Materials - South Carolina Bar

Transcription

DEVELOPMENTS
IN
INTERNATIONAL TRADE
NEGOTIATIONS
Victor Mroczka
Office of the United States Trade Representative (USTR)
SIGNIFICANT DEVELOPMENTS
• Trade Facilitation Agreement (TFA)
• Trans-Pacific Partnership (TPP)
• Trans-Atlantic Trade and Investment Partnership (TTIP)
• Trade in Services Agreement (TiSA)
• Environmental Goods Agreement (EGA)
• China Bilateral Investment Treaty (BIT)
TRADE FACILIATION AGREEMENT (TFA)
• What is it?
 The first multilateral trade agreement in the WTO’s 20-year history (enabled
in 2014).
 When fully implemented, the TFA will fundamentally reform global customs
practices and substantially reduce the costs and time associated with goods
crossing borders.
• What’s in it?
 The Trade Facilitation Agreement contains provisions:

For expediting the movement, release and clearance of goods, including goods in transit;

Sets out measures for effective cooperation between customs and other appropriate authorities
on trade facilitation and customs compliance issues; and

For technical assistance and capacity building in this area.
TRADE FACILIATION AGREEMENT (TFA)
(cont’d)
• The breaking down of these types of barriers and unlocking new
opportunities for trade is particularly important for those that have
not been able to participate in the global economy, like small and
medium-sized businesses.
• What’s next?
 TFA will enter into force once two-thirds of the Membership (or 108
Members) have completed their respective ratification processes.
 As of November 20, 2015, 52 have done so (including the United States).
TRANS-PACIFIC PARTNERSHIP (TPP)
• What is it?
 TPP is a new, high-standard trade agreement that levels the playing field for
American workers and businesses.
 World’s largest trade agreement since the World Trade Organization was
created.
 Helps small businesses benefit from global trade.
 Prioritizes good governance and fighting corruption.
 Capitalizes on America’s position as the world leader in services exports.
• Who’s in it?
 In addition to the United States, TPP Parties include Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and
Vietnam.
TRANS-PACIFIC PARTNERSHIP (TPP) (cont’d)
• What’s in it?
 Over 5,000 pages of legal text, covering 30 chapters such as market access,
investment, financial services, and dispute settlement.
 Eliminates over 18,000 tariffs put on originating products.
• Not just your mom and dad’s FTA issues.
• Also include a number of new issues that have emerged in the global
economy since the last generation of FTAs.
 Disciplines on State-Owned Enterprises (SOEs).
 Rules that promote the development of the digital economy.
 Balanced commitments in intellectual property.
 Enforceable environmental disciplines.
 Enforceable commitments on labor rights.
• How does South Carolina benefit?
 South Carolina benefits from exports.
 In 2014, 153,000 South Carolina jobs were supported by exports.
 $29.6 billion in goods were exported from South Carolina, up 121% since 2004 (14.3% of
South Carolina’s GDP).
 85% of South Carolina exporters are small and medium-sized enterprises.
 29% of South Carolina’s goods exports went to TPP countries.
 South Carolina is also a leading provider of services, including IP, financial services, freight and
port services, and management and legal services.
 Charleston is a center of shipping and transport.
 Port handles about 1.1 million containers/year.
 1.4 million tons of cargo.
 $71 billion in cargo turnover (higher cargo turnover supports both blue-collar jobs as well as
engineering and tech work).
 Charleston is well-placed to pick up more TPP cargo as the Panama Canal re-digging project
enables East Coast ports to attract traffic.
• What’s next for TPP?
 After six years of negotiations, agreement was concluded on October 5,
2015, in Atlanta among the 12 TPP Parties.
 Text was released on November 5, 2015.
 President expects signature by the TPP Parties by early February 2016.
 U.S. International Trade Commission must complete its impact assessment.
 Then goes to Congress for ratification/implementation.
TRANS-ATLANTIC TRADE AND INVESTMENT
PARTNERSHIP (TTIP)
• What is it?
• TTIP is an ambitious, comprehensive, and high-standard trade and investment
agreement being negotiated between the United States and the European
Union.
• TTIP strives to build on decades of economic partnership and to promote the
principles and values we both share.
• TTIP will help unlock opportunities for American workers, farmers,
businesses, and ranchers through increased access to European markets for
Made-in-America goods and services.
• Negotiations started in 2013.
TRANS-ATLANTIC TRADE AND INVESTMENT
PARTNERSHIP (TTIP) (cont’d)
• What’s in it?
 Negotiations continued in 2015, with Rounds 8-11 taking place.
 Theses rounds were critical for laying the foundation for things to come, as
well as exploring the possibility of developing commitments in certain key
areas.
 Text proposals are on the table in almost all of the negotiating groups, and
the two sides have exchanged tariff and services/investment market access
offers.
• What’s next?
 Negotiations will continue through 2016, with the substance to determine
when the negotiations will be concluded.
TRADE in SERVICES AGREEMENT (TiSA)
• What is it?
 Launched in 2013, TiSA is a trade initiative focused exclusively on service
industries.
 In addition to the United States, there are 22 economies participating in the
negotiations (including the European Union, Japan, Canada, and Mexico),
representing 75% of the world’s services market.
 Services also account for three-quarters of U.S. GDP and 4 out of 5 jobs in the
United States, and where we routinely have a $200 billion annual trade
surplus.
(cont’d)
• What’s in it?
 TiSA will encompass state-of-the-art trade rules across a full spectrum of
service sectors, from telecom and technology to distribution and delivery
services.
 TiSA will also take on new issues confronting the global marketplace, like
restrictions on cross-border data flows that can disrupt the supply of services
over the Internet – a key market for U.S. small businesses and entrepreneurs.
 And TiSA will support the development of strong, transparent, and effective
regulatory policies, which are important to enabling international commerce.
(cont’d)
• What’s next?
 Fifteen negotiating rounds have been completed.
 Negotiations to continue through 2016, with the substance to determine
ENVIRONMENTAL GOODS AGREEMENT (EGA)
• What is it?
 Launched in 2014, the United States and 16 other WTO Members are
negotiating an agreement aimed at eliminating tariffs on a range of
environmental goods (e.g., wind turbines, solar water heaters, catalytic
converters).
 Global trade in environmental goods amounts to $1 trillion annually, and
some members are applying tariffs as high as 35% on these products.
The EGA provides an important opportunity to protect the global
environment while unlocking economic opportunity for American workers
and businesses, as well as marking a major contribution to green growth and
sustainable development.
(cont’d)
• What’s in it?
 The EGA will build on the commitment that President Obama and other
Leaders of the Asia-Pacific Economic Cooperation (APEC) made to reduce
tariffs on a list of 54 environmental goods, by taking the next step of
eliminating tariffs on these goods and expanding product coverage to include
additional environmental technologies.
 Product coverage is still under negotiation.
 The United States is seeking to include a broad set of environmental
technologies, including those related to: renewable and clean energy
generation, air pollution control, water and wastewater treatment, solid and
hazardous waste treatment, and environmental monitoring and analysis.
(cont’d)
• What’s next?
 Ten negotiating rounds have been completed.
CHINA BILATERAL INVESTMENT TREATY (BIT)
• What is it?
 The U.S. bilateral investment treaty program helps to protect private
investment, to develop market-oriented policies, and to promote U.S. exports.
The program’s basic aims are:
 To protect investment abroad in countries where investor rights are not already
protected through existing agreements;
 To encourage the adoption of market-oriented domestic policies that treat private
investment in an open, transparent, and non-discriminatory way; and
 To support the development of international law standards consistent with these
objectives.
(cont’d)
• What’s in it?
 U.S. BITs provide investors with six core benefits:
1.
2.
3.
4.
5.
6.
That investors and their covered investments be treated as favorably as the host party
treats its own investors and their investments or investors and investments from any third
country.
Establish clear limits on the expropriation of investments and provide for payment of
prompt, adequate, and effective compensation when expropriation takes place.
Provide for the transferability of investment-related funds into and out of a host country
without delay and using a market rate of exchange.
Restrict the imposition of performance requirements, such as local content targets or
export quotas, as a condition for the establishment, acquisition, expansion, management,
conduct, or operation of an investment.
Give covered investors the right to engage the top managerial personnel of their choice,
regardless of nationality.
Give investors from each party the right to submit an investment dispute with the
government of the other party to international arbitration (without having to use that
country’s domestic courts).
(cont’d)
• What’s next?
 Twenty-two negotiating rounds have been completed.
The U.N. Convention on Contracts for the International Sale of Goods:
An Overview for South Carolina Lawyers
Julius H. Hines1
Table of Contents
I. Background .................................................................................................................. 2
II. Reception in U.S. Courts .............................................................................................. 3
III.
Applicability of the CISG .......................................................................................... 4
A. Party‟s Place of Business .......................................................................................... 5
B. Contracting States .................................................................................................... 6
C. Excluded Matters ..................................................................................................... 7
D. Exclusion by Contract .............................................................................................. 8
E. Preemptive Effect ..................................................................................................... 9
IV.
Existence and Terms of Contract ........................................................................... 10
A. Offer and Acceptance ............................................................................................. 12
B. Counteroffers; “Battle of the Forms” ..................................................................... 13
C. Customs and Usages; Incoterms ............................................................................ 14
V. Performance ............................................................................................................... 15
A. Seller‟s Obligations ................................................................................................. 15
B. Buyers Obligations ................................................................................................. 15
VI.
Breach ..................................................................................................................... 16
VII. Remedies ................................................................................................................ 16
