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Timestamp: 2017-07-22 12:49:01
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Matched Legal Cases: ['art. 1', 'art. 7', 'art. 13', 'art. 93', 'art.\n2', 'art.\n2', 'art. 93', 'art 93', 'Art. 93', 'art. 93']

States 19 August 2010 Federal District Court [Arkansas] (Electrocraft
Arkansas, Inc. v. Super Electric Motors, Ltd and Raymond O’Gara, Individually
and as Partner and Agent of Super Electric Motors, Ltd) Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography Search the entire CISG Database (case data + other data) CISG CASE PRESENTATION
and as Partner and Agent of Super Electric Motors, Ltd)
[Cite as: http://cisgw3.law.pace.edu/cases/100819u1.html] Primary source(s) of information for case presentation: Case text
DATE OF DECISION: 20100819 (19 August 2010) JURISDICTION: United States [federal court] TRIBUNAL: U.S. District Court, Eastern District of Arkansas, Western Division [a federal court of 1st instance] JUDGE(S): Susan Webber Wright CASE NUMBER/DOCKET NUMBER: 4:09cv00318 SWW CASE NAME: Electrocraft Arkansas, Inc. v. Super Electric Motors, Ltd and Raymond O’Gara, Individually and as Partner and Agent of Super Electric Motors, Ltd CASE HISTORY: Eastern District [Arkansas] 23 December 2009
SELLER'S COUNTRY: Hong Kong (defendant) BUYER'S COUNTRY: United States (plaintiff) GOODS INVOLVED: Refrigerator motors Classification of issues present
APPLICATION OF CISG: Yes. Article 1 is discussed in the Appendix APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issue: Articles 1 ; 38 ; 39 ; 49 ; 93 Classification of issues using UNCITRAL classification code
Descriptors: Reservations ; Declarations Go to Case Table of Contents Editorial remarks
Electrocraft Arkansas, Inc., Plaintiff, v. Super Electric Motors, LTD and Raymond O’Gara,
Individually and as Partner and Agent of Super Electric Motors, Ltd [1], Defendants
[Buyer] brings this action against [Seller] asserting the
following claims in connection with allegedly defective refrigerator motors
that [Buyer] purchased from [Seller]: violations of the United Nations
Convention on Contracts for the International Sale of Goods (CISG); violations
of Article 2 of the Uniform Commercial Code (UCC), codified in Ark.Code
Ann. � � 4-2-101 et seq. breach of express warranty; breach of implied warranty of
merchantability; negligence/strict liability; violations of the Arkansas
Deceptive Trade Practices Act (ADTPA), codified in Ark.Code
Ann. �� 4-88-101 et seq. tortious interference with a business expectancy; and unjust
enrichment and restitution. [Seller] has counterclaimed against [Buyer] under
the CISG and seeks judgment against [Buyer] for unpaid invoices in the amount
By Memorandum and Order entered December 23, 2009 [doc.# 23], the
Court granted in part and denied in part a motion of [Seller] to dismiss [Buyer]'s
complaint. The Court determined that (1) the CISG is the applicable law in this
action; (2) [Buyer]’s complaint, asserting violations of the CISG, sets forth
sufficient facts to state a claim upon which relief can be granted under the
CISG; (3) the CISG preempts and subsumes the breach of express and implied
warranty claims under Article 2 of the Arkansas UCC
contained in counts two and three of [Buyer]'s complaint; (4) the CISG preempts
and subsumes the negligence/strict liability claim in count four of [Buyer]'s
complaint; (5) the ADTPA claim in count five of [Buyer]'s complaint is not
preempted by the CISG and the ADTPA is not limited to actions brought by
consumers; (6) the tortious interference with business expectancy claim in
count six of [Buyer]'s complaint is not preempted by the CISG and [Buyer] has
pled facts to meet the elements of such a cause of action; and (7) the unjust
enrichment and restitution claims in count seven of [Buyer]'s complaint are
preempted and subsumed by the CISG. See Electrocraft
Arkansas, Inc. v. Super Electric Motors, Ltd, No.
4:09cv00318 SWW, 2009 WL 5181854 (E.D.Ark. Dec. 23, 2009).
Now before the Court are the following motions: (1) motion of [Seller]
for summary judgment on its counterclaim under the CISG [doc.# 30]; (2) motion
of [Buyer] for summary judgment on its CISG claims [doc.# 43]; and (3) motion
of [Seller] for leave to take the deposition of Stephen Draper of Whirlpool
Corporation and/or Whirlpool's custodian of records concerning John Arico's
letter of January 14, 2009 and related communications, and to subpoena related
documents [doc.# 64]. [Buyer] has responded in opposition to [Seller]'s motion
for summary judgment on its counterclaim, [Seller] has filed a reply to [Buyer]'s
response, and [Buyer], with leave of the Court, has filed a sur-reply to [Seller]'s
reply.[2] [Seller], in turn, has responded in
opposition to [Buyer]'s motion for summary judgment on its CISG claims and [Buyer]
has filed a reply to [Seller]'s response. [Buyer] has also responded in
opposition to [Seller]'s motion for additional discovery. Having carefully
considered the matter, the Court denies [Seller]'s motion for summary judgment
on its counterclaim under the CISG, denies [Buyer]'s motion for summary
judgment on its CISG claims, and denies [Seller]'s motion for additional
I. [Buyer] is a Delaware corporation doing business in the State of
Arkansas and supplies electric refrigerator motors to manufacturers of
refrigerators. [Seller] is a company engaged in the manufacture of refrigerator
motors. [Seller] was formed under the laws of Hong Kong and its manufacturing
facilities are located in Shenzhen, China.
