C.A. 3912/90, Eximin, Belgian Corporation v. Textile and Footwear Italstyle Ferarri Inc. , P.D. 47(4)64, of the Israel Supreme Court.

This judgement was given under the old existing Hague law, but nevertheless referred to the CISG as well ďby way of analogyĒ. It dealt with a sales contract between an Israeli manufacturer and a Belgian purchaser, who ordered certain jeans boots for exportation to its customer in the U.S. It requested the manufacturer to attach a symbol to the boots, which was a trademark of Leviís Jeans. Upon importation to the U.S. the goods were confiscated by the U.S. Customs Authorities because of breach of the trademark. Later on, a compromise was reached whereby the symbol was removed, and the boots were sold in the U.S. market at a much reduced price. The Belgian buyer sued for its losses, claiming that the Israeli purchaser failed to provide a clean title, under Article 52(a) of the Hague Uniform Law. When applying, by way of analogy, Article 42 of the CISG, the Court reached the conclusion that the Seller does not bear the responsibility for the fact that the goods were subject to a trade-mark of a third person, since in the circumstances, the Buyer must have known about this fact or could not have been unaware of it at the time of the conclusion of the contract. Moreover, the Buyer himself had supplied the Seller with the designs for the boots, which included the trademark. Nevertheless, the Court ruled that the Seller should bear part of the loss, because of breach of the good faith obligation arising from Israelís general contract law (Article 39). In the Courtís opinion, both the Seller and the Buyer must have known that the products were infringing the famous trademark of Leviís, and in ignoring this fact they both acted in bad faith. The Court developed a new doctrine of contributory fault, well known in the law of torts, but hitherto not recognized in the law of contract. The loss was therefore to be shared by the Seller and the Buyer in equal shares (50%-50%).

For a critique of this judgement see: Arie Reich, "The Uniform Law on International Sales: A Need for Revision", 14 Bar Ilan Law Studies (1997) 127.

The main points of the critique:

  1. As a matter of proper methodology, one should not import provisions from domestic law and legislation into a dispute governed by the CISG (assuming the CISG would apply), unless the question that arises is not expressly settled by it, and one cannot settle it by reference to the general principles of the CISG (see Art. 7(2)).
  2. The principle of good faith exists in the CISG, but it does not reach the status of a general obligation. Rather, it is restricted to a principle for interpreting the provisions of the Convention.
  3. The relevant provision of the CISG, namely Article 42, deals expressly and in detail with this type of situation, when the goods are subject to intellectual property rights. According to this provision, if the Buyer knew, or could not have been unaware of these rights, the Seller does not bear responsibility in this regard, and is not under the obligation to supply goods that are clean from such rights. It is clear from the provision, that this applies even when the Seller knew about the infringement, since this is a precondition for any liability on his part. Thus, the Supreme Courtís solution of dividing the liability between the parties is clearly inconsistent with that of the CISG, and probably with that of the Hague Convention as well. Dr. Reich also argues in the article that it is inconsistent with good policy.