A. Reduction of the Price .............................................................................................17
B. Avoidance of the Contract; Fundamental Breach ..................................................17
C. Specific Performance ............................................................................................. 18
D. Interest and Attorney‟ Fees .................................................................................... 18
VIII. Defenses ................................................................................................................. 18
IX.
Conclusion ....................................................................................................................... 19
At the international level, contracts for the sale of goods are often governed by the
United Nations Convention on Contracts for the International Sale of Goods or “CISG.”2
The author is a partner in the Charleston office of K&L Gates LLC, where he practices maritime,
international trade and commercial law. He is a member of the South Carolina Bar and serves on its
International Law Committee.
2 S. Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3, 19 I.L.M. 668 (April 11, 1980), Official English Text
reprinted at 15 U.S.C. App.; see 52 Fed. Reg. 6262 (March 2, 1987).
1
1
As of this writing, 83 nations, including the United States, are parties to the CISG.3 The
United States ratified the CISG in 1986, and the CISG became effective on January 1,
1988 after it was adopted by the requisite ten countries.4
It is often remarked that there is a dearth of reported case law on the CISG.5 In South
Carolina, the absence of authority is even more apparent. The fact that a CISG claim
was asserted against a party was noted in an unreported decision from the United States
Court for the District of South Carolina6, but the case features no analysis or application
of the Convention. A single opinion from the South Carolina Supreme Court cites an
article on the CISG, but for an unrelated point of law.7 At the same time, however,
South Carolina has been experiencing impressive growth in international trade. It
seems plausible that future sales disputes in South Carolina could involve application of
the CISG.
This paper will discuss the background of the CISG and provide a general overview of its
major principles, often with reference to the analogous rules of South Carolina contract
law. Although, as will be shown, many sales contracts exclude the CISG, even the act of
exclusion requires some working knowledge of the Convention.
I.
Background
Efforts to develop a uniform international law for the sale of goods date back as far as
1930. Earlier efforts were unsuccessful, due mainly to lack of acceptance outside Europe
(i.e., in the United States). In 1966, the United Nations formed UNCITRAL, the UN
Commission on International Trade Law. UNCITRAL appointed a working group,
which included the U.S., to consider how prior attempts could be made more broadly
acceptable. This led eventually to the 1980 Vienna Convention, where the CISG was
approved.8 The goal of the Convention was described by one commentator as “to reduce
the uncertainty inherent in contracting for the sale of goods among international traders
The United Nations Commission on International Trade Law (“UNCITRAL”) maintains a current list of
CISG signatories at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/
1980CISG_status.html.
4 See Honey Holdings I, Ltd. v. Alfred L. Wolff, Inc., 81 F. Supp. 3d 543, 551 (S.D. Tex. 2015).
5 See MCC-Marble Ceramic Ctr., Inc., v. Ceramica Nuova d'Agostino, S.p.A., 144 F.3d 1384, 1389 (11th Cir.
1998); Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1027-28 (2d Cir. 1995) (“there is virtually no
caselaw under the Convention”); Genpharm Inc. v. Pliva-Lachema a.s., 361 F. Supp. 2d 49, 54 (E.D.N.Y.
2005) (“There are only a handful of American cases interpreting the CISG”); Chicago Prime Packers, Inc.
v. Northam Food Trading Co., 320 F. Supp. 2d 702, 708 (N.D. Ill. 2004), aff’d, 408 F.3d 894 (7th Cir.
2005); Caterpillar, Inc. v. Usinor Industeel, 393 F. Supp. 2d 659, 673 (N.D. Ill. 2005); Usinor Industeel v.
Leeco Steel Products, Inc., 209 F. Supp. 2d 880, 884 (N.D. Ill. 2002).
6 Cambridge Towel Co. v. Zimmer Am. Corp., No. 7:14-CV-04089-GRA, 2015 WL 5268813, at *2 (D.S.C.
Sept. 9, 2015)
7 See Collins Entm't Corp. v. Coats & Coats Rental Amusement, 368 S.C. 410, 416, 629 S.E.2d 635, 638
(2006).
8 See generally E. Allan Farnsworth, “The Vienna Convention: History and Scope,” 18 Int‟l L. 17 (1094).
3
2
who do not understand or accept one another‟s substantive trade law.”9 China adopted
the CISG in 1986,10 and the U.S. ratified it in 1987. Several major trading nations soon
followed suit, such as Germany in 1989,11 Switzerland in 1990, and Canada in 1991.
South Korea adopted the Convention in 2004, and Japan in 2008. Brazil adopted the
CISG in 2013. Notable current non-signatories include the United Kingdom12 and India.
II.
Reception in U.S. Courts
Despite the paucity of case law, courts have had “little difficulty in interpreting and
applying the CISG.”13 The CISG is, after all, “the international analogue to Article 2 of
the Uniform Commercial Code,”14 with many very similar provisions. Obviously, the
UCC is not “per se” applicable in a case governed by the CISG.15 But given the lack of
CISG jurisprudence, “[c]aselaw interpreting analogous provisions of Article 2 of the
Uniform Commercial Code. . ., may also inform a court where the language of the
relevant CISG provisions tracks that of the UCC.”16 Frequently, application of the CISG
and Article 2 of the UCC to a dispute will yield the same result. In one case, a lower
court was affirmed when, although it never cited the CISG or discussed its applicability
to the dispute, it applied contract principles which found “ample support in the CISG
and at common law.”17 Similarly, in one recent case the court refused to dismiss a
complaint which seemed based on UCC provisions, despite the applicability of the CISG
to the contract at issue.18 The enactments were similar enough that facts sufficient to
Virginia G. Maurer, “The United Nations Convention on Contracts for the International Sale of Goods,”
15 Syracuse J. Int‟l L. & Com. 361, 362 (Spring 1989).
10 Many CISG cases recognize China‟s adoption of the Convention, e.g. China, e.g. Weihai Textile Grp.
Imp. & Exp. Co. v. Level 8 Apparel, LLC, No. 11 CIV. 4405 ALC FM, 2014 WL 1494327, at *6 (S.D.N.Y.
Mar. 28, 2014)
11 Germany‟s adoption of the CISG was recognized in It‟s Intoxicating, Inc. v. Maritim Hotelgesellschaft
mbH, 2013 WL 3973975, *17 (M.D.Pa. July 31, 2013), reconsideration denied sub nom. It's Intoxicating,
Inc. v. Maritim Hotelgesellschft mbH, No. CIV.A. 3:11-2379, 2015 WL 1275348 (M.D. Pa. Mar. 19, 2015).
12 It was noted that “neither the British Virgin Islands nor the United Kingdom are signatories to the
CISG” in Prime Start Ltd. v. Maher Forest Products, Ltd., 442 F. Supp. 2d 1113, 1118 (W.D. Wash. 2006).
That Barbados, another British Commonwealth nation, had not ratified the CISG was pointed out in
MidAtlantic Int'l, Inc. v. AGC Flat Glass N. Am., Inc., No. 2:12CV169, 2014 WL 504701, at *4 (E.D. Va.
Feb. 7, 2014).
13 Palm Bay Int'l, Inc. v. Marchesi Di Barolo S.P.A., 659 F. Supp. 2d 407, 412 (E.D.N.Y. 2009).
14 Chicago Prime Packers, Inc., v. Northam Trading Co., 408 F.3d 894, 898 (7th Cir. 2003); see also
Dingxi Longhai Dairy, Ltd. v. Becwood Tech. Grp. L.L.C., 635 F.3d 1106, 1107 (8th Cir. 2011).
15 Delchi Carrier, supra note 5, at 1028; Orbisphere Corp. v. United States, 726 F. Supp. 1344, 1355 (Ct.
Int'l Trade 1989); Genpharm Inc. v. Pliva-Lachema a.s., 361 F. Supp. 2d 49, 55 (E.D.N.Y. 2005).
16Delchi Carrier at 1028; see also Dingxi at 1107; Claudia v. Olivieri Footwear Ltd., No. 96 CIV. 8052
(HB)(TH, 1998 WL 164824, at *4 (S.D.N.Y. Apr. 7, 1998); Eldesouky v. Aziz, No. 11-CV-6986 JLC, 2015
WL 1573319, at *2 (S.D.N.Y. Apr. 8, 2015); Maxxsonics USA, Inc. v. Fengshun Peiying Electro Acoustic
Co., No. 10 C 1174, 2012 WL 962698, at *4 (N.D. Ill. Mar. 21, 2012) (citing Dingxi at 1108 (“in applying
the CISG, courts may inform their analysis by looking to parallel UCC provisions”).
17 Simar Shipping Ltd. v. Global Fishing, Inc., 540 F. App'x 565, 567 (9th Cir. 2013).
18 See Saint Tropez Inc. v. Ningbo Maywood Indus. & Trade Co., No. 13 CIV. 5230 NRB, 2014 WL
3512807, at *9 (S.D.N.Y. July 16, 2014).
9
3
support a UCC Article 2 claim also supported a CSIG claim. One case featured a curious
choice of law clause which referenced both the CISG and a state‟s adoption of the UCC.19
The relative similarity of UCC Article 2 and the CISG, however, can result in the latter
instrument being overlooked. A few cases feature broad hints by the court that the
parties should consider whether the CISG might apply.20 In other cases, courts have
treated a party‟s failure to raise the CISG as a waiver.21 One case described a plaintiff‟s
attempt to invoke the CISG late in its case as “gamesmanship at its worst.”22 A few cases
also treat the CISG either as foreign law for which notice must be given in the
pleadings,23 or the affirmative defense of preemption which must be raised in the
answer.24 Thus any party seeking to take advantage of the CISG would be wise to raise it
early on in the pleadings or in other appropriate court filings.25
III.
Applicability of the CISG
The CISG consists in the main of 101 articles arranged in a logical order and covering
such issues as contract formation, performance, breach, and remedies. These articles
are grouped into four parts, the first of which pertains to the CISG‟s general
applicability. Article 1(1)(a) provides that the CISG applies to contracts between parties
whose places of business are in different contracting states. However, the fact that the
A. Raymond Tinnerman Mfg., Inc. v. TecStar Mfg. Co., No. 12-CV-667-JPS, 2013 WL 787367, at *2
(E.D. Wis. Mar. 4, 2013). In another interesting case, a distribution agreement specified in one place that
it was governed by South African law, and in other that it was governed by the CISG. FPM Fin. Servs.,
LLC v. Redline Products, Ltd., No. CIV.A. 10-6118 MAS, 2013 WL 5288005, at *3 (D.N.J. Sept. 17, 2013).
The plaintiff pointed out that South Africa was not actually a signatory to the CISG, which meant the two
provisions of the contract were in conflict. The defendant argued that there was no “specific conflict”
between South African law and the CISG, but apparently also conceded that South African and New
Jersey law were “essentially the same.” Given these concessions, the court simply applied New Jersey law.
Id. at *3.
20 Source Network Sales & Mktg., LLC v. Ningbo Desa Elec. Mfg. Co., No. 3:14-CV-1108-G, 2015 WL
2341063, at *9 (N.D. Tex. May 15, 2015); Golden Valley Grape Juice & Wine, LLC v. Centrisys Corp., No.
CV F 09-1424 LJO GSA, 2009 WL 4828743, at *10 (E.D. Cal. Dec. 9, 2009).
21 See Eldesouky v. Aziz, No. 11-CV-6986 JLC, 2015 WL 1573319, at *2 (S.D.N.Y. Apr. 8, 2015); New World
Trading Co. v. 2 Feet Prods., Inc., No. 11 CIV. 6219 SAS, 2014 WL 543657, at *1 (S.D.N.Y. Feb. 11, 2014);
Semi-Materials Co. v. MEMC Elec. Materials, Inc., No. 4:06CV1426 FRB, 2010 WL 3038086, at *1 (E.D.
Mo. Aug. 3, 2010); see also Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 444 (3d Cir.
2003) (“Because the parties have not raised the CISG's applicability to this dispute, we decline to address
it here”).
22 Rienzi & Sons, Inc. v. N. Puglisi & F. Industria Paste Alimentari S.P.A., No. 08-CV-2540 DLI JMA, 2014
WL 1276513, at *2 (E.D.N.Y. Mar. 27, 2014)
23 See, e.g., Attorneys Trust v. Videotape Computer Products, Inc., 94 F.3d 650 (9th Cir. 1996) (table)
