- Court of Appeal of Rio Grande do Sul
- Noridane Foods S.A. v. Anexo Comercial Importação e Distribuição Ltda.
SALES CONTRACT - BETWEEN DANISH COMPANY AND BRAZILIAN COMPANY - GOVERNING LAW ACCORDING TO ARTICLE 9(2) OF THE INTRODUCTORY LAW TO BRAZILIAN CIVIL CODE - DANISH LAW AS THE LAW OF THE PLACE OF THE CONCLUSION OF THE CONTRACT - IF CONTRACT PLURI-CONNECTED TRADITIONAL LOCI CELEBRATIONIS RULE TO BE DISREGARDED IN FAVOR OF A MORE FLEXIBLE APPROACH - APPLICATION OF THE CISG AND THE UNIDROIT PRINCIPLES AS AN EXPRESSION OF THE “NEW LEX MERCATORIA”.
INTERNATIONAL COMMERCIAL CONTRACTS NO PARTICULAR FORM REQUIRED - REFERENCE TO ARTICLES 11 CISG AND 1.2 UNIDROIT PRINCIPLES
TERMINATION OF CONTRACT FOR NON DELIVERY - REFERENCE TO ARTICLE 49 CISG AND TO GENERAL PRINCIPLE OF GOOD FAITH IN CONTRACT PERFORMANCE AS STATED IN ARTICLES 1.7 UNIDROIT PRINCIPLES AND 7(1) CISG
Claimant, a Danish multinational Food Company, and Defendant, a Brazilian trading company, entered into a contract according to which Defendant was to deliver to Claimant in Hong Kong a certain amount of frozen chicken. Claimant made the down payment, but Defendant failed to deliver the goods at the agreed time. Claimant repeatedly tried to contact Defendant but Defendant did not even answer its messages. Claimant then fixed an additional period of time requesting Defendant to deliver the goods within that period of time, but since Defendant did not deliver even within the additional period of time Claimant terminated the contract and claimed damages.
The court of first instance decided in favor of Claimant and on appeal the Court of Appeal of Rio Grande do Sul confirmed the decision.
As to the law governing the contract the Court of Appeal noted that according to Art. 9(2) of the Introductory Law to Brazilian Civil Code Danish law as the law of the place of the conclusion of the contract would be applicable. However, the Court held that, whenever as in the case at hand the contract is pluri-connected, the traditional lex loci celebrationis rule should be disregarded in favor of a more flexible approach leading to the application of the CISG and the UNIDROIT Principles as an expression of the so-called “new lex mercatoria”.
Admittedly the CISG was ratified by Brazil only after the conclusion of the contract and was therefore not applicable by virtue of Art. 1(1)(a), but according to the Court the Convention, also in view of the great number of countries that have already ratified it and its regular observance by businesspeople worldwide, may be considered the expression of the most widespread “practice” in the international trade of goods and as such become relevant according to Article 113 of the Brazilian Civil Code which provides that the interpretation of legal transactions must be in accordance with usages and customs.
As to the UNIDROIT Principles, the Court found that their content coincided to a large extent with new lex mercatoria, i.e. the principles and rules, model contracts and clauses, usages and customs, which have been developed independently from the States by international trade practice and may therefore be considered “an authentic transnational commercial law”. Moreover, the CISG and the UNIDROIT Principles, far from being antagonistic or mutually exclusive, on the contrary complement each other (see Michael Joachim Bonell, “The CISG and the UNIDROIT Principles of International Commercial Contracts: two complementary instruments,” in International Law Review of Wuham University, vol. 10, 2008-2009, p. 100/117). Finally, the Court also cited Lauro Gama Jr, “Os princípios do Unidroit relativos aos contratos do comércio internacional: una nova dimensão harmonizadora dos contratos internacionais”, in XXXIII Curso de Derecho Internacional. Washington, D.C.: OEA, Secretaría General, 2007, p. 95/142, stating that “the use of the UNIDROIT Principles – as well the application of the CISG even if not part of the Brazilian domestic law – reaffirms a flexible, non-positivist approach to disputes as is required in the field of international commercial law.”
