Data

Date:: 17-07-2006
Country:: USA
Number:: C05-1195C
Court:: U.S. District Court, Western District of Washington at Seattle
Parties:: Prime Start Ltd., v. Maher Forest Products Ltd.

Keywords

APPLICATION OF CISG PURSUANT TO ART. 1(1)(B) – EXCLUDED BY VIRTUE OF DECLARATION UNDER ART. 95 CISG

Abstract

A British Virgin Islands corporation (Plaintiff) and US corporation (Defendant) entered into a contract for the sale of wooden products to be resold to Plaintiff’s client in Russia. Plaintiff also concluded a contract with another US corporation (Co-defendant) which would provide services related to quality control of the goods. Plaintiff brought an action against both US corporations alleging non-conformity of goods and failure to inspect according to parties’ agreement.

As to the applicable law, the Court rejected the Plaintiff’s argument that the CISG applied to the merits of the dispute. Not only were the conditions set forth by Art. 1(1)(a) CISG not satisfied, since neither the British Virgin Islands nor the United Kingdom are Contracting States, but also application of the CISG by virtue of international private law rules had to be excluded, since the USA made a reservation to Art. 1(1)(b) pursuant to Art. 95. As a result, the Convention could have applied only if the parties to the contract were all from Contracting States.

Fulltext

ORDER
COUGHENOUR, District Judge.

This matter comes before the Court on Defendants' Motion for Summary Judgmentv(Dkt. No. 13), Plaintiff's Opposition thereto (Dkt. No. 20), Defendants' Reply (Dkt. No. 25), and Plaintiff's Surreply (Dkt. No. 35). The Court has considered all of the papers submitted regarding this motion and determined that oral argument is not necessary. The Court hereby DENIES the motion and rules as follows.

I. BACKGROUND

This case is a contract dispute involving an approximately-$1-million purchase of Western Red Cedar siding for use at a construction site in Moscow, Russia. Plaintiff Prime Start, Ltd. is a British Virgin Islands corporation that supplies construction materials to clients around the world. Plaintiff entered into a contract with Defendant Maher Forest Products, Ltd. ("Maher"), a Washington corporation, for custom-manufactured wood products to be used by Plaintiff's client in Russia. Defendant Pacific Lumber Inspection Bureau ("PLIB") is a Washington corporation that contracted with Plaintiff to provide services related to quality control of the goods supplied by Defendant Maher.

Plaintiff's complaint alleges that both Defendants Maher and PLIB breached their contracts with Plaintiff. Defendant Maher allegedly supplied nonconforming goods, while Defendant PLIB allegedly failed to inspect the goods according to the terms of the parties' agreement, thus allowing delivery of nonconforming goods to the job site in Russia. Defendant Maher has asserted counterclaims against Plaintiff for costs incurred as a result of Plaintiff's alleged breach of the contract between Maher and Plaintiff. The instant motion is made jointly by both Defendants and seeks dismissal of all of Plaintiff's claims. Defendant Maher's counterclaims are not at issue.

Due to the lengthy contract negotiations involved here, the Court will incorporate discussion of the relevant facts into its analysis of the legal merits of this motion.

I. ANALYSIS

A. LEGAL STANDARD

(...)

B. APPLICABLE LAW

1. CISG

The parties did not include choice-of-law clauses as terms to the contracts at issue here. Plaintiff alleges that the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), 15 U.S.C. Appx., applies to the instant dispute. By its own terms, the CISG applies to contracts of sale of goods between parties whose places of business are in different states:

(a) When the States are Contracting States; or

(b) When the rules of private international law lead to the application of the law of a Contracting State. C.I.S.G., art. 1(1).

Here, Plaintiff is a British Virgin Islands corporation, while both Defendants are Washington corporations. The United States ratified the CISG in 1986. Public Notice 1004, U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text, reprinted in15 U.S.C.A. Appx. (West). However, neither the British Virgin Islands nor the United Kingdom are signatories to the CISG. Thus, only one side of the contracts at issue here and only one side of this litigation involves parties of signatory States-Defendants Maher and PLIB. Because all contracting parties in this dispute are not businesses in States that are parties to the Convention, Article 1(1)(a) cannot provide a basis for application of the CISG.

Plaintiff argues that the fact that not all parties are from signatory States is irrelevant, invoking Article 1(1)(b). (Pl.'s Opp'n 12-13.) Plaintiff asserts that application of private international law would lead to the application of Canadian, United States, or Russian law, and because all three of these are Contracting States, see C.I.S.G., 15 U.S.C. Appx. (Parties to the Convention), the CISG applies regardless of Plaintiff's status as a corporation of the British Virgin Islands-a Non-Contracting State. The Court disagrees.

