Agreement on Limitation Period in the International Sale of Goods

The Agreement on Limitation Period in the International Sale of Goods was prepared by the United Nations Commission on International Trade Law (UNCITRAL) with the aim of unifying and harmonizing the rules relating to the time period (limitation period) within which claims, legal actions, or judicial proceedings arising from contracts of international sale of goods must be commenced. This primarily leads to achieving contractual stability in international commercial transactions by regulating the initiation of legal actions or proceedings, especially after long periods have passed since the conclusion of such contracts.

Scope of Application of the Agreement

The Agreement regulates the limitation period after which neither the seller nor the buyer may bring claims arising out of a contract for the international sale of goods, or relating to its breach, termination, or invalidity. Short procedural limitation periods such as notice periods for the existence of a defect in the goods sold fall outside the scope of the Agreement (1).

The Agreement considers a contract of sale to be international if the places of business of the parties to the contract (seller and buyer) are located in different States at the time of the conclusion of the contract. The nationality of the parties or the civil or commercial nature of the contract plays no role in determining this characterization (2).

The Agreement specifies two principal situations in which it does not apply to contracts of international sale of goods, in addition to the exclusion of the Agreement’s application by mutual agreement of the parties, namely:

1. If the places of business of both parties are in two States that are not Contracting States to the Agreement.
2. If the rules of private international law lead to the application of the law of a State that is not a Contracting State to the Agreement (3).

 

Exceptions to the Application of the Agreement

The Agreement excludes specific types of sales and claims from its application, namely:

1. Goods purchased for personal or family use (unless the seller was unaware of the purpose of purchase).
2. Goods sold at auction or pursuant to a judicial decision.
3. Bonds, shares, investment certificates, negotiable instruments, or money.
4. The sale of ships and aircraft, and electricity.
5. Claims arising from death or personal injury or nuclear damage; financial or real property mortgages; judgments or judicial decisions; any document enforceable directly pursuant to the law of the place where enforcement is sought; bills of exchange, cheques, or promissory notes.
6. Contracts in which the predominant part is the supply of labor or other services (4).

Proposed Limitation Periods and Their Commencement

The basic limitation period is four years from the date the claim arises, and deviation therefrom may only be agreed upon in very limited circumstances. This determination is one of the most significant features of the Agreement due to the divergence in limitation periods among various legal systems, as well as the differences in the concept of limitation itself between civil-law systems and Anglo-American systems. The former consider limitation to be a substantive matter, thereby allowing the application of foreign substantive law in certain situations, whereas the latter consider it a procedural matter governed by the law of the forum adjudicating the dispute (5).

For claims arising from breach of the Agreement, the limitation period begins on the date the breach occurs. If the claims relate to defects in the goods, the period begins on the date of actual delivery or refusal to deliver. If the claims relate to fraud, the period begins on the date of discovery or the reasonable date of discovery.

If a guarantee (warranty) is provided for the goods, the period begins on the date the seller is notified of the event, provided that it does not exceed the duration of the warranty.

In contracts that are terminated before their due date, or installment contracts, the period begins on the date of termination or on the date of breach of each installment (6).

Suspension and Extension of the Limitation Period

A- The running of the limitation period is suspended upon taking the following actions:

1. Filing a lawsuit or undertaking any action or claim before the competent court.
2. Commencement of arbitration proceedings in the manner stipulated in the arbitration agreement or the law governing arbitration procedures.
3. Undertaking any legal proceedings commenced due to the death of the debtor, incapacity, bankruptcy, insolvency, dissolution, or liquidation of the debtor entity, regardless of its form (7).

B- As for the extension of the limitation period, the following rules apply:

If legal proceedings end without a binding decision on the validity of the claim, the creditor has the right to obtain an additional one-year period to file a new claim if the original period has expired or less than one year remains before its expiry.

The Agreement also protects the buyer against whom a third party has brought a claim, as the running of the period is suspended with respect to the seller if the buyer notifies the seller thereof.

If the creditor, before the expiry of the limitation period, undertakes in the State where the debtor’s place of business is located any act that, under the law of that State, results in the commencement of the limitation period, a new limitation period of four years begins to run from the date determined by that law. Similar new periods also begin if the debtor acknowledges in writing, before the expiry of the limitation period, his obligation to the creditor (8).

Finally, the limitation period is extended for one year after the cessation of the force majeure circumstances that prevented the creditor from suspending the running of the limitation period (9).

Expiry of the Limitation Period

The Agreement sets a maximum period of 10 years from the date the limitation period begins to run, upon the expiry of which limitation occurs in all cases. One of the disputing parties must plead the expiry of this limitation period.

No claims, actions, or legal proceedings commenced after the expiry of the limitation period shall be recognized; however, a claim may be invoked as a defense in an action brought by the other party in order to achieve fairness between the disputing parties.

If the debtor pays the debt after the expiry of the limitation period, he is not entitled to reclaim it, and both the original debt and its accrued interest become extinguished by limitation (10).

Enforcement, Procedures, and Reservations

1. The Agreement provides, for the purpose of implementing its provisions in States with multiple legal systems such as federal States, the possibility of applying the Agreement to all of their internal territorial units or to one or more of them only, provided that the Secretary-General of the United Nations is notified of declarations expressly specifying the territorial units of that State (11).
2. The Agreement also permits several reservations by Contracting States, including: the existence of domestic legislation similar to the provisions of the Agreement; the non-application of the provisions of the Agreement to procedures related to the invalidity of the contract; the non-application of Article (24) of the Agreement relating to a party’s invocation of the expiry of the limitation period; and the Agreement not preventing the application of any other agreement containing provisions on the same matters governed by this Agreement (12).

 

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Sources

1. Article One of the Agreement on Limitation Period in the International Sale of Goods, issued on 14/6/1974, as amended by the Protocol of Amendment dated 11/4/1980.
2. Article (2) of the Agreement.
3. Article (3) of the Agreement; for details: Prof. Vincent Heuzé, Traité des contrats, supervised by Jacques Ghestin, 1st edition 2005, translated by Mansour Al-Qadi, Al-Halabi Legal Publications, Beirut, p. 143.
4. Articles (4–6) of the Agreement, as amended according to Article One of the 1980 Protocol.
5. Steven Nelson, “The Convention on the Limitation Period in the International Sale of Goods,” The International Lawyer, Vol. 24, No. 2, Article 17, 1990, p. 584.
6. Articles (8–12) of the Agreement.
7. Articles (13–15) of the Agreement.
8. Articles (17–20) of the Agreement.
9. Article (21) of the Agreement.
10. Articles (24–27) of the Agreement.
11. Articles (31–33) of the Agreement.
12. Articles (34–38) of the Agreement.