WEEK 1

ICL LECTURE 1

When different people from different countries get in touch between themselves and start legal
relationship, we should address these legal relationships in different situations in different countries. For
example, a sale contract to which jurisdiction or law would be subjected? We will also consider the
regulation of this specific contract.

We have two possible sources of legislation:

1) National law
2) International law

How many kinds of ways are to make business abroad?

1) Trade: Import/export  sale/shipping/mktg

2) Foreign Direct investments through the opening of cross border subsidiaries or through
incorporation or acquisition of local companies by a foreign investor.
Options : Start-up of a new foreign subsidiary, joint venture with a local company, acquisition of an
existing foreign company.
3) Merge/joint ventures
4) Licensing  Licence can be self-standing or included in a more complex contractual framework,
such as franchising or a distribution agreement. Trademark, patent (is a registration of an
invention which has to respect certain requisites in term of creativity, industrial processes that
could be registered. The purpose of this registration is to obtain a patent which is a permission to
exploit the production of this invention in exclusive way), copyright (all the intellectual property
can be licensed, ex. Harry potter), secret (coca cola has never been patented).

What kind of legal tool is behind that? The contract. So, the key element to make business abroad is always
an agreement between two persons. We call it international because that agreement presents more than
one element, at least one rather, which connect the agreement with more than one legal system. So these
elements give us the idea that this contract cannot be considered a national one because elements are
presented which instead connect or link the contract to at least two legal systems.

International contract  UNIDROIT (international organization coming from France, who takes care to
collect general fundamentals principles commonly shared across countries, common rules which can be
applied in international contract). International contract is any kind of agreement in whatever this has been
executed, it does not make any distinction between an agreement in writing or reached by an oral or
exchanging consensus (ex. Cappuccino). When UNIDROIT tried to give a definition of contract, this one
must be executed by meaningful conduct, which means the way in which the parties are behaving in order
the implicit agreement. Unidroit means referring a contract to a link at one or more legal systems. The
nationality of the parties involved could be an element. Another element is the place where the contract
has to be performed. Another one is the payment of the good, we mean the currency. We consider
international any contracts which presents at least one or more elements indicating some links, some
connections with more than one legal system.

On which kind of contracts are going to focus? It could be any kind of, it could be a sale contract, export
and import, a provisional service. We do not focus on the content of the contract, theoretically it can
include in our definition any kind of contract, but we are referring to business contract. A business contract
is a contract which is entered by two persons for the goal of their profession, their enterprises, their firm or
business, not for consumer uses. We will focus mainly on contracts which are entered to business parties,
we will not consider consumer contract. Consumer contract is a contract which is settled by two parties for
their personal reasons. Sometimes the boundaries between the consumer and the business contract are a
little bit blurred. Theoretically, the real distinction is related about the goal that the persons which entered
in the contract are pursuing (it is a personal reason? It is for my business?). international contract excludes
consumer contract and national contracts.

When we will enter in international contract, we will should wonder two bug questions: What is the
applicable law to this contract? What is the applicable jurisdiction to this contract? And moreover, this
contract is subjected to what law? In case of dispute will be decided by which judge? The parties should
clarify which law should be applied to their contract, maybe a third country law. If the dispute arises, which
shall be the tribunal or the court, or maybe the arbitrator in charge of deciding this dispute?

First, we should identify the applicable law and the applicable jurisdiction. Jurisdiction has two meanings
more or less: 1) TO INDICATE THE COMPETENT JUDGE, SO WHAT COULD BE THE COMPETENT TRIBUNAL TO
DECIDE A CERTAIN DISPUTE OF AN INTERNATIONAL CONTRACT. 2) BROADER SENSE BY REFERRING TO THE
RULES OF COUNTRY OR REFERRING TO THE SUBSTANTIVE RULES.

A substantive rule is a rule with dictates, the right of the person in a certain situation  rules about licence
of a patent. They are called substantive because they make reference to the essence of the legal
relationship. When we find the applicable law, we look for the substantive rules which regulate that
contract. If contract is an Italian one (sale of goods), we will refer to the Italian civil code to discover what
are the substantive rules stating which discover the obligation and the duties of the parties in the contract.
When, instead we talk about jurisdiction in a narrow sense, we identify who will be the judge and of course,
once identified the judge we are identifying what are the rules and the procedure of that judge 
procedural rule. Once we know who will be the judge we will also know the procedural rules that will be
followed.

An Italian judge can apply substantive rules of another country? YES! Once identified the judge, he/she can
apply also substantive rules of other countries.

Theoretically we should try to avoid discrepancies between the different laws, to avoid that, the parties
should settle the most complete contract ever: really detailed, really precise, most clauses, so on…

Is it possible to create a contract with any possible outcome? NO, it may go out an accidental outcome and
create a dispute that need to be solved.

This is an example of one issue that can rise, this issue is related to a relationship between two privates, the
reason why we are focusing on the contract it refers to more than one legal system, so to solve any issue
related to that we have to pick up the applicable law or the applicable jurisdiction in order to deal with the
outcome of this contract. The more the two systems are different, the larger is the issue. It is the lack of
uniformity, it is the lack of harmonization between the two system that makes this relationship much more
complicates. This is not the only aspect of the international trading which can cause problems, international
trade does not include only private relation. If we ship goods in a foreign country what we have to take care
about? Taxes are one issue that makes the relationship not more private, so the relationship is private, but
we have to dealing with the state agency.

Barriers

Custom duty (custom office: it tells about the goods that can cross the border) is one of the several kinds of
barrier that has to be paid. What kind of restriction do may face? Barriers refer to the kind of product, for
example a quantitative limit (quotas), safety requisites.

Barriers can be Tariff and Non-Tariff:

Tariff barriers are any kind of taxes/duties/customs which are applied to the business due to the fact that
the business occurs in another country and not in the home country.

The non-tariff barrier is any other limitation than paying a tax/duty, it can be a quantity limitation (quotas:
set by local authorities) or red tape regulation (those are rules who established certain standards, certain
requisites that have to be respected in order to sell a certain product in certain country). i.e., rules on
ingredients, materials used (toys)etc.

Barriers: sanctions are examples such as Embargo (prohibition to do business) is a closure of the any
commercial relationship between 2 countries. USA and Cuba has embargo.

Difference between boycott and embargo? Competitors decides to cooperate into boycotting certain
producer of a certain good due to political or other region.

ICL LECTURE 2

It is always necessary find a legal system as gap filler in order to fill the missing point of an international
contract. In a situation where a contract is extremely short the risk to address an issue.

Barriers are divided by:

1) TARIFF BARRIER
2) NON-TARIFF BARRIER: a large number of measures, which may have direct and indirect effects,
reduction of the chances to do international trade, any quantitative restriction to import/export.
Restrictions to import/export had been periodically reappeared. Red tape regulation refers to
identify all those rules of a state which imposes certain standard requisites and conditions, which
have to be respected in order to be merchandised, exchanged in that country. For example,
labelling is a kind of red tape regulations. Any kind of requisites result being a barrier, the
impediment is caused because is incompliant with the local regulation. It may cause the reduction
to make trade abroad. Other non-tariff barriers are embargo, sanctions:

Economic sanctions (synonym: embargo) are commercial and financial penalties applied by one or
more countries against a targeted self-governing state, group, or individual.
Economic sanctions can be used for achieving domestic and international purposes
EMBARGO: is the partial or complete prohibition of commerce and trade with a particular
country/state or a group of countries. Embargoes can mean limiting or banning export or import,

To identify a group of persons (persone non grate) non suitable with financial system of that
country. Kindergarten effectripple effect: one country starts with a form of restriction and other
countries, to protect them, reply with other forms of a restriction which trigger a trade war.
Nowadays trade war are more rational. Another form of non-tariff barrier is boycott, for example
boycotting nestle products for ethical reasons, boycott is the choice of a private triggered by
political reasons. Periodically we have country that boycott manufacturers and distributors for
political reasons, theoretically we have two different approaches:
1) Great freedom: full acceptance of money and products coming from abroad and full freedom to get
the money and products out from our country.
 2) Protectionism: when a system claims to be able to be completely independent, to have no needs to
have external relationships. So, it is when a country believes that it can produce whatever it needs
with no need of any kind of international relationships. It happens during particular periods of life
of a state for example during dictators.

What are the pro and the cons of each position?

When it comes to protectionism, we try to protect national economy.

- The idea is to avoid and sustain the national economy to give the local producers more chances to
produce goods locally and avoid competition from producers which come from abroad.
- It may also be a monetary reason behind that, to protect the local currency in order to avoid that this
become weaker.
- Another possible reason could be to settle tariff barriers to collect money by taxes.
- Another reason which is absolutely justifiable is to enhance the local production, it may increase
employment; maybe local products are safer or healthier or more sustainable.
- Another example may be to protect the national heritage. In EU, as citizen, we can go outside whenever
we want. EU has been creating a full freedom policy, with the idea of creating a single market. Theoretically
we can expect to be the country of freedom, where free international trade is allowed. U.S. has raised tariff
barriers to China for products imported. Instead we are interested on how to limits the existence of trade
barriers. How can we reduce barriers?

WTO tries to create an international organization, a system of international agreement with the purpose of
reducing tariff and non-tariff barriers, so the idea is to provide an international dimension, a set where
agreements can be entered into the many countries belonging to WTO. Will create conditions to
progressively let down, eliminate and smooth down tariff and non-tariff barriers. That country can also
violate the obligation and the duty that the organization puts on that country, it is something that occurs
every day. One possible technique to overcome differences between states, when it comes to the
regulation on international trade, is to eliminate those barriers by international treaties or an international
organization. The creation of EU is finalized to create a single market between the member states. All this
kind of decision it refers to entrepreneurs that want to do business abroad, so that part of international
business law it is more related to international public law rather that international private law. States can
decide of cooperate in order to reduce barriers, WTO is an example of multilateral and global
cooperation, so the EU is an example of a regional cooperation, in fact EU is a region. Cooperation between
states can be multilateral, can be large but more at regional level. Easiest kind of cooperation is the
bilateral one. if you belong to WTO you cannot have bff.
All these three kinds of cooperation are reached by an international agreement. An international
agreement is a contract, it is an agreement between two states, it is a quite complex contract, but the
mechanism is the same which use cooperation in regional, multilateral or bilateral approach. Form of the
organization, it is possible for the state to give up a little bit of their power, to renounce to do some
trade barriers in between themselves, theoretically we can think about in this way, we can move from a
situation where each state is independent and autonomous, one from each other. We can think about to
several forms of integration between states when we talk about international trade  FREE TRADE AREA
AS NAFTA which involves USA, Canada, Mexico. Products produced in one of the three states can be shared
and shipped between the three countries in a free-way. It is a free trade area where everything can be
shipped for free, basically the idea is to avoid the custom duties; the problem is that every of these three
countries maintain his own custom tariff. As along as the product has been created, the product goes to
other countries with any tariff barrier; each of these products enter in one of these states; does this
product has to pay custom duty? We have to look at the host country’s regulation and we will see that this
country, like any other state, has his own custom tariff that is a list of duties and a long list of products and
the number nearby indicates the percentage related to the amount that must be paid. The exporter who
enter in NAFTA has to pay custom duty, but if we ship the same product from Mexico to Canada, we will
not have to pay any custom duty. What is important is to detect the origin point of the product, because
depending on the product has been created, then the product will be considered local and so belonging to
the free trade area. When the product, instead has been created abroad from this area, there is no way to
let benefit the product of the free trade. The creation for the free trade area is beneficial for the country
involved in the agreement, while creating a trilateral trade area is only a way to have two best friends.
Custom union is an area qualified by the adoption of a common custom tariff, which mean that tariff
applied on a certain product are the same regardless the product will enter in the area. We can create a
common single market, so welcome to the EU! In this area the main goal it is to create an area with a single
market for capitals, services, people and goods that can be moved from a place to another in a freeway,
theoretically with no obstacles. So, we have:

1) Custom Union
2) Common single market

International cooperation between states  international public law

Private law since it is international creates problems because it will face of barriers tariff and non. The
private aspect of this relationship. We have diversity in terms of culture or whatever it is. If we rely on the
similarities to regulate an international contract, we would not be longer worried about that.

Private law  creates a common set of rules about specific contracts, there are a lot of experiments and
efforts to reach this situation. The countries have been able to enter into international agreement and the
content of this international agreement is to regulate in the same way this specific kind of contracts. Due to
the effort of the UN (United Nation), the specific international agreement has been entered in the
convention of the international sale of goods (CISG). What is the goal of this convention? Is to provide to
those state signatories, to regulate directly on the basis of this convention providing a common set of rules
to the parties. This common set of establishing rules on how sale must be regulated (what is the contract
form? What are the obligations of the buyer and the vendor? What is the time or the place?). The outcome
of the form of cooperation can be applicable to private contract and those will be the same, regardless to
the countries involved. Providing a common set of rules, every issue between the parties would be
magically solved and the applied to the privates. This convention entered in 1980, after that the sales
contracts have been regulated on the basis of the convention and no more on the basis of the national
legislation. We have a lot of international agreements on the liability of the entity in charge of transporting
the people or the goods. Those agreements are similar to convention on the international sale, because the
liability of the shipper will be regulated in the same way. The problem is that the length of the contract
existing is very long and the number of the agreement providing or uniform rules about each single
contract it is much shorter. We cannot have a international on each of kind of contract, so we are sure that
when contracts are international will be regulated in the same way. Nonetheless, if an international
agreement it exists, regulating that specific contract (that international agreement is applicable to our
contract), then the problem about identifying the applicable law is partially solved, because we can divide it
in on the contract. The divergence between the legal systems causes the problem for international
contract, that is the source of our problem. That problem can be solved internationally by adopting treaties,
agreements, regulating single specific contracts, single type of contract which is an effort that exists but is
still partial. There is another driver to facilitate this issue which is the driver of the market, so the
international community have been working together for long time and they do love to repeat their
practices, their experience has created a certain pattern of behaviour, which is efficient. Not because have
been stated by a state or by a certain regulation but only because it makes sense. For example, the letter of
credit, that is a guarantee for the vendor of the sale to be sure that will be paid; how it is regulated? There
are no international rules about the letter of credit, theoretically it is the promise of the bank to pay the
price of certain goods. Then we will have the usual problem, which are the rules to regulate the letter of
credit. Letter of credit has been enacted and used for a very long time, the practices and the guidelines
which are followed in issuing letter of credit are commonly established: they are not established by any
political institution or governments or parliaments, they have been created by the practices of the business
and the bank involved. These practices have been so clear, repeated so many times that now they are
collected together. It exists an international organization which collects usages about letter of credit. Are
those usages binding? Not at all, but they are very efficient in addressing the issue. They can be described
as uniform practices, which have been collected together. Simply the repeated practice suggested the idea,
it is not mandatory by any regulation, it is just a collection of what make sense in doing letter of credit.
Another example is the Incoterms. The incoterms are terms of sale contract, those address to a couple of
specific question: who has to pay for transportation of the goods? Who has to pay for the insurance or
custom duties between the vendor and the buyer?

The practice of the parties, with reference to that, have arrived to produce the codification of certain terms
which are listed by letters. Incoterms are usages on how to arrange for transportation costs and for
payment of insurance in sale contract, involving transportation of the goods. Are they binding? Not at all,
they have been only collected by private international organizations, they have been descried one by one,
when we use one of these terms in our contract, it is clear what we mean and there is no ambiguity about
that. Naturally, the need of international trade creates practices and usages which are absolutely uniform
everywhere, so the parties behave and expect that the behaviour be the same even though there is not
expressed regulation aspect just because the repeated behaviour of the practise in the international
community of merchants have created this behaviour and suggests that is a good way to deal with this
issue. Since we have a lack of uniformity, we have the problem to identify applicable law and applicable
jurisdiction. Lack of uniformity between the national system, sometimes there is a sort of harmonization or
uniform rules, what are these sources?

1) International agreement: the harmonization comes from the states toward the privates, from the
top to the bottom  Top- Down
2) Practices and usages: it’s the private which become drivers for harmonization of the rules, they do
not care about the state so, they can handle by themselves and they can solve the problem of the
lack of uniformity.  Bottom-Up

ICL LECTURE 3

Addressing the topic about the applicability of the law and the jurisdiction, so we will the example of the
sales of goods. The same kind of issue could occur with the sale, license of a trademark and so on. The
internationality of this contract is due to the fact are citizens of different countries. The issue is, if in this
agreement some details are missing, how can we fill these gaps? Referring at a certain set of rules, about
the sale contract in this case. Country A, country B, Country C; we will have three set of rules. The vendor
and the purchaser can agree on the quantity, the quality and what should it be the applicable law and
decide either the judge in charge of deciding any dispute that may arise between the two of us. The two
issues of the applicable law and applicable jurisdiction can be solved directly by the parties. Those two
issues could be the object of a decision of the two parties  Autonomous decision by the parties. How this
decision can be expressed? The contract will include somewhere a specific clause, which express the choice
of law. What kind of words we will use? “This agreement shall be governed by the laws of…”

What about the choice of jurisdiction? The parties may include a clause on the choice of jurisdiction, to be
sure that any dispute will be solved and disputed by the court of a certain place. “Any dispute, related to
this agreement, will be regulated and settled by the court of …”

When they have to draft the first clause, they have at least three options: A, B and C. Both of them, while
do not feel comfortable with other laws, may find a compromise. A possible option may be to write down
in our clause also the law of a third state. This choice is influenced by the bargaining power of the parties, if
the part A is the stronger part in the contract, his position in the negotiation process may let obtain the
best result. There is a choice to obtain substantive rules: we are referring, when we deal with the clause of
the contract, stating the applicable law we are referring to the substantive rules applicable to that contract.

The DÉVERSAGE means splitting the contract in many parts and assign that certain part of the contract who
will be subjected to one set of rules of a certain country, another set of rules in the contract to another one
country (art.1-10 Italy; art. 11-20 Azerbaijan…). This splitting works, only if the certain part of the regulation
will be regulated in one way and another regulated in another way. This clause is a part of the contract. The
contract to be completed requires signatures, the consensus of the parties. Once the agreement has been
reached, all the parties are completely bounded by that choice. Not only the parties may do the déversage,
they can also variate their choice. Once entered in a contract with another party, would that be possible to
change the clauses of the contract without the consensus of the other party? OF COURSE NOT, but it is
necessary the bilateral consensus of the both parties, it cannot be unilateral just because you want. So
theoretically, it is possible to change the initial choice. Any of these options always make reference to the
laws of a certain state, or more the one if the parties are so brave to make déversage.

LEX MERCHATORIA

The basic assumption behind lex mercatoria is that international trade exists since ever, the community of
merchants has always been a specific part of the society, and the way that merchants have always
behaved, has always been a sort of the edge of the rules, not in the sense that merchant are ready to
violate the laws but in the sense of flexibility when you want to trade abroad. So, the idea is that,
regardless of the national legislation, the international community of merchants have been able to do
business wherever and for long using very basic rules which are common to all the merchants everywhere.
So, the concept of the lex mercatoria is to make reference to any general rules or principle which is
commonly applied by the international community of merchants. Regardless of national system there is on
the top of that a set of rules and principles, a standard of behaviour, ways to solve problems related to
international trade that are not solved by national parliaments by issuing and enacting specific pieces of
regulation, but rather they are addressed autonomously by the parties involved in the contract, always
more or less in the same way. The problem is when you are entering in a contract, you are expecting that
the party respect the contract. Lex mercatoria is a set of implicit rules, but the problem is to demonstrate
which are these rules. The concept refers to the common general principles about international contract,
but it is not written down anywhere. What is the intention of the parties? They want to disregard national
legislation, they rather prefer to make reference to this bundle of general principles about contract, which
is elaborated, created and constructed by the practices and the usages, by the conduct and the behaviour.
LEX MERCHATORIA means LAW OF THE MERCHANTS. People have been doing business everywhere and
this is a super national concept. The main principle of lex mercatoria is that the agreement must be
respected, Lex mercatoria has 3 main comprises:

1) General law principles:

- Pacta sunt servanda Contract must be respected in its terms.
- Each party of the contract must behave in good faith in fulfilling the obligations under the
contract; they are obliged to behave with fairness and good faith.
- When a party suffered a damage in contract shall takes step to mitigate it/repair it.
- Remedies in case of a breach of the contract (ex. Being entitled to be the discharged)
2) Usages:
They are practises regularly observed in trading that parties follow
3) Case law:
Includes the possibility to rely on an international arbitrator or other international alternatives.
International organizations have been trying to define this concept and the contents of this concepts.
UNIDROIT legal scholars have collected the principles, listing the aspect which the parties expect to
regulate this agreement  example of collection of lex mercatoria. This may give to the parties a
substantial reference if they have chosen lex mercatoria as applicable law. There is not a perfect
overlapping, in the sense that the parties can’t demonstrate a certain rule is part of lex mercatoria, even
though that specific principle is not included in the collection of Unidroit principles. So the Unidroit
principles do not exhaust the concept of the lex mercatoria, it just offer a tangible example of how do we
mean about lex mercatoria.

What is the ambiguity? The risk of uncertainty in this actual set of rules which the parties are making
reference to instead of the law of a certain state? It is very easy to identify the laws of a certain state, it is
difficult instead, to demonstrate a certain behaviour which is regulated in a certain way under the lex
mercatoria. This difficulty has a possible disadvantage. Let’s suppose a dispute where parties of the
contract indicate lex mercatoria instead of a certain law of a certain state; the contract in the case has
originated is dropped for a judge. The judge will verify if there is a clause of the choice of applicable law and
he will discover that the two parties have choosen lex merchatoria as the applicable law. The problem is
that whenever the judge is a state judge, he will be requested to judge the case on the basis of making
reference to this sort of uncertain and undefined bundle of principles which have not never been clarified,
maybe collected by certain international organization. It is really difficult for a judge to follow this kind of
rules. The problem is that if the parties have chosen lex mercatoria, when it comes the choice of
jurisdiction, they have to be extremely careful because they indicate the judge of a certain court or tribunal
there might be a friction between the two choices. The judge of that country may refuse to settle the case
on the basis of such uncertain concepts. If the parties want to choose lex mercatoria, they can also choice
arbitration.

Who is an arbitrator? The arbitrator, opposite to a state judge, is a private judge. It means that the parties
have given the power to a third person to be their arbitrator (FORUM <3). Two business people can decide,
if any dispute arise between them, to go to a state judge or instead can decide to appoint an arbitrator. The
arbitrator has to be qualified, he is an expertise. Arbitrators are not judge included in the judiciary system
run by the state. There is much more flexibility to decide how to solve the case. Basically, it is the will of the
parties to define also how the arbitrators will solve the case.

Parties can decide between:

1) Any regulation
2) Lex mercatoria  issue  arbitrator

It is frequent by the parties to asking for a judge from another country, due to the consideration that he is a
neutral one. The parties have to be extremely careful because of it is possible to make the choice, but just
to avoid the risk to be judged by another court. We have to be extremely careful either if we choose the
applicable jurisdiction of a federal state; it makes no sense choosing the applicable jurisdiction of the US,
which state? Which judge? Alabama? Louisiana? In this case we have to be much more specific. As
alternative to that, parties may choose an arbitrator.
Convention of NEW YORK states that is possible to rely on a foreign award and obliges parties to rely on
that.

Why pick an arbitrator instead of a state judge?

When we are entering in a contract, it is clear that we are going to draft an applicable jurisdiction. We have
to decide whether if it is more convenient to indicate an arbitrator or instead a certain state judge. What
are the possible advantages of using an arbitrator?
 1) Timing of the decision: usually the arbitrator delivers the decision, which is called award, faster due
to the using of deadline that the parties impose the arbitrator and cannot be prorogued or
postponed, unless certain specific circumstances occurred.
2) Arbitrator are more expensive: arbitrator must to be paid in advance and also is much more
expensive than a state judge. They are not always affordable
3) Impartial: more neutral than a neutral judge, but usually depends on the kind of arbitrator.
4) Trying to avoid corruption
5) Arbitrator’s award is binding  New York convention recognises a habitual award as an
enforceable decision, even in another state where the agreement has been given. Enforcement is
an issue that has to be considered, it is also an issue that is been impartially solved by special
international agreement about that.
6) Confidentiality  confidentiality by arbitrator is much stronger than one offered by a national
judge.
7) Expertise  arbitrator is expert in a specific field (engineering, business, …). An ordinary judge can
miss some points while arbitrator is expert in that field.

International arbitration requires two requisites:

1) The place of arbitration shall be in one of the signatory state of the Convention
2) The arbitral award is made in the territory of a state other than the state where the recognition and
enforcement of the award are sought.

Provided these two requisites are satisfied, the clause for an international arbitration pursuant to the NY
convention has to identify at least:
1) Place of arbitration
2) language of arbitration
3) Rules of the appointment of the arbitrators and rules applicable to the arbitral proceeding.
4) The (substantive) applicable law.

What if the parties have no made any choice? This choice can be completely omitted, because the parties
have no idea of the choice of the jurisdiction or the applicable law. Since they have no idea about that, they
might have totally disregarded this issue. The contract does not say a word about the applicable law and
the applicable jurisdiction, it just includes the quantity of the goods, the price, place of delivery, …

Opposite this scenario there is a lack of choice. Each state has a specific set of rules: public laws, civil
private law, private international law (PIL).

Private international law is mainly used in the European context, while in the US is called conflicts of law.
Basically, is the same concept. Both of these definitions refer to the national rules. In Italy is contained in
the law n. 218/1995. Those rules are national, those are not substantive rules, those norms are norms of
conflicts of laws. Those set of rules contain a list of connecting factors which lead to the applicable law or
applicable jurisdiction. Connecting factor is the element which shall be considered to answer to
fundamental question; what is the rule that should be applied to this situation?

All these rules should be solved by the criteria settled by the private international law, referring the
connecting factors. Each country has a list of its own connecting factors to identify the place which
determine the applicable law, which is the private international law that we have to follow. So, the PIL that
we shall consider is the private international law of the judge which will be requested to define the case.
Which will be this judge? Country A and Country B made no choice about applicable law and applicable
jurisdiction, now A is in need to start a claim against B, he will start a claim in which tribunal? The judge in
the country A will dealing with the international contract. Is the country A the competent judge? And which
law should he apply as a judge of country A? To solve this issue, the competent judge should apply the PIL
of country A. the competent judge should identify a certain connecting factor, which could be the place of
the defendant. In this case the defendant is country B. What kind of rules should I apply? The country B
private international law. If we look at the art.3 of law n. 218/1995 the connecting factor is the domicile of
the defendant, the outcome depends on where has start the controversy first, but the method to solve it is
to rely on the specific piece of legislation of the state of that judge, which will identifies the connecting
factors, answering to two questions.

1) Am I competent?
2) Why am I?

On the basis of the Italian PIL, the connecting factor to identify the competent tribunal is the place of
the defendant lives. Therefore, the judge is competent. If no choice has been made, with reference to
applicable law and applicable jurisdiction, we have to make reference to PIL. Is there a way to reduce
uncertainty about PIL? PIL is national, we create a list of connecting factors, which is the same in
different state  EU has been trying to make it.

WEEK 2
ICL LECTURE 4

We have identified two possible scenarios when it comes to identifying the applicable law and the
applicable jurisdiction in an international commercial contract. First scenario is when the parties express a
choice, the other is when there is a lack of choice. What are the issues? When the choice has been made,
we will have two certain limits in the choice given to the parties. We have said that parties are free to pick
any court of any state, they are free to choose arbitrator or state judge, also lex mercatoria. The second
layer we should add on with reference to the scenario where the choice has been made, is to try to
understand whether any legal limit exists to this great degree of freedom which we have identified. In the
other scenario, where we have a lack of choice, we are enabled to understanding that each country has his
own specific set of rules related to the national rules, and those set of rules are called international private
law. Those are national rules which identifies connecting factors to identify the applicable law or the
applicable jurisdiction to international relationships. All counties have their own set of rules, Italian one is
the law n. 218/1995. The differences between legal systems about the connecting factors chosen by a
certain PIL of countries make a different outcome when it comes to legal relationships.