Beginning in approximately 2002, [Seller] manufactured electric
motors pursuant to purchase orders received
from [Buyer] based upon the designs and specifications submitted to [Seller] by
[Buyer]. According to [Buyer], the motors were able to be utilized for their
intended purpose (incorporated into refrigerators to make the refrigerators
cool) after being inspected by [Buyer] and would then be delivered to [Buyer]'s
customers, including Whirlpool and other manufacturers, where they were
incorporated into refrigerators. After the manufacture of the electric motors
pursuant to [Buyer]'s purchase orders, [Seller] submitted invoices that
specified the number of motors shipped, the type of motor shipped, and [Buyer]'s
The parties originally conducted business pursuant to a written
agreement entered into in 2000 but in 2002 the written agreement expired by its
own terms. [Buyer] states that after the agreement expired, the parties
continued to operate as though the agreement was still in place, stating that
in 2006, [Seller] expressly agreed to continuation of the parties' purchase and
sale of [Buyer]'s requirements for the electric motors. [Seller] denies this,
stating that after the agreement terminated, the parties' "course of
dealing" was for [Buyer] to issue purchase orders for motors and for [Seller]
to manufacture those motors pursuant to [Buyer]'s design and specifications,
and issuing an invoice for each group of motors delivered to [Buyer]. [Seller]
states that [Buyer] accepted delivery of the
motors FOB Hong Kong and took them to its facility in Arkansas where it
inspected them to ensure that they met [Buyer]'s specifications and then issued
rejections and debits as to those motors and paid the balance of the invoices
in accordance with the terms of the invoices.
[Buyer] states that in July 2008, it began to receive notices from
its customers that the motors supplied by [Seller] were failing at an
unacceptable rate. [Buyer] states that it confirmed there were incurable
problems with the motors as a result of manufacturing defects and that due to
their failure to operate in the intended fashion, the defective motors have
been returned to [Buyer] by the end user, causing [Buyer] to be unable to
fulfill its contractual obligations to its customers. [Buyer] states it is
currently in possession of approximately 300,000 defective motors manufactured
and delivered by [Seller] without having any productive use.
[Buyer] states that [Seller] confirmed that the motors were
defective but still demanded payment for the motors that had been delivered. [Buyer]
states that despite demand, [Seller] has been unwilling or unable to cure the
situation, to refund for paid invoices, or to void the unpaid invoices for the
defective motors, and that [Seller] has caused it damage by way of the loss of
existing customers, being forced to pay significant amounts to resolve customer
[Seller], in turn, claims that for the period beginning with invoices dated July 15, 2008
and all invoices generated thereafter, there remains due and owing to [Seller]
from [Buyer] amounts for goods in the possession of [Buyer] pursuant to its
purchase orders and for which [Buyer] has refused to remit payment. [Seller]
states that the motors manufactured and sold to [Buyer] identified by the
invoices were all manufactured after [Seller] received purchase orders and that
it was assured by [Buyer] that it would pay for the motors, but that [Seller]
never received rejections of the specific motors identified by these invoices,
much less timely rejections.
[Seller] states that in addition to the electric motors delivered
to [Buyer] pursuant to the purchase orders, [Seller] manufactured other
electric motors for [Buyer] pursuant to purchase orders, and [Buyer] either
refused to take delivery of the motors or has wrongfully attempted to cancel
its acceptance of delivery. As to those motors for which [Buyer] has either
refused to take delivery or has attempted to cancel its acceptance of delivery,
[Seller] states that there remains an amount due and owing to [Seller] for
goods manufactured by [Seller] pursuant to [Buyer]'s purchase orders but for
which [Buyer] has wrongfully failed to take delivery or has wrongfully
attempted to cancel its acceptance of delivery.
[Seller] claims that valid contracts for the sale of motors within the meaning of
Articles 14-24 of the CISG exist between [Seller] and [Buyer], that it has
manufactured motors pursuant to [Buyer]'s purchase orders which have not been
paid, and that pursuant to the parties' course of dealing and course of
performance of their agreements, both oral and written, and in accordance with
the provisions of [Buyer]'s purchase orders and the CISG, [Buyer] has
fundamentally breached the contracts between [Seller] and [Buyer] within the
meaning of Article 25 of the CISG. [Seller] states it has delivered goods to [Buyer]
in accordance with the parties' course of dealing and course of performance of
their agreements, and in accordance with the provisions of [Buyer]'s design
specifications and purchase orders, and that it has delivered goods to [Buyer] in
accordance with Article 35 of the CISG. [Seller] states that following the
delivery of the motors, [Buyer] inspected the motors but did not reject them in
a timely manner and, in fact, approved them as meeting [Buyer]'s specifications
and available for re-sale.