When the United States ratified the CISG, it invoked the option found in Article 95 of the Convention, which provides: "Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention." C.I.S.G., art. 95. The United States did exactly this, thus directly precluding the reasoning Plaintiff attempts to apply. As a matter of law, Plaintiff cannot circumvent the requirement of Article 1(1)(a) by relying on Article 1(1)(b). Instead, "the only circumstance in which the CISG could apply is if all the parties to the contract were from Contracting States." Impuls I.D. Internacional, S.L. v. Psion-Teklogix Inc., 234 F.Supp.2d 1267, 1272 (S.D.Fla.2002) (emphasis added); see also Chateau des Charmes Wines Ltd. v. Sabate USA Inc., 328 F.3d 528, 530 (9th Cir.2003) (stating the precondition that CISG applies " 'when the States are Contracting States' "). Because not all parties are from countries that signed the CISG, the CISG cannot apply to this dispute, even if a traditional choice-of-law analysis leads to the application of the law of the United States (or one of its states) or any other signatory State. Accordingly, some body of law other than the CISG will govern this dispute.

2. Jurisdiction

Because the CISG does not govern the instant suit, the contract disputes at issue here do not involve federal questions.FN1 Rather, this is a diversity case, involving a civil action between citizens of a State (Washington) and citizens or subjects of a foreign state (British Virgin Islands). 28 U.S.C. s 1332(a)(2).

FN1. The CISG is "valid and binding federal law." Chateau des Charmes, 328 F.3d at 530. Accordingly, where the CISG applies, a United States District Court has federal question jurisdiction. See Impuls, 234 F.Supp.2d at 1270-71.

3. Choice of Law

Having determined that the CISG does not apply, the Court must determine which body of substantive law governs this diversity case. No party specifically argues for the application of Washington law, Canadian law, Russian law, or British Virgin Islands law. However, Defendants cite some Washington contract law in their briefing on summary judgment. Plaintiff does not cite anything but the CISG and general American legal reference materials. Thus, while Defendants appear to seek to have Washington law applied, Plaintiff raises the possibility that Canadian, Russian, or, less likely, British Virgin Islands law applies as part of its discussion of the CISG. The Court therefore turns to the issue of these potentially competing bodies of contract law.

In diversity cases, federal district courts must apply the choice-of-law rules of the state where the federal court sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Washington courts apply the choice-of-law analysis set out in the Restatement (Second) of Conflict of Laws. Fluke Corp. v. Hartford Accident & Indem. Co., 145 Wash.2d 137, 34 P.3d 809, 815 (2001). Accordingly, Washington courts will not engage in a conflicts analysis unless a true conflict exists. Burnside v. Simpson Paper Co., 123 Wash.2d 93, 864 P.2d 937, 940-41 (1994). No specific rules of law of any foreign jurisdiction are at issue on the instant motion, and no party seeks to have any specific rules applied as an alternative to Washington contract principles. Because the answer to the threshold question-whether a true conflict exists-precludes a full conflicts analysis in this case, the Court will not apply the Restatement conflicts test.FN2 Nevertheless, the Court must apply some body of law to the instant motion. The options include Washington law and the contract law of the foreign jurisdictions listed supra. For the following reasons, the Court chooses to apply Washington contract law to this dispute.

FN2. But see infra note 3 and accompanying text.

The Court first notes that a party seeking to rely on foreign law in federal court "shall give notice by pleadings or other reasonable written notice." FED. R. CIV. P. 44.1. Ninth Circuit law applying Rule 44.1 is that where no specific foreign law is asserted, the Court is under no obligation to apply a general body of foreign law to construe a contract. Commercial Ins. Co. of Newark, New Jersey v. Pacific-Peru Constr. Corp., 558 F.2d 948, 952 (9th Cir.1977). In Pacific-Peru, the Ninth Circuit approved of a district court's application of the law of the forum, adopting the Restatement's principle that where " 'both parties have failed to prove the foreign law, the forum may say that the parties have acquiesced in the application of the local law of the forum.' "558 F.2d at 952 (quoting RESTATEMENT (SECOND) OF CONFLICTS OF LAWS s 136, cmt. H (1971)). Here, Defendants' use of Washington law is a clear acquiescence by application, and Plaintiff's lack of opposition to Defendants' citations may be construed as the same. Accordingly, as in Pacific-Peru, this Court finds that the parties have acquiesced in the application of Washington law to their dispute, because both sides have either relied on or tacitly approved of reliance on Washington law.