Export in Germany – importer in Thailand -- London

Under German PIL, what is the connecting factor to identify the law applicable to a sale contract? The
German system uses the connecting factor the habitual residence of the vendor. Among the many possible
connecting factors, under the German PIL the applicable law for an international sales contract, will be the
law of the place where the vendor has is own habitual residence. What instead happens in Thailand? Under
the Thai law, the connecting factor is the place where the contract has been executed, meant as signed.
let’s suppose that the contract has been signed in London. Let’s suppose that the German vendor starts the
case before the German tribunal, what is going to be the applicable law pursued to the case about? The
German judge will decide about the applicable law of Germany referring to the connecting factor, that is
the habitual residence of the vendor. If he resides, right now in Italy, he will start a dispute before a
German judge. We have the German citizen, as vendor, starting the dispute before a German judge. if the
dispute against the importer is unclaimed before the German judge, we have a lot of elements indicating
the international feature of this contract. So, the German judge will ask himself, which is the applicable
law? Since he has to decide the case related to the Italian law, instead in Thailand it is the same thing. The
both judges will have to study the case, where is the contract has been signed? In England, where the
contract has been signed. Each state has its own set of rules, it is possible to harmonize these connecting
factors? The best example is related to the efforts given by the European Union, within the framework of
the EU several goals have been reached.

The first regulation is Brussels 1 Bis, it represents the outcome of the development of previous
international convention, the original one was executed in Brussels. EU’s Brussels 1 bis is the regulation
which has numbered eu n.1215/2012. In 1968, a lot of EU countries entered to a convention with the
object to harmonize certain connecting factors with reference to jurisdiction  harmonize criteria for cases
for international jurisdiction  away to identify the applicable jurisdiction. Time by time, EU has become
stronger, cooperation between states has become tighter and closer. The first convention has transformed
in regulation. The content of Brussels 1968 was basically transposed into the EU regulation, it became
immediately law for all the member states. The second version has been enacted after some amendments.
Which is the competent judge which we can refer into the EU regulation Brussels 1 bis. This regulation
allows us to identify the competent judge of a international dispute, provided that the dispute is included
in the area covered by EU regulation  ART 1. EU reg. covers civil and commercial matters, if we are
dealing with taxes and commercial duties, the EU reg are outside the area of EU and do not rely on this
regulation. Even in the civil and commercial area there are certain exclusions, for example family disputes
as succession. The EU regulation deals with dispute within the civil and commercial area, subject to certain
exclusions.

This regulation can be applied in the EU. as long as, the judge belongs to a member state of EU, that judge
will be under his own PIL and he will make to this regulation. From the point of view of the judge, the first
level of PIL is the one coming out of the EU participation, based on the EU regulation. Each country has
maintained his own characters of PIL, but on the top of that there the Eu regulation which is
hierarchically superior when there is an overlapping between the two. Brussels 1 bis has partially replaced
a national PIL of each country; as long as the EU reg. can be applied there is no reason for a judge in a
member state to refer to national PIL. This regulation is not exhaustive, it does not address any possible
dispute but it is referred exclusively to civil and commercial disputes and within these there are exclusions.
if the controversy is instead international, we know that any judge in the EU will use this regulation to
define this case.

This regulation is always applicable or not? It depends from the nature of the dispute, it has to be civil or
commercial. It does not say a word on the rules of a sales contract, it just gives us the connecting factors
because it is PIL but the clue it is been enacted in a unified way by EU institutions  connecting factor is
the same everywhere. The connecting factor, according to the EU regulation, is the element which allows
the reader to understand in an international dispute, civil or commercial not included in the exclusions, if
there is the competence of a certain judge or not. This connecting factor is the domicile of the defendant.
Based on the reg. of 2012 the connecting factor to identify the competent judge is the judge of the place of
the domicile of the defendant. How can we identify the jurisdiction that has to be respected for dispute on
a certain international contract? If we rely on the EU reg 2012, the criterion is just one and it Is quite easy,
because the connecting factor is the domicile of the defendant. The plaintiff or claimant is the person who
starts the claim, when instead the person who resists to the claim of the plaintiff is called defendant. Why
not the resident of the plaintiff? It’s a matter of fairness of justice, to say that the general criterion to
identify the competent judge is a criterion of proximity. The criterion for the EU has been unified the
connecting factor to identify the competent judge and in doing so, let’s identify a criterion which allows a
reasonable way of defence. This is the general one, there are other concurring or exclusive criteria. The
general rule is that a judge is competent, when the EU reg. can be applied, as long as the judge is situated
in the place where the defendant has his own domicile. The Brussels 1 bis regulation offers additional
criteria to identify the competent judge. These additional criteria are divided in two concurring criteria, or
exclusive jurisdiction. In certain situations, the interest which is the core of a dispute overrides and
therefore, the connecting factor must be a different one; this is the case of the exclusive jurisdiction. We
have to apply specific connecting factors the judge applies this regulation under the obligation to follow the
exclusive jurisdiction criteria and to disregard the general default rule of the domicile of the defendant. The
general criteria are stated in the art. 4, EU n. 1215/2012.
“1. Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be
sued in the courts of that Member State.”
2. Persons who are not nationals of the Member State in which they are domiciled shall be governed by the
rules of jurisdiction applicable to nationals of that Member State.
Instead art. 24, EU n.1215/2012 mentions the exclusive jurisdiction case. The first is related to ownership
about land or immovable assets (right in rem). The connecting factor is the court of the member state in
which the property is situated.

ART 24 LISTS CASES OF EXCLUSIVE JURISDICTION:

1) Rights in rem  ownership on immovable assets where the property is situated

2) Companies  courts of the member state in which the company, legal person or association has its
seat
3) Public registers  courts of member state where the registers are kept (car purchasing)
4) Patent, trademark or any other intellectual property or right that has to be registered  the
courts of the member state in which the deposit or registration has been applied for.

This regulation also talks about concurring jurisdiction, the rational behind is that the concurring criteria: if
the criteria is concurring it means that you can use this criterion at the top of the general one. Under the
exclusive jurisdiction we have to indicate the specific connecting factor indicate in the Art.24 , also when it
comes to the concurring jurisdiction, it means that the plaintiff has one or more options to start the case.
Brussels 1 Bis established the concurring jurisdiction criteria with reference to three specific kind of
controversies:

1) Employment contract: an employee has the right to start the claim at his own domicile
2) Policy holder: domicile of the plaintiff
3) Consumer relationship

In these cases, the plaintiff is considered to be the weaker part in terms of bargaining power. Those are
criteria of concurring jurisdiction  to identify the competent judge

The last set of criteria are mentioned in the art .7. What is this article talking about? special jurisdiction

Art 7: Special jurisdiction : Says that a person domiciled in a member state may be sued in another
member state in certain conditions:

a) In a matter relating to a contract, before the courts of the place where the performance of the
obligation in question has to be made.
b)
- In the case of sale of goods, the place in a member state where, under the contract, the goods
were delivered or should have been delivered.
- In case of provision of services, the place in a member state where, under the contract, the
services were provided or should have been provided.

ICL LECTURE 5
When we say the competent judge is the one of the place where the defendant has his own domicile, or
where the obligation has to ne performed we are just talking about a place: Rome, Italy; London, England….
There are many judges around over there, at least there are tribunals or courts of appeal and also different
courts per every kind of controversy; this is much more specific on the divisional power between judge. Art.
4 states that if there is no coincidence between the domicile and the nationality of the party, the national
law on the competence will be applicable. Is there still some space for PIL to be applied? Since this
regulation is so crucial and so relevant, is there a situation where Brussels 1bis cannot provide us any
answer? Eu regulation does not cover at all, so we will apply the private international law to solve any
issue.

When a person is not domiciled in the EU, it is possible for a judge offer his own competence? No, we do
not have any connecting factor. There must be a way to address situations like this, what does EU reg. says
about? IF the person is not domiciled in a member state of the EU, the judge will make reference to his
own PIL. In case of an Italian judge, reference has to be made about the Italian PIL 218/1995

Does the Italian private international says anything about the jurisdiction? The article to make reference is
the article 3 of the law n. 218/1995.it says that “Italians courts shall have jurisdiction if the defendant
resides in Italy or has a representative in this country who is enabled to appear in court”

So, if an Italian judge cannot apply EU regulation for one the reasons mentioned, he can affirm his
competencies if the defendant is:

a) Domiciled in Italy
b) Resides in Italy
c) Has at least a person able to represent he in court

If not none of these criteria is satisfied, the Italian judge is not the competent one. it is a sort of double
layer of criteria: The verification of the jurisdiction must be made pursing to the EU regulation, if the EU
regulation cannot be applied then, the judge must move to the Italian private international law especially
on the art.3 to verify if:

1) He is able to affirm, nonetheless his own competence

2) The connecting factor used are the domicile, the residence and the representative in court

So, we are able to identify the competence jurisdiction if no choice has been made, we have two questions:

1) Who is the competent judge, and so what is the applicable jurisdiction?

2) What is the applicable law?

The Eu has provided a European union regulation to harmonize the criteria to identify not only the
jurisdiction (Brussels 1bis) but also the applicable law  ROME 1

Rome 1 regulation is n.593/2008, this regulation deals exclusively with obligations arising from contracts.
What other sources of obligations, beyond contracts do we know? Tort, tort is a situation where person
suffers a damage, due to this damage he is entitled to obtain an indemnification. The damage has been
caused without the existence of a previous contractor relationship between the two persons. Rome 1 deals
exclusively with contractor obligations while Rome 2 deals with tort obligations. Before the regulation has
been enacted the convention existed before. Similarly, there was a convention called Rome convention
between certain European states, cooperating between themselves, to harmonize the criteria to identify
the applicable law for contractor obligations. The convention has been transformed in European regulation.
This regulation Rome 1 is not about jurisdiction, is about applicable law, this kind of regulation tries to
harmonize PIL of the EU members with connecting factors. this regulation it is all about the party’s choices.
So, the fundamental criterion is that in order to identify the applicable law, the judge must do any possible
effort to try to understand, whether exists, a choice by the parties. Only if it is impossible to discover or to
understand what was the intentions of the parties about the choice of the law, that it is really to detect,
then the judge can rely on this regulation to identify the applicable law. The first provision of this
regulation which is Art.3 says that: a contract shall be governed be the law chosen by the parties  great
freedom of choice at the parties. The parties are the one who should decide how to regulate the contract.
And only when no choice had been made, the regulation provides other additional criteria. In Rome 1 the
principle of freedom is stated in Art.3. If no choice cannot be really discovered the judge has to give up, so
the judge can rely on art. Due to the absence of the choice, art 4 of Rome 1 says that: if the parties made no
choice about the applicable law, then the law must be determined in accordance to this art. 4.

ART 3: Applicable law should be the one chosen by parties

ART 4 : If the parties have made no choice of law, law will be regulated as follows: (these are connecting
factors)

a) In a Sale of goods: the law of the country where the seller has his habitual residence
b) Provision of services: the law of the country where the provider has his habitual residence
c) Right in rem: the law of the country where the property is situated
d) Immovable property concluded for temporary private use for a period of no more than six
consecutive months: the law of the country where the property is situated
e) Franchising: the law of the country where the franchisee has his habitual residence (franchisee is
the weaker part in terms of bargaining power.)
f) Distribution of goods: the country of the law where the distributor has his habitual residence

The competent judge will try to identify the applicable law looking into the contractor relationship to verify
if choice has been made. If this effort does not provide any successful outcome, then the competent judge
will rely on the Art. 4 of Rome 1 regulation and he will try to identify the connecting factor which can be
followed in that specific contractor relationship. A certain judge, when it comes to the identification of the
applicable law, might solve the case applying also the law of a third state. It is a risky decision for the
judge, he has to be skilled. The parties try to avoid this issue taking decisions on the contract. If the parties
made no choice, the only way to filling the gaps is the PIL of a certain state with reference to:

1) Jurisdiction  Brussels 1bis

2) Applicable Law  Rome 1

We will try to identify the substantive rules.

Brussel 1 ART 25 : PROROGATION OF JURISDICTION :

The parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to
have jurisdiction to settle any disputes which have arisen or which may arise in connection with a
particular legal relationship

Why the prorogation of jurisdiction? The idea is to give power to another judge, so the jurisdiction is
prorogued when it is given to someone else. Art 25. of law n. 1215/2012 says that: If the parties of contract
have decided that the courts of the member state have jurisdiction to settle any dispute which have arisen,
or which may arise in connection whit a particular relationship. We can disregard the domicile of the
parties and their nationality. They can pick up a jurisdiction of a court of a member state, apparently the
only content is the choice of the parties in order to prorogue jurisdiction to another member state 
application non universal. Provided that, they can pick up only states inside the EU. The parties are
entitled to decide the applicable law in favour of a court of a member state, otherwise we cannot rely on
art. 25 if we want to choose a court of a state outside the EU or if we want to pick up an arbitrator. No
concurring jurisdiction or other judges. The agreement conferring jurisdiction shall be either:

a) In writing or evidenced in writing  form of the choice (a clause, for example)

b) In a form which accords with practices which parties have established between themselves
 a way of behaviour, practice between the two of us.
c) In a form which accords with a usage of which the parties are ought to have been aware and
which in such trade or commerce is widely known to, and regularly observed by, the parties to
contracts of the type involved in the particular trade or commerce concerned  under a certain
usages. “it is commonly known that traditionally is subjected to the jurisdiction of a certain place,
such usages exist. We are aware by the existence of these usages.

Which is the form that the chosen jurisdiction has to respected, with reference to article 25? The
regulation requested, as first criterion, is that the agreement has to be stated in writing. Also, even If no
choice in writing has been made, it is still possible to demonstrate the existence of a prorogation of
jurisdiction, if we have evidenced in writing this agreement. Even when no such evidence exists, it is still
possible to demonstrate the will of the parties If there is a practice between the two, bilateral constant
and repeated practices for picking up that specific jurisdiction or, even if no such bilateral, constant and
repeated practice can be demonstrated, still it is possible to demonstrate the existence, that is a very
heavy burden of proof, it is possible to demonstrate that exists and international usages between
merchants of the same kind, according the way of similar transactions will be disputed before certain
court and that usages know them. “it is commonly known that…”

ICL- LECTURE 6

Question: What if the controversy to dispute relates to a matter which is subjected to exclusive jurisdiction
to article 24? For the case listed in art. 24, there is just one criterion to be followed, since the jurisdiction is
exclusive  you cannot apply the art. 4 (the general one), not the concurring criteria (consumer contracts,
contracts for the employment), not the special jurisdiction of art.7.  IT IS NOT POSSIBLE FOT THE
PARTIES TO DEROGATE TO ART.24

ART. 25: the agreement cannot cover disputes related to art 24, people cannot choose another jurisdiction
different to the one chosen by the art. 24. If people are covered by the application of the EU reg., then they
can rely on art. 25 to make this choice

EU regulation Brussels 1bis has a particular application: we have to consider only the subjects related to
this (civil and commercial, with the exclusion of…). Then, if we have chosen the jurisdiction, we have to
verify if the clause is valid (art.25), while if, is not written, we follow the general rules (art. 4) with the
exception of art. 24 (exclusive jurisdiction) and artt. 15-21 (concurring jurisdiction). There are also some
special cases listed in art. 7

Even if this regulation is extremely large, there might be scenarios where the regulation cannot be applied
and we must rely on the national PIL. If in the contract is explicitly said that the will of the parties, the judge
has to verify if he is competent, since the choice of the parties is valid. To do so, we can:

1) Rely on EU. Reg. Brussels 1bis

2) Rely on the Italian PIL
Imagine that the parties have chosen the US court, but nevertheless the plaintiff has appointed the
defendant to an Italian court. The judge will start reading the contract and he will find out the existence of
a clause that appoints the court of a third country. Can we use the EU reg.? NO! So, he will search in our
PIL, the 218/1995, and he has to find out if the clause is valid for our PIL. If the choice is valid, he will send
the parties to NY. If instead, he believes that our choice is not valid, then he can say “Well, I am
competent”. The case can be brought before any judge, and any judge which is requested to a certain case,
will verify if the contract contains a choice of jurisdiction. For example, the two parties have decided that
any dispute will be solved in NY, so the two have gone before the NY judge, who will make a verification. He
will ask himself: “even though I have been indicated to decide this case, am I allowed to do so? Before
answering to this question he has to verify if the clause is valid.

So, if the judge cannot rely on the EU reg., he will use the Italian law 218/1995 that is:

1) Quite opened to the will of the parties

2) Art. 4 of the 218/1995 states that “Italian courts can be chosen as jurisdiction, if the parties have
chosen it”. So, an Italian court is competent as long as the parties of the contract have an
agreement about that, provided that such an agreement has evidenced in writing or the defendant
has appeared before that court, without making any exception. We have two ways to validate the
clause:
 The choice of jurisdiction has been made in writing
 Regardless of what the court may say about that, the defendant has been convened before an
Italian judge, and the defendant has decided to show up, the defendant has not said a word against
that choice  he has not protested; there is a first mover advantage, but the defendant can
protest

Is it possible for the Italian jurisdiction to pick up some courts outside Italy? The jurisdiction of any Italian
court may be derogated trough an agreement in favour of a foreign court or an arbitration. Indeed, third
country and arbitrator are accepted. What is necessary is that:

1) The agreement must be evidenced in writing

2) The rights which are objects of our relation are alienable (Loans, selling goods, borrows, …)
3) The chosen jurisdiction or arbitrator have accepted their jurisdiction

Art 4 deals with both scenarios:

a) The scenario where the Italian parties have chosen the Italian jurisdiction: the choice is valid if
there is evidence in writing or if the defendant has not opposed to the Italian judge the minute he
entered the court
b) The scenario where the international parties have derogated from the Italian jurisdiction in favour
of a third country or in favour of an arbitrator  it is possible, provided that the clause has
evidenced in writing, the rights which are disputed are alienable and the jurisdiction has been
conferred by the chosen judge

Bremen vs Zapata

The contract was for bringing a big piece of a machine, a drilling equipment, from a part in Louisiana, to
Ravenna. The parties agreed that if any dispute arise, they should have solved it before the English
court (admiralty= maritime court). There was a shipwreck, the ship and the carried machine were
damaged, so they were stuck in Tampa, FL; they tried to fix the dispute.

Was the plaintiff (Zapata, US), right in picking up Florida tribunal or not?
  The choice has been made, it is stated in the contract: they have decided that any dispute will
be solved in the court of London, so there was no ambiguity in the choice of the parties.
 The accident happened in international waters
 They did not look that much at the clause, but they focused more on the traditional way to
solve the problem (there are precedent about this fact)  traditionally they are against the
choice of jurisdiction. In the past, US courts have been very reluctant in accepting the choice of
jurisdiction in favour of a non- EU judge. they say “we should stop to have this kind of
approach, because if he continue to say that that clauses about the choice of jurisdiction in
favour of tribunals and courts belonging to different states, that will cause “detrimental
international trade of the US, because it is a sort of a parochial approach”. We are too close in
not allowing the parties to derogate to US competence and to figure other jurisdictions. if we
continue in this way, it means that we remain close and too concentrated on ourselves and will
maintain this sort of attitude, which is too local.

What is the problem? That is a common law system, so whenever the president is against, it is necessary to
distinguish and to motivate the different decision. That is because the president’s decisions are, in a
common law system, binding (UK). This is an issue for the US courts for this reason.

The judge will say “if in our system there is not expressed recognition of choice of jurisdiction in favour of a
judge outside the US, then this will cause an obstacle for doing an international trade for the US
companies”. The problem in the US system is that the previous rulings had rejected the validity of the
clause, while in Italy it would be accepted, since there were evidence in writing, there were rights which
were alienable and we take for granted that the English court would have accepted the case.

 Consideration on the actual situation between the two parties. Because the court is aware that the
reason why in the past other American judges had decided to go against the validity of the choice
of jurisdiction, it was not because they were too protective of the country. There was not any
reason to do that. The bis issue is linked to the fact that the parties are aware, when they pick up a
specific judge?

What kind of parties are involved to the choice? In this case, two companies were involved, one had to take
care of the transportation, while the other one was in charge of expecting the big drilling machine  both
companies and both professionals; in this decision, a lot of importance is given to the quality of the parties.
Due to the fact that both of them were professional, they are both able to understand what they are
doing, they both have a sort of “professional training”, since they have an expertise in what they are doing,
the fact is that they have decided something in their contract means that the choice has been made
following a debate.

 Due to quality of the parties, we can expect that each clause of the contract has been bargained
negotiated

It means that each clause has a VALUE, because the price on which we have agreed for that service of
transportation is a price which has been determined and bargained upon taking in consideration all the
terms and of the contract, not only the length of the of the travel, not only the cost of insurance and so on,
but also the fact that if the dispute arises, it will be solved in London.  if we do not consider that clauses
are valid, we alter the value of the contract.

So we have 3 aspects:

1) Quality of the parts

The court was aware that past judges were against the validity of a foreign jurisdiction. The 2
parties of a contract are aware in the choice of a judge. What kind of parties are involved in this
 choice? In this case two companies that are professionals, they know what they do, the judge verify
the quality of the parties, they are both able to understand what they are doing and they have
professional training. The judge chosen is chosen by two parties very complete aware of it. So they
are on the same level of knowledge.
Parties are able to bargain without risk that one overwhelms the other

2) London court is specialized in maritime transportation

To have a choice of jurisdiction in favor of court of London means that there is an economic value
in term of this and that parties bargained for London. Having a dispute in London is different from
other places because London court is specialized in maritime transportation.

3) Respect the will of the parties

Parties are attached to that clause. If we deny the validity of the clause, we try to replace what the
parties decide because they are attached to the bargain they made and is not fair.

WEEK 3

ICL- LECTURE 7

We have seen that parties make a choice of applicable law. This freedom is guaranteed by Rome 1. Certain
interests can be so important to state that the parties can derogate choosing the applicable law of a
contract, so we have two concepts (OVERRIDING MANDATORY RULES AND PUBLIC ORDER) that represent
two boundaries to the application of the law which parties opted for.
Rome 1 has a universal application, it gives the parties the power to pick up the law of any state (EU or a
third state), nonetheless the limitations of OMR and PO remain binding for the parties.

Therefore (perciò), we have some examples:

Overriding mandatory rules are considered as preventive rules, in fact they will remain even if parties
will try to skip their application.
- parties cannot agree to skip taxes by applicate the law of another country

Public order is a subsequent limit by the judge; certain rules protect interests and cannot be left
unprotected.
Example of public order:
- Is not possible for an employer in Italy to hire a person under 14 years old.
- In commercial transactions, treatment of agents. Is a person invested with charge to find new customers.
Is not possible for a company under EU law to hire an agent and tries to skip his obligations (fees) saying
that his contract is under another country.

So, for parties there are these two specific boundaries when they choose a law.
Rome 1 regulation applies mandatory rule and public order.

ROME 1 REGULATION 593/2008

ART 9
Overriding mandatory provisions
1. “Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country
for safeguarding its public interests, such as its political, social or economic organisation, to such an extent
that they are applicable to any situation falling within their scope, irrespective of the law otherwise
applicable to the contract under this Regulation.”
So Art 9 gives the clue that Rome 1 gives the opportunity to parties to choose the law but Overriding
mandatory rules will remain directly applicate.

2. Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law
of the forum.

How can we identify overriding mandatory provisions? Is almost impossible. Certain scenarios of the law
covered by this kind of provisions, is not possible to provide an exhaustive list of overriding mandatory
provisions because as a matter of facts this system has his own depending from the country of interest.

Other limit about public order:

ART 21
Public policy of the forum
“The application of a provision of the law of any country specified by this Regulation may be refused only if
such application is manifestly incompatible with the public policy (order public) of the forum”
The choice made by parties will be considered valid and followed but for provisions of public order.

But rules of public order are just a few

The interpretation made by the judge must be really prudent, he cannot simply say that any rule is public
order, but he has to identify which provision cannot be derogated by the will of the parties otherwise he
must be prudent because the limit should not harm the freedom of parties to choose the law they prefer.

Even this tool exists the application is not that large, otherwise the application of law became worthless.

Difference between over mandatory rules and public order is small:

Overriding mandatory provisions are considered a preventive limit
Public order is a subsequent limit, identified by judge which realize that certain rule must apply to certain
contracts.

The last limit we consider is in ART 3

ART 3 Rome 1
Freedom of choice
Contains the statement about freedom of choice, the statement that allows Rome 1 to give the parties
freedom of choices.
3. “Where all other elements relevant to the situation at the time of the choice are located in a country
other than the country whose law has been chosen, the choice of the parties shall not prejudice the
application of provisions of the law of that other country which cannot be derogated from by agreement”
all the elements relevant for a certain legal relationships are located in a country that has been chosen.
Talks about a situation called “double contract” that is purely national.
How can we identity this situation?
So two parties in an international contract have decided to apply Italian law but there is no elements in the
contract that represent any link with Italy.
Imagine a party is French another German and the contract will be performed in Spain, that applicable law
of parties is Italian. So, chosen law has no elements linked with the choice of parties, so the provision says
that: the choice of the parties should not prejudice the application of provisions of the law of that other
country which cannot be derogated by agreement. So, if there is no link to a certain contract that does not
allow parties to derogate from rules which will be otherwise applicable
In situations like this, there must be a link between a contract and applicable law. Otherwise, the
provisions of law will remain applicable

Imagine there is an agency contract between 2 parties in order to avoid the application of certain term to
be respect (ex. Payment of price), the parties adopted the law of a third state that is not linked with the
contract, that third country law, that is their choice, does not allow them to avoid the application of the law
of the place which instead presents link with contract.

So, during choice of law of parties:

which is the regulation that must by followed? Rome 1. His scope is wide but there are topics outside it.
(because Rome 1 is applicable only for commercial and civil matters, family matters, custom duties for
example)
If the topic is in Rome 1, Rome 1 it offers the parties a choice of freedom, it has an universal application
(Parties can also choose state even outside EU)
Rome 1 just refers to the law of state (no reference to lex merchatoria), this does not mean lex merchatoria
is prohibited, but means that cannot choose deregulation to support choice made by parties.
In addition, even parties are free to apply the law they prefer still they have small limits (such as art 9 and
21, overriding mandatory provisions and public order and also purely national contracts -> See above art 3)

This was the recap of how parties can choose applicable law.

On website there are uploaded “Hague principles”, not to study but read them. These principles are similar
to UNIDROIT principles; they are collection of general principles about freedom of parties to pick up law,
they are used to simplify international contracts.
We talk about unification of law. These principles are similar of Rome 1 because we talk about unification
of law and possibility to pick up law. Thanks to these principles there is a common wisdom, common
approach by many countries to accept the idea that parties have the freedom to choose the applicable law.
But there are still limits, because they are binding for parties the existence of Overriding mandatory
provision and public order.
So, art 9 and 21 are limits.
But we do not how the same dispute will be solved by a state outside EU. There is a general common
wisdom for parties to choose applicable law but with boundaries., but we do not the approach.
We made a triple test, we made 3 different tests:
1) Parties are free to pick up competent judge using the approach of the EU
2) Parties are free to pick up competent judge using the approach of Bremen vs Zapata (using point of view
of US)
3) We considered Private Italian international law
So are the parties entitled to pick up their judge? Yes, but at which condition? We considered this limit
using three different scenarios.
While for applicable law we just used the Rome 1 regulation approach (SO EU approach)
But how this situation can be solved in states outside EU?
In order to fill this void we use Hague principles like a model. They represent a bundle of common rules,
There is a general common wisdom of possibility for parties to freely pick up law under certain
boundaries
What if Rome 1 regulation cannot be used?
What if a contractual relationship is outside the boundaries of Rome 1 regulation (that we know has
geographical limits and also united by subjective matters). How the judge should verify if parties in this
situation are entitled to pick up a certain law? It will use a private international law (general answer)
But we know that in any nation any judge will basically accept the choice made by parties, and we know it
because Hague principles have been collected in order to find a balance between national approach.
So to the question What the Hague principles do?
- They are just principles that are not binding
- Can be followed autonomously by parties
- Used as a model for legislation by states
- Important: they represent a sort of common standards and these common standards say that parties of
an international contract are free to choose the law but that choice is under some rules (overriding
mandatory rules and public order).

