Opinion n° 3)

Usages and practices – Art. 9Usages and practices – Art. 9

CISG – GENERAL CISG – GENERAL PROVISIONS JURIDICAL PROVISIONS JURIDICAL

ACTS (2)ACTS (2) No formal requirements for formation or evidence – Art. 11No formal requirements for formation or evidence – Art. 11

But reservation can be made (art. 12) and was made by several But reservation can be made (art. 12) and was made by several countriescountries

Modification: by mere agreement, Art. 29 (but see 29 II for « no Modification: by mere agreement, Art. 29 (but see 29 II for « no oral modification clause »)oral modification clause »)

Merger clause or Four Corners: is a deviation from CISG default Merger clause or Four Corners: is a deviation from CISG default rulesrules

Other general rules can be deduced from specific ones e.g.:Other general rules can be deduced from specific ones e.g.: when notice becomes effective (art. 24, 26, exception in 27), when notice becomes effective (art. 24, 26, exception in 27), meaning of silence or inactivity (art. 18,1), meaning of silence or inactivity (art. 18,1), etc.etc.

UPICC– GENERAL UPICC– GENERAL PROVISIONS JURIDICAL PROVISIONS JURIDICAL

ACTS ACTS Art. 1.1: Freedom of contractArt. 1.1: Freedom of contract Art. 1.2: No form required (unless ...)Art. 1.2: No form required (unless ...) Art. 1.3: Binding character of contractArt. 1.3: Binding character of contract Art. 1.7: Duty to act according to good faith & fair dealing; art Art. 1.7: Duty to act according to good faith & fair dealing; art

1.8. Estoppel (venire contra factum proprium)1.8. Estoppel (venire contra factum proprium) How intention is determined – interpretation of acts: Art. 4.1 and How intention is determined – interpretation of acts: Art. 4.1 and

4.2 4.2 - (4.1. for contracts, 4.2 for unilateral acts) – Quid merger clause – (4.1. for contracts, 4.2 for unilateral acts) – Quid merger clause –

No oral modification clauseNo oral modification clause Usages and practices – Art. 1.9Usages and practices – Art. 1.9 Rules on notices in 1.10 Rules on notices in 1.10

E-COMMERCEE-COMMERCE Uncitral model law 1996 (1998), i.a.Uncitral model law 1996 (1998), i.a.

- « Data messages » cover EDI, e-mail, telegram, telex and telecopy- « Data messages » cover EDI, e-mail, telegram, telex and telecopy- Art. 5: Information shall not be denied legal effect merely because it is in the - Art. 5: Information shall not be denied legal effect merely because it is in the form of a data messageform of a data message- Art. 6: Writing < accessible so as to be usable for subsequent reference- Art. 6: Writing < accessible so as to be usable for subsequent reference- Art. 7: Signature- Art. 7: Signature- Art. 8: Whether a data message can be an « original »- Art. 8: Whether a data message can be an « original »- Art. 13: Attribution of data messages (who is the sender)- Art. 13: Attribution of data messages (who is the sender)- Art. 15: (1) time of dispatch and (2) of receipt- Art. 15: (1) time of dispatch and (2) of receipt

CISG Advisory Council Opinion No. 1CISG Advisory Council Opinion No. 1 UN Convention on the Use of Electronic Communications in International UN Convention on the Use of Electronic Communications in International

Contracts 2005 (not in force)Contracts 2005 (not in force) EU Directive 1999/93 on electronic signatures:EU Directive 1999/93 on electronic signatures:

- different degrees of e-signature; legal effects- different degrees of e-signature; legal effects EU Directive 2000/31, framework directive e-commerceEU Directive 2000/31, framework directive e-commerce

- Art. 9 Treatment of contracts: equivalence (some exceptions)- Art. 9 Treatment of contracts: equivalence (some exceptions)- Rules relating to information duties, conclusion contract, receipt, ...- Rules relating to information duties, conclusion contract, receipt, ...

CISG – FORMATION OF CISG – FORMATION OF CONTRACT (1)CONTRACT (1)

Formation of the contract by offer and acceptance (Mirror model)Formation of the contract by offer and acceptance (Mirror model)

Offer: Art. 14 – definition/minimum content. Differs from Offer: Art. 14 – definition/minimum content. Differs from proposal: addressed to specific person(s); sufficiently definite proposal: addressed to specific person(s); sufficiently definite (goods and price determinable, see art. 55 for price (goods and price determinable, see art. 55 for price determination); intention to be bound if accepted determination); intention to be bound if accepted

- «effective» (not necessarily irrevocable) when it reaches the «effective» (not necessarily irrevocable) when it reaches the offeree (unless withdrawal reaches earlier or at the same time) offeree (unless withdrawal reaches earlier or at the same time) (Art. 15) (Art. 15)

- But still revocable (until dispatch of acceptance), But still revocable (until dispatch of acceptance), unless irrevocability indicated (eg period for acceptance) or unless irrevocability indicated (eg period for acceptance) or reasonably relied upon (Art. 16) reasonably relied upon (Art. 16)

- If accepted during period of validity (and before revocation) If accepted during period of validity (and before revocation) (rules concerning the calculation of the period in Art. 20, 21) a (rules concerning the calculation of the period in Art. 20, 21) a contract is formed when the acceptance becomes effective (Art. contract is formed when the acceptance becomes effective (Art. 23)23)

CISG – FORMATION OF CISG – FORMATION OF CONTRACT (2)CONTRACT (2)

Formation of the contract by offer and acceptance Formation of the contract by offer and acceptance

Acceptance: not by mere inactivity (Art. 18) Acceptance: not by mere inactivity (Art. 18) effective when it reaches the offeree; possibly already when an effective when it reaches the offeree; possibly already when an

act is performed; act is performed; Modified acceptance (Art. 19): do they « materially» alter the Modified acceptance (Art. 19): do they « materially» alter the

terms of the offer ? Yes > counter-offer; no > accepted with terms of the offer ? Yes > counter-offer; no > accepted with modifications unless protest. modifications unless protest.

No special rules for battle of forms. Case law diverges (art. 19 No special rules for battle of forms. Case law diverges (art. 19 >< knock out)>< knock out)

UPICC– FORMATION OF UPICC– FORMATION OF CONTRACTCONTRACT

Very similar to CISGVery similar to CISG 2.1.1.: conclusion of the contract by offer and acceptance 2.1.1.: conclusion of the contract by offer and acceptance

or by conduct of the parties that is sufficient to show or by conduct of the parties that is sufficient to show agreement. agreement.

Rules on offer and acceptance similar to CISGRules on offer and acceptance similar to CISG Art. 2.1.12Art. 2.1.12 (Writings in confirmation) (Writings in confirmation) Art. 2.1.14Art. 2.1.14 (Contract with terms deliberately left open) (Contract with terms deliberately left open) Art. 2.1.17 and 2.1.18 on merger clauses and clauses on Art. 2.1.17 and 2.1.18 on merger clauses and clauses on

modification in a particular form.modification in a particular form. Going beyond CISG: Art. 2.1.15 on liability for negotiations Going beyond CISG: Art. 2.1.15 on liability for negotiations

(or breaking off) in bad faith(or breaking off) in bad faith SpecificSpecific rules for battle of forms (2.1.22) (NB. rules for battle of forms (2.1.22) (NB.

Comparative law: usually knock out; Engl = last shot; NL Comparative law: usually knock out; Engl = last shot; NL = first shot)= first shot)

UPICC– AUTHORITY OF UPICC– AUTHORITY OF AGENTSAGENTS

Not in CISG , inspired by Unidroit Convention (not in force)Not in CISG , inspired by Unidroit Convention (not in force) Deals with authority, i.e. external relationshipDeals with authority, i.e. external relationship Not internal relationship (e.g. agency contract) (2.2.1)Not internal relationship (e.g. agency contract) (2.2.1) Authority by grant (express or implied) (2.2.2); authority Authority by grant (express or implied) (2.2.2); authority

based on belief caused by the principal (2.2.5 (b))based on belief caused by the principal (2.2.5 (b)) Direct relationship in case of disclosed agency (2.2.3)Direct relationship in case of disclosed agency (2.2.3) In principle no direct relationship in case of undisclosed In principle no direct relationship in case of undisclosed

agency (2.2.4)agency (2.2.4) Liability if the agent acts outside authority: positive Liability if the agent acts outside authority: positive

interest (2.2.6)interest (2.2.6)

UPICC– AUTHORITY OF UPICC– AUTHORITY OF AGENTSAGENTS

Art. 2.2.7 on conflicts of interest, Art. 2.2.7 on conflicts of interest, Art. 2.2.9 on ratificationArt. 2.2.9 on ratification Art. 2.2.10 on effect of internal termination of autorityArt. 2.2.10 on effect of internal termination of autority

UPICC– VALIDITY (1)UPICC– VALIDITY (1)

Not in CISGNot in CISG Deals with defects of consent giving rise to a right to Deals with defects of consent giving rise to a right to

avoid (4)avoid (4) Negative refelex effect of rules on non-performance in Art. Negative refelex effect of rules on non-performance in Art.

