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CASE STUDY

In 2012 a Turkish seller and an Italian buyer concluded a contract for the sale of cowhides. The
contract provided that the buyer would give the seller notice of the lack of conformity of the
goods within one month of their arrival, together with an expert statement. Upon their arrival in
Italy the goods were examined by the expert, who apparently found them defective. The buyer
failed to give notice thereof to the seller. Subsequently the parties held a meeting in Moscow,
also attended by the Russian supplier of the seller. The parties agreed that the buyer would
immediately pay part of the price due, while the remaining amount would be paid 30 days later.
In the meantime the Russian supplier should inspect the goods in Italy and possibly pay the
buyer's debt. The Russian supplier failed to proceed with the agreed examination. The buyer
then informed the seller that, due to the Russian supplier's omission, it was released from the
obligation to pay the remaining part of the price: in its opinion the Moscow agreement amounted
to a true novation of the original obligation to pay, by virtue of which the Russian supplier
assumed the debt, releasing the buyer. Finally the buyer sold the allegedly non-conforming
goods.

The contracts entered into between the parties do not contain a choice of law provision.

Claimant has argued that this Tribunal should apply the law of the lex loci venditoris while
incorporating the application of the Vienna Convention. Respondent on the other hand,
has argued that no specific national law should apply to the dispute, but rather those
general principles of international commercial law and accepted usages in international
commercial practice, including the principle of good faith, should govern.

Seller (Claimant) filed a case and asked for the remaining part of the price and interest.
Buyer (Respondent) asserted that there was a novation of the original obligation to pay.

Question 1. Assume that Turkish Court has International Jurisdiction on this matter since the
parties agreed that Istanbul Court has the jurisdiction. If you are the Judge of Turkish Court (or
if the case in ICC arbitration, as an Arbitrator), Can you apply the CISG for this case? Explain
the all conditions.

Question 2.

a. Please explain whether there is a novation OR modification of the contract or not. What
will be the your decision?

b. Does the CISG apply to interest claim? Which law governs the issues which do not fall
within the CISG’s scope of application?

c. Can the Judge( or if the case in ICC arbitration, Arbitrator) apply UNIDROIT 2010
principles in this case?

d. If there is a custom for the notification of conformity, How the Judge (or if the case in
ICC arbitration, Arbitrator) apply this custom into the case?

Question 3. Why the ICC is the most essential international institution for International
Commercial Law?

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INTERNATIONAL COMMERCIAL LAW CASE

ANSWERS

Answer 1.

The CISG is a convention that regulates international sales considering develop international

trade and uniform rules. It was processed by UNCITRAL which is core legal body of UN

known with modernization and harmonization of rules on international business purposes.

Applicability of the CISG was ensured in the Article 1 of the convention with regarding

different probabilities. In this study, the explanations and evaluations on these conditions will be

realized according to Article 1 of CISG with the interpretation of paragraphs separately.

Article I
"(1) This Convention applies to contracts of sale of goods between parties whose places of
business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a
Contracting State.
(2) The fact that the parties have their places of business in different States is to be
disregarded whenever this fact does not appear either from the contract or from any
dealings between, or from information disclosed by, the parties at any time before or at
the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the
parties or of the contract is to be taken into consideration in determining the application
of this Convention."
Therefore, the convention is being applied on movable goods or tangible rights as first

condition. (The exemptions will be indicated in sequential art. of CISG) Then, the examination

must be started in the terms of internationality. The parties of a sale contract must have their

places of business in different states. However, it doesn't refer place of conclusion of the

contract or place of performance in case. If a party has more than one place of business, at that

rate article 10 of CISG must be considered.

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"(a) if a party has more than one place of business, the place of ­business is that which
has the closest relationship to the contract and its performance, having regard to the
circumstances known to or contemplated by the parties at any time before or at the
conclusion of the contract; ..."
Afterwards, in the conditions of article 1 if contracting parties' places of business in different

contracting states, art. 1 (a) is valid and CISG is applicable. Even, parties could be had not

chosen a law provision, which is allowable; convention can be applied between the parties. (To

set an example, if each party's of sale contract business place in same state, France, and they

conclude a contract for shipment of goods from China to Spain; the applicability of CISG is not

possible. Both of their places of business are in the same country and even it is a contracting

state. However as for another example, a party's place of business in China and other contracting

one's is in Spain. They made an agreement for shipment of goods from Paris to Bordeaux. The

CISG is applicable this time. Because of it, parties' places of business in different states as stated

in article 1 of the convention.1 )

In the second paragraph of article 1 of CISG, rules of private international law were mentioned.

