India has not ratified the CISG like China, Singapore, Australia and several other nations. Even though diverse nations have ratified the convention, quite a few trading giants, such as Brazil, South Africa and United Kingdom have also not ratified it. Numerous authors have appraised this; some expressing appreciation and some hesitation. [65] For example, on one hand the Singapore Law Reform Committee’s Report on CISG recommends its ratification, [66] scholars like Professor GH Trietel [67] and Arthur Rossett [68] express reservations about its ratification.
India’s adoption of the convention would mean that CISG and not the well-known provisions of the Indian Sale of Goods Act 1930 would apply and govern the rights and liabilities of Indian buyers and sellers in international trade. [69] The Indian act of 1930 is based on the English Sale of Goods Act of 1893. [70] The trading community of India and its legal minds, complemented by the well-developed case laws, can predict with great precision the most probable outcome of a court action in the trading of goods internationally. For India, ratifying the convention is recommended only if the advantages of doing so overshadow the disadvantages.
The convention is one of the most successful instruments in private international law. [71] The level of adoption by a large number of countries clearly shows that there is a high chance of it becoming a norm in international trade in the near future, hence emphasising the need for India to become a party to it. Further, due to the wave of liberalization, globalization and privatization, which started in 1991, India has witnessed a vigorous growth in its international trade statistics. [72]
WHY INDIA IS HESITATING FROM CISG?
The major reason as to why India is hesitating from signing the CISG is because it believes that the convention is not a complete code or a comprehensive treaty. It does not relate to the issues related to the validity of a contract like fraud, illegality, misrepresentation related to the contract. [73] Hence, it has been correctly remarked by Barry Nicholas that the convention would not achieve one of the main goals of uniform sales laws.
Another reason which is pulling India back from signing the convention is the amigious language used in it. India being a common law county, its lawyers is used to detailed and descriptive laws with clear meaning. [74] However, CISG uses wide and inexact language which leads to legal uncertainty. Thus, the Indian trader and their legal advisors have found errors in CISG worrying because of the vague language of the convention.
Moreover, taking into account a further state of affairs as to why India has not adopted the convention. For example “A” a contracting nation makes a contract with a buyer in India. It is a circumstance where any particular decision with respect to the delivery of goods is not taken. The liability of the foreign seller distinguishes as soon as the goods are delivered to the first carrier. In a situation where the delivery of goods between the buyer and the seller is by any middle supply, India will lose the right to move to an Indian court of law for an interim relief. A range of unknown circumstances are created by ‘The closest point’ test applied by the convention. In cases of disputes in the above mentioned instance the jurisdiction lies on the courts of the place of the first carrier.
WHY INDIA SHOULD RATIFY IT?
On reviewing our trade relations, we find that most of our major trade partners have ratified the CISG. For this reason having a familiar sales law with the host nation will certainly help in promotion of international trade between India and other countries.
It has to be kept in mind that the Indian law dealing with international sales of goods i.e. The Sale of Goods Act, 1930 was written by the British and was heavily based on the English Sales of Goods Act, 1893, which in turn is very old and is outdated now. [75] However, after the introduction of modern means of transport, communication and techniques, which have drastically changed the modes of entering into a contract, the 1930 Act is not suitable for the contemporary and modern commercial contracts. Here the importance of the convention is highlighted due to its universal nature and availability in several languages which makes it more comprehendible and accessible to international trading parties across the world.
Another reason why India should ratify the convention is due to its gap-filling nature in case where trans-border contract is made by phone or even by fax or telex only in a few words, which is not covered by the 1930 Act. [76] Most of the times contracts are incomplete or are not in the condition to cover each and every type of contingencies that may arise in the future. AS a result, gaps are created in t in the contract. CISG confers significant benefits on parties like resolving the issue of choice of law clause. CISG’s primary aim is to prevent the obstruction of the party’s freedom and ability to enter into contract and thus fill in the gaps left by the drafters of the contract for international sales. [77]
Adoption of CISG will not affect the anti CISG lobby as it guarantees large contractual freedom. Under article 6 the convention enables the parties to derogate or vary from any of its provisions or exclude the application of the Convention.
