CISG Methodology

CISG Methodology

CISG Methodology

edited by

André Janssen Olaf Meyer

.

ISBN 978-3-86653-070-6 The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de © 2009 by sellier. european law publishers GmbH, Munich. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Design: Sandra Sellier, Munich. Production: Karina Hack, Munich. Typeface: Goudy Old Style and Goudy Sans from Linotype. Printing and binding: Friedrich Pustet KG, Regensburg. Printed on acid-free, non-ageing paper. Printed in Germany.

Foreword of the Editors The 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) is now being applied both by international arbitral tribunals and the domestic courts of its more than 70 Member States. However, the success of the instrument is not to be simply judged by its application, but rather also by the uniform interpretation in all of the Member States. Although Art. 7 of the CISG underscores this “need to promote uniformity in its application”, the CISG itself gives very little guidance as to how to reach this goal. Without such guidance, however, each lawyer might be guided by the methodological rules that he is familiar with from his home jurisdiction. Therefore it is somewhat of a paradox of uniform law that whilst the number of Member States to the Convention is constantly increasing so too is the threat of variation in the application. The range of the methodological problems arising under the CISG can be seen by looking at the table of contents of this volume. Not all of them have been the subject of legal research so far. Thus, while some authors provide a thorough analysis of central topics of interpretation, others enter almost uncharted territories. We hope that it is this variation of the chosen methodological topics that makes this book worthwhile to read. This publication has been made possible with the generous financial support from Lovells (Düsseldorf) and Orth Kluth Rechtsanwälte (Berlin and Düsseldorf). Last but not least we are immensely grateful to those many persons who provided the help and support that allowed us to finish this book. We would particularly like to thank Edoardo Ferrante for his valuable advice, and Jonathon Watson for patiently proofreading all contributions. Bremen and Münster, January 2009

André Janssen Olaf Meyer

List of Contributors Camilla Baasch Andersen PhD, Lecturer, Faculty of Law, University of Leicester, UK Eric Bergsten Professor of Law Emeritus, Pace Law School, USA UNCITRAL Secretariat 1975-1985 UNCITRAL Secretary 1985-1991 Marta Cenini PhD, Department of Private Law and Legal History, Faculty of Law, University of Milan, Italy Larry A. DiMatteo PhD, Huber Hurst Professor of Contract Law & Legal Studies, Warrington College of Business Administration, University of Florida, USA Sieg Eiselen Professor of Law, Department of Private Law, University of South Africa, South Africa Hossam A. El Saghir Professor of Commercial Law, Helwan University, Egypt Director of the Middle East Center for International Commercial Law, Pace University, New York, USA Franco Ferrari Professor of International Law, Verona University School of Law, Italy Inge Rennert Distinguished Visiting Professor of Law at New York University School Law, USA Former Legal Officer, United Nations Office of Legal Affairs, International Trade Law Branch Urs Peter Gruber Professor of Law, University of Halle-Wittenberg, Germany Judge at the Court of Appeal Naumburg, Germany

List of Contributors

VIII

List of Contributors

André Janssen PhD, Senior Research Fellow, Centre for European Private Law at the University of Münster, Germany Sörren Claas Kiene Postgraduate judicial service trainee at the District Court Dortmund, Germany Former research assistant at the Centre for European Private Law, University of Münster, Germany Ole Lando Professor of Law Emeritus, Law Department, Copenhagen Business School, Denmark Wei Li Professor of Law, Faculty of International Law, China University of Political Science and Law in Beijing, China Ulrich Magnus Professor of Law, University of Hamburg, Germany Judge at the Hanseatic Court of Appeal, Germany Olaf Meyer PhD, Senior Research Fellow, Centre for European Law and Politics at the University of Bremen, Germany Loukas Mistelis Clive M. Schmitthoff Professor of Transnational Commercial Law and Arbitration, Centre for Commercial Law Studies, Queen Mary University of London, UK Secretary of the CISG Advisory Council (2001-2007) Francesco Parisi Oppenheimer Wolff and Donnelly Professor of Law, School of Law, University of Minnesota, USA Professor of Public Finance, Department of Economics, University of Bologna, Italy Pilar Perales Viscasillas Professor of Commercial Law, University of La Rioja, Spain

List of Contributors

Bruno Zeller Associate Professor, Victoria University, Australia Associate Professor, The Institute for Logistics and Supply Chain Management, Victoria University, Australia Adjunct Professor, School of Law, Murdoch University in Perth, Australia

IX

Table of contents Table of contents Foreword of the Editors List of Contibutors

V VII

Preface Ole Lando

1

Methodological Problems in the Drafting of the CISG Eric Bergsten

5

Tracing Methodology in the CISG: Dogmatic Foundations Ulrich Magnus

33

Literal Interpretation: The Meaning of the Words Sieg Eiselen

61

Legislative Intention and the CISG Urs Peter Gruber

91

Case Law Precedent and Legal Writing Larry A. DiMatteo

113

The Observance of Good Faith in International Trade Bruno Zeller

133

An Economic Analysis of the CISG Marta Cenini and Francesco Parisi

151

Homeward Trend: What, Why and Why Not Franco Ferrari

171

Macro-Systematic Interpretation of Uniform Commercial Law: The Interrelation of the CISG and Other Uniform Sources Camilla Baasch Andersen

207

XII

Table of contents

The CISG and Its General Principles André Janssen and Sörren Claas Kiene

261

The Role of the UNIDROIT Principles and the PECL Pilar Perales Viscasillas

287

Constructive Interpretation – Applying the CISG in the 21st Century Olaf Meyer

319

The Interpretation of the CISG in China Wei Li

343

The Interpretation of the CISG in the Arab World Hossam A. El-Saghir

355

CISG and Arbitration Loukas Mistelis

375

Preface Ole Lando The CISG has established a World law of international sales1 and has influenced several national sales laws. It has launched initiatives to prepare a World law of international contracts and an EU law on contracts. It was the “godfather” of the UNIDROIT Principles of International Commercial Contracts (UPIC)2 and the Principles of European Contract Law (PECL),3 which again have influenced the interpretation of the CISG.4 Art. 7(1) CISG provides that in its interpretation, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. Art. 7(2) CISG lays down that questions concerning matters governed by the CISG, which are not expressly settled in it, are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. The questions to which art. 7 gives rise and other methodological questions need to be expounded, and that is what this book does. The wish expressed by most, if not all its contributors is to achieve uniformity in the application of the CISG. There have been divergences. Some judgments have shown a homeward trend. Courts have interpreted the CISG to mean the same as the corresponding provisions in their domestic law. It appears from the article by Wei Li that in the first years after 1988 the China International Economic Trade Arbitration Commission (CIETAC) did not raise the issue on the applicable law to international sales contracts. Although the application of CISG is now the rule in the CIETAC it may still happen that the CISG is not applied when it should have been,5 and applied when it should not have been, or that it is applied wrongly.6 1 2

3

4 5 6

As of December 2008 the CISG had been adopted by 72 States. Published by the International Institute for the Unification of Private Law (UNIDROIT), 2nd ed. Rome 2004. Lando/Beale (eds.), Principles of European Contract Law, Part I & II, The Hague 2000, and Lando/Clive/Prüm/Zimmermann (eds.), Principles of European Contract Law, Part III, The Hague 2003. See Perales Viscasillas in this book. See Li in this book. See Wu, CIETAC’s Practice on the CISG, Nordic Journal of Commercial Law 2005, 1 et seq.

2

Ole Lando

Divergences have also appeared in the interpretation of the CISG. Some, if not most, courts and arbitral tribunals pass lightly over the requirement in Art. 14 CISG that the price has to be included in the offer,7 a few take it seriously.8 Most courts and arbitral tribunals seem to apply the good faith principle to the parties’ behaviour and not as prescribed by Art. 7(1) CISG to the interpretation of CISG only,9 but there are still courts and arbitrators who restrict the principle to the interpretation of CISG.10 However, as pointed out by Ulrich Magnus,11 “the divergences are less than one could expect bearing in mind that no central CISG court exists.” Magnus states that “the dogmatic foundations of the method of interpretation of the CISG are relatively stable despite the fact that the CISG itself only sets out guidelines and aims for its interpretation but no precise method of interpretation.”12 It is also my impression that the divergences of interpretation are relatively few, and this in my view has another reason. On the whole, the laws of today have been framed by the Western European Tradition13 and this tradition has also developed a common sense of justice. When the CISG was negotiated we saw that the different legal backgrounds of the Members caused disagreement on some points, but there was not so much divergence about the substance of the rules as one could have expected. On most issues there was a common conception of what was just and expedient. When the PECL and the UPIC were negotiated the experience was the same. The Members of the two groups frequently tried to visualise how concrete cases would be solved in their country and found that 17 18

19 10

11 12

13

See cases reported in Unilex at Art. 14 CISG. See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce, 3 March 1995 [http://cisgw3.law.pace.edu/cases/950303 r1.html]. See cases reported in Unilex at Art. 7 CISG. See ICC Court of Arbitration Award Case no. 8611, 23 January 1997 [http://cisgw3.law.pace.edu/cases/978611i1.html]. See also Zeller in this book (under C.). See Magnus in this book (under F.). In his very careful study of the interpretation of statutes in England and on the Continent Vogenauer (Die Auslegung von Gesetzen in England und auf dem Kontinent, Tübingen 2001) finds a trend towards uniformity. See also Markesinis, Comparative Law in the Courtroom and the Classroom, Oxford 2003, 50: “In the European world (which is also present physically and intellectually in the Australian, New Zealand, and Northern and Southern American worlds) one finds the most developed ideas likely to deserve careful study. Is it really suggested that this is not a fact? And if it were not, why would hugely important countries like China, Korea and the former Eastern block be studying these (Western European) systems and trying to import their notions and institutions as they build their own financial markets and the legal infrastructure that goes with them?”

Preface

3

the national contract laws generally differed more in the formulations and techniques than in the result. The Members often agreed on how the rules should be. I venture to assert that most of those general principles that André Janssen and Sörren Claas Kiene14 extract from the provisions of the CISG were shared by those who drafted the PECL and the UPIC. Some of them are in fact common to most of the existing legal systems. Very few countries do not support party autonomy, the principle of good faith and preservation of the contract. As pointed out by Bruno Zeller15 regarding the good faith principle they may do it differently, or to use Rodolfo Sacco’s expression their legal formants of the principles may differ but the basic ideas are the same. The lesson taken is that contract law is based more on ethical and economic considerations that are common to the lawyers of the Western European Tradition than on national cultural attitudes. But as said there are divergences and the question is how uniformity of the present and future understanding of CISG can be achieved.16 The languages are an impediment for the unification of the law.17 Since the working language of those who drafted CISG was English there is a tendency to give prevalence to the English version. That, however, will not help those judges or arbitrators who do not understand English. In addition, the CISG has been translated into the languages of the Contracting States, and it is likely that a court will rely on the translation rather than on one of the authentic versions, and the texts of the CISG’s six authentic languages do not all have exactly the same meaning. The working groups that prepared the UPIC, the PECL, and the Draft Common Frame of Reference (DCFR) have tried to unify the terminology. The European Union has struggled for a long time with the divergences of interpretation of EU law caused by the different languages. In the Action Plan for a More Coherent European Contract Law,18 the European Commission gave a high priority to a common terminology. For this purpose the

14 15 16

17 18

See Janssen/Kiene in this book. See Zeller in this book. There is as mentioned above no World Court to which national courts can refer questions of the application and interpretation of the CISG. The CISG Advisory Council is a committee whose primary purpose is to issue opinions relating to the interpretation and application of the Convention on request or on its own initiative. So far only seven opinions on the interpretation of the CISG were delivered. See on the Council http://www.cisgac.com/default.php?sid=128. See Bergsten in this book (under B.II.4). See the Action Plan on A More Coherent European Contract Law, COM(2003) 68 final (OJ 2003/C63/01).

4

Ole Lando

DCFR19 contains an annex with a list of definitions of terms such as contract, damage, goods, loss, writing etc. UNCITRAL might consider establishing a dictionary of terms used in the UNCITRAL texts. Another obstacle for uniformity of application is that what Franco Ferrari calls the “domestic background assumptions and conceptions.”20 Each country has its own legal atmosphere. The common lawyers breathe a legal air which is different from that of the civil lawyers; the legal mentality of the Chinese21 and the Japanese has its distinctive features and so on. A French sage has said that if you plan for the coming ten years you should plant a tree; if you plan for a one hundred years you should educate your people. According to Franco Ferrari the “CISG has to become part of the domestic background assumptions and conceptions in order for the disruptive effect of the natural resort to domestic background assumptions and conceptions to be overcome. For this result to be reached, law school curricula as well as text books will have to be changed to incorporate the study of the CISG.”22 I agree, and I would add that the students should learn to study and use the case law on the CISG. In my view the cases are as important as is the doctrine. But we have to be patient knowing the time it will take before the students become judges who can use their new background assumptions and conceptions. The CISG is in fact now taught in several law schools, and PECL and UPIC in some, but not in as many as is necessary in order to establish a truly international attitude. There is also a need to establish an influential international regime. Today there are some academic lawyers operating on the international scene. They hold conferences and they write books and articles which address an international readership. They know that they must establish common attitudes, that the ideas they wish to promote must be acceptable, and the language they write palatable to an international audience. Today the international regime is not very large. Compared to the number of academic lawyers its members are few and their influence not very great. At present the governing bodies of the law faculties of many countries have not fully realised the impact of the ongoing globalisation. If they would read the Writing on the Wall, they would do more to promote an internationalisation of the legal science and the law curriculum. This, however, will eventually become a necessity, and there is therefore reason to have trust in the future. But also here we must be patient. This book will give a push. It is a very useful contribution to the international doctrine. 19

20 21 22

See von Bar/Clive/Schulte-Nölke et al. (eds.), Principles, Definitions and Model Rules of European Contract Law, Draft Common Frame of Reference (DCFR), Interim Outline Edition, Munich 2008. Based in part on a revised version of the PECL. See Ferrari in this book (under F.). See for instance Li in this book. See Ferrari in this book (under F.).

Methodological Problems in the Drafting of the CISG Eric Bergsten It is well known that the CISG is a revision of the Uniform Law on the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF).1 What is less known or appreciated is the significance of that history. The revision process raised a certain number of methodological problems, some of which are common to all international unification of law efforts. Some of those problems and their consequences were appreciated at the time, while others were not. This chapter will discuss a number of the methodological problems that were encountered during the revision process in UNCITRAL and will suggest some of the consequences that follow.

A. Introduction One reason for the unification of law is that it is a symbol of the existence of a newly unified state. That was a significant element in France following the Revolution and in Germany following unification in the end of the nineteenth century. In those cases unification was achieved through adoption of the unified law as national law. The equivalent in the European Union would be the adoption of a regulation rather than a directive calling for implementation by the Member States, though EU regulations seem to have lost much of their political symbolism. When the unification efforts anticipate world-wide or, at least, broad adoption, such as in regard to the CISG, there has to be a different motive. Whatever the motive, the international unification of law is always a difficult task. Unification of law implies that the subject matter is one that is already subject to a functioning set of legal rules in the different political entities concerned. As pointed out in the Schmitthoff Report that led to the creation of the United Nations Commission on International Trade Law (UNCITRAL):

1

Available at http://www.unidroit.org/english/conventions/c-main.htm.

6

Eric Bergsten

“[W]hether harmonization is attempted on a world-wide scale or not, it is more easily achieved in technical branches of the law than in subjects closely connected with national traditions and basic principles of domestic law. Thus, harmonization has been most widely accepted in the law of industrial property, transportation by sea, air and land, international banking (bills of exchange and commercial credits) and arbitration.”2 The report concluded that there is no need to undertake unification unless “there is an economic need and (…) unifying measures would have a beneficial effect on the development of international trade.”3 Even where there is a demonstrated need, unification is not possible when the differences in policy, legal rules or legal concepts are too large. Unification takes place, therefore, in a middle ground of differences in the law that cause significant difficulties, but in which the differences are not excessive. It might be noted that there is also a middle way of judicial or administrative cooperation in some situations. One example is the UNCITRAL Model Law on Cross-Border Insolvency. However, that was never a relevant option for the CISG. There was no doubt that the law of contracts, and specifically contracts for the sale of goods, varied in often significant ways from one country to another and those differences often reflected “basic principles of domestic law”. The question faced in UNCITRAL and elsewhere was whether those differences could be overcome and which techniques were best suited to achieving that result.

B. Standard Contracts, Uniform Law or Convention? “There is more than one way to skin a cat.” Mark Twain, A Connecticut Yankee in King Arthur’s Court A text intended to unify the legal rules in regard to a particular type of activity can take several different forms. None of them has ever achieved universality either as to the subject matter covered or participation. Each technique to unify the law has its strengths and its weaknesses. The choice of one technique or another may have to do with the extent to which the subject matter is ripe for unification. It also may have to do with the nature of the organisation within which the unification activity is undertaken. In regard to the international sale of goods, the unification efforts have taken the form of standard contracts, provisions to be inserted into contracts, uni-

2

3

Report of the Secretary-General, A/6396, para. 203. All United Nations documents cited are available on the UNCITRAL website, http://www.uncitral.org. Ibid, para. 204.

Methodological Problems in the Drafting of the CISG

7

form law and a stand-alone convention. UNCITRAL has considered all of them.

I.

Standard Contracts and Trade Terms

The oldest form and one that continues to have wide use is the standard contract, which in fact means the general conditions. Trade associations often prepare such general conditions or have rules binding on the members of the association in their dealings with one another. By their very nature the rules of a trade association or the general conditions prepared by them normally have little effect outside of the members of the association. Where the members of the trade association conduct a significant share of a given trade, its rules and general conditions may nevertheless be the effective legal rules governing the trade. It should also be noted that the general conditions prepared by a trade association that is closely linked with a given country will be drafted in the legal style and will use terminology of the legal system of that country. That is the reason so many of the general conditions emanating from trade associations based in London have a distinctly English character to them. That can be noticed in fields outside the international sale of goods. That is less true of general conditions or provisions to be inserted in form contracts prepared by international organisations. During the 1950s, in particular, there were two such efforts that influenced the discussions in UNCITRAL and thereby the subsequent development of the CISG. One was the General Conditions of Sale adopted by the CMEA countries of Eastern Europe.4 Although labeled General Conditions of Sale, they were effectively a uniform law, since they automatically applied to all contracts for sale within the trading block.5 Also during the 1950s and early 1960s the United Nations Economic Commission for Europe prepared a number of widely used general conditions for sale of different types of goods.6 In the light of later developments in UNCITRAL it is interesting to note that most of the ECE general conditions related to manufactured goods. The general conditions were especially intended for use in East-West trade in Europe. 4 5

6

Council of Mutual Economic Assistance. “[The] content presents a peculiar blend of provisions of the nature of general conditions and that of law. This may be explained by the circumstance that at their birth the GCDG were in fact a general condition, coming into play in the absence of a provision of the parties to the contrary.” Szász, A Uniform Law on International Sales of Goods: The CMEA General Conditions, Budapest 1976, 47. The ECE General Conditions of Sale are available at http://www.unece.org/ leginstr/Annex.pdf.

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Eric Bergsten

Other unification efforts have produced texts to be incorporated into contracts. A notable example is Incoterms produced by the International Chamber of Commerce.7 Incoterms provide rules for interpretation of thirteen trade terms widely used in international contracts of sale. At one time there was an argument that Incoterms could have erga omnes effect as commercial custom. However, the ICC now recommends that “Incoterms 2000” be referred to specifically whenever the terms are used.8 Even the UNCITRAL Arbitration Rules by means of its model arbitration clause fall into the category of texts that are intended to be incorporated by reference into the underlying contract, be it an international contract of sale of goods or otherwise. The importance of standard contract provisions was recognised by the General Assembly in its resolution creating UNCITRAL.9 It is no surprise, therefore, that at its first session UNCITRAL decided that reports should be submitted “examining the possibility of promoting the wider use of the existing general conditions of sale and standard contracts” and of Incoterms.10 The requested reports were submitted to the second session of UNCITRAL and the Commission decided to submit the ECE general conditions to the other UN regional economic commissions for their comments. This effort seems to have died a quiet death. On the other hand, UNCITRAL has endorsed the 1953, 1990 and 2000 versions of Incoterms.11 The endorsement may have contributed to the withdrawal of the American Foreign Trade Definitions by the sponsoring organisations and the currently all but universal use of Incoterms in international trade. Unfortunately, a number of the trade terms defined in Incoterms are also found in sections 2-319 to 2-322 of the Uniform Commercial Code in the United States with somewhat different definitions. Of more general interest was that the Commission decided at its second session that “at an appropriate time, consideration [should be given] to the feasi17 18 19

10

11

The current version adopted in 2000 is in ICC Publication no. 560. http://www.iccwbo.org/incoterms/id3040/index.html. Resolution 2205 (XXI). The General Assembly “Having noted with appreciation the efforts made by intergovernmental and non-governmental organizations towards the progressive harmonization and unification of the law of international trade by promoting the adoption of international conventions, uniform laws, standard contract provisions, general conditions of sale, standard trade terms and other measures,” established the Commission. Report of the United Nations Commission on International Trade Law on the work of its first session (1968), A/7216, para. 48/19-20. (Commission Report, first session). Commission Report, second session, (1969), A/7618, para. 60(3); ibid, twentyfifth session (1992), A/47/17, 161; ibid, thirty-third session, (2000), A/55/17, para. 434.

Methodological Problems in the Drafting of the CISG

9

bility of developing general conditions embracing a wider scope of commodities than the existing specific formulations,”12 thereafter referred to as “general” general conditions. When the topic was first discussed at the fourth session there was wide-spread opposition to the idea, basically on the grounds that, because of the specific nature of each trade, it would be better to leave the subject of general conditions to the trade associations, which themselves had often found it necessary to prepare different general conditions for each trade or even sub-branches of different trades. Nevertheless, the Commission requested the Secretariat to continue its study of “general” general conditions. The requested report was finally submitted to the eighth session of the Commission in 1975.13 It suggested that the preparation of “general” general conditions should be closely linked to the work on revision of the ULIS. That was the only part of the report that gained approval. The conclusion drawn was that, absent a further study requested of the Secretariat, there would be little commercial interest in “general” general conditions applicable to a wide range of commodities.14 The requested study was never carried out and the subject of general conditions dropped from the agenda of UNCITRAL. The general conditions of sale discussed in UNCITRAL cover a sub-set of the factual situations for which a law governing international sales of goods must be drafted. The idea was to prepare them for commodity trades only. In spite of the positive experience with the ECE General Conditions of Sale, preparation of general conditions for manufactured goods was thought not to be feasible. The requirements of each trade were thought to be too specific to the trade for “general” general conditions to have a role. In regard to the sale of goods, UNCITRAL has endorsed only Incoterms, and has done it on three occasions. The explanation is undoubtedly that Incoterms provide solutions for a limited number of issues, and there is a variety of trade terms allowing flexibility in their use. However, once a specific Incoterm is chosen, there is no flexibility in the legal consequences that follow.

12 13

14

Commission Report, second session (1969), A/7618, para. 60(1)(g). Report of the Secretary-General: general conditions of sale and standard contracts, A/CN.9/98. Commission Report, eighth session (1975), A/10017, paras. 18-25. The present author had joined the UNCITRAL Secretariat three months prior to the eighth session and was the author of the report submitted to the Commission. The response of the Commission was a vivid lesson as to what an international organisation could be expected to accomplish.

10

II.

Eric Bergsten

Uniform Law or Convention

Even though the Commission decided in the end that it was not feasible to prepare “general” general conditions because of the wide diversity of factual situations that would have to be considered, there was never any doubt as to whether it would be desirable for there to be uniform law on the subject of the international sale of goods. The only question was how to bring this about. One technique that was not even considered was the preparation of a model law. In international usage, except for the special case of the European Union, there are three juridical forms in which uniform law can be drafted. These are a stand-alone convention, uniform law attached to a convention and model law. It is commonly thought that they are in descending order of their propensity to bring into force a uniform version of the text. It is for that reason that model laws intended to bring about uniform law have been rare in international usage, though that may change with the great success of the UNCITRAL Model Law on International Commercial Arbitration.15 It has not only been widely used as the basis for national legislation, influencing even those laws that do not purport to be Model Law texts, but it has often been adopted with little or no change in the text of the Model Law, though there have usually been additions covering aspects of the law of arbitration that the Model Law does not cover. Of great importance is that a model law can be amended by the sponsoring organisation, as the Model Law was amended by UNCITRAL in 2006, without requiring the agreement of the States that have already adopted it. Nevertheless, it remains true that there is neither an explicit nor an implicit obligation for any State that adopts legislation on the bases of a model law to adopt it without alteration.

1.

Revision of ULIS

ULIS and ULF had been adopted as uniform laws attached to conventions at the diplomatic conference in The Hague in 1964, only two years before the General Assembly resolution calling for the creation of UNCITRAL had been adopted and four years prior to the first meeting of the Commis-

15

Another example is the UNCITRAL Model Law on Cross-Border Insolvency. Insolvency has been a notoriously difficult subject for unification efforts. The impressive success of the Model Law is undoubtedly due to its limited scope, but the results are nevertheless impressive. As of 30 September 2008 15 States have adopted legislation based upon it (see http://www.uncitral.org/uncitral/en/uncitral _texts/insolvency/1997Model_status.html).

Methodological Problems in the Drafting of the CISG

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sion. The two uniform laws had been elaborated by the International Institute for the Unification of Private Law (UNIDROIT), beginning in 1931. It seems that even in 1964 at the diplomatic conference at which ULIS was adopted there was doubt as to whether it would be a success. In the Final Act of the Conference there was a recommendation that, if the Convention had not received the five ratifications necessary to bring it into force by 1 May 1968, UNIDROIT should appoint a committee of representatives of interested States to determine what further measures should be taken to unify the law of sales.16 When the first session of UNCITRAL took place in January 1968 the necessary five ratifications had not as yet been achieved. A decision was made to circulate a copy of ULIS to all States along with a copy of the commentary by Professor André Tunc17 with a questionnaire asking whether they intended to adhere to the Convention and the reasons for their position.18 The discussions at the second session showed that almost every conceivable view was represented. What was striking were the opinions that the needs of developing countries had not been taken into account and that few state trading countries had participated in the negotiations on ULIS. The Common Law countries had a number of more substantive objections to the text. There were a few voices heard that an entirely new convention should be prepared. The final decision, however, was to create a Working Group to “ascertain which modifications of the existing texts might render them capable of wider acceptance by countries of different legal, social and economic systems (…)”.19 In other words, in 1969 it seems to have been expected that the revision of ULIS and ULF would be undertaken by UNCITRAL rather than UNIDROIT as UNCITRAL’s way of promoting the widespread adoption of the UNIDROIT texts. By the time of the Working Group meeting in 1975 the recommended changes had been so extensive that it was clear that a new convention would be necessary and that it should be an UNCITRAL product. The Working Group also decided that the text should be in the form of a standalone, or “integrated” convention, following the precedent of the Convention on the Limitation Period in the International Sale of Goods (Limitation Convention), which had been adopted the year before.20 There is no record of any substantial discussion in the Working Group and there was certainly none when the Commission received the report of the Working 16

17

18 19 20

Recommendation II of the Final Act of the Hague Conference of 1964 on the Unification of Law Governing the International Sale of Goods. The Commentary in English and French was published by the Ministry of Justice of the Netherlands in a booklet of 108 pages. It is available at http://www.cisg. law.pace.edu/cisg/biblio/tunc.html. Commission Report, first session (1968), A/7216, para. 48 et seq. Commission Report, second session (1969), A/7618, para. 38. Working Group Report, sixth session (1975), A/CN.9/100, para. 13.

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Group about the change from a uniform law to a stand-alone convention.21 The decision had been made with seemingly little awareness as to its significance. The Working Group also decided that the new convention would continue not to include the rules on the formation of contracts.22 It was not until the Commission session in 1978 at which the final text of the draft Convention was adopted for submission to diplomatic conference that the provisions on the formation of the contract were integrated into the same text as the provisions on the substantive obligations of the buyer and seller. By 1978 it had been realised that a mistake may have been made in adopting the Limitation Convention as a separate convention. By themselves the rules on the limitation period in the international sale of goods are not sufficiently important to generate widespread support for ratification of the convention.23 The same was felt to be one of the reasons why ULIS and ULF had not gained wider support than they had. There were also technical reasons for merging the provisions on the formation of the contract with the provisions on the substance. ULIS and ULF contained a number of almost but not completely identical provisions. At the request of the Working Group a report was prepared by the Secretariat showing the technical means by which the two revised texts could be combined with no change in substance.24 In many cases the resulting provisions were very inelegant. However, the report showed that they could be combined, which was the important point, and the drafting of those provisions was simplified and improved at the Commission session. The wisdom of combining the revised ULIS and ULF into a single convention became apparent when the Limitation Convention was later amended by a Protocol at the diplomatic conference that adopted the CISG. The amending Protocol in large measure revised the same provisions that had been the subject mat21

22 23

24

Commission Report, eighth session (1975), A/10017, paras. 11-17. I was the secretary of the Working Group meeting and my memory after more than thirty years is that there was no consideration of the consequences that would follow from the rules being in the form of a uniform law or in the form of a stand-alone convention. Ibid, para. 16. The Convention has been ratified by 27 States of which 19 have ratified the Protocol. http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1974Convention_ status.html. The UNCITRAL CLOUT does not contain any abstract of cases concerning the Convention. The Convention may have been forgotten even where it is in force. Working Group report, ninth session (1978), A/CN.9/142, para. 303; and Report of the Secretary-General, Incorporation of the provisions of the draft Convention on the Formation of Contracts for the International Sale of Goods into the draft Convention on the International Sale of Goods, A/CN9/145.

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ter of the Secretariat report. In the Final Act the Secretariat was requested to prepare a consolidated text of the Limitation Convention. When that task was undertaken, the resulting consolidated text was a mess.25 It would have been much improved if the re-drafting of the relevant provisions had taken place in the context of joining the provisions on the limitation period to the CISG as a separate Part, as the provisions on formation of the contract had been. The principal argument against integrating formation of the contract into the CISG was that there were States that intended to ratify the substantive sales law provisions that would not wish to ratify either the provisions on the formation of the contract or the provisions on the limitation period. The solution that was used for the provisions on contract formation is found in Art. 91 CISG. A State may declare that it will not be bound by Part II (formation) or Part III (substantive provisions). The same solution could have been used in regard to the limitation period, if the Limitation Convention had not already existed. Only the Scandinavian countries have made the declaration in regard to Part II of the CISG.

2.

Normative Nature of a Uniform Law

ULIS and ULF were not model laws but uniform laws attached to conventions. The CISG is a stand-alone convention. The stand-alone convention and the uniform law attached to a convention have equally strong pedigrees in international unification of law, but their consequences may be significantly different in the domestic legal order. A State that became party to the Conventions to which ULIS and ULF were attached undertook an obligation “to incorporate into its own legislation, in accordance with its constitutional procedure, not later than the date of the entry into force of the present Convention in respect of that State, the Uniform Law on the International Sale of Goods (…) forming the Annex to the present Convention.”26 Consequently, ratification of the Convention by a State was necessarily accompanied by legislation enacting the Uniform Law in order for the State to fulfill its obligations. Enactment of the legislation would undoubtedly be accomplished at the same time as approval by the parliamentary body of ratification of the Convention in those countries in which parliamentary approval of ratification of the Convention was necessary. As shall be seen, not all States have such a requirement. It is 25 26

http://www.uncitral.org/pdf/english/texts/sales/limit/limit-conv.pdf. Convention Relating to a Uniform Law on the International Sale of Goods, The Hague, 1 July 1964, Art. 1(1). A similar provision was to be found in the Convention Relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods, The Hague, 1 July 1964, Art. 1(1).

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not unusual for the Convention to which a uniform law is attached to have a number of possible alternatives for certain of the provisions of the uniform law. A striking example is the 1931 Geneva Convention on bills of exchange and promissory notes.27 Annex II to the Convention consisted of 23 articles of authorised derogations from the Uniform Law and the consequences thereof. The Convention to which ULIS was attached specified only a few matters that could be the subject of a declaration by a ratifying State. The text of ULIS that was in force in any State was, therefore, the text of the Uniform Law as found in the Annex to the Convention. It was not the Convention. From a public international law perspective the national legislation was the implementation of the treaty obligation. From a domestic law point of view the national legislation was just that, i.e. domestic legislation. Of course, any State could enact ULIS without becoming party to the Convention. Since neither the Convention nor ULIS itself had a reciprocity requirement, the only reason for ratifying the Convention would be to publicise the fact that the law was in force and, perhaps, to bring the Convention into force. Once the requisite five States had ratified the Convention and it thereby came into force, even that reason was no longer applicable. There is no indication that any State contemplated adopting ULIS without ratifying the Convention, but it may have happened with the Geneva Convention on Bills of Exchange and Promissory Notes. Whether the Uniform Law was adopted in implementation of the Convention or without ratification of the Convention, it was a national domestic text. To be sure, the provenance of the law could not be overlooked by lawyer or judge, since the Convention was referred to in Art. 1(4) and 4 of ULIS, but that did not change its normative character. The fact that it was a domestic statute had both a positive and a negative effect. The positive effect is that it was published and indexed in the same official publications as all other domestic laws. Nevertheless, being a law that applied only to international sales of goods, it was still a matter for each individual State, and perhaps even private publishers, to decide whether it would be included in compilations of laws in such a way that it was easy to find. That was not a problem in regard to the Geneva Uniform Law on Bills of Exchange and Promissory Notes, since the Uniform Law applied to both domestic and international bills of exchange and promissory notes. However, a uniform law that applies to both domestic and international transactions is rare. The negative effect is that the interpretation by national courts of a uniform law that is in form a domestic statute can be expected to follow domestic rules of interpretation. There is nothing in either ULIS or the Convention that indicates that uniform interpretation of the Uniform Law would 27

Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes, Geneva, 7 June 1930.

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have been desirable. Even if such a provision had existed in ULIS or the Convention, it is difficult to see how it could have been implemented in anything but a restricted fashion. Then as now UNIDROIT published the Uniform Law Review, which often contains a certain number of court decisions on texts of uniform law. However, only a very restricted number of court decisions could have been published in it. Scholars might have published articles bringing the interpretations given to the Uniform Law in other countries to the attention of lawyers and courts, but that too could have been expected to have only a limited effect. The conclusion is easily reached that a uniform law might be only a little better than a model law at achieving uniformity of the law in practice.

3.

Normative Nature of a Stand-alone Convention

It could be thought that a stand-alone convention would eliminate the difficulties associated with a text of uniform law enacted as a domestic statute. Ratification of the Convention would mean that the Convention text itself would constitute the applicable norm. It would be the same norm in all of the ratifying States, not just a domestic norm with an identical wording to that in other ratifying countries, as in the case of a uniform law. Unfortunately, that is not the reality in fact. It is probably something close to reality on the continent of Europe. The large number of States with a somewhat limited geographical size has led to the existence of a large number of conventions regulating various crossborder situations. It is not only the European Union that contributes to this situation, though it has certainly led to a greatly expanded number of such legal rules. The Council of Europe lists 203 conventions on its treaty website. Not all relate to legal rules that affect individuals, but many do. The International Commission on Civil Status, composed of 16 Member States, lists 32 conventions on its website.28 When a party comes from a foreign country it may be natural to assume that there may be a convention governing the legal situation. Furthermore, on the European continent it seems to be a general rule that through one theory or another treaties have positive law effect in the domestic legal realm.29 That is not, however, the situation all over the world. 28

29

My marriage certificate, issued in Austria, is on a form provided for by the Convention on the Issue of Multilingual Extracts from Civil Status Records, signed 8 September 1976. No translation of the certificate is necessary in any country using one of the nine languages provided for on the form. Some conventions, however, require implementing legislation in whole or in part. One of them is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which appears in large part to be directly

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In the United Kingdom and all countries that have derived their law from it, with the exception of the United States, the government can enter into treaties without the approval of Parliament. However, no treaty can create legal rules in the domestic legal order without the Parliament’s approval. To be sure that any such convention will be implemented by appropriate parliamentary action, it is usual to have the law implementing the convention adopted prior to ratification of the convention. The practical effect is that it is largely irrelevant in those countries whether the uniform law is in the form of a law attached to a convention or is in the form of a stand-alone convention. The situation in New Zealand will illustrate the point. New Zealand ratified the CISG on 22 September 1994 and it came into force for New Zealand on 1 October 1995. The Sale of Goods (United Nations) Act of 1994 was adopted on 4 July 1994. The Act itself consists of only six sections and an annex that reproduces the text of the CISG. Section 4 of the Act provides that the Convention shall have the force of law in New Zealand.30 The result may be the optimal solution. The full text of the CISG is in force in New Zealand and is labeled as a convention but, being a schedule to an ordinary statute, it is printed and indexed in the places that a practicing lawyer would expect to look. Australia and Canada have a special problem. They are both federal States in which the complete authority for the law of sales of goods is in the constituent units (states in the case of Australia and provinces in the case of Canada). Naturally, those units do not have competence in regard to foreign affairs. Therefore, the federal government of both countries had the authority to ratify the CISG, but the implementing laws had to be passed by the states or provinces. Since there was no assurance that all of them would do so, or would do so by the time the federal government wished to ratify, the CISG contains a federal-state clause providing that the ratification could be accompanied by a declaration that it applied only to particular territorial units.31 When Canada ratified the CISG in 1986 British Colombia had not yet adopted the necessary legislation, but the declaration made under Art. 95 CISG was withdrawn in 1992 when British Colombia joined the rest of the country in adopting the CISG. It might be noted that earlier conventions did not contain a federal-state clause. Nevertheless, Canada has made

30

31

applicable. The far from uniform implementation of the New York Convention is vividly demonstrated in the document prepared by the UNCITRAL Secretariat for the forty-first session of the Commission, 16 June to 3 July 2008, Report on the survey relating to the legislative implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958), A/CN.9/656 and Add. 1. The full text of the Act can be found at http://www.legislation.govt.nz/act/public/ 1994/0060/latest/whole.html#DLM332330. Art. 93 CISG.

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a declaration in regard to the New York Convention that the implementation of the Convention in Quebec differs from that of the rest of the country. These details cause no problems for the Australian or Canadian lawyer or court, but they may be confusing to the foreign lawyer. The United States poses yet a different problem. As in Australia and Canada, the law of sales generally is the law of the 50 states. In contrast to those two countries, the ratification of the CISG made it automatically the relevant law within its sphere of application. Normally in the United States conventions are published officially only in the publications devoted to treaties, which are not among the sources usually consulted by practicing lawyers. However, the unusual action was taken to publish the CISG in the Federal Register and as an appendix to Title 15 of the United States Code. The problem is that even those actions were not enough. Unless one knows to look for it, which only a minority of American lawyers whose clients engage in international sales do, it remains a hidden text. The assumption of most lawyers is that, absent a choice of law clause, the domestic sales law, i.e. Art. 2 of the Uniform Commercial Code as adopted in the relevant state, is the governing law even when the transaction involves a non-U.S. party as buyer or seller. Among those who know of the existence of the CISG, a significant number consider it “foreign law”.32 Similar to the Common Law countries discussed above, Norway “is traditionally a ‘dualistic’ country, transposing conventions like the [CISG] into domestic statutory law by way of separate ‘statutory’ legislation, not only translating, but adapting and adjusting by amendments etc. international texts according to national legislative tradition. (…) The ‘transformation’ method was also implemented in the particular case of CISG 1980.”33 Therefore, in Norway the governing law for an international sale is similar to, but different from, the CISG. The conclusion that one might draw is that the unification of law is not notably advanced by casting the text in the form of a stand-alone convention rather than as a uniform law annexed to a convention. Neither one guarantees identity of text in the countries that have adopted the unified text.

32

33

Fitzgerald, The International Contracting Practices Survey Project: An Empirical Study of the Value and Utility of the United Nation’s Convention on the International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts to Practitioners, Jurists, and Legal Academics in the United States, to be published in 27 Journal of Law and Commerce 2008. Available at SSRN: http://ssrn.com/abstract=1127382. Krüger, Norsk kjøpsrett [Norwegian Sales Law], 4th ed., Bergen 1999, Chap. 26. Available at http://www.cisg.law.pace.edu/cisg/biblio/kruger.html#26.1. See also, Hagstrøm, CISG: Implementation in Norway, an approach not advisable, Internationales Handelsrecht 2006, 246-248.

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Eric Bergsten

Language

The cause of international unification of law also is impeded by the multiplicity of languages used throughout the world. ULIS was essentially drafted in French. An English translation was prepared prior to the diplomatic conference and the text was adopted in the two languages. The Convention provided that “Each Contracting State may incorporate the Uniform Law into its own legislation either in one of the authentic texts or in a translation into its own language or languages.”34 It was also required to notify the Government of the Netherlands as depository the text that it had incorporated into its legislation. The Convention, therefore, recognised the desirability or even necessity for the Uniform Law to be adopted in the language or languages normally used in the country in question. In a monolingual country there would be only one version of the Uniform Law in effect. There was no procedure to assure that any translation into a language other than English or French corresponded to the originals, except for the requirement of transmitting the text adopted to the Netherlands. As a Commission reporting to the General Assembly, UNCITRAL works in the languages of the General Assembly. Therefore, when UNCITRAL began its work determining the changes that would be necessary to make the text of ULIS generally acceptable, it worked in Chinese, English, French, Russian and Spanish. Arabic was added as a General Assembly language prior to the diplomatic conference in 1980. No special thought appears to have been given to the fact that this was expanding the number of official texts from two to six, though everyone was obviously aware of it. It is well known that it is difficult to translate legal texts accurately. Law is a discipline of concepts and the concepts used in one legal system, especially in one legal language, do not always correspond to the concepts in a different legal system or legal language. Much has been written about the problems of translation. Less has been written about drafting in one language with the expectation that the text will be translated. It is important that the original be well drafted grammatically and that ambiguities be eliminated. If a word or phrase can have two possible meanings, there is a high likelihood that one or more of the translations will have a meaning that is not what the author of the original intended. In regard to legal drafting it is also important that conceptual terms not be used, since they will have a particular meaning that cannot always be translated accurately. Of importance to the law of sale of goods, different legal systems have different rules as to when “delivery” takes place when, for example, the goods are sold in transit. The legal consequences of “delivery” on passage of the risk of loss or transfer of title are not the same. In place of 34

Art. I(2) ULIS.

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delivery the CISG speaks of “handing over the goods” to mark the physical act, has its own rules on transfer of the risk of loss,35 and stipulates that the Convention “is not concerned with (…) the effect which the contract may have on the property in the goods sold.”36 The concordance of the six official language versions was a shared responsibility of the delegates, the UNCITRAL Secretariat and the Translation Service of the United Nations. Officially, the text of CISG was the responsibility of the delegates, both in UNCITRAL and later in the diplomatic conference. Some of the delegates were proficient in several of the official languages, as were some members of the UNCITRAL Secretariat. However, no one was knowledgeable about all six. In any case, translation is a special skill of its own. By necessity, there was great reliance on the United Nations Translation Service. The Translation Service is an excellent organisation that does a masterful job under sometimes extreme difficulties. During a meeting it often receives proposed new provisions or portions of the draft report in the evening after the meeting for the day is completed. It is expected to translate, print and distribute the resulting document in six languages to the delegates in the morning. In New York in particular the work for a meeting such as UNCITRAL may be interrupted because a meeting of the Security Council has been called. Because the UNCITRAL meetings alternated between New York and Europe (Geneva until the 1977 session of the Commission and Vienna since that date), different teams of translators often worked on the documents. Some of the translators are law trained, but most are not. It is a wonder that they are able to do the high-quality work that is typical of United Nations translations. Nevertheless, it was a problem. There was only one small discrepancy in the six language versions that was knowingly included. In the Drafting Committee at the diplomatic conference the Chinese translator asked whether the requirement in Art. 88(2) CISG that a party “bound to preserve the goods” for the other party37 must sell the goods when they are “subject to rapid deterioration” applied only to physical deterioration or included foreseeable price deterioration. Different characters would have to be used in Chinese to cover the two situations. The delegates relying on the English and French texts said that it included both and that it should. The delegate from the Soviet Union said that the Russian text covered only physical deterioration and that that was the correct solution. One wonders whether the same answer would be given today. After some debate it was decided that the matter could not be decided in the Drafting Committee, which had only a technical mandate and not a 35 36 37

Art. 66-70 CISG. Art. 4(b) CISG. For example, a buyer who has received the goods but intends to reject them (Art. 86(1) CISG).

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substantive mandate, and that it was not worth bringing to the attention of the full diplomatic conference.38 Having been given no answer from the delegates, the text in Chinese was decided by the translator. I do not know what it says. Over all, my experience has been that there is a high congruence of the texts of the CISG in French and English. Not only did the work in UNCITRAL commence with the text of ULIS and ULF in the two languages but many of the delegates were fluent in both languages. I would expect the Russian text also to be in line with the other language versions, in spite of the example just given, since the text was polished in Moscow by the delegation after the meetings of UNCITRAL and the delegation worked closely with the translators at the diplomatic conference. Some aspects of this were formally problematical, especially during the height of the Cold War, since no single delegation was supposed to have privileged access to the various language versions of United Nations documents. It was, however, very effective. I personally have somewhat less confidence in the quality of the Spanish text and considerably less in the Arabic and Chinese. The United Nations website indicates that the text of the CISG in Arabic has been rectified on two occasions and the Russian on one occasion. Rectifications of a Convention are governed by Art. 79 of the Vienna Convention on the Law of Treaties. Rectifications of conventions cause few problems when the persons concerned are government officials, whether in the Ministry of Foreign Affairs or otherwise. Rectifications are less effective in regard to a convention such as the CISG that will be reprinted by numerous private publishers.39 Since the decision had been to adopt a stand-alone convention, there could be no provision as there was in the ULIS Convention that the sales law provisions could be enacted into positive law in the national legal order in one of the official texts or in a translation. Instead CISG has the standard provision in multilingual conventions that the convention was adopted “in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic.”40 It is clear that no single language version of a convention of a political nature can be relied upon by the dip38

39

40

The Chairman of the First Committee had previously stated that “it was not the Drafting Committee’s task to draw up any new text, which might give rise to discussions within the (First) Committee and delay its work.” Official Records, First Committee, fourth Meeting, para. 1. There was also a correction to the Russian text of the UNCITRAL Arbitration Rules after it had been adopted by the Commission. However, the error was noted at an early stage and the incorrect text was never distributed, though it did appear in the Report of the Commission to the General Assembly. A corrigendum to the report of the Commission in Russian was duly issued. Clause following Art. 101 CISG.

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lomats in the Ministry of Foreign Affairs. It is not so clear as a matter of public international law whether the courts of a State that uses one of the official languages can rely on that language version alone. If they do, the result in regard to Art. 88(2) CISG would be that a Russian court, relying on the Russian text, would rule that there was a requirement to sell the goods for the account of the other party only if the goods are in danger of physical deterioration whereas a court in an English speaking country, relying on the English language text, would rule that there was a requirement to sell if there was foreseeable price deterioration as well. The problem is somewhat different in States where the legal language is not one of the six official languages. A translation into the legal language of the State will obviously be made. The document presented to the legislative body for approval will certainly include the translated text. Depending on the procedures common in the country in question, the six official language versions of the CISG may also be submitted, whether or not they are read by anyone. Once the CISG has been ratified, there is even more of a question as to whether any of the six official versions of the CISG will be considered when questions under it are raised by practitioners or courts. There is a special problem when there is more than one State sharing the same legal language into which the CISG will be translated. Unless the interested States prepare a joint translation, as the German speaking countries have done, the translations, and therefore the law applied by the courts in those States, will be different. The differences may be significant or they may be minor, but differences there will be.

C. Scope of Application Every law must indicate the transactions or situations to which it applies. The provisions on the scope of application of a text for the international unification of law may also mark the limits of what is deemed to be feasible to unify. That is very much the case with the CISG. The six articles in Chapter I on the scope of application fall into four categories: (1) internationality of the sale and status of the parties to the contract, (2) types of sale and types of goods covered, (3) aspects of the law relevant to a sale of goods not included and (4) right to exclude the application of the Convention. Only certain aspects of the first three categories will be discussed below.

I.

Internationality of the Sale and Status of the Parties

In contrast to the 1931 Geneva Uniform Laws on negotiable instruments, which apply to both domestic and international use of the instruments,

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there was never any question from the inception of the preparation of ULIS at UNIDROIT in 1931 that it would apply only to international sales. ULIS combined a subjective element and an objective element to determine internationality. The subjective element was that the parties had their places of business in different States. The objective element was that the goods were in carriage or were to be shipped from one State to another, that the offer and acceptance had been effected in different States or the delivery of the goods was to take place in another State even though the offer and acceptance of the contract had been in one State.41 When UNCITRAL undertook the revision of ULIS the objective elements were not considered to be necessary. Therefore, the CISG “applies to contracts of sale of goods between parties whose places of business are in different States.”42 It is only the places of business that are to be considered, not the nationality of the parties.43 The CISG applies even if the goods are to remain where they were prior to the sale. The most obvious example is that the goods were in a warehouse and are expected to remain there. The controversy in regard to the criterion of internationality in ULIS was that it applied to all international contracts of sale, even though neither the goods nor the parties had any relationship with a Contracting State. Professor Tunc in his Commentary noted that the example had been given in the diplomatic conference of a sale between two companies, one having its place of business in the United States and the other in Canada, assuming that neither had ratified ULIS. Even if the litigation comes “before the court of a European State which has signed the Uniform Law, it seemed paradoxical that this court should apply the Law to the parties.”44 Professor Tunc gave three reasons why it was justified that the sale need not have any contact with a Contracting State. First of all, Art. 3 ULIS allowed the parties to exclude the application of the law, as does Art. 6 CISG. It is difficult to see, however, that the U.S. and Canadian parties in the hypothetical case would have contracted out of ULIS as such, though they might have included a choice of law provision in the contract, which would have had the effect of contracting out of ULIS. The second reason was that “a tribunal will not normally declare that it is competent to decide on a contract unless the contract has some substantial connection with the country where the tribunal sits.” The third reason would seem to have been the crucial one: “Now, in all these cases, the Uniform Law seems undoubtedly superior to municipal laws, if not in itself, at least as regards international contracts; it is

41 42 43 44

Art. 1(1) ULIS. Art. 1(1) CISG. Art. 1(3) CISG. Tunc, Commentary (op. cit. fn. 17), 16.

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stressed, in short, that all municipal law contains peculiar rules the application of which can result in injustice to a contracting party who is not forewarned. (…) The Uniform Law has appeared not only acceptable, but positively good, to experts belonging to very different legal and political systems. That is to say it seems to protect any contract, whatever its type, from the eccentricities and injustices inherent in any municipal system.”45 Professor Tunc was certainly correct that courts in Contracting States would have few occasions to adjudicate contract disputes between parties from two non-Contracting States, but it could happen. The issue was of more importance in regard to the image it projected than it ever would have been in practice. Nevertheless, the fact that ULIS could be applied to sales of goods between parties from non-Contracting States was a major reason why there was so much resistance to ULIS in certain States. It did not help the image problem that the Convention provided that a State could make ULIS applicable only to sales of goods between parties from Contracting States and that six of the nine States that eventually ratified the ULIS Convention did so.46 In the revision of ULIS leading to the CISG there was little doubt that the Convention would apply to contracts between parties from Contracting States. An issue arose that did not need to be considered in ULIS. If the contract was not between parties from two Contracting States but the rules of private international law would lead to the application of the law of a Contracting State, it was felt that the CISG should apply, and Art. 1(1)(b) CISG so provides. A Contracting State has two (at least) laws of sale of goods of which the CISG is one. Just as expressed by Professor Tunc in regard to ULIS, the CISG was thought to be more appropriate than the law of sales of goods otherwise applicable in the State.47 The CISG had been drafted for international sales and, therefore, does not have any elements in it appropriate for a domestic sale but that would be a surprise to a foreign party in an international sale. It was only the day prior to the close of the diplomatic conference that Art. 95 CISG, permitting a State to declare that it will not be bound by Art. 1(1)(b) CISG was introduced. The delegate of Czechoslovakia pointed 45 46

47

Ibid. Art. III ULIS. The six States that made the Art. III reservation were Gambia, Germany, Luxembourg, Netherlands, San Marino and United Kingdom. Only Belgium, Israel and Italy did not make the reservation. The list of Contracting States indicating the reservations is available at http://www.unidroit.org/english/ implement/i-64ulis.pdf. It is desirable not to contrast the CISG with “domestic law”. In any State that has ratified the CISG it too is domestic law.

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out that both Czechoslovakia and the German Democratic Republic had legislation specifically for international trade. He continued that similar legislation was under preparation in Poland and Romania. “For countries with such a system, the rule in paragraph 1(b) [of Art. 1 CISG] would mean the exclusion of whole areas of the special legislation enacted to govern international trade transactions.”48 He went on to say that the net result of Art. 1(1)(b) CISG would be that countries like Czechoslovakia would be unable to ratify the Convention. The conference accepted the argument and Art. 95 CISG was adopted.49 Although the historical reason for allowing the declaration may have passed, China, Singapore and the United States of America have made the declaration in addition to the Czech Republic and Slovakia. Germany declared that it would not apply Art. 1(1)(b) CISG in respect of any State that had made a declaration that that state would not apply Art. 1(1)(b) CISG. It is not clear the significance of the German declaration. In any case, the increasing number of States that have ratified the CISG means that Art. 1(1)(b) CISG is losing its significance, as is Art. 95 CISG.50

II.

Definition of Goods

Although the CISG applies to sales of goods, there is no definition of what constitutes goods. It is possible to draw the conclusion that stocks, shares, investment securities, negotiable instruments, money and electricity were all thought to be goods, since their sale is expressly excluded from the scope of application of the CISG, as it was from ULIS.51 This suggests that the item need not be in tangible form to be “goods”.52 Any law of sales will have a number of borderline situations where it is not clear whether the sale is of goods or of some other category of asset. A common one not discussed in the CISG is the point at which ore, timber, crops and the like cease being part of the land and become “goods”. However, the CISG does provide the criteria for determining when goods that are 48 49 50 51 52

Official Records, eleventh Plenary Meeting, para. 80. Ibid, para. 93. As of 30 September 2008, 71 States have ratified the Convention. Art. 2 CISG; Art. 5 ULIS. The Secretariat Commentary on the draft Convention states that in some legal systems none of these items would be considered to be “goods”, which might thereby cause discrepancies in the application of the Convention, that in many legal systems the financial instruments are subject to mandatory rules and that the sale of electricity presents special problems. Official Records, Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, Art. 2, paras. 7 and 10.

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to be manufactured for the buyer fall within its scope of application. There has been some controversy as to how those criteria are to be applied.53

III. Types of Sales Excluded from the CISG The exclusion of sale of goods by auction and on execution or otherwise by authority of law in Art. 2 CISG were also carried over from ULIS. Neither type of sale was thought to be of commercial significance in international trade and both were governed by special regulatory regimes. The exclusion of sales by auction may no longer seem as obvious as it did when ULIS and the CISG were drafted. Auctions of goods over the internet have become common and some of those sales are both international and from one commercial party to another. Although the CISG specifies that the civil or commercial character of the parties is not to be taken into consideration, as did ULIS, the CISG does not apply to sales of goods bought for personal, family or household use, unless the seller neither knew nor ought to have known that they were bought for any such use. There was no such restriction in ULIS. The reason for providing that the civil or commercial character of the parties is not to be taken into consideration is that the criteria for determining whether a party has a commercial character vary from one country to another, and there is no such categorisation in other countries. The exclusion of sales for personal, family or household use serves as the means of excluding consumer sales from the CISG. The reason for excluding such sales is that many countries have special rules governing consumer sales and it was thought best not to risk conflict between the CISG and those rules.

IV. Validity ULIS excluded from its coverage any question of the validity of the contract or of any of its provisions or of any usage.54 ULF was silent on the matter. In 1973 UNIDROIT sent a letter transmitting the text of a “draft of a law for the unification of certain rules relating to the validity of contracts of international sale of goods” with an accompanying explanatory report.55 It was explained that the purpose of the draft was to fill a gap left in ULIS by the exclusion of matters of validity from it. The matter was referred to the following session 53

54 55

CISG-AC Opinion no. 4, Contracts for the Sale of Goods to Be Manufactured or Produced and Mixed Contracts (Art. 3 CISG), 24 October 2004. Rapporteur: Perales Viscasillas. Available at http://www.cisgac.org. Art. 8 ULIS. Commission Report, sixth session (1973) A/CN.9/9017, paras. 144-148.

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of the Commission at which time the Commission requested the Working Group on the International Sale of Goods “to consider the establishment of uniform rules governing the validity of contact for the international sale of goods, on the basis of the above UNIDROIT draft, in connection with its work on uniform rules governing the formation of contracts for the international sale of goods.”56 The UNIDROIT draft along with a Secretariat report was submitted to the Working Group when it took up the revision of ULF.57 The report suggested that the draft convention to be prepared incorporating the revised ULF should not include any provisions in respect of validity of contracts based on the UNIDROIT draft.58 Four principal arguments were presented in support of this conclusion. First, the problems raised by questions of invalidity were relatively rare events in respect of contracts for the international sale of goods. The likely reason was said to be that such contracts are concluded between merchants who are, at least compared to the average person, relatively sophisticated in matters of contracting. Secondly, “when such events do occur, they can usually be handled as well under non-uniform national law as under any proposed text of uniform law.” The common examples of mistake, fraud or duress that would justify a party to avoid the contract under the UNIDROIT draft would justify that party to avoid the contract under any applicable legal system. Therefore, adoption of a uniform law would not increase the uniformity of result for the parties. Thirdly, it did not appear that any text of uniform law on the subject could increase the unification of result in practice. That is because, as shown by the UNIDROIT draft, the crucial questions must be characterised by the adjudicator. For example, in Art. 11 of the UNIDROIT draft, a party who has been led to conclude a contract by a threat could avoid the contract if the threat had been “unjustifiable, imminent and serious”. Fourthly, some aspects of the law governing the validity of contracts are an important vehicle by which the political, social and economic philosophy of the particular society is made effective in respect of contracts. There was a fifth argument presented that may have been the most important one. Due to the absence of a general consensus on the policies that some aspects of the law of validity of contracts embody, the subject “would appear to be so complex that it would not be feasible for the Working Group to complete its work on the formation of contracts for the international sale of goods ‘in the shortest possible time’ as requested by the Commission (…)”. The Com56 57

58

Commission Report, seventh session, A/CN.9/9617, para. 93. Report of the Secretary-General: formation and validity of contracts for the international sale of goods, A/CN.9/128, annex II. The text of the UNIDROIT draft with Secretariat comments on each article is in Appendix II of the report. Ibid, para. 27.

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mission was under pressure to complete the revision of ULIS and ULF as quickly as possible. It had to demonstrate that it could function as a “legislative” body and not just as a glorified seminar on the law of sales. At the last meeting of the Working Group prior to submitting the revised ULF to the Commission there was a substantial discussion on the question of validity.59 In the end, no provision of the UNIDROIT draft was submitted to the Commission. The Working Group did adopt a provision on good faith: “In the course of the formation of the contract the parties must observe the principles of fair dealing and act in good faith.”60 This text was changed in the Commission to a text that was almost identical to what eventually was adopted as Art. 7(1) CISG. It provides that: “In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.”61 The UNIDROIT draft covered the main issues of validity, mistake, fraud and threat. The difficulty is that there are sources of invalidity of a contract, such as bribery, in various legal systems. There are certainly others in various legal systems. Since the CISG leaves issues of validity to non-uniform national law and a finding of invalidity trumps anything in the CISG, a potential source of inconsistency in application of the CISG exists.

D. Interpretation of the CISG ULIS was drafted basically by representatives from Civil Law countries and the text reflected that background. To a significant degree the revision process involved changes in the text to accommodate Common Law conceptions. A major difference between the Civil Law and the Common Law is in the standards of interpretation of the law. Art. 17 ULIS provided: “Questions concerning matters governed by the present Law which are not expressly settled therein shall be settled in conformity with the general principles on which the present Law is based.”

59 60 61

Working Group Report, ninth session, (1977) A/CN.9/142, paras. 48-87. Ibid, annex, Art. 5. Commission Report, eleventh session, (1978) A/33/17, paras. 42-60.

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That is standard methodology for a Civil Law code. The code covers the matters to which it applies in totality. There are no gaps within the scope of application. So too with ULIS. Within its somewhat limited scope of application there were no gaps. All questions could be answered by application of the general principles on which the Law was based. That legal technique is in sharp contrast to the one followed in Common Law countries. The underlying law is the judge-made Common Law. The standard dictum is that statutes in derogation of the Common Law are to be interpreted narrowly. While this dictum has lost much of its force with the large amount of legislation governing many areas of modern life, the basic principle remains. Perhaps the best illustration is found in the section 1-103 of the Uniform Commercial Code in the United States: “Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.”62 It is not really accurate to say that there are gaps in the Uniform Commercial Code, or similar statutes in Common Law countries generally, though gaps certainly exist in many statutes. It is more accurate to say that the general principles of law that affect the interpretation and application of all statutes are found outside of the statutory law itself. The Working Group at its second session recommended that the text of Art. 17 ULIS should be deleted. It had been criticised in the Working Group as “vague and illusory, since the Law did not specify or indicate the general principles on which it was based; such a reference would lead to uncertainty and possibly to a Court’s use of its own national rules on the assumption that these were the general principles underlying the Uniform Law.”63 In its place it was recommended that what is largely the text of Art. 7(1) CISG should be substituted for it. There was also a suggestion that the revised ULIS should include a provision that “Private international law shall apply to questions not settled by the Uniform Law.”64 However, the Working Group thought that questions of principle had been raised that should be decided by the Commission. When the Commission received the report of the Working Group it discussed the matter at length, but then concluded that it was not practicable 62

63 64

There was a realignment of provisions in the 2001 official version of Art. 1. The quoted language is now found in section 1-103(b). The revised text has been adopted in four of the fifty states. Working Group Report, second session, (1970) A/CN.9/52, para. 129. Ibid, para. 133.

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to reach a decision at the intermediate stage of the revision of ULIS. It could consider the matter more readily when a text proposed by the Working Group was reviewed as a whole.65 The question of the interpretation of the revised ULIS never was discussed in UNCITRAL. When the Working Group was ready to submit a complete revision of ULIS (by now called a Convention) to the Commission in 1975, any provision on interpretation of the Convention had been left out.66 Its status as a pending question was noted in a report by the Secretariat.67 Nothing more was heard about the issue until the diplomatic conference. There were several proposals for a new provision on interpretation. The proposal that was adopted and what is now Art. 7(2) CISG was made orally by the German Democratic Republic and adopted in the First Committee by the narrow margin of 17 votes in favour, 14 against with 11 abstentions.68 In the Plenary the two paragraphs of Art. 7 CISG were adopted without dissent. The Italian delegate stated that the Article was particularly important for the Convention as a whole because uniform interpretation of the Convention was to be sought by all those called on to apply it. He hoped that above all the first portion of para. (2) would help such an interpretation in practice.69 It can be hoped that the Italian delegate is correct. However, the difficulty remains that jurists in some legal systems are trained to find general principles in a legislative text while jurists in other legal systems are not so trained and the latter group can rely on the second portion of Art. 7(2) CISG to justify the absence of a general principle governing the issue in question.

E. In Conclusion, Is Uniform Interpretation Possible? With all of the difficulties that have been presented in this paper, and the many others that have not been mentioned, is a uniform interpretation of the CISG a reasonable goal? If by uniformity one means a single interpretation of every provision, even the most passionate supporters of the CISG would have to admit that it would be unrealisable. It is difficult enough to secure uniform interpretation of the law in national legal systems. It is un65 66

67

68 69

Commission Report, fourth session (1971) A/CN.9/8417, paras. 81-91. Revised text of the Convention on the International Sale of Goods as approved or deferred for further consideration by the Working Group on the International Sale of Goods at its first six sessions, A/CN.9/100, annex I. Report of the Secretary-General; pending questions with respect to the revised text of a uniform law on the international sale of goods, A/CN.9/100, annex III. Official Records, Report of the First Committee, Art. 6, para. 5. Official Records, Summary Records, sixth Plenary Meeting, para. 44.

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thinkable in a world where the text exists in multiple languages, where it has not always been transposed into the domestic legal systems with faithful adherence to the official texts, where the practitioners have sometimes radically different education in the law and approach legal questions with different preconceptions and, most importantly, where there is no court of final appeal that can give a uniform interpretation to all parties. If uniformity of interpretation can be understood as being something less complete, extraordinary strides have been made. The drafters of the CISG helped by including Art. 7(1) CISG in the text. When a State ratifies the Convention the political authorities have given an instruction to its courts as well as to practitioners and academics that in the interpretation of the Convention regard is to be had among other things to the need to promote uniformity in its application. I emphasise the word “need”. By itself this provision will not bring about uniform interpretation, but it is a strong statement and it will have some impact. Since there is no court that can give a uniform interpretation to controversial provisions, other methods to increase the likelihood of uniform interpretation have been developed. UNCITRAL has led the way. As early as 1983 UNCITRAL expressed its desire that some method be devised whereby court and arbitral decisions interpreting the texts prepared by the Commission could be widely disseminated.70 That finally resulted in the CLOUT (Case Law on UNCITRAL Texts) system being instituted. In the CLOUT system abstracts of court and arbitral decisions are published in all six languages of the Commission. The availability of CLOUT abstracts has been considerably enhanced in recent years by their publication on the Internet as well as United Nations printed documents. On the basis of the CLOUT abstracts a Digest of opinions has been prepared under the auspices of the UNCITRAL Secretariat. It too is available on the UNCITRAL website.71 Although some concern has been expressed that the Digest reports interpretations of the CISG that would hopefully not be followed by other courts, the availability of CLOUT and the Digest in six languages and from anywhere in the world reduces the argument that the decisions of courts in other countries are not available. Important non-official efforts to bring about uniform interpretation of the CISG would include the CISG-Advisory Council, an organisation of CISG scholars who have undertaken to prepare interpretations of provisions in the CISG that are subject to different interpretations or that reflect new developments in commerce or communications.72 A resource of immense importance is the data base on the CISG maintained at the Pace University 70 71 72

Commission Report, sixteenth session, (1983) A/38/17, para. 137. http://www.uncitral.org/uncitral/en/case_law/digests/cisg.html. The official website is http://www.cisgac.org. The opinions issued to date can be found on a number of data bases.

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Institute of International Commercial Law.73 The website includes links to the members of the Autonomous Network of CISG Websites where material on the CISG is maintained in the languages of the country concerned. The resources cited above provide the raw materials for uniform interpretation of the CISG. However, those raw materials must often be interpreted themselves to make them understood by the courts and practitioners. That is largely the task of the scholarly community. The Pace data base contains a bibliography of over 8,000 books and articles that have been written about the CISG and contains over 1,100 full texts. Most are in English, but many are in other languages. It is somewhat symbolic that the first full text item listed is a doctoral thesis at Cairo University written in Arabic.74 The CISG will not receive 100 percent uniform interpretation. That is not to be expected. Moreover, it is not a perfect text. Few, if any, legal texts reach that standard. It will be revised at some date, probably in the relatively distant future, although it is difficult to revise a convention that has received a large number of ratifications. Nevertheless, the CISG has been an outstanding success, which is shown by the large number of ratifications, the extent of scholarly interest, and the surprisingly high degree of consistent (I dare not say “uniform”) interpretation. 73 74

http://www.cisg.law.pace.edu. El Hamid, The Avoidance of the Contract for International Sale of Goods according to the Vienna Convention 1980, doctoral thesis Cairo University, 2nd ed., Cairo 2001. Available at http://www.cisg.law.pace.edu/cisg/biblio/bib2.html.

Tracing Methodology in the CISG: Dogmatic Foundations Ulrich Magnus

A. Introduction I understand the subject as meaning the method how the CISG is, and should be, interpreted and applied. Every judge, arbitrator, writer or practitioner dealing with a CISG issue has – directly or indirectly – to take a stance on how to understand the CISG provision relevant for the issue at hand. For this purpose of interpretation he or she will – sometimes consciously, sometimes subconsciously – follow a certain method. Being aware of national differences in the method of interpretation of legal texts the drafters of the CISG tried to provide for a specific method of interpretation of the CISG. The various aspects of this method are examined in detail in the contributions assembled in this book. The present paper intends to give a general outline of this method and its dogmatic background and also of the interplay of the different aspects. Tracing methodology in the CISG can be exclusively understood to mean the method of interpreting and applying the CISG in judicial practice and international doctrine. Tracing methodology in the CISG could, however, also be understood in an entirely different sense since there are many other methodological aspects of the CISG that could be traced as well: for instance, the method as to how the CISG as one if not the leading international convention on private law was developed and how the comparative method was used for its preparation; the method as to how the CISG is, and should be, used for legislative purposes; whether and how the CISG could and should be used for the interpretation of national law that was modelled after the CISG etc. So interesting as they are these methodological aspects will be left aside. The paper begins with some general remarks on the function and purpose of the interpretation of international unifying conventions; it then tries to answer some delicate and less frequently raised questions of the interpretation and application of the CISG and finally discusses foundations of the method of interpretation of the CISG.

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B. Function and Purpose of Interpretation of International Conventions Lawyers rely and depend on words: they are their instruments. Words and phrases can be, and often are, ambivalent: their meaning must be fixed by interpretation. According to a common understanding interpretation is “the process of ascertaining the meaning of a written document.”1 It serves the aim to reveal the sense of words and phrases. This function of interpretation, familiar in national law, applies also to the text of the CISG without any restriction. An additional aim of interpretation is often to adapt the meaning of a legal text to changed circumstances, the more so the longer the time period between the creation of the text and the need to apply the text. This latter aim has particular weight for international conventions that in general can be less easily amended than national law (though the CISG with its predecessor ULIS/ULF2 is a counter-example).3 It should, however, be noted that these general aims of interpretation do not necessarily entail a certain – for instance more subjective or more objective – method of interpretation. Interpretation with respect to international conventions, in particular to those that, like the CISG, try to unify substantive law pursues a further central aim: the uniform application of these instruments. Their interpretation has to support the unification purpose that is the core issue of unifying conventions. As has been often observed uniform law texts alone do not necessarily produce uniform law.4 The danger of divergent interpretations influenced by the respective national background of the seized court is only too real.5 To achieve the ideal of virtual unification as closely as possible – to

1 2 3

4

5

Earl Jowitt’s Dictionary of English Law, vol. I, 2nd ed., London 1977, 430. The Hague Uniform Sales Conventions of 1964. It lasted only sixteen years to amend the Hague Uniform Sales Law and convert it into the Vienna Sales Convention. Witz, L’interprétation de la CVIM: Divergences dans l’interprétation de la Convention de Vienne, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old Issues Revisited in the Light of Recent Experiences, Munich 2003, 279 et seq. For examples of divergences in the interpretation of the CISG see Witz (op. cit. fn. 4), 285 et seq.; further Andersen, The Uniformity of the CISG and Its Jurisconsultorium: An Analysis of the Terms and a Closer Look at Examination and Notification, The Hague 2006, particularly 179 et seq.; de Lukowicz, Divergenzen in der Rechtsprechung zum CISG. Auf dem Weg zu einer einheitlichen Auslegung und Anwendung?, Bern 2001, 54 et seq.; Graffi, Divergences in the Interpretation of the CISG: The Concept of “Fundamental Breach“, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old Issues Revisited in the Light of Recent Experiences, Munich 2003, 305 et seq.

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request complete uniformity is anyway “to cry for the moon”6 – also requires the uniform application and thus the uniform interpretation of the uniform text. In turn, a uniform method of interpretation of international uniform law conventions is needed. However, also methodological considerations on interpretation of uniform law conventions have to bear in mind that unification of law and uniformity of its application is no purpose in itself. Unification in particular of sales law serves the aim to facilitate trade relations between parties from different states, to reduce the costs of those transactions and finally even to contribute to peace between nations (“if goods do not cross borders soldiers will”).7 The interpretation of the CISG has also to strive for these aims. A uniform method of interpretation that recognises these aims is therefore essential for uniform application of the CISG. However, even if such a method would be applied certain impediments could nonetheless frustrate all efforts to achieve maximum uniformity in the application of the CISG. This would be a “political” interpretation of the CISG and a strikingly different quality of judgments rendered in different countries. These two questions shall be discussed next.

C. Political Interpretation of the CISG? A rather delicate and rarely addressed aspect of the interpretation of uniform laws is the “political” interpretation of the respective instrument. By political interpretation I mean that state courts in their judgments on international relations systematically favour their own citizens. This can be achieved by unfair procedural means in court proceedings, which is however a matter outside the scope of this paper. But such discrimination can also be achieved by the interpretation and application of the international law instrument itself. Is there anything of this kind in relation to the CISG? In international sales cases it would be rather easy to prefer the home industry by court decisions. The courts of a country could easily reject claims by foreign claimants against home defendants and grant claims by home claimants against foreign defendants in a systematic way. It is not necessary that this is done openly. It is entirely sufficient and possible to do it in a hidden way via the interpretation of the vague and flexible terms of the respective law. Sales law – and in particular the CISG – contains so many vague and flexible terms that their systematic interpretation in favour of the 6

7

Lord Wilberforce in Photo Production Ltd. v. Securicor, Transport, Ltd. [1980] 1 All E.R. 556 (562) (H.L.) (“To plead for complete uniformity may be to cry for the moon.”). Ascribed to Bastiat (a 19th century economist). The Preamble to the CISG expresses in other words the same idea.

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home industry would pose no real difficulty. If, for instance, the foreign party is the seller who claims payment for delivered goods the standard defence is the non-conformity of the goods because they were not fit for their normal purpose. The “normal purpose” leaves a rather broad discretion for interpretation that could be systematically exercised against foreign sellers and in favour of home sellers. Another example: if the foreign party is the buyer who complains of the non-conformity of the delivered goods it is also easy to deny the buyer’s claim for termination or price reduction if there is a requirement – such as in Art. 39 CISG – to give notice within a reasonable period of time. This notice requirement and its exceptions in Art. 40 and Art. 44 CISG could again be easily used to systematically reject claims of foreign buyers as delayed either by applying different time standards or by preferring home parties with respect to the exceptions. Or, a final example: damages are only recoverable if the test of foreseeability is met (Art. 74 CISG). Courts could rather easily apply this test always and systematically in favour of the home party since the result of this test depends on the circumstances of the case. In a globalised world where, despite all efforts to establish a global system of free trade, countries compete strongly with each other for economic wealth, there is an essential interest and temptation for states to protect their own industry. It would be by no means surprising if the judiciary also behaved in the same way and discriminated against foreigners. On the other hand, such behaviour would clearly offend most fundamental objectives of justice like equal treatment of equal cases and neutrality of decision. Whether courts of CISG countries discriminate in the way outlined above has not yet been the subject of systematic research. However, having collected, reviewed and commented on international CISG cases for almost two decades it is my impression that no such tendency is systematically pursued in any of the CISG Member States. A little more objective, though by no means representative test of the “political” attitude of courts concerning the CISG confirms this personal impression. If one takes the last twenty CLOUT8 cases relating to the CISG9 in theory at least ten foreign parties and ten home parties should have won their case had the courts decided in a neutral, impartial manner. In fact, the outcome of this little test showed an almost equal number of foreign and home parties who won their case.10 18

19 10

CLOUT = Case Law on UNCITRAL Texts (case collection run by UNCITRAL). CLOUT has established a network of National Correspondents who constantly prepare English abstracts of CISG decisions of their country for the collection which is freely accessible under: www.uncitral.org. See CLOUT cases no. 729-734, 746-753, 770-777. These cases comprise decisions from Austria, China, Germany, Mexico, Spain and the United States. Even in theory a full balance between winners and losers is unlikely. In international cases there might be a tendency that claimants institute proceedings only if

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Thus, the trust in a generally neutral interpretation of the CISG by whatever court appears not to be ill-founded even though a homeward trend can sometimes be observed to fall back on national law or national legal thinking when unsettled questions of the CISG have to be decided.11 In fact, the trust in court decisions that apply the CISG free from political implications is an indispensable ingredient for an effective unification of sales law on a global level because the unification of the legal text of the CISG alone cannot guarantee its fair, let alone, uniform application. If courts behaved systematically in an unfair way this necessary basis would be destroyed.

D. Quality of the Decisions on the CISG Another delicate subject is the quality of the judgments on the CISG. Quality in this context means nothing more nor less than the correct application of the provisions of the applicable law to the facts at hand, at least of those provisions whose application do not require a great deal of interpretation. Again, a survey on the general quality of judgments in such a large number of countries like the 71 CISG Member States is entirely outside the scope of this paper. But if one concentrates on the application of the CISG and the question of whether its text has been generally correctly understood and applied insofar as the text leaves no great room for interpretation again, an impression based on experience can be formulated from which a tendency can be inferred. This impression and experience relies on the UNCITRAL Digest,12 which collects and reports the respective case law of almost all CISG States for every CISG provision. The tendency that can be inferred from the Di-

11 12

the prospects to win are rather high due to the difficulties that the involvement of a foreign party entail, from jurisdiction and service problems over language and evidence problems to problems with the recognition and enforcement of the judgment in a foreign country. See thereto Ferrari in this book. The Digest is accessible on the internet under: www.uncitral.org/english/clout/ digest_cisg_e.htm. A Draft of the Digest has been published in: Ferrari/ Flechtner/Brand (eds.), The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention, Munich 2004, 501 et seq. As to the Digest see Bazinas, Uniformity in the Interpretation and the Application of the CISG: The Role of CLOUT and the Digest, in: UNCITRAL/SIAC (eds.), Celebrating Success; 25 Years United Nations Convention on Contracts for the International Sale of Goods, 25 Journal of Law and Commerce (2005/06), 18 et seq., 23 et seq.

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gest shows that misunderstandings and incorrect applications of clear and unambiguous CISG provisions are a rare exception.13 Moreover, the Digest reveals that with respect to disputed questions of interpretation there is almost always a prevailing view followed generally by a clear, often the vast majority of courts.14 Though it cannot be denied that there are also divergences in interpretation of the CISG15 taken together they are rather few, in particular if it is sufficiently taken into account that no central CISG court exists. Despite this lack of a central court competent for CISG matters it is therefore surprising – as well as satisfying – that under an overall perspective a rather far-reaching, self-induced uniformity of application of the CISG of reasonable quality has been achieved. This result has been supported by a number of helpful factors: the rather clear wording and structure of the CISG itself; the UNCITRAL Digest; the CLOUT collection (in English) and national collections of CISG cases, in particular the CISG databank of the Pace University;16 the opinions of the CISG Advisory Council;17 the many national publications on the CISG in each CISG Member State18 and a global network among CISG researchers19 – all these factors add to the result of a relatively high quality of CISG judgments as far as the correct application of the CISG provisions is concerned. Some of the mentioned fac13

14

15 16 17

18

19

But see on some examples of misapplication of CISG provisions Garro, Some Misunderstandings about the U.N. Sales Convention in Latin America, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th Anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 113 et seq. The most prominent example is the gap that Art. 78 CISG leaves, namely the rate of interest. The overwhelming majority of courts fill the gap by redress to the applicable national law that must be determined according to the rules of private international law. Nonetheless, there are deviating decisions that follow various different paths. However, these are few or even single decisions; see Draft Digest (op. cit. fn. 12), 810 et seq. See for references supra fn. 5. Use www.cisg3.law.pace.edu/cases.html. The Advisory Council is a (private) group of CISG experts of different countries. The Advisory Council publishes opinions on important and disputed CISG provisions; thus far seven Opinions have been published in Internationales Handelsrecht (IHR) 2003, 244 (Opinion no. 1); IHR 2004, 163 (Opinion no. 2); IHR 2005, 81 (Opinion no. 3); IHR 2005, 124 (Opinion no. 4); IHR 2006, 35 (Opinion no. 5); IHR 2007, 250 (Opinion no. 6); IHR 2008, 122 (Opinion no. 7). Again UNCITRAL provides a comprehensive bibliography on scholarly writings on the CISG. Established not only but mainly by UNCITRAL’s net of national correspondents who report CISG cases to CLOUT.

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tors – the Digest, CLOUT, the network, the Advisory Council – are unique for international private law conventions. On the one hand, they evidence the weight that a globally correct, convincing and uniform application of the CISG is given. On the other hand, they demonstrate the great efforts that are necessary to achieve this result when a central court is lacking. However, in order to avoid any false impression there is still room, and sometimes ample room, for qualitative improvements. They concern in particular a much more advanced use of foreign case law and foreign legal doctrine.

E. Foundations of the Method of Interpretation I.

Sources

When concerned with a problem of interpretation of an international convention such as the CISG, one has to look first for specific interpretationprovisions within the Convention itself. If they – like Art. 7 CISG – do not offer too much help one has to seek help elsewhere. It is questionable whether further international instruments such as the Vienna Convention on the Law of Treaties of 1969 can be taken into account. As a further and final step an independent method of interpretation must be developed as to how the CISG and similar conventions have to be interpreted.

II.

CISG’s Interpretation Provision

1.

Aims Instead of a Method of Interpretation

Art. 7(1) CISG requires that in the interpretation of the Convention “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.” While para. 1 addresses the interpretation issue para. 2 of the provision provides for a mechanism to fill gaps in the Convention. The latter contains the famous reference to general principles, namely that “questions concerning matters governed by this Convention that are not expressly settled in it are to be settled in conformity with the general principles on which it is based.” Only where no such principles exist do the traditional conflict rules determine the applicable national law. However, the border between para. 1 and 2 of Art. 7 cannot always precisely be drawn. It may fluctuate so that both paragraphs can influence each other.

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Taken seriously Art. 7(1) CISG formulates aims rather than a precise method of interpretation.20 The precise method as to how these aims are to be achieved remains mainly open or has been presupposed by the drafters of the CISG. Therefore, the details of a uniform method of interpretation need to be developed under the CISG. This method will be discussed at a later stage. First, these aims that serve as guidelines for the interpretation of the CISG shall be examined.

2.

The CISG’s International Character

To take account of the CISG’s international character requires the decider to disregard his or her own national perspective when interpreting the Convention. Legal terms or constructions known to, and familiar in, national law must be generally left aside. Nor can CISG decisions be based on purely internal case law. The CISG constitutes its own legal cosmos that must be generally understood in itself without redress to a specific national law. This is often addressed as the autonomous interpretation of uniform law instruments.21 Only where the CISG itself expressly refers to national law as, for example, in Art. 1(1)(b) CISG is it self-explanatory that national law has to be applied. Similar considerations apply where a legal term or institute of the CISG has been evidently borrowed from a certain national law – as for instance the “Nachfrist” concept of Art. 49(1)(b) and Art. 64(1)(b) CISG from German law,22 the concept of foreseeability in Art. 74 CISG from English law23 or the period of grace in Art. 45(3) and Art. 61(3) CISG from

20

21

22

23

Ferrari, in: Schlechtriem/Schwenzer (eds.), Kommentar zum Einheitlichen UNKaufrecht – CISG –, 4th ed., Munich 2004, Art. 7 no. 8; Huber/Mullis, The CISG. A new textbook for students and practitioners, Munich 2007, 9 (“guidelines”); Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen. Wiener UN-Kaufrecht (CISG), Berlin 2005, Art. 7 no. 30. Ferrari (op. cit. fn. 12), 140 et seq.; Ferrari (op. cit. fn. 20), Art. 7 no. 9 et seq.; Komarov, Internationality, Uniformity and Observance of Good Faith as Criteria in Interpretation of CISG: Some Remarks on Article 7(1), 25 J. L. & Com. (2005/06), 75, 78; Magnus (op. cit. fn. 20), Art. 7 no. 12 et seq.; Westermann, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol. 3, 4th ed., Munich 2004, Art. 7 no. 1. § 326(1) former German Civil Code (BGB); since the reform of 2002 now § 323(1) BGB. Art. 74 CISG was greatly influenced by the English leading case Hadley v. Baxendale (1854) 54 Ex. 341.

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French law.24 That national law may then help to understand the meaning and function of the CISG term or provision.

3.

The Duty to Promote Uniformity

The need to promote uniformity obliges that notice be taken of the interpretation rendered by courts and legal doctrine from other Contracting States. By ratifying a unifying convention such as the CISG, the state accepts and undertakes the – legal – duty that its courts will take into account decisions of courts of other countries in order to reach a uniform application of the Convention. It would be a violation of this duty if the courts systematically neglected CISG decisions from other countries.25 It is no argument that decisions from other countries are not always easily accessible and are often not understood because of the language. The freely accessible CLOUT system or other CISG databanks enable each court to take notice – at least by means of an abstract in English – of the relevant CISG decisions in other countries.26 It is also no argument against heeding foreign decisions that the courts are bound by the rule of law and must apply national law and statute and are only allowed to follow national precedents and may be formally bound by them as in Common Law jurisdictions. The CISG itself is binding national law and orders that uniformity of its application be reached. That can only be achieved when the application of the CISG in other countries is observed, considered and followed where no good reasons request the contrary. Thus, national law of CISG Member States does not only not forbid heeding foreign decisions; on the contrary, it obliges the national courts to do so. Moreover, national law is entirely free to oblige the national courts to take foreign decisions into account. This is nothing unusual. The rules of private international law very often oblige courts to apply strictly, without any discretion, rules that follow from foreign court decisions (in particular when the law of Common Law jurisdictions must be applied as governing law).

24 25

26

See Art. 1184(3) and Art. 1244-1 code civil. Yet, this is still the rule rather than the exception: Flechtner, The CISG in U.S. Courts: The Evolution (and Devolution) of the Methodology of Interpretation, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th Anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 91 et seq. (with respect to US decisions); Müller/Togo, Die Berücksichtigung der Überzeugungskraft ausländischer Präzedenzfälle bei der Auslegung des CISG, IHR 2005, 102 et seq. (however, with positive Italian, US-American and German exceptions). See thereto Ferrari (op. cit. fn. 12), 144 et seq. with references to databanks etc.

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The duty to promote uniformity does, however, not override any existing national hierarchy of court decisions. The duty obliges for notice to be taken of foreign decisions; that means that judges have to examine whether relevant foreign case law exists, and if so, have to consider it. By no means are they formally obliged to follow it.27 Foreign decisions are not strictly binding precedents – although this has been already suggested.28 But as yet no clear system exists, and none is in sight, that decides which foreign decisions should be regarded as binding (even of lower courts? Even of Non-CISG Member States? Coordination with the internal hierarchy of courts?).29 Foreign decisions can therefore only be granted persuasive authority.30 But such authority they do have. They should be followed where reasoning and result are convincing. But where there are good reasons to decide otherwise then each court is entirely free to so decide.

4.

The Good Faith Principle

The observance of good faith in international trade establishes a rather general commandment to apply the Convention in a fair and reasonable way.31 The good faith principle is particularly vague and therefore open to differing 27 28

29

30

31

Also Westermann (op. cit. fn. 25), Art. 7 no. 1. See for instance Bonell, in: Bianca/Bonell (eds.), Commentary on the International Sales Law. The 1980 Vienna Sales Convention, Milan 1987, Art. 7 no. 3.1.3 (“a sort of binding precedent”); DiMatteo, An International Contract Law Formula: The Informality of International Business Transactions Plus the Internationalization of Contract Law Equals Unexpected Contractual Liability, 23 Syracuse J, Int. L. & Com. (1997), 61, 79 (“supranational stare decisis”). To these problems Ferrari (op. cit. fn. 12), 148 et seq.; De Ly, Uniform Interpretation: What is Being Done? Official Efforts, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old Issues Revisited in the Light of Recent Experiences. Verona Conference 2003, Munich 2003, 335, 338 et seq. See Bell, Uniformity through Persuasive International Authorities – Does Stare Decisis really Hinder the Uniform Interpretation of the CISG?, in: Andersen/Schroeter (eds.), Festschrift Kritzer, London 2008, 35 et seq.; Ferrari (op. cit. fn. 12), 150; Müller/Togo (op. cit. fn. 25), IHR 2005, 102 et seq.; Schlechtriem, Internationales UN-Kaufrecht, 4th ed., Tübingen 2007, no. 43. It can be left aside here whether the good faith principle also applies to the contract and conduct of the parties to an international sales transaction. The good faith interpretation of the CISG has at least indirect repercussions on the parties’ contract and conduct and thus also influences the latter; compare further Farnsworth, Duties of Good Faith and Fair Dealing under the UNIDROIT Principles, Relevant International Conventions, and National Laws, 3 Tul. J. Int. and Comp. L. (1995), 56 et seq.

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interpretations and applications, all the more so as Common Law jurisdictions and Civil Law jurisdictions understand and use the principle in rather different ways in their internal law.32 The introduction of the principle into the CISG was therefore controversially discussed.33 It appears to be common ground under the CISG that the good faith principle of Art. 7(1) CISG does not operate as a general corrective tool that allows each decision reached by the ordinary application of the CISG provisions to be overturned.34 Its role is much more limited. It is the commandment to interpret the provisions of the CISG in a way that their application leads to reasonable and fair solutions. The standard of fairness is not a domestic one but that used in international trade. Moreover, it must be the standard applicable to the specific profession involved in the dispute, for instance in the international car, steel or computer trade. Finally, the principle needs specification through case law and legal doctrine. Insofar the general principles addressed in Art. 7(2) CISG – most of which follow from provisions of the CISG – can fill the good faith principle with more precise content.35 A case example evidences best how the good faith principle is, and should be, applied in practice: the case36 concerned the incorporation of standard contract terms into a German-Spanish sales contract. The German seller sold a rolling-milling machine under his own general contract terms but did not transmit those terms to the buyer. Afterwards he wanted to invoke the terms. The German Federal Court decided that the incorporation of standard terms into a contract is regulated by Art. 8 CISG. The good faith principle of Art. 7 CISG requires an interpretation of that article that the user of standard terms who wants to incorporate them into a contract must regularly37 transmit their text to the other party. It would offend the 32

33

34 35

36

37

Compare in particular Whittaker/Zimmermann (eds.), Good Faith in European Contract Law, Cambridge 2000. The legislative history of the good faith principle is extensively set out by Bonell (op. cit. fn. 28), Art. 7 no. 1.5 et seq. See Huber, Some introductory remarks on the CISG, IHR 2006, 228 et seq., 229. In this sense for instance Lookofsky, Understanding the CISG, 3rd ed., The Hague 2008, 37; Magnus, Comparative editorial remarks on the provisions regarding good faith in CISG Article 7(1) and the UNIDROIT Principles Article 1.7, in: Felemegas (ed.), An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge 2007, 45 et seq.; Schlechtriem (op. cit. fn. 30), no. 44. Bundesgerichtshof (BGH), 31 October 2001, IHR 2002, 14, 16 or under http://cisgw3.law.pace.edu/cases/011031g1.html. The decision does not exclude certain exceptions where the transmission might be unnecessary, for instance if in a certain branch the contents of the regularly

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good faith principle in international trade if the other party would be obliged to inquire the contents of terms not transmitted.38 The Court used the good faith principle for the interpretation of a CISG provision whose text did not provide an answer to the problem raised. The solution that the party who benefits from the use of standard contract terms must not only refer to them but must in principle send them to the other party appears not to be unreasonable in international trade.39

5.

The CISG’s Gap-filling Mechanism

A wide understanding of interpretation also comprises the question of how gaps in a legal text have to be filled. Generally, the analogous application of existing provisions is the tool used to fill unintended gaps in a codifying regulation. Art. 7(2) CISG goes a step further and refers in that respect to the underlying general principles of the CISG. The provision prescribes, however, a refined gap-filling approach. First, an “internal gap” of the Convention must be discerned. The CISG must govern the issue but unintentionally not settle it, for instance the question in which currency the price has to be paid if neither the parties have agreed thereon nor usages or the circumstances allow it to be fixed, or whether electronic communication constitutes “writing” in the sense of Art. 13 CISG etc. Second, if such an internal gap exists then CISG’s underlying general principles shall provide the answer. For this purpose these principles have to be discovered. In all other cases – of an “external gap” or of lack of a general principle – the rules of private international law step in and determine the applicable national law.

38

39

used terms are well known to all those trading in that branch or if the recipient already knows the contents of the terms. See thereto recently Magnus, Incorporation of Standard Contract Terms under the CISG, in: Andersen/Schroeter (eds.), Festschrift Kritzer, London 2008, 303 et seq. The Court based its decision in addition also on the parties’ duty to cooperate and inform the other side. This duty also obliges to transmit terms upon which a party wants to rely. For rather harsh criticism of the decision see Berger, Die Einbeziehung von AGB in internationale Kaufverträge, in: Berger et al. (eds.), Festschrift Horn, Berlin 2006, 3 et seq.; Kindler, Ob Walzfräsmaschine oder Schreibtischsessel: Keine Obliegenheit zur AGB-Übersendung beim Vertragsschluss nach CISG!, in: Adolff et al. (eds.), Festschrift Heldrich, Munich 2005, 225 et seq.; Schmidt-Kessel, Einbeziehung von Allgemeinen Geschäftsbedingungen unter UN-Kaufrecht, Neue Juristische Wochenschrift (NJW) 2002, 3444 et seq. The main criticism is the impracticability for the user if s/he is obliged to transmit the text of the standard terms to the other party.

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The outlined mechanism might appear as too difficult and might also lead to unnecessary uncertainty since many of CISG’s underlying general principles are the object of some controversy.40 Yet, the approach of Art. 7(2) CISG has the advantage to strengthen the unifying effect of the Convention. First, the micro cosmos of the CISG has to be fully exploited before private international law leads back to separated national law. Again, as in the case of the good faith principle, Art. 7(2) CISG grants no permission to freely invent discretionary general principles. Only existing general principles that lie on the ground of the CISG like pebbles on the ground of a clear brook can be resorted to. As yet CISG case law has recognised and consolidated a number of general principles such as party autonomy.41 A hotly debated question is whether Art. 7(2) CISG or the CISG at all allows also resort to be made to general principles outside the Convention, in particular to sets of principles such as the UNIDROIT Principles or the Principles of European Contract Law (PECL or Lando Principles). The prevailing view allows such resort to be made although it is open whether as general principles within Art. 7(2) CISG42 or as an interpretation aid under Art. 7(1) CISG.43 In my view the Principles can be used both as an aid to 40

41

42

43

For a collection of general principles thus far recognised by case law see Draft Digest (op. cit. fn. 12), 538 et seq.; Ferrari (op. cit. fn. 20), 160 et seq.; Magnus, Die allgemeinen Grundsätze im UN-Kaufrecht, 59 Rabels Zeitschrift (RabelsZ) (1995), 469 et seq. See e.g., Tribunale di Rimini, 26 November 2002, Giur. It. 2003, 896 with note Ferrari or under http://cisgw3.law.pace.edu/cases/021126i3.html; Hof Beroep Ghent, 15 May 2002, http://cisgw3.law.pace.edu/cases/020515b1.html; Landgericht Stendal, 12 October 2000, IHR 2001, 32 or under http://cisgw3.law.pace. edu/cases/001012g1.html. For further general principles see the references in the preceding footnote. Against that possibility: Saenger, in: Bamberger/Roth (eds.), Kommentar zum Bürgerlichen Gesetzbuch, vol. 1, 2nd ed., Munich 2007, Art. 7 no. 7; Westermann (op. cit. fn. 21), Art. 7 no. 10. Boele-Woelki, Terms of Co-existence: The CISG and the UNIDROIT Principles, in: Šarčevič/Volken (eds.), The International Sale of Goods, The Hague 2001, 203 et seq.; Bonell, The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention – Alternatives or Complementary Instruments?, 1 Uniform Law Review (ULR) (1996), 34 et seq.; Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT Principles, Baden-Baden 2000, 249; Ferrari (op. cit. fn. 20), Art. 7 no. 59 et seq.; Garro, The Gap-Filling Role of the UNIDROIT Principles in International Sales Law, 69 Tulane L. Rev. (1995), 1149 et seq.; Magnus, Die UNIDROIT Principles und die Wiener Kaufrechtskonvention, in: Cashin Ritaine/Lein (eds.), The UNIDROIT Principles 2004. Their Impact on Contractual Practice, Jurisprudence and Codification, Zurich 2007, 57, 63; Magnus (op. cit. fn. 20), Einl zum CISG no. 50 et seq. and Art.

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interpretation and even as general principles although they did not exist at the time when the CISG was drafted. In a strict sense they therefore could not underlie the CISG. Indeed, it was in turn the UNIDROIT Principles and the PECL that were mainly modelled after the CISG. The CISG underlies them. However, a dynamic understanding of the CISG’s underlying general principles should be adopted. As far as general principles underwent a development and as far as this is expressed and evidenced by the UNIDROIT and the PECL, this development should also be taken account of for the interpretation of the CISG. Otherwise the CISG would be frozen in the state of its conclusion and would partly lose its ability to be adapted to changing times and needs.

III. The Vienna Treaties Convention 1.

The General Relationship between the Vienna Treaties Convention and Uniform Law Conventions

In general, the interpretation of international treaties is regulated by the Vienna Convention on the Law of Treaties of 23 May 1969. This Convention is binding at least for those states that have ratified it.44 It provides in its Art. 31-33 expressly for certain rules on the interpretation of international treaties. It has, however, been questioned whether these rules can be applied to the interpretation of conventions such as the CISG. The reason for doubts is the fact that the Treaties Convention is directed towards states. It regulates how states have to conclude, interpret and apply international treaties concerning international relations between them; the Treaties Convention thus primarily concerns so-called contract treaties by which states conclude treaties between themselves.45 The CISG – as a law-making treaty – is, on the contrary, designed for the application between civil persons; the substantive CISG provisions are directed towards the parties of interna-

44

45

7 no. 14; Perales Viscasillas, UNIDROIT Principles for International Commercial Contracts: Sphere of Application and General Provisions, 13 Arizona J. of Int. and Comp. Law (1996), 383, 440 et seq.; Schlechtriem (op. cit. fn. 30), no. 44 (but very reluctant at no. 52 fn. 140); reluctant or contra for instance Herber, “Lex mercatoria” und “Principles” – gefährliche Irrlichter im internationalen Kaufrecht, IHR 2003, 1 et seq.; Michaels, Privatautonomie und Privatkodifikation. Zu Anwendbarkeit und Geltung allgemeiner Vertragsrechtsprinzipien, 62 RabelsZ (1998), 606. Generally on this Convention, see Sinclair (MacTaggart), The Vienna Convention on the Law of Treaties, 2nd ed., Manchester 1984. See in particular the Preamble to the Treaties Convention.

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tional (sales) transactions. It has therefore been advocated that Art. 31-33 Vienna Treaty Convention can only, if at all,46 be applied to Art. 89-101 CISG (the diplomatic final provisions of the CISG that are in fact directed towards the Member States of the CISG).47 However, according to the prevailing and preferable view, the interpretation rules of the Treaties Convention can nonetheless be resorted to for the interpretation of conventions such as the CISG.48 In addition, it does not matter whether they are directly applicable or applicable by analogy. Art. 31-33 Treaties Convention state rather general rules of interpretation that fit for all kinds of international treaties.49 This is particularly clear with respect to Art. 33 Treaties Convention. This provision deals with interpretation problems of treaties when they are authenticated in more than one language. Its rule that the text is equally authoritative in each language unless otherwise agreed on is applicable to international treaties irrespective of whether they are directed towards states or towards private parties. Moreover, Art. 31-33 Treaties Convention codify anyway largely international customary law that already existed prior to the conclusion of the Treaties Convention.50 Although the Treaties Convention has been ratified 46

47

48

49

50

Against the application of the Vienna Treaties Convention to the CISG see e.g. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3rd ed., The Hague 1999, no. 103. Similarly also Burkart (op. cit. fn. 43), 134 et seq., who suggests that interpretation rules should not be taken from the Vienna Treaties Convention but from the respective substantive convention such as the CISG itself. His main argument is that the Vienna Treaties Convention is binding only for its Member States. See Enderlein/Maskow/Strohbach, Internationales Kaufrecht, Berlin 1991, Art. 7 no. 2.2; Karollus, UN-Kaufrecht. Eine systematische Darstellung für Studium und Praxis, Vienna 1991, 13. For a general discussion of Art. 31-33 Treaties Convention and their meaning for private law conventions Happ/Roth, Interpretation of uniform law instruments according to Principles of International Law, 2 ULR (1997), 702 et seq.; see also Villiger, Articles 31 and 32 of the Vienna Convention on the Law of Treaties in the Case-Law of the European Court of Human Rights, in: Bröhmer et al. (eds.), Festschrift Ress, Cologne 2005, 317 et seq. Basedow, Das Konventionsprivatrecht und das Völkerrecht der Staatsverträge, in: Leible/Ruffert (eds.), Völkerrecht und IPR, Munich 2006, 153, 168 et seq.; Ferrari (op. cit. fn. 20), Art. 7 no. 33; Magnus (op. cit. fn. 20), Art. 7 no. 16. In this sense already Kropholler, Internationales Einheitsrecht, Tübingen 1975, 267. See International Court of Justice (ICJ), 12 November 1991, I.C.J.Rep. 1991, 53, 71 (Case concerning the Arbitral Award of 31 July 1989, Guinea-Bissau v. Senegal); European Court for Human Rights, 21 February 1975, Series A, vol. 18, 14; Bundesverfassungsgericht, BVerfGE 40, 141, 167; see also Goode/Kronke/McKendrick/Wool, Transnational Commercial Law, Oxford 2004, 1.

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by less than half of all states on the globe and not by all CISG States, most of the general interpretation rules of the Treaties Convention are widely accepted and constitute international customary law. These general rules – as far as suitable for law-making treaties – were applicable even if the Treaties Convention did not exist. They have to be observed in any event.

2.

The Interpretation Provisions of the Treaties Convention

a)

The Central Elements of Interpretation: Wording, Context, Purpose

According to its heading Art. 31 Treaties Convention is the “general rule of interpretation”. Its most important clause is Art. 31(1) Treaties Convention. It orders that a “treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” The provision lists three central elements upon which any interpretation of a legal text must draw: the wording, the context and the purpose of a legal term or provision. It can be regarded as customary international law that these core elements have to be taken into account whenever interpretation becomes necessary. Paras. (2) and (3) of Art. 31 Treaties Convention specify further what is meant by the notion of “context”. It is not only the whole text and systematic order of the respective treaty including its preamble and eventual annexes that may shed light on the understanding of the norm requiring interpretation. The context also comprises surrounding agreements, practices between the parties (to the international treaty) and “relevant rules of international law applicable in the relations between the parties”. What is meant by this latter reference to relevant rules of international law is somewhat obscure. Partly, it has been suggested that the reference allows even resort to be made to international sets of rules such as the UNIDROIT Principles.51 Generally, it has been argued that the reference means that all relevant rules of international law that are applicable between the involved (states-) parties have to be observed when a specific treaty requires interpretation.52 51

52

Basedow, Die UNIDROIT-Prinzipien der internationalen Handelsverträge und die Übereinkommen des einheitlichen Privatrechts. Eine praktische Studie zur praktischen Anwendung des internationalen Transportrechts, besonders der CMR, in: Basedow/Hopt/Kötz (eds.), Festschrift Drobnig, Tübingen 1998, 19, 25 et seq. The argument is that Art. 31(3)(c) Treaties Convention refers to the general law of nations to which, according to Art. 38(1)(c) Statute of the ICJ, also the general principles recognised by civilised nations belong. The UNIDROIT Principles formulate such recognised principles which are common to the Member States of the Treaties Convention. Sinclair (op. cit. fn. 44), 139.

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That means that already existing international law (codified or customary) must be respected. Rules that are still on their way to become universally accepted53 do not yet belong to the category of existing international law. Indeed, it is too bold to acknowledge the UNIDROIT Principles as already presently applicable international law. The preferable way is to use the UNIDROIT Principles as an aid to interpretation via the interpretation provision of the CISG instead via Art. 31(3)(c) Treaties Convention (see thereto below). Art. 31(1) Treaties Convention does not appear to establish a ranking list between the mentioned factors but seems to treat them more or less as of equal weight even if a slight prevalence for the wording could, though not necessarily, be read into the text of Art. 31(1) Treaties Convention.

b)

Travaux Préparatoires

While the general importance of the three listed elements for any interpretation of a legal text is almost undisputed (though not their relative weight) the rather restrictive use of the travaux préparatoires as a means of interpretation as is provided for by Art. 32 Treaties Convention is less universally accepted.54 The provision allows recourse to “supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion”, however only in order to confirm a result reached under the general rule of interpretation or if this result remains unclear or “manifestly absurd or unreasonable.”55 The preparatory work is admissible only as a “supplementary” means of interpretation. It therefore ranks secondary and does not appear to have the same weight as the primary factors of interpretation listed in Art. 31(1) Treaties Convention.56 Though the Convention does not define the term “preparatory work” the latter certainly includes the usual conference materials such as drafts (even of prior stages) and records of the conference at which the respective treaty 53

54

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As to the extent to which the UNIDROIT Principles have already been accepted Bonell, The UNIDROIT Principles a Decade After Their First Appearance: What Have They Achieved and What Are Their Prospects for the Future?, in: Cashin Ritaine/Lein (eds.), The UNIDROIT Principles 2004. Their Impact on Contractual Practice, Jurisprudence and Codification, Zurich 2007, 259 et seq. For instance, under German law, the so-called historical interpretation, which takes account of the legislative history of a provision, is part of the traditional interpretation method. See e.g. Bundesgerichtshof, BGHZ 46, 74, 80; Bundesgerichtshof, BGHZ 62, 340, 350; Bundesgerichtshof, NJW 2003, 290. Art. 32(a) and (b) Treaties Convention. In this sense also Goode/Kronke/McKendrick/Wool (op. cit. fn. 50), 3; Stein/von Buttlar, Völkerrecht, 11th ed., Cologne 2005, no. 86.

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was concluded.57 By restricting the weight of the legislative history, Art. 32 Treaties Convention indicates that the Convention gives the objective approach of interpretation greater preference than the subjective approach that puts much weight on the intentions of the legislator.

c)

Autonomy of the Treaty Parties

As a further rule of interpretation para. 4 of Art. 31 also contains the wellknown and widely accepted maxim that “a special meaning shall be given to a term if it is established that the parties so intended”, a modern and enlarged expression of the maxim falsa demonstratio non nocet. The Treaties Convention thus recognises the freedom of the (states-) parties to agree on a particular meaning of a term or a provision or even on a specific interpretation and that this understanding then prevails.

d)

Specific Problems of Multilingual Treaties

Multilateral international treaties are usually also multilingual. Special interpretation problems can arise from their authentication in two or more languages. For these cases Art. 33 Treaties Convention provides rules that are particularly relevant for conventions such as the CISG, which is authenticated in the six official UN languages: Arabic, Chinese, English, French, Russian and Spanish. Art. 33(1) Treaties Convention declares: “the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.” The terms of the treaty are then presumed to have the same meaning in each authentic text.58 If, after a comparison of the authentic texts, different meanings nevertheless remain then that meaning shall be adopted “which best reconciles the texts, having regard to the object and purpose of the treaty”.59 These rules are partly echoed in the CISG itself – the final Authentic Text and Witness Clause of the CISG prescribes as well that the texts in the six official UN languages are equally authentic. The equal authenticity clause is regularly contained in modern international treaties.60 The respec-

57 58 59 60

Compare Goode/Kronke/McKendrick/Wool (op. cit. fn. 50), 3 fn. 10. Art. 33(3) Treaties Convention. Art. 33(4) Treaties Convention. See for instance Art. 46 United Nations Convention on the Limitation Period in the International Sale of Goods; the final Witness Clause of the UNIDROIT Convention on International Factoring; the final Witness Clause of the UNIDROIT Convention on International Interests in Mobile Equipment; the fi-

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tive provision in Art. 33(1) Treaties Convention must therefore be regarded as customary international law. But so must Art. 33(4) Treaties Convention also be regarded. For, if the authentic texts differ, a mechanism to solve the differences is needed and evidently presupposed by all international treaties that contain the aforementioned Authenticity Clause. The most reasonable solution upon which the usual equal authenticity clause also seems implicitly to be based is that of Art. 33(4) Treaties Convention namely, to adopt the meaning that best serves the objects and purposes of the respective provision or treaty unless the (states-) parties have agreed otherwise.

