CISG Article 67 @ccisg.org (Mazzotta)

1. History [1-3]
2. The Scope of the Provision [4-8]

1. History
1. For a detailed account of the legislative history of Article 68 at the 1980 Vienna Conference visit the Chronology at the Pace CISG database. See generally Barry Nicholas, in: Bianca/Bonell, Commentary on the International Sales Law (1987), Art. 67 at 494-95); Günter Hager, in: Schlechtriem/Schwenzer, Commentary on the UN Convention on the International Sale of Goods (CISG) (2005), Art. 68 (p. 686).

2. Article 68’s early antecedent is ULIS Article 99. ULIS Article 99, which merely dealt with sales of goods in transit by sea, provided that the risk passes to the buyer as of the time the goods were handed over to the carrier. However, if the seller, at the time of the conclusion of the contract knew or should have known that the goods had been lost or deteriorated, the risk would remain with him until the time of the conclusion of the contract.

3. The subsequent CISG Drafts of this provision all adopted ULIS Article 99’s approach, although it was extended to goods sold in transit in general, not only to goods in transit by sea. At the 1980 Vienna Conference, several delegations of developing countries criticized the retroactive assumption of the risk feature of the provision (for an explanation of the reasons the criticism raised by some developing countries, see Alejandro M. Garro, Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods, 23 International Lawyer 443-83 (1989) (excerpt)). The result was the current wording whereby the risk passes to the buyer as of the time of the conclusion of the contract, unless the circumstances indicate that the risk should pass to the buyer retroactively. Specifically, if the “circumstances so indicate”, the risk passes to the buyer from the time the goods were handed over to the carrier.

2. Scope of the Provision
4. As a general default rule, the risk passes to the buyer as of the time of the conclusion of the contract. However, the second sentence of Article 68 introduces an exception: “if the circumstances so indicate”, the risk passes to the buyer as of the time “the goods were handed over to the first carrier”, which means that the buyer assumes the risk retroactively. There are some problems with the second sentence.

5. First, what does the phrase mean “if the circumstances so indicate”? Neither the text of the CISG nor the case law really explains when the circumstances should so indicate. There is some consensus among commentators suggesting that one circumstance which might justify the application of the main rule occurs when the buyer is entitled to exercise the rights connected with becoming the rightful transferee of the insurance policy covering the goods (e.g., Herbert Berstein & Joseph Lookofsky, Understanding the CISG in Europe 112 (2d edition 2003); Johan Erauw, Observations on passing of risk, in The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention 309 (Franco Ferrari, Harry Flechtner & Ronald Brand eds. 2004); John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (3rd ed. 1999), at 372).

6. Article 68, however, poses other issues. The first would be the relationship of the last sentence of Article 68, which introduces an exception resulting in the seller bearing the risk of loss or damage if the seller, at the time of the conclusion of the contract, if he knew or should have known that the goods had been lost or damaged and failed to disclose the information to the buyer. It is not clear whether the limitation introduced by the last sentence refers to the first sentence only or to both the first and second sentence of Article 68. A normal reading of Article 68 seems to suggest that the third sentence refers to both rules (main rule and exception). However, a review of the history of the text clearly indicates that the third sentence was intended to be applied to the second sentence only (Fritz Enderlein & Dietrich Maskow, Commentary of Articles 66-70, in: International Sales Law 269-70 (1992) ).

7. Another issue is whether the seller is liable only for the loss or damage that it failed to disclose at the conclusion of the contract or if it is also liable for all subsequent consequences. Considering that the previous Vienna and New York drafts of Article 68, third sentence, referred to “such loss or damage” and that at the 1980 Vienna Conference the phrase was changed to “the loss or damage,” this would counsel for an interpretation making the seller liable for subsequent damage too. A different approach instead suggests that “[d]espite the somewhat uncertain course of its history, the change from the wording of the Geneva Draft to that of the Vienna Draft does provide an indication that the intention is to make the seller liable only for loss which has already occurred at the time of the conclusion of the contract and of which he knew or ought to have known [footnote omitted]. The wording of the third sentence of Article 68, with its systematic link to the second sentence, also indicates such an approach.”

8. A final concern worth mentioning is Article 68’s relationship with domestic law rules providing for avoidance of a contract of sale in the event the goods identified to the contract were already perished (which may give rise to issues of mistake, and, therefore of validity), without the parties’ knowledge, at the time the contract was concluded. Several authors suggest that such a contract should be nonetheless valid and that it “would amount in substance to a sale of insurance and other rights.” (Barry Nicholas, in: Bianca/Bonell, Commentary on the International Sales Law (1987), Art. 67 at 500; Peter Schlechtriem, Uniform Sales Law – The U.N. Convention on Cotnracts for the International Sale of Goods, Art. 68 note 368 (1986); Patrick C. Leyens, CISG and Mistake: Uniform Law vs. Domestic Law. The Interpretative Challenge of Mistake and the Validity Loophole (October 2003) (text accompanying notes 136 – 141). However, such an approach might have major problems when confronted with the mandate of CISG Article 4 (validity issues are not dealt with by the CISG).