Applying Washington rules, the result is the same. Washington courts have a rule analogous to Federal Rule of Civil Procedure 44.1. Civil Rules Wash. Superior Court CR 9(k)(2). In Washington courts, the burden is on a party seeking to apply foreign law to a dispute. British Columbia Ministry of Health v. Homewood, 93 Wash.App. 702, 970 P.2d 381, 384 (1999). Without "sufficient proof to establish with reasonable certainty the substance of the foreign principles of law," a court should "apply the law of the forum." Id. (internal quotation omitted). Because this Court must apply the choice-of-law rules of its forum state, these Washington choice-of-law rules govern. Accordingly, Washington law should apply to this dispute because Washington is the forum state and neither party has affirmatively asserted specific rules of law from any foreign country that should be applied in lieu of Washington law.

Having determined that Washington contract law governs this dispute generally, the Court further notes that where a specific conflict does exist between Washington law and the law of another jurisdiction, Washington courts decide which law applies "by determining which jurisdiction has the 'most significant relationship' to a given issue." Burnside, 864 P.2d at 940-41. This is the test set forth in the Restatement (Second) of Conflict of Laws. Southwell v. Widing Transp., Inc., 101 Wash.2d 200, 676 P.2d 477, 479-80 (Wash.1984); Barr, 635 P.2d at 443. "Since 1967, Washington courts have adhered to and applied the most significant relationship test FN3 to contract choice of law issues." Mulcahy v. Farmers Ins. Co. of Wash., 152 Wash.2d 92, 95 P.3d 313, 317 (2004). While there is no need to apply the test here, as noted supra, the Court finds that its application could reasonably result in a finding that Washington has the most significant relationship to this dispute in any event. Such a finding would provide further support for application of Washington law to this dispute.

FN3. The Restatement sets forth the "most significant relationship" standard as follows:

(1) The rights and liabilities of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in s 6.

In the absence of an effective choice of law by the parties (see s 187), the contacts to be taken into account in applying the principles of s 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties. These contacts are to be evaluated according to their relative importance with respect to the particular issue.

RESTATEMENT (SECOND) OF CONFLICT OF LAWS s 188 (1971). The principles of s 6 to be applied include:

(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.

(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

Id. s 6. Application of these sections involves a two-step analysis. Southwell, 676 P.2d at 480. The first is to evaluate the contacts with each interested jurisdiction "according to their relative importance with respect to the particular issue." Id. The second step "involves an evaluation of the interests and public policies of potentially concerned jurisdictions," the extent of which "should be determined on the basis, among other things, of the purpose sought to be achieved by their relevant local law rules and the particular issue involved." Id. The "ultimate outcome, in any given case, depends upon the underlying facts of that case." Id.

C. THE CONTRACTS

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D. MOTION TO STRIKE

Defendants object to and have moved to strike Plaintiff's Exhibits M and N and references thereto in Mr. Matijevic's declaration. (See Pl.'s Opp'n, Matijevic Decl. Exs. M, N.) These exhibits are pages of a private inspection report from a company hired by Plaintiff, photo attachments thereto, and a billing invoice for the inspection. The Court first notes that Defendants' objection is somewhat incomprehensible, given that the very documents to which Defendants object as presented by Plaintiff were first partially supplied to the Court by Defendants themselves in support of their own motion. (Compare Defs.' Mot., Dahl Decl. 21-22, with Pl.'s Opp'n, Matijevic Decl. Ex. M at 1-2.) More importantly, Defendants supplied the 2-page written report, whereas Plaintiff's submittal merely provided this exact report plus photo attachments thereto and a billing invoice for the inspection. Plaintiff simply completed the context of what Defendants had themselves included in their own exhibits.

The foregoing reasons are alone sufficient to deny Defendants' motion. However, consideration of this evidence was not necessary to the Court's rulings on summary judgment. The objected-to evidence speaks to whether the stain application and final appearance of the goods constituted breach. Because the Court has found genuine issues of material fact going to whether there are contract terms or warranties creating appearance-related obligations, as well as issues of fact as to whether particular reinspection procedures were incorporated to govern other obligations (i.e., such characteristics as Rule 500 covers), the Court cannot consider any evidence of nonconformance to such obligations by Maher at this stage of the litigation. Nonconformance on the basis of appearance (or the various other criteria listed in the private inspection report) may or may not ultimately require consideration, depending on how the factual issues described in this Order are resolved. Similarly, evidence of any breach by PLIB cannot be considered until PLIB's obligations are defined. Accordingly, Defendants' Motion to Strike is DENIED as MOOT because it prematurely addresses factual evidence not yet properly before the Court.

III. CONCLUSION

For the reasons set forth in this Order, Defendants' motion for summary judgment and dismissal of all claims against them is DENIED.

SO ORDERED.}}

Source

Original in English:
- available at the University of Pace website, www.cisg.pace.law.edu

Commented on by:
- F. FERRARI, Short notes on the impact of the Article 95 reservation on the occasion of Prime Start Ltd. v. Maher Forest Products Ltd. et al., Internationales Handelsrecht 2006, pp. 248-252.}}