C.A. 132/85 Amropah v. Hamegader, P.D. 41(4) 477

Facts: Two business transactions occurred between the appellant, a Swiss company, and the respondent, an Israeli company. In the first transaction the appellant extended credit to the respondent at an agreed term of interest, and in the second the respondent purchased steel from the appellant. The respondent paid for the goods, but failed to pay the full interest and hence the law suit.

The respondent argued in its defence that it had the right to offset the remaining interest due, against the damage caused by the substandard quality of the steel supplied. The respondent claimed in this respect that the appellant had failed to fulfil its contractual obligations in respect to the quality of the merchandise and subsequently counter-sued for compensation. In response, the appellant claimed that the respondent had lost the right to rely on lack of conformity as a cause of legal action. This claim was based on Article 49 of the Uniform Sales Law, 1971, which implements the ULIS Hague Convention in Israel. According this provision, once the seller has been given notice of the nature of the non-conformity, the buyer’s right to rely on lack of conformity will be time barred after one year.

The Supreme Court ruled:

  1. The Uniform Sales Law applies also to those countries that have not ratified the 1964 Hague Convention on International Sales (“ULIS”). In light of Article 3 to the Convention, a country desiring to limit the applicability of the convention to parties from ratifying states, must provide so expressly in its internal law. Israel has not done so.
  2. ULIS Article 49 states that with the exception of the case of fraud on the part of the seller, the buyer’s right to rely on lack of conformity will be time barred after one year. The type of fraud inferred by this provision is that which foils the filing of a law suit within the permitted period, and not that which is the cause of the non-conformity. Article 49 refers to cases such as where the seller promises to replace the merchandise or suggests a compromise, with the sole intention of delaying the law suit until after the limitation period has expired.
  3. The running of the limitation period under Article 49 not only excludes a remedy but also affects the right. This can be seen through analysis of the wording of the article and also considering the purpose of the Uniform Sales Law. Article 49(a) states that “the buyer loses the right to rely on lack of conformity”. These words emphasize the loss of the substantial right itself rather than just the procedural right to sue. Further evidence that it is the right itself that is extinguished can be inferred from Article 49(b), which states explicitly that the buyer can no longer rely on lack of conformity even as a defence. This is contrary to most other laws of limitation, where the substantial right remains and can still be relied upon as a defence after the expiration of the limitation period.

    The objective of the Hague Uniform Sales Law is to clarify the legal position of the parties as quickly as possible in order to stabilize trade relations. In contrast to the prevalent reason in other laws whereby limitation periods are established to preserve evidence, the limitation period of one year under Article 49 is aimed to ensure speedy resolution of legal disputes. Therefore, in order to ensure legal certainty, ULIS Article 49 not only affects the remedy but destroys the right.
  4. Due to the fundamental differences between the two laws, the provisions of Israel’s Act of Limitation cannot be applied directly to ULIS Article 49. Therefore, the rule according to which a party must invoke the defence of limitation at the first opportunity, does not apply to limitation under the Uniform Sales Law. If a party failed to invoke the defence at the first opportunity, he will not be barred from doing so at later stage, but it may be reflected in higher court expenses imposed on him.