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CISG ISSUES – 2014 VIS PROBLEM

CISG ISSUES – 2014 VIS PROBLEM. Professor Harry Flechtner. Applicability of the CISG to the 2014 Vis Transaction. CISG Article 1 requirements: Contract for the sale of goods. International. Either Both parties located in Contracting States (Art. 1(1)(a)), or

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CISG ISSUES – 2014 VIS PROBLEM

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  1. CISG ISSUES – 2014 VIS PROBLEM Professor Harry Flechtner

  2. Applicability of the CISG to the 2014 Vis Transaction • CISG Article 1 requirements: • Contract for the sale of goods. • International. • Either • Both parties located in Contracting States (Art. 1(1)(a)), or • PIL rules lead to application of the law of a Contracting State. • Statement of Claim para 18. • COL clause in Contract clause 20: “The contract . . . shall be governed by the law of Danubia.” • Danubia is CISG Contracting State. • Claimant located in Equatoriana; Respondent in Mediterraneo; Claimant’s parent located in Ruritania. • Problem only specifies Danubia is a Contracting State.

  3. ISSUE ACCORDING TO PROCEDURAL ORDER NO. 1: • “Has Respondent rightfully avoided the contract of 28 March 2014 by it declarations of avoidance of • 7 July 2014 [See Claimant’s Exhibit 6], or • 9 July 2014?” [See Respondent’s Exhibit 4]. • Questions: • Did Claimant breach the contract? • If yes, did the breach justify the remedy of avoidance? • If yes, did the Respondent properly follow the prescribed procedure to avoid the contract? • Note simplification of issue in para 2 of Procedural Order No. 1.

  4. Did Claimant Breach the Contract? • What part or parts of the Contract of 28 March 2014 does Respondent allege that Claimant breached? • See Article 4 – the obligation to establish a letter of credit. • What is a “letter of credit,” which of the parties benefits from it, and why was it included in this contract? • In general, how does a letter of credit work in connection with a sales transaction? • “Applicant,” “issuing bank,” “beneficiary,” “drafts,” “presentation.” • What law governs Claimant’s obligation to establish a letter of credit? • What law governs the issuing bank’s obligations under the letter of credit contemplated by this contract? • What is the “Uniform Customs and Practice for Documentary Credits” (UCP 600) mentioned in Article 4 of the contract? [Google “UCP 600” and click on pdf for “UCP 600 – USU OCW” (the second link in my google search results).] • Basic legal principles for L/C’s: consider UCP 600 Articles 4, 5, 7, 14, 15 and 16.

  5. Did Claimant Breach the Contract? • Did Claimant breach the contract when it provided the first L/C on June 4? • Answer paras. 18-20 – wrong quantity term of L/C. See CISG Art. 54 • Also, “different delivery term”: Cl. Ex. 7. [See K Art. 5, Cl. Ex. 5. Compare Cl. Ex. 8] • RE “CIF” vs. CIP” see next slide. • See compliance standard in UCP Art. 14, esp. (d) & (e). [Is this relevant?] • If first L/C constituted a breach, did Claimant have right to “cure” up to the date that contract required the letter of credit? • Cf. CISG Art. 34 [Compare CISG Arts. 37 & 48.] • Consider CISG Art. 7(2). • Did Claimant have right to “cure” after the date that contract required the letter of credit? • If Respondent avoided the contract, did that cut off any right to cure? • See CISG Arts. 64, 25, and 26. • If Claimant had cure right, did it in fact cure? [See discussion of second L/C below.]

  6. Delivery Terms: Contract Article 5and the June 4 Letter of Credit • Article 5 of Contract: Shipment required to be “CIF (INCOTERMS 2010), Oceanside, Equatoriana, not later than 60 days after receipt of Letter of Credit” • What is “INCOTERMS 2010”? • L/C of 4 June (Cl. Ex.5) provides “CIP Vulcan Coltan, 21 Magma Street, Oceanside Equatoriana.” [Compare L/C of July 8, Cl. Ex. 8. • What is the difference between “CIF” and “CIP”? • Are there any problems with the CIP address in the L/C of 4 June? Consider UCP Article 14(j). [Is this relevant?]

  7. Did Claimant Breach the Contract? (second theory) • Did Claimantbreach the contract when it provided the second L/C on July 8? • Answer paras 21-24. • CISG Art. 54. • Theories of breach: • Timing. [Answer paras 15, 23, 33-34; K clauses 4 & 15 (compare K clause 2); K clause 15 re Answer Art. 33; CISG Arts. 27 (compare Art. 18(2)).] • Was satisfaction of K requirements cut off by avoidance of contract? • Respondent’s Exhibit 4. • Answer paras 24 & 33. • Lack of Good Faith? [Answer para 22; Respondent’s Exhibits 1 & 2 (Witness Statements); CISG Art. 7(1) & (2).] • Requiring a commercial invoice [Answer paras. 24 & 35 & Resp.’s Exhibit 4. See UCP Art. 18 (is this relevant?).]

  8. Assuming Claimant Breached, Did the Breach Justify Avoidance? • CISG Art. 64(1)(a). • Fundamental Breach. CISG Art. 25. • Answer paras 24, 30 & 35, Respondent’s Exhibit 4.

  9. Assuming Claimant Fundamentally Breached, Did Respondent Properly Avoid Contract (procedure)? • CISG Article 26. • First Notice of avoidance, 7 July 2014 [Cl. Ex. 7.] • Avoidance based on July 4 L/C, so subject to “cure” defense (as well as argument that any breach was not fundamental. • Second Notice of Avoidance, 9 July 2014 [Resp. Ex. 4.] • Occurs after July 8 L/C; subject to argument that this cured any deficiency in July 4 L/C, and is itself adequate to satisfy to satisfy Contract Article 4 or that any breach was not fundamental breach. • Consider also Article 64(2)(a).

  10. Additional CISG Provisions • Silence as Acceptance. • CISG Art. 18(2) • CISG Article 9.

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