3.

The Specific Relationship between Art. 7 CISG and the Interpretation Rules of the Treaties Convention

As mentioned, the Treaties Convention regulates the interpretation of international treaties in general – at least for the Member States of the Treaty Convention, and as far as the Convention codifies customary international law, even for all states. But the CISG also contains its own interpretation provision (Art. 7 CISG). The question must be answered as to in which relationship this provision stands to the interpretation rules of the Treaties Convention. Since the method of interpretation is only rather vaguely addressed in Art. 7 CISG and needed, and may even yet need, further development the question arises as to how far such further development was and is already bound by, and must follow, the rules of the Treaties Convention. From Art. 31-33 Treaties Convention certain conclusions can be drawn also with respect to the relationship between the interpretation provision of the CISG (or like provisions in comparable conventions) and the interpretation rules of the Treaties Convention. From Art. 31(4) Treaties Convention it can be inferred that, where an international treaty contains an interpretation rule, this provision, as far as it reaches, prevails over the general interpretation rules of the Treaties Convention. Art. 31(4) Treaties Convention acknowledges that the parties to a treaty may give a term – and certainly likewise a provision or a method of interpretation – a “special meaning.” Furthermore, Art. 33(1) and (2) Treaties Convention recognise the freedom of the parties to the treaty to agree on specific rules that then prevail over the interpretation rules of the Treaties Convention. The parties to an international treaty may therefore freely adopt a specific method of interpretation for a specific treaty. In this sense, the Treaty Convention recognises a kind of (states-) party autonomy. Therefore, in principle Art. 7 CISG takes preference over the Treaties Convention. Where, as in the case of Art. 7 CISG, the precise method of interpretation is only vaguely indicated and nal Witness Clause of the Convention on the International Carriage of Goods by Road.

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still needs to be fully developed, this process of development should take account of the interpretation rules of the Treaties Convention; it should avoid any contradiction with the Treaties Convention as far as possible. But nonetheless, indications of a specific understanding or method of interpretation in the special treaty again prevail over the general interpretation rules of the Treaties Convention. Art. 7 CISG and Art. 31-33 Treaties Convention are therefore interrelated and mutually influential. The Treaties Convention, in particular its provisions that equally qualify as customary international law, sets a frame for the development of individual methods of interpretation for single uniform law conventions. On the other hand, the drafters of such conventions are free to provide for such individual method as they agree on; thereby they influence in turn the customary international law. Therefore, as far as Art. 7 CISG and the whole Sales Convention itself give indications for the method of interpretation these indications prevail over the interpretation rules of the Treaties Convention.

IV. A “CISG Specific Interpretation”? From the foregoing considerations it follows that any interpretation of a CISG provision or a CISG term has to start from the commandments enshrined in the Convention itself. Though the CISG’s central interpretation provision is Art. 7 CISG, the Preamble and the final Authentic Text and Witness Clause61 of the Convention also have to be taken into account. As already mentioned, Art. 7 CISG describes the method of interpretation only vaguely and formulates aims of interpretation62 rather than a precise method of interpretation. Nonetheless, the CISG gives some hints to the method that must be followed. But that still falls short of establishing a special CISG-specific method of interpretation. The interpretation of the CISG follows the general method of interpreting international treaties. The outer frame of this method is specified by Art. 31-33 Vienna Treaties Convention. The central abstract elements for any interpretation listed there – wording, context, purpose, and also legislative history – play their role for the CISG as well. Yet, the peculiarities of the Sales Convention influence the outcome of the application of these elements decisively: the context must be CISG specific; the purpose of a CISG term or provision can only be inferred from the CISG and not from a general method of interpretation. While the main aims of the CISG’s interpretation have been discussed supra the following part gives a short review over the method of interpretation applicable to the CISG. For the details further contributions to this book can be referred to. 61 62

It provides inter alia that the texts in the six languages are equally authentic. As to these aims see already supra at E.II.

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53

The Wording

The wording of a term or provision sets always the inevitable starting point, and is at the same time the object, of any interpretation. Traditionally, Common Law jurisdictions used to place greater weight on the wording of legal texts than Civil Law jurisdictions. The latter tended and still tends to prefer the purposive interpretation among the different interpretation factors. With respect to international treaties, whose wording is regularly the outcome of extended discussion and often a well-balanced compromise where each single word counts, the text indeed deserves specific attention and particular weight. Under the CISG it is also universally accepted that any interpretation has to start with the wording of the disputed term or provision.63 The first problem that one encounters is, however, which wording has to be taken. The person deciding will generally start with the text in his or her language. But unless this is one of the official UN languages s/he must be aware that the wording is not authentic but only a translation and that in case of doubt it is necessary to actually refer back to all authentic texts. Normally, a true comparison between all six UN language versions will be unrealistic, if not impossible, without intensive international cooperation. In cases of doubt it is, however, widely accepted that despite the equal authenticity clause of the CISG, the English version can claim particular weight since English was the working language at all stages of preparation of the CISG.64 The wording has generally to be given its “ordinary meaning”:65 the meaning as generally used and understood in the CISG Community. If there is such an ordinary meaning that is often the end of interpretation (for instance that “writing” includes electronic “writing” by e-mail). “If the statutory text provides for a certain regulation in clear formulation then it needs important 63

64

65

See for instance Ferrari, in: Münchener Kommentar zum Handelsgesetzbuch vol. 6, 2nd ed., Munich 2007, Art. 7 no. 28; Herber/Czerwenka, Internationales Kaufrecht, Munich 1991, Art. 7 no. 7; Saenger (op. cit. fn. 42), Art. 7 no. 2; Saenger, in: Ferrari/Kieninger/Mankowski/Otte/Saenger/Staudinger (eds.), Internationales Vertragsrecht, Munich 2007, Art. 7 no. 2; Witz/Salger/Lorenz, Internationales Einheitliches Kaufrecht, Heidelberg 2000, Art. 7 no. 20. In this sense for instance Schweizer Bundesgericht (BG), 13 November 2003, IHR 2004, 215 (217); Achilles, in: Ensthaler (ed.), Gemeinschaftskommentar zum Handelsgesetzbuch mit UN-Kaufrecht, 7th ed., Neuwied 2007, Unterzeichnungklausel no. 1; Brunner, UN-Kaufrecht – CISG. Kommentar zum Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf von 1980. Unter Berücksichtigung der Schnittstellen zum internen Schweizer Recht, Bern 2004, Art. 7 no. 5; Ferrari (op. cit. fn. 20), Unterzeichnungklausel no. 2; Magnus (op. cit. fn. 20), Art. 7 no. 17. See also Art. 31(1) Treaties Convention.

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reasons required by justice to justify an interpretation which deviates from the wording of the text.”66

2.

The Contextual Interpretation

While the verbal interpretation of the wording of a provision is indispensable for its interpretation the context of the provision can, but need not, necessarily serve as an important aid to interpretation. The contextual or systematic interpretation draws conclusions from the systematic position of a provision in the CISG for the meaning of that provision. For instance, the position of Art. 78 CISG – in a separate section of its own – shows that the exemption provision of Art. 79 CISG, which is part of another section, does not apply to Art. 78 CISG. But not always does the systematic order provide hints for the interpretation of a norm; e.g. the position of Art. 74 CISG in the Damages Section does not shed light on the question of whether or not the loss addressed in that provision covers counsel’s fees. That question can only be answered with a view to the scope of application of the CISG that does not cover rules of procedure on the allocation of costs.67 As already mentioned, according to Art. 31(2) and (3) Treaties Convention the context does not only extend to the system of the relevant treaty itself but also to further related agreements, to practices among states and to relevant rules of international law. For the CISG this context definition should include also other uniform law conventions on contract law such as the Limitation Convention, the Convention on the Contract for the International Carriage of Goods by Road (CMR), the Montreal Convention, the Ottawa Conventions on International Financial Leasing and International Factoring and many others that are designed for global use and form a steadily growing international body of uniform civil (contract) law and also share many common terms and underlying general principles. The meaning of ba66

67

Bundesgerichtshof, Wertpapiermitteilungen (WM) 1991, 2108: “Sieht das Gesetz in klarer Formulierung eine bestimmte Regelung vor, so müssten schwerwiegende, am Gerechtigkeitsdenken orientierte Gründe vorliegen, um eine vom Wortlaut abweichende Gesetzesauslegung zu rechtfertigen.” (though with respect to the interpretation of the Hague Sales Law). See thereon Zapata Hermanos Succesores, S.A. v. Hearthside Baking Co., Inc. (7th Cir. 2002) http://cisgw3.law.pace.edu/cisg/wais/db/cases2/021119ul.html; Lookofsky/Flechtner, Viva Zapata! American Procedure and CISG Substance in a U.S. Circuit Court of Appeal, 7 Vindobona J. Int. Com.L. and Arb. (2003), 93 et seq.; Lookofsky/Flechtner, Zapata Retold: Attorney’s Fees Are (Still) Not Governed by the CISG, 26 J. L. & Com. (2006/7), 1 et seq.; Schlechtriem, Anwaltskosten als Teil des ersatzfähigen Schadens, Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 2002, 226 et seq.

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sic terms, for instance “place of business”, “contract”, “consumer contract”, “obligation”, “breach of contract”, “damage/loss” or “damages” etc. should be understood in an identical sense for all these instruments unless reasons of substance require their different meaning. Their settled meaning under one convention could therefore support their interpretation for other conventions. This “interconventional” interpretation68 is particularly apt for, and required by, uniform law conventions on private law. Art. 31 Treaties Convention does not appear to exclude it. In a certain sense the interconventional interpretation modifies or even supersedes the autonomous interpretation. No longer is the single convention a stand-alone that forms the entire cosmos relevant for interpretation purposes. The cosmos is now the much broader body formed of conventions on similar matters. The contextual interpretation should equally allow redress to international sets of rules such as the UNIDROIT Principles of International Commercial Contracts and the PECL. These sets of rules also presently form part of the international body of uniform private law, albeit as “soft law” only. They can support a certain interpretation of an ambiguous CISG term or provision or even help filling internal gaps in the CISG, in particular where both sets of rules suggest identical solutions.69 On the other hand they cannot fill those gaps that the CISG drafters have deliberately left (e.g. the interest rate in Art. 78 CISG).70 These gaps must be filled by the applicable national law in the way Art. 7(2) CISG prescribes. Even in another respect, the context definition of Art. 31(2) and (3) Treaties Convention, if taken literally, is too narrow. The CISG Digest prepared by UNCITRAL must certainly belong to the permitted context materials because it has been prepared by the sponsoring organisation of the CISG as a kind of quasi-official commentary on the Convention. Although the Digest only records the international case law on the CISG, the prevailing view that it also always presents will be highly influential in the entire CISG Community and is a first-rate interpretative aid.

68

69 70

See thereto Ferrari, I rapporti tra le convenzioni di diritto materiale uniforme in materia contrattuale e la necessitá di un’interpretazione interconvenzionale, Rivista di diritto internazionale privato e processuale (Riv. dir. int. priv. proc.) 2000, 669 et seq.; Ferrari (op. cit. fn. 20), Art. 7 no. 38; Magnus, Konventionsübergreifende Interpretation internationaler Staatsverträge privatrechtlichen Inhalts, in: Basedow et al. (eds.), Aufbruch nach Europa: 75 Jahre Max-PlanckInstitut, Tübingen 2001, 571 et seq. See already supra E.II.1. and E.III.2.a. See the many court decisions cited in the Draft Digest (op. cit. fn. 10), 815 et seq. But contra for example Goode/Kronke/McKendrick/Wool (op. cit. fn. 50), 212 who advocate the applicability of the respective article of the UNIDROIT principles (Art. 7.4.9).

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The Legislative History

The historical interpretation draws conclusions from the legislative history of the CISG provision requiring interpretation. The legislative history of a provision – in any case only a secondary and supplementary means of interpretation under the Treaties Convention – can be, but need not be meaningful. The prior Drafts of the CISG, even the CISG’s predecessor, Hague Uniform Sales Law, also the interventions and votes at the Vienna Conference of 1980 sometimes reveal, albeit not always clearly, the intentions of the CISG’s drafters and thereby add to the interpretation. For instance, the interpretation of Art. 28 CISG, according to which courts of – in particular Common Law – countries need not grant specific performance unless they would do so under their own law can benefit if one knows the intention behind the norm (namely, to allow Common Law and Civil Law countries to maintain their own solution on performance after a breach of contract).71 The legislative history should therefore be used without the formalistic restrictions provided for by Art. 32 Treaties Convention, namely that the travaux préparatoires can only confirm an already established interpretation or can only be adduced if the meaning remains otherwise unclear or leads to absurd results.72 However, the core idea of Art. 32 Treaties Convention must be borne in mind that the legislative history is not always helpful and has regularly less weight for the interpretation than the wording and purpose of a provision.

b)

The Purposive Interpretation

Next to its wording is the object and purpose of a provision important for its interpretation;73 an element of interpretation regarded by some as even the most important.74 To discover the purpose of a provision requires itself cautious interpretation. It does not allow the person deciding to infuse his or her own view or that of his own legal system of the purpose into the interpretation. Again, the wording, context and legislative history and the general aims of the Convention indicate the purpose of a norm, in particular 71

72 73

74

See the reasons for this provision already given by Rabel, Der Entwurf eines einheitlichen Kaufgesetzes, 9 RabelsZ (1935), 1 et seq., 69 for the very first Draft of a Uniform Sales Act. See Art. 32(a) and (b) Treaties Convention. Brunner (op. cit. fn. 64), Art. 7 no. 5; Magnus (op. cit. fn. 20), Art. 7 no. 36; Melis, in: Honsell (ed.), Kommentar zum UN-Kaufrecht. Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf (CISG), Berlin 1997, Art. 7 no. 11. For instance Kropholler (op. cit. fn. 49), 276.

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which problem the provision should solve or sometimes which “mischief” should be remedied. For instance, Art. 49 and Art. 64 CISG, which require a declaration of avoidance of contract, should remedy the “mischief” of the automatic ipso facto avoidance allowed under the Hague Uniform Sales Law.75 Moreover, the normal result to which the application of a certain meaning would lead must be taken into account. A purposive interpretation has to see that an interpretation is chosen that generally leads to reasonable and effective solutions and realises as far as possible the general aims of the Convention as well as the aims listed in Art. 7(1) CISG.

c)

Comparative Method of Interpretation

Comparison with solutions in national legal systems may also help in finding the appropriate meaning of a provision in a uniform law convention. It has, however, been suggested to apply the comparative method of interpretation to the CISG only, if at all, in a cautious and limited way.76 The reason for this reluctance is the practical difficulty to compare all relevant legal systems in a systematic and competent way. In daily practice this is impossible. In any case the CISG is already based on intensive and careful comparison of laws that set standards.77 If at all, scholarly writing can add comparative law arguments that may be helpful for the interpretation of the CISG.

d)

CISG and EU-law: Regionalised Interpretation?

In the European Union, 23 of the 27 Member States have ratified the CISG (only Ireland, Malta, Portugal and the United Kingdom abstain thus far). Many central CISG terms also appear in EU enactments; some of these enactments, in particular the Consumer Sales Directive78 and the Package Travel Directive,79 have more or less extensively borrowed from the CISG. There is a danger and temptation for courts in EU countries to interpret the CISG and the respective EU law in an identical way although the EU, 75

76

77

78

79

See Secretary General, Report, UNCITRAL Yearbook III (1972), 41 et seq.; further thereon Hellner, Ipso facto avoidance, in: Ehmann et al. (eds.), Festschrift Weitnauer, Munich 1980, 85 et seq. Brunner (op. cit. fn. 64), Art. 7 no. 5; Ferrari (op. cit. fn. 63), Art. 7 no. 38; Magnus (op. cit. fn. 20), Art. 7 no. 37; Melis (op. cit. fn. 73), Art. 7 no. 11. See in particular Rabel, Recht des Warenkaufs, vol. 1, Berlin 1936, vol. 2, Berlin 1957/8. Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees. Directive 90/314/EEC on package travel, package holidays and package tours.

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mainly the European Court of Justice (ECJ), has developed an EU specific method of interpretation that stresses the purposive interpretation (the socalled effet utile)80 and requires an interpretation “in the light of the provisions of Community law as a whole”.81 Definitions of common terms (for instance “place of business”)82 which the ECJ has already given, may easily creep into the interpretation of the CISG when courts in EU countries have to apply the same term with respect to the CISG. This could lead to a partially regionalised interpretation of the CISG since similar integration movements are on the way on all continents.83 Such regionalised interpretation could be welcomed because a single and certain method of interpretation would be applied within the EU. On the other hand, a regionalised interpretation would give up the aim of a globally uniform interpretation and application of the CISG. The main advantage of the sales law unification, a worldwide identical sales law, would fade away. Any regionalisation of the interpretation of the CISG must therefore be strictly rejected.84

e)

Relative Weight of the Single Elements

The elements relevant for the interpretation of the CISG constitute a kind of flexible system. Except that the wording is always the fundament and starting point of interpretation neither a strict order nor a clear ranking list exists among the other elements context, legislative history and purpose. As mentioned, the object and purpose of a provision should be given more weight than its context and legislative history. But this is no hard and fast rule. The courts seem to prefer a flexible application of those elements that promise the most aid to interpretation in the respective case. This flexibility is probably inevitable. The uncertainty that is its necessary corollary can only be reduced if courts will become much more willing to consult, truly consider, and where reasonable, follow foreign CISG case law and even doctrine in their decisions.

80

81

82 83

84

See for instance European Court of Justice (ECJ), (Joined Cases C-6 and 9/90, Francovich and others v. Italian Republic) [1991] ECR I-5357 (para. 33). ECJ (Case 283/81, CILFIT Srl and Lanificio di Gavardo SpA v. Ministry of Health) [1982] ECR 3415 (para. 20); see further Reich, Understanding EU Law. Objectives, Principles and Methods of Community Law, 2nd ed., Antwerp 2005, 24 et seq. See ECJ (Somafer v. Saar-Ferngas) [1978] ECR 2183 (2193). See thereto Schroeter, UN-Kaufrecht und Europäisches Gemeinschaftsrecht. Verhältnis und Wechselwirkungen, Munich 2005, 684 et seq. In the same sense Schroeter (op. cit. fn. 83), 686 et seq.

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F. Concluding Remarks Tracing the methodology of interpretation of the CISG and exploring its dogmatic foundations – can a result be formulated? A first conclusion must stress that a uniform method of interpretation is indispensable in order to achieve and further the unification purpose of the Convention. A second – a little overstated – conclusion can be drawn that in principle the uniform interpretation of the CISG functions satisfactorily already. Under an overall perspective the divergences in interpretation are no quantité negligible. But the divergences are less than one could expect bearing in mind that no central CISG court exists. I do not hesitate to state that the dogmatic foundations of the method of interpretation of the CISG are relatively stable despite the fact that the CISG itself only sets out guidelines and aims for its interpretation but no precise method of interpretation. However, Art. 31-33 Vienna Treaties Convention provide a general framework of elements for interpretation – text, context, legislative history and purpose – which most CISG courts in fact use. Except by always starting with the text and giving the text and then the purpose particular weight, courts habitually use these elements in a rather flexible way when interpreting the Convention. It must be doubted whether a stricter method could be, and even should be, achieved. Interpretation requires a reasonable degree of flexibility. Yet, even though the present form of interpretation of the CISG appears to be not unsatisfactory, improvements of the method of interpretation are nonetheless necessary and feasible in order both to avoid the creation of new divergences and to reduce the existing ones in the understanding and application of the CISG. The most urgent improvement concerns the improved use of foreign case law and foreign legal doctrine by courts. Courts should be aware that insofar a true global CISG Community has developed and really exists. Courts should therefore take account of relevant decisions rendered abroad and of relevant legal doctrine formulated there. Courts can rather easily take notice of these developments via the internet and the many helpful tools developed for the CISG. It is, however, also the task of scholars to communicate the relevant foreign material to the home market.

Literal Interpretation: The Meaning of the Words Sieg Eiselen

A. Introduction One of the leading commentaries on the CISG recognises that Art. 7 CISG establishes the foundation for the approach to the interpretation of the Convention, but that it does not lay down any methods for the interpretation of the Convention.1 There is however a wide ranging consensus that the first step in the interpretation of the CISG should be a literal interpretation by having regard to the wording and if the wording is clear the court or tribunal need to go no further.2 This seems to reflect a narrow literalist or textual approach to the interpretation of the CISG. In many domestic legal systems a strict literalist approach to interpretation has come increasingly under fire during the second half of the 20th century as being too restrictive and often misleading. The CISG was drafted in an effort to harmonise the law applicable to international sales transactions in order to facilitate international trade by avoiding the application of widely diverging domestic sales to these transactions. Its success in doing so is recognised very widely.3 In its drafting care 1

2

3

Schlechtriem, in: Schlechtriem/Schwenzer, Commentary on the UN Convention on the International Sale of Goods, 2nd ed., Oxford 2005, Art. 7 no. 19. See also Magnus, in: Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG), Berlin 2005, Art. 7 no. 30; Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3rd ed., The Hague 1999, 88-89; Kritzer/Eiselen, International Contract Manual, vol. 4, London 2008, § 85:11. Magnus (op. cit. fn. 1), Art. 7 no. 32; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21. Andersen, Uniform Application of the International Sales Law: Understanding Uniformity, the Global Jurisconsultorium and Examination and Notification Provisions of the CISG, Alphen aan den Rijn 2007, 30; DiMatteo et al., The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence, (2004) 34 Northwestern Journal of International Law and Business (NW J of Intl L & Bus), 299-440; Kritzer/Eiselen (op. cit. fn. 1), § 80:1; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), 6-7; Van Alstine, Dynamic Trea-

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was taken to avoid legal concepts or terms that were too closely linked to any particular legal system or culture. It is of prime importance for any harmonising convention that such convention should be interpreted and applied in a uniform manner throughout the world otherwise it will not achieve the desired harmonisation.4 The CISG strives to ensure a uniform interpretation and application through the prescriptions in Art. 7 CISG.5 However, Art. 7 CISG only contains fairly generalised rules about the interpretation of the CISG referring to its international character, the need for uniformity and the observance of good faith. Any gaps in the Convention are to be filled with reference to its underlying principles. It is only where such principles do not exist or cannot be discerned, that a court should turn to domestic law. The broad terms of reference found in Art. 7 CISG is in contrast to the fairly detailed rules and presumptions of construction that can be found in many legal systems. The specific prescriptions of Art. 7 CISG may also be read with the provisions of Section 3 of the Vienna Convention on the Law of Treaties of 1969. Art. 31(1) of that Convention stipulates that a treaty must be “interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. The literal approach to the words of any treaty is stated as the starting point, but immediately qualified by reference to the context, object and purpose of the treaty. The Convention also specifically allows the use of preparatory material to confirm the literal interpretation arrived at or to deal with ambiguities, uncertainties and results which are manifestly absurd or unreasonable. Although not all CISG Contracting States have adopted the

4

5

ty Interpretation, (1998) 146 University of Pennsylvania Law Review (U of Penn LR), 687-793. DiMatteo et al., (op. cit. fn. 3), 309-310; Honnold (op. cit. fn. 1), 88-89; Mann, Uniform Statutes in English Law, (1983) 99 Law Quarterly Review (LQR), 377378; Pearce/Geddes, Statutory Interpretation in Australia, 5th ed., Sydney 2001, 10-11; Fothergill v Monarch Airlines [1980] 2 All ER 696 (HL) 621-622. Andersen (op. cit. fn. 3), 30-31; Kritzer/Eiselen (op. cit. fn. 1), § 85:5; Magnus (op. cit. fn. 1), Art. 7 no. 32; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21. See also the Secretariat Commentary to Art. 6 (the draft counterpart of Art. 7(1) [http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-07.html] which states: “National rules on the law of sales of goods are subject to sharp divergencies in approach and concept. Thus, it is especially important to avoid differing constructions of the provisions of this Convention by national courts, each dependent upon the concepts used in the legal system of the country of the forum. To this end, article 6 [draft counterpart of CISG article 7(1)] emphasizes the importance, in the interpretation and application of the provisions of the Convention, of having due regard for the international character of the Convention and for the need to promote uniformity.”

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Treaty Convention, it is widely regarded as embodying general principles of international law which should be used even by non-contracting states.6 The process of interpretation of domestic legislation is viewed and tackled differently in Common Law and Civil Law systems. In Civil Law systems courts will resort much more readily to the historical background and preparatory materials (travaux préparatoires) in the interpretation of statutes than Common Law countries where much greater reliance is placed on the plain meaning of the text.7 The result is that there might be an unintentional divergence in the approach of judges or arbitrators from different jurisdictions when approaching the text of the CISG. Common Law judges and arbitrators may be more inclined to adhere to the literal interpretation of the CISG where the ordinary meaning of the words used seems clear or unambiguous. This chapter will largely be restricted to a critical examination and discussion of the literalist approach and the interpretation of the CISG, as intentionalism and purposivism as well as comparative interpretation is dealt with elsewhere in this book.8

B. The Literalist Tradition I.

Introduction

The literal approach to the interpretation of statutes may be found in many jurisdictions and is a quite natural first reaction to text relying on the reader’s education, experience and language skills. The understanding of the text is said to be based on the meaning that a competent, knowledgeable, purposeful and informed user of ordinary language would give to ordinary words used in a statute.9 It is based on the premise that language, especially statu-

6

7

8 9

Per Lords Wilberforce and Diplock in Fothergill v Monarch Airlines [1980] 2 All ER 696 (HL) 695, 702; Dugard, International Law – A South African Perspective, 2nd ed., Capetown 2000, 338-339. Honnold (op. cit. fn. 1), 89-90. The United States is an important exception to this general rule. See also DiMatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, (1997) 22 Yale Journal of International Law (Yale J of Intl L), 133 et seq. See e.g. the contributions by DiMatteo and Gruber in this book. Bell/Engle, Cross Statutory Interpretation, 3rd ed., London 1995, 1; Sullivan, Sullivan and Driedger on the Construction of Statutes, 4th ed., Toronto 2002, 5-7; Summers, Essays in Legal Theory, Dordrecht 2000, 221.

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tory language is clear, unambiguous and capable of a true meaning within the context used.10 According to the literal approach the true meaning of the statute is to be found only in the precise words of the text itself. A nineteenth century South African judge remarked:11 “I confess that I regard it as a very unsafe mode of construction to attach more weight to the presumed object of the Legislature than to the language actually employed. The safer course is, as was said in De Villiers v Cape Divisional Council (Buch. Rep. 1875, p. 65), to observe the literal and grammatical sense of the words employed, and leave it to the Legislature − which is always at hand for the purpose − to amend the law in case such construction should not carry out its real intention.” Although a strict literal approach to the interpretation of statutes is probably not followed in any jurisdiction any longer, some form of literalism is still firmly entrenched in many jurisdictions, albeit in some other modified guise such as intentionalism.12 Reference is made to the intention of the legislature, but the intention is sought almost exclusively in the language of the text itself.13 There has, however, also been recognition that the strict formalism of the literal approach is no longer tenable in most jurisdictions.14 In Principal Immigration Officer v Hawabu15 the court refers to the “elasticity which is inherent in language” which necessitates courts to have resort to the text as a whole and even extraneous material such as the legislative history of the

10

11

12

13 14

15

Du Plessis, The Interpretation of Statutes, Durban 1986; Kellaway, Principles of Legal Interpretation, Durban 1995, 5. See for instance Principal Immigration Officer v Hawabu 1936 AD 26, at 31. De Villiers CJ in De Kock v The Resident Magistrate of Caledon (1896) 13 SC 386, at 387. See for instance Cowen, The Interpretation of Statutes and the Concept of the Intention of the Legislature, (1980) 43 Tydskrif vir Hedendaagse RomeinsHollandse Reg (THRHR), 378-392; Du Plessis, Statute Law and Interpretation, in: Joubert (ed.), The Law of South Africa, vol. 25 part 1, 1st Reissue, Durban 2001, 283; Public Carriers Association v Toll Road Concessionaries (Pty) Ltd 1990 (1) SA 925 (A). Bell/Engle (op. cit. fn. 9), 18 refer to the continued importance of this rule in most cases. Du Plessis (op. cit. fn. 10), 31-32; Sullivan (op. cit. fn. 9). Bell/Engle (op. cit. fn. 9), 17-18; Pearce/Geddes (op. cit. fn. 4), 23-24; Sullivan (op. cit. fn. 9), 7-8. 1936 AD 26 at 31.

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text. This is also evident from the following statement by Lord Griffiths in Pepper v Hart:16 “The days have long passed when the courts adopted a strict constructionist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the legislation was enacted.” In order to properly understand the continued importance and proper place of the literalist approach to interpretation, its historic development and the criticisms levelled at it must be briefly traced, before considering its implications for the interpretation of the CISG.

II.

Historical Origin and Development

The modern approaches to the interpretation of statutes in the Common Law world are based on the developments through four distinct periods.17

1.

Equitable Construction

During the first period equitable construction was the dominant approach. This approach developed into the so-called mischief rule. The rule was formulated as follows in the Heydon case:18 “(…) that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: (1) What was the common law before the making of the Act. (2) What was the mischief and defect for which the common law did not provide. (3) What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth. And (4) The true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro

16 17 18

[1993] 1 All ER 42 at 50. Sullivan (op. cit. fn. 9). As quoted in Pugh v Pugh [1951] 2 All ER 680. See also Re Greycaine Ltd [1946] 2 All ER 30; Escoigne Properties Ltd v Inland Revenue Commissioners [1958] 1 All ER 406; Bell/Engle (op. cit. fn. 9), 11-12; Sullivan (op. cit. fn. 9), 4.

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privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.” This approach has remained relevant and is still referred to in English courts today.19 However, the approach is often qualified. For instance in the Spath Holme case Lord Nicholls states:20 “Use of non-statutory materials as an aid to interpretation is not a new development. As long ago as 1584 the Barons of the Exchequer enunciated the socalled mischief rule. In interpreting statutes courts should take into account, among other matters, ‘the mischief and defect for which the common law did not provide’ (see Heydon’s Case (1584) 3 Co Rep 7a at 7b, 76 ER 637 at 638). Nowadays the courts look at external aids for more than merely identifying the mischief the statute is intended to cure. In adopting a purposive approach to the interpretation of statutory language, courts seek to identify and give effect to the purpose of the legislation. To the extent that extraneous material assists in identifying the purpose of the legislation, it is a useful tool.” In this approach the courts viewed the legislative texts as less important than the actual intentions of legislature. Sullivan indicates that this approach was appropriate for that time as judges were active participants in the law-making process. Furthermore, texts were unreliable and inaccessible because they were still recorded and copied by hand.21

2.

Strict Construction

The firm establishment of the sovereignty of Parliament by the 18th century introduced a new era in England where there was less need or opportunity for equitable construction. The public and judicial mood during this period was also strongly influenced by the liberal philosophy of Locke and the revolution of 1688.22 Under these influences there was a strong emphasis on the freedom of individuals and the preservation of their life, liberty and property from state interference. Judges were constrained to apply parliamentary statutes, but any changes to the status quo by statutes had to be formulated in 19

20

21 22

See for instance Re Mayfair Property Co, Bartlett v Mayfair Property Co [1898] 2 Ch 28, Hickman and Others v Peacey and others [1945] 2 All ER 215; R (on the application of Bushell and others) v Newcastle upon Tyne Licensing Justices and another [2006] 2 All ER 161; Orton v Collins and others [2007] 3 All ER 863. R v Secretary of State for the Environment, Transport and the Regions and another, ex parte Spath Holme Ltd [2001] 1 All ER 195. Sullivan (op. cit. fn. 9), 4. Bell/Engle (op. cit. fn. 9), 12; Sullivan (op. cit. fn. 9), 4.

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clear terms. The fundamental resistance to the interference of Parliament during this period gave rise to the presumption in favour of a strict construction of statutes.23 Courts also refused to fill apparent gaps in statutes, despite a clearly discernible intention, limiting the application of the statute to those situations covered by the actual wording. Accordingly acts were also strictly interpreted where a gap or a casus omissus existed.24 The strict approach to interpretation had an unfortunate by-product. The statutory draftsman, in an attempt to avoid the consequences of a strict interpretation, drafted statutory texts that aimed at covering every possible eventuality.25 This has caused English style legislation ever since to be much more detailed and complicated than is the case with Civil Law statutes. The detailed nature of statutes has often made them even more difficult to interpret and understand.

3.

Literalism

During the 19th and 20th centuries the English Parliament turned out more and more legislation that dealt with matters that were not known to the Common Law. Liberalism in judicial thinking was replaced by the doctrines of parliamentary sovereignty and the rule of law. The approaches of the former eras seemed less relevant under these circumstances. These developments provided fertile ground for the growth of literalism or the primacy of plain meaning.26 The rule was formulated as follows in the oft quoted passage of Chief Justice Tindal CJ:27 “My Lords, the only rule for the construction of Acts of Parliament is, that they should be construed according to the intent of the Parliament which passed the Act. If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves alone do, in such case, best declare the intention of the lawgiver. But if any doubt arises from the terms employed by the legislature, it has always been held a safe means of collecting the intention, to call in aid the ground and cause of making the statute, and to have recourse to the pre-

23 24

25 26 27

Bell/Engle (op. cit. fn. 9), 12-13; Sullivan (op. cit. fn. 9), 4-5. Bell/Engle (op. cit. fn. 9), 12-13. For a more recent illustration of this thinking see Magor and St. Mellons Rural District Council v Newport Corporation [1951] 2 All ER 839. Bell/Engle (op. cit. fn. 9), 11-12. Sullivan (op. cit. fn. 9), 5-6, 14-15. Sussex Peerage case (1844), 11 Cl. & Fin., 8 E.R. 1034.

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amble, which, according to DYER, C.J.28, is − ‘a key to open the minds of the makers of the Act, and the mischiefs which they intended to redress’.” Sullivan adds that the rule of law provides a further argument for the literal approach.29 It satisfies the need for legal certainty and predictability. According to this argument the literal interpretation affords citizens and their advisors to rely on the apparent meaning of the text.30 A strict literalist approach can sometimes lead to harsh results. Courts committed to this approach accept these consequences provided that the words used are clear and unambiguous. The following statement by Birkett LJ is representative of this approach:31 “It is agreed that the cardinal rule for the construction of Acts of Parliament is that they should be construed according to the intention of the Parliament that passed them. The language of the enacting words is clear, and the learned judge found it to be so by his use of the words “unqualified and plain in their meaning.” In these circumstances I should have thought that, according to the rules for the construction of statutes, the preamble ought to be disregarded. But it was the consequence of giving the words their plain meaning which made the learned judge turn to the preamble, because he said that the legislature must have intended to put some limit on their operation. With great respect, I cannot think that this was applying the recognised rules of construction, for if the meaning of the words is plain, the consequences are to be disregarded.” The commitment and reliance on pure literalism as stated above often breaks down when judges are faced with the consequences of such an interpretation.32 This gave rise to the development of a fourth approach often labelled as the ‘golden rule’.

4.

The Golden Rule – Qualified Literalism

The golden rule makes provision for a departure from the literal interpretation of the text where the application of the words in their ordinary sense

28 29 30

31

32

In Stowell v Lord Zouch (1569), 1 Plowd 353. Sullivan (op. cit. fn. 9), 5. Bell/Engle (op. cit. fn. 9), 15, 32-33; Sullivan (op. cit. fn. 9), 5; Summers (op. cit. fn. 9), 234-236. For a discussion of similar reasoning to the literalist approach in the United States see Van Alstine (op. cit. fn. 3), 710-713. H R H Prince Ernest Augustus of Hanover v Attorney General [1955] 3 All ER 647. See also R v McIntosh [1995] 1 SCR 686 at 704. Sullivan (op. cit. fn. 9), 5-6.

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would be intolerable or where it would lead to an absurdity.33 The rule helps the interpreter from overcoming some of the difficulties in inherent linguistic formalism by allowing the court discretion to modify or augment the words of the statute.34 The rule was first formulated by Parker CB in Becke v Smith35 but it is his statement in Grey v Pearson36 which is most often quoted and followed:37 “I have been long and deeply impressed with the wisdom of the rule, now, I believe, universally adopted, at least in the courts of law in Westminster Hall, that in construing wills, and indeed statutes, and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no further.” The golden rule provides a life buoy to literalism. It qualifies the rule in order to save it from the unacceptable results to which it may sometimes lead when applied in its simplest form.38 However, the rule is to be employed only in the most extreme or unusual cases.39 The rule therefore provides an escape from the consequences of literalism in relatively few instances. Du Plessis also raises a fundamental logical problem at the heart of the golden rule: if the intention of the legislature is to be obtained from the language used by the legislature, how can a contrary intention be gleaned from the very same language?40 It is obvious that the intention must be obtained from some other source extraneous to the text itself such as the legislative history or context of the text.41 The unfortunate result of stark literalism in some instances which gave rise to the adoption of the golden rule, also provided the impetus for the de33 34 35 36 37

38 39

40 41

Bell/Engle (op. cit. fn. 9), 15-16; Sullivan (op. cit. fn. 9), 6. Du Plessis (op. cit. fn. 12), 282, 290. (1836) 2 M & W 191, at 195. (1857) 6 HL Cas 61, at 106. Bell/Engle (op. cit. fn. 9), 16-17; Du Plessis (op. cit. fn. 12), 290-291; Sullivan (op. cit. fn. 9), 6; Venter v Rex 1907 TS 910, at 919; Re Guinness’s Settlement Guinness and another v S G Warburg (Executor and Trustee) and others [1966] 2 All ER 497; Pakala Narayana Swami v King-Emperor [1939] 1 All ER 396, at 396. Du Plessis (op. cit. fn. 12), 282-283, 290-291. Bell/Engle (op. cit. fn. 9), 17; Cowen (op. cit. fn. 12), 380; Du Plessis (op. cit. fn. 12), 291; Thompson v Good [1910] AC 409, at 420; Vickers, Sons and Maxim Ltd v Evans [1910] AC 444, at 445; Principal Immigration Officer v Hawabu 1936 AD 26, at 31. Du Plessis (op. cit. fn. 12), 291. Du Plessis (op. cit. fn. 12), 291.

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velopment of new approaches and theories to the interpretation of statutes. Some of these theories, such as limited contextualism, were refinements of the literalist approach, but still used literalism as its underlying paradigm.42 Although it seems that American courts may have escaped the constraints of literalism at a much earlier stage than English law, this appearance may be deceptive. For instance in Caminetti v. United States43 the court still took a strictly literal approach to interpretation stating: “Where the language is plain and admits of no more than one meaning the duty of interpretation does not arise and the rules which are to aid doubtful meanings need no discussion.” Contrast that remark with the following remark in U.S. v. American Trucking Associations44 a few years later where the court states: “There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one ‘plainly at variance with the policy of the legislation as a whole’ this Court has followed that purpose rather than the literal words. When aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no ‘rule of law’ which forbids its use, however clear the words may appear on ‘superficial examination’.” However, in more recent cases there still seems to be an adherence to the strict literalist approach. Van Alstine, referring to the decision in Chan v. Korean Airlines45 calls this a “new strain of restrictive formalism” which prevents courts from applying any “invasive interpretive techniques, regardless of the effects on the long-term health of a statutory body of law.”46 In U.S. v. Whitley,47 for instance the court remarks:

42

43 44 45 46 47

Cowen, Prolegomenon to a restatement of the principles of statutory interpretation, (1976) 1 Tydskrif vir die Suid-Afrikaanse Reg (TSAR), 151-152; Du Plessis (op. cit. fn. 12), 283. Caminetti v. U.S. 242 U.S. 470, 37 S.Ct. 192 U.S. 1917. U.S. v. American Trucking Associations 310 U.S. 534, 60 S.Ct. 1059, U.S. 1940. Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 135 (1989). Van Alstine (op. cit. fn. 3), 687-688. 2008 WL 2405707, C.A.2 (N.Y.), 2008.

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“Although we hesitate to precipitate a circuit split, we conclude that there are substantial grounds for doing so with respect to the interpretation of the “except” clause. First, we have repeatedly been instructed to give statutes a literal reading and apply the plain meaning of the words Congress has used. (…) Indeed, the Supreme Court has reversed a court of appeals for not giving a literal reading to another provision of section 924(c). See United States v. Gonzales, 520 U.S. 1, 8, 117 S.Ct. 1032, 137 L.Ed.2d 132 (1997) (observing, with respect to what is now subsection 924(c)(1)(D)(ii), that “where there is no ambiguity in the words, there is no room for construction. The case must be a strong one indeed, which would justify a court in departing from the plain meaning of words (…).”) (quoting United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 95-96, 5 L.Ed. 37 (1820) (Banks Law Publishing Co.) (1904) (Marshall, C.J.).” It is clear that the literal approach or “new textualism”48 to the interpretation or construction of statutes is still a dominant force in Common Law jurisdictions, even if it is sometimes masquerading as literalist-cum-intentionalist approach.49

III. Critique of the Literalist Approach The literalist approach to interpretation is based on the premise that words and language will have, in most instances, a clear and unambiguous meaning. Courts therefore only need to adhere to the plain or ordinary meaning of the words used to give effect to the intention of the legislature. Justice Frankfurter, writing at a time when literalism was still the dominant paradigm in English, remarked:50 “These current English rules of construction are simple. They are too simple. If the purpose of construction is the ascertainment of meaning, nothing that is logically relevant should be excluded. The rigidity of English courts in interpreting language merely by reading it disregards the fact that enactments are, as it were, organisms which exist in their environment. One wonders whether English judges are confined psychologically as they purport to be legally. The judges deem themselves limited to reading the words of a statute. But can they really escape placing the words in the context of their minds, which after all are not automata applying legal logic but repositories of all sorts of assumptions and impressions?” 48 49 50

Van Alstine (op. cit. fn. 3), 687-688. Du Plessis (op. cit. fn. 12), 107. Frankfurter, Some Reflections on the Reading of Statutes, (1947) 2 The Record of the Association of the Bar of the City of New York, 231-2.

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Kelsen further argues that the interpretative process is driven by political choices:51 “The view that it is the function of interpretation to find the ‘true’ meaning of the law is based on an erroneous concept of interpretation (…). The decision of a judicial authority renders binding (…) one of several meanings of a legal norm, all equally possible from a logical point of view. The choice of interpretation as a law-making act is determined by political motives.” The resort to a life buoy such as the golden rule to rescue the literal approach or the necessity to turn to the mischief rule or intuitionalism are all indicative of the fact that the narrow literalist approach is not tenable and needs to be augmented or even replaced. However, intentionalism and even a purposive approach have failed to provide a single satisfactory approach to the interpretation of statutes.52 The English and Scottish Law Commission in their report on interpretation refers to the inadequacies of language and draftsmanship as a serious drawback in the interpretation of statutes:53 “To place undue emphasis on the literal meaning of the words of a provision is to assume an unattainable perfection in draftsmanship; it presupposes that the draftsmen can always choose words to describe the situations intended to be covered by the provision which will leave no room for a difference of opinion as to their meaning. Such an approach ignores the limitations of language, which is not infrequently demonstrated even at the level of the House of Lords when Law Lords differ as to the so-called ‘plain meaning’ of words.” One of the main arguments for the literalist approach is that it promotes legal certainty.54 Legal certainty, however, is often more apparent than real.55 In Savage v CIR56 Schreiner, a South African appeal judge, remarks that “what seems a clear meaning to one man may not seem clear to another”. He goes on to say that the literal meaning is not something that is revealed to judges by a sort of authentic dictionary, but simply what individual judges think is the literal meaning. This observation recognises the fact that language is 51

52 53

54 55

56

Kelsen, Law of the United Nations, New York 1964, Preface XV. See also Van Alstine (op. cit. fn. 3), 713-715. See Van Alstine (op. cit. fn. 3), 713-715. The English and Scottish Law Commission, Law Commission Report no. 21, 1969, para. 30. See for instance Fothergill v Monarch Airlines Ltd [1980] 2 All ER 696, at 705. Cowen (op. cit. fn. 42), 152; Du Plessis (op. cit. fn. 12), 282; Venter v R 1907 TS 910, at 913. 1951 4 SA 400 (A) 410.

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often imprecise, that one word may have several meanings depending on the context in which it is used and that statutory language is often couched in very wide terms allowing a large measure of discretion in the manner in which such a provision can be applied in practice.57 The reference to the intention of the legislature as a modification to the literalist approach is often no more than a pretence to rely only on the actual words of the text itself. In many cases where reference is made to the intention of the legislature, the intention is based simply on the words used in the statute itself.58 Any reference to the history of the act and its enactment or other extra textual contexts, is expressly rejected.59 These shortcomings were clearly recognised by the English and Scottish Law Commission. They stated that many courts in Great Britain tended to over-emphasise the narrow version of the literalist approach and that they refuse to go beyond the meaning of a statutory provision in the light of its immediate and obvious context.60 The Commission proposed that courts should follow a purposive approach to interpretation, namely an approach in which the general underlying purpose of a statute would be promoted by the interpretation to an interpretation which would not. This approach was subsequently embraced by English courts, but did not signify as radical a move away from literalism (as expressed in Grey v Pearson)61 as one may have expected.62

IV. Conclusion Clear and unambiguous language is mostly still regarded as a statute’s first and primary source of meaning.63 As late as 1969 the Law Commission in England concluded that there was a tendency amongst many judges to rely too heavily on a narrow version of the literal rule and a refusal to go beyond the immediate language and obvious context.64 The Commission proposed

57 58

59 60

61 62 63 64

Cowen (op. cit. fn. 42), 152; Van Alstine (op. cit. fn. 3), 713-714. See for instance Shenker v The Master 1936 AD 136 at 142; Bhayat v Commissioner for Immigration 1932 AD 1125, at 129; HRH Prince Ernest Augustus of Hanover v Attorney General [1955] 3 All ER 647. See also R v McIntosh [1995] 1 SCR 686, at 704. Cowen (op. cit. fn. 12), 383-384. The English and Scottish Law Commission, Law Commission Report no. 21, 1969, para. 80; Bell/Engle (op. cit. fn. 9), 17; Cowen (op. cit. fn. 42), 152. (1857) 6 HL Cas 61, at 106. See Bell/Engle (op. cit. fn. 9), 18. Cowen (op. cit. fn. 12), 378; Du Plessis (op. cit. fn. 10), 29. The English and Scottish Law Commission, Law Commission Report no. 21, 1969, para. 80; Bell/Engle (op. cit. fn. 9), 17.

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that judges should adopt a purposive approach to statutory interpretation.65 The purposive approach is akin to the old mischief rule, but it goes wider in that it also embraces the positive purposes underlying any legislation. Although judges in many jurisdictions have adopted the purposive approach, there is still a tendency to rely simply on a literalist approach unless there is some ambiguity in a statute or where the original interpretation leads to absurd or unacceptable results.66 Judges are still reluctant to abandon the traditional literalist approach to interpretation and adopt a more nuanced and integrated approach where the literal interpretation is but the starting point.67

C. Literalism and the CISG I.

Introduction

The CISG contains an important provision on the interpretation of the Convention in Art. 7 CISG. Art. 7 CISG firstly establishes the principle of autonomous interpretation, namely that the Convention must be interpreted free from any preconceptions based on domestic law.68 Rather the interpretation is to be based on the international character of the Convention and the need to promote uniformity in its application.69 The provisions of Art. 7 CISG deal with the central goals and principles, but do not give express guidance about the method of interpretation.70 These goals and principles are important when a contextual and purposive approach to interpretation is followed.

65

66

67

68

69

70

The English and Scottish Law Commission, Law Commission Report no. 21, 1969, para. 80. See for instance U.S. v. Gonzales 520 U.S. 1, 117 S.Ct. 1032; Rhodes v Allied Dunbar Pension Services Ltd and others Re Offshore Ventilation Ltd [1988] 1 All ER 524. Steyn, Democracy through Law – Selected Speeches and Judgments, Aldershot 2004, 42-44; Sullivan (op. cit. fn. 9), 7; Randburg Town Council v Kerksay Investments (Pty) Ltd 1998 1 SA 98 (SCA). DiMatteo et al. (op. cit. fn. 3), 311 et seq.; Kritzer/Eiselen (op. cit. fn. 1), § 85:11 (a); Magnus (op. cit. fn. 1), Art. 7 no. 12; Schlechtriem, in: Schlechtriem/ Schwenzer (op. cit. fn. 1), Art. 7 no. 5, 19. Kritzer/Eiselen (op. cit. fn. 1), § 85:8; Magnus (op. cit. fn. 1), Art. 7 no. 20; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 14. Magnus (op. cit. fn. 1), Art. 7 no. 30; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 19.

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Approach Advocated by Commentators

Magnus is of the opinion that although a definite interpretative approach has as yet not been established in the case law internationally, there have been signs that the gap between the different approaches found in the Common Law and Civil Law countries, is closing.71 The leading commentaries on the CISG seem to advocate a literalist approach to the interpretation of the CISG.72 In his discussion on the methods of interpretation, Schlechtriem states: “The first step is the literal interpretation by having regard to the wording. Only if that does not produce an answer, should recourse be had to the purpose of the provision; when so doing, the travaux préparatoires must be used as a guide.” Magnus supports this approach stating that in the interests of uniformity it is important that the ordinary meaning of the words used should not be abandoned too easily by reverting to a teleological or purposive interpretation whereby different national courts establish their own interpretations of specific words or provisions or solutions.73 This approach has also been echoed in the case law. In the MCC-Marble Ceramic case74 the court states: “One of the primary factors motivating the negotiation and adoption of the CISG was to provide parties to international contracts for the sale of goods with some degree of certainty as to the principles of law that would govern potential disputes and remove the previous doubt regarding which party’s legal system might otherwise apply. (…) Courts applying the CISG cannot, therefore, upset the parties’ reliance on the Convention by substituting familiar principles of domestic law when the Convention requires a different result. We may only achieve the directives of good faith and uniformity in contracts under the CISG by interpreting and applying the plain language of article 8(3) as written and obeying its directive to consider this type of parol evidence.” One of the difficulties of interpreting the CISG is that many of its provisions contain formulations that are broadly stated in the style of Civil Law codes.75 The following non-exhaustive list of examples can be mentioned: 71 72

73 74

75

Magnus (op. cit. fn. 1), Art. 7 no. 30. Magnus (op. cit. fn. 1), Art. 7 no. 32; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21. See also Mann (op. cit. fn. 4), 377-378. Magnus (op. cit. fn. 1), Art. 7 no. 32. United States, 29 June 1998, Federal Appellate Court, 11th Circuit, MCCMarble Ceramic Center v. Ceramica Nuova D’Agostino, available at http:// cisgw3.law.pace.edu/cases/980629u1.html, 1388-1389. Andersen (op. cit. fn. 3), 31; DiMatteo et al. (op. cit. fn. 3), 317-318, 319-320.

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•

Art. 3(1) CISG: (…) to supply a substantial part of the materials (…); Art. 3(2) CISG: (…) in which the preponderant part of the obligations (…); Art. 8(2) CISG: (…) according to the understanding that a reasonable person of the same kind as the party would have had (…); Art. 25 CISG: (…) as substantially deprive him of what he is entitled to expect (…); Art. 35 CISG: (…) fit for the purpose for which goods of the same kind would ordinarily be used (…);76 Art. 39: (…) specifying the nature of the lack of conformity within a reasonable time after he has discovered (…) [Author’s emphasis].

• • • • •

In applying these broadly stated rules, courts are faced with a difficult task in fostering a uniform interpretation or application of the CISG if regard is had only to the wording of the specific provision.77 These examples show that in many instances courts should consider not only the wording in a literalist approach, but should use other interpretative aids such as the travaux préparatoires and comparative international material when interpreting and applying the provisions of the CISG. As discussed above, the literalist approach is often deceptive and misleading in its simplicity. The words used in the CISG may also be deceptively familiar to judges who may impose their understanding of domestic concepts on those words, rather than a more universal approach taking into account the context and different understandings of those words. The differences in interpretation of Art. 35(2)(a) CISG about the quality of goods provides a good example and is discussed below. The literalist approach contains further dangers when applied to the CISG. The Convention exists in six official languages which are, in theory in any case, of equal interpretative importance. Where there is a discrepancy between the various language versions, commentators agree that courts should aim towards a uniform interpretation, even if it means discarding or neglecting one of the versions.78 There also seems to be a consensus that in some cases the English (or sometimes the French) text may express the intention of the drafters better than the other languages as English was the 76

77

78

See for instance Netherlands, 15 October 2002, Netherlands Arbitration Institute, Case no. 2319 (Condensate crude oil mix case), available at http://cisgw3. law.pace.edu/cases/021015n1.html, which dealt with the different meanings that could be given to this provision. The court referred extensively to the travaux préparatoires as well as foreign case law and academic commentary in determining the interpretation of this Article. Zeller, The UN Convention on Contracts for the International Sale of Goods, (2000) 12 Pace International Law Review (Pace Intl LR), 79-106, at no. 39-40. Magnus (op. cit. fn. 1), Art. 7 no. 33; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21.

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dominant language during the discussions and was also the language used by the drafting committee.79

III. General Approaches to the Interpretation of Conventions English courts have recognised from an early stage that the interpretation of treaties needs to be treated differently from domestic legislation even in those cases where the treaty is incorporated into the domestic law by reenacting the treaty as a whole.80 In James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd81 the court states: “I think that the correct approach is to interpret the English text which after all is likely to be used by many others than British businessmen, in a normal manner, appropriate for the interpretation of an international convention, unconstrained by technical rules of English law, or by English legal precedent but on broad principles of general acceptation (Stag Line Ltd v Foscolo, Mango & Co Ltd ([1932] AC 328 at 350, [1931] All ER Rep 666 and 677), per Lord Macmillan). Moreover, it is perfectly legitimate in my opinion to look for assistance, if assistance is needed, to the French text. This is often put in the form that resort may be had to the foreign text if (and only if) the English text is ambiguous, but I think this states the rule too technically. As Lord Diplock recently said in this House, the inherent flexibility of the English (and, one may add, any) language may make it necessary for the interpreter to have recourse to a variety of aids (Carter v Bradbeer ([1975] 3 All ER 158 at 161, [1975] 1 WLR 1204 at 1206)). There is no need to impose a preliminary test of ambiguity.” In Fothergill v Monarch Airlines Ltd82 Lord Diplock confirmed this approach stating that the language of a convention is not chosen by an English parliamentary draftsman and is not couched in the conventional English legislative idiom.83 Furthermore, it is aimed at a much wider and more varied judicial audience than is the case with purely domestic legislation. This should be kept in mind when a convention is interpreted. For these reasons English courts should take cognisance of the travaux préparatoires when interpreting conventions like their counterparts in other parts of the world. 79

80 81 82

83

Kritzer/Eiselen (op. cit. fn. 1), § 85:11 (a); Magnus (op. cit. fn. 1), Art. 7 no. 33; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 22. Bell/Engle (op. cit. fn. 9), 161-162. [1977] 3 All ER 1048, at 1052. [1980] 2 All ER 696. For a discussion of the case in CISG context see Zeller (op. cit. fn. 77), 79-106, at fn. 11 et seq. At 706.

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Lord Scarman in the same decision argues for an even wider range of interpretational aids to be taken into account:84 “We know that in the great majority of the contracting states the legislative history, (‘les travaux préparatoires’), the international case law (‘la jurisprudence’) and the writings of jurists (‘la doctrine’), would be admissible as aids to the interpretation of the convention. We know also that such sources would be used in the practice of public international law. They should, therefore, also be admissible in our courts; but they are to be used as aids only.” The interpretation of conventions in many countries is now determined by the provisions of section 3 of the Vienna Convention on the Law of Treaties, 1969. In the Fothergill case the House of Lords indicated that these provisions are in any event merely a codification of customary international law. The following provisions may be relevant:85 “Art. 31 General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. (…) Art. 32 Supplementary means of interpretation Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: 84

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At 715. For the exposition of a similar approach in Australia see Pearce/Geddes (op. cit. fn. 4), 32-33. As to the applicability of the Convention see Andersen (op. cit. fn. 3), 32-33; Felemegas, The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation, (2000-2001) Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), 115-265 [http://www.cisg.law.pace.edu/cisg/biblio/felemegas.html]. Honnold, however argues that the Convention is not applicable as it only applies to the interpretation of conventions that are designed to control sovereign states – see Honnold, Uniform Laws for International Trade: Early “Care and Feeding” for Uniform Growth, (1995) 1 International Trade and Business Law Journal, 1-10 at fn. 5. See also DiMatteo (op. cit. fn. 7), 140; Van Alstine (op. cit. fn. 3), 687-793; Zeller, Four-Corners – The Methodology for Interpretation and Application of the UN Convention on Contracts for the International Sale of Goods, 2003 [http://www.cisg.law.pace.edu/cisg/biblio/4corners.html].

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(a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable” [author’s emphasis].” Art. 31 presents an approach to interpretation which is in accordance with the more modern approaches to legislative interpretation, moving away from pure literalism and taking into account the context and purpose of the Convention. It is augmented by the provisions of Art. 32 that allows for certain supplementary materials to be used in interpreting treaties. It is ironic that Art. 32, which deals with the supplementary means of interpretation, should itself be ambiguous. It is not clear whether recourse may be had to supplementary means of interpretation in all instances in order to confirm the meaning arrived at by applying the literal-cum-purposive approach of Art. 31, or whether it can only be used in the qualifying circumstances in which the interpretation leaves the meaning ambiguous or obscure or leads to a manifestly absurd or unreasonable result. The former interpretation would be in line with the more recent realist approaches to interpretation which recognise that texts which, superficially considered, reveal a clear and unambiguous meaning, may nevertheless be unclear if regard is had to the purpose of the legislation and supplementary materials.86 The latter interpretation would be more in line with the stricter approach to interpretation, only allowing supplementary materials in exceptional circumstances.87 It would seem however that generally courts are much more readily inclined to revert to supplementary materials when interpreting treaties. The approach of the English courts in the Buchanan case88 and the Fothergill case89 provides a good example.90 Surprisingly, in very few of the CISG case law consulted, has there been any reference to the Treaty Convention as an aid to interpretation.91 86

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Sullivan (op. cit. fn. 9), 433 seems to ascribe to this approach. She contrasts the position in regard to travaux préparatoires under this Convention where it is generally admissible, with the traditional Common Law approach, where it is not. She also states that the supplementary materials may be used to illuminate meaning as well as purpose. See also Pearce/Geddes (op. cit. fn. 4), 32 et seq. This is for instance the approach adopted by Mann (op. cit. fn. 4), 379 et seq. James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd [1977] 3 All ER 1048. Fothergill v Monarch Airlines Ltd [1977] 3 All ER 616. See also Bell/Engle (op. cit. fn. 9), 161 et seq.; Kellaway (op. cit. fn. 10), 184 et seq.; Pearce/Geddes (op. cit. fn. 4), 32 et seq.; Sullivan (op. cit. fn. 9), 431 et seq. See for instance Netherlands, 15 October 2002, Netherlands Arbitration Institute, Case no. 2319 (Condensate crude oil mix case), available at http://cisgw3. law.pace.edu/cases/021015n1.html.

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IV. Trends in the Case Law An analysis of the case law shows that there are a variety of interpretational approaches that have been followed by courts when dealing with the CISG.92 The approaches range from a strict literalist approach where only the words of the text itself are considered, to an integrated purposive approach where not only the words, but also the broader context, purpose of the Convention and drafting history and comparative materials are taken into account. Unfortunately the latter approach is encountered all too rarely, with a strict literal or textual approach still holding sway.

1.

Strict Literal Approach

In view of the fact that the leading commentaries advocate a literal approach to interpretation and the prevalence of this approach in domestic legal systems, it is not surprising that a strict literalist approach to the interpretation and application of the CISG is the most prevalent approach found in the case law. In many of these cases the courts and arbitral tribunals simply quote the relevant articles and apply them to the facts before them without reference to any authority or other relevant materials.93 92

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For an excellent analysis of the practical interpretation of the CISG under various jurisdictions and the emerging jurisprudence see DiMatteo et al. (op. cit. fn. 3), 299-240. See also the UNCITRAL Digest, http://www.uncitral.org/uncitral/en/ case_law/digests.html. See for instance United States, 7 December 1999, Federal District Court Illinois, Magellan International v. Salzgitter Handel, available at http://cisgw3.law.pace. edu/cases/991207u1.html; ICC Arbitration Case no. 11849 of 2003 (Fashion products case), http://cisgw3.law.pace.edu/cases/031849i1.html; Russia, 18 October 2005, Arbitration proceeding 21/2005 (Varnish and paint machine case), http://cisgw3.law.pace.edu/cases/051018r1.html; Russia, 2 June 2005, Arbitration proceeding 131/2004, http://cisgw3.law.pace.edu/cases/050602r1.html; United States, 5 May 2003, Federal Appellate Court, 9th Circuit, Chateau des Charmes Wines Ltd. v. Sabaté USA, Sabaté S.A., http://cisgw3.law.pace.edu/cases/030505 u1.html; Australia, 28 April 1995, Federal Dist. Ct., Adelaide Roder v. Rosedown, http://cisgw3.law.pace.edu/cases/950428a2.html; United States, 6 December 1995, Federal Appellate Court, 2nd Circuit, Delchi Carrier v. Rotorex, http:// cisgw3.law.pace.edu/cases/951206u1.html; Bulgaria, 12 March 2001, Arbitration Case 33/98, http://cisgw3.law.pace.edu/cases/010312bu.html; United States, 4 April 2006, Federal District Court New Jersey, Valero Marketing v. Greeni Oy, http://cisgw3.law.pace.edu/cases/060404u1.html; China, 13 January 1999, CIETAC Arbitration proceeding (Latex gloves case), http://cisgw3.law.pace. edu/cases/990113c1.html; China, 7 December 2005, CIETAC Arbitration pro-

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2. Seemingly Strict Literal Approach, but with Reference to Authority In some cases the application of the plain meaning of the words is coupled with a reference to commentary or other case law, but without any reference to context or purpose or drafting history.94 In most of the cases where there is a reference to case law or authority the courts referred only to case law or authority emanating from that particular jurisdiction.95 Ameri-

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ceeding (Heaters case), http://cisgw3.law.pace.edu/cases/051207c1.html; China, 8 November 2002, CIETAC Arbitration proceeding (Canned asparagus case), http://cisgw3.law.pace.edu/cases/021108c1.html; Australia, 17 January 2003, Supreme Court of Western Australia, Ginza Pte Ltd v Vista Corporation Pty Ltd), http://cisgw3.law.pace.edu/cases/030117a2.html; Finland, 26 October 2000, Helsinki Court of Appeals (Plastic carpets case), http://cisgw3.law.pace.edu/cases/ 001026f5.html. See for instance Switzerland, 28 October 1998, Supreme Court (Meat case), http://cisgw3.law.pace.edu/cases/981028s1.html; Switzerland, 7 July 2004, Supreme Court (Cable drums case), http://cisgw3.law.pace.edu/cases/040707s1.html; Austria, 12 February 1998, Supreme Court (Umbrella case), http://cisgw3.law. pace.edu/cases/980212a3.html; Austria, 13 April 2000, Supreme Court (Machines case), http://cisgw3.law.pace.edu/cases/000413a3.html; Germany, 2 March 2005, Federal Supreme Court (Frozen pork case), http://cisgw3.law.pace.edu/cases/ 050302g1.html; Germany, 3 August 2005, District Court Neubrandenburg (Pitted sour cherries case), http://cisgw3.law.pace.edu/cases/050803g1.html; United States, 28 May 2003, Federal District Court, Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., http://cisgw3.law.pace.edu/cases/030528u1.html; Belgium, 15 May 2002, Appellate Court Gent (Design of radio phone case), http://cisgw3.law.pace.edu/cases/020515b1.html. See for instance Germany, 2 March 2005, Federal Supreme Court (Frozen pork case), http://cisgw3.law.pace.edu/cases/050302g1.html; Germany, 9 January 2002, Supreme Court (Powdered milk case), http://cisgw3.law.pace.edu/cases/020109g1. html; Germany, 15 September 2004, Appellate Court München (Furniture leather case), http://cisgw3.law.pace.edu/cases/040915g2.html; Germany, 3 August 2005, District Court Neubrandenburg (Pitted sour cherries case), http://cisgw3. law.pace.edu/cases/050803g1.html; Germany, 15 September 2004, Appellate Court München (Furniture leather case), http://cisgw3.law.pace.edu/cases/ 040915g2.html; Germany, 31 October 2001, Supreme Court (Machinery case), http://cisgw3.law.pace.edu/cases/011031g1.html; Australia, 17 November 2000, Supreme Court of Queensland (Downs Investments v. Perwaja Steel), http://cisgw3.law.pace.edu/cases/001117a2.html; United States, 28 September 2007, Federal District Court Kansas, Guang Dong Light Headgear Factory Co. Ltd. v. ACI International, Inc., http://cisgw3.law.pace.edu/cases/070928u2.html; United States, 28 May 2003, Federal District Court, Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., http://cisgw3.law.pace.edu/cases/030528u1.

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can courts have tended to repeat the statement that there is not much relevant case law therefore entitling them to turn to similar domestic legislation (namely the Uniform Commercial Code),96 despite the fact that there has been quite a dramatic increase in the number of reported cases which is easily available from a number of sources, most notably the Pace Institute of In-

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html; United States, 28 March 2002, Federal District Court Illinois, Usinor Industeel v. Leeco Steel Products, http://cisgw3.law.pace.edu/cases/020328u1.html; United States, 28 August 2001, Federal District Court Illinois, Zapata Hermanos v. Hearthside Baking http://cisgw3.law.pace.edu/cases/010828u1.html; United States, 22 November 2002, Federal District Court Florida, Impuls v. PsionTeklogix, http://cisgw3.law.pace.edu/cases/021122u1.html; United States, 6 December 1995, Federal Appellate Court, 2nd Circuit, Delchi Carrier v. Rotorex, http://cisgw3.law.pace.edu/cases/951206u1.html; Austria, 6 February 1996, Supreme Court (Propane case), http://cisgw3.law.pace.edu/cases/960206a3.html; Austria, 9 March 2000, Supreme Court (Roofing material case), http://cisgw3. law.pace.edu/cases/000309a3.html; Belgium, 15 May 2002, Appellate Court Gent (Design of radio phone case), http://cisgw3.law.pace.edu/cases/020515b1.html; Austria, 12 February 1998, Supreme Court (Umbrella case), http://cisgw3. law.pace.edu/cases/980212a3.html; Spain, 7 June 2003, Appellate Court Valencia, Cherubino Valsangiacomo, S.A. v. American Juice Import, Inc., http:// cisgw3.law.pace.edu/cases/030607s4.html; Switzerland, 28 October 1998, Supreme Court (Meat case), http://cisgw3.law.pace.edu/cases/981028s1.html; Switzerland, 7 July 2004, Supreme Court (Cable drums case), http://cisgw3.law. pace.edu/cases/040707s1.html. See for instance United States, 6 December 1995, Federal Appellate Court, 2nd Circuit, Delchi Carrier v. Rotorex, http://cisgw3.law.pace.edu/cases/951206u1. html; United States, 29 June 1998, Federal Appellate Court, 11th Circuit, MCCMarble Ceramic Center v. Ceramica Nuova D’Agostino, http://cisgw3.law.pace. edu/cases/980629u1.html; United States, 6 July 2004, Federal District Court, Raw Materials Inc. v. Manfred Forberich GmbH & Co., KG, http://cisgw3.law.pace. edu/cases/040706u1.html; United States, 23 May 2005, Federal Appellate Court, 7th Circuit, Chicago Prime Packers, Inc. v. Northam Food Trading Co., http:// cisgw3.law.pace.edu/cases/050523u1.html; United States, 28 May 2003, Federal District Court, Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., http://cisgw3.law.pace.edu/cases/030528u1.html; United States, 6 April 1998, Federal District Court New York, Calzaturificio Claudia v. Olivieri Footwear, http://cisgw3.law.pace.edu/cases/980406u1.html; United States, 19 March 2005, Federal District Court New York, Genpharm Inc. v. Pliva-Lachema A.S., http:// cisgw3.law.pace.edu/cases/050319u1.html. For a similar approach in Australia see Australia, 12 October 2001, Supreme Court of Queensland, Court of Appeal, Downs Investments v Perwaja Steel, http://cisgw3.law.pace.edu/cases/011012a2. html; Australia, 17 January 2003, Supreme Court of Western Australia, Ginza Pte Ltd v Vista Corporation Pty Ltd, http://cisgw3.law.pace.edu/cases/030117a2.html.

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ternational Commercial Law website.97 For instance in the recent Genpharm case the court states:98 “The Second Circuit has recognized that “[c]aselaw interpreting analogous provisions of Article 2 of the Uniform Commercial Code (“UCC”), may also inform a court where the language of the relevant CISG provisions tracks that of the UCC. However, UCC caselaw ‘is not per se applicable.’” Delchi Carrier, 71 F.3d at 1028 (quoting Orbisphere Corp. v. United States, 726 F.Supp. 1344, 1355 (Ct. Int’l Trade 1989). Here, the Court finds that caselaw interpreting contract formation under Article 2 of the UCC is helpful.” This approach must be rejected. The reference to domestic provisions that may be similar runs contrary to the clear instruction in Art. 7 CISG to heed the principle of uniformity in the interpretation of the CISG.99 Augmenting the interpretation by reference to domestic law introduces domestic concepts and understandings which might be very different from those in other jurisdictions. There is a growing body of law within which courts are starting to refer not only to other domestic decisions and authority, but also to decisions and doctrine from foreign jurisdictions.100 This development is in keeping with 197

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At http://www.cisg.law.pace.edu/. There are currently more than 2,000 reported cases, a substantial number of which have been translated into English. See also the UNCITRAL CLOUT website at http://www.uncitral.org/uncitral/en/case_ law.html; the CISG website of the Law Faculty of the University of Basel at http://www.cisg-online.ch/; and the UNILEX database at http://www.unilex.info/. United States, 19 March 2005, Federal District Court New York, Genpharm Inc. v. Pliva-Lachema A.S., http://cisgw3.law.pace.edu/cases/050319u1.html. See also United States, 6 July 2004, Federal District Court, Raw Materials Inc. v. Manfred Forberich GmbH & Co., KG, http://cisgw3.law.pace.edu/cases/040706u1.html; United States, 28 May 2003, Federal District Court, Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., http://cisgw3.law.pace.edu/cases/030528u1. html; United States, 6 December 1995, Federal Appellate Court, 2nd Circuit, Delchi Carrier v. Rotorex, http://cisgw3.law.pace.edu/cases/951206u1.html; United States, 29 March 2004, U.S. Bankruptcy Court for the District of Oregon, In re: Siskiyou Evergreen, Inc., Debtor, http://cisgw3.law.pace.edu/cases/040329u2. html; United States, 21 June 2002, Federal Appellate Court, 4th Circuit, (Schmitz-Werke v. Rockland), http://cisgw3.law.pace.edu/cases/020621u1.html. See Secretariat Commentary to Art. 6 (the draft counterpart of Art. 7(1); Kritzer/ Eiselen (op. cit. fn. 1), § 85:5; Magnus (op. cit. fn. 1), Art. 7 no. 32; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21. See for instance Netherlands, 15 October 2002, Netherlands Arbitration Institute, Case no. 2319 (Condensate crude oil mix case), http://cisgw3.law.pace.edu/ cases/021015n1.html; Spain, 7 June 2003, Appellate Court Valencia, Cherubino

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the requirement of Art. 7 CISG that there should be uniformity of interpretation and application.101 The most celebrated of these cases is the Italian decision in the Rheinland Versicherung case102 in which the court made refer-

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Valsangiacomo, S.A. v. American Juice Import, Inc., http://cisgw3.law.pace.edu/ cases/030607s4.html; Spain Audiencia Provincial, Appellate Court Valencia, 7 June 2003, http://cisgw3.law.pace.edu/cases/030607s4.html; Italy, 10 January 2006, District Court Padova (Merry-go-rounds case), http://cisgw3.law.pace.edu/ cases/060110i3.html; Italy, 25 February 2004, District Court Padova (Agricultural products case), http://cisgw3.law.pace.edu/cases/040225i3.html; Italy, 12 July 2000, District Court Vigevano (Rheinland Versicherungen v. Atlarex), http://cisgw3.law.pace.edu/cases/000712i3.html; Germany, 31 March 2008, Appellate Court Stuttgart (Automobile case), http://cisgw3.law.pace.edu/cases/ 080331g1.html; Austria, 15 October 1998, Supreme Court (Timber case), http:// cisgw3.law.pace.edu/cases/981015a3.html; United States, 29 March 2004, Federal District Court Pennsylvania, Amco Ukrservice et al. v. American Meter Company, http://cisgw3.law.pace.edu/cases/040329u1.html; United States, 28 March 2002, Federal District Court Illinois, Usinor Industeel v. Leeco Steel Products, http://cisgw3.law.pace.edu/cases/020328u1.html; United States, 26 March 2002, Federal District Court New York, St. Paul Guardian Insurance Company et al. v. Neuromed Medical Systems & Support et al., http://cisgw3.law.pace.edu/cases/ 020326u1.html; United States, 1 June 2006, Federal District Court New York, Multi-Juice, S.A. v. Snapple Beverage Corp., http://cisgw3.law.pace.edu/cases/ 060601u1.html; Germany, 24 March 1999, Supreme Court (Vine wax case), http://cisgw3.law.pace.edu/cases/990324g1.html. See Secretariat Commentary to Art. 6 (the draft counterpart of Art. 7(1); Kritzer/Eiselen (op. cit. fn. 1), § 85:5; Magnus (op. cit. fn. 1), Art. 7 no. 32; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 21. Italy 12 July 2000 District Court Vigevano (Rheinland Versicherungen v. Atlarex) http://cisgw3.law.pace.edu/cases/000712i3.html. For a discussion of this case see DiMatteo et al. (op. cit. fn. 3), 299-440, 408, 567, 582, 589, 788, 866; Ferrari, Tribunale di Vigevano: Specific Aspects of the CISG Uniformly Dealt With, (2001) 20 Journal of Law and Commerce 225-239; Mazzotta, The International Character of the UN Convention on Contracts for the International Sale of Goods: An Italian Case Example (June 2003), at http://cisgw3.law.pace.edu/ cisg/biblio/mazzotta.html. Saint ‘Elia, Editorial Comment, http://cisgw3.law.pace. edu/cases/000712i3.html, remarks: “In a remarkable opinion of the Tribunale di Vigevano, Judge Alessandro Rizzieri, not only sought to apply the provisions of the CISG faithfully to the letter and spirit of the uniform law, but in so doing he also exhibited a willingness to employ the very means which so many jurists and scholars have exhorted courts and arbitral panels to use. Judge Rizzieri cited American, Austrian, Dutch, French, German, Italian, and Swiss court cases contained in national reporters, ICC arbitral awards, as well as two CISG websites and UNILEX. Conspicuously absent are references to civilian commentaries and

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ence to an impressive array of foreign decisions. It is, however, not always easy to discern whether courts who refer to other case law and doctrine get beyond a literal interpretation of the specific provisions or not. Maybe one should conclude that in referring to these other sources, in keeping with the requirements of Art. 7 CISG to heed the international character of the CISG and aim at uniformity of decision, is in line with a contextual and purposive approach to the interpretation of the Convention. The difficulty, though, is that the courts in many instances do not use language or a clearly discernible approach which could be classified as purposive.

3.

Integrated Purposive Approach – Reference to International Character, Underlying Principles and Travaux Préparatoires

Art. 7 CISG and the Preamble to the CISG provide some of the context and objects that must be used in the interpretation of the Convention. There is a growing number of cases in which the courts have relied on these provisions to aid them in the interpretation of the Convention. The American Medical Marketing case103 provides a good example of a court taking the international character of the Convention into account in interpreting Art. 35 CISG. There are also quite a few cases where courts have made reference to the underlying principles of the CISG.104 Although there is some debate about

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treatises. For the most part, the judge firmly followed the majority and prevalent views announced by the above-mentioned tribunals.” United States, 17 May 1999, Federal District Court Louisiana, Medical Marketing v. Internazionale Medico Scientifica, http://cisgw3.law.pace.edu/cases/990517u1. html. For a discussion of this case see DiMatteo et al. (op. cit. fn. 3), 299-440 at fn. 590. See also Germany, 20 April 1994, Appellate Court Frankfurt (New Zealand mussels case), http://cisgw3.law.pace.edu/cases/940420g1.html; United States, 6 April 1998, Federal District Court New York, Calzaturificio Claudia v. Olivieri Footwear, http://cisgw3.law.pace.edu/cases/980406u1.html; Germany, 25 June 1997, Appellate Court Karlsruhe (Surface protective film case), http:// cisgw3.law.pace.edu/cases/970625g1.html; Switzerland, 7 May 1993, District Court Laufen, Canton Berne (Automatic storage system case), http://cisgw3.law. pace.edu/cases/930507s1.html. Netherlands, 10 February 2005, Netherlands Arbitration Institute (interim award), http://cisgw3.law.pace.edu/cases/050210n1.html; Netherlands, 28 January 2005, Supreme Court, B.V.B.A. Vergo Kwekerijen v. Defendant, http://cisgw3. law.pace.edu/cases/050128n1.html; United States, 19 November 2002, Federal Appellate Court, 7th Circuit, Zapata Hermanos v. Hearthside Baking, http:// cisgw3.law.pace.edu/cases/021119u1.html; China, 8 November 2002, CIETAC Arbitration proceeding (Canned asparagus case), http://cisgw3.law.pace.edu/

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the nature and identification of the underlying principles, there is at least consensus about a number of these underlying principles such as party autonomy, full compensation, freedom of contract, good faith, estoppel and reasonable reliance.105 In one case a Dutch arbitral panel regarded the provisions of the UNIDROIT Principles of International Commercial Contracts as representative of such principles.106 Van Alstine states that the new generation of commercial conventions calls for a dynamic role and approach by the judiciary in the development of the law within their scope by employing appropriate interpretational techniques. The case that probably best illustrates the dynamic and integrated approach that is necessary in the interpretation of the CISG is the Dutch Condensate crude oil mix case.107 In this case the arbitral panel had to interpret Art. 35(2)(a) CISG which deals with a presumption that goods are non-conforming unless they are “fit for the purposes for which goods of the same description would ordinarily be used”. The tribunal refers to the fact that in the case law and doctrine up to that date there had been three distinct approaches that had been used or supported. It states: “[68] The Arbitral Tribunal, thus, finds that the dispute between the parties is to be analysed under Article 35(2)(a) CISG which requires that the goods are fit for the purposes for which goods of the same description would ordinarily be

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cases/021108c1.html; Germany, 31 October 2001, Supreme Court (Machinery case), http://cisgw3.law.pace.edu/cases/011031g1.html; Finland, 26 October 2000, Helsinki Court of Appeals (Plastic carpets case), http://cisgw3.law.pace.edu/cases/ 001026f5.html; Austria, 7 September 2000, Supreme Court (Tombstones case), http://cisgw3.law.pace.edu/cases/000907a3.html; Colombia, 10 May 2000, Constitutional Court, http://cisgw3.law.pace.edu/cases/000510c7.html; China, 13 January 1999, CIETAC Arbitration proceeding (Latex gloves case), http://cisgw3.law. pace.edu/cases/990113c1.html; Switzerland, 28 October 1998, Supreme Court (Meat case), http://cisgw3.law.pace.edu/cases/981028s1.html; Switzerland, 5 November 1998, District Court Sissach (Summer cloth collection case), http:// cisgw3.law.pace.edu/cases/981105s1.html; ICC Arbitration Case no. 9117 of March 1998, http://cisgw3.law.pace.edu/cases/989117i1.html; France, 23 October 1996, Appellate Court Grenoble, Gaec des Beauches v. Teso Ten Elsen, http:// cisgw3.law.pace.edu/cases/961023f1.html. DiMatteo (op. cit. fn. 7), 144 et seq.; Kritzer/Eiselen (op. cit. fn. 1), § 85:13; Magnus (op. cit. fn. 1), Art. 7 no. 40-57; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 1), Art. 7 no. 30; Zeller (op. cit. fn. 77), 79-106. Netherlands, 10 February 2005, Netherlands Arbitration Institute (interim award), http://cisgw3.law.pace.edu/cases/050210n1.html. Netherlands, 15 October 2002, Netherlands Arbitration Institute, Case no. 2319 (Condensate crude oil mix case), http://cisgw3.law.pace.edu/cases/021015n1. html.

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used. In this respect, three interpretations exist. According to a first line of thought, Article 35(2)(a) requires that the seller delivers goods which are of a merchantable quality. This interpretation goes back to the drafting history of CISG. During the negotiations of CISG, the question arose how the provision of the draft on conformity of goods, absent contract specification or particular purpose, should be interpreted. At that time, it became clear that the English common law countries favoured merchantable quality whereas the civil law continental European rule was to the effect that average quality is required. In order to clarify the draft, the Canadian delegation proposed to endorse the civil law rule by also including an average quality rule. However, during the negotiations, the Canadian amendment was withdrawn. This background has been mentioned in the German New Zealand Mussels case but was considered not to be relevant there because the mussels were both merchantable and of average quality (Oberlandesgericht Frankfurt, April 20, 1994, Unilex database [see also http://cisgw3.law.pace.edu/cases/940420g1.html], referring to RIW 1994, 593, confirmed by Bundesgerichtshof, March 8, 1995, Unilex database [see also English translation available at http://cisgw3.law.pace.edu/cases/ 950308g3.html]). No case law could be found which inferred from the travaux préparatoires that the continental rule was not to be adopted and that merchantable quality is sufficient. [69] The second view is that the average quality rule is to be adopted in relation to CISG cases (for one such instance, see without further references, Landgericht Berlin, September 15, 1994, Unilex database [see also English translation available at http://cisgw3.law.pace.edu/cases/940915g1.html]). [70] Scholarly writings have mentioned the problem (see …) but later publications, even among civil law scholars, are divided between merchantable and average quality (see…) with a majority of Germanic writers endorsing the average quality rule based upon similar rules in the German, Austrian and Swiss civil codes. Some other authors have taken positions similar to the majority view but with some qualifications based on the concrete circumstances of the case such as a buyer ordering goods from a specialized manufacturer (entitled to above-average quality) or a buyer who under specific circumstances could not expect average quality (entitled to below-average but still satisfactory quality) (see…). Finally, some French authors have specifically stated that the average quality rule of the French Civil Code is not applicable to CISG cases (Heuzé, V., o.c., 219, Audit, B., La vente internationale de marchandises, Paris, LGDJ, 1990, 96). [71] Finally, a third theory rejects both opinions mentioned above and states that neither merchantability nor average quality fit within the CISG system. This theory rather suggests a reasonable quality (see…). One case has endorsed this theory in holding that the buyer’s reasonable expectations are to be taken into account (Arbitral Award, June 5, 1998, Arbitration Institute, Stockholm Chamber of Commerce, Unilex database [see also English text available at http:// cisgw3.law.pace.edu/cases/980605s5.html], unpublished in hard copy).”

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The tribunal then goes on to find that the provisions of Art. 7(2) CISG require an autonomous solution, based neither on the Common Law test of merchantable quality or Civil Law test of average quality.108 It therefore opts for the third option which it regards as a neutral solution which is in conformance with the travaux préparatoires of the Convention.109 This case is surprisingly also one of the few cases to have made actual use of the travaux préparatoires of the CISG.110

D. Conclusion There is an appealing simplicity to the call by literalists that the interpreter should consider only the actual words of a statute or the CISG unless there is an ambiguity or gap or where that interpretation would lead to an absurdity. But it is too simple. Words are never free from the contexts within which they are used and the interpreters are likely to be influenced by their own preconceptions about the meaning of certain familiar terms. When judges or arbitrators are faced with a text which is international and aimed at international harmony of trade law, such as the CISG, they should take extra care in ensuring that they conform to the prescripts of Art. 7 CISG which calls for interpretation that takes cognisance of its internationality, the need for uniformity and the observance of good faith, the underlying principles of the Convention and the need to refrain from using domestic law. The interpreters can only do so if they approach the text of the CISG with as many interpretational aids as possible to ensure that they

108 109 110

Para. [107] to [117]. Para. [118]. See also Italy, 26 November 2002, District Court Rimini, Al Palazzo S.r.l. v. Bernardaud di Limoges S.A., http://cisgw3.law.pace.edu/cases/021126i3.html; Germany, 20 April 1994, Appellate Court Frankfurt (New Zealand mussels case), http://cisgw3.law.pace.edu/cases/940420g1.html; Spain, 7 June 2003, Appellate Court Valencia, Cherubino Valsangiacomo, S.A. v. American Juice Import, Inc., http://cisgw3.law.pace.edu/cases/030607s4.html; United States, 28 March 2002, Federal District Court Illinois, Usinor Industeel v. Leeco Steel Products, http:// cisgw3.law.pace.edu/cases/020328u1.html; United States, 27 July 2001, Federal District Court California, Asante Technologies v. PMC-Sierra, http://cisgw3.law. pace.edu/cases/010727u1.html; United States, 22 November 2002, Federal District Court Florida, Impuls v. Psion-Teklogix, http://cisgw3.law.pace.edu/cases/ 021122u1.html; United States, 19 November 2002, Federal Appellate Court, 7th Circuit, Zapata Hermanos v. Hearthside Baking, http://cisgw3.law.pace.edu/cases/ 021119u1.html, does not state authority or sources; Van Alstine (op. cit. fn. 3), 743-745.

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take sufficient notice of the international context of the Convention and the underlying purposes. There are a number of valuable aids that are available to interpreters of the CISG, namely the rich and well documented drafting history (travaux préparatoires), a wealth of excellent commentaries and academic comment and an ever-growing body of case law which is readily accessible. The rules of interpretation in most jurisdictions now recognise that these aids are admissible in interpreting conventions and there is strong evidence that they are used in many instances. The reasoned use of the widest array of interpretational aids is the best guarantee for an understanding and application of the CISG that is uniform.111 A too strict adherence to the words only bears with it the risk that the ideal of uniformity will be undermined. 111

For a similar conclusion see Van Alstine (op. cit. fn. 3), 690-691.

Legislative Intention and the CISG Urs Peter Gruber

A. Legislative Intention and Interpretation I.

Legislative Intention as Goal of Interpretation

It is widely accepted that an important goal of interpretation is to give effect to the intention of the legislator. This goal has not only been recognised in Civil Law systems but has also been confirmed by judges and scholars of Common Law states.1 In English law, it is a traditional rule that a “statute is the will of the legislature; and the fundamental rule of interpretation, to which all others are subordinate, is that a statute is to be expounded according to the intent of them that made it”.2 It should be noted however that in many legal systems interpretation can at times go beyond the original will of the legislator. This has sometimes been described as an “updating construction”3 or “dynamic interpretation”.4 Still, it seems that an updating or dynamic interpretation does not necessarily depart from the concept of legislative intention. In many cases, the goal of a dynamic interpretation lies in ascertaining a presumed will of the legislator in situations which, especially due to changing economic, political or cultural circumstances, have not really been thought of by the legislator.5 So at least in these cases, dynamic interpretation is probably not in opposition to the concept of legislative intention. It should rather be seen as a complementary concept.

1

2 3

4

5

For further references see Gruber, Methoden des internationalen Einheitsrechts, Tübingen 2004, 88 et seq. Maxwell on the Interpretation of Statutes (by Wyatt Paine), 6th ed., London 1920, 1. Bennion, Statutory Interpretation, 3rd ed., London 1997, Section 158 (359) und Section 288 (686 et seq.). Van Alstine, Dynamic Treaty Interpretation, 146 University of Pennsylvania Law Review (1998), 687 et seq. For a detailed discussion on whether or not the CISG can be developed and modernised by means of interpretation see the contribution by Meyer (in this book).

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So all in all, it can be said that discerning the intention of the legislator as a goal of interpretation – although not completely undisputed6 – is widely supported in most legal systems. The concept of legislative intention therefore can supposedly also be used for the interpretation of the CISG. This is additionally supported by the fact that the CISG is an international convention and that, in the field of international conventions, discerning the will of the Contracting States constitutes an accepted goal of interpretation.7

II.

Discerning Legislative Intention in National Law

Whereas the goal of interpretation is not really in doubt, there is more controversy as to the means by which this goal can be reached. It seems rather obvious that any interpretation has to begin with the inquiry of the words of the law.8 It is for the courts to construe these words, hereby taking account of the structure of the provisions concerned, and – by doing so – to give effect to the will of the legislator.9 But apart from that, it is quite doubtful whether or not there are other means by which the intention of the legislator can be ascertained. In Civil Law countries there is wide consent that the legislative history in general and the drafting records (travaux préparatoires) in particular can be used for the interpretation of national law.10 Moreover, it is widely accepted that one has to take into consideration the purpose of the law which, 16

17

18

19

10

In national debate it has been asserted that a “will” in a strict sense can a priori only be formed by a natural person, not by legislatures. It has been asserted that “intent is elusive for a natural person, fictive for a collective body” (see Easterbrook, Text, History, and Structure in Statutory Interpretation, 17 Harv. J. L. & Pub. Pol’y (1994), 61, 68). This criticism does not seem convincing as a decision of a collective body is based on the will of the natural persons belonging to that collective body. It has to be noted however that the CISG imposes no obligations on the Contracting States in their conduct as sovereign entities, but merely regulates the relations between buyer und seller in a private contract. As it is thus a “legislative treaty”, discerning the will of the Contracting States might not be as important as in treaties which impose obligations on the Contracting States as such. See Van Alstine (op. cit. fn. 4), 687, 705 et seq. Eskridge Jr./Frickey, The Supreme Court, 1993 Term – Foreword: Law as Equilibrium, 108 Harvard Law Review (1994), 26, 57; Bennion (op. cit. fn. 3), Section 151 (344). See Lord Griffith in the leading case Pepper v Hart (3 W.L.R. 1032, 1040 C, (H.L. 1992)): “The object of the court in interpreting legislation is to give effect so far as the language permits to the intention of the legislature.” For further references see Gruber (op. cit. fn. 1), 163 et seq.

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inter alia, can be ascertained by the travaux préparatoires.11 In some cases the purposive approach can modify the result that has been reached by a purely textual interpretation.12 This can even be the case if the text of the law appears to be clear and unambiguous at first sight.13 The picture is less clear in Common Law countries. In England, the use of travaux préparatoires has for a long time been rejected by the courts. The same has been basically true – apart from some traditionally accepted exceptions14 – for arguments based on the purpose of the law. So at least at first sight, there seems to have been a fundamental difference between the methods of interpretation used on the continent and in England.15 It was only in 1994 – in the leading case Pepper v Hart16 – that the House of Lords accepted the use of travaux préparatoires under certain circumstances.17 It can be also said that reasoning based on the purpose of a statute has lately gained more and more acceptance.18 Therefore, the previously assumed gap between the Civil Law methods of interpretation and the methods used in

11 12

13

14

15

16 17

18

Gruber (op. cit. fn. 1), 183 et seq. See – claiming that the purposive interpretation has paramount importance – Hassold, Strukturen der Gesetzesauslegung, in: Canaris et al. (eds.), Festschrift für Karl Larenz zum 80. Geburtstag, Munich 1983, 211, 236 et seq. See for instance Kramer, Juristische Methodenlehre, 3rd ed., Munich 2005, 73 et seq; Looschelders/Roth, Juristische Methodik im Prozess der Rechtsanwendung, Berlin 1996, 24 et seq. At least from a Civil Law perspective, the traditionally accepted mischief rule could be characterised as a form of purposive interpretation (see Vogenauer, Die Auslegung von Gesetzen in England und auf dem Kontinent, Tübingen 2001, 676 et seq.). For an underlying reason for this see Wendehorst, Relations: The State as a Foundation of Private Law Reasoning, 56 American Journal of Comparative Law (Am. J. Comp. L.) (2008), 567, 582 (“(…) textualism has often been used by the judiciary as a means to hold statutory law in check and to preserve in the traditional common law a realm of freedom from the state.”). Pepper v Hart (3 W.L.R. 1032, 1040 C, (H.L. 1992)). For a detailed discussion of the case see Bates, The Contempory Use of Legislative History in the United Kingdom, 54 Cambridge Law Journal (1995), 127 et seq.; Eskridge Jr., The Circumstances of Politics and the Application of Statutes, 100 Columbia Law Review (2000), 558, 569 et seq.; Miers, Taxing Perks and Interpreting Statutes, 56 Modern Law Review (1993), 695 et seq.; Vogenauer (op. cit. fn. 14), 969 et seq. For an in-depth analysis of the purposive approach in the English court practice see Vogenauer (op. cit. fn. 14), 963 et seq.

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England seems to have somewhat decreased or even, as some say, almost diminished.19 In the United States there is an opposite development. The use of travaux préparatoires and the purposive interpretation have for a long time been allowed in the courts.20 But the late 1980s witnessed the rise of a new formalistic method of interpretation. This method – commonly referred to as “new textualism” – merely focuses on the text of the law and rejects the use of travaux préparatoires and any notions of legislative purpose.21 As the new textualism has been fervently advocated by several Justices of the Supreme Court – such as Antonin Scalia and Clarence Thomas22 – it cannot be said that it is merely a passing phenomenon. On the contrary, it seems that the new textualism has gained considerable practical importance. It influences the day-to-day practice of the courts.23 In summary it can thus be said that within the various legal systems there are divergent attitudes as to the use or disuse of legislative history and the 19

20

21

22

23

See Vogenauer (op. cit. fn. 14), 963 et seq. and 1254 et seq.; Zimmermann, Roman Law, Contemporary Law, European Law. The Civilian Tradition Today, Oxford 2001, 184 et seq. See for instance Manning, Textualism as a Nondelegation Doctrine, 97 Columbia Law Review (1997), 673, 674 (“For more than a century, the Supreme Court has relied on the legislative history accompanying a statute to determine legislative “intent” in cases of statutory ambiguity.”). For details see Scalia, A Matter of Interpretation: Federal Courts and the Law, Princeton 1997. Scalia (op. cit. fn. 21). See also Mank, Is a Textualist Approach to Statutory Interpretation Pro-Environmentalist?: Why Pragmatic Agency Decisionmaking Is Better than Judicial Literalism, 53 Washington and Lee Law Review (1996), 1231, 1237 and Merrill, Textualism and the Future of the Chevron Doctrine, 72 Wash. University Law Quarterly (1994), 351, 351 (both authors suggest that Justice Thomas approves of Justice Scalia’s textualist approach). See Frickey, Revisiting the Revival of Theory in Statutory Interpretation: A Lecture in Honor of Irving Younger, 84 Minnesota Law Review (1999), 199, 205 (“Justice Scalia’s arguments have had some effect upon the Supreme Court. The Court is less likely to cite legislative history today, and when it does, the citations seem less important to the outcome. The Court pays careful attention to statutory text and is much more likely than in earlier eras to use dictionaries to assist in constructing textual meaning.”); Brudney, Congressional Commentary on Judicial Interpretations of Statutes: Idle Chatter or Telling Response?, 93 Michigan Law Review (1994), 1, 46 (“The Court in recent years has placed greater reliance on dictionary definitions and the canons of construction and somewhat less reliance on legislative history.”); Sunstein, Interpreting the Statues in the Regulatory State, 103 Harvard Law Review (1989), 407, 415 (“Textualism appears to be enjoying a renaissance in a number of recent cases.”).

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use or disuse of the “purposive approach”. Additionally, it seems that the methods of interpretation can fall under the influence of trends.24 These trends can be based on constitutional concerns as for instance the separation of powers. Apart from that they can apparently also be influenced, as seems to be the case in the United States, by the political attitudes of the acting judges and scholars.25

III. Discerning Legislative Intention in the CISG 1.

“Autonomous” Methods of Interpretation in the CISG

As Art. 7(1) CISG calls for a uniform application of the CISG, it is generally accepted that there have to be autonomous methods of interpretation.26 When applying the CISG, one has to leave behind domestic preconceptions of interpretation. However controversial the discussion on the national level might be, the viewpoint adopted there cannot merely be transferred to the interpretation of the CISG.27 As for now, the controversies at the national level do not seem to have a decisive impact on the main-stream discussion on the CISG.28 With respect

24 25

26

27

28

Van Alstine (op. cit. fn. 4), 687, 716. Many authors have observed that actually textualists tend to be politically conservative (see Amar, Intratextualism, 112 Harv. L. Rev. (1999), 747, 801 no. 204; Eskridge Jr., The New Textualism, 37 UCLA L. Rev. (1990), 621, 668; Killebrew, Where are all the left-wing textualists?, 82 New York University Law Review (N.Y.U.L. Rev.) (2007), 1895 et seq.). See Bonell, in: Bianca/Bonell, Commentary on the International Sales Convention, Milan 1987, Art. 7, at 72 stating that interpreting the CISG means “first of all to avoid relying on the rules traditionally followed in interpreting ordinary domestic legislation”. For further references see Ferrari, Interpretation of the Convention and gap-filling, in: Ferrari/Flechtner/Brand (eds.), The Draft UNCITRAL Digest and Beyond, Munich 2003, 138, 140. See also the famous English case of Fothergill v Monarch Airlines [1980] 2 All E.R. 696 (H.L.). In this case – which was not governed by the CISG – four of five judges of the House of Lords made reference to the legislative history in order to interpret a provision of an international convention. It seems, however, that the US Supreme Court has applied a predominantly textual approach not only for the interpretation of domestic law, but also for the interpretation of international treaties (see Van Alstine (op. cit. fn. 4), 687, 722 et seq.).

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to the interpretation of the CISG, there is a broad consensus that both legislative history and the purposive approach can and should be used.29 Indeed, the use of travaux préparatoires and purposive arguments is not explicitly prescribed, but suggested by the CISG. Art. 7(1) CISG stipulates that in the interpretation of the Convention, regard is to be had to its international character and to the need to promote uniformity in its application. As most Member States of the CISG use travaux préparatoires and purposive arguments in their national law, it would impede uniformity if an interpreter, when applying the CISG, confined himself a priori to a purely textual interpretation.30 Furthermore, a purely textual approach would not be in line with Art. 7(2) CISG. The provision deals with matters governed by the Convention that are not expressly settled therein. Art. 7(2) CISG gives the judge the right to take recourse to the general principles upon which the Convention is based. Although the provision deals with gap-filling – not with interpretation – it is also relevant for the methods of interpretation as it clearly puts a stop to any formalistic approach. In the light of Art. 7(2) CISG it would appear contradictory if the judge, who in the field of gap-filling is given considerable leeway, was restricted to a formalistic textual approach in the field of interpretation. Apart from the arguments derived from Art. 7 CISG, a purely textual approach – leaving aside the question whether it is convincing on a national level31 – simply would not work in the field of international conventions such as the CISG. The arguments brought forward in favour of a purely textual approach are not transferable to the interpretation of the CISG. This is certainly true for the utilitarian assertion that a purely textual approach 29

30 31

See for instance Ferrari, in: Schlechtriem/Schwenzer (eds.), Kommentar zum Einheitlichen UN-Kaufrecht, 4th ed., Munich 2004, Art. 7 no. 36; Van Alstine (op. cit. fn. 4), 687 et seq. Van Alstine (op. cit. fn. 4), 687, 743 et seq. The new texualism has been widely criticised in scholarly debate, see for instance Bussel, Textualism’s Failures: A Study of Overruled Bankruptcy Decisions, 53 Vanderbilt Law Review (2000), 887 et seq.; Eskridge Jr., Textualism and Original Understanding – Should the Supreme Court Read the Federalist but Not Statutory Legislative History?, 66 George Washington Law Review (1998), 1301 et seq.; Eskridge Jr., Textualism, The Unknown Ideal?, 96 Michigan Law Review (1998), 1509 et seq.; Frickey (op. cit. fn. 23), 199 et seq.; Pierce, The Supreme Court’s New Hypertextualism: An Invitation to Cacophony and Incoherence in the Administrative State, 95 Columbia Law Review (1995), 749 et seq.; Popkin, An “Internal” Critique of Justice Scalia’s Theory of Statutory Interpretation, 76 Minnesota Law Review (1992), 1133 et seq.; Sunstein, Formalism and Statutory Interpretation – Must Formalism Be Defended Empirically?, 66 University of Chicago Law Review (1999), 636 et seq.

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could help to discipline the legislator. Textualists have sometimes argued that if the legislator was aware of the purely textual interpretation of the courts, he would be more careful and diligent when drafting the legal texts.32 In the field of international conventions, such an assertion does not seem realistic. International conventions will only be concluded if the contracting parties have the will to compromise. This is especially true for conventions that, such as the CISG, operate almost on a world-wide level. The CISG had to reconcile the Civil Law and Common Law traditions and also the interests of industrial powers and developing countries. Under these circumstances it would have been illusory to call for a legal text that was totally clear, precise and detailed. Either one accepts the compromise character of international conventions or one has to do without them.33 Textualists have essentially asserted that a restriction to a purely textual interpretation could help to prevent the interpreter from sneaking in personal attitudes or political preferences. This argument, which has been widely discussed and criticised on a domestic level,34 is obviously not convincing in the field of international conventions such as the CISG. First it has to be noted that the CISG has been drawn up in several equally authentic language versions. Therefore on a textual level, all the language versions have to be taken into consideration. This makes textual interpretation quite difficult and causes special problems in case the language versions, judged only by the text, do not have the same meaning.35 Even more importantly, the CISG – as it is built on compromise solutions – contains rather broadly framed terms. These terms inevitably leave considerable room for interpretation. Merely relying on the text simply would not lead to clear results. A restriction to a textual approach would therefore not prevent the interpreter from taking recourse to personal attitudes but rather tempt him into doing exactly that or at least into using domestic concepts and definitions. Finally, constitutional concerns – especially with regard to the separation of powers – do not hinder the use of the travaux préparatoires and purposive arguments in the case of the CISG. It has to be noted that the CISG was negotiated by representatives of the Executive Branch and that the national parliaments were fully aware of this negotiation process. Furthermore, par32 33 34

35

For further references see Van Alstine (op. cit. fn. 4), 687, 721 fn. 139. Van Alstine (op. cit. fn. 4), 687, 745 et seq. See Eskridge Jr. (op. cit. fn. 31), 96 Michigan Law Review (1998), 1509, 1548; Manning (op. cit. fn. 20), 673, 695 (talking of a “textualist paradox”). There is quite some controversy as to how divergent language versions have to be interpreted. See Gruber (op. cit. fn. 1), 134 et seq. See also (proposing that only one “official version” should be enacted) Sheaffer, The Failure of the United Nations Convention on Contracts for the International Sale of Goods and a Proposal for a New Uniform Global Code in International Sales Law, 15 Cardozo J. Int’l & Comp. L. (2007), 461 et seq.

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liaments, when deciding on the CISG, had access to the travaux préparatoires. Under these circumstances and in the light of Art. 7 CISG – which was also approved by the parliaments – it was clear that the content of the CISG could not be discerned by a purely textual interpretation alone. Therefore, the assumption of an uncontrolled and unconstitutional “selfdelegation” by the national parliaments seems to be unfounded.36 Consequently, the core question is not of whether legislative history and purposive interpretation can or should be used at all. The real question is of how much they can contribute to a full understanding of the CISG. This again should not be decided in the light of ongoing discussions in the national legal systems. An autonomous standard can again only be reached by an unprejudiced look at the CISG itself.

2.

Legislative History of the CISG

a)

Travaux Préparatoires

aa) Inherent Difficulties of Using the Travaux Préparatoires

The acts and proceedings of the Vienna Conference constitute the most important tool for the interpretation of the CISG. Additionally, the previous deliberations within UNCITRAL have to be taken into consideration.37 It has to be acknowledged that working with these travaux préparatoires is not an easy task. Much of the legislative history of the CISG can be found in the UNCITRAL Yearbooks. The Yearbooks are quite difficult to grasp. This is especially due to the fact that during the deliberations the article numbering system has been changed several times. Therefore it has been pointed out that looking for the relevant parts of the travaux préparatoires can end in a search for a needle in a haystack.38 The legislative history can be accessed more easily thanks to the documentary history prepared by Professor Honnold. He collected the studies, deliberations, and decisions which led to the CISG.39 This documentary history – also containing pages taken from the Yearbook – gives very helpful cross-references and therefore facilitates the work with the abundant mate-

36 37

38

39

See Van Alstine (op. cit. fn. 4), 687, 744 et seq. Hackney, Is the United Nations Convention on the International Sale of Goods Achieving Uniformity?, 61 Louisiana Law Review (2001) 473, 477. Honnold, Documentary History of the Uniform Law for International Sales. The Studies, Deliberations and Decisions that led to the 1980 United Nations Convention with Introductions and Explanations, Deventer 1989, at vii. See the preceding footnote.

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rial. Still, using the travaux préparatoires requires a considerable amount of patience and meticulousness. Apart from these practical difficulties there are material limits to the analysis of the travaux préparatoires.40 The CISG was adopted in a diplomatic conference by delegates of several participating States. Adopting a uniform text is not equivalent with the consent to all the underlying arguments and statements that had been brought forward in favour of the adopted text. The representatives of the participating states primarily approved the text of the CISG as such. They did not – albeit keeping in mind the debate and the compromises that were reached during the conference – decide on individual contributions to the conference. Therefore individual contributions on a specific matter during the Vienna Conference or previous deliberations have to be judged with some restraint and scepticism. A related problem with the travaux préparatoires in the case of the CISG lies in the apparent diversity of opinion of the delegates. A German scholar observed that most delegates intended to add some individual note to their argument, thereby trying to distance themselves from previous statements of other delegates.41 So in many cases – despite the agreement on a uniform text – existing diversities in opinion were never dissolved completely or unequivocally. The delegates rather preferred compromise solutions which, especially due to the use of open textured terms, still leave room for interpretation and controversy. In this case it is not possible for an interpreter to just pick the statements of one delegate and simply allege that his opinion has been accepted by the majority that voted on the text of the CISG.42 Otherwise such an interpretation could be, as textualists have pointed out with regard to the travaux préparatoires in national law-making, compared to “looking over a crowd and picking out your friends”.43

bb) The Benefits of Analysing the Travaux Préparatoires

At first glance it seems that the benefits of the travaux préparatoires are somewhat limited. Indeed if one expects a clear and definite answer to a 40

41

42

43

See Ferrari, Uniform Application and Interest Rates Under the 1980 Vienna Sales Convention, 24 Georgia Journal of International and Comparative Law (1994), 183, 205 (“it must be noted, however, that recourse to such materials must not be overestimated in interpreting the Vienna Sales Convention.”). Neumeyer, Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen über den internationalen Warenkauf, Recht der Internationalen Wirtschaft (RIW) 1994, 99, 100. Neumeyer (op. cit. fn. 41), 99, 100; see also Eskridge Jr. (op. cit. fn. 31), 96 Michigan Law Review (1998), 1509, 1531 (talking of “cherry-picking options”). See Scalia (op. cit. fn. 21), 36.

