In its decision dated 28 May 2019 (case No. 4A_543/2018 (in German), selected for publication in the official court reporter), the Swiss Federal Supreme Court (SFSC) addressed a number of issues involving the United Nations Convention on Contracts for the International Sale of Goods (CISG) concerning inter alia:
- the point of time when the international character of a sales agreement is determined
- the express and implied exclusion of the CISG
- the parallel application of the Swiss provisions on defects in consent in case of a fundamental error and the CISG provisions on conformity of goods
The reported dispute originates from various sales contracts for electricity meters entered into between a Swiss independent public-law institution, as purchaser, and two sellers, respectively with registered offices in Switzerland and Slovenia. After the delivery of the goods, the sellers informed the buyer about measurement errors due to hairline cracks in the meters. As a consequence, the purchaser considered all sales contracts null and void for fundamental error (Grundlagenirrtum) according to Article 24 of the Swiss Code of Obligations (CO) and requested reimbursement of the sales price against the return of the electricity meters. The dispute ended up before the SFSC where the purchaser advocated the application of (material) Swiss law, whereas the sellers argued that the CISG was applicable to the contractual relationship.
In its decision, the SFSC preliminarily recalled that the terms of the CISG shall be interpreted autonomously and independently from any national law, i.e. by eliminating the “homeward trend” in interpretation and considering foreign CISG precedents.
Based on such principle, the SFSC ruled that the purchaser cannot invoke Article 143 of the Swiss Private International Law Act (PILA) which – in case of multiple obligors domiciled in different jurisdictions – requires a separate determination of the applicable law for each obligor, but, on the contrary, the CISG had to applied to the contractual relationship as a whole.
Moreover, the SFSC held that the international character of a sales contract, and hence the application of the CISG, is to be determined at the time of its conclusion. Any subsequent accession or exclusion of a party does not affect such determination.
Since the general terms and conditions applicable to the sales contract provided for Swiss law as governing law, the purchaser argued that the parties had intended to exclude the application of the CISG to their contractual relationship. However, the SFSC considered that the choice of the national law of a contracting state constitutes neither an explicit nor an implicit exclusion of the CISG, since the CISG is to be considered part of the contracting state’s national law. Hence, a valid implied exclusion of the CISG would request the presence of further clear and unambiguous indicators for the exclusive choice of national law and the exclusion of the CISG. In the view of the SFSC, such exclusion of the CISG cannot be easily inferred from the overall contractual context. The use of terminology that can only refer to national law, for instance, is not considered sufficient to satisfy such requirement. Moreover, the SFSC ruled that one party cannot infer from the procedural conduct of the other party (argumentation in a submission based on national law) that the CISG was subsequently excluded by the parties.
Finally, the purchaser claimed that all sales contracts are void due to a fundamental error relating to facts (the quality of the products). Under Article 24 para. 1 no. 4 CO, an error is fundamental where the error relates to specific facts which the party acting in error considered in good faith to be a necessary basis for the contract (e.g., the physical or legal characteristics of the sold goods, the characteristics of the contracting parties, or the purpose of the contract). The SFSC clarified that national law can be applied to assess the validity of the contract or of any of its provisions only if no “functionally equivalent” solution is provided in the CISG.
According to the SFSC, however, the CISG contains provisions – those the contractually agreed quality of the sold products – which are functionally equivalent to the Swiss rules on fundamental errors. In addition, the CISG provides for the avoidance of a contract only as a last resort and a recourse to pure national law to assess the validity would adversely affect the CISG’s balancing of interest and its aim for standardization of the statutory basis for claims. As far as claims in connection with the contractual quality of sold products are concerned, recourse to internal standards for challenging the contract’s validity is thus excluded according to the SFSC in favor of the CISG’s application.