EPC Contract and CISG: the coexistence is possible

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During a recent case of mine, that I’m currently handling before the ICC Arbitral Tribunal, I’ve had the opportunity to discuss the well-known problem of the applicability of the UN Vienna Convention 1980 on Contracts for the International Sale of Goods (CISG) to the so-called EPC Contract (Lieferverträge mit Montageverpflichtung, or Turnkey contracts).

In particular, I debated whether a contract for the engineering and erection of an energy plant (bio-mass plant) falls within the scope of Vienna Convention.

Passed the applicability test according to art. 1 CISG, the Arbitral Court verified whether or not the Convention applies to the matter pursuant to art. 3.2 CISG, precisely drafted in order to solve such a kind of problem:

Art. 3.2 CISG: This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

In interpreting the above-mentioned provision, the Arbitral Court aligned itself with the most reliable opinion, according to which art. 3.2 CISG simply refers to the comparison between the economic value of the obligations regarding the supply of labour and services and the economic value of the obligations regarding the delivery of the goods (the so-called “economic criterion“; in these terms, among others Prof. F. FERRARI, Prof. P. SCHLECHTRIEM, THE ADVISORY COUNCIL on CISG).

Considering that the value of the goods to be provided under the contact was undisputed and much higher (80%) than the value of the related services/labour, the Arbitral Tribunal found that the CISG applies to the matter.

This decision can be considered an important further step for the application of the CISG to EPC Contracts and the creation of a reliable and stable pattern of rules.

Note: the case and the questions involved in the matter have been simplified for the scope of this short presentation. Much more issues have been discussed and solved by the parties’ representatives and the Arbitral Court before achieving the cited solution. Consequently, do not consider this presentation as a formal/conclusive opinion.