[Seller] states that pursuant to Article 39 of the CISG, [Buyer] has
waived any right to declare a lack of conformity, or to reject, the motors in
its actual or constructive possession, including all motors resold to Whirlpool
or other manufacturers by [Buyer], and that [Buyer] may not reject goods that have
already been sold to third parties. With
respect to motors manufactured by [Seller] pursuant to [Buyer]'s purchase
orders, [Seller] states that [Buyer] has waived the right to declare the
purchase orders and the parties' contracts avoided pursuant to Article 49 of
the CISG for failure to provide notice to [Seller] within a reasonable time.
[Seller] additionally states that [Buyer] proposed that [Seller]
provide brackets to [Buyer] to rework motors returned to [Buyer] by Whirlpool
in Monterrey, Mexico, and that as an accommodation to [Buyer], [Seller]
provided replacement brackets to [Buyer] for its use in returning the motors to
Whirlpool with the understanding that [Buyer] would remit the amounts owed for
the motors to [Seller]. [Buyer] failed to honor its agreement, states [Seller],
and is liable to [Seller] in the amount of $105,200.76 for the cost of the
brackets it provided to [Buyer].
II. Before turning to the parties' motions for summary judgment, the
Court first revisits the applicability of the CISG to this action. In
previously concluding that the CISG is the applicable law, the Court
determined, based on the reasoning of the Northern District of Illinois in CNA
International v. Guangdon Kelon Electronical Holdings, et al., No. 05 C
5734 (N.D.Ill. filed Sept. 3, 2008), that the Peoples Republic of China
ratified the CISG in 1986 and that Hong Kong
is a Contracting State under the CISG. The Court ruled as follows: The CISG is an international treaty, ratified by the United States in 1986, that
sets out substantive provisions of law to govern the formation of international
sales contracts and the rights and obligations of the buyer and seller. Caterpillar,
Inc. v. Usinor Industeel, 393 F.Supp.2d 659, 673 (N.D.Ill.2005) (citation omitted). The aim
of the CISG is to promote worldwide uniformity in dealing with sales disputes
arising from international sales. Peter Schlechtriem, The Borderland
of Tort and Contract: Opening a New Frontier?, 21 Cornell Int'l L.J. 467, 472 (1988). The CISG applies to
international sales contracts between parties that are located in signatory
countries, and who have not opted out of CISG coverage at the time of
contracting. Caterpillar, 393 F.Supp.2d at 673. The Peoples Republic of China ratified the CISG in 1986 and Hong
Kong is a Contracting State under the CISG. See CNA International v.
Guangdon Kelon Electronical Holdings, et al., No. 05 C 5734 (N.D.Ill. filed
Sept. 3, 2008). Neither [Buyer] nor [Seller] have opted out of the CISG with
respect to the contract at issue in this action and both parties have their
places of business in different Contracting States under the Convention. Accordingly,
the Court finds that the CISG is the applicable law in this action. Electrocraft, 2009 WL 5181854, at *3.
this Court drafted its Memorandum and Order in Electrocraft (but prior
to its entry), the Northern District of Georgia, utilizing reasoning in direct
contrast to that of the Northern District of Illinois in CNA International,
determined that Hong Kong is not a Contracting State under the CISG and
therefore the CISG did not apply to the plaintiff's breach of contract action. See
Precision Limited v. Horei Image Products, Inc., 679 F.Supp.2d 1356, 1358-59 (N.D.Ga.2009) [3] Given these conflicting authorities, the Court directed
that the parties address the impact, if any, of Innotex Precision on
these proceedings. The parties have responded with a joint statement regarding
choice of law in which both parties submit that notwithstanding Innotex
Precision, Hong Kong is a Contracting State under the CISG and the CISG
therefore applies to this action. Having reviewed the parties' joint statement,
the Court reaffirms that the CISG is the applicable law.
Neither [Buyer] nor [Seller] contests the application of the CISG
to this action and the court in CNA International engaged in both a
detailed consideration of whether Hong Kong
is a Contracting State and a comprehensive review of applicable authority. In
addition, the court's opinion in CNA International is bolstered by
strong policy considerations regarding the CISG's aim to promote worldwide
uniformity in dealing with sales disputes arising from international sales.
