Suspicion as a Ground of Non-conformity of Goods under CISG
[Sambhav Sharma is a student at Amity Law School, Delhi.]
The United Nations Convention on Contracts for the International Sale of Goods (CISG) is one of the most methodical sets of provisions devised to govern commercial contracts and forms an intrinsic part of the realm of international commercial law. It is essential to fathom the implications of the convention as, while India is not a party to the CISG, its use in international commercial arbitration has a derivative bearing on the evolution of arbitration and contractual laws in India.
Article 35 of the CISG provides for conformity of the goods as per the contract entered into between the parties. It is divided into 3 prongs: Article 35(1), which deals with the quality, quantity and description standards as mentioned in the contract; Article 35(2), which sets out the parameters of what constitutes a conforming good; and Article 35(3), which excludes the seller’s liability if the buyer had knowledge or could not have been oblivious of such non-conformity.
One aspect that we do not find in the bare provisions of Article 35 is that suspicion of non-conformity of goods can also render the goods non-conforming. In the contemporary world, where technological advancements have paved way for numerous opportunities and innovations, a mere reliance on the physical features of goods in order to prove conformity would be misleading as expectations of parties to the contract differ, not limiting to tangible compliance. Various extraneous circumstances that are not concerned with the goods’ physicality may be relied upon to adjudge the fitness of goods such as provision of necessary documentation and market expectations. Similarly, according to Pace International Law Review, goods cannot be declared as conforming under the contract solely on the basis of the physical flawlessness. Suspicion of non-conformity as a principle aids the buyer in such a case where even if the goods might be physically faultless, the suspicion of deficiency renders them non-conforming. This opens the buyer to multiple redressal mechanisms envisaged under the CISG such as the option of replacement / repair of goods under Article 46 of the CISG, which deals with specific performance when the seller has delivered non-conforming goods.
The question of suspicion arises when the goods prima facie adhere to the specifications, but due to a suspicion of defect, the goods are rendered non-conforming. The crucial question, therefore, is regarding the threshold of such suspicion. Can any suspicion result in the non-conformity of goods under Article 35 of the CISG? The answer is in the negative.
Threshold for establishing suspicion as a basis for non-conformity
In order to establish suspicion as a basis, a certain threshold has to be met. The threshold, as per the Frozen Pork case, suggests that the buyer should, at first, provide concrete facts to back their claim resulting in a presumption that the suspicion is true. This suggests that the threshold is high to begin with as any failure to establish facts that prove suspicion will nullify the non-conformity claim. Second, once suspicion is established, the burden shifts to the seller, who shall then be given an opportunity to dispel such suspicion. If the seller successfully dispels suspicion, there exists no non-conformity.
The reasoning behind such threshold, as held in the German case, suggests that one cannot raise a mere suspicion and then adjudge that suspicion to be true. Essentially, the requirement is for the buyer to fully establish a suspicion based on cogent facts, as not every suspicion can amount to non-conformity. The jurisprudential principle here is not the existence of a suspicion itself, but the effect of the suspicion on the usability of the goods. This is because a suspicion might exist in most of the cases. To amount to non-conformity resulting in breach, it has to be of such stature and magnitude so as to have an adverse impact on the functionality of the goods. The impact might not be present, but it may lead to a potential threat or defect, which in itself makes the goods unfit for use. Suspicion can only be dispelled with certainty that the goods are compliant. Thus, while the burden is heavy on the buyer to provide concrete facts in order to establish suspicion, it is equally strong on the seller to dispel it by ascertaining facts to the contrary.
Burden of proof
The principle of proof proximity shall also be kept in mind in order to establish the burden of proof, according to Prof. Dr. Ingeborg Shwenzer. This principle falls under the ambit of Article 36 of the CISG which states that the seller is liable for any lack of conformity arising at the time of passing of risk. However, if the goods are in the possession of the buyer, proof proximity suggests that buyer shall be liable for the defect as the goods fall within its sphere of risk. This principle, therefore, comes as a defense for the seller, who no more has the physical possession of the goods and cannot be held liable as the risk has successfully passed to the buyer.
Although, this principle itself has exceptions. One such exception is that if the non-conformity existed at the time of production of the goods, or when the goods were in the ‘sphere of risk’ or the physical possession of the seller, the passing of the risk to the buyer would not shift the liability. This implies that if the defect arose before the risk passed to the buyer, the seller can be liable for non-conformity. Thus, as per the Cocoa Beans case, what is of essence under Article 36 is not the time when the non-conformity is discovered but the time when it comes into existence.