Little recap in order to introduce New York convention:

Any judge in any nation will accept the choice of parties,
Parties can make an expressive choice about applicable law and jurisdiction.
Parties can choose an international arbitrator instead of a state jurisdiction, because:
- arbitrator skills
- Procedures pace

Parties of an international contract can choose an arbitrator because many state are signatories of an
international convention in favour of an international arbitration.
Is interesting for parties to choose arbitrators for the reason that many states signed special convention
of international arbitrations called then New York convention.
States, which are parties of this convention, accepted that parties can make the choice for the jurisdiction
opting for international arbitrator.
Law 1995 Italia also: accepted the will of parties to derogate in favour of at third county or in favour of an
arbitrator. Art 4 of law 1995 allows the parties to derogate in favour of an arbitrator(or other jurisdiction)
provided 3 aspects:
1) agreement must be evidenced in writing,
2) Contractual relationship should be alienable (dealing with alienable rights)
3) Arbitrators will confirm the power to decide the case.
Italy accepted choice of parties in favour of arbitrators.
This approach is shared by many countries; They all accepted their jurisdiction to be accepted in favour of
arbitrators. This is not the only exclusive acknowledgment made by the states belonging to this convention.

They do accept that parties can derogate jurisdiction of a specific country in favour of an international
arbitrator and the convention also says that the enforcement of award (decision) (applicazione della
decisone dell arbitro) will be accepted by any state.
So using this convention if the arbitrator (within this convention) gives the award is extremely
convenient because the enforcement of award will be automatic.
Imagine you won a case and the arbitrator is in you favour and you received an award, the arbitrator decide
that is not your fault and you have to receive an amount of money (you are a creditor). If you want to
obtain your money by using a national ruling made by a national judge the enforcement you are searching
for in a different state is not easy, there are national procedures for solve this but they are expensive, they
make you waste time and sometimes they are not successful. This is why in intern relationship the parties
are not only afraid of enforcement (because even if you win the case is possible that in another country you
cannot enforce the procedure).
Ex for an Italian person is complicated to enforce an Italian rule in Azerbaijan and vice versa. Is hard to
enforce foreign laws in Italy and this is an advantage for the debtor because he will use the fact that being a
foreigner as a sort of shield.
This is why we have the convention of New York, is able to hold all the sate to agree that if an award is
given to a person within the convention, the award will be enforceable without obstacles.
What is important is that the decision of the arbitrator made in a country belonging to the convention, is
different from a country where the award will be enforced. So if the award is made by an arbitrator in
Italy, the award must be enforced in another country belonging the convention, otherwise you would not
be considered international but national.
What does the convention say about the clauses of the contract?
What approach the parties should use for New York convention: They just have to make their choice for
arbitrator, what is necessary for them is to express their will that they want use arbitrators, this clause
can be enriched by saying the number of arbitrator, which will be the language, the rules etc.
What is most important is that the parties agreed upon the application of an arbitrator instead of local
jurisdiction of a state.

Convention says that agreement can be preliminary before the dispute arises or following the contract.
In writing means a clause signed by both parties and also an agreement exchange by telegrams.
What is important is that the will of the parties has to emerge in writing someway.

Convention does not say a word about binding, is not possible to challenge the validity of award except in
certain circumstances such as a manifest error or evident mistake made by arbitrator. These topics are not
imposed by the convention.

In pratica la convenzione permette a tutti gli stati firmatari di considerare valida la scelta di un arbitro, e
pertanto ciò che dice l’arbitro è legge

There are a lot of types of contracts, such as the agency contract or the transportation contract, but the
sale contract is the most important  exchange of money for a good

If we followed the approach used so far, we should set that the applicable law is the on chosen by parties,
or if no choice has been made, we have to follow the international private law of the state, or Rome 1.

When it comes for sales of goods, it is really a lucky situation because there is an international
agreement, which has been reached in 1980 in Vienna -> Vienna convention

VIENNA CONVENTION 1980

The goal is to provide a set of uniform miles about the international sale of goods.
 We know that at least within the states that have satisfied the convention (very long list, more than 80
states) the rules applicable to a sale of goods whenever is international, is not a domestic set of miles, but
those rules that are included directly in this convention.

So when it comes to an international sales of goods, it is possible for the parties to pick up applicable
law, and it is still applicable for them to do so, but the parties of an international sale of goods are in a
more comfortable position because the international sale is a contract that has been regulated in a uniform
way by a large number of countries. USA, Italy, France Austria are all part of the Vienna convention. UK are
not

For the countries included in the Vienna Convention, the choice of the applicable law becomes an
important issue, because the parties can rely to on a common unified set of rules.

How has it been created?

It has been created under the umbrella of the united nations organization (UN) that has a large number of
commissions:
There is a commission inside the UN whose aim to facilitate the reaching of international agreements with
reference to commerce. This commission responsible for commerce has been successful in convince the
state to adhere to the Vienna convention for the international sale of goods and a state can also adhere
lately by a ratification.
In the past some of the signatories states were socialist countries. Vienna conv. Represents a sort of
compromise, a balance between very different countries and traditions (especially law systems).
But in order to reach this compromise something was left aside.
Even though the Vienna Convention is really exhaustive it is not complete. IN fact certain aspects of rules
about sale remain outside the convention.
Even if the convention still exists is better for the parties to make their own choice for the applicable law,
because the convention does not address all the rules about the sale.
 Parties must have the certainty in order to fit in the gap

TOPICS OUTSIDE THE VIENNA CONVENTION:

Those topics where the states were not able to find an agreement, a compromise.
1) VALIDITY OF THE CONTRACT: It’s a topic that remains subject to the national law
 which one? The one:
-- chosen by parties
-- Identified by national PIL
2) PASSING OF OWNERSHIP: When and how the ownership is passed over by the vendor to the buyer
Why? The national differences about the moment and the need to have the passage of ownership to be
fulfilled is really stitching
In Italy in order to obtain the ownership of a movable asset you have to EXCHANGE THE AGREEMENT. Is
sufficient to pass the property (no need of payment not the delivery of the goods).
Another approach could be the one of a legislation, for which to pass the ownership, it happens when the
agreement has been exchanged and the price has been paid.
That is all matter of use: In Italy for example, just with the exchange of the agreement, you are obliged to
perform (Delivery of the good and payment of the good).
If the good has been damaged, you still need to pay because the contract is valid.
But it is not the same case state for state.
How and when the ownership is passed is a topic that the convention does not want to deal with,
because otherwise it would have become impossible for 80 states to agree on that.
3) LIABILITY AMONG PRIVATES: For personal injuries or death of the person.
When you buy a product you can suffer a damage due to the product (pollution, explosions) and if this
happen are you entitled to obtain a refund from the vendor? Yes, you are but the Vienna convention does
not say anything when the product liability refers to personal injuries or death.
Why? because it a serious matter, usually differently regulated by each state and the position of the
states can vary a lot.
And it Is not clear whether the product liability regarding damages to products/things is included in the
convention. But generally, this kind of liability is included in the convention.
What is EXCLUDED for sure is the liability for damages caused to persons by privates.

Since this convention does not cover all the topics it is still important that parties can choose for the
applicable law they want to follow. So, it is not because it is a sale contract that you can skip this
opportunity.

The convention is STRUCTURED IN 4 PARTS

1) Scope and general provisions: When the convention is applicable. How can we say that a contract
is subjected to the convention
2) Formation of the contract: How, according with the convention and when is a contract for the sale
of goods entered into
3) Obligations of the parties: What is the vendor and the buyer supposed to do and what happens in
case that a budge of the obligation occurs
4) Entry into force/reservation: (entrata in vigore/prenotazione) entry into force and the position of
the states belonging to the convention.
 A reservation is the declaration of a state at the moment of the ratification of the convention to
exclude certain provisions from the application.

SCOPE AND GENERAL PROVISIONS

When can we apply the convention?

We need an INTERNATIONAL SALE of GOODS  If we have these three conditions we can automatically
apply the convention.
So we have to understand:
-what is a sale
-what is a good
-whether it can be considered as international

It can be used as an automatic rule, UNLESS the parties have opt out
 Convention is not mandatory: even when all the circumstances trigger the application (so even when we
have a sale of goods, which is international) still it is possible for the parties of the international sale to
choose another thing.
Parties can opt out entirely or do a sort of depecage.

Which are the conditions which trigger the application of the convention? If the parties have not excluded
it, entirely or particularly we need

1) Sale
2) Goods
3) International character of the sale

1) SALE:
The convention does not provide any definition of the sale.
Why? Because the concept of such a sale varies from state to state.
Some countries say that a sale contract is when a good is exchanged for a price.
Others say that sales contracts are the delivery of goods in exchange for a price.
To skip this issue, the convention takes as granted that parties know what is meant for sale.
But what the convention does of useful, is describing the obligations of parties requested in a
sale contract. So at least we know the obligations of parties in a sale contract.
These obligations for the vendor are:
- to deliver the goods
- hand over documents related to the goods
- pass the ownership: Passing the ownership is just mentioned by the convention and it isn’t
regulated.
These obligations for the buyer are:
- To pay the price
- Take the delivery

We know for sure that if we have this kind of obligations we have a sale contract for the
purpose of the convention.

2) GOODS:
They are the object of sales, we talk about movable goods and tangible goods.
 Convention will not be applicable for:
- Real estate
- Intangible and immovable goods
And other certain exclusion are provided:
- Ship, Vessels and aircraft: Because that type of sales is subject to specific national legislation.
- Securities (shores, bends etc): Because national legislations are quite specific
- Electricity: The convention does not concern oil, gas or energy. It is debated whether the
convention will be applied or not.

What kind of sale are we interested into?

Other exclusion
Even though a contract entails a sale, still the convention excludes those kind of sales from his scope of
application:
1) CONSUMER SALE : If the sell is for personal reasons and not for business/professional reasons, the
convention will not be applied.
Convention is interested only in business sales but it is not easy whether a sale is done for personal or
business reasons.
For example, if a businessman decides to buy a laptop is a personal or business sale? It is needed an
ascertainment to define if the sale is private or for business.
Consumers transactions are outside the scope of convention because IS A MATTER OF NATIONAL
PROTECTION, in fact consumer sale and its rule are an aspect of mandatory provisions of national laws
and they are under each state regulation.
In EU consumer protection has been heavily harmonized (guarantees)
2) AUCTION :
All the potential buyers are gathered together and the winner of the sale is the one who does the higher
offer
It is rare to have international sales in this way because auctions have specific national rules.
3) SALE OF GOODS THANKS TO THE ORDER OF THE JUDGE OR AN ORDER BY THE LAW :
It is possible to buy assets (goods) in procedures for the expropriation of a debtor.
Sometimes the things of a debtor are sold, this is a sale imposed by the judge/law.
In certain circumstances, to buy goods in procedures like expropriations, is very convenient because they
are cheap.
If the sale is made within the expropriation, that is a sale that is outside the boundaries of the convention
because this kind of procedures are nationally regulated.
sometimes is the law that decides that a good have to be sold. It is a legal sale imposed by the states, so it
isn’t necessary for the convention to regulate it.

ICL- LECTURE 8

About 83 countries have been able to reach an international agreement related to the sale of goods with a
common set of rules  Vienna convention 1980 , thanks to the effort of UN, it is not an exhaustive set of
rules, it excludes three topics: validity of the contract, liability of the product (injuries) and the passive
properties, subjected to the domestic legislation. The law which can be identified on the basis of the PIL of
the place where the controversy is started. Even when the contract is entirely regulated, even when shot,
will be subjected to this convention it is nonetheless advisable for the parties, making a proper choice of
the applicable law, the gaps that remain even though the convention is applicable because the convention
is not a complete set of rules.

Form of convention in order to have a list of chapters.

The convention will regulate contract of sale of goods about movable and tangible goods. Not all the sales
can be included because we talk about business sale. Usually, consumer protections are regulated
nationally and at EU level. The convention excludes specific kind of sales, auctions and procedure of
expropriation, also when the sales are directly imposed by the law. The convention does not provide us an
express definition of what a sale is but, it helps us in order to identify when a contract is for sale or not by
describing the obligations of both parties. So that we know that a contract for the sale of goods should
occur if the vendor is committed is obliged to three main undertaking: deliver the goods, deliver the
documents and passing the ownership. We know that if we are facing a contractor relationship, such
obligation occurs if we deal with a contract for the sale of goods?

Can we apply the convention to a barter? NO!

Can we apply the convention to a contract where is a business entity that act as agent to find new
customers? No, the agent promise makes his own best effort to find potential customers for the sellers, the
final sale between the vendor and the final customer will occur between them. The agent is only a
mediator. Agency contract is out dorm the convention. Neither a distribution contract/agreement. The
focus of the convention is only about sale of goods movable and untouchable. We did not clarified a
fundamental feature of the internationality of the contract, in the sense requested by convention. we have
to be more specific when we define contract, the convention doesn’t care at all about the nationality of
the parties, the convention only about where the nationality where the parties have their place of
business, we can’t apply the convention when the parties have their business in the same nationality.
Nationality can be totally disregarded (disattese). What is requested is that the parties have their place of
business in two different countries, we cannot apply the convention where the parties have their business
in the same country, this criterion, referring to the place of business may cause a ?? result.

We can think differently, part A, the vendor, has business in France, B the buyer in US  we can apply the
convention. It is also relevant that the obligation must be performed; what is relevant is an international
agreement the convention is binding only for the list of countries. Since the convention is an international
agreement. What we need for the applicability of the convention is that the parties belong to the
convention. So, the countries must have signed the convention in order to apply the convention. parties
can rely on the convention only if they are signatories of the convention. it is a sort of applicable law.
What is the place of business? The convention doesn’t explain the place of business, what should be the
applicable law beyond the convention. how can we solve ambiguity? Applicable law, beyond the
convention if the contract says that “for any filling, due to the incompleteness of the contract we refer to a
certain legislation”. If the parties have more than a place of business (corporate), the relevant place of
business is the one which presents the closest connection with the contract . Apart from that the
convention gives no clue to discover the place. We can say that the place of business exists. If there is a
stable organization. If the contract is of the sale of goods, as described, then the convention is directly
applicable and can be derogated by the parties, otherwise it will be overriding domestic rules. How should
the parties avoid the application of the convention? Nonetheless, the best way to exclude the applicability
of the convention will be to devote one clause of the contract, by saying expressly “this contract, even if
apparently, should be subjected to the convention of Vienna will not be subjected to the convention and it
will be instead regulated by the law of country X”. if no express choice to opt out has been made, the
convention accepts to be derogated also by needs of an implicit choice by the parties.

Even when, all the condition of the applicability may occur. It is possible to derogate, to opt out for the
parties either in an explicit way saying NO or in an implicit way by certain other elements of fact which
can be considered as a serious hint for the parties. When there is no choice about the applicability, the
applicable law shall be identified on the basis of the PIL of the country where the controversy started.
The parties have always the power to decline the choice in an explicit way or in an implicit way, it’s not
mandatory and it can be derogated, remain applicable due to the mechanism of the PIL.
CONTRACT OF SERVICE
If one buyer asking to the producer to create a product form the scratch, is the convention applicable or
not if the vendor is providing the goods, it is creating the product on purpose. The convention says that the
convention remains applicable regardless the nature of the product. Applicable also on product on
purpose, the only limit is that the convention is not applicable anymore if the buyer provides the
substantial part of the materials needed for the production, the contract will be outside the scope of the
convention (Bottega Veneta can’t produce crappy leather bags, similar to plastic). Contracts for service are
outside the convention, nonetheless the contract provides certain services contract, as long as, the
obligation of the vendor provides some additional services to a value which is lower at the sales of the
product.

USAGES
The convention also accepts the idea of trade transaction influenced by usages, which are extremely
important in international trade relationships because the habit of the parties do exactly the same thing
in the same way is a sort of protection. The convention is aware from that, even though a contract is
subjected to the convention, it is possible that the contractor relationship is subjected to usages because
the convention contains the provision in the Art 9 stating that usages can be incorporated into a
contractor relationship in: Usages can be requested:

1) Explicit way: the parties can remain free to say that certain usages that they would like to follow
will be applicable to their contract which as well they will be subjected to the convention, there is
no contradiction. (ex. INCOTERMS, under international sales contract  their contract will be
subjected to that specific usage)
2) Implicit way: no mention has been made by the parties for the application of specific usages,
nonetheless the convention provides for the applicability of international usages, even when no
express requirements for the own application has been made by the parties  the applicability can
be derived in an implicit way. The convention does allow the parties to maintain the application
of usages, without any sort of hierarchy between the convention and the usages, so the usages
remain available for the parties. But also, the usages are considered to be implicitly applicable to
the contract.

The convention is applicable to a contract for the sale of goods, unless the parties have partially or totally
derogated from the convention. The convention offers us rules for the formation of the contract, it
describes the obligation of the parties and also regulates the remedies available in case that the obligation
is not properly or entirely fulfilled.

Part 2 of convention  THE FORMATION OF THE CONTRACT

Theoretically a contract can be formed in many different ways, in an oral way (cappuccino) or the
exchange between the offer and the acceptance of the offer. The convention tried to find a common
middle road. Offer and acceptance must match in order to form the contract. This mechanism is intuitive
and also tricky:

Offer  acceptance ----- Offeror (the one launching the offer) Offeree (the one receiving the offer)

What does the offeree can do? The options available are to accept, reject, counter offer or remain in
silence.  silence does not mean acceptance.

So, the offer has to satisfy at least three features:

1) Addressed to a specific person  there must be addressee

 2) Sufficiently determined  Precise. Quantity, quality and price.
3) Intention to be bound  Basically, we are not joking. If the offer does not express the intention of
the offeror to be bound by his own declaration, then we are missing a crucial and essential element
of the offer. The word is very important.

The acceptance, on the other hand, is that legal systems are divided in two groups.
- A certain number of countries want a perfect match between acceptance and offer  mirror image rule
(comma by comma, iPhone by iPhone). Another group of countries is more flexible, accepting certain
discrepancies between acceptance and offer.
A very strict mirror image rule is a way to avoid the discrepancies and avoid overlapping (sovrapoosizioni)
between the parties, how to address this issue? Basically, the acceptance must match the offer, the
discrepancy will be tolerated, as long as, the mismatching does not refer to the material terms of the
contract. The convention says that other mismatches are for example the time of the delivery, the term of
payment, also the mechanism to settle the dispute. Basically, the convention apparently, does not follows
the mirror image rule because it says explicitly that an acceptance is considered an acceptance even
though discrepancies are present in the acceptance. Immediately after this statement, the convention
specifies that only irrelevant divergences will be considered irrelevant. The mirror image is extremely
relevant in the letter of credit.

When is the offer effective? Theoretically, the offer is could be immediately effective or valid;
1) Since the declaration “the offer is valid until”
2) When it reaches the other person.
3) Offeree has the chance to read the offer.

So basically, we have three possibility of offers. DON’T USE THE DOUBLE ARROWS EXAMPLE AT THE
EXAM!!

The proper way to describe is “the offer becomes effective when it is received by the other party. It is
totally irrelevant is whether if the other party has actually read it or not”.

From the point of view of the convention the offer is able to become effective at any time after it has
been received by the addressee.
When the acceptance become effective? When it is received by the offeror. ” double blue arrow “

When is the offer revocable? For the Anglo-Saxons, the meaning of setting a term of offer is simply a
time for other party acceptance, it is a deadline for the expiration of the offer. The deadline means that
the offer is also non revocable, in that period of time cannot be revoked by the offeror. Only after the
deadline the offer is no more valid.
even if the offeror says that the offer will last up to December 25 th 2019, the offer will disappear  The day
after Christmas the offer will no longer stands. In the civil law, we consider the setting of a deadline for two
provisions:

a) Expiry date for the offer  the offer will no longer stand after day x
b) Within that expiry date, the offeror has no power to revoke the offer  the offer cannot be
revoked up to day x. it is up to the offeree to decide whether to accept or disregard and the offeror
cannot do anything but only wait for the deadline of the offer.

The convention has been finding a sort of balance between civil and common law

ICL- LECTURE 9
Can the offer be revoked?

What happens if the offeror changes his mind and try to modify or maybe to cancel the offer he has made?

The simple fact that the offer may contain a time reference, so the deadline (a date for the expire of the
offer) is not considered, at least in the Anglo-Saxon world, as symbol of the fact that the offer cannot be
revoked. While in other systems is not so clear: actually the fact that there is a date indicated expressly in
the contract may mean that the date of the offer must be maintained firm.

So, what about the convention, which is always trying to find a balance in between different legal
approaches?

An offer can be revoked, in principle, so it is in the possibilities of the offeror to change and to cancel the
offer-> upon what moment? Up to the moment that the acceptance is received.
So it’s possible for the offeror to change his own idea at any time before the receipt of the acceptance.

In certain cases, nonetheless, the offeror has no possibilities to revoke his own offer.
cases:
- when the offer has been declared irrevocable by the same offeror.
it’s a chance for the offeror to say that the offer he’s making is and will remain firm, unchangeable and that
won’t be revoked.
- This irrevocable nature of the offer can be expressly indicated by the parties. It’s not mandatory for
them to do so, it’s an option. It can be an advantage in doing so because sending out a strong commitment
of the offeror may prove a strong will from the offeror to do the contract. You declare, in a way, the strong
interest that you have in pursuing that transaction.
In this case, the offeror has no possibilities to revoke the offer up to the moment of the expiry of the
offer (when you do an irrevocable offer, it’s usual also to put an expiry date, beyond which the offer is
not valid anymore).
Why? Because the offeror has decided to define his own offer as irrevocable, expressly his will to remain
firm and unchanged.

- “this offer will remain firm up to…” -> another way to express the irrevocability of the offer (even if more
uncertain)

- For reasonable circumstances of the case that the offeree can rely on the irrevocability of the offer.
1) due to the negotiation between the parties;
2) due to the timing;
3) due to the expectations of both parties.
For this causes, the offeree would rely on the offer up to the expiry date.
Outside these circumstances the offer can be revoked up to the moment of the receipt of the acceptance.

Can you revoke the acceptance? When does the acceptance becomes effective? Up to the moment it’s
received by the offeror. So if you can cancel your acceptance before that it arrives to the offeror, it can be
revocable.

Questions (exam): How is the contract formed under the Vienna Convention? You have to describe what is
an offer and what is an acceptance, how this exchange has to occur, whether it must be or not a perfect
identity (match) between the two, whether each declaration can be revoked or not.
These are the formalities that can be necessary to enter into the contract.
The contract is formed when an acceptance, which is reasonably matching in the sense of the Vienna
Convention with the offer become effective, so it’s received by the offeror.

For this topic (the formality of the contract) we have really different approaches by the different States:

-legal systems that are really not at all about formalities for the completion of the contract (ex. Italy). The
default rule in the Italian system is that unless the law differently states, a contract is formed whatever
express the common will of the parties to establish and regulate a contractual relationship of economic
value in-between themselves. In Italy just a few of agreements are subject to special formalities: ex. If you
want to buy a real estate, you need that the contract is written.

On the other hand, there are many legal systems that prefer a much more formal approach. They would
refuse the freedom of the parties to express their contract as they want. Ex. Russia: formalities are much
more important. In general the rule is that all the contracts (and the sale contract in particular) must be
concluded in a formal way.

The Convention was made in 1980, there were a lot of States belonging to socialist tradition and on that
legal tradition formality was really important.

Once again the Convention has to find a balance between these two different approaches and the
outcome of this effort is the following: the Convention does not impose any formal requirement for the
completion of the contract. So the exchange of an offer and an acceptance can happen in whatever way:
could be in writing but is not necessary to have the exchange in writing.
The declaration of the offer and the acceptance may happen in an oral way, in writing or may also happen
just by a “meaningful conduct”.
Imagine that the offer comes in the form of an order to buy a product and the acceptance does not come in
a form of a telephone call o email but comes with the selling out of a product or paying the price. So the
behaviour of the parties expresses the will of the parties to either accept or refuse an offer.

The Convention is not at all about formalities is more similar to the Italian system than the Russian one.

Art 11 or 12 the formality of the contract. This is one of the provision of the contract that the States can
reserve. Reservation is whenever a State decides to ratify an international agreement. The simple
signature is not sufficient for the Convention to be directly implemented in Nations legislation.

What is needed for a convention to become binding in a National system? Is that State not only adhere by
signing an international agreement but also to ratify it. At the moment of the ratification the international
agreement may allow the State to make an opting out to say which are the provisions of the
international agreement that they do not want to implement.
It’s possible for the member states to opt out and to say that you don’t want to apply a certain article. One
of this article is about the lack of formality for the completion of the contract.
the parties can decide not to apply the convention but another type of opt out comes from the State that
can do a reservation. An example of this kind of reservation is about the formality of the contract art.7 “for
the formation of the contract no requisite is needed”. Another example: Russia and Argentina have both
decided to make part of the convention but they refuse art.11. Lack of formality:
Article 11
“A contract of sale need not be concluded in or evidenced by writing and is not subject to any other 
requirement as to form. It may be proved by any means, including witnesses.”
What does it mean? They refused the concept and the rule of the convention according to which the
contract can be concluded in any way. So if your counterparty in a contract is belonging to one of the
States that has reserved (rejected) art.11, the parties are not free to enter the contract without
respecting those formalities. They have to pay attention and to verify under the applicable law what is
the formality needed.

Since the States are free to reserve from art.11 theoretically there is a way to circumvent this reservation,
because we know that the parties of a contract are free to opt out for certain provisions. So we can say
“even though the state has refused this rule about the lack of formality, still under the convention one of
the parties are the king of the contract” so they must be free in doing what they want, also to decide what
kind of formality they want to apply to the contract.

There is one point to which the parties are not free to derogate. If one of the counterparties belongs to a
State that has reserved art.11 then art.11 does not work anymore, which means that there is no more the
freedom to complete the contract in whatever way they want.

So, if Italy and Russia have decided to do a contract, they are not free to rely on article 11 and so they
cannot say our contract will be concluded with these perspectives, will be completed whatever is our
behaviour, in writing or about shaking the hands, by having a toast whatever, by telephone, by WhatsApp
message or just because silently we start to do our job under the contract so, I start to send her the goods
and she pays. No, we have to focus and to be careful about what kind of formality should be requested,
convention tries to put together state which otherwise would have rejected article 11 entirely and would
have rejected the convention entirely for the reason of lack of formalities. Many other states that do not
have any problem with that and so they do not exercise this power of reservation. The flexibility of the
convention is not only the flexibility given to the parties which remain free to derogate from the
convention, but for case of article 11 actually, but also the freedom of the states, of the contracting parties,
of the convention to derogate to specific provision, to make the reservation as long as these reservation are
possible. This should more or less describe the formation of the contract now what we need on both sides,
we know now that no special formalities are requested to complete the contract unless the case for the
state who has exercised this power of reservation.

3 Aspect of the convention  Obligation of the parties

We have mentioned that, we have listed in the obligation, what we have not given maybe enough details or
actually for you it would be more than enough, but you are forced to consider additional details about that.
Sometimes, formalities for a contact are needed for the validity of the contract, meaning that if that
formality has not been respected, the contact is not valid so it's unable to produce any effect.
Sometimes of formalities needed to give evidence of the contract, so to furnish a proof of the contract
which means that if the formality is not respected, still the contract is valid, but it would be impossible
for the parties to demonstrate the existence of that. The convention does not impose any formalities for
completion of the contract, so the convention does not requests any formality for the validity of the
contract, any formality for the evidence of the contract; so under the convention it is possible to have a
perfectly valid contract, whatever form you have used, as long as, you have an offer and acceptance
managing together and it is possible to demonstrate the existence of that contract by any means which can
be accepted before the judge of the dispute. Your contracts to have been completed and entered into by
needs of evidence in writing of course, but also by means of witnesses. would do something that otherwise
would not be possible here for specific formality was required work could be requested for the evidence of
the contract. So the formality is not requested by the convention and not for the validity of the contract,
nor for the proof for it, so evidence can be given in any possible way.