Regardless of whether the court in Innotex Precision would have agreed
with CNA International had it been aware of that decision, the Court
agrees with and adopts the reasoning and conclusions of CNA International,
finding nothing in Innotex Precision that compels this Court to
reconsider its earlier decision that Hong Kong is a Contracting State.[4]
III. Having reaffirmed that the CISG is the applicable law in this
action, the Court now turns to the parties' motions for summary judgment. [Seller]
moves for summary judgment under the CISG on its counterclaim on grounds that [Buyer] breached the parties' contract by
failing to pay for the electric motors manufactured pursuant to the purchase
orders, [Buyer] did not make a proper and timely rejection of any of the motors
covered by the invoices that are the subject of the counterclaim, and [Buyer] did
not make an inspection of the motors within a reasonable time. [Buyer], in
turn, moves for summary judgment on its CISG claims on grounds the motors were
nonconforming upon reaching the end user ([Buyer]'s customers) and [Seller] is
not insulated from liability because [Buyer] inspected the motors. Both parties
argue there are no genuine issues of material fact with respect to these issues
and that each is entitled to summary judgment on its CISG claims as a matter of
A. Summary judgment is appropriate when "the pleadings, the
discovery and disclosure materials on file, and any affidavits show that there
is no genuine issue as to any material fact and that the movant is entitled to
a judgment as a matter of law." Fed.R.Civ.P. 56(c). As a prerequisite to summary judgment, a moving party must
demonstrate "an absence of evidence to support the non-moving party's
case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has properly supported its motion for
summary judgment, the nonmoving party must "do more than simply show there
is some metaphysical doubt as to the material facts." >Matsushita
Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). The nonmoving party may not rest on mere allegations or denials
of his pleading, but "must come forward with 'specific facts showing ... a
genuine issue for trial.' " Id. at 587 (quoting Fed.R.Civ.P.
56(e) and adding emphasis). See also Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). The inferences to be drawn from the underlying facts must be
viewed in the light most favorable to the party opposing the motion. Matsushita, 475
U.S. at 587 (citations omitted). However, "[w]here the record taken as a
whole could not lead a rational trier of fact to find for the nonmoving party,
there is no 'genuine issue for trial.' " Id. (citation omitted).
the governing law will properly preclude the entry of summary judgment." Anderson, 477
U.S. at 248. "Factual disputes that are irrelevant or unnecessary will
not be counted." Id.
B. The primary points of contention between the parties are whether [Buyer]
properly inspected the motors, whether the motors at issue were nonconforming
upon reaching the end user (and the reason for any non-conformity), whether [Buyer]
timely rejected the motors, and the nature of the course of conduct between the
parties. In addressing these issues, the parties differ significantly on both
the facts and the application of the CISG to those facts.
[Seller] argues there are no genuine issues of material fact that [Buyer] failed to
timely inspect the particular motors and failed to timely and properly provide
the required notice of rejection as to those motors. [Seller] notes that the
following provisions of the CISG required [Buyer] to inspect and reject motors
that did not meet its specifications and purchase orders:
Article 38 (1) The buyer must examine the goods, or cause them to be examined, within as short
a period as is practicable in the circumstances. Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he
discovered it. (2) In any event, the buyer loses the right to rely on a lack of conformity of the
goods if he does not give the seller notice thereof at the latest within a
of guarantee. Article 49 ... (2) ... [I]n cases where the seller has delivered the goods, the buyer loses the
right to declare the contract avoided unless he does so: ... (b) in respect of any breach other than late delivery, within a reasonable time: (i) after he knew or ought to have known of the breach; ... .
While seemingly acknowledging that there were problems with at
least some of the motors, [Seller], in arguing a lack of proper notice pursuant
to Articles 38 and 39, argues that [Buyer] never identified which specific
motors it contends are defective or nonconforming to the end user and that
without knowing which specific motors are at issue, the Court cannot possibly
determine whether they are nonconforming. [Seller] further notes that it
suggested as early as January 2007 that the design of the motors needed to be
changed to increase the clearance between the shaft and bearing but that [Buyer]
refused to allow that change in the design. [Seller] goes on to state that
"perhaps more importantly from a design standpoint," it is undisputed
that the motors were not designed to meet at least one of the Whirlpool tests.
[Buyer], however, argues that the nonconformity of the motors was
not the fault of the design as the same
design had provided working motors for years prior to 2008; rather, the
nonconformity was due to issues with the quality control in [Seller]'s
manufacturing process, i.e. faulty manufacturing and assembly. [Buyer] notes
that while [Seller] suggested a change in the design of the motors (in order to
make to easier for it to produce the motors alleges [Buyer]), the changes were
not necessary and did not result in a motor that worked. [Buyer] further argues
the nonconformity was a latent defect not capable of easy detection.[5]
In response to [Seller]'s argument that [Buyer] never identified
which specific motors it contends are defective or nonconforming, [Buyer] argues
that the nonconforming nature of a substantial number within a lot or
installment or among several lots is a fundamental breach and that courts have
found liability when it is undisputed that at least some of the goods were
defective, citing Delchi Carrier SpA v. Rotorex, 71
F.3d 1024, 1028 (2nd Cir.1995) (finding no genuine issue
of material fact regarding liability where it was admitted that "some of
the compressors ... did not conform to the nominal performance
information."). [Buyer] argues that Articles
38 and 39 do not require specification of the particular goods that are
defective; rather, Article 39 only requires notice of the specific
nonconformity--not the individual items that are nonconforming.[6] �[Buyer] argues that it notified [Seller]
of the nonconformity of the goods as soon as it learned of the nonconformity
from customers (and that [Seller] confirmed the goods' nonconformity), and that
given that, any dispute concerning the notice presents genuine issues of
material fact as to whether [Buyer]'s inspection was timely under the CISG
(Article 38), and whether the notice specifying the nature of the lack of
conformity was given within a reasonable time after the buyer discovered or
ought to have discovered the nonconformity (Article 39). See Chicago
Prime Packers, Inc. v. Northam Food Trading Co., 320 F.Supp.2d 702, 711-12 (N.D.Ill.2004) (the determination of what
period of time is "practicable" under Article 38(1) is a factual one
and depends on the circumstances of the case). [Buyer] argues that it satisfied
its legal obligation to inspect goods to insure their apparent conformity under
Article 38, and that [Seller] was not relieved of its responsibilities to
provide a defect-free product, which it was not doing in 2008.
