International Sale of Goods: Are You Applying the Correct Law?
A Quebec company sells goods to a buyer in the U.S. The contract stipulates that Quebec law applies. A dispute arises between the parties, after the buyer complains about the poor quality of the delivered goods and refuses to pay the agreed-upon price, whereupon the seller sues.
What legislative provisions apply to the dispute? At first blush, the answer would appear to be articles 1726 and following of the Civil Code of Québec (the “Civil Code”) dealing with the warranty of quality that the seller owes the buyer.
That, however, would probably be the wrong answer. For if the sale of goods is international, regard must be had for the United Nations Convention on Contracts for the International Sale of Goods (the “Convention”) which is legally binding and has force of law in Canada, including Québec1.
In principle, the Convention – which has been ratified by most industrialized countries (the most notable exception being the U.K.) – governs the international sale of goods between parties whose respective places of business are in different States, where those States are Contracting States. Thus, in our example above, as both Canada and the U.S. have ratified the Convention, the provisions of the Convention, rather than those of the Civil Code, would in principle govern the resolution of the dispute (Article 1 (1) (a) of the Convention).
The provisions of the Convention can even apply where one of the parties to the sale has its place of business in a non-contracting State, provided that the applicable rules of private international law lead to the application of the law of a Contracting State. Thus, in our example, had the sale been to a buyer in the U.K., the provisions of the Convention would still apply, because pursuant to the governing-law clause in the contract, Quebec’s private international law rules would have led to the application of the law of Quebec (Article 3111 of the Civil Code), a jurisdiction where the Convention is in force (Article 1 (1) (b) of the Convention).
The range of transactions covered by the Convention is very broad. It applies to all international sales of goods save for a few limited exceptions, including goods purchased for personal or household use, at auction or at a judicial sale. Also exempt are sales of securities, negotiable instruments or money, ships, other vessels and aircrafts (Article 2 of the Convention).
In terms of content, the Convention has over a hundred articles covering most aspects of a sale: formation of the contract (articles 14 to 24), obligations of the seller and the buyer (delivery, conformity of the goods, payment of the price) and remedies for breach (articles 25 to 65) including rules regarding damages and resolution of the contract (articles 74 and following and articles 81 and following). The Convention also contains rules on the transfer of risks (articles 66 and following) and on the preservation of the goods when necessary, particularly in the event of litigation (articles 85 and following).
The provisions of the Convention are not mandatory, however, and the parties to the contract can therefore exclude its application, or derogate from or vary its provisions (Article 6 of the Convention). Businesses that often engage in international sales (whether as seller or buyer) should therefore take the time to examine the provisions of the Convention in order to determine if it is in their interest to have them apply to their transactions or whether their application should be excluded, in whole or in part.
What is important to remember is that the Convention potentially applies to a very large number of sales whereby Quebec businesses sell or purchase goods of all kinds to or from foreign counterparties. When one thinks of the practical importance of the contract of sale and the fact that most commercial exchanges of Quebec businesses involve countries that are party to the Convention (the U.S., Mexico, France, etc.), it is obvious that businesses need to develop the reflex of determining whether the Convention should apply to the international transaction at hand. Such a reflex will be useful both upstream, when negotiating the terms and conditions of the transaction (should the Convention’s provisions apply, in whole or in part?) and downstream, from a potential litigation perspective, in determining what law should apply to decide or settle any dispute.
To put it briefly, parties to international sales must understand what legal provisions will apply to their contract and that they will not necessarily be those of the Civil Code or of a foreign law. Buyers and sellers will thereby avoid situations like that experienced by the parties to an appeal, each of whom based its argument on the provisions of the Civil Code, not realizing that the applicable provisions were in fact those of the Convention, as the Court of Appeal gently reminded them in its reasons for judgment2.
1 An Act Respecting the United Nations Convention on Contracts for the International Sale of Goods, CQLR, c. C-67.01
2 Mazetta Company llc v. Dégust-mer Inc, 2011 QCCA 717