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Substantive Issues
CISG
SLOVAKIA

Substantive Issuessk en

[slovenske znenie]


CISG as an Exhaustive Legal Regulation of Contracts for International Sale of Goods?

Generally, CISG presents a uniform legal regulation of relationships emerging from international sale of goods in order to assure that the disputes emerged from such relationships will be resolved in a uniform way regardless of where the proceedings take place, i.e. to resolve disputes with analogous factual circumstances in a similar manner wherever they are being resolved.

Such results could only be achieved if there was a uniform legal regulation of all legal issues which can be relevant to regulate relationships emerging from contract on international sale of goods. As in all legal relationships, such legal issues would concern legal status of the subjects involved, general issues of law of obligations (contract law), regulation of mutual rights and obligations, rights in rem to goods, liability issues etc. It is clear from the text of CISG that it does not regulate all such matters.

 

Scope of the Uniform Regulation of CISG

The scope of the uniform regulation is prescribed in art. 4 CISG which states: „This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. “ The text subsequently enumerates legal issues which, though conform to the general definition of CISG application, are not regulated by CISG. CISG expressly excludes from its application these issues:

  • - validity of a contract or of any of its provisions or of any usage (art. 4 a) CISG)
  • - the effect which the contract may have on the property in the goods sold (art. 4 b) CISG)
  • - liability of the seller for death or personal injury caused by the goods to any person (art. 5 CISG)

 

Issues Governed by CISG but not Expressly Settled in its Text

Although CISG intends to regulate all matters concerning formation of the contract and right and obligations of parties to the contract, it does not expressly provide solutions for all such problems. For this reason, article 7 part 2 CISG prescribes a procedure of ascertaining such regulation in two stages:

  1. Settling the question in conformity with the general principles on which CISG is based
  2. If there are no such general principles, settling the question in conformity with the law applicable by virtue of the rules of private international law

The Convention primarily seeks for uniform solutions of all questions falling into the scope of its regulation and therefore a judge should always try to search for uniform solutions based on the 1st stage of the procedure prescribed above. These general principles are not expressly enumerated, but were identified to a great extent by courts of the Contracting States and jurisprudence. Authorities applying the Convention should in order to observe the aim of the Convention analyse these outcomes and resort to application of internal law as to a last chance.

Slovak courts applying CISG nevertheless seldom refer to the procedure of supplementing the gaps in CISG prescribed expressly in its text and usually (without any mentioning of a legal basis for such conduct prescribed in article 7 part 2 CISG) directly use internal law determined as applicable under rules of private international law.

 

Issues falling outside the scope of CISG

These issues include matters expressly excluded from regulation of CISG in article 4 a) and b) and article 5 CISG and all matters not involved in creation of the contract of sale or are not connected with rights and obligations. Most important, these are the general issues of the law of obligations (law of contracts).

These legal matters will be resolved by a domestic law determined as applicable under rules of private international law. Court will generally apply its private international law – its own choice-of-law rules, which means that if a Slovak court or arbitrator will have to settle a dispute emerged from CISG, it will use choice-of-law rules contained in:

-         act no. 99/1963 Coll. on international private and procedural law (hereinafter referred to as „Act on PIL“) in case of contracts of sale concluded until 31 July 2006

-         Convention on the law applicable to contractual obligations from 1980 (hereinafter referred to as „Rome Convention“) in case of contracts of sale concluded in period from 1 August 2006 until 16 December 2009

-         Regulation No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (hereinafter referred to as „Rome I. Regulation“) in case of contracts to be concluded after 17 December 2009

 

a) Priority of the Choice of Law

All of the abovementioned legal instruments are construed to respect absolute priority of the choice of law over other criterions of determination of applicable law (sec. 9 of Act on PIL, art. 3 of the Rome Convention, art. 3 of the Rome I. Regulation). Such choice can be included in the written contract of sale or can emerge from an oral agreement of parties or any other conduct of these parties, provided that it is detectable in case of a dispute. Such choice can be made at any time, also after emerging of the dispute.

 

b) Determination of Applicable Law in case of Absence of Choice of Law

If there was no choice of law made by the parties, the applicable law will be determined according to the choice of law rules applicable in the territory of a state where the dispute is being settled. All of the abovementioned legal instruments applicable in the Slovak Republic determine the applicable law in case of sales contracts under the criterion of the domicile of seller (act on PIL in sec. 10 part 2 a), art. 4 part 1 of the Rome Convention and art. 4 part 1 a) of the Rome I. Regulation). The Rome Convention, being in force at present, formulates the connecting factor broadly by determining applicable law as “the law of a country with which it is most closely connected”. This criterion is specified in art. 4 part 2 by stating “that it shall be presumed that the  contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration.” With respect to the contract of sale, such charactertic performance is the delivery of goods and therefore the “law of the seller” will be applicable.