At this point the notion of "forum" is getting importance and value. Concisely, forum is pointing

out that the state whose court examines dispute of contract. Thus, situations are changeable

depending on forum state whether it is a contracting state of CISG or not. Even the sides of

contract are not in a contracting state, if they agreed on a contracting state law to apply disputes

to be incurred from contract, without a word as "domestic" or "domestically"; it sites that CISG

is applicable. (To illustrate, the parties have chosen the law of a contracting state, e.g. Germany;

CISG will apply as part of the chosen law of the contracting state.2 )

Additionally, this way can be named as the opting in method which will be argued in next parts

of this study. Another condition is if the forum state is a non-contracting state and if the

applicable law is the law of a contracting state; the question of which law will be applied must

be regarded. In this case, the CISG will be applied as part of the applicable foreign law. As the

1
Examples from: R. Koch, UN Convention on Contracts for the International Sale of Goods Materials of Lecture.
Augsburg University, Munich, 2016 Summer Term, p23.
2
ibid.

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author maintains that: Although some courts have applied the CISG to parties who come from

Non-Contracting States concluding that CISG is a component of their domestic law. 3

"The parties may exclude the application of this Convention or, subject to article 12,

derogate from or vary the effect of any of its provisions." - Article 6 of CISG

Last provision is about opting out which is excluding the application of the convention. It

named as negative choice of law and ensured in the article 6 of CISG. Due to exclusion of

application, it will be private international law of the forum to designate the applicable domestic

law. This derogation agreement can be explicit or tacit. (To illustrate, if the parties agreed on

such statements: "this contract governed by Turkish domestic law excluding CISG" or "In this

contract, Turkish Obligations Code will be govern." in contract, it shows that explicitly the

convention is derogated. However, although the parties' places of business are in contracting

states and their choice of law is not determined, it can be excluded of the CISG with their

behaviours' interpretation. (In a case of Poland Supreme Court in 2008, L.M. and Grażyna S.

were the parties of a contract. In the arisen dispute, they put forward all their arguments under

Polish law which can be interpreted as a choice of Polish domestic law and an exclusion of the

CISG.4 ) Herein, existence of legal basis of this condition is in the article 8 paragraph (1) of the

convention.

"(1) For the purposes of this Convention statements made by and other conduct of a party are
to be interpreted according to his intent where the other party knew or could not have been
unaware what that intent was."

As a summary, either parties are in contracting state or forum court is in a contracting state and

both parties have their place of business in a contracting state; there is no doubt CISG is

applicable. If not, the determination of existence any reservation made by a state, commence.

Under the article 95 of CISG, reservation provided which can consist by a state. "Any State may

3
A.E. Butler, A Practical Guide to the CISG: Negotiations Through Litigation. 2007 Supplement 2, viewed on 05
December 2016, p.4, http://www.cisg.law.pace.edu/cisg/biblio/butler6-ch2.pdf
4
M. Zachariasiewicz, UNCITRAL Case abstract: "L.M. v. Grażyna S. "Fabric Case". 2013, viewed on 06 December
2016, http://cisgw3.law.pace.edu/cases/081017p1.html

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declare at the time of the deposit of its instrument of ratification, acceptance, approval or

accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention."

Hence, if forum state has not made a reservation under this article, court can apply CISG.

However, whether forum state has made a reservation, CISG will not apply but will look to its

private international law in order to find the applicable sales law. Oppositely, if forum court is in

a non-contracting state, article 1 of CISG cannot be applied just in case. Court will instead resort

to its rules of private international law to find the applicable sales law.5

In the concrete case, contracting parties' relevant places of business are in area of CISG effect.

Not only Italy, but also Turkey is a contracting state of CISG, so that under the light of given

informations article 1 of CISG can be applicable. Parties did not choose any domestic law

provision. The involved goods (cowhides) about contract are movable and not things mentioned

in article 2 of CISG. (In the article 2 of CISG some sort of conditions enacted that CISG is not

being applied.) Despite the fact that Turkish seller argued lex loci venditoris(law of seller's

place) should be governed, court or arbitral tribunal should consider CISG is applicable. On the

other hand Italian buyer claimed that general principles and accepted trade usages must apply on

this dispute. However, general principles, usages, reserve rules are enclosed in CISG already.