The parties additionally dispute the nature of their course of
conduct. Specifically, [Seller] argues that each purchase order constituted a
new and distinct contract, while [Buyer] argues there was a continuing flow of
motors from [Seller] to [Buyer] with no substantive distinction between one
purchase order and the next that would create separable contracts; rather, each
purchase order was just another installment to fill the ongoing need for
The Court has considered the record and arguments of [Seller] and [Buyer]
and is unable to resolve at this time the issues of whether [Buyer] properly
inspected the motors, whether the motors at issue were nonconforming upon
reaching the end user (and the reason for any non-conformity), whether [Buyer] timely
rejected the motors, and the nature of the course of conduct between the
parties. These issues are intertwined with genuine
factual disputes and are not appropriate for summary judgment.[7]]
IV. The Court now turns to [Seller]'s motion for leave to take the
deposition of Stephen Draper of Whirlpool Corporation and/or Whirlpool's
custodian of records concerning John Arico's letter of January 14, 2009 and
related communications, and to subpoena related documents [doc.# 64]. [Seller]
seeks to dispose Draper about the January 14, 2009 letter and its relationship
to an offer from [Buyer] to Whirlpool to settle [Buyer]'s dispute with
Whirlpool. [Seller] argues that the settlement between [Buyer] and Whirlpool
gives rise to the largest component of the damage claim by [Buyer] in this
case, and [Seller] believes the settlement is also contrary to the position
taken by [Buyer] in communications with [Seller].
[Seller]'s motion is denied as Rule 408 of the Federal Rules of Evidence expressly provides that
evidence of furnishing, offering, promising, or accepting a settlement is not
admissible to prove the validity of any claim, and
that evidence of conduct or statements made in settlement negotiations is
likewise not admissible. Williams
v. Security Nat. Bank of Sioux City, Iowa, 358 F.Supp.2d 782, 789 (N.D.Iowa 2005) (internal quotation marks omitted); see also Phan v. Trinity Regional Hosp., 3
F.Supp.2d 1014, 1018 (N.D.Iowa 1998) (evidence of settlement
offers, demands, or negotiations generally not admissible).[8] [Seller] has not cited any authority
suggesting such evidence would be admissible. The Court notes as well that the
discovery deadline has long since passed and dispositive motions have been
filed and today ruled upon; this matter is now ready for trial.
V. For the foregoing reasons, the Court denies [Seller]'s motion for
summary judgment on its counterclaim [doc.# 30], denies [Buyer]'s motion for summary judgment on its claims under the
CISG [doc.# 43], and denies [Seller]'s motion for leave to take the deposition
of Stephen Draper of Whirlpool Corporation and/or Whirlpool's custodian of
records concerning John Arico's letter of January 14, 2009 and related
communications, and to subpoena related documents [doc.# 64].
CNA International v. Guangdon Kelon Electronical Holdings, et al., No.
05 C 5734 (N.D.Ill. filed Sept. 3, 2008), which holds that Hong Kong is a
Contracting State under the CISG, provides, in large part, as follows: Because
the GISG only applies to parties with places of business in different
Contracting States, the Court must determine whether the parties to the
contract at issue here are from Contracting States. See ClSG, supra,
art. 1(a); see also Treibacher Industrie, A.G. v. Allegheny Techs., Inc., 464
F.3d 1235, 1238 n. 5 (11th Cir.2006). Plaintiff CNA is an
Illinois corporation with its place of business in Illinois. (R. 158-1; PI.'s
Mem. at 12.) Defendant Guangdong Kelon is a company organized under the laws of
China and it maintains its place of business in China. (Id. at 12-13.)
The United States and China are Contracting States, thus the CISG reaches both
CNA and Guangdong. The
Court previously determined that although Defendant Kelon International is
organized under the laws of the British Virgin Islands, its place of business for purposes of the CISG is
in Hong Kong. (R. 155-1; June 17, 2008 Mem. Op. at 4.) In its prior Opinion,
the Court left open the question of whether Hong Kong is a Contracting State
under the CISG; a question the Court must now resolve. The Court interprets the
treaty's provisions by looking to its plain language and to "the general
principles" upon which the treaty is based. Chicago Prime Packers, Inc. v. Northam Food Trading Co., 408
F.3d 894, 898 (7th Cir.2005) (citing CISG, supra, art. 7(2)).
