Transmar Commodity Group Ltd. v. Cooperativa Agraria Industrial Naranjillo Ltda., No. 16-3532-cv (2d Cir. May 9, 2018) [click for opinion]

In 2013, Transmar Commodity Group Ltd. (“Transmar”) and Cooperativa Agraria Industrial Naranjillo Ltda. (“Naranjillo”) entered into six nearly identical contracts for the delivery of cocoa butter. A dispute arose when Naranjillo defaulted on its obligations under the agreements. An arbitral tribunal was convened to resolve the dispute pursuant to the Cocoa Merchants’ Association of America, Inc. (the “CMAA”), which issued an award on February 4, 2016.

Naranjillo petitioned the district court to vacate the award, which it did on September 22, 2016. The district court, applying New York law, relied primarily on the face of the contracts to find that Transmar and Naranjillo had not actually agreed to arbitrate their disputes before the CMAA or anywhere else. The district court thus held that the CMAA did not have the power to decide the dispute and vacated the award pursuant to the Federal Arbitration Act, 9 U.S.C. § 10(a)(4), which allows for vacatur, in relevant part, “where the arbitrators exceeded their powers.”

On review, the circuit court disagreed. The circuit court held that the interpretation of the contracts, as international contracts for the sale of goods, should have been governed not by New York law, but by the United Nations Convention on Contracts for the International Sale of Goods (“CISG“). The circuit court noted in its decision that, while there may be little case law interpreting the CISG, that fact alone did not warrant substituting New York law for the CISG.

The circuit court further noted that New York law differs from the CISG in several important respects. In particular, Article 8(3) requires courts to give “due consideration” to extrinsic evidence of the reasonable expectations of the parties, and Article 9(2) evinces a “strong preference for obligations and representations customarily relied upon by others in the industry.” The CISG provides, thus, for the consideration of parol evidence. This is in stark contrast to the New York “four corners rule” that prohibits extrinsic evidence unless the face of the document is ambiguous.

The circuit court therefore remanded the case to the district court with instructions to conduct additional fact finding to adduce extrinsic evidence of the meaning of the parties’ agreements pursuant to the CISG.

A version of this post originally appeared in the July 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.