We have said that the vendor has to deliver the product, that was one of the vendors obligations; deliver
the goods, deliver the documents and turns for the ownership.

So how should the delivery happen?

Well, the contract is really the source of these aspects at least of these features, so the delivery has to be
made in the manner indicated in the contract and within the time indicated in the contract. What the
convention does is to provide additional criteria if those points are not clarified in the agreement, as long
as, the parties have been clear in stating when the delivery has to happen and how has to be done, no issue
because it is simply a matter want. If no place has been indicated for the delivery? The contract implies
also, transportation of the goods, transportation carriage.

Buyer (has to provide the delivery of the goods)  vendor

We have to discern from the contract for the sale of the goods and the contract of transportation. Even
if, the contract for the sale of goods may imply delivery of the goods, which is absolutely the case and the
delivery made by using some forms of transportation, the two aspects are not the same.

The delivery implies carriage, another contract, it must be not mixed up with the sale contract. One thing
is the agreement between the buyer and the vendor, to have certain goods to be delivered for a certain
price, and one thing is how to rely that effect which may comprise the need of transportation to a third
party. If the transportation has to be arranged, a contract for carriage will be needed, this contract will
be different and separated by the sale contract. Maybe, the carriage will involve one the two parties,
depending on the party which is arranging for the transportation and a third party, the one responsible for
the carrier.

So, the carriage contract will be a contract between a carrier and usually one the two party of the
contract sale (buyer or vendor). A carriage can be implied by the sale contract, we just describe the need
to have the goods to be transported from the point A to the point B, but it does not means that the
regulation about the carriage is included in the sale contract, that is a separate set of obligation which
will be regulated differently. One of the two party takes the obligation to arrange for the transportation,
he takes care to finds someone who will be actual carrier. Let’s imagine that the vendor has the obligation
due to the agreement by the parties to organize the carriage. It means that he will take care of the carriage
from point A to point B. The carriage contract is outside of the sale contract as long as the parties of the
carriage contract are different by the parties of the sale contract. Due to the relationship between the
carrier and the party which has requested the carriage or the shipment, there might be a liability of the
carrier or no liability at all for the carrier, but it is a separate obligation for the vendor. The vendor has
the obligation to pursue, to realize, the delivery of the goods. This effect may request carriage contract as
well, but it is a separate one. In international sale of goods actually it is one contract, but it may triggers
the occurrence of some additional contract  carriage contract, which can intervene between parties that
are other that are the vendor and the buyer. Another example is the payment of the price, what we will
consider is how to ensure is how the buyer is going to pay the price: there is another contractor
relationship that can arise from the international sale of goods and that is the one of the letter of credit,
which is a way to make sure that the vendor is going to pay the price. The main contractor relationship is
the one between the vendor and the buyer, but around it, many other contractor relationships can be
executed. Sometimes, other contracts are assigned to sale contract, and there is not a single contract.
When no place of delivery has been indicated, the goods has to be delivered somewhere. If the contract
implies carriage, the vendor has the obligation to deliver the goods at the carrier. The vendor’s obligation
is not to deliver the goods to the buyer at his own apartment, the vendor has the obligation to deliver
the goods at the carrier. If no carriage is included instead, if no carriage is requested under contract, but
the contract indicates where are the goods, the goods have to be delivered at that place.

1) Carriage included: the vendor has to deliver the goods at the carrier and that is it.
2) Carriage not included: if there is no mention about any carriage contract and if the contract
indicates where are the goods are at the moment that the contract Is made, the vendor’s
obligation will be to deliver the goods where the goods were at the moment of formation of
contract.
 3) If no carriage is included and contract does not indicated where goods ae:: The vendor has to
arrange the delivery at his own place of business

Those are supplementary criteria, because what is mostly important is that the parties are totally free to
decide. It is up to the parties, to decide what they want in terms of delivery, these supplementary criteria
are to solve the issues and to filling the gaps with the convention is that if the carriages is involved, delivery
has to be done by the vendor, and so on…

Another point which is extremely important is the time of the delivery

Never forget it in a sale contract, is really a material point. It is advisable to make it clear that we expect the
delivery at a certain time, and not later. The best solution is to indicate explicitly the time of the delivery.
What kind of goods the seller has to deliver? Any kind of goods, but what about the quality needed, how
should the goods be qualified in terms of conformity? In order to be sure that the vendor has shipped
conform goods and fulfilled his obligation, the first source of rule is given by the contract.
The seller is obliged to deliver the goods in the quantity, quality and with all the elements that have been
used to describe the goods in the contract. So, the more you are explicit in qualifying the goods you are
expecting, the more the diligence which is requested to the vendor is clear; that is a way to clarify the
criteria.
Anything different, so the delivery of the expected goods which is not conforming to the criteria expressly
mentioned in the contract will be a breach by the vendor. The vendor might have delivers something, but
it was not the goods that were expected to be delivered, so there is a breach of the contract.

What if the contract does not have any specific requisite of the goods?
So, the mechanism of the convention is to say, whenever there is a silence by the parties, the convention
provides certain supplemental criteria which can be followed:

1) The goods that the vendor has to deliver must be fit for the use. Provided that, the goods are
needed for certain use, the verification of conformity is whether the goods that vendor has given
are fitting for the user or not. If the goods have been delivered but it is not fitting for the user, it is
better when the user declares by the contract in this case, otherwise there is a burden of the party
who is claiming that the goods needed was for a certain use and the goods delivered were no fitting
for that specific use.
2) The prototype, a model or a sample has been using, the goods have to comply with that specific
sample. It is not that you have been expecting a certain number of denim jeans by an Italian
producer, you have been entered into the contract by verifying certain sample of denim, which
must be used for the production of this jeans, and then what you’ve received instead is a totally
different kind if materials. In situations like that, the convention says that the goods must fit.
3) If they have been packaged in a way that is reasonable for the kind of goods. If you are selling
glasses, you cannot expect to be considered to have properly perform your obligation of the
delivery of the goods if you simply put the glasses into a plastic bag and you send them out and you
ship it. It is the liability of the vendor, because he has the obligation to deliver the goods and it
must be in conformity, also form the point of view of the packaging. The packaging necessity is
depending on the kind of goods.
The issue is that the convention is not very strict about the conformity to national legislation, and
the seller does not have idea about the existence of these standards. The condition is too fault.
Even when no mention has been made by the contract with reference to conformity to safety
standards or red tape legislation, nevertheless it is possible to say that these rules have to be
respected, if the seller knows about it. Otherwise, if the seller has no idea about the existence of
such standards, and no reference has been made in the contract about the necessity to have goods
conform to certain standards.
 4) When the seller disposes the goods, the goods must be free of any third party rights. In principle,
the “owner of” and it must be full owner of that. You can dispose also goods, as vendor, which may
have been for guarantee at the bank or a third party. As a default rule, the vendor must deliver
goods which are free from any third party rights.

4 WEEK

25/11 Lunedi

LECTURE 10

We have said that the seller has the obligation to deliver the goods, even when the contract does not
specify certain qualities, details or conditions. The criteria that the convention establishes, is that the goods
must fit for the use, it must be in conformity and there must be packed consistent with the quality of the
product which are reasonable in accordance to the product. So, the obligation to deliver shall be with
method and in accordance with the kind of product. The convention provides that the vendor is obliged to
certain standards.

What about the obligation of the buyer? To pay the price of course, which is something that it's pretty
intuitive, conditions of terms and conditions after payment of the price are absolutely opted vendors in the
enquire to establish to regulate for the currency ,the timing, the possible instalments, in time, in payment;
it is all about to the parties to determine. We will see that to guarantee the payment and additional
contractual relationship may exist which is the letter of credit, but it is a side of the same contract, the
other the second obligation of the buyer is instead to take the delivery of course to actually take control
having possession of the goods.
The reason why the buyer has to take the delivery, is because the buyer has to inspect the goods. It is up
to the buyer to verify that the goods have been delivered in conformity, or not, with the contract or if the
contract does not say anything about the delivery.
The buyer has to file a notice related the lack of conformity, a preliminary step before claiming any
breach of the contract.
If the buyer wants to make a claim against the vendor for any breach (size, quality, …). The buyer has the
obligation to take the delivery, that means that to inspect the goods for the purpose of sending to the
vendor, in case of, a notice of lack of conformity in order to inform the vendor of the existence of certain
defects. So, under the convention the buyer has quite a long time to do these inspections of the goods
and to send out his notice of lack of conformity, if the goods delivered are not consistent with the quality
expected.

The timing are 2 years from the delivery, so apparently is quite long but within these 2 years the buyer
has to do that within a reasonable time. Actually, in any case within a reasonable time since the moment
that the defect has been detected. The reasonable term is quite shorter, it is much easier for the buyer.
Within the maximum deadline of two years until a period no longer than 10 years. It is impossible to
demonstrate that before the fact which can be easily detected. Time runs since the delivery so its
immediate distorting of the Clock. While instead, if the defects are hidden and so they cannot be
immediately detected at that depends of course up kind of the facts of the reason why the goods do not
work properly, will the time since when the reasonable time runs is since the moment the discover could
have been done, but nonetheless within 2 years from the delivery. So, the 2 years from the delivery
starts since the delivery, if the defects are immediately visible, from that moment as well runs the
reasonable time which is given to the buyer to run and do his objection about the lack of conformity. If the
defects are not visible instead, the reasonable time within which the buyer can send out the notice for the
lack of conformity is longer, in the sense that, it starts from the moment when the buyer was in the
condition to actually discover those the facts.

So, theoretically if at the last day of the 2 years, that is the moment when the discovery has become
possible, because the stuff was immediately broken, it is still possible for the buyer to notice the lack of
conformity, because it is reasonable that he has not yet done the notice of lack of conformity because there
was no possibility, no circumstances, allowing him or alarming him about the existence of the facts.

So, these notices of the fact must be made by the buyer and the notice of lack of conformity must also be
extremely precise, it works only if the buyer describes clearly what he is claiming about the lack of
conformity. The buyer is under the burden to explain what are the grounds (motivi) that do not conform
to the contract or to the general supplemental criteria of conformity. Therefore, the buyer has to say what
he has received is not sufficient in terms of quantity or it is insufficient in terms of quality, because the
kind of apples he was expecting was yellow and he received red. The importance of the notice of lack of
conformity is that it is subjected to these notices, the possibility for the buyer to file a claim against the
seller. He has to provide a full description of the claims he has against what he has received.

In a contract is always possible that something goes wrong, so the chances that the result playing for the
breach of the contract are extremely high.

What are the remedies? The convention provides a list of remedies in case of breaches of the contract. A
BREACH of the contract is any failure by a part to fulfil its own obligation. So, we can theoretically identify
breach by the seller but also breaches by the buyer because the seller can commit to breach because the
delivery has been late, because the delivery is partial in quantity, because the delivery is partial because the
products are defective.

We can think about other breaches of the seller:

1) Lack of conformity / time

2) No documents are given by the seller to the buyer
3) Documents had not updated, or they are incomplete, or they are improperly filled the end
4) He is not the real owner of the goods sold

If the vendor is not able to provide the ownership to the buyer because the product, he has delivered has
no rights over them, he has not the owner of them that he is a very great breach of the contract.

What about the buyer?

1) The buyer may be late in paying the price, the price is not entirely paid.
2) He can be also in breach because he is not taking the delivery, that is risky for the buyer, because in not
taking the delivery if it has occurred, he's not respecting the time to send out the notice of lack of
conformity. Even though, could be counter intuitive for the buyer himself never be last it is a breach which
can be objected and claimed by the seller.

A party which is in breach, that is the one who has committed a default under the contract, means that the
party is not respecting the obligation and is not fulfilling properly the obligation imposed to his/her.
The party who is not in breach can be easily called the aggrieved party. The one which is under assault of
burden instead, it is the person who is suffering the occurrence of the breach of the contract.
Buyer and seller, then, can be in breach under their own obligation, it can be:

 Unilateral: one party is in breach

 Bilateral: both of them are in breach
The only person who has actually the power to determine, whether or not, a breach has occurred and
what should be the remedies for it, is a judge. So, when there is a party claiming a breach of the other, at
the preliminary stage, the aggrieved party will send out formal communication notifying the breach to
the counterparty. There is no way to obtain any kind of result unless the breaches are ruled by a judge.
When we say that the party who is not in breach can rely on one or more of the remedies that the
convention provides, we describe a situation where that remedy can be kindly requested by the party not
in breach to the other, but that request will remain for sure unfulfilled because the dispute has to be
solved before a judge, because otherwise there is no way out.
What could be the remedy, either, for the seller and the buyer?

The remedies provided by the convention are more than one actually:

1) Avoidance of the contract: termination of the contract is the declaration which contract has no
more effect. It is the most dramatic remedy that the convention may give. Terminating the
contract means that the contract no longer exists. So, it is actually the opposite effect of entering
into a contract, so it is a clear contradiction to the initial will of the parties.
It brings to the point to deny the existence of the contract, since the contract will become
terminated. The convention is extremely cautious in letting the parties to use and to claim
avoidance.it is available but, it should be the remedy of last resort. so a remedy which can be
used only in very specific circumstances.
The buyer is not interested in obtaining avoidance because he wanted to fulfil the contract.

2) Indemnification: it doesn't contradict the contract. It exists, has been violated because is not
properly fulfilled the obligations. It is a way rebalance the position of the party. The party who is
in fault, will be requested by the judge to indemnify the other with a mandatory amount. It is the
favourite remedy for the convention because it is easy to be awarded, in the sense that it is not
in contradiction with the existence of the contract. It's actually a consequence of it and it is
always possible to issue a ruling, stating a decision by a certain judge. Paying an amount of money
is a behaviour which can be imposed on anyone, the only issue with money is when you do not
have it; legally it's not so important because, it is up to the party, to find a way to retrieve the
money to pay obligation to reinforce the other party.

3) Reduction of the price: the buyer, if not happy with the vendor but still can deal with it. Provided
that, the parties establish a re-imbalance the value of the obligation and it consist of a reduction
of the price. It is available when the contractor relationship has been fulfilled, but the outcome of
the performance by the vendor is not exactly matching the expectation of the buyer under the
contract. Nevertheless, the buyer is not interested in obtaining avoidance, but he is sufficiently
happy to receive provided that, a re-balance of the obligation by reducing the payment he has to
do.

4) Specific Performance: is the opposite of the termination, it consists of a remedy which reveal the
permanent interest of the party not in breach, to obtain what she is entitled to obtain under the
contract. So, the specific performance is a a remedy under which the party not in breach insists
on having the obligation she has not received. The specific performance is an order by the judge to
the vendor to send out the products, or if the product have been partially delivered the quantity is
not enough, the specific performance is a remedy consisting of an order to complete the delivery
or the missing part of the delivery. Examples of specific performance are:
 The completion of the delivery, and it can be entirely completed when the delivery has not yet been
fulfilled at all.

The delivery has been entirely given so all the products have arrived, but certain parts of the product or
just single items are damaged or defective. So, the buyer has received 100 devices he was expecting,
but a couple of them do presents an overlap with broken glasses, so he could ask for a replace or
reparation of the devices.

The intensity of the specific performance can vary, because depending on the kind of the specific
performance the availability of the remedy varies as well. So, it is not indifferent to ask for completing
the delivery, repairing certain parts, replacing just the couple of items or instead substituting all the
goods. These remedies are available they are at the disposal of any parties, towards the other, each of
these remedies can be requested by the parties. Sooner or later it will necessary an award by a judge.

Can I ask for the avoidance and the indemnification? YES! There is no contradiction in asking for both,
because the termination works on the level of the effects of a contract and it will no longer exists.
The indemnification it is a way to fill-in, restore the prejudice that has been caused damage, that has
been faced by the parties. There is a breach under the construct, may have caused the damages in
terms of expenses to be faced or losses.

Can I ask for the avoidance plus the specific performance? NO! Avoidance and specific performance
cannot come together but we can ask one remedy instead of the other. May I switch my mind? OF COURSE
NOT!! When the contract is terminated, we have to be extremely careful because we are creating in the
other party. It is not possible to ask for avoidance simultaneously to for specific performance and a step-
back mean an enormous contradiction. What we can do instead, is to insist for the specific performance
as a sort a preliminary stack; so we send out a notice of the breach, to the other party, saying that the
delivery is not satisfactory but still we insist to obtain what we are entitled to. Then, in case of failure in
obtaining the specific performance is it possible to request the termination of the contract.

PART 2

The specific performance cannot follow the avoidance but can come first as operating request. Can be
inconsistencies between specific performance and indemnification of damages? No, indemnification of
damages can cohabit with either the avoidance, either determination or the specific performance. There
is no contradiction between them.

Can the reduction of price come with indemnification of damages? NO, that is a situation where it's
either one or the other, because the reduction of prize it's considered a sort of self-protection by the
buyer, the basically restore of the proper value to the obligation of the other party, so it's a way to amend
the contractual obligations. It will be extremely difficult to provide the evidence of the actual damages once
he has obtained effect to pay less for the exact same kind of amount of quantity or quality of the goods.

The kind of specific performance which consists on the entire substitution of the delivery is the most
intense form of specific performance. The party who is not in breach has to provide that the breach is
fundamental. We do not have actual examples of why it’s a fundamental breach, the contract gives us only
general guidelines to understand what or how can certain fact be qualified as a fundamental breach.
First of all, the breach has to be due to a behaviour of the party, not a cause major reason. It must be a
failure which causes the fact that the party doesn't obtain a SUBSTANTIAL PART of what she was
expecting. So the problem is to assess if the party has been deprived or not of a substantial part of what
she was entitled to obtain under the contract and the consequences of the breach could not be foreseen
at the moment the contract was entered into force.
DELAY
A deferred delay is the most complicated case: you were expecting the delivery today but instead you
obtained a delivery tomorrow; is it a fundamental breach? The convention provides remedies available to
the occurrence of a fundamental breach and those are: avoidance for fundamental breach and specific
performance in the form of substitution available just for fundamental breaches.
All the other remedies: indemnification of the damage, reduction of the prize or specific performance in
the less intense form (a partial in minor substitution or a repair maintenance of the products or
completion of other third deliveries) are available regardless of the nature of the breaches, so whether
the breach is a serious one or even is a minor breach.

The convention stresses a lot on the importance of the time to cure the breach occurred.
The Commission says that the seller can always request time to cure the breach if:
1) The time must not be extremely long: The additional time which is needed to cure the breach, to
repair to the miss behaviour he has committed is reasonable,.
2) Other party do not have to pay more expenses due to the time needed to the party in breach to cure
it.
3) Time to cure the breach must not make the condition of the other party even worse so there must be
no farther and additional inconvenience for the party who has not committed the breach.

Whenever these 3 conditions are present the buyer can refuse to grant the additional time to cure the
breach only if the buyer has a reasonable ground to do so.
The clearest example of that is with the case of a later delivery where the need for the goods was instead
for a specific date, which has expired, so you were no more interested in obtaining it. If no reasonable
grounds exist on the side of the buyer and all the other conditions that we have said instead occur then the
seller is entitled to cure the breach even if the buyer says nothing about that, so it's a case of a silence, we
have an implicit acceptance of the additional time to cure the breach.
If the buyer has no ground to complain about time and there are no other conditions occurring (1-2-3) If
the buyer remain in silence he is accepting that the seller need more time to cure the breach.

What is the effect of these time to cure the breach? the buyer shall, during this period of time, cannot
rely on any remedy pending the time to cure the breach.

Late delivery is always a great area because it's never clear whether it is a fundamental breach or not, but
also for partial delivery because sometimes is not clear whether the delivery of just part of the expected
products or just products which are defective but not yet completely useless, is a fundamental breach or
not. Sometimes the buyer is who spontaneously give to the seller additional time to cure the breach in
order to demonstrate the existence of a persistent continuing breach of the contract. If the time to cure the
breach passes, the party has to send out a notice of termination, so the declaration of the party to rely your
termination must be formal. Now the contract is over or will be declared as over by a judge.
Theoretically the termination produces the effect since the contract has been entered into now. BUT It
must be adjusted depending on the kind of contract because if the contract is formed by a series of
obligations maybe the effect of the termination is not entirely retroactive in the sense that previous
delivery which has occurred are retroactive, so the party who has declared the termination of the contract
cannot keep as an advantage of themselves the goods she has received or the price.
The termination is a way to put the parties back in a situation where they were before the contract apart
from the performance which has been already correctly and entirely perfected, so completed. What
about the specific performance instead? so we have said that the parties cannot rely on a specific
performance if, before that, the party has requested avoidance, because that could be in contradiction. The
specific performance has to be requested only when the specific performance request the entire
substitution of what has been done, not instead when it is less intense and so it refers to a partial
substitutions or repair of parts of goods delivered. The third condition for the specific performance is
another example of that compromise which the convention is always trying to achieve in between different
legal system right, we have seen a couple of examples so far we have seen the convention as trying to find
a compromise on the problem of the form of the contract on problem of the mirror image of offer and
acceptance rule. The specific performance is a remedy which is absolutely ordinary in the civil law system, it
is less frequent instead in the common law system. The common law system tries to solve the breach
through pragmatism. If under national legislation no obligation to grant a specific performance will exist, so
if the American judge is requested to award or not the remedy of specific performance under the
convention, it is possible for the American judge to say, even though all the conditions requested by the
convention for these requests occur, that the report will not grant specific performance. So,
Depending where the dispute is solved, the availability of the specific performance may be waived, may
be cancelled and maybe it might be the impossibility for the party to request the specific performance.

How large is the scope of the indemnification? So, what kind of damage can be liquidated under the
convention? there must be an immediate link of cause effect relationship in between the breach
committed by one party and the damages occurred. If there is an interaction in these, there is no right to
indemnification and the damage can be indemnified and can also be foreseen at the moment of the
formation of the contract.
Unforeseeable events cannot be indemnified, so the damage is not always indemnifiable. The convention
doesn't enter into many details about that excuses for approved certain exclusions situation for a breach,
the most famous of which is mentioned by the convention as force major, which is a French expression to
say that it is a strength of force which cannot be resisted. Like a natural disaster, an event which was
impossible for the party to prevent and to resist to it. In cases of economic crisis or difficulties of the
entrepreneurs it's very rare to demonstrate that these events can be qualified as exculpatory situation so,
as an excuse for that party to not fulfil entirely the contract.

26/11 Tuesday

LECTURE 11

The convention does not regulate the pass of ownership, it simply states that it an obligation of the
vendor to transfer ownership, but it will be regulated pursing his applicable law.

The convention contains three provisions about the passage of risk: usually, when you are the owner of
the goods you face any risk of damages to the goods that you own. Once the risk has passed, if the risk is
on the buyer, will the buyer be obliged to pay the price? Yes, even though he has no goods at all. Once
the risk is passed, the buyer remains obliged to fulfil his own obligation under the contract. According to
the Italian law, that moment is when that moment is passed  any risk is on the owner of the goods. The
convention does not regulate the passage of ownership. The convention splits the passage of ownership
form the passage of risk and it gives just three rules about the passage of risk:

 If the contract involves carriage, the risk is passed when the goods are given to the carrier; the
moment when the seller has been able to deliver the goods to the buyer, in that moment the
vendor is discharged by any risk. From that moment on, the risk will be on the buyer. It means
that the buyer is still obliged until he delivers the goods to the carrier.
  Goods are in transit. The vendor starts to dispatch (spedire) even before finding a buyer, typical
in commodities (materie prime) fluctuation of the price. The vendor believes that is more
convenient because:
1) Get advantage on time
2) Fluctuation of price

When the goods are in transit, the risk passes when the contract is entered into. He has no physical
possession of that, it makes no sense to anticipate the facing the risk of the goods that he has not yet.
The convention gives three criteria. the most convenient time is when the contract has been singed.

 Contract with no carriage involved, the goods in not in transit. The buyer starts facing the risk
since the goods are ready to be taken by the buyer. If the goods are ready to be given to the
buyer, from that moment on, it will be at that moment the goods will be at the disposal of the
buyer. The seller is of course under the obligation to inform the buyer that the goods are ready to
be taken. What is important is that the loss or damage of the product is not caused by the vendor,
the contract remains valid and the buyer must correspond the price. He may obtain special
performance or other remedies.

The convention gives three criteria:

1) The contract includes carriage: goods must be moved by a carrier. The risk pass when the goods
are delivered to the carrier.
2) When the goods are sold, in transit or in a float, the risk will pass on the buyer when the buyer
enter into the contract.
3) If no carriage is involved, if the goods are not yet in transit, the risk will pass at the moment
when the goods are ready to be taken by the buyer  available for the buyer

The fact is that the risk is been passed is different form the breach of the contract, which has been
committed by the vendor; the buyer can rely on any remedy (termination, specific performance,
indemnification and reduction of price).

Are these three rules applied in realities? Not that much, they are default provisions, the passage of risk
is a clear example of derogation from the convention by the parties. Instead, solve the passage of risks by
relying on INCOTERMS (International commercial terms): 11 abbreviations which are used for certain
purposes. An international sale of goods, subjected to the convention, can derogate on one out of the
eleven INCOTERMS.

Incoterms are published every 10 years by ICC (international chamber of commerce), a private
international organization which represents a lot of states which upload, every ten years, the updated
collection of incoterms. First list of incoterms was published in 1936. Every group is identified by a letter:
E, F, C, D.

INCOTERMS GROUPS:

1) Ex works  EXW. Preferred by the Italian business, because under this term the seller’s obligation
are really reduced.
2) FCA free carrier;
3) FAS free alongside ship;
4) FOB free on board
5) CFR cost and freight;
6) CIF  cost, insurance and freight;
7) CPT carriage paid to;
8) CIP carriage and insurance paid to
 9) DAT delivered at terminal;
10) DAP  delivered at place;
11) DDP delivered duty paid.

When the vendor is entered into a contract, he has to know where goods must be delivered, with these
terms the vendor may fulfil his obligation.

Incoterms solve, also, these five issues:

 Who is going to arrange for the contract of carriage? Who is going to find and discuss with the
carrier and pay for the price?
 Who has to arrange and pay for contract for transportation, the buyer or the vendor?
 Who is going to pay and arrange for the contract for insurance?
 When is the risk passed?
 Who is the one to take care about import and export formalities?

The rational of incoterm is a shortcut: solve ambiguity of a contract quickly. We have to pick one out of
these 11, we cannot mix them up. This choice is extremely efficient if the parties are clear in picking one
out of eleven, also in important to try to reduce the minimum amendment to the specific term, technically
it is possible to derogate to the content of each incoterm, but it is a really tricky choice. This amendment
made by the parties must be extremely clear in the contract, otherwise, confusion may result from them.
The best way to use incoterms is to pick one and avoid the traditional content of the contract. ICC collects
INCOTERMS in a book. INCOTERMS are usages, repeated behaviours. They are really similar to binding
rules, but they are not binding at all. The parties are not under any obligation to use one of these terms.

CFR AND CIF

CFR cost and freight;
CIF  cost, insurance and freight;

FAS AND FOB

FAS free alongside ship;
FOB free on board

THOSE 4 REFERRING TO MARITIME OR SEA WATER TRANSPORTATIONS: if a carriage by another mean is

involved, we cannot use these 4. The most common mistake is to consider these terms as carriage terms,
they are provision to a sale contract  those are commercial term for trade.

Export is extremely convenient for the vendor: he can remain at his place and prepare the goods to
dispatch somewhere. What he has to do is only take care and be available with buyer to cooperate with
him and respect all the formalities. The obligation under EXW is prepare the goods and make it available.
No formal carriages or something else.