I. HONG KONG SPECIAL ADMINISTRATIVE REGION OF CHINA On June 30, 1997, the United Kingdom transferred sovereignty over Hong Kong to
China. See [Ulrich] Schroeter, [The Status
of Hong Kong and Macao Under the United Nations Convention on Contracts for the
International Sale of Goods, 16 Pace Int'l L.Rev. 307], at 313. The countries had
previously agreed on the terms of the hand over and its impact on Hong Kong's
legal future. See Joint Declaration of the Government of the United
Kingdom of Great Britain and Northern Ireland and the Government of the
People's Republic of China on the Question of Hong Kong, Dec. 19, 1984, 23
I.L.M. 1366 (hereinafter "Joint Declaration"). The Joint
Declaration stipulated that China would establish a Hong Kong Special
Administrative Region ("SAR") upon resuming sovereignty of Hong Kong.
Id. at 1373. The Joint Declaration outlines Hong Kong's legal system and declares that China
will decide whether international agreements to which it is a party will extend to the Hong Kong SAR. Joint Declaration,
supra, � XI. The Joint Declaration also states that the I-long Kong SAR
will be under the direct authority of China and that "foreign and defence
affairs [of the Hong Kong SAR] are the responsibilities of the Central People's
Government." Id. at � I. Article 13 of the Basic Law of Hong Kong
echoes the Joint Declaration in stipulating that the Central People's
Government is responsible for foreign affairs relating to the Hong Kong SAR. See
Zhonghua Renmin Gongheguo Xianggang Tebie Xingzhengqu ji ben fa (The Basic Law
of the Hong Kong Special Administrative Region of the People's Republic of
Chlna) art. 13 (hereinafter "XIANGGANG JI BEN FA").
II. ARTICLE 93 OF THE CISG In order to determine the status of the Hong Kong SAR under the CISG, the Court
looks first to the provisions of the CISG itself. See Sale v. Haitian Ctrs.
Council, 509 U.S. I55, 194 (1993) ("It is axiomatic that a treaty's
plain language must control absent 'extraordinarily strong contrary evidence.'
"). Article 93 of the CISG addresses the applicability of the treaty to
territorial units of a Contracting State: (1) If a Contracting State has two or more territorial units in which, according to
its constitution, different systems of law are applicable in relation to the
matters dealt with in this Convention, it may, at the time of signature,
ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial
units or only to one or more of them, and may amend its declaration by
submitting another declaration at any time. (2) These declarations are to be notified to the depositary and are to state
expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this article, this Convention extends to
one or more but not all of the territorial units of a Contracting State, and if
the place of business of a party is located in that State, this place of
business, for the purposes of this Convention, is considered not to be in a
Contracting State, unless it is in a territorial unit to which the Convention
extends. (4) If a Contracting State makes no declaration under paragraph (1) of this
article, the Convention is to extend to all territorial units of that State.CISG, supra, art. 93. �A. Territorial Units Under Article 93(1) Currently, Hong Kong and Macao enjoy constitutional independence from China under Article
31 of China's Constitution, which permits China to establish Special
Administrative Regions. See Schroeter, supra, at 321. Pursuant to
its Basic Law, Hong Kong enjoys a high degree of autonomy and independent
executive, legislative and judicial power. See XIANGGANG JI BEN FA art.
2; see also Schroeter, supra, at 322. Macao enjoys the same
autonomy under Article 2 of its Basic Laws. See
Zhonghua Renmin Gongheguo Aomen Tebie Xingzhengqu ji ben fa (The Basic Law of
the Macao Special Administrative Region of the People's Republic of China) art.
2. Given that different legal systems apply to the sale of goods in China's
territorial units (Mainland China, Hong Kong, Macao), China falls within the
scope of Article 93(1).
B. Declaration Requirement Under Article 93(1) Before China resumed sovereignty over Hong Kong (and Macao), however, Article 93 of
the CISG had no practical effect on China because China had no
"territorial units." " In other words, when I-long Kong became
an SAR', China for the first time fell within Article 93(1). The parties
dispute what effect Hong Kong's becoming a SAR had under the CISG. Article 93(1) permits a Contracting State with more than one territorial unit to
declare "at the time of signature, ratification, acceptance, approval or
accession" that the CISG is to extend to one or more of its territorial
units. CISG, supra, art. 93(1). Of course, China could not make an
Article 93 declaration at the time it signed the CISG because Article 93 did not
pertain to China at that time. While Article 93(1) does not expressly address
the situation where, as here, a State gains control over a territorial unit
after ratification of the CISG, reading the CISG to limit Article 93(1)
declarations to those times specifically mentioned (signature, ratification,
acceptance, approval or accession) would render a declaration by China
impossible. Article 93(1) does, however,
allow a Contracting State to "amend its declaration by submitting another
declaration at any time." A plain reading of this provision of the treaty
permits China to make an Article 93(1) declaration regarding the status of its
territorial units after gaining control of those territorial units. See
generally Schroeter, supra, at 323-326. Accordingly, the Court finds
that China falls under the provisions of Article 93, and that China had the
legal opportunity to declare that the CISG should not extend to the Hong Kong
SAR when it resumed sovereignty over Hong Kong.