Furthermore, they all points out lex marcatoria which is unwritten rules as a whole can be

considered while incorporating of CISG on dispute. Taking all into account, neither any opting

out condition nor derogation statements exist in the sale contract. Also there is no situation that

require article 2, 5 or 95 be applied. In so far as all these explanations: CISG is applicable here.

Answer 3.

International Chamber of Commerce is a neutral, non-governmental association that aimed

develop international standards, mechanisms and harmonization in the terms of commercial

area. Thus, ICC provides numerous advantages and assistance on some essential issues. Firstly,

5
A. Mullis and P. Huber, The CISG: A new textbook for students and practitioners. Sellier European Law Publishers,
2007, p.57.

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ICC working with UN since 1946, helped to UN top-level consultative status and had close

working relationship with its specialized agencies such as UNCITRAL or business and human

rights area. Various ICC commissions actively engage in the work of UNCITRAL and welcome

UNCITRAL endorsement of ICC rules, which significantly promotes their worldwide

acceptance.6 Moreover, ICC provides arbitral courts for disputes in worldwide scale as purposed

as corporate building; crate a harmonization in the international commerce. ICC arbitration has

international character which is a reputable corporation. Accordingly the data belonging to ICC:

"In 2015, ICC Arbitration took place in 56 countries in 97 different cities, involved 1313

arbitrators of 77 different nationalities, with 2 283 parties from 133 different countries, among

801 cases registered and 498 awards rendered."7 The arbitral awards can be ratified in the local

courts and got binding. Similar decisions of arbitrators are consisting digests and contribute

unify of international commercial law thereof. Due to the decisions are reliable, disputes

proceed faster having more precise solutions. Lastly, ICC uniforms unlike rules such as trade

usages, customs, and some kind of general principles as under named lex marcatoria.

INCOTERMS, UCP, Documentary Credit rules which are influential for most of the cases and

trade relationship regulated by International Chamber of Commerce. In short, ICC cannot

formulate laws or conventions but produces numerous documents that provided commercial

interaction. Arbitration system that ICC had, is on a crucial point as court mission for

commercial disputes. In the international area, providing harmonization and consolidation is a

tough thing to success but ICC contributes meaningly to this issue and global trade which is

increasing thanks to ICC.

Answer 2.

a. In the concrete case, one of the issues that argued and in conflict is about novation of the

contract. After the cow hides found defective; buyer, seller and Russian supplier met in Moscow

6
Working With UN, viewed on 07 December 2016, http://www.iccwbo.org/
7
"Global" Ten good reasons to choose ICC arbitration. viewed on 07 December 2016, http://www.iccwbo.org/

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in order to discuss about contract and parties' obligations that not fulfilled. Parties' following

claims also stem from this meeting which around modification of contract claimed by buyer.

Opposite of it, seller's emphasis was not same with Italian buyer. According to the article 29 of

CISG modification of contract was prepared:

"(1) A contract may be modified or terminated by the mere agreement of the parties.
(2) A contract in writing which contains a provision requiring any modification or
termination by agreement to be in writing may not be otherwise modified or terminated by
agreement. However, a party may be precluded by his conduct from asserting such a
provision to the extent that the other party has relied on that conduct."
However with the new settlement in Moscow the agreements of buyer's debt's payment

immediately and Russian party's inspection of goods in Italy are not clear to lead a modification

in contract or do not. Because Italian buyer is basing his claims on this modification and avoid

pay the purchasing price. With the Moscow settlement, Russian supplier collateral promised for

debt (as it seen from text also) and parties agreed on novation as "animus novandi" which is an

intention of roll-over the debt according to allegations of buyer. Inter alia, in the article 29 there

is not clear remark about every modification leads a novation or not just in case. Therefore, it

should be found out that: occurred of parties' intent in which way in the Moscow settlement. At

this point, article 29 is making a direction to article 8 which is crucial for determine of parties'

intent.