F GROUP double sign. One sign is where to delivery has to occur, the second is to write down when the
risk is passed.

FCA Free carrier The seller has to bring the goods at the carrier, the seller has the obligation to give the
goods at the carrier. Moreover, the seller has the obligation to take care of the export formalities, it
makes sense that the bureaucratic burden is on the seller. The risk passes at the carrier at the point of
delivery, from that moment on the risk will be passed to the buyer and the seller has the obligation to
take care of export formalities. When the FCA is used, it is in “ro-ro” traffic, it is used mainly when trucks
are involved. Basically, the vendor gives the goods to the carrier or puts it directly on the lorry/truck.

FAS

free alongside ship; When is requested, as a point of delivery, the vendor has to arrange the goods to
arrive alongside the ship. Alongside the ship (on the bench of the port)  point of arrival  place where
the risk passes to the buyer. On the top of that the seller has to take care of export formalities.

FOB Is a maritime term, it is a more common than FAS, the seller’s obligation is to deliver the goods, not
just alongside the ship, that is chosen by the buyer, but he has to be sure that is on board on the ship. From
that moment on, the risk is passed. The seller has to take care of the coast of loading. FOB is more costly
for the vendor, because he is ensured that the goods is onboard, since then he passes the risk. The seller
has also to take care of the export formalities. The cost of the insurance is on the buyer. FOB’s risk for a
long time was the ships rail, a perpendicular line between the bench and the ship. With the last version, the
risk is passed when the goods are actually on board. The seller has to take care of the loading on board, he
gives the goods to the captain of the ship he will receive a document a receipt may trigger certain effects,
which is given by the captain of the ship  bill of lading (polizza di carico). It is a proof that the goods have
been loaded on the ship.

C GROUP  Under the C group, the vendor will take care of carriage, so the expenses and the
arrangements for the carriage contract will be, under this group, on the seller. Up to here, either if the
seller is delivering the goods at his own place, or he is delivering the goods at the carrier alongside the ship
or on the ship, at the port of departure. But he does not take care of what happen after. The seller’s
obligation is to organize and pay for contract for carriage. For the buyer is convenient to have c term
because, sometimes the organization of the carriage contract could be complicated to taking care of, in
countries of the buyer. The price for a C contract, is costly for the buyer because the seller will increase the
price. We can detect the difference between the actual price and the price paid. In the C term is common
that the seller will has the obligation to arrange for the carriage, on the top of taking care of the export
formalities. What changes is that the point of delivery, the existence of the cost insurance.

CFR Cost in freight, is a maritime term, the seller has the obligation to pay for carriage, he has to deliver
the goods at to the port onboard and, the risk is passed on board. From that moment on, the seller is free
by any risk, but he has to take care that the goods arrive at the port of destination.

Port of destination  on board  port of destination

CIF  Cost insurance and freight, the seller has to arrange for the carriage at the port of destination. The
seller has also to pay an arrangement for the insurance, it is up to the vendor to pay an insurance policy
for any damage to the goods. The delivery is the port of destination, the vendor is not taking the goods
himself, he has also to pay for insurance and be sure that the goods are put on board up to the port of
destination. The risk passes from the vendor when the goods are on board. It is exactly the same, CFR and
CIF, with reference to the point of destination and the passage of risk, which is instead anticipated, happens
as soon as the goods are on board. The main differences between CIF and CFR are:

1. In CIF insurance is paid and arranged by the seller, while instead in CFR the seller does not take
cares of insurance.

Sometimes CIF contracts are prohibited, certain countries prohibit CIF contracts, because the vendor has to
take care of insurance and provide/pay for carriage. Usually, it depends on the currency and this may be
risky for the buyer who has a weaker currency that the seller.

D GROUP
This group includes any kind of transportation, the risk is passed at a very later stage. Under D group, the
seller has to deliver at terminal (airport, railway, ...) or at the place and has also to arrange for carriage
contract. He has to cover the subsequent phase of the contract, which could be a specific warehouse or at
the buyer’s place. The point of delivery is really far away, which is a specific place in any buyer’s country.
The risk passes when the goods are at the terminal or at the place. The seller has to arrange for carriage.
The insurance is not regulated under the D contract, it is up to the parties. Since the vendor is the one
arranging for such a long carriage, it makes sense for the seller to take care of insurance as well.

DDPThe obligations of the seller are the highest in the DDP, in the delivery duty paid the vendor is
organizing for carriage contract, up to the place of the buyer and he has also to take care of the import
and export duty formalities. for the insurance there is no expressed indication, usually the vendor will take
care of that being more exposed to the risks.

Those terms are divided by term of transportation. We have to separately address the issue considered by
each term.

E GROUP

EX WORKS  The point of delivery under the EXW is at the place of the vendor. The buyer instead, takes
care of carriage, the insurance and the export formalities. the buyer takes care of everything. In 2020
version EWX is debated if maintain or not, but it seems that will remain.

FOB free on board vs. CIF cost insurance and freight: Those two options are the most common in maritime
transportation:

 Under the CIF the seller has to deliver the goods in the port of destination. The seller has to pay
for the insurance. Passage of risk happens when the good are on board.
 Under the FOB the seller has to deliver the goods on board in the port of departure. The buyer is
going to pay for the insurance. Passage of risk happens when the goods are on board.

The risk passages happen on board in both cases. The seller has to arrange for carriage. Each of these terms
answers to the five issues mentioned above. Since those terms are so effective, much more than the three
provisions given by the convention. The provisions just address the issues when the risk is passes, they do
not express or clarify anything. Basically, the convention is partial and instead, the incoterms are much
more exhaustive because they are specifically addressed to the issue of the passage of risk and, on the
top of that, they clarify the other obligation of the parties. If nothing is said on the sale contract, the
parties are free to rely on the usages by making an express reference. The international sale of goods
convention can co-exist with the incoterms because under art.9, the convention states that the parties of
an international sales contract are free to use international usages, by making an express reference. The
convention also allows for international usage, made an no reference to usages or when not even
expressed to any usages. When:

1) The usages are international

2) The parties know the usages or when they should have known about.

The problem of INCOTERMS is to apply the right usage out of the eleven, if the parties do not express
anything on the contract (if the contract is maritime or not, pick up CIF or FOB, …)

27/11 Wednesday Lecture 12

There is a serious problem in international sale that is the fact that sometimes the parties do not know each
other very well and so the trust in reference to payment is a serious problem.

Vendor wants to be paid immediately, while the buyer the opposite wants to delay the payment. So the
interest of the parties is contrary and the situation is complicated because sometimes the parties have no
knowledge of themselves so they do not trust each other.

The option parties have :

1) Clean payment in advance ;

So one alternative for the seller is the Clean payment in advance, (first option). The seller insists to
be paid before the delivery of the product. The buyer is ready to pay.
2) Open account;
The opposite of clean payment in advance: Open account used when the trust of parties is so
strong (ex. Parties did business since a long time) that the seller is ready to work on an open
account, the opposite for the seller of clean payment in advance because the payment will be
postponed to the delivery of the product. The seller takes all the risks

These are two opposite situations when vendor has not and has trust in the buyer.
In between what can happen is:
Seller requests for a letter of credit in order to be sure to get paid, he will request the buyer to provide him
a letter from the bank. Bank that is usually situated where the buyer works (has his place of residence).
With the letter the buyer promises to the seller to pay a specified amount of money which corresponds
to the price of goods sold VS the presentation of a certain document.
We have banks promise VS Presentation of documents. What the bank wants to obtain in order to release
the promised payment is that the seller presents to the bank the proper/conforming documents. What the
bank expects to receive are documents describing the goods which contain the exact same description of
the promise the bank has made. and the promise the bank made. What is needed is the invoice and
document of title. The warding of the bank promise is very simple and it works this way:
The undersign bank (ex banca Intesa) promises to pay to the seller 1000 euros vs the presentation of
documents for the delivery of description of quantity/quality of goods expected.
Example: bank pays 1000 euros for 100 bags in leather, the documents that say the bank is expected to
receive them is an invoice and other documents considered for this operation, describe perfectly these
products. If the document the seller delivered predisposes the quantity is different (higher or lower) or the
object is different (suitcases and no bags) there is a difference between what the bank promised to do and
the document the bank received. So any discrepancy in these documents VS the bank promises will Not
allow the payment of money to the seller.
So the bank promises to pay a sum to a beneficiary (person indicated in the letter of credit) that is usually
the seller himself and the promise the bank undertakes is subject to the fact that the beneficiary will
present the bank a set of documents describing the goods the seller has dispatched to the buyer.
The international sale of contract happen when goods are in different places so there is no party which
maybe is in a physical relation with the goods.

Bank promises to pay if seller delivers document to bank describing the promise bank made. The bank ives
this promise because the buyer has requested the bank to do so.
So the buyer knows that he is under the obligation to pay for the good he ordered, but if seller does not
trust him pay and the buyer does not want to pay at the moment, to solve this the seller proposes to the
buyer to find a bank which is ready to promise that the bank will pay for the amount of money (which is the
price of the goods) as soon the seller is ready to deliver to the bank the documents describing the goods
which he will send to the buyer.
The most efficient way for the bank to ensure that the goods have been produced is request the
document that is an evidence of the fact the seller send the goods to the buyer.
The set of documents the seller has to present maybe be more or less depending on the transaction but
essentially what is needed is the invoice and another fundamental document is a document which
sometimes is called the DOCUMENT OF TITLE and other times is called the NEGOTIABLE DOCUMENT
that is a piece of paper describing the goods, represents the good. So the person with this piece of paper
in his hands is considered to be possessive of the goods.
An example of document of title / negotiable document is the BILL OF LADING
The bill loading is the document handed form the captain of a ship at the moment goods are loaded on
board .When the seller loads goods on a ship/vessel he will request a receipt for what he loaded. At the
moment of loading of goods the seller will request the carrier (in case of bill of lading is the captain of
ship) to provide a receipt of the loading of goods (documents describing date, number of boxes, weight,
quality and quantity description etc.)
Bill of lading are a Document of title Describing the goods received from the seller to the carrier at the
moment of the loading. Is a receipt describing what it was upload on the boat. This document is very
important because it represents the goods.
Other fundamental information the bill of lading should include are:
Port of departure, port of arrival, name of the vessel, name of the captain. (also price, quantity, quality of
goods)
So this document is a receipt that provided what the carrier received at the moment of the loading and is
one of the document banks wants because is the proof that a certain amount of goods has been upload
on a certain date on a certain vessel.

The person with the document even if does not have a physical possession with the good is the person
considered in possession of the goods. Documents is the key of goods, no piece of paper no goods. This is
important because the goods that remain afloat for a long time (even ages in terms of economic
transaction) do not need a psychical possession but only the document.
How to facilitate transaction? Using documents that represent goods so we can disregard the physical
dimension of goods.
Seller has to deliver the goods, so we can replace goods with documents, the person that has the
documents has the goods.
SO the bank will pay the seller if it was given to it documents representing the goods (invoice is not
sufficient), we talk about the bill of lading. These documents represent the goods What the bank is
expecting to receive is a bill of lading stating that a certain boats with 100 bags has been dispatched by the
vendor through a carrier in a certain date.

For the seller is important to have the promise of the bank and not only the promise of the buyer, is
important for the seller to have the letter of credit instead only shaking hands with the buyer because
banks that do not absolve to their promises lose reputation and this is one the most important thing for a
bank. For the bank is very important his reputation and name to be solvable.

So letter of credit is a way for the seller to obtain a warrant (mandato), it not only the word of the buyer
but the seller has the word of a professional intermediary that promises to pay the specific amount of
money providing that the seller is able to present a set of documents demonstrating the fact that the
goods have been sold and sent to a specific carrier.

Bill of lading is a kind of document but there are others and not all the documents have the same
effectiveness in representing the goods.

SO RECAP:

1) Option number 1 seller wants to be paid immediately (Clean payment in advance)

 2) Option number 2 buyer wants to postpone the payment (Open account)

In between options can be

For the buyer to obtain a promise to pay the seller documented in a letter of credit when the bank is ready
to pay when the seller presents the document requested by the buyer.
How the seller can demonstrate the goods have been sent to a specific carrier? We use documents
I this case the promise of the bank is supported by the name of the bank.

But banks will not release a letter of credit for free. So if the letter of credit is not a possible solution for
the buyer (ex. He does not have the money to pay the bank or he cannot find a proper bank) we have
number another possibility for the seller to be reasonable paid and is the employment of a BILL OF
EXCHANGE - DRAFT or PROMISSORY NOTE

3) Third option: Bill of exchange - draft / Promissory note( Cambiale).

These documents are not called negotiable documents but are called negotiable instruments.
Promissory note is a piece of paper where a person promises to pay an amount of money at a
later date. The buyer can say i m not going to pay you right now but in exchange of you given
products to me, a can give you not cash but a promissory note that represents a documents that
states that the buyer undertakes the obligation now promising to pay the seller at a future date.
Is convenient for the buyer because he can post pone the payment. He gives the seller just the
promise to pay in the future, is a way to obtain credit facility because the seller will send the
products even though he did not received the money but only the promise of the buyer. So for the
buyer is convenient because is a way to pone payment in front of the request of the seller to be
paid in advance and the other advantage for the seller is that promissory note is a document that:

A) Can be transferred /negotiated

B) Usually a document that allows the person that has it to immediately enclose and seize the
goods of the person that promised to pay.
Ex: If the buyer that gave the seller a promissory note which include the payment at a Christmas
day, if in that day the buyer do not pay the seller can immediately start the enclosure the assets of
buyer and the seller can ask assistance to specific public offices to go to the buyer home to take
buyer goods.
C) Seller can sell the promissory note to a bank. The bank will check if buyer is trustable. For the
seller to have just a promises note is an advantage (allows the buyer to be more in time, arrange
for the payment, grant him a credit facility but also is convenient because the documents can be
easily enforced and even more relevant of what the seller can do with the promissory note is go to
his own bank and propose it “I have a promissory note stating that the buyer will pay me this
amount of money on Christmas day, how much for you pay me for this? The bank will think about it
and consider the time (from the proposal of the seller to the day the buyer must pay) in order to
consider also interest, in fact bank will deduct interest and will check if the buyer is a trustable (if
he has an high credit rate/score) or if he isn’t before accepting the proposal of the seller. And of
course (CIT. Ivo) the bank will pay more/less the promissory note offered by the seller if the buyer
is/isn’t trustable
So seller can negotiate with the bank (also with other persons but is better with a bank), he has
many options: Wait until Christmas or rush to a bank if he need money at the moment.

So documents can be easily endorsed to a bank a third part etc.

Bill of exchange/draft/ Promissory note can:
A. Be Transferred and negotiated

B. Allows the person who has it to immediately the foreclosure for goods if buyer does not pay him :
equivalent to a credit facility, can be easily enforced. the Seller can go to his own bank with the promissory
note: the bank can discount the money from the interest if the seller requested the money before the due
date: is the buyer someone we can trust? what about his credit rating? the bank basically can buy the
promissory note and the bank will earn the interest accrued to the buyer.

Legally the seller can do an endorsement: (Girata) that is the only way to pass the bank the right to be paid.
Without a formal endorsement there will be just a piece of paper. Endorsement givers the power to
another person to claim payments.
Promissory note is a way for the seller to agree to post pone a payment but in exchange of that he will
receive a title which can be immediately enforced in case of failure to pay on the expired date or to be
negotiated in advance with another person (especially a bank) which will deduct interests.

The one that makes the endorsement is called endorser, and the bank that receive the endorsement is
called endorsee. We need the endorser in order to sing the piece of paper, the declaration must be
undersigned by the endorser, is not sufficient that his name is written on it.

The buyer is the debtor, endorsing the promissory note : the seller is the endorser and the bank the
endorsee. The endorser, is obliged to sign the piece of paper otherwise it is not valid.
This was the promissory note.

Promissory note - draft / bill of exchange sometimes are used in a kind flexible way. You have to verify what
kind of document specifically it is, because is not always clear the correspondence in a language with
another.

Bill of change - Draft (Cambiale Tratta) - Circulation of Debt

Has a more complicated structure rather than promissory note. Is still a piece of paper because is used to
replace money or assets with a simple document. This is the best way to facilitate transfer of wealth,
replace actual transfer with a piece of paper.
Especially in moment of crisis there is a go back to the bill of exchange ad promissory note: they are
employed. In Italy many transactions are done by promissory note and bill of change because is a very
cheap way to facilitate further payment and allow the debtor to have time to pay in the future at the same
time assuring a form of protection to the creditor. So they are still employed.

BILL OF EXCAHNGE - DRAFT: Is an order.

The debtor (DRAWER) will order to a person to pay at a future day, it will say to the third part to pay in a
certain date a certain amount of money to someone else. This order/instruction to pay is given to a
person called DRAWEE because the person who gives the order is the Drawer. So drawer tells drawee to
pay a third part called BENEFICIARY, a certain amount of money in a certain day. The Drawer do this
because the drawee can be for example his bank, and debtor knows for example that in a couple of week
it will have on her account sufficient money to pay the amount to the beneficiary, so the drawer at the
moment could not have money but he knows he will in the future.
So with a single document (draft) we can solve a triangular relationship. Beneficiary will be paid by
drawee, drawer will pay beneficiary and the drawee will solve his task and be free after paying
beneficiary.
The drawee could be the bank or a third party. But the draft must be presented for the acceptance of the
drawee and once the drawee accepted to pay the draft he is obligated to pay. And being Under the
obligation means that if the Drawee does not pay the beneficiary can seize even the drawee assets
because he accepted the draft.
Acceptance of Draft is made in a formal way, so we need a formal declaration by the Drawee on a piece of
paper and is requested his signature. But the drawee will not replace the drawer after acceptance, in fact
the beneficiary has the possibility to ask payment to Drawee and if he does not pay then the beneficiary
can ask the payment to the Drawer. If the Draft is not accepted, there is the expectations from the Drawer
that the Drawee will pay but there will no be a formal contact Unless the drawee expresses his will to
accepted the draft.

For the beneficiary id convenient the draft because he has 2 obligors to rely on and he can go to a bank “ I
have a draft accepted by a drawee” and ask how much the bank can give him for that, he can negotiate it as
he could with promissory note.
Also for the beneficiary is possible to enforce against the debtor the lack of payment

PART 2

The seller can negotiate the draft with the buyer, tells the buyer the amount of money and the date. The
seller can ask for a draft because the buyer does not have money at the moment. It is a way that the seller
uses to allow the buyer to post pone the payment without passing through a bank (as happen with letter of
credit).

Does the Vienna convention contains anything about that?

Not at all, it just says that one buyer has one obligation to pay, but that obligation is structured in one of
these 4 ways;
1) Immediate payment  when there is no trust. (clean payment in advance)
2) Delayed payment (open account)
3) Letter of credit  when there is no trust of debtor but there is trust in the bank
4) Promissory note Or draft

Parties can choose one of these 4 ways of payment according to one best way to do so. The topic of the
payment lies between the Vienna convention
The convention does not regulate method of payment. Up to freedom of parties to decide method of
payments.

SUMMARY:
So far we have clarified the options for the payment of an international sale. It s up to the freedom of the
parties to identify the method of payment that they prefer: And that is just a matter of circumstances of
the case, and the relationship between the parties the value of transaction and the other circumstances
that the parties may consider relevant for preferring one method to another.

Sometimes the sale contact is structured in this way and it’s said that the seller has to be paid versus
presentation of documents. So another way to facilitate this sort of opposing interest between the buyer
and the seller is to arrange for the sale to be a DOCUMENTARY SALE.

Documentary sale:
It s a form of an international sale contract where promissory note, draft or letter of credit is given versus
presentation of documents. It is irrelevant whether the production has started or not, or whether the
goods have been delivered or not. We can also disregard entirely where the good are The place of creation,
distribution and delivery is not relevant.
What is relevant is that payment will occur at a specific moment As soon as the seller will present
documents.

These documents justify the payments. The documents are usually mentioned in the CONTRACT ITSELF,
which will specify that payment will occur vis-à-vis of presentation of documents.
So a documentary sale is a sale where the obligation of the buyer to pay the price is in the moment and as
soon as the seller has presented the documents representing the goods.

So what are these documents and how they are exchanged?

Theoretically we can imagine a meeting between the buyer and the seller in a bar.
the list of documents can be a very short one or longer, depending on the type of transaction.
These sets of documents usually involve at least:
- The Invoice (for fiscal reasons)
- The Bill of lading ( document of title, describing and representing the goods)
The documents will also include:
- The Draft ( It is the seller who has prepared the draft for the payment)
- Other additional documents ( that can be requested for specific goods)
-- Certificate of inspection
-- Certificate of custom
-- Licence
-- Insurance policy
The amount of documents depends on the arrangement of the parties
Why is the documentary sale convenient? Because it is a way to realize the payment not before
production, not after delivery , but n a sort of middle way between both, Because the buyer will pay
before delivery when he is sure the goods have been produced and shipped, they are on their way to
arrive (he will receive the bill of lading).

Structure of this transaction:

The exchange of documents is not really between the buyer and the seller personally, because they are
in different countries but is usually channelled by a bank.
So documentary sale is a sale that involves banks and the involvement of a bank is called DOCUMENTARY
COLLECTION. It means that the banks acts as an intermediate to facilitate the exchange of documents.
Why the banks? Because the have a very secure channel of communication.
So what happen is that the seller has produced the goods, goes to a carrier, organises the shipping of the
goods. The goods are loaded on a vessel and at the moment od loading them the seller will obtain by the
carrier a bill of lading. The bill of lading basically contains a description of the loaded goods.

The carrier signs for the bill of lading, he is the issuer of the bill of lading. He is the one that actually
ascertain and declares that on that date, on that port, certain goods have been loaded on that boat. And
the boat is expected to arrive on the port of destination (They are both specified).
The bill of lading will also include the name of the shipper that is the one entitled to receive the goods once
arrived in the port of arrive.
Certain Bill of lading don’t contain any indication about the person who is considered to be the one who
has to receive that.
name of the consignee, the person who is entitle to receive something.

Bill of lading can be at the bearer: When the bill of lading has been issued at the bearer, it means that
any person bearing (having in his hands) that document will be entitle to show up in the port of arrival to
obtain the delivery. It does not indicate any name of the person entitled.
Is also common that the bill of lading is not at the bearer since it s quiet risky ( anyone having it can
receive the goods)
It s safer to indicate the consignee. This indication qualifies the bill of lading as a bill of lading AT THE
ORDER  Why this qualification? It means that the shipment (delivery) has to be in favor of the person
indicated on the bill of lading and that ordered the deliver.
SUMMARY
The bill of lading is a document which is issued by the carrier. This document will contain these information
and will be given to the seller, who is physically loading the cargo (not using an agent

What are the functions of BILL OF LADING?

3 main functions:

1) Describe the goods:

First of all, our bill is a receipt of the goods, which describes the goods. It also contains information
about the carrier.

2) It is an evidence for carriage contract:

Describe the promise of the carrier to deliver the goods on a certain expected date of arrival, in a
certain expected port of arrival:
So it describes a carriage contact, describes the obligation of the carrier to be the person in charge
to put the goods from port a to port B
Is it a carriage contract or not? It describes the obligation of the carrier but we have to understand
if it s a carriage contract or not

3) Document of title:
It is described by the law: there is not a n harmonisation at international level but it is a good
example of a sort of spontaneous harmonization by the legal system
It is commonly shared the function of a bill of lading in each system.
What is a document of title? it is a document representing possession of the goods. No document
no goods.

Since bill of lading has the power to represent the goods, by represents to replace with the document the
physical possession of the goods, what is possible to do for the seller who has obtained the bill of lading?
He can Negotiate it, he can give it to the buyer.

The buyer can also find a third person and persuade hum to buy the bill of lading in exchange of an
amount of money. It is possible for the buyer to resell the goods without having the goods to arrive to
the port of arrival and to physically take them and then to arrange for a new contract to sell them. He can
simply dispose of the bill of lading and arranging for a sale where goods are not at all physically involved
but they are simply involved by representation by the documents.
Why you should buy a document representing a physical good?, which poses a risk? Because who knows
what are actually been loaded. By replacing goods with the documents it is possible for a person to
organise multiple transaction with reference to the same amount of goods

What is the best way for the seller to no immediately dispose of the goods?
Instead of indicating a first consignee, which can the seller do, he can say to the carrier “ I m going to load
the goods on your boat, and you give me the bill of lading, as a consequence I want my name on the load”
 It s when the seller has not found a any buyer, he s taking a risk.
In fact the seller can:
- Start the shipmen
- Obtain the bill of lading on his name (as a consignee)
- when he finds a buyer he can endorse it (like in the promissory note or In the draft)

He can give the bill of lading to the other person. How so? By documenting that passage. Why he is
documenting ? because the seller has finally found buyer who has paid the price for the goods
represented in the bill of lading.
The first buyer can transfer on bill of lading to another person.
the seller himself, since he has not found a buyer yet, can request the shipper to issue the bill of lading in
his own name (indicate himself as the consignee) and then when the seller has been able to find a buyer ro
endorse the bill of lading in favor of the new buyer.

That facilitate the sell contract, because there is no need for the seller to actually give the delivery of the
goods or to be paid. The payment occurs when the document is given. And the document which
represents the goods is the bill of lading together with the additional document needed for fiscal reasons,
custom duties, import/export bargains.

What is critical is to have these documents which represent the goods and it is a replacement of the goods.
It s possible to realise a sell contract without worrying about the goods and so many transaction ca happen.

bill of lading have been in paper for long time but now they are organised in an electronic way.

LECTURE N 13 02/12 Monday

PART 1

If the bill of lading is at the order, it refers the name of the consignee (the person who is supposed to
receive the delivery); but there is the possibility for the consignee to organise the sale for the same
products, represented by the same documents, without having any physical relationship with the
document. So, the bill of lading could be issued in favour of the bearer (and in that case no name of any
specific receiver will be indicated), or can be instead reported the name of the consignee, but that does not
prevent the possibility to further negotiate the bill of lading by endorsing it to another person. So by means
of endorsement, it is possible to have a transfer of the bill of lading.

Who is the issuer? the carrier, the person that actually takes the obligation to deliver and sign the bill
What may change is whether or not the receiver of the deliver is indicated by name (and is not necessary to
do so, when the bill of lading is at the bearer, while is necessary when the bill is at the order).

When a bill is at the order is possible for the first buyer to resale the goods, by reselling the document.
How we can do that? It is very similar to the mechanism of the endorsement in a promissory note or in a
bill of exchange (or draft). The first consignee who needs to resell the goods, but has no possibility to touch
the goods in anyway, can simply transfer the bill by endorsement. So on the back of it, he will sign a
statement by saying “for me please deliver to…”

The endorsement can be done for an infinite number of time, there is no limit.
What is important for the carrier is to understand who is the person who is entitled to actually receive
the delivery.
- it is very easy when the bill is at the bearer, because the person entitled to receive the delivery, in that
case will be the bearer himself.
- while instead, in case of a bill at the order, what the carrier has to do is a sort of verification. He has to
verify if there is a perfect continuity in-between all the passages organised by mean of endorsement on
the bill. Verify if the person who has shown up to receive the delivery is actually the person who is
indicated as the last endorsee of a perfectly continuous chain of endorsement.

At the moment of the delivery, the carrier will be given the bill, since he has to deliver the goods only to the
person who is entitled by the bill to receive it.
The carrier has to verify the identity of the endorsee and if this one is actually the last endorsee of a
continuous chain of endorsement.

If the chain of endorsement is not a perfect one, because the endorsement is not signed by the consignee
(first endorsee), but by another one who is not in the position to sign it. What does the carrier has to do?
He has to verify that the signature under each endorsement corresponds to the name of the previous
consignee or the previous consignee (the person who signs is the person that was entitled to receive the
delivery). FORMAL VERIFICATION NEEDED.