3.7. Esp. important for sales (CISG rules on non-3.7. Esp. important for sales (CISG rules on non-performance not displaced by UPICC rules on e.g. performance not displaced by UPICC rules on e.g. mistake)mistake)

Mistake (art. 3.4. and 3.5)Mistake (art. 3.4. and 3.5)- 4 cases of mistake (shared, caused, left in error, contract 4 cases of mistake (shared, caused, left in error, contract

not yet relied upon) not yet relied upon) - + requirement of material difference, no gross + requirement of material difference, no gross

negligence, risk not assumed or to be bournenegligence, risk not assumed or to be bourne Error in expression or transmission: treated as mistake of Error in expression or transmission: treated as mistake of

the sender (3.6)the sender (3.6) Fraud (3.8)Fraud (3.8)


Deals with defects of consent (cont.)Deals with defects of consent (cont.) Fraud (3.8) by incorrect information or by withholding Fraud (3.8) by incorrect information or by withholding

information + fraudulent intentioninformation + fraudulent intention Threats (3.9) (comp. « violence »)Threats (3.9) (comp. « violence ») Gross disparity or excessive advantage (with abuse of Gross disparity or excessive advantage (with abuse of

circumstances) (3.10)circumstances) (3.10)


General rules on « avoidance » and its effects (in CISG General rules on « avoidance » and its effects (in CISG avoidance means termination; here avoidance means avoidance means termination; here avoidance means annullment)annullment)

Attribution of acts or omissions of third parties: 3.11Attribution of acts or omissions of third parties: 3.11 Exercise of the right:Exercise of the right:- by unilateral declaration (3.14)by unilateral declaration (3.14)- within a reasonable period (3.15)within a reasonable period (3.15)- not anymore after confirmation (3.12)not anymore after confirmation (3.12)

Effect= retroactive; restitution = non-contractual Effect= retroactive; restitution = non-contractual obligationobligation

Possibility of damages in case of culpa in contrahendo Possibility of damages in case of culpa in contrahendo (3.18)(3.18)

CISG - SELLER’S CISG - SELLER’S OBLIGATIONS (1)OBLIGATIONS (1)

Art. 30 - Obligations: delivery (incl. documents), transfer of Art. 30 - Obligations: delivery (incl. documents), transfer of property, conformity property, conformity

Obligation of delivery:Obligation of delivery: Place of performance (Art. 31)Place of performance (Art. 31) Carriage involved : first carrier; if not and place of the goods Carriage involved : first carrier; if not and place of the goods

known: place of the goods (ex works); if not: seller’s place of known: place of the goods (ex works); if not: seller’s place of busines. See also Incoterms (infra).busines. See also Incoterms (infra).

Additional duties (Art. 32) related to specification, carriage, Additional duties (Art. 32) related to specification, carriage, insuranceinsurance

Time of performance (Art. 33)Time of performance (Art. 33) Delivery of documents (Art. 34)Delivery of documents (Art. 34) Duty to preserve the goods if buyer fails to take delivery (Art. 85 Duty to preserve the goods if buyer fails to take delivery (Art. 85

ff.)ff.)

CISG - SELLER’S CISG - SELLER’S OBLIGATIONS (2) OBLIGATIONS (2)

Obligation of conformity in respect to the goods - Art. 35 – Obligation of conformity in respect to the goods - Art. 35 – There is conformity only of the goods are :There is conformity only of the goods are :

1) in conformity with specifications of the contract (quantity, 1) in conformity with specifications of the contract (quantity, quality, packaging)quality, packaging)2) fit for ordinary purposes 2) fit for ordinary purposes 3) fit for particular purpose made known to seller3) fit for particular purpose made known to seller4) in conformity with the qualities of the sample 4) in conformity with the qualities of the sample 5) adequate packaging5) adequate packaging

Exception: visible non-conformity at the time of conclusions (35, Exception: visible non-conformity at the time of conclusions (35, 3)3)

CISG - SELLER’S CISG - SELLER’S OBLIGATIONS (3) – PASSING OBLIGATIONS (3) – PASSING

OF RISK OF RISK - Unless caused by the buyer itself, conformity has to be Unless caused by the buyer itself, conformity has to be present at the time of passing of risk (Art. 36); present at the time of passing of risk (Art. 36);

- lack of conformity arising later ? Seller liable if lack of conformity arising later ? Seller liable if consequence of breach, or if guarantee (to remain fit or consequence of breach, or if guarantee (to remain fit or maintain qualities for a period). Implicitly limited to 2 maintain qualities for a period). Implicitly limited to 2 years unless longer contractual period of guarantee (39, 2)years unless longer contractual period of guarantee (39, 2)

Relevance of « Passing of risk » is thus 1° risk of force Relevance of « Passing of risk » is thus 1° risk of force majeure (Art. 66); 2° time to judge conformity (or rather majeure (Art. 66); 2° time to judge conformity (or rather cause of lack of conformity) (Art. 36, 1) cause of lack of conformity) (Art. 36, 1)

When does risk pass ? As agreed; When does risk pass ? As agreed; - Otherwise Art. 69: in principle at delivery; if buyer refuses Otherwise Art. 69: in principle at delivery; if buyer refuses

to take delivery, at that time. Presupposes that the goods to take delivery, at that time. Presupposes that the goods are identified to the contract (67, 2).are identified to the contract (67, 2).

- Specific rules in case of carriage of the goods (67); in case Specific rules in case of carriage of the goods (67); in case of goods sold in transit (68)of goods sold in transit (68)


- Art. 38: Buyer must examine the goods within a short period (no Art. 38: Buyer must examine the goods within a short period (no real obligation in itself)real obligation in itself)

- Art. 39 (1): Buyer must give notice of non-conformity (if Art. 39 (1): Buyer must give notice of non-conformity (if unknown to seller) as soon as discovered or ought to have unknown to seller) as soon as discovered or ought to have discovered (CISG AC Opinion 2) discovered (CISG AC Opinion 2)

- Sanctions: loss of remedies (see Sanctions: loss of remedies (see infrainfra))- Delivery in parts : examination of each part requiredDelivery in parts : examination of each part required

- Art. 44: in case of reasonable excuse, limited remedies available Art. 44: in case of reasonable excuse, limited remedies available (price reduction, damages)(price reduction, damages)

CISG - SELLER’S CISG - SELLER’S OBLIGATIONS (5) transfer of OBLIGATIONS (5) transfer of

propertyproperty The seller is obliged to transfer property of the goodsThe seller is obliged to transfer property of the goods- And to transfer them And to transfer them ““free from any right or claim of a third partfree from any right or claim of a third part

yy ”” (Art. 41) (Art. 41)- (see additional rules on next slide)(see additional rules on next slide)

When is the obligation fulfilled ? Requirements for an effective When is the obligation fulfilled ? Requirements for an effective transfer of property not in CISG, question of (national) property transfer of property not in CISG, question of (national) property law. law.


Obligation of conformity in respect to rights requires also Obligation of conformity in respect to rights requires also (Art. 41):(Art. 41):- ““free from any right or claim of a third party based on industrial free from any right or claim of a third party based on industrial

property or other intellectual propertyproperty or other intellectual property”” under some conditions: under some conditions: - a) IP right in the country of the seller or place of resale if a) IP right in the country of the seller or place of resale if

contemplated, b) (constructive) knowledge of the seller and not of contemplated, b) (constructive) knowledge of the seller and not of the buyer the buyer

- c) c) not resulting from compliance with instructions (drawings etc.) not resulting from compliance with instructions (drawings etc.) of the buyer (Art. 42)of the buyer (Art. 42)

- Similar duty to give notice (if unknown to seller) Similar duty to give notice (if unknown to seller) within a within a reasonable time after he has become aware or ought to have reasonable time after he has become aware or ought to have become aware of the right or claim (Art. 43). Sanction: loss of some become aware of the right or claim (Art. 43). Sanction: loss of some remedies remedies

Which remedies survive ? In case of reasonable excuse still price Which remedies survive ? In case of reasonable excuse still price reduction or damages (Art. 44).reduction or damages (Art. 44).

CISG – BUYER’S CISG – BUYER’S OBLIGATIONSOBLIGATIONS

Obligations of the buyer : Obligations of the buyer : specify, take delivery, pay the price, examine specify, take delivery, pay the price, examine

If the contract provides so: If the contract provides so: specify the form, measurement or specify the form, measurement or other features of the goods (Art. 65) other features of the goods (Art. 65)

Taking delivery (Art. 60). Taking delivery (Art. 60). Place & time, see Place & time, see supra supra delivery. delivery. Buyer may refuse or accept early delivery (52, 2). Buyer may refuse or accept early delivery (52, 2). Buyer may accept (and pay) or refuse excess quantity (52, 2) Buyer may accept (and pay) or refuse excess quantity (52, 2)

CISG – BUYER’S CISG – BUYER’S OBLIGATIONS (2)OBLIGATIONS (2)

Payment of the price:Payment of the price:Price not fixed nor mode of determination ? Normal price (Art. Price not fixed nor mode of determination ? Normal price (Art. 55) 55) Place of payment (Art. 57): seller’s place Place of payment (Art. 57): seller’s place c.q.c.q. place of handing place of handing over over Time: when control given to buyer, if opportunity to examine Time: when control given to buyer, if opportunity to examine (Art. 58) concrete rule will depend on clauses (often payment (Art. 58) concrete rule will depend on clauses (often payment against documents)against documents)Payment instruments: no provisions in CISG. See further.Payment instruments: no provisions in CISG. See further.

Examination & notice, see supra.Examination & notice, see supra.

Duty to preserve the goods if buyer intends to reject them (Art. Duty to preserve the goods if buyer intends to reject them (Art. 86-88)86-88)

SALES -IncotermsSALES -Incoterms

« International commercial terms »: standard abbreviations, often « International commercial terms »: standard abbreviations, often three letter words (FOB, CIF, etc.)three letter words (FOB, CIF, etc.)