"(1) For the purposes of this Convention statements made by and other conduct of a party
are to be interpreted according to his intent where the other party knew or could not have
been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of
a party are to be interpreted according to the understanding that a reasonable person of
the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would
have had, due consideration is to be given to all relevant circumstances of the case
including the negotiations, any practices which the parties have established between
themselves, usages and any subsequent conduct of the parties."
Hereunder, there must be a search and interpretation about intent including relevant

circumstances; established usages, practices, et cetera. As stated by Prof. Dr Amin Dawwas:

"CISG can be applied as reflection of general principles of international commercial practice

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and accepted trade usages. Moreover a novation, in fact, differs from a mere modification of the

contract dealt with in art. 29 of CISG. In order to ascertain whether parties actually had an

"animus novandi" art. 8 interpretation generally accepted."8 Thence, in the case, although it can

be mentioned an existence of novation technically, it cannot be interpreted as seller's intend was

release the buyer from payment and other obligations in Moscow settlement. Because of it

parties agreed on buyer's payment of remaining debt immediately. So on, it will be a wrong

interpretation that seller's intend is releasing buyer from his obligations that stem from contract.

If buyer claims that he discharged from his obligations with the Moscow settlement, he has to

prove buyer would know or could have been aware of this interpretation in the terms of usages

or established practices. Otherwise, the interpretation made with article 8, does not harmonise

any general international commercial principles or relevant established practices.

b. It has been accepted that if a party does not pay a sum of money before on due time, it

becomes as defaulting party and has to pay interest. According to article 74 of Vienna

Convention, the party who damaged, had a right to ask for compensation.

Article 74

"Damages for breach of contract by one party consist of a sum equal to the loss, including
loss of profit, suffered by the other party as a consequence of the breach. Such damages
may not exceed the loss which the party in breach foresaw or ought to have foreseen at the
time of the conclusion of the contract, in the light of the facts and matters of which he then
knew or ought to have known, as a possible consequence of the breach of contract."

From this point of view, in the present case, it can be said that seller has suffered from damages

because of late payment and non- payment of sum price. In case, due to existence of money debt

and being deprived of payment, they must be compensated by rewarding interest. Thus, article

74 shows that another article of CISG which is about interest: "If a party fails to pay the price or

any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to

8
A. Dawwas, "Applicability of CISG to Kuwaiti Businesses ". Kuwait International Law School Journal vol. 2, issue
no. 7, 2015, pp. 27-98.

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any claim for damages recoverable under article 74." (Article 78). In this present case, Italian

buyer failed to pay sum of price and defaulted without any excused reason. The court or arbitral

tribunal can decide apply of interest. However, in the convention there is no any provision about

interest rate. In this circumstance, auxiliary law rules should be initiated. In one view; suggests

filling the gap autonomously, i.e. by referring to “general principles” of the Convention

according to article 7 (2). Conforming to another view, LIBOR (London Interbank Offered

Rate) or the interest rate of the European Central Bank should be considered for determining of

interest rate.9

However, in the conditions which do not fall within the CISG’s scope of application, principle

of lex fori should be activated. Therefore, Turkish court or arbitral tribunal can decide which

applicable law is in the terms of proper law. As in reported by a arbitral case in France,

International Chamber of Commerce (ICC) of Arbitration: "That in the absence of any

indication by the parties as to the applicable law, the arbitrators should apply the law designated

as the proper law by the rule of conflict which they deem appropriate, it being specified that

they shall take account of the provisions of the contract and the relevant trade usages in the

terms of lex marcatoria."10

As indicated in the arbitral court decision, for the interest issue, UNIDROIT principles which

are one of the sources of lex marcatoria, can be implemented. According to article 7.4.9 second

paragraph of UNIDROIT principles which put in order interest rate points out: "The rate of

interest shall be the average bank short-term lending rate to prime borrowers prevailing for the

currency of payment at the place for payment, or where no such rate exists at that place, then

the same rate in the State of the currency of payment. In the absence of such a rate at either

place the rate of interest shall be the appropriate rate fixed by the law of the State of the

9
A. Mullis and P. Huber, The CISG: A new textbook for students and practitioners. Sellier European Law Publishers,
2007, p.359.
10
E. Gaillard, "France: Court Of Cassation Decision in Pabalk Ticaret V. Norsolor". International Legal Materials,
vol. 24, March 1985, pp. 360-364. Retrieved from: http://www.jstor.org/