(quoting Fed.R.Civ.P. 44.1.) (“Assuming that Taiwan is a party to the [CISG], „[a] party who intends to
raise an issue concerning the law of a foreign country shall give notice by pleadings or other reasonable
written notice‟”).
24See, e.g. Insituform Technologies, Inc. v. AMerik Supplies, Inc., 850 F. Supp. 2d 1336, 1355 (N.D. Ga.
2012).
25 In federal court, for example, the applicability of the CISG should be brought to the court‟s attention in
the Rule 26(f) report. See Local Civ. R. 26.03(A)(4), DSC.
19
4
parties have their places of business in different states must be “disregarded” if that fact
is not apparent from the contract or the parties‟ dealings.26
Thus if both parties know that the buyer is based in South Carolina and the seller in
France, the CISG applies; if, however, the buyer dealt entirely with an agent in South
Carolina and could not have known the seller was actually based in France, the CISG
will not apply. In short, both parties must know they are engaged in international trade
in order for the CISG to apply.27 Thus in McDowell Valley Vineyards, Inc. v. Sabate
USA Inc.,28 the court refused to apply the CISG despite the goods having been
manufactured in France, when “the representations regarding the specifications of the
product-both in number and in substance-came largely, if not entirely, from
California.”29
The requirement of a contracting state on both sides of the transaction has been said to
represent the rejection of a “universalist” approach under which any signatory would
apply to the Convention to international sales contracts, regardless of whether the
parties are based in contracting states.30
A.
Party‟s Place of Business
Where a party has multiple places of business, e.g. some in contracting states and
others elsewhere, Article 10 of the CISG opts for the location “which has the closest
relationship to the contract and its performance, having regard to the circumstances
known to or contemplated by the parties at any time before or at the conclusion of the
contract.”31
Some cases feature disputes over a party‟s place of business. In VLM Food Trading
Int'l, Inc. v. Illinois Trading Co.,32 the lower court concluded that the seller was, like the
buyer, based in the United States because it maintained a New Jersey business office.
The Seventh Circuit reversed, concluding that the New Jersey office was maintained for
regulatory purposes, whereas all of the seller‟s relevant conduct was linked to its Canada
office.33 In Am. Mint LLC v. Gosoftware, Inc.,34 the court declined to apply the CISG
CISG Art. 1(2); see It‟s Intoxicating, supra note 11, at *16.
however, that the fact that goods are imported from a signatory country does not make the CISG
applicable if the contracting parties are based in the U.S. See Food Team Int'l, Ltd. v. Unilink, LLC, 872 F.
Supp. 2d 405, 414 (E.D. Pa. 2012). Similarly, the CISG does not apply simply because the contract calls
for delivery of the goods in another signatory country. See Grace Label, Inc. v. Kliff, 355 F. Supp. 2d 965,
971 (S.D. Iowa 2005)
28 No. C-04-0708 SC, 2005 WL 2893848 (N.D. Cal. Nov. 2, 2005).
29 Id. at *4.
30 See Impuls I.D. Int‟l, S.L. v. Psion-Teklogix, Inc., 234 F. Supp. 2d 1267, 1272 (S.D. Fla. 2002)
31 See Am. Mint LLC v. Gosoftware, Inc., No. CIV.A. 1:05-CV-650, 2006 WL 42090, at *4 (M.D. Pa. Jan. 6,
2006) (quoting CISG art. 10).
32 748 F.3d 780 (7th Cir. 2014).
33 Id. at 787.
34 Supra note 31.
26
27Note,
5
when, although the buyer‟s parent was based in Germany, the buyer itself was a
Pennsylvania company.35
Some cases also deal with which of several parties involved in a dispute are subject to
the CISG. In general, “the CISG applies only to buyers and sellers, not to third
parties.”36 That said, one case rejected the argument that there could be only one seller
in an international sale of goods.37
B.
Contracting States
Usually, the status of a country as a CISG signatory is as simple as consulting
UNCITRAL‟s list. But some cases have involved disputes over a particular country‟s
status. The cases are split as to whether China‟s ratification of the CISG extends to
Hong Kong, now an administrative region of China but under British control when
China ratified the CISG.38
Note that CISG Article 1(1)(b), the Convention can also apply “when the rules of private
international law lead to the application of the law of a Contracting State.” Under this
prong of Article 1, the CISG could apply if, under a choice of law test, the law of the
United States or some other contracting state was applicable. The United States,
however, has excepted to Article 1(1)(b), which is expressly permitted by Article 95. 39
Thus in United States courts, the CISG does not apply unless both parties are based in a
signatory state. 40 In Prime Start Ltd. v. Maher Forest Products, Ltd.,41 a party tried to
argue that, since the CISG is the supreme law of the land, it should govern if state law
applied under the applicable choice of law rules. The court rejected this argument as an
attempt to circumvent the United States‟ rejection of 1(1)(b).42
The CISG also permits countries to declare themselves unbound either by Part II of the
Convention, dealing with the formation of contracts, or Part III, dealing with sale of
goods.43 Sweden and Finland, for example, have both disclaimed Part II.44 If a
Id. at *5.
Id. at *4; Usinor, supra note 5, 209 F. Supp. 2d. at 885.
37 2P Commercial Agency S.R.O. v. Familant, No. 2:11-CV-652-FTM-29, 2012 WL 6615889, at *3 (M.D.
Fla. Dec. 19, 2012).
38 Compare America's Collectibles Network, Inc. v. Timlly (HK), 746 F. Supp. 2d 914, 920 (E.D. Tenn.
2010) and Innotex Precision Ltd. v. Horei Image Products, Inc., 679 F. Supp. 2d 1356, 1358-59 (N.D. Ga.
2009) (Hong Kong not a contracting state) with Electrocraft Arkansas, Inc. v. Super Elec. Motors, Ltd.,
No. 4:09CV00318 SWW, 2009 WL 5181854, at *3 (E.D. Ark. Dec. 23, 2009) and CNA Int'l Inc. v.
Guangdon Kelon Electronical Holdings, No. 05 C 5734, 2008 WL 8901360, at *6 (N.D. Ill. Sept. 3, 2008).
39 Ralph H. Folsom, 1 International Business Transactions § 1.4 (3d ed.).
40 See Innotex Precision at 1358; Impuls I.D. Internacional, S.L. v. Psion–Teklogix Inc., 234 F.Supp.2d
1267, 1272 (S.D.Fla.2002); Princesse D‟Isenbourg Et Cie Ltd. v. Kinder Caviar, Inc., No. CIV.A. 3:09-29DCR, 2011 WL 720194, at *4 (E.D. Ky. Feb. 22, 2011) (CISG not applicable “when a contract is between
parties having places of business in different States and only one State is a Contracting State”).
41442 F. Supp. 2d 1113 (W.D. Wash. 2006).
42 Id. at 1118.
43 CISG Art. 92.
35
36
6
contracting state has declared itself unbound by Part II, then issues of contract
formation are subject to the vagaries of a conflict of laws analysis.
C.
Excluded Matters
Even if the parties are located in different contracting states, certain transactions are
excluded from the CISG‟s coverage. Contracts in which “the preponderant part of the
obligations of the party who furnishes the goods consists in the supply of labour or other
services” are excluded.45 “Maquiladora” contracts, in which the buyer furnishes a
“substantial part of the materials necessary” for the manufacture of goods, are also
excluded.46 Death and injury claims are excluded.47 Also, the validity of the contract
itself is not governed by the CISG--issues of legality, fraud, duress, and so on, must be
resolved under other law.48
Neither does the CISG deal with the effect of the contract on “the property in the goods
sold.”49 Here the CISG is less expansive than Article Two of the UCC, which deals with
title to goods in Section 2-401.50 It makes no effort to reconcile divergent national law
on such issues as whether a seller may retain title in goods delivered to a buyer.
Most cases also agree that the CISG does not reach distributorship agreements. The
UCC Article Two definition of “contract” includes a contract to “sell goods at a future
time.”51 Thus distributorship agreements are often treated as covered by the UCC. 52
However, the CISG applies to “contracts of sale of goods.”53 Cases interpreting this
provision have held that, unlike the UCC, the CISG does not reach distributorship
agreement disputes, at least when no specifically identified goods are at issue. 54
Mitchell Aircraft Spares, Inc. v. European Aircraft Serv. AB, 23 F. Supp. 2d 915, 918 (N.D. Ill. 1998)
(Sweden); Valero Mktg. & Supply Co. v. Greeni Oy, 373 F. Supp. 2d 475, 480 (D.N.J. 2005) rev'd and
remanded, 242 F. App‟x 840 (3d Cir. 2007) (Finland).
45 CISG Art. 3(2); Martini E Ricci Iamino S.P.A.--Consortile Societa Agricola v. Trinity Fruit Sales Co., 30
F. Supp. 3d 954, 965 (E.D. Cal. 2014); TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 CIV. 5189
(RCC), 2006 WL 2463537, at *5 (S.D.N.Y. Aug. 23, 2006).
46 CISG Art. 3(2).
47 CISG Art. 5. See Geneva Pharm. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, 286 (S.D.N.Y.
2002) aff'd in part, rev'd in part and remanded, 386 F.3d 485 (2d Cir. 2004) (“The CISG clearly does not
preempt the claims sounding in tort”);Viva Vino Imp. Corp. v. Farnese Vini S.r.l, No. CIV.A. 99-6384,
2000 WL 1224903, at *1 (E.D. Pa. Aug. 29, 2000)
48 CISG Art. 4(a). See Geneva Pharm., 201 F. Supp. 2d at 282 (“Under the CISG, the validity of an alleged
contract is decided under domestic law”). See also Miami Valley Paper, LLC v. Lebbing Eng'g &
Consulting GmbH, No. 1:05-CV-00702, 2006 WL 2924779, at *3 (S.D. Ohio Oct. 10, 2006) (“the CISG
does not prevent Plaintiff from pleading negligent misrepresentation and fraudulent inducement”).
49 CISG Art. 4(b). Usinor, supra note 5, at 209 F. Supp. 2d 886.
50 See S.C. Code §36-2-401.
51 See S.C. Code §36-2-106(1).
52 E.g. Kirby v. Chrysler Corp., 554 F. Supp. 743, 749 (D. Md. 1982).
53 Art. 1(1).
54 E.g Gruppo Essenziero Italiano, S.p.A. v. Aromi D‟Italia, Inc., No. CIV. CCB-08-65, 2011 WL 3207555,
at *3 (D. Md. July 27, 2011) (“Although exclusive distributorship agreements are considered contracts for
the sale of goods under the Uniform Commercial Code adopted in Pennsylvania, this approach has been
rejected in connection with the CISG”); Viva Vino Imp. Corp. v. Farnese Vini S.r.l, No. CIV.A. 99-6384,
44
7
Article 2 of the CISG excludes sales of “ships, vessels, hovercraft or aircraft.” While the
rationale for that exclusion might seem to be that sales of such items are covered by
other bodies of law, it is worth noting that a sale of a vessel is not subject to United
States maritime law.55 In the U.S., a vessel sale is considered a sale of goods governed
by UCC Article 2.56
D.
Exclusion by Contract
Article 6 of the CISG allow the parties to exclude or derogate from its application.57 In
practice, many sales contracts exclude the CISG in favor of other law (often a state‟s
version of the UCC). This tendency has been attributed to the fact that U.S. attorneys
“do not understand [the CISG] as well as they understand the UCC.”58 Whether the
CISG offers advantages or disadvantages compared to the UCC is perhaps best decided
on a case by case basis.
If the decision is to opt out of the CISG, care must be taken in drafting the necessary
contractual language. “The intent to opt out of the CISG must be set forth in the
contract clearly and unequivocally.”59 Various cases stand for the proposition that,
“absent an express statement that the CISG does not apply, merely referring to a
particular state's law does not opt out of the CISG.”60 In Asante Technologies, Inc. v.
PMC-Sierra, Inc.,61 for example, the buyer and seller each had form contracts which
purported to apply the local law (California or British Columbia). Neither clause,
however, went so far as to disclaim the CISG. Since the CISG was in fact the law both of
California and British Columbia, the court applied it despite the competing choice of law
clauses. One line of cases suggests that a forum selection clause alone is sufficient to