Moreover, CISG will provide a boost to the Indian economy. Law and economy go hand in hand. The legal system of any nation is the important factor which facilitates its economic growth. Although it will be not be completely true to claim that a strong legal system will guarantee a robust economy, but it will be difficult to find a robust economy without a very strong legal system. CISG will strengthen the legal system and assist the Government’s move to boost economic expansion internationally by facilitating Indian traders and Indian businessmen with sales law in harmony with the laws of the countries in which they are trading.
Another reason why India should ratify the CISG is that it overcomes the problem of choice of law. The sales transactions that the cross international boundaries are subject to many legal uncertainty and doubts as to which of the legal system will apply and the difficulty in coping up with an unfamiliar foreign law. Complexity in international sale of goods arises mainly due to the choice of law clause in a contract. Every nation has its own national law, rules, regulations and trade customs which are best suited to the sales environment within the nation. But since there are two or more different nations involved in contracts related to cross-border sales of goods it leads to the problem of legal diversity. No two nations can have the exact same national sales law. It is not certain as to which set of legal rules will apply to a transaction, and more than one set can also apply, depending on how rules of the private international law allocate jurisdiction. Contracts of international sales are made complicated by a diversity of factors raised by unique facts of a case, including place of performance, place where contract is made, parties’ domicile, nationality, or place of business and location of subject-matter. [78]
Additionally, there is diversity of informal norms also that are applicable to the international sales transaction. Thus, the parties have to bargain over the legal system, and this will in turn lead to choosing of a legal system which is not familiar to one of the parties. Hence, one party will be in a stronger position than the other, thereby obviously leading the weaker party to bear higher costs. What the convention attempts to do is to remove or reduce the uncertainty involved with the choice of law clause given in a contract. It tries to make a legal system with which trader in different jurisdictions will be familiar and will accept without additional negotiation. The fact that the convention provides an option that is neutral, for both the parties, in cases when neither entity is willing to give away reliance on their own domestic law, is an excellence of CISG and Indian traders will be hugely benefitted by it.
Moreover, if India adopts CISG, considerable amount of money and time which could have been used in finding, translating and interpreting a foreign law and decisions will not be wasted. [79] When an Indian trade who is a party to the contract accepts the domestic laws of the other party, it is difficult for the courts in India to interpret and analyze such foreign laws. Additionally, foreign laws are sometimes written in languages which are not understood properly. For example, it would be difficult for the Indian courts to interpret Spanish laws when such agreement had been reached by both parties.
Consider another circumstance in which a French trader enters into a sales contract with an Indian trader under the possibility of having the 1930 Sale of Goods Act as the choice of law and the convention as the other. In case of the former it will be very difficult for the French trader to understand the intricacies of the Indian law in the case of a dispute, whereas it will be comfortable for him to understand the provisions in French. Thus, the convention will not only benefit Indian traders on entering into contracts with foreign parties; foreign parties involved in the case of a dispute which has to be settled in Indian courts will also benefit.
Furthermore, the choice of law clauses is not placed in a contract with a view to promote efficiency. It is placed because every party to a contract is looking to maximise his/her individual profit in the said contract. Generally, the dominant party in the bargain is able to exercise his will over the other party and thus, attain substantial benefits resulting in significant loss of money and time for the weaker party. For example if an Indian buyer who enters into a contract with an American seller for the sale of certain machinery which is only available in United States. In such a situation, the seller, on realising that he is clearly in a dominant position, can persuade for making the American law as the proper law of the contract. Hence, in case of a dispute arising out of this contract, the Indian trader will be clearly at a disadvantage. Additionally, seller in this case can also choose to refer the dispute to an inefficient court or arbitration tribunal, which would be bound by its own rules [80] to decide upon the dispute regardless of the inconvenience which will be caused to the Indian trader in terms of wastage of time and money. Thus, adoption of CISG by India will greatly benefit the Indian trading community
How CISG is applicable despite its lack of ratification
Even though India has not adopted the convention there are certain situations in which the convention can be applicable in sales contracts of Indian traders with global businessmen. These situations are “express incorporation” and “implied inclusion”.
