Bruno Zeller
- INTRODUCTION
One of the very important achievements of UNCITRAL was the creation of the CISG. It fits well into – what might be called Globalisation – which is not only an economic process but also a legal one. We have also seen a gradual change in domestic laws adjusting to the needs of a global economy. However total harmonisation of contract laws has not eventuated and is still a dream. The main problem is that the dream to achieve a global contract law is dependent on political issue. It requires consensus by sovereign legal systems which is arguably never possible. It was not possible when the CISG was drafted and is not possible now as the failure of Swiss Proposal as well as the efforts of the EU demonstrated.
Harmonisation is not a product but rather a process which depends on planning by relevant organisations such as UNCITRAL and importantly the delineation between conventions and soft laws. The importance of understanding what is politically possible as well as understanding what instrument covers the need of the user is essential. There is no debate that in recent years an unprecedented number of international organisations were involved in attempting to harmonise areas of law such as contract law. The most successful convention is the CISG and in the area of soft law the UNIDROIT Principles of contract law stands out.
As far as conventions are concerned the success of the CISG can be measured by the fact that so far 83 countries have adopted the convention and currently there are ongoing discussions within ASEAN countries to adopt the CISG. These discussions have been successful as Viet Nam has adopted the CISG and will become the 84th convention country on 1 January 2017 when the CISG enters into force. In effect Viet Nam is the second ASEAN Member State after Singapore to become a party to the CISG, and the fourteenth State in the Asia Pacific Region.
Based on these adoption statistics, it is estimated that 80% of the world’s trade in goods is potentially governed by the CISG.[1] Furthermore the gradual removal of reservations by contracting states has contributed to an internal harmonisation of the CISG. In essence the CISG has reduced barriers to trade. This has been noted in the forty-eight session where the discussion “has stressed its importance both as a treaty providing default rules for contracts for international sale of goods and promoting party autonomy in cross-border transactions.”[2] A further fact pointing to its success is – as noted by the working group[3] – that the CISG has been used as a model for law reform. This is specially so in relation to article 7 which has found its way into many model laws and conventions.
The only blemish one could argue is firstly that the CISG is still too many times excluded and secondly the United Kingdom has not found it necessary to adopt the CISG. An argument often used in not ratifying the CISG is that it would impose a greater burden on those giving legal advice and increase transaction costs. Arguably this argument is a rear-guard action by those who have not yet understood that it does the opposite namely reduces transaction costs specifically if the other contractual party also is part of the CISG regime.
This paper will touch briefly on the issue of expanding the CISG to a contract law and also where regional development fits into the harmonisation of contract law and specifically how reginal soft laws coexist with the CISG. This paper argues that these issues can be put to bed as they offer no improvement on the current form of the CISG. In essence they are distractions as the attempts by the EU have shown.
The second issue is whether the CISG is able to be ratified by the UK despite the reasons given that it would not be suitable to specifically resolve commodity trade issues. In essence the argument of this paper is that the CISG – should it be adopted – would operate as part of English law, rather than as an alternative to it.
The third issue will address the reason why currently the CISG must leave issues like transfer of property and validity of contract to domestic law or at best devise a model law which is acceptable by most jurisdictions. Many jurisdictions have adopted each other’s law reforms and have in essence created a harmonised law on a specific topic matter. This is not impossible as the development of the Himalaya clauses in shipping contracts has shown. The development started in England and is now the current state of law in most common law and civil law jurisdictions.
It will be argued that the strength of the CISG is that a new generation of legal professionals is emerging which is very aware of the advantages of the CISG and will promote its usefulness. it will hopefully reduce automatic exclusions of the CISG in the drafting of contracts.
At the outset some important points need to be understood in relation to either ratify the CISG or include the CISG as the choice of law into a contractual term. First the CISG does not suit every sales transaction. If a party wishes to be able to terminate the contract for any deviation which is a strict interpretation of the contract is desired, the CISG should not be the preferred choice of law. English law as an example is better suited for this purpose specifically in commodity trades. That said it does not mean that the CISG is not capable of governing commodity trade. On the contrary several well-argued cases are to be found on the Pace CISG Website.[4]
on the other end of the spectrum if performance is the culmination of discussions the CISG is a very useful instrument and should be the choice of law. The reason simply is that the CISG pursuant to article 8 allows not only for objective interpretation but also for a subjective one. In other words not only customary practices pursuant to article 9 but also pre-contractual, contractual and post-contractual conducts are taken into consideration when interpreting a contractual relationship. Common law as an example bases its interpretation on the objective approach and only recently – as an example in Australia – had the post contractual conduct be included in the interpretive regime.