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specific question, one cannot rely solely on the travaux préparatoires. This also seems to be confirmed by court practice in the interpretation of the CISG. If courts directly refer to the travaux préparatoires of the CISG, most of the time they only try to reinforce their argumentation primarily based on a textual analysis, case law or scholarly writing.44 On the other hand this does not necessarily mean that an analysis of the travaux préparatoires is a fruitless effort. They can provide additional and sometimes decisive arguments for interpretation. Arguments derived from the legislative history can be used as an affirmation of a result that might be suggested, but not yet sufficiently supported by the text of the CISG alone. In some cases legislative history can help to construe a multi-faceted or ambiguous text. It is the interplay of the text and the underlying materials that can lead to a convincing result. It seems that a thorough analysis of the travaux préparatoires can best be achieved by specialised scholars. Courts that are absorbed by their day-today case-load will very often not have the time to really make full use of the travaux préparatoires. But as most courts refer to scholarly writing, the travaux préparatoires might influence the outcome of the case even if they are not explicitly cited by the courts. Therefore the fact that most courts do not directly base their argumentation on the travaux préparatoires should not lead to the conclusion that legislative history has only limited importance for the interpretation of the CISG. Even if the travaux préparatoires do not support a specific result as such they can still be of practical use. This is especially the case when they show that a question was taken into consideration by the delegates but apparently – especially when there are several contradicting statements – not really brought to a consensus.45 In this case the interpreter can come to the conclusion that the drafters of the CISG left the definite answer to the decisionmaking of the courts and further scholarly debate. Indeed, there are quite a number of questions that have not really been solved completely during the Vienna Conference. This is, for example, true for a disputed question concerning the definition of “fundamental breach” in Art. 25 CISG. The provision stipulates that a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect 44

45

See for instance Landgericht Aachen, 20.7.1995, CISG-online no. 169 (referring to the travaux préparatoires underlying Art. 78 CISG); Oberlandesgericht Frankfurt a. M., 20.04.1994, RIW 1994, 593 (referring to Art. 43 of the preceding Convention relating to a Uniform law on the International Sale of Goods (The Hague 1964) for an interpretation of Art. 49 CISG). See – for instance – Landgericht Aachen, 20.7.1995, CISG-online no. 169 (pointing out that the delegates only agreed on a general rule on interest, but did not reach an agreement on a specific interest rate).

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under the contract. A breach of contract is not fundamental if the party in breach did not foresee such a result and a reasonable person of the same kind in the same circumstances would have also not foreseen such a result. The text does not specify at what time the party in breach should have foreseen the consequences of the breach, whether at the time the contract was concluded or at the time of the breach. The underlying materials confirm that the drafters of the CISG discussed the questions intensively, but did not reach a solution.46 They clarify that in this case, the CISG does not give any answer to the question. The interpreter therefore has some leeway in finding the solution but should put special emphasis on ascertaining the scholarly debate and the practice of the courts.47

b)

Secretariat Commentary

Specific mention should be made of the Secretariat Commentary. It has a special status among the travaux préparatoires and can probably be considered the most important part of CISG’s legislative history. The Secretariat Commentary does not constitute an Official Commentary of the CISG. It is therefore not a real equivalent of the Official Commentary to the UCC. Nonetheless, it has been argued that the Secretary Commentary, a work by an international team, comes very close to an official commentary.48 When using the Secretariat Commentary, one has to keep in mind that it is on the 1978 Draft of the CISG. As in the final text of the CISG most articles of the 1978 Draft have been re-numbered, the interpreter has to match up the 1978 Draft with the Official text of the CISG. But this is a feasible task, and it quickly becomes apparent that in most cases, the text of the Draft 1978 was – apart from the numbering – only subjected to minor 46 47

48

See Secretariat Commentary, Art. 23 no. 5. For further information see (asserting that the time of conclusion of the contract is relevant) Ferrari, Wesentliche Vertragsverletzung nach UN-Kaufrecht, Internationales Handelsrecht (IHR) 2005, 1, 5 et seq.; Magnus, in: Staudinger, Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen: Wiener UN-Kaufrecht (CISG), Berlin 2005, Art. 25 no. 19; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 29), Art. 25 no. 15; dissenting (also the time after the conclusion could be relevant) Lüderitz/Fenge/Budzikiewicz, in: Soergel/ Lüderitz (eds.), vol. 13: Einführungsgesetz, 13th ed., Berlin 2000, Art. 25 no. 4. Kritzer, The Convention on Contracts for the International Sale of Goods: Scope, Interpretation and Resources, 9 International Law Quarterly (1997), 203, 226; Lookofsky, Fault and No-Fault in Danish, American and International Sales Law. The Reception of the 1980 United Nations Sales Convention, 27 Scandinavian Studies in Law (1983), 109, 132 fn. 185.

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changes or in most cases to no changes at all. Therefore the Secretariat Commentary on the Draft 1978 is without any doubt, although written over 30 years ago, of great importance for the interpretation of the CISG. Indeed, the Secretariat Commentary is still referred to by courts and scholars. Moreover, there are hardly any solutions offered by the Secretariat Commentary that have not been adopted by courts and scholars. As the Secretariat Commentary nowadays is freely accessible on the internet49 – albeit only in English language – one can predict that the Secretariat Commentary will remain of considerable practical importance also in the future.

3.

Legislative History and Purposive Approach

The study of the above-mentioned travaux préparatoires can be of even greater importance if it is used as a starting point for a purposive argumentation. Both the contributions to the Vienna Conference and the Secretariat Commentary give indications as to the aims of a particular article. Very often, the CISG tries to find a compromise between the conflicting interests of the parties to the contract. The travaux préparatoires can give some indication as to the compromise solution that the delegates had in mind. In this case, the study of the travaux préparatoires can lead to a more precise result than the text of the CISG that – using rather indefinite terms or some interplay between a general rule and vaguely framed exceptions – only provides a framework. Moreover, it has to be pointed out that the CISG also contains compromise solutions in so far as it tries to reconcile different legal traditions. The CISG normally avoids the use of legal concepts typical of a given legal tradition. Whenever the national laws contain divergent concepts the CISG aims at a compromise or an independent solution.50 This is, inter alia, true for the provisions on open-price contracts (Art. 14(1) and 55 CISG), the revocability and irrevocability of the offer (Art. 16 CISG); the obligations of the buyer to examine the goods and to give notice of existing defects (Art. 38, 39, 44 CISG) or the question whether or not the seller can be held liable even if he acted without fault (Art. 79 CISG). Even if the CISG contains terms that are also used in the national laws – such as “reasonable”, “good 49

50

It can be obtained under http://www.cisg-online.ch/cisg/materials-commentary. html or under http://www.cisg.law.pace.edu/cisg/conference.html. See for instance (referring to the disputed problem of open price contracts) Amato, U.N. Convention on Contracts for the International Sale of Goods − The Open Price Term and Uniform Application: An Early Interpretation by the Hungarian Courts, 13 Journal of Law and Commerce (1993), 1, 29 (“As was evidenced by the negotiations that led to the conclusion of CISG, compromise was the order of the day.”).

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faith”, or “avoidance” – those terms are not identical with the corresponding terms of the national laws.51 In all these cases, the CISG has to be interpreted autonomously.52 The study of the travaux préparatoires can help to fully understand the compromise solutions that the CISG tries to reach. They operate as a background that gives a clearer shape to the neutrally framed and at times somewhat vague expressions used in the CISG. Furthermore, the study of the legislative history and the travaux préparatoires can operate as a starting point and a guideline for further comparative research and interpretation.

4.

Balancing of Arguments Derived from Text, History and Purpose

a)

Flexible Balancing in the Individual Case at Hand

In national law, there has been quite a lot of scholarly debate on how the various interpretative factors – text, legislative history and purposive arguments – should be weighed if they do not point to the same result. Many scholars argue that there is no hierarchy of interpretative factors. It all depends on a flexible balancing of arguments.53 Therefore textual arguments and arguments based on legislative history or purpose have to be evaluated in the individual case at hand.54 A predominance of a textual interpretation cannot be justified by the weaknesses and problems associated with an assessment of legislative history and the travaux préparatoires. Textualists have quite correctly drawn attention to the fact that legislative history – like arguments based on the purpose of the law – can be ambiguous or even misleading.55 These interpretative factors can at times even be misused to sneak in personal preferences and

51 52

53 54

55

Ferrari (op. cit. fn. 26), 138, 141. See for instance Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3rd ed., Deventer 1999, at 89 stating that the CISG should not be interpreted “in the light of the concepts of our domestic legal system”. For further references see Gruber (op. cit. fn. 1), 205 et seq. It has to be noted that there is an abundance of divergent opinions in the scholarly debate, see for instance Canaris, Das Rangverhältnis der „klassischen“ Auslegungskriterien, demonstriert an Standardproblemen aus dem Zivilrecht, in: Beuthien/Fuchs/Roth/Schiemann/Wacke (eds.), Festschrift für Medicus, Cologne 1999, 25, 33 et seq., 60 (claiming that there are some rules of priority for certain kinds of arguments); Hassold (op. cit. fn. 12), 211, 236 et seq. Scalia (op. cit. fn. 21), 31 et seq. suggesting that an analysis of legislative intent “is much more likely to produce a false or contrived legislative intent than a genuine one”.

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conceptions of the interpreter.56 Whereas these apparent weaknesses of the historical and purposive approach have to be taken seriously, they are far from justifying a predominance of a merely textual interpretation. This is simply due to the fact that the text of the CISG, as already stated above, can be equally ambiguous.57 Travaux préparatoires can therefore, if handled with care, provide valuable additional and sometimes decisive information and add some objectivity to the interpretative process. The same is true for purposive arguments derived from a thorough analysis of the travaux préparatoires. They can especially prevent the judge from simply taking recourse to his own preconceptions or the solutions adopted by his own national law under the disguise of a purely textual interpretation.

b)

The CISG and the Acte Clair-Doctrine

Whereas many authors do not advocate a general predominance of the textual argument, they claim that textual arguments shall prevail if the text is unambiguous and clear. As to the interpretation of international treaties, this concept has been called the acte clair-doctrine.58 If one takes a closer look, the acte clair-doctrine – leaving aside the question whether it is convincing as such – does not really have a relevant field of application within the CISG. This is again due to the fact that the CISG, which has been drawn up in several equally authentic language versions, contains numerous compromise solutions and rather broadly framed terms. In most cases, the language of the CISG simply does not really amount to something that could be called an acte clair. This is true – just to give an example – for the discussions on the fundamental breach (Art. 25 CISG), a key concept of the CISG.59 A fundamental 56

57

58 59

See Scalia (op. cit. fn. 21), 17 et seq. (suggesting that there is a “practical threat […] that, under the guise or even the self-delusion of pursuing unexpressed legislative intents, common law judges will in fact pursue their own objectives and desires, extending their lawmaking proclivities from the common law to the statutory field”). The same can very often be said of domestic laws. See for instance Eskridge Jr. (op. cit. fn. 31), 96 Michigan Law Review (1998), 1509, 1533 et seq.; also Frickey (op. cit. fn. 23), 199, 207 (“(...) it is open to question whether the new attention to formalism has increased predictability and certainty.”); Sunstein (op. cit. fn. 23), 407, 418 (“The most familiar problem with textualism is that statutory language is sometimes ambiguous or vague. To say that courts should rely on the words or on their ordinary meaning − the plain meaning approach − is unhelpful when words have more than one dictionary definition, or when the context produces interpretative doubt.”). For further references see Gruber (op. cit. fn. 1), 213 et seq. See Graffi, The interpretation of the CISG: The concept of “fundamental breach”, in: Ferrari/Flechtner/Brand (op. cit. fn. 26), 305, 310 (calling it a “mile-

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breach is, inter alia, a precondition for the avoidance of the contract (Art. 49, 64 CISG).60 As already pointed out above, Art. 25 CISG basically stipulates that a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to.61 It is quite obvious that a purely textual interpretation of the abstract definition contained in Art. 25 CISG does not lead to a definite result. The text of Art. 25 CISG has been deemed to be “vague and ambiguous” by one of the leading commentators.62 Another author has rightly pointed out that even the term “detriment” used in Art. 25 CISG has not even been subjected to any definition within the CISG.63 It should be added however that is hardly possible to draft a definition that covers all the possible situations of breach of contract and that at the same time leads – just on the basis of a textual interpretation – to clear results. Courts and scholars therefore agree that when Art. 25 CISG is applied, the decision does not so much depend on an abstract assessment of the text, but on an evaluation of the interests at hand.64 Numerous factors may be relevant.65 When looking at the individual case, the interpreter has to take into account the underlying purpose of Art. 25 CISG that, as has been pointed out in the travaux préparatoires, primarily lies in restraining the avoidance of contracts.66 It is this purpose of the provision that, through a

60 61

62

63

64

65 66

stone concept”); Gruber, in: Münchener Kommentar zum BGB, Schuldrecht Besonderer Teil 1, 5th ed., Munich 2008, Art. 25 no. 1. Gruber (op. cit. fn. 59), Art. 25 no. 1 et seq. There is no “fundamental” breach if the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. Bonell, The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention (CISG) – Alternatives or Complementary Instruments?, 28 Uniform Law Review (1996), 26, 28 et seq. Babiak, Defining “Fundamental breach” Under the United Nations Conventions on Contracts for the International Sale of Goods, 6 Temple International and Comparative Law Journal (1992), 113, 119. Bundesgerichtshof, 3.4.1996, BGHZ 132, 290, 299 = NJW 1996, 2364 = CISGonline no. 135; Schweizerisches Bundesgericht, 28.10.1998, CISG-online no. 413 = UNILEX, E.1998–18.1 = SZIER 1999, 179. For further references see Gruber (op. cit. fn. 59), Art. 25 no. 6 et seq. Bundesgerichtshof, 3.4.1996, BGHZ 132, 290, 299 = NJW 1996, 2364 = CISGonline no. 135; Schweizerisches Bundesgericht, 28.10.1998, CISG-online no. 413 = UNILEX, E.1998–18.1 = SZIER 1999, 179.

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case by case development, has led to a rather narrow interpretation of the conditions set forth in Art. 25 CISG.67 A similar observation can be made with regard to the interpretation of Art. 38 and 39 CISG. These provisions deal with the time period in which the buyer has to examine the goods and give notice of existing defects. Art. 38(1) CISG stipulates that the buyer must examine the goods within as short a period as is practicable in the circumstances. Art. 39(1) CISG stipulates that the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. Numerous legal systems – especially the Germanic legal systems68 but also the US-American law69 and some legal systems influenced by French law70 – contain similar provisions. Nonetheless, courts and scholars again agree that both Art. 38 and Art. 39 CISG have to be interpreted autonomously.71 Domestic preconceptions of what is “practicable” or “reasonable” in the circumstances must not be used.72 It is obvious that the terms used in Art. 38 and Art. 39 CISG leave much room for interpretation – especially with respect to the time periods. A purely textual approach would again not suffice and maybe even involve the risk of recourse to domestic preconceptions. The textual interpretation therefore only operates as a starting point. Legislative history combined with a comparative view on the different legal systems gives more precise information and suggests that the provisions should not be interpreted too strictly. 73 67

68

69 70

71 72

73

For an evaluation of case law see Ferrari (op. cit. fn. 47), 1; Freiburg, Das Recht auf Vertragsaufhebung im UN-Kaufrecht, Berlin 2001; Lubbe, Fundamental breach under the CISG: A source of fundamentally divergent results, 68 RabelsZ (2004), 444 et seq. § 377 German Handelsgesetzbuch (HGB – Commercial Code), § 377 UGB Austrian Unternehmensgesetzbuch (UGB); Art. 201 Swiss Obligationenrecht (OR – Code of Obligations). § 2-607(3)(a) UCC. As for instance in Italy or Portugal. In France, there is no obligation to examine the goods; the buyer is only required to bring an action for lack of conformity within a short period of time (bref délai). See Gruber (op. cit. fn. 59), Art. 39 no. 33 et seq. See Schwenzer, The Noble Month (Articles 38, 39 CISG) – The Story Behind the Scenery, Eu.J.L.Ref. 2006, 353, 358 (“The task was to convince the German courts to abandon their rigid time limits and slowly move towards the other legal systems that had not previously stipulated any notice requirements.”). For an evaluation of the travaux préparatoires see Schwenzer (op. cit. fn. 72), 353, 355 et seq. For a comparative analysis see Janssen, Die Untersuchungs- und Rügepflichten im deutschen, niederländischen und internationalen Kaufrecht − Eine rechtsvergleichende Darstellung der Gemeinsamkeiten und Unterschiede, Baden-

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German courts – guided by a decision of the Bundesgerichtshof74 – therefore quite convincingly interpret Art. 38, 39 CISG in a more buyer-friendly way than the corresponding provision of the German Handelsgesetzbuch.75 They clearly make a difference between the strict obligation that is imposed on the buyer by domestic German law and the much more lenient provisions of the CISG.76 If the German courts had only relied on the text, they probably would not have found a significant difference between Art 38, 39 CISG and the corresponding provision of their national law. Furthermore, there are even examples in which courts and scholars favour solutions that seemingly deviate from a result achieved by a purely textual interpretation. One controversial issue of considerable practical importance concerns the frequent practice of sending offers and acceptances containing general conditions. In most cases, the general conditions used by the contracting parties differ. Still, the parties normally will go ahead with the contract without explicitly agreeing on one of the standard forms. In this case, it is widely accepted that the contract – irrespective of the discrepancies between offer and acceptance – is valid.77 But there is much dispute as to the terms of the contract (so-called battle of forms). On the basis of a purely textual interpretation of Art. 19 CISG, one would easily conclude that the contracting party who is last to send his form controls the terms of the contract.78 If one looks at the text of Art. 19(3) CISG, the use of one’s own form – if it contains additions, limitations or other modifications from the offer – constitutes a counter-offer. This counter-offer seems to be accepted by the other party who, without objecting to the counter-offer, starts performing the contract or accepts the performance of the other party.79 As

74

75

76

77

78 79

Baden 2001; also Tribunale di Vigevano, 12.7.2000, IHR 2001, 72, 74 et seq. = CISG-online no. 493. Bundesgerichtshof, 3.11.1999, ZIP 2000, 234, 236 = NJW-RR 2000, 1361 = CISG-online no. 475. See DiMatteo/Dhooge/Greene/Maurer/Pagnattaro, The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence, 24 Northwestern Journal of International Law & Business (2004), 299, 315, 359 et seq. For a detailed evaluation of German, Austrian und Swiss case law see Ferrari, Die Rügeobliegenheit bei Vertragswidrigkeit nach Art. 39 CISG, Zeitschrift für Schweizerisches Recht (ZSR) 2006, 533; Schwenzer (op. cit. fn. 72), 360 et seq. See also Lehmkuhl, Das Nacherfüllungsrecht des Verkäufers im UN-Kaufrecht, Frankfurt a.M. 2002. See Bundesgerichtshof, 9.1.2002, NJW 2002, 1651, 1652 = ZIP 2002, 672 = CISG-online no. 651. See Gruber (op. cit. fn. 59), Art. 19 no. 25. See Ferrari, in: Münchener Kommentar zum Handelsgesetzbuch, vol. 6, 2nd ed., Munich 2007, Art. 19 no. 15 with further references.

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such the text of the CISG seemingly adheres to a solution which in scholarly debate is called the last-shot doctrine.80 Nonetheless, many scholars argue that – despite the wording of Art. 19 CISG – the last shot-doctrine should not be applied. They point out that the last-shot-doctrine leads to an undeserved advantage of one party and that it is not in line with what the parties really expected.81 These authors therefore suggest that, while the contract as such stays valid, conflicting standard forms are to be considered invalid. The solution of the question not regulated by the contract should then be found in the provisions of the CISG. This so-called knock-out rule is not so much based on a textual interpretation but rather on an evaluation of the interests and will of the parties and – moreover – on the principles of good faith and fair dealing that can be derived from Art. 7 CISG.82 The knock-out rule seems to be favored by the German Bundesgerichtshof although the court in the specific case at hand did not see a necessity to give a definite opinion on the matter.83 While there are many arguments that could be brought forward for the last-shot doctrine and the knock-out rule, it becomes clear that the textual argument alone is never sufficient and should always be viewed in a broader context. Sometimes – as shown in the case of conflicting standard forms – even a seemingly clear text might be outweighed by purposive arguments supported by legislative history.

B. Legislative Intention and Gap-filling It should be added that the concept of legislative intent is not only relevant for interpretation, but also for gap-filling. Art. 7(2) CISG clearly shows that 80

81

82 83

For a comparative analysis see Sukurs, Harmonizing the Battle of the Forms: A Comparison of the United States, Canada, and the United Nations Convention on Contracts for the International Sale of Goods, 34 Vand. J. Transnat’l L. (2001), 1481 et seq. See Lüderitz/Fenge (op. cit. fn. 47), Art. 19 no. 5; Gruber (op. cit. fn. 59), Art. 19 no. 18 et seq.; Kühl/Hingst, Das UN-Kaufrecht und das Recht der AGB, in: Thume (ed.), Festgabe für Rolf Herber, Neuwied 1999, 50, 56; Magnus (op. cit. fn. 47), Art. 25 no. 23 et seq.; Schlechtriem (op. cit. fn. 47), Art. 19 no. 20; Ventsch/Kluth, Die Einbeziehung von Allgemeinen Geschäftsbedingungen im Rahmen des UN-Kaufrechts, Internationales Handelsrecht (IHR) 2003, 61, 63 et seq. Schlechtriem (op. cit. fn. 47), Art. 19 no. 20. Bundesgerichtshof, 9.1.2002, NJW 2002, 1651, 1653 = ZIP 2002, 672 = CISGonline no. 651; Ventsch/Kluth (op. cit. fn. 81), 61, 64. The decision is interpreted differently by Schlechtriem (op. cit. fn. 47), Art. 19 no. 20 fn. 63a (claiming that the Bundesgerichtshof directly adopted the knock-out-rule).

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an interpreter, if there is a question that falls within the scope of application of the CISG, primarily has to look for a solution within the CISG itself. The provision aims at preventing the resort to domestic law to the largest extent possible. Art. 7(2) CISG also gives an indication as to the methods that should be used for gap-filling. It stipulates that questions concerning matters governed by the CISG that are not expressly settled in it are to be settled in conformity with the general principles on which it is based. In the absence of such principles, these questions should be settled in conformity with the law applicable by virtue of the rules of private international law. The provision therefore seems to combine the application of general principles with, if inevitable, a recourse to the rules of private international law. Apart from the wording of Art. 7(2) CISG, one has again to keep in mind that gap-filling should aim at ascertaining the will of the legislator. The interpreter should establish the rule the drafters of the CISG would probably have preferred if they had provided an explicit solution for the question at hand. It can therefore be characterised as the search for a will of the legislator that has not really been expressed in the text of the Convention itself. Whereas interpretation looks for the actual will of the legislator, gap-filling deals with something that could be qualified as the search for the presumed or hypothetical will of the legislator. On this basis, it is obvious that gap-filling should not be limited to the methods expressly mentioned in Art. 7(2) CISG. There is consent that an interpreter, if there is a gap within the CISG, should attempt to find a solution by means of an analogical application or an argumentum e contrario.84 It is also basically undisputed that the analogical application or an argumentum e contrario are, if compared with the recourse to the general principles mentioned in Art. 7(2) CISG, the preferred means of gap-filling.85 This can easily be explained by the fact that they are closer to the existing text than the application of general principles. Therefore they are more likely to be in conformity with the presumed will of the legislator.86 If one wonders whether there should be an analogical application of a certain provision, an analysis of the travaux préparatoires can be helpful. This is especially the case if such an analogical application or an extension of the provision was explicitly discussed in the course of a preceding confer-

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DiMatteo/Dhooge/Greene/Maurer/Pagnattaro (op. cit. fn. 75), 299, 315 (“The notion of analogical reasoning is not expressly mentioned in the general provisions. However, such a methodology is implied in any comprehensive code.”). Ferrari (op. cit. fn. 26), 138, 160; Ferrari (op. cit. fn. 29), Art. 7 no. 47. Bonell (op. cit. fn. 26), Art. 7 no. 2.3.2.1; Gruber (op. cit. fn. 1), 288; Schmid, Das Zusammenspiel von Einheitlichem UN-Kaufrecht und nationalem Recht: Lückenfüllung und Normenkonkurrenz, Berlin 1996.

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ence. So just as in interpretation there is interplay between these interpretative factors. Furthermore, both the analogical application and the argumentum e contrario heavily depend on the purpose of the specific provisions. It is therefore again the purpose of a provision that can be decisive, and it is again legislative history that might help to ascertain the purpose. Both the analogical application and the argumentum e contrario therefore require an evaluation of the text, the purpose and the legislative history. It becomes apparent that in interpretation and gap-filling the same factors are used. Only if there is no possibility of a gap-filling with the help of an analogical application or an argumentum e contrario does the interpreter have to resort to the general principles on which the CISG is based. Having recourse to the general principles is different from an analogical application as these principles can be applied on a much wider scale.87 Again, general principles cannot only be detected on the basis of a purely textual analysis. Legislative history and travaux préparatoires can help to find out which provisions of the CISG contain general principles. This is especially true for the Secretariat Commentary that in many instances, while discussing the provisions of the 1978 draft, quite often gives indications as to the general principles on which the provisions are based on.

C. Conclusions In the discussion about the interpretation of the CISG, one should make a clear distinction between the goal of interpretation and the means by which this goal can be reached. First, there should be a consensus on the goal of interpretation. On the basis of this consensus, there can be a discussion on the methods used for reaching this goal. In this article it is argued that the main goal of interpretation – notwithstanding concepts of an updating or dynamic interpretation88 – primarily lies in discerning the will of the legislator. It seems that this goal is not only used on the national level, but is equally accepted by the interpreters of the CISG. If one accepts this goal it becomes quite obvious that a purely textual approach is not sufficient. The picture does not only consist of the text, but also comprises the legal history and the (subjective) purpose. Similar observations can be made with regard to gap-filling mentioned in Art. 7(2) CISG. The presumed or hypothetical will of the legislator has to be established with the help of the existing text, but also the underlying materials and the purpose of the law. 87 88

Ferrari (op. cit. fn. 26), 138, 160. See Meyer (in this book).

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It does not seem possible to establish an abstract hierarchy of the interpretative factors. A convincing result can only be achieved if the interpreter enters the hermeneutical circle in which “[a] part can only be understood in the context of the whole, and the whole cannot be understood without analyzing its various parts.”89 From this point of view, textual, historical and purposive arguments cannot be weighed individually, but are parts of one consistent interpretative process. This does not mean that interpretation necessarily leads to only one correct result. In interpretative matters, there can be several possible answers. Nonetheless, a broad use of the above-mentioned interpretative factors can lead to an objective assessment and thereby help to reduce the risk of diverging interpretations. 89

Eskridge Jr./Frickey, Statutory Interpretation as Practical Reasoning, 42 Stan. L. Rev. (1990), 321, 351.

Case Law Precedent and Legal Writing Larry A. DiMatteo It is one thing “to sing from the same hymn sheet”;1 it is another to sing in harmony!

A. Introduction Many legal scholars hoped that the adoption and ratification of the United Nations Convention on Contracts for the International Sale of Goods (CISG) would be the basis for a uniform international law of sales. At the level of acceptance, the CISG has been enormously successful as evidenced by its adoption by seventy-one countries and, with the exception of Brazil and the United Kingdom, virtually all of the world’s major trading nations. The uniformity this acceptance was expected to bring remains dependent on the level of uniformity in its interpretation and application. In order to encourage such uniformity, CISG interpretive methodology calls for autonomous interpretations. The alternative methodology reflects the use of purely domestic legal sources to aid in the interpretation of CISG provisions. This type of interpretation is a product of a “homeward trend” bias. This chapter will assess the existence of what has been named the jurisconsultorium. Mazzacano defines the term as “the consideration of legal doctrine, jurisprudence, case law, and scholarly writings from all jurisdictions, including foreign or international jurisdictions, or comity.”2 Andersen explains that the term jurisconsultorium refers to the “shared interpretational sphere” created when jurists consult with one another.3 This consultation can be carried out directly by citing foreign case law or indirectly by entering the debates found

1

2

3

Goode, Insularity or Leadership? The Role of the UK in the Harmonization of Commercial Law, (2001) 50 International and Comparative Law Quarterly (ICLQ), 751 (argues CISG is better in certain areas than English law). Mazzacano, Brown & Root Services v. Aerotech Herman Nelson: The Continuing Plight of the U.N. Sales Convention in Canada, (2004-05) Pace Review of the CISG (PR), 169 et seq. Andersen, Uniform Application of the International Sales Law: Understanding Uniformity, the Global Jurisconsultorium and Examination and Notification Provisions of the CISG, Alphen aan den Rijn 2006, 5.

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in scholarly writings. This chapter assesses the degree in which such a shared interpretive sphere has been formed. Whittington observes that the open-textured rules of the CISG present two problems for uniformity of application: (1) “reluctance of courts to review foreign case law” and (2) “inability of decision-makers to distance themselves from domestic preconceptions of interpretation.”4 He also notes that with “the recent growth of online CISG databases we are beginning to see progress” in courts reviewing foreign cases.5 One of the objectives of the current study is to see if this is so. Does a review of CISG decisions show a trend toward increased use of foreign sources of law?

B. Foreign Case Law as Persuasive Authority Andersen noted that the ultimate assessment of a uniform law is whether that law produces uniform results. Further, she emphasises that uniform interpretations should not be the measuring standard. Instead, she argues that the measure should be whether the results of even different interpretations result in “a similar governing of legal phenomena.”6 The similarity of result standard and not identical autonomous interpretations of the CISG is a more feasible standard for measuring uniformity of application. However, the question remains of the means by which similarity of results or effects are reasonably attainable. The means recommended here, and elsewhere, is the use of foreign CISG cases as persuasive authority. This is intimated by Andersen who opined that such uniformity of results is the product of “the application of deliberate efforts to create specific shared rules.” A Spanish Court noted in referring to the CISG that: “The spirit of the Convention is to achieve uniform law not only in regard to its text; courts should also apply it in a uniform manner (…). The only way to assure the uniformity of the Convention is to take into account decisions from tribunals of other countries when applying the Convention and to consult expert opinions of scholars in the subject, in order to achieve uniformity.”7 In the end, foreign cases should be reviewed and considered in the application of the CISG by different courts confronting similar issues. 4

5 6 7

Whittington, Comment on Professor Schwenzer’s Paper, (2005) 36 University Wellington Law Review (VUWLR), 809 et seq. Whittington (op. cit. fn. 4), 809 et seq. Andersen (op. cit. fn. 3), 13. Cherubino Valsangiacomo, S.A. v. American Juice Import, Inc (Spain, 7 June 2003, Appellate Court Valencia), available at http://cisgw3.law.pace.edu/cases/ 030607s4.html.

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Andersen argues what we call this judicial deference or comity has been mostly a debate in semantics. She suggests that what is needed is an autonomous definition of precedent.8 Andersen provides a normative construct to place the use of foreign case and arbitral decisions within a nonhierarchal, unstructured, non-mandatory framework of CISG precedents: “CISG precedents [should be viewed as] inspirational contributions to the creation of autonomous [interpretations].”9 I agree. However, the analysis provided here is intended to be mostly descriptive. The first part of this chapter will examine the normative questions of what should be the standard for measuring uniformity of application and the appropriate role of foreign case law or scholarly works in that application. This chapter will not focus on the proper standard to measure the uniformity of application. But, I have noted elsewhere that a relative standard and not an absolute is the most rational and practical way to measure uniformity of application. An example would be whether the application of the CISG resulted in a manageable level of uniformity to the extent that impediments to international trade have been reduced. This standard is similar to the one suggested by Andersen that uniformity is to be measured by the degree in which there are deliberate efforts to produce similarity of results. The main question analysed here is whether courts and arbitral panels use foreign case law or scholarly writings in their application of the CISG. In order to assess such use, the normative claim is made that foreign case law should be used as persuasive authority. The degree of persuasiveness of a foreign case will depend on whether it is well-reasoned, including its use of foreign case law and scholarly commentary. A court confronted with conflicting foreign law precedents has the opportunity to redress the conflict by providing a reasoned choice of the two or by providing an autonomous alternative. The mere recognition of the foreign case law conflict provides an important service or inspiration to future jurists confronted with a similar substantive issue or a decisional conflict.

I.

The Role of Foreign Cases in CISG Interpretation and Application

A recent survey found that an alarmingly low percentage of international business lawyers and judges in the United States were even modestly familiar

8

9

For a brief review of the doctrine of precedent or stare decisis in American law see, Sellers, The Doctrine of Precedent in the United States of America, (2006) 54 The American Journal of Comparative Law (AJCL), 67 et seq. Andersen (op. cit. fn. 3), 62.

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with the CISG.10 Only 30% of practitioners surveyed were thoroughly or moderately familiar with the CISG. An astonishing 82% of the judges surveyed declared that they were “not at all familiar” with the CISG. On a more positive note, 73% of American law professors were thoroughly or moderately familiar with the CISG. These types of statistics provide one explanation of why some courts have ignored the CISG’s interpretive methodology. The next section will review that methodology, and the problem of homeward trend analysis. The final part of this section will review the scholarly debate over how best to assess and encourage uniformity of application. The notion of foreign case law as persuasive authority will be explored, along with American unilateralism, and French case reporting style.

II.

CISG Interpretive Methodology

One question often posed in the CISG literature is the function and value of foreign case law and scholarly legal writings in the interpretation of the CISG. Two perspectives can be used in analysing this issue − the internal and the external views. The first looks to the interpretive methodology internally directed by CISG articles. The second, barring any prohibition within that internal interpretive methodology, the external view looks outside the CISG to further assess the role of foreign case law and legal scholarship in the application of the CISG. The CISG does not expressly mandate the use of foreign cases or legal commentary. However, the importance of those sources, especially foreign case law, can be implied through its general principles as enunciated in its Preamble and Art. 7(1) CISG. The Preamble asserts that “the adoption of uniform rules (…) would contribute to the removal of legal barriers in international trade.” Art. 7(1) CISG sets out three general rationales or principles that comprise the CISG’s interpretive methodology. The interpretation of its rules should be based on its “international character,” the “need to promote uniformity in its application,” and the importance of observing “good faith in international trade.” The CISG fails to provide a clear mandate as to the role of foreign case law in its application. The choices of the functional role of foreign case law are as binding precedent, as persuasive authority, or as irrelevant given the fact that the CISG is adopted as “domestic” law. Given the general principles, and reasonable implication thereof, the use of foreign case law as persuasive author10

Fitzgerald, An Empirical Study of the Value and Utility of the United Nation’s Convention on the International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts to Practitioners, Jurists, and Legal Academics in the United States, (2008) 27 Journal of Law & Commerce (JLC), forthcoming.

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ity is the most compelling standard for achieving the purpose of the CISG − the unification of international sales law. Therefore, the rest of the analysis provided here is based on the following answers to the normative versions of the descriptive questions posed by Andersen.11 Should the general principles be limited to a gap-filling role? No. Should the general principles be used as interpretational guidelines throughout the CISG? Yes. The difference between construction (filling in gaps) and interpretation is ambiguous at best. For particular applications, the jurist is not gap-filling per se, but is determining the scope of a given CISG rule. This is the position taken in CISG Advisory Council Opinion no. 3 regarding the application of the Common Law’s parol evidence rule. It states that there is “no question of a gap in the CISG, and no grounds for recourse to non-uniform domestic law.”12 The Advisory Opinion reaffirms the interpretive methodology of the CISG as reasoning from the text, purposes, and general principles. Interestingly, the Advisory Opinion references other uniform instruments, namely, the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles) and the Principles of European Contract Law (PECL). It notes that the PECL requires merger clauses to be individually negotiated to be enforceable.13 The Advisory Opinion concludes that the best practice to ensure the enforceability of a merger clause and the admission of extrinsic evidence would be to expressly and explicitly derogate from Art. 8 CISG.

III. Homeward Trend Analysis In this section a brief discussion of the homeward trend analysis will follow; for a fuller discussion of the problem of homeward trend see Ferrari’s contribution in this volume. The danger of the use of nation-specific sources of law and legal traditions in the application of the CISG is the likely increased chances of divergent applications. This is not to say that reasonable alternative interpretations are unlikely. But, the degree of divergence and likelihood of reconciliation is enhanced when alternative readings of the CISG are the product of autonomous interpetations not formulated through the lens of domestic law. A review of the cases shows some countries, such

11 12

13

Andersen (op. cit. fn. 3), 127. CISG Advisory Council Opinion no. 3: Parol Evidence Rule, Plain Meaning Rule, Contractual Merger Clause and the CISG, available at http://cisgw3.law. pace.edu/cisg/CISG-AC-op3.html. See generally, Perales Viscasillas, The Formation of Contracts and the Principles of European Contract Law, (2001) 13 Pace International Law Review (PILR), 374 et seq.

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as Italy, Germany, and Austria, have done admirable work in fending off the temptation of homeward trend analysis. In contrast, the record of countries such as the United States and Canada is mixed with a considerable amount of their courts ignoring foreign case law and CISG scholarly commentary. One commentator notes that “Canadian courts have tended to treat the CISG in a cursory manner, and ultimately make decisions on the basis of domestic law.”14 The use by jurists of the CISG’s general principles is vital to the creation of autonomous interpretations. At times, this is done directly from the general principles. At other times it is done indirectly though the construction of implied general or specific principles.15 These sub-principles developed through the process of deduction from the general principles and induction from novel fact patterns can be used in narrower categories of cases. The induction of trade usage which the parties know or ought to have known, as provided for in Art. 9(2) CISG, can also be used in crafting implied general principle. Given the few general principles enunciated in Art. 7(1) CISG, it is not surprising to see jurists recognising implied general principles derived from the principles of uniformity, international character, and good faith, and made necessary by the pressures to do justice in particular types of cases. This process would come within Art. 7(2) CISG’s mandate that if “matters governed by [the CISG] are not expressly settled in it [they] are to be settled in conformity with the general principles.” An example of the process of deduction-induction to imply a general principle is found in a Helsinki Court of Appeals decision from the year 2000. The court implied a duty of continuation of contract or principle of loyalty.16 It held that a seller has a duty not to abruptly end a longstanding relationship without extended notice. The general principle of good faith, and the importance of notice throughout the CISG, can be used in the deduction process. The facts in the induction process may include the recognition that numerous discrete transactions between parties create strong relational norms and possibly a trade usage that the seller or buyer should not end the relationship abruptly.

C. The Scholarly Debate The focus of the analysis is on three topical areas: (1) application in practice and trends in application of the CISG, (2) explanations for divergences in 14 15

16

Mazzacano (op. cit. fn. 2), 169 et seq. See DiMatteo/Dhooge/Greene/Maurer/Pagnattaro, International Sales Law: A Critical Analysis of CISG Jurisprudence, Cambridge 2005, 23 et seq. HO Helsinki S 00/82, 26 October 2000, available at http://cisgw3.law.pace.edu/ cisg/wais/db/cases2/001026f5.html.

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application and methodology among CISG signatory countries, and (3) some normative conclusions on how best to improve the uniformity of applications. The first area will provide a relatively subjective analysis of the degree that courts have used scholarly writings and foreign case law in applying the CISG. Although actual cases will be used and some statistical analysis offered, this will be a largely anecdotal, cursory sampling of the more than 3,000 CISG cases and arbitral decisions. The second area will generally focus on the systemic reasons between the Civil Law and Common Law’s application of different interpretive methodologies. A few observations of national idiosyncrasies will be offered, such as American exceptionalism, French decision-writing and reporting style, Italian courts’ style of citing foreign CISG case law, and German courts’ tendency to heavily cite scholarly writings.

I.

The Notion of Persuasive Authority

Glenn notes the three potential benefits of the law’s recognition of foreign cases as persuasive authority.17 First, it justifies the use of foreign cases and sources of law. This benefit is premised on the belief that how other legal systems have dealt with a given issue is likely to provide insight to the case before the court. Second, and this is especially true with an international sales law, the realisation of the benefits of legal harmonisation is dependent on the degree of uniform application or uniformity of results. The normative claim that an international sales law is welfare-benefitting can only be measured by actual results. Finally, the engaging of foreign perspectives and reasoning allows a country to take a leadership role in the interpretation of international law. The reputation of a country’s law as rational and fair is largely due to the willingness of its courts to take “the risk of leading.”18 As noted earlier, a Spanish Appellate Court asserted that the spirit of the CISG is best served by uniform application of its text.19 Another Spanish court noted that: “On the basis of the principle of solidarity and interdependence within international relationships, a new conception of the notion of sovereignty has been recognised and formed based upon the integration and observance of supranational principles and rules.”20

17 18 19 20

Glenn, Persuasive Authority, (1987) 32 McGill Law Review (MLR), 261 et seq. Glenn (op. cit. fn. 17), 298. Cherubino Valsangiacomo, S.A. v. American Juice Import, Inc (op. cit. fn. 7). BSC Footwear Supplies v. Brumby St, Spain, 16 November 2000, Appellate Court Alicante, available at http://cisgw3.law.pace.edu/cases/001116s4.html.

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An Italian court went so far as to say that Art. 7(1) CISG mandates the use of foreign case law as persuasive authority.21 The inconsistency of the reasoning is apparent. Art. 7(1) CISG does not expressly mandate the use of foreign case law as persuasive authority. However, the sentiment is correct that to be true to the CISG’s mandate to “promote uniformity in its application” the review of foreign case law is an intellectual necessity in order to write a well-reasoned decision.

II.

American Unilateralism

Soon after the CISG went into effect, an American academic cautioned that “Americans should remain involved in the ongoing dialogue on the Convention.”22 The best way to influence the development of the CISG is by writing persuasive opinions. This is done by applying CISG interpretive methodology as expressed in its Articles and through its legislative history. The crafting of persuasive opinions necessarily dictates the use of scholarly materials and foreign law cases, as well as arbitral decisions. The notion of persuasive authority is premised on two underlying themes in the context of CISG methodology. First, the use of scholarly writings, foreign case law, and arbitral decisions is not specifically required by the CISG. However, the use of such sources as persuasive authority is implied by the uniformity and good faith principles found in Art. 7 CISG. Gruber will review the importance of “Legislative Intention” in his contribution to this book. The legislative history of CISG negotiations and drafting show that the importance of uniformity of application was a major concern. Zeller will address the principle of good faith in international trade, while Janssen and Kiene discuss the general principles found in the CISG. The main obstacle to the interpretive methodology of the CISG is that it is applied in the context of national legal traditions. An example of such a tradition is the notion of American exceptionalism or unilateralism. Other obstacles may be more stylistic than substantive. An example is the tradition in France of short, non-descriptive court decisions. The reasoning of the French courts and citation to sources used in rendering a decision are rarely enunciated in the reported cases. These two examples will be discussed later in this chapter. One point to note here is that the overarching effect of na21

22

Italy, 29 December 1999, District Court Pavia (Tessile v. Ixela), available at http://cisgw3.law.pace.edu/cases/991229i3.html. See also, Switzerland, Pretore della giurisdizione Locarno-Campagna, 16 December 1991, available at http:// cisgw3.law.pace.edu/cases/911216s1.html. Zwart, The New International Law of Sales: A Marriage Between Socialist, Third World, Common and Civil Law Principles, (1988) 13 North Carolina Journal of International and Commercial Regulation (NCJICR), 109, 128.

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tional legal traditions may be as much a subconscious framing of the CISG as it is an intentional avoidance of its methodology. The second underlying theme implied in the concept of persuasive authority is that a foreign case or a scholarly writing should only be cited if it is well-reasoned. If persuasive authority is properly applied, then a race to the top would be the result. The better, more reasoned decisions (based on a review of foreign cases) would reach the level of persuasive authority while the parochial, poorly reasoned ones would be delegated to the misinterpretation side of CISG jurisprudence. However, even if scholarly analyses assist in distinguishing good from bad cases the problem remains that bad decisions may be applied within a given national legal realm. The role of foreign law in American courts has been the grounds for debate in the area of constitutional interpretation. Calabresi has argued in favour of American unilateralism in the area of social and constitutional issues. He asserts that: “When the Court decides highly contested social issues in consultation with foreign law, it risks ignoring or diluting what Americans perceive to be its exceptional place in the world, and adopts an untenable role as social change agent.”23 Speaking more broadly, another commentator argues that the use of foreign law sources can be manipulated in support of a position not supportable under United States jurisprudence.24 On the other side of the debate, a commentator characterises these arguments as based upon the “myth of insularity.”25 He notes that, in fact, the use of foreign law by American judges is an old practice. Seipp notes that the use of sources as persuasive authority is as old as stare decisis: “When English courts arrived at a notion of binding precedent, they developed a corresponding idea of ‘persuasive precedent,’ [or] ‘persuasive authority,’ re-

23

24

25

Nilsen, Symposium: The Role of Judges in the Twenty-First Century, (2006) 86 Boston University Law Review (BULR), 1037, 1046 commenting on Calabresi, A Shining City on a Hill: American Exceptionalism and the Supreme Court’s Practice of Relying on Foreign Law, (2006) 86 BULR, 1335 et seq. Kochan, Sovereignty and the American Courts at the Cocktail Party of International Law: The Dangers of Domestic Judicial Invocations of Foreign and International Law, (2006) 29 Fordham J. Int’l L., 507 (focuses mostly on the use of foreign and international sources in constitutional and human rights law). Seipp, Our Law, Their Law, History and the Citation to Foreign Law, (2006) 18 BULR, 1435 et seq.

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ferring to those sources that a judge might cite and might find persuasive, but would not be bound to follow.”26 In the end, the debate over the use of foreign legal sources in constitutional interpretation and the fear that foreign sources will be manipulated to support untenable positions are weak arguments in the context of the application and interpretation of an international sales law. Seipp suggests that “[o]pponents to citation of foreign law fundamentally misconstrue the distinction between binding and persuasive authority.”27 He quotes Caleb Cushing who in 1820 noted the use of European common, civil, and customary law as persuasive authority in United States courts: “[O]ur courts study them all, and adopt from them whatever is most applicable to our situation, and whatever is on the whole just and expedient, without considering either obligatory. The authority of a decision or opinion, emanating from either of these sources, is rested on exactly the same foundation, viz. its intrinsic excellence.”28 The problem is not that United States courts are unfamiliar with the notion of persuasive precedent.29 The problem is there are no standards or principles for applying foreign cases as persuasive authority. Even though the current constitutional debate over citing foreign law is different than the application of an international private law convention, the modern judicial disregard of foreign case law has plagued cases applying the CISG. Waldron has argued that what is needed is a theory that would “provide guidance in such use as persuasive or conclusive authority; the areas in which it is more appropriate, such as private law, and where it may be less appropriate, such as constitutional interpretation.”30 A past obstacle to using foreign cases as persuasive authority was the lack of accessibility to those cases. This is no longer true in the area of the CISG with the development of readily accessible databases and translations of foreign cases.

26 27 28

29

30

Seipp (op. cit. fn. 25), 1438. Nilsen (op. cit. fn. 23), 1046. Cushing, On the Study of the Civil Law, (1820) 11 North American Review (NAR), 412. For example, courts from many states in the United States cite Delaware state court decisions as persuasive authority in the area of corporate governance. Waldron, Foreign Law and the Modern Ius Gentium, (2005) 119 Harvard Law Review (HLR), 129.

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Even in the few “enlightened” American cases, such as Chicago Prime v. Northam Food,31 American courts continue to exhibit a lack of understanding of CISG interpretive methodology. In that case the trial court cited six foreign CISG cases and cited scholarly literature on the CISG on nine occasions. This represents the largest number of such citations by an American court. The District Court in Chicago Prime, states that “the Convention directs that its interpretation be informed by its ‘international character and (…) the need to promote uniformity in its application and the observance of good faith in international trade.’”32 But, it then immediately qualifies that approach by stating that “case law interpreting analogous provisions of Art. 2 of the U.S. Uniform Commercial Code (UCC) may also inform the court where the language of the relevant CISG provisions tracks that of the UCC.”33 The judge points out that “federal case law interpreting and applying the CISG is scant.”34 This begs the question as to why he readily resorted to American case law.

III. Application with Reasons Unknown: France A number of obstacles to uniformity of application have appeared in French CISG jurisprudence. The general obstacle is that French courts rarely provide the rationales for their decisions. This does not mean that French courts do not read or are unaware of foreign case law or scholarly writings relating to the CISG. The reason that such transparency may play a diminished role in French jurisprudence is that case law generally plays less of a role in the Civil Law system. However, at least in the area of CISG jurisprudence, this has not been the case in Germany and Italy. One thing is certain, that whether applying the civil code or the CISG, the cursory style of reporting decisions or la methode devinatoire is an embedded feature of French legal tradition. Unfortunately, this is a hindrance to autonomous interpretations and the evolution of persuasive authority needed for the uniform application of the CISG. A second troubling development is represented by the Cour de Cassation decision in Schreiber v. Thermo Dynamique.35 The court delegated to the 31

32

33 34

35

Chicago Prime Packers, Inc. v. Northam Food Trading Co, 320 F. Supp. 2d 702 (E.D. Ill. 2004), affirmed on appeal, 408 F. 3d 894 (7th Cir. 2005). Ibid at 709, quoting, Delchi Carrier SpA v. Rotorex Corp, 71 F. 3d 1024, 1027-28 (2nd Cir. 1995). Ibid. Ibid, quoting, Usinor Industeel v. Leeco Steel Products, 209 F. Supp. 2d 880, 884 (N.D. Ill. 2002). France, 26 May 1999, Supreme Court Schreiber v. Thermo Dynamique available at http://cisgw3.law.pace.edu/cases/990526f1.html. See Whittington (op. cit. fn. 4), 812.

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lower or trial courts the determination of “reasonableness” under Art. 39 of the CISG (notice of lack of conformity). The Cour de Cassation failed to provide any guidance and simply affirmed the lower court’s use of “its sovereign discretion.” It is disturbing that the highest court in a country would not provide guidance in order to prevent divergent interpretations within its own national legal system. In Mr. Flippe Christian v. SARL Douet Sport Collections, the Commercial Court of Besançon summarily stated that the final notice of non-conformity given six and eleven months after delivery was reasonable because it was within the outer limit of the two years provided in Art. 39(2) CISG.36 This approach was again taken by another Appellate Court in a 2003 decision.37 The court ignored the reasonableness requirement of Art. 39(1) CISG. In fact, it extended the two year limit in Art. 39(2) CISG by stating that the two year period was to be taken from the time that the seller knew of the defect. The court reasoned that since the machines provided under the contract were still being used by the buyer, the buyer’s earlier complaints acted to extend the commencement of the two-year period. The court “observed that the buyer could, under Art. 47 CISG, fix an additional period of time of reasonable length to allow the seller to perform its obligations.” It failed to provide any rationale as to whether it was reasonable notice as required in Art. 39(1) CISG. In 2004, another Appellate Court held that notice given eleven months after final invoices had been issued was unreasonable.38 The court failed to recognise the earlier decision in Mr. Flippe Christian v. SARL Douet Sport Collections that held that an eleven month period was a reasonable time to give notice. The Appellate Court in Pelliculest v. Morton International held that two months was a reasonable period for notice under Art. 39 CISG.39 In this case, the buyer never directly notified the seller of the non-conformity. Instead, the buyer’s insurance company notified the seller’s insurance company some two months after the non-conformity had been brought to the attention of the buyer. The court avoided a ruling on the reasonableness of the notice by noting that the insurance company’s agreement to hire an expert to evaluate the non-conformity was dispositive on the issue: “It is thus not contestable that the notice of the defect had been made within a reasonable period of time as envisioned by Art. 39 of the CISG.” 36

37

38

39

France, 19 January 1998, District Court Besançon, available at http://cisgw3.law. pace.edu/cases/980119f1.html. France, 18 December 2003, Appellate Court Lyon, available at http://cisgw3.law. pace.edu/cases/031218f1.html. France, 26 October 2004, Appellate Court Poitiers, available at http://cisgw3.law. pace.edu/cases/041026f1.html. France, 24 October 2000, Appellate Court Colmar, available at http://cisgw3.law. pace.edu/cases/001024f1.html.

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CISG Advisory Council Opinion no. 240 notes that the Supreme Courts of Austria and Switzerland, in contrast to France’s Cour de Cassation, attempted to provide such guidance. The former holding that notice within fourteen days and the latter within thirty days after discovering of the nonconformity, whether actual or implied, was presumptively reasonable. Although not discussed in the previous discussion of persuasive authority, the higher the court in a national court hierarchy the greater the hope for rendering a well-reasoned decision. A decision of a country’s supreme court cannot only unify CISG application within a country, but if well-reasoned it has the potential of impacting the application of the CISG worldwide. The Austrian and Swiss Supreme Courts’ willingness to provide guidance to their lower courts has been noted by courts in other countries.

D. Scholarly Writings and CISG Interpretation This section will examine the use of scholarly writings and commentary in the application of the CISG. The first part argues for the need for compromise and convergence in the use of such sources and in national reporting of CISG cases. The second part presents findings of a brief “empirical” analysis of the sources used in CISG cases and arbitral decisions. It reinforces the need to use foreign case law as persuasive authority in order to reach a manageable level of uniformity.

I.

The Use of Scholarly Writings and Commentary

The value and function of legal writings in the interpretation of the CISG has varied in national legal systems. As a matter of general jurisprudence, there are considerable differences between jurisdictions. Whereas in some systems it is still improper for judges to quote legal writings, other countries have a long tradition of academic exchange between judges and scholars. The obligation to have regard to the international character of the CISG (Art. 7(1) CISG) indicates courts are under some form of obligation to consider writings by legal scholars. That is because these writings are probably the best source for learning about other countries’ approaches to CISGrelated issues.

40

CISG Advisory Council Opinion no. 2: Examination of the Goods and Notice of Non-Conformity Art. 38 and 39, available at http://cisgw3.law.pace.edu/cisg/ CISG-AC-op2.html.

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In Ajax Tool Works, Inc. v. Can-Eng Manufacturing,41 the court rejected the party’s claim that a contract’s express limited warranty acted as a disclaimer of implied warranties. It acknowledges that under Ontario Sale of Goods Act [as well as the US Uniform Commercial Code] such disclaimers may be interpreted as such, but that under CISG more is needed. The “question [under the CISG] is whether the disclaimer is a part of the agreement between the parties, arguably a tougher, yet ultimately fairer standard.”42 As important for the current discussion the court directly quotes a scholarly source for this proposition. Some twenty years since its adoption CISG jurisprudence has produced a mix of properly reasoned cases, and arbitral decisions, and many characterised by homeward trend analysis. A large body of easily accessible cases and scholarly literature has been complied to assist in understanding the CISG and its application. Unfortunately, as will be discussed later in this chapter, this global database of CISG materials has not seen the full realisation of uniformity of application or the creation of a global jurisconsultorium. The development of online databases has not resulted in a greater recognition of foreign cases or scholarly literature in some countries. At a higher level, the CISG’s lack of uniform application has diminished the potential benefits of creating a fuller appreciation of comparative legal cultures.43 Another technique in developing a uniformity of CISG application is the use of other uniform or soft laws as an aid to interpretation. The uniform law that is most applicable is the UNIDROIT Principles. Mistelis claims that the UNIDROIT Principles have been increasingly used in legal practice and dispute resolution.44 The UNIDROIT Principles are a worthy template in the drafting of international business contracts. However, some have questioned the appropriateness of using them in interpreting the CISG. In the area of filling in gaps in the CISG, Andersen argues that the UNIDROIT Principles or PECL are “not natural extensions of the general principles of the CISG and the notion of automatically referring to these [soft laws] as standard solutions to problems which were left open by the drafters is contrary to 41

42

43

44

2003 U.S. Dist. LEXIS 1306; CCH Product Liability Reporter P16, 516 (N.D. Ill. 2003). Ibid at 18, quoting, Cook, CISG: From the Perspective of the Practitioner, (1998) 17 JLC, 347. See, Rossett, Unification, Harmonization, Restatement, Codification and Reform in International Commercial Law, (1992) 40 AJCL, 683 et seq. (emphasises the need to encourage the growth of a common legal culture); Markesinis, Comparative Law − A Subject in Search of an Audience, (1990) 53 Modern Law Review (MLR), 1 et seq. (looking at foreign law can bring a deeper understanding of problems). Mistelis, The UNIDROIT Principles Applied as the ‘Most Appropriate Rules of Law’ in a Swedish Arbitral Award, (2003) 8 Uniform Law Review (ULR), 633.

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the CISG [interpretive methodology].”45 In practice, Mistelis’ proposition that the UNIDROIT Principles have been used in dispute resolution involving the CISG is correct in the area of arbitration. A significant number of International Chamber of Commerce Arbitration decisions have referenced the UNIDROIT Principles in applying the CISG. The contrary is true for court cases − rarely have the courts used the UNIDROIT Principles to aid their applications of the CISG. Cuniberti argues that if the reason for the CISG is to increase international trade by reducing transaction costs and reducing the uncertainty of the applicable contract law rules, then it is difficult to justify.46 He asserts that the issue of applicable law is not something that prevents parties from entering into an international business transaction. However, despite the fact that parties do not expressly or consciously opt in or opt out of the CISG, Cuniberti argues that there are likely some transaction cost savings for both sophisticated and unsophisticated merchants. For the unsophisticated party, transaction costs during the post-formation stage are reduced since the CISG provides a readily accessible default law. For the sophisticated party, transaction cost savings are possible by avoiding costs of negotiating over the applicable law and the costs of learning foreign contract rules. The ultimate solution to the lack of uniformity in CISG applications is the use of well-reasoned foreign case law and arbitral decisions as persuasive precedent. This was aptly stated by an Italian Court in Al Palazzo S.r.l. v. Bernardaud di Limoges S.A.: “The goal of uniformity can be advanced even if the court decisions and arbitral awards of other countries, which should be taken in consideration by judges, have only persuasive and not binding value.”47 True transaction cost savings, whether in the formation of a contract or in dispute resolution, are best captured by a uniform application of the CISG.

II.

A Prequel to an Empirical Study

Andersen and I have begun an empirical analysis of all reported CISG decisions − judicial and arbitral. The project will code all decisions to determine the frequency of citations to foreign decisions and scholarly legal writings. The study will determine variations in citation between Common and Civil Law countries, between national legal systems, and between law cases and arbitral decisions. It will also provide longitudinal findings to determine any 45 46

47

Andersen (op. cit. fn. 3), 130 et seq. Cuniberti, Is the CISG Benefiting Anybody?, (2006) 39 Vanderbilt Journal of Transnational Law (VJTL), 1511. Italy, 26 November 2002, District Court Rimini, available at http://cisgw3.law. pace.edu/cases/021126i3.html.

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discernable trends in CISG jurisprudence over the past twenty years. For the present undertaking, some preliminary findings will be provided with the caveat that the analysis does not possess the statistical power needed to confirm statistically relevant conclusions. The purpose of the current presentation is thus intended to be purely conceptual − outlining some of the issues and variations that the larger empirical study is intended to clarify. A second caveat is that the preliminary study likely displays the biases of a Common Law scholar pertaining to the differences between the Civil and Common Law legal systems. Reimann48 correctly notes that the old dichotomies of Civil versus Common Law, legislative versus case law, and civil codes versus Common Law statutes are more of a hindrance than a help, and deter decision-makers from other important sources of law. This seems especially true for an international sales law. Nonetheless, these dichotomies were used in the construction of hypotheses for the current study. Some of these hypotheses reflect the misconceptions of the current author. But the misconceptions also represent the importance of not overstating the harmonising power of an uniform sales law. Rossett notes that it is always important to see such uniform laws in the context of the national, political and social systems in which they will be implemented: “If one focuses too hard on the unity of the text, one is quite likely to lose sight of the disparity of result that is produced when that text is applied in different systems.”49 This analysis consisted of a random selection of 217 judicial and 45 arbitral decisions applying the CISG. The selection resulted in a review of 97 Civil Law and 91 Common Law cases. An additional 15 French court cases were reviewed. Most of the arbitral decisions were taken from International Chamber of Commerce (ICC) cases. One hypothesis posed that Civil Law courts are more likely than Common Law courts to cite scholarly writings. Black and Richter’s study of the decisions of the Canadian Supreme Court showed that citations to secondary literature increased dramatically in Civil Code cases versus non-Civil Code cases.50 The preliminary finding of CISG cases indicates that Civil and Common Law courts, as well arbitral panels, exhibited a high level use of secondary or scholarly sources. About 68% of the arbitral decisions cited scholarly work as compared to 62% for Civil Law courts and almost 50% for Common Law courts. It seems that citation rate to scholarly writings be48

49 50

Reimann, Stepping Out of the European Shadow: Why Comparative Law in the United States Must Develop Its Own Agenda, (1998) 46 AJCL, 637. Rossett (op. cit. fn. 43), 687. Black/Richter, Did She Mention My Name?: Citation of Academic Authority by the Supreme Court of Canada, 1985-1990, (1993) 16 Dalhousie Law Journal (DLJ), 377. The authors found that 87.5% or 21 of 24 of the Civil Code cases cited scholarly writings, while only 46.5% or 277 of 596 of the non-Civil Code cases contained such citations.

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tween Civil and Common Law countries is not overly significant. However, the disparity in citation rate is significant when the analysis is narrowed to only CISG-related scholarly writings. Sixty-three percent of the Civil Law courts cited CISG commentaries while only 18% of the Common Law courts cited specifically the CISG literature. The use of foreign law cases in CISG-related court decisions is significantly different between Civil and Common Law decisions by a two to one margin. Civil Law courts cited foreign case law in about 15% of its CISG cases, while Common Law courts only 8%. Arbitration panels used foreign CISG cases about 40% of the time. When looked at from a nation-specific perspective, Zimmermann’s observation holds true that “the diversity existing among civilian systems may be as great, and sometimes greater, than the differences between French and English, or German and English law.”51 My cursory analysis shows vast differences in citation rates among Civil Law countries. In the area of citation to CISG literature a dichotomy appears. At one pole, the countries of Austria, Germany, and Switzerland have a very high rate of citation to CISG literature. On average, the sample indicated a combination citation rate of over 90%. In contrast, CISG cases in Denmark, France, Italy, and Spain rarely cited the CISG literature. In the case of France, as noted earlier, this is not a surprise given the cryptic nature of their judicial opinions in general. Belgium placed in the middle of the two above groupings. Belgian courts cited CISG literature in about 45% of their cases. Finally, the rate of citation has remained fairly consistent over the years between the above two groupings. Again, the citation to foreign CISG cases varied dramatically between the Civil and Common Law cases reviewed. Italian courts and German courts showed the greatest frequency of cites to foreign case law with the Italian cases having a citation rate of 60% and the German cases a rate of 27%. When combined, that is cases citing either foreign case law or CISG literature, the citation rate increased to 100% for German and Swiss cases, 93% for Austrian cases, 60% for Italian cases, 49% for Dutch cases, 11% for Spanish cases, and 0% for French cases. In contrast, the Common Law cases reviewed cited foreign case law only about 8% of the time. However, when aggregated the citation rate variance between all Civil and Common Law cases reviewed was 14% to 8%. Despite the high citation rates for some countries, the overall citation rates to foreign CISG cases are woefully low. Arbitral panels showed a greater willingness to use external sources in their application of the CISG. About 43% of arbitral decisions referenced CISG-related scholarly writings. Arbitration panels cited CISG legal cases at a rate of 22%. In addition, one in three of the arbitral decisions reviewed 51

Zimmermann, Comparative Law and the Europeanization of Private Law, in: Reimann/Zimmermann (eds.), The Oxford Handbook to Comparative Law, Oxford 2006, 559.

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made use of the UNIDROIT Principles in the application of the CISG as compared to a citation rate of about 1% for all Civil and Common Law cases combined. The interplay between the CISG and other uniform law sources will be more fully analysed by Andersen in her contribution to this book. Unfortunately, when analysed longitudinally, there does not seem to be any noticeable increases in citation rates. For example, United States courts’ citation to foreign case law has remained relatively fixed at about 10% when comparing pre-2000 cases with post-1999 cases. During this same timeframe citations to CISG scholarly literature actually declined from 21% to 17%. The most “positive” intellectual reason for the low citation rates is that although American courts are astute at using legal precedent they are uncomfortable in using foreign cases as persuasive authority. A less positive reason, as indicated in the Fitzgerald survey,52 is the relative ignorance of the CISG and its application by US judges and practitioners. The stagnation in citation rates in the United States and elsewhere is especially disappointing given the development of readily accessible databases of foreign CISG case law and arbitral decisions. Regarding the development of databases of foreign legal cases and scholarly literature, an Italian court stated that in “furtherance of the objectives of Art. 7(1) of the CISG, these publications aim at assuring uniform application and interpretation through reference to the case law of different countries.”53 Unfortunately, the relationship between increased access to foreign case law and increased use of that law has not been shown, especially in the United States. The “continuing process of convergence”54 by which a uniform text can be made to be a uniform law in practice has yet to be verified.

E. The Future Application of the CISG In the years ahead, my hope is that well-reasoned, autonomous interpretations of the CISG will increasingly win out over homeward trend-reasoned decisions. In order to fully obtain the benefits of a uniform sales law, it is important for jurists to follow the CISG interpretive methodology and not to prematurely resort to domestic law in its application. Such an approach is true to the intent of the drafters when they incorporated legal systemneutral terminology into the CISG. Ferrari has argued that not all CISG terms can be interpreted autonomously. He gives as an example the fact that the CISG fails to provide a set of private international rules. Therefore, courts must resort to domestic pri52 53 54

Fitzgerald (op. cit. fn. 10), forthcoming. Al Palazzo S.r.l. v. Bernardaud di Limoges S.A. (op. cit. fn. 42). Bridge, Uniformity and Diversity in the Law of International Sales, (1996) 15 PILR, 55-89.

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vate international law (conflicts of law) rules. This is true, but it is dangerous to extrapolate from that particular issue to a general statement. The general statement that best describes CISG interpretive methodology is that but for a very few exceptions, “all expressions must be interpreted autonomously.” Such a general statement is essential to the goal of uniform application. The problem of divergent autonomous or original interpretations remains. As was stated previously, “priori meanings taken from national legal systems will have to be abandoned in favor of independent meanings consistent with the CISG’s objective” of advancing a uniform international sales law.55 The fact that there may be divergent, autonomous interpretations of a CISG rule is a positive advancement over homeward trend decisions since, divergent, autonomous decisions indicate that CISG interpretive methodology was used, and hopefully, included a review of foreign case law. The fact that a review of foreign case law failed to prevent a divergent interpretation is not a bad result per se. A subsequent interpretation may have been a result of a misunderstanding of prior cases. More positively, the subsequent interpretation may have been needed to correct poorly reasoned prior cases. The above notion of divergent, autonomous interpretations highlights the second role of using foreign case law as persuasive authority. The first role, as discussed above, is the creation of autonomous interpretations. The second role of using foreign case law is the reconciliation of autonomous, divergent interpretations. Before addressing the reconciliation issue, a clarification of the word “divergent” is necessary. Divergent implies a different result. Different results or rule interpretations are indeed an affront to uniform application. But, the case of divergent reasoning with similar results is not a clear case of non-uniformity at least not for the “conflicting” cases. However, divergent reasoning projected into future cases is likely to produce non-uniformity of results. There are then three components for a truly uniform law: uniformity of text, uniformity of reasoning, and uniformity of result. Reconciliation of divergent interpretations by subsequent courts or arbitral panels is possible through reasoned determination of which foreign cases are more “persuasive.” A well-reasoned decision would assess the divergent interpretations and provide an alternative or combined interpretation. Amato envisioned such a function by subsequent courts when he stated: “[A firm] foundation can only be built if courts interpreting the CISG provide detailed and convincing analyses. Such detailed and convincing analyses (…) will consider the pertinent provisions of the [CISG] (…) the interplay between 55

DiMatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, (1997) 22 Yale Journal of International Law (YJIL), 136.

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them (…) and include reference to (…) [its] legislative history (…) and to scholarly articles (…). In so doing, the decisions will have a logic and rationale which will be persuasive of their own accord.”56 This prevalence of reasoned decisions in the application of an international sales law will ultimately determine the degree of success that law achieves as a unifying agent. This is why the use of foreign case law, and to a lesser extent scholarly writings, as persuasive authority is vital. This is why it is important for courts to differentiate between foreign contract law and the CISG. Jurists need to set aside the idiosyncrasies of their national legal systems for the common good. France and other countries need to provide reasoned decisions to explain their applications of the CISG. Countries, such as the United States and Canada, will need to recognise the importance of understanding foreign cases when applying the CISG to common issues. Finally, my Christmas list would include the continued expansion of member countries to include countries like Brazil, India and the United Kingdom. The work of legal scholars remains vital to the unification process. By teaching the CISG in law schools, the next generation of judges and international business law practitioners are likely to be more sophisticated in their approach to international sales law. In addition, the role of legal scholars in critiquing CISG decisions remains a valuable service. Such critiques will hopefully encourage future courts to make use of the better reasoned domestic and foreign cases. The result will be a more functional uniform international sales law. A choir made up of more than seventy different legal systems may never sing in harmony but at least it will be singing together, albeit a little off key. That is in itself quite an accomplishment! 56

Amato, U.N. Convention on Contracts for the International Sale of Goods − The Open Price Term and Uniform Application: An Early Interpretation by Hungarian Courts, (1993) 13 JLC, 28 et seq.

The Observance of Good Faith in International Trade Bruno Zeller

A. Introduction The principle of good faith in contractual dealings has a varied degree of acceptability. In Civil Law countries, notably in the German and French legal system, good faith is well established. In Australia, good faith has a tentative foothold whereas, England appears to be “the last bastion” clinging to a “rigorous interpretation of contractual obligations.”1 The United States is the only Common Law country that has included good faith into its statutory sales law regime. The new Contract Law of the People’s Republic of China2 has also taken note of the principles of good faith and included the principle into several articles. Art. 6 of the new Contract Law of the People’s Republic of China, the most important one, states: “The parties shall abide by the principle of honesty and good faith in exercising their rights and performing their obligations.”3 The CISG also refers to good faith in Art. 7(1) CISG and notes that good faith must be observed in international trade. One would be forgiven to think that such a term is uniformly understood as it has a long history of developments – especially in Germany, France and the United States. However, the contrary is the case and even between the French bonne foi4 and the German Treu und Glauben,5 which have the same origin, variations of interpretation and application are evident. Sonnenberger commented that a levelling-out of differences can be extremely difficult.6 This is not surprising as good faith is a metaphysical concept and the understanding thereof depends on the “structure and content of the specific legal sys-

1

2

3 4 5 6

Williams, An Introduction to General Principles and Formation of Contracts in the New Chinese Contract Law, (2001) 17 Journal of Contract Law, 13, 17. Promulgated in the Second Session of the Ninth National People’s Congress on 15 March 1999. Ibid, New Chinese Contract Law. Art. 1134(3) Code Civil (CC). § 242 Bürgerliches Gesetzbuch (BGB). Sonnenberger, Treu und Glauben – ein supranationaler Grundsatz?, in: Böttcher/ Hueck/Jähnke (eds.), Festschrift für Walter Odersky, Berlin 1996, 703 et seq.

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tem in which they are implemented, and on the concrete and specific contract in question.”7 There is, however, a general universal point where there is no disagreement, namely that a business does not continue to prosper if it behaves disreputably and in an unfair manner. It is also understood that a business must make profits in order to survive and hence must act in its own interest. The problem therefore is where these two modes of behaviour intersect and whether good faith is the principle by which this intersection is found. This chapter will attempt to elicit the intent and application of good faith in the CISG. This topic is not without controversy and needs to be tackled on two fronts. Firstly, some authors suggest that good faith only addresses the interpretation of the Convention whereas others find the principle also to be additionally applicable to the behaviour of parties in their contractual dealings. As a second point the problem as to what good faith actually means within the ambit of the CISG will also be discussed. To facilitate an understanding of what good faith actually means the German and French system will be briefly addressed in order to gain some insight into the meaning and substance of good faith as applicable in the two legal systems. Such an understanding can serve as a first attempt at understanding the meaning of good faith. Philosophically this is of value as even a short comparative analysis highlights not only the similarities but also brings out differences. However, care needs to be taken not to simply import this understanding into the CISG. The CISG is after all an international document and must be understood independently from domestic laws. This mandate is laid down in Art. 7(1) CISG which prohibits recourse to domestic law where the CISG is governing the particular issues at hand. In general terms this view has been recognised in England in 1962 when it was observed that: “It would be deplorable if the nations should, after protracted negations, reach agreement (…) and that their several courts should then disagree as to the meaning of what they appeared to agree upon.”8 The problem in the search for the concrete meaning of good faith can be very simply stated. The CISG makes it mandatory to apply good faith in Art. 7(1) CISG without however giving a definition as to what good faith

7

8

Schlechtriem, Good Faith in German Law and in International Uniform Laws, Saggi, conferenze e seminari, Rome 1997, available at http://w3.uniroma1.it/idc/ centro/publications/24schlechtriem.pdf. Scruttons Ltd. v Midlands Silicones Ltd., [1962] A.C. 446, 471, on the application of the Hague Rules.

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actually means.9 Therefore there are two issues to be considered in analysing good faith under the CISG. First what is understood under the term of good faith and secondly – as pointed out above – does this term cover the interpretation of the Convention only or does it also govern the relationship between the contractual parties?

B. Good Faith in Germany and France – a Comparative View This brief analysis between the German and French understanding of good faith is instructive as Sonnenberger makes the point that – despite the fact that the French and German law on good faith has the same parentage – similarities are difficult to find.10 Indeed it is impossible to find in German law a definition of what exactly good faith means despite the fact that the observance of “Treu und Glauben mit Rücksicht auf die Verkehrssitte” as noted in §§ 242 and 157 BGB has been enacted since 1900. What is certain is the fact that in German law – contrary to French law – the term good faith has a double meaning, namely “Gutgläubigkeit” and also “Gutwilligkeit.”11 This can be loosely translated as meaning good faith and good will or prepared to exhibit good will. “Bonne foi” on the other hand best equates to the German “Gutwilligkeit”. This difference in the understanding of the term has far reaching consequences as an application is tied to particular events. The German law will often find a breach of good faith if the very reason of the failure of the contractual obligations goes to the very root of the contract. In French law the very opposite is the case. Pacta sunt servanda is still the leading principle and is applied before bonne foi is contemplated even if conditions have substantially changed since the contract was formed.12 The conclusion is that the parties’ contractual obligations cannot be modified or varied by applying good faith. In other words the French treatment of contractual obligations is closer to the Common Law approach in England than the German one. The German approach is that good faith is a regulative principle which will and can be used to control or even correct the parties’ contractual obligations.13 In recent times the French legal system has modified its stand and bonne foi is now applied to the contractual relationship between parties. However, it must be understood that, despite a certain vagueness, a structural model is discernable. To put it simply the principle of bonne foi has been interpreted 19 10 11 12 13

Zeller, Good Faith – The Scarlet Pimpernel of the CISG, Pace essay 2000, available at http:cisgw3.law.pace.edu/cisg/biblio/zeller2.html. Sonnenberger (op. cit. fn. 6), 703. Sonnenberger (op. cit. fn. 6), 707. Sonnenberger (op. cit. fn. 6), 704. Sonnenberger (op. cit. fn. 6), 706.

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as guaranteeing a mode of behaviour which is not contrary to what a reasonable person would expect from a contractual relationship. In the end though it is not what the parties expected bonne foi to mean, but what the judge considers how the parties ought to have behaved within their contractual relationship.14 Bonne foi has been used even when a contractual relationship had to be redefined. In a 1992 decision the French Supreme Court15 forced an oil company to renegotiate the price of oil to a petrol station which pursuant to the contract could not continue to operate profitably. The French Supreme Court has on several occasions forced – without hesitation – contractual parties to embrace new obligations which were judged to be necessary obligations under the umbrella of bonne foi.16 The question can be asked whether it is indeed possible to define the term of good faith or whether it is necessary to define such a term. The inevitable question of course would be if the term cannot be defined then why include it in the first place? The answer must be that good faith is a term which may not be definable but is nevertheless understood. It will take on substance within a given set of facts. This is not unusual because many legal systems contain terms which defy a clear definition such as terms of unconscionable conduct. After all, the law is expressed not only by words but also through “expectation” ideas such as good faith. The inevitable conclusion is that good faith is an elusive term and the famous passage in the “The Scarlet Pimpernel”17 is very apt to describe the search for good faith. “They seek him here they seek him there [they seek him] everywhere. Is he in heaven, is he in hell, that (…) elusive Pimpernel?” The question needs to be posed of whether in the search for the elusive meaning of good faith one looks too hard in the wrong places or one looks without seeing the obvious.18

C. Good Faith and the CISG – What Does It Cover? A reading of Art. 7 CISG could suggest that – as the observance of good faith is tied to the first sentence, namely the interpretation of this Convention – it does not govern the relationship between the parties. However, many authors and courts suggest that good faith covers both the interpreta14 15 16 17 18

Sonnenberger (op. cit. fn. 6), 710. Cf. case note Mestre, Revue trimestrielle de droit civil 1993, 124 et seq. Sonnenberger (op. cit. fn. 6), 712. Baroness Orczy, The Scarlet Pimpernel, adapted by Cross, London 1988. Zeller (op. cit. fn. 9).

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tion of the Convention and the relationship between the parties. The starting point in this debate is the logical observation that Art. 7 CISG as an interpretative article covers the interpretation of the Convention but not of itself. Therefore the first step is to interpret Art. 7 CISG. In order to interpret Art. 7 CISG recourse to the Vienna Convention on the Law of Treaties (Vienna Convention) must be sought. Honnold supports this argument and he states: “Article 7 of the Sales Convention embodies mutual obligations of the Contracting States as to how their tribunals will construe the Convention. Hence the Vienna Convention would be pertinent to a question concerning the construction of article 7, but the Vienna Convention would not govern the interpretation of the articles dealing with the obligations of the parties to the sales contract, for these articles are to be construed according to the principles of article 7.”19 Art. 31(1) of the Vienna Convention is of significant interest as it states: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” The question is if the Vienna Convention mandates that a treaty must be interpreted in good faith then why does Art. 7 CISG include the principle of good faith? It appears to be obvious that there would be no need for such an inclusion. Art. 31 of the Vienna Convention makes it clear that all Conventions need to be interpreted in good faith. To extend the argument the Vienna Convention also mandates that the terms of the treaty must be interpreted “in their context and in the light of its object and purpose.” The object and purpose of the CISG can be gleaned from its preamble. Terms such as “on the basis of equality and mutual benefit” are used and that the adoptions of the uniform rules “govern contracts for the international sale of goods.”20 It can be argued that due to the object and purpose of the CISG (specifically that it governs contracts for the sale of goods) the good faith principle must be extended to the relationships between the contracting parties. Arguably the CISG and the relations between parties can therefore be interpreted in good faith without the incorporation of Art. 7 CISG through the Vienna Convention. However, the fact is that Art. 7 CISG is part of the CISG and therefore cannot be ignored. Honnold’s view is persuasive enough to indicate that the Vienna Convention is merely restricted to the interpretation of Art. 7 CISG. The inter19 20

Honnold, Uniform Sales for International Sales, 3rd ed., Deventer 1999, 112. Preamble CISG.

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pretation of the remainder of the Convention is regulated by Art. 7 CISG. However if, as suggested above, good faith is merely assisting in the interpretation of the Convention, by what means is “good faith” interpreted? As good faith is part of Art. 7 CISG and this article in turn must be interpreted by the Vienna Convention, the conclusion would be that good faith cannot be interpreted by the CISG but by the Vienna Convention. In other words a gap exists in the CISG which must be filled by relevant laws – in this case the Vienna Convention. The argument that one needs to look at the intentions of the drafters to shed some light on the problem does not advance the argument very much considering the tortuous and difficult birth of the principle of good faith. The Commission in 1978 found itself divided on this question and after considerable debate referred the matter to a small working group to draft a compromise which eventually became Art. 7(1) CISG. It should be noted that more government representatives abstained from voting than those that took part in it.21 It is for these reasons that whatever the drafters suggested does carry little weight. Two points support this view. First the travaux préparatoire are only a collection of thought at a given point in time; they are frozen in time. The CISG, on the other hand, is a living instrument taking its cues from current thought and practices. This argument is supported by the fact that the outcome reached by the working group was a compromise and has been labelled as not being satisfactory anyway.22 Secondly, and following in the same line of arguments, in the end the legal instrument must be read and applied as it stands today as the instrument alone is the collective thought of the drafters and not the travaux préparatoire. To illustrate this point: contrary to the opinion of the working group that feared that due to the vagueness of Art. 7 CISG the principle of good faith would be influenced by municipal thinking,23 this has not happened. Courts have recognised the second mandate in Art. 7 CISG and have interpreted the Convention free from domestic principles and influences includ-

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23

See generally Report of the Secretary-General: Analytical Compilation of Comments by Governments and International Organisations on the Draft Convention on the Formation of Contracts for the International Sale of Goods as Adopted by the Working Group on the International Sale of Goods, paras 64-79 and also para 58. U.N. Doc. A/CN.9/146 and addenda 1-4 (1978), reprinted in (1978) 9 Y.B.U.N. Comm’n on Int’l Trade Law, 127, 132-33. Zaccaria, The Dilemma of Good Faith in International Commercial Law, (2004) 5 Macquarie Journal of Business Law, 101, 105. Bonell, Article 7: Interpretation of the Convention, in: Bianca/Bonell (eds.) Commentary on the International Sales Law – The 1980 Vienna Sales Convention, Milan 1987, 69.

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ing the principle of good faith. Put simply, the working group was wrong in their assessment of Art. 7 CISG. In relation to the question whether good faith also covers the relations between parties Honnold makes a pertinent point. He suggests that the “articles dealing with the obligations of the parties (…) are to be construed according to the principles of article 7.”24 This suggests that good faith in Art. 7 CISG goes beyond the interpretation of the Convention alone. As good faith is regarded as being a general principle of the CISG the next step would be to look at the CISG contextually. It follows therefore that the phrase “regard is to be had to (…) the observance of good faith in international trade” arguably needs to be interpreted within the four corners of the CISG. However, it does not mean that the CISG “is opened up to every single equitable consideration.”25 This suggests that, at first reading, the principle of good faith permeates the CISG as a whole. It follows that the principle of good faith is applicable to the interpretation of the Convention as well as the behaviour of the parties as prescribed within the four corners of the CISG. When the Convention is interpreted every article within the Convention is interpreted in good faith. It follows therefore that if Art. 8 CISG is interpreted, the relationship between the parties which is regulated within Art. 8 CISG is also interpreted in good faith. The question simply is can the phrase in Art. 8(1) CISG, namely that statements and conduct of a party are to be interpreted according to his intent, be interpreted without the assistance of good faith? To put it differently, when the application of the interpretation of the CISG affects the parties’ standings can the good faith component be disregarded? It is argued that once an interpretative component is attached to an interpretation of regulatory behaviour of the parties it flows naturally into the regulated relationship. In a recent decision the French Supreme Court noted: “In interpreting the elements of the evidence that were put before the court with respect to the principles set out in Article 8 CISG, and namely the principle which states that the contracts must be interpreted in good faith, the Court of Appeal was able to deduce that the agreement contained reciprocal obligations to deliver and purchase determined goods, at an agreed price such that it constituted a sale, which was subject to the Vienna Convention of 11 April 1980.”26

24 25

26

See Honnold (op. cit. fn. 19), 159. See Appellate Court Munich, 15 September 2004, available at http://cisgw3.law. pace.edu/cases/040915g2.html. See French Supreme Court (Société Romay AG v SARL Behr France), 30 June 2004, available at http://cisgw3.law.pace.edu/cases/040630f1.html.

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Good faith is tied up with the performance of the contract. Arguably therefore, if a party substantially deprives the other one of what they are entitled to under the contract they act in bad faith. Bad faith is the opposite of and therefore linked with the notion of good faith which again brings Art. 7(1) CISG into play. As pointed out above, it is agreed that some literature supports the belief that the principle of good faith should be interpreted narrowly.27 Farnsworth noted that: “This provision (article 7) does no more than instruct a court interpreting the Convention’s provisions to consider the importance of the listed factors.”28 This approach has also been found in decisions such as the ICC Award no. 8611. The arbitrators noted: “Since the provision of Article 7(1) of the CISG concerns only the interpretation of the Convention, no collateral obligation may be derived from the promotion of good faith.”29 The problem with these views is that they engage in the practice of “cherry picking.” The question is whether the “listed factors” in Art. 7 CISG can be separated, that is some only apply to the interpretation of the Conventions whereas others regulate the behaviour of the parties. It is argued that such a separation is impossible as the interpretation of the CISG is intimately woven into the regulation of the contractual relationships. In the end any sales laws aim to regulate and order the contractual relationship between parties. It could be argued that using international court decisions merely assists in interpreting the provisions of the Convention. However, the argument that court decisions also affect the parties is also defendable as they are in support of particular points of debate. Articles such as Art. 8 CISG are directed to determine the relationship between parties. A court can only reach a decision and hence use the rules of the CISG once the relationship between the parties has been determined, that is the facts of the case have

27

28 29

See for example Farnsworth, Duties of Good Faith and Fair Dealing under the UNIDROIT Principles, Relevant International Conventions and National Laws, (1995) 3 Tulane Journal of International and Comparative Law, 47 et seq.; Felemegas, The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation, Rev. CISG 2000-2001, The Hague 2002, 115 et seq.; Whinship, Commentary on Professor Kastely’s Rhetorical Analysis, (1988) 8 Northwestern Journal of Law & Business, 623 et seq. Farnsworth (op. cit. fn. 27), 55. ICC Award no. 8611, 23 January 1997, available at http://cisgw3.law.pace. edu/cases/978611i1.html.

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been elicited. In other words the interrelationship between the actors has been examined. Due to Art. 7 CISG, uniformity is achieved by disallowing a homeward trend. In the application of this article commentators who criticise courts which follow the homeward trend hence do not take note of the need to promote uniformity in the application of the Convention. However, if good faith is only addressed at the interpretation of the countries where good faith is not known or not considered to be a principle of law would by definition reach a different conclusion. The result is that on the one hand Art. 7 CISG demands uniformity in decision making and on the other hand it is not achieved because part of Art. 7 CISG – namely good faith – is not a mandatory principle. It is simply trite to argue that part of an interpretative article is to be excised from investigating the actions of the parties to a contract unless a clear mandate to that effect exists. The drafters of the CISG have not done so. Schlechtriem correctly points out that: “(…) similar to the irresistible force of fundamental laws of nature such as the law of gravity, the principle that not only the interpretation of the Convention, but also the evaluation of the relations, rights and remedies of the parties, should be subject to the principle of good faith.”30 The overarching principle of the CISG is to achieve uniformity of application and that can only be achieved by a tripartite approach to the interpretation and application of the Convention. That is the courts and tribunals, the parties and the CISG is understood and applied by all in the same manner. Two important principles stand out in Art. 7 CISG: “uniformity” and “good faith.” This combination suggests that recourse to domestic definitions of good faith or – no recourse at all as the case may be – is contrary to the autonomous interpretation of the CISG. This was confirmed in Dulces Luisi, S.A. de C.V. v Seoul International Co. Ltd y Seolia Confectionery Co. (Dulces Luisi)31 in which the court stated that the principle of good faith must be interpreted internationally without “resorting to its meaning under Mexican law.”32 It is interesting to note that the problem of whether good faith applies to the interpretation of the Convention only or extends to the contractual parties is not new. In 1988 Winship, after firmly believing that good faith only extended to the interpretation of the Convention, noted that he was con-

30 31

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Schlechtriem (op. cit. fn. 7). Comisión para la Protección del Comercio Exterior de Mexico, arbitral award, 30 November 1998, available at http://cisgw3.law.pace.edu/cases/981130m1.html. Ibid.

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vinced by the “conviction of the critics that over time a general obligation on contracting parties to act in good faith will be accepted.”33 The argument can be extended if Art. 7(1) CISG is considered as providing a tool as to the interpretation of the CISG. As such a tool Art. 7(1) CISG could be considered to be a general principle hence applicable to the whole Convention which includes obligations on contracting parties. It is perhaps by good fortune that the promoters of the CISG were not able to write the CISG “tightly,” that is more like a code. Yet the presence of general principles allows some “fluidity” within the CISG. There is room left to adjust the interpretation of the CISG to change circumstances as long as the mandate of Art. 7 CISG is closely followed.34

D. Good Faith and the CISG – What Does It Mean? The first step as to the application of good faith has been discussed above and the next question is as to the meaning of good faith and how it is applied by courts and tribunals. At the outset it must be pointed out that the duty to act in good faith does not equate to a duty based on morality. Such a concept would never lead to a uniform application as morality is a social duty based on cultural norms.35 Furthermore, this fact has been clearly clarified in the drafting process.36 A further matter has also been clarified in a Dutch case,37 namely how the principle of good faith is situated within a contract. The facts are simple: the seller signed a contract which contained a penalty clause which proved to be disproportionate to the damages suffered by the buyer. The seller argued that based on the principle of good faith the penalty ought to be reduced to a more appropriate level. The court correctly ruled that the terms of good faith do not extend to terms which were willingly entered into. There are many attempts at defining good faith but not a single definition has found universal approval. Powers, as an example, suggested that:

33 34

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Winship (op. cit. fn. 28), 629. Zeller, Four-Corners – The Methodology for Interpretation and Application of the UN Convention on Contracts for the International Sale of Goods, 2003, available at http://cisgw3.law.pace.edu/cisg/biblio/4corners.html. Zeller, Good Faith – is it a Contractual Obligation?, (2003) 15 Bond Law Review, 204 et seq., 210. See generally Honnold, Documentary History of the Uniform Law for International Sale, Deventer 1989, 369. Appelate Court Arnhem (Diepeveen-Dirkson BV v Niewenhoven Veehandel GmbH), 22 August 1995, available at http://cisgw3.law.pace.edu/cases/950822n1. html.

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“The duty of good faith can be defined as an expectation and obligation to act honestly and fairly in the performance of one’s contractual duties. A certain amount of reasonableness is expected from the contracting parties.”38 This definition may be true but it still leaves the judiciary with a “functional problem”39 – a feature of many attempts in defining good faith. It is therefore more appropriate and useful to look at approaches and applications of good faith rather than at attempts of defining good faith. In the end nobody can deny the fact that good faith has been applied in varying degrees by many countries including Common Law countries such as Australia. It follows that the general maxim still stands that “the law of contract has not so far prescribed in a comprehensive way, standards of conduct to be observed in contract negotiations and contract performance.”40 However, it is also an established maxim that courts are “required to ensure that the parties have genuinely adhered to the bargain which they entered into.”41 The tool to be used to establish the adherence to the bargain under the CISG is the principle of good faith which must be applied within the circumstances prescribed in Art. 7 CISG. As good faith is contained in Art. 7 CISG the vehicle by which this principle is imported into contracts has been determined. Good faith – unlike in other legal systems such as in Australia – does not depend on its incorporation into a contract via contractual terms. Hence a court does not need to concern itself with the question of whether good faith has been included either through express or implied terms, it applies to all contracts by force of law. However, parties may – via Art. 6 CISG – attempt to expressly exclude good faith to apply to their contract. Upon first reading of Art. 6 CISG such an exemption appears to be possible. The first point is that an argument can be mounted that Art. 7 CISG is mandatory hence cannot be deviated from. More importantly it is argued that as soon as an interpretative element in the CISG is excluded the Vienna Convention will fill the gap. As pointed out above Art. 31 of the Vienna Convention applies which contains good faith as a mandatory element. Therefore there are strong arguments to suggest that good faith cannot be excluded. The conclusion can be drawn that the principle of good faith is alive and well and arguably takes on life within given circumstances. It is an undisputed fact that defining good faith is either extremely difficult if not imposs38

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Powers, Defining the Undefinable: Good Faith and the United Nations Convention on Contracts for the International Sale of Goods, (1999) 18 Journal of Law and Commerce, 333 et seq., 335. Zeller (op. cit. fn. 35), 209. Mason, Contract, Good Faith and Equitable Standards in Fair Dealing, (2000) 116 Law Quarterly Review, 66 et seq., 77. Peden, Incorporating Terms of Good Faith in Contract Law in Australia, (2001) 23 Sydney Law Review, 222 et seq., 238.

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ible. A possible starting point is to make a distinction between the function of good faith and the values and attitudes which vary between different systems. It needs to be kept in mind that Art. 7(1) CISG prohibits recourse to domestic law. Hence, values and attitudes to good faith of different legal systems are only useful in a comparative sense, despite the fact that on occasions the same general principles may be observed. To transplant general principles of law from one legal system into another one is fraught with danger as law is logically an expression of a culture of a society. As such it is not possible to even isolate abstract terms developed in other legal systems and transplant the understanding into the CISG because “they might have been produced and formulated in order to fill a need which does not exist under the CISG.”42 At best a thumbnail definition is possible by using the reverse test namely “you’ll know it when you don’t see it”43 or good faith is the opposite of bad faith. Just because a party must act in good faith does not mean that it cannot have regard to commercial self-interest. The line in the sand is where self-interest translates into behaviour which can be termed as acting in bad faith. In addition it must also be understood that good faith does not equate to reasonable endeavours. Mason pointed out that: “Ordinarily an agreement to negotiate in good faith would simply exclude bad faith conduct whereas a reasonable endeavours undertaking raises questions about what is to be agreed as well as the relevance of the considerations which might influence a party in refusing to agree.”44 Art. 7(1) CISG is of help here as the CISG left no doubt that only good faith and not reasonable endeavours are to be tested and applied. There are several possible approaches to try to understand the meaning of good faith. The easiest and least complicated approach would be to argue that good faith is a general principle of the CISG and hence it is applicable throughout the Convention. It is indeed recognised that many provisions within the four corners of the CISG “would be meaningless without recognising a general duty to act in good faith.”45 Once the articles are discovered which rely for their meaning on good faith an understanding what good faith means within the confines of the CISG is achieved. To put it differently: “In these circumstances a breach of these articles requires the court to invoke the principle of good faith but the court is not required to embark on a great 42 43

44 45

Schlechtriem (op. cit. fn. 7). Klein, Good Faith in International Transactions, (1993) 15 Liverpool Law Review, 115 et seq. Mason (op. cit. fn. 40), 80. Zaccaria (op. cit. fn. 22), 105.

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‘philosophical dissertation’ to discover the meaning of good faith. Good faith is linked directly to prescribed situations and hence is explained.”46 This approach can be justified, as the starting point is not Art. 7 CISG but rather the article in question. Furthermore, it can go hand in hand if a third possible interpretation of Art. 7 CISG is adopted namely to draw from both of the definitions discussed above. Art. 7 CISG applies not to the interpretation of the contract itself but rather imposes an obligation to interpret the Convention in good faith as it relates to the contract.”47 The conclusion is that a definition of good faith is not a matter to be resolved by the parties but rather by Art. 7 CISG. Good faith is embedded within Art. 7 CISG, hence it is regarded as being a general principle. Arguably therefore Art. 7 CISG refers to the state of mind of those who interpret the CISG. Due to Art. 7(1) CISG the natural or normal state of mind is with good faith. Thus, Art. 7(1) CISG is applied to every case at hand in the normal course of interpreting the CISG. The question is nevertheless how a principle is to be discovered when one does not exactly know what he is looking for? The starting point is the preamble where it is stated that international trade must be developed “on the basis of equality and mutual benefit.”48 Klein has argued that: “(…) an ongoing goal of systematic regulatory approach to contractual relationships is to head off disputes before they arise, and failing that, to minimize the problems which inevitably result form complex human interactions.”49 The first step in an endeavour to achieve such a goal is to introduce a general principle which permeates the whole Convention in attempting to achieve the desired outcome. Arguably the general principle of good faith covers the attempt to develop laws “on the basis of equality and mutual benefit.” This can be the reason why a court can argue that “Art. 18 merely specifies the principle of good faith which is also one of the general principles of the CISG.”50 The court would have argued that the sentence “A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance”51 cannot be implemented unless the general principle of good faith is applied which is explained within that article. In other words there was no need to 46 47 48 49 50

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Zeller (op. cit. fn. 35), 213. Klein (op. cit. fn. 43), 121. Preamble CISG, second paragraph. Klein (op. cit. fn. 43), 141. District Court Sissach, 5 November 1998, available at http://cisgw3.law.pace. edu/cases/981105s1.html. Art. 18(1) CISG.

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define what good faith means, in particular as conduct and statements by the parties need to be given meaning within the practice of fair dealing and good faith within the circumstances of an acceptance. Good faith simply is the mandated step for parties to carry “out the interlocking steps of an international sales transaction.”52 It could therefore be argued that good faith is implicitly included in many of the provisions of the CISG and can be grouped into three categories: “(1) to promote full and frank exchange of relevant information, (2) to prevent parties from benefiting from conduct undertaken to frustrate their own contracts and (3) to salvage agreements wherever possible and minimize damages resulting from failed contracts.”53 The above categories are useful indications of how an attempt can be made to understand the application of the general principle of good faith. For the purpose of this chapter only the first of the three listed categories will be discussed as arguably the content of the debate would not change.

E. Exchange of Relevant Information It is settled law that not all information exchanged between the parties has contractual consequences. It is argued that a contract is not the sum total of a relationship but rather the narrative of economic experiences and relationships.54 In addition, not all contractual consequences are expressed in an exchange of information. Art. 8 and 9 CISG supply the tools by which the information has to be judged. These articles recognise that a contract is a narrative of experiences. In short Art. 8 CISG urges the courts to look at statements and conduct of parties and interpret these matters “according to the intent where the other party knew or could not have been unaware what that intent was.”55 It is not only the objective intent but also the subjective intent of the parties which form part of the exchange of information. Furthermore, not only the contract but all surrounding circumstances of the pre-contractual negotiations and post-contractual conduct are taken into

52

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Kritzer, Guide to Practical Application of the United Nations Convention on Contracts for the International Sale of Goods, Deventer 1989, 115 et seq. Klein (op. cit. fn. 43), 125 et seq. Zeller (op. cit. fn. 35), 217. Art. 8(1) CISG.

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consideration. Put simply, parties need to negotiate and conduct themselves in a way which is responsible. As a practical consequence of the exchange of information which is frequently litigated is the problem of the battle of the forms. Of specific interest to this chapter is not which terms are finally applicable to a contract. It is the step before, namely what is the relevant information which needs to be exchanged in order for the terms to be considered to form part of the contract. Three recent German decisions are of interest. The German Supreme Court noted that: “For the user of the clauses, however, it is easily possible to attach to his offer the general terms and conditions, which generally favour him. It would, therefore, contradict the principle of good faith in international trade (Art. 7(1) CISG) as well as the general obligations of cooperation and information of the parties to impose on the other party an obligation to inquire concerning the clauses that have not been transmitted and to burden him with the risks and disadvantages of the unknown general terms and conditions of the other party.”56 The Appellate Court in Cologne built on the decision of the German Supreme Court and started with the premise that it is sufficient if a party knew or ought to have known that the other party will only deal on their own terms and these terms are commonly known in the particular trade. “Then, and only in such cases, do the terms and conditions not have to be present at the acceptance.”57 The court went on to explain that: “(…) a trade usage cannot be constituted through the contents of terms and conditions which were not effectively included in the contract. It contradicts the principle of good faith in international trade (Art. 7(1) CISG) as well as the general duty to cooperate and the duty to communicate with business parties, to impose an obligation to inquire in regard to a clause that is not disclosed to the contractual partner, and to saddle him with the risks and disadvantages of unknown adverse terms and conditions. That which contradicts the principle of good faith can never be considered to be a usage in trade.”58 The court translated the obligations contained in Art. 8 and 9 CISG to be features of good faith and specifically noted that communication and coop56

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German Supreme Court, 31 October 2001, available at http://cisgw3.law.pace. edu/cases/011031g1.html. Appellate Court Cologne, 21 December 2005, available at http://cisgw3.law.pace. edu/cases/051221g1.html. Ibid.

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eration between business partners is the overarching theme by which business must be conducted which includes the application of the CISG. The District Court Neubrandenburg came in essence to the same conclusion and pointed out that the principle of good faith prohibits to burden the other party to familiarise itself with clauses which were either not sent to them or are not of customary status.59 Furthermore, the Netherlands Arbitration Institute also looked at the applicability of terms and conditions. The buyer followed the established practice of sending a signed copy of the faxed confirmation back to the seller without expressing its disagreement with the General Conditions. The tribunal held that: “By failing to express its disagreement with the General Conditions or to deviate from its practice of returning a signed copy of the faxed confirmation, the buyer impliedly accepted them and the seller was allowed under the principle of good faith to rely on the buyer’s acceptance.”60 These cases have demonstrated that good faith was applied to contractual relations of the parties and is applied widely. Good faith is an essential tool to bind individual provisions into a cohesive framework which regulates the international sale of goods not only on a regulatory basis but also the rights and duties of the parties.

F. Conclusion Case law and academic writing make it clear that good faith is not only applied to the interpretation of the Convention only but also governs the rights and duties of the parties. It may have been a compromise position to construct Art. 7 CISG but subsequent development of the CISG resolved the uncertainty which existed in the drafting stage. Good faith therefore is arguably the connecting factor which gives meaning to provisions and the Convention as a whole where there is no explicit ruling. It is the “glue” that joins general principles to particular rules. It can be argued that the drafters of the CISG – by design or good luck – have avoided the need for courts to “adopt a doctrine of good faith (…) to improve contract enforcement”61 by linking good faith to specific situations described in various provisions.

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District Court Neubrandenburg, 3 August 2005, available at http://cisgw3.law. pace.edu/cases/050803g1.html. Netherlands Arbitration Institute, 10 February 2005, available at http://cisgw3. law.pace.edu/cases/050210n1.html. Stack, The Two Standards of Good Faith in Canadian Contract Law, (1999) 62 Saskatchewan Law Review, 210 et seq., 223.

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It is also obvious that the CISG has not defined what exactly is meant under the term of good faith. This is not unique as even Germany, with arguably the longest history of a codified rule invoking good faith, has not succeeded in codifying this term. Arguably a definition of good faith is therefore not needed in order to understand and apply such a concept if one reflects that: “[a] study not of contract law, but rather of contract practice is the key to understanding the economic properties of contracting that are necessary to work out sensible uniform laws for commercial purposes.”62 The simple fact is that good faith allows a court or tribunal to give greater certainty to contractual relationships. The critics who claim that good faith generates uncertainty and ambiguity and should therefore not be applied is in reality “an objection to the application by courts of generalised concepts and standards instead of rigid rules.”63 It is interesting to note – and not surprising – that attempts at understanding good faith tends to bring out similar arguments. In Australia, Peden argued that: “If it is accepted that good faith has a broad impact across many contract law principles, then it will be quite rare for courts to need to incorporate a separate and autonomous obligation. In fact, most of the cases to date where such an obligation has been implied could be seen as examples of cases of basic construction of contracts, which is informed by good faith.”64 The major difference between Australian domestic law and the CISG is that in the latter good faith is expressly recognised as an obligation and is applicable to all contracts and is not an “obligation which has been implied.” The CISG in Art. 7(1) CISG has recognised the fact that contractual parties can never foresee all circumstances. The purpose of good faith simply is “to act as a ‘leveller’ which brings events into line, which was either subjectively or objectively agreed upon in the contract.”65 62

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Amissah, The Autonomous Contract: Reflecting the borderless electronic-commercial environment in contracting, presentation at seminar on legal information, Bergen September 1997, available at http://www.cisg.law.pace.edu/cisg/ biblio/amissah2.html. Mason (op. cit. fn. 40), 94. Peden, Contractual Good Faith: Can Australia Benefit form the American Experience?, (2003) 15 Bond Law Review, 175 et seq., 202. Zeller (op. cit. fn. 35), 227.

An Economic Analysis of the CISG Marta Cenini and Francesco Parisi

A. Introduction The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an important landmark in international trade.1 This Convention, which has been ratified by 71 countries (as of July 2008), contains many vital steps in standardising business agreements throughout the world. The effect the CISG has had on reducing transaction costs and the volume of international trade has been recently analysed.2 Considering the objectives of the Convention, it has been praised for providing a valuable set of default rules for international contracts of sale. This article analyses some of the substantive provisions of the CISG through the lens of law and economics.

B. Formation of the Contract: The Problem of Efficient Reliance In most cases involving the international sales of goods, the parties are not physically proximate, meaning that offer and acceptance are not simultaneous. Part II of the CISG governs contract formation stating that an acceptance is considered binding, and a contract is formed, only when the acceptance reaches the offeror, provided that the latter has not made another contract with someone else during the time that the acceptance takes to reach the offeror and has revoked the offer (Art. 16 CISG). This rule is the so-called receipt rule.3 1

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United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980, Treaty Document Number 98-9 (1984), UN Document Number A/CONF 97/19, 1489 UNTS 3. Lehn, The CISG: Perspectives from an Economist, in: Flechtner/Brand/Walter (eds.), Drafting Contracts under the CISG, Oxford 2008, 264 et seq. On the one hand, Art. 15 CISG states that “an offer becomes effective when it reaches the offeree”, on the other hand, Art. 18 CISG says that “an acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror”.

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An alternative rule that could have been chosen by lawmakers is the socalled mailbox rule which, on the contrary, states that an acceptance is effective at the moment the offeree posts it, regardless of when the offeror actually receives it. The rationale underlying such a rule is that the contract is considered formed when there is (even an abstract) meeting of minds, which is exactly when the offeree decides to send the offeror a message of acceptance. The first and obvious advantage of the mailbox rule is that the offeree has a longer period to accept the offer: given, for example, that the offeree should answer the offeror by the 30th of July, the offeree will be able to put the acceptance message in the mailbox on the 30th, while under the receipt rule the acceptance message should arrive by the 30th. Furthermore, under the mailbox rule the offeror has to remain ready to perform for a longer period of time that is the fixed deadline plus the number of days necessary either to receive the offeree’s acceptance or to know whether the offeree has sent his acceptance. The second, and more important, consequence of applying the mailbox rule is that the offeree has incentives to rely on the contract very early on, to be more exact, when he sends the message of acceptance and so before the offeror’s knowledge of his acceptance. On the other hand, the receipt rule gives the offeror more time to look for other contracting parties (and as such to revoke his offer) and encourages the offeror to make alternative contracts. Literature of law and economics4 underlines that whichever of the two rules is superior and preferable depends on which rule is better able to incentivise early reliance by the offeree or to give freedom to the offeror to make alternative contracts. Having chosen the receipt rule, the Convention consequently provides an incentive for the offeror to continue bargaining with other parties. Furthermore, in the context of a contract between parties who are in different countries, as is the case when contracts are governed by the CISG, the receipt rule appears to be preferable, as it states more precisely when the contract is made for both parties. Actually, this is only the tip of the iceberg of a more complex problem involving the question of what in fact should be considered an offer and an acceptance: a communication that exposes the offeror to the risk that an acceptance occurs and a binding contract is formed. It is very rare that contracting parties precisely define how they intend each communication to be exchanged and if they mean to be legally committed to the other party or not. When bargains fail, one party may try to claim that there was no commitment and that both of them were free to exit the negotiations. The other 4

Shavell, Foundations of Economic Analysis of Law, Cambridge/Massachusetts 2004, 329 et seq.