displace the CISG, but it appears to represent a minority view.62 Sales cases include any
2000 WL 1224903, at *1 (E.D. Pa. Aug. 29, 2000); Helen Kaminski Pty., Ltd. v. Mktg. Australian
Products, Inc., No. 96B46519, 1997 WL 414137, at *3 (S.D.N.Y. July 23, 1997).
55See Hatteras of Lauderdale, Inc. v. Gemini Lady, 853 F. 2d 848, 850 (11th Cir. 1988); Magnolia Ocean
Shipping Corp. v. Mercedes Maria, 1982 AMC 731 (4th Cir. 1981); The Ada, 250 F. 194 (2d Cir. 1918).
56E.g. Burris v. Lake Wylie Marina, Inc., 330 S.E.2d 559 (S.C. App. 1985); Richard W. Cooper Agency, Inc.
v. Irwin Yacht & Marine Corp., 264 S.E.2d 768 (N.C. App. 1980).
57TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 CIV. 5189 (RCC), 2006 WL 2463537, at *5
(S.D.N.Y. Aug. 23, 2006).
58 RALPH H. FOLSOM, MICHAEL WALLACE GORDON, JOHN A. SPANOGLE, JR. AND MICHAEL P. VAN ALSTINE,
INTERNATIONAL BUSINESS TRANSACTIONS § 1.4 at 15 (3d ed. 2013).
59Hanwha Corp. v. Cedar Petrochemicals, Inc., 760 F. Supp. 2d 426, 430 (S.D.N.Y. 2011)
60Travelers Prop. Cas. Co. of Am. v. Saint-Gobain Technical Fabrics Canada Ltd., 474 F. Supp. 2d 1075,
1082 (D. Minn. 2007). See also BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333,
337 (5th Cir. 2003); Honey Holdings I, Ltd. v. Alfred L. Wolff, Inc., 81 F. Supp. 3d 543, 552 (S.D. Tex.
2015); It’s Intoxicating, supra note 11, at *16; Am. Mint, supra note 31, at *3.
61164 F. Supp. 2d 1142, 1150 (N.D. Cal. 2001).
62Korea Trade Ins. Corp. v. Oved Apparel Corp., No. 13-CV-07918 DAB, 2015 WL 1345812, at *2 (S.D.N.Y.
Mar. 23, 2015); Am. Biophysics Corp. v. Dubois Marine Specialties, 411 F. Supp. 2d 61, 63 (D.R.I. 2006);
Amco Ukrservice v. Am. Meter Co., 312 F. Supp. 2d 681, 686 (E.D. Pa. 2004); Fercus, S.R.L. v. Palazzo,
8
number of examples of choice of law clauses which expressly reject the CISG.63
Something along the lines of “the parties expressly exclude the application of the United
Nations Convention on Contracts for the International Sale of Goods to this Agreement”
is common.64
The parties will sometimes dispute whether their contract excludes the CISG, especially
if the exclusion clause also contains a forum selection clause one party is resisting. In
such situations, the CISG controls the threshold issue of whether the contract includes
the relevant language.65 These cases often involve a “battle of the forms”66 in which a
forum selection clause has been added in a confirmation or similar document. Although
subsequent confirmations and the like can add terms if they are not material, the CISG
expressly states that terms relating to the settlement of disputes are material. 67 Thus a
forum selection clause in a seller‟s invoice, sent after the parties reached an agreement,
is not binding.68 On the other hand, if a buyer expresses assent to the seller‟s
confirmation (by, for example, signing it), then a forum selection clause contained in the
confirmation becomes part of the contract.69 If at the end of the day the parties fail to
agree on other substantive law, “their competing choices must fall away, leaving the
CISG to fill the void by its own self-executing force.”70
E.
Preemptive Effect
If the CISG does apply, it governs the case. “[U]nder the Supremacy Clause of the
United States Constitution, the Convention, would displace any contrary state sales law
such as the UCC.”71 The Convention has been described as is “a self-executing treaty
with the preemptive force of federal law.”72 Thus it CISG “supersedes state law when it
No. 98 CIV. 7728 (NRB), 2000 WL 1118925, at *3 (S.D.N.Y. Aug. 8, 2000); Viva Vino Imp. Corp. v.
Farnese Vini S.r.l, No. CIV.A. 99-6384, 2000 WL 1224903, at *1 (E.D. Pa. Aug. 29, 2000).
63 E.g Beaton v. SpeedyPC Software, No. 13-CV-08389, 2015 WL 3573601, at *1 (N.D. Ill. June 5, 2015);
In re Yahoo! Inc., 313 F. App‟x 722, 723 (5th Cir. 2009) (“The United Nations Convention on Contracts for
the International Sale of Goods does not apply to the Agreement”); Segal v. Amazon.com, Inc., 763 F.
Supp. 2d 1367, 1368 (S.D. Fla. 2011); Peters v. Amazon Servs. LLC, 2 F. Supp. 3d 1165, 1167 (W.D. Wash.
2013); BAAN, U.S.A. v. USA Truck, Inc., 82 Ark. App. 202, 205, 105 S.W.3d 784, 786 (2003); KMW Grp.,
Inc. v. Awarepoint Corp., No. 1:11-CV-1212, 2014 WL 2571350, at *1 (W.D. Mich. June 9, 2014); Centro de
Recaudacion de Ingresos Municipales v. Infor (US), Inc., 951 F. Supp. 2d 296, 299 (D.P.R. 2013), appeal
dismissed (Apr. 30, 2014); Packgen v. Berry Plastics Corp., 973 F. Supp. 2d 48, 55 (D. Me. 2013).
64 SAS Inst. Inc. v. World Programming Ltd., 64 F. Supp. 3d 755, 765 (E.D.N.C. 2014).
65Turfworthy, LLC v. Dr. Karl Wetekam & Co. KG, 26 F. Supp. 3d 496, 503 (M.D.N.C. 2014).
66See infra at Section IV.B.
67CISG Art. 19(3).
68See Chateau des Charmes Wines Ltd. v. Sabate USA Inc., 328 F.3d 528, 531 (9th Cir. 2003); see also
Allied Dynamics Corp. v. Kennametal, Inc., 965 F. Supp. 2d 276, 299 (E.D.N.Y. 2013).
69BTC-USA Corp. v. Novacare, No. CIV. 07-3998 ADMJSM, 2008 WL 2465814, at *4 (D. Minn. June 16,
2008) (“when Michlitsch initialed the general conditions of sale BTC expressed its assent to the forum
selection clause”).
70 Hanwha Corp., supra note 59, at 431.
71Usinor, supra note 5, at 209 F. Supp. 2d 884.
72Am. Mint, supra note 31at *3; accord Hanwha at 430.
9
applies.”73 Since the CISG is effectively U.S. law, there is no need for a foreign law expert
to establish its provisions.74 For contracts subject to the CISG, “the applicable
commercial law is not the U.C.C., but rather, the [CISG] unless the parties expressly
contract out of the Convention's coverage.”75 Thus the CISG “ preempts state common
law and the UCC.”76
As a treaty, the CISG provides a separate basis for federal jurisdiction. Federal courts
have jurisdiction over cases arising under the Constitution, laws, or treaties of the
United States.77 Several cases have acknowledged that the CISG creates a private right
of action enforceable in federal court.78
IV.
Existence and Terms of Contract
As previously mentioned, Part II of the CISG deals with the formation of a contract. As
such it is analogous to Part 2 of Article 2 of the UCC, which deals with “Form, Formation
and Readjustment of Contract.”79 It is at this point that we encounter one of the major
differences between the CSIG and UCC Article 2. The UCC‟s statute of frauds requires
that contracts for the sale of goods “for the price of $500 or more” are not enforceable
“unless there is some writing sufficient to indicate that a contract of sale has been made
between the parties and signed by the party against whom enforcement is sought.”80
The CISG has no such provision. According to Article 11, „[a] contract of sale need not
be concluded in or evidenced by writing and is not subject to any other requirement as
to form.”81 Instead, the contract “may be proved by any means, including witnesses.” 82
Most cases agree that, as a corollary, “the CISG does not adopt the parol-evidence rule83
of American law,” and instead allows “„allows all relevant information into evidence
VLM Food Trading Int'l, Inc. v. Illinois Trading Co., 748 F.3d 780, 787 (7th Cir. 2014).
Semi-Materials Co. v. MEMC Elec. Materials, Inc., No. 4:06CV1426 FRB, 2011 WL 134062, at *1 (E.D.
Mo. Jan. 10, 2011). This implies that Fed. R. Civ. Proc. 44.1, which requires a party to give notice of its
intention to raise a point of foreign law, should not apply to the CISG.
75 Orbisphere Corp. v. United States, 726 F. Supp. 1344, 1356 n. 7 (Ct. Int'l Trade 1989) (Hong Kong a
contracting state).
76 Honey Holdings I, Ltd. v. Alfred L. Wolff, Inc., 81 F. Supp. 3d 543, 552 (S.D. Tex. 2015).
77 28 U.S.C.A. § 1331.
78Delchi Carrier, supra note 5, at 1027–28;BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332
F.3d 333, 336 (5th Cir. 2003); Hanwha at 430; Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F. Supp.
2d 1142, 1147 (N.D. Cal. 2001); D & G Grp., S.R.I. v. H.A. Imp. USA, No. 14-CV-2850 TPG, 2015 WL
694925, at *1 (S.D.N.Y. Feb. 18, 2015)
79S.C. Code § 36-2-201 et seq.
80S.C. Code § 36-2-201(1).
81 See Urica, Inc. v. Pharmaplast S.A.E., No. CV 11-02476 MMM RZX, 2014 WL 3893372, at *11 (C.D. Cal.
Aug. 8, 2014); TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 CIV. 5189 (RCC), 2006 WL
2463537, at *7 (S.D.N.Y. Aug. 23, 2006) (“Unlike American contract law, the CISG contains no statute of
frauds”); Claudia v. Olivieri Footwear Ltd., No. 96–8052, 1998 WL 164824, at *4–5 (S.D.N.Y. Apr. 7,
1998)). Korea Trade Ins. Corp. v. Oved Apparel Corp., No. 13-CV-07918 DAB, 2015 WL 1345812, at *2
(S.D.N.Y. Mar. 23, 2015)
82 CISG Art. 11; Weihai Textile Grp. Imp. & Exp. Co. v. Level 8 Apparel, LLC, No. 11 CIV. 4405 ALC FM,
2014 WL 1494327, at *6 (S.D.N.Y. Mar. 28, 2014);
83 See S.C. Code §36-2-202 (parol evidence rule).
73
74
10
even if it contradicts the written documentation.‟”84 This will come as a bit of a shock to
American lawyers, who are used to treating contracts as integrated statements of the
parties‟ agreement. In CISG cases, a party is free to contend that, notwithstanding the
clear provisions of an agreement, the parties actually agreed on something else.
Article 9 of the CISG permits a contracting state “whose legislation requires contracts of
sale to be concluded in or evidenced by writing” to make a declaration that Article 11
does not apply if one of the parties has its place of business in the contracting state.
Despite the UCC‟s inclusion of a statute of frauds, the United States has made no Article
96 declaration. One of the United States‟ major trading partners, China, has made that
declaration.85 What happens in sales cases involving a counterparty in a jurisdiction
which, like China, has made such a declaration? The cases are unclear. In one
unreported case, a district court held that China‟s Article 11 declaration meant that a
writing was required to prove the alleged contract.86 In Forestal Guarani S.A. v. Daros
Int'l, Inc.,87 the Third Circuit held that a choice of law analysis would be needed to fill in
the “gap” created by the signatory states‟ differing views on the necessity of a writing,
and remanded for application of such an analysis.88 A recent unreported decision
dodged the question because, regardless of whether Chinese or U.S. law applied under a
choice of law analysis, a writing would be required.89
CISG Article 8(1) states that party‟s statements should be interpreted “according to his
intent where the other party knew or could not have been unaware what that intent
was.” Thus the CISG “requires courts to consider evidence of a party's subjective intent
when signing a contract if the other party to the contract was aware of that intent at the
TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00–5189, 2006 WL 2463537, at *7 (S.D.N.Y. Aug.
23, 2006) (quoting Claudia v. Olivieri Footwear Ltd., No. 96–8052, 1998 WL 164824, at *4–5 (S.D.N.Y.
Apr. 7, 1998)); see also MCC-Marble Ceramic Ctr., Inc., v. Ceramica Nuova d'Agostino, S.p.A., 144 F.3d
1384, 1389 (11th Cir. 1998); Mitchell Aircraft Spares, Inc. v. European Aircraft Serv. AB, 23 F. Supp. 2d
915, 920 (N.D. Ill. 1998); Filanto, S.p.A. v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1238 (S.D.N.Y. 1992);
Urica, Inc. v. Pharmaplast S.A.E., No. CV 11-02476 MMM RZX, 2014 WL 3893372, at *11 (C.D. Cal. Aug.
8, 2014); Weihai Textile, 2014 WL 1494327 at *6; Claudia v. Olivieri Footwear Ltd., No. 96 CIV. 8052
(HB)(TH, 1998 WL 164824, at *6 (S.D.N.Y. Apr. 7, 1998); but see Beijing Metals & Minerals Imp./Exp.
Corp. v. Am. Bus. Ctr., Inc., 993 F.2d 1178, 1183 (5th Cir. 1993) (applying parole evidence rule); David H.
Moore, “The Parol Evidence Rule and the United Nations Convention on Contracts for the International
Sale of Goods: Justifying Beijing Metals & Minerals Import/export Corp. v. American Business Center,
Inc.,” 1995 B.Y.U. L. Rev. 1347, 1351 (1995)