In maritime transportation, the bill is the document that allows the person who has the right to receive the
goods to have a document satisfying 3 functions at the same time:
Bill of lading has 3 main characteristics:

1. Describe the goods/Receipt of the goods

2. Evidence of the carriage contract/describe the carriage contract
3. Document of title (with those documents the person is entitled to possess the goods, even if there
is no physical possession bw person and goods)

It is crucial in a method of organizing the sale for products which is the documentary sale: a sale where the
buyer and the seller have arranged for the payment to happen as soon as the seller is able to present
proper documents (bill of lading, invoice, certificate of inspection, or insurance). It is a way in order to find
a compromise in-between the desire of the buyer to instead pay after the delivery has occurred. So the
documentary sale finds a sort of middle point in-between these 2 opposite interests.

If the buyer has to pay before presentation of documents, what happens is that he has no possibility to
verify (check) the goods, so he is taking a great risk; the delivery will not happen at all, or the products are
defective for quantity or quality).
The buyer has to pay at the presentation of the proper documents vis à vis, only then he can file the claim.
He can claim but nevertheless the seller has already obtained the payment.

The documentary sale is a way to solve the issue of the opposing interests but also a way to solve the
problem of selling products which are in a third place and we have no idea where actually they are.
The mechanism is facilitated by banks. The seller will have his own bank in his own country, and also the
buyer, these 2 banks will participate as a channel (they will take no obligation in the transaction). The seller
will prepare his own documents (he will load the cargo, he has the bill, the invoice and all the other
documents needed). He will present them to his own bank REMITTING BANK, which will forward the
document to the COLLECTING BANK, which is instead the one in the buyer’s country; and if the documents
are the one expected by the buyer (in conformity with the contract), then the buyer has to pay.
The procedure is exactly the same if the buyer pays in cash or draft or promising notes, just the list of
documents needed is a bit longer.

In case of draft: the seller prepares the draft and it will be sent to the buyer’s bank, which will be accepted,
and in this way the seller has a document stating that in the future is in titled to obtain the payment.
this mechanism requires the interpretation of financial intermediary towards for the goal of facilitating the
transaction it's convenient for the seller because he is able to receive payment without waiting for delivery
it's a little bit more risky for the buyer.
Still the buyer doesn't lose the claim that he may have Under the Sale contract.
What kind of claim the buyer may have under a documentary sale?  After the payment the buyer has
received  all the documents needed( invoice, document of inspection and the bill of lading).
but he he's also united with the seller by means of the sale contract because the buyer has acquired the bill
of lading and all the other documents by means of payment of the price.
What are the legal relationship the buyer is in? on one side the buyer is a buyer under the sale contract
with the seller. On the other side the buyer is a consignee ( if no other transfer has been made) or the last
endorsee (if many transfers have occurred) pursuant to a perfectly continuous chain of endorsement. If the
bill of lading is done at the bearer, he is the bearer. Who is his counterparty (the person the buyer can refer
to on the bearer of the bill of lading)? Who is the person who has issued the bill? Is the carrier.
The focus is what are the claims (what are the rights) that the buyer has, considering that the buyer is
involved in two very different legal relationship: one is the one with the seller, the one under the bill of
lading, in-between the buyer as a last endorsee, as consignee or as a bearer and the carrier.
Who could be the seller for the buyer? Example, where the seller has loaded the goods on the ship, has
obtained the bill of lading, and then he has sold the bill of lading to a buyer. For the buyer the acquisition of
the documents, so the purchase of the bill of lading, may occur not directly from the first producer of the
products because bill of lading (BL) can be resold many times. A seller for the buyer can be:
- in the easiest example the same person who actually produces the goods.
- If the BL is negotiated the buyer as seller will have not the products of the BL, but more specifically the
endorser.
Re-Explain
Each Bl has a shipper, which is indicated on the front (Malick detto er FEEEEBAAK). Alagie is also the
producer of the goods, imagine if alagie has arranged a sale with Giardino (detto mani pulite). They have
agreed for a certain price, a certain time for payment and they have arranged to make the sale by means of
documentary sale) So it is clear that Giardino has to pay alagie versus presentation of documents as soon as
alagie has obtained the Bl. Alagie will present to Giardino the Bl (we skip the banks) and the Bl reads
Giardino as a consignee.
Alagie is the seller
Garden is the buyer.
What if now garden wants to get rid of the products and he has found Claudia as a possible buyer for the
goods? Garden will endorse the BL to Claudia. Why? Because the have agreed on the sale of the products: a
new sale contract has occurred in between garden and Claudia. This sale contract is a documentary sale, so
Claudia has to pay versus presentation by Garden of proper documents.
Who is the seller= it depends on what time the buyer has bought the bill of lading.
On the previous case it was malick, who was also the producer and the actual shipper of the goods. In this
case, Claudia has no contractual relationship with Malick, but she has a sale contract where the seller is
pierluigi.
When I say the buyer has a claim, has a contractual relationship with his own seller. I mean the person who
is the actual party of the contract of the sale of the goods arranged in a form of a documentary sale.
It can be the actual first producer and seller of the goods who has personally taken care of the shipment of
the goods and detaining the bill of lading, but more frequently it can be another person who has received
the BL by negotiation.
In our example there are 2 passages:
1) Alagie vs Giardino  arranged for a sale contract
2= Giardino vs Claudia  Arranged for a sale contract
But you have a contract with 1 and not with 2. In the first case alagie simply delivers the Bl o Giardino
because the document is singed with his name. You cannot participate in a contract if you are not a party,
Claudia is not a party to a contract with alagie. But Giardino is it.
The buyer under a documentary sale has a position:
- The one coming out by the specific contract the buyer has for purchasing the goods
- The relationship within and versus the carrier, which is documented by the BL
Provided that what can happen? Lets focus on the rights of the buyer pursuant the bill
The buyer has in his own hands a list of documents, which have an attached value. What he is entitled to
obtain under the BL? The delivery of the goods at a certain point within a certain date.
1) so the Bl is at first a receipt of the goods, the buyer knows that he is entitled to obtain the goods
described there. It has no legal value.
2) The BL is an evidence of the carriage contract. It means that the buyer is a person entitled to receive the
outcome of the carriage.
3) The BL is a document of title  the buyer is entitled to possession of goods
If we focus on the relationship between the buyer and the carrier, what is the buyer entitled to receive? If
the Bl states that 1000 kg of banana will be delivered in Johannesburg in a fortnight, (2 weeks) what is the
buyer entitled to obtain? Bananas, not cherry or else,
The buyer rights is exactly and nothing different from what it s described in the BL.
So if something it is incorrect in the BL, the right of one buyer against the seller is the one described in the
BL.
So if the BL reports that in Johann. 1000 kg of bananas will arrive, the buyer is entitled to claim only
bananas and not other foods.
Why is it this? Bcs forma a legal point of view, the content of the rights attached to the BL is the content
described in the BL so what it is written in the Bl describes the buyer’s rights with no exceptions .
As a buyer, as a bearer, as a consignee, as last endorsee of a continuous chain of endorsement, what are
you entitled to to obtain is exactly what is described in the BL with no exceptions.
It is the buyer’s fault if when, its bank has advised him that a Bl has arrived, he has accepted it without
controlling it. You can discuss it with the seller, but the carrier will just deliver bananas and nothing else.
It is just much more complicated when the products that have been delivered by the carrier are the one
described in the Bl, but these products present some Damages or are defectives.
Ex. You expect bananas, but they are rotten down, you were expecting glasses but they are broken.
Whenever there is a lack of conformity in between the description of the products as given by the Bl and
the actual content of the delivery, is the buyer entitled to acclaim against the seller? Is the buyer entitled
to claim reimbursement, indemnification, payment against the seller, because what he has received is
not conforming with what the Bl describes?
To ensure to this question, you have to consider that there are 2 Bl:
1) CLEAN Bl: It s a BL describing the products, without describing any kind of defect, so the
description of the goods is a description reassuring that the cargo does not present any sort of
defects, any sort of damages.
2) FOUL BL: A BL reporting defects of the cargo.
 What is the buyer entitled to obtain? Since the buyer is entitled to obtain exactly what it
stands in the BL? The damaged goods
As if there is a FOUL BL accepted by the buyer, then the buyer cannot claim against the seller
anything shout to the fact the goods are not conforming (They are defective, they have been
damaged)

So if the Bl reports defects in the cargo, the buyer cannot claim anything to the carrier since he has been
extremely right in describing exactly what he has received which is exactly what the buyer is entitled to
obtain.

When the Bl is clean, but then the buyer discovers at the delivery that damages have occurred at the
products, is the buyer entitled to claim against the carrier or not? The liability of the carrier in case of
clean BL is limited, so the possibility of the buyer to present a claim against the carrier by saying that the
products that they have delivered are defected, is limited for 2 reasons:

1) The carrier has no obligation of being an investigator of the conditions of the products: What the
carrier is under the obligation to do is to describe in the BL any current defect (just the defects that could
be recognised in an apparent way). The carrier has no obligation to open the cargo and verify the
conditions of the products.
What is possible for the carrier is, at must, to verify apparent defects. iN this case if visible defects have
must been reported in the BL, theoretically tha carrier is liable for them.
The carrier can be liable only for those defects that he was in the position to detect.

2) There are a lot of rules, national and international, to limit the carrier liability: These limitation are
huge and heavy.
The amount of money which could be requested to the carrier for any damage to the product usually is
limited to a small amount of money per KG of merchandise.
Ex. Losing a luggage.

SUMMARY:
so the buyer is entitled to receive exactly what is described in the BL, and as an effort of that he cannot
claim for any different kind of goods not described in the BL, bcs the Bl reports defects (foul BL), it was up
to the buyer to refuse it.
If the BL is clean, the buyer is theoretically entitled to claim against the carrier, but:
1) He has to demonstrate that the defects of the product are visible and that they weren’t described by the
carrier in the BL (and this is not easy to demonstrate it)
2) even though the buyer is able to demonstrate that defects are visible, and that the carrier should have
described them in the BL, there are limitations imposed by different international and national legal
sources, limiting the amount of money the carrier can be forced to indemnify the buyer for defective
delivery.

2) Evidence of the Carriage contract:

Why it is an evidence? Because the actual carriage contract has been entered(?) into between the shipper
(seller or agency or companies) It s a carriage contract which is entered into not by the buyer but in our
very simple model, by the seller and the carrier himself. So the buyer is outside the carriage contract, but
he has the Bl and the Bl at least is an evidence of the fact that someone has requested the carrier to
organise the merchandise to arrive in the port of destination.
So if the Bl reposts that the carriage was to be regulated by a boat Named P1, while instead it has been
organized by a vessel named “Claudia”, there is a discrepancy between the BL and the carriage, as
described in the BL.
if the Bl states that the delivery must occur in Johann., then the carrier could say to the buyer” Sorry bro,
the goods are still in Civitavecchia,”

So the Bl is an evidence of the carriage contract not the contract. The carriage contract has been entered
into between the shipper and the carrier, but the Bl is enough as a proof of a carriage contract to entitle
the buyer to receive the delivery of the goods by a maritime transportation.
So he is entitled to receive at that time. In that time, in that port, by that vessel.
Imagine for a moment that Malick (seller) has decided with out carrier that the BL will report Johannesburg
in a fortnight, but the carrier has explained to Malick that actually he needs to make a stop in Mauritius
island. So he has agreed with the carrier, as a part of the carriage contract, that he has to make a stop In
Mauritius.. This is a clause in the carriage contract and it is not reported in the BL.
Due to this change of the maritime route, there is a delay at the delivery of the goods.
Is the buyer entitled to claim against the carrier for the delay?
- No, by referring to the carriage contract
- Yes, because the carrier has not reported what has been described in the BL.
But there is no mention in BL of this stop in Mauritius, so just reading the BL we expect punctuality from
the vessel to reach Johannesburg.
So the buyer is not included in the carriage contract. Pierluigi is entitled to rely on the fact that the carrier
will abide to the carriage contract as an evidence by the BL. Any other clauses, are not suitable with the
buyer.
So the carrier cannot say: I m sorry for the delay, but I have agreed that with Malick, in the carriage
contract” bcs that carriage contract cannot be opposed (used as an excuse) toward the buyer because the
relationship between the carrier and the buyer, with reference to the carrier’s obligation to fulfil the
delivery by maritime transportation, is the one described by the BL, no the one described in any other
legal contractual relationship incurred by other parties.

The BL is a simple evidence of the contract, not the contract. It means that toward the buyer the carriage
obligation is the one described by the BL, not the one described by any specific clause or provision
contained in the carriage contract, because it is entered into by other parties and a contract can produce
effects just between the parties of the contracts (and not to 3th parties with no relationship with that)

What is the problem? It s that usually the Bl may contain a sort of indirect reference to external source of
reputation for that specific BL.
So when though the BL is just an evidence of the carriage contract, it s possible that the BL is subject ot
certain general terms that are not written down in the paper of the BL, but may are referred to by means of
indirect way which can be a small writing down in the Bl, stating down: “this BL is subject to the general
terms and conditions respected by our carrier company”.

Basically the buyer is entitled to obtain the carriage as described by the BL and by the BL only.
But by this mechanism of indirect reference to an external resource, such as general terms and condition of
the shipment followed by that specific carrier, the content, the rules applicable to that Bl could be much
longer and complicated than it appeared in the simply reading of the BL.

Lecture 13, Monday 02/12 PART 2

Bill of lading can be negotiable or not..

If not negotiable cannot be transferred at all.
If negotiable can be transferred at bearer (portatore) or at order.

From a point of view of the obligation of the carrier to properly deliver the goods the carrier has :
1) To give the delivery only when the bill of lading is presented
2) If bill is at the bearer and there is no need to make any verification because the bill of lading at the
bearer refers no name of any consignee but is a deal which gives the right to obtain deliver to the person is
actually bearing the document. So simply the fact that you have your hand on the document legitimate you
to obtain the delivery. But in the case of the other deal, instead the carrier will verify that the person
requesting the delivery has the bill and that has a document to show it
3) Verify if the last that have the delivery is the last endorsee of the continues chain of endorsement.
What if a case of misdelivery? Is the buyer entitled to complain against the carrier? Yes
Because the person that has the right of the delivery is the person indicated in the bill of lading (last
indicated in the continuous chain of endorsement or is the consignee if no continuous chain of
endorsement had occurred or the bearer in case of negotiable bill at the bearer)
in any case the carrier that does not respect those rules under negotiability and the transfer of bill of lading
so he delivers the goods to someone who has no power to have it/receive it, is in breach on his own
obligation under the bill and so he will face a claim from the buyer for not respecting that obligation

We are trying got identify possible scenarios relatives the fact that the buyer has a legal position or not
to claim against the carrier.
Last situation that we have to verify is:
imagine that delivery has not be made at all (example no cargo). There is a bill of lading but the port never
received the cargo. Why can happen:
1) when bill of lading signature by the carrier has been forged (also bill can be forged) so the buyer can
buy a bill of lading which has been forged  Apparently the carrier is indicated as issuer of that bill
promising to deliver goods in Example Johannesburg but actually no shipment has been made because
the carrier actually did not released that piece of paper. In a situation like this the buyer is entitled to
claim against the carrier for lack of delivery ? NO because forgery (false signature by the carrier) present
the signature but carrier has no clue that signature has been forged. A bill signed by someone else in not a
bill which actually creates an obligation for that carrier. So in case of forgery there is no claim of buyer
against the carrier of lack of delivery to the carrier because he never signed that he never issued.
What happen is that the carrier has been reckless so he has some bills already signed and the bill of lading
is actually signed and they get stolen by Arsenio (a theft). So we are In a situation when delivery has not
been made but the bill of document it was properly signed, it does not like a forgery . So the cargo does not
exist with the characteristics written down In the bill, but the bill of lading has been properly signed by the
person actually is in the position to issue the bill. In this situation (cargo does not exist) is the carrier under
the obligation to ensure the buyer what the bill describes? Is the buyer entitled to obtain the delivery? The
solution varies country by country, in different countries you have different legal scores supporting one or
the other solution.
One approach can say:
Even though the cargo does not exist nevertheless if the buyer has obtained the bill of lading in an
ordinary transaction, in good faith, without any suspicion about the origin of bill of lading, he has the
right to obtain what the bill of lading promises to him. Of course carrier cannot be forced to bring goods,
but at least he can be forced to indemnifies the buyer. According to this approach the right of the buyer can
be recognized so it is not possible for the carrier to exculpate himself, regardless the fact the delivery is
lacking, has not been made. Reason why cargo is not there is nothing that he can oppose to the buyer
because is a problem between him and someone else (example the shipper) or the theft that stolen the bill
of leading. Theoretically one reason can be any exception related to lack of delivery cannot be opposed
from the carrier in order to free himself from the obligation to deliver what the bill of lading described and
if he is not able to deliver goods has to indemnify
The opposite approach says:
Oppositely the obligation to deliver a certain quantity of goods it is an obligation that cannot be imposed
unless taken spontaneously by a person, so you cannot force this specific obligation. So this other way
oppose to the other: buyer has no possibility to force the carrier to respect the promise to deliver the
goods and to fulfil the promise in the bill of lading.

RECAPP

When no claim against the carrier is available it’s a claim against someone else: Bill of lading is a receipt of
goods, if deliver occurs but products delivered are defective, is it possible to claim to the carrier? It depends
if bill of lading is Foul or clean:
Foul: Describes actual defects that occur, the buyer has no claim of course
Clean: Buyer has a theoretically claim against the carrier but that claim is limited because the carrier could
be considered liable just for non se capisce mortacci sua and second because liability limitation due to
many different legal sources. If buyer is not satisfied or is partial satisfied is he entitled to claim against the
seller. Yes. Under the contract of sale of goods the buyer is entitled to receive certain goods, bill of lading
describes these certain goods, the goods are defective, the defects are visible but carrier is not going to
indemnify, so now I want to be indemnified and it will be the seller because he took the obligation to
deliver me the goods. Even if the documentary sale is a payment vs document or document vs payment, in
the largest number of legal systems there is not at all equal everywhere, it s still remain impossible for the
buyer to claim in reference to the goods, even there are documents conforming, the buyer has to pay.
Even if the buyer may have no claim against the carrier due to lack of conformity between the deliveries of
products and how the products should have been, so there is a discrepancy, it could be possible for the
buyer to claim against the seller. IN the case of carriage transport, different from bill of lading, because
buyer has a strong protection against the carrier, in the sense that if the carrier does not respect bill of
lading the buyer can claim against him for any delay in delivery unless those clauses have been written
down in the bill of lading or are indirectly referred to by mention of that under bill of lading.

Mis delivery; in case where carrier delivers goods to someone else, it s a situation where the buyer has a
claim against the carrier only because the seller did everything he could, the seller did everything right,
so its not his fault.
Last situation is the Forged bill of lading: carrier has not liability. So buyer will have a claim against the
seller that tried to fool him around by selling him a false bill of lading.
IN a case of authentic bill of lading (signature is not false but cargo has never been loaded so we have a
lack of delivery) the situation depends a lot from specific legal system of the country where we are because
buyer may have no claim against the carrier or may have claim against the carrier.

One last point about bill of lading may occur in reference to our endorsee / consignee:
Imagine a situation where there is a shipper (Malik) and a first consignee (Giardino). Giardino decided to
not take the delivery to resell the goods so he phones Claudia, Claudia too does not want to take the
delivery and wants to renegotiate bill of lading immediately (she wants to obtain the price now rather than
the goods) and she arranged a sale contract with Giulia. So Claudia must presents Giulia documents, so
Claudia has to do a new endorsement with his signature. Here we have a continuatively of contract here,
so any passage is supported by a reason, the first endorsement by Giardino to Claudia is made by a
contract, the second endorsement made By Claudia and Giulia is supported by a sale contract, the first
original consignment, the first delivery of bill of lading is between Malik (shipper) and Giardino (Consignee)
is another sale of contract.
If Giulia has not decide yet the next person with doing a new endorsement but she prepared the
endorsement (endorsement is ready but in blanc) and a theft (Arsenio) appears and steal his document.
Arsenio decided to steal the bill of lading from Giulia and he knows that an endorsement is needed, if
Arsenio shows up at the port of Johannesburg (place indicated in the bill of lading) and he would like to
obtain from the carrier the delivery of the products, he is entitled to obtain the delivery on the basis of bill
of lading only? Yes he is. What the carrier has to do to verify if the person that asked the delivery (shown
the document) is the one entitled to receive the delivery. And if he does that he must use diligence to
check if there is perfect continuity of endorsements, and if there is he has to give the delivery to him. He
will not be considered liable for what he has done unless he is not done that in a diligent way. Basically if
he has just the suspect that maybe the person is not the one entitled, that suspect is not enough in the
sense that for the carrier to refuse the delivery on the basis of his suspect, of the person asking that, he
has to have a very good evidence immediately available to refuse the delivery. Without that he has to
release the good eve if he is suspicious. If Arsenio does not want to give the risk to be recognised as a theft
and as consequence see his right to obtain the goods refused by the carrier, he can find someone else as
Ciocca, and can pursue her to sell to her the Bill of lading, and she will not have an idea about that (theft).
So Ciocca is unaware of the fact but she will enter into the contract for value because she paid the bill of
lading. So Giulia left a blank endorsement and Arsenio stole it, he will simply write Ciocca’s name on the bill
of lading (Arsenio name will not compare there). Is this chain of endorsement correct? Yes, Ciocca will be
entitled to obtain the delivery but there is a contact between Arsenio e Ciocca, she paid the price, agreed
with him to pay an amount of money, it’s a perfect contract but Arsenio is not the owner of the bill, what is
missing is that Arsenio has no title to that document (he stole it), because stealing is not a legal title to
obtain things. Ciocca has no idea the Theft is no entitled to that.
We have a contract supporting any passage of bill of lading, there is a contract for every passage.
What misses between Giulia - Arsenio, & Arsenio - Nicoletta is a proper contract to justify that transmission.
There is no legal reason that justifies the transmission. But Ciocca has acquired the document in the course
of negotiation (in a complete contract) but for the fact that Arsenio, the transferor of the title had no title
for doing that, so the question is: is the buyer (Ciocca) protected by the law in the sense that she became
the real owner of bill of lading or not? It depends from legal system to legal system. Some countries says
that the bill of lading is not a draft or a bill of exchange and for this reason in a situation like this, a person
cannot acquire a right stronger/bigger/better of the one of the transferor, so if u are going to buy the bill
of lading from a theft what you will obtain is not at all the ownership of the good. So in this kind of case
there is no protection for the buyer because he obtained it from the transferor (Arsenio) exactly how the
theft obtained it, in a not legal way, since Arsenio has no right, Ciocca will not have a right too. This is a
possible solution.
Other countries instead provide a different solution, the situation is the same as for a draft or a bill of
exchange, where is stated that a person that acquired a document in course of a negotiation, for proper
consideration, with a proper complete contract, and is in good faith, is enough for give him/her the full
ownership of the goods (full title). In this case Ciocca will be considered as the owner of the bill of lading,
due to the fact she obtained that in good faith with a proper contract, paying the price in a course of a
negotiation.

She suggests the book for sta roba (bella)

How works bill of lading, documentary sale etc. (Exam questions)

03/12 Tuesday

LECTURE 14

When the documentary sale has no involvement of a documentary credit (letter of credit) the bank is a sort
of aid for the parties of the contract.
In the letter of credit the bank intervene in the transaction assuming an undertaking entering as an
obligor with regard to the payment of the price

What are the characteristic of a documentary sale when at the top of that there is a letter of credit/
documentary credit?

This specific transaction is not regulated by any hard-law sources or international agreement but in the
INCOTERMS the letter of credit had been the object of repeated pattern of behaviour by the parties
Sellers, buyers and banks have been using letter of credit in a very similar way for such a long term that
usages have been created and collected by the ICC (International Chamber of Commerce). These
practices are called UCP (Uniform Commercial Practices). The actual publishing of this collection is the
number 600.
They are useful because is a way to describe the transactions, to establish the obligations of the parties and
their role.
UCP is not a mandatory source of law  the bank can completely disregard it but it is not convenient to do
so, because these guidelines are described in such a clear way that:
 the parties don’t have to spare time  reduction of costs
  there is a degree of reliability for the parties they already know what they get entering in this
transactions
Sometimes international transactions are regulated differently nationally, nevertheless transactions
spontaneously become uniform cross-border because there is a certain degree of agreement within the
community of merchants on how to arrange them.
Documentary sale is the starting point  it is a sale where the buyer has to pay vis a vis the delivery of
proper documents  In the letter of credit the involvement of the bank is a little more rich but the set of
documents is exactly the same of that of a common documentary sale with no letter of credit involved: bill
of lading, invoice, certificate of origin/inspection and any additional document etc.).
The same letter of credit lists in an exhaustive way the documents requested for presentation. The bank
shall honour the letter of credit vis à vis the presentation of the documents and can refuse the documents
only if they are not complete or defective.

When a letter of credit is involved why is it requested?! What is it role?

The seller may have not trust in the buyer  he is not confident enough that once he has presented the
proper documents, he is going to obtain the payment
the best way to solve this problem is to replace the credit score of the buyer with a professional
intermediate: the bank promises the seller that if he is going to present the proper documents, it will pay
him additional guarantee

For example:
Drafts do not make the seller sure the buyer is going to pay. In fact, if, once the date has expired, the buyer
does not pay, the seller has to file an action against the buyer, but he does not have any warranty, because
the draft is not a warranty at all. So, in order to be more sure, the seller needs a deeper involvement of a
bank, namely by means of the Letter of Credit.

Where the seller does not trust the creditworthiness of the buyer, the parties may agree on a documentary
credit to assist the sale.

The Letter of Credit states the unilateral obligation of the bank to pay the price of the purchase of goods
agreed between the seller and the buyer subject to the presentation of relevant documents by the seller

Stages of documentary credit transaction

1. Seller and Buyer agree the sale with documentary credit
2. Buyer applies to an Issuing Bank in his own country for a Letter of Credit with the Seller as Beneficiary:
the buyer has of to find a bank in his own country (national Bank) which is ready to realise a letter of credit
 it means that the bank is ready to promise to the seller that is able to pay the amount of money if the
seller presents proper documents

The guarantee for the issuing bank:

 To issue the bank, the buyer may have credited funds in advance to the bank issuing the letter of
credit: in that case, the bank shall release the seller’s document to the buyer promptly after the
payment of the letter of credit
 The buyer may have promised to repay the bank at a future date: in that case, the bank will
maintain the documents without releasing them to the buyer, and sometimes may also have asked
to receive a pledge over the bill of lading and therefore upon the goods as a guarantee of payment
by the buyer.
3. The Issuing Bank will draft and sign the Letter of Credit subject to the Buyer’s instructions
 Issuing means the person who sign and realise the document The Issuing bank will honor the
payment if certain documents are presented to the bank (the buyer will define them, will provide an
essential description with the fundamental characteristics of the goods)
 The bank in the letter will specify:
 the promise  a promise to pay
The promise is usually irrevocable, cannot be revoke  Once the bank had sign this document, it
cannot change is mind and not honour the letter (For the seller irrevocable is better)
The letter of credit can also contain Revocable features
 the beneficiary of the letter of credit (the Seller)
 the lists of the documents which the beneficiary has to present the bank with, if he wants to
receive the payment  the bank will be extremely precise (the quality, the quantity, the port of
arrival or the port of departure etc)  (look at the following example of the bags)
4. The Issuing Bank will notify the Advising Bank in the Beneficiary’s country of the opening of the Letter of
Credit
5. Seller shall prepare the relevant documents and give them to the Advising Bank (or another Bank, called
the Remitting Bank)  The seller will prepare is own document: prepare the bill of lading, issue the invoice,
prepare the draft etc these documents are going to be transmitted by the remitting bank to the collecting
bank
6. The Seller’s Bank shall transmit the documents to the advising bank/remitting bank which will transmit
them to the Issuing Bank, unless the advising bank operates as an agent of the latter as well
7. If the Advising Bank/Issuing Bank confirms conformity of the documents to the letter of credit, it
arranges for the payment of the Seller (usually locally)
8. The Issuing Bank will release the documents to the Buyer if the Buyer has already advanced the funds for
the letter of credit. Otherwise it may hold the documents pending the time for payment by the Buyer
The seller will prepare is own document: prepare the bill of lading, issue the invoice, prepare the draft etc
these documents are going to be transmitted by the remitting bank to the collecting bank
The number of banks involved in the letter of credit could be a little bit larger:

The advising bank

 This is a bank in the country of the beneficiary (the seller). It is called advising or correspondent
bank. (generally the correspondent is linked with the issuing bank)
 This bank does not undertake any obligation under the letter of credit
 This bank is a mere conduit to transmit to the beneficiary the notice that the letter of credit has
been issued by the issuing bank (content if the seller is ready with his documents, he will be
paid it is a reassurance to the seller that the buyer has respected the obligation)
The seller can use the same advising bank to transmit the documents OR
there is no obligation for the seller to rely on the advising bank, he could use the remitting bank their
role is just to send back the documents to the issuing bank
 This bank may also be a conduit to transmit the payment from the issuing bank to the beneficiary

The confirming bank

 When the seller wants a second layer of guarantee he may obtain to have a confirmed letter of
credit
 The confirmation is given by the advising bank (which shall become a confirming bank) or by a third
bank (which shall be the confirming bank): any of them are banks in the beneficiary /seller’s
jurisdiction
 The confirmation triggers an obligation of the confirming bank to honour the letter of credit. The
Beneficiary will have two obligors: the issuing bank and the confirming bank
 The presence of the latter is convenient for the Beneficiary, since the bank is in his own jurisdiction
and in case of default is easier to take proceeding against the confirming bank in the same
jurisdiction.
The seller may request for another bank to intervene in the transaction Example: the buyer to issue
the letter of credit will go to a small bank in his own country, that has no a well-recognise reputation.
The seller can request the intervention of another bank in order to be safe about the payment the
letter of credit will be issue by the small bank but there will be also the conforming bank. It will confirm
the letter of credit (immediate obliger, directly in the seller country). The seller will have two banks
honouring the letter of credit.