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party may claim to have relied on the first party’s conduct and statements and that a legal commitment was already reached. The CISG, like many other similar conventions and laws,5 uses very few words about such a complex problem, saying just that “a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance” and that “a proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price” (Art. 14(1) CISG); and that “a statement made by or other conduct of the offeree indicating assent to an offer is an acceptance” (Art. 18(1) CISG). These kinds of definitions leave a very wide range of cases unsolved. Law and Economics literature6 has deeply analysed these concerns. The traditional point of view7 underlines that courts called on to decide cases focusing on contract formation should try to reconstruct the parties’ most likely intentions. Recently, other authors,8 accepting the validity of this assumption, have focused the attention on the efficient incentives to reliance. These authors start from the principle that, at times, a legally enforceable commitment is the only way to induce the other party to rely efficiently and to choose an efficient level of reliance.9 Reliance, as well known in economic literature, is a form of “relationship-specific investment”: any action taken by a party relying on the fact that a contract will be concluded, increases his benefits if the contract is then concluded and performance takes place; but leaves the relying party worse off than if he had not relied, if the other party does not accept the proposed transaction and the bargaining fails. When parties are still negotiating, a way to give incentive to efficient reliance is to consider in determinate cases the non-relying party, who is now trying to withdraw from the 5

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See for example, Restatement of Contracts (Second), section 24 (1979), which states that a communication can be interpreted as an offer if it is “so made as to justify another person in understanding that his assent to that bargain (…) will conclude it”. Corbin, Offer and Acceptance, and Some of the Resulting Legal Relations, 26 Yale Law Journal (Yale L. J.) (1917), 169 et seq.; Llewellyn, On our Case-Law of Contract: Offer and Acceptance (pts. 1 & 2), 48 Yale L. J. (1938), 1 et seq.; Craswell, Offer, Acceptance, and Efficient Reliance, 48 Stanford Law Review (Stan. L. Rev.) (1996), 481 et seq.; Katz, The strategic structure of offer and acceptance: game theory and the law of contract formation, 89 Michigan Law Review (Mich. L. Rev.) (1990), 215 et seq. Corbin (op. cit. fn. 6); Llewellyn (op. cit. fn. 6). Craswell (op. cit. fn. 6), 490. Goetz/Scott, Enforcing Promises: An Examination of the Basis of Contract, 89 Yale L. J. (1980), 1261.

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negotiations, as legally committed. That is, in those cases where that party is trying to exploit the fact that the other party has relied on a successful negotiation (because a better offer has come along or simply to extort the other party for a higher price), but if he had been asked to commit at the time the other party had to rely, he would have wanted to be committed.10 In other words, if the relying party cannot induce the other party to commit, he would bear all of the costs of unsuccessful reliance, but on the other hand would not capture all of the benefits of his reliance, leaving the process economically inefficient. If it becomes unprofitable for the nonrelying party to make the contract, he will withdraw from the negotiations without having to pay any damages. Meanwhile, the relying party would not capture all of the benefits of his reliance as the non-relying party can gain a higher price by threatening the relying party not to make the contract. It is important to note that in these cases, notwithstanding the fact that the non-relying party is trying to withdraw from negotiations, it is in his interest to be legally committed to such an agreement. If an efficient level of reliance is chosen, the expected value of the total transaction increases and both the benefits of the relying party and the gains of the other party may increase as well. Any general rule on contract formation that intentionally leaves a wide range of cases to be decided by the courts on a case by case basis, clearly has the disadvantage that it gives the courts a very arduous task: deciding whether the level of reliance was efficient and increasing the expected value of the transaction at the time the relying party in fact relied. On the other hand, especially with regards to contracts involving international trade, it could be very difficult for lawmakers to choose default rules on contract formation: under the CISG, the notion of “goods” covers all objects that form the subject-matter of commercial sale contracts, from a simple machine to computer programs, and Art. 3 CISG expressly states that contracts for the supply of goods to be manufactured or produced shall be considered sales.11

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11

Craswell (op. cit. fn. 6), 492 et seq. As will be analysed more in-depth later in this contribution, when a contract is already made, and the promisee awaits the performance of the promisor, a way to give incentive to the relying party to choose an efficient level of reliance is to fix the amount of damages due by the breaching party to a sum equal to the expectation damages parametered to a reasonable level of reliance. That is unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production, and unless the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services (Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), Oxford 2005, Art. 3 no. 1 et seq.).

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It would be very difficult to choose a default rule and so any chosen rule would be necessarily inefficient in a wide range of cases and would induce parties to negotiate to change them, which clearly increases private transaction costs. However, there are some aspects that are advantageously solved by a default rule. One of them is the question of how to interpret silence or ambiguous conduct of the offeree after the other party’s offer. On this matter the CISG is very clear and states that: “Silence or inactivity does not in itself amount to acceptance” (Art. 18(1) CISG). A default rule that, on the contrary, had stated that in cases of silence, a commitment should have been implied, would have represented a far greater imposition on the silent party; probably a default rule like that would have been agreed by parties only after they had discussed it explicitly.12

C. Fundamental Breach and the Principle of Maintenance of the Contract Part III of the Convention begins with Art. 25 CISG, which defines when a breach of contract may be considered fundamental. This is when the breach “results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract” (Art. 25 CISG). Art. 49(1) and Art. 64(1) CISG, on the other hand, state that if, and only if, the breach of contract committed by one of the parties is fundamental, is it possible for the other party to declare the contract avoided13 and to be released from the contract. In the preparatory work on the CISG and at the final Conference in Vienna, draftsmen decided that the seriousness of the breach should not be defined as referring to the amount of damages caused by non-performance, but rather referring to the interests of the promisee as they arise from the contract.14 Conversely, as a general remedy the CISG establishes the priority of the right to require performance to the party who has failed to perform: on one hand, if it is the seller who fails to perform, the buyer has a right to require performance under Art. 46 CISG (in particular the obligation to deliver 12 13

14

Craswell (op. cit. fn. 6), 485, 524-525. Note that Art. 26 CISG states that the declaration of avoidance may be unilateral and is effective only if made by notice to the other party. Therefore, this right can be exercised directly by the parties without the immediate intervention of the judge. Unlike hypothetical remedies of damages, which require the intervention of third party decision-makers for the quantification of the damages, all the remedies contemplated by the CISG are at the parties’ immediate disposal. Such a choice and design of remedies is wise given their immediate effect towards the minimisation of adjudication costs. Schlechtriem (op. cit. fn. 11), Art. 25 no. 1 et seq.

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goods in conformity with the contract); on the other hand, if it is the buyer who fails to perform, the seller has a right to require payment, to take delivery and performance of any other obligation of the buyer (Art. 62 CISG). In adopting that system of remedies, the Convention follows an approach and tradition underlying in particular the legal system of Germany, and in general of the continental European system. On the other hand, the Common Law tradition has a different approach in this matter and courts, in cases regarding sale of goods, have granted specific relief in very few circumstances. This remedy was sometimes given by separate courts of equity but generally only when the remedy of damages was deemed inadequate. At a legislative level, under the Uniform Commercial Code (UCC), the buyer can require performance only if goods are “unique” for him and, at the discretion of the court, “in other proper circumstances” (section 2-716 UCC). “Uniqueness”, in this context, means that the good has no substitute or equivalent with regards to its attributes or properties.15 This contrast between the Civil and Common Law legal tradition led the draftsmen of the Convention to the introduction of a compromise provision, namely Art. 28 CISG, which states that a court is not bound to enter judgment for specific performance unless it would do so under its own law in respect of similar contracts of sale not governed by the Convention.16 The extension of the remedy of specific performance to a wider range of cases is a question that has interested many authors of the law and economics literature.17 Generally speaking, it can be said that the law and economics literature concludes that specific performance is an efficient remedy in many cases and, in Common Law, should be applied more frequently. One main reason that parties might have a preference for the remedy of specific performance, rather than damages, is that it is usually very difficult for courts to quantify exactly the amount of damages and consequently there is a high risk that they either exceed or fall short of the actual loss.18 With 15

16

17

18

From an economic perspective, the substitutability of a particular good is determined by observing consumer behaviour; elasticity of demand shows the degree of substitutability of a good. Farnsworth, The Convention on the International Sale of Goods from the Perspective of the Common Law Countries, in: La Vendita internazionale, Milan 1981, 14-15. Kronman, Specific Performance, 45 University of Chicago Law Review (U. Chi. L. Rev.) (1978), 351; Schwartz, The Case for Specific Performance, 89 Yale L. J. (1979), 271; Shavell, Specific performance versus damages for breach of contract, (the paper can be downloaded from http://www.law.harvard.edu/programs/olin_ center and from http://papers.ssrn.com) 2005, 1. Kronman (op. cit. fn. 19), 360; Schwartz (op. cit. fn. 17), 274. The author in particular underlines that “[t]he magnitude of this risk is inversely related to the completeness and reliability of the information on which the court bases its award. At one ex-

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regard to the CISG, that problem could often arise because international trades may regard many collateral contracts, with several parties involved in different aspects: production of the goods, assembly thereof, sale and delivery to a party who is in a different country and may have already agreed with another party to resell the goods. Transaction costs to reach an agreement with international parties are often very high and involve complex negotiations. If one party does not perform, and his breach does not result in a detriment to the main interests of the dealing, it is surely more costly to abandon the whole plan and pay damages, than to save what has already been done and request specific performance. Specific performance appears to be the most accurate method of compensation for the loss suffered by the promisee because it gives him the precise performance he purchased.19 Bound to this aspect, contracts governed by the CISG often create a surplus not only for the buyer but also for the seller who, for example, could take advantage of the favourable exchange of currency paid by the counterpart or could think to reinvest the money in other profitable activities. While the value of monetary price is usually deemed equal for the two parties, and therefore there is no surplus from the transfer of money from one party to the other, in the case of an international contract there could be room for such a seller’s surplus. As will be analysed more in-depth in the following sections of this contribution, when bilateral contracts are at stake, the remedy of specific performance could be deemed preferable since it avoids allowing the breached-upon party, who has undertaken investments in reliance of the other party’s counter-performance, to lose the surplus that he could have gained from the counterpart’s performance.20 The traditional moral objection that requiring performance interferes with the promisor’s liability more than requiring the payment of money, is not consistent. First of all, within international trades, the promisor sells roughly fungible goods or is in the business of selling unique goods. As Schwartz21 underlines, goods are, in either circumstance, assets to the promi-

19 20

21

treme, where there is a well-developed market generating evidence of substitutability, this risk is minimal. At the other extreme, where there is no market or at most a few isolated transactions, this risk is substantial. There is a point between these two extremes at which the risk becomes unacceptably large (…). This point separating those contracts that are specifically enforceable from those that are not – the point to which the uniqueness test obliquely refers”. Schwartz (op. cit. fn. 17), 274. Fon/Parisi, Plaintiff in Default: An Economic Analysis of Contracts with Mutual Obligations, (the paper can be downloaded from http://papers.ssrn.com/abstract= 1020669) 2007, 1; Parisi/Cenini, Interesse positivo, interesse negativo e incentivi nella responsabilità contrattuale: un’analisi economica e comparata, Rivista di diritto civile (Riv. dir. civ.) suppl. 2008, 231. Schwartz (op. cit. fn. 17), 296-297.

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sor much like cash; requiring their delivery is not relevantly different from requiring the delivery of cash. Shavell22 adds that parties will prefer the remedy of specific performance when the breach regards contracts to convey existing goods, as in the case of the CISG. In this case, as the goods already exist, there are no problems with the production costs.23

D. The Principle of Conformity of the Goods and Functions of Conventional and Legal Warranties Art. 35 CISG reads that: “The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract”. The article thereafter states that the seller is liable 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.24 Finally, Art. 39 CISG states that the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity “within a reasonable time after he has discovered it or ought to have discovered it” and that in any event, the notice to the seller must be given at the latest “within a period of two years from the date on which the goods were actually handed over to the buyer”.25 It follows that under the Convention the seller bears specific responsibilities in case the quality or the performance of the purchased good does not conform to the buyer’s specifications and contractual expectations. Art. 35 CISG limits the scope of warranties prescribed by the Convention to failures of the so-called “search properties” of a sold item. As is well known, this kind of quality can be observed by both parties at the time of the purchase and are the object of an information search by the buyer. Conversely, other characteristics of a sold good, such as durability or functionality, that cannot be directly observed at the time of purchase and are only revealed through the use of the item over time (thus they are described as

22 23

24

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Shavell (op. cit. fn. 17), 13 et seq. Conversely, Shavell (op. cit. fn. 17), 13 et seq., underlines that when contracts are to produce new goods or provide services and the promisor fails to perform, parties would tend to prefer the remedy of damages, essentially because of the problems that would be created under specific performance if production costs were high. As one will see in the following paragraph, the time at which the risk passes is governed by the parties’ agreements, commercial usages – particularly Incoterms – or practices, or alternatively by Art. 67-69 CISG. Note that at the Diplomatic Conference the question of the two year limitation period was one of the most contentious issues.

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“experience properties”) are not covered by the legal warranty. Nonetheless, these non-verifiable characteristics can be the object of a special form of guarantee (the guarantee of durability). Finally, those characteristics that cannot be verified either through search or experience are classified as “credence properties”.26 Risk adverse parties may seek to protect themselves through warranties. From an economic perspective, conventional and legal warranties have three main functions: a) insurance; b) signaling; and c) incentive functions. The pursuit of these functions is not always possible with the choice of a single warranty instrument. As shown in Table 1 below, only for a small subset of situations does the same level of warranty yield the optimal balance of risk allocation and incentives between the parties.27

Insurance Signaling

Incentives

Does not Matter Both Risk Neutral Symmetric Information

Full Warranties Buyer Risk Averse Seller has Private Information Exogenous Risk Seller Controls Risk

Partial Warranty Both Risk Averse Both have Private Information Bilateral Precaution

No Warranty Seller Risk Averse Buyer has Private Information Buyer Controls Risk

Table 1: Parameters for Choice of Optimal Warranties

It is important to consider the choice of the equilibrium level of warranties that the parties would contractually agree upon under different conditions. As summarised in Table 1, from an economic point of view the equilibrium choice of level and duration of a contractual warranty depends on a) the risk propensities of the parties; b) the informational asymmetries between the parties; and c) the determinants of the probability of a product’s lack of conformity or breakdown. From an economic incentive viewpoint, different op26

27

Parisi, The Harmonization of Legal Warranties in European Law: An Economic Analysis, 52 American Journal of Comparative Law (Am. J. of Comp. L.) (2004), 403 et seq. (the paper can also be downloaded from http://papers.ssrn.com/ abstract_id=276993); Wehrt, Warranties, in: Bouckaert/Boudewijn/de Geest (eds.), Encyclopedia of Law and Economics, vol. III, Aldershot 2000; Darby/Karny, Free Competition and Optimal Amount of Fraud, 16 Journal of Law and Economy (J. of Law and Econ.) (1973), 67. For the sake of graphical simplicity, Table 1 considers only three discrete values of warranties (i.e., full, partial, or no warranty). In real life, levels of warranty are continuous and the optimal level of a conventional warranty will be chosen by lawmakers and by the contracting parties according to the relative weight attached to each of the three parameters of optimisation (i.e., optimal level of insurance, information disclosure and performance incentives).

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timal levels of warranty should be chosen in all such cases in order to create the optimal balance of risk allocation and incentives. In the following sections the results anticipated in Table 1 are considered. An examination will be carried out on the level of conventional warranties that parties would have chosen if they had negotiated it; these results will then be compared with the warranty imposed on sellers by the Convention.

I.

Exogenous Risk: Warranties as Insurance

When the probability of non-conformities, defects, or failures of the sold goods is merely exogenous28 and the information available to the contracting parties at the time of sale is symmetric,29 the allocation of the risk of product defects to one party or the other has no signaling or incentive effects: the optimal allocation of the risk is exclusively determined by the relative risk aversion of the parties. When the seller is risk neutral and the buyer is risk averse, which often occurs when a consumer30 purchases goods from a professional seller,31 the contracting parties would naturally bargain for a full warranty in case of product defects. In this case, the risk of exogenous defects is entirely borne by the seller. An opposite result would be obtained in the converse case of a riskaverse seller and a risk-neutral buyer. Here, the buyer would be the best riskbearer and thus – if all other conditions apply – the parties would naturally 28

29

30

31

The risk is exogenous when neither the seller’s level of care in production nor the buyer’s level of precaution in the use of the item can influence the probability of defects. Buyers and sellers have symmetric information, for example, when the percentage that a produced item becomes defective within a short period of time is known ex ante by both parties. In this case the parties have similar expectations concerning the failure rate of the sold items. It is important to note that by virtue of Art. 2(a) CISG, the Convention does not apply to the sales of goods bought for personal, family or household use. Schlechtriem (op. cit. fn. 11), Art. 1 no. 59 et seq., underlines that although the CISG does not apply solely to commercial sales contracts (Art. 1(3) CISG), the exclusion of goods bought for personal use limits its sphere of application de facto to commercial purchases, thus excluding the consumer purchase. The application of the Convention is therefore conditional upon the goods being acquired for business purposes. Professional sellers are generally assumed to be risk-neutral because they are in a position to self-insure, distributing the risk of non-conformity over a large number of transactions.

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bargain for a sale with no warranty. The buyer serves as the seller’s insurer for the exogenous risk of product failure. In case of both parties with some positive level of risk aversion, the optimal allocation of risk is mixed. Since risk aversion induces increasing marginal costs (in utility terms) with an increase in the value of the risk, parties would naturally bargain to split the risk of product defect or failure, with a resulting choice of partial warranty. The last case to be considered is when both parties are risk-neutral, which occurs when both seller and buyer are professionally involved in the business of trade. In this case, alternative allocations of the risk will yield identical levels of aggregate utility; thus the parties will not have any incentive to reallocate such risk.

II.

Asymmetric Information: Warranties as Signals

At this point one is to consider the different group of cases in which the risk is still exogenous but is known with different degrees of accuracy by the contracting parties. Assuming that both parties are risk-neutral, so that alternative levels of warranty are equally desirable from the risk allocation point of view, the only relevant criterion for choosing amongst different levels of warranties is the effect that alternative warranty protection may have on the parties’ incentives and ability to reveal information. In the law and economics literature, this function of conventional warranties is known as signaling: the choice of warranty reveals truthful and credible information to the other party. When the seller has private information, a warranty can be viewed as signal of quality. Imagine a scenario where different producers are faced with a varying probability of defective products. In this case, producers cannot distinguish between defective and non-defective items at the moment of sale, but they do have better information than the buyers concerning the percentage of produced goods that will likely become defective within a short period of time.32 In this scenario, the buyer will have an expectation of the failure rate of the sold goods equal to the market average, while the seller will have an expectation equal to his specific production sample.33 The 32

33

The seller knows the actual probability of defects of his products and can compute the resulting warranty costs. Low-quality sellers will face a higher probability of product defects and thus will also face higher warranty costs. Such asymmetric information creates a problem that is similar in nature to the lemons problem first considered by Akerlof, The Market for “Lemons”: Qualitative Uncertainty and the Market Mechanism, 84 Quarterly Journal of Economy (Quarterly J. of Econ.) (1970), 488.

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seller’s willingness to offer a warranty (and to add the price of the warranty to the sale price) is a credible signal of the information available to the seller.34 Warranties can be seen as valuable “tools of information transfer”.35 On the other hand, when it is the buyer who has private information, warranties can be seen as signals of risk. A buyer may have private information concerning the future use of the goods and the potential harm that he would suffer in case of failure or defect of the purchased item. If the seller cannot differentiate a high-loss buyer from a low-loss buyer, a single level of warranty will be offered to all buyers and the buyer’s willingness to forego warranty coverage can signal the actual level of risk that he faces. In case of bilateral asymmetry, sellers will offer a broad variety of warranty coverage in order to signal their private information concerning quality, while buyers will demand varying levels of warranty coverage to signal their individual risk level. In equilibrium, high defect rate sellers will serve customers with small individual losses, whereas low defect rate sellers will sell to more sensitive buyer.

III. Endogenous Risk: Warranties as Incentive In real life, the probability of defective goods is not merely exogenous because it can be influenced by the behaviour of the parties. In case of endogenous risk, warranties operate as incentives for the parties to invest in the production and preservation of quality. Disregarding insurance and signaling concerns in the choice of warranty instruments, the main hypothesis regards the case in which only the seller can influence the probability of a product’s defect or non-conformity. Here the only relevant variable is the effort of such a party to reduce the defect rate of the sold goods and seller’s efforts shall be undertaken at an optimal level. Since the seller is in the best position to minimise the risk of a product’s defect, efficiency requires that whoever can reduce the harm at the lowest cost should do so, in turn leads to shift on such a party the primary liability for the case of product’s failure. When both buyer and seller can affect the probability of a defect or product’s failure, there are two different solutions for the warranty problem. If it is possible to ascertain ex post whether a certain defect is attributable to one or the other party, the two incentive problems can be separated and the optimal warranty would provide full coverage for those risks that are under the control of the seller and no warranty for those risks that are under the 34

35

Through the mechanism of contractual warranties, sellers facing different exogenous probability of product defects will be able to offer easily observable and credible information to potential buyers. Wehrt (op. cit. fn. 26), 182-187.

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control of the buyer.36 However, in all such cases where the causal contribution to the defect, lack of conformity or failure of the product cannot be ascertained ex post, no first-best outcome can be created by a single warranty instrument. A second-best outcome can be pursued through partial warranties that leave the incentives of both parties partially aligned.37

IV. Warranties under the CISG The economic model of optimal warranties analysed above provides valuable guidance in the design of default legal warranties and in the study of the solution proposed in the Convention. It is important to note that since the CISG promulgates a default warranty protection scheme, the parties’ freedom of contract is not hindered and contractual autonomy can be exercised in order to set an efficient level of warranty that is consistent with the results of the economic model. Parties are free to accommodate their idiosyncratic needs with the choice of an unconventional warranty instrument. First of all, the limitation imposed by Art. 35 CISG, providing a warranty concerning failures of search properties, is consistent with the economic model. Credence properties are not ascertainable by a third party decisionmaker. Equally sensible is the exclusion from the standard legal warranty on the goods’ search attributes that can be inspected by the buyer, at the time of purchase, free of cost.38 Such exclusion is explicable as a method to create incentives for the ex ante information and reduction of ex post litigation. Conversely, features that are not easily observable or searchable by the buyer fall within the scope of the warranty protection, thus creating disclosure incentives for the seller if he possesses private information that is not readily observable by the buyer. The CISG introduces a subjective test of awareness where there would have otherwise been a merely objective test of conformity. Secondly, the economic model evidences that the imposition of a full legal warranty over the typical lifetime of a product would only be justified in a very restrictive set of circumstances, in particular where the probability of product failure is exclusively controlled by the seller. In all other situations of bilateral precaution and whenever other considerations (e.g. relative risk aversion of the parties and informational asymmetries) call for truncated forms of buyer protection, unlimited lifetime warranties would be inefficient. 36 37 38

Wehrt (op. cit. fn. 26), 187 et seq. Parisi (op. cit. fn. 26), 17-18. See Art. 35(3) CISG (stating that the seller is not liable for any lack of conformity of the goods if “at the time of the conclusion of the contract [note: not at the time of delivery] the buyer knew or could not have been unaware of such lack of conformity”).

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In this respect, the Convention sets an efficient level of partial warranty where the risk of non-conformity, defects, or failure of the sold goods is borne by seller only for a limited period of time and only with regards to particular characteristics of the good. In corroboration of this analysis, empirical studies that have examined conventional warranties adopted in the market in the absence of legal constraints are consistent with the prediction of the economic model. Even in the absence of some minimum legal protection, parties bargain or expect some minimum level of protection. Likewise, full lifetime warranties are rarely observed in the marketplace.39 The dominance of partial warranties is easily explained by the economic model as well. The three main goals of warranty instruments (insurance, signaling and incentives) often require the adoption of different levels of warranty. Under such circumstances, the global optimisation over all such maximands requires the balancing of the marginal benefits of the level of warranty in each of the three dimensions. An increase in warranty level may often be beneficial for the buyer’s insurance function but might reduce the incentives for the buyer to signal his subjective level of risk or to adopt precautions to avoid subsequent product failure. At the same time, a decrease in warranty level may create improved incentives for the buyer to take precaution in the use of the product, but may frustrate the goal of providing adequate insurance for the seller’s signaling of the quality of the good or incentives for improving the quality of the sold products. Under all such circumstances where there are conflicting aims of the warranty system, and where it is not possible to determine ex post whether a product failure is causally attributable to one or the other party, the best achievable choice of warranty will represent a second-best optimum, where the sum of marginal benefits of the warranty in all three dimensions is equal to the sum of the marginal costs.

E. Passing of Risk: The Delivery of the Goods and the Cheaper Cost Avoider The Convention does not govern the transfer of title from the seller to the buyer (Art. 4(b) CISG), but provides rules that determine the transfer of risk for damage to the goods. The fundamental rule is stated in Art. 66 CISG which reads: “Loss of or damage to the goods after the risk has passed

39

Priest, A Theory of the Consumer Product Warranty, 90 Yale L. J. (1981), 1297. Reprinted in: Goldberg (ed.), Readings in the Economics of Contract Law, Cambridge 1989, 174; Wehrt (op. cit. fn. 26).

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to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller”. The risk that goods may be accidentally lost or damaged between the conclusion of the contract and its performance involves the problem of allocating that risk to one of the contracting parties. Regarding contracts of sale, the “cheapest cost avoider” criterion leads to allocate that risk on the seller as long as he possesses the goods. Therefore, until he delivers the goods to the buyer or hands them over to the first carrier for transmission, the seller should bear the risk of accidental losses or damages as he is in the best position to minimise this risk. On the other hand, placing the transport risk on the buyer after the goods have been handed over to the first carrier is justified by the consideration that after the arrival of the goods the buyer is in a better position than the seller to ascertain any damage to the goods which has occurred during the transport. Honnold40 suggests that in case of “hightech” goods, which only the seller can repair, the buyer may wish to consider negotiating over the clause, in order to take over responsibility for the goods only after arrival at their destination. In any case, the practical significance of Art. 67 CISG is in fact limited. In international trade, parties usually agree to specific terms (CIF, FOB, “ex ship” clause, etc.), which take priority over the CISG rules by virtue of Art. 6 and Art. 9 CISG.

F. Damages: Efficiency of Awarding Expectation Interest and the Problem of Overreliance Art. 74-77 CISG govern the amount of damages due in case of a breach of contract. It is stated that the sum must be equal to the loss, including the loss of profits, suffered by the non-breaching party as a consequence of the breach. This definition corresponds to the notion of expectation interest, which includes lost profits or expectations of the non-breaching party and aims at putting the latter in the same position in which he would have been if the contract had been performed effectively. The law and economics literature has very often underlined that the measure of expectation damages is best suited to incentive optimal performance and reliance investments on the promisor and the promisee. The promisor owes performance to the promisee and invests in performance efforts; the promisee awaits the promisor’s performance and undertakes reliance investment.

40

Honnold, Risk of Loss, in: Galston/Smith (eds.), International Sales, New York 1984, § 368.2.

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Damages can be viewed as the “price” paid by promisor for breaching his contractual obligations and an increase in the price of the breach (that is, a higher amount of damages to be paid in case of breach) will induce the promisor to undertake greater efforts towards performance, which is necessarily costly but also diminishes (but not eliminates) the probability of nonperformance.41 The promisee, who awaits performance, also may undertake investments relying on the promisor’s performance. As has already been seen, reliance is a form of “contract-specific investment”: any action taken by a party relying on the fact that the contractual counterpart will perform, increases his benefits if the promisor, in fact, performs but makes the relying party worse off than if he had not relied, if the other party breaches the contract. Efficiency requires that the promisee takes into account not only the expected increase in the value of performance but also the potential increase in loss in the event of non-performance.42 Damage remedies should aim at both encouraging an optimal level of performance investments and an optimal level of reliance. Efficiency requires that the level of performance efforts and reliance investments are to be chosen in order to maximise the expected benefit from the contract minus the performance costs borne by the promisor.43 Economic analysis has shown that to encourage optimal performance efforts, the promisor should be threatened by expectation damages in case he breaches his contract. Expectation damages efficiently incentive the promisor because it makes him internalise the entire costs of his breach, which includes the foregone profit that the promisee would have obtained from the fulfilled contract. However, expectation damages have a disadvantage: they induce the promisee to undertake excessive reliance investments. Any action taken by 41

42

43

Note that even an optimal level of efforts by the promisor does not guarantee successful performance and a possibility is left that a breach of the contract occurs: in other words, performance is not bound to the promisor’s efforts in a deterministic way but only probabilistic. Furthermore, it is considered that performance efforts affect only the probability of performance, while performance quality is fixed. Mathematically, one can say that the probability of performance, p (x), increases with the promisor’s efforts, p’ > 0 at decreasing rate p’’ < 0. Note that the gain πA(y) obtained by promisee when performance is carried out – and consequently, the expectation damages due by the promisor to the promisee when a breach occurs – increase with reliance, though at a decreasing rate: G’2 > 0 and G’’< 0. Max H = p(x) πA(y) + [1 – p(x)] πI(y) – y – x. x, y Efficeny requires choosing a level of debtor’s effort (x) and promisee’s reliance (y) to maximise promisee’s expected benefit from the contract (p(x) πA(y)+[1-p(x)] πI(y)-y) minus the performance costs borne by debtor (x).

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the relying party, as seen, increases his benefits if the promisor, in fact, performs but makes the relying party worse off if the other party breaches the contract. The amount of expectation damages, in fact, varies in accordance with the variation in reliance. Here reliance investments increase the benefit that the promisee can obtain from the contract and expectation damages are equal to the entire foregone benefit of the contract. It follows that the promisee has an incentive to rely indefinitively: if the promisor performs, he would gain the entire benefit that comes from the contract and its investments in reliance; if the promisor does not fulfil his obligations, expectation damages, increasing as reliance investments increase, will include his reliance investments as well. This advantage taken by the promisee creates inefficiency because it makes the breach of the contract more costly for the promisor and puts on the breaching party the cost of reliance even when the reliance investments of the promisee are socially inefficient. A way to avoid this obstacle is to parameter the amount of damages due by the breaching party not to the actual investments undertaken by the promisee but to an abstract level of reasonable reliance that is socially optimal. In other words, it is necessary to impose a constraint on marginal damages, as to avoid increasing of damages as reliance investments themselves increase. In this way, the amount of damages paid by the promisor would be the same both in case of overreliance (that is when the promisee invests too much) and of underreliance (that is when the promisee invests in reliance less than the optimal level). The entire risk of overreliance would be borne by the promisee. The rule that could be invoked to introduce the parameter of reasonable reliance into the computing of expectation damages is the so-called mitigation rule. Art. 77 CISG, like many other laws on contractual damages, states that if a party breaches the contract, the other party must take such measures as are reasonable in the circumstances in order to mitigate the losses resulting from the breach. If the non-breaching party fails to take such measures, the amount of damages due by the other party may be reduced. Such a rule could be interpreted as a duty to mitigate not only the damages that come from the breach, but also the damages that over-reliant conduct can create before the breach has occurred. In this way, a constraint on marginal damages would be imposed and expectation damages would be limited to a parameter of abstract and reasonable reliance.44 The promisee, however, has always the possibility to subjectivise what is to be considered reasonable reliance, for example informing the other party about his intention of undertaking special investments while he is awaiting the promisor’s performance. Note that since the two parties have already entered into negotiations, transaction costs in this case will be very low. In this way, what is subjectively reasonable for the promisee becomes foreseeable for the promisor at the time of the conclusion of the contract (Art. 74 CISG). 44

Parisi/Cenini (op. cit. fn. 20), 234 et seq.

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G. Forseeability of Loss as a Limit on Liability: The Contemplation Rule as a Penalty Default The last aspect, considered at the end of the previous paragraph, introduces the problem of the so-called information-forcing default rules. From an opposite point of view to what was considered above, the contemplation rule (Art. 74 CISG) can be seen as a way to force the promisee to reveal information in his possession in order to obtain, when the promisor fails to perform, a fully compensatory amount of damages. In a famous article, Ayres and Gertner45 introduced the concept of “penalty default” as the default rules that – contrary to the traditional function of default rules to provide the rule the parties would have chosen if they had bargained it – are instead set at what the parties would not want, in order to give at least one party an incentive to contract around the default rule and to reveal information to the other party or to third party (especially courts).46 Penalty defaults are appropriate when it is cheaper for the parties to negotiate a term ex ante than for the courts to estimate ex post what the parties would have wanted. When the rationale is to inform the relatively uninformed contracting party, the penalty default will be against the relatively well-informed party. Regarding damages to be paid by the breaching party, the informed party is the promisee, who is the only person who exactly knows how much a breach of contract could affect his interests and can foresee the predictable amount of damages. In this context, the contemplation rule operates as a penalty default. The promisee has to tell the other party of all the potential consequential damages, otherwise he runs the risk of being awarded an amount of damages insufficient, with regards to the amount of damages foreseeable for the promisor. Under Art. 74 CISG, like under other similar rules in Civil and Common Law traditions, the liability to pay damages is limited to the loss that the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the circumstances of which he then knew or ought to have known.

45

46

Ayres/Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L. J. (1989), 87. Contracts are necessarily incomplete and the basic reason for this being the costs of contracting. If transaction costs are greater than the benefits of contracting, parties will prefer not to bargain. Lawmakers can minimise the cost of contracting by choosing the default rule most parties would have wanted. Ayres and Gertner (op. cit. fn. 46), 91, instead, show that sometimes it may be efficient to choose a rule that a majority of people actually disfavour in order to induce parties to contract around the default rule.

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As Ayres and Gertner47 underline, the contemplation rule may not be consistent with what fully-informed parties would have wanted, and in particular cases the promisor may even be the more-efficient bearer of the risk. The function of the contemplation rule is instead to induce the promisee as the more-informed party to reveal the information regarding his potential loss to the promisor. Informing the latter creates value because it makes him able to prevent the loss more efficiently. The contractual price will be sensitive to the information exchanged, increasing as the amount of damage foreseen increases, but the promisee with high consequential damages will usually prefer to reveal his private information and pay more for the performance than face the risk of being undercompensated.

H. Defence of Non-performance Chapter V of the Convention governs the disturbances of the contract that may occur prior to performance. Art. 71 CISG provides the so-called defence of non-performance, stating that a party may suspend the performance of his obligation if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations. Art. 72 CISG instead governs the so-called anticipatory breach of contract and provides a remedy that is available even before the obligation becomes due, offering protection against a future breach of contract. Art. 71 CISG provides a temporary remedy of suspension of performance; Art. 72 CISG gives the promisee the right to declare the contract void. The defence of non-performance has recently been studied from an economic perspective.48 In particular, its efficiency has been analysed with regard to contracts with mutual obligations i.e. contracts in which each party is – at the same time – the promisor of his performance and the promisee of the other party’s counter-performance and each performance is able to create a surplus for the other party. Both parties undertake efforts to fulfil their performance and invest in reliance of the other party’s counter-performance. A contract of sale is usually considered an agreement that creates surplus only for the buyer who receives the good and can, for example, resell it, since the obligation of buyer (payment of the price) is considered not able to create surplus for the seller: the value of monetary price is usually deemed equal for both parties. However, as one is speaking of an international contract that can involve a considerable amount of money, one can consider a scenario where the seller actually expects to gain a benefit from the other contractual party’s obligation, for example taking advantage of the favourable exchange of cur47 48

Ayres/Gertner (op. cit. fn. 46), 101-102. Fon/Parisi (op. cit. fn. 20), 1 et seq.

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rency paid by the buyer or thinking of reinvesting the money in other profitable activities (or for both motives). In these cases, one can consider even a traditional contract of sale as a contract able to create surplus for both parties, which, as is about to be analysed, can affect the efficiency of some remedies. Fon and Parisi in their recent study49 have shown that when contracts are characterised by mutual obligations, the defence of non-performance creates a distortion of the parties’ incentive, leading to an increase in performance efforts and a decrease in reliance investments. This is because the defence of non-performance creates a double threat: the breaching party not only faces full liability for having failed to perform (that is, he will have to pay expectation damages to the non-breaching party) but also risks losing the benefit of his counter-performance. This further risk increases the cost of breach. Consequently, as has already been seen in the previous paragraph, the increase of the cost of breach will lead the promisor to undertake too many investments to deal with his performance. Since the contract is bilateral, both parties will face the risk of having to pay expectation damages plus the risk of losing the surplus, and the incentives of both parties will be distorted, leading to an excessive level of performance effort. The magnitude of these distortions depends on the parties’ expectations regarding their contractual counterpart’s use of the defence of non-performance and in particular on factors such as the presence of contract-specific investments, uncertainty in contract litigation, and opportunity to redeploy withheld performances.50 When bilateral contracts are at stake, the breaching party should be allowed not only to collect damages if his counterpart was also in breach, but also to force the performance of his non-breaching counterpart, who should be prevented from raising the defence of non-performance. This remedy could be deemed preferable as it avoids the breaching party, who has undertaken investments in reliance of the other party’s counter-performance, losing the surplus that he could have gained from the party’s performance.51

I.

Conclusion

The CISG has created a valuable system of risk and incentive allocation for international trade that in many ways reflects the predicaments of an economic analysis of law. Considering the CISG’s policies of contract formation, legal warranties, and expectation damages, the CISG generally balances incentives and optimal risk allocation, to maximise the value of transactions to prospective traders. 49 50

51

Fon/Parisi (op. cit. fn. 20), 11 et seq. Reliance incentives also are distorted by threats of the application of the defence of non-performance, albeit less severely. See also Parisi/Cenini (op. cit. fn. 20), 231.

Homeward Trend: What, Why and Why Not Franco Ferrari

A. Autonomous Interpretation v. Homeward Trend? It is common knowledge, and has been for some time,1 that “drafting uniform words is one thing; ensuring their uniformity is another”,2 since “even when outward uniformity is achieved (…), uniform application of the agreed rules is by no means guaranteed, as in practice different countries almost inevitably come to put different interpretations upon the same enacted words.”3 In order to reduce the 1

2

3

See Riese, Einheitliche Gerichtsbarkeit für vereinheitlichtes Recht, Rabels Zeitschrift für ausländisches und internationales Privatrecht (RabelsZ) 1961, 604, 607 et seq.; Zweigert, Die Rechtsvergleichung im Dienste der europäischen Rechtsvereinheitlichung, RabelsZ 1951, 387, 395. Andersen, The Uniform International Sales Law and the Global Jurisconsultorium, (2005) 24 Journal of Law and Commerce (J. L. & Com.), 159, 162; see also Martiny, Autonome und einheitliche Auslegung im Europäischen Zivilprozeßrecht, RabelsZ 1981, 427; McMahon, Differentiating between Internal and External Gaps in the U.N. Convention on Contracts for the International Sale of Goods: A Proposed Method for Determining “Governed by” in the Context of Article 7(2), (2006) 44 Columbia Journal of Transnational Law (Colum. J Transnat’l L.), 992, 999; Rudolf, Einheitsrecht für internationale Forderungsabtretungen, Tübingen 2006, 11; Ryan, The Convention on Contracts for the International Sale of Goods: Divergent Interpretations, (1995) 4 Tulane Journal of International and Comparative Law (Tul. J. Int’l & Comp. L.), 99, 101; Sturley, International Uniform Law in National Courts: The Influence of Domestic Law in Conflicts of Interpretation, (1989) 27 Virginia Journal of International Law (Va. J. Int’l L.), 729, 731. Munday, The Uniform Interpretation of International Conventions, (1978) 27 International and Comparative Law Quarterly (ICLQ), 450. For similar statements, see more recently, Andersen, Furthering the Uniform Application of the CISG Sources of Law on the Internet, (1998) 10 Pace International Law Review (Pace Int’l L. Rev.), 403, 404 (stating that “uniformity does not follow automatically from a proclamation of uniform rules. Uniformity is a difficult goal to achieve, as uniform words do not always ensure uniform results, especially where a Convention is in effect throughout countries with completely differing social, economic, and cultural back-

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risk of diverging interpretations of one and the same text,4 that text must also be interpreted in a uniform way, since, as stated, for instance, by Viscount Simonds on behalf of the House of Lords in Scruttons Ltd. v. Midland Silicones Ltd.,5 “it would be deplorable if the nations should, after protracted negotiations, reach agreement (…) and that their several courts should then disagree as to the meaning of what they appeared to agree upon”.6 The drafters of the 1980 United Nations Convention on Contracts for the International Sale of Goods,7 hereinafter: CISG,8 were aware of this problem, which is why they introduced a provision designed to help to reach the uniformity aimed at, by imposing that in interpreting the CISG “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.”9 The same is also true for the drafters of other uniform law conventions, such as the 1980 Rome Convention on the Law Applicable to Contractual Obligations10 and the 1988 UNIDROIT Conventions on International Factoring and International Financial Leasing.11

14

15 16 17 18

19 10

11

grounds, and perhaps most significantly, different legal systems”); Duncan, Nachfrist was Ist? Thinking Globally and Acting Locally: Considering Time Extension Principles of the U.N. Convention on Contracts for the International Sale of Goods in Revising the Uniform Commercial Code, (2000) Brigham Young Law Review (B.Y. L. Rev.), 1363, 1368 (stating the same). It has often been stated that it is only possible to reduce the danger of diverging interpretations; it is not possible to eliminate it as such; see e.g. Lookofsky, Consequential Damages in Comparative Context, Copenhagen 1989, 294. Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446, 471. For similar statements see Ferrari, La vendita internazionale. Applicabilità ed applicazioni della Convenzione di Vienna del 1980, 2nd ed., Padua 2006, 10 et seq. See the United Nations Convention on Contracts for the International Sale of Goods, reprinted in (1980) 19 International Legal Materials (ILM), 668 et seq. Many abbreviations have been used for the United Nations Convention on Contracts for the International Sale of Goods; for a court decision listing several ones, see Oberlandesgericht Frankfurt, 20.4.1994, available in English at: http://www. cisg-online.ch/cisg/urteile/125.htm. For an overview in legal writing of the various abbreviations, see Flessner/Kadner, CISG? Zur Suche nach einer Abkürzung für das Wiener Übereinkommen über Verträge über den internationalen Warenkauf, Zeitschrift für Europäisches Privatrecht (ZEuP) 2005, 347 et seq. Art. 7(1) CISG. See Art. 18 of the EEC Convention on the Law Applicable to Contractual Obligations, reprinted in (1980) 19 ILM, 1492, 1496. See Art. 4 of the UNIDROIT Convention on International Factoring, reprinted in (1988) 27 ILM, 943, 945; Art. 6 of the UNIDROIT Convention on International Financial Leasing, reprinted in (1988) 27 ILM, 931, 933.

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Many courts12 and commentators13 construe the reference to the obligation to have regard to the CISG’s “international character” in its interpretation to mean that the CISG is to be interpreted “autonomously”,14 not “na12

13

14

See e.g. Tribunale di Modena, 9.12.2005, available at: http://www.cisg-online.ch/ cisg/urteile/1398.pdf; Oberster Gerichtshof, 23.5.2005, available in English at: http://cisgw3.law.pace.edu/cases/050523a3.html; Bundesgerichtshof, 2.3.2005, available in English at: http://cisgw3.law.pace.edu/cases/050302g1.html; Tribunale di Padova, 11.1.2005, available at: http://www.unilex.info/case.cfm?pid=1& do=case&id=1005&step=FullText; Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace.edu/cases/040225i3.html; Audiencia Provincial de Valencia, 7.6.2003, available in English at: http://cisgw3.law.pace.edu/cases/ 030607s4.html; Handelsgericht Aargau, 26.9.1997, available in English at: http:// cisgw3.law.pace.edu/cases/970926s1.html; Gerichtspräsident Laufen, 7.5.1993, available in English at: http://cisgw3.law.pace.edu/cases/930507s1.html. See e.g. Audit, La vente internationale de marchandises, Paris, 1990, 47; Bonell, La nouvelle Convention des Nations-Unies sur les contrats de vente internationale de merchandises, Droit et pratique du commerce international (Dr. pr. comm. int.) 1981, 7, 14; Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts under the CISG, (1996) 8 Pace International Law Review (Pace Int’l L. Rev.), 303; Ferrari, Interprétation uniforme de la Convention de Vienne de 1980 sur la vente internationale, Revue internationale de droit comparé (Rev. int. dr. comp.) 1996, 813, 827; Hager, Zur Auslegung des UN-Kaufrechts – Grundsätze und Methoden, in: Baums/Wertenbruch (eds.), Festschrift für Ulrich Huber zum siebzigsten Geburtstag, Tübingen 2006, 319, 320; Karollus, UN-Kaufrecht. Eine systematische Darstellung für Studium und Praxis, Vienna/New York 1991, 11; Magnus, in: Staudinger, Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen – Wiener UN-Kaufrecht (CISG), revised ed., Berlin 2005, 171; Najork, Treu und Glauben im CISG, Bonn 2000, 53; Schmitt, “Intangible Goods“ in Online-Kaufverträgen und der Anwendungsberich des CISG, Computer und Recht (CuR) 2001, 145, 147. See, among others, Achilles, Kommentar zum UN-Kaufrechtsübereinkommen (CISG), Neuwied 2000, 28; Bonell, Commento all’art. 7 della Convenzione di Vienna, Nuove Leggi civili commentate (Nuove Leggi civ. comm.), Padua 1989, 21; Felemegas, The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation, Review of the United Nations Convention on Contracts for the International Sale of Goods (CISG) (Rev. CISG) 2000/2001, 115, 235; Hackney, Is the United Nations Convention on the International Sale of Goods Achieving Uniformity?, (2001) 61 Lousiana Law Review (La. L. Rev.), 473, 475; Jametti Greiner, Der Vertragsabschluss, in: Hoyer/Posch (eds.), Das Einheitliche Wiener Kaufrecht, Vienna 1992, 43, 57; Liguori, La convenzione di Vienna sulla vendita internazionale di beni mobili nella pratica: un’analisi critica delle prime cento decisioni, Foro italiano (Foro it.)

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tionalistically”, i.e. not in the light of domestic law,15 as difficult as this may be.16 Consequently, one should not have recourse to any domestic concept in order to solve interpretive problems arising from the CISG,17 as also

15

16

17

1996, 145, 148; Saenger, in: Ferrari et al. (eds.), Internationales Vertragsrecht, Munich 2007, Art. 7 CISG no. 2; Torsello, Common Features of Uniform Commercial Law Conventions. A Comparative Study Beyond the 1980 Uniform Sales Law, Munich 2004, 18; Vazquez Lepinette, The Interpretation of the 1980 Vienna Convention on International Sales, Diritto del commercio internazionale (Dir. comm. internaz.) 1995, 377, 387. See Honnold, The Sales Convention in Action – Uniform International Words: Uniform Applications?, (1988) 8 J. L. & Com., 207, 208, where the author states that “one threat to international uniformity in interpretation is a natural tendency to read the international text through the lenses of domestic law”. See also Babiak, Defining “Fundamental Breach” under the United Nations Convention on Contracts for the International Sale of Goods, (1992) 6 Temple International Law Journal (Temple Int’l & Comp. L. J.), 113, 117; Kolosky, Beyond Partisan Policy: The Eleventh Circuit Lays Aside the Parol Evidence Rule in Pursuit of International Uniformity in Commercial Regulation, (1998) 24 North Carolina Journal of International Law and Commercial Regulation (N. C. J. Int. L. & Com. Reg.), 199, 200; Komarov, Internationality, Uniformity and Observance of Good Faith as Criteria in Interpretation of CISG: Some Remarks on Article 7(1), (2006) 25 J. L. & Com., 75, 77; Schlechtriem, Internationales UN-Kaufrecht, 4th ed., Tübingen 2007, 45. In this respect see Murray, The Neglect of CISG: A Workable Solution, (1998) 17 J. L. & Com., 365, 367, stating that for a court it certainly is difficult to “transcend its domestic perspective and become a different court that is no longer influenced by the law of its own nation state”; more recently see DiMatteo et al., The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence, (2004) 24 Northwestern Journal of International Law and Business (Nw. J. Int’l L. & Bus.), 299, 303. See also Honnold, Uniform Law for International Sales under the United Nations Convention, 3rd ed., Deventer 1999, 89, stating that “the reading of a legal text in the light of the concepts of our domestic legal system [is] an approach that would violate the requirement that the Convention be interpreted with regard to its international character.” For similar statements, albeit without particular reference to the CISG, Bernstein, International Contracts in European Courts: Jurisdiction under Article 5(1) of the Brussels Convention, (1996) 11 Tulane European and Civil Law Forum (Tul. Eur. & Civ. L. Forum), 31, 36. For a similar statement in case law, see, albeit without specific reference to the CISG, Fothergill v. Monarch Airlines, [1980] 2 All E. R. 696; Corte di Cassazione, 24.6.1968, Rivista di diritto internazionale privato e processuale (Riv. dir. int. priv. e proc.) 1969, 914.

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stated in a recent Swiss court decision,18 since this “nationalistic approach”19 would not only lead to divergences, but, ultimately, to the promotion of forum shopping,20 which, however, the CISG wants to reduce.21 Many commentators have argued that what has just been said is true even where the expressions employed by the CISG (or by other uniform law conventions, for that matter)22 are textually the same as expressions which relate to concepts that have a specific meaning within a particular domestic legal system – such as “avoidance”, “reasonable”, “good faith”, etc.23 In ef18

19 20

21

22

23

See the decision by the Gerichtspräsident Laufen, 7.5.1993, available in English at: http://cisgw3.law.pace.edu/cases/930507s1.html. For this expression see Bonell (op. cit. fn. 13), 14. The danger of forum shopping as a result of diverging interpretations by courts from different countries has also been referred to by Honnold (op. cit. fn. 17), 95, where the author states that “[t]he settlement of disputes would be complicated and litigants would be encouraged to engage in forum shopping if the courts of different countries persist in divergent interpretations of the Convention.” For a reference to the CISG’s goal of reducing forum shopping, see e.g. Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT Principles, BadenBaden 2000, 8; De Ly, Opting out: some Observations on the Occasion of the CISG’s 25th anniversary, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 25, 37; Dore, Choice of Law under the International Sales Convention: A U.S. Perspective, (1983) 77 American Journal of International Law (Am. J. Int’l L.), 521, 532; Erauw, Wanneer is het Weens Koopverdrag van toepassing?, in: van Houtte et al. (eds.), Het Weens Koopverdrag, Antwerp/Groningen 1997, 21, 23; Klepper, The Convention for the International Sale of Goods: A Practical Guide for the State of Maryland and Its Trade Community, (1991) 15 Maryland Journal of International Law and Trade (Md. J. Int’l L. & Trade), 235, 237; Sambugaro, Exclusion of the 1980 Vienna Sales Convention: Does Recent US Case Law Open the Door to Forum Shopping?, Internationales Handelsrecht (IHR) 2007, 231, 236. For a discussion of the interpretation of uniform law conventions in general (as opposed to a discussion of the interpretation of the CISG), see Bariatti, L’interpetazione delle convenzioni internazionali di diritto uniforme, Padua 1986; Trompenaars, Pluriforme unificatie en uniforme interpretatie − in het bijzonder de bijdrage van UNCITRAL aan de internationale unificatie van het privaatrecht, Deventer 1989. Note, however, that according to Salama, Pragmatic Responses to Interpretive Impediments: Article 7 of the CISG, An Inter-American Application, (2006) 28 University of Miami Inter-American Law Review (U. Mia. Int-Am. L. Rev.), 225, 232, “a methodological approach that discounts the use of analogies to domestic legal concepts seems impractical if not impossible. In particular, a judge looking to interpret a provision needs some frame of reference to assist in understanding that provision.”

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fect, those expressions refer to concepts that are independent24 and different25 from national concepts,26 since the expressions employed in uniform law conventions such as the CISG are intended to be neutral.27 This appears to be a basic principle of international uniform law28 resulting, among others, from the assumption that international uniform law “does not want to

24

25

26

27

28

For this conclusion, see also Herber/Czerwenka, Internationales Kaufrecht. Kommentar zu dem Übereinkommen der Vereinten Nationen vom 11. April 1980 über Verträge über den internationalen Warenkauf, Munich 1991, 47. For somewhat different conclusions, see however, van der Velden, Indications of the Interpretation by Dutch Courts of the United Nations Convention on Contracts for the International Sale of Goods, in: Hondius et al. (eds.), Netherlands Reports to the Twelfth International Congress of Comparative Law: Sydney-Melbourne 1986, Deventer 1987, 21, 33-34 (stating that where the source of uniform law is to be found in a specific national law, recourse to a domestic interpretation is a logical aid to the interpretation of the uniform law); Mann, Uniform Statutes in English Law, (1983) 99 Law Quarterly Review (LQR), 376, 383 (stating that “[i]t is simply common sense that if the Convention adopts a phrase which appears to have been taken from one legal system [...] where it is used in a specific sense, the international legislators are likely to have had that sense in mind and to intend its introduction into the Convention”). See Ferrari, The Relationship Between the UCC and the CISG and the Construction of Uniform Law, (1996) 29 Loyola of Los Angeles Law Review (Loy. LA L. Rev.), 1021, 1026. For this statement, see also Lanciotti, Norme uniformi di conflitto e materiali nella disciplina convenzionale della compravendita, Naples 1992, 287. The presumed neutrality of the language employed by the drafters of the CISG has been referred to, e.g. Bonell, Art. 7, in: Bianca/Bonell (eds.), Commentary on the International Sales Law, Milan 1987, 65, 74 (“[w]hen drafting the single provisions these experts had to find sufficiently neutral language on which they could reach a common understanding”); for similar statements, see, more recently, Bridge, A Law of International Sale of Goods, (2007) 37 Hong Kong Law Journal (Hong Kong L. J.), 17, 40; Butler, Celebrating Anniversaries, (2005) 37 Victoria University of Wellington Law Review (Vict. U. Wellington L. Rev.), 775, 777; Spaic, Approaching Uniformity in International Sales Law Through Autonomous Interpretation, (2007) 11 V. J. Int’l Com. L. & Arb., 237, 242 et seq.; Zeller, International Trade Law – Problems of Language and Concepts?, (2003) 23 J. L. & Com., 39, 39; see also the statement by UNCITRAL itself to be found in U.N. document A/CN.9/562, at page 1: “The drafters of the Convention took special care in avoiding the use of legal concepts typical of a given legal tradition”. See e.g. Kropholler, Internationales Einheitsrecht. Allgemeine Lehren, Tübingen 1975, 265.

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identify itself with any legal system, because it wants to conjugate with all”.29 Indeed, any choice of one expression rather than another is the result of a compromise30 and does generally not correspond to the reception of a concept peculiar to a specific domestic law:31 the interpreter must therefore be aware of so-called faux-amis.32 Where, however, it is apparent from the legislative history that the drafters wanted a given concept to be interpreted in the light of a specific domestic law, one is allowed to have recourse to the “domestic” understanding of that concept.33 Unfortunately, however, courts do not seem to always comply with the aforementioned mandate to interpret the CISG autonomously, nor do they seem to resort to “nationalistic” interpretations only where they are justified by the legislative history to do so. In effect, a closer look at some decisions allows one to state that a “homeward trend” is discernible, at least by some courts. This trend is deplorable, however, as it promotes parochialism34 and

29

30

31

32 33

34

Benedetti, Commento all’art. 4 della Convenzione di Vienna sui contratti di vendita internazionale di beni mobili, Nuove Leggi civili commentate (Nuove Leggi civ. comm.) 1989, 9. Diedrich (op. cit. fn. 13), 310, even states that “the text of the CISG consists of unique, supranational collective terms formed out of compromises between state delegates based on several systems of laws.” For further statements stressing that the CISG constitutes a compromise, see Diederichsen, Commentary to Journal of Law & Commerce Case I, Oberlandesgericht Frankfurt, (1995) 14 J. L. & Com., 177; Ferrari, Uniform Interpretation of the 1980 Uniform Sales Law, (1994) 24 Georgia Journal of International and Comparative Law (Ga. J. Int’l & Com. L.), 183, 201; Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, (1997) 6 Minnesota Journal of Global Trade (Mn. J. Global Trade), 105; Salama (op. cit. fn. 23), 232; Selden, Lex Mercatoria in European and U.S. Trade Practice: Time to Take a Closer Look, (1995) 2 Annual Survey of International and Comparative Law (Ann. Surv. Int’l & Comp. L.), 111, 121. See also Enderlein et al. (eds.), Internationales Kaufrecht: Kaufrechtskonvention. Verjährungskonvention. Vertretungskonvention. Rechtsanwendungskonvention, Berlin 1991, 61; Herber, Art. 7, in: Schlechtriem (ed.), Kommentar zum Einheitlichen UN-Kaufrecht, 2nd ed., Munich 1995, 91, 94. See Honnold (op. cit. fn. 17), 89. For this conclusion, see Achilles (op. cit. fn. 14), 29; Ferrari, Art. 7, in: Schlechtriem/Schwenzer (eds.), Kommentar zum Einheitlichen UN-Kaufrecht – CISG, 4th ed., Munich 2004, 138, 142; Magnus (op. cit. fn. 13), 171. See Rockwell, Choice of Law in International Products Liability: Internationalizing the Choice, (1992-1993) 16 Suffolk Transnational Law Review (Suffolk Transnat’l L. Rev.), 69, 74.

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thus defeats the very purpose behind the drafting of the CISG,35 namely the creation of a uniform sales law,36 aimed at the creation of legal certainty, and at “the removal of legal barriers in international trade”.37 In effect, the homeward trend “deprives the collective signatories of the predictability and reliability of law which the CISG was meant to create. In order for the CISG to truly live up to the purpose for which it was created, interpreting courts must stay within the strict boundaries of Art. 7.”38 This is why it is rather surprising that one commentator suggests not only that the “categorical condemnation of the homeward trend is unwarranted”,39 but also that “[t]he homeward trend may (…) enhance the legitimacy and acceptability of the CISG over the long term.”40 In this author’s opinion, this view is not tenable. As regards the suggestion that the homeward trend enhances the CISG’s legitimacy, it seems to overlook that the CISG’s legitimacy is derived from the wide acceptance it enjoys41 due to the goal it pursues, namely the creation of a uniform sales law able to break down the obstacles to international import/export constituted by the plethora of existing legal regimes,42 a goal that can only be achieved by applying the CISG in one and the same manner in the various Contracting States.43 35

36

37 38

39

40 41

42

See Diedrich (op. cit. fn. 13), 304 (stating that the homeward trend “puts a uniform application of International Uniform Law at risk”); Tuggey, The 1980 United Nations Convention on Contracts for the International Sale of Goods: Will a Homeward Trend Emerge, (1985-1986) 21 Texas International Law Journal (Tex. Intl L. J.), 540, 554 (stating that “[i]f such a [homeward] trend emerges and remains uncorrected it would defeat the purposes of the CISG in a manner equal to a simple failure on the part of many nations to ratify the Convention”). In this respect see e.g. Malloy, The Inter-American Convention on the Law Applicable to International Contracts: Another Piece of the Puzzle of the Law Applicable to International Contracts, (1995) 19 Fordham International Law Journal (Fordham Int’l L. J.), 662, 667 note 17. Preamble CISG. Larson, Applying Uniform Sales Law to International Software Transactions: The Use of the CISG, its Shortcomings, and a Comparative Look at How the Proposed U.C.C. Article 2B Would Remedy Them, (1996) 5 Tul. J. Int’l & Comp. L., 445, 459. Halverson Cross, Parole Evidence Under the CISG: The “Homeward Trend” Reconsidered, (2007) 68 Ohio State Law Journal (Ohio St. L. J.), 133, 138. Halverson Cross (op. cit. fn. 39), 138. See Bridge, A Comment on “Towards a Universal Doctrine of Breach” – The Impact of the CISG by Jürgen Basedow, (2005) 25 International Review of Law and Economics (Int’l Rev. L. & Econ.), 501. Legitimising the CISG on different grounds, see Gillette/Scott, The Political Economy of International Sales, (2005) 25 International Review of Law and Economics (Int’l Rev. L. & Econ.), 446, 447 et seq.

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As for the suggestion that the homeward trend enhances the CISG’s applicability by preventing the parties from the countries43in the courts of which the homeward trend is discernible from opting-out,44 it does not take due account, among others, of the fact that those parties’ reliance upon the homeward trend is justified only where the dispute is to be decided by the courts of the countries in which they are located.45 This, however, would (generally) require the opposing parties to agree with the former parties’ choice of forum which, however, they are not necessarily willing to do, for different reasons: either, because they want their own courts’ domestic interpretation of the CISG to apply, where it exists (thus leading to a battle of homeward trends), or simply because they do not want the opposing party to be able to rely on its “domestic” interpretation, since this would give that party a competitive advantage. As a consequence, a conflict may arise that may ultimately be solved solely by excluding the CISG altogether46 (which certainly does nothing to enhance the CISG’s applicability). For sure, however, this conflict creates unpredictability;47 this cannot be advocated. The aforementioned suggestion does not take into account either that the homeward trend prevents the CISG from functioning as a neutral law to which to resort when the parties want to avoid the applicability of the domestic law of the opposing party,48 thus limiting, rather than promoting, the CISG’s applicability. 43

44

45

46

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48

See also Povrzenic, Interpretation and Gap-Filling under the United Nations Convention on Contracts for the International Sale of Goods, available at: http://cisgw3.law.pace.edu/cisg/biblio/gap-fill.html. See Halverson Cross (op. cit. fn. 39), 138, stating that “the propensity of U.S. courts to interpret the Convention in light of domestic legal traditions may ameliorate the tendency of U.S. parties to opt-out of the CISG.” For a recent analysis of the relationship between the CISG and choice of forum, see Ferrari, Choice of Forum and CISG; Remarks on the Latter’s Impact on the Former, in: Brand et al. (eds.), Drafting Contracts Under the CISG, Oxford 2007, 103 et seq. See also Gillette/Scott (op. cit. fn. 41), 454 stating that “[i]f the problem solving objective of a uniform [International Sales Law] is not met, therefore, the product will be linguistically uniform upon enactment, but the parties subsequently will either abandon the law entirely or opt-out of disfavored provisions thus undermining even the initial benefits of the standard terms.” See Rockwell (op. cit. fn. 34), 74, stating that courts should have ways “to enable them to avoid the temptations, and (…) unpredictability, of the homeward trend.” See e.g. Fountoulakis, The Parties’ Choice of ‘Neutral Law’ in International Sales Contracts, European Journal of Law Reform (Eur. J. L. Ref.) 2005, 303, 314, stating that “[t]he CISG is neutral law by nature. Neither party has a particular advantage when applying it; the parties are quasi on the same ‘level playing field’.” For similar statements, see De Ly (op. cit. fn. 21), 36 et seq.; McNamara, U.N. Sale of Goods

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Furthermore, the parties from a country in the courts of which the homeward trend is discernible may not be aware of their courts’ interpretation being the result of a homeward trend and, thus, may be induced to believe that their courts’ interpretation is one generally accepted. The reliance upon this erroneous assumption may induce the parties to make wrong choices (regarding, for instance, the forum) and generates costs. This, however, contrasts with one of the goals behind the drafting of the CISG (or any other uniform law instrument, for that matter),49 namely that of reducing costs by creating a uniform regime.50 From what has been said thus far, only one overall conclusion can be drawn: “Indulging in the homeward trend, obviously, violates the mandate of Art. 7(1) (which requires that the CISG be interpreted with ‘regard’ for its international character of for ‘the need to promote uniformity in its application’) and constitutes a serious − quite possibly the most serious − threat to the main purpose of the CISG: progress toward a uniform regime of international sales law.”51 In oth-

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Convention: Finally Coming of Age?, (2003) 32 Colorado Lawyer (Colo. Law.), 11, 20; Nakata, Sounds of Silence Bellow Forth under the CISG’s International Battle of the Forms, (1994) 7 The Transnational Lawyer (Transnat’l Law.), 141, 144. See Mancuso, Trends on the Harmonization on Contract Law in Africa, (2007) 13 Ann. Surv. Int’l & Comp. L., 157, 158 (stating that “following a single set of rules, instead of having to consider various state laws, is more efficient, reduces transaction costs, and thus facilitates the development of economic activities”); see also Beline, Legal Defect Protected by Article 42 of the CISG: A Wolf in Sheep’s Clothing, (2007) 7 University of Pittsburgh Journal of Technology Law and Policy (U. Pitt. J. Tech. L. & Pol’y), 6; Berman, Global Legal Pluralism, (2007) 80 Southern California Law Review (S. Cal. L. Rev.), 1155, 1190; Cranston, Theorizing Transnational Commercial Law, (2007) 42 Texas International Law Journal (Tex. Int’l L. J.), 597, 601; Pavkovic, Estonia: A Model for Success in Transition Economies, (2007) 19 Pacific McGeorge Global Business & Development Law Journal (Pac. McGeorge Global Bus. & Dev. L. J.), 531, 534. See e.g. Knieper, Celebrating Success by Accession to CISG, (2006) 25 J.L. & Com., 477, 478; Meyer, Soft Law for Solid Contracts? A Comparative Analysis of the Value of the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law to the Process of Contract Law Harmonization, (2006) 34 Denver Journal of International Law and Policy (Denv. J. Int’l L. & Pol’y), 119, 122 et seq.; Ubertaite, Application of the CISG in the United States, (2005) 7 European Journal of Law Reform (Eur. J.L. Reform) 277, 280. See however Cuniberti, Is the CISG Benefiting Anybody?, (2006) 39 Vanderbilt Journal of Transnational Law (Vand. J. Transnat’l L.), 1511 et seq., arguing that the CISG does not really reduce costs. Flechtner/Lookofsky, Nominating Manfred Forberich: The Worst CISG Decision in 25 Years?, (2005) 9 Vindobona Journal of International Commercial Law and

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er words, only if one moves “towards a CISG perspective that transcends domestic ideology”52 the CISG’s main purpose can be reached.53 This requires, however, fighting the homeward trend rather than advocating it.

B. Homeward Trend: What and What Not How, however, can this − arguably most significant54 − threat to the CISG’s main purpose be defined? According to those CISG commentators who have not simply referred to the homeward trend,55 but who have also attempted to define it, the homeward trend compares to the “natural”56 “tendency of those interpreting the CISG to project the domestic law in which the interpreter was trained (and with which he or she is likely most familiar) onto the

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Arbitration (V. J. Int’l Com. L. & Arb.), 199, 203; see also Salama (op. cit. fn. 23), 231 et seq., stating that “[t]he “homeward trend” as a method of interpretation in the United States remains one of the greatest obstacles to the creation of a foreign law based jurisprudence for the CISG.” Flechtner/Lookofsky (op. cit. fn. 51), 103. See also Murray (op. cit. fn. 16), 367, stating that courts have to “transcend [their] domestic perspective and become a different court that is no longer influenced by the law of [their] own nation state.” See Flechtner, Recovering Attorneys’ Fees as Damages under the U.N. Sales Convention: A Case Study on the New International Commercial Practice and the Role of Case Law in CISG Jurisprudence, with comments on Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., (2002) 22 Nw. J. Int’l L. & Bus., 121, 122 (“probably the most significant threat to the values embraced in Article 7(1)”); see also Thompson, Buyer Beware: German Interpretation of the CISG has led to Results Unfavorable to Buyers, (2000) 19 J.L. & Com., 245, 254 (“arguably one of the greatest barriers to uniformity”). For mere references to the homeward trend, without any attempts of defining it, see e.g. Birch, Article 44 of the U.N. Sales Convention (CISG): A possible divergence in interpretation by courts from the original intent of the framers of the compromise, (2006) 4 Regent Journal of International Law (Regent J. Int’l L.), 1, 14; Komarov (op. cit. fn. 15), 77; Mazzotta, Why Do Some American Courts Fail to Get it Right?, (2005) 3 Loyola University Chicago International Law Review (Loy. U. Chi. Int’l L. Rev.), 85, 115; McQuillen, The Development of a Federal CISG Common Law in US Courts: Patterns of Interpretation and Citation, (2007) 61 University of Miami Law Review (U. Mia. L. Rev.), 509, 536; Williams, Limitations on Uniformity in International Sales Law: A Reasoned Argument for the Application of a Standard Limitation Period under the Provisions of the CISG, (2006) 10 V. J. Int’l Com. L. & Arb., 229, 250. Salama (op. cit. fn. 23), 231.

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international provisions of the Convention.”57 It is, in other words, the “the tendency to think that the words we see [in the text of the CISG] are merely trying, in their awkward way, to state the domestic rule we know so well.”58 This “natural tendency [by courts] to read the international rules in light of the legal ideas that have been imbedded at the core of their intellectual formation”59 is, however, to be distinguished from recourse to domestic law for interpretive purposes in cases where that recourse to domestic law is imposed by the CISG itself. Although it may seem contradictory to first advocate, as has been done in Part A, the autonomous interpretation of the CISG60 and then refer to the need to resort to domestic law, it is not. This is due to the fact that the mandate to interpret the CISG autonomously is not absolute;61 in effect, not all expressions used by the drafters of the CISG must be interpreted autonomously.62 There are some expressions which an interpreter must interpret “domestically”, despite the negative effect this may have on the uniformity the drafters of the CISG wanted to achieve. This is true, for instance, in respect of the expression “private international law” employed by the CISG.63 Since the CISG constitutes “merely” a substantive law con57

58 59

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Flechtner/Lookofsky (op. cit. fn. 51), 203. For similar definitions, see Keily, Good Faith and the Vienna Convention on Contracts for the International Sale of Goods (CISG), (1999) 3 V. J. Int’l Com. L. & Arb., 15, 19; Nottage, Who’s Afraid of the Vienna Sales Convention (CISG)? A New Zealander’s View from Australia and Japan, (2005) 36 Vict. U. Wellington L. Rev., 815, 838; Walt, The CISG’s Expansion Bias: A Comment on Franco Ferrari, (2005) 25 International Review of Law and Economics (Int’l Rev. L. & Econ.), 342, 348; Whittington, Comment on Professor Schwenzer’s Paper, (2005) 36 Vict. U. Wellington L. Rev., 809, 811. Honnold (op. cit. fn. 15), 207, 208. Honnold, Documentary History of the Uniform Law for International Sales: The studies, deliberations and decisions that led to the 1980 United Nations Convention with Introductions and Explanations, Deventer 1989, 1; for this exact same definition, see also Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, (1993) 18 Yale Journal of International Law (Yale J. Int’l L.), 1, 47 . See supra the text accompanying notes 13 et seq. See Andersen (op. cit. fn. 2), 169; Ferrari, The CISG’s Uniform Interpretation by Courts – An Update, (2005) 9 V. J. Int’l Com. L. & Arb., 233, 241; Flechtner, The Several Texts of the CISG in a Decentralized System: Observations on Translations, Reservations and Other Challenges to the Uniformity Principle in Article 7(1), (1998) 17 J. L. & Com., 187, 205. For the following remarks see Ferrari, La jurisprudence sur la CVIM: un nouveau défi pour les interprètes?, Int’l Bus. L. J. 1998, 495 et seq. For this conclusion, see also Ferrari, Do Courts Interpret the CISG Uniformly?, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th anniversary of the Unit-

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vention64 that does not set forth any private international law rule,65 the expression “private international law” to be found in Art. 1(1)(b) and 7(2) CISG has to be understood as a reference to the private international law of the forum.66 Although various courts had already implicitly adopted this view,67 most recently an Italian court, the Tribunale di Padova,68 has done so explicitly. When examining the CISG’s substantive applicability requirements, the court first rejected the homeward trend when it stated that “from a substantive point of view, it is necessary that the contract be one for the sale of goods which, however, the Convention does not define. Nevertheless, the lack of an express definition should not lead one to resort to a domestic definition, such as that to be found in Art. 1470 of the [Italian] Civil Code. In effect, the Convention’s concept of ‘contract for the sale of goods’ has to be interpreted, as has the majority of concepts (such as that of ‘place of business’, ‘habitual residence’, ‘goods’) autonomously, i.e. without resort to concepts characteristic of any particular legal system”.69 The court then also stated that not all CISG expressions had to be interpreted autonomously; by way of example it referred to the “concept of

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ed Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 3, 10. In this respect see Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace.edu/cases/040225i3.html, expressly stating that the CISG “is a uniform convention on substantive law and not one on private international law as sometimes erroneously stated”; see also Tribunale di Rimini, 26.11.2002, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/021126i3.html, stating that the CISG is a “uniform substantive law convention”; Oberster Gerichtshof, 29.6.1999, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/ 990629a3.html (stating the same). For this statement see Enderlein et al. (eds.), International Sales Law. United Nations Convention on Contracts for the International Sale of Goods. Convention on the Limitation Period in the International Sale of Goods, New York 1992, 370. For this conclusion in case law see Tribunale di Padova, 25.2.2004, available at: http://cisgw3.law.pace.edu/cases/040225i3.html. See the court decisions commented on by Ferrari, Der Begriff des “internationalen Privatrechts” nach Art. 1 Abs. 1 lit. b) des UN-Kaufrechts, ZEuP 1998, 162 et seq.; Oberlandesgericht Düsseldorf, 8.1.1993, available in English at: http:// cisgw3.law.pace.edu/cisg/wais/db/cases2/930108g1.html; Bezirksgericht Wien, 20.2.1992, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/ 920220a3.html; Landgericht Aachen, 3.4.1990, available at: http://www.cisgonline.ch/cisg/urteile/12.htm. Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law. pace.edu/cases/040225i3.html. Tribunale di Padova (supra fn. 68).

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‘private international law’, which corresponds to the concept of private international law of the forum.”70 In so stating, the court made it clear that there is a distinction between the homeward trend as defined above – which is to be avoided – and recourse to domestic law, which may be required by the CISG itself.71 The homeward trend as defined above must be distinguished not only from the legitimate – albeit exceptional – recourse for interpretive purposes to domestic law in cases where it is imposed by the CISG itself, but also from another trend, namely that of promoting interpretive solutions that “by one means or another, result in the application of the forum’s own internal law.”72 This trend of “favor legis fori”73 is just a variation of the homeward trend and differs from the variation referred to earlier in that it does not manifest itself in domestic interpretations of supposedly autonomous concepts, but rather in the tendency to reach results that lead to the application of domestic law

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Tribunale di Padova (supra fn. 68); for this statement, see also Tribunale di Padova, 11.1.2005, available at: http://www.unilex.info/case.cfm?pid=1&do=case&id= 1005&step=FullText. Another concept to be interpreted domestically is that of “party” to the contract (see Ferrari (op. cit. fn. 62), 496 et seq.). Since the CISG itself is not concerned with agency (for this conclusion see e.g. Oberlandesgericht Köln, 13.11.2000, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/001113g1. html; Tribunale di Vigevano, 12.7.200, available in English at: http://cisgw3. law.pace.edu/cisg/wais/db/cases2/000712i3.html; Oberster Gerichtshof, 20.3.1997, Zeitschrift für Rechtsvergleichung (ZfRvgl) 1997, 204; Appellationsgericht Tessin, 12.2.1996, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/ cases2/960212s1.html; Obergericht Kanton Thurgau, 19.12.1995, Schweizersche Zeitschrift für internationals und europäisches Recht (SZIER) 2000, 118), the issue of who is party to the contract is “to be solved on the basis of the law applicable by virtue of the rules of private international law of the forum”, Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/ 040225i3.html. Rheinstein, Methods of Legal Thought and Conflict of Laws, (1942-1943) 10 University of Chicago Law Review (U. Chi. L. Rev.), 466, 475; for a reference to this kind of “homeward trend” see also Akehurst, Jurisdiction in International Law, (1972-1973) 46 British Yearbook of International Law (Brit. Y. B. Int’l L.), 145, 185; Webb, Some Thoughts on the Place of English Law as Lex Fori in English Private International Law, (1961) 10 Int’l & Comp. L. Q., 818; Wong, Case comment on Lee Cheuk v. Siu Wai-kin, (1972) 2 Hong Kong Law Journal (Hong Kong L. J.), 222. Kahn-Freund, Commercial Arbitration and the Conflict of Laws: Recent Developments in England, (1972) 7 University of British Columbia Law Review (U. Brit. Colum. L. Rev.), 155, 165.

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tout court. This “lex forism”74 is independent from the variation of the homeward trend mentioned initially. This, however, does not exclude that at times they may go hand in hand.

C. Homeward Trend in CISG Case Law: A First Example In CISG case law examples of both variations of the homeward trend can be found. Nevertheless, it appears that the variation of the homeward trend consisting in the tendency by interpreters “to turn to their familiar, and nonuniform, norms of domestic law in the interpretation of international standards”75 has had a larger impact on court decisions than that trend’s favor legis fori variation. This, however, is unsurprising, as there are only very few CISG provisions a given interpretation of which allows the courts to get to the application of the lex fori. As regards the former variation of the homeward trend, although it has had an impact on courts from various countries,76 it is discernible mainly in the Unites States,77 where − unfortunately − courts seem not only to rely on it as regards specific issues,78 but also as a matter of principle, as evidenced by the following statement, to be found in many decisions, pursuant to which “case law interpreting analogous provisions of Article 2 of the Uniform 74

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Lando, Some Issues Relating to the Law Applicable to Contractual Obligations, (1996-1997) 7 Kansas City Law Journal (K.C. L. J.), 55, 57. Van Alstine, Dynamic Treaty Interpretation, (1998) 146 University of Pennsylvania Law Review (U. Penn. L. Rev.), 687, 704. See e.g. Corte d’appello di Milano, 20.3.1998, available in English at: http:// cisgw3.law.pace.edu/cisg/wais/db/cases2/980320i3.html, considered to be “an example” of the homeward trend by DiMatteo et al. (op. cit. fn. 16), 303. See also Salama (op. cit. fn. 23), 225, stating that “[i]n practice it has been found that U.S. courts rely on the ‘homeward trend’ more often than other judges in interpreting the CISG.” See e.g. Schmitz-Werke GmbH & Co. v. Rockland Industries, Inc.; Rockland International FSC, Inc., U.S. Circuit Court of Appeals (4th Circuit), 21.6.2002, available at: http://cisgw3.law.pace.edu/cases/020621u1.html, which “disregarded CISG interpretive methodology and resorted to a homeward trend analysis”, DiMatteo (op. cit. fn. 16), 398; see also Delchi Carrier SpA v. Rotorex Corporation, U.S. Circuit Court of Appeals (2nd. Cir.), 6.12.1995, available at: http://cisgw3.law.pace.edu/ cases/951206u1.html, where “the U.S. court rejected the application of international case law and instead looked to the UCC and its domestic interpretations for guidance”; Sheaffer, The Failure of the United Nations Convention on Contracts for the International Sale of Goods and a Proposal for a New Uniform Global Code in International Sales Law, (2007) 15 Cardozo Journal of International and Comparative Law (Cardozo J. Int’l & Comp. L.), 461, 477.

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Commercial Code (“UCC”) may also inform a court where the language of the relevant CISG provisions tracks that of the UCC.”79 In this author’s opinion,80 this statement as well as other comparable ones,81 that go to show, as suggested already more than half a century ago, that “the homeward trend may be prompted not only by greater strangeness but also by greater similarity between forum and foreign [or uniform] law”,82 are wrong. The mere fact that the wording of a particular CISG provision corresponds to that of a specific domestic rule (whether created by statute or case law) is per se insufficient to allow one to resort to the interpretation of that domestic rule, as also pointed out in Part A of this paper.83 This also is why one must doubt that it is correct to state that the CISG’s “foreseeability requirement (…) is identical to the wellknown rule of Hadley v. Baxendale, 156 Eng. Rep. 145 (Ct. Exch. 1854), such 79

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See Macromex SRL v. Globex Inteno, Inc., U.S. District Court, Southern District of New York, 16.4.2008, 2008 WL 1752530 (S.D.N.Y.); Travelers Property Casualty Company of America et al. v. Saint-Gobain Technical Fabrics Canada Limited, U.S. District Court, Minnesota, 31.1.2007, available at: http://cisgw3.law.pace. edu/cases/070131u1.html; Genpharm Inc. v. Pliva-Lachema A.S., U.S. District Court for the Eastern District Court of New York, 19.3.2005, available at: http:// www.cisg.law.pace.edu/cisg/wais/db/cases2/050319u1.html; (stating also, however, that “UCC case law is not per se applicable to cases governed by the CISG”) Raw Materials Inc. v. Manfred Forberich GmbH & Co. KG, U.S. District Court, Northern District of Illinois, Eastern Division, 6.7.2004, available at: http://cisgw3.law. pace.edu/cases/040706u1.html. For this author’s view on the matter, see Ferrari (op. cit. fn. 25), 1021 et seq. See e.g. Schmitz-Werke GmbH & Co. v. Rockland Industries, Inc.; Rockland International FSC, Inc., U.S. Circuit Court of Appeals (4th Circuit), 21.6.2002, available at: http://cisgw3.law.pace.edu/cases/020621u1.html, surprisingly stating that “case law interpreting provisions of Article 2 of the Uniform Commercial Code that are similar to provisions in the CISG can also be helpful in interpreting the Convention”, after having stated that the “CISG directs that its interpretation be informed by its ‘international character and (…) the need to promote uniformity in its application and the observance of good faith in international trade’.” For similar statements, see more recently, Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., U.S. District Court, Northern District of Illinois, Eastern Division, 21.5.2004, available at: http://cisgw3.law.pace.edu/cases/040521u1.html; for an earlier statement to the same effect, see Delchi Carrier SpA, v. Rotorex Corporation, U.S. Circuit Court of Appeals (2d. Cir.), 6.12.1995, available at: http://cisgw3.law.pace.edu/cases/ 951206u1.html. Ehrenzweig, Interstate and International Conflicts Law: A Plea for Segregation, (1956-1957) 41 Minnesota Law Review (Minn. L. Rev.), 717, 723. This does not exclude that the interpreter may draw inspirations from the reasoning to be found in domestic decisions concerning similar provisions; the interpreters may, however, not simply use domestic solutions to solve CISG issues.

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that relevant interpretations of that rule can guide the Court’s reasoning regarding proper damages.”84 In effect, if the foreseeability requirement set forth in Art. 74 CISG really were based on the Hadley v. Baxendale Common Law rule, one should indeed be allowed to have recourse to the Common Law interpretations of that rule, and this despite the mandate that in interpreting the CISG regard “be had to its international character and to the need to promote uniformity in its application autonomously”. However, as has been shown on various occasions,85 the foreseeability limit set forth in Art. 74 CISG does not stem from the Common Law,86 as the (Hadley v. Baxendale) rule after which the various expressions of the foreseeability limit to be found in Common Law are modeled87 itself is not a rule invented under the Common Law, as also pointed out in case law, among others88 in Sinclair Refining Co. v. Hamilton & Dotson, where it is stated that the Common Law foreseeability limit “is known as the rule in Hadley v. Baxendale, and is sometimes spoken of as having originated in that case, though it is in reality an embodiment of civil law principles, and is substantially a paraphrasing of a rule on the

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TeeVee Tunes, Inc. et al v. Gerhard Schubert GmbH, U.S. District Court, Southern District of New York, 12.8.2006, available at: http://cisgw3.law.pace.edu/cases/ 060823u1.html. See Ferrari, Comparative Ruminations on the Foreseeability of Damages in Contract Law, (1993) 53 Louisiana Law Review (La. L. Rev.), 1257 et seq.; Ferrari, Prevedibilità del danno e contemplation rule, Contratto e impresa (Contr. impr.) 1993, 760 et seq. Contra see Schlechtriem, Uniform Sales Law in the Decisions of the Bundesgerichtshof, available in English at: http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem 3.html; van Houtte, The Law of International Trade, London 1995, 146 note 23. See e.g. Murphey, Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley, (1989) 23 Washington Journal of International Law and Economics (Wash. J. Int’l L. & Econ.), 415, 438 et seq., referring to Restatement (Second) of Contracts § 351 (1979) and UCC section 2-715(2). See apart from the decision quoted in the following note, Jones v. George, 61 Tex. 345 (Tex. 1884) (stating that the rule is “largely drawn from the civil law”); Rumely Products Co. v. Moss, 175 S.W. 1084, 1088 (Tex.Civ.App. 1915) (stating that the Louisiana rule comparable to Hadley v. Baxendale “and its modifications are taken from the Code Napoleon, 1149, 1150, which in turn are taken from Pothier on Obligations, Nos. 159, 160, who asserts that the rule is as old as the Roman law”); ManssOwens Co. v. H.S. Owens & Son, 105 S.E. 543, 549 (Va. 1921) (stating that “although the [Hadley v. Baxendale] rule − is sometimes spoken of as having originated in that case, it is in reality an embodiment of civil-law principles, and is substantially a paraphrasing of the rule on the subject as it had been stated at an earlier date in the Code Napoleon, by Pothier”).

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subject as it had been stated at an earlier date in the Code Napoleon, by Pothier.”89 Ultimately, this means that the Art. 74 CISG foreseeability limit is not a derivative of the Hadley v. Baxendale rule. It is therefore incorrect to state, as did one U.S. court when interpreting the CISG, that the “CISG requires that damages be limited by the familiar principle of foreseeability established in Hadley v. Baxendale.”90 This “frankly preposterous”91 statement is nothing but “a consummate illustration of a court unwittingly seeing a provision of the Convention through a domestic lens”,92 which, as mentioned, it should not do,93 except in the very limited circumstances referred to earlier.94 The foreseeability requirement set forth in Art. 74 CISG, like most other concepts and expressions used in the CISG, is to be interpreted autonomously and not in the light of any given domestic law, whether U.S., English or even French95 − 89 90

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Sinclair Refining Co. v. Hamilton & Dotson, 164 Va. 203, 209 (Va. 1935). Delchi Carrier S.p.A. v. Rotorex Corp., U.S. Circuit Court of Appeals (2nd. Cir.), 6.12.1995, available at: http://cisgw3.law.pace.edu/cases/951206u1.html. Flechtner, The CISG in U.S. Courts: The Evolution (and Devolution of the Methodology of Interpretation, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 91, 103. Murray (op. cit. fn. 16), 371-372. For critical remarks see also Cook, The UN Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricity, (1997) 16 J. L. & Com., 257, 259 (stating that the Delchi court incorrectly assumed, without further investigation, that “the familiar principle of foreseeability established in Hadley v. Baxendale applied without any deviation to the principle of foreseeability established in the Convention.”); Flechtner, The U.N. Sales Convention (CISG) and MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A.: The Eleventh Circuit Weighs in on Interpretation, Subjective Intent, Procedural Limits to the Convention’s Scope, and the Parole Evidence Rule, (1999) 18 J. L. & Com., 259, 269 (criticising the fact that the Delchi court “equated the quintessentially common law Hadley rule regarding foreseeable damages with the foreseeability principle of Article 74 of the CISG”); Zeller, The UN Convention on Contracts for the International Sale of Goods (CISG) – a leap forward towards unified international sales laws, (2000) 12 Pace Int’l L. Rev., 79, 89-90 (stating that “[t]he principle of foreseeability may well be similar to the one expressed in Article 74 of the CISG, but to tie Hadley v. Baxendale into Article 74 is patently wrong. [Delchi] is a good example of the danger that domestic courts could construct the CISG within their own experience and procedures”). See supra the text accompanying notes 33 and 59 et seq. It is worth pointing out that there are differences even between the French foreseeability limitation to the recoverable damages and the CISG’s foreseeability limit. The most obvious one relates to the fact that the French foreseeability limit

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where the foreseeability limitation originates from. In other words, the exception to the mandate to interpret the CISG autonomously referred to earlier, pursuant to which one should be allowed to have recourse to the “domestic” understanding of a concept where it is apparent from the legislative history that the drafters of the CISG wanted to adopt that specific concept’s domestic understanding, does not apply to the foreseeability limit set forth in Art. 74 CISG. From a methodological point of view it is therefore incorrect to state, as did another U.S. court, that the “relevant interpretations of [the Hadley v. Baxendale] rule can guide the Court’s reasoning regarding proper damages”96 under the CISG. This statement is nothing but another “excellent example of the errors that result from the failure to interpret and apply the Convention as an international, rather than a domestic, body of law”97 and shows that that court, too, “was clearly unable to overcome its own ethnocentric bias”.98 This inability led the court to even state that the CISG’s “foreseeability requirement (…) is identical to the well-known rule of Hadley v. Baxendale”,99 a statement that, as pointed out earlier, is clearly incorrect. Even “[a] cursory reading of the two formulations of ‘foreseeability’ illustrates the[ir obviously] dissimilar content.”100

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(not unlike the Italian and the Spanish one) does not apply where the breach of contract is due to fraud on the part of the breaching party; the Art. 74 CISG foreseeability limit, on the contrary, applies even where the breach is due to fraud; see Vekas, The Foreseeability Doctrine in Contractual Damage Cases, Acta Juridica Hungarica 2002, 145, 160, stating that “[i]n this regard the Vienna Convention deliberately diverges from the ‘source rule’ of Art. 1150 of the Code civil which, as we pointed to before, excludes the use of the foreseeability doctrine in the case of intentional breach of contract”; see also Pantaleon Prieto, Art. 74, in: Diez-Picazo (ed.), La compraventa internacional de mercaderias. Comentario de la Convencion de Viena, Madrid 1998, 579, 604. TeeVee Tunes, Inc. et al v. Gerhard Schubert GmbH, U.S. District Court, Southern District of New York, 12.8.2006, available at: http://cisgw3.law.pace.edu/cases/ 060823u1.html. Bailey, Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of International Sales, (1998) 32 Cornell International Law Journal (Cornell Int’l L. J.), 273, 288. Cook (op. cit. fn. 93), 262; see also Zeller, Downs Investments Pty Ltd (in liq) v. Perwaja Steel SDN BHD [2002] 2 Qd R 462, (2005) 9 V. J. Int’l Com. L. & Arb., 43, 46. TeeVee Tunes, Inc. et al v. Gerhard Schubert GmbH, U.S. District Court, Southern District of New York, 12.8.2006, available at: http://cisgw3.law.pace.edu/cases/ 060823u1.html. Cook (op. cit. fn. 93), 260.

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In this respect it is worth mentioning that under Art. 74 CISG “the foreseeability of the loss must be judged from the perspective of the party in breach”,101 and of that party alone,102 “whereas at common law foreseeability is determined by what is in the ‘reasonable contemplation of the parties’.”103 It is to be noted, however, “that more recent English decisions, although still always referring to Hadley v. Baxendale, essentially focus on examining foreseeability only on the side of the party [in breach]. Despite some uncertainty a similar tendency can be observed in American judicial practice as well and the UCC specifically provides this very rule.”104 Moreover, while Art. 74 CISG refers to the “foreseeability” of the damages, the original Hadley v. Baxendale rule requires their “contemplation”.105 There is a difference in the meaning behind these different expressions,106 101

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Stoll/Gruber, Art. 74, in: Schlechtriem/Schwenzer (ed.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd ed., Oxford 2005, 745, 765 (emphasis added); see also Brölsch, Schadensersatz und CISG, Frankfurt 2007, 52. See also Murphey (op. cit. fn. 87), 435, stating that Art. 74 CISG, “in limiting reference to the party in breach, surely does not envision delivering a windfall to the plaintiff, because the plaintiff recovers something not foreseen. Rather, this language reflects the view that the focus should be on the party who will have to answer for the amount of the loss.” Whittington, Reconsidering Domestic Sale of Goods Remedies in Light of the CISG, (2006) 37 Vict. U. Wellington L. Rev., 421, 443, according to whom, however, “[t]his is not a significant difference”. Vekas (op. cit. fn. 95), 160 (footnotes omitted). See however the text of Restatement (Second) of Contracts § 351 (1979): “(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.” See Ziegel, The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives, in: Galston/Smit (eds.), International Sales: The United Nations Convention on Contracts for the International Sale of Goods, New York 1984, 9-01, 9-05, where the author refers to Lord Reid’s example in The Heron II, 1 A.C. 350 (H.L.) (1969), in order to illustrate the difference between the “possible consequences” and the “probable result”: “to borrow from Lord

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which impacts on the limitation of the recoverable damages. In effect, “a rule that provides that damages only need to be ‘foreseeable’ surely ought to narrow the limitations of Hadley and widen the scope of recovery.”107 In addition, Art. 74 CISG limits damage recovery to those damages that the party in breach “knew or ought to have known as a possible consequence of the breach”,108 while the (original) Hadley v. Baxendale rule limits recovery of lost profits to those that were “in the contemplation of both parties, at the time they made the contract, as the probable result of the breach.”109 “Thus, [under the CISG] a claimant needs not show awareness that the loss was a ‘probable result’ or a substantial probability.”110 “This means that the breaching party ought to be liable for a greater range of consequential damages under the CISG (those that were foreseeable as a ‘possible’ consequence of the breach) than under the common law or UCC (only those that were foreseeable as a ‘probable’ consequence of the breach)”,111 or, to put it differently, that “Hadley’s (original) ‘probable result’

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Reid’s example in The Heron II, if one takes a well-shuffled pack of cards it is quite possible, though not likely, that the top card will prove to be the nine of diamonds even though the odds are 51 to 1 against.” Murphey (op. cit. fn. 87), 435-436; see also Darkey, A U.S. Court’s Interpretation of Damage Provisions under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step towards an International Jurisprudence of CISG or a Missed Opportunity?, (1995) 15 J. L. & Com., 139, 145. See also Brölsch (op. cit. fn. 101), 55 et seq. In legal writing this difference has been pointed out, e.g. by Pantaleon Prieto (op. cit. fn. 95), 604; Stoll/Gruber (op. cit. fn. 101), 763-764. Gotanda, Awarding Damages under the United Nations Convention on the International Sale of Goods: A matter of interpretation, (2005) 37 (Geo. J. Int’l L.), 95, 204-205; for a similar statement see also Neumayer/Ming, Convention de Vienne sur les contrats de vente internationale de marchandises. Commentaire, Lausanne 1993, 492. Dodge, Teaching the CISG in Contracts, (2000) 50 Journal of Legal Education (J. Leg. Edu.), 72, 92; for this conclusion, see also Cohen, Achieving a Uniform Law Governing International Sales: Conforming the Damages Provisions of the United Nations Convention on Contracts for the International Sale of Goods and the Uniform Commercial Code, (2005) 26 University of Pennsylvania Journal of International Economic Law (U. Penn. J. Int’l Ec. L.), 601, 612-613; Darkey (op. cit. fn. 107), 145 note 31; Whittington (op. cit. fn. 103), 443; contra Farnsworth, Damages and Specific Relief, (1979) 27 American Journal of Comparative Law (Am. J. Comp. L.), 247, 253, stating that “[a]lthough the use in Art. 7[4] of ‘possible consequence’ may seem at first to cast a wider net than the Restatement’s ‘probable result’, the preceding clause (‘in the light of the facts (…)’) cuts this back at least to the scope of the Code language.”

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limitation is much more restrictive than the ‘possible consequence’ limitation of Art. 74.”112 Given the aforementioned differences that unequivocally show that the rules on limitation of damages set forth in Art. 74 CISG and in Hadley v. Baxendale are rather different, only one overall conclusion can be drawn: in interpreting Art. 74 CISG “U.S. judges should try [much harder] to divorce themselves from the influence of (their domestic law, such as) Hadley as much as possible.”113

D. Homeward Trend in CISG Case Law: A Second Example CISG case law also provides examples of the other variation of the homeward trend, i.e., the tendency to interpret the Convention in a way that permits the court “to arrive, if possible, at the application of domestic law.”114 These examples basically relate to the interpretation of Art. 6 CISG, the provision which allows the parties to exclude the CISG’s applicability and, thus, sets forth the CISG’s dispositive nature115 − emphasised also in case

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Majumdar/Jha, The Law Relating to Damages under International Sales: A Comparative Overview between the CISG and Indian Contract Law, (2001) 5 V. J. Int’l Comm. L. & Arb., 185, 193. Dodge (op. cit. fn. 111), 92, borrowing from a statement by Murphey (op. cit. fn. 87), 417. Sand, The International Unification of Air Law, (1965) 30 Law and Contemporary Problems (Law & Contemp. Probs.), 400, 402. See e.g. Brunner, CISG. Kommentar zum Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf von 1980 unter Berücksichtigung der Schnittstellen zum internen Schweizer Recht, Bern 2004, 72; Carbone, L’ambito di applicazione ed i criteri interpretativi della convenzione di Vienna, La vendita Internazionale. La Convenzione dell’11 aprile 1980, Milan 1981, 61, 78; Erauw (op. cit. fn. 21), 47; Ferrari, Vendita internazionale di beni mobili. Art. 1-13. Ambito di applicazione. Disposizioni generali, Bologna 1994, 110; Herber, “Lex mercatoria” und “Principles” – gefährliche Irrlichter im internationalen Kaufrecht, IHR 2003, 1; Lanciotti, Norme uniformi di conflitto e materiali nella disciplina convenzionale della compravendita, Naples 1992, 146; Lindbach, Rechtswahl im Einheitsrecht am Beispiel des Wiener UN-Kaufrechts, Aachen 1996, 67; Magnus (op. cit. fn. 13), 149; Piltz, Internationales Kaufrecht. Das UN-Kaufrecht (Wiener Übereinkommen von 1980) in praxisorientierter Darstellung, Munich 1993, 64; Witz, L’exclusion de la Convention des Nations Unies sur les contrats de vente internationale de marchandises par la volonté des parties, Recueil Dalloz Chronique 1990, 107.

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law116 − as well as the “central role which party autonomy plays in international commerce and, particularly, in international sales.”117 In case law, there is a dispute as to whether this provision requires the parties to expressly exclude the CISG’s applicability or whether it allows them to also implicitly exclude it. This dispute is due to the fact that Art. 3 ULIS, the “direct predecessor”118 of Art. 6 CISG, expressly stated that its exclusion could also be agreed upon implicitly,119 but that this express reference to the possibility of an implicit exclusion was not retained by the drafters of the CISG,120 despite some attempts made at the Vienna Diplomatic Conference to reintroduce that express reference.121 116

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For an express reference to the CISG’s non-mandatory nature, see e.g. Tribunal Cantonal du Jura, 3.11.2003, available at: http://www.cisg-online.ch/cisg/urteile/ 965.pdf; Corte di Cassazione, 19.6.2000, available in English at: http://cisgw3. law.pace.edu/cases/000619i3.html; Oberster Gerichtshof, 21.3.2000, available in English at: http://cisgw3.law.pace.edu/cases/000321a3.html; Oberster Gerichtshof, 15.10.1998, available in English at: http://cisgw3.law.pace.edu/cases/981015a3. html; Handelsgericht Wien, 4.3.1997, available at: http://www.cisg.at/1R4097x. htm; Kantonsgericht Wallis, 29.6.1994, available in English at: http://cisgw3. law.pace.edu/cases/940629s1.html. Bonell, Commento all’art. 6 della Convenzione di Vienna, Nuove Leggi civ. comm. 1989, 16; for similar statements in scholarly writing, see Date-Bah, The United Nations Convention on Contracts for the International Sale of Goods: Overview and Selective Commentary, (1979) 11 Review of Ghana Law (Rev. Ghana L.), 50, 54; Enderlein, Die Verpflichtung des Verkäufers zur Einhaltung des Lieferzeitraums und die Rechte des Käufers bei dessen Nichteinhaltung nach dem UN-Übereinkommen über Verträge über den internationalen Warenkauf, Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 1991, 313, 316; Hoyer, Der Anwendungsbereich des Einheitlichen Wiener Kaufrechts, in: Hoyer/Posch (eds.), Das Einheitliche Wiener Kaufrecht, Vienna 1992, 31, 41. Bonell (op. cit. fn. 117), 17. See Art. 3 ULIS: “The parties to a contract of sale shall be free to exclude the application thereto of the present Law either entirely or partially. Such exclusion may be express or implied.” See Samson, La Convention des Nations Unies sur les contrats de vente internationale de marchandises: Etude comparative des dispositions de la Convention et des règles de droit québécois en la matière, (1982) 23 Cahiers de droit (Cah. dr.), 919, 931. Both the representatives of England and Belgium made proposals to reintroduce a reference to the possibility of implicitly excluding the CISG’s application; for a reference to these attempts, see Magnus (op. cit. fn. 13), 150; United Nations (ed.), Official Records: Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committees, New York/ Geneva 1981, 249 et seq.

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U.S. courts, for instance, constantly122 exclude the possibility for the parties to implicitly opt-out of the CISG, holding that, “[w]hile the parties to a contract may exclude the applicability of the CISG, any such exclusion must be explicit.”123 It is therefore not surprising that U.S. courts have stated, for instance, that the choice of the law of a Contracting State to the CISG requires courts to “uphold application of the Convention as the law of the designated

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See Sky Cast, Inc v. Global Direct Distribution, LLC, U.S. District Court, Eastern District of Kentucky, 18.3.2008, available at: http://cisgw3.law.pace.edu/cases/ 080318u1.html; Easom Automation Systems, Inc. v. Thyssenkrupp Fabco, Corp., U.S. District Court, Eastern District Michigan, 28.9.2007, available at: http:// cisgw3.law.pace.edu/cases/070928u1.html#iv; Travelers Property Casualty Company of America et al. v. Saint-Gobain Technical Fabrics Canada Limited, U.S. District Court, Minnesota, 31.1.2007, available at: http://cisgw3.law.pace.edu/cases/ 070131u1.html; TeeVee Tunes, Inc. et al v. Gerhard Schubert GmbH, U.S. District Court, Southern District of New York, 23.8.2006, available at: http://cisgw3.law. pace.edu/cases/060823u1.html; BP Oil International v. Empresa Estatal Petroleos de Ecuador, U.S. Court of Appeals (5th Circuit), 11.6.2003, available at: http:// cisgw3.law.pace.edu/cisg/wais/db/cases2/030611u1.html; Ajax Tool Works, Inc. v. Can-Eng Manufacturing Ltd., U. S. District Court, Northern district of Illinois, 29.1.2003, available at: http://cisgw3.law.pace.edu/cases/030129u1.html; St. Paul Insurance Company et al. v. Neuromed Medical Systems & Support et al., U.S. District Court, Southern District of New York, 26.3.2002, available at: http://cisgw3. law.pace.edu/cases/020326u1.html; Helen Kaminski PTY, Ltd. v. Marketing Australian Products, Inc., U.S. District Court, Southern District of New York, 23.7.1997, available at: http://cisgw3.law.pace.edu/cases/970721u1.html; Delchi Carrier, SpA v. Rotorex Corp., U.S. Court of Appeals (2nd Cir.), 6.12.1995, available at: http://cisgw3.law.pace.edu/cases/951206u1.html; Orbisphere Corp. v. United States, Court of International Trade, 24.10.1989, available at: http://cisgw3. law.pace.edu/cases/891024u1.html. Most recently, see however Zhejiang Shaoxing Yongli Printing and Dyeing Co., Ltd. v. Microflock Textile Group Corp., U.S. District Court, Southern District of Florida, 19.5.2008, where the court did not at all refer to the need for an express exclusion, but simply stated that the “CISG automatically applies to international sales contracts between parties from different contracting states unless the parties agree to exclude the application of the CISG, as stated in Article 6 of the CISG. Because the parties did not agree to exclude the application of the CISG, the CISG provides the substantive law governing this contractual dispute”. Cedar Petrochemicals, Inc. v. Dongbu Hannong Chemical Co., Ltd., U.S. District Court, Southern District of New York, 19.7.2007, available at: http://cisgw3. law.pace.edu/cases/070719u1.html.

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Contracting State”124 or that “merely referring to a particular state’s law does not opt-out of the CISG.”125 What is surprising, however, is the fact that various U.S. courts126 have held that where the parties choose to be bound by the Uniform Commercial Code, the CISG does not apply. This solution, however, is irreconcilable with the need for an express opt-out agreement required, among others, by those very same courts. It can only be explained by the aforementioned lex forism, i.e., that variation of the homeward trend that favours an interpretation that will lead to the application of the law of the forum. At this point, it is worth mentioning that the view held by U.S. courts, pursuant to which parties have to expressly opt-out of the CISG for it not to apply, is not shared by many courts127 or commentators.128 The majority of

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Easom Automation Systems, Inc. v. Thyssenkrupp Fabco, Corp., U.S. District Court, Eastern District Michigan, 28.9.2007, available at: http://cisgw3.law.pace. edu/cases/070928u1.html#iv. Travelers Property Casualty Company of America et al. v. Saint-Gobain Technical Fabrics Canada Limited, U.S. District Court, Minnesota, 31.1.2007, available at: http://cisgw3.law.pace.edu/cases/070131u1.html. TeeVee Tunes, Inc. et al v. Gerhard Schubert GmbH, U.S. District Court, Southern District of New York, 23.8.2006, available at: http://cisgw3.law.pace.edu/cases/ 060823u1.html. See however Rechtbank Zwolle, 21.5.2003, IHR 2005, 34, 35; Rechtbank Hasselt, 4.10.1999, available at: http://www.law.kuleuven.ac.be/ipr/eng/cases/199910-04.html; Landgericht Landshut, 5.5.1995, available in English at: http:// cisgw3.law.pace.edu/cases/950405g1.html. See however Dore (op. cit. fn. 21), 532; Dore/Defranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, (1982) 23 Harvard International Law Journal (Harv. Int’l L. J.), 49, 53; Dutton, Risky Business: The Impact of the CISG on the International Sale of Goods, Guide for Merchants to Limit Liability and Increase Certainty Inside and Outside of the CISG, (2005) 7 European Journal of Law Reform (Eur. J. L. Ref.), 239, 246; Klepper, The Convention for the International Sale of Goods: A Practical Guide for the State of Maryland and Its Trade Community, (1991) 15 Md. J. Int’l L. & Trade, 235, 238; Murphy, United Nations Convention on Contracts for the International Sale of Goods: Creating Uniformity on International Sales Law, (1989) 12 Fordham International Law Journal (Fordham Int’l L. J.), 727, 728; Ostendorf et al., Möglichkeiten und Grenzen von Haftungsbeschränkungen in internationalen Lieferverträgen zwischen Unternehmern, IHR 2006, 21, 22; Rendell, The New U.N. Convention on International Sales Contracts: An Overview, (1989) 15 Brooklyn Journal of International Law (Brook. J. Int’l L.), 23, 25.

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courts129 and commentators130 (correctly)131 hold that under the CISG the exclusion does not always have to be expressly agreed upon.132 This conclusion is based, among others, on the fact that on the occasion of the CISG’s drafting “the majority of delegations was (…) opposed to the proposal according to which a total or partial exclusion of the Convention could only be made ‘expressly’.”133 Consequently, the lack of an express reference to the possibility of an implicit exclusion must not be regarded as precluding such possibility.134 Rather, it has a different meaning: to discourage courts from too easily

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See e.g. Oberlandesgericht Linz, 8.8.2005, available in English at: http:// cisgw3.law.pace.edu/cases/050808a3.html; Rechtbank van Koophandel Tongeren, 25.1.2005, available in English at: http://cisgw3.law.pace.edu/cases/050125b1. html; Tribunale di Padova, 11.1.2005, available at: http://www.unilex.info/case. cfm?pid=1&do=case&id=1005&step=FullText; Oberlandesgericht München, 9.7.1997, available in English at: http://cisgw3.law.pace.edu/cases/970709g1.html; Landgericht München, 29.5.1995, available in English at: http://cisgw3.law. pace.edu/cases/950529g1.html. See e.g. Bell, The Sphere of Application of the Vienna Convention on Contracts for the International Sale of Goods, (1996) 8 Pace Int’l L. Rev., 237, 255; Czerwenka, Rechtsanwendungsprobleme im internationalen Kaufrecht. Das Kollisionsrecht bei grenzüberschreitenden Kaufverträgen und der Anwendungsbereich der internationalen Kaufrechtsübereinkommen, Berlin 1988, 170; Garro/Zuppi, Compraventa internacional de mercaderias, Buenos Aires 1990, 98; Graffi, L’applicazione della Convenzione di Vienna in alcune recenti sentenze italiane, European Legal Forum (Eur. L. For.) 2000/2001, 240, 241. For this author’s view see Ferrari, Remarks on the UNCITRAL Digest’s Comments on Article 6 CISG, (2006) 25 J. L. & Com., 13, 20 et seq. For this conclusion see e.g. Achilles (op. cit. fn. 14), 25; Audit, La vente internationale de marchandises, Paris 1990, 38; Bell (op. cit. fn. 130), 255; Brunner (op. cit. fn. 115), 68; Cappuccio, La deroga implicita nella Convenzione di Vienna del 1980, Diritto del commercio internazionale (Dir. comm. int.) 1994, 867, 868; Czerwenka (op. cit. fn. 130), 170; Date-Bah (op. cit. fn. 117), 54; Garro/Zuppi (op. cit. fn. 130), 98; Holthausen, Vertraglicher Ausschluß des UN-Übereinkommens über internationale Warenkaufverträge, Recht der internationalen Wirtschaft (RIW) 1989, 513, 515; Lacasse, Le champ d’application de la Convention des Nations Unies sur les contrats de vente internationale de marchandises, in: Lacasse/Perret (eds.), Actes du colloque sur la vente internationale, Montreal 1989, 23, 37; Richards, Contracts for the International Sale of Goods: Applicability of the United Nations Convention, (1983) 69 Iowa Law Review (Iowa L. Rev.), 209, 237. Bonell (op. cit. fn. 27), 52; see also Audit (op. cit. fn. 132), 38. See Ferrari (op. cit. fn. 33), 128 et seq.

