CISG Issues- 2014 Vis Problem, Arbitration Class

Report
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

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.
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.
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.
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.]
Delivery Terms: Contract Article 5
and 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?]
Did Claimant Breach the Contract?
(second theory)


Did Claimant breach 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?).]
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.
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).
Additional CISG Provisions

Silence as Acceptance.

CISG Art. 18(2)

CISG Article 9.

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