The issuing bank

 In a transaction with a letter of credit involved the issuing bank has to do it  the verification of
the document is made by the issuing bank
In a documentary transaction with no involvement of the letter of credit  the verification will
be done by directly the buyer
 The bank will receive the documents, to verify if the documents are in conformity with the letter of
credit
There has to be a perfect matching between the description of the quantity, quality, prices etc of
the goods of the letter of credit and the docs received
This verification is crucial:
No conformity refrain from paying
Any differences should impede the bank from paying
If the documents are perfectly conforming (mirror image)  the bank has no choice but to pay, if
the bank doesn’t pay it will ruin is reputation (rumours)
What are the rules followed by the bank in order to decide: to pay or note to pay?!
Two fundamental rules established by UCP 600, followed for a long time and confirmed by the national
legislation nowadays:
1) Principle of Autonomy
The obligations under the Letter of Credit are autonomous from any underlying contract of sale. The
obligations of the bank are described only in the letter of credit. The bank has no involvement with the
problems related to the sale of goods.
The Letter of Credit is binding for the Issuing Bank and irrevocable (unless the opposite is stated).
The obligation of the bank is to pay at the conditions stated by the Letter of Credit (amount of money, time,
way of payment, list of relevant documents to be presented, features of the goods) and subject to the
presentation of relevant documents.  This obligation is autonomous from the sale contract.
“Letters of Credit are separate transaction from any sale contract or other contract they may be based
on and the bank is not bound or in any way concerned by such contract even if a reference is made to
them”.

Example:
Many different things could have happened meanwhile to the goods. If the bank knows that actually the
goods are arrived (so the buyer informed the bank before the bank has decided whether to pay the letter of
credit or not). If the buyer informed the bank that the goods are damaged or the cargo doesn’t exist at all,
the bank cannot intervene because it has only to verify the of the conformity of the documents.
Consequences of the autonomy of the bank’s obligation under a letter of credit
1. The bank cannot refuse payment on the basis of a breach of the sale contract
2. The buyer cannot obtain an injunction by a judge to refrain the bank from paying the letter of credit
based on a breach of the sale contract
3. The bank cannot refuse payment on the basis of any set off claim or counter claim of the buyer
towards the seller. Nonetheless some case law allows the banks to set off payment of the letter of
 credit with sums due to the bank by the beneficiary for other reasons.  high degree of safe for the
seller
What if the goods are defective and the buyer has been able to verify it before the payment by the bank?
Also in this case, the bank shall honour the credit. Then the buyer shall bring a suit for damages or specific
performance against the seller.
Fraud can be the only exception to the autonomy of the letter of credit. Therefore, in case of fraud:
the bank shall refrain from payment and the buyer obtain an order from a judge to the bank to refrain from
paying. The exception is a narrow one:
1. Fraud has to be committed by the beneficiary
2. Fraud has to be evident
The autonomy of the letter of credit is crucial:
In the civil law countries all the obligations of any person must have a justification and they cannot be
abstract or without a cause, where instead these obligations of the bank to pay exist just because the bank
has promise to do so versus the presentation of documents (conformity fulfilment)
If a discrepancy doesn’t exist the bank has to pay
If a discrepancies exist even if the bank has received the official authorization by the buyer to let go the
differences (the buyer takes the risks of it) the bank has to reject the same.

2) Strict compliance
The Issuing Bank (or the Advising Bank operating as its agent, if agreed) shall scrutinize carefully if the
presented documents are conforming. The bank has to verify the matching between what is in the letter of
credit and what is in the documents, following a formal approach. The match has to perfect, discrepancies
of any kind justify rejection of the payment.  conformity must be perfect
The time for doing it 5 days (working day): failure to respect this deadline precludes the bank from claiming
that the documents were not conforming and the bank is obliged to pay. Actually this is the time line set by
the UCP. Otherwise the criterion of a reasonable time will be applicable: the term will depend on the size
and expertise of the bank, linguistic barriers, current practice and complexity of the documents.
The bank shall decide whether:
• to accept documents and pay
• to consult with the applicant for a waiver (rinuncia) of any discrepancies and subject to the
waive by the buyer to proceed to payment
• to reject the documents: by means of a notice of rejection to the beneficiary (via the
advising bank) with attached the returned documents and stating the grounds for rejection
(these grounds cannot be specified at a later stage).
The banks shall decide how to proceed “on the basis of the documents alone”:
• ignoring claims by the buyer on the breach by the seller of the sale contract
• controlling only the face of the documents vis à vis the letter of credit
Discrepancies between the letter of credit and the documents which have allowed banks to a legitimate
rejection of documents
Examples
• Letter of credit refers to a bill of lading for 5.000 bags; presented bill of lading lists 4.997
bags — lack of compliance - rejection of documents by the bank
• Letter of credit refers to a bill of lading listing “coromandel groundnuts”; presented bill of
lading includes “machine shelled groundnuts kernel”; lack of compliance - rejection of
documents by the bank
• Letter of credit open for “100 new Chevrolet truck”, presented invoice refers to “trucks in
new conditions”, certificate requested to be presented and presented refers to “100 new
 good Chevrolet truck; lack of consistency between the presented documents - rejection of
documents by the bank.
Following cases as the above ones, UCP has mitigated the approach of strict compliance:
• typos are irrelevant
• invoice must match the letter of credit, but provided that is clear that all documents refer
to the same goods some inconsistencies between the documents can be accepted
• discrepancy between the quantity stated by the bill of lading and the quantity stated by the
letter of credit is acceptable in a range of +/- 5%
2 senses:
 Certain discrepancies are tolerated now  they will look at the main consistencies
 In the case of fraud  no mismatch between the letter of credit and the invoice, but the buyer
received goods substantially different or he understood that he will be victim of a fraud
Following the principle of autonomy, he doesn’t have the possibility to contact the bank asking for
not authorizing the payment, because the documents are formally well-completed.
But subject to certain condition, in presence of a fraud, the buyer can ask a judge to order to the
bank not to pay. 2 conditions:
1. The buyer has to demonstrate the existence of a fraud
2. The fraud has to be committed personally by the beneficiary of the letter of credit
3. There must be evidence not just suspicion
The judge must send an order to the bank to refrain the payment.

What kind of obligations the bank does take towards the beneficiary of credit (seller)?
The bank is an immediate obligor towards the beneficiarythe bank has the obligation to pay just because
the seller has presented the documents.
The seller has no obligation to request payment of price to the buyer and secondly to the bank.
If the letter of credit has been issued there will be an immediate relationship between the issuing bank and
the seller, he has the power to obtain payment without waste time.
The bank is not a guarantor, it is a debtor: it promise to pay the amount of money if the documents are
performing. (you don’t have to request the payment to the first debtor (the main obliger) and then you can
go to the secondary guarantor  secondary recorse to obtain payment  because the bank in the letter of
credit is an obliger!!!) THAT IS THE CONTENT OF THE TRADITIONAL/STRICT/CLASSIC LETTER OF CREDIT
The obligation undertaken by the bank is a principal not as a guarantor of the buyer. This is the difference
between the letter of credit and the stand-by letter of credit, where the issuing bank acts as a guarantor:
it will honor the letter in case of default of the customer/buyer.  you first ask the buyer, the bank
stand-by, if the buyer doesn’t pay than the seller goes after the bank
The obligation undertaken by means of the letter of credit is irrevocable unless it states the opposite The
letter of credit shall also clarify the method of payment by the bank:
• cash v. presentation of conforming documents: the bank undertakes to pay the seller at
sight of documents (payment at sight) or after a term since presentation of documents
(deferred payment)
• negotiating for a discount a draft drawn on the buyer without recourse to the seller v.
presentation of conforming documents (negotiation credit)
• accepting a draft drawn by the seller on the bank v. presentation of conforming documents
(acceptance credit

TRADEMARK
A trademark is a name, a word or a logo (or a combination thereof) used on certain goods and services.
Subject to certain conditions a trademark can be registered.
Trademark is an intellectual property right, which gives to the person who have registered the trademark
an exclusivity right = the right to use that sign in an exclusive way, without allowing everyone else unless
my permission.
Trademark registration and trademark protection are crucial at the international level, because you want
to protect it.
A registered trademark allows the applicant to use it in an exclusive way, directly or indirectly (licensing
the use of the name).
Protection of trademark is subject to a territoriality principle  the protection of trademark is divided by
geographical boundaries.
The most you can obtain is a trademark protected nation-by-nation, there are some obstacles to do so:
- Is expensive
- is needed a registration in any country of interest, in order to enlarge the esclusivity and the
protection;
- is necessary that the registration is done simultaneously everywhere, otherwise someone else
may register the trademark;
- the trademark has to follow the national law, which means that each national trademark is
subject to the national legislation and is regulated in a different way.

How to overcome the “territorial” feature of a trademark?

Worldwide:
 The Madrid Agreement concerning the international protection on trademarks (1891);
 The Protocol relating to the Madrid Agreement (1989, in force since 1996).
The Madrid system is administered by a body inside the World Intellectual Property Organization (WIPO), a
UN-agency.
 The Paris Convention of 1883 (and the Paris Union formed by the Countries which adhere to the
Paris Convention);
 The TRIPS (in relation to the WTO).
These two international agreements do not create neither a unitary sign (as in the EU with the EUTM) nor a
single registration (as in the Madrid system).
EU:
 Harmonization of substantive trademark law in the MS, Dir. 89/104 (now Dir. 2015/2436);
 Unification of the procedure to register a Community Trademark EUTM with effect in the EU, Reg.
n. 207/09 (now 1001/17)
In the EU there is the communitarian trademark. If you are in the EU boundaries, there is a common
office in Alicante, Spain, in which you can obtain registration to grant the protection within the EU.
Outside the EU there is no such a single system.

So within the boundaries of a geographical area, corresponding to the single market of EU, a person who
wants to register his/her own trademark can do so by following just one procedure, just in one office (in
Alicante, Spain) and by obtaining a trademark which will be protected in the same way, in the same
conditions in each of the 28 States of the EU for 10 years.
Community Trademark  A single procedure to register the trademark; a unitary trademark with the
same content everywhere in the EU.
NB: The EU system of trademark protection doesn’t replace national legislation, is a sort of double
channel system. Each State maintains its national law for protection of national sign.
Nevertheless, EU knows about this double system so, in order to reduce the differences, there is another
effort that EU has made  Harmonization of National legislation about trademark.

13/12 Wednesday

ICL-LECTURE 15

Protection of trademark at international level in order to overcome territoriality. The source of

reference is the EU TM reg. 2017, the goal of this instrument is to create legislation in order to be
entitled of the exclusivity of that in the whole Europe subjected to the same terms and conditions.
The procedure is unique, by an application at the agency called EUIPO (European Union Intellectual
Property Organization). The sign and the logo once have been registered is unified across different the
states, it has a unique procedure in order to obtain the registration of the trademark. This regulation
also determines and clarify the content of the exclusive right  rights of the parties.
The duration is 10 years and can be renewed. Before the expiration date, of the first ten years, there
is the need to request the renewal in order to extend the duration for another ten years. That is a big
difference between trademark and other intellectual properties. The duration of DESIGN TMs is in
between 10 and 30 years, depending on the kind of registration on property rights but it is not
renewable, it is just for one time. While instead, the TM protection allows to prorogue protection of the
TM. The protection is full in terms of exclusivity, but the person interested has to request renewal
before the expiry date. The regulation gives the possibility to transfer the TM, or to give it in a licence
or to sell it or other 7uwise is to request a bank to financing as guarantee to give a pledge 
security of guarantee. Any natural or legal person, EU or NON-EU citizen, can find the application and
pay certain taxes.
Mostly is needed a description represent and describe what the object of registration is (kind of
font, kind of logo, kind of word), the description is crucial, because we describe the content of the
exclusivity. The distinctiveness is crucial, but it is not the inspiration of a certain sign which allow us to
be entitled of a certain exclusivity. The last part of the application is extremely important as well.
1) The fundamental part will be the description of the trademark,
2) The second will be the indication of the class of products we are interested in to. The products are
classified internationally by the Nice System of classification: products are divided by classes which
are numbered, we have to pick up how many classes do we want to have our TM registered. The
longer the list of products, the larger is the exclusivity, we can pick up any class of products, but the
problem is given by the huge amount of taxes which has to be paid. The regulation states some
requisites that the TM must have in order to be eligible. (Harley Davidson have been trying to register
the annoying sound of their engine as TM, the problem is given by the musical TM, it is not prohibited
but it is tricky). The rational behind is to identify the requisites that the TM must satisfy, in order to
obtain the registration.
The lack of these requisites triggers the possibility to obtain the registration.
The procedure is made in this way:
Grounds for refusal are opposed before the registration, in order to prevent such registration to
occur. If no ground is detected, the TM is registered.
But, the validity of the TM can be challenged by anyone interested in the trademark (absolute
grounds) or the earlier holder of the TM (relative ground).

Eligibility for registration:

1) ABSOLUTE grounds: absolute can be objected by anyone who has interest

2) RELATIVE grounds: Can be presented and objected only by qualified third party; person who is
entitled to present this ground is only the older who has already obtained that TM previously, so
is the person who has registered, before you, the trademark. His interest may be preventing you
 from obtaining registration because you are trying to copy his own trademark. Relative grounds
are based on the conflict before a previous registered TM, which has already been inserted in the
register and already protected. The qualified third party is a HOLDER EARLIER REGISTERED TM.
What distinguishes the absolute and the relative ground is the group pf claimant.

TIMING FOR GROUND:

The absolute ground can be invoked at the time of the application there is NO DEADLINE.
While instead for the relative ground can be invoked, as well, at the time of application within 3
months from publication of the application but there may be a later claim. These two grounds of
refusal are a sort of obstacle they can also work at a later stage, as a subsequent reason for invalidity of
TM. When a TM is in breach of the regulation is considered to be valid even though, it does not respect
the requisites of the regulation. Those grounds may become reason for invalidity.

When they are not claimed registration is obtained but is does not means that the trademark is safe
from a subsequent claim about the fact that your trademark does not conform to the requisites
requested by the regulation.
Invalidity may be requested at a later stage, after the registration, for the same reasons (absolute
and relative).
Grounds for refusal are opposed before the registration, in order to prevent such registration to
occur. If no ground is detected, the TM is registered. But, the validity of the TM can be challenged by
anyone interested in the trademark (absolute grounds) or the earlier holder of the TM (relative
ground).

The absolute grounds for refusal are contained in the art.7 of the regulation. First, the TM presents a lack
of eligibility criteria for registration according to the regulation must contain:

1) Sign which conforms to the req. stated in art 4. (description of goods and description of classes)
2) TMs which are devoid of any distinctive character (Supreme NY and not supreme Barletta)
3) Shape of product: the shape who pursue a technical effect cannot be registered as TM (Lego brick
or kinder egg+ examples on slides). Or a shape which is imposed by the nature of the product (kit-
kat). The shape which is totally useless may be registered (design furniture but here unitl 30
years)  the shape which give substantial value to the goods. There is a boundary here given by
the design protection that is a small patent, for example Italian design furniture, which is limited in
time (B&O has fight or TM under EUTM reg. 2017)
4) Absence of deceptive nature
5) Novelty

1-2-3-4 ABSOLUTE GROUNDS : 5 RELATIVE GROUNDS

In order to be registered the TM must not be composed of words which DESCRIBES THE PRODUCTS (jeans
to describe jeans)  that is the reason why supreme has problems, we cannot use adverbs, adjectives and
so on… we cannot also register bad words (we cannot register WTF). On the top pf that there is the more
important: the TM must present a distinctive character. Something which can be separated to the product,
but also have something to the product to identify it (adidas’s three stripes).

REGISTRABILITY-LEGITIMACY-DISTINCTIVE CH-NO DECEPTION

If absolute grounds are not immediately detective during registration, there are two possible ways to make
a claim after registration.

1. Go straight against the applicant who has made the registration (declare it invalid)
 2. Usually a company can start to produce very similar product that represent the trademark
registered. So, the company start a claim for counterfeiting (the company is the defendant). The
invalidity for counterfeit can be started by everyone is interested in that and is able to demonstrate
the existence of the absolute ground of invalidity or through a counterclaim in case of a
counterfeit.

When a trademark is registered is should be new, compared to others TM already registered, it should be
different. You may have an identity or similarity in-between signs and products.
TM are means for entrepreneurs to do business so is a way to compete

Novelty is described in this way:

if trademarks are identical ->
- Novelty is when a product is not registered in the same class of products of another. If the two signs are
registered in the same class of product (same product and same sign), the second trademark is not new, no
necessity to register it;
- If the classes are not the same and (There are not similarity). If the signs could be considered exactly
different there is no possibility of overlapping. In case of same sign for similar products, it could be
confusion. In order to be sure that there is novelty there must be no risk of confusion, instead if there is
possibility to create confusion, registration could be denied (registration refused). So similarity can
destroy, exclude novelty, because similarity can cause risk of confusion, but it is really difficult to
demonstrate it.

If I have trademark registered and someone else wants to register one similar, I can appeal to the fact
that there are similarities and so the second applicant can damage my product due to the fact of lack of
recognition of my product or confusion in recognize it

When the previous trademark is famous (well-known reputation, special position in the market), how to
protect it? The novelty does not exist if the sign can be identical, different or similar. The risk is the unfair
advantage for the second applicant who tries to register the second TM and the second registration can
cause the risk of damage to the first trademark: detriment (jeopardise). To oppose a relative ground, the
previous applicant who has registered the TM has to demonstrate that the sign is identical or similar.
The exclusivity of the famous TM is bigger than the ordinary ones.
So, first demonstration is the unfair advantage for the second applicant, second demonstration is that if
the second registration is going to be registered it could be a damage of confusion for the first one, less
capability to identify the original producer, causing a detriment.

What happens when invalidity is declared? When invalidity is pronounces, the product it is like it has
never been registered. Invalid from time 0, it should never be registered.

In case of any kind of invalidity, you have the possibility to use it in an exclusive way, but you have also
an obligation: use it.
REVOCATION: If the TM is not used for 5 years since registration or you suspend the use for 5 years, you
lose the exclusivity, cause of revocation (not for invalidity).

Invalidity ≠ revocation

Invalidity: breach of requisites (legitimacy…)

Revocation: correctly registered and perfectly valid but due to lack of use you lose the power to use it,
from now on.

WEEK 6
ICL LECTURE 16 Monday 09/12

Invalidity can be ground by anyone in case of absolute ground. From time 0 the TM is ineffective

Obligation of the registrant is to use the TM (put it into commerce, use it) because lack of proper use of it
for 5 years from the registration cause the revocation of the TM. Revocation is pronounced by the judge
which states that from the moment of the file of the case of revocation, the TM must be revoked.

Exclusivity to his own registrant is a very large exclusivity: he can use the TM in anyway and he can prohibit
the use of that to any third parties.

A class of TM particularly protected is that well known, with a reputation.

After the registration of the TM, it cannot be used for identical or similar use by any third parties.

In some cases, entrepreneurs need to use the TM exactly the same it was registered. Example of
maintenance of iphone. These services have to be in compliance with the TM itself.

Limits to exclusivity: exhaustion rules, when the TM is put into business the owner has no more control of
it. You cannot modify the TM when is put into commerce, the person who continues to trade the TM
cannot modify the appearance of that because it is an infringement.
Infringement: a person does not respect the exclusivity attach of the TM registered, he has no rights of do it
Counterfeiting: a kind of infringement which consist on reproducing the TM. consequences are to ask the
judge to restore/ destroy that counterfeited products.

There is a limit to this exclusivity, Exhaustion rule : exclusivity which derived by a person that wants to
register a trademark, will finish at the moment of when the product is in commerce. The moment
product is put in commerce, is a moment where a company stopped control the product. The bundle of
rights in reference to the product when is first put in commerce, presents the trademark that has been
registered.
Second degree dealer, trademark exhausted but u cannot alter or modify the trademark (ex: pretend
selling Nike shoes modifying the trademark of Nike, changing the appearance because that will be an
infringement of Nike goods).

1 rule Exhaustion rule: exclusivity will end when product is in commerce,

2 rule: registered trademark must be in use
3 rule: revocation of trademark must be for proper use.
Other case of revocation:
- Trademark invalidity registered, at a later stage (opposite of lack of proper use).
- Problem when big Trademark become a word (Bic, scotch).
- The trademark after registration become deceptive (we said it cannot be deceptive because it cannot
create confusion). If occurs at moment of registration it will be a cause for invalidity. If we are going to do
that it can be revoked just because being deceptive

Revocation caused by

- lack of proper use

- Supervening lack of distinctive characters: TM properly registered at first, then it loses this distinctive
character for supervening events (defective characters)

- Supervening of deception: TM after registration becomes deceptive. If deception occurs during

registration, it causes invalidity. Example acrylic/ silk scarf.
Renewal of TM is every 10 years, if nobody asks for it TM becomes vacant, anyone can take it. Many old
fashion producers are examples of vacant TM.

Occupy the sign is to take the TM and try to exploit people who needs it. No very good business

when we have said that the person who has a TM has an exclusive right to that, we have made reference to
the use of that TM to commerce or to procuring. §

There is another way to use the TM, the trademark is object of the ownership. That is important because
it is possible to transfer that, sell it and give it as pledge (impegno) to a bank in order to obtain a loan. It
can be given in licence Licensing

Exclusive licence  licensor cannot use the TM anymore. No third parties have the right to enter in the
trademark. At the end of the period of the exclusive licence it will come back in the hands of the licensor.
This is subjected to a certain period of time. In the Anglo-Saxon world is quite common.

Another way is by giving as a collateral create a pledge for tangible goods, rights and trademarks.
Sometimes TM has considerable values. Having the TM as an asset it cane be used as a collateral as
security. In international financing transaction, giving a loan, asking a list of securities  pledging IP rights.
The EUTM regulation contains certain details about the way to disposing a trademark, at EU level if you
have obtained the TM under this reg., you do not only have the TM equally protected and regulated
everywhere, but you are also entitled to dispose of your TM at the same exact conditions about
registration, invalidity and revocation; but also about procedure for parties, for the person to transfer the
TM  not only for who disposes the TM, but also for the person who is going to receive it. The provisions
about the transferability are contained in the regulation.

Harmonization and unification of the law  rely on a common set of rules in term of applicable law over
the head of the states and the parties. We have kin similar situations like Vienna in the EUTM. Certain
conditions are regulated in the same way directly by the EUTM  respect certain regulation:

Transferability:

1) The transfer has to be made in writing  liquidate in order to obtain money

2) It has to be Registered  any TM is registered and any register is public. Publicity in the register
allows to obtain the effectiveness of your trade on TM, otherwise it will be ineffective.
3) The transfer can be total or partial: Total you sell to a third party and you will not have any
rights anymore (Es. Exclusive license); Partial selling TM only for certain categories.
4) The transfer may be only of the trademark or trademark+ undertaking: TM as an input to obtain its
own output in the business enterprise  pool of assets

When a person who has registered a TM decides to sell the TM to a third party, does this transaction
include the transfer of the undertaking or other assets or not? NO! you can divide trademark from other
assets. It is possible now, but it was debated before. Due to the change of the structure of the economy it is
possible to dispose TM w/ the undertaking or separately.

There is a limit to that transfer is to transfer the TM w/reference to the quality and the origin of the goods,
allowing the disposal of the contract separately. The transfer is free but there must not be more risk
pursuant to the quality. This requisite still exists but is a residual one. The licence must be in writing,
registered and it could be registered for the whole classes of product or some of them. It could be also
exclusive or not.
The owner of the TM can sue the licensee if the quality of the product or the services, do not conform to
the licence provision  licensee breach if he does not respect conformity clauses.

For the registration is needed:

1) Information about licence

2) Effectiveness of the transfer vis a vis, toward the parties effect of the sale will be triggered the
transfer of the TM

Third party

Many different people may have right over the same TM. Usually it is commonly thought that who
acquires TM before is the owner, actually the priority given by the registration allow the person to
enter in the contract and to have the TM right  the one who acquires the TM before is the one which
prevails.

2 PART

So an international protection of trademark will be much more desirable, but the problem is that it’s really
difficult to achieve that. So the best international effort that the diplomacy has been able to achieve is two
international agreements: one is called the Madrid agreement and the other one is the Madrid protocol.
These two texts describe a system for the international protection of trademark.

The system is not easy in its functioning, because it’s based in two different international treaties. This
becomes a problem because certain countries have adhered to just one of them: someone has adhered just
to the Madrid agreement (which is the oldest), someone only to the Madrid protocol, and others to both of
them, so we have 3 different categories of states. It’s a problem because there are some differences in
between the two texts and so certain discrepancies may occur. But apart from these little discrepancies, a
general broad structure of the two treaties is really similar.

What is the rational beyond that? It’s to create a unique procedure for registering at the same time in
different states the same trademark. So the element in common in between the EU TM system and the
International TM (= Madrid agreement and protocol) is that both organizations have tried to unify the
procedure to obtain the registration, so to skip the burden to obtain a simultaneous multiple registration
in different countries. But the failure of the Madrid protocol and agreement is that those treaties don’t
provide for a uniform regulation of the trademark, while the EU TM system unifies the procedures via the
Alicante agency, so that you file a registration for the EU once and everywhere, but what you obtain is a EU
TM, so a trademark regulated pursuant to the European legislation, in the same way, exactly in every state.
While instead when it comes to the Madrid protocol and agreement, the unique procedure established by
this system, is simply a facilitation for the process of registering the trademark, but the object of the
registration will be a bundle of trademark which are registered nationally, meaning that when you decide
to use the International trademark system, the most that you can obtain is a long list of the exact same
trademark registered nationally. So you will not receive a trademark that is equally protected and
regulated everywhere, but will obtain, depending on the list of countries that you have picked up (=you
make your list of your designated countries, so the countries that you declare at the moment of the
registration to be the market that you are interested into), a trademark regulated pursuant to the
national laws  each trademark will have his own set of rules. So you are not sure that the degree of the
protection, the content of your rights, the possibility to dispose of your trademark, will be equally regulated
everywhere, because what you get is a bundle of national trademark, registered and protected locally,
pursuant to any issue that you can have in any national legislation.
These agreements are quite old, because the Madrid agreement dates 1891 and the Madrid protocol dates
1989, and both are usually qualified as the Madrid system, which gives an international trademark.