Defined as usages by the ICC (sinds 1936, several revisions; since Jan Defined as usages by the ICC (sinds 1936, several revisions; since Jan 1, 2011 : version 2010 (schemes on next slides are version 2000)1, 2011 : version 2010 (schemes on next slides are version 2000)

Now (2011) 11 Incoterms (version 2000: 13 terms)Now (2011) 11 Incoterms (version 2000: 13 terms) Each summarising obligations of the parties in relation to 10 typical Each summarising obligations of the parties in relation to 10 typical

points points Applicable when inserted in the contract, expressly or impliedly Applicable when inserted in the contract, expressly or impliedly Four basic categories :Four basic categories :- C-terms : seller pays carrier to agreed destination, but does not bear C-terms : seller pays carrier to agreed destination, but does not bear

risk during carriage (attention: in CIF buyer must pay before risk during carriage (attention: in CIF buyer must pay before inspection)inspection)

- D-terms: sellers bears cost of carriage and risk until arrival at agreed D-terms: sellers bears cost of carriage and risk until arrival at agreed destination – thus some « arrival duties » on the sellerdestination – thus some « arrival duties » on the seller

- E-terms: ex works of the sellerE-terms: ex works of the seller- F-terms: delivery to the person paid by the buyer F-terms: delivery to the person paid by the buyer

SALES –IncotermsSALES –Incoterms 2010 2010

Rules for any mode of transport:Rules for any mode of transport: EXW Ex WorksEXW Ex Works FCA Free CarrierFCA Free Carrier CPT Carriage Paid ToCPT Carriage Paid To CIP Carriage And Insurance Paid ToCIP Carriage And Insurance Paid To DAT Delivered At TerminalDAT Delivered At Terminal DAP Delivered At PlaceDAP Delivered At Place DDP Delivered Duty PaidDDP Delivered Duty Paid

Rules for sea and inland waterway transport:Rules for sea and inland waterway transport: FAS Free Alongside ShipFAS Free Alongside Ship FOB Free On BoardFOB Free On Board CFR Cost And FreightCFR Cost And Freight CIF Cost, Insurance and FreightCIF Cost, Insurance and Freight

SALES -IncotermsSALES -Incoterms

Each term summarising the obligations of (A) the seller and (B) Each term summarising the obligations of (A) the seller and (B) the buyer in relation to 10 typical points:the buyer in relation to 10 typical points:

1. main obligation: provision of goods, payment of the price1. main obligation: provision of goods, payment of the price 2. licenses, authorisations and formalities2. licenses, authorisations and formalities 3. contracts of carriage and insurance3. contracts of carriage and insurance 4. delivery and taking delivery4. delivery and taking delivery 5. transfer of risks5. transfer of risks 6. division of costs6. division of costs 7. notices to be given7. notices to be given 8. proof of delivery, transport document8. proof of delivery, transport document 9. checking, packaging, marking, inspecting9. checking, packaging, marking, inspecting 10. other10. other

UPICC– CONTENTS OF UPICC– CONTENTS OF CONTRACTS IN GENERALCONTRACTS IN GENERAL

Various rulesVarious rules Under interpretation: supplying an omitted term (Art. 4.8) Under interpretation: supplying an omitted term (Art. 4.8)

where important for the determination of their rights and dutieswhere important for the determination of their rights and duties Art. 5.1.2: implied obligations Art. 5.1.2: implied obligations stem from (a) the nature and stem from (a) the nature and

purpose of the contract; (b) practices established between the purpose of the contract; (b) practices established between the parties and usages; (c) good faith and fair dealing; (d) parties and usages; (c) good faith and fair dealing; (d) reasonableness. reasonableness.

Art. 5.1.3. Duty to co-operateArt. 5.1.3. Duty to co-operate Art. 5.1.4. Distinction duty result / merely best efforts Art. 5.1.4. Distinction duty result / merely best efforts Art. 5.1.7. Price determination mechanisms: normal price; Art. 5.1.7. Price determination mechanisms: normal price;

unilateral unless manifestly unreasonable; third party decisionunilateral unless manifestly unreasonable; third party decision Art. 5.1.8. Contract for an indefinite period: ending by notice Art. 5.1.8. Contract for an indefinite period: ending by notice

with reasonable timewith reasonable time Art. 5.2.1. ff. Contracts in favour of third parties; rule on Art. 5.2.1. ff. Contracts in favour of third parties; rule on

defencesdefences

UPICC– CONTRACT IN UPICC– CONTRACT IN FAVOUR OF THIRD PARTYFAVOUR OF THIRD PARTY

Art. 5.2.1. ff. Contracts in favour of third parties; rule on Art. 5.2.1. ff. Contracts in favour of third parties; rule on defencesdefences

UPICC - PERFORMANCE UPICC - PERFORMANCE

Modalities of (performance) of the obligation:Modalities of (performance) of the obligation: Time of performance (Art. 6.1.1.)Time of performance (Art. 6.1.1.) Order of performance (Art. 6.1.4.) in principle simultaneousOrder of performance (Art. 6.1.4.) in principle simultaneous Place of performance (Art. 6.1.6)Place of performance (Art. 6.1.6)

- Money: creditor’s place (« obligee »)- Money: creditor’s place (« obligee »)- Other: debtor’s place (« obligor »)- Other: debtor’s place (« obligor »)

Monetary obligations: means of payment, currency etc. (6.1.7 ff.)Monetary obligations: means of payment, currency etc. (6.1.7 ff.) Rules where public permission required for performanceRules where public permission required for performance

Hardship (change of circumstances) Hardship (change of circumstances) Art.: 6.2.1 ff. Art.: 6.2.1 ff.

Performance as extinction of an obligationPerformance as extinction of an obligation Art. 6.1.12-13: imputation of performanceArt. 6.1.12-13: imputation of performance

CISG – REMEDIES - CISG – REMEDIES - OVERVIEWOVERVIEW

Overview of remedies for non-performance: Overview of remedies for non-performance: - - Specific performanceSpecific performance- - Suspend performanceSuspend performance- - Avoidance and price reductionAvoidance and price reduction- DamagesDamages

General principlesGeneral principles- Free choice, no hierarchy of remedies (« pari passu ») (but Free choice, no hierarchy of remedies (« pari passu ») (but

sometimes fundamental breach required)sometimes fundamental breach required)- Combinability, esp. of damages and other remediesCombinability, esp. of damages and other remedies- Largely self-help (unilateral declaration)Largely self-help (unilateral declaration)- By notification (usually within a reasonable time)By notification (usually within a reasonable time)

UPICC – REMEDIES FOR UPICC – REMEDIES FOR NON-PERFORMANCE NON-PERFORMANCE

Overview of remedies for non-performance: Overview of remedies for non-performance: Withholding performanceWithholding performance Specific performanceSpecific performance Termination and price reductionTermination and price reduction DamagesDamages

General principles:General principles:- Free choice, no hierarchy of remedies (« pari passu ») (but Free choice, no hierarchy of remedies (« pari passu ») (but

sometimes fundamental breach required)sometimes fundamental breach required)- Combinability, esp. of damages and other remediesCombinability, esp. of damages and other remedies- Largely self-help (unilateral declaration)Largely self-help (unilateral declaration)- By notification (usually within a reasonable time)By notification (usually within a reasonable time)

CISG – GENERAL RULES ON CISG – GENERAL RULES ON NON-PERFORMANCE NON-PERFORMANCE

Remedies for non-performance: separately mentioned for buyer Remedies for non-performance: separately mentioned for buyer and seller. But basically a unitary concept of non-performance and seller. But basically a unitary concept of non-performance (« breach »). (« breach »).

Some remedies require a « fundamental breach » (Art. 25). Some remedies require a « fundamental breach » (Art. 25). Interpretation: CISG AC Opinion n° 5Interpretation: CISG AC Opinion n° 5

Fault or strict liability ?Fault or strict liability ?- damages excluded if exemption: failure due to an impediment - damages excluded if exemption: failure due to an impediment beyond control (art. 79) (+ give notice to other party). beyond control (art. 79) (+ give notice to other party). Hardship ? See next slide. Hardship ? See next slide. - other remedies: strict liability- other remedies: strict liability- - a party may not rely on a failure of the other party to perform, a party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act to the extent that such failure was caused by the first party's act or omission (Art. 80).or omission (Art. 80).

CISG – HARDSHIPCISG – HARDSHIP Does art. 79 include a rule on hardship ? Does art. 79 include a rule on hardship ? Hardship is a « matter governed by CISG », but disputed Hardship is a « matter governed by CISG », but disputed

whether:whether:a) excluded by Art. 79 (Cass.Fr. 2004, Behr v. Romay in a specific a) excluded by Art. 79 (Cass.Fr. 2004, Behr v. Romay in a specific

case: third party buyer no longer interested); case: third party buyer no longer interested); b) included in Art. 79 but gap as to more precise rules (Cass.B. 19 b) included in Art. 79 but gap as to more precise rules (Cass.B. 19

June 2009 – steel price plus 70 %) – in line with CISG AC Opinion June 2009 – steel price plus 70 %) – in line with CISG AC Opinion n° 7n° 7

c) internal gap which can be filled by principles; c) internal gap which can be filled by principles; d) internal gap which can not be filled by principles. d) internal gap which can not be filled by principles.

Which principles: only « internal » to CISG, or also « external » such Which principles: only « internal » to CISG, or also « external » such as UPICC ? (Cass. B. 19 June 2009: also UPICC)as UPICC ? (Cass. B. 19 June 2009: also UPICC)

UPICC – GENERAL RULES ON UPICC – GENERAL RULES ON NON-PERFORMANCE (Cont.)NON-PERFORMANCE (Cont.)

« Non-performance » of an obligation as general (unitary) « Non-performance » of an obligation as general (unitary) concept) (Art. 7.1.1, shift from «(breach of) contract» to concept) (Art. 7.1.1, shift from «(breach of) contract» to « obligation ») « obligation »)

In view of the available remedies distinction between:In view of the available remedies distinction between:- non-performance caused by the creditor itself (7.1.2): no - non-performance caused by the creditor itself (7.1.2): no remedyremedy- non-performance excused under 7.1.7 (force majeure): only - non-performance excused under 7.1.7 (force majeure): only withholidng performance, termination and interest on money withholidng performance, termination and interest on money duedue- non-performance cured without delay (7.1.4): only withholding - non-performance cured without delay (7.1.4): only withholding performance, damagesperformance, damages- non-performance not excused: all remedies- non-performance not excused: all remedies

Rule on exemption clauses: only if not grossly unfair (7.1.6)Rule on exemption clauses: only if not grossly unfair (7.1.6)

CISG – CISG – SPECIFIC PERFORMANCESPECIFIC PERFORMANCE

(Specific) performance requested by buyer:(Specific) performance requested by buyer:- Whether buyer can claim specific performance depends upon Whether buyer can claim specific performance depends upon

domestic law of the forum (art. 28)domestic law of the forum (art. 28)- Lost if incompatible remedy requested before (46,1)Lost if incompatible remedy requested before (46,1)- If specific performance is available, it includes claiming a) If specific performance is available, it includes claiming a)

substitute goods if breach is fundamental, or b) repair if not substitute goods if breach is fundamental, or b) repair if not unreasonable (Art. 46)unreasonable (Art. 46)