85See Zhejiang Shaoxing Yongli Printing & Dyeing Co. v. Microflock Textile Grp. Corp., No. 0622608-CIV,
2008 WL 2098062, at *3 (S.D. Fla. May 19, 2008); Weihai Textile Grp. Imp. & Exp. Co. v. Level 8
Apparel, LLC, No. 11 CIV. 4405 ALC FM, 2014 WL 1494327, at *7 (S.D.N.Y. Mar. 28, 2014); China N.
Chem. Indus. Corp. v. Beston Chem. Corp., No. Civ.A. H–04–0912, 2006 WL 295395, at *6 n. 6 (S.D.Tex.
Feb. 7, 2006)).
86Zhejiang, 2008 WL 2098062 at *3.
87 613 F.3d 395, 400 (3d Cir.2010).
88 613 F.3d at 402.
89 Weihai Textile Grp. 2014 WL at *7.
84
11
time.”90 Only if when the other party is unaware of the first party‟s subjective intent
does the CISG make recourse to “the understanding that a reasonable person of the
same kind as the other party would have had in the same circumstances.”91
A.
Offer and Acceptance
Contrasting with this subjectivity is a comparatively demanding standard with respect to
the definiteness of the contract. Article 14(1) requires that an offer be sufficiently
definite and indicate the offer‟s intention to be bound by an acceptance, and that an
offer is sufficiently definite if “it indicates the goods and expressly or implicitly fixes a
provision for determining the quantity and price.”92 Thus a simple sales quote will
suffice as an offer.93 The UCC, by comparison, states that a contract will not fail for
indefiniteness if “one or more terms are left open,” provided there is a “reasonably
certain basis for giving an appropriate remedy.”94
Article 18 of the CISG governs acceptance. Mere “silence or inactivity” cannot
constitute acceptance, but “other conduct of the offeree indicating assent to an offer is
an acceptance.”95 Thus “acceptance does not require a signature or formalistic
adoption of the offered terms.”96 An order in response to which product is shipped
forms a valid contract under the CISG.97
Article 16(2)(b) of the CISG prevents an offeror from revoking an offer “if it was
reasonable for the offeree to rely on the offer as being irrevocable and the offeree has
acted in reliance on the offer.” One case viewed this provision as a “modified version of
promissory estoppel that does not appear to require foreseeability or detriment,” and
declined to apply a more exacting promissory estoppel rule.98
MCC-Marble Ceramic Ctr., Inc., v. Ceramica Nuova d'Agostino, S.p.A., 144 F.3d 1384, 1388 (11th Cir.
1998); Guang Dong Light Headgear Factory Co. v. ACI Int'l, Inc., 521 F. Supp. 2d 1153, 1166 (D. Kan.
2007).
91 CISG Art. 8(2).
92 See Solae, LLC v. Hershey Canada, Inc., 557 F. Supp. 2d 452, 457 (D. Del. 2008) (“Courts have held that
a binding contract exists when the parties sufficiently agree to the goods, the quantity and the price”);
Geneva Pharm. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, 281 (S.D.N.Y. 2002) aff'd in part,
rev'd in part and remanded, 386 F.3d 485 (2d Cir. 2004); Hanwha Corp. v. Cedar Petrochemicals, Inc.,
760 F. Supp. 2d 426, 432 (S.D.N.Y. 2011) (offeror must intend to be bound).
93Golden Valley Grape Juice & Wine, LLC v. Centrisys Corp., No. CV F 09-1424 LJO GSA, 2010 WL
347897, at *3 (E.D. Cal. Jan. 22, 2010).
94 S.C. Code § 36-2-204(3).
95 CISG Art. 18(1).
96Golden Valley at *5.
97 It's Intoxicating, supra note 11, at *14.
98 Geneva Pharm. Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, 286-87 (S.D.N.Y. 2002) aff'd in
part, rev'd in part and remanded, 386 F.3d 485 (2d Cir. 2004).
90
12
B.
Counteroffers; “Battle of the Forms”
The CISG‟s “battle-of-the-forms provision, Article 19, is significantly different from § 2207.”99 It is limited to terms contained in “a reply to an offer which purports to be an
acceptance.”100 Article 19(1) of the CISG has been held to default to the old mirror
image rule in which a purported acceptance proposing additional terms is treated as a
rejection and counteroffer. 101 Thus, under the CISG, “ „no contract results from such an
exchange if the purported acceptance contains additional or different terms that
materially alter the offer.‟”102 Additional terms in an acceptance which do not
materially alter the terms of the offer do become part of the contract.103 However,
different terms relating to price, payment, quality, quantity, delivery, liability or dispute
resolution are all considered material.104 Thus an acceptance purporting to modify any
of those terms is actually a counteroffer. Under the UCC, the acceptance would still be
effective. The new terms may or may not become part of the contract depending on
various factors, including their materiality.105
Nearly all the CISG “battle of the forms” cases involve forum selection clauses. As noted
above, such clauses are deemed per se material for purposes of the conditional
acceptance rule. Sometimes the distinction makes no practical difference. Various
cases find a contract based on the parties‟ conduct, and conclude that the offeree‟s
additional terms and conditions are not part of the contract if they are material. 106 Such
cases often involve forum selection clauses, which are “material” under CISG Art. 19(3).
In Chateau des Charmes Wines Ltd. v. Sabate USA Inc.,107 the court declined to enforce
a forum selection clause inserted in a seller‟s invoice after the contract was made.
One recent case features a detailed application of CISG principles to a forum selection
clause dispute. In Allied Dynamics Corp. v. Kennametal, Inc.,108 the seller sent a quote
which included a proposed price but no quantity term. Instead, the operative offer was
the buyer‟s purchase order, which fixed all of the terms required by the CISG. The seller
responded with a confirmation, which, due to its inclusion of a forum selection clause,
was a rejection and counteroffer. However, the seller‟s confirmation requested the
99
VLM Food Trading Int'l, Inc. v. Illinois Trading Co., 748 F.3d 780, 786 (7th Cir. 2014).
100Id.
Id. See also Travelers Prop. Cas. Co. of Am. v. Saint-Gobain Technical Fabrics Canada Ltd., 474 F.
Supp. 2d 1075, 1082 (D. Minn. 2007).
102 Claudia v. Olivieri Footwear Ltd., No. 96 CIV. 8052 (HB)(TH, 1998 WL 164824, at *11 n. 7 (S.D.N.Y.
Apr. 7, 1998) (quoting Legal Analysis of the United Nations Convention on Contracts for the International
Sale of Goods, (1980), commentary on Article 19).
103 CISG Art. 19(2).
104 CISG Art. 19(3).
105 See S.C. Code § 36-2-207(2).
106 See, e.g., Solae, supra note 92, at 458 (condition of sales document not part of contract).
107328 F.3d 528, 531 (9th Cir. 2003).
108 No. 12-CV-5904 JFB AKT, 2014 WL 3845244 (E.D.N.Y. Aug. 5, 2014).
101
13
buyer to object within fifteen days of receipt of the confirmation, and the buyer‟s failure
to do so in a series of transactions amounted to an acceptance.109
By contrast, in CSS Antenna v. Amphenol-Tuchel Electronics, GmbH,110 the court
declined to enforce a similar forum selection clause, at least initially. In that case, it was
not clear whether the buyer had in fact assented to the seller‟s general conditions. The
court agreed that the seller‟s confirmation, sent in response to the buyer‟s purchase
order, was accepted by the buyer. It was, however, unclear to the court whether the
confirmation put the buyer on notice that additional terms, including a forum selection
clause, were to be included in the contract.111 The court therefore denied the seller‟s
motion to dismiss without prejudice.112
C.
Customs and Usages; Incoterms
Like Article 2 of the UCC, the CISG makes “usages” in trade or commerce applicable to
the interpretation of a contract. Under Article 9(1), the parties are bound by any usage
“to which they have agreed.” Otherwise they are bound by usages which are widely
known in international trade. Treibacher Industrie, A.G. v. Allegheny Technologies,
Inc.,113 involved the issue of whether an express agreement between the parties was
needed in order to vary the usual trade usages, or whether an agreement as to usages
could be implied from the parties‟ conduct. The Eleventh Circuit held that “the parties‟
usage of a term in their course of dealings controls that term's meaning in the face of a
conflicting customary usage of the term.”114
Several cases have acknowledged that Article 9(1) effectively incorporates Incoterms 115
as widely accepted trade usage.116 Thus, although Incoterms do not technically have the
form of law, they may be treated as essentially binding in CISG contracts, unless the
parties agree otherwise. The UCC, on the other hand, contains its own definitions of
certain shipping terms.117 In the unlikely absence of an applicable Incoterm governing
delivery, the CISG requires delivery to the first carrier for shipment to the buyer, if the
Id. at *12.
764 F.Supp.2d 745 (D. Md. 2011).
111 Id. at 753-54.
112 Id. at 754.
113464 F.3d 1235 (11th Cir. 2006).
114 Id. at 1239.
115 See International Chamber of Commerce, INCOTERMS 2010.
116 In re World Imports, Ltd., 511 B.R. 738, 744 (Bankr. E.D. Pa. 2014); Cedar Petrochemicals, Inc. v.
Dongbu Hannong Chem. Co., No. 06 CIV. 3972 LTS JCF, 2011 WL 4494602, at *4 (S.D.N.Y. Sept. 28,
2011); China N. Chem. Indus. Corp. v. Beston Chem. Corp., No. CIV.A. H-04-0912, 2006 WL 295395, at
*6 (S.D. Tex. Feb. 7, 2006); St. Paul Guardian Ins. Co. v. Neuromed Med. Sys. & Support, GmbH, No. 00
CIV. 9344 (SHS), 2002 WL 465312, at *3 (S.D.N.Y. Mar. 26, 2002) aff'd, 53 F. App'x 173 (2d Cir. 2002)
(“INCOTERMS are incorporated into the CISG through Article 9(2)”).
117 See S.C. Code § 36-2-319, S.C. Code § 36-2-320.
109
110
14
contract involves carriage of goods.118 The UCC, by contrast, makes the default place of
delivery the seller‟s place of business.119
V.
Performance
A.
Seller‟s Obligations
The seller must deliver the goods in accordance with the contract, which includes
making any required contracts of carriage.120 With respect to the condition of the goods,
the CISG does not rely on the concept of a warranty; it does, however, include rules
which effectively duplicate the familiar UCC implied warranties. According to Article
35, “[t]he seller must deliver goods which are of the quantity, quality and description
required by the contract.” They must have the same qualities as any sample or model
which the seller may have provided.121 Article 35(2)(a) states that goods do not conform
unless they are”fit for the purposes for which goods of the same description would
ordinarily be used”122 --much the same thing as merchantability. The goods must also
be “fit for any particular purpose expressly or impliedly made known to the seller at the
conclusion of the conclusion of the conduct.”123 The parties can, however, simply agree
that these analogs of the implied sales warranties do not apply. The UCC‟s requirement
of a conspicuous disclaimer, specifically mentioning merchantability, does not carry
over into the CISG.124
B.
Buyers Obligations
The buyer must obviously pay for the goods.125 The buyer must also take such steps, and
comply with such formalities, as may be necessary, for payment to be made,126 and must
take delivery of the goods.127 CISG Article 38 also requires the buyer to “examine the
goods, or cause them to be examined, within as short a period as is practicable in the
circumstances,” although examination may be deferred until the goods have arrived at
their destination.128 “The determination of what period of time is „practicable‟ is a
factual one.”129 Article 39 deprives the buyer of the right to rely on a nonconformity if
the buyer fails to provide the seller with notice of the nonconfirmity within a reasonable
time after it should be discovered.130 This provision essentially duplicates UCC Article
2‟s requirement that the buyer must notify the seller of a breach with respect to accepted
CISG 31(a).
S.C. Code § 36-2-308(a).
120 CISG Arts. 30-32.
121 CISG Art. 35(2)(c); c.f. S.C. Code § 36-2-313(1)(c).
122See Chicago Prime Packers, supra note 5, at 709.
