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Italian commercial law - Italian international private law - Litigation in Italy (Vienna Convention of 11 April 1980 - validity of the trade uses - proof of the defects of the goods)

Tribunal of Fermo
Sant'Elpidio a Mare branch

Order of 14 December 2006

Through a letter of credit, the engagement to pay is entered into directly and autonomously by a bank, and is not subject to any acceptance or action on the part of the ordering party.

Nevertheless, the payment of a letter of credit can be suspended through a temporary order, if the ordering party assumes, and can prove, the bad faith of the beneficiary to avail himself of the payment.

The possible execution of the supply by a third company, designated by the seller, can not to be regarded as a violation of the contract, if, already in past, there has been the same  ustom between the parties.

Such a custom represents a steady usage, to which the parties are bound in accordance with article 9 of the Vienna Convention of 11 April 1980.

The examination of the goods through an expert appointed by the buyer, without the previous agreement of the seller, cannot be considered as a valid source of evidence, since it was made in violation of the nternational trade use, according to which the seller has the right o attend the verification of the goods.

* * * *

Temporary orders and letters of credit

The above of decision epresents an interesting application to a contract between Italy and hina of the Vienna Convention on the contracts of international sale ofgoods. The story is the usual
one.
Chinese company had sold some leathers to an Italian company. After having received the goods, the Italian company complained about the existence of some defects, and asked the competent Italian court for a temporary attachment of the letter of credit opened in favor of the Chinese seller. The attachment was granted without previously hearing the Chinese seller.

The Italian company claimed also that the Chinese company had unlawfully assigned the contract to another Chinese company, that had supplied the goods.

After having examined the defences of the Chinese company, the court ordered that the temporary attachment be revoked.

The court found that in the present case no bad faith could be reproached to the seller, because the execution of the contract on the part of a third company did not represent a violation of the same, since already in past the same custom had been followed by the parties. Such a custom represented therefore a steady use between the parties, to which the same were bound in accordance with article 9 of the Vienna Convention. Article 9 provides that:
"1)The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned".

The court also held that the examination of the goods, made by an expert unilaterally appointed by the buyer, without the previous agreement of the seller, could not be regarded as valid evidence of the defects, since it was made in violation of the international trade use, according to which the seller has the right to attend the verification of the goods. The same principle had been affirmed by the Court of Appeal of Helsinki, according to which such custom was to be considered binding pursuant to aforementioned article 9 of the Vienna Convention.

On the other hand, the seller had offered the buyer to inspect the goods before the shipment at the port of embarkation in China, and, later on, before withdrawing the same at the port of destination. As a consequence, the buyer could not complain for not having been able to examine the goods before their withdrawal.

The court finally pointed out that the alleged difficulty to recover in China the price of the sale, in the case the complaint of the buyer were accepted in the subsequent proceeding on the merits, was not enough to justify the existence of a serious danger, that is a required to grant a temporary order, because, such a difficulty was well known to the buyer when he had decided to buy the goods from a Chinese company.

A letter of credit, issued by a bank upon request of the buyer, is considered as an independent contract (between the bank and the beneficiary) in respect of the "main" contract (between the buyer and the seller). Because of its autonomy in respect of the "main"
contract, the payment of a letter of credit can be prevented only if
the buyer can submit strong evidence ("prima facie evidence")
that there is a fraud on the part of the beneficiary.

A temporary order to pretend the payment of the letter of credit can consist either in an injunction issued in respect of the bank, or in an attachment of the letter of credit itself. A temporary order can be issued by the judge after having heard the parties in a public hearing, or, if a previous hearing can prejudice the execution of the temporary order, without previously hearing the parties ("inaudita altera parte" order). In such a case, the hearing for the confirmation of the temporary order shall take place within 15 days.
Both in the case of a temporary order issued after having previously heard the defendant, and in case of the possible confirmation of an "inaudita altera parte" order, the seller can ask that the temporary order be revised by a court of three judges. The request of revision does not suspend the execution of the temporary order, unless the
president of the court decides to suspend its enforceability, if the
order can cause a severe prejudice.

Too often "inaudita altera parte" orders are granted for the purpose of preventing the payment of letters of credit, opened to the benefit of foreign sellers, although the evidence of the alleged defects, submitted by the Italian buyer is not enough to justify the confirmation of the temporary order in the following phase of verification of the same.
It must also be pointed out that, even though a temporary order is
confirmed, the buyer shall start legal proceedings on the merits of
the claim, based on the violation of the "main" contract
(i.e. the contract of sale), because of the alleged defects of the
goods. In this regard, the jurisdiction of the Italian courts does
not usually exist, because the obligation, that is the object of the
claim was to be carried out in a foreign country (specifically, the
obligation of delivery is considered to be carried out in the place
where the goods have been handed over to the shipping company), or because the parties have signed an arbitration agreement (for
example, if they have provided an arbitration proceeding in China
before CIETAC).

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