- If seller offers repair (« cure »): Art. 48 If seller offers repair (« cure »): Art. 48 Seller can claim specific performance: payment and taking Seller can claim specific performance: payment and taking

delivery (62)delivery (62) Creditor can fix an additional period of reasonable length for Creditor can fix an additional period of reasonable length for

cure (function: termination allowed afterwards) (« Nachfrist « ) cure (function: termination allowed afterwards) (« Nachfrist « ) (Art. 47 & 63)(Art. 47 & 63)

If buyer does not give specifications: seller may specify (Art. 65)If buyer does not give specifications: seller may specify (Art. 65)

UPICC – SPECIFIC UPICC – SPECIFIC PERFORMANCE PERFORMANCE

Right to (enforce) (specific) performanceRight to (enforce) (specific) performance- always for monetary obligations (7.2.1) (no exception for cases - always for monetary obligations (7.2.1) (no exception for cases where you can sell it elsewhere)where you can sell it elsewhere)- in principle for other obligations (7.2.2) unless impossible or - in principle for other obligations (7.2.2) unless impossible or unlawful, unreasonably burdensome, reasonably available unlawful, unreasonably burdensome, reasonably available elsewhere, strictly personal character; must be requested within elsewhere, strictly personal character; must be requested within a reasonable timea reasonable time

CISG – REMEDIES: CISG – REMEDIES: SUSPENSIONSUSPENSION

Order of performance: in principle at the same timeOrder of performance: in principle at the same time > Suspension of performance (as long as other party does not > Suspension of performance (as long as other party does not

perform)perform)- > Suspension also in case of anticipatory breach (Art. 71), but > Suspension also in case of anticipatory breach (Art. 71), but

give notice; suspension no longer allowed if adequate assurance give notice; suspension no longer allowed if adequate assurance of performanceof performance

UPICC – REMEDIES : UPICC – REMEDIES : WITHHOLDING WITHHOLDING PERFORMANCE PERFORMANCE

Withholding performance (7.1.3.)Withholding performance (7.1.3.)(the rule on anticipatory breach as in CISG is missing) (but (the rule on anticipatory breach as in CISG is missing) (but implied in 7.3.3)implied in 7.3.3)

CISG – REMEDIES CISG – REMEDIES « AVOIDANCE » (1)« AVOIDANCE » (1)

Termination, called « avoidance » (misleading term)Termination, called « avoidance » (misleading term) Requirements (Art. 49 & 64)Requirements (Art. 49 & 64)

- either « fundamental breach » or still in breach after the - either « fundamental breach » or still in breach after the additional period granted for performanceadditional period granted for performance- definition of fundamental breach in Art. 25- definition of fundamental breach in Art. 25- also in case of anticipatory breach (if fundamental) (Art. 72)- also in case of anticipatory breach (if fundamental) (Art. 72)- fault not required; but events after passing of risk are for the - fault not required; but events after passing of risk are for the risk of the buyerrisk of the buyer

CISG – REMEDIES CISG – REMEDIES « AVOIDANCE » (2)« AVOIDANCE » (2)

Scope: depends on whether contract is divisible or indivisible; Scope: depends on whether contract is divisible or indivisible; see Art. 51 and 73 (instalment contracts)see Art. 51 and 73 (instalment contracts)

Exercise and loss:Exercise and loss:- by notice (Art. 26)- by notice (Art. 26)- within reasonable time (Art. 49,2 & 64, 2)- within reasonable time (Art. 49,2 & 64, 2)- buyer loses remedy if restitution in substantially the same - buyer loses remedy if restitution in substantially the same condition made impossible (Art. 82) condition made impossible (Art. 82)

For the buyer also Price reduction (Art. 50) (proportionate to value For the buyer also Price reduction (Art. 50) (proportionate to value reuction - according to value at delivery) reuction - according to value at delivery)

CISG – REMEDIESCISG – REMEDIES« AVOIDANCE » (3)« AVOIDANCE » (3)

Effects of « avoidance » on the terminated contract or part(s) of the Effects of « avoidance » on the terminated contract or part(s) of the contract:contract:

CISG does not deal with effect on transfer of property (whether CISG does not deal with effect on transfer of property (whether avoidance has propietary effect or not)avoidance has propietary effect or not)

Obligational effects:Obligational effects:a) remaining obligations are terminated (« release ») (Art. 81,1,1)a) remaining obligations are terminated (« release ») (Art. 81,1,1)b) except surviving clauses: clauses relating to settlement of b) except surviving clauses: clauses relating to settlement of disputes (forum & arbitration etc.); clauses on effects of termination disputes (forum & arbitration etc.); clauses on effects of termination (eg damages) (Art. 81,1,2)(eg damages) (Art. 81,1,2)

- c) obligation of restitution of whatever supplied or paid (Art. 81, 2). c) obligation of restitution of whatever supplied or paid (Art. 81, 2). - Includes interest on payment c.q. benefits derived from the goods Includes interest on payment c.q. benefits derived from the goods

(Art. 84)(Art. 84)- d) rights to damage already accrued survive (CISG AC Opinion n° 9, d) rights to damage already accrued survive (CISG AC Opinion n° 9,

1)1)- A whole series of additional interpretative rules in CISG AC Opinion n° A whole series of additional interpretative rules in CISG AC Opinion n°

9.9.

UPICC – REMEDIES : UPICC – REMEDIES : TERMINATION (1) TERMINATION (1)

Grounds for termination:Grounds for termination:- fundamental non-performance (7.3.1. (1) (2))- fundamental non-performance (7.3.1. (1) (2))- after an additional period granted for performance (- after an additional period granted for performance (NachfristNachfrist, , 7.1.5. and 7.3.1 (3))7.1.5. and 7.3.1 (3))- in case of anticipatory fundamental non-performance: 7.3.3. - in case of anticipatory fundamental non-performance: 7.3.3. and 7.3.4.and 7.3.4.

Mode of termination (7.3.2):Mode of termination (7.3.2):- by notice- by notice- in case of late or defective performance: within a reasonable - in case of late or defective performance: within a reasonable timetime

UPICC – REMEDIES : UPICC – REMEDIES : TERMINATION (2) TERMINATION (2)

Scope of termination: all obligations, unless extended over time Scope of termination: all obligations, unless extended over time and divisible (7.3.6 (2))and divisible (7.3.6 (2))

? Price reduction? Price reduction Effects of termination:Effects of termination:

- release from (outstanding) obligations (7.3.5 (1))- release from (outstanding) obligations (7.3.5 (1))- restitution of performances (in kind or in money) (7.3.6. (1))- restitution of performances (in kind or in money) (7.3.6. (1))- surviving clauses (7.3.5 (3))- surviving clauses (7.3.5 (3))- damages reserved (7.3.5 (2))- damages reserved (7.3.5 (2))

CISG – REMEDIESCISG – REMEDIESDAMAGESDAMAGES

Damages (compensation of damage): Damages (compensation of damage): General: requires breach (not exempted by art. 79), damage and General: requires breach (not exempted by art. 79), damage and

causal link causal link Includes lost profit (Art. 74,1). Interpreted in CISG AC Opinion n° 6Includes lost profit (Art. 74,1). Interpreted in CISG AC Opinion n° 6 Only damage foreseeable when contract concluded (Art. 74,2)Only damage foreseeable when contract concluded (Art. 74,2) Duty to mitigate damage (Art. 77)Duty to mitigate damage (Art. 77) Calculation of damage:Calculation of damage:- Late payment: interest (plus further damage) (Art. 78; Late payment: interest (plus further damage) (Art. 78; dies dies

interpellat pro homineinterpellat pro homine) / Interest rate ? lacuna > national law (or: ) / Interest rate ? lacuna > national law (or: Unidroit Principles 7.4.9 ?)Unidroit Principles 7.4.9 ?)

- Buyer or seller made a reasonable substitute transaction: price Buyer or seller made a reasonable substitute transaction: price difference (plus further damage) (Art. 75)difference (plus further damage) (Art. 75)

- Current price (Art. 76)Current price (Art. 76)- Art. 75 and 76 interpreted in CISG AC Opinion n° 8Art. 75 and 76 interpreted in CISG AC Opinion n° 8- No rule on validity of penalty clauses No rule on validity of penalty clauses

UPICC – REMEDIES : UPICC – REMEDIES : DAMAGESDAMAGES

Except where non-performance is excused (7.4.1.)Except where non-performance is excused (7.4.1.) General measure of damage: General measure of damage:

- positive interest (see 7.4.2 (1), incl. lost profit)- positive interest (see 7.4.2 (1), incl. lost profit)- includes non-pecuniary loss (7.4.2. (2))- includes non-pecuniary loss (7.4.2. (2))- includes loss of a chance (7.4.3.)- includes loss of a chance (7.4.3.)- limited by foreseeability test (7.4.4)- limited by foreseeability test (7.4.4)- restriction where due to creditor or non-mitigation (7.4.7, 7.4.8)- restriction where due to creditor or non-mitigation (7.4.7, 7.4.8)- includes costs of mitigation (7.4.8 (2))- includes costs of mitigation (7.4.8 (2))

Calculation of damage:Calculation of damage:- Late payment: interest (plus further damage) (Art. 7.4.9); interest rate in Late payment: interest (plus further damage) (Art. 7.4.9); interest rate in

7.4.9 (2, place of payment); 7.4.9 (2, place of payment); dies interpellat pro homine dies interpellat pro homine (7.4.10)(7.4.10)- reasonable substitute transaction: price difference (plus further damage) reasonable substitute transaction: price difference (plus further damage)

(Art. 7.4.5)(Art. 7.4.5)- current price (Art. 7.4.6)current price (Art. 7.4.6) Agreed payment for non-performance: clauses binding unless grossly Agreed payment for non-performance: clauses binding unless grossly

excessive in relation to actual harm (7.4.13)excessive in relation to actual harm (7.4.13)

UPICC – SET-OFFUPICC – SET-OFF

Obligations of the same kind between 2 partiesObligations of the same kind between 2 parties Different models in national laws: either automatic if stricter conditioons Different models in national laws: either automatic if stricter conditioons

are met, or by unilaterla declaration. UPICC chooses last model.are met, or by unilaterla declaration. UPICC chooses last model. Can be set-off by notice by one party where:Can be set-off by notice by one party where:

- its own obligation is payable (entitled to perform)- its own obligation is payable (entitled to perform)- the obligation of the other party is (a) due and (b) ascertained or arising - the obligation of the other party is (a) due and (b) ascertained or arising from the same contract from the same contract

No « retroactive » effect (but in some cases a partly similar rule, cfr. set-No « retroactive » effect (but in some cases a partly similar rule, cfr. set-off & prescription; set-off & assignment)off & prescription; set-off & assignment)

There can also be contractual set-off (netting)There can also be contractual set-off (netting)

SALES - NY LIMITATION SALES - NY LIMITATION CONVENTION (1)CONVENTION (1)

New York Convention 1974, amended 1980New York Convention 1974, amended 1980 22 ratifications for amended version + 7 for old version only22 ratifications for amended version + 7 for old version only Basic period: 4 years (Art. 8)Basic period: 4 years (Art. 8) Independent from notice periods (Art. 9)Independent from notice periods (Art. 9) Period commences at breach, for lack of conformity at delivery Period commences at breach, for lack of conformity at delivery

of goods (10), except fraud (10 (3))of goods (10), except fraud (10 (3)) If guarantee period (express undertaking): commences at If guarantee period (express undertaking): commences at

notification, but not later than end of guarantee period (Art. 11)notification, but not later than end of guarantee period (Art. 11) Buyer who has resold goods cannot wait until its buyer makes a Buyer who has resold goods cannot wait until its buyer makes a

claim for asserting a claim agianst the original seller.claim for asserting a claim agianst the original seller.