How is this procedure organized? By means of an international agency, which is the WIPO (World
Intellectual Property Organization). It is seated in Geneva and it’s an agency of the United Nation system.
The list of countries adhering to it is really long, around 200 countries. This system has been successful,
even though it’s partial, because of its effectiveness.  even though it’s just for procedural reasons, rather
than harmonized laws of the trademark.

How is it possible to exploit (sfruttare) this system? What are the chances given? By making an application
for registering the trademark using the Madrid system, the applicant must respect certain requisites:

 Necessary connection: the applicant must be in some way connected with the states that have
adhered to that system. What kind of connection is necessary? The applicant can be a natural or a
legal person (as in the EU system), and that person must have even the domicile or a commercial
establishment or he must be national of a country which is party of the Madrid agreement or the
Madrid protocol, or a country which is a party of both of them. The person outside this
geographical area cannot access the Madrid system;
 Basic registration or mark of origin: that’s another difference with the EU system. The EU TM
system is available for anyone, also a person who has never registered a trademark before. While
instead in the International system you cannot register a trademark without having before a
trademark of origin, so a trademark which has been already registered in the country you come
from.
So it’s not a system that can be accessed immediately: it’s a system which needs a sort of filter of
an initial step.

So a formal national registration is needed in the contracting party, where the applicant has the necessary
connection. As an Italian citizen, with the residence in Rome, my connection is Italy. It means that if I want
to register my trademark I must have obtained before the registration of the same trademark in Italy. So I
must present in Geneva proof of the fact that I have already an application pending (in attesa di) or an
application completed in the country where I have also the necessary connection.

So this international system for trademark is not a system which is direct: you cannot apply immediately to
that. You must have a formal registration in the country of origin.

What about the application? It is similar to the one of the EU TM: you have to file your request by
describing your trademark graphically and by words; you have to list the class of products. The additional
information which is crucial with the application within the system (which is not necessary for the EU
TM) is that you have to list your designated countries, so your designated contracting parties (=the list of
countries that you expect to be interested into for the registration of the trademark). The amount of fees
you have to pay depends on the number of countries and the classes of products you are interested into.

Pursuant to the existence of these two fundamental requisites, the application filing works in this way: you
file (archive) your application at home, with your office of origin (national Italian authority of trademark,
which will verify if I have the necessary connection and the basic mark), and they will relate with the
Geneva office and they will start the procedure. The office of WIPO will check if the application is in
compliance with the requirement, that fees have been paid and then they record the trademark in an
international register and they publish that on a gazette (=bulletin). They also sent a communication to the
offices of the designated contracting states. Why the designated office in the countries that I’ve chosen are
involved? Because the offices in the countries that I’ve chosen will make their own verification: they will
examine the trademark within 12-18 months, and during this time the national office can refuse the
registration because it’s against the national rules of that specific state. The fact that I’ve used this system
will not give me any privilege for my position in the different countries, which will be subject to the rules of
the designated countries.

If a dispute arise about completion of my registration in one of the designated countries, the WIPO will
inform me about that, but it will not be involved in the process: the process will be between me and the
corresponding office of that designated country (i.e. Brazil), following the Brazilian rules. So the outcome
can be a refusal at the end of that. What do I remain with? With the other registrations in the other
designed countries.

If instead no refusal has been notified by the WIPO, the mark will be registered locally, at the national
level. Each of the trademark will be protected pursuant to the country where the trademark has been
registered: so action for infringement, action for invalidity, action for revocation will all be regulated by
the regulation country by country.

The second limit of this system is that not only the protection that you’re obtaining is a national protection,
but there is another limit because the registration obtained by other systems will remain dependent,
linked, to my basis mark, for 5 years. So let’s say that today we have been able to obtain the registration of
our trademark using the Madrid system, in 5 different countries. And we have been able to do so because
we satisfied both requisites, so we have already been able to obtain a national registration of our
trademark in the country where we have a necessary connection with. For 5 years, the two registrations
will remain linked one to the other, in the sense that if my national registration is challenged, so if
someone demonstrates that my Italian registration is invalid, invalidity or revocation of the national sign
of origin will trigger the invalidity of the international registration if that problem occurs within 5 years
from the international registration.

So once the registration via the Geneva office has been completed, there is a period of time of 5 years,
where the destiny of your international trademark will remain dependant on the validity of your mark of
origin: if something happens and occurs to your mark of origin, such as an invalidity or revocation, then,
if it happens within 5 years from the date of the international registration using the Madrid system, will
trump the validity of all the trademark.

Even though there are these two limits (the fact that what you obtain is a bundle of national trademark and
that the connection with the original national trademark will last for 5 years), there is a convenience
because the procedure is unique and because the duration is equal. So all the different national trademark
that you have obtained will last for 10 years, which is renewable before the expiry of the decade. To it’s
possible to have, in this way, a unique channel to control various registrations, which otherwise you would
be forced to control personally to obtain the renewal in each country.  It’s a way to centralize the
procedure.

But apart from that advantages, what you get is a bundle of national trademark, dependant for 5 years
from the original registration.

Part 2/2

Block chain and smart contracts:

On web site smart contracts to see (bella pe te)

Imagine we have a lot of transactions, and a problem of keep track of payments, in order to monitor them;
Ex: Cerruti is the keeper of a ledge (register) which says that Giulia has 10 coins and gives 9 of them to
Maria Chiara. Nicoletta has 3 coins and wants to keep track of the fact she gives 2 coins to Filippo. Filippo
now has 2 coins and gives 1 coin to Silvia etc.
the problem of keeping track is that we need a centralized authority (Cerruti). We need a log (accounting
book) where Cerruti will write down all the transaction. Problem is that Cerrutone nazionale can be
distracted or someone can take the log and write different numbers (so figures) and alter it easily. We can
say we can keep electronically but pc are not safe too. We have to rely on the fact that we need a central
authority that states that Nicoletta has 9 coins etc. So there are people able to transform this track of
transaction In a simple way: translate the transactions in number through a specific function called HASC
that allows you to transform any sort of statement (EX: I love you, I hate you, costo medio ponderato etc..)
in a certain number of figures and letters, a combination of numbers and letters. The input given is a
sentence and the output is exactly fixed. If I write a sentence like “I’m Nicoletta!” the combination will be
different from “I’m Nicoletta” without exclamation mark (different combination of numbers and figures).
is a very secure system in the sense that you are able to obtain a given certain input, a fix number and
letters and any change in Input (sentence) will generate a different HASHresult. So if we instead of writing
down Giulia has 9 coins and gives 8 of them to Maria Chiara, we can use an HASH function and we will
obtain a certain combinations of letters and number, if we alter the statement the outcome will be
different. SO there is a strict relation between input and output. If we use HASH, we have a great
advantages because any alteration we made will give different outcomes. We can also be more sure, we
can use HASH function in other ways: Instead of simply write Giulia gives 8 coins etc. and obtain an hash
function of that, when we go to the following transaction, Maria Chiara gives 7 coins to Gioia, we could
convert each transaction in HASH function, but is easier to include in the second HASH function the
transaction of the previous transaction (the first one made by Giulia)  better explained :

Giulia gives 9 coins to Maria Chiara

Maria Chiara gives 8 coins to Gioia.
We use HASH to translate the first transaction in Numbers and letters (first HASH function)
Then we write down the second transaction instead of using words we transform the statement in another
line of numbers and letters but we include the first HASC function (the first set of number and letters) in
order to create a certain link between the two.
So the information more complicated to alter is that any change in the input will generate another line of
letters and numbers. At a certain point we can say that we have a certain quantity of letters and numbers
to construe what is named as a BLOCK.

A BLOCK Is a bundle of a certain transaction and we can do that with other numbers of transaction, we
can construe more blocks and link a block with another (through linking HASH functions). A block will be
linked to another by a mathematical equation between the two blocks (hash functions of them).
And for this you have a CHAIN OF BLOCKS, a chain of information about certain transaction.
We are using algorithms, but we are able to obtain certain degree of safety because HASH function
provided for certain degrees of integrity of data hard to modify, but we are not satisfied yet.
But what if instead we do something different? What if our register of transaction that allow blocks, we
organise a structure where everyone has a perfect copy of the same register with no differences and no
copies hierarchically superior than others or more reliable that others.
Many computer can be related and at each of them there will be the same copy of the same bundle of
transaction in the same continuity of the chain.
So If we pass from having Cerruti writing down words about transaction occurred by people, to a master
copy we are able to replace the log, so instead to use words we can use functions that are very hard to
alter. And instead of having just one electronic register of that, why we do not divide that between
notes? Between computers that are equal one to each other located everywhere and each of them has
exactly the same copy of the register. In this way we obtain a DISTRIBUTOR LEDGER:

A DISTRIBUTOR LEDGER is a ledger/log/register which instead of being centralize/caped by one central

authority (Cerruti), it will become with no authority In charge of takin care of it, instead the exact copy of
that will be taken by other computers situated everywhere.
Basically this is a Block chain: A distributor ledger that keeps registration of every transaction, among many
computer at the equal level and even one of these computer fails to calculate or to do his job it will be
irrelevant because others will be able to work and maintain data.

Why this idea has been created? Satoshi Nakamoto was a Japanese engineer that published a scientific
paper where proposed the use of distributor ledger among computers which grants to use HASH function
to exchange money/make monetary transactions. But not using legal tender, (FIAT money) no euro,
pounds etc. but instead using coins he created (BITCOINS). The problem is that with new technology u have
to separate technology to its use. Bitcoins were used to pay in the dark web. So they are dangerous.
Investing money in them is dangerous. When we deal with technology u have to separate the tool from the
goal u want to achieve. Block chain was used to support bit coins but actually the idea is larger because
having a distributor ledger that allows to keep transaction in a safe way, difficult to alter is crucial in a lot
of situation. For example block chain system was proposed to keep track of private licenses or identity
papers. Transactions referring to immovable properties. The problem is that blockchain allows u to skip
central authority. Technology is provided to us to make functions working through distribution ledgers that
provide security of data. Ledger is available for any computer, it can read everything in every moment.
Anyone can access that provided has a pc able to solve computation problems/digest data and solve
algorithms.

A person can insert certain data on a blockchain by having two keys that are
1) public
2) cripted

Private key is like your signature. For each private key there is a public key known by everyone and the
public key make everyone addressed.
We can use the private key to dispose a transaction to dispose money to a person through his public key.
The idea in Japan was to use the blockchain for the central bank, whenever u have a transaction that
implies a payment it relies on authority. So the central bank grants you this, you need the intervention of
the state that legalise that transaction of money and the central bank bcs u need an authority to
guarantee that the money are authentic and correspond to a certain power purchase . FIAT money
depend on a state and on a central bank, when you use cheeks you need a bank not in the sense of
central bank but to guarantee that it will be converted in FIAT money. Therefore, u will be sure to get
paid. Fiat money = bank money bcs u obtain fiat money thanks to a commercial bank that is in an
intermediary. They convert a transaction in FIAT money. (ex using paypal, apple pay etc.)

An example is that in Bristol they use David Bowie pound, that are money used for transactions, and
everyone agrees to use them as normal money for trying to avoid the authority of central bank. It is
possible provided that circulation of this alternative of normal money is confined to a small area
U fo not rely on any bank but only on the trust among people.

Block chain is secure because not only u use coding, ledger is distributor with different computer, and also
that each transaction will confirm the validity of all the information contained.

ICL-LECTURE 17

Block chain structure:

1) Distributed ledger: database incorporating information in blocks

2) P2P network
3) Hash function/ cryptography
 4) Consensus: the decision to close the block is made by computer working in the system, this
decision is correctly written down and it is based on a majority mechanism  measurement by the
effort applied by the computer  computational force (Algorithm / Mathematical )
Each blockchain has his own measure to give consensus (DAO case). The way of the transactions
are extremely safe, but nobody is able to detect how many computers.

Bitcoin: the entire goal is to skip any form of transaction related to commercial or central banks. Beyond
this goal there was also the idea to have a system, the largest in the planet. The bitcoin does not have
exact value, even when a country decides to prohibit or restrict it, anyone may do the transaction online
skipping any boundary imposed by the state. The bitcoin, or any other digital currency, cannot be
converted in Fiat money. We have any legal right to convert in fiat currency, the unique chance is to find
someone who is willing to change the cryptocurrency with the fiat money. There are different platforms,
but these are exchange platforms, similar to stock exchanges.

Are you legal entitled to exchange bitcoin or it is just a service provided by the exchange companies?

Some financial intermediaries offer the service that will be applicable to money change. At the beginning
there was no such obligation to offer services related to digital currencies, after the EU approach it has
been tried to offer this service, always trying to avoid it.

1) We may need bitcoin because there are many online platforms which provide goods and services
with a cryptocurrency (BTC, LTC, ETH, …)
2) The cryptocurrency may become an important asset in future
3) If we have a very potent computer, we may become miner and produce cryptocurrency by
ourselves.

How can we establish the value of any currency? IBA: European agency which represents the banks
across the EU. The IBA stated that the digital representation is not guaranteed and protected in anyway.

SMART CONTRACTS

The idea of Nick Szabo which was specified in digital forms (digitization), was to create other mechanisms
to encode certain protocols in computers  create legal promises using codes and digital protocols.

Digitalization: is to write down a contract in a protocol in a way by the computer himself.

It is not difficult to write a smart contract, when we think in legal terms it is a binary system (if u kill
someone u go in prison)  if A than B, like the computer work.
Using coding and computer protocol to translate legal promises.

Data oriented contract  the computer uses a mechanism to give a signal. It’s much more effective if we
have a digitalized contract. Those forms of smart contract were only a partial digitalization of that. The
ancestor of smart contract was a data-oriented contract in the sense that the computer was able to
receive data in order to issue to a third person. (ex. Broker).
The contract includes all the instructions to do so (in the example of insurance policy).
Basically, the broker waits for data. (digitized = digitalizzato)
The idea is to have a set of promises in a digital way in order to have a set of protocols by the smart
contract. Automatic procedure neither
THEORETICALLY, THE SMART CONTRACT ALLOWS THE PARTIES TO BE SAFE, THEN THE OUTCOME OF THE
CONTACT WILL BE WHAT THE PARTIES EXPECT, THERE WILL NOT BE ANY DISCREPANCY AND THERE WILL
NOT BE ANY BREACH OF THE CONTACT BECAUSE IT WILL BE PERFORMED AUTOMATICALLY.

It will be possible if:

 1) Is that a contract or not? The contract is a promise, or agreement, which is legally enforceable.
According to this definition we are in doubt about the nature of the smart contract.
2) What kind of contract are they? Executory  contract which has still to be performed; Executed
 already performed. The smart contract does not fit w/these alternatives.
3) What kind of will do the parties express? This kind of narrative does not work anymore w/the
smart contracts
4) The smart contract works as an escrow agent (agente di garanzie)  smart contract is the best
way to obtain an escrow result (risultato di garanzia)
5) Self-help: possibility for the parties to protect from the breach of other parties. Restraining
payment as a way to protect itself from infringements of other parties. Smart contract provides an
entire performance in entire way to protect their reasons. No more risk of breach in the contract.

Smart contract may not work if there is a bug, so there might be a situation which may cause an
infringement or a breach of a contract. The tendency is to have a very broad concept of agreements  the
concept of the will of the parties changes a lot.
According to Italian law, smart contract are recognised also if stated in writing
 SMART CONTRACT IS A CONTRACT

Applicable law to smart contract? This set of instruction is conceived (concepito) to be automatically
executed, there should be no blank (spazi vuoti) by other legal systems.

Questions exam:

Fundamental features of block chain

Issues of cryptocurrencies

Smart contract and issues

No more than one question, there might be a question about this shit.

Usually the companies need money, and they offer shares in order raise financing  launch a program on
blockchain to create a new business. DAO was a project launched by Berliners hackers, using the
blockchain. They were proposing to the public to invest Ethereum in order to participate to the new
implementation of the blockchain and any possible earning related to this future project. Everything was
organized by using the blockchain (Ethereum crowdfunding  once reached  distributed token to the
crowdfunders)  part of this crowdfunding was taken away by hackers.

Problem w/the encoding process unexpected outcome

1) Certain risks exist

2) How to solve this issue self-help

How EU vs. WTO contribute to the reduction of barriers in international trade?

Eu and WTO are both int. organizations, made by a large number of states. The idea of both is to
facilitate trading. WTO was a sort of authority who facilitate big countries instead of small  the initial
idea was to facilitate int. trade. The same idea of EU, to create an environment to facilitate the region
involved in the EU region.

Fundamental treaties of EU:

Treaties of EU: EU was created w/ the aim to create one single market, within it full freedom should be
granted regarding people, capitals, services, goods. Functional to the realization of a single market. Certain
preliminary step must be taken:

1) Custom union: specific regulation disposing and exposing the custom tariffs
2) Restricting measures: tariff and non-tariff barriers  any kind of barriers must be abolished.
Anyone in the EU is allowed to adopt restriction. Abolish any other form of restrictive measure (red
tape reg., for example).
These measures are prohibited under the Functioning of EU

If certain conditions are met it is possible to adopt certain non-quantitative restriction, but basically the
idea must be a reason of qualified public interest.  the kind of interest; the proportionality and the
necessity for the states to impose these restrictions. Proved that, the state must adopt these measures in
order to obtain the goal. There must be a connection between the goal and the restriction. Proportionality
means to restrict int. not exceeding.

11/12 WEDNESDAY

18 LECTURE

Europe vs WTO

We said that fundamental goal of EU is creation of single market, art 26

Fundamental pillars, of treat of EU:

1) Creation of custom unions:

Creation of a single tariff art 28: goods coming from abroad into eu area will support taxes common
decided by eu states. Incoming products will be treated in the exact same way. Common tariff is exactly
the same for product coming into Europe. In between member states products can be shipped form one
eu state to another in free:
Problem is that if product are produced outside the boundaries, duties must have to be paid; so we have to
identify the place where products are produced. There is an issue, depending on the qualification of
products to be free or not to ship.

2) Elimination of barriers among states: it is elimination of all different barriers:

- first barriers eliminated are Tariffs (art 30)
- second barriers eliminated are Quantitative barriers. They are like taxes in an economic point of view.
Both are prohibited in member states (art 34-35).
- Third: Other restrictive measures.
Other restrictions measures are not prohibited due to public interest. art 36 explain why: the grounds
that identify the restriction is based on public morality, security, policy, protection of life/humans,
protection of heritage, protection of archaeological value.. Each of one identify an area.

4 conditions must be satisfied.

1: Admitted grounds
2: Non discriminatory character: Restrictive measure must not be discriminatory.
Restriction must be applied in the same way. (you cannot ban French cheese and not ban Spanish cheese)
3: Necessity of restriction.
Restriction I would like to issue to import of production it’s the only way to obtain result. The condition
must be necessary to result.
4 Restriction must be proportional.
There is a balance between necessity and proportion to do a restriction.
In case eu does not intervene, it easier for state members to have different standard (red tape regulation
related)

3) Common commercial policies:

Some foreign policies (ex Canada) can be decided direct by the EU institution, for certain international
commercial agreement.

4) Freedom of establishment:
When you establish in a business u move persons, capitals, products and service so freedom of
establishment is a case where u have many fundamental freedoms involved.
TREATY GIVES TO EU STATES FREEDOM TO SET UP A BUSINESS AT THE SAME CONDITIONS OF HOSTING
STATES.

1) The primary freedom of establishment: from nothing you create a business, before that nothing
existed, and u can do that exactly following the rules of the state you want to go.
Outside this freedom u are not entitled to do nothing unless there is reciprocity between the states.
First major step in fostering the freedom of establishment made by eu :
Beyond freedom of establishment there is the possibility to open a company in a foreign state in order to
pay taxes there, and also if we set up a company in a foreign state we can send there al the document so
it will be that company that does all the work and it will be considered as part of that member state.
First case: Denmark company established in UK following Danish law because UK follow Corporate theory
( a corporate moving in your country can use his own law, Danish law in UK)

CArtesio case: Italian corporate moved in Hungary and wanted to apply Italian law, but HUbgay follows Seat
theory for which this is not possible, the law must be the one of the Seat county (Hungary)

2) Second major step in freedom of establishment :  when you start a business, you can open also
secondary offices/branches/agencies in others member states

The principle of reciprocity  you will be allowed to do in the other country what the citizen of that
country are allowed to do in yours.

3) Third major step od establishment: Conversion of company:

A can company can move from a state to another.
Is in principle included/allowed in freedom of establishment.
You are able to transfer your business from a state to another one, but what will happen to your
company?
- One problem could be that the state you move out want to liquidate your company and start a new
company in the new state.
Another problem could be that if there is no continuous activity form
Court of justice cannot

Cartesio example:
Cartesio is a Hungarian company that wanted to move to Italy retaining the qualification of a Hungarian
company, but the Hungary state doesn’t allow to do that. They wanted to be recognised as a company with
an exclusive seat in Italy and with no-more activity in Hungary but regulated by the Hungarian law.

This possibility was included in the freedom of establishment. The problem is that each state has the power
to define conditions on what are the terms for qualify the company to be national or not.

PIL establish connecting factor  companies have 2 kinds of connecting factors:

 1. The place of incorporation: when the company is registered
2. The real seat of the company
But PIL is not always harmonised, so the connecting factors may vary (in Rome1 companies are not
included, just contractual obligations). So certain states follow incorporation theory (England), others real
seat (Italy).

The court of justice in the Cartesio case was in front of a country that follows the real seat theory so from
the point of view of Hungary the company was not Hungarian anymore.

The court of justice had to respect the Hungarian institution and PIL which established as a connecting
factors real seat. Cartesio was not allowed to pursue its goal.

What happen outside eu.

WTO is a classical international agreement: WTO is not a fixed agreement, is a work in progress
His scope is to facilitate international trade, to eliminate trade among barriers. WTO has not anything
between commercial policies.
Political idea is that what can be agreed.
One of the effort is to negotiate again, push a little bit more elimination of tariffs. Etc.

Being in WTO means that of you do a special treatment to a country you have to do that to others
included in WTO.

WTO knows that there are agreement that coexist with WTO.
first principle most fav nation?
National treatment is the second principle given by WTO.
Third principle: Reducing tariffs: the so-called tariff binding: it does not prohibits tariff.
Effort of member states to engage trade negotiation, take part of long session of negotiating on this topic.

Two concepts:
1 Citizens of states that belong to WTO are not entitled to abide the obligation under WTO because the
WTO agreement is for states among states only. WTO is just for the states.
2 Mechanism is under arbitration but which is the outcome of this arbitration?

Exam: Be clear, do not waste time, avoid bullet point, lists, Give a reasonable answer.

Topic discusses in lecture.

WTO

Organisation for facilitating trade outside EU used WTO.

We cannot compare WTO to EU, because its goal is not to create a single market.
We can compare this two because the final goal is in both to facilitate the trade among states.
WTO has been created by an international agreement, it does not involve any reduction of political
power, sovereignty of any state included.
WTO is a classical international agreementState abide to the obligations they are agreed upon but the
agreement works by some form of consent.
The treaty was sign in 1946-47 with the name of General agreement on tariffs and trade (GATT)
One of the efforts of the states involved was to continue to try to negotiate to eliminate trade barriers.
It is not a fixed agreement but an organization in work in progress. (progression philosophy)
In fact, the states have to meet periodically to do new rounds of negotiation (every 10 years). In each round
they decided new goals to pursue.
_______________________________________________________________________________________

After almost ten years of negotiations, in the so called Uruguay round in 1994 a new version of the GATT
(GATT 1994) was adopted to solve the deficiencies of the first GATT and to implement the organization.
The GATT 1994 incorporates by reference the GATT 1947, adding some explanations and amendments.
GATT 1994 signatories formerly known as contracting parties are now called members.

The former GATT organization was renamed as the World Trade Organization – WTO, because in 1994 a
sort of restructuring and also reinforcement of the organisation was conceived and made.
So, one of the efforts that States belonging to the WTO take is to meet periodically, to negotiate again, it is
possible to push a little more the elimination of tariffs and other related barriers.

The WTO is made of many international agreements.

The fondamental treaty of WTO is still the GATT but in 1994 the General Agreement on Trade in Service –
GATS, has been included.
Moreover, there are many specialist multilateral trade agreements on each area which has been
progressively addressed by the States: agriculture, textiles, dumping and counterveiling measures, IP,
technical barries, sanitary measures, etc.
So, the list is very long but the structure of the agreements is quite similar one to another  WTO is more a
bunch of principles, because eventhough those principles have been solemnly declared by the States in the
treaty… (vi giuro che non ho capito che dice, è il minuto 2.45 della seconda registrazione. Il senso
comunque è che per quanto siano stati solennemente annunciati restano un po’ per aria).

WTO is more a bunch of principles or obligations, what are they?

1. Most-favoured nation treatment: being in WTO means that if you grant a special treatment to one
nation, then you have to extend the same treatment to the other countries.
The problem is that the WTO knows that there are agreements whose scope is exactly to create special
treatment between States, which coexists with the WTO  It exists side by side with national legislation.

2. National treatment: there is an obligations to treat equally national and no-national. So, States do
agree on the fact that they will not discriminate on the basis of the nation of the product or service.

3. Concession – Schedule – Tariff binding: is the concept of progressively reducing the tariffs by means of
international cooperation. WTO doesn’t prohibit tariffs (come invece ha fatto l’UE) but they are subjected
to a process of negotiation (also thanks to many round of negotiation), so that progressively the schedule
for the tariffs will face a reduction of the total amount.

4. Prohibition of quotas (= quantity restrictions) and other non-tariffs barriers: instead of eliminate quotas
per sé, WTO wants to convert quotas into tariffs (which will be progressively reduced). So, the scope is to
transform quotas into restrictions that are less sticky.

5. Multilateral trade negotiations

One of the reasons because the WTO is not so effective, is that there are a lot of exceptions.
Exceptions to WTO obligations:

a) General Exception (art. 20): allow member States to disrespect the obligations under the WTO, if
it is necessary to protect reasons of public interest (public moral, humans or animals, import or
export, etc.). This general exception is available providing that the restrictive measure is not
arbitrary and it is not discriminatory.
b) Security Exceptions (art. 21): it is related to protect national interests (i.e. in case of war), to
prevent situations in which there is a trade relating to goods and materials which could be used for
military reasons.
 An other consideration to do is about the dispute among member States. One of the many treaties
included in the WTO, is the “Settlement of Disputes”: States can claim, one against each other, that
one of them has not respected one of the 5 priciples said before but this is a dispute between
States.

There are 2 main concepts:

- privates are deemed to have no rights under the WTO (while we have rights under the
functioning of the EU), because the WTO is interptred as an agreement just between the States
and for the States.
Example: if an italian entrepreneur suffers for the increase of the tariffs by a member State (in violation of
WTO) against Italy, the most he can do is to try to persuade his national governament to start a claim
against this State, because there is no right that private can claim for himself on the basis of WTO.
NB: WTO has no power to force a State to do or not to so something. So, if the violation is ascertained and
the State continues to ignore the instruction and the requests of the WTO to cure the breach, the State that
is the claimant is allowed to retaliate (Retaliation: if you do a wrong to me, I will do a wrong to you).

- EU and the WTO.

The EU is a member of the WTO from its creation. EU has a number of votes equal to the total
number of the member States of the EU which are WTO members. The number of votes of the
EU and their member States shall in no case exceed the number of the member States of the
EU.
!! Brexit: is the UK still part of the WTO or it is not? On the basis of the past, UK was part of the WTO before
the EU was, so theoretically UK is a member of the WTO regardless of its participation into the EU but other
States of the WTO don’t want to do so because is a sort of new membership that is requested.