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inferring an “implied” exclusion or derogation.135 Thus, an implicit exclusion of the CISG is possible,136 as confirmed by very many courts.137 Of course, for the CISG to be implicitly excluded there must be clear indications that the parties really wanted such an exclusion,138 that is, there must 135

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For a similar justification of the lack of reference to the possibility of implicitly excluding the CISG’s application, see Ebenroth, Internationale Vertragsgestaltung im Spannungsverhältnis zwischen ABGB, IPR-Gesetz und UN-Kaufrecht, Österreichische Juristenzeitung (ÖJZ) 1986, 681, 684; Ferrari (op. cit. fn. 115), 128; United Nations (ed.) (op. cit. fn. 121), 17; Reifner, Stillschweigender Ausschluss des UN-Kaufrechts im Prozess?, IHR 2002, 52, 55; Schlechtriem, Uniform Sales Law. The UN-Convention on Contracts for the International Sale of Goods, Vienna 1986, 35. See apart from the commentators cited supra in notes 130 et seq., Audit (op. cit. fn. 132), 38; Grijalva/Imberg, The Economic Impact of International Trade on San Diego and the Application of the United Nations Convention on the International Sale of Goods to San Diego/Tijuana Commercial Transactions, (1998) 35 San Diego Law Review (S.D. L. Rev.), 769, 776; Kennedy, Recent Developments: Nonconforming Goods Under the CISG – What’s a Buyer to Do?, (1998) 16 Dickinson Journal of International Law (Dick. J. Int’l L.), 319, 321 et seq.; Magnus (op. cit. fn. 13), 153; Richards (op. cit. fn. 132), 237. See apart from the decisions cited supra, in note 129, Landgericht Bamberg, 23.10.2006, available in English at: http://cisgw3.law.pace.edu/cases/061023g1. html; Oberlandesgericht Linz, 23.1.2006, available in English at: http://cisgw3. law.pace.edu/cases/060123a3.html; Cour de Cassation, 25.10.2005, available in English at: http://cisgw3.law.pace.edu/cases/051025f1.html; Tribunale di Padova, 31.3.2004, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/ 040331i3.html; Tribunale di Padova, 25.2.2004, available in English at: http:// cisgw3.law.pace.edu/cisg/wais/db/cases2/040225i3.html; Tribunale di Rimini, 26.11.2002, available in English at: http://cisgw3.law.pace.edu/cases/021126i3. html; Oberster Gerichtshof, 22.10.2001, available in English at: http://cisgw3.law. pace.edu/cases/011022a3.html; Cour de Cassation, 26.6.2001, available at: http://witz.jura.uni-sb.de/CISG/decisions/2606012v.htm; Tribunale di Vigevano, 12.7.2000, available in English at: http://cisgw3.law.pace.edu/cases/000712i3. html; Oberlandesgericht Desden, 27.12.1999, available in English at: http:// cisgw3.law.pace.edu/cases/991227g1.html; Oberlandesgericht Celle, 24.5.1995, available in English at: http://cisgw3.law.pace.edu/cases/950524g1.html. For a similar statement, see Bonell (op. cit. fn. 13), 13 (stating that a “tacit exception may only be admitted if there are valid elements of indications showing the parties ‘true’ intention”); Enderlein et al. (op. cit. fn. 65), 48 (stating that there must be clear indications that an implicit exclusion is wanted); Erauw (op. cit. fn. 21), 47 (stating the same); Rovelli, Conflitti tra norme della Convenzione e norme di diritto internazionale privato, in: La vendita internazionale. La convenzione di Vienna dell’11 aprile 1980, Milan 1981, 89, 105 (stating that “of course, the de-

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be a real − as opposed to theoretical, fictitious or hypothetical − agreement of parties,139 as also pointed out in case law.140 The issue then is how the parties can implicitly exclude the CISG.141 In the light of the legislative history,142 most courts and commentators agree that while the parties may implicitly exclude the CISG by choosing the law of a non-contracting state as the law governing their contract,143 the parties’ choice of the law of a Contracting State as the governing law does not per se

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termination of the applicable law can result from an implicit choice of the parties, but is must be ‘certain’: this means that the intention of implicitly excluding the Convention must be real, not hypothetical”). For a similar statement, see Honnold (op. cit. fn. 17), 80 (stating that “(...) although an agreement to exclude the Convention need not be ‘express’ the agreement may only be implied from fact pointing to real – as opposed to theoretical or fictitious – agreement”); for similar statements, see Reifner (op. cit. fn. 135), IHR 2002, 52, 55; Wasmer, Vertragsfreiheit im UN-Kaufrecht, Hamburg 2004, 34. Note, however, that according to Murphy (op. cit. fn. 87), 749, the possibility of implicitly excluding the CISG contrasts with the need for certainty of law. See Oberlandesgericht Linz, 23.1.2006, available in English at: http://cisgw3. law.pace.edu/cases/060123a3.html; Tribunal Cantonal du Jura, 3.11.2004, available at: http://www.cisg-online.ch/cisg/urteile/965.pdf; Kammergericht Berlin, 24.1.1994, available in English at: http://cisgw3.law.pace.edu/cases/940124g1. html. For an overview in legal writing of how the CISG can be implicitly excluded, see Ferrari (op. cit. fn. 134), 128 et seq.; Magnus (op. cit. fn. 13), 153 et seq.; for an overview in case law, see e.g. Oberlandesgericht Linz, 23.1.2006, available in English at: http://cisgw3.law.pace.edu/cases/060123a3.html. On the occasion of the Vienna Diplomatic Conference, a large number of delegations rejected the proposals by Canada and Belgium (for these proposals see United Nations (ed.) (op. cit. fn. 121), 250) pursuant to which the domestic sales law, and not the CISG, would have to be applied whenever the parties indicated the law of a Contracting State as the proper law for their contract. For this view see in legal writing Achilles (op. cit. fn. 14), 25; Audit (op. cit. fn. 132), 39; Bonell (op. cit. fn. 133), 56; Chiomenti, Does the choice of a-national rules entail an implicit exclusion of the CISG?, Eur. Leg. For. 2005, 141, 144; Enderlein et al. (op. cit. fn. 31), 58; Ferrari (op. cit. fn. 134), 129; Garro/Zuppi (op. cit. fn. 130), 95; Lando, The 1985 Hague Convention on the Law Applicable to Sales, RabelsZ 1987, 60, 84; Lindbach (op. cit. fn. 115), 308; Thiele, Das UNKaufrecht vor US-amerikanischen Gerichten, IHR 2002, 8, 9; Wasmer (op. cit. fn. 139), 29. In case law see Tribunale di Padova, 11.1.2005, available at: http://cisgw3.law.pace.edu/cases/050111i3.html; Oberlandesgericht Düsseldorf, 2.7.1993, available in English at: http://cisgw3.law.pace.edu/cases/930702g1.html.

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amount to an (implicit) exclusion of the CISG.144 Of course, where either from the choice of law clause itself or from the circumstances it can be derived that the purely domestic law of a Contracting State is intended to govern the contract, the CISG will not apply.145 According to an Italian arbitral tribunal,146 however, the parties’ agreement to exclusively apply “Italian law” amounts to an implicit exclusion of the CISG, even where no reference to Italy’s purely domestic law has been made. This very simplistic interpretation of Art. 6 CISG is nothing but a manifestation – by the arbitral tribunal with seat in Italy and composed of three Italian arbitrators − of the lex forism. 144

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For this conclusion see in legal writing Achilles (op. cit. fn. 14), 25; Audit (op. cit. fn. 132), 39; Dokter, Interpretation of exclusion-clauses of the Vienna Sales Convention, RabelsZ 2004, 430, 435; Erauw (op. cit. fn. 21), 25 and 48; Farnsworth, Review of Standard Forms or Terms under the Vienna Convention, (1988) 21 Cornell International Law Journal (Cornell Int’l L. J.), 439, 442; Grijalva/Imberg (op. cit. fn. 136), 777; Winship, International Sales Contracts under the 1980 Vienna Convention, (1984) 17 Uniform Commercial Code Law Journal (UCC L. J.), 55, 65. In case law see e.g. Oberlandesgericht Stuttgart, 31.3.2008, available at: http://cisgw3.law.pace.edu/cisg/text/080331g1german.pdf; ICC Court of Arbitration, Arbitral award n. 11333, available at: http://cisgw3.law.pace.edu/cases/ 021333i1.html; ICC Court of Arbitration, Arbitral award n. 9187, available at: http://cisgw3.law.pace.edu/cases/999187i1.html; Arbitral Tribunal of the Hamburg Chamber of Commerce, 21.3.1996, available in English at: http://cisgw3. law.pace.edu/cases/960321g1.html; Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, 17.11.1995, available at: http://www.unilex. info/case.cfm?pid=1&do=case&id=217&step=FullText; ICC Court of Arbitration, Arbitral award n. 8324, available in English at: http://cisgw3.law.pace. edu/cases/958324i1.html. For this conclusion, see Bonell (op. cit. fn. 14), 18; Brunner (op. cit. fn. 115), 70; Cappuccio (op. cit. fn. 132), 873; Chiomenti (op. cit. fn. 143), 144; Erauw (op. cit. fn. 21), 49; Ferrari (op. cit. fn. 134), 131; Reifner (op. cit. fn. 135), 56. In case law see Oberlandesgericht Stuttgart, 31.3.2008, available at: http://cisgw3.law.pace. edu/cisg/text/080331g1german.pdf; Oberlandesgericht Linz, 23.1.2006, available in English at: http://cisgw3.law.pace.edu/cases/060123a3.html; Hof Leeuwarden, 31.8.2005, available in English at: http://cisgw3.law.pace.edu/cases/050831n1. html; Tribunale di Padova, 11.1.2005, available at: http://www.unilex.info/case. cfm?pid=1&do=case&id=1005&step=FullText; Oberlandesgericht Frankfurt, 30.8.2000, available in English at: http://cisgw3.law.pace.edu/cisg/text/000830g1 german.html; Oberlandesgericht Frankfurt, 15.3.1996, available at: http://www. cisg-online.ch/cisg/urteile/284.htm. See Ad Hoc Arbitral Tribunal Florence, 19.4.1994, available in English at: http://cisgw3.law.pace.edu/cases/940419i3.html; Tribunale di Monza, 14.1.1993, available in English at: http://cisgw3.law.pace.edu/cases/930114i3.html.

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In discussions focusing on the possibility to implicitly exclude the CISG, the issue has been raised of whether the CISG is implicitly excluded where the parties argue a case on the sole basis of the substantive law of the forum. In this author’s opinion,147 the mere fact that the parties argue on the sole basis of a domestic law does not per se lead to the exclusion of the CISG,148 a view also held by many courts.149 Only where it can be derived from the briefs or from other circumstances that the parties were aware of the CISG’s applicability can the fact that they have based their briefs solely on the purely domestic law of the forum be considered as an implicit exclusion. One Italian court stated this very clearly: “The fact that during the preliminary legal proceedings in this case the parties based their arguments exclusively on Italian domestic law without any references to the CISG cannot be considered an implicit manifestation of an intent to exclude application of the Convention (…). Reference in a party’s brief to the non-uniform national law of a Contracting State − even though it is theoretically some evidence of an intention to choose the 147

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See Ferrari, Nuove e vecchie questioni in materia di vendita internazionale tra interpretazione autonoma e ricorso alla giurisprudenza straniera, Giurisprudenza italiana (Giur. it.) 2004, 1405, 1416; Ferrari, Zum vertraglichen Ausschluss des UN-Kaufrechts, ZEuP 2002, 737, 744 et seq. See also Bazinas, Uniformity in the Interpretation and the Application of the CISG: The Role of CLOUT and the Digest, in: Celebrating Success: 25 Years United Nations Convention on Contracts for the International Sale of Goods, Singapore 2006, 18, 26; Graffi (op. cit. fn. 130), 241; Grijalva/Imberg (op. cit. fn. 136), 776; Mazzotta, The International Character of the UN Convention on Contracts for the International Sale of Goods: An Italian Case Example, (2003) 15 Pace Int’l L. Rev., 442; Piltz, Neue Entwicklungen im UN-Kaufrecht, Neue Juristische Wochenschrift (NJW) 2000, 553, 555; Schlechtriem, Aufrechnung durch den Käufer wegen Nachbesserungsaufwand – deutsches Vertragsstatut und UNKaufrecht, IPRax 1996, 256, 256; Spiegel, Exclusion tacite de la Convention de Vienne par les parties et dénonciation des défaits de conformité, Recueil DallozSirey Jurisprudence 2002, 395; Wasmer (op. cit. fn. 139), 31 et seq. See Oberlandesgericht Stuttgart, 31.3.2008, unpubl.; Landgericht Bamberg, 23.10.2006, available in English at http://cisgw3.law.pace.edu/cases/061023g1.html; Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace. edu/cisg/wais/db/cases2/040225i3.html; Landgericht Saarbrücken, 2.7.2002, available in English at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/020702g1.html; Oberlandesgericht Rostock, 10.10.2001, available in English at: http://cisgw3.law. pace.edu/cisg/wais/db/cases2/011010g1.html; Tribunale di Vigevano, 12.7.2000, available in English at: http://cisgw3.law.pace.edu/cases/000712i3.html; Kantonsgericht Nidwalden, 3.12.1997, available in English at: http://cisgw3.law.pace.edu/ cases/971203s1.html; Oberlandesgericht Hamm, 9.6.1995, available in English at: http://cisgw3.law.pace.edu/cases/950609g1.html; Landgericht Landshut, 5.4.1995, available in English at: http://cisgw3.law.pace.edu/cases/950405g1.html.

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national law of that State − does not imply the automatic exclusion of the CISG. One has to assume that the parties wanted to exclude the application of the Convention only if it appears in an unequivocal way that they recognized its applicability and they nevertheless insisted on referring only to national, non-uniform law. In the present case, it does not appear from the parties’ arguments that they realized that the CISG was the applicable law (…); we cannot, therefore, conclude that they implicitly wanted to exclude the application of the Convention by choosing to refer exclusively to national Italian law.”150 The French Supreme Court, however, takes a completely different view.151 It consistently compares the pleadings of the parties on the sole basis of the French Civil Code to an implicit exclusion of the CISG, and this independently of whether there are any indications as to whether the parties were aware of the CISG’s applicability. This is probably the best example of a court’s tendency to read the CISG in a way that allows the court to ultimately apply its own substantive law.

E. The Homeward Trend Overcome Even though it has been suggested that there are many courts that do succumb to the homeward trend,152 the situation is not really that grim. There are many decisions that comply with the obligation to have regard to the CISG’s international character and avoid resorting to domestic concepts to interpret the CISG. This is also true as regards the U.S. situation, as can easily be derived from some U.S. decisions. In St. Paul Guardian Insurance Co. et al. v. Neuromed Medical Systems & Support GmbH, et al.,153 for instance, it is stated that “the CISG aims to bring uniformity to international business transactions, using simple, non-nation specific language”, a statement that is clearly incompatible with the homeward trend. In MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A.,154 the need to refrain from reading domestic concepts into the CISG is addressed more directly, as it states 150

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Tribunale di Vigevano, 12.7.2000, available in English at: http://cisgw3.law.pace. edu/cases/000712i3.html. Cour de Cassation, 25.10.2005, available in English at: http://www.cisg-france. org/decisions/251005v.htm; Cour de Cassation, 26.6.2001, available at: http:// witz.jura.uni-sb.de/CISG/decisions/2606012v.htm. See most recently Sheaffer (op. cit. fn. 78), 477. St. Paul Guardian Insurance Co. et al. v. Neuromed Medical Systems & Support GmbH et al., U.S. District Court for the Southern District of New York, 26.3.2002, available at: http://cisgw3.law.pace.edu/cases/020326u1.html. MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A., U.S. Circuit Court of Appeals (11th Circuit), 296.1998, available at: http://cisgw3.law. pace.edu/cases/980629u1.html.

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that “courts applying the CISG cannot (…) substitut(e) familiar principles of domestic law when the Convention requires a different result.” This line of reasoning constitutes the basis for other US court decisions too, such as Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc.,155 stating that “UCC case law is not per se applicable to cases governed by the CISG”,156 and Calzaturificio Claudia S.n.c. v. Olivieri Footwear Ltd.,157 where it is expressly stated that “although the CISG is similar to the UCC with respect to certain provisions, it differs from the UCC with respect to others, including the UCC’s writing requirement for a transaction for the sale of goods and parole evidence rule. Where controlling provisions are inconsistent, it would be inappropriate to apply UCC case law in construing contracts under the CISG.” European courts as well have complied with the obligation not to interpret the CISG in the light of domestic law, but rather by having regard to its international character. In a Swiss case from 1993,158 a court of first instance even expressly stated that the CISG “is supposed to be interpreted autonomously and not out of the perspective of the respective national law of the forum. Thus, (…) it is generally not decisive whether the Convention is formally applied as particularly this or that national law, as it is to be interpreted autonomously and with regard to its international character.” An express reference to the need to interpret the CISG “autonomously” can also be found in a more recent Swiss case159 as well as in a Spanish case,160 an Austrian one161 and various 155

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Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., U.S. District Court for the Southern District of New York, 10.5.2002, available at: http://cisgw3.law. pace.edu/cases/020510u1.html. Geneva Pharmaceuticals Tech. Corp. v. Barr Labs. Inc., U.S. District Court for the Southern District of New York, 10.5.2002, available at: http://cisgw3.law.pace. edu/cases/020510u1.html; for the statement referred to in the text, see most recently Genpharm Inc. v. Pliva-Lachema A.S., U.S. District Court for the Eastern District Court of New York, 19.3.2005, available at: http://www.cisg.law.pace. edu/cisg/wais/db/cases2/050319u1.html; Chicago Prime Packers, Inc. v. Northam Food Trading Co., et al., U.S. District Court, Northern District of Illinois, Eastern Division, 21.5.2004, available at: http://cisgw3.law.pace.edu/cases/040521u1. html; Orbisphere Corp. v. United States, U.S. Court of International Trade, 24.10.1989, available at: http://cisgw3.law.pace.edu/cases/891024u1.html. Calzaturificio Claudia S.n.c. v. Olivieri Footwear Ltd., U.S. District Court, Southern District of New York, 6.4.1998, available at: http://cisgw3.law.pace.edu/cases/ 941005b1.html. Gerichtspräsident Laufen, 7.5.1993, available at: http://cisgw3.law.pace.edu/cisg/ wais/db/cases2/930507s1.html. Handelsgericht Aargau, 26.9.1997, available at: http://www.unilex.info/case.cfm? pid=1&do=case&id=404&step=FullText. See Audiencia Provincial de Valencia, 7.6.2003, available in English at: http://cisgw3.law.pace.edu/cases/030607s4.html, stating that “[s]cholars maintain

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very recent Italian court decisions, rendered by the Tribunale di Padova in 2005 and 2004162 as well as by the Tribunale di Modena.163 In Germany, while there are some courts that simply referred to the need to interpret the CISG by having regard to its international character and to the need to promote its uniform application,164 there are other ones which went further. In 1996, the German Supreme Court, for instance, expressly stated that “the CISG is different from German domestic law, whose provisions and special principles are, as a matter of principle, inapplicable for the interpretation of the CISG (Art. 7 CISG).”165 It is this reasoning that has led the Court of Appeal Karlsruhe to state that “German legal concepts such as ‘Fehler’ and ‘zugesicherte Eigenschaften’ are therefore not transferable to the CISG”.166 More recently, in 2005, the German Supreme Court stated that “insofar as the Court of Appeals refers to (various German) judgments (…) in analyzing the question whether, at the time the risk passed, the delivered meat conformed to the contract within the meaning of Arts. 35, 36 CISG, it ignored the fact that these decisions were issued before the CISG went into effect in Germany and refer to § 459 BGB (…). The principles developed there cannot simply be applied to the case at hand, although the factual position − suspicion of foodstuffs in trans-border

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that the international character of the Convention obliges an autonomous interpretation of the Convention independent of domestic law, for this purpose, it is necessary to adopt a different methodology than used to apply domestic law. The only way to assure the uniformity of the Convention is to take into account decisions from tribunals of other countries when applying the Convention and to consult expert opinions of scholars in the subject, in order to achieve uniformity.” For a favorable comment on this decision when discussing the uniform interpretation of the CISG, see Perales Viscasillas, Spanish Case Law on the CISG, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 235, 240-241. See Oberster Gerichtshof, 23.5.2005, available in English at: http://cisgw3. law.pace.edu/cases/050523a3.html, stating that “[t]he CISG creates substantive law (…) and is to be interpreted autonomously in accordance with CISG Art. 7. Therefore, discussions on the Austrian legal situation (...) have to be omitted.” Tribunale di Padova, 11.1.2005, available at: http://www.unilex.info/case.cfm? pid=1&do=case&id=1005&step=FullText; Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace.edu/cases/040225i3.html. Tribunale di Modena, 9.12.2005, available at: http://www.cisg-online.ch/cisg/ urteile/1398.pdf. See e.g. Oberlandesgericht Frankfurt, 20.4.1994, available at: http://www.cisgonline.ch/cisg/urteile/125.htm. Bundesgerichtshof, 3.4.1996, available in English at: http://cisgw3.law.pace.edu/ cisg/wais/db/cases2/960403g1.html. Oberlandesgericht Karlsruhe, 25.6.1997, available in English at: http://cisgw3. law.pace.edu/cisg/wais/db/cases2/970625g1.html.

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trade being hazardous to health − is similar; that is so because, in interpreting the provisions of CISG, we must consider its international character and the necessity to promote its uniform application and the protection of goodwill in international trade (Art. 7(1) CISG)”.167 Arbitral tribunals have also referred to the need to take into account the CISG’s international character. In one instance, an arbitral tribunal, after answering the question of whether Art. 35(2)(a) CISG obliges the seller to deliver goods of average or reasonable quality, stated that its solution “complies with Art. 7(1) CISG imposing to take into account the international character of CISG and its reluctance to rely immediately on notions based on domestic law”.168

F. Conclusion As the foregoing part shows, there are courts that do not fall into the trap of the homeward trend that “induces tribunals both to ignore non-domestic law and assume that ‘international’ interpretations reflect domestic ones.”169 However, as long as the homeward trend comes “naturally”170 to interpreters, i.e., as long as interpreters cannot “purge [their] minds of presuppositions derived from domestic traditions”,171 the uniformity aimed at by the drafters of the CISG is as much at risk as its success, at least if one uses the level of uniformity reached as a measure of that success.172 But how does one avoid the “gravitational pull 167

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Bundesgerichtshof, 2.3.2005, available in English at: http://cisgw3.law.pace.edu/ cisg/wais/db/cases2/050302g1.html. Netherlands Arbitration Institute, Arbitral award no. 2319, 15.10.2002, available at: http://cisgw3.law.pace.edu/cisg/wais/db/cases2/021015n1.html. Gillette/Scott (op. cit. fn. 41), 472. See apart from the author cited supra in note 56, Halverson Cross (op. cit. fn. 39), 136; Harjani, The Convention on Contracts for the International Sale of Goods in United States Courts, (2000) 23 Houston Journal of International Law (Hous. J. Int’l L.), 49, 50; Honnold (op. cit. fn. 59), 1; Honnold (op. cit. fn. 15), 208; Sondahl, Understanding the Remedy of Price Reduction – a Means to Fostering a More Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods, (2003) 7 V. J. Int’l Com. L. & Arb., 255, 274; Van Alstine (op. cit. fn. 75), 693. Honnold (op. cit. fn. 17), 476; see also Flambouras, The Doctrines of Impossibility of Performance and clausula rebus sic stantibus in the 1980 Vienna Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law: A Comparative Analysis, (2001) 13 Pace Int’l L. Rev. 261, 266267. See e.g. Tuggey (op. cit. fn. 35), 544, stating that “one true test of the CISG’s success as a uniform law will be the extent to which it may implicitly permit national varia-

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of the ‘homeward trend”?173 Some of the reasons that may ultimately favour the homeward trend under the CISG are intrinsically linked to the CISG itself and, therefore, cannot be corrected, as it is not thinkable that the CISG will ever be revised to amend the current situation. This is true, for instance, as regards the “vague standards [that] pervade the CISG”.174 The very fact that the CISG uses (a lot of) vague standards175 facilitates recourse to domestic standards for interpretive purposes176 much more than a text that is more specific and contains itself a number of definitions.177 In effect, the

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tions in its application.” For a different measure of the CISG’s success, see Gillette/Scott (op. cit. fn. 41), 447, where the authors suggest that the success is to be measured on the basis of whether the rules of the CISG “do for the parties what the parties cannot as easily do for themselves” and, thus, lead to the parties not wanting to opt-out of the CISG (at 454). Flechtner (op. cit. fn. 54), 146. Gillette/Scott (op. cit. fn. 41), 474. For some examples see e.g. Gillette/Scott (op. cit. fn. 41), 474 et seq. See also Bell, Review of “International Sales Law: A Critical analysis of CISG Jurisprudence”, (2005/2006) Bar News, 105, stating that the CISG’s “open ended language, however, opens up the possibility of varying interpretations which is anathema for a Convention which was adopted to promote uniformity and certainty in an important area of commercial law”; Note, Unification and Certainty: The United Nations Convention on Contracts for the International Sale of Goods, (1984) 97 Harvard Law Review (Harv. L. Rev.), 1984, 1999, stating that “indeterminate rules permit judicial interpretation guided by diverse national doctrines and values.” It may suffices to recall that CISG does, for instance, not define the sales contract, as often pointed out both in legal writing (see Bell (op. cit. fn. 130), 250; Chiomenti (op. cit. fn. 143), 142; Grieser, Die Behandlung von atypischen Kaufverträgen im UN-Kaufrecht, Frankfurt 2004, 35; Kahn, Qu’est-ce que la vente?, Int’l Bus. L. J. 2001, 241, 242; Niemann, Einheitliche Anwendung des UNKaufrechts in italienischer und deutscher Rechtsprechung und Lehre: Eine Untersuchung zur einheitlichen Auslegung unbestimmter Rechtsbegriffe und interner Lückenfüllung im CISG, Frankfurt 2006, 82; Richards (op. cit. fn. 132), 227) and case law (see e.g. Tribunale di Padova, 11.1.2005, available at: http://www. unilex.info/case.cfm?pid=1&do=case&id=1005&step=FullText; Tribunale di Padova, 25.2.2004, available in English at: http://cisgw3.law.pace.edu/cases/04022 5i3.html; Tribunale di Rimini, 26.11.2002, available in English at: http://cisgw3. law.pace.edu/cases/021126i3.html; Kantonsgericht Schaffhausen, 25.2.2002, available in English at: http://cisgw3.law.pace.edu/cases/020225s1.html; Cour d’appel de Colmar, 12.6.2001, available in English at: http://cisgw3.law.pace.edu/cases/ 010612f1.html; Tribunal cantonal de Vaud, 11.3.1996, available in English at: http://cisgw3.law.pace.edu/cases/960311s2.html), nor does it define “goods” (in this respect see e.g. Bailey (op. cit. fn. 97), 306; Niemann (this note), 89; Rudolph, Kaufrecht der Export- und Importverträge – Kommentierung des UN-Überein-

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more a uniform law instrument spells out its own terms the harder will it be for an interpreter to be able to read domestic legal concepts into it. In addition, due the CISG being the result of many compromises,178 there are “ambiguities inherent in the CISG provisions themselves”179 that also open the door to resort to domestic preconceptions. What then can be done to avoid the homeward trend, given that an amendment of the CISG does not appear to be an option? Of course, if, as suggested, resort to one’s own legal background comes naturally180 (due to an unconscious process),181 recourse to “background assumptions and conceptions that are embedded in judges and lawyers during their intellectual formation”182 cannot be avoided. This does not mean, however, that nothing can be done to correct the homeward trend’s disruptive effect on the uniformity aimed at by the CISG. In this author’s opinion, the key to the solution lies in a change of those background assumptions and conceptions. If interpreters are − from the outset, i.e., during their intellectual formation − made aware of the fact that they operate in a legal system that is composed of various layers of sales law rules, of which the CISG is one, and that these layers are to be kept distinguished because they differ from each other, when − naturally − resorting to their background assumptions and conceptions, interpreters will also resort to the CISG. In other words, the CISG has to become part of the domestic background assumptions and conceptions in order for the disruptive effect of the natural resort to domestic background assumptions and conceptions to be overcome. For this result to be reached, law school curricula183 as well as textbooks will have to be changed to incorporate the study of the CISG. This, of course, will not be easy, which is why it will still take some time until the disruptive effects of the homeward trend as known today will be fully overcome.

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kommens über internationale Warenkaufverträge mit Hinweisen für die Vertragspraxis, Freiburg 1996, 103; Wulf, UN-Kaufrecht und e-Commerce. Problembereiche bei der Anwendung des Wiener Übereinkommens auf Internet-Verträge, Frankfurt 2003, 37). See supra the text accompanying note 30. Tuggey (op. cit. fn. 35), 554. See the text accompanying notes 56 and 170. Harjani (op. cit. fn. 170), 70. Harjani (op. cit. fn. 170), 70; for a similar definition of the homeward trend, see Schwenzer, National Preconceptions that Endanger Uniformity, (2007) 19 Pace Int’l L. Rev., 103. For an analysis of the effects of the failure to incorporate the CISG into law school curricula, see Dodge (op. cit. fn. 111), 72 et seq. For the integration of transnational legal perspectives into law school curricula in general, see Association of American Law Schools, Workshop on Integrating Transnational Legal Perspectives Into the First Year Curriculum (4.1.2006), available at: http://www. aals.org/am2006/program/transnational/index.html.

Macro-Systematic Interpretation of Uniform Commercial Law: The Interrelation of the CISG and Other Uniform Sources Camilla Baasch Andersen “True integration of transnational regimes into our agenda, however, takes more than just adding their description to our inventory of legal systems. It requires that we also learn to compare how law works in the national and the international context and that we explore the interplay between these levels.”1

A. Introduction The 1980 Vienna Convention on Contracts for the Sale of Goods (CISG) is often referred to as one of the most successful pieces of international uniform law in existence.2 Furthermore, with its entry into force in Japan in 2009, its transnational influence is strengthened further.3 However, aside from its strength in numbers and scholarly attention, the nature of the success of the CISG on the international commercial law arena is an opaque question. This is largely due to the fact that legal science struggles to find a place for international uniform law in the relatively new order of nongovernmental laws produced transnationally in the wake of economic globalisation. There is no definitive methodology for analysing, measuring, interpreting or relating to uniform international law – and this problem is further compounded by the fact that it is difficult to understand how different uniform international or supranational laws interrelate with one another.

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Reimann, Beyond National Systems: A Comparative Law for the International Age, 75 Tulane Law Review (2001), 1103. See, for instance, Huber, Some introductory remarks on the CISG, Internationales Handelsrecht (IHR) 2006, 228: “(…) the CISG has in fact been one of the success stories in the field of the international unification of private law.” As of 4 July 2008, the United Nations reports that 71 States have adopted the CISG. According to the database at www.cisg.law.pace.edu it now represents nations covering 75% of the world’s trade.

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The following will attempt to clarify the interrelation of the CISG with other instruments of uniform law and supranational law. But it should be made clear that this subject touches upon central issues in transnational law which have yet to be resolved, or find a “natural” balance (if one is to be had). Because in attempting to answer the question “is there a systematic connection between the CISG and other international commercial laws?” it becomes necessary to – metaphorically – stare straight at the sun and address the bigger issue: is there a “system of uniform commercial law”? That question does not have a straight answer. This chapter will attempt to grapple with a macro-systematic interpretation which has only been addressed sparsely in previous legal literature.4 I have been assigned with this interesting topic by the editors, and over the time I have spent developing this paper, more questions have arisen than have been laid to rest. The first part of this chapter (B.) will therefore address the legal theory and terminology surrounding the issues of uniform law. It will define what is meant by uniform laws, and why we need to focus on specific areas of uniform law – in the present case on “uniform commercial law” – and attempt to clarify some of the basic interrelationships. In doing this, it attempts to form an analysis of the bigger picture of macro-systematic interpretation of uniform commercial law and the hierarchy of its components; this will incorporate some of the uniform law theory in an attempt to describe the commercial framework within which commercial transactions can be said to function, and will argue that a macro-systematic interrelation of commercial laws is difficult to extract, but may be synthesised in an artificial construct based on the common core of business transactions. The second part of this chapter (C.) will attempt to explain what is meant by a synthetic framework, and suggest methods for its development. It will explore the utility of such a framework, and the following part (D.) will discuss the sources which may be consulted to construct it, and analyse the terminology of uniform laws to find a common ground for the basis of such a synthetic framework, but it is outside the scope of this chapter to begin the construction itself. Finally, the third part of this chapter (E.), is contextualised around the CISG with specific examples of other instruments and legal phenomena which co-exist alongside it within this synthesised system of international uniform commercial law. The conclusion (F.) will draw some of these observations together.

4

A rare attempt is made by Ferrari, The Relationship between International Uniform Contract Law Conventions, 22 Journal of Law and Commerce (2003), 5775.

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B. Exploring Uniform Commercial Laws Before embarking on an attempt to analyse the existence of a macro-system of “uniform laws” and its possible effect on the CISG, it is necessary to define what is meant by this term. This is not easily done, not least because of the context of “globalisation” within which these relatively new forms of law spring. All things related to globalisation carry with them a certain angst for the abusive exploitation of the concept, and the new legal world order it implies. As Michael Bridge so humorously puts it: “Uniform law represents a part of that phenomenon that we call globalisation, a word that means so many different things to so many different people and ought on that account to be used sparingly, perhaps with a modest financial forfeit that upon sufficient accumulation will be paid over to charitable purposes. Those of us participating in one or more of the incremental efforts to bring about uniform law are, fortunately, sufficiently obscure to be spared the attentions of anti-globalisation protestors.”5

I.

A Working Definition of “Uniform Law”

Any attempt to delve deeply into the exploration of the term “uniform law” involves terminological deliberations and a comparative analysis of the preambles of uniform laws and their aims. This chapter will conveniently refer to earlier works which have done so,6 but it is necessary to summarise a few main points about the nature of modern uniform law if any sense is to be made of the development of a macro-system of uniform law. It should be pointed out that: 1) The major promulgators of legal uniformity strongly suggest that the concept of unification of law rests on the bringing together of legal systems,7 so the result in question is the establishment of similar rules across divides of legal cultures. 5

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See Bridge, Uniformity and Diversity in the Law of International Sale, 15 Pace International Law Review (2003), 55-89. For such an analysis see Andersen, Defining Uniformity in Law, 12 Uniform Law Review (2007), 5-57. UNCITRAL defines uniformity as that which removes barriers in international trade (see the preamble to the CISG: “(…) contribute to the removal of legal barriers in international trade and promote the development of international trade (…).”) and UNIDROIT is an institute for unification of law, seeking to co-ordinate national private laws (taken from the descriptor of the www.unidroit.org homepage: “UNIDROIT seeks to harmonize and co-ordinate national private laws and to prepare for international adoption of uniform rules of private law.”).

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2) Uniform law is a new form of lawmaking, with a different origin and a different focus,8 and it usually arises in a trans-jurisdictional context, but not necessarily a transnational context or even a global one. The United States, for instance, being multi-jurisdictional as far as state law is concerned, applies uniform laws within its national boundaries. The harmonisation of the law within the European Union is an example of regional rather than harmonised creation of uniform laws. It is partly due to this relative novelty in the origin of laws that legal science now struggles with the notion of a different hierarchy of laws and norms in this field. This will be addressed further, but it is also important to note that the relationship between domestic uniform laws (such as the US Uniform Commercial Code) and international uniform laws such as the CISG are part of the macro-systematic relationship. 3) It is not relevant whether a given set of uniform regulations can be classified as law in a given jurisdiction – the extremely difficult taxonomy of defining law is irrelevant in this context.9 The Uniform Customs and Practices on Documentary Letters of Credit 600 (UCP 600) from the International Chamber of Commerce sets virtually identical standards for letters of credit throughout the globe and is regularly hailed as the most successful instrument of “uniform law”,10 regardless of the fact that it is not a law but rather a banking practice. What matters is that the result or aim is a similar governance of a legal phenomenon across jurisdictions.

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See Luhmann, who defines the process of law in globalisation as a process of law where: “(…) functional criteria increasingly replace geographic ones, with nation-states’ traditional law-generating organs diminishing in importance in determining legal significance, regulation and evolution”, Das Recht der Gesellschaft, Frankfurt 1995 (as translated by Curran, A Comparative Perspective of the CISG, in: Flechtner/Brand/Walter (eds.), Drafting Contracts Under the CISG, Oxford 2007, 49). For the purposes of this paper, the concept of law will be considered a broad one, and borderline cases of what constitutes law will not be resolved, but sidestepped by the inclusion of the terms “rules” and “legal phenomena”. Specifying general criteria for the definition of “law” is not beneficial in the present context of transjurisdictional unification. Suffice it to say that a broad conception of law is needed to encompass the various definitions across the board of different legal families. For more on definitions of law, see Twining, A Post-Westphalian Concept of Law, 37 Law and Society Review (2003), 199-257. Goode, Commercial Law, 3rd ed., Oxford 2004, 969, with reference to Eisemann/Bontoux/Rowe, Le Credit Documentaire dans le Commerce Exterieure, Paris 1985, 6, who go to the extreme of elevating it as a code. For a more detailed analysis of the legal status if the UCP, see Kozolchyk, Letter of Credit, in: Zweigert/Drobnig (eds.), International Encyclopaedia of Comparative Law, Tübingen 1978, chapter 5.

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4) Modern uniform laws are created by a politically voluntary process whereby different jurisdictions elect to share a set of rules – not where it is imposed upon them, as opposed to historical uniformity (like Roman Law,11 Common Law,12 or other colonial laws.) The element of voluntarily sharing is essential and defining.13 It is, perhaps, this voluntary element which makes the development or description of a macro system of interrelation so difficult, because a hierarchy becomes elusive where nothing is forced. There is an interesting conundrum here with regard to so-called “supranational” law, which will be addressed later when examining the hierarchy of laws in section B.IV.3.e. below. 5) The many different contexts, forms and political goals of most transnational law will affect the realistic level of similarity which the proposed form of uniformity may reach. It is important to note that uniformity is not an absolute but a variable, so we have to embrace the notion of varying degrees of uniformity.14 This difference in the degree of similarity which compounds the issue of interrelation further, because it is not necessarily linked to any hierarchy of the promulgators of transnational laws, but affected by many other factors, and the “micro” aim of one uniform law will affect the “macro” interrelation of all uniform laws. 6) It is not in the creation of texts which call themselves “uniform” that any actual uniformity in law is created, but in the successful application of such texts, where the success is determined by the degree of similarity attained. We can label the creation of a text which is to apply transnationally as a “textually uniform instrument”,15 but it is not until it is actually applied with a degree of similarity across jurisdictions that it becomes an effective uniform law. It is thus the “applied uniformity” which is central 11

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See Cicero, De re publica, 3.22.33: “[T]here shall not be one law at Rome, another at Athens, one now, another hereafter, but one everlasting and unalterable law shall govern all nations for all time (…)”. De Cruz argues that James I, King of England and Scotland, introduced uniformity to England and Scotland when proposing to unify them under a single legal system in the early 16th century, see: Comparative Law in a Changing World, 3rd ed., New York 2007, 23. While it is clear that some economic incentives (especially in relation to the World Bank and developing countries) reduce the reality of any voluntary aspects in a political context, this chapter will still presume that the political motivation is not – at least directly – forced. See Andersen, Uniform Application of the International Sales Law, The Hague 2007, chapter I.E. “Relativity of Uniformity”, 14 et seq. Inspired by Flechtner’s use of the term “textual uniformity” in his The Several Texts of the CISG in a Decentralized System: Observations on Translation, Reservations and Other Challenges to the Uniformity Principle in Article 7(1), 17 Journal of Law and Commerce (1998), 187-217.

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to understanding the nature of a uniform instrument.16 This gives rise to the need for a system for uniform application, and the global jurisconsultorium, which may also be extended for the creation of a more comprehensive over-arching system of uniform law. This will be addressed later when considering the functional approach for synthesising an interrelation framework. Summing up on the above, we can define a “uniform law” as a specific instrument (not necessarily defined as law) designed to be voluntarily shared across boundaries of different jurisdictions, with the aim of creating varying degrees of similar effects on a legal phenomenon.

II.

Uniform Law: a Unique Discipline in a Unique Context

From the working definition set out above, it should be obvious that we are dealing with a unique phenomenon in legal science when we embark on the analysis of uniform law. Reimann dubs this an “additional dimension in lawmaking”, stressing the need to embrace it as something new in legal theory as well as practice.17 The understanding of what uniform law is and of what it is not – as well as the consequences of embracing it as something different – is central to the development of uniform laws and to the understanding of how they function and apply. No shared text can be applied with any international uniformity if homeward trends in interpretation are allowed to twist the text to an application which is overly unique in each jurisdiction applying it.18 If uniform laws like the CISG are to retain their international character, as well as any degree of uniformity, then they must be recognised as belonging to a different legal order than the traditional nation/state produced laws. They must have their own set of rules for interpretation and their own contexts. This point has been made before, but usually in the context of one specific isolated uniform law. The question central to this chapter is: do uniform laws share sufficient number of traits to be considered a collective discipline? Or in other words: is there a macro-system of uniform law? On the surface the answer to this question is a resounding “no”. There is no instrument of international law which aids the interrelation of instruments, especially not instruments of private law. We could argue that the 16

17 18

For an elaboration of this, see Andersen (op. cit. fn. 6), and Andersen (op. cit. fn. 14). Reimann (op. cit. fn. 1). See the contribution by Ferrari in this book.

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Vienna Law of Treaties is an attempt to control a certain interplay, but (as demonstrated below in section D.VI.) it pertains to state instruments and does not extend easily to instruments of private law, and even if it did, it does not solve the question of interrelation effectively as it does not address some of the most central issues, such as precedents, practice, terminology or hierarchy. At the heart of the problem lies a strong multi-cultural legal diversity which some uniform laws attempt to consolidate, but which is nevertheless prevalent in the application and interpretation (and ultimately also in the interplay) of such uniform laws. Global law spans a plethora of different legal cultures, and many legal traditions and families; notably Common Law, Religious Law, Civil Law, and various mixed jurisdictions with numerous variants. It cannot be claimed that there is one legal system amongst these which will function for all uniform laws. Fukuyama made an interesting sociological point when he claimed that liberal democracy was the last human ideology,19 but in law we have very real diverging cultures influencing law in many directions.20 This is further compounded by the fact that no international instrument wishes to affiliate itself with a single legal system or legal family (this leads to unpopular conventions such as the ULF and ULIS).21 Although some conventions attempt to include rules of coordination, as the CISG does in Art. 90 CISG, there is no synchronisation amongst these coordination attempts, and the results thereof often do not provide an overall solution to application issues. Despite this resounding initial “no”, the following will argue, that if we release certain in-grown, and often home-grown, notions of legal frameworks, we may be able to synthesise a legal framework to facilitate the interaction of some specific areas of uniform law, regardless of the multicultural legal diversity which uniform instruments co-exist in. This will, in our case, necessitate a limitation on the scope of the question, moving the focus from “uniform law” to one of “uniform commercial law”, as explained below, largely because the synthesised environment where a system of uniform

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Fukuyama, The End of History and the Last Man, New York 1992; for expansions on this see also De Cruz (op. cit. fn. 12). See, for instance, the homeward trends in determining the meaning of the term “reasonable time” in Art. 39(1) CISG, as analysed in Andersen, Reasonable Time in Article 39(1) of the CISG – Is Article 39(1) Truly a Uniform Provision?, Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, 63-176. Antecedent conventions to the CISG, Uniform Law of Formation and Uniform Law of International Sales, both done at The Hague in 1964, did not receive many signatures, largely because they were not true embodiments of reconciliation of legal traditions. See Garro, Reconciliation of Legal Traditions, 23 International Lawyer (1989), 443-483.

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commercial laws can become clearer is one based on a practical approach to commerce.

III. Limiting the Multidisciplinary Nature of Uniform Law When the focus is the comprehensive and multidisciplinary global uniform law, there is no common legal system within which a system of uniform law would function. Moreover, looking at “law” as a whole includes a host of different disciplines. The CISG is but one of many instruments which fit the definition of uniform law set out above. There are many uniform instruments in the world today, arising from many different promulgators and sources, and covering many different areas or classifications of law, including Human Rights, Public International Law, Conflict of Laws, Environmental Law, Arbitration, Aviation, Finance, and – of course – Trade. This is a book on the methodology of the CISG. As part of such a CISG book, it is clearly the focus of this chapter to analyse the uniform laws which pertain to trade. While, arguably, no legal issue exists in a vacuum, and many areas of law can potentially become relevant to a trade issue, nevertheless, at the core of the commercial transaction, only some are relevant. A system of international uniform laws which is to aid the interrelation of laws need only stretch to those uniform laws which (potentially/realistically) interact. Without these limits, such an analysis would be unrealisable, and would entail different areas of legal practice with hugely differing links to legal culture. By limiting the aim of this chapter to an analysis of uniform commercial laws, then the task becomes somewhat more approachable, for two reasons.

1.

Functional Approach

First of all, if we can find a way to limit the scope of a field of uniform law to the legal phenomena which actually interact then we can approach it from a practical or functional angle. Such a functional angle is in keeping with the context of uniform law as a part of the globalisation process. Luhmann defines the process of law in globalisation as a process of law where: “(…) functional criteria increasingly replace geographic ones and it makes sense that these function criteria be employed to create a more comprehensive backdrop to give the laws context.”22

22

See Luhmann (quoted after Curran, op. cit. fn. 8).

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In the case of uniform commercial law, we can employ a commercial sense approach based on actual business transactions and their interactions with different legal phenomena. This means, that by limiting this analysis to those areas of various disciplines which are related to commercial transactions, we can choose to overlook the glaring issue of potentially conflicting legal classifications. Regardless of how a legal phenomenon or discipline might be labelled in traditional legal classification (e.g. “contract law”, “trade law”, “company law”, “conflict of laws”, etc.), and regardless of the fact that these classifications are bound to differ between legal systems at a micro-analytical level, we can approach it from the same practical perspective of a common core of commercial practice and eliminate all debate. In analysing a framework for uniform commercial law, it does not matter how an issue is classified in different legal systems, but how it is resolved. A much more functional approach can be taken if the problem can be approached from a practical angle of commercial reality. This functional approach is helpful in understanding global commerce and trade, as well as the interplay of global laws.

2.

Limiting Multicultural Diversities

Secondly, by focusing on commercial law, we are much freer to disregard some of the more glaring complexities of legal culture which prevail in areas like human rights or family law. If we look at uniform laws or practices which apply across different legal cultures, then we see a strong common core in the commercial field. It would be wrong to state that commercial law is free of legal culture,23 but it is correct to say that it is comparatively less laden with idiosyncratic notions of individual legal culture. International commercial law still has to bridge gaps in concepts of contractual morality (like the pre-contractual liability conflict between Common and Civil Law)24 and notions of acceptable profiteering (like Rhiba and Gharar prohi-

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Kahn-Freund is famously (mis)quoted for having started this discussion, see: On Uses and Misuses of Comparative Law, 37 Modern Law Review (1974), 1-27, when mediating between Watson and the mirror theorists of legal culture on the subject of transplantation. The labelling of “Civil Law” and “Common Law” families of law is – admittedly – a gross simplification. American and Australian legal systems are as different as the French and Egyptian legal systems, despite the first two being categorised together as “common” and the latter together as “civil”. However, as Honnold points out: “comparative studies often refer to the approaches of ‘common law’ and ‘civil law’ systems – a necessary but desperate measure to avoid unmanageable fragmentation of the subject”, see Honnold, Uniform Laws for International Trade: Early “Care and

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bitions against interest in Muslim majority jurisdictions) but across all diverse legal cultures, commercial law has a strong common core: commercial law supports traders who make business to make money. Consequently, an analysis of uniform laws restricted to that which is relevant for commercial interaction based on a practical business approach, will have a strong practical common core, and will not be too heavily influenced by the morality of different legal cultures and their moralities and perceptions of law. In this respect, it is not important how a given legal phenomenon is labelled or classified, or from where a uniform rule originates, but how it is regarded in the commercial environment within which it exists. Although business may be sensitive to the origin of rules or laws in perceiving their significance, international commercial law introduces a new legal order where the origin or nature of a rule is comparatively insignificant, as explained below.

IV. International Commercial Law: A New Legal Order or Many New Legal (Dis)orders? One of the most significant knock-on effects of the introduction of the new discipline of international uniform commercial laws has been the need to accommodate a concept of a new legal order.25 Law – in its many guises – traditionally emerges from the nation-state and in the context of one jurisdiction’s need to create a morally acceptable solution to a given problem in its own society, either by parliamentary acts or by “judge made” law, or other means by the accepted or imposed legal authority.26 While I will agree that law is not (always) a social science,27 it has

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Feeding” for Uniform Growth, 1 International Trade and Business Law Journal (1995), 1-10. The concept of a “new legal order” is accepted as a label on regional as well as global levels of harmonised uniform law, see Bobek, A New Legal Order, or a Non-Existent One? Some (Early) Experiences in the Application of EU Law in Central Europe, Croatian Yearbook of European Law and Policy 2006, 265-298, and Blank, Localism in the New Global Legal Order, 47 Harvard International Law Journal (2006), 263-282, who interestingly analyses normative justifications to legitimate the transformation of local authorities into prominent global actors (economic efficiency, democratic potential, and localities’ unique role as normative mediators between communities and states). See also Reimann (op. cit. fn. 1), who stresses that comparative law must take account of the new legal order. This very brief definition of the origins of law does not attempt to belie the complex evolution of legal theory and values of law which has been ongoing since Kant first challenged the state centred value of the law of nations in the late 18th century. The complexities of values in international law which co-exist alongside

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sociological roots which spring from a need to control society within certain morally defined norms.28 Law has traditionally, in essence, existed as a response to a need for rules to govern human cohabitation and co-existence within certain geographical locations defined as legal jurisdictions. Jurisdictionally based sociological or anthropological moral responses have always been crucial to the development of law. As Shaw so beautifully puts it, in his introduction to International Law: “Every society, whether it be large or small, powerful or weak, has created for itself a framework of principles within which to develop. What can be done, what cannot be done, permissible acts, forbidden acts, have all been spelt out within the consciousness of that community.”29 Shaw’s reference of communities requiring law sums up the role of law well. Traditionally, these communities have been geographically based. The community of international commercial law, however, knows only the boundaries of its financial markets, and cares little for geographic locations. By substituting the community of geographically based and cohabiting groups of individuals, with the community of specialised businesses who deal in global markets, we are drastically altering the framework of law and the sociological needs it addresses. We move from traditional nation-state law to uniform commercial law. We now have a global society of commercial business people who do not need to cohabit closely and thus and have every aspect of their social interaction regulated, but who require a framework or set of rules to govern their specific transaction(s) with one another to ensure that they reach common understandings in bargaining. This common understanding ideally needs to be global, as the financial markets on which these commercial players interact are global, but other regional communality in law may also be sought. The point is that for such specific (often global) transactions, the needs of law making are drastically different. Add to that the fact that, in a purely commercial law environment, the prevalent respect for party autonomy means that there is a prevalence of laissez faire attitudes of non-interference from law in commercial transactions; the significant

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state authority are well explained in Bederman, The Spirit of International Law, Athens (Georgia) 2002, chapter 6, but for the purposes of this argument they have very little relevance. See Samuel, Is Law Really a Social Science? A View from Comparative Law, 67 Cambridge Law Journal (2008), 288-321, who argues that legal literature arising from the authority paradigm is not social science. For a similar definition of law, see Bentham, Introduction to the Principles of Morals and Legislation, London 1780. Shaw, International Law, 5th ed., Cambridge 2003, 1.

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freedom that commercial parties enjoy means they can shape their own framework to a large extent. For these reasons, when regulating the global market with rules which are promulgated outside the traditional framework of law, three main differences occur in the New Legal Order of globalised commercial law.

1.

Indeterminacy of Uniform Commercial Law and the Freedom of Party Autonomy

First of all, we are faced with an unusual authority paradigm in applying rules which did not stem from the accepted or imposed legal authority in our own nation-state, and which often are not even ratified or acceded by a legal authority. Although a fascinating topic, I will take the liberty of overlooking this problem, as it has little or no bearing on the subject at hand. From the practical angle this chapter has chosen, it is difficult to see how the theoretic origins of laws trouble the commercial players, as long as the binding nature of the rules is respected and recognised in law. What is more important is if/how the created rules – however they are introduced – have a direct bearing on the way in which business actually functions. This approach to perceiving law, by refusing to define its origins or its value but see its effect, is perhaps reminiscent of realism in legal theory.30 But this is not a court-made realism, but rather a commercial realism of business. Perhaps it is apt to paraphrase Ross and his determination not to rely on anything but the facts, by considering his statement: “The legal rule is neither true nor false; it is a directive.”31 Furthermore, – from the perspective of commercial trade, if the directive functions and is applied, then it operates as a legal rule, and its classification as such is insignificant. In other words, on the arena of uniform commercial law, if a rule or regulation affects business transactions, then it can be labelled a commercial law in some guise regardless of its origins and regardless of how a legal academic may label it. It becomes part of the framework of business, and is incorporated into the way transactions are conducted and accepted. Examples would include trade standards, standard form contracts incorporating specific notions, commercial customs, and all aspects of actual business which change the way business is done.

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See Holmes, The Path of the Law, 10 Harvard Law Review (1897), 457, and Llewellyn, On Reading and Using the Newer Jurisprudence, 40 Columbia Law Review (1940), 581-614. Ross, On Law and Justice, Berkeley 1959, § 2, 2 (a translation of his Om Ret og Retfaerdighed from 1953).

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This is very reminiscent of some notions of lex mercatoria, which have (according to some) always transcended the traditional geographic boundaries of law. The question of whether this is reality or myth lies outside the scope of this chapter,32 but it is worth noting that a functional approach to the legal framework of trade is – at least in theory – not a modern development. The significance of such accepted norms and standards of commercial behaviour is evident in the CISG, most notably in Art. 9(2) CISG.33 This provision ensures that regularly observed and well-known usages or customs in a specific trade are implicitly part of the contract between parties. The result of this will be that such customs prevail above the Convention’s provisions (unless otherwise agreed between the parties). The indeterminacy of commercial law, which could also be labelled the diversity of commercial law sources, was thus a reality which the CISG incorporated into its hierarchy, and which also existed at the time of its antecedents: the ULIS and ULF (the 1964 Hague Conventions).34 The CISG made only very slight amendments to Art. 9, to ensure that the customs referred to were widely regarded (i.e. internationally applied).35 This indeterminacy of international uniform commercial law is also recognised at the drafting stage where a uniform instrument is created. 32

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For a discussion on the origins of the lex mercatoria, see Foster, Foundation Myth as legal formant: The medieval Law Merchant and the new Lex Mercatoria, in: Forum Historiae Juris 2005, available at www.forhistiur.de/zitat/0503foster.htm. The lex mercatoria will be discussed further in sections D. and E. below. Art. 9(2) CISG provides: “The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.” Art. 9(2) Uniform Law on International Sales (ULIS) provided: “They shall also be bound by usages which reasonable persons in the same situation as the parties usually consider to be applicable to their contract. In the event of conflict with the present Law, the usage shall prevail unless otherwise agreed by the parties.” Art. 13(1) Uniform Law on Formation (ULF) provided: “Usage means any practice or method of dealing which reasonable persons in the same situation as the parties usually consider to be applicable to the formation of their contract.” See Junge, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods, Oxford 1998, Art. 9 no. 1: “During the discussions in Vienna, reservations were expressed, particularly by the developing countries. They feared that their own undertakings would be placed at a disadvantage by the application of usages that were unknown by them. In Art. 9(2) CISG recognition of usages is therefore restricted to those which are widely known and regularly observed in international trade (…)”.

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Schmitthoff identified two main ways whereby international commercial law is typically drafted or promulgated.36 It can be created via a codifying method, which compares the doctrines of different jurisdictions in order to establish common legal rules, as the CISG was. But Schmitthoff also referred to a consolidating method, which aims to ascertain a common core of business practice and express this core in a new rule, such as the ICC Incoterms, the UCP 600, or standard contracts.37 In the business community, it matters little if a trading standard originates in a customary way of conducting business or in a codified rule. What matters is how a rule fits with the reality of their transaction, and to what extent the way they do business – their party autonomy – is respected by the tribunal or court that may be involved in a dispute resolution. While it is tempting to refer solely to trade practices and party autonomy in determining the interplay or framework for various uniform international commercial laws, this would not, however, be an accurate or complete picture. Party autonomy is certainly central to trade and commerce transnationally – but it has its limits. These limits are reached where mandatory law is found. Additionally, the diversity of mandatory laws is a direct effect of the lack of a communal moral backdrop amongst the legal systems within which trade takes place.

2.

Moral Pluralism and Restrictions of Mandatory Laws

Moral pluralism forms the second major difference between the traditional law making and the modern uniform commercial law. If we accept that traditional nation-state law is the product of one society’s response to address certain behaviour or certain situations in society,38 then the origins of law change significantly when there is more than one distinguishable society involved. The nature of this response is very much determined by the morality of that society, and the conception of fairness. These legal responses be36

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Schmitthoff, Unification or Harmonisation of Law by Means of Standard Contracts and General Conditions, 17 International & Comparative Law Quarterly (1968), 551. See Schmitthoff (op. cit. fn. 36), 565: “In modern applied comparative law, i.e. comparative law employed for a practical purpose and not merely as an academic exercise, two methods are used, which may be called the consolidating and the codifying method. The object of the consolidating method is to ascertain the common content of various legal regulations and thus to define the “common core of law” of them; this method aims at a factual ascertainment but not a doctrinal improvement of law (…).” See an interesting proposition for proving this in Barnett, The Roots of Law, 15 American University Journal of Gender, Social Policy & the Law (2007), 613686.

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come in-grown over centuries of legal evolution, and become selfconfirming expressions of morality and of what the “right” response should be. As a consequence, different societies – and thus different legal jurisdictions – form different standards of behaviour as expressed in their laws. A moral pluralism, which was created throughout times of legal nationalism, consequently exists in a paradox with shared laws in a globalised commercial market. This causes three problems in respect of the unification of laws. First of all, where there is moral duplicity and different accepted standards of behaviour amongst the jurisdictions sharing laws, it can be challenging to find a common core of law. However, while this is a very valid concern for the creation of uniform laws – especially when pursuing uniformity through consolidation of laws – it is not a major concern in the context of the functional framework of uniform law, which limited the effect of the multicultural diversity as explained in section B.III.2. above. As long as commercial business parties are free to pursue their own choice of dealings, and as long as they bargain on a commonly understood basis, then their choices and actions define the functional framework. In addition to this, as pointed out by David: “(…) substantial changes have occurred, in fact as well as in attitudes, since the last century when legal nationalism had free rein.”39 We have cause to believe that there is more scope for uniform law today – even more so than in 1968 when David penned the above words. This scope is evidenced by the common goal of the majority of national and international commercial laws; namely to assist trade in the global market. The second problem is more difficult to brush aside. To determine a shared function, we must be sure that the commercial parties understand the nature of their transaction and the consequences of their behaviour in the same way, i.e. that they are dealing with each other on a commonly understood basis. This emphasises certain challenges regarding the requirements of a functional framework, as it necessitates the creation of a common core of international business morality against which the reasonable behaviour of all commercial businesses can be measured, as well as a systematic framework for understanding. The sources needed to ensure such a common core in the functional framework include shared taxonomy, approach and understanding, and will be explored further in section D. below. The third problem, however, can neither be safely ignored nor explored for inclusion in the functional framework; it concerns the conflicting notions of public policy and mandatory laws which arise from moral pluralism. While we can find common ground for much of commercial behaviour in the functional approach to determine a common framework for legal interplay based on party autonomy and what parties actually do, differentiating mandatory laws and the moral pluralism they represent, can prove insur39

David, The Methods of Unification, 16 American Journal of Comparative Law (Am. J. Comp. L.) (1968), 13-27, at 14.

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mountable problems because they restrict this freedom. Furthermore, while we may be able to establish a common core morality of international business, it cannot replace that which applies in domestic courts. Mandatory law, in its inescapable form, can be imposed on parties for various different reasons of public policy, morality concerns or other pressing societal concerns. It represents the point at which the domestic law will no longer bend to accommodate parties’ wishes, and is used in this context to connote all legal principles, codes, case law and public policies which restrict party autonomy in pursuit of a defined sense of justice or fairness. Mandatory law will – usually – only become relevant at the point of dispute resolution40 (but then, in essence, that can be said for all commercial law) where it will exclude any customs, any contract provision, and other laws – uniform or not – which might otherwise apply.41 As mandatory laws form the crux of the expressions of minimum standards of morality and accepted behaviour in domestic legal arenas where disputes are heard or enforced, they are neither always predictable for the international player, nor understandable to all commercial international traders. A solution to this is unlikely to be found; mandatory laws in all their guises form a potential pitfall for the unwary trader. Even if it were possible to synthesise an international business morality to replace the sometimes conflicting moral standards of different domestic legal jurisdictions, such a synthetic framework would not suffice to replace the concrete notions of mandatory laws where it restricts party autonomy for reasons of morality and public policy. As long as they are perceived as mandatory, the judges who apply them will be (and arguably should be) unbending in their application of these norms in legal form. The perception of domestic or municipal mandatory laws as permissible restrictions on party autonomy must necessarily be altered if a uniform framework is to function. In their place, a common core business morality established for the uniform framework must present a satisfactory solution and commonly acceptable moral guidelines for behaviour. This is wholly unrealistic, at least given current views in practice on the discipline of uniform commercial laws. Ferreri points out that there is a possible decline in the enforcement of mandatory law in transnational commercial contexts, which arises directly from the shared value of party autonomy, but that this phe40

41

It even extends to arbitration, where enforcement is to be sought in a place where a mandatory law would apply, or – exceptionally – where the arbitrators find it appropriate to do so, see Smit, Mandatory Law in Arbitration, in: Andersen/Schroeter (eds.), Sharing International Commercial Law Across National Boundaries: Festschrift Kritzer, London 2008, 489. The sole exception would be certain supranational uniform laws which might apply above the hierarchy of nation-state law, see more on supranational laws and the hierarchy of laws in section B.IV.3.e. below.

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nomenon is viewed with mixed reactions.42 If such a decline can be documented, it may well be the beginning of the end of domestic laws affecting international transactions. But it must be noted that she speaks of a decline in – and not an abolition of – domestic mandatory laws in this context; for now we are unlikely to see a strong development in domestic tribunals towards the abolition of local morality in favour of a transnational set of moral norms. Such a suggestion challenges the very hierarchy of laws, and the way a hierarchy of norms applies in uniform commercial law.

3.

Shared Hierarchy of Laws?

In domestic traditional frameworks of law, there are certain normative concepts of hierarchies of laws which guides their interaction, and which accommodate bodies and sources of international law, but these are not common to different legal traditions.43 In Public International Law, there are also rules which guide the hierarchy of instruments and the relationship with domestic (municipal) law.44 However, neither can be used as a blueprint for designing a hierarchy in a functional framework of commercial uniform law. For uniform commercial laws, which exist primarily in the sphere of private law, we cannot rely on domestic guidelines for a hierarchy (as uniform law must exist outside notions of domestic law) and the hierarchies of Public International Law are not very helpful as they primarily address themselves to state instruments and largely from a domestic law perspective. If a hierarchy of laws is to be useful for a functional framework of uniform international commercial laws, then it must be shared by all legal systems in 42

43

44

See Ferreri, The Autonomous Contract and Declining Mandatory Rules. A First Reaction to an Article by Horatia Muir Watt and Luca Radicati di Brozolo, Global Jurist Topics, vol. 4, issue 3, article 1 (2004), available at: www.bepress. com/gj/topics/vol4/iss3/art1. These hierarchies will differ enormously depending on the legal system in question. For an example of Common Law hierarchies of legal sources, see Darbyshire, Darbyshire on the English Legal System, 7th ed., London 2002, chapter 1-002, or Manchester/Salter/Moodie/Lynch, Exploring the Law, The Dynamics of Precedent and Statutory Interpretation, 3rd ed., London 2006, especially chapter 1 on “principles”. Most Civil Law systems, on the other hand, will embrace the hierarchies inherited from Roman Law, and distinguish on principles like lex specialis and a hierarchy of promulgators of law. See Shaw (op. cit. fn. 29), chapter 3 on sources of international law, chapter 4 on international law and municipal law. See also Hillier, Principles of Public International Law, London 1999, chapter 17 on the relationship between municipal law and international law.

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the area of commercial law. This is not a reality. As pointed out by Ferrari, the coordinating rules of uniform instruments do not interrelate well.45 Moreover, domestic courts are unlikely to accept the imposition of a hierarchy of laws from a synthetic framework – especially if this functional synthetic framework advocates the need to abolish mandatory laws, as evidenced above. Consequently, there is great uncertainty in this area. But there are some consistencies in the way most legal systems would tend to react to certain types of law, which can allow a tentative discussion about the consequences of this for a hierarchy of laws in the uniform commercial framework. Moreover, there are some observations to be made.

a)

Hard Law/Soft Law/Non-law Labels

The utility of this classification in modern commercial law is negligible. Not only because these labels belie the political and practical contexts of the instruments so labelled,46 but because they are not useful in a functional context. As stated earlier, regardless of the classification of an instrument or non-law standard, if it becomes part of commercial practice, then it is an important part of uniform commercial law.

b)

Format of Law/Regulation

Similarly, as commercial practice moulds the significance of emerging trade norms, the format of the rule becomes less significant. The best example is the banking regulation, which is codified as the Uniform Customs and Practices of Documentary Letters of Credit (most recently the UCP 600): a banking practice which only applies through incorporation into the letter of credit as the law of the contract. However, this non-law format is irrelevant on a functional level where all banks worldwide always rely on the incorporation of these rules. These banking rules thus become a uniform “law” in reality, as they govern all letters of credit worldwide to an almost identical level of similarity in application. It is now generally accepted that the UCP have “almost universal effect”,47 and before the restatement of Art. 1 UCP 600 it was argued that they could apply even if not directly incorporated as

45 46

47

Ferrari (op. cit. fn. 4), 57 et seq. For more on the exhausted utility of the labels “hard law/soft law”, see Andersen (op. cit. fn. 6), 15-17. See Murray, Schmitthoff’s Export Trade, 11th ed., London 2007, 186.

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an expression of general banking practice which is assumed to apply.48 The hierarchy of these banking rules, in a traditional framework of law may not be significant. But as they express a trade usage which is recognised globally, their significance for a functional framework of uniform law is high; they represent a commonly accepted uniform commercial practice. If we contrast this with the CISG, which is riddled with reservations and which clearly prioritises trade usages as well as party autonomy above its own provisions, then an interesting picture forms.49 From the viewpoint of a traditional legal hierarchy, the CISG is a significant source as it is a diplomatically negotiated and binding state instrument in the form of a convention. But on the functional level – where the CISG is often opted-out of, is subject to changes in application through different versions via reservations, and can be set aside by a trade custom – its significance for defining a uniform framework is less than it appears. Moreover, where the terms of the CISG are subject to a variety of interpretations which affect its uniform application, the terms themselves cannot be said to express a common core of functional commercial transactions. In other words, the CISG will not prevail over a non-law standard, because it is not designed to. It is a gap-filler. Although its format may indicate otherwise, it ranks relatively low on the hierarchy of sources of uniform law. That is not to say that it is not a valuable contribution to the debate on common understanding in trade, and in forming a synthesised framework of interrelations of uniform laws.

c)

Origin and Promulgators

Another way of assessing the hierarchy of a set of shared rules is to evaluate their significance by determining the role of the promulgators who drafted them. One of the reasons why the UCP 600 (mentioned above) is capable of being accepted globally and with such success lies in its origins.50 The UCP 48

49

50

See Goode (op. cit. fn. 10), 969, re UCP 500. With the restatement of Art. 1 UCP 600 to exclude implied incorporation of the UCP into the credit, this is now no longer the case. See Sealy/Hooley, Commercial Law, Text, Cases and Materials, 4th ed., Oxford 2008, 852. Through Art. 6 and 9 CISG, which prescribe those derogations, established practices and recognised usages prevail over the Convention. Other reasons include: 1) its narrow subject area, allowing specific and precise rules to form globally, and 2) the rich historical transnational tradition of letters of credit in trade, and 3) the lack of any cultural norms which supersede any of its provisions – in the one area where legal culture could (and would) interfere, namely the fraud exception to the autonomy of the credit, no effort has been made to harmonise the rules. For more on the UCP and its success in harmonis-

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rules are promulgated by the Banking Commission of the International Chamber of Commerce (ICC). The ICC is a strong force in representing business interests in the international commercial world.51 By having rules created in committees by those who actually need them, rather than political representatives and/or scholars, the results are a very functional and practical set of useable rules. Similarly, although the format of the CISG can be deceiving in determining its hierarchy, the CISG is significant on the scene of uniform commercial laws because of its origins and its accomplishments. As it is an UNCITRAL convention, it is a diplomatically drafted instrument which can be said to express mutually agreed standards of contracting and interpretation of contracts in many areas, by 63 different legal systems and nongovernmental institutions.52 While this may not be significant for its direct legal hierarchy, for reasons explained above, it is nevertheless significant for its role in a functional framework in helping determine commercial practices, and it has been taken to be an expression of accepted commercial practice by some arbitrators.53 This thus indirectly influences its status or hierarchy in the uniform functional framework. The origins and interest organisation behind a given set of uniform rules can help in determining their importance, both in terms of their functionality and practical relevance, but also in terms of a more political level of acceptable standards.

d)

Monitored vs. Non-monitored

Another significant indicator of the level of significance a set of rules may have for the shaping of the uniform commercial law environment is the question of whether there is an instance monitoring their application. For some forms of uniform law, such as federal law in the US or EU law in the European Union, a court or commission monitors the application of regulations and codes to ensure the uniformity of the approach (for suprana-

51

52 53

ing banking rules, see Ulph, The UCP 600: Documentary Credits in the Twentyfirst Century, 4 Journal of Business Law (2007), 355-377. As stated on the ICC webpage: “The International Chamber of Commerce was founded in 1919 with an overriding aim that remains unchanged: to serve world business by promoting trade and investment, open markets for goods and services, and the free flow of capital.” And: “ICC – the world’s only truly global business organization responds by being more assertive in expressing business views.” For more on the drafting of the CISG see Garro (op. cit. fn. 21). See ICC Arbitration Case no. 5713 of 1989, available at: http://cisgw3.law.pace. edu/cases/895713i1.html that will be examined more closely in section D.I.3. below.

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tional law, see below). Such hierarchical monitoring will, naturally, have specific consequences which means a court (or tribunal wanting an enforceable award) will have no choice but to prioritise the uniform law over all else. Clearly, the CISG has no “International Commercial Court” to monitor its uniform application. There have been numerous suggestions for the establishment of such a court to collectively monitor the application of uniform private laws since 1911, when suggested by Wehberg,54 and more recently under the auspices of UNCITRAL in 1992 when Sohn suggested a tribunal,55 and at the Verona Conference in 2003 when De Ly suggested a similar court modelled on the European Court of Justice56 – but to date this remains a pipedream. However, other – less directly effective – forms of monitoring can also be indicators of the significance of a uniform instrument and its hierarchy. The CISG has attracted a staggering amount of academic attention, not just in the forms of scholarly treatises and texts,57 but in the creation of expert bodies of scholars who monitor its application in an unofficial capacity. During a seminar on uniform sales law held in February 1987, one of the founding fathers of the CISG, Honnold, endorsed the establishment of: “a center for research and documentation in all branches of internationally uniform law, or, if this is considered too ambitious, the research center could be confined to UNCITRAL activities.”58 The activities of such a centre would include documentation, research, legal training and expert advice. Honnold added:

54

55

56

57

58

Wehberg seems to have been the first to suggest such a tribunal, see: Ein Internationaler Gerichtshof für Privatklagen, Berlin 1911, 23. See Sohn, Uniform Laws Require Uniform Application: Proposals for an International Tribunal to Interpret Uniform Legal Texts, in: United Nations (ed.), Uniform Commercial Law in the Twenty-First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, 18-22 May 1992, New York 1995, 50-54. See De Ly, Uniform Interpretation: What Is Being Done? Official Efforts, in: Ferrari (ed.), The 1980 Uniform Sales Law, Munich 2003, 346. It is almost overwhelming to note that the bibliography of the CISG at the CISGW3 database at Pace at www.cisg.law.pace.edu/cisg/biblio/biblio.html now lists over 8000 citations to texts and articles on the CISG. See Honnold, Uniform Words and Uniform Application – The 1980 Sales Convention and International Juridical Practice, in: Schlechtriem (ed.), Einheitliches Kaufrecht und Nationales Obligationenrecht, Baden-Baden 1987, 145, with reference to the Polish scholar Rajski.

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“Surely the general entry into force of the Sales Convention should and will stipulate these developments.” It may have taken some time to establish the sort of monitoring Honnold had in mind, but there are several important contributors on the scene now. The work of the CISG Advisory Council (CISG AC),59 and of the CISG expert’s opinions resulting in the UNCITRAL Digest,60 has been helpful in guiding the uniform application of the CISG. So have the collections of edited CISG materials and cases found in CLOUT (Case Law on UNCITRAL Texts)61 and the database at CISG W3.62 This abundance of attention renders the CISG an important instrument in helping to understand a commercial international environment, even if it does not always have a huge impact on a functional level. Although these efforts are even less “ambitious” than Honnold envisioned, in that they focus only on one instrument and not international uniform law as a whole, these efforts nevertheless testify to the importance of the CISG. They are all significant efforts by leading commercial law scholars to aid a uniform commercial environment with the CISG as a significant instrument to shape its form. Evidence of monitoring, official or otherwise, can be an indicator of the importance of a uniform instrument, and can aid in placing it on an unofficial hierarchy of instruments.

e)

Supranational Law

One very special form of monitored law is that which is labelled “supranational” in nature. As it can be argued that this term is a linguistic faux amis since its meaning is not identical in the US and in the UK,63 it must be understood that this author uses the term synonymously with the European understanding: a “law above national law”.64 Where supranational law ex59

60

61 62 63 64

See the aims of the CISG AC at www.cisgac.com: “The CISG-AC is a private initiative which aims at promoting a uniform interpretation of the CISG.” UNCITRAL Digest of case law on the United Nations Convention on the International Sales of Goods UN Doc. A/CN.9/562. See www.uncitral.org/uncitral/ en/case_law/digests/cisg.html. Available at: www.uncitral.org/uncitral/en/case_law.html. Available at: www.cisg.law.pace.edu. See Andersen (op. cit. fn. 14), 23-26. Helfer/Slaughter, Toward a Theory of Effective Supranational Adjudication, 107 Yale Law Journal (1997), 273 et seq. To the pedantic legal theorist, there can be no such thing, of course, as national law can always refuse to recognise supranational law. So it is perhaps more correct to define it as law resulting from a cooperation between nation states, which through special limitations in the sovereign-

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ists, nations expressly submit their right to make decisions on the international playing field to a set of common institutions. In Europe, the European Commission and the European Court of Justice are empowered to render decisions on whether sets of uniformly created laws are correctly applied, and are granted certain sanctions to ensure this. In a traditional legal hierarchy, supranational laws, especially when monitored closely by (a set of) monitoring institutions would be assumed to rank at the top of the scale. But in the uniform commercial environment, two things affect this. The first is party autonomy, which affects many aspects of this analysis because of the effect actual commercial choices have at a functional level. Since there is a lot of freedom in commercial law, the technical hierarchies of law will not always be significant. The second aspect which affects the nature of supranational law in a uniform commercial law context is political reasoning, which can lead to the supranational law voluntarily accommodating other (sometimes preexisting) legal rules to lessen the intrusive nature of the imposed shared rule vs. the voluntarily shared rule. This has been the case with the CISG. As demonstrated below in section E.I., the EU has openly seeded a place in the hierarchy of commercial norms despite the open “outranking” on the traditional hierarchical scales by respecting the CISG as part of the so-called EU Acquis. Based on the above observations on hierarchy, monitoring, labels and promulgators, it would seem that there is no clear hierarchy of laws which is shared. It is perhaps more apt to say that the new legal order is – in reality – a lot of legal disorders. But it may be possible on other grounds to bring some order to the apparent chaos.

C. Synthesising a Uniform Commercial Law Framework It is, perhaps, an overstatement to refer to a functional framework of analysis for uniform commercial laws as “synthetic”. While it may be synthetic from a scholar’s point of view, because it exists outside determinable concept of definitions of law or origins of law, it is nevertheless a very real and nonsynthetic reality for commercial trade.

ty of the cooperative States, as well as limitations in their freedom and ability to act, is set apart from any other traditional international cooperation.

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Functional Framework: Understanding International Commercial Law

As Schmitthoff has oft pointed out, an international commercial lawyer must be a man of business,65 and the commercial scholar must also understand the business community which his discipline supports. Moreover, as evidenced above, to understand uniform laws, they must be removed from any domestic legal framework. It thus stands to reason that to understand uniform international commercial law, one must view business in an international framework, removed from domestic law influences. One of the problems of the new legal order is, as evidenced above, an apparent lack of a shared moral context for rules to be interpreted in, the lack of an overarching legal order. However, given the wealth of international dealings and cross-border understanding prevalent today, the question is whether we can synthesise a morality and a set of principles for acceptable practices, and hierarchy of rules, which may better breeding ground for allowing these rules to function and interact. In the absence of a legal system to give rules context, can a functional approach to the international business environment assist in synthesising a framework? Given that the majority of these commercial international laws and regulations are promulgated by means of synthetic law, it would make sense to operate them in this framework.66 A theoretical question for debate might be whether the different synthetic environments from which the different instruments originate are sufficiently similar to allow them to co-exist in one synthesised framework – but this question belies the very practical nature of business transactions. The commercial synthetic frameworks of international commercial laws have to be compatible, for the simple reason that they function together on a practical playing field. International business does not differentiate, nor does it care to engage in academic debate about syn65

66

See Schmitthoff, Commercial Law in a Changing Economic Climate, 2nd ed., London 1981, 15: “[An international commercial lawyer] cannot only be a man learned in law. His antennae must be turned to receive financial and monetary information; he must understand the fluctuation in the world markets whether they deal in commodities, securities, shipping, insurance or other goods and services; he must take account of the tax position, both national and international; he must appraise the political risk and the perceptive of the shift in social power – in brief, in addition to being a man of law, he must be an homme d’affaires”. See Henschel, A non-national, analytical-synthetic comparative method and creation of rules in national and international business law, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries, Festschrift Kritzer, London 2008, 177, with reference to Schmitthoff, Unification or Harmonisation of Law by Means of Standard Contracts and General Conditions, 17 International & Comparative Law Quarterly (1968), 551.

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thetic law, or even to classify areas of law in dispute. It functions as best it can, hoping for a degree of certainty and predictability in law, and assuming a common core of commercial understanding. If business functions with such an assumed common core, then legal science should be able to transcend the boundaries of multicultural diversity as well. Spanogle stated fifteen years ago that legal scholarship was not keeping up with the realities of business where globalisation was concerned.67 If scholars cannot facilitate a framework, he will (still) be right. If business transactions can function on a practical level within a single global market, then surely legal theory can construct a synthetic model explaining the interrelations of the laws, regulations and rules which businesses are employing. The question is, of course, to what extent that is a useful or viable exercise.

II.

Utility of a Synthesised Framework

There would be many (obvious) advantages in designing an overarching synthetic framework for commercial law. If we could establish a macrosystematic interplay of uniform laws which helped to create an overarching framework of uniform law, then it would give all uniform laws co-existing in this framework a greater depth and context, and – if this were a uniformly accepted framework – it would ensure greater consistency/uniformity in interpretation and application of all uniform laws. Such a framework would extend a richer background to the understanding of uniform laws, and could arguably be constructed around the practical international trading environment, within which the CISG plays an important role as a central and popular mechanism in private law. It could even be argued that central interpretational traits of the CISG could be seen as an expression of principles which should – or do – apply to all uniform law sources in commercial law. On a practical level, there clearly is a cohesive dimension of uniform international commercial business taking place. Standard form contracts, unified regulations for business procedure, and agreed transaction approaches witness a steadily increasing common framework for trade. A shaky finger pointing in the direction of the elusive lex mercatoria can also be employed

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Spanogle, American Attorneys’ Use of International and Comparative Legal Analysis in Everyday Practice, 28 Wake Forest L. Rev. (1993), 1: “Any business person can tell you that the Global Economy is here. The necessity is to produce wherever it is most advantageous, and then to market and compete all over the world. This is hardly news to them. It does still seem to be news to much of the legal profession, however, and to many in legal education.”

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to signify that some believe in a modern merchants’ law.68 This globalisation of economic markets and similarity in business transaction procedure and understanding is what triggers the need to create uniform laws. But uniform commercial laws and regulations – as opposed to commercial business – tend to address isolated topics of commercial law. So do domestic laws, but with a significant difference: domestic laws which exist in and arise from the traditional nation/state law framework also exist in a context of legal traditions, interpretational guidelines, and other rules, to provide them with a much richer texture for understanding and application. If a commercial issue is treated in a domestic law context, it is supplemented with set and predictable rules of tort, contract law, human rights, as well as the principles and rules of a legal system providing the interpretational backdrop of legal theory and legal history. Such depth of contextualisation is a boon to the nuance with which the domestic law can respond and adapt to the needs of business, without relying on a single piece of legislation or an isolated regulation. Uniform laws lack such detailed context. Delmas-Marty has been known to decry this lack of overarching legal order in the context of uniform law,69 and while it can certainly be seen as a shortcoming in uniform commercial laws that they do not have the benefits of a legal system to complement them, this shortcoming has always hitherto been perceived – by myself and many others – as the necessary price for the creation of shared law. But if the construction of a larger “uniform commercial law machine”, within which the cogs of uniform laws function together, is contemplated more carefully, then it is perhaps possible to construct a mechanism that can replace the legal system within which domestic laws function, and replicate many of the benefits outlined above, at least within the boundaries of party autonomy as defined by mandatory laws (which are not easily sidestepped, see section B.IV.2. above). Perhaps we can synthesise a legal system of uniform commercial law, based on the universal approach which most commercial business seems to have. If it is true that commercial law is a reflection of commercial practice, in that it meets the needs of commerce in tandem with the morality of society, and if we accept that business practices are becoming increasingly universal in most areas of commerce, then the logical conclusion must be that it should be possible to construct a more comprehensive system of uniform commercial law which provides a more universal framework to deal with the universal problems arising in this universal business. Of course, to do this 68

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The discussion of lex mercatoria and its role in modern commercial law would consume this issue if permitted. The question of whether it is myth or reality is left for other scholars to discuss. For the purposes of this paper, the term will be used to connote established usages in trade. Attempts at so-called codified lex mercatoria are treated separately. Curran (op. cit. fn. 8) refers to Delmas-Marty, Pour un Droit Commun, Paris 2004.

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one must postulate a universally acceptable system of business morality. But since business manages to function universally in practice, does this not already exist? The theoretic model for this may be possible, with more research of empirical and theoretical nature than is within the scope of this chapter. But it would have to exist purely on the postulated universal business level, free of any morality or business practices which are not universally accepted. This is where the comforting notion of an overarching legal order for uniform commercial law meets its greatest challenge: uniform laws do not exist on a playing field of purely uniform laws, but within a variety of domestic legal systems. The strongest expression of this is found in dispute resolution in courts; to find a solution to a pressing and real problem, a judge will bring an issue into a spectrum of a specific legal system for legal classification and analysis in the light of the system within which that form of dispute resolution exists; it will thus be part of a domestic framework rather than a uniform one. The surrounding platform of rules, legal culture, morality, legal theory and otherwise applicable law will be domestic, and not uniform. This is inescapable. There are wonderful examples of truly uniform interpretation of a single uniform instrument such as the CISG originating from some of the more modernly-attuned domestic judges of the commercial courts of this global world.70 But – even where their interpretations are attuned to international principles, and their antennae are tuned in to receive foreign precedents, and they are aware of the need for uniform interpretation of this instrument, they cannot overstep this remit and ignore domestic rules of contract, procedure, etc. and refer to a currently very vague notion of a uniform commercial law framework. This has the knock-on effect of making the establishment of a uniform framework difficult. It is easy for academics to argue that uniform law should be treated as a separate discipline in law, but it is a far greater challenge to implement this theory. In fact, without the pre-existence of a uniform legal framework, it can be argued that it is an impossibility, because of the domestically charged analysis which must necessarily take place in court-based dispute resolution. Furthermore, since the creation of a uniform framework is largely dependent on the ability to establish a common uniform morality of business as accepted by domestic systems, through their expression in a purely uniform context, the goal is frustrated with circular requirements.

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Some of the more comprehensive examples of uniform application through a global jurisconsultorium include Italian, Spanish and US cases, see Andersen, The Uniform International Sales Law and the Global Jurisconsultorium, 24 Journal of Law and Commerce (2005), 159-179.

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This is a Catch 22 situation:71 to enable a macro-systematic uniform law framework, we need the input of actual problem solving in a uniform context. But most actual problems currently need to be solved in a domestic context, because there is no macro-systematic uniform framework or a uniform dispute resolution forum. So where should the body of uniform case law come from? The most promising exception to this Catch 22 is dispute resolution in arbitration, mediation and ADR. These forms of dispute resolution, which typically represents numerous jurisdictions both in terms of parties but also in terms of origins/legal training of the arbitrators/mediators, may well in some cases be said to represent a uniform or universal morality and a uniform/universal business approach. Moreover, because arbitration is – essentially – stateless, it is free of the interferences of domestic laws and their principles and contexts, with the possible exception of some mandatory laws.72 Arbitration can thus be a rich source for harvesting functional approaches to legal issue on a more international scale. But there are also other sources, which can be seen as having begun the attempt to synthesise a framework, albeit outside a functional framework. The UNIDROIT Principles and the PECL73 (and the coming European Common Frame of Reference, the so-called CFR)74 come to mind as possible foundations for developing a common core of contract law. In addition – of course – the ever present difficulties of legal language and terminology, which have to be congruent if a shared framework is developed. These sources of the functional framework will be analysed below. The way forward must be to conclude that a functional framework – whether considered synthetic in the eyes of legal scholarship or real in the eyes of commercial transactions – is useful for establishing a common legal field for understanding common legal problems of trade.

71

72 73

74

Heller, Catch 22, New York 1961; resulting from its specific use in the book, the phrase “Catch 22” is common idiomatic usage meaning “a no-win situation” or “a double bind” of any type. See section B.IV.2. below which discusses mandatory laws. The UNIDROIT Principles for International Commercial Contracts 2004, and the Principles of European Contract Law (1999/2002), are analysed by Perales Viscasillas in this book. She explains their respective origins in fn. 1 and fn. 2 respectively. Currently available in draft format, see below at fn. 77 for more information.

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D. Sources of a Functional Framework for Uniform Law: Uniform Taxonomy and Approach The following will attempt to suggest sources for the development of a synthesised framework for the interrelation of uniform laws. It is outside the scope of this chapter to attempt to develop the framework itself. But a sketchy picture of uniform functional practices can be formed, upon which a comprehensive system may be built. It is, however, worth noting that this task is gargantuan. Even at a regional level, the attempt to create a European Toolbox for commercial trade, which would provide a synthesised environment for business with concepts and “tools” for contracting was abandoned by the recent European initiative, and a less ambitious path, creating a set of contract rules using a blueprint akin to the PECL was chosen instead in the form of a Common Frame of Reference.75

I.

Establishing a Common Frame of Reference

1.

Customs and Trade Practices

In an environment where party autonomy reigns (nearly) supreme in the quest for profitable contracts, the single most important contribution to composing common frames of reference is the actual practices of the commercial trade in question. What standard terms are being used? What implied terms are assumed in the trade? What are the most common and/or reasonable perceptions in the trade of a certain issue? Given the functionality of commercial trade, it must be the actual choices of the commercial traders – within the imposed restrictions of mandatory law – which guide perceptions of what uniform commercial law should be. This author would define such vague non-law standards as lex mercatoria,76 and place them at the pinnacle of what commercial law should be

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See Twigg-Flesner, The Acquis Principles: An Insider’s Critical Reflections on the Drafting Process, in: Andersen/Andenas (eds.), Theory and Practice of Harmonisation, Cheltenham 2009, forthcoming. It is not within the scope of this chapter to define the origins of this hotly debated term too closely. For an excellent analysis, see Foster (op. cit. fn. 32). For the purposes of this chapter, suffice it to say that I do not share Goode’s assertions that legal standards codified in law cannot be included in the definition, see Goode, Is the Lex Mercatoria Autonomous?, in: Cranston/Ramberg (eds.), Jan Hellner in Memoriam; Commercial Law Challenges in the 21st Century, Uppsala 2008, 73.

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about. Banking practices, such as the UCP 600, which are lent the strength of law through their acceptance in trade, are significant examples of universal customs which create a uniform approach in a given sector, lending normative force to practical principles. Such uniformly accepted notions in financing may be very helpful in understanding basic notions regarding payment obligations, autonomy of payment undertakings and documentary compliance generally, as these notions are so universally shared via this one text. Aside from the UCP example, however, such practices can be impenetrable and unclear for the outsider, and are not always accessible and available. Attempts to codify the lex mercatoria may solve this problem, but at what expense?

2.

Codified Practices

The UNIDROIT Principles and PECL (and soon also the “Common Frame of Reference”77) spring to mind as obvious starting points for synthesising a uniform framework because they claim to represent international and regional principles of contract law, respectively. However, if they are to be lent any weight in a functionally based framework, then the essential question to weigh their utility is to what extent business actually recognises these principles as embodiments of international business practice. The reference in the UNIDROIT principles to their application “as an expression of general principles of law” holds no legally binding effect as they are not a legal instrument of law. De Ly rightly argues that these principles can be valuable in defining the lex mercatoria, which can otherwise be relatively vague as it is an embodiment of un-codified international principles applied in trade.78 But that does not mean that they are an automatic expression of how commercial parties choose to do business or assume that business is conducted at a non-national level. Heidemann argues that the UNIDROIT principles can embody a whole system or methodology for uniform law in commercial contexts, and criticises national courts for their failure to embrace more international approaches of law in commerce.79 The temptation to imbue them with such significant

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Regardless of their origin or whether they exist in codified state, the principles of lex mercatoria are those which international merchants apply. For an introduction to the Draft Common Frame of Reference, see Beale, The Draft Academic Common Frame of Reference, in: Andersen/Andenas (eds.), Theory and Practice of Harmonisation, Cheltenham 2009, forthcoming. De Ly, Lex Mercatoria: Globalization and International Self-Regulation, Diritto del Commercio Internazionale (Dir. Com. Int.) 2000, 570. See Heidemann, Methodology of Uniform Law, Berlin 2006.

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is clear. However, for the UNIDROIT Principles to fulfil this lofty methodological goal, they would have to be true and accurate representations of trade practice, and not merely scholarly representations of what it can (or should) be – this is more problematic. The lack of empirical research in this area of law means we have little or no idea of the value practical traders place on these principles, and hence to what extent they are truly codifications of the law of the merchants. From an “Arbitrator’s Perspective” Sharpe and Brower conclude that: “the UNIDROIT Principles cannot advance themselves as general principles of law or as lex mercatoria” and add that: “If the UNIDROIT Principles truly are to flourish, it is not enough that arbitrators invoke them to render equitable decisions; they must be used in furtherance of party autonomy.”80 Perales Viscasillas analyses the principles more closely in her contribution to this book. Her conclusion is that fourteen years after the first edition of the UNIDROIT Principles it is not clear to what extent they represent commercial practices as a whole, but certain provisions are gaining recognition as part of the lex mercatoria.81 She believes the final verdict for these principles lies in the development of “a more abundant and coherent body of case law.” In this she is undoubtedly correct, but the quest for coherent international scholarship and case law lies at the very crux of the problem of the missing methodology of uniform international law. The Global Jurisconsultorium, which is only beginning to be a reality for single instruments, is not a reality for trade practice as a whole. Once more we return to the “Catch 22” mentioned above – how do we develop coherent practice without sharing practice, which we cannot do without having a coherent practice to share to guide the practitioners? The role of principles such as the PECL and the UNIDROIT Principles in synthesising a commercial law framework is significant – but not decisive. It is only through their interaction with party autonomy that their importance is revealed.

3.

CISG as a Common Frame of Reference

At the time of its conception, the CISG represented more than a set of rules on sales law to be shared; it represented a giant step forward in creating

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Brower/Sharpe, The Creeping Codification of Transnational Commercial Law: An Arbitrator’s Perspective, 45 Virginia Journal of International Law (2004), 199221, at 220-221. See her contribution in this book.

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common ground for international traders.82 It is – perhaps – somewhat of a chicken-and-egg discussion to debate whether the CISG has proven popular because of the growth of global trade, or whether global trade has been promoted by the dissemination of the CISG. Suffice it to say, in the words of Bridge: “No one doubts the enormous impact of the UN Sales Convention (the UN Convention) on the move towards uniformity of law in international commercial matters.”83 The creation of common ground which has been created under the auspices of the CISG can serve as an excellent foundation for an overarching legal framework of trade. Its effects beyond its actual application can be seen in three main ways. First of all, its effect on trade law extends beyond its role as a substantive law of formation and sales, as it has also been known to act like a model law in the reform of sales laws worldwide. In China, the new Contract Act is largely based on the CISG as well as other instruments of uniform international contract law in the attempt to formulate a more modern and liberal commercial environment.84 In Polynesia the new commercial and contract law of an emerging state is almost entirely based on the CISG.85 Its significance extends beyond its mere application; it is a blueprint for a good sales law for international contracts. Its status as a sound piece of international legislation also triggers the second way in which the CISG extends its normal effect, namely its use as a contract “check list” or drafting tool. It is a telling sign of the role of the CISG today that the symposium celebrating the 25th Anniversary of the Convention revolved around the concept The CISG as a Contract Drafting

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See Schlechtriem, Uniform Sales Law: The Experience with the Uniform Sales Laws in the Federal Republic of Germany, 1 Juridisk Tidskrift (1991-92), 1, 28. Bridge, A Comment on “Toward a Universal Doctrine of Breach: The Impact of CISG” by Jürgen Basedow, 25 International Review of Law and Economics (2005), 501-511. See generally, Will (ed.), CISG and China: Theory and Practice, Geneva 1999, especially Ding, China and the CISG, 25-37, available online at: www.cisg.law. pace.edu/cisg/biblio/dingding.html. See also Bing, Contract Law in China, Hong Kong 2000. As mentioned by the late Schlechtriem in his keynote paper on the role of the CISG, given at the 25th Anniversary Symposium of the CISG in Pittsburgh on the 4-5 November 2005. The paper is available in: Brand/Flechtner/Walters (eds.), Drafting Contracts under the CISG, Oxford 2008, 167 et seq.

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Tool.86 This is apt, because the CISG can help drafters and negotiators to reach agreements in complex contracts by providing the crucial neutral starting point, while remaining 100% flexible to the needs of the parties by way of its respect for autonomy in Art. 6 CISG. Finally, the CISG has been applied as an expression of customary trade law, applying it as substantive law even when it does not fulfil its own requirements for application.87 This has been demonstrated in a number of arbitration cases,88 and even marginally before a domestic court.89 In an ICC case from 1994, the Tribunal referred to the CISG as the place where “general principles of international commercial practice” are most aptly contained, and went on to conclude that if the CISG did not contain any agreed principles for calculating interest rate, then none were likely to be found.90 This seems to confer on the CISG the role of definitive indicator of accepted commercial practice. If we consider all of the above in the light of the fact that the CISG establishes a common framework for negotiating contracts at a transnational level, then it really has managed to remove barriers in international trade. One of the largest issues with this common ground, however, is whether the use of the same text necessarily means a meeting of minds regarding what is being agreed: whether words mean the same.

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This was the working title for the book resulting from the conference. The title was changed at the last minute to Drafting Contracts under the CISG as cited ibidem. This was first done in the Iran/U.S. Claims Tribunal, award of 28 July 1989, available at: http://cisgw3.law.pace.edu/cases/890728i2.html. See for example ICC Arbitration Case no. 5713 of 1989, available at: http:// cisgw3.law.pace.edu/cases/895713i1.html; ICC Arbitration Case no. 6149 of 1990, available at: http://cisgw3.law.pace.edu/cases/906149i1.html. See Appellate Court Copenhagen (Denmark), judgment of 4 December 2000, available at: http://cisgw3.law.pace.edu/cases/001204d1.html. The dispute in this case concerned a Steam Plant, which the Court recognised was outside the scope of application of the CISG (Art. 3 CISG). Yet, they applied Art. 57(1) CISG as an expression of a general principle in determining the place of payment for the purposes of establishing the proper forum under the Brussels Convention (1968 EC Convention on Jurisdiction and the Enforcement of Decisions in Civil and Commercial Matters). The ICC Tribunal stated: “Regarding the precise rate of interest to be applied, there is no single internationally accepted rate of interest. This is reflected by the Vienna Convention, which only generally provides that parties are entitled to interest without specifying any particular rate of interest.”

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Global Language of Trade

Words – and the precision of taxonomy – are central to all legal science. As Honnold so eloquently states: “We lawyers have to work with blunt, unreliable tools – words! (…) mushy ambiguous things even for ordinary communications.”91 Of course, once we lawyers get our hands on these blunt unreliable tools, real havoc can be wreaked when attempting the delicate surgery of international commercial contract negotiation or dispute resolution. It is therefore not surprising that the trouble in transnational legal interrelation is encircled by the problems of imprecision of language, or that legal linguistics is becoming an important discipline in transnational law.92 Even accepting that English is the accepted common language of commercial law, the use of one language does not mean we are using the same English. Clearly, legal concepts such as “contract” or “performance” do not mean the same in different contexts or in different English-speaking jurisdictions and jurisdiction using English in commercial contexts.93 In the context of uniform law interrelation, Ferrari labels the autonomy of terms in all disciplines of commercial law as a “systematic approach” for their interplay.94 It is a much greater task to unify the taxonomy of one language than one might think – and this leaves aside the issue of the textual non-uniformity of the different language versions of the CISG, which this chapter will not deal with.95 The problems of English language unity are gruelling enough. Schlechtriem once wrote: 91

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Honnold, The Sales Convention in Action – Uniform International Words: Uniform Application?, 8 Journal of Law and Commerce (1988), 207. For more on legal linguistics, see Andersen (op. cit. fn. 14), Uniform Application of the International Sales Law, chapter IV A “Substantive Interpretation: Legal Linguistics”, 86-105. Divergent uses of English have necessitated work comparable to English-English translation; see Kinsella’s attempts to draft a dictionary explaining the different uses of English terms in divergent jurisdictions in: A Civil Law to Common Law Dictionary, 54 Louisiana Law Review (1994), 1265, available at: http://www. kinsellalaw.com/publications/dictionary.pdf. Ferrari (op. cit. fn. 4), 65-66. Flechtner talks of “textual non-uniformity” when comparing the different texts of the six official languages of the CISG and their meanings. Flechtner uses it to indicate the level of similarity between the texts in question. By inference, if they did have the same meanings linguistically then these texts would (together) represent a textual uniformity. An instrument with only one official text will thus, by definition, always represent a single textual uniformity. See Flechtner (op. cit. fn. 15), 187 et seq., available online at: http://CISGw3.law.pace.edu/CISG/ biblio/flecht1.html.

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“With the Uniform Sales Law there is a chance that for the first time since the medieval ages, when Roman law equipped most continental lawyers with their conceptual tools, that we not only have a common language but also common legal concepts to circumscribe the decisive issues.”96 He thus hoped that the CISG could solve terminological problems permeating commercial law. It may have gone some way to doing just that – greatly aided by some of the projects outlined below.

1.

Thesaurus project

One attempt to address this issue is the commendable project, piloted by Kritzer and Rogers, which attempts to create a thesaurus of terms in commercial law instruments, to provide explanations and synonyms for unusual wordings.97 The project, essentially, attempts to provide an overview of the way different instruments of international commercial law label a concept, and to provide synonyms for a concept in one instrument with comparable concepts in another.98 The intention is to create a mono-lingual thesaurus which can index and chart the semantic relationships among terms in sales law in various instruments. Since it is mono-lingual, these will primarily be in English, but English language domestic acts (Uniform Commercial Code and the English Sales of Goods Act) will be included therein. This is a very promising project, and there is reason to hope that it will develop into a very useful tool for facilitating and ensuring a meeting of minds. However, as with all other tools of uniform application, it requires acceptance by many, and the real test is not how useful it is but how often it will be used. Whether practice will embrace this tool to develop a better taxonomic understanding in negotiations and trade remains to be seen.

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Schlechtriem (op. cit. fn. 82), 28. See also Hellner, The UN-Convention on International Sale of Goods – an outsider’s view, in: Jayme/Lutter (eds.), Festschrift Riesenfeld, Heidelberg 1983, 71, 73. Kritzer/Rogers, A Uniform International Sales Law Terminology, in: Schwenzer/Hager (eds.), Festschrift Schlechtriem, Tübingen 2003, 223-253. For a recent discussion of the project, see Rogers, The Lexical Initiative for International Commerce, in: Andersen/Schroeter (eds.), Sharing International Commercial Law Across National Boundaries: Festschrift Kritzer, London 2008, 404415.

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The Comparative Project

Another project in international sales law which has attempted to bridge the gaps in terminology of various instruments is the project spearheaded by Felemegas, which resulted in a comparative analysis in book-form,99 comparing the CISG, the PECL and the UNIDROIT Principles in key areas. The idea behind this project was to investigate the idea of whether there could be said to be a body of comprehensive rules within these three instruments of international sales. But a hidden “side-effect” was the comparison of the taxonomy of the instruments. This resulted in three main categories of so-called “math-ups”: the identical, the seemingly different but conceptually matching, and finally those which did not “track” each other. This project is an important beginning in formulating a more comprehensive body of rules – but it should be viewed with the care expressed about the UNIDROIT Principles and the PECL above in section D.I.2.

III. “Sharing” and the Global Jurisconsultorium at Macro-systematic Level – a Utopian Fantasy? In my previous writings, I have strongly advocated the use of the global jurisconsultorium, using the term to describe the duty to share international scholarship and cases in the pursuit of autonomy of terms under the CISG.100 It defines an obligation to refer to what others are doing in other jurisdictions when sharing law; requiring scholars to refer to the works of others from other Member States and requesting judges and legal counsel to find inspirational authority in CISG precedents from other Member States. In the application of the CISG there are problems in applying the jurisconsultorium, as the abundance of interpretive scholarship reveals.101 It is still more regional than global in nature as courts will tend to refer to authorities

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Felemegas (ed.), An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge 2006. See Andersen (op. cit. fn. 14), Uniform Application of the International Sales Law, and Andersen (op. cit. fn. 70), The Uniform International Sales Law and the Global Jurisconsultorium, 159-179. See also Ferrari, Have the Dragons of Uniform Law been Tamed?, in: Andersen/Schroeter (eds.), Sharing International Commercial Law Across National Boundaries, Festschrift Kritzer, London 2008, 134-167. See, for example, the very different interpretations of the term “reasonable time” in Art. 39(1) CISG, cf. Andersen (op. cit. fn. 20), 63 et seq.

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from more familiar foreign courts (if at all), and it is still only found in a fraction of CISG cases – although numbers are growing exponentially. In view of all the considerations on the synthetic framework set out above, the jurisconsultorium takes on a new light. While the jurisconsultorium has previously been a significant tool in shaping the way certain concepts are shared and understood at a uniform international level for a single shared law, it could – and should – also be considered a useful methodology for the convergence of international commercial law generally. Especially in the light of the functional basis (as opposed to a basis of nation state laws) on which trade operates. This may sound like a pipedream. But I firmly believe that it should be the role of commercial lawyers to move towards a shared legal environment for as many aspects of commercial law as possible. Utilising a global jurisconsultorium for international trade law disputes, removing them from any domestic setting in dispute resolution and referring it to an international commercial context, regardless of the applicable substantive law, sounds ideal. Clearly, this would have to be confined by the limits of party autonomy as defined by mandatory laws. But if Ferreri102 is right, that mandatory laws are becoming less significant in international dispute resolution, there may be more freedom to exercise this pipedream. If commercial lawyers are to keep up with globalisation, in response to Spanogle’s103 damning – yet correct – observation, then thinking about law in a new context is called for. This may sound as idealistic as the Court of Commercial Law, which remains an unrealised good idea from David to De Ly, as mentioned above. But it is far easier to implement. It does not require a complex political negotiation or any cessation of sovereignty. All that is actually needed is a new mindset for judges, “borrowing” the freedom of arbitrators to find inspiration from a greater variety of sources. Needless to say, the Internet will be a powerful ally in this, and the modern use of English as a common commercial language is a key enabler thereof. The research in finding these transnational sources is of course not laid at the judges’ door, but at the feet of counsel who should be free to cite foreign sources and cases from similar commercial context regardless of the applicable substantive law or the domestic forum. There is no need to use the scary word “precedent” here; that would be tantamount to legal anarchy, violating countless procedural rules and legal principles spanning the Common Law and Civil Law divide. Nor would I advocate the use of foreign “law” as such.104 All I am proposing is opening the floodgates 102 103 104

Op. cit. fn. 42. Op. cit. fn. 67. The use of foreign law in domestic courts is becoming an increasingly topical issue, which sparks hot debate on legal norms and authority paradigms in all areas of law. See Knop, Here and There: International Law in Domestic Courts, 32 New York University Journal of International Law and Politics (2000), 501-535.

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of inspirational international sources, allowing legal counsel to site common sense scholarship and cases with similar facts, which may or may not be convincing to the judge in the case at hand. This should not be dreaming the impossible dream. Briefly put: International commerce is rarely restricted by geographic limitations to its markets – why should court litigation be confined with such limitations in its legal sources? I remain convinced that the global jurisconsultorium would be a great way forward for international commercial law as a whole, and not just for single shared instruments. I also remain convinced, however, that although the use of foreign law in domestic courts is beginning to occur with greater frequency,105 such a change in mindset of domestic commercial law judges on a large scale will be slow in the making. But if it were to come about, what greater interplay of international commercial law could we possibly hope to achieve? If we share sources and problem solving techniques to build common approaches on in support of a global commercial market, then lawyers are truly reacting to globalisation, crating uniform approaches even when there are no shared instruments. If that day ever comes, Spanogle’s harsh truth will no longer apply.

