How about a discussion about a set-off? You may ask why, and the answer would be that it is a very important issue. You may say that a set-off is such a popular problem that you know everything about it. Of course, I totally agree, but… are you sure? Are you sure which law shall be applicable for the set-off of claims concerning a supply agreement between Polish and Dutch business entities?
The Dutch supplier was the manufacturer of the products, which the Polish customer was using in his manufacturing processes. Parties did not conclude any written contract. The cooperation was successful until any defects appeared in the supplied goods. The customer suffered damage and decided to set-off his claims with the payment due to the supplier. And now for the focal point of the issue. Which law will be applicable? Polish or Dutch? The answer is not certain at all!
First of all we should consider where we can find any hint to solve our problem. So? Any suggestions? Of course! Regulation (EC) No 593/2008 of The European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), Article 17! The article 17 of Rome I says that…
“where the right to set-off is not agreed by the parties, set-off shall be governed by the law applicable to the claim against which the right to set-off is asserted.”.
Here we have our hint! If we want to find an applicable law for the set-off, first we need to define the applicable law for the claims of the supply agreement (the payment due to the supplier). Why? Because – according to the article 17 of Rome I – it is the claim against which the right to set-off is asserted.
While we successfully passed the first step, another problem appeared. In the whole Rome I there is no mention about supply agreement. Article 4 mentions about the sale, provision, distribution, franchise etc., but not about the supply. What does it mean? Is the supply agreement not taken into account in Rome I? Of course it is. Why do I think so? Because according to article 3 of the United Nations Convention of 11 April 1980 on Contracts for the International Sale of Goods (CISG; the Vienna Convention) contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. In other words, because in our case the customer did not deliver to the supplier any materials, we shall consider the supply as the sale. Poland and Netherlands are parties of the Vienna Convention and owing to this fact we shall apply it.
Then, we have a straight way to find the applicable law, because either we decide to apply article 4 point 1 a) of Rome I (which is a general rule) or article 4 point 3 of Rome I. In the event that we decide to follow the general rule, a contract for the sale of goods shall be governed by the law of the country where the seller (in our case the supplier) has his habitual residence (Netherlands). Therefore, the applicable law shall be the Dutch law.
However, under article 4 point 3 of Rome I we can try to showcase that the applicable law shall be different than the law indicated by the general rule, because the supply agreement is a manifestly more closely connected with this law. Nonetheless we cannot forget that the notion of “the manifestly more close connection” is very indeterminate. Therefore if we want to demonstrate that in our case the supply agreement is more connected with the Polish law, we should indicate specific circumstances, which lead us to this conclusion. For instance, it could be a strict connection of the supply agreement with the other agreement for which parties have explicitly chosen the Polish law. Another example could be a situation that the main part of the supply could be performed in Poland. In my opinion the abovementioned examples could be used as arguments to claim that the supply agreement has “a manifestly more close connection” with the Polish law.
What needs to be emphasized is that we have been deliberating about the general example. But as you can see, there is no certain answer for our initial question about the applicable law for the supply agreement between Polish and Dutch entities. Everything depends on specific circumstances and that is the beauty of the law – we never have certain answers, even if something seems so easy and clear.
{ 0 comments… add one now }