A New Canadian CISG Case, (Not).

I rarely blawg about motions to strike pleadings, unless an appellate court has something new to say.

However, a recent Saskatchewan Queen’s Bench decision caught my jaundiced eye.

While Mann v. Hawkins, 2010 SKQB 427 (CanLII) is a generic pleadings motion, it refers to the United Nations Convention on Contracts for the International Sale of Goods (CISG) 1980 (as incorporated in Saskatchewan by The International Sale of Goods Act, S.S. 1990-91, c.I-10.3).

Although the court’s ruling that the CISG related allegation should be struck is correct, the reasoning is not.

According to the motion judge, the plaintiffs’ allegations are summarized as follows:

“(1)        The Yara defendants form a global manufacturing and distribution supply chain, some of which supplied Synergize to the plaintiffs (paras. 16 and 17).

(2)        The plaintiffs purchased Synergize and had it applied to their seeds and inoculant (paras. 26 and 27).

(3)        Approximately 850 acres were seeded with the treated seed and inoculants (para. 28).

(4)        None of the defendants warned the plaintiffs about the toxic quality of Synergize and no warning was on the product’s label (para. 21).

(5)        Synergize damaged the plaintiffs’ lentil crops by inhibiting the inoculant (paras. 20, 34 and 38).

(6)        The defendants owed a duty of care to the plaintiffs (para. 38).

[16]           In summary, it is alleged that the Yara defendants manufactured and distributed Synergize which was ultimately sold to the plaintiffs by a third party. The product caused damage to the plaintiffs’ crop. The Yara defendants breached their duty of care by not warning the plaintiffs about the toxic quality of Synergize.”

At paragraph 22 of the decision, Gerein, J. held:

[22]           In paragraph 41 the plaintiffs plead the provisions of The International Sale of Goods Act, S.S. 1990-91, c.I-10.3 respecting fitness for a particular purpose and the condition of merchantability. Here also no facts are pleaded so as to bring the Yara defendants within the purview of the Act. Here also an essential element is privity of contract. The absence of such an allegation results in the pleading disclosing no reasonable cause of action and it should be struck.

Here the court fails to address the applicable law based upon conflict of laws rules. Based upon the pleading, it appears that the plaintiffs’ claim is framed exclusively in tort, rather than concurrently in contract and tort. Therefore, the lex loci delicti governs the choice of law. However, had plaintiffs’ counsel plead concurrent claims in contract and tort, then there is a possibility that the lex loci contractus (the law where the contract was formed) applies. The decision does not refer to any specific contract between manufacturer and distributor, or if such a contract exists, whether the parties “opted in” or “opted out” of the CISG.

This seemingly arid academic argument has some practical effects if one considers that the issue of imposing liability on non-privies under the CISG is not settled. For example, Ingeborg Schwenzer  & Mareike Schmidt,  in their article, “Extending the CISG to Non-Privity Parties”, 13 Vindobona Journal of International Commercial Law & Arbitration (1/2009) 109-122 (available at the Pace CISG Database: http://www.cisg.law.pace.edu/cisg/biblio/schwenzer-schmidt.html) conclude:

“With regard to the admissibility of direct claims by a sub-purchaser against a manufacturer with whom it does not have privity of contract, it was first shown that the applicability of the CISG to any of the contracts involved does not have any influence on the question of admissibility. To determine the domestic law which decides whether or not such claims are admissible, three categories of claims have to be distinguished: the admissibility of claims arising out of an assignment or an assumption of debts, as a first category, is determined based on the forum’s conflict of laws rules applicable to these concepts. Manufacturers’ guarantees or express warranties, as a second category, have to be classified as contractual in nature with the consequence that in the absence of a choice of law clause usually the law of the seat of the manufacturer will be applicable. The third category is formed by claims based on an action directe, implied warranty or a contract with protective effects. These claims are tortious in nature and their admissibility is hence determined based on the conflict of laws rules for torts.” [emphasis added]

A few years ago I published an article entitled “Bringing Locus into Focus”: A Choice-of-Law Methodology for CISG-based Concurrent Contract and Product Liability Claims,” Pace Rev. of the CISG (2004-2005) (Munich: Sellier European Law Publishers, 2006) where I proposed the following choice of law rules for concurrent claims based upon contract and negligent tort-based product liability (i.e., property damage) called the  “lex foci conventionis”:

“Where the international sales contract specifies that the CISG applies, but the parties have not addressed the issue of product liability claims, then any issues not governed by the CISG (i.e., gaps or exclusions) are to be determined by the lex loci contractus. [108] [109]

If the parties are both from contracting States but the international sales agreement has not expressly waived or varied application of the CISG under Article 6, then the lex foci – the point of convergence of contract or tort liability regimes – requires the domestic court to consider the following factors:

The factual characterization of the claim to determine the core of the action (contract or tort, or both?);

If the nature of the claim is not readily discernable (i.e., the facts pleaded are neither dispositive nor definitive as to whether the claim is predominantly contractual or delictual (tortious)), then the court should assess whether the ground on which the remedy is based is contrary to the aims of the CISG. If so, then the lex loci contractus should govern.

If the concurrent claim is predominantly negligence-based, then the court should apply the lex loci delicti, unless doing so would result in an injustice, as determined by the application of corresponding rules, principles and policies derived from the CISG, UNIDROIT principles, and private international law and arbitration decisions.[110]”

For a guy whose name looks like the word prophetic, I sure was unprophetic in my conclusion:

“While the lex foci conventionis is a new frame of reference, it is hoped that the foregoing discussion on choice-of-law methodology will provide insight to practitioners, judges and arbitrators dealing with CISG-based litigation involving concurrent contract and product liability claims.”

Nevertheless, the reason that the decision is correct is straightforward. The CISG is excluded on the basis that the internationality requirement under Article 1(1)(a) of the CISG is not met; both in terms of the Saskatchewan defendants (both the plaintiffs and these defendants are from Saskatchewan, and, thus, not from different Contracting States) or the foreign defendants (the UK is not a Contracting State). In the latter case, the defendant,

“Yara Phosyn Ltd. was incorporated pursuant to the laws of England “… as a manufacturer and distributor of agricultural chemicals in the UK, and in the Province of Saskatchewan including the product “Synergize NP + Zn””. In at least two subsequent paragraphs (16 and 17) it is said that the Yara defendants “…carried on business together in the manufacture, distribution, supply, sale and crop advice of Synergize NP+Zn to farmers in Saskatchewan, including the plaintiffs”. It is further said that the corporate defendants are liable for the negligent representations of Michelle Hawkins pursuant to agency or rsuperior. It is also said that the Synergize label failed to warn that the product was harmful to lentil seed and rhizobacteria and that there were risks associated with off label use.”

Finally, it is redundant and plainly wrong to plead both The Sale of Goods Act, R.S.S. 1978, c. S-1 and the CISG when alleging breaches respecting fitness for particular purpose and the condition of merchantability. Domestic sales legislation and the CISG are mutually exclusive, unless the parties have expressly derogated from the CISG under Article 6:

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.


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