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currency of payment." Hence, seller's place (Turkey) as creditor's place can be regarded for rate

of interest calculation.

c. UNIDROIT is an intergovernmental organization that modernizes and harmonizes

commercial law between states in order to formulate a uniform law. For this reason, UNIDROIT

2010 principles, for instance, should be regarded in the interest of examination whether applying

on concrete case by court or tribunal or not. Then, to decide if apply the principles or not on the

case; there is a need to analyze preamble of 2010 principles. In line with the preamble, these

principles set forth general rules for international commercial contracts. As a result of that, vary

of the conditions are being consisted depends on which law will be governed for contract. The

principles shall be applied when the parties have agreed that their contract be governed by them.

(For instance, parties wishing to provide that their agreement be governed by the Principles

might use the following words, adding any desired exceptions and modifications: "This contract

shall be governed by the UNIDROIT Principles (2010) [except as to Articles ...]".)11

Moreover, principles, might be connected when the gatherings have concurred that their

agreement be administered by general standards of law, the lex mercatoria or something like

that. Also there is a chance for principles to use interpretation or supplementation of

international uniform law instruments. However, it is a compulsory condition that there must be

an international commercial contract to use UNIDROIT principles as rules of law or

supplementary provisions. Even, there is not an agreement to apply of these principles, solely or

there is a settlement to apply domestic law, it is not an obstacle again, considering of

UNIDROIT principles. As stated in the preamble: "The Principles may however be applied even

if the contract is silent as to the applicable law. If the parties have not chosen the law governing

their contract, it has to be determined on the basis of the relevant rules of private international

law. Arbitral tribunal can apply the rules of law which they determine to be appropriate"12 As

11
UNIDROIT Principles of International Commercial Contracts 2010. International Institute for the Unification of
Private law, Rome. 2010. Viewed on 08 December 2016. Retrieved from: http://www.unidroit.org/
12
ibid.

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for lex fori principle, even an agreement about any choice of law does not exists, tribunal or

court can decide to apply UNIDROIT principles. In the present case, parties did not choice any

domestic or proper law. Parties have accepted general principles of commercial law, accepted

usages and established applications while incorporating application of CISG already. As the

application of UNIDROIT principles about interest rate, also they can be applied for other issues

of disputes about contract automatically by the court or arbitral tribunal.

d. According to the diverse provisions of CISG, seller must deliver the goods as required by the

contract and he must deliver goods that quantity, quality and description required by the

contract. Besides, the buyer must examine the goods, or cause them to be examined, within as

short a period as is practicable in the circumstances. (Article 38 (1) of CISG). Later on, a

provision about examination of goods and send of notice was made in convention:

Article 39 "(1) The buyer loses the right to rely on a lack of conformity of the goods if he
does not give notice to the seller specifying the nature of the lack of conformity within a
reasonable time after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he
does not give the seller notice thereof at the latest within a period of two years from the
date on which the goods were actually handed over to the buyer, unless this time limit is
inconsistent with a contractual period of guarantee."
Hereby, parties can determine a notice period independently from this provision as in the present

case. Only exemption of this article is that condition of as per article 44. If buyer has a

reasonable excuse for failure to give required notice, he may reduce price according to article 50

or claim damages except for loss of profit. However, as stated in the last sentence of article 39

(2), in case, parties made an arrangement for proper notice period as 30 days. In spite of they

decided contractual period to notice, buyer failed specifying the nature of lack of conformity

within a reasonable time. Thus, he lost his right that mentioned in different articles of CISG.

However, if a custom about notification of conformity exists, judge or arbitrator should consider

this while concluding the case. Because of this, customs and trade usages are sources of the lex

marcatoria and as states article 7 of CISG, international private rules should be regarded when if

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there is no provision in CISG for dispute. In an arbitration award that is a sample for other cases,

lex marcatoria accepted as law and applied directly to dispute. (In Norsolor v. Pabalk case that

mentioned above.) Hence, customs can be regarded while arguing about notification of

conformity as could be claimed by respondent. However, ultimately, claimant would allege the

provision of contract that they agreed on in the present case (determine a time period to notice

lack of conformity) and he can demand ignorance of customs at this point.

-END-

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