- EXPANDING THE CISG AND FOSTER REGIONAL HARMONISA TION OF CONTRA CT LA W
Two issues are at “play” here; first to expand the CISG and secondly to foster regional harmonisation. It is without doubt that UNCITRAL’S philosophy of promoting the balanced development of international trade on the basis of equality, mutual benefit and co-operation is echoed in the Preamble of the CISG.[5]
2.1 Expand the CISG
As to the first point the expansion of the CISG has been unsuccessfully proposed through the Swiss initiative at the 45th meeting at UNCITRAL. The reaction was very mixed to say the least. The chair ultimately ruled that there was a prevailing view in support of further exploratory work.
However, at a conference held at Villanova University in 2013 Keith Loken and others clearly rejected such a notion. Loken even noted that a “number of delegations” – including that of the United States – expressed strong reservations about undertaking such a project.[6] He furthermore noted that “several delegations expressly objected to the ruling of the Chair as not accurately reflecting the opinions voiced during the debate and – unusually – those objections were recorded in the official Report of the Commission.”[7] This reflected an unusual discord amongst member states.
The Swiss Proposal does have a valid point considering that Rosett already in 1984 suggested that any international convention harmonising international trade law can easily become a static monument that is soon out of step with new developments.[8] Furthermore the CISG is not the perfect product either. As Professor Kronke noted:[9]
most of us would agree by and large that there are “open,” deliberate gaps and –
defying, much to the wonderment on the part of some professional commentators,
logic – “hidden” gaps, in Professor Loewe’s metaphoric language absent Yetis and virtual Loch Ness monsters, lack of clarity or disclosed or undisclosed compromises, as they are regularly generated in complex intergovernmental negotiations.
These observations are indeed true but equally correct are Eiselen’s observations:[10]
The CisG has one major advantage over most other instruments of international harmonisation: the functioning of the principle of party autonomy. it is one of the underlying principles of the CisG, as of most national laws, that in matters of contract the parties are autonomous in realising the relationships between them and that there is relatively little mandatory law that cannot be changed, modified or excluded by the parties themselves. This allows parties to bypass or exclude the CisG where its provisions are inapposite to their situation and to structure their own solutions, that is if the parties are even aware that the CISG may be applicable.
simply put the question again can be posed namely why change a flexible instrument when it is not needed? Just because the CISG is incomplete is not a negative argument because the gaps can be filled by either drafting the contract to overcome the gaps or simply relying on the underlying law in the relevant seat or jurisdiction.
One fact is obvious that if any changes are made to the CISG two instruments would in effect be in operation. The question is – and it has not been tested – how many current CISG states would abandon the “old” version for the new one? The closest one can answer this question is by simply looking at maritime law where several versions are currently operational namely the Hague Rules, the Amended Hague Rules, the Hamburg Rules and now the Rotterdam Rules. It is very unlikely that eventually only one rule would be in use as every new rule appears to have declining accession rates. In addition it is worthwhile to remember that the UNCITRAL Electronic Commerce Convention of 2005 was intended to amend the CISG “but quickly morphed into a free-standing instrument because of the fear of reopening the CISG.”[11] It is argued that the same concerns are still valid today. Arguably proponents of changing or amending the CISG need to remember the very reasons the CISG was drafted and had such a great success namely:[12]
The main advantages of the harmonisation of international sales law remain unchanged: legal certainty, the lowering of transaction costs, the suitability of the CISG for international trade, the balancing of the interests of the parties, as well as the policy reasons… . In short, the case for adopting the CISG in [any country in an unchanged form] remains strong.