E. The CISG and Specific Bodies and Instruments Since it seems that a general macro-systematic functional scheme is not a reality, and will not be possible to implement anytime soon, the only way to map the interplay of the CISG with other uniform law instruments or bodies of international law is to examine them individually.

105

See also Guillaume, The Work of the Committee on International Law in National Courts of the International Law Association, 3 International Law FORUM du droit international (2001), 34-40; Engle, European Law in American Courts: Foreign Law as Evidence of Domestic Law, 33 Ohio Northern University Law Review (Ohio N.U.L. Rev.) (2007), 99-112; Smith, Making Itself at Home Understanding Foreign Law in Domestic Jurisprudence: The Indian Case, 24 Berkeley J. Int’l L. (2006), 218; and Peoples, The Use of Foreign Law by the Advocates General of the Court of Justice of the European Communities, 35 Syracuse Journal of International Law and Commerce (2008), 219. In the US, a number of recent cases have even dared to look beyond the nation’s borders for inspiration in constitutional matters, see Atkins v. Virginia 536 U.S. 34 (2002) on death penalties applied to the mentally retarded being unconstitutional; Lawrence v. Texas 539 U.S. 558 (2003) holding that a Texas statute criminalising same-sex sodomy is unconstitutional and Roper v. Simons 543 U.S. 551 (2005), which held that the death penalty for minors is unconstitutional.

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Set out below some observations on some of the key instruments and promulgators and how they interact with the CISG.

I.

The CISG and EU Legislation

The regionalisation, rather than globalisation, of commercial law is a hotly debated topic, which can result in competing rules or norms applying in regional/global regimes.106 In all writings of CISG and European legislation, it is important to remember that EU and EEC instruments do not represent a communal body of uniform commercial law in Europe. As stated by Lando: “Although their systems of contract law are still highly disparate, the States of the European Union have yet to create a uniform system of general contract law.”107 However, although there is no system of uniform law, there are a number of EU instruments which have potential interplay with the CISG. While the majority of the EU’s mandate in lawmaking on the private front is the protection of consumers (which is outside the scope of the CISG)108 there are some pieces of EU legislation – like the E-Commerce Directive109 – which apply to commercial transactions which means that conflict with the CISG may arise.110 Schroeter111 identifies a larger body of European Community 106

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De Ly, Sources of International Sales Law: An Eclectic Model, 25 Journal of Law and Commerce, Issue (Fall 2005/Spring 2006) 1-12; Schroeter, UN-Kaufrecht und Europäisches Gemeinschaftsrecht, Munich 2005, §§ 6-15. Schroeter also points out that comparable conflicts may arise in the future between the CISG and Actes Uniformes adopted by the Organisation for the Harmonisation of Business Law in Africa (OHADA) or Decisiones adopted by the Mercado Comun del Sur (MERCOSUR) and that a system of interplay must be determined and agreed. Lando, Salient features of European contract law, in: Study of the systems of private law in the EU with regard to discrimination and the creation of a European Civil Code, European Parliament, Directorate General for Research, Working Paper, Legal Affairs Series, JURI 103 EN (June 1999), chapter I, 3-16, available at www.cisg.law.pace.edu/cisg/biblio/lando1.html. See Directives 85/577/EEC, Directive 97/7/EC, and Directive 1999/44/EC, which make up the body of Consumer Protection Directives. Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the internal market. For example, the nature of software as “goods”, the majority of CISG states accept that software can be goods whereas the E-Commerce Directive from the EU

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legislation in force which already contains a number of provisions not in harmony with the CISG, including the Consumer Sales Directive,112 the Distance Selling Directive,113 the Directive on Late Payments114 and the Brussels Regulation.115 For some,116 the question of interplay between rules in European Community legislation and the CISG hinges on the wording of Art. 90 CISG, which allows international agreements to take precedence over the CISG.117 While it is disputed, there are compelling arguments to support that EU Directives (and even Regulations) are not “international agreements”.118 But,

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seems to imply the opposite, see Cox, Chaos versus uniformity: the divergent views of software in the International Community, 4 Vindobona Journal of International Commercial Law and Arbitration (2000), 3-29. Schroeter, Backbone or Backyard of the Convention? The CISG’s Final Provisions, in: Andersen/Schroeter (eds.), Sharing International Commercial Law Across National Boundaries: Festschrift Kritzer, London 2008, 425-469, where he summarises his research on this from his German book UN-Kaufrecht und Europäisches Gemeinschaftsrecht (op. cit. fn. 106). Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees; see Schroeter (op. cit. fn. 106), § 6 no. 188-290, § 15 no. 89-120. Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts; see Schroeter (op. cit. fn. 106), § 6 no. 126-187, § 15 no. 76-88. Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions; see Schroeter (op. cit. fn. 106), § 6 no. 337-399, § 15 no. 121-166. Council Regulation (EC) no. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters; see Schroeter (op. cit. fn. 106), § 6 no. 16-34, § 15 no. 7-23. This is especially discussed in German CISG literature, see Magnus, The CISG’s impact on European Legislation, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old issues revisited in the light of recent experiences. Verona Conference, Munich 2003, 129-145, at 131, with references. Art. 90 CISG prescribes that: “This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement.” Dismissing this are Herber, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods, Oxford 1998, Art. 94 no. 3; Herber/Czerwenka, Internationales Kaufrecht, Munich 1991, Art. 90 no. 4; Siehr, in: Honsell (ed.), Kommentar zum UN-Kaufrecht, Berlin 1997, Art. 90 no. 7. Another stance is taken by Ferrari, Universal and Regional Sales Law: Can

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perhaps more importantly, Schroeter points out that Art. 90 CISG does not apply in this case as the instruments in question have: “not been entered into by Contracting States to the CISG (as required by Art. 90 CISG), but rather enacted by the European Community, a legal entity not party to the Convention”.119 This would – in theory – mean that such instruments may even require declarations under Art. 94 CISG120 to take precedent over the CISG.121 But, in reality, regardless of how correct they are in theory, none of these arguments effectively prevent the EU from enacting supranational legislation which can forcibly supplant the CISG, creating diverse unified frameworks. There is an optimistic note, however. What will allow the CISG to take precedent is the fact that it is already embodied in the EU as a Common Law of Member States – a part of the so-called Acquis. This means that because it is already part of the law of the European Community, it can be enacted by regulation as Community law, which is arguably taking place now in codification of the Acquis in the Acquis-group.122

119 120

121 122

They Coexist?, 8 Uniform Law Review (2003), 177, at 182; Janssen, The final seller’s right of redress under the Consumer Sales Directive and its complex relationship with the CISG, European Legal Forum 2003, 181, at 183; Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen. Wiener UN-Kaufrecht (CISG), Berlin 2005, Art. 90 no. 4, 10; Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods, 2nd English ed., Oxford 2005, Art. 90 no. 12-13; Schroeter (op. cit. fn. 106), § 9 no. 45. See Schroeter (op. cit. fn. 111). Art. 94(1) CISG provides: “Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.” See Schroeter (op. cit. fn. 106), § 9. The Acquis of the EU is subject to further development in the Acquis Group, see www.acquis-group.org, which states that “[a]s a reaction on activities of EU institutions in the field of European contract law, the Acquis Group targets a systematic arrangement of existing Community law which will help to elucidate the common structures of the emerging Community private law. For this purpose, the Acquis Group primarily concentrates upon the existing EC private law which can be discovered within the acquis communautaire. The research of the Acquis Group will be published as ‘Principles of the Existing EC Contract Law’.”

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Moreover, in laying the foundations for the new Common Frame of Reference,123 one of the main sources for consultation was the CISG, as a recognised part of European law Acquis.124 Similarly, in the antecedent PECL, great inspiration was taken from the CISG. In other words, the CISG has long been considered a significant existing common core of law, by the powers of European community rule making, despite the fact that not all EU countries have ratified it.125 As Schlechtriem has pointed out, retaining the CISG as a common core of European contract law has a great advantage for the harmonisation of commercial law as a whole: it will mean that may well mean that the nonEuropean lawyer or businessman “will be on safe ground with the CISG” when faced with the “impenetrable maze of EC Directives and similar legal acts”.126 If we can retain this optimism regarding the EU respect for the CISG as part of the European Acquis then we can assume that the CISG will prevail over EU Directives, and disregard the problem of Art. 90 CISG. This would seem to be the correct approach. But it must be noted, that this interplay is without “teeth” on part of the CISG – other than comity and a respect for the CISG’s status as recognised commercial law and part of the Acquis, there is still nothing to prevent the EU from introducing binding supranational rules which contradict the CISG and supplant it in part or in whole.

II.

The CISG and Codified Lex Mercatoria (UNIDROIT and PECL)

In section D.I.1. above, the role of the codified lex mercatoria in aiding the formation of a synthesised macro-systematic framework was examined. This section will look specifically at the CISG/PECL/UNIDROIT interplay.

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For an analysis of the Draft Common Frame of Reference, see Beale (op. cit. fn. 77) and Twigg-Flesner (op. cit. fn. 75), in: Andersen/Andenas (eds.), Theory and Practice of Harmonisation, Cheltenham 2009, forthcoming. See Communication from the Commission to the European Parliament and the Council: A More Coherent European Contract Law: An Action Plan, Brussels (12 February 2003) COM (2003) 68 final, at para. 63, available online at: http://europa.eu.int/comm/consumers/policy/developments/contract_law/com_ 2003_68_en.pdf. Non-CISG states in the EU are Malta, Ireland, Portugal and the UK. For more on the UK and the CISG, see Andersen, The UK and the CISG; Non-Starter or Slow Starter, in: Ferrari (ed.), The Impact of the CISG on National Courts, Munich 2008, 303-311. For a discussion of the extent to which the CISG expresses customary law, see section D.I.3. above. See Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 118), Art. 90 no. 13.

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As Perales Viscasillas points out in her contribution to this book, the UNIDROIT principles can make excellent companions for the interpretation of the CISG: “When a provision of the [UNIDROIT Principles]/PECL reflects usages of trade in the sense of Art. 8(3) and 9(2) CISG or when the judge or arbitrator considers that in the interpretation and filling gaps within the CISG regard is to be had to international usages of trade or to the lex mercatoria, specific provisions in the [UNIDROIT Principles] and PECL might play a significant role.”127 But in this context, it is important to note the prerequisite mentioned by Perales Viscasillas: that this can only happen where the principles in question are an expression of reasonable, recognised international general principles of law, and will not happen merely because of the codification of a rule in a PECL or UNIDROIT framework. These principles cannot – contrary to the position taken by some legal scholars128 – be seen as standard gap-fillers in commercial contracts or to CISG issues. This sums up the interplay between CISG and the codified frameworks excellently. The CISG will not randomly accommodate these principles, but can acknowledge them where they express that which is proven to be recognised lex mercatoria. The Felemegas project, mentioned above in section D.II.2., examined the provisions of the UNIDROIT Principles, the PECL and the CISG, with a view to determining their compatibility and the utility of their use as gapfillers of the CISG.129 The result is a comparative analysis of the comparable provisions, and it is clear that not all are compatible for use in a CISG context. However, since the CISG will not take precedence over trade usage, where such principles express such a usage – and where it is recognised and reasonable – the usage will prevail.

127 128

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Perales Viscasillas in this book. Most notably the numerous writings of the chief promulgator of the UNIDROIT Principles, Bonell, who advocates their use as standard gap-fillers, for instance in: The UNIDROIT Principles of International Commercial Contracts and the harmonization of international sales law, in: Fletcher/Mistelis/Cremona (eds.), Foundations and Perspectives of International Trade Law, London 2001, 298-309. But see also Hultmark, National Report: Sweden, in: Bonell (ed.), A New Approach to International Commercial Contracts: The UNIDROIT Principles of International Commercial Contracts, XVth International Congress of Comparative Law, Bristol, 26 July-1 August 1998, The Hague 1999, 301-330. See generally, Felemegas (op. cit. fn. 99).

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III. The CISG and Incoterms The shared framework of the CISG has not eliminated the need to define and specify agreed trade terms under which specific contracts are negotiated, as such terms still have their own specific meaning in some domestic law settings, despite similarities in acronym and appearance. It is for this reason that international definitions of trade terms, like Incoterms,130 are still very much needed to ensure agreement in a contract, and not just a semblance of such. Despite complexities in practice, the relationship between the CISG and trade terms such as Incoterms is relatively easily mapped in theory, due to the clarity of Art. 6 CISG and the nature of the terms in question. Such trade terms, when incorporated into a contract, will take precedence over the CISG as an expression of party autonomy. In other words, the specific connotations and meanings which a specific trade term has, including any specific trade related meaning, applies through Art. 6 and 9 CISG as all derogations due to party autonomy or trade practice do. The implied meaning of an incorporated trade term will thus affect key aspects of the contract, such as passing of risk, delivery of documents, time of delivery, time for payment, duties of the carrier, etc., as if it were expressly part of the agreement. A duly incorporated trade term – with all it entails – will always take precedence over the CISG. It may also create some potential implied changes in relation to the buyer’s and the seller’s obligations; the Incoterms 1990 presents a variety of conflicts with the CISG,131 whereas the Incoterms 2000 presents a more symbiotic version in relation to the CISG.132 However, but as the macro-systematic interrelation goes, there is no problem as long at the specific definition of the term is clearly specified. 130

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The International Chamber of Commerce (ICC) introduced the first version of Incoterms – “International Commercial Terms” – in 1936. Essentially, they are a dictionary of trade terms. The ICC has updated them six times since 1936 to keep pace with the development of international trade, most recently resulting in the Incoterms 2000. Among the best known terms are EXW (Ex works), FOB (Free on Board), CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), and CPT (Carriage Paid To). For more information, see the ICC’s “Understanding Incoterms”, available at www.iccwbo.org/incoterms/id3042/index.html, and Ramberg, ICC Guide to Incoterms 2000 – Understanding and Practical Use, ICC Publication no. 620, Paris 1999. On the problems of the Incoterms 1990 and the CISG, see Piltz, Incoterms and the CISG, Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, 41-51. Ramberg, To What Extent Do Incoterms 2000 Vary Articles 67(2), 68 and 69?, 25 Journal of Law and Commerce (2005-06), 219-222.

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However, an interpretive problem arises if the parties had no documented meeting of minds as to which version of the acronym (e.g. CIF Hamburg or FOB Beijing) is intended. When keeping in mind that the very point of the Incoterms is to remove or reduce different meanings and interpretations of trade terms,133 it becomes clear how disastrous it is to omit to provide a source for their definition in the contract. If there is no frame of reference to define the term in question, a number of possible differences with very real practical effects can occur. The key here would be to try to discover which version of a term the parties reasonably meant, in the light of Art. 8 CISG, or to provide evidence that a certain standard of trade term definitions is a trade custom in accordance with Art. 9 CISG. With regard to the latter, as Ramberg points out, “opinions differ as to whether Incoterms amount to an international custom of the trade.”134 This can cause some problems in relation to certainty and assumptions. For instance, a potential homeward trend fiend could be lurking if such an issue were to arise in the English courts, as the English commercial courts do not share the commercial assumption (exhibited by some Civil Law courts and scholars) that the most recent Incoterm may be intended in the absence of specification as a trade custom. In the absence of evidence to the contrary, an English judge will apply trade terms solely as defined in his own Common Law practices – in English law a trade term is never an Incoterm unless it says so, otherwise it is a trade term as understood in the Common Law. This can lead to unexpected results for the unwary trader. With proper contract negotiation and a clarification of how a term is decided, however, “the strength of the CISG and the Incoterms as a combination of provisions suitable for international trade” is evident.135 It is thus not surprising 133

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According to the ICC, the purpose of Incoterms is to: “(...) provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree (…). Frequently parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstandings, disputes and litigation with all the waste of time and money that this entails (…). Amendments and additions were (…) made (…) 1990 in order to bring the rules in line with current international trade practices.” Incoterms 1990, ICC Publication no. 460, 6. See Ramberg, CISG and Incoterms 2000 in Connection with International Commercial Transactions, in: Andersen/Schroeter (eds.), Sharing International Commercial Law Across National Boundaries: Festschrift Kritzer, London 2008, 394 et seq., with reference to: Ramberg/Herre, Internationella köplagen (CISG), 2nd ed., Stockholm 2004, 130-131; Erauw, CISG Articles 66-70: The Risk of Loss and Passing It, 25 Journal of Law and Commerce (2005), 203, at 212; Schwenzer/Fountoulakis, International Sales Law, London 2007, 100-101. Piltz (op. cit. fn. 131), 51.

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that UNCITRAL have endorsed the Incoterms 2000. The CISG/Incoterms 2000 relationship seems to be working.

IV. The CISG and other UNCITRAL Instruments As mentioned above, there is evidence to suggest that the founding fathers of the CISG made an (erroneous) assumption that international commercial law, or at least all instruments of the UNCITRAL, would be collectively monitored and documented.136 In spite of this assumption, the academic and administrative approach to monitoring the various texts of the UNCITRAL has been largely fragmented, with focus on individual texts rather than the UNCITRAL texts as a body of instruments.137 This is not to say that UNCITRAL texts are created without a specific order or context. Quite the contrary – in the drafting phase, great care is taken in relation to compatibility with existing UNCITRAL texts. This is fortunate, as a great number of successful instruments have been penned at the hands of UNCITRAL. In dispute resolution, UNCITRAL reigns supreme over the key texts in arbitration, including the New York Convention,138 the UNCITRAL Arbitration Rules and the Model Arbitration Law. These instruments impliedly support the CISG by easing the most non-domestic dispute resolution mechanism available in transnational trade and providing the perfect breeding ground for truly international trade law. There is no apparent glaring conflict between the CISG and these instruments; they are procedural and the CISG is substantive. In the rare areas where conflicts between the CISG and UNCITRAL arbitration instruments may be found (for instance, questions of formation of contract involving validity of the arbitration clause), the CISG is likely to take a back-seat to the special procedures of arbitration, for two reasons. First of all, arbitration rules can be said to be a special 136 137

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See section B.IV.3.d. above, with reference to Honnold, Rajski and Schlechtriem. An exception to this would seem to be CLOUT (www.uncitral.org/uncitral/en/ case_law.html), which reports cases on CISG (1980), Model Arbitration Law on International Commercial Arbitration (1985), Hamburg Rules (1978), Model Law on Electronic Commerce (1996) and Model Law on Cross-Border Insolvency (1997) UNCITRAL texts. However, the practical effect of combining these texts in one reporting mechanism is negligible in terms of presenting them as a collective body of international law. Although the Convention, adopted by diplomatic conference on 10 June 1958, was prepared by the United Nations prior to the establishment of UNCITRAL, promotion of the Convention is an integral part of the Commission’s programme of work.

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form of lex specialis which would outrank the more general formation rules of the CISG. Secondly, arbitration is a very free forum for the arbitrator, who can decide for himself how to weigh conflicting sources, and the arbitrator will lean towards the tried and tested principles of arbitration. Simply put, arbitration is its own discipline; it has its own principles and sources in a relatively free procedural environment, and they will and should prevail. Other UNCITRAL instruments which interact with the CISG include UNCITRAL’s “first born”,139 the Convention for Limitation Period in the International Sale of Goods,140 which acts as an older companion to the CISG,141 the 1983 Uniform Rules on Contract Clauses for an Agreed Sum due upon Failure of Performance,142 the Factoring Convention, and the more recent Convention on the Use of Electronic Communications in International Contracts. These will soon be joined by a new internationally uniform Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea.143 For all of these instruments, there is evidence to indicate a close taxonomical and conceptual relationship between them, at the drafting stage. With reference to the Factoring Convention, Ferrari states: “The fact that both during the elaboration and in the course of the discussion of the UNIDROIT Convention on International Factoring the close link between it and the Vienna Sales Convention was repeatedly referred to is evidence that the relationship between different international uniform contract law Conventions can go beyond the antagonism referred to earlier [in his analysis of coordination difficulties amongst uniform instruments].”144

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See Smit, The Convention on the Limitation Period in the International Sale of Goods: UNCITRAL’s First-Born, 23 Am. J. Comp. L. (1975), 337-362. For more information see Sono, Commentary on the Convention on the Limitation Period in the International Sale of Goods, Done at New York, 14 June 1974 (A/Conf.63/17), 10 UNCITRAL Yearbook (1979), 145-173. As evidenced by the joint commentary with the CISG by Enderlein/Maskow/ Strohbach, Internationales Kaufrecht, Berlin 1991. Adopted by UNCITRAL in 1983, these Uniform Rules seek to unify the treatment, particularly as to validity and application, of clauses that provide for the payment by a party of a specified sum of money as damages or as a penalty in the event of the failure of the party to perform its contractual obligations in an international commercial transaction. For information on the most recent draft of this Convention, see Goldby, International Law on the Carriage of Goods by Sea: UNCITRAL’s Most Recent Harmonisation Efforts, in: Andersen/Andenas (eds.), Theory and Practice of Harmonisation, Cheltenham 2009, forthcoming. Ferrari (op. cit. fn. 4), 57-75.

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He also points out that the Factoring Convention has even been referred to as the son of the CISG,145 indicating a very close relationship indeed. It would seem that the CISG has “fathered” many offspring by providing layout, structure, concepts and even basic legal guidelines for a number of areas. This congenial familiarity amongst UNCITRAL texts is a very welcome contribution, not just to the interplay of these texts, but to the synthesised framework mentioned in section C. above. It is clear that this chapter merely scratches the surface of a topic which bears much closer analysis – more detailed research into the interplay of UNICTRAL instruments and their taxonomy and concepts may be a gold-mine for serious investigation into the creation of an overarching legal order of international commercial law.

V. The CISG and the UCC As clarified in section B. above, not all forms of uniform law are transnational, and an examination of a domestic uniform law like the UCC and its relationship to the CISG thus belongs in the context of this chapter. This interrelation is, however, easily mapped, as it has the monitoring of a federal system to ensure a firm relationship. As Frisch so succinctly put it: “Since the CISG has the preemptive force of federal law, it will preempt article 2 [UCC] when applicable.”146 This was confirmed in by the US District Court in 2001:147 “[t]he availability of independent state contract law causes of action would frustrate the goals of uniformity and certainty embraced by the CISG. Allowing such avenues for potential liability would subject contracting parties to different states’ laws and the very same ambiguities regarding international contracts that the CISG was designed to avoid.” So, the fact that the CISG clearly trumps the UCC is undisputed. However, although this seems a good place for a happy ending, it is a far cry between theory and practice. A number of problems have arisen.

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Ibid, with reference to De Nova, Il progetto UNIDROIT sul factoring internazionale, Dir. com. int. 1987, 716. Frisch, Commercial Common Law, The United Nations Convention on the International Sale of Goods, and the Inertia of Habit, 74 Tulane Law Review (1999), 495, 503-04. U.S. District Court (Asante v. PMC-Sierra), 27 July 2001.

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First of all, as Ferrari pointed out in 1996, there is a dangerous false sense of security where American lawyers feel faux amis comfort in the CISG’s similarities to the UCC, as this defeats the purpose of the CISG.148 This was painfully demonstrated by the appalling decision given by the US District Court of Illinois in the Raw Materials case,149 where UCC case materials were used to interpret the CISG simply because they were felt to be “similar”.150 Secondly, Bailey points out that as Federal law, the CISG is tucked away and inaccessible, making it difficult to find. A hard excuse to swallow for a good lawyer, but it seems to be a problem for Bailey.151 Finally, the proof is in the pudding; there are a number of startling cases from the US where the CISG is overlooked. Hard evidence, that even though there may be a theoretically well defined macro-systematic relationship, there is no guarantee that the practical application will run according to plan.

VI. The CISG and the Vienna Law of Treaties The 1969 Vienna Treaty on the Law of Treaties (VLT) is a central pillar in legal science in public international law,152 and a well known tool for interpreting the interrelationship of international conventions. It has, however, long been a strangely overlooked topic in the context of the CISG, due to the difficulties of applying it to private law. There is generally agreement that the Law of Treaties applies to Part IV of the CISG, concerning Art. 89-101 CISG. But the agreement ends here. One of the founding fathers of the CISG, Honnold, has proclaimed that it solely applies to these general provisions, on the assumption that:

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Ferrari (op. cit. fn. 4), 1021-1033. Raw Materials Inc. v. Manfred Forberich, U.S. District Court [Illinois], 6 July 2004. For this outrage, the judgment was awarded with a host of scathing critical articles, such as Kritzer, Comments on Raw Materials Inc. v. Manfred Forberich, available at www.cisg.law.pace.edu/cisg/biblio/kritzer3.html, and the bittersweet “razzie” by Lookofsky/Flechtner, Nominating Manfred Forberich: The Worst CISG Decision in 25 Years?, 9 Vindobona Journal of International Commercial Law and Arbitration (2005), 199-208. Bailey, Facing the Truth: Seeing the Convention on Contracts for the International Sale of Goods as an Obstacle to a Uniform Law of International Sales, 32 Cornell International Law Journal (1999), 273-317. Vienna Convention on the Law of Treaties, 23 May 1969, 1155 United Nations Treaty Section, U.N. Doc. A/CONF.39/47 (1989).

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“(…) international conventions designed to control sovereign states need to be handled differently from conventions that govern commercial transactions between private parties.”153 However, if we could extend the application of the VLT to the CISG and other uniform laws in private law, it could greatly facilitate the creation of a system or order of uniform laws. At the very least, an analogous interpretation of the rule of the VLT can help to provide a blueprint for this system, but a direct interpretation would provide a firmer framework. So the question is: why not use it? While Honnold’s argument is not lightly swept aside, it must be remembered that it is – at the time of writing – a statement made thirteen years ago – and over such time the need for a firmer system of private uniform law has become more obvious, in a rapidly changing world. Moreover, Honnold’s earlier assumptions for a monitoring system in international commercial law were not, as discussed in section B.IV.3.d., realised, leaving a more profound need for an overarching convention to govern the application of instruments in private law. The argument hinges almost entirely on whether we can extend the applicability of the Law of Treaties to private law and contracts if these are governed by an international convention. There is, in essence, nothing in the Law of Treaties to prevent this, other than its nature of inter-State instrument. There are even examples of cases where the VLT has been used in private law, to facilitate interpretive guidelines. A Dutch Arbitration case from 2002 applied the VLT to an interpretive issue of conformity under the CISG.154 In the so-called Rijn-blend case, the standard for determining the interpretation of Art. 35(1)(a) CISG was thoroughly analysed, and a very international interpretation of Art. 35 CISG was had using the logic of Art. 31 VLT, especially sec. (3)(c).155 The inclusion of travaux préparatoire 153

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Honnold, Uniform Laws for International Trade: Early “Care and Feeding” for Uniform Growth, 1 International Trade and Business Law Journal (1995), 1-10. Netherlands Arbitration Institute, Case no. 2319 of 15 October 2002, available at: http://cisgw3.law.pace.edu/cases/021015n1.html. Art. 31 VLT provides: “General rule of interpretation: 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account, to-

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(a Canadian proposal during the drafting) was furthermore justified with reliance on Art. 32 VLT.156 The use of the VLT in private law is not confined to Arbitration – in the Australian case of Great China Metal Industries Co. Limited v. Malaysian International Shipping Corporation,157 also applied it to a private dispute. But, as Zeller points out, this case has been widely criticised. Felemegas, in his treatment of Art. 7 CISG, clearly assumes the applicability of the VLT, regardless of the fact that the interpretative guideline of this provision only applies to the substantive provisions which govern transactions between commercial parties.158 Zeller’s position on the point is unclear; he seems to disagree with himself within the confines of the same paper, arguing both for and against the use of the VLT.159 Similar indecision is

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gether with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended.” Art. 32 VLT provides: “Supplementary means of interpretation: Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.” [1998] 196 CLR 161, 186. Felemegas, The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation, Review of the Convention on Contracts for the International Sale of Goods (CISG) 2000-2001, 115-265, available at: www.cisg.law.pace.edu/cisg/biblio/felemegas.html. At no. 210 he uses the treaty in support of the weight of the preamble, and no. 92 he uses it to support the travaux préparatoires; he never discusses why the treaty should be appropriate for CISG interpretational guidelines, despite having formulated its own guidelines. Zeller, Four-Corners – The Methodology for Interpretation and Application of the UN Convention on Contracts for the International Sale of Goods, 2003, available at: www.cisg.law.pace.edu/cisg/biblio/4corners.html. On the one hand he says in chapter 2 that: “The [Law of treaties] is not directly relevant to the interpretation of the CISG as it only regulates the mechanism through which States can enter into a binding treaty with each other. These obligations are contained in Part IV of the CISG.” But in a subsequent chapter he states that: “However, that does not mean that the [law of treaties] is not used to assist in the interpretation of private international law.” With reference to Great China Metal Industries Co. Limited v Malaysian International

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found elsewhere; early works by DiMatteo refer to the interpretational guidelines in the Law of Treaties in relation to the CISG,160 whereas a subsequent outstanding contribution on the same topic does not, nor explain this apparent change in heart.161 In my earlier writing on this, I submitted that there would be no point – in the context of the uniform application of the CISG – to argue in favour of an analogous application of the VLT to the CISG. However, in the context of the CISG and its interplay, and the extension of a global Jurisconsultorium to more than just one instrument, it makes sense to do so. It may well be able to provide guidance for aiding uniformity beyond single instruments of private law – as it has done for public law instruments to some extent for almost half a decade. Why then, should we not let the VLT guide our understanding of sources, interpretations and interplay, including those of the CISG?

F. Is there a Macro-systematic Interplay between the CISG and other Uniform Laws? The short answer to this question remains a “no” – but it is a multivalent “no”, as the issue is not black/white. There are certain traits of the CISG which govern a certain kind of interplay which is likely to be consistent in most jurisdictions. First of all, its nature as a gap-filler, which only applies in the absence of express contract clauses and established trade practices and recognised customs makes it give way for standard trade terms, even impliedly. This allows terms like Incoterms to take precedence, and allows standard form contracts to prevail. Secondly, its Convention format, its rich drafting history and UNCITRAL origins and its success in achieving textual uniformity, lends it a certain status as an expression of international commercial law, which is even respected by supranational organisations, despite the humility expressed in Art. 90 CISG.

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Shipping Corporation, he then actually refutes the basis on which Honnold concludes that the Law of Treaties does not apply, admittedly with a case which there has been much discussion about. DiMatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, 111-170 uses Art. 31 VLT in support of the plain meaning interpretation, as well as consideration of subsequent jurisprudence. DiMatteo et al., The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence, 24 Northwestern Journal of International Law and Business (2004), 299-440.

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But, whereas these observations are true for the CISG, there is no established macro-systematic interplay of commercial laws evidenced, nor a uniform way of filling the gaps between uniform laws. It may well be the course of future uniform commercial law that party autonomy and functionality permits the creation of a synthetic legal framework within which commercial transactions take place on a level playing field. Projects like the UNIDROIT Principles, the CFR, the Trade Thesaurus – not to mention the CISG itself – are paving the way for such an environment alongside the commercial reality of one global market, and to a certain extent a synthesised uniform commercial environment can be argued to exist on a functional level. But at the point of dispute resolution, where legal issues are heard and debated and legal principles are tested and formed, it remains an ideal just out of reach. Arbitration may be at the forefront of this development in creating a more neutral forum for commercial disputes, but even here, domestic notions of public policy and morality must be respected if the ward is to be enforceable. The domestic legal pluralities within the global market continue to ensure that the notion of one system of uniform law is (just?) out of reach.

The CISG and Its General Principles André Janssen and Sörren Claas Kiene

A. Introduction Art. 7(2) CISG is a crucial provision for the uniform interpretation and application of the CISG.1 Taking a first look at UNILEX,2 one can identify 73 decisions from 15 different countries in which this provision has been considered. Under Art. 7(2) CISG, gaps in the Convention are in the first instance filled with the Convention’s general principles. Only if it is impossible to identify a general principle, one can resort to the applicable national law via international private law. Matters not governed at all by the Convention are resolved by direct recourse to domestic law as determined by international private law rules. This basic guideline seems to be easy to understand; however, there are quite a number of difficulties that arise when applying Art. 7(2) CISG. These difficulties result from different aspects: first of all, Art. 7(2) CISG cannot be analysed separately. There is interplay between the interpretation of the Convention as following from Art. 7(1) CISG and the gap-filling provided by Art. 7(2) CISG.3 Moreover, it is sometimes difficult to make a clear distinction between the matters that are governed by the Convention and those which are not. Finally, references are often made to general principles to not only to fill a gap, but also to bring forward arguments when it comes to the interpretation of unclear provisions. This contribution will first expound when and how Art. 7(2) CISG is to be applied and what general fundamental ideas have to be kept in mind when doing so (see section B.). These preliminary questions are essential for a thorough understanding of this provision and its role for the Convention. After explaining which general principles can be derived from the articles of the Convention and how they have been applied in case law (see section

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2 3

Similar Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, (1997) 6 Minnesota Journal of Global Trade, 105 et seq.: “(…) arguably the single most important provision in ensuring the future success of the Convention.” See www.unilex.info. Magnus, in: Staudinger, Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen – Wiener UN-Kaufrecht (CISG), revised ed., Berlin 2005, Art. 7 no. 9 and 39.

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C.), this contribution will in the part thereafter (see section D.) focus on a further and rather remarkable function of general principles besides their function to fill gaps: their use as persuasive arguments to interpret unclear provisions or to settle controversies of how a provision should be understood. Although this function deviates from the clear wording of Art. 7(2) CISG, reference thereto is nevertheless sometimes made.4

B. The Role of General Principles for the Interpretation of the CISG I.

The Need to Fill Gaps for International Uniform Laws in General and for the CISG in Particular

International uniform law always faces the difficulty that not all matters can be considered during the drafting process. No matter how well prepared a convention is, gaps will always remain. This can be due to the complexity of the subject matter, different economic systems, varying legal structures or even political backgrounds. What is also very important is the fact that international uniform law is in some way always the result of compromises that could be agreed upon.5 Moreover, technical improvements are difficult to predict when drafting the provisions so steps have to be taken to ensure that a codification will also be applicable in the future.6 For this reason a provision is necessary that governs how gaps should be dealt with. This applies not only to the CISG, but also to civil codes,7 the UNIDROIT Principles of

4 5

6

7

See section D. of this contribution for references. Ferrari, Das Verhältnis zwischen den UNIDROIT-Grundsätzen und den allgemeinen Grundsätzen internationaler Einheitsprivatrechtskonventionen, JuristenZeitung (JZ) 1998, 10; Huber, Some introductory remarks on the CISG, Internationales Handelsrecht (IHR) 2006, 234; cf. also Eörsi, General Provisions, in: Galston/Smit (eds.), International Sales – The United Nations Convention on Contracts for the International Sale of Goods, New York 1984, II-11. Cf. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed., The Hague 1999, § 97. For a comprehensive list see Rosenberg, The Vienna Convention: Uniformity in Interpretation for Gap-filling – An Analysis and Application, (1992) 20 Australian Business Law Review (Aust Bus Law Rev), 443. Cf. also Gebauer, Uniform Law, General Principles and Autonomous Interpretation, Uniform Law Review (ULR) 2000, 696; Honnold, Uniform Words and Uniform Application. The 1980 Sales Convention and International Juridical Practice, in: Schlechtriem (ed.), Einheitliches Kaufrecht und nationales Obligationenrecht, Baden-Baden 1987, 138 et seq.

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International Commercial Contracts8 or, for example, to the UNIDROIT Convention on International Factoring.9 The Principles of European Contract Law (PECL) also provide in Art. 1:106(2) PECL that gaps are to be filled with the ideas underlying the PECL. Likewise the new Draft of Common Frame of Reference (DCFR)10 contains in Art. I.-1:102(4) DCFR a provision almost identical to Art. 7(2) CISG, Art. 1.6(2) UNIDROIT Principles and Art. 1:106(2) PECL. In the light of the aforementioned necessity to fill gaps and the mutual influences the various codifications had upon another,11 this is not at all surprising.

II.

Terminology

Being aware of the terminology used – and the distinctions from national law connected with it – is generally of decisive significance for the uniform interpretation and application of the Convention. Due to this, before explaining how Art. 7(2) CISG is to be applied, it is first necessary to draw attention to the diverging terminology one encounters when reading articles, commentaries or decisions to this provision. Usually the expression “la-

18 19

10

11

See Art. 1.6(2) UNIDROIT Principles. See Art. 4(2) of the Convention on International Factoring which is available at www.unidroit.org/english/conventions/1988factoring/1988factoring-e.htm. Cf. also Ferrari (op. cit. fn. 5), 9. The DCFR was originally initiated by the European Commission in 2001 (see Communication from the Commission to the Council and the European Parliament on European Contract Law, 11.07.2001, COM(2001) 398 final) and contains principles, definitions and model rules of European private law. The DCFR is an academic text only and will contribute to the (political) Common Frame of Reference (CFR), which will be published in 2009. Up to the present, only the Interim Outline Edition of the DCFR is available, see http://www.law-net.eu/ en_index.htm. Thereto see Flechtner, The CISG’s Impact on International Unification Efforts, in: Ferrari (ed.) The 1980 Uniform Sales Law, Milan 2003, 178 et seq.; Magnus, The CISG’s Impact on European Legislation, in: Ferrari (ed.), The 1980 Uniform Sales Law, Milan 2003, 143; Schlechtriem, 10 Jahre CISG – Der Einfluss des UNKaufrechts auf die Entwicklung des deutschen und internationalen Schuldrechts, IHR 2001, 12 et seq.; Zoll, UN-Kaufrecht und Common Frame of Reference im Bereich der Leistungsstörungen: Ein Beitrag aus der Perspektive der Acquis Group, Zeitschrift für Europäisches Privatrecht (ZEuP) 2007, 232. The Vienna Sales Convention and the PECL also had a considerable influence on the DCFR, see thereto already Communication from the Commission to the European Parliament and the Council, 12.02.2003, COM(2003) 68 final, section 4.1.1.

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cuna intra legem”12 is used to clarify that a matter is outside the scope of the Convention. The consequence of a “lacuna intra legem” is that the question is resolved by direct recourse to domestic law as determined by international private law rules (of the forum) and general principles are not reverted to at all. A synonym for a “lacuna intra legem” is an “external gap”13 or an “apparent/obvious gap”.14 The opposite of a “lacuna intra legem” is a so-called “lacuna praeter legem”,15 an “internal gap”16 or a “concealed/hidden gap”.17 A further synonym for an “internal gap” is a “true gap”.18 These various terms complicate the correct application of Art. 7(2) CISG. Moreover, the described terminology is disputed as some authors are critical about the expression “external gap”, because if a matter falls under the exceptions in Art. 4 CISG and Art. 5 CISG and is therefore outside the scope of the Convention, this “cannot constitute a gap of the Convention”.19 This explains why 12

13

14

15

16

17 18 19

Colligan, Applying the General Principles of the United Nations Convention on Contracts for the International Sale of Goods to Fill the Article 78 Interest Rate Gap in Zapata Hermanos, S.A. v Hearthside Baking Co. Inc., (2002) 6 Vindobona Journal of International Commercial Law & Arbitration (VJ), 48; Ferrari, in: Schlechtriem/Schwenzer (eds.), Kommentar zum Einheitlichen UN-Kaufrecht – CISG –, 5th ed., Munich 2008, Art. 7 no. 43; Ferrari (op. cit. fn. 5), 10. Basedow, Uniform law Conventions and the UNIDROIT Principles of International Commercial Contracts, ULR 2000, 135; Himmen, Die Lückenfüllung anhand allgemeiner Grundsätze im UN-Kaufrecht (Art. 7 Abs. 2 CISG), Gottmadingen 2007, 60 (fn. 172 with further references); Schlechtriem, Internationales UN-Kaufrecht, 4th ed., Tübingen 2007, no. 41. For this German terminology (“offensichtliche Regelungslücke”) – but translated from German by the authors – see Diedrich, Lückenfüllung im Internationalen Einheitsrecht – Möglichkeiten und Grenzen richterlicher Rechtsfortbildung im Wiener Kaufrecht, Recht der Internationalen Wirtschaft (RIW) 1995, 353 et seq. Cf. also Zeller, Four-Corners – The Methodology for Interpretation and Application of the UN Convention on Contracts for the International Sale of Goods, available at http://cisgw3.law.pace.edu/cisg/biblio/4corners.html. Colligan (op. cit. fn. 12), 48; Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 43; Visser, Gaps in the CISG: In General and with Specific Emphasis on the Interpretation of the Remedial Provisions of the Convention on the Light of the General Principles of the CISG, 1998, 1 et seq., available at http://www. cisg.law.pace.edu/cisg/biblio/visser.html. Karollus, UN-Kaufrecht, New York 1991, 16 – expression (“echte Lücke”) translated into English by the authors. Diedrich (op. cit. fn. 14), 354. Karollus (op. cit. fn. 16), 16 (expression translated into English by the authors). Gebauer (op. cit. fn. 7), 696 et seq.; Himmen (op. cit. fn. 13), 61; cf. also Kramer, Uniforme Interpretation von Einheitsprivatrecht – mit besonderer Berücksichtigung von Art. 7 UNKR, Juristische Blätter (JBl) 1996, 147; Westermann, in:

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the word “gap” is also used for the expression “internal gap”.20 There is no denying the fact that the differing terminology complicates the application of Art. 7(2) CISG. Yet, the expressions “external gap” and “internal gap” are also quite common and should therefore be maintained in order not to complicate matters even more. In the following, the expression “external gap” is used to clarify that a matter is outside the scope of the Convention. For the matters governed by the Convention, but which are not expressly settled therein, the expression “gap” is employed.

III. Gap-filling with the Use of General Principles The preamble of the CISG determines the Convention’s objective: the adoption of uniform rules for the international sale of goods to promote the development of international trade. This objective has to always be kept in mind when interpreting and applying the CISG. To promote a uniform application of the CISG and to achieve the Convention’s objective as laid down in the preamble, Art. 7 CISG provides judges with some guidelines: “Regard is to be had to its international character” and “questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based (…).” The wording of Art. 7(2) CISG clearly shows that general principles on which the CISG is based only become important when matters are governed by the CISG but where they are not expressly settled in it. As a first step one thus has to ascertain whether or not a certain matter is governed by the CISG. If a matter is expressly outside the scope of application of the CISG, Art. 7(2) CISG and the Convention’s general principles must not be referred to. This means that questions concerning the property of the goods sold or questions concerning the validity of the contract or of any of its provisions must not be answered with the help of general principles as these questions are – as Art. 4 sent. 2 CISG expressly provides – outside the scope of the Convention. Pursuant to Art. 5 CISG the same applies to the liability of the seller for death or personal injury caused by the goods to any person. Art. 2 CISG and Art. 3(b) CISG also expressly exclude further matters from the scope of the Convention. Aside from this, according to Art. 4 sent. 1 CISG only the formation of the contract of sale and the rights and obligations of the seller and the buyer

20

Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol. III, 5th ed., Munich 2008, Art. 7 no. 10. See Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd English ed., Munich 2005, Art. 7 no. 8 and 27 et seq.

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arising from such a contract are governed. So after having taken a first glance at Art. 4 CISG, one might get the impression that the distinction is easy to draw between matters governed by the Convention and those that are not. But a more thorough glance reveals the difficulties that result from the scope of application as laid down in Art. 4 sent. 1 CISG: the buyer’s and the seller’s rights and obligations arising from a sales contract are not listed comprehensively, for if they were, there would be no gaps to fill and Art. 7(2) CISG would be superfluous.21 In order to understand and apply Art. 7(2) CISG correctly, it is therefore essential to determine whether or not a specific matter is governed by the Convention. This in return makes it first necessary to interpret a provision and to ascertain its scope of application thereby, as the (extensive) interpretation of a provision might lead to the conclusion that a certain matter is governed by the CISG although this is not expressly provided for in the provision. In other words: it is impossible to clearly differentiate between the interpretation and the gap-filling of the CISG, as at the same time the clarification of a provision fixes its scope of application and therefore answers the primary question whether a gap exists that needs to be filled.22 Of course, each case will have to be examined individually to ascertain whether or not Art. 7(2) CISG can be applied. As a rough guide, one can keep in mind that gap-filling is possible only for questions that are so closely related with a provision of the CISG that recourse to domestic law via international private law would take the question out of context. It must be a matter of sales transactions, on which the Convention is silent. It must be noted though that after having detected a(n) (internal) gap, it is indispensable to first analyse the parties’ intentions and agreement before resorting to the CISG’s general principles or even the domestic law via private international law rules. This – at least notional – primary step results from Art. 6 CISG, according to which the parties may exclude the application of the Convention or derogate from or vary the effect of any of its provisions. If an analysis of the parties’ intentions reveals that they have reached an agreement on the issue at question, general principles or even the domestic law must not be resorted to. Instead, the issue is to be resolved according to their agreement.23

21 22

23

Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 29. Achilles, Kommentar zum UN-Kaufrechtsübereinkommen (CISG), Neuwied 2000, Art. 7 no. 7; Eörsi (op. cit. fn. 5), II-11; Magnus (op. cit. fn. 3), Art. 7 no. 9 and 39; see also Janssen, Die Einbeziehung von allgemeinen Geschäftsbedingungen in internationale Kaufverträge und die Bedeutung der UNIDROIT- und der Lando-Principles, IHR 2004, 198, fn. 17. Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30.

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IV. Matters not Governed by the Convention (External Gaps) As explained above, if a matter is outside the scope of the Convention, recourse to general principles is not allowed and the matter is to be solved directly following the applicable national law to be determined via international private law. This applies – besides other aspects24 – to the following:

1.

Rate of Interest Payment

In practical experience, one very important matter is the question of interest rates. Art. 78 CISG provides that “if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it (…).” However, this provision is silent on the rate of interest payment as the delegates on the Vienna Conference could not agree on this point.25 As Art. 78 CISG provides that interest must be paid without providing a rule on the rate of interest payment, it is debateable whether an external or an internal gap exists. Court decisions and commentators propose diverging ways: some purport an internal gap and a uniform approach and want to apply the usual rate at the debtor’s place of business.26 Others are also in favour of an internal gap and a uniform approach but hold that the creditor’s place of business is decisive.27 Although a uniform approach is generally desirable, until today the judicature shows that in the light of the proposed diverging solutions28 a 24

25

26

27

28

For a more comprehensive list see e.g. Saenger, in: Bamberger/Roth (eds.), Kommentar zum Bürgerlichen Gesetzbuch, vol. I, 2nd ed., Munich 2007, Art. 4 no. 18 et seq. For a detailed account on the history of this provision see Schlechtriem (op. cit. fn. 13), no. 317. Neumayer, Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen über den internationalen Warenkauf, RIW 1994, 106; Saenger, in Bamberger/ Roth (op.cit. fn. 24), Art. 78 no. 5; Tribunal Cantonal Waadt (Switzerland), 11 March 1996, Schweizerische Zeitschrift für internationales und europäisches Recht (SZIER) 1998, 83. Landgericht Stuttgart (Germany), 31 August 1989, RIW 1989, 985; Landgericht Frankfurt a. M. (Germany), 16 September 1991, RIW 1991, 954; Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien (Austria), 15 June 1994, RIW 1995, 591 according to which this gap can be filled with recourse to the general principle of full compensation; Stoll, Inhalt und Grenzen der Schadensersatzpflicht sowie Befreiung von der Haftung im UN-Kaufrecht, im Vergleich zu EKG und BGB, in: Schlechtriem (op. cit. fn. 7), 279 et seq. For further ways to determine the interest rate see the references at Bacher, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 78 no. 27 et seq.; Ferrari, Verzugszinsen nach Art. 78 UN-Kaufrecht, IHR 2003, 156 et seq. For a rather surpri-

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uniform application is difficult – or even impossible – to achieve. There is no (generally approved) general principle of the Convention with regard to the interest rate.29 For this reason recourse to the applicable national law seems preferable irrespective of whether or not this is an external or an internal gap. Recourse to the applicable national law also seems to be the prevailing opinion in (international) judicature as well as of commentators and other authors.30

2.

Limitation of Claims, Set-off and Representation

One further important issue that is not governed by the Convention is the question of limitation of claims. Aside from the application of the UN Limitation Convention,31 the applicable national law is to be determined by con-

29

30

31

sing – and not at all convincing – decision see U.S. Court for the Northern District of Illinois, Eastern Division (United States of America), 18 July 2001, available at http://cisgw3.law.pace.edu/cases/010718u1.html. In this decision the court instructed the jury that in the absence of an agreement between the parties the interest rate should be reasonable following the general principle of reasonableness (emphasis added by the authors); thereto see also Colligan (op. cit. fn. 12), 52 et seq. For the diverging approaches on how to determine the interest rate see the text above and the references in fn. 26 et seq. Amtsgericht Oldenburg (Germany), 24 April 1990, Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 1991, 338; Landgericht Hamburg (Germany), 26 September 1990, RIW 1990, 1018 et seq.; Oberlandesgericht Frankfurt a. M. (Germany), 13 June 1991, Neue Juristische Wochenschrift (NJW) 1991, 3102 et seq.; Arrondissementsrechtbank Arnhem (The Netherlands), 30 December 1993, available on unilex; Oberlandesgericht Frankfurt a. M. (Germany), 18 January 1994, NJW 1994, 1013 et seq.; Arrondissementsrechtbank Amsterdam (The Netherlands), 15 June 1994, available on unilex; Oberlandesgericht Hamm (Germany), 8 February 1995, RIW 1997, 155; Handelsgericht Sankt Gallen (Switzerland), 5 December 1995, SZIER 1996, 54; Handelsgericht Zürich (Switzerland), 10 July 1996, SZIER 1997, 132; Bundesgericht (Switzerland), 28 October 1998, available at http://cisgw3.law.pace.edu/cases/981028s1.html; Tribunale di Pavia (Italy), 29 December 1999, available at http://cisgw3.law.pace.edu/cases/ 991229i3.html; Landgericht Stendal (Germany), 12 October 2000, IHR 2001, 31; Kantonsgericht Zug (Switzerland), 12 December 2002, IHR 2004, 67; see also Ferrari (op. cit. fn. 28), 158; Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (op. cit. fn. 19), Art. 78 no. 15; Magnus (op. cit. fn. 3), Art. 78 no. 12. The United Nations Convention on the Limitation Period in the International Sale of Goods has not been ratified by many (economically important) countries

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flict rules of the forum. Until today, this solution has been abided by all courts without a single exception.32 Set-off is also not expressly governed by the Convention; as such the prerequisites have to be identified by domestic law as determined by international private law.33 It has to be noted though that according to some commentators and court decisions recourse to conflict law rules is not necessary where claims shall be offset that result from the contractual relationship governed by the CISG.34 It is maintained that in such situations (e.g. a claim for damages by the buyer against the seller because of non-conformity of the goods that is offset against a claim for payment of the price by the seller against the buyer) set-off is admissible without any further prerequisites by direct recourse to the Convention.35 Representation is also outside the scope of the Convention. The Convention is silent on this matter. Consequently this question is to be answered by the applicable national law determined by conflict law rules.36

32

33 34

35

36

which have ratified the United Nations Convention on Contracts for the International Sale of Goods. For the text of the UN Limitation Convention and the contracting countries see Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), 941 et seq. and 1017 et seq. Tribunale di Vigevano (Italy), 12 July 2000, IHR 2001, 76; Rechtbank van Koophandel Ieper (Belgium), 29 January 2001, available at http://cisgw3.law.pace. edu/cases/010129b1.html; Oberster Gerichtshof (Austria), 22 October 2001, Zeitschrift für Rechtsvergleichung, Internationales Privatrecht und Europarecht (ZfRV) 2003, 27; Oberster Gerichtshof (Austria), 14 January 2002, IHR 2002, 79; Oberlandesgericht Zweibrücken (Germany), 26 July 2002, IHR 2002, 69. Magnus (op. cit. fn. 3), Art. 4 no. 46. Hornung, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 81 no. 16 et seq.; Magnus, Die allgemeinen Grundsätze im UN-Kaufrecht, (1995) 59 Rabels Zeitschrift für ausländisches und internationales Zivilrecht (RabelsZ), 485; Magnus (op. cit. fn. 3), Art. 4 no. 47; Oberlandesgericht Hamburg (Germany), 26 November 1999, IHR 2001, 22. For a different view see Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 4 no. 22a; Tallon, in: Bianca/Bonell (eds.), Commentary on the International Sales Law, The 1980 Vienna Sales Convention, Milan 1987, Art. 81 no. 2.1; Oberlandesgericht Koblenz (Germany), 17 September 1993, RIW 1993, 937; Bundesgerichtshof (Germany), 9 January 2002, IHR 2002, 19. Following Magnus (op. cit. fn. 3), Art. 4 no. 47, this is even a general principle stemming from Art. 84(2) CISG. See also Oberlandesgericht Hamburg (Germany), 26 November 1999, IHR 2001, 22. Appelationsgericht des Kantons Tessin (Switzerland), 12 February 1996, SZIER 1997, 135 et seq.; Oberster Gerichtshof (Austria), 20 March 1997, ZfRV 1997, 207; Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 4 no. 34.

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V. Recourse to Domestic Law If the matter is governed by the Convention but not expressly settled in it, in the absence of a general principle to fill the gap the issue is to be settled in conformity with the law applicable by virtue of the rules of international private law (of the forum). Following the preamble’s objective as set out above,37 it is an undisputed fact that recourse to domestic law endangers the uniform application of the Convention. As such, recourse to domestic law via international private law rules is only the last resort and judges should always consider – without pushing the Convention’s scope of application too far – whether or not the issue can be solved by liberally interpreting a provision of the Convention or by applying it in an analogous way.38

VI. Method of Development and Identification of General Principles Although Art. 7(2) CISG refers judges to the Convention’s general principles to fill a gap, the Convention’s general principles are not expressly laid down therein. The question thus arises as to how they can be developed and identified. Case law and scholarly writings have provided long lists of the Convention’s general principles39 and thereby facilitated the uniform application of the Convention to a great extent. Nevertheless, instead of simply listing the Convention’s general principles and their references, one should become aware of how general principles can be developed and identified from the Convention. This technique will make already approved general principles more understandable and might even contribute to the identification of further ones (despite the elaborate lists mentioned). Broadly speaking, three different categories of general principles can be identified.40 The first category is made up of general principles that can be derived from one 37 38

39

40

See section B.III. of this contribution. Magnus, Währungsfragen im Einheitlichen Kaufrecht, (1989) 53 RabelsZ, 122: “in dubio pro lege uniforme”. Cf. also Diedrich (op. cit. fn. 14), 358; Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 57; Ferrari, Gap-Filling and Interpretation of the CISG: Overview of International Case Law, (2003) 7 VJ, 80 et seq.; Magnus (op. cit. fn. 3), Art. 7 no. 58; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30; Visser (op. cit. fn. 15), available at www.cisg.law.pace.edu. See Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12); Art. 7 no. 48 et seq.; Honnold (op. cit. fn. 7), 139 et seq.; Magnus (op. cit. fn. 28), 480 et seq.; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30. According to Magnus (op. cit. fn. 34), 477 et seq. even four categories exist as the general principle of pacta sunt servanda is not mentioned at all but nevertheless premised within the Convention.

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single article of the Convention that is a clause with general applicability according to its wording and its systematic position.41 For example, Art. 6 CISG (principle of party autonomy) and Art. 7 CISG (principle of observance of good faith) are both regulated within the Convention’s general provisions and apply to the CISG as a whole. As for the second category, some general principles can be identified by analysing several articles and thereby finding an overarching purpose. These articles may not even be systematically connected in such a way that they stem from a single chapter or even a single section. For example, the very important principle of preservation of the contract can be derived from Art. 25, 49(2) CISG and 82 CISG.42 As a third category, one can ascertain some general principles from a single provision where its ruling can be generalised to similar situations, although this possibility of generalisation does not result from the wording of the provision or its systematic position within the Convention. For example, Art. 57 CISG is not a general provision of the Convention. Nevertheless, from the provision a general principle can be derived with regard to the place of performance for pecuniary claims.43

C. General Principles in Detail I.

General Principles that Can Be Derived from a Clause with General Applicability

1.

Autonomy of the Parties44

The undisputedly most important general principle is the principle of party autonomy45 which follows from Art. 6 CISG. As the parties’ agreement always takes priority over the Convention’s provisions, the principle of party autonomy also takes priority over other general principles where they would lead to a different result.46 The principle of party autonomy is widely ac-

41 42 43 44

45

46

Magnus (op. cit. fn. 34), 477. For details see section C.II.1. of this contribution. For details see section C.III.4. of this contribution. The principle of party autonomy has to be distinguished from the principle of private autonomy. Private autonomy comprises – besides other aspects – freedom of contract, see Grundmann, in: Grundmann/Bianca (eds.) EU-Kaufrechts-Richtlinie, Kommentar, Cologne 2002, 21 no. 1. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 48; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30. Cf. Ferrari (op. cit. fn. 5), 12; Ferrari (op. cit. fn. 38), 83.

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knowledged both among scholars and courts.47 According to this principle, the parties are free to choose the law applicable to the contract. Under Art. 6 CISG, the parties can opt out of the Convention as a whole; with the exception of Art. 12 CISG (see Art. 12 sent. 2 CISG) they can also derogate from single provisions with or without agreeing on substitute provisions.

2.

Observance of Good Faith

The principle of observance of good faith is also one of the Convention’s general principles. Although the requirement to observe good faith is laid down in Art. 7(1) CISG and therefore expressly only applies to the interpretation of the Convention, it is nevertheless acknowledged that the observance of good faith is also a general principle to fill gaps.48 A French appellate court even ruled that the violation of the principle of good faith entitled the other party to damages.49 This ruling does not seem to be open to generalisation. Moreover, as the general principle of good faith is vague50 and gives little guidance to fill gaps, it is necessary to deduce the following subcategories or aspects from it: the prohibition of contradictory behaviour (prohibition of venire contra factum proprium) is a result of the principle of good faith.51 Additionally, the duty to cooperate52 and the duty to supply all 47

48

49 50 51

52

Bonell, in: Bianca/Bonell (op. cit. fn. 33), Art. 7 no. 2.3.2.2; Magnus (op. cit. fn. 34), 480; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30; Tribunale di Rimini (Italy), 26 November 2002, available on unilex; Hof van Beroep, Gent (Belgium), 15 May 2002, available on unilex. Magnus (op. cit. fn. 34), 480; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30. Interestingly, most court decision state good faith in connection with Art. 7(1) CISG. As far as it is possible to survey all court decisions, only in the following good faith was explicitly regarded as a general principle in the light of Art. 7(2) CISG: Arrondissementsrechtbank Arnhem (The Netherlands), 17 July 1997, available on unilex. See also Cour d’appel de Grenoble (France), 22 February 1995, available on unilex. In this decision good faith was regarded as a “principle” (“contraire au principe de bonne foi”), but not as a general principle. Cour d’appel de Grenoble (France), 22 February 1995, available on unilex. See also Zeller in this book. Piltz, Internationales UN-Kaufrecht, 2nd ed., Munich 2008, no. 2-186; cf. also Tribunale di Rimini (Italy), 26 November 2002, available on unilex. The general principle of a duty to cooperate can also be derived from Art. 32(2) CISG, Art. 34, 37, 48 CISG, Art. 77 CISG and Art. 85, 86 CISG. It is therefore also possible to maintain that the duty to cooperate is a general principle which is independent from the general principle of observance of good faith. See also Bundesgerichtshof (Germany), 31 October 2001, IHR 2002, 16.

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the necessary information for the performance of the contract53 can be inferred from it. Finally the principle of estoppel can be concluded from the principle of good faith. In one case an Austrian court held that the seller was estopped from setting up the defence of a late notice according to Art. 39 CISG as the buyer was led to believe that the seller would not raise this defence.54 Again, it has to be stressed that before resorting to the principle of observance of good faith one should first determine whether or not a gap actually exists and one should also make clear whether the observance of good faith is used for the interpretation of the Convention as following from Art. 7(1) CISG, or as means to fill gaps according to Art. 7(2) CISG. Only a strict distinction between these two functions of the observance of good faith ensures a correct – and comprehensible – application of the Convention. This necessity to distinguish becomes clear when taking a closer look at a decision of a German court.55 The court held that following from the observance of good faith it is not necessary to declare the contract avoided when the right to avoid the contract principally exists and when at the time of the covering purchase it is clear that the debtor will not perform. Without elaborating on the correctness or incorrectness of this decision,56 its ruling could not be based on the gap-filling function of the observance of good faith. This is due to the fact that all articles governing the avoidance of the contract (see Art. 49, 51, 64, 72 CISG and 73 CISG) expressly state that a declaration of avoidance is necessary. In other words, there is no gap which needs to be filled.57

II.

General Principles Derived from Several Articles

1.

Principle of Preservation of the Contract

As for the general principles that can be derived from several articles, the principle of preservation of the contract (favor contractus) is probably the 53

54

55

56

57

Cf. Bundesgerichtshof (Germany), 31 October 2001, IHR 2002, 16; Honnold (op. cit. fn. 6), § 100. Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien (Austria), 15 June 1994, RIW 1995, 591 et seq. See Hanseatisches Oberlandesgericht Hamburg (Germany), 28 February 1997, available on unilex. See Magnus (op. cit. fn. 3), Art. 75 no. 8 with further references to this controversial question. See also Lookofsky, Walking the Article 7(2) Tightrope Between CISG and Domestic Law, (2005-2006) 25 Journal of Law and Commerce (J. L. & Com.), 91 et seq.

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one most acknowledged.58 It can be derived from Art. 25, 34, 37, 39, 43, 47, 48, 49, 63, 64, 82 CISG. All theses articles impose demanding prerequisites on the remedy of avoidance of the contract. The reasons for these demanding prerequisites have often been explained: the costs arising from the transportation of goods due to the avoidance of the contract shall be avoided. The seller can of course avoid these costs by selling the goods in the buyer’s country, but this only evokes different problems such as storage costs until the time of delivery or even the problem of finding a different buyer in countries that do not have a developed network of dealers.59 Despite this general acceptance of the general principle of preservation of the contract, the question arises in which cases recourse to this principle provides assistance. In fact, the court rulings cited above60 did not mention the preservation of the contract as a general principle to fill gaps. Instead, they simply referred to it as a general notion underlying the Convention. Nevertheless, there are possible areas of application for this general principle: if the seller delivers goods before the date of delivery, following Art. 37 CISG he has a right to cure up to that date provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. Art. 32 sent. 2 CISG provides a similar right to cure in case of defective documents. Despite these provisions, the seller seems to have no (explicit) right to cure where a third party claims ownership of the goods (see Art. 41 CISG) or claims an infringement of patent rights or trademarks (see Art. 42 CISG) although the seller could potentially cure the defect by settling the dispute with the third party.61 The principle of preservation of the contract supports the view that also in these situations the seller should have a right to cure before the date of delivery. This can be achieved by applying Art. 37 CISG and 32 sent. 2 CISG in an analogous way.62

58

59

60 61 62

See for example Koneru (op. cit. fn. 1), 111 who states that the principle of preservation of the contract is “the ultimate unifying general principle of the Convention”; see also Magnus (op. cit. fn. 34), 483; Bundesgericht (Switzerland), 28 October 1998, available at http://cisgw3.law.pace.edu/cases/981028s1.html; Oberster Gerichtshof (Austria), 7 September 2000, IHR 2001, 43; Oberlandesgericht Köln (Germany), 14 October 2002, IHR 2003, 16. Cf. Michida, Cancellation of Contract, (1979) 27 The American Journal of Comparative Law (Am. J. Comp. L.), 280 et seq.; Müller-Chen, in: Schlechtriem/ Schwenzer (op. cit. fn. 20), Art. 46 no. 4. See references in fn. 58. Cf. Honnold (op. cit. fn. 6), § 245.1. Cf. Honnold (op. cit. fn. 6), § 245.1.

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Revocability of Statements

A buyer who has declared the contract avoided (e.g. because of a fundamental breach) might be interested in revoking the declaration of avoidance. This situation can arise where the buyer gets the possibility to resell the defective goods for a comparatively high price or where he decides to repair the goods due to the fact that a covering purchase would take longer than reparation of the goods. In this situation the question arises whether or not the buyer is bound to his declaration of avoidance. The declaration of avoidance can be revoked before it reaches the addressee.63 In the light of today’s fast communication methods such as e-mail or fax it is of probably more importance whether or not the declaration of avoidance can be revoked after it has reached the addressee. This issue is quite controversial. Some CISG commentators hold the view that a declaration of avoidance is irrevocable.64 This view is mainly based on the concept that a declaration of avoidance transforms the contract into a contractual restitutionary relationship and therefore – following the German concept of a “Gestaltungserklärung” – this declaration must be clear, unconditional and irrevocable.65 Taking into account that the CISG is not so much based on thorough dogmatic foundations but rather strives for more or less simple and practical solutions, it can also be maintained that the revocability is not excluded per se. Furthermore, the Convention’s international character (see Art. 7(1) CISG) makes it necessary to loosen oneself from national dogmatic founda63

64

65

In the first instance this question is linked to the controversial issue at what time the declaration of avoidance becomes effective (thereto see Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 27 no. 13). Nevertheless, some commentators who maintain that the declaration of avoidance becomes effective at the time of dispatch also hold the view that it can be revoked before it reaches the addressee (Magnus (op. cit. fn. 3), Art. 27 no. 21). For a possibility to revoke the declaration before it reaches the addressee see also Saenger, in: Bamberger/ Roth (op. cit. fn. 24), Art. 27 no. 10; Stern, Erklärungen im UN-Kaufrecht, Vienna 1990, 162. Leser/Hornung, in: Schlechtriem (ed.), Kommentar zum Einheitlichen UNKaufrecht, 3rd ed., Munich 2000, Art. 26 no. 6; Vahle, Der Erfüllungsanspruch des Käufers nach UN-Kaufrecht im Vergleich mit dem deutschen Kaufrecht, Zeitschrift für vergleichende Rechtswissenschaft (ZVglRWiss) 1999, 58; see also Achilles (op. cit. fn. 22), Art. 26 no. 1; Gruber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (op. cit. fn. 19), Art. 26 no. 10. Cf. Hornung, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 26 no. 6; Schlechtriem, Bindung an Erklärungen nach dem Einheitskaufrecht, in: Majoros (ed.), EMPTIO – VENDITIO INTER NATIONES, Festgabe Karl Heinz Neumayer, Basel 1997, 270 et seq.; see also Kiene, Vertragsaufhebung und Rücktritt des Käufers im UN-Kaufrecht und BGB, chapter 4: C.I., to be published in 2009.

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tions. It can therefore be asserted that the Convention does not expressly settle the revocability of a declaration of avoidance. This gap primarily needs to be filled with the Convention’s general principles. Art. 16(2)(b) CISG expresses the principle that a declaration cannot be revoked if the addressee has relied on the irrevocability and acted in reliance on the declaration. Art. 29(2) sent. 2 CISG also expresses that induced reliance should be protected.66 For these reasons a declaration of avoidance can be revoked as long as the addressee has not relied on it. This is in line with a noteworthy Danish decision in which – without dealing with the above given arguments – it was held that the buyer had the right to revoke the declaration of avoidance.67 The view taken here does not lead to unreasonable results as long as the party revoking the declaration bears the burden of proof that the addressee has not relied on it.68

3.

Freedom of Form (Art. 11, 29 CISG)

Following Art. 11 CISG contracts of sale need not be concluded in or evidenced by writing. It is not subject to any other requirement as to form. Moreover, Art. 29(1) CISG provides that contracts may be modified or terminated by the mere agreement of the parties. From theses two provisions the general principle of freedom of form can be derived.69 This general prin66

67

68

69

Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 27 no. 14; cf. also Krebs, Rückabwicklung im UN-Kaufrecht, Munich 2000, 29 et seq. See Højesteret (Denmark), 3 May 2006, available at http://cisgw3.law.pace.edu/ cases/060503d1.html. See also Lookofsky (op. cit. fn. 57), 93 et seq. where the earlier proceeding of an arbitral tribunal (of 10 November 2000) is explained. Krebs (op. cit. fn. 66), 29; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 27 no. 14. From a systematic point of view it has to be noted that other declarations of part III of the Convention can also be revoked. If the seller seriously and definitely refuses to perform (and thus commits a fundamental breach which gives the buyer the right to declare the contract avoided), he is nevertheless allowed to revoke this refusal, see Freiburg, Das Recht auf Vertragsaufhebung im UN-Kaufrecht, Berlin 2001, 81; Huber, in: Schlechtriem (op. cit. fn. 64), Art. 49 no. 6. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 52; Saenger, in: Bamberger/Roth (op. cit. fn. 24), Art. 7 no. 7; Comisión pare la Protección del Comercio Exterior de México (Mexico), 29 April 1996, available at http://cisgw3. law.pace.edu/cases/960429m1.html; Tribunale di Rimini (Italy), 26 November 2002, available on unilex; see also Oberster Gerichtshof (Austria), 29 June 1999, Beilage zu der Zeitschrift Transportrecht – Internationales Handelsrecht (TranspR-IHR) 1999, 49 according to which a written contract can be orally changed.

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ciple can only be restrained by Art. 12 CISG (and correspondingly a reservation under Art. 96 CISG). For this reason a declaration of avoidance, a declaration of price reduction, a notice of lack of conformity70 and other kinds of declarations or notices need not follow any form.71

4.

Principle of Simultaneous Exchange of Performance and Right of Retention

As laid down in Art. 58 CISG, in the absence of special agreements the buyer must pay the price when the seller places either the goods or documents controlling their disposition at the buyer’s disposal. The buyer must nevertheless be given the possibility to examine the goods (Art. 58(3) CISG). Before this relevant time the buyer has a right of retention with regard to the payment of price. From Art. 58 CISG as well as Art. 81(2) CISG and 85 CISG the general principle of simultaneous exchange of performance can be derived.72 Correspondingly, a right of retention exists until the other party is willing and able to perform. It stems from the abovementioned articles as well as Art. 71 CISG and 86 CISG.73

5.

Burden of Proof (Art. 2(a), 79(1) CISG)

In procedural aspects it is of great importance which of the parties bears the burden of proof; a question that often decides who wins or loses a case. Art. 79(1) CISG is the only provision that explicitly governs the burden of proof (“A party is not liable […] if he proves […]”).74 Although some authors and judges hold the view that the burden of proof is not governed by the Convention,75 it is rather widely acknowledged both in scholarly writings76 70

71 72 73

74 75

Cf. Landgericht Frankfurt a. M. (Germany), 13 July 1994, Neue Juristische Wochenschrift Rechtsprechungsreport (NJW-RR) 1994, 1265; Tribunale di Vigevano (Italy), 12 July 2000, IHR 2001, 75 et seq. Cf. Magnus (op. cit. fn. 34), 483. Cf. Oberster Gerichtshof (Austria), 8 November 2005, IHR 2006, 90 et seq. Cf. Magnus (op. cit. fn. 3), Art. 58 no. 22 et seq.; see also Kern, Ein einheitliches Zurückbehaltungsrecht im UN-Kaufrecht?, ZEuP 2000, 845 et seq. who advocates for a general right of retention with regard to accessory obligations. Emphasis added by the authors. See Khoo, in: Bianca/Bonell (op. cit. fn. 34), Art. 2 no. 3.2. with further reference to the legislative history; ICC International Court of Arbitration (case no. 7399), 1993, available on unilex; Bezirksgericht der Saane (Switzerland), 20 February 1997, TranspR-IHR 2000, 11 (full text only available at CISGonline no. 426; within that document see p. 17).

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as well as court decisions77 that following from Art. 2(a), 35(2)(b) CISG and 79 CISG a party bears the burden of proof for those prerequisites of a provision that are profitable to him. If a party wants to rely on an exception he too has to prove the factual prerequisites of that exception.78

6.

Effects of Consensual Termination

The Convention has no provision on the effects of consensual termination. Instead, it governs the effects when a party has declared the contract avoided due to a breach thereof. As explained above, one always first has to consider whether or not the parties have reached an agreement on the effects of such a consensual termination. If there is no such agreement, this gap of the Convention is to be filled by recourse to Art. 81 et seq. CISG as a general principle.79 That is why – as in the case of avoidance – consensual termination e.g. discharges the parties from their main duties (Art. 81(1) CISG), obliges them to make restitution of performances already received (Art. 81(2) CISG) and entitles the buyer to interest from the date on which the price was paid (Art. 84(1) CISG).

76

77

78

79

Achilles (op. cit. fn. 22), Art. 7 no. 8 and Art. 4 no. 15; Ferrari, in: Schlechtriem/ Schwenzer (op. cit. fn. 12), Art. 7 no. 56; Ferrari (op. cit. fn. 38), 85 et seq.; Huber (op. cit. fn. 5), 235; Magnus (op. cit. fn. 34), 489. Handelsgericht Zürich (Switzerland), 9 September 1993, available on unilex; Oberlandesgericht Innsbruck (Austria), 1 July 1994, CISG-online no. 107; Landgericht Frankfurt a. M. (Germany), 6 July 1994, CISG-online no. 257; Oberlandesgericht Frankfurt a. M. (Germany), 5 July 1995, available on unilex; Tribunale di Pavia (Italy), 29 December 1999, available at http://cisgw3.law.pace.edu/ cases/991229i3.html; Tribunale di Vigevano (Italy), 12 July 2000, IHR 2001, 76 et seq.; Bundesgerichtshof (Germany), 9 January 2002, IHR 2002, 19; Tribunale di Rimini (Italy), 26 November 2002, available on unilex. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 56; Magnus (op. cit. fn. 34), 489; Tribunale di Vigevano (Italy), 12 July 2000, IHR 2001, 76 et seq. Oberster Gerichtshof (Austria), 29 June 1999, TranspR-IHR 1999, 49; cf. also Oberlandesgericht Düsseldorf (Germany), 28 May 2004, IHR 2004, 209 where the court held that Art. 81(2) sent. 1 CISG was to be applied in an analogous way.

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III. General Principles Derived from a Single Article Which Is Not a Clause with General Applicability but Where Its Ruling Can Be Generalised 1.

Dispatch Principle (Art. 27 CISG)

If a declaration of avoidance gets delayed or even lost in the mail, it is still effective and the contract is avoided provided that the declaration of avoidance is made my means appropriate in the circumstances.80 This follows from Art. 27 CISG which constitutes the dispatch principle for notices, requests and other communications.81 This dispatch principle expressly only applies to communications of part III of the Convention, so e.g. to the notice of non-conformity or of third party claims (Art. 39 CISG and 43 CISG), to requests of specific performance (Art. 46 CISG), the fixing of an additional period for performance (Art. 47 CISG and 63 CISG) and price reduction (Art. 50 CISG). However, from Art. 27 CISG a general principle can be derived. Therefore, also other communications are effective despite getting lost unless the Convention requires the communication to actually reach the addressee (e.g. Art. 15(1) and (2), Art. 16(1), Art. 18(2), Art. 48(4) CISG) or where the parties have agreed otherwise.82

2.

Receipt Principle (Art. 24 CISG)

Art. 24 CISG defines when an offer, a declaration of acceptance or any other indication of intention “reaches” the addressee. As this provision clearly states, this receipt principle only applies to part II of the Convention, i.e. to the formation of the contract. By doing so, the Convention does not answer when other communications reach the addressee although this can be a prerequisite for the notice to be effective (cf. Art. 47(2), Art. 48(4), Art. 79(4) CISG). This gap can be filled by applying Art. 24 CISG as a general principle.83

80

81 82

83

It has to be noted though that Art. 27 CISG does not provide a clear answer to the point of time at which the communication takes effect, thereto see Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 27 no. 10, also with references to the dissenting opinion. In the following the word “communication” also comprises notices and requests. Tribunale di Rimini (Italy), 26 November 2002, available on unilex; cf. also Bonell, in: Bianca/Bonell (op. cit. fn. 34), Art. 7, no. 2.3.2.2.; Magnus (op. cit. fn. 3), Art. 7, no. 51; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 30. Magnus (op. cit. fn. 34), 487.

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Maturity without Demand (Art. 59 CISG)

As stipulated by Art. 59 CISG, the buyer must pay the price on the date fixed without the need for any request on the part of the seller. This rule is quite important as with maturity the seller is entitled to claim interest (see Art. 78 CISG). Art. 59 CISG only applies to the payment of the purchase price. However, from this provision the general principle can be derived that all pecuniary claims (e.g. repayment following Art. 81(2) CISG; reduction of the purchase price because of non-conformity following Art. 50 CISG; damages) become due without a request on behalf of the entitled party.84

4.

Place of Performance for Pecuniary Claims (Art. 57 CISG) and after Avoidance of the Contract

If a party is entitled to pecuniary claims the question arises where these claims have to be performed by the other party. With the exception of the purchase price, this matter is not expressly settled in the Convention, albeit governed. Therefore, the Convention’s general principles have to be applied to answer this question. Art. 57(1)(a) CISG stipulates that the buyer has to pay the purchase price at the seller’s place of performance. Art. 57(1)(a) CISG can be regarded as expression of the general principle that pecuniary obligations have to be performed at the place of business of the monetary creditor.85 Interest, reimbursement of expenses and repayment due to reduction of the purchase price because of non-conformity etc. thus have to be paid at the creditor’s place of business.86 The CISG is also silent on the place of performance after the avoidance of the contract. For this reason it is unclear where restitutional obligations (i.e. the obligation of the seller to pay back the purchase price and the obli84

85

86

Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 7 no. 52; Magnus (op. cit. fn. 3), Art. 59 no. 10; Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 7 no. 30; Pretore della giurisdizione di Locarno-Campagna (Switzerland), 16 December 1991, available on unilex; Kammergericht Berlin (Germany), 24 January 1994, CISG-online no. 130. Oberlandesgericht Düsseldorf (Germany), 2 July 1993, RIW 1993, 845 et seq.; Cour d’Appel de Grenoble (France), 23 October 1996, English translation available at http://cisgw3.law.pace.edu/cases/961023f1.html; Huber (op. cit. fn. 5), 234 et seq.; Koneru (op. cit. fn. 1), 105; for a different view see Cour d’Appel de Paris (France), 14 January 1998, available on unilex. Cf. also Ferrari (op. cit. fn. 38), 84 et seq. It has to be noted though that this is controversial for damages, see Magnus (op. cit. fn. 3), Art. 74 no. 57 and Saenger, in: Bamberger/Roth (op. cit. fn. 24), Art. 57 no. 6 with further references.

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gation of the buyer to make restitution for the goods received) have to be performed. According to one court decision this gap of the Convention is to be filled with a general principle according to which the place of performance for the obligations concerning restitution should mirror the place of performance for the primary contractual obligations.87 In other words: if the place of performance for the delivery of the goods were (according to Art. 31(a) and (b) CISG) the seller’s place of business, the place of performance for reimbursement of the goods is now at the buyer’s place of business. Likewise, the place of performance for repayment of the purchase price is at the buyer’s place of business, if the buyer originally had to pay it at the seller’s place of business (according to Art. 57(1)(a) CISG).88 This outcome is concordant with the aforementioned general principle derived from Art. 57(1)(a) CISG according to which the place of performance for pecuniary claims is the creditor’s place of business.

5.

General Principle of Full Compensation

According to some court decisions the principle of full compensation is also a general principle in the light of Art. 7(2) CISG.89 In case the buyer does not pay the purchase price, the seller is entitled to interest (Art. 78 CISG). But following the general principle of full compensation the seller is also entitled to damages for those sums that he had to pay due to higher credit costs that were customary in the particular market.90 This principle can be derived from Art. 74 CISG. 87 88

89

90

Oberster Gerichtshof (Austria), 29 June 1999, TranspR-IHR 1999, 49. This is in line with the predominant opinion both in judicature and literature, see Landgericht Gießen (Germany), 17 December 2002, IHR 2003, 276 et seq.; Oberlandesgericht Karlsruhe (Germany), 19 December 2002, IHR 2003, 126 et seq.; Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (op. cit. fn. 19), Art. 81 no. 15; Piltz, Neue Entwicklungen im UN-Kaufrecht, NJW 2003, 2063; Saenger, in: Bamberger/Roth (op. cit. fn. 24), Art. 81 no. 5. For a different view see Thiele, Erfüllungsort bei der Rückabwicklung von Vertragspflichten nach Art. 81 UN-Kaufrecht – ein Plädoyer gegen die herrschende Meinung, RIW 2000, 894 et seq. Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Wien (Austria), 15 June 1994, RIW 1995, 591; Tribunale di Rimini (Italy), 26 November 2002, available on unilex. Cf. also Oberster Gerichtshof (Austria), 9 March 2000, IHR 2001, 49 where this was seen as a “principle” but not as a “general principle”. Landgericht Hamburg (Germany), 26 September 1990, RIW 1990, 1019; ICC International Court of Arbitration (no. 7197/1992), 1992, available on unilex; Handelskammer Zürich (Switzerland), 31 May 1996, available on unilex;

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D. The Role of General Principles to Solve Disputes or for the Interpretation of the CISG in Concreto Besides their function to fill gaps, general principles are also very often used where controversies exist or where it is unclear how a provision should be interpreted.

I.

Subsequent Performance versus Right of Avoidance

This first applies to the question what effect (a possible) subsequent performance has on the right of avoidance and a fundamental breach. This controversial issue has been discussed very often91 and need not be repeated here in detail. To recall it quickly, it originates from the unclear wording of Art. 48 CISG and 49 CISG. Following Art. 48 CISG “the seller may, even after the date of delivery, remedy at his own expense any failure to perform his obligations (…)”. But this right to subsequent performance is “subject to article 49”. The question is to what extent the buyer’s right to avoidance prevails over the seller’s right to subsequent performance. The prevailing opinion seems to be that the right to subsequent performance must not be undermined too much. That is why a breach of contract is considered to be not fundamental where the seller is capable and willing to remedy the defect without unreasonable delay and unreasonable inconveniences for the buyer.92 It is argued that where a subsequent performance is possible without an unreasonable delay and without unreasonable inconveniences for the buyer, he does not fundamentally lose what he is entitled to expect under

91

92

Landgericht Saarbrücken (Germany), 25 November 2002, IHR 2003, 71; Colligan (op. cit. fn. 12), 50 et seq. See e.g. for a good overview Freiburg (op. cit. fn. 68), 102 et seq.; Koch, The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods (CISG), in: Review of the Convention of Contracts for the International Sale of Goods (CISG) 1998, The Hague 1999, 322 et seq.; Lurger, Die wesentliche Vertragsverletzung nach Art. 25 CISG, IHR 2001, 98; Magnus (op. cit. fn. 3), Art. 48 no. 25 et seq. CISG Advisory Council Opinion no. 5, The buyer’s right to avoid the contract in case of non-conforming goods or documents, IHR 2006, 39; Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (op. cit. fn. 19), Art. 49 no. 28 et seq.; Müller-Chen, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 48 no. 15; Oberlandesgericht Koblenz (Germany), 31 January 1997, IHR 2003, 175; Landgericht München (Germany), 27 February 2002, IHR 2003, 235; Oberlandesgericht Köln (Germany), 14 October 2002, IHR 2003, 16; Handelsgericht Aargau (Switzerland), 5 November 2002, IHR 2003, 179 et seq.

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the contract.93 The conflicting opinion either wants to regard the possibility to remedy the defect not at all94 or only in rare circumstances.95 It is not the aim of this paper to again balance the different reasons and arguments for the opinions outlined above. The authors of this contribution simply want to focus the controversy on one rather remarkable aspect. It is held that the necessity to consider the possibility of subsequent performance in the determination of a fundamental breach follows from the fact that the preservation of contract is a general principle in the light of Art. 7(2) CISG.96 At a first glance, stating the general principle of preservation of contract97 in this context seems to be incorrect in methodical aspects. Following Art. 7(2) CISG, general principles may only be used to fill gaps. But the controversy outlined above is not a gap that needs to be filled by general principles. It is (in methodical aspects) nevertheless possible to resort to the Convention’s general principle. This follows from the fact that they are based on the Convention. They must be derived from one or several articles.98 That is why recourse to the Convention’s general principles for solving controversies or interpreting unclear statutes is simply a kind of systematic interpretation.

II.

Equalisation of Benefits Forgone (Art. 84(2) CISG)

A further example of this use of general principles can be observed in the context of Art. 84(2) CISG. Following this provision, if the buyer makes restitution of the goods he also must account to the seller for all the benefits that he has derived from them. It is controversial whether or not the buyer must also account to the seller those benefits that he “could reasonably have been expected to receive in the normal course of business, but in fact did

93 94

95

96

97 98

Müller-Chen, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 48 no. 15. Koch (op. cit. fn. 91), 323; Vahle (op. cit. fn. 64), 66 et seq.; Welser, Die Vertragsverletzung des Verkäufers und ihre Sanktion, in: Doralt (ed.), Das UNCITRALKaufrecht im Vergleich zum österreichischen Recht, Vienna 1985, 125; ICC International Court of Arbitration, 1 January 1994, CISG online no. 565; Landgericht Berlin (Germany), 15 September 1994, CISG online no. 399. Cf. Freiburg (op. cit. fn. 68), 104 et seq. who holds that the buyer might act contrary to good faith if he prevents the seller from subsequent performance; see also Holthausen, Die wesentliche Vertragsverletzung des Verkäufers nach Art. 25 UNKaufrecht, RIW 1990, 104. Gruber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch (op. cit. fn. 19), Art. 25 no. 25. For details see section C.II.1. of this contribution. For details see section B.VI. of this contribution.

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not.”99 One commentator supports such a view with an express reference to the general principle to mitigate losses that can be derived from Art. 77 CISG.100 Again, in methodical aspects this reference to the Convention’s general principles is possible as it can be seen as a kind of systematic interpretation. The view taken here nevertheless refers to the clear wording of Art. 84(2) CISG, which provides that the buyer has to account to the seller those benefits “which he has derived”.101 Due to this the buyer is not obliged to account the seller for those benefits which he has not derived.102

III. Interpretation of “Reasonable Time” within Art. 39(1) CISG and Art. 49(2)(b)(i) CISG Finally, recourse to the general principle of preservation of the contract can also facilitate the interpretation of the term “reasonable time” within Art. 39(1) CISG and Art. 49(2)(b)(i) CISG. Both the notice of nonconformity of the goods (Art. 39(1) CISG) as well as the declaration of avoidance (Art. 49(2)(b)(i) CISG) have to be given within a “reasonable time” after the buyer “has discovered or ought to have discovered” the lack of non-conformity and after “he knew or ought to have known of the breach” respectively. In case of non-conformity of the goods, both reasonable times (i.e. the reasonable time for notice of non-conformity of the goods and the reasonable time to declare the contract avoided) start to run after the period for examination of the goods (Art. 38 CISG). For this reason it is sometimes maintained that both time limits are of the same length.103 This is not convincing because it would force the buyer to give notice of non-conformity and at the same time declare the contract avoided. This is contrary to the general principle of preservation of the contract.104 That is why, the reasonable time to declare the contract avoided as provided 199 100

101

102

103

104

Hornung, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 84 no. 22. Hornung, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 84 no. 22; see also Salger, in: Witz/Salger/Lorenz, International Einheitliches Kaufrecht, Heidelberg 2000, Art. 84 no. 3 who holds that a claim for damages exists in such cases. See also the French (“qu’il a retire”) and the Spanish text (“que haya obtenido”) of the Convention. Achilles (op. cit. fn. 22), Art. 84 no. 3; Karollus (op. cit. fn. 16), 154; Krebs (op. cit. fn. 66), 74 et seq.; Saenger, in: Bamberger/Roth (op. cit. fn. 24), Art. 84 no. 4; Schlechtriem (op. cit. fn. 13), no. 332. Heilmann, Mängelgewährleistung im UN-Kaufrecht, Berlin 1994, 477; Huber, UN-Kaufrecht und Irrtumsanfechtung, ZEuP 1994, 589; Will, in: Bianca/Bonell (op. cit. fn. 34), Art. 49 no. 2.2.2.1; Landgericht Oldenburg (Germany), 9 November 1994, NJW-RR 1995, 438. Thereto see section C.II.1. of this contribution.

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by Art. 49(2)(b)(i) CISG must be longer than the reasonable time to give notice of non-conformity as stipulated by Art. 39(1) CISG.105

E. Conclusion The methodical aspects concerning Art. 7(2) CISG are theoretically relatively easy to understand. Moreover, as shown above many general principles of the Convention have been identified and are more or less widely acknowledged.106 Lists of the Convention’s general principles thus facilitate a flawless application. For a correct understanding of these general principles one should nevertheless become aware of how they can be identified and developed.107 Moreover, it can be very important to make it clear whether or not the interpretation of a provision actually stems from the gap-filling function of Art. 7(2) CISG with the help of the general principles. This is especially necessary when it comes to good faith as the observance of it can result from Art. 7(1) CISG and from Art. 7(2) CISG. The decision from a German court108 cited above can be seen as a plausible example for this necessity. Finally, the use of general principles to solve controversies should also be kept in mind. This function deviates from their primary purpose of filling gaps in the Convention. In methodical aspects it is nevertheless possible to resort to the general principles as their use to solve disputes can be seen as a kind of systematic interpretation. 105

106 107 108

See also – without recourse to the general principle of preservation of the contract – Achilles (op. cit. fn. 22), Art. 49 no. 11; Magnus (op. cit. fn. 3), Art. 49 no. 38; Müller-Chen, in: Schlechtriem/Schwenzer (op. cit. fn. 12), Art. 49 no. 32; Salger, in: Witz/Salger/Lorenz (op. cit. fn. 100), Art. 49 no. 7. See section C. of this contribution. Thereto see section B.VI. of this contribution. See Hanseatisches Oberlandesgericht Hamburg (Germany), 28 February 1997, available on unilex. See also section C.I.2. of this contribution.

The Role of the UNIDROIT Principles and the PECL in the Interpretation and Gap-filling of CISG* Pilar Perales Viscasillas

A. Introduction The use of the UNIDROIT Principles of International Commercial Contracts, 2004 (UPIC)1 and the Principles of European Contract Law (PECL)2

* The present work is written under the Research Project of the Ministry of Science and Technology (Spain) (DER2008-02244/JURI): Uniform International Commercial Law and Its Impact on European Contract Law: UNIDROIT Principles 2004 and International Commercial Arbitration under UNCITRAL. Head of the team: Pilar Perales Viscasillas. 1 International Institute for the Unification of Private Law (UNIDROIT), 1st ed., Rome 1994, and 2nd ed., Rome 2004, available at http://www.unidroit.org. The UPIC, drafted by a group of experts under the auspices of UNIDROIT, have followed very closely the CISG, especially in the first edition. The second edition of the Principles goes further as they deal with several issues not touched expressly by the CISG, inter alia the authority of agents, third party rights, and set-off. The UPIC have been well received in practice as well as by scholars: their success is higher as it was foreseen by their drafters, as recognised by Bonell, An International Restatement of Contract Law. The UNIDROIT Principles of International Commercial Contracts, 3rd ed., New York 2005, 264. Thus, there was the need for a second edition amending the Principles when necessary and extending their scope. The new 2004 Preamble adds two new purposes: the interpretation and supplementation of domestic law and their application when the parties have not chosen any law to govern their contract, the latter in line with Art. 1:101(3)(b) PECL. Case law on the UPIC is available at www.unilex.info. Most of the cases cited in this paper can be found in this database. 2 Drafted by the Commission on European Contract Law (or Lando Commission after their president Ole Lando) and published by Lando/Beale (eds.), Principles of European Contract Law, Parts I and II, The Hague 2000 (Part I and Part II). Part I and Part II were published in 1995 and 1999, respectively, and deal with formation of contract, validity, performance, non-performance and remedies. Part III was published in 2003 and deals with assignment, assumption of debts, set-off, precriptions and conditions. The European Principles are similar to the Restatements of Law in the United States and have closely followed both the CISG and the UPIC. They

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in the interpretation and gap-filling of the 1980 Vienna Convention on the International Sale of Goods (CISG)3 is beginning to be seen in practice particularly in international commercial arbitration, but it is highly controversial what specific role the former instruments might play with the latter. Undoubtedly both the UPIC and the PECL were drafted having the CISG in mind and there is a close resemblance among them.4 Particularly, the UPIC go further than the CISG as they are more detailed and try to develop some provisions of the CISG as well as to fill its gaps. The UPIC and the PECL are considered to be soft law texts, i.e. instruments that become applicable when the parties have chosen them as the law governing their contract.5 The UPIC apply to international commercial contracts, whilst the PECL apply to contracts within the European Union. The CISG is an international treaty and applies only to international sale of goods contracts when certain conditions are met (Art. 1-6 CISG). The UPIC and the PECL have a wider scope of application than the CISG as they expressly intend to apply to a variety of situations, such as when the parties have agreed that their contract should be governed by general principles of law, the lex mercatoria or the like, or that they may be applied when the parties have not chosen any law to govern their contract.6 All, however, share the objective of “de-nationalisation of rules and principles”.7 The role that the UPIC and the PECL might develop in relation with the Convention depends on the circumstances of each particular transaction and the body entrusted with the judgment of the case.8 The UPIC, contrary

3

4

5 6 7

8

cover civil and commercial contracts within the EU. See: http://frontpage.cbs.dk/ law/commission_on_european_contract_law/index.html. Presently the CISG is the law of 71 States. The text and the list of countries can be found at http://www.uncitral.org. Very expressive is the opinion of Magnus, Die allgemeinen Grundsätze im UNKaufrecht, (1995) 59 Rabels Zeitschrift (RabelsZ), 492-493, in which he points out that the harmony between the Convention and the Principles is not a surprise, since the CISG could be considered as the godfather of the Principles. For a recent list of the provisions of the CISG influencing the UPIC and the PECL, see: Flechtner, The CISG’s impact on international unification efforts: The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old Issues Revisited in the Light of Recent Experiences, Munich 2003, 176-187. See UPIC Preamble and Art. 1:101(2) PECL. See UPIC Preamble and Art. 1:101(3)(a)(b) PECL. See Ramberg, The Creativity of Arbitrators in the Context of the UNIDROIT Principles of International Commercial Contracts, Uniform Law Review (ULR) 1998, 655 in relation to the UPIC and the PECL. It is generally accepted that the UPIC would play a more important role in arbitration, see inter alia: Berger, International Arbitral Practice and the UNIDROIT

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to the PECL, state expressly in their Preamble that “they may be used to interpret or supplement international uniform law instruments”, which undoubtedly includes the CISG.9 The Comments justify this position on the basis of the principles of internationality and uniformity in the interpretation and application of uniform law;10 principles that are rooted in Art. 7(1) CISG. The PECL are less explicit in this regard although their role as gap-filler of the applicable law is foreseen.11 Of course, since the UPIC are not a legally binding text, this declaration seems to be merely programmatic, but their success in practice reveals that some courts and arbitral tribunals consider this statement as binding.

19

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Principles of International Commercial Contracts, (1998) 46 American Journal of Comparative Law (AJCL), 130-133; Goode, Litigation or arbitration? The influence of the dispute resolution procedure on substantive rights, (2007) 19 Pace International Law Review, 57-58. However, national courts, at least in some countries like Spain, seem to be receiving the PECL in many more instances than the UPIC due to the “quasi legitimacy” behind the former, i.e. the fact that they stem from EU Parliament Resolutions towards the drafting of a “future Civil Code” (see infra G). See: Perales Viscasillas, La aplicación jurisprudencial en España de la Convención de Viena de 1980 sobre compraventa internacional, los Principios de UNIDROIT y los Principios del Derecho Contractual Europeo: de la mera referencia a la integración de lagunas, La Ley, 31 May 2007, 2-3. The Comment to this section of the Preamble states that: “Recently, both courts and arbitral tribunals have increasingly abandoned such a “conflictual” approach, seeking instead to interpret and supplement international uniform law by reference to autonomous and internationally uniform principles and criteria. This approach, expressly sanctioned in the most recent Conventions (see e.g. Art. 7 of the 1980 UN Convention on Contracts for the International Sale of Goods (CISG)), is based on the assumption that international uniform law, even after its incorporation into the various national legal systems, only formally becomes an integrated part of the latter, whereas from a substantive point of view it does not lose its original character of a special body of law autonomously developed at international level and intended to be applied in a uniform manner throughout the world.” See cmt. 5 to the Preamble. See Art. 1:101(4): “These Principles may provide a solution to the issues raised where the system or rules of law applicable do not do”. Scholars are in favour of the role of PECL as a source of inspiration to courts and arbitral tribunals: Smits, The Principles of European Contract Law and the Harmonisation of Private Law in Europe, in: Vaquer (ed.), La Tercera Parte de los Principios del Derecho Contractual Europeo, Valencia 2005, 572-573; Ruiz de Valdivia, La Unificación del Derecho Privado Europeo: Los Principios de Derecho Contractual Europeo de la Comisión Lando, in: Sánchez Lorenzo/Moya Escudero (eds.), La Cooperación Judicial en Materia Civil y la Unificación del Derecho Privado en Europa, Madrid 2003, 259-260.

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More importantly, in order to assess the role of those instruments a close look to the contractual clauses12 – applicable law13 and forum or arbitration 12

13

Some contractual models for specific contracts are inspired by or provide for the application of the CISG and the UPIC. See: ICC Model for International Sale Contracts (Manufactured Goods intended for resale), ICC Publication no. 556, Paris 1998, which has received inspiration from both the CISG and the UPIC. The model contract declares the transaction subject to the CISG, see Art. 1(2)(A) of Part B. See: Bonell (op. cit. fn. 1), 273 et seq., at 281, fn. 65; Miláns del Bosch/Unceta Laborada, Los Principios de UNIDROIT como Lex Contractus, in: Calvo y Santiago Areal (ed.), Cuestiones Actuales del Derecho Mercantil Internacional, Madrid 2005, 788-791; Klotz, Critical Review of The ICC Model International Sale Contract, available at http://cisgw3.law.pace.edu/cisg/biblio/klotz.html; Mourre/ Jolivet, La réception des Principes d’UNIDROIT dans les contrats modèles de la Chambre de Commerce Internationale, ULR 2004, 275-313. The International Trade Center UNCTAD/WTO offers a Model Contract and User’s Guide for International Commercial Sale of Perishable Goods of 1999, see http://www. jurisint.org. No. 14 of the Model Contract provides the applicable rules of law by applying, first, the CISG, secondly, the UPIC, and thirdly the possibility of determining a domestic law, or in its absence, the seller’s place of business. At the European level, the Rome Convention on the Law Applicable to Contractual Obligations 1980 speaks in Art. 3(1) and Art. 4(1) about the “law” applicable to the contract and thus a rigid and literal interpretation would impede that the parties agreed on the UPIC or the PECL as the law applicable to the contract. See note 3b) to Art. 1:101 PECL. Among the scholars: Drobnig, The UNIDROIT Principles in the Conflict of Laws, ULR 1998, 385-395; Leible, El significado de los “Principios de UNIDROIT” para la seguridad juridical en el comercio internacional, Derecho de los Negocios 1999, 11 et seq. The recently approved EC Regulation 593/2008 of the European Parliament and the Council of 17 June 2008 on the Law applicable to contractual obligations (Rome I), O.J. 2008 L 177/6, to be applied to contracts concluded after 17 December 2009, still adheres to the expression “law”, although recital 13 to the Regulation states that “[t]his Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention”. As noted, it just refers to the parties and not to the judges, and it does not seem to be a choice of the applicable law but only the incorporation by reference into the contract. At the same time, recital 14 seems to allow the possible choice of contractual rules as the law applicable although restricted to the possible instrument to be approved by the Community, i.e., the future Common Frame of Reference (CFR): “Should the Community adopt, in an appropriate legal instrument, rules of substantive contract law, including standard terms and conditions, such instrument may provide that the parties may choose to apply those rules”. Again, it does just refer to the parties. It has to be negatively considered the change of drafting in this matter, since in the previous drafts it was considered that the parties might choose as the applicable law to the contract the lex mer-

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clauses, if any – the Convention and its method of interpretation and filling gaps (Art. 7 CISG), as well as the lex arbitri14 applied, is needed so the Principles will not come as an unforeseeable element to the parties. In this paper, it is not possible to engage in the different scenarios that would lead to the application of the UPIC and the PECL by the arbitrators or judges – express agreement in which the Principles may fill the gaps of the CISG;15

14

15

catoria, the UPIC or the PECL. See: Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernization, 14 January 2003, COM(2002) 654 final. Paragraph 3.2.3 on Freedom of choice (Art. 3(1)) – Questions regarding the choice of non-state rules states that: “It is common practice in international trade for the parties to refer not to the law of one or other state but direct to the rules of an international convention such as the Vienna Convention of 11 April 1980 on contracts for the international sale of goods, to the customs of international trade, to the general principles of law, to the lex mercatoria or to recent private codifications such as the UPIC. In the minds of the authors of the Convention, such a choice does not constitute a choice of law within the meaning of Art. 3, which can only be choice of a body of state law: a contract containing such a choice would be governed by the law applicable in the absence of a choice (Art. 4), and it would fall to this law to determine the role to be played by the non-state rules chosen by the parties”. The position that has prevailed is that lex mercatoria is too uncertain and incomplete as to be considered “law”, see also Goode, Is the Lex Mercatoria Autonomous? in: Cranston/Ramberg/Ziegel (eds.), Commercial Law Challenges in the 21st Century. Jan Hellner in memoriam, Uppsala 2007, 84-85 referring to previous drafts. The UPIC, however, seem also to be outside the latter consideration and, if included in the contract, the choice would not constitute a veritable choice of the applicable law. See for example Art. 28 UNCITRAL Model Law on International Commercial Arbitration where from a literal interpretation the parties might choose the “rules of law”, but not the arbitrators. Modern arbitration laws allow both the arbitrators and the parties to choose the “rules of law”. See for example: Art. 33(1) Swiss Arbitration Rules and Art. 34(2) Spanish Arbitration Act (Ley 60/2003). The concept of rules of law includes UPIC and PECL. See Arbitral Award, Centro de Arbitraje de México, 30 November 2006, confirming that the parties may choose the UPIC as the applicable law to the contract. Xiamen Intermediate People’s Court, 2006 (China), where in an international sale of goods contract between a Chinese company and a Swiss company, the applicable law clause was as follows: “The application and interpretation of this contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods. On Issues not covered by this Convention, the UNIDROIT Principles (1994) shall apply”.

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implied agreement16 – that would need different legal reasoning. The considerations to follow would relate to the relationship between the CISG, UPIC and PECL in the typical situation in which the CISG is the law applicable to the contract and the contract is silent on the applicability of either the UPIC or PECL.

B. Art. 7 CISG: Interpretation and Gap-filling I.

General Remarks

In order to explore the subject matter of this paper, it is necessary to emphasise that the CISG is “not a perfect model”17 and that the main purpose of this Convention is to be truly universally applied to any international sale of goods transaction, and thus its drafters established its own interpretative criteria based upon the internationality, uniformity and good faith principle (Art. 7(1) CISG), and a method to fill gaps through the application of the general principles inherent to the CISG (Art. 7(2) CISG). Art. 7 CISG is the centrepiece of the CISG – and other uniform international law instruments as well, since it is their source of inspiration18 – as it applies throughout the Convention in order to interpret it or to 16

17 18

See, applying the UPIC notwithstanding any express reference: Arbitral Award LCIA, 1995, where the parties agreed that the contract would be governed by ”anglosaxon principles”; ICC 7110/1995 “natural justice”; ICC 9474/1999, “general rules for international contracts”, also considering the PECL, although the reasoning is made on the basis of the CISG; ad hoc Arbitral Award, Costa Rica, 30 April 2001, “on the basis of good faith and fair usages and with regard to the most sound commercial practices and friendly terms”; Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 5 November 2002, “general principles and lex mercatoria”; ICC 12111/2003, “international law”; the arbitrators understood that the parties agreed on the application of the “lex mercatoria” and the general principles applicable to contractual obligations as reflected in the UPIC but not in the PECL as they were not yet well-known to the international business community. It has to be noted that one of the parties wanted the application of the PECL interpreted in the light of the UPIC while the other party wanted the application of English law. Furthermore, the Principles might be applied if there is an implied negative choice of law, i.e., when there is a deliberate omission (ICC 7375/1996) of the choice of any domestic law and thus it is considered that the parties wanted their contract to be subject to international commercial principles or to the lex mercatoria. See: ICC 7110/1995; ICC 7375/1996; ICC 8502/1996; ICC 9875/1999; and ICC 10422/2001. Tallon, Damages, Exemption Clauses and Penalties, (1992) 40 AJCL, 675. Especially Art. 7 CISG, but in general the CISG is considered as an international lingua franca. See Schlechtriem, 25 Years of the CISG: An International lingua

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fill its gaps. The main goal of Art. 7 CISG is to achieve a uniform and autonomous interpretation and application of the Convention. There is a strong link between the two paragraphs in Art. 7 CISG since, on the one hand, in order to fill gaps interpretative techniques should be used and thus the interpretative criteria set forth in Art. 7(1) CISG also apply to Art. 7(2) CISG, and, on the other hand, some of the general principles upon which the CISG is based (Art. 7(2) CISG) also apply to the interpretation of the Convention (Art. 7(1) CISG).

II.

Interpretation of the CISG: Art. 7(1) CISG

Art. 7(1) CISG mandates that “in the interpretation of the Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.” From this wording it is clear that in order to take into account the international character of the Convention consideration is to be given to the international framework of application and permanent development of the Uniform Law Rules and thus displacing the domestic interpretation of the Convention. A traditional consideration by some scholars is that autonomous interpretation of the Convention is defined through a negative definition, namely no external concepts to interpret the CISG, and a positive one – interpretation of the Convention within its system and objectives.19 Scholars are in agreement as to the way in which the interpretation is to be made: a wide interpretation of the CISG that is to be complemented by the use of certain interpretative techniques: literal (grammatical), teleological, systematic and historical interpretation supported by case law and scholarly writing as well with the gap-filling system in paragraph 2.20 An increasing tendency in observing the mandate of Art. 7(1) CISG is seen in case law

19

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franca for Drafting Uniform Laws, Legal Principles, Domestic Legislation and Transnational Contracts, in: Flechtner/Brand/Walter (eds.), Drafting Contracts Under CISG, Oxford 2007, 167 et seq. See Torsello, The CISG’s Impact on Legislators: The Drafting of International Contract Law Conventions, in: Ferrari (ed.), The 1980 Unification Sales Law: old issues revisited in the light of recent experiences, Munich 2003, 235-236 fn. 229; and Gebauer, Uniform Law, General Principles and Autonomous Interpretation, ULR 2000, 686-687. See Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd (English) ed., Oxford 2005, Art. 7 no. 21 et seq.