1. Letter of Notification of Treaties Applicable to the Hong Kong SAR Having established that the CISG permitted China to make an Article 93 declaration
regarding Hong Kong, the Court must determine if China did so. An Article 93(1)
declaration, as defined in Article 93(2), is to be "notified to the
depositary and [is] to state expressly the territorial units to which the
Convention extends." CISG, supra, art 93(2). Defendants argue that
a letter the Chinese government deposited with the Secretary-General of the
United Nations after resuming sovereignty of Hong Kong qualifies as an Article
93(I) declaration. Letter of Notification of Treaties Applicable to Hong
Kong after 1 July 1977, Deposited by the Government of the People's
Republic of China with the Secretary-General of the United Nations, June 20,
1997, 36 I.L.M. 1675 (hereinafter "Notification Letter" or "Letter"). This Notification Letter lists the treaties China applied
to the Hong Kong SAR, without mentioning the CISG. See Notification Letter, 16 I.L.M. at
1676-91; Schroeter, supra, at 315. Defendants allege that China's
omission of the CISG in this letter serves as a declaration that the C1SG is
not to extend to the Hong Kong SAR. (R. 162-1; Defs.' Resp. at 4.) To constitute an Article 93 declaration, the Notification Letter must satisfy the
two requirements provided by Article 93(2). First, the declaration must be
notified to the Secretary-General of the United Nations, who is the depositary
of the CISG. In China's case, the Notification Letter satisfies this
requirement because the Chinese government deposited it with the
Secretary-General of the United Nations after resuming sovereignty of Hong
Kong. Second, the declaration must expressly identify the territorial units to
which the CISG extends. Here, the Notification Letter fails. The Notification
Letter is far from an express statement that the treaty requires of an Article
93(J) declaration. Rather, the Letter merely lists some treaties which China
determined should apply to Hong Kong. The Letter says nothing with respect to
the C1SG, and clearly does not "state expressly the territorial units to
which the Convention extends." As such, China's Notification Letter docs
not constitute an Article 93 declaration. Moreover, Defendants' argument that the Notification Letter' constitutes an Article 93
declaration presumes that the Letter represents an exhaustive and definitive
list of the treaties China applied to Hong Kong; an argument the Notification Letter itself contradicts. The
Letter states that the Chinese government will separately carry out the
formalities for any treaty that is not listed which it decides to apply to Hong
Kong. Notification Letter, 36 l.L.M. at 1676, � IV. It then declares
that no separate formalities are needed "with respect to treaties which
fall within the category of foreign affairs or defence or which, owing to their
nature and provisions, must apply to the entire territory of a State ." Id.
This language undermines Defendants' argument that the Notification Letter
evidences China's intent not to apply the C1SG to Hong Kong. Only one case, recently decided by the Supreme Court of the Republic of France, has
directly addressed the applicability of the CISG to Hong Kong. See Cour
de Cassation premiere chambre civile [Supreme Court, 1 st Civil Chamber], April
2, 2008, No. 04-17726, translated at: <http://cisgw3.law.pace.edu/cases/080402f1.html> (hereinafter "French Case
"). In its opinion, the Supreme Court of France reaches the opposite
conclusion and finds that the CISG does not extend to Hong Kong. A close
examination of the French Supreme Court's reasoning, however, supports this
Court's conclusion that the ClSG does in fact apply to the Hong Kong SAR. Defendants rely heavily on the French Case as persuasive authority. (R. 162- 1;
Defs.' Resp. at 2.) In that case the buyer, a French company, asserted that the
ClSG controlled the sale of goods by the seller, a Hong Kong company. The buyer alleged that the CISG applied because
Hong Kong is a region of China and because China, a signatory to the treaty,
did not make an Article 93 declaration restricting the application of the CISG
to Hong Kong. French Case, supra. The Supreme Court of France disagreed
with the buyer and held that the CISG does not apply to Hong Kong. In its
opinion, the Supreme Court of France characterized the Notification Letter as
"a formality equivalent to what is provided for in Art. 93, CISG." French
Case, supra. Because the court equated the Notification Letter with a
declaration, it concluded that China's failure to list the CISG on the Letter's
list of applicable treaties was determinative. For the reasons discussed above,
however, the Court does not conclude that the Notification Letter constitutes a
declaration under Article 93. Respectfully, the Court believes that the Supreme
Court of France overlooked the declaration requirements in Article 93(2) in
reasoning that the Notification Letter qualifies as a declaration. Moreover,
the Court finds persuasive the language in the Notification Letter noting that
China could later name treaties which would apply to Hong Kong. Accordingly,
this Court is not persuaded by the French Court's decision.