As to the merits, the Court rejected Defendant´s objection that there was no valid contract between the parties since it was not concluded in writing. According to the Court there was sufficient other evidence to demonstrate the existence of a contractual relationship, and in support of this it invoked Article 11 of the CISG and Article 1.2 of the UNIDROIT Principles, both stating the principle of freedom of form with respect to international Commercial contracts. Moreover, the Court found that Claimant´s termination of the contract was justified not only on the basis of Article 49 of the CISG, but also because Defendant by its conduct committed a major violation of the general duty to act in good faith in the performance of contracts, which constitutes one of the greatest canons established by the “new lex mercatoria” and can be inferred from Article 1.7 UNIDROIT Principles and Article 7(1) of the CISG.
Apelação Cível nº 70072362940, TJRS, Brazil, February 14, 2017
Summary of the full text of the decision by Agatha Brandão de Oliveira (Sciences Po Law School, Paris)
Claimant, the Danish multinational food Company “Noridane Foods S.A”, entered into a contract with Defendant, the Brazilian Company “Anexo Comercial Importação e Distribuição”, by which the Danish Company has assumed the undertaking to pay US$ 79,650.00 (as initial payment) in order to receive the Brazilian cargo (tons of chicken). The delivery of the merchandise was to be made in the ports of Hong Kong/CHI, however, the Claimant argues that the cargo was never received. Defendant contends the claim stating that it has delivered the merchandise accordingly, hence the termination of the contract and its compensation was unfeasible. In the first instance, the judge has decided in favor of the Claimant, what gave cause to the Defendant’s appeal.
In this case standing before the Court of Appeal of Rio Grande do Sul, judge Sudbrack denied the appeal and confirmed the Claimant’s right to compensation, motivating its decision in light of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the UNIDROIT Principles on International Commercial Contracts (UPICC).
Firstly, judge Sudbrack stated that “through the documents and evidences presented, without a shadow of doubt there is a contractual relationship between Claimant and Defendant. On one hand, even though no written contract was presented before the Court, the invoices – issued by the Defendant – are enough to demonstrate that the Companies established a contractual relationship in which Defendant assumed the obligation to deliver 135 tons of frozen chicken “type A” and 27 tons of frozen chicken “type B” and Claimant was bound to pay US$ 117,450.00. On the other hand, it is also clear that the parties were in accordance with the initial payment of US$ 79,650.00, what has been done by the Claimant - not only attested in the case’s file but ascertained in the counterclaim as well.”
Secondly, judge Sudbrack qualified that “the contract between the parties was not an agency agreement, but a Sales Contract. Besides, it stands as an International Sales Contract (…), since the Claimant is located in Denmark and the Defendant in Brazil; that the place of the performance of the obligation, regarding the transfer of property of the goods and its delivery, is allocated in between Brazil and Hong Kong; hence demonstrating the ‘transnational element’ intrinsic to the contract qualified as international. I must remark that the classification as International Sales Contract is not in vain. It justifies recalling the legal framework applicable on the matter, that is, the CISG and the UPICC.”
Judge Sudbrack will then analyze the scope of CISG in the Brazilian context and its relevance in the international level: “In what concerns the CISG, the instrument was ratified by Brazil on April 1st, 2014, and entered into force in the domestic level with the Decree n. 8237, from October 16, 2014. Through this standpoint, it is not possible to apply the CISG to the present controversy, since parties entered into the contract in July 1st, 2014, before the CISG’s validity in the Brazilian normative order. By all means, this does not prevent the use of the treaty as a legal reference to the commercial scope of the dispute, once the CISG constitutes the expression of the most widespread ‘praxis’ in the international trade of goods. It is in the reach of domestic judges, especially when article 113 (Brazilian Civil Code) is considered – it determines that the interpretation of a legal transaction must be in accordance with usages and customs.”
Furthermore, Judge Sudbrack will use an academic argument to sustain CISG’s application: “there is the possibility to anticipate the legal effects of non-ratified Conventions by the domestic judge when he applies the text as a ‘doctrine manifestation’, proof of international usages and customs, or even as foreign law (In: Basso, Maristela. Curso de direito internacional privado. – 4. ed. – São Paulo: Editora Atlas, 2014, p. 77/78).”