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and thus a gradual use of diverse techniques to interpret and fill gaps within the Convention.21 Uniformity, however, does not mean an equal solution in all cases, but the possibility to adapt the solutions provided by the CISG to the particular circumstances of each case, especially when applying undefined terms or general principles within the CISG. At the same time, “uniformity does not mean that the Convention should be frozen in time and independent of evolving circumstances”22 as evidenced by the importance that the Convention gives to the interpretation and filling gaps in the contract according to the usages of trade (Art. 9 CISG).23

III. Gap-Filling of the CISG: Art. 7(2) CISG Art. 7(2) CISG tries to solve the problems that have arisen from issues not expressly settled by the Convention stating that: “Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.” The Convention provides that certain issues are outside its scope (i.e., Art. 2-5, 30, and 54 CISG) and thus the applicable law or rules of law would be applied. At the same time, it is clear that the Convention deals with the formation and the performance of the contract of sale (Art. 4 CISG). It is, however, more difficult to ascertain whether there is an internal gap, i.e., a matter that is governed by CISG but that it is not expressly settled in it, or an external gap, i.e, a matter not governed by CISG at all but by the applicable law. It is in relation with the former matter where the UPIC and 21

22

23

See to this regard Uncitral Digest of Art. 7(2) CISG (available at http://www. uncitral.org); Ferrari, Do Courts Interpret the CISG Uniformly? in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 6-19. Sekolec, Digest of case law on the UN Sales Convention: The combined wisdom of judges and arbitrators promoting uniform interpretation of the Convention, in: Ferrari/Flechtner/Brand (eds.), The Draft UNCITRAL Digest and Beyond. Cases, Analysis and Unresolved Issues in the UN Sales Law, Munich 2004, 2. Other international uniform law instruments are, for example: the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards that has been subject to a progressive interpretation of the term “agreement in writing” in Art. II(2) as to the point that UNCITRAL has rendered a Recommendation regarding the interpretation of Art. II(2) and Art. VII(1) of this Convention on 7 July 2006. Infra F.

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the PECL might play an important role as one of the better achievements of the CISG is that recourse to domestic law is the ultima ratio.24 It is not surprising that the last instrument published by UNCITRAL has no reference to the domestic law to fill gaps.25 Once a gap is detected, the following hierarchy of solutions applies: first, as provided by scholars and case law, interpretation by analogy as a logical way of finding the answer within the Convention26 and thus applying directly specific provisions of the CISG to the issue at hand; in its absence, as provided for by Art. 7(2) CISG, resort is to be had to the general principles on which the CISG is based or in its lack, to the applicable domestic law. The recourse to the general principles upon which the CISG is based adds further problems to the method of filling gaps within the Convention as there is neither an enumeration of general principles, nor are their contents and effects established with the obvious risk that the interpreters would not only derive different principles from the Convention but also with a divergent effect.27 There are several striking examples such as the interest rate in Art. 78 CISG, the use of general terms and conditions or the 24

25

26

27

Inter alia: Schlechtriem (op. cit. fn. 20), Art. 7 no. 35; and Ferrari, in: Ferrari/ Flechtner/Brand (eds.), The Draft UNCITRAL Digest and Beyond, Munich 2004, 170. Art. 2A of the 1985 Uncitral Model Law on International Commercial Arbitration as amended in 2006 where Art. 2A on interpretation and gap-filling was newly introduced. See also Art. 1.6(2) UPIC and Art. I.–1:102(4) DCFR. Art. 1:106(2) PECL still refers to the rules of private international law. Hellner, Gap-Filling by Analogy. Art. 7 of the U.N. Sales Convention in Its Historical Context, in: Ramberg et al. (eds.), Studies In International Law, Festskrift till Lars Hjerner, Stockholm 1990, 219 et seq.; Bonell, in: Bianca/Bonell (eds.), Commentary on the International Sales Law, Milan 1987, Art. 7, cmt. 2.3.2.2; Martínez Cañellas, La interpretación y la integración de la Convención de Viena sobre compraventa internacional de mercaderías de 11 de abril de 1980, Granada 2004, 317-320; Ferrari (op. cit. fn. 24), 159-160; Bernstein/Lookofsky, Understanding the CISG in Europe, The Hague 1997, 25; see also ICC 8324/1995 stating that Art. 8 and 9 CISG might be complemented by applying the usual techniques applied in legal reasoning: interpretation by analogy, a contrario, etc. Scholars have drawn up several lists of general principles that might be considered ambitious and are not always coincident. See, inter alia: Magnus (op. cit. fn. 4); Honnold, Uniform Law for International Sales, 3rd ed., The Hague 1999, §§ 99102; Bonell (op. cit. fn. 26), cmt. 2.3.2.1 et seq.; Ferrari (op. cit. fn. 24), 160-170; Martínez Cañellas (op. cit. fn. 26), 322-337, considering the principles derived from scholarly works as well as from judicial or arbitral decisions; Rosenberg, The Vienna Convention: Uniformity in Interpretation for Gap-Filling – An Analysis and Application, (1992) 20 Australian Business Law Review, 449 et seq. See also UNCITRAL Digest on Art. 7 CISG, no. 8-23.

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battle of the forms problem under Part II, where the scholars and case law are in disagreement as to whether they are issues governed by the Convention, and if governed, what the general principles to be applied are.28 Two questions arise under this methodology of filling gaps within the CISG. First, whether the UPIC and the PECL might be considered as the general principles upon which the Convention is based, and if the answer is negative whether any other role that the UPIC/PECL might play in the CISG is still possible.

C. Doctrine and Case Law on the Role of the UPIC and the PECL in the Interpretation and Gap-filling of the CISG CISG Scholars are in disagreement on the role that the UPIC – usually no attention is paid to PECL – might play in the interpretation and filling gaps within the Convention. Some scholars consider that no external principles should play a role in the CISG.29 This position follows a literal interpretation of the terms “general principles on which it is based” (Art. 7(2) CISG), and from a “temporal objection”: the drafting of the UPIC was later than the CISG and thus they cannot have had any impact on the CISG.30 Other scholars consider that the UPIC are the general principles upon which the CISG is based31 with the qualification that the UPIC should re-

28

29

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Particularly the solution under the CISG to those matters might differ from that expressly provided by the UPIC. See: Perales Viscasillas, UNIDROIT Principles of International Commercial Contracts: Sphere of Application and General Provisions, (1996) 13 Arizona Journal of International and Comparative Law, 380 et seq. In the opinion of Flechtner (op. cit. fn. 4), 188 there are many omissions from the CISG and changes in both substance and phrasing in the PECL. Schlechtriem/Witz, Convention de Vienne sur les Contrats de Vente Internationale de Marchandises, Paris 2008, no. 89; Flechtner (op. cit. fn. 4), 190-197; and Piltz, Internationales Kaufrecht. Das UN-Kaufrecht in praxisorientierter Darstellung, 2nd ed., Munich 2008, 2-144. See describing this objection and rejecting it on the basis that the UPIC and the CISG are based, at least in part, on the same general principles: Bonell (op. cit. fn. 1), 232; Felemegas, Introduction, in: Felemegas (ed.), An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge 2007, 33-34. Garro, The Gap-Filling role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG, (1995) 69 Tulane Law Review, 1152 et seq. Rosett seems to follow this position in: The UNIDROIT Principles of International Commercial Contracts. An In-

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flect general principles of the law, since that interpretation of Art. 7(2) CISG is too narrow32 and an assessment of general principles can be drawn from comparative research including the UPIC.33 As an intermediate position, it is stated that the UPIC are not the general principles of the CISG but that they might be a tool to interpret the CISG34 or to fill its gaps,35 or even applied as an expression of the good faith principle (Art. 7(1) CISG).36

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troduction to Chapter Seven: Non-Performance, in: Contratación internacional. Comentario a los Principios sobre los Contratos Comerciales Internacionales del UNIDROIT, Mexico City 1998, 178-182; Kronke, The UN Sales Convention, the UNIDROIT Contract Principles and the Way Beyond, (2005-2006) 25 Journal of Law and Commerce, 451-465; Gama Jr., Contratos Internacionais à luz dos Princípios do UNIDROIT 2004. Soft Law, Arbitragem e Jurisdiçao, Rio de Janeiro 2006, 461. Basedow, Uniform Law Conventions and the UNIDROIT Principles of International Commercial Contracts, ULR 2000, 136. Id., pointing also out that it does not matter that the UPIC were drafted after the CISG. With no qualifications: Lefebvre/Darankoum, Phénomène Transnational et Droit des Contrats: Les Principes Européens, Revue de Droit des Affaires Internationales (RDAI) 1999, 64, consider that the PECL could be used to interpret and supplement the Vienna Convention. See denying that the UPIC and the PECL might be considered as general principles of the Convention, since the CISG refers to the general principles upon which it is based: Ferrari (op. cit. fn. 24), 169-170, but also considering that they can be useful to corroborate a CISG provision or to determine the exact meaning of a general principle upon which the CISG is based. Following this author, see: Huber/Mullis, The CISG. A new textbook for students and practitioners, Munich 2007, 36. Similarly: Abascal, Los Principios de UNIDROIT como instrument para interpretar o suplementar textos internacionales de derecho uniforme o textos de derecho interno, in: UNIDROIT (ed.), Los Principios de UNIDROIT: ¿Un derecho común de los contratos para las Américas?, Rome 1998, 217-218; Ziegel, The UNIDROIT Contract Principles, CISG and National Law, in: UNIDROIT (ed.), Los Principios de UNIDROIT: ¿Un derecho común de los contratos para las Américas?, Rome 1998, 223-227, warning that to apply the Principles, a close look to the Convention’s methodology is first needed. Perales Viscasillas, Los Principios de UNIDROIT y CISG: Su muta interacción, in: Contratación internacional, Comentario a los Principios sobre los Contratos Comerciales Internacionales del UNIDROIT, Mexico City 1998, 193-195, considering that the mandate of Art. 7(1) CISG and the principles of internationality, uniformity and good faith lead to the result that the UPIC would serve to interpret the CISG. Magnus, Incorporation of Standard Contract Terms under the CISG, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries. Festschrift Kritzer, London 2008, 312, considering that interpretation

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As shown, the majority of the scholars follow the intermediate position and thus whether the UPIC and/or the PECL might have a role with the CISG depends on the concurrence of certain circumstances, since there is not a full identification of the general principles of the CISG with the UPIC. It is clear that the majority of the scholars are hesitant when considering – from a theoretical point of view – the interplay between the CISG and the UPIC. Some case law has also followed this intermediate position by considering that the UPIC embodies some of the CISG’s general principles and thus it might be interpreted using the UPIC (and on some occasions the PECL).37 This position specifies a more general proposition: that the UPIC reflects general principles in international trade law.38

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and gap-filling of the CISG can be derived from the UPIC and the PECL; Bridge, Uniformity and Diversity in the Law of International Sale, (2003) 15 Pace International Law Review, 82, considering that the Principles can be useful in the interpretation of the CISG as long as they do not conflict with its provisions; similarly: López Rodríguez, Lex Mercatoria and Harmonization of Contract Law in the EU, Copenhagen 2003, 160-164; Pendón Meléndez, Preámbulo, in: Morán Bovio (ed.), Comentario a los Principios de UNIDROIT para los Contratos del Comercio Internacional, 2nd ed., Pamplona 2003, 40-41; San Juan, La interpretación e integración de las lagunas de la Convención de Viena de 1980: Los Principios en que se inspira y los Principios UNIDROIT, (2005) 53 Revista Universidad de Deusto, 120; Gotanda, Using the UNIDROIT Principles to Fill Gaps in the CISG, Villanova University Legal Working Paper Series, Working Paper 88, October 2007, in relation with damages provisions under the CISG, available at: http://law.bepress.com/villanovalwps/papers/art88; Sica, Gap-filling in the CISG: May the UNIDROIT Principles Supplement the Gaps in the Convention?, Nordic Journal of Commercial Law 2006, available at Pace database. See also Bonell (op. cit. fn. 1), 317-320; and in agreement Meyer, Principles of Contract Law und nationales Vertragrecht, Baden-Baden 2007, 91-92; Olivares, La función integradora de los principios generals en la compraventa internacional de mercaderías y los principios de la UNIDROIT sobre contratos comerciales internacionales, Anuario de Derecho Civil (ADC) 2003, 1035-1040 (in relation to the UPIC); Felemegas (op. cit. fn. 30), 37 considering both UPIC and PECL. See also: Chandrasenan, UNIDROIT Principles to Interpret and Supplement the CISG: An Analysis of the Gap-Filling Role of the UNIDROIT Princples, (2007) 11 Vindobona Journal of International Commercial Law and Arbitration, 68 et seq. Bonell (op. cit. fn. 1), 232. Since UPIC and CISG share the same general principles, individual provisions of UPIC may fill gaps on CISG “provided that they are the expression of a ‘general principle’ common to both instruments.” Huber/Mullis (op. cit. fn. 34), 36. Arbitral Awards Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft, Vienna, 15 June 1994, (SCH-4366) and (SCH-4318) (Austria),

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Other decisions seem to be even more enthusiastic about this issue, probably because one of the main problems of the general principles within the CISG – as a method to fill its gaps – is that there is neither an enumeration nor a definition thereof. Thus, it is difficult for the interpreters – the judges and the arbitrators – to find them within the Convention. It is not a surprise that some arbitral decisions have easily made recourse particularly to the UPIC but also to the PECL, considered that they are the general principles

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applying the principle of full compensation under Art. 74 CISG to determine the rate of interest under Art. 78 CISG and considering that the same result would be derived from Art. 7.4.9 UPIC; Cour d’appel of Grenoble, 23 October 1996; the Court, in order to determine its own competence in accordance with Art. 5(1) Brussels Convention, understood that the place of performance of the obligation was the place were the payment had to be made, i.e., the seller’s place of business (Art. 57(1) CISG). This rule is generally considered to express a general principle: the payment of any debt sum should be made at the creditor’s place of business. This principle is expressly embodied in Art. 6.1.6 UPIC; Hof ‘s-Hertogenbosch, 16 October 2002, analysing an international sales of goods contract under the CISG and finding that, in order to achieve a uniform and international solution, it should be interpreted in the light of both the UPIC and the PECL. The Tribunal considered the comments to Art. 2.20 UPIC and Art. 2:104 PECL in the interpretation of the CISG and particularly took into account Art. 2:104 PECL, which states that the conditions are incorporated into the contract if the user of the conditions “took reasonable steps to bring them to the other party’s attention before or when the contract was concluded.” In that way, the tribunal held that the seller’s general conditions – at the back of the invoice that was sent when the goods were delivered – did not bind the buyer, since the seller did not inform the buyer about the general conditions before the conclusion of the contract; ICC 8908/1998, pointing out in relation with an exclusive distributor contract that Art. 19(1) and (2) CISG, as well as Art. 2.11 UPIC are considered to be normative texts that can be useful in the interpretation of international contracts; ICC 7819/1999 considering that open price contracts are generally accepted as confirmed by Art. 55 CISG and Art. 5.7 UPIC; Tribunale di Padova, 10 January 2006, citing Art. 31(a) CISG, Art. 6.1.6(1)(b) UPIC and Art. 7:101(1)(b) PECL in relation with the place of delivery under Art. 5(1)(b) Brussels Regulation; and Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 6 June 2003, referring to Art. 7.4.7 UPIC. See for example: ICC 9117/1998, pointing out in regard to the interpretation of a no-oral-modification clause and a merger clause under Art. 29 CISG that the meaning of those clauses is reflected in the UPIC, that although they were not applicable to the case, they “express a communis opinio and consensus”. See also: Cour d’appel of Grenoble, 24 January 1996, in regard to an international transport contract, considering that Art. 2.21 and 4.6 UPIC (those provisions refer to general standard terms and conditions) reflect general principles in international trade law.

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of the CISG referred to in Art. 7(2) CISG.39 Furthermore, it has so been held in regard to particular issues within the CISG. There are several examples related to the type of interest to be applied under Art. 78 CISG, which, as it is well known, is one of the most troublesome questions within the Convention. Without the need to reiterate the different positions in scholarly writings and case law, it is enough to say that when considered a gap, the rate of interest within Art. 78 CISG has been filled by applying the UPIC (sometimes also the PECL) as they have been considered the general principles on which the CISG is based (Art. 7(2) CISG).40 Other examples are penalty clauses,41 or the requirements for specific performance.42

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ICC 8817/1997, XXV Yearbook of Commercial Arbitration 2000, in relation to an exclusive distribution contract in Spain and Portugal, where the sole arbitrator declared that the CISG was applicable to the case as well as its general principles as embodied in the UPIC mentioning Art. 9(1), 25, 64, 74 and 78 CISG. ICC 8128/1995 (UPIC and PECL); ICC 8769/1996 (UPIC); Economic Superior Tribunal of Belarus, 20 May 2003, directly applying the UPIC to fill the rate of interest; and ICC 8547/1999 where the applicable law was the 1964 Uniform International Sales of Goods. The Tribunal pointed out that in accordance with Art. 17 ICC Arbitration Rules it would apply the UPIC (Art. 4.5 and 7.1.3) as a useful complement to fill gaps in the uniform laws. See Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 5 June 1997 (229/1996), in a transaction in which the CISG was applicable, the Tribunal considered that a gap within the CISG is the question of whether the sum agreed in a penalty clause was excessive. The Tribunal – mentioning the objective of the UPIC to interpret and supplement international uniform law instruments as considered in the Preamble – resorted to Art. 7.4.13(2) UPIC and held that the agreed sum should be reduced according to the principle of reasonableness. Furthermore, it held that recourse to the UPIC was also justified on the basis of Art. 9(2) CISG. It seems to have been the case of the Arbitral Award of the International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation, 30 January 2007 (147/2005) where the Tribunal considered the CISG as the applicable law and decided that the CISG was silent on the requirements to apply for specific performance and in accordance with Art. 7(2) CISG considered it appropriate to apply the UPIC as they have “been used not only in international commercial practice but also in its own jurisprudence as a supplementary source of rules of law reflecting contemporary international trends which providing sound solutions to international commercial disputes” (see abstract at UNILEX).

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D. Modern Trends in the Interpretation and Filling Gaps within the CISG: the Role of the UPIC and the PECL The state of affairs in regard to interpretation and gap-filling of Art. 7 CISG has already been considered as well as the status of doctrinal opinions and case law. As already mentioned, the methodology within the CISG is to achieve an international, uniform and autonomous interpretation. Autonomous interpretation, however, does not mean that guidance on the interpretation and the solutions to fill gaps are to be found solely within the four corners of the Convention and that the UPIC or the PECL will have no room within the Convention, since external principles43 might also play a significant role44 due to several reasons. First, the dynamic interpretation of the Convention45 claims a permanent estate of evolution in the interpretation of the CISG, which, as an international Treaty, it is not feasible to amend either rapidly or in short periods of time. Secondly, the combination of the methodological approach to interpretation and gap-filling (Art. 7(1) and (2) CISG) may be adapted to include

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It is worth mentioning CENTRAL (Center of Transnational Law) and its list of principles, rules and standards of the lex mercatoria (available at http://www.tldb. net). It has been stated that: “The list reproduces all those rules and principles of the lex mercatoria as black-letter law which have been accepted in international arbitral and contract practice together with comprehensive comparative references. The list unifies the various sources that have fostered the evolution of a transnational commercial legal system into a single, open-ended set of rules and principles: the reception of general principles of law, the codification of international trade law by ‘formulating agencies’, the case law of international arbitral tribunals, the law-making forces of international model contract forms and general conditions of trade, and finally the analysis of comparative legal science”, see Berger, Lex Mercatoria Online: the CENTRAL Transnational Law Database at www.tldb.de, (2002) 18 Arbitration International, 86. CENTRAL is the creation of Klaus-Peter Berger following his ideas in: The Creeping Codification of the Lex Mercatoria, The Hague 1999, 278-311. CENTRAL has also formed the list by using trade practices and usages (see general information at http://www.tldb.net). They purport to be applied “as a means to allow for an autonomous interpretation of and for the filling of internal gaps in international conventions and other uniform law instrument” (see general information). See, giving room to international rules of law outside CISG (lex mercatoria): Bernstein/Lookofsky (op. cit. fn. 26), 27. Van Alstine, Dynamic Treaty Interpretation, (1998) 146 University of Pennsylvania Law Review, 774 et seq.; Schlechtriem/Witz (op. cit. fn. 29), no. 77, although in disagreement with the role of the UPIC and the PECL in the interpretation and gap-filling of the CISG.

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new technical and economic developments46 within the Convention, so as to justify the interplay between the UPIC/PECL and the CISG. Thirdly, the Preamble emphasises the goals of the Convention as provided also in Art. 7 CISG: universality, uniformity and internationality.47 At the same time, the goal of removing legal barriers and the promotion of the development of international trade – as stated in the Preamble – helps to understand the dynamic approach of the Convention towards its interpretation and gap-filling, and legitimates together with other elements an approach upon which recourse to external general principles of the CISG is possible.48 Fourth, a broad, liberal and autonomous approach to the interpretation and gapfilling within the CISG should be considered, as this principle applies generally to uniform international law instruments, leading to a de-nationalised, transnational and uniform approach to the interpretation of CISG.49 This development in the interpretation of the Convention is due to several factors: the increasing number of countries that have ratified the Convention, the abundant information easily available on the CISG, the success of other international uniform law instruments, like the UPIC and the PECL, the success and growing number of international commercial arbitration, the fact that comparative law and domestic law are increasingly using international uniform law in different ways, hence contributing to an interpretation of the legal texts in light of the international uniform law instruments, and finally the efforts in educating the international operators on the specificities of uniform international commercial law. These considerations come to a simple conclusion: it is the international character of the CISG, its uniform interpretation, a dynamic approach in the CISG’s interpretation and gap-filling, a systematic interpretation of international uniform law and its adaptation to present times that justify the role that the UPIC and the PECL might play in relation with the CISG. For the very same international nature and the coincidence in the rules, case law on the UPIC and the PECL might be considered in regard to the CISG and vice versa.50 46 47

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Schlechtriem (op. cit. fn. 20), Art. 7 no. 5. The Preamble states: “Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.” Also in agreement Felemegas (op. cit. fn. 30), 35. See Abascal (op. cit. fn. 34), 213-214; Felemegas (op. cit. fn. 30), 12. In general considering the UPIC in the interpretation and gap-filling of international uniform law: Berger (op. cit. fn. 43), 181-183. Schmidt-Kessel, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 9 no. 4. Interesting is the approach taken by the scholars who have made an effort to compare

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Having said that, it is necessary to specify that the UPIC and the PECL might be used to interpret and supplement the CISG when those texts embody the same notions and principles as derived from the CISG, since, in this author’s opinion, the general principles upon which the Convention is based are to be found within the CISG. At the same time, the CISG, as a whole, is based upon general principles derived from comparative law51 and from international trade that are also within the UPIC justifying the internal logic of both instruments and thus making the mutual relationship between the two texts possible. In this regard, this role of the UPIC and the PECL as instruments to fill gaps should be treated with care and caution because there is the potential risk of turning to the UPIC and the PECL when there is a gap before the general principles that could be derived from the CISG. However, this is one of the most important roles that, particularly, the UPIC are called to fulfil due to the incomplete or fragmentary nature of the international texts. Deciding the possible existence of gap-filling in the Convention is one of the most arduous tasks for the interpreter. The fact that the regulation embodied in the UPIC in some matters from that of the Vienna Sales Convention,52 may induce errors about the interpretation of the Convention; in particular, it could influence the solution that the arbitrator or the courts give to an specific case. A special effort should be made to find the solution in the uniform law. The ideal situation would be to avoid the easy recourse to the UPIC and the PECL, but if the CISG’s general principles are also detailed in the UPIC and the PECL, it is rather logical to apply them as companions to the CISG. Further, this author has already considered that even though the UPIC are not the general principles of the CISG, they even might fill the gaps of the Convention if no general principles within the Convention are found, and thus regard might be had to the UPIC before resorting to domestic law. This proposition relies on the practicalities of international commercial transactions, the uncertainties of the application of the conflict of law rules, and particularly on the application of the principles laid down in Art. 7(1)

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each of the provisions of the CISG with its counterpart in the UPIC and the PECL and how these instruments might be used to interpret and supplement the CISG. See Felemegas (op. cit. fn. 30). As considered by Felemegas (op. cit. fn. 30), 30, a distinction should be made between those principles extrapolated from specific provisions of the Convention and the general principles of comparative law upon which the CISG as a whole is based. See Perales Viscasillas (op. cit. fn. 28), 380-441.

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CISG, more specifically the uniformity principle as one of the main goals of the Convention.53 In my view, this opinion is also justified by the fact that there is an increasing tendency in domestic law to have recourse to international uniform law instruments – CISG,54 UPIC and PECL – not only as a mere “doctrinal 53

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Perales Viscasillas (op. cit. fn. 34), 196-198. As pointed out by Bonell (op. cit. fn. 1), 231: “It is nowadays widely recognized that international uniform law instruments should be interpreted and supplemented according to autonomous and internationally uniform principles and that recourse to domestic law should only be a last resort.” It is also the position of other scholars like Felemegas (op. cit. fn. 30), 33-36, pointing out that recourse to the UPIC and the PECL before domestic law should be done only when reasonable to do so. The CISG has been applied as an aid to confirm general principles of a national domestic system, to confirm a trend in the judicial interpretation, or, more importantly, as a tool of interpretation and supplement to various kinds of domestic contracts and not only commercial contracts. Thus, the CISG has served as an important instrument for the development of national legal systems. In this regard, the CISG has been, and still is one of the preferred instruments used in the modernisation of contract law, confirming the general character of the rules of the Convention – general rules of the law of contract, and even to the law of obligations – apt to be applied to any kind of contracts, including consumer contracts. See Directive 1999/44, 25 May 1999, of the European Parliament and of the Council on certain aspects of the sale of consumer goods and associated guarantees, O.J. 1999 L 171/12. The influence of the CISG is also seen in Directive 2000/35 on Late Payment, see Perales Viscasillas, Late Payment Directive 2000/35 and the CISG, (2007) 19 Pace International Law Review, 125-142. This value of the rules of the Convention has also been recognised by courts and arbitral tribunals around the world, who thus have taken advantage of the CISG’s fundamental rules and principles to interpret and fill gaps within a domestic legal system or to develop certain domestic institutions under the umbrella of the CISG. See Perales Viscasillas, Spanish Case Law on the CISG, in: Ferrari (ed.), Quo Vadis CISG? Celebrating the 25th Anniversary of the United Nations Convention on Contracts for the International Sale of Goods, Munich 2005, 235-236; Perales Viscasillas, CISG Case Law in Spain (2004-2006), in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries. Festschrift Kritzer, London 2008, 392-393. For example, the influence of the good faith principle of the CISG is seen in the case law development of certain Common Law jurisdictions in which some tribunals use the good faith principle under the CISG as an important tool in regard to domestic contracts. See for Australia: Court of Appeal, New South Wales, 12 March 1992, (1992) 26 New South Wales Law Reports, 234-283; Federal Court of Australia, South Sydney District Rugby League Football Club Ltd v. News Ltd., 3 November 2000. Also in New Zealand: Court of Appeal of Wellington, 3 October 2001. Of course in Civil Law systems as well: see SAP Navarra, 22 September 2003; and Rechtbank Zwolle, 5

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reference”55 but more importantly to interpret and fill its gaps leading to a macrosystematic interpretation of uniform law instruments56 as well as an

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March 1997, considering the good faith principle under the CISG and the UPIC as an aid to interpret French law. Spanish Courts have used as comparative law or doctrinal reference the UPIC, PECL, and PETL (Principles of European Tort Law) in regard to: a) the principle of good faith: Art. 1:201 PECL and Art. 1.7 UPIC; b) early performance: Art. 7:103(1) PECL; c) termination of the contract: Art. 8:103 and 9:303 PECL and Art. 7.3.1 UPIC (also: Art. 25 and 26 CISG); d) the principle of solidary obligations in commercial contracts: Art. 10:102 PECL; e) set-off: Art. 13:102 PECL; f) relevant circumstances to the interpretation of the contract – interpretative usages: Art: 5:102(f) PECL (and Art. 8.3 CISG), and – conduct of the parties subsequent to the conclusion: Art. 4.3(c) UPIC; g) conflict of interest: Art. 3:205 PECL; h) initial impossibility: Art. 4:102 PECL and Art. 3.3 UPIC; i) certainty of harm: Art. 7.4.3 UPIC. In regard to the PETL: liability for auxiliaries: Art. 6:102 PETL; and restoration in kind: Art. 10:104 PETL. See: Perales Viscasillas (op. cit. fn. 8), 1-7. For other systems, see, for example: Australian Federal Tribunal, 12 March 2003; High Supreme Court of Lithuania, 6 November 2006; Centro de Arbitraje de la Cámara de Comercio de Costa Rica, 1 June 2003; Court of Appeal (Civil Division), 17 February 2006, Proforce Recruit Limited v The Rugby Group Limited, where Lady Justice Arden stated: “That policy would have to be carefully considered if evidence of pre-contractual negotiations is to be admitted in evidence in interpretation questions in the future on any wider basis than the law presently permits. In that sense there may be parallels to be drawn with the use of legislative history in the interpretation of statutes. In addition, careful consideration may have to be given to the aims to be achieved by contractual interpretation and the precise extent to which the law requires an objective interpretation, as set out in para (1) of the passage cited above from the ICS case. It may be appropriate to consider a number of international instruments applying to contracts. It is sufficient to take two examples. The UNIDROIT Principles of International Commercial Contracts give primacy to the common intention of the parties and on questions of interpretation requires regard to be had to all the circumstances, including the pre-contractual negotiations of the parties (Art. 4.3). The UN Convention on Contracts for the International Sale of Goods (1980) provides that a party’s intention is in certain circumstances relevant, and in determining that intention regard is to be had to all relevant circumstances, including preliminary negotiations.” See also: Court of Appeal (Civil Division), The Square Mile Partnership Ltd v Fitzmaurice McCall Ltd, 18 December 2006, where Lady Justice Arden repeats the former sentence and adds: “The Proforce case has been the subject of academic discussion: see in particular A. Berg, Thrashing through the Undergrowth [2006] 122 LQR 354 and M.J. Bonell, The UNIDROIT Principles and CISG - Sources of Inspiration for English Courts? [2006] 11 Uniform Law Review 305. (The CISG is the UN Convention referred to in the quotation in the last paragraph). Mr Berg makes the important point that the meaning of commercial contracts needs to be clear, and that the admission of evidence as to pre-contractual negotiations (or post-contractual conduct) ‘will of-

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ten make it more difficult and time-consuming for a party to a commercial contract to ascertain his legal position’. Professor Bonell expresses the view that the approach in the UNIDROIT principles and the CISG reflect the trend at international level. Professor Bonell also refers to the decision of Gloster J in Svenska Petroleum v Government of Lithuania (2006)1 Lloyd’s Rep 181. Her decision was affirmed by this court ([2006] EWCA Civ 1529, Sir Anthony Clarke MR, and Scott Baker and Moore-Bick LJJ)” at 62; and High Court of Australia, 13 December 2007. As well as the CISG, the UPIC and PECL have been applied as an aid to confirm general principles of a national domestic system, to confirm a trend in the judicial interpretation, or, more importantly, as a tool of interpretation and supplementation of various kind of domestic contracts and not only commercial contracts. Particularly important is the case law of the High Supreme Court of Spain, followed by the Appellate Courts, where the PECL and the PETL are being used to interpret and supplement the Spanish Civil Code (CC). See in regard to the termination of the contract: Art. 8:103 PECL (Fundamental non-performance), impliedly in case law, using the language of Art.8:103(b) and (c) PECL to interpret Art. 1124 CC, STS 10 October 2005: contract of carriage: “The interpretation of Art. 1124 CC by our case law has been that in order to terminate the contract an intentional breach is required (citing several cases) so as to ‘give the aggrieved party reason to believe that it cannot rely on the other party’s future performance’ (Art. 8:103(c) PECL). In conclusion, Art. 1124 CC is to be interpreted in the sense that (…)”. The Court uses the language of Art. 8:103(b) and (c) PECL. Indirectly via the CISG: STS 5 April 2006, confirmed by several decisions of the Supreme Court, such as: 22 December 2006 and 5 January 2007, dealing with the case law interpretation of Art. 1124 CC that requires a severe non-performance: “This intepretation is coherent with the modern doctrine about the breach of the contract contained in Art. 25 CISG, a rule that ought to be used to supplement Art. 1124 CC; in a similar fashion, see Art. 8:103 PECL”. Followed by numerous appellate court decisions: SAP Islas Baleares, 9 November 2006 (RA 2007/90656); SAP Madrid, 4 June 2007 (RA 1226); SAP Madrid, 19 June 2007 (RA 1843); STSJ Navarra, 5 July 2007 (RA 8234); SAP Madrid, 9 July 2007; SAP Madrid, 11 July 2007 (RA 336743); SAP Madrid, 30 July 2007 (RA 355576); SAP Madrid, 1 October 2007 (RA 363163); SAP Madrid, 5 November 2007 (RA 2008/40434); SAP Valencia, 12 November 2007 (2008/85083); SAP Madrid, 26 November 2007 (2008/84397); SAP Madrid, 18 February 2008 (RA 2008/136291); SAP Madrid, 18 February 2008 (RA 2008/136216); SAP Madrid, 8 April 2008 (RA 189148). STS 31 October 2006, considering also indirectly that the CISG and the PECL ought to be used to supplement Art. 1124 CC as a form of interpretation of the rules in accordance with the social reality in which they are to be applied. SAP Islas Baleares, 19 July 2007, and SAP Palma de Mallorca, 4 September 2007: “Art. 6:104 Principles of European Contract Law whose interpretative and gap-filling role have been recognised by our Supreme Court (citing SSTS 22 December 2006 and 5 January 2007) (…)”. Concerning the PETL, see STS 17 July 2007, considering that Art. 4:102(1)

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internationalisation of domestic law. More so, this modern approach to a systematic interpretation of uniform law instruments is to be considered when interpreting and supplementing the CISG.57 Finally, in regard to the matters excluded from the scope of CISG, like the validity issues, the Principles might also be considered as the governing law if particularly coupled with an arbitration clause.58

E. The UPIC and PECL Distinguished in the Interpretation and Gap-filling of the CISG Once reaching this point, it is however necessary to distinguish the UPIC and the PECL and consider different scenarios: An international sale of goods transaction governed by the CISG, whether or not the parties are from the EU, and when there is a contradiction between the UPIC and the PECL.59 In this situation preference should be given to the UPIC.

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PETL: “ought to be taken as a reference to fill the gaps and supplement the drafting of Art. 1902 Civil Code.” See in general Perales Viscasillas (op. cit. fn. 8), 1-7. Especially since UNCITRAL has decided to endorse very recently the UPIC. See Report of the United Nations Commission on International Trade Law on the work of its fortieth session, A/62/17 (Part I) General Assembly, at http://www. uncitral.org/uncitral/en/commission/sessions/40th.html, at no. 210: “The Commission recognized that the UNIDROIT Principles 2004 complemented a number of international trade law instruments, including the United Nations Convention on Contracts for the International Sale of Goods (1980)”, and no. 211: “General support was expressed for recognizing the value of the UNIDROIT Principles 2004. It was noted that the principles were widely recognized and had been applied in a variety of circumstances. A question was raised as to the relationship between the United Nations Sales Convention and the Principles. It was observed that the United Nations Sales Convention contained comprehensive specialized rules governing contracts for the international sale of goods and applied in accordance with its scope-of-application provisions to the exclusion of the Principles. Equally, questions concerning matters governed by the United Nations Sales Convention that were not expressly settled in it were to be settled, as provided in article 7 of the Convention, in conformity with the general principles on which the Convention was based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Thus, the optional use of the Principles was subordinate to the rules governing the applicability of the United Nations Sales Convention.” For the text of the resolution see infra at fn. 61. López Rodríguez (op. cit. fn. 34), 164. This situation is not likely to occur since both texts coincide to a great extent. There are, however, some divergences derived from the different scope of applica-

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First, as mentioned before, the UPIC have a vocation to be considered as a tool for the interpretation and supplementation of the CISG, whilst the PECL do not expressly foresee this role. Secondly, the UPIC and the PECL differ in their approach. The latter are considered as general contract rules within the EU and apply to civil transactions (including consumers) whilst the UPIC are more in line with the CISG as they apply to international commercial transactions.60 The international commercial vocation of the UPIC has been considered by UNCITRAL, which has recently endorsed the UPIC,61 therefore “enhancing their prestige and popularity worldwide”.62 Neither does a similar endorsement in regard to the PECL seem possible, nor – in my opinion – a general recommendation by UNCITRAL to use the UPIC as a means to interpret and supplement the CISG. Thirdly, as pointed out by several scholars, there is no “European lex mercatoria”, and thus it is preferable to apply the UPIC when considered an expression of a truly universal lex mercatoria.63 In this regard, the PECL, as well

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tion of both texts. See Bonell (op. cit. fn. 1), 343-352. Ibid, at 355, stating that: “there is no real competition between the UNIDROIT Principles and the European Principles”. The same approach at Bonell (op. cit. fn. 1), 357. See Report (supra fn. 57), at no. 213. “The United Nations Commission on International Trade Law, Expressing its appreciation to the International Institute for the Unification of Private Law (UNIDROIT) for transmitting to it the text of the 2004 edition of the UNIDROIT Principles of International Commercial Contracts, Taking note that the UNIDROIT Principles 2004 complement a number of international trade law instruments, including the United Nations Convention on Contracts for the International Sale of Goods (1980), Noting that the preamble of the UNIDROIT Principles 2004 states that (…), Congratulating UNIDROIT on having made a further contribution to the facilitation of international trade by preparing general rules for international commercial contracts, Commends the use of the UNIDROIT Principles 2004, as appropriate, for their intended purposes.” Bonell, Towards a Legislative Codification of the UNIDROIT Principles?, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries. Festschrift Kritzer, London 2008, 69. Bonell (op. cit. fn. 1), 357 and fn. 98 with several citations. Contrary: Lefebvre/Darankoum (op. cit. fn. 33), 52 and 65 where they seem to prefer an application of PECL before UPIC in the case of conflict although subject to a case by case analysis on the pertinence of their respective content. To this regard: Berger, Creeping Codification (op. cit. fn. 43), 179: “The Principles are an indication of the existence of a transnational legal rule, they are therefore a possible source of the lex mercatoria, but should not be confused with the lex mercatoria.”

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as EU Directives, would have a restrictive role towards the CISG64 unless the PECL contains truly international commercial rules or it be considered as reflecting international usages of trade. A different scenario is also possible: an international sale of goods transaction governed by the CISG, whether or not the parties are from the EU, and when there is no contradiction between the UPIC and PECL, but the latter expand the understanding of the former. In this situation, it might be possible to consider the role of the PECL as a tool to interpret and fill gaps within the Convention. For example, Art. 1:304(3) PECL refers to the computation of time giving a detailed rule in paragraph 3 that it is not envisaged in Art. 20 CISG or in Art. 1.12 UPIC.

F. Usages of Trade and Lex Mercatoria: the Role of the UPIC/PECL in the Interpretation and Gap-filling of the CISG: Art. 9(2) CISG The possible consideration of the UPIC/PECL as lex mercatoria65 or as international usages of trade has also an important bearing on their role towards 64

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See: Schlechtriem (op. cit. fn. 20), Art. 90 no. 13; Magnus, The CISG’s Impact on European Legislation, in: Ferrari (ed.), The 1980 Uniform Sales Law. Old Issues Revisited in the Light of Recent Experiences, Munich 2003, 131; Perales Viscasillas, La morosidad en las operaciones comerciales entre empresas. Ley 3/2004 y Directiva 2000/35, Madrid 2006, 137 et seq.; Perales Viscasillas (op. cit. fn. 54), 125142. On the contrary, the PECL might be useful in the interpretation of EU legal rules: cf. House of Lords, Director General of Fair Trading v First National Bank plc. of 25 October 2001, no. 36, available at http://www.publications.parliament. uk/pa/ld200102/ldjudgmt/jd011025/fair-1.htm. Comments on the principle of good faith in the PECL were used to interpret Art. 3(1) Directive 93/13/EEC, 5 April 1993 on unfair contract clauses. There is abundant literature in regard to the concept of the lex mercatoria. Recently, different views were expressed. For example: De Ly, Lex Mercatoria (New Law Merchant): Globalization and International Self-Regulation, Diritto del commercio internazionale (Dir. Com. Int.) 2000, 557 defines it as a “set of rules finding their origins outside domestic legal systems and which are applicable to international business transactions. By and large, it is composed of international sources of law and self-regulatory rules”; similarly Ramberg, International Commercial Transactions, Stockholm 1998, 20: “anational system of principles and rules generally accepted in international commerce”. However, a more restricted view seems to be that of Goode who considers that the rules contained in international conventions as well as codified usages are outside the concept. However, contractual terms like UCP 500 or 600 only become usages if they have acquired normative force. In his

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the CISG66 since interpretation and gap-filling of the CISG is sometimes closely related to the interpretation of the contract. For example, the parties may have agreed in the contract that interest should be paid, but without specifying the rate of interest. In this situation, one is confronted with both: a need to fill a gap in the contract and in the Convention (Art. 78 CISG). As pointed out very clearly by Schlechtriem67 in relation to Art. 7 CISG: “Before resorting to a general principle and stating a – general – uniform rule derived from it, one must first examine whether the issue is or may be solved by interpreting the parties’ intentions under Article 8 and those elements of their previous dealings that amount to established practices, Article 9(1).” Art. 9 CISG68 refers to three different institutions in name, content and effects: practices established between the parties, agreed usages, and international usages of trade or customs. Whilst the practices and the agreed usages have a bilateral effect and thus constrained to the habitual conduct of the parties or the agreement of the parties concerned, the international usages of trade have an erga omnes or general application as their existence is disconnected from a concrete commercial operation. The value of the practices and usages is normative as they are considered to be sources of the contract by express or implied agreement. They also serve another important function within the Convention: as interpretative criteria to the contract as considered in Art. 8(3) CISG. Art. 9 CISG recognises and organises the most important sources for the international sale of goods contracts. Furthermore, it is a general rule of the theory of commercial contracts, particularly the recognition of international usages of trade as an objective source of international sale of goods contracts. Art. 9(2) CISG internationally codifies and expressly recognises the so-

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opinion, the lex mercatoria is the rules originated in commercial practice that are observed with the sense of binding obligation, Goode (op. cit. fn. 13), 73 et seq. Incidentally it is worth mentioning that the CISG has been considered also as a reflection of international usages of trade: ICC 6281/1989; ICC 8453/1995; ICC 9333/1998. See Illescas Ortiz/Perales Viscasillas, Derecho Mercantil Internacional. El Derecho Uniforme, Madrid 2003, 111-113. Schlechtriem (op. cit. fn. 20), Art. 7 no. 30. Art. 9 CISG: “(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.” Identical formulation is found in Principle 1.3 of the list prepared by CENTRAL (available at http://www.tldb.net).

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called lex mercatoria as the “law of merchants” that it is in the origin, development and as one of the most important features of international commercial law, but also domestic commercial law.69 This recognition of the usages of trade is also found in international commercial arbitration where the vast majority of the arbitration laws as well as arbitration rules70 consider an obligation to the arbitrators in all circumstances – whether there is applicable law or not and whether or not the arbitration is ex aequo et bono – to consider the application of the usages of trade. There are several arbitral awards that have considered that those usages of trade are embodied in the UPIC71 and the PECL.72 69 70

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See for example Art. 2 Commercial Code of Spain. Art. 28(3) UNCITRAL Model Law on International Commercial Arbitration, Art. 17(5) ICC Arbitration Rules, and Art. 33(3) of the 1976 UNCITRAL Arbitration Rules. An implied or express reference is made to the UPIC as usages of trade: Inter-American Convention on the Law Applicable to International Contracts 1994, considering that in order to determine the applicable law, account is to be taken of the general principles of international commercial contracts as accepted by international organisations (Art. 9(2)). Furthermore, Art. 10 states that when necessary it should be considered the rules of law, customs, usages of trade and the principles of international commercial law. See: Veytia, The Requirement of Justice and Equity in Contracts, (1995) 69 Tulane Law Review, 1195; Juenger, The Inter-American Convention on the Law Applicable to International Contracts: Some Highlights and Comparisons, (1994) 42 AJCL, 391; Parra Aranguren, Aspectos de Derecho Internacional Privado de los Principios para los contratos mercantiles internacionales elaborados por el UNIDROIT, (1994) 91 Revista de la Facultad de Ciencias Jurídicas y Políticas, 29-31, 179-180: “Los Principios abandonan el campo académico para convertirse en un factor determinante en las solución de las controversias derivadas del comercio mercantil internaciona.”; and Boggiano, La Convention interaméricaine sur la loi applicable aux contrats internationaux et les Principes d’UNIDROIT, ULR 1996, 219-228. In a similar sense, Art. 27 and Art. 43 Panama Arbitration Law of 1999 consider that the arbitrators should take into account the UPIC as well as the rules of international contract law. ICC 8503/1996, considering also the CISG; and ad hoc Arbitral Award Buenos Aires, 10 December 1997. See also considering that both the CISG and the UPIC are a proof of the practices admitted in international trade: ICC 8502/1996 and Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 5 June 1997 (229/1996); ICC 9333/1998. Also for UPIC: Arbitral Award China International Economic and Trade Arbitration Commission (CIETAC), 2007. For UPIC and PECL: Arbitral Award of the Internationales Schiedsgericht der Wirtschaftskammer Österreich, 11 May 2006 (SCH-4921) considered in a contract governed by Austrian law Art.9.1.10(1) and 9.1.13(2) UPIC and Art. 11:303(4) and 10:107(1) PECL as internationally accepted principles.

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Despite this, general references in case law seem to imply a complete identification between the lex mercatoria and the usages of trade and UPIC, although there is rather a partial application of some of the rules of the UPIC to a given case as some of them are understood to reflect usages of trade.73 Some decisions qualify this general statement – opening “Pandora’s box” – when the equation UPIC = lex mercatoria or UPIC = general principles of international commercial contracts74 is restricted to only those rules on the UPIC that reflect rules and principles generally accepted. To this regard, it is pointed out that some of the rules have not yet gained an international consensus and that certain rules depart both from the CISG and the PECL;75 thus it is considered that the UPIC reflect the lex mercatoria except for some of their rules, particularly the hardship provision.76 This limitation obliges investigation in each particular case when the UPIC translate the general principles of international commercial contracts or the lex mercatoria. 72

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ICC 10022/2000, where the parties chose Lithuanian law. The arbitrator considered that unless the parties have expressly agreed on the PECL or the UPIC, they have only a persuasive value. However, when considering the usages of trade, the arbitrator stated that if convenient, a reference to those instruments is possible since the notion of usages of trade includes also the UPIC and the PECL. High Supreme Court of Spain, 31 October 2006 (RA 8405), considering the PECL as an expression of lex mercatoria. See the endorsement of UNCITRAL to UPIC (supra fn. 61), at 212: “It was noted that the preamble of the Principles referred to their application ‘when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like’. It was clarified that, depending on the circumstances, the Principles might be regarded as one possible expression of the lex mercatoria but that that issue ultimately depended on applicable law, existing contractual arrangements and the interpretation taken by users of the Principles.” ICC 9797/2000: “[t]he UNIDROIT Principles of International Commercial Contracts are a reliable source of international commercial law in international arbitration for they contain in essence a restatement of those ‘principes directeurs’that have enjoyed universal acceptance and, moreover, are at the heart of these most fundamental notions which have consistently been applied in arbitral practice.” See also: Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 27 July 1999 (406/1999). ICC 7375/1996. Among the scholars: Raeschke-Kessler, Should an Arbitrator in International Arbitration Procedure Apply the UNIDROIT Principles?, in: Institute of International Business Law and Practice (ed.), The UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria?, Paris 1995, 175-177. ICC 10422/2001. See, however, Principle VIII.1 on Hardship (very similar to Art. 6.2.1-6.2.3 UPIC) at CENTRAL database (http://www.tldb.net).

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When a provision of the UPIC/PECL reflects usages of trade in the sense of Art. 8(3) and 9(2) CISG77 or when the judge or arbitrator considers that in the interpretation and filling gaps within the CISG regard is to be had to international usages of trade or to the lex mercatoria,78 specific provisions in the UPIC and the PECL might play a significant role. More than twelve years ago, I considered that the UPIC cannot be generally identified with lex mercatoria or international usages of trade, but that “it should be recognized that the Principles may eventually become recognized as lex mercatoria by practitioners of international trade”79 and that this future development of the Principles was predictable given that the CISG was being applied by arbitrators as lex mercatoria.80 After more than fourteen years since the publication of the first edition of the UPIC and the great acceptance by scholars and case law, the UPIC are achieving greater knowledge by international operators and are in the process of it being recognised as part of the lex mercatoria. Whether this is already the case is not clear if one speaks generally about the UPIC but it is certainly the case for many of its provisions. Whether this would finally be the case, I believe, it is just a mat77

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See Arbitral Award of the International Chamber of Commerce and Industry of the Russian Federation, 5 June 1997 (229/1996), in a transaction in which the CISG was applicable, basing on the UPIC Preamble, the Tribunal resorted to Art. 7.4.13(2) UPIC, but it also held that the recourse to the UPIC was justified as well on the basis of Art. 9(2) CISG. The application of the UPIC as usages of trade (Art. 9 CISG) is considered among others by Huber/Mullis (op. cit. fn. 34), 20 and 36, on a case by case analysis. Similarly considering that UPIC cannot be applied in total as usages of trade under Art. 9(2) CISG: Bridge (op. cit. fn. 34), 82; López Rodríguez (op. cit. fn. 34), 204-205. More generally seems to consider the UPIC as a usage of trade: Pamboukis, The concept and function of usages in the United Nations Convention on the International Sale of Goods, (2006) 25 Journal of Law and Commerce, 129-130. See Ramberg (op. cit. fn. 65), 20: “Gap-filling of international commercial contracts may be achieved by the application of the so-called lex mercatoria or, in other words, the law merchant”, and considering at the time of his writing that it was premature to regard the UPIC and the PECL as generally accepted lex mercatoria. See also Ferrari (op. cit. fn. 24), 204, considering that a case by case analysis is necessary to ascertain whether the UPIC are usages in the sense of Art. 9(2) CISG and that nowadays they do not necessarily constitute such usage. Similarly: Schmidt-Kessel, in: Schlechtriem/Schwenzer (op. cit. fn. 20), Art. 9 no. 26 in regard to Incoterms, UCP 500 and UPIC and pointing also out that they are interpretation material to be considered under Art. 8(3) CISG. De Ly, (op. cit. fn. 65), 570, considers that the UPIC and the PECL are an important step towards the process of maturity of the lex mercatoria because they reduce the uncertainties in its application. Perales Viscasillas (op. cit. fn. 28), 398. Perales Viscasillas (op. cit. fn. 28), 399.

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ter of time to educate business people, to gain more acceptance in scholarly writings and particularly time is needed to develop a more abundant and coherent body of case law.

G. Future Instruments to Be Considered? DCFR and CFR The PECL were drafted as the first stone towards the building of a European Civil Code on the Law of Contracts and Obligations.81 Since 1997, the Study Group of a European Civil Code, under the chairmanship of Christian von Bar, has been drafting the different chapters that presumably would be integrated under this also presumed “Civil Code”; at the same time other groups have been in charge of specific contracts. In 2003, the Commission published the so-called “Action Plan”82 that consists of several measures that would be included within the Common Frame of Reference (the so-called “CFR”). In order to prepare this CFR, a Joint Network on European Private Law was set up in 2005 including several institutions and research groups, primarily the Study Group. A Draft Common Frame of Reference (the socalled “DCFR”) has been recently published in January 200883 and it is foreseen that a final draft is to be published early in 2009. This work would serve as a model to prepare the CFR.84 81

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The establishment of the Commission on Contract Law entrusted with the drafting of the Principles is due to several resolutions of the European Parliament. See: O.J. 1989 C 158/400 (Resolution A2-157/89); O.J. 1994 C 205/518 (Resolution A3-0329/94); and COM(2001) 398, Resolution of the European Parliament on the approximation of Civil Law and Commercial Law of the Member States. See also: Communication on Contract Law (2001/C 255/01), O.J. 13.9.2001, at 1. Action Plan on a More Coherent European Contract Law (2003/C 63/01), O.J. 2003 C 63/1; further: European Contract Law and the revision of the acquis: the way forward. COM(2004) 651 final, 11 October 2004. See also Meli/Maugeri (eds.), L’Armonizzazione del diritto privato europeo. Il Piano d’azione 2003, Milan 2004. Von Bar/Clive/Schulte-Nölke (eds.), Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Interim Outline Edition. Prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group), Munich 2008, available also at http://www.law-net.eu. Introduction DCFR, no. 60 (January 2008) and as considered by the Action Plan, no. 59: “A common frame of reference, establishing common principles and terminology in the area of European contract law is seen by the Commission as an important step towards the improvement of the contract law acquis. This common frame of reference will be a publicly accessible document which should help the Community institutions in ensuring greater coherence of existing and future acquis in the area of European contract law. This frame of reference should meet the needs and expectations of the economic

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After a simple reading of the DCFR one comes to several conclusions: first, it follows to a great extent the PECL85 and also the UPIC and the CISG, at least with respect to the general part of obligations and contract law; second, although its labelling as DCFR and thus embodying the acquis communautaire derived from the EU Directives on contracts, it might be considered as a project of a “European Civil Code”.86 Whether there would be finally a CFR and whether it will take the form of a “Civil Code” and what would be its binding force is still to be seen and is pending a political decision.87 What is important now to stress is that the “DCFR would stand on its own and retain its significance even if a CFR were not to emerge”.88 If this is so, what then would be, if any, the hypothetical relationship between the DCFR (when it takes its final form) and the CISG? The DCFR is overall an academic89 exercise and as such might be considered by scholars, judges and arbitrators to confirm or to differentiate from the solutions provided by the CISG.90 Whether they can serve to interpret or supplement the CISG seems difficult, particularly due to the European and consumer-oriented drafting of some of its provisions, its purpose and its interim nature, but it is not impossible if the DCFR would finally be considered similar in nature to the PECL and the UPIC. Furthermore, it is foreseen that:

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operators in an internal market which envisages becoming the world’s most dynamic economy.” The cover page of the DCFR already recognises that the DCFR is “based in part on a revised version of the Principles of European Contract Law”, although there are differences: see no. 50 et seq., Introduction to the Draft Common Frame of Reference (January 2008), particularly those derived from the inclusion of the consumer protection rules thanks to the works of the Acquis Group: Principles of the Existing EC Contract Law (Acquis Principles). Contract I. Pre-Contractual Obligations, Conclusion of Contract, Unfair Terms. Research Group on the Existing EC Private Law (Acquis Group), Munich 2007. Collins, The “Common Frame of Reference” for EC Contract Law: A Common Lawyer’s Perspective, in: Meli/Maugeri (eds.), L’Armonizzazione del diritto privato europeo. Il Piano d’azione 2003, Milan 2004, 109 et seq. See also COM(2004) 651 final (supra fn. 82), Annex I, where the possible structure of the CFR is provided, corresponding with the general part of the law of contracts. The drafters insist in distinguishing DCFR and CFR. See no. 1, 6, 41, 67, and 75 Introduction DCFR (January 2008). See no. 7 Introduction to DCFR (January 2008). See European Parliament resolution of 3 September 2008 on the common frame of reference for European contract law (available at http://www.copecl.org). As part of the natural inclination of the arbitrators to use comparative law: Berger (op. cit. fn. 8), 130-133.

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“The common principles91 could be useful for contractual parties at the drafting stage of new contracts, as well as for the execution of contracts. They could also be useful for national courts and arbitrators who have to decide legal issues – especially concerning cross-border cases – which are not fully covered by binding national rules or where no legislative rules exist at all. The courts or arbitrators would know that the principles they were applying represented the solution common to all the national contract law systems in the EU. At the same time common principles could help national courts which have to apply foreign law to have a basic understanding of the underlying general principles of law.”92 If a CFR were to be finally adopted in the near future in the form of an optional instrument – both remain uncertain –, there would be the need to explore the commonalities and its relationship with the CISG.93 In any event, the European Parliament has already suggested in regard to the CFR that: “Another role is the possible use of the CFR in arbitration. Arbitrators would have the possibility to refer to the CFR to find unbiased and balanced solutions to resolve conflicts arising between contractual parties.”94 This author considers that the CFR might play an important role in judicial and arbitral decisions, and could be useful for courts and arbitral tribunals as a doctrinal reference, as an aid to confirm or support the reasoning of the decision.95 Whether it would be used to interpret and supplement international and domestic law seems uncertain at this stage, but a similar development with the PECL seems possible. As commented before, the PECL have been used as a means to interpret and supplement domestic law by the domestic courts of certain countries. Although a legal reasoning to that application is missing, that role of the PECL is probably based on the fact that national judges consider it legitimate to resort to a text with a certain authority behind its drafting process. 91

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In the opinion of this author this statement might be considered to refer to PECL, DCFR and CFR. Communication on Contract Law, COM(2001) 398 final, 15-16. The Action Plan, no. 63, inter alia, considers that the CISG is not only a model to follow but also that coherence with CISG is needed. See also: COM(2004) 651 final (supra fn. 82), Annex II. COM(2004) 651 final (supra fn. 82), no. 2.1.2. There is a contentious relation between the Commission (contra) and the Parliament (pro) on the creation of a “European Civil Code”, but both agree that soft law instruments might play an important role in court decisions and arbitration. Action Plan, no. 60: “If the common frame of reference is widely accepted as the model in European contract law which best corresponds to the needs of the economic operators, it can be expected also to be taken as a point of reference by national legislatures inside the EU and possibly in appropriate third countries whenever they seek to lay down new contract law rules or amend existing ones. Thus the frame of reference might diminish divergences between contract laws in the EU.”

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The CFR would also fulfil this “legitimacy” aspect, but the same reservations considered above in regard to the PECL also ought to be taken into account when considering the possible role of the CFR towards the CISG.96 Even more so, the consumer orientation of many of its provisions ought not to be forgotten97 and, as one of its consequences, the important departures from the CISG.98 96 97

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See supra E. I agree with Principle I.9 of CENTRAL list of principles of the lex mercatoria: “There is a presumption for the professional competence and equality of the parties to an international commercial contract. Parties to international B2Btransactions may therefore not argue that they were not aware of the significance of the contractual obligations to which they have agreed.” Thus no weaker party exists in international business transactions that need to be protected as if it were a consumer. For example, in relation to the offer, Art. 14(2) CISG provides a different solution to that considered under Art. 2:201(3) PECL and Art. II.-4:201(3) DCFR. Some scholars have considered that the presumption of that PECL provision is closer to EU Law than the CISG and thus the PECL solution is to be preferred for the CFR, see Schulze, Deberes precontractuales y conclusión del contrato en el Derecho Contractual Europeo, Anuario de Derecho Civil 2006, 40. As it is well known, the PECL and the DCFR have a broader scope than the CISG as those texts also consider consumer transactions within their scope of application, so different solutions might be justified. First, because the CISG is also to be considered acquis communautaire. Secondly, because the CISG solution is found in the UPIC (Cmt. 2 to Art. 2.1.2 UPIC), and in Art. 11 of the UN Convention on the Use of Electronic Communications to International Contracts (2005). Furthermore, it might be doubtful whether the solution considered in the PECL and the DCFR is more coherent within EU law, as it is shown by the fact that the Acquis Group has not included such a rule: “the Acquis contains a number of rules on how a contract is formed, but too little on what amounts to an offer for formulating an Acquis Principle. We therefore decided to adopt the appropriate Draft Common Frame of Reference Rule as such grey letter rule. In this way, the reader is presented with a more comprehensive set of rules, but also made aware of which of those rules are not based on the acquis communautaire”. See: Principles of the Existing EC Contract Law (Acquis Principles). Contract I. Pre-Contractual Obligations, Conclusion of Contract, Unfair Terms. Research Group on the Existing EC Private Law (Acquis Group), Munich 2007 (Introduction, xxix et seq.). Another example is the international usages of trade under Art. 9(2) CISG and Art. 1.9(2) UPIC. The PECL and the DCFR depart from the CISG and the UPIC: “The parties are bound by a usage which would be considered generally applicable by persons in the same situation as the parties” (Art. 1.105(2) UPIC and Art. II.–1:104(2) DCFR). The departure is logical, considering the different scope of application, but important is that the PECL and the DCFR have simply “de-commercialized” the trade usages in the CISG and the UPIC, Berger, Creeping Codification (op. cit. fn. 43), 205 referring to the PECL.

Constructive Interpretation – Applying the CISG in the 21st Century Olaf Meyer

A. Introduction Since the text of the Convention was conceived at the Vienna Conference in 1980, the CISG has grown up a great deal. After its birth, it enjoyed a rather uneventful childhood and was eight years old before the first ten parent states eventually gave it their blessing to set forth into the world of business. As a newcomer, the CISG initially found itself often being excluded from international transactions and realised that it needed time to win the trust of economic participants. It pressed on undeterred, passed its apprenticeship and gradually found an increasing number of patrons. Now, in the prime of its life, the CISG has fathered countless international sales contracts. Describing the CISG in human terms like this raises the question as to how the ageing process will turn out and its likely effect on the Convention’s application. After all, is it not the case that the CISG is gradually reaching that age when people start to pluck out their first grey hairs and worry about the wrinkles of age scoring their face? Will it be necessary to undertake restorative action – either cosmetic or surgical – to extend its youthfulness? This contribution addresses the question of how apparently outdated rules in the CISG should be dealt with. This subject differs from other interpretative problems that judges are called upon to solve and that form an important part of their functions. The drafters of the Convention deliberately left certain questions of interpretation to be decided by judges. This includes e.g. the definition of “reasonable time” which, according to Art. 39(1) CISG, requires the buyer to notify the seller of the non-conformity of the goods. In case of gaps in the text, the CISG grants the judge a great deal of discretion; if matters fall within its scope but are not expressly regulated by it, Art. 7(2) CISG first requires the judge to find a solution in accordance with the spirit of the Convention and its general principles. Only if this approach does not prove successful he may select another applicable law by virtue of the rules of private international law in order to find a solution. The role of the judge in interpreting the CISG is therefore not limited to reciting the correct solution from the statutory text (i.e. the judge is not la

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bouche de la loi). Instead, the Convention requires him to perform a dynamic, creative task. However, what are the judge’s powers in those cases where the Convention does in fact offer a solution but one that proves inadequate in meeting the needs of trade in the 21st century? In these cases, any scepticism expressed by the judge is certainly not indicative of any arbitrariness or arrogance in relation to the legislator; rather, the solution provided by the Convention simply appears outdated. The question that then arises is whether the extensive law-making power of the judge that normally allows him to find a reasonable and equitable result, is limited by the meaning of the text itself. The legal systems of the Contracting States have very different views on the powers of the judge to progressively develop the law. This basically reflects the constitutional separation of powers between legislature and judiciary. For example, in civilian jurisdictions it is the task of the legislature to enact statutes whereas that of the judge is generally limited to deciding legal disputes in accordance with the statutory text. That said, it is surely passé by now to accuse the judge of being nothing more than a “subsumption automaton”; nowadays, it is generally recognised that he enjoys a certain degree of discretion in adapting statute law to the evolving needs of practice. In linguistic terms, this view is clearly expressed by the German legal term richterliche Rechtsfortbildung (i.e. judicial progressive development of the law). However, the concept it conveys is found in other legal systems as well (e.g. construction jurisprudentielle in France, formazione giurisprudenziale del diritto in Italy). In the Common Law system, judge-made law has maintained its status as the primary source of law despite the steady encroachment of statute law. In this system of law, therefore, “judicial law-making” does not refer to a narrowly defined exception but the system of law itself. Statutory texts represent foreign bodies in case law: as specific measures they are simply designed to remedy a mischief in Common Law and do not create a hermetically sealed system of law in themselves. However, the secondary status of statute law has never encouraged Common Law judges to adopt a gung-ho attitude towards textual meaning when applying statutes: on the contrary, they interpret statutes narrowly whilst remaining faithful to the wording and intention of the legislator. There is an obvious need for the courts to progressively develop the CISG in line with uniform, autonomous standards. However, it is unclear what roles the judges and legislator should play in this respect.1 The CISG does not contain any rules that require the judge to strictly follow the spirit 1

Cf. Gerhart, The Sales Convention in Courts: Uniformity, Adaptability and Adoptability, in: Šarčević/Volken (eds.), The International Sale of Goods Revisited, The Hague 2001, 77, 90 et seq.

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of the Convention as it was in 1980 or grant him the discretion to devise new solutions within certain boundaries. However, one can find good arguments in support of both approaches. The CISG cannot be compared to the great codifications of continental Europe; many issues (e.g. relating to the validity of contracts (Art. 4(a) CISG), agency or limitation periods) are excluded from its scope and have to be decided according to applicable domestic law. The fact that a domestic law exists alongside the Convention reduces the need for judges to progressively develop the latter because they can choose to refer to the domestic law instead.2 It must also be borne in mind that maintaining the uniform interpretation of the Convention is a principle of fundamental importance. The legal text of the CISG finalised in 1980 has proved so successful that it is now applied in 71 states and this number is still increasing each year. However, territorial uniformity will only be realised if all the courts of all signatory states interpret the text of the Convention uniformly. Therefore, every time a judge presumes to progressively develop the Convention he threatens its uniform application. This risk is exacerbated by the fact that there is no supreme court that could act as a final instance and confirm the lawfulness of a “new” interpretation in relation to all Signatory States.3 One must also consider the fact that commerce itself does not stand still but exists in a constant state of flux. This is truer today perhaps than ever before and it is therefore important that the law keep abreast of commercial developments. It should be borne in mind that the admonition “to promote uniformity in its application” of Art. 7(1) CISG does not represent an aim in itself but is only collateral to the overarching aim of the CISG, namely “to promote the development of international trade” (cf. recital 3 of the preamble). An overtly conservative application of the law would petrify legal development and threaten the future application of the Convention. Where this happens, all textbooks would be advising economic participants, in accordance with Art. 6 CISG, against applying the Convention. This conflict between the need for uniformity and flexibility is intensified by the fact that, unlike domestic systems of law, the legislative body that enacted the CISG cannot modernise the text because it no longer exists. However, even if a “CISG II” were to be drafted and passed at a future diplomatic conference, it would still have to be re-ratified by all Member States in order to reach the current stage of legal harmonisation. Considering that it has taken over twenty years for the CISG to achieve its present level of international application, it is likely that any amendments in a new Convention will also be outdated once the ratification process has been completed. It is unsurprising therefore that many authors question the merits of 2 3

See Kropholler, Internationales Einheitsrecht, Tübingen 1975, 301 et seq. For this reason critical Gruber, Methoden des internationalen Einheitsrechts, Tübingen 2004, 320 et seq.

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such legislative modernisation.4 In any case, there are no definite plans for such an amendment yet.5 Therefore, the judiciary remains the only body that is in a position to progressively develop the CISG – as a matter of fact.

B. Signs that the CISG is Ageing “What a different world as compared to now” – these are the words that one delegate of the Vienna Conference chose to describe the extent to which the CISG (or more precisely the world itself) had changed by 1980.6 Time has a habit of catching up with the text of a convention in many different ways, e.g. by including changes in the political landscape, technical advances, changes to the legal framework as well as the emergence of new principles governing legal transactions.

I.

Socio-economic Changes

Adopted in 1980, the text of the Convention reflects the compromise between the states that was necessary to ensure its adoption. Roughly speaking, these states can be divided into three groups: Western industrial states, Eastern bloc states with their planned economies, and developing countries. Even today, some of the rules contained in the Convention reflect the compromises that were deemed necessary at the time. For example, the reservation of written form contained in Art. 96 CISG reflected the fact that written form was a mandatory requirement of contract law in socialist countries.7 Developing countries insisted on excluding commercial usages in Art. 9(2) CISG that only one party was aware of because they were afraid that the 4

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See e.g. Schlechtriem, Interpretation, gap-filling and further development of the UN Sales Convention, 16 Pace International Law Review (2004), 279: “hopeless”. However, the former Secretary General of UNCITRAL Herrmann has suggested combining the conventions on commercial law to form a uniform legal code on world trade law and also to take the opportunity to revise them, cf. Herrmann: A Vision for UNCITRAL: Global Commerce Needs a Global Uniform Law, 3 Business Law International (B.L.I.) (2001), 249 et seq. However, none of the formulating agencies have acted on his proposal; cf. also Bonell, Do We Need a Global Commercial Code?, 106 Dickinson Law Review (2001), 87 et seq. Bonell, The CISG, European Contract Law and the Development of a World Contract Law, 56 American Journal of Comparative Law (Am.J.Comp.L.) (2008), 1. Magnus, in: Staudinger Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG), Berlin 2005, Art. 96 no. 2.

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greater experience of industrial states in commerce would place them at a disadvantage.8 Going through the list of the 71 Contracting States of the CISG it is striking just how many countries did not exist as independent states in 1980. This observation primarily applies to the states that gained independence from the former Soviet Union as well as from Yugoslavia and Czechoslovakia. In addition, the regional scope of the CISG has expanded due to the amalgamation of Hong Kong and Macao with China.9 The German Democratic Republic, on the other hand, that played an active role in consultations on the text of the Convention in 1980 disappeared from the political map following German Reunification. Other states have fundamentally changed their economic constitution, ditching their planned economies in favour of liberal economic policies. The membership of the European Union has also increased from nine Member States in 1980 to twenty-seven today and all of them have committed themselves to facilitating the free movement of goods within the internal market. The effect of such profound changes has been to shatter the compromising character of certain provisions. Nevertheless, despite the fact that circumstances have fundamentally changed since it was passed, the legal text of the CISG remains legally binding in its entirety. For example, the People’s Republic of China declared that it did not consider itself bound by the provisions on freedom of form contained in Art. 11 CISG. Although modern Chinese law has since waived the requirements of writing in principle,10 the reservation must be respected until it is withdrawn by the Chinese government itself.11

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Magnus (op. cit. fn. 7), Art. 9 no. 16. This is also the reason for the rule in Art. 44 CISG, cf. Magnus (op. cit. fn. 7), Art. 44 no. 3. See also (generally) Date-Bah, Vienna Sales Convention 1980 – Developing Countries’ Perspectives, in: Kee (ed.), Current Developments in International Transfers of Goods and Services, Singapore 1994, 87 et seq. Schroeter, The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods, 16 Pace Int’l Law Rev. (2004), 307, 332. For a different view see the contribution by Li in this publication. Huang, The UNIDROIT Principles and their Influence in the Modernisation of Contract Law in the People‘s Republic of China, 8 Uniform Law Review (ULR) 2003, 107, 110. Wang/Andersen, The Chinese Declaration against Oral Contracts under the CISG, 8 Vindobona Journal of International Commercial Law & Arbitration (2004), 145, 163. See also Li in his contribution to this book.

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Technical Developments

The passage of time is particularly noticeable where actual changes have taken place. The most significant technical progress since the 1980s has undoubtedly been made in relation to communication technology. Considering that, nowadays, communication in international commerce takes place almost exclusively using fax and e-mail, one reads the reference to telegram and telex in Art. 13 CISG with a certain feeling of nostalgia. The extent to which the Internet has revolutionised commerce persuaded UNCITRAL to pass the Convention on the Use of Electronic Communications in International Contracts (Electronic Communications Convention (hereinafter ECC)) in 2005. The relationship of the ECC to the CISG is dealt with under C.IV.1. A further example is provided by rising energy costs that can increase the costs of international transport considerably. High transport costs were the reason why the 1980 Convention limited the law governing avoidance or the delivery of substitute goods owing to breach of contract to cases of fundamental breach (cf. Art. 46(2), 49(1) CISG).12 From an objective point of view, however, there does not appear to be any connection between the seriousness of the breach and the costs incurred by the transport of substitute goods. On the face of it, Art. 25 CISG does not appear to permit transport costs to be taken into consideration when determining whether the breach is fundamental. Arguably, it only permits the pre-contractual expectations of the buyer regarding the performance owed to be taken into consideration.13 At a time of increasingly scarce raw materials and the population’s growing awareness of this fact, one could argue de lege ferenda that the remedy of substitute goods be made conditional on the costs being reasonable.14 However, the criterion of reasonableness has so far only played a role in claims for repair (Art. 46(3) CISG).

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Lookofsky, Understanding the CISG, 3rd ed., The Hague 2008, 113; cf. also Will, in: Bianca/Bonell (eds.), Commentary on the International Sales Law, Milan 1987, Art. 46 cmt. 1.1.2. A limit owing to the excessive costs of delivering substitute goods can be based on Art. 79(1) CISG but probably only in situations where there is a gross disparity between the buyer’s interest in performance and the seller’s expenses, cf. MüllerChen, in: Schlechtriem/Schwenzer (eds.), Commentary on the United Nations Convention on the International Sale of Goods (CISG), 2nd (English) ed., Oxford 2005, Art. 46 no. 13. Such a solution is provided by Art. 3(3) of the Consumer Sales Directive (Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees) whose scope is not even restricted to international contracts.

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III. Is the CISG the Final Word? The world has moved on not only in a political and factual sense; legal development has not stood still since 1980 either. This is true not only of the variety of new international instruments promulgated since then, but also of the CISG itself, that is being steadily smothered by court judgments and legal writings. The interpretation of the CISG is by no means limited to its text alone but extends to more recent texts as well.

1.

New Legal Instruments

Today, the CISG is justifiably regarded as a milestone in international contract law. Its system of remedies, with the breach of contract forming a central element, is regarded as being both simple and effective. The large number of states that have ratified the Convention proves that the solutions it proposes are acceptable to the international community. The Convention therefore functions as a sign-post for both national15 and international legislative projects.16 Not all of the later regulatory instruments adopt the CISG model wholesale, having succumbed to the temptation to make improvements. That said, improvement was not always the main aim in cases where these instruments pursue their own aims. For example, the European Consumer Sales Directive is largely based on the CISG but deviates from it in the interests of consumer protection (an aspect not covered by the CISG, see Art. 2(a) CISG).17 By contrast, the UNIDROIT Principles of International Commercial Contracts represent a clear attempt to improve the CISG.18 Admittedly, 15

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Concerning the influence of the UN Sales Convention on the German Reform of the Law of Obligations (2002) the then Minister for Justice stated: “This draft ensures that the German law on sales and contract will now comply with UN Sales Convention. The latter forms the basis for the development of contract law and will also form the basis for discussions on a European contract law”, Däubler-Gmelin, Die Entscheidung für die so genannte Große Lösung bei der Schuldrechtsreform, Neue Juristische Wochenschrift (NJW) 2001, 2281, 2289. Cf. also Ferrari (ed.), The CISG and Its Incidence on National Contract Law, Munich 2008. Cf. generally on the influence of the CISG on subsequent conventions Torsello, Common Features of Uniform Commercial Law Conventions, Munich 2004. Grundmann, in: Grundmann/Bianca (eds.), EU-Kaufrechtsrichtlinie, Kommentar, Cologne 2002, Introduction, no. 6. Bonell, The UNIDROIT Principles of International Commercial Contracts and CISG – Alternatives or Complementary Instruments?, 1 ULR 1996, 26 et seq., with many examples. Cf. also Hartkamp: “CISG has been deviated from where its rules, restricted as they are to the law of sales, were considered to be ill-adapted for con-

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some of these changes were necessitated by the fact that the Principles are broader in scope than the CISG and do not only relate to sales contracts. In several instances, however, the UNIDROIT Working Group has attempted to improve individual provisions, particularly where the conflicting political views of participating states at the Vienna Conference necessitated a compromise based on the lowest common denominator. For this reason, there are those who regard the UNIDROIT Principles as an evolution or legitimate development of the CISG.19 The claim that the UNIDROIT Principles further develop the CISG has generated intense controversy about whether the Principles may be used as an instrument to interpret and supplement the CISG and, if so, to what extent.20 The case law on this aspect is quite comprehensive and includes countless arbitral awards and decisions of national courts. Some of these decisions are surprising in their readiness to apply the Principles alongside the CISG. In the decision ICC 8817, the arbitrator decided that the applicable law was “the Convention and its general principles, now contained in the UNIDROIT Principles of International Commercial Contracts.”21 However, an examination of case law reveals even more radical cases. Some arbitral tribunals have referred to the UNIDROIT Principles not simply because they have perceived the need to supplement the CISG in order to

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tracts in general (including contracts for services) or were otherwise felt to be amenable to improvement”, The UNIDROIT Principles for International Commercial Contracts and the United Nations Convention on Contracts for the International Sale of Goods, in: Boele-Woelki et al. (eds.), Comparability and Evaluation: Essays on Comparative Law, Private International Law and International Commercial Arbitration, The Hague 1994, 85. The same essentially applies to the Principles of European Contract Law; however, the inclusion of consumer contracts has also made greater deviations necessary. According to Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 43 Fordham Law Review (1994), 281, 283 “[t]o the extent that the two documents cover the same ground, [UNIDROIT] Principles is a better, more mature product.” See for details the contribution by Perales Viscasillas in this publication. ICC 8817 (March 1997), ICC International Court of Arbitration Bulletin, vol. 10, no. 2, 1999, 75-78. An additional example is provided in the New Zealand judgment Hideo Yoshimoto v Canterbury Golf International Limited, (2000) NZCA 350 of 27 November 2000, where the UNIDROIT Principles were described as a “document, which is in the nature of a restatement of the commercial contract law of the world, [and which] refines and expands the principles contained in the United Nations Convention.” In ICC 8817, December 1997, ICC International Court of Arbitration Bulletin, vol. 10, no. 2, 1999, 75, it was stated: “The Convention and its general principles, as presently elaborated in the UNIDROIT Principles on International Commercial Contracts (…)”.

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reach an equitable solution but to support a result that they arrived at without any difficulty using the CISG.22 Apparently, these tribunals feel the need to double-check that the rules of the Convention are up-to-date by citing the more recent UNIDROIT Principles as additional authority for their decision.23

2.

Further Development by Case Law und Legal Writing

Not only is the CISG being overshadowed by more recent instruments but its application is also being influenced by an increasing amount of literature and court judgments. As far as interpretation is concerned, the applier of law cannot simply restrict himself to the text of the Convention itself. Today it is recognised that he must also “take into account” foreign decisions and scholarly writings on the basis of Art. 7(1) CISG.24 It is difficult to state in the abstract what exactly this admonition to “take into account” implies. Generally speaking, foreign decisions are attributed persuasive authority, such as one finds in Common Law concerning judgments from other Common Law countries. Similarly, the judge is advised to read the opinions of foreign writers that, whilst obviously incapable of producing binding effect, nevertheless prevent his interpretation being overly influenced by national preconceptions and his judgment displaying a subconscious “homeward trend”.25 As a result, a considerable number of legal texts have mounted up that contribute to the application of the CISG without in any way eclipsing it. Just as a wall tends to be covered by ivy over the years, so the text of the Convention is being covered by a blanket of case law and academic articles. Now after twenty-eight years since it has been passed, a development can be observed that is also of great significance for the Convention’s interpretation. The data base of Pace University26 now references27 over 2,100 cases from more than 40 jurisdictions and a bibliography of over 8,000 entries 22

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Cf. e.g. the cases of the International Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation 23/2006 of 1 February 2007 (unpublished; abstract available under www.unilex.info); ICC 9117 (March 1998), ICC International Court of Arbitration Bulletin, vol. 10, no. 2, 1999, 96101. Cf. also Marrella, The UNIDROIT Principles of International Commercial Contracts in ICC Arbitration, 1999-2001, ICC International Court of Arbitration Bulletin, vol. 12, no. 2, 2001, 49, at 55: “Could this be a sign that CISG is beginning to age?” See the contribution by DiMatteo in this publication. Concerning this homeward trend cf. the contribution by Ferrari in this publication. See www.cisg.law.pace.edu. This reflects the situation as of October 2008.

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(that is not even complete). It is unlikely that a court will ever exploit this wealth of material in its daily business. In order to research the problems arising in a case within a reasonable space of time, courts are increasingly reliant on compilations by legal scholars. For their part, the latter can also exert a considerable influence on the judicial interpretation of the CISG by their selection of material and support they offer for particular opinions. In practice, it is the commentaries to the CISG rather than case law that exert the greatest influence on the interpretation of the Convention. In this respect, the classical commentary by Schlechtriem/Schwenzer has achieved a certain pre-eminence (at least since it is also published in English)28 and now seems to appear every four years. There are also the opinions of the CISG Advisory Council that provide a commentary on specific issues.29 Despite its official-sounding title, this body does not have the binding authority to clarify questions of interpretation but is a private association that derives its persuasive authority from the reputation and expertise of its members. Hitherto, the Council has published seven opinions and a further four are in preparation. The powerful influence that commentaries exercise on interpretation is reflected in Napoleon’s despairing exclamation “Mon code est perdu!” upon hearing that the first commentary to the code civil had been published. This anecdote underlines the fact that, once passed into law by the legislator, a legal code develops a life of its own.30 That said, commentaries provide valuable assistance by presenting and explaining case law and literature in different languages. Thereby, they also contribute to the uniform interpretation of the Convention. The fact that they sometimes present a diverse range of opinions should not be regarded as a disadvantage insofar as they provide a valuable contribution on international discourse concerning the correct interpretation to adopt. There is, of course, a negative side to this as well – one case being the Berlin judge who, obviously overwhelmed by the number of opinions concerning the determination of the rate of interest in Art. 78 CISG, selected the one from a commentary that in the case at hand led to the application of German law, despite the fact that it was not the leading opinion.31 28 29

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Op. cit. fn. 13. See www.cisgac.com. Cf. also Mistelis, CISG-AC publishes first opinion, Internationales Handelsrecht (IHR) 2003, 243 et seq. Cf. also Bonell, in: Bianca/Bonell, Commentary on the International Sales Law (op. cit. fn. 12), Art. 7, cmt. 3.1.3: “Once adopted the Convention, like any other law, has a life of its own, and its meaning can change with time so that the intention of the drafters is only one of the elements to be taken into account for the purpose of its interpretation.” Landgericht Berlin, 21 March 2003 (available at http://cisgw3.law.pace.edu/cases/ 030321g1.html): “Article 78 CISG says nothing about the amount of interest. The

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C. Examples of the Constructive Interpretation of the Law I.

General Observations

Proposals for the improvement or subsequent amendment of specific provisions of the CISG are by no means new and can already be found in a whole range of rules some of which are discussed in the following. However, it is not possible to make a general rule concerning the admissibility of such interpretative novelties. As a first step, a fundamental distinction must be made between the different parts of the Convention. To begin with, Part IV (Art. 89-101 CISG) contains terms relating to international law that generally cannot form the subject of a progressive legal interpretation. In this case, it is not necessary anyway: if a state has insisted on inserting a reservation it represents a political decision that must be respected when applying the law. Even if the reasons for such a reservation have since ceased to apply, it can only be retracted by the relevant contracting party itself.32 To some extent, the provisions concerning the scope of the CISG (Art. 1-6 CISG) also reflect international law. They do not directly regulate the rights and obligations of the parties to the contract but primarily determine the extent to which the states involved are prepared to forego the application of their national law on sales in favour of the uniform law. Art. 1-6 CISG are therefore of fundamental importance because they ensure the lawfulness of the Convention’s application. Whenever the CISG is applied regardless of its scope, it will lose its character as statutory law and instead be regarded as a form of “soft law”. However, soft law can only be applied instead of national laws to the extent that the rules of private international law permit. This may be the case when the parties elect the CISG as the applicable law if the subject of the contract would otherwise have not fallen within its scope.33 In rare cases, tribunals have even applied the CISG out-

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opinions as to the applicable rate of interest are very diverse. However, it is at least plausible to make reference in this respect to the law of the country where the debtor is established.” In order to prove the “plausibility” of this solution, the judge relied on Eberstein/Bacher, in: von Caemmerer/Schlechtriem (eds.), Kommentar zum Einheitlichen UN-Kaufrecht, 2nd ed., Munich 1995, Art. 78 no. 32. The citation is also incorrect since the relevant passage does not express this opinion at all but follows leading opinion by arguing in favour of the otherwise applicable domestic law. Cf. the Chinese reservation of written form (supra B.I.). This can be the case if either the requirements for the personal scope of application in Art. 1(1)(a) or Art. 1(1)(b) CISG are not satisfied as was apparently the case in the decision of the China International Economic and Trade Arbitration Commission (CIETAC) of 25 May 2005 (available at http://cisgw3.law.pace.edu/

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side its scope of application in the absence of a choice to this effect by the parties.34 However, the crucial aspect in all these cases is whether the judge was acting intra vires in applying soft law. This suggests the need to be cautious when adopting a constructive interpretation in relation to the scope of the Convention. The parties must be able to rely on the statements contained in Art. 1-6 CISG. Any surprising application of the Convention (e.g. under the cover of a progressive development of the law) may contradict the reasonable expectations of the parties. On the other hand, there are no such reservations concerning Part II (Art. 14-24 CISG) and III (Art. 25-88 CISG) and probably not concerning the part that contains the general provisions (Art. 7-13 CISG) either. These provisions regulate the relationship between the contractual parties and demand modern rules. Whilst expanding the scope of the Convention always operates to the detriment of an otherwise applicable (and possibly more modern) national law, the question here only concerns the appropriate consequence of the CISG rule itself. However, the progressive development of the law cannot justify rampant judicial activism but must be dogmatically incorporated into the overall concept of the Convention so that legal certainty and uniformity of application are guaranteed. The following examines the various implications for the constructive interpretation of the CISG in greater detail, using provisions relating to the scope of application (Art. 2 CISG) and conclusion of contract (Art. 14-24 CISG) as examples. Before commencing their examination, however, it is necessary to examine basic aspects of the methods used to progressively develop the law by means of interpretation.

II.

Instruments of Constructive Interpretation

Constructive interpretation is no different from the normal interpretative methods used to interpret the CISG. This type of interpretation also follows the familiar interpretative scheme (i.e. wording, genesis or gap-filling). However, the question that arises with constructive interpretation concerns where the limits to this classical method of interpretation lie (i.e. how far

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cases/050525c1.html), or if the matter does not involve the sale of goods as in ICC 11849 (2003, available at http://cisgw3.law.pace.edu/cases/031849i1.html), where the proceedings concerned a long-term distributorship agreement. Concerning the difficult question when such an “opt in” of the CISG is permissible, cf. Huber/Mullis, The CISG, Munich 2007, 65 et seq. E.g. in ICC 8502 (November 1996) (available at http://cisgw3.law.pace.edu/cases/ 968502i1.html), where the CISG was applied under Art. 13(5) ICC Rules (1988) as reflecting “widely accepted trade usages and commercial rules.”

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one can extend this in order to solve a new problem that was not anticipated). A simple example is provided by the reference to telegram and telex in Art. 13 CISG. If this were to be interpreted narrowly, any other means of communication (such as e-mails) would not satisfy the requirement of the communication being in writing. However, the wording of the provision rules out such a narrow interpretation. It states that writing “includes telegram and telex”, and is therefore receptive to other forms of communication. The next question is whether an e-mail is comparable to the two forms of communication referred to in Art. 13 CISG. Arguably this must be answered affirmatively because its content is communicated in writing and the sender identifiable from his e-mail address. However, one could argue that it is not comparable because an e-mail is not printed on paper (unless printed out). The question then arises whether this difference prevents electronic communication from satisfying the requirement of writing. It is only possible to answer this question properly by using the purposive interpretation since the comparability of the means of communication can only be ascertained by examining the purpose of the provision. In 1980, Art. 13 CISG equated two popular forms of accelerated communication with the traditional method of communicating by letter. Trade facilitation was obviously the underlying reason for doing so and this aim is better served by recognising paperless communication. The ability to store the message electronically ensures that it can be retrieved for future reference. On balance, therefore, the majority of arguments support recognising e-mails as written communication pursuant to Art. 13 CISG.35 In this respect, the instruments of constructive interpretation are not limited to certain means of interpretation; in principle, there are many ways of adapting the Convention to changed circumstances. The following factors appear particularly important: The parties’ intention as expressed in both the contractual text as well as any practices that they have established inter se (Art. 8 CISG) assumes central importance. The parties can, for instance, decide themselves how to deal with electronic communication (i.e. whether it is to be permitted at all, 35

Cf. also Art. 9(2) ECC. This result corresponds to the leading opinion on the CISG, cf. Magnus (op. cit. fn. 7), Art. 13 no. 5; Ferrari, in: Schlechtriem/ Schwenzer (eds.), Kommentar zum Einheitlichen Kaufrecht (CISG), 4th ed., Munich 2004, Art. 13 no. 2a derives this result from Art. 7(2) CISG. For a different opinion see Witz, in: Witz/Salger/Lorenz, International Einheitliches Kaufrecht, Heidelberg 2000, Art. 13 no. 2; Achilles, Kommentar zum UN-Kaufrechtsübereinkommen (CISG), Neuwied 2000, Art. 13 no. 1. In CISG-AC Opinion no. 1, Electronic Communications under CISG, 15 August 2003 (Rapporteur: C. Ramberg), this interpretative result was unnecessarily qualified by reference to questions of contractual interpretation (Art. 8, 9 CISG).

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whether certain statements require a different form and who should bear the risk of errors occurring during the communication). Moreover, they do not have to negotiate each and every detail of such rules but can refer instead to existing instruments.36 If such instruments are generally recognised and widely disseminated they can even be taken into consideration as usages according to Art. 9 CISG. Since the parties have thereby provided modern rules themselves in accordance with Art. 6 CISG, there is no need for the judge to adopt a constructive interpretation in such cases.37 Another important aspect in the process of adapting the Convention to modern developments are its undefined legal terms. In this respect, Honnold cites the requirement of good faith in Art. 7(1) CISG,38 but it is the concept of reasonableness that is more likely to offer greater possibilities for adaptation.39 In all, thirty articles of the CISG refer to a “reasonable” or an “unreasonable” standard and grant the judge a wide degree of discretion to find a solution that will ensure an equitable result. Art. 88 CISG alone uses this term no fewer than five times. The meaning of “reasonable” depends on the facts of the individual case that change constantly. As a result, judges are justified in taking developments into account that were not anticipated at the time the CISG was created. The same applies in respect of other undefined terms such as “practicable” in Art. 38(1) CISG (i.e. the buyer must apply the investigative methods that correspond to the current state of technology and must not e.g. waste time by adopting outdated investigative methods). According to Art. 19(2) CISG, an objection to the amendment of the offer must be dispatched “without undue delay”; in the case of obvious urgency this can also demand the use of electronic communication instead of “snail mail” (that may have been sufficient in 1980). If the CISG does not offer any rules that could be used as a basis for interpretation, the judge can ultimately turn to gap-filling in accordance with the general principles enunciated in Art. 7(2) CISG. However, it is debatable whether gap-filling offers discretion for progressive legal interpretation and, if so, to what extent. In other words, a narrow interpretation of Art. 7(2) CISG will only justify those general principles being applied that formed the basis of the Convention in 1980.40 According to others, general 36

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E.g. to the ICC eTerms 2004, available at http://www.iccwbo.org/policy/law/ id3668/index.html. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed., The Hague 1999, 21, declares that the contract is “[p]erhaps the most important vehicle for flexibility”. Ibid. Cf. also Van Alstine, Dynamic Treaty Interpretation, 146 University of Pennsylvania Law Review (1998), 687, 751 et seq. Herber, “Lex mercatoria” und “Principles” − gefährliche Irrlichter im internationalen Kaufrecht, IHR 2003, 1 et seq.; Ferrari, Das Verhältnis zwischen den UNI-

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principles are dynamic and include those principles that have developed since 1980 but nevertheless reflect the basic values of the CISG.41 This dispute is mainly important regarding the application of the UNIDROIT Principles and Principles of European Contract Law (PECL) in order to fill gaps in the CISG and is dealt with in greater detail by Perales Viscasillas in her contribution to this publication.42

III. The Catalogue of Exceptions in Art. 2 CISG Art. 2 CISG excludes certain types of sales contracts from the scope of the Convention for various reasons. This is often criticised because either it is not possible to find convincing justifications for all categories of exceptions or the justifications are no longer tenable.43 For example, the sale of electricity was excluded (Art. 2(f) CISG) not least because at the time electricity tended to be supplied by government-owned utilities.44 However, since 1980, many countries have privatised the supply of electricity. Nowadays, however, the major controversy surrounding Art. 2 CISG relates to its application to consumers as well as sales contracts concluded at auctions.

1.

Goods Bought for Personal, Family or Household Use

Consumer sales were excluded from the scope of Art. 2(a) CISG in order to avoid potential conflicts arising between the Convention and mandatory national consumer protection law.45 However, the negotiators were aware of the fact that there would still be a potential overlap between the rules of the

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DROIT-Grundsätzen und den allgemeinen Grundsätzen internationaler Einheitsprivatrechtkonvention. Zugleich ein Beitrag zur Lückenfüllung durch staatliche Gerichte, JuristenZeitung (JZ) 1998, 9 et seq. It was already deemed to be a “creative continuation of the development of the law” in: Enderlein/Maskow/Strohbach, International Sales Law, New York 1992, Art. 7 no. 9.1. Cf. also Van Alstine (op. cit. fn. 39), 778 et seq. See Perales Viscasillas in this publication. Magnus (op. cit. fn. 7), Art. 2 no. 9.; Huber, Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge, 43 Rabels Zeitschrift für ausländisches und internationales Privatrecht (RabelsZ) (1979), 413, 419. Cf. Gregory, The Proposed UNCITRAL Convention on Electronic Contracts, 59 Bus. Law. (2003), 313, 325. The further question, i.e. whether electricity can be considered as falling within the term “goods” contained in Art. 1(1) CISG, does not need to be examined here. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 35), Art. 2 no. 24.

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CISG and consumer protection law in certain cases.46 This could arise in three situations: 1) where it is not apparent that the goods were bought for personal use (Art. 2(a) CISG); 2) where the purchase was made for private as well as professional reasons,47 and 3) where the consumer himself is the seller. Such overlaps were considered acceptable in 1980 when international consumer sales were regarded very much as the exception to the rule and economically insignificant. However, since that time the situation has changed dramatically. In particular, consumers can use the Internet to order goods from abroad with minimal difficulty. Many websites advertise consumer goods in different languages. Recent international codes have also responded to this development. For example, Art. 2(1)(a) Electronic Communications Convention (ECC) also excludes consumer contracts from its scope of application but, in doing so, deliberately ignores the CISG’s counter exception in cases where the end-use is not apparent. The UNCITRAL Working Group recognised that it was no longer tenable to deem international consumer sales a rare exception.48 At the same time, consumer protection legislation has greatly increased since 1980 and this has also served to increase the potential for conflict. Against this background, Art. 2(a) CISG must be considered outdated – legally, factually and in terms of legal policy. Indeed, it would probably not appear in this form if the Convention were issued today. In literature, the growing conflict between the CISG and regional consumer protection rules such as the European Consumer Sales Directive 1999/44 has been discussed for some time. Attention focuses mainly on the hierarchy of rules. This is of great economic importance because the Consumer Sales Directive also contains rules that govern the contract between the seller and his supplier that directly fall within the scope of the CISG (Art. 4 Consumer Sales Directive). The solution to this problem is that the 46

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Cf. generally Janssen, Kollision des einheitlichen UN-Kaufrechts mit dem Verbraucherschutzrecht am Beispiel der Richtlinie über den Verbrauchsgüterkauf und -garantien, Verbraucher und Recht (VuR) 1999, 324 et seq. A leading opinion has developed in relation to the CISG according to which the exclusion in Art. 2(a) CISG should only apply where the exclusive end-use of the product relates to personal use, cf. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 35). By contrast, European consumer protection law in many EU Member States is applicable if the predominant part of the intended use is of a private nature, cf. Ebers, in: Schulte-Nölke/Twigg-Flesner/Ebers (eds.), EC Consumer Law Compendium. The Consumer Acquis and its Transposition in the Member States, Munich 2008, 463. A/CN.9/527 (7 November 2002); Gabriel, The United Nations Convention on the Use of Electronic Communications in International Contracts: an Overview and Analysis, 11 ULR 2006, 285, 292.

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Convention takes priority over instruments of European consumer protection.49 However, this has not proved acceptable to everyone and there has already been a proposal to iron out conflicts between the CISG and Consumer Sales Directive by means of a “harmonising interpretation” with the undefined legal terms in the Convention providing the necessary basis.50 This proposal may fly in the face of the principle of autonomous interpretation as well as the international character of the Convention51 but it nevertheless serves as a reminder of the growing potential for future conflicts.52

2.

Sales by Auction

The Convention also excludes contracts for sale concluded at auctions (Art. 2(b) CISG) owing to their special characteristics as well as the fact that auctions in some countries are subject to special statutory rules. At an auction, the seller has no control over his contractual partner and, as a rule, he will only learn that the highest bidder is situated abroad and that the CISG is the applicable law once the bid has been accepted.53 The provisions laid down in 1980 with regard to auction halls are today partly outdated owing to the fact that Internet auctions enjoy greater popularity. Since the bidders in 49

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Dutta, Der europäische Letztverkäuferregress bei grenzüberschreitenden Absatzketten im Binnenmarkt, 171 Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 2007, 79, 88; Janssen, Das Rückgriffsrecht des Letzverkäufers gemäss der Verbrauchsgüterrichtlinie und das schwierige Verhältnis zum UNKaufrecht, The European Legal Forum (EuLF) 2003, 181, 182. Both contain further supporting evidence. Mittmann, Einheitliches UN-Kaufrecht und europäische VerbrauchsgüterkaufRichtlinie, Frankfurt 2004, 171 et seq.; similarily, Grundmann (op. cit. fn. 17) predicts that “The Directive will (…) increasingly dominate the interpretation of the UN Sales Convention itself.” This statement does not seem very plausible and, fortunately, events so far have not proved otherwise. For justifiable criticism see Schroeter, UN-Kaufrecht (CISG) und Verbrauchsgüterkauf-Richtlinie, Zeitschrift für Gemeinschaftsprivatrecht (GPR) 2004, 173 et seq.; see also the contribution by Magnus in this publication that generally argues against a regionalising interpretation. The decision of the Bundesgerichtshof of 31 October 2001 (available in English at http://cisgw3.law.pace.edu/cases/011031g1.html) also referred to the possible application of the CISG to consumers in order to justify an obligation to send the general terms and conditions. The result of the decision is to be supported for other reasons (cf. infra C.IV.3.) but consumer protection considerations are not relevant in this respect. Khoo, in: Bianca/Bonell (eds.), Commentary on the International Sales Law (op. cit. fn. 12), Art. 2 cmt. 2.3.

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an Internet auction are not necessarily local (theoretically, it is possible to enter bids from every Internet access point in the world), the supplier must take the participation of foreign bidders into account. Nowadays, this change of circumstances is regarded by some as justification for the restrictive interpretation of the exception and the inclusion of Internet auctions within the scope of the Convention.54 It was obviously impossible for the drafters of the Convention to have anticipated the appearance of Internet auctions. Nevertheless, the chosen text does not provide any grounds for adopting such a restrictive interpretation. The term “auction” is unambiguous and does not provide for discretionary considerations.55 A restrictive interpretation of Art. 2(b) CISG (i.e. to the effect that only hall auctions are to be covered by the provision) cannot be justified by “a purpose that accords with the rule’s genesis.”56 This is because the purpose of the provision is to protect the seller from the unforeseen application of the Convention that may arise owing to the fact that he does not know the identity of the highest bidder in advance. However, this risk is even greater in the case of Internet auctions than physical auctions because foreign bidders do not even have to make a trip to the auction hall. On the other hand, sales contracts concluded at auctions that offer the goods at a fixed price (“buy it now”-button) fall directly within the scope of the CISG. The fact that there is no competition between the bidders means that there is no auction pursuant to Art. 2(b) CISG.57

IV. Formation of the Contract and Electronic Communication 1.

Introduction

In many legal systems, regulations governing the conclusion of contracts led a quiet and respectable existence for many years. Everyone was familiar with the principles of offer and acceptance and the courts had minutely examined their every detail; only very rarely were the appellate courts called upon to

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55 56 57

Schroeter, Die Anwendbarkeit des UN-Kaufrechts auf grenzüberschreitende Versteigerungen und Internet-Auktionen, Zeitschrift für Europäisches Privatrecht (ZEuP) 2004, 20, 31. Supporting this view, Schlechtriem, in: Schlechtriem/ Schwenzer (op. cit. fn. 35), Art. 2 no. 21. Ferrari, in: Schlechtriem/Schwenzer (op. cit. fn. 35), Art. 2 no. 28. See however Schroeter (op. cit. fn. 54), 27. A different question is whether the presentation of an article at a fixed price according to Art. 14(2) CISG constitutes a binding offerta ad incertas personas; concerning the difference with the invitation to make offers see infra C.IV.2.

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set precedents. The various differences between the national legal systems had also been well-researched in comparative literature.58 Part II of the CISG reflects their findings.59 During the 1990s, the growth of electronic communication caused a kerfuffle in this traditional system of law. It was unclear whether the provisions of legal codes created in the 19th century could possibly apply to this new technology or whether the electronic conclusion of contacts could only be properly regulated by the introduction of modern rules. One result of this debate was the UNCITRAL Model Law of 199660 that was intended to influence the national legislation that was anticipated. In the event, however, many countries chose not to create their own rules for e-commerce. It then turned out that the existing rules governing the conclusion of contracts offered sufficient flexibility to regulate contracts concluded by electronic means after all.61 This now raises the question as to which of these two positions better applies to the UN Sales Convention. Can the legal questions relating to electronic communication be solved by adopting an interpretation derived from CISG itself or do they need further clarification? The question gains its significance from the fact that the ECC was intended to be used as a special aid to interpretation. It was produced by the Electronic Commerce Working Group of UNCITRAL and adopted in 2005 by the General Assembly. The Signatory States include e.g. China and the Russian Federation as well as a number of developing countries. On the other hand, the USA and EC Member States have not yet acceded to the Convention62 and it has not yet entered into force. The ECC is the first attempt to expand the CISG by legislative means. To be accurate, its material area of application is much broader than the latter because it is not limited to sales contracts and applies generally to all international contracts (Art. 1(1) ECC); exceptions are regulated in Art. 2 ECC. Substantively, its provisions go further than those of the CISG and deal e.g. with questions relating to validity (cf. Art. 14 ECC on errors). Owing to the economically vital role that international contracts play in rela58

59 60

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Rabel, Das Recht des Warenkaufs, vol. 1 (re-print) Berlin, 1964, 69 et seq. Cf. also Kötz, Europäisches Vertragsrecht, vol. I, Tübingen 2001; Schlesinger, Formation of Contract: A Study of the Common Core of Legal Systems, New York 1968. Huber/Mullis (op. cit. fn. 33), 1. UNCITRAL Model Law on Electronic Commerce. Another important codification partly based on the Model Law, is the US Uniform Electronic Transactions Act (1999). Concerning German law cf. Wiebe, Die elektronische Willenserklärung, Tübingen 2002, 535. In Europe one appears to be afraid of a conflict with existing EU provisions, cf. Kilian, The UN-Convention on the Use of E-Communications in International Contracts, Computer und Recht International (CRi) 2007, 101, 102.

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tion to the sale of goods it is important to be aware of the areas in which the two conventions overlap. According to Art. 20(1) ECC, the CISG should not to be eclipsed by the newer convention; rather the two codes are to be applied in parallel, with the ECC addressing specific questions on ecommerce and thereby complementing the CISG. It is difficult to say exactly how this parallel application will be achieved in practice. In any case, the statement in an early article on the ECC, namely that it “updates” the CISG,63 is a cause for concern. Updating always places the uniformity of the CISG’s application at risk, particularly when one considers that the ECC has far fewer signatories. In addition, it must be considered that contractual parties will scarcely be able to avoid its application: on the one hand, the ECC (unlike Art. 1(1)(a) CISG) does not require both parties to be located in the Contracting States of the Convention (Art. 1(1) ECC). It is therefore sufficient for the law of one Contracting State to apply to the matter in question. On the other hand, courts may refer to it as an aid to interpretation even in countries where the Convention has not been adopted.64 If UNCITRAL accepts this risk of a non-uniform interpretation of the CISG, there must be good justifications for this. The stated aim of the ECC is to promote electronic trade and eliminate legal obstacles to the use of electronic communications.65 However, it has not been sufficiently demonstrated that such obstacles actually exist within the CISG’s scope of application. On the contrary, of the 2,100 known decisions relating to the CISG not one of them deals with the legal aspects of e-commerce.66 However, should it ever come to pass that a judge has to rule on this issue, he is nowadays able to refer to a large number of academic articles that deal with this subject by adopting a “classical” interpretation and thereby achieve largely

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66

Hilberg, Das neue UN-Übereinkommen zum elektronischen Geschäftsverkehr und dessen Verhältnis zum UN-Kaufrecht – Wegweiser in Sachen E-Commerce?, IHR 2007, 56, 59. Concerning a “dynamic understanding” of the CISG by reference to subsequent codifications cf. also the contribution by Magnus in this publication. Cf. the recitals of the ECC. An analysis of possible weaknesses of the CISG for electronic commerce is found in the Working Paper A/CN.9/WG.IV/WP.91 of 9 February 2001. Cf. also Magnus, 25 Jahre UN-Kaufrecht, ZEuP 2006, 96, 108. In Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce (U-ICA), award rendered 25 November 2002 (available at http://cisgw3.law.pace. edu/cases/021125u5.html), the parties had exchanged several e-mails but the arbitral tribunal did not give this fact particular attention in the grounds for its decision.

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similar findings.67 Overall, electronic communication has not proved more controversial than any other legal issue relating to the CISG.68 This is not the place to conduct an in-depth investigation of the ECC. Instead, the following investigation is limited to selected areas of regulation in order to establish whether the solution offered by the ECC would correspond to that offered by the CISG. The investigation deliberately avoids examining the problem areas of dispatch and receipt of declarations that are closely connected to technical questions; instead it will concentrate on the invitatio ad offerendum and the information duties relating to standard contract terms – two of the more traditional areas of contractual regulation.

2.

Invitations to Make an Offer

If goods are sold over the Internet the question arises whether the vendor makes a binding offer when he presents the goods on his homepage. Answering this question affirmatively would mean that a contract of sale would be concluded by way of acceptance as soon as the customer orders his goods. From the seller’s point of view, this could cause problems if the number of orders outstrips supply. In addition, it would force the seller to enter into contracts with persona non grata, i.e. those with an unreliable payment record or his competitors. On the other hand, holding the presentation of goods to be nothing more than an invitatio ad offerendum would entail the customer’s order being nothing more than an offer and allowing the seller to decide whether he will accept it or not. Basically, this is not a problem that specifically relates to the conclusion of a contract using electronic communication; it has arisen before in relation to e.g. catalogues and newspaper advertising. 67

68

Cf. CISG-AC Opinion no. 1 (op. cit. fn. 35); Eiselen, Electronic Commerce and the UN Convention on Contracts for the International Sale of Goods (CISG) 1980, 6 EDI Law Review (1999), 21 et seq.; Ferrari, Einige kurze Anmerkungen zur Anwendbarkeit des UN-Kaufrechts beim Vertragsschluss über das Internet, EuLF 2001, 301 et seq.; Hill, The Future of Electronic Contracts in International Sales: Gaps and Natural Remedies under the United Nations Convention on Contracts for the International Sale of Goods, 2 Northwestern Journal of Technology and Intellectual Property (2003), 1 et seq.; Wulf, UN-Kaufrecht und eCommerce, Frankfurt 2003. Cf. also Lookofsky: “Although the amenability of CISG Part II to e-trade has not yet been tested in the courts, Convention commentators have been willing to provide both predications and recommendations, and most of these seem quite positive” (op. cit. fn. 12), 64. For example, it is debated (even if it is of little practical importance) whether a computer fax satisfies the requirement of written form according to Art. 13 CISG, cf. Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 35), Art. 13 no. 2

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Art. 14 CISG regulates the demarcation between offers and mere invitations. Art. 11 ECC makes a special rule for declarations made using generally accessible information systems and closely follows the text of Art. 14(2) CISG. Accordingly, a proposal to conclude a contract that is not addressed to anyone in particular should be deemed an invitatio ad offerendum, unless the party making it clearly indicates his intention to be bound. There is no problem with this argument where the parties make their own arrangements. If (as is often the case in practice), the homepage contains the disclaimer that the goods are only advertised for sale “subject to availability”, then it is obvious that there is no intention to make a binding offer. Even if the CISG applies, the website operator will often lack the intention to be legally bound to the sale of the goods advertised on the website. There remain, however, two problems of interpretation concerning the CISG to which the ECC provides no further clarification. On the one hand, the statement “an indication of the party making the proposal to be bound is sufficiently clear” requires further definition. On the other hand, the general presumption in favour of an invitatio ad offerendum arguably goes too far. There are, of course, technical ways of avoiding the risk of multiple orders (e.g. by automatically deactivating the option to buy after the first order). Many interactive websites also offer their customers the possibility to assemble their order according to their preferences (e.g. by means of a “shopping cart” function). In such cases, it is uncertain whether there is still an offer that is not addressed to any particular person.69 However, the new Convention does not provide any greater clarification than the CISG with regard to these issues. The decision will very much depend – as so often in the interpretation of declarations (Art. 8 CISG) – on the facts of the case in question.

