Lawyer in Milan and Turin
When preparing to conclude a sale of goods with a foreign counterpart, the Italian exporter often wonders about the rules governing relations with his trading partner for what is not agreed upon in the sale contract, which often consists of a concise order confirmation (if present).
This is the background to the discipline of international sales introduced by the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980, hereafter also the “Convention”), which aims to achieve a “uniform legal space” in the field of international sales of goods.
In fact, the convention dictates a uniform regulation of international sales that becomes part of the domestic law of the adhering countries, with the result that when a state accedes to the Convention, it comes to have two regulations on the sale:
-That of the convention, applicable to international sales of goods (Italy/Foreign), and
-That applicable to domestic sales of goods (Italy/Italy).
The purpose of this first article in the Decalogue on international sales is to provide a brief analysis, without any claim to completeness, of the most characteristic aspects that most frequently lend themselves to being a source of litigation in the field of international sales in light of the application of the Convention.
An exporter who is familiar with the basic mechanism of international sales and the applicable rules will then be able to decide, with good reason, whether or not to provide the necessary protections and safeguards by negotiating them specifically with the partner and including them in the sales contract.
When the Vienna Convention applies
The first “problem” facing the Italian exporter is to determine when the rules of the convention apply to a sale of its products finalized with a foreign counterparty.
For example, consider the case of an Italian exporter who sells his product to a French buyer following a contract concluded through an exchange of faxes or emails, without indicating the applicable law.
If the buyer disputes the quality of the goods delivered by the seller, on the basis of what rules can the dispute then be decided?
Moreover, consider that it is not always necessary to take legal action, if one can rely on prior awareness of the rules applicable to the specific case to make, on a case-by-case basis, a well-founded and informed economic decision that could lead to a settlement without making use of costly litigation.
In this regard, as a general rule, the Convention applies to contracts for the sale of goods between parties having their place of business in different states when:
1. such states are contracting states to the Convention (for example, they have signed and ratified the convention); or
2. when the rules of private international law led to the application of the law of a Contracting State (Article 1 of the Convention).
From this first statement in the text of the convention, it first emerges that the rules of the convention apply only to international sales, that is, to contracts between business parties (the convention does not apply to sales to consumers) having their place of business in different states.
Hence, it follows that sales contracts concluded between “business” parties having their place of business in the same state continue to be governed by the domestic regulations on buying and selling.
On the basis of the first hypothesis, indicated above under (a), according to which the Convention applies directly when the states of both contracting parties are contracting states in the example considered above, for example, of sale and purchase between persons having their place of business in two states that are contracting states to the Convention (for example, Italy and France), the rules dictated by the convention will therefore find direct application. In essence, we can say that Italy and France have in this hypothesis a common/uniform law on international sale.
If, on the other hand, only one of the countries is a contracting state, in the case mentioned above under (b), the Convention will apply if the domestic law of that state governing contractual relations with foreign counterparts (so-called private international law/conflict law rules) will lead to the identification of the law of a contracting state.
To give a practical example, consider the case of an Italian manufacturer who decides to sell its products to an importer from the United Kingdom, having its place of business in London. The contract provides nothing about the applicable law.
Should the United Kingdom importer bring a case before court of the Italian seller’s place of business, complaining about defects in the product, the court will have to determine which law is applicable in light of which it will decide the dispute.
Well considering that the United Kingdom is not a contracting state to the Convention, the Italian court will have to determine the applicable law according to its own rules of private international law, in accordance with the hypothesis indicated by (b) above.
The application of the relevant law will lead in our example to the application of Italian law, as the law of the country where the seller is based, and consequently of the convention, since Italy has acceded to the Convention.
Finally, it is important to point out that the Convention will apply even when parties based in non-contracting states, choose to subject the contract of sale to the law of a contracting state.
It should be made clear in this context that in relations between countries party to the Convention, as well as in cases of application of the convention for the further hypothesis examined, it will be necessary in all cases to pay the most attention to the circumstance that the discipline introduced by the Vienna Convention basically concerns general rights and obligations of the seller and the buyer and does not, on the other hand, concern a whole series of further questions of a more general nature, which remain subject to national law, such as the problem of the moment of transfer of ownership of the goods or the application of interest due for non-payment or delayed payment.
In such cases, it will be up to the parties, with the help of their advisers, to find the solutions that will give the deal the highest possible degree of security.
The exclusion of the Vienna Convention
Having examined the scope of the Convention, it seems equally interesting to ask whether it is possible to exclude its application or to derogate from it and, if so, whether it is appropriate or not.
The first question should undoubtedly be answered in a positive way since one of the principles that generally permeates the entire discipline of international trade consists in the assignment to the contracting parties of the widest autonomy in decision-making.
Consequently, the parties are free to exclude -to derogate from- the application of the Convention by choosing to subject the contract to a different law (for example, the “domestic” law of the state of one of the parties).
This possibility is expressly permitted by the convention (Article 6 of the Convention).
Coming to the second argument, it is believed that the said solution is to be discouraged, despite the fact that this orientation is rather widespread, based on the belief that the rules of the Convention present a number of contraindications compared to those of domestic law.
In fact, it should be pointed out and reiterated, the Convention contains clear and balanced rules, with respect to the needs of the selling and buying parties, although it is in part more favorable to the buyer, for example, in point of contractual guarantee.
In addition, a further benefit of applying the Convention is the gradual spread and establishment of an increasingly uniform international jurisprudence on the Convention, as indeed required by it.
Choice of law clauses and the Vienna Convention
Mention was made earlier of the circumstance that, even in case where the Convention applies automatically, because both parties belong to contracting states, there are still issues not covered by it; therefore, it will be very important to determine the law applicable to the contract in order to be able to regulate the sales relationship correctly, so as to avoid “bad surprises”.
With this in mind, should one party belonging to a contracting state (such as Italy) agree with the other a clause subjecting the contract to Italian law, this will result in the application of the Convention and Italian law for those aspects not covered by the Convention.
In conclusion, the knowledge of the applicable law and the consequent predictability of the obligations and responsibilities of each party, constitutes a fundamental aspect for the success of sales transactions and for this reason it is recommended to carefully evaluate for each sales contract the express insertion of a clause indicating the Convention as the applicable law to the sales contract between the parties in conjunction with Italian law and to evaluate also through your trusted legal advisor experienced in the subject matter, the general approach of the sales contract and its correspondence with corporate marketing, the economic consequences of contractual clauses and of aspects not regulated in the contract (For example in case of quality defects), in order to make contractual and, consequently economical, well-informed and conscious decisions.