Judge Sudbrack remarks that “the CISG has been qualified as the ‘life blood of international commerce’, since it is the legal instrument most frequently used to regulate the international trade of goods, with 85 countries’ signatures amongst the biggest commercial players in the Global – China, USA, Japan, Continental Europe, Latin America, Southeast Asia, etc. – thereby, the CISG governs potentially and effectively almost 80% commercial relationships [on trade of goods]. (…) Indeed, the CISG’s classification as trade usages seems plausible through a Public International Law standpoint as well. The requirements for a state practise to be recognised as custom are fully satisfied: the elevated number of ratifications; the prevalent use of the instrument by Courts from the States that adhere to the Convention since 1980; lastly, but not least, the consistency and regularity in which the Convention has been applied. Thus, in the present case, the Convention is applied as custom and not as positive law in the system, preventing the grievance on temporal aspects.”
After establishing the application of the CISG to the dispute, Judge Sudbrack will examine the UPICC: “In what concerns the UPICC, there is no obstacle in applying it to the merits of the dispute as well. In the first place, because the content of the UPICC reveals, in large scale, the content of the so-called ‘new lex mercatoria’, that is, the group of norms gathered in principles, usages and customs, model clauses, model contracts, judicial decisions and arbitral awards, conceived or derived from trade transactions amongst actors of international commerce. Hence, it is possible to classify the ‘new lex mercatoria’ as an authentic ‘commercial transnational law’, which its conception and modification does not come necessarily from the States. In the second place, because the domain of the ‘new lex mercatoria’ is at the reach of the domestic judges and arbitrators likewise – in the same sense that I have stated in Apelação Cível n º 70065097891 in which I gave effect and interpreted an ‘incoterms’ clause accordingly to the jurisprudence consolidated on the matter by the International Chamber of Commerce’s Arbitral Tribunals. In the third place, because in light of the doctrine, the CISG and the UPICC do imply an antagonistic or mutually exclusive relationship, on the contrary, they complement each other (In: BONELL, Michael Joachim. “The CISG and the Unidroit Principles of international commercial contracts: two complementary instruments.” International Law Review of Wuham University, vol. 10, 2008-2009, p. 100/117.) Finally, because the use of the UPICC – as well CISG’s application independently of its efficacy in the scope of the Brazilian domestic law – reaffirms a flexible, non-positivist approach to the controversy, as disputes in the field of international commercial law requires. According to Lauro Gama Júnior, ‘The UNIDROIT Principles, both in form and in substance, constitute a model of uniform law for international contracts compatible with the majority of contemporary legal systems, notably those of a civil law tradition (such as the Brazilian) and common law, revealing the result of efforts originated in modern comparativism. Despite the presence of the State in some of its segments, the reality of international trade shows at all times the transnational nature of its activities, such as transportation, banking systems, telecommunications, tourism, the purchase and sale of goods and services etc. Often, such activities are developed by societies created under the laws of several States or linked to transnational groups whose personality is difficult to discern. Numerous contracts concluded in this arena refer generally to international law, to general principles of law or to principles common to various state systems, as well as to international trade usages. It is in this transnational space that instruments such as the UNIDROIT Principles arise, independently of any state will; its normative existence is demonstrated by the evolution of legal thought beyond positivism. However, it is a fact that the legal relations of international trade do not exist in ideal spaces, but in the daily reality of territorial spaces subject to the rule of a national law, with which they must stablish a dialogue. This is the major challenge for the effective use of the UNIDROIT Principles on International Trade Contracts 2004, especially for Brazilian judges and courts’.”
(In: GAMA Jr, Lauro. “Os princípios do Unidroit relativos aos contratos do comércio internacional: uma nova dimensão harmonizadora dos contratos internacionais”. XXXIII Curso de Derecho Internacional. Washington, D.C.: OEA, Secretaría General, 2007, p. 95/142.)