At the same time all of these legal instruments contain the so called “escape clause”, which makes it possible to use other than the strictly determined law in case that the determined law would not assure just resolution of the dispute (sec. 10 part 1 of Act on PIL), especially if the legal relationship in question is manifestly more closely connected with other country (art. 4 part 5 of the Rome Convention, art. 4 part 3 of the Rome I. Regulation). An example of such case would be a situation where all other elements of the relationship except of the seller’s registered office (place of signing of the contract, place of delivery of goods, place of payment) refer to a different state.

 

c) Slovak Law as the Applicable Law

With reference to the abovementioned, we can conclude that the Slovak law will be applicable to resolve issues which are governed by CISG but are not expressly settled in it and cannot be resolved by reference to the general principles of CISG (art. 7 part 2 CISG) and issues outside the scope of regulation of CISG:

  • if the parties to the contract have chosen the Slovak law to be applicable (such choice determines the applicable law exclusively)
  • if the registered office/place of business of the seller is in the Slovak Republic
  • if the registered office/place of business of the seller is in another state, but the contract has manifestly a closer connection with the Slovak Republic

Finally, it is necessary to note that by analysing the case law, we have found out that the Slovak courts tend to apply the Slovak law as an applicable law also in case that the abovementioned conditions are not fulfilled. The reason for such conduct is that the Slovak courts are most familiar with rules of its own substantive law. This conduct nevertheless constitutes an incorrect legal qualification of circumstances of the case, because of application of improper legal rule and such conduct is considered to be a defect of the proceedings.

 

Legal rules in Slovak law used for supplementing CISG in legal regulation of international sales relationships

Once the court determines the Slovak law to be applicable for filling gaps in CISG regulation of the relationship, the court will use it to resolve general issues of law of obligations (law of contracts), as CISG does not regulate these matters, being rather a legal regulation of a special type of contract. These issues will be primarily regulated by following provisions:

·        provisions on contract of sale in sections 409 - 475 of act no. 513/1991 Coll. Commercial Code as amended (hereinafter referred to as„Commercial Code“)

·        general provisions on law of commercial obligations in sections 261 – 408a of the Commercial Code regulating:

-          partially legal acts, concluding of contracts, joint rights and obligations, contractual penalty, subsequent impossibility of performance, set-off of claims. All of these issues are regulated partially in the Commercial Code and to the extent that they are not regulated therein, the respective provisions of the act no. 40/1964 Coll. Civil Code as amended (hereinafter referred to as “Civil Code”) will be used to supplement its regulation

-          exhaustive regulation of public offer for concluding a contract, public tender, agreement to conclude a future contract, suretyship, bank guarantee, recognition of obligations, discharge of obligations,  repudiation of contract, compensation for repudiation, frustration of the purpose of a contract, debtor’s default, creditor’s default, damages, and subordination clause

·        special provisions on obligations in international trade in sections 729 – 775 of the Commercial Code regulating:

-        general issues as commercial practices, official licences, currency issues, default in fulfilment of pecuniary obligation, circumstances excluding liablikity

-        special agreements on ban of re-export, restraint of sales, currency clause, exclusive sales contract, contract on linked transactions

  • - general provisions of the Commercial Code in sections 1 – 55: definition of an entrepreneur, acting in the name of entrepreneur, commercial name, trade secret, business activities of foreign persons, Companies Register, business accounting, unfair competition
  • - general provisions of law of obligations prescribed in sections 488 – 587 of the Civil Code regulating creation of obligations, object of obligations, liability for lack of conformity, joint rights and obligations, changes in object and subjects of obligations, securing of obligations, discharge of obligations

  • - provisions on unjust enrichment in sections 451 – 459 of the Civil Code

  • - provisions on rights in rem in sections 123 – 151v of the Civil Code regulationg ownership, possession, acquisition of ownership, divided co-ownership, liens

  • - general provisions of the Civil Code in sections 1 – 51 of the Civil Code regulating the status of natural persons and legal persons, authority of agents, legal acts and general issues of law of contracts

 Limitation of claim in international sale of goods

It is necessary to expressly mention institute of limitation period for claims arising from international sale of goods which is not governed by CISG. It is nevertheless also regulated uniformly, by the United Nations Convention on the limitation period in the international sale of goods from 1974 published in Collection of Acts as no. 123/1988 Coll. (hereinafter referred to as „Limitations Convention“). For more detailed information about this Convention click here.

It means that if the parties to the international contract of sale have their place of business in two different contracting states of the Limitations Convention, the institute of limitation of claims will not be governed by the applicable law determined by rules of private international law, but by the Limitations Convention as a directly applicable uniform law.

In case the contract will be governed by CISG but it will not be governed by the Limitations Convention (since the parties to the contract do not have their place of business in the contracting states of the Limitations Convention, as this Convention was ratified by less states than CISG), the institute of limitation will be governed by the applicable internal law determined by rules of private international law. If the applicable law will be the Slovak law, the applicable provisions of the Slovak law will be sec. 387 – 408 of the Commercial Code.

 

 

 

 

 This section was created in cooperation with the Law Firm of JUDr. Pavol Gracik in Nitra

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