Bob, who runs a flower nursery in London, entered into a contract with Sam who is a wholesale dealer of Tulips in Holland. The agreement involved shipping 10 boxes of ‘Abba tulips’ bulbs of different colours from Holland to London. Each tulip bulb costed 80 Euro and each box contained 500 bulbs of tulip. It was agreed that the tulip bulbs would be of fair average quality as per the season. The date and venue of shipment was agreed as 25 February and to Bob’s premises. The 10 boxes of tulip bulb reached Bob’s premises on 25 February; however it was found out on thorough inspection that two of the boxes were labelled as ‘Blue Diamond’ tulips, which is contrary to the agreement of sending ‘Abba tulips’. In addition, some of the tulips were very small in size and were already dried which is again contravening the agreed terms. Along with that, it was also comprehended on inquiry that not all of the boxes contained 500 bulbs of tulip.
The issue of this case involves the breach of agreement terms to send ‘Abba tulips’ only, which would be of ‘fair average quality of the season’. The agreement of sending 500 tulip bulbs per box, 5000 bulbs in total, was also not followed. Therefore, in the given case it is to be determined whether Bob can successfully sue Sam if the United Nations Convention on Contracts for the International Sale of Goods (CISG) governs the sale transaction. Additionally, it is also to be determined whether Bob can sue Sam if the English Common law governs the sale contract.
The aim of the United Nations Convention on Contracts for the International Sale of Goods (CISG) is to lay down a fair and uniform rule for contracts of international sale of goods. The CISG contributes majorly for ensuring certainty in commercial transactions and helps to curtail unnecessary costs. The application of CISG ensures uniform legislation for international sale of goods which applies when two parties of different nationality enters into a contract of sale of goods. CISG is applied directly by avoiding the obligation to comply with private international law to ascertain the enforceability and course of action of the particular contract of sale of goods. This adds certainty to the complex international agreements.
Article 30 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) states that the seller must deliver the goods exactly as it is required by the contract and by this convention.
Under Article 35 of the CISG, the seller is under the obligation to deliver the goods that shall comply with the agreed quantity, quality and description as decided by the parties. It must be packaged in the way in accordance with the contract.
Under Article 36 of the convention, the seller will be held liable for the lack of conformity of the products of the agreed transaction. The seller can also be held liable for the lack of conformity which might occur after the products have been shipped due to the breach or negligence of any of his obligations which includes the breach of any guarantee that ensures b good quality of fitness of the product for a particular period of time.
As per Article 46, for non-performance or breach of the agreed terms the buyer may direct the seller and ask him to carry out his responsibilities unless the buyer resorts to some other remedy which is not relevant with this matter. In case the goods are not matching according to the specifications agreed in the contract, the buyer could direct the retailer or seller to substitute the goods that lacks conformity as it results to fundamental breach of contract.
Exclusion and limitation of liability clause (‘exclusion clause’, ‘limitation clause’ or ‘exemption and limitation clauses’) are terms of contract that directly limits or excludes the non-performing or breaching party who is otherwise liable to fulfill the obligations that arises due to a breach of contract. In other way, the contractual agreements deviate from their usual legal regime which is otherwise applicable when a contract is breached. The most conventional and convenient remedy pertaining to breach of contract is the monetary damages. Although the remedy of damages differs from one jurisdiction to another but usually comprises of compensatory damages, punitive damage, and restitution, liquidated and consequential damages. As it is complex and hectic to measure the risk and calculate the damages, the parties to contract settle for the damages amount in the express terms of the contract agreement.
The limitation or exclusion clause of an agreement may be expressed in various ways. The parties, mainly the sellers to the contract not only applies exclusion clause which saves him huge amount of damages, but also excludes them from performing the contract that has failed. The exclusion may also help to avoid liability of paying damages. A general term of agreement includes that the aggrieved party would be liable to receive damages in case there is a breach of contract that has taken place.
Article 6 of the convention permits the parties to agree on the exclusion of the liabilities pertaining to breach of contract or non performance of contract under the International Sale of Goods Act. Similarly, it is held that due to the applicability of Article 14 to 24 of CISG, the convention encourages the formation of such exclusion clauses. As per the Article 29 of the CISG, the parties are said to be agreeing on applying exclusion clause at the end of their agreement or subsequently in the course of their contractual relationship.
Article 8 and 9 of CISG holds the provision for the interpretation of exclusion clauses and their particular elements. Terms and conditions pertaining to exclusion clause in CISG contracts are read in the light of both objective and subjective intention of the parties as laid down by Article 8. While, Article 9 states that the parties’ obligation under the agreement which are determined by the practices that are already agreed between them.
The issue regarding the validity of the exemption and limitation clause or the exclusion clause is not governed by the convention as set out in Article 4 of CISG. Although the convention allows the incorporation of provisions of exclusion clause yet it is unconcerned with the validity of the contract, its provisions and usages. It is also unconcerned about the effect that the contract would have on the property in which the goods are sold.
