CISG and Arbitration: Analyzing Material Alteration of Contract Terms

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Added on 2019/10/09

AI Summary

This assignment examines the application of the CISG (Convention on Contracts for the International Sale of Goods) and its implications on arbitration clauses, specifically addressing whether the inclusion of an arbitration clause constitutes a material alteration of the contract. The analysis focuses on Article 19 of the CISG, which deals with additional or different terms in the contract. The assignment highlights that while the presence of an arbitration clause itself might not lead to material alteration, introducing a third-party location for arbitration, rather than the contracting parties' locations (South Korea and the United States in this case), can result in such alteration. The assignment references legal precedents, including the Lea Tai Textile Co. v Manning Fabrics (1975) case, to support the argument that the arbitration location should align with the contracting parties' places of business, and any deviation could be considered a material change. The conclusion emphasizes that the specific location of arbitration is crucial in determining whether the contract terms are materially altered under the CISG.

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Article 19 of the CISG explicitly states that Additional or different terms relating
among other things, to the “settlement of disputes” are considered to materially
alter the terms of the contract. (Article 19: Spagnolo,, 2014) In the present case, the
question arises whether inclusion of the arbitration terms constitutes material
alteration of the terms of the contract. Here, the ESS is based in South Korea and
RTI in the US. Having chosen to apply the CISG as a binding law on the parties the
conflict resolution has to be chosen through an arbitrator. As an established trade
usage, arbitration is a common method of settlement of dispute as specified under
Article 19(3) of the CISG Rules. Therefore, in cases where the arbitration clause
reflects the parties’ practices or an applicable trade usage, it does not result in
material alteration of the contractual agreement between the parties to the
contract. However, the question here is that RTI has chosen a third country as the
seat of arbitration, questioning the fact whether it could lead to material alteration
in case the parties do not agree on the place of dispute resolution can cause
material alteration of the contract case.
Applying the general rule the place of the contracting parties has to be convened as
the seat of arbitration proceedings. Article 1(a) (b) stipulate that wherein the
question occurs regarding the contract of sale of goods states where the two states
have their places of business in the contracting states, designation of a third state
can take place only in case of litigation which took place in the third contracting
states. (CISG-online, 2015) This ensures that the place of hearing has to be that of
the contracting states. Any addition of third place causes material alteration in the
clauses and negates the principles of battle of forms. As has been held by the
courts in a number of cases, that where there is discrepancy as to the place where
the process of arbitration will take place, general acceptable principles of contract
law, including the Uniform Commercial Code will be applicable. In the case of Lea
Tai Textile Co. v Manning Fabrics (1975), the court laid down the fact wherein the
arbitration clause is introduced, the parties have to resolve their conflict before the
domestic courts. In this case, it has to be either South Korea or United States.
Introducing a new place will therefore constitute material changes in the contract
under the Convention.
Hence in the present case, while adding the arbitration clause per se does not by
itself cause material alteration of the contract, but introducing a third place other
than that of the contracting parties can lead to material alteration of the clauses of
the contract.