SALES - NY LIMITATION SALES - NY LIMITATION CONVENTION (2)CONVENTION (2)

The period ceases to run when judicial or equivalent procedures The period ceases to run when judicial or equivalent procedures are started (Art. 13 ff.); if no decision on the merits, period runs are started (Art. 13 ff.); if no decision on the merits, period runs but is extended to 1 year after ending procedures (Art. 17)but is extended to 1 year after ending procedures (Art. 17)

Acts in the debtor’s state restart prescription according to local Acts in the debtor’s state restart prescription according to local law (Art. 19, esp. Acts of enforcement)law (Art. 19, esp. Acts of enforcement)

Acknowledgment of the right restarts prescription in 2 cases Acknowledgment of the right restarts prescription in 2 cases (Art. 20, 1 and 2)(Art. 20, 1 and 2)

Force majeure: Extension with 1 year after its ending (Art. 21)Force majeure: Extension with 1 year after its ending (Art. 21) long stop 10 years after commencement (Art. 23)long stop 10 years after commencement (Art. 23) Effects: Effects: - « weak effect » (Art. 25/26)« weak effect » (Art. 25/26)- Effect on set-off : 25 (2)Effect on set-off : 25 (2)- Not to be invoked by the judge ex officioNot to be invoked by the judge ex officio

UPICC – LIMITATION OF UPICC – LIMITATION OF ACTIONSACTIONS

System of a double period: 3 / 10 years (10.2)System of a double period: 3 / 10 years (10.2)- 3 years from (constructive) knowledge- 3 years from (constructive) knowledge- 10 years from the day the right can be exercised- 10 years from the day the right can be exercised

Renewal of limitation period by acknowledgment (irrespective of 10 Renewal of limitation period by acknowledgment (irrespective of 10 years) (10.4)years) (10.4)

Suspension in case of proceedings (judicial, arbitral and similar): 10.5 to Suspension in case of proceedings (judicial, arbitral and similar): 10.5 to 10.7 – without a one year extension !?10.7 – without a one year extension !?

Prolongation until one year after impediment (force majeure) ceases: Prolongation until one year after impediment (force majeure) ceases: 10.810.8

Effects of expiration:Effects of expiration:- « weak effect » (art. 10.9); no restitution because not « undue » (10.11) - « weak effect » (art. 10.9); no restitution because not « undue » (10.11) - set-off possible until assertion of prescription (10.10)- set-off possible until assertion of prescription (10.10)- not ex officionot ex officio

Proprietary security of the Proprietary security of the seller Reservation of titleseller Reservation of title

Seller’s security under most continental systems:Seller’s security under most continental systems:- Before delivery: right to suspend performance (effective against Before delivery: right to suspend performance (effective against

third parties) third parties) - Termination for non-performance: proprietary effect under some Termination for non-performance: proprietary effect under some

legal systems if exercised before insolvency legal systems if exercised before insolvency - In some systems also automatic seller’s lien (privilege) on the In some systems also automatic seller’s lien (privilege) on the

goods after delivery and transfer of titlegoods after delivery and transfer of title- If stipulated, retention of title (in principle effective in If stipulated, retention of title (in principle effective in

insolvency)insolvency) Applicable law: Applicable law: lex rei sitaelex rei sitae Extensions of retention of title (not widely recognised) :Extensions of retention of title (not widely recognised) :- Extended into the buyer’s right to payment after resale Extended into the buyer’s right to payment after resale - Extended into the productExtended into the product- Broadened to other claims (all moneys clause) Broadened to other claims (all moneys clause) Harmonisation and recognition ? Model rules in DCFR IX Harmonisation and recognition ? Model rules in DCFR IX

6565

FactoringFactoring

= Transfer (assignment) of rights to payment («receivables») for = Transfer (assignment) of rights to payment («receivables») for the purpose of financing and/or credit security; factor may provide the purpose of financing and/or credit security; factor may provide additional services additional services

Master agreement determines which receivables the factor Master agreement determines which receivables the factor undertakes to take over from the assignor and on which conditions undertakes to take over from the assignor and on which conditions (often credit line with a ceiling) (often credit line with a ceiling)

True factoring = No recourse factoring: factor bears the credit True factoring = No recourse factoring: factor bears the credit risk, except in specific cases where he has a right to recourse risk, except in specific cases where he has a right to recourse (against the assignor) :(against the assignor) :

- Assignment in bad faith (buyer already insolvent) Assignment in bad faith (buyer already insolvent) - Buyer refuses to pay because of non-performance of seller Buyer refuses to pay because of non-performance of seller - Some other risks not covered Some other risks not covered Spurious factoring = recourse factoring: factor has recourse Spurious factoring = recourse factoring: factor has recourse

against the assignor when debtor does not pay. Rather a mandate against the assignor when debtor does not pay. Rather a mandate to collect (pro solvendo) + additional services. to collect (pro solvendo) + additional services.

6666

FactoringFactoring

AssignmentAssignment

6767

FactoringFactoring

International factoringInternational factoring Was often a case of refactoring: the export factor assigns to an Was often a case of refactoring: the export factor assigns to an

import factor (system of « indirect factoring »). When factor import factor (system of « indirect factoring »). When factor present in both countries (international group) usually direct present in both countries (international group) usually direct factoring. In case of indirect factoring a contract between both factoring. In case of indirect factoring a contract between both factors governs their internal relationship (who bears which risk) factors governs their internal relationship (who bears which risk)

Applicable law ? Different conflict rules for different aspects ! Applicable law ? Different conflict rules for different aspects ! - Factoring agreement: lex contractusFactoring agreement: lex contractus- Relationship with the debtor: lex causaeRelationship with the debtor: lex causae- Proprietary aspects (property rights in the receivable): different Proprietary aspects (property rights in the receivable): different

solutions possible (eg. Lex causae, country of debtor) - now often solutions possible (eg. Lex causae, country of debtor) - now often country of the assignor country of the assignor

6868

FactoringFactoring

International factoring – uniformisation of the law ?International factoring – uniformisation of the law ? Ottawa-convention 1988 on international factoring (into force in 8 count.)Ottawa-convention 1988 on international factoring (into force in 8 count.) Scope of application: only assignment of receivables (right to payment of Scope of application: only assignment of receivables (right to payment of

price) arising out of international sales (art. 1 and 2)price) arising out of international sales (art. 1 and 2) Despite the name, it deals not with the factoring agreement but with the Despite the name, it deals not with the factoring agreement but with the

assignment assignment One of the critical questions: effect of One of the critical questions: effect of no-assignment clauses.no-assignment clauses. Why do buyer stipulate them ?Why do buyer stipulate them ?- - Can disregard notices of assignment- Can disregard notices of assignment- - maintain future rights of set-off- maintain future rights of set-off National law often gives effect to such clauses. Even recent restrictions National law often gives effect to such clauses. Even recent restrictions

leave the 2 mentioned interests of the buyer untouched (eg German leave the 2 mentioned interests of the buyer untouched (eg German HGB)HGB)

Ottawa Convention : Ottawa Convention : no-assignment clausesno-assignment clauses are are overruled overruled (art.6). But (art.6). But reservation in 4 countries (i.a. Belgium)reservation in 4 countries (i.a. Belgium)

6969

FactoringFactoring

Ottawa-convention Ottawa-convention Relationship debtor-assignee:Relationship debtor-assignee: The debtor of the assigned right (buyer) retains all other defences The debtor of the assigned right (buyer) retains all other defences

arisen out of the sales contract (provision relationship) (art. 9), arisen out of the sales contract (provision relationship) (art. 9), incl. any set-off already available.incl. any set-off already available.

But in principle no right to reimbursement from the factor in case But in principle no right to reimbursement from the factor in case of non-performance of the seller (with 2 exceptions in art. 10 (2) of non-performance of the seller (with 2 exceptions in art. 10 (2) where there is a right to reimbursement against the factor).where there is a right to reimbursement against the factor).

Art. 8 determines under which conditions the debtor is under a Art. 8 determines under which conditions the debtor is under a duty to pay the assignee (instead of the seller): if notified by the duty to pay the assignee (instead of the seller): if notified by the supplier (or with his authority) in writing and no older right has supplier (or with his authority) in writing and no older right has been notified earlier. been notified earlier.