In addition and furthermore besides the CISG, UNIDROIT covered contract law – as opposed to only sales law – in the non-binding UNIDROIT Principles. It is of value to remember what Herbert Kronke already noted in 2005 namely:[13]
What we see looking at the two instruments – the CISG as the mother of all modern conventions on the law of specific contracts and the UPICC as the (inevitably) soft- law source of modern general contract law – are neither competitors nor apples and pears. What we see is actually, and even more, potentially, a fruitful coexistence … [T]he UNIDROIT Contract Principles are, obviously, complementary in that they address a wide range of topics of general contract law which neither the CISG nor any other existing or future convention devoted to a specific type of transaction would ever venture to touch upon.
As already noted above it is obvious that the astute drafter of a contract has the ability – due to the principle of party autonomy – to fill the gaps in the CISG either through the UNIDROIT Principles or at least as a default position leave it to the otherwise applicable domestic law. Karrer already in 2004 noted that:[14]
To a unified sales law such as the CISG one can try and add a “general part” of contract law. This is what happened in Art. 1 of the UCC, and now also with the UNIDROIT Principles which may be seen as a general part of the CISG.
This argument is still valid today.
In sum two points are of interest. First; topics which are not governed in the CISG or any other convention are not included for a very good reason. To reach consensus is difficult and requires patience and a lot of time which is better spent on other more pressing issues such as cross border insolvency. Secondly the most important point is that the two instruments such as the CISG and the UNIDROIT Principles are complementary. It would indeed be a waste of time and scarce resources for UNCITRAL to reinvent contract law and attempt to draft a new convention as indicated by the Swiss proposal. The efforts in the EU in drafting a common European Contract law should be a lesson to be learned. Several major attempts have been made starting with The Principles of European Contract law (PECL), the Common Frame of Reference (CFR) and now the Common European Sales Law (CESL). Much work has gone into the drafting of the three EU instruments and what can be said is that UPICC overshadows PECL and the CFR and no doubt CESL. It can be confidently stated that all three instruments will collect dust on a shelf and that the creation of a unified EU contract law remains a distant dream.
However there is another option to increase the coverage of the CISG. It does require the drafting of a new convention on the lines of the Cape Town Convention which in essence introduced a new aspect to convention namely law reform in a discreet area. The Convention has core elements and attached to it are Protocols such as the aircraft Protocol and the space Protocol. It allows country in essence to choose which of the specific Protocols is of interest.
[1] Ingeborg Schwenzer and Christopher Kee “International Sales Law – The Actual Practice” (2011) 29 Penn State International Law Review 425 at 428.
[2] Forty-eight session Vienna, 29 June-10 July 2015 A/CN.9/849.
[3] Forty-eight session Vienna, 29 June-10 July 2015 A/CN.9/849.
[4] As an example see Germany 8 February 2006 Appellate Court Karlsruhe (Hungarian wheat case) <http://cisgw3.law.pace.edu/cases/060208g1.html> United States 19 July 2007 Federal Court of Appeals [3d Circuit] (Valero Marketing & Supply Company v Greeni Trading Oy) <http://cisgw3.law.pace.edu/cases/070719u2.html>.
[5] Juana Coetzee and Mustaqeem de Gama “Harmonisation of Sales Law: An International and Regional Perspective” (2006) 10 Vindobona Journal of International Commercial Law and Arbitration 15 at 20.
[6] See K Loken “A new Global Initiative on Contract Law in UNCITRAL: Right Project, Right Forum?” (2013) 58 Villanova Law Review 509.
[7] Ibid at 509, fn 2.
[8] See Arthur Rosett “Critical Reflections on the United Nations Convention on Contracts for The International Sale of Goods” (1984) 45 Ohio State Law Journal 265 at Section IV <www. cisg. law. pace. edu/ cisg/biblio/bib2. html>.
[9] See Herbert Kronke “The UN Sales Convention, the UNIDROIT Contract Principles and the Way Beyond” (2005-06) 25 Journal of Law and Commerce 451 at 453.
[10] See Sieg Eiselen “Adopting the Vienna Sales Convention: Reflections Eight Years down the Line” (2007) 19 SA Mercantile Law Journal 14 at 17.
[11] See Henry Gabriel “UOTDROIT Principles as a Source for Global Sales Law” (2013) 58 Villanova Law Review 665.
[12] See Eiselen, above n 10, at 25.
[13] See Kronke, above n 9, at 458-59.
[14] See Pierre Karrer “Internationalization of Civil Procedure – Beyond the IBA Rules of Evidence” (2004) 9(4) Uniform Law Review 893 at 895.