The CISG Governs the Sale of Computer Graphic Cards Contract While the Quebec Law Determines the Weight to be Given to Evidence by the Court – #38

The China International Economic and Trade Arbitration Commission (CIETAC) is hosting the 18th CIETAC Cup Commercial Arbitration Moot Competition in November 2020. I am going to participate in this online arbitration competition as an arbitrator. This year, the Problem concerns the applicability of United Nations Convention on Contracts for the International Sale of Goods (“CISG”) on the purchase and license agreement on the viral sectors for the production of vaccines against respiratory diseases, such as COVID-19. Out of curiosity, I have read a recent decision of Superior Court of Quebec to learn how the Quebec courts use CISG and domestic laws to decide “whether or not to award damages and, if so, for what amount” in the disputes arising out of a sale contract of the computer graphic cards between the multinational companies. The Court notes that while the CISG governs the sale of computer graphic cards contract, the rules applicable to evidence in this case are in the Book Seven of the Civil Code of Quebec.

Key Facts

In early 1998, the Plaintiff purchased the Defendant’s graphic cards for new Kayak and Vectra personal computers. The worldwide Business Desktop Division (“BDD”) of the Plaintiff operates primarily in Grenoble, France.

In late 1998, the Plaintiff started to install Matrox’s G-100 and G-200 graphic cards in Kayak and Vectra personal computers of the Plaintiff.

In the Spring of 1999, the Plaintiff reported that a high number of failures were occurring on an unpredictable random basis as some Kayak and Vectra computer screens could suddenly go totally black.

By June 1999, the Plaintiff considered this problem to be “epidemic”.

In May 2000, the Plaintiff sent a letter of demand to the Defendant containing a monetary claim identifying damages at US$6.2 million.

In early 2001, the Plaintiff filed its initial lawsuit against the Defendant before the United States District Court, Eastern District of California. However, the district court ruled that Quebec court is a more appropriate forum to adjudicate this dispute.

In early 2002, the Plaintiff sued the Defendant before the Superior Court of Quebec to seek an award of damages in the amount of $24 665 429.30 CAD in relation to the sale of defective computer graphics cards.

In June 2002, the Defendant called the STMicroelectronics Inc. (ST) in warranty as ST was the manufacturer of the components of the graphics cards.

In May 2003, the Defendant instituted its parallel Direct Action against the ST seeking an award of damages in the amount of 21 344 297,31 $.

In September 2014, a Coordinating Judge for all the actions among the parties was appointed.

In November 2014, the Court ordered that the principal action be split from both Defendant’s warranty action and direct action against ST.

In March and May 2019, the Superior Court of Quebec held the hearings on the merits of the case.

In January 2020, the Honorable Gary D.D. Morrison rendered the judgement. The Court condemns the Defendant to pay the Plaintiff the sum of $2 586 126.80 plus interest and the additional indemnity calculated as of May 2000.

Applicable Laws

Article 1 (1) (a) CISG states that the CISG applies to contracts of sale of goods between parties whose places of business are in different Contracting States.

Art. 7 (1) CISG provides the guiding principles of interpretation of the CISG, which is to “promote uniformity in its application and the observance of good faith in international trade” in consideration of its international character.

Articles 35 and following CISG state that the seller must deliver goods which are of the quality and description required by the contract and that the seller is liable in accordance with the contract and the CISG for any “lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time”.

Art. 45 (1) (b) and Art. 74 CISG state that the buyer may claim damages of the loss he has been suffered and, further, been a consequence of the seller’s failure to perform his obligations under the contract and the CISG.

Art. 1 of the Act respecting the United Nations Convention on Contracts for International Sale of Goods states that the CISG has force of law in Quebec.

Art. 2832 C.c.Q. stipulates that a simple writing that relates a fact may be admitted into evidence as testimony or as an admission against its author.

Art. 2870 C.c.Q. stipulates that the manner in which documents drawn up in the ordinary course of business can still be entered into evidence when the person who entered the facts does not testify if the court shall ascertain that the person is impossible to appear as a witness or it is unreasonable to require him to do so.

Analysis of the Court

1. What is the governing law of the computer graphic cards sales contract between the parties?

In the present case, the Plaintiff frames its claim on the basis of the Quebec Act and Art. 1 (1) CISG. As France, Quebec, Canada and the USA are all Contracting States of the CISG. Both parties agree that the CISG is actually the governing law of the computer graphic cards sales contract. However, both parties have been unable to identify and submit Quebec case law regarding the application of Art. 74 CISG to claim damages of the loss as the consequence of seller’s breach of his obligations.

The Court notes that as the Quebec jurisprudence on the application and interpretation of Art. 74 CISG is unavailable, the Court would continue its analysis with the assistance of the case law and doctrine emanating from other contracting states to the CISG as Art. 7 (1) CISG provides guidelines to the judicial courts and tribunals on how to interpret the CISG in order to promote uniformity in its application and the observation of good faith in international trade (See also pars. 26 to 29 of France c. Matrox Graphics, 2020QCCS78 and Mazzetta v. Dégust-Mer, 2011QCCA717).