7070

IX ForfeitingIX Forfeiting

Forfeiting:Forfeiting: Comp. a no recourse factoring for a single transactionComp. a no recourse factoring for a single transaction Supplier assigns its right to payment against the buyer to a Supplier assigns its right to payment against the buyer to a

forfeiter, usually by endorsing bills of exchange drawn upon the forfeiter, usually by endorsing bills of exchange drawn upon the buyer for successive terms of payment (usually every 6 months buyer for successive terms of payment (usually every 6 months during 2 to 5 year)during 2 to 5 year)

Forfeiter bears the credit risk and waivers its recourse against the Forfeiter bears the credit risk and waivers its recourse against the drawer (exporter) (NB. Under the Geneva Convention on Bills of drawer (exporter) (NB. Under the Geneva Convention on Bills of Exchange such a waiver cannot be binding upon any other holder Exchange such a waiver cannot be binding upon any other holder of the bill)of the bill)

7171

UPICC – ASSIGNMENT OF UPICC – ASSIGNMENT OF RIGHTSRIGHTS

Assignment = transfer of a right (property)Assignment = transfer of a right (property) Scope of Ch 9.1: Scope of Ch 9.1:

- contractual assignment of rights- contractual assignment of rights- not in a negotiable instrument (9.1.2.)- not in a negotiable instrument (9.1.2.)

Limits to assignabilityLimits to assignability- where significantly more burdensome (9.1.3.)- where significantly more burdensome (9.1.3.)- partially assignable ? If divisible (9.1.4)- partially assignable ? If divisible (9.1.4)- no-assignment clauses have NO effect (1) for rights to payment - no-assignment clauses have NO effect (1) for rights to payment of money and (2) in case of good faith of assignee (9.1.9)of money and (2) in case of good faith of assignee (9.1.9)


Requirements for assignment:Requirements for assignment:- existence of the right ? For future rights assignment takes - existence of the right ? For future rights assignment takes place with retroactive effect as soon as right comes into place with retroactive effect as soon as right comes into existence (9.1.5)existence (9.1.5)- mere agreement assignor / assignee (neither notice nor - mere agreement assignor / assignee (neither notice nor consent required for the transfer as such) (9.1.7)consent required for the transfer as such) (9.1.7)

Duty to perform of the debtor:Duty to perform of the debtor: - according to (order of ) notice and - according to (order of ) notice and - in case of notice by assignee may demend adequate proof of - in case of notice by assignee may demend adequate proof of

assignment (9.1.10, 9.1.11, 9.1.12)assignment (9.1.10, 9.1.11, 9.1.12)


All defences available + set-off available at time of notice All defences available + set-off available at time of notice (9.1.13)(9.1.13)

UPICC – NEW DEBTORSUPICC – NEW DEBTORS

Ch. 9.2. Substitution or addition of debtor.Ch. 9.2. Substitution or addition of debtor. 3 Types:3 Types:

- substitution: original debtor discharged- substitution: original debtor discharged- subsidiary liability of the original debtor - subsidiary liability of the original debtor - solidary liability of old & new debtor (« joint and several » in - solidary liability of old & new debtor (« joint and several » in Eng. law)Eng. law)

Several more specific institutions or instruments can be Several more specific institutions or instruments can be classified in this scheme.classified in this scheme.

Independent new debtors ? See infra: documentary credit, Independent new debtors ? See infra: documentary credit, independent guaranteesindependent guarantees

IX LeasingIX Leasing

Finance leasing: 3 party operation:Finance leasing: 3 party operation:- The (prospective) user negotiates with a supplier the sale of equipment The (prospective) user negotiates with a supplier the sale of equipment - Leasing contract between the user as lessee and a financer as lessor Leasing contract between the user as lessee and a financer as lessor - Lessor buys upon instruction of the lessee and becomes owner(= security)Lessor buys upon instruction of the lessee and becomes owner(= security)- Lessee leases for a fixed term. Usually with an option to purchase at the Lessee leases for a fixed term. Usually with an option to purchase at the

end of the term (for the residual value) end of the term (for the residual value) Leveraged leasing:Leveraged leasing:- Lessor itself is partly financed by a bank (investment credit granted by Lessor itself is partly financed by a bank (investment credit granted by

bank to lessor); lessor assigns the rights to payment against the lessee to bank to lessor); lessor assigns the rights to payment against the lessee to the bank (by way of security assignment); sometimes additionally a the bank (by way of security assignment); sometimes additionally a security right in the equipment. security right in the equipment.

Risks in international leasing ? Especially recognition of proprietary rights Risks in international leasing ? Especially recognition of proprietary rights (lex rei sitae)(lex rei sitae)

7676

IX LeasingIX Leasing International leasing: also an Unidroit convention Ottawa 1988International leasing: also an Unidroit convention Ottawa 1988 Scope of application: « international » & « leasing » (art. 1)Scope of application: « international » & « leasing » (art. 1) Recognition of the right of ownership of the lessor (art. 7)Recognition of the right of ownership of the lessor (art. 7) Obligations of the parties :Obligations of the parties :-- Lessee may refuse to accept equipment in case of non-conformity Lessee may refuse to accept equipment in case of non-conformity

(and terminate contract if not remedied) (art. 12)(and terminate contract if not remedied) (art. 12)- But the lessor is not liable in respect of the equipment (art. 8); lessee But the lessor is not liable in respect of the equipment (art. 8); lessee

must go directly against the supplier (on the basis of the sales must go directly against the supplier (on the basis of the sales contract). Lessee cannot terminate the sales contract without contract). Lessee cannot terminate the sales contract without consent of the lessor, but has other remedies (art. 10)consent of the lessor, but has other remedies (art. 10)

- Duty of the lessee to take proper care of the equipment (art. 9)Duty of the lessee to take proper care of the equipment (art. 9)- Remedies in case of default (non-payment) of the lessee, including Remedies in case of default (non-payment) of the lessee, including

possibility of termination (art. 13) possibility of termination (art. 13) - Lessor may assign its rights, but remains liable for its obligations Lessor may assign its rights, but remains liable for its obligations

(art. 14) (art. 14) - Lessee may transfer its rights only with consent of lessor (art. 14) Lessee may transfer its rights only with consent of lessor (art. 14)

Unidroit model law 2008Unidroit model law 2008

7777

IX Project financingIX Project financing

Very large projects entail specific risks for financer; apart form the Very large projects entail specific risks for financer; apart form the credit risk also exploitation risk, market risk, exchange risk, credit risk also exploitation risk, market risk, exchange risk, political risks... Output of the project is essential.political risks... Output of the project is essential.

A particular form is BOT (« build operate transfer »): foreign A particular form is BOT (« build operate transfer »): foreign supplier (or consortium of suppliers) participates in the capital of supplier (or consortium of suppliers) participates in the capital of the exploitation company (at least initial years)the exploitation company (at least initial years)

Often financed by a syndicate of suppliers and/of financial Often financed by a syndicate of suppliers and/of financial institutions institutions

UNCITRAL UNCITRAL Model Legislative Provisions on Privately Financed Model Legislative Provisions on Privately Financed Infrastructure ProjectsInfrastructure Projects

7878

IX Project financingIX Project financing

Financers try to limit risks by different structures or techniques, Financers try to limit risks by different structures or techniques, eg: eg:

- Security provided by or on behalf of sponsors (states or Security provided by or on behalf of sponsors (states or international institutions); eg completion guarantee, cost overrun international institutions); eg completion guarantee, cost overrun undertaking, repayment guarantee, etc.undertaking, repayment guarantee, etc.

- long term unconditional commitments from buyers (possiby incl. long term unconditional commitments from buyers (possiby incl. suppliers of materials) to purchase the products or services; suppliers of materials) to purchase the products or services; purchase obligations possibly guaranteed by security. May include purchase obligations possibly guaranteed by security. May include a take-or-pay contract.a take-or-pay contract.

- Contract manufacturing: products manufactured are property of Contract manufacturing: products manufactured are property of the supplier / financer who sells them to purchasers (possibly with the supplier / financer who sells them to purchasers (possibly with a long-term purchase agreement) a long-term purchase agreement)

Eg. EurotunnelEg. Eurotunnel

7979

Documentary creditsDocumentary credits

Purpose: to organise payment against delivery in international Purpose: to organise payment against delivery in international sales sales

Technique (simple case): Technique (simple case): - a bank - a bank - acting on instructions of a principal (« applicant », usually buyer)- acting on instructions of a principal (« applicant », usually buyer)- undertakes an obligation to pay a beneficiary (usually seller) - undertakes an obligation to pay a beneficiary (usually seller) - against delivery by the beneficiary of the agreed documents - against delivery by the beneficiary of the agreed documents (including a document representing the goods*)(including a document representing the goods*)

- * concept of negotiable instrument: the right out of the document * concept of negotiable instrument: the right out of the document follows the right to the document.follows the right to the document.

8080


Order of acts:Order of acts:- Underlying contract (usually sale) determines the payment Underlying contract (usually sale) determines the payment

conditions – more specifically which l/c the buyer will have to conditions – more specifically which l/c the buyer will have to obtain for the benefit of the seller before the seller shipsobtain for the benefit of the seller before the seller ships

- Applicant (buyer) contracts with a bank to undertake a « credit » Applicant (buyer) contracts with a bank to undertake a « credit » = issue such a l/c (in favour of the seller)= issue such a l/c (in favour of the seller)

- Issuing bank issues a l/c; this is notified to the beneficiary (seller) Issuing bank issues a l/c; this is notified to the beneficiary (seller) - Seller sends / ships the goods Seller sends / ships the goods - Seller presents the documents to the issuing bank (presentation)Seller presents the documents to the issuing bank (presentation)- Bank examines the documents (examination, 5 days) and honours Bank examines the documents (examination, 5 days) and honours

(pays) or refuses (pays) or refuses - Bank reclaims payment from its client (buyer) (recourse) and Bank reclaims payment from its client (buyer) (recourse) and

transfers the documents to the client (against payment) transfers the documents to the client (against payment)

8181


8282


Applicable rules of law:Applicable rules of law:

Conflict of law rule: 3 separate relationships. To each of them is Conflict of law rule: 3 separate relationships. To each of them is applied its own lex contractus (chosen law; subsid. characteristic applied its own lex contractus (chosen law; subsid. characteristic performance) performance)

Relationship issuer / beneficiary : Relationship issuer / beneficiary : -- codified «customs & practices » (UCP). Since 2007 version 600.codified «customs & practices » (UCP). Since 2007 version 600.-- applicable by virtue of a reference in the contract or l/c; in some applicable by virtue of a reference in the contract or l/c; in some

countries accepted as customary law; very succesful - but less in countries accepted as customary law; very succesful - but less in the USA (application of the UCC)the USA (application of the UCC)

- UCP do not regulate all issues; national law applies to other issues. UCP do not regulate all issues; national law applies to other issues. - DCFR has a model law for all independent guarantees (incl. DCFR has a model law for all independent guarantees (incl.

documentary credits) in Book IVG Section 3.documentary credits) in Book IVG Section 3.