123 CISG Art. 35(2)(b).
124 Compare CISG Art. 35(2) with S.C. Code § 36-2-316(2).
125 CISG Art. 53; In re Victoria Alloys, Inc., 261 B.R. 424, 431 (Bankr. N.D. Ohio 2001).
126 CISG Art. 54.
127 CISG Art. 60.
128 CISG Art. 38(2).
129Chicago Prime Packers v. Northham Food Trading Co., 2003 WL 2125426, at *4 (N.D. Ill. May 29,
2003).
130 CWF Hamilton & Co. v. Schaefer Grp., Inc., No. 3:10-CV-339, 2012 WL 1106672, at *4 (S.D. Ohio Apr.
2, 2012) (citing Caterpillar, Inc. v. Usinor Industeel, 393 F.Supp.3d 659, 673 (N.D.Ill.2005)).
118
119
15
goods within a reasonable time after discovery “or be barred from any remedy.”131
Absent a guarantee of longer duration, the buyer “loses the right to rely on a lack of
conformity of the goods if he does not give the seller notice thereof at the latest within a
period of two years from the date on which the goods were actually handed over to the
buyer.”132 According to one case, the intent of the CISG is “that buyers examine goods
promptly and give notice of defects to sellers promptly.” Given, however, that
“notification in a matter of a few weeks” may not be “practicable,” “the outer limit of two
years is set for the purpose of barring late notices.”133
VI.
Breach
The seller is “liable in accordance with the contract and this Convention for any lack of
conformity.”134 If the seller delivers goods before they are due, it may, up to the delivery
date, make up any missing or nonconforming portion of the delivery so long as doing so
does not cause the buyer “unreasonable inconvenience or unreasonable expense.” 135
This provision is akin to the UCC‟s right to cure by making a conforming delivery within
the time allowed.136
Under the CISG, “the buyer-defendant bears the burden of proving nonconformity at
the time of transfer.”137 However, according to one Fourth Circuit case, the buyer need
to offer proof of exactly why the goods did not perform as expected; it is enough to show
that they were used in the normal fashion and did not produce the expected results.138
VII.
Remedies
In general, the CISG allows party injured by a breach of contract to recover loss,
including loss of profit, sustained as a consequence of the breach.139 Such damages may
not exceed the loss which the breaching party “foresaw or ought to have foreseen at the
time of contracting.”140 Thus the CISG codifies the familiar rule of foreseeability
established in Hadley v. Baxendale.141 In one recent case, a court refused to assume the
S.C. Code § 36-2-607(3)(a).
CISG Art. 39(2).
133 Shuttle Packaging Sys., L.L.C. v. Tsonakis, No. 1:01-CV-691, 2001 WL 34046276, at *9 (W.D. Mich.
Dec. 17, 2001).
134 CISG Art. 36; Delchi Carrier, supra note 5, at 1028.
135 CISG Art. 37.
136 See S.C. Code § 36-2-508.
137 Chicago Prime Packers, supra note14, at 408 F.3d 898.
138 Schmitz-Werke Gmbh + Co. v. Rockland Indus., Inc., 37 F. App'x 687, 692 (4th Cir. 2002).
139 CISG Art. 74.
140 Id.
141 See Delchi Carrier at 1029, citing Hadley v. Baxendale, 156 Eng.Rep. 145 (1854); see also Orica
Australia Pty Ltd v. Aston Evaporative Servs., LLC, No. 14-CV-0412-WJM-CBS, 2015 WL 6172147, at *5
(D. Colo. Oct. 21, 2015).
131
132
16
defendant could foresee that the plaintiff was a trader who would likely suffer a loss in
profits if a chemical shipment failed to arrive within a set delivery window.142
A.
Reduction of the Price
Under the UCC, the buyer can reject non-conforming goods, but must pay for them if
they are accepted.143 The buyer retains a right to recover for breach of warranty, but
must pursue the seller to collect damages.144 The CISG entitles the buyer to a price
adjustment: “If the goods do not conform with the contract and whether or not the price
has already been paid, the buyer may reduce the price in the same proportion as the
value that the goods actually delivered had at the time of the delivery bears to the value
that conforming goods would have had at that time.”145 The buyer may take this
reduction “unilaterally.”146
B.
Avoidance of the Contract; Fundamental Breach
The CISG uses the term “avoid” where the UCC uses “cancel.” Under Article 81,
avoidance releases both parties from their obligations under the contract, “subject to
any damages which may be due.” Avoidance does not affect any provisions of the
contract which relate to the resolution of disputes. Both the seller and the buyer can
avoid the contract based on a “fundamental” breach, or a breach which results in “such
detriment to the other party as substantially to deprive him of what he is entitled to
expect under the contract.”147 In Banks Hardwoods Florida, LLC v. Maderas Iglesias,
S.A.,148 the buyer argued that “the inclusion of sapwood and the wrong size timber
constituted a fundamental breach.” Noting that the seller described those
nonconformities as “slight,” the court denied the buyer‟s motion for summary judgment
on its right to avoid the relevant contracts.149
In addition, the buyer may avoid the contract if the buyer grants the seller reasonable
additional time in which to deliver the required goods and the seller fails to do so within
that time.150 The seller may avoid the contract if the buyer fails to perform within a
similar extension within which to pay for the goods or take delivery of them.151
CITGO Petroleum Corp. v. Odfjell Seachem, No. CIV.A. H-07-2950, 2014 WL 7004049, at *8 (S.D. Tex.
Dec. 10, 2014).
143 S.C. Code § 36-2-607(1).
144 See S.C. Code § 36-2-714.
145 CISG Art. 50.
146 New World Trading Co. v. 2 Feet Prods., Inc., No. 11 CIV. 6219 SAS, 2014 WL 2039138, at *6 (S.D.N.Y.
May 16, 2014).
147 CISG Art. 25.
148 No. 08-23497-CIV-GARBER, 2009 WL 3618011 (S.D. Fla. Oct. 29, 2009)
149 Id. at *2.
150 CISG Art. 49(1)(b).
151 CISG Art. 64(b).
142
17
Although consequential damages are often disclaimed in sales contracts, the reliability
of such disclaimers may be questionable under the CISG. As noted above, avoidance of
the contract relieves the parties of all obligations under the contract save those relating
to dispute resolution. In Topp Paper Co., LLC v. ETI Converting Equipment,152 the
court held that a consequential damages limitation did not relate to the settlement of
disputes and was therefore avoided along with the rest of the contract.
C.
Specific Performance
CISG Article 46(1) states that the buyer “may require performance by the seller of his
obligations unless the buyer has resorted to a remedy which is inconsistent with this
requirement.” In Saint Tropez Inc. v. Ningbo Maywood Indus. & Trade Co.,153 the
court recognized that the CISG “authorizes the Court to order specific performance.”
The UCC, however, limits reserves the remedy of specific performance to “where the
goods are unique or it other proper circumstances.”154
D.
Interest and Attorney‟ Fees
Article 78 of the CISG specifically provides that a party may recover interest on “the
price or any other sum that is in arrears.”155 However, the Convention provides no
guidance on the applicable rate. In San Lucio, S.r.l. v. Imp. & Storage Servs., LLC,156
the court awarded prejudgment interest at the treasury bill rate because it had broad
discretion to set the interest rate in a federal question case.
Although there is some controversy in the case law and commentary, the CISG does not
appear to allow attorney‟s fees awards.157
VIII. Defenses
Article 77 of the CISG requires the non-breaching party claiming breach of contract to
“take such measures as are reasonable in the circumstances to mitigate the loss.” The
burden, however, is on the breaching party to “„claim a reduction in the damages in the
152No.
12–21014–CIV, 2013 WL 5446341, *3-4 (S.D.Fla. Sept. 28, 2013).
No. 13 CIV. 5230 NRB, 2014 WL 3512807, at *9 (S.D.N.Y. July 16, 2014).
154 S.C. Code § 36-2-716(1).
155 San Lucio, S.r.l. v. Imp. & Storage Servs., LLC, No. CIV A 07-3031(WJM), 2009 WL 1010981, at *3
(D.N.J. Apr. 15, 2009), as amended (Apr. 20, 2009); but see Zhejiang, supra note 85, at *5 (“The CISG is
silent on the issue of interest. Because substantive domestic law does not apply, the plaintiff is not entitled
to any interest”).
156 Supra note 155.
157 See Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., 313 F.3d 385, 388 (7th Cir.
2002); San Lucio, S.r.l. v. Imp. & Storage Servs., LLC, No. CIV A 07-3031(WJM), 2009 WL 1010981, at
*3-4 (D.N.J. Apr. 15, 2009), as amended (Apr. 20, 2009); but see Stemcor USA, Inc. v. Miracero, S.A. de
C.V., 66 F. Supp. 3d 394, 401 (S.D.N.Y. 2014), appeal dismissed (Nov. 12, 2014), appeal withdrawn (Jan.
8, 2015) “CISG Article 74 does not unambiguously bar recovery of fees and costs”) ; David B. Dixon, “Que
Lástima Zapata! Bad CISG Ruling on Attorneys' Fees Still Haunts U.S. Courts,” 38 U. Miami Inter–Am. L.
Rev. 405, 422 (2007).
153
18
amount by which the loss should have been mitigated.”158 Article 79 incorporates the
concept of force majeure, in that it absolves a party for his “failure to perform any of his
obligations if he proves that the failure was due to an impediment beyond his control
and that he could not reasonably be expected to have taken the impediment into account
at the time of the conclusion of the contract or to have avoided or overcome it, or its
consequences.” In one case, goods could not be inspected per the requirements of a
letter of credit because the inspectors withdrew from Iraq after the outbreak of war.
“Because hostilities prevented inspection and acceptance of the goods per the terms of
the Contract while the Letter of Credit was in effect, performance under the Contract
was impossible.”159
The CISG has no statute of limitations. In one very recent case, the court applied New
York‟s four year statute of limitations given the absence of a limitation period in the
CISG.160 However, the United States is a signatory to the Convention on the Limitation
Period in the International Sale of Goods,161 Article 8 of which establishes a limitations
period which also happens to be four years. In what may be the only U.S. case on this
convention, a court refused to apply its set-off provisions in a CISG case because China,
where one party had its place of business, was not a signatory.162 At present, only 29
parties are signatories to the limitation convention, so it is far from co-extensive with
the CISG. Where one party to a goods transaction is based in a country which is a
signatory to the CISG but not the limitation convention, the statute of limitations will
probably be governed by the law of the forum--six years in South Carolina.163 If,
however, the relevant states are signatories to both conventions, a four year statute
should be applicable--although there is no actual case to that effect.
IX.
Conclusion
The CSIG has yet to be applied in a South Carolina case, and it is a fair bet that most
sales contracts for imports into or exports from South Carolina disclaim the CISG. That
does not make the Convention irrelevant. In many cases, the clause opting out of the
CISG is part and parcel of a dispute resolution clause which one or the other party may
wish to contest. The dispute over whether such a clause is part of the sales contract will
be governed by the CISG, assuming the other jurisdictional requirements are met. That
alone is a good reason for the parties‟ counsel to be familiar with the CISG and its
departures from more familiar UCC law.
Treibacher Industrie, A.G. v. Allegheny Technologies, Inc., 464 F.3d 1235, 1240 (11th Cir. 2006).
Hilaturas Miel, S.L. v. Republic of Iraq, 573 F. Supp. 2d 781, 800 (S.D.N.Y. 2008)
160 U.S. Nonwovens Corp. v. Pack Line Corp., 48 Misc. 3d 211, 217, 4 N.Y.S.3d 868, 873 (N.Y. Sup. Ct.
2015).
161 13 I.L.M. 952 (1974)
162 See Maxxsonics, supra note 16, at *6.
163 S.C. Code § 36-2-725(1).
158
159
19
FCPA/UK/BRAZIL ANTIBRIBERY COMPLIANCE:
CHALLENGES FOR
EMPLOYERS WITH FOREIGN
OPERATIONS
AN IN-HOUSE PERSPECTIVE
STEFANIA BONDURANT
FCPA



