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CSA 6470 International Legal Framework INTERNATIONAL BUSINESS LAW - 4ed CASE 10-8 BRIEF - SALES

2. Nuova Fucinati, SpA v. Fondmetall International, AB . 2. JUDICIAL BODY Civil Court of Monza, Italy, 1993. The case states that the buyer (Fondmetall) added an express statement to its acceptance in thecontract that Italian law shall apply'.. 3. Nuo

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CSA 6470 International Legal Framework INTERNATIONAL BUSINESS LAW - 4ed CASE 10-8 BRIEF - SALES

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    1. 1 CSA 6470 – International Legal Framework INTERNATIONAL BUSINESS LAW - 4ed CASE #10-8 ‘BRIEF’ - SALES 1. TITLE Nuova Fucinati, SpA v. Fondmetall International, AB Prepared by Locksley Henry August 21, 2003

    2. 2 Nuova Fucinati, SpA v. Fondmetall International, AB 2. JUDICIAL BODY Civil Court of Monza, Italy, 1993. The case states that the buyer (Fondmetall) added an express statement to its acceptance in the contract that ‘Italian law shall apply’.

    3. 3 Nuova Fucinati, SpA v. Fondmetall International, AB 3. FACTS February 3, 1988 The plaintiff Nuova Fucinati (Italy) agreed to deliver 1,000mt of chromite to the defendant Fondmetall (Sweden) between March 20, 1988 and April 10, 1988. April 10, 1988 Nuova failed to deliver. Fondmetall petitioned the Civil Court in Monza, Italy, for a decree of specific performance. July 20, 1988 The Chief Judge of the court issued the requested decree.

    4. 4 Nuova Fucinati, SpA v. Fondmetall International, AB 3. FACTS September 29, 1988 Nuova initiated proceeding to have the original contract set aside on the grounds of commercial impracticality. Nuova claimed that the price of chromite had risen dramatically (44%) between the time of the contract and the time of delivery, beyond what could be reasonably anticipated. Nuova thus insisted that it was too costly for them to perform without a price adjustment, which Fondmetall refused to accept.

    5. 5 Nuova Fucinati, SpA v. Fondmetall International, AB 3. FACTS Fondmetall argued that the United Nations Convention on Contracts for the International Sale of Goods (CISG) governed this contractual relationship, and that the CISG did not provide for the excuse of commercial impracticability

    6. 6 Nuova Fucinati, SpA v. Fondmetall International, AB 3. FACTS Other Material Facts: The CISG is a ‘special’ law (that is, it governs a specific subject matter). It will preempt the more general provision set out in Article 1467 et seq. of the Civil Code, unless the contracting parties specify the use of the Civil Code in the contract. The UN Convention on the CISG (Article 79) does NOT provide for the excuse of commercial availability. However, Article 1467 of the Italian Civil Code does allow a seller to set aside an onerous contract on the basis of commercial impracticability.

    7. 7 Nuova Fucinati, SpA v. Fondmetall International, AB 3. FACTS Other Material Facts: The CISG came into force in Italy on January 1, 1988 (before the contract was concluded). The CISG came into force in Sweden on January 1, 1989 (after the contract was concluded). The contract was concluded in Sweden.

    8. 8 Nuova Fucinati, SpA v. Fondmetall International, AB 4. ISSUES It must be resolved whether the contract is governed by: The UN Convention on CISG, or The Italian Civil Code (Article 1467) Swedish Law This is a significant question. Does the doctrine of force majeure apply in this case in favour of Nuova, through its excuse of commercial impracticability? Does Nuova pass the test of commercial impracticability which would lead to the avoidance of the contract by Nuova? Is Fondmetall required to perform under the contract in any circumstances?

    9. 9 Nuova Fucinati, SpA v. Fondmetall International, AB 5. DECISION The plaintiff’s (Nuova Fucinati) case was dismissed. Also, because it was obvious that the buyer (Fondmetall) had breached the contract, the Chief Judge’s order for specific performance was rescinded. The case was then remanded to the examining magistrate for further enquiry into the defendant’s claim for compensatory damages.

    10. 10 Nuova Fucinati, SpA v. Fondmetall International, AB 6. RATIONALE The following points were taken into account in rendering the opinion in the case: The defendant (Fondmetall) argued that the contract should not be dissolved, both as a matter of law, and the plaintiff’s insufficiency in meeting the requirements of Article 1467 of the Italian Civil Code. As a matter of law, the CISG does not provide for the excuse of commercial impracticability; it only governs the formation of the contract of sale, and the rights and obligations of the seller and buyer arising from such a contract.

    11. 11 Nuova Fucinati, SpA v. Fondmetall International, AB 6. RATIONALE The CISG normally governs the contract between both parties, since this is an international sale of goods between corporations of two separate states. The CISG also preempts the operation of any local law, except where a local law was specified as the operative law in the contract. This being the case, the Italian Civil Code, which was agreed to by the parties, does prevail.

    12. 12 Nuova Fucinati, SpA v. Fondmetall International, AB 6. RATIONALE Also, because the CISG came into effect in Italy before the contract was made, and into effect in Sweden after the contract was made, the CISG could not be applied, since both parties were not contracting states under the CISG at the time of the contract. Since the ‘special law’ (the CISG) does not apply, the ‘general law’ (Article 1467, Italian Civil Code) is not preempted, and it must be applied as the parties directed that it should. As a consequence, the seller (Nuova) could invoke the excuse of commercial impracticability under the Italian Civil Code.

    13. 13 Nuova Fucinati, SpA v. Fondmetall International, AB 6. RATIONALE The presiding judge however, ruled that the price increases, even though proven by the plaintiff (Nuova), was simply not enough to show that the plaintiff is excused from performing as a matter of commercial impracticability (force majeure). Such an excuse is allowed, only when performance is so economically burdensome, that the seller would not have the resources to perform.

    14. 14 Nuova Fucinati, SpA v. Fondmetall International, AB 7. RELEVANCE Parties to an international sales agreement should be aware of: What is covered by the UN Convention on the CISG versus what is covered by local law. The extent and depth of the doctrine of force majeure, and in what circumstances it applies. The need to inform the other party as soon as possible, if a provision of the contract is violated or cannot come into effect. The requirement to still honour one’s obligations under a contract of sale despite certain intervening circumstances.

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