In conclusion to the matter of the legal framework applicable to the dispute, Judge Subrack makes a further observation. Considering that the dispute concerns a distance contract, in which the Claimant was the proponent of the agreement (according to the copies of emails presented before the Court), in principle the article 9, paragraph 2, of the Law of Introduction to the Rules of Brazilian Law (LINDB) would apply: “If the classic connection elements were to be applied here, this would mean the application of Danish law by virtue of the canon ‘lex loci celebrationis’. However, considering that the Claimant has its domicile in Denmark; that the Defendant has its domicile in Brazil; and that the place of the performance of the obligation should be Hong Kong, China; what appears, in concreto, is that the use of the principle of proximity not only allows, but recommends to disregard the connection rule indicated by the article 9, paragraph 2, LINDB.”
Therefore, in the present case, Judge Sudbrack excludes the application of the foreign law: “Despite the place and the way the contract was concluded, it cannot be stated that the contractual relationship has the seat or center of gravity in Denmark, given the diffuse form of irradiation of legal and economic effects related to this contract. Thus, the conclusion to be reached is that the principle of proximity - with a flexible and attentive approach to ‘the social and economic realities underlying the legal phenomenon’ - leads to the application of the CISG and the UPICC. It should be pointed out that the doctrine authorizes the use of the ‘new lex mercatoria’ as the law applicable to pluri-connected contractual obligations, especially in light of the LINDB connection rules’ obsolete character.
Judge Sudbrack remarks that the flexibilization of the canon ‘lex loci celebrationis’ is not unprecedented in this Court and affirms: “the Brazilian connection rule for determining the law applicable to contracts is a reminiscent of a classical Conflict of Laws’ method, not adjusted to the negotiations’ dynamics and practices that have arisen in the field of international trade especially in the postwar period (…). That is why the adoption of rules of the ‘new lex mercatoria represents (…) an attempt to overcome the main problems related to the application of Private International Law’s classic rules for contracts concluded between the actors of international trade.”
Concerning the merits, Judge Sudbrack mentions article 11 CISG and article 1.2 UPICC to justify the principle of “no form required”, in which contracts are not subject to formal requirements, such as the one signed by the Claimant and the Defendant; later, Judge Sudbrack discusses article 53 CISG in light of the obligations of the buyer in the present case and the article 30 CISG to reiterate that the seller must deliver the goods as required by the contract. It constitutes the seller’s obligation per se, according to the praxis of international commerce. Noting there is no evidence of the delivery, Judge Sudbrack uses article 49(b) CISG to motivate the termination of the contract:
(1) The buyer may declare the contract avoided:
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
Judge Sudbrack indicates that the Claimant has tried to contact the Defendant numerous times, without success, in order to obtain clarifications from the Defendant. In practice, hence, the norm contained in article 47(1) CISG was followed: “the buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.” The Claimant waited considerably to propose the action before the Brazilian Courts (8 months) and, in the meantime, the Defendant has not even answered e-mails.
In conclusion, Judge Sudbrack highlights the following: “It should be pointed out that (…) the termination of the contract is not dissociated from the fact that the Defendant committed a major infringement towards the duty of proceeding contractual relationships with good faith. It is one of the greatest canons established by the “new lex mercatoria”, inferred from the article 1.7 UPICC and article 7(1) CISG; the latter being an explicit command for the adjudicator (judges or arbitrators) who applies it. In order to create a uniformity of rules for the treatment of international commercial relations, the CISG structured the contract’s notion on the basis of two fundamental pillars, namely party autonomy and good faith from an objective standpoint. It includes, among others, the ‘fair dealing’ standard, in which the parties must bear an understanding that a contract for international sale of goods is based on a cooperative relationship. In this case, as it has been demonstrated, there was a clear violation of the pillar of good faith, leading to the termination of the contract.”
The opinion was followed by Judge Guinther Spode and Pedro Luiz Pozza; the Brazilian Court has condemned the Defendant to restitute the amount of US$ 79,650.00. This is first Brazilian decision to apply the CISG and the UNIDROIT Principles.}}