Inadequacies of Article 42 CISG: Does the Answer Lie in Article 79?

• Author: Sam Mutsamwira
• Position: PhD Chemistry, MLS (Hons), MAM, Freelance IP Consultant with particular expertise in scientific start-ups
• Pages: 123-149

123

INADEQUACIES OF ARTICLE 42 CISG: DOES

THE ANSWER LIE IN ARTICLE 79?



Abstract

e United Natio ns Conve ntion on Contracts for the Int ernational Sale of Goods

(CISG) pro vides unifor m laws that govern transnational sales contracts between

businesses operating in Contracting States, or when the la w of a Contra cting State is

applicable according to conict of laws rules.1Currently 97 Contracting States worldwide

have adopted the CISG, including New Zealand.2Article 42 CISG requ ires a seller to

deliver to the buyer goods that are free from any third-party intellectual property rights

(IPRs). e territor iality of IPRs means that a seller may not be the party best suit ed

to know the existe nce of any third-party IPRs in certain jur isdictions c ompared to the

buyer. Article 42 creates uncertainties for parties involved in international commerce

with regards to i ntellectual propert y (IP) disputes and can lead to unsatisfactory res ults.

In th is pape r, I explo re whet her an ag gri eved pa rty to a contra ctua l disp ute abo ut a thir d-

party IPR claim can pu rsue a cause of action under art 79. I apply a two-stage enquiry

to selec ted cases, under art 42 (stage o ne) and then art 79 (stage two) of the CISG, and

demonstrate that a losing party in a third-party IPR dispute is also unlikely to succeed

under art 79, ev en in rare circumstances.

I. Introduction

Sale of goods le gislation helps reduce t ransaction c osts for businesses a s it saves

parties to a contract of sale from having to negotiate express contractual terms.3

Contracts for the sale of goods between New Zealand businesses are governed by

default ru les contained in p t 3 of the Contract and Com mercial Law Act 2017 (CCL A),

except where the parties or other legislation provides otherwise. Typically, the

1 United Nat ions Convention o n Contract s for the Inter nationa l Sale of Good s 1489 UN TS 3 (opened

for signat ure 1 Januar y 1988, entered i nto force 1 Janua ry 1988) [CISG], a rt 1.

2 “CISG-online” <https://cisg-online.or g/home>.

3 Nicholas Wood A to Z of New Zealand La w (online ed, Thom son Reuters) at [14 .G.1.1.1].

* Dr Sam Mutsamwira, PhD Chemistry, MLS (Hons), MAM, Freelance IP Consultant with

partic ular exper tise in scient ic star t-ups, emai l: sammuts amwira@ gmail.c om.

124[Vol 31, 2024]

seller has a n obligation to give goo d and clear title to t he buyer,4 unless the par ties

implicitl y or expressly agr ee otherwise.5 Th at is, rst ly, the re is an impli ed cond itio n

that the sel ler has the righ t to sell the goods .6 Secondly, there is an i mplied warra nty

that the buyer is entitled to enjoy quiet possession of the goods.7 This warranty

extends beyond the time of sale and is breached if the seller disturbs, or a third

party lawfully disturbs, the buyer’s quiet possession,8 while the seller can hardly

warrant against unlawful interference from third persons.9 Thirdly, there is an

implied warranty that the goods are free f rom any charge or encumbrance that is

not declared or k nown to the buyer.10

In the context of IPRs and claims, the leading applicable case in New Zealand

national sales law is Nibl ett Ltd v Co nfectioners’ Mat erial Co Ltd.11 In Niblett Ltd v

Confectioners’, the Court rule d that, since the seller c ontravened the equivalen ts of

both subss 135(1) (a) and (b) of the C CLA because the good s infringed a th ird party’s

trademark, as a result, the seller could be legally prevented from selling them

and the buyer was unable to enjoy quiet possession.12 However, in Microbeads AG v

Vinhurst, where no thi rd-party patent r ights subsis ted at the conclusion of the sa les

contract (unpublished patent), but the patentee claimed infrin gement of its patent

after it was published, the Court held that the seller was in breach of a cognate

provision to s ubs 135(1)(b) but not subs 135(1)(a).13 Therefore, goods marred by third-

part y IPRs or claims ca n be character ised as having a le gal defect in title .

If a sales cont ract fal ls with in the scope of the CISG, its provi sions take eect

and wil l prevail over any other New Zea land law if there are any inconsistencies.14

New Zeala nd adopts and incorporat es the CISG into its nat ional law by virtue of s s

202–206 of the CCL A. In internat ional commercial sa les contracts governed by t he

CISG, the buyer is pr otected from thi rd-party clai ms on the goods by art s 41 (non-

IP) and 42 (IP). Con sequently, the matter of how ar t 42 is interpreted by cou rts and

arbitra l tribuna ls around the world, a nd whether there a re any altern ative causes of

action where IPR s are concerned under the CI SG is a salient topic for New Zeal and

businesses en gaged in intern ational commerce. Ac cording to ar t 42(1):

4 Contract and Commerci al Law Act 2017 [CC LA], s 135.

5 CCLA, s 135 (2).

6 At s 135(1)(a).

7 At s 135(1 )(b).

8 Matthew B arberLaws of New Zeal and – Sale of Goods(onl ine ed, New York, Lex isNexis) at [137].

9 Above n 3, at [1 4.G.5.4]

10CCLA, s 135 (1)(c).

11Niblett Ltd v Confec tioners’ Materia ls Co Ltd [1921] 3 KB 387 (C A).

12At [398 ]–[403].

13Microbeads AG v Vi nhurst Road Marking s Ltd [1975] 1 WLR 21 8 (CA) at [221]–[227] .

14CCLA , s 205.