2. Effect of the Lack of a Declaration under Article 93(1) of the CISG When a Contracting State with two or more territorial units does not make a
declaration under Article 93(J) of the CISG, the Convention extends to all
territorial units of that State pursuant to Article 93(4). CISO, supra,
art. 93(4). This provision clearly and
expressly states that the CISG will automatically apply to all units of a
Contracting State where the Contracting State fails to make an Article 93(1)
declaration. Applying the CISG to all territorial units is therefore the
default and, as Plaintiff correctly argues, a State must affirmatively opt-out
of the ClSG on behalf of one or more of its territories in order to avoid this
provision. (R. 164-1; Pl.'s Reply at S.); see Schroeter, supra,
at 325. As the Court concluded above, China did not make an Article 93(1)
declaration. In the absence of such a declaration, Article 93(4) automatically
extends the CISG to China's territorial units, including Hong Kong. See
Schroeter, supra, at 325. The language of these ClSG provisions is clear and unambiguous when read in context
and is therefore binding. Based on the plain language of the treaty, the Court
concludes that the CISG applies to the Chinese Special Administrative Region of
Hong Kong. See United States v. DuarteAcero, 208
F.3d 1282, 1285 (11th Cir.2000) ("If the language of
the treaty is clear and unambiguous, as with any exercise in statutory
construction, our analysis ends there and we apply the words of the treaty as
III. THE DEPARTMENT OF JUSTICE OF HONG KONG Defendants advance the fact that the Department of Justice for Hong Kong does not list the
CISG as a treaty to which it is bound. (R. 162-J; Defs.' Resp. at 4, 5.) While
the Court finds this fact initially persuasive, it is not determinative. Importantly, because China is a
party to the CISG, the Chinese government holds the authority to extend the
ClSG to Hong Kong. See supra Part I; Joint Declaration, supra, �
XI. Although the Department of Justice for Hong Kong does not list the treaty
on its List of Treaties in Force and Applicable to the Hong Kong Special
Administrative Region, it is ultimately China's decision. As discussed above,
under the unambiguous language of the treaty, China's failure to make an
Article 93 declaration exempting Hong Kong from the CISG triggers the default
application rule of Article 93(4).
IV. POLICY CONSIDERATIONS Plaintiff raises persuasive policy considerations in favor of its contention that the
CISG should apply to the Hong Kong SAR. Specifically, Plaintiff notes that the
CISG drafters' goal was to remove legal barriers in international trade. CISG, supra,
Annex I; (see R. 158-1; PI.'s Mem. on Choice of Law at 9.) In 2006, Hong
Kong's total merchandise trade amounted to U.S. $658 billion, making it the
world's twelfth largest trading entity. See World Trade Organization,
Leading Exporters and Importers in World Merchandise Trade (2006), Table 1.8.
In light of Hong Kong's status as a major leader in international trade and as
a territorial unit of the Contracting State of China, these policy considerations
further support the plain reading of the Treaty that the CISG applies to Hong
Because the language of Article 93 of the CISG is clear and unambiguous, the Court
concludes that the CISG applies to the Hong Kong SAR. As a company with its
place of business in Hong Kong, Defendant Kelon International is therefore
subject to the CISG. All parties to the contract have their places of business
in different Contracting States under the Convention, so the CISG is the
applicable law in this case. CNA International v. Guangdon Kelon Electronical Holdings, et al., No. 05 C 5734 (N.D.Ill. filed Sept. 3, 2008) (footnotes omitted).
1. Separate defendant Raymond O’Gara has been voluntarily dismissed from this
2. The Court denied a motion of [Buyer] to strike [Seller]'s reply for allegedly
containing new arguments not raised in its motion for summary judgment but
allowed [Buyer] to file a sur-reply to [Seller]'s reply.
3. In so ruling, the court erroneously noted that "no American court has
addressed whether Hong Kong is a Contracting State" under the CISG. Id.
4. As the court's opinion in CNA International is
unpublished, and so the reader will have the benefit of that court's reasoning
(as adopted by this Court) as to why Hong Kong is a Contracting State under the
CISG, the Court sets forth the substance of CNA International in an
appendix to this Memorandum and Order.
5. [Buyer] argues it could not ferret out the latent defects short of a total disassembly
of the affected motors.
6. [Seller] argues there is one unpaid Whirlpool invoice (# IV20680/A9) unrelated to any
alleged defect and that [Seller] is entitled
to summary judgment on that invoice for that reason alone. [Buyer] concedes
that invoice dealt with motors other than those allegedly defective items
provided for Whirlpool, but states that invoice concerns a situation that arose
after the dispute between the parties had come to a head and that it is
exercising an affirmative defense of set-off as it relates to the damages that [Buyer]
claims from [Seller], rendering summary judgment on that invoice inappropriate.
7. To the extent these issues present legal questions for the Court to resolve, those
questions will be resolved at such time as any issues arise during the trial
and/or upon further development of the record.
8. [Buyer] states that as it relates to the Whirlpool element, it is seeking only the
amount of the negotiated settlement and that [Buyer] has provided all relevant
information about that. [Buyer] states that [Seller] has seen evidence that
Whirlpool's claims exceeded $5 million and it has also seen proof of the fact
that [Buyer] entered into an agreement to satisfy those claims for $1.1