It prohibits the bribery of foreign government
officials
It requires companies to maintain accurate books
and records
SEC and DOJ = prosecutorial agencies
 They
prosecute domestic and international violations
 no formal ties to US needed for their jurisdiction - email
or text to US server or wire transfer to US bank, or
attending a meeting in the US = enough
 reward cooperation programs.
INTERNATIONAL REACH OF FCPA





Any company (US or foreign) with securities
registered in the US or that files with the SEC
US citizens, nationals, residents
Any US entity organized under US law or with its
principal place of business in the US
Directors, officers, employees, agents and
shareholders of such companies
Any individual or entity (US or foreign) who commits
a violation through any contact in the US (phone
call, email, wire transfer, travel…)
THE TWO ELEMENTS


Prohibition of giving or offering money, gifts or
“anything of value” to a foreign government official
to obtain or retain business.
Keeping of adequate “books and records” and
“internal controls” over financial transactions.
ANYTHING OF VALUE

Money or anything equivalent (i.e., gift cards)

Gifts

Entertainment

Travel, meals and lodging

Contributions to political parties or candidates

Charitable donations (to officer’s charity)

Personal favors

Discounts

Loans
WHO IS AN OFFICER?





Regulatory, judicial and law enforcement officials
Officers and employees of government-owned
companies
Political candidates
Public International Organizations
Watch out for government’s ownership – even if
minimal
FACILITATING PAYMENTS EXCEPTION


“facilitating payments” = those made to induce
lower-level foreign officials to perform routine, nondiscretionary tasks they are otherwise required to
perform
They are OK if minimal
ENFORCEMENT TRENDS








2004 – 2006 = 29 cases
2007 = 38 cases
2008 = 33 cases
2009 =120 cases
resources
 fines and settlements
 individual prosecutions
 international cooperation
FCPA v. UK v. BRAZIL ANTI BRIBERY LAWS
FCPA
UK
BRAZIL
Who is covered?
US issuers, US citizens, nationals, residents, US companies,
anyone that directly or indirectly engages in corrupt
payment in the US
If offense of giving or receiving
bribes happens in the UK
Only companies registered or
operating in Brazil
Foreign Government Officials
Yes
Yes
Yes
Domestic Government Officials
No
Yes
Yes
Commercial Bribery/Private
Parties
No
Yes
No
Extraterritorial
Yes
Yes
yes
Internal Control Provisions
Yes
No
No
Criminal liability for the company
Yes
Yes
No
Strict liability
No
Yes
Yes
Prohibition of Receipt of Bribes
No
Yes
No
Fines
Criminal
Companies – up to $2ml
Individuals – up to $250,000 + 5years in prison per
violation
Accounting
Companies – up to $25ml per violation
Individuals – up to 5ml+20 ys in prison per violation
Unlimited
Up to 20% of gross revenue or
3X the benefit sought or received.
Facilitation Payments
Yes
No
No
IN-HOUSE PERSPECTIVE









Tone from the Top
Understanding the risk
Defining the right compliance culture/policy
Guidance on travel, entertainment, and gifts
Local Customs
Training
Due diligence/Monitoring/Auditing
Investigations and Procedures
Remedial actions
BEST PRACTICES






Create an anti-bribery compliance policy/ code of
conduct to respond and report any inappropriate
behavior
Set up an anonymous reporting system
Train employees
Designate CCO
Conduct regular audits (external and internal) of highrisk business units/areas/geographies
Review your third-party providers (foreign consultants)
who interact with foreign officials
BEST PRACTICES (cont’d)





Promptly and thoroughly investigate any allegation
of bribery
Engage local counsel
Consider self-reporting
Consider seeking an opinion from DOJ to confirm if
a certain conduct conforms with their FCPA
provisions
KEEP ACCURATE RECORD OF ALL OF THE ABOVE
PRACTICAL CHALLENGES

DUE DILIGENCE OF THIRD PARTIES
 Third
party screening
 Reference check
 Contract (compliance with laws)

INVESTIGATIONS
 Conduct
initial risk assessment
 Build a detailed work plan
 Obtain support from executives
 Ensure consultants’ budgets and scopes are clear
 Conduct interviews
PRACTICAL CHALLENGES

ATTORNEY-CLIENT PRIVILEGE
 Who is the client?
 Document your involvement (to provide legal advice)
 Give Upjohn warnings

You represent only the company and not the employees in their individual capacity
They should keep the discussions confidential
 Document these warnings in your notes
Mark all documents and communications as attorney-client privileged,
attorney work product, or both as fit
Restrict access to documents
Hire outside counsel in foreign jurisdictions







BEWARE different laws in foreign jurisdictions may not recognize privilege
SCALABILITY
BUY-IN ESPECIALLY IN FOREIGN JURISDICTIONS
QUESTIONS?
Sending Employees
Temporarily Across Borders
Easily overlooked issues
affecting tax, licensing,
jurisdiction, and immigration.
2016 SC Bar Convention
1
Sending Employees Temporarily Across Borders
Introduction:
Problem
Areas

Definition of Topic and Key Terms

Taxation
of
Foreign
Entity
Assignment of Employee in US: The employee
remains on foreign company’s foreign payroll only his
work location is temporarily changed, e.g.


Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee

Transfer of Employee to US: The employee is
officially transferred to a US branch or a US subsidiary
(generally for extended periods of time) and placed on
such branches or subsidiaries payroll, e.g.

Liability
And
Jurisdiction
Employee is sent to US customer to install a machine
Employee is sent to US subsidiary to review books
Employee is sent to US subsidiary to take over the fulltime-position as CFO of subsidiary (whether or not with
the general intent to transfer him back after several
years).
Summary and
Questions
2
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Case Example: Temporary assignment of foreign
employee of foreign entity in the US.

While most attorneys might mainly deal with assignments
of US employees outside the US, the same issues apply
in assignments in either direction.

Because everybody is more familiar with US law we
mainly discuss the assignment of a foreign worker in the
US.

Use the same analysis to recognize problems that might
exist when US employees are temporarily assigned
outside the US, because most foreign countries will have
laws similar to those in the US when it comes to taxation,
business licensing, jurisdiction, and immigration.
Summary and
Questions
3
Introduction:
Problem
Areas

Typical Intended Structure of Assignment

Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee




Liability Stemming from U.S. Business: Relying on a structure
involving a limited liability entity as US subsidiary or affiliate
transacting the business, the foreign entity deems itself protected
from liability in the US.

Jurisdiction of US Courts over Foreign Entity: Conducting any
business in the U.S. through a U.S. subsidiary or affiliate, the foreign
entity is deemed not subject to general jurisdiction in the US.
Liability
And
Jurisdiction
Summary and
Questions
Taxation of Foreign Entity: Relying on the requirement of a
“permanent establishment” in the U.S., the foreign entity does not file
a return and does not pay any income tax in the US.
Business and other Licenses: While the foreign entity might have
a properly licensed affiliate in the U.S. it carries no licenses itself.
Employment Taxes and Withholding: Relying on short-term
exclusion and de minimis rules in U.S., salary is paid by foreign entity
according to foreign law and subject to foreign employment tax and
withholding.
Immigration: B-1 Visa as Business Traveler (including installation,
maintenance, service in connection with goods sold from abroad).
4
Introduction:
Problem
Areas

Taxation of Foreign Entity

Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions

Taxation in the U.S. requires that foreign entity has a
“permanent establishment” in the U.S.
“Permanent establishment” (“PE”) is defined as (e.g. Art. 5 USGerman Tax Convention) :
1. For the purposes of this Convention, the term "permanent”
establishment" means a fixed place of business through which
the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop; and
f) a mine, an oil or gas well, a quarry, or any other place of
extraction of natural resources.
3. A building site or a construction, assembly, or installation
project constitutes a permanent establishment only if it lasts
more than twelve months.
5
Introduction:
Problem
Areas

Permanent Establishment

Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
Treasury Department Technical Explanation of the United States Model Income
Tax Convention of September 20, 1996, Art. 5, paragraph 2:
…a general principle to be observed in determining whether a permanent
establishment exists is that the place of business must be "fixed" in the sense that a
particular building or physical location is used by the enterprise for the conduct of its
business, and that it must be foreseeable that the enterprise’s use of this building or
other physical location will be more than temporary.

An office, desk, or space assigned to or available to employees at a customer,
subsidiary, or at a construction site can fulfill the requirement of a fixed physical
location.

The minimum duration of 12 months for construction, installation, and assembly
sites to be considered a PE is an exception and not the rule. Hence other
operations with less than 12 months duration are not considered temporary and
can be considered a PE.

A presence for more than 12 months will almost never be considered temporary
and, consequently, will in most cases constitute a PE.