8383


Legal effects between bank (delegated debtor) and beneficiary Legal effects between bank (delegated debtor) and beneficiary (usually seller) (usually seller)

Art. 4 UCP (« credits v. contracts ») Art. 4 UCP (« credits v. contracts ») -- Independent Independent from the relationship bank / applicant (« provision from the relationship bank / applicant (« provision

relationship ») (so-called abstraction) relationship ») (so-called abstraction) -- Independent Independent from the underlying relationship between applicant from the underlying relationship between applicant

(usually buyer) / beneficiary (usually seller) («valuta (usually buyer) / beneficiary (usually seller) («valuta relationship », usually a contract of sale): « even if any reference relationship », usually a contract of sale): « even if any reference is included in the credit »is included in the credit »

-- « Separate »: determined only by its own modalities (next slide)« Separate »: determined only by its own modalities (next slide)

8484


Legal effects of the l/c between bank (delegated debtor) and and Legal effects of the l/c between bank (delegated debtor) and and beneficiary (usually seller (cont.)beneficiary (usually seller (cont.)

In principle irrevocable (art. 7b) (analysed either as a contract or a In principle irrevocable (art. 7b) (analysed either as a contract or a binding unilateral promise) binding unilateral promise)

In principle not transferable (In principle not transferable (infrainfra, art. 38 UCP) (but beneficiary , art. 38 UCP) (but beneficiary can transfer the proceeds, art. 39)can transfer the proceeds, art. 39)

8585


Legal effects of the l/c between bank (delegated debtor) and and Legal effects of the l/c between bank (delegated debtor) and and beneficiary (usually seller (cont.)beneficiary (usually seller (cont.)

Duty to pay (or honour otherwise) only:Duty to pay (or honour otherwise) only:- upon presentation* of complying documents (complying - upon presentation* of complying documents (complying

presentation); strict interpretation; detailed default rules in the UCP presentation); strict interpretation; detailed default rules in the UCP concerning the requirements for the various types of documents concerning the requirements for the various types of documents commonly required (commonly required (infrainfra); conditions without stipulated documents ); conditions without stipulated documents are disregarded (art. 14 h)are disregarded (art. 14 h)

- and if presented before the expiry date and and if presented before the expiry date and - at the agreed place for presentation (or one of the places for at the agreed place for presentation (or one of the places for

presentation)presentation)* For electronic presentation, see the eUCP supplement to the UCP* For electronic presentation, see the eUCP supplement to the UCP Standard for examination: art. 14. According to 14 b, the period for Standard for examination: art. 14. According to 14 b, the period for

examination is 5 days.examination is 5 days. In case of refusal, duty to notify discrepancies to the presenter (art. In case of refusal, duty to notify discrepancies to the presenter (art.

16 c)16 c)

8686


Independence is exceptionally set aside in case of manifest fraud. Independence is exceptionally set aside in case of manifest fraud. «Manifest» means: proven by present evidence (DCFR IVG-3:105)«Manifest» means: proven by present evidence (DCFR IVG-3:105)

Undertaking to «honour» - modes for honouring the credit : Undertaking to «honour» - modes for honouring the credit : a) immediate payment (at sight), b) deferred payment (promise to a) immediate payment (at sight), b) deferred payment (promise to pay with a term), c) by acceptance of a draft (bill of exchange) pay with a term), c) by acceptance of a draft (bill of exchange) drawn by the beneficiary drawn by the beneficiary Alternative: undertaking to «negotiate», i.e. purchase of a draft Alternative: undertaking to «negotiate», i.e. purchase of a draft (bill of exchange) drawn on another bank. The issuer will pay in (bill of exchange) drawn on another bank. The issuer will pay in exchange for a draft. exchange for a draft. UCP 600, art. 6 c: «a credit must not be issued available by a draft UCP 600, art. 6 c: «a credit must not be issued available by a draft drawn on the applicant».drawn on the applicant».

Effect upon the rights & obligations of the client: can not attach Effect upon the rights & obligations of the client: can not attach (seize) the beneficiary’s right against the bank(seize) the beneficiary’s right against the bank

8787


Art. 5 « Banks deal with documents, not with goods »Art. 5 « Banks deal with documents, not with goods » Documents dealt with in detail by the UCP:Documents dealt with in detail by the UCP: Commercial invoice (art. 18)Commercial invoice (art. 18) Transport documents. More specifically:Transport documents. More specifically:- Bill of lading (cognossement) (art. 20)Bill of lading (cognossement) (art. 20)- Charter party bill of lading (art. 22)Charter party bill of lading (art. 22)- Non-negotiable Waybill (art. 21)Non-negotiable Waybill (art. 21)- Multimodal transport document (art. 19), ….Multimodal transport document (art. 19), …. General requirement: transport document must be « clean » (art. 27)General requirement: transport document must be « clean » (art. 27) Insurance documents (covering the goods) (art. 28)Insurance documents (covering the goods) (art. 28) Not defined in UCP but also frequently used:Not defined in UCP but also frequently used:- Storage certificates (issued by bailee)Storage certificates (issued by bailee)- Certificates of origin, composition or quality, compliance with norms, Certificates of origin, composition or quality, compliance with norms,

etc. etc.

8888


Effects in the internal relationship applicant / bank (delegated Effects in the internal relationship applicant / bank (delegated debtor)debtor)

- Contract for (financial) services determines which l/c the bank Contract for (financial) services determines which l/c the bank undertakes to issue undertakes to issue

- Bank must notify applicant of the presentation of documents; has Bank must notify applicant of the presentation of documents; has a duty of reasonable care in examining the documents (no stricter a duty of reasonable care in examining the documents (no stricter liability) (more detailed rules in art. 14 UCP); must notify applicant liability) (more detailed rules in art. 14 UCP); must notify applicant of performance or refusalof performance or refusal

- After performance by the bank to the presenter: recourse of the After performance by the bank to the presenter: recourse of the bank against the applicant (DCFR IVG-3:109) (even if national law bank against the applicant (DCFR IVG-3:109) (even if national law grants subrogation, bank is not interested in it)grants subrogation, bank is not interested in it)

- Documents remain in the hands of the bank as security for Documents remain in the hands of the bank as security for reimbursement (recourse) reimbursement (recourse)

8989


Effects in the relationship beneficiary (seller) / applicant (buyer)Effects in the relationship beneficiary (seller) / applicant (buyer)-- Seller does not have to ship before l/c is issuedSeller does not have to ship before l/c is issued- During the term for presentation: right to payment against the During the term for presentation: right to payment against the

buyer is suspended (comp. UPICC 6.1.7 (2) and DCFR III-2:108)buyer is suspended (comp. UPICC 6.1.7 (2) and DCFR III-2:108)- After undue payment: buyer must demand reimbursement from After undue payment: buyer must demand reimbursement from

the seller (only) the seller (only)

Dispute settlement mechanism organised by the ICC: « DOCDEX ». Dispute settlement mechanism organised by the ICC: « DOCDEX ». Expert opinion (binding or not) in very short period of time by Expert opinion (binding or not) in very short period of time by anonymous expertanonymous expert

9090


Complex forms – intervention of more than 1 bank Complex forms – intervention of more than 1 bank

Bank of (country of) the seller is merely an advising bank (see art. Bank of (country of) the seller is merely an advising bank (see art. 9 UCP): gives advice on required formulation of the l/c, verifies 9 UCP): gives advice on required formulation of the l/c, verifies the l/c issued, transmits the l/c of the issuing bank to the the l/c issued, transmits the l/c of the issuing bank to the beneficiary; may be authorised by the issuing bank to examine the beneficiary; may be authorised by the issuing bank to examine the documents and to honour; agent of the issuing bank (no proper documents and to honour; agent of the issuing bank (no proper undertaking); demands reimbursement from issuing bank after undertaking); demands reimbursement from issuing bank after payment.payment.

Bank of (country of) the seller «confirms» (confirming bank): own Bank of (country of) the seller «confirms» (confirming bank): own obligation (see art. 8 UCP); beneficiary has a joint and several obligation (see art. 8 UCP); beneficiary has a joint and several right against both banks, but has to address the confirming bank right against both banks, but has to address the confirming bank firstfirst

Bank of (country of) the seller guarantees the obligation of the Bank of (country of) the seller guarantees the obligation of the issuing bank: dependent personal security (suretyship), no issuing bank: dependent personal security (suretyship), no independent obligation. independent obligation.

9191


Particular forms:Particular forms: Transferable documentary credit: art. 38 UCP 600Transferable documentary credit: art. 38 UCP 600 Back-to-back-credit: l/c on application by the seller for the benefit Back-to-back-credit: l/c on application by the seller for the benefit

of its seller; second bank takes the first l/c as credit security. of its seller; second bank takes the first l/c as credit security. Effect: second bank in possession of the documents and demands Effect: second bank in possession of the documents and demands reimbursement from the first bank on the basis of the first l/c. reimbursement from the first bank on the basis of the first l/c.

Revolving credit (with a ceiling): credit which can be used for Revolving credit (with a ceiling): credit which can be used for several l/c’s. Each payment by the buyer is credited to the current several l/c’s. Each payment by the buyer is credited to the current account of the seller so that new credit can be drawn in favour of account of the seller so that new credit can be drawn in favour of the seller.the seller.

Red clause: bank is authorised to pay in advance (before Red clause: bank is authorised to pay in advance (before presentation) usually upon presentation of a provisional document presentation) usually upon presentation of a provisional document (eg storage certificate)(eg storage certificate)

9292


Standby l/c: is rather a kind of independent guarantee (s. further), Standby l/c: is rather a kind of independent guarantee (s. further), which can be called (demand) by presenting agreed documents (in which can be called (demand) by presenting agreed documents (in principle proving the right to payment of the beneficiary). principle proving the right to payment of the beneficiary).

