Lawyer in Milan and Turin
When a sale of goods with a foreign counterparty is about to be concluded, the Italian exporter often wonders what is the discipline that regulates relations with the partner pertaining to what is not agreed in the sales contract, often consisting of a brief order confirmation.
In this context we find the discipline of international sale introduced by the United Nations Convention on Contracts for the International Sale of Goods (Wien, 1980, later also the Convention or CISG) subject to ratification, to date, by 95 countries in the world including Italy, among which most of the states of the European Union, Russia, Switzerland, but not the United Kingdom.
The CISG dictates, in fact, a uniform discipline of international sale that becomes part of the domestic law of the acceding countries, and consequently, when a state accedes to the Convention it starts to have two regulations on the sale: that of the CISG, applicable to the international sale of goods and that applicable to the domestic sales of goods.
The first problem is to determine when the provisions of the Convention apply to a sale concluded with a foreign counterparty. Consider the case of an Italian exporter who sells his products to a French buyer following an exchange of emails, without indicating the applicable law. If the buyer disputes the quality of the goods, the controversy can be decided on the basis of the rules contained in the CISG or according to what other rules?
Three possibilities on the applicable law
The Convention applies to international contracts for the sale of goods concluded between parties having their place of business in different states:
A) when those states have signed the CISG;
B) when the rules of private international law (PIL) lead to the application of the law of a contracting state;
C) by free choice of the parties expressed in the contract.
Based on the first hypothesis indicated in point (A), the rules of the Convention will therefore be applied in the example considered, taking into account that Italy and France are two countries that have signed the CISG: it will therefore be possible to assert that they have a common law on international sales.
If, on the other hand, only one of the countries is a contracting state, in the case indicated by letter B), the Convention will apply if the internal legislation of the state, which regulates contractual relations with foreign counterparties (PIL rules), leads to the identification of the law of a contracting state. Consider the case of an Italian producer who decides to purchase raw materials from a UK exporter, without anything provided for in the sales contract regarding the applicable law. If the British exporter were to bring a case before the court of the Italian purchaser’s place of business, the court shall lay down the applicable law to settle the dispute. Well, considering that the United Kingdom is not a party to the Convention, the Italian court will have to determine the law applicable based on its own PIL rules.
The application of the relevant legislation will lead to the application of English law, being the law of the country where the seller is based, and consequently to the exclusion of the Convention, since the United Kingdom has not joined the CISG.
Always possible derogations
Morever, it should be borne in mind that the parties are free to exclude -that is, to derogate- from the application of the Convention by choosing to subject the contract to a different law (e.g., that of a third country), although this solution is to be discouraged, taking into account that the CISG contains clear and balanced rules and that over time there has been a gradual spread and establishment of an increasingly uniform international jurisprudence on the rules it contains.
But the CISG rules do not cover a number of additional issues of a specific nature, which remain subject to the domestic law chosen by the parties, such as the issue of the time of transfer of the ownership of the goods or the issue of the application of interest for late payment.
For this reason, it is recommended to carefully consider for each sale contract the express inclusion of a clause indicating the Convention as the law applicable to the contract of sale between the parties together with Italian law: this will result in the application to the contract of sale of the CISG and, for those aspects not covered by the latter, of Italian law.
Regarding the identification of the court competent to decide disputes arising from an international sale, it is recalled that the matter is governed, for sales concluded between parties based in the EU, by Regulation EU/1215/2012, which provides as a general rule the jurisdiction of the court of the defendant’s seat and as a special rule the jurisdiction of the court of the place where the goods were materially delivered (in most cases at the buyer’s seat).
On the other hand, in the case of a sale concluded with a partner located outside the EU, the competent court may differ depending on the court that is first seized and the application that it will make of the PIL rules of the country where it is located, for example by establishing the jurisdiction of the court of the place of performance of the obligation in question.
From the rules mentioned, it emerges therefore that in almost all cases, competent to decide any disputes will be the judge of the country of the buyer. However, Italian exporters can prevent this outcome, which in some cases (especially for sales with extra EU partners) could constitute a possible source of risks or in extreme cases lead the seller to the decision not to set up the dispute, providing in the contract a clause of choice of the court or arbitration.