3.

Availability of Contract Terms

Only the torso of Art. 13 ECC on the availability of contract terms found its way into the final version of the Convention. It was originally intended to incorporate certain information duties that would e.g. allow the storage and retrieval of contract terms. However, this plan was abandoned because it appeared to overlap with consumer protection and also because the legal consequences of infringements against information duties arguably lay outside the Convention’s scope.70 What has remained is nothing more than a

69

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Concerning this view cf. e.g. Polanski, Customary Law of the Internet, The Hague 2007. The regulation is also criticised by Gabriel (op. cit. fn. 48), 301. Report of the Working Group on Electronic Commerce on the work of its fortyfourth session, A/CN.9/571, 40.

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reminder to the parties to observe the information duties imposed by other statutes.71 The CISG does not contain any express rules on the information duties pertaining to standard terms. Rather, any related problems must be solved by applying the general provisions (i.e. Art. 8 and Art. 14 CISG).72 In this respect, the inclusion of general terms and conditions of sale is one of the most controversial areas of the rules regulating the conclusion of contracts in the CISG. According to a widely-held view, it is not at all necessary in a commercial transaction to provide the contractual partner with one’s own general terms and conditions of business: a simple reference to them will be sufficient to incorporate them in the contract.73 On the other hand, there are those who insist on the general terms and conditions being freely accessible, although it is unclear whether they should be delivered to the contractual partner or simply made available for download on a webpage.74 Following the decision of the German Federal Court of Justice (Bundesgerichtshof), the duty of the parties to co-operate in international trade means that they will have to make their general terms and conditions available to the other party without a request having to be made first.75 This decision is to be welcomed because, in international trade, it is reasonable to expect a party to furnish their partner with access to their general terms and conditions if he intends to apply them to the trading relationship. He should not be able to gamble on his contractual partner not requesting to see his general terms and conditions and therefore secretly insert onerous clauses in the contract. However, it is debatable how far this information duty extends. The German Federal Court of Justice requires the party “to transmit the text or make it available in another way”. Whether this requires the general terms and 71

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In the territory of the European Union, such obligations result from Art. 10(3) of the E-Commerce Directive (Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market) or from national transposition laws. Schroeter, UN-Kaufrecht und Europäisches Gemeinschaftsrecht, Munich 2005, 222 et seq. Berger, Die Einbeziehung von AGB in internationale Kaufverträge, in: Berger/ Borges/Herrmann/Schlüter/Wackerbarth (eds.), Festschrift Norbert Horn, Berlin 2006, 3 et seq.; Kindler, Ob Walzfräsmaschine oder Schreibtischsessel: keine Obliegenheit zur AGB-Übersendung beim Vertragsschluss nach CISG!, in: Lorenz/ Trunk/Eidenmüller (eds.), Festschrift Heldrich, Munich 2005, 225 et seq.; Schmidt-Kessel, Einbeziehung von AGB unter UN-Kaufrecht, NJW 2002, 3444 et seq. Supporting evidence in Schroeter (op. cit. fn. 72), at fn. 690 Bundesgerichtshof, 31 October 2001 (available in English at http://cisgw3.law. pace.edu/cases/011031g1.html).

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conditions to be transmitted in paper form is debatable. It is arguably sufficient for the terms and conditions to be clearly stated on the homepage and available for download at the time the contract is concluded.76 It is precisely the ease of use offered by the Internet (and exploited by most commercial providers today), that justifies the inclusion of this additional requirement. On the other hand, the duty to provide the terms and conditions in writing would be superfluous to requirements and frustrate the principle of freedom of form (Art. 11 CISG) as well as the desired speed and simplicity of communication in international trade. Therefore, it is reasonable to expect entrepreneurs who wish to trade with their foreign commercial partners on their own general terms and conditions to display the same on their homepage for inspection.

D. A Brief Conclusion The CISG has not been blessed with immortality and one day it will no doubt “go gentle into that good night.” However, that day still is far off, the investigation has shown that the Convention is sufficiently flexible to cope with most new developments and that there is no need to adopt a particularly liberal interpretation of its wording. As a rule, the generally accepted canons of interpretation already ensure satisfactory results. 76

Schroeter (op. cit. fn. 72), 223. Concerning the interpretation of the decision see also Kindler (op. cit. fn. 73), 234, who rejects any information duty, however. Expressing scepticism, Schlechtriem, in: Schlechtriem/Schwenzer (op. cit. fn. 35), Art. 14 no. 16, Ventsch/Kluth, UN-Kaufrecht: Keine Einbeziehung von AGB durch Abrufmöglichkeit im Internet, IHR 2003, 224 et seq.

The Interpretation of the CISG in China Wei Li

A. Introduction The year 2008 marks the 20th anniversary of the United Nations Convention on Contracts for the International Sale of Goods (CISG) coming into effect; a convention that is accepted as one of the most successful and welldeveloped international instruments providing uniform substantive rules for international trade. The best way to commemorate this far-reaching document is by looking back on the successful use amongst Contracting States and by pushing its uniform application. To do so one cannot ignore China’s role in the application and understanding of the CISG.1 As China is one of the original Contracting States of the CISG and a dynamic area in economic development2 with great influence on international trade, it could be said that the CISG’s function of creating uniform international law is not pushed to its full potential without Chinese involvement. The prosperity of economy requires necessary legal security. Naturally it might be an important subject for concern how China applies the CISG and what the consequences of this are. Part B. of this article describes the state of China’s application of the CISG. Part C. analyses a doubtful Chinese arbitral award, and part D. examines some considerable differences between the CISG and Chinese Contract Law. The contribution finishes with a conclusion.

1

2

See for the application and understanding of the CISG in China also Butler, Contracts for the International Sale of Goods in China, International Litigation Quarterly 2006, 3-7; Ding, China and CISG, in: Will (ed.), CISG and China. Theory and Practice. An Intercontinental Exchange, Geneva 1999, 25-37; Han, China, in: Ferrari (ed.), The CISG and its Impact on National Legal Systems, Munich 2008, 71 et seq.; Zeller, CISG and China, in: Will (ed.), CISG and China. Theory and Practice. An Intercontinental Exchange, Geneva 1999, 7-22. In 2007 the total value of China’s imports and exports amounted to more than 2100 billion USD for that year, ranking third amongst all other nations. Imports contributed to 950 billion USD of the total with exports making up the rest (1200 billion USD). See the Report on the Situation of China’s Foreign Trade (Autumn 2007) published by the Ministry of Commerce of the People’s Republic of China Comprehensive Department, 8 November 2007. Available under http://zhs.mofcom.gov.cn/aarticle/cbw/200711/20071105212418.htm.

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B. The CISG in China The major objective of the CISG is to promote uniformity in international sales law. Art. 7 CISG sets out a guideline to the interpretation under which regard is to be had to the CISG’s international character, the need to promote uniformity in its application, and the observance of good faith in international trade. Uniform application primarily means that tribunals and courts should apply the Convention to those cases in which the CISG is the proper law to be observed. In order to examine the application of the CISG in China it is of great use to consult the typical arbitral awards made by the China International Economic and Trade Arbitration Commission (CIETAC). Up to now, most disputes concerning international sales contracts involving Chinese parties are settled through arbitration procedures and not through court judgments. CIETAC has published three volumes3 of compilations of arbitral awards regarding disputes on the sales of goods and foreign investments. The books consist of 337 arbitral awards made by the CIETAC in the period from 1960 to 2002; 160 of which involve cases on the international sales of goods decided after 1988, i.e. when the CISG had come into effect. These cases will be in the main focus of the following observation. The predominant problem is that in many cases Chinese tribunals did not raise the question regarding the applicable law. Based on a survey of the aforementioned 160 arbitral awards, 98 tribunal awards indicate no formal opinion on the law applicable in the respective case. From 128 arbitral awards made before 1993, only 12 awards include opinions regarding the application of law. These examples illustrate shortly the unregulated state in the structure and content of the arbitral awards during this period. A greater effort was not made by tribunals to identify the legal merits and demerits of parties in referring to the precise point of law. Too much emphasis is placed on reaching a compromise between the parties. In consideration that the primary objective of the awards is to achieve this compromise they themselves are lacking attributable law. The content of an award is comprised of three parts: the facts, the opinions of the arbitral tribunal and the decision. Inadequate juridical analysis and reasoning by reference to the applicable law are given in the opinion. The tribunal usually explains whether a party had performed his obligations; whether there is any lack of conformity, and the appropriateness of claims. Notable improvements were present from 1995 to 2002 as in this period

3

CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (1963-1988), Beijing 1993; CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (1989-1995), Beijing 1997; CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002), Beijing 2002.

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only 15 awards indicated no opinions on the applicable law from the 64 awards selected. A noteworthy fact is that amongst a total of 101 awards made after 25 May 1990 only 40 awards could not offer opinions on the application of law. However, all contracts associated with the 40 cases were formed after the date when the CISG entered into force. The tribunal would have examined and specified the applicability of the CISG to those cases concerned. In e.g. China Shanghai XX Company v. U.S. XX Company (TV set case);4 U.S. XX Ltd. v. China Shanxi XX Import & Export Company (Carborundum case);5 Chinese-Foreign Joint Venture XX Electronic Ltd. v. US. XX Technology & Industry Company (Plated circuit equipment case);6 US XX Company v. China XX medical company (Chondroitin sulfate case)7 and China XX Company v. German XX Company (Vitamin C case)8 every party to the contract in question had its place of business in a Contracting State of the CISG and they did not reach an agreement on the applicable law. In this situation the CISG – by virtue of its Art. 1(1)(a) – will automatically apply to these cases. However, some of these cases did not raise the question of the application of the CISG, nor did the opinions raise the question of the applicable law at all. Especially in the aforementioned “Vitamin C case” one can wonder why the tribunal decided to apply Chinese law. On the other hand, some positive examples regarding the application of the CISG in China do exist. In the so-called “Raincoat case”9 the parties from China and Hong Kong agreed in the contract that the CISG should be the applicable law. One has to consider that – following the predominant Chinese opinion – Hong Kong (and also Macao) does not belong to the territories in which the CISG is applicable.10 The tribunal held that the par14

15 16 17 18 19 10

CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (1989-1995) (op. cit. fn. 3), 492-496. The full names of the parties are not available in this compilation. CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002) (op. cit. fn. 3), 20-24. CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002) (op. cit. fn. 3), 148-160. CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002) (op. cit. fn. 3), 181-190. CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002) (op. cit. fn. 3), 192-195. CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (volume on sale of goods 1995-2002) (op. cit. fn. 3), 136-148. This opinion is now also supported by the French Supreme Court, 2 April 2008 (http://cisgw3.law.pace.edu/cases/080402f1.html) that states: “[T]he People's Republic of China deposited with the Secretary General of the United Nations a declaration announcing the conventions to which China was a party at that date which should apply

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ties’ choice of law is a manifestation of the principle of party autonomy (see Art. 6 CISG) and thus does not violate Chinese law. One has also to take into consideration that the CISG has more explicit and concrete provisions governing parties’ rights and obligations compared to Chinese law, which was probably the reason for the parties to provide for its applicability. The Tribunal correctly confirmed that the CISG was the proper law applicable in that case. Nowadays one can find many cases involving Chinese CISG cases on the internet.11 However, after reviewing formal arbitral opinions in the three volumes of compilation of arbitral awards regarding disputes over the international sale of goods one will note that out of the 101 cases decided after 1990, there are only 16 in which the tribunal decided applying the CISG. Such a small number of cases, apart from arbitrational errors in applying law as mentioned above, reflects a key fact: quite a lot of cases involved nonChinese parties whose places of business are in Non-Contracting States or respectively territories such as – following the abovementioned predominant Chinese opinion − Hong Kong and formerly also Japan, two of China’s most important trade partners. For such circumstances China had made a reservation under Art. 95 CISG about Art. 1(1)(b) CISG excluding the possibility of applying the CISG relying on international private law rules instead. Most cases that applied the CISG indicate that Chinese arbitrators’ understanding of the CISG is correct. Generally practitioners of Chinese law accept all reasonable interpretations of the CISG, especially those interpretations from authorities such as UNCITRAL or CISG experts. No specific “Chinese” approach to interpreting the Convention has developed in China.

C. The “Titanium Dioxide” Case It cannot be found that Chinese arbitrators obviously intend to give a wrong decision in a form apparently breaching the principle of good faith in international trade. However, there remain some faults and confusion in the application of the law and arbitration. The case of e.g. Beijing XX Import and

11

to Hong Kong. The CISG did not figure on that list, nor had the CISG applied to Hong Kong before the retrocession of this territory to the People's Republic of China by the United Kingdom. Thereby, the People's Republic of China has effectuated with the depositary of the Convention a formality equivalent to what is provided for in Art. 93 CISG. Consequently, the CISG is not applicable to the special administrative region of Hong Kong.” However, see also the different opinion of Schroeter, The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods, Pace International Law Review 2004, 307 et seq. See http://www.cisg.law.pace.edu/cisg/text/casecit.html#china.

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Export Company v. Hong Kong XX Industrial Company (the so-called “Titanium dioxide case”)12 is questionable. The facts of the case are as follows: a purchaser from Beijing and a supplier from Hong Kong contracted in 1989 for the sale of 54.4 tonnes of titanium dioxide produced by the DuPont Company. The contract contained delivery terms “Cost and freight (C&F) Tianjin Xingang”; and payment term of irrevocable letter of credit (L/C). The buyer then entered into contracts with three clients for the resale of the goods. Thereafter the goods were shipped timely and reached their port of destination. The buyer opened the L/C from the seller. Due to the seller’s failure to hand over the Certificate of Origin required by the L/C, the buyer rejected the goods and refused to pay the full purchase price through the L/C for reason of non-conformity of the documents with the L/C. The seller held that the goods manufactured by DuPont conformed to the contract entirely. The genuine reason for buyer’s refusal of goods is that market price of titanic dioxide had dropped at the end of 1989 – the time when the buyer had to accept the goods. The tribunal favoured the applicant (the buyer) and made the following decision: (1) The contract was avoided; the buyer recovered the loss of 1095 USD (expense of opening L/C and insurance premium). (2) The tribunal did not support the other claims from the buyer for damages. In the published part of the award the tribunal neither gave an opinion on the application of law nor reasoned the case by reference to any law concerned. The only opinion to support above decision is as follows: “under the C&F term and L/C term in the contract the seller’s obligation to deliver the good is symbolic delivery, i.e. delivery is completed by administering the relevant documents.” According to the international usage the buyer’s payment and the seller’s delivery are concurrent conditions. Due to the fact that the seller hands over non-conforming documents the buyer has the right not to pay the purchase price. It was the seller’s reason not to deliver the goods. However, the buyer did not take the necessary remedial measures. This superficially rather simple case, as well as the perfunctory arbitral opinion, has led onto some important legal issues. The opinion in fact expresses a prevailing view amongst Chinese legal scholars of labelling all contracts with CIF (Cost, Insurance, and Freight) or C&F terms as symbolic delivery without distinguishing the dealing with documents. Many legal writers regard this point of view as international usages. For the most part the distinction between “physical delivery” and “symbolic delivery” is derived from English Common Law and the theory of law. The earliest case on CIF took place in 1862.13 One can say that the English case law on CIF terms are the forerunners. Later the International Chamber 12

13

See CIETAC, The Compilation of Arbitral Awards on China International Economy and Trade (1989-1995) (op. cit. fn. 3), 348-352. Tregelles v Sewell (1862) 7 H. & N. 574.

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of Commerce (ICC) uniformly interpreted those trade terms and created the Incoterms in 1936. Due to this English law and the doctrine on the CIF term have gained great influence in China. The key idea behind symbolic delivery with regards to a CIF contract is the dealing of documents. The completion of the dealings depends on the seller issuing the relevant documents, not the physical delivery: the seller fulfils his obligation to deliver the goods by handing over qualified documents.14 Issuing clean documentation is the essence of the contract. No doubt the C&F term quoted from the Incoterms is definitely an objective international usage. The problem in the Titanium dioxide case is that one cannot employ English law and the theory of law mentioned above to interpret the similar terms in the Incoterms.15 By virtue of its interpretation of the CIF term or the C&F term the Incoterms neither contains the wording of “symbolic delivery” nor the idea about the difference between “physical delivery” and “symbolic delivery”. Though all Incoterms clauses contain the seller’s obligation to deliver documents of title, the administration of documents under the C&F term has no special implication. It does not indicate that the delivery of documentation is essential. Even if the tribunal had taken the international usage into account, it must be ultimately determined by reference to the proper law whether the buyer’s claim to avoid the contract can be supported on the basis of the nonconformity of the documents with the L/C.16 As the seller’s place of business place (Hong Kong) is – considering the leading Chinese doctrine – in a non-contracting territory of the CISG, the applicable law, following the international private law, would be Chinese law in this case.

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With regard of symbolical delivery under the CIF term, see the famous English cases: M. Golodetz & Co Inc. v Czarnikow-Rionda Co. Inc [1980] 1 All ER 501; Charter v Sullivan [1957] 1 All ER 809; Orient Co. Ltd. v Brekke and Howlid [1913] 1 KB 531; Manbre Sacharine Co Ltd. v Com Products Co Ltd [1919] 1 KB 198; Scriven Bros. & Co. v Schmoll Fils & Co. Inc. (1924) 40 TLR 677. See also Schmitthoff et al., Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed., London 1999; Yang, International Sale of Goods, Beijing 1999. These two books affect China scholars extensively. For international usages the common expressions, clauses or forms are to be interpreted according to the meaning normally accorded to them by the relative trade sectors. Art. 142 of the General Principles of the Civil Law of the People’s Republic of China: “International usage may be applied on matters for which neither the law of the People’s Republic of China nor any international treaty concluded or acceded to by the People’s Republic of China has any provisions.”

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Art. 29 of Foreign-Related Economic Contract Law of the People’s Republic of China (Chinese-FRECL) provides that: “A party shall have the right to notify the other party that a contract is avoided in any of the following situations: (1) if other party has breached the contract adversely affecting economic benefits they expected to receive at the time of conclusion of contract; (…).” This provision of the Chinese-FRECL is basically in line with its counterpart – Art. 49(1)(a) CISG and Art. 25 CISG. Based on a common understanding of the CISG and the Chinese-FRECL in cases involving defective documents the decisive factor that entitles the buyer to avoid the contract is whether the seller’s non-performance constitutes a fundamental breach, or in the wording of the Chinese-FRECL, whether the seller’s breach was a serious detriment to the buyer’s economic benefits. The direct result of the expiration of L/C caused by the seller’s defective document through which the buyer did not complete payment, does not constitute major detriments to the buyer. The buyer can obtain title documents and pay for the goods by other means. In determining the effect of defective documents on the buyer, regard is to be given to the purpose for which the buyer needs the goods. “What is decisive is whether the defective documents limit the buyer in using the goods according to his plan e.g. to resell them. If they do not, a fundamental breach can never be assumed. If they do limit him, the seriousness of the defect depends upon whether the buyer can still use the goods in a reasonable way even with non-conforming documents.”17 In the Titanium dioxide case enabling the buyer to avoid the contract on the basis that a fundamental breach has been established, he must satisfy the following duty of proof: (1) The certificate of origin is essential for him to obtain or resell the goods; (2) The nonconformity of the document cannot be remedied either by the seller or by the buyer without unreasonable inconvenience to the buyer.18 If the claim of the buyer for avoiding the contract for reason of defective documents cannot be proof, it means that the seller’s non-performance had not caused major loss to the buyer. In turn the aggrieved seller is entitled to damages for loss (as so happened in the Titanium dioxide case) caused by the buyer’s nonperformance which, under the proper applicable law, is not excused. 17

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See the CISG Advisory Council Opinion no. 5, Comments paragraph 4.9., available under http://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html. See the CISG Advisory Council (op. cit. fn. 17), Opinion no. 5, Opinions paragraph 3. To prove this point is very burdensome for the buyer. The buyer should have accepted a certificate of origin that the seller had obtained from a third party. This proposal was refused by the buyer. The arbitral opinion acknowledged that “because buyer did not take reasonable remedial measure, his other claim for loss cannot be supported.”

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D. Important Differences between the CISG and Chinese Contract Law On 1 October 1999, the Contract Law of People’s Republic of China（Chinese Contract Law), adopted at the Second Session of the Ninth National People’s Congress, entered into force simultaneously annulling its forerunners: the Economic Contract Law of PRC and the ChineseFRECL. Since then the Chinese Contract Law, in place of the ChineseFRECL, would – as formal law – be applicable to a large amount of cases accepted by the CIETAC on disputes over the sale of goods; of course this was under the precondition that the CIETAC tribunals determined applying Chinese law to those cases. Despite the existence of some important differences between CISG and Chinese Contract Law, it is notable that a lot of rules of Chinese Contract Law are basically in line with the CISG. In this section there will be an analysis of two reported cases that highlight the fundamental difference between the CISG and the Chinese Contract Law. Example 1: A German buyer sent a purchase order to an Italian seller ordering 3240 pairs of shoes. The seller did not respond to the order and delivered 2700 pairs of shoes to buyer within a period of delivery fixed in the order. The buyer accepted the goods but refused to pay the purchase price of 2700 pairs of shoes. He argued that he had ordered 3240 pairs of shoes instead of the 2700 pairs that were delivered.19 Following the CISG the buyer’s purchase order for 3240 pairs of shoes is an offer under Art. 14(1) CISG. The seller’s delivery of 2700 pairs amounts to an acceptance by performance as according to Art. 18(1) CISG. The delivery of a different quantity of goods (2700 pairs of shoes) materially alters the terms of offer (see Art. 19(3) CISG). Thus, the seller’s delivery has to be interpreted as a rejection of the offer and thereby constitutes a counter-offer under Art. 19(1) CISG. The buyer’s acceptance of the 2700 pairs of shoes is an acceptance of the counter-offer. The contract with regard to 2700 pairs of shoes was concluded. When one applies Chinese Contract Law to the same facts the case is more problematic. There is no provision in Chinese Contract Law that is similar to Art. 18(1) CISG. Art. 22 Chinese Contract Law provides: “An acceptance should be made in form of notice, in light of trade practices or as indicated by the offer, the offeree may indicate the assent by performing an act.”

19

See Oberlandesgericht Frankfurt am Main, 23 May 1995, available under http:// cisgw3.law.pace.edu/cases/950523g1.html.

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If the specific situation referred to by the last alternative of Art. 22 Chinese Contract Law did not exist, the seller’s delivery of 2700 pairs of shoes can neither be construed as an acceptance nor as an counter-offer – especially there is no rule in Chinese Contract Law like Art. 8(1) CISG that governs the interpretation of parties’ conducts. Art. 125 Chinese Contract Law is a rule that only regards the interpretation of a contract. Art. 36 Chinese Contract Law states: “Where the parties fail to make a contract in written form as provided for by laws or administrative regulations or as agreed by the parties, but a party has already performed the major obligations and the other party has accepted the performance the contract shall be considered as executed.” The decision thus depends on whether the seller’s delivery of 2700 pairs of shoes can be construed as “performed the major obligations”. Example 2: Manning entered into a contract to purchase cotton clothes from LeaTai. The parties admitted that a contract existed but they disagreed on how arbitration is to be treated. Manning’s form provided for arbitration of disputes in New York by the American Arbitration Association. LeaTai’s form provided for arbitration in Hong Kong.20 The CISG contains no special rules governing standard business terms. The issue of “battle of forms” is – following the predominant opinion – governed by the general rules on formation of contract in the second part of the CISG.21 So one can assume that Manning’s form is the offer, and LeaTai’s form is the purported acceptance. LeaTai’s arbitration provisions constitute a material modification to Manning’s offer. The parties have already performed the contract. If one were to apply the traditional “last-shot” rule then Manning would be bound by LeaTai’s arbitration provision.22 Under Chinese Contract Law the situation is much different: according to Art. 40 of the Chinese Contract Law: 20 21

22

See Leatai Textil Co. v Manning Fabrics, Inc. 411F, Supp.1404 (S.D.N.Y, 1975). See generally on the problem of the “battle of forms” Janssen, Kollidierende Allgemeine Geschäftsbedingungen im internationalen Kaufrecht (CISG), Wirtschaftsrechtliche Blätter (Zeitschrift für österreichisches und europäisches Wirtschaftsrecht) 2002, 453 et seq.; Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd English ed., Oxford/Munich 2005, Art. 19 no. 19 et seq.; Vergne, The “Battles of the Forms” Under the 1980 United Nations Convention on Contracts for the International Sale of Goods, American Journal of Comparative Law 1985, 233 et seq. However, the “last-shot” rule is not undisputed under the CISG. There are cases where the courts applied the so-called “knock-out” rule (see e.g. Bundesgerichtshof, 9 January 2002, CISG-online no. 651).

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“a standard clause shall become invalid (…) if the party that provides the standard clause exempts itself from the liability, imposes heavier liability on the other party, or precludes the other party from its main rights.” It seems that this rule concerns the validity that – pursuant to Art. 4 CISG – would be outside the scope of the CISG. Obviously LeaTai’s arbitration provision in its form has the character that “exempts itself from the liability, imposes heavier liability on the other party, or precludes the other party from its main rights.” It becomes invalid.23 As the parties have performed the major obligations the contract has been concluded by virtue of Art. 36 of Chinese Contract Law; Manning’s arbitration provision in the order form would be binding: under Chinese law it is widely accepted in cases of a “battle of forms” the “first-shot” rule applies.24

E. Conclusion China’s reservation under Art. 95 CISG about Art. 1(1)(b) CISG restricts to a large extent the application of the CISG and increases the application of Chinese Contract Law to cases involving Chinese parties. Such a result was expected twenty years ago, but would not be definitely beneficial to China in the eyes of contemporary Chinese scholars. The CISG governs international sale of goods contracts. It is fair and favours neither seller nor buyer. It is also objective, transparent and is widely accepted. The settlement of disputes based upon uniform international criteria will be convincing. China is a giant country in foreign trade. The CIETAC has become the busiest international arbitral mechanism.25 Chinese authorities, legal practitioners and businesses should have more knowledge of the CISG and they need to concentrate on common efforts to broaden the application of CISG in China. Considering its position of successful international uniform law, more cases governed by the CISG will provide an important guarantee that the settlement of disputes regarding international sale contracts will be fairer, more objective and most likely consistent with accepted international business criteria. Awards made by 23

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Of course, not all arbitration clauses in standard contract terms are automatically invalid. According to Art. 39, 41 China-CL, if the party that provided the standard arbitration clause calls in reasonable manner the other party’s attention to it, or the arbitration clause in the standard contract was written in non-standard manner, the arbitration clause is valid. Also under Dutch law the “first shot” rule applies (see Art. 6:223(3) Dutch Civil Code). Within the period from 1995 to 2005 the CIETAC has decided upon 6634 foreign related arbitral cases, ranking number one in the world.

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Chinese arbitral or judicial bodies are more likely to be recognised and enforced in foreign countries. To achieve such targets the Chinese authorities should withdraw both the reservation under Art. 96 CISG it made about Art. 11 CISG26 and also the reservation under Art. 95 CISG about Art. 1(1)(b) CISG, in order to remove the obstacle to the application of the CISG. China is looking forward to a reasonable situation where most cases of foreign related contracts for the sale of goods are solved in China by applying the CISG, in the meanwhile regarding general rules of the Chinese Contract Law as a necessary supplement. 26

Because China made a rule in Art. 10 China-CL similar to Art. 11 CISG the basis of China’s reservation about Art. 11 CISG does not exist anymore.

The Interpretation of the CISG in the Arab World Hossam A. El-Saghir* Hossam A. El-Saghir

A. Introduction The achievement of a uniform set of rules that govern contracts for the international sale of goods was realised after half a century of work that culminated in the United Nations Convention for the International Sale of Goods, 1980 (the CISG).1 The CISG was signed in a diplomatic conference held in Vienna on 11 April 1980. The Convention entered into force on 1 January 1988.2 So far, the number of parties to the Convention has reached 71 countries having different social, economic and legal systems. It became the uniform international sales law for countries that account for more than two-thirds of world trade.3 The ultimate goal of the CISG is to achieve uniformity in its application. Towards this end, Art. 7 CISG sets out the autonomous rules of interpretation of the CISG. So far, only four Arab countries have acceded to the Convention. Egypt and The Syrian Arab Republic were in the list of the first ten countries to adhere to the Convention; Iraq and Mauritania followed.4 This article explains how national courts, arbitral tribunals and commentators in the Arab World interpret the CISG. In addition, it explores the interaction between the CISG and national laws in Arab Countries focusing upon Egypt. Section C. deals with the obstacles that impede the uniform application of the Convention in the Arab World. The rest of the article proceeds as a case study *

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The Author is extremely grateful to his daughter, Marwa El-Saghir, LL.M. Harvard Law School, for her insightful comments. Without her contribution, this article would not have been in its present form The CISG replaced two treaties that date back to 1964, The Uniform Law for the International Sale of Goods (ULIS) and The Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF). These two Conventions achieved little success as they were only ratified by a limited number of states. Art. 99 CISG. Pace University School of Law CISG database: http://www.cisg.law.pace.edu. The Syrian Arab Republic and Egypt acceded to the Convention on 19 October and 6 December 1982, respectively. Iraq and Mauritania acceded on 5 March 1990 and 20 August 1999, respectively.

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exploring the case of Egypt. The importance of the Egyptian case study stems from the fact that Arab legal systems are substantially influenced by their Egyptian counterpart and that most of the scholarly writings in the Arab region about the CISG come from Egypt. In addition, no reported cases applying the CISG are found in other Arab countries. Section D. analyses disputes brought before the Egyptian Court of Cassation and arbitral tribunals. This section also explores the position that Egyptian commentators have taken on some issues concerning the construction of the Convention. Section E. addresses the influence that the CISG had on the Egyptian Legislature in enacting the New Commercial Code. Section F. concludes. At the beginning, in section B., there is a brief outline of the autonomous rules of interpretation laid by Art. 7 CISG. This section also explores how the enactment of the New Egyptian Commercial Code affects the application of the CISG’s gap-filling rule.

B. Achieving Uniformity: The Autonomous Interpretation of the CISG The CISG has its autonomous rules of interpretation that aim at alleviating the risks resulting from the construction of the CISG by national courts. Art. 7 CISG gives two rules of interpretation and dedicates a paragraph to each of them: the first rule deals with the interpretation of the CISG itself and the second is a gap-filling rule.

I.

Principles of Interpretation

According to Art. 7(1) CISG, in interpreting the Convention, regard is to be had to its international character, the aim of promoting uniformity in its application, and the observance of good faith in international trade. The international character of the Convention requires the interpreter to consider the origin of the CISG rules. It means not to proceed in interpreting the Convention from rules of interpretation found in domestic laws and developed by the judiciary. The decision-maker should interpret the Convention independent of his own national legal system, (i.e. as a self-contained body of rules distinct from those of any specific legal system even after its incorporation into different domestic legal systems). The interpreter should relief himself from resorting to national concepts and approaches and should pay due regard to the fact that the Convention is a compromise aiming at the harmonisation of rules governing international sales contracts. Conse-

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quently, if the interpreter confronts vagueness that cannot be resolved, he may consult the Convention’s legislative history.5 The uniformity of the application of the CISG is the ultimate goal of the Convention. This requires the interpreters of the Convention to take into account that the Convention aims at unifying the rules governing international sales in countries that have different political, legal and economic systems. As such, the interpreter may take into consideration rulings made by foreign courts or arbitral tribunals. Although such decisions are not binding, they can play a significant role in promoting the uniformity in the application of the Convention. Their compilation allows judges all over the world to review decisions made in other legal systems and thus become aware of the way the Convention is interpreted in foreign states.6 In this regard, there are a lot of international efforts being made to compile decisions and awards applying the CISG such as the CLOUT,7 the Autonomous CISG Network under the leadership of the Institute of International Commercial Law at Pace University School of Law,8 and UNILEX.9 In addition the international bibliography and case law digest by Michael Will also represents a remarkable contribution to such efforts.10 As far as the Arab World is concerned, the Middle East Center for International Commercial Law11 was established in 1998 in cooperation with the Institute of International Commercial Law at Pace University. The Center provides an electronic database about the CISG in the Arabic language. It aims at disseminating knowledge about the CISG and its application in the Arab World.

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11

Shafik, Ittifaqiyat al-Umam al-Muttahidah bi-sha'n al-Bay' al-Dawli lil-Bada'i': dirasah fi qanun al-tijarah al-dawli (The UN Convention on Contracts for the International Sale of Goods: A study in International Commercial Law – in Arabic), Cairo 1988, 79. El-Saghir, Tafsīr Ittifaqiyat al-Umam al-Muttahidah bi-sha'n ‘or c qūd al-Bay' alDawli lil-Bada'i' (The Interpretation of the United Nations Convention on Contracts for the International Sale of Goods – in Arabic), Cairo 2001, 79. Case Law on UNCITRAL Texts. The system is explained in the UN document (A/CN.9/SER.C/GUIDE/1/Rev.1). The leading CISG database is developed by the Institute of International Commercial Law, School of Law, Pace University: http://www.cisg.law.pace.edu. UNILEX, International Case Law & Bibliography on the UN Convention on Contracts for the International Sale of Goods, (edited by Bonell et al.). Available at www.unilex.info. Will (ed.), Twenty Years of International Sales Law Under the CISG (The UN Convention on Contracts for the International Sale of Goods): International Bibliography and Case Law Digest (1980-2000). http://www.cisg.law.pace.edu/cisgarabic/middleast/index.html.

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The autonomous interpretation of the Convention also requires the interpreter not to attach to the terms of the Convention the meaning that the term has in a specific legal system. In other words, the interpreter should not treat the Convention’s terms to have a meaning corresponding to those used in a given national law. An exception to this rule is in cases in which it can be shown that the term is drafted and selected with the intention to embrace its meaning in a given national legal system. The role that good faith plays in the Convention is a debated issue. 12 The inclusion of good faith in the Convention came as a result of disagreement among negotiating states. As a compromise, good faith was included as a matter of interpretation not as a provision imposing a duty on parties to act in good faith. It is worth mentioning that the rules of interpretation of public international law laid out by the Vienna Convention on the Law of Treaties, 1969 (VCLT) are not suitable for the interpretation of the CISG. The VCLT is more concerned with treaties that impose obligations on Contracting States. Its rules also emphasise the intentions of Contracting States that are bound by such treaties. Unlike such treaties, the first three parts of the CISG address matters relating to contract law, (i.e. the obligations of buyers and sellers).13 However, the applicability of the VCLT interpretation rules to the CISG is not completely excluded. The VCLT applies to the interpretation of the fourth part of the CISG entitled “Final Provisions” as that part is concerned with the obligations of Contracting States. In addition, some principles of interpretation laid by the VCLT – such as those concerning the interpretation of conventions drafted in several languages – can also be applied to the CISG.14

II.

Gap-filling Rule

The second rule of interpretation is the gap-filling provision incorporated in Art. 7(2) CISG. It deals with questions concerning matters not expressly settled by the Convention, although falling within its scope. These questions are to be settled in conformity with the general principles upon which the Convention is based. This means that where the CISG does not provide 12

13

14

For more details about the position of Arab commentators on good faith see infra Section D.III.1. The CISG is divided into four parts; Part I: Sphere of application and general provisions; Part II: Formation of the contract; Part III: Sale of goods; Part IV: Final provisions. Schlechtriem, in: Schlechtriem/Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd (English) ed., Oxford 2005, Art. 7 no. 12.

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a solution to the issue at stake, resort has to be made to the general principles upon which the Convention is based. In the absence of such general principles, reference can be made to the national law applicable by virtue of the conflict of laws rules. The national law thus comes at the end of the list of resources to be sought in finding the rule applicable to a given question. This gap-filling provision aims at furthering the ability of the Convention to resolve issues that fall within its scope to avoid the application of the national laws to the greatest possible extent. The enactment of the New Egyptian Commercial Code somehow altered the way in which Art. 7(2) CISG operates in practice. The Code has regulated for the first time the commercial sales contracts. As far as international sales contracts are concerned, Art. 88(2) of the Code subjects them to international conventions in force in Egypt as well as to the international commercial usage. It prioritises international trade usage over national law. It also subjects such contracts to international commercial terms compiled and adopted by international commercial organisations, e.g. the Incoterms, if the parties refer to such terms. This article implies that the Egyptian legislature incorporates international trade usage by reference. It recognises the lex mercatoria at the legislative level. In cases where Egyptian law governs an issue by virtue of Art. 7(2) CISG, the lex mercatoria prevails over the national law. The substantive rules of the Code only apply where the lex mercatoria fails to resolve the issue at hand. This also creates an important guideline concerning the Convention’s interpretation. The wording of Art. 88 of the Code implies that the lex mercatoria may be treated on equal footing with the international conventions governing the international sale of goods. This suggests that the CISG should be interpreted in a manner consistent with the lex mercatoria.

C. Obstacles to the Uniform Application of the CISG in the Arab World I.

The CISG is Not Known in the Arab World

The legal community in the Arab World lacks awareness of the Convention. Paradoxically, Egypt and Syria were among the first ten countries that adhered to the Convention.15 However, the Convention still attracts little attention in these two countries. The same is true of the rest of the Arab

15

By 11 December 1986 the instruments of adherence, ratification, or accession had been deposited with the UN Secretary General by 11 states: Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syrian Arab Republic, United States of America, Yugoslavia, and Zambia.

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World. Law professors, jurists and judges in the Arab World know little, if anything, about the Convention. Only four Arab Countries – Egypt, Iraq, Mauritania and Syria – have adhered to the Convention. Arab universities pay little attention to teaching the CISG. No Egyptian university offers CISG-related courses at undergraduate level. Moreover, the number of universities that offer courses covering the CISG at the graduate level is limited.16 None of the universities in any of the four countries mentioned above offer CISG-related courses. It is not surprising that Arab universities hardly participate in the Annual Willem C. Vis International Commercial Arbitration Moot (Vienna Moot Court).17 The participation of Arab teams remained non-existent until the Academic Year 2006-2007. In 2007-2008, a team from the American University in Cairo and another from the University of Bahrain participated in the moot. Compared to other law schools around the world, the participation of Arab teams is extremely limited, both in terms of the number of countries and participating law schools. Moreover, the scholarly writings and court decisions on the CISG are extremely scarce. There are almost no published CISG-related judicial opinions. The scarcity of published decisions can be attributed to the general lack of publishing. For example, Egypt only publishes opinions rendered by the Court of Cassation and the Constitutional Court; decisions made by lower courts are not published. As a result, even assuming that lower courts apply the CISG, their opinions remain hardly accessible. In 2006, almost two decades after entry of the CISG into force, the Egyptian Court of Cassation has issued only one decision concerning the CISG. This decision has not been published at the moment of writing this article.18 One can only find reference to this decision in the yearly publication that the Court of Cassation circulates to judges and some other relevant institutions. Fortunately, the judge presiding the Circuit that viewed the case had attended a regional conference organised by the Cairo Regional Center for International Commercial Arbitration (CRCICA) in cooperation with UNCITRAL, held in Cairo less than seven months before the decision was

16

17

18

However, as of 1997, the Author of this article has taught the CISG in three Egyptian universities at the post-graduate level: Menoufia, Cairo and Helwan Universities. The Moot is organized by the Association for the Organization and Promotion of the William C. Vis International Commercial Arbitration Moot. Pace University is the founding member of the Association. The number of participating universities in the fifteenth Annual Willem C. Vis Moot (2007-2008) has reached 203 teams from 52 countries. Court of Cassation, Commercial Circuit, 11 April 2006, Case no. 979 Judicial Year 73.

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made.19 Thus, he was aware of the fact that the CISG should govern the contract. In the CISG international bibliography and case law digest by Michael Will, one cannot find reference to any Court or Arbitral decisions in the Arab World.20 In 1998, Will referred to one arbitration decision: decision no. 24/1991 of Cairo Regional Center for International Commercial Arbitration.21 He mentioned that the award was written in Arabic and French and published in the Review of Lebanese Arbitration. However, a review of the case reveals that it neither applies the CISG to the dispute at stake, nor does it mention the Convention. The author of this article has drawn Will’s attention to this false reference. Denouncing the situation, Will, in the preface to the following edition of his publication, writes, “[O]ur lonely award from Egypt, so happily included two years ago, was identified by a friend from Menoufia University to be a false jewel and could not yet be replaced.”22 That Will refers to the arbitral award as a “jewel” is not by any means surprising. It is worth mentioning that the delay in publishing the CISG in the Official Gazette in Egypt created a constitutional obstacle to its application by the judiciary. The Convention was not published in the Official Gazette until 30 January 1997, almost a decade after its entry into force.23 Art. 151 of the Egyptian Constitution requires publishing international conventions in the Official Gazette in order for them to be applicable as part of the national law. It goes without saying that this delay is one of the main reasons why the legal community in Egypt lacks awareness of the Convention.

II.

The Several Official Texts of the CISG: Errors in the Arabic Version

The Convention is issued in a single original instrument of which six languages texts are equally authentic. In theory, the texts of the six versions of the Convention have the same meaning; however, this is not the case. For instance, Shafik, an eminent Egyptian scholar who represented Egypt before 19

20 21

22

23

Celebrating Success: 25 Years, The United Nations Convention for the International Sale of Goods, organized by CRCICA in cooperation with UNCITRAL, held in Cairo, Egypt, 14 and 15 September 2005 [hereinafter CRCICA & UNCITRAL Conference]. Will (op. cit. fn. 10). Will, International Sales Law under the UN Convention on Contracts for the International Sale of Goods: The First 464 or so Decisions, 7th ed., Geneva 1998, 30. Will, International Sales Law under the UN Convention on Contracts for the International Sale of Goods: The First 555 or so Decisions, 8th ed., Geneva 1999. Official Gazette, vol. 5, 30 January 1997.

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UNCITRAL, has noticed a difference between Art. 1 of the English and Arabic versions of the Convention on the one hand and the corresponding article of the French version on the other hand.24 In the English and Arabic versions of the Convention, it is crucial for the “place of business” of the seller and the buyer to be located in different states in order for the Convention to apply. The discrepancy lies in that the French version uses the term “éstablishment” instead of “place of business” and thus adopts a physical approach to determining whether the Convention applies. Shafik argues that the terminology “establishment” used in the French version is more accurate than the corresponding term in the English and Arabic versions. He contends that the Convention is not concerned with the place where the parties conduct their business and that it is rather concerned with the physical location of their establishments. He therefore uses the term “éstablishment” throughout his book.25 More seriously, the comparison between the Arabic version of the Convention and its English counterpart reveals that the texts diverge. Sometimes there is even a contradiction between the Arabic and the English versions. Art. 19, 20, 25, 31, 34, 36, 40, 52, 73, 76, 91, 92, 96, and 99 CISG were originally drafted with mistakes.26 This leads judges from different countries to attach different meanings to the Convention depending on the version on which they rely, which impedes achieving the uniformity in the application of the Convention. Unfortunately, Egypt has adopted the Arabic version of the Convention and published it in the Official Gazette without any review. Consequently, it has become part of the national law with all the inaccuracies that it contains. In reaction to such situation, The Middle East Center for International Commercial Law notified Gerold Herrmann, the UNCITRAL General Secretary at the time, of the problems of the Arabic version.27 The Center has also requested curing all the errors mentioned earlier to enhance the uniform application of the Convention. Afterwards, the UN General Secretary took the steps necessary to cure such errors.28 In 2001, an amended Arabic version was issued to correct the mentioned errors. However, the errors are not completely cured. The 2001 Arabic version of the Convention still contains three errors. When bringing the Arabic version of the Convention in compliance with the English version, the UN overlooked Art. 25 and 36 CISG: it has not corrected the errors in these articles. Art. 25 of the Arabic version and its English counterpart are still in 24 25 26 27 28

Shafik (op. cit. fn. 5). Shafik (op. cit. fn. 5), 56. El-Saghir (op. cit. fn. 6), 195. Communication letter of the author dated 18 May 1998. Depository Notification CN. 862 1998 Treaties – 5 of 19 February 1999. ProcessVerbal of rectification the Authentic Arabic Text.

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contradiction with each other, and the Arabic and English versions of Art. 36 CISG still make different presumptions. The inconsistency between the Arabic and English versions of Art. 25 of the Convention clearly illustrates the difficulties associated with the inaccuracy of the Arabic version. Art. 25 CISG in the English version stipulates that “[a] breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in beach did not foresee and the reasonable person of the same kind in the same circumstances would not have foreseen such a result.” However, the Arabic version omits the negation in the second phrase of the mentioned Article. According to the Arabic version, a breach is not fundamental if the breaching party foresees such a result, and if a reasonable person in the same circumstances would have foreseen its occurrence. Art. 25 of the Arabic version is therefore hugely problematic. In addition, Art. 36(2) of the Arabic version conveys a meaning that differs from that of the English version. The English version of this paragraph deals with lack of conformity which does not exist when passing of risk to the buyer. It provides that the seller is liable for any lack of conformity which occurs after the passing of risk to the buyer and which is due to a breach of any of the seller’s obligations. However, the Arabic version of the same article uses the term appears instead of occurs. This discrepancy is likely to have some implications. The term appears used in the Arabic version leads to the meaning that the seller is liable, due to a breach of his obligations, for non-conformity whether it comes into existence before or after the time of passing of risk to the buyer. Therefore, one of the incidents that the Arabic version of paragraph (2) of Art. 36 covers is already governed by paragraph (1) of the same article, (i.e. seller’s liability for the lack of conformity which exists at the time of passing of risk). Paradoxically, the 2001 Arabic version contains an error that did not exist in the original Arabic version. Art. 35 in the original Arabic and English versions had the same meaning. However, Art. 35(2)(b) of the amended Arabic version contradicts with its English counterpart and with the original Arabic version. Art. 35(2)(b) in the current Arabic version omits the negation concerning the buyer’s reliance on the seller’s skill and judgment. In other words, according to the Arabic version, the goods conform with the contract if they are fit for the particular purpose known to the seller except where the circumstances show that the buyer relies on the seller’s skill and judgment. The article should have stipulated that the goods conform if they are fit for their particular purpose known to the seller except in the cases where the circumstances show that the buyer did not rely on the seller’s skill and judgment. In reaction to the impediments that Arab Countries face, the aforementioned CRCICA & UNCITRAL Conference recommended to those Arab

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countries that joined the Convention to enumerate the errors that the Arabic version of the Convention contains.29 It also encouraged their governments to notify UNCITRAL so that it takes the procedures required for their correction. It also urged Arab Universities to include CISG-related courses in their curricula. The Conference finally took the view that it is crucial to improve public access to CISG related decisions and awards in the Arab states through publication thereof.

D. The Influence of National Law on the Interpretation of the CISG in Arab Countries I.

Court Decisions

The way in which the Egyptian legal system influences judges’ interpretation of international conventions is obvious. In other words, judges tend to resort to national legal concepts to articulate their understanding of international agreements. For example, the Court of Cassation understands the concept of “default equivalent to willful misconduct” mentioned in Art. 25 of the Warsaw Convention (1929)30 to refer to the concept of “gross fault”, a wellsettled national legal concept.31 There are no CISG related judicial applications that illustrate this point. However, one can plausibly argue that the court is likely resort to the national legal system whenever it is requested to interpret the CISG.

1.

The Egyptian Court of Cassation’s Lonely Decision

In 1991, an Italian seller and Egyptian buyer entered into a contract for the sale of marble. The buyer paid part of the price and refused to pay the rest of it.

29

30

31

Final Statement and Recommendations of the Participants to the Conference “Celebrating Success: 25 Years United Nations Convention on Contracts for the International Sale of Goods (CISG)” held in Cairo, Egypt, 14 and 15 September 2005, at http://www.uncitral.org/pdf/english/news/Cairoen.doc. Art. 25(1) stipulates that “[t]he carrier shall not be entitled to avail himself of the provisions of this Convention which exclude or limit his liability, if the damage is caused by his willful misconduct or by such default on his part as, in accordance with the law of the Court seised of the case, is considered to be equivalent to willful misconduct”, Convention for the Unification of Certain rules relating to International Carriage by Air, signed at Warsaw on 12 October 1929 (Warsaw Convention). Court of Cassation, Civil Circuit, 26 January 1976, Judicial Year 27, 896.

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The seller brought a case before the First Instance Court seeking the payment of the amounts due.32 The seller presented two invoices containing the quantity of goods and the price. He also presented the faxes in which he requested the buyer to pay the unpaid portion of the price plus interest. The First Instance Court applied Egyptian law to the dispute without paying any attention to the CISG. It ruled in favor of the seller and ordered the buyer to pay the price due. The buyer appealed to the Court of Appeals arguing that the seller failed to meet the burden of proving that he took delivery of the goods.33 The Appellate Court affirmed the decision. Again, the buyer challenged the decision before the Court of Cassation. It found that the Court of Appeals erred in applying domestic law to the dispute. It therefore ruled that the CISG should govern the dispute and remanded the case so that the Appellate Court issued another decision to that effect.34 The Court reasoned that the CISG is applicable to the dispute by virtue of Art. 1(1)(a) CISG. It emphasised the international nature of the Convention and the role that good faith plays in its application. It also emphasised that regard should be paid to the evidentiary rules of the CISG before resorting to the national law. For example, parties are liable for terms incorporated in their written communications even if such communications are not signed by the parties. Moreover, the definition of writing under the Convention is flexible enough to include telex, fax, e-mail and other electronic means of communication. Surprisingly, none of the disputing parties requested the application of the CISG to the dispute. The Court of Cassation took the initiative to apply the Convention. This illustrates that neither the parties nor lower courts have adequate knowledge of the Convention. To a great extent, this decision rang a bell altering lower courts that they should apply the CISG whenever applicable.

2.

Arbitral Awards

UNILEX cites two arbitral awards of the CRCICA that apply the CISG.35 The first dispute concerns a cost and freight (C&F) contract for the sale of grains concluded between an Asian seller and an Egyptian buyer.36 The con32

33 34 35 36

South Cairo First Instance Court, Commercial Circuit 14, 24 December 2002 (unpublished decision, on file with author). Cairo Court of Appeals, Commercial Circuit 50, 24 August 2003. The Case is still re-reviewed before the Court of Appeals. See www.unilex.info. Cairo Regional Center for International Commercial Arbitration (CRCICA), Cairo, Award no. 19/1990, 13 April 1991, published in: Mohie Eldin I. Alam Eldin (ed.) Arbitral Awards for the Cairo Regional Center for International Commercial Arbitration, The Hague 2000, 23-27.

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tract contained a dispute settlement clause that provided for arbitration and that the provisions and terms of international contracts in practice in foreign commercial transactions for the sale of such commodities apply to such disputes. When inspected at the port of destination, the Egyptian Agricultural Quarantine Department found the grains to be infected with insects. The Department thus ordered the grains to be dusted. Consequently, the buyer initiated arbitration proceedings. The Panel relied on the fact that the contract was C&F to rule in favor of the seller. The Panel reasoned that under C&F contracts, the risk passes to the buyer at the time the goods cross the ship’s rail. It added that the buyer had failed to prove that the defect existed at that moment. Surprisingly, the Panel referred to Art. 36 CISG, but based its decision on the application of the Incoterms. It did so without inquiring the applicability of the CISG to the dispute. Why the Panel mentioned Art. 36 CISG and the extent to which it based its decision on its application is ambiguous. The second award concerns a dispute between an Egyptian seller and a US buyer who entered into a contract for the sale of a certain amount of apparatus.37 The contract contained a dispute settlement provision that referred to arbitration disputes concerning contract interpretation and performance that cannot be settled amicably. It also provided that arbitration was to be conducted according to the rules of Cairo Regional Center for International Commercial Arbitration (CRCICA) and that all issues were to be interpreted according to the conditions of the contract, the CISG and Egyptian Law, respectively. The CISG was applicable to the contract by virtue of Art. 1(1)(a) CISG. After delivery of the units, a dispute arose between the parties, concerning the conformity of some of the supplied units and the seller’s non-performance of his duty to extend the bank guarantee for the period to which they agreed. The buyer thus initiated arbitration proceedings seeking damages. A single arbitrator-panel was composed. The arbitrator deviated from the autonomous interpretation rules of Art. 7 CISG. He applied the CISG in parallel with the Egyptian law. He should have applied the Egyptian law only to matters that the Convention fails to resolve either expressly or through the application of its general principles, instead. The arbitrator cited Art. 45 CISG outlining the way in which it operates. He continued that the Convention’s provisions regulating remedies do not differ from those laid by the contract and Egyptian law. To support his point, the arbitrator mentioned the Egyptian rules concerning contractual liability. He even cited a decision rendered by the Egyptian Court of Cassation applying the Egyptian law. The arbitrator thus concluded that the seller

37

Cairo Regional Center for International Commercial Arbitration (CRCICA), Cairo, Award no. 50/1994, 3 October 1995.

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had breached his contractual obligations by not extending the bank guarantee. He thus ruled that that buyer is entitled to recover damages. I have also managed to identify two other unpublished awards regarding the CISG. The first award concerns a dispute between an Egyptian seller and a Moroccan buyer.38 The dispute concerns a contract for the sale of semi-dried dates concluded on 24 July 2002. The contract contained a dispute settlement provision stipulating that disputes are to be settled by arbitration in accordance with the rules of Alexandria Center for International Commercial Arbitration and that arbitration is to be located in Alexandria, Egypt. The seller claimed that the buyer failed to perform his contractual obligations by not paying the full price and not taking delivery of the goods – although the seller notified him to that effect. The seller consequently resold the dates and initiated arbitration proceedings claiming damages for demurrage, storage expenses and commercial premium. The defendant failed to attend any of the arbitral proceedings. The arbitration was therefore held ex parte. The seller claimed that the CISG applies to the dispute and the Panel agreed. The Panel concluded that the CISG applies by virtue of Art. 1(1)(b) CISG. However, the way the Panel applied the Convention was defective. The Panel reasoned that “the provisions of the CISG do not apply to the exclusion of the national Egyptian law but in addition to it. However, since both texts coincide, it is worth mentioning that applying either, i.e., the Vienna Convention or the ECC, would not affect the decision on the principal issues in dispute.” The Panel consequently applied the Egyptian Civil Code (ECC) and the CISG simultaneously. In applying the Civil Code in parallel with the CISG, the Panel failed to observe the autonomous rules of interpretation mentioned earlier. The Panel reasoned that both, the CISG and the Civil Code rules would lead to the same outcome. It is to be noted, however, that the Panel should have applied the Egyptian law only if both, the CISG provisions and the principles on which the Convention is based, fail to resolve the question. Moreover, on the assumption that the national Egyptian law applies to the dispute, the Panel should have applied the Commercial, not the Civil Code. There are therefore two reasons why the application of the Civil Code to the dispute is flawed. First, the CISG precedes the national law. Second, had the Egyptian law been applicable to the dispute, the Commercial, not the Civil Code, should have governed. Finally, the Panel failed to mention the basis upon which it entitled the seller to resell the dates. Nothing in the award clarifies whether the seller exercised his right to avoid the contract as per Art. 49 CISG, or whether the 38

Alexandria Center for International and Commercial Arbitration, case no. 6 for the year 2003.

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seller was performing his duty to preserve the goods as per Art. 85 CISG. If the seller sold the dates in performance of his duty to preserve them, he should have fulfilled the requirement foreseen in Art. 88 CISG to notify the buyer of his intention to do so. Nothing in the facts suggests that the seller made this notice. The award is simply silent as to which article applies to the situation. The second award involves a dispute between an Austrian supplier and an Egyptian buyer who entered into a contract for the supply of electronic scales and their spare parts in January 2004.39 The contract contained a dispute settlement clause that provided for arbitration in Cairo. The contract neither contained a choice of law clause, nor a clause excluding the applicability of the CISG. The buyer took delivery of the goods and found that they did not correspond to the technical specifications of the contract. The buyer thus initiated arbitration proceedings. The Panel failed to apply the CISG to the dispute, although the requirements for its application as set out by Art. 1(1)(a) and 3 CISG were met. First, the places of business of both contracting parties are located in Contracting States. Second, the contract qualifies as a sale contract within the meaning of Art. 3 CISG as the buyer did not undertake to provide the “substantial part of the materials necessary for the manufacture or production.” The Panel subjected the dispute to the Egyptian Civil Code instead. Again, the Panel clearly erred in applying the Civil Code to the dispute. The parties have not opted out of the CISG. In addition, the contract qualifies as a commercial sale contract within the meaning of Art. 88 of the Egyptian Commercial Code. Thus, even on the assumption that the parties opted out of the CISG, the panel should have subjected the dispute to the rules mentioned in the Commercial Code. Applying the Civil Code to the dispute is therefore unjustified. The composition of the panel illustrates the extent to which the legal community in Arab Countries lacks knowledge of the CISG and its rules. The panel before which this case was brought was composed of three Egyptian arbitrators. Two of them are distinguished law professors and the third is an internationally well-known and reputable arbitrator.

II.

Scholarly Writings

In interpreting the CISG scholars in the Arab World are affected by their culture and national legal system. For the purposes of this article this will be confined to clarify how they interpret the CISG in some debated issues. 39

Decision issued 18 September 2006, Ad hoc arbitration held at the premises of the Egyptian National Committee for International Chambers of Commerce (Cairo).

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Good Faith

The role the CISG attributes to the principle of good faith is limited. Commentators disagree as to whether Art. 7(1) CISG concerning the “observance of good faith in international trade” sets out a principle of interpretation or a rule of conduct. Some commentators adopt a narrower view of Art. 7(1) CISG. They understand good faith to refer to a mere instrument at judges’ and arbitrators’ disposal when applying the Convention to disputes. The broader view, however, understands good faith to be one of the general principles upon which the CISG is based. According to this view, the CISG imposes a general duty to act in good faith on contracting parties. Influenced by their national legal system, Egyptian scholars tend to adopt a broad interpretation of Art. 7(1) CISG concerning the “observance of good faith in international trade”. They tend to consider good faith being one of the principles upon which the Convention is based, not only a matter of interpretation. They argue that good faith under the Convention addresses both, judges and contracting parties. Put differently, they argue that good faith is more than a principle of interpretation that judges should observe when interpreting the Convention. They argue that the Convention imposes a duty to act in good faith throughout contract conclusion and performance on parties of sales contracts.40 The Egyptian legal system is a combination of codified Civil Law rules and Islamic Law. Good faith in both the Civil Code and Islamic Law is broader than that in the Convention. Under Egyptian law, good faith is not considered a principle of interpretation of the law. It is rather an obligation that contracting parties have to fulfill as per Art. 148 of the Civil Code. In other words, Art. 148 of the Civil Code sets out a rule of conduct that contracting parties have to perform contracts in good faith. Despite of the fact that Islamic Law does not use the term “good faith”, the concept is even broader in Islamic Law. Good faith in Islamic Law includes a duty to act altruistically. This is natural because Islamic Law does not clearly distinguish between law, morality and religion. It addresses society’s interests, not only those of contracting parties. The way in which this influences the formulation of rules is most obvious when the interest of contracting parties conflicts with those of the society at large. Islamic Law goes beyond the narrower interest of contracting parties. For example, traders should pay due regard to the public interest and thus should not restrict their goals to making profit. They should also take into account the need to make products available to consumers at reasonable prices. As far as contracts are concerned, Islamic Law imposes a general duty to act in good faith in all transactions. It requires parties to act in good faith during negotiations, contract conclusion and performance. For example, a 40

Shafik (op. cit. fn. 5), 30.

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party who negotiates with another only to access that other party’s confidential information violates the duty under Islamic Law to act in good faith. In addition, a creditor bears a duty to give his debtor a period of grace if he was unable to pay his debt.41 The broad scope that good faith has in both Civil Law and Islamic Law induces Egyptian commentators to attach a broad interpretation of Art. 7(1) CISG. It is evident that their national legal system affects their understanding of the Convention.

2.

Barter Contracts

The CISG does not require the consideration in sale contracts to be in money. The question of whether the CISG governs barter contracts is therefore a matter of interpretation. Honnold took the view that the exchange of goods (i.e. barter contracts) remain governed by the Convention and that they only fall beyond the reach of the Convention if the parties so agree.42 The Egyptian commentators, interpreting the CISG against the background of their own legal culture, argue that the CISG does not apply to barter transactions.43 This argument is based on the distinction that the Egyptian Civil and Commercial Codes make between barter and sales contracts. Under Art. 418 of the Civil Code barter contracts are not considered as sales.44 In addition, Art. 88 of the Commercial Code requires the consideration to be monetary in order for the transaction to qualify as a sale contract. It provides that in cases where part of the consideration is nonmonetary, the contract is considered a sale if the value of the non-monetary portion of the consideration does not exceed the monetary portion. With this background, Egyptian commentators understand the CISG to apply only to sales contracts. In other words, they understand barter transactions not to be governed by the CISG.

41

42

43 44

For more examples see: Akaddaf, Application of the United Nations Convention on Contracts for the International Sale of Goods (CISG) to Arab Islamic Countries: Is the CISG Compatible with Islamic Law Principles?, (2001) 13 Pace International Law Review, 1-58. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, 3rd ed., The Hague 1999, 53. Shafik (op. cit. fn. 5), 47. Art. 418 of the Civil Code defines sale as “a contract whereby the seller undertakes to transfer to the buyer the ownership of a thing or any other proprietary right in consideration of a price in money.”

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E. The Influence of the CISG on the Domestic Law of Egypt Although the CISG has experienced limited judicial application in Arab Countries, it has significantly influenced the Egyptian legislature in the enactment of the New Commercial Code, Law no. 17 for the year 1997. The Code entered into force on 1 October 1999, replacing the old Commercial Code that was enacted in 1883. The repealed Commercial Code contained no provisions regulating commercial sales. Therefore, the Civil Law governed all sales contracts disregarding whether or not such sales were commercial. Chapter II of the New Commercial Code regulates obligations and commercial contracts. The Chapter is divided into seven Sections preceded by a set of general principles. The general provisions provide a set of rules that apply to all kinds of commercial obligations.45 The seven Sections regulate seven types of commercial contracts, the second of which deals with commercial sales. The New Code regulates commercial sales in a way that significantly differs from the way the Civil Code regulates non-commercial contracts. However, the Commercial Code is not all inclusive. In other words, the Civil Code applies in the absence of a governing rule in the Commercial Code.46 The enactment of the New Commercial Code therefore created a distinction between two kinds of sales transactions: commercial and noncommercial sales. The former is primarily governed by Commercial Code rules. In other words, Civil Code rules only complement the rules governing commercial sale. Non-commercial sales are, on the other hand, exclusively governed by the Civil Code. The code incorporated many of the CISG concepts and rules as domestic law. The preparatory memorandum explicitly mentions the CISG as one of the international instruments that influenced the legislature in the drafting of the New Commercial Code. Hereinafter some examples will be cited so as to manifest such influence.

I.

Party Autonomy

Art. 2 of the New Commercial Code corresponds with Art. 6 CISG.47 Both give superiority to parties’ agreement. This is the first time that the Egyptian 45 46

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Art. 47-71 Commercial Code. The Code is divided into 5 Chapters. Chapter I sets out the general provisions on which the code is based. Chapter II deals with commercial obligations and contracts; Chapter III regulates banking transactions; Chapter IV provides for the rules governing negotiable instruments; Chapter V, finally, deals with bankruptcy. Art. 2 of the New Commercial Code stipulates that:

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Legislature expressly incorporates party autonomy in the Commercial Code. Thus, contracting parties have extensive latitude to structure their deals in a way that enables them to protect their interests. It is noted that Art. 2 of the Commercial Code is located among the General Provisions of Chapter I of the Code. Party autonomy is thus a principle that equally applies to all transactions regulated by the Code, including commercial sales. According to Art. 2 of the Commercial Code, the provisions of the Code only apply as default rules. They only apply absent parties’ agreement on the issue. Parties can derogate from the provisions of the Commercial Code. They can alter, or exclude some or all of the Code’s provisions. Public policy is the only limitation to party autonomy. If the parties’ agreement violates public policy provisions, their agreement will be set aside.

II.

Open-price Contracts

The introduction of open-price contracts is another manifestation of the impact that the CISG has had on the regulation of commercial sales contracts. As mentioned earlier, prior to the adoption of the Commercial Code, the Civil Code governed all sales contracts. The Civil Code requires – for the sale contract to be validly concluded – that the parties agree on the price either expressly or impliedly.48 It is well settled that the absence of parties’ agreement about the price or about the means for price determination renders the contract invalid.49 The absence of parties’ agreement about the price, either expressly or implicitly, is therefore fatal for the validity of the contract. However, the promulgation of the New Commercial Code, and the introduction of the commercial/non-commercial sales contracts distinction has resulted in a reform. For the first time, the legislature allowed for the conclusion of a commercial sales contract even if the parties do not agree about the price. In this regard, Art. 89 of the Code sets out the rules to which one has to resort when the parties do not agree about the price.

48 49

“1. In issues relating to commercial matters, the terms of the agreement between contracting parties applies. Absent such agreement, the provisions of the present law, or other laws relating to commercial matters, then the rules of trading practices and custom shall apply. If no trading practices or custom exist, the provisions of the Civil Code shall apply. 2. The agreement between contracting parties, or the rules of trading practices or custom shall not be applicable where they contradict with the public order in Egypt.” Art. 418 and 424 Civil Code. Abd al-Razzak Ahmad al Sanhur, al Wasit: part IV: Sales (1986), 448.

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The way in which the New Commercial Code deals with situations in which the parties fail to agree about the price is significantly influenced by Art. 55 CISG.50 Art. 89 of the Commercial Code stipulates that if parties do not agree about the price, either expressly or implicitly, the price to be charged will be that charged in previous deals between them. If no previous deals exist, reference is to be made to the market price.

III. Avoidance for Non-delivery with “Nachfrist” Notice The New Commercial Code has also regulated contract avoidance in a way that resembles the CISG. The default rule in the Civil Code is that contract avoidance requires a court decision.51 The party alleging breach has to bring a claim before the competent court. The court has discretion whether to avoid the contract taking into account the degree of the breach. The Civil Code does not require that the breach must be fundamental for avoiding the contract. Art. 96 of the New Commercial Code gives the buyer in commercial sales contracts the option to avoid the contract without the need to resort to the judiciary. It borrowed the concept of Nachfrist notice from Art. 47(1) and 49(1)(b) CISG. Accordingly, where the seller fails to perform his obligation to deliver the goods, the buyer is entitled to specify an additional period of time and notify the seller to perform his delivery obligation during this period. Otherwise the contract is ipso facto avoided. In all of the cases the buyer retains the right to claim damages.

F. Conclusion In this article it has been argued that the Arab Countries have achieved little success in applying the CISG in a way that achieves the uniformity in its application. This has mainly resulted from the ignorance of the Convention and its interpretation rules. As the article has shown, Arab universities pay 50

51

Disregarding the debate concerning the potential conflict between Art. 14 and 55 CISG in respect of open-price contracts. Art. 157 of the Civil Code provides that “1. If one of the parties does not perform his obligations, the other party may, after serving a formal summons on the debtor, demand the performance of the contract or its rescission, with damages, if due, in either case. 2. The judge may grant an additional time to the debtor, if it is necessary as a result of circumstances. The judge may also reject an application for rescission when the part of the contract which the debtor has failed to perform is of little importance in comparison with the obligations in entirety.”

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very little attention to the teaching of the Convention. Very little has also been written by Arab commentators. Court decisions and arbitral awards applying the Convention are likewise limited. Analysis has also been made of the lonely decision made by the Egyptian Court of Cassation. The Court of Cassation issued its lonely decision in connection with a dispute in which the lower courts failed to apply the CISG despite of the fact that the conditions of applicability were clearly met. To a great extent, the Court drew the attention of lower courts to the fact that they should apply the CISG where the requirements for its application are fulfilled. Comments have also been made on four arbitral awards. The common factor among all such awards is that the arbitrators failed to observe the rules of applying the CISG. Sometimes the arbitrators failed to observe the autonomous rules of interpretation of the Convention and applied it in parallel with the national law. At other times, they ignored the applicability of the Convention to the dispute and applied the national law instead. Oddly enough, they even sometimes referred to the CISG without inquiring into its applicability. I hope that the commentary on the court decision and arbitral awards gives courts and tribunals in Arab Countries better guidelines when applying the CISG. However, when applying the Convention, decision-makers have to confront a major issue. The Arabic version of the Convention has some drastic errors that make it difficult for the Convention to achieve its unification purpose without having such errors cured. Surprisingly, one can find a mutual interaction between the CISG and the Egyptian legal system. On the one hand, the legal culture of Egyptian commentators affects their interpretation of the Convention. They adopt the interpretations most compliant with their legal system. This is manifest in their interventions in the debates concerning the role of good faith in the CISG and its applicability to barter transactions. On the other hand, the New Commercial Code adopts some of the CISG rules, concepts and principles. This is most obvious in the strengthening party autonomy and in the introduction of open-price contracts and “Nachfrist” notice in the Commercial Code.

CISG and Arbitration Loukas Mistelis* Loukas Mistelis

A. Introduction – Baselines and Playground In the last 50 years, decolonisation, improvement of transport and communications, better education and the emergence of consumer credit led to significant growth of world trade. At the very centre of international trade one should place international sales: consumer goods, commodities, manufactured goods exchange hands at a more rapid pace than ever. In addition we have also experienced an increased interest in unification of law and a number of very successful international instruments aiming at harmonising international commercial law1 and international dispute resolution.2 Increased volume of international commercial transactions (a consequence of increased globalisation and further market liberalisation) make disputes an inevitable occurrence in international trade. Different commercial and legal expectations, cultural approaches, political ramifications and geographic situations are all sources for disagreement and dispute between contracting parties. Genuine differences can concern the meaning of contract terms, the legal implications for a contract, and the respective rights and obligations of the parties. Sometimes parties agree to perform a contract where performance is just not possible. Extraneous factors and human frailties, whether through mismanagement or over-expectation, will also interfere with contractual performance. A major area of dispute is the failure to pay money due under a contract: this may be because of an inability to pay

*

1

2

This paper is dedicated to Albert Kritzer on the occasion of his 80th birthday. He has done more than anyone else to promote the CISG and at the same time he has been a great friend and mentor to so many people; I am privileged to be his friend and work with him so closely on so many projects. I would like to thank Ms Romina Donati for the research support provided. See the work of the United Nations Commission on International Trade Law (UNCITRAL) at www.uncitral.org. A prominent example of successful harmonisation is the 1980 UN Convention on Contracts for the International Sale of Goods (CISG). For more details see www.cisg.law.pace.edu. The most prominent text is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) with 143 Member States and the 1985 UNCITRAL Model Law on International Commercial Arbitration.

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or a wish not to pay and therefore one party is seeking an excuse or a justification to refuse to pay all or part of the contract price. Where these disputes arise and they cannot be resolved by direct negotiation, they will need to be resolved in accordance with a legal process. This process should have the confidence of the parties or at least be in a forum that is acceptable to the parties. In these circumstances, the perception is that parties to international commercial contracts frequently look to arbitration as a private, independent and neutral system. There is now empirical evidence to substantiate this and other perceptions associated with international arbitration.3 What is “international arbitration”? A good working definition is: “International arbitration is a specially established mechanism for the final and binding determination of disputes, concerning a contractual or other relationship with an international element, by independent arbitrators, in accordance with procedures, structures and substantive legal or non-legal standards chosen directly or indirectly by the parties.”4 What is clear is that there are four fundamental features of arbitration: • It is an alternative to national court procedure. • It is a private mechanism for dispute resolution. • It is selected and normally controlled by the parties. • It is a final and binding determination of parties’rights and obligations. It seems that arbitration is the preferred method for the resolution of international commercial disputes given its neutrality and flexible approach to procedure. Whether arbitration is user-friendly or not, is a bigger question5 but it seems that it is most likely that international disputes will be resolved by arbitration. It is well established that arbitration is a private or even confidential process, so that it is very difficult to ascertain the actual number of cases heard by arbitration tribunals at any given time. If it is true that less than 5% of arbitration awards get published then one could assume that there are more 15,000 arbitration cases every year. As a matter of fact 22 arbitration institutions report that they had 3,166 cases in 2007 alone; there are some 250 arbitration institutions world-wide. 3

4

5

See www.pwc.com/arbitrationstudy (with links to the 2006 and 2008 empirical surveys); Mistelis, International Arbitration: Corporate Attitudes and Practices, (2004) 15 American Review of International Arbitration, 525-593 (published in June 2006). Lew/Mistelis/Kröll, Comparative International Commercial Arbitration, The Hague 2003, no. 1-1. See www.whataboutclients.com/archives/2008/10/cpr_corporate_a.html and listen to related podcast.

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There is little doubt that international arbitration provides a fertile ground for the discussion, application and interpretation of the CISG. The criticism, however, may be that this fertile ground is more of a playground rather than a baseline. In other words the criticism about arbitration is that there is little consistency (there is no doctrine of precedent in arbitration) and that there is little publicity and awareness as to how tribunals actually apply the CISG. A baseline-approach would introduce a higher level of normativity in the way the CISG is being applied and interpreted in arbitration while a playground-approach would invariably increase flexibility (and possibly applicability of the CISG). Traditionalists would argue that the proper application of law is served best by national courts. In this respect it is worth pointing out that courts and arbitrators perform a similar or even identical task as law-makers and dispute resolvers, the former in the public sector and at national level, the latter in the private sector at a transnational level. There are, however, some clear differences between the two: • National courts are stand-by state organs, are financed by a national budget as well as by the disputants and express state authority. They also have a duty to safeguard national public policy and often (but not necessarily) owe an allegiance to their own (national) law. National court procedures are invariably applied and are considered to be rather inflexible or even rigid. • Arbitration tribunals are typically specifically constituted for each dispute and are entirely funded by the disputing parties. Their authority is derived by the will of the parties to have their dispute resolved by arbitration. The primary focus of arbitrators is to resolve the disputes between parties rather than comply with any particular national public policy; if any public policy is taken account of that would be an international or transnational public policy. Finally, arbitration procedures are quite flexible. It is also worth mentioning that in most case an award cannot be challenged because the arbitration tribunal applied the law wrongly or applied the wrong law. 6 Against this background we will test whether arbitration is a playground or a baseline for the application of CISG. In particular, we will explore how the CISG is applied in arbitration, including a number of useful statistics (infra B.), and whether and how the CISG may apply to an arbitration agreement (infra C.).

6

See e.g., Lew/Mistelis/Kröll (op. cit. fn. 4), Chapters 17 and 25.

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B. How the CISG Is Applied in Arbitration? In respect of this question, how the CISG is applied in arbitration, it is necessary to consider that there are two entry points. First, the CISG defines its scope of application with a number of unilateral conflict of laws rules; these are the rules, according to which the Sales Convention determines when it is applicable, when there is no express choice by the contracting parties. We will briefly examine these provisions and assess when the CISG may be applied. It is interesting, but not necessarily of significance that sometime the Convention refers to arbitration tribunals and courts while sometimes it only refers to courts.7 Second, it is worth noting that arbitration tribunals may be guided by conflict of laws rules in domestic laws (typically private international laws) but most likely would be guided by conflict of laws rules in arbitration rules or arbitration laws. Finally we will also look at some statistics that provide some quantitative reflections as to how arbitration tribunals come to the application of the CISG. Each of these points are discussed in turn.

I.

Scope of Application of CISG

The scope of application of the Convention is addressed in its Chapter I, which is entitled “Sphere of Application”. For the purposes of this paper the most important provision is Art. 1 CISG. It provides in pertinent part: “(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. (2) (…) (3)Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.”8

7

8

For example, Art. 45(3) and 61(3) CISG refer to courts or arbitral tribunals, while Art. 28 CISG only refers to courts. This provision is supplemented by Art. 100(2): “This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.”

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A number of publications9 and all major commentaries10 as well as the UNCITRAL Digest11 discuss in detail the interpretation and application of Art. 1 CISG. In short the Convention will apply: • by effect of party autonomy, direct choice of rules of the Convention by the contracting parties or • when there is a sale of goods and the seller and buyer have their places of business in different Contracting States12 or • when the applicable private international law points to the application of the law of a Contracting State. Petrochilos highlights the interrelation of sub-paragraphs (a) and (b) of Art.

19

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See e.g., Bernasconi, The Personal and Territorial Scope of the Vienna Convention on Contracts for the International Sale of Goods (Article 1), (1999) 46 Netherlands International Law Review, 137-170, also available at http://www. cisg.law.pace.edu/cisg/biblio/bernasconi.html; Bridge, Uniform and Harmonized Sales Law: Choice of Law Issues, in: Fawcett/Harris/Bridge (eds.), International Sale of Goods in the Conflict of Laws, Oxford 2005, 908-988, §§ 16.16-16-41; Ferrari, What Sources of Law for Contracts for the International Sale of Goods? Why One Has to Look Beyond the CISG, (2005) 25 International Review of Law and Economics, 314-341, also available at http://www.cisg.law.pace.edu/cisg/ biblio/ferrari15.html; Petrochilos, Arbitration Conflict of Laws Rules and the 1980 International Sales Convention, (1999) 52 Revue Hellenique de Droit International, 191-218, http://www.cisg.law.pace.edu/cisg/biblio/petrochilos.html; Schlechtriem, Requirements of Application and Sphere of Applicability of the CISG, (2004-05) Victoria University Wellington L. Rev. 781-794, also available at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem9.html; Ziegel, The Scope of the Convention: Reaching Out to Article One and Beyond, (2005-06) 25 Journal of Law and Commerce, 59-73, also available at http://www.cisg.law.pace.edu/ cisg/biblio/ziegel7.html. See e.g., Ferrari, in: Schlechtriem/Schwenzer (eds.), Kommentar zum Einheitlichen UN_Kaufrecht, 5th ed., Munich 2008, Art. 1 no. 1 et seq.; Jayme, in: Bianca/Bonell (eds.), Commentary on the International Sales Law, Milan 1987, 2733; Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed., The Hague 1999, 29-45; Schlechtriem, in: Schlechtriem/ Schwenzer (eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 2nd ed., Oxford 2005, Art. 1 no. 1 et seq. See the dynamic Digest version at http://www.cisg.law.pace.edu/cisg/text/ digest-art-01.html (with updated case references), and the official UNCITRAL version: http://daccessdds.un.org/doc/UNDOC/GEN/V04/547/19/PDF/V0454719. pdf?penElement. For an up-to-date list see www.uncitral.org.

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1(1) CISG.13 It appears that the two entry points for the CISG under Art. 1(1)(a) and (b) CISG are alternative with primacy given to sub-paragraph (a). This proposition is not necessarily consistent with the practice of national courts and arbitration tribunals which tend to consider the two subparagraphs as complementary ones. In any event it is also clear that the two sub-paragraphs serve different purposes. Sub-paragraph (a), on the one hand, introduces an autonomous and unilateral system for the application of the Convention and renders the application of conflict of laws rules obsolete. Sub-paragraph (b), on the other hand, acknowledges the application of conflict of laws rules and also make explicit that the Convention will be part of national domestic law in all Contracting States. In the latter case, if only one party, or indeed if neither party, has its place of business in a Contracting State, the CISG may well be applicable if private international law makes the law of a Contracting State (e.g. France) the applicable law. Schlechtriem aptly comments and advises that: “Although it was thought by those drafting and promulgating a uniform sales law that it would make conflict of laws rules obsolete, this is not the case. Even if the CISG is applicable on account of article 1(1)(a) – which in itself could be regarded as a one-sided conflict rule there are many questions not covered by the Convention which have to be solved under domestic law determined by conflict rules of the forum. And in the case of an article 1(1)(b) situation, conflict rules are indispensable, since they are a prerequisite to the application of the Convention. Therefore, even in the case of a sale clearly governed by the Convention, it is advisable to have a choice of law clause.”14 [footnote omitted]

II.

Determination of Applicable Law in International Arbitration

International arbitration is essentially a private, comparative and international mechanism. No two arbitrations are the same. There are few absolutes. There are no fixed rules or procedures. Any factual variation will invariably result in a significant change in the context and structure of the arbitration. The matrix which affects every arbitration varies depending upon the arbitration agreement, the procedure agreed by the parties, the nationality of the parties, the make-up of the tribunal, the applicable arbitration rules, the substantive applicable law or rules, the subject-matter of the dispute, the mandatory law of the place of arbitration and the permissive law where everything else is silent.

13 14

Petrochilos (op. cit. fn. 9), 191 et seq. Schlechtriem (op. cit. fn. 10), 784.

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Many disputes can be resolved without reference to any law or rules, and arbitrators need consider only the purpose of the contract and whether it has been attained, e.g., questions of quality or conformity of goods, delivery or performance under the contract. The arbitration tribunal must determine what the parties intended and give effect to their intention.15 However, where there are issues which depend on an applicable legal or non-legal standard, the arbitration tribunal should determine what that law or standard is and apply it to determine the dispute. The determination of the applicable substantive law is a critical issue in international arbitration. Nothing is more important in any international arbitration than knowing the legal or other standards to apply to measure the rights and obligations of the parties. There is a complex relationship between the parties’ choice of arbitration as the mechanism for resolving their disputes, the overriding authority of party autonomy in the arbitration process and the methods of determining the applicable law that arbitrators must apply. As international arbitration has an independent and transnational character varying from case to case, so too the applicable laws and the choice of law methodologies also differ in every case. The existence of the arbitration in every instance is the result of the exercise of party autonomy. The choice of law process should reflect that same party autonomy. There are various options available to an arbitration tribunal as to the law or rules to apply: national, non-national, or even international; legal, non-legal, or contractual. There is a certain criticism that arbitration tribunals may have too wide a discretion in deciding what law or rules of law to apply.16 The first question for the arbitrators is how to determine this selection. In practical terms the arbitration tribunal will have to ascertain what the parties have chosen. As party autonomy is universally accepted as a connecting factor in private international law, a choice of law by the parties will avoid argument as to the law to apply to the issue in dispute, thus making any determination of the applicable law by the arbitrators unnecessary. However surprising, the applicable law is often not decided by the parties in advance and is left to be determined by the arbitrators.17 This does not in any way reduce the importance of party autonomy.

15 16

17

Lew, Applicable Law in International Arbitration, New York 1978, no. 439. In some legal systems, such as England and Wales, but also under the EC Regulation 593/2008 on the Law Applicable to Contractual Obligations, Art. 3 and 4, parties are expected to choose a law (legal system) and failing that courts are invited to apply a legal system, rather than rules of law. According to the statistics of the ICC approximately 20% of arbitrations do not have an express choice of law in the contract. In 1998 82.1% of cases, in 1999 82%, in 2000 77% and in 2001 78% included an express choice of law.

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Party Autonomy

All modern arbitration laws recognise party autonomy, i.e. parties are free to determine the substantive law or rules applicable to the merits of the dispute to be resolved by arbitration.18 Party autonomy provides contracting parties with a mechanism of avoiding the application of an unfavourable or inappropriate law to an international dispute. This choice is and should be binding on the arbitration tribunal. This is also confirmed in most arbitration rules.19 In the context of international commercial arbitration, the right of parties to determine the law applicable to the merits of their dispute is undisputed.20 This principle has also been adopted in many international conventions relating to contracts or arbitration.21 The intention of the parties as to the applicable law or rules may be express or implied. The former will normally be in the written contract or either in written or oral submissions before the arbitrators. Implied choice will be found in words or acts which manifest the intention and expectation of the parties that a particular law governs their relations. The parties’ choice, express or implied, must be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. Arbitrators have found there to be an implied choice of the applicable law where the parties argue their case on the basis of the same law, even 18

19

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21

See Model Law Art. 28(1); Belgium, Judicial Code Art. 1700; Brazil, Arbitration Law Art. 2; England, Arbitration Act section 46(1); France, NCPC Art. 1496; Germany, ZPO section 1051(1); India, Arbitration Ordinance 1996, section 28(1)(b); Netherlands, CCP Art. 1054(2); Russian Federation, International Arbitration Law 1993 Art. 28; Switzerland, PIL Art. 187(1). See UNCITRAL Rules Art. 33; AAA ICDR Art. 28(1); ICC Art. 17(1); LCIA Art. 22(3); DIS section 23(1); CCI of the Russian Federation, section 13(1); NAI, Art. 46; Stockholm Institute Art. 24(1); Vienna Art. 16(1); WIPO Art. 59(1); Zurich Art. 4. See Lew (op. cit. fn. 15), no. 441; Born, International Commercial Arbitration, The Hague 2001, 543. See similarly Berger, International Economic Arbitration, The Hague 1993, 480-481 and 556; Derains/Schwartz, ICC Rules, The Hague 2005, 238 et seq.; Gaillard/Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration, The Hague 1999, no. 1434; Redfern/Hunter with Blackaby and Partasides, Law and Practice of International Commercial Arbitration, London 2004, no. 2-34 et seq. See e.g., Art. 1, 6 CISG; Art. 2 Hague Convention on the Law Applicable to International Sale of Goods (1955); Art. 3 Uniform Law on the International Sale of Goods (1964); Art. 2 EC (Rome) Convention on the Law Applicable to Contractual Obligations (1980). See also, indirectly, in Art. V(1)(a) New York Convention; categorically in Art. VII European Convention; Art. 42 Washington Convention.

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though they have not expressly agreed on its application.22 The choice of applicable law made by the parties is generally understood to be a choice of substantive law. They may also choose more amorphous bodies of law, such as general principles of law, transnational law or international commercial law.23 The extent to which parties are free to choose any law or rules has always been an issue. Courts are constrained by their national conflict of laws rules. International tribunals have no national conflict of laws rules. The question is whether a tribunal must always apply the law chosen by the parties or is it constrained by limitations either in the law of the place of arbitration or by some other controlling factor? However, there are situations where it may be appropriate for the tribunal to select and apply a law different to that chosen by the parties. This is where there is relevant mandatory law and where there are clear implications of international public policy.24 In the context of international sales mandatory rules of international public policy may relate to certain goods, such as cultural property, certain animal products or drugs, weapons etc.

2.

Choice of Law by the Tribunal – Arbitrator’s Autonomy

When parties have made no choice of law in respect of the merits of the dispute and occasionally even if they have made a choice, international arbitrators are faced with conflict of laws problems and the need to determine the law or the rules according to which the dispute can be decided. Arbitration tribunals “view choice-of-law issues from a pragmatic and result-oriented standpoint militating in favour of analysing their choice-of-law determinations from a functional perspective.”25 A tribunal is assisted in determining the applicable law. Arbitrators determine the applicable law indirectly using conflict of laws rules (voie indirecte) or directly, applying the law they consider appropriate (voie directe).

22

23 24 25

See e.g., ICC case no. 1434, Multinational group A v State B, 103 Clunet 978 (1976). See also Award in ICSID case no. ARB/87/3, Asian Agricultural Products Ltd (AAPL) v Democratic Socialist Republic of Sri Lanka, XVII YBCA 106 (1992). See Lew/Mistelis/Kröll (op. cit. fn. 4), no. 17-18 et seq. and Chapter 18. Lew/Mistelis/Kröll (op. cit. fn. 4), no. 17-27 et seq. Grigera Naón, Choice-of-law Problems in International Commercial Arbitration, (2001) 289 Recueil des Cours de l'Academie de Droit Internationale (RCADI) 9, 28 et seq.

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Indirect Determination of Substantive Law via Conflict of Laws Rules

Arbitration laws or rules which contain special conflict of laws rules for the indirect determination of applicable law assist the tribunal in determining this substantive law. Most of them generally opt for the determination via conflict of laws rules which the tribunal considers appropriate.26 A characteristic example of a provision opting for indirect determination of applicable law by arbitration tribunal is Art. 28 of the UNCITRAL Model Law on International Commercial Arbitration: “Art. 28. Rules applicable to substance of dispute (1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules. (2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. (3) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so. (4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.” International arbitration practice may guide tribunals in deciding which conflict of laws are appropriate. In fact arbitration tribunals have applied different conflict of laws systems including: • conflict rules of the place of arbitration; • conflict rules most closely connected with the subject matter of the proceedings; • conflict rules the tribunal considers appropriate; • converging conflict of laws rules; • general principles of conflict of laws.27

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See e.g., Model Law Art. 28; England, Arbitration Act section 46; European Convention Art. VII; UNCITRAL Rules Art. 33; Vienna Rules Art. 16. Other conflict of laws systems which have been suggested (but without any support in practice) are those of the country from where the sole arbitrator or chairman of the tribunal comes, the state which would have had jurisdiction in the absence of an arbitration agreement, and the country where the award is to be enforced.

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Direct Determination of Substantive Law

Direct determination allows a tribunal to select the applicable substantive law or rules relevant for the particular case without reference to any conflict of laws rules. This method is confirmed in a number of modern arbitration laws and recently adopted arbitration rules.28 A classic example of direct determination of substantive law by the arbitration tribunal can be found in Art. 17 of the ICC Arbitration Rules: “Art. 17. Applicable Rules of Law (1) The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate. (2) In all cases the Arbitral Tribunal shall take account of the provisions of the contract and the relevant trade usages. (3) The Arbitral Tribunal shall assume the powers of an amiable compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers.” There are two expressions of direct determination of substantive law. Voie directe may be unlimited, allowing the tribunal to apply any appropriate rules or standards, or may be limited to national laws, contractual agreements and trade usages. •

Unlimited voie directe: Modern national laws, which have adopted the direct application approach, include France and the Netherlands29 and certain countries which have adapted their application of the Model Law.30 The more recent international arbitration rules expressly allow arbitrators to apply the rules of law or other standards the tribunal considers appropriate. “Appropriate” has a broad meaning and can be applied in a wider sense. Accordingly, a national system may be appropriate because it is highly developed and sophisticated and suitable for the contract or dispute in question, although it is not closely connected to the dispute. A national system of law or a set of legal or non-legal rules which are di-

28

See e.g., AAA ICDR Art. 28(1); ICC Rules Art. 17(1); LCIA Art. 22(3); NAI Rules Art. 46; SCC Rules Art. 24(1); WIPO Rules Art. 59(1). See Netherlands, CCP Art. 1054(2) which provides that the tribunal shall make its award in accordance with the rules of law which it considers appropriate. See e.g., Canada, Ontario International Commercial Arbitration Act 1990 Art. 6 (which expressly deviates from Art. 28(2) Model Law); British Columbia International Commercial Arbitration Act 1986 Art. 28(3); India, Arbitration Ordinance 1996 section 28(1)(b)(iii); Kenya, Arbitration Act 1995 Art. 29(3).

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rectly or closely connected with the transaction and the dispute will normally also be appropriate to be applied to determine the substance of the dispute. Ultimately this autonomous arbitration conflict of laws rule facilitates a wider acceptance and application of international legal and non-legal standards which are relevant to the resolution of disputes in international arbitration. The principle of direct application of national law is in effect akin to the doctrine of the proper law. Limited voie directe: There are several of national laws which provide a direct choice of law rule for application by the tribunal.31

Three-Step Method32

The determination of the applicable law in international commercial arbitration is a choice of law process and operates in a three-step method. Whilst the issues are frequently complicated and depend on the facts and circumstances of each case, so that only a casuistic approach is adequate the questions that require an answer in each step are as follows: • Is there a choice of law by the parties? In the affirmative, does it cover the entire dispute before the tribunal? Is there any contradiction with mandatory rules or public policy? In any event, is it possible to solve the dispute by relying exclusively on the contract? • In the absence of choice of law by the parties, is it possible to determine the applicable law or non-legal standard without reference to conflict of laws? Is that an appropriate law or non-legal standard for this particular dispute? • If it is necessary to employ conflict of laws rules, which conflict of laws rules should we apply? Is there a conflict of laws system most closely connected with the dispute? Is it possible to apply cumulatively all relevant conflict of laws systems? Is it possible to apply generally accepted conflict of laws rules?

III. Statistics A review of published awards reveals a fascinating picture about how the CISG has been applied by arbitration tribunals. The survey was completed in July 2008 and looked at all published awards in the major collections, i.e. 31

32

See e.g., Italy, CCP Art. 834 (1994); Mexico, Commercial Code Art. 1445 (1993); Switzerland, PIL Art. 187. It is noteworthy that Germany, ZPO section 1051(2) and Egypt Law no. 27 1994 both amended the Model Law to follow this formula. Lew/Mistelis/Kröll (op. cit. fn. 4), no. 17-78.

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the Pace database,33 Unilex34 and ICC collections of abstracted awards,35 as well as CLOUT.36 First, a few comments about the numbers of published awards. The most comprehensive database on the CISG, the Pace CISG Database, features in November 2008 2,000 court decisions and arbitration awards on the CISG. Out of the 2,000 decisions, 512 are arbitral awards, hence accounting for 26% of the total. Published CISG Court Decisions and Awards

Arbitration 26

Courts 74

It is, however, notable that the Pace database does not list arbitration as a separate jurisdiction and that most arbitration institutions are organised under the jurisdiction in which they have their administrative headquarters. Although arbitration awards account for 26% of the published decisions, the real number of awards on the CISG must be significantly higher. If it is true that significantly less than 5% of arbitration awards get published then one could assume that there are between 4,250 and 5,000 awards on the CISG. For example, there have been at least five unpublished awards on CISG in the LCIA.37 This makes arbitration the main forum for the resolution of disputes arising out of international sales contracts under the CISG. 33 34 35 36

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www.cisg.law.pace.edu. www.unilex.info. Most notably the ICC International Court of Arbitration Bulletin vol. 11(2) 2000. http://www.uncitral.org/uncitral/en/case_law.html – Case Law on UNCITRAL Texts. LCIA stands for London Court of International Arbitration. LCIA has a strong confidentiality policy and awards are never published.

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Arguably, more than 70% of cases relating to CISG will have been (or actually are) rendered in arbitration. Speculation aside, it is useful to look closer how the CISG has been applied in the 512 published arbitration awards. Speculations - Published and Unpublished Court Decisions and Arbitration Awards

Court Cases 29%

Arbitration Awards 71%

How the CISG Applies in Arbitration? no discussion how the CISG applies 8% CISG applies as general principles of law 2%

CISG choice of parties 11% CISG applies by effect of conflict of laws 22%

CISG applies as choice tribunal 57%

Out of the 512 published awards between 1988 and 2007: • in 57 awards or 11% of the cases, the CISG was choice of parties; • in 115 awards or 22% of the cases, the CISG applied by effect of conflict of laws; • in 289 awards or 57% of the cases, the CISG applied as choice by tribunal;

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in 12 awards or 2% of the cases, the CISG applied as general principles of law; and in 39 awards or 8% of the case, there is no discussion why the CISG is applied.

The endorsement of CISG by arbitration tribunals is not only encouraging, but is also essential for the wide use and well being of the Convention. However, the path to the CISG is not always without problems. For example, a CIETAC award instead of referring to Art. 1(1)(a) CISG, applied the CISG by operation of Art. 142 of the Civil Code of the PRC. The tribunal held: “The Contract has no stipulation on the applicable law. The [Buyer]’s place of business is in China and the Respondents’ are in Singapore, and both China and Singapore are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter referred to as, the “CISG”). Therefore, based on Article 142 of the Civil Code of the PRC, the CISG shall apply and has priority. As to the issues beyond the scope of the CISG, the Arbitration Tribunal deems that China has the closest relationship with the dispute in this case. Therefore, based on Article 145 of the Civil Code of the PRC, the proximate connection principle, Chinese law shall be applied to those issues.”38 A Moscow tribunal is far more precise in its holding as to applicable law: “The Contract concluded by the parties does not contain provisions on the law which is to be applicable thereto. Since Russia and Germany are parties to the Vienna Convention of 1980 (CISG), it shall be applicable to the relations of the parties to the Contract by virtue of the provisions of art. 1(1)(a) of the CISG. As to the subsidiary law applicable to the relations of the parties, in relation to the issues directly not regulated by the Vienna Convention of 1980: The Tribunal refers to art. 28(1) of the Law of the Russian Federation “On International Commercial Arbitration”, para. 13(1) of the Rules of the Tribunal according to which the dispute shall be settled on the grounds of the applicable substantive law determined by the agreement of the parties and, in the absence of such agreement, in accordance with the law determined by the arbitral tribunal based on the applicable conflict of laws norms. In that case, the Tribunal takes into consideration that, pursuant to the provision of art. 1210, paras. 1-3 of the Civil Code of the Russian Federation, the parties to the 38

China 21 May 2006 CIETAC Arbitration proceeding (Diesel generator case) [translation available], available at http://cisgw3.law.pace.edu/cases/060521c1. html.

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contract may choose the law which shall be applicable to their rights and obligations under the contract during the conclusion of the contract or later; the agreement of the parties on choice of the applicable law shall be express or shall clearly follow from the contract provisions or from the totality of the circumstances of the case; the choice of the law carried out after conclusion of the contract shall have retroactive force and shall be regarded as valid without prejudice to third parties’ rights starting from the conclusion of the contract. In its action claim, the [Buyer] following the conflict of laws norm of art. 1211(3) of the Civil Code of the Russian Federation, referring to the law of the [Seller]’s country, contends that the Contract should be governed by the German law. In its statement of defense, the [Seller] also states that, by virtue of art. 1211 of the Civil Code of the Russian Federation, the German law shall apply to the present dispute as the law of the country with which the contract is the most closely linked. In its counterclaim, the [Seller] as well refers to the provisions of the German law. The same standpoint was endorsed by the parties at the hearings before the Tribunal. Based on the aforesaid, the Tribunal holds that the parties to the Contract after its conclusion have reached the agreement as to the applicability of German law to the Contract and this agreement shall be valid starting from the conclusion of the Contract. The Tribunal holds that the Vienna Convention of 1980 shall apply to the adjudication of the present dispute and issues not regulated by the Convention shall be governed by the provisions of German substantive law.”39 It is also worth noting a couple of the cases that apply the CISG, as general principles of law. The first is an ICC award: “Nothing in the contract suggested that the parties had intended to exclude the right to the payment of interest for delayed payment. Such an exclusion would have been difficult to reconcile with the usages of international trade which are echoed by, among others, the United Nations Convention on Contracts for the International Sale of Goods (CISG) and also the UNIDROIT Principles of International Commercial Contracts, (…).”40 Interesting is also a CIETAC award in a dispute between a Thai seller and a UK buyer (neither Thailand nor UK are Contracting States), in which the tribunal finds: “[E]ven though the parties’ places of business are located in non-Contracting States of CISG, they made reference to CISG in the statement of claim and 39

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Russia 13 February 2006 Arbitration proceeding 102/2005 (Equipment case), English translation available at http://cisgw3.law.pace.edu/cases/060213r1.html. ICC Arbitration Case No. 9333 of October 1998 (Services case), English translation available at http://cisgw3.law.pace.edu/cases/989333i1.html.

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the statement of defense too. Considering the foregoing facts, the Arbitration holds that on the condition that Chinese law is applied to the instant case, the relevant provisions of the CISG may be referred to.”41 The survey of 512 awards shows that arbitration may be a playground for the application of the CISG and that the pathway to CISG is not always clearly discussed by arbitration tribunals. It is a possible feature though that tribunals acknowledge the importance of the CISG and they are prepared to award it trade usage status.

C. CISG and Arbitration Agreements42 An arbitration agreement is the expression of the intent of the parties to withdraw their disputes from a national court system and to submit them to arbitration. The arbitration agreement will deliver the intended results if it is enforceable. Only if it was validly entered into and covers the dispute in question will courts deny jurisdiction. In this final, shorter, part of this paper we explore whether the CISG can be applicable law to arbitration agreements. In this respect we address two issues: first, the concepts of validity and effectiveness of arbitration agreements and second, the law applicable to arbitration agreements.

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China 29 March 1996 CIETAC Arbitration proceeding (Natural rubber case), translation available at http://cisgw3.law.pace.edu/cases/960329c2.html. See e.g., Koch, The CISG as the Law Applicable to Arbitration Agreements?, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, London 2008, 267-286; Mazzotta, The Written Form Requirement of an Arbitration Agreement in Light of New Means of Communications, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, London 2008, 326-347; Walker, Agreeing to Disagree: Can we Just Have Words? CISG Article 11 and the Model Law Writing Requirement, (200506) 25 Journal of Law and Commerce, 153; Waincymer, The CISG and International Commercial Arbitration: Promoting a Complimentary Relationship between Substance and Procedure, in: Andersen/Schroeter (eds.), Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, London 2008, 582-599.

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Validity and Effectiveness of Arbitration Agreements

It is well established that an arbitration agreement is valid when it meets all the formal and substantive legal requirements of validity set by the applicable laws and rules. The validity of an arbitration agreement is largely, and almost exclusively, governed by applicable national arbitration laws and international conventions. Such requirements of validity will address the form of the agreement (writing, or evidenced in writing), requirement for signature etc. A distinction is often made between the existence of an arbitration agreement (formal validity)43 and the legal effect of an arbitration agreement (substantive validity).44 An arbitration agreement is effective when: • it produces mandatory consequences for the parties; • it excludes jurisdiction / intervention of national courts; • it puts in place an efficient, fair and rapid procedure for the resolution of disputes. Invariably a tribunal will have to consider the following questions dealing with validity and effectiveness: • Is there an arbitration agreement? • Does it cover the dispute in question?45 • Does it have any defects that render it unenforceable (i.e. the agreement is null and void, inoperative or incapable of being performed)?46 • Have the parties chosen ad hoc or institutional arbitration? • Have the parties chosen rules to govern the arbitration? What laws or rules of law govern the procedure? If the parties have not chosen any law, do the applicable arbitration rules have a method for the determination of law applicable to the procedure? The strict test of validity and effectiveness is justified by the fact that the arbitration agreement takes the dispute outside the remit of national courts; it is an agreement with procedural and jurisdictional effects. In this regard it is useful to recite, how the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards deals with arbitration agreements: 43

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On this issue, see e.g., Lew/Mistelis/Kröll (op. cit. fn. 4), no. 6-38 et seq., 7-5 et seq. with further references. On this issue, see e.g., Lew/Mistelis/Kröll (op. cit. fn. 4), no. 6-52 et seq., 7-34 et seq. with further references. On this issue, see e.g., Lew/Mistelis/Kröll (op. cit. fn. 4), no. 7-59 et seq. with further references. On this issue, see e.g., Lew/Mistelis/Kröll (op. cit. fn. 4), no. 7-71 et seq. with further references.

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“Art. II of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1) Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. (2) The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. (3) The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” Art. II of the New York Convention which is applicable in 143 countries addresses the definition of a valid arbitration agreement (II(1)), the question of form requirements (writing in II(2)) as well as the effect of validity (II(3)).

II.

Arbitration Agreements and Applicable Law

The law applicable to the various aspects of the arbitration agreement has received considerable attention both in academic discussion and in practice. Despite a certain harmonisation achieved through the adoption of the Model Law in various countries the question of the law applicable to the arbitration agreement has not lost its importance. As long as national laws differ as to the formal and substantive requirements for the validity of the arbitration agreement it may be a question of the applicable law whether or not a dispute can and must be referred to arbitration. How the law applicable to the various aspects of the arbitration agreement is to be determined is far from clear. Nine different approaches have been identified in arbitration practice as to how to determine the applicable law. Those differences result from a number of facts: • There are various, often closely related factors which might affect the existence and validity of the arbitration agreement, all of which may be submitted to different laws. • The issue of the existence of a valid arbitration agreement may arise in different fora and at different stages of the proceedings. • Furthermore, the scope and applicability of some of the potentially relevant provisions, in particular those of the New York Convention, are not

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clear. This can aggravate the complex interplay between the international conventions and the national laws. In every arbitration agreement, be it a submission or an arbitration clause we have to examine: • formal validity: this is typically a matter for arbitration law; • prima facie existence: again a matter for arbitration law, possibly also contract law; • form requirements: this is typically a matter for arbitration law.47 This is an area where several scholars suggest that the CISG and in particular its Art. 11 may be relevant;48 • substantive validity: this is a matter of contract law, but arbitration law will also be relevant; • existence of consent and ability to generate legal consequences: this is a matter for contract law, possibly also for CISG. The relevance, or not, of the CISG as law applicable to the arbitration agreement49 is a question that has to be answered in light of the separability of arbitration agreements. According to this doctrine, an arbitration agreement, contained in a sales contract, is separate (severable) from the rest of the contract.50 One of the immediate consequences is that the law chosen to govern the contract will not automatically extend to the arbitration clause.51 In other words, both the doctrine of separability, but also Art. 1-3 CISG make the application of the Convention on arbitration agreements, not only unlikely, but also impossible. The only window of possibility is offered by the provisions of the CISG relating to formation of contracts: if the CISG applies to the formation of the sales contract, it could also apply to the formation of the arbitration agreement contained in the contract (provided the contracting parties have not made any stipulations in respect of law applicable to arbitration agreement).52 In summary it could be stated: • Formation – the CISG can possibly apply. • Formal validity – the CISG can never apply. • Substantive validity – the CISG can apply sometimes, but it is not very likely. 47 48 49 50 51

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See Mazzotta (op. cit. fn. 42). See references in fn. 42, specifically Koch. See references in fn. 42, specifically Koch. On this issue, see e.g. Lew/Mistelis/Kröll (op. cit. fn. 4), no. 6-38 et seq., 7-5 et seq. See Kröll, Selected Problems Concerning the CISG’s Scope of Application, (2005-06) 25 Journal of Law and Commerce, 39. See to this effect also Schlechtriem, in: Schlechtriem/Schwenzer (eds.) (op. cit. fn. 10), Art. 11 no. 7.

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Effectiveness – it is unlikely (and rather inappropriate) that the CISG applies. Interpretation – it is possible but unlikely that CISG applies.

D. Conclusions – Outlook There is little doubt that international arbitration provides a fertile ground for the application of the CISG. It is a reasonable prediction that the number of CISG cases in arbitration will continue to increase and gradually more and more of these awards will be published: not only the ICC but also CIETAC, Singapore International Arbitration Centre (SIAC) and arbitration centres in Russia and elsewhere have committed to making such awards available. More and more awards will not explain why the CISG is applied. However, as the numbers of Contracting States increases, the likelihood is that the CISG will apply by operation of Art. 1(1)(a) CISG or by operation of the voie directe (direct application) in conflict of laws rules in arbitration laws and rules. In the interim, some awards will produce the impression that arbitration provides a playground for the application of the CISG rather than predictable and certain baseline. Overall, the CISG produces more user-friendly results in arbitration and will continue to do so. There is also a peculiar methodological synergy between the CISG and arbitration, in that both the CISG and arbitration put party autonomy at their core. The CISG cannot be used to relax form requirement of arbitration agreements. The CISG may, however, be applied to the issue of formation of an arbitration agreement. For all other legal questions relating to arbitration agreements, the doctrine of separability makes the application of the CISG virtually impossible.