In addition Article 35 (2) of the convention states that the standard and fitness of the goods, quality, packaging and functioning, if not imperative, are assumed to be a part of the sales agreement. In other way, the standard and fitness of the products are implied terms that make the seller liable even without an express agreement to comply so. In case the parties do not want to be guided by these standards and want to govern their contract as per their whims and fancies they may expressly agree to exclusion clause which keeps the contract free from liability and obligation to perform the contract. Therefore in case, the parties mutually agree not to be governed by the convention or any other private law, they may expressly incorporate an exclusion clause in the agreement of sale. However and exclusion clause cannot delegate the general standard and quality of goods which is the main point of the transactional contract. Therefore as per the principles of CISG, an exclusion clause cannot intend the quality of the product be compromised. However an exclusion clause may not hamper the quality of the product yet it does exclude the obligation of the party to maintain the quality of the product which is dealt with. There are some precedents that have made use of private law to ascertain the validity of the contracts to exclude the obligation of a seller, in accordance with Article 35 (2).
After a thorough discussion on the exclusion clause and the excluded liability of the parties are given effect to, the burden to prove that the goods involved in the transactions lacks conformity depends from one case to the other. Some judgments are in favour of the burden of proof vested upon the seller while some tribunals have laid down that burden of the proof to establish the lack of conformity should be vested upon the buyer. While various courts have declared that the CISG itself contains the principle that the party who is asserting the fact should carry the burden of proving it. However, some decisions list down different perspective and suggest that the burden of proving the non-conformity should vary from one context to another. On a large scale the buyer is mainly held liable to bear the burden of proving the non-conformity of the terms of agreement and if the buyer falter to intimate the seller about any material defect of the product immediately after discovering it.
Article 49 of the convention states that the buyer is eligible to declare the contract void if the seller falters to perform any obligations as per the terms of the contract or as per the rules under this convention which amounts to fundamental breach of contract. Article 49 (2) states that the buyer shall have a right to repudiate the contract within a reasonable time, if it is non-performed by the seller or the performance lacks conformity. Therefore, where the seller has not conformed with the criteria of the contract agreement partly and not entirely then in that case Article 46 to 50 of the CISG shall be applied to the case and an appropriate remedy shall be looked for which may include the request for sending substitute products in place of the products that do not fit the required standard.
Exemption and limitation of liability clause or the exclusion clause is permitted in all major legal systems within the field of civil law and includes the European and some of the Asian countries. This agreement may be declared void by the parties or by the court under specific circumstances. While in the common law system the exemption and limitation of liability clause is accepted under the principle of freedom of contract. It is prevalent in England, Canada, United States and Australia. Similar to the civil law system, under common law system, agreements may be declared void where it is proved that the conduct of the breaching parties was fraudulent or intentionally malicious. The notion of fundamental breach or violation of a fundamental term is associated with the common law system which assimilates the authority not to exempt liability, unless it is of simpler nature.
Therefore, it can be deduced that the buyer shall have the right to sue the seller and as for the exclusion clause, it would not be an issue to sue the seller which has violated a fundamental term of the contract. However, it does not take away the seller’s privilege to plead innocence under the protective shell of the exclusion clause. The buyer may claim for damages if there is a fundamental breach of term or may even ask for specific performance or could ask seller to replace the defective goods with the ones that conform to the fitness standard of the product in question.
The various remedies available to the buyer would include:
Under the English Law, exclusion clauses and liability limitation are strictly held against the party depending on them, which says that if an agreement clause is not clear and therefore does not clearly and expressly exclude or limit the liability of a party to the contract, for a particular loss, injury or even for breach of contract, then it would not be enforced for such breach. The party breaching the agreement would be excluded from liability on account of the excluding clause. It is so believed that the English Court would be hard to make believe that an individual would otherwise let go of his enforcing rights to which he is entitled, unless there are certain already agreed terms.
In the case Air Transworld Limited v. Bombardier Inc, an issue arose as to ascertain whether an exclusion clause covers a breach of warranty or condition (statutory or contractual, express or implied), which of the criteria although has different legal consequences under the English common law and the English Sale of Goods Act. To put simply, the breach of an agreement or condition makes the aggrieved party entitled to repudiate the contract and demand for damages. While in case of breach of warranty, the aggrieved party is entitled to claim damage but has no entitlement to repudiate the contract. Various precedents have gave a view of the notion that for excluding liability or obligation for a statutory condition vested by the English Sale of Goods Act 1979 in case of lack of conformity to the quality of the product, the exclusion clause must expressly state that it is applicable to ‘conditions’. In the case of Air Transworld Limited v. Bombardier Inc, the exclusion clause did not expressly use the word ‘conditions’. Nevertheless, it was held by the judges that the exclusion clause was so appropriately and adequately drafted that it chose to exclude the implied terms under the Sale of Goods Act. By this judgment it can be deduced that the English Courts respected the opinion of the parties to a contract and relied on the terms, which the parties settled or agreed to between themselves. The Court shows no concern into the terms of an agreement unless they are ambiguous, unlawful or against the public policy.