According to the CISG Advisory Council Opinion No. 6 ad the UNCITRAL Digest of Case Law on the CISG 2016, Art 74 CISG indeed establishes the “principle of full compensation and, accordingly, should be liberally construed so as to compensate the aggrieved party for all disadvantages suffered as a result of the breach” (See UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, 2016 Edition, United Nations, p. 331, Items 2 and 5, p. 334, Items 1, 3 and 10  and CISG Advisory Council Opinion No. 6, Calculation of Damages under CISG Article 74, Rapporteur: Professor John Y. Gotanda, Villanova University School of Law, Villanova, Pennsylvania, U.S.A., p. 2, Items 1.1 and 1.2.)

2. Where can we find the applicable rules of evidence to examine the weight to be given to evidence?

As regards the weight to be given to evidence, according to Art. 7 (2) CISG and the UNCITRAL Digest of Case Law 2016, the dominant view is that it is not governed by the CISG and, therefore, is a matter of domestic law. (See UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, 2016 Edition, United Nations, p. 332, Item 12). After an ample analysis of the admissibility and integrity of the Exhibits P-9 to P-9.3, the Court notes that the Defendant’s objection to the filing of those Exhibits is not well founded. According to Articles 2832 and 2870 C.c.Q., Exhibits P-9 to P-9.3 should be admissible and receivable as testimonial proof.

The Plaintiff’s Exhibits P-9 to P-9.3 are the extracts from its Grenoble Automatic CSO Evaluation System database (“GRACES”). The GRACES database was used by the Plaintiff in the normal course of business to analyze the Customer Satisfaction Group of the Plaintiff’s Global BDD business in France. GRACES provides a warranty cost-per-unit assessment for the BDD’s product lines Vectra and Kayak. Unfortunately, the GRACES database was retired, destroyed or migrated into another database when the Plaintiff merged with Compaq in 2004 (See pars 46 to 50 of 2020QCCS78). It is worth to mention that the Exhibits were not filed at the last minute before or during trial without any prior disclosure. In fact, the Exhibits were filed to the court many years ago before the hearing.

What is the specific basis of the Defendant’s objection to the filing of the Exhibits?

a. the lack of any source documents; b. the replacement of the various databases formerly used by the Plaintiff which no longer exist; c. the impossibility to access and audit these databases to ensure the reliability and integrity of the information.

How does the Court evaluate the admissibility and probative value of these Exhibits?

First, the Court emphasizes that these Exhibits are using to establish facts which serve as a basis for calculating damages (Art. 2832 C.c.Q.). Art. 2870 C.c.Q. stipulates that the documents drawn up in the ordinary course of business can still be entered into evidence when the persons who entered the facts do not testify if the court ascertains that the persons are impossible to appear as witnesses or it is unreasonable to require them to do so. In the present case, the Court find that it is entirely “unreasonable to require the attendance as witnesses of all those people located around the world who during the years 1999 to 2003 entered data into the various databases” in the GRACES (See par. 71 of 2020QCCS78). The Court notes that to require the same would be to ignore the complexity normally involved in international sales of the computers and their global suppliers.

Second, the Court notes that although the GRACES database was destroyed when the Plaintiff merged with Compag in 2004, the Plaintiff did not destroy this evidence in bad faith (Art. 20 C.C.P.). In the event that there is proof of bad faith in the intentional “spoliation” or destruction of the proof, a negative inference would result, one which would lead to the conclusion that the destroyed information would be contrary to the interests of the destroying party (See par. 77 of 2020QCCS78). However, in the present matter, the preponderance of proof does not establish such bad faith as it is a business decision made for reasons totally unrelated to the lawsuits between the Plaintiff and the Defendant.

Third, the information recorded in the Exhibits came from a multitude of various sources in the normal course of the Plaintiff’s global BDD business. There exist some incoherencies and discrepancies in the Exhibits. However, the Court finds that the number of the incoherencies in the data was minimal and the Defendant did not provide with any opinion or estimate as to the dollar value of the discrepancies or how they might otherwise impact a claim calculation. As a consequence, the Court notes that those discrepancies are insufficient to set aside the Article 2870 C.c.Q. presumption of reliability and to refuse admitting the exhibits into evidence. The discrepancies would be an issue relating to probative value, if that. (See pars. 88 to 90 of 2020QCCS78)

Fourth, the Defendant argues that as the Exhibits in question are technology based and thus sections 12 and 17 of the Act to Establish a Legal Framework for Information Technology (LCCJTI) would apply relating to the “integrity” of the document. In this regard, the Court notes that the “integrity” requirement is not stated to apply to simple writings or copies of writings which are to be admitted into evidence as testimony pursuant to Article 2832 C.c.Q. (See also Art. 2839 (2) C.c.Q. and Catherine PICHÉ, La Preuve civile, 5e éd., Éditions Yvon Blais, 2016, p. 368.) The object of LCCJTI focuses on documentary communications (See Section 1, LCCJTI), not testimonial evidence pursuant to Article 2832 C.c.Q.

For all the reasons mentioned above, the Court is of the view that the Plaintiff’s Exhibits P-9 to P-9.3 are receivable as testimonial proof to serve as a basis for calculating damages in this case.

To be continued

My next post will summarize and analyze how the Court evaluates the Plaintiff’s worldwide damages and the determination of the foreign currency conversion date.

It is worth to mention that arbitration could be the preferred mechanism for the resolution of international disputes as the respect of party autonomy, the ability to customize the process, proceed efficiently and maintain confidentiality – hallmark advantages of arbitration proceeding – can be especially advantageous as businesses navigate the impacts of the COVID-19 pandemic.

(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention. 😊)