The courts in India can decide to apply the convention as the contracting choice of parties, in cases where one of the foreign parties expressly incorporates this into the contract. This is also permissible under the Indian choice of law rules, which in turn direct application of the contract law of another country which is a party to the convention. [81] Moreover, the choice of law clause incorporated into a contract can lead to applicability of the convention when a foreign party is itself a contracting state and its law is the law by the parties as the applicable law, or it can apply as part of the domestic law of a third country selected under the foreign court’s choice of law rules.
An example of the first situation can be when an Indian buyer contracts with a Chinese seller (China is a CISG contracting state) and decides to apply the Chinese choice of law rules. In this case the Indian traders should be aware that CISG will apply directly since China is a contracting state and therefore CISG applies automatically. The second situation can be explained by an example of Indian businessmen wanting to sell goods to a major English trading company. Neither he nor his English trade partner wants to subject the contract to the other’s domestic law. So they agree on the neutral law of France as an applicable law. [82] Similar to the first situation, CISG will be applicable according to Article 1(a).
It must also be noted that instead of specifically incorporating the convention provisions in the contract, there can also be an implied application of CISG as it is provided in CISG itself. Article 1(1)(b) read with Article 6, states that where the normal conflicts rules point to the application of the law of a contracting state, then the convention will be applicable unless it has been specifically excluded by both parties. [83] Thus, if an Indian buyer concludes a contract with an Australian seller, and the proper law of the contract is Australian, then the convention will be applicable. As a result, Indian traders are already aware of the convention in their negotiations and standard contracts.
Increased use of arbitration and the new lex mercatoria
Since beginning of this century, businessmen have avoided the regular courts and have referred their disputes to arbitral tribunals. [84] Demand for the predictability and the legal certainty in the international commerce has been the driving force for emergence of the arbitration tribunals as chief institution for prevention and the settlement of commercial disputes. [85] Among other reasons, the never ending need to save money and time which is exhausted in litigation has made arbitration the best forum for settlement of commercial international disputes. In India, the use of arbitration to settle the international disputes is on a rise due to the Arbitration and Conciliation Act 1996, which has efficiently consolidated and amended laws relating to domestic and international commercial arbitration.
A unified law of international sales is seen as a method of providing these tribunals with a set of “universally accepted” rules that would be more difficult to ignore than the confusing national legal systems. [86] Courts or arbitral tribunals would simply be applying their own law, the unified law of sale. Parties would therefore only have to acquaint themselves with one additional law of sale and not amultitude of laws of sale and thereby saving on legal costs and simplifying international trade. [87]
Even after a deliberation on how the CISG might be applicable in the contracts of Indian businessmen despite its ratification by India (as discussed above), there is one more area which can make CISG the applicable law. Where the parties have not agreed and cannot agree on the applicable law, an arbitral tribunal may decide to make use of CISG provisions even though the Convention, by its terms, would not be applicable to the transaction. The Convention may be applicable by arbitral tribunals which by virtue of art.17(1) and (2) of the ICC Rules of Arbitration 1998 (ICC Rules) [88] hold that there is no better source for determining the appropriate law than the CISG and applies the Convention as the expression of general principles and customary rules of international trade (a new lex mercatoria ). [89]
Developing an indigenous legal capacity
It is a known fact that there can be situations where national law is not appropriate for international commercial transactions. The national law of a state is designed to serve the needs of its society and thus cannot be applied in international transactions. [90] It is also true sometimes that the national law gradually keeps on becoming obsolete so as not to cater to needs of the society also.
The Indian sales law was enacted in 1930 and since then no significant amendment has been brought in so as to tune it with the ever changing nature of international sales contract in modern times. Now more than 80 years have passed and the nature of international sales transactions has changed drastically. Model laws, international conventions and restatements provide “off the rack” rules for the developing nations to adapt their own laws and to develop the indigenous legal capacity, which will ultimately have spill over effects to other parts of the legal regime. [91] After its adoption, the convention was taken as a role model by individual countries, or groups of countries, for the purposes of reforming their national sales laws. [92] A case in point is China whose domestic sales law is modelled on the CISG. Further examples are Germany, France and Russia. [93] This clearly shows that the adoption of the convention by India will put pressure on the legislatures to revamp certain characteristics of domestic sales law. [94] Not only will it help align domestic sales law according to the modern standards, it will also provide the impetus for the amendment of other commercial laws like Negotiable Instruments Act 1881, Carriers Act 1865