The definitions vary from country to country: E.g. the US definition of a PE is
generally regarded to be broader than that of Germany. The US is expected to
follow the latest OECD model comments to be discussed in the following.
6
Introduction:
Problem
Areas

Current OECD MODEL Convention and Commentaries

Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction




A location is typically considered “fixed” when the activity at a location continues
for more than 6 months.
However, repeated activities of less than 6 months length that are repeated
every year for several years at the same location can also constitute a PE.
Activity is considered for the respective foreign entity as a whole and not for each
particular employee separately. Consequently, time several employees spend at
the same location at various times are considered cumulatively.
For construction sites latest interpretations of the OECD MODEL Convention
would include time spent by subcontractors and not only time spent by
employees (12 month minimum required, but repeated activity will be
accumulated).
The various tax treaties are usually based on OECD MODEL Convention but
may vary in important details: E.g. exception to being a PE under Art. 5 IV e):



Summary and
Questions
US-German Tax convention: “ …the maintenance of a fixed place of business solely for
the purpose of advertising, of the supply of information, of scientific activities, or of
similar activities that have a preparatory or auxiliary character for the enterprise …”
OECD and US model: “…the maintenance of a fixed place of business solely for the
purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary
character …”
Consequence: German companies’ activities In the US (and vice versa) are more
likely to constitute a PE than those of companies from countries where such text in the
respective convention is closer to OECD model.
7
Introduction:
Problem
Areas

Practical Examples OF What Might Constitute a PE

Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Having several employees visit the BMW plant in the U.S. and
utilize one or more guest offices at the plant, may constitute a PE
if the cumulative time spent there by all employees exceeds 6
months for a single year or 3 months in several consecutive
years.
Such PE would be considered to provide services to BMW.

Having several employees visit a foreign subsidiary and perform
work for such subsidiary in the area of engineering, installation,
assembly, training, management, or accounting that utilize some
fixed space or office (e.g. the conference room) at the
subsidiary’s premises may constitute a PE if the total time
cumulatively spent there by such employees exceeds 6 months
for a single year or 3 months in several consecutive years.
The business of such PE would be considered to be a service provider
(engineering, technical, business administration etc.) providing services to
the subsidiary (a “Service PE”).
Summary and
Questions
8
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity

Consequences for Taxation of Foreign Entity

If the foreign entity has a PE, it must appropriately allocate
income to such PE and declare and tax the allocable income in
the US.

As PE status might be determined by authorities several years
after the fact, the foreign entity might be fined and barred from
asserting any cost or expense for failure to file a US income tax
return. The result would be income taxation of gross income.

As foreign tax years may be closed, the foreign entity could not
exclude the PE income from the income taxed abroad or take
credit for the tax paid in the US. The result would be double
taxation on such PE income.

Might require local business license and other licenses triggering
penalties for past years.

The determination of PE status will also have negative
consequences in other areas to be discussed.
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
9
Introduction:
Problem
Areas

Taxation
of
Foreign
Entity
Taxation of Employees and Withholding

Basic Principle: Income earned by a foreign resident for work
performed in the U.S. is taxed in the U.S.

Exception: Under most tax treaties, a foreign worker is only
taxable in the foreign country of origin, even if the work for which
he receives the salary is performed in the U.S. if:
Taxation of
Assigned
Employee


Visa
Compliance
of Assigned
Employee


Conclusion:

Liability
And
Jurisdiction
The worker stays in aggregate less than 183 days per tax year in the
U.S.;
The salary is paid exclusively by, or on behalf of a nonresident employer;
and
The salary is not borne by a permanent establishment of that employer in
the U.S.


The exception fails the moment the foreign employer acquires a PE in
the US.
The employee must then pay income tax in the US and the foreign
employer must withhold tax and remit to the IRS.
It will be difficult to reopen older foreign tax years for refund of foreign
taxes paid.
Summary and
Questions
10
Introduction:
Problem
Areas
Employee Withholding Related Considerations and Caveats
Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee

If the salary is borne by foreign employer without PE but work benefits U.S.
employer, such salary may not be deductible as business expense in
foreign country.

US unemployment tax is generally enforced whenever the employee
become subject to US income tax. (actual rules are stricter than income
tax)

If a certificate of coverage is obtained from foreign social security
authorities, a PE does not trigger US Social Security. However, it will be
difficult to obtain such certificate for past periods.

Staying in foreign (e.g. German) Social Security System often should not
be a first priority:



Liability
And
Jurisdiction

Continued stay in foreign system often by default only if continued employment
for same legal entity; transfer to affiliate would require discretionary approval;
The complications caused translate in additional cost which are often higher
than simply paying employee to purchase a private benefit;
Required contributions to US system are often lower than those required under
foreign law; and
Paid in contributions, even for very short periods of employment may not be lost
as most totalization agreements waive minimum periods and many require
foreign social security agencies to collect benefits in the US and pay them
together with foreign benefits to employee (e.g. in Germany).
Summary and
Questions
11
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
Immigration: B-1 Business Traveler Eligibility
Business Traveler: 9 FAM 41.31 N7 [emphasis added]
 … Engaging in business contemplated for B-1 visa
classification generally entails business activities other
than the performance of skilled or unskilled labor.
Thus, the issuance of a B-1 visa is not intended for the
purpose of obtaining and engaging in employment
while in the United States. …
 … The clearest legal definition comes from the decision
of the Board of Immigration Appeals in Matter of Hira,
affirmed by the Attorney General. Hira involved a tailor
measuring customers in the United States for suits to be
manufactured and shipped from outside the United
States. The decision stated that this was an appropriate
B-1 activity, because the principal place of business and
the actual place of accrual of profits, if any, was in the
foreign country. Most of the following examples of proper
B-1 relate to the Hira ruling, in that they relate to
activities that are incidental to work that will
principally be performed outside of the United
States.
12
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Immigration: B-1 Business Traveler Eligibility
Typical B-1 Activities: 9 FAM 41.31 N8
(1) Engage in commercial transactions, which do not
involve gainful employment in the United
States (such as a merchant who takes orders for
goods manufactured abroad);
(2) Negotiate contracts;
(3) Consult with business associates;
(4) Litigate;
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
(5) Participate in scientific, educational, professional
or business conventions, conferences, or
seminars; or
(6) Undertake independent research.
Summary and
Questions
13
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
B-1 Business Traveler Eligibility: Special Cases

Taxation of
Assigned
Employee
Board Member: 9 FAM 41.31 N9.2: An alien who is a member of the board of
directors of a U.S. corporation seeking to enter the United States to attend a meeting of
the board or to perform other functions resulting from membership on the board.

Commercial or Industrial Installation Workers: 9 FAM 41.31 N10.1
a.
An alien coming to the United States to install, service, or repair commercial or
industrial equipment or machinery purchased from a company outside the United
States or to train U.S. workers to perform such services. However, in such cases,
the contract of sale must specifically require the seller to provide such services or
training and the visa applicant must possess specialized knowledge essential to
the seller’s contractual obligation to perform the services or training and must
receive no remuneration from a U.S. source.
b.
These provisions do not apply to an alien seeking to perform building or
construction work, whether on-site or in-plant. The exception is for an alien who is
applying for a B-1 visa for supervising or training other workers engaged in
building or construction work, but not actually performing any such building or
construction work.
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
14
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
No B-1 Business Traveler Eligibility upon Finding of PE

With the determination of PE status, activities in relation to such
PE will likely be determined to be incidental to work that is
principally performed inside of the United States for such PE.

The activity will be considered the performance of skilled or
unskilled labor for such PE and, consequently, engagement in
employment in the US.

If borne by a PE, remuneration will be considered paid from a U.S.
source. If PE exists, the expense likely must be allocated to such
PE.

Result: The activity becomes illegal under B-1 status and will
be considered a violation of such status and the illegal
exercise of employment in the US with potential civil and
criminal fines for the employee and the employer and reduced
eligibility for future immigration benefits for both.
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
15
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Immigration: Other B-1 Activities and Visa Classes

Classic B-1 business traveler and board member activities,
like participation in negotiation, litigation, consultations,
fairs, and conventions, are usually of no concern as they
rarely raise to the level of a PE. If a PE is found to exist
for other reasons, such activities will rarely be considered
as performed for such PE as they typically clearly benefit
the foreign business.

Any other visa (i.e. E, L and H) should be specifically
issued for a US subsidiary or a US PE. If the visa is
issued for a US subsidiary and the person engages in
work in US as employee of foreign entity, he also may
constitute a PE and will violate his respective visa which
only allows work for a specific listed employer.
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
16
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Potential Loss of Liability Limitation
Typically intended company structure:

Limited liability is based on the notion that the
shareholder of a corporation or the owner of another
limited liability entity shall not be liable for any debt or
torts of such entity beyond the capital contribution he
agreed to make.

Relying on a structure involving a limited liability entity as
US subsidiary or affiliate transacting the business, the
foreign entity deems itself protected from liability in the
US.
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
17
Introduction:
Problem
Areas
Potential Loss of Liability Limitation (cont.)
Improper employee assignment can lead to unlimited liability
of the foreign entity as follows:
Taxation
of
Foreign
Entity

Vicarious Liability: If an employee of the foreign entity is
involved in the tort, there is usually direct unlimited vicarious
liability of the foreign entity for the employee’s actions.
Taxation of
Assigned
Employee

Product Liability: If the PE of the foreign entity can be
classified as producer of a certain product, there is usually
direct unlimited product liability of the foreign entity.

Piercing the Corporate Veil: Plaintiff attorneys can argue that
the performance of services for a subsidiary without
compensation blurs the line between the separate entities,
hence constitutes the commingling of funds possibly resulting
in the “piercing of the corporate veil.”

A law suit based on such line of argument may prompt a
respective inquiry by tax and immigration authorities.
Visa
Compliance
of Assigned
Employee
Liability
And
Jurisdiction
Summary and
Questions
18
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Protection of Foreign Entity from Becoming Subject to US
Jurisdiction

Minimum contacts requirements are typically relaxed
when the cause of action arose within the US.
Taxation of
Assigned
Employee

Visa
Compliance
of Assigned
Employee
Lack of jurisdiction of US court over foreign defendants
without “minimum contacts” can provide protection against
high damage awards usually not granted by foreign courts
and the high cost of defending lawsuits in the US.
Employees of foreign entity stationed in the US and/or
being determined to have a PE in the US will almost
certainly grant US courts jurisdiction over foreign entity in
any cases, even those without relation to the US.
Lawsuits based on such theory may prompt a respective
inquiry by tax and immigration authorities.
Liability
And
Jurisdiction
Summary and
Questions
19
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Taxation of
Assigned
Employee
Visa
Compliance
of Assigned
Employee
Conclusions and Recommendations
Unless planned activities clearly fall within the exceptions to a PE and constitute “traditional”
business traveler activities, the following points should be heeded:

Transfer employee to a subsidiary or affiliate in the US and officially place him on US payroll.

Obtain appropriate work visa to work for the US subsidiary.

Pay employee through such subsidiary according to its usual payroll procedures.

Make sure employee identifies him- or herself to third parties as employee of such subsidiary.

If not terminated (in Germany typically impossible under legal rules and labor contracts),
employee should by agreement be put on unpaid leave from foreign employment to be
automatically fully reinstated with full seniority and all benefits upon termination of US
employment.

If any payments are made directly by the foreign employer, those payments should be
characterized as payments for services performed for the foreign employer in the country of
origin (e.g. attending meetings and training etc.) or to a lesser extent, in anticipation of future
employment. It should be clarified in the agreement that all work performed in the US is
exclusively as employee of US subsidiary or affiliate and the payments by foreign employer
are exclusively for work performed outside the US.

Staying in the foreign Social Security System typically should not be a first priority as US
system may be cheaper and there may be simplified collection methods under the
Totalization Agreement to actually collect US benefits when back in home country.
Liability
And
Jurisdiction
Summary and
Questions
20
Introduction:
Problem
Areas
Taxation
of
Foreign
Entity
Questions?
Taxation of
Assigned
Employee
Wolfgang Buchmaier
Buchmaier Law Firm LLC
Visa
Compliance
of Assigned
Employee
1201 Main Street, STE 1980
Columbia, SC 29201
Tel.: 803-478-1245
Liability
And
Jurisdiction
Fax: 803-753-9236
www.buchmaierlaw.com
[email protected]
Summary and
Questions
21

Materials - South Carolina Bar

Transcription

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