The English Court reviewed Air Transworld Limited v. Bombardier Inc case, along with several others like The Mercini Lady case where the exclusion clause held that the sale agreement of Gas oil had ‘no guarantees, warranties and misrepresentations, expressed or implied for any particular purpose’. The Courts, both criminal and court of appeal stated that as the statutory ‘conditions’ were expressly not excluded and only because the implied terms were ‘conditions’, the exclusion clause failed to exclude those implied terms. Justice Rix was of the opinion regarding the Mercini Lady case that exclusion clause signifies the reason as to exclude a breaching party to a contract from all probable liabilities that one has on breaching a contract. The Lord Justice pointed out that Section 11(3) of the Sale of Goods Act 1979 states that a ‘stipulation’ might be considered as a ‘condition’ although known as a warranty in a contract and the ‘guarantees’ and ‘warranties’ of an exclusion clause covers all kind of terms; those that entitles the aggrieved party to repudiate the contract for breach and those that entitles the aggrieved party to claim damages for breach. Justice Rix lastly conformed to the ‘judicial consensus’ and held that the implied liabilities of the parties under the Act can be excluded only by clear words.
As for the Air Transworld Limited v. Bombardier Inc case, Justice Cooke held that the liability of the breaching party could not be excluded for the breach of a ‘condition’ referring to ‘warranties’ or ‘guarantees’ which is implied by the Statute, however not expressly mentioned in the exclusion clause. However, Justice Cooke distinguished various cases on this matter and held that the expressly mentioned words in an exclusion clause encompass the conditions of a contract implied by the statute and adoption of a different interpretation would result distort the words mentioned. Therefore, unless there is no doubt or ambiguity in the exclusion clause, there has to be a single meaning of the clause to which the parties would agree to with utmost consensus and should keep such agreement to their own bargain. Therefore, the Judge declared that the buyer would not be eligible to reject or return the aircraft. Although the word ‘condition’ was missing in the exclusion clause yet the judges pointed out that the language of the clause would be necessarily considered for referring the implied conditions under the Act as they are the obligations and liabilities implied, arising under law. Therefore, the buyer’s right to claim the purchase price back was extinguished because of the exclusion clause that excluded the seller from any breach of conditions under the Sale of Goods Act 1979.
In L’Estrange V. Graucob, the plaintiff had purchased a cigarette machine from the defendant and for that purpose signed a sale deed. The sale deed had it written in extremely small fonts that the seller would not be held responsible for any express or implied condition, statement or warranty. The buyer overlooked this exclusion clause and when he sued the seller, the court denied remedy to him. In this matter Lord Justice Scrutton said that when a document that contains contractual terms and condition is signed by a party, he shall be bound by its norms, irrespective of the fact whether he has read it or not, however it would be taken into consideration that such contract had no means to defraud or misrepresent the buyer.
In the given case if the transaction of the contract is governed by the Covenant on Contracts for the International Sale of Goods (CISG) which is having an exclusion clause, the buyer shall be entitled to sue the seller for the part non-performance of the contract. Even though part non-performance of the terms of a contract does not constitutes fundamental breach of contract yet Rob will be entitled to ask for replacing the blue diamond tulips with Abba tulips and in addition, Rob would be entitled to ask Sam to replace the tulips which are smaller in size and have dried up as they lacks conformity of the required standard of the product in question. Rob will be liable to intimate Sam about the defect of the Tulips as soon as possible so that Sam can take necessary steps. In case Sam refuses to comply with Rob’s claim to replace the tulips, Rob is entitled to look for legal help and sue Sam for specific performance and damages as per the provisions of the convention.
In the given case, the agreement between Bob, the nursery owner in London and Sam, the tulip wholesaler had an exclusion clause that excluded the liability of the seller for any sort of breach of the statutory terms, express or implied in the contract of sale. From the above analysis of the provisions of the English Sale of Goods Act and the precedents laid down by the English Courts, it can be concluded that Bob would not be entitled to repudiate the contract as the exclusion clause, however did not mention the word ‘condition’ yet comprised the phrase ‘statutory, express or implied terms’. This cancels out the buyer’s right to sue the seller or terminate the contract. However, the buyer could request for sending substitutes of the damaged products under the provisions of the Act.
Conclusion:
In accordance to the provisions of the Convention on Contracts for the International Sale of Goods (CISG), Bob would be liable to sue Sam. While, under the English Sales of Goods Act, 1979 Bob would not be able to sue Sam for repudiating the contract; however, he can sue for recovery of substitutes.
References
Bridge, Michael G. The international sale of goods. (Oxford University Press, 2017)
Air Transworld Limited v. Bombardier Inc [2012] EWHC 243 (Comm)
L’Estrange V Graucob [1934] 2 KB 394
The Mercini Lady (KG Blominflot Bunkergellschaft fur Mieralole mbh & Co KG v. Petroplus Marketing AG) [2010] EWCA Civ 1145
Sale Of Goods Act 1979 (2018) Legislation.gov.uk <https://www.legislation.gov.uk/ukpga/1979/54>
1980 – United Nations Convention On Contracts For The International Sale Of Goods (CISG) (2018) Uncitral.org <https://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html>
International Sale Of Goods (CISG) And Related Transactions (2018) Uncitral.org <https://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods.html>
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