Standard practices are codified in the « ISP », now ISP 1998Standard practices are codified in the « ISP », now ISP 1998

9393

Independent guaranteesIndependent guarantees

Independent guarantee: 3 party relationship (type Independent guarantee: 3 party relationship (type delegatio delegatio solvendisolvendi) )

Underlying contract requires the debtor to obtain a guaranteeUnderlying contract requires the debtor to obtain a guarantee On application of that debtor, bank (guarantor) issues a guarantee On application of that debtor, bank (guarantor) issues a guarantee

::- in the form of a (conditional) promise in the form of a (conditional) promise - to pay a sum of money to a beneficiaryto pay a sum of money to a beneficiary- on demand by the beneficiary in conformity with the terms and on demand by the beneficiary in conformity with the terms and

conditions of the guarantee incl. at least a declaration that the conditions of the guarantee incl. at least a declaration that the debtor defaults on its obligations (supporting statement)debtor defaults on its obligations (supporting statement)

Independent from the underlying contract (valuta relationship, Independent from the underlying contract (valuta relationship, such as sale, construction contract, etc) such as sale, construction contract, etc)

Independent from the internal relationship bank / applicant Independent from the internal relationship bank / applicant (provision relationship, a financial service contract).(provision relationship, a financial service contract).

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9595


Examples:Examples:- Tender guarantee (bid bond)Tender guarantee (bid bond)- Performance bondPerformance bond- Advance payment guarantee = repayment guaranteeAdvance payment guarantee = repayment guarantee- Maintenance guaranteeMaintenance guarantee- Payment guaranteePayment guarantee- Retention money guaranteeRetention money guarantee

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Independent guaranteesIndependent guarantees Applicable rulesApplicable rules Conflict of law rule: chosen law, otherwise place of guarantor ...Conflict of law rule: chosen law, otherwise place of guarantor ...

UN Convention independent guarantees & standby l/c (in force, UN Convention independent guarantees & standby l/c (in force, but only 8 countries)but only 8 countries)

Standard conditions drafted by the ICC: Standard conditions drafted by the ICC: - Uniform rules for demand guarantees (URDG) (v. 758 replaces v. Uniform rules for demand guarantees (URDG) (v. 758 replaces v.

458 since 1 July 2010), better coordinated with UCP458 since 1 July 2010), better coordinated with UCP- applicable if the guarantee refers to them (art. 1 URDG);applicable if the guarantee refers to them (art. 1 URDG);- default rules (« except so far as the guarantee modifies or default rules (« except so far as the guarantee modifies or

excludes them »); excludes them »); - not yet sufficiently succesful to be considered as customs; not yet sufficiently succesful to be considered as customs; - can be used for domestic or international relationscan be used for domestic or international relations National law remains applicable by default or where mandatory. National law remains applicable by default or where mandatory.

Art. 34 URDG contains choice of the country where issuedArt. 34 URDG contains choice of the country where issued International Standby Practices (ISP 1998)International Standby Practices (ISP 1998)

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Independent guaranteesIndependent guarantees Main rules in the URDG (NB. Wording in v.758 aligned with UCP)Main rules in the URDG (NB. Wording in v.758 aligned with UCP)

- Issued on demand of a principal/applicant (or its agent - the Issued on demand of a principal/applicant (or its agent - the instructing party) (definitions of parties in art. 2)instructing party) (definitions of parties in art. 2)

- Binding as soon as it leaves the control of the guarantor (art. 4 a)Binding as soon as it leaves the control of the guarantor (art. 4 a)- Guarantee not transferable (unless otherwise agreed) (art. 33) Guarantee not transferable (unless otherwise agreed) (art. 33)

(variations in national law as to the effect of such a no-assignment (variations in national law as to the effect of such a no-assignment clause – comp. discussion under Factoring)clause – comp. discussion under Factoring)

- Irrevocable (art. 4b)Irrevocable (art. 4b)- Independent from any other relationship (art. 5); guarantor deals Independent from any other relationship (art. 5); guarantor deals

with documents, not with goods (art. 6); disregarding conditions with documents, not with goods (art. 6); disregarding conditions which are not documentary (art. 7) with a list of exceptions (esp. which are not documentary (art. 7) with a list of exceptions (esp. externally verifiable facts or index)externally verifiable facts or index)

- If no expiry date, expires after 3 years (art. 25 c) (in the UN If no expiry date, expires after 3 years (art. 25 c) (in the UN Convention 6 years)Convention 6 years)

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Relationship guarantor – beneficiary:Relationship guarantor – beneficiary:

- Payment requires presentation of a written « demand » and Payment requires presentation of a written « demand » and documents specified in the guarantee documents specified in the guarantee

- usually at least a declaration by the beneficiary that the principal usually at least a declaration by the beneficiary that the principal is in breach of obligation, art. 15 – « supporting statement », is in breach of obligation, art. 15 – « supporting statement », unless the guarantee is explicitly merely « on first demand »unless the guarantee is explicitly merely « on first demand »

- guarantee may contain further conditions for demand (if further guarantee may contain further conditions for demand (if further documents are required, usually called a standby l/c). Art. 8 documents are required, usually called a standby l/c). Art. 8 (« content of instructions and guarantees ») contains a checklist of (« content of instructions and guarantees ») contains a checklist of possible requirementspossible requirements

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Independent guaranteesIndependent guarantees Relationship guarantor – beneficiary (cont.)Relationship guarantor – beneficiary (cont.)- Procedure Procedure - - presentation of the « demand » before expiry date (- presentation of the « demand » before expiry date (presentationpresentation, ,

art. 14 ff.)art. 14 ff.)- - partial demands and multiple demands are possible (art. 17)- partial demands and multiple demands are possible (art. 17)- - guarantor must inform the applicant/principal (art. 16) and - guarantor must inform the applicant/principal (art. 16) and

transmit copies of a complying demand (art. 22)transmit copies of a complying demand (art. 22)- - - examinationexamination by guarantor with reasonable care (art. 19) whether by guarantor with reasonable care (art. 19) whether

it appears to be on its face a complying demandit appears to be on its face a complying demand- - within 5 working days (art. 20a) (in UN Convention 7 days)- within 5 working days (art. 20a) (in UN Convention 7 days)- - in case of a demand « extend or pay », guarantor may wait 30 - in case of a demand « extend or pay », guarantor may wait 30

days (art. 23)days (art. 23)- - in case of complying demand: pay (art. 20 b)- in case of complying demand: pay (art. 20 b)- - in case of refusal to pay: notify beneficiary (art. 24) stating - in case of refusal to pay: notify beneficiary (art. 24) stating

reasons for refusal (discrepancies) – otherwise guarantor must pay reasons for refusal (discrepancies) – otherwise guarantor must pay !!

- - payment in the indicated place (art. 20)- payment in the indicated place (art. 20)

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IX Independent guaranteesIX Independent guarantees

Effects in the internal relationship between applicant/principal and Effects in the internal relationship between applicant/principal and guarantor:guarantor:

- Contract between applicant/principal and beneficiary determines Contract between applicant/principal and beneficiary determines which guarantee the guarantor will issue (useful checklist in art. which guarantee the guarantor will issue (useful checklist in art. 8); duty to inform / advice of bank towards applicant/principal; 8); duty to inform / advice of bank towards applicant/principal;

- Duty of guarantor to inform applicant/principal in case of demand; Duty of guarantor to inform applicant/principal in case of demand; duty of reasonable care in examination of the demand duty of reasonable care in examination of the demand

- No extension of term (« extend or pay ») without consent of the No extension of term (« extend or pay ») without consent of the applicant/principal (art. 23)applicant/principal (art. 23)

- After payment: recourse against the applicant/principal (under After payment: recourse against the applicant/principal (under Belgian law traditionally no subrogation)Belgian law traditionally no subrogation)

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Complex guarantees, esp. With counter-guarantee:Complex guarantees, esp. With counter-guarantee: - bank of the applicant/principal issues a guarantee in favour of the - bank of the applicant/principal issues a guarantee in favour of the

bank of the beneficiary (corresponding bank); bank of the beneficiary (corresponding bank); - corresponding bank issues a guarantee in favour of beneficiary. corresponding bank issues a guarantee in favour of beneficiary.

First guarantee is a « counter-guarantee ». First guarantee is a « counter-guarantee ». - guarantee and counter-guarantee are independent from each guarantee and counter-guarantee are independent from each

other (art. 5)other (art. 5)

Possibility of an advising bank (art. 10)Possibility of an advising bank (art. 10)

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IX Independent guaranteesIX Independent guarantees

Refusal c.q prohibition to pay (stop-payment order) in the Refusal c.q prohibition to pay (stop-payment order) in the following situations:following situations:

- Guarantee conditions not fulfilled Guarantee conditions not fulfilled - Underlying contract (valuta relationship) manifestly contrary to Underlying contract (valuta relationship) manifestly contrary to

the (international) public order the (international) public order - Manifest fraudManifest fraud- Manifest abuse of right.Manifest abuse of right.

- Fraud is more specifically described in art. 19 Uncitral conventionFraud is more specifically described in art. 19 Uncitral convention- - Provisional order possible of « highly probable » on the basis of - Provisional order possible of « highly probable » on the basis of

« immediately available strong evidence » (art. 20 Uncitral « immediately available strong evidence » (art. 20 Uncitral convention)convention)

- Comp. Aslo DCFRComp. Aslo DCFR

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IX Accessory guaranteesIX Accessory guarantees

E.g. Uniform Rules for Contract Bonds (URCB):E.g. Uniform Rules for Contract Bonds (URCB):Usually a guarantee by an insurerUsually a guarantee by an insurerComparable to suretyship (dependant personal security); the Comparable to suretyship (dependant personal security); the obligation is dependent upon the valuta relationship (between obligation is dependent upon the valuta relationship (between main debtor and creditor).main debtor and creditor).

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IX Accessory guaranteesIX Accessory guarantees

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international sales

Documents

domestic sales

optional sales law

sales result

domestic law

vienna sales convention

aspects of consumer

different place of business

mandatory law