Learn this contract legislation

The United Nations Convention on Contracts for the International Sale of Goods is law in Ontario by the International Sales Conventions Act.

The CISG generally applies in Ontario to all contracts for the international sale of goods — that is, the sale of goods between Ontario and countries that are parties to the CISG (being nearly all of them, including the U.S.).

The CISG is relatively unknown in Ontario. But a recent Court of Appeal decision underscores that the CISG is the law in Ontario whether or not the parties argue it.

Solea International BVBA v. Bassett & Walker International Inc., 2016 ONSC 4860 involved a claim by a plaintiff for damages arising from the sale of shrimp to the defendant. The plaintiff was a Belgian seafood trading company. It purchased the subject seafood from an Ecuadorian supplier. The defendant was a Toronto-based company that purchased the seafood for import into Mexico. This was an international sale of goods.

The defendant refused to pay for the shrimp. The plaintiff sued and brought a motion for summary judgment.

Both the plaintiff and defendant proceeded on the assumption that the common law of Ontario governed. The motion judge, applying the common law, granted judgment in favour of the plaintiff.

The defendant appealed. In November 2017, the Court of Appeal in Bassett & Walker International Inc. v. Solea International BVBA, 2017 ONCA 886 found that the parties had not identified the proper law of the contract; if they had, they would have found that each of Ontario, Belgium, Mexico and Ecuador had ratified and acceded to the CISG.

The Court of Appeal ordered that the motion be re-heard, applying the CISG. At the re-hearing, the motion judge again granted judgment in favour of the plaintiff but with a different analysis applying the CISG.

The CISG matters. It is notably different from the Ontario common law and Sale of Goods Act. Among other differences:

1. Consideration is not required to modify or terminate contracts governed by the CISG, an obvious difference from the common law;

2. A buyer is required to examine the goods “within as short a period as is practicable in the circumstances.” There is no such obligation in the common law or the SGA.

3. A buyer cannot rely on a lack of conformity of the goods if the buyer “does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after the buyer has discovered it or ought to have discovered it.”

The obligation to give notice is closely related to the obligation to inspect: If the buyer fails to detect a “lack of conformity” because it did not conduct a proper and prompt inspection and did not give notice of the non-conformity, the buyer can lose the right to claim damages.

The consequences of the failure to examine and give notice are serious and may come as a shock to Ontario lawyers steeped in the common law and the SGA.

The above is only a sample.  There are many significant differences between the Ontario common law/SGA and the CISG, which could lead to starkly different results on the same facts.

Despite being in force since 1992, the CISG is still obscure in Ontario. Few cases have applied it and fewer have interpreted its provisions in detail. The scarcity of cases may, in part, be because parties can exclude the CISG in their contracts. In some transactions between sophisticated parties, the parties’ lawyers might turn their minds to and exclude the CISG.

But in many other transactions, where there is less formality in contracting, the parties may not even be aware of the CISG, much less think to exclude it.

In many instances, the CISG governs the dispute, but the parties (and the court) simply overlook its application. 

In fairness to Ontario lawyers (and the court), the CISG is not widely taught in introductory contract law courses.

It is only briefly mentioned in the Ontario bar admission materials, which breezily states that “the exclusion of the CISG entirely is a common practice.” The last CPD on the CISG appears to have been in 2013.

Law schools, the Law Society of Ontario and the profession need to do more to increase awareness of the CISG in Ontario. It is, after all, the law in Ontario.  

The rest of the world, including the U.S., is much more familiar with the CISG. There is a substantial body of CISG case law (more than 4,500 cases) worldwide.

The CISG case law is important. Interpretation of the CISG is meant to be consistent with its “international character” and the need to “promote uniformity” in its application. In the Solea case, for example, the court (on the re-hearing) did not consider any of the CISG case law in interpreting the CISG, leading to some (arguably) anomalous interpretations. Ontario is lagging far behind the rest of the world in its use and understanding of the CISG.

Appellate attention will help to increase awareness. The plaintiff in Solea has reportedly appealed the decision of the re-hearing.

If the appeal proceeds, we will have a Court of Appeal decision in which the CISG is interpreted and applied to the merits of a case. It will be the first Canadian appellate-level decision to do so. 

Now is a good time to learn the CISG, before the Court of Appeal tells us to do so.

Andrew Ottaway is a lawyer at Gilbertson Davis LLP, whose commercial litigation practice includes international sale of goods disputes involving the CISG.