To link this principle to the present consideration, we find that it is also applicable when there is a suspicion. This implies that if there is a suspicion of defect in the goods at the time when the goods have reached the buyer, but the suspicion is of a defect that necessarily must have arisen before the goods were delivered, the seller can be held liable. However, with the principle, comes the threshold. While it is already strenuous to provide concrete facts to prove suspicion when the goods are in the possession of the buyer who is claiming non-conformity, it becomes even more difficult to prove the same when the goods are in the control and keeping of the seller. To establish suspicion, the buyer would face great hardships as it may be impossible to examine the functionality and usability of the goods while they are not in its possession. Thus, while Articles 35 and 36 of the CISG can be utilized to hold a seller accountable for defective goods even if there exists a mere suspicion, it is extremely onerous to sufficiently prove suspicion amounting to breach.
Market reaction: an important consideration
While determining whether suspicion amounts to non-conformity, one important consideration is also the market’s reaction to the goods. Non-conformity usually arises when the goods have been rendered unusable owing to the defect claimed. However, in certain cases, the market’s expectation can have an adverse impact on the usability of goods. In a case where the market expectation is intrinsic to the functioning of the goods, any negative reaction may result in the reduction in their usability. For example, if the market attaches lesser value to a car that has been involved in an accident, such a car is non-conforming regardless of whether the consequences of the accident have been remedied entirely. G. A. Akerlof in “The Market for ‘Lemons’” states that in the long run, buyers would lose confidence in the market and would be inclined to treat all such goods as being of low quality. This implies that the market has high expectations towards the goods, and the suspicion may lead to a reduction in their usability as a loss of conviction in goods meant for the public will result in a withdrawal of usage, thereby making the goods non-conforming. Thus, another course in proving non-conformity owing to suspicion is the intended market’s reaction.
Suspicion excludes the actual existence of a defect in the goods and focuses on the anticipation or likelihood of the defect. While this makes it easier for the buyer to claim non-conformity under Article 35 of the CISG, the threshold to prove non-conformity due to suspicion remains quite strict. It is imperative to understand that while such liberal interpretation by including suspicion as a basis is done to benefit the buyer, it also brings an added responsibility upon the redressal forum to carefully examine the facts.
One must not confuse suspicion with anticipatory breach. While in both instances there is no apparent contravention of the terms of the contract, they both serve different purposes. Anticipatory breach exists when one party understands the high probability of a breach of the contract in the near future. However, suspicion of defect, if proven, itself gives rise to non-conformity, resulting in an immediate breach of the contract.
Suspicion as a basis of non-conformity is not a blanket rule. It exists to safeguard the interests of all parties to the contract without any depravation of the rights of a party. The genesis of this principle comes from the difficulty in establishing actual non-conformity in the present time. However, just because no defect can be proven does not exclude the possibility of it materializing in the future.
While analyzing such nuanced concepts in international commercial law that govern international contracts, one should keep in mind the advancements in technology and the risks attached with it. Whenever contracts are entered into for goods that serve the public at large, the stakes are very high, and the room for error is minimum. It is mostly in such cases that suspicion of defect becomes a basis of proving non-conformity under Article 35 of the CISG.
Suspicion as a basis of non-conformity is a redressal that is available in the absence of an actual physical defect in the goods. Therefore, the principle of suspicion carries a huge burden of also proving that while there is an absence of a confirmed shortcoming, the suspicion alone, backed by concrete facts, is sufficient to render the goods defective.
The reason why courts rely on suspicion as a basis of non-conformity is because it is not always possible to claim a breach of contract based on the physicality of goods. However, since the stakes are high in commercial contracts which deal with goods of high monetary value, the convention governing the contract must be well equipped to provide redressal to the buyer in all circumstances and foresee any breach. The intention is not to provide unnecessary advantage to one party, but to ensure accountability and adherence of the terms of the contract.
While the conventional way to prove a breach of the contract is by establishing an evident contravention of the contract, interpretations of Article 35 provide for an innovative method of proving a breach by way of a suspicion of defect, resulting in non-conformity of the goods. Such provisions open doors for novel ways to approach the terms of a contract and develop various rights and duties for the parties.